<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
=============================================================================
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Quarterly Period Ended March 31, 1998
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from ___________ to ___________
Commission file number 001-12679
ENERGY SEARCH, INCORPORATED
(Exact Name of Small Business Issuer as Specified in its Charter)
TENNESSEE 62-1423071
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
280 FORT SANDERS WEST BLVD., SUITE 200
KNOXVILLE, TENNESSEE 37922
(Issuer's Telephone Number, Including Area Code)
(800) 551-5810
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the preceding 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.
Yes [X] No [ ]
The number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: 3,773,241 (March 31, 1998)
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
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ENERGY SEARCH, INCORPORATED
PART I FINANCIAL INFORMATION PAGE
ITEM 1. FINANCIAL STATEMENTS 3
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION 8
PART II OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS 14
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 14
APPENDIX A EXHIBIT 27 FINANCIAL DATA SCHEDULE 16
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ENERGY SEARCH, INCORPORATED
BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997<F*>
(UNAUDITED)
------------- ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 714,489 $ 2,252,316
Accounts receivable 680,017 976,065
Other current assets 71,745 91,670
-------------- --------------
Total current assets 1,466,251 3,320,051
OIL AND GAS PROPERTIES
Proven properties 6,261,484 4,546,833
Unproven properties 202,125 193,965
Wells and related equipment 8,626,517 8,100,764
Less accumulated depreciation, depletion and
amortization (3,313,690) (3,140,678)
-------------- --------------
Net oil and gas properties 11,776,436 9,700,884
OTHER ASSETS
Other property and equipment, net 366,354 363,180
Investments in related partnerships 1,671,675 1,649,849
Deferred tax asset 700,700 650,400
Due from affiliated partnerships, net 230,735 213,246
Prepaid stock offering costs 87,481 75,336
Other assets 153,011 147,754
-------------- --------------
Total other assets 3,209,956 3,099,765
Total assets $ 16,452,643 $ 16,120,700
============== ==============
<FN>
<F*>Condensed from audited financial statements
</FN>
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997<F*>
(UNAUDITED)
-------------------------------------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable $ 650,684 $ 650,684
Current portion of long-term debt 29,846 29,184
Accounts payable and accrued expenses 1,826,466 1,356,748
-------------- --------------
Total current liabilities 2,506,996 2,036,616
LONG-TERM DEBT, less current portion 130,120 137,595
SHAREHOLDERS' EQUITY
Common stock (no par value, 10,000,000 shares
authorized; 3,773,241 and 3,768,241 shares issued and
outstanding as of March 31, 1998 and December 31, 1997,
respectively) 15,436,823 15,448,073
Retained earnings (deficit) (1,621,296) (1,501,584)
-------------- --------------
Total shareholders' equity 13,815,527 13,946,489
-------------- --------------
Total liabilities and shareholders' equity $ 16,452,643 $ 16,120,700
============== ==============
<FN>
<F*>Condensed from audited financial statements
</FN>
</TABLE>
See notes to financial statements
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<PAGE>
ENERGY SEARCH INCORPORATED
STATEMENTS OF OPERATION (Unaudited)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
MARCH 31, 1998 MARCH 31, 1997
-------------- --------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
REVENUE
Net turnkey revenue $ (93,840) $ 731,374
Oil & gas revenue 647,074 90,803
Management fees 47,566 82,283
Other revenue 212,266 59,003
-------------- --------------
Total revenue 813,066 963,463
OPERATING EXPENSES
Production expenses 156,663 43,925
Exploration expenses 53,079 95,820
Depreciation, depletion and amortization 221,960 150,715
Interest 20,433 20,650
General and administrative 519,218 311,748
-------------- --------------
Total operating expenses 971,353 622,858
NET INCOME (LOSS) FROM OPERATIONS (158,287) 340,605
OTHER INCOME (EXPENSE)
Program reimbursement (42,546) (8,849)
Equity in income of related partnerships 30,821 30,948
Gain on sale of assets -- 2,963
-------------- --------------
Total other income (expense) (11,725) 25,062
NET INCOME (LOSS) BEFORE INCOME TAX (170,012) 365,667
INCOME TAX BENEFIT (EXPENSE) 50,300 (110,000)
-------------- --------------
