UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarter Ended June 30, 2004
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.
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(Exact name of small business issuer as specified in its charter)
Nevada 93-0997412
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
210 Second Street, P.O. Box 393, St. Marys, West Virginia 26170
---------------------------------------------------------------
(Address of principal executive offices)
Registrant's telephone no., including area code: (304) 684-7053
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. Yes [X] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date.
Class Outstanding as of June 30, 2004
----------------------------- -------------------------------
Common Stock, $.001 par value 293,566,131
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TABLE OF CONTENTS
Heading Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.................................................................... 3
Consolidated Balance Sheets - June 30, 2004 (Unaudited) and
December 31, 2003................................................................ 4
Consolidated Statements of Operations - three and six months ended
June 30, 2004 and 2003 (Unaudited)............................................... 6
Consolidated Statements of Stockholders' Equity (Deficit).......................... 7
Consolidated Statements of Cash Flows - three and six months ended
June 30, 2004 and 2003 (Unaudited)............................................... 8
Notes to Consolidated Financial Statements ........................................ 10
Item 2. Management's Discussion and Analysis and Results of Operations.......................... 16
Item 3. Controls and Procedures................................................................. 18
PART II. OTHER INFORMATION
Item 1. Legal Proceedings....................................................................... 18
Item 2. Changes In Securities and Use of Proceeds............................................... 19
Item 3. Defaults Upon Senior Securities......................................................... 20
Item 4. Submission of Matters to a Vote of Securities Holders................................... 20
Item 5. Other Information....................................................................... 20
Item 6. Exhibits and Reports on Form 8-K........................................................ 20
Signatures.............................................................................. 21
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PART I
Item 1. Financial Statements
The accompanying consolidated balance sheet of Trans Energy, Inc. at June
30, 2004 (unaudited) and December 31, 2003, related unaudited statements of
operations, stockholders' equity (deficit) and cash flows for the three and six
months ended June 30, 2004 and 2003, have been prepared by our management in
conformity with accounting principles generally accepted in the United States of
America. In the opinion of management, all adjustments considered necessary for
a fair presentation of the consolidated results of operations and consolidated
financial position have been included and all such adjustments are of a normal
recurring nature. Operating results for the quarter ended June 30, 2004, are not
necessarily indicative of the results that can be expected for the fiscal year
ending December 31, 2004.
TRANS ENERGY, INC.
CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2004 and December 31, 2003
-3-
TRANS ENERGY, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
ASSETS
------
June 30, December 31,
2004 2003
----------- -----------
(Unaudited)
CURRENT ASSETS
Cash $ 4,516 $ 183
Accounts receivable, net 384,010 198,691
Other receivables 11,758 58,452
Prepaid expenses 990 990
----------- -----------
Total Current Assets 401,274 258,316
----------- -----------
PROPERTY AND EQUIPMENT
Vehicles 62,257 77,118
Machinery and equipment 10,532 10,092
Pipelines 1,592,675 1,739,287
Well equipment 49,155 49,155
Wells 3,079,481 3,079,481
Leasehold acreage 95,945 95,945
Accumulated depreciation (4,358,079) (4,021,605)
----------- -----------
Total Fixed Assets 536,966 1,029,473
OTHER ASSETS
Cash surrender value - life insurance (net) 3,378 5,086
----------- -----------
Total Other Assets 3,378 5,086
----------- -----------
TOTAL ASSETS $ 941,618 $ 1,292,875
=========== ===========
The accompanying notes are an integral part
of these consolidated financial statements.
-4-
TRANS ENERGY, INC. AND SUBSIDIARIES
Consolidated Balance Sheets (Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
June 30, December 31,
2004 2003
------------ ------------
(Unaudited)
CURRENT LIABILITIES
Bank overdraft $ -- $ 49,120
Accounts payable - trade 1,101,934 786,191
Notes payable - convertible -- 36,325
Accrued expenses 577,499 954,749
Salaries payable 1,426,579 1,266,479
Notes payable - current portion 1,201,775 1,221,083
Judgments payable (Note 3) 498,397 500,397
Related party payables 1,537,915 1,271,681
Debentures payable 331,462 331,462
Environmental remediation 203,000 200,000
------------ ------------
Total Current Liabilities 6,878,561 6,617,487
------------ ------------
LONG-TERM LIABILITIES
Notes payable 36,830 105,421
------------ ------------
Total Long-Term Liabilities 36,830 105,421
------------ ------------
Total Liabilities 6,915,391 6,722,908
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (DEFICIT)
Preferred stock; 10,000,000 shares authorized
at $0.001 par value; -0- shares issued and outstanding -- --
Common stock; 500,000,000 shares authorized at $0.001
par value; 293,566,131 and 269,010,438 shares issued
and outstanding, respectively 293,565 269,010
Capital in excess of par value 23,401,295 23,105,159
Accumulated deficit (29,668,633) (28,804,202)
------------ ------------
Total Stockholders' Equity (Deficit) (5,973,773) (5,430,033)
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT) $ 941,618 $ 1,292,875
============ ============
The accompanying notes are an integral part
of these consolidated financial statements.
