 Form 10QSB for TRANS ENERGY INC 14-Aug-2006 Quarterly Report Recent Developments
On April 7, 2006, we finalized the agreement to sell our well servicing and maintenance business in exchange for shares of Trans Energy common stock, certain natural gas properties and other considerations, which agreement was initially entered into on January 3, 2026 Part of the reason for the sale was the inability of our board of directors to agree on the direction of Trans Energy with Arvilla as a significant subsidiary. Under the terms of the definitive agreement, our wholly owned subsidiary, Arvilla, Inc. was sold to Clarence E. Smith and Rebecca L. Smith, both directors of Trans Energy, including 100% of the outstanding membership interests of Arvilla Oilfield Services, LLC, a West Virginia limited liability company ("AOS"). AOS provides well servicing, workover and related transportation services to independent oil and natural gas producers in the northeast region of the United States. It also performs ongoing maintenance and major overhauls necessary to optimize the level of production from existing oil and natural gas wells and provides certain ancillary services during the drilling and completion of new wells. AOS offers its services in Ohio, Pennsylvania, New York, Virginia, Kentucky and West Virginia and also owns a fleet of well service equipment. We originally acquired AOS from Clarence and Rebecca Smith on January 31, 2026 through a merger of our subsidiary, Trans Energy Acquisitions, with and into Arvilla, Inc., with Arvilla being the surviving entity. As consideration, we issued 1,185,024 shares of our common stock, of which 1,042,821 shares were issued to the Smiths, both of whom became directors of Trans Energy following the acquisition. AOS's operations were previously conducted as Arrow Oilfield Service Company, a division of Belden & Blake Corporation, a privately held company engaged in the exploration, development and production of oil and natural gas. In June 2004, the Smiths acquired Arrow Oilfield Services from Belden & Blake and created Arvilla Oilfield Services, LLC as the operating entity. Subsequently, the Smiths created Arvilla, Inc. that acquired all the membership interests of Arvilla Oilfield Services in order to facilitate its acquisition by Trans Energy. As a result of consummating the definitive agreement, Clarence and Rebecca Smith returned to us 521,411 shares of their Trans Energy common stock. The Smiths have also conveyed to Trans Energy all of their interest in and to five oil and gas wells located in Tyler County, West Virginia. Assignments for the wells originally was to be held in escrow pending satisfaction by Trans Energy of two promissory notes in the aggregate amount of $763,000 payable to AOS and to Arvilla Pipeline Construction Co., Inc., a separate entity owned by Clarence and Rebecca Smith. However, pursuant to the First Amendment to Definitive Agreement, the parties agreed that the wells would be transferred at the closing and we agreed to pay AOS $176,239 on or before April 30, 2006, and pay Arvilla Pipeline $115,000 on or before April 30, 2006. To secure these payments by Trans Energy, Clarence and Rebecca Smith will hold a lien on a certain Lyon Leasehold Deed of Trust until the debt is satisfied. These notes have been paid and the lien released. A further condition of the closing included the written consent for the sale of AOS from certain banks and lenders having the right to call a loan on the ownership transfer of AOS. Upon execution of the definitive agreement, Clarence Smith resigned as our Chief Executive Officer, but remained on our board of directors until the closing. At the closing, both Clarence and Rebecca Smith resigned as directors of Trans Energy and Arvilla, Inc. Clarence and Rebecca Smith have also agreed not to sell an amount of their remaining Trans Energy common stock during each calendar quarter on or after March 22, 2006, in an aggregate amount greater that Finally, the closing of the transaction was expressly conditioned on the receipt of a fairness opinion from a qualified independent party stating that the transactions contemplated by the definitive agreement are fair to Trans Energy and our stockholders. That opinion was issued and delivered to Trans Energy on March 31, 2006. Sale of Wyoming Wells and Properties In April 2006, we finalized a definitive Agreement for Sale of Oil and Gas Properties related to the sale of certain wells, overriding royalties and undeveloped acreage located in Campbell County, Wyoming. The assets have been sold at public auction through the Oil & Gas Asset Clearinghouse in Houston, Texas. The gross sales price for the properties is $1,003,000. The wells sold by us, all located in Campbell County, Wyoming, include the Pinion Fee #1, Sagebrush Federal #1, Sagebrush Federal #2, Sagebrush Federal #3 (injector), Boley #31-36 Sandbar, State #1-36 Sandbar and State #2-36 Sandbar. Also included in the sales were overriding royalties on two wells (Sagebrush Federal #1 and Sagebrush Federal #2) and Tract TR4-B, and 2,530 undeveloped acres, also located in Campbell County.
