<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, 2000
[ ] 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)
<TABLE>
<CAPTION>
DELAWARE 87-0443823
<S> <C>
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
</TABLE>
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, 2000
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ITEM PAGE
NUMBER NUMBER
------ -------
<S> <C>
PART I - FINANCIAL INFORMATION
1 Financial Statements:
Virginia Gas Company and Subsidiaries
Condensed Consolidated Balance Sheets at September 30, 2000 (Unaudited) and
December 31, 1999 3
Condensed Consolidated Statements of Operations (Unaudited) for the Three and
Nine Months Ended September 30, 2000 and 1999 4
Condensed Consolidated Statements of Cash Flows (Unaudited) for the Nine Months
Ended September 30, 2000 and 1999 5
Notes to Condensed Consolidated Financial Statements 6
Virginia Gas Storage Company
Condensed Balance Sheets at September 30, 2000 (Unaudited) and December 31, 1999 9
Condensed Statements of Operations (Unaudited) for the Three and Nine Months Ended
September 30, 2000 and 1999 10
Condensed Statements of Cash Flows (Unaudited) for the Nine Months Ended
September 30, 2000 and 1999 11
Notes to Condensed Financial Statements 12
Virginia Gas Distribution Company
Condensed Balance Sheets at September 30, 2000 (Unaudited) and December 31, 1999 13
Condensed Statements of Operations (Unaudited) for the Three and Nine Months Ended
September 30, 2000 and 1999 14
Condensed Statements of Cash Flows (Unaudited) for the Nine Months Ended
September 30, 2000 and 1999 15
Notes to Condensed Financial Statements 16
2 Management's Discussion and Analysis of Financial Condition and Results of
Operations 17
PART II - OTHER INFORMATION
3 Defaults Upon Senior Securities 21
4 Submission of Matters to a Vote of Security Holders 21
6 Exhibits and Reports on Form 8-K 21
List of Exhibits 22
Signature 23
</TABLE>
2
<PAGE>
VIRGINIA GAS COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
2000 1999
------------- ------------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash $ 853,147 $ 1,444,731
Accounts receivable, net 1,629,473 1,212,685
Notes receivable 39,700 40,100
Other current assets 715,365 899,168
------------- -------------
Total current assets 3,237,685 3,596,684
PROPERTY AND EQUIPMENT, net 52,859,553 43,145,750
INVESTMENT IN AFFILIATED COMPANIES 4,431,699 4,343,460
NOTES RECEIVABLE - AFFILIATED COMPANIES 12,600,912 13,000,912
OTHER ASSETS 283,471 639,714
------------- -------------
Total assets $ 73,413,320 $ 64,726,520
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 24,013,370 $ 24,045,144
Line of credit 6,000,000 6,000,000
Accounts payable 1,247,357 316,666
Funds held for future distribution 257,807 248,136
Other current liabilities 703,789 242,011
------------- -------------
Total current liabilities 32,222,323 30,851,957
LONG-TERM DEBT 7,209,709 209,709
DEFERRED INCOME TAXES 908,980 907,821
------------- -------------
Total liabilities 40,341,012 31,969,487
------------- -------------
STOCKHOLDERS' EQUITY:
Common stock - par value $.001, 100,000,000 shares authorized and
5,504,906 issued and outstanding 5,505 5,505
Additional paid-in capital 31,375,267 31,375,267
Retained earnings 1,691,536 1,376,261
------------- -------------
Total stockholders' equity 33,072,308 32,757,033
------------- -------------
Total liabilities and stockholders' equity $ 73,413,320 $ 64,726,520
============= =============
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.
3
<PAGE>
VIRGINIA GAS COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
2000 1999 2000 1999
------ ------ ------ ------
<S> <C> <C> <C> <C>
REVENUE:
Operating revenue $ 3,215,418 $ 2,287,702 $ 8,806,909 $ 6,845,890
Interest and other income 334,853 333,565 1,036,415 1,032,339
------------ ----------- ------------ ------------
3,550,271 2,621,267 9,843,324 7,878,229
------------ ----------- ------------ ------------
EXPENSES:
Cost of natural gas sold 1,597,501 777,364 3,399,670 1,877,670
Propane gas expense 231,711 144,529 887,145 497,033
General and administrative 575,523 546,690 1,659,892 1,417,651
Depreciation, depletion, and amortization 364,649 386,954 1,086,668 1,096,575
Operations and maintenance 87,391 152,233 568,323 683,343
Production expense 28,200 22,552 65,872 63,491
------------ ----------- ------------ ------------
2,884,975 2,030,322 7,667,570 5,635,763
------------ ----------- ------------ ------------
OTHER EXPENSES:
Interest 482,125 372,105 1,477,612 1,149,952
Other taxes 82,355 119,132 371,946 279,776
------------ ----------- ------------ ------------
564,480 491,237 1,849,558 1,429,728
INCOME BEFORE EARNINGS OF AFFILIATED COMPANIES AND INCOME
TAXES 100,816 99,708 326,196 812,738
Equity in earnings (losses) of affiliated companies (35,443) (31,821) 88,238 398,702
------------ ----------- ------------ ------------
INCOME BEFORE INCOME TAXES 65,373 67,887 414,434 1,211,440
Provision for income taxes 13,171 7,424 99,159 225,402
------------ ----------- ------------ ------------
NET INCOME $ 52,202 $ 60,463 $ 315,275 $ 986,038
============ =========== ============ ============
WEIGHTED AVERAGE, SHARES ISSUED AND OUTSTANDING 5,504,906 5,504,906 5,504,906 5,504,906
============ =========== ============ ============
EARNINGS PER COMMON SHARE, BASIC AND DILUTED:
Net income $ 0.01 $ 0.01 $ 0.06 $ 0.18
============ =========== ============ ============
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.
