<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to _______
Commission file number 0-10201
TGX CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 72-0890264
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
222 Pennbright, Suite 200
Houston, Texas 77090
(Address of principal executive offices) (Zip Code)
(281) 872-0500
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for 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 _____
-----
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes X No _____
-----
As of January 31, 1995, there were 25,313,533 outstanding shares of TGX
Corporation Common Stock, $.01 par value.
<PAGE>
TGX CORPORATION
Report on Form 10-Q/A For The Quarter Ended September 30, 1994
Index
<TABLE>
<CAPTION>
Page
<S> <C>
Part I. Financial Information 1
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets -
September 30, 1994 and December 31, 1993 2
Consolidated Statements of Operations (Unaudited) -
Three and Six Month Periods Ended
September 30, 1994 and 1993 3
Consolidated Statements of Cash Flows -
Nine Month Periods Ended September 30, 1994 and 1993 4
Notes to Consolidated Financial Statements (Unaudited) 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 13
Part II. Other Information 18
Item 1. Legal Proceedings
Item 3. Defaults Upon Senior Securities
Item 6. Exhibits and Reports on Form 8-K
</TABLE>
Forward-Looking Statements
Stockholders are cautioned that all forward-looking statements involve risks
and uncertainties, including without limitation, statements about the costs of
exploring and developing new oil and natural gas reserves, the price for which
such reserves can be sold, the Company's attempts to reduce overhead and
eliminate non-core assets, environmental concerns affecting the drilling of oil
and natural gas wells, pending litigation, and general market conditions,
competition and pricing. Although the Company believes that the assumptions
underlying the forward-looking statements contained herein are reasonable, any
of the assumptions could be inaccurate, and there can therefore be no assurance
that the forward-looking statements included in the Form 10-Q/A will prove
accurate. Because of the significant uncertainties inherent in the forward-
looking statements contained in the Form 10-Q/A, the inclusion of such
information should not be regarded as a representation by the Company or any
other person that the objectives and plans of the Company will be achieved.
<PAGE>
TGX Corporation
Report on Form 10-Q/A For the Quarter Ended September 30, 1994
Part I. Financial Information.
Item 1. FINANCIAL STATEMENTS.
The accompanying unaudited consolidated financial statements of TGX
Corporation ("TGX") and its subsidiaries (collectively the "Company") have been
prepared in accordance with Rule 10-01 of Regulation S-X, "Interim Financial
Statements", and accordingly do not include all information and notes required
under generally accepted accounting principles for complete financial
statements. The financial statements have been prepared in conformity with the
accounting principles and practices as disclosed in the Company's Annual Report
on Form 10-K for the year ended December 31, 1993. These interim financial
statements reflect all adjustments (which were normal recurring adjustments)
which are, in the opinion of management, necessary for a fair presentation of
the Company's financial position as of September 30, 1994 and the results of its
operations and cash flows for the nine month period ended September 30, 1994.
Results of operations for the nine month period ended September 30, 1994 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 1994. It is recommended that these unaudited consolidated
financial statements be read in conjunction with the consolidated financial
statements and notes thereto included in the Company's Annual Report on Form 10-
K for the year ended December 31, 1993.
Prior Period Adjustments
- ------------------------
In July 1994, the Company restructured and converted its Bank of Montreal
("BMO") debt of $4,652,000 to a nonrecourse note secured only by proceeds, if
any, which might be received from the National Fuel Gas Distribution Corporation
litigation ("NFG Litigation"). This restructuring and conversion was accounted
for as an exchange transaction presented as an extinguishment of debt in
accordance with Emerging Issues Task Force Consensus No. 86-18 and resulted in
the recognition of an extraordinary gain, net of transaction costs of $492,000,
of $4,160,000 in the third quarter of 1994. In connection with responding to
comments from the Securities and Exchange Commission in connection with a 1996
filling, the Company accepted the Securities and Exchange Commission's
determination that generally accepted accounting principles require the Company
to account for the restructuring and conversion of debt as a troubled debt
restructuring in accordance with Statement of Financial Accounting Standards No.
15. As a result of this change, the financial statements for September 30, 1994
through the current reported period have been restated to restore the liability
for the nonrecourse BMO debt, including accrued interest, and to reverse the
extraordinary gain recognized in 1994. This restatement did not impact cash
flow during the period September 30, 1994 through the current reported period.
The Company did, however, upon resolution of the NFG Litigation in April 1996,
reflect a net gain from litigation settlement of $7,100,000 and an extraordinary
debt extinguishment gain of $1,868,000, and made a final debt payment to BMO of
$3,600,000. (See Note 7 of the Notes to Consolidated Financial Statements.)
