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 September 30, 1998
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 September 30, 1998
Common Stock, $.001 par value 2,138,450
<PAGE>
TABLE OF CONTENTS
Heading Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements . . . . . . . . . . . . . . . . . . 3
Consolidated Balance Sheets -- September 30, 1998
and December 31, 1997. . . . . . . . . . . . . . . . . . 4
Consolidated Statements of Operations --
three and nine months ended September 30, 1998
and 1997 . . . . . . . . . . . . . . . . . . . . . . . . 6
Consolidated Statements of Stockholders' Equity 7
Consolidated Statements of Cash Flows --
three and nine months ended September 30, 1998
and 1997 . . . . . . . . . . . . . . . . . . . . . . . . 8
Notes to Consolidated Financial Statements . . . . . . . 10
Item 2. Management's Discussion and Analysis and
Results of Operations. . . . . . . . . . . . . . . . . . 11
PART II. OTHER INFORMATION
Item 1. Legal Proceedings. . . . . . . . . . . . . . . . . . . . 13
Item 2. Changes In Securities. . . . . . . . . . . . . . . . . . 14
Item 3. Defaults Upon Senior Securities. . . . . . . . . . . . . 14
Item 4. Submission of Matters to a Vote of
Securities Holders . . . . . . . . . . . . . . . . . . . 14
Item 5. Other Information. . . . . . . . . . . . . . . . . . . . 14
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . 14
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . 15
<PAGE>
PART I
Item 1. Financial Statements
The following unaudited Consolidated Financial Statements for
the period ended September 30, 1998 and December 31, 1997, have
been prepared by the Company.
TRANS ENERGY, INC.
CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1998 and December 31, 1997
<PAGE>
TRANS ENERGY, INC.
Consolidated Balance Sheets
ASSETS
September 30, December 31,
1998 1997
(Unaudited)
CURRENT ASSETS
Cash $ - $ 185,881
Accounts receivable 64,187 175,161
Prepaid and other current assets - 1,441
Total Current Assets 64,187 362,483
PROPERTY AND EQUIPMENT
Vehicles 94,589 94,589
Machinery and equipment 10,092 10,092
Pipelines 2,231,308 2,231,308
Well equipment 271,944 271,882
Wells 6 ,917,567 3,850,429
Leasehold acreage 767,500 597,221
Accumulated depreciation (1,864,028) (1,742,136)
Total Fixed Assets 8,428,972 5,313,385
OTHER ASSETS
Note receivable - other 100,002 -
Deposits 1,508 -
Prepaid promotion expenses 796,221 -
Loan acquisition costs 1,726,458 4,733
Total Other Assets 2,624,189 4,733
TOTAL ASSETS $ 11,117,348 $ 5,680,601
<PAGE>
TRANS ENERGY, INC.
Consolidated Balance Sheets (Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY
September 30, December 31,
1998 1997
(Unaudited)
CURRENT LIABILITIES
Cash overdraft $ 19,404 $ -
Accounts payable - trade 1,167,009 1,250,017
Accrued expenses 657,456 72,195
Salaries payable - 64,602
Notes payable - current portion 94,263 898,098
Debentures payable 4,625,400 -
Total Current Liabilities 6,563,532 2,284,912
NET LIABILITIES IN EXCESS OF ASSETS OF
DISCONTINUED OPERATIONS 340,821 340,821
LONG-TERM LIABILITIES
Notes payable 1,852,468 792,387
Total Long-Term Liabilities 1,852,468 792,387
Total Liabilities 8,756,821 3,418,120
MINORITY INTERESTS - 250,000
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common stock: 30,000,000 shares authorized at
$0.001 par value; 2,138,450 and 1,415,808 shares
issued and outstanding, respectively 2,139 1,416
Capital in excess of par value 12,867,963 10,751,226
Accumulated deficit (10,509,575) (8,740,161)
Total Stockholders' Equity 2,360,527 2,012,481
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 11,117,348 $ 5,680,601
<PAGE>
TRANS ENERGY, INC.
