<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 March 31, 1997
[ ] 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)
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.
[ x ] Yes [ ] No
<PAGE> 2
VIRGINIA GAS COMPANY
QUARTERLY REPORT ON FORM 10-QSB
FOR THE QUARTER ENDED MARCH 31, 1997
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 March 31, 1997 (Unaudited) and December 31, 1996 3
Consolidated Statements of Income (Unaudited) for the Three Months Ended March 31, 1997 and
1996 4
Consolidated Statements of Cash Flows (Unaudited) for the Three Months Ended March 31, 1997 and
1996 5
Notes to Consolidated Financial Statements 6
Virginia Gas Storage Company
Balance Sheets at March 31, 1997 (Unaudited) and December 31, 1996 7
Statements of Income (Unaudited) for the Three Months Ended March 31, 1997 and 1996 8
Statements of Cash Flows (Unaudited) for the Three Months Ended March 31, 1997 and 1996 9
Notes to Financial Statements 10
Virginia Gas Distribution Company
Balance Sheets at March 31, 1997 (Unaudited) and December 31, 1996 11
Statements of Income (Unaudited) for the Three Months Ended March 31, 1997 and 1996 12
Statements of Cash Flows (Unaudited) for the Three Months Ended March 31, 1997 and 1996 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>
MARCH 31, DECEMBER 31,
1997 1996
------------- ------------
(unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash $ 1,250,398 $ 1,652,838
Accounts receivable 2,062,581 1,073,276
Notes receivable 116,667 114,556
Other current assets 153,325 134,862
------------- ------------
Total current assets 3,582,971 2,975,532
PROPERTY AND EQUIPMENT, net 17,604,936 16,343,480
INVESTMENT IN AFFILIATED COMPANIES 4,337,459 4,243,020
NOTES RECEIVABLE - AFFILIATED COMPANIES 12,986,277 9,371,062
OTHER ASSETS 1,460,364 577,309
------------- ------------
Total assets $39,972,007 $33,510,403
============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable $ 250,000 $ 250,000
Current portion of long-term debt 274,879 1,244,490
Accounts payable 1,484,011 1,197,555
Funds held for future distribution 594,303 544,475
Other current liabilities 178,698 168,709
------------- ------------
Total current liabilities 2,781,891 3,405,229
LONG-TERM DEBT 21,069,317 12,137,729
DEFERRED INCOME TAXES 706,471 629,914
------------- ------------
Total liabilities 24,557,679 16,172,872
------------- ------------
STOCKHOLDERS' EQUITY:
Preferred stock - No par, 2,000 shares authorized, zero
(unaudited) and 2,000 shares issued and outstanding as of
March 31, 1997 and December 31, 1996, respectively - 1,725,000
Common stock - par value $.001, 10,000,000 shares authorized,
3,204,906 (unaudited) and 3,150,744 shares issued and
outstanding as of March 31, 1997 and December 31, 1996,
respectively 3,205 3,151
Additional paid-in capital 13,751,471 14,152,137
Retained earnings 1,659,652 1,457,243
------------- ------------
Total stockholders' equity 15,414,328 17,337,531
------------- ------------
Total liabilities and stockholders' equity $39,972,007 $33,510,403
============= ============
</TABLE>
3
<PAGE> 4
VIRGINIA GAS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED MARCH 31,
1997 1996
----------- ----------
<S> <C> <C>
REVENUE:
Operating revenue $ 1,882,645 $ 243,706
Interest and other income 256,820 267,983
----------- ----------
2,139,465 511,689
----------- ----------
EXPENSES:
Production expenses 36,625 22,480
Purchased gas expense 20,659 -
Operation and maintenance expense 100,466 -
Cost of natural gas sold 944,767 -
Depreciation, depletion, and amortization 166,196 68,328
General and administrative 215,131 132,340
----------- ----------
1,483,844 223,148
----------- ----------
OTHER EXPENSE:
Interest 317,822 255,621
Other 31,313 1,009
----------- ----------
349,135 256,630
----------- ----------
INCOME BEFORE EARNINGS OF AFFILIATED COMPANIES AND
INCOME TAXES 306,486 31,911
EQUITY IN EARNINGS OF AFFILIATED COMPANIES 94,439 136,666
----------- ----------