4
<PAGE>
VIRGINIA GAS COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED SEPTEMBER 30,
2000 1999
------ ------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 315,275 $ 986,038
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation, depletion, and amortization 1,086,668 1,096,575
Undistributed earnings of affiliated companies (88,238) (398,702)
Deferred income taxes 1,159 --
Decrease (increase) in accounts receivable (416,788) 2,606,336
Decrease (increase) in other current assets 183,803 (170,381)
Decrease (increase) in other assets 344,193 (82,005)
Increase (decrease) in accounts payable 930,691 (86,230)
Increase (decrease) in other current liabilities 471,449 (127,119)
------------ ------------
Net cash provided by operating activities 2,828,212 3,824,512
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (10,788,422) (5,554,147)
Issuance of note receivable -- (7,612)
Payments received on notes receivable 400,400 500
------------ ------------
Net cash used in investing activities (10,388,022) (5,561,259)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from new loans 7,000,000 462,963
Payment of loan principal (31,774) --
Dividends paid -- (192,672)
------------ ------------
Net cash provided by financing activities 6,968,226 270,291
------------ ------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (591,584) (1,466,456)
CASH AND CASH EQUIVALENTS, beginning of period 1,444,731 1,763,753
------------ ------------
CASH AND CASH EQUIVALENTS, end of period $ 853,147 $ 297,297
============ ============
SUPPLEMENTAL DISCLOSURE:
Interest paid $ 2,044,724 $ 1,629,987
============ ============
Income taxes paid $ 38,500 $ 200,000
============ ============
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.
5
<PAGE>
VIRGINIA GAS COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. GENERAL:
The accompanying unaudited condensed consolidated financial
statements as of September 30, 2000, and for the three and nine-months ended
September 30, 2000 and 1999, have been prepared in accordance with generally
accepted accounting principles. For further information, refer to the
consolidated financial statements and footnotes thereto included in the
Virginia Gas Company (the "Company") annual report on Form 10-KSB/A for the
year ended December 31, 1999. 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 the
Company have been included. Operating results for the three and nine months
ended September 30, 2000, are not necessarily indicative of the results that
may be expected for the year ending December 31, 2000.
The condensed consolidated financial statements for 1999 and the
unaudited condensed consolidated financial statements for 2000 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).
2. SIGNIFICANT EVENTS:
The Company and NUI Corporation ("NUI") jointly announced on June
14, 2000, that they have entered into a definitive merger agreement, which
provides for the merger of the Company with a wholly owned subsidiary of NUI.
The transaction is subject to the approval of the Company's stockholders and
state and federal regulatory agencies. The Company's stockholders met on
November 8, 2000 and approved the merger, all necessary requests for approval
have been filed with the Company's and NUI's state regulatory agencies, and
the Company and NUI were granted approval on September 27, 2000 from the
Federal Trade Commission under the Hart-Scott-Rodino Antitrust Improvements
Act.
3. MANAGEMENT'S PLANS:
These statements have been prepared with the assumption that the
Company will continue as a going concern. The Company has classified $24
million of long-term debt as current due to non-compliance with the Company's
debt covenants. The Company's covenants require it to maintain certain
financial ratios. As of September 30, 2000, one covenant requires the Company
to maintain historical EBITDA of one and three-quarters times current debt
service. The Company's Line of Credit (the "Line") with Wachovia Bank N.A.
(the "Wachovia") had a balance outstanding of $6.0 million as of September
30, 2000. The $6.0 million is included in the Company's current debt service
in its entirety and, as a consequence with the interest required, causes the
non-compliance. As a result of the financial covenant breach, the Company
remains in default of its debt agreements with John Hancock and Wachovia
Bank. In its merger agreement with the Company, NUI agreed to provide interim
financing to the Company for its short-term liquidity and capital needs. As
of September 30, 2000, the Company had drawn $7.0 million on the interim
financing. Thereafter, an additional $4.0 million has been drawn. The
financing has caused additional covenant defaults with respect to the debt
service covenant discussed above and the Company's total liabilities covenant.
The Line with Wachovia was due on October 31, 2000. Wachovia has not
attempted to collect the $6.0 million note. The Company and NUI are currently
negotiating an extension of the Line.
Despite the covenant breaches and the Wachovia payment default, none
of the Company's lenders have taken steps to accelerate payment or to collect
on their respective loans. However, all lenders including NUI can accelerate
payment of their loans and there can be no assurances that the lenders will
not do so in the
6
<PAGE>
future. In the event that the lenders demand repayment, which would require the
Company to pay $44 million including prepayment penalties, the forced
liquidation or bankruptcy of the Company may be necessary.
