TRANS ENERGY, INC.
1999 Annual Report
SELECTED FINANCIAL INFORMATION
<TABLE>
Statement of Operations Data:
<CAPTION>
1995 1996 1997 1998 1999
(Restated)
<S> <C> <C> <C> <C> <C>
Revenue. . . . . . . . . . . . $ 1,932,557 $ 1,236,740 $ 1,115,037 $ 1,230,916 $ 1,092,899
Total costs and expenses . . . 3,506,197 1,860,854 2,731,857 3,601,298 4,280,015
Operating (loss) . . . . . . . (1,573,640) (624,114) (1,616,820) (2,370,382) (3,187,116)
Other income (expenses). . . . (363,078) (1,342,392) (370,138) (2,682,230) (3,111,217)
Gain (loss) from
discontinued operations. . . (257,957) (1,711,877) (42,492) 203,322 -
Minority Interest. . . . . . . (10,403) 39,393
Net (loss) . . . . . . . . . . 2,205,078) (3,638,990) (2,029,450) (4,849,290) (6,298,333)
Income (loss) per share. . . . (0.71) (1.12) (0.44) (2.65) (1.90)
Balance Sheet Data:
Working capital. . . . . . . . $ (862,222) $ (583,240) $(1,922,429) $(6,812,876) $(9,116,862)
Current assets . . . . . . . . 343,968 777,204 362,483 251,036 140,631
Total assets . . . . . . . . . 6,705,278 5,500,343 5,680,601 10,353,638 5,291,159
Current liabilities. . . . . . 1,206,190 1,360,444 2,284,912 7,063,912 9,257,493
Long-term debt . . . . . . . . 2,898,508 1,251,436 792,387 863,109 559,190
Stockholders equity (deficit) 2,561,187 2,219,746 2,012,481 2,321,706 (4,630,435)
</TABLE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
[X] Annual Report Pursuant to Section 13 or 15(d) of The
Securities Exchange Act of 1934
For the Fiscal Year Ended December 31, 1999
[ ] Transition Report Pursuant to Section 13 or 15(d) of The
Securities Exchange Act of 1934
Commission File Number 0-23530
TRANS ENERGY, INC.
(Name of small business issuer in its charter)
Nevada 93-0997412
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
210 Second Street, P.O. Box 393, St. Marys, West Virginia 26170
(Address of principal executive offices) (Zip Code)
Issuer's telephone no.: (304) 684-7053
Securities registered pursuant to Section 12(b) of the Exchange
Act: None
Securities registered pursuant to Section 12(g) of the Exchange
Act: Common
Check whether the issuer (1) filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act during the past 12
months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Check if there is no disclosure of delinquent filers in
response to Item 405 of Regulation S-B contained in this form, and
no disclosure will be contained, to the best of the Registrant's
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [ ]
State the issuer's revenues for its most recent fiscal year.
$ 1,092,899
State the aggregate market value of the voting stock held by
non-affiliates computed by reference to the price at which the
stock was sold, or the average bid and ask prices of such stock as
of a specified date within 60 days. $962,787 (Based on price of
$.14 on April 11, 2000)
State the number of shares outstanding of each of the issuer's
classes of common equity, as of the latest practicable date.
Class Outstanding as of December 31, 1999
Common Stock, Par Value
$.001 per share 7,107,746
DOCUMENTS INCORPORATED BY REFERENCE
NONE
Transitional Small Business Disclosure Format. Yes [ ] No [X]
TRANS ENERGY, INC.
TABLE OF CONTENTS
Page
PART I
Item 1. Description of Business . . . . . . . . . . . . . . . 3
Item 2. Description of Property. . . . . . . . . . . . . . . . 12
Item 3. Legal Proceedings. . . . . . . . . . . . . . . . . . . 14
Item 4. Submission of Matter to a Vote of
Security Holders . . . . . . . . . . . . . . . . . . . 15
PART II
Item 5. Market for Common Equity and Related
Stockholder Matters. . . . . . . . . . . . . . . . . . 15
Item 6. Management's Discussion and Analysis or
Plan of Operation. . . . . . . . . . . . . . . . . . . 17
Item 7. Financial Statements . . . . . . . . . . . . . . . . . 21
Item 8. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure . . . . . . . . 46
PART III
Item 9. Directors, Executive Officers, Promoters and
Control persons; Compliance with Section 16(a)
of the Exchange Act. . . . . . . . . . . . . . . . . . 46
Item 10. Executive Compensation . . . . . . . . . . . . . . . . 48
Item 11. Security Ownership of Certain Beneficial
Owners and Management. . . . . . . . . . . . . . . . . 48
Item 12. Certain Relationships and Related Transactions . . . . 50
PART IV
Item 13. Exhibits and Reports on Form 8-K . . . . . . . . . . . 52
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . 53
PART I
Item 1. Description of Business
History
Trans Energy, Inc., a Nevada corporation (the "Company" or
"TSRG"), is primarily engaged in the transportation, marketing and
production of natural gas and oil, and also conducts exploration
and development activities. The Company owns and operates 3 oil
and gas wells in West Virginia, 1 oil well in Wyoming, and owns an
interest in 7 oil wells in Wyoming that it does not operate. The
Company 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 and
Pleasants. This pipeline system gathers the natural gas produced
from these wells and from wells owned by third parties. The
Company also has approximately 22,000 acres under lease in the
Powder River Basin in Campbell, Crook and Weston Counties, Wyoming
In 1999, the Company sold most of its oil and gas wells in West
Virginia and its interest in the Sistersville field located in
Sistersville, West Virginia.
On March 6, 1998, the Company 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 miles of 3-D seismic data. The
properties include three producing fields from Minnelusa Sandstone
and were discovered on 3-D seismic. The Company made an initial
payment for the properties of $332,500 and the balance of
$2,987,962 was paid for with proceeds from the sale of Convertible
Debentures. During 1999, the SAGEBRUSH $3 WELL WAS DRILLED IN THE
Sagebrush field in Campbell County Wyoming. It will be used as a
water injector well to increase production in the Sagebrush #1 and
#2 existing producing wells.
The Company's principal executive offices are located at 210
Second Street, P.O. Box 393, St. Marys, West Virginia 26170, and
its telephone number is (304) 684-7053.
Business Development
In 1999, the Company changed its primary business focus. It
sold many of its Appalachian Basin assets and purchased 51% of a
producing well in the Powder River Basin in Wyoming. The Company
intends to focus its attention toward developing its acreage in the
Powder River Basin in Wyoming and drilling for deep gas (Trenton-
Black River) in the Appalachian Basin in West Virginia. In October
1999, Columbia Natural Resources, Inc. (CNR), a subsidiary of
Columbia Energy Group (CEG) announced that it had confirmed the
existence of a new natural gas field in West Virginia. The Company
is actively pursuing acreage within this region and anticipates
drilling within the next 12 months.
The Company's business strategy is to economically increase
its reserves, production and sale of gas and oil from existing and
acquired properties in the Powder River Basin and Appalachian Basin
and elsewhere in order to maximize shareholders' return over the
long term. The Company's strategic location in West Virginia
enables the Company to actively pursue the acquisition and
development of producing properties in that area that will enhance
the Company's revenue base without proportional increases in
overhead costs.
In September 1993, the Company acquired certain oil and gas
assets including wells and pipelines, in exchange solely for shares
of the Company's authorized but previously unissued common stock.
These acquisitions are summarized below:
Tyler Construction Company, Inc.
In September 1993, the Company acquired an interest equal to
65% of the total outstanding shares of Tyler Construction Company
("Tyler Construction") from Loren E. Bagley, the Company's
President and a director, and William F. Woodburn, the Company's
Vice President of Operations and a director. 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, 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 Gas, Inc. ("Hope") in
1988. This agreement is a flexible volume supply agreement whereby
the Company receives the full price which Sancho receives less a
$.05 per Mcf marketing fee paid to Sancho. The price of the
natural gas is based upon the residential gas index and the Inside
F.E.R.C. Index.