Consolidated Statements of Operations
(Unaudited)
For the Nine Months For the Three Months
Ended September 30, Ended September 30,
1998 1997 1998 1997
REVENUES
Oil and gas sales $ 849,419 $ 801,982 $ 376,413 $ 258,432
Total Revenues 849,419 801,982 376,413 258,432
COSTS AND EXPENSES
Cost of oil and gas 648,657 444,312 345,581 196,047
Salaries and wages 80,370 208,398 21,774 78,012
Depreciation and amortization 1,286,478 219,136 1,205,217 42,784
Selling, general and
administrative 542,502 921,092 130,405 299,608
Total Costs and Expenses 2,558,007 1,792,938 1,702,977 616,451
Net Income (Loss) from
Operations (1,708,588) (990,956) (1,326,564) (358,019)
OTHER INCOME (EXPENSE)
Gain on sale of assets 239,129 - - -
Bad debt expense - (100,000) - -
Interest income 466 10,229 7 74
Interest expense (300,421) (267,903) (160,647) (86,736)
Total Other Income (Expense) (60,826) (357,674) (160,640) (86,662)
NET LOSS BEFORE INCOME TAXES
AND MINORITY INTERESTS (1,769,414) (1,348,630) (1,487,204) (444,681)
INCOME TAXES - - - -
NET LOSS BEFORE MINORITY
INTERESTS (1,769,414) (1,348,630) (1,487,204) (444,681)
MINORITY INTERESTS - - - -
NET LOSS $(1,769,414) $(1,348,630) $(1,487,204) $(444,681)
PRIMARY LOSS PER SHARE
NET LOSS $ (0.93) $ (1.24) $ (0.68) $ (0.36)
FULLY DILUTED LOSS PER SHARE $ (0.93) $ (1.24) $ (0.68) $ (0.36)
<PAGE>
TRANS ENERGY, INC.
Consolidated Statements of Stockholders' Equity
Capital in
Common Shares Excess of Accumulated
Shares Amount Par Value Deficit
Balance, December 31, 1996 956,015 $ 956 $ 8,929,501 $ (6,710,711)
Common stock issued for services
at $5.64 per share 87,500 88 492,099 -
Common stock issued for cash
at $3.84 per share 372,293 372 1,429,628 -
Contribution of capital by
shareholders - - 49,998 -
Common stock offering costs - - (150,000) -
Net loss for the year ended
December 31, 1997 - - - (2,029,450)
Balance, December 31, 1997 1,415,808 1,416 10,751,226 (8,740,161)
Common stock issued for well costs
at $4.00 per share (unaudited) 12,500 13 49,987 -
Contribution of capital by
shareholders (unaudited) - - 208,210 -
Common stock issued for cash at
$1.31 per share (unaudited) 236,312 236 310,514 -
Common stock issued for services
at $3.61 per share (unaudited) 473,830 474 1,548,026 -
Net loss for the nine months ended
September 30, 1998 (unaudited) - - - (1,769,414)
Balance, September 30, 1998
(unaudited) 2,138,450 $ 2,139 $12,867,963 $(10,509,575)
<PAGE>
TRANS ENERGY, INC.
Consolidated Statements of Cash Flows
(Unaudited)
For the Nine Months For the Three Months
Ended September 30, Ended September 30,
1998 1997 1998 1997
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(1,769,414) $(1,348,630) $(1,487,204) $(444,681)
Adjustments to reconcile net
loss to cash provided by
operating activities:
Depreciation, depletion and
amortization 1,286,478 219,136 1,205,217 42,784
Minority interest - - - -
Common stock issued for
services 1,548,500 421,875 - 250,000
Changes in operating assets
and liabilities:
Decrease (increase) in accounts
receivable 10,972 65,351 499 4,114
Decrease (increase) in prepaid
expenses (1,061,695) (113,155) - (172,756)
Decrease (increase) in loan
acquisition costs (2,702,165) 98,973 - 98,973
Increase (decrease) in accounts
payable and accrued expenses 457,052 692,396 49,827 196,514
Increase (decrease) in interest
payable - (9,154) - -
Cash Provided (Used) by
Operating Activities (2,230,272) 26,792 (231,661) (25,052)
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property 259,129 - - -
Expenditures for property and
equipment (3,461,818) (911,363) - (113,027)
Cash Provided (Used) by
Investing Activities (3,202,689) (911,363) - (113,027)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from debentures 4,625,400 - - -
Borrowings of long-term debt 918,610 1,312,700 659,402 -
Repayment to related parties - (410,541) - -
Common stock issued for cash 310,750 - - -
Principal payments on long-term
debt (607,680) (454,390) (427,741) (300,326)
Cash Provided (Used) by
Investing Activities 5,247,080 447,769 231,661 (300,326)
NET INCREASE (DECREASE) IN CASH (185,881) (436,802) - (438,405)
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 185,881 481,846 - 483,449
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ - $ 45,044 $ - $ 45,044
TRANS ENERGY, INC.
Consolidated Statements of Cash Flows (Continued)
(Unaudited)
For the Nine Months For the Three Months
Ended September 30, Ended September 30,
1998 1997 1998 1997
CASH PAID FOR:
Interest $ 214,223 $ 181,167 $ 74,449 $ -
Income taxes $ - $ - $ - $ -
NON-CASH FINANCING ACTIVITIES:
Common stock issued
for services $ 1,548,500 $ 421,875 $ - $ 250,000
Conversion of debentures
to equity $ - $ 1,538,207 $ - $1,038,207
Common stock issued for
well costs $ 50,000 $ - $ - $ -
<PAGE>
TRANS ENERGY, INC.
