UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended March 31, 1996
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 Number 0-23530
TRANS ENERGY, INC.
(Exact name of small business issuer as specified in its charter)
Nevada 93-0997412
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
210 Second Street, P.O. Box 393, St. Marys, West Virginia 26170
(Address of principal executive offices)
Registrant's telephone no., including area code: (304) 684-7053
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past
12 months (or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes X No
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date.
Class Outstanding as of March 31, 1996
Common Stock, $.001 par value 3,238,677
TABLE OF CONTENTS
Heading Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements . . . . . . . . . . . . . 1
Consolidated Balance Sheets -- March 31, 1996
and December 31, 1995 . . . 2
Consolidated Statements of Operations -- three
months ended March 31, 1996 and 1995 . . . . . . 4
Consolidated Statements of Stockholders' Equity . 5
Consolidated Statements of Cash Flows -- three
months ended March 31, 1996 and 1995 . . . . . . . . 6
Notes to Consolidated Financial Statements . . . 8
Item 2. Management's Discussion and Analysis and
Results of Operations . 21
PART II. OTHER INFORMATION
Item 1. Legal Proceedings. . . . . . . . . . . . . . . 23
Item 2. Changes In Securities. . . . . . . . . . . . . 23
Item 3. Defaults Upon Senior Securities. . . . . . . . 23
Item 4. Submission of Matters to a Vote of
Securities Holders. 23
Item 5. Other Information. . . . . . . . . . . . . . . 23
Item 6. Exhibits and Reports on Form 8-K . . . . . . . 23
SIGNATURES. . . . . . . . . . . . . . . . . . . . 24
-i-
<PAGE>
PART I
Item 1. Financial Statements
The following unaudited Consolidated Financial Statements for the period
ended March 31, 1996 and December 31, 1995, have been prepared by the Company.
TRANS ENERGY, INC.
CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1996 and December 31, 1995
<PAGE>
TRANS ENERGY, INC.
Consolidated Balance Sheets
ASSETS
December 31, March 31,
1995 1996
(Unaudited)
CURRENT ASSETS
Cash $ - $ 38,021
Accounts receivable - trade (Note 1) 328,012 419,059
Inventory (Note 1) 15,956 40,761
Total Current Assets 343,968 497,841
FIXED ASSETS (Note 2)
Land 35,000 35,000
Building 65,000 65,000
Vehicles 113,244 113,244
Machinery and equipment 588,493 611,225
Pipeline 2,107,740 2,107,740
Well equipment 290,972 290,972
Wells 3,178,916 3,178,916
Leasehold acreage 263,500 263,500
Accumulated depreciation (1,458,009) (1,507,890)
Total Fixed Assets 5,184,856 5,157,707
OTHER ASSETS
Deferred stock offering costs (Note 1) 275,000 75,000
Goodwill, net (Note 1) 728,013 688,450
Deposits 355 491
Bond (Note 4) 50,000 50,000
Loan acquisition costs 44,387 39,554
Loan - related party (Note 6) 14,899 15,337
Total Other Assets 1,112,654 868,832
TOTAL ASSETS $ 6,641,478 $ 6,524,380
<PAGE>
TRANS ENERGY, INC.
Consolidated Balance Sheets
LIABILITIES AND STOCKHOLDERS' EQUITY
December 31, March 31,
1995 1996
(Unaudited)
CURRENT LIABILITIES
Accounts payable - trade $ 521,438 $ 658,472
Interest payable 58,981 45,624
Accrued expenses 71,231 60,554
Long-term debt - current portion (Note 3) 554,540 947,213
Total Current Liabilities 1,206,190 1,711,863
LONG-TERM LIABILITIES
Loans payable - related parties (Note 6) 683,586 722,002
Notes payable (Note 3) 2,214,922 1,955,302
Total Long-Term Liabilities 2,898,508 2,677,304
Total Liabilities 4,104,698 4,389,167
MINORITY INTERESTS (Note 1) 39,393 23,433
STOCKHOLDERS' EQUITY (Note 9)
Common Stock: 30,000,000 shares authorized
at $0.001 par value; 3,174,122 and 3,238,677
shares issued and outstanding, respectively 3,174 3,239
Capital in excess of par value 4,012,702 3,886,637
Accumulated deficit (1,518,489) (1,778,096)
Total Stockholders' Equity 2,497,387 2,111,780
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 6,641,478 $6,524,380
<PAGE>
TRANS ENERGY, INC.
Consolidated Statements of Operations
For the Three Months
Ended March 31,
1995 1996
REVENUES (Unaudited) (Unaudited)
Oil and gas sales $ 573,213 $ 781,132
Other 347 -
Total Revenues 573,560 781,132
COSTS AND EXPENSES
Cost of oil and gas 396,632 657,639
Salaries and wages 92,792 40,821
Depreciation and depletion 31,336 94,278
Selling, general and administrative 89,266 201,601
Total Costs and Expenses 610,026 994,339
Net Income (Loss) from Operations (36,466) (213,207)
OTHER INCOME (EXPENSE)
Interest (34,837) (62,360)
Total Other Income (Expense) (34,837) (62,360)
NET INCOME (LOSS) BEFORE INCOME
TAXES AND MINORITY INTERESTS (71,303) (275,567)
INCOME TAXES - -
NET INCOME (LOSS) BEFORE MINORITY
INTERESTS (71,303) (275,567)
MINORITY INTERESTS (13,425) 15,960
NET INCOME (LOSS) $ (84,728) $ (259,607)
EARNINGS (LOSS) PER SHARE
PRIMARY $ (0.03) $ (0.08)
FULLY DILUTED $ (0.03) $ (0.08)
<PAGE>
TRANS ENERGY, INC.
