|FORM
10-KSB/ASECURITIES
AND EXCHANGE COMMISSIONWashington,
D.C. 20549
|---------------------------------------------------------------------

||X| | ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|--- | ------------------------------------------------------------------------------------

|For the fiscal year
ended December 31, 2001.


Commission file number:
333-60960


TRANSMERIDIAN
EXPLORATION INCORPORATED(Exact Name of
Registrant as Specified in Its Charter)
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Delaware(State or OtherJurisdiction ofIncorporation orOrganization) | 1311(Primary StandardIndustrialClassification Code) | 76-0644935(I.R.S. EmployerIdentification Number)
|------------------------------------------------------------------- | --------------------------------------------------- | ------------------------------------------------

|397 N. Sam Houston Parkway E.Suite
300,Houston, Texas, 77060(281) 999-9091(Address,
Including Zip Code,and Telephone Number, Including AreaCode of Registrants Executive Offices) | Jim Tucker, V.P. Finance 397 N. Sam Houston Parkway E.Suite 300Houston, Texas 77060(281) 999-9091
(Name, Address, Including Zip Code,and Telephone Number, Including Area Code,
of Agent for Service)
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Copies of
Correspondence to:Carter Holmes LLP.4311 Oak LawnSuite 600Dallas, Texas 75219214-765-6000


Securities registered
pursuant to Section 12(g) of the Act:


Common Stock, Par Value
$.0006 Per Share(Title of Class)


Indicate by check mark
whether the registrant (1) has filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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 |_|
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Indicate by check mark if
disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not
contained herein, and will not be contained, to the best of registrants
knowledge, in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this Form 10-K. |_|


As of December 31, 2001,
the aggregate market value of registrants voting common stock, par value
$.0006 per share, held by non-affiliates was $16,767. As of December 31, 2001,
registrant had 56,747,029 shares of its common stock, par value $.0006 per share,
issued and outstanding.


FACTORS
AFFECTING FORWARD LOOKING STATEMENTS


This Annual Report on Form
10-KSB contains forward-looking statements within the meaning of Section 27A of
the Securities Act of 1993 and Section 21E of the Securities Exchange Act of
1934. The words anticipate, believe, estimate, expect, project and similar
expressions are intended to identify forward-looking statements. Without
limiting the foregoing, all statements under the caption Item 6 
Managements Discussion and Analysis of Financial Condition and Results of
Operations relating to the Companys anticipated capital expenditures,
future cash flows and borrowings, pursuit of potential future acquisition
opportunities and sources of funding for exploration and development are
forward-looking statements. These statements are subject to certain risks and
uncertainties, such as the volatility of natural gas and oil prices, potential
write downs or impairments, inability to meet capital requirements, uncertainty
of reserve information and future net revenue estimates, reserve replacement
risks, drilling risks, operating risks of natural gas and oil operations,
acquisition risks, hedging risks, government regulation, environmental matters,
competition and potential conflicts of interests with our majority shareholder.
Should one or more of these risks or uncertainties materialize, or should
underlying assumptions prove incorrect, actual results may vary materially from
those anticipated, believed, estimated, expected or projected. For additional
discussion of such risks, uncertainties and assumptions, see Risk Factors
Affecting Our Business in Items 1 and 2. Business and Properties and Item 6.
Managements Discussion and Analysis of Financial Condition and Results of
Operations included in this Annual Report filed under the Securities Exchange
Act of 1934, as amended.


Unless otherwise
indicated, references to Transmeridian Exploration or the Company refers to Transmeridian
Exploration Incorporated and its subsidiaries on a consolidated basis.


2
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|TRANSMERIDIAN
EXPLORATION INC.


TABLE OF
CONTENTS
|--------------------------------------------------

|                                                                       | Page
|---------------------------------------------------------------------- | ----
|PART I                                                                 |     
|                                                                       |     
|ITEM 1.  BUSINESS                                                      |     
|                                                                       |     
|ITEM 2.  PROPERTIES                                                    |     
|                                                                       |     
|ITEM 3.  LEGAL PROCEEDINGS                                             |     
|                                                                       |     
|ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS           |     
|                                                                       |     
|PART II                                                                |     
|                                                                       |     
|ITEM 5.  MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED             |     
|STOCKHOLDER MATTERS                                                    |     
|                                                                       |     
|ITEM 6.  MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION   |     
|AND PLAN OF OPERATION                                                  |     
|                                                                       |     
|ITEM 7.  FINANCIAL STATEMENTS                                          |     
|(See below)                                                            |     
|                                                                       |     
|ITEM 8.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING   |     
|AND FINANCIAL DISCLOSURE                                               |     
|                                                                       |     
|PART III                                                               |     
|                                                                       |     
|ITEM 9.  DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; |     
|COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT                      |     
|                                                                       |     
|ITEM 10. EXECUTIVE COMPENSATION                                        |     
|                                                                       |     
|ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS               |     
|AND MANAGEMENT                                                         |     
|                                                                       |     
|ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS                |     
|                                                                       |     
|ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K                              |     
|                                                                       |     
|SIGNATURES                                                             |     
|                                                                       |     
|INDEX TO CONSOLIDATED FINANCIAL STATEMENTS                             |     

|3
|-

|PART I



ITEM 1.
BUSINESS


Our Business


Transmeridian Exploration,
Inc. is an independent energy company established to acquire and develop
identified and underdeveloped hydrocarbon reserves in the region of the former
Soviet Union known as the Confederation of Independent States (CIS) and more
particularly the Caspian Sea region. Our philosophy is to take advantage of
these opportunities based in part on our managements experience and
business relationships in the area. Our key management team has a total of about
50 years of experience working in the CIS Region. We target opportunities with
proved and potential oil and natural gas reserves at below the industrys
international finding cost rates.


The first opportunity which
the company purchased is the South Alibek Field. The South Alibek Field is
located in the Caspian Region of western Kazakhstan, and is situated near
pipelines, railroads, power transmission lines, regional roads, and other
related oil field infrastructure needs. The proximity to existing infrastructure
for exportation of oil and gas, reduces associated costs and the time needed to
place new fields on production.


As of December 31, 2001 we
had estimated net proved reserves to our interest of 17,645,418 barrels of oil
and 3.475 MMCF (million cubic feet) with a net present value at 10% (before
taxes) of $128,917,482 and a standardized measure of $90,871,453 (after tax) as
measured on December 31, 2001. Of these reserves, 5,808,683 barrels of oil and
1,144 MMCF were classified as proved developed non-producing.


Acquisition of
Emba Oil Terminal


On August 27th of 2001
Transmeridian was granted a right to purchase up to a 50% interest in Emba Trans
Ltd a rail terminal at the city of Emba to facilitate the storage, sales and
export of oil from the production of South Alibek Field. The Company elected not
to exercise this option. On April 26, 2002, Transmeridian purchased a 25% equity
interest in the Emba Terminal for 4,000,000 shares of common stock of the
company, and has up to 180 calendar days to purchase another 25% equity interest
in the facility at a price to be further negotiated. The terminal has sufficient
handling capacity for the production from South Alibek.


Employees


As of December 31, 2001,
our staff consists of an experienced management team with five professionals in
the Houston office plus the support of expert engineering and geoscience
consultants as needed and an operations management team and staff in Almaty and
Aktobe comprised of nine in Almaty, eleven in Aktobe and six field personnel, as
well as contract employees supervised by our expatriate engineers.


Corporate
Information


Transmeridian was
incorporated under the laws of the State of Delaware on April 18, 2000.


Our corporate
headquarters offices comprising 6,725 square feet of rented executive
offices in Houston, at 397 N. Sam Houston Parkway, Suite 300, Houston, Texas
77060, at a monthly rental of $9,527 on a five-year lease. The corporate office
of Caspi Neft TME is in Almaty, Kazakhstan, 130 A Furmanova Street, comprising
4500 square feet rented monthly for $5,460 and their branch office in Aktobe,
Kazakhstan, is at Gaziza Zhubanova Street, 50 A comprising 1,162 square feet,
rented monthly at $540. Our Houston telephone number is (281) 999-9091.


4
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|ITEM 2.
PROPERTIES


Properties


All exploration and
production activities are conducted through wholly owned operating subsidiaries.
Transmeridian Exploration Inc.(BVI) is responsible for the management of the
South Alibek Field, with Open Joint Stock Company (OJSC) Caspi Neft TME (Caspi
Neft TME). This Kazakhstan company was established specifically to hold the
title to the License 1557 and to manage all the joint venture operations of that
project. The Exploration License 1557 for South Alibek and the related
Exploration Contract for the exploration work are registered in the name of the
operating company OJSC Caspi Neft TME. The company holds 100% of the equity
interest of Caspi Neft TME, and provides a net carried interest of 10% to
Kornerstone Investment Group Ltd (Kornerstone), The principals of Kornerstone
received this 10% carry as a finders fee for the acquisition of the
License 1557 OIL.


On December 28th, 2001 the
company signed a contract to purchase a Land Drilling Rig named Rig 232 
type National 1320UE, from Seaboard Equipment Company, Inc., for a total
consideration of $5,300,000 to be paid in cash and the Companys common
stock. The Company will use this rig to support a continuous delineation and
development drilling program beginning in the third quarter of 2002.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| 
|-
|
|1
| 
| 
|2

|RESERVES


As of December 31, 2001,
our estimated net proved reserves in the South Alibek field is 17.645 million
barrels of oil based on our 90% interest in the property and net of government
royalty. These reserves only include the reserves estimated to be recoverable
within 240 acres from well No. 29 and two 80 acre offset units (wells). Proved
reserves increased in 2001 because of increasing the net interest in the
property from 84.5% to 90% with the acquisition on January 1, 2001 of the 4.5%
interest held by Tracer Petroleum. Proved reserves are the estimated quantities
which geological and engineering data demonstrate with reasonable certainty to
be recoverable in future years from known reservoirs under existing economic and
operating conditions. The reserve disclosure is based upon a reserve study of
the South Alibek Field conducted by Ryder Scott Company, (Ryder Scott) a US
independent engineering company utilizing data available prior to December 31,
2001. Extensive geologic and engineering information was obtained over the South
Alibek Field and license area, and the adjacent Alibekmola, currently under
development and the nearby developed Zhanazhol Field, both analogous to South
Alibek. This data serves as the basis of the technical evaluation and
conclusions made by Ryder Scott.


These proved reserves
estimates do not include reserves which may be found by extension of proved
areas through the drilling of new wells. When a commercial reservoir is
discovered, proved reserves are initially determined based on only limited data
from the first well or wells. Further drilling will better define the extent of
the reservoir and additional production performance. Well tests and engineering
studies will likely improve the reliability of the estimate.


Ryder Scott completed a
geological study of the South Alibek Field in 2000 and estimated that only half
of the potential field size was within the original license area of 13.745
square kilometers (3400 acres). Reserves potential of 121 million barrels was
identified within this smaller license area. The license area was extended to a
larger 57.1 square kilometers (14,111 acres) on November, 2001 in order to
secure control over the entire potential area of the field and the total
potential reserves. The plan for 2002 is to drill two wells, the first well half
a mile (900 meters) north of well 29, and the second well nearly 2 miles (3
kilometers) north of well 29. Each well will each have the potential of
increasing reserves by the same amount already estimated for the 240 acres
around well 29, or to prove up as much as 35 million barrels of additional
reserves net to us. Actual results may be significantly different as the
potential reserves have greater inherent risks than do proved reserve estimates.


5
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|These potential reserve
estimates conform to definitions of probable and possible reserves approved by
the SPE/SPEE using the deterministic methodology and have the same risks
normally associated with potential reserves categories as defined by the
SPE/SPEE. Conversion of these potential reserves to proved reserves will be only
following the extensive and successful drilling of new wells outside of the 240
acres already identified with estimated proved reserves, including reasonable
confirmation of the presence of reservoirs and oil, and the productivity of
these reservoirs from testing of the new wells and thorough analysis of the new
data obtained from the drilling and other geological efforts such as mapping of
the existing 2D and 3D seismic data. Results from future drilling may cause
these potential reserves estimates to be reduced as they are only estimates and
are dependent on many geologic and engineering assumptions that may not be
supported by the new information to be obtained.


Summary of the
Work Performed by Ryder Scott


The Securities and Exchange
Commission (SEC) and financial accounting standards require a presentation of
the companys commercially recoverable reserves on an annual basis
utilizing the year end pricing for the valuation of these reserves over the
future of the respective field. Ryder Scott provided its estimate of the
reserves, future production, and income attributable to the existing Well No 29
and 2 offset wells.


Crude oil prices in effect
at December 31, 2001 were used in the preparation of this report as required by
SEC rules; however, actual future prices may vary significantly from December
31, 2001 prices. Therefore, amounts of income actually received may differ
significantly from the estimated quantities presented in this report. The
results of this study are summarized below.


The estimates of reserves
presented herein were based upon a detailed study of the properties in which
Transmeridian owns an interest; however, Ryder Scott has not made any field
examination of the properties. No consideration was given in this report to
potential environmental liabilities that may exist nor were any costs included
for potential liability to restore and clean up damages, if any, caused by past
operating practices. Transmeridian has furnished all of the accounts, records,
geological and engineering data, and reports and other data required for the
Ryder Scott investigation. The ownership interests, prices, and other factual
data was also furnished by Transmeridian and were accepted without independent
verification. The estimates presented in this report were based on data
available through December 31, 2001.


The following table
presents Ryder Scotts estimated net proved oil and natural gas reserves
and the present value of our reserves at December 31, 2001, based on, and
qualified by reference to, the reserve report prepared by them. The present
values, discounted at 10% per annum, of estimated future net cash flows before
income taxes shown in the table are not intended to represent the current market
value of the estimated oil and natural gas reserves that we own.


