<PAGE> 1
UNITED STATE SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(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, 1996
[ ] 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
------------
VIRGINIA GAS COMPANY
(EXACT NAME OF SMALL BUSINESS ISSUER AS SPECIFIED IN ITS CHARTER)
DELAWARE 87-0443823
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
200 EAST MAIN STREET, ABINGDON, VIRGINIA 24210, (540) 676-2380
(Address and telephone number of principal executive offices)
120 SOUTH COURT STREET, ABINGDON, VIRGINIA 24210
(Former address of principal executive offices)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the past 12 months (or for such 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
<PAGE> 2
VIRGINIA GAS COMPANY
QUARTERLY REPORT ON FORM 10-QSB
FOR THE QUARTER ENDED SEPTEMBER 30, 1996
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ITEM PAGE
NUMBER PART I - FINANCIAL INFORMATION NUMBER
- ------ ------
<S> <C> <C>
1 Financial Statements:
Virginia Gas Company and Subsidiaries
Consolidated Balance Sheets at September 30, 1996 (Unaudited) and
December 31, 1995 3
Consolidated Statements of Income (Unaudited) for the Three and Nine
Months Ended September 30, 1996 and 1995 4
Consolidated Statements of Cash Flows (Unaudited) for the Three and
Nine Months Ended September 30, 1996 and 1995 5
Notes to Consolidated Financial Statements 6
Virginia Gas Storage Company
Balance Sheets at September 30, 1996 (Unaudited) and December 31, 1995 7
Statements of Income (Unaudited) for the Three and Nine Months Ended
September 30, 1996 and 1995 8
Statements of Cash Flows (Unaudited) for the Three and Nine Months
Ended September 30, 1996 and 1995 9
Notes to Financial Statements 10
Virginia Gas Distribution Company
Balance Sheets at September 30, 1996 (Unaudited) and December 31, 1995 11
Statements of Income (Unaudited) for the Three and Nine Months Ended
September 30, 1996 and 1995 12
Statements of Cash Flows (Unaudited) for the Three and Nine Months
Ended September 30, 1996 and 1995 13
Notes to Financial Statements 14
2 Management's Discussion and Analysis of Financial Condition and Results of
Operations 15
PART II - OTHER INFORMATION
4 Submission of Matters to a Vote of Security Holders 19
6 Exhibits and Reports on Form 8-K 19
List of Exhibits 20
Signature 21
</TABLE>
2
<PAGE> 3
VIRGINIA GAS COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
-------------- --------------
(unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash $ 522,076 $ 2,132,614
Accounts receivable 628,790 892,373
Notes receivable 115,257 127,886
Other current assets 123,776 201,582
------------- ------------
Total current assets 1,389,899 3,354,455
PROPERTY AND EQUIPMENT, net 14,113,178 4,029,137
INVESTMENT IN AFFILIATED COMPANIES 4,193,050 3,903,093
NOTES RECEIVABLE - AFFILIATED COMPANIES 9,401,775 9,485,953
INVESTMENT IN JOINT VENTURE - 1,016,682
OTHER ASSETS 805,976 566,344
------------- ------------
Total assets $ 29,903,878 $ 22,355,664
============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable $ 250,000 $ 582,212
Current portion of long-term debt 903,854 270,678
Accounts payable 5,297,032 2,175,732
Funds held for future distribution 533,615 383,870
Other current liabilities 332,911 139,169
------------- ------------
Total current liabilities 7,317,412 3,551,661
LONG-TERM DEBT 12,829,207 12,885,761
DEFERRED INCOME TAXES 500,541 488,318
------------- ------------
Total liabilities 20,647,160 16,925,740
------------- ------------
STOCKHOLDERS' EQUITY:
Preferred stock - No par, 2,000 shares authorized, issued,
and outstanding 1,725,000 1,725,000
Common stock - par value $.001, 10,000,000 shares authorized,
1,617,744 (unaudited) shares issued and outstanding as of
September 30, 1996; no par value, 735,686 shares issued
and outstanding as of December 31, 1995 1,618 2,288,741
Additional paid-in capital 6,240,441 275,000
Retained earnings 1,289,659 1,141,183
------------- ------------
Total stockholders' equity 9,256,718 5,429,924
------------- ------------
Total liabilities and stockholders' equity $ 29,903,878 $ 22,355,664
============= ============
</TABLE>
3
<PAGE> 4
VIRGINIA GAS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE NINE MONTHS
ENDED SEPTEMBER 30 ENDED SEPTEMBER 30
1996 1995 1996 1995
--------------------------- -----------------------------
<S> <C> <C>
REVENUE:
Revenues from continuing operations $ 450,384 $ 272,909 $ 995,530 $ 871,934
Interest income 211,283 129,259 645,046 409,623
Revenue revision effect (see Notes to the