4. 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. General and
administrative expenses are not included due to the non-operating nature of
items in this category.
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
STORAGE:
Total assets $ 25,259,049 $ 21,551,556 $ 25,259,049 $ 21,551,556
Capital expenditures $ 1,093,054 $ 1,209,488 $ 3,610,853 $ 3,625,612
Operating revenues $ 643,758 $ 731,324 $ 2,068,377 $ 2,184,712
Other income (15,144) -- (17,892) 2,729
Operation and maintenance expenses (42,810) (41,422) (215,975) (269,205)
Depreciation, depletion, and amortization (152,232) (150,765) (446,068) (428,443)
------------ ------------ ------------ ------------
STORAGE OPERATING INCOME $ 433,572 $ 539,137 $ 1,388,442 $ 1,489,793
============ ============ ============ ============
PRODUCTION:
Total assets $ 4,612,171 $ 3,963,851 $ 4,612,171 $ 3,963,851
Capital expenditures $ 33,630 $ 5,034 $ 37,879 $ 34,443
Operating revenues $ 1,948,046 $ 1,015,302 $ 4,293,875 $ 2,658,411
Interest income 12,522 10,737 50,636 32,854
Other income 1,427 1,604 4,873 7,440
Cost of natural gas sold (1,597,501) (777,364) (3,399,670) (1,877,670)
Production expense (28,200) (22,552) (65,872) (63,491)
Operations and maintenance expenses (3,037) (10,523) (55,266) (45,973)
Depreciation, depletion, and amortization (41,623) (45,247) (121,270) (135,561)
------------ ------------ ------------ ------------
PRODUCTION OPERATING INCOME $ 291,634 $ 171,957 $ 707,306 $ 576,010
============ ============ ============ ============
TRANSPORTATION:
Total assets $ 17,861,819 $ 13,951,376 $ 17,861,819 $ 13,951,376
Capital expenditures $ 3,604,097 $ 91,955 $ 3,781,021 $ 924,767
Operating revenues $ 286,232 $ 288,034 $ 859,237 $ 862,826
Other income (6,737) -- (8,233) 1,099
Operation and maintenance expenses (17,486) (16,108) (86,175) (106,657)
Depreciation, depletion, and amortization (62,179) (59,390) (196,547) (192,435)
------------ ------------ ------------ ------------
</TABLE>
7
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
TRANSPORTATION OPERATING INCOME $ 199,830 $ 212,536 $ 568,282 $ 564,833
============ ============ ============ ============
PROPANE DISTRIBUTION:
Total assets $ 5,277,875 $ 4,198,326 $ 5,277,875 $ 4,198,326
Capital expenditures $ 112,937 $ 347,747 $ 544,934 $ 837,913
Operating revenue $ 459,413 $ 283,018 $ 1,810,452 $ 1,209,390
Interest income 3,984 -- 5,406 --
Other income 54,253 53,848 152,680 162,945
Propane gas expense (231,711) (144,529) (887,145) (497,033)
Operation and maintenance expenses (24,058) (84,180) (210,907) (261,508)
Depreciation, depletion, and amortization (77,480) (60,881) (231,264) (169,505)
------------ ------------ ------------ ------------
PROPANE DISTRIBUTION OPERATING INCOME $ 184,401 $ 47,276 $ 639,222 $ 444,289
============ ============ ============ ============
PARENT COMPANY:
Investments in subsidiaries and affiliates $ 29,181,699 $ 29,079,256 $ 29,181,699 $ 29,079,256
Notes receivable from subsidiaries and
affiliates $ 23,305,881 $ 23,027,703 $ 23,305,881 $ 23,027,703
Total assets $ 62,479,968 $ 55,361,213 $ 62,479,968 $ 55,361,213
Capital expenditures $ 2,876,786 $ 62,621 $ 2,813,735 $ 131,412
Operating revenue $ 217,509 $ 150,623 $ 528,675 $ 561,530
Interest income 594,510 569,137 1,768,371 1,515,480
Other income 1,819 -- 1,828 256
Depreciation, depletion, and amortization (31,135) (70,671) (91,519) (170,631)
------------ ------------ ------------ ------------
PARENT COMPANY OPERATING INCOME $ 782,703 $ 649,089 $ 2,207,355 $ 1,906,635
============ ============ ============ ============
ELIMINATION OF INTERCOMPANY/ INTERSEGMENT
ACTIVITY:
Total assets $(42,077,562) $(37,521,789) $(42,077,562) $(37,521,789)
Operating revenues $ (339,540) $ (180,599) $ (753,707) $ (630,979)
Interest and other income $ (311,781) $ (301,761) $ (921,254) $ (690,464)
VIRGINIA GAS COMPANY CONSOLIDATED:
Total assets $ 73,413,320 $ 61,504,533 $ 73,413,320 $ 61,504,533
Capital expenditures $ 7,720,504 $ 1,716,845 $ 10,788,422 $ 5,554,147
Operating revenues $ 3,215,418 $ 2,287,702 $ 8,806,909 $ 6,845,890
Interest income 299,235 278,113 903,159 857,870
Other income 35,618 55,452 133,256 174,469
Cost of gas sold (1,597,501) (777,364) (3,399,670) (1,877,670)
Propane gas expense (231,711) (144,529) (887,145) (497,033)
Production expense (28,200) (22,552) (65,872) (63,491)
Operations and maintenance expenses (87,391) (152,233) (568,323) (683,343)
Depreciation, depletion, and amortization (364,649) (386,954) (1,086,668) (1,096,575)
------------ ------------ ------------ ------------
VIRGINIA GAS COMPANY CONSOLIDATED
