UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Amendment No. 1
to
FORM 10-KSB/A
(Mark One)
Annual Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
For the Fiscal Year Ended December 31, 1995
Transition Report Pursuant to Section 13 or 15(d)
of The Securities Exchange Act of 1934
Commission File Number 0-23530
TRANS ENERGY, INC.
(Name of small business issuer 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) (Zip Code)
Issuer's telephone no.: (304) 684-7053
Securities registered pursuant to Section 12(b) of the Exchange Act:
None
Securities registered pursuant to Section 12(g) of the Exchange Act:
Common, $.001 par value
(Title of Class)
Check whether the issuer (1) filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act 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 No
Check if there is no disclosure of delinquent filers in
response to Item 405 of Regulation S-B contained in this form, and
no disclosure will be contained, to the best of the Registrant's
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB.
State issuer's revenues for its most recent fiscal year.
$2,828,162
State the aggregate market value of the voting stock held by
non-affiliates computed by reference to the price at which the
stock was sold, or the average bid and ask prices of such stock as
of a specified date within 60 days.
$6,220,135 (Based on price of $5.00 per share on
December 9, 1996)
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
December 9, 1996
Common Stock, Par Value 3,238,677
$.001 per share
DOCUMENTS INCORPORATED BY REFERENCE
NONE
Transitional Small Business Disclosure Format. Yes No
<PAGE>
TRANS ENERGY, INC.
TABLE OF CONTENTS
Page
PART I
Item 1 Description of Business . . . . . . . . . . . . . 1
Item 2 Description of Property. . . . . . . . . . . . . . 14
Item 3 Legal Proceedings. . . . . . . . . . . . . . . . . 16
Item 4 Submission of Matter to a Vote of Security
Holders. . . . . . . . . . . . . . . . . . . . . . 16
PART II
Item 5 Market for Common Equity and Related Stockholder
Matters. . . . . . . . . . . . . . . . . . . . . . 17
Item 6 Management's Discussion and Analysis or Plan
of Operation . . . . . . . . . . . . . . . . . . . 18
Item 7 Financial Statements . . . . . . . . . . . . . . . 22
Item 8 Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure. . . . . . . . 45
PART III
Item 9 Directors, Executive Officers, Promoters and
Control persons; Compliance with Section 16(a)
of the Exchange Act. . . . . . . . . . . . . . . . 45
Item 10 Executive Compensation . . . . . . . . . . . . . . 47
Item 11 Security Ownership of Certain Beneficial
Owners and Management. . . . . . . . . . . . . . . 47
Item 12. Certain Relationships and Related Transactions . . 49
PART IV
Item 13. Exhibits and Reports on Form 8-K . . . . . . . . . 53
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . 54
-i-
<PAGE>
PART I
Item 1. Description of Business
History
Trans Energy, Inc. (the "Company") is primarily engaged in the
exploration, development, production, transportation and marketing
of natural gas and oil within the Appalachian Basin, particularly
located in Northwestern West Virginia. The Company owns and
operates 105 oil and gas wells and also owns and operates over 100
miles of major transmission lines located within West Virginia in
the Counties of Ritchie, Tyler, Doddridge, and Pleasants. The
Company has approximately 7,175 leasehold acres in the "Rose Run"
formation in the State of Ohio and approximately 2,200 leasehold
acres in its Sistersville, West Virginia field. In addition, the
Company also engages in oil gathering and marketing in Southeastern
Texas through its subsidiary, Vulcan Energy Corporation
("Vulcan").
The Company was originally organized on January 16, 1964 under
the laws of the State of Idaho as Alter Creek Mining Company, Inc.
In January, 1988, the Company entered into a transaction whereby it
acquired certain assets, consisting of oil and gas leases, and
certain liabilities of Ben's Run Oil Company, a partnership formed
in 1984 (hereinafter "Ben's Run") and owned by Stanley P. Wilcox
and John B. Sims, in exchange for 390,000 shares (post-split as
hereinafter defined) of authorized but previously unissued common
stock of the Company. In connection with the transaction, the
Company changed its corporate name to Apple Corp.
On January 30, 1989, the Company acquired from Black Petroleum
Corporation, a Massachusetts corporation (hereinafter "Black
Petroleum"), certain interests in gas and oil producing properties,
consisting of over 100 gas and oil wells located in Texas,
Oklahoma, Kansas and West Virginia, and assumed certain liabilities
related to said properties in exchange for $100,000 in cash,
160,790 shares (post-split) of the Company's authorized but
previously unissued common stock, and a 3/16 override on all wells
more than fifty percent (50%) owned. Pursuant to this transaction,
Black Petroleum also received certain anti-dilution rights relating
to its percentage ownership of the Company's common stock and a
stock purchase warrant to acquire additional shares of the
Company's common stock. Both the anti-dilution provisions and the
stock purchase warrant expired in January, 1994. Black Petroleum
does retain certain registration rights entitling it to include in
a registration statement filed by the Company, up to 50% of its
shares acquired in the transaction. The Company subsequently
disposed of several of the wells retaining only wells located in
West Virginia.
At the Company's Special Meeting of Shareholders held
September 22, 1993, the shareholders approved the following: (i)
the proposal to effect a reverse stock split on the outstanding
shares of the Company's common stock on a two (2) shares for five
(5) shares basis; (ii) the proposal to acquire certain oil and
gas assets and capital stock in exchange solely for shares of the
Company's common stock (as further described below); and (iii) the
proposal to effect the necessary corporate action to change the
domicile of the Company from the State of Idaho to the State of
Nevada and to change the corporate name to Trans Energy, Inc.
On November 5, 1993, the Board of Directors incorporated a new
corporation in the State of Nevada in the name of Trans Energy,
Inc. with the specific intent of effecting a merger between Trans
Energy, Inc. of Nevada and Apple Corp. of Idaho. The sole purpose
of the merger was to change the domicile of the Company to the
State of Nevada. On November 15, 1993, Apple Corp. and the newly
formed Trans Energy, Inc. of Nevada executed a merger agreement
whereby the shareholders of Apple Corp. exchange all of their
issued and outstanding shares of common stock for an equal number
of shares of Trans Energy, Inc. common stock. Trans Energy, Inc.
was the surviving corporation and Apple Corp. was dissolved. The
sole shareholder of Trans Energy, Inc. holding one share of common
stock prior to the merger, returned his share to the Company for
cancellation. As a result of the transaction, the Company became
a corporation domiciled in Nevada and the Idaho corporation (Apple
Corp.) was dissolved.
Shareholders who owned shares of Apple Corp. common stock
prior to November 15, 1993, became the owners of Trans Energy, Inc.
(Nevada) common stock, and their shares have been reverse split
pursuant to the two shares for five shares split ratified by the
shareholders on September 22, 1993.
The Company's principal executive offices are located at 210
Second Street, P.O. Box 393, St. Marys, West Virginia 26170, and
its telephone number is (304) 684-7053.
Business Development
The Company operates primarily in the Appalachian Basin
principally in Northwestern West Virginia, and, to a lesser extent,
in central Ohio. In Northwestern West Virginia, shallow wells
drilled to a depth of up to 6,000 feet are characterized by long
producing lives with low-volume production from low permeability
reservoirs with a thickness ranging from 10 to 40 feet. A typical
shallow well will encounter commercial gas production from between
4 and 10 separate and distinct production horizons including Big
Injun, Gordon, Wier and Benson. Due to mechanical and technical
limitations, it is usually possible to produce only up to 2 to 5 of
these formations simultaneously, and consequently, necessitates
either the drilling of a twin well or recompletion of the original
well at a later date where multiple productive formations are
penetrated.
The Company intends to focus its activities in the Appalachian
Basin, which is geographically one of the largest gas and oil
producing regions as well as the oldest gas and oil producing
region in the United States. Operators in the Appalachian Basin
historically have experienced high drilling success rates in the
formations of the Basin, with wells generally producing for more
than 25 years although at low production volumes. The Appalachian
Basin is located in close proximity to the largest gas markets in
the United States and, historically, this has generally resulted in
wellhead gas prices somewhat higher than those prices received in
the Gulf Coast and the Mid-Continent producing regions.
The Company's business strategy is to economically increase
its reserves, production and sale of gas and oil from existing and
acquired properties in the Appalachian Basin and elsewhere in order
to maximize stockholders' return over the long term. The Company's
strategic location in West Virginia enables the Company to actively
pursue the acquisition and development of producing properties in
that area that will enhance the Company's revenue base without
proportional increases in overhead costs. The Company has directed
its attention to Appalachian Basin properties in which it will
have a significant ownership interest and will serve as operator.
To accomplish this strategy, the Company has focused on
increasing its gas and oil revenues through well recompletions,
property acquisitions and exploitation programs. Since 1992, the
Company's proven reserves of natural gas and oil have increased by
an aggregate of 71% and 1%, respectively. There can be no
assurance, however, that the Company will be able to continue to
expand its proven reserves of natural gas and oil.
Following the acquisition of the Ben's Run oil and gas leases
in 1988, the Company became actively engaged in the operation of
oil and gas wells. However, revenue realized by the Company's oil
and gas sales decreased annually from 1990. Early in 1993,
management determined that an overall evaluation of the Company's
properties was proper and that it would be in the best interest of
the Company to consolidate its current holdings and make new
acquisitions that would presumably lead to increased future
revenues.
At the Company's Special Meeting of Shareholders held
September 22, 1993, the Board of Directors presented a plan to the
shareholders whereby the Company would acquire, pursuant to four
separate agreements, certain oil and gas assets, including wells
and pipelines, in exchange solely for shares of the Company's
authorized but previously unissued common stock. As a result of
the vote on the proposal, the shareholders approved the
acquisitions which are summarized below:
Tyler Construction Company, Inc.
Pursuant to the Stock Acquisition Agreement executed September
22, 1993, the Company acquired an interest equal to 65% of the
total outstanding shares of Tyler Construction Company, Inc.
("Tyler Construction"), a West Virginia corporation with offices in
St. Marys, West Virginia. Tyler Construction owns and operates a
natural gas gathering pipeline system serving the industrialized
Ohio Valley. Its system delivers natural gas to industrial users
located along the Ohio River and intercepts major transmission
lines of other major corporations including Carnegie Natural Gas,
Consolidated Natural Gas and Columbia Natural Gas. Tyler
Construction owns and operates 27 miles of six-inch pipeline and 10
miles of four-inch pipeline.
In exchange for the 65% interest, the Company issued to Loren
E. Bagley and William F. Woodburn, the holders of the 65 shares of
Tyler Construction equaling 65% of its total outstanding shares,
750,000 shares of the Company's authorized but previously unissued
common stock, post-split. Mr. Bagley, President of the Company,
and Mr. Woodburn, Vice President and a director of the Company and
also President of Tyler Construction, did not participate in the
vote by the Company's Board of Directors to acquire
Tyler Construction.
Tyler Construction's trunk line system consists of a six-inch
pipeline that begins at the town of St. Marys, West Virginia,
located on the Ohio River in the County of Pleasants in western
West Virginia, and proceeds twenty-seven miles due east to Bradden
Station, West Virginia. Near Bradden Station, the pipeline
intercepts major transmission lines of Carnegie Natural Gas,
Consolidated Natural Gas and Columbia Natural Gas. An intercepting
line consisting of ten miles of four-inch pipeline begins at a
point eight miles east of St. Marys and proceeds north 10 miles to
an industrial park located seven miles south of Sistersville, West
Virginia. At this point, gas is delivered to OSI Specialties
(formerly Union Carbide) and Consolidated Aluminum Corporation of
America under a marketing agreement with Sancho Oil & Gas
Corporation ("Sancho"). Pursuant to its agreement with Sancho, the
Company has the right to sell natural gas subject to the terms and
conditions of a 15-year contract that Sancho entered into with Hope
Natural Gas in 1988. This agreement is a flexible volume supply
agreement whereby the Company receives the full price which Sancho
charges the end user less a $.05 per mcf marketing fee paid to
Sancho. The price of the natural gas is based upon an index that
includes the residential gas commodity charge of Hope Natural Gas.
Spencer Wells
Also on September 22, 1993, the Company acquired from Mr.
Dennis L. Spencer, all rights, title and interest to six producing
oil and gas wells located in West Virginia, in exchange for 500,000
shares (post-split) of the Company's authorized but previously
unissued common stock. Five of the wells identified as "Fowler",
"Goff", "Locke", "McGill" and "Workman" are situated in Ritchie
County in a proven reservoir field. The remaining well identified
as "Spencer", is located in Tyler County. All six wells were
completed in 1991 and have been producing oil and gas through the
date hereof.
At the time of the acquisition of the wells Mr. Spencer was a
nominee to become a director of the Company and is presently a
director and Secretary of the Company. Mr. Spencer did not
participate in the vote by the Company's Board of Directors to
acquire the wells.
The Pipeline, Ltd.
Also on September 22, 1993, the Company entered into the Asset
Acquisition Agreement with Tyler Pipeline, Inc., a West Virginia
corporation ("Tyler Pipeline"), whereby the Company acquired all
rights, title and interest in the natural gas gathering pipeline
system known as The Pipeline, Ltd., a four-inch pipeline that
begins at Twiggs, West Virginia, nine miles east of St. Marys,
where it intercepts Tyler Construction's trunk line system and
proceeds due south for a distance of six miles. The Pipeline, Ltd.
system is used for purchasing gas from third party producers.
