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, 2002
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, 2002
------------------------------- -------------------------------
Common Stock, $.001 par value 199,519,127
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TABLE OF CONTENTS
Heading Page
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.................................................................... 3
Consolidated Balance Sheets -- June 30, 2002 and December 31, 2001................. 4
Consolidated Statements of Operations -- three and six months ended
June 30, 2002 and 2001........................................................... 6
Consolidated Statements of Stockholders' Equity (Deficit).......................... 7
Consolidated Statements of Cash Flows - six months ended
June 30, 2002 and 2001........................................................... 8
Notes to Consolidated Financial Statements ........................................ 9
Item 2. Management's Discussion and Analysis and Results of Operations.......................... 16
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........................................................ 20
SIGNATURES.............................................................................. 21
-2-
PART I
Item 1. Financial Statements
We have prepared the following unaudited consolidated financial
statements for the period ended June 30, 2002.
TRANS ENERGY, INC.
CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2002 and December 31, 2001
-3-
TRANS ENERGY, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
ASSETS
------
June 30, December 31,
2002 2001
----------- -----------
Unaudited)
CURRENT ASSETS
Cash $ -- $ 1,491
Accounts receivable, net 160,897 186,478
Prepaid expenses 360 --
----------- -----------
Total Current Assets 161,257 187,969
----------- -----------
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 3,609,107 3,559,644
Leasehold acreage 114,426 114,426
Accumulated depreciation (2,710,233) (2,602,528)
----------- -----------
Property and Equipment (net) 3,386,468 3,444,710
----------- -----------
OTHER ASSETS
Cash surrender value - life insurance (net) 8,791 8,791
----------- -----------
Total Other Assets 8,791 8,791
----------- -----------
TOTAL ASSETS $ 3,556,516 $ 3,641,470
=========== ===========
-4-
TRANS ENERGY, INC. AND SUBSIDIARIES
Consolidated Balance Sheets (Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
----------------------------------------------
June 30, December 31,
2002 2001
------------ ------------
Unaudited)
CURRENT LIABILITIES
Cash overdraft $ 16,138 $ --
Accounts payable - trade 711,550 754,552
Notes payable - convertible 47,377 41,575
Accrued expenses 626,072 619,678
Salaries payable 727,262 642,662
Notes payable - current portion 1,330,544 1,311,695
Judgments payable (Note 5) 1,168,535 1,228,964
Related party payables 953,347 704,829
Debentures payable 341,462 331,462
Dividends payable -- 23,250
Stock subscription deposit (Note 4) 200,000 --
------------ ------------
Total Current Liabilities 6,122,287 5,658,667
------------ ------------
LONG-TERM LIABILITIES
Judgments payable (Note 5) 6,434 6,434
Notes payable 282,165 282,165
------------ ------------
Total Long-Term Liabilities 288,599 288,599
------------ ------------
Total Liabilities 6,410,886 5,947,266
------------ ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (DEFICIT)
Preferred stock; 10,000,000 shares authorized at $0.001
par value; -0- and 300 shares issued and
outstanding, respectively -- --
Common stock; 500,000,000 shares authorized at $0.001
par value; 199,519,127 and 176,683,189 shares issued
and outstanding, respectively 199,518 176,682
Capital in excess of par value 22,846,785 22,769,371
Accumulated deficit (25,900,673) (25,251,849)
------------ ------------
Total Stockholders' Equity (Deficit) (2,854,370) (2,305,796)
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT) $ 3,556,516 $ 3,641,470
============ ============
-5-
TRANS ENERGY, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(Unaudited)
For the For the
Three Months Ended Six Months Ended
June 30, June 30,
-------- --------
2002 2001 2002 2001
------------- ------------- ------------- -------------
REVENUES $ 176,105 $ 367,406 $ 345,594 $ 661,831
COSTS AND EXPENSES
Cost of oil and gas 94,325 225,373 366,523 413,818
Salaries and wages 113,256 17,348 131,021 33,967
Depreciation, depletion and
amortization 53,912 70,010 107,701 130,893
Selling, general and
administrative 53,580 282,393 193,540 423,077
------------- ------------- ------------- -------------
