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U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly period ended June 30,2000
Commission File No. 0-20975
Tengasco, Inc.
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(Exact name of small business issuer as specified in its charter)
Tennessee 87-0267438
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State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization
603 Main Avenue, Suite 500, Knoxville, TN 37902
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(Address of principal executive offices)
(865 523-1124)
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(Issuer's telephone number, including area code)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No
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State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: 8,613,352 common shares at June 30,
2000.
Transitional Small Business Disclosure Format (check one): Yes No X
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TENGASCO, INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
* Consolidated Balance Sheets as of June 30, 2000 and
December 31, 1999................................................ 3-4
* Consolidated Statements of Loss for the three and six
months ended June 30, 2000 and 1999.............................. 5
* Consolidated Statements of Stockholders Equity for the
six months ended June 30, 2000................................... 6
* Consolidated Statements of Cash Flows for the six months
ended June 30, 2000 and 1999..................................... 7
* Notes to Consolidated Financial Statements....................... 8-9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS......................................... 10-12
PART II. OTHER INFORMATION
* Signature........................................................ 13
</TABLE>
2
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TENGASCO, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
June 30, 2000 December 31, 1999
(Unaudited) (Audited)
------------------ -----------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 568,300 $ 420,590
Accounts receivable, net 610,507 533,983
Other current assets 259,753 259,753
------------------ -----------------
Total current assets 1,438,560 1,214,326
Oil and gas properties, net (on the basis of full cost
accounting) 9,242,796 8,444,036
Pipeline facilities, at cost 4,853,423 4,212,842
Property and equipment, net 575,719 574,895
Restricted cash 0 625,000
Other 96,613 111,613
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$ 16,207,111 $ 15,182,712
================== =================
</TABLE>
See accompanying notes to consolidated financial statements
3
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TENGASCO, INC.
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
June 30, 2000 December 31, 1999
(Unaudited) (Audited)
-------------------- -------------------
<S> <C> <C>
Current liabilities
Notes payable $ 0 $ 750,000
Current maturities of long-term debt 1,346,809 1,025,085
Accounts payable-trade 680,834 651,909
Accrued liabilities 119,376 193,595
-------------------- -------------------
Total current liabilities 2,147,019 2,620,589
Long term debt, less current maturities 2,774,887 3,119,293
-------------------- -------------------
Total liabilities 4,921,906 5,739,882
-------------------- -------------------
Preferred Stock
Convertible redeemable preferred; redemption value
$2,938,900 and $1,988,900; 29,389 and 19,889 shares
outstanding
Stockholder's equity 2,938,900 1,988,900
-------------------- -------------------
Common stock, $.001 per value, 50,000,000 shares
authorized 8,785 8,533
Additional paid-in capital 22,186,507 20,732,759
Accumulated deficit (13,848,987) (13,287,362)
-------------------- -------------------
8,346,305 7,453,930
-------------------- -------------------
Total stockholders' equity 8,346,305 7,453,930
-------------------- -------------------
$ 16,207,111 $ 15,182,712
==================== ===================
</TABLE>
See accompanying notes to consolidated financial statements
4
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TENGASCO, INC.
CONSOLIDATED STATEMENTS OF LOSS
(Unaudited)
<TABLE>
<CAPTION>
For The Three Months Ended For The Six Months Ended
June 30 June 30
------------------------------ ----------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Oil and gas revenues $ 1,270,283 $ 724,888 $ 2,450,195 $ 1,020,536
------------ ------------ ------------ ------------
Costs and other deductions
Productions Costs and Taxes 799,736 642,888 1,255,561 879,989
Depletion, depreciation and amortization 63,000 27,100 126,000 154,200
Interest expense 105,225 257,245 204,158 301,454
General and administrative costs 549,192 467,242 1,115,022 1,214,292
Legal and Accounting 132,364 194,193 199,141 377,644
------------ ------------ ------------ ------------
Total costs and other deductions 1,649,517 1,588,668 2,899,882 2,927,579
------------ ------------ ------------ ------------
Net loss $ (379,234) $ (863,780) $ (449,687) $ (1,907,043)
------------ ------------ ------------ ------------
Basic and diluted loss per common share $ (0.04) $ (0.10) $ (0.05) $ (0.24)
============ ============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements
5
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TENGASCO, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
(Unaudited)