OPERATING INCOME $ 1,240,819 $ 1,137,635 $ 3,835,646 $ 3,660,117
============ ============ ============ ============
</TABLE>
8
<PAGE>
VIRGINIA GAS STORAGE COMPANY
CONDENSED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
2000 1999
------------- ------------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash $ 336,811 $ 411,520
Accounts receivable 339,411 452,468
Other current assets 164,697 31,378
------------ ------------
Total current assets 840,919 895,366
PROPERTY AND EQUIPMENT, net 13,270,389 13,687,248
OTHER ASSETS 206,460 213,249
------------ ------------
Total assets $ 14,317,768 $ 14,795,863
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 41,732 $ 280,816
Other current liabilities 179,952 24,659
------------ ------------
Total current liabilities 221,684 305,475
LONG-TERM DEBT 4,339,740 5,255,547
DEFERRED INCOME TAXES 694,731 694,731
------------ ------------
Total liabilities 5,256,155 6,255,753
------------ ------------
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 3,421,613 2,900,110
------------ ------------
Total stockholders' equity 9,061,613 8,540,110
------------ ------------
Total liabilities and stockholders' equity $ 14,317,768 $ 14,795,863
============ ============
</TABLE>
The accompanying notes are an integral part of these
condensed financial statements.
9
<PAGE>
VIRGINIA GAS STORAGE COMPANY
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
2000 1999 2000 1999
------ ------ ------ ------
<S> <C> <C> <C> <C>
REVENUE:
Operating revenue $ 615,932 $ 550,066 $ 3,292,603 $ 2,312,822
Gain on sale of Haysi Gathering System - - - 1,215,850
Interest and other income 35,697 5,010 105,784 14,570
---------- ---------- ----------- -----------
651,629 555,076 3,398,387 3,543,242
---------- ---------- ----------- -----------
EXPENSES:
Purchased gas expense - - 997,405 370,063
Operation and maintenance expense 213,682 144,897 666,244 524,231
Depreciation, depletion, and amortization 101,446 99,265 303,384 322,563
General and administrative 119,626 99,639 335,028 249,761
---------- ---------- ----------- -----------
434,754 343,801 2,302,061 1,466,618
---------- ---------- ----------- -----------
Other expense - interest 92,219 111,728 306,170 357,165
---------- ---------- ----------- -----------
INCOME BEFORE INCOME TAXES 124,656 99,547 790,156 1,719,459
Provision for income taxes 42,383 33,846 268,653 584,616
---------- ---------- ----------- -----------
NET INCOME $ 82,273 $ 65,701 $ 521,503 $ 1,134,843
========== ========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these
condensed financial statements.
10
<PAGE>
VIRGINIA GAS STORAGE COMPANY
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED JUNE 30,
2000 1999
------ ------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 521,503 $1,134,843
Adjustments to reconcile net income to net cash provided by (used in) operating
activities:
Depreciation, depletion, and amortization 303,384 322,563
Gain on sale of fixed assets (344,439) (1,355,669)
Decrease in accounts receivable 113,057 344,642
Increase in other current assets (133,319) (14,310)
Increase in other assets - (23,966)
Decrease in accounts payable (239,084) (152,680)
Increase (decrease) in other current liabilities 155,293 (743,047)
----------- -----------
Net cash provided by (used in) operating activities 376,395 (487,624)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (332,234) (36,968)
Proceeds from sale of fixed assets 796,937 2,700,000
----------- -----------
Net cash provided by investing activities 464,703 2,663,032
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of loan principal (915,807) (2,005,943)
----------- -----------
Net cash used in financing activities (915,807) (2,005,943)
----------- -----------
NET INCREASE IN CASH (74,709) 169,465
CASH, beginning of period 411,520 36,800
----------- -----------
CASH, end of period $ 336,811 $ 206,265
=========== ===========
SUPPLEMENTAL DISCLOSURE:
Interest paid $ 326,859 $ 457,937
=========== ===========
Income taxes paid $ 108,000 $ 370,000
=========== ===========
</TABLE>
The accompanying notes are an integral part of these
condensed financial statements.
11
<PAGE>
VIRGINIA GAS STORAGE COMPANY
NOTES TO CONDENSED FINANCIAL STATEMENTS
The accompanying unaudited condensed financial statements as of
September 30, 2000, and for the three and nine-month periods ended September
30, 2000 and 1999, 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, 2000, are not necessarily indicative of the
results that may be expected for the year ending December 31, 2000.
