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, 2005
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, 2005
----------------------------- -------------------------------
Common Stock, $.001 par value 4,815,098
TABLE OF CONTENTS
Heading Page
------- ----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.................................................................... 3
Consolidated Balance Sheets - June 30, 2005 (Unaudited) and
December 31, 2004................................................................ 4
Consolidated Statements of Operations and Other Comprehensive Loss -
three and six months ended June 30, 2005 and 2004 (Unaudited)...................... 6
Consolidated Statement of Stockholders' Equity (Deficit)........................... 8
Consolidated Statements of Cash Flows - six months ended
June 30, 2005 and 2004 (Unaudited).............................................. 9
Notes to Unaudited Condensed Consolidated Financial Statements .................... 11
Item 2. Management's Discussion and Analysis and Results of Operations.......................... 16
Item 3. Controls and Procedures................................................................. 19
PART II. OTHER INFORMATION
Item 1. Legal Proceedings....................................................................... 20
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds............................. 20
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........................................................ 21
Signatures.............................................................................. 21
-2-
PART I
Item 1. Financial Statements
The accompanying consolidated balance sheet of Trans Energy, Inc. at June
30, 2005 (unaudited) and December 31, 2004, related unaudited consolidated
statements of operations for the three and six months ended June 30, 2005 and
2004, stockholders' equity (deficit) and cash flows for the six months ended
June 30, 2005 and 2004, 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, 2005, are not
necessarily indicative of the results that can be expected for the fiscal year
ending December 31, 2005.
TRANS ENERGY, INC.
AND SUBSIDARIES
CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2005 and December 31, 2004
-3-
TRANS ENERGY, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
ASSETS
June 30, December 31,
2005 2004
------------- -------------
(Unaudited)
CURRENT ASSETS
Cash $ 334,629 $ 79,662
Accounts receivable, net 1,955,100 653,917
Other receivables 27,557 8,825
Prepaid expenses 75,549 1,223
------------- -------------
Total Current Assets 2,392,835 743,627
------------- -------------
PROPERTY AND EQUIPMENT, NET 8,525,794 3,372,599
------------- -------------
OTHER ASSETS
Bonds 50,159 50,159
Prepaid loan costs 19,810 -
Deposits 17,491 1,400
Investment in Texas Keystone Wells 175,000 -
Customer lists 662,106 -
Life insurance, cash surrender value 67,726 66,326
------------- -------------
Total Other Assets 992,292 117,885
------------- -------------
TOTAL ASSETS $ 11,910,921 $ 4,234,111
============== ==============
The accompanying notes are an integral part
of these condensed consolidated financial statements.
-4-
TRANS ENERGY, INC. AND SUBSIDIARIES
Consolidated Balance Sheets (Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
June 30, December 31,
2005 2004
------------- -------------
(Unaudited)
CURRENT LIABILITIES
Accounts payable - trade $ 1,678,113 $ 1,277,375
Related party payables (Note 5) 1,458,137 719,199
Accrued expenses 1,161,282 844,858
Judgments payable (Note 3) 70,379 70,379
Debentures payable 50,000 50,000
Notes payable - current portion 865,727 762,247
------------- -------------
Total Current Liabilities 5,283,638 3,724,058
------------- -------------
LONG-TERM LIABILITIES
Notes payable 4,137,330 108,190
Asset retirement obligation 1,758,944 1,571,749
------------- -------------
Total Long-Term Liabilities 5,896,274 1,679,939
------------- -------------
Total Liabilities 11,179,912 5,403,997
------------- -------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (DEFICIT) (Note 7)
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; 4,815,098 and 3,555,074 shares issued
and outstanding, respectively 4,815 3,555
Capital in excess of par value 30,440,935 27,854,647
Comprehensive Income (1,808) --
Deferred expenses (92,500) --
Accumulated deficit (29,620,433) (29,028,088)
------------- -------------
Total Stockholders' Equity (Deficit) 731,009 (1,169,886)
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT) $ 11,910,921 $ 4,234,111
============= =============
The accompanying notes are an integral part
of these condensed consolidated financial statements.