Consolidated Financial Statements) - - - 176,414
----------- ----------- ----------- -----------
661,667 402,168 1,640,576 1,457,971
----------- ----------- ----------- -----------
EXPENSES:
Production expenses 28,117 9,580 71,562 43,620
Operation and maintenance expense 30,803 - 30,803 -
Depreciation, depletion, and amortization 116,611 63,041 245,658 190,629
General and administrative 153,531 141,847 457,765 463,277
----------- ----------- ----------- -----------
329,062 214,468 805,788 697,526
----------- ----------- ----------- -----------
INTEREST EXPENSE 239,213 169,953 760,037 498,534
----------- ----------- ----------- -----------
INCOME BEFORE INCOME TAXES AND EARNINGS OF AFFILIATED
COMPANIES 93,392 17,747 74,751 261,911
EARNINGS OF AFFILIATED COMPANIES
82,015 69,891 289,957 175,901
PROVISION FOR INCOME TAXES 38,775 3,252 21,232 80,065
----------- ----------- ----------- -----------
NET INCOME $ 136,632 $ 84,386 $ 343,476 $ 357,747
=========== =========== =========== ===========
PREFERRED DIVIDENDS PAID $ (65,000) - $ (195,000 $ -
=========== =========== =========== ===========
NET INCOME AVAILABLE TO COMMON STOCKHOLDERS $ 71,632 $ 84,386 $ 148,476 $ 357,747
=========== =========== =========== ===========
NET INCOME PER COMMON SHARE $ .04 $ .12 $ .13 $ .49
=========== =========== =========== ===========
WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING 1,644,319 738,637 1,167,268 735,366
=========== =========== =========== ===========
</TABLE>
4
<PAGE> 5
VIRGINIA GAS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE NINE MONTHS
ENDED SEPTEMBER 30 ENDED SEPTEMBER 30
1996 1995 1996 1995
------------------------------ ------------------------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 136,632 $ 84,386 $ 343,476 $ 357,747
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, depletion, and amortization 116,611 63,041 245,658 190,629
Undistributed earnings of affiliated companies (82,015) (69,891) (289,957) (175,901)
Deferred income taxes 21,673 1,759 12,223 43,135
Decrease (increase) in accounts receivable (129,171) (158,101) 263,583 (465,750)
Decrease (increase) in other current assets (16,948) (85,941) 77,806 (78,297)
Decrease (increase) in other assets 4,617 (2,610) 11,055 12,664
(Decrease) increase in notes payable - 420,258 (332,212) 765,013
Increase in accounts payable 3,972,058 305,728 3,121,300 335,092
Increase in other current liabilities 236,380 40,068 343,487 642,165
----------- ----------- ----------- -----------
Net cash provided by operating
activities 4,259,837 598,697 3,796,419 1,626,497
----------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (5,006,704) (1,405,443) (7,588,017) (2,091,393)
Payments received on notes receivable 33,933 - 96,807 -
----------- ----------- ----------- -----------
Net cash used in investing activities (4,972,771) (1,405,443) (7,491,210) (2,091,393)
----------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of loan principal (128,829) (14,692) (2,191,110) (48,100)
Proceeds from new loans - - 1,042,732 -
Proceeds from issuance of common stock 252,000 10,000 4,653,318 10,000
Proceeds from issuance of preferred stock, net - 1,220,000 - 1,220,000
Purchase of warrant and options (975,000) - (975,000) -
Payment of financing costs (76,024) (63,291) (250,687) (239,833)
Dividends paid (65,000) - (195,000) -
----------- ----------- ----------- -----------
Net cash provided by (used in )
financing activities (992,853) 1,152,017 2,084,253 942,067
----------- ----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH (1,705,787) 345,271 (1,610,538) 477,171
CASH, beginning of period 2,227,863 1,226,392 2,132,614 1,094,492
----------- ----------- ----------- -----------
CASH, end of period $ 522,076 $ 1,571,663 $ 522,076 $ 1,571,663
=========== =========== =========== ===========
SUPPLEMENTAL DISCLOSURE:
Interest paid $ 285,971 $ 141,606 $ 970,577 $ 529,383
=========== =========== =========== ===========
Income taxes paid $ 3,000 $ 2,500 $ 11,658 $ 57,000
=========== =========== =========== ===========
</TABLE>
5
<PAGE> 6
VIRGINIA GAS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The accompanying unaudited financial statements as of September 30, 1996 and
for the three and nine-month periods ended September 30, 1996 and 1995 include,
in the opinion of management, all adjustments (consisting of normal recurring
adjustments) considered necessary to present fairly the financial position,
results of operations and cash flows of Virginia Gas Company (the "Company").