The financial statements should be read in conjunction with the Notes
to Financial Statements included in the Virginia Gas Company's Form 10-KSB/A
filed with the Securities and Exchange Commission on May 1, 2000 and subsequent
10QSB's.
In February 1999, VGSC 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.
12
<PAGE>
VIRGINIA GAS DISTRIBUTION COMPANY
CONDENSED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
2000 1999
------------- -------------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash $ 514,797 $ 287,928
Accounts receivable 104,187 215,826
Other current assets 337,542 63,477
----------- -----------
Total current assets 956,526 567,231
PROPERTY AND EQUIPMENT, net 6,744,918 6,757,670
NOTES RECEIVABLE - 915,807
DEFERRED TAX ASSET 720,979 720,979
OTHER ASSETS 112,211 117,588
----------- -----------
Total assets $ 8,534,634 $ 9,079,275
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 409,559 $ 238,261
Other current liabilities 62,119 33,033
----------- -----------
Total current liabilities 471,678 271,294
LONG TERM DEBT 8,261,172 8,661,172
----------- -----------
Total liabilities 8,732,850 8,932,466
----------- -----------
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 (1,698,216) (1,353,191)
----------- -----------
Total stockholders' equity (198,216) 146,809
----------- -----------
Total liabilities and stockholders' equity $ 8,534,634 $ 9,079,275
=========== ===========
</TABLE>
The accompanying notes are an integral part of these
condensed financial statements.
13
<PAGE>
VIRGINIA GAS DISTRIBUTION COMPANY
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS
SEPTEMBER 30, ENDED SEPTEMBER 30,
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
REVENUE:
Operating revenue $ 287,369 $ 213,728 $ 1,094,851 $ 818,681
Interest and other income 14,396 40,108 75,496 149,183
----------- ----------- ----------- -----------
301,765 253,836 1,170,347 967,864
----------- ----------- ----------- -----------
EXPENSES:
Purchased gas expense 201,683 130,512 674,537 517,094
Operation and maintenance expense 57,268 48,241 178,076 159,516
Depreciation, depletion, and amortization 61,968 56,543 183,439 168,759
General and administrative 37,300 30,414 116,135 81,525
----------- ----------- ----------- -----------
358,219 265,710 1,152,187 926,894
----------- ----------- ----------- -----------
Other expense - interest 175,605 184,059 540,925 552,197
----------- ----------- ----------- -----------
LOSS BEFORE INCOME TAXES (232,059) (195,933) (522,765) (511,227)
Benefit from income taxes (78,900) (66,617) (177,740) (173,816)
----------- ----------- ----------- -----------
NET LOSS $ (153,159) $ (129,316) $ (345,025) $ (337,411)
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these
condensed financial statements.
14
<PAGE>
VIRGINIA GAS DISTRIBUTION COMPANY
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED JUNE 30,
2000 1999
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (345,025) $ (337,411)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation, depletion, and amortization 183,439 168,759
Decrease in accounts receivable 111,639 90,667
Decrease (increase) in other current assets (274,065) 208,711
Decrease in other assets - 5,376
Increase (decrease) in accounts payable 171,298 (1,435,056)
Increase (decrease) in other current liabilities 29,086 (146,703)
----------- -----------
Net cash used in operating activities (123,628) (1,445,657)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (165,310) (158,620)
Payments received on notes receivable 915,807 2,000,000
----------- -----------
Net cash provided by investing activities 750,497 1,841,380
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of loan principal (400,000) -
----------- -----------
Net cash used in financing activities (400,000) -
----------- -----------
NET INCREASE IN CASH 226,869 395,723
CASH, beginning of period 287,928 64,034
----------- -----------
CASH, end of period $ 514,797 $ 459,757
=========== ===========
SUPPLEMENTAL DISCLOSURE:
Interest paid $ 540,925 $ 552,197
=========== ===========
</TABLE>
The accompanying notes are an integral part of these
condensed financial statements.
15
<PAGE>
VIRGINIA GAS DISTRIBUTION COMPANY
NOTES TO CONDENSED FINANCIAL STATEMENTS
1. GENERAL:
The accompanying unaudited condensed financial statements as of
September 30, 2000, and for the three and nine-month periods ended September
30, 2000 and 1999, 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, 2000, are not necessarily indicative of the
results that may be expected for the year ending December 31, 2000.
The financial statements should be read in conjunction with the Notes
to Financial Statements included in the Virginia Gas Company's (VGC) Form
10-KSB/A filed with the Securities and Exchange Commission on May 1, 2000.
