<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 June 30, 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 JUNE 30, 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 June 30, 1997 (Unaudited) and December 31,
1996 3
Consolidated Statements of Income (Unaudited) for the Three and Six Months
Ended June 30, 1997 and 1996 4
Consolidated Statements of Cash Flows (Unaudited) for the Three and Six
Months Ended June 30, 1997 and 1996 5
Notes to Consolidated Financial Statements 6
Virginia Gas Storage Company
Balance Sheets at June 30, 1997 (Unaudited) and December 31, 1996 7
Statements of Income (Unaudited) for the Three and Six Months Ended June 30,
1997 and 1996 8
Statements of Cash Flows (Unaudited) for the Three and Six Months Ended June
30, 1997 and 1996 9
Notes to Financial Statements 10
Virginia Gas Distribution Company
Balance Sheets at June 30, 1997 (Unaudited) and December 31, 1996 11
Statements of Income (Unaudited) for the Three and Six Months Ended June 30,
1997 and 1996 12
Statements of Cash Flows (Unaudited) for the Three and Six Months Ended June
30, 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
<TABLE>
<CAPTION>
ASSETS
JUNE 30, DECEMBER 31,
1997 1996
---------------- ---------------
(unaudited )
<S> <C> <C>
CURRENT ASSETS:
Cash $ 1,526,050 $ 1,652,838
Accounts receivable 1,659,113 1,073,276
Notes receivable 118,779 114,556
Other current assets 232,689 134,862
---------------- --------------
Total current assets 3,536,631 2,975,532
PROPERTY AND EQUIPMENT, net 19,162,628 16,343,480
INVESTMENT IN AFFILIATED COMPANIES 4,374,221 4,243,020
NOTES RECEIVABLE - AFFILIATED COMPANIES 12,956,871 9,371,062
OTHER ASSETS 1,385,805 577,309
---------------- --------------
Total assets $41,416,156 $33,510,403
================ ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable $ 1,250,000 $ 250,000
Current portion of long-term debt 748,576 1,244,490
Accounts payable 1,582,564 1,197,555
Funds held for future distribution 304,388 544,475
Other current liabilities 170,452 168,709
---------------- --------------
Total current liabilities 4,055,980 3,405,229
LONG-TERM DEBT 21,136,694 12,137,729
DEFERRED INCOME TAXES 729,007 629,914
---------------- --------------
Total liabilities 25,921,681 16,172,872
================ ==============
STOCKHOLDERS' EQUITY:
Preferred stock - No par, 2,000 shares authorized, zero
(unaudited) and 2,000 shares issued and outstanding as of
June 30, 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 June 30, 1997 and December 31, 1996,
respectively 3,205 3,151
Additional paid-in capital 13,751,471 14,152,137
Retained earnings 1,739,799 1,457,243
---------------- --------------
Total stockholders' equity 15,494,475 17,337,531
---------------- --------------
Total liabilities and stockholders' equity $41,416,156 $33,510,403
================ ==============
</TABLE>
3
<PAGE> 4
VIRGINIA GAS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
1997 1996 1997 1996
-------------- ---------------- --------------- ---------------
<S> <C> <C> <C> <C>
REVENUE:
Operating revenue $ 1,617,892 $ 250,440 $ 3,500,537 $ 545,145
Interest and other income 313,593 216,780 570,413 433,763
-------------- ---------------- --------------- ---------------
1,931,485 467,220 4,070,950 978,908
-------------- ---------------- --------------- ---------------
EXPENSES:
Production expenses 64,040 20,966 100,665 43,445
Purchased gas expense 45,454 - 66,113 -
Operation and maintenance expense 128,737 - 229,203 -
Cost of natural gas sold 690,236 - 1,635,003 -
Depreciation, depletion, and amortization 207,394 60,719 373,590 129,047
General and administrative 232,299 170,747 447,430 303,087
-------------- ---------------- --------------- ---------------
1,368,160 252,432 2,852,004 475,579
-------------- ---------------- --------------- ---------------
OTHER EXPENSE:
Interest 399,333 265,203 717,155 520,824
Other 36,726 137 68,039 1,146
-------------- ---------------- --------------- ---------------
436,059 265,340 785,194 521,970
-------------- ---------------- --------------- ---------------
INCOME (LOSS) BEFORE EARNINGS OF AFFILIATED COMPANIES
AND INCOME TAXES 127,266 (50,552) 433,752 (18,641)
EQUITY IN EARNINGS OF AFFILIATED COMPANIES 36,762 71,276 131,201 207,942