The present value of future
net cash flows before income tax as of December 31, 2001 was determined by using
the stated sales price offered for field deliveries using the market crude price
of Dated Brent as of December 31, 2001 of U.S. $20.50 per barrel less a 25%
discount for quality and transportation and handling for a net price of U.S.
$15.37 per barrel. Ryder Scott utilized an estimate of 10% for government
royalty in the calculations of present value. Royalty rates currently being
applied are similar to new production contracts in the Kazakhstan range between
6-10%. No value was assigned to gas reserves as currently there is no delivery
contract for gas sales.


6
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|
|

|                       
|-----------------------
|
|
|
|Developed Non Producing
|                       
|Undeveloped            
|                       
|Total Proved           
|                       
|                       
|                       

|Summary of Productive AreaSouth Alibek Field (License 1557)
|-----------------------------------------------------------
|
|Total Area                                                 
|                                                           
|Proved                                                     
|                                                           
|Remaining                                                  
|                                                           
|Interest                                                   
|                                                           
|Wells                                                      
|                                                           

|(1) |  | We
are in the second year of a 6-year exploration period of the License for this property
and there are no prior year properties. Commercial production from the field has not
commenced as of this filing.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) |  | Subsequent
to year-end we acquired the 4.5% interest previously owned by TRACER
|--- |  | -------------------------------------------------------------------------------

|(3) |  | Well
No. 29 is now on test production since February 26, 2001.
|--- |  | --------------------------------------------------------------

|Oil and Gas
Producing Activities: (Unaudited)


Total costs incurred in the
acquisition of the License 1557 and the formation and development of our wholly
owned subsidiary Caspi Neft TME, the owner of the oil and gas exploration
activities, all incurred within Kazakhstan, were as follows (in thousands except
per barrel information):
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | For the year endedDecember 31, 2001(000)    | For the year endedDecember 31, 2000(000)
| | ------------------------------------------- | ----------------------------------------
| | Property Acquition Costs                    |                                         
| | Unproved                                    |                                         
| | Proved                                      |                                         
| |                                             |                                         
| | Exploration Costs                           |                                         
| |                                             |                                         
| | Development Costs                           |                                         
| |                                             |                                         
| | Depreciation, depreciation and amortization |                                         
| | per equilvalent barrel of production        |                                         
| |                                             |                                         
| | The aggregate capital costs relative to oil |                                         
| | and gas producing activities are as follows |                                         
| | Unproved oil and gas properties             |                                         
| | Proved oil and gas properties               |                                         
| |                                             |                                         
| |                                             |                                         
| | Accumulated depreciation, depletion and     |                                         
| | amortization                                |                                         
| |                                             |                                         
| |                                             |                                         
| |                                             |                                         
| | Net Capitalized Cost                        |                                         
| |                                             |                                         

|7
|-

|Estimated Oil
and Natural Gas Reserves (Unaudited)


The following information
regarding estimates of the Companys proved oil and gas reserves, all
located in Kazakhstan, is based on reports prepared on behalf of the Company by
independent petroleum engineers, Ryder Scott Company.


Because oil and gas reserve
estimates are inherently imprecise and require extensive judgments of reservoir
engineering data, they are generally less precise than estimates made in
conjunction with financial disclosures. The revisions of previous estimates as
reflected in the table below result from more precise engineering calculations
based upon additional production histories.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                          | Year endedDecember 31, 2001 | Year endedDecember 31, 2000
|----------------------------------------- | --------------------------- | ---------------------------
|
|Proved developed and undeveloped reserves |                             |                            
|                                          |                             |                            
|Beginning of period                       |                             | 3,391                      
|Revisions of previous year estimates      |                             | 84                         
|Extensions, discoveries and new additions |                             |                           
|Improved recovery                         |                             |                           
|Purchase of minerals in place             |                             |                           
|Sales of minerals in place                |                             |                           
|Production                                |                             |                           
|                                          |                             |                            
|End of period                             |                             | 3,475                      
|                                          |                             |                            

|Standardized Measure of
Discounted Future Net Cash Flows from Oil and Gas Operations and Changes
Therein.


The standardized measure of
discounted future net cash flows was determined based on the economic conditions
in effect at the end of the period presented, except in those instances where
fixed and determinable gas price escalations are included in contracts. The
disclosures below do not purport to present the fair market value of our oil and
gas reserves. An estimate of the fair market value would also take into account,
among other things, the recovery of reserves of an independent engineering
evaluation of the known producible reserves in the field, anticipated future
changes in prices and costs, a discount factor more representative of the time
value of money and risk inherent in reserve estimates.


The reserve estimates
provided at December 31, 2001 are based on oil prices of approximately $15.37,
which approximates 75% of the Dated North Sea Brent Crude price per barrel which
related to a commercial offer at that time to purchase crude from the field. No
value was assigned to gas reserves, as currently there is no delivery contact
for gas sales.


8
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|
|

|                                    | For the year endedDecember 31, 2001(000) | For the year endedDecember 31, 2000(000)
|----------------------------------- | ---------------------------------------- | ----------------------------------------
|Future net revenue                  |                                          | $ 271,298                               
|Future costs                        |                                         
|Lease operating expense             |                                          | ($ 27,228                               
|Development costs                   |                                          | ($ 10,661                               
|                                    |                                          |                                         
|Future net cash flows before income |                                         
|taxes                               |                                          | $ 233,409                               
|Discounted at 10% per annum         |                                          | ($104,492                               
|                                    |                                          |                                         
|Discounted future net cash flows    |                                         
|before income taxes                 |                                          | $ 128,917                               
|Future income taxes, net of         |                                         
|discount at 10% annum               |                                          | ($ 38,675                               
|                                    |                                          |                                         
|Standardized measure of discounted  |                                         
|future net cash flows               |                                          | $   90,242                              

The following are the
principal sources of changes in the standardized measure of discounted future
net cash flows:

|                                               | Year endedDecember 31, 2001 | Year endedDecember 31, 2000
|---------------------------------------------- | --------------------------- | ---------------------------
|
|                                               |                             |                            
|Beginning of year                              |                             | $ 105,349                  
|Accretion of discount                          |                             | 14,946                     
|Revisions to previous quantity estimates       |                             | 3,298                      
|Net changes in prices, net of production costs |                             | (25,100                    
|Purchase of reserves in place                  |                             |                           
|Other                                          |                             | (8,251                     
|                                               |                             |                            
|End of year                                    |                             | $   90,242                 
|                                               |                             |                            

|Commencement
of Operations and Initial Production Activities


An Early Start-up Program
(ESP) has been established to evaluate reservoir and productive characteristics
that will be critical in determining the final design of the field development
program. Permits and operational plans were filed with the authorities to begin
production testing of Well No. 29 in January 2001. The various permits and
authorizations required were granted in February 2001. This testing program has
been authorized for 18 months, which will allow us to flow and recover
production from Well No. 29 during this period.


The initial work program on
Well No. 29 included remedial work to repair mechanical deficiencies and
evaluation of new zones identified but not tested in the original drilling and
testing of the well. This ongoing work began in February 2001 with an extended
flow test of the existing well No.29. Test production from well No.29 was 180
barrels of oil per day, off and on, for a total of 30 days of production from
the 13 feet (4 meters) of open interval in the well intervals that was in
condition to flow without any treatment or improvement in well production
mechanics. Test oil produced during the term of testing operations totaled in
excess of 5,000 barrels of oil as of April 30, 2001. The oil recovered in the
test was a high gravity of 39(Degree) API type crude and with a low sulfur
content of about 0.8%.


9
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|A program to repair well
damage and to open additional intervals for production evaluation was completed
in June 2001. During this workover, it was discovered that only 13 feet (4
meters) of oil pay had been previously opened to production from the well. After
repair of well damage, an additional 60 net feet of oil pay intervals were
opened by perforations in the lower KT-I and upper KTII intervals. The well was
being placed on a long-term continued testing program when a mechanical failure
resulted in part of the production string being lost in the hole. Adequate sized
equipment was not available to immediately remove the lost equipment and the
testing program has been suspended pending the availability of equipment and
material to properly remove the damaged equipment in the well.


Marketing of
Test Production


The Mugodzhar region of the
Aktubinsk Oblast, in which South Alibek is located, is one of the most highly
developed areas for oil field development and production in the Republic of
Kazakhstan, with existing roads, railroads, rail oil terminals and oil
pipelines. Our first test production was initially trucked to the Shubarkuduk
Oil Terminal and sold to Kaspi Neft Chim, a local crude oil purchaser.


License
Extension


An area extension
application was made to the government authorities and an extension was granted
and authorized by government resolution on November 7, 2001. The new license
area for the Companys South Alibek Field (Field) was increased
400% to incorporate all of the currently identified potentially oil bearing
reservoirs associated with the Field. With this increase, the Company now
estimates that the entire structural closure of the Field is completely within
the expanded 14,111 acre (57.106 sq. km) License area. TMEI now can pursue the
development of the complete Field structure area, as well as pursuing
exploration of upside prospective targets within the larger license area. This
significantly larger area could potentially provide additional proved reserves
and higher daily production rates to us in the future than we have currently
forecasted.


Application
for Commercial Reserves


The company filed with
government authorities a declaration of commercial reserves for the well No. 29
and the area within a radius of one kilometer of the well. This commercial area
is small and does not reflect the companys estimation of the entire South
Alibek field, but these reserves generally conform with the amount of reserves
included in the proved reserves defined in the current Ryder Scott Reserve
Report included in this document. Once the government approves these reserves,
the company can proceed with the conversion of the existing Exploration Contract
to an Exploration and Production Contract. The first level of review has been
completed by the local authorities and the study now goes to the National
Committee on Reserves for certification and inclusion of the reserves on the
national balance of recoverable hydrocarbon reserves. This certification will
allow for the next contractual phase of commercial production as described by
the petroleum code of Kazakhstan. In this regard, the company will be soliciting
that the government revise the existing Exploration Contract to an Exploration
and Production Contract. In this way the company may continue to expand the
limits of the existing field as well as initiate investments for the commercial
exploitation of the commercial reserves identified within the field and License
Area.


Present
Activities


The following discussion of
our plan of operation should be read in conjunction with the consolidated
financial statements and the attached notes included elsewhere in this report.
This discussion contains forward-looking statements that involve risks and
uncertainties. Our actual results may differ materially from those anticipated
in these forward-looking statements as a result of various factors, including
but not limited to, those set forth under Risk Factors and elsewhere in this
report.


10
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|The company has executed a
Share Purchase Agreement with Kazstroiproyekt Ltd (KSP), an affiliate of Astana
Holdings Ltd., which, at KSPs option within two years, provides for the
possible sale and transfer of 50% interest of OJSC Caspi Neft TME, the company
which holds the license to the South Alibek Field. In exchange for this
interest, KSP must make available initially a three year $20 million dollar
financing for the development of the field. KSP arranged the $20 million loan
through Turan Alem Bank of Kazakhstan. Within twenty-four months of this initial
loan, KSP must determine if it wants to continue with the project. If KSP
determines that it will continue, KSP will be responsible for the payment of $15
million of the initial loan and make available up to $30 million in additional
development financing at commercial rates. The portion of the loan not cancelled
by the contribution of KSP will be treated as a corporate cost of OJSC Caspi
Neft TME to be retired from proceeds of operations or further financing. If KSP
determines after 24 months, that it will not continue in the project it will
relinquish all claims and rights to the 50% interest in Caspi Neft TME and Caspi
Neft TME will be solely responsible for the entire loan, having an additional 12
months to cancel the debt. The partnership is governed by a joint shareholders
agreement which was based on a typical international joint operating agreement.
TMEI will provide for all the engineering and general directorship of the
company for at least the first 3 years. An interim bridge loan for $1.5 million
was issued through Turan Alem Bank in December 2001, and the Company paid off
the $1 million Alpha note on December 1. A final credit agreement with Turan
Alem Bank for the principal loan of $20 million was signed on February 26, 2002.
The company believes that this financing should be sufficient to bring the field
into production and allow the completion of the initial phase of delineation
drilling and installation of testing and production facilities to handle
production rates of up to 30,000 barrels of oil per day. All production will be
treated to allow for the sale of crude by truck transport to local railroad
transport terminals.


Financial Plan
and Plan of Operation for 2002


Our focus in 2002 will be
to:
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  |  | Strengthen
the companys balance sheet by raising additional working capital of $5-10 million
through equity or equity based instruments
| |  | - |  | ----------------------------------------------------------------------------------------------------------------------------------------

| |  |  |  | Crude
oil forward purchase contracts
| |  | - |  | ------------------------------------

| |  |  |  | Bank
Financing for the development of South Alibek field
| |  | - |  | --------------------------------------------------------

| |  |  |  | Commence
initial 3 well delineation drilling activities
| |  | - |  | -------------------------------------------------------

| |  |  |  | Installation
of testing facilities for rates of up to 5,000 bopd and Production Facilities up to
30,000 bopd.
| |  | - |  | -------------------------------------------------------------------------------------------------------------

| |  |  |  | Staffing
to accommodate the expansion of drilling and production operations
| |  | - |  | ---------------------------------------------------------------------------

|Financial
Plan 2002


Financing
through the Sale of Stock


The Company plans to file a
registration statement with the SEC in the near future for the sale of its
common stock or other equity/debt instruments to raise $5-10 million in working
capital. These funds will allow the company to strengthen its balance sheet
considering the debt being incurred, and to allow the company to be in a
position to act on acquisition opportunities as they arise.


