UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarter Ended September 30, 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 September 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 - September 30, 2004 (Unaudited) and
December 31, 2003................................................................ 4
Consolidated Statements of Operations - three and nine months ended
September 30, 2004 and 2003 (Unaudited).......................................... 6
Consolidated Statements of Stockholders' Equity (Deficit).......................... 7
Consolidated Statements of Cash Flows - three and nine months ended
September 30, 2004 and 2003 (Unaudited).......................................... 9
Notes to Consolidated Financial Statements ........................................ 13
Item 2. Management's Discussion and Analysis and Results of Operations.......................... 15
Item 3. Controls and Procedures................................................................. 15
PART II. OTHER INFORMATION
Item 1. Legal Proceedings....................................................................... 15
Item 2. Changes In Securities and Use of Proceeds............................................... 15
Item 3. Defaults Upon Senior Securities......................................................... 15
Item 4. Submission of Matters to a Vote of Securities Holders................................... 16
Item 5. Other Information....................................................................... 16
Item 6. Exhibits and Reports on Form 8-K........................................................ 16
Signatures.............................................................................. 17
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PART I
Item 1. Financial Statements
The accompanying consolidated balance sheet of Trans Energy, Inc. at
September 30, 2004 (unaudited) and December 31, 2003, related unaudited
statements of operations, stockholders' equity (deficit) and cash flows for the
three and nine months ended September 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 September 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
September 30, 2004 and December 31, 2003
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TRANS ENERGY, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
ASSETS
September 30, December 31,
2004 2003
----------- -----------
(Unaudited)
CURRENT ASSETS
Cash $ 12,969 $ 183
Accounts receivable, net 283,980 198,691
Other receivables 11,758 58,452
Prepaid expenses 990 990
----------- -----------
Total Current Assets 309,697 258,316
----------- -----------
PROPERTY AND EQUIPMENT
Vehicles 67,257 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 (4,116,138) (4,021,605)
----------- -----------
Total Fixed Assets 778,907 1,029,473
----------- -----------
OTHER ASSETS
Cash surrender value - life insurance (net) 3,378 5,086
----------- -----------
Total Other Assets 3,378 5,086
----------- -----------
TOTAL ASSETS $ 1,091,982 $ 1,292,875
=========== ===========
The accompanying notes are an integral part
of these consolidated financial statements.
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TRANS ENERGY, INC. AND SUBSIDIARIES
Consolidated Balance Sheets (Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
September 30, December 31,
2004 2003
------------ ------------
(Unaudited)
CURRENT LIABILITIES
Bank overdraft $ -- $ 49,120
Accounts payable - trade 986,115 786,191
Notes payable - convertible -- 36,325
Accrued expenses 1,286,084 954,749
Salaries payable 1,506,629 1,266,479
Notes payable - current portion 1,169,674 1,221,083
Judgments payable (Note 3) 86,481 500,397
Related party payables 1,103,924 1,271,681
Debentures payable 344,720 331,462
Environmental remediation 204,500 200,000
------------ ------------
Total Current Liabilities 6,688,127 6,617,487
------------ ------------
LONG-TERM LIABILITIES
Notes payable, less current portion 36,836 105,421
------------ ------------
Total Long-Term Liabilities 36,836 105,421
------------ ------------
Total Liabilities 6,724,963 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 (29,327,841) (28,804,202)
------------ ------------
Total Stockholders' Equity (Deficit) (5,632,981) (5,430,033)
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT) $ 1,091,982 $ 1,292,875
============ ============
The accompanying notes are an integral part
of these consolidated financial statements.