-------------- ---------------- --------------- ---------------
INCOME BEFORE INCOME TAXES 164,028 20,724 564,953 189,301
PROVISION (BENEFIT) FOR INCOME TAXES 35,807 (23,011) 137,883 (17,543)
-------------- ---------------- --------------- ---------------
NET INCOME $ 128,221 $ 43,735 $ 427,070 $ 206,844
============== ================ =============== ===============
PREFERRED DIVIDENDS PAID $ - $ (65,000) $ (57,055) $ (130,000)
============== ================ =============== ===============
NET INCOME AVAILABLE TO COMMON STOCKHOLDERS $ 128,221 $ (21,265) $ 370,015 $ 76,844
============== ================ =============== ===============
NET INCOME PER COMMON SHARE $ 0.04 $ (0.02) $ 0.12 $ 0.07
============== ================ =============== ===============
WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING 3,213,816 1,171,151 3,201,350 1,034,873
============== ================ =============== ===============
</TABLE>
4
<PAGE> 5
VIRGINIA GAS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
1997 1996 1997 1996
--------------- --------------- -------------- --------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 128,221 $ 43,735 $ 427,070 $ 206,844
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, depletion, and amortization 207,394 60,719 373,590 129,047
Undistributed earnings of affiliated
companies (36,762) (71,276) (131,201) (207,942)
Deferred income taxes 22,536 (9,450) 99,093 (9,450)
Decrease (increase) in accounts receivable 403,468 492,602 (585,837) 392,754
(Increase) decrease in other current assets (79,365) 29,808 (97,828) 94,754
(Increase) decrease in other assets (23,650) (3,147) 84,342 6,438
Increase (decrease) in notes payable 1,000,000 (150,000) 1,000,000 (332,212)
Increase (decrease) in accounts payable 98,553 822,379 385,009 (850,758)
(Decrease) increase in other current
liabilities (298,160) (373,779) (238,344) 107,108
--------------- --------------- -------------- --------------
Net cash provided by (used in)
operating activities 1,422,235 841,591 1,315,894 (463,417)
--------------- --------------- -------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (1,729,675) (1,466,744) (3,149,551) (2,581,313)
Issuance of notes receivable - - (3,650,000) -
Payments received on notes receivable 27,294 32,672 59,968 62,874
--------------- --------------- -------------- --------------
Net cash used in investing activities (1,702,381) (1,434,072) (6,739,583) (2,518,439)
--------------- --------------- -------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of loan principal (49,558) (1,964,460) (1,214,222) (2,062,281)
Proceeds from new loans 563,991 42,732 9,690,632 1,042,732
Redemption of preferred stock - - (2,000,000) -
Proceeds from issuance of common stock, net - 4,401,317 (125,666) 4,401,317
Payment of debt issuance costs 89,439 (125,389) (350,579) (174,663)
Establishment of financing reserve fund - - (558,750) -
Dividends paid (48,074) (65,000) (144,514) (130,000)
--------------- --------------- -------------- --------------
Net cash provided by financing
activities 555,798 2,289,200 5,296,901 3,077,105
--------------- --------------- -------------- --------------
NET INCREASE (DECREASE) IN CASH 275,652 1,696,719 (126,788) 95,249
CASH, beginning of period 1,250,398 531,144 1,652,838 2,132,614
--------------- --------------- -------------- --------------
CASH, end of period $ 1,526,050 $ 2,227,863 $ 1,526,050 $ 2,227,863
=============== =============== ============== ==============
SUPPLEMENTAL DISCLOSURE:
Interest paid $ 580,060 $ 433,919 $ 950,864 $ 684,966
=============== =============== ============== ==============
Income taxes paid $ 11,158 $ 8,500 $ 11,158 $ 8,658
=============== =============== ============== ==============
</TABLE>
5
<PAGE> 6
VIRGINIA GAS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The accompanying unaudited financial statements as of June 30, 1997,
and for the three and six month periods ended June 30, 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 and six months ended June 30, 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 ($3,650,000) 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 2002 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 six months of 1997 totaled
$1,826,000 on sales volumes of 689,000 MMBtu.
