UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended September 30, 2000
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[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from _________ to _________
Commission file number 000-29333
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Trinity Energy Resources, Inc.
(Exact name of small business issuer as specified in its charter)
Nevada 87-0431497
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(State or other jurisdiction (IRS Employer Identification No.)
of incorporation or organization)
16420 Park Ten Place, Suite 450, Houston, Texas 77084
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(Address of principal executive offices)
(281) 829-9910
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(Issuer's telephone number)
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(Former name, former address and former fiscal year, if changed since last
report)
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. Yes [X] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity as of the latest practicable date:
63,512,270
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Transitional Small Business Disclosure Format (Check one): Yes [ ] No [ ]
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TRINITY ENERGY RESOURCES, INC.
Index
Page
Number
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheet at June 30, 2000 3
Condensed Consolidated Statements of Operations for
The quarter ended June 30, 2000 4
Condensed Consolidated Statements of Cash Flows for
The quarter ended June 30, 2000 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
And Results of Operations 7
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 10
Item 2. Changes in Securities 10
Item 3. Defaults Upon Senior Securities 10
Item 4. Submission of Matters to a Vote of Security Holders 10
Item 5. Other Information 10
Item 6. Exhibits and Reports on Form 8-K 10
PART III. EXHIBITS
Exhibit 27 11
F-2
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<TABLE>
<CAPTION>
TRINITY ENERGY RESOURCES, INC.
Balance Sheet
September 30, 2000
<S> <C>
ASSETS
Current Assets
Cash $ 241,520
Cash held by trustee 96,560
Accounts receivable 124,309
Prepaid expenses 2,372
Note receivable 10,280
Inventory 20,372
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Total Current Assets 495,413
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Proved properties 339,770
Unproved properties 386,484
Less: accumulated depletion (89,331)
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Net oil and gas properties 636,923
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Furniture and fixtures net of $13,813
accumulated depreciation 7,011
Long term portion of notes receivable 45,119
Deposits 68,846
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TOTAL ASSETS $ 1,253,312
=============
LIABILITIES
Current Liabilities
Current portion of IRS payout agreement $ 71,188
Accounts payable 257,098
Accrued expenses 319,476
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Total Current Liabilities 647,762
Long-term portion of IRS payout agreement 142,376
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TOTAL LIABILITIES 790,138
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Mandatory Redeemable Preferred Stock,
$.001 par, due in 2000, 50,000,000 shares authorized,
161,750 shares issued and outstanding 1,507,805
STOCKHOLDERS' EQUITY
Common stock, $.001 par value, 300,000,000 shares
authorized, 63,512,270 issued and outstanding 63,512
Paid in capital 12,436,186
Retained earnings (deficit) (13,544,329)
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TOTAL STOCKHOLDERS' EQUITY (DEFICIT) (1,044,631)
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,253,312
=============
</TABLE>
F-3
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<TABLE>
<CAPTION>
TRINITY ENERGY RESOURCES, INC.
Statements of Operations
For the Three Months and Nine Months
Ended September 30, 2000 and 1999
3 months ended 9 months ended
2000 1999 2000 1999
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<S> <C> <C> <C> <C>
Revenues - oil and gas sales $140,822 $21,059 $324,406 $62,698
Expenses
Lease operating 101,369 22,996 232,937 75,974
Workover costs (1,216) 231,484
Depreciation, depletion,
and amortization 13,935 6,274 41,009 10,322
Interest expense 48,537 2,345 126,705 12,424
General and administrative 251,510 802,043 914,732 1,805,276
Other income (1,356)
Interest income (10,396) (346) (47,565) (1,370)
Loss on sale of assets 66,331 66,331
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Total expenses 470,070 833,312 1,564,277 1,902,626
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(Loss) before
reorganization items (329,248) (812,253) (1,239,871) (1,839,928)
------------- ------------- ------------- ------------
Reorganization items:
Income (expense)
Professional fees 25,131 (267,584) 24,186 (866,325)
Interest earned on
accumulated cash resulting
from chapter 11 proceeding 35,728 107,185
Other costs (25,595)
------------- ------------- ------------- ------------
Net (Loss) $ (304,117) $ (1,044,109) $ (1,215,685) $(2,624,663)
============= ============= ============= ===========
Net (loss) per common share $ (.005) $ (.017) $ (.019) $ (.042)
Weighted average common
shares outstanding 63,512,270 62,045,820 63,485,028 62,043,720
</TABLE>
F-4
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<TABLE>
<CAPTION>
TRINITY ENERGY RESOURCES, INC.