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TRANS ENERGY, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(Unaudited)
For the For the
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------ ------------------------------
2004 2003 2004 2003
------------- ------------- ------------- -------------
REVENUES $ 325,652 $ 494,611 $ 1,460,627 $ 1,571,528
------------- ------------- ------------- -------------
COSTS AND EXPENSES
Cost of oil and gas 319,548 437,642 1,387,919 1,336,614
Salaries and wages 107,230 95,913 287,252 288,059
Depreciation, depletion and
amortization 89,574 262,629 225,914 717,614
Selling, general and
administrative 17,986 35,801 130,145 204,985
------------- ------------- ------------- -------------
Total Costs and Expenses 534,338 831,985 2,031,230 2,547,272
------------- ------------- ------------- -------------
LOSS FROM OPERATIONS (208,686) (337,374) (570,603) (975,744)
------------- ------------- ------------- -------------
OTHER INCOME (EXPENSE)
Gain on disposal of assets -- -- 175,910 112,235
Loss on sale of assets -- -- -- (5,807)
Gain on settlement of debt 288,398 -- 41,562 --
Other income 225 10,903 9,353 17,401
Interest expense (52,559) (98,958) (161,759) (303,334)
Tax assessment (18,102) -- (18,102) --
------------- ------------- ------------- -------------
Total Other Income
(Expense) 217,962 (88,055) 46,964 (179,505)
------------- ------------- ------------- -------------
INCOME (LOSS) BEFORE
INCOME TAXES AND
MINORITY INTERESTS 9,276 (425,429) (523,639) (1,155,249)
INCOME TAXES -- -- -- --
------------- ------------- ------------- -------------
INCOME (LOSS) BEFORE
MINORITY INTESTS 9,276 (425,429) (523,639) (1,155,249)
MINORITY INTERESTS -- -- -- --
------------- ------------- ------------- -------------
NET INCOME (LOSS) $ 9,276 $ (425,429) $ (523,639) $A(1,155,249)
============= ============= ============= =============
BASIC INCOME (LOSS)
PER SHARE $ 0.00 $ (0.00) $ (0.00) $ (0.01)
============= ============= ============= =============
WEIGHTED AVERAGE
NUMBER OF SHARES
OUTSTANDING 293,566,131 264,002,290 292,561,613 249,441,810
============= ============= ============= =============
The accompanying notes are an integral part
of these consolidated financial statements.
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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 $ -- $ -- 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) -- -- 21,365,297 21,365 235,018 --
Net loss for the nine months ended
September 30, 2004 (unaudited) -- -- -- -- -- (523,639)
----------- ----------- ------------ ------------ ------------ ------------
Balance, September 30, 2004
(unaudited) $ -- $ -- 293,566,131 $ 293,565 $ 23,401,295 $(29,327,841)
=========== =========== ============ ============ ============ ============
The accompanying notes are an integral part
of these consolidated financial statements.
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TRANS ENERGY, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
For the
Nine Months Ended
September 30,
2004 2003
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (523,639) $(1,155,249)
Adjustments to reconcile net loss to net cash used by
operating activities:
Depreciation, depletion and amortization 225,914 717,614
Net gain from sale of assets (175,910) (106,428)
Net gain from settlement of debt (41,563) --
Changes in operating assets and liabilities:
(Increase) in accounts receivable (38,595) (140,080)
Decrease (increase) in prepaid and other current assets -- (630)
Increase in accounts payable and
current liabilities 670,681 609,649
Accretion of environmental remediation liability 4,500 --
----------- -----------
Net Cash Provided (Used) by Operating Activities 121,388 (75,124)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of assets 201,000 240,000
Borrowings against cash surrender value of life insurance policy 1,708 --
Purchase of property plant and equipment (440) --
----------- -----------
Net Cash Provided by Investing Activities 202,268 240,000
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Decrease in cash overdraft (49,120) --
Proceeds from related party parties -- 233,650
Payments on related party payables (141,757) (204,480)
Payments on notes payable (119,993) (206,273)
----------- -----------
Net Cash Used by Financing Activities (310,870) (177,103)
----------- -----------
NET INCREASE (DECREASE) IN CASH 12,786 (12,227)
CASH, BEGINNING OF PERIOD 183 12,227
----------- -----------
CASH, END OF PERIOD $ 12,969 $ --
=========== ===========
CASH PAID FOR:
Interest $ 44,057 $ 91,074
Income taxes $ -- $ --
NON-CASH FINANCING ACTIVITIES:
Common stock issued for debt and related interest $ 47,856 $ 45,793
Common stock issued for related party debt $ 26,000 $ --
The accompanying notes are an integral part
of these consolidated financial statements.
-8-
TRANS ENERGY, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
September 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 nine months ended September 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 September 30, 2004 of
$29,327,841, and has a working capital deficit at September 30,
2004 of $6,378,430. 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
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 alleged that the Company sold certain assets of which
Mr. Spencer was the beneficial owner. The complaint sought
$1,000,000 in damages. The Company 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.
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TRANS ENERGY, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
September 30, 2004 and December 31, 2003
(Unaudited)
NOTE 3 - JUDGMENTS PAYABLE
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. At August 3, 2004, the total amount including interest
was $498,379. The Company settled its debt to Mr. Forbus on this
day with a cash payment of $210,000 and recorded a gain of
$288,398.
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 bears
interest at 10.00% per annum. At September 30, 2004, the Company
had accrued a balance including interest of $17,047, $13,587 of
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 bears interest at 10.00% per
annum. At September 30, 2004, the Company has accrued a balance
including interest of $72,819, $56,792 of which is included in
judgment 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 Pinion
Fee #1, Sagebrush #1 and Sagebrush #2 wells, operated by Lario and
in which the Company has working interests. On September 23, 2004
Lario released the Company from the liens that it (Lario) had
obtained. Lario had been retaining a portion of the Company's
share of the monthly oil production monies and applying them to
the amount owed. At September 30, 2004, the Company has a
liability of accrued $36,508, which is included in accounts
payable as a current liability.
