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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2002
COMMISSION FILE NO. 0-20975
TENGASCO, INC. AND SUBSIDIARIES
-------------------------------
(EXACT NAME OF SMALL BUSINESS ISSUER AS SPECIFIED IN ITS CHARTER)
TENNESSEE 87-0267438
- ------------------------------ ---------------------------------
STATE OR OTHER JURISDICTION OF (IRS EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION
603 MAIN AVENUE, SUITE 500, KNOXVILLE, TN 37902
-----------------------------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(865-523-1124)
--------------
(ISSUER'S TELEPHONE NUMBER, INCLUDING AREA CODE)
CHECK WHETHER THE ISSUER (1) FILED ALL REPORTS REQUIRED TO BE FILED BY SECTION
13 OR 15(D) OF THE EXCHANGE ACT 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. YES X NO
STATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER'S CLASSES OF
COMMON EQUITY, AS OF THE LATEST PRACTICABLE DATE: 11,444,779 COMMON SHARES AT
JULY 31, 2002.
TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT (CHECK ONE): YES ___ NO _X_
1
TENGASCO, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION PAGE
ITEM 1. FINANCIAL STATEMENTS
* CONDENSED CONSOLIDATED BALANCE SHEETS AS OF
JUNE 30, 2002 AND DECEMBER 31, 2001 ................... 3-4
* Consolidated Statements of Loss for the three months
and six months ended June 30, 2002 and 2001 ........... 5
* Consolidated Statements of Stockholders' Equity
for the six months ended June 30, 2002 ................ 6
* Consolidated Statements of Cash Flows for the
six months ended June 30, 2002 and 2001 ............... 7
* Condensed Notes to Consolidated Financial Statements .. 8-12
ITEM 2. MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS ............................. 13-19
ITEM 3. QUANTITATIVE AND QUALITATIVE
DISCLOSURE ABOUT MARKET RISK .......................... 20-21
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS ..................................... 22
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS ............. 23
ITEM 3. DEFAULTS UPON SENIOR SECURITIES ....................... 23
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS ...................................... 23-24
ITEM 5. OTHER INFORMATION ..................................... 24
* SIGNATURES ............................................ 25
2
TENGASCO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
June 30, December 31,
2002 2001
(Unaudited)
----------- -----------
Current Assets:
Cash and cash equivalents $ 101,085 $ 393,451
Investments 75,000 150,000
Accounts receivable, net 685,529 661,475
Participant receivable 118,087 84,097
Inventory 159,364 159,364
----------- -----------
Total current assets 1,139,065 1,448,387
Oil and gas properties, net
(on the basis of full cost accounting) 13,789,957 13,269,930
Completed pipeline facilities, net 15,135,344 15,039,762
Property and equipment, net 1,814,460 1,680,104
Restricted cash 75,017 120,872
Loan fees, net 410,216 496,577
Other 94,721 72,613
----------- -----------
$32,458,780 $32,128,245
=========== ===========
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3
TENGASCO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
June 30, December 31,
2002 2001
(Unaudited)
----------- -----------
Current liabilities
Current maturities of long-term debt $ 5,944,112 $ 6,399,831
Loan payable to Officer 110,000 --
Accounts payable-trade 1,181,919 1,208,164
Accrued interest payable 48,313 54,138
Accrued dividends payable 125,993 112,458
----------- -----------
Total current liabilities 7,410,337 7,774,591
Long term debt, less current maturities 3,878,224 3,902,757
----------- -----------
Total long term debt 3,878,224 3,902,757
----------- -----------
Total liabilities 11,288,561 11,677,348
----------- -----------
Preferred Stock
Cumulative convertible redeemable preferred;
redemption value $7,072,000 and $5,622,900;
70,720 and 56,229shares outstanding;
respectively 6,787,218 5,459,050
----------- -----------
Stockholders' Equity
Common stock, $.001 per value,
50,000,000 shares authorized 10,810 10,561
Additional paid-in capital 40,672,925 39,242,555
Accumulated deficit (26,079,847) (24,115,382)
Accumulated other comprehensive loss (75,000) --
Treasury stock, at cost (145,887) (145,887)
----------- -----------
Total stockholders' equity 14,383,001 14,991,847
----------- -----------
$32,458,780 $32,128,245
=========== ===========
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4
TENGASCO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF LOSS
For the Three Months Ended For the Six Months Ended
June 30, June 30,
----------------------------- -----------------------------
2002 2001 2002 2001
------------ ------------ ------------ ------------
Revenues and other income
Oil and gas revenues $ 1,233,473 $ 1,785,280 $ 2,408,917 $ 3,214,111
Pipeline transportation revenues 63,538 67,025 141,245 67,025
Interest income 657 10,763 1,695 30,250
------------ ------------ ------------
Total revenues and other income 1,297,668 1,863,068 2,551,857 3,311,386
Costs and other deductions
Production costs and taxes 545,505 619,095 1,269,304 1,350,930
Depletion, depreciation and amortization 487,348 170,957 974,696 268,457
Interest expense 148,297 251,090 301,664 329,014
General and administrative costs 646,168 1,050,245 1,286,398 1,804,307
Professional fees 328,547 107,715 445,860 263,480
------------ ------------ ------------ ------------
Total costs and other deductions 2,155,865 2,199,102 4,277,922 4,016,188
------------ ------------ ------------ ------------
Net loss (858,197) (336,034) (1,726,065) (704,802)
------------ ------------ ------------ ------------
Dividends on preferred stock 125,942 87,489 238,400 166,267
------------ ------------ ------------ ------------
Net loss attributable to common shareholders $ (984,139) $ (423,523) $ (1,964,465) $ (871,069)
------------ ------------ ------------ ------------
Net loss attributable to common shareholders
Per share basic and diluted $ (0.09) $ (0.04) $ (0.18) (0.09)
------------ ------------ ------------ ------------
Weighted average shares outstanding 10,784,847 10,172,187 10,714,087 10,030,176
------------ ------------ ------------ ------------
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5
TENGASCO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(UNAUDITED)
Accumulated
Common Stock Other
-------------------- Additional Compre- Treasury Stock
Paid in hensive Accumulated Comprehensive ------------------
Shares Amount Capital Loss Deficit Loss Shares Amount Total
---------- ------- ----------- -------- ------------ ----------- ------ --------- -----------
Balance
December 31, 2001 10,560,605 $10,561 $39,242,555 $(24,115,382) 14,500 $(145,887) $14,991,847