INCOME BEFORE INCOME TAXES 400,925 168,577
PROVISION FOR INCOME TAXES 102,076 5,468
----------- ----------
NET INCOME $ 298,849 $ 163,109
=========== ==========
PREFERRED DIVIDENDS PAID $ (57,055) $ (65,000)
=========== ==========
NET INCOME AVAILABLE TO COMMON STOCKHOLDERS $ 241,794 $ 98,109
=========== ==========
NET INCOME PER COMMON SHARE $ .08 $ .12
=========== ==========
WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING 3,188,659 808,509
=========== ==========
</TABLE>
4
<PAGE> 5
VIRGINIA GAS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED MARCH 31,
1997 1996
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 298,849 $ 163,109
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, depletion, and amortization 166,196 68,328
Undistributed earnings of affiliated companies (94,439) (136,666)
Deferred income taxes 76,557 14,160
Increase in accounts receivable (989,305) (99,848)
(Increase) decrease in other current assets (18,463) 64,946
Decrease (increase) in other assets 107,937 (2,987)
Decrease in notes payable - (182,212)
Increase (decrease) in accounts payable 286,456 (1,673,137)
Increase in other current liabilities 59,817 466,727
----------- -----------
Net cash used in operating activities (106,395) (1,317,580)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (1,393,235) (1,101,997)
Issuance of notes receivable (3,650,000) -
Payments received on notes receivable 32,674 30,202
----------- -----------
Net cash used in investing activities (5,010,561) (1,071,795)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of loan principal (1,164,664) (97,821)
Proceeds from new loans 9,100,000 1,000,000
Redemption of preferred stock (2,000,000) -
Payment of issuance costs (125,612) -
Payment of debt issuance costs (440,018) (49,274)
Establishment of financing reserve fund (558,750) -
Dividends paid (96,440) (65,000)
----------- -----------
Net cash provided by financing activities 4,714,516 787,905
----------- -----------
NET DECREASE IN CASH (402,440) (1,601,470)
CASH, beginning of period 1,652,838 2,132,614
----------- -----------
CASH, end of period $ 1,250,398 $531,144
=========== ===========
SUPPLEMENTAL DISCLOSURE:
Interest paid $ 370,804 $ 251,047
=========== ===========
Income taxes paid $ - $ 158
=========== ===========
</TABLE>
5
<PAGE> 6
VIRGINIA GAS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The accompanying unaudited financial statements as of March 31, 1997 and for
the three month periods ended March 31, 1997 and 1996 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 months ended March 31, 1997 are not necessarily
indicative of the results that may be expected for the year ending December 31,
1997.
The financial statements should be read in conjunction with the Notes to
Consolidated Financial Statements included in the Company's Form 10-KSB filed
with the Securities and Exchange Commission on March 31, 1997.
The consolidated financial statements for 1996 include the accounts of three
wholly-owned subsidiaries. The unaudited consolidated financial statements for
1997 include the accounts of four 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 February 1997, the Industrial Development Authority of Russell County,
Virginia issued its Natural Gas Facilities Revenue Bonds Series 1997 with
principal of $9,100,000. The bonds are payable from and are secured by a
promissory note issued by the Company to the Russell County Authority. A
portion of the proceeds was loaned to an affiliated company and is being used
to construct a natural gas distribution facility in and around the town of
Lebanon, Virginia, and for related supporting storage and pipeline facilities.
The bonds bear interest at 9.5 percent and will mature in February 2017.
Principal payments of $275,000 to $1,115,000 are due from 2003 to 2017.
In February 1997, the Company redeemed the outstanding 2,000 shares of its
Series A nonvoting preferred stock for the liquidation price of $2,000,000 plus
unpaid dividends of $35,389.