I.R.S. Assessment
On July 9, 2004 the I.R.S. assessed a Notice of Federal Tax Lien
in the amount of $18,102 against the Company. The I.R.S. did not
specify the amount and/or rate of applicable interest and
penalties. The Company agreed to make monthly payments of at least
$500 beginning July 2004 until the balance is fully satisfied. As
of September 30, 2004 officers of the Company had paid a total of
$2,000 towards the lien on the Company's behalf; $16,102 is owed
to the I.R.S. as of this date, which is included in judgments
payable. The Company has also increased its related parties
payables by $2,000 as of September 30, 2004 for the amounts paid
by its officers on its behalf.
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TRANS ENERGY, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
September 30, 2004 and December 31, 2003
(Unaudited)
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
Nine Months
Ended Oil and Gas Pipeline
Sept. 30, Sales Transmission
----------- -------------- --------------
Oil and gas revenue 2004 $ 295,963 $ 1,164,664
2003 392,589 1,178,938
Operating loss applicable 2004 (473,916) (96,688)
to industry segment 2003 (803,184) (172,560)
Interest expense 2004 (140,275) (21,484)
2003 (281,512) (21,822)
Other income (expenses) 2004 163,812 44,911
2003 15,001 126,229
Assets 2004 756,602 335,380
(net of intercompany accounts) 2003 1,438,487 530,329
Depreciation and amortization 2004 164,841 61,073
2003 639,350 78,264
Property and equipment 2004 440 --
Acquisitions 2003 -- - 240,000
NOTE 5 - SIGNIFICANT EVENTS
On March 17, 2004, 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.
On January 26, 2004, 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.
On January 9, 2004, 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.
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TRANS ENERGY, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
September 30, 2004 and December 31, 2003
(Unaudited)
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
Equity Transactions
On October 4, 2004 the Company issued 203 million shares of its
common stock at a price of $0.012 per share to settle $2,401,424
of related party debt. The Company incurred a non-cash loss of
$34,576 on the debt settlement.
Also on October 4, 2004 the Company's board of directors
authorized a 1-for-150 reverse split of all shares of common stock
issued an outstanding. The action is contingent upon shareholder
approval.
Acquisition of Cobham Gas Industries, Inc.
Effective November 5, 2004, the Company acquired 100% of the
issued and outstanding common stock of Cobham Gas Industries, Inc.
(Cobham). As consideration for the stock of Cobham, the Company
issued 244,633 restricted shares of its common stock, paid
$250,000 cash and agreed to pay an additional $289,264 in four
quarterly installments of $59,816 beginning on January 1, 2005.
The cash of $250,000 paid at closing was borrowed from an
unrelated third party and is due to be repaid within sixty days of
closing.
-12-
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 nine month periods ended September 30, 2004 and
2003. It should be noted that percentages discussed throughout this analysis are
stated on an approximate basis.
Three Months Ended Nine Months Ended
September 30, September 30,
------------------- -------------------
2004 2003 2004 2003
---- ---- ---- ----
(Unaudited) (Unaudited)
Revenues........................... 100% 100% 100% 100%
Total costs and expenses........... 164 168 139 162
Loss from operations............... (64) (68) (39) (62)
Other income (expense)............. 67 (18) 3 (11)
Net income (loss).................. 3 (86) (36) (73)
Revenues for the three months ("third quarter") ended September 30,2004
decreased 34% compared to the third quarter of 2003, and decreased 7% for the
nine months ended September 30, 2004 versus the comparable 2003 period. These
results are primarily attributed to lower gas sales during the third quarter of
2004. Our cost of oil and gas for the third quarter of 2004 decreased 27% due to
lower gas sales, and increased 4% for the first nine months of 2004 due to
overall higher prices.
Salaries and wages increased 12% for the third quarter of 2004 and
relatively unchanged for the first nine months of 2004 when compared to the 2003
periods. The increase during the third quarter was due primarily to additional
part-time employees. Selling, general and administrative expenses decreased 50%
and 36% in the third quarter and first nine months of 2004, respectively,
attributed to lover travel related expenses. Depreciation, depletion and
amortization decreased 66% in the third quarter of 2004 and 69% in the first
nine months of 2004, respectively, due to the sale of assets.
