<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 June 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)
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
Indicate the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date.
Common stock - Par Value - $.001, 5,504,906 shares issued and outstanding.
Transition Small Business Issuer Disclosure Format (Check One)
[ ] Yes [ ] No
<PAGE>
VIRGINIA GAS COMPANY
QUARTERLY REPORT ON FORM 10-QSB
FOR THE QUARTER ENDED JUNE 30, 2000
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ITEM PAGE
NUMBER PART I - FINANCIAL INFORMATION NUMBER
<S> <C> <C>
1 Financial Statements:
Virginia Gas Company and Subsidiaries
Consolidated Balance Sheets at June 30, 2000 (Unaudited) and December 31,
1999 3
Consolidated Statements of Operations (Unaudited) for the Three and Six Months
Ended June 30, 2000 and 1999 4
Consolidated Statements of Cash Flows (Unaudited) for the Six Months Ended June
30, 2000 and 1999 5
Notes to Consolidated Financial Statements (Unaudited) 6
Virginia Gas Storage Company
Balance Sheets at June 30, 2000 (Unaudited) and December 31, 1999 9
Statements of Operations (Unaudited) for the Three and Six Months Ended June
30, 2000 and 1999 10
Statements of Cash Flows (Unaudited) for the Six Months Ended June 30, 2000
and 1999 11
Notes to Financial Statements (Unaudited) 12
Virginia Gas Distribution Company
Balance Sheets at June 30, 2000 (Unaudited) and December 31, 1999 13
Statements of Operations (Unaudited) for the Three and Six Months Ended June
30, 2000 and 1999 14
Statements of Cash Flows (Unaudited) for the Six Months Ended June 30, 2000
and 1999 15
Notes to Financial Statements (Unaudited) 16
2 Management's Discussion and Analysis of Financial Condition and Results of
Operations 17
PART II - OTHER INFORMATION
3 Defaults Upon Senior Securities 20
4 Submission of Matter to a Vote of Security Holders 20
6 Exhibits and Reports on Form 8-K 20
List of Exhibits 21
Signature 22
Financial Data Schedule 23
</TABLE>
2
<PAGE>
VIRGINIA GAS COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
2000 1999
----------- ------------
(Unaudited)
CURRENT ASSETS:
<S> <C> <C>
Cash $ 897,939 $ 1,444,731
Accounts receivable 1,017,215 1,212,685
Notes receivable 39,700 40,100
Other current assets 354,343 899,168
----------- -------------
Total current assets 2,309,197 3,596,684
PROPERTY AND EQUIPMENT, net 45,500,015 43,145,750
INVESTMENT IN AFFILIATED COMPANIES 4,467,141 4,343,460
NOTES RECEIVABLE - AFFILIATED COMPANIES 12,600,912 13,000,912
OTHER ASSETS 295,458 639,714
----------- -------------
Total assets $ 65,172,723 $ 64,726,520
=========== =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 24,024,283 $ 24,045,144
Line of credit 6,000,000 6,000,000
Accounts payable 474,948 316,666
Funds held for future distribution 194,433 248,136
Other current liabilities 340,264 242,011
----------- --------------
Total current liabilities 31,033,928 30,851,957
LONG-TERM DEBT 209,709 209,709
DEFERRED INCOME TAXES 908,980 907,821
----------- --------------
Total liabilities 32,152,617 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 1,639,334 1,376,261
=========== ==============
Total stockholders' equity 33,020,106 32,757,033
=========== ==============
Total liabilities and stockholders' equity $ 65,172,723 $ 64,726,520
=========== ==============
</TABLE>
3
<PAGE>
VIRGINIA GAS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
2000 1999 2000 1999
------ ------ ------ ------
REVENUE:
<S> <C> <C> <C> <C>
Operating revenue $2,787,332 $ 2,059,222 $ 5,591,491 $ 4,558,188
Interest and other income 322,046 330,744 701,562 698,774
---------- ------------ ------------ -----------
3,109,378 2,389,966 6,293,053 5,256,962
---------- ------------ ------------ -----------
EXPENSES:
Cost of natural gas sold 1,250,522 636,070 1,802,169 1,100,306
Propane gas expense 156,732 100,622 655,434 352,504
General and administrative 557,907 429,124 1,084,369 870,961
Depreciation, depletion, and amortization 363,522 381,138 722,019 709,621
Operations and maintenance 173,488 183,766 480,932 531,110
Production expense 19,138 23,980 37,672 40,939
---------- ------------ ------------ -----------
2,521,309 1,754,700 4,782,595 3,605,441
---------- ------------ ------------ -----------
OTHER EXPENSES:
Interest 498,061 412,007 995,487 777,847
Other taxes 143,208 96,885 289,591 160,644
---------- ------------ ------------ -----------
