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Gateway Energy Reports Second Quarter 2010 Results
16 Aug, 2010 @ 04:30 pm EDT
HOUSTON, Aug. 16 /PRNewswire-FirstCall/ -- Gateway Energy Corporation (OTC Bulletin Board: GNRG) today announced the financial results for the second quarter ended June 30, 2010. Net loss from continuing operations was $957,009, or ($0.05) per diluted share, for the second quarter 2010 compared to a net loss of $93,937 for the second quarter 2009 and a net loss of $234,393, or ($0.01) per diluted share, for the immediately preceding first quarter of 2010. Adjusted EBITDA(i) was $213,308 for the second quarter 2010 compared to $173,436 for the second quarter 2009 and $31,940 for the immediately preceding first quarter 2010.
Net income for the second quarter 2010 was negatively impacted by consent solicitation and severance expenses of $1,444,092 incurred during the successful consent solicitation conducted by Frederick M. Pevow, Jr., the Company's new Chairman, President & CEO.
Mr. Pevow commented, "Our bottom-line financial results were negatively affected by substantial consent solicitation and severance expenses, which were much higher than I ever imagined they would be five months ago. Fortunately these one-time costs are now largely behind us as we began to and expect to continue to achieve reductions in our general and administrative expenses over the next couple of quarters as we begin to implement our strategic plan."
Second Quarter 2010 Corporate Highlights
-- On May 19, 2010, the former board of directors terminated Bob Panico,
the previous President & CEO, and Chris Rasmussen, the previous CFO.
-- On May 18 and 19, 2010, six of seven members of the previous board of
directors resigned and John A. Raasch became interim President and CEO
and the sole remaining director.
-- On June 3, 2010, Mr. Raasch appointed five new members to the board of
directors, consisting of David F. Huff, Perin Greg deGeurin, John O.
Niemann, Jr., Mr. Pevow and Paul A. VanderLinden, III.
-- In June 2010, Mr. Pevow was appointed as the new President and CEO and
Ms. Jill R. Marlatt was appointed as Controller.
Second Quarter 2010 Operating Highlights
-- Cash general and administrative expenses of approximately $400,000 were
almost 40% lower than the second quarter 2009.
-- In April 2010, throughput volumes resumed from the High Island A-389
system, which had been out of service since Hurricane Ike.
-- The newly acquired Hickory Creek gathering system performed in-line with
expectations.
Selected Financial Data:
The following table summarizes selected financial results for the reporting periods:
Three Months Ended
------------------
June 30, 2010 June 30, 2009 March 31, 2010
------------- ------------- --------------
Operating
Statement Data:
Revenue 1,795,963 1,740,743 1,958,500
Adjusted EBITDA 213,308 173,436 31,940
Net Income (Loss) (957,009) 191,805 (234,393)
Income (Loss) per
Share (0.05) 0.01 (0.01)
Results of Operations:
Second Quarter 2010 compared to Second Quarter 2009
Revenues were $1,795,963 for the quarter ended June 30, 2010 compared to $1,740,743 for the quarter ended June 30, 2009. The net increase of $55,220 was due to an increase in sales of natural gas of $256,794 and a decrease in transportation, treating and other revenue of $204,574. Revenues from sales of natural gas from the Waxahachie delivery system increased as natural gas prices were higher than the previous year (volumes are bought and sold pursuant to 'back-to-back" contracts based on monthly index prices, so higher prices do not generally result in increased margins).
Adjusted EBITDA was $213,308 for the quarter ended June 30, 2010 compared to $173,436 for the quarter ended June 30, 2009. The net increase of $39,872 was primarily due to a reduction in cash general and administrative expenses of $258,616 or 39% from the comparable period, which was partially offset by a decrease in operating margin(ii) of $238,193.
