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, 2007

 

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    

(State or                        other jurisdiction of |                                                           93-0997412      

                                                                             (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 (            )

 

Indicate by check mark whether the registrant is a shell company (as            defined by Rule 12b-2) of the Exchange Act. Yes (  ) No (X)

 

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 October 23, 2007 |
|--------|-------|------------------------------------|

| Common Stock, $.001 par value | 9,513,065 |
|-------------------------------|-----------|

 

 

Transitional Small Business Disclosure Format (Check one): Yes ( ) No            (X)

Table            of Contents

 

| Heading |      Page                               |
|---------|-----------------------------------------------------------------------|

 

PART            I. FINANCIAL INFORMATION

 

| Item 1. | Financial Statements | 3 |
|---------|----------------------|---|

             

Consolidated Balance Sheets – September 30, 2007 and

|   | December 31, 2006 (Unaudited) | 3 |
|--------|-------------------------------|---|

             

Consolidated Statements of Operations – three and nine months            ended

|   | September 30, 2007 and 2006 (Unaudited) | 5 |
|--------|-----------------------------------------|---|

             

Consolidated Statement of Stockholders’ Equity (Deficit) - nine            months

|   | ended September 30, 2007 (Unaudited) | 6 |
|--------|--------------------------------------|---|

             

Consolidated Statements of Cash Flows – nine months            ended

|   | September 30, 2007 and 2006 (Unaudited) | 7 |
|--------|-----------------------------------------|---|

             

                                               Notes to Consolidated Financial            Statements            (Unaudited)                                                                    8

|   |   |   |
|--------|--------|--------|

             

| Item 2. | Management’s Discussion and Analysis or Plan of                            Operation | 13 |
|---------|--------------------------------------------------------------------------------------------|----|

             

| Item 3. | Controls and Procedures | 16 |
|---------|-------------------------|----|

             

PART II OTHER INFORMATION

             

| Item 1. | Legal Proceedings | 16 |
|---------|-------------------|----|

             

| Item 2. | Unregistered Sales of Equity Securities and Use of                            Proceeds | 17 |
|---------|----------------------------------------------------------------------------------------|----|

             

| Item 3. | Defaults Upon Senior Securities | 17 |
|---------|---------------------------------|----|

             

| Item 4. | Submission of Matters to a Vote of Securities                            Holders | 17 |
|---------|----------------------------------------------------------------------------------|----|

             

| Item 5. | Other Information | 17 |
|---------|-------------------|----|

             

| Item 6. | Exhibits | 17 |
|---------|----------|----|

             

|   | Signatures |                                                                                                                                                                    18 |
|--------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

 

2

----

**PART I**

 

| **Item 1.** | **Financial Statements** |
|-------------|--------------------------|

 

 

| **TRANS ENERGY, INC. AND SUBSIDIARIES**                                                |
|----------------------------------------------------------------------------------------|
| **Consolidated Balance Sheets**                                                        |
| **(Unaudited)**                                                                        |
|                                                                                   |   |   |   |   |   |   |   |   |   |   |
|                                                                                   |   |   |   |   |   |   |   | September 30, |   | December 31, |
|                                                                                   |   |   |   |   |   |   |   | 2007 |   | 2006 |
|                                                                                   |
| ASSETS                                                                                 |
|                                                                                   |
| CURRENT ASSETS                                                                         |   |   |   |   |   |   |   |   |
|                                                                                   |   |   |   |   |   |   |   |   |   |   |
|                                                                                   | Cash |   |   |   |   |   |   | $ 1,460,202  |   | $ 208,815  |
|                                                                                   | Accounts Receivable, net of allowance for                            doubtful |   |   |   |   |   |
|                                                                                   | accounts of $-0- and $25,076, respectively |   |   |   | 304,310  |   | 275,272  |
|                                                                                   | Accounts Receivable - related parties |   |   |   | 484,776  |   | 569,600  |
|                                                                                   | Deferred Financing Costs |   |   |   | 167,429  |   | -  |
|                                                                                   | Derivative Instruments |   |   |   | 50,116  |   | -  |
|                                                                                   | Prepaid Expenses |   |   |   |   |   | 625  |   | 22,500  |
|                                                                                   |   |   |   |   |   |   |   |   |   |   |
|                                                                                   | Total Current Assets |   |   |   |   |   | 2,467,458  |   | 1,076,187  |
|                                                                                   |   |   |   |   |   |   |   |   |   |   |
| PROPERTY AND EQUIPMENT, net of accumulated                            depreciation     |   |   |   |   |
|                                                                                   | of $143,007 and $84,510, respectively |   |   |   | 647,706  |   | 490,753  |
|                                                                                   |   |   |   |   |   |   |   |   |   |   |
| OIL AND GAS PROPERTIES, USING SUCCESSFUL EFFORTS                            ACCOUNTING |   |   |   |
|                                                                                   |   |   |   |   |   |   |   |   |   |   |
|                                                                                   | Proved Properties |   |   |   |   |   | 6,975,495  |   | 4,816,138  |
|                                                                                   | Unproved Properties |   |   |   |   |   | 244,949  |   | 10,156  |
|                                                                                   | Pipelines |   |   |   |   |   |   | 1,649,949  |   | 1,392,648  |
|                                                                                   | Accumulated depreciation, depletion and                            amortization |   |   | (1,684,641) |   | (1,569,997) |
|                                                                                   |   |   |   |   |   |   |   |   |   |   |
|                                                                                   | Net oil and gas properties |   |   |   |   | 7,185,752  |   | 4,648,945  |
|                                                                                   |   |   |   |   |   |   |   |   |   |   |
| OTHER ASSETS                                                                           |   |   |   |   |   |   |   |   |   |
|                                                                                   |   |   |   |   |   |   |   |   |   |   |
|                                                                                   | Deferred Financing Costs, net of amortization of                            $76,942 |   | 284,661  |   | -  |
|                                                                                   | Derivative Instruments |   |   |   |   |   | 200,465  |   | -  |
|                                                                                   | Other Assets |   |   |   |   |   | 208,334  |   | 35,524  |
|                                                                                   |   |   |   |   |   |   |   |   |   |   |
|                                                                                   | Total Other Assets |   |   |   |   |   | 693,460  |   | 35,524  |
|                                                                                   |   |   |   |   |   |   |   |   |   |   |
|                                                                                   | TOTAL ASSETS |   |   |   |   |   | $ 10,994,376  |   | $ 6,251,409  |
|                                                                                   |   |   |   |   |   |   |   |   |   |   |
|                                                                                   |
| See notes to consolidated financial                            statements.             |
|                                                                                   |   |   |   |   |   |   |   |   |   |   |

 