NET INCOME (LOSS) $ (119,712) $ 255,667
Earnings per common and common equivalent
share (0.03) 0.08
Earnings per common share - assuming full
dilution (0.03) 0.08
</TABLE>
See notes to financial statements
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<PAGE>
ENERGY SEARCH, INCORPORATED (UNAUDITED)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31
1998 1997
------------------------------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (119,712) $ 255,667
Adjustments to reconcile net income (loss) to net cash used
in operating activities:
Depreciation, depletion and amortization expense 221,960 150,715
(Gain) on sale of assets -- (2,963)
Equity in (income) losses of related partnerships (30,821) (30,948)
(Increase) decrease in deferred tax asset (50,300) 110,000
(Increase) decrease in assets
Accounts receivable and due from partnerships 278,559 468,785
Other current assets 19,925 (1,992)
Other assets (9,994) 41
Increase (decrease) in liabilities
Accounts payable and accrued liabilities 469,718 214,130
Drilling advances -- (1,335,124)
-------------- -------------
Net cash provided (used) in operating
activities 779,335 (171,689)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of proven properties (1,714,651) (523,899)
Proceeds from sale of other property and equipment -- 8,548
Purchase of wells and other related equipment (525,752) (237,616)
Purchase of other property and equipment (29,886) (32,018)
Distributions from affiliated partnerships 22,031 35,413
Contributions to affiliated partnerships (30,536) (229,100)
Purchase of oil and gas leases (8,160) (4,280)
-------------- -------------
Net cash used in investing activities (2,286,954) (982,952)
CASH FLOWS FROM FINANCING ACTIVITIES:
Gross proceeds from issuance of common stock 8,000,000
Payments of stock issuance costs (11,250) (1,446,319)
Payment of dividends on preferred stock -- (59,749)
Net (increase) decrease in prepaid offering costs (12,145) 265,948
Payments on long-term debt (6,813) (261,090)
-------------- -------------
Net cash provided (used) in financing
activities (30,208) 6,498,790
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<PAGE>
NET (DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS (1,537,827) 5,344,149
CASH AND CASH EQUIVALENTS - Beginning of period 2,252,316 51,067
-------------- -------------
CASH AND CASH EQUIVALENTS - End of period $ 714,489 $ 5,395,216
============== =============
</TABLE>
See notes to financial statements
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<PAGE>
ENERGY SEARCH, INCORPORATED
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
BASIS OF PRESENTATION
The condensed Balance Sheets as of March 31, 1998 and December 31,
1997, the Statements of Operations for the three-month periods ended March
31, 1998 and 1997, and the Statements of Condensed Cash Flows for the three
month periods ended March 31, 1998 and March 31, 1997 have been prepared by
the Company.
In the opinion of management all adjustments (which include
reclassifications and normal recurring adjustments) necessary to present
fairly the financial position, results of operations and cash flows at
March 31, 1998 and for all periods presented have been made. Preparing
financial statements requires management to make estimates and assumptions
that affect the reported amounts of assets, liabilities, revenues, and
expenses. Actual results may differ from these estimates. Interim results
are not necessarily indicative of results for a full year.
Certain information and footnote disclosures normally included in the
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. It is suggested that
these condensed financial statements be read in conjunction with the 1997
audited financial statements and notes thereto included in the exhibits of
this filing.
EARNINGS PER SHARE
Earnings (loss) per share of common and common equivalent stock are
based on the weighted average common shares outstanding and are
retroactively adjusted for stock splits.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995
This discussion and analysis of financial condition and results of
operations, and other sections of this Form 10-QSB, contain forward-looking
statements that are based on management's beliefs, assumptions, current
expectations, estimates, and projections about the oil and gas industry, the
economy, and about the Company itself. Words such as "anticipates,"
"believes," "estimates," "expects," "forecasts," "intends," "is likely,"
"plans," "predicts," "projects," variations of such words, and similar
expressions are intended to identify such forward-looking statements.
