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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Amendment Number 3 to FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES
OF SMALL BUSINESS ISSUERS UNDER SECTION 12(b)
OR 12(g) OF THE SECURITIES ACT OF 1934
BLUE RIDGE ENERGY, INC
(Name of Small Business Issuer in Its Charter)
NEVADA 61-1306702
(State of Organization) (I.R.S. Employer Identification No.)
632 ADAMS STREET, SUITE 710, BOWLING GREEN, KY 42101 (270) 842-2421
(Address and telephone number of principal executive offices)
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act: Common Stock par
value $.005 per value.
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TABLE OF CONTENTS
Form 10-SB
BLUE RIDGE ENERGY, INC.
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PART I
Item 1. Business 3
Item 2. Management's Discussion and Financial Analysis 6
Item 3. Properties 9
Item 4. Securities Ownership of Certain Beneficial Owners and 12
Management
Item 5. Directors, Executive Officers, Promoters and Control Persons 14
Item 6. Executive Compensation 15
Item 7. Certain Relationships and Related Transactions 16
Item 8. Description of Securities 18
PART II
Item 1. Market Price of and Dividends on the Registrant's Common Equity
and Other Shareholder Matters 21
Item 2. Legal Proceedings 22
Item 3. Changes in and Disagreements with Accountants 22
Item 4. Recent Sales of Unregistered Securities 22
Item 5. Indemnification of Directors and Officers 25
PART F/S
Financial Statements F-1
PART III
Index to Exhibits 26
OTHER
Signatures 27
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
BUSINESS DEVELOPMENT
Blue Ridge Energy, Inc. ("BR Energy"), a Nevada corporation, was organized
in November, 1994, as Gem Source, Incorporated ("Gem Source"), and subsequently
changed the name of the company to Blue Ridge Energy, Inc. in May 1996. BR
Energy has offices at 632 Adams Street, Suite 710, Bowling Green, KY 42101.
BR Energy is engaged in the oil and gas business primarily in Texas,
Kentucky, New Mexico and West Virginia. BR Energy sponsors oil & gas drilling
partnerships through which it raises funds for the drilling of oil and gas wells
and participates for a 1% partnership interest as the managing general partner
of the partnerships. BR Energy also owns two drilling rigs. These rigs are used
to drill oil and gas wells for the sponsored oil and gas drilling partnerships
and also other non-affiliated oil and gas companies. The rigs are operated on
behalf of BR Energy by an affiliate, Blue Ridge Group, Inc. ("BR Group").
BR Energy also acquires direct working interest participation in oil and gas
properties. The working interest participations include exploratory and
development wells and include both operated and non-operated working interest
participations. These acquisitions are funded by a combination of the profits
earned from sponsoring oil and gas drilling programs, the profit earned from
contract drilling and from the proceeds of several private offerings of BR
Energy preferred stock.
The sponsored oil and gas drilling partnerships are governed by limited
partnership agreements which include provisions regarding capital contributions,
allocation of profits and losses, distributions to the partners, and management
of the partnership by BR Energy. Partners may be assessed for additional capital
requirements of the partnership by BR Energy. Partners failing to contribute
their pro rata share of the additional capital are subject to a 300% penalty of
the amount which the partner failed to contribute. Such penalty may be offset
against any distributions otherwise due such partner. Limited partners are not
subject to liability beyond their initial capital contributions but failure to
contribute may subject them to the 300% penalty. Additional General Partners are
subject to the debts and liabilities of the partnership, but if any Additional
General Partner is held liable for any loss or liability of the partnership,
such party shall be indemnified by the other partners to the extent of their
respective interests in the partnership.
The turnkey drilling contracts entered into by BR Energy with the sponsored
oil and gas drilling partnerships cover the drilling, completing and equipping
of the partnership wells. The material provisions of the turnkey drilling
contracts include the identification of the specific wells to be drilled, the
turnkey price, the depth of the wells to be drilled, the time of payment, the
plan for completion of the well, the responsibility of BR Energy for a sound
drilling location, and the right of the partnership to direct the stoppage of
drilling at any time prior to reaching the contract total depth to be drilled.
During 1999 and 1998, BR Energy had no significant customers or suppliers,
other than its major stockholder, BR Group. BR Energy contracts with BR Group to
provide turnkey drilling services, management, administrative, accounting and
geological services.
BR Energy intends to maintain an active role in the oil and gas industry as
an operator of oil and gas wells, a sponsor of oil and gas drilling programs, a
participant in oil and gas programs and as an independent producer of oil and
gas.
BUSINESS OF THE ISSUER
During March 1996, BR Group, acquired a majority of the common stock of BR
Energy with the intent to develop it as an oil and gas exploration and
development company. In May 1996, (1) a new Board of Directors and Executive
Officers were elected, (2) the name of the company was changed from Gem Source,
Incorporated to Blue Ridge Energy, Inc., and (3) the capitalization of BR Energy
was restructured. The restructuring included a 1 for 5 reverse stock split of BR
Energy's Common Stock effective May 6, 1996, which reduced the total number
shares of common stock issued and outstanding to 526,000 shares. Additionally,
5,000,000 shares of BR Energy preferred stock were authorized at that time.
Also, in 1996, after the 1 for 5 reverse split, BR Group loaned BR Energy
$126,000 and BR Group purchased an additional 1,000,000 shares of BR Energy
Common Stock for $50,000 ($0.05 per share) bringing BR Group's total ownership
of BR Energy at December 31, 1996 to 1,200,000 shares out of a total of
1,526,600 shares and BR Energy common stock. The $126,000 loan was repaid in
March, 1997.
BR Energy has continued to increase its equity from 1996 through 1999 with a
series of four preferred stock private placements.
In May 1996, BR Energy authorized the issuance and sale of 300,000 shares of
Series A Preferred Stock which had a par value of $0.01 per share at a price of
$3.00 per share. In July 1996 the BR Energy acquired the assets (primarily
accounts receivable and undeveloped oil and gas leases in eastern Kentucky) of
Target Leasing, Ltd. I ("Target"), a Kentucky limited partnership by the
issuance and exchange of 265,746 shares of BR Energy's Series A Preferred Stock.
At the time of its issuance, there was no established market for the Series A
Preferred Stock. The exchange price was arbitrarily determined by the management
of BR Energy. In 1997, BR Energy issued an additional 32,000 share of Series A
Preferred Stock at a cash price of $3.00 per share. The Series A Preferred Stock
bore a 12% annual dividend and each share was converted into one (1) share of BR
Energy Common Stock as of September 30, 1998. In total, 297,746 shares of Series
A Preferred Stock were issued by BR Energy.
In conjunction with the Target exchange offer BR Energy also authorized the
issuance and sale of up to 300,000 shares of BR Energy's Series B Preferred
Stock for $3.00 per share, cash. The Series B Preferred Stock bore a 12% annual
dividend and was convertible into two (2) shares of BR Energy Common Stock.
During 1996 and 1997, 202,374 shares of BR Energy Series B Preferred Stock were
sold for approximately $596,000 (net of expenses). In 1998 approximately 175,000
shares of the issued Series B Preferred Stock were converted into 347,232 shares
of BR Energy Common Stock.
During 1997, BR Energy authorized the issuance and sale of up to 400,000
shares of its Series C Preferred Stock for $6.00 per share, cash, and sold
169,450 shares of Series C Preferred Stock for approximately $1,016,700. The BR
Energy Series C Preferred Stock bore a 12% annual dividend and was automatically
convertible into two (2) shares of BR Energy's Common Stock effective when a
Securities Act Registration Statement is filed with the SEC or 2 years,
whichever occurs first. At December 31, 1999 a total of 169,450 Series C shares
had been converted into 338,900 shares of BR Energy common stock. As of December
31, 1999 a total of -0- BR Energy Series C Preferred shares remained
outstanding.
In 1998, BR Energy authorized the issuance and sale of 1,000,000 shares of
BR Energy's non-voting Series D Preferred Stock for $5.00 per share, cash. In
addition, BR Energy issued one Common Stock Warrant exercisable to purchase one
share of BR Energy Common Stock for $1.00 with each share of Series D Preferred
Stock sold. The BR Energy Series D Preferred Stock bears a 12% annual dividend
and is automatically convertible into one (1) share of BR Energy Common Stock
effective when a Securities Act Registration Statement for BR Energy Common
Stock is filed with the SEC or two years from issuance, whichever occurs first.
As of December 31, 1999, 636,950 shares of Series D Preferred Stock had been
sold for approximately $3,184,750 less expenses of $777,759 and 636,950 Common
Stock Warrants were outstanding. None of the Series D Preferred Shares have been
converted into BR Energy Common Stock.
BR Energy has derived cash flow from the above issuance of preferred stock,
the exercise in 1998 by BR Group of Warrants to purchase 2,800,000 shares of BR
Energy Common Stock at $0.05 per share for $140,000, the profits earned by BR
Energy from the sponsoring of oil and gas drilling partnerships, and the
revenues earned from the turnkey drilling contracts in the drilling of
partnership wells. This has enabled BR Energy to fund its 1% partnership
interest in the oil and gas drilling partnerships, advance funds related to the
purchase of two drilling rigs, pay its operating costs and other expenses, and
participate as a direct working interest partner in thirteen (13) wells. Of the
Warrants exercised by BR Group, 1,800,000 shares were the Warrants remaining
from the 2,000,000 issued by BR Energy to BR Group in June, 1996. The remaining
1,000,000 Warrants exercised related to the 5,000,000 Warrants issued by BR
Energy to BR Group in February, 1998 exercisable at $0.05 a share.
As of December 31, 1999, BR Energy had sponsored and invested in the private
placement of eleven (11) Limited Partnerships with subscriptions of
approximately $13,500,000. BR Energy's total participation in these thirty (30)
wells resulted in six (6) and 56/100 (6.56) net wells owned by BR Energy.
BR Energy has directly participated in the acquisition and development of
undeveloped oil and gas leases over the past three years. As previously
discussed, BR Energy acquired approximately 35,000 acres of undeveloped
leasehold interests in 1996 from Target. These leases had an average term of two
to three years. Because of the significant decline in oil prices by early 1998,
it was not economically feasible to develop the leases. The prices continued to
be depressed even into 1999 and the leases eventually expired. Because of the
depressed oil prices BR Energy evaluated these interests held and recorded and
additional impairment loss of $77,405 in both 1997 and 1998. As of December 31,
1999, BR Energy had no cost basis in undeveloped oil and gas leases.
Properties are considered proved if provided reserves can be assigned to the
property. Proved oil and gas reserves are the estimated quantities of crude oil,
natural gas, and natural gas liquids that geological and engineering data
demonstrate with reasonable certainty can be recovered in future years from
know reservoirs under existing economic and operating conditions. Reservoirs are
considered to contain proved reserves if the reserves can be produced
economically and such economic production is supported by either actual
production or a conclusive formation test. Proved developed reserves are
reserves that can be expected to be recovered through existing wells with
existing equipment and operating methods. Proved undeveloped reserves are
reserves that are expected to be recovered from new wells on undrilled acreage
or from existing wells where a relative major expenditure is required for
recompletion.
Proved properties are evaluated annually for possible impairment. Impairment
is evaluated by comparing the estimated future cash flows of proved reserves to
the cost basis of the proved oil and gas properties. If the sum of the expected
future cash flows (undiscounted) is less than the carrying amount of the asset,
an impairment loss is recognized.
BR Energy uses the following assumptions regarding changing production
levels and prices to evaluate the estimated future cash flows from proved
properties. Initial production rates are based on the current rates for those
reservoirs now on production. If a decline trend was established, this trend is
used as the basis for estimating future rates. The oil and gas prices used in
calculating the expected future cash flows of the Company's proved reserves for
purposed of the impairment test calculations are based upon the expected future
prices described in Note 1 to the accompanying financial statements.
During 1998, BR Energy drilled the Homestake #1 well in Lea County, New
Mexico. BR Energy owns a 66.9% working interest in this well. This property
accounts for approximately 15% of BR Energy's proved developed reserves as of
December 31, 1999.
During 1998 the Company evaluated its investment of $392,380 in the Home
Stake #1 re-entry well. The estimated undiscounted future cash flows using
expected prices from the Home Stake #1 well were estimated to be $234,634 as of
December 31, 1998. This estimated cash flow was calculated using the expected
prices disclosed in note 1 and utilizing revised projected reserve data. Such
reserve data was based primarily on the consulting petroleum engineers December
31, 1998 reserve estimate, revised for actual production data obtained in late
1998 and early 1999. The expected future cash flow was discounted at 10% to
arrive at a fair value of the property of $142,892. The excess of the carrying
value of the asset over the fair value of the property was recorded as an
impairment loss in 1998 of $250,000.
In the latter half of 1998, BR Energy entered into an agreement with its
majority shareholder, BR Group, to acquire and develop oil and gas wells in the
Appalachian Basin of Kentucky and acquire drillings equipment. Participation in
the oil and gas wells was to be through sponsored oil and gas limited
partnerships and through direct working interest participation.
By December 31, 1999, BR Energy had total assets of approximately
$4,400,000, total liabilities of approximately $800,000 and shareholders' equity
of approximately $3,600,000. BR Energy's net income increased in 1999, to
$153,000 from $48,000 in 1998.
During the first half of 1999, BR Energy expanded its activities with the
purchase of two Ingersoll Rand drilling rigs and ancillary equipment for
approximately $2,100,000. Approximately 50% of these rig and equipment
purchases were from BR Group. These purchases were funded by proceeds from BR
Energy's Series D Preferred Stock offering and approximately $600,000 in
long-term debt to an unaffiliated entity.
During 1999, BR Energy sponsored and invested in the private placement of
four (4) additional Limited Partnerships with subscriptions of approximately
$4,200,000. These Limited Partnerships sponsored by BR Energy participated in
the drilling of fifteen (18) oil and gas wells in Harlan, Bell and Knox
counties of Kentucky, located in the Appalachian Basin, one well in the Wharton
County, Texas area, and five wells in Mingo and Wyoming Counties, West
Virginia.
In addition to the indirect working interest owned through these Limited
Partnerships, BR Energy also participated with additional direct working
interest ownership in five (5) of these wells. Of the five (5) wells where BR
Energy participated for additional direct working interest, all five (5) are
producing gas wells. BR Energy's total participation in these wells resulted in
the addition of 4.82 wells owned by the Company. See item 3, Properties, for a
complete description of the Company's key properties, ownership interest and oil
and gas reserves.
COMPETITION, MARKETS AND REGULATIONS
COMPETITION
The oil and gas industry is highly competitive in all its phases. BR Energy
encounters strong competition from other independent oil and gas producers. Many
of its competitors possess substantially greater financial resources, which they
can use to acquire economically desirable oil and gas properties. BR Energy does
not consider itself a significant factor in the domestic oil and gas industry
nor in that segment of the oil and gas industry located in Kentucky, Texas, New
Mexico or West Virginia.
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MARKETS
The price obtainable for oil and gas production from BR Energy properties is
affected by market factors beyond the control of the Company. Such factors
include the extent of domestic production, the level of imports of foreign oil
and gas, the general level of market demand on a regional, national and
worldwide basis, domestic and foreign economic conditions that determine levels
of industrial production, political events in foreign oil-producing regions, and
variations in governmental regulations and tax laws and the imposition of new
governmental requirements upon the oil and gas industry. There can be no
assurance that oil and gas prices will not decrease in the future, thereby
decreasing net revenues from BR Energy properties.
From time to time, there may exist a surplus of gas or oil supplies, the
effect of which may be to reduce the amount of hydrocarbons that BR Energy may
produce and sell, while such oversupply exists. In recent years, initial steps
have been taken to provide additional gas pipelines from Canada to the United
States. If additional Canadian gas is brought to the United States market, it
could create downward pressure on United States gas prices.
REGULATIONS
Environmental Regulation
The federal government and various state and local governments have adopted
laws and regulations regarding the control of contamination of the environment
by the oil and gas industry. These laws and regulations may require the
acquisition of permits by oil and gas operators before drilling commences,
prohibit drilling activities on certain lands lying within wilderness areas or
where pollution arises and impose substantial liabilities for pollution
resulting from operations, particularly operations near or in onshore and
offshore waters or on submerged lands. These laws and regulations may also
increase the costs of routine drilling and operation of wells. Because these
laws and regulations change frequently, the costs to BR Energy of compliance
with existing and future environmental regulations cannot be predicted.
The Company generates wastes that may be subject to the Federal Resource
Conservation and Recovery Act ("RCRA") and comparable state statutes. The U.S.
Environmental Protection Agency ("EPA") and various state agencies have limited
the approved methods of disposal for certain hazardous and nonhazardous wastes.
Furthermore, certain wastes generated by the Company's operations that are
currently exempt from treatment as "hazardous wastes" may in the future be
designated as "hazardous wastes," and therefore be subject to more rigorous and
costly operating and disposal requirements.
The Company currently owns or leases numerous properties that for many
years have been used for the exploration and production of oil and natural gas.
Although the Company believes that it has utilized good operating and waste
disposal practices, prior owners and operators of these properties may not have
utilized similar practices, and hydrocarbons or other wastes may have been
disposed of or released on or under the properties owned or leased by the
company or on or under locations where such wastes have been taken for disposal.
These properties and the wastes disposed thereon may be subject to the
Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA"),
RCRA and analogous states laws as well as state laws governing the management of
oil and natural gas wastes. Under such laws, the company could be required to
remove or remediate previously disposed wastes (including wastes disposed of or
released by prior owners or operators) or property contamination (including
groundwater contamination) or to perform remedial plugging operations to prevent
future contamination.
CERCLA and similar state laws impose liability, without regard to fault
or the legality of the original conduct, on certain classes of persons that are
considered to have contributed to the release of a "hazardous substance" into
the environment. These persons include the owner or operator of the disposal
site or sites where the release occurred and companies that disposed of or
arranged for the disposal of the hazardous substances found at the site. Persons
who are or were responsible for release of hazardous substances under CERCLA may
be subject to joint and several liability for the costs of cleaning up the
hazardous substances that have been released into the environment and for
damages to natural resources, and it is not uncommon for neighboring landowners
and other third parties to file claims for personal injury and property damage
allegedly caused by the hazardous substances released into the environment.
Federal Regulation of Natural Gas
The transportation and sale of natural gas in interstate commerce is heavily
regulated by agencies of the federal government. The following discussion is
intended only as a summary of the principal statutes, regulations and orders
that may affect the production and sale of natural gas from BR Energy
properties.
FERC Orders
Several major regulatory changes have been implemented by the Federal Energy
Regulatory Commission ("FERC") from 1985 to the present that affect the
economics of natural gas production, transportation and sales. In addition, the
FERC continues to promulgate revisions to various aspects of the rules and
regulations affecting those segments of the natural gas industry that remain
subject to the FERC's jurisdiction. In April 1992, the FERC issued Order No. 636
pertaining to pipeline restructuring. This rule requires interstate pipelines to
unbundled transportation and sales services by separately stating the price of
each service and by providing customers only the particular service desired,
without regard to the source for purchase of the gas. The rule also requires
pipelines to (i) provide nondiscriminatory "no-notice" service allowing firm
commitment shippers to receive delivery of gas on demand up to certain limits
without penalties, (ii) establish a basis for release and reallocation of firm
upstream pipeline capacity and (iii) provide non-discriminatory access to
capacity by firm transportation shippers on a downstream pipeline. The rule
requires interstate pipelines to use a straight fixed variable rate design. The
rule imposes these same requirements upon storage facilities.
