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 March 31, 2000
--------------------
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from _________ to _________
Commission file number 000-29333
-----------
Trinity Energy Resources, Inc.
(Exact name of small business issuer as specified in its charter)
Nevada 87-0431497
------ ----------
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
11757 Katy Freeway, Suite 1430, Houston, Texas 77079
- --------------------------------------------------------------------------------
(Address of principal executive offices)
(281) 589-7675
----------------------------------------------
(Issuer's telephone number)
- --------------------------------------------------------------------------------
(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
---------------
Transitional Small Business Disclosure Format (Check one): Yes [ ] No [ ]
<PAGE>
TRINITY ENERGY RESOURCES, INC.
Index
Page
Number
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheet at March 31, 2000 3
Condensed Consolidated Statements of Operations for
The quarter ended March 31, 2000 4
Condensed Consolidated Statements of Cash Flows for
The quarter ended March 31, 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 12
PART III. EXHIBITS
Exhibit 27 12
<PAGE>
<TABLE>
<CAPTION>
TRINITY ENERGY RESOURCES, INC.
Balance Sheet
March 31, 2000
<S> <C>
ASSETS
Cash $ 1,215,569
Cash held by trustee 396,893
Accounts receivable 37,565
Prepaid expenses 6,874
Inventory 20,372
-------------
Total current assets 1,677,273
-------------
Proved properties 599,537
Unproved properties 1,177,821
Wells and related equipment 99,726
Less: accumulated depletion (111,352)
-------------
Net oil and gas properties 1,765,732
-------------
Furniture and fixtures net of $16,351
accumulated depreciation 140,465
Deposits 65,225
-------------
TOTAL ASSETS $ 3,648,695
=============
LIABILITIES
Liabilities subject to compromise $ 248,178
Redeemable convertible preferred stock 1,617,500
Notes payable 52,063
Accounts payable 627,702
Accrued expenses 327,770
-------------
TOTAL LIABILITIES 2,873,213
-------------
STOCKHOLDERS' EQUITY
Preferred stock, $.001 par value,
50,000,000 shares authorized,
161,750 shares issued and outstanding,
(reclassified as current liabilities)
Common stock, $.001 par value,
300,000,000 shares authorized,
63,512,270 issued and outstanding 63,512
Paid in capital 12,493,097
Retained earnings (deficit) (11,781,127)
-------------
TOTAL STOCKHOLDERS' EQUITY 775,482
-------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 3,648,695
=============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TRINITY ENERGY RESOURCES, INC.
Statements of Expenses
Years Ended March 31, 2000 and 1999
(Inception) to
2000 1999
------------ ------------
<S> <C> <C>
Revenues - oil and gas sales $ 72,460 $ 16,580
Expenses
Lease operating 78,902 17,366
Workover costs 145,535
Depreciation, depletion, and amortization 7,841
Interest expense 64,821
General and administrative 363,890 296,280
Interest income (19,338)
------------
Total expenses (641,651) (313,646)
------------ ------------
(Loss) before reorganization items (569,191) (297,066)
------------ ------------
Reorganization items:
(Loss)on sale of assets (35,300)
Professional fees (268,716)
Interest earned on accumulated cash
resulting from chapter 11 proceeding 36,618
------------ ------------
Net (Loss) $ (569,191) $ (564,464)
============ ============
Net (loss) per common share $ (.009) $ (.009)
Weighted average common
shares outstanding 63,471,408 64,120,778
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TRINITY ENERGY RESOURCES, INC.
Statements of Cash Flow
Years Ended March 31, 2000 and 1999
2000 1999
------------ -----------
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES
Net loss $(569,191) $ (564,464)
Adjustments to reconcile net
income to net cash provided by
operating activities:
Gain on sale of equipment 35,300
Depreciation 7,841
Depletion 7,723 1,950
Net changes in:
Accounts receivable (28,466) (2,705)
Other current assets 271
Accounts payable (139,366) 332,414
Accrued expenses (126,384) 429,182
Accrued interest (26,365)
------------ -----------
NET CASH USED BY
OPERATING ACTIVITIES (873,937) 231,677
------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Unproved property purchases (4,051) (360,950)
Proceeds from sale of equipment 34,700
------------ -----------
NET CASH PROVIDED BY
FINANCING ACTIVITIES (4,051) (326,250)
------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Payments of liabilities subject to compromise (62,654)
Payments on short term notes (655,658) 105,100
------------ -----------
NET CASH PROVIDED BY
FINANCING ACTIVITIES (718,312) 105,100
------------ -----------
NET INCREASE (DECREASE) IN CASH (1,596,300) 10,527
CASH AT BEGINNING OF PERIOD 3,208,762 3,838,937
------------ -----------
CASH AT END OF PERIOD $ 1,612,462 $3,849,464
============ ===========
SUPPLEMENTAL DISCLOSURES
Interest paid in cash $ 91,185 $ 0
</TABLE>
<PAGE>
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.
<PAGE>
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 and are inherently uncertain. The Company's
actual results may differ significantly from management's expectations.