-5-
TRANS ENERGY, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(Unaudited)
For the For the
Three Months Ended Six Months Ended
June 30, June 30,
------------------------------ ------------------------------
2004 2003 2004 200
------------- ------------- ------------- -------------
REVENUES $ 555,245 $ 659,854 $ 1,134,975 $ 1,076,917
------------- ------------- ------------- -------------
COSTS AND EXPENSES
Cost of oil and gas 448,850 574,980 1,068,371 898,972
Salaries and wages 85,107 96,253 180,022 192,146
Depreciation, depletion and
amortization 128,168 201,752 467,857 454,985
Selling, general and
administrative 74,784 112,959 112,158 169,184
------------- ------------- ------------- -------------
Total Costs and Expenses 736,909 985,944 1,828,408 1,715,287
------------- ------------- ------------- -------------
LOSS FROM OPERATIONS (181,664) (326,090) (693,433) (638,370)
------------------------------- ------------- ------------- ------------- -------------
OTHER INCOME (EXPENSE)
Loss on extinguishment of debt -- -- (246,836) --
Net gain on sale of assets -- -- 175,910 106,428
Other income 9,128 5,725 9,128 6,498
Interest expense (58,982) (102,180) (109,200) (204,376)
------------- ------------- ------------- -------------
Total Other Income
(Expense) (49,854) (96,455) (170,998) (91,450)
------------- ------------- ------------- -------------
LOSS FROM OPERATIONS
BEFORE INCOME TAXES AND
MINORITY INTERESTS (231,518) (422,545) (864,431) (729,820)
------------- ------------- ------------- -------------
INCOME TAXES -- -- -- --
------------- ------------- ------------- -------------
MINORITY INTERESTS -- -- -- --
------------- ------------- ------------- -------------
NET LOSS $ (231,518) $ (422,545) $ (864,431) $ (729,820)
============= ============= ============= =============
BASIC LOSS PER SHARE $ (0.00) $ (0.00) $ (0.00) $ (0.00)
============= ============= ============= =============
WEIGHTED AVERAGE
NUMBER OF SHARES
OUTSTANDING 293,566,131 244,702,549 279,755,988 242,036,759
============= ============= ============= =============
The accompanying notes are an integral part
of these consolidated financial statements.
-6-
TRANS ENERGY, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity (Deficit)
Preferred Stock Common Stock Capital
-------------------------- --------------------------- in Excess of Accumulated
Shares Amount Shares Amount Par Value Deficit
------------ ------------ ------------ ------------ ------------ ------------
Balance, December 31, 2003 (restated) -- $ -- 269,010,438 $ 269,010 $ 23,105,159 $(28,804,202)
Common stock issued for conversion
of convertible debt (unaudited) -- -- 3,190,396 3,190 61,118 --
Common stock issued for extinguishment
of related party debt (unaudited)
Net loss for the six months ended
June 30, 2004 (unaudited) -- -- 21,365,297 21,365 235,018 --
Balance, June 30, 2004 (unaudited) -- -- -- -- -- (864,431)
------------ ------------ ------------ ------------ ------------ ------------
-- $ -- 293,566,131 $ 293,565 $ 23,401.295 $(29,668,633)
The accompanying notes are an integral part
of these consolidated financial statements.
-7-
TRANS ENERGY, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
For the
Six Months Ended
June 30,
2004 2003
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(864,431) $(729,820)
Adjustments to reconcile net loss to net cash used by
operating activities:
Depreciation, depletion and amortization 467,857 454,985
Net gain from sale of assets (175,910) (106,428)
Loss on extinguishment of debt 246,836 --
Changes in operating assets and liabilities:
Increase in accounts receivable (138,625) (156,711)
Increase in prepaid and other current assets -- (630)
Increase in accounts payable and
current liabilities 113,124 362,772
--------- ---------
Net Cash Used by Operating Activities (351,149) (175,832)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of assets 201,000 240,000
Borrowings against life insurance policy 1,708 --
Expenditures for property and equipment (440) --
--------- ---------
Net Cash Provided by Investing Activities 202,268 240,000
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in cash overdraft (49,120) --
Proceeds from related party payables 603,750 205,650
Payments on related party payables (228,488) (95,783)
Proceeds from notes payable -- --
Payments on notes payable (172,928) (179,846)
--------- ---------
Net Cash Provided (Used) by Financing Activities 153,214 (69,979)
--------- ---------
NET INCREASE (DECREASE) IN CASH 4,333 (5,811)
CASH, BEGINNING OF PERIOD 183 12,227
--------- ---------
CASH, END OF PERIOD $ 4,516 $ 6,416
========= =========
The accompanying notes are an integral part
of these consolidated financial statements.