Statements of Cash Flow
For the Nine Months Ended September 30, 2000 and 1999
2000 1999
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<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES
Net loss $ (1,215,685) $(2,624,663)
Adjustments to reconcile net
income to net cash provided by
operating activities:
Depreciation 23,307 4,250
Depletion 17,702 6,072
Net changes in:
Accounts receivable (115,210) (3,779)
Inventory (9,361)
Other current assets 4,773 (6,045)
Deposits made by trustee (3,621) 4,300
Accounts payable (496,580) 483,109
Accrued expenses (146,037) 262,730
Accrued expenses 2,901
Loss on sale of fixed assets 66,331
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NET CASH USED BY OPERATING ACTIVITIES (1,862,119) (1,883,387)
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CASH FLOWS FROM INVESTING ACTIVITIES
Unproved property purchases (19,831) (366,653)
Purchase of equipment (9,563) (145,555)
Proceeds from sale of equipment 5,000 38,840
Proceeds from notes receivable 820
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NET CASH PROVIDED BY FINANCING ACTIVITIES (23,574) (473,368)
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CASH FLOWS FROM FINANCING ACTIVITIES
Liabilities subject to compromise (97,268) (768)
Proceeds from short term notes 1,357,340
Sale of preferred stock 267,013
Proceeds of rights offering, net 324,020
Preferred stock redemptions (180,000)
Payments on short term notes (707,721) 0
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NET CASH PROVIDED BY FINANCING ACTIVITIES (984,989) 1,947,605
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NET INCREASE (DECREASE) IN CASH (2,870,682) (409,150)
CASH AT BEGINNING OF PERIOD 3,208,762 3,838,937
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CASH AT END OF PERIOD $ 338,080 $ 3,429,787
============ ============
SUPPLEMENTAL DISCLOSURES
Interest paid in cash $ 2,885 $ 0
</TABLE>
F-5
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TRINITY ENERGY RESOURCES, INC.
Notes to Financial Statements
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited interim financial statements of Trinity Energy
Resources, Inc., a Texas corporation ("Company"), have been prepared
in accordance with generally accepted accounting principles and the rules of the
Securities and Exchange Commission ("SEC"), and should be read in conjunction
with the audited financial statements and notes thereto contained in the
Company's latest Annual Report filed with the SEC on Form 10-KSB. In the
opinion of management, all adjustments, consisting of normal recurring
adjustments, necessary for a fair presentation of financial position and the
results of operations for the interim periods presented have been reflected
herein. The results of operations for interim periods are not necessarily
indicative of the results to be expected for the full year. Notes to the
financial statements which would substantially duplicate the disclosure
contained in the audited financial statements for the most recent fiscal year,
1999, as reported in Form 10-KSB, have been omitted.
NOTE B - UNPROVED PROPERTIES
On April 5, 2000, the Company purchased a 6.25% leasehold interest in an
exploratory and development property in Galveston County, Texas by paying a
$18,750 acquisition fee. Pursuant to the agreement, the Company will pay 6.25%
of the test well costs to casing point and 5.625% of costs after casing point
but prior to payout of the initial test well. After payout, the Company's
working interest in the initial well and in subsequent wells will be 4.6875%.
The Company's expected pro-rata cost to drill the test well is expected to be
$156,250. If the well is successful, the completion cost obligation to the
Company is expected to be $61,875.
F-6
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FORWARD - LOOKING STATEMENTS
This quarterly report on Form 10-QSB includes forward-looking statements. All
statements other than statements of historical fact made in this Quarterly
Report on Form 10-QSB are forward-looking. In particular, the statements herein
regarding industry prospects and future results of operation or financial
position are forward-looking statements. Forward-looking statements reflect
management's current expectations based on assumptions believed to be reasonable
and are inherently uncertain as they are subject to various known and unknown
risks, uncertainties and contingencies, many of which are beyond the control of
Trinity. The Company's actual results may differ significantly from management's
expectations.