Operating results for the three and nine months ended September 30, 1996 are
not necessarily indicative of the results that may be expected for the year
ending December 31, 1996.
The financial statements should be read in conjunction with the Notes to
Consolidated Financial Statements included in the Company's Amendment No. 2 to
Form SB-2 filed with the Securities and Exchange Commission on October 4, 1996.
The consolidated financial statements for 1995 include the accounts of one
wholly-owned subsidiary. The unaudited consolidated financial statements for
1996 include the accounts of three wholly-owned subsidiaries. The Company's
investments in affiliated companies are accounted for using the equity method.
Investments carried at equity and the percentage interest owned consist of
Virginia Gas Storage Company (50 percent) and Virginia Gas Distribution Company
(50 percent).
In October, 1996, the Company completed an initial public offering of its
common stock. Gross proceeds totaled $9,198,000 with 1,533,000 additional
common shares being issued. After deduction of commissions and expenses
related to the issue, net proceeds of approximately $8,000,000 were realized.
During the year ended December 31, 1995, the Company and Virginia Gas Storage
Company revised their method of recording certain revenue. Prior to 1995,
recognition of production and transmission revenues was deferred for three
months after the actual production and transmission of natural gas had
occurred. The policy revision to record revenues on a current basis reflects
the companies' ability to estimate net revenues on a current basis. This
change is reflected on a prospective basis beginning in January 1995 and
results in 12 months of production and transmission revenues being recognized
in the nine months ended September 30, 1995. The effect of this change was to
increase revenue and net income by $176,000 and $131,000, respectively for the
nine months ended September 30, 1995.
During 1996, Statements of Financial Accounting Standards No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of", and No. 123, "Accounting for Stock-Based Compensation", became
effective for and were implemented by the Company. There was no material
impact on the Company's financial position or results of operations as a result
of the implementation of these pronouncements.
6
<PAGE> 7
VIRGINIA GAS STORAGE COMPANY
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
-------------- -------------
(unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash $ 88,897 $ 297,486
Accounts receivable 853,010 929,087
Notes receivable 70,000 70,000
Other current assets 262,599 63,016
------------ -------------
Total current assets 1,274,506 1,359,589
PROPERTY AND EQUIPMENT, net 11,737,853 9,499,382
NOTES RECEIVABLE - AFFILIATED COMPANY - 1,720,000
OTHER ASSETS 949,295 933,788
------------- -------------
Total assets $ 13,961,654 $ 13,512,759
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 105,695 $ 116,633
Accounts payable 379,197 1,100,419
Other current liabilities 182,340 167,619
------------- -------------
Total current liabilities 667,232 1,384,671
LONG-TERM DEBT 6,415,329 5,992,171
DEFERRED INCOME TAXES 511,079 339,210
------------- -------------
Total liabilities 7,593,640 7,716,052
------------- -------------
STOCKHOLDERS' EQUITY:
Common stock - no par value, 50,000 shares authorized, 38,200
(unaudited) shares issued and outstanding as of September
30, 1996; no par value, 50,000 shares authorized, 38,200
issued and outstanding as of December 31, 1995 5,640,000 5,640,000
Retained earnings 1,228,014 656,707
Note receivable from stockholder (500,000) (500,000)
------------- -------------
Total stockholders' equity 6,368,014 5,796,707
------------- -------------
Total liabilities and stockholders' equity $ 13,961,654 $ 13,512,759
============= =============
</TABLE>
7
<PAGE> 8
VIRGINIA GAS STORAGE COMPANY
STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE NINE MONTHS
ENDED SEPTEMBER 30 ENDED SEPTEMBER 30
1996 1995 1996 1995
------------------------ --------------------------
<S> <C> <C> <C> <C>
REVENUE:
Operating revenue $ 706,166 $ 553,552 $ 2,658,665 $ 1,992,089
Interest income 23,700 11,487 131,952 16,457
---------- ---------- ----------- -----------
729,866 565,039 2,790,617 2,008,546
---------- ---------- ----------- -----------
EXPENSES:
Production expenses 39,401 55,942 172,055 215,603
Purchased gas expense - 3,420 664,087 420,786
Operation and maintenance expense 78,603 67,481 187,964 171,082
Depreciation, depletion, and amortization 101,621 81,156 294,081 237,172
General and administrative 172,242 99,158 450,405 269,557
---------- ---------- ----------- -----------
391,867 307,157 1,768,592 1,314,200