2. MANAGEMENT'S PLANS:
These statements have been prepared with the assumption that VGDC
will continue as a going concern. As discussed in Note 1 of VGDC's financial
statements in VGC's Form 10-KSB/A filed with the Securities and Exchange
Commission on May 1, 2000, VGDC relies upon the support of its 50 percent
owner, VGC. VGC's and VGDC's future plans are inexorably linked. VGC has
classified $24 million of long-term debt as current due to non-compliance
with its debt covenants. VGC's covenants require it to maintain certain
financial ratios. As of September 30, 2000, one covenant requires VGC to
maintain historical EBITDA of one and three-quarters times current debt
service. VGC's Line of Credit (the "Line") with Wachovia Bank N.A. (the
"Wachovia") had a balance outstanding of $6.0 million as of September 30,
2000. The $6.0 million is included in VGC's current debt service in its
entirety and, as a consequence with the interest required, causes the
non-compliance. As a result of the financial covenant breach, VGC remains in
default of its debt agreements with John Hancock and Wachovia Bank. In its
merger agreement with VGC, NUI agreed to provide interim financing to VGC for
its short-term liquidity and capital needs. As of September 30, 2000, VGC had
drawn $7.0 million on the interim financing. Thereafter, an additional $4.0
million has been drawn. The financing has caused additional covenant defaults
with respect to the debt service covenant discussed above and VGC's total
liabilities covenant.
The Line with Wachovia was due on October 31, 2000. Wachovia has not
attempted to collect the $6.0 million note. VGC and NUI are currently
negotiating an extension of the Line.
Despite the covenant breaches and the Wachovia payment default, none
of VGC's lenders have taken steps to accelerate payment or to collect on
their respective loans. However, all lenders including NUI can accelerate
payment of their loans and there can be no assurances that the lenders will
not do so in the future. In the event that the lenders demand repayment,
which would require VGC to pay $44 million including prepayment penalties,
the forced liquidation or bankruptcy of VGC may be necessary.
3. SIGNIFICANT EVENTS:
VGDC has received an approval from the Virginia State Corporation
Commission (VSCC) for an increase in authorized rates. The rate increase went
into effect in late January 2000.
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/A for the year ended
December 31, 1999, and the Notes to Consolidated Financial Statements set forth
in this report.
RESULTS OF OPERATIONS
During the three months ending September 30, 2000, Virginia Gas Company
recorded net income of $52,000 compared to net income of $60,000 for the same
period in 1999. Basic and diluted net income per common share for the third
quarters of 2000 and 1999 ending was $0.01. For the nine months ending September
30, 2000, the Company recorded net income of $315,000 compared to a net income
of $986,000 for the same period in 1999. The nine months ending September 30,
1999 included approximately $400,000 in income from the Company's share of
Virginia Gas Storage Company's (VGSC) sale of the Haysi Gathering System. The
sale resulted in an additional $0.07 per share. Basic and diluted net income per
common share for the nine months ending September 30, 2000 is $0.06 compared to
$0.18 for the same period in 1999.
The Company recorded revenues of $3.55 million for the three-month
period ending September 30, 2000 compared to $2.62 million in 1999 representing
a 35% increase. The Company's revenue growth was primarily derived from
increased gas sales, and growth in the Company's propane distribution
operations. Gas sales, including low margin sales from the Company's Saltville
Storage Facility, were $1,741,000 for the third quarter of 2000, up from
$856,000 for the same period in 1999. The increase is due to higher volumes and
the increase in gas prices. Total gas sold during the quarter rose to 382,000
dth from 326,000 dth in 1999 as the price per dth rose to $4.28 compared to
$2.62 for the same period in 1999. For the nine months ending September 30, gas
sales increased from $2.16 million in 1999 to $3.75 million in 2000. This
increase is also due to an increase in the amount of gas sold and the rising
prices of natural gas. Propane gas sales increased 55 percent to $422,000 in the
third quarter of 2000 from $273,000 in 1999 as the Company's customer base
increased to 4,900 from 3,800 and gallons sold increased to 390,000 from
306,000. Also, the Company's average sales price for propane rose from $0.91 per
gallon in the third quarter of 1999 to $1.10 per gallon during the same period
in 2000. Propane gas sales increased 49% for the nine months ended September 30,
2000 from $1.16 million to $1.73 million. The nine-month increase is due to the
same reasons as the third quarter increase. The largest decline in revenues
occurred in storage revenues, which decreased to $641,000 for the three months
ended September 30, 2000 from $724,000 for the three months ended September 30,
1999. This resulted from the expiration of a storage contract during the third
quarter of 2000. The expiration of this contract has also resulted in the
decrease of storage revenues for the nine moths ended from $2.16 million in 1999
to $2.06 million in 2000.
During the third quarter of 2000, cost of gas sold increased sharply to
$1,598,000 compared to $777,000 in 1999, due to rising gas prices and increased
gas sales as discussed above. This increase in gas prices also caused the
increase in the cost of gas sold for the nine months ended September 30, 2000 to
$3.40 million from $1.88 million for the same period in 1999. Cost of gas sold
increased from an average of $2.38 per dth for the third quarter of 1999 to
$4.18 per dth for the third quarter of 2000. Natural gas margins rose from $0.31
per dth as of September 30, 1999 to $0.41 per dth as of September 30, 2000. Cost
of propane sold increased to $232,000 for three months ended September 30, 2000
from $145,000 for the three months ended September 30, 1999 as a result of
increased prices and higher volumes. A similar increase occurred for the nine
months ended September 30 as the cost of propane sold rose from $497,000 in 1999
to $887,000 in 2000. Average sales price per gallon has increased to $1.10
compared to $0.91 in 1999, and the cost per unit has also increased to $0.73 per
gallon from $0.52 per gallon. Propane margins dropped slightly from $0.39 per
gallon as of September 30, 1999 to $0.37 per gallon as of September 30, 2000.
