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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES AND EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED) SEPTEMBER 8, 1997
GATEWAY ENERGY CORPORATION
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(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE I-4766 44-0651207
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(STATE OR OTHER JURISDICTION OF (COMMISSION (IRS EMPLOYER
INCORPORATION OR ORGANIZATION) FILE NO.) IDENTIFICATION NUMBER)
10842 OLD MILL ROAD, SUITE #5
OMAHA, NE. 68154
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(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(402) 330-8268
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NOT APPLICABLE
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(FORMER NAME OR FORMER ADDRESS, IF CHANGED SINCE LAST REPORT.)
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Form 8-K
Item 1. Changes in Control of Registrant
Not Applicable
Item 2. Acquisition or Disposition of Assets
See Item 5
Item 3. Bankruptcy or Receivership
Not Applicable
Item 4. Changes in Registrant's Certifying Accountant
Not Applicable
Item 5. Other Events
On September 3, 1997 the Company sold for $3,500,000 in
cash certain oil and gas producing interests and all of its
approximate 66% limited partnership interest in Castex Energy
1995 LP ("Castex LP"), a Texas limited partnership engaged in
the oil and gas exploration and production business in
Louisiana. Management determined that the length of time
expected for recovery of the Company's investment in Castex LP
did not fit with the Company's strategic business plan.
Management further believed that the cash price received for
its limited partnership interest was favorable for the Company
at this point in time. The Company had an approximately
$300,000 gain on the sale of its interest in Castex LP.
Management intends to utilize the proceeds for repayment of
indebtedness, enhancement of its existing properties, and
potential investment in new operating properties.
On September 8, 1997 the Company entered into a Settlement
Agreement with Shoreham Pipeline Company ('Shoreham") of Houston,
Texas to dissolve all of the joint venture arrangements between
the Company and Shoreham and to settle litigation between the
parties which was commenced in June, 1997. That litigation was
reported in the Company's Form 10-Q for the period ended May 31,
1997.
Under the Agreement, the Company transferred its interest in
six operating properties to Shoreham in return for $2,700,000, of
which 20% was paid at closing and the remainder will be paid in
twenty-four monthly
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installments beginning December 1, 1997 with interest at 9% per
annum. In addition, Shoreham transferred its interest in nine
other operating properties to the Company. The Company will now
own one hundred percent of, and will manage those properties.
The Company also agreed, with respect to the Shipwreck Pipeline
System, that it will pay to Shoreham 5% of earnings before taxes,
depreciation and amortization on that system. All matters
pending in the litigation were settled and the court entered an
order of dismissal on the litigation on September 11, 1997. The
Company and Shoreham will have no further operating or business
arrangements. The Company did not incur any material gain or
loss as a result of the sale and exchange of the properties.
Consistent with the Company's strategic plan, the Company
intends to actively manage and operate all of its properties,
including those conveyed by Shoreham under the Agreement.
Michael T. Fadden was elected as President and Chief Operating
Officer of the Company at its September 4, 1997 annual board
meeting and will oversee the operation of the Company's
properties from its office in Houston, Texas. The Company has
entered into contracts with third parties to perform the physical
operation and maintenance of the systems. The Company has hired
middle management employees to handle the other business
operations of the properties.
Item 6. Resignations of Registrant's Directors
Not Applicable
Item 7. Financial Statements and Exhibits Page No.
Pro Forma Balance Sheet as of May 31, 1997
including explanation of adjustments. 4
Pro Forma Statement of Operations for the year
ended February 28, 1997 including explanation
of adjustments. 6
Pro Forma Statement of Operations for the three
months ended May 31, 1997 including explanation
of adjustments. 9
Item 8. Change in Fiscal Year
Not Applicable
Item 9. Sales of Equity Securities Pursuant to
Regulation S.
