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 March 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 0-23530
TRANS ENERGY, INC.
(Exact name of small business issuer as specified in its charter)
Nevada 93-0997412
(State or other jurisdiction of (I.R.S. Employer
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 -- March 31,
1996 and December 31, 1995 . . . . . . . . . . 2
Consolidated Statements of Operations -- three
months ended March 31, 1996 and 1995 . . . . . 4
Consolidated Statements of Stockholders'
Equity . . . . . . . . . . . . . . . . . . . . 6
Consolidated Statements of Cash Flows --
three months ended March 31, 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. . . . . . . . . . . . . . . 25
Item 2. Changes In Securities. . . . . . . . . . . . . 25
Item 3. Defaults Upon Senior Securities. . . . . . . . 25
Item 4. Submission of Matters to a Vote of
Securities Holders . . . . . . . . . . . . . . 25
Item 5. Other Information. . . . . . . . . . . . . . . 25
Item 6. Exhibits and Reports on Form 8-K . . . . . . . 25
SIGNATURES . . . . . . . . . . . . . . . . . . 26
-i-
<PAGE>
PART I
Item 1. Financial Statements
The following unaudited Consolidated Financial Statements for
the period ended March 31, 1996 and December 31, 1995, have been
prepared by the Company.
TRANS ENERGY, INC.
CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1996 and December 31, 1995
<PAGE>
TRANS ENERGY, INC.
Consolidated Balance Sheets
ASSETS
(Restated)
December 31, March 31,
1995 1996
(Unaudited)
CURRENT ASSETS
Cash $ - $ 38,021
Accounts receivable - trade (Note 1) 328,012 419,059
Inventory (Note 1) 15,956 40,761
Total Current Assets 343,968 497,841
FIXED ASSETS (Note 2)
Land 35,000 35,000
Building 65,000 65,000
Vehicles 113,244 113,244
Machinery and equipment 588,493 611,225
Pipeline 2,107,740 2,107,740
Well equipment 290,972 290,972
Wells 3,178,916 3,178,916
Leasehold acreage 263,500 263,500
Accumulated depreciation (1,458,009) (1,507,890)
Total Fixed Assets 5,184,856 5,157,707
OTHER ASSETS
Deferred stock offering costs (Note 1) 275,000 -
Goodwill, net (Note 1) 728,013 688,450
Deposits 355 491
Bond (Note 4) 50,000 50,000
Loan acquisition costs 108,187 774,000
Loan - related party (Note 6) 14,899 15,337
Total Other Assets 1,176,454 1,528,278
TOTAL ASSETS $6,705,278 $7,183,826
<PAGE>
TRANS ENERGY, INC.
Consolidated Balance Sheets
LIABILITIES AND STOCKHOLDERS' EQUITY
(Restated)
December 31, March 31,
1995 1996
(Unaudited)
CURRENT LIABILITIES
Accounts payable - trade $ 521,438 $ 658,472
Interest payable 58,981 45,624
Accrued expenses 71,231 60,554
Long-term debt - current portion (Note 3) 554,540 947,213
Total Current Liabilities 1,206,190 1,711,863
LONG-TERM LIABILITIES
Loans payable - related parties (Note 6) 683,586 722,002
Notes payable (Note 3) 2,214,922 1,955,302
Total Long-Term Liabilities 2,898,508 2,677,304
Total Liabilities 4,104,698 4,389,167
MINORITY INTERESTS (Note 1) 39,393 23,433
STOCKHOLDERS' EQUITY (Note 9)
Common Stock: 30,000,000 shares authorized
at $0.001 par value; 3,174,122 and
3,238,677 shares issued and
outstanding, respectively 3,174 3,239
Capital in excess of par value 5,629,734 6,202,669
Accumulated deficit (3,071,721) (3,434,682)
Total Stockholders' Equity 2,561,187 2,771,226
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 6,705,278 $ 7,183,826
<PAGE>
TRANS ENERGY, INC.