17
<PAGE>
General and administrative expense increased during the third quarter
of 2000 to $576,000 from $547,000. For the nine months ended September 30,
general and administrative expense increased from $1.42 million in 1999 to $1.66
million in 2000. Both of these increases are due to an increase in professional
services from the Company's ongoing exploration and implementation of strategic
plans.
Interest expense has increased for the both the three and nine months
ended September 30. These increases are due to an increase in the amount of the
Company's debt. During the third quarter of 2000, taxes other than income taxes
decreased from $119,000 in 1999 to $82,000 in 2000. This decrease is due to
Delaware franchise tax being recognized in an earlier quarter during 2000. For
the nine months ended September 30, 2000, taxes other than income taxes
increased 33% to $372,000 from $280,000 in 1999. This is due to increased
property taxes related to pipeline expansion.
The Company's provision for income taxes increased to $13,000 for the
three months ended September 30, 2000 from $7,000 for the same period in 1999 in
spite of a slight decline in income before income taxes. This is due to an
increase in the revenues of the Company's unregulated businesses, which are
subject to state income taxes. However, for the nine months ended September 30,
the 2000 provision is consistent with the 1999 provision.
Income from affiliates remained constant during the third quarter with
a loss of $35,000 in 2000 and a loss of $32,000 in 1999. VGSC reported net
income of $82,000 for the three months ending September 30, 2000 compared to
$65,000 for the same period in 1999. The improvement is due to a decrease in
interest expense that is the result of VGSC repaying long-term debt. Virginia
Gas Distribution Company (VGDC) recorded a net loss of $153,000 for the third
quarter of 2000 compared to a loss of $129,000 for the third quarter of 1999 as
gas sales increased 34% for $214,000 from $287,000. The higher loss is the due
to lower interest income on notes receivable that have been repaid. VGDC's
assets continue to be underutilized as growth has yet to offset the cost of
recent capital additions.
OUTLOOK
The Company and NUI jointly announced on June 14, 2000 that they
have entered into a definitive merger agreement, which provides for the
merger of the Company with a wholly owned subsidiary of NUI. The transaction
is subject to the approval of the Company's stockholders and state and
federal regulatory agencies. The Company's stockholders met on November 8,
2000 and approved the merger, all necessary requests for approval have been
filed with the Company's and NUI's state regulatory agencies, and the Company
and NUI were granted approval on September 27, 2000 from the Federal Trade
Commission under the Hart-Scott-Rodino Antitrust Improvements Act.
The Company began construction of segment 4 of its P-25 pipeline
system during the month of July. Segment 4 runs 37 miles from Wytheville to
Radford, Virginia. Due to delays in construction, the Company expects to stop
construction in Pulaski, Virginia in early December. The remaining 12 miles
will be constructed early in the second quarter. Segment 4, once completed,
will serve 10,000 dths per day at three different delivery points, one being
Pulaski, pursuant to a contract with Atmos Energy's United Cities Gas
Company. The contracted volume for the Pulaski connection is 5,000 dths per
day.
The Company is continuing the right-of-way acquisition process for
segment 5 its P-25 pipeline for which VSCC approval was given in December
1999. Segment 5 will run 45 miles from Radford to Roanoke, Virginia and serve
an existing contract with Roanoke Gas Company. The Company is experiencing
opposition to its proposed route for Segment 5 from some local residents, who
have filed a motion seeking to reopen the approval process at the VSCC. The
Company opposes reopening the process on grounds that all comment and appeal
periods have long ago lapsed, and the Company is substantially engaged in
moving the project forward. The Company is continuing to work with individual
landowners on the route selection process and to work to mitigate, to the
extent practicable, its possible impact on individual landowners.
18
<PAGE>
In June, the Company purchased the necessary rights to expand its salt
cavern storage facility in Saltville, Virginia. The Company continues to perform
engineering studies and has developed a project management plan for the
expansion of the facility. The Company has begun site preparation at the
facility.
FINANCIAL CONDITION
These statements have been prepared with the assumption that the
Company will continue as a going concern. The Company has classified $24
million of long-term debt as current due to non-compliance with the Company's
debt covenants. The Company's covenants require it to maintain certain
financial ratios. As of September 30, 2000, one covenant requires the Company
to maintain historical EBITDA of one and three-quarters times current debt
service. The Company's Line of Credit (the "Line") with Wachovia Bank N.A.
(the "Wachovia") had a balance outstanding of $6.0 million as of September
30, 2000. The $6.0 million is included in the Company's current debt service
in its entirety and, as a consequence with the interest required, causes the
non-compliance. As a result of the financial covenant breach, the Company
remains in default of its debt agreements with John Hancock and Wachovia
Bank. In its merger agreement with the Company, NUI agreed to provide interim
financing to the Company for its short-term liquidity and capital needs. As
of September 30, 2000, the Company had drawn $7.0 million on the interim
financing. Thereafter, an additional $4.0 million has been drawn. The
financing has caused additional covenant defaults with respect to the debt
service covenant discussed above and the Company's total liabilities covenant.
