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, 2001
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 September 30, 2001
------------------------=---- ------------------------------------
Common Stock, $.001 par value 176,683,189
-1-
TABLE OF CONTENTS
Heading Page
------- ----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.................................................................... 3
Consolidated Balance Sheets -- September 30, 2001 and
December 31, 2000................................................................ 4
Consolidated Statements of Operations -- three and nine months ended
September 30, 2001and 2000....................................................... 6
Consolidated Statements of Stockholders' Equity (Deficit).......................... 7
Consolidated Statements of Cash Flows - nine months ended
September 30, 2001 and 2000...................................................... 8
Notes to Consolidated Financial Statements ........................................ 9
Item 2. Management's Discussion and Analysis and Results of Operations.......................... 13
PART II. OTHER INFORMATION
Item 1. Legal Proceedings....................................................................... 15
Item 2. Changes In Securities and Use of Proceeds............................................... 16
Item 3. Defaults Upon Senior Securities......................................................... 17
Item 4. Submission of Matters to a Vote of Securities Holders................................... 17
Item 5. Other Information....................................................................... 17
Item 6. Exhibits and Reports on Form 8-K........................................................ 17
SIGNATURES.............................................................................. 18
-2-
PART I
Item 1. Financial Statements
The following unaudited Consolidated Financial Statements for the
period ended September 30, 2001 have been prepared by the Company.
TRANS ENERGY, INC.
CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2001 and December 31, 2000
-3-
TRANS ENERGY, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
ASSETS
------
September 30, December 31,
2001 2000
----------- -----------
(Unaudited)
CURRENT ASSETS
Accounts receivable, net $ 226,032 $ 71,006
----------- -----------
Total Current Assets 226,032 71,006
----------- -----------
PROPERTY AND EQUIPMENT
Vehicles 59,013 59,013
Machinery and equipment 10,092 10,092
Pipelines 2,254,908 2,254,908
Well equipment 49,155 49,155
Wells 3,449,540 3,315,019
Leasehold acreage 180,000 180,000
Accumulated depreciation (1,889,793) (1,706,648)
----------- -----------
Total Fixed Assets 4,112,915 4,161,539
----------- -----------
OTHER ASSETS
Restricted cash 65,689 65,689
Deposits 1,420 1,420
----------- -----------
Total Other Assets 67,109 67,109
----------- -----------
TOTAL ASSETS $ 4,406,056 $ 4,299,654
=========== ===========
The accompanying notes are an integral part of these
consolidated financial statements.
-4-
TRANS ENERGY, INC. AND SUBSIDIARIES
Consolidated Balance Sheets (Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
----------------------------------------------
September 30, December 31,
2001 2000
------------ ------------
(Unaudited)
CURRENT LIABILITIES
Cash overdraft $ 82,365 $ 11,608
Accounts payable - trade 1,699,877 1,444,692
Accrued expenses 762,930 638,466
Salaries payable 457,998 367,998
Notes payable - current portion 1,381,956 1,538,855
Related party payables 439,132 288,042
Debentures payable 331,462 331,462
------------ ------------
Total Current Liabilities 5,155,720 4,621,123
------------ ------------
NET LIABILITIES IN EXCESS OF THE ASSETS OF
DISCONTINUED OPERATIONS -- 5,400
------------ ------------
LONG-TERM LIABILITIES
Notes payable 658,766 658,766
------------ ------------
Total Long-Term Liabilities 658,766 658,766
------------ ------------
Total Liabilities 5,814,486 5,285,289
------------ ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (DEFICIT)
Preferred stock; 10,000,000 shares authorized
at $0.001 par value; 300 and
300 shares issued and outstanding,
respectively -- --
Common stock; 300,000,000 shares authorized at $0.001
par value; 176,683,189 and 172,028,189 shares issued and
outstanding, respectively 176,682 172,027
Capital in excess of par value 22,776,278 22,608,733
Accumulated deficit (24,361,390) (23,766,395)
------------ ------------
Total Stockholders' Equity (Deficit) (1,408,430) (985,635)
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT) $ 4,406,056 $ 4,299,654
============ ============
The accompanying notes are an integral part of these
consolidated financial statements.