Spencer Wells
Also in September 1993, the Company acquired from Dennis L.
Spencer all rights, title and interest to six producing oil and gas
wells located in West Virginia, in exchange for the Company 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. In 1999, five of
these wells were sold to an unaffiliated third party.
The Pipeline, Ltd.
Also in September 1993, the Company 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 the Company, is also President and owns 50% of Tyler Pipeline.
Mr. Bagley, President and a director of the Company, also owns 50%
of Tyler Pipeline.
Ritchie County Gathering Systems, Inc.
In September 1993, the Company 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.
Current Business Activities - Powder River Basin Wyoming
On March 6, 1998, the Company 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 miles of 3-D seismic data. The
properties include three producing fields from Minnelusa Sandstone
and were discovered on 3-D seismic. The Company 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 the Company's
Debentures.
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 78 48.8% 38
Sagebrush Fed #2 55 47.5% 22
Pinon Fee #1 36 51.2% 19
Sandbar Boley 31-36 44 .22% 1
Sandbar State 1-36 0 14.2% 0
Sandbar State 2-36 0 33% 0
Wolff 1-35 8 68% 5
TOTAL 221 85
Current Business Activities
The Company is actively engaged in the operation of its oil
and natural gas properties and in the transportation and marketing
of its natural gas through its transmission systems in 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 the Company will continue to transport and market
natural gas through its various pipelines, there are no current
plans to acquire or to lay any additional pipeline systems in 2000.
Apart from the three wells drilled in the Powder River Basin in
Wyoming and the one well drilled in Sistersville, West Virginia,
the Company has not drilled any new wells in the last three years.
Powder River Basin Wyoming - Prima
On December 28, 1996, the Company 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 the Company 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
the Company.
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 the Company. 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 The Company'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.
The Company completed the drilling of the Fowler 22-8 in
January 1998 and determined the well to be a dry hole and was
plugged. The Company did not drill additional wells on this
acreage during 1998 or 1999.
Powder River Basin Wyoming Wolffe Prospect
On May 27, 1997, the Company 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,
the Company 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. On
November 15, 1999, the Company purchased for $16,000 an additional
51% working interest in the Wolff 1-35 well from Renor Exploration
Limited.
Sistersville
Effective June 1, 1995, the Company purchased approximately
2,200 acres in a known producing field located near Sistersville,
West Virginia for $100,000. The Sistersville field has been 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 the Company intends to explore.
These formations are approximately 1,700 feet deep. Recoverable
reserves of oil in the field are estimated at several million
barrels.
The Company has observed the success of oil and gas
exploration in the Sistersville field by other entities after
expensive studies. The preliminary studies conducted by the seller
of the Sistersville property to the Company indicating substantial
reserves were included in the purchase price paid by the Company
for the Sistersville acreage. The Company drilled a well on its
Sistersville acreage in April 1997. On December 3, 1999, the
Company sold the Sistersvilee field for $125,000 to an unaffiliated
third party.
Vulcan Energy Corporation.
During March 1997, the Company ceased operations of Vulcan
Energy Corporation ("Vulcan"), its 80% owned subsidiary, engaged in
the lease crude oil gathering and marketing in Southeast Texas.
Financial information with respect to discontinued operations is
presented in Note 9 to the Company's consolidated financial
statements.
Research and Development
The Company has not allocated funds for conducting research
and development activities and, due to the nature of the Company's
business, it is not anticipated that funds will be allocated for
research and development in the immediate future.
Marketing
The Company operates exclusively in the oil and gas industry.
Natural gas production from wells owned by the Company is generally
sold to various intrastate and interstate pipeline companies and
natural gas marketing companies. Sales are generally made on the
spot market or under short-term contracts (one year or less)
providing for variable or market sensitive prices. These prices
often are tied to natural gas futures contracts as posted in
national publications.
Natural gas delivered through The Company's pipeline network
is sold either to Sancho Oil and Gas Corporation ("Sancho") at the
industrial facilities near Sistersville, West Virginia, or to
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 $.05 per Mcf
marketing fee paid to Sancho. The price of the natural gas is
based upon the greater of the residential gas commodity index and
published Inside F.E.R.C. Index, at The Company's option, for the
first 1,500 Mcf purchased per day by Hope and thereafter the price
is the Inside F.E.R.C. Index. The residential gas commodity index
does not directly fluctuate with the overall price of natural gas.
The Inside F.E.R.C. Index fluctuates monthly with the change in the
price of natural gas. While such option provides certain price
protection for the Company there can be no assurance that prices
paid by the Company to suppliers will be lower than the price which
the Company would receive under the Hope arrangement. Prior to
June 1, 1996, the price was the residential gas commodity index and
when the market price of gas rose above such index, The Company's
ability to purchase gas from third parties was adversely effected.
The Company sells its oil production to third party purchasers
under agreements at posted field prices. These third parties
purchase the oil at the various locations where the oil is
produced.
Although management believes that the Company is not dependent
upon any one customer, its marketing arrangement with Sancho Oil
and Gas Corporation accounted for approximately 47% of The
Company'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 the Company 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 The Company's business.
In addition to the natural gas produced by the Company'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 The Company's capital expenditures, earnings or competitive
position.
Legislation and implementing regulations adopted or proposed
to be adopted by the Environmental Protection Agency ("EPA") and by
comparable state agencies, directly and indirectly affect The
Company's operations. The Company is required to operate in
compliance with certain air quality standards, water pollution
limitations, solid waste regulations and other controls related to
the discharging of materials into, and otherwise protecting the
environment. These regulations also relate to the rights of
adjoining property owners and to the drilling and production
operations and activities in connection with the storage and
transportation of natural gas and oil.
The Company may be required to prepare and present to federal,
state or local authorities data pertaining to the effect or impact
that any proposed operations may have upon the environment.
Requirements imposed by such authorities could be costly, time-
consuming and could delay continuation of production or exploration
activities. Further, the cooperation of other persons or entities
may be required for the Company to comply with all environmental
regulations. It is conceivable that future legislation or
regulations may significantly increase environmental protection
requirements and, as a consequence, The Company's activities may be
more closely regulated which could significantly increase operating
costs. However, management is unable to predict the cost of future
compliance with environmental legislation. As of the date hereof,
management believes that the Company is in compliance with all
present environmental regulations. Further, the Company believes
that its oil and gas explorations do not pose a threat of
introducing hazardous substances into the environment. If such
event should occur, the Company could be liable under certain
environmental protection statutes and laws. The Company does
presently carry insurance for environmental liability.
The Company's exploration and development operations are
subject to various types of regulation at the federal, state and
local levels. Such regulation includes the requirement of permits
for the drilling of wells, the regulation of the location and
density of wells, limitations on the methods of casing wells,
requirements for surface use and restoration of properties upon
which wells are drilled, and governing the abandonment and plugging
of wells. Exploration and production are also subject to property
rights and other laws governing the correlative rights of surface
and subsurface owners.
The Company is subject to the requirements of the Occupational
Safety and Health Act, as well as other state and local labor laws,
rules and regulations. The cost of compliance with the health and
safety requirements is not expected to have a material impact on
The Company's aggregate production expenses. Nevertheless, the
Company is unable to predict the ultimate cost of compliance.
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 the Company, may have an indirect effect on
the cost of, or the demand for, natural gas and oil.
Employees
As of the date hereof the Company employs ten people full-
time, consisting of two executives, three marketing and clerical
persons, and five production persons. Management presently
anticipates hiring additional employees as the business warrants
and as funds are available.
Facilities
The Company's operations currently occupy approximately 4,000
square feet of office space in St. Marys, West Virginia, which it
shares with its subsidies Tyler Construction Company, Inc. and
Ritchie County Gathering Systems, Inc. The Company 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 the Company's current business
operations.
