UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
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[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarter Ended March 31, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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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
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(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
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APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date.
Class Outstanding as of March 31, 2002
----------------------------- -------------------------------
Common Stock, $.001 par value 193,519,127
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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 -- March 31, 2002 and December 31, 2001................ 4
Consolidated Statements of Operations -- three months ended
March 31, 2002 and 2001.......................................................... 6
Consolidated Statements of Stockholders' Equity (Deficit).......................... 7
Consolidated Statements of Cash Flows - three months ended
March 31, 2002 and 2001.......................................................... 8
Notes to Consolidated Financial Statements ........................................ 10
Item 2. Management's Discussion and Analysis and Results of Operations.......................... 14
PART II. OTHER INFORMATION
Item 1. Legal Proceedings....................................................................... 16
Item 2. Changes In Securities and Use of Proceeds............................................... 18
Item 3. Defaults Upon Senior Securities......................................................... 18
Item 4. Submission of Matters to a Vote of Securities Holders................................... 19
Item 5. Other Information....................................................................... 19
Item 6. Exhibits and Reports on Form 8-K........................................................ 19
SIGNATURES.............................................................................. 20
-2-
PART I
Item 1. Financial Statements
The following unaudited Consolidated Financial Statements for the
period ended March 31, 2002 have been prepared by the Company.
TRANS ENERGY, INC.
CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2002 and December 31, 2001
-3-
TRANS ENERGY, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
ASSETS
------
March 31, December 31,
2002 2001
----------- -----------
(Unaudited)
CURRENT ASSETS
Cash $ 13,667 $ 1,491
Accounts receivable, net 144,304 186,478
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Total Current Assets 157,971 187,969
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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 3,578,570 3,559,644
Leasehold acreage 114,426 114,426
Accumulated depreciation (2,631,375) (2,602,528)
----------- -----------
Total Fixed Assets 3,434,789 3,444,710
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OTHER ASSETS
Cash surrender value - life insurance (net) 8,791 8,791
Total Other Assets 8,791 8,791
TOTAL ASSETS $ 3,601,551 $ 3,641,470
=========== ===========
The accompanying notes are an integral part of these
consolidated financial statements
-4-
TRANS ENERGY, INC. AND SUBSIDIARIES
Consolidated Balance Sheets (Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
----------------------------------------------
March 31,
December 31,
2002 2001
------------ ------------
(Unaudited)
CURRENT LIABILITIES
Accounts payable - trade $ 654,449 $ 754,552
Notes payable - convertible 46,130 41,575
Accrued expenses 564,396 619,678
Salaries payable 684,962 642,662
Notes payable - current portion 1,575,854 1,311,695
Judgments payable (Note 5) 1,191,754 1,228,964
Related party payables 792,025 704,829
Debentures payable 331,462 331,462
Dividends payable -- 23,250
Stock subscription deposit (Note 4) 200,000 --
------------ ------------
Total Current Liabilities 6,041,032 5,658,667
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LONG-TERM LIABILITIES
Judgments payable (Note 5) 6,434 6,434
Notes payable 282,165 282,165
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Total Long-Term Liabilities 288,599 288,599
------------ ------------
Total Liabilities 6,329,631 5,947,266
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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; 193,519,127 and 176,683,189 shares issued
and outstanding, respectively 193,518 176,682
Capital in excess of par value 22,775,785 22,769,371
Accumulated deficit (25,697,383) (25,251,849)
------------ ------------
Total Stockholders' Equity (Deficit) (2,728,080) (2,305,796)
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT) $ 3,601,551 $ 3,641,470
============ ============
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,
2002 2001
----------- -----------
REVENUES $ 169,489 $ 294,425
----------- -----------
COSTS AND EXPENSES
Cost of oil and gas 272,198 188,445
Salaries and wages 17,765 16,619
Depreciation, depletion and amortization 53,789 60,883
Selling, general and administrative 139,960
140,684
Total Costs and Expenses 483,712 406,631
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LOSS FROM OPERATIONS (314,223) (112,206)
----------- -----------
OTHER INCOME (EXPENSE)
Other income 3,329 721
Interest expense (134,640) (61,089)
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Total Other Income (Expense) (131,311) (60,368)
