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, 2003
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 May 15, 2003
------------------------------ ------------------------------
Common Stock, $.001 par value 241,019,127
-1-
TABLE OF CONTENTS
Heading Page
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.................................................................... 3
Consolidated Balance Sheets - March 31, 2003 (Unaudited) and
December 31, 2002................................................................ 4
Consolidated Statements of Operations - three months ended
March 31, 2003 and 2002 (Unaudited).............................................. 6
Consolidated Statements of Stockholders' Equity (Deficit).......................... 7
Consolidated Statements of Cash Flows - three months ended
March 31, 2003 and 2002 (Unaudited).............................................. 8
Notes to Consolidated Financial Statements ........................................ 10
Item 2. Management's Discussion and Analysis and Results of Operations.......................... 17
Item 3. Controls and Procedures................................................................. 19
PART II. OTHER INFORMATION
Item 1. Legal Proceedings....................................................................... 19
Item 2. Changes In Securities and Use of Proceeds............................................... 21
Item 3. Defaults Upon Senior Securities......................................................... 21
Item 4. Submission of Matters to a Vote of Securities Holders................................... 21
Item 5. Other Information....................................................................... 21
Item 6. Exhibits and Reports on Form 8-K........................................................ 22
Signatures.............................................................................. 23
Certifications.......................................................................... 24
-2-
PART I
Item 1. Financial Statements
The accompanying balance sheets of Trans Energy, Inc. at March 31, 2003
and December 31, 2002, related statements of operations, stockholders' equity
(deficit) and cash flows for the three months ended March 31, 2003 and 2002,
have been prepared by our management in conformity with accounting principles
generally accepted in the United States. In the opinion of management, all
adjustments considered necessary for a fair presentation of the results of
operations and financial position have been included and all such adjustments
are of a normal recurring nature. Operating results for the quarter ended March
31, 2003, are not necessarily indicative of the results that can be expected for
the fiscal year ending December 31, 2003.
TRANS ENERGY, INC.
CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2003 and December 31, 2002
-3-
TRANS ENERGY, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
ASSETS
------
March 31, December 31,
2003 2002
----------- ------------
(Unaudited)
CURRENT ASSETS
Cash $ 6,648 $ 12,227
Accounts receivable, net 239,469 128,621
Other receivable 30,000 --
Prepaid expenses 990 360
----------- -----------
Total Current Assets 276,107 151,208
PROPERTY AND EQUIPMENT
Vehicles 59,830 59,830
Machinery and equipment 10,092 10,092
Pipelines 1,745,217 2,254,908
Well equipment 49,155 49,155
Wells 3,620,868 3,620,868
Leasehold acreage 95,945 95,945
Accumulated depreciation (3,403,574) (3,496,460)
----------- -----------
Total Fixed Assets 2,177,533 2,594,338
OTHER ASSETS
Cash surrender value - life insurance (net) 2,090 2,090
Total Other Assets 2,090 2,090
----------- -----------
TOTAL ASSETS $ 2,455,730 $ 2,747,636
=========== ===========
The accompanying notes are an integral part of the financial statements.
