UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Quarter Ended June 30, 2007
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 0-23530
TRANS ENERGY, INC.
-----------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Nevada 93-0997412
------------------------------- ------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
210 Second Street, P.O. Box 393, St. Marys, West Virginia 26170
(Address of principal executive offices)
Registrant's telephone no., including area code: (304) 684-7053
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. Yes [X] No [ ]
Indicate by check mark whether the registrant is a shell company (as
defined by Rule 12b-2) of the Exchange Act. Yes [ ] No [X]
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 August 11, 2007
----------------------------- ----------------------------------
Common Stock, $.001 par value 9,513,065
Transitional Small Business Disclosure Format (Check one): Yes [ ] No [X)]
Table of Contents
Heading Page
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements...................................................................3
Consolidated Balance Sheets - June 30, 2007 and
December 31, 2006 (Unaudited)......................................................3
Consolidated Statements of Operations - three and six months ended
June 30, 2007 and 2006 (Unaudited).................................................5
Consolidated Statements of Stockholders' Equity - six months ended
June 30, 2007 (Unaudited)..........................................................6
Consolidated Statements of Cash Flows - six months ended
June 30, 2007 and 2006 (Unaudited).................................................7
Notes to Consolidated Financial Statements (Unaudited).................................8
Item 2. Management's Discussion and Analysis or Plan of Operation.............................13
Item 3. Controls and Procedures...............................................................16
PART II OTHER INFORMATION
Item 1. Legal Proceedings.....................................................................16
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds...........................17
Item 3. Defaults Upon Senior Securities.......................................................17
Item 4. Submission of Matters to a Vote of Securities Holders.................................17
Item 5. Other Information.....................................................................17
Item 6. Exhibits..............................................................................17
Signatures............................................................................18
-2-
PART I
TRANS ENERGY, INC.
Consolidated Balance Sheets
(Unaudited)
June 30, December 31,
2007 2006
----------- -----------
ASSETS
CURRENT ASSETS
Cash $ 2,276,692 $ 208,815
Accounts Receivable, net of allowance for doubtful
accounts of $-0- and $25,076, respectively 255,593 275,272
Accounts Receivable, related parties 575,100 569,600
Deferred Financing Costs - current portion 167,429 --
Prepaid Expenses 1,250 22,500
----------- -----------
Total Current Assets 3,276,064 1,076,187
----------- -----------
PROPERTY AND EQUIPMENT, net of accumulated depreciation
of $114,209 and $84,510, respect 582,361 490,753
OIL AND GAS PROPERTIES, USING SUCCESSFUL EFFORTS ACCOUNTING
Proved Properties 3,816,864 4,816,138
Unproved Properties 243,454 10,156
Pipelines 1,392,648 1,392,648
Accumulated depreciation, depletion (1,651,177) (1,569,997)
----------- -----------
Net oil and gas properties 3,801,789 4,648,945
----------- -----------
OTHER ASSETS
Deferred Financing Costs, net of amortization of $6,528 326,313 --
Other Assets 208,334 35,524
----------- -----------
Total Other Assets 534,647 35,524
----------- -----------
TOTAL ASSETS $ 8,194,861 $ 6,251,409
=========== ===========
See notes to consolidated financial statements.
-3-
TRANS ENERGY, INC. AND SUBSIDIARIES
Consolidated Balance Sheets (Continued)
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
June 30, December 31,
2007 2006
----------------------------------------------------------------------------------------------
CURRENT LIABILITIES
Accounts payable - trade $ 1,128,654 $ 1,165,846
Related party payables 224,242 237,347
Accrued expenses 386,836 357,781
Judgments payable -- 118,046
Notes payable - Current Portion 60,075 1,258,381
Notes payable - Related Parties -- 549.739
------------ ------------
Total Current Liabilities 1,799,807 3,687,140
------------ ------------
LONG-TERM LIABILITIES
Notes payable, net of unamortized discount
of $953,522 and $0 5,637,576 1,663,509
Asset retirement obligation 194,072 190,364
------------ ------------
Total Long-Term Liabilities 5,831,648 1,853,873
------------ ------------
Total Liabilities 7,631,455 5,541,013
------------ ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (DEFICIT) (Note 7)
Preferred stock; 10,000,000 shares authorized at $0.001 par
value; -0- shares issued and outstanding -- --
Common stock; 500,000,000 shares authorized at $0.001 par
value; 9,153,065 and 9,450,565 shares issued and
outstanding, respectively 9,513 9,451
Additional paid-in capiital 34,039,154 33,727,680
Accumulated deficit (33,485,261) (33,026,735)
------------ ------------
Total Stockholders' Equity (Deficit) (563,406) 710,396
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT) $ 8,194,861 $ 6,251,409
============ ============
The accompanying notes are an integral part
of these condensed consolidated financial statements.