In January 1997, the Company's wholly-owned subsidiary, Virginia Gas Marketing
Company, began marketing natural gas services. These services currently
include the marketing of natural gas and are later expected to include natural
gas storage services. The initial source of natural gas supply will be
provided by Company-operated wells and initial future storage services will be
provided by facilities operated by the Company and/or its affiliated companies.
Sales of natural gas during the first quarter of 1997 totaled $1,067,000 on
sales volumes of 348,000 MMBtu.
6
<PAGE> 7
VIRGINIA GAS STORAGE COMPANY
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
------------ ------------
(unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash $ 498,552 $ 148,619
Accounts receivable 1,031,366 1,233,227
Notes receivable 70,000 570,000
Other current assets 28,655 85,369
------------ ------------
Total current assets 1,628,573 2,037,215
PROPERTY AND EQUIPMENT, net 14,255,424 13,323,883
OTHER ASSETS 960,559 956,099
------------ ------------
Total assets $16,844,556 $16,317,197
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 106,395 $ 104,915
Accounts payable 1,416,725 2,193,010
Other current liabilities 245,844 108,929
------------ ------------
Total current liabilities 1,768,964 2,406,854
LONG-TERM DEBT 7,354,780 6,386,212
DEFERRED INCOME TAXES 591,970 551,686
------------ ------------
Total liabilities 9,715,714 9,344,752
------------ ------------
STOCKHOLDERS' EQUITY:
Common stock - no par value, 50,000 shares authorized, 38,200
(unaudited) shares issued and outstanding as of March 31,
1997; no par value, 50,000 shares authorized, 38,200
issued and outstanding as of December 31, 1996 5,640,000 5,640,000
Retained earnings 1,488,842 1,332,445
------------ ------------
Total stockholders' equity 7,128,842 6,972,445
------------ ------------
Total liabilities and stockholders' equity $ 16,844,556 $16,317,197
============ ============
</TABLE>
7
<PAGE> 8
VIRGINIA GAS STORAGE COMPANY
STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED MARCH 31,
1997 1996
----------- -----------
<S> <C> <C>
REVENUE:
Operating revenue $ 1,408,752 $ 1,329,797
Interest income 18,614 64,143
----------- -----------
1,427,366 1,393,940
----------- -----------
EXPENSES:
Production expenses 59,857 72,379
Purchased gas expense 509,042 635,296
Operation and maintenance expense 223,314 55,485
Depreciation, depletion, and amortization 128,195 88,980
General and administrative 155,825 110,739
----------- -----------
1,076,233 962,879
----------- -----------
OTHER EXPENSE:
Interest 77,367 43,155
Other 36,801 8,314
----------- -----------
114,168 51,469
----------- -----------
INCOME BEFORE INCOME TAXES 236,965 379,592
PROVISION FOR INCOME TAXES 80,568 129,061
----------- -----------
NET INCOME $ 156,397 $ 250,531
=========== ===========
VIRGINIA GAS COMPANY'S EQUITY IN VIRGINIA GAS
STORAGE COMPANY'S EARNINGS $ 78,198 $ 125,266
=========== ===========
</TABLE>
8
<PAGE> 9
VIRGINIA GAS STORAGE COMPANY
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED MARCH 31,
1997 1996
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 156,397 $ 250,531
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, depletion, and amortization 128,195 88,980
Deferred income taxes 80,891 53,119
Decrease in accounts receivable 201,861 366,561
Decrease (increase) in other current assets 56,714 (55,463)
Increase in other assets (8,377) (11,464)
(Decrease) increase in accounts payable (776,285) 207,095
Increase in other current liabilities 96,308 36,405
----------- -----------
Net cash (used in) provided by operating
activities (64,296) 935,764
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (1,055,819) (1,302,264)
Payments received on notes receivable 500,000 50,000
----------- -----------
Net cash used in investing activities (555,819) (1,252,264)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of loan principal (29,952) (28,144)
Proceeds from new loans 1,000,000 500,000
----------- -----------
Net cash provided by financing activities 970,048 471,856
----------- -----------
NET INCREASE IN CASH 349,933 155,356
CASH, beginning of period 148,619 297,486
----------- -----------
CASH, end of period $ 498,552 $ 452,842
=========== ===========
SUPPLEMENTAL DISCLOSURE:
Interest paid $ 166,083 $ 175,382
=========== ===========
Income taxes paid $ 17,635 $ 39,024
=========== ===========
</TABLE>
9
<PAGE> 10
VIRGINIA GAS STORAGE COMPANY
NOTES TO FINANCIAL STATEMENTS
The accompanying unaudited financial statements as of March 31, 1997 and for
the three month periods ended March 31, 1997 and 1996 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 months ended March 31, 1997 are not necessarily indicative of the
results that may be expected for the year ending December 31, 1997.
