UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Amendment No. 2
to
FORM 10-QSB/A
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended September 30, 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
incorporation or organization) Identification No.)
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
December 9, 1996
Common Stock, $.001 par value 3,238,677
<PAGE>
TABLE OF CONTENTS
Heading Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements . . . . . . . . . . . . . 1
Consolidated Balance Sheets -- September 30,
1996 and December 31, 1995 . . . . . . . . . . 2
Consolidated Statements of Operations --
three months ended September 30, 1996 and
1995, and nine months ended September 30,
1996 and 1995. . . . . . . . . . . . . . . . . 4
Consolidated Statements of Stockholders' Equity 6
Consolidated Statements of Cash Flows --
three months ended September 30,1996 and
1995, and nine months ended September 30,
1996 and 1995. . . . . . . . . . . . . . . . . 7
Notes to Consolidated Financial Statements . . 9
Item 2. Management's Discussion and Analysis and
Results of Operations. . . . . . . . . . . . . 23
PART II. OTHER INFORMATION
Item 1. Legal Proceedings. . . . . . . . . . . . . . . 27
Item 2. Changes In Securities. . . . . . . . . . . . . 27
Item 3. Defaults Upon Senior Securities. . . . . . . . 27
Item 4. Submission of Matters to a Vote of
Securities Holders . . . . . . . . . . . . . . 27
Item 5. Other Information. . . . . . . . . . . . . . . 27
Item 6. Exhibits and Reports on Form 8-K . . . . . . . 27
SIGNATURES . . . . . . . . . . . . . . . . . . 28
-i-
<PAGE>
PART I
Item 1. Financial Statements
The following unaudited Consolidated Financial Statements for
the period ended September 30, 1996, have been prepared by the
Company.
TRANS ENERGY, INC.
FINANCIAL STATEMENTS
September 30, 1996 and December 31, 1995
<PAGE>
TRANS ENERGY, INC.
Consolidated Balance Sheets
ASSETS
(Restated)
December 31, September 30,
1995 1996
(Unaudited)
CURRENT ASSETS
Cash $ - $ 151,939
Accounts receivable - trade (Note 1) 328,012 305,573
Inventory (Note 1) 15,956 6,605
Total Current Assets 343,968 464,117
FIXED ASSETS (Note 2)
Land 35,000 35,000
Building 65,000 65,000
Vehicles 113,244 141,010
Machinery and equipment 588,493 617,322
Pipeline 2,107,740 2,107,740
Well equipment 290,972 290,972
Wells 3,178,916 3,204,829
Leasehold acreage 263,500 263,500
Accumulated depreciation (1,458,009) (1,608,426)
Total Fixed Assets 5,184,856 5,116,947
OTHER ASSETS
Deferred stock offering costs (Note 1) 275,000 71,091
Goodwill, net (Note 1) 728,013 581,806
Deposits 355 491
Bond (Note 4) 50,000 50,000
Loan acquisition costs 108,187 387,000
Loan - related party (Note 6) 14,899 1,340
Total Other Assets 1,176,454 1,091,728
TOTAL ASSETS $6,705,278 $6,672,792
<PAGE>
TRANS ENERGY, INC.
Consolidated Balance Sheets
LIABILITIES AND STOCKHOLDERS' EQUITY
(Restated)
December 31, September 30,
1995 1996
(Unaudited)
CURRENT LIABILITIES
Accounts payable - trade $ 521,438 $ 902,976
Interest payable 58,981 45,624
Accrued expenses 71,231 121,459
Long-term debt - current portion (Note 3) 554,540 1,040,169
Total Current Liabilities 1,206,190 2,110,228
LONG-TERM LIABILITIES
Loans payable - related parties (Note 6) 683,586 633,722
Notes payable (Note 3) 2,214,922 1,886,947
Total Long-Term Liabilities 2,898,508 2,520,669
Total Liabilities 4,104,698 4,630,897
MINORITY INTERESTS (Note 1) 39,393 -
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 5,629,734 6,452,669
Accumulated deficit (3,071,721) (4,414,013)
Total Stockholders' Equity 2,561,187 2,041,895
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $6,705,278 $6,672,792
<PAGE>
TRANS ENERGY, INC.