Industry Segments
No information is presented as to industry segments. The
Company is presently engaged in the principal business of the
exploration, development, production, transportation and marketing
of natural gas and oil. Reference is made to the statements of
operations contained in the Company's financial statements included
herewith for a statement of the Company's revenues and operating
profit (loss) for the past two fiscal years.
Item 2. Description of Property
The Company's properties consist essentially of the working
and royalty interests owned by the Company in various oil and gas
wells and leases located in West Virginia. The Company's proved
reserves for the years ended December 31, 1997, 1996 and 1995 are
set forth below:
December 31,
1999 1998 1997
Natural Gas (MMcf)
Developed - 912,428 979,662
Undeveloped - 801,654 801,654
Total Proved - 1,714,082 1,781,316
Crude Oil (MBbl)
Developed 1,225,648 1,504,813 30,870
Undeveloped 210,610 200,721 180,000
Total Proved 1,436,258 1,705,534 210,870
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 the Company.
Set forth in the following schedule is the average sales price
per unit of oil, expressed in barrels ("bbl"), and of natural gas,
expressed in thousand cubic feet ("mcf"), produced by the Company
for the past three fiscal years.
Years ended December 31,
Average sales price: 1999 1998 1997
Gas (per mcf) $ 3.04 $ 2.70 $ 2.95
Oil (per bbl) 13.83 10.04 16.44
Average cost of
production:
Gas (per mcf) 1.31 1.38 1.09
Oil (per bbl) 7.52 8.28 6.54
The Company has not filed any estimates of total, proved net
oil and gas reserves with any federal authority or agency since the
beginning of The Company's last fiscal year.
The following schedule sets forth the capitalized costs
relating to oil and gas producing activities by the Company for the
past three fiscal years.
Years ended December 31,
1999 1998 1997
Proved oil and gas
producing properties
and related lease
and well equipment $4,730,577 $5,894,561 $2,696,511
Unproved oil and gas
properties 180,000 3,347,825 1,425,800
Accumulated depreciation
and depletion (25,930) (527,140) (433,799)
Net Capitalized Costs $4,884,647 $8,715,246 $3,688,512
The following schedule summarizes changes in the standardized
measure of discounted future net cash flows relating to The
Company's proved oil and gas reserves.
Years ended December 31,
1999 1998 1997
Standardized measure,
beginning of year 9,495,694 3,534,828 $3,611,702
Oil and gas sales, net
of production costs (313,619) (433,412) (390,922)
Sales of mineral in place (3,965,088 - -
Purchases - 5,289,539 -
Net change due to revisions
in quantity estimates - 1,104,739 314,048
Standardized measure,
end of year $5,216,987 $9,495,694 $3,534,828
The Company does not anticipate investing in or purchasing
assets and/or property for the purpose of capital gains. It is The
Company's intention to purchase assets and/or property for the
purpose of enhancing its primary business operations. The Company
is not limited as to the percentage amount of The Company's assets
it may use to purchase any additional assets or properties.
Item 3. Legal Proceedings
There are no material pending legal proceedings to which the
Company is a party or to which any of its property is subject
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 the Company 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. The Company 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 the Company
breached certain contracts related to Mr. Walker's employment with
Vulcan Energy Corporation, and seeks punitive and exemplary
damages. The Company 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 the Company. On February 17, 1998 the Company 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.
The Company is also defending a lawsuit filed in 1998 in the
189th Judicial District Court of Harris County, Texas entitled
Baker Hughes Oilfield Operation, Inc. d/b/a Baker Hughes Inteq. vs.
Loren E. Bagley, Individually and Doing Business as Trans Energy,
Inc. (#98-48248). This action is premised on an alleged breach of
contract and fraud and seeks to recover monetary damages in the
amount of $41,142, plus attorneys' fees, exemplary damages, costs
and interest. The Company denies all allegations and intends to
vigorously defend its position. Presently, the action is in the
early discovery phase.
Also in 1998 an action was filed against the Company in the
234th Judicial District Court of Harris County, Texas entitled
Western Geophysical, a Division of Western Atlas international,
Inc. vs. Trans Energy, Inc. and Loren F. Bagley, Individually and
Doing Business as Trans Energy, Inc. (#98-58146). In this action
the plaintiff alleges breach of contract and fraud and seeds to
recover monetary damages of $435,714, plus attorney's fees,
exemplary damages, costs of the suit and interest. The Company is
presently attempting to negotiate a settlement in the matter.
A foreign judgment has been filed with the circuit court in
Pleasants County, West Virginia for a judgment rendered by the
District Court in Harris County, Texas. The judgment is for
$41,142 plus prejudgment interest and attorney's fees of $13,500.
No action has been taken to collect on this judgment.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of the Company's
Securities Holders during the fourth quarter of the Company's
fiscal year ending December 31, 1999.
PART II
Item 5. Market for Common Equity and Related Stockholder Matters
Commencing in October 1994, the Company's common stock was
traded on the Nasdaq Small-Cap Market ("Nasdaq") under the symbol
"TSRG." 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
under the symbol "TSRG."
Set forth in the table below are the quarterly high and low
prices of the Company's common stock as obtained from the Nasdaq
Small-Cap Market and the OTC Bulletin Board for the past two fiscal
years.
High Low
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 $ .50
Second Quarter $ 1.03 $ .19
Third Quarter $ .50 $ .19
Fourth Quarter $ .31 $ .10
As of December 31, 1999, there were 197 holders of record of
the common stock, which figure does not take into account those
shareholders whose certificates are held in the name of
broker-dealers.
Dividend Policy
The Company has not declared or paid cash dividends or made
distributions in the past, and the Company does not anticipate that
it will pay cash dividends or make distributions in the foreseeable
future. The Company currently intends to retain and reinvest future
earnings to finance its operations.
Recent Sales of Unregistered Securities
A description of recent sales of unregistered securities can
be found in the Consolidated Statements of Stockholders' Equity and
Note 11 to the Consolidated Financial Statements which can be found
elsewhere within this Form 10-KSB.
On September 10, 1998, the Company closed an offering of
convertible debentures whereby the Company realized gross proceeds
of $4,625,400. The proceeds were used to acquire the GCRL
interests and related expenses. Shares issuable upon conversion of
the Debentures are subject to a registration statement that has
been filed with the Commission.
Issuances of securities by the Company were made in reliance
upon the exemption from registration under the Securities Act of
1933, as amended, provided by Section 4(2) thereunder.
<PAGE>
Item 6. Management's Discussion and Analysis or Plan of Operation
The following information should be read in conjunction with
the consolidated financial statements and notes thereto appearing
elsewhere in this Form 10-KSB.
Results of Operations
The following table sets forth the percentage relationship to
total revenues of principal items contained in the Company's
Statements of Operations for the two most recent fiscal years ended
December 31, 1999, and 1998. It should be noted that percentages
discussed throughout this analysis are stated on an approximate
basis.
Fiscal Years Ended
December 31,
1999 1998
Total revenues . . . . . . . . . . . . . . . . . 100% 100%
Total costs and expenses . . . . . . . . . . . . 392 293
Total other income (expenses). . . . . . . . . . (285) (218)
Loss before taxes and gain from
discontinued operations . . . . . . . . . . . (577) (411)
Income taxes . . . . . . . . . . . . . . . . . . - -
Net gain from discontinued operations. . . . . . - 17
Net (loss) . . . . . . . . . . . . . . . . . . . (577) (394)
For the Year Ended December 31, 1999 Compared to the Year Ended
December 31, 1998
Total revenues of $1,092,899 for the year ended December 31,
1999 ("1999") decreased 11% when compared to $1,230,916 for the
year ended December 31, 1998 ("1998"). In 1999, oil made up 37% of
total revenues compared to 13% in 1998. Accordingly, gas sales
decreased from 77% of sales in 1998 to 63% in 1999. This increase
in oil revenues was due to the Gulf Canada interests in Wyoming
which produces oil and not natural gas.