---------- ---------- ----------- -----------
INTEREST EXPENSE 79,101 71,057 156,410 199,816
---------- ---------- ----------- -----------
INCOME BEFORE INCOME TAXES
258,898 186,825 865,615 494,530
PROVISION FOR INCOME TAXES 88,025 65,390 294,308 173,088
---------- ---------- ----------- -----------
NET INCOME $ 170,873 $ 121,435 $ 571,307 $ 321,442
========== ========== =========== ===========
VIRGINIA GAS COMPANY'S EQUITY IN VIRGINIA GAS
STORAGE COMPANY'S EARNINGS $ 85,437 $ 60,718 $ 285,654 $ 160,721
========== ========== =========== ===========
</TABLE>
8
<PAGE> 9
VIRGINIA GAS STORAGE COMPANY
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE NINE MONTHS
ENDED SEPTEMBER 30 ENDED SEPTEMBER 30
1996 1995 1996 1995
--------------------------- --------------------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 170,873 $ 121,435 $ 571,307 $ 321,442
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, depletion, and amortization 101,621 81,156 294,081 237,172
Deferred income taxes 51,404 38,187 171,869 101,080
Decrease (increase) in accounts receivable (51,330) (235,836) 76,077 134,314
Increase in other current assets (195,197) (1,569) (199,583) (44,522)
Increase in other assets (3,324) (17,428) (15,507) (1,787)
Increase (decrease) in accounts payable 25,016 513,402 (721,222) (210,411)
Increase (decrease) in other current 52,119 53,556 14,721 (22,200)
----------- ----------- ----------- -----------
liabilities
Net cash provided by operating
activities 151,182 552,903 191,743 515,088
----------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (888,729) (886,671) (2,532,552) (1,645,011)
Payments received on notes receivable - - 1,720,000 -
----------- ----------- ----------- -----------
Net cash used in investing activities (888,729) (886,671) (812,552) (1,645,011)
----------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of loan principal (29,844) (1,884) (87,780) (5,737)
Proceeds from new loans - 2,272 500,000 -
Proceeds from issuance of common stock - - - 500,000
----------- ----------- ----------- -----------
Net cash provided by (used in )
financing activities (29,844) 388 412,220 494,263
----------- ----------- ----------- -----------
NET DECREASE IN CASH (767,391) (333,380) (208,589) (635,660)
CASH, beginning of period 856,288 371,499 297,486 673,779
----------- ----------- ----------- -----------
CASH, end of period $ 88,897 $ 38,119 $ 88,897 $ 38,119
=========== =========== =========== ===========
SUPPLEMENTAL DISCLOSURE:
Interest paid $ 139,101 $ 87,966 $ 467,457 $ 291,644
=========== =========== =========== ===========
Income taxes paid $ 5,000 $ 2,500 $ 84,024 $ 82,500
=========== =========== =========== ===========
</TABLE>
9
<PAGE> 10
VIRGINIA GAS STORAGE COMPANY
NOTES TO FINANCIAL STATEMENTS
The accompanying unaudited financial statements as of September 30, 1996 and
for the three and nine-month periods ended September 30, 1996 and 1995 include,
in the opinion of management, all adjustments (consisting of normal recurring
adjustments) considered necessary to present fairly the financial position,
results of operations and cash flows of Virginia Gas Storage Company.
Operating results for the three and nine months ended September 30, 1996 are
not necessarily indicative of the results that may be expected for the year
ending December 31, 1996.
The financial statements should be read in conjunction with the Notes to
Financial Statements included in the Virginia Gas Company's Amendment No. 2 to
Form SB-2 filed with the Securities and Exchange Commission on October 4, 1996.
During the year ended December 31, 1995, Virginia Gas Storage Company revised
their method of recording certain revenue. Prior to 1995, recognition of
transmission revenues was deferred for three months after the actual
transmission of natural gas had occurred. The policy revision to record
revenues on a current basis reflects the Virginia Gas Storage Company's ability
to estimate net revenues on a current basis. This change is reflected on a
prospective basis beginning in January 1995 and results in 12 months of
transmission revenues being recognized in the nine months ended September 30,
1995. The effect of this change was to increase revenue and net income by
$110,000 and $43,000, respectively for the nine months ended September 30,
1995.
During 1996, Statements of Financial Accounting Standards No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of", and No. 123, "Accounting for Stock-Based Compensation", became
effective for and were implemented by Virginia Gas Storage Company. There was
no material impact on Virginia Gas Storage Company's financial position or
results of operations as a result of the implementation of these
pronouncements.
