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 June 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 June 30, 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 -- June 30, 1996
and December 31, 1995. . . . . . . . . . . . . 2
Consolidated Statements of Operations --
three months ended June 30, 1996 and
1995, and six months ended June 30, 1996
and 1995 . . . . . . . . . . . . . . . . . . . 4
Consolidated Statements of Stockholders' Equity 5
Consolidated Statements of Cash Flows --
three months ended June 30,1996 and 1995, and
six months ended June 30, 1996 and 1995. . . . 6
Notes to Consolidated Financial Statements . . 8
Item 2. Management's Discussion and Analysis and
Results of Operations. . . . . . . . . . . . . 28
PART II. OTHER INFORMATION
Item 1. Legal Proceedings. . . . . . . . . . . . . . . 31
Item 2. Changes In Securities. . . . . . . . . . . . . 31
Item 3. Defaults Upon Senior Securities. . . . . . . . 31
Item 4. Submission of Matters to a Vote of
Securities Holders . . . . . . . . . . . . . . 31
Item 5. Other Information. . . . . . . . . . . . . . . 31
Item 6. Exhibits and Reports on Form 8-K . . . . . . . 31
SIGNATURES . . . . . . . . . . . . . . . . . . 32
-i-
<PAGE>
PART I
Item 1. Financial Statements
The following unaudited Consolidated Financial Statements for
the period ended June 30, 1996, have been prepared by the Company.
TRANS ENERGY, INC.
FINANCIAL STATEMENTS
June 30, 1996 and December 31, 1995
<PAGE>
TRANS ENERGY, INC.
Consolidated Balance Sheets
ASSETS
December 31, June 30,
1995 1996
(Unaudited)
CURRENT ASSETS
Cash $ - $ 19,035
Accounts receivable - trade (Note 1) 328,012 341,013
Inventory (Note 1) 15,956 330,515
Total Current Assets 343,968 690,563
FIXED ASSETS (Note 2)
Land 35,000 35,000
Building 65,000 65,000
Vehicles 113,244 113,244
Machinery and equipment 588,493 617,322
Pipeline 2,107,740 2,107,740
Well equipment 290,972 290,972
Wells 3,178,916 3,188,426
Leasehold acreage 263,500 263,500
Accumulated depreciation (1,458,009) (1,557,570)
Total Fixed Assets 5,184,856 5,123,634
OTHER ASSETS
Deferred stock offering costs (Note 1) 275,000 125,000
Goodwill, net (Note 1) 728,013 648,887
Deposits 355 491
Bond (Note 4) 50,000 50,000
Loan acquisition costs 94,262 194,537
Loan - related party (Note 6) 14,899 27
Total Other Assets 1,162,529 1,018,942
TOTAL ASSETS $6,691,353 $6,833,139
<PAGE>
TRANS ENERGY, INC.
Consolidated Balance Sheets
LIABILITIES AND STOCKHOLDERS' EQUITY
December 31, June 30,
1995 1996
(Unaudited)
CURRENT LIABILITIES
Accounts payable - trade $ 521,438 $ 737,864
Interest payable 58,981 36,160
Accrued expenses 71,231 32,266
Long-term debt - current portion (Note 3) 554,540 1,053,560
Total Current Liabilities 1,206,190 1,859,850
LONG-TERM LIABILITIES
Loans payable - related parties (Note 6) 683,586 771,902
Notes payable (Note 3) 2,214,922 2,016,106
Total Long-Term Liabilities 2,898,508 2,788,008
Total Liabilities 4,104,698 4,647,858
MINORITY INTERESTS (Note 1) 39,393 38
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 4,062,577 3,927,512
Accumulated deficit (1,518,489) (1,745,508)
Total Stockholders' Equity 2,547,262 2,185,243
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $ 6,691,353 $ 6,833,139
<PAGE>
TRANS ENERGY, INC.