<TABLE>
<CAPTION>
Common Stock Additional
------------------------------ Paid In Accumulated
Shares Amount Capital Deficit
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Balance December 31, 1999 8,532,882 $ 8,533 $ 20,732,759 $(13,287,362)
Common stock issued in 215,747 215 1,231,785 0
private placements
Common stock issued 27,769 28 171,972 0
on conversion of debt
Conversion of preferred 8,818 9 49,991 0
to common stock
Payment of dividends on
convertible preferred stock 0 0 0 (111,938)
Net loss for the six months
ended June 30, 2000 0 0 0 (449,687)
------------ ------------ ------------ ------------
Balance, June 30, 2000 8,785,216 $ 8,785 $ 22,186,507 $(13,848,987)
============ ============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements
6
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TENGASCO, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30 2000 1999
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<S> <C> <C>
Operating activities
Net loss $ (449,687) $ (1,907,043)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depletion, depreciation and amortization 126,000 154,200
Changes in assets and liabilities
Accounts receivable (76,524) (372,168)
Other current assets 15,000 0
Accounts payable 28,925 414,154
Accrued liabilities (74,219) (129,272)
---------------- ----------------
Net cash used in operating activities (430,505) (1,840,129)
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Investing activities
Purchases of property and equipment (824) (178,941)
Additions to oil and gas properties (798,760) (606,844)
Additions to pipeline facilities (640,581) (41,695)
Decrease in Restricted cash 625,000 0
---------------- ----------------
Net cash used in investing activities (815,165) (827,480)
---------------- ----------------
Financing activities
Proceeds from borrowings 795,595 215,595
Repayments of borrowings (1,694,277) (294,983)
Dividends on convertible redeemable preferred stock (111,938) 0
Proceeds from private placements of common stock 1,454,000 1,537,736
Proceeds from private placement of preferred stock 950,000 688,900
---------------- ----------------
Net cash provided by financing activities 1,393,380 2,147,248
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Net change in cash and cash
equivalents 147,710 (520,361)
Cash and cash equivalents, beginning of period 420,590 913,194
---------------- ----------------
Cash and cash equivalents, end of period $ 568,300 $ 392,833
================ ================
</TABLE>
See accompanying notes to consolidated financial statements
7
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Tengasco, Inc.
Notes to Consolidated Financial Statements
1. The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-QSB and
Item 310 (b) of Regulation S-B. Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of
management, all adjustments (consisting of only normal recurring accruals)
considered necessary for a fair presentation have been included. Operating
results for the six months ended June 30, 2000 are not necessarily
indicative of the results that may be expected for the year ended December
31, 2000. For further information, refer to the Company's consolidated
financial statements and footnotes thereto for the year ended December 31,
1999, included in Form 10-KSB.
2. The Company has issued fully paid 25% working interests in six wells in
the Swan Creek Field to Shigemi Morita, one of the Directors of the
Company, which were paid for in part by crediting Mr. Morita $360,000 for
placement fees in connection with private placements of the Company's
common stock which occurred during the fourth quarter of 1998 and the
first quarter of 1999. Mr. Morita was given an option that if it was
determined that a well (s) at the time of completion of the drilling was
not economically feasible and as such was subsequently plugged and
abandoned, he had 30 days, after written notice from the Company, to
convert amounts paid for that well (s) to restricted shares of the
Company's common stock at 70% of its then current market value. However,
all six of the wells in which Mr. Morita has a participation interest are
producing, therefore his options for these wells were not exercisable.
In December, 1999, Morita Properties, Inc., an affiliate of Mr. Morita,
purchased for the sum of $625,000 a 25% working interest on a turnkey
basis in two wells, Laura Jean Lawson #1 and Stephen Lawson #2, both of
which are in the Swan Creek Field, and a 50% working interest in a third
well, Springdale Land Company #1, which is a wildcat step-out well located
approximately ten miles from the existing production. In January and March
2000, Morita Properties, Inc. purchased for the sum of $250,000 on a
turnkey basis a 12.5% working interest in the Stephen Lawson #3 well, a
25% working interest in the Laura Jean Lawson #2 well, and in April 2000,
Morita Properties, Inc. purchased for the sum of $125,000 a 25% working
interest in the R.D. Helton #2 well, all of which are in the Swan Creek
Field. The purchases of these interests were concluded before the
respective wells were drilled and the purchaser assumed all the attendant
risks involved in normal and customary drilling operations, including the
risk of a dry hole. The Company received fair market value for the
interests conveyed and the sale of such interests was required to raise
funds to allow drilling operations to continue.
