TRANS ENERGY INC, 424B1, 1996-12-19

TRANS ENERGY INC
424B1, 1996-12-19
CRUDE PETROLEUM & NATURAL GAS

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<PAGE>

FILED PURSUANT TO RULE 424(b)(1)
REGISTRATION NO. 333-4438

585,366 SHARES OF COMMON STOCK
[LOGO OF
TRANS ENERGY] 1,200,000 REDEEMABLE COMMON STOCK PURCHASE WARRANTS

TRANS ENERGY, INC.

The 585,366 shares of Common Stock, $.001 par value per share ("Common
Stock"), and 1,200,000 Redeemable Common Stock Purchase Warrants ("Redeemable
Warrants") offered hereby (the "Offering") are being offered by Trans Energy,
Inc. (the "Company") for a purchase price of $5.125 per share of Common Stock
and $.10 per Redeemable Warrant which price has been determined by
negotiations between the Company and L.B. Saks, Inc. (the "Underwriter"). The
Common Stock and Redeemable Warrants offered hereby (sometimes referred to
collectively herein as the "Securities") may be separately purchased and will
be separately tradeable immediately upon issuance. Each Redeemable Warrant
entitles the holder to purchase one share of Common Stock for $5.64 during the
five-year period commencing one year from the date of this Prospectus. The
Company may redeem the Redeemable Warrants at a price of $.10 per Redeemable
Warrant, at any time beginning one year after the date of this Prospectus upon
not less than 30 days prior written notice if the closing bid pric e of
the Common Stock on the Nasdaq Small Cap Market exceeds 140% of the public
offering price for
(Continued on next page)

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.

THE SECURITIES OFFERED HEREBY ARE SPECULATIVE SECURITIES AND INVOLVE A HIGH
DEGREE OF RISK AND SUBSTANTIAL DILUTION. SEE "RISK FACTORS" (SEE PAGE 10 OF
THIS PROSPECTUS) AND "DILUTION."

- -------------------------------------------------------------------------------

<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) THE COMPANY(2)
<S> <C> <C> <C>
Per Share.......................... $ 5.125 $ 0.5125 $ 4.612
Per Redeemable Warrant............. $ 0.10 $ 0.01 $ 0.09
Total(3)(4)........................ $3,120,000.00 $312,000.00 $2,808,000.00
</TABLE>
- -------------------------------------------------------------------------------

(1) The Company has also agreed to pay the Underwriter a non-accountable
expense allowance for expenses of the Underwriter equal to 3% of the
aggregate purchase price of the Securities; and to issue warrants to the
Underwriter for the purchase of 58,537 shares of Common Stock at $8.46 per
share and 120,000 Redeemable Warrants at $.165 per Redeemable Warrant (the
"Underwriter's Warrant"). The Redeemable Warrants underlying the
Underwriter's Warrant each entitle the holder to purchase one share of
Common Stock at 165% of the exercise price of the Redeemable Warrants
being offered to the public. For additional information concerning further
agreements between the Company and the Underwriter, including an agreement
to indemnify the Underwriter against certain civil liabilities, including
liabilities under the Securities Act of 1933, see "Underwriting."
(2) Before deducting approximately $278,752 in estimated expenses of the
offering payable by the Company, including the Underwriter's non-
accountable expense allowance.

(3) The Company has granted the Underwriter an option to purchase up to 87,805
shares of Common Stock and 180,000 Redeemable Common Stock exercisable for
45 days from the date of this Prospectus to cover overallotments, if any
(the "Overallotment Option"). If all of the additional Securities are
purchased, the total Price to Public, Underwriting Discounts and
Commissions and Proceeds to Company will be increased to $3,630,001.38,
$363,000.14 and $3,267,001.24, respectively.
(4) Does not include 1,600,000 Redeemable Warrants registered under the
Registration Statement to be issued to the holders of the Company's Bridge
Warrants upon automatic conversion of the Company's Bridge Warrants upon
the effectiveness of the Registration Statement or the 1,600,000 shares of
Common Stock into which such Redeemable Warrants may be converted. See
"Description of Securities" and "Principal and Selling Securityholders."

L.B. SAKS, INC.
61 BROADWAY
SUITE 1600
NEW YORK, NEW YORK 10006

THE DATE OF THIS PROSPECTUS IS DECEMBER 17, 1996.
<PAGE>

(Continued from previous page)

the 20 consecutive trading days preceding the notice of redemption. All of the
Redeemable Warrants must be redeemed if any are redeemed. See "Description of
Securities."

Simultaneously with this Offering, the Company is registering 1,600,000
Redeemable Warrants and 1,600,000 shares of Common Stock underlying such
Redeemable Warrants for future resale by certain current securityholders
("Selling Securityholders") of 800,000 warrants ("Bridge Warrants") previously
issued in connection with the Company's December 1995 private placement of
Bridge Warrants and March 1996 bridge financing. Each of such Bridge Warrants
automatically will be converted into two Redeemable Warrants upon the
effectiveness of the Registration Statement of which this Prospectus forms a
part (the "Registration Statement") without any further action by, or cost to,
the holders thereof.

The Selling Securityholders are presently subject to a lock-up agreement
with the Company pursuant to which they may not resell and/or exercise the
1,600,000 Redeemable Warrants being registered simultaneously with the
Securities offered hereby for a period of two (2) years following the
effectiveness of the Registration Statement without the prior consent of the
Company (the "Company Lock-up"). However, the Company Lock-up terminates
immediately upon the successful completion of the Offering.

Furthermore, the holders of such Redeemable Warrants may not sell any such
Redeemable Warrants for a period of one (1) year from the effective date of
the Registration Statement without the prior consent of the Underwriter (the
"Underwriter's Lock-up"). The Underwriter has agreed that it will not release
the Underwriter's Lock-up for at least three (3) months following the
effectiveness of the Registration Statement. After expiration of such three
(3) month period, the Underwriter may permit sales of such securities by the
Selling Securityholders upon written request by the Selling Securityholders.
The extent to which such sales will be permitted will depend on the evaluation
by the Underwriter of a number of factors, including the trading volume of the
securities on the NASDAQ and the number of securities which the Selling
Securityholders have requested to sell. In the event the Redeemable Warrants
are released from the Underwriter's Lock-up prior to the end of such one (1)
year period such Redeemable Warrants shall be immediately eligible for resale
to the public.

The sale or other disposition of the Redeemable Warrants and shares of
Common Stock underlying the Redeemable Warrants will also be subject to the
approval of the National Association of Securities Dealers (the "NASD"). Prior
to the disposition or release of the Redeemable Warrants and shares of Common
Stock underlying the Redeemable Warrants by the Selling Securityholders, the
NASD will be notified and approval with regard to the transaction must be
granted by the NASD (the "NASD Restriction").

THE INTRODUCTION OF REDEEMABLE WARRANTS INTO THE PUBLIC MARKET BY THE
SELLING SECURITYHOLDERS WOULD HAVE AN ADVERSE EFFECT UPON THE PRICES OF THE
REDEEMABLE WARRANTS AND COMMON STOCK SOLD TO THE PUBLIC AND/OR THE COMMON
STOCK UNDERLYING THE REDEEMABLE WARRANTS SOLD TO THE PUBLIC PURSUANT TO THIS
OFFERING. See "Risk Factors", "Description of Securities" and "Principal and
Selling Securityholders."

The registration statement of which this Prospectus is a part includes
1,200,000 shares of Common Stock issuable upon the exercise of the Redeemable
Warrants offered hereby. See "Description of Securities."

2
<PAGE>

Redeemable Warrants. There can be no assurance that the trading market for the
Common Stock on the Nasdaq Small Cap Market will continue or that a public
market will develop in the Redeemable Warrants following the Offering. See
"Underwriting" for information relating to the factors considered in
determining the public offering price and the exercise price of the Redeemable
Warrants. The Company intends to continue trading its Common Stock, including
the shares of Common Stock which are the subject of this Offering, under the
symbol "TSRG" and to trade the Redeemable Warrants on the Nasdaq Small Cap
Market under the symbol "TSRGW".

The Company will furnish its stockholders with annual reports containing
audited financial statements and such other information as the Company deems
appropriate or as may be required by law. The Company's fiscal year ends on
December 31 of each year. Prior to the closing of this Offering, the Company
will register the Securities under Section 12(g) of the Securities Exchange
Act.

----------------

The Common Stock and Redeemable Warrants are being offered on a "firm
commitment" basis, subject to prior sale, when, as and if delivered to and
accepted by the Underwriter, and subject to certain conditions. The
Underwriter reserves the right to withdraw, cancel or modify the Offering and
to reject orders in whole or in part. It is expected that delivery of the
certificates representing the shares of Common Stock and Redeemable Warrants
will be made at the offices of the Underwriter, in New York City, on or about
December 23, 1996.

----------------

IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICES OF THE SECURITIES
AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ SMALL CAP MARKET. SUCH STABILIZING,
IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.

3
<PAGE>

PROSPECTUS SUMMARY

The following is a summary of certain selected information contained
elsewhere in this Prospectus and is qualified in its entirety by the more
detailed information and financial statements set forth in this Prospectus.
Prospective investors are urged to read this Prospectus in its entirety.

Unless otherwise indicated herein, all references to the Company shall
include references to the Company's subsidiary, Vulcan Energy Corporation
("Vulcan").

THE COMPANY

The Company, a Nevada corporation, is primarily engaged in the
transportation, marketing and production of natural gas and oil, and also
conducts exploration and development activities, within the Appalachian Basin,
particularly in Northwestern West Virginia. The Company owns and operates 105
oil and gas wells and also owns and operates an aggregate of over 100 miles of
three-inch, four-inch and six-inch gas transmission lines located within West
Virginia in the Counties of Ritchie, Tyler, Doddridge, and Pleasants, which
pipeline system gathers the gas emanating from certain of such wells and from
wells owned by third parties. Approximately 45% of the Company's 1995 revenues
were generated from gas transmitted via the Company's pipeline and sold to one
customer, Sancho Oil and Gas Corporation ("Sancho"). The Company has
approximately 7,175 leasehold acres in the Rose Run geological formation in
Ohio and approximately 2,200 leasehold acres in the Sistersville, West Virginia
field which forms part of the Keener and Big Injun sands geological formations,
none of which has contributed to the revenues of the Company to date. The
Company has conducted preliminary testing on portions of such acreage. See
"Business and Properties--Current Business Activities."

Through its subsidiary, Vulcan, a Texas corporation, the Company also is
engaged in lease crude oil gathering and marketing in Southeast Texas. Vulcan
is 80% owned by the Company and 20% owned by Nano-Tech Transactions, Inc.
("Nano-Tech"). F. Worthy Walker, Vulcan's President and one of its directors,
is the sole shareholder and director of Nano-Tech. Vulcan purchases both sweet
and sour grades of crude oil and transports such gathered oil via its tanker
trucks and deposits the same under contracts to Conoco Inc. ("Conoco"), and
also to Cardinalis Petroleum Company ("Cardinalis"), Cambridge Petroleum, Inc.
("Cambridge") and Gulf Mark ("Gulf Mark"). Conoco accounted for 78%, 67%, 82%,
respectively, of Vulcan's revenues for the years ended December 31, 1993,
December 31, 1994 and December 31, 1995. No other customer accounted for more
than 10% of Vulcan's revenues. Vulcan accounted for 32% and 77% of the
Company's revenues, on a consolidated basis, for the year ended December 31,
1995 and the nine month period ended September 30, 1996, respectively.
Management has included a going concern footnote in the Company's Financial
Statements for the year ended December 31, 1995 and the nine month period ended
September 30, 1996. See "Risk Factors--Going Concern" and Note 10 to the
Company's Consolidated Financial Statements for the year ended December 31,
1995 and the nine month period ended September 30, 1996. See "Business and
Properties--Current Business Activities--Vulcan Energy Corporation."

For the year ended December 31, 1995 and for the nine months ended September
30, 1996 the revenues of the Company were derived from the following sources:
<TABLE>
<CAPTION>
PERCENTAGE OF
PERCENTAGE OF REVENUES FOR
REVENUES FOR NINE MONTHS ENDED NINE MONTHS ENDED
YEAR ENDED YEAR ENDED SEPTEMBER 30, SEPTEMBER 30,
DECEMBER 31, 1995 DECEMBER 31, 1995 1996 1996
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Gas Pipeline Sales...... $1,716,625 61% $ 732,162 17%
Vulcan Energy Sales..... 906,385 32% 3,217,649 77%
Other Production Sales.. 205,152 7% 253,692 6%
---- ----
100% 100%
</TABLE>

4
<PAGE>

THE OFFERING

<TABLE>
<S> <C>
Securities Offered.................. 585,366 shares of Common Stock and 1,200,000
Redeemable Warrants. Each Redeemable Warrant
entitles the holder to purchase one share of Common
Stock for $5.64 during the five year period
commencing one year after the date of this
Prospectus. The Company may redeem the Redeemable
Warrants, at a price of $.10 per Redeemable Warrant,
at any time after they become exercisable upon not
less than 30 days prior written notice if the
closing bid price of the Common Stock exceeds 140%
of the price of Common Stock in this Offering for
the 20 consecutive trading days preceding such
notice. The Common Stock and Redeemable Warrants are
issuable separately and separately tradeable. See
"Description of Securities."
Securities Outstanding.............. 3,238,677 shares of Common Stock; $600,000 Principal
Amount. 12% Unsecured Promissory Notes; and 800,000
Bridge Warrants.
Securities to be Outstanding after
Offering (1)....................... 3,824,404 shares of Common Stock; and 2,800,000
Redeemable Warrants.
Offering Price per share of Common
Stock.............................. $5.125
Offering Price per Redeemable
Warrant............................ $.10
Nasdaq Small Cap Market
Symbols (2)........................ Common Stock: TSRG; and Redeemable Warrants: TSRGW.
Use of Proceeds..................... The proceeds will be utilized by the Company for
working capital purposes, to pay the expenses of
this Offering, for the development of certain of the
Company's properties and business and to repay
certain of the Company's outstanding debt. See "Use
of Proceeds."
Risk Factors........................ The securities being offered are subject to
substantial risks, and prospective investors, before
purchasing any securities offered, should review
carefully and consider the information contained in
this Prospectus and particularly the items set forth
under "Risk Factors" and "Dilution."
</TABLE>
- --------

(1) Does not include (i) 87,805 shares of Common Stock and 180,000 Redeemable
Warrants subject to the Underwriter's Overallotment Option; (ii) 1,200,000
shares of Common Stock issuable upon exercise of the Redeemable Warrants
offered by this Prospectus; (iii) 1,600,000 Redeemable Warrants issuable
upon automatic conversion of the Company's outstanding Bridge Warrants;
(iv) 1,600,000 shares of Common Stock issuable upon exercise of the
Redeemable Warrants issuable upon automatic conversion of the Company's
outstanding Bridge Warrants; or (v) 178,537 shares of Common Stock issuable
upon the exercise of the Underwriter's Option, including 120,000 shares of
Common Stock issuable upon exercise of the Redeemable Warrants issuable as
part of the Underwriter's Warrant. See "Underwriting."
(2) While the Company's Common Stock presently is traded on the Nasdaq Small
Cap Market, there is no assurance that such trading will continue or that a
trading market will develop for the Company's Redeemable Warrants or that,
if developed, such market will be sustained. If the Company fails to meet
certain maintenance standards imposed by the NASD, delisting of its
securities from NASDAQ is possible. Such standards include requirements
that the Company have at least $2,000,000 in total assets, $1,000,000 in
capital and surplus and a minimum bid price for its Common Stock of $1.00
per share.

5
<PAGE>

SUMMARY OIL AND GAS INFORMATION

The following tables set forth summary data with respect to the estimates of
the Company's net proved gas and oil reserves and related future net revenue as
of December 31, 1995, estimates of proved reserves for each of the three years
ended December 31, 1993, 1994 and 1995, and certain historical gas and oil
operating data of the Company for each of the three years ending December 31,
1993, 1994 and 1995 and for the nine months ended September 30, 1995 and 1996.
These results are not necessarily indicative of the Company's future
performance.

<TABLE>
<CAPTION>
DEVELOPED UNDEVELOPED TOTAL
--------- ----------- -------
<S> <C> <C> <C>
RESERVE DATA(1):
Estimated net proved reserves:
Gas (MMcf)(2).................................. 988 801 1,789
Oil (MBbl)(3).................................. 19 180 199
Estimated future net revenues (in thousands):
Before income taxes............................ $12,722
After income taxes............................. $ 8,396
Present value of estimated future net revenues
(discounted at 10% per annum) (in thousands):.. $ 4,064
</TABLE>

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------
1993 1994 1995
------------ ------------ ------------
MMCF MBBLS MMCF MBBLS MMCF MBBLS
----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
ESTIMATES OF NET PROVED RESERVES:
Proved reserves, beginning of year.... 1,663 207 1,576 203 1,457 200
Extensions, discoveries and other
additions............................ -- -- -- -- -- --
Acquisitions.......................... -- -- -- -- -- --
Revisions of previous estimates....... -- -- -- -- 422 --
Production............................ (87) (4) (119) (3) ( 90) (1)
Sales of reserves.................... -- -- -- -- -- --
Proved reserves, end of year......... 1,576 203 1,457 200 1,789 199
Proved developed reserves.............
WELL PERFORMANCE DATA:
Net wells............................. 95 95 95
Average production per net well per
day (EMcf)(4)........................ 3.1 3.9 2.8
Average working interest.............. 90.6% 90.6% 90.6%
</TABLE>

<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
----------------------- -------------
1993 1994 1995 1995 1996
------- ------- ------- ------ ------
<S> <C> <C> <C> <C> <C>
GAS AND OIL OPERATING DATA:
Gas (Mcf per day)........................ 237 325 246 246 290
Oil (Bbl per day)........................ 10 7 3 3 8
EMcf (per day)........................... 296 370 264 264 338
Average sales price:
Gas (per Mcf)........................... $ 2.48 $ 2.33 $ 2.02 $ 1.90 $ 2.93
Oil (per Bbl)........................... $ 14.89 $ 16.02 $ 16.44 $16.55 $18.78
Average cost of production:
Gas (per Mcf)........................... $ 1.03 $ 1.10 $ 1.12 $ .93 $ 1.12
Oil (per Bbl)........................... $ 6.18 $ 6.60 $ 6.72 $ 5.60 $ 6.72
</TABLE>
- --------
(1) See "Risk Factors--Uncertainties in Reserve Estimates," "Business and
Properties--Gas and Oil Properties," S.F.A.S 69 Supplemental Disclosures
Footnote to Consolidated Financial Statements of the Company and the
Estimated Future Reserves and Revenues Summary Report of S. M. Deal &
Associates, independent petroleum engineers, attached hereto as Appendix A
(the "Summary Reserve Report").
(2) Million cubic feet of gas.
(3) Thousand barrels of oil.
(4) Equivalent Mcf is a means of converting the energy value of oil into the
equivalent energy value of gas. One barrel of oil yields the energy
equivalent of six Mcf of gas.

The process of estimating oil and gas reserves contains numerous inherent
uncertainties and requires significant subjective decisions in the evaluation
of available geological, engineering and economic data for each reservoir. The
data for a given reservoir may change substantially over time as a result of,
among other factors, additional development activity, production history and
viability of production under varying economic conditions. Consequently,
reserve estimates are often materially different from the quantities of oil and
gas that are ultimately recovered, and material revisions to existing reserve
estimates may occur in the future.

6
<PAGE>

SUMMARY FINANCIAL INFORMATION

The following table sets forth the summary income data for the Company for
the three years ended December 31, 1993, 1994 and 1995 and for the nine months
ended September 30, 1995 and 1996 and summary balance sheet data of the Company
at December 31, 1993, 1994 and 1995, and at September 30, 1996 both actual and
as adjusted to reflect the consummation of this Offering, and the pro forma
statement of income for the period January 1, 1995 through July 31, 1995
reflecting the effect of the Vulcan acquisition as if such acquisition had
occurred on January 1, 1995. The historical data for the year ended December
31, 1995 includes the results of the operations of Vulcan for the period August
1, 1995 through December 31, 1995. The Financial Accounting Standards Board has
issued Statement of Financial Accounting Standards No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions," Statement No. 112,
"Employers' Accounting for Postemployment Benefits" and Statement No. 115,
"Accounting for Certain Investments in Debt and Equity Securities". Statement
No. 106 is effective for years beginning after December 15, 1992 and Statements
No. 112 and 115 are effective for years beginning after December 15, 1993. The
Financial Accounting Standards Board has issued Statements of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets," and No. 123, "Accounting for Stock-Based Compensation," which are
effective for fiscal years that begin after December 15, 1995. The effect of
adopting Statements No. 106, 112, 115, 121, and 123 did not have a material
impact on the Company's financial statements. The results are not necessarily
indicative of the Company's future performance.

<TABLE>
<CAPTION>
PRO FORMA
VULCAN NINE MONTHS
YEAR ENDED DECEMBER 31, YEAR ENDED ENDED SEPTEMBER 30,
---------------------------------- DECEMBER 31, ----------------------
1993 1994 1995 1995 1995 1996
---------- ---------- ---------- ------------ ---------- ----------
(RESTATED) (RESTATED) (UNAUDITED)
(RESTATED)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF
INCOME DATA:
Total Revenues:......... $ 625,794 $2,940,239 $2,828,162 $4,451,117 $2,082,944 $4,203,503
Expenses:
Cost of oil & gas
produced.............. 474,181 2,309,448 2,392,907 3,886,718 1,558,484 3,786,826
Salaries & wages....... 98,500 109,003 178,558 321,002 211,828 102,995
Depreciation and
depletion............. 36,128 179,308 228,692 345,495 135,505 293,450
Selling, general &
administrative........ 203,726 246,962 1,833,338 1,893,331 346,165 660,221
Interest............... 38,354 140,675 347,282 460,292 130,790 751,252
Income (loss) before
income taxes &
minority interests and
extraordinary item.... (225,095) (45,157) (2,194,675) (2,489,901) (299,828) (1,391,241)
Minority interest...... 50,245 (18,409) (10,403) (10,403) (9,552) 39,393
Extraordinary income... -- -- -- -- -- 9,556
Net Income (loss)...... (174,850) (63,566) (2,205,078) (2,500,304) (309,380) (1,342,292)
Net loss per share..... (.14) (.02) (.71) (.80) (.09) (.42)
Net loss per share
(including conversion
of debentures)........ (.14) (.02) (.71) (.80) (.09) (.42)
Weighted average common
shares outstanding.... 1,276,277 3,024,122 3,116,435 3,116,435 3,099,122 3,233,298
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30, 1996
-------------------------------- -------------------------
1993 1994 1995 ACTUAL AS ADJUSTED(1)
---------- ---------- ---------- ---------- --------------
(RESTATED) (UNAUDITED)
(RESTATED)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Fixed assets............ $4,575,106 $4,728,567 $5,184,856 $5,116,947 $5,616,947
Total assets............ 5,235,687 5,255,637 6,705,278 6,672,792 7,653,040
Current Liabilities..... 1,332,735 1,507,730 1,206,190 2,110,228 1,006,228
Long term debt, less
current portion........ 1,079,572 969,684 2,898,508 2,520,669 2,135,669
Stockholders Equity..... 2,812,799 2,749,233 2,561,187 2,041,895 4,511,143
</TABLE>
- --------
(1) Gives effect to the sale of the Securities pursuant to the Offering and the
application of the estimated net proceeds of $2,469,248 for the Offering
(after payment of all estimated offering expenses, including the
Underwriter's non-accountable expense allowance and $60,000 in fees for the
first year of the consulting agreement between the Company and the
Underwriter. See "Use of Proceeds."

7
<PAGE>

THE COMPANY

The Company, a Nevada corporation, is primarily engaged in the
transportation, marketing and production of natural gas and oil, and also
conducts exploration and development activities, within the Appalachian Basin,
particularly in Northwestern West Virginia. The Company owns and operates 105
oil and gas wells and also owns and operates an aggregate of over 100 miles of
three-inch, four-inch and six-inch gas transmission lines located within West
Virginia in the Counties of Ritchie, Tyler, Doddridge, and Pleasants, which
pipeline system gathers the gas emanating from certain of such wells and from
wells owned by third parties. The Company has approximately 7,175 leasehold
acres in the Rose Run geological formation in Ohio and approximately 2,200
leasehold acres in the Sistersville, West Virginia field which forms part of
the Keener and Big Injun sands geological formations, none of which has
contributed to the revenues of the Company to date. The Company has conducted
preliminary testing on portions of such acreage.

In 1995, over 45% of the Company's revenues were derived from the sale of
natural gas to interstate pipeline companies and natural gas marketing
companies through marketing agreements, including one with Sancho. For the
nine month period ended September 30, 1996, sales of natural gas by the
Company pursuant to such marketing agreements accounted for approximately 18%
of the Company's revenues. At September 30, 1996, the Company owned and
operated 105 oil and gas wells, of which 85 gross wells (wells in which the
Company owns a working interest) 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.

In 1995, 86% of the gas sold by the Company was purchased from third
parties. For the nine months ended September 30, 1996, 74% of the gas sold by
the Company was purchased from third parties.

Sweet crude oil grades are composed of crude oils that have a sulphur
content of .5% or less by weight. Sour crude oil grades are composed of crude
oils that have a sulphur content greater than .5% by weight. Vulcan also
purchases residual oil from storage and fuel tanks and resells such oil in the
secondary market to, among others, burner fuel and general feed stock users.
Vulcan is 80% owned by the Company and 20% owned by Nano-Tech Transactions,
Inc. F. Worthy Walker, President and a director of Vulcan, is the sole
shareholder, director and officer of Nano-Tech.

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.

Vulcan's principal executive offices are located at 3131 Turtle Creek Blvd.,
Suite 650, Dallas, Texas 75219 and its telephone number is (214) 526-1306.

8
<PAGE>

DILUTION

As of September 30, 1996, the outstanding Common Stock of the Company had a
net tangible book value of $1,001,998, or approximately $.31 per share. "Net
tangible book value per share" represents the amount of total assets of the
Company (less intangibles) reduced by the amount of total liabilities and
divided by the total number of shares of Common Stock outstanding. The pro
forma net tangible book value of the Company as of such date after giving
effect to the sale by the Company of the Securities pursuant to the Offering
will be $3,531,246, or approximately $0.92 per share. This represents an
immediate increase in net tangible book value of approximately $0.61 per share
to existing stockholders after giving effect to the Offering, and an immediate
dilution of approximately $4.21 per share, i.e., approximately 82% of the
Offering price of $5.125 per share after giving effect to the Offering, to new
investors purchasing shares of Common Stock in this Offering. "Dilution per
share" represents the difference between the price per share paid by the
public investors and the net tangible book value per share at September 30,
1996, as adjusted, to give effect to the Offering.

The following table illustrates the per share dilution in net tangible book
value as described above.

<TABLE>
<S> <C> <C>
Offering price per share of Common Stock......................... $5.125
Offering Price per Redeemable Warrant............................ $ .10 $5.225
------
Net tangible book value per share, before Offering............... $ .31
------
Increase per share attributable to payment by public investors... $ 4.82
Pro forma net tangible book value per share, after Offering...... $ .92 3.90
------ ------
Dilution per share to public investors........................... $ 4.21
======
</TABLE>

The foregoing table does not give effect to the possible exercise of the
Underwriter's Warrant, the Overallotment Option, the exercise of the
Redeemable Warrants offered hereby or the exercise of the Redeemable Warrants
into which the Company's Bridge Warrants automatically will be converted upon
the effectiveness of the Registration Statement. See "Underwriting" and
"Description of Securities."

The following table sets forth the percentage of equity to be purchased by
public investors in this Offering compared to the percentage of equity to be
owned by the present stockholders, and the comparative amounts paid for the
shares by the public investors as compared to the total consideration paid by
the present stockholders of the Company, exclusive of the shares of Common
Stock underlying the Redeemable Warrants offered hereby, the shares of Common
Stock underlying the Overallotment Option, the securities underlying the
Underwriter's Warrant and the shares of Common Stock underlying the Redeemable
Warrants into which the Company's Bridge Warrants automatically will be
converted upon the effectiveness of the Registration Statement and the
Overallotment Option. See "Certain Transactions and Relationships" and
"Financial Statements."

<TABLE>
<CAPTION>
APPROXIMATE
APPROXIMATE PERCENTAGE AVERAGE
SHARES PERCENTAGE TOTAL OF TOTAL PRICE
PURCHASED OF TOTAL SHARES CONSIDERATION CONSIDERATION PER SHARE
--------- --------------- ------------- ------------- ---------
<S> <C> <C> <C> <C> <C>
Public Stockholders..... 585,366 15% $3,000,000 32% $5.125
Present Stockholders.... 2,238,677 85% $6,455,908 68% $ 1.99
---- ---------- ----
Total................... 3,824,043 100% $9,455,908 100%
</TABLE>

9
<PAGE>

RISK FACTORS

Prior to making any investment decision, prospective purchasers should
consider carefully, together with other information contained in this
Prospectus, the following factors:

GOING CONCERN

The Company has incurred operating losses for the years ended December 31,
1994 and 1995 and the nine months ended September 30, 1996 and net losses
during each of such periods. The Company's management has included a footnote
in the Company's Consolidated Financial Statements for the periods ended
December 31, 1994 and 1995 relating to the Company's need to complete the
Offering in order to remain a going concern. There is no assurance that the
Company will complete the Offering, or if completed, the proceeds thereof
shall be sufficient to enable the Company to continue as a going concern. See
Note 10 to Consolidated Financial Statements.

USE OF PROCEEDS--PAYMENT OF DEBT AND OFFICER SALARIES

Assuming all of the Securities are sold pursuant to the Offering, up to
approximately $1,489,000, or 60%, of the net proceeds to be received by the
Company pursuant to the Offering will be used to repay accounts payable and
short- and long-term debt obligations of the Company. To the extent revenues
from operations are insufficient, up to $200,000 (approximately 8%) of net
proceeds may be used to pay salaries of its officers and directors. See "Use
of Proceeds."

DEPENDENCE UPON OFFERING PROCEEDS--NEED TO COMPLETE OFFERING

The Company has an immediate need for the net proceeds of this Offering for,
among other things, the repayment of certain current liabilities in the amount
of $60,000 owed to the Bank of Paden City and to repay Unsecured Promissory
Notes of the Company in the face amount of $600,000, none of which is payable
to affiliates of the Company, with the balance being applied to the Company's
exploration activities and working capital and working capital of Vulcan. Even
if the Company is successful in completing this Offering, there can be no
assurance that the Company will not need additional financing in the future or
that if needed such financing will be available on terms acceptable to the
Company. See "Use of Proceeds."

WORKING CAPITAL DEFICIT; NO ASSURANCE OF PROFITABILITY

At December 31, 1995, the Company had a working capital deficit of $862,222
and had sustained a loss from operations of $1,849,720 for its fiscal year
1995, inclusive of the results of Vulcan's operations for the period from
August 1, 1995 through December 31, 1995. At September 30, 1996, the Company
had a working capital deficit of $1,646,111, stockholders' equity of
$2,041,895, an accumulated deficit of $4,414,013 and a net loss of $693,811
for the fiscal quarter then ended. No assurance can be given that the Company
will continue to be profitable in the future or that the Company, as a whole,
or Vulcan, on a stand alone basis, will not continue to incur substantial
losses in the future. The Company believes that the proceeds of the Offering
are sufficient to sustain its currently existing operations for a period of at
least one year.

Vulcan had a working capital deficit of $383,730 at July 31,1995 and for the
period from January 1, 1995 through July 31, 1995 sustained a cumulative net
loss from operations of $77,720. For the nine month period ended September 30,
1996, Vulcan incurred a net loss of $550,627. No assurance can be given that
Vulcan will be profitable in the future. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources" and the Consolidated Financial Statements of the Company
and the notes thereto appearing elsewhere in this Prospectus.

VULCAN'S CASH FLOW NEEDS--RISK OF CASH SHORTAGES

10
<PAGE>

inability would have a material adverse impact on Vulcan's business. Shortages
of cash to pay suppliers have caused Vulcan to lose suppliers. However,
management believes that none of the suppliers lost as a result of Vulcan's
cash flow shortages was a material supplier.