Consolidated Statements of Stockholders' Equity
Capital in
Common Shares Excess of Accumulated
Shares Amount Par Value Deficit
Balance,
December 31, 1994 3,024,122 $ 3,024 $ 3,612,852 $ (866,643)
Common stock issued for
services at $0.75 per share 100,000 100 74,900 -
Common stock issued on
conversion of debentures at
$0.90 per share 50,000 50 44,950 -
Stock options issued for services - - 275,000 -
Common stock warrants issued
(Note 8) - - 5,000 -
Net loss for the year ended
December 31, 1995 - - - (651,846)
Balance,
December 31, 1995 3,174,122 3,174 4,012,702 (1,518,489)
Common stock issued
for debenture 55,555 56 49,944 -
(Unaudited)
Common stock issued
for services 9,000 9 23,991 -
(Unaudited)
Cancellation of stock options
issued for services (Note 8)
(Unaudited) - - 200,000) -
Net loss for the three months
endedMarch 31, 1996 (Unaudited) - - - (259,607)
Balance, March 31, 1996
(Unaudited) 3,238,677 $ 3,239 $3,886,637 $(1,778,096)
<PAGE>
TRANS ENERGY, INC.
Consolidated Statements of Cash Flows
For the Three Months
Ended March 31,
1995 1996
CASH FLOWS FROM OPERATING ACTIVITIES: (Unaudited) (Unaudited)
Net income (loss) $ (84,728) $ (259,607)
Adjustments to Reconcile Net Income to Cash
Provided by Operating Activities:
Depreciation, depletion 31,336 94,278
Minority interest 13,425 (15,960)
Common stock issued for services 75,000 24,000
Changes in Operating Assets and Liabilities:
Decrease (increase) in accounts receivable - (91,047)
Decrease (increase) in inventory 44,202 (24,805)
Decrease (increase) in deposits - (136)
Decrease (increase) in loan acquisition costs 463 -
Increase (decrease) in accounts payable
and accrued expenses 16,994 126,357
Increase (decrease) in interest payable - (13,357)
Cash Provided (Used) by Operating Activities 96,692 (160,277)
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for property and equipment - (22,732)
Cash Provided (Used) by Investing Activities $ - $ (22,732)
<PAGE>
TRANS ENERGY, INC.
Consolidated Statements of Cash Flows (Continued)
For the Three Months
Ended March 31,
1995 1996
CASH FLOWS FROM FINANCING ACTIVITIES: (Unaudited) (Unaudited)
Borrowings of long-term debt $ - $ 337,378
Loans to related parties - (438)
Borrowings from related parties - 38,415
Principal payments on long-term debt (72,372) (154,325)
Cash Provided (Used) by Financing Activities (72,372) 221,030
NET INCREASE (DECREASE) IN CASH 24,320 38,021
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 7,103 -
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 31,423 $ 38,021
CASH PAID FOR:
Interest $ 31,987 $ 75,717
Income taxes $ - $ -
NON-CASH FINANCING ACTIVITIES:
Common stock issued for services $ 75,000 $ -
Conversion of debentures to equity $ - $ 50,000
<PAGE>
TRANS ENERGY, INC.
Notes to the Consolidated Financial Statements
December 31, 1995 and March 31, 1996
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Organization
The Company was originally incorporated in the State of Idaho on January
16, 1964 under the name of Alter Creek Mining Company, Inc.
The Company was engaged in mining activities in the 1960's. The Company
was inactive for several years but started up operations again in August
of 1987. The Articles of Incorporation were reinstated on September 4,
1987. On January 11, 1988, the Company changed its name to Apple
Corporation. In 1988, the Company acquired oil and gas leases and
other assets from Ben's Run Oil Company (a Virginia limited partnership)
and has since engaged in the business of oil and gas production.
At a meeting on September 22, 1993, the shareholders approved
a reverse stock split of the outstanding common
shares at a rate of 2 shares for every 5 shares
outstanding. This reduced the outstanding shares
to 1,024,122. All references to shares
outstanding and earnings per share have been
retroactively restated to reflect the
reverse stock split.
The shareholders also approved the acquisition of certain oil
and gas assets and stock in exchange for stock of the Company.
On November 15, 1993, the following shares were issued;
250,000 shares of common stock to the shareholders of
The Pipeline, Ltd, 500,000 shares of common stock to
the shareholders of Ritchie County Gathering Systems,
Inc. and 750,000 shares to the majority shareholders
of Tyler Construction Company, Inc. The acquisition
was accounted for as a combination under the purchase
method of accounting using predecessor cost.