Total Costs and Expenses 315,073 595,124 798,785 1,001,755
------------- ------------- ------------- -------------
LOSS FROM OPERATIONS (138,968) (227,718) (453,191) (339,924)
------------- ------------- ------------- -------------
OTHER INCOME (EXPENSE)
Other income 949 437 4,278 1,158
Interest expense (65,271) (49,852) (199,911) (110,941)
------------- ------------- ------------- -------------
Total Other Income
(Expense) (64,322) (49,415) (195,633) (109,783)
------------- ------------- ------------- -------------
LOSS FROM OPERATIONS
BEFORE INCOME TAXES AND
MINORITY INTERESTS (203,290) (277,133) (648,824) (449,707)
------------- ------------- ------------- -------------
INCOME TAXES -- -- -- --
------------- ------------- ------------- -------------
MINORITY INTERESTS -- -- -- --
------------- ------------- ------------- -------------
NET LOSS $ (203,290) $ (277,133) $ (648,824) $ (449,707)
============= ============= ============= =============
BASIC LOSS PER SHARE $ (0.00) $ (0.00) $ (0.00) $ (0.00)
============= ============= ============= =============
WEIGHTED AVERAGE
NUMBER OF SHARES
OUTSTANDING 198,925,721 174,438,079 192,888,775 173,239,791
============= ============= ============= =============
-6-
TRANS ENERGY, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity (Deficit)
Capital in
Preferred Stock Common Stock Excess of Accumulated
Shares Amount Shares Amount Par Value Deficit
----------- ------------ ------------ ------------ ------------ ------------
Balance, December 31, 2000 300 $ -- 172,028,189 $ 172,027 $ 22,608,733 $(23,754,855)
Common stock issued for services
at $0.03 per share -- -- 4,655,000 4,655 136,650 --
Discount on beneficial conversion
feature of notes payable -- -- -- -- 23,988 --
Dividend on preferred stock at 7.75% -- -- -- -- -- (23,250)
Net loss for the year ended
December 31, 2001 -- -- -- -- -- (1,473,744)
Balance, December 31, 2001 300 -- 176,683,189 176,682 22,769,371 (25,251,849)
Conversion of preferred stock and
preferred dividends to common
stock (unaudited) (300) -- 16,835,938 16,836 6,414 --
Conversion of notes payable to
common stock (unaudited) -- -- 5,000,000 5,000 45,000 --
Common stock issued for services
(unaudited) -- -- 1,000,000 1,000 26,000 --
Net loss for the six months
ended June 30, 2002 (unaudited) -- -- -- -- -- (648,824)
----------- ------------ ------------ ------------ ------------ ------------
Balance, June 30, 2002 (unaudited) -- $ -- 199,519,127 $ 199,518 $ 22,846,785 $(25,900,673)
=========== ============ ============ ============ ============ ============
-7-
TRANS ENERGY, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
For the
Six Months Ended
June 30,
2002 2001
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(648,824) $(449,707)
Adjustments to reconcile net loss to net cash (used) by
operating activities:
Depreciation, depletion and amortization 107,701 130,893
Common stock issued for services 27,000 146,200
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable 25,581 (105,358)
Increase in prepaid and other current assets (360) (13,742)
Increase (decrease) in accounts payable and accrued expenses 105,886 193,005
--------- ---------
Net Cash (Used) by Operating Activities (383,016) (98,709)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for property and equipment (49,463) (92,475)
--------- ---------
Net Cash (Used) by Investing Activities (49,463) (92,475)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in cash overdraft 16,138 39,703
Stock subscription deposit 200,000 --
Proceeds from related party notes 361,889 101,359
Proceeds from notes payable 25,000 122,943
Principal payments on notes payable (58,333) (54,395)
Principal payments on related party notes (113,706) (18,426)
--------- ---------
Net Cash Provided by Financing Activities 430,988 191,184
--------- ---------
NET DECREASE IN CASH (1,491) --
CASH, BEGINNING OF PERIOD 1,491 --
--------- ---------
CASH, END OF PERIOD $ -- $ --
CASH PAID FOR:
Interest $ 67,816 $ 63,970
Income taxes $ -- $ --
NON-CASH FINANCING ACTIVITIES:
Common stock issued for debt $ 50,000 $ --
Common stock issued for services $ 27,000 $ 146,200
Common stock issued for conversion of
preferred stock and dividends $ 23,250 $ --
-8-
TRANS ENERGY, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
June 30, 2002 and December 31, 2001
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, 2001 Annual Report on Form 10-KSB. Operating results for the
three and six months ended June 30, 2002 and 2001 are not
necessarily indicative of the results that may be expected for the
year ending December 31, 2002.