-4-
TRANS ENERGY, INC. AND SU
Consolidated Balance Sheets (Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
----------------------------------------------
March 31, December 31,
2003 2002
------------ ------------
(Unaudited)
CURRENT LIABILITIES
Accounts payable - trade $ 866,779 $ 701,791
Notes payable - convertible 41,575 41,575
Accrued expenses 960,980 921,420
Salaries payable 1,041,829 969,529
Notes payable - current portion 1,356,215 1,327,333
Judgments payable (Note 5) 1,140,636 1,115,094
Related party payables 951,748 1,075,587
Debentures payable 331,462 331,462
------------ ------------
Total Current Liabilities 6,691,224 6,483,791
------------ ------------
LONG-TERM LIABILITIES
Judgments payable (Note 5) -- 2,702
Notes payable -- 199,862
------------ ------------
Total Long-Term Liabilities -- 202,564
Total Liabilities 6,691,224 6,686,355
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; 241,019,127 and 237,519,127 shares issued
and outstanding, respectively 241,018 237,518
Capital in excess of par value 23,052,785 23,045,785
Accumulated deficit (27,529,297) (27,222,022)
Total Stockholders' Equity (Deficit) (4,235,494) (3,938,719)
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT) $ 2,455,730 $ 2,747,636
============ ============
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 Three Months Ended
March 31,
------------------------------
2003 2002
------------- -------------
REVENUES $ 417,063 $ 169,489
------------- -------------
COSTS AND EXPENSES
Cost of oil and gas 323,992 272,198
Salaries and wages 95,893 83,765
Depreciation, depletion and amortization 253,233 53,789
Selling, general and administrative 56,225 73,960
------------- -------------
Total Costs and Expenses 729,343 483,712
------------- -------------
LOSS FROM OPERATIONS (312,280) (314,223)
------------- -------------
OTHER INCOME (EXPENSE)
Gain on disposal of asset 112,235 --
Loss on sale of asset (5,807) --
Other income 773 3,329
Interest expense (102,196) (134,640)
------------- -------------
Total Other Income (Expense) 5,005 (131,311)
------------- -------------
LOSS FROM OPERATIONS BEFORE INCOME TAXES
AND MINORITY INTERESTS (307,275) (445,534)
------------- -------------
INCOME TAXES -- --
------------- -------------
MINORITY INTERESTS -- --
------------- -------------
NET LOSS $ (307,275) $ (445,534)
============= =============
BASIC LOSS PER SHARE $ (0.00) $ (0.00)
============= =============
WEIGHTED AVERAGE SHARES OUTSTANDING 239,308,016 186,784,752
============= =============
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, 2001 300 -- 176,683,189 176,682 22,769,371 (25,251,849)
Conversion of preferred stock and
preferred dividends to common
stock (300) -- 16,835,938 16,836 6,414 --
Conversion of notes payable to
common stock -- -- 5,000,000 5,000 45,000 --
Common stock issued for services -- -- 1,000,000 1,000 26,000 --
Conversion of notes payable to
common stock -- -- 4,166,667 4,167 20,833 --
Common stock issued for cash -- -- 33,333,333 33,333 166,667 --
Common stock issued for services -- -- 600,000 500 9,500 --
Net loss for the year
ended December 31, 2002 -- -- -- -- -- (1,946,959)
----------- ------------ ----------- ------------ ------------ ------------
Balance, December 31, 2002 -- -- 237,519,127 $ 237,518 $ 23,045,785 $(27,222,022)
Common stock issued for conversion
of debt to equity (unaudited) -- -- 3,500,000 3,500 7,000 --
Net loss for the three months ended
March 31, 2003 (unaudited) -- -- -- -- -- (307,275)
----------- ------------ ----------- ------------ ------------ ------------
Balance, March 31, 2003 (unaudited) -- $ -- 241,019,127 $ 241,018 $ 23,052,785 $(27,529,297)
=========== ============ =========== ============ ============ ============
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,
2003 2002
----------- ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(307,275) $(445,534)
Adjustments to reconcile net loss to net cash
(used) by perating activities:
Depreciation, depletion and amortization 253,233 53,789
Net gain from sale of assets (106,428) --
Changes in operating assets and liabilities:
(Increase) in accounts receivable (100,849) 42,174
(Increase) in prepaid and other current assets (630) --
Increase (decrease) in accounts payable and
current liabilities 315,992 (175,237)
--------- ---------
Net Cash Provided (Used) by Operating Activities 54,043 (524,808)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of assets 240,000 --
Expenditures for property and equipment -- (18,926)
--------- ---------
Net Cash Provided (Used) by Investing Activities 240,000 (18,926)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on related party payables (123,838) --
Stock subscription deposit -- 200,000
Proceeds from related party notes -- 87,196
Proceeds from notes payable -- 268,714
Principal payments on notes payable (176,784) --
--------- ---------
Net Cash Provided (Used) by Financing Activities (300,622) 555,910
--------- ---------
NET INCREASE (DECREASE) IN CASH (6,579) 12,176
CASH, BEGINNING OF PERIOD 12,227 1,491
--------- ---------
CASH, END OF PERIOD $ 5,648 $ 13,667
========= =========
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,
--------------------------
2003 2002
---------- -------------
CASH PAID FOR:
Interest $56,527 $76,043
Income taxes $ -- $ --
NON-CASH FINANCING ACTIVITIES:
Common stock issued for debt $10,500 $ --
Common stock issued for preferred stock and preferred
dividends $ -- $23,250
The accompanying notes are an integral part
of these consolidated financial statements.