-8-
TRANS ENERGY, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
CASH PAID FOR:
Interest $30,810 $63,098
Income taxes $ -- $ --
NON-CASH FINANCING ACTIVITIES:
Common stock issued for deb-t and related interest $47,856 $45,793
Common stock issued for related party debt $26,000 $ --
-9-
TRANS ENERGY, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
June 30, 2004 and December 31, 2003
(Unaudited)
NOTE 1 - BASIS OF FINANCIAL STATEMENT PRESENTATION
The accompanying unaudited condensed consolidated financial
statements have been prepared by the Company 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 condensed or omitted in accordance with such rules and
regulations. The information furnished in the interim condensed
consolidated financial statements include 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 condensed
consolidated financial statements be read in conjunction with the
Company's most recent audited financial statements and notes
thereto included in its December 31, 2003 Annual Report on Form
10-KSB. Operating results for the six months ended June 30, 2004
are not necessarily indicative of the results that may be expected
for the year ending December 31, 2004.
NOTE 2 - GOING CONCERN
The Company's condensed 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. The Company has
incurred cumulative operating losses through June 30, 2004 of
$29,668,633, and has a working capital deficit at June 30, 2003 of
$6,413,034. 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 - JUDGMENTS PAYABLE
Tioga Lumber Company
A foreign judgment has been filed with the Circuit Court in
Pleasants County, West Virginia for a judgment against the Company
by Tioga Lumber Company (Tioga) rendered by the Circuit Court in
Pleasants County, West Virginia for non-payment of an accounts
payable. The judgment is for $46,375 plus prejudgment interest at
10.00%.
-10-
TRANS ENERGY, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
June 30, 2004 and December 31, 2003
(Unaudited)
NOTE 3 - JUDGMENTS PAYABLE (Continued)
Tioga Lumber Company (Continued)
On February 28, 2002, the Company and Tioga reached an agreement
wherein the Company would pay Tioga $10,000 by March 5, 2002 and
$8,000 per month thereafter. The court appointed a special
commissioner to act as an arbitrator if the Company defaults. The
special commissioner would attach a lien if property is found
which does not have a lien attached. The first payment has been
made, and during the second quarter of 2003, the remaining balance
has been paid in full.
Dennis L. Spencer
In January 2002, Dennis L. Spencer filed suit against the Company
and William F. Woodburn and Loren E. Bagley in the Circuit Court
of Ritchie County, West Virginia (Civil Action No. 02-C-02). The
complaint alleges that the Company sold certain assets that Mr.
Spencer claims to be the beneficial owner. The complaint seeks
$1,000,000 in damages. The Company has filed its answer to the
allegations and on July 7, 2004, the circuit court of Ritchie
County signed an order to dismiss the action without prejudice.
Ross O. Forbus
On April 16, 2001, Ross O. Forbus obtained a judgment against the
Company for $428,018 plus post judgment interest at 10.00% per
annum. The judgment was obtained to satisfy a previous note
payable. The Company has made several small payments to Mr. Forbus
and is currently negotiating with him toward extending the
payments until the judgment can be paid in full. Mr. Forbus has
made a demand upon the Company for payment of the full obligation.
The Company has accrued the balance of $428,018 plus accrued
interest. At June 30, 2004, the total amount including interest of
$495,697 is included in judgments payable and is classified as a
current liability. Subsequent to June 30, 2004, the Company and
Mr. Forbus entered into an agreement to settle the full amount of
the judgment. See Note 7.
Core Laboratories, Inc.
On July 28, 1999, Core Laboratories, Inc. (Core) obtained a
judgment against the Company for non-payment of an account
payable. The judgment calls for monthly payments of $351 and is
bearing interest at 10.00% per annum. At June 30, 2004, the
Company had accrued a balance including interest of $16,707, which
is included in judgments payable.
RR Donnelly
On July 1, 1998, RR Donnelly (RR) obtained a judgment against the
Company for non-payment of accounts payable. The judgment calls
for monthly payments of $3,244 and is bearing interest at 10.00%
per annum. At June 30, 2003, the Company has accrued a balance
including interest of $71,399, which is included in judgment
payable as a current liability.
