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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 March 31, 2000
Commission File No. 0-20975
Tengasco, Inc.
(Exact name of small business issuer as specified in its charter)
Tennessee 87-0267438
------------------------------- -------------------------------
State or other jurisdiction of IRS Employer Identification No.)
incorporation or organization
603 Main Avenue, Suite 500, Knoxville, TN 37902
(Address of principal executive offices)
(423) 523-1124
(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
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 March 31,
2000.
Transitional Small Business Disclosure Format (check one): Yes No X
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TENGASCO, INC.
TABLE OF CONTENTS
PAGE
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
* Consolidated Balance Sheets as of March 31, 2000 and
December 31, 1999............................................ 3-4
* Consolidated Statements of Loss for the three
months ended March 31, 2000 and 1999......................... 5
* Consolidated Statements of Stockholders Equity for the
three months ended March 31, 2000........................... 6
* Consolidated Statements of Cash Flows for the three months
ended March 31, 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.......................................... 10-13
PART II. OTHER INFORMATION
* Signature.............................................. 14
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TENGASCO, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
March 31, 2000 December 31, 1999
(Unaudited) (Audited)
-------------------- ------------------
<S> <C> C>
Current Assets:
Cash and cash equivalents $ 685,490 $ 420,590
Accounts receivable 531,326 533,983
Other current assets 259,753 259,753
-------------------- -------------------
Total current assets 1,476,569 1,214,326
Oil and gas properties, net (on the basis of full cost
accounting) 8,843,882 8,444,036
Pipeline facilities, at cost 4,245,080 4,212,842
Property and equipment, net 680,788 574,895
Restricted cash 0 625,000
Other 112,613 111,613
-------------------- --------------------
$ 15,358,932 $ 15,182,712
===================== ====================
</TABLE>
See accompanying notes to consolidated financial statements
3
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TENGASCO, INC.
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
March 31, 2000 December 31, 1999
(Unaudited) (Audited)
-------------------- ------------------
<S> <C> <C>
Current liabilities
Notes payable $ 0 $ 750,000
Current maturities of long-term debt 1,159,090 1,025,085
Accounts payable-trade 482,433 651,909
Accrued liabilities 133,420 193,595
-------------------- ------------------
Total current liabilities 1,774,943 2,620,589
Long term debt, less current maturities 2,755,390 3,119,293
-------------------- --------------------
Total liabilities 4,530,333 5,739,882
-------------------- --------------------
Preferred Stock
Convertible redeemable preferred; redemption value
$2,988,900; 29,889 shares outstanding
Stockholder's equity 2,988,900 1,988,900
-------------------- --------------------
Common stock, $.001 per value, 50,000,000 shares
authorized 8,613 8,533
Additional paid-in capital 21,228,679 20,732,759
Accumulated deficit (13,397,593) (13,287,362)
-------------------- --------------------
7,839,699 7,453,930
-------------------- --------------------
Total stockholders' equity 7,839,699 7,453,930
-------------------- --------------------
$ 15,358,932 $ 15,182,712
==================== ====================
</TABLE>
See accompanying notes to consolidated financial statements
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TENGASCO, INC.
CONSOLIDATED STATEMENTS OF LOSS
<TABLE>
<CAPTION>
For the Three For the Three
Months Ended Months Ended
March 31, 2000 March 31, 1999
(Unaudited) (Unaudited)
------------------ -----------------
<S> <C>
Oil and gas revenues $ 1,179,912 $ 295,648
------------------ -----------------
Costs and other deductions
Production costs and taxes 455,825 237,101
Depletion, depreciation and amortization 63,000 27,100
Interest expense 98,933 44,209
General and administrative costs 565,830 747,050
Legal and accounting 66,777 183,451
------------------ -----------------
Total costs and other deductions 1,250,365 1,238,911
------------------ -----------------
Net loss $ (70,453) $ (943,263)
------------------ -----------------
Basic and diluted loss per common share $ (0.$1) $ (0.12)
================== =================
</TABLE>
See accompanying notes to consolidated financial statements
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TENGASCO, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
<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 80,470 80 495,920 0
private placements
Payment of dividends on
convertible preferred stock 0 0 0 (39,778)
Net loss for the three months
ended March 31, 2000 0 0 0 (70,453)
----------- ----------- ----------- --------------
Balance, March 31, 2000 $ 8,613,352 $ 8,613 $21,228,679 $(13,397,593)
============= =========== =========== ==============
</TABLE>
See accompanying notes to condensed consolidated financial statements
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TENGASCO, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Three For the Three
Months Ended Months Ended
March 31, 2000 March 31, 1999
(Unaudited) (Unaudited)
--------------------- ------------------
<S> <C> <C>
Operating activities
Net loss $ (70,453) $ (943,263)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depletion, depreciation and amortization 63,000 27,100
Changes in assets and liabilities
Accounts receivable 2,657 41,312
Other assets (1,000) (1,000)
Accounts payable (169,476) 51,514
Accrued liabilities (60,175) (73,394)
--------------------- ------------------
Net cash used in operating activities (235,447) (897,731)
--------------------- ------------------
Investing activities
Changes to property and equipment (143,893) 19,859
Changes to oil and gas properties (424,846) (361,021)
Changes to pipeline facilities (32,238) (33,543)
Decrease in restricted cash 625,000 0
--------------------- ------------------
Net cash provided by investing activities 24,023 (374,705)
--------------------- ------------------
Financing activities
Proceeds from borrowings 0 400,000
Repayments of borrowings (979,898) (379,059)
Proceeds from issuance of stock 0 490,348
Dividends on convertible redeemable preferred stock (39,778) 0
Proceeds from private placements of common stock 496,000 0
Proceeds from Private Placement of preferred stock 1,000,000 0
--------------------- ------------------
Net cash provided by financing activities 476,324 511,289
--------------------- ------------------
Net change in cash and cash
equivalents 264,900 (761,147)
Cash and cash equivalents, beginning of period 420,590 913,194
--------------------- ------------------
Cash and cash equivalents, end of period $ 685,490 $ 152,047
===================== ==================
</TABLE>
See accompanying notes to consolidated financial statements
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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 three months ended March 31, 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 1997 and the first quarter of
1998. 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 attendent 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.
