As filed with the Securities and Exchange Commission on February 20, 2003.
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported)
February 20, 2003
TRANSMERIDIAN EXPLORATION, INC.
(Exact name of Registrant as specified in its charter)
Delaware | | 333-60960 | | 76-0644935 |
(State or other jurisdiction
of incorporation) | | (Commission
File Number) | | (IRS Employer
Identification No.) |
| | | | |
397 N. Sam Houston Parkway E., Suite 300
Houston, Texas 77060 |
(Address of Principal Executive Offices) |
| | | | |
Registrant’s telephone number, including area code: (281) 999-9091 |
| | | | |
Not Applicable |
(Former name or former address, if changed since last report) |
TRANSMERIDIAN EXPLORATION, INC.
TABLE OF CONTENTS
FOR
CURRENT REPORT ON FORM 8-K
2
Item 5. Other Events
Change in Accounting Policies
Transmeridian Exploration, Inc. (the “Company”) is changing its method of accounting for certain transactions which were recorded in the interim periods of 2002. The change in accounting policies for these transactions does not affect the audited financial statements for the year ended December 31, 2001. Attached to this Current Report on Form 8-K are financial statements for the interim periods ended June 30, 2002 and September 30, 2002 which reflect the changes resulting from the new accounting policies. The effect of the change in accounting policies for the quarter ended March 31, 2002 was not material to the financial statements taken as a whole. The following discussion presents the background of these transactions and the previous and current accounting policies with regard to each.
Carried Working Interest
As part of the acquisition of its interest in the South Alibek field, the Company granted a carried working interest to an entity whose principal stockholder was instrumental in identifying the opportunity and assisted in negotiating the Company’s initial investment in the field. The carried working interest comprises 10% of the net revenue interest in the field. The Company is required to fund all exploration, development and operating expenditures pertaining to the carried working interest and is entitled to receive all revenues attributable to the carried working interest until all of its costs have been recovered. After the Company recovers all of its investment and operating costs, the carried party will begin receiving its share of oil and gas revenues and paying its share of exploration, development and operating expenses from that time forward.
During 2002, the Company recorded the exploration, development and operating expenditures paid on behalf of the carried working interest as a receivable which is expected to be satisfied from future revenues attributable to the interest. After further review of the transaction and discussion with its financial and accounting advisors, the Company determined that it would be more appropriate to record these costs as an additional investment in oil and gas properties. The revenues attributable to the carried interest prior to recovery of the Company’s investment will be recorded as the Company’s oil and gas revenues. This accounting policy more closely follows authoritative accounting guidance in the oil and gas industry, because the Company bears the initial economic risk of funding the costs associated with the carried interest.
The effect of the change in accounting policy for the carried working interest on the financial statements for the nine month period ended September 30, 2002 was to reduce receivables by $987,533, increase oil and gas properties by $873,960 and increase operating expenses by $113,573 from the amounts previously reported. For the six month period ended June 30, 2002, the effect was to reduce receivables by $809,650, increase oil and gas properties by $724,272 and increase operating expenses by $85,378.
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Drilling Rig Operations
On December 28, 2001, the Company purchased a drilling rig for the purpose of drilling wells on the Company’s property in the South Alibek field. At the time the Company purchased the drilling rig, it was in storage in South America. In early 2002, the Company arranged to have the rig transported from South America to Kazakhstan via marine cargo vessel. In addition, the Company undertook various refurbishments and modifications to the rig to make it suitable for use in the Company’s operations. The Company contracted with an independent company, Dingo Drilling, Inc. (“Dingo”), which has extensive experience in drilling operations, to operate and manage the Company’s drilling operations in the South Alibek field. To facilitate this arrangement, the Company leased the drilling rig to Dingo. Simultaneously, Dingo executed a lease of the rig to the Company’s operating subsidiary in Kazakhstan, Caspi Neft TME. The amount and timing of the lease payments from Caspi Neft TME to Dingo are substantially the same as the amount and timing of the lease payments from Dingo to Transmeridian Exploration, Inc., with the difference consisting of compensation for Dingo’s management of the drilling operations.