INCOME (LOSS) BEFORE EARNINGS OF AFFILIATED COMPANIES AND
INCOME TAXES (53,200) 126,374 225,380 713,030
Equity in earnings (losses) of affiliated companies 98,621 (10,097) 123,681 430,523
-------------- ------------ ------------- ------------
INCOME BEFORE INCOME TAXES 45,421 116,277 349,061 1,143,553
Provision for (benefit from) income taxes (7,597) 22,835 85,988 217,978
-------------- ------------ ------------- ------------
NET INCOME $ 53,018 $ 93,442 $ 263,073 $ 925,575
============= ============= ============= ============
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 $ 0.02 $ 0.05 $ 0.17
============= ============= ============= ============
</TABLE>
4
<PAGE>
VIRGINIA GAS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
ENDED JUNE 30,
2000 1999
------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net income $ 263,073 $ 925,575
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, depletion, and amortization 722,019 709,621
Undistributed earnings of affiliated companies (123,681) (430,523)
Deferred income taxes 1,159 -
Decrease in accounts receivable 195,870 2,945,697
Decrease (increase) in other current assets 544,825 (465,445)
Decrease (increase) in other assets 335,890 (92,244)
Increase in accounts payable 158,282 95,662
Increase (decrease) in other current liabilities 44,550 (212,950)
---------- ----------
Net cash provided by operating activities 2,141,987 3,475,393
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (3,067,918) (3,837,302)
Payments received on (issuance of) notes receivable 400,000 (7,412)
---------- -----------
Net cash used in investing activities (2,667,918) (3,844,714)
---------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of loan principal (20,861) (523,936)
Dividends paid - (192,672)
---------- -----------
Net cash used in financing activities (20,861) (716,608)
---------- -----------
NET DECREASE IN CASH (546,792) (1,085,929)
CASH, beginning of period 1,444,731 1,763,753
---------- -----------
CASH, end of period $ 897,939 $ 677,824
========== ===========
SUPPLEMENTAL DISCLOSURE:
Interest paid $ 920,559 $1,080,569
========== ===========
Income taxes paid $ - $ 100,000
========== ===========
</TABLE>
5
<PAGE>
VIRGINIA GAS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. GENERAL:
The accompanying unaudited consolidated financial statements as of June
30, 2000, and for the three and six months ended June 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 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 six months ended June 30, 2000, are not necessarily indicative
of the results that may be expected for the year ending December 31, 2000.
The consolidated financial statements for 1999 and the unaudited
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 interests 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, state
regulatory agencies and the Company's principal lenders.
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 June 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 June 30, 2000. The $6.0 million,
by definition, must be 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.
At this time, neither has taken steps to accelerate payment of their respective
loans and Wachovia has granted an extension of its line of credit to October 31,
2000.
In its merger agreement with the Company, NUI agreed to provide
interim financing to the Company for its short-term liquidity and capital
needs. The interim financing, as it is currently proposed, will lead to
additional covenant defaults. The Company and NUI have been involved in
discussions with the Company's lenders and believe that they have developed a
structure for the interim financing that will be satisfactory to the lenders
of the Company until the merger with NUI is closed, absent any other adverse
developments. Assuming that the proposed financing is approved, the Company
would expect to restructure it, upon the closing of its merger with NUI, in
a manner that will correct the covenant defaults. However, there can be no
assurances that the lenders will formally or informally approve any
additional financing or that they will not accelerate their respective loans
now or in the future.
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
6
<PAGE>
operations of the Company in different business segments is set forth below
based on the nature of the products and services offered.