1
<PAGE>
TGX Corporation and Subsidiaries
CONSOLIDATED BALANCE SHEETS
Note 1
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------
(Restated-
Note 7)
September 30, December 31,
(Thousands of dollars) 1994 1993
- ----------------------------------------------------------------------
<S> <C> <C>
ASSETS (Unaudited)
Current assets:
Cash and cash equivalents $ 649 $ 1,220
Accounts receivable, net 1,973 1,833
Accounts receivable from
affiliates, net 337 1,019
Net oil and natural gas properties
held for sale - Note 2 - 15,128
Other current assets 131 148
- ----------------------------------------------------------------------
Total current assets 3,090 19,348
- ----------------------------------------------------------------------
Property and equipment:
Oil and natural gas properties 10,458 11,434
Other property and equipment 312 442
Accumulated depletion, depreciation
and amortization (3,759) (2,472)
- ----------------------------------------------------------------------
Property and equipment, net 7,011 9,404
- ----------------------------------------------------------------------
OTHER ASSETS:
Accounts receivable from
affiliates, long-term portion - 100
Investment in Comite Field Plant
Venture 939 1,015
Other assets 239 198
- ----------------------------------------------------------------------
Total other assets 1,178 1,313
- ----------------------------------------------------------------------
TOTAL ASSETS $ 11,279 $ 30,065
======================================================================
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable and accrued
liabilities - Note 6 $ 3,237 $ 7,657
Current maturities of long-term
debt - Note 3 159 19,499
Notes payable 1,065 1,401
- ----------------------------------------------------------------------
Total current liabilities 4,461 28,557
- ----------------------------------------------------------------------
Commitments and contingencies - Note 4
Long-term debt - Note 3 6,319 -
Redeemable Senior Preferred Stock,
8,729,246 shares to be issued
redemption value $87,292 40,893 30,013
- ----------------------------------------------------------------------
Stockholders' deficit:
Preferred stock, $1.00 par value;
10,000,000 shares authorized
300,000 shares issued plus 124,000
and 104,000, respectively, shares
to be issued for dividends 424 404
Common stock, 28,976,791 shares
issued, 25,313,533 shares
outstanding 290 290
Additional paid-in capital 1,118 936
Accumulated deficit (42,226) (30,135)
- ----------------------------------------------------------------------
Total stockholders' deficit (40,394) (28,505)
- ----------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS'
DEFICIT $ 11,279 $ 30,065
======================================================================
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
2
<PAGE>
TGX Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited) Note 1
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------
(Restated- (Restated-
Note 7) Note 7)
Three Months Ended Nine Months Ended
September 30, September 30,
(Thousands of dollars, except per share
data) 1994 1993 1994 1993
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
REVENUES
Oil and natural gas sales $ 1,296 $ 2,284 $ 3,285 $ 6,710
Natural gas gathering 64 106 243 323
Share of earnings of natural gas
treating plant 112 138 312 420
Other, net - Note 5 (9) 16 1,255 398
- -------------------------------------------------------------------------------------------------------
1,463 2,544 5,095 7,851
- -------------------------------------------------------------------------------------------------------
COSTS AND EXPENSES
Operating expenses 827 900 1,771 2,992
Depletion, depreciation and amortization 790 897 1,754 2,557
General and administrative expenses 731 645 2,088 2,260
Interest, net 144 553 732 1,703
- -------------------------------------------------------------------------------------------------------
2,492 2,995 6,345 9,512
- -------------------------------------------------------------------------------------------------------
LOSS BEFORE EXTRAORDINARY GAIN (1,029) (451) (1,250) (1,661)
Extraordinary Gain - Note 3 128 - 128 -
- -------------------------------------------------------------------------------------------------------
NET LOSS (901) (451) (1,122) (1,661)
Accretion of Senior Preferred
redemption value (1,020) (746) (2,906) (2,110)
Preferred stock dividends, net (2,717) (2,558) (8,063) (7,598)
- -------------------------------------------------------------------------------------------------------
NET LOSS APPLICABLE TO COMMON STOCK $(4,638) $(3,755) $(12,091) $(11,369)
=======================================================================================================
NET LOSS PER SHARE OF COMMON STOCK $(0.18) $(0.15) $(0.48) $(0.45)
=======================================================================================================
AVERAGE COMMON SHARES OUTSTANDING 25,314 25,314 25,314 25,314
=======================================================================================================
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
3
<PAGE>
TGX Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited) Note 1
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
(Restated -
Note 7)
Nine Months Ended September 30,
(Thousands of dollars) 1994 1993
- ------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (1,122) $(1,661)
Adjustments to reconcile net loss to
cash provided by
operating activities:
Depletion, depreciation and
amortization 1,754 2,557
Other amortization - 75
Extraordinary gain (128) -
Interest to be paid through issuance
of additional notes 101 -
Changes in operating assets and
liabilities:
Increase in accounts receivable (140) (278)
(Increase) decrease in accounts
receivable from affiliates 782 (224)
Decrease (increase) in other
current assets 15,145 (107)
Increase (decrease) in accounts
payable and accrued expenses (4,730) 2,901
- ------------------------------------------------------------------------------------
Net cash provided by
operating activities 11,662 3,263
- ------------------------------------------------------------------------------------
Cash flows from investing activities:
Capital expenditures (418) (283)
Proceeds from asset sale, net 1,244 302
(Increase) decrease in other assets (65) 86
- ------------------------------------------------------------------------------------
Net cash provided by
investing activities 761 105
- ------------------------------------------------------------------------------------
Cash flows from financing activities:
Borrowings 1,725 90
Principal payments on long-term debt
and notes payable (14,719) (2,569)
- ------------------------------------------------------------------------------------
Net cash used by financing
activities (12,994) (2,479)
- ------------------------------------------------------------------------------------
Net increase (decrease) in cash and
cash equivalents (571) 889
Cash and cash equivalents at beginning
of period 1,220 1,297
- ------------------------------------------------------------------------------------
Cash and cash equivalents at end of
period $ 649 $ 2,186
====================================================================================
Supplemental Disclosure of Non-Cash
Financing Activities:
Forgiveness of notes payable $ 128 -
Interest to be paid through
issuance of additional notes $ 101 -
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
4
<PAGE>
TGX Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION
TGX Corporation ("TGX") and subsidiaries (collectively, the "Company"), is a
domestic independent energy company engaged in the production of oil and natural
gas. The Company is also engaged in intrastate natural gas gathering and
treating.
On February 22, 1990, TGX filed a voluntary petition in the United States
Bankruptcy Court for the Western District of Louisiana, Shreveport Division (the
"Bankruptcy Court") for reorganization pursuant to Chapter 11, Title 11 of the
United States Code (the "Reorganization Proceeding"). On January 7, 1992, the
Bankruptcy Court confirmed an Amended Plan of Reorganization ("Plan") for TGX,
and the confirmation order became effective on January 21, 1992 (the "Effective
Date"). On September 21, 1992, the Bankruptcy Court determined that the Plan had
been substantially consummated, and the Bankruptcy Court's order of substantial
consummation became final and nonappealable on October 2, 1992.
The consolidated financial statements have been prepared on a going concern
basis which contemplates continuity of operations and realization of assets and
liquidation of liabilities in the ordinary course of business.
As a result of the substantial consummation of the Plan and due to (I) the
reallocation of the voting rights among the equity interests owners and (ii) the
Reorganization Value, as defined below, of TGX's assets being less than the
total of all post-petition liabilities and allowed claims, the effects of the
Reorganization Proceeding were accounted for in accordance with the fresh start
reporting standards promulgated under the American Institute of Certified Public
Accountants Statement of Position 90-7 "Financial Reporting by Entities in
Reorganization Under the Bankruptcy Code" ("SOP 90-7").
