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 March 31, 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.
------------------
(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 March 31, 2004
Common Stock, $.001 par value 293,566,131
-1-
TABLE OF CONTENTS
Heading Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.................................................................... 3
Consolidated Balance Sheets - March 31, 2004 (Unaudited) and
December 31, 2003................................................................ 4
Consolidated Statements of Operations - three months ended
March 31, 2004 and 2003 (Unaudited).............................................. 6
Consolidated Statements of Stockholders' Equity (Deficit).......................... 7
Consolidated Statements of Cash Flows - three months ended
March 31, 2004 and 2003 (Unaudited).............................................. 8
Notes to Consolidated Financial Statements ........................................ 10
Item 2. Management's Discussion and Analysis and Results of Operations.......................... 16
Item 3. Controls and Procedures................................................................. 18
PART II. OTHER INFORMATION
Item 1. Legal Proceedings....................................................................... 18
Item 2. Changes In Securities and Use of Proceeds............................................... 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
March 31, 2004 (unaudited) and December 31, 2003, related unaudited statements
of operations, stockholders' equity (deficit) and cash flows for the three
months ended March 31, 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 March 31, 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
March 31, 2004 and December 31, 2003
-3-
TRANS ENERGY, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
ASSETS
------
March 31, December 31,
2004 2003
----------- -----------
(Unaudited) (Restatd)
CURRENT ASSETS
Cash $ 94,039 $ 183
Accounts receivable, net (Note 1) 346,984 198,691
Other receivables 11,758 58,452
Prepaid expenses 990 990
----------- -----------
Total Current Assets 452,771 258,316
----------- -----------
PROPERTY AND EQUIPMENT (Note 2)
Vehicles 67,257 77,118
Machinery and equipment 10,092 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 (4,229,911) (4,021,605)
----------- -----------
Total Fixed Assets 664,694 1,029,473
----------- -----------
OTHER ASSETS
Cash surrender value - life insurance (net) 5,086 5,086
----------- -----------
Total Other Assets 5,086 5,086
----------- -----------
TOTAL ASSETS $ 1,122,551 $ 1,292,875
=========== ===========
The accompanying notes are an integral part
of these onsolidated financial statements.
-4-
TRANS ENERGY, INC. AND SUBSIDIARIES
Consolidated Balance Sheet (Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
----------------------------------------------
March 31, December 31,
2004 2003
------------ ------------
(Unaudited) (Restated)
CURRENT LIABILITIES
Bank overdraft $ -- $ 49,120
Accounts payable - trade 995,983 786,191
Notes payable - convertible -- 36,325
Accrued expenses 1,092,783 954,749
Salaries payable 1,346,529 1,266,479
Notes payable - current portion 955,385 1,221,083
Judgments payable 498,397 500,397
Related party payables 1,341,684 1,271,681
Debentures payable 331,462 331,462
Environmental remediation 201,500 200,000
------------ ------------
Total Current Liabilities 6,763,723 6,617,487
------------ ------------
LONG-TERM LIABILITIES
Notes payable 101,083 105,421
------------ ------------
Total Long-Term Liabilities 101,083 105,421
------------ ------------
Total Liabilities 6,864,806 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 (29,437,115) (28,804,202)
------------ ------------
Total Stockholders' Equity (Deficit) (5,742,255) (5,430,033)
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $ 1,122,551 $ 1,292,875
============ ============
The accompanying notes are an integral part
of these consolidated financial statements.