Predecessor cost was used because the owners of
the acquiring company are substantially the same
as the owners of the acquired companies.
In other words, they are considered to be co-promoters.
On November 5, 1993, the Board of Directors caused to
be incorporated in the State of Nevada, a new corporation
by the name of Trans Energy, Inc., with the specific
intent of effecting a merger between Trans Energy,
Inc. of Nevada and Apple Corp. of Idaho, for the
sole purpose of changing the domicile of the Company
to the State of Nevada. On November 15, 1993, Apple
Corp. and the newly formed Trans Energy, Inc.
executed a merger agreement whereby the shareholders
of Apple Corp. exchanged all of their issued and
outstanding shares of common stock for an equal
number of shares of Trans Energy, Inc. common stock.
Trans Energy, Inc. was the surviving corporation
and Apple Corp. was dissolved.
On November 15, 1993, the Company also purchased certain
oil and gas assets of Dennis Spencer. The purchase price
was 500,000 shares of the Company's common stock.
This acquisition of the subsidiary has been accounted
for using the purchase method of accounting which is
based on the market value of the assets acquired at
the time of acquisition. As a result of these
transactions, there were 3,024,122 shares of common
stock issued and outstanding at December 31, 1994.
<PAGE>
TRANS ENERGY, INC.
Notes to the Consolidated Financial Statements
December 31, 1995 and March 31, 1996
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
b. Accounting Method
The Company's financial statements are prepared using the accrual
method of accounting. The successful efforts method of accounting
is used for oil and gas exploration and production activities
which states that total net capitalized costs, as a minimum test,
may not exceed future undiscounted net cash flows. In any
period that total net capitalized costs exceed future undiscounted
net cash flows, the excess will be charged to current operations.
The Company has elected a calendar year end.
c. Loss per Share of Common Stock
The loss per share of common stock is based on the weighted
average number of shares issued and outstanding at the date
of the financial statements.
d. Provision for Taxes
At December 31, 1995, and March 31, 1996 the Company had net
operating loss carryforwards totaling approximately $1,500,000
and $1,750,000, respectively, may be offset against future
taxable income through 2011. No tax benefit has been reported
in the financial statements, because the potential tax benefits
of the net operating loss carryforwards is offset by a valuation
allowance of the same amount.
e. Cash Equivalents
The Company considers all highly liquid investments with a maturity
of three months or less when purchased to be cash equivalents.
f. Principles of Consolidation
The consolidated financial statements include the Company and
its wholly owned subsidiaries, Ritchie County Gathering Systems,
The Pipeline Ltd., Dennis Spencer Wells, its 65% owned
subsidiary, Tyler Construction Company, Inc. and its 80% owned
subsidiary, Vulcan Energy Corporation. All significant
intercompany accounts and transactions have been eliminated.
g. Depreciation
Fixed assets are stated at cost. Depreciation on vehicles,
pipelines, machinery, equipment and well equipment is provided
using the straight line method over expected useful lives of
five to fifteen years. Wells are being depreciated using
the units-of-production method on the basis of total
estimated units of proved reserves.
h. Accounts Receivable
Accounts receivable are shown net of the allowance for doubtful
accounts. This amount was determined to be $9,700 at
December 31, 1995 and March 31, 1996 after writing off
all accounts determined to be uncollectible.
<PAGE>
TRANS ENERGY, INC.
Notes to the Consolidated Financial Statements
December 31, 1995 and March 31, 1996
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
i. Inventory
Inventory at December 31, 1995 and March 31, 1996 consists
of crude oil held for resale and is stated at the lower of
cost (computed on a first-in, first-out basis) or market.
j. Goodwill
Goodwill was recorded from the purchase of Vulcan
Energy Corporation on August 7, 1995 (see Note 2).
The amount is amortized using the straight-line
method over a useful life of five years.
Accumulated amortization at December 31, 1995
and March 31, 1996 was $63,240 and $101,184, respectively.
k. Deferred Stock Offering Costs
The Company has capitalized the costs incurred in connection
with its proposed stock offering. The costs will be charged
to paid-in capital upon completion of the offering.
NOTE 2 - FIXED ASSETS
The Company acquired oil and gas leases from Ben's Run Oil Company
(a Virginia limited partnership) in 1988 along with other assets
and liabilities in exchange for shares of the Company's common stock.
The assets were recorded at predecessor cost since the former owners
of Ben's Run Oil Company became the controlling shareholders of the
Company. The assets acquired had been fully amortized or
depreciated. Therefore, they were recorded at a cost of $0.
In January of 1989 the Company acquired interests in oil and gas
producing properties from Black Petroleum Corporation (Black).
In exchange for the interests acquired, the Company paid
$100,000 cash, 160,790 shares of common stock and assumed
certain liabilities of Black. The value of the stock issued was
based on the estimated fair market value of the properties
acquired less cash paid and liabilities assumed.