The financial statements should be read in conjunction with the Notes to
Financial Statements included in the Virginia Gas Company's Form 10-KSB filed
with the Securities and Exchange Commission on March 31, 1997.
In February 1997, the Industrial Development Authority of Russell County,
Virginia issued its Natural Gas Facilities Revenue Bonds Series 1997 with
principal of $9,100,000. A portion ($1,000,000) of the proceeds was loaned to
Virginia Gas Storage Company by an affiliated company which will be used to
construct natural gas storage facilities. The bonds bear interest at 9.5
percent and will mature in February 2017. Principal payments of $30,000 to
$123,000 are due from 2003 to 2017.
10
<PAGE> 11
VIRGINIA GAS DISTRIBUTION COMPANY
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
-------------- -------------
(unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash $ 1,424,217 $ 16,166
Accounts receivable 660,131 151,752
Current portion of notes receivable 26,356 26,004
Other current assets 102,038 154,920
-------------- -------------
Total current assets 2,212,742 348,842
PROPERTY AND EQUIPMENT, net 3,318,165 2,755,660
NOTES RECEIVABLE 4,370,557 3,413,066
DEFERRED TAX ASSET - 1,995
OTHER ASSETS 953,108 546,798
-------------- -------------
Total assets $10,854,572 $7,066,361
============== =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 39,815 $ 39,240
Accounts payable 547,636 462,095
Other current liabilities 49,755 33,368
-------------- -------------
Total current liabilities 637,206 534,703
LONG-TERM DEBT 8,656,551 5,018,064
DEFERRED INCOME TAXES 14,739 -
-------------- -------------
Total liabilities 9,308,496 5,552,767
-------------- -------------
STOCKHOLDERS' EQUITY:
Common stock - no par value, 100,000 shares authorized,
75,000 (unaudited) shares issued and outstanding as of
March 31, 1997; no par value, 75,000 issued and
outstanding as of December 31, 1996 1,500,000 1,500,000
Retained earnings 46,076 13,594
-------------- -------------
Total stockholders' equity 1,546,076 1,513,594
-------------- -------------
Total liabilities and stockholders' equity $10,854,572 $7,066,361
============== =============
</TABLE>
11
<PAGE> 12
VIRGINIA GAS DISTRIBUTION COMPANY
STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED MARCH 31,
1997 1996
----------- ------------
<S> <C> <C>
REVENUE:
Operating revenue $ 220,084 $ 158,914
Interest income 96,422 78,212
Other income 21,844 17,611
----------- ------------
338,350 254,737
----------- ------------
EXPENSES:
Purchased gas expense 120,530 77,164
Operation and maintenance expense 18,955 8,991
Depreciation, depletion, and amortization 23,149 17,419
General and administrative 31,104 27,322
----------- ------------
193,738 130,896
----------- ------------
OTHER EXPENSE:
Interest 86,778 82,848
Other 8,618 6,448
----------- ------------
95,396 89,296
----------- ------------
INCOME BEFORE INCOME TAXES
49,216 34,545
PROVISION FOR INCOME TAXES 16,734 11,745
----------- ------------
NET INCOME $ 32,482 $ 22,800
=========== ============
VIRGINIA GAS COMPANY'S EQUITY IN VIRGINIA GAS
DISTRIBUTION COMPANY'S EARNINGS $ 16,241 $ 11,400
=========== ============
</TABLE>
12
<PAGE> 13
VIRGINIA GAS DISTRIBUTION COMPANY
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED MARCH 31,
1997 1996
------------- ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 32,482 $ 22,800
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, depletion, and amortization 23,149 17,419
Deferred income taxes 16,734 530
Increase in accounts receivable (508,379) (4,142)
Decrease in affiliated company receivable - 1,562,500
Decrease in other current assets 52,882 61,722
Increase in other assets (4,723) (1,680)
Increase (decrease) in accounts payable 85,541 (142,315)