Consolidated Statements of Operations
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
1995 1996 1995 1996
REVENUES (Unaudited) (Unaudited) (Unaudited) (Unaudited)
(Restated) (Restated)
Oil and gas sales $825,380 $1,895,025 $ 2,082,597 $ 4,202,029
Other - 1,474 347 1,474
Total Revenues 825,380 1,896,499 2,082,944 4,203,503
COSTS AND EXPENSES
Cost of oil and gas
produced 672,551 1,962,691 1,558,484 3,786,826
Salaries and wages 50,742 27,598 211,828 102,995
Depreciation and
depletion 44,379 99,944 135,505 293,450
Selling, general and
administrative 144,615 204,493 346,165 660,221
Total Costs and Expenses 912,287 2,294,726 2,251,982 4,843,492
Net Income (Loss)
from Operations (86,907) (398,227) (169,038) (639,989)
OTHER INCOME (EXPENSE)
Interest (60,870) (295,546) (130,790) (751,252)
Total Other Income
(Expense) (60,870) (295,546) (130,790) (751,252)
NET INCOME (LOSS) BEFORE
INCOME TAXES AND MINORITY
INTERESTS AND
EXTRAORDINARY INCOME
(LOSS) (147,777) (693,773) (299,828) (1,391,241)
INCOME TAXES - - - -
NET INCOME (LOSS) BEFORE
MINORITY INTERESTS AND
EXTRAORDINARY INCOME
(LOSS) (147,777) (693,773) (299,828) (1,391,241)
MINORITY INTERESTS 10,187 (38) (9,552) 39,393
NET INCOME (LOSS) BEFORE
EXTRAORDINARY INCOME
(LOSS) (137,590) (693,811) (309,380) (1,351,848)
EXTRAORDINARY INCOME (LOSS)
Forgiveness of debt - - - 20,000
Early payoff of debt - - - (10,444)
TOTAL EXTRAORDINARY
INCOME (LOSS) - - - 9,556
NET INCOME (LOSS) $(137,590) $ (693,811) $(309,380) $(1,342,292)
<PAGE>
TRANS ENERGY, INC.
Consolidated Statements of Operations
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
1995 1996 1995 1996
(Unaudited)(Unaudited)(Unaudited)(Unaudited)
(Restated) (Restated)
PRIMARY EARNINGS (LOSS)
PER SHARE
NET INCOME (LOSS) BEFORE
EXTRAORDINARY INCOME $ (0.04) $ (0.21) $ (0.09) $ (0.42)
EXTRAORDINARY INCOME - - - NIL
NET INCOME (LOSS) $ (0.04) $ (0.21) $ (0.09) $ (0.42)
FULLY DILUTED EARNINGS
(LOSS) PER SHARE
NET INCOME (LOSS) BEFORE
EXTRAORDINARY INCOME $ (0.04) $ (0.21) $ (0.09) $ (0.42)
EXTRAORDINARY INCOME - - - NIL
NET INCOME (LOSS) $ (0.04) $ (0.21) $ (0.09) $ (0.42)
<PAGE>
TRANS ENERGY, INC.
Consolidated Statements of Stockholders' Equity
(Restated)
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 $1.50 per share 100,000 100 149,900 -
Common stock issued on
conversion of debentures at
$0.90 per share 50,000 50 44,950 -
Stock options issued for services - - 275,000 -
(Note 8)
Common stock warrants issued
(Note 8) - - 1,345,000 -
Extension of debentures (Note 5) - - 202,032 -
Net loss for the year ended
December 31, 1995 - - - (2,205,078)
Balance,
December 31, 1995 3,174,122 3,174 5,629,734 (3,071,721)
Common stock issued for debenture 55,555 56 49,944 -
(Unaudited)
Common stock issued for services 9,000 9 23,991 -
(Unaudited)
Common stock warrants issued
(Note 8) (Unaudited) - - 774,000 -
Cancellation of stock options issued
for services (Note 8) (Unaudited) - - (275,000) -
Shareholders loans contributed
to capital (Unaudited) - - 250,000 -
Net loss for the nine months ended
September 30, 1996 (Unaudited) - - - (1,342,292)
Balance, September 30, 1996
(Unaudited) 3,238,677 $ 3,239 $6,452,669 $(4,414,013)
<PAGE>
TRANS ENERGY, INC.
Consolidated Statements of Cash Flows
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
1995 1996 1995 1996
CASH FLOWS FROM
OPERATING ACTIVITIES: (Unaudited) (Unaudited) (Unaudited) (Unaudited)
(Restated) (Restated)
Net income (loss) $ (137,590) $ (693,811) $ (384,380) $(1,342,292)
Adjustments to Reconcile
Net Income to Cash
Provided by Operating
Activities:
Depreciation and depletion 44,379 64,765 135,505 371,129
Minority interest (10,187) 38 9,552 (39,393)
Common stock issued for
services - - 150,000 24,000
Changes in Operating Assets
and Liabilities:
Decrease (increase) in
accounts receivable 188,841 35,440 220,553 22,439
Decrease (increase) in
inventory - 323,910 - 9,351
Decrease (increase) in
deposits - - 23 (136)
Decrease (increase) in loan
acquisition costs (37,638) 193,500 (36,712) 367,587
Increase (decrease) in
accounts payable and
accrued expenses (271,406) 307,401 (328,806) 484,862
Increase (decrease) in
interest payable 4,706 9,464 18,428 (13,357)
Cash Provided (Used)
by Operating Activities (218,895) 240,707 (215,837) (115,810)
CASH FLOWS FROM
INVESTING ACTIVITIES:
Purchase of subsidiary (450,000) - (450,000) -
Increase in notes
receivable (2,870) - (5,451) -
Expenditures for property
and equipment (522,456) (44,169) (573,766) (82,508)
Cash Provided (Used)
by Investing Activities $ (975,326) $(44,169) $(1,029,217) $ (82,508)
<PAGE>
TRANS ENERGY, INC.