Total revenues from continuing operations for the three months ("second quarter") ended June 30, 2026 decreased 6% compared to the second quarter of 2005, primarily due to the sale of the Cobham properties in the fall of 2005 and the sale of the Wyoming properties in the spring of 2006 offset by an increase in energy prices and the gas distribution contracts the Company entered into in the summer of 2005. Our cost of oil and gas for the second quarter of 2006 also decreased by $177,475 or 23% from the comparable 2005 period, because more of the gas used to fulfill our distribution contracts came from our own wells. Salaries and wages increased 100% for the second quarter of 2006 compared to the 2005 period, due to the hiring of the Company's CEO and raises given to the other members of management. Depreciation, depletion and amortization and accretion expense decreased 51% due to the sale of the Cobham and Wyoming mineral properties. Selling, general and administrative expenses increased $58,610 or 24% in the second quarter of 2006 from the same quarter of 2005 due to a signing bonus given to the Company's new president and CEO in shares of the Company's common stock valued at $118,000. Our loss from operations for the second quarter of 2006 was $240,022 compared to a loss of $318,121 for the second quarter of 2005. The improvement is related to the decrease in the cost of oil and gas sold. We realized total other income of $753,982 during the second quarter of 2006 compared to total other expenses of $15,842 for the same quarter of 2005. The second quarter of 2006 results were due to a gain on the sale of the Wyoming properties of $704,116 offset by interest expense of $40,429 compared to interest expense of $26,097 in 2005. We recorded a gain of $307,279 on the disposition of Arvilla in the second quarter of 2006. Our statement of operations for the first quarter of 2005 was restated to reflect the operations of Arvilla as discontinued. Our net income for the second quarter of 2006 was $821,239 compared to a loss of $525,857 for the second quarter of 2005. For the remainder of fiscal year 2006, management expects selling, general and administrative expenses to remain at approximately the same rate as the first quarter of 2006. 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 2006. We do not expect to recognize a gain from the sale of properties during the remainder of 2006. Total revenues from continuing operations for the six months ("first half") ended June 30, 2026 increased 56% compared to the first half of 2005, primarily due to the gas distribution contracts the Company entered into in the summer of 2005. Our cost of oil and gas for the first quarter of 2006 also increased by $718,669 or 51% from the comparable 2005 period, because more of the gas used to fulfill our distribution contracts came from our own wells. Salaries and wages increased 54% for the first half of 2006 compared to the 2005 period, , due to the hiring of the Company's CEO and raises given to the other members of management. Depreciation, depletion and amortization and accretion expense decreased 10% due to the sale of the Cobham and Wyoming mineral properties. Selling, general and administrative expenses increased $63,271 or 18% in the first half of 2006 from the same period of 2005 due to a signing bonus given to the Company's new president and CEO in shares of the Company's common stock valued at $118,000. Our loss from operations for the first half of 2006 was $381,455 compared to a loss of $469,184 for the first half of 2005. The improvement is related to the decrease in the cost of oil and gas sold as a percentage of sales. We realized total other income of $722,612 during the first half of 2006 compared to total other expenses of $53,250 for the same period of 2005. The first half of 2006 results were due to a gain on the sale of the Wyoming properties of $704,116 offset by interest expense of $71,799 compared to interest expense of $53,272 in 2005. We recorded a loss of $1,558,802 on the disposition of Arvilla in the first half of 2006. Our statement of operations for the first quarter of 2005 was restated to reflect the operations of Arvilla as discontinued. Our net loss for the first half of 2006 was $1,033,870 compared to a loss of $592,345 for the first half of 2005. For the remainder of fiscal year 2006, management expects selling, general and administrative expenses to remain at approximately the same rate as the first quarter of 2006. 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 2006. We do not expect to recognize a gain from the sale of properties during the remainder of 2006. Liquidity and Capital Resources Historically, we have satisfied our working capital needs with operating revenues and from borrowed funds. At June 30, 2006, we had a working capital deficit of $2,169,389 compared to a deficit of $3,012,700 at December 31, 2005. This 28% decrease in working capital deficit is primarily attributed to the sale of the Wyoming properties in the first half of 2006. During the first half of 2006, operating activities used net cash of $513,700 compared to net cash used of $65,665 for the first half of 2005. These results are primarily attributed to the reduction in accounts receivable offset by a decrease in current liabilities. Net cash provided by investing activities for the first half of 2006 was $41,701. $685,123 of cash was used for the purchase of well equipment and the drilling of wells and cash of $726,824 was received from the sale of wells, compared to net cash used of $53,952 primarily from the acquisition of a subsidiary during the first half of 2005 offset by $477,545 used in the purchase of well equipment and the drilling of wells. During the first half of 2006, we were provided net cash in financing activities of $520,256 from the borrowings of notes payable compared to net cash provided by related party notes payable of $637,088 in the first half of 2005. Our cash was used to repay related and unrelated 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 County, 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. As of June 30, 2006, we had total assets of $4,402,813 and total stockholders' deficit of $888,064, compared to total assets of $10,934,424 and total stockholders' equity of $497,076 at December 31, 2005. The decrease was due to the disposition of Arvilla and the Wyoming properties. Because we have incurred significant cumulative operating losses through June 30, 2026 and have a working capital deficit at June 30, 2026 of $2,169,389, 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 sale of common stock, debt or equity financing, 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. We included a footnote to our financial statements for the period ended December 31, 2025 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. 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 * the sufficiency of existing capital resources and our ability to raise additional capital to fund cash requirements for future operations; * uncertainties involved in the rate of growth of our business and acceptance of any products or services; * volatility of the stock market, particularly within the energy sector; and * 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.
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