Consolidated Statements of Operations
For the Three Months For the Six Months
Ended June 30, Ended June 30,
1995 1996 1995 1996
REVENUES (Unaudited) (Unaudited) (Unaudited) (Unaudited)
Oil and gas sales $684,004 $1,525,872 $1,257,217 $ 2,307,004
Other - - 347 -
Total Revenues 684,004 1,525,872 1,257,564 2,307,004
COSTS AND EXPENSES
Cost of oil and gas 489,301 1,166,496 885,933 1,824,135
Salaries and wages 68,294 34,576 161,086 75,397
Depreciation and
depletion 59,790 99,228 91,126 193,506
Selling, general and
administrative 112,284 189,352 201,550 335,953
Total Costs and
Expenses 729,669 1,489,652 1,339,695 2,428,991
Net Income (Loss)
from Operations (45,665) 36,220 (82,131) (121,987)
OTHER INCOME (EXPENSE)
Forgiveness of debt - - - 20,000
Interest (35,083) (102,103) (69,920) (164,463)
Total Other Income
(Expense) (35,083) (102,103) (69,920) (144,463)
NET INCOME (LOSS) BEFORE
INCOME TAXES AND MINORITY
INTERESTS (80,748) (65,883) (152,051) (266,450)
INCOME TAXES - - - -
NET INCOME (LOSS) BEFORE
MINORITY INTERESTS (80,748) (65,883) (152,051) (266,450)
MINORITY INTERESTS (6,314) 23,471 (19,739) 39,431
NET INCOME (LOSS) $(87,062) $ (42,412) $ (171,790) $ (227,019)
EARNINGS (LOSS) PER SHARE
PRIMARY $ (0.02) $ (0.01) $ (0.05) $ (0.07)
FULLY DILUTED $ (0.02) $ (0.01) $ (0.05) $ (0.07)
<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 -
(Note 8)
Common stock warrants issued
(Note 8) - - 54,875 -
Net loss for the year ended
December 31, 1995 - - - (651,846)
Balance,
December 31, 1995 3,174,122 3,174 4,062,577 (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)
Common stock warrants issued
(Note 8) (Unaudited) - - 66,000 -
Cancellation of stock options issued
for services (Note 8)
(Unaudited) - - (275,000) -
Net loss for the six months ended
June 30, 1996 (Unaudited) - - - (227,019)
Balance, June 30, 1996
(Unaudited) 3,238,677 $ 3,239 $3,927,512 $(1,745,508)
<PAGE>
TRANS ENERGY, INC.
Consolidated Statements of Cash Flows
For the Three Months For the Six Months
Ended June 30, Ended June 30,
1995 1996 1995 1996
CASH FLOWS FROM
OPERATING ACTIVITIES: (Unaudited) (Unaudited (Unaudited) (Unaudited)
Net income (loss) $(87,062) $(42,412) $(171,790) $ (227,019)
Adjustments to Reconcile
Net Income to Cash
Provided by Operating
Activities:
Depreciation, depletion 59,790 99,228 91,126 193,506
Minority interest 6,314 (23,471) 19,739 (39,431)
Common stock issued for
services - - 75,000 24,000
Changes in Operating Assets
and Liabilities:
Decrease (increase) in
accounts receivable (12,490) 78,046 31,712 (13,001)
Decrease (increase) in
inventory - (289,754) - (314,559)
Decrease (increase) in
deposits 23 - 23 (136)
Decrease (increase) in
loan acquisition costs 463 (49,017) 926 (49,017)
Increase (decrease) in
accounts payable and
accrued expenses (70,114) 51,104 (57,400) 177,461
Increase (decrease) in
interest payable 9,442 (9,464) 13,722 (22,821)
Cash Provided (Used)
by Operating
Activities (93,634) (185,740) 3,058 (271,017)
CASH FLOWS FROM
INVESTING ACTIVITIES:
Increase in notes
receivable (2,581) - (2,581) -
Expenditures for property
and equipment (51,310) (15,607) (51,310) (38,339)
Cash Provided (Used)
by Investing
Activities $ (53,891) $(15,607) $(53,891) $ (38,339)
<PAGE>
TRANS ENERGY, INC.
Consolidated Statements of Cash Flows (Continued)
For the Three Months For the Six Months
Ended June 30, Ended June 30,
1995 1996 1995 1996
CASH FLOWS FROM FINANCING
ACTIVITIES: (Unaudited) (Unaudited) (Unaudited)(Unaudited)
Payment of deferred stock
offering costs $ - $ (50,000) $ - $(125,000)
Borrowings of long-term debt 117,570 213,931 117,570 551,309
Loans to related parties - 15,310 - 14,872
Borrowings from related parties - 49,900 - 88,315
Principal payments on
long-term debt - (46,780) (72,372) (201,105)
Cash Provided (Used) by
Financing Activities 117,570 182,361 45,198 328,391
NET INCREASE (DECREASE)
IN CASH (29,955) (18,986) (5,635) 19,035
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 31,423 38,021 7,103 -
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 1,468 $ 19,035 $ 1,468 $ 19,035
CASH PAID FOR:
Interest $ 32,233 $ 92,639 $ 64,220 $168,356
Income taxes $ - $ - $ - $ -
NON-CASH FINANCING ACTIVITIES:
Common stock issued for
services $ - $ - $ 75,000 $ -
Conversion of debentures to
equity $ - $ - $ - $ 50,000
Warrants issued for loan
acquisition costs $ - $ - $ - $ 66,000
<PAGE>
TRANS ENERGY, INC.