8
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3. On December 18, 1997, the Company entered into an asset purchase agreement
in which certain producing oil and gas properties and inventory located in
the state of Kansas ("the Kansas Properties") were acquired from AFG
Energy, Inc. ("AFG"). The agreement, which was effective as of December
31, 1997, closed on March 5, 1998, whereby the Company paid $2,990,253 in
cash and entered into a note payable agreement with AFG in the amount of
$2,500,000. The note accrued interest at the rate of 9.5% per annum for
the period December 1998 to May 1999. After May 1999, the interest rate
became 9.0% per annum. There was a balloon payment of $1,865,078 due in
January 2000. The seller financing portion of the purchase price has been
refinanced by Arvest United Bank of Edmund, Oklahoma as evidenced by a
note dated November 23, 1999 in the amount of $1,883,650 to be paid in
monthly installments of principle and interest over a three year period.
The acquisition has been accounted for as a purchase and, accordingly, the
purchase price of $5,490,253 has been allocated to the assets acquired
based on the estimated fair values at the date of acquisition.
4. In accordance with SFAS No. 128, "Earnings Per Share", basic and diluted
loss per share are based on 8,849,152 weighted average shares outstanding
for the quarter ended June 30, 2000 and 7,846,179 weighted average shares
outstanding for the quarter ended June 30, 1999. There were 475,827 and
475,827 potential weighted common shares outstanding at June 30, 2000 and
June 30, 1999, respectively, related to common stock options and warrants.
These shares were not included in the computation of the diluted loss per
share amount because the Company was in a net loss position and, thus, any
potential common shares were anti-dilutive.
5. Financial Accounting Standards Board Statement of Financial Accounting
Standards No. 133, "Accounting for Derivatives and Hedging Activities", as
amended, establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts (collectively referred to as derivatives), and for hedging
activities. Presently, the Company does not enter into derivative
contracts either to hedge existing risks or for speculative purposes.
Accordingly, the Company does not expect adoption of this new standard on
January 1, 2001, to affect its financial statements.
9
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Tengasco, Inc.
Management's Discussion and Analysis
Of Financial Condition and Results of Operations
The Company is in the business of exploring for, producing and transporting oil
and natural gas in Tennessee and Kansas and marketing gas for others in
Tennessee. The Company has 208 producing oil and gas wells in Kansas and has 16
producing natural gas and four oil wells in Tennessee.
The Company intends to continue its drilling program on the Swan Creek leases.
The existence of substantial deposits of hydrocarbons (oil and/or gas) in the
Swan Creek structure (i.e. the rock formation beneath the surface) is confirmed
by the following facts:
(1) The Swan Creek structure is located in an area known as the Eastern
Overthrust Belt which is an area with numerous faults. A fault is an area where
geologic plates overlap. The Eastern Overthrust Belt is geologically similar to
the Western Overthrust Belt located in the Rocky Mountains, where there are
other oil and gas producing properties.
(2) The Company has successfully completed sixteen gas wells in this area, all
of which have been flow tested by metering gas from the wells through a one-half
inch orifice. These tests all verify the presence of a substantial reservoir of
natural gas and/or oil. One of these wells, the Reed #1 tested at 4,800,000
cubic feet of gas per day with a pressure of 800 psi. Another well, the Sutton
#1 tested at 1,200,000 cubic feet per day with a pressure of 150 psi. The four
oil wells in the Swan Creek Field produce a total of 110 barrels per day. To
date, the Company has not drilled any dry wells.
In July 1998, the Company completed Phase I of its 8 inch 23 mile pipeline from
the Swan Creek Field to Rogersville, Tennessee. With the assistance of the
Tennessee Valley Authority, the Company was successful in utililizing TVA's
rights-of-way along its main power grid from the Swan Creek Field to
Rogersville, Tennessee.
The Company's plan of operations for the next two years calls for the drilling
of 50 additional wells on the Swan Creek Field at a cost of approximately
$250,000 per well. Drilling operations are contingent upon funds becoming
available either as a result of gas sales upon completion of the second phase of
the Company's pipeline ("Phase II") or from other sources. The Company is
currently engineering and designing Phase II of its pipeline, an additional 28
miles of 12 inch pipeline, at a cost of approximately $6,000,000 which will
extend from a point near the terminus of the Company's existing pipeline and
connect to an existing pipeline and meter station at the chemical plant of
Eastman Chemical Company ("Eastman") in Kingsport, Tennessee. The Company has
entered into an agreement with Eastman to supply substantial amounts of natural
gas to Eastman.