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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 Edmond, 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 8,722,892 weighted average shares outstanding
for the quarter ended March 31, 2000 and 7,684,512 weighted average shares
outstanding for the quarter ended March 31, 1999. There were 475,827 and
475,827 potential weighted common shares outstanding at March 31, 2000 and
March 31, 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. Historically, the Company has not entered 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.
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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 fifteen 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. 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 utilizing 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
recently entered into an agreement with Eastman to supply
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substantial amounts of natural gas to Eastman. 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 sale.
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. 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 the extension of the pipeline. The Company is
attempting to raise those funds through a private placement offering (the
"Offering") of a minimum of 30,000 and a maximum of 100,000 shares of Series B
Cumulative Convertible Preferred Stock (the "Series B Shares") at a purchase
price of $100 per share pursuant to Rule 506 of Regulation D promulgated by the
Securities and Exchange Commission. The Series B Shares are being offered
through Southcoast Capital L.L.P. ("Southcoast Capital") pursuant to a written
agreement with the Company on a "best efforts basis." Southcoast Capital will
receive selling commissions of eight percent (8%) of the price of the Series B
Shares. In addition, the Company will issue to Southcoast Capital a warrant (the
"Warrant") to purchase a number of shares of the Company's stock equal to ten
percent (10%) of the total number of shares of the Company's common stock into
which the total number of Series B Shares sold pursuant to the Offering are
convertible. The warrant will be for a term of five years and the price of
shares of common stock for a period of thirty (30) business days immediately
preceding a closing of any sale of securities offered pursuant to the Offering,
but in no event less than $9.00 per share. The Company will also reimburse
Southcoast Capital for its expenses in connection with the Offering, including
the fees and expenses of its legal counsel, provided that, without the prior
agreement of the Company, the aggregate of such expenses shall not exceed
$15,000.
The Company intends to use the proceeds from the Offering of the Series B Shares
to finance construction of Phase II of the pipeline. However, there can be no
assurance that the Company will be able to sell the Series B Shares, or if it
does not sell more than the minimum amount of the Offering, that the proceeds
from the Offering will be sufficient to complete the pipeline. If these funds
are not sufficient, the Company will seek additional financing by other means.
Although there can be no assurances that such financing will be available, the
Company believes that it will be able to procure such financing by means of a
bank loan, equity investment or a joint venture with another company.
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
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to all income from those wells as of January 1, 1998. The acquisition was for a
total purchase price of 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 first 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.
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Results of Operations
The company recognized $1,179,912 in revenues from the Kansas oil and gas field
and Swan Creek during the first quarter of 2000 compared to $295,648 in the
first quarter of 1999. This increased revenue resulted from the significant
increase in oil prices during the first quarter of 2000. Oil prices in the first
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 3,566 barrels in the first quarter of 1999 to 11,294 in 2000. Production
Costs and Taxes for the first three months of 2000 of $455,825, was higher
compared to $237,101 in the first 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 three months of 2000 was $63,000,
compared to $27,100 for the first three months of 1999, this difference was due
to depreciation on additional equipment purchased during 1999.
Interest Expense for the first three months of 2000 was $98,933, as compared to
$44,209 in 1999. This difference is due to interest paid on the Wallington and
Thieme Fonds settlements. General and Administrative Expenses for the first
three months of 2000 decreased, $181,220 from the first three months of 1999
amount of $747,050. This decrease was due to cost saving measures by management.
Legal and accounting fees decreased $116,674 for the first three 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.
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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: May 12, 2000 TENGASCO, INC.
By: /s/ Terry W. Piesker
------------------------------------
Terry W. Piesker, President
By: /s/ Mark A. Ruth
-------------------------------------
Mark A. Ruth, Chief Financial Officer
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