During 2002, the Company recorded the lease payments it received from Dingo as rig rental income and reflected certain of the direct rig operating costs as expenses in its consolidated statements of operations. After further review of the transaction and discussion with its financial and accounting advisors, the Company determined that it would be more appropriate to eliminate the revenues and expenses attributable to the drilling rig from its consolidated statements of operations and record only the direct costs associated with the drilling rig, including depreciation expense, as part of its costs of drilling the wells. The Company is not engaged and does not intend to engage in contract drilling as a separate line of business. Accordingly, the Company concluded that this accounting treatment would better reflect the economic substance of the transaction and provide a more meaningful financial statement presentation.
The effects of the change in accounting policy for drilling rig operations on the statements of operations for the nine month period ended September 30, 2002 and the six month period ended June 30, 2002 and the effect on the balance sheets of the respective periods are reflected in the tables below:
| | Nine Months
Ended
September 30,
2002 | | Six Months
Ended
June 30,
2002 | |
Increase (decrease) in statements of operations: | | | | | |
Rig rental income | | $ | (2,086,200 | ) | $ | (1,380,700 | ) |
Transportation expenses | | (876,330 | ) | (770,297 | ) |
General and administrative expense (a) | | (458,872 | ) | (191,438 | ) |
Interest expense | | (225,499 | ) | (152,435 | ) |
Net loss | | $ | (525,499 | ) | $ | (266,530 | ) |
(a) Includes depreciation expense of $383,012 and $122,551, respectively.
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| | September 30,
2002 | | June 30,
2002 | |
Increase (decrease) in balance sheet accounts: | | | | | |
Prepaid expenses | | $ | (728,000 | ) | $ | (728,000 | ) |
Due from related party | | (272,700 | ) | — | |
Oil and gas properties | | (133,310 | ) | (238,916 | ) |
Drilling rig | | 225,499 | | 152,435 | |
Accumulated depreciation | | (383,012 | ) | (122,551 | ) |
Unearned revenue | | — | | (425,400 | ) |
Accumulated deficit | | (525,499 | ) | (266,530 | ) |
| | | | | | | |
Item 7. Financial Statements and Exhibits
The following financial statements are attached to this Current Report on Form 8-K:
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| | TRANSMERIDIAN EXPLORATION, INC. |
| | | |
| | | |
Date: February 20, 2003 | | By: | /s/ Lorrie T. Olivier | |
| | | Lorrie T. Olivier |
| | | Chairman and Chief Executive Officer |
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Transmeridian Exploration, Inc. and Subsidiaries
(A Development Stage Company)
Consolidated Balance Sheets
(Unaudited)
| | September 30,
2002 | | June 30, 2002 | | December 31,
2001 | |
| | (Restated) | | (Restated) | | | |
ASSETS | | | | | | | |
Current assets: | | | | | | | |
Cash and cash equivalents | | $ | 258,031 | | $ | 68,507 | | $ | 107,276 | |
Receivables | | 25,973 | | 18,734 | | 270,112 | |
Prepaid expenses | | 10,000 | | 10,000 | | — | |
Total current assets | | 294,004 | | 97,241 | | 377,388 | |
| | | | | | | |
Property and equipment: | | | | | | | |
Oil and gas properties, successful efforts | | 13,666,006 | | 12,091,858 | | 7,765,565 | |
Drilling rig and equipment | | 5,824,442 | | 5,648,239 | | 5,300,000 | |
Investment in terminal joint venture | | 1,670,368 | | 1,662,145 | | — | |
Transportation equipment | | 167,200 | | 122,677 | | 8,321 | |
Office and technology equipment | | 134,263 | | 110,931 | | 42,403 | |
Total property and equipment | | 21,462,279 | | 19,635,850 | | 13,116,289 | |
Less accumulated depreciation | | 41,297 | | 25,014 | | 10,430 | |