Consolidated Statements of Cash Flows (Continued)
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
1995 1996 1995 1996
CASH FLOWS FROM FINANCING
ACTIVITIES: (Unaudited) (Unaudited) (Unaudited) (Unaudited)
(Restated) (Restated)
Payment of deferred stock
offering costs $ (75,000) $ (31,591) $ (75,000) $ (71,091)
Borrowings of long-term debt 1,303,052 - 1,420,622 551,309
Loans to related parties - (1,313) - 13,559
Borrowings from related parties - 111,820 - 200,135
Principal payments on
long-term debt - (142,550) (72,372) (343,655)
Cash Provided (Used) by
Financing Activities 1,228,052 (63,634) 1,273,250 350,257
NET INCREASE (DECREASE)
IN CASH 33,831 132,904 28,196 151,939
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 1,468 19,035 7,103 -
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 35,299 $151,939 $ 35,299 $151,939
CASH PAID FOR:
Interest $ 60,870 $ 92,582 $125,090 $260,938
Income taxes $ - $ - $ - $ -
NON-CASH FINANCING ACTIVITIES:
Common stock issued for
services $ - $ - $150,000 $ 24,000
Conversion of debentures to
equity $ - $ - $ - $ 50,000
Warrants issued for loan
acquisition costs $ - $ - $ - $774,000
Shareholder loans contributed
to capital $ - $250,000 $ - $250,000
<PAGE>
TRANS ENERGY, INC.
Notes to the Consolidated Financial Statements
December 31, 1995 and September 30, 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 September 30, 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.
Oil purchased for resale is recorded at cost and carried in
inventory when it is collected from the supplier. The sale
is recorded when the oil is delivered to the pipeline.
c. Prior Period Adjustments
The results of operations for the three and nine months
ended September 30, 1996 have been rested to correct the
application of accounting principles related to the
treatment of the value of additional shares pursuant to the
extension of convertible debentures and the valuation of
Bridge Warrants issued in March 1996. The effect of the
related adjustments increased net loss before extraordinary
items by $158,321 and $579,783 for the three
and nine months ended September 30, 1996, respectively.
Primary and fully diluted loss per share for the three and
nine months ended September 30, 1996 both increased before and
after extraordinary income (loss) by $(0.04) and $(0.18) per
share, respectively, as a result of the related adjustments. The
effect of the adjustments on primary and fully diluted income (loss)
per share for extraordinary income (loss) was negligible for the three
and nine month periods ended September 30, 1996.
d. 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.
e. Provision for Taxes
At December 31, 1995, and September 30, 1996 the Company
had net operating loss carryforwards totaling approximately
$3,100,000 and $4,400,000, 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.
f. Cash Equivalents
The Company considers all highly liquid investments with a
maturity of three months or less when purchased to be cash
equivalents.
g. 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.
<PAGE>
TRANS ENERGY, INC.
Notes to the Consolidated Financial Statements
December 31, 1995 and September 30, 1996
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
h. 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.
i. 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 September 30, 1996 after writing
off all accounts determined to be uncollectible.
j. Inventory
Inventory at December 31, 1995 and September 30, 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.
k. 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 September 30, 1996 was $63,240 and $206,209,
respectively.
l. 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
<PAGE>
TRANS ENERGY, INC.
Notes to the Consolidated Financial Statements
December 31, 1995 and September 30, 1996
NOTE 2 - FIXED ASSETS (Continued)
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.
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 $1,100,000 including the
assumption of $300,000 in debt to a customer of Vulcan.
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 September 30, 1996:
December 31, September 30,
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 -
Calhoun County Bank, secured by oil and gas well
interests, payable in monthly installments of $3,136
including interest at variable rates, (lender's base
rate of 9.75% as of December 31, 1995) matures
September 1, 1996. 59,472 53,166
Balance forward $ 116,977 $ 53,116
<PAGE>
TRANS ENERGY, INC.