The net decrease in operating margin of $238,193 resulted primarily from the loss of temporary volumes from the East Cameron 359 system, which was substantially higher than the increases in volumes from the Hickory Creek and High Island A-389 systems. The East Cameron 359 system was used as an alternate pipeline for several producers when the Sea Robin pipeline was temporarily out of service. Sea Robin is now active and the East Cameron 359 system is no longer being used as an alternate pipeline.
Cash general and administrative expenses were lower by $258,616 in part due to a decrease in insurance costs of approximately $100,000 from the sale of the Shipwreck and Pirate's Beach pipelines and the Crystal Beach terminal as well as decreases in personnel, accounting, tax and legal costs, and investor relations costs.
Other and interest income increased by $19,449.
Second Quarter 2010 compared to First Quarter 2010
Revenues were $1,795,963 for the second quarter 2010 compared to $1,958,500 for the preceding first quarter 2010. The net decrease of $162,537 was due to a decrease in sales of natural gas of $218,461 and an increase in transportation, treating and other revenue by $55,924. Revenues from sales of natural gas from the Waxahachie delivery system decreased as natural gas prices were sequentially lower. Transportation, treating and other revenues were sequentially higher primarily due to the resumption of volumes from High Island A-389 in April offset by a decrease in volumes from Hickory Creek due to natural (and expected) decline in natural gas production typical of newly drilled wells in the Barnett Shale.
Adjusted EBITDA was $213,308 for the quarter ended June 30, 2010 compared to $31,940 for the preceding quarter ended March 31, 2010. The increase of $181,367 was primarily due to a combination of an increase in operating margin of $67,077, a reduction in cash general and administrative expenses of $49,152, and an increase in other and interest income of $65,138.
Operating margin increased by $67,077 primarily due to the resumption of volumes from High Island A-389 in April and higher volumes from Waxahachie, partially offset by a decrease in volumes from Hickory Creek. Cash general and administrative expenses were lower by $49,152 due to the departure of the prior CFO 41 days prior to the end of the second quarter, reductions in investor relations costs, miscellaneous costs, and a timing difference between first and second quarter expenses related to the 2009 fiscal audit.
Liquidity and Capital Resources
As of June 30, 2010, the Company had available cash of $520,340 and borrowing availability of $500,000 pursuant to a $3.0 million credit facility. Absent significant acquisitions or development projects, the Company will continue to fund its operations and small growth opportunities through internally-generated funds and available cash and bank borrowings as needed. The Company is actively seeking additional outside capital to allow it to accelerate the implementation of its strategic plan, and such new capital may take several forms. There is no guarantee that the Company will be able to raise outside capital.
About Gateway Energy
Gateway Energy Corporation owns and operates natural gas gathering, transportation and distribution systems in Texas, Texas state waters and in federal waters of the Gulf of Mexico off the Texas and Louisiana coasts. Gateway gathers offshore wellhead natural gas production and liquid hydrocarbons from producers, and then aggregates this production for processing and transportation to other pipelines. Gateway also transports gas through its onshore systems for non-affiliated shippers and through its affiliated distribution system and makes sales of natural gas to end users.
Safe Harbor Statement
Certain of the statements included in this press release, which express a belief, expectation or intention, as well as those regarding future financial performance or results (including future reductions in general and administrative expense), or which are not historical facts, are "forward-looking" statements as that term is defined in the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended. The words "expect", "plan", "believe", "anticipate", "project", "estimate", and similar expressions are intended to identify forward-looking statements. These forward-looking statements are not guarantees of future performance or events and such statements involve a number of risks, uncertainties and assumptions, including but not limited to industry conditions, prices of crude oil and natural gas, regulatory changes, general economic conditions, interest rates, competition, and other factors. Should one or more of these risks or uncertainties materialize or should the underlying assumptions prove incorrect, actual results and outcomes may differ materially from those indicated in the forward-looking statements, which speak only as of the date hereof. The Company undertakes no obligation to republish revised forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.