-4-
TRANS ENERGY, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(Unaudited)
For the Three Months Ended For the Six Months Ended
June 30, June 30,
2007 2006 2007 2006
---------- ---------- ---------- ----------
REVENUES 417,152 422,793 702,672 752,514
---------- ---------- ---------- ----------
COSTS AND EXPENSES
Production Costs 185,525 127,217 294,459 265,023
Depreciation, Depletion, and Amortization 58,187 54,267 126,682 194,017
Exploration Costs 20,355 -- 159,105 --
Selling, General and Administrative 640,724 396,244 1,135,030 589,842
Gain on Sale of Assets (775,139) (704,116) (775,139) (704,116)
---------- ---------- ---------- ----------
Total Costs and Expenses 129,652 (126,388) 940,137 344,766
---------- ---------- ---------- ----------
INCOME (LOSS) FROM OPERATIONS 287,500 549,181 (237,465) 407,748
---------- ---------- ---------- ----------
OTHER INCOME (EXPENSES)
Interest Income 3,009 -- 3,009 --
Gain on Extinguishment of Debt -- 5,208 45,783 5,208
Interest Expense (171,440) (40,429) (269,852) (71,799)
---------- ---------- ---------- ----------
Total Other Income (Expenses) (168,431) (35,221) (221,060) (66,591)
---------- ---------- ---------- ----------
INCOME (LOSS) FROM OPERATIONS
BEFORE INCOME TAXES 119,069 513,960 (458,525) 341,157
INCOME TAXES -- -- -- --
---------- ---------- ---------- ----------
INCOME (LOSS) FROM CONTINUING OPERATIONS 119,069 513,960 (458,525) 341,157
INCOME FROM DISCONTINUED OPERATIONS -- 307,279 -- 183,775
LOSS FROM DISPOSAL OF DISCONTINUED OPERATIONS -- -- -- (1,558,802)
---------- ---------- ---------- ----------
NET INCOME (LOSS) 119,069 821,239 (458,525) (1,033,870)
========== ========== ========== ==========
BASIC (LOSS) PER SHARE
Continuing Operations 0.01 0.12 (0.05) 0.07
Discontinued Operations -- 0.07 -- (0.30)
---------- ---------- ---------- ----------
Total 0.01 0.19 (0.05) (0.23)
========== ========== ========== ==========
DILUTED INCOME (LOSS) PER SHARE
Continuing Operations 0.01 0.11 (0.05) 0.07
Discontinued Operations -- 0.06 -- (0.27)
---------- ---------- ---------- ----------
Total 0.01 0.17 (0.05) (0.20)
========== ========== ========== ==========
WEIGHTED AVERAGE SHARES OUTSTANDING 9,458,807 4,328,961 9,454,709 4,514,311
========== ========== ========== ==========
DILUTED WEIGHTED AVERAGE SHARES OUTSTANDING 9,458,807 4,882,285 9,454,709 5,067,635
========== ========== ========== ==========
See notes to consolidated financial statements.
-5-
TRANS ENERGY, INC. AND SUBSIDIARIES
Consolidated Statement of Stockholders' Equity (Deficit)
Common Stock
---------------------------- Additional
Paid-in Accumulated
Shares Amount Capital Deficit Total
------------ ------------ ------------ ------------- ------------
Balance, December 31, 2006 9,450,565 $ 9,451 $ 33,727,680 $ (33,026,736) $ 710,395
Shares received for discontinued
operations on March 31, 2007
(unaudited) -- -- 261,536 -- 261,536
Shares issued for services (unaudited) 52,500 52 49,938 -- 50,000
Net loss for the six months ended
June 30, 2007 (unaudited) -- -- -- (458,525) (458,625)
------------ ------------ ------------ ------------ ------------
Balance, June 30, 2007 (unaudited) 9,513,065 $ 9,513 $ 34,039,154 $(33,485,261) $ 563,406
============ ============ ============ ============ ============
The accompanying notes are an integral part
of these condensed consolidated financial statements.
