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, 2003
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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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
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(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
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(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, 2003
----------------------------- --------------------------------
Common Stock, $.001 par value 264,002,290
-1-
TABLE OF CONTENTS
Heading Page
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.................................................................... 3
Consolidated Balance Sheets - June 30, 2003 (Unaudited) and
December 31, 2002................................................................ 4
Consolidated Statements of Operations - three and six months ended
June 30, 2003 and 2002 (Unaudited)............................................... 6
Consolidated Statements of Stockholders' Equity (Deficit).......................... 7
Consolidated Statements of Cash Flows - three and six months ended
June 30, 2003 and 2002 (Unaudited)............................................... 8
Notes to Consolidated Financial Statements ........................................ 9
Item 2. Management's Discussion and Analysis and Results of Operations.......................... 17
Item 3. Controls and Procedures................................................................. 19
PART II. OTHER INFORMATION
Item 1. Legal Proceedings....................................................................... 19
Item 2. Changes In Securities and Use of Proceeds............................................... 21
Item 3. Defaults Upon Senior Securities......................................................... 21
Item 4. Submission of Matters to a Vote of Securities Holders................................... 21
Item 5. Other Information....................................................................... 22
Item 6. Exhibits and Reports on Form 8-K........................................................ 22
Signatures.............................................................................. 23
-2-
PART I
Item 1. Financial Statements
The accompanying consolidated balance sheet of Trans Energy, Inc. at
June 30, 2003, related statements of operations, stockholders' equity (deficit)
and cash flows for the three months ended June 30, 2003 and 2002, 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, 2003, are not necessarily indicative of the results that
can be expected for the fiscal year ending December 31, 2003.
TRANS ENERGY, INC.
CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2003 and December 31, 2002
-3-
TRANS ENERGY, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
ASSETS
June 30, December 31,
2003 2002
----------- -----------
CURRENT ASSETS
Cash $ 6,416 $ 12,227
Accounts receivable, net 269,215 138,621
Prepaid expenses 990 360
----------- -----------
Total Current Assets 276,621 151,208
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PROPERTY AND EQUIPMENT
Vehicles 59,830 59,830
Machinery and equipment 10,092 10,092
Pipelines 1,745,217 2,254,908
Well equipment 49,155 49,155
Wells 3,620,868 3,620,868
Leasehold acreage 95,945 95,945
Accumulated depreciation (3,605,326) (3,496,460)
----------- -----------
Total Fixed Assets 1,975,781 2,594,338
----------- -----------
OTHER ASSETS
Cash surrender value - life insurance (net) 2,090 2,090
----------- -----------
Total Other Assets 2,090 2,090
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TOTAL ASSETS $ 2,254,492 $ 2,747,636
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,
2003 2002
------------ ------------
(Unaudited)
CURRENT LIABILITIES
Accounts payable - trade $ 818,412 $ 701,791
Notes payable - convertible 36,325 41,575
Accrued expenses 991,962 921,420
Salaries payable 1,114,129 969,529
Notes payable - current portion 1,347,227 1,327,333
Judgments payable (Note 5) 1,133,384 1,115,094
Related party payables 1,104,337 1,075,587
Debentures payable 331,462 331,462
------------ ------------
Total Current Liabilities 6,877,238 6,483,791
------------ ------------
LONG-TERM LIABILITIES
Judgments payable (Note 5) -- 2,702
Notes payable -- 199,862
------------ ------------
Total Long-Term Liabilities -- 202,564
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Total Liabilities 6,877,238 6,686,355
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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; 264,002,290 and 237,519,127 shares issued
and outstanding, respectively 264,001 237,518
Capital in excess of par value 23,065,095 23,045,785
Accumulated deficit (27,951,842) (27,222,022)
------------ ------------
Total Stockholders' Equity (Deficit) (4,622,746) (3,938,719)
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT) $ 2,254,492 $ 2,747,636
============ ============
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,