In July 1997, the Company filed a registration statement with the
Securities and Exchange Commission in connection with a follow-on public
offering of 2,000,000 shares of its common stock. Proceeds from this offering
are expected to be used for the development of transmission pipelines,
expansion of a storage facility, expansion of propane distribution systems,
development of exploration and production facilities and other general
corporate purposes. This registration statement has not yet become effective
and there can be no assurance that this offering will be completed as
contemplated by the Company.
6
<PAGE> 7
VIRGINIA GAS STORAGE COMPANY
BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996
------------- --------------
(unaudited )
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash $ 189,868 $ 148,619
Accounts receivable 1,069,968 1,233,227
Notes receivable 70,000 570,000
Other current assets 18,348 85,369
-------------- ------------
Total current assets 1,348,184 2,037,215
PROPERTY AND EQUIPMENT, net 14,542,439 13,323,883
OTHER ASSETS 965,018 956,099
------------- --------------
Total assets $16,855,641 $16,317,197
============= ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 107,861 $ 104,915
Accounts payable 1,364,582 2,193,010
Other current liabilities 238,540 108,929
------------- --------------
Total current liabilities 1,710,983 2,406,854
LONG-TERM DEBT 7,328,182 6,386,212
DEFERRED INCOME TAXES 619,435 551,686
------------- --------------
Total liabilities 9,658,600 9,344,752
------------- --------------
STOCKHOLDERS' EQUITY:
Common stock - no par value, 50,000 shares authorized, 38,200
(unaudited) and 38,200 shares issued and outstanding as of
June 30, 1997 and December 31, 1996, respectively 5,640,000 5,640,000
Retained earnings 1,557,041 1,332,445
------------- --------------
Total stockholders' equity 7,197,041 6,972,445
------------- --------------
Total liabilities and stockholders' equity $16,855,641 $16,317,197
============= ==============
</TABLE>
7
<PAGE> 8
VIRGINIA GAS STORAGE COMPANY
STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
1997 1996 1997 1996
------------- ------------ ------------ -----------
<S> <C> <C> <C> <C>
REVENUE:
Operating revenue $ 740,711 $ 622,702 $ 2,149,463 $ 1,952,499
Interest income 11,490 44,109 30,104 108,252
------------- ------------ ------------ -----------
752,201 666,811 2,179,567 2,060,751
------------- ------------ ------------ -----------
EXPENSES:
Production expenses 50,282 60,275 110,139 132,654
Purchased gas expense 1,460 28,791 510,502 664,087
Operation and maintenance expense 181,067 53,876 404,381 109,361
Depreciation, depletion, and amortization 128,137 103,480 256,332 192,460
General and administrative 199,909 159,110 392,535 278,163
------------- ------------ ------------ -----------
560,855 405,532 1,673,889 1,376,725
------------- ------------ ------------ -----------
OTHER EXPENSE:
Interest 88,013 34,154 165,380 77,309
------------- ------------ ------------ -----------
INCOME BEFORE INCOME TAXES 103,333 227,125 340,298 606,717
PROVISION FOR INCOME TAXES 35,134 77,222 115,702 206,283
------------- ------------ ------------ -----------
NET INCOME $ 68,199 $ 149,903 $ 224,596 $ 400,434
============= ============ ============ ===========
VIRGINIA GAS COMPANY'S EQUITY IN VIRGINIA GAS
STORAGE COMPANY'S EARNINGS $ 34,100 $ 74,951 $ 112,298 $ 200,217
============= ============ ============ ===========
</TABLE>
8
<PAGE> 9
VIRGINIA GAS STORAGE COMPANY
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 68,199 $ 149,903 $ 224,596 $ 400,434
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, depletion, and amortization 128,137 103,480 256,332 192,460
Deferred income taxes 27,465 67,346 67,749 120,465
(Increase) decrease in accounts receivable (38,602) (239,154) 163,259 127,407