These statements are not guarantees of future performance and involve
certain risks, uncertainties, and assumptions that are difficult to predict
with regard to timing, extent, likelihood, and degree of occurrence.
Therefore, actual results and outcomes may materially differ from what may
be expressed or forecasted in such forward-looking statements.
Furthermore, the Company undertakes no obligation to update, amend or
clarify forward-looking statements, whether as a result of new information,
future events, or otherwise.
Important factors that could cause actual results to differ materially
from the forward-looking statements include, but are not limited to,
changes in production volumes, worldwide demand and commodity prices for
petroleum natural resources; the timing and extent of the Company's success
in discovering, acquiring, developing, and producing natural gas and oil
reserves; risks incident to the drilling and operation of natural gas and
oil wells; future production and development costs; the effect of existing
and future laws, governmental regulations and the political and economic
climate of the United States; the effect of hedging activities; and
conditions in the capital markets
OVERVIEW
The Company is an independent oil and gas company organized as a
Tennessee corporation in 1990 and engaged in the exploration, development,
production and acquisition of natural gas properties in the Appalachian
Basin. The Company's emphasis is on natural gas production with
approximately 90% of its production in 1997 from natural gas and the
remainder from oil. Daily net production averaged approximately 0.9
MMcfed in 1997, and reached a level of approximately 3.0 MMcfed as of March
31, 1998. The Company has drilled seven wells in the first quarter of 1998.
The Company's future growth is expected to be driven by development,
exploitation, and controlled exploration drilling on its existing properties
and the continuation of an opportunistic acquisition strategy in the
Appalachian Basin region.
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THREE MONTHS ENDED MARCH 31, 1998
FINANCIAL CONDITION
Total assets increased $331,943 or 2.1% from December 31, 1997 to
March 31, 1998 primarily due to a $2,075,552 net increase in oil and gas
properties and after an offsetting decrease of $1,853,800 in current
assets.
Current assets for the three month period ended March 31, 1998
decreased $1,853,800 to $1,466,251, or a 55.8% decrease compared to current
assets for the year ended December 31, 1997. Cash decreased $1,537,827 to
$714,489 or 68.3% for the three months ended March 31, 1998. This decrease
is due to the Company's continued development of its Beaver Lease and
Churchtown Lease areas as well as enhancement efforts and development of the
newly acquired Simmons Field. A detailed discussion of the sources and uses
of cash follows in the "CASH FLOW FROM OPERATIONS, INVESTING, AND FINANCING
ACTIVITIES" section. Accounts receivable decreased $296,048 to $680,017 or
30.3% due to the collection of the 1997-A year end Affiliated Drilling
Partnership receivable in January 1998.
Oil and gas properties for the three months ended March 31, 1998
increased $2,075,552 to $11,776,436 or 21.4% from the amount reported at
December 31, 1997. The increase primarily is a result of continued
drilling activity for its own account, and the acquisition by the Company
of oil and gas lease interests in proved properties. Proven properties
increased $1,714,651 to $6,261,484 or 37.7% from the amount reported at
December 31, 1997. Included in this amount are intangible drilling costs
of $1,646,905 associated with Company drilled wells. The Company increased
capital expenditures for drilling in well-related equipment from December
31, 1997 to March 31, 1998 in the amount of $525,753.
Total liabilities increased $462,905 or 21.3% from December 31, 1997
to March 31, 1998, due primarily to an increase in current liabilities of
$470,380 or 23.1% and a decrease in long-term debt of $7,475 or 5.4%.
Current liabilities increased $470,380 to $2,506,996 or 23.1% from December
31, 1997 to March 31, 1998 primarily due to an increase in accounts payable
and accrued expenses of $469,718 to $1,826,466 at March 31, 1998, an
increase of 34.6% resulting from increased drilling activity on behalf of
the Company.