------------------------------ ------------------------------
2003 2002 2003 2002
------------- ------------- ------------- -------------
REVENUES $ 659,854 $ 176,105 $ 1,076,917 $ 345,594
------------- ------------- ------------- -------------
COSTS AND EXPENSES
Cost of oil and gas 574,980 94,325 898,972 366,523
Salaries and wages 96,253 113,256 192,146 131,021
Depreciation, depletion and
amortization 201,752 53,912 454,985 107,701
Selling, general and
administrative 112,959 53,580 169,184 193,540
------------- ------------- ------------- -------------
Total Costs and Expenses 985,944 315,073 1,715,287 798,785
------------- ------------- ------------- -------------
LOSS FROM OPERATIONS (326,090) (138,968) (638,370) (453,191)
------------- ------------- ------------- -------------
OTHER INCOME (EXPENSE)
Gain on disposal of asset -- -- 112,235 --
Loss on sale of asset -- -- (5,807) --
Other income 5,725 949 6,498 4,278
Interest expense (102,180) (65,271) (204,376) (199,911)
------------- ------------- ------------- -------------
Total Other Income
(Expense) (96,455) (64,322) (91,450) (195,633)
------------- ------------- ------------- -------------
LOSS FROM OPERATIONS
BEFORE INCOME TAXES AND
MINORITY INTERESTS (422,545) $ (203,290) $ (729,820) $ (648,824)
------------- ------------- ------------- -------------
INCOME TAXES -- -- -- --
------------- ------------- ------------- -------------
MINORITY INTERESTS -- -- -- --
------------- ------------- ------------- -------------
NET LOSS $ 422,545) $ (203,290) $ (729,820) $ (648,824)
============= ============= ============= =============
BASIC LOSS PER SHARE $ (0.00) $ (0.00) $ (0.00) $ (0.00)
============= ============= ============= =============
WEIGHTED AVERAGE
NUMBER OF SHARES
OUTSTANDING 244,702,549 198,925,721 242,036,759 192,888,775
============= ============= ============= =============
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, 2001 300 -- 176,683.189 $ 176,682 $ 22,769,371 (25,275,063)
Conversion of preferred stock and
preferred dividends to common
stock -- -- 16,835,938 16,836 6,414 --
Conversion of notes payable to
common stock -- -- 5,000,000 5,000 45,000 --
Common stock issued for services -- -- 1,000,000 1,000 28,000 --
Conversion of notes payable to
common stock -- -- 4,166,667 4,167 20,833 --
Common stock issued for cash -- -- 33,333,333 33,333 166,667 --
Common stock issued for services -- -- 500,000 500 9,500 --
Net loss for the year ended
December 31, 2002 -- -- -- -- -- (1,946,959)
----------- ----------- ----------- ---------- ------------ -----------
Balance, December 31, 2002 -- -- 237,519,127 237,518 23,045,785 (27,222,022)
Common stock issued for conversion
of debt and related interest
(unaudited) -- -- 26,483,163 26,483 19,310 --
Net loss for the six months ended
June 30, 2003 (unaudited) -- -- -- -- -- (729,820)
----------- ----------- ----------- ---------- ------------ ------------
Balance, June 30, 2003 (unaudited) $ -- -- 264,002,290 264,001 $ 23,065,095 $(27,951,842)
=========== =========== =========== ========== ============ =============
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,
-------------------------
2003 2002
--------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(729,820) $(648,824)
Adjustments to reconcile net loss
to net cash used by operating activities:
Depreciation, depletion and amortization 454,985 107,701
Net gain from sale of assets (106,428) --
Common stock issued for services -- 27,000
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable (156,711) 25,581
Increase in prepaid and other current assets (630) (360)
Increase in accounts payable and
current liabilities 362,772 105,886
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Net Cash Used by Operating Activities (175,832) (383,016)
--------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of assets 240,000 --
Expenditures for property and equipment -- (49,463)
--------- ----------
Net Cash Provided (Used) by Investing Activities 240,000 (49,463)
--------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in cash overdraft -- 16,138
Stock subscription deposit -- 200,000
Proceeds from related party payables 205,650 361,889
Payments on related party payables (95,783) (113,706)
Proceeds from notes payable -- 25,000
Payments on notes payable (179,846) (58,333)
--------- ----------
Net Cash Provided (Used) by Financing Activities (69,979) 430,988
--------- ----------
NET DECREASE IN CASH (5,811) (1,491)
CASH, BEGINNING OF PERIOD 12,227 1,491
--------- ----------
CASH, END OF PERIOD $ 6,416 $ --
========= ==========
CASH PAID FOR:
Interest $ 63,098 $ 67,816
Income taxes $ -- $ --
NON-CASH FINANCING ACTIVITIES:
Common stock issued for debt and related interest $ 45,793 $ 50,000
Common stock issued for services $ -- $ 27,000
Common stock issued for conversion of
preferred stock and dividends $ -- $ 23,250
The accompanying notes are an integral part
of these consolidated financial statements.