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LOSS FROM OPERATIONS BEFORE INCOME TAXES
AND MINORITY INTERESTS (445,534) (172,574)
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INCOME TAXES -- --
MINORITY INTERESTS -- --
NET LOSS $ (445,534) $ (172,574)
----------- -----------
BASIC LOSS PER SHARE $ (0.00) $ (0.00)
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WEIGHTED AVERAGE SHARES OUTSTANDING 186,784,752 173,837,689
=========== ===========
The accompanying notes are an integral part of these
consolidated financial statements
-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 --
Net loss for the three months
ended March 31, 2002 (unaudited) -- -- -- -- -- (445,534)
------------ ------------- ------------ ------------ ------------ ------------
Balance, March 31, 2002 (unaudited) -- $ -- 193,519,127 $ 193,518 $ 22,775,785 $(25,697,383)
============ ============= ============ ============ ============ ============
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,
2002 2001
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(445,534) $(172,574)
Adjustments to reconcile net loss to net cash (used) by
operating activities:
Depreciation, depletion and amortization 53,789 60,883
Changes in operating assets and liabilities:
(Increase) in accounts receivable 42,174 (72,558)
(Increase) in prepaid and other current assets -- (10,058)
Increase (decrease) in accounts payable and accrued expenses (175,237) 142,802
Increase in cash overdraft -- 3,771
Net Cash (Used) by Operating Activities (524,808) (47,734)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for property and equipment (18,926) (55,787)
------- -------
Net Cash (Used) by Investing Activities (18,926) (55,787)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Stock subscription deposit 200,000 --
Proceeds from related party notes 87,196 14,600
Proceeds from notes payable 268,714 108,280
Principal payments on notes payable -- (19,359)
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Net Cash Provided by Financing Activities 555,910 103,521
------- -------
NET INCREASE (DECREASE) IN CASH 12,176 --
CASH, BEGINNING OF PERIOD 1,491 --
------- -------
CASH, END OF PERIOD $ 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,
2002 2001
------ ------
CASH PAID FOR:
Interest $76,043 $41,650
Income taxes $- $ --
NON-CASH FINANCING ACTIVITIES:
Common stock issued for debt $ -- $ --
Common stock issued for services $ -- $ --
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, 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 months ended March 31, 2002 and 2001 are not necessarily
indicative of the results that may be expected for the year ending
December 31, 2002.
7NOTE 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 March 31,
2002 of $25,697,383, and has a working capital deficit at March
31, 2002 of $5,883,061. 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 March 31, 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 March 31, 2002.
-10-
TRANS ENERGY, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
March 31, 2002 and December 31, 2001
NOTE 4 - MATERIAL EVENTS (Continued)
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.
NOTE 5 - JUDGMENTS PAYABLE
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 District Court in
Harris County, Texas 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. At December 31, 2001, the
balance due to Tioga was $47,234 and is included in judgments
payable and is classified as a current liability.
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. Management 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 December 31, 2001
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.
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
not accrued any amounts for these claims as of December 31, 2001
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.
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 accrued the balance of $428,018 plus
accrued interest of $25,372. The total amount of $453,390 is
included in judgments payable and is classified as a current
liability.
-11-
TRANS ENERGY, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
March 31, 2002 and December 31, 2001
NOTE 5 - JUDGMENTS PAYABLE (Continued)
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 December 31, 2001, the
Company had accrued a balance of $14,669 which is included in
judgments payable. $6,434 has been classified as a long-term
liability.
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. The Company has accrued a balance of $62,880 which is
included in judgment payable as a current liability.
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 entered into a
settlement agreement wherein the Company transferred a portion of
the Powder River Basin leasehold acreage in Campbell County,
Wyoming. At December 31, 2001, the balance was $55,259 that is
included judgments payable as a current liability.
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.
-12-
TRANS ENERGY, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
March 31, 2002 and December 31, 2001
NOTE 5 - JUDGMENTS PAYABLE (Continued)
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. At
December 31, 2001, the Company has a remaining liability of
$601,966 which is included in judgments payable as a current
liability.
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
March 31, 2002 and December 31, 2001
NOTE 5 - JUDGMENTS PAYABLE (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.