Notes to the Consolidated Financial Statements
September 30, 1998 and December 31, 1997
NOTE 1 - CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The accompanying consolidated financial statements have been
prepared by the Company without audit. In the opinion of
management, all adjustments (which include only normal
recurring adjustments) necessary to present fairly the
financial position, results of operations and cash flows at
September 30, 1998 and for all periods presented have been
made.
Certain information and footnote disclosures normally included
in consolidated financial statements prepared in accordance
with general accepted accounting principles have been
condensed or omitted. It is suggested that these condensed
consolidated financial statements be read in conjunction with
the financial statements and notes thereto included in the
Company's December 31, 1997 audited consolidated financial
statements. The results of operations for the periods ended
September 30, 1998 and 1997 are not necessarily indicative of
the operating results for the full year.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
The following table sets forth the percentage relationship to
total revenues of principal items contained in the Company's
Consolidated Statements of Operations for the three month and nine
month periods ended September 30, 1998, and September 30, 1997.
It should be noted that percentages discussed throughout this analysis
are stated on an approximate basis.
Three Months Ended Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
(Unaudited) (Unaudited)
Total revenues . . . . . . . . . . 100% 100% 100% 100%
Total costs and expenses . . . . . 452 238 301 223
Net income (loss form
operations . . . . . . . . . . . (352) (138) (201) (123)
Other income (expense) . . . . . . 43 (34) (7) (45)
Net (loss) before income
taxes, minority interest
and extraordinary income
(loss). . . . . . . . . . . . . . (395) (172) (208) (168)
Income taxes . . . . . . . . . . . - - - -
Minority interest. . . . . . . . . - - - -
Net (loss) before
extraordinary income and
discontinued operations (395) (172) (208) (168)
Loss from discontinued
operations . . . . . . . . . . . - - - -
Net income (loss). . . . . . . . . (395) (172) (208) (168)
Total Revenues for the third quarter ended September 30, 1998
("third quarter of 1998") and the nine months ended September 30, 1998
("first nine months of 1998") increased 46% and 6%, respectively,
compared with the corresponding 1997 periods. The increase is
attributed to the Company's purchase of the Gulf Canada well interests
located in Wyoming. Total costs and expenses as a percentage of total
revenues increased from 238% in the third quarter of 1997 to 452% for
the third quarter of 1998, and from 223% for the first nine months of
1997 to 301% for the 1998 period. Total costs and expenses for the
third quarter of 1998 increased 176% compared to the 1997 period and
43% for the first nine months of 1998 compared to 1997 period. This
increase is primarily attributed to the increase in depreciation and
amortization costs of 2717% and 487% for the third quarter and first
nine months of 1998, respectively, related to the Gulf Canada
properties
Selling, general and administrative expenses decreased 46% and
60% in the third quarter and first nine months of 1998, respectively.
Interest expense increased 85% to $160,647 for the third quarter and
12% to $300,421 for the first nine months of 1998 due to increased
borrowings to finance the Gulf Canada purchase. Salaries and wages
decreased 72% and 61% for the third quarter and first nine months of
1998, respectively, compared to the same periods in 1997.
The Company's net loss was $1,487,204 for the third quarter and
$1,769,414 for the first nine months of 1998. Net losses for the
third quarter and first nine months of 1997 were $444,681 and
$1,348,630, respectively. The increase in net loss is attributed to
the marked increase in depreciation and amortization costs for the
1998 periods.
For the remainder of fiscal year 1998, management expects
salaries and wages to remain level and other general and
administrative expenses to remain at approximately the same rate as
for the third quarter of 1998. The cost of oil and gas produced is
expected to fluctuate with the amount produced and with prices of oil
and gas. Management anticipates that revenues will likely increase
during the remainder of 1998.
Net Operating Losses
The Company has accumulated approximately $10,509,575 of net
operating loss carryforwards as of September 30, 1998, which may be
offset against future taxable income through the year 2011, when the
carryforwards expire. The use of these carryforwards to reduce future
income taxes will depend on the generation of sufficient taxable
income prior to the expiration of the net operating loss
carryforwards.
In the event of certain changes in control of the Company, there
will be an annual limitation on the amount of net operating loss
carryforwards which can be used. No tax benefit has been reported in
the financial statements for the period ended September 30, 1998,
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.
Working capital at September 30, 1998 of a negative $6,499,345
increased from a negative $ 1,922,429 at December 31, 1997. This
change is primarily attributed to the increase in debentures payable
of $4,625,000 related to the Gulf Canada acquisition. The Company
anticipates meeting its working capital needs during the remainder of
the current fiscal year with revenues from operations.