-5-
TRANS ENERGY, INC. AND SUBSIDIARIES
Restated Consolidated Statements of Operations
(Unaudited)
For the Three Months Ended
March 31,
2004 2003
------------- -------------
REVENUES $ 579,730 $ 417,063
------------- -------------
COSTS AND EXPENSES
Cost of oil and gas 619,521 323,992
Salaries and wages 94,915 95,893
Depreciation, depletion and amortization 339,688 253,233
Selling, general and administrative 37,375 56,225
------------- -------------
Total Costs and Expenses 1,091,499 729,343
------------- -------------
LOSS FROM OPERATIONS (511,769) (312,280)
------------- -------------
OTHER INCOME (EXPENSE)
Gain on disposal of asset 175,910 112,235
Loss on sale of asset -- (5,807)
Other income -- 773
Loss on extinguishment of debt (246,836) --
Interest expense (50,218) (102,196)
------------- -------------
Total Other Income (Expense) (121,144) 5,005
------------- -------------
LOSS FROM OPERATIONS BEFORE INCOME TAXES
AND MINORITY INTERESTS (632,913) (307,275)
------------- -------------
INCOME TAXES -- --
------------- -------------
MINORITY INTERESTS -- --
------------- -------------
NET LOSS $ (632,913) $ (307,275)
============= =============
BASIC LOSS PER SHARE $ (0.00) $ (0.00)
============= =============
WEIGHTED AVERAGE SHARES OUTSTANDING 290,541,538 239,308,016
============= =============
The accompanying notes are an integral part
of these consolidated financial statements.
-6-
TRANS ENERGY, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity (Deficit)
Preferred Stock Common Stock Capital in
----------------------------- --------------------------- Excess of Accumulated
Shares Amount Shares Amount Par Value Deficit
------------ ------------- ------------ ------------ ------------ ------------
Balance, December 31, 2003 -- $ -- 269,010,438 $ 269,010 $ 23,105,159 $(28,804,202)
Common stock issued for
conversion of convertible
debt -- -- 3,190,395 3,190 61,118 --
Common stock issued for
extinguishment of
related party debt (unsecured) -- -- 21,365,297 21,365 235,018 --
Net loss for the three months
ended March 31, 2002 -- -- -- -- -- (632,913)
------------ ------------- ------------ ------------ ------------ ------------
Balance, March 31, 2003 -- $ -- 293,566,131 $ 293,565 $ 23,401,295 $(29,437,115)
============ ============= ============ ============ ============ ============
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 Three Months Ended
March 31,
2004 2003
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(632,913) $(307,275)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation, depletion and amortization 339,688 253,233
Net gain from sale of assets (175,910) (106,428)
Loss on extinguishment of debt 246,836 --
Accretion of environmental remediation costs 1,500 --
Changes in operating assets and liabilities:
(Increase) in accounts receivable (100,599) (100,849)
(Increase) in prepaid and other current assets -- (630)
Increase in accounts payable and
current liabilities 439,407 315,992
--------- ---------
Net Cash Provided by Operating Activities 118,009 54,043
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of assets 201,000 240,000
Expenditures for property and equipment -- --
--------- ---------
Net Cash Provided by Investing Activities 201,000 240,000
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Change in bank overdraft (49,120) --
Payments on related party payables (88,997) (123,838)
Proceeds from related party notes 185,000 --
Proceeds from notes payable -- --
Principal payments on notes payable (272,036) (176,784)
--------- ---------
Net Cash Used by Financing Activities (225,153) (300,622)
--------- ---------
NET INCREASE (DECREASE) IN CASH 93,856 (6,579)
CASH, BEGINNING OF PERIOD 183 12,227
--------- ---------
CASH, END OF PERIOD $ 94,039 $ 5,648
========= =========
The accompanying notes are an integral part of these
consolidated financial statements.
-8-
TRANS ENERGY, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Continued)
(Unaudited)
For the Three Months Ended
March 31,
2004 2003
----------- -----------
CASH PAID FOR:
Interest $ 4,918 $ 56,527
Income taxes $ -- $ --
NON-CASH FINANCING ACTIVITIES:
Common stock issued for debt $ 47,866 $ 10,500
Common stock issued for related party debt $ 26,000 $ --
-9-
TRANS ENERGY, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
March 31, 2004 and December 31, 2003
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 three months ended March 31,
2004 and 2003 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 March 31, 2004 of
$29,380,428, and has a working capital deficit at March 31, 2004
of $6,254,265. Revenues have not been sufficient to cover its
operating costs and to allow it to continue as a going concern.