10
<PAGE> 11
VIRGINIA GAS DISTRIBUTION COMPANY
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
-------------- -------------
(unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash $ 49,555 $ 306,687
Accounts receivable 228,626 203,826
Receivable from affiliate - 1,562,500
Other current assets 136,391 151,700
Current portion of notes receivable 25,427 49,904
------------- ------------
Total current assets 439,999 2,274,617
PROPERTY AND EQUIPMENT, net 2,338,125 2,152,952
NOTES RECEIVABLE 3,420,695 1,987,366
DEFERRED TAX ASSET 181 4,115
OTHER ASSETS 538,398 528,017
------------- ------------
Total assets $ 6,737,398 $ 6,947,067
============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 39,693 $ 42,987
Accounts payable 111,871 234,348
Other current liabilities 39,215 103,713
------------- ------------
Total current liabilities 190,779 381,048
LONG-TERM DEBT 5,028,533 5,056,540
------------- ------------
Total liabilities 5,219,312 5,437,588
------------- ------------
STOCKHOLDERS' EQUITY:
Common stock - no par value, 100,000 shares authorized,
75,000 (unaudited) shares issued and outstanding as of
September 30, 1996; no par value, 75,000 issued and
outstanding as of December 31, 1995 1,500,000 1,500,000
Retained earnings 18,086 9,479
------------- ------------
Total stockholders' equity 1,518,086 1,509,479
------------- ------------
Total liabilities and stockholders' equity $ 6,737,398 $ 6,947,067
============= ============
</TABLE>
11
<PAGE> 12
VIRGINIA GAS DISTRIBUTION COMPANY
STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE NINE MONTHS
ENDED SEPTEMBER 30 ENDED SEPTEMBER 30
1996 1995 1996 1995
--------------------------- ---------------------------
<S> <C> <C> <C> <C>
REVENUE:
Operating revenue $ 141,222 $ 108,419 $ 440,314 $ 410,690
Interest income 75,406 35,033 236,690 96,722
Other income 18,446 15,026 54,505 23,585
---------- ---------- ---------- ----------
235,074 158,478 731,509 530,997
---------- ---------- ---------- ----------
EXPENSES:
Purchased gas expense 77,078 30,986 223,651 168,015
Operation and maintenance expense 15,036 11,280 37,401 33,583
Depreciation, depletion, and amortization 21,217 17,865 59,254 52,078
General and administrative 32,668 21,999 115,108 77,979
---------- ---------- ---------- ----------
145,999 82,130 435,414 331,655
---------- ---------- ---------- ----------
OTHER EXPENSE:
Interest 93,263 43,416 263,388 130,288
Other 6,180 5,133 19,667 23,054
---------- ---------- ---------- ----------
99,443 48,549 283,055 153,342
---------- ---------- ---------- ----------
INCOME (LOSS) BEFORE INCOME TAXES
(10,368) 27,799 13,040 46,000
PROVISION (BENEFIT) FOR INCOME TAXES (3,525) 9,452 4,433 15,640
---------- ---------- ---------- ----------
NET INCOME (LOSS) $ (6,843) $ 18,347 $ 8,607 $ 30,360
========== ========== ========== ==========
VIRGINIA GAS COMPANY'S EQUITY IN VIRGINIA GAS
DISTRIBUTION COMPANY'S EARNINGS $ (3,422) $ 9,173 $ 4,303 $ 15,180
========== ========== ========== ==========
</TABLE>
12
<PAGE> 13
VIRGINIA GAS DISTRIBUTION COMPANY
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE NINE MONTHS
ENDED SEPTEMBER 30 ENDED SEPTEMBER 30
1996 1995 1996 1995
------------ ---------- ------------ -----------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (6,843) $ 18,347 $ 8,607 $ 30,360
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, depletion, and amortization 21,217 17,865 59,254 52,078
Deferred income taxes (3,128) 7,692 3,934 13,880
Increase in accounts receivable (120) (2,519) (24,800) (27,744)
Decrease in affiliated company receivable - - 1,562,500 -
Decrease (increase) in other current assets (6,470) (105) 15,309 (47,302)
Increase in other assets (1,733) (6,853) (10,381) (2,685)
Increase (decrease) in accounts payable 46,721 (23,059) (122,477) (51,169)
Increase (decrease) in other current liabilities 1,147 23,584 (64,498) 62,078
---------- --------- ----------- ----------
Net cash provided by operating
activities 50,791 34,952 1,427,448 29,496
---------- --------- ----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (63,574) (51,025) (244,427) (109,222)
Loans made to affiliated companies - - (1,500,000) -
Payments received on notes receivable 7,150 4,524 91,148 13,353
---------- --------- ----------- ----------
Net cash used in investing activities (56,424) (46,501) (1,653,279) (95,869)
---------- --------- ----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of loan principal (10,909) - (31,301) -
---------- --------- ----------- ----------
Net cash used in financing activities (10,909) - (31,301) -
---------- --------- ----------- ----------
NET DECREASE IN CASH (16,542) (11,549) (257,132) (66,373)
CASH, beginning of period 66,097 53,266 306,687 108,090
---------- --------- ----------- ----------
CASH, end of period $ 49,555 $ 41,717 $ 49,555 $ 41,717
========== ========= =========== ==========
SUPPLEMENTAL DISCLOSURE:
Interest paid $ 108,263 $ 25,261 $ 424,827 $ 78,893
========== ========= =========== ==========
Income taxes paid $ - $ - $ - $ -
========== ========= =========== ==========
</TABLE>
13
<PAGE> 14
VIRGINIA GAS DISTRIBUTION COMPANY
NOTES TO FINANCIAL STATEMENTS
The accompanying unaudited financial statements as of September 30, 1996 and
for the three and nine-month periods ended September 30, 1996 and 1995 include,
in the opinion of management, all adjustments (consisting of normal recurring
adjustments) considered necessary to present fairly the financial position,
results of operations and cash flows of Virginia Gas Distribution Company.