-11-
TRANS ENERGY, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
June 30, 2004 and December 31, 2003
(Unaudited)
NOTE 3 - JUDGMENTS PAYABLE (Continued)
Baker Hughes Entities (Continued)
On February 7, 2001, the United States Bankruptcy Court, Southern
District of Texas, entered an Order Granting Motion to Dismiss
Chapter 7 Case in the action entitled In Re: Trans Energy, Inc.,
Case No. 00-39496-H4-7. The Order dismissed the involuntary
bankruptcy action instituted against the Company on October 16,
2000. The sole petitioning creditor named in the Involuntary
Petition was Western Atlas International, Inc. ("Western"). An
Order for Relief Under Chapter 7 was entered by the Court on
November 22, 2000.
On April 23, 2000, the 189th District Court of Harris County,
Texas entered an Agreed Final Judgment in favor of Western against
the Company in the amount of $600,665, together with post judgment
interest at 10% per annum. Following the judgment, Western and the
Company entered into settlement negotiations concerning the
Company's satisfaction of the judgment through payments over a
four to five month period together with the pledge of collateral
on certain unencumbered assets.
Previously, on or about July 9, 1998, a judgment had been entered
in the 152nd District Court of Harris County, Texas against the
Company in favor of Baker Hughes Oilfield Operations, Inc. d/b/a/
Baker Hughes Inteq. Western Geophysical ("Baker"), a division of
Western Atlas International, Inc., in the amount of $41,142,
together with interest and attorney fees. This judgment was
outstanding at the time of the filing of the Involuntary Petition.
During its negotiations with Western for settlement of the
Judgment, the Company made a $200,000 "good faith payment" to
Western's counsel on October 23, 2000. On December 12, 2000, Joe
Hill was named as the Chapter 7 Trustee. Subsequently, Western's
counsel delivered the $200,000 to the Trustee.
On January 19, 2001, the Company filed with the Bankruptcy Court
the Motion to Dismiss Chapter 7 Case. The reasons cited by the
Company in support of its Motion to Dismiss included, but were not
limited to, (i) the Texas Court being an improper venue for the
action, and (ii) the Company never receiving the Involuntary
Petition and Summons notifying it of the action.
In anticipation of the Bankruptcy Court dismissing the Involuntary
Petition, on February 2, 2001, the Company entered into a
Settlement Agreement with Baker Hughes Oilfield Operations, Inc.
d/b/a/ Baker Hughes Inteq. Western Geophysical, a division of
Western Atlas International, Inc. (the "Baker Entities"). In
entering its order on February 7, 2001 to dismiss the action, the
Court ordered the Trustee to retain $17,695 for satisfaction of
administrative fees and expenses, and to pay to Western and Baker
the sum of $182,737, on behalf of the Company and pursuant to the
terms of the Settlement Agreement.
-12-
TRANS ENERGY, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
June 30, 2004 and December 31, 2003
(Unaudited)
NOTE 3 - JUDGMENTS PAYABLE (Continued)
Baker Hughes Entities (Continued)
The Settlement Agreement provided that, subject to the approval of
the Bankruptcy Court, the Company agreed to pay to the Baker
Entities $759,664, plus interest at 10%. In addition to the
$200,000 payable from the escrow, the Company agreed to pay to the
Baker Entities an initial payment of $117,261 within fifteen days
from the date of the Dismissal Order (due February 21, 2001).
The Company also agreed to make additional payments of $100,000
every thirty days following the initial payment, which is
beginning no later than March 23, 2001, continuing until the total
obligation plus interest is paid in full. Further, the Company
pledged as collateral certain properties, personal property and
fixtures and two directors each pledged 750,000 shares of the
Company's common stock which they personally own.
During 2002, the Company assigned the income stream from the sale
of oil from three of its wells (Pinion Fee #1, Sagebrush #1 and
Sagebrush #2) to the Baker entities as payments towards the
amounts owed. The Company believes that this payment will satisfy
the Baker Entities until the Company has paid the full obligation.
The Baker Entities continue its proceedings to enforce a foreign
judgment against the Company in Pleasants County, West Virginia.
At June 30, 2003, the Company has a remaining liability including
interest of $548,298 which is included in judgments payable as a
current liability.
The Baker Entities continued their proceedings to enforce a
foreign judgment against the Company in Pleasants County, West
Virginia. Then on December 23, 2003, the Company an the Baker
Entities entered into a Settlement Agreement and Mutual Release
whereby the Company paid $350,000 to the Baker Entities as payment
in full for all monies owned and the Baker Entities gave the
Company a release of all judgments and liens against it.
