UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
REPORT ON FORM 10-KSB/A
(Mark one)
/X/ Annual Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the fiscal year ended DECEMBER 31, 2000 or
/ / Transition Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from _____________________ to
_____________________.
Commission File No. 0-20975
TENGASCO, INC.
(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
TENNESSEE 87-0267438
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
603 MAIN AVENUE, KNOXVILLE, TENNESSEE 37902
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
ISSUER'S TELEPHONE NUMBER, INCLUDING AREA CODE: (865) 523-1124.
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE.
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: COMMON STOCK, $.001
PAR VALUE PER SHARE.
CHECK WHETHER THE REGISTRANT (1) FILED ALL REPORTS REQUIRED TO BE FILED BY
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING THE PRECEDING
12 MONTHS (OR 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 / /
CHECK IF DISCLOSURE OF DELINQUENT FILERS IN RESPONSE TO ITEM 405 OF
REGULATION S-B IS NOT CONTAINED IN THIS FORM AND NO DISCLOSURE WILL BE
CONTAINED, TO THE BEST OF THE REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR
INFORMATION STATEMENTS INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-KSB
OR ANY AMENDMENT TO THIS FORM 10-KSB. [ ]
STATE ISSUER'S REVENUES FOR ITS MOST RECENT FISCAL YEAR: $5,241,076
STATE THE AGGREGATE MARKET VALUE OF THE VOTING STOCK HELD BY NONAFFILIATES
(BASED ON THE CLOSING PRICE ON MARCH 16, 2001 OF $11.05): $73,152,602.
STATE THE NUMBER OF SHARES OUTSTANDING OF THE REGISTRANT'S $.001 PAR VALUE
COMMON STOCK AS OF THE CLOSE OF BUSINESS ON THE LATEST PRACTICABLE DATE (MARCH
16, 2001): 9,663,610
DOCUMENTS INCORPORATED BY REFERENCE: NONE.
TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT (CHECK ONE): YES [ ] NO [X]
FORWARD LOOKING STATEMENTS
The information contained in this Report, in certain instances,
includes certain forward-looking statements. When used in this document, the
words budget, budgeted, anticipate, expects, estimates, believes, goals or
projects and similar expressions are intended to identify forward-looking
statements. It is important to note that the Company's actual results could
differ materially from those projected by such forward-looking statements.
Important factors that could cause actual results to differ materially from
those projected in the forward-looking statements include, but are not limited
to, the following: production variances from expectations, volatility of oil and
gas prices, the need to develop and replace reserves, the substantial capital
expenditures required for construction of pipelines and the drilling of wells
and the related need to fund such capital requirements through commercial banks
and/or public securities markets, environmental risks, drilling and operating
risks, risks related to exploration and development drilling, the uncertainty
inherent in estimating future oil and gas production or reserves, uncertainty
inherent in litigation, competition, government regulation, and the ability of
the Company to implement its business strategy, including risks inherent in
integrating acquisition operations into the Company's operations.
PART I
ITEM 1. BUSINESS.
BUSINESS DEVELOPMENT.
The Company is in the business of exploring for, producing and
transporting oil and natural gas in Tennessee and Kansas. The Company leases
producing and non-producing properties with a view toward exploration and
development. Emphasis is also placed on pipeline and other infrastructure
facilities to provide transportation, processing and tieback services. The
Company utilizes state-of-the-art seismic technology to maximize the recovery of
reserves. The Company's activities in the oil and gas business did not commence
until May 1995 with the acquisition of oil and gas leases in Tennessee.
Since 1995 the Company has acquired oil and gas leases on a total of
approximately 50,500 acres, located in Hancock, Claiborne, Knox, Jefferson and
Union Counties in Tennessee (collectively, the "Swan Creek Leases or Field").
