<PAGE>
UNITED STATES 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, 1999
[ ] 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 000-21523
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>
VIRGINIA GAS COMPANY
QUARTERLY REPORT ON FORM 10-QSB
FOR THE QUARTER ENDED SEPTEMBER 30, 1999
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ITEM NUMBER PAGE NUMBER
PART I - FINANCIAL INFORMATION
<S> <C> <C>
1 Financial Statements:
Virginia Gas Company and Subsidiaries
Consolidated Balance Sheets at September 30, 1999 (Unaudited) and December 31,
1998 3
Consolidated Statements of Operations (Unaudited) for the Three and Nine
Months Ended September 30, 1999 and 1998 4
Consolidated Statements of Cash Flows (Unaudited) for the Nine Months Ended
September 30, 1999 and 1998 5
Notes to Consolidated Financial Statements 6
Virginia Gas Storage Company
Balance Sheets at September 30, 1999 (Unaudited) and December 31, 1998 9
Statements of Operations (Unaudited) for the Three and Nine Months Ended
September 30, 1999 and 1998 10
Statements of Cash Flows (Unaudited) for the Nine Months Ended September 30,
1999 and 1998 11
Notes to Financial Statements 12
Virginia Gas Distribution Company
Balance Sheets at September 30, 1999 (Unaudited) and December 31, 1998 13
Statements of Operations (Unaudited) for the Three and Nine Months Ended
September 30, 1999 and 1998 14
Statements of Cash Flows (Unaudited) for the Nine Months Ended September 30,
1999 and 1998 15
Notes to Financial Statements 16
2 Management's Discussion and Analysis of Financial Condition and Results of
Operations 17
</TABLE>
PART II - OTHER INFORMATION
<TABLE>
<CAPTION>
<S> <C> <C>
4 Submission of Matters to a Vote of Security Holders 21
6 Exhibits and Reports on Form 8-K 21
Signature 22
</TABLE>
2
<PAGE>
VIRGINIA GAS COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
----------- ------------
(unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 297,297 $ 1,763,753
Accounts receivable 863,421 3,469,757
Notes receivable 39,100 38,800
Other current assets 675,800 498,707
----------- ------------
Total current assets 1,875,618 5,771,017
PROPERTY AND EQUIPMENT, net 41,597,109 37,139,538
INVESTMENT IN AFFILIATED COMPANIES 4,329,256 3,930,554
NOTES RECEIVABLE - AFFILIATED COMPANIES 13,000,912 13,000,912
OTHER ASSETS 701,638 619,533
----------- ------------
Total assets $ 61,504,533 $ 60,461,554
----------- ------------
----------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 3,009,697 $ 2,546,734
Accounts payable 456,396 542,626
Funds held for future distribution 123,897 266,806
Other current liabilities 277,414 261,624
----------- ------------
Total current liabilities 3,867,404 3,617,790
LONG-TERM DEBT 24,254,444 24,254,444
DEFERRED INCOME TAXES 645,674 645,674
----------- ------------
Total liabilities 28,767,522 28,517,908
----------- ------------
STOCKHOLDERS' EQUITY:
Common stock - par value $.001, 100,000,000 (unaudited) authorized
and 5,504,906 shares issued and outstanding as of September
30, 1999 and December 31, 1998, respectively 5,505 5,505
Additional paid-in capital 31,375,267 31,375,267
Retained earnings 1,356,239 562,874
----------- ------------
Total stockholders' equity 32,737,011 31,943,646
----------- ------------
Total liabilities and stockholders' equity $ 61,504,533 $ 60,461,554
----------- ------------
----------- ------------
</TABLE>
3
<PAGE>
VIRGINIA GAS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
1999 1998 1999 1998
-------- --------- -------- --------
(restated - (restated -
see note 1) see note 1)
<S> <C> <C> <C> <C>
REVENUE:
Operating revenue $ 2,287,702 $ 1,863,533 $ 6,845,890 $ 5,643,722
Interest and other income 333,565 387,294 1,032,339 1,272,861
------------ ------------ ------------ ------------
2,621,267 2,250,827 7,878,229 6,916,583
------------ ------------ ------------ ------------
EXPENSES:
Cost of natural gas sold 777,364 609,876 1,877,670 2,157,592
Purchased propane gas expense 144,529 68,606 497,033 383,450
Operation and maintenance expense 293,917 259,418 1,026,610 824,242
Depreciation, depletion, and amortization 386,954 236,824 1,096,575 668,273
General and administrative 546,690 361,486 1,417,651 1,051,777
------------ ------------ ------------ ------------
2,149,454 1,536,210 5,915,539 5,085,334
------------ ------------ ------------ ------------
Other expense - interest 372,105 353,670 1,149,952 1,098,050
------------ ------------ ------------ ------------
INCOME BEFORE EARNINGS OF AFFILIATED COMPANIES, INCOME TAXES,
AND EXTRAORDINARY LOSS 99,708 360,947 812,738 733,199
Equity in earnings (losses) of affiliated companies (31,821) (46,344) 398,702 (50,240)
------------ ------------ ------------ ------------
INCOME BEFORE INCOME TAXES AND EXTRAORDINARY LOSS 67,887 314,603 1,211,440 682,959
Provision for income taxes 7,424 108,358 225,402 207,515
------------ ------------ ------------ ------------
NET INCOME BEFORE EXTRAORDINARY ITEM 60,463 206,245 986,038 475,444
Extraordinary loss on extinguishment of debt (net of tax) -- -- -- (832,493)
------------ ------------ ------------ ------------
NET INCOME (LOSS) $ 60,463 $ 206,245 $ 986,038 $ (357,049)
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
EARNINGS (LOSS) PER COMMON SHARE, BASIC AND DILUTED:
INCOME BEFORE EXTRAORDINARY ITEM $ 0.01 $ 0.04 $ 0.18 $ 0.09