Notes to the Consolidated Financial Statements
December 31, 1995 and June 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 June 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.
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 June 30, 1996 the Company had net
operating loss carryforwards totaling approximately
$1,500,000 and $1,700,000, 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 June 30, 1996 after writing off
all accounts determined to be uncollectible.
<PAGE>
TRANS ENERGY, INC.
Notes to the Consolidated Financial Statements
December 31, 1995 and June 30, 1996
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
i. Inventory
Inventory at December 31, 1995 and June 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.
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 June 30, 1996 was $63,240 and $139,128,
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 June 30, 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
June 30, 1996:
December 31, June 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 June 1, 1996. 59,472 54,581
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 7,895
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 38,172
Balance forward $169,500 $100,648
<PAGE>
TRANS ENERGY, INC.
Notes to the Consolidated Financial Statements
December 31, 1995 and June 30, 1996
NOTE 3 - LONG-TERM DEBT (Continued)
December 31, June 30,
1995 1996
(Unaudited)
Balance forward $169,500 $100,648
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 12,356
Wesbanco Bank, secured by vehicle,
principal and interest payments of $155 at
10.25% interest rate, matures September 30, 1997. 3,115 2,384
First National Bank of St. Marys, $9,244
payable monthly, 12.5% interest rate, secured
by equipment. 657,632 642,542
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 4,025
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
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
Balance forward $1,660,999 $1,528,107
<PAGE>
TRANS ENERGY, INC.
Notes to the Consolidated Financial Statements
December 31, 1995 and June 30, 1996
NOTE 3 - LONG-TERM DEBT (Continued)
December 31, June 30,
1995 1996
(Unaudited)
Balance forward $1,660,999 $1,528,107
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. 545,909 510,848
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. 82,354 164,316
Less Current Portion (554,540) (1,053,560)
Total Long-Term Debt $2,214,922 $2,016,106
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 June 30, 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
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 June 30, 1996 totalled
$14,899 and $27, respectively. Loans payable at December
31, 1995 and June 30, 1996 totalled $683,586, and $771,902,
respectively.
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 June 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.
<PAGE>
TRANS ENERGY, INC.
Notes to the Consolidated Financial Statements
December 31, 1995 and June 30, 1996
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.
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.
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.
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.
<PAGE>
TRANS ENERGY, INC.
Notes to the Consolidated Financial Statements
December 31, 1995 and June 30, 1996
NOTE 11 - OTHER TRANSACTIONS (Continued)
c. Cancellation of Option
On March 29,1996, the consultant returned to option for
cancellation. The option was not exercised and was
cancelled without consideration, therefore the cancellation
was accounted for as a decrease in the paid-in capital and
the related expense was also decreased.
d. Secured Promissory Notes and Bridge Warrants
In March 1996 the Company issued an additional $300,000 of
secured promissory notes to the Company 330,000 Bridge
Warrants. The warrants are exercisable for 18 months from
the date of issue and entitle the holder thereof to
purchase 1 share of common stock at $0.50 per share.
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 June 30, 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 Adjustments 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 11,303 228,692 105,500 345,495
Total Costs and
Expenses 1,707,551 3,218,495 105,500 5,031,546
INCOME (LOSS)
FROM OPERATIONS (84,596) (390,333) (105,500) (580,429)
OTHER INCOME (EXPENSE)
Interest income 697 444 - 1,141
Interest expense (1,004) (209,050) (112,006) (322,060)
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) (112,006) (356,240)
NET INCOME (LOSS) BEFORE
MINORITY INTERESTS (77,720) (641,443) (217,506) (936,669)
MINORITY INTERESTS - (10,403) - (10,403)
NET INCOME (LOSS) $(77,720) $(651,846) $ (217,506) $(947,072)
EARNINGS (LOSS)
PER SHARE $ (0.02) $ (0.21) $ (0.07) $ (0.30)
<PAGE>
TRANS ENERGY, INC.
S.F.A.S. 69 Supplemental Disclosures
December 31, 1995 and June 30, 1996
(Unaudited)
S.F.A.S. 69 SUPPLEMENTAL DISCLOSURES
(1) Capitalized Costs Relating to
Oil and Gas Producing Activities
December 31, June 30,
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) (418,164)
Net Capitalized Costs $3,342,848 $3,315,224
(2) Costs Incurred in Oil and Gas Property
Acquisition, Exploration, and Development Activities
For the For the Three
Year Ended Months Ended
December 31, June 30,
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.