RESULTS OF OPERATIONS
For the three months ended March 31, 1998, the Company had a net loss
after tax of $119,712, compared to net income after tax of $255,667 for the
three months ended March 31, 1997. As a result of the transition from
turnkey driller operator generating turnkey income to drilling for the
account of the Company, the Company realized a net turnkey expense of
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<PAGE>
$93,840 in the first quarter of 1998. However, Company revenue from oil
and gas sales increased to $647,074 for the same period.
Total net revenues decreased $150,397 or 15.6% due primarily to a
decrease in turnkey revenue and after offsetting increases in oil and gas
and other revenue.
For the three months ended March 31, 1998, net turnkey revenue
decreased $825,214 or 112.8% as compared to the amounts reported for the
three months ended March 31, 1997. Net turnkey revenue is drilling revenue
received from the offering proceeds of Affiliated Drilling Partnerships.
The Company completed the required drilling and recognized the related
revenue for the 1997-A Affiliated Drilling Partnership by December 31,
1997. The Company drilled to total depth seven gross wells attributable to
Affiliated Drilling Partnerships for which turnkey revenues were recognized
in the first quarter of 1997. The Company did not sponsor an Affiliated
Drilling Partnership in the first quarter of 1998 and may or may not
sponsor one or more Affiliated Drilling Partnerships in 1998.
Oil and gas revenue increased $556,271 to $647,074 for the three
months ended March 31, 1998, an increase of 613% over that reported as of
March 31, 1997. This increase is consistent with the Company's changing
focus to drilling wells for its own account. As of March 31, 1998, the
Company has drilled and owns 35 net wells compared to four net wells owned by
the Company as of the same date in 1997. The increase in oil and gas
revenue is consistent with the higher number of wells drilled for its own
account resulting in increased production and revenues.
The increase in other revenue is due primarily to the gross operating
commission revenue of approximately $137,000 earned by Equity Financial
Corporation. The Company acquired Equity Financial Corporation, an
affiliate of the Company, in May of 1997. The Company expects Equity
Financial Corporation to continue to be a profitable segment of the
Company's operation.
The decrease in revenue is also due to a decrease in management fees
for the three months ended March 31, 1998, of $34,717 to $47,566, or 42.2%.
Total operating expenses increased $348,495 or 56.0% for the three
month period ending March 31, 1998 over the three month period ending
March 31, 1997. This increase is due primarily to an increase in general
and administrative expenses of $207,470 or 66.5% for the three months ended
March 31, 1998 compared to the same period in the prior fiscal year.
The increase in general and administrative expenses is due primarily to an
increase of approximately $157,000 of general and administrative expenses
incurred by Equity Financial Corporation and, to a lesser extent, an increase
in salaries as a result of the newly hired Chief Operating Officer and two
land department professionals. The balance of the increase in operating
expenses is a net result of an increase in production expenses of $112,738
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or 257% due to the Company owned and operated wells; a decrease in
exploration costs of $42,741 or 44.6% due to the capitalization of landman
expenses related to the Company wells; and an increase in depreciation,
depletion, and amortization expense of $71,245 or 47.3% due to an increase
in Company owned wells.
Other income and expense changed from a net income of $25,062 for the
three month period ending March 31, 1997 to a net expense of $11,725 for
the three month period ending March 31, 1998. The change is primarily a
result of an increase in program reimbursements of $33,697 or 381%. This
trend may continue to some degree during the year of 1998.
CASH FLOW FROM OPERATIONS, INVESTING, AND FINANCING ACTIVITIES
The Company provided $779,335 of net cash flow from operating
activities and used $171,689 of net cash flow from operating activities for
the three months ended March 31, 1998 and 1997, respectively. Cash was
absorbed by a loss of $119,712 for the three month period ending March 31,
1998. Cash was provided by income of $255,667 for the three month period
ending March 31, 1997. Cash was absorbed by a decrease in drilling
advances of $1,335,124 for the three month period ending March 31, 1997.