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30 SIX MONTHS ENDED JUNE 30
2000 1999 2000 1999
---- ---- ---- ----
STORAGE:
<S> <C> <C> <C> <C>
Total assets $ 25,109,000 $ 20,814,998 $ 25,109,000 $ 20,814,998
Capital expenditures $ 807,225 $ 774,339 $ 2,517,799 $ 2,416,124
Operating revenues $ 671,167 $ 710,264 $ 1,424,619 $ 1,453,388
Other income (9,989) 2,729 (2,748) 2,729
Operation and maintenance (68,860) (80,325) (173,165) (227,783)
Depreciation, depletion, and amortization (146,971) (143,646) (293,836) (277,678)
---------------- -------------- --------------- ---------------
STORAGE OPERATING INCOME $ 445,347 $ 489,022 $ 954,870 $ 950,656
================ ============== =============== ===============
PRODUCTION:
Total assets $ 4,263,060 $ 3,854,102 $ 4,263,060 $ 3,854,102
Capital expenditures $ - $ 8,776 $ 4,249 $ 29,409
Operating revenues $ 1,565,601 $ 855,551 $ 2,345,829 $ 1,643,109
Interest income 17,515 11,165 38,114 22,117
Other income 1,946 3,019 3,446 5,836
Cost of natural gas sold (1,250,522) (636,070) (1,802,169) (1,100,306)
Production expense (19,138) (23,980) (37,672) (40,938)
Operations and maintenance (17,807) (11,364) (52,229) (35,450)
Depreciation, depletion, and amortization (39,823) (45,039) (79,647) (90,314)
---------------- -------------- --------------- ---------------
PRODUCTION OPERATING INCOME $ 257,772 $ 153,282 $ 415,672 $ 404,054
================ ============== =============== ===============
TRANSPORTATION:
Total assets $ 14,653,696 $ 13,876,666 $ 14,653,696 $ 13,876,666
Capital expenditures $ 77,416 $ 550,086 $ 176,924 $ 832,812
Operating revenues $ 285,864 $ 285,880 $ 573,005 $ 574,792
Other income (4,255) 1,099 (1,496) 1,099
Operation and maintenance (28,126) (31,237) (68,689) (90,549)
Depreciation, depletion, and amortization (67,218) (66,765) (134,368) (133,045)
---------------- -------------- --------------- ---------------
TRANSPORTATION OPERATING INCOME $ 186,265 $ 188,977 $ 368,452 $ 352,297
================ ============== =============== ===============
PROPANE DISTRIBUTION:
Total assets $ 4,785,917 $ 2,460,960 $ 4,785,917 $ 2,460,960
Capital expenditures $ 129,469 $ 216,841 $ 431,997 $ 490,166
Operating revenue $ 318,669 $ 217,780 $ 1,351,039 $ 926,372
Interest income 1,422 - 1,422 -
Other income 35,423 30,211 98,427 109,097
Propane gas expense (156,732) (100,622) (655,434) (352,504)
Operation and maintenance (58,695) (60,840) (186,849) (177,328)
Depreciation, depletion, and amortization (79,313) (56,527) (153,784) (108,624)
---------------- -------------- --------------- ---------------
PROPANE DISTRIBUTION OPERATING INCOME $ 60,774 $ 30,002 $ 454,821 $ 397,013
================ ============== =============== ================
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
PARENT COMPANY:
<S> <C> <C> <C> <C>
Investments in subsidiaries and affiliates $ 29,217,141 $ 29,111,063 $ 29,217,141 $ 29,111,063
Notes receivable from subsidiaries and
affiliates $ 23,281,219 $ 21,469,845 $ 23,281,219 $ 21,469,845
Total assets $ 56,914,878 $ 55,038,715 $ 56,914,878 $ 55,038,715
Capital expenditures $ 18,757 $ 64,239 $ (63,051) $ 68,791
Operating revenue $ 135,780 $ 191,092 $ 311,166 $ 410,907
Interest income 584,267 483,985 1,173,861 946,343
Other income 9 236 9 256
Depreciation, depletion, and amortization (30,197) (69,161) (60,384) (99,960)
---------------- -------------- --------------- ---------------
PARENT COMPANY OPERATING INCOME $ 689,859 $ 606,152 $ 1,424,652 $ 1,257,546
================ ============== =============== ================
ELIMINATION OF INTERCOMPANY/ INTERSEGMENT
ACTIVITY:
Total assets $ (40,553,828) $ (35,492,210) $ (40,553,828) $ (35,492,210)
Operating revenues $ (189,749) $ (201,345) $ (414,167) $ (450,380)
Interest and other income $ (304,292) $ (201,700) $ (609,473) $ (388,703)
VIRGINIA GAS COMPANY CONSOLIDATED:
Total assets $ 65,172,723 $ 60,553,231 $ 65,172,723 $ 60,553,231
Capital expenditures $ 1,032,867 $ 1,614,281 $ 3,067,918 $ 3,837,302
Operating revenues $ 2,787,332 $ 2,059,222 $ 5,591,491 $ 4,558,188
Interest income 298,912 293,450 603,924 579,757
Other income 23,134 37,294 97,638 119,017
Cost of gas sold (1,250,522) (636,070) (1,802,169) (1,100,306)
Propane gas expense (156,732) (100,622) (655,434) (352,504)
Production expense (19,138) (23,980) (37,672) (40,938)
Operations and maintenance (173,488) (183,766) (480,932) (531,110)