The potential proceeds from the sale of common stock, other
contemplated debt and equity financing, and increases in operating
revenues from new development would enable the Company to continue
as a going concern. There can be no assurance that the Company can
or will be able to complete any debt or equity financing. If these
are not successful, management is committed to meeting the
operational cash flow needs of the Company.
NOTE 3 - JUDGMENTS PAYABLE
Tioga Lumber Company
A foreign judgment has been filed with the Circuit Court in
Pleasants County, West Virginia for a judgment against the Company
by Tioga Lumber Company (Tioga) rendered by the Circuit Court in
Pleasants County, West Virginia for non-payment of an accounts
payable. The judgment is for $46,375 plus prejudgment interest at
10.00%.
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 Company believes that it has
satisfied the balance owed to Tioga, although the judgment has not
yet been released. The Company is proceeding to secure the release
of the judgment.
-10-
TRANS ENERGY, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
March 31, 2004 and December 31, 2003
NOTE 3 - JUDGMENTS PAYABLE (Continued)
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 March 31, 2004
because the Company feels that based on its defenses against the
claims that the Company will have no additional liability. The
Company has filed an answer to the complaint and the matter is
still pending.
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 March 31, 2004, the total amount including interest
of $487,672 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 March 31, 2004 the
Company had accrued a balance including interest of $16,367 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 March 31, 2004, the Company has accrued a balance
including interest of $69,979 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,
-11-
TRANS ENERGY, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
March 31, 2004 and December 31, 2003
NOTE 3 - JUDGMENTS PAYABLE (Continued)
Baker Hughes Entities (Continued)
2000. The sole petitioning creditor named in the Involuntary
Petition was Western Atlas International, Inc. ("Western"). An
Order for Relief Under Chapter 7 was entered by the Court on
November 22, 2000.
On April 23, 2000, the 189th District Court of Harris County,
Texas entered an Agreed Final Judgment in favor of Western against
the Company in the amount of $600,665, together with post judgment
interest at 10% per annum. Following the judgment, Western and the
Company entered into settlement negotiations concerning the
Company's satisfaction of the judgment through payments over a
four to five month period together with the pledge of collateral
on certain unencumbered assets.
Previously, on or about July 9, 1998, a judgment had been entered
in the 152nd District Court of Harris County, Texas against the
Company in favor of Baker Hughes Oilfield Operations, Inc. d/b/a/
Baker Hughes Inteq. Western Geophysical ("Baker"), a division of
Western Atlas International, Inc., in the amount of $41,142,
together with interest and attorney fees. This judgment was
outstanding at the time of the filing of the Involuntary Petition.
During its negotiations with Western for settlement of the
Judgment, the Company made a $200,000 "good faith payment" to
Western's counsel on October 23, 2000. On December 12, 2000, Joe
Hill was named as the Chapter 7 Trustee. Subsequently, Western's
counsel delivered the $200,000 to the Trustee.
On January 19, 2001, the Company filed with the Bankruptcy Court
the Motion to Dismiss Chapter 7 Case. The reasons cited by the
Company in support of its Motion to Dismiss included, but were not
limited to, (i) the Texas Court being an improper venue for the
action, and (ii) the Company never receiving the Involuntary
Petition and Summons notifying it of the action.
In anticipation of the Bankruptcy Court dismissing the Involuntary
Petition, on February 2, 2001, the Company entered into a
Settlement Agreement with Baker Hughes Oilfield Operations, Inc.
d/b/a/ Baker Hughes Inteq. Western Geophysical, a division of
Western Atlas International, Inc. (the "Baker Entities"). In
entering its order on February 7, 2001 to dismiss the action, the
Court ordered the Trustee to retain $17,695 for satisfaction of
administrative fees and expenses, and to pay to Western and Baker
the sum of $182,737, on behalf of the Company and pursuant to the
terms of the Settlement Agreement.
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).