Effective December 31, 1997, the Company acquired from AFG Energy,
Inc. ("AFG"), a private company, approximately 32,000 acres of leases in the
vicinity of Hays, Kansas (the "Kansas Properties"). Included in the acquisition
which closed on March 5, 1998 were 273 wells, including 208 working wells, of
which 149 are producing oil wells and 59 are producing gas wells, a related 50
mile pipeline and gathering system, 3 compressors and 11 vehicles. The
1
total purchase price of these assets was approximately $5.5 million, which
consisted of $3 million in cash and seller financing of $2.5 million. The seller
financing portion of the purchase price has been refinanced by Arvest United
Bank of Oklahoma City, Oklahoma as evidenced by a note dated November 23, 1999
in the amount of $1,883,650 to be paid in monthly installments of principal and
interest over a three year period. The Company is current in its obligations
under this transaction.
The Kansas Properties are currently producing approximately one
million cubic feet of natural gas and 400 barrels of oil per day. Income from
the Kansas Properties at the present time is approximately $400,000 per month.
The Company has drilled or has an interest in thirty wells in the
Swan Creek field in Tennessee and presently has twenty four productive natural
gas wells and six producing oil wells in this field. In July 1998 the Company
completed the first phase ("Phase I") of its pipeline in the Swan Creek Field, a
30 mile pipeline made of 6 and 8 inch steel pipe running from the Swan Creek
Field into the main city gate of Rogersville, Tennessee. With the assistance of
the Tennessee Valley Authority ("TVA"), the Company was successful in utilizing
TVA's right-of- way along its main power line grid from the Swan Creek Field to
the Hawkins County Utility District located in Rogersville. The cost of
constructing Phase I of the pipeline was approximately $4,200,000.
The Company has now completed construction of the second phase
("Phase II") of its pipeline, an additional 35 miles of 8 and 12 inch pipeline
extending from the terminus of the Company's existing Phase I pipeline to
Eastman Chemical Company in Kingsport, Tennessee. Construction of Phase II of
the pipeline cost approximately $6,800,000. Ceremonies marking the completion of
construction were held in Kingsport, Tennessee on March 8, 2001 and were
attended by over two hundred people, including the Hon. Don Sundquist, Governor
of the State of Tennessee, the president of Eastman Chemical Company, and many
state and local government officials. Deliveries of gas to the Holston Army
Ammunition Plant at Kingsport, Tennessee began on April 4, 2001 and deliveries
to Eastman Chemical Company are expected to commence on or before April 30,
2001.
Currently the Company is producing and selling approximately 4,000
barrels of oil per month from the Swan Creek Field. Income from oil sales from
the Swan Creek Field is approximately $ 80,000 per month.
The Company will continue to conduct exploration and production
activities to produce increased quantities of crude oil and natural gas. The
principal markets for these commodities are local refining companies, major
natural gas transmission pipeline companies, local utilities and private
industry end-users.
2
the original agreement to the higher quantity stated above without the need for
the Company to elect to install some or all of the treatment facilities as was
required under the original agreement. The March 27, 2000 amendment also
provides that in the event Eastman determines that the processes requiring low
nitrogen gas fail to operate satisfactorily with the gas provided to them by the
Company pursuant to the amendment, then Eastman may give written notice to the
Company to begin installation of facilities under the agreement as it existed
prior to the amendment and complete same within eighteen (18) months of such
written notice.
Under the agreement as amended March 27, 2000, Eastman will pay the
Company the index price plus $0.10 for all natural gas quantities up to 5,000
MMBtus delivered per day, the index price plus $0.05 for all quantities in
excess of 5,000 MMBtus per day and the index price for all quantities in excess
of 15,000 MMBtu's per day. The index price means the price per MMBtu published
in McGraw-Hills Inside F.E.R.C's Gas Market Report equal to the Henry Hub price
index as shown in the table labeled Market Center Spot Gas Prices. This index
price ranged from $9.91 per MMBtu in January, 2001 to $5.35 per MMBtu in April,
2001.