Vulcan has experienced cash flow problems for the fiscal years ended
December 31, 1993, 1994 and 1995 and for the nine month period ended September
30, 1996. The Company has infused an aggregate of $440,550 in working capital
into Vulcan and intends to infuse an additional $175,000 out of the proceeds
of the Offering. While there can be no assurance that Vulcan will not need
further infusions of working capital, the Company believes that it has made
adequate provisions for Vulcan's working capital needs for the next year.

VOLATILITY OF GAS AND OIL PRICES

The Company's reserves, profitability and future rate of growth are
substantially dependent upon prevailing prices for gas and oil. Such prices
can be volatile. Prices are affected by market supply and demand factors,
regional pricing variations, governmental action and weather conditions which
are beyond the control of the Company. These external factors and the volatile
nature of the energy markets make it difficult to estimate future prices of
gas and oil. A substantial portion of the Company's revenues are derived from
the sale of natural gas. Since 1991 the Company's annual average gas sales
price has ranged from a high of $2.60 per Mcf in 1992 to a low of $2.02 per
Mcf in 1995. The Company's (excluding Vulcan) annual average oil sales price
has ranged from a high of $18.20 per Bbl in 1992 to a low of $14.89 per Bbl in
1993. For the year ended December 31, 1995, the average sales prices for gas
and oil were $2.02 per Mcf and $16.44 per Bbl, respectively. For the nine
months ended September 30, 1996, the average sales prices for gas and oil were
$2.93 per Mcf and $18.78 per Bbl, respectively. Any significant or extended
decline in the prices of gas and oil could have a material adverse effect on
the Company's financial condition and results of operations. See "Business and
Properties--Current Business Activities--Production and Sales Statistics."

Vulcan's revenues and future rate of growth are substantially dependent upon
prevailing prices for oil in Southeast Texas. Such prices can be volatile.
Prices are affected by market supply and demand factors as well as
governmental action and weather conditions which are beyond the control of
Vulcan. These external factors and the volatile nature of the energy markets
make it difficult to estimate future prices of oil. Since 1993, Vulcan's
annual average oil sales price has ranged from a high of $20.45 per Bbl in
1993 to a low of $17.76 per Bbl in 1995. For the twelve months ended December
31, 1995, the average sales prices for oil was $17.76 per Bbl. Any significant
or extended decline in the price of oil could have a material adverse effect
on Vulcan's financial condition and results of operations.

POTENTIAL CHANGE IN APPALACHIAN GAS PRICE PREMIUM

Spot prices for gas sold from Appalachian wells historically have been
higher than those for gas produced in the Gulf Coast and the Mid-Continent of
the United States, generally because of the geographic proximity to the
Northeast gas markets. No assurance can be given that this price advantage
will continue. Prices received for gas produced by the Company will be
affected by, among other factors, supply/demand patterns for natural gas,
transportation and gas gathering costs and the effect of governmental
regulations.

QUARTERLY VARIATIONS

The Company's operating results are subject to quarterly variation due to,
among other factors, weather conditions and the supply and demand factors
affecting the natural gas markets. Historically, the demand and price paid for
natural gas has increased in the cold winter months and decreased in the warm
summer months. Consequently, the Company believes that its results of
operations should be viewed on an annual basis.

Vulcan's operating results are subject to quarterly variation due to, among
other factors, weather conditions and the supply and demand factors affecting
the oil market. Historically, the demand and price paid for the grades of oil
gathered and marketed by Vulcan have fluctuated in accordance with prevailing
oil market conditions generally. Consequently, the Company believes that
Vulcan's results of operations should be viewed on an annual basis.

11
<PAGE>

UNCERTAINTIES IN RESERVE ESTIMATES

Estimates of the Company's proved reserves and future net revenues appearing
elsewhere in this Prospectus are based primarily on the engineering reports
prepared by S. M. Deal & Associates, independent petroleum engineers dated
October 24, 1995, a copy of which is attached to this Prospectus as Appendix A
and incorporated herein by reference. Management believes that the disclosure
of the information contained in such report fairly and accurately portrays the
information contained therein. Gas and oil reserves cannot be measured in an
exact way, and estimates of other engineers might differ materially from those
shown herein. Certain events, including production history, acquisitions and
sales of properties, changes in prices and further drilling and development
could result in increases or decreases of estimated proved reserves or
estimates of future net earnings. As of July 1, 1995, the reported estimates
of future cash flows reflect average gas and oil prices of $2.00 per Mcf and
$20.00 per Bbl, respectively. There can be no assurance, however, that such
prices will be realized or that the volumes projected will be produced during
such periods indicated in the Summary Reserve Report. Future performance that
deviates from the engineering reports could have a material adverse effect on
the Company. In addition to the uncertainties in projecting future prices and
rates of production, there are numerous uncertainties inherent in estimating
quantities of recoverable natural gas and oil reserves, production costs and
future development expenditures, including many factors which are beyond the
control of the Company. See S.F.A.S. 69 Supplemental Disclosure Footnote to
the Consolidated Financial Statements of the Company.

ACQUISITION AND DRILLING RISKS

The future success of the Company's operations will be largely dependent
upon its ability to replace and expand its gas and oil reserves through the
acquisition of producing properties and the exploration for and development of
gas and oil reserves. Without successful acquisitions and exploitation,
exploration and development operations, the Company will not be able to
replace the reserves being depleted by production and/or reduce its current
dependence on purchases of gas from third party producers, and its assets and
revenues will decline over time. In such event, the Company would be forced to
purchase larger quantities of gas at then current market rates or cease some
or all of its gas and oil delivery operations. There can be no assurance that
the Company's acquisition, exploitation, exploration and development
activities will result in the replacement of, or additions to, the Company's
reserves. Successful acquisition of producing properties generally requires,
among other things, accurate assessments of recoverable reserves, future gas
and oil prices, operating costs and potential environmental risks and other
liabilities. Such assessments are necessarily inexact and their accuracy is
inherently uncertain. Exploration and development of gas and oil reserves by
the Company involves a degree of risk that no commercial production will be
obtained or that production will be insufficient to recover drilling and
completion costs. Drilling also may be curtailed, delayed or canceled as a
result of many factors, including, among other things, unacceptably low
prices, title problems, weather conditions, labor shortages and equipment
delivery problems.

VULCAN'S DEPENDENCE UPON SUPPLIERS

Vulcan's future success will be largely dependent upon its ability to expand
its oil gathering activities through expansion of its access to oil producing
properties and other crude and/or waste oil suppliers. Without continued
access to oil producing properties and other crude and/or waste oil suppliers,
Vulcan's revenues will decline over time. There can be no assurance, however,
that Vulcan will be able to add to or maintain its existing level of access to
oil producing properties and waste oil suppliers. Many factors, including,
among other things, unacceptably low prices, title problems, well transfers,
competition, weather conditions, labor shortages and equipment delivery
problems may affect Vulcan's access to such sources of supply. Vulcan's
typical supplier agreement is an oral agreement cancelable upon thirty days
prior notice. In the event a significant number of such contracts were to be
terminated and Vulcan were to be unable to replace such contracts, Vulcan's
operation could be materially impaired.

MARKETING RISKS

The availability of a ready market for the Company's gas and oil depends on
numerous factors beyond its control, including, among other factors, the
demand for and supply of gas and oil, the proximity of the

12
<PAGE>

Company's natural gas and oil reserves to pipelines, the capacity of such
pipelines, the cooperation of pipeline owners, general economic conditions,
fluctuations in seasonal demand and the effects of inclement weather and
governmental regulation. In addition, under certain gas purchase arrangements
the Company is subject to the risk of periodic reduced purchases or access to
pipelines. Any significant reduction or curtailment of production for an
extended period of time could have a material adverse effect on the Company's
results of operation. See "Business and Properties--Markets and Customers."

The availability of a ready market for Vulcan's gathered oil depends on
numerous factors beyond its control, including, among other factors, the
demand for and supply of sweet and sour grades of oil, the proximity of
Vulcan's lease crude gathering operations to pipelines, the capacity of such
pipelines, the cooperation of pipeline owners, general economic conditions,
fluctuations in seasonal demand and the effects of inclement weather. Any
significant reduction or curtailment of access to oil producing properties or
other crude and/or waste oil suppliers for an extended period of time, whether
by termination or otherwise, could have a material adverse effect on Vulcan's
results of operation. See "Business and Properties--Current Business
Activities--Vulcan Energy Corporation."

OPERATING HAZARDS AND ENVIRONMENTAL RISKS

The Company is subject to all risks normally incident to the exploration for
and production and transmission of gas and oil, including pipeline leaks, well
blow-outs, uncontrollable flows of gas, oil, brine or well fluids into the
environment, fires, explosions, cratering, pollution and other environmental
risks. Certain of these risks, however, are relatively lower for Appalachian-
based producers because of low production volumes, lower pressures and the
minimal quantities of oil and brine production. The occurrence of any of these
hazards could, nonetheless, result in substantial losses to the Company due to
damage or destruction of gas and oil wells, formations or production
facilities, damage or injury to property and persons or suspension of
operations. Based on its loss experience, the Company believes that it has
adequate insurance coverage. The occurrence of an event not fully covered by
insurance could, however, have a material adverse effect on the financial
condition and operations of the Company. See "Business and Properties--
Operational Hazards and Insurance."

Vulcan's operations depend on its ability to transport oil via trucks. Any
impairment of Vulcan's ability to transport oil would have a material adverse
effect on Vulcan's operations.

UNCERTAIN EFFECTS OF GOVERNMENT REGULATION

The Company, in common with other companies in the oil and gas industry, is
extensively regulated by federal, state and local authorities. Legislation
affecting the industry is constantly changing and/or expanding, particularly
with respect to environmental matters. Although the Company believes that it
is in material compliance with all such laws and regulations, there can be no
assurance that new laws or regulations or new interpretations of existing laws
and regulations will not subsequently increase the cost of compliance or
otherwise adversely affect the Company's operations. See "Business and
Properties--Regulation."

Federal Energy Regulatory Commission ("FERC") Order 636, as revised ("Order
636"), requires, among other things, the "unbundling" or separating of various
components of the services of interstate pipeline companies, such as supply,
gathering, transportation and sales. As an oil and gas producer, the Company
is not subject to these regulations. As an intrastate pipeline company, the
Company is not directly subject to these regulations. However, because the
Company's pipelines connect to pipelines of interstate pipeline companies, and
such "unbundling" could have an effect on the Appalachian Basin premium on gas
prices, the Company's operations may be affected by these regulations.
Consequently, the Company is unable to predict the ultimate impact of these
regulations on the Company's gas sales or prices. See "Business and
Properties--Regulation."

TEXAS RAILROAD COMMISSION--REQUIRED REPORTS BY SUPPLIERS

Vulcan gathers a substantial portion of the oil it transports directly from
the wells of third party producers. The right to gather from each such
producer is evidenced by each such producer's filing of a required report

13
<PAGE>

with the Texas Railroad Commission, which then issues an authorization to
Vulcan to transport production from each such producer's well. The failure of
a producer to file such report would prevent Vulcan from transporting such
producer's oil.

COMPETITION

The oil and gas industry is highly competitive. The Company encounters
strong competition from numerous oil and gas companies, drilling and income
programs, partnerships and oil gatherers. Many of these competitors possess
larger staffs and greater financial resources which enable them to identify
and acquire more economically desirable producing properties than the Company.
The Company also faces intense competition in the marketing of gas and oil
from competitors including other producers as well as marketing companies. See
"Business and Properties--Competition."

The Company markets approximately 75% of its gas to Sancho, which, in turn,
sells such gas to Hope Gas Inc. ("Hope"). Were it not for the relationship
between Hope and Sancho, Hope would compete directly with the Company for the
sale of gas to certain customers, specifically OSI Specialities, Inc. and
Consolidated Aluminum of America, Inc. See "Business and Properties--Business
Strategy and Development" and "Business and Properties--Competition."

Vulcan competes directly with other oil gathering operations in Southeast
Texas. Several of these operations are substantially larger than Vulcan and
possess greater financial and other resources.

SHARES AVAILABLE FOR FUTURE SALE

As of the date of this Prospectus, the Company has issued and outstanding
3,238,677 shares of Common Stock. If the Offering is completed, 3,824,043
shares of Common Stock will be outstanding immediately thereafter. Commencing
one year after the effective date of this Prospectus an aggregate of 2,800,000
shares of Common Stock are issuable upon exercise of the Redeemable Warrants
offered hereby. In the event of such issuances, such shares may be sold on the
open market. Sales of substantial amounts of the Common Stock in the public
market following this Offering could adversely affect the market price for the
Common Stock. The shares of Common Stock sold in this Offering will be
immediately eligible for resale in the public market without restriction
unless acquired by an affiliate of the Company.

In addition, upon the effectiveness of the Registration Statement all Bridge
Warrants automatically will be converted into Redeemable Warrants without any
further action by, or cost to, the holders of such Bridge Warrants and such
holders now hold Redeemable Warrants having the same terms as the Redeemable
Warrants. Certain of such Redeemable Warrants and the shares of Common Stock
underlying such Redeemable Warrants, aggregating 1,600,000 shares, have been
registered under the Securities Act, and, upon the effectiveness of the
Registration Statement, such Redeemable Warrants and shares of Common Stock
will be immediately eligible for resale by the holders thereof.

The sale or other disposition of the Redeemable Warrants and shares of
Common Stock underlying the Redeemable Warrants also will be subject to the
NASD Restriction. Prior to the disposition or release of the Redeemable
Warrants and shares of Common Stock underlying the Redeemable Warrants by the
Selling Securityholders, the NASD will be notified and approval with regard to
the transaction must be granted by the NASD.

The holders of such Redeemable Warrants are subject to the Company and
Underwriter's Lock-ups. The Underwriter has agreed that it will not release
the Underwriter's Lock-up for at least three months following the effective
date of the Registration Statement of which this Prospectus forms a part.
After expiration of such three month period, the Underwriter may permit sales
of such securities by such investors upon written request by such holders. The
extent to which such sales will be permitted will depend on the evaluation by
the Underwriter of a number of factors, including the trading volume of the
securities on the NASDAQ and the number of securities which such holders have
requested to sell as Selling Securityholders. Sales of substantial amounts of
the Redeemable Warrants in the public market following this Offering would
adversely affect the market price for the Redeemable Warrants. Shares obtained
upon exercise of the Bridge Warrants in the absence of conversion into such
Redeemable Warrants will be restricted as their resale under Rule 144 of the
Securities Act. See "Description of Securities," "Principal and Selling
Securityholders--The Selling Securityholders" and "Shares Eligible for Future
Sale."

14
<PAGE>

DILUTION

Purchasers of the shares of Common Stock offered hereby will experience
immediate and substantial dilution of $4.21 per share of Common Stock between
the public offering price of $5.125 per share and the pro forma net tangible
book value of $0.92 per share after giving effect to the Offering. See
"Dilution."

CONTROL OF COMPANY BY MANAGEMENT

Following the consummation of the Offering, the present directors and
officers of the Company will own in the aggregate approximately 40% of the
outstanding Common Stock of the Company, and accordingly, they will very
likely be able to elect the entire Board of Directors of the Company and
generally direct the affairs of the Company. See "Management" and "Principal
Stockholders."

RELIANCE ON COMPANY'S MANAGEMENT; MANAGEMENT OF VULCAN

The Company is reliant upon the services of its President, Loren E. Bagley,
and its Vice President, William F. Woodburn, both of whom serve as directors
of the Company. The loss of the services of such executives, or an inability
to attract and retain additional, qualified personnel when needed in the
future could have a material adverse effect on the Company's business. There
is substantial competition in the oil and gas industry for qualified
personnel, including competition from companies with substantially greater
resources than those of the Company. At present, the Company maintains key man
life insurance on the lives of Loren E. Bagley and William F. Woodburn in the
amount of $250,000 per individual. The beneficiary of such policies is the
First National Bank of St. Marys, West Virginia and is held as collateral for
certain obligations of the Company to such bank. See Consolidated Financial
Statements and notes thereto. See "Management."

The Company's new subsidiary, Vulcan, is dependent upon the management of
the subsidiary. Such management is provided by Nano-Tech, a Delaware
corporation, which owns 20% of the issued and outstanding capital stock of
Vulcan and a 20% interest before taxes in the profits of Vulcan, pursuant to a
Management Agreement the term of which ends on August 8, 2005. For its
services, Nano-Tech receives an annual fee of $252,000, payable monthly. The
Management Agreement provides that in the event such Agreement is terminated
by the Company without cause or Vulcan terminates its operations, the
aggregate amount of the management fee payable for the balance of the term of
the Management Agreement shall be payable to Nano-Tech, subject to a net
present value reduction of 10% per annum for the balance of the original term
of the Management Agreement. In the event of a termination of the Management
Agreement, Vulcan may not have sufficient resources to pay the amount of such
management fee. Nano-Tech provides all management services, including the
services of F. Worthy Walker its President and a director, necessary for the
operation of Vulcan. In the absence of the services and personnel provided by
Nano-Tech the Company would be unable to manage Vulcan on its own.

F. Worthy Walker, Vulcan's President and a director, is also owner of all of
the issued and outstanding capital stock of Nano-Tech. The other officers of
Vulcan are Loren E. Bagley, its Vice President, and William F. Woodburn, its
Secretary and Treasurer. Messrs. Bagley and Woodburn also serve as two of
Vulcan's three directors. The previous statements as to the loss of services
are applicable to Vulcan's management as well as to the Company. See "Business
and Properties--Current Business Activities--Vulcan Energy Corporation."

DEPENDENCE UPON LIMITED NUMBER OF CUSTOMERS BY THE COMPANY

Although management believes that the Company is not dependent upon any one
customer, its marketing arrangement with Sancho accounted for approximately
66% of the Company's revenue for the year ended December 31, 1994,
approximately 45% of the Company's revenue for the year ended December 31,
1995 (which included Vulcan's revenues for the period August 1, 1995 through
December 31, 1995) and approximately 11% for the nine months ended September
30, 1996. This marketing agreement is in effect until September 1, 2008. All
of the gas marketed by Sancho is sold to Hope. In the event Sancho's
relationship with

15
<PAGE>

Hope is discontinued for any reason, it could have a material adverse effect
on the Company, but the Company believes it will be able to maintain a direct
arrangement with Hope although there can be no assurance that such arrangement
would be maintained. The majority of the balance of the gas sold by the
Company is marketed under an open agreement with Central Trading Company
("CTC") whereby CTC, for a fee equal to 2% of the price of gas brokered by it,
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. See
"Business and Properties--Markets and Customers" and "Certain Transactions and
Relationships--Sancho Oil and Gas Corporation."

Although management believes that Vulcan is not dependent upon any one
customer, for the periods ended December 31, 1994, December 31, 1995, Conoco
accounted for 67% and 85%, respectively, of Vulcan's revenues for such periods
through its LACT arrangement with Conoco. This LACT arrangement may be
terminated by either party upon thirty days prior written notice to the other.
See "Business and Properties--Markets and Customers".

THE COMPANY'S DEPENDENCE UPON SUPPLIERS

During 1995, approximately 86% of the gas sold by the Company was produced
by wells owned by third parties from whom the Company purchased such gas. For
the nine month period ended September 30, 1996, approximately 74% of the gas
sold by the Company was produced by wells owned by third parties from whom the
Company purchased such gas. The wells owned by such third parties are
connected only to the Company's pipelines and such pipelines presently
represent the only effective means of gathering gas from such wells. Such
suppliers could install additional pipelines connecting such suppliers' wells
to other gathering systems. During the nine month period ended September 30,
1996, no suppliers of gas to the Company installed new pipelines connecting
the wells owned by such third parties to other gathering systems. There can be
no assurance that third party suppliers will not implement such programs in
the future. See "Business and Properties--Markets and Customers."

LIMITED GEOGRAPHIC AREAS

Both the Company and Vulcan operate in limited geographic areas. In the
Company's case, its area of operations is limited to that portion of the
Appalachian Basin in Northwestern West Virginia. In Vulcan's case, its
operations are limited to a radius of seventy-five miles around Poteet, Texas.
The nature of the Company's and Vulcan's respective operations necessarily
limit their geographic scope. Such limitations restrict their abilities to
expand their respective operations.

CONFLICTS OF INTEREST

The Company operates from office space provided by Sancho on a rent free
basis. Sancho also purchases a substantial amount of the gas produced by the
Company. A majority of the outstanding capital stock of Sancho is owned by the
wife of the Company's President and Chief Executive Officer. While the
Company's management believes that these arrangements with Sancho are least as
favorable as the Company would receive from third parties, there can be no
assurance that these arrangements will continue in the future. A substantial
portion of the gas marketed by Sancho is sold to Hope. In the event Sancho's
relationship with Hope, or the Company's relationship with Sancho, is
discontinued for any reason, the Company believes it will be able to maintain
a direct arrangement with Hope although there can be no assurance that such
arrangement will be maintained. See "Business and Properties--Markets and
Customers" and "Certain Transactions and Relationships--Sancho Oil and Gas
Corporation."

F. Worthy Walker is President and a director of Vulcan. Mr. Walker also is
President and sole shareholder and director of Nano-Tech which owns 20% of
Vulcan. Mr. Walker also is President and sole director and

16
<PAGE>

shareholder of PMC. Presently, PMC is inactive. Loren E. Bagley, President and
Chief Executive Officer and a director of the Company, is Vice President and a
director of Vulcan. William F. Woodburn, Vice President and a director of the
Company, is Secretary and a director of Vulcan. Nano-Tech is entitled to a
management fee equal to $252,000 per year pursuant to a Management Agreement
between Nano-Tech and Vulcan. While the Company's management believes that
these arrangements between Vulcan and Nano-Tech are at least as favorable as
would be received from third parties, there can be no assurance that these
arrangements will continue in the future. See "Business and Properties--
Current Business Activities--Vulcan Energy Corporation".

TRANSACTIONS WITH RELATED PARTIES

The Company and its officers and directors have engaged in various
transactions relating to the acquisition of oil and gas properties and
pipelines and the distribution of oil and gas. The Company believes that all
such transactions were effected on terms no less favorable to the Company than
those available from third parties. See "Business and Properties--Markets and
Customers" and "Certain Transactions and Relationships."

RECENT SALES OF SECURITIES BY THE COMPANY'S MANAGEMENT

Between June 1995 and June 1996, members of the Company's management sold an
aggregate of 219,667 shares of the Company's Common Stock for an aggregate
consideration of $443,156, or an average of $2.02 per share, through various
broker-dealers. The proceeds of such sales were used to extend loans to the
Company to fund its working capital needs. See "Certain Transactions and
Relationships--Recent Sales of Securities by Members of Management."

BENEFITS TO OFFICERS AND DIRECTORS

Certain of the Company's officers and directors presently are individual
guarantors of certain obligations of the Company to third parties. In certain
cases, such officers and directors pledged certain shares of the Company's
Common Stock owned by them as security for such obligations. The Company
intends to use $555,000, or 22.5%, of the net proceeds of the Offering, to
satisfy such obligations. Satisfaction of such indebtedness by the Company
will release the guarantors thereof from their respective personal guarantees
and release the shares of Common Stock used to secure such guarantees from
such pledges. See "Use of Proceeds" and "Certain Transactions and
Relationships."

NO DIVIDENDS

The Company has not paid any dividends since its inception and does not
anticipate paying any dividends on its Common Stock in the foreseeable future.
There can be no assurance that the Company will operate profitably in the
future. See "Dividend Policy" and "Description of Securities--Dividends."

NO ASSURANCE OF PUBLIC MARKET; DETERMINATION OF OFFERING PRICE OF SECURITIES
AND EXERCISE PRICE OF REDEEMABLE WARRANTS; POSSIBLE VOLATILITY OF STOCK PRICES

Prior to October 1994, the 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 NQB "pink sheets" under
Trans Energy, Inc. In October 1994, the Common Stock was accepted for trading
on the Nasdaq Small Cap Market and is currently listed under the symbol
"TSRG". Prior to this Offering, there has been no public market for the
Redeemable Warrants. There can be no assurance that the trading market for the
Common Stock on the Nasdaq Small Cap Market will continue or that a public
market will develop in the Redeemable Warrants following the Offering. The
Company intends to continue trading its Common Stock, including the shares of
Common Stock which are the subject of this Offering, under the symbol "TSRG"
and to trade the Redeemable Warrants on the Nasdaq Small Cap Market under the
symbol "TSRGW". There can be no assurance, however, that the trading market
for the Company's Common Stock will continue subsequent to this Offering or
that a trading market will develop after this Offering for the Redeemable
Warrants, or that, if

17
<PAGE>

developed, such markets will be sustained. Purchasers of the Company's Common
Stock and Redeemable Warrants might be unable to sell such securities in the
absence of adequate trading markets. See "Price Range of Common Stock" and
"Underwriting."

The offering price of the Common Stock was determined based on the closing
bid price of the Common Stock on Nasdaq on the day immediately prior to the
date hereof. The terms of the Redeemable Warrants have been determined by
negotiation between the Company and the Underwriter and do not necessarily
bear any relation to established valuation criteria. Factors considered in
determining such terms, in addition to prevailing market conditions, included
an assessment of the prospects for the industry in which the Company competes,
the Company's management and the Company's capital structure. See
"Underwriting."

The trading prices of the Common Stock and Redeemable Warrants are expected
to be subject to significant fluctuations in response to variations in
quarterly operating results, changes in analysts' earnings estimates,
announcements of technological innovations by the Company or competitors,
general conditions in the oil and gas industry and other factors. In addition,
the stock market is subject to price and volume fluctuations that affect the
market prices for companies and that are often unrelated to operating
performance. See "Underwriting."

RECENTLY ORGANIZED UNDERWRITER; UNDERWRITER'S WARRANT

L.B. Saks & Co. (the "Underwriter") commenced operations on August 2, 1994
and provides investment banking and brokerage services for its customers.
Prior to this Offering, the Underwriter has not served as a managing
underwriter in any public offerings or as a member of the underwriting group
in any public offerings. The Underwriter, however, has acted as a member of a
selling group in five (5) public offerings. Because of the Underwriter's lack
of experience as a managing underwriter, there can be no assurance that the
Company will be able to complete this Offering or, if completed, that the
Common Stock or Redeemable Warrants can be supported adequately in the public
market.

The Company has agreed to sell to the Underwriter or its designees, at a
price of $10.00, a Warrant to purchase up to a total of 58,537 shares of the
Common Stock and 120,000 Redeemable Warrants ("Underwriter's Warrant"). The
Underwriter's Warrant is exercisable for a period of four years commencing one
year from the date hereof. The Underwriter's Warrant and underlying Securities
will not be transferable during the life of the Underwriter's Warrant except
to officers and partners of the Underwriter and to members of the selling
group of underwriters and such members' respective officers and partners. The
Common Stock underlying the Underwriter's Warrant may be purchased at a price
per share equal to 165% of the price per share of Common Stock offered hereby.
The Redeemable Warrants underlying the Underwriter's Warrant are exercisable
at a price equal to 165% of the exercise price of the Redeemable Warrants
offered to the public hereby. Any profit realized upon any resale of the
Underwriter's Warrant or upon any sale of the Securities underlying same will
be for the benefit of the holders of the Underwriter's Warrant. The Company
has agreed to register (or file a post-effective amendment with respect to any
registration statement registering) the Securities underlying the
Underwriter's Warrant under the Securities Act at the Company's expense on one
occasion upon the request of a majority of the holders thereof. For the life
of the Underwriter's Warrant, the holders thereof are given the opportunity to
profit from a rise in the market for the Company's securities, with the
resulting dilution in the interest held by the Company's shareholders. The
terms under which the Company could obtain additional capital might be
adversely effected during the life of the Underwriter's Warrant, and the
holders thereof might be expected to exercise the Underwriter's Warrant when
the Company would, in all likelihood, be able to obtain any needed capital by
an additional offering of its securities on terms more favorable than those
provided in the Underwriter's Warrant. See "Underwriting."

POTENTIAL ADVERSE EFFECT OF REDEMPTION OF REDEEMABLE WARRANTS

The Redeemable Warrants may be redeemed by the Company at any time after one
(1) year from the date of this Prospectus at a redemption price of $.10 per
Redeemable Warrant upon not less than 30 days prior written notice if the
closing bid price of the Common Stock on the Nasdaq Small Cap Market exceeds
140% of the public offering price for the 20 consecutive trading days
preceding the notice of redemption. Notice of

18
<PAGE>

redemption of the Redeemable Warrants could force the holders to exercise the
Redeemable Warrants and pay the exercise price at a time when it may be
disadvantageous for them to do so, to sell the Redeemable Warrants at the then
current market price when they might otherwise wish to hold the Redeemable
Warrants, or to accept a redemption price which would be substantially less
than the then market value of the Redeemable Warrants at the time of
redemption. See "Description of Securities--Redeemable Warrants."

CURRENT PROSPECTUS AND STATE BLUE SKY REGISTRATION REQUIRED TO EXERCISE
REDEEMABLE WARRANTS

The Company will be able to issue shares of its Common Stock upon exercise
of the Redeemable Warrants only if at the time of exercise there is a current
prospectus covering the shares of Common Stock issuable upon exercise of such
Redeemable Warrants under an effective registration statement filed with the
Securities and Exchange Commission (the "Commission") and such shares have
been qualified for sale or are exempt from qualification under the securities
laws of the state of residence of the holder of such Redeemable Warrants.
Although the Company intends to have all shares of Common Stock so qualified
for sale in those states where the Securities are being offered and to
maintain a current prospectus relating to such shares until the expiration of
the Redeemable Warrants, there can be no assurance that it will be able to so
do. The Redeemable Warrants may be deprived of any value and the market for
the Redeemable Warrants may be limited if a current prospectus covering the
Common Stock issuable upon exercise of the Redeemable Warrants is not kept
effective or if such Common Stock is not qualified or exempt from
qualification in the jurisdictions in which the holders of such Redeemable
Warrants then reside. See "Description of Securities."

TITLE TO PROPERTY--QUITCLAIMS

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. Consistent with industry
practice, typically no title search is made on such properties. In many
instances, an encumbrance on title or the existence of any of the foregoing
interests in the property are not recorded. 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. See "Business and Properties--Gas and Oil
Properties."

GAS PRICE FLUCTUATIONS

The price paid by Hope to the Company through Sancho under Sancho's gas
purchase contract with the Hope is based upon a residential fuel price index
and a published industry index price. The election of which price shall be
paid is at Sancho's option. While such option may reduce the risk that the
price of gas payable to the Company pursuant to such contract is less than the
price of gas payable by the Company to third party producers, there can be no
assurance that such option shall provide complete price protection to the
Company or that the Company will not be able profitably to sell gas to Hope or
may be required to reduce or curtail its sales of gas to Hope. See "Business
and Properties--Markets and Customers" and "Certain Transactions--Sancho Oil
and Gas Corporation."

19
<PAGE>

CAPITALIZATION

The following table sets forth the capitalization of the Company at
September 30, 1996 and as adjusted to reflect the consummation of this
Offering and the application of the estimated $2,469,248 of net proceeds to be
received by the Company from the Offering. See "Use of Proceeds." This table
should be read in conjunction with the "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and the Consolidated
Financial Statements of the Company and the notes thereto appearing elsewhere
in this Prospectus.

<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
------------------------
ACTUAL AS ADJUSTED
----------- -----------
(RESTATED)
<S> <C> <C>
Debt(1):
Current portion.................................... $ 1,040,169 $ 280,169
Long-term.......................................... 2,520,669 2,135,669
----------- -----------
Total............................................ 3,560,838 2,415,838
Stockholders' Equity:
Common Stock, par value $.001; 30,000,000 shares
authorized; 3,238,677 shares issued (3,824,043
shares as adjusted)............................... 3,239 3,824
Capital in excess of par value..................... 6,452,669 8,981,332
Accumulated deficit............................... (4,414,013) (4,474,013)
----------- -----------
Total stockholders' equity....................... 2,041,895 4,511,143
----------- -----------
Total capitalization............................. 5,602,733 6,926,981
</TABLE>
- --------
(1) See Note 3 to the Notes to the Consolidated Financial Statements for
December 31, 1995 and December 31, 1994 for a description of the Company's
short- and long-term debt.

20
<PAGE>

PRICE RANGE OF COMMON STOCK

The Company's Common Stock is listed on the Nasdaq Small Cap Market under
the symbol "TSRG." In October 1994, the Company's Common Stock was accepted
for trading on the Nasdaq Small Cap Market. Prior to that time, 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 and in
the NQB "pink sheets" under Trans Energy, Inc.