-5-
TRANS ENERGY, INC. AND SUBSIDIARIES
Consolidated Statements of Operations and Other Comprehensive Loss (Continued)
(Unaudited)
For the For the
Three Months Ended Six Months Ended
June 30, June 30,
-------------------------- --------------------------
2005 2004 2005 2004
----------- ----------- ----------- -----------
REVENUES $ 3,338,661 $ 555,245 $ 5,889,201 $ 1,134,975
----------- ----------- ----------- -----------
COSTS AND EXPENSES
Cost of oil and gas 2,620,237 448,850 4,335,187 1,068,371
Salaries and wages 48,779 85,107 116,679 180,022
Depreciation, depletion and
amortization 414,886 128,168 720,778 467,857
Selling, general and
administrative 671,650 74,784 1,115,617 112,158
----------- ----------- ----------- -----------
Total Costs and Expenses 3,755,552 736,909 6,288,261 1,828,408
----------- ----------- ----------- -----------
LOSS FROM OPERATIONS (416,891) (181,664) (399,060) (693,433)
----------- ----------- ----------- -----------
OTHER INCOME (EXPENSE)
Gain (loss) on extinguishment
of debt -- -- 2,306 (246,836)
Net gain (loss)on sale of assets 4,674 -- (7,864) 175,910
Other income 8,293 9,128 8,293 9,128
Interest expense (121,933) (58,982) (196,020) (109,200)
----------- ----------- ----------- -----------
Total Other Income
(Expense) (108,966) (49,854) (193,285) (170,998)
----------- ----------- ----------- -----------
LOSS FROM OPERATIONS
BEFORE INCOME TAXES
(525,857) (231,518) (592,345) (864,431)
INCOME TAXES -- -- -- --
----------- ----------- ----------- -----------
NET LOSS $ (525,857) $ (231,518) $ (592,345) $ (864,431)
----------- ----------- ----------- -----------
The accompanying notes are an integral part
of these condensed consolidated financial statements.
-6-
TRANS ENERGY, INC. AND SUBSIDIARIES
Consolidated Statements of Operations and Other Comprehensive Loss (continued)
(Unaudited)
For the For the
Three Months Ended Six Months Ended
June 30, June 30,
------------------------- --------------------------
2005 2004 2005 2004
----------- ----------- ----------- -----------
NET LOSS $ (525,857) $ (231,518) $ (592,345) $ (864,431)
OTHER COMPRHENSIVE LOSS
Changes due to hedging
Activities 1,493 -- (1,808) --
NET COMPREHENSIVE LOSS $ (524,364) $ (231,518) $ (594,153) $ (864,431)
=========== =========== =========== ===========
BASIC LOSS PER SHARE $ (0.11) $ (0.12) $ (0.13) $ (0.46)
=========== =========== =========== ===========
WEIGHTED AVERAGE
NUMBER OF SHARES
OUTSTANDING 4,815,098 1,957,108 4,599,293 1,865,040
=========== =========== =========== ===========
The accompanying notes are an integral part
of these condensed consolidated financial statements.
-7-
TRANS ENERGY, INC. AND SUBSIDIARIES
Consolidated Statement of Stockholders' Equity (Deficit)
Preferred Stock Common Stock
------------------------- ------------------------- Capital In
Comprehensive Accumulated Excess of
Shares Amount Shares Amount Par Value Income Deficit
------------ ------------ ------------ ------------ ------------ ------------ ------------
Balance, December 31, 2004 -- $ -- 3,555,074 $ 3,555 $ 27,854,647 $ -- $(29,028,088)
Common stock issued for
services to be rendered
(unaudited) -- -- 50,000 50 92,450 -- --
Common stock issued for
the conversion of debt
(unaudited) -- -- 25,000 25 49,975 -- --
Common stock issued for
purchase of Arvilla
(unaudited) -- -- 1,185,024 1,185 2,368,863 -- --
Changes due to hedging activities
(unaudited) -- -- -- -- -- (1,808) --
Contributed services (unaudited) -- -- -- -- 75,000 -- --
Net loss for the six months ended
June 30, 2005 (unaudited) -- -- -- -- -- -- (592,345)
------------ ------------ ------------ ------------ ------------ ------------ ------------
Balance, June 30, 2005 (unaudited) -- $ -- 4,815,098 $ 4,815 $ 30,440,935 $ (1,808) $(29,620,433)
============ ============ ============ ============ ============ ============ ============
The accompanying notes are an integral part
of these condensed consolidated financial statements.