Net property and equipment | | 21,420,982 | | 19,610,836 | | 13,105,859 | |
| | | | | | | |
Debt financing costs | | 400,000 | | 400,000 | | 400,000 | |
Total assets | | $ | 22,114,986 | | $ | 20,108,077 | | $ | 13,883,247 | |
| | | | | | | |
LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | | | | |
| | | | | | | |
Current liabilities: | | | | | | | |
Accounts payable and accrued liabilities | | $ | 1,687,319 | | $ | 813,675 | | $ | 1,044,465 | |
Current maturities of long-term debt | | 621,940 | | 2,277,500 | | 1,431,204 | |
Other current liabilities | | 197,974 | | 374,349 | | — | |
Total current liabilities | | 2,507,233 | | 3,465,524 | | 2,475,669 | |
| | | | | | | |
Long-term debt, net of current maturities | | 12,293,765 | | 8,458,743 | | 3,368,796 | |
Redeemable common stock | | 2,000,000 | | 2,000,000 | | 2,000,000 | |
| | | | | | | |
Stockholders’ equity: | | | | | | | |
Preferred stock | | 2 | | 2 | | 62 | |
Common stock | | 35,488 | | 35,188 | | 33,448 | |
Additional paid-in capital | | 10,585,201 | | 10,485,501 | | 9,051,981 | |
Deficit accumulated during development stage | | (5,306,703 | ) | (4,336,881 | ) | (3,046,709 | ) |
Total stockholders’ equity | | 5,313,988 | | 6,183,810 | | 6,038,782 | |
Total liabilities and stockholders’ equity | | $ | 22,114,986 | | $ | 20,108,077 | | $ | 13,883,247 | |
These financial statements should be read in conjunction with the Company’s Quarterly Reports on Form 10–QSB for the quarterly periods ended September 30, 2002 and June 30, 2002 and the Company’s Annual Report on Form 10-KSB/A for the year ended December 31, 2001.
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Transmeridian Exploration, Inc. and Subsidiaries
(A Development Stage Company)
Consolidated Statements of Operations
For the periods ended September 30, 2002 and 2001
(Unaudited)
| | Nine Months
Ended
September 30,
2002 | | Nine Months
Ended
September 30,
2001 | | Cumulative
Total from
Inception to
September 30,
2002 | |
| | (Restated) | | | | (Restated) | |
| | | | | | | |
Oil revenues | | $ | — | | $ | 51,335 | | $ | 51,289 | |
| | | | | | | |
Costs and expenses: | | | | | | | |
Operating expenses | | 172,370 | | 279,039 | | 661,743 | |
General and administrative expenses (a) | | 1,408,010 | | 989,618 | | 3,081,311 | |
Total costs and expenses | | 1,580,380 | | 1,268,657 | | 3,743,054 | |
| | | | | | | |
Operating loss | | (1,580,380 | ) | (1,217,322 | ) | (3,691,765 | ) |
| | | | | | | |
Other income (expense): | | | | | | | |
Gain on sale of working interest | | — | | — | | 414,146 | |
Interest income | | 3,911 | | — | | 3,911 | |
Start-up costs | | — | | — | | (246,484 | ) |
Interest expense (a) | | (655,463 | ) | (113,715 | ) | (1,635,178 | ) |
Total other income (expense) | | (651,552 | ) | (113,715 | ) | (1,463,605 | ) |
| | | | | | | |
Net loss | | (2,231,932 | ) | (1,331,037 | ) | (5,155,370 | ) |
| | | | | | | |
Preferred dividends | | (28,062 | ) | (71,016 | ) | (151,333 | ) |
| | | | | | | |
Net loss attributable to common shareholders | | $ | (2,259,994 | ) | $ | (1,402,053 | ) | $ | (5,306,703 | ) |
| | | | | | | |
Basic loss per share | | $ | (0.04 | ) | $ | (0.02 | ) | $ | (0.09 | ) |
| | | | | | | |
Weighted average shares outstanding | | 58,652,564 | | 60,617,000 | | 59,647,129 | |
These financial statements should be read in conjunction with the Company’s Quarterly Report on Form 10–QSB for the quarterly period ended September 30, 2002 and the Company’s Annual Report on Form 10-KSB/A for the year ended December 31, 2001.
(a) Interest expense of $655,463 for the nine month and inception to date periods ended September 30, 2002 has been reclassified from amounts originally reported as general and administrative expenses.
