10KSB 1 form10ksb.txt ANNUAL Leonard E. Neilson Attorney at Law 8160 South Highland Drive Suite 209 Sandy, Utah 84093 Phone: (801) 733-0800 Fax: (801) 733-0808 April 17, 2001 Securities and Exchange Commission Office of Document Control 450 Fifth Street N.W. Washington, D.C. 20549 VIA: EDGARLink --------------- Re: Trans Energy, Inc. File No. 0-23530 Form 10-KSB (for the period ended December 31, 2000) To Whom It May Concern: Please find herewith transmitted by EDGARLink, the Form 10-KSB filed on behalf of Trans Energy, Inc. for the fiscal year ended December 31, 2000. Please direct all correspondences concerning this filing and Trans Energy, Inc. to this office. Yours truly, /s/ Leonard E. Neilson ---------------------- Leonard E. Neilson :ae Attachment 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, 2000 [ ] 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. [X] State the issuer's revenues for its most recent fiscal year. $ 1,125,257 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. $10,505,228 (Based on price of $.0625 on April 12, 2001) 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, 2000 ----- ----------------------------------- Common Stock, Par Value $.001 per share 172,028,189 DOCUMENTS INCORPORATED BY REFERENCE NONE Transitional Small Business Disclosure Format. Yes [ ] No [X] -1-
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............................................................... 17 PART II Item 5. Market for Common Equity and Related Stockholder Matters............................................................ 17 Item 6. Management's Discussion and Analysis or Plan of Operation.............................................................. 18 Item 7. Financial Statements........................................................... 21 Item 8. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure......................................... 48 PART III Item 9. Directors, Executive Officers, Promoters and Control persons; Compliance with Section 16(a) of the Exchange Act............................................................ 48 Item 10. Executive Compensation......................................................... 50 Item 11. Security Ownership of Certain Beneficial Owners and Management.......................................................... 50 Item 12. Certain Relationships and Related Transactions 51 PART IV Item 13. Exhibits and Reports on Form 8-K............................................... 53 SIGNATURES..................................................................... 54
-2- 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 an interest 3 oil and gas wells in West Virginia, owns and operates one 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 18,000 acres under lease in the Powder River Basin in Campbell, Crook and Weston Counties, Wyoming. In 2000, the Company participated in the drilling of four drill downs to the Benson Sand in 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. It is anticipated that the Sagebrush #3 will be put into operation as an injector well during the summer of 2001. 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 2000, management observed that the Trenton - Black River deep gas field in the Appalachian Basin in West Virginia. experienced much success. Accordingly, because of the potential of this field the Company has decided to focus much of its efforts to this area. In 1999, the Company sold many of its Appalachian Basin assets and purchased 51% of a producing well in the Powder River Basin in Wyoming. The Company then focused its attention toward developing its acreage in the Powder River Basin in Wyoming and drilling for deep gas in the Trenton-Black River area. 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 -3- 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 Equitable Natural Gas, Dominion Transmission, Inc. and Eastern American Energy. 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 15-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 and in 2000, the sixth well was sold to an unaffiliated third party. -4- 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. 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 56 48.8% 27 Sagebrush Fed #2 45 47.5% 21 Pinon Fee #1 30 51.2% 15 Sandbar Boley 31-36 10 27.8% 3 includes Sandbar State 1-36 and 2-36 Wolff 1-35 7 68% 5 --- ----- -- TOTAL 148 71
-5- 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 Trenton - Black river deep gas field in West Virginia. 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 2001. Apart from the three wells drilled in the Powder River Basin in Wyoming and the one well drilled in the Powder River basin in Wyoming (Sagebrush #3)) and the four re-entry Benson wells drilled in West Virginia, the Company has not participated in 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 -6- movement, finding the apex of the oil bearing structure is 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, 1999, or 2000. 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. -7- 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 through the Sancho Oil and Gas Corporation ("Sancho") contract to the industrial facilities near Sistersville, West Virginia, or to Hope, a local utility. Some of the gas is sold at a fixed price on a year long basis and some 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 15-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 30% of the Company's revenue for the year ended December 31, 2000, and approximately 30% for the year ended December 31, 1999. This marketing agreement is in effect until September 1, 2008. -8- In addition to the natural gas produced by the Company's wells, it also purchased approximately 275 Mcf of natural gas per day in 2000. 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 15-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. -9- 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. 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 seven people full- time, consisting of two executives, two marketing and clerical persons, and three production persons. Management presently anticipates hiring additional employees as the business warrants and as funds are available. -10- Facilities The Company's operations currently occupy approximately 4,000 square feet of office space in St. Marys, West Virginia, which it shares with its subsidiary Tyler Construction 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, 2000, 1999 and 1998 are set forth below:
December 31, ---------------------------------- 2000 1999 1998 -------- ----------- ----------- Natural Gas (MMcf) Developed 912,428 Undeveloped 801,654 Total Proved - - 1,714,082 Crude Oil (MBbl) Developed 1,173,632 1,225,648 1,504,813 Undeveloped 210,610 210,610 200,721 Total Proved 1,348,242 1,436,258 1,705,534
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. -11- 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: 2000 1999 1998 ------------------- ------ ------ ------ Gas (per mcf) $ 6.08 $ 3.04 $ 2.70 Oil (per bbl) 24.67 13.83 10.04 Average cost of production: Gas (per mcf) $ 1.20 1.31 1.38 Oil (per bbl) 3.38 7.52 8.28
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, ----------------------------------------------------------- 2000 1999 1998 ------------- ------------- ---------------- Proved oil and gas producing properties and related lease and well equipment $4,950,399 $4,730,577 $5,894,561 Unproved oil and gas properties 180,000 180,000 3,347,825 Accumulated depreciation and depletion (1,706,648) (25,930) (527,140) ----------- ----------- ---------- Net Capitalized Costs $3,423,751 $4,884,647 $8,715,246 =========== ========== ==========
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, ----------------------------------------------------------- 2000 1999 1998 -------------- --------------- --------------- Standardized measure, beginning of year $5,216,987 $9,495,694 $3,534,828 Oil and gas sales, net of production costs - (313,619) (433,412) Sales of mineral in place (1,611,730) (3,965,088 - Purchases - - 5,289,539 Net change due to revisions in quantity estimates - - 1,104,739 ---------- Standardized measure, end of year $4,425,778 $5,216,987 $9,495,694 =========== =========== ===========