Our loss from operations for the third quarter of 2004 was $208,686
compared to $337,374 for the third quarter of 2003, and was $570,603 for the
first nine months of 2004 compared to $975,744 for the first nine months of
2003. The decrease in loss for the third quarter of 2004 is primarily attributed
to the sale of assets. We realized total other income of $217,962 during the
third quarter of 2004 compared to total other expenses of $88,055 for the third
quarter of 2003. The 2004 results are due primarily to a $288,398 gain on the
settlement of debt. For the first nine months of 2004, total other income was
$46,964 compared to total other expenses of $179,505 for the 2003 period. The
2004 results are attributed to the settlement of debt and an increase in the
gain on the disposal of assets together with a decrease in interest expense in
the 2004 period.
As a percentage of total revenues, total costs and expenses decreased from
168% in the third quarter of 2003 to 164% for the third quarter of 2004, and
decreased from 162% for the first nine months of 2003 to 139% for the comparable
2004 period. The 2004 decreases are primarily attributed to the decrease in
depreciation, depletion and amortization during the 2004 periods.
-13-
We realized net income of $9,276 for the third quarter of 2004 compared to
a net loss of $425,429 for the third quarter of 2003. For the first nine months
of 2004 we had a net loss of $523,639 compared to a net loss of $1,155,249 for
the 2003 period.
For the remainder of fiscal year 2004, management expects selling, general
and administrative expenses to remain at approximately the same rate as the
first nine months 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 September 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 September 30, 2004, we had a working
capital deficit of $6,378,430 compared to a deficit of $6,359,171 at December
31, 2003.
During the first nine months of 2004, we realized net cash from operating
activities of $121,388 compared to net cash used of $75,124 for the first nine
months of 2003. These results are primarily attributed to the decrease in net
loss in 2004. Net cash provided by investing activities during the first nine
months of 2004 was $202,268, compared to $240,000 during the 2003 period,
primarily due to a decrease in proceeds from the sale of assets in 2004.
During the first nine months of 2004, net cash used by financing activities
was $310,870 compared to $177,103 during the 2003 period, primarily due to
repayment of loan principal.
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 September 30, 2004, we had total assets of $1,091,982 and total
stockholders' deficit of $5,632,981, 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
September 30, 2004, we owed $344,720 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.
-14-
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
-15-
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 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.
(b) 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 asked for a complete accounting of all monies owed.
Lario retained our share of monthly oil production monies and applied them
to the amount owed. On August 23, 2004, the court dismissed the action with
prejudice.
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 September 30, 2004,
we owed $344,720 in connection with the debentures consisting of $50,000 to one
debenture holder and $294,720in penalties.
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Item 4. Submission of Matters to a Vote of Security Holders
This Item is not applicable.
Item 5. Other Information
On November 5, 2004, we finalized an agreement with Texas Energy Trust
Company, a Delaware Business Trust with offices in Irving, Texas ("TETCO"),
whereby we acquired from TETCO certain oil and gas leases and leasehold
interests located in Wetzel and Marion Counties, West Virginia, and other
assets. The parties had previously entered into a preliminary agreement on
September 29, 2004.
The acquisition was accomplished by our wholly owned subsidiary, Prima Oil
Company, Inc., acquiring from TETCO 100% of the issued and outstanding shares
(2,100 shares) of Cobham Gas Industries, Inc., a Delaware corporation. Under the
terms of the agreement, we are acquiring certain wells, leases, pipelines, gas
purchase agreements, oil hauling agreements, equipment, right of ways and other
miscellaneous items related to the leases located in West Virginia. A total of
229 wells are being acquired, of which 98 are currently producing, located on
approximately 15,000 leased acres. Among the assets acquired are certain
vehicles and heavy equipment and various other drilling equipment.
In consideration for the acquired property, we are paying a purchase price
of $1,975,058, of which approximately 25% is being paid in cash and the balance
in shares of our restricted common stock. Of the total cash payment of $489,264,
an initial payment of $250,000 was paid at the closing, with the remaining
balance to be paid quarterly in equal installments of $59,816 beginning January
1, 2005, with the final payment due October 1, 2005.
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
On October 5, 2004, we filed a current report on Form 8-K
reporting under Section 8.01 the entering of a preliminary
agreement to acquire assets from Texas Energy Trust Company.
On October 26, 2004, we filed a current report on Form 8-K
reporting under Section 3.02 the issuance of shares of our common
stock upon the conversion of debt.
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E>
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934,
the Registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
TRANS ENERGY, INC.
Date: November 15, 2004 By /S/ ROBERT I. RICHARDS
-------------------------------------
ROBERT I. RICHARDS, President,
Chief Executive Officer and Director
Date: November 15, 2004 By /S/ WILLIAM F. WOODBURN
-------------------------------------
WILLIAM F. WOODBURN
Secretary / Treasurer
(Principal Accounting Officer)
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