Crude oil
forward purchase contracts


On August 27 of 2001, Caspi
Neft TME executed a Crude oil forward purchase contract with So Cal Energy
Incorporated for the delivery and sale of a minimum 3,000 tons (approximately
21,000 barrels) of crude oil per month at a price tied to Dated North Sea Brent
Crude. Due to mechanical problems making production from the Alibek Well No.29
impracticable at this time, the company and So Cal suspended the previous sales
agreement to handle production from this well.  The company maintains
contacts with this and other marketing companies in the region in anticipation
of beginning test production in the third quarter after the initiation of the
current 3-well drilling program.


11
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Bank Financing


The financing contemplated
by the Share Purchase Agreement with Kazstroiproekt Ltd (KSP), has been
activated and funds have been drawn down to cancel all of the companys
previous debt to Al Alpha as well as allow OJSC Caspi Neft TME to repay some of
the loans made by its parent company, Transmeridian. Transmeridian has pledged
all the shares of Caspi Neft TME, as well as the sub-surface rights related to
the License 1557 OIL which includes the South Alibek field. In addition,
Transmeridian has provided a corporate guarantee letter for up to $7,000,000 of
liability should Caspi Neft TME default on its loan commitments.


The initial $20 million
credit line can be drawn down within the first 9 months of the loan period with
simple interest accruing at 15% per annum. There is an interest and principal
holiday for the first 18 months of the loan. Thereafter interest and principal
payments will begin on a quarterly basis.


Operation
Plan


Commencement
of Initial Drilling Activities


The investment program for
the next three years, will include the drilling and completion of 10 wells and
the installation of production facilities and pipeline at a cost of
approximately $40,000,000. The development of these wells should prove up
additional reserves according to the independent petroleum engineering report
from the Ryder Scott. The successful delineation of the existing field could
prove up total reserves up to 350-450 million barrels. The first three-well
program will be initiated with the drilling of the first well in the 3rd Quarter
2002. Two additional wells will immediately follow with the second completed in
the 4th quarter and the third well completed in the 1st quarter of
2003. The total cost of drilling and testing is estimated at $9,600,000 and the
construction of a sales trunk-line to the railroad terminal, construction
planned for 2002 at an estimated cost of about $2,000,000. We estimate that each
well should cost about $3 million dollars to drill and complete and about
$400,000 to test and evaluate. Each well should produce test crude which should
generate about $0.4 million per month in gross revenue under the existing
railroad sales program which would provide about $10-$11 per barrel net-back to
the wellhead to cover operating and testing costs. This program will be
initiated by the funds from the bank financing but the majority of the
development capital will come from the excess internally generated cash flow
from our drilling program and or advance crude sales based on these production
levels. Each commercial well drilled will add to this revenue base. We currently
estimate that 44 completed wells will be required in the first phase of the
field development program.


Most sales from our area of
operation are based on the European marker North Sea Brent Crude. Initial
transportation costs are higher due to the limited amounts of production and the
need to truck the produced crude about 35 miles to the nearest railroad sales
terminal. Economies of scale will be realized when production increases and
transportation costs can be reduced with installation of pipelines to export or
sales points.


To facilitate a continuous
low cost drilling program, on December 28th, 2001 the company purchased a Land
Drilling Rig named Rig 232  type National 1320UE, from Seaboard Equipment
Company, Inc., for a total consideration of $5,300,000 to be paid in cash and
the Companys common stock. The Company will use this rig to start its 2002
drilling program. The rig was constructed in the middle 80s by Western
Companies and was refurbished in 1998. The equipment will be operated by Dingo
Drilling International Ltd.


Improvement of
Production Facilities


Production facilities for
test production of up to 5,000 barrels of oil per day, and field production of
up to 30,000 barrels per day have been conceptually designed and construction
will be ordered in the second quarter of 2002.. All tankage, piping and
construction should be provided by local construction firms which specialize in
installing petroleum processing facilities. We estimate that approximately $4.0
million will be required for the installation of permanent production facilities
to process production of 30,000 BOPD.


The gas produced in
association with the oil production will be separated, treated and utilized in
providing fuel for operations with the balance initially being flared during the
testing phase then later re-injected until sales to local markets can be
arranged.


12
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Staffing


At the present time, we
have a start-up staff of about 25 professionals between the Houston and
Kazakhstan field offices. The drilling program will require a team of at least
six engineers to be employed from the Houston office. Two drilling engineers
will supervise the drilling work in Kazakhstan for 30 days and then be relieved
by two other engineers from the Houston office for 30 days. Two expatriate
production engineers will also rotate on a 30 days on and off basis to supervise
the crude oil production. Each of these professionals will require approximately
four Kazakhstan field assistances for fieldwork and language translation, or 12
in country employees. This increase in activity and payroll will require
administrative support, geologist, engineers, accountants, interpreters and
drivers both at the Almaty office as well as at the Aktobe office. With the
addition of the pipeline and terminal construction and expanded development
field operations we expect to increase the number of employees in about 4 years
to approximately 100 employees in Kazakhstan and 15 in the Houston office.


Future
Operations


Our focus is to rapidly
develop our property in Kazakhstan and, once a stable production and sales
stream is achieved, our attention will be directed to the acquisition and
development of additional properties that have:
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  |  | low
entry cost as measured on a dollar per barrel for proved and potential reserves;
| |  | - |  | ------------------------------------------------------------------------------------

| |  |  |  | ready
access to infrastructure allowing for production within a short time period without
significant capital commitments;
| |  | - |  | --------------------------------------------------------------------------------------------------------------------------

| |  |  |  | ready
access to local and export markets without the need for immediate investment in pipeline
construction projects; and
| |  | - |  | -------------------------------------------------------------------------------------------------------------------------

| |  |  |  | projects
where we can control operations and ownership.
| |  | - |  | -------------------------------------------------------

|Operationally, we expect to
finish the year 2002 in the South Alibek Field with a substantial increase in
daily production from test production in the field. Two wells on test production
could have the capability of providing 4,000 to 6,000 barrels per day. The
company plans to continue its delineation drilling program adding a well on the
average every 90 days. A pipeline is planned by the government which will
transport about 300,000 barrels per day from the region to the Aktau refinery
and sales pipeline network. The combination of the Emba Terminal and the
proposed new pipeline provide adequate insurance that there will be a ready
transport route to deliver the fields production in the local and export
markets.


We plan to continue with
our reserve-purchasing program that will include at least one additional field
acquisition in the region, which can all be managed from one core administration
and operational team, in each of the next two years.



ITEM 3. LEGAL
PROCEEDINGS


We are not party to any
pending or threatened legal proceeding nor are any of our properties subject to
a pending or threatened legal proceeding.



ITEM 4. SUBMISSION OF
MATTERS TO A VOTE OF SECURITY HOLDERS


Our Annual
Shareholders Meeting was held on October 11, 2001.


Re-election of
the Board


All of our Directors were
re-elected at the Annual Shareholders Meeting. The following is our Board
of Directors as of December 31, 2001:


13
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|
|

| | Name                     | Age | Position
| | ------------------------ | --- | --------
| | Lorrie T. Olivier (1)    |     | 51      
| |                         
| | Peter L. Holstein (1)    |     | 59      
| |                         
| | Philip J. McCauley (2)   |     | 39      
| |                         
| | Angus G.P.M. Simpson (2) |     | 38      
| |                         
| | Roger W. Brittain (2)    |     | 64      

|(1) |  | These
Directors were elected and have served since the formation of Transmeridian in 2000.
|--- |  | ------------------------------------------------------------------------------------------

|(2) |  | These
Directors were elected by the sitting Board on October 23, 2000.
|--- |  | ----------------------------------------------------------------------

|They have all acted as
directors since October 23, 2000. All directors hold office until the next
annual meeting of stockholder and until their successors have been duly elected
and qualified. There are no agreements with respect to the election of
directors.


Appointment of
Corporate Auditors


At the Annual
Shareholders Meeting held October 11, 2001, the Board unanimously
appointed Grant Thornton LLP as the companys auditors.


Adoption of
Company Incentive Stock Option Plan


At the Annual
Shareholders Meeting held October 11, 2001, the Board unanimously
approved the Company Incentive Stock Option Plan. As of December 31, 2001 no
options had been issued.


Other Matter
Voted On


There were no other matters
voted on at the Annual Shareholders Meeting.


14
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|PART II



ITEM 5. MARKET FOR
REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS


The trading market for our
common stock is on the OTC bulletin board, under our symbol TMXN. The trading
range for April 2002 was from a low of $0.35 to a high of $2.20.


The following description
of our securities and various provisions of our Restated Certificate of
Incorporation and our bylaws are summaries. The Restated Certificate of
Incorporation and bylaws, copies of which have been filed with the Securities
and Exchange Commission as exhibits to our registration statement of which this
prospectus constitutes a part, and provisions of applicable law. Our authorized
capital stock consists of 200,000,000 shares of common stock, $.0006 par value,
of which 56,747,029 shares were issued and outstanding as of December 31, 2001,
and 5,000,000 shares of preferred stock, $.0006 par value, of which 3,000 shares
of Non-Voting Series A Convertible Preferred Stock and 100,000 shares of
Non-Voting Series B Convertible Preferred Stock were issued and outstanding as
of December 31, 2001. As of December 31, 2001, there were approximately 62
holders of record of our common stock.


Common Stock


Each share of common stock
is entitled to share pro rata in dividends and distributions with respect to the
common stock when, as and if declared by the board of directors from legally
available funds. No holder of any shares of common stock has any pre-emptive
right to subscribe for any of our securities. Upon our dissolution, liquidation
or winding up of our corporate affairs, the assets will be divided pro rata on a
share-for-share basis among holders of the shares of common stock after any
required distribution to the holders of preferred stock, if any. All shares of
common stock outstanding are fully paid and non-assessable.


Each shareholder of common
stock is entitled to one vote per share with respect to all matters that are
required by law to be submitted to shareholders. The shareholders are not
entitled to cumulative voting in the election of directors. Accordingly, the
holders of more than 50% of the shares voting in the election of directors will
be able to elect all the directors if they choose to do so. Currently, our
bylaws provide that shareholder action may be taken at a meeting of shareholders
and may be affected by a consent in writing if such consent is signed by the
holders of the majority of outstanding shares, unless Delaware law requires a
greater percentage. Our Restated Certificate of Incorporation provides that they
may be amended by the affirmative vote of a majority of the shares entitled to
vote on such an amendment. These are the only provisions of our bylaws or
Restated Certificate of Incorporation that specifies the vote required by
security holders to take action. Written notice of the annual, and each special
meeting of stockholders, stating the time, place, and purpose or purposes
thereof, shall be given to each stockholder entitled to vote thereat, not less
than 10 nor more than 60 days before the meeting. The holders of a majority of
the shares of the corporations capital stock issued and outstanding
and entitled to vote thereat, present in person or represented by proxy, shall
constitute a quorum at any meeting of stockholders for the transaction of
business, except as otherwise provided by statute or by the Certificate of
Incorporation.


Preferred Stock



The board of directors is
authorized, without further shareholder approval, to issue from time to time up
to an aggregate of 5,000,000 shares of preferred stock. The preferred stock may
be issued in one or more series and the board of directors may fix the rights,
preferences and designations thereof. There are two series of Preferred shares
outstanding, a Series A and B both with a par value of $.0006. Series A of 3,000
shares with a stated value of $100 per share issued to Ratcliff International
Ltd. which are convertible at any time by Transmeridian, after the stock is
publicly tradable, at the rate of 85% of the average bid price for our common
stock, five days prior to conversion. The total series accrues dividends at
12.5% per annum of the stated value of $300,158 until conversion. An aggregate
of 100,000 Series B Preferred Shares with a stated value of $15 per share are
convertible by the holder at any time prior to their 5 year term on the basis of
15 shares for our common stock for each Series B Preferred Share. These Series B
shares accrue no interest and are convertible to Transmeridians common
share at the rate of $1.00 per share. Both the Series A and Series B are non
voting.


15
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|ITEM 6. MANAGEMENTS
DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS


Going Concern
|----------------------------------------------------------------------------------

| | The
Companys financial statements have been presented on the basis that it is a going
concern, which contemplates the realization of assets and satisfaction of liabilities in
the normal course of business. The Company has incurred losses totaling $2,923,438 and
has incurred a significant amount of debt in the start-up phase of the Company.
Additionally, to fully develop the area covered by the License, the Company needs
substantial additional funding. Finally, the Company must also obtain a commercial
production contract with the government of Kazakhstan. The Company is legally entitled to
receive this commercial production contract and has an exclusive right to negotiate this
contract and the government of Kazakhstan is obligated to conduct these negotiations
under the Law of Petroleum. If no terms can be negotiated, the Company has a right to
produce and sell oil, including export oil, under the Law of Petroleum for the term of
its existing contract to the end of 2005.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
view of the matters described in the preceding paragraph, recoverability of a major
portion of the recorded asset amounts shown in the accompanying consolidated balance
sheet is dependent upon continued operations of the Company, which in turn is dependent
upon the Companys ability to meet its financing requirements on a continuing basis,
primarily by the Companys ability to raise additional funds in equity markets, to
maintain present financing, and to succeed in its future operations. The consolidated
financial statements do not include any adjustments relating to the recoverability and
classification of recorded asset amounts or amounts and classification of liabilities
that might be necessary should the Company be unable to continue in existence.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Management
has taken the following steps to revise its operating and financial requirements, which
it believes are sufficient to provide the Company with the ability to continue in
existence.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  |  | The
Company plans to continue to raise additional capital in the equity markets as
significant source of funding the development of the License.
| |  | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  |  | As
described in Note F, in the companies financial statements subsequent to year end, the
Company obtained $20,000,000 in financing from a bank in Kazakhstan. The funds obtained
through this financing will be used for the development of several wells.
| |  | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  |  | The
Company is currently negotiating a new Exploration and Production Operating Contract in
Kazakhstan. The contract will contain all commercial and operating aspects of exploration
and production, including terms for full commercial production. This will replace the
existing contract that only covers the Exploration phase of License 1557.
| |  | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  |  | Development
of South Alibeks proven reserves South Alibek has approximately 11.5 and
5.7 million barrels of net estimated proven undeveloped and developed nonproducing oil
reserves, respectively. Based on its expected production capabilities from the
expenditures that will be made as a result of equity and debt financing, the Company
believes that it could generate adequate cash flow. Additional funding requirements may
also be necessary before the Company is able to rely solely on the production from the
South Alibek Field for the cash flow of the Company.
| |  | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Results from
Operations



Oil and gas revenues for
the twelve months ended December 31, 2001 were $51,289, compared to $-0-
reported as the oil and gas revenues for the twelve months ended December 31,
2000. There has been no production since the second quarter, which is primarily
attributed to the shut down of Well No. 29 due to the work over in progress.
Lease operating expense increased from $-0- for the twelve months ended December
31, 2000 to $489,373, for the twelve months ended December 31, 2001, an increase
of $489,373. The increase is primarily due to the start up of test production
activity. General and administrative costs increased from $187,140 for the
twelve months ended December 31, 2000 to $1,486,161 for the twelve months ended
December 31, 2001. The increase of $1,299,021 primarily consists of an increase
in payroll and office overhead expenses.