FERC Order No. 500 affects the transportation and marketability of natural
gas. Traditionally, natural gas has been sold by producers to pipeline
companies, which then resell the gas to end-users. FERC Order No. 500 alters
this market structure by requiring interstate pipelines that transport gas for
others to provide transportation service to producers, distributors and all
other shippers of natural gas on a nondiscriminatory, "first-come, first-served"
basis ("open access transportation"), so that producers and other shippers can
sell natural gas directly to end-users. FERC Order No. 500 contains additional
provisions intended to promote greater competition in natural gas markets.
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It is not anticipated that the marketability of and price obtainable for
natural gas production from BR Energy's properties will be significantly
affected by FERC Order No. 500. Gas produced from BR Energy's properties
normally will be sold to intermediaries who have entered into transportation
arrangements with pipeline companies. These intermediaries will accumulate gas
purchased from a number of producers and sell the gas to end-users through open
access pipeline transportation.
State Regulations
Production of any oil and gas from BR Energy's properties is affected by
state regulations. States in which BR Energy operates have statutory provisions
regulating the production and sale of oil and gas, including provisions
regarding deliverability. Such statutes, and the regulations promulgated in
connection therewith, are generally intended to prevent waste of oil and gas and
to protect correlative rights to produce oil and gas between owners of a common
reservoir. State regulatory authorities also regulate the amount of oil and gas
produced by assigning allowable rates of production to each well or proration
unit.
Operating Hazards and Insurance
The oil and gas business involves a variety of operating risks, including
the risk of fire, explosions, blow-outs, pipe failure, casing collapse,
abnormally pressured formations and environmental hazards such as oil spills,
gas leaks, ruptures and discharges of toxic gases, the occurrence of any of
which could result in substantial losses to BR Energy due to injury or loss of
life, severe damage to or destruction of property, natural resources and
equipment, pollution or other environmental damage, clean-up responsibilities,
regulatory investigation and penalties and suspension of operations.
In accordance with customary industry practice, we maintain insurance
against some, but not all, of the risks described above. However, there can be
no assurance that any insurance obtained by us will be adequate to cover any
losses or liabilities. We cannot predict the continued availability of insurance
or the availability of insurance at premium levels that justify its purchase.
The occurrence of a significant event not fully insured or indemnified against
could materially and adversely affect our financial condition and operations.
Employees
BR Energy has no employees. BR Energy's majority shareholder, Blue Ridge
Group, however, has a staff of geologists, petroleum engineers, drilling and
accounting personnel who administer the operations of BR Group and the BR
Energy. As of December 31, 1999, BR Group had sixty (60) employees of which
approximately fifteen (15) are geological and administrative personnel. The
remainder are employed in oil and gas drilling and service activities. BR Energy
pays a $20,000 per month management fee to BR Group for administrative and
overhead expenses. This management fee is intended to cover only the expenses
attributable to the fifteen (15) geological and administrative personnel which
are applicable to BR Energy's operations.
During 1998, management of BR Group conducted an analysis of the time spent
by each of the fifteen (15) employees that performed services for BR Energy.
Based on these time estimates, the employees' annual compensation was allocated
to the applicable entity (Group or Energy) receiving the services.
Although the actual services rendered on a month to month basis may vary,
depending on many factors, management of BR Energy is of the opinion that the
method used is reasonable and the Company receives fair value for these
services.
Annually, Management reviews the salary structure of applicable employees
and proportional allocations to determine the reasonableness of the amounts and
that fair value is received for services rendered. For the year ended December
31, 1999, no material modifications in the management contract or management fee
were made as it was determined by management that the amounts charged and the
services received were reasonable.
Annually, the Board of Directors will determine if any of the executive
officers of BR Energy (discussed on page 14) are eligible for a performance
bonus. During 1998, Robert D. Burr was paid a performance bonus of $25,000.
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ITEM 2. MANAGEMENT'S DISCUSSION AND FINANCIAL ANALYSIS OF FINANCIAL CONDITION
The following discussion is intended to assist in an understanding of BR
Energy's financial position and results of operations for each year of the two
year period ended December 31, 1999. The Financial Statements and the notes
thereto which follow contain detailed information that should be referred to in
conjunction with the following discussion.
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION
REFORM ACT OF 1995:
Statements, other than historical facts, contained in this report on Form
10-KSB, including statements of estimated oil and gas production and reserves,
drilling plans, future cash flows, anticipated capital expenditures and
Management's strategies, plans and objectives, are "forward looking statements"
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. Although we
believe that our forward looking statements are based on reasonable assumptions,
we caution that such statements are subject to a wide range of risks and
uncertainties incident to the exploration for, acquisition, development and
marketing of oil and gas; and we can give no assurance that our estimates and
expectations will be realized. Important factors that would cause actual results
to differ materially from the forward looking statements include, but are not
limited to, changes in production volumes, worldwide demand, and commodity
prices for petroleum natural resources; the timing and extent of our success in
discovering, acquiring, developing and producing oil and gas reserves; risks
incident to the drilling and operation of oil and gas wells; future production
and development costs; the effect of existing and future laws, governmental
regulations and the political and economic climate of the United States and
foreign countries in which we may operate, if any; the effect of hedging
activities; and conditions in the capital markets. Other risk factors are
discussed elsewhere in this Form 10-KSB.
FINANCIAL OVERVIEW
Blue Ridge Energy, Inc. (BR Energy), is a publicly traded, independent oil
and gas company engaged in the drilling, exploration, development and production
of oil and gas properties in Texas, Kentucky, West Virginia and New Mexico. BR
Energy has an interest in 43 wells and owns two drilling rigs, which are used to
drill oil and gas wells for joint ventures and limited partnerships sponsored by
it and for other non-affiliated oil and gas companies.
Historically, BR Energy has grown through drilling with joint ventures and
limited partnerships it has sponsored. While BR Energy will continue to sponsor
joint ventures and limited partnerships in the future, it will complement those
programs with the expansion of its oil and gas reserves through acquisitions and
greater participation in oil and gas properties.
To accomplish these expanded goals it has recently appointed Ed Stillie as
President with a mandate to grow BR Energy through parallel courses of
increasing the reserves and production through acquisitions and exploratory
programs and expanding our sponsorship of industry and limited partnership
drilling programs.
RESULTS OF OPERATIONS
Net income was $153,000 in 1999 compared to $48,000 in 1998. On a per share
basis, which takes into account cash dividends paid on preferred stock, BR
Energy had a net loss of $0.03 per share in 1999 as compared to a net loss of
$0.09 per share in 1998.
OPERATING REVENUES
Operating revenues totaled $5,900,000 in 1999; a 181% increase from the
$2,100,000 in 1998. Turnkey drilling contract sales included in operating
revenues were $4,634,000 in 1999 as compared to $1,743,000 in 1998. Oil and gas
sales included in operating revenues were $60,226 for 1999 as compared to
$27,501 for 1998. Operating revenues also includes fees earned from the
sponsoring of oil and gas drilling partnership in the form of management fees,
syndication fees, and other reimbursed costs. These fees included in operating
revenues totaled $383,895 in 1999 as compared to $ $316,978 for 1998. BR Energy
also acquired two (2) drilling rigs in 1999 which generated revenues of $792,000
for 1999 versus no such revenues in 1998.
The increase in operating revenues in 1999 from 1998 was caused by an
improved demand for limited partnership interests generated from an increased
marketing effort and an improved pricing structure for oil and gas. In the
opinion of BR Energy, the sale of oil and gas drilling partnership interests was
hampered by low prices for oil and gas during much of 1998.
Production from BR Energy's oil and gas activities continued to increase in
1999 from 1998 despite the abandonment of eight (8) oil wells for economic
reasons. Increased production in 1998 from BR Energy's oil and gas activities
was negated by a sharp decline in oil prices in the early portion of 1998
thereby causing oil and gas revenues to remain essentially unchanged.
DIRECT OPERATING COSTS
Direct operating costs totaled $4,300,000 in 1999, a 207% increase from the
total of $1,400,000 in 1998. Direct operating costs are the turnkey drilling
contract costs for the drilling, completion, and equipping of oil and gas wells.
The increase in these costs for 1999 are a result of increased activity levels
previously discussed as well as the addition of $709,000 in drilling rig
operation costs; while the decrease during 1998 was a result of lower oil and
gas prices causing a reduction in drilling funds raised during 1998 and
correspondingly resulted in reduced drilling costs.
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OTHER OPERATING EXPENSES
Other operating expenses increased 96.9% to $1,290,000 in 1999 from $655,000
in 1998 primarily as a result of the marketing efforts in the marketing of BR
Energy's Limited Partnerships as previously discussed.
Depreciation, depletion and amortization continued increasing to $117,695 in
1999 from $17,978 in 1998. These increases are primarily related to the purchase
of drilling rigs and oilfield service equipment in 1999 and 1998.
GENERAL AND ADMINISTRATIVE EXPENSES
General and Administrative costs for 1999 were $353,860 and $166,104 for
1998. Such amounts include a portion of the management fee charged by BR Group;
$155,000 for 1999 and $78,000 for 1998. The remainder of the management fee is
allocated to cost of sales, amounting to $85,000 in 1999 and $162,500 in 1998.
The allocation of the management fee is based on management's estimate of the
percentage of costs applicable to each of the categories (i.e. cost of sales or
g & a expenses). This is determined by the volume of activity during the year
and type of services that are rendered by BR Group.
The balance of general and administrative expenses consists of legal and
accounting fees of $150,058 in 1999 and $57,005 in 1998. The increase in
professional fees was due to additional reporting requirement in connection with
the filing of a 1934 Act Registration Statement in September, 1999.
OTHER INCOME (EXPENSE)
Other income (expense) decreased to $1,669 in 1999 as compared to $95,000 in
1998 as interest income dropped and interest expense increased with the
utilization of BR Energy's cash in the acquisition of oil and gas properties and
drilling equipment.
INCOME TAXES
BR Energy provided for Federal and state income tax expense of $86,000 and
$25,000 in 1999 and 1998, respectively. These provisions represent effective tax
rates of 35% in each of those years. In 1999 and 1998, BR Energy had tax
deductions for intangible drilling costs resulting in tax credits of $162,000
and $100,000, respectively. These tax credits were utilized, whenever possible,
in order to reduce the cash impact of the income taxes.
A valuation allowance for BR Energy's deferred tax asset of $35,442 in 1998
(see note 8 to the accompanying audited financial statements) was not provided
due to existing taxable temporary differences sufficient to offset the net
operating loss ("NOL") carryforward. At December 31, 1999 the Company had
$35,000 of its NOL remaining to reduce its future taxable net income.
BALANCE SHEET REVIEW
ASSETS
BR Energy's current assets decreased 49% to $1,200,000 at the end of 1999
from $2,300,000 at the end of 1998. The decrease in 1999 was caused by the
purchase of oil and gas properties and drilling equipment, as previously
discussed. These purchases were the primary cause of a 57% decrease in advances
to BR Group of $627,000 at the end of 1999 as compared to $1,470,000 at the end
of 1998. These interest bearing, unsecured advances were made to BR Group in
order to facilitate; (1) the acquisition and development of oil and gas
properties in the Appalachian Basin, (2) to purchase a new Ingersoll Rand RD-20
rig and a TR-4 drilling rig and ancillary equipment and (3) improved interest
income from available funds. Such advances were paid in full by June of 1999 and
the balances at December 31, 1999 represent temporary balances incurred in
normal daily business as properties are developed. BR Energy's property
purchases were the primary cause of the 72% decrease in cash to $131,000 and its
daily operations were cause of the 18% increase in accounts receivable from
managed limited partnerships, trade and other accounts receivable at the end of
1999 as compared to the end of 1998.
7
<PAGE> 8
Property and equipment increased 488% to $3,200,000 at the end of 1999 as
compared to $540,000 at the end of 1998 due to the property and equipment
acquisitions previously discussed.
Other assets decreased 92% to $10,000 at the end of 1999 from $150,000 at
the end of 1998 primarily as a result of the application of deposits made for
the purchase of the drilling rigs and ancillary equipment previously mentioned.
LIABILITIES
BR Energy's current liabilities decreased 66% to $201,000 at year-end 1999
from $590,000 at the end of 1998 as a result of BR Energy's fulfilling its
turnkey drilling commitments during normal operations and the payment various
short term promissory notes to limited partner investors.
BR Energy adopted provisions of the Statement of Financial Accounting
Standards No. 109 "Accounting for Income Taxes" (required for fiscal years
beginning after December 15,1992) which requires the use of the "liability"
method under which deferred tax assets and liabilities are recognized for their
estimated future tax consequences. The tax effect of significant temporary
differences representing these net deferred taxes was $86,000 and $24,000 at
December 31, 1999 and December 31, 1998, respectively. For further information
regarding income taxes, see Note 8 of the Financial Statements.
During 1999, BR Energy entered into various long-term notes payable, secured
by drilling equipment, in order to purchase drilling equipment. The balance due
under these notes at December 31, 1999 is approximately $529,000.
STOCKHOLDERS' EQUITY
Total capital invested in BR Energy for Common and Preferred Stock increased
45% to $4,200,000 at year-end 1999 from $2,900,000 at the end of 1998 as a
result of the purchases of 369,250 shares of Series D. Preferred Stock by
investors as previously discussed. Approximately 667,970 shares of Preferred
Stock were converted into 1,038,194 shares of Common Stock during 1999 and 1998.
BR Energy's majority shareholder, BR Group exercised options to purchase
2,800,000 shares of Common Stock in 1998. For further information regarding the
capital structure of BR Energy, see Note 10 of the Financial Statements.
Despite recording net income of $153,000, BR Energy's retained earnings
declined 45% to an accumulated deficit of $648,000 at December 31, 1999 from an
accumulated deficit of $448,000 at December 31, 1998 as the result of the
payment of cash dividends totaling $313,000 to BR Energy's Preferred
Shareholders during the year, 1999.
CAPITAL RESOURCES AND LIQUIDITY
BR Energy's current ratio (current assets / current liabilities) was 5.82 to
1 in 1999 and 4.05 to 1 in 1998. Such calculations include the accounts
receivable from managed oil and gas drilling partnerships ($337,000 in 1999 and
$248,000 in 1998) and advances to related parties ($627,000 in 1999 and
$1,467,000 in 1998). The change in the current ratio from 1999 to 1998 was due
primarily to contributed capital from the sale of Preferred Stock combined with
borrowing proceeds more than offsetting funds used in the acquisition of oil and
gas properties and drilling equipment.
BR Energy's primary source of cash in 1999 was derived from the sale of oil
and gas limited partnerships, equity and the operation of oil and gas
properties. Without these sources of cash BR Energy would not have adequate
sources of cash for its operations. While BR Energy expects that its revenue
sources will not significantly change in 2000, BR Energy will be increasing its
emphasis on drilling and developing oil and gas properties in order to increase
its revenue from oil and gas production.
During the two years ended December 31, 1999 and December 31, 1998, BR
Energy has relied upon net inflows of cash from the sale of equity, supplemented
by net inflows of cash generated by its operating activities to fund the
purchase of assets and its expansion. Generally speaking, management intends to
fund further growth with similar equity transactions and improved cash flows
from operations.
8
<PAGE> 9
As of December 31, 1999, the Company had sufficient cash to satisfy its
operating needs for a period of ninety (90) days or longer, considering the
funds previously advanced to Blue Ridge Group as of December 31, 1999 of
$627,304. The Company plans to continue funding its operating needs by
sponsoring 3 to 5 limited partnership oil and gas drilling programs a year.
ITEM 3. PROPERTIES
As of March 31, 2000, BR Energy has participated, either directly or
indirectly through its sponsored limited partnerships, in 43 wells, of which 30
are presently productive, located in Kentucky, Texas, West Virginia and New
Mexico.
The following table summarizes by acquisition BR Energy's reserves and gross
and net interests in producing oil and gas wells as of December 31, 1999.
Productive wells are producing wells and wells capable of production, including
gas wells awaiting pipeline connections and oil wells awaiting connection to
production facilities. Wells that are completed in more than one producing
horizon are counted as one well.
<TABLE>
<CAPTION>
GROSS WELLS NET WELLS RESERVES
----------- --------- --------
GEOGRAPHIC AREA OIL GAS OIL GAS OIL GAS
--------------- --- --- --- --- --- ---
(BBLS) (MCF)
<S> <C> <C> <C> <C> <C> <C>
New Mexico 1.00 0.00 0.67 0.00 17,963 18,000
Texas 1.00 4.00 1.00 1.31 3,611 69,000
Kentucky 0.00 18.00 0.00 4.82 0 731,977
West Virginia 0.00 6.00 0.00 0.41 0 0
---- ----- ---- ---- ------ -------
Totals 2.00 28.00 1.67 6.54 21,574 818,977
==== ===== ==== ==== ====== =======
</TABLE>
KEY PROPERTIES:
The working interest owned by BR Energy either directly or indirectly
through the oil and gas partnerships is owned jointly with other working
interest partners and is subject to various royalty and overriding royalty
interests which generally range in total to between 20% - 30% on each property.
Management does not believe any of these burdens materially detract from the
value of the properties or will materially detract from the value of the
properties or materially interfere with their use.
The following are the primary properties held by BR Energy as of March
31, 2000:
HOME STAKE #1: The Home Stake #1 oil well is a development well located in Lea
County, New Mexico. BR Energy owns 66.9% of the Working Interest in the Home
Stake #1 which is a 50.2% Net Revenue Interest.
HARLAN / BIG SANDY PROSPECTS: Since December 31, 1998 BR Energy has embarked
on an Appalachian Basin development well drilling program in Bell, Knox and
Harlan counties of Kentucky. As of December 31, 1999, eighteen (18) wells have
been drilled. Of the eighteen (18), seven (7) are currently in production and
selling gas, the remaining eleven (11) have been drilled and are in various
stages of completion. These wells account for 74% of the total value of BR
Energy's reserves as of December 31, 1999 with no single well being a majority
of the reserve value attributed thereto. BR Energy owns varying Working
Interests in these wells ranging from 25% to 30.25% of the working Interest with
Net Revenue Interests ranging from 18.75% to 22.69% in each well. Four (4) of
the gas wells in the completion phase are in an area in Harlan County, Kentucky
where local utilities have not hooked into the gas pipeline as scheduled by the
gas purchaser. The date on which gas sales are anticipated from these four (4)
wells is uncertain.