-5-
TRANS ENERGY, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(Unaudited)
For the For the
Nine Months Ended Three Months Ended
September 30, September 30,
----------------------------------- ------------------------------------
2001 2000 2001 2000
---------------- ----------------- ---------------- ----------------
REVENUES $ 1,036,553 $ 890,185 $ 374,722 $ 346,211
---------------- ----------------- ---------------- ----------------
COSTS AND EXPENSES
Cost of oil and gas 731,860 571,746 318,042 236,427
Salaries and wages 52,053 62,718 18,086 18,640
Depreciation, depletion and amortization 183,145 233,051 52,252 77,684
Selling, general and administrative 496,099 1,222,200 73,022 135,233
---------------- ----------------- ---------------- ----------------
Total Costs and Expenses 1,463,157 2,089,715 461,402 467,984
---------------- ----------------- ---------------- ----------------
LOSS FROM OPERATIONS (426,604) (1,199,530) (86,680) (121,773)
---------------- ----------------- ---------------- ----------------
OTHER INCOME (EXPENSE)
Other income 1,218 6,126 60 1,673
Interest expense (169,609) (275,447) (58,668) (41,524)
---------------- ----------------- ---------------- ----------------
Total Other Income (Expense) (168,391) (269,321) (58,608) (39,851)
---------------- ----------------- ---------------- ----------------
LOSS FROM OPERATIONS BEFORE
INCOME TAXES (594,995) (1,468,851) (145,288) (161,624)
---------------- ----------------- ---------------- ----------------
INCOME TAXES -- -- -- --
---------------- ----------------- ---------------- ----------------
NET LOSS $ (594,995) $ (1,468,851) $ (145,288) $ (161,624)
================ ================= ================ ================
BASIC LOSS PER SHARE $ (0.00) $ (0.03) $ (0.00) $ (0.00)
================ ================= ================ ================
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING 174,429,507 46,259,026 176,552,754 97,285,306
================ ================= ================ ================
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, 1999 -- $ -- 7,107,746 $ 7,107 $ 15,250,242 $ (19,887,784)
Common stock issued for cash
at $0.05 per share -- -- 1,691,287 1,691 81,309 --
Common stock issued for services
and conversion of debt to equity
at $0.12 per share -- -- 11,722,383 11,722 1,411,201 --
Common stock issued for conversion
of debentures, penalty and interest
at $0.04 per share -- -- 151,930,606 151,931 5,502,060 --
Cancellation of common stock -- -- (423,833) (424) 424 --
Preferred stock issued for
acquisition 300 -- -- -- 300,000 --
Discount for beneficial conversion
feature of preferred stock -- -- -- -- 60,000 --
Warrants granted below
market value -- -- -- -- 3,497 --
Net loss for the year ended
December 31, 2000 -- -- -- -- -- (3,878,611)
------------- ------------ -------------- -------------- -------------- --------------
Balance, December 31, 2000 300 -- 172,028,189 172,027 22,608,733 (23,766,395)
Common stock issued for
services at $0.04 per share
(unaudited) -- -- 3,655,000 3,655 142,545 --
Common stock issued for
services at $0.026 per share
(unaudited) -- -- 1,000,000 1,000 25,000 --
Net loss for the nine months
ended September 30, 2001
(unaudited) -- -- -- -- -- (594,995)
------------- ------------ -------------- -------------- -------------- --------------
Balance, September 30, 2001
(unaudited) 300 $ -- 176,683,189 $ 176,682 $22$776,278 (24,361,390)
============= ============ ============== ============== ============== ==============
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 Nine Months Ended
September 30,
--------------------------
2001 2000
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (594,995) $(1,468,851)
Adjustments to reconcile net loss to net cash (used) by
operating activities:
Depreciation, depletion and amortization 183,145 233,051
Common stock issued for services 172,200 434,475
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable (155,025) 1,448
(Increase) decrease in restricted cash -- 156,184
Decrease (increase) in prepaid and other current assets -- (122,485)
Increase in accounts payable and accrued expenses 237,846 439,201
----------- -----------
Net Cash (Used) by Operating Activities (156,829) (326,977)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for property and equipment (134,522) (240)
----------- -----------
Net Cash (Used) by Investing Activities (134,522) (240)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in cash overdraft 70,757 30,538
Proceeds from related party notes 176,477 239,540
Proceeds from notes payable 150,147 213,730
Principal payments on notes payable (85,242) (149,578)
Principal payments on related party notes (20,788) (20,490)
----------- -----------
Net Cash Provided by Financing Activities 291,351 313,740
----------- -----------
NET INCREASE (DECREASE) IN CASH -- (13,477)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR -- 13,477
----------- -----------
CASH AND CASH EQUIVALENTS, END OF YEAR $ -- $ --
=========== ===========
CASH PAID FOR:
Interest $ 106,234 $ 126,836
Income taxes $ -- $ --
NON-CASH FINANCING ACTIVITIES:
Common stock issued for debt $ -- $ 5,286,977
Common stock issued for services $ 172,200 $ 434,475
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, 2001 and December 31, 2000
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 generally
accepted accounting principles 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, 2000 Annual Report on Form 10-KSB. Operating results for the
nine months ended September 30, 2001 are not necessarily
indicative of the results that may be expected for the year ending
December 31, 2001.