-12-
TRANS ENERGY, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
March 31, 2004 and December 31, 2003
NOTE 3 - JUDGMENTS PAYABLE (Continued)
Baker Hughes Entities (Continued)
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 twodirectors each pledged 750,000 shares
of the Company's common stock which they personally own.
During 2002, the Company assigned the income stream from the sale
of oil from three of its wells (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 March 31, 2003, the Company has a remaining liability including
interest of $534,287 which is included in judgments payable as a
current liability.
The Baker Entities continued their proceedings to enforce a
foreign judgment against the Company in Pleasants County, West
Virginia. Then on December 23, 2003, the Company and the Baker
Entities entered into a Settlement Agreement and Mutual Release
whereby the Company paid $350,000 to the Baker Entities as payment
in full for all monies owned and the Baker Entities gave the
Company a release of all judgments and liens against it.
Lario Oil & Gas Company
On January 15, 2003, Lario Oil & Gas Company ("Lario") filed a
suit against the Company in the Sixth District Court of Campbell
County, Wyoming (Civil Action No. 24575). Lario asks for $50,692,
which it claims the Company owes for operating fees on the 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 March 31, 2004, the Company has
accrued $47,584, 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
December 31, 2003, the Company had paid an amount of $4,000 and
included it in judgments payable and has classified it as a
current liability at that date. During the three months ended
March 31, 2004, the remaining balance was paid in full.
-13-
TRANS ENERGY, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
March 31, 2004 and December 31, 2003
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:
NOTE 4 - BUSINESS SEGMENTS (Continued)
For the
Three Months
Ended Oil and Gas Pipeline Corporate
March 31, Sales Transmission Unallocated
--------- ----- ------------ -----------
Oil and gas revenue 2004 $ 55,356 $ 524,374 --
2003 154,689 262,374 --
Operating income (loss)
applicable to industry
segment 2004 (514,239) 2,470 --
2003 (272,457) (39,823) --
General corporate expenses
not allocated to industry
segments 2004 -- -- --
2003 -- -- --
Interest expense 2004 (45,450) (4,768) --
2003 (88,471) (13,725) --
Other income (expenses) 2004 (115,836) 44,910 --
2003 773 -- --
Assets
(net of intercompany accounts) 2004 541,559 580,992 --
2003 -- -- --
Depreciation and amortization 2004 320,967 18,721 --
2003 227,145 26,088 --
Property and equipment
Acquisitions (Deletions) 2004 (67,722) (88,750) --
2003 (240,000) -- --
-14-
TRANS ENERGY, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
March 31, 2004 and December 31, 2003
NOTE 5 - SIGNIFICANT EVENTS
The Company's subsidiary Tyler Construction sold approximately
47,000 feet of pipeline to Triad Energy Corporation for $200,000.
The Company recognized a gain of $174,910 on the sale. The Company
used $161,391 of the proceeds to pay off the loan to the First
National Bank of St. Mary's.
The Company issued 3,190,396 shares of common stock valued at
$64,308 for the conversion of all convertible debentures and the
associated accrued interest valued at $47,855 resulting in a loss
on extinguishments of $16,452.
The Company issued 21,365,297 shares of unrestricted common stock
valued at $256,383 as payment for related party debt of $26,000
resulting in a loss on extinguishments of debt of $230,383.
NOTE 6 - PRIOR PERIOD ADJUSTMENT
During the three months ended March 31, 2004, a change was made to
The Company's retained earnings. The change was made to properly
reflect the ending balance of trade accounts receivable. As of
December 31, 2003, the accounts receivable balance previously
reported included amounts which 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.
-15-
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 month periods ended March 31, 2004 and 2003. It should
be noted that percentages discussed throughout this analysis are stated on an
approximate basis.
