As Filed with the Securities and Exchange Commission on June 23, 1999
Registration No. 333-65021
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1
to
FORM SB-2/A
REGISTRATION STATEMENT
under
THE SECURITIES ACT OF 1933
TRANS ENERGY, INC.
(Name of small business issuer in its charter)
Nevada 1311 93-0997412
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification
Number)
210 Second Street, P.O. Box 393, St. Marys, West Virginia 26170
(304) 684-7053
(Address and telephone number of principal executive offices)
210 Second Street, P.O. Box 393, St. Marys, West Virginia 26170
(Address of principal place of business or intended principal place of business)
Loren E. Bagley
Trans Energy, Inc.
210 Second Street, P.O. Box 393
St. Marys, West Virginia 26170
(304) 684-7053
(Name, address and telephone number of agent for service)
Copy to:
Leonard E. Neilson, Esq.
Leonard E. Neilson, P.C.
1121 East 3900 South, Suite C-200
Salt Lake City, Utah 84124
Approximate date of proposed sale to the public: As promptly
as practicable after the effective date of this Registration
Statement
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, please
check the following box and list the Securities Act
registration statement number of the earlier effective
registration statement for the same offering: [ ]
If this Form is a post-effective amendment filed pursuant
to Rule 462(c) under the Securities Act, check he following box and
list the Securities Act registration statement number of the
earlier effective registration
statement for the same offering: [ ]
If this Form is a post-effective amendment filed pursuant
to Rule 462(d) under the Securities Act, check the following box
and list the Securities Act registration statement number of
the earlier effective registration
statement for the same offering: [ ]
If delivery of the prospectus is expected to be made
pursuant to Rule 434, please check the following box:[ ]
<PAGE>
CALCULATION OF REGISTRATION FEE
Amount to Proposed Maximum Proposed Maximum Amount of
Title of Securities Be Offering Price Aggregate Offering Registration
to be Registered Registered Per Share Price Fee(1)
Common Stock, 30,040,000 $.25 per Share(2)(3) $7,510,000 $ 2,276
issuable upon Shares(3)
conversion of 8%
Convertible
Secured Debenture
Common Stock 1,000,000 $.25 per Share(2) $ 250,000 $ 76
Shares
TOTAL FEE $ 2,352(4)
(1) The fee with respect to these share and as required by Section
6(b) of the Securities Act of 1933, as amended, (the
"Securities Act"), has been calculated pursuant to Rule 457(c)
under the Securities Act and based upon the last sale price
per share of the Issuer's common stock on a date within five
(5) days prior to the date of filing this Registration
Statement, as reported by the OTC Bulletin Board.
(2) Estimated solely for purposes of calculating the registration
fee and base on the last sale price per share on June 17,
1999.
(3) Estimated 30,040,000 shares issuable upon conversion of
$4,625,400 aggregate principal amount of 8% Convertible
Secured Debentures at a conversion price for each share equal
to the lower of (a) seventy percent (70%) of the market price
of TSRG Common Stock averaged over the five trading days prior
to the date of conversion, or (b) the market price on the
issuance date of the Debentures. For purposes of this
Registration Statement and to allow for a possible decrease in
the market price, it is estimated that the Debentures would be
converted at $.154 per share, which is equal to 70% of an
estimated market price of $.22 per share, which is lower than
the price as of the close on June 17, 1999. The maximum
offering price per share is based upon the closing price of
the Common Stock on June 17, 1999, or $.25 because it
is higher than the estimated conversion price per share of the
8% Convertible Secured Debentures (in accordance with Rule
457(g)). The amount shown in the table above includes an
additional 4,936 shares for the possible issuance of
fractional and additional shares.
(4) A total of $2,401 has previously been paid.
The Registrant hereby amends this Registration Statement on
such date or dates as may be necessary to delay its effective date
until the Registrant shall file a further amendment which
specifically states that this Registration Statement shall
thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall
become effective on such date as the Commission, acting pursuant
to said Section 8(a), may determine.
PRELIMINARY PROSPECTUS SUBJECT TO COMPLETION
PROSPECTUS
Trans Energy, Inc.
31,040,000 Shares of Common Stock
($.001 par value)
Of the 31,040,000 shares of Common Stock, par value
$.001 per share (the "Common Stock"), of Trans Energy, Inc., a
Nevada corporation ("TSRG"), an estimated 30,040,000 shares
are being offered by certain selling securityholders (the "Selling
Securityholders"), which shares are issuable upon conversion by
the Selling Securityholders of $4,625,400 in principal amount of 8%
Secured Convertible Debentures Due March 31, 1999 (the
"Debentures"). Holders of the Debentures shall have the option
to convert the principal amount of their Debenture, or any portion
of the principal amount which is at least $10,000, into shares of
TSRG Common Stock at a conversion price for each share equal to the
lower of (a) seventy percent (70%) of the market price of TSRG
Common Stock averaged over the five trading days prior to the date
of conversion, or (b) the market price on the issuance date of the
Debentures. As of June 17, 1999, the closing market price of TSRG
Common Stock was $.25. Assuming the market price at the time of
conversion is $.22, a total of approximately 30,040,000 shares of
Common Stock would be issuable upon conversion of the
Debentures.
This Prospectus relates to the offer and sale by
Selling Securityholders of the Common Stock following
the conversion of Debentures by the Selling Securityholders.
The Selling Securityholders may be deemed to be "underwriters"
under Section 2(11) of the Securities Act of 1933, as amended (the
"Securities Act"). See "Selling Securityholders."
TSRG will not receive any proceeds from the sale of Common
Stock by the Selling Securityholders. Upon conversion of the
remaining balance of the Debentures, TSRG will have benefitted from
the cessation of its indebtedness represented by the Debentures in
the amount of $4,625,400. TSRG will bear all costs relating to the
registration of the Common Stock, which are estimated to be
approximately $50,000. See "Plan of Distribution."
It is anticipated that the Selling Securityholders will offer
such shares of Common Stock from time to time in market
transactions at the then prevailing market price and terms, or in
negotiated transactions or otherwise, and without the payment of
any underwriting discount or commission, except for usual and
customary selling commissions paid to brokers or dealers. The
Selling Securityholders also may sell such shares of Common Stock
from time to time, as might be permitted under Rule 144 promulgated
under the Securities Act. All expenses associated with the sale of
shares of Common Stock by the Selling Securityholders will be paid
by the Selling Securityholders.
An additional 1,000,000 shares of authorized but previously
unissued Common Stock will be offered hereunder from time to time
by TSRG. TSRG will offer these shares to the public at such time
as the prevailing market conditions are considered favorable.
TSRG Common Stock currently trades on the OTC Bulletin
Board under the symbol "TSRG." On June 17, 1999, the
last sale price of the Common Stock as reported by the OTC
Bulletin Board was $.25 per share. See "Plan of
Distribution."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SECURITIES AND EXCHANGE COMMISSION NOR HAS THE
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 7 OF THIS PROSPECTUS) AND "DILUTION."
Information contained herein is subject to completion or
amendment. A registration statement relating to these securities
has been filed with the Securities and Exchange Commission. These
securities may not be sold nor may offers to buy be accepted prior
to the time the registration statement becomes effective. This
prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of
these securities in any State in which such offer, solicitation or
sale would be unlawful prior to registration or qualification under
the securities laws of any such State.
The date of this Prospectus is June __, 1999
No person has been authorized in connection with this offering
to give any information or to make any representation other than as
contained in this Prospectus and, if given or made, such
information or representation must not be relied upon as having
been authorized by TSRG. This Prospectus does not constitute an
offer to sell or the solicitation of an offer to buy any securities
covered by this Prospectus in any state or other jurisdiction to
any person to whom it is unlawful to make such offer or
solicitation in such state or jurisdiction. Neither the delivery
of this Prospectus nor any sales made hereunder shall, under any
circumstances, create an implication that there has been no change
in the affairs of TSRG since the date hereof.
ADDITIONAL INFORMATION
TSRG is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"),
and files annual, quarterly and current reports, proxy statements
and other information with the Commission. Such reports,
statements or other information may be inspected and copied at the
Commission's public reference rooms at Room 1024, Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549 and at the following
Regional Offices of the Commission: Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661; and 7 World
Trade Center, Suite 1300, New York, New York 10048. Copies of such
material may also be obtained at the prescribed rates from the
Public Reference Section of the Commission at 450 Fifth Street,
N.W., Washington, D.C. The Commission also maintains a World Wide
Web site that contains reports, proxy and information statements,
and other information regarding registrants (including TSRG) that
file electronically with the Commission (http://www.sec.gov). TSRG
Common Stock is included on the OTC Bulletin Board and
reports, proxy statements and other information relating to TSRG
can be inspected at the offices of the NASD, 1735 K Street,
Washington, D.C., 20006.
TSRG has filed the Registration Statement to register with the
Commission the shares of TSRG Common Stock to be issued hereunder.
This Prospectus constitutes a part of the Registration Statement.
As allowed by the Commission rules, this Prospectus does not
contain all the information that can be found in the Registration
Statement or the exhibits to thereto.
There can be no assurance that the trading market for the
Common Stock on the OTC Bulletin Board will continue
following the Offering. TSRG intends to continue trading its Common
Stock, including the shares of Common Stock which are the subject
of this Offering, under the symbol "TSRG."
TSRG will furnish its shareholders with annual reports
containing audited financial statements and such other information
as TSRG deems appropriate or as may be required by law. TSRG's
fiscal year ends on December 31 of each year.
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 herein. This summary highlights selected information
from this Prospectus and may not contain all of the information
that is important to you. Prospective investors are urged to read
this Prospectus in its entirety.
Trans Energy, Inc.
TSRG is primarily engaged in the transportation, marketing and
production of natural gas and oil, and also oil and gas exploration
and development activities. TSRG owns and operates oil and gas
wells in West Virginia and Wyoming and also owns and operates gas
transmission lines located in West Virginia. During the past three
years, TSRG has engaged in limited developmental drilling and no
exploratory drilling. TSRG has operated primarily in the
Appalachian Basin in Northwestern West Virginia and also in
the Powder River Basin in Wyoming.
On June 26, 1998, TSRG entered into a Plan and Agreement of
Merger with Natural Gas Technologies, Inc. ("NGT"), a Dallas, Texas
based exploration company, pursuant to which NGT was to merge with
and into TSRG with TSRG being the surviving corporate entity. The
merger was to be accomplished by way of the exchange of 100% of the
issued and outstanding shares of NGT common stock and preferred
stock for shares of TSRG's common stock. On or about December 1,
1998, by mutual agreement of the parties, TSRG and NGT suspended
their plans to merge and terminated the Plan and Agreement of
Merger.
TSRG's business strategy is to economically increase
its reserves, production and sale of gas and oil from existing
wells and acquired properties in the Appalachian Basin and
elsewhere in order to maximize shareholders' return over the long
term. TSRG intends to actively pursue the acquisition and
development of producing properties in areas that will enhance
TSRG's revenue base without proportional increases in overhead
costs. To accomplish this strategy, TSRG has focused on increasing
its gas and oil revenues through well recompletions, property
acquisitions and exploitation programs. Well Recompletions
refers to re-entering an existing well and enhancing production by
stimulating the existing zones or opening new zones in the well
which exist, but have not been produced. Property acquisitions
refers to acquiring oil and gas leases which have oil and gas
potential in the form of existing production, or potential due to
the lease's close proximity to a producing oil or gas lease. An
exploitation program is one which takes advantage of increasing
production in an existing well by means of new perforations or by
existing zone stimulation, rather than drilling new wells.
By using the above described methods to increase production,
management believes that TSRG can increase revenues without
significantly increasing overhead costs. This is due to the fact
that TSRG will not be adding wells to the operating budget, rather
it will be increasing revenues on wells that are currently in
operations. Any new wells that would be acquired would be in the
existing area of operation and it is expected that any increase in
overhead costs would be minimal.
TSRG operates exclusively in the oil and gas industry. Natural
gas production from wells owned by TSRG is generally sold to
various intrastate and interstate pipeline companies and natural
gas marketing companies. Sales are generally made on the spot
market or under short-term contracts (one year or less) providing
for variable or market sensitive prices. These prices often are
tied to natural gas futures contracts as posted in national
publications. Natural gas delivered through TSRG's pipeline
network is sold under contract to one of two primary customers. As
of the date hereof, TSRG employs eight people full-time and
anticipates hiring additional employees as business warrants and as
funds are available. See "Business of TSRG."
TSRG'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.
THE OFFERING
Securities Offered . . . . . . . . Selling Securityholders are offering
an estimated 30,040,000
shares
of Common Stock issuable upon
conversion of 8% Convertible Secured
Debentures at a conversion price for
each share equal to the lower of (a)
seventy percent (70%) of the market
price of TSRG Common Stock averaged
over the five trading days prior to
the date of conversion, or (b) the
market price on the issuance date of
the Debentures. An additional
1,000,000 shares of Common Stock are
being offered to the public by TSRG.
Common Stock Outstanding
Before Offering: . . . . . . . .
2,639,081 shares
Common Stock Outstanding
After Offering:. . . . . . . . . 33,679,081 shares (1)
OTC Bulletin Board Symbol Common Stock: TSRG
Use of Proceeds. . . . . . . . . . TSRG will not receive any proceeds
from sales of the Shares by the
Selling Securityholders. Proceeds
from the sale by TSRG of the
1,000,000 shares of Common Stock
will be used for the development of
existing properties and wells and
the acquisition of additional
properties, wells and equipment.
Risk Factors . . . . . . . . . . . The securities offered hereby
involve a high degree of risk and
immediate substantial dilution and
should not be purchased by investors
who cannot afford the loss of their
entire investment. 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."
(1) Includes approximately 30,040,000 shares of Common
Stock issuable upon conversion of all the outstanding
Debentures based on a market price of $.22 of the
Common Stock at the time of conversion and also
includes 1,000,000 shares of Common Stock offered by
TSRG.
(2) Although TSRG's Common Stock presently is traded on the OTC
Bulletin Board, there is no assurance that such trading
will continue.
RISK FACTORS
An investment in the securities offered hereby is speculative
in nature and involves a high degree of risk including, but not
necessarily limited to, the factors described below. Prospective
purchasers should carefully consider the following risk factors,
among others, as well as the remainder of this Prospectus and
attached financial statements, prior to making an investment in
the securities of TSRG.
Substantial Dilution Upon Conversion of Debentures
Purchasers in this Offering will incur immediate and
substantial dilution in that the net tangible book value of each
outstanding share of Common Stock immediately after the Offering
will be significantly less than the public conversion price of the
Debentures. Conversion of the Debentures is based on the current
market price of the Common Stock and therefore, it is not possible
to determine how many shares will be issued upon conversion. There
are no limitations on the maximum number of shares that may be
issued on conversion Also, the lower the stock price at the time
of conversion, the more shares the Debenture holders will receive
which will increase dilution. Based on a conversion price of
$.154 per share, which is equal to 70% of an estimated market price
of $.22 per share at the time of conversion, a total of
approximately 30,040,000 shares of Common Stock would be issuable
upon conversion of the Debentures. See "Dilution".
Going Concern
TSRG has incurred operating losses for the years ended
December 31, 1998 , 1997 and 1996 and net operating losses
during each of such periods. TSRG's management has included a
footnote in TSRG's Consolidated Financial Statements for the
periods ended December 31, 1997 and 1998 relating to TSRG's
need for potential proceeds from contemplated debt and equity
financing and increases in operating revenues from new
developments to continue as a going concern. See Note 8 to
TSRG Consolidated Financial Statements.
Working Capital Deficit; Need for Additional Capital
At December 31, 1998 , TSRG had a working capital
deficit of $6,812,876, shareholders' equity of
$2,321,706 and sustained a net loss of $3,583,200 for
its fiscal year ended December 31, 1998. TSRG's working capital
at March 31, 1999 was a deficit of $7,435,985 and it sustained a
net loss of $1,771,839 for the three months ended March 31,
1999. No assurance can be given that TSRG will be
profitable in the future or that it will not continue to incur
substantial losses in the future. Development of the business
and the ongoing exploration and development of oil and gas
properties will continue to require significant capital
expenditures. Failure to have access to sufficient funds for
capital expenditures on acceptable terms or the failure to achieve
capital expenditure synergies may require the combined company to
delay or abandon some of its plans, which could have a material
adverse effect on the success of the Company.
Competition
The oil and gas industry is extremely competitive and TSRG
expects that competition will intensify in the future. TSRG
faces significant direct competition from numerous major and
independent oil and gas companies and other companies with greater
market share and resources. Many competitors are large, well-known
oil and gas and/or energy companies, although no single entity
dominates the industry. Many competitors possess greater financial
and personnel resources enabling them to identify and more
economically acquire desirable energy producing properties and
drilling prospects than TSRG . Additionally, there is
competition from other fuel choices to supply the energy needs of
consumers and industry. See "Business of TSRG - Competition."
Volatility of Gas and Oil Prices
TSRG'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 as well as governmental action and weather
conditions which are beyond the control of TSRG. These external
factors and the volatile nature of the energy markets make it
difficult to estimate future prices of gas and oil. Since 1991
TSRG's annual average gas sales price has ranged from a high of
$3.56 per Mcf in 1996 to a low of $2.02 per Mcf in 1995. TSRG's
annual average oil sales price has ranged from a high of $19.22 per
Bbl in 1996 to a low of $14.89 per Bbl in 1993. For the year ended
December 31, 1998, TSRG's average sales prices for gas and
oil were $2.70 per Mcf and $10.04 per Bbl,
respectively. During 1998, oil prices dropped to a low of
$10.35 per Bbl and, as of May 6, 1999, the price of oil was
$18.25 according to the WTI Crude Oil Posted Price. This
decline in oil prices has adversely affected TSRG's revenue Any
significant or extended decline in the prices of gas and oil could
have a material adverse effect on TSRG's financial condition and
results of operations. See Business of TSRG - Estimated Proved
Reserves" .
Quarterly Variations
TSRG'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, TSRG believes that its results of operations should
be viewed on an annual basis.
Uncertainties in Reserve Estimates
Estimates of TSRG's proved reserves and future net
revenues appearing elsewhere in this Prospectus are based primarily
on engineering reports. Gas and oil reserves cannot be measured in
an exact way, and estimates of other engineering reports 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. Reported estimates of future cash flows
reflect historical average gas and oil prices, however there can be
no assurance that such prices will be realized or that the volumes
projected will be produced during future periods. Future
performance that deviates from the engineering reports could have
a material adverse effect on the combined 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 combined company. See S.F.A.S.
69 Supplemental Disclosure Footnote to the Consolidated Financial
Statements of TSRG.
Reserve Replacement Risks
The future success of TSRG'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 combined company will not be able to
replace the reserves being depleted by production, and its assets
and revenues will decline over time. There can be no assurance that
TSRG's acquisition, exploitation, exploration and development
activities will result in the replacement of, or additions to, the
combined 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 TSRG 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.