The agreement with Eastman is for a term of twenty years and will be
automatically extended, if the parties agree, for successive terms of one year.
The initial term of the agreement commences upon the Company's completion of
construction of Phase II of its pipeline and connection to Eastman's facilities
and once commercial operation of that facility is approved. Pursuant to its
agreement with Eastman, completion of construction of Phase II of the pipeline
was originally to be made by December 31, 2000. However, Eastman subsequently
agreed to extend the completion date of construction to March 31, 2001.
In April 2000, the Company commenced construction of Phase II of the
pipeline. When the pipeline was completed on March 8, 2001, the Company had laid
an additional 35 miles of 8 inch and 12 inch pipeline at a cost of approximately
$6,800,000 extending its pipeline from a point near the terminus of Phase I and
connecting to an existing pipeline and meter station at Eastman's chemical
plant. The completed pipeline extends 65 miles from the Company's Swan Creek
Field to Kingsport, Tennessee. The Company is ready to commence deliveries of
gas to Eastman. The Company has been advised by Eastman that although the
Company's gas has been tested and the quality of gas is acceptable for initial
deliveries under the agreement, Eastman encountered technical problems in
adjusting its metering equipment for initial deliveries and that final
adjustments and additions to Eastman's meters are being concluded and that
Eastman expects to take initial deliveries as soon as such adjustments and
additions to its equipment are concluded. Based on these representations from
Eastman, the Company expects deliveries to Eastman to begin on or before April
30, 2001.
On January 25, 2000, the Company's wholly owned subsidiary, Tengasco
Pipeline Corporation ("Tengasco Pipeline"), signed a franchise agreement to
install and operate new natural gas utility service to residential, commercial
and industrial users in Hancock County, Tennessee for the Powell Valley Utility
District. The Powell Valley District has no existing natural gas facilities and
the system to be installed by Tengasco Pipeline will initially extend to schools
and small customers, and will be gradually expanded over time to serve as many
of the
6
districts.
Now that the pipeline has been completed, management believes that
it will be able to sell all of its daily natural gas production from the Swan
Creek Field. The Company anticipates that a sufficient quantity of crude oil or
natural gas will be produced from the Swan Creek Field to supply the Company's
customers and make the Company profitable.
Natural gas from the Kansas Properties is delivered to
Kansas-Nebraska Energy, Inc. in Bushton, Kansas. At present, crude oil is sold
to the National Cooperative Refining Association in McPherson, Kansas, 120 miles
from Hays. National Cooperative is solely responsible for transportation of the
oil it purchases whether by truck or pipeline. There is a limited market in the
area and the only other purchaser of crude oil is EOTT Energy Operations Ltd.
RESERVE ANALYSES
Ryder Scott Company of Houston, Texas ("Ryder Scott") has performed
reserve analyses of all the Company's productive leases. Ryder Scott and its
employees and its registered petroleum engineers have no interest in the Company
or IRC, and performed these services at their standard rates. The net reserve
values used hereafter were obtained from a report dated March 28, 2001 prepared
by Ryder Scott. In substance, the report used estimates of oil and gas reserves
based upon standard petroleum engineering methods which include decline curve
analysis, volumetric calculations, pressure history, analogy, various
correlations and technical judgment. Information for this purpose was obtained
from owners of interests in the areas involved, state regulatory agencies,
commercial services, outside operators and files of Ryder Scott. The net reserve
values in the Ryder Scott Report were adjusted to take into account the working
interests that have been sold by the Company in various wells in the Swan Creek
Field. See, "Item 2 - Description of Property." The report of Ryder Scott
provides that the net proved reserves for wells in the Swan Creek Field is
54,572 MMCF of natural gas and 569,774 barrels of oil. According to the Ryder
Scott Report, discounting the net reserve values by 10% results in a present
value as of December 31, 2000 of $443,367,924 before production taxes and
$430,066,886 after production taxes for the Swan Creek Field.