Decrease (increase) in other current assets 10,307 51,077 67,021 (4,386)
Increase in other assets (28,351) (8,554) (36,728) (12,183)
Decrease in accounts payable (52,143) (953,333) (828,428) (746,238)
(Decrease) increase in other current
liabilities (7,304) (73,803) 129,611 (37,398)
------------ ------------ ------------ ------------
Net cash provided by (used in)
operating activities 107,708 (903,038) 43,412 40,561
------------ ------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (391,260) (333,724) (1,447,079) (1,643,823)
Payments received on notes receivable - 1,670,000 500,000 1,720,000
------------ ------------ ------------ ------------
Net cash (used in) provided by
investing activities (391,260) 1,336,276 (947,079) 76,177
------------ ------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of loan principal (25,132) (29,792) (55,084) (57,936)
Proceeds from new loans - - 1,000,000 500,000
------------ ------------ ------------ ------------
Net cash (used in) provided by
financing activities (25,132) (29,792) 944,916 442,064
------------ ------------ ------------ ------------
NET (DECREASE) INCREASE IN CASH (308,684) 403,446 41,249 558,802
CASH, beginning of period 498,552 452,842 148,619 297,486
------------ ------------ ------------ ------------
CASH, end of period $ 189,868 $ 856,288 $ 189,868 $ 856,288
============ ============ ============ ============
SUPPLEMENTAL DISCLOSURE:
Interest paid $ 167,171 $ 152,974 $ 333,254 $ 328,356
============ ============ ============ ============
Income taxes paid $ 30,000 $ 40,000 $ 47,635 $ 79,024
============ ============ ============ ============
</TABLE>
9
<PAGE> 10
VIRGINIA GAS STORAGE COMPANY
NOTES TO FINANCIAL STATEMENTS
The accompanying unaudited financial statements as of June 30, 1997,
and for the three and six month periods ended June 30, 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 and six months ended June 30, 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 2002 to 2017.
10
<PAGE> 11
VIRGINIA GAS DISTRIBUTION COMPANY
BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
JUNE 30, DECEMBER 31,
1997 1996
-------------- -------------
(unaudited )
<S> <C> <C>
CURRENT ASSETS:
Cash $ 34,529 $ 16,166
Accounts receivable 393,717 151,752
Current portion of notes receivable 26,246 26,004
Other current assets 148,783 154,920
-------------- -------------
Total current assets 603,275 348,842
PROPERTY AND EQUIPMENT, net 5,785,139 2,755,660
NOTES RECEIVABLE 4,360,450 3,413,066
DEFERRED TAX ASSET - 1,995
OTHER ASSETS 1,099,160 546,798
-------------- -------------
Total assets $ 11,848,024 $ 7,066,361
============== =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 40,376 $ 39,240
Accounts payable 1,563,010 462,095
Other current liabilities 29,331 33,368
-------------- -------------
Total current liabilities 1,632,717 534,703
LONG-TERM DEBT 8,646,425 5,018,064
DEFERRED INCOME TAXES 17,482 -
-------------- -------------
Total liabilities 10,296,624 5,552,767
-------------- -------------
STOCKHOLDERS' EQUITY:
Common stock - no par value, 100,000 shares authorized, 75,000
(unaudited) and 75,000 shares issued and outstanding as of
June 30, 1997 and December 31, 1996, respectively 1,500,000 1,500,000
Retained earnings 51,400 13,594
-------------- -------------
Total stockholders' equity 1,551,400 1,513,594
-------------- -------------
Total liabilities and stockholders' equity $ 11,848,024 $ 7,066,361
============== =============
</TABLE>
11
<PAGE> 12
VIRGINIA GAS DISTRIBUTION COMPANY
STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
1997 1996 1997 1996
------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
REVENUE:
Operating revenue $ 199,337 $ 140,178 $ 419,421 $ 299,092
Interest income 114,881 83,072 211,303 161,284
Other income 23,444 18,448 45,288 36,059