Net Loss 0 0 0 (1,726,065) 0 0 (1,726,065)
Comprehensive Loss
Net Loss $(1,726,065)
Other
Comprehensive
Loss
Net Market
Valuation
Adjustment on
Securities $(75,000) (75,000) (75,000)
Available
for Sale
-----------
Comprehensive Loss (1,801,065)
===========
Common Stock Issued in
Private Placements 200,000 200 1,111,799 0 0 0 1,111,999
Common Stock Issued in
Conversion of Debt 20,592 20 119,980 0 0 0 120,000
Common Stock Issued on
Purchase of Equipment 19,582 20 149,980 0 0 0 150,000
Common Stock Issued
for Services 8,500 9 48,611 48,620
Dividends on
Convertible Redeemable
Preferred Stock 0 0 0 (238,400) 0 0 (238,400)
---------------------------------------------------------- ---------------------------------------------
Net loss for the
six months ended
June 30, 2002 10,809,279 $10,810 $40,672,925 $(75,000) $(26,079,847) 14,500 $(145,887) $14,383,001
========================================================== =============================================
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6
TENGASCO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six For the Six
Months Ended Months Ended
June 30, June 30,
2002 2001
(Unaudited) (Unaudited)
----------- -----------
Operating activities
Net loss $(1,726,065) $ (704,802)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depletion, depreciation and amortization 974,696 268,457
Compensation paid in stock options and common stock 48,621 55,200
Changes in assets and liabilities
Accounts receivable (58,044) (367,082)
Other current assets 0 (59,223)
Accounts payable (26,245) (164,693)
Accrued liabilities 0 (2,067)
Accrued interest payable (5,825) 301,596
Accrued dividends payable 13,535 8,711
----------- -----------
Net cash used in operating activities (779,327) (663,903)
----------- -----------
Investing activities
Additions to property and equipment (118,356) (130,554)
Net additions to oil and gas properties (1,020,026) (2,064,812)
Net additions to pipeline facilities (349,918) (3,436,777)
Decrease in restricted cash 45,855 0
Other assets (22,108) 41,888
----------- -----------
Net cash used in investing activities (1,464,553) (5,590,255)
----------- -----------
Financing activities
Repayments of borrowings (1,268,608) (667,816)
Proceeds from borrowings 1,018,356 1,000,000
Dividends on convertible redeemable
preferred stock (238,400) (166,267)
Proceeds from private placements
of common stock 1,111,998 4,460,766
Proceeds from private placements
of preferred stock 1,328,168 1,755,000
----------- -----------
Net cash provided by financing activities 1,951,514 6,381,683
----------- -----------
Net change in cash and cash equivalents (292,366) 127,525
Cash and cash equivalents, beginning of period 393,451 1,603,975
----------- -----------
Cash and cash equivalents, end of period $ 101,085 $ 1,731,500
=========== ===========
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7
TENGASCO, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Item 210 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of only normal recurring accruals) considered necessary for a fair presentation
have been included. Operating results for the three months or the six months
ended June 30, 2002 are not necessarily indicative of the results that may be
expected for the year ended December 31, 2002. For further information, refer to
the Company's consolidated financial statements and footnotes thereto for the
year ended December 31, 2002, included in the Company's annual report on Form
10-K.
(2) GOING CONCERN UNCERTAINTY
The accompanying condensed consolidated financial statements have been
prepared in conformity with accounting principles generally accepted in the
United States of America, which contemplate continuation of the Company as a
going concern which assumes realization of assets and the satisfaction of
liabilities in the normal course of business. The Company continues to be in the
early stages of its oil and gas related operating history as it endeavors to
expand its operations through the continuation of its drilling program in the
Tennessee Swan Creek Field. Accordingly, the Company has incurred continuous
losses through these operating stages and has an accumulated deficit of
$26,079,847 and a working capital deficit of $6,271,272 as of June 30, 2002. On
April 5, 2002, the Company was informed by its primary lender that $6,000,000 of
its outstanding credit facility was due and payable within 30 days, as provided
for in the Credit Agreement between the Company and its lender. These
circumstances raise substantial doubt about the Company's ability to continue as
a going concern.
The Company has disputed its obligation to make this payment under the
terms of the Credit Agreement. On May 2, 2002, the Company filed suit in Federal
Court to restrain Bank One from taking further action under the terms of the
Credit Agreement. The Company is attempting to obtain alternative financing to
replace Bank One. There can be no assurance that the Company will be successful
in its plans to obtain the financing necessary to satisfy their current
obligations. The Company has deferred loan costs relative to the Bank One credit
facility which it is amortizing over the 36 month term of the loan. If this
credit facility is terminated, the unamortized balance of deferred loan fees of
$410,216 at June 30, 2002 would be immediately expensed.
The Company is reducing this loan by $200,000 per month plus interest
which the Company contends is its correct obligation to Bank One pursuant to the
Credit Agreement.
8
(3) SALES OF EQUIPMENT
During the third quarter of 2001, the Company sold two fully
depreciated compressors to Miller Petroleum, Inc. ("Miller"), a joint venturer
with the Company, for $150,000. In exchange for this equipment, the Company
agreed to accept 150,000 shares of Miller's stock which had an approximate fair
value of $1 per share.
These investment securities are considered available-for-sale and are
reported at their fair value, with unrealized gains and losses reported as a
separate component of stockholders' equity. At December 31, 2001, the cost and
fair value of available-for-sale securities was $150,000. At June 30, 2002, the
fair value of these available-for-sale securities was $75,000. The related
unrealized loss of $75,000 during the three months ended June 30, 2002, has been
reflected in the accompanying Statement of Stockholders' Equity.
(4) EARNINGS PER SHARE
In accordance with SFAS No. 128, "Earnings Per Share", basic and
diluted loss per share are based on 10,784,847 and 10,172,187 weighted average
shares outstanding for the quarters ended June 30, 2002 and 2001, respectively.