The reserves analysis performed by Ryder Scott Company for the Swan
Creek field resulted in a decrease in the stated dollar value of the reserves of
that field from the reserve analysis previously performed for the Company by
Coburn Engineering of Tulsa, Oklahoma. This decrease in the stated dollar value
of the reserve analysis was due to the fact that Ryder Scott utilized more
conservative assumptions in its analysis in three primary respects. First, Ryder
Scott assumed that the gas wells in the Swan Creek field would drain a smaller
area per well based on the permeability of the structure. Second, Ryder Scott
assumed that due to the complicated geology of the structure, certain oil zones
in Swan Creek field may not be in communication with producing oil zones, and
therefore did not classify those zones as proven undeveloped reserves for
valuation purposes at this time. Finally, economic projections by Ryder
10
Scott of production rates used in the valuation process of the reserves were
more conservative than those utilized by Coburn Engineering. The Company
recognizes that varying levels of assumptions can be made in rendering an
analysis of reserves and believes that the more conservative assumptions
utilized by Ryder Scott are within the parameters customarily utilized in the
analysis of reserves by companies performing reserve analysis. The Company also
notes that Ryder Scott Company is well known in the oil and gas industry and by
financial institutions throughout the United States and enjoys a reputation of
being one of the preeminent firms engaged in performance of reserve analysis.
Ryder Scott also performed a reserve analysis of the Kansas
Properties. The net reserve values used hereafter were also obtained from the
Ryder Scott Report dated March 28, 2001. According to the Ryder Scott Report,
discounting the net reserve values by 10% results in a present value as of
December 31, 2000 of $54,419,609 before production taxes and $54,307,992 after
production taxes for the Kansas Properties.
The Company believes that the reserve analysis reports prepared by
Ryder Scott for the Company for the Swan Creek Field and Kansas Properties
provide an essential basis for favorable consideration and review of the
Company's producing properties by all potential industry partners and all
financial institutions across the country. It is standard in the industry for
reserve analyses such as these to be used as a basis for financing of drilling
costs. Reserve analyses, however, are at best speculative, especially when based
upon limited production; no assurance can be given that the reserves attributed
to these leases exist or will be economically recoverable. The result of any
reserve analysis is dependent upon the forecast of product prices utilized in
the analysis which may be more or less than the actual price received during the
period in which production occurs.
DISTRIBUTION METHODS OF PRODUCTS OR SERVICES
Crude oil is normally distributed in Tennessee by tank truck and
natural gas is distributed and transported via pipeline.
On September 3, 1999,the Company entered into a farmout agreement
with Miller Petroleum, Inc. ("Miller") for ten wells to be drilled in the Swan
Creek Field with the Company having an option to award up to an additional ten
future wells. All locations are to be mutually agreed upon. Net revenue will be
81.25% to Miller and the Company will transport Miller's gas for a fee. See,
Item 2 "Description of Property."
COMPETITIVE BUSINESS CONDITIONS, COMPETITIVE POSITION IN THE INDUSTRY AND
METHODS OF COMPETITION
The Company's contemplated oil and gas exploration activities in the
States of Tennessee and Kansas will be undertaken in a highly competitive and
speculative business
11
NUMBER OF TOTAL EMPLOYEES AND NUMBER OF FULL-TIME EMPLOYEES
The Company presently has forty one full time employees and no
part-time employees.
ITEM 2. DESCRIPTION OF PROPERTY
PROPERTY LOCATION, FACILITIES, SIZE AND NATURE OF OWNERSHIP
The Company's Swan Creek Leases are on approximately 50,500 acres in
Hancock, Claiborne, Knox, Jefferson and Union Counties in Tennessee. The initial
terms of these leases vary from one to five years. Many of them can be extended
at the option of the Company by payment of annual rent. Some of them will
terminate unless the Company has commenced drilling. However, the Company does
not anticipate any difficulty in continuing the Swan Creek Leases. See
"Description of Business" - "General" above.