9
<PAGE> 10
KEEGAN GIBSON #1: The Keegan Gibson #1 oil well is a development well
located in Smith, County, Texas and accounts for 3% of the total value of BR
Energy's reserves as of December 31, 1999. In December of 1999 BR Energy
increased its ownership in this well to 100% of the Working Interest which is a
75% Net Revenue Interest.
AMEND #1 & CATOR #1: The Amend #1 and Cator #1 wells are development wells
located in Sherman County, Texas and account for 4% of the total value of BR
Energy's reserves as of December 31, 1999. In December of 1999, BR Energy
purchased 100% of the Working Interest which is a 75% Net Revenue Interest in
these two wells.
MACK PIERCE #1: During 1999, BR Energy acquired an interest in the Mack
Pierce #1 well in Wharton County, Texas which began drilling in December, 1999,
was determined commercially productive, and will be completed and put into
production during the first quarter of 2000. BR Energy owns 18.67% of the
Working Interest in the Mack Pierce #1 which is a 14.00% Net Revenue Interest.
Since the well had not been completely drilled and evaluated as of December 31,
1999, no reserves attributable to this well were included in BR Energy's reserve
valuations.
SHELBY COUNTY, TEXAS: At the end of 1999, BR Energy acquired an interest in
one (1) development well in Shelby County, Texas which is scheduled to begin
drilling during the second quarter of 2000.
MINGO AND WYOMING COUNTIES, WEST VIRGINIA: At the end of 1999, BR Energy
acquired an interest in five (5) development wells in Mingo and Wyoming
Counties, West Virginia. Drilling activities for these wells began in December,
1999. During the first quarter of 2000, BR Energy acquired an interest in a
sixth well and has commenced drilling activities on all of the six wells. Two
wells have been drilled, completed and are presently producing gas, two wells
are in the final stages of completion and should begin production during the
second quarter of 2000 and drilling activities are presently underway on the
final two wells.
DRILLING RIGS: During 1999, the Company acquired two drilling rigs and
ancillary equipment. Rig #4 is a 1999 Ingersoll Rand RD-20 which is capable of
drilling 5,000 feet and Rig #2 which is an Ingersoll Rand TR-4 acquired from BR
Group is capable of drilling 3,000 feet. The drilling rigs are managed by BR
Group on behalf of BR Energy and are used to drill wells for oil and gas
partnerships sponsored by BR Energy as well as on a contract basis for other
third parties.
TITLE TO PROPERTIES
In the normal course of business, the operator of each lease has the
responsibility of examining the title on behalf of all working interest
partners. Title to substantially all significant producing properties of BR
Energy has been examined by various attorneys. The properties are subject to
royalty, overriding royalty and other interests customary in the industry.
The working interest owned by BR Energy either directly or indirectly
through the oil and gas partnerships is owned jointly with other working
interest partners and is subject to various royalty and overriding royalty
interest which generally range in total between 20% - 30% on each property.
Management does no believe any of these burdens materially detract from the
value of the properties or materially interfere with their use.
PRODUCTION AND SALES PRICE
The following table summarizes the sales volumes of BR Energy's net oil and
gas production expressed in barrels of oil. Equivalent barrels of oil are
obtained by converting gas to oil on the basis of their relative energy content;
Six thousand cubic feet of gas equals one barrel of oil.
<TABLE>
<CAPTION>
NET PRODUCTION NET PRODUCTION
FOR THE YEAR FOR THE YEAR
12/31/99 12/31/98
-------- --------
<S> <C> <C>
Net Volumes (Equivalent Barrel) 3,238 2,051
Average Sales Price per
Equivalent Barrel $18.60 $13.41
Average Production Cost
per Equivalent Barrel
(includes production taxes) $ 5.48 $13.27
</TABLE>
10
<PAGE> 11
The Average Production Costs per Equivalent Barrel represents the Lease
Operating Expenses divided by the Net Volumes in equivalent barrels. Lease
Operating Expenses includes normal operating costs such as pumper fees, operator
overhead fees, electric costs, pump repair costs, chemicals, pulling unit costs,
production taxes, etc. The 1998 amount of $13.41 included significant workover
costs (pulling units and pump repairs) related to the Blue Ridge Energy
Production Fund Wells. These wells were abandoned in 1999.
NET PROVED OIL AND GAS RESERVES
Presented below are the estimates of BR Energy's proved reserves as of
December 31, 1999 and 1998. All of BR Energy's proved reserves are located in
the United States.
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1999 1998
NATURAL NATURAL
OIL GAS OIL GAS
------- ------- ------ -------
(BBLS) (MCF) (BBLS) (MCF)
<S> <C> <C> <C> <C>
Proved developed reserves:
Balance at beginning of year 34,959 30,850 2,236 0
Extensions, discoveries
and other additions -- 734,840 20,989 22,000
Revisions of previous estimates (14,397) (12,850) -- --
Purchases of minerals in place 3,564 70,252 13,452 10,850
Production (2,552) (4,115) (1,718) (2,000)
------- ------- ------ ------
Balance at end of year 21,574 818,977 34,959 30,850
======= ======= ====== ======
</TABLE>
BBLS - Barrels of Oil MCF - Million cubic feet of gas
In estimating the oil and natural gas reserves, BR Energy, in accordance
with criteria prescribed by the Securities and Exchange Commission, has used
prices received as of December 31, 1998 and 1999 without escalation, except in
those instances where fixed and determinable gas price escalations are covered
by contracts, limited to the price BR Energy reasonably expects to receive.
Future prices received for the sale of BR Energy's product may be higher or
lower than the prices used in the evaluation described above; the operating
costs relating to such production may also increase or decrease from existing
levels. The estimates presented above are in accordance with rules adopted by
the SEC.
11
<PAGE> 12
DRILLING ACTIVITIES
<TABLE>
<CAPTION>
Oil Wells Gas Wells
--------- ---------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Exploratory Wells -- -- -- --
Development Wells -- 2 19 3
Total Wells -- 2 19 3
</TABLE>
ITEM 4. SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The table below sets forth each stockholder who is known to the Company to be
the beneficial owner of more than 5% of the common stock of the Company at
December 31, 1999.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The table below sets forth each stockholder who is know to the company to be the
beneficial owner of more than 5% of the common stock of the Company at December
31, 1999.
<TABLE>
<CAPTION>
TITLE NAME AND ADDRESS AMOUNT AND NATURE PERCENT
CLASS OF BENEFICIAL OWNER OF BENEFICIAL OWNER OF CLASS
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Indirect
Ownership
Common Robert D. Burr 1,872,235 (1) 19.1%
632 Adams Street, Suite 710
Bowling Green, KY 42101
Common Russell L. Vera 1,872,235 (2) 19.1%
632 Adams Street, Suite 110
Bowling Green, KY 42101
Direct
Ownership
Common Blue Ridge Group, Inc. 7,126,893 (3) 72.7%
632 Adams Street, Suite 700
Bowling Green, KY 42101
</TABLE>
12
<PAGE> 13
(1) Mr. Burr's beneficial ownership is attributable to his trust's
ownership of 26.27% of BR Group which owns 72.7% of BR Energy. Included
in this table are warrants held by BR Group to purchase 4,000,000
shares of BR Energy at $0.05 per share. Said warrants expired March 31,
2003.
(2) Mr. Vera's beneficial ownership is attributable to his trust's
ownership of 26.27% of BR Group which owns 72.7% of BR Energy. Included
in this table are warrants held by BR Group to purchase 4,000,000
shares of BR Energy at $0.05 per share. Said warrants expire March
31,2003.
(3) BR Group's beneficial ownership is attributable to its direct ownership
of 3,126,893 shares of common stock and warrants to purchase 4,000,000
shares at $0.05. Said warrants expire March 31, 2003.
(4) Mr. Burr and Mr. Vera (Mr. Burr's son-in-law) have disclaimed
beneficial interest in each others respective shares.
The table below sets forth the beneficial stock ownership of all directors and
officers of BR Energy as of December 31, 1999.
<TABLE>
<CAPTION>
TITLE NAME AND ADDRESS AMOUNT AND NATURE PERCENT
CLASS OF BENEFICIAL OWNER OF BENEFICIAL OWNER OF CLASS
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Common Robert D. Burr 1,872,235 (1) 19.1%
632 Adams Street, Suite 710
Bowling Green, KY 42101
Common All Directors and Officers as a group 1,872,235 19.1%
(3 persons)
</TABLE>
13
<PAGE> 14
1. Mr. Burr's beneficial ownership is attributable to his trust's
ownership of 26.27% of BR Group which in turn owns 72.7% of BR Energy.
Included in this table are warrants held by BR Group to purchase an
additional 4,000,000 shares of BR Energy at $0.05 a share. Said
warrants expire on March 31, 2003.
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
Set forth below is certain information as of March 31, 2000 regarding the
directors and executive officers of BR Energy. These individuals are not
employed directly by BR Energy. Their compensation is included under a
management agreement with BR Group as more fully discussed on page 5.
DIRECTORS AND EXECUTIVE OFFICERS
<TABLE>
<CAPTION>
POSITION(S) WITH
NAME AGE BR ENERGY AND OTHER COMPANIES
---- --- -----------------------------
<S> <C> <C>
Robert D. Burr 54 Chairman of the Board of BR Energy,
Edward L. Stillie 55 Director of BR Energy, President and Chief
Executive Officer
James T. Cook Jr. 47 Director of BR Energy, Senior Vice President-
Finance and Chief Financial Officer
Harry J. Peters 56 Director of BR Energy, Senior Vice President-
Sales and Marketing
Gregory B. Shea 38 Director of BR Energy; Senior Vice President-
Operations
Russell L. Vera 38 Director of BR Energy; Senior Vice President-
Exploration and Development
</TABLE>
ROBERT D. BURR, age 54, Bowling Green, Kentucky, has been Chairman of the Board,
President and Chief Executive Officer of BR Energy since May, 1996, resigning as
President and Chief Executive Officer on March 1, 2000. A native of Port Arthur,
Texas, Mr. Burr attended McNeese State College, Lake Charles, Louisiana. He has
been active for over 20 years in the oil and gas business with a myriad of
companies. He has been the Chairman of the Board, President and Chief Executive
Officer of BR Group, since August 1993.
EDWARD L. STILLIE, age 55, Bowling Green, Kentucky. Mr. Stillie joined BR Energy
on March 1, 2000 as President and Chief Executive Officer and became a Director
on April 10, 2000, with a strong background in management and oil and gas
syndication, having been a senior executive for the past 20 years with companies
such as NRM Corporation, Boston Financial, Inc. and most recently, as National
Marketing Director and Senior Vice President for Houston-based Swift Energy
Company.
14
<PAGE> 15
JAMES T. COOK, JR., age 47, Bowling Green, Kentucky, has been Sr. Vice
President, Finance and a Director of BR Energy since May 1996. Mr. Cook also
serves as Secretary and Treasurer of BR Energy. He is an accountant by training,
and a graduate of Stephen F. Austin State University, Nacogdoches, Texas. From
1983 to 1989, he was Vice President, Finance and Treasurer of the Shanley Corp.,
Dallas, Texas, a publicly owned oil and gas exploration company. From 1990
through 1994, he served in various financial capacities for a group of Florida
based companies with interests in Caribbean resorts and stores. Since June 1,
1995, he has been a Director and the Vice-President - Finance and Chief
Financial Officer of BR Group. In 1997, Mr. Cook became the brother-in-law of
Mr. Burr.
HARRY J. PETERS, age 56, Bowling Green, Kentucky. Mr. Peters joined BR Energy as
a Director and Sr. Vice President-Sales and Marketing on April 10, 2000. A
native of New York, he has over 30 years of experience in sales and marketing
both domestic and international. Over the years, he has developed close working
relationships with investment bankers, institutional investors, and securities
dealers while directing market financing of reserve purchases, and raising
drilling risk capital and venture capital for wells in Texas, Kentucky,
Oklahoma, Louisiana, Colorado, West Virginia and Utah. Mr. Peters has been a
Director and Sr. Vice President-Sales and Marketing of BR Group since April of
1999. He is a graduate of St. Michaels College in Santa Fe, New Mexico.
GREGORY B. SHEA. age 38, Bowling Green, Kentucky, has been a Director and Senior
Vice President-Operations of BR Energy since August, 1999. Mr. Shea has been
President of Blue Ridge Builders, Inc. a residential/commercial builder in
Bowling Green, Kentucky and a majority-owned subsidiary of BR Group since
November 1994 and he was elected a Director of BR Group in February, 1995. Since
that time, Mr. Shea has managed BR Group's Kentucky drilling and field
operations. He is a native of Plano, Texas. Between 1981 and 1986, he attended
the University of North Texas. Mr. Shea is a son-in-law of Mr. Burr.
RUSSELL L. VERA, age 38, Bowling Green, Kentucky, became a Director and Sr. Vice
President-Exploration and Development on April 10, 2000. A native of Gonzales,
Texas, Mr. Vera is a graduate of Ball High School, Galveston, Texas, and
attended the University of Houston for four years as a graphic arts major. He
has been President of Fortune Exploration of Kentucky, Inc. since 1992 and he
was President of Fortune Exploration, Inc., Irving, Texas, an independent oil
and gas producer, from 1989 until 1992, and President of Oak Ridge Exploration,
Inc., Shreveport, Louisiana, in 1992. Between 1987 and 1989, he was a registered
representative in Santa Monica, California, of West Coast Securities Corp., a
registered broker dealer. Mr. Vera is a son-in-law of Mr. Burr.
ITEM 6. EXECUTIVE COMPENSATION
The following compensation was paid directly to the executives of BR Energy
during the years ended December 31, 1999 and 1998:
<TABLE>
<CAPTION>
NAME AND
PRINCIPAL
POSITION YEAR ANNUAL COMPENSATION LONG-TERM COMPENSATION ALL OTHER
AWARDS PAYOUTS COMPENSATION
SALARY BONUS OTHER ANNUAL RESTRICTED SECURITIES LTIP ($)
($) ($) COMPENSATION STOCK AWARDS UNDERLYING PAYOUTS
($) ($) OPTIONS/SAR'S ($)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Robert D 1999 $ 0 $ 0 $ 0 $ 0 0 $ 0 $ 0
Burr 1998 $ 0 $25,000 $ 0 $ 0 0 $ 0 $ 0
James T. 1999 $ 0 $ 0 $ 0 $ 0 0 $ 0 $ 0
Cook, Jr 1998 $ 0 $ 0 $ 0 $ 0 0 $ 0 $ 0
Gregory B 1999 $ 0 $ 0 $ 0 $ 0 0 $ 0 $ 0
Shea 1998 $ 0 $ 0 $ 0 $ 0 0 $ 0 $ 0
</TABLE>
15
<PAGE> 16
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
BR Group owns approximately 53.9% of the Common Stock of BR Energy as of
December 31, 1999. BR Energy has entered into several transactions with BR Group
as follows.
STOCK TRANSACTIONS
In March 1996, BR Group acquired 1,000,000 shares of BR Energy's common
stock from BR Energy for $0.10 a share, or $100,000. In June 1996, after a one
to five share reverse stock split BR Group acquired another 1,000,000 shares of
common stock from BR Energy for $0.05 per share, or $50,000 and warrants to
purchase an additional 2,000,000 shares of common stock at $0.05 per share.
During February 1998 BR Energy granted warrants to BR Group to purchase an
additional 5,000,000 shares of restricted common stock at $0.05 per share.
In June 1997, BR Group exercised warrants to purchase 200,000 restricted
shares of BR Energy's common stock. In June 1998, BR Group exercised warrants to
purchase 2,800,000 restricted shares of BR Energy's common stock. At December
31, 1999, BR Group owned warrants to purchase an additional 4,000,000 shares of
common stock at $0.05 per share.
In October, 1996, the Smackover/Woodbine I Joint Venture sponsored by BR
Energy, and the West Currie Joint Venture sponsored by an affiliate, agreed to
purchase 117,500 shares of BR Energy Series B Preferred Stock at $3.00 per
share. As of December 31, 1998, 117,500 shares of Series B Preferred Stock had
been issued under this arrangement. These Series B Preferred shares were
exchanged for 235,000 shares of BR Energy Common shares during 1998.
Under a previous arrangement with one of the Company's partnerships (the
Home Stake Joint Venture, as described in Note 4), the company had agreed to
provide certain workover funds and had the right to 100% of the partnership's
revenues from the well until the workover funds had been recovered. Thereafter,
the Home Stake Joint Venture would revert to its original working interest
position. During 1999, the Company issued 250,000 shares of its Common stock in
exchange for the partnership's reversionary interest in the well.
LOANS FROM BR GROUP
During 1996, BR Group loaned $126,000 to BR Energy for the purchase of a
working interest in a gas well in Vermillion Parish, Louisiana. This loan was
repaid during the first quarter of 1997.
During 1997, BR Energy purchased for $250,000 the JW Harris #1C oil well
Frio County, Texas from two shareholders of BR Group. The shareholders were the
Longhorn Trust and the Argyle Trust, which were Trusts established under
Kentucky law for the benefit of the families of Robert Burr and Russell Vera
respectively. Russell Vera is a son-in-law of Robert Burr. Subsequent to this
purchase, the well's performance deteriorated significantly and the selling
parties agreed to buy the well back from BR Energy for the original purchase
price of $250,000. This $250,000 was paid in March, 1998.
During 1998, the company agreed to participate with BR Group in the
acquisition and development of oil and gas properties in the Appalachian Basin
of Kentucky. The Company advanced $1,300,000, bearing interest at 12% per annum,
to BR Group related to these acquisitions.
During the years ended 1998 and 1999 the Company earned interest income
under this arrangement of $73,400 and $27,153, respectively. During 1999, BR
Group reduced this obligation through the sale of a drilling rig and ancillary
equipment to the Company and performance of services in the drilling and
completion of various oil and gas wells under the terms of turnkey drilling
contracts. As of December 31, 1999, the balance had been reduced to $627,304. BR
Group reduced this obligation to $-0- in 2000 through the performance of
additional services under the terms of turnkey drilling contracts and cash
payments.
16
<PAGE> 17
CONTRACTUAL AGREEMENTS
Since June of 1996, BR Energy has entered into turnkey drilling contracts
with BR Group for the acquisition, drilling, completing and equipping of oil and
gas wells for BR Energy and the nine (9) oil and gas drilling partnerships that
BR Energy has sponsored. A summary of the amounts involved in these contracts is
as follows:
<TABLE>
<S> <C> <C>
Year Ended December 31, 1996 $1,308,070
Year Ended December 31, 1997 $2,227,560
Year Ended December 31, 1998 $1,428,382
Year Ended December 31, 1999 $4,634,089
</TABLE>
The terms of the contracts or transactions that the Company entered into
with BR Group were on terms that were no more favorable than those obtained from
unaffiliated parties.
BR Group provides various management, administrative, accounting and
geological services for the Company at a rate of $20,000 per month which has
been determined on a proportional basis because specific identification of
expenses is not practical. Management believes that this cost allocation method
of expenses is reasonable. BR Energy also reimburses BR Group for marketing
costs paid on its behalf which amounted to $176,540 in 1999. As of December 31,
1999 and 1998, approximately $-0- was due and payable to BR Group under this
arrangement.