The purchase price for oil and gas properties totaled
$2,015,109. The purchase price also included the payment
of an 18 3/4 percent override royalty on all future revenues
from the properties in which Black had a 50 percent or greater
interest and 25 percent of the net revenues of all
properties in which Black had a less than 50 percent interest
together with an agreement affecting all future issuances of
capital stock by the Company. This agreement requires that,
at all times, Black is entitled to maintain a 20 percent
equity interest in the Company. This requirement expired
on January 30, 1994. The cost of the Black properties
was recorded net of the royalty. The acquisition included
interests in wells located in Texas, Oklahoma, Kansas,
and West Virginia. Shortly after the acquisition from Black,
the Company sold its interests in all the wells located in
Texas, Oklahoma and Kansas for a total of $37,920 in cash.
The Company then had a formal study and appraisal of the oil
and gas reserves performed on the West Virginia properties.
Based upon this study and appraisal, the Company estimated
the fair market value of the properties to be $2,015,109 at
the time of acquisition. However, due to the uncertainties
involved in estimating oil and gas reserves, there is no
assurance that the Company will fully recover this amount
recorded as the investment in the properties.
On November 15, 1994, the Company acquired six oil and gas wells
at a cost of $1,082,222 and other equipment totaling $8,710 from Dennis
Spencer in exchange for shares of the Company's common stock.
All assets were recorded at their market value (which was
approximately the same as book value) at the time of acquisition
based on the purchase method of accounting.
<PAGE>
TRANS ENERGY, INC.
Notes to the Consolidated Financial Statements
December 31, 1995 and March 31, 1996
NOTE 2 - FIXED ASSETS (Continued)
Based upon the reserve estimates, depletion and depreciation on these
properties and the related equipment is computed under the
units-of-production method as required by generally accepted
accounting principles. In 1994 and 1993, the Company refurbished
a number of wells. In 1995, the Company obtained a reserve study
which showed that the oil and gas reserves are higher than
originally reported because the fix-up work allowed the producing
wells to produce greater quantities and put some non-productive
wells into production. During 1994, the Company purchased
leasehold acreage in Ohio known as Rose Run for $287,000.
The acreage was purchased from shareholders of the Company
in part for forgiveness of receivables from those shareholders.
The balance of the purchase price of $135,867 is carried
on the books as a related party loan payable.
On August 7, 1995, the Company purchased 80 percent of the issued
and outstanding stock of Vulcan Energy Corporation, a Texas
corporation, for $800,000 plus the assumption of $300,000
in debt. Vulcan will continue to operate as a subsidiary of
the Company. Vulcan Energy is located twenty miles southwest
of San Antonio and is engaged in the oil gathering and
marketing business.
NOTE 3 - LONG-TERM DEBT
The Company had the following debt obligations at December 31, 1995
and March 31, 1996:
December 31, March 31,
1995 1996
(Unaudited)
Convertible Debentures (Note 5) $ 50,000 $ -
Bank of Paden City, secured by gas pipeline,
interest and principal payments of $1,846
due monthly at 9.0% interest beginning
March 1994. 7,505 2,096
Calhoun County Bank, secured by oil and
gas well interests, payable in monthly
installments of $3,136 including
interest at variable rates, matures
June 1, 1996. 59,472 57,813
Calhoun County Bank, secured by oil and
gas well interests, payable in monthly
installments of $1,029 including
interest at variable rates, matures
February 13, 1996. 9,164 8,363
Calhoun County Bank, secured by oil and
gas well interests, payable in monthly
installments of $3,651 including
interest at variable rates, matures
February 19, 1996. 43,359 40,433
Balance forward $ 169,500 $ 108,705
<PAGE>
TRANS ENERGY, INC.
Notes to the Consolidated Financial Statements
December 31, 1995 and March 31, 1996
NOTE 3 - LONG-TERM DEBT (Continued)
December 31, March 31,
1995 1996
(Unaudited)
Balance forward $ 169,500 $ 108,705
New York Life, secured by cash value in policy,
principal and interest payments of $480 per
month at 7.25% interest rate. 18,617 18,617
Wesbanco Bank, secured by oil and gas wells,
principal and interest payments of $841 at
12.5% interest rate, matures October 11, 1997. 17,328 15,107
Wesbanco Bank, secured by vehicle,
principal and interest payments of $155 at
10.25% interest rate, matures September 30, 1997. 3,115 2,700
First National Bank of St. Marys, $9,244
payable monthly, variable rate, secured
by equipment. 657,632 650,106
Union Bank of Tyler County, interest at
11.5% due quarterly, renewable,
secured by equipment. 19,810 19,810
Note due private company, principal and interest
of $163 payable monthly, interest rate of
10.75%, secured by vehicle. 4,997 4,394
United National Bank, interest payable
quarterly, variable rate, principal payment
of $50,000 due annually, secured by equipment. 285,000 285,000
Note due private individual, secured by officers'
personal guarantee, due March 15, 1997,
interest due monthly at 12%. 100,000 100,000
Bank of Paden City, secured by officers'
personal assets, demand note, interest
payments due monthly at 9.75%. 100,000 79,064
Note due private individual, secured by
officers' personal guarantee, due May 31,
1997, interest due monthly at 12%. 150,000 150,000
Note due private company, secured by officers'
personal assets, due on October 15, 1997,
with interest at 18%. 135,000 92,725
Balance forward $ 1,660,999 $ 1,526,228
<PAGE>
TRANS ENERGY, INC.
