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 June 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.
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(Exact name of small business issuer as specified in its charter)
Nevada 87-0431497
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
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)
11757 Katy Freeway, Suite 1430, Houston, Texas 77079
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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:
63,570,830
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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 11
Item 3. Defaults Upon Senior Securities 11
Item 4. Submission of Matters to a Vote of Security Holders 11
Item 5. Other Information 11
Item 6. Exhibits and Reports on Form 8-K 11
PART III. EXHIBITS
Exhibit 27
2
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<TABLE>
<CAPTION>
TRINITY ENERGY RESOURCES, INC.
Balance Sheet
June 30, 2000
<S> <C>
ASSETS
Current Assets
Cash $ 645,287
Cash held by trustee 108,091
Accounts receivable 51,338
Prepaid expenses 4,524
Inventory 20,372
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Total Current Assets 829,612
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Proved properties 339,770
Unproved properties 390,534
Less: accumulated depletion ( 83,021)
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Net oil and gas properties 647,283
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Furniture and fixtures net of $24,192
accumulated depreciation 132,624
Deposits 65,225
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TOTAL ASSETS $ 1,674,744
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LIABILITIES
Current Liabilities
Current portion of IRS payout agreement $ 35,356
Notes payable 7,500
Accounts payable 298,022
Accrued expenses 322,948
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Total Current Liabilities 663,826
Long-term portion of IRS payout agreement 177,970
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TOTAL LIABILITIES 841,796
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Mandatory Redeemable Preferred Stock,
$.001 par, due in 2000, 50,000,000 shares authorized,
161,750 shares issued and outstanding 1,540,728
STOCKHOLDERS' EQUITY
Common stock, $.001 par value, 300,000,000 shares
authorized, 63,512,270 issued and outstanding 63,512
Paid in capital 12,464,869
Retained earnings (deficit) (13,236,161)
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TOTAL STOCKHOLDERS' EQUITY (DEFICIT) ( 707,780)
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,674,744
=============
</TABLE>
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<TABLE>
<CAPTION>
TRINITY ENERGY RESOURCES, INC.
Statements of Operations
For the Three Months and Six Months
Ended June 30, 2000 and 1999
3 months ended 6 months ended
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues - oil and gas sales $ 111,124 $ 25,059 $ 183,584 $ 41,639
Expenses
Lease operating 60,389 35,612 131,568 52,978
Workover costs 87,164 232,699
Depreciation, depletion,
and amortization 14,546 4,048 27,073 4,048
Interest expense 33,148 10,079 78,168 10,079
General and administrative 295,285 706,952 659,173 1,003,233
Other income ( 1,356) ( 1,356)
Interest income ( 17,831) ( 1,024) ( 37,169) ( 1,024)
------------ ------------ ------------ ------------
Total expenses 471,345 755,667 1,090,156 1,069,314
------------ ------------ ------------ ------------
(Loss) before
reorganization items (360,221) ( 730,608) ( 906,572) (1,027,675)
------------ ------------ ------------ ------------
Reorganization items:
Professional fees ( 946) ( 330,025) ( 946) ( 598,741)
Other costs ( 25,595) ( 25,595)
Interest earned on accumulated
cash resulting from chapter
11 proceeding 34,838 71,457
------------ ------------ ------------ ------------
Net (Loss) $ (361,167) $(1,051,390) $( 907,518) $(1,580,554)
============ ============ ============ ============
Net (loss) per common share $ ( .006) $( .016) $( .014) $( .025)
Weighted average common
shares outstanding 63,512,270 64,332,814 63,471,408 64,226,796
</TABLE>
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<TABLE>
<CAPTION>
TRINITY ENERGY RESOURCES, INC.
Statements of Cash Flow
For the Six Months Ended June 30, 2000 and 1999
2000 1999
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<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES
Net loss $( 907,518) $(1,580,554)
Adjustments to reconcile net
income to net cash provided by
operating activities:
Depreciation 15,681
Depletion 11,392 4,048
Net changes in:
Accounts receivable ( 42,239) ( 3,779)
Other current assets 2,621
Deposits made by trustee 4,300
Accounts payable ( 469,049) 770,722
Accrued expenses ( 121,519) 147,388
Accrued interest ( 18,145) 10,079
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NET CASH USED BY OPERATING ACTIVITIES (1,528,776) (647,796)
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CASH FLOWS FROM INVESTING ACTIVITIES
Unproved property purchases ( 23,881) (366,653)
Proceeds from sale of equipment 38,840
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NET CASH PROVIDED BY FINANCING ACTIVITIES ( 23,881) (327,813)
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CASH FLOWS FROM FINANCING ACTIVITIES
Liabilities subject to compromise ( 97,506) ( 768)
Proceeds from short term notes 474,890
Sale of preferred stock 165,000
Proceeds of rights offering, net 252,937
Preferred stock redemptions ( 105,000)
Payments on short term notes ( 700,221) 0
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NET CASH PROVIDED BY FINANCING ACTIVITIES ( 902,727) 892,059
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NET INCREASE (DECREASE) IN CASH (2,455,384) ( 83,550)
CASH AT BEGINNING OF PERIOD 3,208,762 3,838,937
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CASH AT END OF PERIOD $ 753,378 $ 3,755,387
============ ============
SUPPLEMENTAL DISCLOSURES
Interest paid in cash $ 96,313 $ 0
</TABLE>
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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.
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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 is under review by the SEC and subsequent
amendments have been filed to respond to reviewers' comments. The most recent
amendment was filed August 7, 2000. Once all SEC comments have passed, we intend
to apply to list our stock on the OTC Bulletin Board, which should improve
trading access.
On June 30, 2000, the Company filed a motion to close the bankruptcy case that
was originated by former management on December 23, 1997. A detailed
description of the remaining actions required to close the case are contained in
Part II, Item 1, "Legal Proceedings."