-6-
TRANS ENERGY, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
For the Six Months Ended
June 30,
2007 2006
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (458,525) $(1,033,870)
Loss on discontinued operations -- 1,375,027
----------- -----------
Loss from continuing operations (458,525) 341,157
Adjustments to reconcile net loss
to net cash from operating activities:
Depreciation, depletion and amortization 126,682 244,539
Share-based compensation 261,536 118,000
Gain on debt extinguishment (45,783) --
Gain of sale of assets (775,139) (704,116)
Interest and accretion expense 52,374 --
Changes in operating assets and liabilities:
Accounts receivable 19,679 535,487
Accounts receivable related party (5,500) --
Prepaid expenses 21,250 (300,606)
Accounts payable 8,591 (896,511)
Related party payables (13,105) --
Accrued expenses 29,058 --
Judgments payable (118,046) (114,837)
----------- -----------
Net cash provided (used) in operating activities:
Continuing operations (896,928) (776,887)
Discontinued operations -- 263,187
----------- -----------
Net cash provided (used) in operating activities (896,928) (513,700)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of oil and gas properaties 1,442,139 726,824
Expenditures for oil and gas properties (869,768) --
Expenditures for property and equipment (137,110) (685,123)
----------- -----------
Net cash provided by investing activities 435,261 41,701
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from notes payable 6,376,200 683,866
Payments on notes payable (3,346,917) (58,261)
Payments on related party debt (499,739) (105,349)
----------- -----------
Net cash provided by financing activities 2,529,544 520,256
----------- -----------
NET INCREASE IN CASH 2,067,877 48,257
CASH, BEGINNING OF PERIOD 208,815 439,258
----------- -----------
CASH, END OF PERIOD $ 2,276,692 $ 487,515
=========== ===========
CASH PAID FOR:
Interest $ 217,478 $ 44,886
=========== ===========
Income taxes $ -- $ --
=========== ===========
Non-cash investing and financing activities
Discount on debt for net profits interest $ 765,000 $ --
Conversion of related-party debt to common stock 50,000 --
See notes to consolidated financial statements.
-7-
TRANS ENERGY, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
NOTE 1 - BASIS OF FINANCIAL STATEMENT PRESENTATION
The accompanying unaudited interim consolidated financial statements
have been prepared by Trans Energy, Inc. 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 omitted in
accordance with such rules and regulations. The information furnished
in the interim consolidated financial statements includes 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 consolidated financial
statements be read in conjunction with Trans Energy's most recent
audited financial statements and notes thereto included in its
December 31, 2006 Annual Report on Form 10-KSB. Operating results for
the six months ended June 30, 2007 are not necessarily indicative of
the results that may be expected for the year ending December 31,
2007.
Certain reclassifications have been made to amounts in prior periods
to conform with the current period presentation.
Debt Issuance Costs
Trans Energy accounts for debt issuance costs paid to third parties as
deferred financing cost assets which are amortized to interest expense
using the effective interest method over the same period as the
related loans. Non-cash debit issuance costs directly related to
proceeds of borrowings from lenders are recorded as discounts on the
amounts borrowed and amortized to interest expense using the effective
interest method over the same period as the related loans.
NOTE 2 - GOING CONCERN
Trans Energy's unaudited interim 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. Trans Energy has incurred cumulative operating
losses through June 30, 2007 of $33,485,261. 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,
sale of drilling programs, and other contemplated debt and equity
financings, and increases in operating revenues from new development
and business acquisitions would enable Trans Energy to continue as a
going concern. There can be no assurance that Trans Energy can or will
be able to complete any debt or equity financing. Trans Energy's
consolidated financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
NOTE 3 - CONTINGENCIES AND COMMITMENTS
Effective April 11, 2007, Trans Energy finalized an agreement with
Dominion Transmission, Inc. to tap Dominion's transmission line for an
additional point of sale for natural gas in Wetzel County, West
Virginia. Trans Energy is responsible for reimbursing Dominion for all
related expenses, which are estimated to cost $101,600. The tap
installation was completed July 22, 2007.