-8-
TRANS ENERGY, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
June 30, 2003 and December 31, 2002 Statements
NOTE 1 - BASIS OF FINANCIAL STATEMENT PRESENTATION
The accompanying unaudited condensed consolidated financial statement
The accompanying unaudited condensed consolidated financial statements
hav ts 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, 2002 Annual Report on Form 10-KSB.
Operating results for the three and six months ended June 30, 2003 and
2002 are not necessarily indicative of the results that may be expected
for the year ending December 31, 2003.
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, 2003 of $27,951,842, and has a working capital
deficit at June 30, 2003 of $6,600,617. 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 - RECLASSIFICATIONS
Certain 2002 amounts have been reclassified to conform to the 2003
presentations.
NOTE 4 - MATERIAL EVENTS
On January 31, 2003, the Company entered into an Agreement of Sale and
Exchange with PC Pipeline, Inc. ("Purchaser") for 7.6 miles of Tyler
Construction's six-inch natural gas pipeline in Pleasants County, West
Virginia in exchange for the remaining 35% of the outstanding common
stock of Tyler Construction Company. This now makes Tyler Construction
Company a wholly-owned subsidiary of the Company.
-9-
TRANS ENERGY, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
June 30, 2003 and December 31, 2002 Statements
NOTE 4 - MATERIAL EVENTS (Continued)
On February 27, 2003, the Company entered into an Asset Purchase
Agreement with Triad Energy Corporation ("Triad") and Sancho Oil & Gas
Corporation ("Sancho") whereby Tyler Construction Company ("Tyler")
sold 55,000 feet of gas pipeline located in Tyler and Pleasants County,
West Virginia for $270,000. $240,000 was paid at the time of closing
and the remaining $30,000 was payable 60 days from closing. As part of
the Agreement, Tyler assigned its right-of-ways and its gas purchase
contract with Sancho, along with an agreement for Triad to use Tyler's
right to transport gas which right is not assignable.
During February 2003, the Company filed Form S-8 with the Securities
and Exchange Commission for the registration of 3,500,000 shares of the
Company's common stock to be issued to A. Thomas Crompton for
consulting services that were performed during the fourth quarter of
2002. The shares were valued at $0.003, which was the trading price at
the time the shares were registered, for a total value of $10,500.
During the six months ended June 30, 2003, the Company issued
26,483,163 shares of its common stock for the conversion of debt and
related interest at an average price of $0.0015 per share for a total
value of $45,793.
NOTE 5 - 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%.
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 feels that the Company has met its obligations in
full to Mr. Spencer. Management also believes the suit is without
merit and intends to vigorously defend the action. The Company has
not accrued any amounts for these claims as of June 30, 2003
because the Company feels that based on its defenses against the
claims that the Company will have no additional liability. Due to
the early stage of litigation, it is not possible to evaluate the
likelihood of an unfavorable outcome or estimate the extent of
potential loss.
-10-
TRANS ENERGY, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
June 30, 2003 and December 31, 2002 Statements
NOTE 5 - JUDGMENTS PAYABLE (Continued)
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, 2003, the total amount
including interest of $495,697 is included in judgments payable and is
classified as a current liability.