EXTRAORDINARY LOSS ON EXTINQUISHMENT OF DEBT (NET OF TAX) -- -- -- (0.15)
------------ ------------ ------------ ------------
NET INCOME (LOSS) PER COMMON SHARE, BASIC AND DILUTED $ 0.01 $ 0.04 $ 0.18 $ (0.06)
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING 5,504,906 5,504,906 5,504,906 5,504,906
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</TABLE>
4
<PAGE>
VIRGINIA GAS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED SEPTEMBER 30,
1999 1998
------------ ------------
(restated -
see note 1)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 986,038 $ (357,049)
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Depreciation, depletion, and amortization 1,096,575 668,273
Extraordinary loss on extinguishment of debt -- 1,013,394
Undistributed (earnings) losses of affiliated companies (398,702) 50,240
Deferred income taxes -- 127,000
Decrease (increase) in accounts receivable 2,606,336 (1,590,195)
Increase in other current assets (170,381) (348,478)
Decrease (increase) in other assets (82,005) (54,666)
Increase (decrease) in accounts payable (86,230) 661,231
Decrease in other current liabilities (127,119) (263,409)
------------ ------------
Net cash provided by (used in) operating activities 3,824,512 (93,659)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (5,554,147) (13,887,510)
Issuance of note receivable (7,612) (18,850)
Payments received on notes receivable 500 102,000
------------ ------------
Net cash used in investing activities (5,561,259) (13,804,360)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of loan principal -- (19,634,170)
Proceeds from new loans 462,963 24,000,000
Payment of debt issuance costs -- (646,626)
Repurchase of stock warrants -- (5,015)
Establishment of financing reserve fund -- 688,792
Dividends paid (192,672) (289,008)
------------ ------------
Net cash provided by financing activities 270,291 4,113,973
------------ ------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (1,466,456) (9,784,046)
CASH AND CASH EQUIVALENTS, beginning of period 1,763,753 11,750,899
------------ ------------
CASH AND CASH EQUIVALENTS, end of period $ 297,297 $ 1,966,853
------------ ------------
SUPPLEMENTAL DISCLOSURE:
Interest paid $ 1,629,987 $ 1,240,891
------------ ------------
------------ ------------
Income taxes paid $ 200,000 $ 7,075
------------ ------------
------------ ------------
</TABLE>
5
<PAGE>
VIRGINIA GAS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. GENERAL:
The accompanying unaudited consolidated financial statements as of
September 30, 1999, and for the three and nine-month periods ended September 30,
1999 and 1998, 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 or VGC). Operating results for the three and nine
months ended September 30, 1999, are not necessarily indicative of the results
that may be expected for the year ending December 31, 1999.
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, 1999 and subsequent
10-QSB's.
The unaudited consolidated financial statements for 1999 and the
consolidated financial statements for 1998 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 March 1998, the Company completed a refinancing transaction whereby
the Company issued $24 million in senior notes to John Hancock Mutual Life
Insurance Company and related entities. With the proceeds, the Company retired
or defeased $19.6 million of industrial revenue bonds. The remaining proceeds
were used to develop the Company's pipeline and storage projects. As a result
of this refinancing, the Company incurred a one time after-tax charge of
approximately $832,000. The Company and its affiliates had originally
capitalized as a regulatory asset a portion of this loss. Later in 1998, in
connection with the completion of administrative proceedings with the Virginia
State Corporation Commission, the Company determined that neither it nor its
affiliates qualify as regulated entities as defined by FASB Statement No. 71,
"ACCOUNTING FOR THE EFFECTS OF CERTAIN TYPES OF REGULATION." Accordingly, the
Company restated 1998 earnings to reflect the entire $832,000 extraordinary loss
and adjusted for amortization expense that was previously recorded throughout
1998. The loss related to the accelerated amortization of issue costs related to
the industrial revenue bonds, and defeasement premiums, interest, and other fees
related to the 1994 Russell County bond issue.
2. SEGMENT INFORMATION:
The Company classifies its business into five fundamental areas:
natural gas storage, production, transportation, propane distribution, and
parent company activities. Storage activities include revenues derived from and
expenses incurred in the operation of the Saltville Storage Facility. The
production segment includes gas sales from Company operated wells through its
Virginia Gas Marketing Company and the related expenses. Transportation
activities include revenue derived from the Company's P-25 pipeline system and
the expenses incurred to operate that system. The propane distribution segment
includes all revenues obtained through the retail distribution of propane and
the related expenses. The parent company activities relate solely to activities
of Virginia Gas Company as a holding company. Information as to the operations
of the Company in different business segments is set forth below based on the
nature of the products and services offered.