Basic and diluted loss per share are based on 10,714,087 and 10,030,176 weighted
average shares outstanding for the first six months ended June 30, 2002 and
2001, respectively. The June 30, 2001 figures have been retroactively adjusted
to reflect the 5% stock dividend declared as of September 4, 2001 which was
distributed on October 1, 2001. During the three month and six month periods
ended June 30, 2002, potential weighted average stock equivalent outstanding
were approximately 1,102,000 during both periods. Potential weighted average
common shares outstanding for the three month and six month periods ended June
30, 2001 were 1,490,000 and 1,506,000, respectively. These shares are not
included in the computation of the diluted loss per share amount because the
Company was in a net loss position and their effect would have been
antidilutive.
(5) NEW ACCOUNTING PRONOUNCEMENTS:
In July 2001, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standard (SFAS) No. 141, "Business
Combinations" and SFAS No. 142, " Goodwill and Other Intangible Assets". SFAS
No. 141 addresses the initial recognition and measurement of goodwill and other
intangible assets acquired in a business combination and SFAS No. 142 addresses
the initial recognition and measurement of intangible assets acquired outside of
a business combination whether acquired individually or with a group of other
assets. These standards require all future business combinations to be accounted
for using the purchase method of accounting. Goodwill will no longer be
amortized but instead will be subject to impairment tests at least annually. The
Company would have been required to adopt SFAS No. 141 on July 1, 2001, and SFAS
142 on a prospective basis as of January 1, 2002. The Company has not effected a
business combination and carries no goodwill on its balance sheet; accordingly,
the adoption of these standards did not have an effect on the Company's
financial position or results of operations.
In June 2001, the Financial Accounting Standards Board approved the
issuance of SFAS No. 143, "Accounting for Asset Retirement Obligations." SFAS
143 establishes accounting standards for the recognition and measurement of
legal obligations associated with the retirement of
9
tangible long-lived assets and requires recognition of a liability for an asset
retirement obligation in the period in which it is incurred. The provisions of
this statement are effective for financial statements issued for fiscal years
beginning after June 15, 2002. The adoption of this statement is not expected to
have a material impact on the Company's financial position or results of
operations.
SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived
Assets, addresses accounting and reporting for the impairment or disposal of
long-lived assets. SFAS No. 144 supersedes SFAS No 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of".
SFAS No. 144 establishes a single accounting model for long-lived assets to be
disposed of by sale and expands on the guidance provided by SFAS No. 121 with
respect to cash flow estimations. SFAS No. 144 becomes effective for the
Company's fiscal year beginning January 1, 2002. The adoption of this statement
is not expected to have a material impact on the Company's financial position or
results of operations.
In April 2002, the FASB issued Statement of Financial Accounting
Standards No. 145, "Recision of No. 4, 44, 64, Amendment of SFAS No. 13, and
Technical Correction." SFAS No. 4 which was amended by SFAS No. 64 required all
gains and losses from the extinguishment of debt to be aggregated and if
material classified in an extraordinary item net of related income tax effect.
As a result, the criteria in Opinion 30 will now be used to classify those gains
and losses. SFAS No. 13 was amended to eliminate an inconsistency between the
required accounting for sale-leaseback transactions and the required accounting
for certain lease modifications that have economic effects that are similar to
sale-leaseback transactions. The adoption of SFAS No. 145 will not have a
current impact on the Company's consolidated financial statements.
In July 2002, The Financial Accounting Standards Board (FASB) issued
No. 146, Accounting for Costs Associated with Exit or Disposal Activities. The
standard requires companies to recognize costs associated with exit or disposal
activities when they are incurred rather than at the date of commitment to an
exit or disposal plan. Examples of costs covered by the standard include lease
termination costs and certain employee severance costs that are associated with
restructuring, discontinued operation, plant closing, or other exit or disposal
activity. Previous accounting guidance was provided by EITF Issue No. 94-3,
"Liability Recognition for Certain Employee Termination Benefits and Other Costs
to Exit an Activity (including Certain Costs Incurred in a Restructuring)."
Statement 146 replaces Issue 94-3.
Statement 146 is to be applied prospectively to exit or disposal
activities initiated after December 31, 2002. The Company does not currently
have any plans for exit or disposal activities, and therefore does not expect
this standard to have a material effect on the Company's consolidated financial
statements upon adoption.
(6) STOCK OPTIONS
For the six months ended June 30, 2002, no stock options were issued
or exercised. During the six months ended June 30, 2001, the Company extended
the exercise period of one employee's stock option who was retiring resulting in
recorded compensation of $55,200.
10
(7) LETTER OF CREDIT AGREEMENT
On November 8, 2001, the Company signed a credit facility with the
Energy Finance Division of Bank One, N.A. in Houston, Texas whereby Bank One
extended to the Company a revolving line of credit of up to $35 million. The
initial borrowing base under the facility was $10 million. The interest rate is
the Bank One base rate plus one-quarter percent which at the present time is
5.25%.
On November 9, 2001, funds from this credit line were used to (1)
refinance existing indebtedness on the Company's Kansas properties
($1,427,309.25); (2) to repay the internal financing provided by directors and
shareholders on the Company's recently completed 65-mile Tennessee intrastate
pipeline system ($3,895,490.83); (3) to repay a note payable to Spoonbill, Inc.
($1,080,833.34); (4) to repay a purchase money note due to M.E. Ratliff, the
Company's chief executive officer, for purchase by the Company of a drilling rig
and related equipment in the amount of ($1,003,844.44); and (5) to repay in full
the remaining principal of the working capital loan due December 31, 2001 to
Edward W.T. Gray III, who at that time was a director of the Company, in the
amount $304,444.44. All of these obligations incurred interest at a rate
substantially greater than the rate being charged by Bank One under the credit
facility.
On April 5, 2002, the Company received a notice from Bank One stating
that it had redetermined and reduced the borrowing base under the Credit
Agreement by $6,000,000 to $3,101,766. Bank One demanded that the Company pay
the $6,000,000 within thirty days of the notice. The Company has filed a lawsuit
in Federal Court to prevent Bank One from exercising any rights under the Credit
Agreement. No further developments have occurred since the filing of the
lawsuit. (See Note 2)
(8) SALES OF PREFERRED STOCK:
During the three months ended June 30, 2002, the Company sold 14,491
shares of its Series C 6% Cumulative Convertible Redeemable Preferred Stock $100
Par Value ("Series C Shares") pursuant to a private placement offering which
terminated on July 15, 2002. Net proceeds of the offering, after issuance costs,
totaled $1,328,168.