Not Applicable
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GATEWAY ENERGY CORPORATION
PRO FORMA BALANCE SHEET
AS OF MAY 31, 1997
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS
------------------------
As
Reported Debit Credit Pro Forma
----------- -------------- ------------ ------------
<S> <C> <C> <C> <C>
ASSETS
Current Assets
Cash $ 254,300 (1)$ 3,100,000 (3)$ 679,300 $ 3,065,000
(2) 390,000
Accounts Receivable 2,018,700 2,018,700
Other Current Assets 444,900 (1) 350,000 1,604,900
(2) 810,000
----------- ---------- ---------- ------------
2,717,900 4,650,000 679,300 6,688,600
Property and equipment
Gathering, processing and
transportation 11,992,700 (2) 325,000 (2) 3,510,200 8,754,500
(4) 53,000
Other 303,700 303,700
----------- ---------- ---------- ------------
12,296,400 325,000 3,563,200 9,058,200
Accumulated depreciation and depletion 2,029,400 (2) 651,500 1,373,100
(4) 4,800
----------- ---------- ---------- ------------
10,267,000 981,300 3,563,200 7,685,100
Other Assets
Assets held for sale 3,124,800 (1) 3,124,800 0
Equity investment in partnership 401,100 401,100
Other 261,500 (2) 1,350,000 1,611,500
----------- ----------- ---------- ------------
3,787,400 1,350,000 3,124,800 2,012,600
----------- ----------- ---------- ------------
$16,772,300 $ 6,981,300 $7,367,300 $ 16,386,300
----------- ----------- ---------- ------------
----------- ----------- ---------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Notes payable and current maturities $ 412,700 (3)$ 315,300 $ $ 97,400
Accounts payable 1,757,200 (1) 36,000 1,793,200
Accrued expenses 254,800 254,800
----------- ----------- ---------- ------------
2,424,700 315,300 36,000 2,145,400
Long-term debt 2,124,000 (3) 364,000 1,760,000
Minority interests 181,100 (4) 139,500 41,600
Stockholders' Equity
Common Stock 3,582,600 3,582,600
Additional paid-in capital 15,417,900 15,417,900
Accumulated deficit (6,958,000) (1) 289,200 (6,561,200)
(2) 16,300
(4) 91,300
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12,042,500 0 396,800 12,439,300
----------- ----------- ---------- ------------
$16,772,300 $ 818,800 $ 432,800 $ 16,386,300
----------- ----------- ---------- ------------
----------- ----------- ---------- ------------
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</TABLE>
Gateway Energy Corporation
Explanation of Adjustments
Pro Forma Balance Sheet
May 31, 1997
1) At the closing in early September 1997, the Company sold all of its
limited partnership interest in Castex Energy 1995 L.P. (approximately 66%) for
$3,000,000. At the same time, the Company sold its working interests in other
oil and gas producing properties for $150,000 in cash and a 30 day promissory
note of $350,000. These assets had been classified as Assets Held for Sale at
May 31, 1997 in anticipation of the transaction. As provided in the provisions
of the Subordinated Notes issued in the recapitalization, approximately 4.3% of
the net gain has been reserved for payment to those note holders. The following
entry reflects those transactions, after allowing for $50,000 for legal fees
and other closing costs:
Cash 3,100,00
Notes Receivable-Current 350,000
Accounts Payable 36,000
Assets Held for Sale 3,124,800
Retained Earnings 289,200
2) On September 8, 1997, the Company reached an Agreement with Shoreham
Pipeline Company, a joint venture partner in several joint ventures. The
Company sold its interest in six joint ventures for $2.7 million and Shoreham's
minority interest in nine other joint ventures. The fair value of Shoreham's
interest in these nine systems is estimated at $325,000. An appraisal will be
performed to ascertain the fair value of the interests acquired. In addition,
the Company acquired Shoreham's 20% interest in a subsidiary in exchange for one
gathering system. Twenty percent or $540,000 of the sales price was paid at
closing. The remaining $2,160,000 is to be paid in twenty four equal monthly
installments beginning December 1, 1997, with interest at 9%. The transaction
terminated the operating association between the Company and Shoreham. The
following entry reflects the transaction, net of $150,000 for legal fees and
other closing costs:
Cash 390,000
Notes Receivable-Current 810,000
Notes Receivable-Long-Term 1,350,000
Accumulated Depreciation 651,500
Gas Gathering Equipment 325,000
Gas Gathering Equipment 3,510,200
Retained Earnings 16,300
3) The Company intends to retain a substantial portion of the cash
proceeds from the above transactions for significant acquisitions. However, the
pro forma balance sheet reflects the payment of certain short term and long term
obligations with a portion of the proceeds.