Three Months Ended
March 31,
2004 2003
---- ----
(Unaudited)
Total revenues....................... 100% 100%
Total costs and expenses............. 188 175
Loss from operations................. 88 75
Other income (expense)............... (21) 1
Net loss............................. (109) 74
Total revenues for the three months ("first quarter") ended March 31,
2004 increased 38% compared to the first quarter of 2003, due primarily to the
increase in gas prices and volume. Our cost of oil and gas for the first quarter
of 2004 increased 91% from the comparable 2003 periods, due to price increases.
Salaries and wages decreased 1% for the first quarter of 2004 compared
to the 2003 period, and selling, general and administrative expenses decreased
34% in the first quarter of 2004, primarily due to a decrease in professional
fees. Depreciation, depletion and amortization increased 34% in the first
quarter of 2004 due to increased volume in gas transmissions.
Our loss from operations for the first quarter of 2004 was $511,769
compared to $312,280 for the first quarter of 2003. The increase in loss from
operations for the first quarter is primarily attributed to the increased cost
of oil and gas and increased depreciation, depletion and amortization. We
realized total other expenses of $121,144 during the first quarter of 2004
compared to total other income of $5,005 for the first quarter of 2003. The
first quarter of 2004 results were primarily due to the recognition of a loss on
the extinguishment of debt of $246,836. The increase in expenses was partially
offset by the 51% decrease in interest expense due a reduction in debt.
As a percentage of total revenues, total costs and expenses increased
from 175% in the first quarter of 2003 to 188% for the first quarter of 2004.
This too is attributed to the increase in cost of oil and gas for the period.
Our net loss for the first quarter of 2004 was $632,913 compared to
$307,275 for the first quarter of 2003.
For the remainder of fiscal year 2004, management expects selling,
general and administrative expenses to remain at approximately the same rate as
the first quarter 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 March 31, 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.
-16-
Liquidity and Capital Resources
Historically, we have satisfied our working capital needs with
operating revenues and from borrowed funds. At March 31, 2004, we had a working
capital deficit of $6,310,952 compared to a deficit of $6,359,171 at December
31, 2003. This 1% decrease in working capital deficit is primarily attributed to
the sale of pipeline assets and reduction in current liabilities.
During the first quarter of 2004, operating activities provided net
cash of $118,009 compared to net cash provided of $54,043 for the first quarter
of 2003. These results are primarily attributed to increases in accounts
receivable and the increased depletion rate of gas wells as well as the
recognition of the loss on extinguishment of debt. Cash was used during the
period due to the increased net loss and increased accounts receivable. Net cash
provided by investing activities from proceeds from the sale of assets in the
first quarter of 2004 was $201,000, compared to $240,000 in the 2003 period.
During the first quarter of 2004,we used net cash of $225,153 from
financing activities compared to $300,622 in the first quarter of 2003. These
results are attributed to principal payments made on notes payable during the
2004 period and were partially offset by $185,000 realized in proceeds from
notes payable.
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 March 31, 2004, we had total assets of $1,122,551 and total
stockholders' deficit of $5,742,255, 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
March 31, 2004, we owed $331,462 in connection with the debentures consisting of
$50,000 for one debenture holder that we have been unable to contact, and the
balance in penalties.
Inflation
In the opinion of our management, inflation has not had a material
effect on our operations.
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.
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We caution readers that a variety of factors could cause our actual
results to differ materially from the anticipated results or other matters
expressed in forward-looking statements. These risks and uncertainties, many of
which are beyond our control, include:
o the sufficiency of existing capital resources and our ability to
raise additional capital to fund cash requirements for future
operations;
o uncertainties involved in the rate of growth of our business and
acceptance of our products and services;
o volatility of the stock market, particularly within the energy
sector; and
o general economic conditions.
Although we believe that the expectations reflected in the
forward-looking statements are reasonable, we cannot guarantee future results,
levels of activity, performance or achievements.