Marketing Risks
The availability of a ready market for TSRG'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 TSRG'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, TSRG 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
combined company's future results of operation. See "Business of
TSRG - Marketing."
Operating Hazards and Environmental Risks
TSRG is subject to all risks normally incident to the
exploration for and production of gas and oil, including 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 combined
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, TSRG 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 combined company.
Dependence on Key Personnel
TSRG's future success is dependent on certain key management
personnel. The loss of key personnel or the inability to attract
and retain highly qualified personnel could adversely affect TSRG's
business. TSRG faces competition for such personnel from other
companies and organizations. There can be no assurance that TSRG
will be successful in hiring or retaining qualified personnel.
TSRG has not entered into employment agreements with any of its key
employees. See "Management."
Uncertain Effects of Government Regulation
TSRG , 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 management believes that TSRG
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 combined company's future operations. See "Business of
TSRG - Government 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 and an
intrastate pipeline company, TSRG is not directly subject to these
regulations. However, because TSRG'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 combined company's future operations may be effected by
these regulations. Consequently, TSRG is unable to predict the
ultimate impact of these regulations on TSRG's gas sales or prices.
See "Business of TSRG - Government Regulation."
Control of TSRG
Immediately following completion of this Offering ,
TSRG's executive officers, directors and other principal
shareholders, will beneficially own approximately
45% of TSRG's outstanding Common Stock. These shareholders
may be able to effectively control the outcome of all issues
submitted to a vote of shareholders, including the election of a
significant number of TSRG's directors. See "Principal
Shareholders" and "Description of Securities".
Possible "Penny Stock" Regulation
Trading of TSRG's Common Stock on the OTC Bulletin
Board may be subject to the provisions of Section 15(g) and
Rule 15g-9 of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), commonly referred to as the "penny stock" rule.
Section 15(g) sets forth certain requirements for transactions in
penny stocks and Rule 15g-9(d)(1) incorporates the definition of
penny stock as that used in Rule 3a51-1 of the Exchange Act. The
Commission generally defines penny stock to be any equity security
that has a market price less than $5.00 per share, subject to
certain exceptions. Section 3(a)(51)(A) of the Exchange Act
provides that any equity security is considered to be a penny stock
unless that security is: (a) registered or approved for
registration and traded on a national securities exchange meeting
specified criteria set by the Commission; (b) authorized for
quotation on an automated quotation system sponsored by a
registered securities association meeting certain criteria set by
the Commission; (c) issued by a registered investment company
registered under the Investment Company Act of 1940; (d) excluded
from the definition on the basis of price (at least $5.00 per
share), the issuer's net tangible assets; or (e) exempted from the
definition by rule, regulation or order of the Commission. If
TSRG's shares are deemed to be a penny stock, trading in the shares
will be subject to additional sales practice requirements on
broker-dealers who sell penny stocks to persons other than
established customers and accredited investors, generally persons
with assets in excess of $1,000,000 or annual income exceeding
$200,000, or $300,000 together with their spouse.
For transactions covered by these rules, broker-dealers must
make a special suitability determination for the purchase of such
securities and must have received the purchaser's written consent
to the transaction prior to the purchase. Additionally, for any
transaction involving a penny stock, unless exempt, the rules
require the delivery, prior to the first transaction, of a risk
disclosure document relating to the penny stock market. A broker-
dealer also must disclose the commissions payable to both the
broker-dealer and the registered representative, and current
quotations for the securities. Finally, monthly statements must be
sent disclosing recent price information for the penny stocks held
in the account and information on the limited market in penny
stocks. Consequently, these rules may restrict the ability of
broker-dealers to trade and/or maintain a market in TSRG's Common
Stock and may affect the ability of shareholders to sell their
shares.
No Dividends
TSRG has not paid any cash or other dividends or made
distributions on its Common Stock and TSRG does not anticipate
paying cash dividends or making distributions in the foreseeable
future. See "Dividend Policy".
Shares Eligible for Future Sale
Sale of substantial amounts of TSRG Common Stock in the public
market by existing shareholders, including shares issued pursuant
to the Merger and shares issued upon the exercise of certain stock
options, warrants and convertible debentures, or the perception
that such sales could occur, could materially and adversely affect
the prevailing market price for such shares. Actual sales, or the
prospect of sales by the present TSRG shareholders, or by future
holders of restricted securities under Rule 144 of the Securities
Act or otherwise, may, in the future, have a depressive effect upon
the price of TSRG Common Stock in the public trading market. See
"Business of TSRG Principal Shareholders." Additionally, all
shares of Common Stock issued hereunder will be immediately
tradeable in the public market unless held by an affiliate or
controlling shareholder of TSRG. See "Description of TSRG
Securities - Shares Eligible for Future Sale."
Possible Volatility of Price of Common Stock
TSRG Common Stock is currently traded on the OTC Bulletin
Board. There can be no assurance that a significant public
market for TSRG Common Stock will be sustained following this
offering. See "Market Prices of TSRG Common Stock and Dividends."
The trading price of TSRG Common Stock may respond to quarterly
variations in operating results, announcements of oil and gas
discoveries or acquisitions, and other events or factors including
the sale or attempted sale of a large amount of TSRG Common Stock
into the market. These broad market fluctuations may adversely
affect the market price of TSRG Common Stock.
Risks Associated with Forward-looking Statements
Forward-looking statements in this Prospectus are made
pursuant to the "safe harbor" provisions of the Private Securities
Litigation Reform Act of 1995. TSRG wishes to advise readers that
actual results may differ substantially from such forward-looking
statements. Forward-looking statements included herein are based
on current expectations that involve a number of risks and
uncertainties that could cause actual results to differ materially
from those expressed in or implied by the statements, including,
but not limited to, the following: (i) the ability of TSRG to
secure additional financing, (ii) the possibility of
success in TSRG's drilling endeavors, (iii) competitive
factors, and other risks detailed in TSRG's periodic report filings
with the Securities and Exchange Commission. The foregoing
assumptions are based on management's judgments with respect to,
among other things, future economic, competitive and market
conditions, and future business decisions, all of which are
difficult or impossible to predict accurately and many of which are
beyond TSRG's control. Accordingly, although management believes
that the assumptions underlying the forward-looking statements are
reasonable, any such assumption could prove to be inaccurate and
therefore there can be no assurance that the results contemplated
in forward-looking statements will be realized. In addition, as
disclosed elsewhere in the "Risk Factors" section of this
Prospectus, there are a number of other risks inherent in TSRG's
business and operations which could cause TSRG's operating results
to vary markedly and adversely from prior results or the results
contemplated by the forward-looking statements. Growth in absolute
and relative amounts of cost of goods sold and selling, general and
administrative expenses or the occurrence of extraordinary events
could cause actual results to vary materially from the results
contemplated by the forward-looking statements. Management
decisions, including budgeting, are subjective in many respects and
periodic revisions must be made to reflect actual conditions and
business developments, the impact of which may cause TSRG to alter
its marketing, capital investment and other expenditures, which may
also materially adversely affect TSRG's results of operations. In
light of significant uncertainties inherent in the forward-looking
information included in this Prospectus, the inclusion of such
information should not be regarded as a representation by TSRG or
any other person that TSRG's objectives or plans will be achieved.
See "Management's Discussion and Analysis" and "Business."
USE OF PROCEEDS
TSRG will not receive any proceeds from the sale of Common
Stock by the Selling Securityholders. Upon conversion of the
remaining balance of the Debentures, TSRG will have benefitted from
the cessation of its indebtedness represented by the Debentures in
the Principal amount of $4,625,400 and interest on the
Debentures that is accruing at the rate of eight percent (8%) per
annum.
Upon the sale by TSRG of the additional 1,000,000 shares of
Common Stock, TSRG would realize gross proceed of $250,000 ,
based on the current price of the Common Stock. It is estimated
that the costs associated to the offering and the registration
statement to which this Prospectus relates will be approximately
$50,000, assuming no commissions are paid for the sale of the
additional shares. Presently, TSRG has not entered into any
agreement or arrangement for the underwriting of the 1,000,000
shares or the assistance of any broker-dealer in the offering and
sale of such shares. Any such arrangement to pay a commission
would reduce the net amount of the proceeds accordingly.
After deducting the expenses associated with the registration
statement, it is expected that TSRG will realize approximately
$200,000 if all of the 1,000,000 shares are sold at the
current price of the Common Stock. It is anticipated that the net
proceeds will be used approximately as follows: Development of
Powder River Basin Properties $100,000; and development of other
existing properties $100,000. There can be no assurance that
TSRG will be able to sell all or a portion of these additional
1,000,000 shares and, accordingly, there can be no assurance that
it will realize any proceeds from the offering.
MARKET PRICES AND DIVIDENDS
TSRG Common Stock is traded on the OTC Bulletin Board
under the symbol "TSRG". The following table sets forth, for the
periods indicated the range of quarterly high and low sales prices
of TSRG as obtained from the NASD for the past two fiscal
years and through the date hereof for fiscal 1999. All
prices have been adjusted to reflect the one share for four shares
reverse split effected by TSRG on June 5, 1998. Price quotations
reflect inter-dealer prices, without retail market mark-up, mark-
down or commission and may not represent actual transactions.
High Low
1997
First Quarter $ 26.24 $ 8.00
Second Quarter $ 13.12 $ 5.00
Third Quarter $ 8.00 $ 2.52
Fourth Quarter $ 8.00 $ 2.52
1998
First Quarter $ 6.68 $ 2.00
Second Quarter $ 5.00 $ 2.13
Third Quarter $ 2.38 $ .50
Fourth Quarter $ 1.37 $ .44
1999
First Quarter $ 1.25 $ .62
Second Quarter(1) $ 1.03 $ .0625
(1) Through June 19, 1999
On May 19, 1999, The Nasdaq-Amex Market Group notified the
Company that its common stock was being removed from The Nasdaq
Stock Market because of the Company's failure to maintain certain
listing requirements and maintenance standards. The Company's
common stock will continue to be quoted on the OTC Bulletin Board.
Management is exploring its options to either appeal the decision
or to reapply for listing on The Nasdaq Stock Market.
As of June 19, 1999 , there were approximately
197 holders of record of TSRG Common Stock, which figure does
not take into account those shareholders whose certificates are
held in the name of broker-dealers and other nominees. TSRG
estimates that there are approximately 300 beneficial owners of
TSRG Common Stock including shareholders whose certificates are
held by broker-dealers or other nominees.
TSRG has not declared or paid cash dividends or made
distributions in the past and does not anticipate that it will pay
cash dividends or make distributions in the foreseeable future.
TSRG currently intends to retain and reinvest future earnings, if
any, to finance its operations.
The TSRG Reverse Stock Split
In May 1998, the TSRG Board declared the TSRG Stock Split in
connection with the Merger. Accordingly, on June 5, 1998, the
shares of TSRG Common Stock then outstanding were reverse split on
a one (1) share for four (4) shares basis. All shares of TSRG
Common Stock referred to in this Prospectus and in the Merger
Agreement, including price quotations, are stated on a post-split
basis.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following information should be read in conjunction with
the consolidated financial statements and notes thereto appearing
elsewhere in this Prospectus.
Results of Operations
Year Ended December 31, 1998 As Compared To The Year Ended December
31, 1997
Results of Operations
The following table sets forth the percentage relationship to
total revenues of principal items contained in TSRG's Statements of
Operations for the two most recent fiscal years ended
December 31, 1998, and 1997. It should be noted that percentages
discussed throughout this analysis are stated on an approximate
basis.
Fiscal Years Ended
December 31,
1998 1997
Total revenues . . . . . . . . . . . . . . . . . 100% 100%
Total costs and expenses . . . . . . . . . . . . 385 245
Total other income (expenses). . . . . . . . . . (22) (33)
Net income (loss) before taxes and
minority interest. . . . . . . . . . . . . . . (291) (178)
Income taxes . . . . . . . . . . . . . . . . . . - -
Net loss from discontinued operations. . . . . . 0 (4)
Minority interest. . . . . . . . . . . . . . . 0 0
Net income (loss). . . . . . . . . . . . . . . . (291) (182)
Total revenues of $1,230,916 for the year ended December 31,
1998 ("1998") increased 10% compared to $1,115,037 for the year
ended December 31, 1997 ("1997"). In 1998, oil made up 13% of
total revenues as compared to only 3% in 1997. Accordingly, gas
sales decreased from 97% of sales in 1997 to 77% in 1998. This
increase was due to the purchase of the Gulf Canada interests in
Wyoming which produces oil and not natural gas.
TSRG had a net loss of $3,583,200 for 1998. TSRG's total
costs and expenses increased from 245% of sales in 1997 to 385% of
sales in 1998. The cost of oil and gas decreased from 69% of sales
in 1997 to 65% of sales in 1998. Selling, general and
administrative expenses also decreased 62% due in part to the
issuance of stock by TSRG for services rendered. Salaries and wages
increased 62% due to TSRG's executives receiving a salary which is
being accrued by TSRG. Depreciation, depletion and amortization
increased 1073% in 1998 from 1997 due to the amortization of
offering costs in a capital raising transaction and acquisition of
Wyoming wells. Interest expense in 1998 increased 151% over 1997
due to the issuance of debentures.
Three Month Period Ended March 31, 1999 As Compared To The Three
Month Period Ended March 31, 1998
The following table sets forth the percentage relationship to
total revenues of principal items contained in the Company's
unaudited Consolidated Statements of Operations for the three month
periods ended March 31, 1999 and 1998.
Three Months Ended
March 31,
1999 1998
(Unaudited)
Total revenues. . . . . . . . . . . . . . . . . 100% 100%
Total costs and expenses. . . . . . . . . . . . 485 173
Net (loss) from operations. . . . . . . . . . . (385) (73)
Other income (expense). . . . . . . . . . . . . (279) (31)
Net (loss) before income taxes. . . . . . . . . (664) (104)
Income taxes. . . . . . . . . . . . . . . . . . - -
Net income (loss) . . . . . . . . . . . . . . . (664) (104)
Total revenues for the three months ended March 31, 1999
("first quarter of 1999") increased 29% when compared with the
three months ended March 31, 1998 ("first quarter of 1998"). This
increase is primarily attributed to the purchase of the Gulf Canada
well interests located in Powder River Basin of Wyoming. Total
costs and expenses as a percentage of total revenues increased from
173% in the first quarter of 1998 to 485% for the first quarter of
1999, and actual costs and expenses for the first quarter of 1999
increased 264% compared to the 1998 period. This increase is
attributed to significant increase in depreciation and amortization
expenses during the first quarter of 1999 related to the
acquisition of the Gulf Canada well interests. Salaries and wages
increased $5,993 (19%) to $25,801 in the first quarter of 1999
compared to the first quarter of 1998. Depreciation and depletion
increased from $40,632 in the first quarter of 1998 to $862,088 in
the first quarter of 1999 due primarily to the acquisition of the
Gulf Canada well interests. Selling, general and administrative
expenses increased $83,315 (37%) to $223,932 in the first quarter
of 1999 compared to the 1998 period. Interest expense increased
from $65,325 in the first quarter of 1998 to $743,741 in the first
quarter of 1999 due to increased borrowings related to the purchase
of the Gulf Canada interests.
The Company's net loss for the first quarter of 1999 was
$1,771,839 compared to $214,373 for the 1998 period. This increase
in the Company's net loss is attributed primarily to the increase
in interest expense and depreciation and amortization expenses
related to the Gulf Canada acquisition, and the increase in
selling, general and administrative expense.
For the remainder of fiscal year 1999, management expects
salaries and wages to remain at approximately the same rate as for
the first quarter of 1999. The cost of oil and gas produced is
expected to fluctuate with the amount produced and with prices of
oil and gas, and management anticipates that revenues are likely to
increase during the remainder of 1999.
Net Operating Losses
TSRG has accumulated approximately $12,320,000 of net
operating loss carryforwards as of December 31, 1998, which
may be offset against future taxable income through the year 2013
when the carryforwards expire. The use of these losses to reduce
future income taxes will depend on the generation of sufficient
taxable income prior to the expiration of the net operating loss
carryforwards. In the event of certain changes in control of TSRG,
there will be an annual limitation on the amount of net operating
loss carryforwards which can be used. No tax benefit has been
reported in the financial statements for the period ended
December 31, 1998 because the potential tax benefits of the
loss carryforward is offset by valuation allowance of the same
amount.
Liquidity and Capital Resources
Historically, TSRG's working capital needs have been satisfied
through its operating revenues and from borrowed funds. Working
capital at March 31, 1999 was a negative $7,435,985 compared to a
negative $6,812,876 at December 31, 1998. This 9% change is
primarily attributed to the 9% increase in accounts payable from
$1,029,461 as of December 31, 1998 to $1,124,894 as of March 31,
1999, and $571,521 increase (13%) in Debentures payable for the
same periods. The decrease in working capital was partially offset
by the $81,013 (14%) decrease in accrued expenses.
The Company anticipates meeting its working capital needs
during the remainder of the current fiscal year with revenues from
operations, particularly from its newly acquired Gulf Canada
interests in Wyoming. In the event revenues are not sufficient to
meet the Company's working capital needs, it will explore the
possibility of additional funding from either the sale of debt or
equity securities. The Company has no current agreements or
arrangements for additional funding and there can be no assurance
such funding will be available to the Company or, if available, it
will be on acceptable or favorable terms to the Company.
As of March 31, 1999, the Company had total assets of
$9,452,512 and total stockholders' equity of $817,367, compared to
total assets of $10,353,638 and total stockholders' equity of
$2,321,706 at December 31, 1998. This represents a $901,126
(9%)increase in total assets and a $1,504,339 (65%) decrease in
total stockholders equity for the period. This change is primarily
attributed to a decrease in certain prepaid costs and the increase
in current liabilities due to the increases in accounts payable and
debentures payable. Total assets were also affected by $675,443
recorded as prepaid closing costs in connection with the sale of
Debentures, and $687,173 recorded as prepaid advertising associated
with services paid for with proceeds from the Debentures offering.
In 1998, TSRG issued $4,625,400 face value of 8% Secured
Convertible Debentures Due March 31, 1999. A portion of the
proceeds were used to acquire the GCRL properties and interest in
Wyoming. Although the maturity date of the Debentures has passed,
TSRG believes that the Debentures will be converted into Common
Stock, unless the Company can negotiate an extension with the
holders. At March 31, 1999, the Company had debentures payable of
$4,818,265. See "Business - Recent Business Developments" and
"Description of Securities - TSRG Convertible Debentures."
In the opinion of management, inflation has not had a material
effect on the operations of TSRG.
Year 2000
Year 2000 issues may arise if computer programs have been
written using two digits (rather than four) to define the
applicable year. In such case, programs that have time-sensitive
logic may recognize a date using "00" as the year 1900 rather than
the year 2000, which could result in miscalculations or system
failures.