The Company had a net loss of $6,298,333 for 1999 compared to
a net loss of $4,849,290 in 1998. The Company's total costs and
expenses increased 19% in 1999 and, as a percentage of revenues,
increased from 293% in 1998 to 392% in 1999. The cost of oil and
gas decreased 36% in 1999 due to lower purchases and a set price.
As a percentage of revenues, cost of oil decreased from 65% in 1998
to 46% 1999 due to increased oil selling prices in 1999. Selling, general
and administrative expenses increased 68% in 1999 when compared to 1998,
primarily due to additional amortization on pre-paid advertising and marketing.
Salaries and wages decreased 18% in 1999 due to one officer leaving
the Company. Depreciation, depletion and amortization increased
34% in 1999 from 1998 due to dry hole costs of $992,900. Interest
expense in 1999 decreased 72% from 1998 due to the Company having
recorded the discount on its Convertible debentures in 1998.
Net Operating Losses
The Company has accumulated approximately $19,800,000 of net
operating loss carryforwards as of December 31, 1999, which may be
offset against future taxable income through 2019. The use of
these losses to reduce future income taxes will depend on the
generation of sufficient taxable income prior to the expiration of
the net operating loss carryforwards. In the event of certain
changes in control of the Company, there will be an annual
limitation on the amount of net operating loss carryforwards which
can be used. No tax benefit has been reported in the financial
statements for the year ended December 31, 1999 because the
potential tax benefits of the loss carryforward is offset by
valuation allowance of the same amount.
Liquidity and Capital Resources
Historically, the Company's working capital needs have been
satisfied through its operating revenues and from borrowed funds.
Working capital at December 31, 1999 was a negative $9,115,862
compared with a negative $6,812,876 at December 31, 1998. This
change was primarily attributed to the maturity of certain
debentures payable in 1999. The Company anticipates meeting its
working capital needs during the 1999 fiscal year with revenues
from operations and possibly from capital raised through the sale
of either equity or debt 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.
On July 2, 1999, the Company sold assets with a depreciated
basis of $2,842,961 for $400,000. The loss on valuation of assets
of $2,442,961 has been recorded to reflect the value of these
assets per the sales transaction. The Company has applied the
proceeds from the sale to general operating expenses.
As of December 31, 1999, the Company had total assets of
$5,291,159 and stockholders' deficit of $4,630,435 compared to
total assets of $10,353,838 and total stockholders' deficit of
$786,532 at December 31, 1998.
In 1998, the Company 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, the Company believes that the Debentures will be converted
into common stock, unless the Company can negotiate an extension
with the holders. At December 31, 1999, the Company had debentures
payable of $5,090,496, reflecting the face value of the outstanding
debentures and accrued interest.
In the opinion of management, inflation has not had a material
effect on the operations of the Company.
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.
To date, the Company has not experienced any year 2000 problems.
The Company has not incurred any costs associated with its
assessment of the Year 2000 problem.
Risk Factors and Cautionary Statements
Forward-looking statements in this report are made pursuant to
the "safe harbor" provisions of the Private Securities Litigation
Reform Act of 1995. The Company wishes to advise readers that
actual results may differ substantially from such forward-looking
statements. Forward-looking statements involve 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: the ability of the Company to
secure additional financing, the possibility of success in the
Company's drilling endeavors, competitive factors, and other risks
detailed in the Company's periodic report filings with the
Securities and Exchange Commission.
Recent Accounting Pronouncements
The Financial Accounting Standards Board ("FASB") has issued
SFAS No. 130, "Reporting Comprehensive Income" and SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related
Information." SFAS No. 130 establishes standards for reporting and
display of comprehensive income, its components and accumulated
balances. Comprehensive income is defined to include all changes
in equity except those resulting from investments by owners and
distributors to owners. Among other disclosures, SFAS No. 130
requires that all items that are required to be recognized under
current accounting standards as components of comprehensive income
be reported in a financial statement that displays with the same
prominence as other financial statements. SFAS No. 131 supersedes
SFAS No. 14 "Financial Reporting for Segments of a Business
Enterprise." SFAS No. 131 establishes standards on the way that
public companies report financial information about operating
segments in annual financial statements and requires reporting of
selected information about operating segments in interim financial
statements issued to the public. It also establishes standards for
disclosure regarding products and services, geographic areas and
major customers. SFAS No. 131 defines operating segments as
components of a company about which separate financial information
is available that is evaluated regularly by the chief operating
decision maker in deciding how to allocate resources and in
assessing performance.
SFAS 130 and 131 are effective for financial statements for
periods beginning after December 15, 1997 and requires comparative
information for earlier years to be restated. Management believes
that the implementation of the new standards will not have a
material effect on the Company's financial statements.
The FASB has also issued SFAS No 132. "Employers' Disclosures
about Pensions and other Postretirement Benefits," which
standardizes the disclosure requirements for pensions and other
Postretirement benefits and requires additional information on
changes in the benefit obligations and fair values of plan assets
that will facilitate financial analysis. SFAS No. 132 is effective
for years beginning after December 15, 1997 and requires
comparative information for earlier years to be restated, unless
such information is not readily available. Management believes the
adoption of this statement will have no material impact on the
Company's financial statements.
In June 1998, the FASB issued SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities" which requires
companies to record derivatives as assets or liabilities, measured
at fair market value. Gains or losses resulting from changes in
the values of those derivatives would be accounted for depending on
the use of the derivative and whether it qualifies for hedge
accounting. The key criterion for hedge accounting is that the
hedging relationship must be highly effective in achieving
offsetting changes in fair value or cash flows. SFAS No. 133 is
effective for all fiscal quarters of fiscal years beginning after
June 15, 1999. Management believes the adoption of this statement
will have no material impact on the Company's financial statements.
Item 7. Financial Statements
The Company's financial statements as of and for the fiscal
years ended December 31, 1999 and 1998 have all been examined to
the extent indicated in their report by Jones, Jensen & Company,
independent certified public accountants, and have been prepared in
accordance with generally accepted accounting principles and
pursuant to Regulation S-B as promulgated by the Securities and
Exchange Commission. The aforementioned financial statements are
included herein in response to Item 7 of this Form 10-KSB.
TRANS ENERGY, INC.