-12- 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 Certain material pending legal proceedings to which the Company is a party or to which any of its property is subject is set forth below. 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 settled the action in January 2000 for 100,000 shares of the Company's common stock. On February 7, 2001, the United States Bankruptcy Court, Southern District of Texas, entered an Order Granting Motion to Dismiss Chapter 7 Case in the action entitled In Re: Trans Energy, Inc., Case No. 00-39496-H4-7. The Order dismissed the involuntary bankruptcy action instituted against the Company on October 16, 2000. The sole petitioning creditor named in the Involuntary Petition was Western Atlas International, Inc. ("Western"). An Order for Relief Under Chapter 7 was entered by the Court on November 22, 2000. On April 23, 2000, the 189th District Court of Harris County, Texas entered an Agreed Final Judgment in favor of Western against the Company in the amount of $600,665.36, together with post judgment interest at 10% per annum. Following the judgment, Western and the Company entered into settlement negotiations concerning the Company's satisfaction of the judgment through payments over a four to five month period together with the pledge of collateral on certain unencumbered assets. Previously, on or about July 9, 1998, a judgment had been entered in the 152nd District Court of Harris County, Texas against the Company in favor of Baker Hughes Oilfield Operations, Inc. d/b/a/ Baker Hughes Inteq. Western Geophysical ("Baker"), a division of Western Atlas International, Inc., in the amount of $41,142.00, together with interest and attorney fees. This judgment was outstanding at the time of the filing of the Involuntary Petition. -13- During its negotiations with Western for settlement of the Judgment, the Company made a $200,000 "good faith payment" to Western's counsel on October 23, 2000. On December 12, 2000, Joe Hill was named as the Chapter 7 Trustee. Subsequently, Western's counsel delivered the $200,000 to the Trustee. On January 19, 2001, the Company filed with the Bankruptcy Court the Motion to Dismiss Chapter 7 Case. The reasons cited by the Company in support of its Motion to Dismiss included, but were not limited to, (i) the Texas Court being an improper venue for the action, and (ii) the Company never receiving the Involuntary Petition and Summons notifying it of the action. In anticipation of the Bankruptcy Court dismissing the Involuntary Petition, on February 2, 2001, the Company entered into a Settlement Agreement with Baker Hughes Oilfield Operation, Inc., d/b/a/ Baker Hughes Inteq. Western Geophysical, a division of Western Atlas International, Inc. (the "Baker Entities"). In entering its order on February 7, 2001 to dismiss the action, the Court ordered the Trustee to retain $17,694.80 for satisfaction of administrative fees and expenses, and to pay to Western and Baker the sum of $182,736.66, on behalf of the Company and pursuant to the terms of the Settlement Agreement. The Settlement Agreement provided that, subject to the approval of the Bankruptcy Court, the Company agreed to pay to the Baker Entities $759,664.31, plus interest at 10%. In addition to the $200,000 payable from the escrow, the Company agreed to pay to the Baker Entities an initial payment of $117,260.71 within fifteen days from the date of the Dismissal Order (due February 21, 2001). The Company also agreed to make additional payments of $100,000 every thirty days following the initial payment, with the first payment due beginning no later than March 23, 2001, continuing until the total obligation plus interest is paid in full. Further, the Company pledged as collateral certain properties, personal property and fixtures and two directors each pledged 750,000 shares of the Company's common stock which they personally own. A foreign judgment was filed with the Circuit Court in Pleasants County, West Virginia for a judgment against the Company rendered by the District Court in Harris County, Texas. The judgment was for $41,142 plus prejudgment interest and attorney's fees of $13,500. The Company settled the action in February 2000. The Company has been advised by the Securities and Exchange Commission (the "Commission") that the Commission is investigating certain activities by the Company (In the Matter of Trans Energy, Inc., C-3481). The Company believes that the investigation concerns disclosure requirements by the Company regarding certain press releases and the involuntary bankruptcy action instituted against the Company in October 2000. The Company is cooperating with the investigation and certain officers have given their depositions. As of the date hereof, the investigation remains open. -14- On April 10, 2000, a Bellevue resources, Inc. recorded and served its Notice and Statement of Lien in the Sixth Judicial District, Campbell County, Wyoming, against the Company for non- payment of services. The Company has recorded a liability of $78,651 which is included in the Company's financial statements for the year ended December 31, 2000 under accounts payable. On September 22, 2000, Tioga Lumber Company obtained a judgment of $43,300 plus interest in the Circuit Court of Pleasants County, West Virgina, against Tyler Construction Company for breach of contract. The Company has accrued $47,741 which is included in the Company's financial statements for the year ended December 31, 2000 under accounts payable. On February 13, 2001, Ross Forbus obtained a judgment of $428,018 against the Company to satisfy a promissory note previously entered into by the Company with Mr. Forbus on April 8, 1996. The Company has recorded the balance in notes payable at December 31, 2000. For additional information, see Note 3 to the attached financial statements. 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, 2000. PART II Item 5. Market for Common Equity and Related Stockholder Matters The Company's common stock is 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 obtained from published quotations. High Low ---- --- 1999 First Quarter $ 1.25 $ .50 Second Quarter $ 1.03 $ .19 Third Quarter $ .50 $ .19 Fourth Quarter $ .31 $ .10 2000 First Quarter $ .35 $ .065 Second Quarter $ .22 $ .10 Third Quarter $ .155 $ .0156 Fourth Quarter $ .31 $ .04 -15- As of December 31, 2000, there were approximately 262 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 or other nominee accounts. 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. During 1999, the Company issued 440,000 shares of its common stock in exchange for services rendered to the Company valued at an average of $.59 per share, or an aggregate of $260,000. The Company also issued 94,000 shares for services and conversion of debt valued at an average of $.98 per share, or an aggregate of $92,200. The Company further issued 4,398,929 shares upon conversion of convertible debentures valued at $529,166, or an average of $.12 per share. In 2000, the Company issued 1,691,287 share of its common stock for cash at $.05 per share, or an aggregate of $83,000. The Company also issued 11,722,383 shares for services and conversion of debt valued at an average of $.12 per share, or an aggregate of $1,422,923. The Company further issued 151,930,606 shares upon conversion of convertible debentures valued at $5,653,991, or an average of $.04 per share. Except for the conversion of debentures, 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. Issuances of shares conversion of debentures was pursuant to the exemption provided by Section 3(a)(9) of said Act. -16- 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, 2000, and 1999. It should be noted that percentages discussed throughout this analysis are stated on an approximate basis.