GATEWAY ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31,
June 30, 2010 2009
------------- -------------
ASSETS (Unaudited)
Current Assets
Cash and cash equivalents $520,340 $2,086,787
Restricted cash 250,000 900,000
Accounts receivable trade, net 759,042 1,101,100
Notes receivable 150,000 148,088
Prepaid expenses and other
assets 245,310 41,941
------- ------
Total current assets 1,924,692 4,277,916
--------- ---------
Property and Equipment, at cost
Gas gathering, processing and
transportation 11,359,163 8,855,967
Net profits production
interest 701,482 701,482
Office furniture and other
equipment 150,500 150,500
------- -------
12,211,145 9,707,949
Less accumulated depreciation,
depletion and amortization (3,049,168) (2,785,241)
---------- ----------
9,161,977 6,922,708
--------- ---------
Other Assets
Deferred tax assets, net 1,840,671 1,295,455
Intangible assets, net of
accumulated amortization of
$447,928 and $345,567 as of
June 30, 2010 and December
31, 2009, respectively 1,695,181 563,032
Other 51,265 36,803
------ ------
3,587,117 1,895,290
--------- ---------
Total assets $14,673,786 $13,095,914
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $854,457 $660,504
Accrued expenses and other
liabilities 258,096 305,549
Insurance notes payable 162,650 -
Current maturities of capital
lease - 9,188
--- -----
Total current liabilities 1,275,203 975,241
--------- -------
Long-term debt, less current
maturities 2,500,000 -
--------- ---
Total liabilities 3,775,203 975,241
--------- -------
Commitments and contingencies - -
Stockholders' Equity
Preferred stock - $1.00 par
value; 10,000 shares
authorized; no shares issued
and outstanding - -
Common stock - $0.25 par
value; 35,000,000 shares
authorized; 19,402,853 and
19,397,125 shares issued and
outstanding at June 30, 2010
and December 31, 2009,
respectively 4,850,713 4,849,281
Additional paid-in capital 17,363,708 17,395,828
Accumulated deficit (11,315,838) (10,124,436)
----------- -----------
Total stockholders' equity 10,898,583 12,120,673
---------- ----------
Total liabilities and
stockholders' equity $14,673,786 $13,095,914
=========== ===========
GATEWAY ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended Six Months Ended June
June 30, 30,
------------------ ----------------------
2010 2009 2010 2009
---- ---- ---- ----
Operating
revenues
Sales of
natural gas $1,189,028 $932,234 $2,596,517 $2,086,144
Transportation
of natural gas
and liquids 438,502 711,606 822,150 1,386,755
Treating and
other 168,433 96,903 335,796 237,300
------- ------ ------- -------
1,795,963 1,740,743 3,754,463 3,710,199
--------- --------- --------- ---------
Operating
costs and
expenses
Cost of
natural gas
purchased 1,036,816 761,678 2,301,191 1,786,696
Operation and
maintenance 205,125 186,850 412,305 374,405
General and
administrative 350,472 743,082 817,524 1,412,212
Acquisition
costs - - 43,453 -
Consent
solicitation
and severance
costs 1,444,092 - 1,542,962 -
Depreciation,
depletion and
amortization 168,958 141,600 366,289 302,652
------- ------- ------- -------
3,205,463 1,833,210 5,483,724 3,875,965
--------- --------- --------- ---------
Operating loss (1,409,500) (92,467) (1,729,261) (165,766)
Other income
(expense)
Interest
income 2,589 6,622 10,492 11,520
Interest
expense (41,917) (43,407) (83,261) (83,831)
Other income,
net 55,883 32,401 41,314 41,744
------ ------ ------ ------
Other income
(expense) 16,555 (4,384) (31,455) (30,567)
------ ------ ------- -------
Loss from
operations
before income
taxes and
discontinued