------------- ------------ ------------ ------------
337,662 241,698 676,012 496,435
------------- ------------ ------------ ------------
EXPENSES:
Purchased gas expense 118,466 69,409 238,996 146,573
Operation and maintenance expense 19,431 13,374 38,386 22,365
Depreciation, depletion, and amortization 27,602 20,618 50,751 38,037
General and administrative 42,244 55,118 73,348 82,440
------------- ------------ ------------ ------------
207,743 158,519 401,481 289,415
------------- ------------ ------------ ------------
OTHER EXPENSE:
Interest 114,177 87,277 200,955 170,125
Other 7,675 7,039 16,293 13,487
------------- ------------ ------------ ------------
121,852 94,316 217,248 183,612
------------- ------------ ------------ ------------
INCOME (LOSS) BEFORE INCOME TAXES 8,067 (11,137) 57,283 23,408
PROVISION (BENEFIT) FOR INCOME TAXES 2,743 (3,787) 19,477 7,958
------------- ------------ ------------ ------------
NET INCOME (LOSS) $ 5,324 $ (7,350) $ 37,806 $ 15,450
============= ============ ============ ============
VIRGINIA GAS COMPANY'S EQUITY IN VIRGINIA GAS
DISTRIBUTION COMPANY'S EARNINGS $ 2,662 $ (3,675) $ 18,903 $ 7,725
============= ============ ============ ============
</TABLE>
12
<PAGE> 13
VIRGINIA GAS DISTRIBUTION COMPANY
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
1997 1996 1997 1996
--------------- --------------- -------------- ---------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 5,324 $ (7,350) $ 37,806 $ 15,450
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, depletion, and amortization 27,602 20,618 50,751 38,037
Deferred income taxes 2,743 6,532 19,477 7,062
Decrease (increase) in accounts receivable 266,414 (20,538) (241,965) (24,680)
Decrease in affiliated company receivable - - - 1,562,500
Decrease (increase) in other current assets (46,745) (39,943) 6,137 21,779
Increase in other assets (9,523) (10,198) (14,246) (8,648)
Increase (decrease) in accounts payable 1,015,374 (26,883) 1,100,915 (169,198)
Decrease in other current liabilities (20,424) (6,608) (4,037) (65,645)
--------------- --------------- -------------- ---------------
Net cash provided by (used in)
operating activities 1,240,765 (84,370) 954,838 1,376,657
--------------- --------------- -------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (2,487,213) (29,800) (3,070,452) (180,853)
Loans made to affiliated companies - - (1,000,000) (1,500,000)
Payments received on notes receivable 10,217 73,271 52,374 83,998
--------------- --------------- -------------- ---------------
Net cash (used in) provided by
investing activities (2,476,996) 43,471 (4,018,078) (1,596,855)
--------------- --------------- -------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of loan principal (9,565) (10,896) (20,503) (20,392)
Proceeds from new loans - - 3,650,000 -
Payment of financing costs (143,892) - (219,394) -
Establishment of financing reserve fund - - (328,500) -
--------------- --------------- -------------- ---------------
Net cash (used in) provided by
financing activities (153,457) (10,896) 3,081,603 (20,392)
--------------- --------------- -------------- ---------------
NET (DECREASE) INCREASE IN CASH (1,389,688) (51,795) 18,363 (240,590)
CASH, beginning of period 1,424,217 117,892 16,166 306,687
--------------- --------------- -------------- ---------------
CASH, end of period $ 34,529 $ 66,097 $ 34,529 $ 66,097
=============== =============== ============== ===============
SUPPLEMENTAL DISCLOSURE:
Interest paid $ 212,833 $ 129,871 $ 349,996 $ 316,564
=============== =============== ============== ===============
Income taxes paid $ - $ - $ - $ -
=============== =============== ============== ===============
</TABLE>
13
<PAGE> 14
VIRGINIA GAS DISTRIBUTION COMPANY
NOTES TO FINANCIAL STATEMENTS