Notes to the Consolidated Financial Statements
December 31, 1995 and March 31, 1996
NOTE 3 - LONG-TERM DEBT (Continued)
December 31, March 31,
1995 1996
(Unaudited)
Balance forward $ 1,660,999 $ 1,526,228
Note due private company, secured by
officers guarantee, due June 30, 1997,
with interest at 18%. 100,000 53,200
Notes due Secured Promissory Note Holders,
secured by accounts receivable, due April
24, 1997, with interest at 12%. 300,000 600,000
Note payable to Ross Forbus in equal
monthly installments of $6,529 with
interest at 7.5%, secured by assets
of subsidiary, matures on
September 22, 2005. 545,909 536,555
Bank of Paden City, secured by officers
personal assets, matures on February 21,
1996, interest due monthly at 10%. 30,200 30,200
Demand Note due Petrol Marketing
Corporation on October 31, 1995 with
no stated interest rate. 50,000 50,000
Various equipment purchase contracts
secured by vehicles. 82,354 106,332
Less Current Portion (554,540) (947,213)
Total Long-Term Debt $ 2,214,922 $ 1,955,302
Schedule of Maturities
1996 $ 554,540
1997 954,785
1998 160,735
1999 143,938
2000 and thereafter 955,464
Total $ 2,769,462
<PAGE>
TRANS ENERGY, INC.
Notes to the Consolidated Financial Statements
December 31, 1995 and March 31, 1996
NOTE 4 - BOND
Under the laws of the state of West Virginia, the Company is required
to place funds in a deposit account with the state when drilling for
oil and gas reserves. The Company placed $50,000 in this reserve
fund. This fund has been established to cover future site restoration,
dismantlement and abandonment costs. No additional restoration
costs have been recorded due to the fact the Company does not own
the land and its involvement will be minimal.
NOTE 5 - CONVERTIBLE DEBENTURES
The Company assumed obligations on debentures issued by Ben's Run
Oil Co. during 1988. The debentures, having a total face value of
$50,000, were due on April 1, 1996. However, subsequent to
December 31, 1995, the remaining $50,000 was converted into
55,555 shares of common stock.
NOTE 6 - RELATED PARTY TRANSACTIONS
At the end of December 1995, there were several related party loans
payable and loans receivable outstanding. The receivable amount
is non-interest bearing and considered short-term in nature.
The payable amount is also non-interest bearing and considered
long-term in nature. Loans receivable at December 31, 1995 and
March 31, 1996 totalled $14,899 and $15,337, respectively.
Loans payable at December 31, 1995 and March 31, 1996 totalled
$683,586, and $722,002, respectively.
NOTE 7 - ECONOMIC DEPENDENCE
The Company is provided its office space at no cost by Sancho Oil
and Gas Corporation (Sancho),a company owned by one of its major
shareholders. The Company's marketing arrangement with Sancho
accounted for approximately 45% of the Company's revenue for the
year ended December 31, 1995. This marketing agreement is in effect
until December 1, 2003. No other single customer accounted for
more than 10% of the Company's business.
In addition to the natural gas produced by the Company's wells,
it also purchased natural gas. Approximately 33% of the amount
purchased by the Company was from Key Oil pursuant to a certain
marketing agreement. No other supplier accounted for more than
10% of the Company's natural gas purchasers.
NOTE 8 - COMMON STOCK OPTIONS AND WARRANTS
On October 1, 1995, the Company issued an option to a consultant to
purchase 100,000 shares of its common stock at $0.001 per share.
The option was cancelled on March 29, 1996. The Company also received
$5,000 during December of 1995 for the purchase of 500,000 stock
warrants at $0.01 per warrant. The warrants are convertible to
common stock at $0.50 per share for up to two years. Upon the
effective registration of the Company's proposed stock offering
(Note 10), the warrants convert to redeemable warrants redeemable
at 120% of the proposed offering price which will be approximately
$4.00 per share. The amount is being treated as additional
capital contributed until the warrants are exercised.
<PAGE>
TRANS ENERGY, INC.
Notes to the Consolidated Financial Statements
December 31, 1995 and March 31, 1996
NOTE 9 - COMMITMENTS AND CONTINGENCIES
The Company leases office space at its Dallas location under a one year
noncancellable operating lease at $1,747 per month. The lease term expires
in February 1997.
NOTE 10 - GOING CONCERN
The Company's financial statements are prepared using generally accepted
accounting principles applicable to a going concern which contemplates the
realization of assets and liquidation of liabilities in the normal
course of business. The Company has incurred operating losses for
the years ended December 31, 1995, 1994 and 1993. Revenues have not been
sufficiently established to cover its operating costs and to allow it to
continue as a going concern. The Company, having recently purchased
an 80% equity ownership of Vulcan Energy Corporation (the Subsidiary),
has replaced management and recapitalized the Subsidiary with a $200,000
working capital infusion. The Company has also entered into a letter of
intent with L.B. Saks, Inc., a New York investment firm, to do an
underwriting for a minimum of $3,000,000. The Company believes that
the acquisition and the proceeds from the public offering will help the
Company continue as a going concern.