Fiscal Years Ended December 31, 2000 1999 ------ ------ Total revenues........................................................ 100% 100% Total costs and expenses.............................................. 343 392 Total other income (expenses)......................................... (126) (285) Loss before taxes and gain and extraordinary items ................................................ (369) (577) Income taxes.......................................................... - - Extraordinary items................................................... 24 - Net (loss)............................................................ 345 (577)
For the Year Ended December 31, 2000 Compared to the Year Ended December 31, 1999 Total revenues of $1,125,257 for the year ended December 31, 2000 ("2000") increased 3% when compared to $1,092,899 for the year ended December 31, 1999 ("1999"). In 2000, oil made up 70% of total revenues compared to 37% in 1999. Accordingly, gas sales decreased from 63% of sales in 1999 to 30% in 2000. 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 $4,144,703 for 2000 compared to a net loss of $6,298,333 in 1999. The Company's total costs and expenses decreased 10% in 2000 and, as a percentage of revenues, decreased from 392% in 1999 to 343% in 2000. The cost of oil and gas decreased 33% in 2000 due to lower purchases and a set price. As a percentage of revenues, cost of oil decreased from 46% in 1999 to 30% 2000 due to increased oil selling prices in 2000. Selling, general and administrative expenses increased 188% in 2000 when compared to 1999, primarily due to additional amortization on pre- paid advertising and marketing. Salaries and wages increased 41% in 2000 due to the exercise of options granted to employees for services rendered. Depreciation, depletion and amortization decreased 87% in 2000 from 1999 due to the Company not having any prepaid marketing and advertising costs. Interest expense in 2000 decreased 45% from 1999 due to conversion of debentures during the year. -17- Net Operating Losses The Company has accumulated approximately $16,000,000 of net operating loss carryforwards as of December 31, 2000, which may be offset against future taxable income through 2020. 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, 2000 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, 2000 was a negative $4,550,117 compared with a negative $9,115,862 at December 31, 1999. This change was primarily attributed to the conversion of certain debentures into commons stock in 2000 . The Company anticipates meeting its working capital needs during the 2001 fiscal year with revenues from operations and possibly from capital raised through the sale of either equity or debt securities. The Company has no other current agreements or arrangements for additional funding and there can be no assurance such funding will be available to the Company or, if available, it will be on acceptable or favorable terms to the Company. As of December 31, 2000, the Company had total assets of $4,299,654 and stockholders' deficit of $985,635 compared to total assets of $5,291,159 and total stockholders' deficit of $4,630,435 at December 31, 1999. 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. During 2000, all but one of the remaining outstanding debentures were converted into commons stock. At December 31, 2000, the Company owed $331,462 in connection with the debentures consisting of $50,000 for a debenture and $281,462 in penalties and interest. Because the Company has generated significant losses from operations through December 31, 2000, and has a working capital deficit at December 31, 2000, there exists substantial doubt about its ability to continue as a going concern. Revenues have not been sufficient to cover operating costs and to allow the Company to continue as a going concern. Potential proceeds from the future sale of common stock, other contemplated debt and equity financing, and -18- 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 endeavors are not successful, management is committed to meeting the operational cash flow needs of the Company. In the opinion of management, inflation has not had a material effect on the operations of the Company. 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 In June 1999, the Financial Accounting Standards Board ("FASB") issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," which was later amended by SFAS No. 137 "Accounting for Derivative Instruments and Hedging Activities - Deferral of the Effective Date of FASB No. 133." SFAS No. 133 established standards for the accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts, and hedging activities. The statement generally requires recognition of gains and losses on hedging instruments, based on changes in fair value or the earnings effect of a forecasted transaction. SFAS No. 133, as amended by SFAS No. 137, is effective for all fiscal quarters of fiscal years beginning after June 15, 2000. Management does not believe that SFAS No. 133 or SFAS No. 137 will have a 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, 2000 and 1999 have all been examined to the extent indicated in their report by H J & Associates, LLP, formerly 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. -19- TRANS ENERGY, INC. AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS December 31, 2000 -20- McGLADREY NETWORK American Institute of ----------------- An Independently Owned Member Certified Public Worldwide Services Accountants Through RSM International Utah Association of Certified Public Accountants SEC Practice Section Private Companies Practice Section H J & ASSOCIATES, L.L.C. CERTIFIED PUBLIC ACCOUNTANTS AND CONSULTANTS INDEPENDENT AUDITORS' REPORT ---------------------------- Board of Directors Trans Energy, Inc. and Subsidiaries St. Marys, West Virginia We have audited the accompanying consolidated balance sheet of Trans Energy, Inc. and Subsidiaries as of December 31, 2000 and the related consolidated statements of operations, stockholders' equity (deficit), and cash flows for the years ended December 31, 2000 and 1999. 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, 2000 and the consolidated results of their operations and their cash flows for the years ended December 31, 2000 and 1999, 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. HJ & Associates, LLC Salt Lake City, Utah April 11, 2001 50 South Main Street, Suite 1450 * Salt Lake City, Utah 84144 * Telephone (801) 328-4408 * Facsimile (801) 328-4461 -21- TRANS ENERGY, INC. AND SUBSIDIARIES Consolidated Balance Sheet ASSETS ------ December 31, 2000 ---------- CURRENT ASSETS Accounts receivable, net (Note 1) $ 71,006 ---------- Total Current Assets 71,006 ---------- PROPERTY AND EQUIPMENT (Note 2) Vehicles 59,013 Machinery and equipment 10,092 Pipelines 2,254,908 Well equipment 49,155 Wells 3,315,019 Leasehold acreage 180,000 Accumulated depreciation (1,706,648) ---------- Total Fixed Assets 4,161,539 ---------- OTHER ASSETS Restricted cash (Note 2) 65,689 Deposits 1,420 ---------- Total Other Assets 67,109 ---------- TOTAL ASSETS $4,299,654 ========== The accompanying notes are an integral part of these consolidated financial