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
INDEPENDENT AUDITORS' REPORT
Board of Directors
Trans Energy, Inc. and Subsidiaries
St. Mary's, West Virginia
We have audited the accompanying consolidated balance sheet of
Trans Energy, Inc. and Subsidiaries as of December 31, 1999 and
the related consolidated statements of operations, stockholders'
equity (deficit), and cash flows for the years ended December 31,
1999 and 1998. 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, 1999 and the consolidated results of their operations
and their cash flows for the years ended December 31, 1999 and
1998, 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
March 23, 2000
TRANS ENERGY, INC. AND SUBSIDIARIES
Consolidated Balance Sheet
ASSETS
December 31,
1999
CURRENT ASSETS
Cash $ 13,477
Accounts receivable, net (Note 1) 127,154
Total Current Assets 140,631
PROPERTY AND EQUIPMENT (Note 2)
Vehicles 94,589
Machinery and equipment 10,092
Pipelines 2,254,908
Well equipment 49,155
Wells 3,704,389
Leasehold acreage 180,000
Accumulated depreciation (1,408,486)
Total Fixed Assets 4,884,647
OTHER ASSETS
Restricted cash (Note 2) 262,089
Deposits 3,792
Total Other Assets 265,881
TOTAL ASSETS $ 5,291,159
TRANS ENERGY, INC. AND SUBSIDIARIES
Consolidated Balance Sheet (Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
December 31,
1999
CURRENT LIABILITIES
Accounts payable - trade $ 1,181,945
Accrued expenses 1,182,754
Salaries payable 412,262
Notes payable - current portion (Note 3) 1,228,566
Related party payables (Note 4) 161,470
Debentures payable (Note 11) 5,090,496
Total Current Liabilities 9,257,493
NET LIABILITIES IN EXCESS OF THE ASSETS OF
DISCONTINUED OPERATIONS (Note 9) 104,911
LONG-TERM LIABILITIES
Notes payable (Note 3) 559,190
Total Long-Term Liabilities 559,190
Total Liabilities 9,921,594
COMMITMENTS AND CONTINGENCIES (Note 7)
STOCKHOLDERS' EQUITY (DEFICIT) (Note 6)
Common stock; 30,000,000 shares authorized at $0.001 par value;
7,107,746 shares issued and outstanding 7,107
Capital in excess of par value 15,250,242
Accumulated deficit (19,887,784)
Total Stockholders' Equity (Deficit) (4,630,435)
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $ 5,291,159
<PAGE>
TRANS ENERGY, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
For the Years Ended
December 31,
1999 1998
REVENUES $ 1,092,899 $ 1,230,916
COSTS AND EXPENSES
Cost of oil and gas 506,518 797,504
Salaries and wages 271,114 331,514
Depreciation, depletion and amortization 2,523,043 1,888,089
Selling, general and administrative 979,340 584,191
Total Costs and Expenses 4,280,015 3,601,298
LOSS FROM OPERATIONS (3,187,116) (2,370,382)
OTHER INCOME (EXPENSE)
Other income 14,184 563
Interest expense (793,840) (2,833,653)
Gain on disposition of assets - 150,860
Loss on sale of assets (Note 2) (2,331,561) -
Total Other Income (Expense) (3,111,217) (2,682,230)
LOSS FROM CONTINUING OPERATIONS BEFORE
INCOME TAXES AND MINORITY INTERESTS (6,298,333) (5,052,612)
INCOME TAXES (Note 1) - -
MINORITY INTERESTS - -
LOSS FROM CONTINUING OPERATIONS (6,298,333) (5,052,612)
NET GAIN (LOSS) FROM DISCONTINUED OPERATIONS
(Note 9) - 203,322
NET LOSS $ (6,298,333) $ (4,849,290)
TRANS ENERGY, INC. AND SUBSIDIARIES
Consolidated Statements of Operations (Continued)
For the Years Ended
December 31,
1999 1998
BASIC LOSS PER SHARE
Continuing operations $ (1.90) $ (2.76)
Discontinued operations
Loss from discontinued operations - -
Gain on release of debt - 0.11
Net Discontinued Operations - 0.11
$ (1.90) $ (2.65)
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING 3,319,421 1,826,961
TRANS ENERGY, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity (Deficit)
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 - - 1,445,480 -
Net loss for the year ended
December 31, 1998 - - - (4,849,290)
Balance, December 31, 1998 2,174,817 2,174 14,373,809 (13,589,451)
Common stock issued for services
at $0.59 per share 440,000 440 259,560 -
Common stock issued for services
and conversion of debt to equity
at $0.98 per share 94,000 94 92,106 -
Common stock issued for conversion
of debentures, penalty and
interest at $0.12 per share 4,398,929 4,399 524,767 -
Net loss for the year ended
December 31, 1999 - - - (6,298,333)
Balance, December 31, 1999 7,107,746 $ 7,107 $ 15,250,242 $(19,887,784)
TRANS ENERGY, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the Years Ended
December 31,
1999 1998
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (6,298,333) $ (4,849,290)
Adjustments to reconcile net loss to net cash
(used) by operating activities:
Depreciation, depletion and amortization 2,523,043 1,888,089
Amortization of discount on debenture - 1,445,480
Loss (gain) on disposition of assets 2,331,561 (150,860)
Common stock issued for services 283,700 360,750
(Gain) on discontinued operations - (203,322)
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable 122,374 (74,368)
(Increase) in restricted cash (262,089) -
Decrease (increase) in prepaid and other current
assets 21,232 (1,538,124)
(Increase) in related party receivables - (21,231)
Increase in accounts payable and accrued expenses 1,150,379 1,611,791
Net Cash (Used) by Operating Activities (128,133) (1,531,085)
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property and equipment 525,000 309,129
Expenditures for property and equipment (185,165) (3,902,098)
Net Cash Provided (Used) by Investing Activities 339,835 (3,592,969)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from related parties 153,469 -
Principal payments on notes payable (387,694) (625,070)
Proceeds from notes payable 36,000 937,843
Proceeds from debentures - 4,625,400
Net Cash Provided (Used) by Financing Activities $ (198,225) $ 4,938,173
TRANS ENERGY, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Continued)
For the Years Ended
December 31,
1999 1998
NET INCREASE (DECREASE) IN CASH $ 13,477 $ (185,881)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR - 185,881
CASH AND CASH EQUIVALENTS, END OF YEAR $ 13,477 $ -
CASH PAID FOR:
Interest $ 87,939 $ 120,049
Income taxes $ - $ -
NON-CASH FINANCING ACTIVITIES:
Common stock issued for services $ 283,700 $ 360,750
Contribution of shareholder salaries $ - $ 208,210
Common stock issued for debt $ 597,666 $ -
TRANS ENERGY, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 1999 and 1998
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.
b. Accounting Method
The Company uses the successful efforts method of accounting
for oil and gas producing activities. Costs to acquire
mineral interests in oil and gas properties, to drill and
equip exploratory wells that find proved reserves, and to
drill and equip development wells are capitalized. Costs to
drill exploratory wells that do not find proved reserves,
geological and geophysical costs, and costs of carrying and
retaining unproved properties are expensed.
Unproved oil and gas properties that are individually
significant are periodically assessed for impairment of value,
and a loss is recognized at the time of impairment by
providing an impairment allowance. Other unproved properties
are amortized based on the Company's experience of successful
drilling and average holding period. Capitalized costs of
producing oil and gas properties, after considering estimated
dismantlement and abandonment costs and estimated salvage
values, are depreciated and depleted by the unit-of-production
method. Support equipment and other property and equipment
are depreciated over their estimated useful lives.
TRANS ENERGY, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 1999 and 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
b. Accounting Method (Continued)
On the sale or retirement of a complete unit of a proved
property, the cost and related accumulated depreciation,
depletion, and amortization are eliminated from the property
accounts, and the resultant gain or loss is recognized. On
the retirement or sale of a partial unit of proved property,
the cost is charged to accumulated depreciation, depletion,
and amortization with a resulting gain or loss recognized in
income.
On the sale of an entire interest in an unproved property for
cash or cash equivalent, gain or loss on the sale is
recognized, taking into consideration the amount of any
recorded impairment if the property had been assessed
individually. If a partial interest in an unproved property
is sold, the amount received is treated as a reduction of the
cost of the interest retained.
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 is not disclosed as the
common stock equivalents are antidilutive in nature.
All references to shares have been retroactively restated to
reflect a 1-for-4 reverse stock split.
1999 1998
Numerator - net loss $ (6,298,333) $ (5,052,612)
Denominator - weighted average shares 3,319,421 1,827,861
Net loss per share $ (1.90) $ (2.65)
d. Provision for Taxes
At December 31, 1999, the Company had net operating loss
carryforwards of approximately $19,800,000 that may be offset
against future taxable income through 2019. 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.
TRANS ENERGY, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 1999 and 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
f. Principles of Consolidation
The consolidated financial statements include the Company and
its wholly owned subsidiary, Ritchie County Gathering Systems,
Inc. and its 65% owned subsidiary, Tyler Construction Company,
Inc. All significant intercompany accounts and transactions
have been eliminated.
g. Presentation
Certain 1998 balances have been reclassified to conform to the
presentation of the 1999 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.
j. Prepaid Closing Costs
Prepaid closing costs consisted of the following at December 31, 1999:
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 (2,025,310)
Net Prepaid Closing Costs $ -
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 was amortized in the first
quarter of 1999. Amortization expense for the years ended
December 31, 1999 and 1998 was $675,443 and $1,349,867,
respectively.
TRANS ENERGY, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 1999 and 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
k. Prepaid Advertising
Prepaid advertising consisted of the following at December 31, 1999:
Costs paid out of the debenture closing $ 1,062,628
Less accumulated amortization (1,062,628)
Net Prepaid Advertising $ -
These advertising costs were fully amortized in 1999 and were
associated with preparing Company press releases and providing
them to the public in various publications and trade journals.