In March 1999, BR Energy purchased ancillary equipment to be used in
association with drilling rig #4 from BR Group at a price of $415,000.
In April 1999, BR Energy purchased drilling rig #2 with associated ancillary
equipment from BR Group at a price of $750,000.
During 1999 and 1998, the BR Energy had no significant customers or
suppliers, other than its major stockholder, (BR Group) who could individually
have a significant adverse effect on the Company's operations. See Note 4 to BR
Energy's Financial Statements, included herein, for additional information.
The Company has an affiliated broker dealer, Ridgemont Securities, Inc. that
raises the majority of its funds through private placement offerings for oil and
gas wells and the issuance of preferred stock. The fees and expenses paid to
Ridgemont Securities, Inc. by BR Energy and the oil and gas partnerships during
1999 and 1998 are as follows:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Commissions $1,088,138 $546,713
Due Diligence fees 43,493 49,938
Promotion Services 200,000 --
Reimburses Expenses 80,780 101,511
---------- --------
Total $1,412,411 $698,162
========== ========
</TABLE>
The Company contracts with BR Group to manage and operate the two drilling
rigs it owns. BR Group also manages two other rigs owned by other affiliates of
BR.
BR Group collects all drilling revenues and pays all expenses related to
the drilling operations and accounts to BR Energy on a periodic basis for the
net profits from operations for the two rigs owned by BR Energy. The Company
reported revenues of $792,439 and costs of $709,308 from the operation of the
drilling rigs for the year ended December 31, 1999.
During 1999, the Company made the following property acquisitions from
partnerships they have previously syndicated:
In 1999, the Company acquired a 100% working interest in the Keegan Gibson
#1 oil well in Smith County, Texas in exchange for issuing warrants to purchase
335,725 shares of BREY Common stock at $3.00 per share. The warrants are
exercisable during the period March 27, 2000 and March 27, 20005. This property
acquisition was recorded at the Company's cost basis in the partnership
including accounts receivable, which management believes approximates the fair
market value of the property. No basis was attributed to the warrants issued.
17
<PAGE> 18
The Company acquired in 1999, a 100.0% working interest in two gas wells
in Sherman County, Texas in exchange for warrants to purchase 521,208 shares of
BREY Common stock at $3.00 per share. The transaction was recorded at the
Company's cost basis in the partnership which approximates its fair value. The
Company did not allocate any cost basis to the common stock warrants.
During November, 1999, the Company acquired a 30% working interest in nine
gas wells in Harlan County, Kentucky owned by two of its oil and gas
partnerships in exchange for BR Energy's 53.4% working interest in a gas well in
Wharton County, Texas, BR Energy's 12.5% working interest in five development
wells in Mingo and Wyoming Counties of West Virginia, and 968,300 warrants to
purchase BREY Common stock at $3.00 per share. The transaction was recorded, in
accordance with FASB 123, at the estimated fair value of the assets received
being $338,400, as this was considered a more reliable measurement.
During 1999 and 1998, BR Energy had no significant customers or suppliers,
other than its major stockholder, (BR Group) who could individually have a
significant adverse effect on the Company's operations. See Note 4 to BR
Energy's Financial Statements, included herein, for additional information.
The terms of the contracts or transactions that the Company entered into
with BR Group were on terms that were no more favorable than those obtained from
unaffiliated parties.
ITEM 8. DESCRIPTION OF SECURITIES
BR Energy is authorized to issue two classes of stock that are designated,
respectively, common and preferred stock. The total number of shares of stock,
which BR Energy initially had the authority to issue, was 20,000,000 shares
designated as common stock. As of December 31, 1999 BR Energy was authorized to
issue 25,000,000 shares of stock, 20,000,000 designated as common stock and
5,000,000 designated as preferred stock.
COMMON STOCK
As of December 31, 1999, there were 5,809,794 shares of BR Energy's Common
Stock, which has a par value of $0.005 per share issued and outstanding. Each
holder of the Common Stock shall be entitled to one vote for each share of the
Common Stock outstanding in his name on the books of BR Energy.
SERIES A PREFERRED STOCK
During May 1996, the Company authorized the issuance and sale of
300,000 shares of Series A Preferred Stock ("BRE Series A Preferred Stock")
which has a par value of $0.001 per share, at $3.00 per share. The Series A
Stock bears a 12% per annum dividend payable monthly. Each share of the Series A
Stock shall be converted automatically into one (1) share of Common Stock
effective when a Securities Act Registration Statement for the Common Stock is
filed with the U.S. Securities and Exchange Commission (the "SEC") or September
30, 1998, whichever occurs first.
In the event of any liquidation, dissolution or winding up of the
Company either voluntary or involuntary, the holders of Series A Stock shall be
entitled to receive, prior and in preference to any distribution of any assets
or surplus funds of the Company to the holders of Common Stock the amount of
$3.00 per share plus all unpaid dividends on such share of each share of Series
A Stock then held by the shareholder.
In a Confidential Private Placement Memorandum dated July 25, 1996, the
Company offered 300,000 shares of Series A Stock in exchange for partnership
assets of Target Leasing, Ltd. I. As of December 31, 1999 and 1998 all of the
Series A Stock had been converted into Common stock.
18
<PAGE> 19
SERIES B PREFERRED STOCK
During 1996, the Company authorized the issuance and sale of 300,000
shares of Series B Preferred Stock ("Series B Stock") which has a par value of
$0.001 per share, at $3.00 per share. The Series B Stock bears a 12% per annum
dividend payable monthly. Each share of the Series B Stock shall be converted
automatically into two (2) shares of Common Stock effective when a Securities
Act Registration Statement for the Common Stock is filed with the SEC or two
years from issuance, whichever occurs first.
In the event of any liquidation, dissolution or winding up of the Company
either voluntary or involuntary, the holders of Series B Stock shall be entitled
to receive, prior and in preference to any distribution of any assets or surplus
funds of the Company to the holders of Common Stock, but subordinate to the
liquidation preference of the Series A Stock, the amount of $3.00 per share plus
all unpaid dividends on such share of each share of Series B Stock then held by
the shareholder.
At December 31, 1999, and 1998 there were -0- and 27,158 shares of Series
B Stock issued and outstanding.
SERIES C PREFERRED STOCK
During 1997, the Company authorized the issuance and sale of 400,000
shares of Series C preferred stock ("Series C Stock") which has a par value of
$0.001 per share at $6.00 per share. The Series C Stock bears a 12% per annum
dividend payable monthly. Each share of the Series C Stock is to be converted
automatically into two (2) shares of common stock effective when a Securities
Act Registration Statement for the common stock is filed with the SEC or two
years from issuance, whichever occurs first.
In the event of any liquidation, dissolution or winding up of the Company,
either voluntary or involuntary, the holders of Series C Stock are entitled to
receive, prior and in preference to any distribution of any assets or surplus
funds of the Company to the holders of common stock, but subordinate to the
liquidation preference of the Series A stock and Series B stock, the amount of
$6.00 per share plus all unpaid dividends on such share of each share of Series
C Stock then held by the shareholder. At December 31, 1999 and 1998 there were
- -0- and 169,450 shares of Series C Stock outstanding.
SERIES D PREFERRED STOCK
During 1998, BR Energy authorized the issuance and sale of 1,000,000 shares
of Series D Preferred Stock ("Series D Stock") which has a par value of $0.001
per share at a price of $5.00 per share. The Series D Stock bears a 12% per
annum dividend payable monthly. Each share of the Series D Stock shall be
converted automatically into one (1) share of Common Stock effective when a
Securities Act Registration Statement for the Common Stock is filed with the SEC
or two years from issuance, whichever occurs first.
In the event of any liquidation, dissolution or winding up of BR Energy,
either voluntary or involuntary, the holders of Series D Stock shall be entitled
to receive, prior and in preference to any distribution of any assets or surplus
funds of BR Energy to the holders of Common Stock, the amount of $5.00 per share
plus all unpaid dividends on such share of each share of Series D Stock then
held by the shareholder.
At December 31, 1999 and 1998, there were 636,950 and 267,700 shares of
Series D Stock issued and outstanding, respectively. The total amount received
from the sale of this stock was $3,184,750, less expenses paid of $777,759.
COMMON STOCK WARRANTS
In June 1996, BRG acquired warrants to purchase 2,000,000 shares of
restricted common stock at $0.05 per share. The effective term of these warrants
is from June 30, 1996 through June 30, 2001. During February 1998, the Company
granted warrants to Blue Ridge Group, Inc. to purchase an additional 5,000,000
shares of restricted common stock at $0.05 per share. During 1997, Blue Ridge
Group, Inc. exercised warrants to purchase 200,000 shares of the Company's
common stock at $0.05 per share or $10,000. During 1998, Blue Ridge Group, Inc.
exercised warrants to purchase 2,800,000 shares of the Company's common stock at
$0.05 per share, or $140,000.
As of December 31, 1999, Blue Ridge Group held warrants to purchase
4,000,00 shares of Blue Ridge Energy common stock for $0.05 per share. These
warrants expire March 31, 2000.
During 1998 and 1999, the Company authorized the issuance of the following
warrants to purchase common stock in Blue Ridge Energy. These warrants have not
been registered under the Securities Act of 1933.
19
<PAGE> 20
<TABLE>
<CAPTION>
Title of Aggregate Amount Date from Price at Exchange of
Issue of of Securities which Warrants Which Warrants Partnership
Securities called for by Warrants are Exercisable are Exercisable Interest and terms
<S> <C> <C> <C> <C>
Warrants Issued (1)
- -------------------
Series D Preferred 267,700 May 31, 1998 $1.00 for 1 share Issued in conjunction
Stock Warrants Warrants through of BREY with Series D
May 31, 2003 Common Stock Preferred Stock
Series D2 Preferred 369,250 June 8, 2000 $1.00 for 1 share Issued in conjunction
Stock Warrants Warrants through of BREY with Series D2
May 31, 2004 Common Stock Preferred Stock
Series E 632,133 January 1, 2000 $3.00 for 1 share Issued in connection
Stock Warrants Warrants through of BREY with sale of units in
January 1, 2004 Common Stock 1998 Year End
Drilling Program
Warrants to be Issued (2)
- -------------------------
Series F 335,728 March 27, 2000 $3.00 for 1 share Issued in connection
Stock Warrants Warrants through of BREY with exchange of
March 27, 2005 Common Stock proved properties from Paluxy
Partnership
Series F 521,208 March 27, 2000 $3.00 for 1 share Issued in connection
Stock Warrants Warrants through of BREY with exchange of
March 27, 2005 Common Stock proved properties from
Sherman Moore
Partnership
Series G 438,262 November, 2000 $3.00 for 1 share Issued in connection
Stock Warrants Warrants through of BREY with sale of units in
October, 2002 Common Stock B. U. Ranch #1
Partnership
Series G 600,000 November, 2000 $3.00 for 1 share Issued in connection
Stock Warrants Warrants through of BREY with exchange of
October, 2002 Common Stock proved properties from Cumberland
Gap 10 Partnership
Series G 368,300 November, 2000 $3.00 for 1 share Issued in connection
Stock Warrants Warrants through of BREY with exchange of
October, 2002 Common Stock proved properties from Harlan County
Partnership
Series G 82,500 November, 2000 $3.00 for 1 share Issued in connection
Stock Warrants Warrants through of BREY with the sale of units
October, 2002 Common Stock in Mid South Partnership
</TABLE>
Notes: (1) These Warrants have not been registered with the SEC and accordingly,
are restricted as to sale under Rule 144.
(2) As of December 31, 1999, BREY had committed to issue common stock
warrants to these noted partnerships.
These warrants were issued in connection with (1) the sale of Blue Ridge
Energy Preferred D Stock, (2) the Company's oil and gas drilling programs or (3)
the dissolution of several of the Company's oil and gas partnerships.
20
<PAGE> 21
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
OTHER SHAREHOLDER MATTERS
The Common Stock of BR Energy is traded on the OTC with "BREY" as its
stock symbol. The range of high and low bid information as quoted by
bigcharts.com for each quarter since January 1, 1997 is as follows:
<TABLE>
<CAPTION>
HIGH BID LOW BID
-------- -------
<S> <C> <C>
March 31, 1997 No Activity No Activity
June 30, 1997 No Activity No Activity
September 30, 1997 No Activity No Activity
December 31, 1997 No Activity No Activity
March 31, 1998 No Activity No Activity
June 30, 1998 $ 1.75 $ .125
September 30, 1998 $ 1.375 $ 1.0625
December 31, 1998 $ 1.0312 $ 0.4062
March 31, 1999 $ 0.50 $ 0.4062
June 30, 1999 $ 3.50 $ 2.25
September 30, 1999 $ 4.00 $ 2.00
December 31, 1999 $ 2.50 $ 2.25
</TABLE>
There was no public market activity in the BR Energy common stock from
January 1, 1997 until May 7, 1998. The only common stock transactions during
this period were private purchases of the Company's common stock by BR Group as
described in Part I, Item 7.
These quotations reflect inter dealer prices, without retail mark-up,
markdown or commission, and may not represent actual transactions.
The Preferred Stock of BR Energy is not traded on any exchange and there is
no trading market for the BR Energy Preferred Stock.
DIVIDEND INFORMATION
No cash dividends have been declared or paid on BR Energy's Common Stock
since BR Energy's inception. BR Energy does not plan to pay cash dividends in
the future. BR Energy's dividend policy will be subject to any restrictions
placed on it in connection with any debt offering or significant long-term
borrowing.
BR Energy's Preferred Stock entitles all holders to receive dividends of 12%
per annum, payable monthly, based upon the total number of shares outstanding.
BR Energy has paid cash dividends on its Preferred Stock as follows:
<TABLE>
<CAPTION>
1999 1998
-----------------------------------
<S> <C>
$ 313,114 $ 336,448
</TABLE>
BR Energy has not paid, nor does it intend to pay, cash dividends on our
common stock in the foreseeable future. We intend to retain earnings, if any,
for the future operation and development of our business.
21
<PAGE> 22
SHAREHOLDER INFORMATION
As of December 31, 1999, there are approximately 490 shareholders of BR
Energy's Common Stock.
ITEM 2. LEGAL PROCEEDINGS
During the normal course of business, BR Energy receives inquires from
various federal and state regulatory agencies. These inquiries are quite
infrequent and responded to promptly by BR Energy. Occasionally, questions may
occur with regard to misunderstandings or misinterpretations of programs offered
by the Company or promotional material being used by the Company in connection
with the sale of its sponsored oil and gas drilling partnerships. As of
December 31, 1999, management of BR Energy is not aware of any significant
regulatory issues presently outstanding.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
None
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES
Recent sales of unregistered BR Energy Preferred Stock
<TABLE>
<CAPTION>
TITLE OF CLASS OF NO. OF APPROX. PRICE PER SHARES TOTAL AMT. COMMISSIONS &
SECURITY INVESTOR INVESTORS DATE SOLD SHARE SOLD SOLD DISCOUNTS PAID
------------------- ------------- ------------ ------------ ------------ --------- -------------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Series A(1) Accredited 34 7/96 to $3.00 198,664 $ 595,992 $ 7,500(4)
Preferred Stock Non-Accredited 27 12/96 67,082 201,246 0
--- ------- ---------- ---------
61 265,746 $ 797,238 $ 7,500
Series A(2) Accredited 4 6/97 to $3.00 26,000 78,000 $ 0
Preferred Stock Non-Accredited 2 8/97 6,000 18,000 0
--- ------- ---------- ---------
6 32,000 96,000 $ 0
Series B(3) Accredited 16 8/96 to $3.00 181,691 $ 545,073 $ 28,886(5)
Preferred Stock Non-Accredited 9 8/97 20,683 52,049 9,307
--- ------- ---------- ---------
25 202,374 $ 597,122 $ 38,193
Series C Accredited 29 5/97 to $6.00 71,750 $ 430,500 $ 116,512(5)
Preferred Stock Non-Accredited 29 12/97 97,700 586,200 143,846
--- ------- ---------- ---------
58 169,450 $1,016,700 $ 260,358
Series D Accredited 105 6/98 to $5.00 614,950 $3,074,750 $ 374,025(5)
Preferred Stock Non-Accredited 7 12/99 22,000 110,000 26,437
--- ------- ---------- ---------
112 636,950 $3,184,750 $ 777,759(5)
</TABLE>
(1) Represents exchange for Target Leasing, Ltd. I partnership assets
(2) Sold for Cash
(3) Includes approximately 117,500 of Series B Preferred Stock sold to the
Smackover/Woodbine I Joint Venture sponsored by BR Energy and the West
Currie Joint Venture sponsored by an affiliate. The proceeds received by BR
Energy as related to these two transactions were approximately $352,500.
(4) Represents legal expenses
(5) All commissions related to the aforementioned sales of unregistered
securities have been paid to Ridgemont Securities, Inc. (a related party to
BR Energy). The Company does not utilize the services of an underwriter in
connection with its security offerings.
22
<PAGE> 23
RECENT SALES OF UNREGISTERED BR ENERGY COMMON STOCK.
During the years ended 1999 and 1998, certain preferred stockholders
converted their BR Energy preferred stock, into BR Energy common stock at
various conversion ratios. A detail of such transaction is contained in the
following table and in Part I, item 8 of this registration statement.
<TABLE>
<CAPTION>
SECURITY NO. OF INVESTORS SALE YEAR EXCHANGE YEAR COMMON SHARES ISSUED COMMISSION OR DISCOUNT PAID
----------------- ---------------- --------- ------------- -------------------- ---------------------------
<S> <C> <C> <C> <C> <C>
Series A Preferred 67 1996/97 1998 297,746 None
Series B Preferred 177 1996/97 1998 404,748 None
Series C Preferred 58 1997 1999 338,900 None
</TABLE>
During the period March 1996 through December 31, 1999, BR Group acquired a
total of 3,126,893 shares of restricted common stock of BR Energy through cash
purchases and exercise of warrants at varying prices. Such transactions are
explained in more detail in Part I, item 7 of this registration statement and in
the following table.
ISSUANCE OF WARRANTS TO PURCHASE BR ENERGY COMMON STOCK
The Board of Directors of BR Energy authorized the issuance of warrants to
BR Group in June 1996 and February 1998 for 2,000,000 and 5,000,000 shares of
common stock. The exercise price was $.05 and they expire, if not exercised, on
June 30, 2001 and March 31, 2003, respectively. There were no trades in the BR
Energy common stock from March 1996, (when BR Group acquired control of BR
Energy) until May 1998. There was only nominal activity in the BR Energy common
stock during May and June 1998 at an average of $.125 shares. Management
determined that a reasonable valuation for the warrants was $.05 per share based
on the restricted nature of the common stock and the lack of any significant
trading volume. The following table discloses the aforementioned warrant
transactions:
<TABLE>
<CAPTION>
DATE WARRANT NUMBER OF WARRANTS WARRANTS ISSUED TO DATE WARRANT WARRANT SHARES OF COMMON TOTAL
ISSUED ISSUED OR EXERCISED BY EXERCISED EXERCISE PRICE STOCK ISSUED CONSIDERATION
- --------------- ------------------ ------------------ ------------ -------------- ---------------- -------------
<S> <C> <C> <C> <C> <C> <C>
6/96 2,000,000 BR Group $0.05
2/98 5,000,000 BR Group 0.05
(200,000) BR Group 6/97 0.05 200,000(1) $ 10,000
(2,800,000) BR Group 6/98 0.05 2,800,000(2) 140,000
---------- -----
Warrants 4,000,000 Expiration Date
Outstanding ========== 3/31/03
at December 31, 1999
</TABLE>
(1) Warrants exercised by BR Group.