Increase (decrease) in other current liabilities 16,387 (59,037)
------------- ------------
Net cash (used in) provided by operating
activities (285,927) 1,457,797
------------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (583,239) (147,823)
Loans made to affiliated companies (1,000,000) (1,500,000)
Payments received on notes receivable 42,157 10,727
------------- ------------
Net cash used in investing activities (1,541,082) (1,637,096)
------------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of loan principal (10,938) (9,496)
Proceeds from new loans 3,650,000 -
Payment of financing costs (75,502) -
Establishment of financing reserve fund (328,500) -
------------- ------------
Net cash provided by (used in) financing
activities 3,235,060 (9,496)
------------- ------------
NET INCREASE (DECREASE) IN CASH 1,408,051 (188,795)
CASH, beginning of period 16,166 306,687
------------- ------------
CASH, end of period $ 1,424,217 $ 117,892
============= ============
SUPPLEMENTAL DISCLOSURE:
Interest paid $ 137,163 $ 186,693
============= ============
Income taxes paid $ - $ -
============= ============
</TABLE>
13
<PAGE> 14
VIRGINIA GAS DISTRIBUTION COMPANY
NOTES TO FINANCIAL STATEMENTS
The accompanying unaudited financial statements as of March 31, 1997 and for
the three month periods ended March 31, 1997 and 1996 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 months ended March 31, 1997 are not necessarily
indicative of the results that may be expected for the year ending December 31,
1997.
The financial statements should be read in conjunction with the Notes to
Financial Statements included in the Virginia Gas Company's Form 10-KSB filed
with the Securities and Exchange Commission on March 31, 1997.
In February 1997, the Industrial Development Authority of Russell County,
Virginia issued its Natural Gas Facilities Revenue Bonds Series 1997 with
principal of $9,100,000. A portion ($3,650,000) of the proceeds was allocated
to Virginia Gas Distribution Company by Virginia Gas Company which will be used
to construct a natural gas distribution facility in and around the town of
Lebanon, Virginia. The bonds bear interest at 9.5 percent and will mature in
February 2017. Principal payments of $110,000 to $447,000 are due from 2003 to
2017.
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 Items 6 and 7 of the Company's
Annual Report on Form 10-KSB for the year ended December 31, 1996 and the Notes
to Consolidated Financial Statements set forth in this report.
RESULTS OF OPERATIONS
OVERVIEW
During the three month period ended March 31, 1997, Virginia Gas Company (the
"Company") recorded net income of $298,849, compared to $163,109 for the same
period in 1996. The net income per common share available to common
stockholders for the corresponding periods was $.08 in 1997 compared with $.12
in 1996. The number of weighted-average shares used in calculating income per
common share was 3,188,659 and 808,509 for the quarter ended March 31, 1997 and
1996, respectively.
NATURAL GAS MARKETING, EXPLORATION AND PRODUCTION
The Company's wholly-owned subsidiary, Virginia Gas Marketing Company (the
"Marketing Company") began marketing natural gas during the first quarter of
1997. The initial source of gas supply for the Marketing Company is the
natural gas production from wells operated by the Company. Sales of natural
gas during the first quarter of 1997 totaled $1,067,000 on sales volumes of
348,000 MMBtu.
Exploration and production revenues, reflecting the Company's revenue interest
in the above sales of natural gas, included natural gas sales of $122,000 and
well and pipeline operations income of $91,000. The 1997 revenues reflect a 6%
increase over 1996 first quarter exploration and production revenues of
$201,000.