-8-
TRANS ENERGY, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
For the Six Months Ended
June 30,
2005 2004
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (592,345) $ (864,431)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation, depletion, amortization and accretion 720,778 467,857
Net gain from sale of assets (3,254) (175,910)
(Gain) loss on extinguishment of debt (2,306) 246,836
Non-cash expense 75,000 --
Changes in operating assets and liabilities:
(Increase) in accounts receivable (170,461) (138,625)
(Increase) in prepaids (74,326) --
(Increase) in other current assets (15,502) --
(Increase) in other assets (71,680) --
(Decrease) increase in accounts payable and
current liabilities (58,018) 113,124
Decrease in accrued expenses 126,449 --
----------- -----------
Net Cash Used by Operating Activities (65,665) (351,149)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of assets 15,260 201,000
Borrowings from life insurance policy -- 1,708
Cash acquired from subsidiary 408,333 --
Expenditures for property and equipment (477,545) (440)
----------- -----------
Net Cash Provided (Used) by Investing Activities (53,952) 202,268
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Change in bank overdraft -- (49,120)
Payments on related party payables (6,640) (228,488)
Proceeds from related party notes 637,088 603,750
Principal payments on notes payable (255,864) (172,928)
----------- -----------
Net Cash Provided by Financing Activities 374,584 153,214
----------- -----------
NET INCREASE IN CASH 254,967 4,333
CASH, BEGINNING OF PERIOD 79,662 183
----------- -----------
CASH, END OF PERIOD $ 334,629 $ 4,516
=========== ===========
The accompanying notes are an integral part
of these condensed consolidated financial statements.
-9-
TRANS ENERGY, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Continued)
(Unaudited)
For the Six Months Ended
June 30,
2005 2004
----------- -----------
CASH PAID FOR:
Interest $ -- $ 30,810
Income taxes $ -- $ --
NON-CASH FINANCING ACTIVITIES:
Common stock issued for debt relief $ 50,000 $ 47,856
Common stock issued for services to
be rendered $ 92,500 $ 26,000
Common stock issued for the net assets
over liabilities in the purchase
of Arvilla Inc. and subsidiary $2,370,048 $ --
Contributed Services $ 75,000 $ --
The accompanying notes are an integral part
of these condensed consolidated financial statements.
-10-
TRANS ENERGY, INC. AND SUBSIDIARIES
Notes to the Unaudited Condensed Consolidated Financial Statements
June 30, 2005 and December 31, 2004
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
includes normal recurring adjustments and reflects all adjustments,
which, in the opinion of management, are necessary for a fair
presentation of such financial statements. Although management
believes the disclosures and information presented are adequate to
make the information not misleading, it is suggested that these
interim 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, 2004 Annual
Report on Form 10-KSB. Operating results for the three and six months
ended June 30, 2005 are not necessarily indicative of the results that
may be expected for the year ending December 31, 2005.
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, 2005 of $ 29,545,433 and has a working capital
deficit at June 30, 2005 of $2,890,803. Revenues have not been
sufficient to cover its operating costs and to allow it to continue as
a going concern. he 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 - CONTINGENCIES AND COMMITTMENTS
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, 2005 the Company had accrued a balance
including interest of $13,587 which is included in judgments payable.
The Company is currently in default on this judgment.
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, 2005, the Company has accrued a balance including
interest of $56,792 which is included in judgment payable as a current
liability. The Company is currently in default on this judgment.
-11-
NOTE 3 - CONTINGENCIES AND COMMITMENTS (continued)
Arvilla Oilfield Services is required under a certain loan agreement
to maintain specific financial ratios under covenants contained in the
loan agreement. At June 30, 2005 and December 31, 2004 Arvilla was in
compliance with those covenants.
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 Well
June 30 Sales Transmission Servicing
----------- ----------- ------------ -----------
Oil and gas revenue 2005 $ 509,770 $ 1,103,917 $ 4,275,514
2004 150,737 984,238 --
Operating income (loss)
applicable to industry
segment 2005 (450,426) (64,875) 116,241
2004 (680,184) (13,249) --
General corporate expenses
not allocated to industry
segments 2005 -- -- --
2004 -- -- --
Interest expense 2005 (35,283) (17,990) (142,747)
2004 (91,505) (17,695) --
Other income (expenses) 2005 (38,570) (14,681) (140,034)
2004 (198,812) 27,814 --
Assets
(net of intercompany accounts) 2005 6,875,953 588,788 4,446,180
2004 403,814 537,804 --
-12-
NOTE 4 - BUSINESS SEGMENTS (continued)
Depreciation, depletion,
Amortization and accretion 2005 178,805 36,881 505,092
2004 430,695 37,162 --
Property and equipment
Acquisitions (Deletions) 2005 187,875 36,881 237,529
2004 (67,282) (88,750) --
NOTE 5 - RELATED PARTIES
Marketing Agreement - Sancho
Natural gas delivered through the Company's pipeline network is sold
either to Sancho Oil and Gas Corporation ("Sancho"); a company
controlled by the Vice President of the Company, to Dominion Gas, a
local utility, on an on-going basis at a variable price per month per
Mcf.