-14-
Item 2. Management's Discussion and Analysis or Plan of Operations
The following table sets forth the percentage relationship to total
revenues of principal items contained in the Company's Consolidated Statements
of Operations for the three month periods ended March 31, 2002 and 2001. It
should be noted that percentages discussed throughout this analysis are stated
on an approximate basis.
Three Months Ended
March 31,
----------------------
2002 2001
---- ----
(Unaudited)
Total revenues........................ 100% 100%
Total costs and expenses.............. 285 138
Net (loss) from operations............ (185) (38)
Other income (expense)................ (77) (21)
Net (loss) before income taxes........ (262) (59)
Income taxes.......................... - -
Net income (loss)..................... (262) (59)
Total revenues for the three months ("first quarter") ended March 31,
2002 decreased 42% when compared with the first quarter of 2002. The decreases
during the 2002 period is primarily due to less oil production and lower oil and
gas prices. Cost of oil and gas for the first quarter of 2002 increased 44% from
the first quarter of 2001 due to accounting for additional drilling costs on new
wells. Selling, general and administrative expenses for the first quarter of
2002 were approximately the same as for the 2001 period and salaries and wages
increased a modest 7% for the period. Depreciation, depletion and amortization
decreased 12% due to lower oil production and full depreciation of assets. The
loss from operations for the first quarter of 2002 was $314,223 compared to
$112,206 for the 2001 period, an increase of 180%.
Total costs and expenses as a percentage of total revenues increased
from 138% in the first quarter of 2001 to 285% for the first quarter of 2001.
Actual total costs and expenses increased 19% for the first quarter 2002. The
increase is primarily attributed to the increases in cost of oil and gas and the
increase in depreciation, depletion and amortization. Other expenses also
increased 118%, attributed the 119% increase in interest expense due to loans
for increased drilling expenses.
The Company's net loss for the first quarter of 2002 was $445,534
compared to $172,574 for the 2001 period. The increase is primarily attributed
to the decrease in revenues and increased cost of oil and gas.
For the remainder of fiscal year 2002, management expects selling,
general and administrative expenses to remain at approximately the same rate as
the first quarter 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.
The Company has included a footnote to its financial statements for the
periods ended March 31, 2002 stating that because of the Company's continued
losses, working capital deficit and need for additional funding, there is
substantial doubt as to whether the Company can continue as a going concern. See
Note 2 to the consolidated financial statements.
Net Operating Losses
The Company has accumulated approximately $18,246,000 of net operating
loss carryforwards as of December 31, 2001, 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 the Company, there will
be an annual limitation on the amount of net operating loss carryforwards which
can be used. No tax benefit has been reported in the financial statements for
the year ended December 31, 2001 or the three month period ended March 31, 2002
because the potential tax benefits of the loss carryforward is offset by
valuation allowance of the same amount.
-15-
Liquidity and Capital Resources
Historically, the Company's working capital needs have been satisfied
through its operating revenues and from borrowed funds. At March 31, 2002, the
Company had a working capital deficit of $5,883,061 compared to a deficit of
$5,470,698 at December 31, 2001. This 8% further decline in working capital is
primarily attributed to the decrease in accounts receivable (23%) and increases
in notes payable (20%) and related party payables (12%). Also, the Company
recorded 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 decreases accrued expenses (9%) and judgments payable
(3%).
During the first three months of 2002, the Company's operating
activities used net cash of $524,808 compared to $47,734 net cash used in the
first three months of 2001. This result is attributed to the Company's increased
net loss for the period.
The Company also reported $18,926 net cash used by investing activities
in the first three months of 2002 compared to $55,787 net cash used in the 2001
period. The decline is attributed to the decrease in expenditures for property
and equipment during the 2002 period. During the first three months of 2002, the
Company realized $555,910 in cash from financing activities compared to $103,521
realized in the 2001 period. This increase is due primarily to the stock
subscription deposit and the increase in proceeds from notes payable.
The Company anticipates meeting its working capital needs during the
remainder of the current fiscal year with revenues from operations, particularly
from its Powder River Basin interests in Wyoming and its New Benson gas wells
drilled in West Virginia. In the event revenues are not sufficient to meet the
Company's working capital needs, it will explore the possibility of additional
funding from either the sale of debt or equity securities. There can be no
assurance such funding will be available to the Company or, if available, it
will be on acceptable or favorable terms to the Company.