(9) SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
During the six months ended June 30, 2002, the Company converted debt
of $120,000 into 20,592 shares of common stock. Additionally, during this
period, the Company acquired equipment with a fair market value of $150,000
through an exchange of 19,582 shares of common stock.
Cash paid for interest during the six months ended June 30, 2002 and
2001 was approximately $253,351 and $274,876 respectively.
The Company issued 8,500 shares for payment of public relations work
performed in the amount of $48,620.
11
(10) LOAN PAYABLE TO RELATED PARTY
During the second quarter of 2002, the Company received a short term
loan from an officer of the Company to fund operating cash deficiencies. No
interest was charged on the loan, and the balance of $110,000 was repaid in July
2002.
12
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS AND FINANCIAL CONDITIONS
KANSAS
During the second quarter of 2002, the Company produced and sold
36,318 barrels of oil and 69,884 Mcf of natural gas from its Kansas Properties
comprised of 149 producing oil wells and 59 producing gas wells. April
production was 11,661 barrels of oil and 24,422 Mcf of gas. May production was
11,869 barrels and 20,754 Mcf. June production was 12,788 barrels and 24,708 Mcf
of gas. The second quarter production of oil of 36,318 barrels compares to
35,806 barrels produced in the first quarter of 2002. The second quarter
production of 69,884 Mcf of gas compares to 76,899 Mcf produced in the first
quarter. In summary, the second quarter production reflected expected stable
production levels as compared to first quarter production from these properties
that have been in production for many years.
TENNESSEE
During the second quarter of 2002, the Company produced gas from 25
wells in the Swan Creek field which it sold to its two industrial customers in
Kingsport, Tennessee, BAE SYSTEMS Ordnance Systems Inc. as operator of the
Holston Army Ammunition Plant ("BAE") and Eastman Chemical Company ("Eastman").
Declines in production in the Swan Creek Field experienced in the last
quarter of 2001 and the first quarter of 2002 began to stabilize in March 2002
at approximately 2.5 million cubic feet per day as additional work and repairs
to eliminate fluid problems in the wells which had obstructed and significantly
reduced the flow of gas were completed. Although the Company was capable of
continuing to deliver this amount of gas on a daily basis, volumes of gas sold
to BAE and Eastman in the second quarter declined in the first part of the
quarter primarily due to factors beyond the Company's control. First, for three
weeks in April 2002 and the first week of May 2002, BAE did not purchase any gas
from the Company due to its own internal production scheduling and in order to
allow it to connect additional gas burning facilities to its operations. Second,
the Company was unable to schedule delivery of the volumes of gas it would
ordinarily sell to BAE on such short notice to its other customers, including
Eastman. As a result of these factors, daily average production sold to Eastman
and BAE in the second quarter ranged from approximately 1,872 MCF per day in
April 2002 to 2,552 MCF per day in June 2002. However, by the end of the
quarter, the volumes of gas being sold by the Company to BAE and Eastman were
virtually the same as had been sold in March, 2002. Actual volumes of gas
produced during the quarter were 58,320 Mcf in April, 68,937 Mcf in May and
76,589 Mcf in June.
Similarly, for a period from June 28, 2002 through July 29, 2002, the
Company's other industrial customer, Eastman, temporarily ceased its purchases
from the Company because the Company was delivering most of its then available
volumes to supply BAE's newly increased requirements. The Company was unable to
sell all volumes of gas exceeding BAE's increased requirements to Eastman,
although the Company was able to produce these volumes, because Eastman requires
a minimum for its meters that available volumes did not exceed, and a uniform
rate
13
of delivery that taking short term volumes would interrupt. During the time
Eastman was not purchasing gas from the Company, BAE purchased these additional
volumes until BAE experienced a partial equipment outage on July 15, 2002 and
reduced its purchased volumes. As a result of these occurrences which were not
within the control of the Company, the Company's sales volume to BAE and Eastman
in July, 2002 was 42,382 Mcf or an average of 1,367 Mcf per day. Eastman
recommenced its purchases of gas from the Company on July 29, 2002. The Company
has utilized these respective periods of temporary reduction of sales volumes to
add additional metering and regulating facilities to the pipeline facilities at
BAE SYSTEMS. Together with the existing metering and regulating facilities at
Eastman, the Company anticipates that it will now be able to more rapidly adjust
the delivered quantities between its industrial customers in order to assure
that the gas deliverable on a daily basis from the Swan Creek Field may be in
fact delivered to at least one of its customers despite temporary short-term
fluctuations in the other customer's requirements. This capability will have the
additional beneficial effect of more effectively stabilizing the production
rates from the Company's gas wells. The Company is presently delivering gas to
both BAE and Eastman at the full current deliverability from the Swan Creek
field and expects daily deliveries to continue at full production rates with
minor, if any, future interruptions as a result of fluctuation in one customer's
usage requirements.
During the second quarter, the Company commenced drilling three new
wells in the Swan Creek field to increase production capability and
deliverability to BAE and Eastman.
The Company has completed redrilling of the Colson No. 2 well to
deepen it and recomplete it as a gas well. This well was perforated on April 26,
2002 and exhibited a 1350psi bottom hole pressure. This well was brought into
production gradually to maximize the amount of gas that can be produced from the
well, and is producing between 300,000 and 500,000 cubic feet of gas per day as
expected upon being placed into full production.
The Company has drilled the Paul Reed No. 8 well in the Swan Creek
field. On July 1, 2002, this well was drilled to a depth of 4600 feet and
although gas was present, based on information acquired during drilling, the
Company determined that it was more economical to complete this well as an oil
well in the Murfreesboro and Stone River formations at a depth of 2500-3200
feet. The Company is in the final stages of completing the well and thereafter
determining the level of expected oil production.
The Company has drilled the Paul Reed No. 9 well in the Swan Creek
field to a total depth of 4860 feet and completed the well as a gas well. The
well will be connected to the Company's pipeline in August, 2002 and is expected
to produce approximately 400,000 cubic feet of gas per day.