Morita Properties, Inc., an affiliate of one of the Company's
Directors, Shigemi Morita, currently has a 25% working interest in nine of the
Company's existing wells, and a 50% working interest and 6% working interest in
two of the Company's other existing wells. In addition, to those interests,
Morita Properties, Inc. previously owned a 25% working interest in three of the
Company's other existing wells and 12.5% working interest in another of the
Company's wells which it subsequently sold. See Item 12 -"Certain Relationships
and Related Transactions" - "Transactions with Management and Others."
An individual who is not an affiliate of the Company purchased 25%
working interests in two other wells, the Stephon Lawson No. 1 and the Patton
No. 1. All of these wells are located in the Swan Creek Field.
Another individual has a 29% revenue interest in the Laura Jean
Lawson No. 3 well, also located in the Swan Creek Field, by virtue of having
contributed her unleased acreage to the drilling unit and paying her
proportionate share of the drilling costs of the well. The Company was obligated
to allow that individual to participate on that basis in accordance with both
customary industry practice and the requirements of the procedures of the
Tennessee Oil and Gas Board in a forced pooling action brought by the Company to
require the acreage to be included in the unit so that the well could be
drilled. The forced pooling procedure was concluded by her contribution of
acreage and agreement to pay proportionate share of drilling costs.
The Company has also entered into a farmout agreement with Miller
Petroleum, Inc. ("Miller") for ten wells to be drilled in the Swan Creek Field
with the Company having an option to award up to an additional ten future wells.
All locations are to be mutually agreed upon.
16
Series B 8% cumulative Convertible Preferred Stock ($100.00 per share)
DATE NUMBER OF AGGREGATE
NAME ACQUIRED SHARES CONSIDERATION
---------------- -------- --------- -------------
McGowan, Edward 9/5/00 1000 $ 100,000.00
Dolphin Offshore Partners, L.P. 9/5/00 9000 $ 900,000.00
Management believes that all of the foregoing persons were either
"accredited investors" as that term is defined under applicable federal and
state securities laws, rules and regulations, or were persons who by virtue of
background, education and experience who could accurately evaluate the risks and
merits attendant to an investment in the securities of the Company. Further, all
such persons were provided with access to all material information regarding the
Company, prior to the offer or sale of these securities, and each had an
opportunity to ask of and receive answers from directors, executive officers,
attorneys and accountants for the Company. The offers and sales of the foregoing
securities are believed to have been exempt from the registration requirements
of Section 5 of the 1933 Act, as amended, pursuant to Section 4(2) thereof, and
from similar state securities laws, rules and regulations covering the offer and
sale of securities by available state exemptions from such registration.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
With the completion of its 65 mile pipeline and the flow of gas
through the pipeline, the Company will be able to deliver its gas to Eastman,
BAE SYSTEMS at the Holston Army Ammunition Plant and other customers in the
Kingsport area and anticipates being able to sell substantially all of its
natural gas production from the Swan Creek Field. The Company anticipates that
its agreement with Eastman will require Eastman to purchase a minimum of 10,000
MMBTU of gas per day. The Company expects deliveries to Eastman to begin on or
before April 30, 2001. Deliveries of natural gas to BAE SYSTEMS at the Holston
facility commenced on April 4, 2001 and the Company anticipates that purchases
under that agreement will be 1,800 MMBTU of gas per day.
The completion of the pipeline will also allow the Company to focus
on its drilling program on the Swan Creek leases and continue the development of
that field. The existence of substantial deposits of hydrocarbons (oil and/or
gas) in the Swan Creek structure (i.e. the rock formation beneath the surface)
is confirmed by the following facts:
(1) The Swan Creek structure is located in an area known as the
Eastern Overthrust Belt which is an area with numerous faults. A fault is an
area where geologic plates overlap. The Eastern Overthrust Belt is geologically
similar to the Western Overthrust Belt located in the Rocky Mountains, where
there are other oil and gas producing properties.