Cash was provided for the three months ending March 31, 1998 and 1997 by a
decrease in accounts receivable. The decrease in accounts receivable is a
result of the collection of the year end Affiliated Drilling Partnership
receivable. Cash was provided by depreciation, depletion, and amortization
(DDA) of $221,960 and $150,715 and an increase in accounts payable and
accrued expenses of $469,718 and $214,130 for the three months ending March
31, 1998 and 1997, respectively. The increases in DDA and payables are a
direct result of increased drilling and gas operations.
Cash flows used for investing activities increased from $982,952 for the
three month period ending March 31, 1997 to $2,286,954 for the three month
period ending March 31, 1998. The primary investment activities for the
three month period ending March 31, 1998 were purchases of proven properties
of $1,714,651, purchases of wells and related equipment of $525,752,
purchases of other property and equipment of $29,886, and contributions to
Affiliated Drilling Partnerships of $30,536. The only cash flow from
investing activities for the three month period ending March 31, 1998 were
distributions from Affiliated Drilling Partnerships of $22,031. The more
significant uses of cash flows for investing activities for the three month
period ending March 31, 1997 were purchases of proven properties of $523,899,
purchases of wells and related equipment of $237,616, purchases of other
property and equipment of $32,018, and contributions to Affiliated Drilling
Partnerships of $229,100. The only significant cash flow from investing
activities for the three month period ending March 31, 1997 were
distributions from Affiliated Drilling Partnerships of $35,413.
Cash flows from financing activities decreased $6,528,998 or 100% from
cash provided of $6,498,790 for the three month period ending March 31, 1997
to cash used of $30,208 for the three month period ending March 31, 1998. The
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primary cause of the decrease for the three month period ending March 31,
1998 was the net proceeds from the sale of common stock in the amount of
$6,553,681 for the three month period ending March 31, 1997. The other
significant uses of cash flows from financing activities for the three
month period ending March 31, 1997 were the payments on long-term debt of
$261,090. The only other cash flow from financing activities for the three
month period ending March 31, 1997 were the prepaid stock offering costs of
$265,948 being charged against the common stock account. There were no
significant financing activities in the first quarter of 1998.
LIQUIDITY AND CAPITAL RESOURCES
The primary source of funds for the three months ended March 31, 1998
has been from the issuance of common stock in two offerings in 1997 raising
approximately $11,200,000, net of costs. The proceeds from the two
offerings were used to fund Company operations, including developing the
Beaver Lease and the Simmons Field, and other developmental drilling
activities located generally in the southeastern Ohio and West Virginia
areas. The Company may or may not pursue equity funds in 1998.
To a lesser degree the Company also had funds available from oil and
gas revenues and the collection of the 1997-A Affiliated Drilling
Partnership receivable. The Company expects oil and gas revenues to
increase and may or may not sponsor one or more Affiliated Drilling
Partnerships in 1998. There can be no assurance that the Company will be
successful in sponsoring Affiliated Drilling Partnerships, if it chooses to
do so, and, if successful, will raise any particular level of funds.
The Company intends to fund its budgeted capital expenditures through
the end of 1998 primarily from cash flow from operations and borrowings
under the Company's credit facility, the credit limit of which is currently
$4.4 million.
The Company's revenues, profitability, future growth, and ability to
borrow funds or obtain additional capital, and the carrying value of its
properties, substantially are dependent on prevailing prices of natural gas
and oil. The Company cannot predict future natural gas and oil price
movements with certainty. Declines in prices received for natural gas and
oil may have an adverse effect on the Company's financial condition,
liquidity, ability to finance capital expenditures, and results of
operations. Lower prices also may impact the amount of reserves that can
be produced economically by the Company.
The Company has experienced and expects to continue to experience
substantial working capital requirements due primarily to the Company's
active exploration and development programs. While the Company believes
that cash flow from operations and borrowings under the Company's credit
facility should allow the Company to implement its present business
strategy through 1998, additional financing may be required in the future
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to fund the Company's growth, development, and exploration program and
continued technological enhancement. In the event such capital resources
are not available to the Company, its exploration and other activities may
be curtailed.