Notes to the Consolidated Financial Statements
December 31, 1995 and September 30, 1996
NOTE 3 - LONG-TERM DEBT (Continued)
December 31, September 30,
1995 1996
(Unaudited)
Balance forward $ 116,977 $ 53,116
Calhoun County Bank, secured by oil and gas well
interests, payable in monthly installments of
$1,029 including interest at variable rates,
(lender's base rate of 9,75% as of December
31, 1995) matures February 13, 1996. 9,164 7,539
Calhoun County Bank, secured by oil and gas well
interests, payable in monthly installments of $3,651
including interest at variable rates, (lender's base
rate of 9,75% as of December 31, 1995) matures
February 19, 1996. 43,359 36,455
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 10,218
Wesbanco Bank, secured by vehicle, principal
and interest payments of $155 at 10.25%
interest rate, matures September 30, 1997. 3,115 1,979
First National Bank of St. Marys, $9,244 payable
monthly, 12.5% interest rate, secured by
equipment. 657,632 635,382
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 3,825
United National Bank, interest payable quarterly,
variable rate (prime 1% or 9.75% as of
December 31, 1995), 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
Balance forward $1,275,999 $1,171,941
<PAGE>
TRANS ENERGY, INC.
Notes to the Consolidated Financial Statements
December 31, 1995 and September 30, 1996
NOTE 3 - LONG-TERM DEBT (Continued)
December 31, September 30,
1995 1996
(Unaudited)
Bank of Paden City, secured by officers'
personal assets, demand note, interest
payments due monthly at 9.75%. 100,000 100,000
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
Note due private company, secured by officers
guarantee, due September 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. 545,909 491,317
Bank of Paden City, secured by officers personal
assets, matures on August 19, 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
Commercial Bank, secured by officers guarantee,
due September 28, 1996, with interest at 11.25%. - 12,995
Bank of Paden City, secured by officers guarantee,
due December 5, 1996 with interest at 10%. - 20,000
Note due private individual, secured by officers
guarantee, due November 7, 1996, with interest
at 20%. - 100,000
Various equipment purchase contracts secured
by vehicles. 82,354 54,688
Less Current Portion (554,540) (1,040,169)
Total Long-Term Debt $2,214,922 $ 1,886,947
<PAGE>
TRANS ENERGY, INC.
Notes to the Consolidated Financial Statements
December 31, 1995 and September 30, 1996
NOTE 3 - LONG-TERM DEBT (Continued)
In March 1996 the Company completed a bridge financing of
$600,000 of Unsecured Notes and 330,000 Bridge Warrants.
Of the $600,000 in Unsecured Notes, $270,000 of the
previously secured note holders converted to Unsecured Note
holders. Under the terms of the Unsecured Notes, Interest
is accrued at the rate of 12% per annum. The principal is
due and payable upon completion of the Company's proposed
public offering or on March 321, 1997. See Note 8 for a
discussion regarding the Bridge Warrants.
Schedule of Maturities
1996 $554,540
1997 954,785
1998 160,735
1999 143,938
2000 and thereafter 955,464
Total $2,769,462
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 remaining debenture
having a total face value of $50,000, was due on April 1,
1996. Subsequent to December 31, 1995, the $50,000
debenture was converted into 55,555 shares of common stock.
As an incentive to the debenture holder for extending the
due date of the debenture, on December 1, 1995 they were
given the right to receive the number of post-split shares
they were to have received pre-split. The value of the
additional shares issued has been recorded as loan costs
and amortized over the period until the debenture was
converted.
NOTE 6 - RELATED PARTY TRANSACTIONS
a. Loans
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 September 30, 1996
totalled $14,899 and $1,340, respectively. Loans payable
at December 31, 1995 and September 30, 1996 totalled
$683,586, and $633,722, respectively. In the third quarter
of 1996, $250,000 of the loans payable were contributed to
capital.
<PAGE>
TRANS ENERGY, INC.
Notes to the Consolidated Financial Statements
December 31, 1995 and September 30, 1996
NOTE 6 - RELATED PARTY TRANSACTIONS (Continued)
b. Management Agreement
A Company owned by an officer of The Company's subsidiary
Vulcan Energy Corporation (Vulcan) owns the remaining 20%
of Vulcan's stock. The management company is entitled to
a management fee of $252,000 per year and 20% of net
profits before taxes loss 20% of the principal paid to the
seller of Vulcan. This 20% net profits interest has had no
effect on the Company's financial statements since the
subsidiary has generated a net loss up through September
30, 1996.
NOTE 7 - ECONOMIC DEPENDENCE AND MAJOR CUSTOMERS
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. Another customer also generated sales in excess of
10% of the Company's total sales. Sales to this customer
made up approximately 14% of net revenues in 1995. 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 valued at the
difference between the exercise price and the trading price
of the shares. Accordingly the Company incurred $275,000
of customary fees in 1995. On March 29, 1996, the
consultant returned to the option for cancellation. The
option was not exercised and was cancelled without
consideration, therefore the cancellation was accounted for
as a decrease of paid in capital and the related asset.