Under its contract with Sancho, the Company has the right to sell
natural gas subject to the terms and conditions of a 20-year contract,
as amended, that Sancho entered into with Dominion Gas in 1988. This
agreement is a flexible volume supply agreement whereby the Company
receives the full price which Sancho charges the end user less a $0.05
per Mcf marketing fee paid to Sancho.
Certain officers and directors of the Company have personally
guaranteed specific notes payable.
NOTE 6 - OTHER COMPREHENSIVE INCOME
The Company has entered into a loan arrangement containing an interest
rate hedge. The hedge is based on the difference between the lending
institutions floating rate index plus 280 basis points and the
existing LIBOR rate. At June 30, 2005, the difference in rates
resulted in additional interest of $1,808 that was recorded as other
comprehensive income.
NOTE 7 - EQUITY
In January 2005, the Company issued 50,000 shares of common stock for
services to be rendered valued at $92,500.
In January 2005, the Company issued 25,000 shares of common stock for
debt relief of $50,000.
-13-
NOTE 7 - EQUITY (continued)
In January 2005, the Company issued 1,185,024 shares of common stock
for the acquisition of Arvilla Inc.
Under FASB Statement 123, the Company estimates the fair value of each
stock award at the grant date by using the Black-Scholes option
pricing model with the following weighted average assumptions used for
grants, respectively; dividend yield of zero percent for all years;
expected volatility of 68.72%; risk-free interest rate of 4.08 and
expected lives of 10 years for the six months ended June 30, 2005.
Had compensation cost for the Company's stock options granted to
directors and employees been based on the fair value as determined by
the Black-Scholes option pricing model at the grant date under the
accounting provisions of SFAS No. 123, the Company would have recorded
an additional expense of $837,416 for the six months ended June 30,
2005. Also under these same provisions, the Company's net loss would
have been changed by the pro forma amounts indicated below:
For the For the
Three Months Ended Six Months Ended
June 30, June 30,
------------------------------ ----------------------------------
2005 2004 2005 2004
------------ ------------- -------------- ------------
Net loss:
As reported $ (525,857) $ (231,518) $ ( 592,345) $ (864,431)
Pro forma $ (525,857) $ (231,518) $ (1,429,191) $ (837,416)
Basic loss per share:
As reported $ (0.11) $ (0.12) $ (0.13) $ (0.46)
Pro forma $ (0.11) $ (0.12) $ (0.31) $ (0.46)
-14-
NOTE 7 - EQUITY (continued)
Stock Options - A summary of the status of the warrants granted under
various agreements at June 30, 2005 and 2004, and changes during the
periods then ended is presented below:
June 30, 2005 June 30, 2004
------------------------- ---------------------
Weighted Weighted
Average Exercise Average Exercise
Shares Price Shares Price
--------- ------------- --------- ---------
Outstanding at beginning of period -- $ -- -- $ --
Granted 553,324 1.95 -- --
Exercised -- -- -- --
Forfeited -- -- -- --
Expired -- -- -- --
--------- ------------- --------- ---------
Outstanding at end of Period 553,324 $ 1.95 -- $ --
========= ============= ========= =========
Weighted average fair value of options
granted during the year 553,324 $ 1.95 -- $ --
========= ============= ========= =========
Weighted average fair value of options
granted during the year 553,324 $ 1.51 $ -- $ --
========= ============= ========= =========
A summary of the status of the warrants granted under the various
agreements at June 30, 2005, are presented in the table below:
Warrants Outstanding Warrants Exercisable
------------------------------------------ --------------------------------
Weighted-Average Weighted-Average Weighted-Average
Range of Number Remaining Exercise Number Exercise
Exercise Prices Outstanding Contractual Life Price Exercisable Price
--------------- ------------ ----------------- ------------------- ------------ -------------
$1.95 553,324 9.50 years $ 1.95 553,324 $ 1.95
------------ ------------
553,324 553,324
============ ============
-15-
Item 2. Management's Discussion and Analysis or Plan of Operations
Recent Developments
On November 5, 2004, we acquired Cobham Gas Industries, Inc. and 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 were acquired, of which 98 are
currently producing, located on approximately 15,000 leased acres.