Lario Oil & Gas Company
On January 15, 2003, Lario Oil & Gas Company ("Lario") filed a
suit against the Company in the Sixth District Court of Campbell
County, Wyoming (Civil Action No. 24575). Lario asks for $50,692,
which it claims the Company owes for operating fees on the Pinion
Fee #1, Sagebrush #1 and Sagebrush #2 wells, operated by Lario and
in which the Company has working interests. The Company is
preparing an answer to the complaint and is asking for a complete
accounting of all monies owed. Lario is retaining a portion of the
Company's share of the monthly oil production monies and applying
them to the amount owed. At June 30, 2004, the Company has accrued
$26,856, which is included in accounts payable as a current
liability.
O.C. Smith
On February 5, 2003, O.C. Smith obtained a judgment against the
Company for $6,000 as ordered by the Circuit Court of Ritchie
County, West Virginia. Mr. Smith had brought suit against the
Company, successor of Apple Corporation, for an accounting of all
gas purchased by the Company as well as judgment for all amounts
still owing. The Company had acquired all of Apple Corporation's
-13-
TRANS ENERGY, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
June 30, 2004 and December 31, 2003
(Unaudited)
NOTE 3 - JUDGMENTS PAYABLE (Continued)
O.C. Smith (Continued)
interest in this gas and management determined that there was an
unpaid balance still owing Mr. Smith. The $6,000 is payable in
three monthly installments beginning on April 25, 2003. At
December 31, 2003, the Company had paid an amount of $4,000 and
included it in judgments payable and has classified it as a
current liability at that date. During the three months ended
March 31, 2004, the remaining balance was paid in full.
-14-
NOTE 4 - BUSINESS SEGMENTS
The Company adopted SFAS No. 131, "Disclosure about Segments of an
Enterprise and Related Information." Prior period amounts have
been restated to conform to the requirements of this statement.
The Company conducts its operations principally as oil and gas
sales with Trans Energy and Prima Oil and pipeline transmission
with Ritchie County and Tyler Construction.
Certain financial information concerning the Company's operations
in different industries is as follows:
For the
Six Months
Ended Oil and Gas Pipeline Corporate
June 30, Sales Transmission Unallocated
----------- ----------- ------------ -------------
Oil and gas revenue 2004 $ 150,737 $ 984,238 $ --
2003 277,430 799,487 --
Operating income (loss) 2004 (680,184) (13,249) --
applicable to industry 2003 (514,992) (123,378) --
segment
General corporate expenses 2004 -- -- --
not allocated to industry 2003 -- -- --
segments
Interest expense 2004 (91,505) (17,695) --
2003 (178,201) (82,353) --
Other income (expenses) 2004 (198,812) 27,814 --
2003 (173,803) 82,353 --
Assets 2004 403,814 537,804 --
(net of intercompany accounts) 2003 1,881,043 373,449 --
Depreciation and amortization 2004 430,695 37,162 --
2003 402,809 52,176 --
Property and equipment 2004 (67,282) (88,750) --
Acquisitions (Deletions) 2003 -- 240,000 --
-15-
TRANS ENERGY, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
June 30, 2004 and December 31, 2003
(Unaudited)
NOTE 5 - SIGNIFICANT EVENTS
The Company's subsidiary Tyler Construction sold approximately
47,000 feet of pipeline to Triad Energy Corporation for $200,000.
The Company recognized a gain of $175,910 on the sale. The Company
used $161,391 of the proceeds to pay off the loan to the First
National Bank of St. Mary's.
The Company issued 3,190,396 shares of common stock valued at
$64,308 for the conversion of all convertible debentures and the
associated accrued interest valued at $47,855 resulting in a loss
on extinguishment of $16,453.
The Company issued 21,365,297 shares of unrestricted common stock
valued at $256,383 as payment for related party debt of $26,000
resulting in a loss on extinguishments of debt of $230,383.
NOTE 6 - PRIOR PERIOD ADJUSTMENT
During the three months ended March 31, 2004, a change was made to
The Company's retained earnings. The change was made to reflect
properly the ending balance of trade accounts receivable. As of
December 31, 2003, the accounts receivable balance previously
reported included amounts that had been collected during 2003.
This overstatement of accounts receivable also resulted in the
overstatement of revenues.
The adjustment decreased retained earnings by $112,176 and
decreased accounts receivable by $112,176. The net loss was
increased by $112,176 and there was no change in the calculated
net loss per share.
NOTE 7 - SUBSEQUENT EVENTS
On July 16, 2004, the Company and Ross O. Forbus (see Note 3)
entered into an agreement whereby Mr. Forbus will dismiss his
judgment against the Company of $428,018 in exchange for a cash
payment of $210,000 from the Company.