As of March 31, 2002, the Company had total assets of $3,601,551 and
total stockholders' deficit of $2,728,080, compared to total assets of
$3,641,470 and total stockholders' deficit of $2,305,796 at December 31, 2001.
In 1998, the Company issued $4,625,400 face value of 8% Secured
Convertible Debentures Due September 30, 1999. A portion of the proceeds were
used to acquire the oil and gas properties and interest in Wyoming. During 2000,
all but one of the remaining outstanding debentures were converted into commons
stock. At March 31, 2002, the Company owed $331,462 in connection with the
debentures consisting of $50,000 for one debenture holder that the Company has
been unable to contact and $281,462 in penalties and interest.
Inflation
In the opinion of management, inflation has not had a material effect
on the operations of the Company.
Forward-Looking and Cautionary Statements
Forward-looking statements in this report are made pursuant to the
"safe harbor" provisions of the Private Securities Litigation Reform Act of
1995. The Company wishes to advise readers that actual results may differ
substantially from such forward-looking statements. Forward-looking statements
involve risks and uncertainties that could cause actual results to differ
materially from those expressed in or implied by the statements, including, but
not limited to, the following: the ability of the Company to secure additional
financing, the possibility of success in the Company's drilling endeavors,
competitive factors, and other risks detailed in the Company's periodic report
filings with the Securities and Exchange Commission.
PART II
Item 1. Legal Proceedings
Certain material pending legal proceedings to which the Company is a
party or to which any of its property is subject is set forth below.
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(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 the Company on October 16, 2000. The sole
petitioning creditor named in the Involuntary Petition was Western
Atlas International, Inc. ("Western"). An Order for Relief Under
Chapter 7 was entered by the Court on November 22, 2000.
On April 23, 2000, the 189th District Court of Harris County,
Texas entered an Agreed Final Judgment in favor of Western against the
Company in the amount of $600,665.36, together with post judgment
interest at 10% per annum. Following the judgment, Western and the
Company entered into settlement negotiations concerning the Company's
satisfaction of the judgment through payments over a four to five month
period together with the pledge of collateral on certain unencumbered
assets. Previously, on or about July 9, 1998, a judgment had been
entered in the 152nd District Court of Harris County, Texas against the
Company in favor of Baker Hughes Oilfield Operations, Inc. d/b/a/ Baker
Hughes Inteq. Western Geophysical ("Baker"), a division of Western
Atlas International, Inc., in the amount of $41,142.00, together with
interest and attorney fees. This judgment was outstanding at the time
of the filing of the Involuntary Petition.
During its negotiations with Western for settlement of the
Judgment, the Company made a $200,000 "good faith payment" to Western's
counsel on October 23, 2000. On December 12, 2000, Joe Hill was named
as the Chapter 7 Trustee. Subsequently, Western's counsel delivered the
$200,000 to the Trustee.
On January 19, 2001, the Company filed with the Bankruptcy
Court the Motion to Dismiss Chapter 7 Case. The reasons cited by the
Company in support of its Motion to Dismiss included, but were not
limited to, (i) the Texas Court being an improper venue for the action,
and (ii) the Company never receiving the Involuntary Petition and
Summons notifying it of the action. In anticipation of the Bankruptcy
Court dismissing the Involuntary Petition, on February 2, 2001, the
Company entered into a Settlement Agreement with Baker Hughes Oilfield
Operation, Inc., d/b/a/ Baker Hughes Inteq. Western Geophysical, a
division of Western Atlas International, Inc. (the "Baker Entities").
In entering its order on February 7, 2001 to dismiss the action, the
Court ordered the Trustee to retain $17,694.80 for satisfaction of
administrative fees and expenses, and to pay to Western and Baker the
sum of $182,736.66, on behalf of the Company and pursuant to the terms
of the Settlement Agreement.
The Settlement Agreement provided that, subject to the
approval of the Bankruptcy Court, the Company agreed to pay to the
Baker Entities $759,664.31, plus interest at 10%. In addition to the
$200,000 payable from the escrow, the Company 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. Subsequently, the Company 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 the Company for non- payment of services. The
Company recorded a liability of $78,651 in its financial statements
under accounts payable for the year ended December 31, 2000 to reflect
this claim. Bellevue Resources has agreed to take certain lease acreage
in Campbell County, Wyoming held by the Company as payment for this
liability. The Company has agreed to this settlement and management
anticipates the transaction will be finalized during the second 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.