All forward-looking statements contained in this section are based on
assumptions believed to be reasonable. Trinity can give no assurance that such
expectations and assumptions will prove to be correct. Any statements contained
in this report regarding forward-looking statements are subject to various known
and unknown risks, uncertainties and contingencies, many of which are beyond the
control of Trinity.
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 any conclusion that
such results 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), which was followed by the filing of an amendment to
the 10-SB on March 31, 2000. This filing led to the Company becoming a fully
reporting public company on April 4, 2000. We are presently reviewing
additional comments provided by SEC reviewers and expect to file a second
amendment to the 10-SB on or before May 31, 2000. Once all SEC comments have
passed, we intend to apply for listing on the OTC Bulletin Board Service, which
we believe will markedly open access to the trading of our stock.
The Company is in the final stages of closing the bankruptcy process which was
originated by former management on December 23, 1997. A detailed description of
the remaining actions required for closure of the case is contained in Part II,
Item 1, "Legal Proceedings."
We have made significant progress in a number of operating areas, including the
reconditioning of domestic producing wells in Colorado, Wyoming and Texas. We
are reviewing new prospects and opportunities both domestically and
internationally. We will be participating in new drilling ventures which will
include joint ventures with new partners outside our organization and we will be
further developing our internal properties to maximize production from our known
reserves. We are involved in preliminary discussions with multiple entities
which could lead to increasing our commitment in international ventures.
Pending the completion of documentation for currently negotiated bridge and
longer term financing, the Company expects to acquire significant interest
positions in existing oil and gas producing properties and participating in
multiple new ventures in the energy business.
<PAGE>
Additional information pertaining to these financing mechanisms is provided
below.
Although we have made great strides in numerous areas, we have much progress to
make in improving cash flow and trimming expenses. Management will continue to
monitor carefully all areas of operation with the goal of achieving very high
efficiency with a zero tolerance for non-productive properties, ineffective
facilities and other under-performing assets.
RESULTS OF OPERATIONS
Three months ended March 31, 2000 compared to the three months ended March 31,
1999.
On January 14, 2000, we received a wire transfer of $2,570,184 which represented
preliminary net proceeds related to a settlement reached by the SEC in favor of
the shareholders of Trinity Energy Resources, Inc. These funds have been
utilized in part to fund ongoing operations of the Company since that time.
During the quarter ending March 31, 2000 the Company incurred losses of
($569,191) compared to ($564,464) during the quarter ending March 31, 1999.
Even though the losses were comparable for each of the quarters, the composition
of specific line items changed as described below.
Operating expenses increased from $296,280 during the first quarter 1999 to
$372,000 in the first quarter 2000. This increase was due to the Company's
efforts directed at re-establishing oil and gas exploration and development
activities, both domestically and internationally, and carrying forward some of
the infrastructure established by prior management.
Reorganization items decreased from $340,634 during the first quarter 1999 to $0
in the first quarter 2000. This decrease was due mainly to the reduced expenses
incurred for professional fees charged to conclude the bankruptcy proceedings.
All known professional fees for bankruptcy were accrued as fourth quarter 1999
expenses.
For the quarter ended March 31, 2000, we spent $144,584 toward the working over
formerly non-productive oil and gas wells in Colorado, Wyoming and Texas. We
also spent $44,633 toward maintenance and repairs of these facilities and
$26,546 was utilized in the operation of the properties.
Production revenues generated through March 31, 2000 were $72,460, as compared
to $16,580 through the period ended March 31, 1999. The increased revenues were
due to increased production and improved oil and gas prices.
Gross oil production for the three months ended March 31, 2000 was 3,761 barrels
(BBLS); net production was 3,197 BBLS, up from 1,104 BBLS oil for the three
months ended March 31, 1999. Gross gas production for the three months ended
March 31, 2000 was 10,128 thousand cubic feet (MCF); net gas produced was 8,659
MCF as compared to 1,776 MCF for the three months ended March 31, 1999.
Prior to the application of capital resources, the production in Colorado
properties had dwindled to about 1.5 barrels oil per day (BOPD) and 10 thousand
cubic gas per day (MCFGD). Production in Wyoming had declined to about 5 BOPD
and the Texas property was virtually
<PAGE>
incapable of production. As of March 31, 2000, Colorado and Wyoming oil and gas
production was approximately 58 BOPD and 235 MCFGD, respectively. The Texas
property was still undergoing workover activities and at that date was shut-in.
It is currently undergoing production testing.
LIQUIDITY AND CAPITAL RESOURCES
The Company had a cash and cash equivalents balance of $1,215,569 at March 31,
2000. Management of the Company believes that such cash and cash equivalents
together with cash from operations are sufficient to cover the cost of
operations through at least December 31, 2000. The management team clearly
recognizes the need to identify and develop additional sources of cash flow in
order to take full advantage of energy market opportunities. Therefore, the
Company is in the final stages of arranging for bridge and longer term
financing, both debt and equity, to fund certain new ventures, development
drilling opportunities and worthy property acquisitions.