-9-
TRANS ENERGY, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
March 31, 2003 and December 31, 2002
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, 2002 Annual Report on Form
10-KSB. Operating results for the three months ended March 31,
2003 and 2002 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, 2002 of
$27,529,297, and has a working capital deficit at March 31, 2002
of $6,415,117. 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 2002 amounts have been reclassified to conform to the 2003
presentations.
NOTE 4 - MATERIAL EVENTS
On January 31, 2003, the Company entered into an Agreement of Sale
and Exchange with PC Pipeline, Inc. ("Purchaser") for 7.6 miles of
Tyler Construction's six-inch natural gas pipeline in Pleasants
County, West Virginia in exchange for the remaining 35% of the
outstanding common stock of Tyler Construction Company. This now
makes Tyler Construction Company a wholly-owned subsidiary of the
Company.
-10-
TRANS ENERGY, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
March 31, 2003 and December 31, 2002
NOTE 4 - MATERIAL EVENTS (Continued)
On February 27, 2003, the Company entered into an Asset Purchase
Agreement with Triad Energy Corporation ("Triad") and Sancho Oil &
Gas Corporation ("Sancho") whereby Tyler Construction Company
("Tyler") sold 55,000 feet of gas pipeline located in Tyler and
Pleasants County, West Virginia for $270,000. $240,000 was paid at
the time of closing and the remaining $30,000 was payable 60 days
from closing. As part of the Agreement, Tyler assigned its
right-of-ways and its gas purchase contract with Sancho, along
with an agreement for Traid to use Tyler's right to transport gas
which right is not assignable.
During February 2003, the Company filed Form S-8 with the
Securities and Exchange Commission for the registration of
3,500,000 shares of the Company's common stock to be issued to A.
Thomas Crompton for consulting services that were performed during
the fourth quarter of 2002. The shares were valued at $0.003,
which was the trading price at the time the shares were
registered, for a total value of $10,500.
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, and at March 31, 2003, the balance due including interest to
Tioga was $26,092 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. The Company has
not accrued any amounts for these claims as of March 31, 2003
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.
-11-
TRANS ENERGY, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
March 31, 2003 and December 31, 2002
NOTE 5 - JUDGMENTS PAYABLE (Continued)
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, 2003, the total amount including interest
of $487,641 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, 2003, the
Company had accrued a balance including interest of $16,637 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, 2003, 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,
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.
-12-
TRANS ENERGY, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
March 31, 2003 and December 31, 2002
NOTE 5 - JUDGMENTS PAYABLE (Continued)
Baker Hughes Entities (Continued)
---------------------------------
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.
-13-
TRANS ENERGY, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
March 31, 2003 and December 31, 2002
NOTE 5 - JUDGMENTS PAYABLE (Continued)
Baker Hughes Entities (Continued)
---------------------
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.
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 December 31, 2002, the Company has
accrued $50,692, 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, 2002, the Company had accrued the total amount of
$6,000 and has included it in judgments payable and has classified
it as a current liability.
-14-
TRANS ENERGY, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
March 31, 2003 and December 31, 2002
NOTE 6 - OUTSTANDING STOCK OPTIONS
The Company applies Accounting Principles Board ("APB") Opinion
25, "Accounting for Stock Issued to Employees," and related
Interpretations in accounting for all stock option plans. Under
APB Opinion 25, compensation cost is recognized for stock options
granted to employees when the option price is less than the market
price of the underlying common stock on the date of grant.
FASB Statement 123, "Accounting for Stock-Based Compensation"
("SFAS No. 123"), requires the Company to provide proforma
information regarding net income and net income per share as if
compensation costs for the Company's stock option plans and other
stock awards had been determined in accordance with the fair value
based method prescribed in SFAS No. 123. The Company estimates the
fair value of each stock award at the grant date by using the
Black-Scholes option pricing model.
A summary of the status of the Company's stock option plans as of
March 31, 2003 and changes during the year is presented below:
Weighted
Average
Shares Exercise Price
------- --------------
Outstanding, December 31, 2002 795,057 $ 0.50
Granted -- --
Canceled/Expired -- --
Exercised -- --
------- --------
Outstanding, March 31, 2003 795,057 $ 0.50
======= ========
Exercisable, March 31, 2003 795,057 $ 0.50
======= ========
Outstanding Exercisable
--------------------------------------- ---------------------------
Weighted
Average Weighted Weighted
Number Remaining Average Number Average
Outstanding Contractual Exercise Exercisable Exercise
Exercise Prices at 12/31/02 Life Price at 3/31/02 Price
--------------- ----------- ----------- ---------- ---------- -----------
$ 0.50 795,057 0.75 $ 0.50 795,057 $ 0.50
The 795,057 options were issued at $0.50, which is equal to the
market price on the date of issuance. All options are fully
vested, have a five-year period to be exercised and will expire on
December 31, 2003. The options were not issued pursuant to an
employee stock option plan.