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 June 30,
2002 of $25,900,673, and has a working capital deficit at June 30,
2002 of $5,961,030. Revenues have not been sufficient to cover its
operating costs and to allow it to continue as a going concern.
The potential proceeds from the sale of common stock, other
contemplated debt and equity financing, and increases in operating
revenues from new development would enable the Company to continue
as a going concern. There can be no assurance that the Company can
or will be able to complete any debt or equity financing. If these
are not successful, management is committed to meeting the
operational cash flow needs of the Company.
NOTE 3 - RECLASSIFICATIONS
Certain 2001 amounts have been reclassified to conform to the 2002
presentations.
NOTE 4 - MATERIAL EVENTS
Stockholders' Equity
--------------------
During February 2002, the Company converted 300 shares of
preferred stock and $23,250 of cumulative preferred dividends into
16,835,938 shares of common stock. As a result of this conversion,
the Company has -0- shares of preferred stock issued and
outstanding at June 30, 2002.
During February 2002, the Company received $200,000 for the
purchase of 33,333,333 shares of common stock. The 33,333,333
shares have not yet been issued, and as such $200,000 is being
shown as a stock subscription deposit at June 30, 2002.
-9-
TRANS ENERGY, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
June 30, 2002 and December 31, 2001
NOTE 4 - MATERIAL EVENTS (Continued)
Stockholders' Equity (Continued)
--------------------------------
During April 2002, the Company issued 5,000,000 shares of its
common stock for the conversion of notes payable in the amount of
$50,000. The Company additionally issued 1,000,000 shares of its
common stock for services rendered and valued at $27,000.
Notes Payable
-------------
During March 2002, the Company entered into a promissory note with
an unrelated party for $25,000. The note is payable upon demand
and accrues interest at 10% per annum.
Notes Payable - Related Parties
During the six months ended June 30, 2002, the Company had entered
into multiple promissory notes with several related parties for a
total of $132,000. The notes are payable upon demand and interest
is imputed at 10% per annum.
NOTE 5 - JUDGMENTS PAYABLE
Tioga Lumber Company
--------------------
A foreign judgment has been filed with the circuit court in
Pleasants County, West Virginia for a judgment against the Company
by Tioga Lumber Company (Tioga) rendered by the Circuit Court in
Pleasants County, West Virginia for non-payment of an accounts
payable. The judgment is for $46,375 plus prejudgment interest at
10.00%.
On February 28, 2002, the Company and Tioga reached an agreement
wherein the Company would pay Tioga $10,000 by March 5, 2002 and
$8,000 per month thereafter. The court appointed a special
commissioner to act as an arbitrator if the Company defaults. The
special commissioner would attach a lien if property is found
which does not have a lien attached. The first payment has been
made, however, the Company is currently three payments behind.
Management expects this suit to be fully paid by August 2002. At
June 30, 2002, the balance due to Tioga was $21,234 and is
included in judgments payable and is classified as a current
liability.
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. Depositions for
this suit are scheduled to take place during August 2002. The
Company has not accrued any amounts for these claims as of June
30, 2002 because the Company feels that based on its defenses
against the claims that the Company will have no additional
liability. Due to the early stage of litigation, it is not
possible to evaluate the likelihood of an unfavorable outcome or
estimate the extent of potential loss.
-10-
TRANS ENERGY, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
June 30, 2002 and December 31, 2001
NOTE 5 - JUDGMENTS PAYABLE (Continued)
George Hillyer
--------------
On December 26, 2001, George Hillyer filed a suit against the
Company and William F. Woodburn and Loren E. Bagley, individually.