Consolidated Statements of Operations
For the Three Months
Ended March 31,
1995 1996
REVENUES (Unaudited) (Unaudited)
(Restated)
Oil and gas sales $573,213 $ 781,132
Other 347 -
Total Revenues 573,560 781,132
COSTS AND EXPENSES
Cost of oil and gas 396,632 657,639
Salaries and wages 92,792 40,821
Depreciation and depletion 31,336 94,278
Selling, general and administrative 164,266 216,768
Total Costs and Expenses 685,026 1,009,506
Net Income (Loss) from Operations (111,466) (228,374)
OTHER INCOME (EXPENSE)
Interest (34,837) (160,103)
Total Other Income (Expense) (34,837) (160,103)
NET INCOME (LOSS) BEFORE INCOME
TAXES AND MINORITY INTERESTS AND
EXTRAORDINARY INCOME (LOSS) (146,303) (388,477)
INCOME TAXES - -
NET INCOME (LOSS) BEFORE MINORITY
INTERESTS AND EXTRAORDINARY INCOME (LOSS) (146,303) (388,477)
MINORITY INTERESTS (13,425) 15,960
NET INCOME (LOSS) BEFORE
EXTRAORDINARY INCOME (LOSS) (159,728) (372,517)
EXTRAORDINARY INCOME (LOSS)
Forgiveness of debt - 20,000
Early payoff of debt - (10,444)
TOTAL EXTRAORDINARY INCOME (LOSS) - 9,556
NET INCOME (LOSS) $(159,728) $(362,961)
<PAGE>
TRANS ENERGY, INC.
Consolidated Statements of Operations
For the Three Months
Ended March 31,
1995 1996
(Unaudited) (Unaudited)
(Restated)
PRIMARY EARNINGS (LOSS) PER SHARE
NET INCOME (LOSS) BEFORE
EXTRAORDINARY INCOME $ (0.06) $ (0.11)
EXTRAORDINARY INCOME - NIL
NET INCOME (LOSS) $ (0.04) $ (0.11)
FULLY DILUTED EARNINGS
(LOSS) PER SHARE
NET INCOME (LOSS) BEFORE
EXTRAORDINARY INCOME $ (0.06) $ (0.11)
EXTRAORDINARY INCOME - NIL
NET INCOME (LOSS) (0.06) (0.11)
<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) - - 774,000 -
Cancellation of stock options issued
for services (Note 8) (Unaudited) - - (275,000) -
Net loss for the three months ended
March 31, 1996 (Unaudited) - - - (362,961)
Balance, March 31, 1996
(Unaudited) 3,238,677 $ 3,239 $6,202,669 $(3,434,682)
<PAGE>
TRANS ENERGY, INC.
Consolidated Statements of Cash Flows
For the Three Months
Ended March 31,
1995 1996
CASH FLOWS FROM OPERATING ACTIVITIES: (Unaudited) (Unaudited)
(Restated)
Net income (loss) $(159,728) $(362,961)
Adjustments to Reconcile Net Income to Cash
Provided by Operating Activities:
Depreciation, depletion and amortization 31,336 163,948
Minority interest 13,425 (15,960)
Common stock issued for services 150,000 24,000
Changes in Operating Assets and Liabilities:
Decrease (increase) in accounts receivable - (91,047)
Decrease (increase) in inventory 44,202 (24,805)
Decrease (increase) in deposits - (136)
Decrease (increase) in loan acquisition costs 463 (19,413)
Increase (decrease) in accounts payable
and accrued expenses 16,994 179,453
Increase (decrease) in interest payable - (13,357)
Cash Provided (Used) by Operating Activities 96,692 (160,278)
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for property and equipment - (22,732)
Cash Provided (Used) by Investing Activities $ - $(22,732)
<PAGE>
TRANS ENERGY, INC.