The following table sets forth the range of high and low sales prices for
the Common Stock as reported by the Nasdaq Small Cap Market for each quarterly
period since the fourth quarter of 1994. 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 with the
fourth quarter of 1994.

<TABLE>
<CAPTION>
HIGH LOW
----- -----
<S> <C> <C>
1994
Fourth Quarter.................................................... $5.37 $2.09
1995
First Quarter..................................................... $2.79 $1.06
Second Quarter.................................................... $1.19 $ .97
Third Quarter..................................................... $3.25 $1.03
Fourth Quarter.................................................... $3.63 $2.75
1996
First Quarter..................................................... $3.50 $2.63
Second Quarter.................................................... $6.00 $2.50
Third Quarter..................................................... $5.25 $2.88
</TABLE>

As of December 4, 1996, there were 182 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.

DIVIDEND POLICY

The payment by the Company of dividends, if any, in the future, rests within
the discretion of its Board of Directors and will depend upon, among other
things, the Company's earnings, its capital requirements and its financial
condition, as well as other relevant factors. The Company has not declared any
cash dividends since its inception, and it has no present intention of paying
any cash dividends on its Common Stock in the foreseeable future since it
expects to use earnings, if any, to finance the Company's growth.

21
<PAGE>

SELECTED CONSOLIDATED FINANCIAL DATA

<TABLE>
<CAPTION>
NINE
YEAR ENDED DECEMBER 31, MONTHS ENDED SEPTEMBER 30,
---------------------------------- -------------------------------
1993 1994 1995 1995 1996
---------- ---------- ---------- ------------- ----------------
(RESTATED) (UNAUDITED)
(RESTATED)
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME
DATA:
Total Revenues.......... $ 625,794 $2,940,239 $2,828,162 $ 2,082,944 $ 4,203,503
Expenses:
Cost of oil & gas
produced.............. 474,181 2,309,448 2,392,907 1,558,484 3,786,826
Salaries & wages....... 98,500 109,003 178,558 211,828 102,995
Depreciation and
depletion............. 36,128 179,308 228,692 135,505 293,450
Selling, general &
administrative........ 203,726 246,962 1,833,338 346,165 660,221
Interest............... 38,354 140,675 347,282 130,790 751,252
Income (loss) before
income taxes & minority
interests and
extraordinary item..... (225,095) (45,157) (2,194,675) (299,828) (1,391,241)
Minority interest....... 50,245 (18,409) (10,403) (9,552) 39,393
Extraordinary income.... -- -- -- -- 9,556
Net Income (loss)....... (174,850) ( 63,566) (2,205,078) (309,380) (1,342,292)
Net loss per share...... (.14) (.02) (.71) (.09) (.42)
Net loss per share
(including conversion
of debentures)......... (.14) (.02) (.71) (.09) (.42)
Weighted average common
shares outstanding..... 1,276,277 3,024,122 3,116,435 3,099,122 3,233,298
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
---------------------------------- -------------------------------
1993 1994 1995 1995 1996
---------- ---------- ---------- ------------- ----------------
(RESTATED) (UNAUDITED)
(RESTATED)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Fixed assets............ $4,575,106 $4,728,567 $5,184,856 $ 4,688,751 $ 5,116,947
Total assets............ 5,235,687 5,255,637 6,705,278 5,180,106 6,672,792
Current liabilities..... 1,332,735 1,507,730 1,206,190 1,509,250 2,110,280
Long-term debt, less
current portion........ 1,079,572 969,684 2,898,508 969,684 2,520,669
Stockholders Equity..... 2,812,799 2,749,233 2,561,187 2,652,443 2,041,895
</TABLE>

22
<PAGE>

USE OF PROCEEDS

Assuming all of the Securities are sold, the net proceeds to be received by
the Company, after deducting underwriting commissions and the expenses of the
Offering, will total approximately $2,529,248. The anticipated net proceeds of
the Offering are intended to be applied approximately as follows:

<TABLE>
<CAPTION>
APPROXIMATE
AMOUNT PERCENTAGE
----------- ----------
<S> <C> <C>
Working capital for funding of receivables and
general and administrative expenses(1)............ $ 305,248 12.1%
Working capital for funding Vulcan's operations.... 175,000 6.9
Development costs for the Company's Sistersville
acreage........................................... 500,000 19.8
Accounts payable................................... 275,000 10.9
Repayment of Unsecured Notes and accrued
interest(2)....................................... 656,000 25.9
Repayment of short term debt and accrued
interest(3)....................................... 173,000 6.8
Repayment of long term debt(4)..................... 385,000 15.2
Consulting fees payable to the Underwriter(5)...... 60,000 2.4
---------- -----
Total............................................ $2,529,248 100.0%
========== =====
</TABLE>
- --------
(1) To the extent that there are insufficient revenues from operations, up to
$200,000 (approximately 8%) of the net proceeds allocated to working
capital of the Company may be used to pay officers' and directors'
salaries.
(2) In March 1996 the Company issued $600,000 principal amount of 12%
Unsecured Promissory Notes ("Unsecured Notes") as part of its offering of
Bridge Units composed of Unsecured Notes and Bridge Warrants. The
aggregate principal amount of such Notes, together with accrued interest
thereon, is due and payable on the earlier of March 1997 or the tenth day
following the Closing. Estimated interest expenses are $56,000 if the
Unsecured Notes are repayed on December 31, 1996. The proceeds of the
Unsecured Notes (1) $300,000 was used to repay the principal amount of
Secured Notes issued by the Company in August 1995, plus $21,659 in
accrued interest on such notes, (2) $80,000 was used to repay
institutional debt incurred in connection with the Vulcan acquisition, (3)
$39,650 was used to pay the Underwriter compensation for acting as
placement agent for such offering, (4) $43,910 was used to pay legal and
other costs incurred in connection with the offering of the Company's
units composed of the Unsecured Notes and Bridge Warrants, (5) $30,000 was
used as an advance to the Underwriter of the Underwriter's non-accountable
expense allowance for this Offering and (6) $84,781 for working capital
purposes and expenses contemplated in connection with this Offering.
(3) Composed of (i) two obligations of $30,000 and $30,000, maturing on
October 13 and November 17, 1996, respectively, and owed to the Bank of
Paden City, all of which obligations are guaranteed by Loren E. Bagley,
William F. Woodburn and Mark D. Woodburn, and (ii) $100,000 borrowed from
William Stevenson on May 7, 1996 and repayable on December 29, 1996 in one
installment of principal and interest of $113,000, for which obligation
the Company and Messrs. Bagley, William F. Woodburn and John B. Sims are
jointly and severally liable. Such loan is secured by the pledge of
200,000 shares of the Company's Common Stock owned by Janet L. Woodburn,
the wife of William F. Woodburn. The proceeds of such obligations were
used for working capital purposes. See "Certain Transactions and
Relationships."
(4) Composed of (1) $150,000 borrowed from John C. Allen on July 27, 1995 and
payable in one installment of principal and interest, accruing at the
annual rate of 12%, on June 15, 1997 and guaranteed by Messrs. Bagley and
William F. Woodburn, (2) $135,000 borrowed from Marden Rehabilitation
Associates, Inc. on September 1, 1995 and repayable in one installment of
principal and interest, accruing at the rate of 1.5% per month on the
principal amount from time to time outstanding, on June 15, 1997, and
guaranteed by Mr. Bagley, and (3) $100,000 borrowed from Magco, Inc. on
August 4, 1995, repayable in one installment of principal and interest
accruing at the annual rate of 18%, on June 30, 1997. The Company may
prepay each note at any time prior to maturity without premium or penalty.
All such indebtedness except for $100,000 borrowed from Magco, Inc. was
used to finance the Vulcan acquisition. The $100,000 borrowed from Magco,
Inc. was applied toward the purchase price of the Sistersville acreage.
See "Certain Transactions and Relationships."

23
<PAGE>

(5) The Company has agreed to enter into an agreement with the Underwriter
retaining it as financial consultant for a period of two years from the
date hereof. Pursuant to such agreement, the Underwriter will receive a
fee equal to $5,000 per month, $60,000 of which is to be paid on or before
the closing of this Offering.

Pending utilization of the proceeds, the funds may, at the discretion of
management, be invested in money market accounts, certificates of deposit and
short-term government securities.

The foregoing represents the Company's current estimate of the uses of the
net proceeds of the Offering and its plan of operations. This estimate is
based on various assumptions regarding the Company's business. Future
developments in the Company's business, changes in economic, regulatory or
competitive conditions, and the success or lack thereof of the Company's
marketing activities, may make shifts in the allocation of funds necessary or
desirable. There is no assurance that the Company's estimates will prove to be
accurate.

Based upon its present estimates, the Company anticipates that the net
proceeds herein will be sufficient for the Company to engage in its proposed
activities for a period of twelve months. If the foregoing amounts prove to be
insufficient to enable the Company to achieve its goals, additional financing
will be required. There can be no assurance that such additional financing, if
needed, will be available, or if available, that it can be obtained on terms
which management deems reasonable.

24
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

The following information should be read in conjunction with the
consolidated financial statements and notes thereto appearing elsewhere in
this Prospectus.

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
three month and nine month periods ended September 30, 1996 and 1995. It
should be noted that percentages discussed throughout this analysis are stated
on an approximate basis.

<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------- ---------------
1995 1996 1995 1996
------ ------ ------ ------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Total revenues............................. 100% 100% 100% 100%
Total costs and expenses................... 118 137 114 133
Net income (loss) before taxes and minority
interest.................................. (18) (37) (14) (33)
Income taxes............................... (0) (0) (0) (0)
Minority interest.......................... 1 (0) (1) 1
Net income (loss).......................... (17) (37) (15) (32)
</TABLE>

Results of Operations

The results of operations for the three months and nine months ended
September 30, 1996 have been restated. Please refer to Note 1c in the
accompanying consolidated financial statements.

Total revenues for the three month period ended September 30, 1996 ("third
quarter of 1996") and the nine month period ended September 30, 1996 ("first
nine months of 1996), increased 130% and 102%, respectively, as compared to
the corresponding periods for 1995 ("third quarter of 1995" and "first nine
months of 1995", respectively). This increase is primarily attributed to the
acquisition by the Company of Vulcan on August 7, 1995 and a decrease in new
drilling activities for oil and gas wells in the areas serviced by the
Company's pipelines leading to reliance on existing wells with diminishing
volumes of recoverable oil and gas. During the first nine months of 1996, the
Company arranged a line of credit to Vulcan from United Factors, L.L.C.
("United Factors") which has allowed Vulcan to purchase larger quantities of
oil than it was historically able to finance. The increase in revenues is also
due to the increase in the market prices for natural gas and oil in 1996.

Total costs and expenses as a percentage of total revenues increased for the
third quarter of 1996 as compared to the corresponding 1995 period, and also
increased for the first nine months of 1996 as compared to the first nine
months of 1995. Actual costs and expenses for the third quarter of 1996 and
first nine months of 1996 increased 166% and 135%, respectively, as compared
to the corresponding 1995 periods. These increases are primarily attributed to
the 192% increase in cost of oil and gas sales for the third quarter of 1996,
and the 143% increase in the cost of oil and gas sales for the first nine
months of 1996. Because the increase in the costs of sales was larger than the
increase in sales, the Company's loss from operations increased from $86,907
to $398,227, and from $169,038 to $639,989 in the comparative three month and
nine month periods of 1996.

Salaries and wages decreased 46% and 51% for the third quarter of 1996 and
first nine months of 1996, respectively, due to the issuance by the Company in
1995 of common stock for additional compensation for services rendered to the
Company valued at $150,000. Depreciation and depletion increased 125% for the
third quarter of 1996 and 117% for the first nine months of 1996,
respectively, because of the goodwill acquired in the Vulcan purchase.
Interest increased 386% for the third quarter of 1996 and 474% for the first
nine months of 1996, respectively, as compared to the respective corresponding
periods in 1995, attributed to the debt incurred in the Vulcan acquisition,
the additional debt incurred for working capital and the issuance of Bridge
Warrants by the Company in March 1996 in connection with its bridge financing.
Selling, general and administrative expenses increased 41% for the third
quarter of 1996 and 91% the first nine months of 1996 as compared to the
corresponding 1995 periods, reflecting increased overhead due to the Company's
expanded oil sale operations.

25
<PAGE>

The Company's subsidiary, Tyler Construction Company, continued to generate
losses which resulted in an adjustment to the minority interest account of $38
for the third quarter of 1996 and $39,393 for the first nine months of 1996.
The Company experienced net losses for the third quarter and first nine months
of 1996 of $693,811 and $1,342,292, respectively, compared to net losses of
$137,590 and $309,380 for the corresponding 1995 periods, primarily attributed
to the increase in the cost of oil and gas sales and the increased overhead
activities of the Company, the issuance of Bridge Warrants in connection with
the raising of $600,000 through the placement of Unsecured Notes by the
Company and the issuance of additional shares to the debentureholders as
consideration for extending the due date of said Debentures.

For the remainder of 1996, management expects salaries and wages and other
general and administrative expenses to remain at approximately the same rate
that existed in the third quarter of 1996. The cost of oil and gas produced is
expected to fluctuate with the amount produced and with prices of oil and gas,
and revenues are expected to fluctuate with market prices of oil and gas
during the remainder of 1996.

Liquidity and Capital Resources

Historically, the Company's working capital needs have been satisfied
through its operating revenues and from borrowed funds. As of September 30,
1996, the Company's working capital was a negative $1,646,111 compared with a
negative $862,222 at December 31, 1995. This decrease in working capital for
the first nine months of 1996 is primarily attributed to due dates of certain
loans to the Company which will become due in less than one year from
September 30, 1996.

The Company presently has a single line of credit with the Bank of Paden
City in the amount of $100,000. Such line is currently fully drawn down.

The Company anticipates meeting its working capital needs during the
remainder of the current fiscal year with revenues from operations and from
anticipated proceeds from the Offering. If the Company is unable to realize
sufficient funds from the Offering or from private lenders, management
believes that the Company can continue operations of its existing wells and
oil and gas gathering operations.

The Company believes that in the absence of the public offering, cash flows
from operations will be sufficient to cover the general and administrative
costs of the Company, including salaries and wages. The Company used $115,810
in cash in its operating activities for the nine month period ended September
1996, compared to $215,837 in the corresponding 1995 period. In the event that
the proposed public offering does not close before December 31, 1996, the
Company would immediately negotiate the extension of the current portion of
its long-term debt which makes up almost one-half (49%) of current
liabilities. Management believes that it can negotiate an extension of the due
dates of approximately $800,000 of the current portion of its long-term debt
for an additional one-year period. The Company also believes that $600,000 of
the $800,000 previously discussed could be converted into stockholders'
equity. For the balance of the approximately $200,000 of the current portion
of its long-term debt, the Company believes that it will be able to secure
financing from both private and institutional lenders. Vulcan has in place a
$1,000,000 line of credit for the factoring of Vulcan's accounts receivable
pursuant to a Purchase and Sale Agreement with United Factors, which enables
Vulcan to buy and sell oil at its present levels. United Factors purchases
eligible accounts receivable from Vulcan at a base

26
<PAGE>

price of 80% of the eligible receivable plus a bonus ranging from 18.75% to
14.00% of such receivable if such receivable is paid between 10 and 50 days
from the date of the invoice for such receivable. Such line of credit is
secured by a security interest in Vulcan's accounts receivable and is
personally guaranteed by Loren E. Bagley and William F. Woodburn, President
and Vice-President of the Company, by F. Worthy Walker, President of Vulcan,
and by the Company. The Company, in anticipation of further growth, has
expanded its overhead activities. In the event the proposed public offering
does not occur, the Company intends to eliminate costs associated with such
expansion, approximately $15,000 per month, without affecting revenues. Such
elimination would be effective starting January 1, 1997.

As of September 30, 1996, the Company had total assets of $6,672,792 and
total stockholders' equity of $2,041,895, compared to total assets of
$6,705,278 and total stockholders's equity of $2,516,187 at December 31, 1995.
This represents a $32,486 increase in total assets and a $519,292 (20%)
decrease in total stockholders equity. For this same period, cash increased
from $0 to $151,939 and total current assets increased 35% due to increased
cash. Total current liabilities increased 75% from December 31, 1995 to
September 30, 1996, primarily due to certain loans of the Company which become
due in less than one year from September 30, 1996.

The Company's current portion of its long term debt is $1,040,169. In 1995
and 1996, certain outstanding convertible debentures having a face value of
$95,000 plus accrued interest, were converted to common stock.

For the third quarter of 1996 cash provided by the Company's operating
activities was $240,707 compared to cash used of $218,895 for the third
quarter of 1995. For the first nine months of 1996, cash used by operating
activities was $115,810 compared to cash used of $215,837 for the
corresponding period in 1995. Net cash used by investing activities for the
third quarter and first nine months of 1996 was $44,169 and $82,508,
respectively, compared to $975,326 and $1,029,217 for each of the
corresponding periods of 1995. The decreases for the 1996 periods are
attributed to decreases in expenditures by the Company for property and
equipment and also acquisitions during the 1996 periods. Cash used by
financing activities for the third quarter of 1996 was $63,634 and cash
provided for the first nine months of 1996 was $350,257, respectively,
compared with cash provided of $1,228,052 and $1,273,250 for the corresponding
1995 periods. The decreases for the 1996 periods are directly attributed to a
decrease in borrowing by the Company.

The Company projects that it will attempt to increase the production of
approximately 30 of its wells by installing artificial lift, or pumping,
mechanisms during the second half of 1996 at a projected cost of approximately
$175,000. The Company has installed four (4) such artificial lift systems
during the first nine months of 1996 at an average cost of $5,200.

In the opinion of management, inflation has not had a material effect on the
operations of the Company.

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 in 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 include 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 from the Company. The decline in sales was primarily attributable 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.

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<PAGE>

The Company had a net loss of $2,205,078 for 1995. The Company's total costs
and expenses went from 97% of sales in 1994 to 178% of sales in 1995. The cost
of oil and gas went 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 of the Company in December 1995 pursuant
to a private placement and the issuance of additional shares to the
debentureholders as consideration for extending the due date of said
Debentures. See "Business and Properties--Vulcan Energy Corporation."

Depreciation and depletion expense increased 28% in 1995 over 1994. The
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% over 1994.

For the year ended December 31, 1995 and for the nine months ended September
30, 1996 the revenues of the Company were derived from the following sources:

<TABLE>
<CAPTION>
PERCENTAGE OF
PERCENTAGE OF REVENUES FOR
REVENUES FOR NINE MONTHS ENDED NINE MONTHS ENDED
YEAR ENDED YEAR ENDED SEPTEMBER 30, SEPTEMBER 30,
DECEMBER 31, 1995 DECEMBER 31, 1995 1996 1996
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Gas Pipeline Sales...... $1,716,625 61% $ 732,162 17%
Vulcan Energy Sales..... 906,385 32% 3,217,649 77%
Other Production Sales.. 205,152 7% 253,692 6%
---- ----
100% 100%
</TABLE>

NET OPERATING LOSSES

The Company has accumulated net operating loss carryforwards ("NOL's"). The
NOL's may be carried forward for 15 years from the year incurred. As of
September 30, 1996, the total NOL's were approximately $4,400,000. The NOL's
are used on the basis of the earliest year first and the latest year last. If
unused, the last NOL's would expire in the year 2011. 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 of 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 are offset by a valuation
allowance of the same amount.

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.

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<PAGE>

BUSINESS AND PROPERTIES

OVERVIEW

The Company is primarily engaged in the transportation, marketing and
production of natural gas and oil, and also conducts exploration and
development activities, within the Appalachian Basin, particularly in
Northwestern West Virginia. The Company owns and operates 105 oil and gas
wells and also owns and operates an aggregate of over 100 miles of three-inch,
four-inch and six-inch gas transmission lines located within West Virginia in
the Counties of Ritchie, Tyler, Doddridge, and Pleasants, which pipeline
system gathers the gas emanating from certain of such wells and from wells
owned by third parties. The Company has approximately 7,175 leasehold acres in
the Rose Run geological formation in Ohio and approximately 2,200 leasehold
acres in the Sistersville, West Virginia field which forms part of the Keener
and Big Injun sands geological formations, none of which has contributed to
the revenues of the Company to date. The Company has conducted preliminary
testing on portions of such acreage.

The Company has engaged in limited developmental drilling in the last three
years. The Company has not engaged in any exploratory drilling in the last
three years. Exploratory drilling involves drilling wells in areas where there
are no proven reserves of gas or oil, to find a new commercially productive
area in a field previously found to be productive or to significantly extend a
known field. Development drilling involves the drilling of wells within proven
areas of an oil and gas reservoir to depths where hydrocarbons are known to
exist. Exploratory drilling involves a higher degree of risk of failure than
developmental drilling, although there can be no assurance that a
developmental well will yield commercial quantities of oil and gas. To date,
the Company has participated in one developmental drilling project in its Rose
Run geological formation in Ohio and intends to engage in additional
developmental drilling in the Big Injun formation underlying the Company's
Sistersville, West Virginia acreage. See "Risk Factors--Acquisition and
Drilling Risks" and "Business and Properties--Current Business Activities--
Rose Run and Sistersville."

In 1995, 86% of the gas sold by the Company was purchased from third
parties. None of the contracts pursuant to which the Company acquires such gas
requires the Company to purchase specific quantities of gas.

Through Vulcan, its subsidiary acquired in August 1995, the Company also is
engaged in crude oil gathering and marketing in Southeast Texas pursuant to
oral agreements with oil producers which generally are terminable on thirty
(30) days notice by either party. Vulcan purchases both sweet and sour crude
oils and deposits the same under written contracts with Conoco, Cardinalis,
Cambridge and Gulf Mark. Conoco accounted for 78%, 67%, 82%, respectively, of
Vulcan's revenues for the years ended December 31, 1993, December 31, 1994 and
December 31, 1995. No other customer accounted for more than 10% of Vulcan's
revenues. Sweet crude oil grades are composed of oils which contain .5% or
less by weight of sulphur. Sour crude oil grades are composed of oils that
contain more than .5% by weight of sulphur. Vulcan also purchases residual oil
from storage and fuel tanks and resells such oil in the secondary market to,
among others, burner fuel and general feed stock users. Vulcan is managed by
Nano-Tech, which is wholly owned by F. Worthy Walker, Vulcan's President and
one of its directors. The Company's management is not sufficiently experienced
in the oil gathering business in Texas to manage Vulcan on its own, and is
reliant upon the expertise of Nano-Tech and Mr. Walker for the management of
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

29
<PAGE>

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
described) of authorized but previously unissued common stock of the Company.
Such assets were valued at zero, which equaled predecessor cost after
depreciation. The per share value of such shares of Common Stock was par
value, $.001 per share. In connection with the transaction, the Company
changed its corporate name to Apple Corp.

Between March 1988 and December 1988, Apple Corp. 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. Between October 18, 1995 and February 21, 1996, all of the
Debentures were converted into an aggregate of 105,557 shares of Common Stock.
See "Business and Properties--Overview", "Description of Securities--
Debentures" and "Shares Eligible for Future Sale."

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 of the Company's 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. Pursuant to such registration rights, at
any time after January 1, 1992 Black Petroleum may require, on two occasions,
the Company to register all or any portion of its shares of Common Stock so
long as the shares for which registration has been requested constitute at
least 20% of the total number of restricted shares of Common Stock
outstanding. Such right shall be deemed satisfied if a total of 75% of Black
Petroleum's shares of Common Stock are registered. In addition, at any time
that the Company proposes to register its Common Stock for sale to the public
for its own account or for other security holders, Black Petroleum may request
that its shares be included in any registration statement in connection with
such offering. The Company is obligated to use its best efforts to include
such shares in such registration statement. For purposes of this Offering,
Black Petroleum has elected not to assert its registration rights.

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. All subsequent references to the Company's Common
Stock refer to post-split shares. Each of the assets so acquired was valued at
predecessor cost and accounted for as a transaction among related parties. The
number of shares of Common Stock exchanged for each of such assets was
determined by negotiations between the parties, which negotiations cannot be
considered arms' length negotiations.

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 specifically 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.

30
<PAGE>

APPALACHIAN BASIN

The Company operates primarily in the Appalachian Basin in Northwestern West
Virginia. 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 in the past this has generally resulted in
wellhead gas prices higher than those prices received in the Gulf Coast and
the Mid-Continent producing regions.

BUSINESS STRATEGY AND DEVELOPMENT

The Company's business strategy is to increase its reserves and the
production, gathering and sale of oil and gas from existing and acquired
properties in the Appalachian Basin and to increase Vulcan's volume of
gathering and sale of oil in Southeast Texas. The Company's strategic location
in West Virginia, which is considered one of the most prolific areas in the
Appalachian Basin, 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 not less than a majority ownership interest and will serve as
operator. At present, the Company has no plans, intentions, arrangements,
agreements or understanding with respect to specific acquisitions.

To accomplish this strategy, to date the Company has focused on increasing
its gas and oil revenues through property acquisitions. Since 1992, the
Company's proven reserves of natural gas and oil have increased by an
aggregate of 71% to 1,789 Mmcf and 1% to 199 MBbl, 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 the Company
should consolidate its current holdings and make new acquisitions.

At the Company's Special Meeting of Shareholders held September 22, 1993,
the shareholders approved the acquisitions summarized below 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 common stock.

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 ("Tyler Construction") from Loren E. Bagley, the
Company's President and a Director, and William F. Woodburn, the Company's
Vice President of Operations and a director. The value of such assets was
recorded at $318,988. Tyler Construction owns and operates a natural gas
gathering pipeline system serving the industrialized Ohio Valley. Tyler
Construction owns and operates 27 miles of six-inch pipeline and 10 miles of
four-inch pipeline.

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<PAGE>

In exchange for the 65% interest, the Company issued to Messrs. Bagley and
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. The remaining 35% interest in Tyler
Construction is owned by Ecological Energy, Inc., a third party not otherwise
affiliated with the Company. See "Certain Transactions and Relationships."

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. See
"Certain Transactions and Relationships--Sancho Oil and Gas Corporation."
Pursuant to its agreement with Sancho, the Company has the right to sell
natural gas subject to the terms and conditions of a 20-year contract, as
amended, that Sancho entered into with Hope 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 the residential gas index and the
Inside F.E.R.C. Index.

SPENCER WELLS

Also on September 22, 1993, the Company acquired from Mr. Dennis L. Spencer,
a director of the Company, all rights, title and interest to six producing oil
and gas wells located in West Virginia, in exchange for 500,000 shares 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, West Virginia. 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. The value of such assets was
recorded at $1,082,000. See "Certain Transactions and Relationships."

THE PIPELINE, LTD.

Also on September 22, 1993, the Company entered into the Asset Acquisition
Agreement with Tyler Pipeline, Inc. ("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, West Virginia 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. The value of such assets was recorded at $4,086.

In exchange for assets of The Pipeline, Ltd. (the name of the pipeline, not
a legal entity), the Company issued to Tyler Pipeline 250,000 shares of the
Company's common stock. 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. See
"Certain Transactions and Relationships."

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. ("Ritchie County Gathering") in exchange for
500,000 shares 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 and delivering such gas to CTC. The
value of such assets was recorded at $59,130. See "Certain Transactions and
Relationships."

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<PAGE>

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 in the future and
to become more involved in exploration and development, specifically on its
Rose Run acreage in Ohio and Sistersville acreage in West Virginia. The
Company has no present plans, intentions, arrangements, agreements, or
understanding with respect to specific acquisitions.

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 30 of its wells by installing artificial lift, or pumping,
mechanisms during the second half of 1996 at a projected cost of approximately
$175,000. 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
loans receivable in the amount of $80,000 each 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. There presently are no
producing wells on such acreage and no proven reserves located in the Rose Run
acreage owned by the Company. See "Certain Transactions and Relationships."

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 a developmental well in the Rose Run acreage. Such well
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

33
<PAGE>

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. See "Risk Factors--Acquisition and Drilling
Risks" and "Business and Properties--Operational Hazards and Insurance."

The Company believes that it will be one of the first companies to use the
3-D technique in the Rose Run area. The Company believes that use of 3-D
testing will give it 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 one 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 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 as funding becomes available from sources other
than the proceeds of this Offering.

SISTERSVILLE.

Effective June 1, 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. To date the field has produced over 13
million barrels of oil. 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. Recoverable reserves of oil in the field are
estimated at several million barrels.

The Company has observed the success of oil and gas exploration in the
Sistersville field by other entities after expensive studies. The preliminary
studies conducted by the seller of the Sistersville property to the Company
indicating substantial reserves were included in the purchase price paid by
the Company for the Sistersville acreage. 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 to the
Company of each horizontal well is approximately $480,000. Commencement of
drilling of the Company's first horizontal well is scheduled for the spring of
1997. 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 to the
extent funds are available from sources other than the proceeds of this
Offering.

VULCAN ENERGY CORPORATION.

ACQUISITION BY THE COMPANY. On August 7, 1995 the Company and Petrol
Marketing Corp. ("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

34
<PAGE>

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. Such purchase price was the result
of arms' length negotiations between PMC and Mr. Forbus.

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. The purchase price
for the Company's acquisition of its 80% interest in Vulcan was the result of
arms' length negotiations between the Company and PMC.

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.

MANAGEMENT OF VULCAN. Pursuant to a Management Agreement dated August 7,
1995 between PMC and Vulcan, PMC assumed management of all of Vulcan's
activities: Messrs. Walker and Lynton served as Vulcan's President and
director and Vice President, Secretary and director, respectively. Messrs.
Bagley and Woodburn also served as directors of Vulcan. On March 15, 1996, PMC
and its shareholders F. Worthy Walker and William J. Lynton entered into an
Assignment with Nano-Tech pursuant to which PMC and Lynton transferred all of
their respective interests in Vulcan to Nano-Tech, including the interest in
the stock and profits of Vulcan and assigned PMC's interest in that certain
Management Agreement pursuant to which PMC managed Vulcan. Currently, 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 and 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. Mr. Walker is the
President, and sole shareholder and director 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 the stock of Nano-Tech and management of Vulcan.

VULCAN'S OPERATIONS. 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. The right to gather from each such producer is evidenced by
each such producer's filing of a required report with the Texas Railroad
Commission, which then issues an authorization to Vulcan to transport
production from each such producer's well. Such well sites are situated within
an approximately seventy-five mile radius of Poteet, Texas. 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 with Cardinalis, Cambridge, Conoco or Gulf Mark. Oil
is delivered directly to the pipelines by Vulcan's trucks and is metered into
these pipelines through a Vulcan

35
<PAGE>

owned or leased LACT (lease acquisition transfer) station which automatically
meters the oil. As of September 30, 1996, Vulcan is delivering an aggregate of
approximately 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. Since its acquisition by the Company, Vulcan's business
growth has caused it to increase the size of its truck and trailer fleet by
50% by adding two additional trucks and two additional trailers and hiring two
additional employees.

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, generally the owner of the pipeline,
and includes both the base price for the type of oil delivered and a
transportation charge which averages approximately $1.50 per Bbl.

Vulcan's arrangements with its suppliers require payment by the 20th 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. On April 10, 1996,
Vulcan secured a $1,000,000 line of credit from United Factors based on
Vulcan's eligible accounts receivable and secured by all of Vulcan's accounts
receivable and the personal guarantees of Loren E. Bagley, William F. Woodburn
and F. Worthy Walker and by the Company. Management believes that the proceeds
of this line of credit will enable Vulcan to maintain its existing oil
gathering activities.

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 direct 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's operational facilities, near the major
oil ports in Texas and approximately fifteen miles southwest of San Antonio,
provides a steady supply of slop, or low grade, oil at prices which are
substantially below prices for similar oil elsewhere.

Vulcan's operational facilities, storage tanks, main tanks and storage
buildings are located on a seven acre tract owned by Vulcan located in Poteet,
Atascosa County, Texas. Vulcan's executive offices are located in Dallas,
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.

GAS AND OIL PRODUCTION AND SALES

Production and Sales Statistics. Gas sales in 1994 accounted for 98% of the
Company's total gas and oil sales with oil sales the remaining 2%. Gas sales
for 1995 accounted for 65% of total oil and gas sales and oil sales accounted
for 35%, of which 34% of such oil sales are attributable to Vulcan's
operations. The average 1994 sales price received by the Company was $2.33 per
Mcf for gas and $16.02 per Bbl of oil. The average 1995 sales price received
by the Company was $2.02 per Mcf for gas and $16.44 per Bbl of oil. In the
first nine months of 1996 the average sales prices for gas and oil were $2.93
per Mcf and $18.78 per Bbl, respectively.