The Line with Wachovia was due on October 31, 2000. Wachovia has not
attempted to collect the $6.0 million note. The Company and NUI are currently
negotiating an extension of the Line.
Despite the covenant breaches and the Wachovia payment default, none
of the Company's lenders have taken steps to accelerate payment or to collect
on their respective loans. However, all lenders including NUI can accelerate
payment of their loans and there can be no assurances that the lenders will
not do so in the future. In the event that the lenders demand repayment,
which would require the Company to pay $44 million including prepayment
penalties, the forced liquidation or bankruptcy of the Company may be
necessary. In these circumstances, the Company's stockholders may lose their
entire investment in the Company.
The NUI interim financing is a $20 million credit facility, the
proceeds of which are to be used exclusively for pipeline and gas storage
construction and other related costs and expenses. Amounts outstanding under
the credit facility bear interest at an annual rate equal to LIBOR plus 3
percent. Interest is payable quarterly and the entire outstanding principal
amount is payable on the first to occur of (1) March 1, 2002, or (2) the
termination of the merger agreement (for any reason). Additionally, if an
event of default occurs under the NUI credit facility, including the
occurrence of additional events of default under the Company's other senior
loan agreements, NUI may declare all outstanding principal and accrued
interest immediately due and payable.
In connection with the interim financing made available by NUI, the
Company has granted NUI options to purchase an aggregate of 1,095,475 shares
of the Company's common stock (representing approximately 19.9 percent of the
Company's outstanding common stock), which options are only exercisable if
the merger agreement is terminated under circumstances in which NUI is not
entitled to a termination fee or upon an event of default under the note
evidencing the interim financing. In such case, NUI would have the right to
immediately purchase 275,245 shares at an exercise price equal to $3.50 per
share and 820,230 shares at an exercise price equal to $3.5125 per share.
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 the 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:
o 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. The pending merger with NUI should provide the Company with
access to affordable growth capital. If the merger does not take place, the
Company's ability to raise capital would be severely limited.
o The Company is currently in payment and covenant default with its senior
lenders. Should the merger with NUI fail, the Company's lenders, including
NUI, could demand payment of their respective notes, which could force
the liquidation or bankruptcy of the Company. In these circumstances, the
Company's stockholders may lose their entire investment in the Company.
o The 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.
19
<PAGE>
o The Company derives 52% of its revenues from 4 customers. If any of
these customers experience liquidity problems or undergo consolidations,
it could negatively impact the Company.
20
<PAGE>
VIRGINIA GAS COMPANY AND SUBSIDIARIES
PART II. OTHER INFORMATION
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
The Company has breached financial covenants in its debt agreements
with its senior lenders, John Hancock and Wachovia Bank, N.A. These agreements
encompass $30 million in debt. In addition, Wachovia Bank's line of credit,
which is $6.0 million, was due on October 31, 2000. The Company has not repaid
Wachovia and as a consequence is in payment default. The Company has paid all
interest payments related to its debt. Waivers have been requested from the
Company's senior lenders, but to date neither lender has provided a waiver nor
have they acted to accelerate their loans or otherwise access remedies which are
available to them as a result of the default. Although the Company has not been
formally notified of the lenders' plans, management believes that they have
determined temporarily to postpone any action pending the consummation of the
Company's pending merger with NUI Corporation. There can be no assurance that
the pending merger will lead to waivers or amendments from the lenders or that
the lenders will continue to postpone the exercise of their remedies.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of Shareholders was held November 8, 2000 to
consider the proposed merger with NUI and the election of two directors.
Proposal 1. The shareholders approved the proposed Agreement and Plan of
Reorganization, dated as of June 13, 2000, among the Company,
NUI, and a wholly-owned subsidiary of NUI, providing for the
merger of the subsidiary of NUI with and into the Company.
Proposal 2. The shareholders approved the nominations of Everette G. Allen,
Jr. and G. Lee Crenshaw II to serve the Company as directors for
three-year terms.
The results of the voting for each proposal were as follows.
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN BROKER NON-VOTES
--------- ------- ------- ----------------
<S> <C> <C> <C> <C>
Proposal 1. 4,023,134 99,750 6,975 1,042,431
Proposal 2. Allen 5,111,540 - 61,700 -
Crenshaw 5,094,840 - 77,400 -
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FROM 8-K
(a) Exhibits - See List on Exhibits on page 22 hereof.
(b) Reports on Form 8-K:
Virginia Gas Company issued an 8-K on September 21, 2000
disclosing the filing of a merger proxy and
interim financing arrangements with NUI.
21
<PAGE>
VIRGINIA GAS COMPANY AND SUBSIDIARIES
LIST OF EXHIBITS
<TABLE>
<S> <C>
4.1 Revolving Credit Note with NUI Capital Corp. dated September 11, 2000
4.2 Stock Option Agreement with NUI Capital Corp. dated September 11, 2000
10.1 Agreement With Michael L. Edwards dated June 13, 2000
27.1 Financial Data Schedule for the Nine Months Ended September 30, 2000.
</TABLE>
22
<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
November 14, 2000
23