Operating results for the three and nine months ended September 30, 1996 are
not necessarily indicative of the results that may be expected for the year
ending December 31, 1996.
The financial statements should be read in conjunction with the Notes to
Financial Statements included in the Virginia Gas Company's Amendment No. 2 to
Form SB-2 filed with the Securities and Exchange Commission on October 4, 1996.
During 1996, Statements of Financial Accounting Standards No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of", and No. 123, "Accounting for Stock-Based Compensation", became
effective for and were implemented by Virginia Gas Distribution Company. There
was no material impact on Virginia Gas Distribution Company's financial
position or results of operations as a result of the implementation of these
pronouncements.
14
<PAGE> 15
VIRGINIA GAS COMPANY AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following should be read in conjunction with the Consolidated financial
statements and related Notes to Consolidated Financial Statements set forth in
this report.
RESULTS OF OPERATIONS
OVERVIEW
During the three and nine month periods ended September 30, 1996, Virginia Gas
Company (the "Company") recorded net income of $136,632 and $343,476,
respectively, compared to $84,386 and $357,747, respectively, for the same
periods in 1995. The net income per common share available to common
stockholders for the corresponding periods was $.04 and $.13 , respectively, in
1996 compared with $.12 and $.49, respectively, in 1995.
NATURAL GAS EXPLORATION AND PRODUCTION
Exploration and production revenues for the third quarter of 1996 reflected
natural gas sales of $100,000 and well and pipeline operations income of
$91,000. These gas sales and operations fees accounted for 29% of total
Company revenue for the quarter. The 1996 revenues reflect a 47% increase over
1995 third quarter exploration and production revenues of $130,000. Revenues
for the nine month periods in 1996 and 1995 were $540,000 and $599,000,
respectively. Revenues for 1995 reflect $176,000 related to the Company's
revision of its method of recording certain exploration and production
revenues. See the Notes to the Consolidated Financial Statements. Of this
amount, $73,000 is attributable to natural gas sales, $68,000 consists of
operations fees with the remaining $35,000 consisting of gathering fees.
STORAGE REVENUES
The Company's wholly-owned subsidiary, Virginia Gas Pipeline Company (the
"Pipeline Company"), is currently developing a high deliverability salt cavern
storage facility in Saltville, Virginia. In June, 1996 the Pipeline Company
filed an application with the Virginia State Corporation Commission ("SCC") for
a Certificate of Public Convenience and Necessity for the operation of the
Saltville facility. The SCC issued an order scheduling a hearing for December,
1996 on the application. The SCC's order authorized the commencement of
service on an interim basis using the rates set forth in the application. In
August, 1996 initial operations began at the Saltville facility. Revenues in
the third quarter 1996 totaled $190,000, consisting of fees charged for storage
and natural gas injections.
15
<PAGE> 16
ITEM 2. CONTINUED
PROJECT MANAGEMENT REVENUES
Project management revenues for the three and nine month periods totaled
$69,000 and $265,000, respectively, in 1996 compared to $141,000 and $448,000,
respectively, in 1995. The 1995 totals reflect $50,000 for the three month
period and $150,000 for the nine month period related to the development of the
Saltville facility; there are no corresponding revenues in 1996 as the Company
purchased the interest of its joint venture partner in February 1996. Revenues
related to the operation of other joint venture facilities including operations
services performed for Virginia Gas Storage Company (the "Storage Company") and
Virginia Gas Distribution Company (the "Distribution Company") totaled $52,000
and $146,000 for the three and nine month periods in 1996. These revenues for
the corresponding 1995 periods totaled $39,000 and $144,000, respectively. The
Company also provided management services for the Storage and Distribution
companies during the periods. These services performed included financial,
marketing, treasury and administrative services. These fees totaled $17,000
and $119,000, respectively, for the three and nine month periods in 1996.