TSRG has completed its assessment of the Year 2000 issue and
believes that any costs of addressing the issue will not have a
material adverse impact on TSRG's financial position. TSRG
believes that its existing computer systems and software will not
need to be upgraded to mitigate the Year 2000 issues. TSRG has not
incurred any costs associated with its assessment of the Year 2000
problem. In the event that Year 2000 issues impact TSRG's
accounting operations and other operations aided by its computer
system, TSRG believes, as part of a contingency plan, that it has
adequate personnel to perform those functions manually until such
time that any Year 2000 issues are resolved.
TSRG believes that third parties with whom it has material
relationships will not materially be affected by the Year 2000
issues as those third parties are relatively small entities which
do not rely heavily on information technology ("IT") systems and
non-IT systems for their operations. However, if TSRG and third
parties upon which it relies are unable to address any Year 2000
issues in a timely manner, it could result in a material financial
risk to TSRG, including loss of revenue and substantial
unanticipated costs. Accordingly, TSRG plans to devote all
resources required to resolve any significant Year 2000 issues in
a timely manner.
Inflation
In the opinion of management, inflation has not had a material
effect on the operations of TSRG.
BUSINESS OF TSRG
TSRG is primarily engaged in the transportation, marketing and
production of natural gas and oil, and also conducts exploration
and development activities. TSRG 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 these wells and from wells owned by third parties. TSRG
has approximately 2,200 leasehold acres in the Sistersville, West
Virginia field which forms part of the Keener and Big Injun sands
geological formations, and 800 acres in the Powder River Basin in
Crook County, Wyoming, none of which has contributed to the
revenues of TSRG to date.
TSRG was originally organized on January 16, 1964 under the
laws of the State of Idaho as Alter Creek Mining Company, Inc.
TSRG changed its name to Apple Corp. in January, 1988, and then to
Trans Energy, Inc. in September 1993, at which time its domicile
was changed to the State of Nevada.
TSRG's principal executive offices are located at 210 Second
Street, P.O. Box 393, St. Marys, West Virginia 26170, and its
telephone number is (304) 684-7053.
Business Development
TSRG has engaged in limited developmental drilling and no
exploratory drilling in the last three years. Exploratory drilling
involves drilling wells in areas where there are no proved 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. In 1997, TSRG
participated in two developmental drilling projects. One well was
drilled on the Big Injun formation underlying TSRG's Sistersville,
West Virginia acreage and one well was drilled on TSRG's acreage in
the Powder River Basin in Wyoming.
TSRG has operated primarily in the Appalachian Basin,
principally 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. 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.
TSRG intends to focus its activities in the Appalachian Basin,
which is geographically one of the largest gas and oil producing
regions, and also in the Powder River Basin in Wyoming. Operators
in the Appalachian Basin historically have experienced high
drilling success rates in the formations of the Basin, with wells
generally producing for more than 25 years although at low
production volumes. The Appalachian Basin is located in close
proximity to the largest gas markets in the United States and,
historically, this has generally resulted in wellhead gas prices
somewhat higher than those prices received in the Gulf Coast and
the Mid-Continent producing regions.
TSRG's business strategy is to economically increase its
reserves, production and sale of gas and oil from existing and
acquired properties in the Appalachian Basin and elsewhere in order
to maximize shareholders' return over the long term. TSRG's
strategic location in West Virginia enables TSRG to actively pursue
the acquisition and development of producing properties in that
area that will enhance TSRG's revenue base without proportional
increases in overhead costs. TSRG has directed its attention to
Appalachian Basin properties in which it will have a significant
ownership interest and will serve as operator.
To accomplish this strategy, TSRG has focused on increasing
its gas and oil revenues through well recompletions, property
acquisitions and exploitation programs. Since 1992, TSRG's proved
reserves of natural gas and oil have increased to 1,714 MMcf
and to 1,705 MBbl, respectively. There can be no assurance,
however, that TSRG will be able to continue to expand its proved
reserves of natural gas and oil.
In September 1993, TSRG acquired certain oil and gas assets
including wells and pipelines, in exchange solely for shares of
TSRG's authorized but previously unissued common stock. These
acquisitions are summarized below:
Tyler Construction Company, Inc.
In September 1993, TSRG acquired an interest equal to 65% of
the total outstanding shares of Tyler Construction Company ("Tyler
Construction") from Loren E. Bagley, TSRG's President and a
director, and William F. Woodburn, TSRG's Vice President of
Operations and a director. Tyler Construction owns and operates a
natural gas gathering pipeline system serving the industrialized
Ohio Valley. Tyler Construction also owns and operates 27 miles of
six-inch pipeline and 10 miles of four-inch pipeline.
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. Pursuant to its
agreement with Sancho, TSRG 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 Gas, Inc. ("Hope") in
1988. This agreement is a flexible volume supply agreement whereby
TSRG 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 in September 1993, TSRG acquired from Dennis L. Spencer
all rights, title and interest to six producing oil and gas wells
located in West Virginia, in exchange for TSRG shares. Five of the
wells identified as "Fowler," "Goff," "Locke," "McGill" and
"Workman" are situated in Ritchie County in a proven reservoir
field. The remaining well identified as "Spencer," is located in
Tyler County. All six wells were completed in 1991 and have been
producing oil and gas through the date hereof.
The Pipeline, Ltd.
Also in September 1993, TSRG acquired from Tyler Pipeline,
Inc. ("Tyler Pipeline") all rights, title and interest in the
natural gas gathering pipeline system known as The Pipeline, Ltd.
(the name of the pipeline, not a legal entity), 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. Mr. Woodburn, Vice President and a director
of TSRG, is also President and owns 50% of Tyler Pipeline. Mr.
Bagley, President and a director of TSRG, also owns 50% of Tyler
Pipeline.
Ritchie County Gathering Systems, Inc.
In September 1993, TSRG acquired all the issued and
outstanding capital stock of Ritchie County Gathering Systems,
Inc., a West Virginia corporation ("Ritchie County Gathering").
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 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 Hope.
Recent Business Developments
On March 6, 1998, TSRG entered into an agreement to purchase
from GCRL Energy, Ltd. ("GCRL") all of GCRL's interest in the
Powder River Basin in Campbell and Crook Counties, Wyoming,
consisting of interests in five (5) wells, four (4) of which are
producing, interests in 30,000 leasehold acres, and interests in
approximately seventy-three square miles of 3-D seismic
data. The properties include three producing fields from Minnelusa
Sandstone and were discovered on 3-D seismic. GCRL was an asset
owned by Gulf Canada Resources Ltd., a publicly held oil and gas
company located in Calgary, Alberta. Under the terms of the
agreement, TSRG made an initial payment for the properties of
$50,000 and the balance of $2,987,962 was paid for with proceeds
from the sale of TSRG's Debentures. TSRG obtained the $50,000 for
the initial payment for the properties from a loan in that amount
from NGT on February 25, 1998.
The following table sets forth information concerning the
existing oil production per day of the producing wells located on
the GCRL property.
Gross Bbls.
Name of Well Oil Per Day Net % to TSRG Net Bbls. to TSRG
Sagebrush Fed #1 105 48.8% 51
Sagebrush Fed #2 77 47.5% 37
Pinon Fee #1 38 51.2% 20
Sandbar Boley 31-36 54 .22% 1
Sandbar State 1-36 0 14.2% 0
Sandbar State 2-36 31 33% 10
TOTAL 305 119
Current Business Activities
TSRG 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 West Virginia.
Management has expressed its desire to acquire additional oil and
natural gas properties and to become more involved in exploration
and development, specifically in the Powder River Basin in Wyoming.
Management intends to continue to develop and increase the
production from the oil and natural gas properties that it
currently owns.
Although TSRG 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 1999 .
Apart from the two wells drilled in the Powder River Basin in
Wyoming and Sistersville, West Virginia, TSRG has not drilled any
new wells in the last three years.
Powder River Basin Wyoming
On December 28, 1996, TSRG purchased 420 acres in the Powder
River basin in the State of Wyoming for $50,000 from an
unaffiliated third party. Included in the purchase price was a
condition that the previous owners would provide all of the
geologic and geophysical work as part of the purchase price. On
February 3, 1997 TSRG leased an additional 480 acres that joined
with its acreage position. The target formation is the Minnelusa
"B1" sand. There presently are no producing wells on such acreage
and no proved reserves located on the acreage owned by TSRG.
Five two-dimensional ("2-D") seismic lines and a 6-square mile
three-dimensional ("3-D") seismic program have been shot across the
acreage now held by TSRG. Unlike 2-D seismic testing which
provides a cross-sectional view of the subsurface of the Earth, 3-D
testing provided a full, three-dimensional view of the subsurface.
Such views allow for greater precision in the location of potential
drilling sites. 3-D testing allows potential drillers to obtain
accurate estimates of the size of oil and gas bearing structures
and the profile of the structure. 2-D testing only informs the
driller that an oil and gas bearing structure is in a particular
area, without giving information as to size and shape. Without an
accurate estimate of the size of the oil and gas bearing
structures, it is difficult to accurately estimate the reserves in
the structure, and, thus, the economic viability of drilling into
a particular structure. Without an accurate profile of the
structure, a driller may not hit the most economic portion of the
structure.
Water pressure primarily is responsible for the movement of
oil within the area of TSRG's acreage. 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.
TSRG completed the drilling of the Fowler 22-8 in January 1998
and determined the well to be a dry hole and was plugged. TSRG
has not drilled additional wells on its acreage during 1998
or 1999 .
Powder River Basin Wyoming Wolffe Prospect
On May 27, 1997, TSRG purchased a 30% working interest in the
Wolffe Prospect in the Powder River Basin in Campbell County,
Wyoming for $65,000 from an unaffiliated third party. Included in
the purchase price was a 30% working interest in the Wolffe #1-35
well and 30% interest in 240 acres. In October 1997, TSRG
participated in its share of the drilling of the Horizon 32-35
well. The target formation was the Minnelusa "B1" sand. The well
was determined to be a dry hole and plugged.
Sistersville
Effective June 1, 1995, TSRG purchased approximately 2,200
acres in a known producing field located near Sistersville, West
Virginia for $100,000. The Sistersville field has been in
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 TSRG intends to explore. These
formations are approximately 1,700 feet deep. Recoverable reserves
of oil in the field are estimated at several million barrels.
TSRG 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 TSRG indicating substantial reserves were included in
the purchase price paid by TSRG for the Sistersville acreage. TSRG
drilled a well on its Sistersville acreage in April 1997.
Vulcan Energy Corporation.
During March 1997, TSRG announced plans to cease operations
of Vulcan Energy Corporation ("Vulcan"), its 80% owned
subsidiary, engaged in the lease crude oil gathering and marketing
in Southeast Texas. Vulcan remains inactive and TSRG retains no
assets which were attributable to Vulcan. Financial information
with respect to discontinued operations is presented in Note 9 to
TSRG's consolidated financial statements.
Research and Development
TSRG has not allocated funds for conducting research and
development activities and, due to the nature of TSRG's business,
it is not anticipated that funds will be allocated for research and
development in the immediate future.
Marketing
TSRG operates exclusively in the oil and gas industry. Natural
gas production from wells owned by TSRG is generally sold to
various intrastate and interstate pipeline companies and natural
gas marketing companies. Sales are generally made on the spot
market or under short-term contracts (one year or less) providing
for variable or market sensitive prices. These prices often are
tied to natural gas futures contracts as posted in national
publications.
Natural gas delivered through TSRG's pipeline network is sold
either to Sancho Oil and Gas Corporation ("Sancho") at the
industrial facilities near Sistersville, West Virginia, or to
Hope, a local utility, on a year long basis ending January 31, 1999
at a variable price per month per Mcf. Under its contract with
Sancho, TSRG 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 TSRG receives the full price which
Sancho charges the end user less a $.05 per Mcf marketing fee paid
to Sancho. The price of the natural gas is based upon the greater
of the residential gas commodity index and published Inside
F.E.R.C. Index, at TSRG'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 TSRG there can be no assurance that prices paid by TSRG to
suppliers will be lower than the price which TSRG 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, TSRG's ability to purchase gas from
third parties was adversely effected.
TSRG 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 TSRG is not dependent upon
any one customer, its marketing arrangement with Sancho Oil and Gas
Corporation accounted for approximately 47% of TSRG's revenue for
the year ended December 31, 1998 , and approximately
47% for the year ended December 31, 1997 . This
marketing agreement is in effect until September 1, 2008 .
The majority of the balance of the gas sold by TSRG is marketed
under a one year contract with Hope. The price under the agreement
is set monthly and gas is sold as available with no volume
requirements or restrictions. Sales to this customer made up
approximately 49% of net revenues in 1998 . No other single
customer accounts for more than 10% of TSRG's business.
In addition to the natural gas produced by TSRG's wells, it
also purchased approximately 400 Mcf of natural gas per day
in 1998 .
Competition
TSRG is in direct competition with numerous oil and natural
gas companies, drilling and income programs and partnerships
exploring various areas of the Appalachian and Powder River Basins
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 TSRG's competitors
possess greater financial and personnel resources enabling them to
identify and acquire more economically desirable energy producing
properties and drilling prospects than TSRG. 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.
Under its contract with Sancho, TSRG 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 TSRG
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
relationship between Hope and Sancho, Hope would compete directly
with TSRG for the sale of gas to certain customers, specifically
OSI Specialities, Inc. and Ormet Aluminum Company.
Government Regulation
The oil and gas industry is extensively regulated by federal,
state and local authorities. The scope and applicability of
legislation is constantly monitored for change and expansion.
Numerous agencies, both federal and state, have issued rules and
regulations binding on the oil and gas industry and its individual
members, some of which carry substantial penalties for
noncompliance. To date, these mandates have had no material effect
on TSRG's capital expenditures, earnings or competitive position.
Legislation and implementing regulations adopted or proposed
to be adopted by the Environmental Protection Agency ("EPA") and by
comparable state agencies, directly and indirectly affect TSRG's
operations. TSRG 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.
TSRG 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 TSRG to comply with all environmental
regulations. It is conceivable that future legislation or
regulations may significantly increase environmental protection
requirements and, as a consequence, TSRG'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 TSRG is in compliance with all present
environmental regulations.
TSRG'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.
TSRG 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 TSRG's
aggregate production expenses. Nevertheless, TSRG is unable to
predict the ultimate cost of compliance.
Although 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 federal, state and local legislation, while not
directly applicable to TSRG, may have an indirect effect on the
cost of, or the demand for, natural gas and oil.
Employees
As of the date hereof TSRG employs eight people full-time,
consisting of two executives, two marketing and clerical
person, and four production persons. Management
presently anticipates hiring additional employees as the business
warrants and as funds are available.
Facilities
TSRG's operations currently occupy approximately 4,000 square
feet of office space in St. Marys, West Virginia, which it shares
with its subsidies Tyler Construction Company, Inc. and Ritchie
County Gathering Systems, Inc. TSRG leases an aggregate of
approximately 4,000 square feet from an unaffiliated third party
under a verbal arrangement for $1,400 per month, inclusive of
utilities. Management believes that its present office facilities
are adequate for TSRG's current business operations.
Description of TSRG Property
TSRG operates and receives gas and oil revenues from 105
wells. Of these wells, 85 gross wells (wells in which a working
interest is owned) are gas wells and represent 77 net wells. A net
well is deemed to exist when the sum of fractional ownership
working interests in gross wells equals one. The remaining 20
gross wells are oil wells which represent 18 net wells. A total of
28 wells are considered to have multiple completions, one or more
completions in the same bore hole. It is TSRG's policy to acquire
existing wells and to continually review its holdings and either
add new wells or dispose of existing wells. Seventy-five percent
of TSRG'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. TSRG's
ownership interest varies from well to well with the composite
ownership working interest in the wells at approximately 91% at the
end of 1998 .
TSRG's producing wells hold approximately 5,636 gross acres
under lease, which TSRG believes include a substantial number of
promising development prospects. In addition, TSRG's has
approximately 800 acres under lease in Wyoming. TSRG's
Sistersville acreage consists of approximately 2,200 acres and has
been extensively explored by numerous oil and gas operators and has
proved undeveloped reserves.
TSRG's productive wells are situated on 5,636 gross acres
(acres upon which a working interest is owned) which represent
5,412 net acres. A net acre is deemed to exist when the sum of
fractional ownership working interests in gross acres equals one.
Substantially all of TSRG's interests are held pursuant to
leases from third parties. Title to properties is subject to
royalty, over-riding 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. TSRG believes that such
burdens neither materially detract from the value of such
properties nor the respective interests therein, or materially
interfere with their use in the operation of the business.
As is customary in the industry in the case of undeveloped
properties, little investigation of record title is made at the
time of lease acquisition (other than a preliminary review of local
records). Investigations, including a title opinion of local
counsel, are generally made prior to the consummation of an
acquisition of larger properties and before commencement of
drilling operations.
Estimated Proved Reserves.
TSRG's properties consist essentially of the working and
royalty interests owned by TSRG in various oil and gas wells and
leases located in West Virginia. Proved oil and gas reserves are
the estimated quantities of crude oil, natural gas, and natural gas
liquids which geological and engineering data demonstrate with
reasonable certainty to be recoverable in future years from known
reservoirs under existing economic and operating conditions, that
is, prices and costs as of the date the estimate is made. Prices
include consideration of changes in existing prices provided only
by contractual arrangements, but not on escalations based upon
future conditions. TSRG's proved reserves for the years ended
December 31, 1998, 1997 and 1996 are set forth below:
December 31,
1998 1997 1996
Natural Gas (Mcf)
Developed 912,428 979,662 875,705
Undeveloped 801,654 801,654 801,654
Total Proved 1,714,082 1,781,316 1,677,359
Crude Oil (MBbl)
Developed 1,504,813 30,870 16,343
Undeveloped 200,721 180,000 180,000
Total Proved 1,705,534 210,870 196,343
These estimates are bases primarily on the reports of Sam M.
Deal & Associates, independent petroleum engineers. Such reports
are, by their very nature, inexact and subject to changes and
revisions. Proved developed reserves are reserves expected to be
recovered from existing wells with existing equipment and operating
methods. Proved undeveloped reserves are expected to be recovered
from new wells drilled to known reservoirs on undrilled acreage for
which existence and recoverability of such reserves can be
estimated with reasonable certainty, or from existing wells where
a relatively major expenditure is required to establish production.
No estimates of reserves have been included in any reports to any
federal agency other than the Securities and Exchange Commission.
See SFAS 69 Supplemental Disclosures included as part of the
Consolidated Financial Statements of TSRG.
Set forth in the following schedule is the average sales price
per unit of oil, expressed in barrels ("bbl"), and of natural gas,
expressed in thousand cubic feet ("mcf"), produced by TSRG for the
past three fiscal years.
Years ended December 31,
Average sales price: 1998 1997 1996
Gas (per mcf) $ 2.70 $ 2.95 $ 3.56
Oil (per bbl) 10.04 16.44 19.22
Average cost of production:
Gas (per mcf) 1.38 1.09 $ 1.02
Oil (per bbl) 8.28 6.54 6.12
TSRG has not filed any estimates of total, proved net oil and
gas reserves with any federal authority or agency since the
beginning of TSRG's last fiscal year.