16
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|We are an independent
energy company established to acquire and develop identified and underdeveloped
hydrocarbon reserves in the region of the former Soviet Union known as the
Confederation of Independent States (CIS) and more particularly the Caspian Sea
region, based in part on our managements experience and business
relationships in the area. Our management team has more than 50 years of
experience working in Kazakhstan and the CIS region. We target opportunities
with proved and potential oil and natural gas reserves at below international
finding cost rates. We currently have one project under development. The project
(which is referred to at times as the Kazakhstan Property or the South Alibek
Field) is located in the Caspian Region of western Kazakhstan, and is situated
near pipelines, railroads and oil field infrastructure. The proximity to
existing infrastructure for exportation of oil and gas, which reduces associated
costs as well as reduces the time needed to place wells on production, will be
an important factor in our acquisition of any additional properties.


We currently have a ninety
percent (90.0%) equity interest in the Kazakhstan property with Kornerstone
Investment Group Ltd. holding a ten percent (10%) carried interest.
Contractually, therefore, we are responsible for 100% of development costs. We
pay the 10% interest holders portion of expenses until the project
reaches a positive cash flow basis. Then we are reimbursed from production for
the payments made on behalf of the 10% interest holder, Kornerstone Investment
Group Ltd., plus 10% interest.


An Early Start-up Program
(ESP) has been established to evaluate reservoir and productive characteristics
that will be critical in determining the final design of the field development
program. Permits and operational plans were filed with the authorities to begin
production testing of Well No. 29 in January 2001. The various permits and
authorizations required were granted in February 2001. This testing program has
been authorized for 18 months, which will allow us to flow and recover
production from Well No. 29 during this period.


The initial work program on
Well No. 29 included remedial work to repair mechanical deficiencies and
evaluation of new zones identified but not tested in the original drilling and
testing of the well. This ongoing work began in February 2001 with an extended
flow test of the existing well No.29. Test production from well No.29 was 180
barrels of oil per day, off and on, for a total of 30 days of production from
the 13 feet (4 meters) of open interval in the well intervals that was in
condition to flow without any treatment or improvement in well production
mechanics. Test oil produced during the term of testing operations totaled in
excess of 5,000 barrels of oil as of April 30, 2001. The oil recovered in the
test was a high gravity of 39 (Degree) API type crude and with a low sulfur
content of about 0.8%.


A program to repair well
damage and to open additional intervals for production evaluation was completed
in June 2001. During this workover, it was discovered that only 13 feet (4
meters) of oil pay had been previously opened to production from the well. After
repair of well damage, an additional 60 net feet of oil pay intervals were
opened by perforations in the lower KT-I and upper KTII intervals. The well was
being placed on a long-term continued testing program when a mechanical failure
resulted in part of the production string being lost in the hole. Adequate sized
equipment was not available to immediately remove the lost equipment and the
testing program has been suspended pending the availability of equipment and
material to properly remove the damage equipment in the well.


Liquidity and
Capital Resources


Bank Financing



The company has executed a
Share Purchase Agreement with Kazstroiproyekt Ltd (KSP), an affiliate of Astana
Holdings Ltd., which, at KSPs option within two years, provides for
the possible sale and transfer of 50% interest of OJSC Caspi Neft TME, the
company which holds the license to the South Alibek Field. In exchange for this
interest, KSP must make available initially a three year $20 million dollar
financing for the development of the field. Within twenty-four months of this
initial loan, KSP must determine if it wants to continue with the project. If
KSP determines that it will continue KSP will be responsible for the payment of
$15 million of the initial loan plus accrued interest and make available up to
$30 million in additional development financing at commercial rates. If KSP
determines that it will not continue in the project it will surrender all rights
to its 50% interest in Caspi Neft TME and Caspi Neft will be solely responsible
for the existing loan. The partnership is governed by a joint shareholders
agreement with provisions similar to an international joint operating agreement.
The parties agreed to have Transmeridian personnel as the general director of
the company for at least the first 3 years.


An interim bridge loan for
$1.5 million was issued in December 2001, and the Company paid off the $1
million Alpha note on December 1, 2001. A final credit agreement for the
principal loan of $20 million was completed on February 26, 2002, and the bridge
loan was cancelled with the funds from the first draw under the general loan
agreement.



17
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|CASH FLOW INFORMATION


The company raised
$3,224,982 from the sale of stock, $324,261 from accounts payable increases and
used $404,839 of its beginning cash to fund an increase in its investment in oil
and gas properties and equipment of $1,813,713 and to cover our operating cost
of $1,930,266 leaving cash on hand at the end of the year of $107,276.


Development
Financing


See Kazstroiproekt Ltd
(KSP) under bank financing above.


Operation Plan


The following discussion of
our plan of operation should be read in conjunction with the consolidated
financial statements and the attached notes included elsewhere in this filing.
This discussion contains forward-looking statements that involve risks and
uncertainties. Our actual results may differ materially from those anticipated
in these forward-looking statements as a result of various factors.


Commencement
of Initial Drilling Activities



The investment program for
the next three-years, will include the drilling and completion of 10 wells and
the installation of production facilities and pipeline at a cost of
approximately $40,000,000. The development of these wells should prove up
additional reserves according to the independent petroleum engineering report
from the Ryder Scott. The successful delineation of the existing field could
prove up total reserves up to 350-450 million barrels. The first three-well
program will be initiated with the drilling of the first well in the 3rd Quarter
2002. Two additional wells will immediately follow with the second completed in
the 4th quarter and the third well completed in the 1st quarter of 2003. The
total cost of drilling and testing is estimated at $9,600,000 and the
construction of a sales trunk-line to the railroad terminal, construction
planned for 2002 at an estimated cost of about $2,000,000. We estimate that each
well should cost about $3 million dollars to drill and complete and about
$400,000 to test and evaluate. Each well should produce test crude which should
generate about $0.4 million per month in gross revenue under the existing
railroad sales program which would provide about $10-$11 per barrel net-back to
the wellhead to cover operating and testing costs. This program will be
initiated by the funds from the bank financing but the majority of the
development capital will come from the excess internally generated cash flow
from our drilling program and or advance crude sales based on these production
levels. Each commercial well drilled will add to this revenue base. We currently
estimate that 44 completed wells will be required in the first phase of the
field development program.


Most sales from our area of
operation are based on the European marker North Sea Brent crude. Initial
transportation costs are higher due to the limited amounts of production and the
need to truck the produced crude about 35 miles to the nearest railroad sales
terminal. Economies of scale will be realized when production increases and
transportation costs can be reduced with installation of pipelines to export or
sales points.


To facilitate a continuous
low cost drilling program, on December 28th, 2001 the company purchased a Land
Drilling Rig named Rig 232  type National 1320UE, from Seaboard Equipment
Company, Inc., for a total consideration of $5,300,000 to be paid in cash and
the Companys common stock. The Company will use this rig to start its
2002 drilling program. The rig was constructed in the middle 80s by
Western Companies and was refurbished in 1998. The equipment will be operated by
Dingo Drilling International Ltd.


Improvement of
Production Facilities



Production facilities for
test production of up to 5,000 barrels of oil per day, and field production of
up to 30,000 barrels per day have been conceptually designed and construction
will be ordered in the second quarter of 2002. All tankage, piping and
construction should be provided by local construction firms which specialize in
installing petroleum processing facilities. We estimate that approximately $4.0
million will be required for the installation of permanent production facilities
to process production of 30,000 BOPD.


18
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|The gas produced in
association with the oil production will be separated, treated and utilized in
providing fuel for operations with the balance initially being flared during the
testing phase then later re-injected until sales to local markets can be
arranged.


Growth Strategy


Our Growth Strategy is
dependent on the success of the South Alibek field. The company expects to
utilize the cash from these operations to generate the capital to continue with
its business plan of low cost green-field acquisitions in the region. The bank
financing provided by the credit facility with the Turan Alem Bank alleviates
any need to raise funds for the further drilling and development program for the
South Alibek field. Additional equity funding could facilitate the purchase of
new fields to add to our assets in the region of South Alibek.


There is no question that
there is opportunity in Kazakhstan. The Russians discovered several major fields
with proved reserves and left these fields for the Kazakhstan Government to
develop. The Government has turned to independent companies for exploration and
development capital. TMEI expects to continue to participate in this program and
will dedicate excess cash reserves to the acquisitions of fields within our
region of interest.


Commodity
Prices for Oil



Our revenues,
profitability, growth and value are highly dependent upon the price of oil.
Market conditions make it difficult to estimate prices of oil or the impact of
inflation on such prices. Oil prices have been volatile, and it is likely they
will continue to fluctuate in the future. Various factors beyond our control
affect prices for oil, including supplies of oil available worldwide and in
Kazakhstan, the ability of OPEC to agree to maintain oil prices and production
controls, political instability or armed conflict in Kazakhstan or other oil
producing regions, the price of foreign imports, the level of consumer demand,
the price and availability of alternative fuels, the availability of
transportation routes and pipeline capacity, and changes in applicable laws and
regulations.


Exploration Contract and
Conversion to Exploration and Production Contract


Exploration
Contract



Currently we have an Exploration
Contract for South Alibek. As long as we operate under the Exploration Contract
we can produce the wells under a test program and pay a 2% royalty. The
exploration period consists of six (6) successive years from the effective date
of the License dated April 29, 1999.


The License may be extended
twice as mutually agreed by the parties to the License with each extension
period having a term of two years. Therefore the total possible exploration
period utilizing the maximum of extension periods allowed by the contract is a
term of ten (10) years. For each extension requested of the competent government
body, the parties shall determine the part of the Contractual Area for further
exploration work and make the appropriate changes in the applicable working
program. The exploration contract can be converted to terms under a Production
Contract at any time that we wish with the requirement that we file an approved
reserves report based on the current test production of Well No. 29. In
accordance with the Exploration Contract and the provision of the Kazakhstan
Petroleum Code, we will be expected to inform the government within 30 days of
the existence of any commercial reserves at which time we will be expected to
convert our operations to a Production Contract, which will also cover the
entire license area. We believe the present Exploration Contract provides us
with a preferential right to receive such a commercial production contract. We
have sought and received a letter from the Ministry of Natural Resources as to
their preferred treatment of transitioning our existing operating contract to
include commercial production. Section 10.4. of the present Exploration Contract
grants us the exclusive right to a production contract. It states Commercial
Discovery entitles the Contractor with the exclusive right for conclusion of a
Production Contract provided that provisions of the License and the Contract are
met and the letter we received from the Ministry of Energy, Industry and Trade,
clearly states that we have an exclusive right to be granted the right for
hydrocarbon production.. and we have a right to a Production Contract.... When
we establish commercial production we expect that we will convert from an
Exploration Contract to an Exploration Production Contract, as we will still
have an unexpired Exploration term and additional exploration works would be
warranted.


19
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|ITEM 7. FINANCIAL
STATEMENTS


See Item 14(a) for a list
of the Financial Statements and the supplementary financial information included
in this report, following the signature page.


CRITICAL ACCOUNTING
POLICIES


INTRODUCTION. The following
describes the critical accounting policies used by the Company in reporting its
financial condition and results of operations. In some cases, accounting
standards allow more than one alternative accounting method for reporting, such
is the case with accounting for oil and gas activities described below. In those
cases, the Companys reported results of operations would be different
should it employ an alternative accounting method.


SUCCESSFUL EFFORTS METHOD
OF ACCOUNTING FOR OIL AND GAS ACTIVITIES. The Securities and Exchange Commission
(SEC) prescribes in Regulation SX the financial accounting
and reporting standards for companies engaged in oil and gas producing
activities. Two methods are prescribed: the successful efforts method and the
full cost method. Like many other oil and gas companies, the Company has chosen
to follow the successful efforts method. Management believes that this method is
preferable, as the Company has focused on exploration activities wherein there
are risks associated with future success, and as such earnings are best
represented by attachment to the drilling operations of the company.


Costs of successful wells,
development dry holes and leases containing productive reserves are capitalized
and amortized on a unit-of-production basis over the life of the related
reserves. Estimated future abandonment and site restoration costs, net of
anticipated salvage values, are amortized on a unit of production basis over the
life of the related reserves. Other exploration costs, including geological and
geophysical expenses applicable to undeveloped leasehold, 3-D seismic data,
leasehold expiration costs and delay rentals are expensed as incurred.