In exchange for The Pipeline, Ltd., the Company issued to
Tyler Pipeline 250,000 shares of the Company's authorized but
previously unissued common stock, post-split. Mr. Woodburn, Vice
President and a director of the Company, is also President and owns
50% of Tyler Pipeline. Mr. Bagley, President and a director of the
Company, also owns 50% of Tyler Pipeline. Neither Mr. Woodburn nor
Mr. Bagley participated in the vote by the Company's Board of
Directors to acquire The Pipeline, Ltd.
Ritchie County Gathering Systems, Inc.
Pursuant to the Stock Exchange Agreement executed on September
22, 1993, the Company acquired all the issued and outstanding
capital stock of Ritchie County Gathering Systems, Inc., a West
Virginia corporation ("Ritchie County Gathering"), in exchange for
500,000 shares (post-split) of the Company's authorized but
previously unissued common stock. Ritchie County Gathering owns
and operates a four-inch natural gas gathering line which begins
five miles south of Cairo, West Virginia at Rutherford, and
proceeds due south for 4.6 miles, crossing the Mellon Ridge and
ending at Macfarlan Creek approximately 1/2 mile north of the South
Fork of the Hughes River. The Ritchie County Gathering pipeline is
used for purchasing gas from third party producers.
Mr. Bagley, President and a director of the Company and also
President of Ritchie County Gathering, did not participate in the
vote by the Company's Board of Directors to acquire Ritchie County
Gathering.
Current Business Activities
The Company is actively engaged in the operation of its oil
and natural gas properties and in the transportation and marketing
of its natural gas through its transmission systems. In addition,
through Vulcan the Company is actively engaged in lease crude
gathering and marketing. Management has expressed its desire to
acquire additional oil and natural gas properties and to become
more involved in exploration and development, specifically on its
Rose Run acreage in Ohio and Sistersville acreage in West Virginia.
Management intends to continue to develop and increase the
production from the oil and natural gas properties that it
currently owns. In order to increase production, the Company must
put the necessary pumping equipment on the wells so that the fluid
can be artificially lifted to the surface. The Company projects
that it will attempt to increase the production of approximately
ten of its wells during the first half of 1996 at a projected cost
of approximately $125,000. In addition to equipping the oil and
gas wells, the Company intends to re-enter certain of its wells and
recomplete the wells in different oil and gas bearing zones.
Management has not yet determined the estimated cost of this
project.
Although the Company will continue to transport and market
natural gas through its various pipelines, there are no current
plans to acquire or to lay any additional pipeline systems in 1996.
Apart from its Rose Run drilling project, the Company has not
drilled any new wells in the last three years. No new drilling is
projected except in the Rose Run and Sistersville areas discussed
below.
Rose Run.
In 1994, the Company purchased approximately 14,000 leasehold
acres in the "Rose Run" formation in the State of Ohio for a total
purchase price of $287,000. The acreage was acquired from Tyler
Pipeline, Inc., which is owned by the President and Vice President
of the Company, in part for forgiveness of receivables due from
those individuals. The balance of the purchase price of $135,867
is carried on the Company's financial statements as a related party
loan payable.
The development of the Rose Run formation as a productive oil
and gas producing area has been achieved through the application of
seismic exploration techniques and the correlation of subsurface
data to the geology of this area of the Appalachian Basin. The
seismic profiles have provided geologists and geophysicists with a
two-dimensional ("2-D") profile, or cross section, of the area
several thousand feet below the surface. Since the advent of
seismic testing in the Ohio portion of the Rose Run area, the
overall drilling success rate in the area in the last six years has
increased from 24% to over 60%.
The Company entered into an oral arrangement with a co-
venturer for the drilling and completion of a minimum of one oil
and gas well on the Rose Run acreage. In addition to the
exploration activities of the venture, several miles of 2-D seismic
were run to determine if other potential drilling sites are located
on the leasehold acreage. During June 1995, the Company's co-
venturer drilled an exploratory well in the Rose Run acreage which
proved to be a "dry hole." The Company did not pay for any of the
costs associated therewith and all activities in connection with
such drilling activities were undertaken and paid for by the
Company's co-venturer. Any future exploration activities by the
Company and its co-venturer are subject to mutual agreement between
the Company and its co-venturer. Presently no such agreement
exists or is contemplated. The Company presently intends to
continue seismic mapping of the Rose Run.
Recently, three-dimensional ("3-D") seismic testing has become
available in the Appalachian Basin. 3-D testing has been used
successfully in other areas of the country, particularly Texas.
Unlike 2-D testing which provides a cross-sectional view of the
subsurface of the Earth, 3-D testing provides a full, three
dimensional view of the subsurface. Such views allow for greater
precision in the location of potential drilling sites. 3-D testing
allows potential drillers to obtain accurate estimates of the size
of oil and gas bearing structures and the profile of the structure.
2-D testing only informs the driller that an oil and gas bearing
structure is in a particular area, without giving information as to
size and shape. Without an accurate estimate of the size of the
oil and gas bearing structures, it is difficult to accurately
estimate the reserves in the structure, and, thus, the economic
viability of drilling into a particular structure. Without an
accurate profile of the structure, a driller may not hit the most
economical portion of the structure.
Water pressure primarily is responsible for the movement of
oil within the Company's Rose Run acreage. Gas pressure also
accounts for a certain degree of oil movement in the area. Where
water pressure is the cause of oil movement, finding the apex of
the oil bearing structure is critical. Drilling into the apex of
such a structure usually assures that a maximum amount of oil, and
a minimal amount of water, will be recovered from a well. Hitting
such a zone elsewhere than at the apex will result in a lower
proportion of oil to water and reduced rates of recovery.
The Company will use the 3-D technique in the Rose Run area
and, if successful, management believes that use of 3-D testing
will give the Company a competitive advantage in the Rose Run area
of Ohio. If the 3-D technique proves viable in the Rose Run, the
Company intends to use the 3-D technique in its other potential
producing areas held by the Company. The Company intends to run 3-
D seismic tests over a three square mile area of the Rose Run
acreage to obtain more accurate data on the location of gas and oil
bearing structures. Depending upon the results of the 3-D seismic
testing, the Company intends to initiate further exploratory
drilling on the Rose Run acreage. If the Rose Run formation is
found to be productive, the Company would most likely shift its
emphasis to the Rose Run project and would devote more time and
monies to the development of this project as funding becomes
available. The target depth of the Rose Run acreage is a
relatively shallow 2,800 feet. At that depth, the cost of drilling
a dry hole is approximately $70,000. If a well is determined to be
commercially productive, an additional $40,000 in expenses are
required to complete the well. Depending on the results of its 3-D
study, the Company intends to drill up to five developmental wells.
Sistersville.
On August 4, 1995, the Company purchased approximately 2,200
acres in a known producing field located near Sistersville, West
Virginia for $100,000. The Sistersville field has been operation
since the 1890's, although at a very low level for the past ten
years. The field contains portions of the Big Injun and Keener
sands formations, both well known oil and gas bearing formations,
which are the zones the Company intends to explore. These
formations are approximately 1,700 feet deep. The purchase of its
Sistersville acreage makes the Company the largest owner in acreage
in the Sistersville field.
The Company intends to explore the Sistersville acreage using
a technique called horizontal drilling in which a well is drilled
horizontally into an oil bearing zone and the oil pumped out using
conventional pumping techniques. This technique presently is in
use at one well site in the area and the well is producing oil and
gas on a daily basis in commercial quantities. The Company
estimates that the cost of each horizontal well is approximately
$600,000. Commencement of drilling of the Company's first
horizontal well is scheduled for the summer of 1996. The results
of the first well will then be analyzed over an estimated period of
four months. If the results of the first well are successful, the
Company intends to drill a series of horizontal wells in the area.
Vulcan Energy Corporation.
On July 19, 1995 the Company entered into a Letter of Intent
with Petrol Marketing Corporation ("PMC") related to the intended
acquisition by the Company of one hundred percent (100%) of the
issued and outstanding shares of capital stock of Vulcan. In
reliance upon and pursuant to the basic terms of the Letter of
Intent, on August 7, 1995 the Company and PMC executed an
Assignment of Contract whereby PMC assigned all of its right, title
and interest and obligations in a certain Agreement of Contract for
the Sale of Corporate Stock (the "Vulcan Contract"). The Vulcan
Contract provided for the purchase by PMC of all issued and
outstanding capital stock of Vulcan (the "Vulcan Shares") from Ross
O. Forbus, the sole shareholder of Vulcan, for a purchase price of
$650,000.
Under the terms of the Assignment of Contract, for the sum of
$150,000 and other consideration, the Company acquired the right to
purchase the Vulcan Shares from Mr. Forbus. In addition to the
payment to PMC of $150,000, the Company also agreed to assign to
PMC twenty (20%) percent of the Vulcan Shares, and an additional
twenty (20%) percent net profits interest, before taxes, in Vulcan,
less twenty (20%) percent of the principal paid on a certain
promissory note to Mr. Forbus in the original principal amount of
$550,000 (the Forbus Note ) upon closing of the Vulcan Contract.
Upon execution of the Assignment of Contract, the Company
concluded the purchase of the Vulcan Shares pursuant to the Vulcan
Contract for the purchase price of $100,000 in cash paid to Mr.
Forbus at the closing, the assumption by the Company of $300,000 of
debt that was paid at the closing, and a promissory note to Mr.
Forbus in the amount of $550,000 payable in ten (10) years with
interest at seven and one-half (7-1/2%) percent per year payable in
monthly installments.
In order to secure the cash required at the closing to
complete the acquisition, the Company placed $300,000 in secured
notes and also obtained a loan of $100,000 from the Bank of Paden
City. The Company intends to make payments on the promissory note
to Mr. Forbus from the funds derived from the Company's operations.
Vulcan is located in Poteet, Texas, approximately fifteen
miles southwest of San Antonio. The principal part of Vulcan's
business involves the gathering and marketing of oil, in which it
has been active for the past nine years. Vulcan gathers crude oil
of various grades from independently owned producing well sites
through oral agreements typically terminable upon thirty (30) days
notice. Such well sites are situated within an approximately
seventy-five mile radius of Poteet. Vulcan's area of operation
includes the cities of Corpus Christi, Houston, Galveston and
Brownsville, Texas. Once gathered, Vulcan stores the gathered
crude until sufficient quantities are available for transport to
pipelines and delivers such oil under contracts into one of three
major independent pipelines owned and operated by Cardinalis,
Conoco or Gulf Mark. Oil is delivered directly to the pipelines by
Vulcan's trucks and is metered into these pipelines through a
Vulcan owned or leased LACT (lease acquisition transfer) station
which automatically meters the oil and delivers a receipt which
states the date and volume of, and other pertinent information
about, oil delivered. Currently Vulcan is delivering an aggregate
of approximately 800 to 1,000 barrels of oil per day into the
pipelines. Vulcan presently owns seven LACT's of which four are in
operation. Vulcan also uses a LACT owned by a third party at no
cost to Vulcan under an oral arrangement with a third party.
Vulcan owns the meter and certain other components to such LACT.
Such LACT is immediately adjacent to an existing but non-operating
LACT owned by Vulcan.
Vulcan deals directly with its customers and does not use oil
brokers, thereby increasing the return on its activities. Payment
for oil delivered to LACT's is made to Vulcan by end users and
includes both the base price for the type of oil delivered and a
transportation charge which averages approximately $1.50 per
barrel.
Vulcan's arrangements with its suppliers require payment by
the 21st day of the month following the month in which a supplier
delivers oil to Vulcan. Consequently, Vulcan requires substantial
amounts of available cash to pay its suppliers. Failure to pay
suppliers on a timely basis could result in the termination of
Vulcan's supply arrangements. In the event Vulcan is unable to
generate sufficient cash from operations or other sources, such
inability would have a material adverse impact on Vulcan's
business.
Pricing of the oil in the areas serviced by Vulcan is based on
regional prices determined by, among other things, the supply of
and demand for oil at various locations and the distance the oil
has to be trucked to a delivery point, typically a LACT. A base
price is quoted by end users in a particular area to which a
premium is added based on the cost of delivery of the oil to the
end user. The size of the premium is in inverse proportion to the
distance the oil must be delivered to the end user. Vulcan
maintains several LACT's at various locations within the area it
serves in order to take advantage of regional pricing variations.
In addition, Vulcan services the secondary oil market. This
portion of Vulcan's business includes the gathering of waste oil
from storage and fuel tanks for resale to, among others, fuel
burners and feed stock users such as asphalt plants.
The strategic location of Vulcan, near the major oil ports in
Texas, provides a steady supply of slop, or low grade, oil at
prices which are substantially below prices for similar oil
elsewhere. Vulcan also currently is exploring the possibility of
obtaining oil from other parts of the world through docking and
unloading arrangements at one or more of these ports.
Vulcan is managed by a Board of Directors composed of F.
Worthy Walker, Loren E. Bagley and William F. Woodburn. Messrs
Walker, Bagley and Woodburn also serve as Vulcan s President, Vice
President and Secretary / Treasurer, respectively. Mr. Walker is
also the sole officer, director and owner of all of the issued and
outstanding capital stock of Nano-Tech, successor by assignment to
PMC s interest in the 20% capital stock interest in Vulcan and the
20% interest in the profits of Vulcan, before taxes and less 20% of
the principal paid to Ross O. Forbus on the Forbus Note, and the
President, a director and owner of 50% of the issued and
outstanding capital stock of PMC. See Certain Transactions and
Relationships - Vulcan Energy Corporation . Neither Nano-Tech nor
Mr. Walker is otherwise affiliated with the Company except through
his ownership of Nano-Tech and management of Vulcan.
Vulcan's offices, storage tanks, main tanks and storage
buildings are located on a seven acre tract owned by Vulcan located
in Poteet, Atascosa County, Texas.