On July 7, 2004, the circuit court of Ritchie County West Virginia
signed an order to dismiss the action filed against the Company by
Dennis L. Spencer (see Note 3) without prejudice.
-16-
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 our consolidated statements of
operations for the three and six month periods ended June 30, 2004 and 2003. It
should be noted that percentages discussed throughout this analysis are stated
on an approximate basis.
Three Months Ended Six Months Ended
June 30, June 30,
--------------------------------------------------
2004 2003 2004 2003
---- ---- ---- ----
(Unaudited) (Unaudited)
Revenues........................... 100% 100% 100% 100%
Total costs and expenses........... 133 149 161 159
Loss from operations.............. (33) (49) (61) (59)
Other income (expense)............. (9) (15) (15) (9)
Net loss........................... (42) (64) (76) (68)
---------------
Revenues for the three months ("second quarter") ended June 30,2004
decreased 16% compared to the second quarter of 2003, and increased 5% for the
six months ("first half") ended June 30, 2004 versus the first half of 2003.
These results are primarily attributed to lower gas sales during the second
quarter of 2004, although sales during the first half of 2004 increased compared
to the 2003 period. Our cost of oil and gas for the second of 2004 decreased 22%
due to lower gas sales, and increased 19% for the first half of 2004 due to the
comparative increase during the six month period.
Salaries and wages decreased 12% and 6% for the second quarter and first
half of 2004, respectively, when compared to the 2003 periods, primarily due to
a reduction in personnel. Selling, general and administrative expenses decreased
34% in both the second quarter and first half of 2004, attributed to paying off
of significant interest accruing debt. Depreciation, depletion and amortization
decreased 36% in the second quarter of 2004 and increased by 3% in the first
half of 2004. These results are attributed to the sale of assets during the
during the first quarter of 2004.
Our loss from operations for the second quarter of 2004 was $181,664
compared to $326,090 for the second quarter of 2003, and was $693,433 for the
first half of 2004 compared to $638,370 for the first half of 2003. The decrease
in loss for the second quarter of 2004 is primarily attributed to increased gas
sales, while the increase in loss for the first half is attributed to overall
decrease in gas sales during the period. We realized total other expenses of
$49,854 during the second quarter of 2004 compared to total other expenses of
$96,455 for the second quarter of 2003. The decrease in other expenses is
attributed to the 42% decrease in interest expense due to the paying off of
debt. For the first half of 2004, other expenses were $170,998 compared to
$91,450 for the 2003 period. This increase was attributed primarily to a
$246,000 loss realized on the extinguishment of debt.
As a percentage of total revenues, total costs and expenses decreased from
149% in the second quarter of 2003 to 133% for the second quarter of 2004, but
increased from 159% for the first half of 2003 to 161% for the first half of
2004. The decrease in the second quarter resulted from the loss realized on the
extinguishment of debt during the quarter.
Our net loss for the second quarter of 2004 was $231,518 compared to
$422,545 for the second quarter of 2003, and $864,431 for the first half of 2004
compared to $729,820 for the 2003 period.
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For the remainder of fiscal year 2004, management expects selling, general
and administrative expenses to remain at approximately the same rate as the
first half of 2004. 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 2004.
We have included a footnote to our financial statements for the periods
ended June 30, 2004 stating that because of our continued losses, working
capital deficit and need for additional funding, there is substantial doubt as
to whether we can continue as a going concern. See Note 2 to the consolidated
financial statements.
Liquidity and Capital Resources
Historically, we have satisfied our working capital needs with operating
revenues and from borrowed funds. At June 30, 2004, we had a working capital
deficit of $6,413,034 compared to a deficit of $6,359,171 at December 31, 2003.
During the first half of 2004, operating activities used net cash of
$351,149 compared to net cash used of $175,832 for the first half of 2003. These
results are primarily attributed to amounts paid to Lario Oil & Gas as our share
of joint interest billing for the Sagebrush waterflood. Net cash provided by
investing activities, primarily due to a decrease in proceeds from the sale of
assets, decreased to $202,268 in the first half of 2004 compared to $240,000 in
the 2003 period.
During the first half of 2004,net cash provided by financing activities was
$153,214 compared to net cash used by financing activities of $69,979 in the
first half of 2003. These results are attributed to the significant increase in
amounts borrowed.
We anticipate meeting our working capital needs during the remainder of the
current fiscal year with revenues from operations, particularly from our Powder
River Basin interests in Wyoming and New Benson gas wells drilled in West
Virginia. 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.
