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, 2000
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, 2000
Common Stock, $.001 par value 160,580,646
TABLE OF CONTENTS
Heading Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements . . . . . . . . . . . . . . . . . . 3
Consolidated Balance Sheets -- September 30, 2000
and December 31, 1999. . . . . . . . . . . . . . . . . 4
Consolidated Statements of Operations --
three and nine months ended September 30, 2000
and 1999 . . . . . . . . . . . . . . . . . . . . . . . 6
Consolidated Statements of Stockholders'
Equity (Deficit) . . . . . . . . . . . . . . . . . . . 7
Consolidated Statements of Cash Flows --
three and nine months ended September 30, 2000
and 1999 . . . . . . . . . . . . . . . . . . . . . . . 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 and Use of Proceeds. . . . . . . . 14
Item 3. Defaults Upon Senior Securities. . . . . . . . . . . . . 15
Item 4. Submission of Matters to a Vote of
Securities Holders . . . . . . . . . . . . . . . . . . . 15
Item 5. Other Information. . . . . . . . . . . . . . . . . . . . 15
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . 15
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . 16
PART I
Item 1. Financial Statements
The following unaudited Consolidated Financial Statements for
the period ended September 30, 2000 and December 31, 1999, have
been prepared by the Company.
TRANS ENERGY, INC.
CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000 and December 31, 1999
TRANS ENERGY, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
ASSETS
September 30, December 31,
2000 1999
(Unaudited)
CURRENT ASSETS
Cash $ - $ 13,477
Prepaid expenses 7,745 -
Accounts receivable, net 125,705 127,154
Total Current Assets 133,450 140,631
PROPERTY AND EQUIPMENT
Vehicles 94,589 94,589
Machinery and equipment 10,092 10,092
Pipelines 2,254,908 2,254,908
Well equipment 49,396 49,155
Wells 3,704,389 3,704,389
Leasehold acreage 180,000 180,000
Accumulated depreciation (1,641,536) (1,408,486)
Total Fixed Assets 4,651,838 4,884,647
OTHER ASSETS
Loan acquisition costs 117,022 -
Restricted cash 105,905 262,089
Deposits 1,508 3,792
Total Other Assets 224,435 265,881
TOTAL ASSETS $5,009,723 $5,291,159
TRANS ENERGY, INC. AND SUBSIDIARIES
Consolidated Balance Sheets (Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
September 30, December 31,
2000 1999
(Unaudited)
CURRENT LIABILITIES
Cash overdraft $ 30,538 $ -
Accounts payable - trade 1,272,331 1,181,945
Accrued expenses 1,462,647 1,182,754
Salaries payable 396,412 412,262
Notes payable - current portion 1,144,282 1,228,566
Related party payables 401,010 161,470
Debentures payable 50,000 5,090,496
Total Current Liabilities 4,757,220 9,257,493
NET LIABILITIES IN EXCESS OF THE ASSETS OF
DISCONTINUED OPERATIONS 104,911 104,911
LONG-TERM LIABILITIES
Notes payable 525,427 559,190
Total Long-Term Liabilities 525,427 559,190
Total Liabilities 5,387,558 9,921,594
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock; 300,000,000 shares authorized at
$0.001 par value; 160,580,646 and 7,107,746
shares issued and outstanding, respectively 160,580 7,107
Capital in excess of par value 20,818,220 15,250,242
Accumulated deficit (21,356,635) (19,887,784)
Total Stockholders' Equity (Deficit) (377,835) (4,630,435)
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT) $ 5,009,723 $ 5,291,159
<PAGE>
TRANS ENERGY, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(Unaudited)
For the For the
Nine Months Ended Three Months Ended
September 30, September 30,
2000 1999 2000 1999
REVENUES $ 890,185 $ 809,176 $ 346,211 $ 247,249
COSTS AND EXPENSES
Cost of oil and gas 571,746 688,860 236,427 353,854
Salaries and wages 62,718 65,508 18,640 19,094
Depreciation, depletion and
amortization 233,051 1,200,415 77,684 164,780
Selling, general and
administrative 1,222,200 428,960 135,233 72,255
Total Costs and Expenses (2,089,715) 2,383,743 467,984 609,983
LOSS FROM OPERATIONS (1,199,530) (1,574,567) (121,773) (362,734)
OTHER INCOME (EXPENSE)
Loss on valuation of assets - (2,442,961) - -
Other income 6,126 - 1,673 -
Interest expense (275,447) (810,240) (41,524) (275,476)
Total Other Income (Expense) (269,321) (3,253,201) (39,851) (275,476)
LOSS FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES AND MINORITY
INTERESTS (1,468,851) (4,827,768) (161,624) (638,210)
INCOME TAXES - - - -
MINORITY INTERESTS - - - -
NET LOSS $(1,468,851) $(4,827,768) $(161,624) $(638,210)
BASIC LOSS PER SHARE $ (0.03) $ (1.65) $ (0.00) $ (0.87)