3

----

 

| **TRANS ENERGY, INC. AND SUBSIDIARIES**                                    |
|----------------------------------------------------------------------------|
| **Consolidated Balance Sheets**                                            |
| **(Unaudited)**                                                            |
|                                                                       |   |   |   |   |   |   |   |   |   |   |
|                                                                       |   |   |   |   |   |   |   | September 30, |   | December 31, |
|                                                                       |   |   |   |   |   |   |   | 2007 |   | 2006 |
|                                                                       |
| LIABILITIES AND STOCKHOLDERS' EQUITY                            (DEFICIT)  |
|                                                                       |
| CURRENT LIABILITIES                                                        |   |   |   |   |   |   |   |   |
|                                                                       |   |   |   |   |   |   |   |   |   |   |
|                                                                       | Accounts Payable, trade |   |   |   |   | $ 1,603,545 |   | $ 1,165,846 |
|                                                                       | Accounts Payable - related party |   |   |   |   | 246,911 |   | 237,347 |
|                                                                       | Accrued Expenses |   |   |   |   |   | 402,506 |   | 326,781 |
|                                                                       | Accrued Expenses - related party |   |   |   |   | 31,000 |   | 31,000 |
|                                                                       | Judgments Payable |   |   |   |   |   | - |   | 118,046 |
|                                                                       | Notes Payable |   |   |   |   | 88,433 |   | 1,258,381 |
|                                                                       | Notes Payable - related parties |   |   |   |   | - |   | 549,739 |
|                                                                       |   |   |   |   |   |   |   |   |   |   |
|                                                                       | Total Current Liabilities |   |   |   |   | 2,372,395 |   | 3,687,140 |
|                                                                       |   |   |   |   |   |   |   |   |   |   |
| LONG-TERM LIABILITIES                                                      |   |   |   |   |   |   |   |   |
|                                                                       |   |   |   |   |   |   |   |   |   |   |
|                                                                       | Notes Payable, net of unamortized discount |   |   |   |   |   |   |
|                                                                       | of $872,296 and $0, respectively |   |   |   | 8,466,218 |   | 1,663,509 |
|                                                                       | Asset Retirement Obligation |   |   |   |   | 205,467 |   | 190,364 |
|                                                                       |   |   |   |   |   |   |   |   |   |   |
|                                                                       | Total Long - Term Liabilities |   |   |   |   | 8,671,685 |   | 1,853,873 |
|                                                                       |   |   |   |   |   |   |   |   |   |   |
|                                                                       |   | Total Liabilities |   |   |   |   | 11,044,080 |   | 5,541,013 |
|                                                                       |   |   |   |   |   |   |   |   |   |   |
| COMMITMENTS AND CONTINGENCIES                                              |   |   |   |   | - |   | - |
|                                                                       |   |   |   |   |   |   |   |   |   |   |
| STOCKHOLDERS' EQUITY (DEFICIT)                                             |   |   |   |   |   |   |   |
|                                                                       |   |   |   |   |   |   |   |   |   |   |
|                                                                       | Preferred stock; 10,000,000 shares authorized at $0.001                            par |   |   |   |   |
|                                                                       | value; -0- and -0- shares issued and outstanding,                            respectively |   |   |   | - |   | - |
|                                                                       | Common stock; 500,000,000 shares authorized at $0.001                            par value; |   |   |   |   |
|                                                                       | 9,513,065 and 9,450,565 shares issued and outstanding,                            respectively | 9,513 |   | 9,451 |
|                                                                       | Additional paid-in capital |   |   |   |   | 34,104,540 |   | 33,727,680 |
|                                                                       | Accumulated deficit |   |   |   |   |   | (34,163,757) |   | (33,026,735) |
|                                                                       |   |   |   |   |   |   |   |   |   |   |
|                                                                       | Total Stockholders' Equity (Deficit) |   |   |   |   | (49,704) |   | 710,396 |
|                                                                       |   |   |   |   |   |   |   |   |   |   |
|                                                                       | TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                            (DEFICIT) |   | $ 10,994,376 |   | $ 6,251,409 |
|                                                                       |   |   |   |   |   |   |   |   |   |   |
|                                                                       |
| See notes to consolidated financial                            statements. |
|                                                                       |   |   |   |   |   |   |   |   |   |   |

 

 

4

----

 

 

| **TRANS ENERGY, INC. AND SUBSIDIARIES**                                    |
|----------------------------------------------------------------------------|
| **Consolidated Statements of Operations**                                  |
| **(Unaudited)**                                                            |
|                                                                       |   |   |   |   |   |   |   |   |
|                                                                       |   | For the Three Months Ended |   | For the Nine Months Ended |
|                                                                       |   | September 30, |   | September 30, |
|                                                                       |   | 2007 |   | 2006 |   | 2007 |   | 2006 |
|                                                                       |   |   |   |   |   |   |   |   |
| REVENUES                                                                   | $ 416,837  |   | $ 337,079  |   | $ 1,119,109  |   | $ 1,089,593  |
|                                                                       |   |   |   |   |   |   |   |   |
| COSTS AND EXPENSES                                                         |   |   |   |   |   |   |   |
|                                                                       |   |   |   |   |   |   |   |   |
|                                                                       | Production Costs | 253,073  |   | 95,715  |   | 547,130  |   | 360,738  |
|                                                                       | Depreciation, Depletion, and Amortization | 62,264  |   | 50,427  |   | 188,946  |   | 244,444  |
|                                                                       | Exploration Costs | 10,000  |   | - |   | 169,105  |   | -  |
|                                                                       | Selling, General and Administrative | 493,722  |   | 1,887,105  |   | 1,628,752  |   | 2,476,947  |
|                                                                       | Gain on Sale of Assets | -   |   | (14,900) |   | (775,139) |   | (719,016) |
|                                                                       |   |   |   |   |   |   |   |   |
|                                                                       | Total Costs and Expenses | 819,059  |   | 2,018,347  |   | 1,758,794  |   | 2,363,113  |
|                                                                       |   |   |   |   |   |   |   |   |
| LOSS FROM OPERATIONS                                                       | (402,222) |   | (1,681,268) |   | (639,685) |   | (1,273,520) |
|                                                                       |   |   |   |   |   |   |   |   |
| OTHER INCOME (EXPENSES)                                                    |   |   |   |   |   |   |   |
|                                                                       |   |   |   |   |   |   |   |   |
|                                                                       | Interest Income | 20,599  |   | - |   | 23,610  |   | - |
|                                                                       | Gain on Extinguishment of Debt | 34,918  |   | 11,864 |   | 80,701  |   | 17,072  |
|                                                                       | Interest Expense | (306,610) |   | (73,406) |   | (576,462) |   | (145,599) |
|                                                                       | Loss on Derivative Instruments | (25,186) |   | - |   | (25,186) |   | - |
|                                                                       |   |   |   |   |   |   |   |   |
|                                                                       | Total Other Income (Expenses) | (276,279) |   | (61,542) |   | (497,337) |   | (128,527) |
|                                                                       |   |   |   |   |   |   |   |   |
| (LOSS) FROM CONTINUING OPERATIONS                                          |   |   |   |   |   |   |   |
|                                                                       | BEFORE INCOME TAXES | (678,501) |   | (1,742,810) |   | (1,137,022) |   | (1,402,047) |
|                                                                       |   |   |   |   |   |   |   |   |
| INCOME TAXES                                                               | - |   | - |   | - |   | - |
|                                                                       |   |   |   |   |   |   |   |   |
| LOSS FROM CONTINUING OPERATIONS                                            | (678,501) |   | (1,742,810) |   | (1,137,022) |   | (1,402,047) |
| INCOME FROM DISCONTINUED OPERATIONS                                        | - |   | - |   | - |   | 183,775  |
| LOSS FROM DISPOSAL OF DISCONTINUED OPERATIONS                              | - |   | - |   | - |   | (1,374,290) |
|                                                                       |   |   |   |   |   |   |   |   |
| NET LOSS                                                                   | $ (678,501) |   | $ (1,742,810) |   | $ (1,137,022) |   | $ (2,592,562) |
|                                                                       |   |   |   |   |   |   |   |   |
| LOSS PER SHARE - BASIC AND DILUTED                                         |   |   |   |   |   |   |   |
|                                                                       |   |   |   |   |   |   |   |   |
|                                                                       | Continuing Operations | $ (0.07) |   | $ (0.25) |   | $ (0.12) |   | $ (0.26) |
|                                                                       | Discontinued Operations | - |   | - |   | - |   | (0.22) |
|                                                                       |   |   |   |   |   |   |   |   |
|                                                                       | Total | $ (0.07) |   | $ (0.25) |   | $ (0.12) |   | $ (0.48) |
| BASIC AND DILUTED WEIGHTED AVERAGE                                         |   |   |   |   |   |   |   |
| NUMBER OF COMMON SHARES OUTSTANDING                                        | 9,513,065  |   | 6,938,208  |   | 9,474,375  |   | 5,405,293  |
|                                                                       |   |   |   |   |   |   |   |   |
| See notes to consolidated financial                            statements. |
|                                                                            |  |  |  |  |  |  |  |  |  |