26
FIVE PERCENT STOCKHOLDERS
NUMBER OF SHARES PERCENT OF
NAME AND ADDRESS TITLE BENEFICIALLY OWNED CLASS
---------------- ----- ------------------ ------------
Industrial Resources Stockholder 2,730,345(3) 28%
Corporation
603 Main Ave.
Knoxville, TN 37902
Spoonbill, Inc. Stockholder 878,198 9.09%
Tung Wai Commercial Bldg.
20th Floor
109-111 Gloucester Rd.
Wanchai, Hong Kong
Bill L. Harbert Stockholder 720,000 7.45%
820 Shaders Creek Pkwy.
Birmingham, AL 35209
DIRECTORS AND OFFICERS
NUMBER OF SHARES PERCENT OF
NAME AND ADDRESS TITLE BENEFICIALLY OWNED CLASS
---------------- ----- ------------------ ------------
Joseph Earl Armstrong Director 50,000(4) Less than 1%
4708 Hilldale Drive
Knoxville, TN 37914
----------
(3) Malcolm E. Ratliff, the Chief Executive Officer and Chairman of the Board
of Directors of the Company is the sole owner of the outstanding
securities and President of Industrial Resources Corporation ("IRC").
Ownership of the IRC shares was previously transferred from Malcolm E.
Ratliff, due to his illness, to his father, James Ratliff. In December
1999 ownership of the IRC shares was transferred back to Malcolm E.
Ratliff from his father. Malcolm E. Ratliff's wife, Linda Ratliff, is the
Secretary of IRC. Accordingly, IRC may be deemed to be an affiliate of the
Company. James Ratliff, who is the father of Malcolm E. Ratliff, is the
sole shareholder and President of Ratliff Farms, Inc. Malcolm E. Ratliff
is the Vice-President/Secretary of Ratliff Farms. Malcolm E. Ratliff has
voting control of the shares of the Company owned by Ratliff Farms, Inc.
Accordingly, Ratliff Farms, Inc. may also be deemed to be an affiliate of
the Company. The shares listed here for IRC include 2,187,232 shares owned
directly by IRC, 55,353 shares owned directly and an option to purchase
50,000 shares held by Malcolm E. Ratliff, 243,760 shares owned directly by
Ratliff Farms, Inc., 30,000 shares owned directly by a trust of which
Linda Ratliff is trustee and the children of Malcolm E. Ratliff are the
beneficiaries and 164,000 shares transferred by Ratliff Farms, Inc. to
James Ratliff.
(4) Consists of 10,000 shares held directly and an option to purchase 40,000
shares.
43
Benton L. Becker Director 90,000(5) Less than 1%
1497 Lacosta Drive East
Pembrook Pines, FL 33027
Edward W.T. Gray III Director 127,350(6) 1.3%
3 New Street
Remsenberg, NY 11960
Robert D. Hatcher, Jr. Director 50,000(7) Less than 1%
107 Golden Gate Lane
Oak Ridge, TN 37830
Sanford E. McCormick Director 40,000(8) Less than 1%
1100 Louisiana Ste. 5425
Houston, TX 77002
Shigemi Morita Director 235,141(9) 2.4%
35 Park Avenue
New York, N.Y. 10016
Malcolm E. Ratliff Chief Executive 2,730,345(10) 28%
2100 Scott Lane Officer; Chairman
Knoxville, TN 37922 of the Board
------------
(5) Consists of 40,000 shares owned directly and an option to purchase 50,000
shares.
(6) Consists of 77,350 shares held directly and an option to purchase 50,000
shares.
(7) Consists of shares underlying an option.
(8) Consists of shares underlying an option.
(9) Consists of (10) 5,741 shares held directly, 79,400 shares held as an IRA
beneficiary and options to purchase 50,000 shares.