As of June 30, 2004, we had total assets of $941,618 and total
stockholders' deficit of $5,973,773, compared to total assets of $1,292,875 and
total stockholders' deficit of $5,430,033 at December 31, 2003.
In 1998, we issued $4,625,400 face value of 8% secured convertible
debentures due September 30, 1999. A portion of the proceeds were used to
acquire the oil and gas properties and interest in Wyoming. During 2000, all but
one of the remaining outstanding debentures were converted into common stock. At
June 30, 2004, we owed $331,462 in connection with the debentures consisting of
$50,000 for one debenture holder that we have been unable to contact, and the
balance in penalties.
Inflation
In the opinion of our management, inflation has not had a material effect
on our operations.
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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. Words such as "may," "will," expect,"
anticipate," "continue," "estimate," "project," "intend" and similar expressions
are intended as predictions regarding events, conditions, and financial trends
that may affect 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:
o the sufficiency of existing capital resources and our ability to
raise additional capital to fund cash requirements for future
operations;
o uncertainties involved in the rate of growth of our business and
acceptance of our products and services;
o volatility of the stock market, particularly within the energy
sector; and
o general economic conditions.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements.
Item 3. Controls and Procedures
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 Securities
Exchange Act of 1934. Based upon that evaluation, our chief executive officer
and principal financial officer concluded that our disclosure controls and
procedures are effective to cause the material information required to be
disclosed by us in the reports that we file or submit under the Exchange Act to
be recorded, processed, summarized and reported within the time periods
specified in the SEC's rules and forms. There have been no significant changes
in our internal controls or in other factors which could significantly affect
internal controls subsequent to the date we carried out our evaluation.
PART II
Item 1. Legal Proceedings
Certain material pending legal proceedings to which we are a party or to
which any of our property is subject is set forth below.
(a) On February 7, 2001, the United States Bankruptcy Court, Southern
District of Texas, entered an Order Granting Motion to Dismiss Chapter 7
Case in the action entitled In Re: Trans Energy, Inc., Case No.
00-39496-H4-7. The Order dismissed the involuntary bankruptcy action
instituted against us on October 16, 2000. The sole petitioning creditor
named in the Involuntary Petition was Western Atlas International, Inc. An
Order for Relief Under Chapter 7 was entered by the Court on November 22,
2000.
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On April 23, 2000, the 189th District Court of Harris County, Texas entered
an Agreed Final Judgment in favor of Western against us in the amount of
$600,665.36, together with post judgment interest at 10% per annum.
Following the judgment, we entered into settlement negotiations with
Western concerning our satisfaction of the judgment through payments over a
four to five month period, together with the pledge of collateral on
certain unencumbered assets. Previously, on or about July 9, 1998, a
judgment had been entered in the 152nd District Court of Harris County,
Texas against us in favor of Baker Hughes Oilfield Operations, Inc. d/b/a/
Baker Hughes Inteq. Western Geophysical ("Baker"), a division of Western
Atlas International, Inc., in the amount of $41,142.00, together with
interest and attorney fees. This judgment was outstanding at the time of
the filing of the Involuntary Petition.
During our negotiations with Western for settlement of the Judgment, we
made a $200,000 "good faith payment" to Western's counsel on October 23,
2000. On December 12, 2000, Joe Hill was named as the Chapter 7 Trustee.
Subsequently, Western's counsel delivered the $200,000 to the Trustee.
On January 19, 2001, we filed with the Bankruptcy Court the Motion to
Dismiss Chapter 7 Case. The reasons cited in support of the Motion to
Dismiss included, but were not limited to, (i) the Texas Court being an
improper venue for the action, and (ii) we never receiving the Involuntary
Petition and Summons notifying it of the action. In anticipation of the
Bankruptcy Court dismissing the Involuntary Petition, on February 2, 2001,
we entered into a Settlement Agreement with Baker Hughes Oilfield
Operation, Inc., d/b/a/ Baker Hughes Inteq. Western Geophysical, a division
of Western Atlas International, Inc. (the "Baker Entities"). In entering
its order on February 7, 2001 to dismiss the action, the Court ordered the
Trustee to retain $17,694.80 for satisfaction of administrative fees and
expenses, and to pay to Western and Baker the sum of $182,736.66, on our
behalf and pursuant to the terms of the Settlement Agreement.
The Settlement Agreement provided that, subject to the approval of the
Bankruptcy Court, we agreed to pay to the Baker Entities $759,664.31, plus
interest at 10%. In addition to the $200,000 payable from the escrow, we
pledged as collateral certain properties, personal property and fixtures
and two directors each pledged 750,000 shares of our common stock which
they personally own. Subsequently, we assigned the income stream from the
sale of oil in the Pinon Fee #1, Sagebrush #1 and Sagebrush #2 to the Baker
Entities as payments toward the amounts owed.