 

 

5

----

 

 

|   |   |   |   |   |   |   |   |   |   |   |
|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|

 

| **TRANS ENERGY, INC. AND SUBSIDIARIES**                                                 |   |
|-----------------------------------------------------------------------------------------|--------|
| **Consolidated Statement of Stockholders' Equity                            (Deficit)** |   |
| **For the nine months ended September 30,                            2007**             |   |
| **(Unaudited)**                                                                         |   |
|                                                                                    |   |   |   |   |   |   |   |   |   |   |
|                                                                                    |   |   |   |   |   |   |   |   |   |   |
|                                                                                    |   |   |   |   |   |   |   |   |   |   |
|                                                                                    |   |   |   |   | Common Stock | Additional |   |   |
|                                                                                    |   |   |   |   |   |   |   | Paid in | Accumulated |   |
|                                                                                    |   |   |   |   | Shares |   | Amount | Capital | Deficit | Total |
|                                                                                    |   |   |   |   |   |   |   |   |   |   |
| Balance, December 31, 2006                                                              |   |   | 9,450,565 |   | $ 9,451 | $ 33,727,680 | $ (33,026,735) | $ 710,396  |
|                                                                                    |   |   |   |   |   |   |   |   |   |   |
| Fair value of options granted                                                           |   |   |   |   |   | 326,922 |   | 326,922  |
|                                                                                    |   |   |   |   |   |   |   |   |   |   |
| Shares issued for debt conversion                                                       |   | 62,500 |   | 62 | 49,938 |   | 50,000  |
|                                                                                    |   |   |   |   |   |   |   |   |   |   |
|                                                                                    |   |   |   |   |   |   |   |   |   |   |
| Net loss for the nine months                                                            |   |   |   |   |   |   |   |
| ended September 30, 2007                                                                |   |   |   |   |   |   | (1,137,022) | (1,137,022) |
|                                                                                    |   |   |   |   |   |   |   |   |   |   |
|                                                                                    |   |   |   |   |   |   |   |   |   |   |
| Balance, September 30, 2007                                                             |   |   | 9,513,065 |   | $ 9,513 | $ 34,104,540 | $ (34,163,757) | $ (49,704) |
|                                                                                    |   |   |   |   |   |   |   |   |   |   |
|                                                                                    |   |   |   |   |   |   |   |   |   |   |
| See notes to consolidated financial                            statements.              |   |
|                                                                                    |   |   |   |   |   |   |   |   |   |   |
|                                                                                         |        |  |  |  |  |  |  |  |  |  |  |  |

 

 

6

----

 

| **TRANS ENERGY, INC. AND SUBSIDIARIES**   |
|-------------------------------------------|
| **Consolidated Statements of Cash Flows** |
| **(Unaudited)**                           |
|                                      |   |   |   |   |   |   |   |   |   |   |
|                                      |   |   |   |   |   |   |   | For the Nine Months Ended |
|                                      |   |   |   |   |   |   |   | September 30, |
|                                      |   |   |   |   |   |   |   | 2007 |   | 2006 |
| CASH FLOWS FROM OPERATING ACTIVITIES:     |   |   |   |   |   |   |
|                                      | Net loss |   |   |   |   |   |   | $ (1,137,022) |   | $ (2,592,562) |
|                                      | Loss from discontinued operations |   |   |   |   | - |   | 1,190,515  |
|                                      | Loss from continuing operations |   |   |   |   | (1,137,022) |   | (1,402,047) |
|                                      | Adjustments to reconcile net loss |   |   |   |   |   |   |   |
|                                      | to net cash from operating activities: |   |   |   |   |   |   |
|                                      | Depreciation, depletion and amortization |   |   |   | 188,946  |   | 244,444  |
|                                      | Share-based compensation |   |   |   |   | 326,922  |   | 1,672,000  |
|                                      | Value of options and beneficial conversion                            feature |   |   |   |   | - |   | 38,261  |
|                                      | Gain on debt extinguishment |   |   |   |   | (80,701) |   | (17,072) |
|                                      | Gain on sale of assets |   |   |   |   | (775,139) |   | (719,016) |
|                                      | Amortization of financing cost and debt                            discount |   |   |   |   | 168,822  |   | - |
|                                      | Accretion expense |   |   |   |   | 18,847  |   | - |
|                                      | Unrealized loss on derivative contract |   |   |   | 59,419  |   | - |
|                                      | Changes in operating assets and liabilities: |   |   |   |   |   |   |
|                                      | Accounts receivable |   |   |   |   | (29,038) |   | 601,432  |
|                                      | Accounts receivable - related party |   |   |   | 84,824  |   | - |
|                                      | Prepaid expenses |   |   |   |   |   | 21,875  |   | 2,823  |
|                                      | Other assets |   |   |   |   |   | - |   | (5,392) |
|                                      | Accounts payable |   |   |   |   |   | 518,401  |   | (1,223,399) |
|                                      | Accounts payable - related party |   |   |   |   | 9,564  |   | 211,404  |
|                                      | Accrued expenses |   |   |   |   |   | 75,725  |   | (313,610) |
|                                      | Judgments payable |   |   |   |   |   | (118,046) |   | 38,335  |
|                                      | Net cash provided (used) in operating                            activities: |   |   |   |   |   |
|                                      | Continuing operations |   |   |   |   | (666,601) |   | (871,837) |
|                                      | Discontinued operations |   |   |   |   | - |   | 132,223  |
|                                      | Net cash used in operating activities |   |   |   | (666,601) |   | (739,614) |
|                                      |   |   |   |   |   |   |   |   |   |   |
| CASH FLOWS FROM INVESTING ACTIVITIES:     |   |   |   |   |   |   |
|                                      | Investment in joint venture |   |   |   | - |   | (245,019) |
|                                      | Proceeds from sale of assets |   |   |   | 1,442,139  |   | 1,003,000  |
|                                      | Expenditures for oil and gas properties |   |   |   | (4,287,195) |   | (2,163,783) |
|                                      | Expenditures for property and equipment |   |   |   | (231,255) |   | (282,807) |
|                                      | Net cash used by investing activities |   |   |   | (3,076,311) |   | (1,688,609) |
|                                      |   |   |   |   |   |   |   |   |   |   |
| CASH FLOWS FROM FINANCING ACTIVITIES:     |   |   |   |   |   |   |
|                                      | Common stock issued for cash |   |   |   |   | - |   | 270,000  |
|                                      | Cash paid for derivative contracts |   |   |   |   | (310,000) |   | - |
|                                      | Proceeds from notes payable, net of financing costs and                            cash |   |   |   |   |
|                                      | discount of $701,017 and -0-, respectively |   | 9,166,800  |   | 1,929,671  |
|                                      | Payments on notes payable |   |   |   |   | (3,362,762) |   | (255,362) |
|                                      | Proceeds from related party notes payable |   |   |   |   | - |   | 450,000  |
|                                      | Payments on related party debt |   |   |   |   | (499,739) |   | (18,997) |
|                                      | Net cash provided by financing activities |   |   |   | 4,994,299  |   | 2,375,312  |
|                                      |   |   |   |   |   |   |   |   |   |   |
| NET CHANGE IN CASH                        |   |   |   |   |   | 1,251,387  |   | (52,911) |
|                                      |   |   |   |   |   |   |   |   |   |   |