Research and Development
The Company has not allocated funds for conducting research
and development activities and, due to the nature of the Company's
business, it is not anticipated that funds will be allocated for
research and development in the immediate future.
Marketing
Natural gas production from wells owned by the Company is
generally sold to various intrastate and interstate pipeline
companies and natural gas marketing companies. Sales are generally
made on the spot market or under short-term contracts (one year or
less) providing for variable or market sensitive prices. These
prices often are tied to natural gas futures contracts as posted in
national publications.
Natural gas delivered through the Company's pipeline network
is sold either to Sancho Oil and Gas Corporation ("Sancho") at the
industrial facilities near Sistersville, West Virginia, or to
Central Trading Company ("CTC") on a month-to-month basis at a
variable price per mcf. Under its contract with Sancho, the
Company has the right to sell natural gas subject to the terms and
conditions of a 15-year contract that Sancho entered into with Hope
Natural Gas in 1988. This agreement is a flexible volume supply
agreement whereby the Company receives the full price which Sancho
charges the end user less a $.05 per Mcf marketing fee paid to
Sancho. The price of the natural gas is based upon an index that
includes the residential gas commodity charge of Hope Natural Gas.
The Company sells its oil production to third party purchasers
under agreements at posted field prices. These third parties
purchase the oil at the various locations where the oil is
produced.
Although management believes that the Company is not dependent
upon any one customer, its marketing arrangement with Sancho Oil
and Gas Corporation accounted for approximately 66% of the
Company's revenue for the year ended December 31, 1994, and
approximately 45% for the year ended December 31, 1995.
This marketing agreement is in effect until September 1, 2003. The
majority of the balance of the gas sold by the Company is marketed
under an open agreement with CTC whereby CTC, for a fee, acts as a
broker and arranges for buyers of the Company's gas at a specific
purchase price based upon 98% of the Natural Gas Intelligence
Index. The price under the agreement is set monthly and gas is
sold as available with no volume requirements or restrictions.
None of the individual buyers pursuant to this agreement account
for more than 10% of the Company's total revenue. No other single
customer accounts for more than 10% of the Company's business.
In addition to the natural gas produced by the Company's
wells, it also purchased approximately 1,500 Mcf of natural gas
per day in 1995. Approximately 33% of this amount is purchased by
the Company from Key Oil pursuant to a certain marketing agreement.
No other supplier accounts for more than 10% of the Company's
natural gas purchasers. Management believes that there exists
sufficient alternative supplies of natural gas.
Although management believes that Vulcan is not dependent upon
any one customer, for the periods ended December 31, 1993, December
31, 1994 and July 31, 1995, Conoco accounted for 78%, 67% and 87%,
respectively, of Vulcan's revenues for such periods through its
LACT arrangement with Conoco. This LACT arrangement may be
terminated by either party on thirty days prior written notice to
the other.
Competition
The Company is in direct competition with numerous oil and
natural gas companies and drilling and income programs and
partnerships exploring various areas of the Appalachian Basin and
elsewhere and competing for customers. Many competitors are large,
well-known oil and gas and/or energy companies, although no single
entity dominates the industry. Many of the Company's competitors
possess greater financial and personnel resources enabling them to
identify and acquire more economically desirable energy producing
properties and drilling prospects than the Company. Additionally,
there is competition from other fuel choices to supply the energy
needs of consumers and industry. Management believes that there
exists a viable market place for smaller producers of natural gas
and oil and for operators of smaller natural gas transmission
systems and for operators of smaller crude oil gathering and
marketing companies.
Government Regulation
The oil and gas industry is extensively regulated by federal,
state and local authorities. The scope and applicability of
legislation is constantly monitored for change and expansion.
Numerous agencies, both federal and state, have issued rules and
regulations binding on the oil and gas industry and its individual
members, some of which carry substantial penalties for
noncompliance. To date, these mandates have had no material effect
on the Company's capital expenditures, earnings or competitive
position.
Legislation and implementing regulations adopted or proposed
to be adopted by the Environmental Protection Agency ("EPA") and by
comparable state agencies, directly and indirectly affect the
Company's operations. The Company is required to operate in
compliance with certain air quality standards, water pollution
limitations, solid waste regulations and other controls related to
the discharging of materials into, and otherwise protecting the
environment. These regulations also relate to the rights of
adjoining property owners and to the drilling and production
operations and activities in connection with the storage and
transportation of natural gas and oil.
The Company may be required to prepare and present to federal,
state or local authorities data pertaining to the effect or impact
that any proposed operations may have upon the environment.
Requirements imposed by such authorities could be costly, time-
consuming and could delay continuation of production or exploration
activities. Further, the cooperation of other persons or entities
may be required for the Company to comply with all environmental
regulations. It is conceivable that future legislation or
regulations may significantly increase environmental protection
requirements and, as a consequence, the Company's activities may be
more closely regulated which could significantly increase operating
costs. However, management is unable to predict the cost of future
compliance with environmental legislation. As of the date hereof,
management believes that the Company is in compliance with all
present environmental regulations.
Employees
As of the date hereof the Company employs eight people full-
time, consisting of two executives, two marketing and clerical
persons, and four production persons. Management presently
anticipates hiring additional employees as the business warrants
and as funds are available. In addition, Vulcan employs eight
people full-time, consisting of two executives, two marketing and
clerical persons and three truck drivers.
Facilities
The Company's operations currently occupy approximately 4,000
square feet of office space in St. Marys, West Virginia, which it
shares with its subsidiary Tyler Construction. These facilities
are the property of one of the Company's principal customers,
Sancho Oil and Gas Corporation ("Sancho"), and under a verbal
arrangement with Sancho, the Company occupies these facilities for
no rent. Sancho leases an aggregate of approximately 4,500 square
feet, including the square footage occupied by the Company, from a
third party under a verbal arrangement for $1,400 per month,
inclusive of utilities. Management believes that its present
office facilities are adequate for the Company's current business
operations.
Vulcan's operations are carried out at its headquarters
facility located on approximately seven acres of land in Poteet,
Texas, composed of approximately 1,800 square feet of office space
with attendant shop facilities, storage tanks, support vehicles and
trucks. In addition, Vulcan maintains an office in Dallas, Texas
composed of approximately 1,400 square feet of space at a monthly
rental of $1,747. The Company believes that such office and other
facilities are adequate for Vulcan's current business operations.
Industry Segments
No information is presented as to industry segments. The
Company is presently engaged in the principal business of the
exploration, development, production, transportation and marketing
of natural gas and oil. Reference is made to the statements of
operations contained in the Company's financial statements included
herewith for a statement of the Company's revenues and operating
profit (loss) for the past two fiscal years.
Item 2. Description of Property
The Company operates and receives gas and oil revenues from a
total of 105 oil and gas wells located within the State of West
Virginia and in the Counties of Ritchie, Tyler, Doddridge and
Pleasants. Of these wells, 85 gross wells (wells in which a
working interest is owned) are gas wells and represent 77 net
wells. A net well is deemed to exist when the sum of fractional
ownership working interests in gross wells equals one. The
remaining 20 gross wells are oil wells which represent 18 net
wells. A total of 28 wells are considered to have multiple
completions, one or more completions in the same bore hole. It is
the Company's policy to acquire existing wells and to continually
review its holdings and either add new wells or dispose of existing
wells. Seventy-five percent of the Company's wells are shallow
wells with depths of less than 3,000 feet. The remaining wells are
Devonian shale wells with a depth of greater than 4,000 feet.
Appalachian Basin development wells have relatively high success
rates and are characterized by low permeability and low porosity,
thereby resulting in relatively low production rates and long
producing lives of over 25 years. The Company's ownership interest
varies from well to well with the composite ownership working
interest in the wells at approximately 91% at the end of 1995.
The Company's productive wells are situated on 5,636 gross
acres (acres upon which a working interest is owned) which
represent 5,412 net acres. A net acre is deemed to exist when the
sum of fractional ownership working interests in gross acres equals
one. The Company has approximately 14,000 undeveloped leasehold
acres in the Rose Run Field in Ohio. The Rose Run acreage is
scheduled for 3-D seismic testing and, if the results of such test
so justify, further drilling is contemplated. The Company also
intends to begin development of its Sistersville, West Virginia
acreage, composed of approximately 2,200 acres. The Sistersville
acreage has been extensively explored and has proven undeveloped
reserves.
Substantially all of the Company's interests are held pursuant
to leases from third parties. Title to properties is subject to
royalty, overriding royalty, carried, net profits, working and
other similar interests and contractual arrangements customary in
the oil and gas industry, liens incident to operating agreements,
liens relating to amounts owed to the operator, liens for current
taxes not yet due and other encumbrances. The Company believes
that such burdens neither materially detract from the value of such
properties nor the respective interests therein, or materially
interfere with their use in the operation of the business.
As is customary in the industry in the case of undeveloped
properties, little investigation of record title is made at the
time of lease acquisition (other than a preliminary review of local
records). Investigations, including a title opinion of local
counsel, are generally made prior to the consummation of an
acquisition of larger properties and before commencement of
drilling operations.
Estimated Proven Reserves.
The Company's properties consist essentially of the working
and royalty interests owned by the Company in various oil and gas
wells and leases located in West Virginia. The Company's proven
reserves for the years ended December 31, 1993, 1994 and 1995 are
set forth below:
December 31,
1993 1994 1995
Gas (MMcf)
Developed 947,000 871,000 988,000
Undeveloped 629,101 586,405 801,654
Total Proved 1,576,101 1,457,405 1,789,654
Crude Oil (MBbl)
Developed 23,187 20,485 19,070
Undeveloped 180,000 180,000 180,000
Total Proved 203,187 200,485 199,070
These estimates are bases primarily on the reports of Sam M.
Deal, independent petroleum engineer. Such reports are, by their
very nature, inexact and subject to changes and revisions. Proved
developed reserves are reserves expected to be recovered from
existing wells with existing equipment and operating methods.
Proved undeveloped reserves are expected to be recovered from new
wells drilled to known reservoirs on undrilled acreage for which
existence and recoverability of such reserves can be estimated with
reasonable certainty, or from existing wells where a relatively
major expenditure is required to establish production. No
estimates of reserves have been included in any reports to any
federal agency other than the Securities and Exchange Commission.
See S.F.A.S. 69 Supplemental Disclosures included as part of the
Consolidated Financial Statements of the Company.
Set forth in the following schedule is the average sales price
per unit of oil, expressed in barrels ("bbl"), and of natural gas,
expressed in thousand cubic feet ("mcf"), produced by the Company
for the past three fiscal years.
Year ended December 31,
Average sales price: 1995 1994 1993
Gas (per mcf) $ 2.02 $ 2.33 $ 2.48
Oil (per bbl) 16.44 16.02 14.89
Average cost of production:
Gas (per mcf) $ 1.12 $ 1.10 $ 1.03
Oil (per bbl) 6.72 6.60 6.18
The Company has not filed any estimates of total, proved net
oil and gas reserves with any federal authority or agency since the
beginning of the Company's last fiscal year.
The following schedule sets forth the capitalized costs
relating to oil and gas producing activities by the Company for the
past three fiscal years.
Years ended December 31,
1995 1994 1993
Proved oil and gas
producing properties and
related lease and well
equipment $ 3,733,388 $ 3,619,707 $ 3,095,994
Accumulated depreciation
and depletion (390,540) (335,293) (46,370)
Net Capitalized Costs $ 3,342,848 $ 3,284,414 $ 3,049,624
The following schedule summarizes changes in the standardized
measure of discounted future net cash flows relating to the
Company's proved oil and gas reserves.
Years ended December 31,
1995 1994 1993
Standardized measure,
beginning of year $ 3,602,626 $ 3,752,076 $ 4,333,248
Oil and gas sales, net
of production costs (107,818) (178,842) (197,244)
Sales of mineral in place - - (420,340)
Quantity estimates made 569,077 29,392 36,412
Standardized measure,
end of year $ 4,063,885 $ 3,602,626 $ 3,752,076
The Company does not anticipate investing in or purchasing
assets and/or property for the purpose of capital gains. It is the
Company's intention to purchase assets and/or property for the
purpose of enhancing its primary business operations. The Company
is not limited as to the percentage amount of the Company's assets
it may use to purchase any additional assets or properties.
Item 3. Legal Proceedings
There are no material pending legal proceedings to which the
Company is a party or to which any of its property is subject.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of the Company's
Securities Holders during the fourth quarter of the Company's
fiscal year ending December 31, 1995. The Company last held a
Special Meeting of Shareholders on September 22, 1993.
<PAGE>
PART II
Item 5. Market for Common Equity and Related Stockholder
Matters
Prior to October 1994 the Company's common stock traded on a
limited basis in the over-the-counter market and quotations, when
available, were published on the OTC Bulletin Board under the
symbol "TSRG", and in the National Quotation Bureau, Inc. ("NQB")
"pink sheets" under Trans Energy, Inc. In October 1994, the
Company's common stock was accepted for trading on the Nasdaq
Small-Cap Market and is currently listed under the symbol "TSRG".
Set forth in the table below are the quarterly high and low
prices of the Company's common stock as obtained from the Nasdaq
Small-Cap Market. Because only a nominal market existed for the
Company's common stock prior to October 1994, historical price
information is set forth below for the quarterly periods commencing
the fourth quarter of 1994.
High Low
1994
Fourth Quarter $ 5.37 $ 2.09
1995
First Quarter $ 2.79 $ 1.06
Second Quarter $ 1.12 $ .97
Third Quarter $ 3.25 $ 1.03
Fourth Quarter $ 3.63 $ 2.75
1996
First Quarter(1) $ 3.50 $ 2.63
(1) Through March 31, 1996.