TRANS ENERGY, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity (Deficit)
Capital in
Common Shares Excess of Accumulated
Shares Amount Par Value Deficit
Balance, December 31, 1998 2,174,817 $ 2,174 $14,373,809 $ (13,589,451)
Common stock issued for services
at $0.59 per share 440,000 440 259,560 -
Common stock issued for services
and conversion of debt to equity at
$0.98 per share 94,000 94 92,106 -
Common stock issued for conversion
of debentures, penalty and interest
at $0.12 per share 4,398,929 4,399 524,767 -
Net loss for the year ended
December 31, 1999 - - - (6,298,333)
Balance, December 31, 1999 7,107,746 7,107 15,250,242 (19,887,784)
Common stock issued for conversion
of debentures, penalty and interest
at $0.10 per share (unaudited) 147,680,517 147,681 5,135,545 -
Common stock issued for services at
$0.07 per share (unaudited) 3,372,383 3,372 221,903 -
Common stock issued for services at
$0.11 per share (unaudited) 150,000 150 16,800 -
Common stock issued for services at
$0.11 per share (unaudited) 1,100,000 1,100 119,900 -
Common stock issued for services
at $0.0625 per share (unaudited) 1,140,000 1,140 70,110 -
Common stock issued for debt at
$0.13 per share (unaudited) 30,000 30 3,720 -
Net loss for the nine months ended
September 30, 2000 (unaudited) - - - (1,468,851)
Balance, September 30, 2000
(unaudited) 160,580,646 $160,580 $20,818,220 $(21,356,635)
<PAGE>
TRANS ENERGY, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
For the For the
Nine Months Ended Three Months Ended
September 30, September 30,
2000 1999 2000 1999
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(1,468,851) $(4,827,768) $(161,624) $(638,210)
Adjustments to reconcile net loss
to net cash (used) by operating
activities:
Depreciation, depletion and
amortization 233,051 1,238,506 77,684 202,871
Common stock issued for services 434,475 261,000 71,250 61,000
Loss on valuation of assets - 2,442,961 - -
Changes in operating assets
and liabilities:
Decrease (increase) in
accounts receivable 1,448 (2,181) 5,197 3,229
(Increase) decrease in
restricted cash 156,184 - 20,485 -
Decrease (increase) in prepaid
and other current assets (122,485) - (124,769) -
Increase in accounts payable
and accrued expenses 439,201 86,108 (121,000) 42,427
Increase (decrease) in
cash overdraft 30,538 425,206 30,538 154,789
Net Cash (Used) by
Operating Activities (296,439) (376,168) (202,239) (173,894)
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property - 400,000 - 400,000
Expenditures for property
and equipment (240) (327) (240) -
Net Cash Provided (Usd)
by Investing Activities (240) 399,673 (240) 400,000
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings of long-term debt -
related party 239,540 - 123,583 -
Borrowings of long-term debt 213,730 245,090 213,730 -
Principal payments on
notes payable (149,578) (268,595) (127,270) (226,106)
Principal payments on notes
payable - related party (20,490) - (8,988) -
Net Cash Provided by
Financing Activities 283,202 (23,505) 201,054 (226,106)
NET INCREASE (DECREASE) IN CASH (13,477) - (1,425) -
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 13,477 - 1,425 -
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ - $ - $ - $ -
TRANS ENERGY, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Continued)
(Unaudited)
For the For the
Nine Months Ended Three Months Ended
September 30, September 30,
2000 1999 2000 1999
CASH PAID FOR:
Interest $ 126,836 $ 64,885 $ 42,005 $ 8,547
Income taxes $ - $ - $ - $ -
NON-CASH FINANCING ACTIVITIES:
Common stock issued for debt $ 5,286,977 $ 258,390 $ 2,538,031 $ 123,350
Common stock issued
for services $ 434,475 $ 261,000 $ 71,250 $ 61,000
TRANS ENERGY, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
September 30, 2000 and December 31, 1999
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, result of operations and cash flows at
September 30, 2000 and for all periods presented have been
made.
Certain information and footnote disclosures normally
included in consolidated financial statements prepared in
accordance with generally 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, 1999 audited
consolidated financial statements. The results of
operations for the periods ended September 30, 2000 and
1999 are not necessarily indicative of the operating
results for the full years.
NOTE 2 - GOING CONCERN
The Company's consolidated 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
cumulative operating losses through September 30, 2000, and
has a working capital deficit at September 30, 2000.