 

 

7

----

 

 

| CASH, BEGINNING OF PERIOD |   |   |   |   | 208,815 |        | 439,258 |
|---------------------------|--------|--------|--------|--------|---------|-------------|---------|
|                      |   |   |   |   |    |        |    |   |   |   |
| CASH, END OF PERIOD       |   |   |   |   |    | $ 1,460,202 |    | $ 386,346 |

 

| SUPPLEMENTAL DISCLOSURES FOR CASH FLOW                            INFORMATION |                                                                        |   |   |   |                                                                                                         |   |                                                                                                                               |            |                                                                                                    |
|-------------------------------------------------------------------------------|-----------------------------------------------------------------------------|--------|--------|--------|--------------------------------------------------------------------------------------------------------------|--------|------------------------------------------------------------------------------------------------------------------------------------|-----------------|---------------------------------------------------------------------------------------------------------|
|                                                                          |                                                                        |   |   |   |                                                                                                         |   |                                                                                                                               |            |                                                                                                    |   |
| CASH PAID FOR:                                                                |                                                                        |   |   |   |                                                                                                         |   |                                                                                                                               |            |                                                                                                    |
|                                                                          | Interest                                                                    |   |   |   |                                                                                                         |   |                                                                                                                               | $  246,396 |                                                                                                    | $  102,224 |
|                                                                          | Income taxes                                                                |   |   |   |                                                                                                         |   | $                                                                    - |            | $                                         - |
|                                                                          |                                                                        |   |   |   |                                                                                                         |   |                                                                                                                               |            |                                                                                                    |   |
| Non-cash investing and financing activities                                   |                                                                        |   |   |   |                                                                                                         |   |
|                                                                          | Common stock issued for debt                                                |   |   |   | $                                         - |   | $  609,135                                                                                                               |
|                                                                          | Investments purchased by the assumption of                            debt  |   |   |   | $                                         - |   | $  207,608                                                                                                                    |
|                                                                          | Property acquired for common stock                                          |   |   |   | $                                         - |   | $  680,000                                                                                                                    |
|                                                                          | Treasury stock cancelled                                                    |   |   |   | $                                         - |   | $  755,737                                                                                                                    |
|                                                                          | Discount on debt for net profits interest                                   |   |   |   | $  765,000                                                                                              |   | $                                                                    - |
|                                                                          | Conversion of related-party debt to common                            stock |   |   |   | $    50,000                                                                                   |   | $                                                                    - |
|                                                                          |                                                                        |   |   |   |                                                                                                         |   |                                                                                                                               |            |                                                                                                    |   |
|                                                                          |
| See notes to consolidated financial                            statements.    |
|                                                                          |                                                                        |   |   |   |                                                                                                         |   |                                                                                                                               |            |                                                                                                    |   |

 

 

8

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TRANS            ENERGY, INC. AND SUBSIDIARIES

Notes            to Consolidated Financial Statements

(Unaudited)

 

NOTE            1 – BASIS OF FINANCIAL STATEMENT PRESENTATION

 

The accompanying unaudited interim consolidated financial statements            have been prepared by Trans Energy, Inc. pursuant to the rules and regulations of the            Securities and Exchange Commission. Certain information and footnote disclosures            normally included in financial statements prepared in accordance with accounting            principles generally accepted in the United States of America have been omitted in            accordance with such rules and regulations. The information furnished in the interim            consolidated financial statements includes normal recurring adjustments and reflects            all adjustments, which, in the opinion of management, are necessary for a fair            presentation of such financial statements. Although management believes the disclosures            and information presented are adequate to make the information not misleading, it is            suggested that these interim consolidated financial statements be read in conjunction            with Trans Energy’s most recent audited consolidated financial statements and            notes thereto included in its December 31, 2006 Annual Report on Form 10-KSB. Operating            results for the nine months ended September 30, 2007 are not necessarily indicative of            the results that may be expected for the year ending December 31, 2007.

             

Certain reclassifications have been made to amounts in prior periods to            conform with the current period presentation.

             

Debt Issuance Costs

             

Trans Energy accounts for debt issuance costs paid to third parties as            deferred financing cost assets which are amortized to interest expense using the            effective interest method over the same period as the related loans. Issuance costs            directly related to proceeds of borrowings from lenders and paid to lenders are            recorded as discounts on the amounts borrowed and amortized to interest expense using            the effective interest method over the same period as the related loans.

 

NOTE            2 – GOING CONCERN

 

Trans Energy’s unaudited interim consolidated financial statements            are prepared using accounting principles generally accepted in the United States of            America applicable to a going concern, which contemplates the realization of assets and            liquidation of liabilities in the normal course of business. Trans Energy has incurred            cumulative operating losses through September 30, 2007 of $34,163,757. Revenues have            not been sufficient to cover its operating costs and, accordingly raise substantial            doubt about Trans Energy’s ability to continue as a going concern. The potential            proceeds from the sale of common stock, sale of assets, other contemplated debt and            equity financings, and increases in operating revenues from new development and            business acquisitions would enable Trans Energy to continue as a going concern. There            can be no assurance that Trans Energy can or will be able to complete any debt or            equity financing. Trans Energy’s consolidated financial statements do not include            any adjustments that might result from the outcome of this uncertainty.

 

NOTE 3            – SIGNIFICANT EVENTS

 

Effective January 9, 2007, Trans Energy completed the sale to            Leatherwood Inc. for net cash proceeds of $667,000 of six oil and/or gas wells located            in West Virginia. Trans Energy assigned all of its rights, title, operating rights and            interest including the right to produce, operate and maintain the wells. No gain or            loss was recorded on this sale.

 

9

----

 

             

Effective January 10, 2007, Trans Energy acquired from National Gulf            Production, Inc. 75% of National Gulf's rights and interest in and to certain oil and            gas leases covering the oil and gas in and under certain tracts of land containing            approximately 3,120 acres located in Trego County, Kansas for cash of $146,250. In            addition, cash of $138,750 was paid in advance for Trans Energy’s proportionate            75% share of the seismic acquisition, processing and interpretation cost, which was            subsequently expensed. As of October 1, 2007, Trans Energy’s share has been            reduced to 56.25% with the addition of a new partner.

             

Effective February 7, 2007, Trans Energy entered into an agreement with            P.D. Farr to purchase all rights, title and interests in the 384 acre Ezra Hays Lease            in West Virginia including oil and gas wells, associated well equipment, interest in            the natural gas sales pipeline, all rights to Dominion Gas sales meter and all            pertinent rights-of-way for $138,000. On December 16, 2006, Trans Energy paid the sum            of $10,000 as a down payment to be applied against the purchase price, with the unpaid            balance of $128,000 which was paid in full during the first six months of            2007.

             

Effective April 4, 2007, Trans Energy farmed out 11,200 acres of            unproven leases in Wetzel County to Republic Partners VI, LP. Under the terms of the            farm out agreement, Republic was to conduct seismic data gathering, drilling, coring,            completion and production operations jointly with Trans Energy to earn a 50% working            interest in the leases.