As of March 31, 1996, there were 194 holders of record of the
common stock, which figure does not take into account those
shareholders whose certificates are held in the name of
broker-dealers.
Between March 1988 and December 1988, the Company issued a
series of the Debentures with an aggregate principal amount of
$95,000. Between October 18, 1995 and February 21, 1996, all of
the Debentures were converted into an aggregate of 105,557 shares
of common stock. The aggregate outstanding principal amount of the
Debentures were due and payable on April 1, 1993. The holders of
such Debentures had agreed to extend the maturity date thereof
until April 1, 1996. The Debentures were convertible at the option
of the holders thereof into shares of common stock at the rate of
$.90 of outstanding principal amount per share at any time prior to
repayment of the principal amount thereof.
Dividend Policy
The Company has not declared or paid cash dividends or made
distributions in the past, and the Company does not anticipate that
it will pay cash dividends or make distributions in the foreseeable
future. The Company currently intends to retain and reinvest future
earnings to finance its operations.
Item 6. Management's Discussion and Analysis or Plan of
Operation
The following information should be read in conjunction with the
consolidated financial statements and notes thereto appearing elsewhere in
this Form 10-KSB.
Recent Accounting Pronouncements
The Financial Accounting Standards Board has recently issued
Statement of Financial Accounting Standards ("SFAS") No. 121,
"Accounting for the Impairment of Long-Lived Assets," and SFAS No.
123, "Accounting for Stock Based Compensation." SFAS No. 121
requires that long-lived assets and certain identifiable
intangibles be reported at the lower of the carrying amount or
their estimated recoverable amount and the adoption of this
statement by the Company is not expected to have an impact on the
Company's financial statements. SFAS No. 123 encourages the
accounting for stock-based employee compensation programs to be
reported within the financial statements on a fair value based
method. If the fair value based method is not adopted, then the
statement requires pro-forma disclosure of net income and earnings
per share as if the fair value based method had been adopted. The
Company has not yet determined how SFAS No. 123 will be adopted nor
its impact on the Company's financial statements. Both statements
are effective for years beginning after December 15, 1995.
Results of Operations
The following table sets forth the percentage relationship to
total revenues of principal items contained in the Company's
Statements of Operations for the two most recent fiscal years ended
December 31, 1995, and 1994. It should be noted that percentages
discussed throughout this analysis are stated on an
approximate basis.
Fiscal Years Ended
December 31,
1995 1994
Total revenues . . . . . . . . . . . . 100% 100%
Total costs and expenses . . . . . . . 178 102
Net income (loss) before taxes and
minority interest . . . . . . . . . . (78) (2)
Income taxes . . . . . . . . . . . . . - -
Minority interest . . . . . . . . . . (0) (0)
Net income (loss). . . . . . . . . . . (78) (2)
For the Year Ended December 31, 1995 Compared to the Year Ended December 31,
1994.
The results of operations for the year ended December 31, 1995
have been restated. Please refer to Note 1c to the accompanying
consolidated financial statements.
Total revenues of $2,828,162 for the year ended December 31,
1995 ( 1995") compared to $2,926,735 for the year ended December
31, 1994 ( 1994"). The decline in revenues was only 3% in total,
however, the 1995 information includes the revenues from Vulcan
from August 1, 1995 through December 31, 1995. The 1994
information does not included any revenues from Vulcan. Without
Vulcan's revenues of $895,605, the Company would have realized only
$1,932,667 in oil and gas sales, or a decline of 34%. This decline
in revenues was the result of several factors. The first was a
decrease in the market price of gas. The second factor was that
much of the gas the Company had contracted to purchase was set at
a price higher than the Company's customers, principally Sancho and
Hope, would pay. Therefore, as permitted under the contracts
between the Company and its third party suppliers, the Company
declined to purchase the gas. This decision resulted in lower
sales, but avoided additional losses by the Company. The decline
in sales was primarily attributed to one customer. The Company's
product mix also changed as a result of the Vulcan acquisition. In
1995, oil made up 42% of total revenues as compared to only 1% in
1994. Accordingly, gas sales dropped from 99% of sales in 1994 to
58% in 1995.
The Company had a net loss of $2,205,078 for 1995. Its total
costs and expenses increased from 97% of sales in 1994 to 178% of
sales in 1995. The cost of oil and gas increased from 79% of sales
in 1994 to 85% of sales in 1995. Excluding Vulcan, the Company's
cost of oil and gas would have remained constant at 78% of sales,
However, Vulcan's 93% cost of sales brought the average percentage
of sales up to 85% in 1995. The acquisition of Vulcan also
affected the total costs and expenses in other ways. Vulcan is a
more labor intensive business than the Company's other operations.
Therefore, salaries and wages increased 64% over 1994. The
Company's selling, general and administrative expenses also
increased 642%. The increase is primarily attributed to the
increased overhead activities of the Company and Vulcan, the
issuance of 500,000 Bridge Warrants in the Company's December 1995
private placement, and the issuance of additional shares to the
Debenture Holders as consideration for extending the due date of
said Debentures.
Depreciation and depletion expenses increased 28% in 1995 over
1994. This increase was due to the amortization of goodwill
acquired in the purchase of Vulcan. The Company incurred loans of
approximately $1,100,000 in order to purchase Vulcan. The loans
include the contract with the seller of Vulcan and other funds
borrowed from third parties. Accordingly, interest expense in 1995
increased 147% compared to 1994.
<PAGE>
For the year ended December 31, 1995, the Company derived its
revenues from the following sources:
Percentage of
Revenues for
Year Ended Year Ended
December 31, 1995 December 31, 1995
Gas Pipeline Sales . . . . . . $1,716,625 61%
Vulcan Energy Sales. . . . . . 906,385 32%
Other Production Sales . . . . 205,152 7%
Net Operating Losses
The Company has accumulated approximately $3,071,721 of
net operating loss carryforwards as of December 31, 1995, which may
be offset against future taxable income through the year 2010 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, 1995 because the potential tax benefits of the loss
carryforward is offset by valuation allowance of the same amount.
Liquidity and Capital Resources
Historically, the Company's working capital needs have been
satisfied through its operating revenues and from borrowed funds.
Working capital at December 31, 1995 was a negative $862,222
compared with a negative $1,047,984 at December 31, 1994. This
change was primarily attributed to the extension of the due dates
of certain loans to the Company, in excess of a term which exceeds
one (1) year from December 31, 1995. Working capital was also
affected by the lower gas prices which reduced accounts receivable
from $452,643 to $328,012.
The Company anticipates meeting its working capital needs
during the 1996 fiscal year with revenues from operations and from
the proceeds of its proposed public offering. If the Company is
unable to secure financing from the sale of its securities or from
private lenders, management believes that the Company can continue
operations of its existing wells and natural gas transmission
lines. By maximizing its current production and minimizing
expenses, management believes that the Company can continue such
limited operations for an extended period until additional
financing can be arranged.
As of December 31, 1995, the Company had total assets of
$6,705,278 and total stockholders' equity of $2,561,187
compared to total assets of $5,255,637 and total stockholders'
equity of $2,749,233 as of December 31, 1994. For this same
period, cash decreased from $7,103 to $0 reflecting checks written
against accounts payable but held for payment. Also for this same
period, total current assets decreased 25% due to the decrease in
cash and the decrease in accounts receivable. Total current
liabilities decreased 20% because of the extensions of the terms of
related party loans and other loans to terms which exceed at least
one (1) year from December 31, 1995. The decrease in current
liabilities was partially offset by liabilities assumed upon the
Vulcan acquisition. During 1995 the Company realized $238,507 in
loans from related parties and it also incurred debt of
approximately $1,100,000 in connection with its purchase of Vulcan.
The Company's current portion of its long-term debt is
$554,540. Also, in 1995 and 1996 certain outstanding convertible
debentures having a face value of $95,000 plus accrued interest
were converted to common stock. The Company currently anticipates
that it will be able to provide for its debt obligations and
repayments coming due during fiscal 1996 from revenues generated by
the Company. Officers of the Company have committed to meeting its
short term cash needs through additional loans.
In the opinion of management, inflation has not had a material
effect on the operations of the Company.
Proforma the Year ended December 31, 1995 Compared to the Year Ended December
31, 1994.
(Prepared as though the acquisition of Vulcan Energy Corporation
was completed on January 1, 1995).
Total revenues of $4,451,117 for the year ended December 31,
1995 ("1995") increased approximately 152% from the year ended
December 31, 1994 ("1994") attributed to the additional revenues
realized from the operations of Vulcan, acquired by the Company on
August 7, 1995, which were partially offset by a decline in oil and
gas prices and the Company's decision not to purchase gas from its
suppliers at a price higher than management believed it could
profitably resell the gas. The increase in the net loss from
$63,566 for 1994 to $2,500,304 for 1995 primarily is
attributable to an increase in total costs and expenses from
102% of total revenues in 1994 to 156% in 1995.
Further, the cost of oil and gas sales increased from 79% for 1994
to 87% for 1995 reflecting the higher costs of purchased oil and
gas added to the lower revenues generated by lower gas prices.
Salaries and wages for 1995 increased 194% because of the
addition of the payroll of Vulcan which resulted in a change in the
nature of the Company's business which did not previously require
significant labor costs. Management anticipates that salaries and
wages will increase in 1996 over 1995 levels for the same reason.
Also for 1995, depreciation, depletion and amortization
increased 93% due to the acquisition of Vulcan and the fact
that the acquisition resulted in goodwill which is being amortized.
Interest expense increased 227% due primarily to the
additional loan obligations incurred in connection with the Vulcan
purchase.
Item 7. Financial Statements
The Company's financial statements as of and for the fiscal
years ended December 31, 1995 and 1994 have all been examined to
the extent indicated in their report by Jones, Jensen & Company,
independent certified accountants, and have been prepared in
accordance with generally accepted accounted principles and
pursuant to Regulation S-B as promulgated by the Securities and
Exchange Commission. The aforementioned financial statements are
included herein in response to Item 7 of this Form 10-KSB.
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
Trans Energy, Inc.
210 2nd Street
St. Marys, West Virginia 26170
We have audited the accompanying consolidated balance sheet of
Trans Energy, Inc. and subsidiaries as of December 31, 1995 and the
related consolidated statements of operations, stockholders'
equity, and cash flows for the years ended December 31, 1995 and
1994. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is
to express an opinion on these consolidated financial statements
based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the consolidated
financial position of Trans Energy, Inc. and subsidiaries as of
December 31, 1995 and the consolidated results of their operations
and their cash flows for the years ended December 31, 1995 and
1994, in conformity with generally accepted accounting principles.
Jones, Jensen & Company
Salt Lake City, Utah
November 27, 1996
<PAGE>
TRANS ENERGY, INC.
Consolidated Balance Sheet
ASSETS
December 31,
1995
(Restated)
CURRENT ASSETS
Cash $ -
Accounts receivable - trade (Note 1) 328,012
Inventory (Note 1) 15,956
Total Current Assets 343,968
FIXED ASSETS (Note 2)
Land 35,000
Building 65,000
Vehicles 113,244
Machinery and equipment 588,493
Pipeline 2,107,740
Well equipment 290,972
Wells 3,178,916
Leasehold acreage 263,500
Accumulated depreciation (1,458,009)
Total Fixed Assets 5,184,856
OTHER ASSETS
Deferred stock offering costs (Note 1) 275,000
Goodwill, net (Note 1) 728,013
Deposits 355
Bond (Note 4) 50,000
Loan acquisition costs 108,107
Loan - related party (Note 6) 14,899
Total Other Assets 1,176,454
TOTAL ASSETS $6,705,278
<PAGE>
TRANS ENERGY, INC.
Consolidated Balance Sheet
LIABILITIES AND STOCKHOLDERS' EQUITY
December 31,
1995
(Restated)
CURRENT LIABILITIES
Accounts payable - trade $ 521,438
Interest payable 58,981
Accrued expenses 71,231
Long-term debt - current portion (Note 3) 554,540
Total Current Liabilities 1,206,190
LONG-TERM LIABILITIES
Loans payable - related parties (Note 6) 683,586
Notes payable (Note 3) 2,214,922
Total Long-Term Liabilities 2,898,508
Total Liabilities 4,104,698
MINORITY INTERESTS (Note 1) 39,393
STOCKHOLDERS' EQUITY (Note 9)
Common Stock: 30,000,000 shares authorized at
$0.001 par value; 3,174,122 shares
issued and outstanding, respectively 3,174
Capital in excess of par value 5,629,734
Accumulated deficit (3,071,721)
Total Stockholders' Equity 2,561,187
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $6,705,278
<PAGE>
TRANS ENERGY, INC.
Consolidated Statements of Operations
For the Years Ended
December 31,
1995 1994
(Restated)
OIL AND GAS SALES $2,828,162 $2,926,735
COSTS AND EXPENSES
Cost of oil and gas 2,392,907 2,309,448
Salaries and wages 178,558 109,003
Depreciation, depletion and amortization 228,692 179,308
Selling, general and administrative 1,833,338 246,962
Total Costs and Expenses 4,633,495 2,844,721
INCOME (LOSS) FROM OPERATIONS (1,805,333) 82,014
OTHER INCOME (EXPENSE)
Other income - 12,504
Interest income 444 -
Interest expense (347,282) (140,675)
Gain on disposition of assets 2,046 1,000
Bad debt expense (44,550) -
Total Other Income (Expense) (389,342) (127,171)
NET INCOME (LOSS) BEFORE INCOME
TAXES AND MINORITY INTERESTS (2,194,675)) (45,157)
INCOME TAXES - -
NET INCOME (LOSS) BEFORE MINORITY
INTERESTS (2,194,675) (45,157)
MINORITY INTERESTS (10,403) (18,409)
NET INCOME (LOSS) $(2,205,078) $ (63,566)
EARNINGS (LOSS) PER SHARE
PRIMARY $ (0.71) $ (0.02)
FULLY DILUTED $ (0.71) $ (0.02)
<PAGE>
TRANS ENERGY, INC.