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Transmeridian Exploration, Inc. and Subsidiaries
(A Development Stage Company)
Consolidated Statements of Operations
For the periods ended June 30, 2002 and 2001
(Unaudited)
| | Six Months
Ended
June 30, 2002 | | Six Months
Ended
June 30, 2001 | | Cumulative
Total from
Inception to
June 30, 2002 | |
| | (Restated) | | | | (Restated) | |
| | | | | | | |
Oil revenues | | $ | — | | $ | 51,380 | | $ | 51,289 | |
| | | | | | | |
Costs and expenses: | | | | | | | |
Operating expenses | | 456,635 | | 68,704 | | 946,008 | |
General and administrative expenses (a) | | 492,027 | | 493,075 | | 2,165,328 | |
Total costs and expenses | | 948,662 | | 561,779 | | 3,111,336 | |
| | | | | | | |
Operating loss | | (948,662 | ) | (510,399 | ) | (3,060,047 | ) |
| | | | | | | |
Other income (expense): | | | | | | | |
Gain on sale of working interest | | — | | — | | 414,146 | |
Interest income | | 3,685 | | — | | 3,685 | |
Start-up costs | | — | | — | | (246,484 | ) |
Interest expense (a) | | (326,590 | ) | (38,785 | ) | (1,306,305 | ) |
Total other income (expense) | | (322,905 | ) | (38,785 | ) | (1,134,958 | ) |
| | | | | | | |
Net loss | | (1,271,567 | ) | (549,184 | ) | (4,195,005 | ) |
| | | | | | | |
Preferred dividends | | (18,606 | ) | (18,760 | ) | (141,876 | ) |
| | | | | | | |
Net loss attributable to common shareholders | | $ | (1,290,173 | ) | $ | (567,944 | ) | $ | (4,336,881 | ) |
| | | | | | | |
Basic loss per share | | $ | (0.02 | ) | $ | (0.01 | ) | $ | (0.07 | ) |
| | | | | | | |
Weighted average shares outstanding | | 58,426,029 | | 59,517,000 | | 57,834,171 | |
These financial statements should be read in conjunction with the Company’s Quarterly Report on Form 10–QSB/A for the quarterly period ended June 30, 2002 and the Company’s Annual Report on Form 10-KSB/A for the year ended December 31, 2001.
(a) Interest expense of $326,590 for the six month and inception to date periods ended June 30, 2002 has been reclassified from amounts originally reported as general and administrative expenses.
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Transmeridian Exploration, Inc. and Subsidiaries
(A Development Stage Company)
Consolidated Statements of Cash Flows
For the periods ended September 30, 2002 and 2001
(Unaudited)
| | Nine Months
Ended
September 30,
2002 | | Nine Months
Ended
September 30,
2001 | | Cumulative
Total from
Inception to
September 30,
2002 | |
| | (Restated) | | | | (Restated) | |
Cash flows from operating activities: | | | | | | | |
Net loss | | $ | (2,231,932 | ) | $ | (1,331,037 | ) | $ | (5,155,370 | ) |
Adjustments to reconcile net loss to net cash used in operating activities: | | | | | | | |
Depreciation and amortization | | 30,865 | | 6,423 | | 41,296 | |
Stock issued for services | | 35,000 | | 76,750 | | 759,680 | |
Gain on sale of working interest | | — | | — | | (414,146 | ) |
Increase in receivables | | (10,693 | ) | (135,056 | ) | (280,805 | ) |
Increase in prepaid expenses | | (10,000 | ) | (8,350 | ) | (59,560 | ) |
Increase in unpaid amounts to third parties | | 197,974 | | — | | 197,974 | |
Increase in accounts payable and accrued liabilities | | 1,085,095 | | 118,603 | | 1,656,258 | �� |
Net cash used in operating activities | | (903,691 | ) | (1,272,667 | ) | (3,254,673 | ) |
| | | | | | | |
Cash flows from investing activities: | | | | | | | |
Capital expenditures | | (6,691,157 | ) | (1,217,064 | ) | (11,772,045 | ) |
Proceeds from the sale of working interest | | — | | — | | 614,146 | |
Net cash used in investing activities | | (6,691,157 | ) | (1,217,064 | ) | (11,157,899 | ) |
| | | | | | | |
Cash flows from financing activities: | | | | | | | |
Proceeds from long-term debt | | 9,753,128 | | 462,603 | | 11,963,389 | |
Repayments of long-term debt | | (1,837,423 | ) | (105,052 | ) | (2,047,526 | ) |
Payment of deferred financing costs | | (200,000 | ) | — | | (200,000 | ) |
Payment of dividends on preferred stock | | (70,302 | ) | — | | (70,302 | ) |
Purchase of treasury stock | | — | | (660 | ) | (1,320 | ) |
Proceeds from sale of treasury stock, net | | — | | 770,660 | | 1,541,320 | |
Proceeds from sale of common stock, net | | 100,200 | | 1,318,291 | | 4,870,884 | |
Repayment of other financings | | — | | (385,842 | ) | (1,385,842 | ) |
Net cash provided by financing activities | | 7,745,603 | | 2,060,000 | | 14,670,603 | |
| | | | | | | |
Net increase (decrease) in cash and cash equivalents | | 150,755 | | (429,731 | ) | 258,031 | |
| | | | | | | |
Cash and cash equivalents, beginning of period | | 107,276 | | 512,115 | | — | |
| | | | | | | |
Cash and cash equivalents, end of period | | $ | 258,031 | | $ | 82,384 | | $ | 258,031 | |
These financial statements should be read in conjunction with the Company’s Quarterly Report on Form 10–QSB for the quarterly period ended September 30, 2002 and the Company’s Annual Report on Form 10-KSB/A for the year ended December 31, 2001.