-8-
TRANS ENERGY, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
NOTE 4 - SIGNIFICANT EVENTS
Effective January 9, 2007, Trans Energy completed the sale to
Leatherwood Inc. for net cash proceeds of $667,000 of six oil and/or
gas wells located in West Virginia. Trans Energy assigned all of its
right, title, operating rights and interest including the right to
produce, operate and maintain the wells.
Effective January 10, 2007, Trans Energy acquired from National Gulf
Production, Inc. 75% of National Gulf's rights and interest in and to
certain oil and gas leases covering the oil and gas in and under
certain tracts of land containing approximately 3,120 acres located in
Trego County, Kansas for cash of $146,250. In addition, cash of
$138,750 was paid in advance for Trans Energy's proportionate 75%
share of the seismic acquisition, processing and interpretation cost,
which was subsequently expensed.
Effective February 7, 2007, Trans Energy entered into an agreement
with P.D. Farr to purchase all rights, title and interests in the 384
acre Ezra Hays Lease in West Virginia including oil and gas wells,
associated well equipment, interest in the natural gas sales pipeline,
all rights to Dominion Gas sales meter and all pertinent rights-of-way
for $138,000. On December 16, 2006, Trans Energy paid the sum of
$10,000 as a down payment to be applied against the purchase price,
with the unpaid balance of $128,000 due in installments, to be paid in
full by July 10, 2007. As of June 30, 2007, the balance in full of
$128,000 has been paid in cash.
Effective April 4, 2007, Trans Energy farmed out 11,200 acres of
unproven leases in Wetzel County to a Republic Partners VI, LP. Under
the terms of the farm out agreement, Republic will conduct seismic
data gathering, drilling, coring, and completion and production
operations jointly with Trans Energy to earn a 50% working interest in
the leases.
Effective June 19, 2007, Trans Energy completed the sale to
Leatherwood Inc. of three non-producing well bores located in West
Virginia for net cash proceeds of $774,505. Trans Energy assigned all
of its right, title, operating rights and interest including the right
to produce, operate and maintain the wells. Trans Energy recorded a
gain on sale of the property of $774,505
Effective June 20, 2007, Trans Energy completed the purchase of 3.75
acres located in Wetzel County, West Virginia for cash in the amount
of $44,000. This acreage was purchased for the purpose of installing a
tap into Dominion's transmission line to create an additional point of
sale for future wells drilled in Wetzel County, West Virginia.
NOTE 5 - NOTES PAYABLE
On June 18, 2007, Trans Energy repaid a short term related party note,
dated September 11, 2006, bearing interest at the rate of 10% per
annum, with cash in the amount of $100,000 plus accrued interest, for
a total paid of $107,589.
On June 18, 2007, Trans Energy repaid a short term related party note,
dated September 11, 2006, bearing interest at the rate of 10% per
annum, with cash in the amount of $30,000 plus accrued interest, for a
total paid of $36,027. In addition, 62,500 shares of common stock were
issued for the remaining balance due of $50,000.
-9-
TRANS ENERGY, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
NOTE 5 - NOTES PAYABLE (continued)
On June 22, 2007, Trans Energy finalized a financing agreement with CIT
Capital USA Inc. Under the terms of the agreement, CIT Capital USA Inc.
will lend up to $18,000,000 (the "Borrowing Base"), to Trans Energy in
the form of a senior secured revolving credit facility. Trans Energy
has the ability, at additional cost, to increase the credit facility to
$30,000,000 in the future, with increases in its reserves. Trans Energy
gave CIT Capital USA Inc. a promissory note for all borrowings under
the terms of the agreement. The note contains customary default
provisions and additional financial covenants. Funds realized from the
financing agreement will be used to facilitate the company's 2007
drilling program. As part of the financing agreement, Trans Energy
conveyed to CIT Capital USA Inc. a first priority continuing security
interest in, lien on and right of setoff against, all pledged
securities and books and records pertaining to the collateral. In
addition, Trans Energy conveyed to CIT Capital USA Inc. a 2% Net
Profits Interest in and to all oil and gas properties currently owned
and any additional oil and gas properties acquired in the future
through to the date of maturity. The conveyance of the 2% Net Profits
Interest has been accounted for as a sale, which was recorded against
the values of oil and gas properties. Under the terms of the financing
agreement, CIT Capital USA Inc. can elect after June 22, 2008, but on
or prior to June 22, 2009 to sell the 2% NPI to Trans Energy at a value
equal to 2% of Trans Energy's total reserve report value at the time.