The Company hopes to drill several more new wells within the Knox
formation in the Swan Creek field. Because the Knox formation has been defined
by the accumulation of data from the previously drilled wells, new locations and
new wells are expected to contribute significantly to achieving increases to
production totals. The Company is hopeful that production from these new wells
will be in line with the production from its best existing wells in the Swan
Creek Field and will have a noticeable effect on increasing the total production
from the Field. Although no assurances can be made, the Company believes that,
once this work is completed and the new wells are drilled, production from the
Swan Creek Field will substantially increase by the end of 2002. Although the
14
Company is continuing with its drilling program, the Company currently does not
have sufficient funds to complete its drilling program. The Company is
attempting to obtain financing to complete the drilling program and believes it
will be able to do so, however, there is no guarantee that the Company will be
able to do so.
The wildcat well drilled by the Company in Cocke County, Tennessee, 40
miles southeast of its producing Swan Creek oil and gas field in Hancock County
in a joint venture with Southeast Gas & Oil Corp., Newport, Tennessee reached
its target depth of 3690 feet on June 30, 2002 but failed to encounter
hydrocarbons in commercial quantities. However, indications of the presence of
oil and gas in noncommercial quantities were found, and the Company may consider
additional exploration activities in the area based on the information acquired
from the drilling of this well.
The Company also intends to commence drilling in other formations in
its Swan Creek Field. To date, drilling in the Swan Creek Field has focused on
production of gas primarily from the Knox formation. This is a lower Ordovician
Dolomite, and the heart of the anticline structure at Swan Creek. However,
immediately adjacent to this formation and shallower over these formations are
other formations which the Company believes have potential for gas production.
The Stones River and Trenton formations hold the possibility for both oil and
gas and have produced some gas to date. These Upper Ordovician formations have
not been a primary target for gas production, but the shallower depths needed
for drilling and the moderate gas production might make a potential significant
source for additional gas production. With the completion of only one well in
the Trenton formation which is producing approximately 100 Mcf per day, the
impact of these targets is has not yet been defined. The Company also plans to
drill a 12,000 to 15,000 feet deep test well in the Company's Swan Creek field,
which the Company believes may have high potential for significant additional
volumes of natural gas. The current wells in this field are all approximately
5,000 feet deep. Although the Company had expected to commence drilling on or
before December 31, 2002, the Company now anticipates that drilling will be
postponed until additional funds become available and the dispute between the
Company and its primary lender Bank One are resolved. See Liquidity and Capital
Resources, below.
COMPARISON OF THE QUARTERS ENDING JUNE 30, 2002 AND 2001
The Company recognized $1,233,473 in oil and gas revenues from its
Kansas Properties and the Swan Creek Field during the second quarter of 2002
compared to $1,785,280 in the second quarter of 2001. The decrease in revenues
was due to the following reasons: Swan Creek Field gas prices in the second
quarter of 2001 averaged $4.36 per Mcf and only $3.39 per Mcf in the second
quarter of 2002. Production was approximately the same during the quarters
ending June 30, 2002 and 2001. The Swan Creek Field produced 192,960 Mcf and
212,401 Mcf in the second quarter of 2002 and 2001, respectively. The price
decrease also affected Kansas gas sales. In total gas sales decreased for both
Kansas and Swan Creek Field by approximately $400,000. Swan Creek oil production
decreased from 6,667 Bbls in the second quarter of 2001 to 600 Bbls in 2002.
This was due to the Company's best oil wells being shut-in during the quarter
while the Company was in the process of performing well work-overs. This
resulted in an additional decrease in revenues of approximately $112,000.
Revenues during this period were affected by losses on hedging activities
totaling $120,000 during the three months ended June 30, 2002.
15
The Company realized a net loss attributable to common shareholders of
$984,139 ($0.09 per share of common stock) during this period compared to a net
loss in the second quarter of 2001 to common shareholders of $423,523 ($0.04 per
share of common stock).
Production costs and taxes in the second quarter of 2002 of $545,505
were lower when compared to $619,095 in the second quarter of 2001. The decrease
is due primarily to lower maintenance costs in the Kansas operations, as only
necessary maintenance procedures were performed.
Depreciation, Depletion, and Amortization expense for the second
quarter of 2002 was $487,348 compared to $170,957 in the second quarter of 2001.
This increase is primarily due to significant increases in depletion expense
during the second quarter of 2002 ($250,000) as a result of decreases in reserve
estimates on oil and gas properties arising from declining commodity prices and
certain of the Company's gas wells had decreased production levels at year-end
due to problems encountered with liquids in the wells. This decreased production
level at year-end was factored into the estimated future proved reserves
calculation performed on December 31, 2001, resulting in a lower future proved
reserve estimate. The December 31, 2001 Ryder Scott reserve report was used as a
basis for the 2002 estimate. The Company reviews its depletion analysis and
industry oil and gas prices on a quarterly basis to ensure that the depletion
estimate is reasonable. Additionally, the Company took depreciation on its
pipeline in the second quarter of 2002 of $127,168, while in the second quarter
of 2001 the depreciation was only $63,584 as the Company only used one-half year
depreciation in the first year of service. The Company also amortized $43,180 of
loan fees relating to the Bank One note.
Interest expense for the second quarter of 2002 was $148,297 as
compared to $251,090 in the second quarter of 2001. This decrease is due to
reduced interest rates on the Bank One debt compared to the interest rates on
debt associated with financing for the completion of Phase II of the Company's
65-mile pipeline.
During the second quarter the Company has reduced its general and
administrative costs significantly from 2001. Management has made an effort to
control costs in every aspect of its operation. Some of these cost reductions
included the closing of the New York office and a reduction in personnel from
2001 levels. The second quarter of 2001 was higher than usual due to public
relations cost associated with producing the Company's annual report, proxy
statement and press releases. The Company also incurred a compensation
adjustment of $55,200 in the second quarter of 2001 resulting from the extension
of the exercise period for options granted to an employee.
Professional fees have increased dramatically due to cost incurred for
legal and accounting services as a result of the Bank One lawsuit. Recovery of
these fees will be included as part of Tengasco's lawsuit against Bank One.