36
<PAGE>

For the year ended December 31, 1995 and for the nine months ended September
30, 1996 the revenues of the Company were derived from the following sources:

The following table sets forth the Company's sales volumes and other
production and price data for the three years ended December 31, 1993, 1994
and 1995, and the nine months ended September 1995 and 1996.

PRODUCTION AND SALES STATISTICS

<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED DECEMBER 31, ENDED SEPTEMBER 30
----------------------- -------------------
1993 1994 1995 1995 1996
------- ------- ------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net Production:
Gas (Mcf)....................... 86,623 118,696 89,874 70,434 79,618
Oil (Bbl)....................... 3,554 2,702 1,103 1,092 2,208
Equivalent (Mcf)................ 107,947 134,908 96,492 76,986 92,866
Average Production Per Day:
Gas (Mcf)....................... 237 325 246 258 290
Oil (Bbl)....................... 10 7 3 4 8
Equivalent (Mcf)................ 296 370 264 282 338
Average Sale Price:
Per Mcf of Gas.................. $ 2.48 $ 2.33 $ 2.02 $ 1.90 $ 2.93
Per Bbl of Oil.................. $ 14.89 $ 16.02 $ 16.44 $ 16.55 $ 18.78
Average Cost of Production:
Per Mcf of Gas.................. $ 1.03 $ 1.10 $ 1.12 $ .93 $ 1.12
Per Bbl of Oil.................. $ 6.18 $ 6.60 $ 6.72 $ 5.60 $ 6.72
Average Cost of Production Per
Dollar of Sales:
Gas............................. $ 0.42 $ 0.47 $ 0.55 $ .49 $ .38
Oil............................. $ 0.42 $ 0.41 $ 0.41 $ .34 $ .36
</TABLE>

The volume of gas produced by the Company decreased in 1995 from 1994 levels
as the result of a reduction in artificial or "flush" production at various
producing wells. Flush production involves the installation of artificial lift
systems in wells to lift fluids to the surface. The Company installed
artificial lift systems in various wells in 1994. Due to the decrease in the
price of gas in 1995, the Company did not install additional artificial lift
systems in 1995, nor did it perform routine maintenance on existing artificial
lift systems in 1995 which is needed to continue the production levels of
producing wells at prior levels. The Company intends to perform such routine
maintenance and to add new artificial lift systems in 1996. The acquisition of
additional acreage by the Company during 1994 and 1995 in the Rose Run and
Sistersville areas did not effect the Company's production of gas because such
acreage is undeveloped.

For the year ended December 31, 1995 Vulcan sold 72,863 Bbls and 36,949
Bbls, respectively, of sweet and sour crude. For the nine month period ended
September 30, 1996 Vulcan sold 174,194 Bbls and 0 Bbls, respectively, of sweet
and sour crude.

MARKETS AND CUSTOMERS

The Company operates exclusively in the oil and gas industry.

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.

37
<PAGE>

Natural gas delivered through the Company's pipeline network is sold either
to Sancho at the industrial facilities near Sistersville, West Virginia, or to
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 20-year contract, as amended, that Sancho entered
into with Hope 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 the greater of the residential gas commodity index and published Inside
F.E.R.C. Index, at the Company's option, for the first 1,500 Mcf purchased per
day by Hope and thereafter the price is the Inside F.E.R.C. Index. The
residential gas commodity index does not directly fluctuate with the overall
price of natural gas. The Inside F.E.R.C. Index fluctuates monthly with the
change in the price of natural gas. While such option provides certain price
protection for the Company there can be no assurance that prices paid by the
Company to suppliers will be lower than the price
which the Company would receive under the Hope arrangement. Prior to June 1,
1996, the price was the residential gas commodity index and when the market
price of gas rose above such index, the Company's ability to purchase gas from
third parties was adversely effected. 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 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, 2008. In the event Sancho's
relationship with Hope, or the Company's relationship with Sancho, is
discontinued for any reason, the Company believes it will be able to maintain
a direct arrangement with Hope although there can be no assurance that such
arrangement will be maintained. 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.
Conoco, a customer of Vulcan, accounted for approximately 14% of the Company's
sales on a consolidated basis for the year ended December 31, 1995. 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 was 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 oil and gas industry is highly competitive. 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.

38
<PAGE>

Under its contract with Sancho, the Company has the right to sell natural
gas subject to the terms and conditions of a 20-year contract, as amended,
that Sancho entered into with Hope 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 indices that include the residential gas
commodity charge of Hope and the Inside F.E.R.C. Index. Were it not for the
existence of the arrangement between Sancho and Hope, Hope would compete
directly with the Company. Were it not for the relationship between Hope and
Sancho, Hope would compete directly with the Company for the sale of gas to
certain customers, specifically OSI Specialities, Inc. and Consolidated
Aluminum of America, Inc.

Vulcan competes directly with other oil gathering operations in Southeast
Texas. Several of these operations are substantially larger than Vulcan and
possess greater financial and other resources.

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.

Texas Railroad Commission. Vulcan gathers a substantial portion of the oil
it transports directly from the wells of third party producers. The right to
gather from each such producer is evidenced by each such producer's filing of
a required report with the Texas Railroad Commission, which then issues an
authorization to Vulcan to transport production from each such producer's
well. The failure of a producer to file such report would prevent Vulcan from
transporting such producer's oil.

In addition, each driver of a Vulcan truck must be licensed by the State of
Texas to transport hazardous material.

Environmental. Legislation and implementing regulations adopted or proposed
to be adopted by the Environmental Protection Agency 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.

Exploration and Production. The Company's exploration and development
operations are subject to various types of regulation at the federal, state
and local levels. Such regulation includes the requirement of permits for the
drilling of wells, the regulation of the location and density of wells,
limitations on the methods of casing wells, requirements for surface use and
restoration of properties upon which wells are drilled, and governing the
abandonment and plugging of wells. Exploration and production are also subject
to property rights and other laws governing the correlative rights of surface
and subsurface owners.

39
<PAGE>

Occupational and Safety Regulations. The Company is subject to the
requirements of the Occupational Safety and Health Act, as well as other state
and local labor laws, rules and regulations. The cost of compliance with the
health and safety requirements is not expected to have a material impact on
the Company's aggregate production expenses. Nevertheless, the Company is
unable to predict the ultimate cost of compliance.

Pricing. While past sales of natural gas and oil were subject to maximum
price controls, such controls are no longer in effect. In any case, the
deregulated price of natural gas under current market conditions tends to be
substantially lower than most regulated ceilings.

Other Considerations. Other federal, state and local legislation, while not
directly applicable to the Company, may have an indirect effect on the cost
of, or the demand for, natural gas and oil.

OPERATIONAL HAZARDS AND INSURANCE.

The Company maintains insurance to cover its operations. The Company has
$1,000,000.00 of general liability insurance ($1,000,000.00 each occurrence).
The Company does not carry excess liability insurance. The Company's
insurance, however, does not cover every potential risk associated with the
exploration for and production of gas and oil. In particular, coverage is not
obtainable for certain types of environmental hazards. The occurrence of a
significant adverse event, the risks of which are not fully covered by
insurance, could have a material adverse effect on the Company's financial
condition and results of operations. Moreover, no assurance can be given that
the Company will be able to maintain adequate insurance in the future at rates
it considers reasonable.

GAS AND OIL PROPERTIES

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:

ESTIMATED PROVED RESERVES

<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1993 1994 1995
--------- --------- ---------
<S> <C> <C> <C>
Natural 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
</TABLE>

These estimates are based primarily on the reports of S. M. Deal &
Associates, independent petroleum engineers. See "Summary Reserve Report"
attached as Appendix A hereto and incorporated herein by reference.

40
<PAGE>

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 SEC. See S.F.A.S. 69 Supplemental Disclosures
included as part of the Consolidated Financial Statements of the Company.

Well Count. The Company operates and receives gas and oil revenues from 105
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.

WELLS AT DECEMBER 31, 1995(1)

<TABLE>
<CAPTION>
GROSS WELLS NET WELLS
------------- -------------
GAS OIL TOTAL GAS OIL TOTAL
--- --- ----- --- --- -----
<S> <C> <C> <C> <C> <C> <C>
West Virginia....................................... 85 20 105 77 18 95
</TABLE>
- --------
(1) Many of the Company's wells produce both gas and oil. For purposes of
computing the above data, the gas well versus oil well designations were
made on the basis of the type of artificial lift installed on the well.

Prospects. The Company's producing wells hold approximately 5,636 gross
acres under lease which the Company believes include a substantial number of
promising development prospects. In addition, the Company's Rose Run acreage
is scheduled for 3-D seismic testing, and, if the results of such test so
justify, further drilling. 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 by numerous oil
and gas operators and has proven undeveloped reserves.

LEASE POSITION AT DECEMBER 31, 1995

<TABLE>
<CAPTION>
DEVELOPED UNDEVELOPED
ACREAGE ACREAGE
----------- -----------
GROSS NET GROSS AND
ACRES ACRES NET ACRES
----- ----- -----------
<S> <C> <C> <C>
West Virginia........................................... 5,636 5,412 9,375
</TABLE>

Title to Properties. 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.

41
<PAGE>

Other. In addition to gas and oil properties, the Company's property and
equipment include the headquarters facility for Vulcan located on
approximately seven acres of land in Poteet, Texas, with attendant office
buildings, shop facilities, storage tanks, support vehicles and trucks.
Vulcan's management believes these facilities are adequate for Vulcan's
current and anticipated expansion.

EMPLOYEES

As of the date hereof the Company employs six people full-time, consisting
of two executives, one marketing and clerical persons, and three 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 four truck drivers.

FACILITIES

The Company. 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 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. 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. The Company believes that its
present office facilities are adequate for the Company's current business
operations.

Vulcan. 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 its fleet of four leased
trucks and four owned tanker trailers. In addition, Vulcan's executive offices
are located in Dallas, Texas and 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

The Company only operates in one industry segment. Accordingly, 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.

42
<PAGE>

MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

The Company's directors and executive officers are identified below:

<TABLE>
<CAPTION>
NAME POSITION DIRECTOR SINCE AGE
---- -------- -------------- ---
<S> <C> <C> <C>
Loren E. Bagley............ President, C.E.O. and Director August 1991 54
William F. Woodburn........ Vice President and Director August 1991 54
Dennis L. Spencer.......... Secretary and Director September 1993 53
John B. Sims............... Director January 1988 70
</TABLE>

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. 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.

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, 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,
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 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

43
<PAGE>

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 Edam 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 upon which the primary
obligor defaulted.

The following persons, who were during fiscal year ended December 31, 1995,
directors, officers or beneficial owners 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.

COMPENSATION

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.

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.

44
<PAGE>

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 and to all other executive
officers of the Company. No executive officer of the Company has earned a
salary greater than $100,000 annually for any of the periods depicted. During
1996 no member of management, other than William F. Woodburn and F. Worthy
Walker, as beneficial owner of PMC, has received cash compensation. During
1996, William F. Woodburn has received cash compensation of $1,000 per month.
PMC received cash compensation of $60,000 in 1995. Even though the Company
presently has no employment agreements with any of its officers or directors,
the Company anticipates that in the event this Offering is successful it will
enter into employment agreements with Messrs. Bagley and Woodburn pursuant to
which the Company will, among other things, pay cash compensation of $100,000
each to Messrs. Bagley and Woodburn during 1996 and 1997. No proceeds of the
Offering will be used to pay cash compensation to any executive officer of the
Company for periods prior to the closing of the Offering.

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
NAME AND OTHER ANNUAL ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION COMPENSATION
------------------ ---- ------- ----- ------------ ------------
<S> <C> <C> <C> <C> <C>
Loren E. Bagley,................ 1995 $ -0- $ -0- $ -0- $ -0-
President, C.E.O.(1) 1994 $ -0- $ -0- $ -0- $ -0-
1993 $ -0- $ -0- $ -0- $ -0-
John B. Sims,................... 1995 $13,550 $ -0- $ -0- $ -0-
Former President, C.E.O.(2) 1994 $ 5,600 $ -0- $ -0- $ -0-
1993 $18,450 $ -0- $ -0- $ -0-
William F. Woodburn,............ 1995 $12,000 $ -0- $ -0- $ -0-
Vice President, Operations 1994 $12,000 $ -0- $ -0- $ -0-
1993 $12,000 $ -0- $ -0- $ -0-
Dennis L. Spencer,.............. 1995 $ -0- $ -0- $ -0- $ -0-
Secretary 1994 $29,526 $ -0- $ -0- $ -0-
1993 $ -0- $ -0- $ -0- $ -0-
F. Worthy Walker................ 1995 $60,000 $ -0- $ -0- $ -0-
President, Vulcan Energy
Corporation (3)
All Executive Officers as a
group (4 persons).............. 1995 $85,550 $ -0- $ -0- $ -0-
1994 $35,126 $ -0- $ -0- $ -0-
1993 $30,450 $ -0- $ -0- $ -0-
</TABLE>
- --------
(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.
(3) Includes $60,000 paid to PMC as management fees under a management
agreement in calendar year 1995. Also during calendar year 1995, and
additional $40,000 of such management fee was accrued but unpaid. Vulcan
and PMC agreed to settle such accrued amount at $20,000, and such sum was
paid by Vulcan to PMC in 1996. Mr. Walker is the sole shareholder,
director and officer of Nano-Tech, the successor in interest to PMC. Mr.
Walker is the sole shareholder, director and officer of PMC.

45
<PAGE>

PRINCIPAL AND SELLING SECURITYHOLDERS

PRINCIPAL SHAREHOLDERS

The following table sets forth information, to the best knowledge of the
Company as of September 30, 1996, 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.

<TABLE>
<CAPTION>
NAME AND ADDRESS NUMBER OF SHARES PERCENT OF SHARES PERCENT OF SHARES
BENEFICIAL OWNER BEFORE OFFERING BEFORE OFFERING AFTER OFFERING
- ----------------- ---------------- ----------------- -----------------
<S> <C> <C> <C>
Loren E. Bagley*.......... 419,575(2) 12.96% 11.00%
210 Second Street
P.O. Box 393
St. Marys, WV 26170
William F. Woodburn*...... 448,108(3) 13.84 11.70
210 Second Street
P.O. Box 393
St. Marys, WV 26170
Dennis L. Spencer Sr.*.... 595,775(6) 18.39 15.60
210 Second Street
P.O. Box 393
St. Marys, WV 26170
John B. Sims*............. 58,228(4) 1.80 1.50
210 Second Street
P.O. Box 393
St. Marys, WV 26170
Black & Company........... 441,964(5) 13.64 11.60
50 Federal Street
Boston, MA 02110
All directors and
executive officers as a
group
(4 persons in group)..... 1,521,686 46.98 39.80
</TABLE>
- --------
* 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 September 30,
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 58,228 shares of Common Stock held in the name of Virginia Sims,
wife of John B. Sims, over which shares Ms. Sims retains voting power.
(5) Black & Company is a holding company for the benefit of those shareholders
of Black Petroleum 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 "Certain Transactions and Relationships".
(6) 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.

46
<PAGE>

SELLING SECURITYHOLDERS

Upon the effective date the Registration Statement, the Company's 800,000
outstanding Bridge Warrants automatically will be converted into 1,600,000
Redeemable Warrants. Such Bridge Warrants entitle the holder to purchase one
(1) share of the Company's Common Stock at $.50 per share. Currently all such
Warrants are exercisable. Shares of Common Stock issuable upon exercise of the
Bridge Warrants will be "restricted" securities within the meaning of Rule 144
of the Securities Act of 1933, as amended (the "Act"). The Company has agreed
to register such 1,600,000 Redeemable Warrants and 1,600,000 shares of Common
Stock underlying such Redeemable Warrants on behalf of the Selling
Securityholders. The Selling Securityholders are those persons who have
purchased the Company's Bridge Units consisting of the Company's Unsecured
Notes and Bridge Warrants in a private placement of the Bridge Units completed
in March 1996 and a private placement of the Company's Bridge Warrants
completed in December 1995. See "Certain Transactions and Relationships--
Bridge Financing." Among other rights, each Bridge Warrant automatically will
be converted into two Redeemable Warrants immediately upon effectiveness of
the Registration Statement of which this Prospectus forms a part without any
action or cost on the part of the holders thereof and included in the
Registration Statement of which this Prospectus forms a part. Each such
Redeemable Warrant shall be immediately eligible for resale upon effectiveness
of the Registration Statement of which this Prospectus forms a part, subject
to the Company Lock-up and the Underwriter's Lock-up. The shares of Common
Stock underlying such Redeemable Warrants included in the Registration
Statement of which this Prospectus forms a part shall be immediately eligible
for resale upon exercise of such Redeemable Warrants. If any such holders sell
such Redeemable Warrants or exercise such Redeemable Warrants and sell the
shares of Common Stock underlying such Redeemable Warrants, the proceeds of
the sales of such Redeemable Warrants or shares of Common Stock, as the case
may be, would be for the benefit of the person selling such shares. See
"Certain Transactions and Relationships--Bridge Financing" and "Description of
Securities--Bridge Warrants."

Subject to the release of the Company Lock-up and the Underwriter's Lock-up,
the Selling Securityholders' Redeemable Warrants and shares of Common Stock
underlying such Redeemable Warrants may be offered and sold from time to time
as market conditions permit in the over-the-counter market, or otherwise, at
prices and terms prevailing or at prices related to the then-current market
price, or in negotiated transactions. Such lock-up arrangements are composed
of the following. Upon automatic conversion of the Bridge Warrants into
Redeemable Warrants, the holders of such Redeemable Warrants, in addition to
the NASD Restriction, may (i) not sell and/or exercise any such Redeemable
Warrants held by such holder pursuant to the Company Lock-up for a period of
two (2) years following the effectiveness of the Registration Statement
without the prior consent of the Company, but which restriction on sale and/or
exercise immediately shall terminate upon the successful completion of the
Offering; and (ii) not sell any such Redeemable Warrants for a period of one
(1) year from the effective date of the Registration Statement pursuant to the
Underwriter's Lock-up without the prior consent of the Underwriter. The
Underwriter has agreed not to release the Underwriter's Lock-up for at least
three (3) months following the effective date of the Registration Statement of
which this Prospectus forms a part. After expiration of such three month
period, the Underwriter may permit sales of such securities by such holders
upon written request by such holders. The extent to which such sales will be
permitted will depend on the evaluation by the Underwriter of a number of
factors, including the trading volume of the securities on the NASDAQ and the
number of securities which such holders have requested to sell as Selling
Securityholders. Release of such Redeemable Warrants from the Company and
Underwriter's Lock-ups would have an adverse effect on the market price of the
Securities offered hereby. The Selling Securityholders' Redeemable Warrants
and shares of Common Stock, in addition to the NASD Restriction, may be sold
by one or more of the following methods, without limitation: (i) block trade
in which a broker or dealer so engaged will attempt to sell the securities as

47
<PAGE>

agent but may position and resell a portion of the block as principal to
facilitate the transaction; (ii) purchases by a broker or dealer as principal
and resale by such broker or dealer for its own account pursuant to this
Prospectus; (iii) ordinary brokerage transactions and transactions in which
the broker solicits purchases; and (iv) transactions between sellers and
purchasers without a broker/dealer. In effecting sales, brokers or dealers
engaged by the holders may arrange for other brokers or dealers to
participate. Such brokers or dealers may receive compensation or discounts
from holders in amounts to be negotiated. Such brokers or dealers and other
participating brokers or dealers may be deemed to be "underwriters" within the
meaning of the Securities Act in connection with such sales. Neither the
Company or the Underwriter has made any arrangements with any of the Selling
Securityholders to sell or facilitate the sale of the Securities held by them.

48
<PAGE>

The following table sets forth the name of each holder of Bridge Warrants
and the number of Redeemable Warrants beneficially owned by each such holder,
as a Selling Securityholder, prior to sale and being registered for sale.
Assuming the sale of all of the Selling Securityholders' Redeemable Warrants
prior to exercise, following such sale, no person listed below will own any
such Redeemable Warrants or beneficially own any shares of Common Stock
underlying such Redeemable Warrants.
<TABLE>
<CAPTION>
NUMBER OF
REDEEMABLE WARRANTS
NAME BENEFICIALLY OWNED(1)
- ---- ---------------------
<S> <C>
James W. Almeter.......................................... 12,500(2)
George D. Kickliter....................................... 100,000(2)
Harry and Mary Ann Lawroski,.............................. 160,000(4)
Jan Arnett................................................ 127,500(4)
Thomas E. Creevy.......................................... 12,500(2)
Andrew Fistel............................................. 25,000(2)
Michael Goldstein......................................... 50,000(2)
Steven Goldstein.......................................... 25,000(2)
John L. Hammer, III....................................... 12,500(2)
Robert Amend and Kathleen Amend........................... 25,000(2)
Joseph Andriole and Giancarla Andriole.................... 112,500(2)
Carl W. Olsen............................................. 85,000(4)
Hy Parnass................................................ 25,000(2)
Jiresh Patel.............................................. 25,000(2)
Doreen Rivera............................................. 50,000(2)
Henrietta T. Robinson..................................... 25,000(2)
Andres Santillana......................................... 25,000(2)
John Stewart.............................................. 25,000(2)
Dorothy Strachman......................................... 37,500(2)
George Trainor............................................ 12,500(2)
Samuel M. Ward............................................ 25,000(2)
Daniel Waterman and Mudite Waterman....................... 55,000(2)
Charles Wen............................................... 100,000(4)
Abel Whitehead............................................ 25,000(2)
Charles V. Salzano........................................ 25,000(2)
Ellis Wooten.............................................. 25,000(2)
Wendell E. Morrow......................................... 12,500(2)
Morgan D. Gaffney......................................... 30,000(3)
Alfons Murk and Anita Murk................................ 25,000(3)
John R. Boswell........................................... 25,000(3)
Meeyapillai K. Zawakir.................................... 25,000(3)
Gerald Williams........................................... 25,000(3)
Lester N. Shafran......................................... 50,000(3)
Larry Weinstein........................................... 50,000(3)
Edward Nissenbaum......................................... 25,000(3)
George D. Newton, Jr...................................... 30,000(3)
Randall A. Mason.......................................... 25,000(3)
John Chianello............................................ 25,000(3)
Bill A. Kousmanidis....................................... 25,000(3)
---------
1,600,000(5)
</TABLE>
- --------
(1) Represents (1) the number of Selling Securityholders' Redeemable Warrants
beneficially owned prior to sale; (2) the number of such Redeemable
Warrants being registered under the Registration Statement; and (3) the
number of shares of Common Stock underlying such Redeemable Warrants being
registered under the Registration Statement.
(2) Purchased as part of the Company's private placement of Bridge Warrants
completed in December 1995.
(3) Purchased as part of the Company's March 1996 Bridge Financing.
(4) Purchased as part of the Company's private placement of Bridge Warrants
completed in December 1995 and March 1996 Bridge Financing.
(5) 78,750 Bridge Warrants which would have been convertible into 157,500
Redeemable Warrants issued to the Underwriter have been surrendered by the
Underwriter without compensation therefor.

49
<PAGE>

CERTAIN TRANSACTIONS AND RELATIONSHIPS

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
individual's 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. Each of the assets so acquired was valued at predecessor cost and
accounted for as a transaction among related parties. The number of shares of
Common Stock exchanged for each of such assets was determined by negotiations
between the parties, which negotiations cannot be considered arms' length
negotiations. 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, 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. The value of such assets was recorded at
$318,988. 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.

(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. The value of such assets was
recorded at $1,082,000. 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.

(iii) By separate agreement with 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. The value of such
assets was recorded at $4,086. William F. 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.

(iv) By separate agreement, the Company acquired all the issued and
outstanding shares of Ritchie County Gathering in exchange for 500,000
shares of authorized but previously unissued Company common stock. The
value of such assets was recorded at $59,130. 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.

The Company believes that all of the foregoing transactions were made on
terms no less favorable to the Company than those available from unaffiliated
third parties.

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.

50
<PAGE>

(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 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. 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. Pursuant to such registration
rights, at any time after January 1, 1992 Black Petroleum may require, on two
occasions, the Company to register all or any portion of its shares of Common
Stock so long as the shares for which registration has been requested
constitute at least 20% of the total number of restricted shares of Common
Stock outstanding. Such right shall be deemed satisfied if a total of 75% of
Black Petroleum's shares of Common Stock are registered. In addition, at any
time that the Company proposes to register its Common Stock for sale to the
public for its own account or for other security holders, Black Petroleum may
request that its shares be included in any registration statement in
connection with such offering. The Company is obligated to use its best
efforts to include such shares in such registration statement. For purposes of
this Offering, Black Petroleum has elected not to assert its registration
rights.

(c) As of December 31, 1995, the Company reported several related party
loans and loan receivables outstanding. Total loan receivables and loan
payables as of December 31, 1995 were $14,899 and $683,586 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. Of such amount, commencing
February 1995 through June 1996, members of the Company's management extended
an aggregate of $448,583 in loans to the Company for the purpose of providing
the Company with working capital. All such loans are unsecured, are on an
interest free basis and are repayable in one installment on June 15, 1998. Of
the loans extended between February 1995 and June 1996, Loren E. Bagley
extended an aggregate of $146,454; William F. Woodburn extended an aggregate
of $168,629; and John B. Sims extended $106,376 and Dennis L. Spencer extended
$27,124.

(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. The Company believes
that the acquisition of the Rose Run leases was made on terms no less
favorable to the Company than those available from unaffiliated third parties.

(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 installment, inclusive of interest
at the rate of 1.5% per month, on the then outstanding principal amount of
such loan, on October 15, 1997. The Company may prepay such note at any time
prior to maturity without premium or penalty. The debt evidenced

51
<PAGE>

by such note is secured by the pledge of 100,000 shares of the Company's
Common Stock owned by Mark D. Woodburn and 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) On August 4, 1995, the Company borrowed $100,000 from Magco, Inc. Such
loan is repayable in one installment of principal and interest accruing at the
annual rate of 18% on June 30, 1997, and is secured pursuant to a security
agreement which grants Magco, Inc. a security interest in all of the Company's
right, title and interest in and to the Sistersville property.

(g) On December 5, 1995, the Company borrowed an additional $100,000 from
John C. Allen. Such amount is repayable in one installment of principal on
March 15, 1997, with interest payable monthly at the annual rate of 12%, and
guaranteed by Messrs. Bagley, William F. Woodburn and Mark D. Woodburn and
secured by the pledge of 125,000 shares of the Company's Common Stock owned by
William F. Woodburn and his wife. The Company may prepay such note at any time
prior to maturity without premium or penalty.

(h) On May 7, 1996, the Company borrowed $100,000 from William Stevenson.
Such amount is repayable in one installment of principal and interest of
$110,000 on November 7, 1996. Messrs. Bagley, William F. Woodburn and John B.
Sims are jointly and severally liable with the Company for the repayment of
such obligation. Such obligation is secured by the pledge of 200,000 shares of
Common Stock owned by Mr. Woodburn's wife, Janet L. Woodburn.

SANCHO OIL AND GAS CORPORATION

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 20-year contract, as amended, that Sancho
entered into with Hope 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 the greater of the residential gas commodity index or the
published Inside F.E.R.C. Index, at the Company's option, for the first 1,500
Mcf purchased per day by Hope and thereafter the price is the Inside F.E.R.C.
Index. The residential gas commodity index does not directly fluctuate with
the overall price of natural gas. The Inside F.E.R.C. Index fluctuates monthly
with the change in the price of natural gas. While such option provides
certain price protection for the Company there can be no assurance that prices
paid by the Company to suppliers will be lower than the price which the
Company would receive under the Hope arrangement.During 1995, the Company paid
Sancho an aggregate of $20,407 pursuant to such 20-year contract. See
"Business and Properties--Markets and Customers."

The Company also occupies approximately 4,000 square feet of office space in
St. Marys, 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. See "Business and Properties--
Facilities."

The Company believes that the foregoing transactions with Sancho were made
on terms no less favorable to the Company than those available from
unaffiliated third parties.

It is the Company's policy that any future material transactions between it
and members of its management or their affiliates shall be on terms no less
favorable than those available from unaffiliated third parties.

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CONSULTING ARRANGEMENT

On July 1, 1995, the Company entered into a Consulting Agreement with
Transversified Development Group, Inc. (the "Consultant") pursuant to which
the Consultant provided the Company with marketing consulting services. Such
services included advising the Company on investor relations, capital
formation and strategic opportunities. Such arrangement was arranged in order
to provide the Company's management with necessary expertise in such areas.
For its services, the Consultant received monthly payments of $2,500 for
twelve months which ended October 31, 1996, and reimbursement of up to $500 of
expenses per month. On October 1, 1995, the Consultant also was granted an
option to purchase up to 100,000 shares of the Company's Common Stock at an
exercise price of $.001 per share. The Consultant has waived such option. The
Consultant is not an affiliate of the Company nor does it have any ongoing
relationship with the Company.

BRIDGE FINANCING

On August 18, 1995, the Company completed the placement of ten $30,000
secured promissory notes (the "Secured Notes") through the Underwriter. The
Secured Notes bore interest at the rate of 12% per annum and were secured by
the Company's accounts receivable. The proceeds from the Secured Notes were
used to finance certain required payments in connection with the Company's
acquisition of Vulcan. Such payment, in the amount of $300,000, was made to a
creditor of Vulcan and formed part of the purchase price of Vulcan. The
principal and interest on the Secured Notes were repaid in full on April 1,
1996 from the proceeds of the sale of the Company's Bridge Units and the
security interest was terminated of record in the State of West Virginia. None
of the purchasers of such instruments is an affiliate of the Company.

On March 21, 1996 the Company sold 24 Bridge Units, each Bridge Unit
consisting of the Company's Unsecured Note in the original principal amount of
$25,000 and 12,500 Bridge Warrants, for an aggregate purchase price of
$600,000. None of the purchasers of such Units is an affiliate of the Company.

The Unsecured Notes bear interest at the rate of 12% per annum. The
principal amounts and all accrued interest on the Unsecured Notes are due on
the earlier of 12 months from the dates of issuance thereof or ten days after
the completion of this Offering.

Of the proceeds raised through the sale of the Bridge Units, the Company
applied $300,000 to repay the outstanding principal of the Secured Notes and
$21,659 in payment of accrued interest to the date of repayment on the Secured
Notes. Additionally, $80,000 was used to repay institutional indebtedness
incurred in connection with the acquisition of Vulcan. The balance of the
proceeds of such offering were used to pay a portion of the costs of this
Offering and for working capital.

The identities of all of the purchasers of Bridge Warrants, including those
purchased as part of the Bridge Units, are set forth in "Principal and Selling
Securityholder--Selling Securityholders."

PRIVATE PLACEMENT

On December 13, 1995, the Company sold 500,000 Bridge Warrants at a price of
$.01 per Bridge Warrant for an aggregate purchase price of $5,000. See
"Description of Securities--Bridge Warrants." The net proceeds of such
offering were used by the Company for working capital. None of the purchasers
of such Bridge Warrants is an affiliate of the Company.

EXERCISE OF BRIDGE WARRANTS

All Bridge Warrants, whether sold as part of the Company's March 1996 Bridge
Financing or its private placement of Bridge Warrants completed in December
1995, entitled the holders thereof to purchase one (1) share of the Company's
Common Stock per Bridge Warrant at an exercise price of $.50 per share from
their date of issuance until the date the Registration Statement of which this
Prospectus forms a part became effective. Had any shares of Common Stock
issuable upon exercise of the Bridge Warrants been issued such shares would
have been "restricted" securities within the meaning of the Act, but none had
been so issued.

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RECENT SALES OF SECURITIES BY MEMBERS OF MANAGEMENT

During the period from June 1995 through January 1996, Carolyn S. Bagley,
wife of Loren E. Bagley sold an aggregate of 75,000 shares of the Company's
Common Stock for an aggregate of $157,200, or an average of $2.10 per share,
through various broker-dealers.

During the period from June 1995 through January 1996, William F. Woodburn
sold an aggregate of 66,667 shares of the Company's Common Stock for an
aggregate of $129,375, or an average of $1.94 per share, through various
broker-dealers.

In June 1995, Dennis L. Spencer sold 31,000 shares of the Company's Common
Stock for an aggregate of $27,125, or an average of $.88 per share, through a
broker-dealer.