Amortization expense for the years ended December 31, 1999 and
1998 was $688,173 and $374,455, respectively.
l. 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.
m. Changes in Accounting Principle
In June 1998, the FASB issued SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities" which requires
companies to record derivatives as assets or liabilities,
measured at fair market value. Gains or losses resulting from
changes in the values of those derivatives would be accounted
for depending on the use of the derivative and whether it
qualifies for hedge accounting. The key criterion for hedge
accounting is that the hedging relationship must be highly
effective in achieving offsetting changes in fair value or
cash flows. SFAS No. 133 is effective for all fiscal quarters
of fiscal years beginning after June 15, 1999. Management
believes the adoption of this statement will have no material
impact on the Company's financial statements.
n. Accounts Receivable
Accounts receivable are shown net of an allowance for bad debt
of $0.00 at December 31, 1999.
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.
TRANS ENERGY, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 1999 and 1998
NOTE 2 - PROPERTY AND EQUIPMENT (Continued)
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.
On July 2, 1999, the Company sold the remaining Black wells
and 5 of the 7 Heath wells and well equipment associated with
them for $400,000. The Company had a net basis of $2,577,627
which resulted in a loss on sale of assets of $2,177,627.
Pursuant to the sale agreement, the Company established an
escrow account which is being used to pay back royalties,
property taxes, and severance taxes associated with the wells
which were sold. The balance in the restricted cash account
was $262,089 at December 31, 1999.
On November 29, 1999, the Company sold the Sistersville wells
and acreage for $125,000. The Company had a basis in these
assets of $278,934 which resulted in a loss on sale of assets
of $153,934.
At December 31, 1999, the Company owned the following wells:
Heath #2 with a basis of $36,577, Wolfe with a basis of
$65,000, 2 Spencer wells with a basis of $372,000 and 2 Gulf
Canada wells with a basis of $3,230,812. Additionally, the
Company has allocated $180,000 to the Gulf Canada leasehold
acreage in Wyoming.
TRANS ENERGY, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 1999 and 1998
NOTE 3 - LONG-TERM DEBT
The Company had the following debt obligations at December 31, 1999:
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 and personal guarantee
of officers. 518,265
Union Bank of Tyler County, interest at 11.5% due quarterly,
renewable, due on demand, secured by equipment and personal
guarantee of officers. 19,756
Union Bank of Tyler County, principal and interest due on March 14,
1999, interest rate of 14%, secured by vehicle and personal guarantee
of officers. 29,000
Wesbanco, interest payable quarterly, prime +2%, due
on demand, secured by officers' personal assets. 300,000
Note payable to an individual, due on demand, bearing interest at
9.75%, unsecured. 292,078
Wesbanco, secured by vehicles, various maturity dates,
principal and interest due monthly at 9.25% to 10.25%. 4,533
Note due to a private individual, due November 7, 1996 with interest
at 20%, secured by personal guarantee of officers. 164,915
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. 275,722
Note payable to individual, bearing interest at 7.00%,
due on demand, secured by personal guarantee of officers. 58,156
Note payable to Core Laboratories, bearing interest at 10.00%,
requiring monthly payments of $351, due August 1, 2004,
and unsecured. 15,417
Note payable to RR Donnelley, payments of $3,244 of
principal and interest at 10.4% due monthly, unsecured. 85,803
Total 1,787,756
Less Current Portion (1,228,566)
Total Long-Term Debt $ 559,190
TRANS ENERGY, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 1999 and 1998
NOTE 3 - LONG-TERM DEBT (Continued)
Future maturities of long-term debt are as follows:
2000 $ 1,228,566
2001 92,540
2002 87,096
2003 73,808
2004 81,694
2005 and thereafter 224,052
Total $ 1,787,756
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 payable of $161,470 at
Dececember 31, 1999. The net payable bears interest at 10%,
is due on demand and unsecured.
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, 1999. This marketing agreement is in effect
until December 1, 2008. 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 1999.
NOTE 6 - STOCKHOLDERS' EQUITY
In 1999, the Company issued 440,000 shares of common stock for
services valued at $260,000. The services were valued at the
closing price of the stock on the date of issue.
In 1999, the Company issued 94,000 shares of common stock for
the conversion of $68,500 of debt and $23,700 of services.
The stock was valued at the closing price on the dates of
issuance.
TRANS ENERGY, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 1999 and 1998
NOTE 6 - STOCKHOLDERS' EQUITY (Continued)
In 1999, the Company issued 4,398,929 shares of common stock
for the conversion of $469,064 of the debentures payable, and
$60,102 of accrued penalties and interest. The stock was
converted at 70% of the 5-day moving average price prior to
the date of conversion. The 30% discount was recognized in
1998 upon issuance of the debentures.
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.
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.
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, 1999, and has a working capital deficit
at December 31, 1999. 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. There can
be no assurance that the Company can or will be able to
complete any debt or equity financing. If these are not
successful, management is committed to meeting the operational
cash flow needs of the Company. (See also Notes 10 and 11)
TRANS ENERGY, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 1998 and 1997
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 by abandoning it. The abandonment
was consummated is April 1997. No operations activity
occurred in Vulcan in 1998. The following is a summary of
income (loss) from operations of Vulcan Energy, Inc.
1998
OIL AND GAS SALES $ -
COST OF SALES -
OPERATING EXPENSES -
General and administrative -
Total Operating Expenses -
Loss from discontinued operations -
Gain on release of debt 203,322
Net Gain (Loss) from Discontinued Operations $ 203,322
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, 1999.
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.
NOTE 11 - CONVERTIBLE DEBENTURES
On September 10, 1998, the Company completed a debenture issue
of $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.
TRANS ENERGY, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 1999 and 1998
NOTE 11 - CONVERTIBLE DEBENTURES (Continued)
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 and fully amortized a discount on the
Debentures of $1,445,480 to compensate for the seventy
percent (70%) bid conversion and contributed this amount to
additional paid-in capital. The Company has also accrued an
additional amount of $963,653 as a penalty payable to
compensate for the non-filing of the registration statement
penalty of 15% and for the 5% discount on the conversion of
the debentures penalty and have added these amounts to the
debenture payable. In 1999, the Company converted $469,064
of the debenture and $60,102 of the penalties and interest
into 4,398,929 shares of common stock.
At December 31, 1999, the Company owes $5,090,496 of
debentures payable which includes $934,159 of penalty payable.
Additionally, the Company has accrued $518,235 of interest
payable which is included in accrued expenses.
If the convertible debentures, penalties and interest were
converted at December 31 1999, the Company would have been
obligated to issue up to 50,988,463 shares of common stock.
NOTE 12 - BUSINESS SEGMENTS
Effective December 31, 1998, the Company adopted SFAS No. 131,
"Disclosure about Segments of an Enterprise and Related
Information." Prior period amounts have been restated to
conform to the requirements of this statement. The Company
conducts its operations principally as oil and gas sales with
Trans Energy and pipeline transmission with Ritchie County and
Tyler Construction.
Certain financial information concerning the Company's
operations in different industries is as follows:
Ritchie
For the County
Years Ended Trans and Tyler Corporate
December 31, Energy Construction Unallocated
Oil and gas revenue 1999 $ 526,255 $ 566,644 $ -
1998 597,553 633,363 -
Operating loss applicable
to industry segment 1999 5,177,452 248,104 -
1998 4,064,535 234,180 -
General corporate expenses
not allocated to industry
segments 1999 - - 872,777
1998 - - 753,897
TRANS ENERGY, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 1999 and 1998
NOTE 12 - BUSINESS SEGMENTS (Continued)
Interest expense 1999 $ (689,172) $ (104,668) $ -
1998 (2,723,137) (110,516) -
Other income (expenses) 1999 14,184 - -
1998 563 - -
Gain (loss) from
discontinued operations 1999 - - -
1998 - - 203,322
Assets 1999 4,349,898 941,327 -
Depreciation and
amortization 1999 57,535 108,770 2,356,738
1998 52,096 111,651 1,724,342
Property and equipment
acquisitions 1999 $ 185,165 - -
NOTE 13 - OUTSTANDING STOCK OPTIONS
The following summarizes the exercise price per share and
expiration date of the Company's outstanding options at
December 31, 1999:
Type Expiration Date Exercise Price Number
Options December 2003 $0.50 795,057
The options were issued at $0.50 which is equal to the market
price on the date of issuance. All options are fully vested
and have a five year period to be exercised. The options were
not issued pursuant to an employee stock option plan.