The following discussion and analysis should be read in conjunction with the
Company's consolidated financial statements and related footnotes and the
Company's Annual Report on Form 10-SB for the year ended December 31, 1999. The
discussion of results, causes and trends should not be construed to imply that
such results, causes or trends will necessarily continue in the future.
OVERVIEW
On February 3, 2000 the Company filed its Form 10-SB with the Securities and
Exchange Commission (SEC). The filing was reviewed by the SEC and subsequent
amendments were filed to respond to reviewers' comments. A fifth amendment was
filed September 20, 2000, and on September 22, 2000, we were advised by SEC
reviewers that they had no further comments regarding our filing. We have now
applied to list our stock on the OTC Bulletin Board, which should improve
trading access.
We have also become recently listed in Standard & Poor's Corporation Records
publication, as of October 25, 2000.
SHORT-TERM STRATEGY
Our continuing strategy for the immediate future is composed of four elements;
(1) Improve our revenues by fully exploiting our existing oil and gas
properties,
(2) Reduce our general and administrative (G&A) expenses to eliminate
operating losses,
(3) Pursue domestic opportunities that can immediately enhance revenues
within current capital constraints, and
(4) Obtain additional working capital to pursue intermediate and long-term
growth strategies.
We have been pursuing this strategy since January 2000, and we will describe our
progress by reference to each of the above listed elements of this strategy.
(1) Improve our revenues- Production revenues for the nine month period ended
September 30, 2000 were $324,406, as compared to $62,698 for the same period in
1999. Production revenues for the three months ended September 30, 2000 were
$140,822, as compared to $21,059 through the period ended September 30, 1999.
The increased revenues were due to increased production and improved oil and gas
prices.
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Gross oil production for the three months ending September 30, 2000 was 2,842
barrels (BBLS); net production was 2,415 BBLS, up from 1092 BBLS oil for the
three months ended September 30, 1999. Gross gas production for the three
months ended September 30, 2000 was 18,651 thousand cubic feet (MCF); net gas
produced was 15,853 MCF as compared to 412 MCF (38 fold increase) for the three
months ending September 30, 1999.
We are actively seeking new avenues of investment which we believe will
significantly increase our revenue. See Item (3) below.
(2) Reduce our G&A expenses- These expenses decreased from $1,805,276 during the
nine month period ending September 30, 1999 to $914,732 (50% reduction) for the
same period in 2000. These expenses decreased from $802,043 during the third
quarter 1999 to $251,510 (69% reduction) in the third quarter 2000.
For the quarter ending September 30, 2000, we spent $101,369 toward operating
formerly non-productive oil and gas wells in Colorado, Wyoming and Texas.
Operating costs for these partially active properties in the same period 1999
were $22,996
In year 2000 we have been making steady quarter-to-quarter progress in reducing
operating expenses, as the following table shows. Additional actions to further
reduce these expenses are being implemented. We have negotiated a release from
our former office lease and have relocated to smaller and less expensive
offices. This will save more than $140,000 per year. We have reduced our staff
to 1.5 full time employees and one contractor. Management continues to carefully
monitor all areas of operation and will continue looking at opportunities to
improve operational efficiency.
First Quarter 2000 Second Quarter 2000 Third Quarter 2000
------------- ------------------ ------------------- ------------------
G&A Expenses $363,888 $295,285 $251,510
During the nine month period ending September 30, 1999 our net operating (loss)
was $(2,624,663), as compared to an operating (loss) of $(1,215,685) for the
same period in 2000. During the quarter ending September 30, 2000 the Company
incurred (losses) of ($304,117) compared to ($1,044,109) during the quarter
ending September 30, 1999. These losses are significant and management is
continually seeking to reduce costs, while at the same time increasing revenue.
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(3) Pursue Domestic Opportunities-We are actively seeking to add assets that
will bring net revenue to the Company. Building revenue is management's highest
priority. We will participate in drilling ventures with joint venture partners
and further develop our internal properties to immediately enhance revenues
within current capital constraints.
We are also pursuing the acquisition of producing properties which meet our
scientific, economic and operating criteria. We are advancing in discussions
with an entity which has a set of properties of interest to the Company. In
the event our due diligence reviews conclude favorably and terms can be reached,
we hope to close on a transaction before the end of 2000.