In conjunction with implementing fresh start reporting, a reorganization
value ("RV") of the Company's assets and liabilities as of October 2, 1992 was
determined by management in the following manner:
The RV of proved oil and natural gas properties and other related assets was
determined based on future net revenues discounted to present value utilizing
a rate of twenty percent (20%). For proved undeveloped properties, the RV was
determined to be fifty percent (50%) of discounted future net revenues. For
the purpose of calculating future net revenues of oil and natural gas
properties, current oil and natural gas prices were escalated at five percent
(5%) per annum to certain maximum amounts and current operating costs and
expenses were escalated at four percent (4%) per annum for the economic life
of the properties. The initial price for natural gas dedicated under the
contract with National Fuel Gas Distribution Corporation ("NFG"), which is
currently a matter being litigated, was equal to ninety percent (90%) of the
rolling twelve month average price for No. 6 fuel oil in the Buffalo, New
York area (the "90% of No. 6 Fuel Oil Price"). The RV of oil and natural gas
properties also included $2,905,000 attributable to the difference, plus
interest, between the price that NFG has paid since September 1984 and the
90% of No. 6 Fuel Oil Price.
5
<PAGE>
Current assets and liabilities were recorded at book value which approximates
RV. Long-term liabilities were recorded at the present values of amounts to
be paid and the pre-consummation stockholders' deficit was adjusted to
reflect the par value of pre-consummation equity interests.
The recorded value of the Series A Senior Preferred Stock ("Senior
Preferred") to be issued pursuant to the Plan was determined based on the
difference between the RV of the Company's assets less the sum of (I) the
present value of liabilities plus (ii) the par value of pre-consummation
equity interests. The accretion of the difference between the recorded value
and the $10 per share redemption amount of the Senior Preferred will be
recorded as a reduction of income applicable to common stockholders over a
period of approximately ten (10) years.
The RV was determined by management on the basis of its best judgment of what
it considered to be the fair market value ("FMV") of the Company's assets and
liabilities at the time of the valuation after reviewing relevant facts
concerning the price at which similar assets were being sold between willing
buyers and sellers. However, there can be no assurances that the RV and the FMV
are comparable and the difference between the Company's calculated RV and the
FMV may, in fact, be material.
The Senior Preferred has a $10 per share redemption value and has a provision
for a 10% annual compounded cash dividend, payable quarterly, provided however,
that the payment of such dividend does not violate Delaware law or certain loan
covenants. The Company has not paid any dividends since the Effective Date of
the Plan and based on the current financial position of the Company and bank
covenants restricting dividend payments, it does not expect to make any such
dividend payments in the near future. Subject to Delaware law, the Senior
Preferred must be redeemed no later than January 21, 2002. Holders of Senior
Preferred have 95% of the voting rights of TGX. As of September 30, 1994, the
Senior Preferred redemption value and accrued dividends totaled $87,292,000 and
$25,667,000, respectively. The Senior Preferred dividends must be paid in full
prior to paying any other dividends.
2. SALE OF OIL AND NATURAL GAS PROPERTIES AND RELATED ASSETS
In the first half of 1994, TGX consummated the sale of substantially all of
its New York and Ohio oil and natural gas properties and related assets to
Belden & Blake Corporation ("BBC") for $16.2 million, subject to certain
adjustments. The effective date of this transaction was December 1, 1993.
Substantially all of the net proceeds from this transaction were applied toward
the reduction of TGX's obligation to Bank of Montreal. (See Note 3) In
conjunction with the BBC transaction, TGX assigned to BBC its contract with NFG
pursuant to which a substantial portion of TGX's New York natural gas production
was marketed. The assignment of TGX's contract with NFG was made with certain
reservations relating to the litigation and administrative proceedings between
TGX and NFG.
6
<PAGE>
3. LONG-TERM DEBT AND NOTES PAYABLE
As of September 30, 1994 and December 31, 1993, the components of long-term
debt were:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------
September 30, December 31,
(Thousands of dollars) 1994 1993
- --------------------------------------------------------------------
<S> <C> <C>
Bank borrowings:
Term loans (secured) $1,725 $ 19,209
Revolving credit (secured) - 290
Non-recourse note 4,753 -
- -------------------------------------------------------------------
6,478 19,499
Less current maturities (159) (19,499)
- -------------------------------------------------------------------
Long-term debt in default $6,319 $ -
===================================================================
</TABLE>
Pursuant to the terms of the Plan, effective February 1, 1992, TGX executed
an Amended and Restated Credit Agreement (the "Amended Credit Agreement") with
Bank of Montreal ("BMO") which essentially continued and preserved a prior
revolving credit agreement. In March 1992, the Amended Credit Agreement was
further amended to provide for the issuance of letters of credit and in October
1992 it was again amended to increase the revolving credit facility from a
maximum amount of $500,000 to $1,000,000 and to provide for the issuance of a
term loan promissory note in settlement of certain disputed claims of BMO. The
general terms of the term loans under the Amended Credit Agreement are:
<TABLE>
<CAPTION>
Original
Principal
Description Amount Interest Rate Maturity Date
- ------------------ ----------- ------------------- -----------------
<S> <C> <C> <C>
Term Loan A $15,600,000 BMO Prime plus 1.5% December 31, 1994
Term Loan B 10,000,000 13% December 31, 1993
Term Loan C 1,250,000 BMO Prime plus 1.5% December 31, 1993
Term Loan D 194,750 None December 31, 1994
</TABLE>
Loans made pursuant to the Amended Credit Agreement are secured by
substantially all of the assets of the Company, and the Amended Credit Agreement
included covenants relating to certain financial and expenditures restrictions.
Pursuant to the provisions of the Term Loans, on December 31, 1992, TGX was
required to make certain interest payments of approximately $1,274,000. TGX was
unable to pay this obligation and on January 7, 1993, BMO notified TGX that an
Event of Default had occurred under the Amended Credit Agreement. In addition,
TGX did not satisfy in full the subsequent required debt service payments to
BMO, which also constitute Events of Default.
In January 1994, in conjunction with TGX's sale of certain oil and natural
gas properties and related assets to BBC, TGX made a debt service payment of
approximately $14.3 million to BMO. In addition, TGX and BMO entered into a
limited forbearance agreement (the "Forbearance Agreement"), which was
subsequently amended, pursuant to which BMO agreed not to assert any rights
resulting from the Events of Default until March 31, 1994. Pursuant to the
Forbearance Agreement, TGX was required to make a payment (the "Required
Payment") of $18 million plus accrued interest and fees less (I) the $14.3
million previously paid to BMO and (ii) any amounts paid to BMO subsequent to
January 1, 1994 that were applied toward the Required Payment. In
7
<PAGE>
conjunction with obtaining all or substantially all of the funds for the
remainder of the Required Payment, on April 28, 1994, TGX received a commitment
regarding a new secured credit facility. Since the Required Payment was not made
before March 31, 1994, the Forbearance Agreement terminated and BMO's rights
under the Amended Credit Agreement were reinstated including the existence of
the Events of Default.