TRANS ENERGY, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 1999 and 1998
(Unaudited)
S.F.A.S. 69 SUPPLEMENTAL DISCLOSURES
(1) Capitalized Costs Relating to
Oil and Gas Producing Activities
December 31,
1999 1998
Proved oil and gas producing properties and
related lease and well equipment $ 4,730,577 $ 5,894,561
Unproved oil and gas properties 180,000 3,347,825
Accumulated depreciation and depletion (25,930) (527,140)
Net Capitalized Costs $ 4,884,647 $ 8,715,246
(2) Costs Incurred in Oil and Gas Property
Acquisition, Exploration, and Development Activities
For the Years Ended
December 31,
1999 1998
Acquisition of Properties
Proved $ - $ 3,037,962
Unproved - 81,492
Exploration Costs - -
Development Costs - 283,129
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,
1999 1998
Sales $ 408,532 $ 589,705
Production costs (53,375) (187,943)
Depreciation and depletion (20,000) (27,258)
Income tax expenses - -
Results of operations for producing activities
(excluding the activities of the pipeline
transmission operations, corporate overhead and
interest costs) $ 335,157 $ 374,504
TRANS ENERGY, INC. AND SUBSIDIARIES
S.F.A.S. 69 Supplemental Disclosures
December 31, 1999 and 1998
(Unaudited)
S.F.A.S. 69 SUPPLEMENTAL DISCLOSURES (CONTINUED)
(4) Reserve Quantity Information
Oil Gas
BBL MCF
Proved developed and undeveloped reserves
Balance, December 31, 1997 210,870 1,781,316
Revisions of previous estimates - -
Improved recovery - -
Purchases of minerals in place 1,504,813 -
Extensions and discoveries - -
Production (2,475) (67,234)
Sales of minerals in place (7,674) -
Balance, December 31, 1998 1,705,534 1,714,082
Revisions of previous estimates - -
Improved recovery - -
Purchases of minerals in place - -
Extensions and discoveries - -
Production (68,555) (36,437)
Sales of minerals in place (200,721) (1,677,645)
End of the year 1999 1,436,258 -
Proved developed reserves:
Oil Gas
BBL MCF
Beginning of the year 1999 1,705,534 1,714,082
End of the year 1999 1,436,258 -
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, 1999 and 1998
(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, 1999
Trans Energy
and
Subsidiaries
Future cash inflows $ 25,609,146
Future production and development costs (9,223,633)
Future income tax expense (5,534,180)
Future net cash flows 10,851,333
10% annual discount for estimated timing of cash flows (5,634,346)
Standardized measure of discounted future net cash flows $ 5,216,987
At December 31, 1998
Trans Energy
and
Subsidiaries
Future cash inflows $ 46,761,608
Future production costs (16,787,417)
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.
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,
1999 1998
Standardized measure, beginning of year $ 9,495,694 $ 3,534,828
Oil and gas sales, net of production costs (313,619) (433,412)
Sales of mineral in place (3,965,088) -
Purchases - 5,289,539
Net change due to revisions
in quantity estimates - 1,104,739
Accretion of discount items - -
Standardized measure, end of year $ 5,216,987 $ 9,495,694
TRANS ENERGY, INC. AND SUBSIDIARIES
S.F.A.S. 69 Supplemental Disclosures
December 31, 1999 and 1998
(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 prepared using
the prevailing economic conditions. 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.
Item 8. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
This Item is not Applicable.
PART III
Item 9. Directors, Executive Officers, Promoters and Control
Persons; Compliance with Section 16(a) of the Exchange Act
The following table sets forth the names, ages, and offices
held with the Company by it's directors and executive officers:
Name Position Director Since Age
Loren E. Bagley President, C.E.O. August 1991 57
and Director
William F. Woodburn Vice President August 1991 58
and Director
John B. Sims Director January 1988 74
Gary F. Lawyer Director December 1997 52
All directors hold office until the next annual meeting of
stockholders and until their successors have been duly elected and
qualified. There are no agreements with respect to the election of
directors. The Company has not compensated its directors for
service on the Board of Directors or any committee thereof, but
directors are reimbursed for expenses incurred for attendance at
meetings of the Board of Directors and any committee of the Board of
Directors. Executive officers are appointed annually by the Board
of Directors and each executive officer serves at the discretion of
the Board of Directors. The Executive Committee of the Board of
Directors, to the extent permitted under Nevada law, exercises all
of the power and authority of the Board of Directors in the
management of the business and affairs of the Company between
meetings of the Board of Directors.
The business experience of each of the persons listed above
during the past five years is as follows:
Loren E. Bagley has been Executive Vice President of the
Company since August, 1991, and became President and C.E.O. in
September, 1993. From 1979 to the present, Mr. Bagley has been self
-employed in the oil and gas industry as president, C.E.O. or vice
president of various corporations which he has either started or
purchased, including Ritchie County Gathering Systems, Inc. Mr.
Bagley's experience in the oil and gas industry includes acting as
a lease agent, funding and drilling of oil and gas wells,
supervising production of over 175 existing wells, contract
negotiations for purchasing and marketing of natural gas contracts,
and owning a well logging company specializing in analysis of wells.
Prior to becoming involved in the oil and gas industry, Mr. Bagley
was employed by the United States government with the Agriculture
Department. Mr. Bagley attended Ohio University and Salem College
and earned a B.S. Degree.
William F. Woodburn has served as Vice President in charge of
Operations and a director of the Company since August, 1991 and has
been actively engaged in the oil and gas business in various
capacities for the past twenty years. For several years prior to
1991, Mr. Woodburn supervised the production of oil and natural gas
and managed the pipeline operations of Tyler Construction Company,
Inc. and Tyler Pipeline, Inc. Mr. Woodburn is a stockholder and
serves as President of Tyler Construction Company, Inc., and is also
a stockholder of Tyler Pipeline, Inc. which owns and operates oil
and gas wells in addition to natural gas pipelines, and Ohio Valley
Welding, Inc. which owns a fleet of heavy equipment that services
the oil and gas industry. Prior to his involvement in the oil and
gas industry, Mr. Woodburn was employed by the United States Army
Corps of Engineers for twenty four years and was Resident Engineer
on several construction projects. Mr. Woodburn graduated from West
Virginia University with a B.S. in civil engineering.
John B. Sims served as President, C.E.O. and a director of the
Company from 1988 to September, 1993 and currently is a director.
Prior to joining the Company and from 1984 to 1988, Mr. Sims was the
General Partner of Ben's Run Oil Company which was acquired by the
Company in January, 1988. Mr. Sims has also been the general
partner for fourteen limited partnerships from 1977 to 1984 drilling
a total of twenty eight wells. Prior to his involvement in the oil
and gas business, Mr. Sims was a real estate developer for twenty
years as well as an exclusive real estate broker for Ednam Forrest
in Charlottesville, Virginia. During 1994, Mr. Sims voluntarily
initiated a personal bankruptcy proceeding pursuant to Chapter 7 of
the United States Bankruptcy Code. Pursuant to the terms of such
proceeding, Mr. Sims was discharged of certain of his debts which
were incurred as a consequence of his personal guarantees of certain
business related debts, not related to the Company, upon which the
primary obligor defaulted.
Gary F. Lawyer became a director of the Company 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.