The Company has accrued $47,741 which is included in the Company's
financial statements for the year ended December 31, 2000 under
accounts payable. Management has represented that the Company has
reached a negotiated payment schedule with Tioga. The Company has made
the initial payment pursuant to the settlement and management expects
the full amount will be paid by the third quarter 2002.
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(d) On April 16, 2001, Ross Forbus obtained a judgment of $428,018
against the Company to satisfy a promissory note previously entered
into by the Company with Mr. Forbus on April 8, 1996. The Company has
agreed to payment terms and has made small payments to Mr. Forbus.
Management is currently attempting to extend the term of the payments.
(e) 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. Management 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 not accrued any amounts for these
claims as of December 31, 2001 because the Company feels that the based
on its defenses against the claims it 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.
(f) In September 2001, the Securities and Exchange Commission filed a
civil action in the United States District Court for the District of
Columbia (Civil Action No. 1:01CV020060) against Trans Energy, Inc.
(the "Company") and two of its directors, Loren E. Bagley and William
F. Woodburn. The complaint alleged violations of the anti-fraud and
reporting provisions of the federal securities laws in connection with
press releases, website postings, and Commission filings. The
Commission's complaint sought injunctive relief and civil penalties.
On February 26, 2002, the District Court entered a permanent
injunction against the Company, Mr. Bagley, and Mr. Woodburn,
permanently enjoining them from future violations of the Securities
Exchange Act of 1934 and certain rules promulgated thereunder. The
Court also ordered Messrs. Bagley and Woodburn to each pay a $20,000
civil penalty. The Company, Mr. Bagley and Mr. Woodburn consented to
entry of the permanent injunction and the imposition of civil penalties
without admitting or denying the Commission's allegations. Messrs.
Bagley and Woodburn have each paid their civil penalty.
(g) 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 the Company 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. The Company has not
accrued any amounts for these claims as of December 31, 2001 because
the Company feels that the based on its defenses against the claims it
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.
Item 2. Changes In Securities and Use of Proceeds
During the first quarter of 2002 the Company issued 16,835,938 shares
of its common stock to three persons upon the conversion of preferred stock and
dividends into common stock. This transaction was exempt from registration under
the Securities Act of 1933 pursuant to Section 3(a)(9) of that Act.
Item 3. Defaults Upon Senior Securities
In 1998, the Company issued $4,625,400 face value of 8% Secured
Convertible Debentures due March 31, 1999 (the "Debentures") Interest on the
Debentures accrued upon the date of issuance until payment in full of the
principal sum was been made or duly provided for. Holders of the Debentures have
the option, at any time, until maturity, to convert the principal amount of
their Debenture, or any portion of the principal amount which is at least
$10,000 into shares of the Company's Common Stock at a conversion price for each
share equal to the lower of (a) seventy percent (70%) of the market price of the
Company's Common Stock averaged over the five trading days prior to the date of
conversion, or (b) the market price on the issuance date of the Debentures. Any
accrued and unpaid interest shall be payable, at the option of the Company, in
cash or in shares of the Company's Common Stock valued at the then effective
conversion price. During 2000, all but one of the remaining outstanding
debentures were converted into commons stock. At March 31, 2002, the Company
owed $331,462 in connection with the debentures consisting of $50,000 to one
debenture holder and $281,462 in penalties and interest.
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Item 4. Submission of Matters to a Vote of Security Holders
This Item is not applicable.
Item 5. Other Information
This Item is not applicable.
Item 6. Exhibits and Reports on Form 8-K
(b) Reports on Form 8-K
On March 5, 2002, the Company filed a Current Report on Form
8-K reporting under Item 5 that on February 26 2002, the SEC
entered an injunction against the Company and two of its
directors.
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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 16, 2002 By /S/ Robert I. Richards
ROBERT I. RICHARDS, President,
Chief Executive Officer and Director
Date: May 16, 2002 By /S/ William F. Woodburn
WILLIAM F. WOODBURN
Secretary / Treasurer
(Principal Accounting Officer)
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