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Transmeridian Exploration, Inc. and Subsidiaries
(A Development Stage Company)
Consolidated Statements of Cash Flows
For the periods ended June 30, 2002 and 2001
(Unaudited)
| | Six Months
Ended
June 30, 2002 | | Six Months
Ended
June 30, 2001 | | Cumulative
Total from
Inception to
June 30, 2002 | |
| | (Restated) | | | | (Restated) | |
Cash flows from operating activities: | | | | | | | |
Net loss | | $ | (1,271,567 | ) | $ | (549,184 | ) | $ | (4,195,005 | ) |
Adjustments to reconcile net loss to net cash used in operating activities: | | | | | | | |
Depreciation and amortization | | 14,583 | | 3,364 | | 25,014 | |
Stock issued for services | | 35,000 | | — | | 759,680 | |
Gain on sale of working interest | | — | | — | | (414,146 | ) |
Increase in receivables | | (3,454 | ) | — | | (273,566 | ) |
Increase in prepaid expenses | | (10,000 | ) | (16,699 | ) | (59,560 | ) |
Increase in unpaid amounts to third parties | | 374,349 | | — | | 374,349 | |
Increase (decrease) in accounts payable and accrued liabilities | | 220,907 | | (49,549 | ) | 792,070 | |
Net cash used in operating activities | | (640,182 | ) | (612,068 | ) | (2,991,164 | ) |
| | | | | | | |
Cash flows from investing activities: | | | | | | | |
Capital expenditures | | (4,864,728 | ) | (620,415 | ) | (9,945,616 | ) |
Proceeds from the sale of working interest | | — | | — | | 614,146 | |
Net cash used in investing activities | | (4,864,728 | ) | (620,415 | ) | (9,331,470 | ) |
| | | | | | | |
Cash flows from financing activities: | | | | | | | |
Proceeds from long-term debt | | 7,613,179 | | 215,103 | | 9,823,440 | |
Repayments of long-term debt | | (1,876,936 | ) | — | | (2,087,039 | ) |
Payment of deferred financing costs | | (200,000 | ) | — | | (200,000 | ) |
Payment of dividends on preferred stock | | (70,302 | ) | — | | (70,302 | ) |
Purchase of treasury stock | | — | | — | | (1,320 | ) |
Proceeds from sale of treasury stock, net | | — | | — | | 1,541,320 | |
Proceeds from sale of common stock, net | | 200 | | 948,600 | | 4,770,884 | |
Repayment of other financings | | — | | (385,842 | ) | (1,385,842 | ) |
Net cash provided by financing activities | | 5,466,141 | | 777,861 | | 12,391,141 | |
| | | | | | | |
Net increase (decrease) in cash and cash equivalents | | (38,769 | ) | (454,622 | ) | 68,507 | |
| | | | | | | |
Cash and cash equivalents, beginning of period | | 107,276 | | 512,115 | | — | |
| | | | | | | |
Cash and cash equivalents, end of period | | $ | 68,507 | | $ | 57,493 | | $ | 68,507 | |
These financial statements should be read in conjunction with the Company’s Quarterly Report on Form 10–QSB/A for the quarterly period ended June 30, 2002 and the Company’s Annual Report on Form 10-KSB/A for the year ended December 31, 2001.
11