Consolidated Statements of Stockholders' Equity
(Restated)
Capital in
Common Shares Excess of Accumulated
Shares Amount Par Value Deficit
Balance,
December 31, 1993 3,024,122 $ 3,024 $3,612,852 $(803,077)
Net loss for the year ended
December 31, 1994 - - - (63,566)
Balance,
December 31, 1994 3,024,122 3,024 3,612,852 (866,643)
Common stock issued for
services at $1.50 per share 100,000 100 149,900 -
Common stock issued on
conversion of debentures at
$0.90 per share 50,000 50 44,950 -
Stock options issued for services
(Note 8) - - 275,000 -
Common stock warrants issued
(Note 8) - - 1,345,000 -
Extension of debentures (Note 5) - - 202,032 -
Net loss for the year ended
December 31, 1995 - - - (2,205,078)
Balance,
December 31, 1995 3,174,122 $ 3,174 $5,629,734 $(3,071,721)
<PAGE>
TRANS ENERGY, INC.
Consolidated Statements of Cash Flows
For the Years Ended
December 31,
1995 1994
(Restated)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $(2,205,078) $ (63,566)
Adjustments to Reconcile Net Income to Cash
Provided by Operating Activities:
Depreciation, depletion and amortization 228,692 179,308
Minority interest 10,403 18,409
(Gain) loss on sale of assets (2,046) (1,000)
Bad debt expense 44,550 -
Common stock issued for services 150,000 -
Common stock warrants 1,340,000 -
Changes in Operating Assets and Liabilities:
Decrease (increase) in accounts receivable 272,084 21,349
Decrease (increase) in deposits 23 (2)
Decrease (increase) in loan acquisition costs 103,671 1,852
Decrease (increase) in inventory (13,322) -
Increase (decrease) in accounts payable
and accrued expenses (302,768) 40,717
Cash Provided (Used) by Operating Activities (373,791) 197,067
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of subsidiary (490,000) -
Increase in notes receivable (7,780) (221,452)
Expenditures for property and equipment (584,405) (46,947)
Proceeds from sale of property and equipment 3,000 1,000
Cash Provided (Used) by Investing Activities $(1,079,185) $ (267,399)
<PAGE>
TRANS ENERGY, INC.
Consolidated Statements of Cash Flows (Continued)
For the Years Ended
December 31,
1995 1994
(Restated)
CASH FLOWS FROM FINANCING ACTIVITIES:
Capital contributions $ 5,000 $ -
Proceeds from related party notes - 152,407
Principal payments on long-term debt (52,375) (175,389)
Proceeds from borrowings 1,493,248 48,550
Cash Provided (Used) by Financing Activities 1,445,873 25,568
NET INCREASE (DECREASE) IN CASH (7,103) (44,764)
CASH AND CASH EQUIVALENTS,
BEGINNING OF YEAR 7,103 51,867
CASH AND CASH EQUIVALENTS,
END OF YEAR $ - $ 7,103
CASH PAID FOR:
Interest $ 178,769 $129,999
Income taxes $ - $ -
NON-CASH FINANCING ACTIVITIES:
Acquisition of Dennis Spencer Wells (Note 1) $ - $ -
Acquisition of subsidiaries at predecessor
costs (Note 1) $ - $ -
Acquisition of oil properties for shareholder
loans $ - $287,000
Common stock issued for services $ 150,000 $ -
Stock options issued for services $ 275,000 $ -
Purchase of subsidiary for notes payable
and assumption of debt $ 880,000 $ -
Conversion of debentures to equity $ 45,000 $ -
Common stock warrants $1,340,000 $ -
Extension of debentures $ 202,032 $ -
<PAGE>
TRANS ENERGY, INC.
Notes to the Consolidated Financial Statements
December 31, 1995 and 1994
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Organization
The Company was originally incorporated in the State of
Idaho on January 16, 1964 under the name of Alter Creek
Mining Company, Inc.
The Company was engaged in mining activities in the 1960's.
The Company was inactive for several years but started up
operations again in August of 1987. The Articles of
Incorporation were reinstated on September 4, 1987. On
January 11, 1988, the Company changed its name to Apple
Corporation. In 1988, the Company acquired oil and gas
leases and other assets from Ben's Run Oil Company (a
Virginia limited partnership) and has since engaged in the
business of oil and gas production.
At a meeting on September 22, 1993, the shareholders
approved a reverse stock split of the outstanding common
shares at a rate of 2 shares for every 5 shares
outstanding. This reduced the outstanding shares to
1,024,122. All references to shares outstanding and
earnings per share have been retroactively restated to
reflect the reverse stock split.
The shareholders also approved the acquisition of certain
oil and gas assets and stock in exchange for stock of the
Company. On November 15, 1993, the following shares were
issued; 250,000 shares of common stock to the shareholders
of The Pipeline, Ltd, 500,000 shares of common stock to the
shareholders of Ritchie County Gathering Systems, Inc. and
750,000 shares to the majority shareholders of Tyler
Construction Company, Inc. The acquisition was accounted
for as a combination under the purchase method of
accounting using predecessor cost. Predecessor cost was
used because the owners of the acquiring company are
substantially the same as the owners of the acquired
companies. In other words, they are considered to be co-
promoters.
On November 5, 1993, the Board of Directors caused to be
incorporated in the State of Nevada, a new corporation by
the name of Trans Energy, Inc., with the specific intent of
effecting a merger between Trans Energy, Inc. of Nevada and
Apple Corp. of Idaho, for the sole purpose of changing the
domicile of the Company to the State of Nevada. On
November 15, 1993, Apple Corp. and the newly formed Trans
Energy, Inc. executed a merger agreement whereby the
shareholders of Apple Corp. exchanged all of their issued
and outstanding shares of common stock for an equal number
of shares of Trans Energy, Inc. common stock. Trans
Energy, Inc. was the surviving corporation and Apple Corp.
was dissolved.
On November 15, 1993, the Company also purchased certain
oil and gas assets of Dennis Spencer. The purchase price
was 500,000 shares of the Company's common stock. This
acquisition of the subsidiary has been accounted for using
the purchase method of accounting which is based on the
market value of the assets acquired at the time of
acquisition. As a result of these transactions, there were
3,024,122 shares of common stock issued and outstanding at
December 31, 1994.
<PAGE>
TRANS ENERGY, INC.
Notes to the Consolidated Financial Statements
December 31, 1995 and 1994
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
b. Accounting Method
The Company's financial statements are prepared using the
accrual method of accounting. The successful efforts
method of accounting is used for oil and gas exploration
and production activities which states that total net
capitalized costs, as a minimum test, may not exceed future
undiscounted net cash flows. In any period that total net
capitalized costs exceed future undiscounted net cash
flows, the excess will be charged to current operations.
The Company has elected a calendar year end.
Oil purchased for resale is recorded at cost and carried in
inventory when it is collected from the supplier. The sale
is recorded when the oil is delivered to the pipeline.
c. Prior Period Adjustments
The results of operations for the year ended December 31,
1995 have been restated to correct the application of
accounting principles related to the treatment of the value
of additional shares pursuant to the extension of
convertible debentures, the valuation of common stock
issued for services rendered and the valuation of bridge
warrants issued in December 1995. The effect of the
related adjustment increased the net loss by $1,597,619.
Primary and fully diluted loss per share for the year ended
December 31, 1995 increase by $(0.51) and $(0.50) per
share, respectively.
d. Loss per Share of Common Stock
The loss per share of common stock is based on the weighted
average number of shares issued and outstanding at the date
of the financial statements.
e. Provision for Taxes
At December 31, 1995, the Company had net operating loss
carryforwards totaling approximately $3,100,000 that may be
offset against future taxable income through 2010. No tax
benefit has been reported in the 1995 financial statements,
because the potential tax benefits of the net operating
loss carryforwards is offset by a valuation allowance of
the same amount.
f. Cash Equivalents
The Company considers all highly liquid investments with a
maturity of three months or less when purchased to be cash
equivalents.
g. Principles of Consolidation
The consolidated financial statements include the Company
and its wholly owned subsidiaries, Ritchie County Gathering
Systems, The Pipeline Ltd., Dennis Spencer Wells, its 65%
owned subsidiary, Tyler Construction Company, Inc. and its
80% owned subsidiary, Vulcan Energy Corporation. All
significant intercompany accounts and transactions have
been eliminated.
<PAGE>
TRANS ENERGY, INC.
Notes to the Consolidated Financial Statements
December 31, 1995 and 1994
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
h. Depreciation
Fixed assets are stated at cost. Depreciation on vehicles,
pipelines, machinery, equipment and well equipment is
provided using the straight line method over expected
useful lives of five to fifteen years. Wells are being
depreciated using the units-of-production method on the
basis of total estimated units of proved reserves.
i. Accounts Receivable
Accounts receivable are shown net of the allowance for
doubtful accounts. This amount was determined to be $9,700
at December 31, 1995 after writing off all accounts
determined to be uncollectible.
j. Inventory
Inventory at December 31, 1995 consists of crude oil held
for resale and is stated at the lower of cost (computed on
a first-in, first-out basis) or market.
k. Goodwill
Goodwill was recorded from the purchase of Vulcan Energy
Corporation on August 7, 1995 (see Note 2). The amount is
amortized using the straight-line method over a useful life
of five years. Accumulated amortization at December 31,
1995 was $63,240.
l. Deferred Stock Offering Costs
The Company has capitalized the costs incurred in
connection with its proposed stock offering. The costs
will be charged to paid-in capital upon completion of the
offering.
NOTE 2 - FIXED ASSETS
The Company acquired oil and gas leases from Ben's Run Oil
Company (a Virginia limited partnership) in 1988 along with
other assets and liabilities in exchange for shares of the
Company's common stock.
The assets were recorded at predecessor cost since the
former owners of Ben's Run Oil Company became the
controlling shareholders of the Company. The assets
acquired had been fully amortized or depreciated.
Therefore, they were recorded at a cost of $0.
In January of 1989 the Company acquired interests in oil
and gas producing properties from Black Petroleum
Corporation (Black). In exchange for the interests
acquired, the Company paid $100,000 cash, 160,790 shares of
common stock and assumed certain liabilities of Black. The
value of the stock issued was based on the estimated fair
market value of the properties acquired less cash paid and
liabilities assumed. The purchase price for oil and gas
properties totaled $2,015,109. The purchase price also
included the payment of an 18 3/4 percent override royalty
on all future revenues from the properties in which Black
had a 50 percent or greater interest and 25 percent of the
net revenues of all properties in which Black had a less
than 50 percent interest together with an agreement
affecting all future issuances of capital stock by the
Company. This agreement requires that, at all times, Black
is entitled to maintain a 20 percent equity interest in the
Company. This requirement expired on January 30, 1994.
The cost of the Black properties was recorded net of the
royalty. The
<PAGE>
TRANS ENERGY, INC.
Notes to the Consolidated Financial Statements
December 31, 1995 and 1994
NOTE 2 - FIXED ASSETS (Continued)
acquisition included interests in wells located in Texas,
Oklahoma, Kansas, and West Virginia. Shortly after the
acquisition from Black, the Company sold its interests in
all the wells located in Texas, Oklahoma and Kansas for a
total of $37,920 in cash. The Company then had a formal
study and appraisal of the oil and gas reserves performed
on the West Virginia properties. Based upon this study and
appraisal, the Company estimated the fair market value of
the properties to be $2,015,109 at the time of acquisition.
However, due to the uncertainties involved in estimating
oil and gas reserves, there is no assurance that the
Company will fully recover this amount recorded as the
investment in the properties.
On November 15, 1994, the Company acquired six oil and gas
wells at a cost of $1,082,222 and other equipment totaling
$8,710 from Dennis Spencer in exchange for shares of the
Company's common stock. All assets were recorded at their
market value (which was approximately the same as book
value) at the time of acquisition based on the purchase
method of accounting.
Based upon the reserve estimates, depletion and
depreciation on these properties and the related equipment
is computed under the units-of-production method as
required by generally accepted accounting principles. In
1994 and 1993, the Company refurbished a number of wells.
In 1995, the Company obtained a reserve study which showed
that the oil and gas reserves are higher than originally
reported because the fix-up work allowed the producing
wells to produce greater quantities and put some non-
productive wells into production.
During 1994, the Company purchased leasehold acreage in
Ohio known as Rose Run for $287,000. The acreage was
purchased from shareholders of the Company in part for
forgiveness of receivables from those shareholders. The
balance of the purchase price of $135,867 is carried on the
books as a related party loan payable.
On August 7, 1995, the Company purchased 80 percent of the
issued and outstanding stock of Vulcan Energy Corporation,
a Texas corporation, for $1,100,000 including the
assumption of $300,000 in debt for a customer of Vulcan.
Vulcan will continue to operate as a subsidiary of the
Company. Vulcan Energy is located twenty miles southwest
of San Antonio and is engaged in the oil gathering and
marketing business.