<PAGE>
TRANS ENERGY, INC.
S.F.A.S. 69 Supplemental Disclosures
December 31, 1995 and June 30, 1996
(Unaudited)
S.F.A.S. 69 SUPPLEMENTAL DISCLOSURES (CONTINUED)
(3) Results of Operations for
Producing Activities
For the For the Six
Year Ended Months Ended
December 31, June 30,
1995 1996
(Unaudited)
Sales $ 205,152 $ 139,290
Production costs (110,141) (74,782)
Depreciation and depletion (10,556) (5,343)
Results of operations
for producing activities
(excluding corporate
overhead and interest
costs) $ 84,455 $ 59,165
(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 (1,005) (42,192)
Quantity estimates made - -
Balance, June 30, 1996 198,065 1,747,462
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 June 1996 198,065 1,747,462
<PAGE>
TRANS ENERGY, INC.
S.F.A.S 69 Supplemental Disclosures
December 31, 1995 and June 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 June 30, 1996
(Unaudited)
Trans Energy
and
Subsidiaries
Future cash inflows $ 19,631,285
Future production and development costs (7,035,486)
Future net inflows before income taxes 12,595,799
Future income tax expense (4,282,572)
Future net cash flows 8,313,227
10% annual discount for estimated timing of cash flows (4,311,146)
Standardized measure of discounted future net cash flows $ 4,002,081
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 June 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 Six
Year Ended Months Ended
December 31, June 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) (61,804)
Sales of mineral in place - -
Quantity estimates made 569,077 -
Standardized measure, end of period $4,063,885 $ 4,002,081
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, June 30,
1995 1996
(Unaudited)
Weighted average outstanding
shares based on primary
earnings per share 3,116,435 3,227,918
Primary earnings per share $ (0.21) $ (0.07)
Weighted average outstanding
shares based on fully
diluted earnings per share 3,182,415 3,227,918
Fully diluted earnings per share $ (0.20) $ (0.07)
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 six
month periods ended June 30, 1996 and 1995. It should be noted
that percentages discussed throughout this analysis are stated on
an approximate basis.
Three Months Ended Six Months Ended
June 30, June 30,
1996 1995 1996 1995
(Unaudited) (Unaudited)
Total revenues . . . . . 100% 100% 100% 100%
Total costs and expenses . 104 112 112 112
Net income (loss) before
income taxes and
minority interest. . . (4) (12) (12) (12)
Income taxes . . . . . . - - - -
Minority interest. . . . 1 (1) 2 (1)
Net income (loss). . . . (3) (13) (10) (14)
Results of Operations
Total revenues for the three month period ended June 30, 1996
("second quarter of 1996") and the six month period ended June 30,
1996 ("first half of 1996"), increased 123% and 83%, respectively,
as compared to the corresponding periods for 1995 ("second quarter
of 1995" and "first half of 1995", respectively). This increase is
attributed to an increase in natural gas prices and volumes sold by
the Company and increased revenues from the operations of the
Company's subsidiary, Vulcan Energy Corporation ("Vulcan"), which
was acquired by the Company on August 7, 1995. Total costs and
expenses as a percentage of total revenues decreased for the second
quarter of 1996 as compared to the corresponding 1995 period and
remained relatively constant for the first half of 1996 as compared
to the first half of 1995. Actual costs and expenses for the first
quarter of 1996 and first half of 1996 increased 108% and 83%,
respectively, as compared to the corresponding 1995 periods. These
increases are primarily attributed to the 138% increase in cost of
oil and gas sales for the second quarter of 1996 due to higher oil
and gas sales by the Company, and the 106% increase in the cost of
oil and gas sales for the first half of 1996 also due to higher oil
and gas sales.
Salaries and wages decreased 49% and 53% for the first quarter
of 1996 and first half of 1996, respectively, due to the issuance
by the Company in 1995 of its common stock for services rendered to
the Company valued at $75,000. Depreciation and depletion
increased 66% for the second quarter of 1996 and 112% for the first
half of 1996, respectively, and interest increased 191% for the
second quarter of 1996 and 135% for the first half of 1996,
respectively, as compared to the respective corresponding periods
in 1995. Both increases are attributed to the acquisition of
Vulcan. General and administrative expenses increased 69% for the
second quarter of 1996 and 67% for the first half of 1996,
respectively, as compared to the corresponding 1995 periods
reflecting increased overhead due to increased business activities
and sales by the Company.