statements. -22- TRANS ENERGY, INC. AND SUBSIDIARIES Consolidated Balance Sheet (Continued) LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) ---------------------------------------------- December 31, 2000 ------------ CURRENT LIABILITIES Cash overdraft $ 11,608 Accounts payable - trade 1,444,692 Accrued expenses 638,466 Salaries payable 367,998 Notes payable - current portion (Note 3) 1,538,855 Related party payables (Note 4) 288,042 Debentures payable (Note 11) 331,462 ------------ Total Current Liabilities 4,621,123 ------------ NET LIABILITIES IN EXCESS OF THE ASSETS OF DISCONTINUED OPERATIONS (Note 7) 5,400 ------------ LONG-TERM LIABILITIES Notes payable (Note 3) 658,766 ------------ Total Long-Term Liabilities 658,766 ------------ Total Liabilities 5,285,289 ------------ COMMITMENTS AND CONTINGENCIES (Note 7) STOCKHOLDERS' EQUITY (DEFICIT) (Note 6) Preferred stock; 10,000,000 shares authorized at $0.001 par value; 300 shares issued and outstanding -- Common stock; 300,000,000 shares authorized at $0.001 par value; 172,028,189 shares issued and outstanding 172,027 Capital in excess of par value 22,608,733 Accumulated deficit (23,766,395) ------------ Total Stockholders' Equity (Deficit) (985,635) ------------ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $ 4,299,654 ============ The accompanying notes are an integral part of these consolidated financial statements. -23- TRANS ENERGY, INC. AND SUBSIDIARIES Consolidated Statements of Operations For the Years Ended December 31, ----------------------------- 2000 1999 ------------ ------------ REVENUES $ 1,125,257 $ 1,092,899 ------------ ------------ COSTS AND EXPENSES Cost of oil and gas 340,950 506,518 Salaries and wages 383,142 271,114 Depreciation, depletion and amortization 330,469 2,523,043 Selling, general and administrative 2,772,591 979,340 ------------ ------------ Total Costs and Expenses 3,827,152 4,280,015 ------------ ------------ LOSS FROM OPERATIONS (2,701,895) (3,187,116) ------------ ------------ OTHER INCOME (EXPENSE) Other income 14,850 14,184 Interest expense (437,470) (793,840) Loss on sale and valuation of assets (Note 2) (1,020,188) (2,331,561) ------------ ------------ Total Other Income (Expense) (1,442,808) (3,111,217) ------------ ------------ LOSS FROM OPERATIONS BEFORE INCOME TAXES, EXTRAORDINARY ITEMS AND MINORITY INTERESTS (4,144,703) (6,298,333) ------------ ------------ INCOME TAXES (Note 1) -- -- ------------ ------------ EXTRAORDINARY ITEM Gain on disposition of debt 266,092 -- ------------ ------------ MINORITY INTERESTS -- -- ------------ ------------ NET LOSS $ (3,878,611) $ (6,298,333) ============ ============ BASIC LOSS PER SHARE Continuing operations $ (0.05) $ (1.90) Gain on release of debt 0.00 -- ------------ ------------ $ (0.05) $ (1.90) ============ ============ WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 77,197,928 3,319,421 ============ ============ The accompanying notes are an integral part of these consolidated financial statements. -24- TRANS ENERGY, INC. AND SUBSIDIARIES Consolidated Statements of Stockholders' Equity (Deficit)
Capital in Preferred Stock Common Stock Excess of Accumulated Shares Amount Shares Amount Par Value Deficit ------------ ------- ------------ ------------ ------------ ------------ 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) Common stock issued for cash at $0.05 per share -- -- 1,691,287 1,691 81,309 -- Common stock issued for services and conversion of debt to equity at $0.12 per share -- -- 11,722,383 11,722 1,411,201 -- Common stock issued for conversion of debentures, penalty and interest at $0.04 per share -- -- 151,930,606 151,931 5,502,060 -- Cancellation of common stock -- -- (423,833) (424) 424 -- Preferred stock issued for acquisition 300 -- -- -- 300,000 -- Discount for beneficial conversion feature of preferred stock -- -- -- -- 60,000 -- Warrants granted below market value -- -- -- -- 3,497 -- Net loss for the year ended December 31, 2000 -- -- -- -- -- (3,878,611) ------------ ------- ------------ ------------ ------------ ------------ Balance, December 31, 2000 300 $ -- 172,028,189 $ 172,027 $ 22,608,733 $(23,766,395) ============ ======= ============ ============ ============ ============
The accompanying notes are an integral part of these consolidated financial statements. -25- TRANS ENERGY, INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows
For the Years Ended December 31, -------------------------- 2000 1999 ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $(3,878,611) $(6,298,333) Adjustments to reconcile net loss to net cash (used) by operating activities: Depreciation, depletion and amortization 330,469 2,523,043 Loss on valuation of wells 1,022,387 -- Loss (gain) on disposition of assets (2,199) 2,331,561 Common stock issued for services 1,334,579 283,700 Gain on disposition of debt (266,092) -- Changes in operating assets and liabilities: Decrease (increase) in accounts receivable 56,148 122,374 (Increase) decrease in restricted cash 196,400 (262,089) Decrease (increase) in prepaid and other current assets 2,372 21,232 Increase in accounts payable and accrued expenses 864,233 1,150,379 ----------- ----------- Net Cash (Used) by Operating Activities (340,314) (128,133) ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from sale of property and equipment 12,000 525,000 Expenditures for property and equipment (269,520) (185,165) ----------- ----------- Net Cash Provided (Used) by Investing Activities (257,520) 339,835 ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Increase in cash overdraft 11,608 -- Common stock issued for cash 83,000 -- Proceeds from related parties 126,572 153,469 Principal payments on notes payable (116,715) (387,694) Proceeds from notes payable 479,892 36,000 ----------- ----------- Net Cash Provided (Used) by Financing Activities $ 584,357 $ (198,225) ----------- -----------
The accompanying notes are an integral part of these consolidated financial statements. -26- TRANS ENERGY, INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows (Continued)
For the Years Ended December 31, -------------------------- 2000 1999 ----------- ----------- NET INCREASE (DECREASE) IN CASH $ (13,477) $ 13,477 CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 13,477 -- ----------- ----------- CASH AND CASH EQUIVALENTS, END OF YEAR $ -- $ 13,477 =========== =========== CASH PAID FOR: Interest $ -- $ 87,939 Income taxes $ -- $ -- NON-CASH FINANCING ACTIVITIES: Common stock issued for services $ 1,334,579 $ 283,700 Common stock issued for debt $ 5,742,335 $ 597,666 Note payable issued for vehicle $ 6,532 $ --