NOTE 11 - LINE OF CREDIT
In 1996, the Company obtained a $1,000,000 line of credit with a lending
institution. Interest accrues on the unpaid balance at varying rates
depending on the outstanding balance. The line of credit will be used
by Vulcan to secure purchases of oil.
NOTE 12 - CONSOLIDATED PROFORMA STATEMENTS OF OPERATIONS
The historical information contained herein has been consolidated on a
proforma basis. The purchase of oil and gas assets from Vulcan Energy
Corporation as described in Notes 1 and 2 was effective August 7, 1995.
The purchase has been presented as though it was effective January 1,
1995. All significant accounting policies for Vulcan Energy Corporation
are the same as the Company's as defined in Note 1. No proforma
adjustments for depreciation and depletion have been recorded because
the market value of Vulcan Energy Corporation is approximately the
same as predecessor cost.
<PAGE>
TRANS ENERGY, INC.
Notes to the Consolidated Financial Statements
December 31, 1995 and March 31, 1996
NOTE 12 - CONSOLIDATED PROFORMA STATEMENTS OF OPERATIONS (Continued)
For the
Period Ended
August 31, For the Year Ended
1995 December 31, 1995
Vulcan Trans
Energy Energy and Proforma
Corporation Subsidiaries Combined
OIL AND GAS SALES $ 1,622,955 $ 2,828,162 $ 4,451,117
COST AND EXPENSES
Cost of oil and gas 1,493,811 2,392,907 3,886,718
Selling, general and
administrative 59,993 418,338 478,331
Salaries and wages 142,444 178,558 321,002
Depreciation, depletion
and amortization 11,303 228,692 239,995
Total Costs and Expenses 1,707,551 3,218,495 4,926,046
INCOME (LOSS) FROM OPERATIONS (84,596) (390,333) (474,929)
OTHER INCOME (EXPENSE)
Interest income 697 444 1,141
Interest expense (1,004) (209,050) (210,054)
Gain on disposition of assets 7,683 2,046 9,729
Bad debt expense (500) (44,550) (45,050)
Total Other Income (Expense) 6,876 (251,110) (244,234)
NET INCOME (LOSS) BEFORE
MINORITY INTERESTS (77,720) (641,443) (719,163)
MINORITY INTERESTS - (10,403) (10,403)
NET INCOME (LOSS) $ (77,720) $ (651,846) $ (729,566)
EARNINGS (LOSS) PER SHARE $ (0.02) $ (0.21) $ (0.23)
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TRANS ENERGY, INC.
S.F.A.S. 69 Supplemental Disclosures
December 31, 1995 and March 31, 1996
(Unaudited)
S.F.A.S. 69 SUPPLEMENTAL DISCLOSURES
(1) Capitalized Costs Relating to
Oil and Gas Producing Activities
December 31, March 31,
1995 1996
(Unaudited)
Proved oil and gas producing properties
and related lease and well equipment $ 3,733,388 $ 3,733,388
Accumulated depreciation and depletion (390,540) (404,352)
Net Capitalized Costs $ 3,342,848 $ 3,329,036
(2) Costs Incurred in Oil and Gas Property
Acquisition, Exploration, and Development Activities
For the For the Three
Year Ended Months Ended
December 31, March 31,
1995 1996
(Unaudited)
Acquisition of Properties
Proved $ - $ -
Unproved 100,000 -
Exploration Costs - -
Development Costs - -
The Company does not have any investments accounted for by the
equity method.
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TRANS ENERGY, INC.
S.F.A.S. 69 Supplemental Disclosures
December 31, 1995 and March 31, 1996
(Unaudited)
S.F.A.S. 69 SUPPLEMENTAL DISCLOSURES (CONTINUED)
(3) Results of Operations for
Producing Activities
For the For the Three
Year Ended Months Ended
December 31, March 31,
1995 1996
(Unaudited)
Sales $ 205,152 $ 68,794
Production costs (110,141) (36,934)
Depreciation and depletion (10,556) (2,639)
Results of operations
for producing activities
(excluding corporate
overhead and interest
costs) $ 84,455 $ 29,221
(4) Reserve Quantity Information
Oil Gas
BBL MCF
Proved developed and undeveloped reserves:
Balance, December 31, 1994 200,485 1,457,405
Production (1,103) (89,874)
Quantity estimates made (312) 422,123
Balance, December 31, 1995 199,070 1,789,654
(Unaudited)
Production (711) (13,147)
Quantity estimates made - -
Balance, March 31, 1996 198,359 1,776,507
Proved developed reserves:
Oil Gas
BBL MCF
Beginning of the year 1995 200,485 1,457,405
End of the year 1995 199,070 1,789,654
Beginning of the year 1996 199,070 1,789,654
End of March 1996 198,359 1,776,507
<PAGE>
TRANS ENERGY, INC.