The following schedule sets forth the capitalized costs
relating to oil and gas producing activities by TSRG for the past
three fiscal years.
Years ended December 31,
1998 1997 1996
Proved oil and gas
producing properties
and related lease
and well equipment $7,553,880 $4,122,311 $3,799,387
Accumulated depreciation
and depletion (527,140) (433,799) (407,934)
Net Capitalized Costs $7,026,840 $3,688,512 $3,391,453
The following schedule summarizes changes in the standardized
measure of discounted future net cash flows relating to TSRG's
proved oil and gas reserves.
Years ended December 31,
1998 1997 1996
Standardized measure,
beginning of year $3,534,828 $3,611,702 $4,063,885
Oil and gas sales, net
of production costs (589,705) (76,874) (452,183)
Sales of mineral in place - - -
Purchases 5,289,539 - -
Quantity estimates made 1,261,032 - -
Standardized measure,
end of year $9,495,694 $3,534,828 $3,611,702
TSRG does not anticipate investing in or purchasing assets
and/or property for the purpose of capital gains. It is TSRG's
intention to purchase assets and/or property for the purpose of
enhancing its primary business operations. TSRG is not limited as
to the percentage amount of TSRG's assets it may use to purchase
any additional assets or properties.
TSRG Legal Proceedings
There are no material pending legal proceedings to which TSRG
is a party or to which any of its property is subject except as set
forth below.
On May 14, 1997, a complaint entitled R&K Oil Company, Inc.
vs. Vulcan Energy Corporation and Trans Energy, Inc. was filed in
District Court, Andrews County, Texas, 109th Judicial District
(File #14,430). The complaint alleges TSRG owes R&K Oil Company,
Inc. $126,978 as a result of business transacted by Vulcan Energy
Corporation. The complaint also seeks $500,000 for breach of
contract.
TSRG settled the suit for $15,000 in December
1998.
On March 12, 1997, a complaint entitled F. Worthy Walker vs.
Loren Bagley, William Woodburn, Mark Woodburn, Trans Energy, Inc.
and Vulcan Energy Corporation, was filed in the District Court of
Dallas, Texas (# 9702304C). The complaint alleges that TSRG
breached certain contracts related to Mr. Walker's employment with
Vulcan Energy Corporation, and seeks punitive and exemplary
damages. TSRG denies all allegations and intends to vigorously
defend its position. Management believes that the results of the
proceedings will not have a material adverse effect on TSRG. On
February 17, 1998, TSRG and the above named defendants filed a
countersuit against F. Worthy Walker alleging breach of contract,
fraud and fraudulent inducement, conversion, and breach of
fiduciary duty and seeks punitive damages. TSRG intends to
vigorously pursue its countersuit against Mr. Walker.
Convertible Debenture Financing
In connection with the abandoned Merger with NGT, TSRG
committed to raise a minimum of $4,000,000 pursuant to a private
placement of its securities. Accordingly, TSRG made an offering of
the "Debentures" in an aggregate maximum amount of $4,850,000.
TSRG declared the offering closed on September 10, 1998. Gross
proceeds realized from the sale of the Debentures was $4,625,400.
Shares issuable upon conversion of the Debentures are subject to
this Prospectus.
Interest shall accrue upon the date of issuance of the
Debentures until payment in full of the principal sum has been made
or duly provided for. Holders of the Debentures shall have the
option, at any time, until maturity, to convert the principal
amount of their Debenture, or any portion of the principal amount
which is at least $10,000, into shares of TSRG Common Stock at a
conversion price for each share equal to the lower of (a) seventy
percent (70%) of the market price of TSRG Common Stock averaged
over the five trading days prior to the date of conversion, or (b)
the market price on the issuance date of the Debentures.
Although the date of maturity has passed, Debenture holders still
have the option to convert their Debentures. Any accrued and
unpaid interest shall be payable, at the option of TSRG, in cash or
in shares of TSRG Common Stock valued at the then effective
conversion price.
Pursuant to the terms of the Debentures, TSRG has agreed to
file a registration statement with the Commission to register the
shares of TSRG Common Stock into which the Debentures may be
converted. This Prospectus forms a part of that registration
statement. Upon effectiveness of the registration statement, the
shares of TSRG Common Stock underlying the Debentures, when issued,
will be deemed registered securities and will not be restricted as
to the resale of such securities. If TSRG fails to file its
registration statement within forty-five (45) days from the closing
of the Debenture offering, TSRG may be obligated to increase by up
to fifteen percent (15%) the number of shares issuable upon
conversion to each holder. As of the date hereof, there has
been no increase in the number of shares to be issued upon
conversion.
Proceeds from the sale of Debentures have been used to
purchase the assets of Gulf Canada Resources Limited in the Powder
River Basin in Wyoming and to retain the services of Corporate
Relations Group, a public relations firm.
The TSRG Board of Directors believes that the acquisition of
the GCRL assets provides TSRG with potential for the development of
significant quantities of oil. The average producing oil well in
the Minnelusa formation, which is the target zone, historically has
produced in excess of approximately 450,000 barrels of oil.
Management anticipates, based on the 3-D seismic, to possibly
discover several additional multi-well fields on the 30,000 acres
acquired. The TSRG Board did consider the fact that its
shareholders would be significantly diluted due to the issuance of
shares underlying the Debentures. However, the Board believes that
the potential additional revenues to be derived from the GCRL
properties when fully developed will compensate for the initial
dilution suffered by shareholders.
MANAGEMENT OF TSRG
Officers and Directors
The following table sets forth the names, ages, and offices
held with TSRG by it's directors and executive officers:
Name Position Director Since Age
Loren E. Bagley President, C.E.O. August 1991 56
and Director
William F. Woodburn Vice President August 1991 57
and Director
John B. Sims Director January 1988 73
Gary F. Lawyer Director December 1997 51
All directors hold office until the next annual meeting of
shareholders and until their successors have been duly elected and
qualified. There are no agreements with respect to the election of
directors. TSRG has not compensated its directors for service on
the TSRG Board or any committee thereof, but directors are
reimbursed for expenses incurred for attendance at meetings of the
TSRG Board and any committee thereof. Executive officers are
appointed annually by the TSRG Board and each executive officer
serves at the discretion of the TSRG Board. The Executive
Committee of the TSRG Board, to the extent permitted under Nevada
law, exercises all of the power and authority of the TSRG Board in
the management of the business and affairs of TSRG between meetings
of the TSRG Board.
The business experience of each of the persons listed above
during the past five years is as follows:
Loren E. Bagley has been Executive Vice President of TSRG
since August, 1991, and became President and C.E.O. in September,
1993. From 1979 to the present, Mr. Bagley has been self-employed
in the oil and gas industry as president, C.E.O. or vice president
of various corporations which he has either started or purchased,
including Ritchie County Gathering Systems, Inc. Mr. Bagley's
experience in the oil and gas industry includes acting as a lease
agent, funding and drilling of oil and gas wells, supervising
production of over 175 existing wells, contract negotiations for
purchasing and marketing of natural gas contracts, and owning a
well logging company specializing in analysis of wells. Prior to
becoming involved in the oil and gas industry, Mr. Bagley was
employed by the United States government with the Agriculture
Department. Mr. Bagley attended Ohio University and Salem College
and earned a B.S. Degree.
William F. Woodburn has served as Vice President in charge of
Operations and a director of TSRG since August, 1991 and has been
actively engaged in the oil and gas business in various capacities
for the past fifteen 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 shareholder and serves
as President of Tyler Construction Company, Inc., and is also a
shareholder of Tyler Pipeline, Inc. which owns and operates oil and
gas wells in addition to natural gas pipelines, and Ohio Valley
Welding, Inc. which owns a fleet of heavy equipment that services
the oil and gas industry. Prior to his involvement in the oil and
gas industry, Mr. Woodburn was employed by the United States Army
Corps of Engineers for twenty four years and was Resident Engineer
on several construction projects. Mr. Woodburn graduated from West
Virginia University with a B.S. in civil engineering.
John B. Sims served as President, C.E.O. and a director of
TSRG from 1988 to September, 1993 and currently is a director.
Prior to joining TSRG and from 1984 to 1988, Mr. Sims was the
General Partner of Ben's Run Oil Company which was acquired by TSRG
in January, 1988. Mr. Sims has also been the general partner for
fourteen limited partnerships from 1977 to 1984 drilling a total of
twenty eight wells. Prior to his involvement in the oil and gas
business, Mr. Sims was a real estate developer for twenty years as
well as an exclusive real estate broker for Ednam Forrest in
Charlottesville, Virginia. During 1994, Mr. Sims voluntarily
initiated a personal bankruptcy proceeding pursuant to Chapter 7 of
the United States Bankruptcy Code. Pursuant to the terms of such
proceeding, Mr. Sims was discharged of certain of his debts which
were incurred as a consequence of his personal guarantees of
certain business related debts, not related to TSRG, upon which the
primary obligor defaulted.
Gary F. Lawyer became a director of TSRG in December 1997.
Gary F. Lawyer has been President and a major shareholder of
GeoSense, Inc. which is an international oil and gas
exploration/exploitation and production consulting company based in
Englewood, Colorado since 1991. Prior to founding GeoSense, Inc.,
Mr. Lawyer has been employed in several executive and managerial
positions with various energy companies for the past 25 years. Mr.
Lawyer received his Master of Science degree in Geology from
Brigham Young University.
Cash Compensation
The following table sets forth all cash compensation paid by
TSRG for services rendered to TSRG for the years ended December 31,
1996, 1997 and 1998 , to TSRG's Chief Executive Officer. No
executive officer of TSRG has earned a salary greater than $100,000
annually for any of the periods depicted.
Summary Compensation Table
Other All
Annual Other
Name and Compen- Compen-
Principal Position Year Salary Bonus sation sation
Loren E. Bagley, 1998 $ -0- $ -0- $ -0- $ -0-
President, C.E.O. 1997 $18,000 -0- -0- -0-
1996 -0- -0- -0- -0-
Principal Shareholders
The following table sets forth information, to the best
knowledge of TSRG as of June 19, 1999 , with respect to each
person known by TSRG to own beneficially more than 5% of the
outstanding TSRG Common Stock, each director and all directors and
officers as a group.
Percent of Class(1)
Name and Address Amount and Nature of Before After
of Beneficial Owner Beneficial Ownership Offering Offering
Loren E. Bagley * 417,364(2) 14.1% 1.2%
210 Second Street
St. Marys, WV 26170
William F. Woodburn * 424,527(3) 14.4% 1.2%
210 Second Street
St. Marys, WV 26170
John B. Sims * 38,807(4) 1.5% .1%
210 Second Street
St. Marys, WV 26170
Gary F. Lawyer * 25,000(5) .9% .1%
21430 Timtam Circle
Parker, CO 80134
Karla Spencer 148,944 5.6% .4%
P.O. Box 24
Alma, WV 26320
Boulder Investments 236,312 9.0% .7%
Capital, S.A.
c/o LaFirma deMarc M.
Harris, S.A.
25 De Mayo 530 Piso 7
1002 Buenos Aires Arg.
Corporate Relations Group 350,000 13.3% 1.0%
1947 Lee Road
Winterpark, FL 32789
Balmour Funds 2,330,448(7) 46.9% 6.9%
Chesterfield Capital 3,246,754(7) 55.2% 9.6%
Resources
Douglas Nagel 2,597,403(7) 49.6% 7.7%
4590 N.E. San Pebble Trace
Stuart, FL 34996
Austost Anstalt Schaan 2,330,448(7) 46.9% 6.9%
Barry Seidman 3,246,754(7) 55.2% 9.6%
P.O. Box 9813
Ranch Santa Fe, CA 92067
All directors and executive 905,698(8) 27.3% 2.6%
officers as a group
(4 persons in group)
* Director and/or executive officer
Note: Unless otherwise indicated in the footnotes below, TSRG
has been advised that each person above has sole voting
power over the shares indicated above.
(1) Based upon 2,639,081 shares of common stock outstanding
on June 19, 1999, as adjusted to reflect the one (1) share for
four(4) shares reverse stock split effected June 5, 1998, but
does not take into consideration stock options owned by
certain officers and directors entitling the
holders to purchase an aggregate of 675,000 shares of common
stock and which are currently exercisable. Therefore, for
purposes of the table above, 3,314,081 shares of common
stock are deemed to be issued and outstanding in accordance
with Rule 13d-3 adopted by the Securities and Exchange
Commission under the Securities Exchange Act of 1934, as
amended. Percentage ownership is calculated separately for
each person on the basis of the actual number of outstanding
shares as of June 19, 1999 and assumes the exercise of stock
options held by such person (but not by anyone else)
exercisable within sixty days. The percent after offering
assumes that all 31,040,000 shares offered hereunder are
issued.
(2) Includes
312,500 shares that may be acquired by Mr. Bagley
pursuant to stock options exercisable at $,50 per share and
31,250 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 312,500 shares that may be acquired by
Mr. Woodburn pursuant to stock options exercisable at $.50 per
share and 50,000 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
25,000 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 25,000 shares that may be acquired by Mr. Sims
pursuant to stock options exercisable at $.50 per share and
13,807 shares of common stock held jointly with Virginia
Sims, wife of John B. Sims.
(5) Includes 25,000 shares that may be acquired by Mr. Lawyer
pursuant to stock options exercisable at $.50 per share.
(6) Black & Company is a holding company for the benefit of the
shareholders of Black Petroleum Corporation. The amount shown
includes 18,750 shares held in the name of Black Petroleum
Corporation.
(7)
Share amounts indicated are the number of shares that each
respective shareholder can receive upon conversion of
Debentures. Percentage ownership is calculated separately for
each person on the basis of the actual number of outstanding
shares as of June 19, 1999 and assumes the conversion of
Debentures held by such person (but not by anyone else)
exercisable within sixty days. The percent after offering
assumes that all 31,040,000 shares offered hereunder are
issued. Only Debenture holders that would own 5% or more of
the total outstanding shares upon the conversion of all
Debentures are depicted in the table.
(8) Includes 675,000 shares that may be acquired by certain
directors pursuant to stock options exercisable at $.50 per
share.
CERTAIN TRANSACTIONS
During the last two fiscal years, there have been no
transactions between TSRG and any officer, director, nominee for
election as director, or any shareholder owning greater than five
percent (5%) of TSRG's outstanding shares, nor any member of the
above referenced individuals' immediate family, except as set forth
below.
(a) As of December 31, 1997, TSRG had no related party loans
outstanding. Total loan payables as of December 31, 1996 were
$605,190. 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 TSRG's management extended an
aggregate of $448,583 in loans to TSRG for the purpose of providing
TSRG with working capital.
(b) Loren E. Bagley is President of Sancho, a principal
purchaser of TSRG's natural gas. Mr. Bagley's wife, Carolyn S.
Bagley is a director and owner of 33% of the outstanding
capital stock of Sancho. Under its contract with Sancho, TSRG 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 TSRG 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 TSRG'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 TSRG there can be no
assurance that prices paid by TSRG to suppliers will be lower than
the price which TSRG would receive under the Hope arrangement.
During 1998 , TSRG paid Sancho an aggregate of approximately
$3,700 pursuant to such 20-year contract.
(c) On May 7, 1996, TSRG 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 TSRG for the repayment of such obligation.
Such obligation is secured by the pledge of 50,000 shares of Common
Stock owned by Mr. Woodburn's wife, Janet L. Woodburn.
(d) A company owned by an officer of TSRG's former
subsidiary, Energy Corporation ("Vulcan"), owns the remaining 20%
of Vulcan's common 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 TSRG's consolidated
financial statements because the subsidiary generated net losses
through December 31, 1996. Because the operations of Vulcan have
been discontinued (see Note 9 to Financial Statements), management
believes that TSRG has no obligation related to this management
agreement in future periods.
TSRG occupies approximately 4,000 square feet of office space
in St. Marys, West Virginia, which it shares with its subsidiaries
Tyler Construction Company, Inc. and Ritchie County Gathering
Systems, Inc. Prior to 1997, the office space was paid for by
Sancho and TSRG used the office space rent free. TSRG believes
that the foregoing transactions with Sancho were made on terms no
less favorable to TSRG than those available from unaffiliated third
parties.
It is TSRG'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.
DESCRIPTION OF SECURITIES
Common Stock
TSRG is authorized to issue 30,000,000 shares of Common Stock,
par value $.001 per share, of which 2,464,810 shares are
issued and outstanding (post-split as per the TSRG Stock Split) as
of the date hereof. If all of the shares offered hereunder are
issued, the issued and outstanding shares would exceed the
Company's authorized capitalization. Accordingly, TSRG is
anticipating amending its Articles of Incorporation to increase its
authorized capitalization to accommodate this offering. All
shares of TSRG Common Stock have equal rights and privileges with
respect to voting, liquidation and dividend rights. Each share of
Common Stock entitles the holder thereof to (i) one non-cumulative
vote for each share held of record on all matters submitted to a
vote of the shareholders; (ii) to participate equally and to
receive any and all such dividends as may be declared by the TSRG
Board out of funds legally available therefor; and (iii) to
participate pro rata in any distribution of assets available for
distribution upon liquidation of TSRG. Shareholders of TSRG have
no preemptive rights to acquire additional shares of Common Stock
or any other securities. The Common Stock is not subject to
redemption and carries no subscription or conversion rights. All
outstanding shares of Common Stock are fully paid and non-
assessable. Additional shares of TSRG Common Stock may be issued
without shareholder approval, except as that right may be
limited by listing requirements in the event TSRG's shares again
accepted for trading on The Nasdaq Stock Market or other recognized
exchange.
TSRG Convertible Debentures
In connection with the abandoned Merger, TSRG has
issued $4,625,400 face value of 8% Secured Convertible Debentures
Due March 31, 1999 (the "Debentures"). The Debentures are
secured by three producing fields, 73 square miles of 3-D seismic,
and 30,900 acres of leases acquired in the GCRL transaction.
Interest shall accrue upon the date of issuance until payment in
full of the principal sum has been made or duly provided for.
Holders of the Debentures shall have the option, at any time, until
maturity, to convert the principal amount of their Debenture, or
any portion of the principal amount which is at least $10,000, into
shares of TSRG Common Stock at a conversion price for each share
equal to the lower of (a) seventy percent (70%) of the market price
of TSRG Common Stock averaged over the five trading days prior to
the date of conversion, or (b) the market price on the issuance
date of the Debentures. Although the date of maturity has
passed, Debenture holders still have the option to convert their
Debentures. Any accrued and unpaid interest shall be payable,
at the option of TSRG, in cash or in shares of TSRG Common Stock
valued at the then effective conversion price.