NOTE 2 - GOING CONCERN
The Company's consolidated financial statements are prepared using
generally accepted accounting principles 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, 2001, and has a working capital deficit at September 30, 2001.
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 - COMMITMENTS AND CONTINGENCIES
On February 7, 2001, the United States Bankruptcy Court, Southern
District of Texas, entered an Order Granting Motion to Dismiss
Chapter 7 Case in the action entitled In Re: Trans Energy, Inc.,
Case No. 00-39496-H4-7. The Order dismissed the involuntary
bankruptcy action instituted against the Company on October 16,
2000. The sole petitioning creditor named in the Involuntary
Petition was Western Atlas International, Inc. ("Western"). An
Order for Relief Under Chapter 7 was entered by the Court on
November 22, 2000.
-9-
TRANS ENERGY, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
September 30, 2001 and December 31, 2000
NOTE 3 - COMMITMENTS AND CONTINGENCIES (Continued)
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). The
Company also agreed to make additional payments of $100,000 every
thirty days following the initial payment, with the first payment
due beginning no later than March 23, 2001, continuing until the
total obligation plus interest is paid in full. Further, the
Company pledged as collateral certain properties, personal
property and fixtures and two directors each pledged 750,000
shares of the Company's common stock which they personally own.
The Company has only paid $50,000 subsequent to the settlement.
The Company is not current with its payments related to the
settlement, however, the Company and the Baker Entities are
negotiating to extend the payments.
-10-
TRANS ENERGY, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
September 30, 2001 and December 31, 2000
NOTE 3 - COMMITMENTS AND CONTINGENCIES (Continued)
On April 10, 2000, a company recorded and served its Notice and
Statement of Lien in the Sixth Judicial District, Campbell County,
Wyoming, against the Company for non- payment of services. The
Company has recorded a liability of $78,651 which is included in
accounts payable at December 31, 2000. Subsequent to year end, the
Company entered into a settlement agreement wherein the Company
will transfer a portion of the Powder River Basin leasehold
acreage in Campbell County, Wyoming held by the Company for
settlement of the liability. The Company has agreed to this
settlement and the transaction should be finalized during the
fourth quarter of 2001.
On September 22, 2000, a company obtained a judgment of $46,300
plus interest in the Circuit Court of Pleasants County, West
Virginia, against Tyler Construction Company for breach of
contract. The Company has accrued $47,741 which is included in
accounts payable at December 31, 2000.
On February 13, 2001, Ross Forbus obtained a judgment of $428,018
against the Company to satisfy a promissory note previously
entered into by the Company with Mr. Forbus on April 8, 1996. The
Company has recorded the balance in notes payable at December 31,
2000. The Company is not current with its payments related to the
judgment, however, the Company and Ross Forbus are negotiating to
extend the payments.
On September 28, 2001, the Securities and Exchange Commission (the
"Commission") announced that it had filed a civil action in U.S.
District Court for the District of Columbia (Civil Action No.
1:01CV020060) against the Company and two of its directors, Loren
E. Bagley and William F. Woodburn. The complaint alleges
violations of the anti-fraud and reporting provisions of the
federal securities laws and seeks injunctive relief against the
Company, Mr. Bagley and Mr. Woodburn to enjoin them from future
violations of securities laws. The complaint also seeks civil
penalties against Messrs. Bagley and Woodburn.
The Commission's action is premised on the dissemination of
alleged false and misleading statements through press releases,
website postings and Commission filings. The complaint alleges
that these statements contained misrepresentations, inaccuracies
and omissions during a period when Mr. Bagley served as the
Company's President and Mr. Woodburn as the Vice President and
principal financial officer. The Company's counsel is actively
reviewing the complaint and determining an appropriate response.