During the period from February through June 1996, Virginia D. Sims, wife of
John B. Sims, sold an aggregate of 47,000 shares of the Company's Common Stock
for an aggregate of $129,456, or an average of $2.75 per share, through
various broker-dealers.

CONVERSION OF DEBENTURES

During the period from October 1995 through February 1996, the holders of
all of the outstanding Debentures elected to convert the Debentures into an
aggregate of 105,557 shares of the Company's Common Stock.

EXCHANGE OF STOCK FOR SERVICES

On March 6, 1996 the Company issued to Leonard Neilson, Esq. 9,000 shares of
the Company's Common Stock in satisfaction of certain legal fees incurred by
the Company in the amount of $24,000. Such shares of Common Stock are
registered pursuant to a Registration Statement on Form S-8 filed with the
Securities and Exchange Commission on February 12, 1996.

VULCAN ENERGY CORPORATION

On March 15, 1996, PMC and its shareholders F. Worthy Walker and William J.
Lynton entered into an Assignment with Nano-Tech pursuant to which PMC and
Lynton transferred all of their respective interests in Vulcan to Nano-Tech,
including the interest in the stock and profits of Vulcan and assigned PMC's
interest in that certain Management Agreement pursuant to which PMC managed
Vulcan. Mr. Walker currently is the sole officer, director and shareholder of
Nano-Tech and PMC.

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UNDERWRITING

The Company has agreed to sell, and the Underwriter has agreed to purchase
from the Company, 585,366 shares of Common Stock and 1,200,000 Redeemable
Warrants. The underwriting agreement between the Company and the Underwriter
(the "Underwriting Agreement") provides that the obligations of the
Underwriter are subject to certain conditions precedent. The Underwriter is
committed to purchase all of the Securities offered hereby if any are
purchased.

The Underwriter has advised the Company that it proposes initially to offer
585,366 shares of Common Stock and 1,200,000 Redeemable Warrants to the public
at the offering price set forth on the cover page of this Prospectus and that
it may allow certain selected dealers who are members in good standing of the
National Association of Securities Dealers, Inc. ("NASD") concessions not in
excess of $0.20 per share of Common Stock and $0.005 per Redeemable Warrant,
of which not more than $0.10 per share of Common Stock and $0.0025 per
Redeemable Warrant may be re-allowed to certain other dealers. The Common
Stock and Redeemable Warrants offered hereby may be purchased separately and
will be separately tradeable immediately upon issuance.

Pursuant to the Underwriting Agreement, the Company has agreed to pay the
Underwriter a non-accountable expense allowance of 3% of the gross proceeds of
the Securities sold in the Offering, of which $30,000 has been paid by the
Company to date. The Company also has agreed to pay all expenses in connection
with qualifying the Securities offered hereby for sale under the laws of such
states as the Underwriter may designate, including expenses of counsel
retained for such purpose by the Underwriter.

Pursuant to the Underwriter's Overallotment Option, which is exercisable for
a period of 45 days after the closing of the Offering, the Underwriter may
purchase up to 15% of the total number of shares of Common Stock and
Redeemable Warrants offered hereby, solely to cover overallotments.

The Underwriting Agreement provides for reciprocal indemnification between
the Company and the Underwriter against certain civil liabilities, including
liabilities under the Act.

The Company has agreed to sell to the Underwriter or its designees, at a
price of $10.00, the Underwriter's Warrant to purchase up to total of 58,537
shares of Common Stock and 120,000 Redeemable Warrants. The Securities
underlying the Underwriter's Warrant will be exercisable at a price per
Security equal to 165% of the prices of such Securities offered hereby. The
Redeemable Warrants underlying the Underwriter's Warrant will be exercisable
at an exercise price equal to 165% of the exercise price of the Redeemable
Warrants being offered hereby. The Underwriter's Warrant is exercisable for a
period of four years commencing one year from the date hereof. The
Underwriter's Warrant and underlying Securities may not be transferred by the
Underwriter during the life of the Underwriter's Warrant except to officers
and partners of the Underwriter and to members of the selling group of
underwriters and such members' respective officers and partners. Any profit
realized upon any resale of the Underwriters' Warrant or upon any sale of
Securities underlying same may be deemed to be additional underwriter's
compensation. The Company has agreed to register (or file a post-effective
amendment with respect to any registration statement registering) the
Securities underlying the Underwriter's Warrant under the Securities Act at
the Company's expense on one occasion upon the request of a majority of the
holders thereof commencing one year and ending four years after the effective
date of the Registration Statement of which this Prospectus forms a part.

The Company also has agreed to allow the Underwriter certain piggyback
registration rights with respect to the Securities underlying the
Underwriter's Warrant if the Company should file a registration statement
under the Securities Act at any time within the three year period beginning
one year and ending four years from the date of this Prospectus.

The Company has agreed that for a period of three years, the Underwriter
will have the right to designate a person to be a non-voting advisor to the
Company's board of directors or as a nominee as a director of the Company. The
identity of such person has not been determined as of the date hereof.

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<PAGE>

additional 18 months Messrs. Bagley, Woodburn, Sims and Spencer and Black &
Company may sell in the aggregate a number of shares of Common Stock equal to
1% of the public float or (b) such other agreement with respect to the sale of
such Common Stock as may be required by state "Blue Sky" laws in order to
qualify the offering of the Securities in any such state; provided, however,
that such restriction on resale of shares of Common Stock shall not apply to
24,630 shares of Common Stock held by Black & Company. Such shares may be sold
at the discretion of Black & Company pursuant to the provisions of Rule 144
adopted under the Act.

The Company has agreed to enter into an agreement with the Underwriter
retaining it as a financial consultant for a period of two years from the date
hereof, pursuant to which it will receive a fee equal to $5,000 per month,
one-half of which is to be paid on or before the closing of this Offering.

The Company has also agreed to enter into an agreement with the Underwriter
providing for the payment of compensation to the Underwriter in the event the
Underwriter is responsible for a merger or other acquisition transaction to
which the Company is a party or for venture capital or private placement
financing. The Underwriter is to be paid a fee ranging from $25,000 for any
consideration up to $500,000; five percent (5%) of the consideration raised
between $500,000 and $5,000,000; for amounts in excess of $5,000,000, $250,000
plus 1% of the excess over $5,000,000.

In the event any holder of Redeemable Warrants exercises such Redeemable
Warrants beginning one (1) year after the date of this Prospectus, the Company
has agreed to pay the Underwriter a fee equal to five percent (5%) of the
exercise price of any Redeemable Warrant so exercised after one year from the
date hereof, provided (1) the market price of the Common Stock on the date of
exercise was greater than the exercise price of the Redeemable Warrants on
that date, (2) exercise of the Redeemable Warrants was solicited by the
Underwriter and the Underwriter is specifically identified in writing by the
holder as the soliciting broker, (3) the Redeemable Warrants were not held in
a discretionary account nor issued to the Underwriter, (4) disclosure of the
compensation to be paid by the Company was made both at the time of the
offering and at the time of exercise of the Redeemable Warrants and (5) the
solicitation and exercise of the Redeemable Warrants was not in violation of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"). In
addition to soliciting, either orally or in writing, the exercise of the
Redeemable Warrants, such services may also include disseminating information,
whether orally or in writing, to holders of Redeemable Warrants about the
Company or the market for the Company's securities, and assisting in the
processing of the exercise of the Redeemable Warrants. In addition, unless
granted an exemption by the Commission from Rule 10(b) under the Exchange Act,
while it is soliciting exercise of the Redeemable Warrants, the Underwriter
will be prohibited from engaging in any market making activities or solicited
brokerage activities with regard to the Company's securities unless it has
waived its right to receive a fee for the exercise of the Redeemable Warrants.
Additionally, prior to the disposition and release of the Redeemable Warrants
and shares of Common Stock underlying the Redeemable Warrants by the Selling
Securityholders (formerly the holders of the Bridge Warrants), the NASD will
be notified and approval with regard to the transaction must be granted by the
NASD.

The offering price of the shares of Common Stock was determined based on the
closing bid price of the Common Stock on Nasdaq on the day immediately prior
to the date of this Prospectus. The terms of the Redeemable Warrants have been
determined by negotiation between the Company and the Underwriter and do not
necessarily bear any relation to established valuation criteria. Factors
considered in determining such terms, in addition to prevailing market
conditions, included an assessment of the prospects for the industry in which
the Company competes, the Company's management and the Company's capital
structure.

In August 1995, the Underwriter acted as the placement agent for the sale of
the Secured Notes and was paid commissions of $39,000.

In December 1995, the Underwriter acted as the placement agent for the sale
of 500,000 Bridge Warrants and was paid commissions of $650 plus 48,750 Bridge
Warrants, which Bridge Warrants have been surrendered by the Underwriter to
the Company without compensation therefor.

In March 1996, the Underwriter acted as the placement agent for the sale of
the Bridge Units and was paid commissions of $39,650 and received 30,000
Bridge Warrants, which Bridge Warrants have been surrendered by the
Underwriter to the Company without compensation therefor.

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DESCRIPTION OF SECURITIES

COMMON STOCK

The Company is authorized to issue 30,000,000 shares of Common Stock, par
value $.001 per share. The issued and outstanding shares of Common Stock are,
and the shares of Common Stock being offered hereby will be, when sold and
issued in accordance herewith, validly issued, fully paid and non-assessable.
The holders of outstanding shares of Common Stock are entitled to receive
dividends to the extent permitted by law out of assets legally available
therefor at such times and in such amounts as the Board of Directors may from
time to time determine. See "Description of Securities--Dividends."

All shares of Common Stock have one vote per share on all matters to be
voted upon by the stockholders. The by-laws of the Company do not provide for
cumulative voting in the election of directors. Thus, the holders of more than
50% of the outstanding shares of Common Stock can elect all of the directors
of the Company if they choose to do so.

The holders of Common Stock will have no preemptive, subscription,
conversion or redemption rights. Upon liquidation, dissolution or winding-up
of the Company, the holders of Common Stock are entitled to receive pro rata
the assets of the Company stockholders. As of December 4, 1996, there were 182
holders of record of the Company's Common Stock.

DIVIDENDS

All shares of Common Stock share equally in any dividends declared and paid
by the Company. The payment by the Company of dividends, if any, in the
future, rests within the discretion of its Board of Directors and will depend
upon, among other things, the Company's earnings, its capital requirements and
its financial condition, as well as other relevant factors. The Company has
not declared any cash dividends since its inception, and it has no present
intention of paying any cash dividends on its Common Stock in the foreseeable
future since it expects to use earnings, if any, to finance the Company's
growth.

REDEEMABLE WARRANTS

Each Redeemable Warrant entitles the registered holder to purchase one share
of Common Stock at an exercise price of $5.64, exercisable at any time during
the five year period beginning one year after the date hereof.

Unless extended by the Company, the Redeemable Warrants will expire at 5:00
p.m., St. Marys, West Virginia time, on the sixth anniversary of the date of
this Prospectus. In the event a holder of Redeemable Warrants fails to
exercise the Redeemable Warrants prior to their expiration, the Redeemable
Warrants will expire and the holder thereof will have no further rights with
respect to the Redeemable Warrants.

The Redeemable Warrants are redeemable by the Company at a price of $.10 per
Redeemable Warrant commencing one year after the date hereof if the closing
bid price of the Common Stock on the Nasdaq Small Cap Market exceeds 140% of
the public offering price for the 20 consecutive trading days preceding the
notice of redemption. Such notice shall be given not less than thirty days
prior to the redemption date. A holder of Redeemable Warrants may choose to
exercise the Redeemable Warrants during the thirty day notice period.

No Redeemable Warrants may be exercised unless at the time of exercise there
is a current prospectus covering the shares of Common Stock issuable upon
exercise of such Redeemable Warrants under an effective registration statement
filed with the Securities and Exchange Commission (the "Commission") and such
shares have been qualified for sale or are exempt from qualification under the
securities laws of the state of residence of the holder of such Redeemable
Warrants. Although the Company intends to have all shares of Common Stock so
qualified for sale in those states where the Securities are being offered and
to maintain a current prospectus relating to such shares until the expiration
of the Redeemable Warrants, there can be no assurance that it will be able to
so do.

A holder of Redeemable Warrants will not have any rights, privileges or
liabilities as a shareholder of the Company prior to exercise of the
Redeemable Warrants. The Company is required to keep available a sufficient
number of authorized shares of Common Stock to permit exercise of the
Redeemable Warrants.

The Bridge Warrants are not being registered under the Registration
Statement. The Bridge Warrants automatically will be converted upon the
effectiveness of the Registration Statement without any further action

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by, or cost to, the holders thereof. The Redeemable Warrants issued upon such
automatic conversion will in all respects be identical with the Redeemable
Warrants covered by this Prospectus. Such Redeemable Warrants, and the shares
of Common Stock underlying such Redeemable Warrants, are being registered
under the Registration Statement.

UNDERWRITER'S WARRANT

In connection with this Offering, the Company has agreed to sell to the
Underwriter, at a price of $10.00, the Underwriter's Warrant entitling the
holders thereof to purchase up to 58,537 shares of Common Stock and 120,000
Redeemable Warrants. The shares of Common Stock underlying the Underwriter's
Warrant may be purchased by holders of the Underwriter's Warrant at a price of
165% of the price set forth on the cover page of this Prospectus for the
Common Stock and the Redeemable Warrants underlying the Underwriters Warrant
may be exercised at a price of 165% of the exercise price of the Redeemable
Warrants offered hereby. The Underwriter's Warrant may be exercised during a
period of four years commencing one year from the date hereof, and they will
not be transferable during the life of the Underwriter's Warrant except to
underwriters and selected dealers and officers and partners thereof. Any
profit realized upon any resale of the Underwriter's Warrant or upon any sale
of the Securities underlying same may be deemed to be additional underwriter's
compensation. The Company has agreed to register (or file a post-effective
amendment with respect to any registration statement) registering the
Securities underlying the Underwriter's Warrant under the Act at the Company's
expense on one occasion upon the request of a majority of the holders thereof
for a period of four years commencing one year from the date hereof. See
"Underwriting."

BRIDGE WARRANTS

In December 1995 and March 1996 the Company issued an aggregate of 800,000
Bridge Warrants, 500,000 of which were issued in a private placement in
December 1995 at a price of $.01 per warrant, and 300,000 of which were issued
in March 1996 as part of the placement of Bridge Units and 78,750 were issued
to the Underwriter as part of the Underwriter's compensation for placing such
securities. The Underwriter has surrendered such Bridge Warrants without
compensation therefor. Each Bridge Warrant is exercisable for a period of 18
months from the date of issue, and entitles the holder thereof to purchase one
share of the Company's Common Stock for $.50. Each Bridge Warrant
automatically shall be converted into two Redeemable Warrants upon the
effectiveness of the Registration Statement without any further action by, or
cost to, the holders thereof. The Redeemable Warrants issuable upon such
automatic conversion will in all respects be identical with the Redeemable
Warrants covered by this Prospectus. Such Redeemable Warrants, and the shares
of Common Stock underlying such Warrants, are being registered under the
Registration Statement.

Upon automatic conversion of the Bridge Warrants into Redeemable Warrants,
the holders of such Redeemable Warrants may (i) not sell and/or exercise any
such Redeemable Warrants held by the Purchaser for a period of two (2) years
following the effectiveness of the Registration Statement without the prior
consent of the Company pursuant to the Company Lock-up, but which restriction
on sale and/or exercise immediately shall terminate upon the successful
completion of the Offering; and (ii) not sell any such Redeemable Warrants for
a period of one (1) year from the effective date of the Registration Statement
without the prior consent of the Underwriter pursuant to the Underwriter's
Lock-up. The Underwriter has agreed not to release the Underwriter's Lock-up
for a period of at least three months following the effective date of the
Registration Statement of which this Prospectus forms a part. After expiration
of such three month period, the Underwriter may permit sales of such
securities by such holders upon written request by such holders. The extent to
which such sales will be permitted will depend on the evaluation by the
Underwriter of a number of factors, including the trading volume of the
securities on the NASDAQ and the number of securities which such holders have
requested to sell as Selling Securityholders. In addition, prior to the
disposition and release of the Redeemable Warrants and shares of Common Stock
underlying the Redeemable Warrants by the Selling Securityholders (formerly
the holders of the Bridge Warrants), the NASD will be notified and approval
with regard to the transaction must be granted by the NASD.

DEBENTURES

Between March 1988 and December 1988, Apple Corp. issued $95,000 aggregate
face amount of the Debentures. The principal amounts of the Debentures were
due and payable on April 1, 1993. Interest on the

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aggregate outstanding principal amount of the Debentures accrues at the rate
of 12% per annum and is payable semi-annually on April 1 and October 1 of each
year. The Debentures are 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. Upon
payment in full of the Debentures, the conversion right shall cease. The
Company may prepay the Debentures at any time upon 30 days prior written
notice to the holders of the Debentures. The holders of the Debentures may
exercise their conversion right during such 30 day notice period. The
obligations evidenced by the Debentures were assumed by the Company upon its
merger with Apple Corp. in 1993. Between October 1995 and February 1996, the
holders of all of the Debentures converted such Debentures into 105,557 shares
of the Company's Common Stock. The Debentures were issued prior to the reverse
two for five share split of the Company's stock in September 1993. The number
of shares which were obtainable upon exercise of the conversion right in the
Debentures were subject to, among other things, a capital reorganization of
the Company. The reverse split accomplished such a capital reorganization. Had
the reverse split not occurred, the holders of the Debentures would have been
able to convert the full face amount of the Debentures into 105,557 shares of
Common Stock. After the reverse split, the maximum number of shares of Common
Stock into which the Debentures could have been converted would have been
reduced to 42,222. In consideration of the extension of the maturity date of
the Debentures by the holders thereof, the Company agreed to waive the
provisions of the Debentures which had the effect of reducing the number of
shares of Common Stock into which the Debentures could be converted. Holders
of the Debentures were thus able to convert the Debentures into shares of
Common Stock at the rate of $.90 principal amount of Debentures per share.

INDEMNIFICATION OF OFFICERS AND DIRECTORS

The Company's Articles of Incorporation provide that officers and directors
may be indemnified by the Company to the fullest extent permitted under Nevada
law. Pursuant to the provisions of the Nevada Revised Statutes ("NRS"), the
Company's Articles of Incorporation eliminate the personal liability of a
director or officer to the Company for monetary damages for breach of
fiduciary duty but do not eliminate the liability of officers and directors
for acts or omissions which involve intentional misconduct, fraud or a knowing
violation of law or the payment of improper distributions to stockholders.

NEVADA LAW--ANTI-TAKEOVER PROVISIONS

The Company is subject to Sections 78.438, 78.439 and 78.441 through 78.444,
inclusive, of the NRS which prevents an interested stockholder (defined
generally as a person owning 10% or more of a corporation's outstanding voting
stock) from engaging in a "business combination" with a publicly-held Nevada
corporation (i) for five years following the date such person became an
interested stockholder, unless the board of directors approves the transaction
before the date on which the interested stockholder became an interested
stockholder; or (ii) the business combination meets all of the requirements of
the Nevada corporation's articles of incorporation and is approved by either
(a) its board of directors before the date of acquisition of shares by the
interested stockholder or (b) its stockholders at a meeting held no earlier
than five years after the date of acquisition of shares by the interested
stockholder or (iii) the consideration to be received by the non-interested
stockholders is equal to the greater of the highest price paid by the
interested stockholder for shares of the Nevada corporation (a) at any time
during which the interested stockholder held direct or indirect ownership of
5% or more of the stock of the Nevada corporation or within five years and (b)
within five years immediately before, or in, the transaction in which he
became an interested stockholder, plus in either case, interest compounded
annually from the earliest date on which the highest price per share was paid
through the date of the consummation of the transaction at the rate for one-
year obligations of the United States Treasury from time to time in effect,
less the aggregate amount of dividends paid since such earliest date, but no
more may be subtracted than the amount of interest. A "business combination"
includes mergers, stock or asset sales and other transactions resulting in a
financial benefit to the interested stockholder.

The provisions of Sections 78.438, 78.439 and 78.441 through 78.444,
inclusive, of the NRS could have the effect of delaying, deferring or
preventing a change in control of the Company.

59
<PAGE>

TRANSFER AGENT AND WARRANT AGENT

The Transfer Agent for the Company's Common Stock and the Warrant Agent for
the Redeemable Warrants is Interstate Transfer Co., 56 West 400 South, Suite
260, Salt Lake City, Utah 84101.

REPORTS

The Company will distribute annual reports to its shareholders which will
include financial statements audited and reported on by independent
accountants, and will provide such other reports as management may deem
necessary or appropriate to keep stockholders informed of the Company's
operations.

SHARES ELIGIBLE FOR FUTURE SALE

Prior to this Offering, 3,238,677 shares of Common Stock were outstanding.
Upon completion of the Offering, the Company will have outstanding 3,824,043
shares of Common Stock (assuming that there is no exercise of the Redeemable
Warrants, Underwriter's Warrant or the Overallotment Option). All of the
shares of Common Stock sold in this Offering will be freely tradeable without
restriction or limitation under the Securities Act, except for any shares
purchased by any of the Company's "affiliates," as that term is defined under
the Securities Act. Of the remaining 3,238,677 shares, 2,407,148 shares are
"restricted" shares within the meaning of Rule 144 adopted under the Act (the
"Restricted Shares"). The Restricted Shares outstanding on the date hereof
were issued and sold by the Company in private transactions in reliance upon
exemptions from registration under the Act and may only be sold if they are
registered under the Act or unless an exemption from registration, such as an
exemption provided by Rule 144 under the Act, is available.

In general, under Rule 144 as currently in effect, any person (or persons
whose shares are aggregated), including an affiliate, who has beneficially
owned Restricted Shares for at least a two year period (as computed under Rule
144) is entitled to sell within any three month-period a number of shares that
does not exceed the greater of (i) 1% of the then outstanding shares of the
Common Stock (approximately 38,240 shares after giving effect to the Offering)
or (ii) the average weekly trading volume in the Company's Common Stock during
the four calendar weeks immediately preceding such sale.

Sales under Rule 144 are also subject to certain provisions relating to the
manner and notice of sale and availability of current public information about
the Company. A person (or persons whose shares are aggregated) who is not
deemed an affiliate of the Company at any time during the 90 days immediately
preceding a sale, and who has beneficially owned Restricted Shares for at
least a three-year period (as computed under Rule 144), would be entitled to
sell such shares under Rule 144(k) without regard to the volume limitation and
other conditions described above. As of the date hereof, the Company estimates
that 49,458 shares are eligible for resale pursuant to Rule 144(k).

The Offering is subject to the agreement by each of the Company's officers,
directors and principal shareholders that they will not sell any shares of
Common Stock owned by them for (a) a period of six months from the date hereof
without the consent of the Underwriter and every three months thereafter for
an additional 18 months Messrs. Bagley, Woodburn, Sims and Spencer and Black &
Company may sell in the aggregate a number of shares of Common Stock equal to
1% of the public float or (b) such other agreement with respect to the sale of
such Common Stock as may be required by state "Blue Sky" laws in order to
qualify the offering of the Securities in any such state; provided, however,
that such restriction on resale of shares of Common Stock shall not apply to
24,630 shares of Common Stock held by Black & Company. Such shares may be sold
at the discretion of Black & Company pursuant to the provisions of Rule 144
adopted under the Act. See "Underwriting."

Restricted Shares may be sold in reliance on Rule 144 by such persons who
are not affiliates subject only to the provisions of Rule 144 regarding manner
of sale, and by such persons who are affiliates without complying with the
Rule's holding period requirements. Such persons presently hold 280,978 shares
of Common Stock.

Rule 144 permits the immediate sale by current holders of Restricted Shares
of all or a portion of their shares to certain qualified institutional buyers
as defined in Rule 144A, subject to certain conditions thereof.

60
<PAGE>

In the event that Redeemable Warrants are exercised, including Redeemable
Warrants issued pursuant to conversion of Bridge Warrants, the shares of
Common Stock issuable upon such exercise would be immediately eligible for
resale.

Shares issuable upon exercise of Bridge Warrants which have not been
converted into Redeemable Warrants will be subject to the restrictions on
resale imposed by Rule 144.

Between October 1995 and February 1996, the holders of all of the Debentures
converted such Debentures into 105,557 shares of the Company's Common Stock.
The sale of such shares of Common Stock by the holders thereof is subject to
the provisions of Rule 144.

The Company also has outstanding warrants to purchase 50,000 shares of its
Common Stock at an exercise price of $2.25 per share in the name of John C.
Allen, which warrants may be exercised by Mr. Allen at any time between July
27, 1995 and July 27, 2000.

In the event the warrants held by Mr. Allen are exercised, the sale of the
underlying shares of Common Stock by the holders thereof will be subject to
the provisions of Rule 144.

In addition to the Redeemable Warrants offered hereby, the Company's Bridge
Warrants automatically will be converted into Redeemable Warrants upon the
effectiveness of the Registration Statement. Redeemable Warrants automatically
converted from Bridge Warrants held by the Selling Securityholders, and the
underlying shares of Common Stock, are being registered pursuant to the
Registration Statement. Subject to release of such Redeemable Warrants and
underlying shares of Common Stock from exercise and/or sale from the Company
Lock-up and the Underwriter's Lock-up, such Redeemable Warrants and underlying
shares of Common Stock will be eligible for immediate exercise and/or resale.

LEGAL MATTERS

The validity of the securities being offered hereby will be passed upon for
the Company by Kaufmann, Feiner, Yamin, Gilden & Robbins LLP, 777 Third
Avenue, New York, New York 10017. Certain legal matters will be reviewed for
the Underwriter by McLaughlin & Stern, LLP, 260 Madison Avenue, New York, New
York 10016.

EXPERTS

The consolidated financial statements of the Company and its subsidiaries as
of December 31, 1995 and 1994 and for the years then ended have been audited
by Jones, Jensen & Company, independent auditors, as set forth in their
reports thereon appearing elsewhere herein and in the Registration Statement,
and are included in reliance upon such reports given upon the authority of
such firm as experts in accounting and auditing.

The Summary Reserve Report of S.M. Deal & Associates, independent petroleum
engineers, containing estimates of proved oil and gas reserves and related
future net revenues and the present value thereof, set forth as Appendix A
hereto, and the estimates of proved gas and oil reserves and related future
net revenues and present value thereof as of July 1, 1995 included in this
Prospectus, have been derived from the reserve report of such firm and certain
engineering reports prepared by the Company and reviewed by such firm. All
such information has been so included herein in reliance upon the authority of
such firm as experts in such matters.

ADDITIONAL INFORMATION

The Company has filed with the Commission a Registration Statement with
respect to the securities offered by this Prospectus. This Prospectus omits
certain information contained in the Registration Statement as permitted by
the Rules and Regulations of the Securities and Exchange Commission. For
further information, reference is made to the Registration Statement and to
the Exhibits filed therewith, which may be examined without charge at the
Commission's principal office in Washington, D.C. and copies of all or any
part thereof may be obtained from the Commission upon payment of certain fees
prescribed by the Commission. Statements contained in this Prospectus as to
the contents of any contract or other document referred to are not complete
and where such contract or other document is an exhibit to the Registration
Statement, each such statement is deemed to be qualified in all respects by
the provisions of the exhibit.

61
<PAGE>

The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended, and in accordance therewith the Company
files reports proxy statements and other information with the Commission. Such
reports, proxies and other information may be inspected and copied at the
public reference facilities of the Commission at 450 Fifth Street, N.W.,
Washington, D.C 20549. Copies of such material, including the Registration
Statement, can be obtained from the Public Reference Section of the Commission
at 450 Fifth Street, N.W., Washington, D.C 20549, at prescribed rates.

The Company will furnish its stockholders with annual reports containing
audited financial statements and such other information as the Company deems
appropriate or as may be required by law.

62
<PAGE>

TRANS ENERGY, INC.

CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 1995 AND 1994

F-1
<PAGE>

CONTENTS

<TABLE>
<S> <C>
Independent Auditors' Report................................................ F-3
Consolidated Balance Sheet.................................................. F-4
Consolidated Statements of Operations....................................... F-5
Consolidated Statements of Stockholders' Equity............................. F-6
Consolidated Statements of Cash Flows....................................... F-7
Notes to the Consolidated Financial Statements.............................. F-8
</TABLE>

F-2
<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.

/s/ Jones, Jensen & Company

Jones, Jensen & Company

Salt Lake City, Utah

December 16, 1996

F-3
<PAGE>

TRANS ENERGY, INC.

CONSOLIDATED BALANCE SHEET

ASSETS

<TABLE>
<CAPTION>
DECEMBER 31,
1995
------------
(RESTATED)
<S> <C>
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............................................ 108,187
Loan--related party (Note 6)...................................... 14,899
-----------
Total Other Assets.............................................. 1,176,454
-----------
TOTAL ASSETS.................................................... $ 6,705,278
===========

LIABILITIES AND STOCKHOLDERS' EQUITY

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
===========
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-4
<PAGE>

TRANS ENERGY, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
------------------------
1995 1994
----------- -----------
(RESTATED)
<S> <C> <C>
OIL AND GAS SALES................................... $ 2,828,162 $ 2,926,735
COSTS AND EXPENSES
Cost of oil and gas produced....................... 2,392,907 2,309,448
Salaries and wages................................. 178,558 109,003
Depreciation and depletion......................... 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)
=========== ===========
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-5
<PAGE>

TRANS ENERGY, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(RESTATED)

<TABLE>
<CAPTION>
COMMON SHARES CAPITAL IN
---------------- EXCESS OF ACCUMULATED
SHARES AMOUNT PAR VALUE DEFICIT
--------- ------ ---------- ----------- --- ---
<S> <C> <C> <C> <C> <C> <C>
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 serv-
ices at $1.50 per share..... 100,000 100 149,900 --
Common stock issued on con-
version 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)
========= ====== ========== ===========
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-6
<PAGE>

TRANS ENERGY, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
----------------------
1995 1994
----------- ---------
(RESTATED)
<S> <C> <C>
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)
----------- ---------
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 assump-
tion of debt......................................... $ 880,000 $ --
Conversion of debentures to equity.................... $ 45,000 $ --
Common Stock warrants................................. $ 1,340,000 $ --
Extension of debentures............................... $ 202,032 --
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-7
<PAGE>

TRANS ENERGY, INC.

NOTES TO THE CONSOLODATED 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.

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.

F-8
<PAGE>

TRANS ENERGY, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

DECEMBER 31, 1995 AND 1994

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 $1,553,232. Primary
and fully diluted loss per share for the year ended December 31, 1995
increased 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.

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.

F-9
<PAGE>

TRANS ENERGY, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

DECEMBER 31, 1995 AND 1994

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 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.

F-10
<PAGE>

TRANS ENERGY, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

DECEMBER 31, 1995 AND 1994

NOTE 3--LONG-TERM DEBT

The Company had the following debt obligations at December 31, 1995:

<TABLE>
<CAPTION>
DECEMBER 31,
1995
------------
<S> <C>
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
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
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
----------
Balance forward................................................ $1,660,999
----------
</TABLE>

F-11
<PAGE>

TRANS ENERGY, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

DECEMBER 31, 1995 AND 1994

<TABLE>
<CAPTION>
DECEMBER 31,
1995
------------
<S> <C>
Balance forward.................................................. $ 1,660,999
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
===========
</TABLE>

<TABLE>
<CAPTION>
SCHEDULE OF MATURITIES
- ----------------------
<S> <C>
1996.............................................................. $ 554,540
1997.............................................................. 954,785
1998.............................................................. 160,735
1999.............................................................. 143,938
2000 and thereafter............................................... 955,464
-----------
Total........................................................... $ 2,769,462
===========
</TABLE>

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

F-12
<PAGE>

TRANS ENERGY, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

DECEMBER 31, 1995 AND 1994

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.

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.

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 Bridge 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

F-13
<PAGE>

TRANS ENERGY, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

DECEMBER 31, 1995 AND 1994

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.

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 financing of Bridge Units
composed of $600,000 of Unsecured Notes and 300,000 Bridge Warrants. Of the
$600,000 in Unsecured Notes, $270,000 of the previously secured note holders
converted to holders of Unsecured Notes. Under the terms of the Unsecured
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. The Bridge Warrants issued as part of such financing 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. In addition, the Company issued 30,000
Bridge Warrants to the Underwriter for acting as placement agent for such
financing. The Underwriter has returned such 30,000 Bridge Warrants to the
Company for no consideration.