Pursuant to the terms of the Debentures, TSRG has agreed to
file a registration statement with the Commission to register the
shares of TSRG Common Stock into which the Debentures may be
converted. Upon effectiveness of the registration statement, the
shares of TSRG Common Stock underlying the Debentures, when issued,
will be deemed registered securities and will not be restricted as
to the resale of such securities. If TSRG fails to file its
registration statement within forty-five (45) days from the closing
of the Debenture offering, TSRG may be obligated to increase by up
to fifteen percent (15%) the number of shares issuable upon
conversion to each holder. As of the date hereof, there has
been no increase in the number of shares to be issued upon
conversion.
TSRG Redeemable Common Stock Purchase Warrants
In December 1996, TSRG completed the public offering of
146,342 shares of TSRG Common Stock and 1,200,000 Redeemable Common
Stock Purchase Warrants (the "Stock Purchase Warrants"). Each Stock
Purchase Warrant is exercisable at any time into one share of TSRG
Common Stock at the exercise price of $22.56 per share, as adjusted
by the reverse stock split effected June 5, 1998, until the
expiration date of December 17, 2002. The Stock Purchase Warrants
are redeemable by TSRG at a price of $.10 per Stock Purchase
Warrant, if the closing bid price of TSRG Common Stock on the
Nasdaq SmallCap Market exceeds 140% of the public offering price
(or $28.672 as adjusted for the one share for four shares reverse
stock split) for the twenty (20) consecutive trading days preceding
the notice of redemption. No Stock Purchase Warrant may be
exercised unless at the time of exercise there is a current
prospectus covering the shares of TSRG Common Stock issuable upon
exercise of the Stock Purchase Warrants under an effective
registration statement filed with 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
Stock Purchase Warrant.
PLAN OF DISTRIBUTION
TSRG will receive none of the proceeds from the sale of Common
Stock by the Selling Securityholders. Upon conversion of the
remaining balance of Debentures, TSRG will have benefitted from the
cessation of its indebtedness represented by the Debentures in the
amount of $4,625,400. TSRG will bear all costs relating to the
registration of the Common Stock, including legal and filing fees.
Such costs are estimated by TSRG to be approximately $50,000.
This Prospectus relates to the offer and sale by
Selling Securityholders of the Common Stock following
the conversion of Debentures by the Selling Securityholders.
Selling Securityholders will be able to sell their Common Stock
from time to time in any of several ways including, without
limitation, one or more market transactions at the prevailing
market prices and terms, in negotiated transactions, block sales or
individual sales. Sales by Selling Securityholders will be without
the payment of any underwriting discounts or commissions, except
for usual and customary selling commissions paid to brokers or
dealers. Selling Securityholders also may sell such shares of
Common Stock from time to time as permissible under Rule 144
promulgated under the Securities Act.
TSRG does not know for certain how or when Selling
Securityholders will choose to make such sales. However, each
Selling Securityholder must represent to TSRG that he or she
currently has no plans, proposals, arrangements or understandings
with any potential sales agent with respect to participating in the
distribution of the Common Stock. Each Selling Securityholder has
further represented that no securities selected dealer agreement or
similar agreement is intended to be used with respect to the
offering and sale of the Common Stock. Also, as currently
contemplated, any sale of Common Stock will take place in an
ordinary brokerage transaction, without any placement or other
agent and for normal and customary brokerage fees and/or
commissions.
This Prospectus also relates to the offer and sale of
1,000,000 shares of Common Stock directly by TSRG. TSRG has not
entered into any underwriting agreement or other arrangement for
the offer and sale of the 1,000,000 shares. It is anticipated that
TSRG will offer these shares to the public at such time as the
prevailing market conditions are considered favorable. There is no
assurance that any of the 1,000,000 shares will be sold or that
TSRG will realize any proceeds from the offering.
SELLING SECURITYHOLDERS
On September 10, 1998, TSRG completed the offering of
$4,625,400 face value 8% Secured Convertible Debentures Due March
31, 1999. Holders of the Debentures have the option, at any time,
until maturity, to convert the principal amount of their Debenture,
or any portion of the principal amount which is at least $10,000,
into shares of TSRG Common Stock. The conversion price for each
share shall be equal to the lower of (a) seventy percent (70%) of
the market price of TSRG Common Stock averaged over the five
trading days prior to the date of conversion, or (b) the market
price on the issuance date of the Debentures. The Debenture
offering was not registered under the Securities Act, and therefore
the Debentures and underlying shares of Common Stock are deemed
"restricted securities."
As a provision of the offering of Debentures, TSRG agreed to
file a registration statement with the Commission for the purpose
of registering the shares of Common Stock into which the Debentures
are convertible. This Prospectus, which is part of TSRG's
registration statement, relates to the offer of Common Stock by the
Selling Securityholders into the public market. All expenses
associated with the sale of shares of Common Stock by the Selling
Securityholders will be paid by the Selling Securityholders.
Upon conversion of the Debentures into Common Stock and
registration and resale of such Common Stock, Selling
Securityholders' shares will be free of the restrictions other than
restrictions under the Securities Act with respect to persons who
may be deemed to be affiliates of TSRG.
The Selling Securityholders may sell their respective shares
of Common Stock directly through broker-dealers acting as agents
for them, or to broker-dealers who may purchase shares as principal
and thereafter sell the shares from time to time in negotiated
transactions or otherwise. Such broker-dealer, if any, may receive
compensation in the form of discounts, concessions or commissions
from the Selling Securityholders and/or the purchasers for whom
such broker-dealers may act as agents or to whom they may sell as
principals or both. Compensation as to a particular broker-dealer
may be in excess of customary commissions.
The Selling Securityholders, broker-dealers and any other
persons, if any, acting in connection with such sale of the shares
of Common Stock, might be deemed "underwriters" within the meaning
of Section 2(11) of the Securities Act. Any commission received by
them or discounts or concessions allowed to such persons, and any
profits received on the resale of the shares may be deemed to be
underwriting discounts and commissions under the Securities Act.
The securities covered by, this Prospectus with respect to the
Selling Securityholders may in the future also be sold under Rule
144 instead of under this Prospectus. Rule 144 provides an
exception from registration for the resale of securities by persons
other than the issuer after the securities have been held by
persons for at least one (1) year from original issuance, and such
securities are sold in strict compliance with Rule 144 requirements
and maximum number of shares requirements. TSRG will not receive
any portion of the proceeds of the securities sold by the Selling
Securityholders. There is no assurance that the Selling
Securityholders will sell any or all or the securities offered
hereby.
The Selling Securityholders have been advised by TSRG that
during the time each is engaged in distribution of the securities
covered by this Prospectus, each must comply with Rule 10b-5 and
Regulation M under the Exchange Act, and pursuant thereto: (i) each
must not engage in any stabilization activity in connection with
TSRG's securities; (ii) each must furnish each broker through which
securities covered by this Prospectus may be offered the number of
copies of this Prospectus which are required by each broker; and
(iii) each must not bid for or purchase any securities of TSRG or
attempt to induce any person to purchase any of TSRG's securities
other than as permitted under the Exchange Act. Any Selling
Securityholders who may be "affiliated purchasers" of TSRG as
defined in Regulation M, have been further advised that pursuant to
Securities Exchange Act Release 34-38067 (December 20, 1996), they
must coordinate their sales under this Prospectus with each other
and TSRG for purposes of Regulation M.
It should be noted that three of the Debenture holders have
converted a portion of their debentures into shares of TSRG common
stock. Thus, $67,500 of the Debentures have been converted into
174,264 shares of the Company's common stock. Because these shares
were not issued pursuant to a registration statement, they are
deemed restricted securities as defined by the Act and certificates
representing the shares bear an appropriate restrictive legend.
The following table sets forth as of the date hereof, certain
information regarding the beneficial ownership of TSRG's Common
Stock, or the right to convert Debentures into Common Stock, by
each Selling Securityholder. Except as otherwise noted, the persons
shown in the table have sole voting and investment power with
respect to the securities. These Selling Securityholders are
presented together in this table for convenience of presentation
only.
<PAGE>
Percent of
Common Stock
Dollar Amount Number of After
Name of Debenture Owned Common Shares(1) Offering(2)
Robin J. & Bernadine F.
Abel Trust . . . . . . . . . . . $ 20,000 129,871 (3)
Arab Commerce Bank . . . . . . . . 100,000 649,351 1.9%
Balmour Funds(4). . . . . . . . 350,000 2,330,448 6.9%
CA Opportunidad S.A. . . . . . . . 100,000 649,351 1.9%
Salvatore R. Cerruto . . . . . . . 15,000 97,403 (3)
Chesterfield Capital
Resources. . . . . . . . . . . . 500,000 3,246,754 9.6%
Cile Investment Ltd. . . . . . . . 60,000 389,611 1.2%
Congregation Beth Mordecai 100,000 649,351 1.9%
James F. Cool. . . . . . . . . . . 150,000 974,026 2.9%
Dayan International Corp. 50,000 324,676 (3)
George DeMakos . . . . . . . . . . 7,000 45,455 (3)
Charles D. Devine, MD. . . . . . . 40,000 259,741 (3)
Jimmy Dean Dowda . . . . . . . . . 25,000 162,338 (3)
Edwards Capital. . . . . . . . . . 24,000 155,845 (3)
Emil Investments Ltd.. . . . . . . 200,000 1,298,702 3.9%
Steve Guarino. . . . . . . . . . . 25,000 162,338 (3)
Robert D. Hall . . . . . . . . . . 20,000 129,871 (3)
Bob A. Havemeister . . . . . . . . 30,000 194,806 (3)
Hyett Capital. . . . . . . . . . . 20,000 129,871 (3)
Fern Kohn. . . . . . . . . . . . . 50,000 324,676 (3)
David Lair & Barbara
Frazier. . . . . . . . . . . . . 10,000 64,936 (3)
Lampton, Inc.. . . . . . . . . . . 150,000 974,026 2.9%
Jon Lane . . . . . . . . . . . . . 50,000 324,676 (3)
Fred Lenz(5). . . . . . . . . . 17,500 172,461 (3)
Michael M. Louis . . . . . . . . . 25,000 162,338 (3)
James S. Lumberry. . . . . . . . . 20,000 129,871 (3)
Dave Mallen. . . . . . . . . . . . 20,000 129,871 (3)
Douglas Nagel. . . . . . . . . . . 400,000 2,597,403 7.7%
Nostradamus S.A. . . . . . . . . . 200,000 1,298,702 3.9%
Olympus Capital, Inc.. . . . . . . 145,000 941,559 2.8%
Paril Holding. . . . . . . . . . . 200,000 1,298,702 3.9%
Phoenix Capital. . . . . . . . . . 50,000 324,676 (3)
Roland Outar . . . . . . . . . . . 10,000 64,936 (3)
Austost Anstalt Schaan(6) . . . 350,000 2,330,448 6.9%
Barry Seidman. . . . . . . . . . . 500,000 3,246,754 9.6%
James Skaldo . . . . . . . . . . . 144,500 938,312 2.8%
South County Investors . . . . . . 60,000 386,611 (3)
Soverign Capital . . . . . . . . . 20,000 129,871 (3)
Roger Tichenor . . . . . . . . . . 18,900 122,728 (3)
Dominick Vicari. . . . . . . . . . 25,000 162,338 (3)
Roberto Veitia . . . . . . . . . . 66,000 428,572 1.3%
Visual Company . . . . . . . . . . 100,000 649,351 1.9%
Ronnie Williams Jr.. . . . . . . . 15,000 97,403 (3)
Ronnie Williams Sr.. . . . . . . . 50,000 324,676 (3)
Fred Zaytoun . . . . . . . . . . . 25,000 162,338 (3)
Totals(8) $ 4,625,400 29,768,044 (7)
(1) Based on conversion of Debentures at $.154 per share
which is equal to 70% of an estimated market price of $.22
per share, which is lower than the price as of the close on
June 18, 1999.
(2) Computations of percentages based on conversion of all
Debentures, but does not include shares issuable
upon exercise of various warrants and stock options held by
certain individuals at various prices, additional shares of
Common Stock that may be issued upon conversion of certain
other convertible securities that are either presently
outstanding or may be issued in the future, but does include
the additional 1,000,000 shares offered by TSRG which are the
subject of this Prospectus. See "Description of Securities",
and "Risk Factors - Dilution."
(3) Percentage is less than 1%.
(4) Includes 57,720 shares previously converted for $25,000 of
Debenture.
(5) Includes 58,824 shares previously converted for $17,500 of
Debenture.
(6) Includes 57,720 shares previously converted for $25,000 of
Debenture.
(7) Does not include shares issued in rounding-up fractional
shares, but does include shares previously issued upon partial
conversion of Debentures at higher market prices by three
Debenture holders.
(8) Adjusted to reflect the prior conversion of $67,500 of
Debentures.
SHARES ELIGIBLE FOR FUTURE SALES
As of the date hereof, approximately 1,730,094
shares of TSRG Common Stock held by TSRG's current shareholders,
including executive officers, directors and principal
shareholders, constitute "restricted securities" within the
meaning of Rule 144 under the Securities Act and may be sold only
pursuant to an effective registration statement under the
Securities Act or an applicable exemption, including an exemption
under Rule 144.
In general, under Rule 144 as currently in effect, a person
(or persons whose shares are aggregated in accordance with Rule
144) who has beneficially owned "restricted securities" (defined
generally as shares acquired from the issuer or an affiliate in a
non-public transaction) for at least one year, as well as any
person who purchases unrestricted shares in the open market who may
be deemed an "affiliate" of the issuer, is entitled to sell, within
any three-month period, a number of shares of TSRG Common Stock
that does not exceed the greater of (i) 1% of the then outstanding
shares, or (ii) the average weekly trading volume in the shares
during the four calendar weeks preceding each such sale. A person
who is not deemed to be an "affiliate" of TSRG and has not been an
affiliate for at least three months, and who has held restricted
shares for at least two years would be entitled to sell such shares
without regard to the volume limitations described above. As
defined in Rule 144, an "affiliate" of an issuer is a person that
directly or indirectly, through the use of one or more
intermediaries, controls, or is controlled by, or is under common
control with, such issuer. Sales of substantial amounts of
restricted shares, or the perception that such sales may occur,
could adversely affect prevailing market prices for TSRG Common
Stock.
Presently, approximately 833,185 shares of the restricted
Common Stock are eligible to be sold under Rule 144 of the
Securities Act, subject to the volume and other restrictions of
Rule 144. The balance of 896,906 shares of the restricted
securities are not currently eligible for sale under Rule 144,
although all of the 896,906 shares will be eligible for sale under
Rule 144 commencing within approximately three months from the date
hereof. Also, shares issued upon conversion of the Debentures
and subject to an effective registration statement will immediately
be tradeable in the public market, unless held by an affiliate of
TSRG. Based on conversion of Debentures at $.154 per share
which is equal to 70% of an estimated market price of $.22 per
share, approximately 30,040,000 additional shares may be issued
upon the conversion of the Debentures. If the price of
TSRG Common Stock declines, additional shares may be issued upon
the conversion of the Debentures. It must be emphasized
that holders of the Debentures are entitled to convert their
holdings into TSRG Common Stock at a conversion price for each
share equal to the lower of 70% of the market price of TSRG Common
Stock averaged over the five trading days prior to the date of
conversion, or the market price on the issuance date of the
Debentures. Thus, upon conversion from the Debentures, holders of
TSRG Common Stock will have an acquisition price at a discount from
the prevailing market price and could immediately sell their shares
at a profit.
TSRG further intends to offer up to 1,000,000 shares of Common
Stock subject to this Prospectus at a future time at the discretion
of the TSRG Board. These shares, if offered and sold pursuant to
an effective registration statement, will immediately be available
for trading in the public market.
There can be no predictions of the effect, if any, that sales
of TSRG Common Stock under Rule 144, the issuance of shares upon
conversion of the Debentures, or the offering of additional TSRG
Common Stock for sale will have on the market price prevailing from
time to time. Sales of substantial amounts of TSRG Common Stock
pursuant to Rule 144 or of shares acquired upon conversion of
Debentures could subsequently adversely affect the market price of
TSRG Common Stock.
The transfer agent and registrar for TSRG Common Stock is
Interstate Transfer Company, 874 East 5900 South, Suite 101, Salt
Lake City, Utah 84107.
LEGAL MATTERS
Certain legal matters relating to the validity of the shares
of TSRG Common Stock to be issued in the Merger will be passed upon
by Leonard E. Neilson, Attorney at Law. Mr. Neilson is the
beneficial owner of 17,000 shares of TSRG Common Stock.
EXPERTS
The financial statements and schedule of TSRG for the years
ended December 31, 1998 and 1997 included in this Prospectus
and in the Registration Statement, have been audited by Jones,
Jensen and Company, independent certified public accountants, to
the extent and for the periods set forth in their report appearing
elsewhere herein and in the Registration Statement, and are
incorporated herein by reference, in reliance upon the authority of
such firm as experts in accounting and auditing in giving said
reports. Financial statements for the period ended March 31,
1999 included herewith have not been audited and were prepared by
TSRG.
SECURITIES AND EXCHANGE COMMISSION POSITION ON CERTAIN
INDEMNIFICATION
The Nevada Revised Statues provide for indemnification by a
corporation of costs incurred by directors, employees and agents in
connection with an action, suit or proceeding brought by reason of
their position as a director, employee or agent. The person being
indemnified must have acted in good faith and in a manner he or she
reasonably believed to be in or not opposed to the best interest of
the corporation.
TSRG's Articles of Incorporation obligate TSRG to indemnify
its directors and officers to the fullest extent permitted under
Nevada law.
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers or persons
controlling TSRG pursuant to the foregoing provisions, TSRG has
been informed that, in the opinion of the Commission, such
indemnification is against public policy as expressed in the
Securities Act and is therefore unenforceable.
TRANS ENERGY, INC.
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998 and 1997
INDEPENDENT AUDITORS' REPORT
Board of Directors
Trans Energy, Inc. and Subsidiaries
Las Vegas, Nevada
We have audited the accompanying consolidated balance sheet of
Trans Energy, Inc. and Subsidiaries as of December 31, 1998 and
the related consolidated statements of operations, stockholders'
equity, and cash flows for the years ended December 31, 1998 and
1997. 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 consolidated financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the
consolidated financial statements. An audit also includes
assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
consolidated 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, 1998 and the consolidated results of their
operations and their cash flows for the years ended December 31,
1998 and 1997, in conformity with generally accepted accounting
principles.
The accompanying consolidated financial statements have been
prepared assuming that the Company will continue as a going
concern. As discussed in Note 8 to the financial statements, the
Company has generated significant losses from operations which
raises substantial doubt about its ability to continue as a going
concern. Management's plans in regards to these matters are also
described in Note 8. The consolidated financial statements do
not include any adjustments that might result from the outcome of
this uncertainty.