NOTE 4 - MATERIAL EVENTS
On July 30, 2001, the Company entered into an agreement with
Millennium Energy, LLC (Millennium), whereby the Company assigned
and transferred half of its 51% interest and shares in Gas & Oil,
Inc. in exchange for part of Millennium's Trenton-Black River
drilling rights. In accordance with APB 29, Accounting for
Nonmonetary Transactions, the Company has recorded its investment
in the Trenton-Black River drilling rights at the fair value of
half the Company's interest in Gas & Oil, Inc. The Company
previously had fully allowed for its interest in Gas & Oil, Inc.
and has thus recorded the new investment in Trenton-Black River at
$-0-.
-11-
TRANS ENERGY, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
September 30, 2001 and December 31, 2000
NOTE 4 - MATERIAL EVENTS (Continued)
On September 10, 2001, Mr. Bagley resigned as President and Chief
Executive Officer of the Company and Mr. Woodburn resigned as Vice
President, although Mr. Woodburn continues as Secretary and
Treasurer. Mr. Bagley was then appointed as a Vice President and
Robert L. Richards was elected as the new President, Chief
Executive Officer and a director.
-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 Company's Consolidated Statements
of Operations for the three and nine month periods ended September 30, 2001 and
2000. 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,
------------------------ --------------------------
2001 2000 2001 2000
---- ---- ---- ----
(Unaudited) (Unaudited)
Total revenues.............................. 100% 100% 100% 100%
Total costs and expenses.................... 123 135 141 235
Loss from operations........................ (23) (35) (41) (135)
Other income (expense)...................... (16) (12) (16) (30)
Net loss.................................... (39) (47) (57) (165)
Total revenues for the three months ("third quarter") ended September
30, 2001 increased 8% when compared with the third quarter of 2000. For the nine
months ("first nine months") ended September 30, 2001, total revenues increased
16% compared to the first nine months of 2000. The increases during the 2001
periods are primarily due to higher gas sales and higher oil and gas prices.
Cost of oil and gas for the third quarter and first nine months of 2001
increased 35% and 28%, respectively, from the third quarter and first nine
months of 2000 due to increased sales, land lease expenses and increased gas
prices to the Company. Selling, general and administrative expenses for the
third quarter and first nine months of 2001 declined 46% and 59%, respectively,
when compared to the third quarter and first nine months of 2000 primarily
attributed to fewer stock issuances for services and a smaller working staff.
Depreciation, depletion and amortization expenses for the third quarter
and first nine months of 2001 decreased 33% and 21%, respectively, compared to
the same 2000 periods. This decrease is attributed to the write-off of the
Wyoming properties that were impaired during 2000. Also, salaries and wages
decreased 3% and 17% for the first nine months and third quarter of 2001,
respectively, compared to the 2000 period primarily due to a smaller working
staff.
Total costs and expenses as a percentage of total revenues decreased
from 234% in the third quarter of 2000 to 141% for the third quarter of 2001,
and from 135% for the first nine months of 2000 to 123% for the first nine
months of 2001. Actual total costs and expenses decreased 1% and 30% for the
third quarter and first nine months of 2001, respectively. The decreases are
primarily attributed to the decreases in selling, general and administrative
expenses and depreciation, depletion and amortization.
The Company's net loss for the third quarter and first nine months of
2001 was $145,288 and $594,995, respectively, compared to $161,624 and
$1,468,851 for the same 2000 period. This decrease in the Company's net loss for
the 2001 periods is primarily attributed to the increase in revenues and
corresponding decreases in selling, general and administrative expenses and
depreciation, depletion and amortization.
For the remainder of fiscal year 2001, management expects selling,
general and administrative expenses to remain at approximately the same rate as
the third quarter of 2001. 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 2001.
-13-
The Company has included a footnote to its financial statements for the
periods ended September 30, 2001 stating that because of the Company's continued
losses, working capital deficit and need for additional funding, there is
substantial doubt as to whether the Company can continue as a going concern. See
Note 2 to the consolidated financial statements.
Net Operating Losses
The Company has accumulated approximately $16,000,000 of net operating
loss carryforwards as of December 31, 2000, which may be offset against future
taxable income through the year 2020 when the carryforwards expire. The use of
these losses to reduce future income taxes will depend on the generation of
sufficient taxable income prior to the expiration of the net operating loss
carryforwards.