INTEREST INCOME
Interest income for the three month period ended September 30, 1996 totaled
$211,000 while the nine month total was $645,000. The 1995 amounts for the
corresponding periods were $129,000 and $410,000, respectively. The majority
of interest income is related to the Company's participation in tax exempt bond
offerings offered by the Industrial Development Authorities of Russell and
Buchanan Counties, Virginia. A portion of the proceeds of these offerings have
been loaned by the Company to the Distribution Company and the Storage Company.
Interest earned on promissory notes from these companies are reflected as
interest income by the Company. The increases in the 1996 periods largely
reflect interest on the 1995 Buchanan County tax exempt bond offering which
closed in December 1995. As described above, the majority of the proceeds from
this offering were loaned to the Distribution and Storage Companies.
COSTS AND EXPENSES
General and administrative costs were $154,000 for the three month and $458,000
for the nine month period in 1996. These amounts reflected minor changes from
the 1995 three and nine month totals of $142,000 and $463,000, respectively.
Depreciation and amortization expense increased to $117,000 in the third
quarter of 1996 from $63,000 in 1995. Nine month totals for 1996 and 1995 were
$246,000 and $191,000, respectively. These increases reflect the recovery of
costs for capital projects recently placed in service. The increase recorded
in the third quarter of 1996 reflects the Saltville storage facility beginning
operations in late August.
16
<PAGE> 17
ITEM 2. CONTINUED
The increase in interest expense of $69,000 in the third quarter and $262,000
for the nine months ending September 30, 1996 primarily reflect the cost of
additional debt incurred in conjunction with the Buchanan tax exempt bond
offering which closed in December 1995. The 1996 amounts also reflect interest
costs related to the issuance of a $1,725,000 promissory note in conjunction
with the purchase of the interest of the Company's joint venture partner in the
Saltville storage facility. The Company capitalizes interest on expenditures
for significant projects while activities are in progress to bring the assets
to their intended use. Capitalized interest for the three and nine month
periods ended September 30, 1996 totaled $70,265 and $231,976, respectively.
Capitalized interest for the three and nine month periods ended September 30,
1995 totaled $26,250 and $78,750, respectively.
INCOME TAXES
The Company's provision for income taxes as a percentage of income before taxes
and earnings of affiliated companies was 28% and 31% for the nine month periods
ended September 30, 1996 and 1995, respectively.
EQUITY INVESTMENTS
Earnings from the Company's 50% ownership in the Storage Company and the
Distribution Company increased $12,000 to $82,000 for the third quarter 1996
from $70,000 in 1995. Earnings for the nine months of 1996 and 1995 were
$290,000 and $176,000, respectively.
NATURAL GAS STORAGE. Storage revenues from the Early Grove facility for the
three and nine month periods of 1996 were $561,000 and $1,438,000,
respectively, while storage revenues of $398,000 and $820,000 were recorded for
the three and nine month periods in 1995. The increases are attributable to an
increase in leased storage capacity at the Early Grove facility. Contracted
storage capacity for the 1996/1997 season is 1,831,500 MMBtu, an increase of
846,000 MMBtu over contracted capacity of 985,500 MMBtu for the 1995/1996
season.
Of the storage capacity leased for the current season, 60-day service comprised
13%, 90-day service comprised 52% and 150-day service comprised the remaining
35% of total contracted volumes.
NATURAL GAS GATHERING. Gathering revenues totaled $73,000 for the third
quarter 1996 compared to $88,000 in 1995. Natural gas throughput for the third
quarters ended September 30, 1996 and 1995 totaled 231,422 MMBtu and 299,188
MMBtu, respectively. The decrease in throughput is largely attributable to
production decline. Revenues for the nine months totaled $280,000 in 1996 and
$422,000 for the same period in 1995. This decrease for the nine month period
is reflects the Storage Company's revision of its method of recording certain
revenues during 1995; the effect on 1995 revenues due to the revision was
$110,000.
17
<PAGE> 18
ITEM 2. CONTINUED
During the peak winter service periods, the Storage Company provides natural
gas to certain of its storage customers. For the nine months ending September
30, 1996, revenues from winter service sales totaled $781,000, compared to
$662,000 in 1995. Purchased gas expense related to these sales totaled
$664,000 and $421,000 in 1996 and 1995, respectively.
NATURAL GAS DISTRIBUTION. Distribution revenues for the third quarter 1996
were $141,000, an increase of $33,000 over 1995 revenues of $108,000. Revenues
for the nine months 1996 totaled $440,000 compared with $411,000 for the same
period in 1995.