             

Effective June 19, 2007, Trans Energy completed the sale to Leatherwood            Inc. of three non-producing well bores located in West Virginia for net cash proceeds            of $774,505. Trans Energy assigned all of its right, title, operating rights and            interest, including the right to produce, operate and maintain the wells. Trans Energy            recorded a gain on sale of the property of $774,505.

             

Effective June 20, 2007, Trans Energy completed the purchase of 3.75            acres located in Wetzel County, West Virginia for cash in the amount of $44,000. This            acreage was purchased for the purpose of installing a tap into Dominion’s            transmission line to create an additional point of sale for future wells drilled in            Wetzel County, West Virginia.

             

Effective July 1, 2007, Trans Energy implemented an employee 401(k) plan            whereby Trans Energy will make basic safe-harbor matching contributions to those            employees electing to participate in the plan.

 

Effective July 13, 2007, as required by the CIT Creditor Agreement,            Trans Energy purchased a commodity put option for $310,000 in cash. The terms of the            option establish a floor price of $7.35/MMBTU, Settlement Date Henry Hub price of            Natural Gas as quoted by the NYMEX, for volumes ranging from 8,241 MMBTU per month to            5,244 MMBTU per month, beginning settlement on August 2, 2007 and ending settlement on            December 1, 2011. This put option places no limit on the upside price for Trans            Energy’s gas production. If the monthly closing price of Henry Hub gas index is            below the floor price then Trans Energy receives proceeds equal to the difference            between the floor price and the closing price. The cost of the put option and proceeds,            if any, as well as changes in the fair market value of the put options, are charged to            other income (expense) as gain (loss) on derivative instruments. As of September 30,            2007, Trans Energy had a total loss on the derivative instrument of $25,186, of which            $34,233 was a realized gain and $59,419 was an unrealized loss.

             

10

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NOTE 4            –NOTES PAYABLE

 

On January 10, 2007, Trans Energy repaid a short-term related party            note, dated September 11, 2006, bearing interest at the rate of 10% per annum, with            cash in the amount of $270,000 plus accrued interest, for a total paid of            $278,951.

             

On June 18, 2007, Trans Energy repaid a short-term related party note,            dated September 11, 2006, bearing interest at the rate of 10% per annum, with cash in            the amount of $100,000 plus accrued interest, for a total paid of $107,589.

             

On June 18, 2007, Trans Energy repaid a short-term related party note,            dated September 11, 2006, bearing interest at the rate of 10% per annum, with cash in            the amount of $30,000 plus accrued interest, for a total paid of $36,027. In addition,            62,500 shares of common stock were issued for the remaining balance due of            $50,000.

             

For the nine months ended September 30, 2007, Trans Energy also repaid            various other related party notes in the principal amount of $99,739.

             

On June 22, 2007, Trans Energy finalized a financing agreement with CIT            Capital USA Inc. Under the terms of the agreement, CIT Capital USA Inc. will lend up to            $18,000,000 (the “Borrowing Base”), to Trans Energy in the form of a senior            secured revolving credit facility. Trans Energy has the ability, at additional cost, to            increase the credit facility to $30,000,000 in the future, with increases in its            reserves. Trans Energy gave CIT Capital USA Inc. a promissory note for all borrowings            under the terms of the agreement. The note contains customary default provisions and            additional financial covenants. Funds realized from the financing agreement will be            used to facilitate Trans Energy’s 2007 drilling program. As part of the financing            agreement, Trans Energy conveyed to CIT Capital USA Inc. a first priority continuing            security interest in, lien on and right of setoff against, all property, assets,            security interests, related books and records, and any proceeds from the sale of or            revenue generated from the foregoing, whether now owned or acquired at anytime in the            future. In addition, Trans Energy conveyed to CIT Capital USA Inc. a 2% Net Profits            Interest, valued at $765,000, in and to all oil and gas properties currently owned and            any additional oil and gas properties acquired in the future through to the date of            maturity. The conveyance of the 2% Net Profits Interest has been accounted for as a            sale, which was recorded against the values of oil and gas properties. Under the terms            of the financing agreement, CIT Capital USA Inc. can elect after June 22, 2008, but on            or prior to June 22, 2009 to sell the 2% NPI to Trans Energy at a value equal to 2% of            Trans Energy’s total reserve report value at the time. Trans Energy can elect            after June 22, 2009, but on or prior to June 22, 2010 to buy the 2% NPI from CIT            Capital USA Inc. at a value equal to 3% of Trans Energy’s total reserve report            value at the time. Trans Energy can elect after June 22, 2010, to buy the 2% NPI from            CIT Capital USA Inc. at a value equal to 2% of Trans Energy’s total reserve            report value at the time. The reserve report value is to be based on proved reserves            and to be calculated using a 10% discount, no inflation adjustment for expenditures and            differential adjusted market pricing for revenues. The fair value of $765,000 has been            recorded as a reduction of oil and gas properties and a discount on the note payable to            CIT Capital USA Inc., with no gain recognized. The discount is being amortized using            the effective interest method over the term of the note. Trans Energy also agreed to            enter into the commodity put option positions over the next five years on 70 % to 80%            of natural gas production volumes. Under the terms of the agreement Trans Energy can            elect varying interest payment terms and a variable interest rate based on different            posted rates, at no additional cost. Borrowings under the note bear interest at either            LIBOR plus a variable margin based on the utilization of the Borrowing Base, ranging            from 1.75% to 5.25%; or at the Prime Rate plus the Federal Funds Rate plus 0.5% plus a            variable margin based on the utilization of the Borrowing Base ranging from 1.75% to            5.25%.

             

11

----

 

Interest payment due dates are elected at the time of borrowing and            range from monthly to six months. Principal payments are due at maturity on June 15,            2010 for all borrowings outstanding on that date. Trans Energy shall have the right at            any time to prepay any borrowing in whole or in part, before the date of maturity.            Trans Energy also must pay CIT Capital USA Inc. a commitment fee for any unused            commitments, including related letters of credit. The commitment fees range from 0.5%            to 0.75% per annum of unused average commitments. Trans Energy paid $500,000 in            financing fees to a placement agent in securing the CIT Capital USA Inc. financing            agreement. These financing fees are being deferred and amortized using the effective            interest method over the term of the note. Trans Energy paid $200,000 to CIT Capital            USA Inc. as a structuring fee in securing the note. The structuring fee has been            recorded as a discount on the note and is being amortized using the effective interest            method over the term of the note. For the nine months ended September 30, 2007, Trans            Energy’s total borrowings from CIT amount to $9,213,146, leaving an unused            available credit facility of $8,786,854.

             

For the nine months ended September 30, 2007, Trans Energy had            additional borrowings in the amount of $654,671 to fund workover programs and various            property and equipment purchases. The terms range from 6.75% to 13.24% interest with            repayment periods from 36 to 48 months.

             

On June 22, 2007, Trans Energy also repaid the following notes payable            balances as they were on at that date:

             

|                | Principal | Interest |
|---------------------|-----------|----------|
| Wesbanco            | $ 240,226 | $ 1,218  |
| United Bank         | 1,817,952 | 24,719   |
| Huntington National | 932,255   | 9,458    |
| Karla Spencer       | 292,078   | - 0 -    |

             

NOTE 5            - DERIVATIVE FINANCIAL INSTRUMENTS

 

Trans Energy entered into a derivative contract to provide a measure of            stability in the cash flows associated with Trans Energy’s gas production and to            manage exposure to commodity prices. None of the derivative contracts Trans Energy            entered into have been designated as cash flow hedges or fair value hedges. Trans            Energy recorded a total loss of $25,186 related to its derivative instruments for the            three months ended September 30, 2007, of which $34,233 was a realized gain and $59,419            was an unrealized loss.