In the event of certain changes in control of the Company, there will
be an annual limitation on the amount of net operating loss carryforwards which
can be used. No tax benefit has been reported in the financial statements for
the year ended December 31, 2000 or the nine month period ended September 30,
2001 because the potential tax benefits of the loss carryforward is offset by
valuation allowance of the same amount.
Liquidity and Capital Resources
Historically, the Company's working capital needs have been satisfied
through its operating revenues and from borrowed funds. At September 30, 2001,
the Company had a working capital deficit of $4,929,688 compared to a deficit of
$4,550,117 at December 31, 2000. This 8% decline in working capital is primarily
attributed to the increases in trade accounts payable (18%), accrued expenses
(20%), salaries payable (25%) and related party payables (52%), and was
partially offset by the 218% increase in net accounts receivable.
During the first nine months of 2001, the Company's operating
activities used net cash of $156,829 compared to $326,977 net cash used in the
first nine months of 2000. The Company's decrease in net loss for the first nine
months of 2001 was partially offset by the decrease in common stock issued for
services and smaller increase in accounts payable during the 2001 period, and
decreases in payroll and in interest expenses due to conversion of debentures in
2000.
The Company also reported $134,522 net cash used by investing
activities in the first nine months of 2001 due to expenditures for property and
equipment, compared to $240 expended in 2000. During the first nine months of
2001, the Company realized $291,351 in cash from financing activities compared
to $313,740 realized in the 2000 period. This result is due primarily from
decreased proceeds from related party notes and notes payable.
The Company anticipates meeting its working capital needs during the
remainder of the current fiscal year with revenues from operations, particularly
from its Powder River Basin interests in Wyoming and its New Benson gas wells
drilled in West Virginia. In the event revenues are not sufficient to meet the
Company's working capital needs, it 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 the Company or, if available, it
will be on acceptable or favorable terms to the Company.
As of September 30, 2001, the Company had total assets of $4,406,056
and total stockholders' deficit of $1,408,430, compared to total assets of
$4,299,654 and total stockholders' deficit of $985,635 at December 31, 2000.
In 1998, the Company issued $4,625,400 face value of 8% Secured
Convertible Debentures Due September 30, 1999. A portion of the proceeds were
used to acquire the oil and gas properties and interest in Wyoming. During 2000,
all but one of the remaining outstanding debentures were converted into commons
stock. At September 30, 2001, the Company owed $331,462 in connection with the
debentures consisting of $50,000 for one debenture holder that the Company has
been unable to contact and $281,462 in penalties and interest.
-14-
Inflation
In the opinion of management, inflation has not had a material effect
on the operations of the Company.
Forward-Looking and Cautionary Statements
Forward-looking statements in this report are made pursuant to the
"safe harbor" provisions of the Private Securities Litigation Reform Act of
1995. The Company wishes to advise readers that actual results may differ
substantially from such forward-looking statements. Forward-looking statements
involve risks and uncertainties that could cause actual results to differ
materially from those expressed in or implied by the statements, including, but
not limited to, the following: the ability of the Company to secure additional
financing, the possibility of success in the Company's drilling endeavors,
competitive factors, and other risks detailed in the Company's periodic report
filings with the Securities and Exchange Commission.
PART II
Item 1. Legal Proceedings
There are no material pending legal proceedings to which the Company is
a party or to which any of its property is subject except as set forth below.
On February 7, 2001, the United States Bankruptcy Court, Southern
District of Texas, entered an Order Granting Motion to Dismiss Chapter 7 Case in
the action entitled In Re: Trans Energy, Inc., Case No. 00-39496-H4-7. The Order
dismissed the involuntary bankruptcy action instituted against the Company on
October 16, 2000. The sole petitioning creditor named in the Involuntary
Petition was Western Atlas International, Inc. ("Western"). An Order for Relief
Under Chapter 7 was entered by the Court on November 22, 2000.
On April 23, 2000, the 189th District Court of Harris County, Texas
entered an Agreed Final Judgment in favor of Western against the Company in the
amount of $600,665.36, 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 $41,142.00, 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
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 behalf of the Company and
pursuant to the terms of the Settlement Agreement.
-15-
The Settlement Agreement provided that, subject to the approval of the
Bankruptcy Court, the Company agreed to pay to the Baker Entities $759,664.31,
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 $117,260.71
within fifteen days from the date of the Dismissal Order (due February 21,
2001). The Company also agreed to make additional payments of $100,000 every
thirty days following the initial payment, with the first payment due beginning
no later than March 23, 2001, continuing until the total obligation plus
interest is paid in full. Further, the Company pledged as collateral certain
properties, personal property and fixtures and two directors each pledged
750,000 shares of the Company's common stock which they personally own.