Consolidated Statements of Cash Flows (Continued)
For the Three Months
Ended March 31,
1995 1996
CASH FLOWS FROM FINANCING ACTIVITIES: (Unaudited) (Unaudited)
(Restated)
Payment of deferred stock offering costs $ - $ -
Borrowings of long-term debt - 337,379
Loans to related parties - (438)
Borrowings from related parties - 38,415
Principal payments on long-term debt (72,372) (154,325)
Cash Provided (Used) by Financing Activities (72,372) 221,031
NET INCREASE (DECREASE) IN CASH 24,320 38,021
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 7,103 -
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 31,423 $ 38,021
CASH PAID FOR:
Interest $ 31,987 $ 75,717
Income taxes $ - $ -
NON-CASH FINANCING ACTIVITIES:
Common stock issued for services $150,000 $ 24,000
Conversion of debentures to equity $ - $ 50,000
Warrants issued for loan acquisition costs $ - $ 774,000
<PAGE>
TRANS ENERGY, INC.
Notes to the Consolidated Financial Statements
December 31, 1995 and March 31, 1996
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Organization
The Company was originally incorporated in the State of
Idaho on January 16, 1964 under the name of Alter Creek
Mining Company, Inc.
The Company was engaged in mining activities in the 1960's.
The Company was inactive for several years but started up
operations again in August of 1987. The Articles of
Incorporation were reinstated on September 4, 1987. On
January 11, 1988, the Company changed its name to Apple
Corporation. In 1988, the Company acquired oil and gas
leases and other assets from Ben's Run Oil Company (a
Virginia limited partnership) and has since engaged in the
business of oil and gas production.
At a meeting on September 22, 1993, the shareholders
approved a reverse stock split of the outstanding common
shares at a rate of 2 shares for every 5 shares
outstanding. This reduced the outstanding shares to
1,024,122. All references to shares outstanding and
earnings per share have been retroactively restated to
reflect the reverse stock split.
The shareholders also approved the acquisition of certain
oil and gas assets and stock in exchange for stock of the
Company. On November 15, 1993, the following shares were
issued; 250,000 shares of common stock to the shareholders
of The Pipeline, Ltd, 500,000 shares of common stock to the
shareholders of Ritchie County Gathering Systems, Inc. and
750,000 shares to the majority shareholders of Tyler
Construction Company, Inc. The acquisition was accounted
for as a combination under the purchase method of
accounting using predecessor cost. Predecessor cost was
used because the owners of the acquiring company are
substantially the same as the owners of the acquired
companies. In other words, they are considered to be co-
promoters.
On November 5, 1993, the Board of Directors caused to be
incorporated in the State of Nevada, a new corporation by
the name of Trans Energy, Inc., with the specific intent of
effecting a merger between Trans Energy, Inc. of Nevada and
Apple Corp. of Idaho, for the sole purpose of changing the
domicile of the Company to the State of Nevada. On
November 15, 1993, Apple Corp. and the newly formed Trans
Energy, Inc. executed a merger agreement whereby the
shareholders of Apple Corp. exchanged all of their issued
and outstanding shares of common stock for an equal number
of shares of Trans Energy, Inc. common stock. Trans
Energy, Inc. was the surviving corporation and Apple Corp.
was dissolved.
On November 15, 1993, the Company also purchased certain
oil and gas assets of Dennis Spencer. The purchase price
was 500,000 shares of the Company's common stock. This
acquisition of the subsidiary has been accounted for using
the purchase method of accounting which is based on the
market value of the assets acquired at the time of
acquisition. As a result of these transactions, there were
3,024,122 shares of common stock issued and outstanding at
December 31, 1994.
<PAGE>
TRANS ENERGY, INC.
Notes to the Consolidated Financial Statements
December 31, 1995 and March 31, 1996
NOTE 1 - SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (Continued)
b. Accounting Method
The Company's financial statements are prepared using the
accrual method of accounting. The successful efforts
method of accounting is used for oil and gas exploration
and production activities which states that total net
capitalized costs, as a minimum test, may not exceed future
undiscounted net cash flows. In any period that total net
capitalized costs exceed future undiscounted net cash
flows, the excess will be charged to current operations.
The Company has elected a calendar year end.