Trans Energy can elect after June 22, 2009, but on or prior to June 22,
2010 to buy the 2% NPI from CIT Capital USA Inc. at a value equal to 3%
of Trans Energy's total reserve report value at the time. Trans Energy
can elect after June 22, 2010, to buy the 2% NPI from CIT Capital USA
Inc. at a value equal to 2% of Trans Energy's total reserve report
value at the time. The reserve report value is to be based on proved
reserves and to be calculated using a 10% discount, no inflation
adjustment for expenditures and differential adjusted market pricing
for revenues. The fair value of $765,000 has been recorded as a
reduction of oil and gas properties and a discount on the note payable
to CIT Capital USA Inc., with no gain recognized. The discount is being
amortized using the effective interest method over the term of the
note. Trans Energy also agreed to enter into hedge positions over the
next five years on 70 % to 80% of natural gas production volumes. Under
the terms of the agreement Trans Energy can elect varying interest
payment terms and a variable interest rate based on different posted
rates, at no additional cost. Borrowings under the note bear interest
at either LIBOR plus a variable margin based on the utilization of the
Borrowing Base, ranging from 1.75% to 5.25%; or at the Prime Rate plus
the Federal Funds Rate plus 0.5% plus a variable margin based on the
utilization of the Borrowing Base ranging from 1.75% to 5.25%. Interest
payment due dates are elected at the time of borrowing and range from
monthly to six months. Principal payments are due at maturity on June
15, 2010 for all borrowing outstanding on that date. Trans Energy shall
have the right at any time to prepay any borrowing in whole or in part,
before the date of maturity. Trans Energy also must pay CIT Capital USA
Inc. a commitment fee for any unused commitments, including related
letters of credit. The commitment fees range from 0.5% to 0.75% per
annum of unused average commitments. Trans Energy paid $500,000 in
financing fees to a placement agent in securing the CIT Capital USA
Inc. financing agreement. These financing fees are being deferred and
amortized using the effective interest method over the term of the
note. Trans Energy paid $200,000 to CIT Capital USA Inc. as a
structuring fee in securing the note. The structuring fee has been
recorded as a discount on the note and is being amortized using the
effective interest method over the term of the note. During the quarter
ended June 30, 2007, Trans Energy received borrowings in the amount of
$6,513,146, leaving an unused credit facility of $11,486,854.
-10-
TRANS ENERGY, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
NOTE 5 - NOTES PAYABLE (continued)
On June 22, 2007, Trans Energy repaid various related party notes in
the amount of $96,985. In addition, the company repaid the following
notes payable:
Principal Interest
--------- --------
Wesbanco $ 240,226 $ 1,218
United Bank 1,817,952 24,719
Huntington National 932,255 9,458
Karla Spencer 292,078 - 0 -
NOTE 6 - BUSINESS SEGMENTS
The Company conducts its operations principally as oil and gas sales
with Trans Energy and Prima Oil Company, and pipeline transmission with
Ritchie County Gathering Systems and Tyler Construction Company.