The accompanying notes are an integral part of these consolidated financial statements. -27- TRANS ENERGY, INC. AND SUBSIDIARIES Notes to the Consolidated Financial Statements December 31, 2000 and 1999 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. -28- TRANS ENERGY, INC. AND SUBSIDIARIES Notes to the Consolidated Financial Statements December 31, 2000 and 1999 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. 2000 1999 ----------------- ------------ Numerator: Loss from operations $ (4,144,703) $(6,298,333) ================== =========== Gain on disposition of debt $ 266,092 $ -- ================== =========== Denominator - weighted average shares 77,197,928 3,319,421 Net loss per share: Loss from Operations $ (0.05) $ (1.90) ================== =========== Gain on disposition of debt $ 0.00 $ -- ================== =========== d. Provision for Taxes At December 31, 2000, the Company had net operating loss carryforwards of approximately $16,000,000 that may be offset against future taxable income through 2020. No tax benefit has been reported in the consolidated financial statements as the Company believes that the carryforwards will expire unused. Accordingly, the potential tax benefits of the net operating loss carryforwards are offset by a valuation allowance of the same amount. -29- TRANS ENERGY, INC. AND SUBSIDIARIES Notes to the Consolidated Financial Statements December 31, 2000 and 1999 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) d. Provision for Taxes (Continued) The income tax benefit differs from the amount computed at federal statutory rates of approximately 38% as follows:
For the Years Ended December 31, -------------------------------------- 2000 1999 ------------------ ------------------ Income tax benefit at statutory rate $ 384,508 $ 2,270,071 Change in valuation allowance (384,508) (2,270,071) ------------------ ------------------ $ - $ - ================== ==================
Deferred tax assets (liabilities) are comprised of the following:
For the Years Ended December 31, -------------------------------------- 2000 1999 ------------------ ------------------ Income tax benefit at statutory rate $ 6,088,868 $ 5,704,359 Change in valuation allowance (6,088,868) (5,704,359) ------------------ ------------------ $ - $ - ================== ==================
Due to the change in ownership provisions of the Tax Reform Act of 1986, net operating loss carryforwards for Federal income tax reporting purposes are subject to annual limitations. Should a change in ownership occur, net operating loss carryforwards may be limited as to use in future years. e. Cash Equivalents The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. f. Principles of Consolidation The consolidated financial statements include the Company and its wholly owned subsidiaries, Prima Oil Company, Inc., 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 1999 balances have been reclassified to conform to the presentation of the 2000 consolidated financial statements. -30- TRANS ENERGY, INC. AND SUBSIDIARIES Notes to the Consolidated Financial Statements December 31, 2000 and 1999 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) 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. 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. k. Changes in Accounting Principles The Company has adopted the provisions of FASB Statement No. 138 "Accounting for Certain Derivative Instruments and Hedging Activities, (an amendment of FASB Statement No. 133.)" Because the Company had adopted the provisions of FASB Statement No. 133, prior to June 15, 2000, this statement is effective for all fiscal quarters beginning after June 15, 2000. The adoption of this principle had no material effect on the Company's consolidated financial statements. The Company has adopted the provisions of FASB Statement No. 140 "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities (a replacement of FASB Statement No. 125.)" This statement provides accounting and reporting standard for transfers and servicing of financial assets and extinguishments of liabilities. Those standards are based on consistent application of a financial- components approach that focuses on control. Under that approach, the transfer of financial assets, the Company recognized the financial and servicing assets it controls and the liabilities it has incurred, derecognizes financial assets when control has been surrendered, and derecognizes liabilities when extinguished. This statement provides consistent standards for distinguishing transfers of financial assets that are sales from transfers that are secured borrowings. This statement is effective for transfers and servicing of financial assets and extinguishments of liabilities occurring after March 31, 2001. This statement is effective for recognition and reclassification of collateral and for disclosures relating to securitization transactions and collateral for fiscal years ending after December 15, 2000. The adoption of this principle had no material effect on the Company's consolidated financial statements. -31- TRANS ENERGY, INC. AND SUBSIDIARIES Notes to the Consolidated Financial Statements December 31, 2000 and 1999 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) k. Changes in Accounting Principles (Continued) The Company has adopted the provisions of FIN 44 "Accounting for Certain Transactions Involving Stock Compensation (an interpretation of APB Opinion No. 25.)" This interpretation is effective July 1, 2000. FIN 44 clarifies the application of Opinion No. 25 for only certain issues. It does not address any issues related to the application of the fair value method in Statement No. 123. Among other issues, FIN 44 clarifies the definition of employee for purposes of applying Opinion 25, the criteria for determining whether a plan qualifies as a noncompensatory plan, the accounting consequence of various modifications to the terms of a previously fixed stock option or award, and accounting for an exchange of stock compensation awards in a business combination. The adoption of this principle had no material effect on the Company's consolidated financial statements. l. Accounts Receivable Accounts receivable are shown net of an allowance for bad debt of $1,800 at December 31, 2000. m. Preferred Stock The Company has authorized 10,000,000 shares of $0.001 par value preferred stock. The preferred stock shall have preference as to dividends and to liquidation of the Company. The board of directors has determined that the 300 preferred shares outstanding at December 31, 2000 valued at $300,000 are convertible into common stock at a 20% discount from the closing price of the common stock on the date of conversion and bears interest at prime plus 1% (9% at December 31, 2000). The conversion discount of $60,000 has been recorded and is included in the selling, general and administrative amount in the consolidated statement of operations at December 31, 2000. NOTE 2 - PROPERTY AND EQUIPMENT The Company acquired oil and gas leases from Ben's Run Oil Company (a Virginia limited partnership) in 1988 along with other assets and liabilities in exchange for shares of the Company's common stock. The assets were recorded at predecessor cost since the former owners of Ben's Run Oil Company became the controlling shareholders of the Company. The assets acquired had been fully amortized or depreciated. Therefore, they were recorded at a cost of $0. In January of 1989, the Company acquired interests in oil and gas producing properties from Black Petroleum Corporation (Black). In exchange for the interests acquired, the Company paid $100,000 cash, 160,790 shares of common stock and assumed certain liabilities of Black. The value of the stock issued was based on the estimated fair market value of the properties acquired less cash paid and liabilities assumed. The purchase price for oil and gas properties totaled $2,015,109. On November 15, 1994, the Company acquired six oil and gas wells at a cost of $1,082,222 and other equipment totaling $8,710 in exchange for shares of the Company's common stock. All assets were recorded at their market value (which was approximately the same as book value) at the time of acquisition based on the purchase method of accounting. -32- TRANS ENERGY, INC. AND SUBSIDIARIES Notes to the Consolidated Financial Statements December 31, 2000 and 1999 NOTE 2 - PROPERTY AND EQUIPMENT (Continued) 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 $65,689 at December 31, 2000. 