On January 31,2005, we finalized the acquisition of Arvilla, Inc., a Nevada
corporation, and its subsidiary, assuming all its operations, assets and
liabilities. Arvilla provides well servicing, workover and related
transportation services to independent oil and natural gas producers in the
northeast region of the United States. It also performs ongoing maintenance and
major overhauls necessary to optimize the level of production from existing oil
and natural gas wells and provides certain ancillary services during the
drilling and completion of new wells. Arvilla offers its services in Ohio,
Pennsylvania, New York, Virginia, Kentucky and West Virginia.
On November 29, 2004, our board of directors and stockholders holding a
majority of our outstanding common stock approved a one share for 150 shares
reverse split of our common stock. The reverse split was effected on January 28,
2005. All references to per share data and common stock have been restated to
reflect the effect of this reverse split.
Results of Operations
The following table sets forth the percentage relationship to total
revenues of principal items contained in the our unaudited consolidated
statements of operations for the three and six month periods ended June 30, 2005
and 2004. 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,
-------------------- ----------------------
2005 2004 2005 2004
------ ------- ------ ------
(Unaudited) (Unaudited)
Total Revenues..................... 100% 100% 100% 100%
Total costs and expenses........... 110 133 106 161
Loss from operations............... (12) (33) (7) (61)
Other income (expense)............. (3) (9) (3) (15)
Net loss........................... (16) (42) (10) (76)
Revenues for the three months ("second quarter") and six months ("first
half") ended June 30, 2005 increased 501% and 419%, respectively, compared to
the same periods of 2004, primarily due to the acquisition of Arvilla and
inclusion of its revenues for the 2005 periods. Increased consolidated revenues
also reflect increased oil and gas prices and volume. Our cost of oil and gas
for the second quarter and first half of 2005 increased 484% and 306%,
respectively, compared to the 2004 periods, also due to price and volume
increases.
-16-
Selling, general and administrative expenses increased 798% and 828% for
the second quarter and first half of 2005, respectively, compared to the same
2004 periods, attributed to the acquisition of Arvilla. Salaries and wages
decreased 43% and 35% for the second quarter and first half of 2005,
respectively, when compared to the 2004 periods, primarily due to a reduction in
accrued wages. Depreciation, depletion, amortization and accretion expense
increased 224% and 54% for the second quarter and first half of 2005, due to the
addition of Arvilla Assets. Also, the first quarter contained only two months of
Arvilla expenses in contrast to the second quarter that contained the full three
months of expenses.
Loss from operations for the second quarter and first half of 2005 was
$416,891 and $399,060, respectively, compared to a loss of $181,664 and 693,433
for the like periods of 2004. The improvement for the first half of 2005 is
related to the acquisition of Arvilla and its increased contribution to
revenues, price and volume increases, although the loss for the second quarter
increased from the 2004 period due to a decrease in April revenues in Arvilla
related to poor weather conditions. We realized total other expenses of $108,966
and $193,285 during the second quarter and first half of 2005, respectively,
compared to total other expenses of $49,854 and $170,998 for the 2004 periods.
The increased expenses for the 2005 periods were primarily attributed to
interest expense increases due to additional debt and an increase in variable
interest rates.
As a percentage of total revenues, total costs and expenses decreased from
133% in the second quarter of 2004 to 110% for the second quarter of 2005, and
also decreased from 161% for the first half of 2004 to 106% for the first half
of 2005. This improvement is also attributed to the acquisition of Arvilla and
its additional revenues reported during the periods.
Our net loss for the second quarter and first half of 2005 was $525,857 and
$592,345, respectively, compared to $231,518 and $864,431for the second quarter
and first half of 2004.
For the remainder of fiscal year 2005, management expects selling, general
and administrative expenses to remain at approximately the same rate as the
first half of 2005 and significantly higher than the prior year, reflecting the
Arvilla acquisition. 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 2005.
Liquidity and Capital Resources
Historically, we have satisfied our working capital needs with operating
revenues and from borrowed funds. At June 30, 2005, we had a working capital
deficit of $2,890,803 compared to a deficit of $2,980,431 at December 31, 2004.
This 3% decrease in working capital deficit is primarily attributed to the
acquisition of Arvilla and decreases in current liabilities.