(2) Warrants exercised by BR Group.
23
<PAGE> 24
WARRANTS ISSUED AND TO BE ISSUED.
The following table discloses warrants issued and to be issued to purchase
Blue Ridge Energy common stock during 1998 and 1999. These warrants were issued
or authorized in connection with (1) the sale of Blue Ridge Energy Preferred D
Stock, (2) the Company's oil and gas drilling programs or (3) the dissolution of
several of the Company's oil and gas partnerships
<TABLE>
<CAPTION>
Title of Aggregate Amount Date from Price at Exchange of
Issue of of Securities which Warrants Which Warrants Partnership
Securities called for by Warrants are Exercisable are Exercisable Interest and terms
<S> <C> <C> <C> <C>
Warrants Issued (1)
- -------------------
Series D Preferred 267,700 May 31, 1998 $1.00 for 1 share Issued in conjunction
Stock Warrants Warrants through of BREY with Series D
May 31, 2003 Common Stock Preferred Stock
Series D2 Preferred 369,250 June 8, 2000 $1.00 for 1 share Issued in conjunction
Stock Warrants Warrants through of BREY with Series D2
May 31, 2004 Common Stock Preferred Stock
Series E 632,133 January 1, 2000 $3.00 for 1 share Issued in connection
Stock Warrants Warrants through of BREY with sale of units in
January 1, 2004 Common Stock 1998 Year End
Drilling Program
Warrants to be Issued (2)
- -------------------------
Series F 335,728 March 27, 2000 $3.00 for 1 share Issued in connection
Stock Warrants Warrants through of BREY with exchange of
March 27, 2005 Common Stock proved properties from Paluxy Partn.
Series F 521,208 March 27, 2000 $3.00 for 1 share Issued in connection
Stock Warrants Warrants through of BREY with exchange of
March 27, 2005 Common Stock proved properties from
Sherman Moore Partnership
Series G 438,262 November, 2000 $3.00 for 1 share Issued in connection
Stock Warrants Warrants through of BREY with sale of units in
October, 2002 Common Stock B. U. Ranch #1
Partnership
Series G 600,000 November, 2000 $3.00 for 1 share Issued in connection
Stock Warrants Warrants through of BREY with exchange of
October, 2002 Common Stock proved properties from
Cumberland Gap 10
Partnership
Series G 368,300 November, 2000 $3.00 for 1 share Issued in connection
Stock Warrants Warrants through of BREY with exchange of
October, 2002 Common Stock proved properties from
Harlan County
Partnership
Series G 82,500 November, 2000 $3.00 for 1 share Issued in connection
Stock Warrants Warrants through of BREY with the sale of units
October, 2002 Common Stock in Mid South Partnership
</TABLE>
Notes: (1) These Warrants have not been registered with the SEC and accordingly,
are restricted as to sale under Rule 144.
(2) As of December 31, 1999, BREY had committed to issue common stock
warrants to these noted partnerships.
24
<PAGE> 25
RECENT SALES OF UNREGISTERED SECURITIES SALES OF OIL AND
GAS PARTNERSHIP INTERESTS
<TABLE>
<CAPTION>
COMMISSIONS
CLASS OF NO. OF SALES PRICE PER UNITS TOTAL AMT. & DISCOUNTS
TITLE OF SECURITY INVESTOR INVESTORS PERIOD UNIT SOLD SOLD PAID
----------------------- -------------- --------- -------- --------- ------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Blue Ridge Energy Accredited 38 8/96 to $12,000 68.725 $ 825,000 $123,750
Production Fund LP Non-Accredited 33 10/96 36.000 432,000 64,800
--- ------- ---------- -----------
Total 71 101.750 $1,257,000 $188,550
Smackover/ Accredited 31 10/96 to $10,000 79.370 $ 793,750 $119,062
Woodbine LP Non-Accredited 19 2/97 35.500 355,000 53,250
--- ------- ---------- -----------
Total 50 114.870 $1,148,750 $172,312
Paluxy LP Accredited 36 2/97 to $12,950 46.050 $ 596,347 $ 89,452
Non-Accredited 33 8/97 31.750 411,163 61,674
--- ------- ---------- -----------
Total 69 77.800 $1,007,510 $151,126
Home Stake LP Accredited 29 7/97 to $14,775 58.250 $ 860,644 $129,097
Non-Accredited 30 10/97 29.750 439,556 65,933
--- ------- ---------- -----------
Total 59 89.000 $1,300,200 $195,030
Sherman/Moore LP Accredited 31 10/97 to $18,500 62.250 $1,151,625 $172,744
Non-Accredited 19 11/97 25.250 467,125 70,069
--- ------- ---------- -----------
Total 50 87.500 $1,618,750 $242,813
Phillips/ Accredited 45 2/98 to $15,000 57.350 $ 860,250 $129,037
Blue Ridge LP Non-Accredited 24 4/98 25.000 375,000 56,250
--- ------- ---------- -----------
Total 69 82.350 $1,235,000 $185,287
1998 Year End LP Accredited 68 12/98 to $15,000 113.420 $1,701,300 $255,195
Non-Accredited 9 3/99 10.420 156,300 23,445
--- ------- ---------- -----------
Total 77 123.840 $1,657,600 $278,640
Harlan County LP Accredited 63 3/99 to $ 9,000 103.000 $ 927,000 $139,050
Non-Accredited 13 4/99 22.000 198,000 29,700
--- ------- ---------- -----------
Total 76 125.000 $1,125,000 $168,750
Cumberland Gap LP Accredited 85 4/99 to $ 6,000 170.250 $1,021,500 $153,225
Non-Accredited 17 7/99 31.500 189,000 28,350
--- ------- ---------- -----------
Total 102 201.750 $1,210,500 $181,575
B.U. Ranch #1 L.P. Accredited 63 8/99 to $ 9,500 81.250 $ 771,875 $115,781
Non-Accredited 11 12/99 13.000 123,500 18,525
--- ------- ---------- -----------
Total 74 94.250 $ 895,375 $134,306
Hailey/West Virginia 1999 Accredited 70 12/99 to $10,000 99.167 $ 991,670 $148,751
Year End L.P. Non-Accredited 0 2/00 0.000 0 0
--- ------- ---------- -----------
Total 70 99.167 $ 991,670 $148,751
</TABLE>
All commissions related to the aforementioned sales of unregistered
partnership interest were paid to Ridgemont Securities, Inc. The Company claimed
exemptions from the registration of the aforementioned securities (preferred
stock, common stock and partnership interest) under Regulation D, Rule 506 of
the Securities Act of 1933.
Registration under the Securities Act of 1933 of the securities issued in
the transactions described above was not required because such securities were
issued in transactions not involving any "public offering" within the meaning of
Section 4(2) of said Act. In the foregoing instances, the shares of the
preferred stock, common stock and units of partnership were issued to a limited
group of purchasers, each of whom was furnished with, or had broad access to,
information concerning the Company, the purchasers acquired the securities for
investment only and not with a view to the distribution thereof. Each of the
certificates, representing the preferred and common shares of BR Energy, has
been stamped with a legend restricting the transfer.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Each Director and each Officer of Blue Ridge Energy has been indemnified,
against certain liabilities which they may incur in their capacities, pursuant
to its By Laws as follows:
The Corporation shall, unless prohibited by Nevada Law, indemnify any person
who is or was involved in any manner or is threatened to be so involved in an
threatened, pending or completed action suit or proceeding, whether civil,
criminal, administrative, arbitrative or investigative, including without
limitation, any action, suit or proceeding brought by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that he is
or was a director, officer, employee or agent of the corporation, or is or was
serving at the request of the corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust, employee
benefit plan or other entity or enterprise, again all Expense and Liabilities
actually and reasonably incurred by him in connection with such Proceeding. The
right to indemnification conferred in this Article shall be presumed to have
been relied upon by the directors, officers, employees and agents of the
corporation and shall be enforceable as a contract right and inure to the
benefit of heirs, executors and administrators of such individuals.
25
<PAGE> 26
PART F/S
<TABLE>
<CAPTION>
PAGE
----
Audited Financial Statements for December 31, 1999 and 1998
<S> <C>
Independent Auditors' Report F-2
Balance Sheets F-3
Statements of Income F-4
Statements of Changes in Stockholders' Equity F-5
Statements of Cash Flows F-6
Notes to Financial Statements F-7
</TABLE>
Financial statement schedules are not applicable, are not required or
included in financial statements and notes thereto.
F-1
<PAGE> 27
INDEPENDENT AUDITORS' REPORT
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF BLUE RIDGE ENERGY, INC. BOWLING
GREEN, KENTUCKY
WE HAVE AUDITED THE ACCOMPANYING BALANCE SHEETS OF BLUE RIDGE ENERGY, INC. AS OF
DECEMBER 31, 1999 AND 1998, AND THE RELATED STATEMENTS OF INCOME, STOCKHOLDERS'
EQUITY AND CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998. 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 HAVE CONDUCTED OUR AUDITS IN ACCORDANCE WITH GENERALLY ACCEPTED AUDITING
STANDARDS. THOSE STANDARDS REQUIRE THAT WE PLAN AND PERFORM THE AUDIT TO OBTAIN
REASONABLE ASSURANCE ABOUT WHETHER THE 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 FINANCIAL POSITION OF BLUE RIDGE ENERGY, INC. AS OF
DECEMBER 31, 1999 AND 1998, AND THE RESULTS OF ITS OPERATIONS AND CASH FLOWS FOR
THE YEARS THEN ENDED IN CONFORMITY WITH GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES.
/s/ LOONEY, SAMSON & ASSOCIATES, P.L.L.C.
- -----------------------------------------
LOONEY, SAMSON & ASSOCIATES, P.L.L.C.
DALLAS, TX MARCH 24, 2000.
F-2
<PAGE> 28
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, 1999 1998
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
- ------
CURRENT ASSETS:
Cash $ 131,465 $ 480,952
Short Term Investments (Note 3) -- 19,925
Accounts Receivable:
Managed Limited Partnerships (Note 2) 337,276 315,508
Trade and Other 74,275 91,691
Advances to Related Parties (Note 4) 627,304 1,467,916
- ------------------------------------------------------------------------------------------------
Total Current Assets 1,170,320 2,375,992
PROPERTY AND EQUIPMENT, NET (Notes 5 and 6) 3,178,606 540,068
Other Assets 10,810 146,556
- ------------------------------------------------------------------------------------------------
TOTAL ASSETS $4,359,736 $3,062,616
- ------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts Payable and Accrued Expenses $ 90,835 $ 84,952
Drilling Advances (Note 2) -- 284,074
Amounts Due Managed Limited Partnerships (Note 2) -- 67,274
Current Portion of Long Term Debt (Note 7) 110,231 150,675
- ------------------------------------------------------------------------------------------------
Total Current Liabilities 201,066 586,975
Long Term Debt (Note 7) 418,511 --
Deferred Income Tax Liability (Note 8) 150,139 64,232
- ------------------------------------------------------------------------------------------------
Total Liabilities 769,716 651,207
COMMITMENTS AND CONTINGENCIES (Notes 4, 9 and 10) -- --
STOCKHOLDERS' EQUITY:
Preferred Stock, $0.001 par value; 5,000,000 shares 637 464
authorized; 636,950 and 464,308 shares issued and
outstanding at December 31, 1999 and 1998, respectively
(Notes 4 and 10) (liquidation preferences of $3,185,000
in 1999 and $2,440,000 in 1998.)
Common stock, $0.005 par value; 20,000,000 shares authorized; 29,049 25,858
5,809,794 and 5,171,578 shares issued and outstanding at
December 31, 1999 and 1998, respectively (Notes 4 and 10)
Additional Paid-In Capital 4,208,735 2,873,341
Accumulated Deficit (648,401) (488,254)
- ------------------------------------------------------------------------------------------------
Total Stockholders' Equity 3,590,020 2,411,409
- ------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $4,359,736 $3,062,616
- ------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements
F-3
<PAGE> 29
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, 1999 1998
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATING REVENUES (Note 2):
Turnkey Contract Sales $4,634,089 $1,743,211
Management Fees 244,739 212,624
Reimbursed Costs 139,156 104,354
Contract Drilling Sales 792,439 --
Oil and Gas Sales 60,226 27,501
- ----------------------------------------------------------------------------------------------
Total Operating Revenues 5,870,649 2,087,690
OPERATING COSTS AND OTHER EXPENSES (Notes 2 and 4):
Turnkey Contract Costs 3,616,100 1,428,382
Lease Operating Costs 17,741 27,225
Cost of Contract Drilling 709,308 --
Abandonment and Dry Hole Costs 142,571 16,817
Impairment of Oil and Gas Properties (Notes 1 and 5) -- 327,405
Depreciation, Depletion and Amortization 117,695 17,978
Marketing Costs 676,169 126,588
General and Administrative Costs 353,860 166,104
- ----------------------------------------------------------------------------------------------
Total Operating Costs 5,633,444 2,110,499
- ----------------------------------------------------------------------------------------------
OPERATING INCOME (LOSS) 237,205 (22,809)
OTHER INCOME (EXPENSE):
Interest Income (Note 4) 27,153 82,181
Interest Expense (25,484) --
Other -- 13,441
- ----------------------------------------------------------------------------------------------
Total Other Income (Expense) 1,669 95,622
- ----------------------------------------------------------------------------------------------
INCOME (LOSS) BEFORE TAXES 238,874 72,813
Income Tax Provision (Benefit) (Note 8) 85,907 24,762
- ----------------------------------------------------------------------------------------------
NET INCOME (LOSS) $ 152,967 $ 48,051
- ----------------------------------------------------------------------------------------------
EARNINGS / (LOSS) PER COMMON SHARE (Note 1):
Basic $ (0.03) $ (0.09)
- ----------------------------------------------------------------------------------------------
Diluted $ (0.03) $ ( 0.09)
- ----------------------------------------------------------------------------------------------
Weighted Average Common Shares Outstanding 5,453,611 3,062,868
- ----------------------------------------------------------------------------------------------
Proforma earnings per common share (Note 1) $ .03 $ .01
- ----------------------------------------------------------------------------------------------
Proforma weighted average common shares outstanding 6,090,561 3,723,784
- ----------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 30
STATEMENTS OF CHANGES
IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK
-------------------- -------------------
ADDITIONAL
NO. OF NO. OF PAID-IN ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL (DEFICIT) TOTAL
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE DECEMBER 31, 1997 669,570 669 1,726,600 8,633 1,690,021 (199,857) 1,499,466
- ------------------------------------------------------------------------------------------------------------------------------
Stock Warrants Exercised 2,800,000 14,000 126,000 140,000
Sale of Stock (Notes 4 and 10):
Series D Preferred Stock 267,700 268 1,066,102 1,066,370
Conversion of Preferred Stock (471,362) (471) 644,978 3,225 (3,984) (1,230)
Retirement of Preferred Stock (1,600) (2) (4,798) (4,800)
Dividends Paid on
Preferred Stock (336,448) (336,448)
Net Income 48,051 48,051
- ------------------------------------------------------------------------------------------------------------------------------
BALANCE DECEMBER 31, 1998 464,308 464 5,171,578 25,858 2,873,341 (488,254) 2,411,409
- ------------------------------------------------------------------------------------------------------------------------------
Retirement of Common Stock (5,000) (25) (14,975) (15,000)
Issuance of Common Stock 250,000 1,250 11,250 12,500
Conversion of Preferred Stock (196,608) (196) 393,216 1,966 (1,770) --
Sale of Preferred Stock
Series D (Note 10) 369,250 369 1,340,889 1,341,258
Dividends Paid on
Preferred Stock (313,114) (313,114)
Net Income 152,967 152,967
- ------------------------------------------------------------------------------------------------------------------------------
BALANCE DECEMBER 31, 1999 636,950 $ 637 5,809,794 $29,049 $4,208,735 $(648,401) $3,590,020
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 31
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31, 1999 1998
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss) $ 152,967 $ 48,051
Adjustments to Reconcile Net Income to Net Cash Flows from
Operating Activities:
Depreciation, Depletion and Amortization 117,695 17,978
Impairment, Dry Holes and Abandonment Losses 142,571 344,222
Increase (Decrease) in Deferred Income Taxes 85,907 24,025
Increase (Decrease) in Income Taxes Payable -- 737
(Increase) Decrease in Accounts Receivable 17,416 (184,441)
Increase (Decrease) in Accounts Payable and Accrued Expenses (278,191) 386,534
Gain on Sale of Oil and Gas Properties -- (75,000)
- -----------------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES 238,365 562,106
CASH FLOWS FROM INVESTING ACTIVITIES:
(Increase) Decrease in Advances to Affiliate (1,153,565) (1,166,456)
(Increase) Decrease in Other Assets 70,746 (125,020)
Proceeds from Sale of Oil and Gas Properties -- 325,000
Purchase of Oil and Gas Properties and Equipment (294,260) (492,700)
- -----------------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED (USED) IN INVESTING ACTIVITIES (1,377,079) (1,459,176)
CASH FLOWS FROM FINANCING ACTIVITIES:
Additions to Long Term Debt -- 205,675
Retirement of Long Term Debt (236,417) (59,000)
Proceeds from Exercise of Stock Warrants 12,500 140,000
Issuance of Preferred Stock 1,341,258 1,066,370
Retirement of Stock (15,000) (4,800)
Cost of Conversion of Preferred Stock -- (1,230)
Dividends Paid (313,114) (336,448)
- -----------------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 789,227 1,010,567
- -----------------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH (349,487) 113,497
CASH AT BEGINNING OF PERIOD 480,952 367,455
- -----------------------------------------------------------------------------------------------------------------------------------
CASH AT END OF PERIOD $ 131,465 $ 480,952
- -----------------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash Paid for Interest $ 25,484 $ --
- -----------------------------------------------------------------------------------------------------------------------------------
Cash Paid for Federal Income Taxes $ -- $ --
- -----------------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Purchase of drilling rigs and equipment financed through long term debt of
$614,484, reduction in other assets of $65,000 and reduction in advances to Blue
Ridge Group of $1,190,000: $ 1,869,484 $ --
- -----------------------------------------------------------------------------------------------------------------------------------
Producing property acquisition through reductions in advances to Blue Ridge Group and
Limited Partnerships $ 687,022 $ --
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE> 32
BLUE RIDGE ENERGY, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
1. OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
General
Blue Ridge Energy, Inc., (the Company), a Nevada corporation, was organized
in November, 1994, as Gem Source, Incorporated (Gem Source), and subsequently
changed the name of the Company to Blue Ridge Energy, Inc. in May, 1996. The
Company has offices at 632 Adams Street, Suite 710, Bowling Green, Kentucky,
42101
The Company is engaged in the oil and gas business primarily in Texas,
Kentucky, New Mexico and West Virginia. The Company sponsors oil and gas
drilling partnerships through which it raises money for the drilling of oil and
gas wells and participates for a 1% partnership interest as the managing general
partner of the oil and gas exploration partnerships. The Company also owns two
drilling rigs. These rigs are used to drill oil and gas wells for the sponsored
oil and gas drilling partnerships and also other non-affiliated oil and gas
companies. The rigs are operated on behalf of the Company by an affiliate, Blue
Ridge Group, Inc.