10
<PAGE>
The Tennessee Department of Transportation has granted the Company the right to
lay Phase II of its pipeline along State Highway 11 to Kingsport, Tennessee. At
the present time, the company is capable of producing substantially more gas
than it is able to sell. Completion of Phase II of the pipeline will allow the
Company to deliver its gas to Eastman and sell substantially more of its natural
gas production from the Swan Creek Field. The Company estimates that its
ultimate deliverability will reach 80 to 100 Mmcf per day or 2.5 to 3.1 Bcf per
month once Phase II of its pipeline is completed. The Company expects to reach
this capacity on or about December 31, 2002. The estimated time from start to
finish of construction of Phase II of the Pipeline is six to eight months. To
date, approximately 7 1/2 miles of the Phase II pipeline on Holston Arsenal have
been completed and tested. The Company anticipates that its agreement with
Eastman will require Eastman to purchase 10,000 MMBTU of gas per day, to take
effect upon completion of Phase II of its pipeline.
The Company does not presently have the funds needed to enable it to complete
its drilling program and Phase II of the pipeline. The Company anticipates that
it will be able to procure financing to fund the remaining construction of the
Phase II pipeline in the near future. However, no assurance can be given that it
will be successful.
In connection with its acquisition of all of AFG's assets, the Company acquired
208 working wells in Kansas. Pursuant to the acquisition agreement the Company
was entitled to all income from those wells as of January 1, 1998. The aggregate
consideration for the acquisition was acquisition was approximately $5.5
million. The aggregate current production from the Kansas properties is
approximately 1.0 million cubic feet of natural gas and 400 barrels of oil per
day. Income from the Kansas properties at the present time is approximately
$300,000 per month. Revenues from the Kansas Properties for the second quarter
of 2000 continued to increase due to the significant increase in oil prices
during the quarter.
There are several capital projects that are available in Kansas which include
drilling wells, recompletion of wells and major workovers to increase current
production. These projects when completed may well increase production in
Kansas. However, the cost of major reworking of certain existing wells is
projected to be $1.4 million. Since the Company does not presently, have the
funds necessary for major reworking of existing wells and/or for drilling
additional wells, the ability to undertake such efforts is dependent on the
Company obtaining additional debt or equity financing. Management has made the
decision not to undertake such efforts to raise the funds necessary to perform
this work at the present time.
The Company has determined not to pursue the development of the Beech Creek,
Fentress County, Wildcat, Burning Springs and Alabama Leases, all of which have
expired. The Company instead will concentrate on the development of its other
properties which management believes have greater economic potential and the
acquisition of other properties.
The Company has no plans, at present, to increase the number of its employees
significantly.
This plan of operation is based upon many variables and estimates, all of which
may change or prove to be other than or different from information relied upon.
11
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Results of Operations
The Company recognized $1,270,283 in revenues from the Kansas oil and gas field
and Swan Creek during the second quarter of 2000 compared to $724,888 in the
second quarter of 1999. This increased revenue resulted from the significant
increase in oil prices during the second quarter of 2000. Oil prices in the
second quarter of 1999 were approximately $9.00 per barrel whereas prices in
2000 were approximately $26.50 per barrel. Also oil production from Swan Creek
increased from 4,996 barrels in the second quarter of 1999 to 9,892 in 2000.
Production costs and taxes for the first six months of 2000 of $1,255,561, was
higher compared to $879,989 in the second quarter of 1999. This was due to some
well work overs in Kansas in order to increase production. Depreciation,
Depletion and Amortization expense for the first six months of 2000 was
$126,000, compared to $154,200 for the first six months of 1999, this difference
was due to a change in estimate.
Interest Expense for the first six months of 2000 was $204,158, as compared to
$301,454 in 1999. This difference is due to interest paid on the settlement of
the litigations with Wallington Investments, Ltd. and Thieme Fonds in 1999.
General and Administrative Expenses for the first six months of 2000 decreased,
$99,270 from the first six months of 1999 amount of $1,214,292. This decrease
was due to cost saving measures by management.
Legal and accounting fees decreased $178,503 for the first six months of 2000.
The majority of this decrease was in legal services as several legal matters
were settled in 1999.
Year 2000 Risks
The Company achieved Year 2000 compliance for all internal systems and did not
suffer any adverse effects with respect thereto. The Company does not anticipate
any such problems in the future. The Company's Year 2000 compliance costs were
insignificant and, accordingly, did not have a material effect on its operating
results or financial position.
12
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned hereto duly authorized.
Dated: August 11, 2000 TENGASCO, INC.
By: s/Robert M. Carter
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Robert M. Carter, President
By: s/Mark A. Ruth
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Mark A. Ruth, Chief Financial Officer
13