Jones, Jensen & Company
Salt Lake City, Utah
February 24, 1999
TRANS ENERGY, INC. AND SUBSIDIARIES
Consolidated Balance Sheet
ASSETS
December 31,
1998
CURRENT ASSETS
Cash $ -
Accounts receivable 249,528
Prepaid and other current assets 1,508
Total Current Assets 251,036
PROPERTY AND EQUIPMENT (Note 2)
Vehicles 94,589
Machinery and equipment 10,092
Pipelines 2,254,908
Well equipment 253,429
Wells 7,337,682
Leasehold acreage 541,625
Accumulated depreciation (1,777,079)
Total Fixed Assets 8,715,246
OTHER ASSETS
Prepaid closing costs (Note 1) 675,443
Prepaid advertising (Note 1) 687,173
Related party receivables (Note 4) 21,231
Loan acquisition costs 3,509
Total Other Assets 1,387,356
TOTAL ASSETS $ 10,353,638
TRANS ENERGY, INC. AND SUBSIDIARIES
Consolidated Balance Sheet (Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY
December 31,
1998
CURRENT LIABILITIES
Cash overdraft $ 5,013
Accounts payable - trade 1,029,461
Accrued expenses 566,469
Salaries payable 225,798
Notes payable - current portion (Note 3) 990,427
Debentures payable (Note 11) 4,246,744
Total Current Liabilities 7,063,912
NET LIABILITIES IN EXCESS OF THE ASSETS OF
DISCONTINUED OPERATIONS (Note 9) 104,911
LONG-TERM LIABILITIES
Notes payable (Note 3) 863,109
Total Long-Term Liabilities 863,109
Total Liabilities 8,031,932
COMMITMENTS AND CONTINGENCIES (Note 7)
STOCKHOLDERS' EQUITY (Note 6)
Common stock; 30,000,000 shares authorized at $0.001 par value;
2,174,817 shares issued and outstanding 2,174
Capital in excess of par value 14,642,893
Accumulated deficit (12,323,361)
Total Stockholders' Equity 2,321,706
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 10,353,638
TRANS ENERGY, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
For the Years Ended
December 31,
1998 1997
OIL AND GAS SALES $ 1,230,916 $ 1,115,037
COSTS AND EXPENSES
Cost of oil and gas 797,504 748,757
Salaries and wages 331,514 203,940
Depreciation, depletion and amortization 3,031,132 325,206
Selling, general and administrative 584,191 1,453,954
Total Costs and Expenses 4,744,341 2,731,857
LOSS FROM OPERATIONS (3,513,425) (1,616,820)
OTHER INCOME (EXPENSE)
Other income 563 10,229
Interest expense (424,520) (281,867)
Gain on disposition of assets 150,860 1,500
Bad debt expense - (100,000)
Total Other Income (Expense) (273,097) (370,138)
LOSS FROM OPERATIONS BEFORE NET GAIN (LOSS)
FROM DISCONTINUED OPERATIONS AND INCOME TAXES (3,786,522)
(1,986,958)
NET GAIN (LOSS) FROM DISCONTINUED OPERATIONS
(Note 9) 203,322 (42,492)
INCOME TAXES (Note 1) - -
NET LOSS $ (3,583,200) $ (2,029,450)
TRANS ENERGY, INC. AND SUBSIDIARIES
Consolidated Statements of Operations (Continued)
For the Years Ended
December 31,
1998 1997
BASIC LOSS PER SHARE
Continuing operations $ (2.07) $ (0.44)
Discontinued operations 0.11 -
$ (1.96) $ (0.44)
FULLY DILUTED LOSS PER SHARE
Continuing operations $ (2.07) $ (0.44)
Discontinued operations 0.11 -
$ (1.96) $ (0.44)
TRANS ENERGY, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
Capital in
Common Shares Excess of Accumulated
Shares Amount Par Value Deficit
Balance, December 31, 1996 956,015 $ 956 $ 8,929,501 $ (6,710,711)
Common stock issued for services
at $1.41 per share 87,500 87 492,100 -
Common stock issued for cash
at $0.96 per share 372,293 372 1,429,628 -
Contribution of capital by
shareholders - - 49,998 -
Common stock offering costs - - (150,000) -
Net loss for the year ended
December 31, 1997 - - - (2,029,450)
Balance, December 31, 1997 1,415,808 1,415 10,751,227 (8,740,161)
Contribution of capital by
shareholders - - 208,210 -
Common stock issued for services
at $1.45 per share 248,812 249 360,501 -
Common stock issued for debt
conversion at $1.65 per share 36,364 36 59,964 -
Common stock issued for prepaid
closing fees at $3.27 per share 473,833 474 1,548,427 -
Contributed capital from discount on
debentures - - 1,714,564 -
Net loss for the year ended
December 31, 1998 - - - (3,583,200)
Balance, December 31, 1998 2,174,817 $ 2,174 $ 14,642,893 $(12,323,361)
TRANS ENERGY, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the Years Ended
December 31,
1998 1997
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (3,583,200) $ (2,029,450)
Adjustments to Reconcile Net Loss to Cash
Provided by Operating Activities:
Depreciation and depletion 3,031,132 325,206
Minority interest - 250,000
(Gain) loss on disposition of assets (150,860) (1,500)
Bad debt expense - 100,000
Common stock issued for services 360,750 492,837
(Gain) loss on discontinued operations (203,322) (477,896)
Changes in Operating Assets and Liabilities:
Decrease (increase) in accounts receivable (74,368) (39,404)
Decrease (increase) in prepaid and other
current assets (1,538,124) 58,160
Decrease (increase) in related party receivables (21,231) -
Increase (decrease) in accounts payable and
accrued expenses 648,138 721,716
Cash Provided (Used) by Operating Activities (1,531,085) (600,331)
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property and equipment 309,129 -
Expenditures for property and equipment (3,902,098) (918,685)
Cash Provided (Used) by Investing Activities (3,592,969) (918,685)
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on related party advances - (605,190)
Proceeds from sale of common stock - 1,429,350
Principal payments on notes payable (625,070) (211,109)
Proceeds from notes payable 937,844 610,000
Proceeds from debentures 4,625,400 -
Cash Provided (Used) by Financing Activities $ 4,938,173 $ 1,223,051
TRANS ENERGY, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Continued)
For the Years Ended
December 31,
1998 1997
NET INCREASE (DECREASE) IN CASH $ (185,881) $ (295,965)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 185,881 481,846
CASH AND CASH EQUIVALENTS, END OF YEAR $ - $ 185,881
CASH PAID FOR:
Interest $ 120,049 $ 279,525
Income taxes $ - $ -
NON-CASH FINANCING ACTIVITIES:
Common stock issued for services $ 360,750 $ 492,837
Shareholder loans contributed to capital $ - $ 49,998
Contribution of shareholder salaries $ 208,210 $ -
TRANS ENERGY, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 1998 and 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Organization
The Company was originally incorporated in the State of
Idaho on January 16, 1964. 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.
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 August 7, 1995, the Company purchased 80 percent of the
issued and outstanding stock of Vulcan Energy Corporation
(Vulcan), a Texas corporation, for $1,100,000 including the
assumption of $300,000 in debt for a customer of Vulcan.
Vulcan was located in the State of Texas and was engaged in
the oil gathering and marketing business. In March 1997,
the Company decided to cease the operations of Vulcan.
Accordingly, the results of operations along with the net
liabilities of Vulcan have been reflected as discontinued
operations in the accompanying consolidated financial
statements. See Note 9 for further discussion.
b. Accounting Method
The Company's consolidated 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.
c. Basic Loss per Share of Common Stock
The basic loss per share of common stock is based on the
weighted average number of shares issued and outstanding at
the date of the consolidated financial statements. Fully
diluted loss per share of common stock as disclosed in the
accompanying consolidated statements of operations includes
all common stock equivalents.
All references to shares have been retroactively restated
to reflect a 1-for-4 reverse stock split.
TRANS ENERGY, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 1998 and 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
d. Provision for Taxes
At December 31, 1998, the Company had net operating loss
carryforwards of approximately $12,320,000 that may be
offset against future taxable income through 2013. No tax
benefit of the loss carryforward has been reported in the
consolidated financial statements, because the potential
tax benefits of the net operating loss carryforwards is
offset by a valuation allowance of the same amount.
e. Cash Equivalents
The Company considers all highly liquid investments with a
maturity of three months or less when purchased to be cash
equivalents.
f. Principles of Consolidation
The consolidated financial statements include the Company
and its wholly owned subsidiary, Ritchie County Gathering
Systems, Inc., its 65% owned subsidiary, Tyler Construction
Company, Inc. All significant intercompany accounts and
transactions have been eliminated.
g. Presentation
Certain 1997 balances have been reclassified to conform to
the presentation of the 1998 consolidated financial
statements.
h. Depreciation
Fixed assets are stated at cost. Depreciation on vehicles,
machinery and equipment and is provided using the straight
line method over expected useful lives of five years.
Depreciation on pipelines and well equipment is provided
using the straight-line method over the expected useful
lives of fifteen years. Wells are being depreciated using
the units-of-production method on the basis of total
estimated units of proved reserves.
i. Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires
management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual
results could differ from those estimates.
TRANS ENERGY, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 1998 and 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
j. Prepaid Closing Costs
Prepaid closing costs consisted of the following at December 31, 1998:
473,833 shares issued, valued at $3.27 per share $ 1,548,901
Debentures issued for no cash consideration 195,400
Costs paid at the closing of the debenture financing 281,009
Less accumulated amortization (1,349,867)
Net Prepaid Closing Costs $ 675,443
The prepaid closing costs are associated with the
debentures which were issued in 1998 (Note 11) and are
being amortized over a 1 year life.
The remaining balance of $675,443 will be amortized in the
first quarter of 1999. Amortization expense for the year
ended December 31, 1998 was $1,349,867.
k. Prepaid Advertising
Prepaid advertising consisted of the following at December 31, 1998:
Costs paid out of the debenture closing $ 1,062,628
Less accumulated amortization (374,455)
Net Prepaid Advertising $ 687,173
These advertising costs are amortized over the term of the
contract which expires May 15, 2000 and are associated with
preparing Company press releases and providing them to the
public in various publications and trade journals.
Amortization expense for the year ended December 31, 1998
was $374,455.
l. Change in Accounting Principle
The Company adopted Statement of Financial Accounting
Standards (SFAS) No. 128, "Earnings Per Share" during the
year ended December 31, 1998. In accordance with SFAS No.
128, diluted earnings per share must be calculated when an
entity has convertible securities, warrants, options, and
other securities that represent potential common shares.
The purpose of calculating diluted earnings (loss) per
share is to show (on a pro forma basis) per share earnings
or losses assuming the exercise or conversion of all
securities that are exercisable or convertible into common
stock and that would either dilute or note affect basis
EPS. As permitted by SFAS No. 128, the Company has
retroactively applied the provisions of this new standard
by showing the fully diluted loss per common share for all
years presented.
The Company adopted Statement of Financial Accounting
Standards "Accounting for Stock-Based Compensation" ("SFAS
No. 123"), which requires the Company to determine
compensation costs for the Company's stock option plans and
other stock awards in accordance with the fair value based
method prescribed in SFAS No. 123. The adaption of SFAS
123 had no material effect on the Company's financial
statements.
TRANS ENERGY, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 1998 and 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
The Company also adopted Statement of Financial Accounting
Standards (SFAS) No. 130, "Reporting Comprehensive Income"
during the year ended December 31, 1998. SFAS No. 130
established standards for reporting and display of
comprehensive income (loss) and its components (revenues,
expenses, gains and losses) in a full set of general
purpose financial statements. This statement requires that
an enterprise classify items of other comprehensive income
by their nature in a financial statement and display the
accumulated balance of other comprehensive income
separately from retained earnings and additional paid-in
capital in the equity section of a balance sheet. SFAS No.
130 is effective for fiscal years beginning after December
15, 1997. The Company has retroactively applied the
provisions of this new standard by showing the other
comprehensive income (loss) for all years presented.
m. Long Lived Assets
All long lived assets are evaluated yearly for impairment
per SFAS 121. Any impairment in value is recognized as an
expense in the period when the impairment occurs.
NOTE 2 - PROPERTY AND EQUIPMENT
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.
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 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. In 1998, the Company
obtained an updated reserve report following the sale of 10
wells in West Virginia.
TRANS ENERGY, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 1998 and 1997
NOTE 3 - LONG-TERM DEBT
The Company had the following debt obligations at December 31, 1998:
Calhoun County Bank, secured by oil and gas well interests,
payable in monthly installments of $1,859 including interest at
variable rates, (lender's base rate of 9.00% as of December 31,
1998), matures April 12, 1999. $ 5,367
Calhoun County Bank, secured by oil and gas well interests, payable
in monthly installments of $269 including interest at variable rates,
(lender's base rate of 9.00% as of December 31, 1998), matures
April 12, 1999. 1,095
Calhoun County Bank, secured by oil and gas well interests, payable
in monthly installments of $1,300 including interest at variable rates,
(lender's base rate of 9.00% as of December 31, 1998), matures
April 12, 1999. 7,675
New York Life, secured by cash value in policy, interest payable
annually at 7.25% interest rate. 24,111
First National Bank of St. Marys, $9,244 payable monthly, 12.5%
interest rate, secured by equipment. 587,218
Union Bank of Tyler County, interest at 11.5% due quarterly,
renewable, due on demand, secured by equipment. 19,756
Union Bank of Tyler County, principal and interest due on March 14,
1999, interest rate of 14%, secured by vehicle. 31,122
Bank of Paden City, interest payable quarterly, prime +2%, due
on demand, secured by officers personal assets. 303,193
Note payable to an individual, due on demand, bearing interest at
9.75%, unsecured. 292,078
Bank of Paden City, secured by vehicles, various maturity dates,
principal and interest due monthly at 9.25% to 10.25%. 17,100
Note due to a private individual, due November 7, 1996 with interest
at 20%, unsecured. 135,460
Note due to an individual, due August 1999 with interest at 7.50%,
requiring monthly payments of $3,000, secured by personal guarantee
of officer. 259,859
Note payable to RR Donnelley, payments of $3,244 of
principal and interest at 10.4% due monthly, unsecured. 114,573
Balance forward $ 1,798,597
TRANS ENERGY, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 1998 and 1997
NOTE 3 - LONG-TERM DEBT
Balance forward $ 1,798,597
Note due to an individual, due on demand with interest at 7.00%,
unsecured. 54,929
Total 1,853,536
Less Current Portion (990,427)
Total Long-Term Debt $ 863,109
Future maturities of long-term debt are as follows:
1999 $ 990,427
2000 316,582
2001 91,697
2002 81,257
2003 70,346
2004 and thereafter 303,227
Total $ 1,853,536
NOTE 4 - RELATED PARTY TRANSACTIONS
a. Marketing Agreement - Sancho
Natural gas delivered through the Company's pipeline
network is sold either to Sancho Oil and Gas Corporation
("Sancho"), a company owned by the President of the
Company, at the industrial facilities near Sistersville,
West Virginia, or to Hope, a local utility, on a year long
basis ending January 31, 1999 at a variable price per month
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 charges the end user
less a $0.05 per Mcf marketing fee paid to Sancho.
b. Capital Contributions
During 1998, officers of the Company contributed $208,210
of their accrued salaries to additional paid-in capital.
c. Receivables
The Company has various receivables from and payables to
the officers and companies of the officers. These amounts
have been grouped together with a net receivable of
$21,231. These receivables and payables are non-interest
bearing, due on demand and unsecured.
TRANS ENERGY, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 1998 and 1997
NOTE 5 - ECONOMIC DEPENDENCE AND MAJOR CUSTOMERS
The Company's marketing arrangement with Sancho accounted
for approximately 47% of the Company's revenue for the year
ended December 31, 1998. 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 49% of
net revenues in 1998.
NOTE 6 - STOCKHOLDERS' EQUITY
In 1998, the Company issued 248,812 shares of common stock
for $360,750 of services. The Company also issued 36,364
shares of common stock to reimburse a party for $60,000
which was advanced to the Company. The Company issued
473,833 shares of common stock for prepaid closing fees
related to the issuance of the convertible debentures (Note
11). In 1998, officers of the Company contributed accrued
salaries of $208,210 to the Company.
In 1997, the Company completed the sale of 8% cumulative
convertible debentures due March 25, 2000, netting cash
proceeds to the Company of $1,430,000. The terms of the
convertible debentures enable the holder to convert the
debentures into common stock of the Company at any time
after 45 days at a price based on a percentage of the
quoted market price depending on when the debentures are
converted. The debentures were converted to 1,489,172
shares of common stock in 1997.
NOTE 7 - COMMITMENTS AND CONTINGENCIES
Several vendors of Vulcan Energy, Inc., the discontinued
operation, have filed legal action against Vulcan Energy,
Inc. and the Company alleging breach of contract and non-
payment of outstanding obligations. Those vendors are also
seeking other damages and assessments. The Company has
included in the net liabilities of the discontinued
operations of Vulcan Energy, Inc., amounts which they
believe are owing to those vendors. These actions are
still in the discovery stage and the Company is attempting
to negotiate settlements with those vendors. The Company
believes that the amounts accrued in the accompanying
consolidated financial statements are adequate to satisfy
these claims.
A former officer of Vulcan Energy, Inc. has filed suit
against the Company, its officers and directors and Vulcan
Energy, Inc., asserting a claim against these parties based
upon a breach of contract and fraud in connection with his
employment with Vulcan Energy, Inc.. The parties to this
action have filed a response vigorously contesting the
allegations and have filed a countersuit to this action.
Management believes that the Company and the ultimate
outcome of these actions and their possible effects on the
consolidated financial statements will not be material.
The Company pays $1,400 per month for leased office space
which is on a month-to-month basis.
TRANS ENERGY, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 1998 and 1997
NOTE 8 - GOING CONCERN
The Company's consolidated financial statements are
prepared using generally accepted accounting principles
applicable to a going concern which contemplates the
realization of assets and liquidation of liabilities in the
normal course of business. The Company has incurred
cumulative operating losses through December 31, 1998, and
has a working capital deficit at December 31, 1998.
Revenues have not been sufficient to cover its operating
costs and to allow it to continue as a going concern. The
potential proceeds from the sale of common stock, other
contemplated debt and equity financing, and increases in
operating revenues from new development would enable the
Company to continue as a going concern. (See also Notes 10
and 11)
NOTE 9 - VULCAN ENERGY, INC. - DISCONTINUED OPERATIONS
In March 1997, the Board of Directors of the Company
decided to discontinue the operations of Vulcan Energy,
Inc. (Vulcan), its 80% owned subsidiary. The following is
a summary of income (loss) from operations of Vulcan
Energy, Inc.
1998 1997
OIL AND GAS SALES $ - $ -
COST OF SALES - -
OPERATING EXPENSES - -
General and administrative - (42,492)
Total Operating Expenses - (42,492)
Loss from discontinued operations - (42,492)
Gain on release of debt 203,322 -
Net Gain (Loss) from Discontinued Operations $ 203,322 $ (42,492)
The Company retains no assets which were attributable to
Vulcan. No income tax benefit has been attributed to the
gain (loss) from discontinued operations.