The Company also acquires direct working interest participation in oil and
gas properties. The participation includes both operated and non-operated
working interest in exploratory and development wells. These acquisitions are
funded by a combination of the profits earned from sponsoring oil and gas
drilling programs, the profit earned from contract drilling and from the
proceeds of private offerings of preferred stock.
The Company intends to maintain an active role in the oil and gas industry
as an operator of oil and gas wells, a sponsor of oil and gas drilling programs,
a participant in oil and gas programs, and as an independent producer of oil and
gas.
Principles of Consolidation
The accompanying financial statements include the accounts of Blue Ridge
Energy, Inc. and its investment in limited partnerships for which it acts as
managing general partner. As such, the Company has the sole and exclusive right
and power to manage and control the partnership. The Company accounts for its
investment in limited partnerships under the proportionate consolidation method.
Under this method, the Company's financial statements include its pro rata share
of assets and liabilities and revenues and expenses, respectively, of the
limited partnerships in which it participates. All material intercompany
accounts and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from those estimates.
F-7
<PAGE> 33
BLUE RIDGE ENERGY, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
Drilling Operations
The Company follows the completed contract method of accounting for turnkey
drilling arrangements. Under this method, all income under turnkey drilling
contracts, expenses under turnkey drilling contracts, all direct costs, and
appropriate portions of indirect costs related to contracts in progress are
recognized as revenues and expenses in the period the contracts are
substantially complete. This accounting method has been utilized by the Company
based on the short term nature of the drilling contracts, i.e. 5-10 days.
Working Interests
Oil and gas revenue from working interests the Company owns are recognized
at the point of sale.
Managed Limited Partnerships
The Company sponsors privately offered limited partnerships for which it
serves as the Managing General Partner. The purpose of these partnerships is to
acquire and develop oil and gas leases. The partnerships enter into turnkey
drilling contracts with the Company to drill, complete and equip, if warranted,
the oil and gas leases. The Company receives direct compensation, reimbursement
of costs and expenses, and revenues related to turnkey drilling contracts. The
Company normally participates for 1% of the Limited Partnerships as the Managing
General Partner.
The Company follows the industry practice of pro rata consolidation of its
investments in these partnerships. Accordingly, the Company records on its
financial statements its pro rata share of the assets, liabilities, revenues and
expenses of each partnership. In connection with the sponsorship of oil and gas
partnerships, the Company receives a management fee of approximately 5% of the
capital contributions. Such fees are credited to income as earned.
Property and Equipment
Property and equipment (other than oil and gas) are stated at cost.
Depreciation is recognized on the straight line method, after considering
salvage value, over the estimated useful lives of the assets as follows:
<TABLE>
<CAPTION>
Lives (years)
-------------
<S> <C>
Machinery and Equipment 10
Autos and Trucks 5
Furniture and Fixtures 10
</TABLE>
The Company follows the successful efforts method of accounting for oil and
gas producing activities. Under the successful efforts method of accounting,
costs which relate directly to the discovery of oil and gas reserves are
capitalized. These capitalized costs include;
(1) the costs of acquiring mineral interest in properties,
(2) costs to drill and equip exploratory wells that find proved
reserves,
(3) costs to drill and equip development wells and
(4) costs for support equipment and facilities used in oil and gas
producing activities.
F-8
<PAGE> 34
BLUE RIDGE ENERGY, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
These costs are depreciated, depleted or amortized on the unit of
productions method, based on estimates of recoverable proved developed oil and
gas reserves.
Costs to drill exploratory wells that do not find proved reserves,
geological and geophysical costs, and costs of carrying and retaining unproved
properties are expensed.
The costs of acquiring unproved properties are capitalized as incurred and
carried until the property is reclassified as a producing oil and gas property,
or considered impaired. The Company annually assesses its unimproved properties
to determine whether they have been impaired. If the results of this assessment
indicate impairment, a loss is recognized by providing a valuation allowance.
When an unproved property is surrendered, the costs related thereto are charged
to the application valuation allowance, if adequate, or charged as a loss to
current operations.
The costs of drilling exploratory wells are capitalized as part of the
Company's uncompleted wells, equipment and facilities pending determination of
whether the well has found proved reserves. Once a determination is made, the
capitalized costs are either charged to expense or reclassified as part of
the costs of the Company's wells and related equipment. In the absence of a
determination as to whether the reserves that have been found can be classified
as proved, the costs of drilling such an exploratory well are not carried as an
asset for more than one year following completion of drilling. If after a year
has passed, the Company is unable to determine that proved reserves have been
found, the well is assumed to be impaired, and its costs are charged to expense.
Upon disposition or retirement of property and equipment other than oil and
gas properties, the cost and related accumulated depreciation are removed from
the accounts and the gain or loss thereon, if any, is credited or charged to
income. The Company recognizes the gain or loss on the sale of either a part of
a proved oil and gas property or of an entire proved oil and gas property
constituting a part of a field upon the sale or other disposition of such. The
unamortized cost of the property or group of properties, a part of which was
sold or otherwise disposed of, is apportioned to the interest sold and interest
retained on the basis of the fair value of those interests.
Impairment of Long-Lived Assets
The Company follows the provisions of SFAS 121 - "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of."
Consequently, the Company reviews its long-lived assets to be held and used,
including oil and gas properties accounted for under the successful efforts
method of accounting. Whenever events or circumstances indicate the carrying
value of those assets may not be recoverable, an impairment loss for proved
properties and capitalized exploration and development costs is recognized. The
Company assesses impairment of capitalized costs of proved oil and gas
properties by comparing net capitalized costs to undiscounted future net cash
flows on a field-by-field basis using expected prices. If an impairment is
indicated based on undiscounted expected future cash flows, then an
F-9
<PAGE> 35
BLUE RIDGE ENERGY, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
impairment is recognized to the extent that net capitalized costs exceed the
estimated fair value of the property. Fair value of the property is estimated by
the company using the present value of future cash flows discounted at 10%.
The following expected future prices were used to estimate future cash
flows to assess properties for impairment.
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C> <C>
Oil Price per barrel:
Year 1 $25.60 $12.35
Year 2 25.60 13.73
Year 3 25.60 14.57
Year 4 25.60 15.81
Thereafter 25.60 Escalated 3% - year
Maximum 25.60 23.00
Gas Price per MMCF:
Year 1 $3.31 $1.96
Year 2 3.31 2.25
Year 3 3.31 2.34
Year 4 3.31 2.55
Thereafter 3.31 Escalated 3% - year
Maximum 3.31 3.50
</TABLE>
Oil and gas expected future price estimates were based on NYMEX future
prices at each year-end. Expected future prices were escalated if such prices
were unusually low at year-end compared to historical averages. These prices
were applied to production profiles of proved developed reserves at December
31, 1999 and 1998. The Company's price assumptions change based on current
industry conditions and the Company's future plans. During 1999 and 1998, the
Company recognized impairments, abandonments and dry holes of $142,571 and
$344,222, respectively. The impairments were determined based on the difference
between the carrying value of the assets and the present value of future cash
flows discounted at 10%. It is reasonably possible that a change in reserve or
price estimates could occur in the near term and adversely impact management's
estimate of future cash flows and consequently the carrying value of
properties.
Earnings Per Common Share
The Company's basic earnings per common share ("Basic EPS") is based on the
weighted average number of common shares outstanding during the respective
periods. The income available to common shareholders is computed after deducting
dividends on the preferred stock. The convertible preferred stock and
outstanding stock warrants are considered anti-dilutive and therefore, excluded
from the earnings per share calculations.
The following is a reconciliation of the numerators and denominators used
in the calculation of Basis EPS for the years ended December 31, 1999 and 1998:
F-10
<PAGE> 36
BLUE RIDGE ENERGY, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
Basic EPS computation - 1999
---------
<S> <C>
Net Income $ 152,967
Less: Preferred Stock Dividends (313,114)
---------
Loss Available to Common Stockholders $(160,147)
=========
</TABLE>
<TABLE>
<CAPTION>
Dates Shares Fraction Weighted
Outstanding Outstanding of Period Average Shares
----------- ------------ --------- --------------
<S> <C> <C> <C>
January 1 - December 31 5,171,578 100.00% 5,171,578
Issuance of Common Stock 250,000 25.00% 62,500
Conversion of Preferred Stock
Feb. - July 393,216 57.00% 224,133
Repurchase of Common Stock Jan 31 (5,000) 92.00% (4,600)
--------- ----------
5,809,794
=========
Weighted Average Shares 5,453,611
==========
Basic EPS (Loss) $ (0.03)
==========
</TABLE>
<TABLE>
<CAPTION>
Basic EPS computation - 1998
---------
<S> <C>
Net Income $ 48,051
Less: Preferred Stock Dividends (336,448)
---------
Loss Available to Common Stockholders $(288,397)
=========
</TABLE>
<TABLE>
<CAPTION>
Dates Shares Fraction Weighted
Outstanding Outstanding of Period Average Shares
----------- ------------ --------- --------------
<S> <C> <C> <C>
January 1 - December 31 1,726,600 100.0% 1,726,600
Stock Warrants Exercised July 31 2,800,000 41.9% 1,173,699
Preferred Stock Converted September 30 644,978 25.2% 162,569
--------- ----------
5,171,578
=========
Weighted Average Shares 3,062,868
==========
Basic EPS (Loss) $ (0.09)
==========
</TABLE>
F-11
<PAGE> 37
BLUE RIDGE ENERGY, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
Supplemental Earnings Per Share Data
The following supplemental information presents the Company's pro forma earnings
per share assuming that all preferred stock was converted to common stock as of
December 31, 1999 and 1998.
<TABLE>
<CAPTION>
December 31,
1999 1998
----------- -----------
<S> <C> <C>
Net Income $ 152,967 $ 48,051
Preferred stock dividends paid (313,114) (336,448)
Pro forma preferred stock dividends avoided 313,114 336,448
----------- -----------
Pro forma Net Income available for
Common Stockholders $ 152,967 $ 48,051
=========== ===========
Weighted average shares outstanding 5,453,611 3,062,868
Pro forma conversion of all preferred stock as
of the beginning of year 636,950 660,916
----------- -----------
Pro forma weighted average shares outstanding
assuming conversion of all preferred stock 6,090,561 3,723,784
=========== ===========
Pro forma earnings (loss) per common share $ .03 $ .01
=========== ===========
</TABLE>
The preceding pro forma EPS disclosure is presented to enable the user of the
financial statements to determine the effect of the conversion of potential
common shares outstanding into common shares. Each share of the Series A, B, C
and D Preferred Stock will be converted automatically into common stock two
years from issuance or effective when a Securities Act Registration Statement
for the common stock is filed with the SEC, whichever occurs first.
Income Taxes
Income taxes are provided based on earnings reported for financial
statement purposes. The provision for income taxes differ from the amounts
currently payable because of temporary differences (primarily intangible
drilling costs) in the recognition of certain income and expense items for
financial reporting and tax reporting purposes.
F-12
<PAGE> 38
BLUE RIDGE ENERGY, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
Cash and Cash Equivalents
For purposes of reporting cash flows, cash and cash equivalents includes
cash on hand and cash on deposit.
2. AFFILIATED OIL AND GAS PARTNERSHIPS
The Company provides turnkey drilling services for the various oil and gas
partnerships which it sponsors. Fees earned for these drilling services,
including the sale of leases to the partnerships, amounted to $4,634,089 and
$1,743,211 during 1999 and 1998, respectively. The Company receives a management
fee from the partnerships for its services in connection with the selection of
the joint venture prospects and the initial operations of the joint venture.
Management fees earned during the year ended December 31, 1999 and 1998 amounted
to $244,739 and $212,624, respectively.
In connection with the sponsorship of oil and gas partnerships, the Company
is reimbursed by the partnerships for certain operating and overhead costs
incurred on their behalf, including filing fees, legal fees, accounting fees,
printing costs and other miscellaneous expenses. These reimbursements totaled
$139,156 and $104,354 during the years ended December 31, 1999 and 1998,
respectively.
Included in the Company's financial statements are contributions made to
the various Company sponsored oil and gas partnerships. The Company has
allocated, on a pro-rata basis the amounts associated with these investments to
the appropriate asset, liability, income and expense accounts.
At December 31, 1999 and 1998, the various partnerships owed the Company
$337,276 and $315,508, respectively, for amounts due the company for turnkey
drilling services, syndication fees and reimbursement of fees and expenses
incurred on behalf of the partnerships. At year end 1999 and 1998, the Company
owed the partnerships for capital contributions totaling $-0- and $67,274,
respectively.
During 1998, the Company received advances from the 1998 Year End Drilling
Program as prepayment of drilling fees for services to be performed by the
Company during 1999. At December 31, 1998 the amount of the advanced funds was
$284,074.
3. SHORT TERM INVESTMENTS
During 1996, the Company purchased $19,925 of precious metals (consisting
of gold Krugerrand coins) as a short-term investment. This amount is reflected
in Current Assets in the accompanying financial statements. The Company follows
the policy of carrying its short-term investment in precious metals at cost. The
Company disposed of this investment in 1999 at no gain or loss.
F-13
<PAGE> 39
BLUE RIDGE ENERGY, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
4. RELATED PARTY TRANSACTIONS
A. Common Stock Transactions
The Company was organized in November, 1994, as a Nevada corporation under
the name of Gem Source, Incorporated (Gem Source).
Blue Ridge Group, Inc. (BR Group) acquired control of Gem Source in March,
1996 when BR Group acquired 1,000,000 shares of restricted stock at $0.10 a
share. In May 1996, common shares were the subject of a 1 to 5 reverse split
reducing the outstanding shares to 526,600 and the name of the Company was
changed from Gem Source, Incorporated to Blue Ridge Energy, Inc. (BR Energy).
In June 1996, BR Group acquired another 1,000,000 of restricted common stock
from the company treasury for $0.05 a share, or $50,000.
During 1997, the Company's majority shareholder, BR Group, Inc. exercised
warrants to purchase 200,000 shares of the Company's common stock at $0.05 per
share or $10,000. Subsequently, BR Group, Inc. distributed these shares to
investors in one of its joint ventures.
During 1998, the Company's Board of Directors approved the issuance of
warrants to BR Group, Inc. to purchase 5,000,000 shares of BR Energy, Inc.
restricted common stock at $0.05 per share. BR Group, Inc. previously held
warrants to purchase 1,800,000 shares of restricted common stock at $0.05 per
share.
During 1998, the Company's majority shareholder, BR Group exercised
warrants to purchase 2,800,000 shares of the Company's common stock at $0.05 per
share, or $140,000. Subsequently, BR Group distributed 890,427 of these shares
to investors in several of its partnerships.
Under a previous arrangement with one of the Company's partnerships (the
Home Stake Joint Venture) the Company had agreed to provide certain workover
funds and had the right to 100% of the partnership's revenues from the well
until the workover funds had been recovered. Thereafter, the Home Stake Joint
Venture reverted to its original working interest position. During 1999, the
Company issued 250,000 shares of its Common stock in exchange for the
partnership's reversionary interest in the well.
As of December 31, 1999, there are 5,809,794 shares of common stock issued
and outstanding. A total of 3,126,893 shares are held by BR Group and the
remainder of 2,765,446 shares are held by approximately 500 shareholders.
B. Preferred Stock Transactions
"In May 1996, BR Energy authorized the issuance and sale of 300,000 shares
of Series A Preferred Stock at an assigned value of $3.00 per share and a par
value of $0.001. In July 1996, BR Energy acquired the assets (primarily accounts
receivable and undeveloped oil and gas leases in eastern Kentucky) of Target
Leasing, Ltd. I ("Target"), a Kentucky limited partnership by the issuance and
exchange of 265,746 shares of BR Energy's Series A Preferred Stock. The assets
acquired were initially valued at $797,238.
F-14
<PAGE> 40
BLUE RIDGE ENERGY, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
Legal fees paid related to the issuance of these securities were $7,500. At the
time of its issuance, there was no established market for the Series A Preferred
Stock."
For financial statement purposes, the value of the Series A Preferred
Stock issued and the assets acquired were recorded at the estimated fair value
of the assets acquired, which was considered the value more clearly
determinable. The difference between the par value of the shares issued and the
value of the property received, plus the associated expenses related to the
issuance of these securities, was recorded as additional paid in capital of BR
Energy.
At December 31, 1996, management reviewed the undeveloped leases acquired
in the Target Leasing, Ltd. I acquisition for impairment. Due to adverse
economic conditions and the near term expiration of a significant number of
these leases, management concluded these assets had been impaired and adjusted
the purchase price allocation by $615,000 as prescribed by FAS 38.
In 1997, BR Energy issued an additional 32,000 shares of Series A Preferred
Stock at a cash price of $3.00 per share. The Series A Preferred Stock bore a
12% annual dividend and each share was converted into one (1) share of BR Energy
Common Stock as of September 30, 1998. In total, 297,746 shares of Series A
Preferred Stock were issued by BR Energy."
In October 1996, the Smackover/Woodbine I Joint Venture sponsored by the
Company, and the West Currie Joint Venture sponsored by Fortune Exploration of
Kentucky, Inc. agreed to purchase shares of BR Energy Series B Preferred Stock
at $3.00 per share. As of December 31, 1998, 95,500 shares of Series B Preferred
Stock had been issued under this arrangement.
C. Advances from/to Related Parties
During 1997, the Company purchased for $250,000 the J.W. Harris 1 C oil
well from two shareholders of the Company's majority shareholder, Blue Ridge
Group, Inc. Subsequent to this purchase, the well's performance deteriorated
significantly and the selling parties agreed to buy the well back from the
Company for the original purchase price of $250,000. This $250,000 was recorded
in Advances to Affiliates at December 31, 1997, and was paid in full in March of
1998.
During 1998, the Company agreed to participate with BR Group in the
acquisition and development of oil and gas properties in the Appalachian Basin
of Kentucky. The Company advanced $1,300,000, bearing interest at 12% per annum,
to BR Group related to these acquisitions.