 

Natural Gas Derivatives

             

Trans Energy entered into participating commodity put options on natural            gas whereby Trans Energy receives a floor price. The following table shows the monthly            volumes and the floor price.

             

|           |          |        | Average |
|----------------|---------------|-------------|---------|
| Start          | End           | Volume      | Floor   |
| Month          | Month         | MMBTU/Month | $/MMBTU |
| July ‘07 | Dec ‘07 | 8,241       | $ 7.350 |
| Jan ‘08  | Dec ‘08 | 6,915       | $ 7.350 |
| Jan ‘09  | Nov ‘09 | 6,370       | $ 7.350 |
| Jan ‘10  | Dec ‘10 | 5,560       | $ 7.350 |
| Jan ‘11  | Dec ‘11 | 5,244       | $ 7.350 |

 

 

12

----

 

NOTE            6 – BUSINESS SEGMENTS

 

Trans Energy’s principal operations consist of oil and gas sales            with Trans Energy and Prima Oil Company, and pipeline transmission with Ritchie County            Gathering Systems and Tyler Construction Company.

 

Certain financial information concerning Trans Energy’s operations            in different segments is as follows:

 

|   | For the nine |
|--------|--------------|

|   | Months Ended | Oil and Gas | Pipeline |
|--------|--------------|-------------|----------|

|   | September 30, | Sales | Transmission | Corporate | Total |
|--------|---------------|-------|--------------|-----------|-------|

             

|   | Revenue | 2007 | $ 915,606 | $   203,503 | $ | -- | $ | 1,119,109 |
|--------|---------|------|-----------|-----------------------|---|----|---|-----------|

|   | 2006 | 924,724 |  164,869 | -- | 1,089,593 |
|--------|------|---------|---------------|----|-----------|

             

|   | Income (Loss) from | 2007 | 1,074,947 | 164,722 |     (2,376,691) |  (1,137,022) |
|--------|--------------------|------|-----------|---------|--------------------------------|-------------------|

|   | continuing operations | 2006 | 782,312 | 164,061 |      (2,348,420) | (1,402,047) |
|--------|-----------------------|------|---------|---------|--------------------------------------|-------------|

             

             

|   | Depreciation, depletion |  2007 | 169,651 | 19,295 |    -- | 188,946 |
|--------|-------------------------|------------|---------|--------|-----------------|---------|

|   | and amortization | 2006 | 198,858 | 45,586 |    -- | 244,444 |
|--------|------------------|------|---------|--------|-----------------|---------|

             

|   | Property and equipment | 2007 |   4,276,260 | 257,301 |   -- |  4,518,450 |
|--------|------------------------|------|------------------|---------|-----------|-----------------|

|   | acquisitions, including | 2006 |  2,446,590 | -- |  -- | 2,446,590 |
|--------|-------------------------|------|-----------------|----|----------|-----------|

oil and gas properties

             

Total assets, net of intercompany accounts:

             

|   | September 30, 2007 | $ 10,140,722 | $  853,654 | $ |  -- | $10,994,376 |
|--------|--------------------|--------------|-----------------|---|----------|-------------|

|   | December 31, 2006 | 5,514,899 | 736,510 |   -- | 6,251,409 |
|--------|-------------------|-----------|---------|-----------|-----------|

 

 

|   | For the three |
|--------|---------------|

|   | Months Ended | Oil and Gas | Pipeline |
|--------|--------------|-------------|----------|

|   | September 30, | Sales | Transmission | Corporate | Total |
|--------|---------------|-------|--------------|-----------|-------|

             

|   | Revenue | 2007 | $  344,325 | $ |  72,512           | $ |  -- | $ | 416,837 |
|--------|---------|------|-----------------|---|--------------------------------------------------------------------------|---|----------|---|---------|

|   | 2006 | 325,179 |  11,900 | -- | 337,079 |
|--------|------|---------|--------------|----|---------|

             

|   | Income (Loss) from | 2007 | 306,853 | 35,247 |       (1,020,601) |  (678,501) |
|--------|--------------------|------|---------|--------|--------------------------------------------|-----------------|

|   | continuing operations | 2006 | (72,767) | 21,944 |       (1,691,987) |  (1,742,810) |
|--------|-----------------------|------|----------|--------|--------------------------------------------|-------------------|

             

             

|   | Depreciation, depletion |  2007 | 55,996 | 6,268 |     -- | 62,264 |
|--------|-------------------------|------------|--------|-------|-----------------------|--------|

|   | and amortization | 2006 | 41,546 | 8,881 |     -- | 50,427 |
|--------|------------------|------|--------|-------|-----------------------|--------|

             

|   | Property and equipment | 2007 |   3,409,972 | 101,600 |    -- | 3,511,572 |
|--------|------------------------|------|------------------|---------|-----------------|-----------|

|   | acquisitions, including | 2006 |   1,761,467 | -- |   -- | 1,761,467 |
|--------|-------------------------|------|------------------|----|-----------|-----------|

oil and gas properties

             

Total assets, net of intercompany accounts:

             

|   | September 30, 2007 | $ 10,140,722 | $  853,654 | $ | -- | $10,994,376 |
|--------|--------------------|--------------|-----------------|---|----|-------------|

|   | December 31, 2006 | 5,514,899 | 736,510 | -- | 6,251,409 |
|--------|-------------------|-----------|---------|----|-----------|

             

13

----

             

 

NOTE            7 – SUBSEQUENT EVENTS

 

On October 25, 2007, the CIT Capital debt agreement dated June 15, 2007            was amended to provide the Company additional time, until March 31, 2008, to meet            various financial statement ratio covenants to avoid default.

             

 

14

 

----

 

| Item 2. | Management’s Discussion and Analysis or Plan of                            Operation |
|---------|--------------------------------------------------------------------------------------------|

 

Results of Operations

 

Three months ended September 30, 2007 compared to September 30,            2006

 

The following table sets forth the percentage relationship to total            revenues of principal items contained in our consolidated statements of operations for            the three months ended September 30, 2007 and 2006. It should be noted that percentages            discussed throughout this analysis are stated on an approximate basis.

 

|   | Three Months Ended |
|--------|--------------------|

|   | September 30, |
|--------|---------------|

|   | 2007 | 2006 |
|--------|------|------|

|   | (Unaudited) |
|--------|-------------|

 

| Total revenues                            ............................................................................. | 100% | 100% |
|-------------------------------------------------------------------------------------------------------------------------|------|------|

| Total costs and expenses                            ................................................................. | (197%) | (599%) |
|-----------------------------------------------------------------------------------------------------------------------|--------|--------|

| Income (loss) from operations                            ......................................................... | (97%) | (499%) |
|--------------------------------------------------------------------------------------------------------------------|-------|--------|

| Other income (expense)                            ................................................................. | (67%) | (19%) |
|---------------------------------------------------------------------------------------------------------------------|-------|-------|

| Net income                            (loss)..........................................................................                            (163%) | (517%) |
|----------------------------------------------------------------------------------------------------------------------------------------------------------|--------|

 

Total revenues for the three months ended September 30, 2007 increased            24% compared to the third quarter of 2006, primarily due to acquisitions and increased            production from the efforts of the work over program. We focused our efforts during the            third quarter of 2007 on a work over program on our wells located in Wetzel and Marion            Counties, West Virginia and the implementation of our drilling program. We expect            production to continue to increase from this work over program as well as our drilling            program during the fourth quarter of 2007.