Depreciation, depletion, and amortization (363,522) (381,138) (722,019) (709,621)
---------------- -------------- --------------- ---------------
VIRGINIA GAS COMPANY CONSOLIDATED
OPERATING INCOME $ 1,145,976 $ 1,064,390 $ 2,594,827 $ 2,522,483
================ ============== =============== ================
</TABLE>
8
<PAGE>
VIRGINIA GAS STORAGE COMPANY
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
2000 1999
------------ -------------
(Unaudited)
CURRENT ASSETS:
<S> <C> <C>
Cash $ 657,194 $ 411,520
Accounts receivable 373,812 452,468
Other current assets 192,301 31,378
---------- ---------------
Total current assets 1,223,307 895,366
PROPERTY AND EQUIPMENT, net 13,085,556 13,687,248
OTHER ASSETS 208,723 213,249
---------- ---------------
Total assets $ 14,517,586 $ 14,795,863
========== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 141,027 $ 280,816
Other current liabilities 362,748 24,659
---------- ---------------
Total current liabilities 503,775 305,475
LONG-TERM DEBT 4,339,740 5,255,547
DEFERRED INCOME TAXES 694,731 694,731
---------- ---------------
Total liabilities 5,538,246 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 3,339,340 2,900,110
---------- ---------------
Total stockholders' equity 8,979,340 8,540,110
---------- ---------------
Total liabilities and stockholders' equity $ 14,517,586 $ 14,795,863
========== ===============
</TABLE>
9
<PAGE>
VIRGINIA GAS STORAGE COMPANY
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30
2000 1999 2000 1999
---- ---- ---- ----
REVENUE:
<S> <C> <C> <C> <C>
Operating revenue $ 1,415,496 $ 580,778 $ 2,676,671 $ 1,762,756
Gain on sale of Haysi Gathering System - - - 1,215,850
Interest and other income 40,635 7,741 70,087 9,560
------------ ------------ ----------- ------------
1,456,131 588,519 2,746,758 2,988,166
------------ ------------ ----------- ------------
EXPENSES:
Purchased gas expense 452,498 7,676 997,405 370,063
Operation and maintenance expense 220,224 137,888 452,562 379,334
Depreciation, depletion, and amortization 100,510 101,136 201,938 223,298
General and administrative 94,310 67,948 215,402 150,122
------------ ------------ ----------- ------------
867,542 314,648 1,867,307 1,122,817
------------ ------------ ----------- ------------
INTEREST EXPENSE 102,271 111,763 213,951 245,437
------------ ------------ ----------- ------------
INCOME BEFORE INCOME TAXES 486,318 162,108 665,500 1,619,912
Provision for income taxes 165,348 55,117 226,270 550,770
------------ ------------ ----------- ------------
NET INCOME $ 320,970 $ 106,991 $ 439,230 $ 1,069,142
============ ============ =========== ============
</TABLE>
10
<PAGE>
VIRGINIA GAS STORAGE COMPANY
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
ENDED JUNE 30,
2000 1999
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net income $ 439,230 $ 1,069,142
Adjustments to reconcile net income to net cash provided by (used in) operating
activities:
Depreciation, depletion, and amortization 201,938 223,298
Gain on sale of fixed assets (344,439) (1,355,669)
Decrease in accounts receivable 78,656 197,295
Decrease (increase) in other current assets (160,923) 4,491
Increase in other assets - (26,229)
Decrease in accounts payable (139,789) (1,006,844)
Increase in other current liabilities 338,089 616,001
----------- ----------
Net cash provided by (used in) operating activities 412,762 (278,515)
----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (48,218) (18,813)
Proceeds from sale of fixed assets 796,937 2,700,000
----------- ----------
Net cash provided by investing activities 748,719 2,681,187
----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of loan principal (915,807) (2,005,198)
----------- ----------
Net cash used in financing activities (915,807) (2,005,198)
----------- ----------
NET INCREASE IN CASH 245,674 397,474
CASH, beginning of period 411,520 36,800
----------- ----------
CASH, end of period $ 657,194 $ 434,274
=========== ==========
SUPPLEMENTAL DISCLOSURE:
Interest paid $ 111,680 $ 92,300
=========== ==========
Income taxes paid $ - $ 185,000
=========== ==========
</TABLE>
11
<PAGE>
VIRGINIA GAS STORAGE COMPANY
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
The accompanying unaudited financial statements as of June 30, 2000,
and for the three and six month periods ended June 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 six months ended June 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.