Item 3. Controls and Procedures
As of the end of the period covered by this report, we carried out an
evaluation, under the supervision and with the participation of management,
including our chief executive officer and principal financial officer, of the
effectiveness of the design and operation of our disclosure controls and
procedures as defined in Rules 13a-15(e) and 15d-15(e) of the Securities
Exchange Act of 1934. Based upon that evaluation, our chief executive officer
and principal financial officer concluded that our disclosure controls and
procedures are effective to cause the material information required to be
disclosed by us in the reports that we file or submit under the Exchange Act to
be recorded, processed, summarized and reported within the time periods
specified in the SEC's rules and forms. There have been no significant changes
in our internal controls or in other factors which could significantly affect
internal controls subsequent to the date we carried out our evaluation.
PART II
Item 1. Legal Proceedings
Certain material pending legal proceedings to which we are a party or
to which any of our property is subject is set forth below.
(a) On February 7, 2001, the United States Bankruptcy Court, Southern
District of Texas, entered an Order Granting Motion to Dismiss Chapter
7 Case in the action entitled In Re: Trans Energy, Inc., Case No.
00-39496-H4-7. The Order dismissed the involuntary bankruptcy action
instituted against us on October 16, 2000. The sole petitioning
creditor named in the Involuntary Petition was Western Atlas
International, Inc. An Order for Relief Under Chapter 7 was entered by
the Court on November 22, 2000.
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
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Operations, Inc. d/b/a/ Baker Hughes Inteq. Western Geophysical
("Baker"), a division of Western Atlas International, Inc., in the
amount of $41,142.00, together with interest and attorney fees. This
judgment was outstanding at the time of the filing of the Involuntary
Petition.
During our negotiations with Western for settlement of the Judgment, we
made a $200,000 "good faith payment" to Western's counsel on October
23, 2000. On December 12, 2000, Joe Hill was named as the Chapter 7
Trustee. Subsequently, Western's counsel delivered the $200,000 to the
Trustee.
On January 19, 2001, we filed with the Bankruptcy Court the Motion to
Dismiss Chapter 7 Case. The reasons cited in support of the Motion to
Dismiss included, but were not limited to, (i) the Texas Court being an
improper venue for the action, and (ii) we never receiving the
Involuntary Petition and Summons notifying it of the action. In
anticipation of the Bankruptcy Court dismissing the Involuntary
Petition, on February 2, 2001, we entered into a Settlement Agreement
with Baker Hughes Oilfield Operation, Inc., d/b/a/ Baker Hughes Inteq.
Western Geophysical, a division of Western Atlas International, Inc.
(the "Baker Entities"). In entering its order on February 7, 2001 to
dismiss the action, the Court ordered the Trustee to retain $17,694.80
for satisfaction of administrative fees and expenses, and to pay to
Western and Baker the sum of $182,736.66, on our behalf and pursuant to
the terms of the Settlement Agreement.
The Settlement Agreement provided that, subject to the approval of the
Bankruptcy Court, we agreed to pay to the Baker Entities $759,664.31,
plus interest at 10%. In addition to the $200,000 payable from the
escrow, we pledged as collateral certain properties, personal property
and fixtures and two directors each pledged 750,000 shares of our
common stock which they personally own. Subsequently, we assigned the
income stream from the sale of oil in the Pinon Fee #1, Sagebrush #1
and Sagebrush #2 to the Baker Entities as payments toward the amounts
owed.
The Baker Entities continue their proceedings to enforce a foreign
judgment against us in Pleasants County, West Virginia. On December 23,
2003 we entered into a Settlement Agreement and Mutual Release with the
Baker Entities whereby on January 5, 2004 we paid $350,000 to the Baker
Entities as payment in full for all monies owed and the Baker Entities
gave us a release of all judgments and liens against us.
(b) On September 22, 2000, Tioga Lumber Company obtained a judgment of
$43,300 plus interest in the Circuit Court of Pleasants County, West
Virginia, against Tyler Construction Company for breach of contract. On
February 28, 2002, we reached a negotiated payment schedule with Tioga
and made the initial payment. We believe that we have satisfied the
balance owed to Tioga of $26,233.58, although the judgment has not yet
been released. We are proceeding to secure the release of the judgment.