The action seeks $250,750 in connection with certain services
performed for the Company. The Company has indicated that the suit
is not justified and that the Company and the individual
defendants intend to vigorously defend the action. The Company has
reached a tentative agreement to settle this suit with Mr. Hillyer
and expects to finalize the agreement in August 2002. The Company
has not accrued any amounts for these claims as of June 30, 2002
because the Company feels that based on its defenses against the
claims that the Company will have no additional liability. Due to
the early stage of litigation, it is not possible to evaluate the
likelihood of an unfavorable outcome or estimate the extent of
potential loss.
Ross O. Forbus
--------------
On April 16, 2001, Ross O. Forbus obtained a judgment against the
Company for $428,018 plus post judgment interest at 10.00% per
annum. The judgment was obtained to satisfy a previous note
payable. The Company has made several small payments to Mr. Forbus
and is currently negotiating with him toward extending the
payments until the judgment can be paid in full. Mr. Forbus has
made a demand upon the Company for payment of the full obligation.
The Company has accrued the balance of $428,018 plus accrued
interest. At June 30, 2002, the total amount of $442,258 is
included in judgments payable and is classified as a current
liability.
Core Laboratories, Inc.
-----------------------
On July 28, 1999, Core Laboratories, Inc. (Core) obtained a
judgment against the Company for non-payment of an accounts
payable. The judgment calls for monthly payments of $351 and is
bearing interest at 10.00% per annum. At June 30, 2002, the
Company had accrued a balance of $12,869 which is included in
judgments payable. $6,434 has been classified as a long-term
liability.
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, 2002, the Company has accrued a balance of
$56,792 which is included in judgment payable as a current
liability.
-11-
TRANS ENERGY, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
June 30, 2002 and December 31, 2001
Bellevue Resources
------------------
On April 10, 2000, Bellevue Resources 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 had recorded a liability of $78,651 at
December 31, 2000. During 2001, the Company has agreed to a
settlement agreement wherein the Company will transfer a portion
of the Powder River Basin leasehold acreage in Campbell County,
Wyoming as full payment of the liability. The Company is in
possession of the settlement agreement and expects to sign the
document during August 2002. At June 30, 2002, the balance was
$51,826 that is included judgments payable as a current liability.
Baker Hughes Entities
---------------------
On February 7, 2001, the United States Bankruptcy Court, Southern
District of Texas, entered an Order Granting Motion to Dismiss
Chapter 7 Case in the action entitled In Re: Trans Energy, Inc.,
Case No. 00-39496-H4-7. The Order dismissed the involuntary
bankruptcy action instituted against the Company on October 16,
2000. The sole petitioning creditor named in the Involuntary
Petition was Western Atlas International, Inc. ("Western"). An
Order for Relief Under Chapter 7 was entered by the Court on
November 22, 2000.
On April 23, 2000, the 189th District Court of Harris County,
Texas entered an Agreed Final Judgment in favor of Western against
the Company in the amount of $600,665, together with post judgment
interest at 10% per annum. Following the judgment, Western and the
Company entered into settlement negotiations concerning the
Company's satisfaction of the judgment through payments over a
four to five month period together with the pledge of collateral
on certain unencumbered assets.
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.
-12-
TRANS ENERGY, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
June 30, 2002 and December 31, 2001
NOTE 5 - JUDGMENTS PAYABLE (Continued)
Baker Hughes Entities (Continued)
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.
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.
At June 30, 2002, the Company has a remaining liability of
$557,449 which is included in judgments payable as a current
liability.
U.S. Securities & Exchange Commission
On September 28, 2001, the U.S. Securities & Exchange Commission
("SEC") filed a civil action in the U.S. District Court for the
District of Columbia against the Company, Loren E. Bagley, its
President and William Woodburn, its Vice President.
The SEC sought a judgment against the Company enjoining it from
future violations of Sections 10(b) and 13(a) of the Securities
and Exchange Act of 1934 (Exchange Act) and Rules 10b-5, 12B-20,
13a-1, and 13a-13. Further, the SEC sought a judgment against
Messrs. Bagley and Woodburn enjoining them from future violations
of Section 10(b) of the Exchange Act and Rule 10b-5, from aiding
and abetting future violations of Section 13(a) of the Exchange
Act and Rules 12b-20, 13a-1, and 13a-13, and assessing civil
penalties against them.