6
<PAGE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30 NINE MONTHS ENDED SEPTEMBER 30
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
STORAGE:
Total assets $ 21,551,556 $ 19,283,974 $ 21,551,556 $ 19,283,974
Capital expenditures $ 1,209,488 $ 977,664 $ 4,017,379 $ 3,350,592
Operating revenues $ 731,324 $ 806,205 $ 2,184,712 $ 2,100,966
Interest income -- -- -- 324,754
Other income -- -- 2,729 425
Operation and maintenance (119,928) (123,094) (456,756) (450,689)
Depreciation, depletion, and
amortization (150,765) (97,571) (410,008) (306,114)
------------- ------------- ------------- -------------
STORAGE OPERATING INCOME $ 460,631 $ 585,540 $ 1,320,677 $ 1,669,342
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
PRODUCTION:
Total assets $ 3,963,851 $ 5,526,162 $ 3,963,851 $ 5,526,162
Capital expenditures $ 5,034 $ 12,560 $ 34,443 $ 61,227
Operating revenues $ 1,015,302 $ 810,675 $ 2,658,411 $ 2,801,390
Interest income 10,737 10,210 32,854 31,986
Other income 1,604 1,699 7,440 5,367
Cost of natural gas sold (777,364) (609,876) (1,877,670) (2,157,592)
Operations and maintenance (37,268) (43,660) (115,655) (145,464)
Depreciation, depletion, and
amortization (45,247) (60,108) (135,561) (183,303)
------------- ------------- ------------- -------------
PRODUCTION OPERATING INCOME $ 167,764 $ 108,940 $ 569,819 $ 352,384
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
TRANSPORTATION:
Total assets $ 13,951,376 $ 12,413,714 $ 13,951,376 $ 12,413,714
Capital expenditures $ 91,955 $ 3,163,371 $ 533,000 $ 9,629,235
Operating revenues $ 288,034 $ 197,015 $ 862,826 $ 197,015
Other income -- -- 1,099 --
Operation and maintenance (47,242) (35,050) (180,197) (35,050)
Depreciation, depletion, and
amortization (59,390) (23,847) (210,870) (23,847)
------------- ------------- ------------- -------------
TRANSPORTATION OPERATING INCOME $ 181,402 $ 138,118 $ 472,858 $ 138,118
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
PROPANE DISTRIBUTION:
Total assets $ 4,198,326 $ 3,085,520 $ 4,198,326 $ 3,085,520
Capital expenditures $ 347,747 $ 239,417 $ 837,913 $ 780,947
Operating revenue $ 283,018 $ 175,315 $ 1,209,390 $ 862,008
Interest income -- 910 -- 8,124
Other income 53,848 51,027 162,945 84,349
Propane gas expense (144,529) (68,606) (497,033) (383,450)
Operation and maintenance (89,479) (57,614) (274,002) (193,039)
Depreciation, depletion, and
amortization (60,881) (38,347) (169,505) (106,628)
------------ ------------ ------------ ------------
PROPANE DISTRIBUTION OPERATING INCOME $ 41,977 $ 62,685 $ 431,795 $ 271,364
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
PARENT COMPANY:
Investments in subsidiaries and affiliates $ 29,079,256 $ 29,142,258 $ 29,079,256 $ 29,142,258
Notes receivable from subsidiaries and
affiliates $ 23,027,703 $ 21,392,674 $ 23,027,703 $ 21,392,674
Total assets $ 55,361,213 $ 54,782,855 $ 55,361,213 $ 54,782,855
Capital expenditures $ 62,621 $ (344,553) $ 131,412 $ 65,509
Operating revenue $ 150,623 $ 202 $ 561,530 $ 202
Interest income 569,137 511,944 1,515,480 1,613,014
Other income -- -- 256 2,420
Depreciation, depletion, and
amortization (70,671) (16,951) (170,631) (48,381)
------------ ------------ ------------ ------------
PARENT COMPANY OPERATING INCOME $ 649,089 $ 495,195 $ 1,906,635 $ 1,567,255
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
ELIMINATION OF INTERSEGMENT ACTIVITY:
Total assets $(37,521,789) $(34,277,769) $(37,521,789) $(34,277,769)
Operating revenues $ (180,599) $ (125,879) $ (630,979) $ (317,859)
Interest and other income $ (301,761) $ (188,496) $ (690,464) $ (797,578)
VIRGINIA GAS COMPANY CONSOLIDATED:
Total assets $ 61,504,533 $ 60,814,456 $ 61,504,533 $ 60,814,456
Capital expenditures $ 1,716,845 $ 4,048,459 $ 5,554,147 $ 13,887,510
Operating revenues $ 2,287,702 $ 1,863,533 $ 6,845,890 $ 5,643,722
Interest income 278,113 334,568 857,870 1,180,300
Other income 55,452 52,726 174,469 92,561
Cost of gas sold (777,364) (609,876) (1,877,670) (2,157,592)
Propane gas expense (144,529) (68,606) (497,033) (383,450)
Operations and maintenance (293,917) (259,418) (1,026,610) (824,242)
Depreciation, depletion, and
amortization (386,954) (236,824) (1,096,575) (668,273)
------------ ------------ ------------ ------------
VIRGINIA GAS COMPANY CONSOLIDATED
OPERATING INCOME $ 1,018,503 $ 1,076,103 $ 3,380,341 $ 2,883,026
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</TABLE>
8
<PAGE>
VIRGINIA GAS STORAGE COMPANY
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------- -------------
(unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash $ 206,265 $ 36,800
Accounts receivable 396,106 740,748
Other current assets 48,242 33,932
----------- -----------
Total current assets 650,613 811,480
PROPERTY AND EQUIPMENT, net 13,790,333 15,420,259
OTHER ASSETS 155,967 132,001