S.F.A.S 69 Supplemental Disclosures
December 31, 1995 and March 31, 1996
S.F.A.S 69 SUPPLEMENTAL DISCLOSURES (CONTINUED)
(4) Reserve Quantity Information (Continued)
During 1995, 1992, 1991 and 1990, the Company had reserve studies and
estimates prepared on the various properties acquired from Black
Petroleum Corporation. The difficulties and uncertainties involved in
estimating proved oil and gas reserves makes comparisons between
companies difficult. Estimation of reserve quantities is subject to
wide fluctuations because it is dependent on judgmental interpretation of
geological and geophysical data.
(5) Standardized Measure of Discounted
Future Net Cash Flows Relating to
Proved Oil and Gas Reserves
At December 31, 1995
Trans Energy
and
Subsidiaries
Future cash inflows $ 19,846,963
Future production and development costs (7,125,060)
Future net inflows before income taxes 12,721,903
Future income tax expense (4,325,447)
Future net cash flows 8,396,456
10% annual discount for estimated timing
of cash flows (4,332,571)
Standardized measure of discounted future
net cash flows $4,063,885
At March 31, 1996
(Unaudited)
Trans Energy
and
Subsidiaries
Future cash inflows $ 19,778,169
Future production and development costs (7,088,126)
Future net inflows before income taxes 12,690,043
Future income tax expense (4,314,615)
Future net cash flows 8,375,428
10% annual discount for estimated timing
of cash flows (4,343,403)
Standardized measure of discounted future
net cash flows $ 4,032,025
Future income taxes were determined by applying the statutory income tax rate
to future pre-tax net cash flow relating to proved reserves.
<PAGE>
TRANS ENERGY, INC.
S.F.A.S 69 Supplemental Disclosures
December 31, 1995 and March 31, 1996
S.F.A.S 69 SUPPLEMENTAL DISCLOSURES (CONTINUED)
The following schedule summarizes changes in the standardized measure of
discounted future net cash flow relating to proved oil and gas reserves:
For the For the Three
Year Ended Months Ended
December 31, March 31,
1995 1996
(Unaudited)
Standardized measure, beginning of year $ 3,602,626 $ 4,063,885
Oil and gas sales, net of production costs (107,818) (31,860)
Sales of mineral in place - -
Quantity estimates made 569,077 -
Standardized measure, end of period $ 4,063,885 $ 4,032,025
The above schedules relating to proved oil and gas reserves, standardized
measure of discounted future net cash flows and changes in the standardized
measure of discounted future net cash flows have their foundation in
engineering estimates of future net revenues that are derived from proved
reserves and with the assumption of current pricing and current costs of
production for oil and gas produces in future periods. These reserve
estimates are made from evaluations conducted by Sam M. Deal, and
independent geologist, of such properties and will be periodically
reviewed based upon updated geological and production date. Estimates of
proved reserves are inherently imprecise. The above standardized measure
does not include any restoration costs due to the fact the Company does
not own the land.
Subsequent development and production of the Company's reserves will
necessitate revising the present estimates. In addition, information
provided in the above schedules does not provide definitive information
as the results of any particular year but, rather, helps explain and
demonstrate the impact of major factors affecting the Company's oil and
gas producing activities. Therefore, the Company suggests that all of the
aforementioned factors concerning assumptions and concepts should be
taken into consideration when reviewing and analyzing this information.
December 31, March 31,
1995 1996
(Unaudited)
Weighted average outstanding
shares based on primary
earnings per share 3,116,435 3,217,159
Primary earnings per share $ (0.21) $ (0.08)
Weighted average outstanding
shares based on fully
diluted earnings per share 3,182,415 3,217,159
Fully diluted earnings per share $ (0.20) $ (0.08)
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following table sets forth the percentage relationship to total
revenues of principal items contained in the Company's Consolidated Statements
of Operations for the three month periods ended March 31, 1996 and 1995.
It should be noted that percentages discussed throughout this analysis are
stated on an approximate basis.
Three Months Ended
March 31,
1996 1995
(Unaudited)
Total revenues . . . . . . . . . . . . . 100 % 100 %
Total costs and expenses . . . . . . . 127 106
Net income (loss) from operations. . . . (27) (6)
Total other income (expenses). . . . . . (8) (6)
Net income (loss) before income taxes
and minority interest. (35) (13)
Income taxes . . . . . . . . . . . . . . - -
Minority interest. . . . . . . . . . . . 2 (2)
Net income (loss). . . . . . . . . . . . (33) (15)
Results of Operations
Total revenues for the three months ended March 31, 1996
("first quarter of 1996") increased 36% when compared with the three months
ended March 31, 1995 ("first quarter of 1995"). This increase is attributed
to the corresponding 36% improvement in oil and gas sales for the same period
due to the increase in certain natural gas prices for gas sold by the Company
and the additional revenues realized from the operations of Vulcan Energy
Corporation ("Vulcan"), acquired by the Company on August 7, 1995.
These results were partially offset by the Company's decision not to purchase
gas from its suppliers at a price higher than management believed it could
resell the gas. Total costs and expenses as a percentage of total revenues
increased from 106% in the first quarter of 1995 to 127% for the first
quarter of 1996, corresponding with the 63% increase in actual costs and
expenses for the first quarter of 1996 compared to the 1995 period.