-13-
TRANS ENERGY, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
June 30, 2002 and December 31, 2001
NOTE 5 - JUDGMENTS PAYABLE (Continued)
U.S. Securities & Exchange Commission (Continued)
-------------------------------------------------
On February 26, 2002, the United States District Court for the
District of Columbia entered a permanent injunction against the
Company, its former President, Loren E. Bagley, and its former
Vice President and principal financial officer, William F.
Woodburn, permanently enjoining them from future violations of
Sections 10(b) and 13(a) of the Securities Exchange Act of 1934
(Exchange Act) and Rules 10b-5, 12b-20, 13a-1, and 13a-13
thereunder. The Court's order further enjoins Messrs. Bagley and
Woodburn from aiding and abetting violations of Section 13(a) of
the Exchange Act and Rules 12b-20, 13a-1, and 13a-13 thereunder
and orders Messrs. Bagley and Woodburn to each pay a $20,000 civil
penalty. The Company and Messrs. Bagley and Woodburn consented to
entry of the permanent injunction and the imposition of civil
penalties without admitting or denying the SEC's allegations. On
March 8, 2002, Messrs. Bagley and Woodburn each made payment to
the SEC in the amount of $20,000 for the civil penalty. The case
has been closed.
NOTE 6 - BUSINESS SEGMENTS
The Company adopted SFAS No. 131, "Disclosure about Segments of an
Enterprise and Related Information." Prior period amounts have
been restated to conform to the requirements of this statement.
The Company conducts its operations principally as oil and gas
sales with Trans Energy and Prima Oil and pipeline transmission
with Ritchie County and Tyler Construction.
Certain financial information concerning the Company's operations
in different industries is as follows:
For the Six
Months Ended Oil and Gas Pipeline Corporate
June 30, Sales Transmission Unallocated
------------ ------------ ------------ ------------
Oil and gas revenue 2002 $ 220,866 $ 124,728 $ --
2001 278,890 382,941 --
Operating loss applicable to
industry segment 2002 (363,828) (89,363) --
2001 (265,582) (74,342) --
General corporate expenses
not allocated to industry
segments 2002 -- -- --
2001 -- -- --
Interest expense 2002 (166,271) (33,640) --
2001 (71,940) (39,001) --
-14-
TRANS ENERGY, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
June 30, 2002 and December 31, 2001
NOTE 6 - BUSINESS SEGMENTS (Continued)
For the Six
Months Ended Oil and Gas Pipeline Corporate
June 30, Sales Transmission Unallocated
------------ ------------ ------------ ------------
Other income (expenses) 2002 (161,993) (33,640) --
2001 1,158 -- --
Assets
(net of intercompany accounts) 2002 1,960,825 1,595,691
2001 3,478,801 862,233 --
Depreciation and amortization 2002 53,330 54,371 --
2001 76,522 54,371 --
Property and equipment
Acquisitions 2002 49,463 -- --
2001 92,475 -- --
NOTE 7- SUBSEQUENT EVENTS
On July 18, 2002, Lario Oil & Gas Company (Lario), the operator of
the Pinon Fee #1, Sagebrush #1 and Sagebrush #2, filed a lien
against the Company in the amount of $70,567 to secure payment of
operating fees. Production monies have been suspended to the Baker
Entities until this lien has been satisfied.
Subsequent to June 30, 2002, the Company entered in several
promissory notes with two related parties for a total of $33,000.
The notes are payable upon demand and interest is imputed at 10%
per annum.
-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 and six month periods ended June 30, 2002 and 2001. 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,
------------------- ---------------------
2002 2001 2002 2001
---- ---- ---- ----
(Unaudited) (Unaudited)
Total revenues.............................. 100% 100% 100% 100%
Total costs and expenses.................... 179 162 231 151
Loss from operations........................ (79) (62) (131) (51)
Other income (expense)...................... (37) (13) (57) (17)
Net loss.................................... (116) (75) (188) (68)
Total revenues for the three months ("second quarter") and six months
("first half") ended June 30, 2002 decreased 52% and 48% respectively, when
compared with the second quarter and first half of 2001. The decreases during
the 2002 period are due primarily to less oil production and lower oil and gas
prices. Our cost of oil and gas for the second quarter and first half of 2002
decreased 58% and 11% from the respective 2001 periods due to decreased oil
production. Selling, general and administrative expenses for the second quarter
and first half of 2002 declined 81% and 54%, respectively, from the 2001 periods
primarily due to decreases in legal, travel and general office expenses.