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 months ended March
31, 1996 have been restated 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
and net loss by $133,967 for the three months ended March
31, 1996. Primary and fully diluted loss per share for the
three months ended March 31, 1996 both increased before and after
extraordinary income (loss) by $(0.04) per share.
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 March 31, 1996 the Company had
net operating loss carryforwards totaling approximately
$3,100,000 and $3,400,000, 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 March 31, 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 March 31, 1996 after writing off
all accounts determined to be uncollectible.
j. Inventory
Inventory at December 31, 1995 and March 31, 1996 consists
of crude oil held for resale and is stated at the lower of
cost (computed on a first-in, first-out basis) or market.
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 March 31, 1996 was $63,240 and $101,184,
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 and appraisal of the oil and gas reserves performed on
the West Virginia properties. Based
<PAGE>
TRANS ENERGY, INC.
Notes to the Consolidated Financial Statements
December 31, 1995 and March 31, 1996
NOTE 2 - FIXED ASSETS (Continued)
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 March 31, 1996:
December 31, March 31,
1995 1996
(Unaudited)
Convertible Debentures (Note 5) $ 50,000 $ -
Bank of Paden City, secured by gas pipeline,
interest and principal payments of $1,846 due
monthly at 9.0% interest beginning March 1994. 7,505 2,096
Calhoun County Bank, secured by oil and gas
well interests, payable in monthly installments
of $3,136 including interest at variable rates,
(lender's base rate of 9.75% as of December
31, 1995) matures June 1, 1996. 59,472 57,813
Balance forward $116,977 $ 59,909
<PAGE>
TRANS ENERGY, INC.
Notes to the Consolidated Financial Statements
December 31, 1995 and March 31, 1996
NOTE 3 - LONG-TERM DEBT (Continued)
December 31, March 31,
1995 1996
(Unaudited)
Balance forward $116,977 $ 59,909
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 8,363
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 40,433
New York Life, secured by cash value in policy,
principal and interest payments of $480 per
month at 7.25% interest rate. 18,617 18,617
Wesbanco Bank, secured by oil and gas wells,
principal and interest payments of $841 at
12.5% interest rate, matures October 11, 1997. 17,328 15,107
Wesbanco Bank, secured by vehicle,
principal and interest payments of $155 at
10.25% interest rate, matures September 30, 1997. 3,115 2,700
First National Bank of St. Marys, $9,244 payable
monthly, 12.5% interest rate, secured by equipment. 657,632 650,106
Union Bank of Tyler County, interest at 11.5% due
quarterly, renewable, secured by equipment. 19,810 19,810
Note due private company, principal and interest
of $163 payable monthly, interest rate of
10.75%, secured by vehicle. 4,997 4,394
United National Bank, interest payable
quarterly, variable rate (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 $1,207,139
<PAGE>
TRANS ENERGY, INC.
Notes to the Consolidated Financial Statements
December 31, 1995 and March 31, 1996
NOTE 3 - LONG-TERM DEBT (Continued)
December 31, March 31,
1995 1996
(Unaudited)
Balance forward $1,275,999 $1,207,139
Bank of Paden City, secured by officers'
personal assets, demand note, interest
payments due monthly at 9.75%. 100,000 79,064
Note due private individual, secured by
officers' personal guarantee, due May 31,
1997, interest due monthly at 12%. 150,000 150,000
Note due private company, secured by officers'
personal assets, due on October 15, 1997,
with interest at 18%. 135,000 92,725
Note due private company, secured by officers
guarantee, due June 30, 1997, with interest
at 18%. 100,000 53,200
Notes due Secured Promissory Note Holders,
secured by accounts receivable, due April
24, 1997, with interest at 12%. 300,000 600,000
Note payable to Ross Forbus in equal monthly
installments of $6,529 with interest at 7.5%,
secured by assets of subsidiary, matures on
September 22, 2005. 545,909 536,555
Bank of Paden City, secured by officers personal
assets, matures on 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
Various equipment purchase contracts secured
by vehicles. 82,354 106,332
Less Current Portion (554,540) (947,213)
Total Long-Term Debt $2,214,922 $1,955,302
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 21, 1997. See Note 8 for a
discussion regarding the Bridge Warrants.