Net liabilities in excess of assets totaling $104,911 have
been reflected separately in the accompanying consolidated
balance sheet as of December 31, 1998.
NOTE 10 - JOINT VENTURE
The Company entered into a joint venture with Natural Gas
Technologies, Inc. (NGT) to form Sundance Producers, LLC.
This joint venture was engaged in oil and gas production
activities in Wyoming. The joint venture drilled a dry
hole and has been discontinued.
TRANS ENERGY, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 1998 and 1997
NOTE 11 - CONVERTIBLE DEBENTURES
The Company has issued $4,625,400 face value of 8% Secured
Convertible Debentures due March 31, 1999 (the
"Debentures") Interest shall accrue upon the date of
issuance until payment in full of the principal sum has
been made or duly provided for. Holders of the Debentures
shall have the option, at any time, until maturity, to
convert the principal amount of their Debenture, or any
portion of the principal amount which is at least $10,000
into shares of the Company's Common Stock at a conversion
price for each share equal to the lower of (a) seventy
percent (70%) of the market price of the Company's Common
Stock averaged over the five trading days prior to the date
of conversion, or (b) the market price on the issuance date
of the Debentures. Any accrued and unpaid interest shall
be payable, at the option of the Company, in cash or in
shares of the Company's Common Stock valued at the then
effective conversion price.
Pursuant to the terms of the Debentures, the Company has
agreed to file a registration statement with the Commission
to register the shares of the Company's Common Stock into
which the Debentures may be converted. Upon effectiveness
of the registration statement, the shares of the Company's
Common Stock underlying the Debentures, when issued, will
be deemed registered securities and will not be restricted
as to the resale of such securities. If the Company fails
to file its registration statement within forty-five (45)
days from the closing of the Debenture offering, the
Company may be obligated to increase by up to fifteen
percent (15%) the number of shares issuable upon conversion
to each holder.
The Company has accrued a discount on the Debentures of
$1,714,564 to compensate for the seventy percent (70%) bid
conversion from and for a five percent (5%) penalty
discount on the conversion of the Debentures and
contributed this amount to additional paid-in capital. The
Company amortized $1,143,043 of the discount to interest
expense. The balance of $571,521 will be recorded as
interest expense in the first quarter of 1999.
If the convertible debentures were converted at December 31
1998, the Company would have been obligated to issue up to
15,858,515 shares of common stock.
NOTE 12 - YEAR 2000
Year 2000 issues may arise if computer programs have been
written using two digits (rather than four) to define the
applicable year. In such case, programs that have time-
sensitive logic may recognize a date using "00" as the year
1900 rather than the year 2000, which could result in
miscalculations or system failures.
The Company has completed its assessment of the Year 2000
issue and believes that any costs of addressing the issue
will not have a material adverse impact on the Company's
financial position. The Company believes that its existing
computer systems and software will not need to be upgraded
to mitigate the Year 2000 issues. The Company has not
incurred any costs associated with its assessment of the
Year 2000 problem. In the event that Year 2000 issues
impact the Company's accounting operations and other
operations aided by its computer system, the Company
believes, as part of a contingency plan, that it has
adequate personnel to perform those functions manually
until such time that any Year 2000 issues are resolved.
The Company believes that third parties with whom it has
material relationships will not materially be affected by
the Year 2000 issues as those third parties are relatively
small entities which do not rely heavily on information
technology ("IT") systems and non-IT systems for their
operations. However, if the Company and third parties upon
which it relies are unable to address any Year 2000 issues
in a timely manner, it could result in a material financial
risk to the Company, including loss of revenue and
substantial unanticipated costs. Accordingly, the Company
plans to devote all resources required to resolve any
significant Year 2000 issues in a timely manner.
TRANS ENERGY, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 1998 and 1997
NOTE 13 - GCRL ENERGY LTD. ACQUISITION
On April 1, 1998, the Company purchased the GCRL Energy
Ltd. Powder River Basin properties, located in Campbell and
Crook Counties, Wyoming. The properties consist of three
producing fields named Pinion, Sagebrush and Sandbar,
undeveloped acreage consisting of approximately 30,600
gross and 23,923 net acres and seventy-three miles of 3-D
seismic covering approximately 30 undrilled leads and
prospects on the undeveloped acreage.
Consolidated proforma combined statements of operations for
the year ended December 31, 1997 are presented as follows:
Trans Energy GCRL Combined
Oil and gas sales $ 1,115,037 $ 756,178 $ 1,871,215
Costs and expenses 2,731,857 99,069 2,830,926
Income (loss) from continuing
operations (1,616,820) 657,109 (959,711)
Other income (expense) (370,138) - (370,138)
Loss from discontinued
operations (42,492) - (42,492)
Net Income (Loss) $(2,029,450) $ 657,109 $ (1,372,341)
Net Income (Loss) Per Share $ (0.44) $ 0.14 $ (0.30)
TRANS ENERGY, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 1998 and 1997
S.F.A.S. 69 SUPPLEMENTAL DISCLOSURES
(1) Capitalized Costs Relating to
Oil and Gas Producing Activities
December 31,
1998 1997
Proved oil and gas producing properties
and related lease and well equipment $ 4,206,155 $ 2,696,511
Unproved oil and gas properties 3,347,825 1,425,800
Accumulated depreciation and depletion (527,140) (433,799)
Net Capitalized Costs $ 7,026,840 $ 3,688,512
(2) Costs Incurred in Oil and Gas Property
Acquisition, Exploration, and Development Activities
For the Years Ended
December 31,
1998 1997
Acquisition of Properties
Proved $ 3,478,571 $ 65,000
Unproved 81,492 573,479
Exploration Costs - 164,900
Development Costs 283,129 280,206
The Company does not have any investments accounted for by the equity method.
(3) Results of Operations for
Producing Activities
For the Year Ended
December 31,
1998 1997
Sales $ 589,705 $ 390,922
Production costs (187,943) (128,190)
Depreciation and depletion (27,258) (25,865)
Results of operations for producing activities
(excluding corporate overhead and
interest costs) $ 374,504 $ 238,867
<PAGE>
TRANS ENERGY, INC. AND SUBSIDIARIES
S.F.A.S. 69 Supplemental Disclosures
December 31, 1998 and 1997
(Unaudited)
S.F.A.S. 69 SUPPLEMENTAL DISCLOSURES (CONTINUED)
(4) Reserve Quantity Information
Oil Gas
BBL MCF
Balance, December 31, 1996 196,343 1,677,359
Production (1,343) (125,210)
Purchased and developed 15,870 229,167
Balance, December 31, 1997 210,870 1,781,316
Sales of properties (7,674) -
Production (2,475) (67,234)
Purchases and developed 1,504,813 -
Balance, December 31, 1998 1,705,534 1,714,082
Proved developed reserves:
Oil Gas
BBL MCF
Beginning of the year 1998 210,870 1,781,316
End of the year 1998 1,705,534 1,714,082
Beginning of the year 1997 196,343 1,677,359
End of the year 1997 210,870 1,781,316
During 1998, 1996, 1995, 1992, 1991 and 1990, the Company had
reserve studies and estimates prepared on its various
properties. 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.
TRANS ENERGY, INC. AND SUBSIDIARIES
S.F.A.S. 69 Supplemental Disclosures
December 31, 1998 and 1997
(Unaudited)
S.F.A.S. 69 SUPPLEMENTAL DISCLOSURES (CONTINUED)
(5) Standardized Measure of Discounted
Future Net Cash Flows Relating to
Proved Oil and Gas Reserves
At December 31, 1998
Trans Energy
and
Subsidiaries
Future cash inflows $ 46,761,608
Future production and development costs (16,787,417)
Future net inflows before income taxes 29,974,191
Future income tax expense (10,191,225)
Future net cash flows 19,782,966
10% annual discount for estimated timing of cash flows (10,287,002)
Standardized measure of discounted future net cash flows $ 9,495,694
Future income taxes were determined by applying the statutory
income tax rate to future pre-tax net cash flow relating to
proved reserves.
At December 31, 1997
Trans Energy
and
Subsidiaries
Future cash inflows $ 17,407,048
Future production and development costs (6,249,130)
Future net inflows before income taxes 11,157,918
Future income tax expense (3,793,693)
Future net cash flows 7,364,225
10% annual discount for estimated timing of cash flows (3,829,397)
Standardized measure of discounted future net cash flows $ 3,534,828
The following schedule summarizes changes in the standardized
measure of discounted future net cash flow relating to proved
oil and gas reserves:
For the Years Ended
December 31,
1998 1997
Standardized measure, beginning of year $ 3,534,828 $ 3,611,702
Oil and gas sales, net of production costs (589,705) (390,922)
Sales of mineral in place - -
Purchases 5,289,539 -
Quantity estimates made 1,261,032 314,048
Standardized measure, end of year $ 9,495,694 $ 3,534,828
TRANS ENERGY, INC. AND SUBSIDIARIES
S.F.A.S. 69 Supplemental Disclosures
December 31, 1998 and 1997
(Unaudited)
S.F.A.S. 69 SUPPLEMENTAL DISCLOSURES (CONTINUED)
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
independent geologists, 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.
Trans Energy, Inc.
Consolidated Financial Statements
(Unaudited)
For the Three Months Ended March 31, 1999
TRANS ENERGY, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
ASSETS
March 31, December 31,
1999 1998
(Unaudited)
CURRENT ASSETS
Cash $ - $ -
Accounts receivable 244,423 249,528
Prepaid and other current assets 1,508 1,508
Total Current Assets 245,931 251,036
PROPERTY AND EQUIPMENT
Vehicles 94,589 94,589
Machinery and equipment 10,092 10,092
Pipelines 2,254,908 2,254,908
Well equipment 253,756 253,429
Wells 7,337,682 7,337,682
Leasehold acreage 541,625 541,625
Accumulated depreciation (1,830,897) (1,777,079)
Total Fixed Assets 8,661,755 8,715,246
OTHER ASSETS
Prepaid closing costs - 675,443
Prepaid advertising 541,318 687,173
Related party receivables - 21,231
Loan acquisition costs 3,508 3,509
Total Other Assets 544,826 1,387,356
TOTAL ASSETS $ 9,452,512 $ 10,353,638
TRANS ENERGY, INC. AND SUBSIDIARIES
Consolidated Balance Sheets (Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY
March 31, December 31,
1999 1998
(Unaudited)
CURRENT LIABILITIES
Cash overdraft $ 33,428 $ 5,013
Accounts payable - trade 1,124,894 1,029,461
Accrued expenses 485,456 566,469
Salaries payable 245,798 225,798
Notes payable 974,075 990,427
Debentures payable 4,818,265 4,246,744
Total Current Liabilities 7,681,916 7,063,912
NET LIABILITIES IN EXCESS OF THE ASSETS OF
DISCONTINUED OPERATIONS 104,911 104,911
LONG-TERM LIABILITIES
Notes payable 848,318 863,109
Total Long-Term Liabilities 848,318 863,109
Total Liabilities 8,635,145 8,031,932
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common stock: 30,000,000 shares authorized at
$0.001 par value; 2,464,817 and 2,174,817 shares
issued and outstanding, respectively 2,464 2,174
Capital in excess of par value 14,910,103 14,642,893
Accumulated deficit (14,095,200) (12,323,361)
Total Stockholders' Equity 817,367 2,321,706
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 9,452,512 $ 10,353,638
TRANS ENERGY, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(Unaudited)
For the Three Months Ended
March 31,
1999 1998
REVENUES
Oil and gas sales $ 266,860 $ 206,238
Total Revenues 266,860 206,238
COSTS AND EXPENSES
Cost of oil and gas 183,137 142,643
Salaries and wages 25,801 31,794
Depreciation and amortization 862,088 40,632
Selling, general and administrative 223,932 140,617
Total Costs and Expenses 1,294,958 355,686
Net Loss from Operations (1,028,098) (149,448)
OTHER INCOME (EXPENSE)
Interest income - 400
Interest expense (743,741) (65,325)
Total Other Income (Expense) (743,741) (64,925)
NET LOSS BEFORE INCOME TAXES (1,771,839) (214,373)
INCOME TAXES - -
NET LOSS $(1,771,839) $ (214,373)
BASIC LOSS PER SHARE $ (0.76) $ (0.04)
<PAGE>
TRANS ENERGY, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
Capital in
Common Shares Excess of Accumulated
Shares Amount Par Value Deficit
Balance, December 31, 1997 1,415,808 $ 1,415 $ 10,751,227 $ (8,740,161)
Contribution of capital by
shareholders - - 208,210 -
Common stock issued for services
at $1.45 per share 248,812 249 360,501 -
Common stock issued for debt
conversion at $1.65 per share 36,364 36 59,964 -
Common stock issued for prepaid
closing fees at $3.27 per share 473,833 474 1,548,427 -
Contributed capital from discount
on debentures - - 1,714,564 -
Net loss for the year ended
December 31, 1998 - - - (3,583,200)
Balance, December 31, 1998 2,174,817 2,174 14,642,893 (12,323,361)
Common stock issued for services
at $1.00 per share (unaudited) 200,000 200 199,800 -
Common stock issued for debt
conversion at $0.75 per share
(unaudited) 90,000 90 67,410 -
Net loss for the three months
ended March 31, 1999 (unaudited) - - - (1,771,839)
Balance, March 31, 1999
(unaudited) 2,464,817 $ 2,464 $14,910,103 $(14,095,200)
TRANS ENERGY, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
For the Three Months Ended
March 31,
1999 1998
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(1,771,839) $ (214,373)
Adjustments to reconcile net loss to cash provided
(used) by operating activities:
Depreciation, depletion and amortization 1,446,637 40,632
Common stock issued for services 200,000 -
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable 26,337 33,786
Increase (decrease) in accounts payable and
accrued expenses 130,335 436,060
Cash Provided (Used) by Operating Activities 31,470 296,105
CASH FLOWS FROM INVESTING ACTIVITIES
Expenditures for property and equipment (327) (921,409)
Cash Provided (Used) by Investing Activities (327) (921,409)
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings of long-term debt - 528,875
Principal payments on long-term debt (31,143) (89,452)
Cash Provided (Used) by Financing Activities (31,143) 439,423
NET INCREASE (DECREASE) IN CASH - (185,881)
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD - 185,881
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ - $ -
CASH PAID FOR:
Interest $ 56,438 $ 65,325
Income taxes $ - $ -
NON-CASH FINANCING ACTIVITIES:
Common stock issued for well costs $ - $ 50,000
Common stock issued for debt conversion $ 67,500 $ -
TRANS ENERGY, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
March 31, 1999 and December 31, 1998
NOTE 1 - CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The accompanying consolidated financial statements have been
prepared by the Company without audit. In the opinion of
management, all adjustments (which include only normal
recurring adjustments) necessary to present fairly the
financial position, results of operations and cash flows at
March 31, 1999 and for all periods presented have been made.
Certain information and footnote disclosures normally included
in consolidated financial statements prepared in accordance
with generally accepted accounting principles have been
condensed or omitted. It is suggested that these condensed
consolidated financial statements be read in conjunction with
the financial statements and notes thereto included in the
Company's December 31, 1998 audited consolidated financial
statements. The results of operations for the periods ended
March 31, 1998 and 1998 are not necessarily indicative of the
operating results for the full years.
No dealer, salesman or any other person has
been authorized to give any information or to make
any representations other than those contained in
this Prospectus, and, if given or made, such
information or representation must not be relied
upon as having been authorized by TSRG. Neither
the delivery of this Prospectus nor any sale made
hereunder shall under any circumstances create
any implication that there has been no change in
the affairs of TSRG since the date hereof. This
Prospectus does not constitute an offer to sell or a
solicitation of an offer to buy any securities offered
hereby by anyone 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 anyone to whom it is
unlawful to make such offer or solicitation.
TABLE OF CONTENTS
Page
Additional Information . . . . . . . .
Prospectus Summary . . . . . . . . . .
Risk Factors . . . . . . . . . . . . .
Use of Proceeds. . . . . . . . . . . .
Market Prices and Dividends. . . . . .
Management's Discussion and Analysis
of Financial
Condition and Results of Operations. .
Business of TSRG . . . . . . . . . . .
Management of TSRG . . . . . . . . . .
Certain Transactions . . . . . . . . .
Description of Securities. . . . . . .
Plan of Distribution . . . . . . . . .
Selling Securityholders. . . . . . . .
Shares Eligible for Future Sale. . . ..
Legal Matters. . . . . . . . . . . . .
Experts. . . . . . . . . . . . . . . .
Securities and Exchange Commission
Position on Certain Indemnification .
Consolidated Financial Statements . . F-1
Trans Energy, Inc.
31,040,000 Shares of
Common Stock
PROSPECTUS
June ____, 1999
TRANS ENERGY, INC.
Part II
Item 24. Indemnification of Directors and Officers
As permitted by the provisions of the Nevada Revised Statutes
(the "NRS"), TSRG has the power to indemnify any person made a
party to an action, suit or proceeding by reason of the fact that
they are or were a director, officer, employee or agent of TSRG,
against expenses, judgments, fines and amounts paid in settlement
actually and reasonably incurred by them in connection with any
such action, suit or proceeding if they acted in good faith and in
a manner which they reasonably believed to be in, or not opposed
to, the best interest of TSRG and, in any criminal action or
proceeding, they had no reasonable cause to believe their conduct
was unlawful. Termination of any action, suit or proceeding by
judgment, order, settlement, conviction, or upon a plea of nolo
contendere or its equivalent, does not, of itself, create a
presumption that the person did not act in good faith and in a
manner which they reasonably believed to be in or not opposed to
the best interests of TSRG, and, in any criminal action or
proceeding, they had no reasonable cause to believe their conduct
was unlawful.
TSRG must indemnify a director, officer, employee or agent of
TSRG who is successful, on the merits or otherwise, in the defense
of any action, suit or proceeding, or in defense of any claim,
issue, or matter in the proceeding, to which they are a party
because they are or were a director, officer employee or agent of
TSRG, against expenses actually and reasonably incurred by them in
connection with the defense.
TSRG may provide to pay the expenses of officers and directors
incurred in defending a civil or criminal action, suit or
proceeding as the expenses are incurred and in advance of the final
disposition of the action, suit or proceeding, upon receipt of an
undertaking by or on behalf of the director or officer to repay the
amount if it is ultimately determined by a court of competent
jurisdiction that they are not entitled to be indemnified by TSRG.
The NRS also permits a corporation to purchase and maintain
liability insurance or make other financial arrangements on behalf
of any person who is or was a director, officer, employee or agent
of TSRG, or is or was serving at the request of the corporation as
a director, officer, employee or agent, of another corporation,
partnership, joint venture, trust or other enterprise for any
liability asserted against them and liability and expenses incurred
by them in their capacity as a director, officer, employee or
agent, or arising out of their status as such, whether or not TSRG
has the authority to indemnify them against such liability and
expenses. Presently, TSRG does not carry such insurance.