On July 13, 1994 TGX entered into a series of agreements with BMO and Bank
One, Texas NA ("Bank One") whereby the Company's outstanding secured bank debt
was restructured and all BMO Events of Default resolved. Pursuant to the
restructuring, Bank One established a borrowing base facility of $2,350,000
under which TGX immediately borrowed $1,600,000 of which $1,452,000 was paid to
BMO. The Bank One facility bears interest at Bank One's stated prime rate plus
2% and is secured by substantially all of TGX's oil and gas properties. This
loan is repayable in thirty-six (36) months and matures on July 13, 1997. The
borrowing base is to be redetermined every six months or at Bank One's election.
The Bank One facility requires the maintenance of certain financial ratios
including a working capital ration of 1.2 to 1 and a tangible net worth,
including Senior Preferred Stock, of a minimum of $5,000,000 and other ratios.
The Company can give no assurance that it will be able to continually meet the
Bank One facility ratios and covenants.
Simultaneously with the securance of the Bank One facility, BMO released all
of it liens on TGX's properties with the exception of its lien on TGX's
currently pending litigation with NFG (See Note 4). As part of the loan
restructuring, BMO converted $4,652,000 (the "BMOF Principal") of it outstanding
indebtedness to a non-recourse note secured only by the NFG Litigation and any
proceeds that might be received therefrom. BMO has assigned its rights to the
loan, security and TGX note, to BMO's wholly-owned subsidiary, BMO Financial,
Inc. ("BMOF"). Pursuant to agreement, after repayment of the outstanding BMOF
Principal, plus applicable interest, from NFG Litigation proceeds, if any, BMOF
will, in certain instances, after TGX has received the same initial amount paid
to BMOF, be entitled to receive up to fifty percent interest in certain
additional litigation proceeds. If NFG Litigation proceeds are insufficient to
repay the BMOF Principal, plus applicable interest, TGX will have no further
obligation for such repayment. The BMOF note matures on December 31, 1997,
subject to each party having the right to extend the maturity date and bears
interest at the rate of 10% per annum. However, until December 31, 1997 and for
such further time as BMOF elects to extend the maturity date of such loan, no
cash payment for such interest is required; instead TGX will pay interest in
kind through the issuance of additional notes to BMOF. As of September 30, 1994
the BMOF note outstanding totaled $4,753,000, including total accrued interest
of $101,000.
During the Reorganization Proceeding, TGX incurred and claimants filed
applications for approximately $7,131,000 in administrative fees and expenses
relating to the reorganization ("Administrative Claims"). TGX objected to
certain of the Administrative Claims and negotiated settlement amounts and terms
of payment with certain holders of Administrative Claims. As a result, each of
these administrative claimants, other than certain opposing administrative
claimants, received a promissory note (the "Administrative Notes") due December
31, 1994, in satisfaction of its unpaid administrative claim. The claimants were
to receive their Administrative Notes upon satisfaction of certain conditions,
including execution of certain releases of liability to the Company and others.
The Administrative Notes bear interest at a rate not to exceed 8% and are
secured with certain collateral (the "Consummation Collateral") that has been
released from the BMO lien. If the proceeds related to the Consummation
Collateral are not sufficient to satisfy the Company's obligations under the
Administrative Notes the Company's excess operating funds, if any, may be
applied toward the balances due. During the third quarter of 1994, the Company
entered into discussions with various Administrative Note holders proposing
settlement of their claims on a discounted basis. As of September 30, 1994,
certain Administrative Notes were settled on a discounted basis resulting in an
extraordinary gain, including interest forgiven, of $128,000.
8
<PAGE>
4. COMMITMENTS AND CONTINGENCIES
NFG Dispute
- -----------
Since November 30, 1984, TGX has been involved in litigation in the United
States District Court for the Western District of New York ("New York Federal
Court") (Civ. No. 841372-E) with NFG ("NFG Litigation") concerning the validity
of a contract (the "Contract") pursuant to which TGX (as successor-in-interest
to Paragon Resources, Inc. ("Paragon"), the original contracting party) sells
certain natural gas production to NFG. The litigation addresses, among other
things, the continued validity of the Contract, the price for gas sold and
certain take-or-pay claims.
In December 1983, certain pricing provisions of the Contract were disapproved
by the New York Public Service Commission ("PSC") and as a result, in January
1991, the New York Federal Court determined that the Contract was invalidated.
However, on December 3, 1991, the Court of Appeals for the Second Circuit
("Court of Appeals") (Case No. 91-7127) reversed the New York Federal Court
decision and held that the Contract remains in effect subject to the pricing
provisions set forth therein. The Court of Appeals remanded the case to the New
York Federal Court for further proceedings not inconsistent with their opinion.
During the Reorganization Proceeding, TGX filed an adversary proceeding (the
"Turnover Proceeding") in the Bankruptcy Court to compel NFG to pay the amount
due to TGX pursuant to the provisions of the Contract. Effective June 19, 1992,
TGX and NFG entered into a partial settlement agreement, regarding the
settlement of some, but not all, of their disputes. Pursuant to the provisions
of the partial settlement agreement, in consideration of a payment of $2,940,000
(the "Payment") from NFG, TGX (I) dismissed the Turnover Proceeding without
prejudice (ii) released NFG (subject to certain limitations) from any and all
liability and affirmative claims for relief alleged to arise from or based upon
certain evidence presented by TGX in the Turnover Proceeding, and (iii) reserved
its rights regarding the assumption or rejection of certain other relatively
minor gas purchase agreements with NFG. The Payment will be credited against any
additional amount due to TGX from NFG.
In July 1992, the New York Federal Court denied a motion filed by NFG for
partial summary judgement wherein NFG sought a finding that it had properly
suspended performance under, and eventually terminated, the Contract. A
subsequent rehearing upheld this conclusion, but determined that certain matters
relating to this issue were questions of fact that cannot be resolved by summary
judgement.