<PAGE>
TRANS ENERGY, INC.
Notes to the Consolidated Financial Statements
December 31, 1995 and March 31, 1996
NOTE 3 - LONG-TERM DEBT (Continued)
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 March 31, 1996 totalled
$14,899 and $15,337, respectively. Loans payable at
December 31, 1995 and March 31, 1996 totalled $683,586, and
$722,002, respectively.
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 March 31,
1996.
<PAGE>
TRANS ENERGY, INC.
Notes to the Consolidated Financial Statements
December 31, 1995 and March 31, 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 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). 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.
<PAGE>
TRANS ENERGY, INC.
Notes to the Consolidated Financial Statements
December 31, 1995 and March 31, 1996
NOTE 9 - COMMITMENTS AND CONTINGENCIES
The Company leases office space at its Dallas location
under a one year noncancellable operating lease at $1,747
per month. The lease term expires in February 1997.
NOTE 10 - GOING CONCERN
The Company's financial statements are prepared using
generally accepted accounting principles applicable to a
going concern which contemplates the realization of assets
and liquidation of liabilities in the normal course of
business. The Company has incurred operating losses for the
years ended December 31, 1995, 1994 and 1993. Revenues
have not been sufficiently established to cover its
operating costs and to allow it to continue as a going
concern. The Company, having recently purchased an 80%
equity ownership of Vulcan Energy Corporation (the
Subsidiary), has replaced management and recapitalized the
Subsidiary with a $200,000 working capital infusion. The
Company has also entered into a letter of intent with L.B.
Saks, Inc., a New York investment firm, to do an
underwriting for a minimum of $3,000,000. The Company
believes that the acquisition and the proceeds from the
public offering will help the Company continue as a going
concern.
NOTE 11 - 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 March 31, 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, depletion
and amortization 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 March 31, 1996
(Unaudited)
S.F.A.S. 69 SUPPLEMENTAL DISCLOSURES
(1) Capitalized Costs Relating to
Oil and Gas Producing Activities
December 31, March 31,
1995 1996
(Unaudited)
Proved oil and gas producing properties
and related lease and well equipment $3,733,388 $3,733,388
Accumulated depreciation and depletion (390,540) (404,352)
Net Capitalized Costs $3,342,848 $3,329,036
(2) Costs Incurred in Oil and Gas Property
Acquisition, Exploration, and Development Activities
For the For the Three
Year Ended Months Ended
December 31, March 31,
1995 1996
(Unaudited)
Acquisition of Properties
Proved $ - $ -
Unproved 100,000 -
Exploration Costs - -
Development Costs - -
The Company does not have any investments accounted for by the
equity method.
<PAGE>
TRANS ENERGY, INC.
S.F.A.S. 69 Supplemental Disclosures
December 31, 1995 and March 31, 1996
(Unaudited)
S.F.A.S. 69 SUPPLEMENTAL DISCLOSURES (CONTINUED)
(3) Results of Operations for
Producing Activities
For the For the Three
Year Ended Months Ended
December 31, March 31,
1995 1996
(Unaudited)
Sales $205,152 $ 68,794
Production costs (110,141) (36,934)
Depreciation and depletion (10,556) (2,639)
Results of operations
for producing activities
(excluding corporate
overhead and interest
costs) $ 84,455 $ 29,221
(4) Reserve Quantity Information
Oil Gas
BBL MCF
Proved developed and undeveloped reserves:
Balance, December 31, 1994 200,485 1,457,405
Production (1,103) (89,874)
Quantity estimates made (312) 422,123
Balance, December 31, 1995 199,070 1,789,654
(Unaudited)
Production (711) (13,147)
Quantity estimates made - -
Balance, March 31, 1996 198,359 1,776,507
Proved developed reserves:
Oil Gas
BBL MCF
Beginning of the year 1995 200,485 1,457,405
End of the year 1995 199,070 1,789,654
Beginning of the year 1996 199,070 1,789,654
End of March 1996 198,359 1,776,507
<PAGE>
TRANS ENERGY, INC.