Depreciation, depletion and amortization also declined in the second quarter and
first half of 2002 by 23% and 18%, respectively, attributed to due to full
depreciation of assets and lower oil production. Our loss from operations for
the second quarter of 2002 was $138,968 compared to $227,718 for the second
quarter of 2001, and was $453,191 for the first half of 2002 compared to
$339,924 for the first half of 2001. Total other expenses increased 30% and 78 %
for the second quarter and first half of 2002, respectively, due to increased
interest expenses.
As a percentage of total revenues, total costs and expenses increased
from 162% in the second quarter of 2001 to 179% for the second quarter of 2002,
and from 151% or the first half of 2001 to 231% for the first half of 2002.
Actual total costs and expenses decreased 49% for the second quarter 2002 and
20% for the first half of 2002. The decrease in total costs and expenses is
primarily attributed to the decreased oil production and associated costs and
expenses.
Our net loss for the second quarter of 2002 was $203,290 compared to
$277,133 for the second quarter of 2001, and $648,824 for the first half of 2002
compared to $449,707 for the 2001 period.
For the remainder of fiscal year 2002, management expects selling,
general and administrative expenses to remain at approximately the same rate as
the first half of 2002. 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 2002.
We have included a footnote to our financial statements for the periods
ended June 30, 2002 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.
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Net Operating Losses
We have accumulated approximately $18,917,000 of net operating loss
carryforwards as of June 30, 2002, which may be offset against future taxable
income through the year 2021 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 our 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, 2001 or the six month period ended June 30, 2002
because the potential tax benefits of the loss carryforward is offset by
valuation allowance of the same amount.
Liquidity and Capital Resources
Historically, we have satisfied our working capital needs with
operating revenues and from borrowed funds. At June 30, 2002, we had a working
capital deficit of $5,961,030 compared to a deficit of $5,470,698 at December
31, 2001. This 9% decrease in working capital is primarily attributed to the 13%
increase in salaries payable and 35% increase in related party payables. Working
capital was also negatively affected due to recording a $200,000 stock
subscription deposit during the first quarter of 2002 related to the purchase of
common stock that has not been issued. Working capital benefitted from the 5%
decreases in judgments payable.
During the first half of 2002, operating activities used net cash of
$383,016 compared to $98,709 in the first half of 2001, primarily attributed to
our increased net loss for the period and a decrease in common stock issued for
services. Net cash used by investing activities in the first half of 2002 was
$49,463, compared to $92,475 in the 2001 period. The decline is attributed to
the decrease in expenditures for property and equipment during 2002. During the
first half of 2002,we realized $430,988 in cash from financing activities
compared to $191,184 in the first half of 2001. This increase is due primarily
to the stock subscription deposit and an increase in proceeds from related party
notes in the first half of 2002.
We anticipate meeting our working capital needs during the remainder of
the current fiscal year with revenues from operations, particularly from our
Powder River Basin interests in Wyoming and New Benson gas wells drilled in West
Virginia. In the event revenues are not sufficient to meet our working capital
needs, we will explore the possibility of additional funding from either the
sale of debt or equity securities. There can be no assurance such funding will
be available to us or, if available, it will be on acceptable or favorable
terms.
As of June 30, 2002, we had total assets of $3,556,516 and total
stockholders' deficit of $2,854,370, compared to total assets of $3,641,470 and
total stockholders' deficit of $2,305,796 at December 31, 2001.
In 1998, we issued $4,625,400 face value of 8% secured convertible
debentures due September 30, 1999. A portion of the proceeds were used to
acquire the oil and gas properties and interest in Wyoming. During 2000, all but
one of the remaining outstanding debentures were converted into commons stock.