In December 1992, NFG filed a motion with the PSC requesting a hearing to
determine pricing issues related to the Contract. The PSC determined that it
would hold the requested hearing and the parties have submitted prepared
testimony, legal briefs, and other documentary material to an administrative law
judge appointed by the PSC. As of September 30, 1994, the administrative law
judge had not made a finding of fact or law. In November 1994, the
administrative law judge issued a preliminary finding that the just and
reasonable price pursuant to the NFG contract was $3.714 per mcf of gas. TGX,
NFG, and the Staff of the Public Service Commission have filed exceptions to the
administrative law judge's rulings, but, to date, the administrative law judge
has not ruled on the filed exceptions.
In January 1993, the New York Federal Court granted TGX's motion for partial
summary judgement regarding the price to be paid under the Contract. Based on
the New York Federal Court's order, TGX has concluded that from December 1983,
through, at least, January 1, 1993, the date price controls were terminated, the
Contract price is equal to the lower of (I) the applicable maximum lawful price
for December 1983 and for each month thereafter as established by the
9
<PAGE>
Natural Gas Policy Act ("NGPA") subject to the escalations provided by the NGPA
or (ii) the December 1983 permitted Contract price of approximately $4.41 per
MCF. Based on TGX's calculations, the gross difference between the price
actually paid by NFG and the price required by the New York Federal Court's
order is approximately $23,535,000 as of September 30, 1994, including permitted
statutory interest. The New York Federal Court's order did not determine the
price subsequent to the termination of the NGPA nor the effect of any subsequent
PSC order. A motion by NFG to reconsider this order was determined in 1993, and
pursuant thereto, the order for partial summary judgement was upheld. However,
the New York Federal Court determined that there were factual issues relating to
the alleged repudiation by TGX of the NFG Contract which could not be determined
pursuant to a motion for summary judgement. In November 1994, the New York
Federal Court appointed a Magistrate to review and hear certain motions relating
to various aspects of the Federal Court litigation, including motions and
scheduling in pre-trial discovery.
While TGX is continuing the litigation with NFG regarding the Contract, TGX's
management has determined that it will also continue to seek a negotiated
settlement with NFG. However, there can be no assurances that any such
settlement negotiations will be held or, if held, will be productive. Absent
settlement, TGX will vigorously pursue the litigation with NFG. In either event,
the ultimate result of the litigation or any settlement with NFG could have a
material effect on TGX's financial condition. Also, as result of the debt
restructuring completed on July 13, 1994 (See Note 3), BMO, through its wholly
owned subsidiary, is entitled to receive the initial $4,652,000, plus applicable
interest, of any settlement and will in certain instances, after TGX has
received the same initial amount paid to BMO, be entitled to receive up to fifty
percent of certain additional proceeds. TGX can make no prediction as to such
effect of or when the NFG Litigation will finally be resolved.
Other
- -----
In August 1992, certain unleased mineral interest owners commenced a legal
action against TGX, as operator of certain wells, in the 19th Judicial District
Court for East Baton Rouge Parish, Louisiana (Case Number 383844, Division "A").
The complaint alleges that revenues in excess of the reasonable costs of
drilling, completing, and operating certain wells have not been credited to the
interests of the unleased mineral interest owners. This case is in the discovery
stage and if settlement negotiations are not successful, TGX will vigorously
defend itself in the litigation.
In March 1994, a hearing was conducted in the Bankruptcy Court regarding the
final allowance of pre-petition and administrative claims related to an
overriding royalty interest previously conveyed by TGX. As a result of this
hearing, the Bankruptcy Court established the method for computing these claim
amounts. The parties stipulated that the finally allowed prepetition claim
amount was $600,000 to be satisfied with the issuance of Senior Preferred.
Previously, TGX had estimated this claim amount and therefor it had been
included in prior years financial statements. The administrative claim amount
will be satisfied with the issuance of an Administrative Note. The Bankruptcy
Court has issued an initial decision relating to the amount of the
Administrative Claim. Each of the parties has filed exceptions to the Bankruptcy
Court's Opinion, but, to date, no final decision has been issued.
From time to time, in the normal course of business, the Company is a party
to various other litigation matters the outcome of which, to the extent not
otherwise provided for, should not have a material adverse effect on the
Company.
10
<PAGE>
5. OTHER REVENUE
The primary components of other revenue are (in thousands):
<TABLE>
<CAPTION>
Nine Months Ended September 30,
-------------------------------
1994 1993
<S> <C> <C>
Proceeds from asset sales, net $ 877 $ 141
Decrease in allowance for doubtful accounts 242 214
Other 136 43
------ -----
$1,255 $ 398
====== =====
</TABLE>
6. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
As of September 30, 1994 and December 31, 1993 the primary components of
accounts payable and accrued liabilities were (in thousands):
<TABLE>
<CAPTION>
1994 1993
(Unaudited)
<S> <C> <C>
Accounts payable $ 343 $ 664
Undistributed net oil and natural gas
revenue 1,452 1,584
Accrued interest and fees 32 3,408
Accounts payable to affiliates 101 101
Accrued pre-petition liabilities 878 926
Miscellaneous accruals 431 974
------ ------
$3,237 $7,657
====== ======
</TABLE>
7. PRIOR PERIOD ADJUSTMENTS
In July 1994, the Company restructured and converted its BMO debt of
$4,652,000 to a non-recourse note secured only by proceeds, if any, which might
have been received from the NFG Litigation. This restructuring and conversion
was accounted for as an exchange transaction presented as an extinguishment of
debt in accordance with Emerging Issues Task Force Consensus No. 86-18 and
resulted in the recognition of an extraordinary gain, net of transaction costs
of $492,000, of $4,160,000 in the third quarter of 1994. In connection with
responding to comments from the Securities and Exchange Commission in connection
with a 1996 filing, the Company accepted the Securities and Exchange
Commission's determination that generally accepted accounting principles require
the Company to account for the restructuring and conversion of debt as a
troubled debt restructuring in accordance with Statement of Financial Accounting
Standards No. 15. As a result of this change, the financial statements for
September 30, 1994 through the current reported period have been restated to
restore the liability for the non-recourse BMO debt, including accrued interest,
and to reverse the extraordinary gain recognized in 1994. This restatement did
not impact cash flow during the period September 30, 1994 through the current
reported period. The Company did, however, upon resolution of the NFG
Litigation in April 1996, reflect a net gain from litigation settlement of
$7,100,000 and an extraordinary debt extinguishment
11
<PAGE>
gain of $1,868,000, and made a final debt payment to BMO of $3,600,000. A
summary of the impact on the 1994 period is shown below (in thousands, except
per share data).