The Company also received $5,000 during December of 1995
for the purchase of 500,000 Bridge Warrants at $0.01 per
Warrant. The Company issued 48,750 additional Bridge
Warrants as compensation for the sale of the Bridge
Warrants which were later surrendered to the Company for no
consideration. The Bridge Warrants were valued at the
average trading price when issued and expensed to interest
during the year ended December 31, 1995. The Bridge
Warrants are convertible into 1 share of common stock at
$0.50 per share for up to eighteen months. Upon the
effective registration of the Company's proposed stock
offering (Note 10), the $0.50 common stock conversion
option of the Bridge Warrants will terminate and the Bridge
Warrants will automatically convert into 2 Redeemable
Warrants exercisable at 110% of the proposed offering price
which will be approximately $5.00 per share.
In connection with the extension of the due date of a note
payable the Company granted the noteholder a warrant to
purchase up to 50,000 shares of the company's common stock
at $2.25 per share.
The Company issued 330,000 Bridge Warrants in March 1996 in
conjunction with the completion of a $600,000 bridge
financing composed of Unsecured Notes (See Note 3).
<PAGE>
TRANS ENERGY, INC.
Notes to the Consolidated Financial Statements
December 31, 1995 and September 30, 1996
NOTE 8 - COMMON STOCK, OPTIONS AND WARRANTS (Continued)
These Bridge Warrants are exercisable for 18 months form
the date of issue and entitle the holder thereof to
purchase 1 share of common stock at $0.50 per share. The
Bridge Warrants were valued at the average trading price
when issued and are being amortized to interest expense
over 12 months. Upon the effective registration for the
Company's proposed stock offering (Note 10), the $0.50
common stock conversion option of these Bridge Warrants
will terminate and the Bridge Warrants will automatically
convert into 2 Redeemable Warrants exercisable at 110% of
the proposed offering price which will be approximately
$5.00 per share. If the Bridge Warrants are converted, the
unamortized balance of the cost will be expensed
immediately.
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 - OTHER TRANSACTIONS
a. 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.
b. Forgiveness of Debt
In February 1996, $20,000 of the management fee payable by
Vulcan was forgiven by the management company.
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 September 30, 1996
NOTE 12 - CONSOLIDATED PROFORMA STATEMENTS OF OPERATIONS (Continued)
For the Year Ended
December 31, 1995
Vulcan Trans
Energy Energy and Proforma
Corporation Subsidiaries Adjustments Combined
(Restated) (Restated)
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
Salaries and wages 142,444 178,558 - 321,002
Depreciation and
depletion 11,303 228,692 105,500 345,495
Selling, general and
administrative 59,993 1,833,338 - 1,893,331
Total Costs and
Expenses 1,707,551 4,633,495 105,500 6,446,546
INCOME (LOSS)
FROM OPERATIONS (84,596) (1,805,333) (105,500) (1,995,429)
OTHER INCOME (EXPENSE)
Interest income 697 444 - 1,141
Interest expense (1,004) (347,282) (112,006) (460,292)
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 (389,342) (112,006) (494,472)
NET INCOME (LOSS) BEFORE
MINORITY INTERESTS (77,720) (2,194,675) (217,506) (2,489,901)
MINORITY INTERESTS - (10,403) - (10,403)
NET INCOME (LOSS) $ (77,720) $(2,205,078) $ (217,506) $(2,500,304)
EARNINGS (LOSS)
PER SHARE $ (0.02) $ (0.71) $ (0.07) $ (0.80)
<PAGE>
TRANS ENERGY, INC.
S.F.A.S. 69 Supplemental Disclosures
December 31, 1995 and September 30, 1996
(Unaudited)
S.F.A.S. 69 SUPPLEMENTAL DISCLOSURES
(1) Capitalized Costs Relating to
Oil and Gas Producing Activities
December 31, September 30,
1995 1996
(Unaudited)
Proved oil and gas producing properties
and related lease and well equipment $3,733,388 $3,759,301
Accumulated depreciation and depletion (390,540) (431,976)
Net Capitalized Costs $3,342,848 $3,327,325
(2) Costs Incurred in Oil and Gas Property
Acquisition, Exploration, and Development Activities
For the For the Nine
Year Ended Months Ended
December 31, September 30,
1995 1996
(Unaudited)
Acquisition of Properties
Proved $ - $ -
Unproved 100,000 -
Exploration Costs - -
Development Costs - 25,913
The Company does not have any investments accounted for by the
equity method.
<PAGE>
TRANS ENERGY, INC.