(10) Malcolm E. Ratliff, the Company's Chief Executive Officer and Chairman of
the Board of Directors, is also the sole shareholder and President of
Industrial Resources Corporation ("IRC"). Ownership of the IRC shares was
previously transferred from Malcolm E. Ratliff, due to his illness to his
father, James Ratliff. In December 1999 ownership of the IRC shares was
transferred back to Malcolm E. Ratliff from his father. Linda Ratliff,
Malcolm E. Ratliff's wife, is the Secretary of IRC. James Ratliff, who is
the father of Malcolm E. Ratliff, is the sole shareholder and president of
Ratliff Farms, Inc. Malcolm E. Ratliff is the Vice-President/Secretary of
Ratliff Farms, Inc. Malcolm E. Ratliff has voting control over the shares
of the Company owned by Ratliff Farms, Inc. The shares listed here include
2,187,232 shares owned directly by IRC, 55,353 shares owned directly and
an option to purchase 50,000 shares held by Malcolm E. Ratliff, 243,760
owned directly by Ratliff Farms, Inc., 30,000 shares owned directly by
a trust of which Linda Ratliff is trustee and the beneficiaries are the
children of Malcolm E. Ratliff (the "Ratliff Trust") and 164,000 shares
transferred by Ratliff Farms, Inc. to James Ratliff.
44
All Officers and 3,598,965(18) 35.2%
Directors as a group
CHANGES IN CONTROL
Except as indicated below, to the knowledge of the Company's
management, there are no present arrangements or pledges of the Company's
securities which may result in a change in control of the Company.
ITEM 12 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
TRANSACTIONS WITH MANAGEMENT AND OTHERS
Except as set forth hereafter, there have been no material
transactions, series of similar transactions or currently proposed transactions,
to which the Company or any of its subsidiaries was or is to be a party, in
which the amount involved exceeds $60,000 and in which any director or executive
officer or any security holder who is known to the Company to own of record or
beneficially more than 5% of the Company's common stock, or any member of the
immediate family of any of the foregoing persons, had a material interest.
On July 16, 1998, the Company entered into a loan agreement with
five individual investors totaling $800,000. The loans were secured by a pledge
of 118,200 shares of the Company's Common Stock owned by Malcolm E. Ratliff, the
Company's Chief Executive Officer and a Director. The loans bore interest at the
rate of 8% per annum and matured on October 14, 1998. Loan origination fees
consisted of $64,000 in cash to the broker who arranged the loan and 16,800
shares of the Company's common stock advanced to the lenders and broker on
behalf of the Company by Malcolm E. Ratliff. The shares advanced by Malcolm E.
Ratliff were carried as a debt payable to him. Approximately $520,000 of this
$800,000 loan was repaid by the Company out of proceeds from a Convertible Note
in the amount of $1,500,000 received during October, 1998. The Convertible Note
matures in five years and is convertible into shares of the Company's common
stock at a price of $6.25 per share. In connection with the loan received by the
Company evidenced by the Convertible Note, the Company issued 25,000 shares of
its common stock to the lender as a loan fee. The balance of the $800,000 loans
have been satisfied by the issuance to the lenders of 2,800 shares of Series A
Shares convertible at a price of $5.75 per share. In 1999 the Company converted
the debt payable of $163,800 to Malcolm E.
----------
(18) Consists of shares held directly and indirectly by management, shares held
by IRC, by Ratliff Farms, Inc., by the Ratliff Trust and shares transferred from
Ratliff Farms, Inc. to James Ratliff and 555,500 shares underlying options.