Notes Payable and Current Maturities 315,300
Long-term Debt 364,000
Cash 679,300
4) As discussed in Item 2, the Company acquired the remaining 20% of a
subsidiary formed in 1995 to acquire certain offshore systems in exchange for
one of the systems. The following entry reflects the exchange and the resulting
change in minority interests:
Minority Interest 139,500
Accumulated Depreciation 4,800
Gas Gathering Equipment 53,000
Retained Earnings 91,300
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GATEWAY ENERGY CORPORATION
PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED FEBRUARY 28, 1997
<TABLE>
<CAPTION>
Pro Forma Adjustments
------------------------
As
Reported Debit Credit Pro Forma
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<S> <C> <C> <C> <C>
Operating Revenues $ 18,136,900 (1) $ 9,462,500 $ $ 8,364,000
(3) 310,400
Operating Costs and Expenses
Costs of Gas Purchased 12,630,000 (1) 6,331,700 6,298,300
Other 4,983,900 (1) 1,461,500 3,201,600
(3) 317,600
(6) 3,200
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17,613,900 0 8,114,000 9,499,900
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Operating Profit (Loss) 523,000 9,772,900 8,114,000 (1,135,900)
Other Income (Expense)
Equity in Earnings of Partnerships 465,800 (2) 266,000 199,800
Interest Expense (425,600) (4) 352,500 (73,100)
Other (271,800) (6) 3,100 (274,900)
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Earnings (Loss) Before Income Taxes 291,400 10,042,000 8,466,500 (1,284,100)
Income Taxes 66,000 (7) 50,000 16,000
------------ ----------- ------------- -------------
Net Earnings (Loss) 225,400 10,042,000 8,516,500 (1,300,100)
Provision for Preferred Dividends 1,508,700 (5) 144,000 1,364,700
------------ ----------- ------------- -------------
Loss Applicable to Common Stock $ (1,283,300) $10,042,000 $ 8,660,500 $ (2,644,800)
------------ ----------- ------------- -------------
------------ ----------- ------------- -------------
Loss Per Common Share $ (0.95) $ (1.96)
------------ ----------- ------------- -------------
------------ ----------- ------------- -------------
Weighted Average Common Shares
Outstanding 1,351,000 1,351,000
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</TABLE>
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Gateway Energy Corporation
Explanation of Adjustments
Pro Forma Statement of Operations
For the Year Ended February 28, 1997
GENERAL - The adjustments reflected below give effect to the transactions as if
they had been consummated on March 1, 1996, the beginning of the Company's
fiscal year. The pro forma adjustments include the effects on continuing
operations and do not reflect the gains on the transactions.
1) The Company acquired the remaining interest in nine previous joint
venture systems and sold its interest in six systems. The following
reflects the elimination of the operating revenues, costs and expenses
associated with the systems sold and the additional operating revenue,
costs and expenses associated with the additional interests acquired.
Prior to the transaction, the joint ventures were accounted for using
proportional consolidation.
Decrease in Revenues $9,462,500
Decrease in Cost of Gas Purchased 6,331,700
Decrease in Operating Expenses 1,461,500
2) The following eliminates the earnings from the Company's limited
partnership investment in Castex Energy 1995 L.P., accounted for on
the equity method.
Decrease in Equity in Earnings
of Partnerships $266,000
3) The following eliminates the operating revenue and related operating
costs and expenses attributable to the Company's working interest in
oil and gas producing properties.
Decrease in Revenues $310,400
Decrease in Operating Expenses 137,600
Decrease in Depletion 180,000
4) The Company has assumed that certain of the cash proceeds would be
utilized to retire existing debt obligations outstanding at March 1,
1996 or to eliminate the need for bridge loans and other financing
incurred in fiscal 1997 to acquire property and for capital
expenditures. The following represents the interest expense
associated with the debt eliminated or not incurred of approximately
$3.0 million.