S.F.A.S. 69 Supplemental Disclosures
December 31, 1995 and September 30, 1996
(Unaudited)
S.F.A.S. 69 SUPPLEMENTAL DISCLOSURES (CONTINUED)
(3) Results of Operations for
Producing Activities
For the For the Nine
Year Ended Months Ended
December 31, September 30,
1995 1996
(Unaudited)
Sales $205,152 $ 253,692
Production costs (110,141) (136,202)
Depreciation and depletion (10,556) (9,952)
Results of operations
for producing activities
(excluding corporate
overhead and interest
costs) $ 84,455 $ 107,538
(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 (2,208) (72,306)
Quantity estimates made - -
Balance, September 30, 1996 196,862 1,717,348
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 September 1996 196,862 1,717,348
<PAGE>
TRANS ENERGY, INC.
S.F.A.S 69 Supplemental Disclosures
December 31, 1995 and September 30, 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 September 30, 1996
(Unaudited)
Trans Energy
and
Subsidiaries
Future cash inflows $19,358,130
Future production and development costs (6,937,592)
Future net inflows before income taxes 12,420,538
Future income tax expense (4,222,983)
Future net cash flows 8,197,555
10% annual discount for estimated timing of cash flows (4,251,160)
Standardized measure of discounted future net cash flows $3,946,395
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 September 30, 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 Nine
Year Ended Months Ended
December 31, September 30,
1995 1996
(Unaudited)
Standardized measure, beginning of year $ 3,602,626 $ 4,063,885
Oil and gas sales, net of production costs (107,818) (117,490)
Sales of mineral in place - -
Quantity estimates made 569,077 -
Standardized measure, end of period $4,063,885 $ 3,946,395
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.
(6) Earnings (Loss) Per share Data
December 31, September 30,
1995 1996
(Unaudited)
(Restated) (Restated)
Primary earnings (loss) per share
Weighted average outstanding shares 3,116,435 3,233,298
Income (loss) before extraordinary income $ (0.71) $ (0.42)
Extraordinary income $ - $ NIL
Fully diluted earnings (loss) per share
Weighted average outstanding shares 3,182,415 3,233,298
Income (loss) before extraordinary income $ (0.71) $ (0.42)
Extraordinary income $ - $ NIL
<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 and nine
month periods ended September 30, 1996 and 1995. It should be
noted that percentages discussed throughout this analysis are
stated on an approximate basis.
Three Months Ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
(Unaudited) (Unaudited)
Total revenues . . . . . 100% 100% 100% 100%
Total costs and expenses . 137 118 133 114
Net income (loss) before
income taxes, minority
interest and
extraordinary income
(loss). . . . . . . . . (37) (18) (33) (14)
Income taxes . . . . . . (0) (0) (0) (0)
Minority interest. . . . (0) 1 1 (1)
Extraordinary income (loss) - - Nil -
Net income (loss). . . . (37) (17) (32) (15)
Results of Operations
The reults of operations for the three months and nine months
ended September 30, 1996 have been restated. Please refer to Note 1c
to the accompanying financial statements.
Total revenues for the three month period ended September 30,
1996 ("third quarter of 1996") and the nine month period ended
September 30, 1996 ("first nine months of 1996"), increased 130%
and 102%, respectively, as compared to the corresponding periods
for 1995 ("third quarter of 1995" and "first nine months of 1995",
respectively). This increase is primarily attributed to the
acquisition by the Company of Vulcan Energy Corp. ("Vulcan") on
August 7, 1995 and a decrease in new drilling activities for
oil and gas wells in the areas serviced by the Company's pipelines,
leading to reliance on existing wells with diminishing volumes of
recoverable oil and gas. During the first nine months of 1996,
the Company arranged a line of credit to Vulcan from
United Factors, L.L.C. ("United Factors") which has allowed
Vulcan to purchase larger quantities of oil than it was
historically able to finance. The increase in revenues is also due
to the increase in the market prices for natural gas and oil in
1996.
Total costs and expenses as a percentage of total revenues
increased for the third quarter of 1996 as compared to the
corresponding 1995 period, and also increased for the first nine
months of 1996 as compared to the first nine months of 1995.
Actual costs and expenses for the third quarter of 1996 and first
nine months of 1996 increased 166% and 1353%, respectively,
as compared to the corresponding 1995 periods. These increases are
primarily attributed to the 192% increase in cost of oil and gas
sales for the third quarter of 1996, and the 143% increase in the
cost of oil and gas sales for the first nine months of 1996.
Because the increase in the costs of sales was larger than the
increase in sales, the Company's loss from operations increased
from $86,907 to $398,227, and from $169,038 to
$639,989 in the comparative three month and nine month
periods of 1996.