----------- -----------
Total assets $14,596,913 $16,363,740
----------- -----------
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ -- $ 5,943
Accounts payable -- 1,123,993
Other current liabilities 285,846 57,580
----------- -----------
Total current liabilities 285,846 1,187,516
LONG-TERM DEBT 5,255,547 7,255,547
DEFERRED INCOME TAXES 626,136 626,136
----------- -----------
Total liabilities 6,167,529 9,069,199
----------- -----------
STOCKHOLDERS' EQUITY:
Common stock - no par value, 50,000 shares authorized and
38,200 shares issued and outstanding 5,640,000 5,640,000
Retained earnings 2,789,384 1,654,541
----------- -----------
Total stockholders' equity 8,429,384 7,294,541
----------- -----------
Total liabilities and stockholders' equity $14,596,913 $16,363,740
----------- -----------
----------- -----------
</TABLE>
9
<PAGE>
VIRGINIA GAS STORAGE COMPANY
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
1999 1998 1999 1998
----------- ----------- ----------- -----------
(restated - (restated -
see note 1) see note 1)
<S> <C> <C> <C> <C>
REVENUE:
Operating revenue $ 550,066 $ 582,457 $ 2,312,822 $ 2,553,313
Interest and other income 5,010 768 1,230,420 9,087
----------- ----------- ----------- -----------
555,076 583,225 3,543,242 2,562,400
----------- ----------- ----------- -----------
EXPENSES:
Purchased gas expense -- -- 370,063 431,546
Operation and maintenance expense 144,897 145,172 524,231 603,341
Depreciation, depletion, and amortization 99,265 141,102 322,563 414,791
General and administrative 99,639 134,900 249,761 296,984
----------- ----------- ----------- -----------
343,801 421,174 1,466,618 1,746,662
----------- ----------- ----------- -----------
Other expense - interest 111,728 151,846 357,165 457,830
----------- ----------- ----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES 99,547 10,205 1,719,459 357,908
Provision (benefit) for income taxes 33,846 3,470 584,616 121,689
----------- ----------- ----------- -----------
INCOME BEFORE EXTRAORDINARY LOSS 65,701 6,735 1,134,843 236,219
Extraordinary loss on extinguishment of debt (net of tax) -- -- -- (478,685)
----------- ----------- ----------- -----------
NET INCOME (LOSS) $ 65,701 $ 6,735 $ 1,134,843 $ (242,466)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
10
<PAGE>
VIRGINIA GAS STORAGE COMPANY
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED SEPTEMBER 30,
1999 1998
------------- ------------
(restated -
see note 1)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,134,843 $ (242,466)
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation, depletion, and amortization 322,563 414,792
Gain on sale of fixed assets (1,355,669) --
Extraordinary loss on extinguishment of debt -- 725,281
Decrease in accounts receivable 344,642 1,099,368
Increase in other current assets (14,310) (14,117)
Increase in other assets (23,966) (189,304)
Decrease in accounts payable (152,680) (1,569,221)
Decrease in other current liabilities (743,047) (42,748)
------------- ------------
Net cash provided by (used in) operating
activities (487,624) 181,585
------------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures, net (36,968) (874,079)
Proceeds from sale of fixed assets 2,700,000 --
------------- ------------
Net cash used in investing activities 2,663,032 (874,079)
------------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of loan principal (2,005,943) (50,000)
Refund of reserve funds -- 617,982
Payment of financing costs -- (156,731)
------------- ------------
Net cash (used in) provided by financing
activities (2,005,943) 411,251
------------- ------------
NET INCREASE (DECREASE) IN CASH 169,465 (281,243)
CASH, beginning of period 36,800 375,958
------------- ------------
CASH, end of period $ 206,265 $ 94,715
------------- ------------
------------- ------------
SUPPLEMENTAL DISCLOSURE:
Interest paid $ 457,937 $ 228,959
------------- ------------
------------- ------------
Income taxes paid $ 370,000 $ 48,750
------------- ------------
------------- ------------
</TABLE>
11
<PAGE>
VIRGINIA GAS STORAGE COMPANY
NOTES TO FINANCIAL STATEMENTS
The accompanying unaudited financial statements as of September 30,
1999, and for the three and nine-month periods ended September 30, 1999 and
1998, 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 (VGSC). Operating results for the three and nine months ended September
30, 1999, are not necessarily indicative of the results that may be expected for
the year ending December 31, 1999.
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, 1999 and subsequent
10QSB's.
In February 1999, the Company sold its 60 percent interest in the Haysi
Gathering System for $2,700,000. This resulted in a net before tax gain of
$1,216,000 that is recorded as other income during the quarter ending March 31,
1999.