46
purchased on a turnkey basis at an aggregate cost of $875,000 a 12.5% working
interest in the Stephen Lawson #3 well which interest it subsequently sold, a
25% working interest in the Laura Jean Lawson #2 well, a 25% working interest in
the R.D. Helton #2 well, a 25% working interest in the Stephen Lawson #4 well, a
25% working interest in the Hugh Roberts #1 well; a 25% working interest in the
Wells/Yeary #1 well, a 25% working interest in the Hazel Sutton #2 well, and a
6% working interest in the Laura J. Lawson #3 well, all of which are in the Swan
Creek Field. The purchases of these interests were concluded before the
respective wells were drilled and the purchaser assumed all the attendant risks
involved in normal and customary drilling operations, including the risk of a
dry hole. The Company received fair market value for the interests conveyed and
the sale of such interests was required to raise funds to allow drilling
operations to continue. In 2000, the Company paid Mr. Morita approximately
$270,000 for commissions on private placements of common stock and consulting
services.
In 1999, 30,000 shares of the Company's common stock held in the
name of Tracmark, Inc. were transferred to an affiliate, Commonwealth Resources,
Inc. James Ratliff, the father of Malcolm E. Ratliff, is the sole shareholder of
Tracmark, Inc., as Trustee for the Ratliff family. Malcolm E. Ratliff is
Vice-President of Tracmark, Inc. Malcolm E. Ratliff is the sole shareholder and
President of Commonwealth Resources, Inc. and his wife, Linda Ratliff, is the
Secretary/Treasurer of that corporation. Those 30,000 shares were subsequently
transferred from Commonwealth Resources, Inc. to a family trust of which Linda
Ratliff is the trustee and the beneficiaries are the children of Malcolm E.
Ratliff.
In December 1999, ownership of all of the outstanding and issued
shares of IRC, the largest shareholder of the Company's common stock was
transferred from James Ratliff to his son, Malcolm E. Ratliff. Ownership of the
IRC shares had previously been transferred to James Ratliff due to the illness
of Malcom E. Ratliff. IRC presently owns 2,187,232 shares of the Company's
common stock.
On August 16, 2000, Tengasco Pipeline Corporation ("TPC"), a
wholly-owned subsidiary of the Company, entered into loan agreements (the "Loan
Agreements") with five lenders (the "Lenders") for a loan (the "Loan") to
finance the completion of Phase II of the Company's 65 mile pipeline. Under the
terms of the Loan Agreements, the Lenders agreed to loan TPC $5.6 million for
the construction and costs associated with Phase II. Repayment of the Loan was
secured only by a first lien upon the pipeline assets of TPC. The Loan is to be
repaid over a five-year term, accruing interest at 10.75% per annum from the
date of funding, with no penalty for prepayment, and the first payment due in
six months from closing. As additional consideration for making the Loan, each
Lender is to share on a pro-rata basis, a total throughput fee for all of the
Lenders of $.10 per MMBTU of natural gas delivered through the completed
pipeline system. The throughput agreement will cease to exist when the Loan is
paid in full. The Lenders include Morita Properties, Inc., an affiliate of
Shigemi Morita, a Director of the Company which loaned TPC $500,000; Edward W.T.
Gray III, a Director of the Company who loaned TPC $1,000,000; and, Malcolm E.
Ratliff, Chairman of the Board of Directors and Chief Executive Officer of the
Company who agreed to loan $2,000,000, to have been funded by November 15, 2000.
The balance of the Loan in the amount of $2,100,000 was made by two
48
23.2 Consent of Robson Ferber Frost Chan & Essner, LLP contained
in Exhibit No. 5.1
The following exhibits are filed herewith:
10.19 Memorandum Agreement between Tengasco, Inc. and The
University of Tennessee dated February 13, 2001
10.20 Natural Gas Sales Agreement between Tengasco, Inc. and BAE
SYSTEMS Ordnance Systems Inc. dated March 30, 2001
99.14 Ryder Scott Report
99.14(a) Consent of Ryder Scott Company
21 List of Subsidiaries
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities and
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Date: May 23, 2001 TENGASCO, INC.
(Registrant)
By: /s/ MALCOLM E. RATLIFF
-----------------------
Malcolm E. Ratliff,
Chief Executive Officer
By: /s/ MARK A. RUTH
-----------------------
Mark A. Ruth
Principal Financial
and Accounting Officer
56