At June 30, 2002, we owed $341,462 in connection with the debentures consisting
of $50,000 for one debenture holder that we have been unable to contact and the
balance of in penalties and interest.
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Inflation
In the opinion of our management, inflation has not had a material
effect on our operations.
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. We 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: our ability to secure additional financing, the possibility of
success in our drilling endeavors, competitive factors, and other risks detailed
in the our periodic report filings with the SEC.
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 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, 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 we cited in support of
our Motion to Dismiss included, but were not limited to, (i) the Texas
Court being an improper venue for the action, and (ii) our 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").
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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 us 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. Management believes that this payment will satisfy
the Baker Entities until the obligation can be paid in full.
(b) 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 us for non-payment of services. We 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 us as payment for this liability. We have agreed to
this settlement and management anticipates the transaction will be
finalized during the third quarter of 2002.
(c) 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. We
have accrued $47,741 which is included in our financial statements for
the year ended December 31, 2000 under accounts payable. On February
26, 2002, we reached a negotiated payment schedule with Tioga. We have
made the initial payment pursuant to the settlement and expect the full
amount will be paid by the third quarter 2002.
(d) On April 16, 2001, Ross Forbus obtained a judgment of $428,018
against us to satisfy a promissory note that we previously entered into
with Mr. Forbus on April 8, 1996. We agreed to payment terms and made
several payments to Mr. Forbus. We are presently negotiating to extend
the term of the payments until the judgment is paid in full. Mr. Forbus
has made a demand upon for payment in full.
(e) On December 26, 2001, George Hillyer filed a suit against us and
William F. Woodburn and Loren E. Bagley individually. The action seeks
$250,750 in connection with certain services performed for us. We have
reached a tentative agreement to settle the suit and expect to finalize
the settlement in the third quarter 2002.
(f) 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.
Management believes the suit is without merit and intends to vigorously
defend the action. We have not accrued any amounts for these claims as
of December 31, 2001 because we feel that based on our defenses against
the claims we will have no additional liability. Due to the early stage
of the litigation, it is not possible to evaluate the likelihood of an
unfavorable outcome or estimate the extent of potential loss.
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Item 2. Changes In Securities and Use of Proceeds
During the second quarter of 2002, we issued 5,000,000 shares of common
stock to one person upon the conversion of notes payable, valued at $50,000.
This transaction was exempt from registration under the Securities Act of 1933
pursuant to Section 3(a)(9) of that Act. Also during the second quarter of 2002,
we issued 1,000,000 to one person in exchange for services valued at $27,000.
This transaction was exempt from registration pursuant to Section 4(2) of the
Securities Act.
Item 3. Defaults Upon Senior Securities
In 1998, we issued $4,625,400 face value of 8% secured convertible
debentures due June 30, 1999. Interest on the debentures accrued upon the date
of issuance until payment in full of the principal sum was been made or duly
provided for. Holders of the debentures have the option, at any time, until
maturity, to convert the principal amount of their debenture, or any portion of
the principal amount which is at least $10,000 into shares of the our common
stock at a conversion price for each share equal to the lower of (a) seventy
percent (70%) of the market price of the our stock averaged over the five
trading days prior to the date of conversion, or (b) the market price on the
issuance date of the debentures. Any accrued and unpaid interest shall be
payable, at our option, in cash or in shares of our common stock valued at the
then effective conversion price. During 2000, all but one of the remaining
outstanding debentures were converted into commons stock. At June 30, 2002, we
owed $341,462 in connection with the debentures consisting of $50,000 to one
debenture holder and $291,462 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
(a) Exhibits
Exhibit 99.1 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 99.2 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
None
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SIGNATURES
In accordance with the requirements of the Securities Exchange Act of
1934, the Registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
TRANS ENERGY, INC.
Date: August 13, 2002 By /S/ ROBERT I. RICHARDS
-------------------------------------------
ROBERT I. RICHARDS, President,
Chief Executive Officer and Director
Date: August 13, 2002 By /S/ WILLIAM F. WOODBURN
-------------------------------------------
WILLIAM F. WOODBURN
Secretary / Treasurer
(Principal Accounting Officer)
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