F-14
<PAGE>

TRANS ENERGY, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

DECEMBER 31, 1995 AND 1994

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.

<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1995
---------------------------------------------------
VULCAN TRANS
ENERGY ENERGY AND PROFORMA
CORPORATION SUBSIDIARIES ADJUSTMENTS COMBINED
----------- ------------ ----------- ------------
(RESTATED) (RESTATED)
<S> <C> <C> <C> <C>
OIL AND GAS SALES........ $1,622,955 $ 2,828,162 $ -- $ 4,451,117
COST AND EXPENSES
Cost of oil and gas
produced............... 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 Ex-
penses................ 1,707,551 4,633,495 105,500 6,446,546
---------- ------------ --------- ------------
INCOME (LOSS) FROM OPERA-
TIONS................... (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 (Ex-
pense)................ 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)
========== ============ ========= ============
</TABLE>

F-15
<PAGE>

TRANS ENERGY, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

DECEMBER 31, 1995 AND 1994

<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1994
------------------------------------------------
VULCAN TRANS
ENERGY ENERGY AND PROFORMA
CORPORATION SUBSIDIARIES ADJUSTMENTS COMBINED
----------- ------------ ----------- ----------
<S> <C> <C> <C> <C>
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
Selling, general and admin-
istrative.................. 134,403 246,962 -- 381,365
Salaries and wages.......... 296,059 109,003 -- 405,062
Depreciation, depletion and
amortization............... 22,018 179,308 158,250 359,576
---------- ---------- --------- ----------
Total Costs and Expenses.. 3,704,996 2,844,721 158,250 6,707,967
---------- ---------- --------- ----------
INCOME (LOSS) FROM OPERA-
TIONS...................... (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 as-
sets....................... -- 1,000 -- 1,000
Bad debt expense............ (1,000) -- -- (1,000)
---------- ---------- --------- ----------
Total Other Income (Ex-
pense)................... 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)
========== ========== ========= ==========
</TABLE>

F-16
<PAGE>

TRANS ENERGY, INC.

S.F.A.S. 69 SUPPLEMENTAL DISCLOSURES

DECEMBER 31, 1995 AND 1994
(UNAUDITED)

(1) CAPITALIZED COSTS RELATING TO OIL AND GAS PRODUCING ACTIVITIES

<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1995 1994
---------- ----------
<S> <C> <C>
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
========== ==========
</TABLE>

(2) COSTS INCURRED IN OIL AND GAS PROPERTY ACQUISITION, EXPLORATION, AND
DEVELOPMENT ACTIVITIES

<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
-------------------
1995 1994
--------- ---------
<S> <C> <C>
Acquisition of Properties
Proved................................................ $ -- $ --
Unproved.............................................. 100,000 287,000
Exploration Costs....................................... -- --
Development Costs....................................... -- --
</TABLE>

The Company does not have any investments accounted for by the equity method.

(3) RESULTS OF OPERATIONS FOR PRODUCING ACTIVITIES

<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
---------------------
1995 1994
---------- ---------
<S> <C> <C>
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
========== =========
</TABLE>

(4) RESERVE QUANTITY INFORMATION

<TABLE>
<CAPTION>
OIL GAS
BBL MCF
------- ---------
<S> <C> <C>
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
======= =========
</TABLE>

F-17
<PAGE>

TRANS ENERGY, INC.

S.F.A.S. 69 SUPPLEMENTAL DISCLOSURES--(CONTINUED)

DECEMBER 31, 1995 AND 1994
(UNAUDITED)

<TABLE>
<CAPTION>
OIL GAS
BBL MCF
------- ---------
<S> <C> <C>
Proved developed reserves:
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
</TABLE>

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

<TABLE>
<CAPTION>
TRANS ENERGY
AND
SUBSIDIARIES
------------
<S> <C>
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
===========
</TABLE>

AT DECEMBER 31, 1994

<TABLE>
<CAPTION>
TRANS ENERGY
AND
SUBSIDIARIES
------------
<S> <C>
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
===========
</TABLE>

Future income taxes were determined by applying the statutory income tax
rate to future pre-tax net cash flow relating to proved reserves.

F-18
<PAGE>

TRANS ENERGY, INC.

S.F.A.S. 69 SUPPLEMENTAL DISCLOSURES--(CONTINUED)

DECEMBER 31, 1995 AND 1994
(UNAUDITED)

The following schedule summarizes changes in the standardized measure of
discounted future net cash flow relating to proved oil and gas reserves:

<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
----------------------
1995 1994
---------- ----------
<S> <C> <C>
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
========== ==========
</TABLE>

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 S. M. Deal & Associates, independent
petroleum engineers, 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

<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1995 1994
---------- ----------
(RESTATED)
<S> <C> <C>
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)
</TABLE>

F-19
<PAGE>

VULCAN ENERGY CORPORATION

FINANCIAL STATEMENTS

JULY 31, 1995 AND DECEMBER 31, 1994

F-20
<PAGE>

CONTENTS

<TABLE>
<S> <C>
Independent Auditors' Report............................................... F-22
Balance Sheets............................................................. F-23
Statements of Operations................................................... F-24
Statements of Stockholders' Equity (Deficit)............................... F-25
Statements of Cash Flows................................................... F-26
Notes to the Financial Statements.......................................... F-27
</TABLE>

F-21
<PAGE>

INDEPENDENT AUDITORS' REPORT

Board of Directors
Vulcan Energy Corporation
Somerset, Texas

We have audited the accompanying balance sheets of Vulcan Energy Corporation
as of July 31, 1995 and December 31, 1994 and the related statements of
operations, stockholders' equity (deficit), and cash flows for the seven
months ended July 31, 1995 and for the year ended December 31, 1994. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Vulcan Energy Corporation
as of July 31, 1995 and December 31, 1994 and the results of its operations
and its cash flows for the seven months ended July 31, 1995 and for the year
ended December 31, 1994 in conformity with generally accepted accounting
principles.

Jones, Jensen & Company
Salt Lake City, Utah

October 18, 1995

F-22
<PAGE>

VULCAN ENERGY CORPORATION

BALANCE SHEETS

<TABLE>
<CAPTION>
JULY 31, DECEMBER 31,
1995 1994
--------- ------------
<S> <C> <C>
ASSETS
------
CURRENT ASSETS
Accounts receivable.................................... $ 192,002 $ 226,277
--------- ---------
Total Current Assets................................. 192,002 226,277
--------- ---------
FIXED ASSETS (Note 2).................................. 38,288 49,908
--------- ---------
OTHER ASSETS
Loan--related party (Note 4)........................... 4,500 1,500
--------- ---------
Total Other Assets................................... 4,500 1,500
--------- ---------
TOTAL ASSETS....................................... $ 234,790 $ 277,685
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
----------------------------------------------
CURRENT LIABILITIES
Cash overdraft......................................... $ 16,395 $ 7,112
Accounts payable....................................... 264,231 304,349
Accrued expenses....................................... 5,119 9,520
Loan payable (Note 3).................................. 283,666 209,891
Current portion long-term debt (Note 3)................ 6,321 6,314
--------- ---------
Total Current Liabilities............................ 575,732 537,186
--------- ---------
LONG-TERM LIABILITIES
Notes payable (Note 3)................................. 15,477 19,198
--------- ---------
Total Long-Term Liabilities.......................... 15,477 19,198
--------- ---------
Total Liabilities.................................... 591,209 556,384
--------- ---------
COMMITMENTS AND CONTINGENCIES (Note 5)................. -- --
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock authorized 100,000 common shares at $1.00
par value; 20,000 shares issued and outstanding....... 20,000 20,000
Accumulated deficit.................................... (376,419) (298,699)
--------- ---------
Total Stockholders' Equity (Deficit)................. (356,419) (278,699)
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT)......................................... $ 234,790 $ 277,685
========= =========
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-23
<PAGE>

VULCAN ENERGY CORPORATION

STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
FOR THE SEVEN FOR THE
MONTHS ENDED YEAR ENDED
JULY 31, DECEMBER 31,
1995 1994
------------- ------------
<S> <C> <C>
REVENUE
Sales............................................. $1,622,955 $3,527,070
Other............................................. 697 28,770
---------- ----------
Total Income.................................... 1,623,652 3,555,840
COST OF SALES....................................... 1,493,811 3,252,516
---------- ----------
Gross Profit...................................... 129,841 303,324
---------- ----------
EXPENSES
Depreciation...................................... 11,303 22,018
Salaries and wages................................ 142,444 296,059
General and administrative........................ 59,993 134,403
---------- ----------
Total Expenses.................................. 213,740 452,480
---------- ----------
Operating (Loss)................................ (83,899) (149,156)
---------- ----------
OTHER INCOME (EXPENSES)
Bad debt expense.................................. (500) (1,000)
Interest expense.................................. (1,004) (1,659)
Gain on sale of fixed assets...................... 7,683 --
---------- ----------
Total Other Income and (Expenses)............... 6,179 (2,659)
---------- ----------
LOSS BEFORE INCOME TAXES............................ (77,720) (151,815)
PROVISION FOR INCOME TAXES.......................... -- --
---------- ----------
NET (LOSS).......................................... $ (77,720) $ (151,815)
========== ==========
NET LOSS PER SHARE.................................. $ (3.89) $ (7.59)
========== ==========
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-24
<PAGE>

VULCAN ENERGY CORPORATION

STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)

<TABLE>
<CAPTION>
COMMON SHARES
-------------- ACCUMULATED
SHARES AMOUNT DEFICIT
------ ------- -----------
<S> <C> <C> <C>
Balance, December 31, 1993.......................... 20,000 $20,000 $(146,884)
Net loss for the year ended December 31, 1994....... -- -- (151,815)
------ ------- ---------
Balance, December 31, 1994.......................... 20,000 20,000 (298,699)
Net loss for the seven months ended July 31, 1995... -- -- (77,720)
------ ------- ---------
Balance, July 31, 1995.............................. 20,000 $20,000 $(376,419)
====== ======= =========
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-25
<PAGE>

VULCAN ENERGY CORPORATION

STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
FOR THE SEVEN FOR THE
MONTHS ENDED YEAR ENDED
JULY 31, DECEMBER 31,
1995 1994
------------- ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss).................................. $ (77,720) $ (151,815)
Adjustments to reconcile net loss to cash provided
by operating activities:
Depreciation..................................... 11,303 22,018
Allowance for bad debts.......................... 500 1,000
Gain on disposal of fixed assets................. (7,683) --
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable....... 34,275 (69,880)
Increase (decrease) in accounts payable.......... (40,118) 120,490
Increase (decrease) in accrued expenses.......... (4,401) (150)
----------- -----------
Net Cash Provided (Used) by Operating
Activities.................................... (83,844) (78,337)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Loan receivable related party...................... (3,500) (2,500)
Cash received from sale of fixed assets............ 8,000 --
Purchase of fixed assets........................... -- (2,000)
----------- -----------
Net Cash Provided (Used) by Investing
Activities.................................... 4,500 (4,500)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Note payments...................................... (3,714) (2,496)
Loan advances...................................... 2,275,256 2,553,013
Payment on loan advances........................... (2,192,198) (2,467,680)
----------- -----------
Net Cash Provided (Used) by Financing
Activities.................................... 79,344 82,837
----------- -----------
NET INCREASE (DECREASE) IN CASH.................... -- --
CASH AT BEGINNING OF PERIOD........................ -- --
----------- -----------
CASH AT END OF PERIOD.............................. $ -- $ --
=========== ===========
CASH PAID DURING THE YEAR FOR:
Interest......................................... $ 1,004 $ 1,659
Income taxes..................................... $ -- $ --
NON CASH FINANCING ACTIVITIES:
Purchase of vehicles under contract................ $ -- $ 28,003
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-26
<PAGE>

VULCAN ENERGY CORPORATION

NOTES TO THE FINANCIAL STATEMENTS

JULY 31, 1995 AND DECEMBER 31, 1994

NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

a. Organization

The Company was incorporated on February 25, 1986 in the state of Texas. The
Company was incorporated for the purpose of buying, selling and marketing of
hydrocarbons and hydrocarbon byproducts.

b. Accounting Method

The Company's financial statements are prepared using the accrual method of
accounting.

c. Provision for Taxes

At July 31, 1995, the Company has net operating loss carryforwards of
approximately $215,000 that may be offset against future taxable income
through 2010. No tax benefit has been reported in the 1995 financial
statements, because the Company believes there is a 50% or greater chance the
carryforward will expire unused. Accordingly, the potential tax benefits of
the loss carryforwards will be offset by a valuation allowance of the same
amount.

d. Cash Equivalents

The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.

e. Fixed Assets

Fixed assets are stated at cost. Depreciation is computed using modified
cost recovery system over the estimated useful lives of the related assets,
ranging from five to ten years.

f. Accounts Receivable

Accounts receivable are shown net of the allowance for doubtful accounts.
This amount was determined to be $2,000 and $2,000 at July 31, 1995 and
December 31, 1994, respectively.

NOTE 2--FIXED ASSETS

Fixed assets at July 31, 1995 and December 31, 1994 consisted of the
following:

<TABLE>
<CAPTION>
JULY 31, DECEMBER 31,
1995 1994
--------- ------------
<S> <C> <C>
Storage tanks and piping........................... $ 11,451 $ 18,639
Vehicles........................................... 147,574 147,574
Equipment.......................................... 44,538 44,538
Office equipment................................... 6,194 6,194
Less accumulated depreciation...................... (171,469) (167,037)
--------- ---------
$ 38,288 $ 49,908
========= =========
</TABLE>

Depreciation expense amounted to $11,303 and $22,018 for the seven months
ended July 31, 1995 and for the year ended December 31, 1994, respectively.

F-27
<PAGE>

VULCAN ENERGY CORPORATION

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

JULY 31, 1995 AND DECEMBER 31, 1994

NOTE 3--NOTES AND LOANS PAYABLE

The Company has the following obligations at July 31, 1995 and December 31,
1994:

<TABLE>
<CAPTION>
JULY 31, DECEMBER 31,
1995 1994
--------- ------------
<S> <C> <C>
Loan payable, Cardinalis Petroleum Cardinalis,
each months advance is required to be repaid on
the 20th of the following month, non-interest
bearing and secured by oil purchases. $ 283,666 $ 209,891
Note payable GMAC Finance, secured by vehicle,
interest and principal payments of $428 due
monthly at 9.0% interest beginning August 1994
through August 1997............................ 13,576 15,828
Note payable GMAC Finance, secured by vehicle,
interest and principal payments of $246 due
monthly at 9% interest beginning August 1994
through August 1997............................ 8,222 9,684
--------- ---------
305,464 235,403
Less current portion............................ (6,321) (6,314)
Less loan payable............................... (283,666) (209,891)
--------- ---------
Total Long-Term Liabilities..................... $ 15,477 $ 19,198
========= =========
</TABLE>

Future principal payments are as follows:

<TABLE>
<S> <C>
1996........................................................... $289,987
1997........................................................... 7,109
1998........................................................... 8,368
--------
Total.......................................................... $305,464
========
</TABLE>

NOTE 4--RELATED PARTY TRANSACTIONS

From time to time the Company has loaned funds to officers and employees of
the Company. Total amount due was $12,200 and $7,700 at July 31, 1995 and
December 31, 1994, respectively. These amounts are due on demand, non-interest
bearing and unsecured. The Company has recorded an allowance for doubtful
accounts of $7,700 at July 31, 1995 and December 31, 1994.

NOTE 5--COMMITMENTS AND CONTINGENCIES

A cash escrow account has been established for undelivered oil royalty
payments. The Company deposits funds into the account when they are unable to
obtain a correct address to mail undelivered payments or when a new division
order must be obtained before funds can be disbursed. The former owner of the
Company borrowed funds from this account and the Company may have a contingent
liability for the repayment of these borrowed funds.

F-28
<PAGE>

VULCAN ENERGY CORPORATION

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

JULY 31, 1995 AND DECEMBER 31, 1994

The Company has entered into a lease agreement for two tandem axle
conventional, non-sleeper tractor trailer trucks. The two leases expire
November 2, 1997 and January 3, 1998, with lease payments totaling
approximately $5,200 per month depending on the number of miles driven. The
following minimum lease payments are based on estimated miles of 90,000 and
85,000 per year, per truck.

<TABLE>
<S> <C>
1996........................................................... $ 62,400
1997........................................................... 62,400
1998........................................................... 20,800
--------
Total........................................................ $145,600
========
</TABLE>

NOTE 6--MAJOR CUSTOMER

During the seven months ended July 31, 1995 and the year ended December 31,
1994, the Company has relied upon one customer for a majority of its business.
The approximate percentages of total revenues from the customer were 87% and
67% at July 31, 1995 and December 31, 1994, respectively.

NOTE 7--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 from 1992 through July 31,
1995. Revenues have not been sufficiently established to cover its operating
costs and to allow it to continue as a going concern. Trans Energy, Inc.
having recently purchased an 80% equity ownership of Vulcan Energy
Corporation, has replaced management and recapitalized the Company with a
$200,000 working capital infusion. Trans Energy, Inc. 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 $3,000,000. Trans Energy, Inc. believes that
with the change in management, the infusion of working capital, and the
proceeds from the public offering that the Company will become a significant
going concern. (See Note 8)

NOTE 8--SUBSEQUENT EVENTS

On July 26, 1995 Petrol Marketing Corporation ("PMC") entered into an
Agreement for the Sale of Corporate Stock with Ross O. Forbus, the sole
officer and shareholder of Vulcan Energy Corporation. The total purchase price
was set at $650,000 with $100,000 due at closing and the balance of $550,000
due over ten years in equal monthly installments at 7.5% interest. In
addition, PMC was to pay off the major indebtedness of Vulcan in the
approximate amount of $300,000.

Prior to closing, PMC sold all of its right, title and interest in and to
the Agreement for Sale of Corporate Stock to Trans Energy, Inc. for
consideration consisting of 1) $150,000, 2) 20% of the outstanding stock of
Vulcan Energy Corporation, 3) a ten year management agreement for PMC to
manage Vulcan for $252,000 per year, 4) a 20% net profits interest in Vulcan
before taxes, less twenty percent (20%) of the principal paid on that certain
promissory note to Ross Forbus in the original amount of $550,000.

Trans Energy, Inc. closed the stock purchase transaction with Ross O. Forbus
on August 7, 1995 by its terms and conditions. Trans Energy, Inc. has supplied
$200,000 in operating capital to Vulcan since the closing.

Trans Energy, Inc., the 80% parent of Vulcan Energy Corporation, signed a
letter of intent with L.B. Saks, a New York investment firm on October 5, 1995
to underwrite a public stock offering to raise a minimum of $3,000,000.

F-29
<PAGE>

TRANS ENERGY, INC.

UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 1995 AND 1996

CONTENTS

<TABLE>
<S> <C>
Consolidated Balance Sheets................................................ F-31
Consolidated Statements of Operations...................................... F-32
Consolidated Statements of Stockholders' Equity............................ F-33
Consolidated Statements of Cash Flows...................................... F-34
Notes to the Consolidated Financial Statements............................. F-35
</TABLE>

F-30
<PAGE>

TRANS ENERGY, INC.

CONSOLIDATED BALANCE SHEETS

ASSETS

(RESTATED)

<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1995 1996
------------ -------------
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS
Cash............................................... $ -- $ 151,939
Accounts receivable--trade (Note 1)................ 328,012 305,573
Inventory (Note 1)................................. 15,956 6,605
----------- -----------
Total Current Assets............................. 343,968 464,117
----------- -----------
FIXED ASSETS (Note 2)
Land............................................... 35,000 35,000
Building........................................... 65,000 65,000
Vehicles........................................... 113,244 141,010
Machinery and equipment............................ 588,493 617,322
Pipeline........................................... 2,107,740 2,107,740
Well equipment..................................... 290,972 290,972
Wells.............................................. 3,178,916 3,204,829
Leasehold acreage.................................. 263,500 263,500
Accumulated depreciation........................... (1,458,009) (1,608,426)
----------- -----------
Total Fixed Assets............................... 5,184,856 5,116,947
----------- -----------
OTHER ASSETS
Deferred stock offering costs (Note 1)............. 275,000 71,091
Goodwill, net (Note 1)............................. 728,013 581,806
Deposits........................................... 355 491
Bond (Note 4)...................................... 50,000 50,000
Loan acquisition costs............................. 108,187 387,000
Loan--related party (Note 6)....................... 14,899 1,340
----------- -----------
Total Other Assets............................... 1,176,454 1,091,728
----------- -----------
TOTAL ASSETS..................................... $ 6,705,278 $ 6,672,792
=========== ===========

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES
Accounts payable--trade............................ $ 521,438 $ 902,976
Interest payable................................... 58,981 45,624
Accrued expenses................................... 71,231 121,459
Long-term debt--current portion (Note 3)........... 554,540 1,040,169
----------- -----------
Total Current Liabilities........................ 1,206,190 2,110,228
----------- -----------
LONG-TERM LIABILITIES
Loans payable--related parties (Note 6)............ 683,586 633,722
Notes payable (Note 3)............................. 2,214,922 1,886,947
----------- -----------
Total Long-Term Liabilities...................... 2,898,508 2,520,669
----------- -----------
Total Liabilities................................ 4,104,698 4,630,897
----------- -----------
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 and 3,238,677 shares
issued and outstanding, respectively 3,174 3,239
Capital in excess of par value..................... 5,629,734 6,452,669
Accumulated deficit................................ (3,071,721) (4,414,013)
----------- -----------
Total Stockholders' Equity....................... 2,561,187 2,041,895
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY....... $ 6,705,278 $ 6,672,792
=========== ===========
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-31
<PAGE>

TRANS ENERGY, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
----------------------- ------------------------
1995 1996 1995 1996
----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
(RESTATED) (RESTATED)
<S> <C> <C> <C> <C>
REVENUES
Oil and gas sales.......... $ 825,380 $1,895,025 $2,082,597 $ 4,202,029
Other...................... -- 1,474 347 1,474
--------- ---------- ---------- -----------
Total Revenues........... 825,380 1,896,499 2,082,944 4,203,503
--------- ---------- ---------- -----------
COSTS AND EXPENSES
Cost of oil and gas pro-
duced..................... 672,551 1,962,691 1,558,484 3,786,826
Salaries and wages......... 50,742 27,598 211,828 102,995
Depreciation and deple-
tion...................... 44,379 99,944 135,505 293,450
Selling, general and admin-
istrative................. 144,615 204,493 346,165 660,221
--------- ---------- ---------- -----------
Total Costs and Ex-
penses.................. 912,287 2,294,726 2,251,982 4,843,492
--------- ---------- ---------- -----------
Net Income (Loss) from
Operations.............. (86,907) (398,227) (169,038) (639,989)
--------- ---------- ---------- -----------
OTHER INCOME (EXPENSE)
Interest................... (60,870) (295,546) (130,790) (751,252)
--------- ---------- ---------- -----------
Total Other Income (Ex-
pense).................. (60,870) (295,546) (130,790) (751,252)
--------- ---------- ---------- -----------
NET INCOME (LOSS) BEFORE
INCOME TAXES
AND MINORITY INTERESTS AND
EXTRAORDINARY INCOME...... (147,777) (693,773) (299,828) (1,391,241)
--------- ---------- ---------- -----------
INCOME TAXES............... -- -- -- --
--------- ---------- ---------- -----------
NET INCOME (LOSS) BEFORE
MINORITY INTERESTS AND
EXTRAORDINARY INCOME...... (147,777) (693,773) (299,828) (1,391,241)
MINORITY INTERESTS......... 10,187 (38) (9,552) 39,393
--------- ---------- ---------- -----------
NET INCOME (LOSS) BEFORE
EXTRAORDINARY INCOME
(LOSS).................... (137,590) (693,811) (309,380) (1,351,848)
EXTRAORDINARY INCOME (LOSS)
Forgiveness of debt....... -- -- -- 20,000
Early payoff of debt...... -- -- -- (10,444)
--------- ---------- ---------- -----------
TOTAL EXTRAORDINARY INCOME
(LOSS).................... -- -- -- 9,556
--------- ---------- ---------- -----------
NET INCOME (LOSS).......... $(137,590) $ (693,811) $ (309,380) $(1,342,292)
========= ========== ========== ===========
PRIMARY EARNINGS (LOSS) PER
SHARE.....................
NET INCOME (LOSS) BEFORE
EXTRAORDINARY INCOME...... (0.04) (0.21) (0.09) (0.42)
EXTRAORDINARY INCOME
(LOSS).................... $ -- $ -- $ -- $ NIL
NET INCOME (LOSS).......... $ (0.04) $ (0.21) $ (0.09) $ (0.42)
FULLY DILUTED EARNINGS
(LOSS) PER SHARE..........
NET INCOME (LOSS) BEFORE
EXTRAORDINARY INCOME...... $ (0.04) $ (0.21) $ (0.09) $ (0.42)
EXTRAORDINARY INCOME
(LOSS).................... $ -- $ -- $ -- $ NIL
NET INCOME (LOSS).......... $ (0.04) $ (0.21) $ (0.09) $ (0.42)
</TABLE>

The accompanying notes are in integral part of these financial statements.

F-32
<PAGE>

TRANS ENERGY, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(RESTATED)

<TABLE>
<CAPTION>
COMMON SHARES CAPITAL IN
---------------- EXCESS OF ACCUMULATED
SHARES AMOUNT PAR VALUE DEFICIT
--------- ------ ---------- -----------
<S> <C> <C> <C> <C>
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)
Common stock issued for debenture
(Unaudited)........................ 55,555 56 49,944 --
Common stock issued for services
(Unaudited)........................ 9,000 9 23,991 --
Common stock warrants issued (Note
8) (Unaudited)..................... -- -- 774,000 --
Cancellation of stock options issued
for services
(Note 8) (Unaudited)............... -- -- (275,000) --
Shareholders' loans contributed to
capital (Unaudited)................ -- -- 250,000 --
Net loss for the nine months ended
September 30, 1996 (Unaudited)..... -- -- -- (1,342,292)
--------- ------ ---------- -----------
Balance, September 30, 1996
(Unaudited)........................ 3,238,677 $3,239 $6,452,669 $(4,414,013)
========= ====== ========== ===========
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-33
<PAGE>

TRANS ENERGY, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
----------------------- ------------------------
1995 1996 1995 1996
----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
(RESTATED) (RESTATED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income (loss)............. $(137,590) $(693,811) $ (384,380) $(1,342,292)
Adjustments to Reconcile
Net Income to Cash
Provided by Operating
Activities:
Depreciation, depletion... 44,379 64,765 135,505 371,129
Minority interest......... (10,187) 38 9,552 (39,393)
Common stock issued for
services................. -- -- 150,000 24,000
Changes in Operating Assets
and Liabilities:
Decrease (increase) in
accounts receivable........ 188,841 35,440 220,553 22,439
Decrease (increase) in
inventory.................. -- 323,910 -- 9,351
Decrease (increase) in
deposits................... -- -- 23 (136)
Decrease (increase) in loan
acquisition costs.......... (37,638) 193,500 (36,712) 367,587
Increase (decrease) in
accounts payable and
accrued expenses........... (271,406) 307,401 (328,806) 484,862
Increase (decrease) in
interest payable........... 4,706 9,464 18,428 (13,357)
--------- --------- ---------- -----------
Cash Provided (Used) by
Operating Activities... (218,895) 240,707 (215,837) (115,810)
--------- --------- ---------- -----------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchase of subsidiary........ (450,000) -- (450,000) --
Increase in notes receivable.. (2,870) -- (5,451) --
Expenditures for property and
equipment.................... (522,456) (44,169) (573,766) (82,508)
--------- --------- ---------- -----------
Cash Provided (Used) by
Investing Activities... (975,326) (44,169) (1,029,217) (82,508)
--------- --------- ---------- -----------
CASH FLOWS FROM FINANCING AC-
TIVITIES:
Payment of deferred stock of-
fering costs................. (75,000) (31,591) (75,000) (71,091)
Borrowings of long-term debt.. 1,303,052 -- 1,420,622 551,309
Loans to related parties...... -- (1,313) -- 13,559
Borrowings from related par-
ties......................... -- 111,820 -- 200,135
Principal payments on long-
term debt.................... -- (142,550) (72,372) (343,655)
--------- --------- ---------- -----------
Cash Provided (Used) by
Financing Activities... 1,228,052 (63,634) 1,273,250 350,257
--------- --------- ---------- -----------
NET INCREASE (DECREASE) IN
CASH......................... 33,831 132,904 28,196 151,939
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD.......... 1,468 19,035 7,103 --
--------- --------- ---------- -----------
CASH AND CASH EQUIVALENTS, END
OF PERIOD.................... $ 35,299 $ 151,939 $ 35,299 $ 151,939
========= ========= ========== ===========
CASH PAID FOR:
Interest...................... $ 60,870 $ 92,582 $ 125,090 $ 260,938
Income taxes.................. $ -- $ -- $ -- $ --
NON-CASH FINANCING ACTIVITIES:
Common stock issued for serv-
ices......................... $ -- $ -- $ 150,000 $ 24,000
Conversion of debentures to
equity....................... $ -- $ -- $ -- $ 50,000
Warrants issued for loan ac-
quisition costs.............. $ -- $ -- $ -- $ 774,000
Shareholder loans contributed
to capital................... $ -- $ 250,000 $ -- $ 250,000
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-34
<PAGE>

TRANS ENERGY, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 1995 AND SEPTEMBER 30, 1996

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.

b. Accounting Method

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.

F-35
<PAGE>

TRANS ENERGY, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

DECEMBER 31, 1995 AND SEPTEMBER 30, 1996

c. Prior Period Adjustments

The results of operations for the three and nine months ended September 30,
1996 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 and the valuation of Bridge Warrants
issued in March, 1996. The effect of the related adjustments increased net
loss before extraordinary items by $158,321 and $579,783 for the three and
nine months ended September 30, 1996, respectively. Primary and fully diluted
loss per share for the three and nine months ended September 30, 1996 both
increased before and after extraordinary income (loss) by $(0.04) and $(0.18)
per share, respectively, as a result of the related adjustments. The effect of
the adjustments on primary and fully diluted income (loss) per share for
extraordinary income (loss) was negligible for the three and nine month
periods ended September 30, 1996.

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, and September 30, 1996 the Company had net operating
loss carryforwards totaling approximately $3,100,000 and $4,400,000,
respectively, may be offset against future taxable income through 2011. No tax
benefit has been reported in the 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

h. Depreciation

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 and September 30,
1996 after writing off all accounts determined to be uncollectible.

j. Inventory

Inventory at December 31, 1995 and September 30, 1996 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

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.

F-36
<PAGE>

TRANS ENERGY, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

DECEMBER 31, 1995 AND SEPTEMBER 30, 1996

NOTE 2--FIXED ASSETS

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 to 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.