In accordance with
accounting under successful efforts, the Company reviews proved oil and gas
properties for indications of impairment whenever events or circumstances
indicate that the carrying value of its oil and gas properties may not be
recoverable. When it is determined that an oil and gas propertys
estimated future net cash flows will not be sufficient to recover its carrying
amount, an impairment charge must be recorded to reduce the carrying amount of
the asset to its estimated fair value.


Reserves  Estimates
of our proved oil and gas reserves are prepared by Ryder Scott, an independent
petroleum engineering firm, in accordance with guidelines established by the
SEC. Those guidelines require that reserve estimates be prepared under existing
economic and operating conditions with no provisions for increases in commodity
prices, except by contractual arrangement. Estimation of oil and gas reserve
quantities is inherently difficult and is subject to numerous uncertainties.
Such uncertainties include the projection of future rates of production and the
timing of development expenditures. The accuracy of the estimates depends on the
quality of available geological and geophysical data and requires interpretation
and judgment. Estimates may be revised either upward or downward by results of
future drilling, testing or production. In addition, estimates of volumes
considered to be commercially recoverable fluctuate with changes in commodity
prices and operating costs. Our estimates of reserves are expected to change as
additional information becomes available.


RECENTLY ISSUED ACCOUNTING
PRONOUNCEMENTS. On June 29, 2001, SFAS No. 141, Business
Combinations was approved by the Financial Accounting Standards Board.
SFAS No. 141 requires that the purchase method of accounting be used or all
business combinations initiated after June 30, 2001. The Company was required to
implement SFAS No. 141 on January 1, 2002. Management expects that the adoption
of this statement will have no effect on the Companys consolidated
financial position, cash flows or results of operations.


On June 29, 2001, SFAS No.
142, Goodwill and Other Intangible Assets, was approved by
the Financial Accounting Standards Board (FASB). SFAS No.
142 changes the accounting for goodwill from an amortization method to an
impairment-only approach. Amortization of goodwill, including goodwill recorded
in past business combinations, will cease upon adoption of this statement. The
Company was required to implement SFAS No. 142 on January 1, 2002. Management
has reviewed SFAS No. 142 and determined that this statement will not have a
material effect on its consolidated financial position, cash flows or results of
operation.


20
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|In June 2001 the FASB
issued SFAS No. 143, Accounting for Asset Retirement
Obligations. SFAS No. 143 provides the accounting requirements for
retirement obligations associated with tangible long-lived assets. SFAS No. 143
is effective for fiscal years beginning after June 15, 2002, and early adoption
is permitted. Management has reviewed SFAS No. 143 and determined that this
statement will not have a material effect on its consolidated financial
position, cash flows or results of operation.


In August 2001 the FASB
issued SFAS No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets. The new rules supersede SFAS No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of. The new rules retain many of the fundamental
recognition and measurement provisions, but significantly change the criteria
for classifying an asset as held-for-sale. SFAS No. 144 is effective for fiscal
years beginning after December 15, 2001. Management has reviewed SFAS No. 144
and determined that this statement will not have a material effect on its
consolidated financial position, cash flows or results of operation.



ITEM 8. CHANGES IN AND
DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE


Not Applicable.


PART III



ITEM 9. DIRECTORS AND
EXECUTIVE OFFICERS OF THE REGISTRANT


As of December 31, 2001,
the following table sets forth (i) the names and ages of our directors and
executive officers of Transmeridian, (ii) the principal offices and positions
with Transmeridian held by each person and (iii) the date such person became a
director or executive officer. The executive officers are elected annually by
the board of directors. Executive officers serve terms of one year or until
their death, resignation or removal by the board of directors. The present term
of office of each director will expire at the next annual meeting of
stockholders. Each executive officer will hold office until his successor duly
is elected and qualified, until his resignation or until he is removed in the
manner provided by our bylaws.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Name                     | Age | Position
| | ------------------------ | --- | --------
| | Lorrie T. Olivier (1)    |     | 51      
| |                          |     |         
| | Bruce A. Falkenstein     |     | 44      
| |                          |     |         
| | Jim W. Tucker            |     | 59      
| |                          |     |         
| | Peter L. Holstein (1)    |     | 59      
| |                          |     |         
| | Philip J. McCauley (2)   |     | 39      
| |                          |     |         
| | Angus G.P.M. Simpson (2) |     | 38      
| |                          |     |         
| | Roger W. Brittain (2)    |     | 64      

| |  | (1) |  | These
Directors were elected and have served since the formation of Transmeridian in 2000.
| |  | --- |  | ------------------------------------------------------------------------------------------

| |  | (2) |  | These
Directors were elected by the sitting Board on October 23, 2000.
| |  | --- |  | ----------------------------------------------------------------------

|They have all acted as directors
since October 23, 2000. All directors hold office until the next annual meeting of
stockholder and until their successors have been duly elected and qualified. There are no
agreements with respect to the election of directors.


21
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|The following represents a summary
of the business history of each of the named individuals for the last five years:


Lorrie T. Olivier


Mr. Olivier is President, Chief
Executive Officer and current acting Chairman of the Board. From February 1, 1991 to
March 30, 2000, Mr. Olivier was employed by American International petroleum Corporation
as a Vice President of Operation and President of American International Petroleum
Kazakhstan (AIPK), American Eurasia Petroleum, and American International Petroleum
Holdings. He was the lead manager in developing the companys interest in the
Caspian Sea region with the acquisition of a several large properties, the last three
years focused on Kazakhstan as well as developing experience and business contacts in
Russia and other CIS countries. In 1988 Mr. Olivier established his own international
business consulting firm specializing in South American petroleum ventures, after 15
years working in domestic and international petroleum operations with initially Shell Oil
USA and Pecten, then with Occidental Petroleum Corporation.


Bruce A. Falkenstein


Mr. Falkenstein is Vice President of
Exploration and Geology. He served for 20 years with Amoco, and later with BP from
February 3, 1994 to August 5, 2000, as Chief Geophysicist and a manager of the Kazakhstan
Exploration team. Since 1992 he has been working and managing the identification,
technical evaluation and capture of oil fields and operations of licenses in the CIS,
with particular focus on the Caspian Sea region, 6 years of that time concentrating on
Kazakhstan, developing experience and industry contacts in the region during this time.


Jim W. Tucker


Mr. Tucker is Vice President of
Finance. From 1966 to 1972 he served Texaco Inc., his last position as Vice President of
Texaco Nigeria Ltd. From 1976 to 1988 he served with Texas Oil and Gas Corp., holding
positions as Assistant Controller, Vice President and assistant to the President. From
January 1, 1990 until January 20, 2001 he served as the Vice President of Finance of
Crossroads Environmental Corp. and Chairman of the Board.


Peter L. Holstein


Mr. Holstein is a Director. From
April 1, 1994 to December 1, 1999 he served as a Director and Chairman of the Board for
Tracer Petroleum International Director Atlantic Caspian Resources Plc. (January-
February 1999), Chairman and Director of Odyssey Petroleum Corporation (1997), and
President Arakis Energy International (1996). He has been actively engaged in seeking out
and reviewing oil industry opportunities in the Former Soviet Union since 1995. These
have included those in Russia, the Ukraine, Kyrgestan, Romania, Azerbijan and
participating in a joint venture in Turkmenistan, as well as the companys current
project in Kazakhstan.


Philip J. McCauley


Mr. McCauley is a Director. He is
currently the Chairman and Chief Executive Officer of Audio Navigation Ltd. From November
1, 1983 to December 1, 1999, Mr. McCauley was the chief executive officer of TTL Group
Ltd.


Angus G.M.P Simpson


Mr. Simpson is a Director. He has
been a Director of Glenrand Ltd. since October 1, 1998 and also a Director and Executive
Chairman of Glenrand Simpson Ltd. since October 1, 1999, prior to this Mr. Simpson served
as a Director of Crawley Warren & Co. Ltd.


22
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Roger W. Brittain


Mr. Brittain is Chairman of the
Audit Committee of the Board and a Director. Until his retirement on March 31, 2001 he
was a Director of Investec Henderson Crosthwaite Corporate Finance from January 10, 1998.
Mr. Brittain is also the non-executive Chairman of the Board of Directors of Canargo
Energy Corporation, and a former Director of Snyder Oil Company (January 1, 1986-December
31, 1998), Sen Hong Resources from August 30, 1997 to August 30, 2000 and Glenrand
Simpson from November 1, 1998 to November 1, 2000.


We have not compensated directors
for service on the Board of Directors or any committee thereof. As of the date hereof, no
director has accrued any expenses or compensation. Officers are appointed annually by the
Board of Directors and each executive officer serves at the discretion of the Board of
Directors. We do not have any standing committees at this time.


There are no family relationships
between any of our directors, executive officers and other key personnel.


During the past five years none or
our directors, executive officers, promoters or control persons were:


(1) the subject of any bankruptcy
petition filed by or against any business of which such person was a general partner or
executive officer either at the time of the bankruptcy or within two years prior to that
time;


(2) convicted in a criminal
proceeding or is subject to a pending criminal proceeding (excluding traffic violations
and other minor offenses);


(3) subject to any order, judgment,
or decree, not subsequently reversed, suspended or vacated, of any court of competent
jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise
limiting his involvement in any type of business, securities or banking activities; or


(4) found by a court of competent
jurisdiction (in a civil action), the Commission or the Commodity Futures Trading
Commission to have violated a federal or state securities or commodities law.



ITEM 10. EXECUTIVE
COMPENSATION


There was no executive compensation
program as of December 31, 2001. This is the first year of operation and there are no
historical compensation amounts prior to 2001 to report. The following table sets forth
information concerning the compensation of the named executive officers through December
31, 2000.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                           |  |      |  |         | 
|-------------------------- |  | ---- |  | ------- | 
|
|
|
|P. L. HolsteinChairman     |  | 2001 |  | 105,000 | 
|                          
|L. T. OlivierPresident CEO |  | 2001 |  | 200,000 | 
|                          
|Bruce FalkensteinV.P.      |  | 2001 |  | 110,000 | 
|                          
|Jim W. TuckerV.P.          |  | 2001 |  | 94,444  | 
|                          

|An incentive employee stock
option plan was approved at the Annual Shareholders meeting held on October 11,
2001 and Lorrie Olivier and Peter Holstein each gave 2,500,.000 shares of
Company stock to the Company, which the Company redeemed, for this plan. There
were no outstanding options as of the date of this prospectus.


23
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|There are no arrangements
pursuant to which any director has been or is currently compensated for any
service provided as a director. Directors and/or officers will receive expense
reimbursement for expenses reasonably incurred on our behalf.



ITEM 11. SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT


The following table sets
forth information, to the best knowledge of Transmeridian as of December 31,
2001, with respect to each person known by us to own beneficially more than 5%
of Tran meridians outstanding common stock, each director of Transmeridian
and all directors and officers of Transmeridian as a group.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |                                
| | -------------------------------
|
| |                                
| |                                
| | Lorrie T. Olivier              
| |                                
| | JMJC Investments, Inc. (1)     
| |                                
| | Colamar Ltd. (2)               
| |                                
| | Peter L. Holstein              
| |                                
| | Sovereign Trust (3)            
| |                                
| | Roger W. Brittain              
| |                                
| | Angus Simpson                  
| |                                
| | Philip J. McCauley             
| |                                
| | Zen Trust (4)                  
| |                                
| | Remaining Officers             
| |                                
| | All Officers and Directors as a
| | group (7 persons)              
| |                                

|
|

| |  | (1) |  | Beneficial
owner of JMJC Investments Inc. are the children of Mr. Lorrie T. Olivier, who is the
President of the Company.
| |  | --- |  | -------------------------------------------------------------------------------------------------------------------------

| |  | (2) |  | Beneficial
owner of Colamer Ltd. is Lorrie T. Olivier
| |  | --- |  | -----------------------------------------------------

| |  | (3) |  | Beneficial
owner of the Sovereign Trust is the Holstein family, Mr. Peter Holstein is the settler of
the Trust.
| |  | --- |  | ---------------------------------------------------------------------------------------------------------------

| |  | (4) |  | Beneficial
owner of Zen Trust are the children of Mr. Philip McCauley. Mr. McCauley is the settler
of the Trust
| |  | --- |  | ---------------------------------------------------------------------------------------------------------------

|ITEM 12. CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS


On April 19, 2000 we issued
18,900,000 shares to each Mr. Peter Holstein and Mr. Lorrie Olivier in exchange for their
stock in Transmeridian Exploration, Inc. (BVI) and $.0006 per share.



ITEM 13. EXHIBITS,
FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K


All schedules for which a provision
is made in the applicable accounting regulations of the Securities and Exchange
Commission are not required under the related instructions or are inapplicable and,
therefore, have been omitted.


(b) Current Reports on Form 8-K.


We filed a Current Report on Form
8-K, dated January 11, 2002 to report the purchase of a $5,300,000 drilling rig, the
extension of our acreage in Kazakhstan from 13 sq km to 57 sq km and a bank financing for
our drilling program from $20,000,000 to $50,000,000.


24
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|We filed a Current Report on Form
8-K, dated April 26, 2002 to report the purchase of a 25% interest in Emba Oil Terminal
in exchange for 4,000,000 shares of restricted common stock.



SIGNATURES


Pursuant to the requirements of
Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.