In March 1998, VGC completed a refinancing transaction whereby VGC
issued a $24 million note to John Hancock Mutual Life Insurance Company. With
the proceeds, VGC retired or defeased $19.6 million of industrial revenue bonds,
most of which had been previously allocated to VGSC and other affiliated
companies. As a result of this refinancing, VGSC incurred a one time after-tax
charge of $479,000. VGSC had originally capitalized as a regulatory asset a
portion of this loss. Later in 1998, in connection with the completion of
administrative proceedings with the Virginia State Corporation Commission, VGSC
determined that neither it nor its affiliates qualify as regulated entities as
defined by FASB Statement No. 71, "ACCOUNTING FOR THE EFFECTS OF CERTAIN TYPES
OF REGULATION." Accordingly, VGSC restated 1998 earnings to reflect the entire
$479,000 extraordinary loss and adjusted for amortization expense that was
previously recorded throughout 1998. The loss related to the accelerated
amortization of issue costs related to the industrial revenue bonds, and
defeasement premiums, interest, and other fees related to the 1994 Russell
County bond issue.
12
<PAGE>
VIRGINIA GAS DISTRIBUTION COMPANY
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------- --------------
(unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash $ 459,757 $ 64,034
Accounts receivable 113,828 204,495
Other current assets 202,652 233,980
------------- --------------
Total current assets 776,237 502,509
PROPERTY AND EQUIPMENT, net 6,776,145 6,786,284
NOTES RECEIVABLE 915,807 2,915,807
DEFERRED TAX ASSET 489,855 489,855
OTHER ASSETS 94,380 99,756
------------- --------------
Total assets $ 9,052,424 $ 10,794,211
------------- --------------
------------- --------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 110,619 $ 1,545,675
Other current liabilities 51,506 20,826
------------- --------------
Total current liabilities 162,125 1,566,501
LONG-TERM DEBT 8,661,172 8,661,172
------------- --------------
Total liabilities 8,823,297 10,227,673
------------- --------------
STOCKHOLDERS' EQUITY:
Common stock - no par value, 100,000 shares authorized, 75,000
shares issued and outstanding 1,500,000 1,500,000
Retained earnings (1,270,873) (933,462)
------------- --------------
Total stockholders' equity 229,127 566,538
------------- --------------
Total liabilities and stockholders' equity $ 9,052,424 $ 10,794,211
------------- --------------
------------- --------------
</TABLE>
13
<PAGE>
VIRGINIA GAS DISTRIBUTION COMPANY
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
1999 1998 1999 1998
----------- ------------ ----------- ---------
(restated - (restated -
see note 1) see note 1)
<S> <C> <C> <C> <C>
REVENUE:
Operating revenue $ 213,728 $ 165,118 $ 818,681 $ 636,277
Interest and other income 40,108 85,871 149,183 272,631
----------- ------------ ----------- ---------
253,836 250,989 967,864 908,908
----------- ------------ ----------- ---------
EXPENSES:
Purchased gas expense 130,512 91,555 517,094 414,695
Operation and maintenance expense 48,241 48,896 159,516 162,713
Depreciation, depletion, and amortization 56,543 42,280 168,759 139,056
General and administrative 30,414 33,736 81,525 109,178
----------- ------------ ----------- ---------
265,710 216,467 926,894 825,642
----------- ------------ ----------- ---------
Other expense - interest 184,059 185,165 552,197 593,414
----------- ------------ ----------- ---------
LOSS BEFORE INCOME TAX BENEFIT (195,933) (150,643) (511,227) (510,148)
Income tax benefit (66,617) (51,219) (173,816) (173,450)
----------- ------------ ----------- ---------
LOSS BEFORE EXTRAORDINARY LOSS (129,316) (99,424) (337,411) (336,698)
Extraordinary loss on extinguishment of debt (net of tax) -- -- -- (463,877)
----------- ------------ ----------- ---------
NET LOSS $ (129,316) $ (99,424) $ (337,411) $ (800,575)
----------- ------------ ----------- ---------
----------- ------------ ----------- ---------
</TABLE>
14
<PAGE>
VIRGINIA GAS DISTRIBUTION COMPANY
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED SEPTEMBER 30,
1999 1998
---------- ------------
(restated -
see note 1)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $ (337,411) $ (800,575)
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Depreciation, depletion, and amortization 168,759 139,056
Extraordinary loss on extinguishment of debt -- 702,844
Deferred income taxes -- 1,521
Decrease in accounts receivable 90,667 133,305
Decrease (increase) in other current assets 208,711 (53,482)
Decrease in other assets 5,376 713
Increase (decrease) in accounts payable (1,435,056) 394,320
Decrease in other current liabilities (146,703) (221,710)
---------- ------------
Net cash provided by (used in) operating activities (1,445,657) 295,992
---------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (158,620) (472,927)
Payments received on notes receivable 2,000,000 (176,839)
---------- ------------
Net cash provided by (used in) investing activities 1,841,380 (649,766)
---------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of financing costs -- (363,424)
Refund of reserve funds -- 765,194
---------- ------------
Net cash provided by financing activities -- 401,770
---------- ------------
NET INCREASE IN CASH 395,723 47,996
CASH, beginning of period 64,034 45,939
---------- ------------
CASH, end of period $ 459,757 $ 93,935
---------- ------------
---------- ------------
SUPPLEMENTAL DISCLOSURE:
Interest paid $ 552,197 $ 428,044
---------- ------------
---------- ------------
</TABLE>
15
<PAGE>
VIRGINIA GAS DISTRIBUTION COMPANY
NOTES TO FINANCIAL STATEMENTS
The accompanying unaudited financial statements as of September 30,
1999, and for the three and nine-month periods ended September 30, 1999 and
1998, 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 (VGDC). Operating results for the three and nine months
ended September 30, 1999, are not necessarily indicative of the results that may
be expected for the year ending December 31, 1999.