EFFECTS OF INFLATION AND CHANGES IN PRICE
The Company's results of operations and cash flows are affected by
changing natural gas oil and prices. If the price of natural gas and oil
increases (decreases), there could be a corresponding increase (decrease)
in the operating cost that the Company is required to bear for operations,
as well as an increase (decrease) in revenues. Recent rates of inflation
have had a minimal effect on the Company.
ENVIRONMENTAL AND OTHER REGULATORY MATTERS
The Company's business is subject to certain federal, state, and local
laws and regulations relating to the exploration for, and the development,
production, and transportation of, natural gas and oil, as well as
environmental and safety matters. Many of these laws and regulations have
become more stringent in recent years. Although the Company believes it is
in substantial compliance with all applicable laws and regulations, the
requirements imposed by laws and regulations may change. The Company is
unable to predict the ultimate cost of compliance with these requirements.
Inability to meet environmental requirements could materially adversely
affect the Company's business, financial condition, and results of
operations. Compliance has not had a material adverse effect on the
earnings or competitive position of the Company to date. Future regulations
may add to the cost of, or limit, drilling activity.
COMPUTER MODIFICATIONS FOR YEAR 2000
The Company has assessed and will continue to assess the impact of the
Year 2000 issue on the Company's reporting systems and operations. The Year
2000 issue exists because many computer systems and applications abbreviate
dates by eliminating the first two digits of the year, assuming that these
two digits would always be "19." Unless corrected, this shortcut may
cause problems with some computers. To date no material expenditures had
been made by the Company directly with respect to the Year 2000 issue. The
Company estimates that approximately $10,000 will be incurred in 1998 and
1999 on Year 2000 issues. These costs have consisted and are expected to
consist primarily of personnel expense for staff dedicated to the effort and
professional fees paid to third party providers of remedial services.
The Company has a plan to address the Year 2000 issue and will continue
to assess the impact of the Year 2000 issue on the remainder of its computer-
ased systems and applications throughout 1998.
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<PAGE>
If the Company's plans are not successful, there could be a significant
disruption of the Company's ability to bill customers and pay suppliers, as
well as a possible slowdown of certain computer-dependent processes. Based
on currently available information, management does not presently anticipate
that the costs to address the Year 2000 issues or potential operating
disruptions will have an adverse impact on the Company's financial
conditions, results of operations or liquidity.
In addition to reviewing its own computer operating systems and
applications, the Company plans to initiate formal communications with its
significant suppliers and large customers to determine the extent to which
the Company's interface systems are vulnerable to those third parties'
failure to resolve their own Year 2000 issues. There is no assurance that
the systems of other companies on which the Company's systems rely will be
converted in a timely manner. If such modifications and conversions are not
made, or are not completed in a timely manner, the Year 2000 issue could have
an adverse impact on the operations of the Company.
The costs of the project are based on management's best estimates.
There can be no guarantee that these estimates will be achieved and actual
results could differ from those anticipated. Specific factors that might
cause differences include, but are not limited to, the ability of other
companies on which the Company's systems rely to modify or convert their
systems to be Year 2000 compliant, the ability to locate and correct all
relevant computer codes and similar uncertainties.
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<PAGE>
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
Following is information required by Item 701 of Regulation S-B as to
all equity securities of the registrant sold or issued by the registrant
from periods dating prior to and during the period covered by this report.
None of the following securities were registered under the Securities Act
of 1933.
As of January 5, 1998, Michael W. Mooney, Chief Operating Officer of
the Company, was issued 5,000 shares of unregistered Common Stock of the
Company as an incentive signing bonus in consideration for services
rendered pursuant to his Employment Agreement. The issuance of these
securities was exempt pursuant to Section 4(2) of the Securities Act of
1933 and Rule 701 promulgated thereunder.
Item 6. Exhibits and Reports on Form 8-K.