The level of capital expenditures will vary in future periods due to the fact
that we expect to commit to new ventures which will require staged contributions
from the Company which are as yet indeterminate. For example, we will
participate for a minimum of 6.25% working interest in a well to be drilled in
the Gulf Coast of Texas. Prospect and dry hole costs associated with this
venture at that interest level will be approximately $175,000. If the well is a
successful venture, Trinity will be obligated for another estimated $63,750 to
facilitate well completion and place it in production.
The Company is reviewing its own inventory for potential in the drilling of
proven undeveloped locations in a Permian Basin property. If due diligence
reviews verify the feasibility of such drilling activities, the Company will
likely secure joint venture partners to support a drilling program. The
drilling and completion costs for a single well in this venture could approach
$850,000, and Trinity is contemplating a program to drill up to three wells.
The Company is reviewing the acquisition potential of various producing
properties, both domestically and internationally, which meet our internal
criteria for geological, engineering, economic and political constraints. We
are focusing our attention on acquisitions which 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.
With the exception of the Gulf Coast drilling venture, the other potential
projects listed above will require new capital. In support of such endeavors,
we are, as indicated above, in the final stages of arranging for, but have not
yet completed documentation for the following:
1) Debt financing of $1,000,000, which would 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. This funding would also
be a debt to equity convertible instrument and would be accessed
as needed by the Company for various acquisitions.
<PAGE>
As stated above, Trinity believes it has sufficient working capital to fund its
capital expenditure requirements as they are currently defined through at least
December 31, 2000. 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.
These are forward-looking statements that are based on assumptions which in the
future may not prove to be accurate. Although Trinity's management believes
that the expectations above are based on reasonable assumptions, it can give no
assurance that its expectations will be achieved.
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. In order to close the
bankruptcy proceedings and have a final decree entered, the following must take
place:
- Trinity's objection to the fee application filed by the
Chapter 11 Trustee's counsel, Winstead Secrest & Minick, must be
ruled on by the Court. A hearing on the objection is presently
scheduled for May 23, 2000.
- The Court must rule on Trinity's objection to a claim filed by
Taylor Realty Corporation seeking stock in the Company.
- The following adversary proceedings or lawsuits which the Company
has filed to recover assets will need final resolution: No.
99-6031, Rockcrest Capital Corporation; No. 00-6002, Rockcrest
Securities, LLC; No. 00-6003, D. W. Mitchell; No. 00-6004, Max
Chapman; No. 00-6005, Jim Harris; no. 00-6006, Julie Chambers; No.
00-6007, The City of Natchitoches.
On March 2, 2000, the Court severed defendants Rockcrest Securities, Mitchell,
Chapman, Harris, Chambers and The City of Natchitoches from No. 99-6031, leaving
Rockcrest Capital Corporation as the sole defendant in that case, and ordered
the Company to proceed against each defendant individually in separate
proceedings as listed above.
On May 7, 2000, the Court sustained certain objections filed to the fee
application of Andrews & Kurth, LLP, our bankruptcy counsel, and awarded the
firm $134,475.86.
On January 12, 2000, in Adversary Proceeding No. 698-6004, also filed within the
main bankruptcy case, the Company was awarded a final judgment against Sidney W.
Sers in the amount of $403,309.96 representing an unpaid promissory note due and
owing to the Company by Sers. The judgment also divested Sers of his interest
in the Nakatosh Hotel and the Company was declared to be owner of the hotel.
<PAGE>
On September 20, 1999 the United States Environmental Protection Agency filed an
administrative complaint against Nova Energy, Inc., a Wyoming corporation,
Docket No. CWA-8-99-10, alleging that, on September 24, 1997, Nova failed to
prepare and implement a Spill Prevention Control and Countermeasure plan for its
Wood "B" Tank Battery facility in Crook County, Wyoming, as required by the
Clean Water Act. An answer to the complaint has been filed. We believe that we
will not have to pay any civil penalty should it be found that a violation
occurred because we did not exercise any financial or managerial control or
authority over Nova during the time in question, but were merely the sole
stockholder of Nova. We only learned of the complaint during this reporting
period.
On May 3, 2000, Linda Bryant filed a lawsuit, docketed to No. 2000-22730 in the
270th Judicial District Court of Harris County, Texas, alleging a breach of
contract arising out of the termination of her employment contract with us. It
is our position that the contract is void and that Ms. Bryant's termination was
justified. We have just been served and we will timely file an answer to the
suit.
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
<PAGE>
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
----------------------
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
<PAGE>
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<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 1612462
<SECURITIES> 0
<RECEIVABLES> 37565
<ALLOWANCES> 0
<INVENTORY> 20372
<CURRENT-ASSETS> 1677273
<PP&E> 1917823
<DEPRECIATION> 211078
<TOTAL-ASSETS> 3648695
<CURRENT-LIABILITIES> 2873213
<BONDS> 0
0
0
<COMMON> 63512
<OTHER-SE> 12493097
<TOTAL-LIABILITY-AND-EQUITY> 775482
<SALES> 72460
<TOTAL-REVENUES> 72460
<CGS> 0
<TOTAL-COSTS> 641651
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (569191)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (569191)
<EPS-BASIC> (.09)
<EPS-DILUTED> (.09)
</TABLE>