F-37
<PAGE>

TRANS ENERGY, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

DECEMBER 31, 1995 AND SEPTEMBER 30, 1996

NOTE 3--LONG-TERM DEBT

The Company had the following debt obligations at December 31, 1995 and
September 30, 1996:

<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1995 1996
------------ -------------
(UNAUDITED)
<S> <C> <C>
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 53,166
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 7,539
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 36,455
New York Life, secured by cash value in policy,
principal and interest payments of $480 per month
at 7.25% interest rate............................ 18,617 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 10,218
Wesbanco Bank, secured by vehicle, principal and
interest payments of $155 at 10.25% interest rate,
matures September 30, 1997........................ 3,115 1,979
First National Bank of St. Marys, $9,244 payable
monthly, 12.5% interest rate, secured by
equipment......................................... 657,632 635,382
Union Bank of Tyler County, interest at 11.5% due
quarterly, renewable, secured by equipment........ 19,810 19,810
Note due private company, principal and interest of
$163 payable monthly, interest rate of 10.75%,
secured by vehicle................................ 4,997 3,825
United National Bank, interest payable quarterly,
variable rate (prime 1% or 9.75% as of December
31, 1995), principal payment of $50,000 due
annually, secured by equipment.................... 285,000 285,000
Note due private individual, secured by officers'
personal guarantee, due March 15, 1997, interest
due monthly at 12%................................ 100,000 100,000
Bank of Paden City, secured by officers' personal
assets, demand note, interest payments due monthly
at 9.75%.......................................... 100,000 100,000
Note due private individual, secured by officers'
personal guarantee, due May 31, 1997, interest due
monthly at 12%.................................... 150,000 150,000
Note due private company, secured by officers'
personal assets, due on October 15, 1997, with
interest at 18%................................... 135,000 92,725
---------- ----------
Balance forward.................................. $1,660,999 $1,514,716
========== ==========
</TABLE>

F-38
<PAGE>

TRANS ENERGY, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

DECEMBER 31, 1995 AND SEPTEMBER 30, 1996

<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1995 1996
------------ -------------
(UNAUDITED)
<S> <C> <C>
Balance forward.................................... $1,660,999 $1,514,716
Note due private company, secured by officers
guarantee, due June 30, 1997, with interest at
18%............................................... 100,000 53,200
Notes due Secured Promissory Note Holders, secured
by accounts receivable, due April 24, 1997, with
interest at 12%................................... 300,000 600,000
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................................ 545,909 491,317
Bank of Paden City, secured by officers personal
assets, matures on August 19, 1996, interest due
monthly at 10%.................................... 30,200 30,200
Demand Note due Petrol Marketing Corporation on
October 31, 1995 with no stated interest rate..... 50,000 50,000
Commercial Bank, secured by officers guarantee, due
September 28, 1996, with interest at 11.25%....... -- 12,995
Bank of Paden City, secured by officers guarantee,
due December 5, 1996 with interest at 10%......... -- 20,000
Note due private individual, secured by officers
guarantee, due November 7, 1996, with interest at
20%............................................... -- 100,000
Various equipment purchase contracts secured by
vehicles.......................................... 82,354 54,688
Less Current Portion............................. (554,540) (1,040,169)
---------- ----------
Total Long-Term Debt............................. $2,214,922 $1,886,947
========== ==========
</TABLE>

In March 1996 the Company completed a bridge financing of $600,000 of
Unsecured Notes and 300,000 Bridge Warrants. The Company issued 30,000
additional Bridge Warrants to the Underwriter in conjunction with the sale of
Bridge Units containing the Unsecured Notes and Bridge Warrants which were
later returned to the Company for no consideration. Of the $600,000 in
Unsecured Notes, $270,000 of the previously secured note holders converted to
holders of Unsecured Notes. Under the terms of the Unsecured 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. See
Note 8 for a discussion regarding the Bridge Warrants.

<TABLE>
<CAPTION>
SCHEDULE OF MATURITIES
----------------------
<S> <C>
1996............................................................ $ 554,540
1997............................................................ 954,785
1998............................................................ 160,735
1999............................................................ 143,938
2000 and thereafter............................................. 955,464
----------
Total......................................................... $2,769,462
==========
</TABLE>

NOTE 4--BOND

NOTE 5--CONVERTIBLE DEBENTURES

F-39
<PAGE>

TRANS ENERGY, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

DECEMBER 31, 1995 AND SEPTEMBER 30, 1996

the $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 and September 30, 1996 totalled $14,899 and $1,340,
respectively. Loans payable at December 31, 1995 and September 30, 1996
totalled $683,586, and $633,722, respectively. In the third quarter of 1996,
$250,000 of the loans payable were contributed to capital.

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 loss 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 September
30, 1996.

NOTE 7--ECONOMIC DEPENDENCE AND MAJOR CUSTOMERS

NOTE 8--COMMON STOCK, OPTIONS AND WARRANTS

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 customary fees in 1995.
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 of paid in capital and the
related asset.

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 Bridge 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

F-40
<PAGE>

TRANS ENERGY, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

DECEMBER 31, 1995 AND SEPTEMBER 30, 1996

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.

The Company issued 300,000 Bridge Warrants in March 1996 in conjunction with
the completion of a $600,000 bridge financing composed of Unsecured Notes (see
Note 3). The Company issued 30,000 additional Bridge Warrants in conjunction
for the sale of Bridge Units containing the Unsecured Notes and Bridge
Warrants which were later returned to the Company for no consideration. 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 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

NOTE 11--OTHER TRANSACTIONS

a. Line of Credit

In 1996, 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.

b. Forgiveness of Debt

In February 1996, $20,000 of the management fee payable by Vulcan was
forgiven by the management company.

F-41
<PAGE>

TRANS ENERGY, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

DECEMBER 31, 1995 AND SEPTEMBER 30, 1996

NOTE 12--CONSOLIDATED PROFORMA STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
FOR THE
PERIOD ENDED
AUGUST 31, FOR THE YEAR ENDED
1995 DECEMBER 31, 1995
------------ --------------------------------------
VULCAN TRANS
ENERGY ENERGY AND PROFORMA
CORPORATION SUBSIDIARIES ADJUSTMENTS COMBINED
------------ ------------ ----------- ------------
(RESTATED) (RESTATED)
<S> <C> <C> <C> <C>
OIL AND GAS SALES........ $1,622,955 $2,828,162 $ -- $4,451,117
COST AND EXPENSES
Cost of oil and gas
produced............... 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 Ex-
penses................ 1,707,551 4,633,495 105,500 6,446,546
---------- ------------ --------- ------------
INCOME (LOSS) FROM OPERA-
TIONS................... (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 (Ex-
pense)................ 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)
========== ============ ========= ============
</TABLE>

F-42
<PAGE>

TRANS ENERGY, INC.

S.F.A.S. 69 SUPPLEMENTAL DISCLOSURES

DECEMBER 31, 1995 AND SEPTEMBER 30, 1996

(1) CAPITALIZED COSTS RELATING TO OIL AND GAS PRODUCING ACTIVITIES

<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1995 1996
------------ -------------
(UNAUDITED)
<S> <C> <C>
Proved oil and gas producing properties and
related lease and well equipment.............. $3,733,388 $3,759,301
Accumulated depreciation and depletion......... (390,540) (431,976)
---------- ----------
Net Capitalized Costs.......................... $3,342,848 $3,327,325
========== ==========
</TABLE>

(2) COSTS INCURRED IN OIL AND GAS PROPERTY ACQUISITION, EXPLORATION, AND
DEVELOPMENT ACTIVITIES

<TABLE>
<CAPTION>
FOR THE FOR THE THREE
YEAR ENDED MONTHS ENDED
DECEMBER 31, JUNE 30,
1995 1996
------------ -------------
(UNAUDITED)
<S> <C> <C>
Acquisition of Properties
Proved......................................... $ -- $ --
Unproved....................................... 100,000 --
Exploration Costs................................ -- --
Development Costs................................ -- 25,913
</TABLE>

The Company does not have any investments accounted for by the equity method.

(3) RESULTS OF OPERATIONS FOR PRODUCING ACTIVITIES

<TABLE>
<CAPTION>
FOR THE FOR THE NINE
YEAR ENDED MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
1995 1996
------------ -------------
(UNAUDITED)
<S> <C> <C>
Sales............................................ $ 205,152 $ 253,692
Production costs................................. (110,141) (136,202)
Depreciation and depletion....................... (10,556) (9,952)
--------- ---------
Results of operations for producing activities
(excluding corporate overhead and interest
costs).......................................... $ 84,455 $ 107,538
========= =========
</TABLE>

(4) RESERVE QUANTITY INFORMATION

<TABLE>
<CAPTION>
OIL GAS
BBL MCF
------- ---------
<S> <C> <C>
Proved developed and undeveloped reserves:
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
(Unaudited)
Production............................................. (2,208) (79,618)
Quantity estimates made................................ -- --
------- ---------
Balance, September 30, 1996.............................. 196,862 1,710,036
======= =========
</TABLE>

F-43
<PAGE>

TRANS ENERGY, INC.

S.F.A.S. 69 SUPPLEMENTAL DISCLOSURES--(CONTINUED)

DECEMBER 31, 1995 AND SEPTEMBER 30, 1996

<TABLE>
<CAPTION>
OIL GAS
BBL MCF
------- ---------
<S> <C> <C>
Proved developed reserves:
Beginning of the year 1995............................... 200,485 1,457,405
End of the year 1995..................................... 199,070 1,789,654
Beginning of the year 1996............................... 199,070 1,789,654
End of September 1996.................................... 196,862 1,710,036
</TABLE>

(5) STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS RELATING TO
PROVED OIL AND GAS RESERVES

AT DECEMBER 31, 1995

AT SEPTEMBER 30, 1996
(UNAUDITED)

<TABLE>
<CAPTION>
TRANS ENERGY
AND
SUBSIDIARIES
------------
<S> <C>
Future cash inflows............................................ $19,358,130
Future production and development costs........................ (6,937,592)
-----------
Future net inflows before income taxes......................... 12,420,538
Future income tax expense...................................... (4,222,983)
-----------
Future net cash flows.......................................... 8,197,555
10% annual discount for estimated timing of cash flows......... (4,251,160)
-----------
Standardized measure of discounted future net cash flows....... $ 3,946,395
===========
</TABLE>

Future income taxes were determined by applying the statutory income tax
rate to future pre-tax net cash flow relating to proved reserves.

F-44
<PAGE>

TRANS ENERGY, INC.

S.F.A.S. 69 SUPPLEMENTAL DISCLOSURES--(CONTINUED)

DECEMBER 31, 1995 AND SEPTEMBER 30, 1996

The following schedule summarizes changes in the standardized measure of
discounted future net cash flow relating to proved oil and gas reserves:

<TABLE>
<CAPTION>
FOR THE FOR THE NINE
YEAR ENDED MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
1995 1996
------------ -------------
(UNAUDITED)
<S> <C> <C>
Standardized measure, beginning of year........... $3,602,626 $4,063,885
Oil and gas sales, net of production costs........ (107,818) (117,490)
Sales of mineral in place......................... -- --
Quantity estimates made........................... 569,077 --
---------- ----------
Standardized measure, end of period............... $4,063,885 $3,946,395
========== ==========
</TABLE>

(6) EARNINGS (LOSS) PER SHARE DATA

(RESTATED)

<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1995 1996
------------ -------------
(UNAUDITED)
<S> <C> <C>
Primary earnings (loss) per share
Weighted average outstanding shares.............. 3,116,435 3,233,298
Income (loss) before extraordinary income........ $ (0.71) $ (0.42)
Extraordinary income............................. $ -- $ NIL
Fully diluted earnings (loss) per share
Weighted average outstanding shares.............. 3,182,415 3,233,298
Income (loss) before extraordinary income........ $ (0.71) $ (0.42)
Extraordinary income............................. $ -- $ NIL
</TABLE>

F-45
<PAGE>

APPENDIX A

TRANS ENERGY, INC.

OIL AND GAS RESERVES

WEST VIRGINIA PROPERTIES

7/1/1995-6/1/2005
<PAGE>

S. M. DEAL & ASSOCIATES
PETROLEUM ENGINEERING

P. O. BOX 1651
PARKERSBURG, WV 26102
304-428-3754

October 24, 1995

TRANS ENERGY, INC.
P.O. Box 393
210 Second Street
St Marys, WV 26170

Gentlemen:

As requested, I have consolidated the oil and gas reserve evaluations for
the following properties:

1. Apple Corporation--104 wells, 6/1/92

2. Spencer Wells--6 wells, 9/1/92

This evaluation includes changes resulting from the sale of 5 wells and
pumping equipment installed on 7 wells with 1 well cleaned out. Operational
improvements have also resulted in increased production and reserve values.

Results of this investigation indicate that for the present operational
conditions, the oil and gas reserves, projected 10 years, net to Trans Energy,
Inc. as of 7/1/95 are as follows:

Net Oil = 20,125 BBL

Net Gas = 1,029,235 MCF

Present value of this oil and gas production, projected 10 years, assuming
$20.00/BBL and $2.00/MCF, less operation and discounted at 10%, net to Trans
Energy, Inc. is:

Net Value = $1,275,600

Proven, non-producing, oil and gas reserves behind casing for 20 wells with
sufficient data for volumetric calculations, assuming all zones properly
completed and producing, projected for 10 years, net to Trans Energy, Inc. is:

Net Oil = 179,594 BBL

Net Gas = 801,493 MCF

Assuming all zones to be completed and producing, deducting the completion
costs, utilizing the same unforeseen factors as the original evaluations, the
income projected for 10 years and discounted at 10%, the value, net to Trans
Energy, Inc. is:

Net Value = $2,839,000

No value is assigned to any undrilled locations or well surface equipment.

It is recommended to continue well reconditioning since results of previous
work has increased reserves at the time of this investigation.

All information for this evaluation was obtained from Trans Energy, Inc. and
accepted as factual.

Respectfully submitted,

/s/ Sam M. Deal, P.E.
_____________________________________
Number 12887
State of Texas
<PAGE>

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
Purpose........................................................... 1
Discussion........................................................ 1
Production........................................................ 1
Reserves--Present Operation Condition............................. 1
Reserves--Proven Non-Producing Behind Casing...................... 2
Table "A" --Well Data
Table "B" --Oil and Gas Production 7/1/92-7/1/95
Table "C" --Net Production 7/1/92-7/1/95
Adjusted Future Producable Reserves 7/1/95-7/1/2005
Appendix "A" --Future Production
</TABLE>
<PAGE>

PURPOSE

This investigation was made for TRANS ENERGY, INC. of St. Marys, West
Virginia to re-evaluate and consolidate their oil and gas reserves from two
previous reserve evaluations of their properties as listed:

1. 6/18/92--104 wells from the Apple Corporation, Group A--30 wells,
Group B--74 wells

2. 9/21/92--6 wells from the Dennis Spence, Group C--6 wells

The above evaluations projected oil and gas future production for wells
under present operational conditions for a total of 10 years. Improvement for
operational procedures was recommended at that time.

DISCUSSION

For consolidation purposes, all wells are listed as TABLE "A"--WELL DATA.
Wells are coded and identified in their production Groups A and B of the
original reports. Group C is assigned to the six Dennis Spencer wells.

Certain changes in these wells have changed certain production
characteristics and future reserves. In general, improved and efficient
operational procedures increased well production as indicated by reported
production. Seven wells had pumping equipment installed, one well was cleaned
out and five wells were sold.

Five wells sold, 12-31-93, are listed as follows:

<TABLE>
<CAPTION>
CODE GROUP WELL
---- ----- --------------
<S> <C> <C>
TE 046 R............................................ B Lowther H-1347
TE 056 R............................................ B Moats H-1343
TE 098 R............................................ B Wolfe H-671
TE 099 R............................................ B Wolfe H-670
TE 100 R............................................ B Wolfe H-1295
</TABLE>

Seven wells had pumping equipment installed and listed as follows:

<TABLE>
<CAPTION>
CODE GROUP DATE WELL
---- ----- -------- ---------------
<S> <C> <C> <C>
TE 014 R.................................. B 8/12/92 Cokeley H-607
TE 015 R.................................. B 8/06/92 Cokeley H-653
TE 053 R.................................. B 3/18/92 Moats H-1327
TE 058 R.................................. B 10/14/92 Morton H-658
TE 059 R.................................. B 10/26/92 Morton H-659
TE 034 R.................................. B 10/28/92 Friedley H-660
TE 035 R.................................. B 10/20/92 Friedley H-661

One well cleaned out and swabbed:

TE 087 R.................................. B 8/24/93 St. Lukes H-750
</TABLE>

PRODUCTION

Oil and gas production from 7/1/92 to 7/2/95 is shown as TABLE "B"--OIL AND
GAS PRODUCTION. Total production net to Trans Eenrgy for that period utilizing
the NRI (Net Revenue Interest) for all wells is:

Oil--8,485 BBL Gas--281,362 MCF

RESERVES--PRESENT OPERATIONAL CONDITIONS

Net production from 7/1/92 to 7/1/95, original net reserve estimates from
the original reports and the adjusted future producable reserves to 7/1/2005
are all listed in TABLE "C" for all remaining wells in their present
operational condition.

A-1
<PAGE>

Total production for all wells, net to Trans Energy, Inc. from 7/1/91995 to
7/1/2005 is:

<TABLE>
<CAPTION>
GROUP OIL-BBL GAS-MCF
----- ------- ---------
<S> <C> <C>
A................................................ 6,404 205,850
B................................................ 13,264 466,589
C................................................ 457 356,801
------ ---------
Total............................................ 20,125 BBL 1,029,238 MCF
</TABLE>

Net future production is projected from 7/1/1995 to 7/1/2005 with production
declined, operational expenses estimated and all values discounted at 10% for
purposes of valuation at present time and shown as APPENDIX "A"--FUTURE
PRODUCTION.

Present value of the oil and gas production, using $20.00 per Barrel and
$2.00 per MCF, less operation, under present operational conditions and
discounted at 10% for 10 years, net to Trans Energy, Inc., is as follows:

Net Value--$1,275,620

RESERVES--PROVEN NON-PRODUCING BEHIND CASING

Original volumetric calculations from available well logs for 16 wells of
Groups A and B is:

Original volumetric calculations from available well logs for 6 wells of
Group C is:

Volumetric calculations from available well logs for 2 of the 5 wells sold
shows a total loss of proven producable reserves net to Trans Energy, Inc. to
be:

(Wells--TE 056 R and TE 099 R, sold)

No re-completion work has been done in any of the proven producable zones of
any of Trans Energy's wells, therefore the remaining Proven Producable
Reserves Behind Casing for all Trans Energy wells is:

Assuming these zones to be completed and producing, the net value to Trans
Energy, Inc. of all these zones projected for 10 years, discounted at 10%,
less costs of re-completion and operation, is as follows:

Net Value--$2,839,000

All basic geological conditions are in the previous reports.

No considerations was make for un-drilled locations.

It is also recommended to continue well reconditioning to increase the value
of present producing reserves as proven by resulting increases from the wells
re-worked.

All production data was obtained for this evaluation consolidation and
update from Trans Energy, Inc. and accepted as factual.

Sam M. Deal, P.E.

A-2
<PAGE>

TABLE "A"--WELL DATA

<TABLE>
<CAPTION>
PRODUCING
CODE WELL & NUMBER GRP PERMIT COMPLETED TD-FT FORMATIONS REMARKS
---- -------------------- ------------- --------- ----- ----------- -------
<S> <C> <C> <C> <C> <C> <C>
TE-001-R M. ATKINSON--H-626 B 47-085-4135 11/08/78 1850 MAX, BI
TE-002-R M. ATKINSON--H-627 B 47-085-4050 09/03/78 1875 BI
TE-003-R M. ATKINSON--H-628 B 47-085-4119 10/11/78 1965 BI
TE-004-R R. BARGELOH--H-846 A 47-085-4384 09/17/79 2218 BI
TE-005-R H. BARTON--H-738 A 47-085-4264 05/24/79 2156 BI
TE-006-R H. BARTON--H-747 A 47-085-4237 06/29/79 2008 BI
TE-007-R D. BETTS--H-813 B 47-085-4368 08/29/79 2450 BI
TE-008-R D. BETTS--H-814 B 47-085-4369 09/08/79 2400 BI, WEIR
TE-009-R D. BETTS--H-815 B 47-085-4370 08/31/79 2425 BI, WEIR
TE-010-R D. BETTS--H-816 B 47-085-4371 10/22/79 2450 WEIR
TE-011-R L. BOESHAR--H-1091 B 47-085-4915 12/21/80 4513 DEV. SH.
TE-012-R L. BOESHAR--H-1092 B 47-085-4916 01/26/81 4255 DEV. SH.
TE-013-R W. BORDER--H-642 B 47-085-4115 10/22/78 2250 MAX, BI
TE-014-R COKLEY HRS--H-607 B 47-085-3842 03/28/78 2141 BI
TE-015-R COKLEY HRS--H-653 B 47-085-4120 09/12/78 2018 BI
TE-016-R J. COYLE--4 B 47-085-0764 11/09/39 1937 MAX, KN, BI
TE-017-R COYLE HRS--4 B 47-085-0788 04/05/40 1904 KN, BI, SQ
TE-018-R COYLE HRS--1 B 47-085-0814 06/03/40 1685 BI
TE-019-R D. COX--H-485 B 47-085-4386 09/24/79 2650 WEIR, BE
TE-020-R J. CUMMINGS--H-896 B 47-085-5030 02/08/81 3895 DEV SH
TE-021-R J. CUMMINGS--H-897 B 47-085-4494 02/27/80 4078 DEV SH
TE-022-R E. DEEM--H-1217 B 47-085-5078 04/25/81 2500 BI, BE
TE-023-R S. DOUGLAS--H-946 B 47-085-4522 04/03/80 2075 BI
TE-024-R S. DOUGLAS--H-950 B 47-085-4523 04/29/80 1886 MAX, BI
TE-025-R M. ELDER--H-882 B 47-085-4445 02/07/80 2260 BI
TE-026-R M. ELDER--H-883 B 47-085-4446 02/03/80 2279 BI
TE-027-R E. FOSTER--H-870 B 47-085-4485 03/08/80 2279 BI
TE-028-R E. FOSTER--H-871 B 47-085-4496 03/21/80 2125 BI
TE-029-R E. FOSTER--H-872 B 47-085-4497 04/04/80 2250 BI
TE-030-R E. FOSTER--H-873 B 47-085-4498 03/13/80 2050 BI
TE-031-R E. FOSTER--H-874 B 47-085-4499 03/20/80 2225 BI
TE-032-R E. FRASHURE--H-732 A 47-085-4254 05/04/79 2000 BI
TE-033-R E. FRASHURE--H-733 A 47-085-4255 06/26/79 2150 BI
TE-034-R A. FRIEDLY--H-660 B 47-085-4138 10/15/78 2200 BI
TE-035-R A. FRIEDLY--H-661 B 47-085-4139 12/18/78 2280 BI
TE-036-R M. GARDNER--H-741 A 47-085-4268 06/14/79 2136 BI
TE-037-R M. GARDNER--H-742 A 47-085-4269 06/16/79 2175 BI
TE-038-R M. GARDNER--H-743 A 47-085-4270 06/23/79 1775 BI
TE-039-R M. GARDNER--H-744 A 47-085-4266 05/31/79 1850 BI
TE-040-R S. HACKWORTH--H-1305 B 47-085-5429 05/21/82 4486 DEV SH
TE-041-R G. HAMMER--H-1213 B 47-085-5085 04/01/81 2000 BI
TE-042-R W. HAUGHT--H-1366 B 47-085-6098 03/05/83 4612 DEV SH
TE-043-R J. HOWARD--H-844 B 47-085-4477 11/07/79 2400 BI, WEIR
TE-044-R G. KESTER--H-797 A 47-085-4359 09/20/79 1926 BI
TE-045-R G. KESTER--H-798 A 47-085-4360 09/13/79 2165 BI
TE-046-R H. LOWTHER--H-1347 B 47-085-5792 07/23/82 4057 DEV SH SOLD
TE-047-R MARTIN BROS--H-650 A 47-085-4252 05/22/79 2125 BI
TE-048-R MARTIN BROS--H-731 A 47-085-4251 05/12/79 2137 BI
TE-049-R E. MASON--H-1174 B 47-085-5016 02/17/81 2450 BI, WEIR
TE-050-R M. METZ--H-1314 B 47-085-5453 02/02/82 2100 BI
TE-051-R B. MILLER--H-739 A 47-085-4261 05/31/79 2156 BI
TE-052-R B. MILLER--H-740 A 47-085-4267 06/10/79 2013 BI
TE-053-R H. MOATS--H-1327 B 47-085-5587 06/12/82 4570 DEV SH
TE-054-R H. MOATS--H-1335 B 47-085-5731 07/10/82 4300 DEV SH
TE-055-R M. MOATS--H-690 B 47-085-4184 01/11/79 2275 BI
</TABLE>

A-3
<PAGE>

<TABLE>
<CAPTION>
PRODUCING
CODE WELL & NUMBER GRP PERMIT COMPLETED TD-FT FORMATIONS REMARKS
---- ------------------- ------------- --------- ----- ---------- -------
<S> <C> <C> <C> <C> <C> <C>
TE-056-R M. MOATS--H-1343 B 47-085-5789 07/14/82 4660 DEV SH SOLD
TE-057-R M. MOATS--H-1377 B 47-085-6225 02/28/83 4250 GD, DEV SH
TE-058-R L. MORTON--H-658 B 47-085-4136 11/28/78 2010 BI
TE-059-R L. MORTON--H-659 B 47-085-4137 12/06/78 2220 BI
TE-060-R D. MULLENIX--H-858 B 47-085-4399 10/30/79 2600 WEIR, BE
TE-061-R D. NEWLON--H-847 A 47-085-4388 09/23/79 1979 BI
TE-062-R D. NEWLON--H-848 A 47-085-4389 09/27/79 1796 BI
TE-063-R L. NEWTON--H-730 A 47-085-4250 05/17/79 2175 MAX, BI
TE-064-R J. PARKS--H-1198 B 47-085-5059 04/16/81 2050 BI
TE-065-R K. PERINE--H-880 B 47-085-4443 03/07/80 2451 BI, WEIR
TE-066-R K. PERINE--H-893 B 47-085-4491 02/24/80 2450 WEIR
TE-067-R P. PIFER--H-893 B 47-085-4491 05/05/80 2220 BI
TE-068-R P. PIFER--H-894 B 47-085-4492 04/28/80 3019 BI
TE-069-R C. REXROAD--H-1357 B 47-085-6089 01/02/83 4500 DEV SH
TE-070-R G. REXROAD--H-695 B 47-085-6087 12/23/82 2746 DEV SH
TE-071-R G. REXROAD--H-705 B 47-085-5663 07/19/82 4279 DEV SH
TE-072-R G. RYAN--H-736 A 47-085-4262 05/12/79 2346 BI
TE-073-R G. RYAN--H-737 A 47-085-4263 05/18/79 2132 BI
TE-074-R B. SEMMELAMN--H-651 A 47-085-4155 08/21/79 2225 BI
TE-075-R B. SEMMELAMN--H-727 A 47-085-4253 06/08/79 2150 BI
TE-076-R B. SEMMELMAN--H-729 A 47-085-4249 04/29/79 2160 BI
TE-077-R B. SEMMELMAN--H-652 A 47-085-4199 04/25/79 2175 BI
TE-078-R B. SEMMELMAN--H-728 A 47-085-4248 06/02/79 2100 BI
TE-079-R J. SIMS--H-1304 B 47-085-5489 06/09/82 4400 DEV SH
TE-080-R J. SIMMONS--H-970 B 47-085-4759 05/21/80 2283 BI
TE-081-R J. SIMMONS--H-979 B 47-085-4760 04/13/80 2130 BI
TE-082-R L. STANLEY--H-802 B 47-085-4363 10/01/79 2600 BI, WEIR
TE-083-R L. STANLEY--H-811 B 47-085-4364 10/09/79 2608 BI, WEIR
TE-084-R M. STANLEY--H-923 B 47-085-4478 12/21/79 2175 BI
TE-085-R M. STANLEY--H-1302 B 47-085-5440 03/13/82 5262 DEV SH
TE-086-R M. STANLEY--H-1323 B 47-085-5615 05/28/82 4230 DEV SH
TE-087-R ST LUKES--H-750 A 47-085-4319 06/28/79 1750 SS
TE-088-R ST LUKES--H-752 A 47-085-4275 06/23/79 2000 BI
TE-089-R ST LUKES--H-753 A 47-085-4776 07/03/79 1875 BI
TE-090-R H. SUMMERS--H-791 B 47-085-4356 03/27/80 2385 BI, WEIR
TE-091-R M. WELCH--H-756 A 47-085-4317 07/16/79 2225 BI
TE-092-R M. WELCH--H-757 A 47-085-4318 07/02/79 2200 BI
TE-093-R H. WILSON--H-1168 B 47-085-5028 03/23/81 4538 DEV SH
TE-094-R H. WILSON--H-1169 B 47-085-5029 04/04/81 3816 DEV SH
TE-095-R H. WILSON--H-1170 B 47-085-5026 03/08/82 4282 DEV SH
TE-096-R R. WILSON--H-853 B 47-085-4394 10/25/79 5207 DEV SH
TE-097-R C. WILSON--H-930 B 47-085-4519 02/24/80 5906 DEV SH
TE-098-R C. WOLFE--H-671 B 47-085-4203 04/06/79 2150 MAX, BI SOLD
TE-099-R C. WOLFE--H-670 B 47-085-5578 05/04/82 4515 DEV SH SOLD
TE-100-R C. WOLFE--H-1295 B 47-085-5488 04/15/82 2185 BI SOLD
TE-101-G M. ALLMAN--H-980 B 47-021-3622 05/16/80 3000 WEIR, BE
TE-102-G M. ALLMAN--H-981 B 47-021-3623 05/20/80 2700 WEIR, BE
TE-103-P A. JANES--H-1212 B 47-073-1118 02/22/81 4261 DEV SH
TE-104-W C. ELLIOTT--H-1191 B 47-107-1120 02/06/81 3719 DEV SH
TE-105-R H. FOWLER 1-A C 47-085-8047 03/23/91 5551 DEV SH
TE-106-R N. GOFF--1 C 47-085-8037 03/01/91 5365 DEV SH
TE-107-R C. LOCKE--1-A C 47-085-8051 04/04/91 5669 DEV SH
TE-108-R F. MC GILL--1 C 47-085-8034 02/16/91 5216 DEV SH
TE-109-R R. WORKMAN--1 C 47-085-8002 02/10/91 5116 DEV SH
TE-110-T D. SPENCER--1 C 47-095-1324 04/18/91 4903 DEV SH
</TABLE>
- --------
LEGEND:

TE--TRANS ENERGY P--PLEASANTS COUNTY
R--RITCHIE COUNTY W--WOOD COUNTY
G--GILMER COUNTY T--TYLER COUNTY

A-4
<PAGE>

TABLE "B"--OIL AND GAS PRODUCTION

7/1/92-7/1/95

<TABLE>
<CAPTION>
1992 1993 1994 1995
7/1-12/31 1/1-7/1
GROUP BBL MCF BBL MCF BBL MCF BBL MCF
- ----- --- ------ ----- ------ ----- ------ --- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
A............................... 427 5,470 1,130 15,591 699 28,698 498 13,189
B............................... 648 23,266 3,215 71,079 1,744 60,679 792 31,994
C............................... 0 15,882 499 54,577 58 49,943 30 21,454
</TABLE>

A-5
<PAGE>

TABLE "C"--NET PRODUCTION 7/192-7/1/95

ORIGINAL NET RESERVE ESTIMATES--7/1/92-7/1/2002
ADJUSTED FUTURE PRODUCABLE RESERVES--7/95-7/2005
(PRODUCABLE RESERVES FOR PRESENT WELL CONDITIONS

<TABLE>
<CAPTION>
OIL-- GAS--
GRP DESCRIPTION DATE BBL MCF
- --- ----------- ----------- ------ -------
<S> <C> <C> <C> <C>
A................ Net Production 7/92-7/95 2,410 54,913
Initial Estimated Reserves 7/92-7/2002 1,567 117,754
Projected Future Prod. Pres. Cond. 7/95-7/2002 6,404 205,850
B................ Net Production 7/92-7/95 5,599 111,546
Initial Estimated Reserves 7/92-7/2002 5,034 304,445
Projected Future Prod. Pres. Cond. 7/95-7/2005 13,264 466,589
C................ Net Production 9/92-7/95 476 114,903
Initial Estimated Reserves 9/92-7/2002 288 429,354
Projected Future Prod. Pres. Cond. 7/95-7/2005 457 356,801
7/1/95-7/1/2005--20,125
Total BBL, 1,029,238 MCF
</TABLE>
- --------
NOTE: Projected Future Production is based on present conditions, with wells
sold deleted and all other workovers and improvements considered.

A-6
<PAGE>

APPENDIX "A"--FUTURE PRODUCTION

<TABLE>
<CAPTION>
NET
OIL REVENUE
GAS -- -- 10% TOTAL
NET OPERATION --REVENUE REVENUE OPERATION DISC. REVENUE
YEAR NET MCF BBL $ $ $ $ FACTOR $
---- --------- ------ --------- --------- ------- --------- ------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1..... 128,250 2,508 48,300 256,500 50,160 258,360 0.9091 234,875
2..... 121,838 2,382 48,300 243,676 47,640 243,016 0.8246 200,828
3..... 115,745 2,263 48,300 231,490 45,260 228,450 0.7513 171,634
4..... 109,958 2,150 48,300 219,916 43,000 214,616 0.6830 146,583
5..... 104,460 2,042 48,300 208,920 40,840 201,460 0.6209 125,086
6..... 99,237 1,940 48,300 198,474 38,800 188,974 0.5644 106,657
7..... 94,275 1,844 48,300 188,550 36,888 177,138 0.5132 90,907
8..... 89,562 1,751 48,300 179,124 35,020 165,844 0.4665 77,366
9..... 85,084 1,664 48,300 170,168 33,280 155,148 0.4241 65,798
10..... 80,829 1,581 48,300 161,658 31,620 144,978 0.3855 55,889
--------- ------ ------- --------- ------- --------- ------ ---------
TOTAL.. 1,029,238 20,125 483,000 2,058,476 402,508 1,977,984 1,275,623
</TABLE>

A-7
<PAGE>

EXHIBIT A
[Form of Bridge Warrant Conversion Prospectus]

1,600,000 REDEEMABLE COMMON STOCK PURCHASE WARRANTS
TRANS ENERGY, INC.