Certain financial information concerning Trans Energy's operations in
different segments is as follows:
For the six
Months Ended Oil and Gas Pipeline
June 30, Sales Transmission Corporate Total
--------- ----------- ----------- ----------- ------------
Revenue 2007 $ 571,681 $ 130,991 $ -- $ 702,672
2006 599,545 152,969 -- 752,514
Income (Loss) from 2007 768,090 129,475 (1,356,090) (458,525)
continuing operations 2006 884,059 113,531 (656,433) 341,157
Depreciation, depletion 2007 113,655 13,027 -- 126,682
and amortization 2006 157,313 36,705 -- 194,017
Property and equipment 2007 1,006,878 -- -- 1,006,878
acquisitions, including 2006 685,123 -- -- 685,123
oil and gas properties
Total assets, net of intercompany accounts, as at:
June 30, 2007 $ 7,471,206 $ 723,655 $ -- $ 8,194,861
December 31, 2006 5,514,899 736,510 -- 6,251,409
-11-
NOTE 7 - SUBSEQUENT EVENTS
Effective July 1, 2007, Trans Energy implemented an employee 401(k)
plan whereby Trans Energy will make basic safe-harbor matching
contributions to those employees electing to participate in the plan.
On July 6, 2007, Trans Energy finalized an agreement with Triad Energy
Corporation, Inc. for the transportation of natural gas through Trans
Energy's transmission line in Pleasants and Tyler Counties, West
Virginia.
As required by the the CIT Creditor Agreement, on July 13, 2007, Trans
Energy purchased a commodity put option for $310,000 in cash. The terms
of the option are an exercise price of $7.35/MMBTU, Settlement Date
Henry Hub price of Natural Gas as quoted by the NYMEX, and volumes
ranging from 8,241 MMBTU per month to 5,244 MMBTU per month, beginning
settlement on August 2, 2007 and ending settlement on ending on
December 1, 2011, respectively.
-12-
Item 2. Management's Discussion and Analysis or Plan of Operation
Results of Operations
---------------------------------------------------------
The following table sets forth the percentage relationship to total
revenues of principal items contained in our consolidated statements of
operations for the three month period ended June 30, 2007 and 2006. It should be
noted that percentages discussed throughout this analysis are stated on an
approximate basis.
Three Months Ended
June 30,
-------------------------
2007 2006
------- -------
(Unaudited)
Total revenues ...................................... 100% 100%
Total costs and expenses ............................ 31% (30%)
Income (loss) from operations ....................... 69% 130%
Other income (expense) .............................. (40%) (8%)
Discontinued operations .......................... -- 73%
Net income (loss)................................... 29% 194%
Total revenues from continuing operations for the three months ended
June 30, 2007 decreased 1% compared to the second quarter of 2006, primarily due
to decreased production and lower pipeline transmission revenues. We focused our
efforts during the second quarter of 2007 on a work over program on our wells
located in Wetzel County, West Virginia and capital raising activities. We
expect production to continue to increase from this work over program during the
third quarter of 2007. In addition, we started a drilling program in the second
quarter of 2007 which will continue throughout the year.
Depreciation, depletion and amortization and accretion expense
increased 7% in the 3 months ended June 30, 2007 as compared to the same period
for 2006.
Our income from operations for the second quarter of 2007 was $287,500
compared to a gain from operations of $549,181 for the second quarter of 2006.
This decrease is due to an increase in selling, general and administrative
expenses due to the associated expenses of our debt financing and the increase
in our production costs associated with the implementation of our work over
program.
Our net income for the second quarter of 2007 was $119,069 compared to
a net income of $821,239 for the second quarter of 2006. In 2006, we recorded
income from continuing operations of $513,960 and $307,279 in income from
discontinued operations due to the disposal of Arvilla.
The following table sets forth the percentage relationship to total
revenues of principal items contained in our consolidated statements of
operations for the six month period ended June 30, 2007 and 2006. It should be
noted that percentages discussed throughout this analysis are stated on an
approximate basis.
-13-
Six Months Ended
June 30,
-------------------------
2007 2006
------- -------
(Unaudited)
Total revenues ...................................... 100% 100%
Total costs and expenses ............................ 134% (46%)
Income (loss) from operations ....................... (34%) 54%
Other income (expense) .............................. (31%) (9%)
Discontinued operations .......................... -- (183%)
Net income (loss)................................... (65%) (137%)
Total revenues from continuing operations for the six months ended June
30, 2007 decreased 7% compared to the second quarter of 2006, primarily due to
lower pipeline revenues as well as the sale of the Wyoming wells. We have
focused our efforts during the first six months of 2007 on a work over program
on our wells located in Wetzel County, West Virginia. We expect production to
continue to increase from this work over program during the third quarter of
2007. In addition, we started a drilling program in June 2007 which will
continue throughout the year.