STORAGE REVENUES
Storage revenues from the Company's Saltville facility during the first quarter
of 1997 totaled $626,000, consisting of fees charged for storage and the
injections and withdrawals of natural gas. Initial injections of customer
natural gas into the facility occurred in August 1996. Contracted storage
capacity for the current contract year totals 583,000 MMBtu, consisting of
10-day, 60-day and 90-day service. Of the storage capacity leased to third
parties for the current contract year, 10-day service comprised 59%, 60-day
service comprised 10% and 90-day service comprised 31% of contracted volumes.
15
<PAGE> 16
ITEM 2. CONTINUED
PROJECT MANAGEMENT REVENUES
Project management revenues for the three month periods ended March 31, 1997
and 1996 totaled $65,000 and $94,000, respectively. 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 $65,000 in 1997
compared to $43,000 in 1996. The Company also provided management services
during 1996 for the Storage and Distribution companies for which it received
management fees. These services performed included financial, marketing,
treasury and administrative services. These fees totaled $51,000 for the three
month period ended March 31, 1996.
INTEREST INCOME
Interest income for the three month period ended March 31, 1997 totaled
$251,000. The 1996 amounts for the corresponding period was $217,000. 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 increase in the 1997 period
largely reflects interest earned on the 1997 Russell County tax exempt bond
offering which closed in February 1997. A portion of the proceeds from this
offering was loaned to the Distribution Company.
COSTS AND EXPENSES
General and administrative costs were $215,000 for quarter ended March 31,
1997, an increase of $83,000 over the first quarter 1996 total of $132,000.
The increase reflects the growth in Company operations during 1996 and the
accompanying growth in personnel and facilities.
Operations and maintenance expenses totaled $100,000 during the first quarter
of 1997, reflecting the operations of the Saltville storage facility; there
were no corresponding Saltville facility operations in the first quarter of
1996.
Depreciation and amortization expense increased to $166,000 in the first
quarter of 1997 from $68,000 in the first quarter of 1996. The increase
reflects the recovery of costs for capital projects recently placed in service,
with much of the increase largely attributable to recovery of capital costs of
the Saltville storage facility, which began operations in August 1996.
The increase in interest expense of $62,000 to $318,000 in 1997 from $256,000
in the first quarter of 1996 primarily reflects the cost of additional debt
incurred in conjunction with the Russell County, Virginia revenue bond offering
which closed in February 1997. 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 month
periods ended March 31, 1997 and 1996 totaled $71,443 and $61,394,
respectively.
16
<PAGE> 17
ITEM 2. CONTINUED
INCOME TAXES
The Company's provision for income taxes as a percentage of income before taxes
and equity in earnings of affiliated companies was 33% and 17% for the three
month periods ended March 31, 1997 and 1996, respectively.
EQUITY INVESTMENTS
Earnings from the Company's 50% ownership in the Storage Company and the
Distribution Company decreased $42,000 to $94,000 for the first quarter 1997
from $136,000 in 1996.
NATURAL GAS STORAGE. Storage revenues from the Early Grove facility for the
three months ended March 31, 1997 were $655,000 compared with storage revenues
of $396,000 for the same period in 1996. The increase is attributable to an
increase in leased storage capacity at the Early Grove facility. Contracted
storage capacity for the 1996/1997 season is 1,560,000 MMBtu, an increase of
846,000 MMBtu over contracted capacity of 985,500 MMBtu for the 1995/1996
season. Contract years vary from customer to customer and do not correspond to
calendar years.
Of the storage capacity leased for the current season, 60-day service comprised
11%, 90-day service comprised 48% and 150-day service comprised the remaining
41% of total contracted volumes.
NATURAL GAS GATHERING. Gathering revenues totaled $87,000 for the first
quarter 1997 compared to $120,000 in 1996. Natural gas throughput for the
first quarters ended March 31, 1997 and 1996 totaled 289,633 MMBtu and 400,665
MMBtu, respectively. The decrease in throughput is partially attributable to
production decline and also reflects the decreased peak winter service sales
volumes, described below. A portion of these peak winter sales volumes are
transported through the Storage Company's gathering system.