This Prospectus relates to 1,600,000 Redeemable Common Stock Purchase
Warrants (the "Redeemable Warrants") issuable upon automatic conversion of
certain Common Stock Purchase Warrants (the "Bridge Warrants") of Trans Energy,
Inc. (the "Company") upon the effectiveness of the Registration Statement
covering the offering of 585,366 shares of the Company's Common Stock, $.001
par value per share ("Common Stock"), at a price of $5.125 per share, and
1,200,000 Redeemable Common Stock Purchase Warrants ("Redeemable Warrants" and,
collectively with the Common Stock, the "Securities"), at a price of $.10 per
Redeemable Warrant (the "Offering"). Unless the context otherwise requires, the
term "this Offering" herein refers to the Company's offering of the Securities.
All of the Redeemable Warrants covered by this Prospectus are being sold by
certain securityholders of the Company (the "Selling Securityholders"). See
"Principal and Selling Securityholders". The Bridge Warrants were issued to
certain securityholders by the Company in connection with the Company's private
placement of 500,000 Bridge Warrants completed in December 1995 and its bridge
financing composed of $600,000 of Unsecured Promissory Notes and 300,000 Bridge
Warrants completed in March 1996. Each Redeemable Warrant entitles the holder
to purchase one share of Common Stock for $5.64 during the five-year period
commencing one year from the date of this Prospectus. The Company may redeem
the Redeemable Warrants at a price of $.10 per Redeemable Warrant, at any time
upon not less than 30 days prior written notice if the closing bid price of the
Common Stock on the Nasdaq Small Cap Market exceeds 140% of the public offering
price for the 20 consecutive trading days preceding the notice of redemption.
See "Description of Securities."

The Company will not receive any proceeds from the sale of the Redeemable
Warrants covered by this Prospectus. The Selling Securityholders are subject to
lock-up agreements with the Company and the Underwriter pursuant to which they
may not resell and/or exercise such Redeemable Warrants for a period of two (2)
years following the effectiveness of the Registration Statement of which this
Prospectus forms a part without the prior consent of the Company, but which
restriction on sale and/or exercise immediately shall terminate upon the
successful completion of the Offering; and not to sell any such Redeemable
Warrants for a period of one (1) year from the effective date of the
Registration Statement of which this Prospectus forms a part without the prior
consent of the Underwriter. The Company has covenanted to keep the Registration
Statement of which this Prospectus forms a part effective in order to permit
such resales. Subject to the release of such lock-up arrangements, the Selling
Securityholders may sell the Redeemable Warrants from time to time as market
conditions permit in the over-the-counter market in regular brokerage
transactions, in transactions directly with market makers, or in certain
privately-negotiated transactions, or through a combination of such methods at
fixed prices, which may be changed, at market prices prevailing at the time of
sale or at negotiated prices. The sale or other disposition of the Redeemable
Warrants and shares of Common Stock underlying the Redeemable Warrants will
also be subject to the approval of the National Association of Securities
Dealers (the "NASD"). Prior to the disposition or release of the Redeemable
Warrants and shares of Common Stock underlying the Redeemable Warrants by the
Selling Securityholders, the NASD will be notified and approval with regard to
the transaction must be granted by the NASD (the "NASD Restriction"). Subject
to the NASD Restriction, the Selling Securityholders may effect such
transactions by selling shares of Common Stock to or through broker-dealers,
and such broker-dealers engaged by the Selling Securityholders may arrange for
other brokers or dealers to participate. Such brokers or dealers may receive
compensation in the form of discounts, concessions or commissions from the
Selling Securityholders or the purchaser of shares of Common Stock from whom
such broker dealer acted as agent, or to whom they sell as principal, or both
(which compensation, as to a particular broker-dealer, may be in excess of
customer commissions).

The Redeemable Warrants have been approved for quotation on the Nasdaq Small
Cap market under the symbol "TSRGW".

The Selling Securityholders are subject to lock-up agreements with the
Company and the Underwriter pursuant to which they may not resell and/or
exercise such Redeemable Warrants for a period of two (2) years following the
effectiveness of the Registration Statement without the prior consent of the
Company (the "Company Lock-up"), but which restriction on sale and/or exercise
immediately shall terminate upon the successful completion of the Offering; and
not to sell any such Redeemable Warrants for a period of one (1) year from the
effective date of the Registration Statement without the prior consent of the
Underwriter (the "Underwriter's Lock-up). The Underwriter has agreed not to
release the Underwriter's Lock-up for at least three (3) months following the
completion of this Offering. In the event the Redeemable Warrants are released
from the Underwriter's Lock-up prior to the end of such one (1) year period
such Redeemable Warrants shall be immediately eligible for resell to the
public. AFTER EXPIRATION OF SUCH THREE MONTH PERIOD, AND SUBJECT TO THE NASD
RESTRICTION, THE UNDERWRITER MAY PERMIT SALES OF SUCH SECURITIES BY SUCH
HOLDERS UPON WRITTEN REQUEST BY SUCH HOLDERS. THE EXTENT TO WHICH SUCH SALES
WILL BE PERMITTED WILL DEPEND ON THE EVALUATION BY THE UNDERWRITER OF A NUMBER
OF FACTORS, INCLUDING THE TRADING VOLUME OF THE SECURITIES ON THE NASDAQ AND
THE NUMBER OF SECURITIES WHICH SUCH HOLDERS HAVE REQUESTED TO SELL AS SELLING
SECURITYHOLDERS. THE INTRODUCTION OF SUCH REDEEMABLE WARRANTS INTO THE PUBLIC
MARKET WOULD HAVE AN ADVERSE EFFECT UPON THE PRICES OF THE REDEEMABLE WARRANTS
AND COMMON STOCK SOLD TO THE PUBLIC AND/OR THE COMMON STOCK UNDERLYING THE
REDEEMABLE WARRANTS SOLD TO THE PUBLIC.

THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK AND SUBSTANTIAL
DILUTION. SEE "RISK FACTORS" AND "DILUTION."

THE INFORMATION IN THIS PROSPECTUS IS AS OF THE DATE HEREOF. THE DELIVERY OF
THIS PROSPECTUS, UNDER ANY CIRCUMSTANCES, AT ANY TIME, DOES NOT IMPLY THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
UNTIL JANUARY 11, 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS) THE COMPANY
MAY BE REQUIRED TO AMEND THE REGISTRATION STATEMENT OF WHICH THIS PROSPECTUS IS
A PART OR SUPPLEMENT THIS PROSPECTUS IN THE EVENT OF A MATERIAL DEVELOPMENT
AFFECTING THE COMPANY.

THE DATE OF THIS PROSPECTUS IS DECEMBER 17, 1996.
<PAGE>

PRINCIPAL AND SELLING SECURITYHOLDERS

The following table sets forth certain information with respect to the
beneficial ownership of the capital stock of the Company as of September 30,
1996 for (i) each person who is known by the Company to beneficially own more
than 5% of the capital stock, (ii) each of the Company's directors, (iii) each
of the Company's officers, (iv) all directors and officers as a group and (v)
the Selling Securityholders.

<TABLE>
<CAPTION>
DIRECTORS, EXECUTIVE OFFICERS, SHARES BENEFICIALLY
FIVE PERCENT SHAREHOLDERS OWNED PRIOR
AND SELLING SECURITYHOLDERS TO THE OFFERING
- ------------------------------ -------------------
<S> <C>
Loren E. Bagley...................................... 419,575(1)(6)
William F. Woodburn.................................. 448,108(2)(6)
Dennis L. Spencer Sr................................. 595,775(5)(6)
John B. Sims......................................... 58,228(3)(6)
Black & Company...................................... 441,964(4)
James W. Almeter..................................... 12,500(7)(17)
George D. Kickliter.................................. 100,000(7)(8)(17)
Harry and Mary Ann Lawroski.......................... 160,000(7)(9)(19)
Jan Arnett........................................... 127,500(7)(10)(19)
Thomas E. Creevy..................................... 12,500(7)(17)
Andrew Fistel........................................ 25,000(7)(17)
Michael Goldstein.................................... 50,000(7)(11)(17)
Steven Goldstein..................................... 25,000(7)(17)
John L. Hammer, III.................................. 12,500(7)(17)
Robert Amend and Kathleen Amend...................... 25,000(7)(17)
Joseph Andriole and Giancarla Andriole............... 112,500(7)(12)(17)
Carl W. Olsen........................................ 85,000(7)(13)(19)
Hy Parnass........................................... 25,000(7)(17)
Jiresh Patel......................................... 25,000(7)(17)
Doreen Rivera........................................ 50,000(7)(11)(17)
Henrietta T. Robinson................................ 25,000(7)(17)
Andres Santillana.................................... 25,000(7)(17)
John Stewart......................................... 25,000(7)(17)
Dorothy Strachman.................................... 37,500(7)(14)(17)
George Trainor....................................... 12,500(7)(17)
Samuel M. Ward....................................... 25,000(7)(17)
Daniel Waterman and Mudite Waterman.................. 55,000(7)(15)(19)
Charles Wen.......................................... 100,000(7)(8)(17)
Abel Whitehead....................................... 25,000(7)(17)
Charles V. Salzano................................... 25,000(7)(17)
Ellis Wooten......................................... 25,000(7)(17)
Wendell E. Morrow.................................... 12,500(7)(17)
Morgan D. Gaffney.................................... 30,000(7)(16)(18)
Alfons Murk and Anita Murk........................... 25,000(7)(18)
John R. Boswell...................................... 25,000(7)(18)
Meeyapillai K. Zawakir............................... 25,000(7)(18)
Gerald Williams...................................... 25,000(7)(18)
Lester N. Shafran.................................... 50,000(7)(11)(18)
Larry Weinstein...................................... 50,000(7)(11)(18)
Edward Nissenbaum.................................... 25,000(7)(18)
George D. Newton, Jr................................. 30,000(7)(16)(18)
Randall A. Mason..................................... 25,000(7)(18)
John Chianello....................................... 25,000(7)(18)
Bill A. Kousmanidis.................................. 25,000(7)(18)
---------
3,563,650
</TABLE>

2
<PAGE>

- --------
(1) 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.
(2) 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.
(3) Includes 58,228 shares of Common Stock held in the name of Virginia Sims,
wife of John B. Sims, over which shares Ms. Sims retains voting power.
(4) 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.
(5) 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.
(6) All directors and officers as a group (4 persons)--1,521,686.
(7) Includes 1,600,000 Redeemable Warrants owned by the Selling Securityholders
and the equivalent number of shares of Common Stock underlying such
Redeemable Warrants beneficially owned by the Selling Securityholders in
the event of conversion of such Redeemable Warrants.

(8) Constitutes 3.6% of the Redeemable Warrants outstanding following
completion of the Offering.

(9) Constitutes 5.7% of the Redeemable Warrants outstanding following
completion of the Offering.

(10) Constitutes 4.6% of the Redeemable Warrants outstanding following
completion of the Offering.

(11) Constitutes 1.8% of the Redeemable Warrants outstanding following
completion of the Offering.

(12) Constitutes 4.0% of the Redeemable Warrants outstanding following
completion of the Offering.

(13) Constitutes 3.0% of the Redeemable Warrants outstanding following
completion of the Offering.

(14) Constitutes 1.3% of the Redeemable Warrants outstanding following
completion of the Offering.

(15) Constitutes 2.0% of the Redeemable Warrants outstanding following
completion of the Offering.

(16) Constitutes 1.1% of the Redeemable Warrants outstanding following
completion of the Offering.
(17) Purchased as part of the Company's private placement of Bridge Warrants
completed in December 1995.
(18) Purchased as part of the Company's March 1996 Bridge Financing.
(19) Purchased as part of both the Company's private placement of Bridge
Warrants completed in December 1995 and March 1996 Bridge Financing.

DISTRIBUTION

The sale of the Redeemable Warrants is subject to the availability of a
Bridge Warrant Conversion Prospectus. An original holder of Redeemable Warrants
from which a Bridge Warrant has been converted who wishes to resell a
Redeemable Warrant or Redeemable Warrants must deliver a current version of
this Prospectus to the purchaser thereof. No such resale may occur prior to the
delivery of a current version of this Bridge Warrant Conversion Prospectus,
and, prior to the disposition and release of the Redeemable Warrants and shares
of Common Stock underlying the Redeemable Warrants by the Selling
Securityholders (formerly the holders of the Bridge Warrants), the NASD will be
notified and approval with regard to the transaction must be granted by the
NASD.

The holders of Redeemable Warrants from which a Bridge Warrant has been
converted are subject to lock-up agreements with the Company and the
Underwriter pursuant to which they may not resell and/or exercise such
Redeemable Warrants for a period of two (2) years following the effectiveness
of the Registration Statement without the prior consent of the Company, but
which restriction on sale and/or exercise immediately shall terminate upon the
successful completion of the Offering; and not to sell any such Redeemable
Warrants for a period of one (1) year from the effective date of the
Registration Statement without the prior consent of the Underwriter. The
Company has covenanted to keep the Registration Statement of which this
Prospectus forms a part effective in order to permit such resales upon
expiration of or release from such restrictions. Subject to the release of such
lock-up arrangements, the Selling Securityholders may sell the Redeemable
Warrants from time

3
<PAGE>

to time as market conditions permit in the over-the-counter market in regular
brokerage transactions, in transactions directly with market makers, or in
certain privately-negotiated transactions, or through a combination of such
methods at fixed prices, which may be changed, at market prices prevailing at
the time of sale or at negotiated prices. The Selling Securityholders may
effect such transactions by selling Redeemable Warrants to or through broker-
dealers, and such broker-dealers engaged by the Selling Securityholders may
arrange for other brokers or dealers to participate. Such brokers or dealers
may receive compensation in the form of discounts, concessions or commissions
from the Selling Securityholders or the purchaser of Redeemable Warrants from
whom such broker dealer acted as agent, or to whom they sell as principal, or
both (which compensation, as to a particular broker-dealer, may be in excess of
customer commissions).

Upon receipt of the notice from the holder of Redeemable Warrants, the
Company shall deliver to such holder a current version of this Prospectus,
appropriately amended to reflect such holder under the caption "Principal and
Selling Securityholders." No sale may be made by the holders of Redeemable
Warrants covered by this Prospectus without delivery to the purchasers of such
Redeemable Warrants of a current version of this Prospectus.

The holders of Redeemable Warrants covered by this Prospectus, and any other
persons who participate in the sale of such Redeemable Warrants, may be deemed
"underwriters" as defined in the Act. Any commissions paid or discounts or
concessions allowed to such persons, and any profits received on resale of such
Redeemable Warrants, may be deemed to be underwriting discounts and commissions
under the Act.

4
<PAGE>

NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION
OR TO MAKE ANY REPRESENTATION, OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS,
IN CONNECTION WITH THE OFFERING DESCRIBED HEREIN, AND IF GIVEN OR MADE, NO SUCH
INFORMATION OR REPRESENTATION MAY BE RELIED UPON AS HAVING BEEN AUTHORIZED BY
THE COMPANY OR THE UNDER-WRITER. THE DELIVERY OF THIS PROSPECTUS AT ANY TIME
DOES NOT IMPLY THAT THERE HAS BEEN NO CHANGE IN THE INFORMATION SET FORTH
HEREIN OR IN THE AFFAIRS OF THE COMPANY SINCE THE DATE AS OF WHICH SUCH INFOR-
MATION IS GIVEN. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR SOLIC-
ITATION OF AN OFFER TO BUY ANY SECURITY OTHER THAN THE SECURITIES OFFERED HERE-
BY, OR AN OFFER TO SELL OR SOLICITATION OF AN OFFER TO BUY SUCH SECURITIES IN
ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN
WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR
TO ANY PERSON TO WHOM SUCH OFFER OR SOLICITATION WOULD BE UNLAWFUL.

---------------

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Reports to Shareholders..................................................
Prospectus Summary....................................................... 4
The Company.............................................................. 8
Dilution................................................................. 9
Risk Factors............................................................. 10
Capitalization........................................................... 20
Price Range of Common Stock.............................................. 21
Dividend Policy.......................................................... 21
Selected Consolidated Financial Data..................................... 22
Use of Proceeds.......................................................... 23
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 25
Business and Properties.................................................. 29
Management............................................................... 43
Principal and Selling Securityholders.................................... 46
Certain Transactions and Relationships................................... 49
Distribution............................................................. 54
Description of Securities................................................ 55
Shares Eligible for Future Sale.......................................... 59
Legal Matters............................................................ 60
Experts.................................................................. 60
Additional Information................................................... 60
Financial Statements..................................................... F-1
</TABLE>

---------------

UNTIL JANUARY 11, 1997, (25 DAYS FROM THE DATE OF THIS PROSPECTUS) ALL DEALERS
EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITER AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.

TRANS ENERGY, INC.

1,600,000 REDEEMABLE COMMON STOCK PURCHASE WARRANTS

L.B. SAKS, INC.

PROSPECTUS

DECEMBER 17, 1996
<PAGE>

EXHIBIT B
[Form of Warrant Exercise Prospectus]

1,600,000 SHARES OF COMMON STOCK

TRANS ENERGY, INC.

This Prospectus relates to 1,600,000 shares of Common Stock, $.001 par value
per share (the "Common Stock") of Trans Energy, Inc. (the "Company") issuable
upon exercise of certain Redeemable Common Stock Purchase Warrants (the
"Redeemable Warrants") issued in connection with the automatic conversion of
certain of the Company's Common Stock Purchase Warrants (the "Bridge Warrants")
issued in connection with the effectiveness of the Registration Statement
covering the Company's public offering of 585,366 shares of the Company's
Common Stock, $.001 par value per share ("Common Stock"), at a price of $5.125
per share, and 1,200,000 Redeemable Warrants (collectively with the Common
Stock, the "Securities"), at a price of $.10 per Redeemable Warrant (the
"Offering"). Unless the context otherwise requires, the term "this Offering"
herein refers to the Company's offering of the Securities. All of the shares of
Common Stock covered by this Prospectus are being sold by certain
securityholders of the Company (the "Selling Securityholders"). See "Principal
and Selling Securityholders." The Bridge Warrants were issued to certain
security holders by the Company in connection with the Company's bridge
financings in December, 1995 and March 1996. Each Redeemable Warrant entitles
the holder to purchase one share of Common Stock for $5.64 during the five-
year period commencing one year from the date of this Prospectus. The Company
may redeem the Redeemable Warrants at a price of $.10 per Redeemable Warrant,
at any time upon not less than 30 days prior written notice if the closing bid
price of the Common Stock on the Nasdaq Small Cap Market exceeds 140% of the
public offering price for the 20 consecutive trading days preceding the notice
of redemption. See "Description of Securities."

The Company will not receive any proceeds from the sale of the shares of
Common Stock covered by this Prospectus. The Selling Securityholders are
subject to lock-up agreements with the Company and the Underwriter pursuant to
which they may not resell and/or exercise such Redeemable Warrants for a period
of two (2) years following the effectiveness of the Registration Statement of
which this Prospectus forms a part without the prior consent of the Company,
but which restriction on sale and/or exercise immediately shall terminate upon
the successful completion of the Offering; and not to sell any such Redeemable
Warrants for a period of one (1) year from the effective date of the
Registration Statement of which this Prospectus forms a part without the prior
consent of the Underwriter. The Company has covenanted to keep the Registration
Statement of which this Prospectus forms a part effective in order to permit
such resales. The sale or other disposition of the shares of Common Stock
underlying the Redeemable Warrants will also be subject to the approval of the
National Association of Securities Dealers (the "NASD"). Prior to the
disposition of the shares of Common Stock underlying the Redeemable Warrants by
the Selling Securityholders, the NASD will be notified and approval with regard
to the transaction must be granted by the NASD (the "NASD Restriction").
Subject to the NASD Restriction, and subject to the release of such lock-up
arrangements, the Selling Securityholders may sell the shares of Common Stock
from time to time as market conditions permit in the over-the-counter market in
regular brokerage transactions, in transactions directly with market makers, or
in certain privately-negotiated transactions, or through a combination of such
methods at fixed prices, which may be changed, at market prices prevailing at
the time of sale or at negotiated prices. The Selling Securityholders may
effect such transactions by selling shares of Common Stock to or through
broker-dealers, and such broker-dealers engaged by the Selling Securityholders
may arrange for other brokers or dealers to participate. Such brokers or
dealers may receive compensation in the form of discounts, concessions or
commissions from the Selling Securityholders or the purchaser of shares of
Common Stock from whom such broker dealer acted as agent, or to whom they sell
as principal, or both (which compensation, as to a particular broker-dealer,
may be in excess of customer commissions).

The Company's Common Stock is quoted on the Nasdaq Small Cap Market under the
symbol "TSRG".

THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK AND SUBSTANTIAL
DILUTION. SEE "RISK FACTORS" AND "DILUTION."

THE DATE OF THIS PROSPECTUS IS DECEMBER 17, 1996.
<PAGE>

PRINCIPAL AND SELLING SECURITYHOLDERS

<TABLE>
<CAPTION>
DIRECTORS, EXECUTIVE OFFICERS, SHARES BENEFICIALLY
FIVE PERCENT SHAREHOLDERS OWNED PRIOR TO THE
AND SELLING SECURITYHOLDERS OFFERING
- ------------------------------ -------------------
<S> <C>
Loren E. Bagley...................................... 419,575(1)(6)
William F. Woodburn.................................. 448,108(2)(6)
Dennis L. Spencer Sr................................. 595,775(5)(6)
John B. Sims......................................... 58,228(3)(6)
Black & Company...................................... 441,964(4)
James W. Almeter..................................... 12,500(7)(13)
George D. Kickliter.................................. 100,000(7)(8)(13)
Harry and Mary Ann Lawroski.......................... 160,000(7)(9)(15)
Jan Arnett........................................... 127,500(7)(10)(15)
Thomas E. Creevy..................................... 12,500(7)(13)
Andrew Fistel........................................ 25,000(7)(13)
Michael Goldstein.................................... 50,000(7)(13)
Steven Goldstein..................................... 25,000(7)(13)
John L. Hammer, III.................................. 12,500(7)(13)
Robert Amend and Kathleen Amend...................... 25,000(7)(13)
Joseph Andriole and Giancarla Andriole............... 112,500(7)(11)(13)
Carl W. Olsen........................................ 85,000(7)(12)(15)
Hy Parnass........................................... 25,000(7)(13)
Jiresh Patel......................................... 25,000(7)(13)
Doreen Rivera........................................ 50,000(7)(13)
Henrietta T. Robinson................................ 25,000(7)(13)
Andres Santillana.................................... 25,000(7)(13)
John Stewart......................................... 25,000(7)(13)
Dorothy Strachman.................................... 37,500(7)(13)
George Trainor....................................... 12,500(7)(13)
Samuel M. Ward....................................... 25,000(7)(13)
Daniel Waterman and Mudite Waterman.................. 55,000(7)(13)
Charles Wen.......................................... 100,000(7)(8)(15)
Abel Whitehead....................................... 25,000(7)(13)
Charles V. Salzano................................... 25,000(7)(13)
Ellis Wooten......................................... 25,000(7)(13)
Wendell E. Morrow.................................... 12,500(7)(13)
Morgan D. Gaffney.................................... 30,000(7)(14)
Alfons Murk and Anita Murk........................... 25,000(7)(14)
John R. Boswell...................................... 25,000(7)(14)
Meeyapillai K. Zawakir............................... 25,000(7)(14)
Gerald Williams...................................... 25,000(7)(14)
Lester N. Shafran.................................... 50,000(7)(14)
Larry Weinstein...................................... 50,000(7)(14)
Edward Nissenbaum.................................... 25,000(7)(14)
George D. Newton, Jr................................. 30,000(7)(14)
Randall A. Mason..................................... 25,000(7)(14)
John Chianello....................................... 25,000(7)(14)
Bill A. Kousmanidis.................................. 25,000(7)(14)
---------
3,563,650
</TABLE>

2
<PAGE>

- --------
(1) 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.
(2) 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.
(3) Includes 58,228 shares of Common Stock held in the name of Virginia Sims,
wife of John B. Sims, over which shares Ms. Sims retains voting power.
(4) 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.
(5) 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.
(6) All directors and officers as a group (4 persons)--1,521,686.
(7) Included in the 1,600,000 shares of Common Stock beneficially owned by the
Selling Securityholders upon exercise of the Redeemable Warrants owned by
such person.

(8) Constitutes 2.6% of the shares of Common Stock outstanding following
completion of the Offering.

(9) Constitutes 4.2% of the shares of Common Stock outstanding following
completion of the Offering.

(10) Constitutes 3.3% of the shares of Common Stock outstanding following
completion of the Offering.

(11) Constitutes 2.9% of the shares of Common Stock outstanding following
completion of the Offering.

(12) Constitutes 2.2% of the shares of Common Stock outstanding following
completion of the Offering.
(13) Purchased as part of the Company's private placement of Bridge Warrants
completed in 1995.
(14) Purchased as part of the Company's March 1996 Bridge Financing.
(15) Purchased as part of both the Company's private placement of Bridge
Warrants completed in 1995 and March 1996 Bridge Financing.

DISTRIBUTION

RESALE OFFERING

The sale of the shares of Common Stock is subject to the availability of a
Warrant Exercise Prospectus. A holder of shares of Common Stock who wishes to
resell shares of Common Stock must deliver a current version of this Prospectus
to the purchaser thereof. No such resale may occur prior to the delivery of a
current version of this Bridge Warrant Exercise Prospectus, and prior to the
disposition and release of the Redeemable Warrants and shares of Common Stock
underlying the Redeemable Warrants by the Selling Securityholders (formerly the
holders of the Bridge Warrants), the NASD will be notified and approval with
regard to the transaction must be granted by the NASD.

The holders of Redeemable Warrants which may be converted into shares of
Common Stock covered by this Prospectus are subject to lock-up agreements with
the Company and the Underwriter pursuant to which they may not resell and/or
exercise such Redeemable Warrants for a period of two (2) years following the
effectiveness of the Registration Statement without the prior consent of the
Company, but which restriction on sale and/or exercise immediately shall
terminate upon the successful completion of the Offering; and not to sell any
such Redeemable Warrants for a period of one (1) year from the effective date
of the Registration Statement without the prior consent of the Underwriter. The
Company has covenanted to keep the Registration Statement of which this
Prospectus forms a part effective in order to permit resales of shares of
Common Stock upon expiration of or release from such restrictions in the event
any such Redeemable Warrants are thereafter exercised.

The Selling Securityholders may sell the shares of Common Stock covered by
this Warrant Exercise Prospectus from time to time as market conditions permit
in the over-the-counter market in regular brokerage

3
<PAGE>

transactions, in transactions directly with market makers, or in certain
privately-negotiated transactions, or through a combination of such methods at
fixed prices, which may be changed, at market prices prevailing at the time of
sale or at negotiated prices. The Selling Securityholders may effect such
transactions by selling shares of Common Stock to or through broker-dealers,
and such brokers-dealers engaged by the Selling Securityholders may arrange for
other brokers or dealers to participate. Such brokers or dealers may receive
compensation in the form of discounts, concessions or commissions from the
Selling Securityholders or the purchaser of shares of Common Stock from whom
such broker dealer acted as agent, or to whom they sell as principal, or both
(which compensation, as to a particular broker-dealer, may be in excess of
customer commissions).

Upon receipt of the notice from the holder of shares of Common Stock, the
Company shall deliver to such holder a current version of this Prospectus,
appropriately amended to reflect such holder under the caption "Principal and
Selling Securityholders." No sale may be made by the holders of shares of
Common Stock covered by this Prospectus without delivery to the purchasers of
such shares of Common Stock of a current version of this Prospectus.

The holders of shares of Common Stock covered by this Prospectus, and any
other persons who participate in the sale of such shares of Common Stock, may
be deemed "underwriters" as defined in the Act. Any commissions paid or
discounts or concessions allowed to such persons, and any profits received on
resale of such shares of Common Stock, may be deemed to be underwriting
discounts and commissions under the Act.

4
<PAGE>

---------------

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Reports to Shareholders.................................................. 3
Prospectus Summary....................................................... 4
The Company.............................................................. 8
Dilution................................................................. 9
Risk Factors............................................................. 10
Capitalization........................................................... 20
Price Range of Common Stock.............................................. 21
Dividend Policy.......................................................... 21
Selected Consolidated Financial Data..................................... 22
Use of Proceeds.......................................................... 23
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 25
Business and Properties.................................................. 29
Management............................................................... 43
Principal and Selling Securityholders.................................... 46
Certain Transactions and Relationships................................... 50
Distribution............................................................. 55
Description of Securities................................................ 57
Shares Eligible for Future Sale.......................................... 60
Legal Matters............................................................ 61
Experts.................................................................. 61
Additional Information................................................... 61
Financial Statements..................................................... F-1
</TABLE>

---------------

UNTIL JANUARY 11, 1997, (25 DAYS FROM THE DATE OF THIS PROSPECTUS) ALL DEALERS
EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT PARTICIPAT-
ING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN
ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITER AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.

TRANS ENERGY, INC.

1,600,000 SHARES OF COMMON STOCK

L.B. SAKS, INC.

PROSPECTUS

DECEMBER 17, 1996
<PAGE>

NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMA-
TION OR TO MAKE ANY REPRESENTATION, OTHER THAN THOSE CONTAINED IN THIS PRO-
SPECTUS, IN CONNECTION WITH THE OFFERING DESCRIBED HEREIN, AND IF GIVEN OR
MADE, NO SUCH INFORMATION OR REPRESENTATION MAY BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR THE UNDER-WRITER. THE DELIVERY OF THIS PROSPECTUS
AT ANY TIME DOES NOT IMPLY THAT THERE HAS BEEN NO CHANGE IN THE INFORMATION
SET FORTH HEREIN OR IN THE AFFAIRS OF THE COMPANY SINCE THE DATE AS OF WHICH
SUCH INFORMATION IS GIVEN. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
SELL OR SOLICITATION OF AN OFFER TO BUY ANY SECURITY OTHER THAN THE SECURITIES
OFFERED HEREBY, OR AN OFFER TO SELL OR SOLICITATION OF AN OFFER TO BUY SUCH
SECURITIES IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AU-
THORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUAL-
IFIED TO DO SO OR TO ANY PERSON TO WHOM SUCH OFFER OR SOLICITATION WOULD BE
UNLAWFUL.

----------------

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Reports to Shareholders.................................................. 3
Prospectus Summary....................................................... 4
The Company.............................................................. 8
Dilution................................................................. 9
Risk Factors............................................................. 10
Capitalization........................................................... 20
Price Range of Common Stock.............................................. 21
Dividend Policy.......................................................... 21
Selected Consolidated Financial Data..................................... 22
Use of Proceeds.......................................................... 23
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 25
Business and Properties.................................................. 29
Management............................................................... 43
Principal and Selling Securityholders.................................... 46
Certain Transactions and Relationships................................... 50
Underwriting............................................................. 55
Description of Securities................................................ 57
Shares Eligible for Future Sale.......................................... 60
Legal Matters............................................................ 61
Experts.................................................................. 61
Additional Information................................................... 61
Financial Statements..................................................... F-1
</TABLE>

----------------

UNTIL JANUARY 11, 1997, (25 DAYS FROM THE DATE OF THIS PROSPECTUS) ALL DEALERS
EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT PARTICI-
PATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS
IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING
AS UNDERWRITER AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.

[LOGO OF TRANS ENERGY]
TRANS ENERGY, INC.

585,366 SHARES OF COMMON STOCK

1,200,000 REDEEMABLE COMMON STOCK PURCHASE WARRANTS

L.B. SAKS, INC.

PROSPECTUS

DECEMBER 17, 1996