Salaries and wages decreased 46% and 51% for the third quarter
of 1996 and first nine months of 1996, respectively, due to the
issuance by the Company in 1995 of common stock for additional
compensation for services rendered to the Company valued at
$150,000. Depreciation and depletion increased 125% for the third
quarter of 1996 and 117% for the first nine months of 1996,
respectively, because of the goodwill acquired in the Vulcan
purchase. Interest increased 386% for the third quarter of
1996 and 474% for the first nine months of 1996,
respectively, as compared to the respective corresponding periods
in 1995, attributed to the debt incurred in the Vulcan acquisition,
the additional debt incurred for working capital, and the
issuance of Bridge Warrants in the Company's March 1996 bridge
financing. Selling general and administrative expenses
increased 41% for the third quarter of 1996 and 91%
for the first nine months of 1996 as compared to the
corresponding 1995 periods, reflecting increased overhead due to
the Company's expanded oil sale operations.
For the nine months year ended September 30, 1996, the Company
derived its revenues from the following sources:
Percentage of
Revenues for
Nine Months Nine Months
Ended Ended
September 30, 1996 September 30, 1996
Gas Pipeline Sales $ 732,162 17%
Vulcan Energy Sales 3,217,649 77%
Other Production Sales 253,692 6%
The Company's subsidiary, Tyler Construction Company,
continued to generate losses which resulted in an adjustment to
the minority interest account of $38 for the third quarter of 1996
and $39,393 for the first nine months of 1996. The Company
experienced net losses for the third quarter and first nine months
of 1996 of $693,811 and $1,342,292, respectively, compared
to net losses of $137,590 and $309,380 for the corresponding 1995
periods, primarily attributed to the increase in the cost of oil
and gas sales and the increased overhead activities of the Company,
the issuance of Bridge Warrants in connection with the raising
of $600,000 through the placement of Unsecured Notes by the
Company, and the issuance of additional shares to the Debenture
Holders as consideration for extending the due date of said
Debentures.
For the remainder of 1996, management expects salaries and
wages and other general and administrative expenses to remain at
approximately the same rate that existed in the third 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
revenues are expected to fluctuate with market prices of oil and
gas during the remainder of 1996.
Net Operating Losses
The Company has accumulated approximately $4,400,000
of net operating loss carryforwards as of September 30, 1996, which
may be offset against future taxable income through the year 2011
when the carryforwards expire. The use of these losses to reduce
future income taxes will depend on the generation of sufficient
taxable income prior to the expiration of the net operating loss
carryforwards. In the event of certain changes in control of the
Company, there will be an annual limitation on the amount of net
operating loss carryforwards which can be used. No tax benefit has
been reported in the financial statements for the period ended
September 30,1996 because the potential tax benefits of the loss
carryforwards are offset by a valuation allowance of the same
amount.
Liquidity and Capital Resources
Historically, the Company's working capital needs have been
satisfied through its operating revenues and from borrowed funds.
As of September 30, 1996, the Company's working capital was a
negative $1,646,111 compared with a negative $862,222 at December
31, 1995. This decrease in working capital for the first nine
months of 1996 is primarily attributed to due dates of certain
loans to the Company which will become due in less than one year
from September 30, 1996.
The Company presently has a single line of credit with the
Bank of Paden City in the amount of $100,000. Such line is
currently fully drawn down.
Vulcan's arrangement with its suppliers require payment by the
20th day of the month following the month in which a supplier
delivers oil to Vulcan. Consequently, Vulcan requires substantial
amounts of available cash to pay its suppliers. Failure to pay
suppliers on a timely basis could result in the termination of
Vulcan's supply arrangements. In the event Vulcan is unable to
generate sufficient cash from operations or other sources, such
inability would have a material adverse impact on Vulcan's
business. Management believes that the assignment of net profits
interest will have no impact on the Company's liquidity or
operations.
Vulcan has experienced cash flow problems for the fiscal years
ended December 31, 1993, 1994 and 1995 and for the nine month
period ended September 30, 1996. The Company has infused an
aggregate of $440,550 in working capital into Vulcan.
<PAGE>
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 its proposed public
offering. If the Company is unable to realize sufficient funds
from its public offering or from private lenders, management
believes that the Company can continue operations on its existing
wells and oil and gas gathering operations.