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 a portion of 7 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. During 2000, the Company determined that the fair market value of the Wyoming property and wells as well as two additional wells had been impaired. A loss on the valuation of $658,891 was recorded to reflect the discount to fair market value. During 2000, the Company invested $257,231 for a 75% working interest in five wells known as Estlack #1, and Nolan #1, 2, 3 and 4. The Company obtained a reserve report showing the net present value of proved reserves was $820,521. During 2000, the Company sold vehicles for a total of $12,000. The Company recorded a gain of $2,199 as a result of the sale. -33- TRANS ENERGY, INC. AND SUBSIDIARIES Notes to the Consolidated Financial Statements December 31, 2000 and 1999
NOTE 3 - LONG-TERM DEBT The Company had the following debt obligations at December 31, 2000: New York Life, secured by cash value in policy, interest payable annually at 7.25% interest rate. $ 26,706 First National Bank of St. Marys, $9,244 payable monthly, 12.5% interest rate, secured by equipment and personal guarantee of officers. 432,072 Union Bank of Tyler County, interest at 11.5% due quarterly, renewable, due on demand, secured by equipment and personal guarantee of officers. 19,733 Union Bank of Tyler County, principal and interest payments of $799 due monthly, interest rate of 14%, due September 25, 2004, secured by vehicle and personal guarantee of officers. 27,666 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%, interest payments due monthly, unsecured. 292,078 Union Bank of Tyler County, principal and interest payments of $230 due monthly, interest at 16.0%, secured by vehicle of the Company 6,099 Note due to a private individual, due on demand with interest at 20%, secured by personal guarantee of officers. 200,919 Note due to an individual, payable in various payments beginning March 1, 2001 with interest at 10.0%, secured by personal guarantee of officer. 428,018 Note payable to Raven Group, bearing interest at 10%, due on demand, unsecured. 325,000 Note payable to individual, bearing interest at 7.00%, due on demand, secured by personal guarantee of officers. 60,744 Note payable to Core Laboratories, bearing interest at 10.00%, requiring monthly payments of $351, due August 1, 2004, and unsecured. 13,587 Note payable to RR Donnelley, payments of $3,244 of principal and interest at 10.0% due June 30, 2002, unsecured. 64,969 ----------------- Total 2,197,621 Less Current Portion (1,538,855) ----------------- Total Long-Term Debt $ 658,766 =================
-34- TRANS ENERGY, INC. AND SUBSIDIARIES Notes to the Consolidated Financial Statements December 31, 2000 and 1999 NOTE 3 - LONG-TERM DEBT (Continued) Future maturities of long-term debt are as follows: 2001 $ 1,538,855 2002 300,183 2003 83,690 2004 88,807 2005 89,823 2006 and thereafter 96,263 ----------------- Total $ 2,197,621 ================= 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, 2001 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. 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 $288,042 at December 31, 2000. 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 2000, the Company issued 1,691,287 shares of common stock for cash of $83,000. The Company issued 11,722,383 shares of common stock for services and conversion of debt at approximately $0.12 per share or a total of $1,422,923. The Company also issued 151,930,606 shares of common stock to convert debentures, interest and penalties at approximately $0.04 per share or $5,653,991. Additionally, the Company canceled 423,833 shares of common stock. 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. -35- TRANS ENERGY, INC. AND SUBSIDIARIES Notes to the Consolidated Financial Statements December 31, 2000 and 1999 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 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. This action was subsequently settled with a former officer of the Company delivering 100,000 shares of common stock which were valued at $5,400 as settlement in full. A foreign judgement has been filed with the circuit court in Pleasants County, West Virginia for a judgment against the Company 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. On February 7, 2001, the United States Bankruptcy Court, Southern District of Texas, entered an Order Granting Motion to Dismiss Chapter 7 Case in the action entitled In Re: Trans Energy, Inc., Case No. 00-39496-H4-7. The Order dismissed the involuntary bankruptcy action instituted against the Company on October 16, 2000. The sole petitioning creditor named in the Involuntary Petition was Western Atlas International, Inc. ("Western"). An Order for Relief Under Chapter 7 was entered by the Court on November 22, 2000. On April 23, 2000, the 189th District Court of Harris County, Texas entered an Agreed Final Judgment in favor of Western against the Company in the amount of $600,665, together with post judgment interest at 10% per annum. Following the judgment, Western and the Company entered into settlement negotiations concerning the Company's satisfaction of the judgment through payments over a four to five month period together with the pledge of collateral on certain unencumbered assets. Previously, on or about July 9, 1998, a judgment had been entered in the 152nd District Court of Harris County, Texas against the Company in favor of Baker Hughes Oilfield Operations, Inc. d/b/a/ Baker Hughes Inteq. Western Geophysical ("Baker"), a division of Western Atlas International, Inc., in the amount of $41,142, together with interest and attorney fees. This judgment was outstanding at the time of the filing of the Involuntary Petition. During its negotiations with Western for settlement of the Judgment, the Company made a $200,000 "good faith payment" to Western's counsel on October 23, 2000. On December 12, 2000, Joe Hill was named as the Chapter 7 Trustee. Subsequently, Western's counsel delivered the $200,000 to the Trustee. -36- TRANS ENERGY, INC. AND SUBSIDIARIES Notes to the Consolidated Financial Statements December 31, 2000 and 1999 NOTE 7 - COMMITMENTS AND CONTINGENCIES (Continued) On January 19, 2001, the Company filed with the Bankruptcy Court the Motion to Dismiss Chapter 7 Case. The reasons cited by the Company in support of its Motion to Dismiss included, but were not limited to, (i) the Texas Court being an improper venue for the action, and (ii) the Company never receiving the Involuntary Petition and Summons notifying it of the action. In anticipation of the Bankruptcy Court dismissing the Involuntary Petition, on February 2, 2001, the Company entered into a Settlement Agreement with Baker Hughes Oilfield Operations, Inc. d/b/a/ Baker Hughes Inteq. Western Geophysical, a division of Western Atlas International, Inc. (the "Baker Entities"). In entering its order on February 7, 2001 to dismiss the action, the Court ordered the Trustee to retain $17,695 for satisfaction of administrative fees and expenses, and to pay to Western and Baker the sum of $182,737, on behalf of the Company and pursuant to the terms of the Settlement Agreement. The Settlement Agreement provided that, subject to the approval of the Bankruptcy Court, the Company agreed to pay to the Baker Entities $759,664, plus interest at 10%. In addition to the $200,000 payable from the escrow, the Company agreed to pay to the Baker Entities an initial payment of $117,261 within fifteen days from the date of the Dismissal Order (due February 21, 2001). The Company also agreed to make additional payments of $100,000 every thirty days following the initial payment, with the first payment due beginning no later than March 23, 2001, continuing until the total obligation plus interest is paid in full. Further, the Company pledged as collateral certain properties, personal property and fixtures and two directors each pledged 750,000 shares of the Company's common stock which they personally own. The Company has been advised by the Securities and Exchange Commission (the "Commission") that the Commission is investigating certain activities by the Company (In the Matter of Trans Energy, Inc., C-3481). The Company believes that the investigation concerns disclosure requirements by the Company regarding certain press releases and the involuntary bankruptcy action instituted against the Company in October 2000. The Company is voluntarily cooperating with the investigation and certain officers have given their depositions. As of the date hereof, the investigation remains open. On September 22, 2000, a company obtained a judgment of $46,300 plus interest against Tyler Construction Company for breach of contract. The Company has accrued $47,741 which is included in accounts payable at December 31, 2000. On April 10, 2000, a company recorded and served its Notice and Statement of Lien again the Company for non-payment of services. The Company has recorded a liability of $78,651 which is included in accounts payable at December 31, 2000. Subsequent to year end, the Company entered into a settlement agreement wherein the Company will transfer a portion of the Powder River Basin leasehold acreage for settlement of the liability. On February 13, 2001, Ross Forbus obtained a judgment of $428,018 against the Company to satisfy a promissory note previously entered into by the Company with Mr. Forbus on April 8, 1996. The Company has recorded the balance in notes payable at December 31, 2000 (see Note 3). The Company pays $1,600 per month for leased office space which is on a month-to-month basis. -37- TRANS ENERGY, INC. AND SUBSIDIARIES Notes to the Consolidated Financial Statements December 31, 2000 and 1999 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, 2000, and has a working capital deficit at December 31, 2000. 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) NOTE 9 - 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. 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 as of December 31, 1999. 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. In 2000, the Company converted $1,547,655 of interest and penalties and $4,106,337 of the debentures payable into 151,930,606 shares of common stock. At December 31, 2000, the Company owed $331,462 on the debentures consisting of $50,000 for a debenture and $281,462 in penalties and interest. -38- TRANS ENERGY, INC. AND SUBSIDIARIES Notes to the Consolidated Financial Statements December 31, 2000 and 1999 NOTE 10 - 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 Prima Oil and pipeline transmission with Ritchie County and Tyler Construction. Certain financial information concerning the Company's operations in different industries is as follows:
Trans Ritchie For the Energy County Years Ended and Prima and Tyler Corporate December 31, Oil Construction Unallocated ------------ ----------- ------------ ----------- Oil and gas revenue 2000 $ 796,390 $ 328,867 $ - 1999 526,255 566,644 - Operating loss applicable to industry segment 2000 3,429,277 449,336 - 1999 5,177,452 248,104 - General corporate expenses not allocated to industry segments 2000 - - - 1999 - - 872,777 Interest expense 2000 (380,165) (57,305) - 1999 (689,172) (104,668) - Other income (expenses) 2000 14,850 - - 1999 14,184 - - Assets 2000 2,666,228 895,638 - Depreciation and amortization 2000 221,705 108,764 - 1999 57,535 108,770 2,356,738 Property and equipment acquisitions 2000 $ 288,341 - -
-39- TRANS ENERGY, INC. AND SUBSIDIARIES Notes to the Consolidated Financial Statements December 31, 2000 and 1999 NOTE 11 - OUTSTANDING STOCK OPTIONS The Company applies Accounting Principles Board ("APB") Opinion 25, "Accounting for Stock Issued to Employees," and related Interpretations in accounting for all stock option plans. Under APB Opinion 25, compensation cost is recognized for stock options granted to employees when the option price is less than the market price of the underlying common stock on the date of grant. FASB Statement 123, "Accounting for Stock-Based Compensation" ("SFAS No. 123"), requires the Company to provide proforma information regarding net income and net income per share as if compensation costs for the Company's stock option plans and other stock awards had been determined in accordance with the fair value based method prescribed in SFAS No. 123. The Company estimates the fair value of each stock award at the grant date by using the Black-Scholes option pricing model with the following weighted average assumptions used for grants, respectively; dividend yield of zero percent for all years; expected volatility of 246%; risk-free interest rates of 6.15 percent and expected lives of 0.1 years. Under the accounting provisions of SFAS No. 123, the Company's net loss would have been changed by the pro forma amounts indicated below:
December 31, -------------------------------------- 2000 1999 ------------------ ------------------ Net loss: As reported $ (3,878,611) $ (6,298,333) Pro forma $ (3,891,476) $ (6,298,333) Basic loss per share: As reported $ (0.06) $ (1.90) Pro forma $ (0.06) $ (1.90)
A summary of the status of the Company's stock option plans as of December 31, 2000 and changes during the year is presented below:
December 31, 2000 Weighted Average Shares Exercise Price ------------------ ---------------- Outstanding, December 31, 1999 795,057 $ 0.50 Granted 2,000,000 0.125 Canceled - - Exercised (2,000,000) (0.125) ------------------ ---------------- Outstanding, December 31, 2000 795,057 $ 0.50 ------------------ ---------------- Exercisable, December 31, 2000 795,057 $ 0.50 ------------------ ----------------