Item 25. Other Expenses of Issuance and Distribution
Filing fee under the Securities Act
of 1933. . . . . . . . . . . . . . . . . . . . . $ 2,634
Accountants' fees and expenses . . . . . . . . . . 2,500
Legal fees and expenses. . . . . . . . . . . . . . 30,000
Printing . . . . . . . . . . . . . . . . . . . . . 12,000
Transfer agent and registrar fees
and expenses(1). . . . . . . . . . . . . . . . . . 2,000
Miscellaneous(1) . . . . . . . . . . . . . . . . . 1,000
Total . . . . . . . . . . . . . . . . $ 50,134
Item 26. Recent Sales of Unregistered Securities
The following table sets forth information relating to all
previous sales of securities by the Registrant within the past
three years that were not registered under the Securities Act of
1933, as amended.
Date
of Sale Name of Purchaser Type Number Consideration
2/21/96 MD Financial Services (a) 13,889 Converted debenture
valued at $50,000
5/20/97 Taipan Holdings (a) 18,750 Services rendered valued
at $5.64 per share
6/18/97 Baybridge Trust (a) 113,960 Converted debenture valued
at $500,000
7/11/97 Continental Capital & (a) 625,500 Services rendered valued
Equity Corporation $5.64 per share
9/8/97 Baybridge International (a) 258,333 Converted debenture
Ltd & Blue Chip valued at $930,000
Securities
7/20/98 Brent Wagman (a) 12,500 Services rendered valued
at $4.00 per share
7/20/98 Boulder Investment (a) 236,312 Conversion of debt valued
Capital, S.A. at $1.31 per share
6/30/98 Roberto Veitia (a) 73,833 Services rendered valued
at $3.61 per share
6/30/98 Corporate Relations Group (a) 200,000 Services rendered valued
at $3.61 per share
6/30/98 Corporate Relations Group (a) 150,000 Services rendered valued
at $3.61 per share
6/30/98 Roger Tichenor (a) 25,000 Consulting services
rendered valued at
$3.61 per share
6/30/98 James Skalko (a) 25,000 Consulting services
rendered valued at
$3.61 per share
9/10/98 Group of 45 persons (b) - Received cash of
$4,625,400 for sale
of Debentures
6/2/99 Three persons (a) 174,264 Conversion of $67,500 of
Debentures
(a) Common Stock.
(b) 8% Secured Convertible Debentures Due March 31, 1999 (the
"Debentures") in the face amount of $4,625,400 which can
ultimately be converted into shares of Common Stock.
With respect to the issuance and/or sale of the aforementioned
securities, the Registrant relied on the
exemptions
from
registration provided by
Sections 4(2) and 4(6) of the
Securities Act for the issuance of shares for services rendered and
for cash, and on the exemption from registration provided by
Section 3(a)(9) for the conversion of debentures. All securities
issued to the aforementioned persons bore restrictive legends
preventing their transfer except in accordance with the Securities
Act and the regulations promulgated thereunder. In addition, stop
transfer instructions pertaining to these shares have been or will
be lodged with the Registrant's transfer agent.
Item 27. Exhibits
(a) The following exhibits are filed with this Registration
Statement:
Exhibit No. Exhibit Name
2.1** Plan and Agreement of Merger
3.1* Articles of Incorporation and Amendments
3.2* By-Laws
4.1* Specimen Common Stock Certificates of Registrant
4.2 Form of Debenture
5 Opinion of Leonard E. Neilson, P.C.
10.1* Marketing Agreement with Sancho Oil and Gas Corporation
10.2* Gas Purchase Agreement with Central Trading Company
10.3* Price Agreement with Key Oil Company
21* Subsidiaries of Registrant
23.1 Consent of Jones Jensen & Company, Independent Certified
Public Accountants, related to financial statements for
Trans Energy, Inc.
23.2 Consent of Leonard E. Neilson, P.C. (included in Exhibit 5)
99.1* Reserve Estimate and Evaluation of oil and gas properties
99.2* Reserve Estimate and Evaluation for Dennis L. Spencer wells
__________________
* Previously filed as Exhibit to Form 10-SB (March 1,
1994)
** Previously filed as Exhibit to Form S-4, September 11,
1999 (S.E.C. file no. 333-63907)
(b) Financial Statement Schedules for Registrant.
Schedules other than those listed above are omitted for
the reason that they are not required or are not
applicable, or the required information is shown in the
financial statements or notes therein.
Item 28. Undertakings
(a) The undersigned small business issuer hereby undertakes:
(1) To file, during any period in which it offers or
sells securities, a post-effective amendment to this
registration statement to:
(i) Include any prospectus required by Section
10(a)(3) of the Securities Act;
(ii) Reflect in the prospectus any facts or events
which, individually or together represent a fundamental
change in the information in the registration statement;
and
(iii) Include any additional or changed material
information on the plan of distribution.
(2) For determining liability under the Securities Act,
treat each post-effective amendment as a new registration
statement of the securities offered, and the offering of the
securities as at that time to be the initial bona fide
offering.
(3) File a post effective amendment to remove from
registration any of the securities that remain unsold at the
end of the offering.
(b) Insofar as indemnification for liabilities arising under
the Securities Act of 1933 (the "Securities Act") may be permitted
to directors, officers and controlling persons of the small
business issuer pursuant to the foregoing provisions, or otherwise,
the small business issuer has been advised that in the opinion of
the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is,
therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by
the small business issuer of expenses incurred or paid by a
director, officer or controlling person of the small business
issuer in the successful defense of any action, suit or proceeding)
is asserted by such director, officer or controlling person in
connection with the securities being registered, the small business
issuer will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification
by it is against public policy as expressed in the Securities Act
and will be governed by the final adjudication of such issue.
(c) If the issuer relies on Rule 430A under the Securities
Act, the small business issuer will:
(1) For determining any liability under the Securities
Act treat the information omitted from the form of prospectus
filed as part of this registration statement in reliance upon
Rule 430A and contained in a form of prospectus filed by the
Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under
the Securities Act shall be deemed to be a part of this
registration statement as of the time the Commission declared
it effective.
(2) For determining any liability under the Securities
Act, that each post-effective amendment that contains a form
of prospectus as a new registration statement for the
securities offered in the registration statement, and that
offering of the securities at that time as the initial bona
fide offering of those securities.
SIGNATURES
In accordance with the requirements of the Securities Act of
1933, the Registrant certifies that it has reasonable grounds to
believe that it meets all the requirements of filing on Form SB-2
and authorized this Registration Statement to be signed on its
behalf by the undersigned, in the City of St. Marys, State of West
Virginia, on this 23rd day of June 1999.
Trans Energy, Inc.
(Registrant)
By: /S/ Loren E. Bagley
Loren E. Bagley, President and
Chief Executive Officer
In accordance with the requirements of the Securities Act of
1933, this Registration Statement was signed by the following
persons in the capacities and on the dates indicated.
Signature Title Date
June 23, 1999
President, Chief Executive
/S/ Loren E. Bagley Officer and Director
Loren E. Bagley (Principal Financial Officer)
/S/ William F. Woodburn Vice President and June 23, 1999
William F. Woodburn Director
(Chief Accounting Officer)
/S/ John B. Sims Director June 23, 1999
John B. Sims
/S/ Gary F. Lawyer Director June 23, 1999
Gary F. Lawyer
FORM OF DEBENTURE
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT BE OFFERED OR SOLD
UNLESS THE SECURITIES ARE REGISTERED UNDER THE ACT OR AN EXEMPTION
FROM THE REGISTRATION REQUIREMENT OF THE ACT IS AVAILABLE. THIS
SUBSCRIPTION AGREEMENT SHALL NOT CONSTITUTE AN OFFER TO SELL NOR A
SOLICITATION OF AN OFFER TO BUY THE SECURITIES IN ANY JURISDICTION
IN WHICH SUCH OFFER OR SOLICITATION WOULD BE UNLAWFUL.
No. 91 $ U.S.
TRANS ENERGY, INC.
8% CONVERTIBLE SECURED DEBENTURE DUE MARCH 31, 1999
THIS DEBENTURE is one of a duly authorized issue of Debentures
of TRANS ENERGY, INC., a corporation duly organized and existing
under the laws of the State of Nevada (the "Company") designated as
its 8% Secured Convertible Debentures Due March 31, 1999, in an
aggregate principal amount not exceeding $4,850,000.00 U.S.
FOR VALUE RECEIVED, the Company promises to pay to
_______________________, the registered holder hereof (the
"Holder"), the principal sum of __________________ Dollars
($_____________ U.S.), on March 31, 1999, (the "Maturity Date") and
to pay interest on the principal sum outstanding from time to time
in arrears on the Maturity Date, at the rate of 8% per annum
accruing from the date of initial issuance. Accrual of interest
shall commence on the first such business day to occur after the
date hereof until payment in full of the principal sum has been
made or duly provided for. All accrued and unpaid interest shall
bear interest at the same rate as the due date of the interest
payment until paid. The interest so payable will be paid on the
Maturity Date to the person in whose name this Debenture (or one or
more predecessor Debentures) is registered on the records of the
Company regarding registration and transfers of the Debentures (the
"Debenture Register") on the tenth day prior to the Maturity Date;
provided, however, that the Company's obligation to a transferee of
this Debenture arises only if such transfer, sale or other
disposition is made in accordance with the terms and conditions of
the Subscription and Security Agreement (the "Agreement") executed
by the original Holder. The principal of, and interest on, this
Debenture are payable in such coin or currency of the United States
of America as at the time of payment is legal tender for payment
of public and private debts, at the address last appearing on the
Debenture Register of the Company as designated in writing by the
Holder from time to time. The Company will pay the principal of
and interest upon this Debenture on the Maturity Date, less any
amounts required by law to be deducted, to the registered holder of
this Debenture reflected in the Debenture Register as of the tenth
day prior to the Maturity Date and addressed to such holder at the
last address appearing on the Debenture Register. The forwarding
of such check shall constitute a payment of interest hereunder and
shall satisfy and discharge the liability for principal and
interest on this Debenture in the extent of the sum represented by
such check plus any amounts so deducted unless such check is not
paid at par.
(continued on reverse)
IN WITNESS WHEREOF, the Company has caused this instrument to
be duly executed by an officer thereunto duly authorized.
TRANS ENERGY INC.
Dated: June ____, 1998 By: __________________________
This Debenture is subject to the following additional
provisions:
1. The Debentures are issuable in denominations of Five
Thousand Dollars ($5,000 U.S.) and integral multiples thereof. The
Debentures are exchangeable for an equal aggregate principal amount
of Debentures of different authorized denominations, as requested
by the Holders surrendering the same. No service charge will be
made for such registration of transfer or exchange.
2. The Company shall be entitled to withhold from all
payments of principal of and interest on, this Debenture any
amounts required to be withheld under the applicable provisions of
the United States income tax laws or other applicable laws at the
time of such payments.
3. This Debenture has been issued subject to investment
representations of the original purchaser hereof and may be
transferred or exchanged only in compliance with the Securities Act
of 1933, as amended (the "Act") and upon receipt of an opinion of
counsel reasonably satisfactory to the Company. Prior to due
presentment for transfer of this Debenture, the Company and any
agent of the Company may treat the person in whose name this
Debenture is duly registered on the Company's Debenture Register as
the owner hereof for the purpose of receiving payment as herein
provided and for all other purposes, whether or not this Debenture
be overdue, and neither the Company nor any such agent shall be
affected by notice to the contrary.
4. The obligations of the Company under this Debenture,
including without limitation the obligation to convert under
Section 5 hereof and the payment of principal and interest on this
Debenture is secured by certain assets of the Company, as set forth
in the Agreement. The Holder of this Debenture is entitled to
exercise such rights upon the occurrence of an Event of Default (as
such terms is defined in the Agreement) described in the Agreement.
5. The Holder of this Debenture is entitled, at its
option, at any time, until maturity hereof to convert the principal
amount of this Debenture or any portion of the principal amount
hereof which is at least Ten Thousand Dollars ($10,000 U.S.) or, if
at the time of such election to convert the aggregate principal
amount of all Debentures registered to the Holder is less than Ten
Thousand Dollars ($10,000 U.S.), then the whole amount thereof,
into Shares of Common Stock of the Company at a conversion price
for each share of Common Stock equal to the lower of (a) seventy
percent (70%) of the Market Price of the Company's Common Stock
averaged over the five trading days prior to the date of
conversion, or (b) the Market Price on the issuance date of this
Debenture. For purposes of this Section 5, the Market Price shall
be the closing bid price of the Common Stock, as reported by the
National Association of Securities Dealers Inc. Automated Quotation
System or, in the event the Common Stock is listed on a stock
exchange, the fair market value per Share shall be the closing
price on the exchange, as reported in the Wall Street Journal.
Such conversion shall be effectuated by surrendering the Debentures
to be converted to the Company, at 210 Second Street, St. Mary's,
West Virginia 26710, facsimile (304) 684-3658 with the form of
conversion notice attached hereto as Exhibit A, executed by the
Holder of this Debenture evidencing such Holder's intention to
convert this Debenture or a specified portion (as above provided)
hereof, and accompanied, if such shares are to be issued in a name
other than Holder by proper assignment hereof in blank. Any
accrued and unpaid interest shall be payable, at the option of the
Company, in cash or in shares valued at the then effective
conversion price. No fractions of shares or scrip representing
fractions of shares will be issued on conversion, but the number of
shares issuable shall be rounded to the nearest whole share. The
date on which notice of conversion is given shall be deemed to be
the date on which the Holder has delivered this Debenture, with the
conversion notice duly executed, to the Company, or, if earlier,
the date set forth in such notice of conversion (if sent by
facsimile transmission) if this Debenture is received by the
Company within two business days' thereafter. The Company shall
deliver the Common Stock issuable upon conversion hereof to the
Holder (or its designee) by overnight courier received within three
business days of the date on which the notice of conversion is
given (the "Delivery Date"), otherwise the penalties described in
the Security and Subscription Agreement shall apply.
6. This Debenture and all other Debentures now or
hereafter issued of similar terms are direct obligations of the
Company. This Debenture ranks equally and ratably with all other
Debentures now or hereafter issued under the terms set forth
herein.
7. No recourse shall be had for the payment of the
principal of, or the interest on this Debenture, or for any claim
based hereon, or otherwise in respect hereof, against any
incorporator, shareholder, officer or director, as such, past,
present or future, of the Company or any successor corporation,
whether by virtue of any constitution, statute or rule of law, or
by the enforcement of any assessment or penalty or otherwise, all
such liability being, by the enforcement of any assessment or
penalty or otherwise, all such liability being, by the acceptance
hereof and as part of the consideration for the issue hereof,
expressly waived and released.
8. The Holder of this Debenture, by acceptance hereof,
agrees that this Debenture is being acquired for investment and
that such Holder will not offer, sell or otherwise dispose of this
Debenture or the Shares of Common Stock issuable upon conversion
thereof except under circumstances which will not result in a
violation of the Act or any applicable state Blue Sky law or
similar laws relating to the sale of securities.
9. This Debenture shall be governed by and construed in
accordance with the laws of the State of Nevada, and shall be
further subject to the terms of the Agreement.
Exhibit 5
Opinion
Leonard E. Neilson
Attorney at Law
1121 East 3900 South
Suite 200, Bldg. C
Salt Lake City, UT 84124
Phone: (801) 288-2855 Fax: (801) 288-2850
June 23, 1999
Trans Energy, Inc.
210 Second Street
P.O. Box 393
St. Marys, West Virginia 2170
Re: Form SB-2 Registration Statement of Trans Energy, Inc.
Amendment No. 1
S.E.C. File No. 333-65021
To the Board of Directors:
I have acted as counsel to Trans Energy, Inc., a Nevada
corporation (the "Company"), in connection with Amendment No. 1 to
its Registration Statement on Form SB-2 related to the offer and
issuance of 31,040,000 of the Company's authorized but previously
unissued common stock, par value One Tenth of a Cent ($.001) per
share (the "Common Stock"). The subject 31,040,000 shares of
Common Stock (the "Shares") are to offered as follows: (i)
30,035,064 shares issuable pursuant to the conversion of certain
Debentures and the offer and sale of said shares by Selling
Securityholders; (ii) 4,936 shares for the possible issuance of
additional shares and fractional shares due to rounding-up of
conversions; and (iii) 1,000,000 shares to be offered by the
Registrant. The shares of Common Stock are to be offered and
issued pursuant to fulfillment of the terms and conditions set
forth in Amendment No. 1 to the Registration Statement filed on
Form SB-2 in accordance with the registration provisions of the
Securities Act of 1933, as amended.
I have examined the Articles of Incorporation and all
amendments thereto, By-Laws, minutes of corporate proceedings and
other corporate documents with respect to the issuance of the
Shares. I have been furnished with originals, or copies certified
to my satisfaction, of all such corporate or other records of the
Company (the "Corporate Records") and I have made such other legal
and factual examinations and inquiries as I have considered
necessary as a basis for the opinions expressed herein. In the
examination of the Corporate Records, I have presumed the
authenticity of all signatures which existed on the Corporate
Records and have presumed the veracity and regularity of all
Corporate Records.
As to the question of fact material to this opinion letter, I
have relied upon the representations and warranties, certificates
of and conversations and correspondences with, officers and
representatives of the Company. Based upon the foregoing, I am of
the opinion that:
1. The Company is a corporation duly organized and validly
existing under the laws of the State of Nevada.
2. Provided the Company amends its Articles of Incorporation
prior to the offering to increase its authorized
capitalization, the Shares will be legally and validly
authorized under the Articles of Incorporation and Board
of Directors of the Company and, when distributed and
paid for in accordance with the terms set forth in the
Registration Statement, the Shares will be duly and
validly issued and outstanding, fully paid and
nonassessable.
I hereby consent to the reference to myself in the
Registration Statement covering the offering of the Shares and the
use of my name beneath the caption "Legal Matters" in the
Prospectus forming a part thereof, and to the filing of a copy of
this opinion as Exhibit 5 thereof.
Yours truly,
/S/
Leonard E. Neilson
:ae
JONES, JENSEN
& COMPANY, LLC
CERTIFIED PUBLIC ACCOUNTANTS
CONSENT OF INDEPENDENT AUDITORS'
Board of Directors
Trans Energy, Inc.
St. Mary's, West Virginia
We hereby consent to the use in this Registration Statement of
Trans Energy, Inc. on Form SB-2A of our report dated February 24,
1999 of Trans Energy, Inc. for the years ended December 31, 1998
and 1997, which are part of this Registration Statement, and to all
references to our firm included in this Registration Statement.
Jones, Jensen & Company
Salt Lake City, Utah
June 23, 1999
50 South Main Street
Suite 1450
Salt Lake City, Utah 84144
Telephone (801) 328-4408
Facsimile (801) 328-4461