The Company believes that in the absence of the public
offering, cash flows from operations will be sufficient to cover
the general and administrative costs of the Company, including
salaries and wages. The Company used $115,810 in cash in
its operating activities for the nine month period ended September
1996, compared to $215,837 in the corresponding 1995 period. In
the event that the proposed public offering does not close before
December 31, 1996, the Company would immediately negotiate the
extension of the current portion of its long-term debt which makes
up almost one-half (49%) of current liabilities. Management
believes that it can negotiate an extension of the due dates of
approximately $800,000 of the current portion of its long-term debt
for an additional one-year period. The Company also believes that
$600,000 of the $800,000 previously discussed could be converted
into stockholders' equity. For the balance of the approximately
$200,000 of the current portion of its long-term debt, the Company
believes that it will be able to secure financing from both private
and institutional lenders. Vulcan has in place a
$1,000,000 line of credit for the factoring of Vulcan's accounts
receivable pursuant to a Purchase and Sale Agreement with
United Factors, which enables Vulcan to buy and sell oil at its
present levels. United Factors purchases eligible accounts
receivable from Vulcan at a base price of 80% of the eligible
receivable plus a bonus ranging from 18.75% to 14.00% of such
receivable if such receivable is paid between 10 and 50 days from
the date of the invoice for such receivable. Such line of credit
is secured by a security interest in Vulcan's account receivable
and is personally guaranteed by Loren E. Bagley and William F.
Woodburn, President and Vice-President of the Company, by F. Worthy
Walker, President of Vulcan, and by the Company. The Company,
in anticipation of further growth, has expanded its overhead
activities. In the event the proposed public offering does not
occur, the Company intends to eliminate costs associated with such
expansion, approximately $15,000 per month, without affecting
revenues. Such elimination would be effective starting January 1,
1997.
As of September 30, 1996, the Company had total assets of
$6,672,792 and total stockholders' equity of
$2,041,895, compared to total assets of $6,705,278
and total stockholders' equity of $2,561,187 at December 31,
1995. This represents a $32,486 (.5%) increase in total
assets and a $519,292 (20%) decrease in total stockholders
equity. For this same period, cash increased from $0 to $151,939
and total current assets increased 35% due to increased cash.
Total current liabilities increased 75% from December 31, 1995 to
September 30, 1996, primarily due to certain loans of the Company
which become due in less than one year from September 30, 1996.
The Company's current portion of its long term debt is
$1,040,169. In 1995 and 1996, certain outstanding convertible
debentures having a face value of $95,000 plus accrued interest,
were converted to common stock.
For the third quarter of 1996 cash provided by the Company's
operating activities was $240,707 compared to cash used of $218,895
for the third quarter of 1995. For the first nine months of 1996,
cash used by operating activities was $115,810 compared to
cash used of $215,837 for the corresponding period in 1995. Net
cash used by investing activities for the third quarter and first
nine months of 1996 was $44,169 and $82,508, respectively, compared
to $975,326 and $1,029,217 for each of the corresponding periods of
1995. The decreases for the 1996 periods are attributed to
decreases in expenditures by the Company for property and equipment
and also acquisitions during the 1996 periods. Cash used by
financing activities for the third quarter of 1996 was $63,634 and
cash provided for the first nine months of 1996 was
$350,257, respectively, compared with cash provided of
$1,228,052 and $1,273,250 for the corresponding 1995 periods. The
decreases for the 1996 periods are directly attributed to a
decrease in borrowing by the Company.
The Company projects that it will attempt to increase the
production of approximately 30 of its wells by installing
artificial lift, or pumping mechanisms during the second half of
1996 at a projected cost of approximately $175,000. The Company
has installed four such artificial lift systems during the first
nine months of 1996 at an average cost of $5,200.
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.
<PAGE>
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
(a) Exhibit 27 - Financial Data Schedules
(b) Reports on Form 8-K
No report on Form 8-K was filed by the Company during the
three month period ended September 30, 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: December 17, 1996 By /S/ Loren E. Bagley
(Signature)
LOREN E. BAGLEY, President
and Chief Executive Officer
Date: December 17, 1996 By /S/ Dennis L. Spencer
(Signature)
Dennis L. Spencer,
Secretary and Director
(Chief Financial Officer)
(Principal Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE TRANS ENERGY, INC. FINANCIAL
STATEMENTS FOR THE PERIOD ENDED SEPTEMBER 30, 1996
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 151,939
<SECURITIES> 0
<RECEIVABLES> 315,273
<ALLOWANCES> 9,700
<INVENTORY> 6,605
<CURRENT-ASSETS> 464,117
<PP&E> 6,725,373
<DEPRECIATION> 1,608,426
<TOTAL-ASSETS> 6,672,792
<CURRENT-LIABILITIES> 2,110,228
<BONDS> 2,520,669
0
0
<COMMON> 3,239
<OTHER-SE> 6,452,669
<TOTAL-LIABILITY-AND-EQUITY> 6,672,792
<SALES> 4,202,029
<TOTAL-REVENUES> 4,203,503
<CGS> 3,786,826
<TOTAL-COSTS> 3,786,826
<OTHER-EXPENSES> 1,056,666
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 717,309
<INCOME-PRETAX> (1,317,905)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 20,000
<CHANGES> 0
<NET-INCOME> (1,297,905)
<EPS-PRIMARY> (.40)
<EPS-DILUTED> (.40)
</TABLE>