The accompanying unaudited financial statements as of June 30, 1997,
and for the three and six month periods ended June 30, 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 and six months ended June 30, 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. A portion ($1,000,000) of these allocated proceeds
was loaned by Virginia Gas Distribution Company to an affiliated company. 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 2002 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 discussion 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 and six month periods ended June 30, 1997,
Virginia Gas Company (the "Company") recorded net income of $128,000 and
$427,000, respectively, compared to $44,000 and $207,000 for the same periods
in 1996. The net income per common share available to common stockholders for
the corresponding periods was $0.04 and $0.12, respectively, in 1997 compared
to ($0.02) and $0.07, respectively, in 1996. The number of weighted-average
shares used in calculating income per common share was 3,213,816 and 3,201,350
for the three and six months ended June 30, 1997, respectively, compared with
1,171,151 and 1,034,873 for the corresponding periods in 1996.
REVENUES. Total revenues increased 313% to $1.9 million for the three
months ended June 30, 1997, compared to $467,000 for the same period in 1996.
Gas sales and well operation revenues totaled $911,000 for the second quarter
of 1997 compared to $123,000 for the second quarter of 1996. The increase
primarily reflects the formation of the Company's marketing operations during
the first quarter of 1997. Sales of natural gas during the second quarter of
1997 totaled $758,000 on sales volumes of 342,000 MMBtu. Exploration and
production revenues, reflecting the Company's interest in these sales of
natural gas, consisted of natural gas sales of $68,000 and well operation
revenues of $66,000 during the second quarter of 1997 compared to $63,000 and
$60,000, respectively, for the same period in 1996. Propane sales totaled
$85,000 for the three months ended June 30, 1997. There were no comparable
propane sales for the same period in 1996 as these operations were in the
developmental stage.
Total revenues increased 316% to $4.1 million for the six months ended
June 30, 1997, compared to $979,000 for the same period in 1996. Gas sales and
well operation revenues totaled $2.1 million for the first six months of 1997
compared to $297,000 for the same period in 1996. Sales of natural gas during
the first six months of 1997 totaled $1,826,000 on sales volumes of 689,000
MMBtu. Exploration and production revenues consisted of natural gas sales of
$189,000 and well operation revenues of $131,000, respectively, for the first
six months of 1997 compared to $158,000 and $139,000, respectively, for the
same period in 1996. Propane sales totaled $118,000 for the six months ended
June 30, 1997.
Natural gas storage revenues totaled $602,000 for the three months
ended June 30, 1997, compared to zero for the same period in 1996. Initial
injections of customer gas into the Company's storage facility located in
Saltville, Virginia began in August 1996. Contracted storage capacity for the
current contract year is comprised of 10-day (64%), 60-day (9%) and 90- day
(27%) service. Storage revenues totaled $1.2 million for the first six months
of 1997.
15
<PAGE> 16
ITEM 2. CONTINUED
Management revenues, interest and other income totaled $393,000 for
the second quarter of 1997, compared to $319,000 for the same period in 1996,
an increase of 23%. The majority of the increase reflects an increase in
interest income of $97,000, offset by a decrease in management revenues of
$22,000. These revenues totaled $715,000 for the six months ended June 30,
1997, compared with $630,000 for the same period in 1996, an increase of 14%.