-15-
TRANS ENERGY, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
March 31, 2003 and December 31, 2002
NOTE 7 - 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
Three Months
Ended Oil and Gas Pipeline Corporate
March 31, Sales Transmission Unallocated
------------ ----------- ------------ ------------
Oil and gas revenue 2003 $ 154,689 $ 262,374 $ --
2002 92,609 76,880 --
Operating loss applicable to
industry segment 2003 (272,457) (39,823) --
2002 (282,936) (31,287) --
General corporate expenses
not allocated to industry
segments 2003 -- -- --
2002 -- -- --
Interest expense 2003 (88,471) (13,725) --
2002 (116,022) (18,618) --
Other income (expenses) 2003 773 -- --
2002 (112,693) (18,618) --
Assets
(net of intercompany accounts) 2003 -- --
2002 3,164,031 437,520 --
Depreciation and amortization 2003 227,145 26,088 --
2002 26,604 27,185
Property and equipment
Acquisitions (Deletions) 2003 (240,000) -- --
2002 18,926 -- --
-16-
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, 2003 and 2002. It should
be noted that percentages discussed throughout this analysis are stated on an
approximate basis.
Three Months Ended
March 31,
-------------------------
2003 2002
------- ------
(Unaudited)
Total revenues............................. 100% 100%
Total costs and expenses................... 175 285
Loss from operations....................... 75 (185)
Other income (expense)..................... 1 (78)
Net loss................................... (74) (263)
Total revenues for the three months ("first quarter") ended March 31,
2003 increased 146%, when compared with the first quarter of 2002, due primarily
to increased gas prices and additional production into our pipeline system. Our
cost of oil and gas for the first quarter of 2003 increased 19% from the 2002
period due to increased land lease and royalties expenses. Also during the first
quarter of 2003, salaries and wages increased 14% compared to the 2002 period
due to reclassification of compensation previously paid as consulting fees into
salary to officers. Selling, general and administrative expenses for the first
quarter of 2003 decreased 24% due to decreased travel, legal, consulting and
office expenses. Depreciation, depletion and amortization increased in the first
quarter of 2003 by 371%, attributed to an increased depletion rate due to a
reevaluation of reserves at the year-end audit.
Our loss from operations for the first quarter of 2003 was $312,280,
slightly less that the $314,223 for the first quarter of 2002. We realized total
other income of $5,005 during the first quarter of 2003 compared to total other
expenses of $131,311 for the first quarter of 2002. This change was due
primarily to the 24% decrease in interest expense and the gain on disposal of
assets of $112,235 during the first quarter of 2003.
As a percentage of total revenues, total costs and expenses decreased
from 285% in the first quarter of 2002 to 175% for the first quarter of 2003.
Actual total costs and expenses increased 51% for the first quarter 2003,
primarily attributed to the increases in cost of oil and gas and increase in
depreciation, depletion and amortization in the 2003 period.
Our net loss for the first quarter of 2003 was $307,275 compared to
$445,534 for the first quarter of 2002.
For the remainder of fiscal year 2003, management expects selling,
general and administrative expenses to remain at approximately the same rate as
the first quarter of 2003. 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 2003.
We have included a footnote to our financial statements for the periods
ended March 31, 2003 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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Liquidity and Capital Resources
Historically, we have satisfied our working capital needs with
operating revenues and from borrowed funds. At March 31, 2003, we had a working
capital deficit of $6,415,117 compared to a deficit of $6,332,582 at December
31, 2002. This nominal 1% increase in working capital deficit is primarily
attributed to use of cash from the sale of property to reduce loan balances.