TRANSMERIDIAN
EXPLORATION, INC.,a Delaware corporation
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|By: | /s/ Lorrie T. OlivierLorrie T. Olivier, President, Chief Executive
Officer and Chairman
|--- | ---------------------------------------------------------------------------------------

|by: | /s/ Jim Tucker, Vice President FinanceJim Tucker
|--- | ------------------------------------------------

|by: | /s/ Jeff Tucker, Assistant SecretaryJeff Tucker
|--- | -----------------------------------------------

|Dated: May 15, 2002





25
|---------------------------

|Consolidated Financial
Statements and Report of


Independent Certified
Public Accountants


Transmeridian
Exploration Incorporated and Subsidiaries


December 31, 2001 and
2000
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|INDEX TO FINANCIAL
STATEMENTS
|-----------------------------

|                                                                       | 
|---------------------------------------------------------------------- | 
|Report of Independent Certified Public Accountants                     | 
|                                                                       | 
|Consolidated Balance Sheets at December 31, 2001 and December 31, 2000 | 
|                                                                       | 
|Consolidated Statements of Operations for the periods ended            | 
|December 31, 2001, December 31, 2000 and from inception to date to     | 
|December 31, 2001                                                      | 
|                                                                       | 
|Consolidated Statement of Stockholders Equity                         | 
|                                                                       | 
|Consolidated Statements of Cash Flows for the periods ended            | 
|December 31, 2001, December 31, 2000 and from inception to date        | 
|                                                                       | 
|Notes to Consolidated Financial Statements                             | 

|Report of
Independent Certified Public Accountants


Board of Directors Transmeridian
Exploration Incorporated and Subsidiaries


We
have audited the accompanying consolidated balance sheet of Transmeridian Exploration
Incorporated and Subsidiaries (a development stage company) as of December 31, 2001 and
2000, and the related consolidated statements of operations, stockholders equity and
cash flows for the years then ended and for the period from inception to December 31,
2001. These financial statements are the responsibility of the Companys management.
Our responsibility is to express an opinion on these financial statements based on our
audits.


We
conducted our audits in accordance with auditing standards generally accepted in the
United States of America. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.


In our
opinion, the financial statements referred to above present fairly, in all material
respects, the consolidated financial position of Transmeridian Exploration Incorporated
and Subsidiaries at December 31, 2001 and 2000 and the consolidated results of their
operations and cash flows for the years then ended and for the period from inception to
December 31, 2001, in conformity with accounting principles generally accepted in the
United States of America.



F-1
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|The
accompanying consolidated financial statements have been prepared assuming that the
Company will continue as a going concern. As shown in the financial statements, the
Company incurred a net loss of $2,112,890 and $810,548 during the years ended December
31, 2001 and 2000, and, as of that date, the Companys current liabilities exceeded
its current assets by $2,098,281 and $1,052,234. These factors, among others, including
the Companys ability to develop the proven reserves, as discussed in Note B to the
financial statements, raise substantial doubt about the Companys ability to
continue as a going concern. Managements plans in regard to these matters are also
described in Note B. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.


/s/ Grant Thornton LLP


Houston, TexasMay 7, 2002



F-2
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Transmeridian
Exploration Incorporated and Subsidiaries(A Development Stage Company)



CONSOLIDATED BALANCE
SHEETSDecember 31,
|-------------------------------------------------------------------------------------------------------------------------------

|ASSETS                                                       | 2001 | 2000          
|------------------------------------------------------------ | ---- | --------------
|Cash                                                         |      | $      107,276
|Receivables                                                  |      | 270,112       
|Prepaid expenses                                             |      |              
|                                                             |      |               
|Current assets                                               |      | 377,388       
|Office equipment, net of accumulated                         |     
|depreciation of $10,431 and $950                             |      | 40,294        
|Oil and gas properties (successful efforts method of         |     
|accounting for oil and gas properties)                       |      | 7,765,565     
|Drilling Rig                                                 |      | 5,300,000     
|Debt financing costs                                         |      | 400,000       
|                                                             |      |               
|TOTAL ASSETS                                                 |      | $ 13,883,247  
|                                                             |      |               
|                                                             |     
|LIABILITIES AND STOCKHOLDERS DEFICIT                        |     
|Current maturities of long-term debt                         |      | $   1,431,204 
|Unpaid amounts to a third party                              |      |              
|Accounts payable and accrued liabilities                     |      | 1,044,465     
|                                                             |      |               
|Total current liabilities                                    |      | 2,475,669     
|Long-term debt, net of current maturities                    |      | 3,368,796     
|Redeemable common stock $.0006 par, 1,000,000 and -0- shares |     
|issued and outstanding                                       |      | 2,000,000     
|STOCKHOLDERS EQUITY                                         |     
|Preferred stock $.0006 par, authorized 5,000,000 shares;     |     
|103,000 and 3,000 shares issued and outstanding              |      | 62            
|Common stock $.0006 par; authorized 200,000,000 shares;      |     
|55,747,029 and  57,797,000 shares issued and outstanding     |      | 33,448        
|Additional paid-in capital                                   |      | 9,051,981     
|Deficit accumulated during development stage                 |      | (3,046,709    
|                                                             |      |               
|Total stockholders equity                                   |      | 6,038,782     
|                                                             |      |               
|TOTAL LIABILITIES AND STOCKHOLDERS EQUITY                   |      | $ 13,883,247  
|                                                             |      |               

|F-3
|---

|Transmeridian
Exploration Incorporated and Subsidiaries(A
Development Stage Company)



CONSOLIDATED
STATEMENTS OF OPERATIONS
|-----------------------------------------------------------------------------------------------------------------------------

|                                          | Year ended December 31, | Cumulativetotal frominception toDecember 31,
|----------------------------------------- | ----------------------- | --------------------------------------------
|
|Oil sales                                 |                         | $        51,289                             
|Cost and expenses                         |                        
|Operating expenses                        |                         | 489,373                                     
|General and administrative expenses       |                         | 1,486,161                                   
|                                          |                         |                                             
|Total operating expenses                  |                         | 1,975,534                                   
|                                          |                         |                                             
|Operating loss                            |                         | (1,924,245                                  
|Other income (expense)                    |                        
|Gain on sale of working interest          |                         |                                            
|Start-up costs                            |                         |                                            
|Lease financing cost and interest expense |                         | (188,645                                    
|                                          |                         |                                             
|Total other income (expense)              |                         | (188,645                                    
|                                          |                         |                                             
|NET (LOSS) INCOME                         |                         | (2,112,890                                  
|Preferred dividends                       |                         | 123,271                                     
|                                          |                         |                                             
|NET (LOSS) INCOME AVAILABLE TO            |                        
|COMMON SHAREHOLDERS                       |                         | $(2,236,161                                 
|                                          |                         |                                             
|Basic loss per share                      |                         | $         (0.04                             
|                                          |                         |                                             
|Weighted average shares outstanding       |                         | 59,621,255                                  
|                                          |                         |                                             

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


F-4
|----------------------------------------------------------------------

|Transmeridian
Exploration Incorporated and Subsidiaries(A Development Stage Company)



CONSOLIDATED STATEMENT
OF STOCKHOLDERS EQUITYFor the years ended December 31, 2000 and 2001
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                 | Preferredshares | Preferredstock | Commonshares | Commonstock | Additionalpaid-incapital | Retaineddeficit | Treasurystock | Total   
|------------------------------------------------ | --------------- | -------------- | ------------ | ----------- | ------------------------ | --------------- | ------------- | --------
|Balance at January 1, 2000                       |                 |               |              | $          |                          |                |               | $      
|                                                 |                 |                |              |             |                          |                 |               |         
|Issuance of founders shares                      |                 |               |              |            |                          | 41,300,000      |               | 24,780  
|                                                 |                 |                |              |             |                          |                 |               |         
|Issuance of stock to third parties for services  |                 |               |              |            |                          | 5,152,000       |               | 3,091   
|                                                 |                 |                |              |             |                          |                 |               |         
|Conversion of debt to common stock               |                 |               |              |            |                          | 800,000         |               | 480     
|                                                 |                 |                |              |             |                          |                 |               |         
|Conversion of debt to preferred stock            |                 | 3,000          |              | 2           |                          |                |               |        
|                                                 |                 |                |              |             |                          |                 |               |         
|Stock issued in private placements               |                 |               |              |            |                          | 10,545,000      |               | 6,327   
|                                                 |                 |                |              |             |                          |                 |               |         
|Expenses of private placements                   |                 |               |              |            |                          |                |               |        
|                                                 |                 |                |              |             |                          |                 |               |         
|Net loss                                         |                 |               |              |            |                          |                |               |        
|                                                 |                 |                |              |             |                          |                 |               |         
|                                                 |                 |                |              |             |                          |                 |               |         
|Balance at December 31, 2000                     |                 | 3,000          |              | 2           |                          | 57,797,000      |               | 34,678  
|                                                 |                 |                |              |             |                          |                 |               |         
|Stock issued in private placements               |                 |               |              |            |                          | 1,720,000       |               | 1,032   
|                                                 |                 |                |              |             |                          |                 |               |         
|Preferred stock issued for working interest      |                 | 100,000        |              | 60          |                          |                |               |        
|                                                 |                 |                |              |             |                          |                 |               |         
|Costs of private placements                      |                 |               |              |            |                          |                |               |        
|                                                 |                 |                |              |             |                          |                 |               |         
|Issuance of stock to third parties for services  |                 |               |              |            |                          | 126,429         |               | 76      
|                                                 |                 |                |              |             |                          |                 |               |         
|Issuance of common stock                         |                 |               |              |            |                          | 1,103,600       |               | 662     
|                                                 |                 |                |              |             |                          |                 |               |         
|Stock offering costs                             |                 |               |              |            |                          |                |               |        
|                                                 |                 |                |              |             |                          |                 |               |         
|Purchase of treasury stock                       |                 |               |              |            |                          |                |               |        
|                                                 |                 |                |              |             |                          |                 |               |         
|Sale of treasury stock                           |                 |               |              |            |                          |                |               |        
|                                                 |                 |                |              |             |                          |                 |               |         
|Beneficial conversion preferred stock dividend   |                 |               |              |            |                          |                |               |        
|                                                 |                 |                |              |             |                          |                 |               |         
|Dividends accrued on convertible preferred stock |                 |               |              |            |                          |                |               |        
|                                                 |                 |                |              |             |                          |                 |               |         
|Retirement of common stock                       |                 |               |              |            |                          | (5,000,000      | )             | (3,000  
|                                                 |                 |                |              |             |                          |                 |               |         
|Net loss                                         |                 |               |              |            |                          |                |               |        
|                                                 |                 |                |              |             |                          |                 |               |         
|                                                 |                 |                |              |             |                          |                 |               |         
|Balance at December 31, 2001                     |                 | 103,000        |              | $62         |                          | 55,747,029      |               | $ 33,448
|                                                 |                 |                |              |             |                          |                 |               |         

|The accompanying notes are an
integral part of this statement.


F-5
|--------------------------------------------------------------------

|Transmeridian
Exploration Incorporated and Subsidiaries(A Development Stage Company)



CONSOLIDATED STATEMENTS
OF CASH FLOWSFor the year ended December 31,
|------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                      | Year ended December 31, | Cumulativetotal frominception toDecember 31,
|----------------------------------------------------- | ----------------------- | --------------------------------------------
|
|Cash flows from operating activities                  |                         |                                             
|Net loss                                              |                         | $(2,112,890                                 
|Adjustments to reconcile net loss                     |                        
|to net cash used in operating activities              |                        
|Gain on sale of working interest                      |                         |                                            
|Stock issued for services                             |                         | 153,500                                     
|Depreciation and amortization                         |                         | 9,481                                       
|Increase in receivables                               |                         | (270,112                                    
|Increase in prepaid expenses                          |                         |                                            
|Increase in accounts payable and accrued liabilities  |                         | 289,755                                     
|                                                      |                         |                                             
|Net cash used in operating activities                 |                         | (1,930,266                                  
|Cash flows from investing activities                  |                        
|Proceeds from sale of working interest                |                         |                                            
|Purchase of office property and equipment             |                         | (43,159                                     
|Purchase of oil and gas properties                    |                         | (1,770,554                                  
|                                                      |                         |                                             
|Net cash used in investing activities                 |                         | (1,813,713                                  
|Cash flows from financing activities                  |                        
|Proceeds from long-term debt and notes payable        |                         | 1,710,103                                   
|Payments on notes payable                             |                         | (210,103                                    
|Purchase of treasury stock                            |                         | (1,320                                      
|Proceeds from sale of treasury stock                  |                         | 1,541,320                                   
|Retirement of common stock                            |                         | (3,000                                      
|Proceeds from sale of stock, net of offering expenses |                         | 1,687,982                                   
|Payments of amounts due to third parties              |                         | (1,385,842                                  
|                                                      |                         |                                             
|Net cash provided by financing activities             |                         | 3,339,140                                   
|                                                      |                         |                                             
|(Decrease) increase in cash and cash equivalents      |                         | (404,839                                    
|Cash and cash equivalents at beginning of period      |                         | 512,115                                     
|                                                      |                         |                                             
|Cash and cash equivalents at end of period            |                         | $    107,276                                
|                                                      |                         |                                             

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


F-6
|----------------------------------------------------------------------

|Transmeridian
Exploration Incorporated and Subsidiaries



NOTES TO CONSOLIDATED
FINANCIAL STATEMENTSDecember 31, 2001 and 2000


NOTE A 
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Transmeridian
Exploration Incorporated (the Company) acquired 100% of the shares of Open Joint Stock
Company Caspi Neft TME, which has as its primary asset the license and related contract
for the exploration and development of an oil and gas lease known as Yuzhny (South)
Alibek Field (the License). During 2000, Open Joint Stock Company Caspi Neft TME was
formed solely the for purpose of the acquisition of the License. This transaction is
hereafter referred to as the Share Purchase Agreement. The Company plans to
begin development of the property shortly after the completion of future
private-placement or public offerings.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Transmeridian
Exploration Incorporated was incorporated in Delaware in April 2000. Previously, all
activity was conducted by Transmeridian Exploration Inc. (British Virgin Islands). There
was no significant activity prior to January 1, 2000.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company has been in the development stage since its formation. It is primarily engaged in
the exploration, development and production of oil and gas properties.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 1. Principles of Consolidation
| | ------------------------------

| | The
consolidated financial statements include the accounts of Transmeridian Exploration
Incorporated and its subsidiaries, Transmeridian Exploration Inc. (British Virgin
Islands), Transmeridian (Kazakhstan) Incorporated (British Virgin Islands), and Open
Joint Stock Company Caspi Neft TME (Caspi Neft TME) (Kazakhstan), all
wholly-owned. In consolidation, all significant intercompany transactions have been
eliminated.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 2. Use of Estimates
| | -------------------

| | In
preparing the financial statements in conformity with accounting principles generally
accepted in the United States of America, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the disclosure
of contingent assets and liabilities at the date of the financial statements and revenues
and expenses during the reporting period. Actual results could differ from those
estimates.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 3. Cash and Cash Equivalents
| | ----------------------------