(c) On April 16, 2001, Ross Forbus obtained a judgment of $428,018
against us to satisfy a promissory note previously entered into with
Mr. Forbus on April 8, 1996. We agreed to payment terms and has made
several payments to Mr. Forbus. Mr. Forbus has made a demand upon for
payment in full.
(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.
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(e) On January 15, 2003, a suit against us entitled Lario Oil & Gas
Company vs. Trans Energy, Inc. (Civil Action No. 24575) was initiated
in the Sixth District Court of Campbell County, Wyoming. Lario's suit
asks for $50,692.10 which it claims we owe for operating fees on the
Sagebrush #1 and #2 and the Pinon Fee #1 wells, operated by Lario and
in which we have working interests. We are preparing an answer to the
complaint and are asking for a complete accounting of all monies owed.
Lario is retaining our share of monthly oil production monies and
applying them to the amount owed. As of December 31, 2003, the amount
due was $51,371.
(f) On February 5, 2003, O.C. Smith obtained a judgment against us for
$6,000 in the Circuit Court of Ritchie County, West Virginia. Mr. Smith
had brought suit against our predecessor Apple Corporation, for an
accounting of all gas purchased by us as well as judgment for all
amounts still owing. We acquired all of Apple Corporation's interest in
this well and management determined that there was an unpaid balance
still owing Mr. Smith. The $6,000 was payable in three monthly
installments beginning on April 25, 2003. The final installment was
paid on February 23, 2004 and we consider the judgment paid in full.
Item 2. Changes In Securities and Use of Proceeds
During the first quarter of 2004 we issued 3,190,396 shares of common
stock for the conversion of convertible debt at an average of $.02 per share, or
an aggregate of $64,308. Also in the first quarter of 2004, we issued 21,365,297
shares of common stock for the extinguishment of certain debts valued at
$256,383, or an average price of $.012 per share.
Shares issued for extinguishment of debt were issued in reliance upon
the exemption from registration under the Securities Act of 1933 provided by
Section 4(2) thereunder. Shares issued for conversion of convertible debt were
pursuant to the exemption provided by Section 3(a)(9) of said Act.
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 March 31, 2004, we
owed $331,462 in connection with the debentures consisting of $50,000 to one
debenture holder and $281,462 in penalties.
Item 4. Submission of Matters to a Vote of Security Holders
This Item is not applicable.
Item 5. Other Information
This Item is not applicable.
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Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 31.1 Certification of C.E.O. Pursuant to
Section 302 of the Sarbanses-Oxley Act of
2002.
Exhibit 31.2 Certification of Principal Accounting
Officer Pursuant to Section 302 of the
Sarbanses-Oxley Act of 2002.
Exhibit 32.1 Certification of C.E.O. Pursuant to 18
U.S.C. Section 1350, as Adopted Pursuant
to Section 906 of the Sarbanes-Oxley Act
of 2002.
Exhibit 32.2 Certification of Principal Accounting
Officer Pursuant to 18 U.S.C. Section
1350, as Adopted Pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K
We filed a Current Report on Form 8-K on January 15, 2004 and
an amended report on January 23, 2004, reporting under Items 2
and 5 the sale of certain working interests in five oil and
gas wells and the use of a portion of the proceeds to settle
an ongoing lawsuit.
We also filed a Form 8-K on March 31, 2004 reporting under
Item 2 the sale by our wholly owned subsidiary, Tyler
Construction Company, Inc., of 16,000 feet of 6-inch natural
gas gathering pipeline located in Pleasants and Tyler
Counties, West Virginia, and 30,096 feet of 4-inch pipeline
located in Pleasants and Ritchie Counties, West Virginia.
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: May 21, 2004 By /S/ ROBERT I. RICHARDS
--------------------------------------------
ROBERT I. RICHARDS, President,
Chief Executive Officer and Director
Date: May 21, 2004 By /S/ WILLIAM F. WOODBURN
--------------------------------------------
WILLIAM F. WOODBURN
Secretary / Treasurer
(Principal Accounting Officer)
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