Dividends on preferred stock have increased from $87,489 in 2001 to
$125,942 in 2002 as a result of the increase in the amount of preferred stock
outstanding from new private placements occurring during the second quarter of
2002. Additionally, the Series B private placement was not outstanding during
the entire second quarter of 2001.
16
COMPARISON OF THE SIX MONTH PERIODS ENDING JUNE 30, 2002 AND 2001
The Company recognized $2,408,917 in oil and gas revenues from the
Kansas and Swan Creek oil and gas fields during the six months ended June 30,
2002 compared to $3,214,111 for the six months ended June 30, 2001. This
$805,194 decrease in revenues was due to the following reasons: Kansas gas sales
decreased approximately $490,000 due to price decreases in the first six months
of 2002. Gas production volumes in Kansas remained constant as 146,783 Mcf were
produced in 2002 compared to 157,710 Mcf in 2001. Also oil revenues in Kansas
decreased by approximately $170,000 due to price decreases, whereas the volumes
remained consistent. The Kansas oil field produced 78,256 Bbls of oil in 2001 as
compared to 72,124 in 2002. The third reason for the decrease in revenues was
due to a decrease in Swan Creek oil production from 20,582 Bbls in 2001 to 5,063
Bbls in 2002. This resulted in approximately a $290,000 decrease in oil sales.
The decrease in production was because the Company was in the process of
performing well work-overs on its best wells in Swan Creek. During the first six
months of 2002, the Company produced 408,593 Mcf of gas from its Swan Creek
Field as compared to 212,401 Mcf in 2001, which partially offset the decrease in
revenues. The increase in production from the previous year is attributable to
production not beginning until April 2001, when the pipeline was completed.
Revenues were also affected by losses on hedging activities totaling
approximately $160,000 during the six month period ended June 30, 2002.
The Company incurred a net loss attributable to holders of common
stock of $1,964,465 ($0.18 per share) in the first six months of 2002 compared
to a net loss of $871,069 ($0.09 per share) in 2001.
Depletion, Depreciation and Amortization costs have dramatically
increased from $268,457 in 2001 to $974,696 in 2002 due to depreciation on the
pipeline and an increase in the depletion estimate as explained in the three
month comparison. The Company also amortized $86,360 of loan fees relating to
the Bank One note.
Interest costs for 2002 decreased slightly from 2001 levels, due to
reduced interest rates with Bank One. However, interest costs of approximately
$148,000 were capitalized in the first three months of 2001 during construction
of the pipeline which resulted in lower interest expenses during that period.
General and Administrative Costs have been reduced significantly from
2001 levels as the Company has made an effort to control levels as explained in
the three month comparison.
Professional fees have increased dramatically due to cost incurred for
legal and accounting services as a result of the Bank One lawsuit. These fees
will be included as part of Tengasco's lawsuit against Bank One.
Dividends on preferred stock has increased from $166,267 in 2001 to
$238,400 in 2002 as a result of the increase in the amount of preferred stock
outstanding.
17
LIQUIDITY AND CAPITAL RESOURCES
On November 8, 2001, the Company signed a credit facility agreement
(the "Credit Agreement") with the Energy Finance Division of Bank One, N.A. in
Houston Texas ("Bank One") whereby Bank One extended to the Company a revolving
line of credit of up to $35 million. The initial borrowing base under the Credit
Agreement was $10 million. As of March 31, 2002 the outstanding principal
balance of the loan was $9,301,776.66. A payment was made on April 1, 2002 to
reduce the outstanding balance to $9,101,776.66.
On or about April 5, 2002, the Company received a notice from Bank One
stating that it had redetermined and reduced the borrowing base under the Credit
Agreement to $3,101,776.66 and required a $6 million reduction of the
outstanding loan. The notice did not provide any explanation why the reduction
was made or as to how the reduction was calculated. Bank One demanded that the
Company pay the $6 million within thirty days of the receipt of the notice.
It is the position of the Company that pursuant to the terms of the
Credit Agreement Bank One had no right to redetermine the borrowing base until
it received a December 1, 2002 reserve analysis, and then only if the value of
the reserves was inadequate after applying the same guideline used with all of
its other oil and gas borrowers. The schedule of reserve reports required by the
Credit Agreement upon which such re-determinations are to be based also
specifically sets up a procedure involving an automatic monthly principal
payment of $200,000 commencing February 1, 2002. The Company has remained
current in payments of this monthly reduction through August 1, 2002. As of June
30, 2002, the outstanding balance was $8,701,776.66.
As a result of Bank One's unexpected reduction of the borrowing base
and the corresponding demand for payment of $6 million, combined with the fact
that the Company is still in the early stages of its oil and gas operating
history during which time it has had a history of losses from operations and has
an accumulated deficit of $25,095,708 and a working capital deficit of
$6,507,649 as of March 31, 2002, the Company's ability to continue as a going
concern would be uncertain. The Company's independent auditors indicated this
going concern uncertainty in their report on the audit of the Company's
consolidated financial statements for the year ended December 31, 2001. The
Company's ability to continue as a going concern depends upon its ability to
obtain long-term debt or raise capital and satisfy its cash flow requirements.
On May 2, 2002, the Company filed suit in Federal Court in the Eastern
District of Tennessee, Northeastern Division at Greeneville, Tennessee to
restrain Bank One from taking any steps pursuant to its Credit Agreement with
the Company to enforce its demand that the Company reduce its loan obligation or
else be deemed in default and for damages resulting from the wrongful demand. It
is the position of the Company that Bank One's demand that the Company reduce
its loan from $9,101,776.66 to $3,101,776.66 within thirty days, coming as it
does only four months after the loan was made, in the absence of any change in
the Company's production of oil and gas from the time the loan was closed or the
condition of the Company's assets, without any warning and prior to the receipt
of the December 2002 reserve report, without any basis or explanation, is a
violation of the terms of the Credit Agreement and an act of bad faith. The
Company is seeking a jury trial and actual damages sustained by it as a result
of this
18
arbitrary, wrongful demand, in the amount of $51,000,000 plus punitive damages
in the amount of $100 million.