<TABLE>
<CAPTION>
September 30, 1994
Reported Restated
--------- ---------
BALANCE SHEET (Unaudited)
<S> <C> <C>
Long-term debt $ 1,566 $ 6,319
Accumulated deficit (37,483) (42,226)
Total stockholder's deficit (35,651) (40,394)
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, 1994 September 30, 1994
Reported Restated Reported Restated
-------- -------- -------- --------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS (Unaudited)
General and administrative expense $ 239 $ 731 $ 1,596 $ 2,088
Interest expense 43 144 631 732
Extraordinary gain 4,288 128 4,288 128
Net income (loss) applicable to
common stock 115 (4,638) (7,338) (12,091)
Net income (loss) per share of
common stock 0.00 (0.18) (0.29) (0.48)
</TABLE>
12
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF UNAUDITED FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
The following discussion provides information which management believes is
relevant to an understanding and assessment of the Company's results of
operations, financial condition, and those presently known events, trends or
uncertainties that are reasonably likely to have a material impact on the
Company's future results of operations or financial condition or that are
reasonably likely to cause the historical financial statements not to be
necessarily indicative of future operating results or financial condition. It
should be read in conjunction with the unaudited consolidated financial
statements and related notes appearing elsewhere herein.
Amounts in this discussion and analysis have been restated as disclosed in
Note 7 of the Notes to Consolidated Financial Statements.
RESULTS OF OPERATIONS
Comparison of The First Nine Months of 1994 ("1994") to the First Nine Months
- ------------------------------------------------------------------------------
of 1993 ("1993")
- ----------------
Following is a comparison of operating income and other financial activity
(amounts in thousands):
<TABLE>
<CAPTION>
1994 1993 Change
-------- -------- ---------
<S> <C> <C> <C>
Oil and natural gas production $ 3,285 $ 6,710 $(3,425)
Natural gas gathering and treating 555 743 (188)
Other, net 1,255 398 857
Operating expenses (1,771) (2,992) (1,221)
Depletion, depreciation and amortization (1,754) (2,557) (803)
General and administrative expenses (2,088) (2,260) (172)
------- ------- -------
Operating income $ (518) $ (42) $ (560)
======= ======= =======
</TABLE>
Revenues
- --------
Consolidated revenues for 1994 decreased 35% to $5,095,000 compared to
$7,851,000 for 1993.
Oil and natural gas sales revenue for 1994 decreased by $3,425,000 to
$3,285,000. This decrease was primarily attributable to the sale of
substantially all of TGX's New York and Ohio oil and natural gas properties
effective December 1,1993 and one of TGX's most significant properties being
shut-in for a workover operation for all of 1994.
A summary of oil and natural gas sales volume and revenues for the
respective periods is:
Summary of Oil Sales Volume and Revenue
<TABLE>
<CAPTION>
- ----------------------------------------------------------
<S> <C> <C> <C>
1994 1993 Change
- ----------------------------------------------------------
Oil revenues (in thousands) $ 729 $ 1,026 (29%)
Oil sales volume (barrels) 47,700 55,700 (14%)
Oil average price per barrel $ 15.28 $ 18.42 (17%)
- ----------------------------------------------------------
</TABLE>
Summary of Natural Gas Sales Volume and Revenue
<TABLE>
<CAPTION>
- ------------------------------------------------------------
1994 1993 Change
- ------------------------------------------------------------
<S> <C> <C> <C>
Natural gas revenues
(in thousands) $2,556 $5,684 (55%)
Natural gas sales volume (Bcf) 1.392 2.542 (45%)
Natural gas average sales price
per Mcf $ 1.84 $ 2.24 (18%)
- -------------------------------------------------------------
</TABLE>
13
<PAGE>
On January 14, 1994, TGX sold substantially all of its New York and Ohio
oil and natural gas properties and related assets to Belden & Blake Corporation
("BBC") for $16.2 million, subject to certain adjustments. The effective date of
this transaction was December 1, 1993 and accordingly the Company's 1994 results
of operations do not include any transactions related to these properties. For
1993, a summary of the oil and natural gas sales volumes and net revenue related
to these properties that were included in the Company's results of operations
for that period is:
<TABLE>
<CAPTION>
<S> <C>
Oil sales volume (Mbbls) 3.0
Gas sales volume (Bcf) 1.372
Oil and natural gas revenue $ 3,507
Operating expenses (1,684)
-------
Net revenue $ 1,823
=======
Natural gas average price per equivalent Mcf $ 2.51
</TABLE>
TGX, as operator, in early 1994 commenced capitalizable workover operations
on the Starkey No. 1 well located in the Comite Field, East Baton Rouge Parish,
Louisiana. This well is one of TGX's most significant properties and its
combined direct and beneficial working interest in the well is approximately
42.6%. Net TGX capitalized expenditures incurred through June 30, 1994 totaled
approximately $400,000. In August, 1994, TGX and its partners elected to suspend
further workover operations pending further review. TGX and its partners are
currently attempting to secure a third party to assume the remaining financial
risk to be incurred to return this well to production. If a third party investor
is not secured TGX and its partners have no current plans to recommence
operations and the well will be abandoned. If the well is abandoned, TGX will at
that time expense its share of capitalized costs incurred under this operation.
On an equivalent unit basis (one barrel of oil equals six Mcf of natural gas
on a heating value basis), natural gas represents 83% of TGX's 1994 oil and
natural gas sales volumes and 78% of oil and natural gas revenues. Due to the
Company's revenues being heavily weighted toward gas, its revenues and cash flow
is significantly influenced by changes in gas prices. During the fourth quarter
of 1994, gas prices have continued to decline from the average price realized
through September 30, 1994. Continued low gas prices will significantly
diminish operating results for the remainder of 1994.
Natural gas gathering and treating revenues decreased by 25% to $555,000 in
1994 compared to $743,000 in 1993. This decrease in primarily attributable to
decreased throughput as a result of the shut-in of the Starkey No. 1 well.
Costs and Expenses
- ------------------
Consolidated costs and expenses for 1994 decreased 33% to $6,345,000 compared
to $9,512,000 for 1993.
For 1994, operating expenses decreased 41% to $1,771,000 compared to
$2,992,000 for 1993. The decrease in operating expenses is primarily
attributable to the sale of the New York and Ohio oil and natural gas properties
and related assets. The decrease in 1994 operating expenses would have been
greater except 1994 expenses include $108,000 of expensed workover costs related
to Starkey well operations.