During the years ended 1998 and 1999 the Company earned interest income
under this arrangement of $73,400 and $27,153, respectively. During 1999, BR
Group reduced this obligation through the sale of a drilling rig and ancillary
equipment to the Company and performance of services in the drilling and
completion of various oil and gas wells under the terms of turnkey drilling
contracts. As of December 31, 1999, the balance had been reduced to $627,304. BR
Group reduced this obligation to $ -0- in 2000 through the performance of
additional services under the terms of turnkey drilling contracts and cash
payments.
F-15
<PAGE> 41
BLUE RIDGE ENERGY, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
D. Management Fee Arrangements
BR Group provides various management, administrative, accounting and
geological services for the Company at a rate of $20,000 per month which has
been determined on a proportional basis because specific identification of
expenses is not practical. Management believes that this cost allocation method
of expenses is reasonable. Management of BR Energy is of the opinion that this
management fee represents the fair value of the services rendered. BR Energy
also reimburses BR Group for direct costs paid on its behalf which amounted to
$176,540 in 1999. As of December 31, 1999 and 1998, approximately $0 was due and
payable to BR Group under this arrangement.
E. Turnkey Drilling Contracts
The Company enters into turnkey drilling contracts to drill the oil and gas
wells for its privately sponsored oil and gas partnerships.
The Company also enters into turnkey drilling contracts with BR Group to
contract out the drilling and completion operations of all its oil and gas
wells. Both the Company and BR Group anticipate making a profit under these
turnkey drilling contracts. During 1999 and 1998, BR Energy paid BR Group
$4,634,089 and $1,428,382 for these turnkey drilling and completion services.
See footnote 2 for additional disclosure.
F. Purchase of Drilling Equipment from BR Group
In March 1999, BR Energy purchased ancillary equipment to be used in
association with drilling rig #4 from BR Group at a price of $415,000.
In April 1999, BR Energy purchased drilling rig #2 with associated
ancillary equipment from BR Group at a price of $750,000.
G. Management of Drilling Rigs
The Company contracts with BR Group to manage and operate the two drilling
rigs it owns. BR Group also manages two other rigs owned by other affiliates of
BR Group. BR Group collects all drilling revenues and pays all expenses related
to the drilling operations and accounts to BR Energy on a periodic basis for the
net profits from operations for the two rigs owned by BR Energy. The Company
reported revenues of $792,439 and costs of $709,308 from the operation of the
drilling rigs for the year ended December 31, 1999.
H. Other Property Acquisitions
The Company acquired certain oil and gas properties from its privately
sponsored oil and gas partnerships more fully described in footnote 6, Property
Acquisitions.
I. Fees to Broker Dealer
The Company has an affiliated broker dealer, Ridgemont Securities, Inc.,
that raises the majority of its funds through private placement offerings for
the sale of oil and gas wells and the issuance of preferred stock. The oil and
gas partnerships paid both BR Energy and Ridgemont Securities for the funds
raised in these private placements.
F-16
<PAGE> 42
NOTES TO FINANCIAL STATEMENTS
The fees and expenses paid to Ridgemont Securities, Inc. by BR Energy and
the oil and gas partnerships during 1998 and 1999 are as follows:
<TABLE>
<CAPTION>
1999 1998
---------- --------
<S> <C> <C>
Commissions $1,088,138 $546,713
Due Diligence Fees 43,493 49,938
Promotion Services 200,000 --
Reimburses Expenses 80,780 101,511
---------- --------
Total $1,412,411 $698,162
========== ========
</TABLE>
5. PROPERTY AND EQUIPMENT
Property and equipment, stated at cost, consisted of the following at
December 31, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Proved Oil and Gas Properties $1,208,175 $555,899
Drilling Rigs and Related Equipment 2,105,774 --
Furniture and Fixtures 364 364
---------- --------
3,314,313 556,263
Less Accumulated Depreciation
And Amortization (135,707) (16,195)
---------- --------
$3,178,606 $540,068
========== ========
</TABLE>
Depreciation, depletion and amortization expense was $117,695 and
$17,978 during the years ended 1999 and 1998, respectively.
During 1996, the Company acquired certain non-producing leasehold
interests from Target Leasing, Ltd. I in exchange for preferred stock. These
leases had an average term of two to three years and were evaluated annually to
determine the appropriate carrying value. During 1998 and 1997, the Company
evaluated these interests and recorded an impairment loss of $77,405 each year
for these leases. As of December 31, 1998, the remaining carrying value of these
leases is $0. (See Note 4).
During 1996, the Company purchased an interest in drilling the
Brookshire #1 well in Vermilion Parish, Louisiana from Mescalero Energy, Inc.
for $126,000. In 1997, the operator of the well, Mescalero Energy filed for
bankruptcy. As a result of the Operator's bankruptcy, the Company was unable to
determine the present productive capabilities of the well or the legal status of
production resulting from the well. Therefore, the Company recorded an
impairment loss for the entire amount in this project, or $126,000 during 1997.
The Company has had no further involvement or operations related to the
Brookshire #1 well.
During 1998, the Company evaluated its investment of $392,380 in the
Home Stake #1 re-entry well. The estimated undiscounted future cash flows using
expected prices from the Home Stake #1 well were estimated to be $234,634 as of
December 31, 1998. This estimated cash flow was calculated using the expected
prices disclosed in note 1 and utilizing
F-17
<PAGE> 43
BLUE RIDGE ENERGY, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
revised projected reserve data. Such reserve data was based primarily on the
consulting petroleum engineers December 31, 1998 reserve estimate, revised for
actual production data obtained in late 1998 and early 1999. The expected future
cash flow was discounted at 10% to arrive at a fair value of the property of
$142,892. The excess of the carrying value of the asset over the fair value of
the property was recorded as an impairment loss in 1998 of $250,000.
The Company has pledged one of its drilling rigs and related equipment as
collateral on the long term debt disclosed in Note 7.
6. PROPERTY ACQUISITIONS
During 1999, the Company made the following property acquisitions from
partnerships they have previously syndicated:
A. In 1999, the Company acquired a 100% working interest in the Keegan
Gibson #1 oil well in Smith County, Texas in exchange for issuing warrants to
purchase 335,728 shares of BREY Common stock at $3.00 per share. The warrants
are exercisable during the period March 27, 2000 and March 27, 2005. This
property acquisition was recorded at the Company's cost basis in the partnership
including accounts receivable, which management believes approximates the fair
market value of the property. No basis was attributed to the warrants issued.
B. The Company acquired in 1999, a 100.0% working interest in two gas
wells in Sherman County, Texas in exchange for warrants to purchase 521,208
shares of BREY Common stock at $3.00 per share (See Note 9). The transaction was
recorded at the Company's cost basis in the partnership which approximates its
fair value. The Company did not allocate any cost basis to the Common stock
warrants.
C. During November, 1999, the Company acquired a 30% working interest
in nine gas wells in Harlan County, Kentucky owned by two of its oil and gas
partnerships in exchange for BR Energy's 53.4% working interest in a gas well in
Wharton County, Texas, BR Energy's 12.5% working interest in five development
wells in Mingo and Wyoming Counties of West Virginia, and 968,300 warrants to
purchase BREY Common stock at $3.00 per share (See Note 9). The transaction was
recorded, in accordance with FASB 123, at the estimated fair value of the assets
received being $338,400, as this was considered a more reliable measurement.
D. During 1999, the Company acquired two Ingersoll Rand drilling rigs
and ancillary equipment. These drilling rigs and equipment were purchased
through the reduction of advances to Blue Ridge Group by $1,190,000 and the
issuance of long-term debt for $614,484, The remainder of the purchase price,
$301,290, was paid in cash.
F-18
<PAGE> 44
BLUE RIDGE ENERGY, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
7. LONG-TERM DEBT
During April 1999, the Company purchased a drilling rig and related
equipment with a cash down payment of $245,000 and the balance of $614,484
financed over five years. The terms of the financing agreements requires monthly
payments of $12,631 at interest rates ranging from 7.7% to 8.75%. The aggregate
amount of required payments over the next five years as of December 31, 1999 are
as follows:
<TABLE>
<S> <C>
2000 $151,572
2001 151,572
2002 151,572
2003 151,572
2004 50,524
---------
656,812
Less - amount representing interest 128,070
--------
Principal balance at December 31, 1999 $528,742
========
</TABLE>
These obligations are secured by a drilling rig and related equipment costing
$656,486 and $230,150, respectively (See Note 5).
8. INCOME TAXES
The Company has adopted the provisions of SFAS 109, which requires the
use of the "liability" method under which deferred tax assets and liabilities
are recognized for the estimated future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases.
The following reconciles the Company's Federal and State Income tax
provision with the expected provision obtained by applying statutory rules to
pre-tax income:
<TABLE>
<CAPTION>
1999 1998
------- -------
<S> <C> <C>
Expected Tax Provision (Benefit) $85,907 $28,575
Effect of Progressive Tax Rates -- (3,813)
------- ------
Tax Provision (Benefit) $85,907 $24,762
======= =======
</TABLE>
The tax effect of significant temporary differences representing the
net deferred tax liability at December 31, were as follows:
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Net Operating Loss Carry Forward $(12,000) $(35,442)
Intangible Drilling Costs 162,139 99,674
-------- --------
Net Deferred Tax Liability $150,139 $ 64,232
======== ========
</TABLE>
F-19
<PAGE> 45
BLUE RIDGE ENERGY, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
Income Tax Expense (Benefit) consists of the following components:
<TABLE>
<CAPTION>
1999 1998
------- -------
<S> <C> <C>
Currently Payable (Refundable):
Federal Income Tax $ -- $ --
State Income Tax 3,000 737
------- -------
3,000 737
Deferred Provision (Credit) 82,907 24,025
------- -------
Total Tax Expense (Benefit) $85,907 $24,762
======= =======
</TABLE>
At December 31, 1999, the Company had a net operating loss carry
forward of approximately $35,000 to offset future taxable income. This net
operating loss carry forward will expire in 2019 unless utilized sooner.
During 1998, the Company filed a refund claim with the IRS to carry
back a portion of its 1997 net operating loss ($122,000). Accordingly, the
Company recorded a tax refund of $31,124 in the 1997 financial statements.
9. COMMITMENTS AND CONTINGENCIES
Commitments
The Company has agreed to automatically convert all shares of preferred
stock outstanding effective when a Securities Act Registration Statement for the
Company's common stock is filed with the SEC, or June 30, 2000, whichever comes
first.
Contingencies
The Company's drilling and oil and gas exploration and production
operations are subject to inherent risks, including blowouts, fire and
explosions which could result in personal injury or death, suspended drilling
operations, damage to or destruction of equipment, damage to producing
formations and pollution or other environmental hazards. As a protection against
these hazards, the Company maintains general liability insurance coverage of
approximately $2 million limited to $1 million per occurrence. The Company
believes it is adequately insured for public liability and property damage to
others with respect to its operations. However, such insurance may not be
sufficient to protect the Company against liability for all consequences of well
disasters, extensive fire damage, or damage to the environment. The Company has
never been fined or incurred liability for pollution or other environmental
damage in connection with its operations.
As of December 31, 1999, the Company had no significant customers or
suppliers , other than Blue Ridge Group, which could have a significant adverse
effect on the Company's operations.
The Company conducts its banking relations with two local financial
institutions and does not anticipate any significant problems with future credit
extensions. A significant amount of the Company's operating funds are maintained
in one local bank insured by the FDIC.
F-20
<PAGE> 46
BLUE RIDGE ENERGY, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
10. STOCKHOLDERS' EQUITY
The Company is authorized to issue two classes of stock that are
designated, respectively, common and preferred stock. The total number of shares
of stock which the Company initially had the authority to issue was 20,000,000
shares being designated as common stock. As of December 31, 1999, the Company
was authorized to issue 25,000,000 shares of stock -- 20,000,000 being
designated as common stock and 5,000,000 shares designated as preferred stock.
Common Stock and Warrants
The Company was organized in November, 1994, as a Nevada corporation under
the name of Gem Source, Incorporated (Gem Source) with an initial issuance of
1,000,000 shares of Common Stock with a par value of $0.001 per share.
Blue Ridge Group, Inc. (BRG) acquired control of Gem Source in March, 1996,
when BRG acquired 1,000,000 shares of restricted stock at $0.10 a share. In May
1996, the 2,633,000 outstanding common shares were the subject of a 5 to 1
reverse split resulting in outstanding shares of 526,600 with a par value of
$0.005 per share. The name of the Company was also changed from Gem Source,
Incorporated to Blue Ridge Energy, Inc. Additionally, in June 1996, BRG acquired
another 1,000,000 of restricted common stock from the company treasury for $0.05
a share, or $50,000 and warrants to purchase an additional 2,000,000 shares of
restricted common stock at $0.05 per share. The effective term of these warrants
is from June 30, 1996 through June 30, 2001. During February 1998, the Company
granted warrants to Blue Ridge Group, Inc. to purchase an additional 5,000,000
shares of restricted common stock at $0.05 per share. The effective term of
these warrants is from March 31, 1998 through March 31, 2003.
During 1997, the Company's majority shareholder, Blue Ridge Group, Inc.,
exercised warrants to purchase 200,000 shares of the Company's common stock at
$0.05 per share or $10,000. Subsequently, Blue Ridge Group, Inc. distributed
these shares of stock to investors in one of its partnerships.
During 1998, the Company's majority shareholder, Blue Ridge Group, Inc.
exercised warrants to purchase 2,800,000 shares of the Company's common stock at
$0.05 per share, or $140,000. Subsequently, Blue Ridge Group, Inc. distributed
890,427 of these shares to investors in several of its partnerships.
A table at the end of this footnote discloses additional warrants issued
and to be issued as of December 31, 1999.
Series A Preferred Stock
During May 1996, the Company authorized the issuance and sale of 300,000
shares of Series A Preferred Stock ("BRE Series A Preferred Stock") which has a
par value of $0.001 per share, at $3.00 per share. The Series A Stock bears a
12% per annum dividend payable monthly. Each share of the Series A Stock shall
be converted automatically into one (1) share of
F-21
<PAGE> 47
BLUE RIDGE ENERGY, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
Common Stock effective when a Securities Act Registration Statement for the
Common Stock is filed with the U.S. Securities and Exchange Commission (the
"SEC") or September 30, 1998, whichever occurs first.
In the event of any liquidation, dissolution or winding up of the Company
either voluntary or involuntary, the holders of Series A Stock shall be entitled
to receive, prior and in preference to any distribution of any assets or surplus
funds of the Company to the holders of Common Stock the amount of $3.00 per
share plus all unpaid dividends on such share of each share of Series A Stock
then held by the shareholder.
In a Confidential Private Placement Memorandum dated July 25, 1996, the
Company offered 300,000 shares of Series A Stock in exchange for partnership
assets of Target Leasing, Ltd. I. As of December 31, 1999 and 1998 all of the
Series A Stock had been converted into Common stock.
Series B Preferred Stock
During 1996, the Company authorized the issuance and sale of 300,000 shares
of Series B Preferred Stock ("Series B Stock") which has a par value of $0.001
per share, at $3.00 per share. The Series B Stock bears a 12% per annum dividend
payable monthly. Each share of the Series B Stock shall be converted
automatically into two (2) shares of Common Stock effective when a Securities
Act Registration Statement for the Common Stock is filed with the SEC or two
years from issuance, whichever occurs first.
In the event of any liquidation, dissolution or winding up of the Company
either voluntary or involuntary, the holders of Series B Stock shall be entitled
to receive, prior and in preference to any distribution of any assets or surplus
funds of the Company to the holders of Common Stock, but subordinate to the
liquidation preference of the Series A Stock, the amount of $3.00 per share plus
all unpaid dividends on such share of each share of Series B Stock then held by
the shareholder.
At December 31, 1999, 1998 and 1997 there were -0-, 27,158 and 202,374
shares of Series B Stock issued and outstanding.
Series C Preferred Stock
During 1997, the Company authorized the issuance and sale of 400,000 shares
of Series C Preferred Stock ("Series C Stock") which has a par value of $0.001
per share at $6.00 per share. The Series C Stock bears a 12% per annum dividend
payable monthly. Each share of the Series C Stock shall be converted
automatically into two (2) shares of Common Stock effective when a Securities
Act Registration Statement for the Common Stock is filed with the SEC or two
years from issuance, whichever occurs first.
In the event of any liquidation, dissolution or winding up of the Company,
either voluntary or involuntary, the holders of Series C Stock shall be entitled
to receive, prior and in preference to any distribution of any assets or surplus
funds of the Company to the holders of Common Stock, but subordinate to the
liquidation preference of the Series A Stock and the Series
F-22
<PAGE> 48
BLUE RIDGE ENERGY, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
B Stock, the amount of $6.00 per share plus all unpaid dividends on such share
of each share of Series C Stock then held by the shareholder.
At December 31, 1999 and 1998, there were -0- and 169,450 shares of Series
C Stock issued and outstanding.
Series D Preferred Stock
During 1998, the Company authorized the issuance and sale of 1,000,000
shares of Series D Preferred Stock ("Series D Stock") which has a par value of
$0.001 per share at $5.00 per share. The Series D Stock bears a 12% per annum
dividend payable monthly. Each share of the Series D Stock shall be converted
automatically into one (1) share of Common Stock effective when a Securities Act
Registration Statement for the Common Stock is filed with the SEC or two years
from issuance, whichever occurs first. In the event of any liquidation,
dissolution or winding up of the Company, either voluntary or involuntary, the
holders of Series D Stock shall be entitled to receive, prior and in preference
to any distribution of any assets or surplus funds of the Company to the holders
of Common Stock, but subordinate to the liquidation preference of the Series A
Stock, the Series B Stock and the Series C Stock, the amount of $5.00 per share
plus all unpaid dividends on such share of each share of Series D Stock then
held by the shareholder.
At December 31, 1999 and 1998, there were 636,950 and 267,700 shares of
Series D Stock issued and outstanding, respectively. The total amount received
from the sale of this stock was $3,184,750, less expenses paid of $777,122.
- --------------------------------------------------------------------------------
A summary of the common and preferred stock account at December 31, 1999 is as
follows:
<TABLE>
<CAPTION>
Shares Par Value
---------------------- --------------------- Paid-In
Authorized Issued Per Share Total Capital
-----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Common 20,000,000 5,809,794 $0.005 $29,049 $1,801,744
Preferred
Series D 1,000,000 636,950 $0.001 637 2,406,991
- --------------------------------------------------------------------------------------------------------------
</TABLE>
F-23
<PAGE> 49
Warrants issued and to be issued December 31, 1999:
<TABLE>
<CAPTION>
Title of Aggregate Amount Date from Price at Exchange of
Issue of of Securities which Warrants Which Warrants Partnership
Securities called for by Warrants are Exercisable are Exercisable Interest and terms
<S> <C> <C> <C> <C>
Warrants Issued (1)
- -------------------
Series D Preferred 267,700 May 31, 1998 $1.00 for 1 share Issued in conjunction
Stock Warrants Warrants through of BREY with Series D
May 31, 2003 Common Stock Preferred Stock
Series D2 Preferred 369,250 June 8, 2000 $1.00 for 1 share Issued in conjunction
Stock Warrants Warrants through of BREY with Series D2
May 31, 2004 Common Stock Preferred Stock
Series E 632,133 January 1, 2000 $3.00 for 1 share Issued in connection
Stock Warrants Warrants through of BREY with sale of units in
January 1, 2004 Common Stock 1998 Year End
Drilling Program
Warrants to be Issued (2)
- -------------------------
Series F 335,728 March 27, 2000 $3.00 for 1 share Issued in connection
Stock Warrants Warrants through of BREY with exchange of proved
March 27, 2005 Common Stock properties from Paluxy Partn.