On July 1, 2002, Bank One filed its answer and counterclaim, alleging
that its actions were proper under the terms of the Credit Agreement, and in the
counterclaim, seeking to recover all amounts it alleges to be owed under the
Credit Agreement, including principal, accrued interest, expenses and attorney's
fees in the approximate amount of $9 million. Bank One did not contest the
jurisdiction or venue of the Tennessee federal court in which the case was
filed.
The Company and Bank One have engaged in efforts to reach an agreed
upon resolution of the matters raised in the lawsuit filed by the Company but to
date no agreement has been reached and therefore the filed litigation is being
actively pursued. The Company has not, however, terminated the possibility of
additional discussion and would consider a satisfactory agreed upon resolution
of the matter. Initial disclosures are being made and depositions are expected
to commence by late summer of 2002. No hearings have occurred or been scheduled
in the court proceeding. The Company has filed initial written discovery
requests from Bank One. No trial date has been set.
On April 26, 2002, the Board of Directors authorized the issuance by
private placement offering of a new series of preferred stock, Series C 6%
Cumulative Convertible Preferred Stock ("Series C Shares") in a minimum amount
of $1 million and a maximum amount of $5 million. During the second quarter
14,491 Series C Shares were sold raising $1,449,100. The net revenues to the
Company from the offering, after issuance costs, were $1,328,168. The offering
was closed on July 15, 2002. The capital raised from the offering is being used
to provide funds to pay for reworking of wells, to continue the drilling program
in the Swan Creek Field to increase production, and to provide working capital.
19
ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISKS
COMMODITY RISK
The Company's major market risk exposure is in the pricing applicable
to its oil and gas production. Realized pricing is primarily driven by the
prevailing worldwide price for crude oil and spot prices applicable to natural
gas production. Historically, prices received for oil and gas production have
been volatile and unpredictable and price volatility is expected to continue.
Monthly oil price realizations for the first six months of 2002 ranged from a
low of $15.20 per barrel to high of $24.77 per barrel. Gas price realizations
ranged from a monthly low of $1.91 per Mcf to a monthly high of $3.40 per Mcf
during the same period.
As required by its Credit Agreement with Bank One the Company entered
into hedge agreements on December 28, 2001 on notional volumes of oil and
natural gas production for the first seven months of 2002 in order to manage
some exposure to oil and gas price fluctuations. Realized gains or losses from
the Company's price risk management activities are recognized in oil and gas
production revenues when earned since the Company's positions are not considered
hedges for financial reporting purposes. Notional volumes associated with the
Company's derivative contracts are 27,000 barrels and 630,000 MMBtu's for oil
and natural gas, respectively. The Company does not generally hold or issue
derivative instruments for trading purposes. These hedge agreements expired in
June 2002 and have not been renewed. Hedging activities resulted in a loss to
the Company of approximately $160,000 during the six months ended June 30, 2002.
At December 31, 2001, the Company's open natural gas and crude oil
price swap positions are not considered to have a material fair value. Assuming
natural gas production and sales volumes remain consistent with levels for the
month of December 2001 during the entire year of fiscal 2002, management
believes that a 10 percent decrease in natural gas prices from June 2002 price
levels would reduce the Company's natural gas revenues by approximately $497,000
on an annual basis. Assuming crude oil production and sales volumes remain
consistent with levels for the month of December 2001 during the entire year of
fiscal 2002, management believes that a 10 percent decrease in crude oil prices
from June 2002 price levels would reduce the Company's crude oil revenues by
approximately $382,000 on an annual basis.
INTEREST RATE RISK
At June 30, 2002, the Company had debt outstanding of approximately
$9.9 million. The interest rate on the revolving credit facility of $8.7 million
is variable based on the financial institution's prime rate plus 0.25%. The
remaining debt of $1.2 million has fixed interest rates ranging from 7.5% to
11.95%. As a result, the Company's annual interest costs in 2002 would fluctuate
based on short-term interest rates on approximately 88% of its total debt
outstanding at March 31, 2002. The impact on annual interest expense and the
Company's cash flows of a 10 percent increase in the financial institution's
prime rate (approximately .5 basis points) would be approximately $50,000,
assuming borrowed amounts under the credit facility remain at $8.7 million. The
Company did not have any open derivative contracts relating to interest rates at
June 30, 2002.
20
FORWARD-LOOKING STATEMENTS AND RISK
Certain statements in this report, including statements of the future
plans, objectives, and expected performance of the Company, are forward-looking
statements that are dependent upon certain events, risks and uncertainties that
may be outside the Company's control, and which could cause actual results to
differ materially from those anticipated. Some of these include, but are not
limited to, the market prices of oil and gas, economic and competitive
conditions, inflation rates, legislative and regulatory changes, financial
market conditions, political and economic uncertainties of foreign governments,
future business decisions, and other uncertainties, all of which are difficult
to predict.
There are numerous uncertainties inherent in estimating quantities of
proved oil and gas reserves and in projecting future rates of production and the
timing of development expenditures. The total amount or timing of actual future
production may vary significantly from reserves and production estimates.
The drilling of exploratory wells can involve significant risks,
including those related to timing, success rates and cost overruns. Lease and
rig availability, complex geology and other factors can also affect these risks.
Additionally, fluctuations in oil and gas prices, or a prolonged period of low
prices, may substantially adversely affect the Company's financial position,
results of operations and cash flows.
21
PART II OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS
On May 2, 2002, the Company filed suit in Federal Court in the Eastern
District of Tennessee, Northeastern Division at Greeneville, Tennessee to
restrain Bank One from taking any steps pursuant to its Credit Agreement with
the Company to enforce its demand that the Company reduce its loan obligation or
else be deemed in default and for damages resulting from the wrongful demand. It
is the position of the Company that Bank One's demand that the Company reduce
its loan from $9,101,776.66 to $3,101,776.66 within thirty days, coming as it
did only four months after the loan was made, in the absence of any change in
the Company's production of oil and gas from the time the loan was closed or the
condition of the Company's assets, without any warning and prior to the receipt
of the December 2002 reserve report, without any basis or explanation, is a
violation of the terms of the Credit Agreement and an act of bad faith. The
Company is seeking a jury trial and actual damages sustained by it as a result
of this arbitrary, wrongful demand, in the amount of $51,000,000 plus punitive
damages in the amount of $100 million. On July 1, 2002, Bank One filed its
answer and counterclaim, alleging that its actions were proper under the terms
of the Credit Agreement, and in the counterclaim, seeking to recover all amounts
it alleges to be owed under the Credit Agreement, including principal, accrued
interest, expenses and attorney's fees in the approximate amount of $9 million.