operations (1,392,945) (96,851) (1,760,716) (196,333)
Income tax
benefit 435,936 2,914 569,314 79,096
------- ----- ------- ------
Loss from
continuing
operations (957,009) (93,937) (1,191,402) (117,237)
Discontinued
operations,
net of taxes
Loss from
discontinued
operations,
net of taxes - (39,255) - (151,393)
Gain on
disposal of
assets, net
of taxes - 324,997 - 324,997
--- ------- --- -------
Income from
discontinued
operations - 285,742 - 173,604
Net income
(loss) $(957,009) $191,805 $(1,191,402) $56,367
========= ======== =========== =======
Basic and
diluted
income (loss)
per share:
Continuing
operations $(0.05) $- $(0.06) $(0.01)
Discontinued
operations - 0.01 - 0.01
--- ---- --- ----
Net income
(loss) $(0.05) $0.01 $(0.06) $-
====== ===== ====== ===
Weighted
average
number of
common shares
outstanding:
Basic 19,402,853 19,209,336 19,401,777 19,208,298
Diluted 19,402,853 19,219,611 19,401,777 19,223,033
GATEWAY ENERGY CORPORATION AND
SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended June
30,
----------------------
2010 2009
-- --
Cash flows from operating activities
Loss from continuing operations $(1,191,402) $(117,237)
Adjustments to reconcile loss from
continuing operations to net cash
provided by (used in) operating
activities:
Depreciation, depletion and
amortization 366,289 302,652
Deferred tax benefit (581,811) (90,000)
Stock based compensation expense
(forfeiture adjustment) (30,000) 108,253
Amortization of deferred loan costs 12,149 67,813
Change in operating assets and
liabilities:
Accounts receivable trade 342,058 16,706
Prepaid expenses and other assets 99,483 201,527
Accounts payable 193,265 (351,912)
Accrued expenses and other liabilities (56,269) (52,037)
------- -------
Net cash provided by (used in)
operating activities (846,238) 85,765
-------- ------
Cash flows from investing activities
Capital expenditures - (25,817)
Acquisitions (3,737,705) -
---------- ---
Net cash used in investing activities (3,737,705) (25,817)
---------- -------
Cash flows from financing activities
Payments on borrowings (105,893) (231,684)
Proceeds from borrowings 2,500,000 -
Change in restricted cash 650,000 (1,750,000)
Deferred finance charges (26,611) (18,139)
------- -------
Net cash provided by (used in)
financing activities 3,017,496 (1,999,823)
--------- ----------
Net decrease in cash and cash
equivalents from continuing operations (1,566,447) (1,939,875)
Discontinued operations:
Net cash provided by discontinued
operating activities - 1,803,065
Net cash used in discontinued investing
activities - (2,700)
--- ------
Net increase in cash and cash
equivalents from discontinued
operations - 1,800,365
--- ---------
Net decrease in cash and cash
equivalents (1,566,447) (139,510)
Cash and cash equivalents at beginning
of period 2,086,787 1,789,029
--------- ---------
Cash and cash equivalents at end of
period $520,340 $1,649,519
======== ==========
Supplemental disclosures of cash flow
information:
Income taxes paid $32,467 $33,000
Cash paid for interest 61,243 36,172
Supplemental schedule of noncash
investing and financing activities:
Trade note payable for insurance
premiums $259,356 $328,938
Exercise of stock options $1,432 $-
GATEWAY ENERGY CORPORATION AND SUBSIDIARIES
NON-GAAP FINANCIAL MEASURES
Operating Margin
The following table presents a reconciliation of the non-GAAP financial measures of total segment operating margin (which consists of the sum of individual segment operating margin and corporate) to the nearest comparable GAAP financial measure of operating income.