Depreciation, depletion and amortization and accretion expense
decreased 35% in the six months ended June 30, 2007 as compared to the same
period in 2006.
We had a loss from operations for the six months ended June 30, 2007 of
$237,465 compared to a gain from operations of $407,748 for the six months ended
June 30, 2006 due to an increase in selling, general and administrative expenses
due to the associated expenses of our debt financing and the increase in our
production costs associated with the implementation of our work over program.
Our net loss for the first six months of 2007 was $458,525 compared to
a loss of $1,033,870 for the first six months of 2006. We recorded a loss from
discontinued operations in 2006 of $1,558,802 due to the disposal of Arvilla.
For the remainder of fiscal year 2007, management expects selling,
general and administrative expenses to increase. 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 2007.
Liquidity and Capital Resources
-------------------------------
Historically, we have satisfied our working capital needs with
operating revenues and from borrowed funds. At June 30, 2007, we had a working
capital surplus of $1,476,257 compared to a deficit of $2,610,953 at December
31, 2006. This increase in working capital surplus is primarily attributed to
the sale of wells in Marion County from which we realized cash of $760,000, as
well as cash received from our debt financing.
During the first six months of 2007, operating activities used net cash
of $896,928 compared to $513,700 for the same period of 2006. This increased
negative cash flow from operating activities is primarily attributable to
decreased revenues and our decision to pay off the outstanding payables and
judgments, as well as increased expenses related to the workover program and the
seismic acquisition in Kansas.
Net cash provided by investing activities for the first six months of
2007 was $435,261 compared to $41,701 in 2006. We used $869,768 for the purchase
of oil and gas properties and $137,110 to purchase property and equipment and
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$1,442,139 was received from the sale of wells for the six month period ended
June 30, 2007 compared to no expenditures for the purchase of oil and gas
properties and $685,123 to purchase property and equipment and $726,824 was
received from the sale of wells in the six month period ended June 30, 2006.
During the first six months of 2007, we were provided net cash in
financing activities of $2,529,544 compared to $520,256 in the same period of
2006. In 2007, we borrowed $6,376,200 and repaid $3,346,917 in notes payable.
We anticipate meeting our working capital needs during the remainder of
the current fiscal year with revenues from our ongoing operations, particularly
from our wells in Wetzel, Marion and Doddridge Counties, West Virginia and new
third party natural gas wells drilled in West Virginia, which gas goes into our
6-inch pipeline. 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. In addition, we have an available credit facility of $11,486,854 which we
plan to use to fund our drilling program in Wetzel, Marion, and Doddridge
Counties, West Virginia.
Because of our continued losses, working capital deficit, and need for
additional funding, there exists substantial doubt about our ability to continue
as a going concern. Historically, our revenues have not been sufficient to cover
operating costs. However, we may potentially need to rely on proceeds from the
sale of common stock, debt or equity financings, and increased operating
revenues from new developments to allow us to continue as a going concern. There
can be no assurance that we can or will be able to complete any debt or equity
financing.
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. When used in this report, the words
"may," "will," "expect," "anticipate," "continue," "estimate," "project,"
"intend," and similar expressions are intended to identify forward-looking
statements regarding events, conditions, and financial trends that may affect
our future plans of operations, business strategy, operating results, and our
future plans of operations, business strategy, operating results, and financial
position. 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 any products or services;
o success of our drilling activities;
o volatility of the stock market, particularly within the energy
sector; and
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o general economic conditions.
Although we believe the expectations reflected in these forward-looking
statements are reasonable, such expectations cannot guarantee future results,
levels of activity, performance or achievements.
Item 3. Controls and Procedures
-----------------------
We maintain disclosure controls and procedures that are designed to be effective
in providing reasonable assurance that information required to be disclosed in
our reports under the Securities Exchange Act of 1934 is recorded, processed,
summarized and reported within the time periods specified in the rules and forms
of the SEC, and that such information is accumulated and communicated to our
management to allow timely decisions regarding required disclosure.