Section 16(a) Beneficial Ownership Reporting Compliance
Each of the Company's officers and directors is required to
file a Form 5, Annual Statement of Changes in Beneficial Ownership,
on or before the 45th day after the end of the fiscal year. These
reports have not filed on a timely basis and will be submitted to
the Securities and Exchange Commission.
Item 10. Executive Compensation
The Company does not have a bonus, profit sharing, or deferred
compensation plan for the benefit of its employees, officers or
directors, nor has the Company entered into employment contracts
with any of the aforementioned persons.
Cash Compensation
The following table sets forth all cash compensation paid by
the Company for services rendered to the Company for the years ended
December 31, 1996, 1997 and 1998, to the Company's Chief Executive
Officer. No executive officer of the Company has earned a salary
greater than $100,000 annually for any of the periods depicted.
Summary Compensation Table
Other All
Annual Other
Name and Compen- Compen-
Principal Position Year Salary Bonus sation sation
Loren E. Bagley, 1999 $ -0- $ -0- $ -0- $ -0-
President, C.E.O. 1998 $ -0- $ -0- $ -0- $ -0-
1997 $ 18,000 $ -0- $ -0- $ -0-
Item 11. Security Ownership of Certain Beneficial Owners and
Management
The following table sets forth information, to the best
knowledge of the Company as December 31, 1999, with respect to each
person known by the Company to own beneficially more than 5% of the
Company's outstanding common stock, each director and all directors
and officers as a group.
Name and Address Amount and Nature of Percent
of Beneficial Owner Beneficial Ownership of Class(1)
Loren E. Bagley * 417,364(2) 10.1%
210 Second Street
St. Marys, WV 26170
William F. Woodburn * 424,527(3) 10.2%
210 Second Street
St. Marys, WV 26170
John B. Sims * 38,807(4) 1.0%
210 Second Street
St. Marys, WV 26170
Gary F. Lawyer * 25,000(5) .6%
21430 Timtam Circle
Parker, CO 80134
Balmour Funds 2,330,448(6) 24.7%
Chesterfield Capital 3,246,754(6) 31.4%
Resources
Douglas Nagel 2,597,403(6) 26.8%
4590 N.E. San Pebble Trace
Stuart, FL 34996
Austost Anstalt Schaan 2,330,448(6) 24.7%
Barry Seidman 3,246,754(6) 31.4%
P.O. Box 9813
Ranch Santa Fe, CA 92067
All directors and executive 905,698(7) 8.7%
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 7,107,746 shares of common stock outstanding on
December 31, 1999,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, 7,782,746 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 December 31,
1999 and assumes the exercise of stock options held by such
person (but not by anyone else) exercisable within sixty days.
(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) Share amounts indicated are the number of shares that each
respective shareholder can receive upon conversion of
Debentures and do not indicate shares presently owned.
Percentage ownership is calculated separately for each person
on the basis of the actual number of outstanding shares as of
December 6, 1999 and assumes the conversion of Debentures held
by such person (but not by anyone else) exercisable within
sixty days, but does not take into account shares issued for
interest or penalty. 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.
(7) Includes 675,000 shares that may be acquired by certain
directors pursuant to stock options exercisable at $.50 per
share.
Item 12. Certain Relationships and Related Transactions
During the last two fiscal years, there have been no
transactions between the Company and any officer, director, nominee
for election as director, or any shareholder owning greater than
five percent (5%) of The Company's outstanding shares, nor any
member of the above referenced individuals' immediate family, except
as set forth below.
(a) Loren E. Bagley is President of Sancho, a principal
purchaser of The Company's natural gas. Mr. Bagley's wife, Carolyn
S. Bagley is a director and owner of 33% of the outstanding capital
stock of Sancho. Under its contract with Sancho, the Company has
the right to sell natural gas subject to the terms and conditions of
a 20-year contract, as amended, that Sancho entered into with Hope
in 1988. This agreement is a flexible volume supply agreement
whereby the Company receives the full price which Sancho receives
less a $.05 per Mcf marketing fee paid to Sancho. The price of the
natural gas is based upon the greater of the residential gas
commodity index or the published Inside F.E.R.C. Index, at The
Company's option, for the first 1,500 Mcf purchased per day by Hope
and thereafter the price is the Inside F.E.R.C. Index. The
residential gas commodity index does not directly fluctuate with the
overall price of natural gas. The Inside F.E.R.C. Index fluctuates
monthly with the change in the price of natural gas. While such
option provides certain price protection for the Company there can
be no assurance that prices paid by the Company to suppliers will be
lower than the price which the Company would receive under the Hope
arrangement. During 1998, the Company paid Sancho an aggregate of
approximately $3,700 pursuant to such 20-year contract.
(b) On May 7, 1996, the Company borrowed $100,000 from William
Stevenson. Such amount is repayable in one installment of principal
and interest of $110,000 on November 7, 1996. Messrs. Bagley,
William F. Woodburn and John B. Sims are jointly and severally
liable with the Company for the repayment of such obligation. Such
obligation is secured by the pledge of 50,000 shares of Common Stock
owned by Mr. Woodburn's wife, Janet L. Woodburn. The loan remains
outstanding.
(c) A company owned by an officer of The Company's former
subsidiary, Vulcan 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 The Company'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 the Company has no obligation related to
this management agreement in future periods.
The Company 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 the Company used the office space rent free. The
Company believes that the foregoing transactions with Sancho were
made on terms no less favorable to the Company than those available
from unaffiliated third parties.
It is The Company's policy that any future material
transactions between it and members of its management or their
affiliates shall be on terms no less favorable than those available
from unaffiliated third parties.
PART IV
Item 13. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit No. Exhibit Name
*2.1 Stock Acquisition Agreement between the Company and Loren E.
Bagley and William F. Woodburn
*2.2 Asset Acquisition Agreement between the Company and Dennis
L. Spencer
*2.3 Asset Acquisition Agreement between the Company and Tyler
Pipeline, Inc.
*2.4 Stock Exchange Agreement between the Company and Ritchie
County Gathering Systems, Inc.
*2.5 Plan and Agreement of Merger between Trans Energy, Inc.
(Nevada) and Apple Corp. (Idaho), to facilitate the change
of the Company's corporate domicile to Nevada
**2.6 Agreements related to acquisition of Vulcan Energy
Corporation
*3.1 Articles of Incorporation and all amendments pertaining
thereto, for Apple Corp., an Idaho corporation
*3.2 Articles of Incorporation for Trans Energy, Inc., a Nevada
corporation
*3.3 Articles of Merger for the States of Nevada and Idaho
*3.4 By-Laws
*4.1 Specimen Stock Certificate
*10.1 Marketing Agreement with Sancho Oil and Gas Corporation
*10.2 Gas Purchase Agreement with Central Trading Company
*10.3 Price Agreement with Key Oil Company
*21.1 Subsidiaries
27 Financial Data Schedule
*99.1 Reserve Estimate and Evaluation of oil and gas properties
*99.2 Reserve Estimate and Evaluation for Dennis L. Spencer wells
* Previously filed as Exhibit to Form 10-SB.
** Previously filed as Exhibit to Form 8-K dated August 7, 1995.
(b) No reports were filed on Form 8-K for the three month period
ended December 31, 1999.
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act,
the Registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
TRANS ENERGY, INC.
BY: /S/ Loren E. Bagley
LOREN E. BAGLEY,
President and C.E.O.
Dated: April 14, 2000
In accordance with the Exchange Act, this report has been
signed below by the following persons on behalf of the Registrant
and in the capacities and on the dates indicated.
Signature Title Date
President, C.E.O. and
Director April 14, 2000
/S/ Loren E. Bagley Principal Financial Officer
Loren E. Bagley
Vice President and
Director April 14, 2000
/S/ William F. Woodburn Chief Accounting Officer
William F. Woodburn
April 14, 2000
/S/ John B. Sims Director
John B. Sims
April 14, 2000
/S/ Gary F. Lawyer Director
Gary F. Lawyer