S.F.A.S 69 Supplemental Disclosures
December 31, 1995 and March 31, 1996
S.F.A.S 69 SUPPLEMENTAL DISCLOSURES (CONTINUED)
(4) Reserve Quantity Information (Continued)
During 1995, 1992, 1991 and 1990, the Company had reserve studies and
estimates prepared on the various properties acquired from Black
Petroleum Corporation. The difficulties and uncertainties involved in
estimating proved oil and gas reserves makes comparisons between
companies difficult. Estimation of reserve quantities is subject to
wide fluctuations because it is dependent on judgmental interpretation
of geological and geophysical data.
(5) Standardized Measure of Discounted
Future Net Cash Flows Relating to
Proved Oil and Gas Reserves
At December 31, 1995
Trans Energy
and
Subsidiaries
Future cash inflows $19,846,963
Future production and development costs (7,125,060)
Future net inflows before income taxes 12,721,903
Future income tax expense (4,325,447)
Future net cash flows 8,396,456
10% annual discount for estimated timing of cash flows (4,332,571)
Standardized measure of discounted future net cash flows $4,063,885
At March 31, 1996
(Unaudited)
Trans Energy
and
Subsidiaries
Future cash inflows $19,778,169
Future production and development costs (7,088,126)
Future net inflows before income taxes 12,690,043
Future income tax expense (4,314,615)
Future net cash flows 8,375,428
10% annual discount for estimated timing of cash flows (4,343,403)
Standardized measure of discounted future net cash flows $4,032,025
Future income taxes were determined by applying the statutory income tax
rate to future pre-tax net cash flow relating to proved reserves.
<PAGE>
TRANS ENERGY, INC.
S.F.A.S 69 Supplemental Disclosures
December 31, 1995 and March 31, 1996
S.F.A.S 69 SUPPLEMENTAL DISCLOSURES (CONTINUED)
The following schedule summarizes changes in the standardized measure of
discounted future net cash flow relating to proved oil and gas reserves:
For the For the Three
Year Ended Months Ended
December 31, March 31,
1995 1996
(Unaudited)
Standardized measure, beginning of year $3,602,626 $ 4,063,885
Oil and gas sales, net of production costs (107,818) (31,860)
Sales of mineral in place - -
Quantity estimates made 569,077 -
Standardized measure, end of period $4,063,885 $ 4,032,025
The above schedules relating to proved oil and gas reserves,
standardized measure of discounted future net cash flows and changes in
the standardized measure of discounted future net cash flows have their
foundation in engineering estimates of future net revenues that are
derived from proved reserves and with the assumption of current pricing
and current costs of production for oil and gas produces in future
periods. These reserve estimates are made from evaluations conducted by
Sam M. Deal, and independent geologist, of such properties and will be
periodically reviewed based upon updated geological and production date.
Estimates of proved reserves are inherently imprecise. The above
standardized measure does not include any restoration costs due to the
fact the Company does not own the land.
Subsequent development and production of the Company's reserves will
necessitate revising the present estimates. In addition, information
provided in the above schedules does not provide definitive information
as the results of any particular year but, rather, helps explain and
demonstrate the impact of major factors affecting the Company's oil and
gas producing activities. Therefore, the Company suggests that all of
the aforementioned factors concerning assumptions and concepts should be
taken into consideration when reviewing and analyzing this information.
(6) Earning (Loss) Per Share Data
December 31, March 31,
1995 1996
(Restated) (Unaudited)
(Restated)
Primary earnings (loss) per share
Weighted average outstanding shares 3,116,435 3,217,159
Income (loss) before extraordinary income $ (0.71) $ (0.11)
Extraordinary income $ - $ NIL
Fully diluted earnings (loss) per share
Weighted average outstanding shares 3,182,415 3,217,159
Income (loss) before extraordinary income $ (0.71) $ (0.11)
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 periods ended March 31,
1996 and 1995. It should be noted that percentages discussed throughout
this analysis are stated on an approximate basis.