During the first half of 2005, operating activities used net cash of
$65,665 compared to net cash used of $351,149 for the first half of 2004. These
results are primarily attributed to the decrease in net loss, an increase in
depreciation, depletion and amortization and a decrease in accrued expenses.
Also during the first half of 2005, net cash used by investing activities was
$53,952, compared to net cash provided of $202,268 for the first half of 2004.
This result is primarily attributed to cash acquired from our Arvilla
subsidiary.
During the first half of 2005,we realized net cash from financing
activities of $374,584 compared to net cash provided of $153,214 in the first
half of 2004. These results are attributed to an increase in related party
payable.
-17-
We anticipate meeting our working capital needs during the remainder of the
current fiscal year with revenues from our newly acquired subsidiaries and from
our ongoing operations, particularly from our Powder River Basin interests in
Wyoming and New Benson gas wells drilled in West Virginia, which gas goes into
our 6-inch pipeline. In the event revenues are not sufficient to meet our
working capital needs, we will explore the possibility of additional funding
from either the sale of debt or equity securities. There can be no assurance
such funding will be available to us or, if available, it will be on acceptable
or favorable terms.
As of June 30, 2005, we had total assets of $11,910,921 and total
stockholders' equity of $731,009, compared to total assets of $4,234,111 and
total stockholders' deficit of $1,169,886 at December 31, 2004.
In 1998, we issued $4,625,400 face value of 8% Secured Convertible
Debentures Due June 30, 1999. A portion of the proceeds were used to acquire the
GCRL properties and interest in Wyoming. During 2000, all but one of the
remaining outstanding debentures were converted into commons stock. At June 30,
2005, we owed $50,000 for a debenture plus approximately $25,000 in interest.
Because we have incurred significant cumulative operating losses through
June 30, 2005 and have a working capital deficit at June 30, 2005 of $2,890,803,
there exists substantial doubt about our ability to continue as a going concern.
Historically, our revenues have not been sufficient to cover operating costs and
we may potentially need to rely on proceeds from sale of common stock, debt or
equity financing, and increased operating revenues from new developments to
allow us to continue as a going concern. There can be no assurance that we can
or will be able to complete any debt or equity financing.
We have included a footnote to our financial statements for the periods
ended June 30, 2005 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.
Inflation
In the opinion of our management, inflation has not had a material effect
on our operations.
Forward-looking and Cautionary Statements
This report includes "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933, and Section 21E of the Securities
Exchange Act of 1934. These forward-looking statements may relate to such
matters as anticipated financial performance, future revenues or earnings,
business prospects, projected ventures, new products and services, anticipated
market performance and similar matters. When used in this report, the words
"may," "will," "expect," "anticipate," "continue," "estimate," "project,"
"intend," and similar expressions are intended to identify forward-looking
statements regarding events, conditions, and financial trends that may affect
our future plans of operations, business strategy, operating results, and
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 any products or services;
o volatility of the stock market, particularly within the technology
sector; and
o general economic conditions.
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Although we believe the expectations reflected in these forward-looking
statements are reasonable, such expectations cannot guarantee future results,
levels of activity, performance or achievements.
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.
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PART II
Item 1. Legal Proceedings
Information concerning certain material pending legal proceedings to which
we are a party, or to which any of our property is subject, is set forth below:
o 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.
We may be engaged in various other lawsuits and claims, either as plaintiff
or defendant, in the normal course of business. In the opinion of management,
based upon advice of counsel, the ultimate outcome of these lawsuits will not
have a material impact on our financial position or results of operations.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
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, 2005, we
owed $50,000 to one debenture holder plus approximately $25,000 in interest.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
Item 5. Other Information
The following reports were filed with the SEC on Form 8-K during the three
month period ended June 30, 2005.
June 9, 2005 - amendment to our Form 8-K filed November 11, 2004, reporting
under Item 2.01 that in connection with the completion of the acquisition of
Cobham Gas Industries, Inc. we filed under Item 9.01 the applicable financial
statements related to Cobham.
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Item 6. 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.
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, 2005 By /S/ CLARENCE E. SMITH
--------------------------------------------
Clarence E. Smith
Chief Executive Officer and Director
Date: August 18, 2005 By /S/ WILLIAM F. WOODBURN
--------------------------------------------
WILLIAM F. WOODBURN
Secretary / Treasurer
(Principal Accounting Officer)
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