In designing and evaluating disclosure controls and procedures, management
recognizes that any controls and procedures, no matter how well designed and
operated, can provide only reasonable, not absolute assurance of achieving the
desired objectives. Also, the design of a control system must reflect the fact
that there are resource constraints and the benefits of controls must be
considered relative to their costs. Because of the inherent limitations in all
control systems, no evaluation of controls can provide absolute assurance that
all control issues and instances of fraud, if any, have been detected. These
inherent limitations include the realities that judgments in decision-making can
be faulty and that breakdowns can occur because of simple error or mistake. The
design of any system of controls is based, in part, upon certain assumptions
about the likelihood of future events and there can be no assurance that any
design will succeed in achieving its stated goals under all potential future
conditions.
As of the end of the period covered by this report, we carried out an
evaluation, under the supervision and with the participation of management,
including our chief executive officer and principal financial officer, of the
effectiveness of the design and operation of our disclosure controls and
procedures as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act.
Based upon that evaluation, management concluded that our disclosure controls
and procedures were not effective to cause the information required to be
disclosed by us in reports that we file or submit under the Exchange Act is
recorded, processed, summarized and reported within the time periods prescribed
by SEC, and that such information is accumulated and communicated to management,
including our chief executive officer and principal financial officer, as
appropriate, to allow timely decisions regarding required disclosure. The
disclosure controls and procedures were considered not effective due to the
adjusting entries proposed by our auditors related to the discount on the new
financing. We have put procedures in place to properly disclose these amounts in
the future.
There was no change in our internal controls over financial reporting identified
in connection with the requisite evaluation that occurred during our last fiscal
quarter that has materially affected, or is reasonably likely to materially
affect, our internal control over financial reporting.
PART II
Item 1. Legal Proceedings
------- -----------------
Information concerning certain material pending legal proceedings to which we
are a party, or to which any of our property is subject, is set forth below:
On September 22, 2000, Tioga Lumber Company obtained a judgment of $43,300 plus
interest in the Circuit Court of Pleasants County, West Virginia, against Tyler
construction Company for breach of contract. On February 28, 2002, we reached a
negotiated payment schedule with Tioga and made the initial payment. We believe
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that we have satisfied the balance owed to Tioga of $26,233.58, although the
judgment has not yet been released. We are proceeding to secure the release of
the judgment.
We may be engaged in various other lawsuits and claims, either as plaintiff or
defendant, in the normal course of business. In the opinion of management, based
upon advice of counsel, the ultimate outcome of these lawsuits will not have a
material impact on our financial position or results of operations.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
------- -----------------------------------------------------------
On June 18, 2007, we issued 62,500 shares of our common stock, valued at $0.80
per share, to William F. Woodburn in consideration for the balance of $50,000
remaining on a short-term related party note. The shares were issued in a
private, non-public isolated transaction pursuant to exemption from registration
provided by Section 4(2) of the Securities Act of 1933.
Item 3. Defaults Upon Senior Securities
------- -------------------------------
None.
Item 4. Submission of Matters to a Vote of Security Holders
------- ---------------------------------------------------
No matters were submitted to a vote of our securities holders during the second
quarter ended June 30, 2007.
Item 5. Other Information
------- -----------------
The following reports were filed with the SEC on Form 8-K during the six month
period ended June 30, 2007.
April 7, 2007 - reporting under Item 3.01 the notice of delisting or
failure to satisfy a continued listing rule or standard.
June 22, 2007 - reporting under Item 1.01 the entry into a material
definitive agreement for financing with CIT Capital USA, Inc.
Item 6. Exhibits
------- --------
Exhibit 31.1 Certification of C.E.O. Pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.
Exhibit 31.2 Certification of Principal Accounting Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
Exhibit 32.1 Certification of C.E.O. Pursuant to 18 U.S.C.
Section 1350, as Adopted Pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
Exhibit 32.2 Certification of Principal Accounting Officer
Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
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SIGNATURES
In accordance with the requirements of the Securities Exchange Act of
1934, the Registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
TRANS ENERGY, INC.
Date: August 16, 2007 By /S/ JAMES K. ABCOUWER
-----------------------
JAMES K. ABCOUWER
Chief Executive Officer and Director
Date: August 16, 2007 By /S/ LISA A. CORBITT
-------------------------------
LISA A. CORBITT
Controller, Principal Financial Officer
(Principal Accounting Officer)
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