Core Laboratories, Inc.
On July 28, 1999, Core Laboratories, Inc. (Core) obtained a judgment
against the Company for non-payment of an accounts payable. The
judgment calls for monthly payments of $351 and is bearing interest at
10.00% per annum. At June 30, 2003, 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.
Baker Hughes Entities
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.
-11-
TRANS ENERGY, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
June 30, 2003 and December 31, 2002 Statements
NOTE 5 - JUDGMENTS PAYABLE (Continued)
Baker Hughes Entities (Continued)
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.
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, with the first payment due
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.
-12-
TRANS ENERGY, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
June 30, 2003 and December 31, 2002 Statements
NOTE 5 - JUDGMENTS PAYABLE (Continued)
Baker Hughes Entities (Continued)
During 2002, the Company assigned the income stream from the sale of
oil from three of its wells (Pinon 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.
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 Pinon 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, 2003, the Company has accrued $24,490, 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 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 June 30, 2003, the Company had accrued the total
amount of $2,000 and has included it in judgments payable and has
classified it as a current liability.
-13-
TRANS ENERGY, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
June 30, 2003 and December 31, 2002 Statements
NOTE 6 - OUTSTANDING STOCK OPTIONS
The Company applies Accounting Principles Board ("APB") Opinion 25,
"Accounting for Stock Issued to Employees," and related Interpretations
in accounting for all stock option plans. Under APB Opinion 25,
compensation cost is recognized for stock options granted to employees
when the option price is less than the market price of the underlying
common stock on the date of grant.
FASB Statement 123, "Accounting for Stock-Based Compensation" ("SFAS
No. 123"), requires the Company to provide proforma information
regarding net income and net income per share as if compensation costs
for the Company's stock option plans and other stock awards had been
determined in accordance with the fair value based method prescribed in
SFAS No. 123. The Company estimates the fair value of each stock award
at the grant date by using the Black-Scholes option pricing model.
A summary of the status of the Company's stock option plans as of June
30, 2003 and changes during the year is presented below:
Weighted
Average
Shares Exercise Price
Outstanding, December 31, 2002 795,057 $ 0.50
Granted -- --
Canceled/Expired -- --
Exercised -- --
------------ ------------
795,057 0.50
============ ============
Outstanding, June 30, 2003
(unaudited) 795,057 $ 0.50
=========== ===========
Outstanding Exercisable
----------------------------------------- ----------------------------
Weighted
Average Weighted Weighted
Number Remaining Average Number Average
Outstanding Contractual Exercise Exercisable Exercise
Exercise Prices at 6/30/03 Life Price at 6/30/03 Price
--------------- ------------- ------------ ------------- ------------ ---------------
$ 0.50 795,057 0.75 $ 0.50 795,057 $ 0.50
The 795,057 options were issued at $0.50, which is equal to the market
price on the date of issuance. All options are fully vested, have a
five-year period to be exercised and will expire on December 31, 2003.
The options were not issued pursuant to an employee stock option plan.
-14-
TRANS ENERGY, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
June 30, 2003 and December 31, 2002 Statements
NOTE 7 - 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 2003 $ 277,430 $ 799,487 $ --
2002 220,866 124,728 --
Operating loss applicable to
industry segment 2003 (514,992) (123,378) --
2002 (363,828) (89,363) --
General corporate expenses
not allocated to industry
segments 2003 -- -- --
2002 -- -- --
Interest expense 2003 (178,201) (26,175) --
2002 (166,271) (33,640) --
Other income (expenses) 2003 (173,803) 82,353 --
2002 (161,993) (33,640) --
Assets
(net of intercompany accounts) 2003 1,881,043 373,449
2002 1,960,825 1,595,691 --
Depreciation and amortization 2003 402,809 52,176 --
2002 53,330 54,371 --
Property and equipment
Acquisitions (Deletions) 2003 -- 240,000 --
2002 49,463 -- --
-15-
TRANS ENERGY, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
June 30, 2003 and December 31, 2002 Statements
NOTE 8 - SUBSEQUENT EVENTS
Subsequent to June 30, 2003, an officer of the Company has loaned the
Company approximately $50,000. The payable bears interest at 10% per
annum, is due upon demand and is unsecured.