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, 1999 and subsequent
10-QSB's.
VGDC has filed an application with the Virginia State Corporation
Commission (VSCC) requesting an increase in authorized rates. The rates will go
into effect in late January 2000 under bond and subject to refund based on
subsequent rulings of the VSCC. A hearing on the rate increase with the VSCC has
been tentatively scheduled for early February 2000.
In March 1998, VGC completed a refinancing transaction whereby VGC
issued a $24 million note to John Hancock Mutual Life Insurance Company. With
the proceeds, VGC retired or defeased $19.6 million of industrial revenue bonds,
most of which had been previously allocated to VGDC and other affiliated
companies. As a result of this refinancing, VGDC incurred a one time after-tax
charge of $464,000. VGDC had originally capitalized as a regulatory asset a
portion of this loss. Later in 1998, in connection with the completion of
administrative proceedings with the Virginia State Corporation Commission, VGDC
determined that neither it nor its affiliates qualify as regulated entities as
defined by FASB Statement No. 71, "ACCOUNTING FOR THE EFFECTS OF CERTAIN TYPES
OF REGULATION." Accordingly, VGDC restated 1998 earnings to reflect the entire
$464,000 extraordinary loss and adjusted for amortization expense that was
previously recorded throughout 1998. The loss related to the accelerated
amortization of issue costs related to the industrial revenue bonds, and
defeasement premiums, interest, and other fees related to the 1994 Russell
County bond issue.
16
<PAGE>
VIRGINIA GAS COMPANY AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSIONS 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,
1998, and the Notes to Consolidated Financial Statements set forth in this
report.
RESULTS OF OPERATIONS
During the three months ending September 30, 1999, Virginia Gas Company
recorded net income of $60,000 compared to restated net income of $206,000 for
the same period in 1998. Basic and diluted net income per common share for the
quarter was $0.01 compared to $0.04 for the third quarter of 1998. For the nine
months ending September 30, 1999, the Company recorded net income of $986,000
compared to a restated loss of $357,000 for the same period in 1998. Basic and
diluted net income per common share for the nine months ending September 30,
1999 is $0.18 compared to a loss of $0.06 for the same period in 1999.
The Company recorded revenues of $2.62 million for the three-month
period ending September 30, 1999 compared to $2.25 million in 1998
representing a 16% increase. The Company's revenue growth was primarily
derived from the P-25 pipeline that began service late in 1998, increased gas
sales, and growth in the Company's propane distribution operations. The
Company recorded $285,000 in pipeline revenue during the third quarter of
1999 compared to $171,000 for the same period in 1998 from P-25. The
additional revenue was derived from demand charges for the Company's
connection at Wytheville, Virginia, which was not established until late
1998. Gas sales, including low margin sales from the Company's Saltville
Storage Facility, were $856,000 for the third quarter of 1999, up from
$663,000 for the same period in 1998. Total gas sold during the quarter was
down to 326,000 dth from 346,000 dth in 1998. However, the price per dth has
risen to $2.62 compared to $1.91 for the same period in 1998. Propane gas
sales increased 65 percent to $273,000 in the third quarter of 1999 from
$165,000 in 1998 as the Company's customer base increased to 3,800 from 2,500
and gallons sold increased to 306,000 from 197,000. The largest decline in
revenues occurred in interest, which decreased to $278,000 from $335,000.
This resulted from a reduction in cash available to be invested in short-term
securities. <TABLE><CAPTION>
----------------------------------- ------------------------------- ----------------
THREE MONTHS ENDED
SEPTEMBER 30 PERCENTAGE
REVENUE 1999 1998 CHANGE
----------------------------------- ---------------- -------------- ----------------
<S> <C> <C> <C>
Natural Gas Sales $ 856,000 $ 663,000 29%
----------------------------------- ---------------- -------------- ----------------
Storage Revenues 724,000 700,000 3
----------------------------------- ---------------- -------------- ----------------
Pipeline Revenues 285,000 171,000 67
----------------------------------- ---------------- -------------- ----------------
Propane Gas Sales 273,000 165,000 65
----------------------------------- ---------------- -------------- ----------------
Explor. & Prod. Revenues 86,000 86,000 -
----------------------------------- ---------------- -------------- ----------------
Management Revenues 64,000 79,000 (19)
----------------------------------- ---------------- -------------- ----------------
Interest and Other Income 334,000 387,000 (14)
----------------------------------- ---------------- -------------- ----------------
Total Revenue $ 2,622,000 $ 2,251,000 16%
----------------------------------- ---------------- -------------- ----------------
</TABLE>
General and administrative expense increased during the third
quarter of 1999 to $547,000 from $362,000. This increase resulted from
several factors, the largest of which being professional services.
Professional services increased by $150,000 due to legal services resulting
from the Company's reincorporation study and investment banking fees from the
Company's strategic evaluation. The Company has been reviewing an
incorporation move from Delaware to Virginia and has devoted legal resources
toward that end. Additionally, the Company has retained an investment banking
firm to evaluate its strategic alternatives.