-40- TRANS ENERGY, INC. AND SUBSIDIARIES Notes to the Consolidated Financial Statements December 31, 2000 and 1999 NOTE 11 - OUTSTANDING STOCK OPTIONS (Continued)
Outstanding Exercisable ----------------------------------------------------------------------- Weighted Average Weighted Weighted Number Remaining Average Number Average Outstanding Contractual Exercise Exercisable Exercise Exercise Prices at 12/31/00 Life Price at 12/31/00 Price --------------- ------------- -------------- ------------ ------------ ------------ $ 0.50 795,057 3.00 $ 0.50 795,057 $ 0.50
The 2,000,000 options granted in 2000 was issued to employees of the Company. The options were exercisable at $0.125 per share and were fully vested on the grant date. The exercise price was equal to the market price on the date of issuance. The employees immediately exercised the 2,000,000 options with the exercise price being converted for prior services rendered. The 795,057 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. -41- TRANS ENERGY, INC. AND SUBSIDIARIES Notes to the Consolidated Financial Statements December 31, 2000 and 1999 S.F.A.S. 69 SUPPLEMENTAL DISCLOSURES
(1) Capitalized Costs Relating to Oil and Gas Producing Activities December 31, ------------------------------------- 2000 1999 ----------------- ----------------- Proved oil and gas producing properties and related lease and well equipment $ 4,950,399 $ 4,730,577 Unproved oil and gas properties 180,000 180,000 Accumulated depreciation and depletion (1,706,648) (25,930) ----------------- ----------------- Net Capitalized Costs $ 3,423,751 $ 4,884,647 ================= =================
(2) Costs Incurred in Oil and Gas Property Acquisition, Exploration, and Development Activities
For the Years Ended December 31, ------------------------------------- 2000 1999 ----------------- ----------------- Acquisition of Properties Proved $ 257,231 $ - Unproved - - Exploration Costs - - Development Costs - -
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, ------------------------------------- 2000 1999 ----------------- ----------------- Sales $ 788,224 $ 408,532 Production costs (18,623) (53,375) Depreciation and depletion (197,857) (20,000) Income tax expenses - - ----------------- ----------------- Results of operations for producing activities (excluding the activities of the pipeline transmission operations, corporate overhead and interest costs) $ 570,744 $ 335,157 ================= =================
-42- TRANS ENERGY, INC. AND SUBSIDIARIES S.F.A.S. 69 Supplemental Disclosures December 31, 2000 and 1999 (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, 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 - ----------------- ---------------- Revisions of previous estimates - - Improved recovery - - Purchases of minerals in place 454 356,196 Extensions and discoveries - - Production (87,958) - Sales of minerals in place - - ------------------ ----------------- End of the year 2000 1,348,754 356,196 ================== ================= Proved developed reserves: Oil Gas BBL MCF ------------------ ----------------- Beginning of the year 2000 1,436,258 - End of the year 2000 1,348,754 356,196
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. -43- TRANS ENERGY, INC. AND SUBSIDIARIES S.F.A.S. 69 Supplemental Disclosures December 31, 2000 and 1999 (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, 2000 Trans Energy and Subsidiaries ---------------- Future cash inflows $ 18,793,524 Future production and development costs (6,768,854) Future income tax expense (4,061,312) ---------------- Future net cash flows 7,963,358 10% annual discount for estimated timing of cash flows (3,537,580 ---------------- Standardized measure of discounted future net cash flows $ 4,425,778 ================ 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 ================
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, -------------------------------------- 2000 1999 ------------------ ----------------- Standardized measure, beginning of year $ 5,216,987 $ 9,495,694 Oil and gas sales, net of production costs - (313,619) Sales of mineral in place (1,611,730) (3,965,088) Purchases 820,521 - Net change due to revisions in quantity estimates - - Accretion of discount items - - ------------------ ----------------- Standardized measure, end of year $ 4,425,778 $ 5,216,987 ================== =================
-44- TRANS ENERGY, INC. AND SUBSIDIARIES S.F.A.S. 69 Supplemental Disclosures December 31, 2000 and 1999 (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. -45- 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 58 and Director William F. Woodburn Vice President August 1991 59 and Director John B. Sims Director January 1988 75 Gary F. Lawyer Director December 1997 53
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 -46- 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. 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, -47- 2000, 1999 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, 2000 $ -0- $ -0- $ -0- $ -0- President, C.E.O. 1999 $ -0- $ -0- $ -0- $ -0- 1998 $ -0- $ -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, 2000, 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 * 2,074,527(2) % 210 Second Street St. Marys, WV 26170 William F. Woodburn * 2,067,394(3) 10.2% 210 Second Street St. Marys, WV 26170 John B. Sims * 302,614(4) 1.0% 210 Second Street St. Marys, WV 26170 Gary F. Lawyer * 175,000(5) .6% 21430 Timtam Circle Parker, CO 80134 All directors and executive 905,698(6) 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 172,028,189 shares of common stock outstanding on December 31, 2000,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, 172,703,189 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, -48- 2000 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 50,000 shares of common stock held in the name of Carolyn S. Bagley, wife of Loren E. Bagley, over which Ms. Bagley retains voting power. (3) Includes 312,500 shares that may be acquired by Mr. Woodburn pursuant to stock options exercisable at $.50 per share and 31,250 shares of common stock in the name of Janet L. Woodburn, wife of William F. Woodburn, over which shares Ms. Woodburn retains voting power. (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) 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 2000, the Company paid Sancho an aggregate of approximately $2,147 pursuant to such 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 -49- 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. -50- 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 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, 2000. -51- 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 17, 2001 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 17, 2001 /S/ LOREN E. BAGLEY Principal Financial Officer --------------------------- Loren E. Bagley Vice President and Director April 17, 2001 /S/ WILLIAM F. WOODBURN Chief Accounting Officer ---------------------------- William F. Woodburn April 17, 2001 /S/ JOHN B. SIMS Director --------------------------- John B. Sims April 17, 2001 /S/ GARY F. LAWYER Director ---------------------------- Gary F. Lawyer
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