NOTE 3 - LONG-TERM DEBT
The Company had the following debt obligations at December 31, 1995 :
December 31,
1995
Convertible Debentures (Note 5) $ 50,000
Bank of Paden City, secured by gas pipeline, interest
and principal payments of $1,846 due monthly at 9.0%
interest beginning March 1994. 7,505
Calhoun County Bank, secured by oil and gas well
interests, payable in monthly installments of $3,136
including interest at variable rates, (lender's base
rate of 9.75% as of December 31, 1995), matures
June 1, 1996. 59,472
Balance forward $116,977
<PAGE>
TRANS ENERGY, INC.
Notes to the Consolidated Financial Statements
December 31, 1995 and 1994
NOTE 3 - LONG-TERM DEBT (Continued)
December 31,
1995
Balance forward $ 116,977
Calhoun County Bank, secured by oil and gas well
interests, payable in monthly installments of $1,029
including interest at variable rates, (lender's base
rate of 9.75% as of December 31, 1995), matures
February 13, 1996. 9,164
Calhoun County Bank, secured by oil and gas well
interests, payable in monthly installments of $3,651
including interest at variable rates, (lender's base
rate of 9.75% as of December 31, 1995), matures
February 19, 1996. 43,359
New York Life, secured by cash value in policy,
principal and interest payments of $480 per
month at 7.25% interest rate. 18,617
Wesbanco Bank, secured by oil and gas wells,
principal and interest payments of $841 at
12.5% interest rate, matures October 11, 1997. 17,328
Wesbanco Bank, secured by vehicle,
principal and interest payments of $155 at
10.25% interest rate, matures September 30, 1997. 3,115
First National Bank of St. Marys, $9,244
payable monthly, 12.5% interest rate,
secured by equipment. 657,632
Union Bank of Tyler County, interest at
11.5% due quarterly, renewable,
secured by equipment. 19,810
Note due private company, principal and interest
of $163 payable monthly, interest rate of
10.75%, secured by vehicle. 4,997
United National Bank, interest payable
quarterly, (prime + 1% or 9.75%
as of December 31, 1995), principal payment
of $50,000 due annually, secured by equipment. 285,000
Note due private individual, secured by officers'
personal guarantee, due March 15, 1997,
interest due monthly at 12%. 100,000
Balance forward $1,275,999
TRANS ENERGY, INC.
Notes to the Consolidated Financial Statements
December 31, 1995 and 1994
NOTE 3 - LONG-TERM DEBT (Continued)
December 31,
1995
Balance forward $1,275,999
Bank of Paden City, secured by officers'
personal assets, demand note, interest
payments due monthly at 9.75%. 100,000
Note due private individual, secured by
officers' personal guarantee, due May 31,
1997, interest due monthly at 12%. 150,000
Note due private company, secured by officers'
personal assets, due on October 15, 1997,
with interest at 18%. 135,000
Note due private company, secured by officers
guarantee, due June 30, 1997, with interest at 18%. 100,000
Notes due Secured Promissory Note Holders,
secured by accounts receivable, due April
24, 1997, with interest at 12%. 300,000
Note payable to Ross Forbus in equal monthly
installments of $6,529 with interest at 7.5%,
secured by assets of subsidiary, matures on
September 22, 2005. 545,909
Bank of Paden City, secured by officers personal
assets, matures on February 21, 1996, interest
due monthly at 10%. 30,200
Demand Note due Petrol Marketing Corporation
on October 31, 1995 with no stated interest rate. 50,000
Various equipment purchase contracts secured by vehicles. 82,354
Less Current Portion (554,540)
Total Long-Term Debt $2,214,922
Schedule of Maturities
1996 $554,540
1997 954,785
1998 160,735
1999 143,938
2000 and thereafter 955,464
Total $2,769,462
<PAGE>
TRANS ENERGY, INC.
Notes to the Consolidated Financial Statements
December 31, 1995 and 1994
NOTE 4 - BOND
Under the laws of the state of West Virginia, the Company
is required to place funds in a deposit account with the
state when drilling for oil and gas reserves. The Company
placed $50,000 in this reserve fund. This fund has been
established to cover future site restoration, dismantlement
and abandonment costs. No additional restoration costs
have been recorded due to the fact the Company does not own
the land and its involvement will be minimal.
NOTE 5 - CONVERTIBLE DEBENTURES
The Company assumed obligations on debentures issued by
Ben's Run Oil Co. during 1988. The remaining debenture,
having a total face value of $50,000, was due on April 1,
1996. Subsequent to December 31, 1995, the remaining
$50,000 debenture was converted into 55,555 shares of
common stock. As an incentive to the debenture holder for
extending the due date of the debenture, on December 1,
1995 they were given the right to receive the number of
post-split shares they were to have received pre-split.
The value of the additional shares issued has been recorded
as loan costs and amortized over the period until the
debenture was converted.
NOTE 6 - RELATED PARTY TRANSACTIONS
a. Loans
At the end of December 1995, there were several related
party loans payable and loans receivable outstanding. The
receivable amount is non-interest bearing and considered
short-term in nature. The payable amount is also non-
interest bearing and considered long-term in nature. Loans
receivable at December 31, 1995 totalled $14,899. Loans
payable at December 31, 1995 totalled $683,586.
b. Management Agreement
A company owned by an officer of the Company's subsidiary,
Vulcan Energy Corporation (Vulcan) owns the remaining 20%
of Vulcan's stock. The management company is entitled to
a management fee of $252,000 per year and 20% of net
profits before taxes less 20% of the principal paid to the
seller of Vulcan. This 20% net profits interest has had no
effect on the Company's financial statements since the
subsidiary has generated a net loss up through December 31,
1995.
NOTE 7 - ECONOMIC DEPENDENCE AND MAJOR CUSTOMERS
The Company is provided its office space at no cost by
Sancho Oil and Gas Corporation (Sancho),a company owned by
one of its major shareholders. The Company's marketing
arrangement with Sancho accounted for approximately 45% of
the Company's revenue for the year ended December 31, 1995.
This marketing agreement is in effect until December 1,
2003. Another customer also generated sales in excess of
10% of the Company's total sales. Sales to this customer
made up approximately 14% of net revenues in 1995.
In addition to the natural gas produced by the Company's
wells, it also purchased natural gas. Approximately 33% of
the amount purchased by the Company was from Key Oil
pursuant to a certain marketing agreement. No other
supplier accounted for more than 10% of the Company's
natural gas purchasers.
<PAGE>
TRANS ENERGY, INC.
Notes to the Consolidated Financial Statements
December 31, 1995 and 1994
NOTE 8 - COMMON STOCK, OPTIONS AND WARRANTS
On January 15, 1995, the Company issued 100,000 shares of
its common stock to a consultant. The shares were valued
at $1.50 per share which was the average trading price when
issued.
On October 1, 1995, the Company issued an option to a
consultant to purchase 100,000 shares of its common stock
at $0.001 per share. The option was valued at the
difference between the exercise price and the trading price
of the shares. Accordingly the Company incurred $275,000
of consulting fees in 1995.
The Company also received $5,000 during December of 1995
for the purchase of 500,000 bridge warrants at $0.01 per
warrant. The Company issued 48,750 additional stock
warrants as compensation for the sale of the bridge
warrants which were later surrendered to the Company for no
consideration. The bridge warrants were valued at the
average trading price when issued and expensed to interest during the
year ended December 31, 1995. The bridge warrants are
convertible into 1 share of common stock at $0.50 per share
for up to eighteen months. Upon the effective registration
of the Company's proposed stock offering (Note 10), the
$0.50 common stock conversion option of the bridge warrants
will terminate and the bridge warrants will automatically
convert into 2 redeemable warrants exercisable at 110% of
the proposed offering price which will be approximately
$5.00 per share.
In connection with the extension of the due date of a note
payable the Company granted the noteholder a warrant to
purchase up to 50,000 shares of the Company's common stock
at $2.25 per share.
NOTE 9 - COMMITMENTS AND CONTINGENCIES
The Company leases office space at its Dallas location
under a one year noncancellable operating lease at $1,747
per month. The lease term expires in February 1997.
NOTE 10 - GOING CONCERN
The Company's 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 operating losses for the
years ended December 31, 1995, 1994 and 1993. Revenues
have not been sufficiently established to cover its
operating costs and to allow it to continue as a going
concern. The Company, having recently purchased an 80%
equity ownership of Vulcan Energy Corporation (the
Subsidiary), has replaced management and recapitalized the
Subsidiary with a $200,000 working capital infusion. The
Company has also entered into a letter of intent with L.B.
Saks, Inc., a New York investment firm, to do an
underwriting for a minimum of $3,120,000. The Company
believes that the acquisition and the proceeds from the
public offering will help the Company continue as a going
concern.
NOTE 11 - SUBSEQUENT EVENT
a) Line of Credit
Subsequent to December 31, 1995, the Company obtained a
$1,000,000 line of credit with a lending institution.
Interest accrues on the unpaid balance at varying rates
depending on the outstanding balance. The line of credit
will be used by Vulcan to secure purchases of oil.
<PAGE>
TRANS ENERGY, INC.
Notes to the Consolidated Financial Statements
December 31, 1995 and 1994
NOTE 11 - SUBSEQUENT EVENTS (Continued)
b) Forgiveness of Debt
In February 1996, $20,000 of the management fee payable by
Vulcan was forgiven by the management company.
c) Cancellation of Option
On March 29, 1996, the consultant returned the option for
cancellation. The option was not exercised and was
cancelled without consideration, therefore the cancellation
was accounted for as a decrease in the paid-in capital and
the related asset.
d) Unsecured Promissory Notes and Bridge Warrants
In March 1996 the Company completed a bridge loan of
$600,000 of unsecured promissory notes. Of the $600,000 in
unsecured promissory notes, $270,000 of the previously
secured note holders converted to unsecured note holders.
Under the terms of the unsecured promissory notes, interest
is accrued at the rate of 12% per annum. The principal is
due and payable upon completion of the Company's proposed
public offering or on March 21, 1997. In connection with
the issuance of the promissory notes the Company issued
330,000 Bridge Warrants. These Bridge Warrants are
exercisable for 18 months from the date of issue and
entitle the holder thereof to purchase 1 share of common
stock at $0.50 per share. The Bridge Warrants were valued
at the average trading price when issued and are being
amortized to interest expense over 12 months. Upon the effective
registration of the Company's proposed stock offering (Note 10), the
$0.50 common stock conversion option of these bridge
warrants will terminate and the Bridge Warrants will
automatically convert into 2 Redeemable Warrants
exercisable at 110% of the proposed offering price which
will be approximately $5.00 per share. If the Bridge
Warrants are converted, the unamortized balance of the cost
will be expensed immediately.
NOTE 12 - CONSOLIDATED PROFORMA STATEMENTS OF OPERATIONS
The historical information contained herein has been
consolidated on a proforma basis. The purchase of oil and
gas assets from Vulcan Energy Corporation as described in
Notes 1 and 2 was effective August 7, 1995. The purchase
has been presented as though it was effective January 1,
1995. All significant accounting policies for Vulcan
Energy Corporation are the same as the Company's as defined
in Note 1. No proforma adjustments for depreciation and
depletion have been recorded because the market value of
Vulcan Energy Corporation is approximately the same as
predecessor cost.
<PAGE>
TRANS ENERGY, INC.
Notes to the Consolidated Financial Statements
December 31, 1995 and 1994
NOTE 12 - CONSOLIDATED PROFORMA STATEMENTS OF OPERATIONS (Continued)
For the Year Ended December 31, 1995
Vulcan Trans
Energy Energy and Proforma
Corporation Subsidiaries Adjustments Combined
(Restated) (Restated)
OIL AND GAS SALES $ 1,622,955 $ 2,828,162 $ - $ 4,451,117
COST AND EXPENSES
Cost of oil and gas 1,493,811 2,392,907 - 3,886,718
Salaries and wages 142,444 178,558 - 321,002
Depreciation and
depletion 11,303 228,692 105,500 345,495
Selling, general and
administrative 59,993 1,833,338 - 1,893,331
Total Costs and
Expenses 1,707,551 4,633,495 105,500 6,446,546
INCOME (LOSS)
FROM OPERATIONS (84,596) (1,805,333) (105,500) (1,995,429)
OTHER INCOME (EXPENSE)
Interest income 697 444 - 1,141
Interest expense (1,004) (347,282) (112,006) (460,292)
Gain on disposition
of assets 7,683 2,046 - 9,729
Bad debt expense (500) (44,550) - (45,050)
Total Other Income
(Expense) 6,876 (389,342) (112,006) (494,472)
NET INCOME (LOSS) BEFORE
MINORITY INTERESTS (77,720) (2,194,675) (217,506) (2,489,901)
MINORITY INTERESTS - (10,403) - (10,403)
NET INCOME (LOSS) $ (77,720) $(2,205,078) $ (217,506) $(2,500,304)
EARNINGS (LOSS)
PER SHARE $ (0.02) $ (0.71) $ (0.07) $ (0.80)
<PAGE>
TRANS ENERGY, INC.