17
<PAGE>
During the third quarter of 1999, taxes other than income taxes
increased 296 percent to $119,000 from $30,000 in 1998. For the year to date,
taxes other than income taxes increased 156 percent to $280,000 from $109,000 in
1998. The majority of this for the quarter is from a $59,000 increase in
Delaware State franchise taxes, which resulted from the increase in authorized
equity approved in 1998. Also, the Company paid more gross receipts tax due to
its increased pipeline revenue.
Virginia Gas Storage Company (VGSC) recorded net income for the third
quarter of 1999 of $66,000 compared to $7,000 during 1998. VGSC's total revenues
were down in 1999 compared to 1998. This is a result of decreases in storage
volume under contract. However, the earnings improvement was derived from lower
operating costs and interest. Total operating expenses declined to $207,000 from
$286,000. There were no production expenses for the third quarter of 1999
compared to $38,000 in 1998, as a result of the sale of the Haysi Gathering
System in February 1999. Also as a result of this sale, depreciation has
decreased dramatically to $99,000 from $141,000 in 1998. Interest expense
declined in the third quarter of 1999 to $112,000 from $154,000, which is the
result of the $2.0 million reduction in long-term debt.
Virginia Gas Distribution Company (VGDC) recorded a net loss of
$129,000 compared to a restated net loss of $99,000 in 1998. Gas sales increased
29 percent to $214,000 from $165,000. VGDC's interest income declined to $25,000
from $62,000 due to the retirement of the $2.0 million note between VGSC and
VGDC. Operating expenses increased to $215,000 for the third quarter of 1999
from $159,000 mostly due to higher depreciation and higher purchased gas expense
that resulted from higher volume.
OUTLOOK
During the third quarter of 1999, the Company continued developing its
growth strategy for its pipeline, storage, and propane assets. Work continues on
the Company's evaporation plant located at the Saltville Storage Facility, which
is critical in developing additional salt cavern storage. The Company began
start-up operations at the facility in mid-summer and has been running it
continuously since mid-October. In addition to its work with the evaporator, the
Company opened a new propane retail facility in September to serve customers in
an adjacent county to the Company's existing territory. The Company also has an
application filed with the Virginia State Corporation Commission (VSCC) to
extend its pipeline to Roanoke, Virginia, where it will service a contract with
Roanoke Gas Company. Currently, the VSCC continues to review the application.
Prior to constructing the Roanoke extension described in the application, the
Company must complete 36 miles of construction on its P-25 pipeline from
Wytheville to Radford, Virginia. The Company has obtained the majority of the
right-of-way for this segment, including an easement through the National
Forest, which had been previously delayed. The Company plans to begin
construction in the spring of 2000.
FINANCIAL CONDITION
Capital expenditures for the Company totaled $1.7 million for the three
months ending September 30, 1999. The Company drew an additional $1.0 million on
its line of credit with Wachovia Bank during the third quarter to finance these
capital expenditures. The remaining $.7 million was financed from operating cash
flow. The Company now estimates that its remaining capital budget for 1999 is
approximately $3.0 million. The Company expects to fund these expenditures as
well as the Company's construction expenditures for 2000 through debt financing.
To that end, the Company engaged Wachovia Capital Markets in April 1999 to
explore additional financing opportunities. That engagement is still ongoing.
18
<PAGE>
FORWARD-LOOKING STATEMENTS
Certain of the statements contained in this section of the report,
including those under "Outlook" and "Financial Condition" are forward-looking.
While Virginia Gas Company believes that these statements are accurate, the
Company's business is dependent upon general economic conditions and various
conditions specific to its industry, and future trends and these factors could
cause actual results to differ materially from the forward-looking statements
that have been made. In particular:
- - The Company's growth plans are contingent on its ability to affordably
finance future capital expenditures through the debt and equity markets. If
the Company is unable to finance capital expenditures, revenue growth will
be impacted.
- - Virginia Gas Company's revenue growth depends on future demand for pipeline
and storage services. Many factors impact that demand. A continued trend of
warmer than normal winters in the Company's service area could
substantially curb the demand for natural gas storage and/or pipeline
service. "Unbundling" or deregulation in the natural gas industry could
introduce additional competitors and make the viability of long-term
contracts suspect.
- - Virginia Gas Company derived 67% of its 1998 revenues from four customers.
Accordingly, the future of the Company is inexorably linked to these
significant customers. If any of these customers experience liquidity
problems or undergo consolidations, it could negatively impact the Company.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS
AND HEDGING ACTIVITIES. The Statement establishes accounting and reporting
standards requiring that every derivative instrument (including certain
derivative instruments embedded in other contracts) be recorded in the balance
sheet as either an asset or liability measured at its fair value. The Statement
requires that changes in the derivative's fair value be recognized currently in
earnings unless specific hedge accounting criteria are met. Special accounting
for qualifying hedges allows a derivative's gains and losses to offset related
results on the hedged item in the income statement, and requires that a company
must formally document, designate, and assess the effectiveness of transactions
that receive hedge accounting. Statement No. 133 is effective for fiscal years
beginning after June 15, 2000 and may not be applied retroactively. Management
has not yet quantified the impacts of adoption.