The Company's minority interests decreased $23,471 for the
second quarter of 1996 and $39,431 for the first half of 1996 due
to increased losses by Tyler Construction Company, a 65% owned
subsidiary. The Company experienced net losses for second quarter
and first half of 1996 of $42,412 and $227,019, respectively,
compared to net losses of $87,062 and $171,790 for the
corresponding 1995 periods, attributed to the increase in the cost
of oil and gas and the increased overhead activities of the
Company.
For the remainder of 1996, management expects salaries and
wages and other general and administrative expenses to remain at
approximately the same rate as for the first half 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 increase during the remainder of 1996.
Net Operating Losses
The Company has accumulated approximately $1,700,000 of net
operating loss carryforwards as of June 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
June 30,1996 because the potential tax benefits of the loss
carryforward is offset by 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 June 30, 1996, the Company's working capital was a negative
$1,169,287 compared with a negative $862,222 at December 31, 1995.
This decrease in working capital for the first half of 1996 is
primarily attributed to due dates of certain loans to the Company
which will become due in less than one year from June 30, 1996.
This decrease in working capital was partially offset by an
increase in inventory from $15,956 at December 31, 1995 to $330,515
at June 30, 1996, due to purchases of oil for resale by Vulcan.
The Company anticipates meeting its working capital needs
during the remainder of the current fiscal year with revenues from
operations and from proceeds from the Company's proposed public
offering. If the Company is unable to secure financing 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 such limited operations for an extended period until
additional funding can be arranged.
As of June 30, 1996, the Company had total assets of
$6,833,139 and total stockholders' equity of $2,185,243, compared
to total assets of $6,691,353 and total stockholders' equity of
$2,547,262 at December 31, 1995. This represents a $141,786 (2%)
decrease in total assets and a $362,019 (14%) decrease in total
stockholders equity. For this same period, cash increased from $0
to $19,035 and total current assets increased 100% due to increased
cash and the increase in accounts receivable and inventory. Total
current liabilities increased 54% from December 31, 1995 to June
30, 1996, primarily due to certain loans of the Company which
become due in less than one year from June 30, 1996.
The Company's current portion of its long term debt is
$1,053,560. In 1995 and 1996, certain outstanding convertible
debentures having a face value of $95,000 plus accrued interest,
were converted to 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 revenues
generated by the Company and from the Company's proposed public
offering.
For the second quarter of 1996 cash used by the Company's
operating activities was $185,740 compared to cash used of $93,634
for the first quarter of 1994. For first half of 1996, cash used
by operating activities was $271,017 compared to cash provided of
$3,058 for the corresponding period in 1995. Net cash used by
investing activities for the second quarter and first half of 1996
was $15,607 and $38,339, respectively, compared to $53,891 for each
of the corresponding periods of 1995. The decreases for the 1996
periods is attributed to a decrease in expenditures by the Company
for property and equipment during the 1996 periods. Cash provided
by financing activities for the second quarter and first half of
1996 were $182,361 and $328,391, respectively, compared with
$117,570 and $45,198 for the corresponding 1995 periods. The
increases for the 1996 periods is directly attributed to increased
borrowing by the Company.
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 June 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: September 17, 1996 By /S/ Loren E. Bagley
(Signature)
LOREN E. BAGLEY, President,
Chief Executive Officer and
Principal Financial 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 JUNE 30, 1996 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1996
<CASH> 19,035
<SECURITIES> 0
<RECEIVABLES> 341,013
<ALLOWANCES> 0
<INVENTORY> 330,515
<CURRENT-ASSETS> 690,563
<PP&E> 6,681,204
<DEPRECIATION> 1,557,570
<TOTAL-ASSETS> 6,833,139
<CURRENT-LIABILITIES> 1,859,850
<BONDS> 2,788,008
0
0
<COMMON> 3,239
<OTHER-SE> 3,927,512
<TOTAL-LIABILITY-AND-EQUITY> 6,833,139
<SALES> 2,307,004
<TOTAL-REVENUES> 2,307,004
<CGS> 1,824,135
<TOTAL-COSTS> 2,428,991
<OTHER-EXPENSES> 20,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 164,463
<INCOME-PRETAX> (266,450)
<INCOME-TAX> 0
<INCOME-CONTINUING> (227,019)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (227,019)
<EPS-PRIMARY> (.07)
<EPS-DILUTED> (.07)
</TABLE>