During the first quarter of 2003, operating activities provided net
cash of $54,043 compared to net cash used of $524,808 in the first quarter of
2002. These results are primarily attributed to our decreased net loss for the
period, increased depreciation, depletion and amortization expenses and the
increase in accounts payable and current liabilities. Net cash provided by
investing activities in the first quarter of 2003 was $249,000, compared to net
cash used by investing activities of $18,926 in the 2002 period. The increase is
due to proceeds realized from the sale of assets in th 2003 period. During the
first quarter of 2003,we used net cash of $300,662 by financing activities
compared to net cash realized of $555,910 in the first quarter of 2002. During
2002, net cash was realized primarily from proceeds from stock subscription
deposits and from notes payable. During the 2003 period, cash was used primarily
as payments on related party payables and principal payments on 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, 2003, we had total assets of $2,455,730 and total
stockholders' deficit of $4,235,494, compared to total assets of $2,747,636 and
total stockholders' deficit of $3,938,719 at December 31, 2002.
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 March 31, 2003, we owed $346,462 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 and interest.
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
Evaluation of Disclosure Controls and Procedures. Based on their
evaluation, as of a date within 90 days prior to the date of the filing of this
Form 10-QSB, of the effectiveness of the Company's disclosure controls and
procedures, as defined in Rules 13a-14(c) and 15d-14(c) of the Securities
Exchange Act of 1934, the principal executive officer and the principal
financial officer of the Company have each concluded that such disclosure
controls and procedures are effective and sufficient to ensure that information
required to be disclosed by the Company in the reports that it files or submits
under the Exchange Act is recorded, processed, summarized and reported within
the time periods specified by the SEC's rules and forms.
Changes in Internal Controls. Subsequent to the date of their
evaluation, there have not been any significant changes in the Company's
internal controls or in other factors that could significantly affect these
controls, including any corrective action with regard to significant
deficiencies and material weaknesses.
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
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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 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. At March 31, 2003, we had a remaining liability, including
interest, of $534,287. The Baker Entities continue their proceedings to
enforce a foreign judgment against us in Pleasants County, West
Virginia. A hearing with a special commission of the court has been
scheduled for May 29, 2003 in Pleasant County.
(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. The current balance owed to Tioga is
$26,092, which we expect to pay in May 2003.
(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 have made
several payments to Mr. Forbus. Mr. Forbus has made a demand upon for
payment in full. We are not currently making payments.
(d) On December 26, 2001, George Hillyer filed a suit against Trans
Energy and William F. Woodburn and Loren E. Bagley individually. The
action seeks $250,750 in connection with certain services performed for
us. On September 3, 2002, we entered into a Mutual Settlement Agreement
and Release of All Claims whereby we conveyed a 240-acre lease and a
well located in Campbell County Wyoming in release of all claims and
dismissal of the suit by Mr. Hillyer. The Court dismissed the case on
September 20, 2002.
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(e) 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.
(f) 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.
Item 2. Changes In Securities and Use of Proceeds
This Item is not applicable.
Item 3. Defaults Upon Senior Securities
In 1998, we issued $4,625,400 face value of 8% secured convertible
debentures due 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 March 31, 2003, we
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.
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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
There were no current reports filed on Form 8-K for the three
month period ended March 31, 2003.
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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: May 15, 2003 By /S/ ROBERT I. RICHARDS
---------------------------------------------
ROBERT I. RICHARDS, President,
Chief Executive Officer and Director
Date: May 15, 2003 By /S/ WILLIAM F. WOODBURN
---------------------------------------------
WILLIAM F. WOODBURN
Secretary / Treasurer
(Principal Accounting Officer)
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Certifications
CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Robert I. Richards, Chief Executive Officer of the Trans Energy,
Inc. (the "registrant"), certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Trans
Energy, Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report
is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing
date of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about
the effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and
the audit committee of registrant's board of directors (or persons
performing the equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability
to record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves
management or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officer and I have
indicated in this quarterly report whether or not there were
significant changes in internal controls or in other factors that could
significantly affect internal controls subsequent to the date of our
most recent evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: May 15, 2003
/s/ ROBERT I. RICHARDS
-------------------------------
Robert I. Richards
Chief Executive Officer
-24-
CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, William F. Woodburn, Principal Accounting Officer of the Trans
Energy, Inc. (the "registrant"), certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Trans
Energy, Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report
is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing
date of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about
the effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and
the audit committee of registrant's board of directors (or persons
performing the equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability
to record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves
management or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated in
this quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: May 15, 2003
/s/ WILLIAM F. WOODBURN
---------------------------------
William F. Woodburn
Principal Accounting Officer
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