Revenues have not been sufficient to cover its operating
costs and to allow it to continue as a going concern. The
potential proceeds from the sale of common stock, other
contemplated debt and equity financing, and increases in
operating revenues from new development would enable the
Company to continue as a going concern. There can be no
assurance that the Company can or will be able to complete
any debt or equity financing. If these are not successful,
management is committed to meeting the operational cash
flow needs of the Company.
NOTE 3 - MATERIAL EVENTS
During July 2000, the Company entered into an agreement to
purchase 51% of the outstanding common stock of Oil and
Gas, Inc. from its principle shareholder James Laughlin
(Laughlin) in exchange for 300 shares of its previously
authorized, but unissued, $1,000 par value preferred Series
One stock. The preferred stock is convertible into common
stock at a 20% discount to market on the date of
conversion, on or after August 1, 2001. Laughlin shall
also receive interest calculated as the New York Prime
interest rate plus one percent (1%) on $300,000, the book
value of the preferred stock, payable in the Company's
common stock at a discount of 20% to market and 100,000
warrants to purchase the Company's common stock exercisable
at a strike price of $0.10 per warrant. The Company has
not issued the preferred stock and there has been no
activity in this subsidiary.
During August 2000, the Company increased its authorized
shares of common stock from 100,000,000 to 300,000,000.
Item 2. Management's Discussion and Analysis or Plan
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 and nine month
periods ended September 30, 2000 and 1999. 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,
2000 1999 2000 1999
(Unaudited (Unaudited)
Total revenues . . . . . . . . . . 100% 100% 100% 100%
Total costs and expenses . . . . . 135 247 235 295
Net loss from operations . . . . . 35 (147) (135) (195)
Other income (expense) . . . . . . (12) (111) (30) (402)
Net income (loss). . . . . . . . . (47) (258) (165) (597)
Total revenues for the three months ("third quarter") ended
September 30, 2000 increased 40% when compared with the third
quarter of 1999. For the nine months ("first nine months")
ended September 30, 2000, total revenues increased 10% when
compared with the first nine months of 1999. This increase in
revenues is primarily attributed to higher oil and gas prices.
Total costs and expenses as a percentage of total revenues
decreased from 247% in the third quarter of 1999 to 135% for
the third quarter of 2000, and actual costs and expenses decreased
23% during the same period. This decrease is primarily attributed
to the 33% decrease in cost of oil and gas due to stabilization in
the oil and gas prices, and the 53% decrease in depreciation and
amortization expenses due to the sale of certain wells. The
decrease was partially offset by the 87% increase in selling,
general and administrative expenses, primarily due to common stock
issued for services.
Total costs and expenses as a percentage of total revenues
decreased from 295% in the first nine months of 1999 to 235% for
the first nine months of 2000. Actual costs and expenses decreased
12% during the same period primarily due to the 17% decrease in
cost of oil and gas and the 81% decrease in depreciation and
amortization expenses, also due to the sale of certain. The
decrease in costs and expenses for the first nine months of 2000
was also partially offset by the 185% increase in selling, general
and administrative expenses due to common stock issued for
services.
The Company's net loss for the third quarter and first nine
months of 2000 was $161,424 and $1,468,851, respectively, compared
to a net loss of $638,210 and $4,827,768 for the 1999 periods.
This decrease in the Company's net loss for the 2000 periods is
partially attributed to the one time charge of $2,442,961 in 1999
due to a loss on the sale of assets. The decrease in net loss for
the 2000 periods is also attributed to decreases of 85% and 66% in
interest expense for the third quarter and first nine months of
2000, respectively, when compared to the 1999 periods. This
decrease is due to the Company having recorded the discount on its
convertible debenture in the 1999 periods.
For the remainder of fiscal year 2000, management expects
selling, general and administrative expenses to remain at
approximately the same rate as the first nine months of 2000. 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 2000.
The Company has included a footnote to its financial
statements for the periods ended September 30, 2000 stating that
because of the Company's continued losses, working capital deficit
and need for additional funding, there is substantial doubt as to
whether the Company can continue as a going concern. See Note 2 to
the consolidated financial statements.
Net Operating Losses
The Company has accumulated approximately $19,800,000 of net
operating loss carryforwards as of December 31, 1999, which may be
offset against future taxable income through the year 2020 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 year ended
December 31, 1999 or three month period ended September 30, 2000
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.
At September 30, 2000, the Company had a negative working capital
$4,623,770 compared to a negative $9,116,862 at December 31, 1999.
This 49% improvement in working capital is primarily attributed to
the conversion to common stock of a portion of the outstanding
convertible debentures.
The Company anticipates meeting its working capital needs
during the remainder of the current fiscal year with revenues from
operations, particularly from its Powder River Basin interests in
Wyoming and its New Benson gas wells drilled in West Virginia.