Notes to the Consolidated Financial Statements
December 31, 1995 and 1994
NOTE 12 - CONSOLIDATED PROFORMA STATEMENTS OF OPERATIONS (Continued)
For the Year Ended December 31, 1994
Vulcan Trans
Energy Energy and Proforma
Corporation Subsidiaries Adjustments Combined
OIL AND GAS SALES $ 3,527,070 $2,926,735 $ - $ 6,453,805
COST AND EXPENSES
Cost of oil and gas 3,252,516 2,309,448 - 5,561,964
Salaries and wages 296,059 109,003 - 405,062
Depreciation and
depletion 22,018 179,308 158,250 359,576
Selling, general
and administrative 134,403 246,962 - 381,365
Total Costs and
Expenses 3,704,996 2,844,721 158,250 6,707,967
INCOME (LOSS)
FROM OPERATIONS (177,926) 82,014 (158,250) (254,162)
OTHER INCOME
(EXPENSE)
Other income 28,770 12,504 - 41,274
Interest expense (1,659) (140,675) (155,085) (297,419)
Gain on disposition
of assets - 1,000 - 1,000
Bad debt expense (1,000) - - (1,000)
Total Other Income
(Expense) 26,111 (127,171) (155,085) (256,145)
NET INCOME (LOSS)
BEFORE MINORITY
INTERESTS (151,815) (45,157) (313,335) (510,307)
MINORITY INTERESTS - (18,409) - (18,409)
NET INCOME (LOSS) $ (151,815) $(63,566) $ (313,335) $(528,716)
EARNINGS (LOSS)
PER SHARE $ (0.05) $ (0.02) $ (0.10) $ (0.17)
<PAGE>
TRANS ENERGY, INC.
S.F.A.S. 69 Supplemental Disclosures
December 31, 1995 and 1994
(Unaudited)
S.F.A.S. 69 SUPPLEMENTAL DISCLOSURES
(1) Capitalized Costs Relating to
Oil and Gas Producing Activities
December 31,
1995 1994
Proved oil and gas producing properties
and related lease and well equipment $ 3,733,388 $ 3,619,707
Accumulated depreciation and depletion (390,540) (335,293)
Net Capitalized Costs $ 3,342,848 $ 3,284,414
(2) Costs Incurred in Oil and Gas Property
Acquisition, Exploration, and Development Activities
For the Years Ended
December 31,
1995 1994
Acquisition of Properties
Proved $ - $ -
Unproved 100,000 287,000
Exploration Costs - -
Development Costs - -
The Company does not have any investments accounted for by
the equity method.
<PAGE>
TRANS ENERGY, INC.
S.F.A.S. 69 Supplemental Disclosures
December 31, 1995 and 1994
(Unaudited)
S.F.A.S. 69 SUPPLEMENTAL DISCLOSURES (CONTINUED)
(3) Results of Operations for
Producing Activities
For the Years Ended
December 31,
1995 1994
Sales $ 205,152 $ 231,635
Production costs (110,141) (52,793)
Depreciation and depletion (10,556) (70,111)
Results of operations
for producing activities
(excluding corporate
overhead and interest
costs) $ 84,455 $ 108,731
(4) Reserve Quantity Information
Oil Gas
BBL MCF
Proved developed and undeveloped reserves:
Balance, December 31, 1993 203,187 1,576,101
Production (2,702) (118,696)
Balance, December 31, 1994 200,485 1,457,405
Production (1,103) (89,874)
Quantity estimates made (312) 422,123
Balance, December 31, 1995 199,070 1,789,654
Proved developed reserves:
Oil Gas
BBL MCF
Beginning of the year 1994 203,187 1,576,101
End of the year 1994 200,485 1,457,405
Beginning of the year 1995 200,485 1,457,405
End of the year 1995 199,070 1,789,654
<PAGE>
TRANS ENERGY, INC.
S.F.A.S 69 Supplemental Disclosures
December 31, 1995 and 1994
S.F.A.S 69 SUPPLEMENTAL DISCLOSURES (CONTINUED)
(4) Reserve Quantity Information (Continued)
During 1995, 1992, 1991 and 1990, the Company had reserve studies
and estimates prepared on the various properties acquired from
Black Petroleum Corporation. The difficulties and uncertainties
involved in estimating proved oil and gas reserves makes
comparisons between companies difficult. Estimation of reserve
quantities is subject to wide fluctuations because it is dependent
on judgmental interpretation of geological and geophysical data.
(5) Standardized Measure of Discounted
Future Net Cash Flows Relating to
Proved Oil and Gas Reserves
At December 31, 1995
Trans Energy
and
Subsidiaries
Future cash inflows $ 19,846,963
Future production and development costs (7,125,060)
Future net inflows before income taxes 12,721,903
Future income tax expense (4,325,447)
Future net cash flows 8,396,456
10% annual discount for estimated timing of cash flows (4,332,571)
Standardized measure of discounted future net cash flows $ 4,063,885
At December 31, 1994
Trans Energy
and
Subsidiaries
Future cash inflows $17,594,294
Future production and development costs (6,316,352)
Future net inflows before income taxes 11,277,942
Future income tax expense (3,834,500)
Future net cash flows 7,443,442
10% annual discount for estimated timing of cash flows (3,840,816)
Standardized measure of discounted future net cash flows $ 3,602,626
Future income taxes were determined by applying the statutory
income tax rate to future pre-tax net cash flow relating to proved
reserves.
<PAGE>
TRANS ENERGY, INC.
S.F.A.S 69 Supplemental Disclosures
December 31, 1995 and 1994
S.F.A.S 69 SUPPLEMENTAL DISCLOSURES (CONTINUED)
The following schedule summarizes changes in the standardized
measure of discounted future net cash flow relating to proved oil
and gas reserves:
For the Years Ended
December 31,
1995 1994
Standardized measure, beginning of year $ 3,602,626 $ 3,752,076
Oil and gas sales, net of production costs (107,818) (178,842)
Sales of mineral in place - -
Quantity estimates made 569,077 29,392
Standardized measure, end of year $ 4,063,885 $ 3,602,626
The above schedules relating to proved oil and gas reserves,
standardized measure of discounted future net cash flows and
changes in the standardized measure of discounted future net cash
flows have their foundation in engineering estimates of future net
revenues that are derived from proved reserves and with the
assumption of current pricing and current costs of production for
oil and gas produces in future periods. These reserve estimates
are made from evaluations conducted by Sam M. Deal, and independent
geologist, of such properties and will be periodically reviewed
based upon updated geological and production date. Estimates of
proved reserves are inherently imprecise. The above standardized
measure does not include any restoration costs due to the fact the
Company does not own the land.
Subsequent development and production of the Company's reserves
will necessitate revising the present estimates. In addition,
information provided in the above schedules does not provide
definitive information as the results of any particular year but,
rather, helps explain and demonstrate the impact of major factors
affecting the Company's oil and gas producing activities.
Therefore, the Company suggests that all of the aforementioned
factors concerning assumptions and concepts should be taken into
consideration when reviewing and analyzing this information.
(6) Earnings (Loss) Per Share Data
December 31,
1995 1994
(Restated)
Weighted average outstanding
shares based on primary
earnings per share 3,116,435 3,024,122
Primary earnings per share $ (0.71) $ (0.02)
Weighted average outstanding
shares based on fully
diluted earnings per share 3,182,415 3,024,122
Fully diluted earnings per share $ (0.71) $ (0.02)
<PAGE>
Item 8. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
This Item is not Applicable.
PART III
Item 9. Directors, Executive Officers, Promoters and Control
Persons; Compliance with Section 16(a) of the
Exchange Act
The following table sets forth the names, ages, and offices
held with the Company by it's directors and executive officers:
Name Position Director Since Age
Loren E. Bagley President, C.E.O. August 1991 53
and Director
William F. Woodburn Vice President August 1991 54
and Director
Dennis L. Spencer Secretary and September 1993 53
Director
John B. Sims Director January 1988 70
All directors hold office until the next annual meeting of
stockholders and until their successors have been duly elected and
qualified. There are no agreements with respect to the election of
directors. The Company has not compensated its directors for
service on the Board of Directors or any committee thereof, but
directors are reimbursed for expenses incurred for attendance at
meetings of the Board of Directors and any committee of the Board
of Directors. Executive officers are appointed annually by the
Board of Directors and each executive officer serves at the
discretion of the Board of Directors. The Executive Committee of
the Board of Directors, to the extent permitted under Nevada law,
exercises all of the power and authority of the Board of Directors
in the management of the business and affairs of the Company
between meetings of the Board of Directors.
The business experience of each of the persons listed above
during the past five years is as follows:
Loren E. Bagley has been Executive Vice President of the Company
since August, 1991, and became President and C.E.O. in September,
1993. From 1979 to the present, Mr. Bagley has been self employed
in the oil and gas industry as president, C.E.O. or vice president
of various corporations which he has either started or purchased,
including Ritchie County Gathering Systems, Inc. Mr. Bagley's
experience in the oil and gas industry includes acting as a lease
agent, funding and drilling of oil and gas wells, supervising
production of over 175 existing wells, contract negotiations for
purchasing and marketing of natural gas contracts, and owning a
well logging company specializing in analysis of wells. Prior to
becoming involved in the oil and gas industry, Mr. Bagley was
employed by the United States government with the Agriculture
Department. Mr. Bagley attended Ohio University and Salem College
and earned a B.S. Degree.
William F. Woodburn has served as Vice President in charge of
Operations and a director of the Company since August, 1991 and has
been actively engaged in the oil and gas business in various
capacities for the past fourteen years. For several years prior to
1991, Mr. Woodburn supervised the production of oil and natural gas
and managed the pipeline operations of Tyler Construction Company,
Inc. and Tyler Pipeline, Inc. Mr. Woodburn is a stockholder and
serves as President of Tyler Construction Company, Inc., and is
also a stockholder of Tyler Pipeline, Inc. which owns and operates
oil and gas wells in addition to natural gas pipelines, and Ohio
Valley Welding, Inc. which owns a fleet of heavy equipment that
services the oil and gas industry. Prior to his involvement in the
oil and gas industry, Mr. Woodburn was employed by the United
States Army Corps of Engineers for twenty four years and was
Resident Engineer on several construction projects. Mr. Woodburn
graduated from West Virginia University with a B.S. in civil
engineering.
Dennis L. Spencer became the Secretary and a director of the
Company in September, 1993 and has been involved in various
business ventures in the Washington, D.C. area for the past twenty-
one years. Mr. Spencer has owned and operated six (6) automobile
agencies in the Washington, D.C. area, a full line insurance
brokerage agency, a rental car agency and a real estate development
company specializing in commercial and residential property in
Ocean City, Maryland. In 1988, Mr. Spencer sold his various
business interests in the Washington, D.C. area and returned to
Tyler County, West Virginia where he purchased several farms and
also became engaged in the oil and gas business with Mr. Loren E.
Bagley and Mr. William F. Woodburn. Since 1988, Mr. Spencer has
been active in raising capital for oil and gas acquisitions for
various private entities, and has been involved in contract
negotiations for purchasing and marketing natural gas.
John B. Sims served as President, C.E.O. and a director of the
Company from 1988 to September, 1993 and currently is a director.
Prior to joining the Company and from 1984 to 1988, Mr. Sims was
the General Partner of Ben's Run Oil Company which was acquired by
the Company in January, 1988. Mr. Sims has also been the general
partner for fourteen limited partnerships from 1977 to 1984
drilling a total of twenty eight wells. Prior to his involvement
in the oil and gas business, Mr. Sims was a real estate developer
for twenty years as well as an exclusive real estate broker for
Ednam Forrest in Charlottesville, Virginia. During 1994, Mr. Sims
voluntarily initiated a personal bankruptcy proceeding pursuant to
Chapter 7 of the United States Bankruptcy Code. Pursuant to the
terms of such proceeding, Mr. Sims was discharged of certain of his
debts which were incurred as a consequence of his personal
guarantees of certain business related debts, not related to the
Company, upon which the primary obligor defaulted.
Pursuant to the disclosure provisions of Item 405, Regulation
S-B, the following persons who, at any time during the fiscal year
ended December 31, 1995, was a director, officer or beneficial
owner of more than ten percent (10%) of the Company's common stock,
have failed to file on a timely basis certain reports under Section
16(a) of the Securities Exchange Act of 1934, as amended: Loren E.
Bagley, three reports upon sales of shares of common stock;
William F. Woodburn, three reports upon sale of shares of common
stock; and Dennis L. Spencer, one report upon sale of shares of
common stock and one report upon gifting of shares of common stock.
Item 10. Executive Compensation
The Company does not have a bonus, profit sharing, or deferred
compensation plan for the benefit of its employees, officers or
directors, nor has the Company entered into employment contracts
with any of the aforementioned persons.
Cash Compensation
The following table sets forth all cash compensation paid by
the Company for services rendered to the Company for the years
ended December 31, 1993, 1994 and 1995, to the Company's Chief
Executive Officer. No executive officer of the Company has earned
a salary greater than $100,000 annually for any of the periods
depicted.
Summary Compensation Table
Name and Principal Other Annual All Other
Position Year Salary Bonus Compensation Compensation
Loren E. Bagley, 1995 $ -0- $ -0- $ -0- $ -0-
President and
C.E.O.(1) 1994 $ -0- $ -0- $ -0- $ -0-
1993 $ -0- $ -0- $ -0- $ -0-
John B. Sims, 1995 $13, 550 $ -0- $ -0- $ -0-
President and
C.E.O.(2) 1994 $ 5,550 $ -0- $ -0- $ -0-
1993 $ 18,450 $ -0- $ -0- $ -0-
(1) Mr. Bagley served as the Company's Executive Vice
President from August 1991 to September 1993, at which
time he became President and C.E.O. of the Company.
(2) Mr. Sims served as the Company's President and C.E.O.
from 1988 to September 1993, and is currently a director
of the Company.
Item 11. Security Ownership of Certain Beneficial Owners and
Management
The following table sets forth information, to the best
knowledge of the Company as March 31, 1995, with respect to each
person known by the Company to own beneficially more than 5% of the
Company's outstanding common stock, each director and all directors
and officers as a group, and is adjusted to reflect the two shares
for five shares reverse stock split effected by the Company on
September 22, 1993.