No hearings have occurred or been scheduled in the court proceeding. The Company
has filed initial written discovery requests from Bank One. No trial date has
been set.
On July 29, 2002, the Chancery Court granted summary judgment
confirming an arbitration award dated October 30, 2001. The arbitration was
between the Company's wholly owned subsidiary Tengasco Pipeline Corporation
("TPC") and King Pipeline & Utility Company ("King"), the contractor for the
construction of Phase II of the Company's pipeline and concerned disputes
concerning final billings by King for the pipeline construction. The award found
that King was entitled to recover the sum of $266,390.66 for straw matting work
performed by King; that King was entitled to retain the $72,500 payment made to
it by TPC for clearing and grubbing work, and that King be awarded its attorneys
fees of approximately $14,000 plus interest at the statutory rate from date of
the award. TPC moved for relief from the award in the Chancery Court in Knox
County, Tennessee, and King moved for confirmation of the award by the Court.
Formal entry of the judgment is expected by August 16, 2002. Pending entry of
judgment, the parties are engaged in settlement discussions and a settlement
appears likely at a discount from the amount granted in the award. In the event
settlement is concluded, no appeal of the trial court's order confirming the
award would be taken by TPC. If no settlement is concluded, TPC will appeal on
all available grounds. In the event of settlement or an unfavorable result on an
appeal, and payment is made to settle or satisfy the award, then based on the
evidence presented at the arbitration hearing, the Company and TPC intend to
seek recovery of the payments made to King as an additional element of damages
being sought from Caddum, Inc., the project engineer, in the action now pending
in the United States District Court for the Eastern District of Tennessee
entitled C.H. FENSTERMAKER & ASSOCIATES, INC. V. TENGASCO, INC., which is set
for trial in February, 2003. Potential exposure of approximately $300,000 will
be accrued and added to the pipeline asset once all matters above are resolved.
22
ITEM 2 CHANGES IN SECURITIES AND USE OF PROCEEDS
During the second quarter of 2002, the Company sold 14,491 shares of
its Series C 6% Cumulative Convertible Preferred stock ($100 par value) (the
"Series C Shares") to nine investors pursuant to a private placement offering
under Rule 506 of Regulation D promulgated by the Securities and Exchange
Commission. The number of shares of the Company's Common Stock into which the
Series C Shares are convertible assuming the floor conversion price of $5.00 per
share is 289,820. The offering raised $1,449,100. The net proceeds of the offer,
after net of issuance cost, which totaled $1,328,168, is being used by the
Company for its drilling program in the Swan Creek Field and working capital, as
the Company deems appropriate.
During the second quarter of 2002, 100,000 shares of restricted common
stock were sold to Bill L. Harbert, a Director of the Company who at the time of
the transaction was not a Director in a private placement, 10,296 shares were
issued pursuant to the conversion of convertible notes by several individuals
and 8,500 shares were issued for payment for public relations work performed.
ITEM 3 DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The annual meeting of stockholders of the Company was held on June
27, 2002.
(b) The first item voted on was the election of Directors. Joseph E.
Armstrong, Benton L. Becker, Bill L. Harbert, Robert D. Hatcher, Jr., Malcolm E.
Ratliff and Charles Stivers were elected as Directors of the Company for a term
of one year or until their successors were elected and qualified. The results of
voting were as follows: 7,065,570 votes for Joseph E. Armstrong and 55,898
withheld; 7,065,680 votes for Benton L. Becker and 55,788 withheld;7,065,643
votes for Bill L. Harbert and 55,825 withheld;7,065,538 votes for Robert D.
Hatcher, Jr. and 55,930 withheld; 7,007,500 votes for Malcolm E. Ratliff and
113,968 withheld; and, 7,062,830 votes for Charles Stivers and 58,638 withheld.
A majority of votes at the meeting having voted for them, Messrs.
Armstrong, Becker, Harbert, Hatcher, Ratliff and Stivers were duly elected as
Directors of the Company.
(c) The next item of business was the proposal to ratify the
appointment of BDO Seidman, LLP, the independent certified public accountants of
the Company, for fiscal 2002. The results of the voting were as follows:
7,099,365 votes for the resolution,
13,408 votes against and
8,695 votes abstained.
A majority of the votes cast at the meeting having voted for the
resolution, the
23
resolution was duly passed.
No other matters were voted on at the meeting.
ITEM 5 OTHER INFORMATION
None.
24
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of
1934, the registrant duly caused this report to be signed on its behalf by the
undersigned hereto duly authorized.
Dated: August 13, 2002 TENGASCO, INC.
By: /s/ JEFFREY R. BAILEY
--------------------------
Jeffrey R. Bailey
President
By: /s/ MARK A. RUTH
--------------------------
Mark A. Ruth
Chief Financial Officer
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 I hereby
certify that:
(A) I have reviewed the Quarterly Report on Form 10-Q;
(B) To the best of my knowledge this Quarterly Report on Form
10-Q (i) fully complies with the requirements of section 13(a) or 15(d) of the
Securities and Exchange Act of 1934 (15 U.S.C. 78m(a) or 78o(d)); and, (ii) the
information contained in this Report fairly presents, in all material respects,
the financial condition and results of operations of Tengasco, Inc. and its
Subsidiaries during the period covered by this Report.
/s/ MALCOLM E. RATLIFF
------------------------------
Malcolm E. Ratliff
Chief Executive Officer
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 I hereby
certify that:
(A) I have reviewed the Quarterly Report on Form 10-Q;
(B) To the best of my knowledge this Quarterly Report on Form
10-Q (i) fully complies with the requirements of section 13(a) or 15(d) of the
Securities and Exchange Act of 1934 (15 U.S.C. 78m(a) or 78o(d)); and, (ii) the
information contained in this Report fairly presents, in all material respects,
the financial condition and results of operations of Tengasco, Inc. and its
Subsidiaries during the period covered by this Report.
/s/ MARK A. RUTH
------------------------------
Mark A. Ruth
Chief Financial Officer
25