The majority of the increase reflects an increase in interest income of
$131,000, offset by a decrease in management revenues of $52,000.
COSTS AND EXPENSES. Total operating costs and expenses totaled $1.4
million for the three months ended June 30, 1997, compared to $252,000 for the
same period in 1996. Total operating costs and expenses increased $2.4 million
to $2.9 million for the six months ended June 30, 1997 compared to $477,000 for
the same period in 1996. Production and purchased gas expenses increased to
$109,000 and $167,000 for the three and six month periods ended June 30, 1997,
respectively, from $21,000 and $43,000 for the corresponding periods in 1996.
Theses increases reflect increased production expenses in addition to increased
purchased gas expense attributed to the expanding propane distribution
operations.
Operations and maintenance expenses totaled $129,000 and $229,000 for
the three and six month periods ended June 30, 1997 compared to zero for the
same periods in 1996, primarily reflecting operating costs related to the
Company's Saltville storage facility.
Cost of natural gas sold, related to the Company's marketing of
natural gas, totaled $690,000 and $1.6 million for the three and six month
periods ended June 30, 1997 compared to zero for the corresponding 1996
periods, reflecting the initiation of marketing operations and the
corresponding costs.
General and administrative costs were $232,000 and $447,000 for the
three and six month periods ended June 30, 1997, respectively, compared to
$171,000 and $303,000 for the corresponding periods in 1996. These increases
reflect the growth in Company operations and the accompanying growth in
personnel and facilities.
Depreciation, depletion and amortization increased 242% to $207,000 in
the second quarter of 1997 from $61,000 for the second quarter of 1996. This
increase totaled 189% to $374,000 for the six months ended June 30, 1997 from
$129,000 for the same period in 1996. These increases reflect the recovery of
costs for capital projects recently placed into service, primarily the
Company's Saltville storage facility.
INTEREST EXPENSE. Interest expense increased 51% to $399,000 during
the second quarter of 1997 from $265,000 for the same period in 1996. Interest
expense increased 38% to $717,000 during the first six months of 1997 from
$521,000 in the comparable 1996 period. These increases are due primarily to
additional tax-exempt bond financing. 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 six
month periods ended June 30, 1997 totaled $98,000 and $170,000, respectively.
Capitalized interest for the comparable 1996 periods totaled $100,000 and
$162,000, respectively.
16
<PAGE> 17
ITEM 2. CONTINUED
EQUITY IN EARNINGS OF AFFILIATES. The Company has a 50% ownership
interest in two affiliated companies which provide natural gas storage,
gathering and distribution services. The Company accounts for its investments
in these companies using the equity method. For the three months ended June
30, 1997, the Company's equity in earnings of these affiliates decreased 48% to
$37,000 from $71,000 for the comparable period in 1996. The Company's equity
in earnings of affiliates decreased 37% to $131,000 for the first six months of
1997 from $208,000 for the same period in 1996. These decreases reflect
increased operations expenses related to natural gas storage operations in
addition to higher interest costs.
INCOME TAXES. Using the asset-and-liability method, deferred income
taxes reflect the temporary differences between assets and liabilities
recognized for financial reporting purposes and amounts recognized for income
tax purposes. The Company's provision for income taxes as a percentage of
income before its equity in earnings of affiliates (the Company's equity in
earnings of affiliates is reflected on a post-income tax basis) was 28% and 32%
for the three and six month periods ended June 30, 1997, respectively. For the
comparable periods in 1996, the Company's operations reflected an income tax
benefit.
EQUITY INVESTMENTS
NATURAL GAS STORAGE. Storage revenues from the Early Grove facility
for the three months ended June 30, 1997, were $610,000 compared to $481,000
for the same period in 1996. Storage revenues for the six months ended June
30, 1997, were $1,265,000 compared to $877,000 for the comparable 1996 period.
These increases reflect increased storage capacity at the Early Grove facility.