This increase is primarily attributed to the 66% increase in cost of
oil and gas produced due to the higher oil and gas sales in the first
quarter of 1996. Also contributing to the increase in total costs and
expenses for the first quarter of 1996 was the 201% increase in
depreciation and depletion from the corresponding 1995 period,
and the 79% increase in interest expense, both due to the acquisition
of Vulcan and the fact that the acquisition resulted in increased borrowings.
General and administrative expenses increased 126% for the first quarter of
1996 primarily attributed to increased losses in the operation of Vulcan
and to additional expenses incurred in preparation for anticipated increased
revenues. These increases in costs and expenses for the first quarter of 1996
were partially offset by the 56% decrease in salaries and wages.
The Company's minority interests were $15,960 for the first quarter of
1996 compared to a negative $13,425 for the first quarter of 1995, due to
losses by a 65% owned subsidiary. The Company's net loss for the first
quarter of 1996 was $259,607 compared to $84,728 for the first quarter of
1995. Despite the 36% increase in oil and gas sales for the first quarter
of 1996, the Company's realized an increase in net loss attributed primarily
to the 201% increase in depreciation and depletion, and the 126% increase in
general and administrative expenses due to increased expenses in preparation
of anticipated increased revenues from Vulcan.
For the remainder of fiscal year 1996, management expects salaries and
wages and other general and administrative expenses to remain at
approximately the same level as for the first quarter of 1996.
The cost of oil and gas produced is expected to fluctuate with
the amount produced and with prices of oil and gas, and management
anticipates that revenues are likely to increase during the remainder of 1996.
Liquidity and Capital Resources
Historically, the Company's working capital needs have been satisfied
through its operating revenues and from borrowed funds. Working capital
at March 31, 1996 of a negative $1,214,022 decreased from a negative
$862,222 at December 31, 1995. This change is primarily attributed to
the maturity dates of certain loans to the Company which will become due in
less than one year from March 31, 1996. The decrease in working capital was
partially offset by increased revenues which increased accounts receivable
28% from $328,012 on December 31, 1995 to $419,059 on March 31, 1996.
The Company anticipates meeting its working capital needs during the
remainder of the current fiscal year with revenues from operations and from
anticipated proceeds from a proposed public offering of the Company's
securities. The Company has entered into a letter of intent with
L.B. Saks, Inc., a New York investment firm, to conduct an underwriting for
a minimum of $3,000,000, which most likely will occur during the second or
third quarter of 1996 although there can be no assurance that such an
offering will be successfully completed. If the Company is unable to
realize funds from the sale of its securities or from private lenders,
management believes that the Company can continue operations of its
existing wells and oil and gas gathering operations. By maximizing
current production and minimizing expenses, management believes the
Company can continue its operations for an extended period until
additional funding can be arranged.
As of March 31, 1996, the Company had total assets of $6,524,380 and total
stockholders' equity of $2,111,780, compared to total assets of $6,641,478
and total stockholders' equity of $2,497,387 at December 31, 1995. This
represents a $117,098 (1.8%) decrease in total assets and a $385,607 (15%)
decrease in total stockholders equity for the period. For this same period,
cash increased from $0 to $38,021 and total current assets increased 45% due
to increased cash and the increase in accounts receivable. Total current
liabilities increase 42% primarily attributed to certain loans of the
Company which become due in less than one year from March 31, 1996.
For the first quarter of 1996, the Company experienced a negative cash
flows from operating activities of $160,277, compared to net cash provided
by operating activities of $96,692 for the first quarter of 1995.
These results are primarily attributed to the Company's net loss for the
first quarter of 1996 and increase in accounts receivable of $91,047.
At March 31, 1996, the Company's current portion of its long term debt
was $947,213. In 1995 and 1996, certain outstanding convertible debentures
having a face value of $95,000 plus accrued interest were converted into
common stock. The Company currently anticipates that it will be able to
provide for its debt obligations and repayments coming due during the
remainder of 1996 from operating revenues generated by the Company and
from its proposed public offering.
In the opinion of management, inflation has not had a material effect on
the operations of the Company.
PART II
Item 1. Legal Proceedings
There are presently no material pending legal proceedings to which the
Company or any of its subsidiaries is a party or to which any of its
property is subject and, to the best of its knowledge, no such actions
against the Company are contemplated or threatened.
Item 2. Changes In Securities
This Item is not applicable to the Company.
Item 3. Defaults Upon Senior Securities
This Item is not applicable to the Company.
Item 4. Submission of Matters to a Vote of Security Holders
This Item is not applicable to the Company.
Item 5. Other Information
This Item is not applicable to the Company.
Item 6. Exhibits and Reports on Form 8-K
(b) Reports on Form 8-K
No report on Form 8-K was filed by the Company during the three
month period ended March 31, 1996.
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934,
the Registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
TRANS ENERGY, INC.
Date: June 2, 1996 By /S/ Loren E. Bagley
(Signature)
LOREN E. BAGLEY, President, Chief Executive
Officer and Principal Financial Officer