Name and Address Amount and Nature of Percent
of Beneficial Owner Beneficial Ownership of Class(1)
Loren E. Bagley * 431,575(2) 13.3%
210 Second Street
St. Marys, WV 26170
William F. Woodburn * 460,108(3) 14.2%
210 Second Street
St. Marys, WV 26170
Dennis L. Spencer * 595,775(4) 18.4%
210 Second Street
St. Marys, WV 26170
John B. Sims * 65,228(5) 2.0%
210 Second Street
St. Marys, WV 26170
Black & Company 441,964(6) 13.6%
50 Federal Street
Boston, MA 02110
All directors and executive 1,552,686 47.9%
officers as a group
(4 persons in group)
* Director and/or executive officer
Note: Unless otherwise indicated in the footnotes below, the
Company has been advised that each person above has sole
voting power over the shares indicated above.
(1) Based upon 3,238,677 shares of common stock outstanding on
March 31, 1996, and takes into consideration the two shares
for five shares reverse stock split effected by the Company on
September 22, 1993.
(2) Includes 125,000 shares of common stock held in the name of
Carolyn S. Bagley, wife of Loren E. Bagley, over which Ms.
Bagley retains voting power.
(3) Includes 200,000 shares of common stock in the name of Janet
L. Woodburn, wife of William F. Woodburn, over which shares
Ms. Woodburn retains voting power. Does not include 142,840
shares of common stock owned by Mark D. Woodburn, son of
William F. Woodburn, over which shares William F. Woodburn
disclaims any voting control.
(4) Includes 595,775 shares of common stock in the name of Karla
R. Spencer, wife of Dennis L. Spencer Sr., over which shares
Ms. Spencer retains voting control.
(5) Includes 65,228 shares of common stock held in the name of
Virginia Sims, wife of John B. Sims, over which shares Ms.
Sims retains voting power.
(6) Black & Company is a holding company for the benefit of those
shareholders of Black Petroleum Corporation that received
shares pursuant to the acquisition by the Company on January
30, 1989 of certain interest in oil and gas properties and in
a subsequent transaction with certain principal stockholders
of the Company. See Item 12 below, "Certain Relationships and
Related Transactions".
Item 12. Certain Relationships and Related Transactions
During the Company's last three fiscal years, there have been
no transactions between the Company and any officer, director,
nominee for election as director, or any shareholder owning greater
than five percent (5%) of the Company's outstanding shares, nor any
member of the above referenced individuals' immediate family,
except as set forth below.
(a) At the Special Meeting of Shareholders held on September
22, 1993, the Company's shareholders ratified the proposal to
acquire certain oil and gas assets and shares of certain entities
engaged in the oil and gas industry, in exchange for shares of
authorized but previously unissued common stock of the Company.
Upon ratification of the proposal, the Company entered into the
following separate agreements, all dated September 22, 1993:
(i) By separate agreement, the Company agreed to acquire
from Loren E. Bagley and William F. Woodburn 65 shares of
Tyler Construction Company, Inc. ("Tyler Construction"), which
shares represented 65% of the total issued and outstanding
shares of Tyler Construction, in exchange for 750,000 shares
of authorized but previously unissued Company common stock.
Following the acquisition, Tyler Construction became a
subsidiary of the Company. Both Mr. Bagley and Mr. Woodburn
are directors of the Company and also serve as President and
Vice President, respectively. Neither Mr. Bagley nor Mr.
Woodburn participated in the approval of the acquisition by
the Board of Directors and the acquisition was approved by a
majority of the Company's shareholders.
(ii) By separate agreement, the Company agreed to acquire
from Mr. Dennis L. Spencer six (6) producing oil and gas wells
located in Ritchie County and Tyler County, West Virginia, in
exchange for 500,000 shares of authorized but previously
unissued Company common stock. All of the wells were drilled
and completed in July of 1991. Mr. Spencer was a nominee for
a director to be voted upon at the shareholders meeting held
September 22, 1993, at which meeting the acquisition of the
wells from Mr. Spencer was approved by a majority of the
Company's shareholders. Although Mr. Spencer was a nominee to
become a director at the September 22, 1993 Meeting of
Shareholders, he was not a director of the Company at the time
the acquisition was approved by the Board of Directors and
accordingly, he did not participate in negotiations on behalf
of the Company nor did he participate in the vote by the Board
of Directors to ratify the acquisition.
(iii) By separate agreement with Tyler Pipeline, Inc, a
West Virginia corporation ("Tyler Pipeline"), the Company
agreed to acquire from Tyler Pipeline a certain natural gas
gathering pipeline system referred to as "The Pipeline, Ltd."
in exchange for 250,000 shares of authorized but previously
unissued Company common stock. William L. Woodburn, Vice
President and a director of the Company, is President and owns
50% of Tyler Pipeline. Loren E. Bagley, President and a
director of the Company, also owns 50% of Tyler Pipeline.
Neither Mr. Woodburn nor Mr. Bagley participated in the
approval of the acquisition by the Board of Directors and the
acquisition was approved by a majority of the Company's
shareholders.
(iv) By separate agreement, the Company acquired all the
issued and outstanding shares of Ritchie County Gathering
Systems, Inc., a West Virginia corporation ("Ritchie"), in
exchange for 500,000 shares of authorized but previously
unissued Company common stock. Loren E. Bagley and William F.
Woodburn, both officers and directors of the Company, and
Dennis L. Spencer, at the time a nominee to become a director
of the Company, were the holders of 100% of the Ritchie stock
acquired by the Company. Neither Mr. Bagley nor Mr. Woodburn
participated in the approval of the acquisition by the Board
of Directors and the acquisition was approved by a majority of
the Company's shareholders. Mr. Spencer was not a director of
the Company at the time the acquisition was approved by the
Board of Directors.
All four of the above transactions involved acquisitions by
the Company from persons who were officers and directors of the
Company either at the time of the transactions or immediately
thereafter. It was believed to be in the best interest of the
Company to make the acquisitions in order to increase the Company's
asset base of oil and natural gas producing properties and
pipelines and to increase future revenues of the Company. Those
factors considered in making the acquisitions were the book value
of the individual assets, the appraised value of each asset, and
the present discounted projected future cash flows of each asset.
All four of the acquisitions were approved by a majority of the
Company's shareholders. By mutual arrangement between Messrs.
Bagley, Woodburn and Spencer, they have agreed to divide equally
among themselves the shares of the Company's common stock which
they own.
(b) On November 22, 1993, three directors of the Company,
Loren E. Bagley, William F. Woodburn and Dennis L. Spencer entered
into a certain agreement with Black Petroleum Corporation whereby
Messrs. Bagley, Woodburn and Spencer agreed to assign to Black
Petroleum 210,444 shares of the Company's common stock owned by
them in exchange for the relinquishment by Black Petroleum of
certain anti-dilution provisions it possessed concerning shares of
the Company's common stock it owned in the name of Black & Company.
This would permit the Company to issue shares of common stock for
assets without having to issue additional shares to Black
Petroleum. Although the original agreement between Black Petroleum
and the Company remained in effect, as consideration for the
210,444 shares Black Petroleum agreed not to exercise its anti-
dilution rights. The anti-dilution provisions were originally
granted to Black Petroleum by the Company in 1989 in connection
with the acquisition by the Company of certain gas and oil
properties. The anti-dilution provisions expired by their terms in
January, 1994.
(c) As of December 31, 1994, the Company reported several
related party loans and loan receivables outstanding. These
amounts are non interest bearing and considered short-term in
nature. Total loan receivables and loan payables as of December
31, 1995 were $14,899 and $683,586 respectively. Total loan
receivables and loan payables as of December 31, 1994 were $7,119
and $445,079 respectively. Any loan made to a related party is
made at the discretion of and upon approval by the Executive
Committee of the Board of Directors. All related party loans are
non-interest bearing and are scheduled for repayment on March 15,
1998.
(d) In October 1994, the Company acquired from Tyler
Pipeline, Inc. 14,350 leasehold acres located in the Rose Run
formation in Ohio for the total purchase price of $287,000. Tyler
Pipeline, Inc. is equally owned by Loren E. Bagley and William F.
Woodburn, President and Vice President of the Company,
respectively. As payment for the property, the Company forgave
certain receivables due from Messrs. Bagley and Woodburn in the
approximate amount of $80,000 each, and the balance of $135,867 is
carried on the Company's financial statements as a related party
loan payable.
(e) In connection with its acquisition of Vulcan, on July 27,
1995, the Company borrowed the sum of $150,000 from an individual,
John C. Allen, and on September 1, 1995, the Company borrowed the
sum of $135,000 from Marden. Neither Mr. Allen nor Marden is
otherwise affiliated with the Company. Each of such sums is
evidenced by a promissory note in the principal amount of the sum
borrowed from the respective lenders. The principal amount owned
to Mr. Allen is repayable in one installment on May 31, 1997.
Interest at the rate of 12% per annum is payable monthly until the
principal amount is repaid in full. The Company may prepay such
note at any time prior to maturity without premium or penalty. The
debt evidenced by such note is guaranteed by each of Mr. Bagley and
Mr. Woodburn. In addition, the Company granted to Mr. Allen a
warrant to purchase up to 50,000 shares of the Company's common
stock at an exercise price of $2.25 per share at any time through
July 27, 2000. The principal amount owned to Marden is repayable
in one payment due October 15, 1997. The Company may prepay such
note at any time prior to maturity without premium or penalty. The
debt evidenced by such note is guaranteed by Mr. Bagley.
Of the foregoing sums, $100,000 of the funds borrowed from Mr.
Allen was applied to the purchase price of Vulcan and $50,000
applied to Vulcan's working capital. Of the $135,000 borrowed from
Marden $50,000 was paid to PMC in consideration of the assignment
by PMC to the Company of its rights to purchase the stock of Vulcan
and $85,000 was applied to Vulcan's working capital.
(f) Loren E. Bagley is President of Sancho, a principal
purchaser of the Company's natural gas. Mr. Bagley's wife, Carolyn
S. Bagley is a director and owner of 66-2/3 % of the outstanding
capital stock of Sancho. Under its contract with Sancho, the
Company has the right to sell natural gas subject to the terms and
conditions of a 15-year contract that Sancho entered into with Hope
Natural Gas in 1988. This agreement is a flexible volume supply
agreement whereby the Company receives the full price which Sancho
receives less a $.05 per Mcf marketing fee paid to Sancho. The
price of the natural gas is based upon an index that includes the
residential gas commodity charge of Hope Natural Gas. During 1995,
the Company paid Sancho an aggregate of $20,407 pursuant to such 15
year contract.
The Company also occupies approximately 4,000 square feet of
office space in St. Mary's, West Virginia, which it shares with its
subsidiary Tyler Construction. These facilities are under lease by
Sancho, one of the Company's principal customers, and under a
verbal arrangement with Sancho, the Company occupies these
facilities for no rent.
<PAGE>
PART V
Item 13. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit No. Exhibit Name
*2.1 Stock Acquisition Agreement between the Company and Loren
E. Bagley and William F. Woodburn
*2.2 Asset Acquisition Agreement between the Company and Dennis
L. Spencer
*2.3 Asset Acquisition Agreement between the Company and Tyler
Pipeline, Inc.
*2.4 Stock Exchange Agreement between the Company and Ritchie
County Gathering Systems, Inc.
*2.5 Plan and Agreement of Merger between Trans Energy, Inc.
(Nevada) and Apple Corp. (Idaho), to facilitate the change
of the Company's corporate domicile to Nevada
**2.6 Agreements related to acquisition of Vulcan Energy
Corporation
*3.1 Articles of Incorporation and all amendments pertaining
thereto, for Apple Corp., an Idaho corporation
*3.2 Articles of Incorporation for Trans Energy, Inc., a Nevada
corporation
*3.3 Articles of Merger for the States of Nevada and Idaho
*3.4 By-Laws
*4.1 Specimen Stock Certificate
*10.1 Marketing Agreement with Sancho Oil and Gas Corporation
*10.2 Gas Purchase Agreement with Central Trading Company
*10.3 Price Agreement with Key Oil Company
*21.1 Subsidiaries
*99.1 Reserve Estimate and Evaluation of oil and gas properties
*99.2 Reserve Estimate and Evaluation for Dennis L. Spencer wells
* Previously filed as Exhibit to Form 10-SB.
** Previously filed as Exhibit to Form 8-K dated August 7, 1995.
(b) On December 13, 1995, the Company filed an amendment to
its report on Form 8-K to include financial statements
related to the acquisition of Vulcan Energy Corporation.
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act,
the Registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
TRANS ENERGY, INC.
BY: /S/ Loren E. Bagley
(Signature)
LOREN E. BAGLEY,
President and C.E.O.
Dated: December 13, 1996
In accordance with the Exchange Act, this report has been
signed below by the following persons on behalf of the Registrant
and in the capacities and on the dates indicated.
Signature Title Date
President, C.E.O. December 13, 1996
/S/ Loren E. Bagley and Director
(Signature)
Loren E. Bagley
Vice President and December 13, 1996
/S/ William F. Woodburn Director
(Signature
William F. Woodburn
Secretary and December 13, 1996
/S/ Dennis L. Spencer Director
(Signature) (Chief Financial Officer)
Dinnis L. Spencer (Principal Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE TRANS ENERGY, INC. FINANCIAL
STATEMENTS FOR THE PERIOD ENDED DECEMBER 31, 1995
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 0
<SECURITIES> 0
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0
0
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<EPS-PRIMARY> (.72)
<EPS-DILUTED> (.72)
</TABLE>