In the event revenues are not sufficient to meet the
Company's working capital needs, it will explore the possibility of
additional funding from either the sale of debt or equity
securities. The Company has no current agreements or arrangements
for additional funding and there can be no assurance such funding
will be available to the Company or, if available, it will be on
acceptable or favorable terms to the Company.
As of September 30, 2000, the Company had total assets of
$5,009,723 and total stockholders' deficit of $377,835, compared to
total assets of $5,291,159 and total stockholders' deficit of
$4,630,435 at December 31, 1999.
At September 30, 2000, the Company had debentures payable of
$50,000 which represents certain convertible debentures that
matured during the first quarter of 1999. This represents one
holder that the Company has been unable to contact. The Company currently
anticipates that either the debentures will be converted into
common stock or the Company will attempt to negotiate a change of
terms with the debenture holders.
Inflation
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
secure additional financing, the possibility of success in the
Company's drilling endeavors, competitive factors, 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 settled the suit for $15,000 in December
1998.
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.
The Company is also defending a lawsuit filed in 1998 in the
189th Judicial District Court of Harris County, Texas entitled
Baker Hughes Oilfield Operation, Inc. d/b/a Baker Hughes Inteq. vs.
Loren E. Bagley, Individually and Doing Business as Trans Energy,
Inc. (#98-48248). This action is premised on an alleged breach of
contract and fraud and seeks to recover monetary damages in the
amount of $41,142, plus attorneys' fees, exemplary damages, costs
and interest. The Company denies all allegations and intends to
vigorously defend its position. Presently, the Company is
attempting to negotiate a settlement of the matter.
Also in 1998 an action was filed against the Company in the
234th Judicial District Court of Harris County, Texas entitled
Western Geophysical, a Division of Western Atlas international,
Inc. vs. Trans Energy, Inc. (#98-58146). In this action the
plaintiff alleges breach of contract and fraud and seeds to recover
monetary damages of $435,714, plus attorney's fees, exemplary
damages, costs of the suit and interest. The Company is presently
attempting to negotiate a settlement in the matter.
A foreign judgment has been filed with the circuit court in
Pleasants County, West Virginia for a judgment rendered by the
District Court in Harris County, Texas. The judgment is for
$41,142 plus prejudgment interest and attorney's fees of $13,500.
No action has been taken to collect on this judgment.
Item 2. Changes In Securities and Use of Proceeds
During the third quarter of 2000, the Company issued
(i) 1,140,000 shares of its common stock to two persons for
services rendered to the Company valued at $.0479 per share, and
(ii) 125,707,277 shares to 27 persons upon the conversion of
certain debentures valued at an average of $.0457 per share,
including penalty and interest.
The above issuances of shares were made in private
transactions to persons possessing knowledge of the Company
and its business operations. Accordingly, the shares issued for
services were registered under the Act pursuant to Form S-8
registration statements. Issuances of shares upon conversion
of debentures involved an exchange of the Company's securities and
were exempt from registration pursuant to Section 3(a)(9) of the Act.
Item 3. Defaults Upon Senior Securities
In 1998, the Company issued $4,625,400 face value of 8%
Secured Convertible Debentures due March 31, 1999 (the
"Debentures") Interest is to accrue upon the date of issuance
until payment in full of the principal sum has been made or duly
provided for. Holders of the Debentures shall have the option, at
any time, until maturity, to convert the principal amount of their
Debenture, or any portion of the principal amount which is at least
$10,000 into shares of the Company's Common Stock at a conversion
price for each share equal to the lower of (a) seventy percent
(70%) of the market price of the Company's Common Stock averaged
over the five trading days prior to the date of conversion, or (b)
the market price on the issuance date of the Debentures. Any
accrued and unpaid interest shall be payable, at the option of the
Company, in cash or in shares of the Company's Common Stock valued
at the then effective conversion price.
The Company has not repaid the Debentures and has not
finalized a registration statement under which the Debentures can
be converted into common stock. The Company is attempting to
renegotiate the terms of the debenture or to extend their terms.
Item 4. Submission of Matters to a Vote of Security Holders
This Item is not applicable
Item 5. Other Information
This Item is not applicable
Item 6. Exhibits and Reports on Form 8-K
(b) Reports on Form 8-K
During the three month period ended September 30, 2000, the
Company did not file any reports on Form 8-K.
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 14, 2000 By /S/ Loren E. Bagley
LOREN E. BAGLEY, President
and Chief Executive Officer
Date: November 14, 2000 By /S/ William F. Woodburn
WILLIAM F. WOODBURN, Vice
President and Director
(Principal Accounting Officer)