Three Months Ended Six Months Ended
June 30, June 30,
-------- --------
2010 2009 2010 2009
---- ---- ---- ----
Onshore Operations
Revenues $1,423,474 $993,002 $3,096,630 $2,210,042
Cost of natural gas
purchased 1,036,816 761,678 2,301,191 1,786,696
Operation and maintenance
expense 58,923 54,006 116,837 111,221
------ ------ ------- -------
Operating margin 327,735 177,318 678,602 312,125
General and administrative
expense 598 - 598 -
Depreciation and
amortization expense 60,029 24,197 147,497 72,000
------ ------ ------- ------
Operating income 267,108 153,121 530,507 240,125
Offshore Operations
Revenues $372,489 $762,091 $657,833 $1,500,966
Operation and maintenance
expense 146,202 132,844 295,468 263,184
------- ------- ------- -------
Operating margin 226,287 629,247 362,365 1,237,782
Depreciation and
amortization expense 102,015 105,648 204,029 211,295
------- ------- ------- -------
Operating income 124,272 523,599 158,336 1,026,487
Net Profits Interest
Revenues (loss) $- $(14,350) $- $(809)
--- -------- --- -----
Operating margin (loss) - (14,350) - (809)
General and administrative
expense 598 - 598 -
Depletion expense 5,153 10,157 11,242 15,912
----- ------ ------ ------
Operating loss 5,751 24,507 11,840 16,721
----- ------ ------ ------
Adjusted EBITDA
Adjusted EBITDA is defined as pre-tax net income plus:
-- interest expense;
-- depreciation, depletion and amortization expense;
-- non-recurring gain (loss) on sale of assets;
-- non-controlling interest;
-- accretion expense; and
-- non-cash compensation expense.
Adjusted EBITDA is a significant performance metric used by Company management, and by external users of the Company's financial statements, such as investors, commercial banks, research analysts and others, including our principal lender.
Adjusted EBITDA should not be considered an alternative to, or more meaningful than, net income, operating income, cash flows from operating activities or any other measure of financial performance presented in accordance with GAAP as measures of operating performance, liquidity or ability to service debt obligations. Adjusted EBITDA does not include interest expense, income taxes, depreciation, depletion and amortization expense, non-recurring gain (loss) on sale of assets, minority interest, accretion expense or non-cash compensation expense. Because the Company has borrowed, and intends to borrow, money to finance their operations, interest expense is a necessary element of the Company's overall costs. Because the Company uses capital assets, depreciation and amortization are also necessary elements of the Company's overall costs. Because the Company has used, and intends to use, non-cash equity awards as part of their overall compensation package for executive officers and employees, non-cash compensation expense is a necessary element of the Company's overall costs. Therefore, any measures that exclude these elements have material limitations. To compensate for these limitations, Company management believes that it is important to consider net income determined under GAAP, as well as Adjusted EBITDA, to evaluate the Company's financial performance.
Management compensates for the limitations of Adjusted EBITDA as an analytical tool by reviewing the comparable GAAP measures, understanding the differences between the measures and incorporating this knowledge into management's decision-making processes.
Quarter Ended Six Months Ended
-------------
June 30, June 30, March 31, June 30,
--------
2010 2009 2010 2010 2009
---- ---- ---- ---- ----
Net income
(loss) $(957,009) $191,805 $(234,393) $(1,191,402) $56,367
Interest
expense 41,917 43,407 41,344 83,261 83,831
Income
taxes (435,936) (2,914) (133,378) (569,314) (79,096)
Depreciation,
depletion
and
amortization
expense 168,958 141,600 197,331 366,289 302,652
Acquisition
expense - - 43,453 43,453 -
Consent
solicitation
and
severance
costs 1,444,092 - 98,870 1,542,962 -
Non-cash
stock
compensation (48,714) 85,280 18,714 (30,000) 108,253
Gain on
sale of
assets,
net of
tax - (324,997) - - (324,997)
Loss from
discontinued
operations,
net of
tax - 39,255 - - 151,393
Adjusted
EBITDA $213,308 $173,436 $31,940 $245,249 $298,403
(i) Adjusted EBITDA is a non-GAAP financial measure. Please see the note at the end of this press release regarding this non-GAAP financial measure.
(ii) Operating margin is a non-GAAP financial. Please see the note at the end of this press release regarding this non-GAAP financial measure.
SOURCE Gateway Energy Corporation
Next Article: InfoSonics Reports Second Quarter 2010 Results
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