In February 1999, VGSC sold its 60% 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 during the quarter ending March 31, 1999.
12
<PAGE>
VIRGINIA GAS DISTRIBUTION COMPANY
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
2000 1999
------------ -------------
(Unaudited)
CURRENT ASSETS:
<S> <C> <C>
Cash $ 572,017 $ 287,928
Accounts receivable 126,485 215,826
Other current assets 300,694 63,477
---------------- ---------------
Total current assets 999,196 567,231
PROPERTY AND EQUIPMENT, net 6,727,041 6,757,670
NOTES RECEIVABLE - 915,807
DEFERRED TAX ASSET 720,979 720,979
OTHER ASSETS 114,003 117,588
---------------- ---------------
Total assets $ 8,561,219 $ 9,079,275
---------------- ---------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 296,844 $ 238,261
Other current liabilities 48,260 33,033
---------------- ---------------
Total current liabilities 345,104 271,294
LONG TERM DEBT 8,261,172 8,661,172
---------------- ---------------
Total liabilities 8,606,276 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 (1,545,057) (1,353,191)
---------------- ---------------
Total stockholders' equity (45,057) 146,809
---------------- ---------------
Total liabilities and stockholders' equity $ 8,561,219 $ 9,079,275
================ ===============
13
<PAGE>
VIRGINIA GAS DISTRIBUTION COMPANY
STATEMENTS OF OPERATIONS
(UNAUDITED)
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
2000 1999 2000 1999
------------ ----------- ----------- -----------
REVENUE:
Operating revenue $ 330,105 $ 256,220 $ 807,482 $ 604,953
Interest and other income 22,987 42,334 61,100 109,075
------------ ----------- ----------- -----------
353,092 298,554 868,582 714,028
------------ ----------- ----------- -----------
EXPENSES:
Purchased gas expense 203,109 166,956 472,854 386,582
Operation and maintenance expense 63,293 57,011 120,808 111,275
Depreciation, depletion, and amortization 58,911 56,293 121,471 112,216
General and administrative 33,986 26,935 78,835 51,111
------------ ----------- ----------- -----------
359,299 307,195 793,968 661,184
------------ ----------- ----------- -----------
Other expense - interest 181,258 184,066 365,320 368,138
------------ ----------- ----------- -----------
LOSS BEFORE INCOME TAXES (187,465) (192,707) (290,706) (315,294)
Benefit from income taxes (63,738) (65,520) (98,840) (107,199)
------------ ----------- ----------- -----------
NET LOSS $ (123,727) $ (127,187) $ (191,866) $ (208,095)
============ =========== =========== ===========
</TABLE>
14
<PAGE>
VIRGINIA GAS DISTRIBUTION COMPANY
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
ENDED JUNE 30,
2000 1999
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net loss $ (191,866) $ (208,095)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation, depletion, and amortization 121,471 112,216
Decrease (increase) in accounts receivable 89,341 (121,310)
Decrease (increase) in other current assets (237,217) 110,954
Increase (decrease) in accounts payable 58,583 (1,417,735)
Increase in other current liabilities 15,227 96,494
----------- -----------
Net cash used in operating activities (144,461) (1,427,476)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (87,257) (106,182)
Payments received on notes receivable 915,807 2,000,000
----------- -----------
Net cash provided by investing activities 828,550 1,893,818
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of loan principal (400,000) -
----------- -----------
Net cash used in financing activities (400,000) -
----------- -----------
NET INCREASE IN CASH 284,089 466,342
CASH, beginning of period 287,928 64,034
----------- -----------
CASH, end of period $ 572,017 $ 530,376
=========== ===========
SUPPLEMENTAL DISCLOSURE:
Interest paid $ 303,970 $ 184,088
=========== ===========
</TABLE>
15
<PAGE>
VIRGINIA GAS DISTRIBUTION COMPANY
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
1. GENERAL
The accompanying unaudited financial statements as of June 30, 2000,
and for the three and six month periods ended June 30, 2000 and 1999, include,
in the opinion of management, all adjustments (consisting of normal recurring
adjustments) considered necessary to present fairly the combined financial
position, results of operations and cash flows of Virginia Gas Distribution
Company (VGDC). Operating results for the three and six months ended June 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
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 From 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 June 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 June 30, 2000. The $6.0 million, by definition, must be 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. At this time, neither has taken steps to accelerate payment
of their respective loans and Wachovia has granted an extension of its line of
credit to October 31, 2000.