Effective October 2, 1992, the Company adopted the successful efforts
accounting method for oil and natural gas operating activities. Depletion,
depreciation, and amortization decreased 31% to $1,754,000 in 1994 from
$2,557,000 in 1993 primarily due to the sale of the New York and Ohio oil and
natural gas properties and the Starkey well shut in. The reclassification to a
probable category of reserves attributable to the Starkey No. 1 well resulted in
a higher per unit depreciation and depletion rate for sales from the Comite
Field in 1994.
General and administrative expenses in 1994 decreased by 8% to $2,088,000
from $2,260,000 in 1993. This net decrease is primarily attributable to costs
incurred in 1993 related to the consolidation of the
14
<PAGE>
Company's operations and administrative offices and 1994 staff reductions
and outsourcing of certain functions. The decrease in 1994 expense was reduced
by lower overhead reimbursements due to the liquidation of certain affiliated
partnerships, and the inclusion in 1994 of $492,000 of nondeferrable BMO debt
restructuring costs.
Interest expense decreased 57% in 1994 to $732,000 from $1,703,000 in 1993.
This decrease is primarily attributable to current year principal balance
reductions of $15,128,000. The 1994 principal reductions were primarily the
result of proceeds derived from property sales. As a result of the debt
restructuring on July 13, 1994 (See Note 3), the Company's per annum interest
rate was reduced from a maximum rate of 13% to a floating rate of prime plus
two percent. The prime rate as of September 30, 1994 was 7.75%. The Company's
future monthly interest expense shall be significantly reduced due to lower
borrowings outstanding and a lower effective interest rate. Also included in
1994 interest expense is $101,000 of BMOF interest that will be paid through the
issuance of additional BMOF notes.
During the third quarter of 1994, the Company recorded an extraordinary gain
as a result of a debt forgiveness of $128,000. The extraordinary gain relates
to the settlement of certain Administrative Notes on discounted basis and
related accrued interest forgiveness. Efforts continue to settle the remaining
Administrative Notes on a discounted basis.
The accretion of the Senior Preferred redemption value, a non-cash item, is
calculated based on the interest method. Accordingly, the amount of this
accretion increased by 38% to $2,906,000 in 1994 compared to $2,110,000 in 1993.
Pursuant to the terms of the Plan, dividends for the Senior Preferred are
calculated at 10%, compounded annually. Due to the annual compounding factor,
Senior Preferred Stock dividends for 1994 totaled $7,861,000 as compared to
$7,396,000 for 1993. Other Preferred Stock dividends for both 1994 and 1993
were $202,000.
As of December 31, 1993, the Company had substantial federal tax net
operating loss carryovers and investment tax credit and depletion carry
forwards, which expire at varying times from 1995 to 2006. Due to an expected
current federal tax loss, the Company currently pays no federal income taxes.
Pursuant to the provisions of the Internal Revenue Code (the "Code"), a
corporation which undergoes a "change of ownership" is generally subject to an
annual limitation on the utilization of its loss carryovers. As a result, the
Company is limited in its utilization of the pre-"change of ownership" loss
carryovers. Based on the value of the Company as of the Effective Date, the
annual amount of the pre-"change of ownership" loss carryovers to be utilized is
limited to $1,230,000. However, loss carryovers not fully utilized in the year
that they are available may be carried over and utilized in subsequent years,
subject to their expiration provisions. In addition, the amount of loss
carryovers utilized will be increased by any built-in gain exclusion recognized
during the five year period after the "change of ownership". Based on the
Company's current operations, the limitation on utilization of the loss
carryovers should not have a material effect on the Company's requirements to
pay income taxes.
Other
- -----
For 1994, substantially all of the Company's capital expenditures were
related to the recompletion operations on the Starkey No. 1 well. Since the
reserves attributable to this well were classified as probable as of December
31, 1993 and, accordingly, were not included in the Company's estimate of proved
reserves, costs associated with this operation have been capitalized. For
1993, the Company's capital expenditures of $299,000 were primarily related to
computer equipment.
FINANCIAL CONDITION
As set forth in Note 3, the debt restructuring completed July 13, 1994
greatly enhanced the Company's financial position. The debt restructuring will
reduce future interest expense and negate temporarily the
15
<PAGE>
need for principal payments based on outstanding borrowings of $1,725,000 and a
borrowing base of $2,238,000 as of September 30, 1994. The borrowing base is
reduced by $56,000 per month commencing August 1, 1994 and is subject to
redetermination every six months or at Bank One's election. The non-recourse
BMOF note is payable only from NFG Litigation proceeds, if any, and interest is
payable in kind through the issuance of additional BMOF notes until December 31,
1997.
At September 30, 1994, the Company's working capital deficit was $1,371,000
which included $159,000 for current maturities of long-term debt and $1,065,000
for Administrative Notes principal. Pursuant to the new secured borrowing base
facility, the Company must maintain certain financial ratios including a current
ratio of 1.2 to 1 after excluding certain liabilities and making other
adjustments as allowed under the facility. After making such current ratio
adjustments, the Company has to date been in compliance with the current ratio
test. The Company can give no assurance that it will be able to continue to
comply with this or any other ratio tests as required under the new credit
facility.
As set forth in Note 1 the Company has certain dividend and redemption
obligations related to the Senior Preferred. For financial reporting purposes,
the Senior Preferred has both debt and equity characteristics. Accordingly, it
is not classified as a component of stockholders' equity. At September 30,
1994, the Senior Preferred redemption value and accrued dividends totaled
$87,292,000 and $25,667,000, respectively. These amounts must be paid before
any value can be attributed to the holders of the Company's Preferred and Common
Stock.
At September 30, 1994, the Stockholders' deficit was $40,394,000. Due to the
dividend requirements for the Senior Preferred and other classes of Preferred
Stock and accretion of the redemption value of Senior Preferred, it is probable
that the Company's stockholders' equity will remain a deficit for the
foreseeable future under the current capital structure.
LIQUIDITY AND CAPITAL RESOURCES
For 1994, the Company's cash provided by operating activities was
$11,662,000. The cash flow from operations was primarily due to property sale
receivable collections and was substantially dedicated to debt retirement.