 

Production costs increased 165% in the three months ended September 30,            2007 as compared to the same period for 2006, primarily due to expenses associated with            our workover program.

 

Depreciation, depletion and amortization expense increased 24% in the            three months ended September 30, 2007 as compared to the same period for 2006, due to            the increase in production and property, plant, and equipment.

 

Interest expense increased 318% in the three months ended September 30,            2007 as compared to the same period for 2006, primarily due to increased borrowings for            our drilling and workover program.

 

Our loss from operations for the third quarter of 2007 was $402,222            compared to a loss from operations of $1,681,268 for the third quarter of 2006. This            decrease is primarily due to a decrease in selling, general and administrative            expenses. This decrease in selling, general and administrative expenses is related to            the value of shares issued for signing bonuses to its officers and directors during the            third quarter 2006.

 

Our net loss for the third quarter of 2007 was $678,501 compared to a            net loss of $1,742,810 for the third quarter of 2006.

 

The following table sets forth the percentage relationship to total            revenues of principal items contained in our consolidated statements of operations for            the nine month periods ended September 30, 2007 and 2006. It should be noted that            percentages discussed throughout this analysis are stated on an approximate            basis.

 

15

 

----

 

|   | Nine Months Ended |
|--------|-------------------|

|   | September 30, |
|--------|---------------|

|   | 2007 | 2006 |
|--------|------|------|

|   | (Unaudited) |
|--------|-------------|

 

| Total revenues                            ............................................................................. |  100% |  100% |
|-------------------------------------------------------------------------------------------------------------------------|------------|------------|

| Total costs and expenses                            ................................................................. | (158%) | (217%) |
|-----------------------------------------------------------------------------------------------------------------------|--------|--------|

| Income (loss) from operations                            ......................................................... |  (58%) |  (117%) |
|--------------------------------------------------------------------------------------------------------------------|-------------|--------------|

| Other income (expense)                            ................................................................. |  (45%) | (12%) |
|---------------------------------------------------------------------------------------------------------------------|-------------|-------|

| Discontinued operations                            ................................................................. |       -  |  (110%) |
|----------------------------------------------------------------------------------------------------------------------|----------------------------------------|--------------|

| Net loss                            .................................................................................... | (102%) | (238%) |
|--------------------------------------------------------------------------------------------------------------------------|--------|--------|

 

Total revenues from continuing operations for the nine months ended            September 30, 2007 increased 3% compared to the third quarter of 2006, primarily due to            acquisitions and increased production from the efforts of the work over program. We            have focused our efforts during the first nine months of 2007 on a work over program on            our wells located in Wetzel and Marion Counties, West Virginia, and the implementation            of our drilling program. We expect production to continue to increase from this work            over program as well as our drilling program during the fourth quarter of            2007.

 

Production costs increased 52% for the nine months ended September 30,            2007 as compared to the same period for 2006, primarily due to expenses associated with            our workover program.

 

Depreciation, depletion and amortization expense decreased 23% in the            nine months ended September 30, 2007 as compared to the same period in 2006, due to the            increased reserves at December 31, 2006, therefore increasing our depletion            base.

 

Exploration costs increased in the nine months ended September 30, 2007            due to expenditures for seismic data relating to the Trego County Kansas            acreage.

 

Interest expense increased 296% for the nine months ended September 30,            2007 as compared to the same period for 2006, primarily due to increased borrowings for            our drilling and workover program.

             

We had a loss from operations for the nine months ended September 30,            2007 of $639,685 compared to a loss from operations of $1,273,520 for the nine months            ended September 30, 2006 primarily due to a decrease in selling, general and            administrative expenses. This decrease in selling, general and administrative expenses            is related to the value of shares issued for signing bonuses to its officers and            directors during the third quarter 2006.

 

We recorded a loss from discontinued operations in 2006 of $1,190,515            due to the disposal of Arvilla. Our net loss for the first nine months of 2007 was            $1,137,022 compared to a loss of $2,592,562 for the first nine months of            2006.

 

For the remainder of fiscal year 2007, management expects selling,            general and administrative expenses to remain constant. 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 2007.

 

Liquidity and Capital Resources

 

Historically, we have satisfied our working capital needs with operating            revenues and from borrowed funds. At September 30, 2007, we had a working capital            surplus of $95,063 compared to a deficit of $2,610,953 at December 31, 2006. This            increase in working capital surplus is primarily

 

16

----

 

attributed to the sale of wells in Marion County from which we realized            net cash proceeds of $1,442,139, increased efforts from our work over program, as well            as cash received from our debt financing.

 

During the first nine months of 2007, operating activities used net cash            of $666,601 compared to $739,614 for the same period of 2006. This increased negative            cash flow from operating activities is primarily attributable to our decision to pay            off the outstanding payables and judgments, as well as increased expenses related to            the workover program and the seismic acquisition in Kansas.

 

Net cash used by investing activities for the first nine months of 2007            was $3,076,311 compared to net cash used of $1,688,609 in 2006. We used $4,287,195 for            the purchase of oil and gas properties and $231,255 to purchase property and equipment            and $1,442,139 was received from the sale of wells for the nine month period ended            September 30, 2007 compared to $2,163,783 for the purchase of oil and gas properties            and $282,807 to purchase property and equipment and $1,003,000 was received from the            sale of wells in the nine month period ended September 30, 2006.

 

During the first nine months of 2007, we were provided net cash from            financing activities of $4,994,299 compared to $2,375,312 in the same period of 2006.            In 2007, we borrowed $9,166,800, net of financing cost and cash discount, and repaid            $3,362,762 in notes payable.

 

We anticipate meeting our working capital needs during the remainder of            the current fiscal year with revenues from our ongoing operations, particularly from            our wells in Wetzel, Marion and Doddridge Counties, West Virginia and new third party            natural gas wells drilled in West Virginia, which gas goes into our 6-inch pipeline. In            the event revenues are not sufficient to meet our working capital needs, we will            explore the possibility of additional funding from either the sale of debt or equity            securities. There can be no assurance such funding will be available to us or, if            available, it will be on acceptable or favorable terms. In addition, we have an            available credit facility of $8,786,854 which we plan to use to fund our drilling            program in Wetzel, Marion, and Doddridge Counties, West Virginia.

 

Because of our continued losses, working capital deficit, and need for            additional funding, there exists substantial doubt about our ability to continue as a            going concern. Historically, our revenues have not been sufficient to cover operating            costs. However, we may potentially need to rely on proceeds from the sale of common            stock, debt or equity financings, and increased operating revenues from new            developments to allow us to continue as a going concern. There can be no assurance that            we can or will be able to complete any debt or equity financing.

 

Inflation

 

|   | In the opinion of our management, inflation has not had                            a material effect on our operations. |
|--------|-------------------------------------------------------------------------------------------------------------------------|

 

Recent Events

 

Trans Energy began drilling its first of two joint venture wells located            in Wetzel County, West Virginia to an approximate total depth of 7,500 feet, with the            primary target being the Marcellus Shale. The total cost per well is estimated to be            $750,000 to $850,000, of which Republic Partners will pay for 100% of the cost of the            first well and 50% of each additional well to earn a 50% working interest. Drilling            began on October 15, 2007, with an estimated drilling completion date of November 15,            2007 for the first well. The drilling of the second well will be contingent upon the            success of the first well.

 

Trans Energy began the construction of an 8 inch pipeline located in            Wetzel County, West Virginia which will transport gas from the new wells drilled during            the quarter ended September 30, 2007, in addition to transporting gas for third            parties. The pipeline is expected to be completed before the end of the year and is            expected to cost $1,200,000.