Three Months Ended
March 31,
1996 1995
(Unaudited)
Total revenues . . . . . . . . . . . . . . . 100 % 100 %
Total costs and expenses . . . . . . . . . 150 106
Net income (loss) before income taxes
and minority interest and extraordinary
income. . . . . . . . . . . . . . . . . . . (50) (13)
Income taxes . . . . . . . . . . . . . . . . - -
Minority interest. . . . . . . . . . . . . . 2 (2)
Extraordinary income (loss). . . . . . . . . 1 -
Net income (loss). . . . . . . . . . . . . . (47) (15)
Results of Operations
Total revenues for the three months ended March 31, 1996 ("first
quarter of 1996") increased 36% when compared with the three months
ended March 31, 1995 ("first quarter of 1995"). This increase is
attributed to the corresponding 36% improvement in oil and gas sales for
the same period due to the increase in certain natural gas prices for
gas sold by the Company and the additional revenues realized from the
operations of Vulcan Energy Corporation ("Vulcan"), acquired by the
Company on August 7, 1995. These results were partially offset by the
Company's decision not to purchase gas from its suppliers at a price
higher than management believed it could resell the gas. Total costs
and expenses as a percentage of total revenues increased from 126% in
the first quarter of 1995 to 150% for the first quarter of 1996,
corresponding with the 62% increase in actual costs and expenses
for the first quarter of 1996 compared to the 1995 period. This
increase is primarily attributed to the 66% increase in cost of oil and
gas produced due to the higher oil and gas sales in the first quarter of
1996. Also contributing to the increase in total costs and expenses for
the first quarter of 1996 was the 201% increase in depreciation and
depletion from the corresponding 1995 period, and the 360%
increase in interest expense, both due to the acquisition of Vulcan and
the fact that the acquisition resulted in increased borrowings. Selling,
general and administrative expenses increased 32% for the first quarter
of 1996 primarily attributed to increased losses in the operation of
Vulcan and to additional expenses incurred in preparation for
anticipated increased revenues. These increases in costs and expenses
for the first quarter of 1996 were partially offset by the 56% decrease
in salaries and wages.
The Company's minority interests were $15,960 for the first quarter
of 1996 compared to a negative $13,425 for the first quarter of 1995,
due to losses by a 65% owned subsidiary. The Company's net loss for the
first quarter of 1996 was $362,961 compared to $159,728
for the first quarter of 1995. Despite the 36% increase in oil and gas
sales for the first quarter of 1996, the Company's realized an increase
in net loss attributed primarily to the 201% increase in depreciation
and depletion, the 32% increase in selling , general and
administrative expenses due to increased expenses in preparation of
anticipated increased revenues from Vulcan, and the 360% increase in
interest expense due to the issuance of additional shares to the
Debenture Holders as consideration for extending the due date of said
Debentures.
For the remainder of fiscal year 1996, management expects salaries
and wages and other general and administrative expenses to increase
as compared to the first quarter of 1996. The cost of oil and gas
produced is expected to fluctuate with the amount produced and with
prices of oil and gas, and management anticipates that revenues are
likely to increase during the remainder of 1996.
Liquidity and Capital Resources
Historically, the Company's working capital needs have been
satisfied through its operating revenues and from borrowed funds.
Working capital at March 31, 1996 of a negative $1,214,022 decreased
from a negative $862,222 at December 31, 1995. This change is primarily
attributed to the maturity dates of certain loans to the Company which
will become due in less than one year from March 31, 1996. The decrease
in working capital was partially offset by increased revenues which
increased accounts receivable 28% from $328,012 on December 31, 1995 to
$419,059 on March 31, 1996.