NATURAL GAS GATHERING. Gathering revenues totaled $66,000 and
$159,000 for the three and six month periods ended June 30, 1997, respectively,
compared to $78,000 and $207,000 for the comparable periods in 1996. These
decreases reflect a decrease in natural gas throughput due partially to
production decline and to decreased peak winter service volumes sold as a
result of the milder seasonal temperatures experienced during the first quarter
of 1997 as compared to the corresponding period in 1996. Revenues from winter
service sales totaled $613,000 for the six months ended June 30, 1997, compared
to $781,000 for the same period in 1996. Purchased gas expenses related to
these sales totaled $511,000 and $664,000 for the six months ended June 30,
1997 and 1996, respectively.
NATURAL GAS DISTRIBUTION. Distribution revenues for the three months
ended June 30, 1997, were $199,000, an increase of $59,000 over revenues of
$140,000 for the same period in 1996. Distribution revenues for the first six
months of 1997 were $419,000, an increase of $120,000 over revenues of $299,000
for the same period in 1996. These increases largely reflect increased usage
during the 1997 periods by industrial customers. Purchased gas costs related
to these sales totaled $118,000 and $239,000 for the three and six month
periods ended June 30, 1997, respectively, compared to $69,000 and $147,000 for
the same periods in 1996.
17
<PAGE> 18
ITEM 2. CONTINUED
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1997, the Company's working capital reflected a $519,000
deficit, an increase from the $430,000 deficit at December 31, 1996. The
Company's current ratio at June 30, 1997, was 0.87, consistent with the ratio
at December 31, 1996. The combined working capital of the Company's
affiliates, Virginia Gas Storage Company and Virginia Gas Distribution Company,
increased to a $1.4 million deficit at June 30, 1997, from the $600,000 deficit
at December 31, 1996. The combined current ratio of these companies was 0.58
at June 30, 1997. Cash decreased to $1,526,000 at June 30, 1997 from
$1,653,000 at December 31, 1996 as net cash used in investing activities
exceeded net cash provided by operating and financing activities.
In July 1997, the Company filed a registration statement with the
Securities and Exchange Commission in connection with a follow-on public
offering of 2,000,000 shares of its common stock. Proceeds from this offering
are expected to be used for the development of transmission pipelines,
expansion of a storage facility, expansion of propane distribution systems,
development of exploration and production facilities and other general
corporate purposes. This registration statement has not yet become effective
and there can be no assurance that this offering will be completed as
contemplated by the Company.
18
<PAGE> 19
VIRGINIA GAS COMPANY AND SUBSIDIARIES
PART II. OTHER INFORMATION
FOR THE THREE MONTHS ENDED JUNE 30, 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 June 30, 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:
There were no reports filed on Form 8-K during the
three months ended June 30, 1997.
19
<PAGE> 20
VIRGINIA GAS COMPANY AND SUBSIDIARIES
LIST OF EXHIBITS
27 Financial Data Schedule for the Six Months Ended June 30, 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 JUNE 30, 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> JUN-30-1997
<CASH> 1,526,050
<SECURITIES> 0
<RECEIVABLES> 1,777,892
<ALLOWANCES> 0
<INVENTORY> 89,612
<CURRENT-ASSETS> 3,536,631
<PP&E> 20,697,488
<DEPRECIATION> (1,534,860)
<TOTAL-ASSETS> 41,416,156
<CURRENT-LIABILITIES> 4,055,980
<BONDS> 21,136,694
0
0
<COMMON> 3,205
<OTHER-SE> 15,491,270
<TOTAL-LIABILITY-AND-EQUITY> 41,416,156
<SALES> 1,617,892
<TOTAL-REVENUES> 1,931,485
<CGS> 1,135,861
<TOTAL-COSTS> 1,368,160
<OTHER-EXPENSES> 36,726
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 399,333
<INCOME-PRETAX> 164,028
<INCOME-TAX> 35,807
<INCOME-CONTINUING> 128,221
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 128,221
<EPS-PRIMARY> .04
<EPS-DILUTED> .04
</TABLE>