Sales volumes for the third quarter 1996 totaled 26,136 MMBtu compared with
24,419 MMBtu for the same period in 1995, an increase of 7%. The average sales
price per MMBtu for the third quarter 1996 was $5.40 compared with $4.44 for
the same period in 1995. The increase in sales price per MMBtu is largely
reflected in sales to the Distribution Company's negotiated service customers,
customers whose contracts reflect selling prices based upon alternative fuels
pricing; pricing for these alternative fuels reflected higher costs in 1996
compared with 1995. Purchased gas costs related to these third quarter sales
totaled $77,000 in 1996 and $31,000 in 1995.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital decreased to a $5.9 million deficit at September
30, 1996 from a $.2 million deficit at December 31, 1995. The combined working
capital of the Storage Company and the Distribution Company decreased to a $.9
million surplus at September 30, 1996 from the $1.9 million surplus at December
31, 1995. Cash decreased to $522,000 at September 30, 1996 from $2,133,000 at
December 31, 1995 as net cash used in investing activities exceeded net cash
provided by operations and financing activities. Total cash provided by
operations for the nine months ended September 30, 1996 was $3,796,000.
Changes in accounts payable primarily reflect expenditures incurred in the
development of the Company's facilities, primarily the Saltville storage
facility. Funding for these accounts payable was primarily provided from a
portion of the net proceeds of the Company's initial public offering of its
common stock, completed in October 1996. Capital expenditures for the
Saltville facility totaled $8.2 million for the nine months ended September 30,
1996.
In May, 1996 the Company issued 800,058 shares of its common stock to one
investor pursuant to a private placement. The net proceeds of the sale of
these shares were $4,401,317. In July, 1996 the Company issued 42,000 shares
of its common stock to an officer of the Company. The net proceeds of the sale
of these shares were $252,000.
The Company anticipates development activities for the remainder of 1996 will
result in net outflows of cash. Funding for additional development will come
from the net proceeds of the Company's initial public offering of common stock
and operating cash flows of the Company.
18
<PAGE> 19
VIRGINIA GAS COMPANY AND SUBSIDIARIES
PART II. OTHER INFORMATION
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of Stockholders was held September 17,
1996. A total of 1,293,122 shares were represented in person
at the Meeting. The election of directors was the only matter
voted upon by the Company's stockholders at the Meeting.
The stockholders approved the nominations of Michael L.
Edwards to serve the Company as director for a three-year
term. Karen K. Edwards and Allan R. Poole, II were elected to
serve as directors for a two- year term. Pete N. Einselen and
Charles A. Mills, III were elected to serve for a one-year
term. The results of the voting were as follows:
<TABLE>
<CAPTION>
Nominee For Against
------- --- -------
<S> <C> <C>
Michael L. Edwards 1,293,122 -
Karen K. Edwards 1,293,122 -
Allan R. Poole, II 1,293,122 -
Pete N. Einselen 1,293,122 -
Charles A. Mills, III 1,293,122 -
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits - See list of Exhibits on page 20 hereof.
(b) Reports on Form 8-K
None
19
<PAGE> 20
VIRGINIA GAS COMPANY AND SUBSIDIARIES
LIST OF EXHIBITS
27.01 Financial Data Schedule for the Nine Months Ended
September 30, 1996
20
<PAGE> 21
VIRGINIA GAS COMPANY AND SUBSIDIARIES
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.
VIRGINIA GAS COMPANY
(Registrant)
By /s/ John D. Jessee
-------------------------------
John D. Jessee, Vice President and
Chief Financial Officer
21
<PAGE> 22
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
27 - Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF VIRGINIA GAS COMPANY AND SUBSIDIARIES AS OF
AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH CONSOLIDATED FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 522,076
<SECURITIES> 0
<RECEIVABLES> 628,790
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,389,899
<PP&E> 15,152,995
<DEPRECIATION> (1,039,817)
<TOTAL-ASSETS> 29,903,878
<CURRENT-LIABILITIES> 7,317,412
<BONDS> 12,829,207
0
1,725,000
<COMMON> 1,618
<OTHER-SE> 7,530,100
<TOTAL-LIABILITY-AND-EQUITY> 29,903,878
<SALES> 995,530
<TOTAL-REVENUES> 1,640,576
<CGS> 348,023
<TOTAL-COSTS> 805,788
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 760,037
<INCOME-PRETAX> 364,708
<INCOME-TAX> 21,232
<INCOME-CONTINUING> 343,476
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 343,476
<EPS-PRIMARY> 0
<EPS-DILUTED> .13
</TABLE>