(a) EXHIBITS. The following document is filed as an exhibit to this
report on Form 10-QSB:
EXHIBIT NO. DOCUMENT
3.1 Third Amended and Restated Charter of the Registrant<F1>
3.2 Sixth Amended and Restated Bylaws of the Registrant<F2>
4.1 Specimen of Common Stock Certificate<F1>
4.2 Specimen of Redeemable Series A Common Stock Purchase Warrant
Certificate<F1>
4.3 Specimen of Underwriters' Warrant Certificate(l)
4.4 Charter (See Exhibit 3.1)
4.5 Bylaws (See Exhibit 3.2)
10.1 Energy Search Natural Gas 1995-A L.P. Limited Partnership
Agreement, dated December 31, 1995<F1>
10.2 Energy Search Natural Gas 1995-A L.P. Joint Drilling and
Operating Agreement, dated December 31, 1995<F1>
10.3 Energy Search Natural Gas 1996 L.P.-Limited Partnership
Agreement, dated June 10,1996<F1>
10.4 Energy Search Natural Gas 1996 L.P.-Joint Drilling and
Operating Agreement, dated June 10, 1996<F1>
10.5 ESI Pipeline Operating Partnership-Limited Partnership
Agreement, dated January 7, 1993<F1>
10.6 Energy Search Natural Gas Pipeline Income Partnership-Limited
Partnership Agreement, dated January 7, 1993<F1>
10.7 Gas Servicing Agreement between the Registrant and ESI
Pipeline Operating L.P., dated January 5, 1993<F1>
10.8 Selling Agreement-Class B Convertible Preferred Shares between
Registrant and Equity Financial Corporation, dated March 4,
1996<F1>
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10.9 Selling Agreement-Class A and Class B Preferred Shares between
Registrant and Equity Financial Corporation, dated March 4,
1996<F1>
10.10 Selling Agreement-Variable Rate Subordinated Debentures between
Registrant and Equity Financial Corporation, dated September
19, 1994<F1>
10.11 Aircraft Lease between Charles P. Torrey, Jr. and the
Registrant dated February 1, 1995<F1>
10.12 Beaver Coal Company Lease between Beaver Coal Company Limited
and the Registrant, dated September 15, 1996<F1>
10.13 Employment Agreements with officers and key employees of the
Registrant
(a) John M. Johnston<F1><F*>
(b) Robert L. Remine<F1><F*>
(c) Charles P. Torrey, Jr.<F1><F*>
(d) Richard S. Cooper<F1><F*>
(e) Michael W. Mooney<F2><F*>
10.14 Promissory Notes of Executive Officers in Favor of Registrant
(a) Charles P. Torrey, Jr.<F1>
(b) Robert L. Remine<F1>
(c) Richard S. Cooper <F1>
10.15 Stock Option Plan <F1><F*>
10.16 Outside Directors' Stock Option Plan <F1><F*>
10.17 Form of Lock-Up Agreement <F1>
27 Financial Data Schedule
[FN]
- -------------------------
<F*> Management contract or compensatory plan or arrangement.
<F1> Previously filed with the Company's Registration Statement on Form
SB-2 (Registration No. 333-12755) filed with the Securities and
Exchange Commission, and here incorporated by reference.
<F2> Previously filed with the Company's Form 10-K Annual Report for the
fiscal year end March 31, 1998, and here incorporated by reference.
</FN>
(b) REPORTS ON FORM 8-K. The Company did not file a Form 8-K
report during the three-month period ended March 31, 1998.