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

|F-7
|---

|Transmeridian
Exploration Incorporated and Subsidiaries


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  CONTINUEDDecember 31, 2001 and 2000


NOTE A 
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  Continued
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 4. Allowance for Doubtful Accounts
| | ----------------------------------

| | The
Company considers all receivables to be fully collectible; accordingly, no allowance for
doubtful accounts is required. If amounts become uncollectible, they will be charged to
operations when that determination is made.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 5. Property and Equipment
| | -------------------------

| | The
Company follows the successful efforts method of accounting for its costs of
acquisition, exploration and development of oil and gas properties. Intangible drilling
and development costs related to development wells and successful exploratory wells are
capitalized, whereas the costs of exploratory wells which do not find proved reserves are
expensed. All geological and geophysical costs not reimbursed are expensed as incurred.
Costs of acquiring unproved leases are evaluated for impairment until such time as the
leases are proved or abandoned. In addition, unamortized costs at a field level are
reduced to fair value if the sum of expected undiscounted future cash flows are less than
net book value.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Depreciation
and amortization of producing properties is computed using the unit-of-production method
based upon estimated proved recoverable reserves. Depreciation of office equipment is
calculated using the straight-line method based upon estimated useful lives ranging from
three to five years. Maintenance and repairs are charged to expense as incurred. Renewals
and betterments are capitalized. When assets are sold, retired or otherwise disposed of,
the applicable costs and accumulated depreciation and amortization are removed from the
accounts, and the resulting gain or loss is recognized.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 6. Income Taxes
| | ---------------

| | The
Company accounts for income taxes using the asset and liability method. The asset and
liability method requires the recognition of deferred tax assets and liabilities for the
expected future consequences of temporary differences between tax bases and financial
reporting bases of other assets and liabilities. The Company deducts intangible
development costs as incurred and deducts statutory depletion when it exceeds cost
depletion for federal income tax purposes.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 7. Start-up Costs
| | -----------------

| | Start-up
costs, including organizational expenses, are expensed as incurred.
| | ----------------------------------------------------------------------------

| | 8. Debt Financing Costs
| | -----------------------

| | Financing
costs are amortized over the life of the related obligation.
| | ----------------------------------------------------------------------

|F-8
|---

|Transmeridian
Exploration Incorporated and Subsidiaries


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  CONTINUEDDecember 31, 2001 and 2000
|------------------------------------------------------------------------------------------------------------------------------------------

| | 9. Loss Per Share
| | -----------------

| | Basic
loss per common share is calculated by dividing net loss after deducting preferred stock
dividends and discount on Preferred Stock that is accreted directly to the accumulated
deficit, by the aggregate weighted average shares outstanding during the period. Diluted
loss per common share considers the dilutive effect of the average number of common stock
equivalents that are outstanding during the period. Included in weighted average shares
outstanding are the 1,000,000 shares of redeemable common stock.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Diluted
loss per share is not presented because the exercise of warrants and the effect of the
conversion of the Companys Preferred Stock into shares of the Companys common
stock are antidilutive.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10. Risks and Uncertainties
| | ---------------------------

| | The
ability of the Company to realize the carrying value of its assets is dependent on being
able to develop, transport and market hydrocarbons. Currently, exports from the Republic
of Kazakhstan are primarily dependent on transport routes, either via rail, barge or
pipeline, through Russian territory. Pipeline capacity has significantly improved in 2001
with the opening of the CPC Pipeline, raising current capacity of 250,000 bopd to 800,000
bopd at year end. Domestic markets in the Republic of Kazakhstan might not permit world
market prices to be obtained. Management believes, however, that over the life of the
project transportation options will be improved by further increases in the capacity of
the CPC and other existing pipelines and the building of new pipelines within the region
and prices will remain achievable for hydrocarbons extracted to allow full recovery of
the carrying value of its assets.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 11. Revenue Recognition
| | -----------------------

| | Revenues
from the sale of oil and gas are recorded using the sales method. As of December 31,
2001, the Company has had only minimal test production.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------

| | 12. Foreign Exchange Transactions
| | ---------------------------------

| | The
Companys functional currency is the U.S. dollar, thus the financial statements of
the Companys foreign subsidiaries are measured using the U.S. dollar. Accordingly,
transaction gains and losses for foreign subsidiaries are recognized in consolidated
operations in the year of occurrence.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|F-9
|---

|Transmeridian
Exploration Incorporated and Subsidiaries


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  CONTINUEDDecember 31, 2001 and 2000


NOTE
B  GOING CONCERN
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Companys financial statements have been presented on the basis that it is a going
concern, which contemplates the realization of assets and satisfaction of liabilities in
the normal course of business. The Company has incurred losses totaling $2,923,438 and
has incurred a significant amount of debt in the start-up phase of the Company.
Additionally, to fully develop the area covered by the License, the Company needs
substantial additional funding. Finally, the Company must also obtain a commercial
production contract with the government of Kazakhstan. The Company is legally entitled to
receive this commercial production contract and has an exclusive right to negotiate this
contract and the government of Kazakhstan is obligated to conduct these negotiations
under the Law of Petroleum. If no terms can be negotiated, the Company has a right to
produce and sell oil, including export oil, under the Law of Petroleum for the term of
its existing contract to the end of 2005.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
view of the matters described in the preceding paragraph, recoverability of a major
portion of the recorded asset amounts shown in the accompanying consolidated balance
sheet is dependent upon continued operations of the Company, which in turn is dependent
upon the Companys ability to meet its financing requirements on a continuing basis,
primarily by the Companys ability to raise additional funds in equity markets, to
maintain present financing, and to succeed in its future operations. The consolidated
financial statements do not include any adjustments relating to the recoverability and
classification of recorded asset amounts or amounts and classification of liabilities
that might be necessary should the Company be unable to continue in existence.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Management
has taken the following steps to revise its operating and financial requirements, which
it believes are sufficient to provide the Company with the ability to continue in
existence.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company plans to continue to raise additional capital in the equity markets as
significant source of funding the development of the License.
| | ------------------------------------------------------------------------------------------------------------------------------------------------

| | As
described in Note F, subsequent to year end, the Company obtained $20,000,000 in
financing from a bank in Kazakhstan. The funds obtained through this financing will be
used to develop several wells.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company is currently negotiating a new Exploration and Production Operating Contract in
Kazakhstan. The contract will contain all commercial and operating aspects of exploration
and production, including terms for full commercial production. This will replace the
existing contract that only covers the Exploration phase of License 1557.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Development
of South Alibeks proven reserves - South Alibek has approximately 11.5 and 5.7
million barrels of net estimated proven undeveloped and developed nonproducing oil
reserves, respectively. Based on its expected production capabilities from the
expenditures that will be made as a result of equity and debt financing, the Company
believes that it could generate adequate cash flow. Additional funding requirements may
also be necessary before the Company is able to rely solely on the production from the
South Alibek Field for the cash flow of the Company.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|F-10
|----

|Transmeridian
Exploration Incorporated and Subsidiaries


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  CONTINUEDDecember 31, 2001 and 2000


NOTE C 
OIL AND GAS PROPERTIES
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Companys oil and gas properties primarily include the value of the License and
other capitalizable costs under the successful efforts method of accounting.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Oil
and gas properties are made up of the following at December 31:
| | -------------------------------------------------------------------

| | 2001                         | 2000
| | ---------------------------- | ----
| | Leasehold costs              |     
| | Intangible development costs |     
| | Production facilities        |     
| | Wellhead equipment           |     
| |                              |     
| |                              |     
| |                              |     

| | During
2001, the Company advanced a joint venture approximately $254,000 for the completion of a
terminal station. As part of the advance, the Company acquired an option to acquire up to
50% of the joint venture. In 2002, the Company chose not to exercise this option, and
expects to receive repayment of the advance in 2002. On April 26, 2002, Transmeridian
purchased a 25% equity interest in the Emba Terminal for 4,000,000 shares of common stock
of the company, and has up to 180 calendar days to purchase another 25% equity interest
in the facility at a price to be further negotiated.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|NOTE D 
DRILLING RIG
|---------------------

| | In
December 2001, the Company purchased a drilling rig for $5,300,000. In exchange for the
rig, the Company signed a $3,300,000 note payable due in 24 months at 10% interest, and
issued 1,000,000 shares of common stock to the seller. The Company agreed to redeem
500,000 shares at $2.00 per share after a nine month holding period and to redeem the
other 500,000 shares at $2.00 per share after a holding period of twelve months. The
sellers right to redeem each group of shares expires 10 days after the end of each
holding period.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|NOTE E  UNPAID
AMOUNTS TO THIRD PARTIES
|----------------------------------------

| | The
Company owed a third party the final installment of the Share Purchase Agreement in the
amount of $1,385,842, which was paid in 2001.
| | -----------------------------------------------------------------------------------------------------------------------------------------

|F-11
|----

|Transmeridian
Exploration Incorporated and Subsidiaries


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  CONTINUEDDecember 31, 2001 and 2000


NOTE F 
LONG-TERM DEBT
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Long-term
debt consists of the following amounts at December 31, 2001:
| | ----------------------------------------------------------------------

| |                                                                          
| | -------------------------------------------------------------------------
| | Note payable to a Company due in 24 monthly installments of              
| | $152,278 of principal and interest at 10%, secured by a drilling rig     
| |                                                                          
| | Note payable to a Kazakhstan bank with all principal and interest due    
| | August 2003, with an interest rate of 15%; secured by all of the stock of
| | Caspi Neft TME                                                           
| |                                                                          
| |                                                                          
| |                                                                          
| | Less: current portion                                                    
| |                                                                          
| |                                                                          
| |                                                                          

| | Maturities
of long-term debt as of December 31, 2001, are as follows:
| | ---------------------------------------------------------------------

| |     
| | ----
| | 2002
| | 2003
| | 2004
| |     
| |     
| |     

| | The
loan agreement signed with the bank in 2001, served as bridge financing for a $20,000,000
loan agreement signed in February 2002. Under the terms of this agreement, the Company is
required to repay all accrued interest and principal on the first $2,233,000 of
borrowings in August 2003. The remaining accrued interest and principal is due on
February 2005. The loan is subject to an annual credit facility fee equal to .5% of the
unused portion of the credit facility.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | A
Kazakhstan corporation (Corporation), which is controlled by major shareholders of the
bank, has an option to purchase 50% of the stock of Caspi Neft TME. The exercise of the
option would require the Corporation to repay $15,000,000 of this loan by February 2004,
and to provide an additional $30,000,000 in financing at market rates by March 2004. In
consideration for this option, the Corporation paid the Company approximately $65,000 in
2001, which is refundable should they not exercise the option. The bank holds all of the
stock of Caspi Neft TME as collateral on the loan.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|F-12
|----

|Transmeridian
Exploration Incorporated and Subsidiaries


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  CONTINUEDDecember 31, 2001 and 2000
|------------------------------------------------------------------------------------------------------------------------------------------

| | In
2001, the Company entered into an agreement to pay a consultant $400,000 to locate
financing for the development of the License area. This fee, which is recorded in accrued
liabilities and will be paid in 2002, will be amortized over the life of the related
long-term debt as a yield adjustment.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
2000, the Company borrowed $300,158 from a third party, which accrued interest at 12.5%.
The Company entered into a credit conversion agreement on August 23, 2000, whereby the
$300,158 in notes payable would be converted to convertible or redeemable preferred
stock. During December 2000, the debt was converted. The preferred stock accrues
dividends at 12.5% until converted or redeemed. Accrued dividends at December 31, 2000
were not significant. At December 31, 2001, the Company has accrued $70,302 in dividends.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | These
shares are either convertible to common stock or redeemable at the Companys option.
The conversion rate is 85% of the average bid price for the five previous consecutive
trading days prior to the conversion date.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
conversion feature of the preferred stock represents a beneficial conversion feature as
addressed in EITF 98-5, Accounting for Convertible Securities with Beneficial Conversion
Features or Contingently Adjustable Conversion Ratios. Under EITF 98-5, a portion of the
proceeds received from the preferred stock is allocable to the conversion feature
contained herein. The value assigned to the conversion feature is determined as the
difference between the market price of the Companys common stock and the conversion
price multiplied times the number of shares to be received upon conversion. The discount
assigned to the conversion feature is recorded as additional paid-in capital and to
accumulated deficit when the stock becomes publicly tradable. In the fourth quarter of
2001, the Company recorded a discount of $52,969.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | As
additional consideration for entering into this credit conversion agreement, the Company
issued 1,200,000 shares of common stock to the third party.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company incurred debt totaling $200,000 from a related party. The Company entered into an
agreement with the related party that converted the debt into 800,000 shares of common
stock in December 2000.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Management
believes the fair value of debt at December 31, 2001 and 2000 is not significantly
different than its book value.
| | ----------------------------------------------------------------------------------------------------------------------------

|F-13
|----

|Transmeridian
Exploration Incorporated and Subsidiaries


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  CONTINUEDDecember 31, 2001 and 2000