During the peak winter service periods, the Storage Company provides natural
gas to certain of its storage customers. For the three months ending March 31,
1997, revenues from winter service sales totaled $612,000, compared to $773,000
in 1996. Purchased gas expense related to these sales totaled $509,000 and
$635,000 in 1997 and 1996, respectively. The decrease in sales revenues
reflects a volume decrease of 38,546 MMBtu to 131,366 MMBtu in 1997 from
169,912 MMBtu in 1996. This volume decrease largely reflects the milder
seasonal temperatures experienced during the first quarter 1997 as compared to
the corresponding period in 1996.
17
<PAGE> 18
ITEM 2. CONTINUED
NATURAL GAS DISTRIBUTION. Distribution revenues for the first quarter 1997
were $220,000, an increase of $61,000 over 1996 revenues of $159,000.
Sales volumes for the first quarter 1997 totaled 38,365 MMBtu compared with
29,126 MMBtu for the same period in 1996, an increase of 32%. This volume
increase is largely due to increased usage during the period by one of the
Distribution Company's negotiated service customers. Residential customer
usage decreased 20% during 1997 from 1996 reflecting milder seasonal
temperatures. The average sales price per MMBtu for the first quarter 1997 was
$5.74 compared with $5.46 for the same period in 1996. 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 1997 compared with 1996. Purchased gas costs related
to these first quarter sales totaled $121,000 in 1997 and $77,000 in 1996.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital increased to a $.8 million surplus at March 31,
1997 from a $.4 million deficit at December 31, 1996. The combined working
capital of the Storage Company and the Distribution Company increased to a $1.4
million surplus at March 31, 1997 from the $.6 million deficit at December 31,
1996. Cash decreased to $1,250,000 at March 31, 1997 from $1,653,000 at
December 31, 1996 as net cash used in operating and investing activities
exceeded net cash provided by financing activities. The Company's current
ratio at March 31, 1997 increased to 1.29 from .87 at December 31, 1996.
Capital investment for the first quarter totaled $1.4 million.
The Company anticipates development activities for the remainder of 1997 will
result in net outflows of cash. The Company expects to fund such activities
from the issuance of additional debt and/or equity in addition to operating
cash flows.
18
<PAGE> 19
VIRGINIA GAS COMPANY AND SUBSIDIARIES
PART II. OTHER INFORMATION
FOR THE THREE MONTHS ENDED MARCH 31, 1997
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders
during the three months ended March 31, 1997.
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:
Form 8-K filed on March 6, 1997
Date of Report: February 20, 1997
Item Reported:
Item 5 - Other Events
19
<PAGE> 20
VIRGINIA GAS COMPANY AND SUBSIDIARIES
LIST OF EXHIBITS
27 Financial Data Schedule for the Three Months Ended March 31,
1997
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
VIRGINIA GAS COMPANY AND SUBSIDIARIES
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------ -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
22
<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 THREE MONTHS ENDED MARCH 31, 1997 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH CONSOLIDATED FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 1,250,398
<SECURITIES> 0
<RECEIVABLES> 2,179,248
<ALLOWANCES> 0
<INVENTORY> 11,844
<CURRENT-ASSETS> 3,582,971
<PP&E> 18,941,172
<DEPRECIATION> (1,336,236)
<TOTAL-ASSETS> 39,972,007
<CURRENT-LIABILITIES> 2,781,891
<BONDS> 21,069,317
0
0
<COMMON> 3,205
<OTHER-SE> 15,411,123
<TOTAL-LIABILITY-AND-EQUITY> 39,972,007
<SALES> 1,882,645
<TOTAL-REVENUES> 2,139,465
<CGS> 1,268,713
<TOTAL-COSTS> 1,483,844
<OTHER-EXPENSES> 31,313
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 317,822
<INCOME-PRETAX> 400,925
<INCOME-TAX> 102,076
<INCOME-CONTINUING> 298,849
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 298,849
<EPS-PRIMARY> .08
<EPS-DILUTED> .08
</TABLE>