-17-
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the
registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
ENERGY SEARCH, INCORPORATED
By /s/Richard S. Cooper
Date: May 15, 1998 Richard S. Cooper, President
Date: May 15, 1998 By /s/Robert L. Remine
Robert L. Remine, Chief Financial
Officer
-18-
<PAGE> EXHIBIT INDEX
EXHIBIT NO. DOCUMENT
3.1 Third Amended and Restated Charter of the Registrant<F1>
3.2 Sixth Amended and Restated Bylaws of the Registrant<F2>
4.1 Specimen of Common Stock Certificate<F1>
4.2 Specimen of Redeemable Series A Common Stock Purchase Warrant
Certificate<F1>
4.3 Specimen of Underwriters' Warrant Certificate(l)
4.4 Charter (See Exhibit 3.1)
4.5 Bylaws (See Exhibit 3.2)
10.1 Energy Search Natural Gas 1995-A L.P. Limited Partnership
Agreement, dated December 31, 1995<F1>
10.2 Energy Search Natural Gas 1995-A L.P. Joint Drilling and
Operating Agreement, dated December 31, 1995<F1>
10.3 Energy Search Natural Gas 1996 L.P.-Limited Partnership
Agreement, dated June 10,1996<F1>
10.4 Energy Search Natural Gas 1996 L.P.-Joint Drilling and
Operating Agreement, dated June 10, 1996<F1>
10.5 ESI Pipeline Operating Partnership-Limited Partnership
Agreement, dated January 7, 1993<F1>
10.6 Energy Search Natural Gas Pipeline Income Partnership-Limited
Partnership Agreement, dated January 7, 1993<F1>
10.7 Gas Servicing Agreement between the Registrant and ESI
Pipeline Operating L.P., dated January 5, 1993<F1>
10.8 Selling Agreement-Class B Convertible Preferred Shares between
Registrant and Equity Financial Corporation, dated March 4,
1996<F1>
10.9 Selling Agreement-Class A and Class B Preferred Shares between
Registrant and Equity Financial Corporation, dated March 4,
1996<F1>
10.10 Selling Agreement-Variable Rate Subordinated Debentures between
Registrant and Equity Financial Corporation, dated September
19, 1994<F1>
10.11 Aircraft Lease between Charles P. Torrey, Jr. and the
Registrant dated February 1, 1995<F1>
10.12 Beaver Coal Company Lease between Beaver Coal Company Limited
and the Registrant, dated September 15, 1996<F1>
10.13 Employment Agreements with officers and key employees of the
Registrant
(a) John M. Johnston<F1><F*>
(b) Robert L. Remine<F1><F*>
(c) Charles P. Torrey, Jr.<F1><F*>
(d) Richard S. Cooper<F1><F*>
(e) Michael W. Mooney<F2><F*>
10.14 Promissory Notes of Executive Officers in Favor of Registrant
(a) Charles P. Torrey, Jr.<F1>
(b) Robert L. Remine<F1>
(c) Richard S. Cooper <F1>
<PAGE>
EXHIBIT NO. DOCUMENT
10.15 Stock Option Plan <F1><F*>
10.16 Outside Directors' Stock Option Plan <F1><F*>
10.17 Form of Lock-Up Agreement <F1>
27.1 Financial Data Schedule
[FN]
- -------------------------
<F*> Management contract or compensatory plan or arrangement.
<F1> Previously filed with the Company's Registration Statement on Form
SB-2 (Registration No. 333-12755) filed with the Securities and
Exchange Commission, and here incorporated by reference.
<F2> Previously filed with the Company's Form 10-K Annual Report for the
fiscal year end March 31, 1998, and here incorporated by reference.
</FN>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE FORM 10-QSB FOR ENERGY SEARCH, INCORPORATED AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 714,489
<SECURITIES> 0
<RECEIVABLES> 1,083,183
<ALLOWANCES> (172,431)
<INVENTORY> 59,461
<CURRENT-ASSETS> 1,466,251
<PP&E> 15,826,300
<DEPRECIATION> (3,683,510)
<TOTAL-ASSETS> 16,452,643
<CURRENT-LIABILITIES> 2,506,996
<BONDS> 130,120
<COMMON> 15,436,823
0
0
<OTHER-SE> (1,621,296)
<TOTAL-LIABILITY-AND-EQUITY> 16,452,643
<SALES> 647,074
<TOTAL-REVENUES> 843,887
<CGS> 18,719
<TOTAL-COSTS> 950,920
<OTHER-EXPENSES> 42,546
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 20,433
<INCOME-PRETAX> (170,012)
<INCOME-TAX> 50,300
<INCOME-CONTINUING> (119,712)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (119,712)
<EPS-PRIMARY> (.03)
<EPS-DILUTED> (.03)
</TABLE>