Series F 521,208 March 27, 2000 $3.00 for 1 share Issued in connection
Stock Warrants Warrants through of BREY with exchange of proved
March 27, 2005 Common Stock properties from Sherman Moore Partnership
Series G 438,262 November, 2000 $3.00 for 1 share Issued in connection
Stock Warrants Warrants through of BREY with sale of units in
October, 2002 Common Stock B. U. Ranch #1
Partnership
Series G 600,000 November, 2000 $3.00 for 1 share Issued in connection
Stock Warrants Warrants through of BREY with exchange of proved
October, 2002 Common Stock properties from Cumberland
Gap 10 Partnership
Series G 368,300 November, 2000 $3.00 for 1 share Issued in connection
Stock Warrants Warrants through of BREY with exchange of proved
October, 2002 Common Stock properties from Harlan County
Partnership
Series G 82,500 November, 2000 $3.00 for 1 share Issued in connection
Stock Warrants Warrants through of BREY with the sale of units
October, 2002 Common Stock in Mid South Partnership
</TABLE>
Notes: (1) These Warrants have not been registered with the SEC and accordingly,
are restricted as to sale under Rule 144.
(2) As of December 31, 1999, BREY had committed to issue common stock
warrants to these noted partnerships.
F-24
<PAGE> 50
BLUE RIDGE ENERGY, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
11. SUBSEQUENT EVENTS
During the first quarter of 2000, Blue Ridge Group, Inc. reduced the
balance on its line of credit with the Company from approximately $600,000 to
approximately $0.00. This was accomplished through: (1) cash payments and (2)
services performed in the drilling and completion of several wells in the
Appalachian Basin for the Company.
12. SUPPLEMENTAL INFORMATION ABOUT OIL AND GAS PRODUCING PROPERTIES (UNAUDITED)
Costs incurred in oil and gas acquisition, exploration and development
activities:
<TABLE>
<CAPTION>
(UNAUDITED)
1999 1998
-------- --------
<S> <C> <C>
Acquisition of properties
- Proved $629,052 $ --
- Unproved -- 75,000
Exploration costs -- --
Development costs 294,260 225,350
Company's share of equity method investees
Of property acquisition, exploration and
Development 57,970 192,350
-------- --------
$981,282 $492,700
======== ========
</TABLE>
Results of Operations for Oil and Gas Producing Activities for the Years ended
December 31, 1999 and 1998:
<TABLE>
<CAPTION>
(UNAUDITED)
1999 1998
--------- ---------
<S> <C> <C>
Oil and gas sales $ 60,226 $ 27,501
Gain on sale of oil and gas leases -- 75,000
Production costs (17,741) (27,225)
Abandonment and dry hole costs (142,571) (16,817)
Depreciation, depletion, and amortization
and valuation provision (9,272) (343,405)
--------- ---------
(109,358) (284,946)
Income tax credit 37,182 96,882
--------- ---------
Results of operations for oil and gas
Producing activities (excluding corporate
overhead and financing cost) $ (72,176) $(188,064)
========= =========
</TABLE>
Reserve Quantities (Unaudited)
The following tables present estimates of the Company's proved oil and
gas reserves. The Company emphasizes that reserve estimates are inherently
imprecise and that estimates of new discoveries are more imprecise than those of
producing oil and gas properties. Accordingly, the estimates are expected to
change as future information becomes available. All of the Company's reserves
are located in the United States.
Proved reserves are estimated reserves of crude oil (including
condensate and natural gas liquids) and natural gas that geological and
engineering data demonstrate with reasonable certainty to be recoverable
in future years
F-25
<PAGE> 51
BLUE RIDGE ENERGY, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
from known reservoirs under existing economic and operating conditions. Proved
development reserves are those expected to be recovered through existing wells,
equipment, and operating methods.
<TABLE>
<CAPTION>
Oil (BBLS) Gas (MCF)
---------------------------
<S> <C> <C>
Reserves -- December 31, 1997 2,236 --
Purchases of minerals in place 13,452 10,850
Extensions 20,989 22,000
Production (1,718) (2,000)
------- -------
Reserves -- December 31, 1998 34,959 30,850
Revisions (14,397) (12,850)
Purchase of minerals in place 3,564 70,252
Extensions 0 734,840
Production (2,552) (4,115)
------- -------
Reserves - December 31, 1999 21,574 818,977
======= =======
Proved Developed Reserves
December 31, 1998 34,959 30,850
======= =======
December 31, 1999 21,574 818,977
======= =======
</TABLE>
Standardized Measure of Discounted Future Net Cash Flows (Unaudited)
The following table presents the standardized measure of discounted future net
cash flows relating to proved oil and gas reserves in accordance with SFAS 69:
<TABLE>
<CAPTION>
December 31, December 31,
1999 1998
------------ ------------
<S> <C> <C>
Future cash inflows $3,068,912 $ 414,648
Future development costs (130,663) --
Future production costs (1,136,182) (122,981)
Future income taxes (391,162) (8,419)
---------- ---------
Future net cash flows 1,410,905 283,248
10% annual discount for estimated
timing of cash flow (704,030) (102,836)
---------- ---------
Standardized measure of discounted future net cash flows $ 706,875 $ 80,412
========== =========
Changes in Standardized Measure
of Discounted Future Net Cash Flows:
Standardized measure of discounted
future net cash flows (beginning) $ 180,412 $ 18,138
Sales of oil and gas, net of production costs (42,485) (276)
Net changes in price and production costs 202,716 (26,832)
Revisions of previous quantity estimates (89,388) (1,546)
Change in future income taxes (382,743) (4,548)
Accretion of discount (601,194) (96,349)
Extensions and discoveries less related costs 1,271,096 180,157
Purchase of minerals in place less related costs 163,461 111,668
---------- ---------
Standardized measure of discounted
future net cash flows (ending) $ 706,875 $ 180,412
========== =========
</TABLE>
F-26
<PAGE> 52
BLUE RIDGE ENERGY, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
The standardized measure of discounted future net cash flows is computed
by applying year-end prices of oil and gas (with consideration of prices changed
only to the extent provided by contractual arrangements) to the estimated future
production of proved oil and gas reserves, less estimated future expenditures
(based on year-end costs) to be incurred in developing and producing the proved
reserves, less estimated future income tax expenses (based on year-end statutory
tax rates, with consideration of future tax rates already legislated) to be
incurred on pretax net cash flows less tax basis of the properties and available
credits, and assuming continuation of existing economic conditions. The
estimated future net cash flows are then discounted using a rate of 10 percent a
year to reflect the estimated timing of the future cash flows.
13. FINANCIAL INFORMATION RELATING TO INDUSTRY SEGMENTS
The Company's operating activities can be divided into three major
segments: turnkey drilling services for Company sponsored partnerships, contract
drilling services and the operation of oil and gas properties. The Company earns
income from drilling oil and gas wells for Company-sponsored drilling
partnerships and retains an interest in each well. The Company also engages in
providing contract drilling services for its limited partnerships and third
parties. The Company charges Company sponsored partnerships and other third
parties competitive industry rates for well operations and drilling services.
Segment information for the years ended December 31, 1999 and 1998 is as
follows:
<TABLE>
<CAPTION>
December 31, December 31,
1999 1998
------------ ------------
<S> <C> <C>
SEGMENT REVENUES:
Turnkey Revenue and Related Partnership Fees $ 5,017,984 $ 2,060,189
Contract Drilling Services 792,439 --
Oil and Gas Sales 60,226 27,501
Unallocated Amounts (1) 27,153 82,181
----------- -----------
Total Revenues $ 5,897,802 $ 2,169,871
=========== ===========
(1) Interest income is not allocated in assessing segment performance.
SEGMENT INCOME / LOSS BEFORE INCOME TAXES:
Turnkey Income and Related Partnership Fees $ 583,144 $ 160,997
Contract Drilling Services (25,239) --
Oil and Gas Production 33,160 (17,702)
Unallocated Amounts:
General and Administrative (353,860) (166,104)
Interest Income (Expense), net 1,669 82,181
Other -- 13,441
----------- -----------
Total Income (Loss) $ 238,874 $ 72,813
=========== ===========
SEGMENT ASSETS:
Turnkey Drilling Operations $ 1,049,665 $ 1,889,397
Contract Drilling Rig Operations 1,995,703 65,000
Oil and Gas Production Operations 1,182,903 540,068
Unallocated Amounts
Cash 131,465 480,952
Other -- 19,925
----------- -----------
Total Assets $ 4,359,736 $ 2,995,342
=========== ===========
EXPENDITURES FOR SEGMENT
LONG-LIVED ASSETS
Turnkey Operations $ -- $ --
Contract Drilling Services 2,105,774 --
Oil and Gas Production Operations 744,992 492,700
----------- -----------
Total Expenditures $ 2,850,766 $ 492,700
=========== ===========
</TABLE>
F-27
<PAGE> 53
PART III
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- --------------------------------------------------------------
<S> <C>
(3)(i)* Articles of Incorporation of Blue Ridge Energy, Inc.
(3)(ii)* Bylaws of Blue Ridge Energy, Inc.
10.1* Turnkey drilling contract - Blue Ridge Energy Production Fund
dated August 1, 1996
10.2* Turnkey drilling contract - Smackover/Woodbine I Joint Venture
dated October 1, 1996
10.3* Turnkey drilling contract - Blue Ridge Energy, Inc. and Blue
Ridge Group, Inc. dated October 1, 1996
10.4* Turnkey drilling contract - Paluxy Joint Venture, Ltd. dated
February 24, 1997
10.5* Turnkey drilling contract - Blue Ridge Energy, Inc. and Blue
Ridge Group, Inc. dated February 24, 1997
10.6* Turnkey drilling contract - Home Stake Joint Venture Ltd.
dated May 21, 1997
10.7* Turnkey drilling contract - Blue Ridge Energy, Inc. and Blue
Ridge Group, Inc. dated May 21, 1997
10.8* Turnkey drilling contract - Sherman/Moore #1 Joint Venture,
Ltd. dated September 26, 1997
10.9* Turnkey drilling contract - Blue Ridge Energy, Inc. and Blue
Ridge Group, Inc. dated September 26, 1997
10.10* Turnkey drilling contract - Phillips/Blue Ridge Joint Venture
#1, Ltd. dated February 10, 1998
10.11* Turnkey drilling contract - Blue Ridge Energy, Inc. and Blue
Ridge Group, Inc. dated February 10, 1998
10.12* Turnkey drilling contract - 1998 Year End Drilling Programs,
Ltd. dated December 1, 1998
10.13* Turnkey drilling contract - Blue Ridge Energy, Inc. and Blue
Ridge Group, Inc. dated December 1, 1998
10.14* Turnkey drilling contract - Harlan County Limited Partnership,
Ltd. dated March 4, 1999
10.15* Turnkey drilling contract - Blue Ridge Energy, Inc. and Blue
Ridge Group, Inc. dated March 4, 1999
10.16* Turnkey drilling contract - Cumberland Gap 10 Limited
Partnership, Ltd. dated April 13, 1999
10.17* Turnkey drilling contract - Blue Ridge Energy, Inc. and Blue
Ridge Group, Inc. dated April 13, 1999
10.18* Purchase contract for Ingersoll-Rand RD-20 drilling rig - from
Noland Company dated February 6, 1998
10.19* Bill of Sale of Ingersoll-Rand T-4 drilling rig - Blue Ridge
Group, Inc. to Blue Ridge Energy, Inc. dated June 30, 1999
10.20* Promissory Note for $126,000 from Blue Ridge Energy, Inc. to
Blue Ridge Group, Inc. dated June 30, 1996
10.21* Letter agreement and line of credit for $1,500,000 between
Blue Ridge Group, Inc. and Blue Ridge Energy, Inc. for the
acquisition by Energy of a 75% W.I. in 50 oil & gas wells in
Appalachian Basin dated August 31, 1998
10.22* Management Services contract between Blue Ridge Energy, Inc.
and Blue Ridge Group dated September 30, 1996
10.23* Common Stock Purchases Warrant between Blue Ridge Energy, Inc.
and Blue Ridge Group for purchase of 2,000,000 shares of Blue
Ridge Energy, Inc. common stock - dated June 30, 1996
10.24* Common Stock Purchase Warrant between Blue Ridge Energy, Inc.
and Blue Ridge Group, Inc. for purchase of 5,000,000 of Blue
Ridge Energy, Inc.
10.39* Limited Partnership Agreement of Home Stake Joint Venture,
Ltd. The Company's other limited partnership agreements are
substantially similar in contents to the Homestake Joint
Venture.
11* Computation of per share earnings - included in Part F/S
13 Quarterly report on Form 10-QSB for the period ended September
30, 1999. Incorporated by reference to part F/S of the Form
10-SB, previously filed on November 10, 1999
27.1 Financial Data Schedule
27.2* Financial Data Schedule
27.3* Financial Data Schedule
</TABLE>
* EXHIBITS PREVIOUSLY FILED WITH AMENDMENT NUMBER 2
<PAGE> 54
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act of
1934, this report has been signed below by the following persons on behalf of
the Registrant and in the capacities and on the dates indicated.
Blue Ridge Energy, Inc. Registrant
Date: May 4, 2000 By: /s/ J. THOMAS COOK, JR.
---------------------------------------
J. Thomas Cook, Jr.
Director, Senior Vice President-Finance
and Chief Financial Officer
<PAGE> 55
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- --------------------------------------------------------------
<S> <C>
3(i)* Articles of Incorporation of Blue Ridge Energy, Inc.
3(ii)* Bylaws of Blue Ridge Energy, Inc.
10.1* Turnkey drilling contract - Blue Ridge Energy Production Fund
dated August 1, 1996
10.2* Turnkey drilling contract - Smackover/Woodbine I Joint Venture
dated October 1, 1996
10.3* Turnkey drilling contract - Blue Ridge Energy, Inc. and Blue
Ridge Group, Inc. dated October 1, 1996
10.4* Turnkey drilling contract - Paluxy Joint Venture, Ltd. dated
February 24, 1997
10.5* Turnkey drilling contract - Blue Ridge Energy, Inc. and Blue
Ridge Group, Inc. dated February 24, 1997
10.6* Turnkey drilling contract - Home Stake Joint Venture Ltd.
dated May 21, 1997
10.7* Turnkey drilling contract - Blue Ridge Energy, Inc. and Blue
Ridge Group, Inc. dated May 21, 1997
10.8* Turnkey drilling contract - Sherman/Moore #1 Joint Venture,
Ltd. dated September 26, 1997
10.9* Turnkey drilling contract - Blue Ridge Energy, Inc. and Blue
Ridge Group Inc. dated September 26, 1997
10.10* Turnkey drilling contract - Phillips/Blue Ridge Joint Venture
#1, Ltd. dated February 10, 1998
10.11* Turnkey drilling contract - Blue Ridge Energy, Inc. and Blue
Ridge Group, Inc. dated February 10, 1998
10.12* Turnkey drilling contract - 1998 Year Ended Drilling Programs,
Ltd. dated December 1, 1998
10.13* Turnkey drilling contract - Blue Ridge Energy, Inc. and Blue
Ridge Group, Inc. dated December 1, 1998
10.14* Turnkey drilling contract - Harlan County Limited Partnership,
Ltd. dated March 4, 1999
10.15* Turnkey drilling contract - Blue Ridge Energy, Inc. and Blue
Ridge Group, Inc. dated March 4, 1999
10.16* Turnkey drilling contract - Cumberland Gap 10 Limited
Partnership, Ltd. dated April 13, 1999
10.17* Turnkey drilling contract - Blue Ridge Energy, Inc. and Blue
Ridge Group, Inc. dated April 13, 1999
10.18* Purchase contract for Ingersoll-Rand RD-20 drilling rig --
from Noland Company dated February 6, 1998.
10.19* Bill of Sale of Ingersoll-Rand T-4 drilling rig - Blue Ridge
Group, Inc. to Blue Ridge Energy, Inc. dated June 30, 1999.
10.20* Promissory Note for $126,000 from Blue Ridge Energy Inc. to
Blue Ridge Group Inc. dated June 30, 1996.
10.21* Letter agreement and line of credit for $1,500,000 between
Blue Ridge Group Inc. and Blue Ridge Energy, Inc for the
acquisition by Energy of a 75% W.I. in 50 oil & gas wells in
Appalachian Basin dated August 31, 1998.
10.22* Management Services contract between Blue Ridge Energy, Inc.
and Blue Ridge Group dated September 30, 1996.
10.23* Common Stock Purchases Warrant between Blue Ridge Energy, Inc.
and Blue Ridge Group for purchase of 2,000,000 shares of Blue
Ridge Energy Inc, common stock - dated June 30, 1996.
10.24* Common Stock Purchase Warrant between Blue Ridge Energy Inc
and Blue Ridge Group Inc for purchase of 5,000,000 of Blue
Ridge Energy Inc common stock - dated February 26, 1998.
10.39* Limited Partnership Agreement of Home Stake Joint Venture,
Ltd. The Company's other limited partnership agreements are
substantially similar in contents to the Homestake Joint
Venture.
11* Computation of per share earnings - included in Part F/S
13 Quarterly report on Form 10-QSB for the period ended September
30, 1999. Incorporated by reference to part F/S of the Form
10-SB, previously filed on November 10, 1999
27.1 Financial Data Schedule
27.2* Financial Data Schedule
27.3* Financial Data Schedule
</TABLE>
* EXHIBITS PREVIOUSLY FILED WITH AMENDMENT NUMBER 2
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE DECEMBER
31, 1999 FINANCIAL STATEMENTS OF BLUE RIDGE ENERGY, INC. AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 131,465
<SECURITIES> 0
<RECEIVABLES> 1,038,855
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,170,320
<PP&E> 3,314,313
<DEPRECIATION> 135,707
<TOTAL-ASSETS> 4,359,736
<CURRENT-LIABILITIES> 201,066
<BONDS> 418,511
0
637
<COMMON> 29,049
<OTHER-SE> 3,560,334
<TOTAL-LIABILITY-AND-EQUITY> 4,359,736
<SALES> 5,870,649
<TOTAL-REVENUES> 5,870,649
<CGS> 4,603,415
<TOTAL-COSTS> 4,603,415
<OTHER-EXPENSES> 676,169
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 25,484
<INCOME-PRETAX> 238,874
<INCOME-TAX> 85,907
<INCOME-CONTINUING> 152,967
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 152,967
<EPS-BASIC> (.03)
<EPS-DILUTED> (.03)
</TABLE>