NOTE G 
STOCK FOR SERVICES RENDERED
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company entered into several agreements to exchange common stock for services. The stock
has been valued based on the fair value of the stock at the time of the agreements.
During the year ended December 31, 2001 and 2000, the Company issued a total of 126,429
and 5,152,000 shares under these type of agreements. This stock was issued to unrelated
third party vendors for software, engineering and geological services.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|NOTE H  CONVEYANCE
OF WORKING INTERESTS
|----------------------------------------

| | As
consideration for work done in conjunction with the Share Purchase Agreement, the Company
assigned a 10% carried working interest to a third party. In addition, the Company issued
1,000,000 shares of common stock to this party for the negotiation of an extension of the
payment terms with the previous owners of the License. The value of these additional
shares has been recorded as lease financing cost in the statement of operations.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | During
the year ended December 31, 2000, the Company sold a 4.5% working interest share of the
License to another third party.
| | ------------------------------------------------------------------------------------------------------------------------------

| | In
April 2001, the Company re-acquired the 4.5% working interest from the third party. The
Company issued 100,000 shares of convertible preferred stock, with no mandatory dividends
(convertible to 1,500,000 shares of the Companys common stock), 1,000,000 warrants
for the purchase of common stock at $1.00 per share and forgave approximately $50,000 of
joint interest billings as consideration for the working interest.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|NOTE I 
INCOME TAXES
|---------------------

| | At
December 31, 2001 and 2000 the components of the Companys deferred tax assets and
liabilities are as follows:
| | -----------------------------------------------------------------------------------------------------------------

| | 2001                             | 2000
| | -------------------------------- | ----
| | Deferred tax assets:             |     
| | Net operating loss carryforwards |     
| | Valuation allowance              |     
| |                                  |     
| | Deferred tax assets              |     
| |                                  |     

| | As of December 31, 2001, the Company has estimated loss carryforwards of approximately
$2,905,000 of which $807,000 and $2,098,000 expire in 2020 and 2021.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------

| | The Company has not recorded any deferred tax assets or income tax benefits from the net operating
losses for the years ended December 31, 2001 and 2000. The Company has placed a 100%
valuation allowance against the deferred tax asset because future realization of the net
operating losses has not been determined to be more likely than not.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|F-14
|----

|Transmeridian
Exploration Incorporated and Subsidiaries


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  CONTINUEDDecember 31, 2001 and 2000


NOTE J 
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Cash
paid for interest in 2001 and 2000 was $174,534 and $791,069. No taxes were paid in 2001
or 2000.
| | ------------------------------------------------------------------------------------------------------

| | During
the year ended December 31, 2001, the Company acquired a drilling rig for a $3,300,000
note payable and $2,000,000 of redeemable common stock.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------

| | During
the year ended December 31, 2001, the Company re-acquired a 4.5% interest in the License
for $1,500,000 of convertible preferred stock.
| | ----------------------------------------------------------------------------------------------------------------------------------------------

| | At
December 31, 2001, the Company has accrued a $400,000 payment to a consultant for
assistance in obtaining financing. This fee is treated as a financing cost. Additionally,
the Company has accrued $70,302 in dividends payable on its convertible preferred stock.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | During
the year ended December 31, 2000, the Company converted $200,000 of debt to 800,000
shares of common stock.
| | ------------------------------------------------------------------------------------------------------------------

| | During
the year ended December 31, 2000, the Company converted $300,158 of debt to 3,000 shares
of preferred stock.
| | -------------------------------------------------------------------------------------------------------------------

| | During
the year ended December 31, 2000, the Company acquired oil and gas properties from a
third party in exchange for amounts owed totaling $3,885,842.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------

## NOTE K- NEW ACCOUNTING
PRONOUNCEMENTS

| | On
June 29, 2001, SFAS No. 141, Business Combinations was approved by the Financial
Accounting Standards Board. (FASB) SFAS No. 141 requires that the purchase
method of accounting be used or all business combinations initiated after June 30, 2001.
The Company was required to implement SFAS No. 141 on January 1, 2002. Management has
reviewed SFAS No. 141 and determined that the adoption of this statement will have no
effect on the Companys consolidated financial position, cash flows or results of
operations.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | On
June 29, 2001, SFAS No. 142, Goodwill and Other Intangible Assets, was approved by the
FASB. SFAS No. 142 changes the accounting for goodwill from an amortization method to an
impairment-only approach. Amortization of goodwill, including goodwill recorded in past
business combinations, will cease upon adoption of this statement. The Company was
required to implement SFAS No. 142 on January 1, 2002. Management has reviewed SFAS No.
142 and determined that this statement will not have a material effect on its
consolidated financial position, cash flows or results of operation.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|F-15
|----

|Transmeridian
Exploration Incorporated and Subsidiaries


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  CONTINUEDDecember 31, 2001 and 2000
|------------------------------------------------------------------------------------------------------------------------------------------

| | In
June 2001 the FASB issued SFAS No. 143, Accounting for Asset Retirement Obligations. SFAS
No. 143 provides the accounting requirements for retirement obligations associated with
tangible long-lived assets. SFAS No. 143 is effective for fiscal years beginning after
June 15, 2002, and early adoption is permitted. Management has reviewed SFAS No. 143 and
determined that this statement will not have a material effect on its consolidated
financial position, cash flows or results of operation.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
August 2001 the FASB issued SFAS No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets. The new rules supersede SFAS No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of. The new rules retain many
of the fundamental recognition and measurement provisions, but significantly change the
criteria for classifying an asset as held-for-sale. SFAS No. 144 is effective for fiscal
years beginning after December 15, 2001. Management has reviewed SFAS No. 144 and
determined that this statement will not have a material effect on its consolidated
financial position, cash flows or results of operation.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|F-16
|----

|TRANSMERIDIAN
EXPLORATION, INC.
Estimated


Future Reserves and
Income


Attributable to Certain


Leasehold Interests
(SEC Case)
As of
December 31, 2001
|---------------------------------------------------------------------------------------------------------------------------------------------------------

|
|

| | February
1, 2002
| | ----------------

|Transmeridian Exploration, Inc.
11811 North Freeway Houston, Texas 77060


Gentlemen:


The
estimated reserves and future income amounts presented in this report are related to
hydrocarbon prices. Hydrocarbon prices in effect at December 31, 2001 were used in the
preparation of this report as required by SEC rules; however, actual future prices may
vary significantly from December 31, 2001 prices. Therefore, volumes of reserves actually
recovered and amounts of income actually received may differ significantly from the
estimated quantities presented in this report. The results of this study are summarized
below.



SEC PARAMETERSEstimated
Net Reserves and Income DataCertain Leasehold Interests ofTransmeridian Exploration, Inc.As of December 31, 2001
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Proved                  
| | ------------------------
|
| | Net Remaining Reserves  
| | Oil/Condensate - Barrels
| | Gas - MMCF              
| |                         
| | Income Data             
| | Future Gross Revenue    
| | Deductions              
| |                         
| | Future Net Income (FNI) 
| |                         
| | Discounted FNI @ 10%    

|Liquid hydrocarbons are expressed in
standard 42 gallon barrels. All gas volumes are sales gas expressed in millions of cubic
feet (MMCF) at the official temperature and pressure base of the area in which the gas
reserves are located.


2
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|The
future gross revenue is after the deduction of the normal direct costs of operating the
wells, recompletion costs, and development costs. The future net income is before the
deduction of Kazakhstan income tax and excess profit tax. No gas pipeline is in place nor
is there a contract in place for sale of gas, therefore no income is included for the gas
that will be produced. Liquid hydrocarbon reserves account for all of the total future
gross revenue from proved reserves.


The
discounted future net income shown above was calculated using a discount rate of 10
percent per annum compounded monthly. Future net income was discounted at four other
discount rates which were also compounded monthly. These results are shown on each
estimated projection of future production and income presented in a later section of this
report and in summary form below.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |    | Discounted Future Net IncomeAs of December 31, 2001 |              
| | -- | --------------------------------------------------- | -------------
|
| | 8  |                                                     | $142,374,028 
| | 12 |                                                     | $117,607,233 
| | 15 |                                                     | $103,712,251 
| | 20 |                                                     | $  86,301,191

|The
results shown above are presented for your information and should not be construed as our
estimate of fair market value.


Reserves
Included in This Report


The
proved reserves included herein conform to the definition as set forth in the Securities
and Exchange Commissions Regulation S-X Part 210.4-10 (a) as clarified by
subsequent Commission Staff Accounting Bulletins. The definition of proved reserves are
included under the tab Reserve Definitions in this report.


Because
of the direct relationship between volumes of proved undeveloped reserves and development
plans, we include in the proved undeveloped category only reserves assigned to
undeveloped locations that we have been assured will definitely be drilled.


Transmeridian
has additional interests in this concession that may contain substantial hydrocarbon
potential not included herein. Transmeridian has stated that they have an active
exploratory and development drilling program that may result in the discovery or
reclassification of significant additional volumes.


The
various reserve status categories are defined under the tab Reserve Definitions in
this report. The developed non-producing reserves included herein are comprised of the
shut in category.


Estimates of
Reserves


All
reserves included in this report were estimated using volumetric methods.



The
reserves included in this report are estimates only and should not be construed as being
exact quantities. They may or may not be actually recovered, and if recovered, the
revenues there from and the actual costs related thereto could be more or less than the
estimated amounts. Moreover, estimates of reserves may increase or decrease as a result
of future operations.


3
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Future
Production Rates


Test
data and other related information were used to estimate the anticipated initial
production rates for those wells or locations that are not currently producing. Future
production rates were held constant, or adjusted for the effects of curtailment where
appropriate, until a decline in ability to produce was anticipated. An estimated rate of
decline was then applied to depletion of the reserves. For reserves not yet on
production, sales were estimated to commence at an anticipated date furnished by
Transmeridian.


Wells
or locations that are not currently producing may start producing earlier or later than
anticipated in our estimates of their future production rates.


Hydrocarbon
Prices


Transmeridian
furnished us with hydrocarbon prices in effect at December 31, 2001 and with its
forecasts of future prices which take into account SEC and Financial Accounting Standards
Board (FASB) rules, current market prices, contract prices, and fixed and determinable
price escalations where applicable.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
accordance with FASB Statement No. 69, December 31, 2001 market prices were determined
using the daily oil price or daily gas sales price (spot price) adjusted for
oilfield or gas gathering hub and wellhead price differences (e.g. grade, transportation,
gravity, sulfur and BS&W) as appropriate. Also in accordance with SEC and FASB
specifications, changes in market prices subsequent to December 31, 2001 were not
considered in this report.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|For
hydrocarbon products sold under contract, the contract price including fixed and
determinable escalations, exclusive of inflation adjustments, was used until expiration
of the contract. Upon contract expiration, the price was adjusted to the current market
price for the area and held at this adjusted price to depletion of the reserves.


The
effects of derivative instruments designated as price hedges of oil and gas quantities
are generally not reflected in our individual property evaluations.


Costs


Operating
costs for the leases and wells in this report were supplied by Transmeridian and include
only those costs directly applicable to the leases or wells. When applicable, the
operating costs include a portion of general and administrative costs allocated directly
to the leases and wells under terms of operating agreements. No deduction was made for
indirect costs such as general administration and overhead expenses, loan repayments,
interest expenses, and exploration and development prepayments that are not charged
directly to the leases or wells.


Development
costs were furnished to us by Transmeridian and are based on authorizations for
expenditure for the proposed work or actual costs for similar projects. At the request of
Transmeridian, their estimate of zero abandonment costs after salvage value for onshore
properties was used in this report. We have not performed a detailed study of the
abandonment costs or the salvage value and makes no warranty for Transmeridians
estimate.


Current
costs were held constant throughout the life of the properties.



4
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|General


Table
A presents a one line summary of proved reserve and income data for each of the subject
properties which are ranked according to their future net income discounted at 10 percent
per year. Table B presents a one line summary of gross and net reserves and income data
for each of the subject properties. Table C presents a one line summary of initial basic
data for each of the subject properties. Tables 1 through 12 present our estimated
projection of production and income by years beginning January 1, 2002, by lease or well.


While
it may reasonably be anticipated that the future prices received for the sale of
production and the operating costs and other costs relating to such production may also
increase or decrease from existing levels, such changes were, in accordance with rules
adopted by the SEC, omitted from consideration in making this evaluation.


The
estimates of reserves presented herein were based upon a detailed study of the properties
in which Transmeridian owns an interest; however, we have not made any field examination
of the properties. No consideration was given in this report to potential environmental
liabilities that may exist nor were any costs included for potential liability to restore
and clean up damages, if any, caused by past operating practices. Transmeridian has
informed us that they have furnished us all of the accounts, records, geological and
engineering data, and reports and other data required for this investigation. The
ownership interests, prices, and other factual data furnished by Transmeridian were
accepted without independent verification. The estimates presented in this report are
based on data available through December 2001.


Transmeridian
has assured us of their intent and ability to proceed with the development activities
included in this report, and that they are not aware of any legal, regulatory or
political obstacles that would significantly alter their plans.


Neither
we nor any of our employees have any interest in the subject properties and neither the
employment to make this study nor the compensation is contingent on our estimates of
reserves and future income for the subject properties.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | This
report was prepared for the exclusive use and sole benefit of Transmeridian Exploration,
Inc. The data, work papers, and maps used in this report are available for examination by
authorized parties in our offices. Please contact us if we can be of further service.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Very
truly yours,RYDER
SCOTT COMPANY, L.P.
| |  | ------------------------------------------

| |  | L.
B. Branum, P.E.Vice President
| |  | --------------------------------

|LBB/plk


5
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