The Company anticipates meeting its working capital needs during
the remainder of the current fiscal year with revenues from operations
and from anticipated proceeds from a proposed public offering of the
Company's securities. The Company has entered into a letter of intent
with L.B. Saks, Inc., a New York investment firm, to conduct an
underwriting for a minimum of $3,000,000, which most likely will occur
during the fourth quarter of 1996 although there can be no
assurance that such an offering will be successfully completed. If the
Company is unable to realize funds from the sale of its securities or
from private lenders, management believes that the Company can continue
operations of its existing wells and oil and gas gathering operations.
By maximizing current production and minimizing expenses, management
believes the Company can continue its operations for an extended period
until additional funding can be arranged.
As of March 31, 1996, the Company had total assets of
$7,183,826 and total stockholders' equity of $2,771,226,
compared to total assets of $6,705,278 and total stockholders'
equity of $2,561,187 at December 31, 1995. This represents a
$478,548 (7%) increase in total assets and a $210,039 (8%)
increase in total stockholders equity for the period. For this same
period, cash increased from $0 to $38,021 and total current assets
increased 45% due to increased cash and the increase in accounts
receivable. Total current liabilities increase 42% primarily
attributed to certain loans of the Company which become due in less than
one year from March 31, 1996. For the first quarter of 1996, the
Company experienced a negative cash flows from operating activities of
$160,277, compared to net cash provided by operating activities of
$96,692 for the first quarter of 1995. These results are primarily
attributed to the Company's net loss for the first quarter of 1996 and
increase in accounts receivable of $91,047.
At March 31, 1996, the Company's current portion of its long term
debt was $947,213. In 1995 and 1996, certain outstanding convertible
debentures having a face value of $95,000 plus accrued interest were
converted into common stock. The Company currently anticipates that it
will be able to provide for its debt obligations and repayments coming
due during the remainder of 1996 from operating revenues generated by
the Company and from its proposed public offering.
In the opinion of management, inflation has not had a material
effect on the operations of the Company.
PART II
Item 1. Legal Proceedings
There are presently no material pending legal proceedings to
which the Company or any of its subsidiaries is a party or to which any
of its property is subject and, to the best of its knowledge, no such
actions against the Company are contemplated or threatened.
Item 2. Changes In Securities
This Item is not applicable to the Company.
Item 3. Defaults Upon Senior Securities
This Item is not applicable to the Company.
Item 4. Submission of Matters to a Vote of Security Holders
This Item is not applicable to the Company.
Item 5. Other Information
This Item is not applicable to the Company.
Item 6. Exhibits and Reports on Form 8-K
(b) Reports on Form 8-K
No report on Form 8-K was filed by the Company during the
three month period ended March 31, 1996.
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Exchange
Act of 1934, the Registrant caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
TRANS ENERGY, INC.
Date: December 13, 1996 By /S/ Loren E. Bagley
(Signature)
LOREN E. BAGLEY, President
and Chief Executive Officer
Date: December 13, 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 MARCH 31, 1996 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 38,021
<SECURITIES> 0
<RECEIVABLES> 419,059
<ALLOWANCES> 0
<INVENTORY> 40,761
<CURRENT-ASSETS> 497,841
<PP&E> 6,665,597
<DEPRECIATION> 1,507,890
<TOTAL-ASSETS> 7,183,826
<CURRENT-LIABILITIES> 1,711,863
<BONDS> 2,677,304
0
0
<COMMON> 3,239
<OTHER-SE> 6,202,669
<TOTAL-LIABILITY-AND-EQUITY> 7,183,826
<SALES> 781,132
<TOTAL-REVENUES> 781,132
<CGS> 657,639
<TOTAL-COSTS> 657,639
<OTHER-EXPENSES> 351,867
<LOSS-PROVISION> 9,700
<INTEREST-EXPENSE> 126,160
<INCOME-PRETAX> (338,574)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 20,000
<CHANGES> 0
<NET-INCOME> (318,574)
<EPS-PRIMARY> (.10)
<EPS-DILUTED> (.10)
</TABLE>