The Baker Entities continue their proceedings to enforce a foreign judgment
against us in Pleasants County, West Virginia. On December 23, 2003 we
entered into a Settlement Agreement and Mutual Release with the Baker
Entities whereby on January 5, 2004 we paid $350,000 to the Baker Entities
as payment in full for all monies owed and the Baker Entities gave us a
release of all judgments and liens against us.
(b) 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 $26,233.58, although the judgment has not yet been
released. We are proceeding to secure the release of the judgment.
(c) On April 16, 2001, Ross Forbus obtained a judgment of $428,018 against
us to satisfy a promissory note previously entered into with Mr. Forbus on
April 8, 1996. We agreed to payment terms and made several payments to Mr.
Forbus. On August 3, 2004, we settled the judgment with Mr. Forbus for
$210,000 in exchange for a full release of all judgments and liens against
Trans Energy and Loren Bagley.
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(d) In January 2002, a suit entitled Dennis L. Spencer vs. Trans Energy,
Inc. and Messrs. Woodburn and Bagley was filed in the Circuit Court of
Ritchie County, West Virginia ( Civil Action No. 02-C- 02). The complaint
alleges that we sold certain assets which Mr. Spencer claims to be the
beneficial owner. The complaint seeks $1,000,000 in damages. We have filed
an answer to the complaint and on July 7, 2004, the Court signed an order
to dismiss the action without prejudice.
(e) On January 15, 2003, a suit against us entitled Lario Oil & Gas Company
vs. Trans Energy, Inc. (Civil Action No. 24575) was initiated in the Sixth
District Court of Campbell County, Wyoming. Lario's suit asks for
$50,692.10 which it claims we owe for operating fees on the Sagebrush #1
and #2 and the Pinon Fee #1 wells, operated by Lario and in which we have
working interests. We are preparing an answer to the complaint and are
asking for a complete accounting of all monies owed. Lario is retaining our
share of monthly oil production monies and applying them to the amount
owed. As of December 31, 2003, the amount due was $51,371. On August 11,
2004, we received notification from Lario that it will dismiss the action
with prejudice.
(f) On February 5, 2003, O.C. Smith obtained a judgment against us for
$6,000 in the Circuit Court of Ritchie County, West Virginia. Mr. Smith had
brought suit against our predecessor Apple Corporation, for an accounting
of all gas purchased by us as well as judgment for all amounts still owing.
We acquired all of Apple Corporation's interest in this well and management
determined that there was an unpaid balance still owing Mr. Smith. The
$6,000 was payable in three monthly installments beginning on April 25,
2003. The final installment was paid on February 23, 2004 and we consider
the judgment paid in full.
Item 2. Changes In Securities and Use of Proceeds
This Item is not applicable.
Item 3. Defaults Upon Senior Securities
In 1998, we issued $4,625,400 face value of 8% secured convertible
debentures due September 30, 1999. Interest on the debentures accrued upon the
date of issuance until payment in full of the principal sum was been made or
duly provided for. Holders of the debentures 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 our common
stock at a conversion price for each share equal to the lower of (a) seventy
percent (70%) of the market price of the our 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 our option, in cash or in shares of our common stock valued at the
then effective conversion price. During 2000, all but one of the remaining
outstanding debentures were converted into commons stock. At June 30, 2004, we
owed $331,462 in connection with the debentures consisting of $50,000 to one
debenture holder and $281,462 in penalties.
Item 4. Submission of Matters to a Vote of Security Holders
This Item is not applicable.
Item 5. Other Information
On August 10, 2004 John B. Sims, a long-time director of Trans Energy,
passed away. Mr. Sims served as a director since 1988 and was formerly our
President and C.E.O. Our board of directors will meet in the near future to
consider a possible replacement on the board.
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Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 31.1 Certification of C.E.O. Pursuant to Section 302
of the Sarbanses-Oxley Act of 2002.
Exhibit 31.2 Certification of Principal Accounting Officer
Pursuant to Section 302 of the Sarbanses-Oxley
Act of 2002.
Exhibit 32.1 Certification of C.E.O. Pursuant to 18
U.S.C. Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
Exhibit 32.2 Certification of Principal Accounting
Officer Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
(b) 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: August 17, 2004 By /S/ ROBERT I. RICHARDS
-------------------------------------------
ROBERT I. RICHARDS, President,
Chief Executive Officer and Director
Date: August 17, 2004 By /S/ WILLIAM F. WOODBURN
-------------------------------------------
WILLIAM F. WOODBURN
Secretary / Treasurer
(Principal Accounting Officer)
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