 

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Forward-looking and Cautionary Statements

 

This report includes “forward-looking statements” within the            meaning of Section 27A of the Securities Act of 1933, and Section 21E of the Securities            Exchange Act of 1934. These forward-looking statements may relate to such matters as            anticipated financial performance, future revenues or earnings, business prospects,            projected ventures, new products and services, anticipated market performance and            similar matters. When used in this report, the words “may,”            “will,” “expect,” “anticipate,”            “continue,” “estimate,” “project,”            “intend,” and similar expressions are intended to identify forward-looking            statements regarding events, conditions, and financial trends that may affect our            future plans of operations, business strategy, operating results, and our future plans            of operations, business strategy, operating results, and financial position. We caution            readers that a variety of factors could cause our actual results to differ materially            from the anticipated results or other matters expressed in forward-looking statements.            These risks and uncertainties, many of which are beyond our control,            include:

 

|   | **•** | the sufficiency of existing capital resources and our                            ability to raise additional capital to fund cash requirements for                            future operations; |
|--------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

             

|   | **•** | uncertainties involved in the rate of growth of our                            business and acceptance of any products or services; |
|--------|------------|-------------------------------------------------------------------------------------------------------------------------------------|

             

|   | **•** | success of our drilling activities; |
|--------|------------|-------------------------------------|

 

|   | **•** | volatility of the stock market, particularly within the                            energy sector; and |
|--------|------------|-------------------------------------------------------------------------------------------------------|

 

|   | **•** | general economic conditions. |
|--------|------------|------------------------------|

 

Although we believe the expectations reflected in these forward-looking            statements are reasonable, such expectations cannot guarantee future results, levels of            activity, performance or achievements.

 

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| Item 3. | Controls and Procedures |
|---------|-------------------------|

 

We            maintain disclosure controls and procedures that are designed to be effective in            providing reasonable assurance that information required to be disclosed in our reports            under the Securities Exchange Act of 1934 is recorded, processed, summarized and            reported within the time periods specified in the rules and forms of the SEC, and that            such information is accumulated and communicated to our management to allow timely            decisions regarding required disclosure.

 

In            designing and evaluating disclosure controls and procedures, management recognizes that            any controls and procedures, no matter how well designed and operated, can provide only            reasonable, not absolute assurance of achieving the desired objectives. Also, the            design of a control system must reflect the fact that there are resource constraints            and the benefits of controls must be considered relative to their costs. Because of the            inherent limitations in all control systems, no evaluation of controls can provide            absolute assurance that all control issues and instances of fraud, if any, have been            detected. These inherent limitations include the realities that judgments in            decision-making can be faulty and that breakdowns can occur because of simple error or            mistake. The design of any system of controls is based, in part, upon certain            assumptions about the likelihood of future events and there can be no assurance that            any design will succeed in achieving its stated goals under all potential future            conditions.

 

As            of the end of the period covered by this report, we carried out an evaluation, under            the supervision and with the participation of management, including our chief executive            officer and principal financial officer, of the effectiveness of the design and            operation of our disclosure controls and procedures as defined in Rules 13a-15(e) and            15d-15(e) of the Exchange Act. Based upon that evaluation, management concluded that            our disclosure controls and procedures were not effective to cause the information            required to be disclosed by us in reports that we file or submit under the Exchange Act            is recorded, processed, summarized and reported within the time periods prescribed by            SEC, and that such information is accumulated and communicated to management, including            our chief executive officer and principal financial officer, as appropriate, to allow            timely decisions regarding required disclosure. The disclosure controls and procedures            were considered not effective due to the adjusting entry proposed by our auditors            related to accrued liabilities and accrued receivables. We have put procedures in place            to properly disclose these amounts in the future.

 

There was no change in our internal controls over financial reporting            identified in connection with the requisite evaluation that occurred during our last            fiscal quarter that has materially affected, or is reasonably likely to materially            affect, our internal control over financial reporting.

 

 

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PART            II

 

| Item 1. | Legal Proceedings |
|---------|-------------------|

 

Information concerning certain material pending legal proceedings to            which we are a party, or to which any of our property is subject, is set forth            below:

 

On            September 22, 2000, Tioga Lumber Company obtained a judgment of $43,300 plus interest            in the Circuit Court of Pleasants County, West Virginia, against Tyler construction            Company for breach of contract. On February 28, 2002, we reached a negotiated payment            schedule with Tioga and made the initial payment. We believe that we have satisfied the            balance owed to Tioga of $26,233, although the judgment has not yet been released. We            are proceeding to secure the release of the judgment.

 

We            may be engaged in various other lawsuits and claims, either as plaintiff or defendant,            in the normal course of business. In the opinion of management, based upon advice of            counsel, the ultimate outcome of these lawsuits will not have a material impact on our            financial position or results of operations.

 

| Item 2. | Unregistered Sales of Equity Securities and Use of                            Proceeds |
|---------|----------------------------------------------------------------------------------------|

 

On            June 18, 2007, we issued 62,500 shares of our common stock, valued at $0.80 per share,            to William F. Woodburn in consideration for the balance of $50,000 remaining on a            short-term related party note. The shares were issued in a private, non-public isolated            transaction pursuant to exemption from registration provided by Section 4(2) of the            Securities Act of 1933.

 

| Item 3. | Defaults Upon Senior Securities |
|---------|---------------------------------|

 

None.

 

| Item 4. | Submission of Matters to a Vote of Security                            Holders |
|---------|--------------------------------------------------------------------------------|

 

No            matters were submitted to a vote of our securities holders during the third quarter            ended September 30, 2007.

 

| Item 5. | Other Information |
|---------|-------------------|

 

The            following reports were filed with the SEC on Form 8-K during the nine month period            ended September 30, 2007.

 

|   | April 7, 2007 – reporting under Item 3.01 the                            notice of delisting or failure to satisfy a continued |
|--------|--------------------------------------------------------------------------------------------------------------------------------------|

|   | listing rule or standard. |
|--------|---------------------------|

 

June 22, 2007 – reporting under Item 1.01 the entry into a            material definitive agreement for       financing with CIT Capital USA, Inc.

 

| Item 6. | Exhibits |
|---------|----------|

 

Exhibit 31.1  Certification of C.E.O. Pursuant to Section 302 of the Sarbanes-Oxley            Act of2002.

 

Exhibit 31.2  Certification of Principal Accounting Officer Pursuant to Section 302 of            theSarbanes-Oxley Act of 2002.

 

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Exhibit 32.1  Certification of C.E.O. Pursuant to 18 U.S.C. Section 1350, as Adopted            Pursuantto Section 906 of the Sarbanes-Oxley Act of            2002.

 

Exhibit 32.2 Certification of Principal Accounting Officer Pursuant to 18 U.S.C.            Section1350, as Adopted Pursuant to Section 906 of the            Sarbanes-Oxley Act of 2002.

 

 

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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 9, 2007 | By/S/ JAMES K.                            ABCOUWER______ |
|------------------------|----------------------------------------------------------|

|   | JAMES K. ABCOUWER |
|--------|-------------------|

|   | Chief Executive Officer and Director |
|--------|--------------------------------------|

 

 

| Date: November 9, 2007 | By/S/ LISA A.                            CORBITT___________ |
|------------------------|-------------------------------------------------------------|

|   | LISA A. CORBITT |
|--------|-----------------|

|   | Controller, Principal Financial Officer |
|--------|-----------------------------------------|

|   | (Principal Accounting Officer) |
|--------|--------------------------------|

 

 

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