On April 10, 2000, Bellevue Resources, Inc. recorded and served a
Notice and Statement of Lien in the Sixth Judicial District, Campbell County,
Wyoming, against the Company for non-payment of services. The Company recorded a
liability of $78,651 in its financial statements under accounts payable for the
year ended December 31, 2000 to reflect this claim. Bellevue Resources has
agreed to take certain lease acreage in Campbell County, Wyoming held by the
Company as payment for this liability. The Company has agreed to this settlement
and the transaction should be finalized during the fourth quarter of 2001.
On September 22, 2000, Tioga Lumber Company obtained a judgment of
$43,300 plus interest in the Circuit Court of Pleasants County, West Virgina,
against Tyler Construction Company for breach of contract. The Company has
accrued $47,741 which is included in the Company's financial statements for the
year ended December 31, 2000 under accounts payable.
On February 13, 2001, Ross Forbus obtained a judgment of $428,018
against the Company to satisfy a promissory note previously entered into by the
Company with Mr. Forbus on April 8, 1996. The Company has agreed to payment
terms and recorded the balance in notes payable at December 31, 2000.
On September 28, 2001, the Securities and Exchange Commission announced
that it had filed a civil action in U.S. District Court for the District of
Columbia (Civil Action No. 1:01CV020060) against the Company and two of its
directors, Loren E. Bagley and William F. Woodburn. The complaint alleges
violations of the anti-fraud and reporting provisions of the federal securities
laws and seeks injunctive relief against the Company, Mr. Bagley and Mr.
Woodburn to enjoin them from future violations of securities laws. The complaint
also seeks civil penalties against Messrs. Bagley and Woodburn.
The Commission's action is premised on the dissemination of alleged
false and misleading statements through press releases, website postings and
Commission filings. The complaint alleges that these statements contained
misrepresentations, inaccuracies and omissions during a period when Mr. Bagley
served as the Company's President and Mr. Woodburn as the Vice President and
principal financial officer. The Company's counsel is actively reviewing the
complaint and determining an appropriate response.
On September 10, 2001, Mr. Bagley resigned as President and Chief
Executive Officer of the Company and Mr. Woodburn resigned as Vice President,
although he continues as Secretary and Treasurer. Mr. Bagley was then appointed
as a Vice President and Robert I. Richards was elected as the new President,
Chief Executive Officer and a director.
Item 2. Changes In Securities and Use of Proceeds
During the third quarter of 2001 the Company issued 1,000,000 shares of
its common stock to one person in exchange for services valued at $0.026 per
share, or an aggregate of $26,000. The shares were issued pursuant to a
registration statement on Form S-8.
-16-
Item 3. Defaults Upon Senior Securities
In 1998, the Company issued $4,625,400 face value of 8% Secured
Convertible Debentures due March 31, 1999 (the "Debentures") 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 Company's Common Stock at a conversion price for each
share equal to the lower of (a) seventy percent (70%) of the market price of the
Company's Common 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 the option of the Company, in
cash or in shares of the Company's 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, 2001, the Company
owed $331,462 in connection with the debentures consisting of $50,000 to one
debenture holder and $281,462 in penalties and interest.
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
Item 6. Exhibits and Reports on Form 8-K
(b) Reports on Form 8-K
On July 13, 2001, the Company filed a Current Report on Form
8-K reporting under Item 5 that on July 29, 2001, Gary Lawyer
had resigned as a director of the Company.
On October 11, 2001, the Company filed a Current Report on
Form 8-K reporting under Item 5 that on September 28, 2001 the
Securities and Exchange Commission filed a complaint against
the Company and two of its directors. The Report also
disclosed that on September 10, 2001 the Company's President
and Chief Executive Officer resigned as did the Company's Vice
President, and Robert I. Richards was elected as the new
President, Chief Executive Officer and a director.
-17-
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 14, 2001 By /S/ ROBERT I. RICHARDS
---------------------------------------
ROBERT I. RICHARDS, President,
Chief Executive Officer and Director
Date: November 14, 2001 By /S/ WILLIAM F. WOODBURN
-----------------------------------
WILLIAM F. WOODBURN
Secretary / Treasurer
(Principal Accounting Officer)
-18-