In its merger agreement with the VGC, NUI agreed to provide interim
financing to VGC for its short-term liquidity and capital needs. The interim
financing, as it is currently proposed, will lead to additional covenant
defaults. VGC and NUI have been involved in discussions with VGC's lenders
and believe that they have developed a structure for the interim financing
that will be satisfactory to the lenders of VGC until the merger with NUI is
closed, absent any other adverse developments. Assuming that the proposed
financing is approved, VGC would expect to restructure it, upon the closing
of its merger with NUI, in a manner that will correct the covenant defaults.
However, there can be no assurances that the lenders will formally or
informally approve any additional financing or that they will not accelerate
their respective loans now or in the future.
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 DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with items 6 and
7 of the Company's Annual Report on Form 10-KSB for the year ended December 31,
1999, and the Notes to Consolidated Financial Statements set forth in this
report.
RESULTS OF OPERATIONS
During the three months ended June 30, 2000, Virginia Gas Company (the
"Company") recorded net income of $53,000 compared to $93,000 for the same
period in 1999. Basic and diluted net income per common share for the quarter
was $0.01 compared to $0.02 for the second quarter of 1999. For the six months
ending June 30, 2000, the Company recorded net income of $263,000 compared to
income of $926,000 for the same period in 1999. The six months ending June 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 six months ending June 30, 2000 is $0.05 compared to $0.17
for the same period in 1999.
The Company recorded revenues of $3.1 million for the period ending
June 30, 2000 compared to $2.4 million in 1999 representing a 30% increase.
Revenue growth was primarily derived from the Company's increased natural gas
sales and growth in the Company's propane distribution operation. The Company
recorded $1,397,000 in gas sales compared to $709,000 for the same period in
1999. This increase is a result of increased gas prices. The average selling
price of gas per dth increased $1.31 from $2.16 during the second quarter of
1999 to $3.47 for the same period in 2000. Propane gas sales increased 48% to
$298,000 in the second quarter of 2000 from $201,000 in 1999 as the Company's
customer base increased to 4,800 from 3,500 and gallons sold increased to
280,000 from 250,000. The largest decline in revenues occurred in storage
revenues, which decreased to $669,000 from $708,000. This is due to the
expiration of a gas storage contract.
<TABLE>
<CAPTION>
----------------------------------- ------------------------------- ----------------
THREE MONTHS ENDED
JUNE 30 PERCENTAGE
REVENUE 2000 1999 CHANGE
----------------------------------- ---------------- -------------- ----------------
<S> <C> <C> <C>
Natural Gas Sales $ 1,397,000 $ 709,000 97%
----------------------------------- ---------------- -------------- ----------------
Storage Revenues 669,000 708,000 (6)
----------------------------------- ---------------- -------------- ----------------
Pipeline Revenues 285,000 285,000 -
----------------------------------- ---------------- -------------- ----------------
Propane Gas Sales 298,000 201,000 48
----------------------------------- ---------------- -------------- ----------------
Explor. & Prod. Revenues 85,000 79,000 8
----------------------------------- ---------------- -------------- ----------------
Management Revenues 53,000 77,000 (31)
----------------------------------- ---------------- -------------- ----------------
Interest and Other Income 322,000 331,000 (3)
------- -------
----------------------------------- ---------------- -------------- ----------------
Total Revenue $ 3,109,000 $2,390,000 30%
----------------------------------- ---------------- -------------- ----------------
</TABLE>
During the second quarter of 2000, cost of gas sold increased sharply
to $1,251,000 compared to $636,000 in 1999, due to rising gas prices and
increased gas sales. The amount of gas sold increased 159,000 dths from 321,000
dths for the three months ending June 30, 1999 to 480,000 dths for the same
period in 2000. The cost of gas sold increased from an average of $1.98 per dth
for the second quarter 1999 to $2.61 per dth for the second quarter 2000. Cost
of propane sold increased to $157,000 from $101,000 as a result of higher
volumes. Propane margins increased $0.04 per gallon from $0.41 as of June 30,
1999 to $0.45 for the same period in 2000. Average sales price per gallon has
increased to $.95 compared to $.82 in 1999, and the cost per unit has also
increased to $.49/gallon from $.40/gallon.