YEAR 2000 ISSUE
The Year 2000 ("Y2K") problem concerns the inability of information and
technology-based operating systems to properly recognize and process
date-sensitive information beyond December 31, 1999. This could result in
systems failures and miscalculations, which could cause business disruptions.
Equipment that uses a date, such as computers and operating control systems, may
be affected. This includes equipment used by our customers and suppliers, as
well as by utilities and governmental entities that provide critical services to
us.
The Company has been addressing the Y2K problem since 1997 and has
adopted a four phased approach to remediating the problem as it relates to the
Company. Phase I is SYSTEM IDENTIFICATION AND CLASSIFICATION. During this phase,
the Company methodically identified all systems within the operations area and
classified those systems as potentially vulnerable or not vulnerable. Phase I is
complete. Phase II is SYSTEM COMPLIANCE. During Phase II, the Company performed
field investigations to collect component level data for each system identified
as potentially vulnerable. That data was added to a database, which was
crosschecked with manufacturer compliance data and vendor contracts. If
compliant, a written statement from the manufacturer was obtained that provided
the language necessary to confirm that the Y2K issue had been properly
addressed. Phase II is complete. Phase III is entitled REMEDIATION. During the
remediation phase steps were taken to ensure that non-compliant systems had been
properly readied for the year 2000 and thoroughly tested. Phase III is complete.
Phase IV is PUBLICATION. This phase
19
<PAGE>
involved communication of the Company's readiness to our business partners in
addition to evaluation of the readiness of those same business partners. Phase
IV is complete.
As a part of our Y2K evaluation, the Company determined our most
reasonably likely worst case scenario or scenarios. With regards to our
storage and our natural gas production operations, our worst case scenario is
that there would be a temporary interruption in our ability to deliver gas to
our customers through a 3rd party pipeline system. In Phase IV of the
remediation plan, the Company received a readiness statement, and evaluated
the readiness of this 3rd party pipeline and is not aware of any problems.
Beyond establishing communications with our customers and the pipeline
company, there is not a contingency plan for this eventuality. However, the
Company does not believe that this scenario would have material financial
impact on the Company.
An additional most likely worst case scenario would be that the
Company's main propane supplier would be unable to deliver propane. As a
contingency, the Company has established multiple vendor relationships.
Additionally, the Company has increased its bulk storage capacity to 186,000
gallons from 96,000 gallons in the previous year. This will allow the Company to
deliver propane for 10 days without any supplier deliveries. The Company does
not believe that this eventuality will have a material financial impact on the
Company.
Based on the remediation effort and evaluation of the most reasonably
likely worst case scenarios, the Company has not experienced a material impact
from the Y2K problem, nor does it believe that the problem will have a material
future impact on the Company.
20
<PAGE>
VIRGINIA GAS COMPANY AND SUBSIDIARIES
PART II. OTHER INFORMATION
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of Shareholders was held July 21,
1999. The meeting involved the election a director, approval
of the 1998 Stock Option Plan, and the appointment of auditors
of the Company for the 1999 fiscal year. An aggregate of
4,744,571 voting shares of the Company was represented in
person or by proxy at the Meeting.
Proposal 1. The shareholders approved the nomination of Michael L.
Edwards to serve the Company as a director for a
three-year term. Directors of the Company who are
continuing their term are Glenn B. Rogers, Karen K.
Edwards, Everette G. Allen, Jr. and G. Lee Crenshaw,
II.
Proposal 2. The shareholders approved the Company's 1998 Stock
Option Plan.
Proposal 3. The shareholders ratified the appointment of Arthur
Andersen LLP, independent public accountants, as
auditors of the Company for the 1999 fiscal year.
The results of the voting for each proposal were as follows:
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
--- ------- -------
<S> <C> <C> <C> <C>
Proposal 1. Edwards 4,658,992 -- 85,579
Proposal 2. 2,296,313 289,701 847,308
Proposal 3. 3,918,013 20,300 806,258
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 27 - Financial Data Schedule for the Nine Months Ended
September 30, 1999
(b) The Company has not filed a Current Report on Form 8-K during
the quarter ended September 30,1999
21
<PAGE>
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/ William L. Clear
-------------------------------
William L. Clear, Vice-President and Chief Financial Officer
22
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM VIRGINIA
GAS COMPANY AND SUBSIDIARIES AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JUL-1-1999
<PERIOD-END> SEP-30-1999
<CASH> 297,297
<SECURITIES> 0
<RECEIVABLES> 960,224
<ALLOWANCES> 0
<INVENTORY> 490,337
<CURRENT-ASSETS> 1,875,618
<PP&E> 45,302,737
<DEPRECIATION> 3,705,628
<TOTAL-ASSETS> 61,504,533
<CURRENT-LIABILITIES> 3,867,404
<BONDS> 0
0
0
<COMMON> 5,505
<OTHER-SE> 32,731,506
<TOTAL-LIABILITY-AND-EQUITY> 61,504,533
<SALES> 2,287,702
<TOTAL-REVENUES> 2,621,267
<CGS> 1,215,810
<TOTAL-COSTS> 2,149,454
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 372,105
<INCOME-PRETAX> 67,887
<INCOME-TAX> 7,424
<INCOME-CONTINUING> 60,463
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 60,463
<EPS-BASIC> 0.01
<EPS-DILUTED> 0.01
</TABLE>