During July 2003, the Company entered into an agreement with Lario Oil
& Gas Company ("Lario") to convert the Sagebrush #3 well, operated by
Lario and in which the Company has working interests, into a water
injection well, drill a water supply well, and purchase and install an
enclosed injection plant. The Company's share of the project costs is
expected to be approximately $152,000, which the Company expects to pay
Lario by having Lario retain a portion of the Company's share of the
monthly oil production monies and applying them to the amount owed.
During August 2003, the Company received notice that Baker Hughes
Oilfield Operations, Inc. d/b/a/ Baker Hughes Inteq. Western
Geophysical ("Baker") has filed an Involuntary Chapter 7 Bankruptcy
Petition against the Company in the United States Bankruptcy Court
Northern District of West Virginia. The Company is filing an answer to
the petition and does not expect Baker to prevail in their petition.
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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, 2003 and 2002. 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,
------------------- ------------------
2003 2002 2003 2002
------- ------- ------- ------
(Unaudited) (Unaudited)
Total revenues ......... 100% 100% 100% 100%
Total costs and expenses 149 179 159 231
Loss from operations ... 49 79 59 131
Other income (expense) . (15) (37) (9) (57)
Net loss ............... (64) (116) (68) (188)
Total revenues for the three months ("second quarter") and six months
("first half") ended June 30, 2003 increased 275% and 212% respectively, when
compared with the second quarter and first half of 2002, due primarily to
increased gas prices and additional production into our pipeline system. Our
cost of oil and gas for the second quarter and first half of 2003 increased 510%
and 145%, respectively, from the comparable 2002 periods, due to the increase in
price for the gas we purchased.
Salaries and wages decreased 15% for the second quarter of 2003
compared to the 2002 period, due to a reduction in personnel, and increased 47%
for the first half of 2003 due to the increase in overtime paid. Selling,
general and administrative expenses increased 111% in the second quarter of
2003, but decreased 13% for the first half of 2003. These results are attributed
to increases in consulting, legal and accounting fees. Depreciation, depletion
and amortization increase in the second quarter and first half of 2003 by 274%
and 322%, respectively, attributed to an increased depletion rate due to a
reevaluation of reserves at the year-end audit.
Our loss from operations for the second quarter of 2003 was $326,090
compared to $138,969 for the second quarter of 2002, and was $638,370 for the
first half of 2003 compared to $453,191 for the first half of 2002. The increase
in loss from operations for the periods is primarily attributed to increased
cost of oil and gas and increased depreciation, depletion and amortization. We
realized total other expenses of $96,455 during the second quarter of 2003
compared to total other expenses of $64,322 for the second quarter of 2002. The
increase in expenses is attributed to a 57% increase in interest expense due to
additional borrowing and the recognition of interest on related parties
payables. Total other expenses for the first six months of 2003 were $91,450
compared to total other expenses of $195,633 for the 2002 period. This decrease
was attributed primarily to the $112, 235 gain on disposal of assets during the
first six months of 2003.
As a percentage of total revenues, total costs and expenses decreased
from 179% in the second quarter of 2002 to 149% for the second quarter of 2003,
and from 231% for the first half of 2002 to 159% for the first half of 2003.
This improvement is attributed to revenues increasing at a greater rate than the
213% and 115% increases in total costs and expenses for the second quarter and
first half of 2003, respectively.
Our net loss for the second quarter of 2003 was $422,545 compared to
$203,290 for the second quarter of 2003, and $729,820 for the first half of 2003
compared to $648,824 for the 2002 period.
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For the remainder of fiscal year 2003, management expects selling,
general and administrative expenses to remain at approximately the same rate as
the first quarter of 2003. 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 2003.