As of September 30, 1998, the Company had total assets of
$11,117,348 and total stockholders equity of $2,360,527 compared to
total assets of $5,680,601 and total stockholders equity of $2,012,481
at December 31, 1997. This represents a $5,436,747 (96%) increase in
total assets due primarily to the purchase of wells, and a $348,046
(17%) increase in total stockholders equity for the period due to the
issuance of stock. For this same period, cash decreased from $185,881
to $0 and total current assets decreased 82% due to decreased accounts
receivable and cash. Total current liabilities increased 187%
attributed to the increase accrued expenses and debentures payable.
At September 30, 1998, the Company's current portion of its long
term debt was $94,263. In 1997, certain outstanding convertible
debentures having a face value of $50,000 plus accrued interest were
converted into common stock. In 1998, convertible debentures with a
face value of $1,430,000 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
1998 from operating revenues generated by the Company.
In the opinion of management, inflation has not had a material
effect on the operations of the Company.
Risk Factors and Cautionary Statements
Forward looking statements in this report are made pursuant to
the "safe harbor" provisions of the Private Securities Litigation
Reform Act of 1995. The Company wishes to advise readers that actual
results may differ substantially from such forward-looking statements.
Forward looking statements involve risks and uncertainties that could
cause actual results to differ materially from those expressed in or
implied by the statements, including, but not limited to, the
following: the ability of the Company to provide for its debt
obligations and to provide for working capital needs from operating
revenues, and other risks detailed in the Company's periodic report
filings with the Securities and Exchange Commission.
PART II
Item 1. Legal Proceedings
There are no material pending legal proceedings to which the
Company is a party or to which any of its property is subject except
as set forth below.
On May 14, 1997, a complaint entitled R&K Oil Company, Inc. vs.
Vulcan Energy Corporation and Trans Energy, Inc. was filed in District
Court, Andrews County, Texas, 109th Judicial District (File #14,430).
The complaint alleges the Company owes R&K Oil Company, Inc. $126,978
as a result of business transacted by Vulcan Energy Corporation. The
complaint also seeks $500,000 for breach of contract. The Company
denies all allegations and intends to vigorously defend its position.
On March 12, 1997, a complaint entitled F. Worthy Walker vs.
Loren Bagley, William Woodburn, Mark Woodburn, Trans Energy, Inc. and
Vulcan Energy Corporation, was filed in the District Court of Dallas,
Texas (# 9702304C). The complaint alleges that the Company breached
certain contracts related to Mr. Walker's employment with Vulcan
Energy Corporation, and seeks punitive and exemplary damages. The
Company denies all allegations and intends to vigorously defend its
position. Management believes that the results of the proceedings
will not have a material adverse effect on the Company. On February
17, 1998 the Company and the above named defendants filed a
countersuit against F. Worthy Walker alleging breach of contract,
fraud and fraudulent inducement, conversion, and breach of fiduciary
duty and seeks punitive damages.
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
Recent Business Developments - Proposed Merger With Natural Gas
Technologies, Inc.
On March 24, 1998, the Company entered into a Plan and Agreement
of Merger with National Gas Technologies, Inc. ("NGT"), a Dallas,
Texas based exploration company, pursuant to which NGT will be merged
with and into the Company with the Company being the surviving
corporate entity. The merger will be accomplished by way of the
exchange of 100% of the issued and outstanding shares of NGT common
stock and preferred stock for shares of the Company's common stock.
The merger is subject to shareholder approval of both corporations and
the effectiveness of the Company's registration statement which has
been filed on Form S-4.
Item 6. Exhibits and Reports on Form 8-K
(b) Reports on Form 8-K
During the three month period ended September 30, 1998, the
Company did not file any reports on Form 8-K.
<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: November 23, 1998 By /S/ Loren E. Bagley
LOREN E. BAGLEY, President
and Chief Executive Officer
(Chief Financial Officer)
Date: November 23, 1998 By /S/ William F. Woodburn
William F. Woodburn, Vice
President and Director
(Principal Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE TRANS ENERGY, INC. FINANCIAL
STATEMENTS FOR THE PERIOD ENDED SEPTEMBER 30, 1998
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 64,187
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 64,187
<PP&E> 10,293,000
<DEPRECIATION> 1,864,028
<TOTAL-ASSETS> 11,117,348
<CURRENT-LIABILITIES> 6,563,532
<BONDS> 1,852,468
0
0
<COMMON> 2,139
<OTHER-SE> 12,867,963
<TOTAL-LIABILITY-AND-EQUITY> 11,117,348
<SALES> 849,419
<TOTAL-REVENUES> 849,419
<CGS> 648,657
<TOTAL-COSTS> 2,558,007
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 300,421
<INCOME-PRETAX> (1,769,414)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,769,414)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,769,414)
<EPS-PRIMARY> (.93)
<EPS-DILUTED> (.93)
</TABLE>