The level of capital expenditures will vary in future periods due to the fact
that we expect to commit to new ventures that will require staged contributions
from the Company which are as yet indeterminate. For example, we will
participate for a minimum 6.25% working interest in a well to be drilled in
Galveston County, Texas. Dry hole costs (including prospect fees which the
Company has already paid) associated with this venture at that interest level
will be approximately $175,000. If the well is successful, Trinity will be
obligated for another estimated $61,875 to facilitate well completion and place
it in production.
We are reviewing the potential of further development of the Texas Hartwich
property. We have determined that multiple zones have the potential for
commercial production. We are planning to address the opportunity to exploit
these reservoirs in the near future. However, our primary current focus is to
fully examine and conclude, if warranted, the property acquisition referred to
above.
(4) Obtain working capital-With the exception of the Galveston County drilling
venture, to which we have already committed funds, the other potential projects
listed above will require new capital. To support these endeavors we have
arranged for, but have not yet received, funding through an agreement which
provides support as follows:
1) Debt financing of $1,000,000, which will not be
available until some time in 2001.
2) Private Placement debt convertible to equity financing of
$1,000,000. This funding would be available simultaneously with
the debt financing above.
3) Mezzanine financing of up to $28,000,000. These funds would
also be a debt convertible to equity instrument and would be
accessed as needed by the Company for acquisitions, and as
they become available as indicated above.
Our agreement with the Salus Trust, as earlier reported, is subject to funding
which is sourced from a private entity. Due to tax preferences on the part of
the funding party, we have been advised that no transfers will occur until after
January 1, 2001.
In addition to the above, we are working on other capital support mechanisms.
Discussions regarding these opportunities have advanced significantly. We expect
to utilize such funds to fulfill obligations associated with the acquisition
discussed above.
F-9
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Liquidity and Capital Resources
----------------------------------
The Company had a cash and cash equivalents balance of $338,080 at September 30,
2000. The Company is arranging for bridge and longer term financing, both debt
and equity, to fund certain new ventures, development drilling opportunities and
worthy property acquisitions.
The Company is negotiating for the acquisition of domestic producing and
exploratory properties that meet our geological, engineering, economic and
political criteria. We are focusing our attention on acquisitions that we
expect to range in value from $250,000 to $25,000,000. We expect to enter into
agreements on at least one such property before the end of this fiscal year.
Adding reserves of both oil and gas in a cost effective manner is a stated goal
of this Company.
In the event that Trinity cannot raise additional capital to fund the ventures
indicated above, then it may be necessary for Trinity to curtail its business
activities until other financing becomes available.
PART II
ITEM 1. LEGAL PROCEEDINGS
On December 23, 1997, the Company filed a Chapter 11 Petition for
Reorganization, docketed to Case No. 697-60425-JCA-11 in the United States
Bankruptcy Court for the Northern District of Texas, San Angelo Division. The
Court confirmed the Third Amended Plan of Reorganization on October 26, 1998 and
the Company has been operating pursuant to the Plan since that date.
On June 29, 2000, the Company filed its Application for Entry of a Final Decree
in the main bankruptcy action on the basis that the Third Amended Plan of
Reorganization has been substantially consummated and that the administration of
the Chapter 11 estate is essentially complete. On August 30, 2000 the Final
Decree closing the bankruptcy case was entered.
On August 30, 2000, a hearing was held on a Motion to Compel Compliance filed by
Sheinfeld, Maley & Kay seeking payment of their unsecured and administrative
claims as ordered by the Bankruptcy Court in August, 1998. In response, the
Company has filed a Motion Seeking Reversal of Orders Allowing Compensation,
Setting Aside Agreement to Pay Fees and Disgorgement of Fees Already Paid and
Objection to Motion to Pay Attorney's Fees. The matter was taken under
advisement and the Court has not made its ruling as of this date.
ITEM 2. CHANGE IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
27 - Financial Data Schedule
F-10
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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 thereunto duly authorized.
TRINITY ENERGY RESOURCES, INC.
By: /s/ Dennis E. Hedke
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Interim President and
Chief Executive Officer
/s/ James E. Gallien, Jr.
----------------------------
Executive Vice-President and
Chief Financial Officer
PART III. EXHIBITS
Exhibit 27 Financial Data Schedule
F-11
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