Decrease Interest Expense $352,500
5) At the beginning of fiscal 1997, the Company had significant amounts
of preferred stock outstanding, most with a dividend rate of 12% per
annum. The preferred stock certificates of designation allowed the
Company to call the preferred stock two years after issuance. The
following assumes that the Company would have utilized the cash
remaining after reduction of debt to call $1,200,000 of preferred
stock.
Decrease Preferred Stock Dividends $144,000
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6) The Company acquired the remaining 20% interest in a subsidiary
in exchange for an inactive system. The following reflects the change
in minority interest and depreciation.
Increase in Minority Interest $3,100
Decrease in Depreciation 3,200
7) The above adjustments resulted in significantly less taxable income
for fiscal 1997. The following reflects the reduction in taxes to
reflect the reduction of state income taxes and any federal
alternative minimum taxes.
Decrease Income Taxes $50,000
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GATEWAY ENERGY CORPORATION
PRO FORMA STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MAY 31, 1997
<TABLE>
<CAPTION>
Pro Forma Adjustments
----------------------
As
Reported Debit Credit Pro Forma
--------- ---------- --------- -----------
<S> <C> <C> <C> <C>
Operating Revenues $ 2,964,700 (1) $1,539,500 $ $1,380,200
(3) 45,000
Operating Costs and Expenses
Costs of Gas Purchased 1,826,600 (1) 857,500 969,100
Other 1,119,500 (1) 344,300 739,300
(3) 35,100
(6) 800
------------ ------------ ---------- ----------
2,946,100 0 1,237,700 1,708,400
------------ ------------ ---------- ----------
Operating Profit (Loss) 18,600 1,584,500 1,237,700 (328,200)
Other Income (Expense)
Equity in Earnings of Partnership 121,100 (2) 90,000 31,000
Interest Expense (82,700) (4) 26,000 (56,700)
Other 6,400 (6) 2,300 (5) 35,000 39,100
------------ ------------ ---------- ----------
Earnings (Loss) Before Income Taxes 63,400 1,676,800 1,298,700 (314,700)
Income Taxes 3,000 3,000
------------ ------------ ---------- ----------
Net Earnings (Loss) $ 60,400 $1,676,800 $1,298,700 $(317,700)
------------ ------------ ---------- ----------
------------ ------------ ---------- ----------
Earnings (Loss) per Common Share $ 0.004 $( 0.023)
------------ ----------
Weighted Average Common Shares 14,059,400 14,059,400
Outstanding ------------ ----------
------------ ----------
</TABLE>
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Gateway Energy Corporation
Explanation of Adjustments
Pro Forma Statement of Operations
For the Three Months Ended May 31, 1997
GENERAL - The adjustments reflected below assume that the transactions were
consummated as of March 1, 1997. The pro forma adjustments include the
effects on continuing operations and do not reflect the gains on the
transactions.
1) The Company acquired the remaining interest in nine systems and sold
its interest in six systems. The following adjustment reflects the
elimination of the revenue and expenses attributable to the systems
sold and the additional revenue and expenses attributable to the
systems acquired. Prior to the transaction, the joint ventures were
accounted for using proportional consolidation.
Decrease in Revenue $1,539,500
Decrease in Cost of Gas Purchased 857,500
Decrease in Operating Expenses 344,300
2) The following eliminates the earnings from the Company's investment in
Castex Energy 1995 L.P.
Decrease in Earnings of Partnership $90,000
3) The following entry eliminates the revenue and depletion attributable
to the Company's working interest in oil and gas producing properties.
Decrease in Operating Revenues $45,000
Decrease in Depletion 35,100
4) The Company has assumed that a portion of the cash proceeds would be
used to reduce or eliminate certain debt obligations. The following
adjusts interest expense for the change in outstanding debt.
Decrease Interest Expense $26,000
5) The Company has retained approximately $2.8 million in cash for future
acquisitions. The following reflects interest income at short-term
interest rates of 5%.
Increase in Interest Income $35,000
6) The Company acquired the 20% interest in a subsidiary in exchange for
a system. The following reflects the change in minority interest and
depreciation.
Increase in Minority Interest $2,300
Decrease in Depreciation 800
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SIGNATURE
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.
GATEWAY ENERGY CORPORATION
/s/Neil A. Fortkamp
----------------------------
Chief Financial Officer
September 23, 1997
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(Date)
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