General and administrative expense increased during the quarter ended
June 30, 2000 to $558,000 compared to $429,000 for the same period in 1999. This
increase is due to two main factors. The first is an increase in wages expense.
The Company has hired additional personnel to operate its evaporator facility.
17
<PAGE>
The second factor is an increase in professional fees relating the Company's
exploration of strategic alternatives.
Income from affiliates improved during the second quarter of 2000 to
$99,000 from a loss of $10,000 during the same period in 1999. VGSC reported net
income of $321,000 compared to $107,000 in 1999. The improvement resulted from
increased gas sales. VGSC had a large non-recurring gas sale in the second
quarter of 2000. Virginia Gas Distribution Company (VGDC) recorded a net loss of
$124,000 compared to a loss of $127,000 in 1999 as gas sales increased 29% to
$330,000 from $256,000. However, VGDC's assets continued 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, state regulatory
agencies and the Company's principal lenders.
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. The Company anticipates to the have the segment in service late in the
fourth quarter. The segment will serve 10,000 dths per day at three different
delivery points pursuant to a contract with Atmos Energy's United Cities Gas
Company. The Company has also begun the right-of-way acquisition process for
segment 5 its P-25 pipeline. Segment 5 will run 45 miles from Radford to
Roanoke, Virginia and serve an existing contract with Roanoke Gas Company.
In June, the Company purchased the necessary rights to expand its salt
cavern storage facility in Saltville, Virginia. The Company has begun
engineering studies and has developed a project management plan for the
expansion of the facility. The Company expects to begin the expansion project in
the third and fourth quarter of 2000.
FINANCIAL CONDITION
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 June 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 June 30, 2000. The $6.0 million, by definition, must be
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. At this time, neither has taken
steps to accelerate payment of their respective loans and Wachovia has granted
an extension of its line of credit to October 31, 2000.
In its merger agreement with the Company, NUI agreed to provide
interim financing to the Company for its short-term liquidity and capital
needs. The interim financing, as it is currently proposed, will lead to
additional covenant defaults. The Company and NUI have been involved in
discussions with the Company's lenders and believe that they have developed a
structure for the interim financing that will be satisfactory to the lenders
of the Company until the merger with NUI is closed, absent any other adverse
developments. Assuming that the proposed financing is approved, the Company
would expect to restructure it, upon the closing of its merger with NUI, in a
manner that will correct the covenant defaults. However, there can be no
assurances that the lenders will formally or informally approve any
additional financing or that they will not accelerate their respective loans
now or in the future.
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 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:
- 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 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 derives 52% of its revenues from 4 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.
19
<PAGE>
VIRGINIA GAS COMPANY AND SUBSIDIARIES
PART II. OTHER INFORMATION
FOR THE THREE MONTHS ENDED JUNE 30, 2000
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
The Company has breached a financial covenant in its debt agreements
with its senior lenders, John Hancock and Wachovia Bank, N.A. These
agreements encompass $30 million in debt. The Company has paid all debt
service on these agreements when due. 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
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits - See List of Exhibits on page 20 hereof.
(b) Reports on Form 8-K:
Virginia Gas Company issued an 8-K on June 13, 2000 explaining the
merger with NUI Corporation.
20
<PAGE>
VIRGINIA GAS COMPANY AND SUBSIDIARIES
LIST OF EXHIBITS
27 Financial Data Schedule for the Six Months Ended June 30, 2000
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