SHORT-TERM STRATEGY
Our 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.
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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 six month period ended
June 30, 2000 were $183,584, as compared to $41,639 for the same period in 1999.
Production revenues for the three months ended June 30, 2000 were $111,124, as
compared to $25,059 through the period ended June 30, 1999. The increased
revenues were due to increased production and improved oil and gas prices.
Gross oil production for the three months ending June, 2000 was 4,335 barrels
(BBLS); net production was 3,684 BBLS, up from 845 BBLS oil for the three months
ended June 30, 1999. Gross gas production for the three months ended June 30,
2000 was 16,224 thousand cubic feet (MCF); net gas produced was 13,790 MCF as
compared to 2,802 MCF for the three months ending June 30, 1999.
These results reflect our progress in redeveloping our properties in Colorado,
Wyoming and Texas. Prior to redevelopment, production from Colorado properties
had dropped to about 1.5 barrels oil per day (BOPD) and 10 thousand cubic feet
of gas per day (MCFGD). Production from Wyoming had declined to about 5 BOPD
and the Texas property was shut-in. As of June 30, 2000, Colorado and Wyoming
oil and gas production was approximately 56 BOPD and 165 MCFGD, respectively.
The Texas property requires additional remediation, but is presently flowing
nominal amounts of natural gas.
Our projected 3rd quarter revenue, including anticpated production from the
Texas property, amounts to $138,725. 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 $1,003,233 during the
six month period ending June 30, 1999 to $659,173 for the same period in 2000.
These expenses decreased from $706,952 during the second quarter 1999 to
$295,285 in the second quarter 2000.
For the quarter ending June 30, 2000, we spent $87,164 toward working over
formerly non-productive oil and gas wells in Colorado, Wyoming and Texas. We
also spent $60,389 toward maintenance, repair and operation of these facilities.
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. By the end of August, 2000
we will reduce our staff to 2 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. Estimated G&A expenses from
operations during 3rd quarter are projected at $197,500.
Fourth Quarter 1999 First Quarter 2000 Second Quarter 2000
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G&A Expenses $880,305 $363,888 $295,285
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During the six month period ending June 30, 1999 our net operating (loss) was
$(1,027,675), as compared to an operating (loss) of $(906,572) for the same
period in 2000. During the quarter ending June 30, 2000 the Company incurred
(losses) of ($360,221) compared to ($730,608) during the quarter ending June 30,
1999.
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The net (loss) for the 4th quarter 1999 was $(1,104,955). The net (loss)
reported in the quarter ended March 31, 2000 was $(546,351). Our (loss) of
$(361,167) for the quarter ended June 30, 2000 is significant, but a trend of
decreasing losses is now firmly established. Improved production revenues and
expense reductions implemented in the 3rd quarter will further reduce the
losses. We project a 3rd quarter (loss) of $(198,000).
Reorganization items decreased from $320,782 during the second quarter 1999 to
$946 in the second quarter 2000. This decrease was due mainly to the decreased
expenses incurred for professional fees charged to conclude the bankruptcy
proceedings. All known professional fees for bankruptcy were accrued as 4th
quarter 1999 expenses.
(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
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. If the feasibility of additional development is established, we will
seek joint venture partners to support the drilling program. Drilling and
completion costs for a single well in this venture could range from $240,000 up
to $850,000, depending upon the zone targeted for development. Decision making
related to this opportunity is in process.
(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 we expect to be available in
the very near future.
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.
In addition to the above, we are working on other capital support mechanisms.
Discussions regarding these opportunities are advancing, but not yet to the
stage of reporting detailed components of funding support.
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Liquidity and Capital Resources
----------------------------------
The Company had a cash and cash equivalents balance of $753,378 at June 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 and international
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 two such properties 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 May 23, 2000, the Company and Winstead Secrest & Minick, P. C. reached an
agreement regarding their 1999 fees related to support of the Trustee. The
settlement reached resulted in a net reduction of our amount payable to them by
$63,315. This credit is included in the current quarter bankruptcy costs.
On June 7, 2000, in Adversary Proceeding No. 00-6004, the Company was awarded
judgment against Max Chapman in the amount of $30,000.00. The Company has
filed, or will shortly file, motions to dismiss the remaining adversary
proceedings or lawsuits which it initially brought against the following
defendants: No. 99-6031, Rockcrest Capital Corporation; No. 00-6002, Rockcrest
Securities, LLC; No. 00-6003, D. W. Mitchell; No. 00-6006; Jim Harris; No.
00-6007, Julie Chambers and No. 699-6012, Internal Revenue Service, Sidney W.,
Patricia and Amanda Sers. The likelihood of obtaining and collecting judgment
against each of these defendants is, in the opinion of the Company, far
outweighed by the amount of time and resources needed to continue litigation and
the advantage to the Company of closing the bankruptcy case.
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. No hearing date has yet been
set.
On August 30, 2000, a hearing will be 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.
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On July 6, 2000, the Company and Ronald Lemon reached a settlement, pursuant to
court-ordered mediation, of Mr. Lemon's lawsuit against us in Cause No.
99-64074, styled Ronald Lemon v. Trinity Energy Resources, Inc., pending in the
133rd Judicial District Court of Harris County, Texas. The settlement calls for
Mr. Lemon to receive $69,400.00 over the course of the next year along with
250,000 shares of the Company's common stock in exchange for a dismissal with
prejudice to refiling of Mr. Lemon's lawsuit.
ITEM 2. CHANGE IN SECURITIES
None
ITEM 3. EFAULTS 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
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.
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Executive Vice-President and
Chief Financial Officer
PART III. EXHIBITS
Exhibit 27 Financial Data Schedule
11
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