We have included a footnote to our financial statements for the periods
ended June 30, 2003 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, 2003, we had a working
capital deficit of $6,600,617 compared to a deficit of $6,332,583 at December
31, 2002. This 4% increase in working capital deficit is primarily attributed to
the decrease in accounts receivable and increase in accounts payable and accrued
expenses.
During the first half of 2003, operating activities used net cash of
$175,832 compared to net cash used of $383,016 for the first half of 2002. These
results are primarily attributed to increases in accounts payable and the
increased depletion rate of gas wells. Net cash provided by investing activities
in the first half of 2003 was $240,000, compared to net cash used by investing
activities of $49,463 in the 2002 period. The increase is due to proceeds
realized from the sale of assets in th 2003 period.
During the first half of 2003,we used net cash of $69,979 by financing
activities compared to net cash realized of $430,988 in the first half of 2002.
These results are attributed to money received for stock during the first half
of 2002 and increases on payments on notes payable in the first half of 2003.
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, 2003, we had total assets of $2,254,492 and total
stockholders' deficit of $4,622,756, compared to total assets of $2,747,636 and
total stockholders' deficit of $3,938,719 at December 31, 2002.
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 commons stock.
At June 30, 2003, 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
Evaluation of Disclosure Controls and Procedures. Based on their
evaluation, as of a date within 90 days prior to the date of the filing of this
Form 10-QSB, of the effectiveness of the Company's disclosure controls and
procedures, as defined in Rules 13a-14(c) and 15d-14(c) of the Securities
Exchange Act of 1934, the principal executive officer and the principal
financial officer of the Company have each concluded that such disclosure
controls and procedures are effective and sufficient to ensure that information
required to be disclosed by the Company in the reports that it files or submits
under the Exchange Act is recorded, processed, summarized and reported within
the time periods specified by the SEC's rules and forms.
Changes in Internal Controls. Subsequent to the date of their
evaluation, there have not been any significant changes in the Company's
internal controls or in other factors that could significantly affect these
controls, including any corrective action with regard to significant
deficiencies and material weaknesses.
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.
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(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.
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. At June 30, 2003, we had a remaining liability, including
interest, of $548,298. The Baker Entities continue their proceedings to
enforce a foreign judgment against us in Pleasants County, West
Virginia. A hearing with a special commission of the court was held on
May 29, 2003 in Pleasant County, at which time no additional action was
taken.
In August 2003, we received notice that the Baker Entities has filed an
involuntary bankruptcy petition against us in the United States
Bankruptcy Court, Northern District of West Virginia. We are preparing
and filing an answer to the petition and management does not expect the
Baker Entities to prevail in their petition.
-20-
(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. During the second quarter of 2003, the
remaining balance on the judgment was paid in full.
(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 have made
several payments to Mr. Forbus. Mr. Forbus has made a demand upon for
payment in full. We are not currently making payments.
(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 the matter is still
pending.
(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 and the current balance is $24,490.
Item 2. Changes In Securities and Use of Proceeds
During the second quarter, we issued 26,483,163 shares of common stock
upon the conversion of debt and related interest, at an average price of $.0015
per share, or a total of $45,793. This transaction was exempt from registration
under the Securities Act of 1933 pursuant to Sections 3(a)(9) and 4(2) of that
Act.
Item 3. Defaults Upon Senior Securities
In 1998, we issued $4,625,400 face value of 8% secured convertible
debentures due June 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, 2003, 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.
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Item 5. Other Information
This Item is not applicable.
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
There were no current reports filed on Form 8-K for the three
month period ended June 30, 2003.
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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: August 18, 2003 By /S/ ROBERT I. RICHARDS
-----------------------------------------------
ROBERT I. RICHARDS, President,
Chief Executive Officer and Director
Date: August 18, 2003 By /S/ WILLIAM F. WOODBURN
-----------------------------------------------
WILLIAM F. WOODBURN
Secretary / Treasurer
(Principal Accounting Officer)
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