The July 13, 1994 debt restructuring with BMO and Bank One (Note 3)
significantly improved the Company's liquidity while curing the BMO Events of
Default. The Bank One credit facility has a borrowing base of $2.35 million
which is reduced monthly by $56,000 commencing August 1, 1994. The borrowing
base is to be redetermined on a semi-annual basis commencing December 1, 1994 or
at Bank One's election. This new credit facility is secured by substantially
all of the Company's assets and includes financial and default covenants
standard in the industry. Though the Company has complied with all covenant
requirements to date, there can be no assurance that it will be able to continue
such compliance or that its borrowing base may not be significantly reduced
during future borrowing base redeterminations.
In conjunction with applying the net proceeds related to the sale of assets
to BBC, BMO reserved $300,000 for a TGX contingent liability under a letter of
credit. In May 1994, the letter of credit amount was reduced by $150,000 and
this amount was applied toward BMO obligations. The remaining $150,000 letter of
credit liability continues to be outstanding but release is anticipated in early
1995.
16
<PAGE>
Pursuant to the terms of the purchase and sale agreement with BBC, $500,000
of the consideration was placed in escrow pending the reconciliation of purchase
price adjustments. These funds, net of an estimated purchase price adjustment of
$45,000 and other adjustments, were released to TGX in October 1994.
In 1994, a majority of the limited partner interests in two partnerships
voted to appoint TGX as the liquidating trustee for the partnerships. As a
result, TGX solicited offers to sell the oil and natural gas properties of the
partnerships and subsequently accepted an offer to sell certain of the
partnerships' oil and natural gas properties for $2.61 million. TGX's estimated
share of the liquidating cash distributions from the partnerships ($1.367
million) was applied toward BMO debt obligations. During 1994, the Company
continued a program of reviewing the status of affiliated partnerships to
determine whether or not the partnerships should be liquidated. Due to the
limited remaining asset value for most of these partnerships and their on-going
administrative costs, substantially all of the partnerships will be liquidated.
The Company is attempting to liquidate all private partnerships by December 31,
1994 and all public partnerships by mid-1995. As a result of the private
partnership liquidations, the Company may obtain additional direct interests in
the related oil and natural gas properties. Liquidation of the partnerships
will eliminate general and administrative reimbursements derived from such
partnerships by the Company which should be offset by related administrative
cost savings.
Pursuant to the terms of various agreements, the Company, as a working
interest owner, is responsible for marketing its share of natural gas production
from certain properties. If the Company is unable or unwilling to market its
share of natural gas production from a property, its under-produced status is
subject to balancing with other working interest owners who have sold more than
their pro-rata share of natural gas production. On an aggregate net basis for
certain natural gas properties, it appears that the Company is substantially
under-produced and the Company is conducting negotiations to recoup or otherwise
settle its net under-produced status. The Company anticipates recouping
approximately $400,000, net of under-produced payments during the fourth quarter
of 1994. The Company can give no assurance as to its ability to recoup or
otherwise settle any additional net under-produced status in the immediate
future.
Subject to the availability of cash flow for 1994, the Company's capital
expenditure budget will be substantially related to the development of existing
proved developed non-producing reserves.
In addition to the on-going oil and gas production operations, a key factor
in the Company's future will be the final resolution of the NFG Litigation.
While the Company has attempted to commence settlement negotiations with NFG, to
date no meaningful discussions have taken place. If a settlement cannot be
reached, the Company is committed to prosecuting this litigation with every
reasonable resource available to it. The outcome of the NFG Litigation, which
may be many years away if a settlement cannot be reached, could materially
affect the Company's future. Under the restructured credit agreement with BMO
(See Note 3), BMO's subsidiary will be entitled to receive the initial
$4,652,000 of any settlement proceeds, plus interest, and in certain instances,
after TGX has received the same initial amount paid to BMO, be entitled to
receive up to 50% of any additional settlement proceeds. (See Note 6)
In 1994, the Company will review investment opportunities, consistent with
its available capital, to determine if asset enhancement can be obtained either
through drilling or acquisition. However, considering the Company's current
financial position and the inability to predict (I) the outcome of the NFG
Litigation and (ii) the success of any cost reductions, the Company cannot
currently determine if it will be able to successfully implement its business
plan and strategy.
17
<PAGE>
Part II. Other Information
Item 1. LEGAL PROCEEDINGS
Except as set forth in Note 4 of the Notes to Consolidated Financial
Statements included in Part I hereof, since the filing date of the Annual Report
on Form 10-K there have been no substantial developments related to the legal
proceedings described therein.
Item 3. DEFAULTS UPON SENIOR SECURITIES
(a) Dividends for the Senior Preferred Stock began accruing on the Effective
Date, however, as of September 30, 1994, no dividends had been declared. The
Senior Preferred Stock will receive a 10% annual compounded cash dividend,
payable quarterly, provided however, that the payment of such dividends does
not violate (I) Delaware Law which prohibits the payment of dividends when
such payment would impair the capital of the Company or (ii) certain
covenants in the Company's Credit Agreement with Bank One. As of September
30, 1994, there was $25,667,000 of accrued dividends which had not been
declared or paid by the Company.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a). Exhibits: - Exhibit 27 - Financial Data Schedule
(b). Reports on Form 8-K - On July 13, 1994 the Company filed a report on Form
8-K reporting, in Item 5, Other Events, on the Company's debt
restructuring.
18
<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 "hereunto duly authorized".
TGX CORPORATION
(Registrant)
Date: February 25, 1997 By: /s/ Michael A. Gerlich
--------------------------------------
Michael A. Gerlich, Vice President and
Chief Financial Officer
19
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1993
<PERIOD-START> JAN-01-1994
<PERIOD-END> SEP-30-1994
<CASH> 649
<SECURITIES> 0
<RECEIVABLES> 3,336
<ALLOWANCES> 1,026
<INVENTORY> 0
<CURRENT-ASSETS> 3,090
<PP&E> 10,770
<DEPRECIATION> (3,759)
<TOTAL-ASSETS> 11,279
<CURRENT-LIABILITIES> 4,461
<BONDS> 0
40,893
424
<COMMON> 290
<OTHER-SE> (30,338)
<TOTAL-LIABILITY-AND-EQUITY> 11,279
<SALES> 3,285
<TOTAL-REVENUES> 5,095
<CGS> 1,771
<TOTAL-COSTS> 1,771
<OTHER-EXPENSES> 3,842
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 732
<INCOME-PRETAX> (1,250)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,250)
<DISCONTINUED> 0
<EXTRAORDINARY> 128
<CHANGES> 0
<NET-INCOME> (12,091)
<EPS-PRIMARY> (0.48)
<EPS-DILUTED> (0.48)
</TABLE>
