<PAGE> 1
U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended February 28, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to .
------- -------
Commission file number 0-8532
OAKRIDGE ENERGY, INC.
(Name of small business issuer in its charter)
UTAH 87-0287176
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4613 JACKSBORO HIGHWAY
WICHITA FALLS, TEXAS 76302
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: 940-322-4772
Securities registered under Section 12(b) of the Exchange Act:
Name of each exchange on
Title of each class which registered
------------------- ------------------------
None ----
Securities registered under Section 12(g) of the Exchange Act:
COMMON STOCK, $.04 PAR VALUE
(Title of class)
CHECK WHETHER THE ISSUER (1) FILED ALL REPORTS REQUIRED TO BE FILED BY
SECTION 13 OR 15(d) OF THE EXCHANGE ACT DURING THE PAST 12 MONTHS (OR
FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS REQUIRED TO FILE SUCH
REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR THE
PAST 90 DAYS. YES [X] NO [ ]
CHECK IF THERE IS NO DISCLOSURE OF DELINQUENT FILERS IN RESPONSE TO
ITEM 405 OF REGULATION S-B CONTAINED IN THIS FORM, AND NO DISCLOSURE
WILL BE CONTAINED, TO THE BEST OF REGISTRANT'S KNOWLEDGE, IN
DEFINITIVE PROXY OR INFORMATION STATEMENTS INCORPORATED BY REFERENCE
IN PART III OF THIS FORM 10-KSB OR ANY AMENDMENT TO THIS FORM 10-KSB.
[ ]
STATE ISSUER'S REVENUES FOR ITS MOST RECENT FISCAL YEAR. $1,436,208
STATE THE AGGREGATE MARKET VALUE OF THE VOTING AND NON-VOTING COMMON
EQUITY HELD BY NONAFFILIATES COMPUTED BY REFERENCE TO THE PRICE AT
WHICH THE COMMON EQUITY WAS SOLD, OR THE AVERAGE BID AND ASKED PRICES
OF SUCH COMMON EQUITY, AS OF A SPECIFIED DATE WITHIN THE PAST 60 DAYS.
$2,696,962 AS OF JUNE 4, 1999
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STATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER'S CLASSES
OF COMMON EQUITY, AS OF THE LATEST PRACTICABLE DATE.
4,617,604 AS OF JUNE 10, 1999
DOCUMENTS INCORPORATED BY REFERENCE
Definitive Proxy Statement for Annual Meeting of Stockholders
for Fiscal Year Ended February 28, 1999 - Part III
Transitional Small Business Disclosure Format (check one): YES [ ]
NO [X]
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TABLE OF CONTENTS
<TABLE>
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PAGE
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<S> <C>
PART I........................................................... 1
ITEM 1. DESCRIPTION OF BUSINESS................................. 1
Summary of Developments in Fiscal 1997, 1998
and 1999.............................................. 1
Oil and Gas Operations.................................. 2
Coal and Gravel Operations.............................. 3
Real Estate Held for Development........................ 3
Competition and Markets................................. 5
Regulation.............................................. 6
Environmental and Health Controls....................... 7
Operating Hazards and Uninsured Risks................... 8
Employees............................................... 8
ITEM 2. DESCRIPTION OF PROPERTY................................. 8
Oil and Gas Properties.................................. 8
Reserves........................................... 8
Production......................................... 9
Lifting Costs and Average Sales Prices............. 9
Sales Contracts and Major Customers................ 10
Developed Acreage and Productive Wells............. 10
Undeveloped Acreage................................ 11
Drilling Activity.................................. 11
Coal and Gravel Properties.............................. 12
Real Estate ............................................ 13
Office Building......................................... 13
ITEM 3. LEGAL PROCEEDINGS....................................... 13
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS...................................... 14
PART II.......................................................... 14
ITEM 5. MARKET FOR COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS....................... 14
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR
PLAN OF OPERATION..................................... 15
Results of Operations................................... 15
Financial Condition and Liquidity....................... 20
Year 2000 Compliance.................................... 20
</TABLE>
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<TABLE>
<CAPTION>
PAGE
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<S> <C>
ITEM 7. FINANCIAL STATEMENTS.................................... 21
Index to Financial Statements........................... 21
Independent Auditors' Report............................ 22
Balance Sheets as of February 28, 1999 and 1998......... 23
Statements of Operations for the years ended
February 28, 1999 and 1998............................ 25
Statements of Stockholders' Equity for the
years ended February 28, 1999 and 1998................ 26
Statements of Cash Flows for the years ended
February 28, 1999 and 1998............................ 27
Notes to Financial Statements........................... 28
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE................ 42
PART III......................................................... 42
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND
CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a)
OF THE EXCHANGE ACT................................... 42
ITEM 10. EXECUTIVE COMPENSATION.................................. 42
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT................................. 42
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS.......................................... 42
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K........................ 43
Exhibits.............................................. 43
Reports on Form 8-K................................... 43
SIGNATURES....................................................... 44
</TABLE>
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Parts I and II of this Report contain forward looking statements that involve
risks and uncertainties. Accordingly, no assurances can be given that the
actual events and results will not be materially different than the anticipated
results described in the forward looking statements. See "Item 1. - Description
of Business" and "Item 6. - Management's Discussion and Analysis or Plan of
Operation" for a description of various factors that could materially affect
the ability of the Company to achieve the results described in the forward
looking statements.
PART I
ITEM 1. DESCRIPTION OF BUSINESS.
Oakridge Energy, Inc. (the "Company") is engaged in the exploration for
and development, production and sale of oil and gas primarily in Texas and, to a
much lesser extent, in the development of gravel in Colorado. In addition, the
Company holds certain real estate and coal deposits in Colorado for development.
The Company is a Utah corporation incorporated in 1969. The Company's
executive offices are located at 4613 Jacksboro Highway, Wichita Falls,
Texas 76302. The Company's telephone number is (940)322-4772.
SUMMARY OF DEVELOPMENTS IN FISCAL 1997, 1998 AND 1999
In fiscal 1997, the Company developed a substantial portion of the
oil and gas reserves it had discovered in the prior fiscal year in Madison and
Limestone Counties of East Texas and received a land use permit enabling the
Company to commence preliminary site work on the golf course portion of its
combined golf course/residential lots development on 2,020 acres of land owned
by the Company adjacent to Durango, Colorado. During fiscal 1998, the Company
developed most of the remainder of the East Texas reserves, cleared the major
brush off the land for the fairways portion of the golf course and secured the
water rights and applied for the necessary permits to install an irrigation
system for the golf course. In fiscal 1999, the Company completed the sale of
its interest in the Limestone County, Texas field in the early part of the
year; however, in May 1998 Noel Pautsky, the long-time chief executive officer
of the Company, died unexpectedly in Durango, Colorado while on Company
business. Mr. Pautsky's death, along with the substantial decline in oil prices
that occurred during the remainder of the year, caused the Company to cut back
its planned activity level for the year, particularly in Colorado.
Nevertheless, the Company did complete the "roughing in" of the last nine holes
of the golf course and secured the permits to install the irrigation system,
although it elected, for cost
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considerations, to delay the installation of the irrigation system while it
considered other means of securing water for the entire development. See "Oil
and Gas Operations" and "Real Estate Held for Development" below and "Item 6. -
Management's Discussion and Analysis or Plan of Operation - Results of
Operations."
OIL AND GAS OPERATIONS
During fiscal 1999, the Company's oil and gas operations were primarily
conducted in Madison, Freestone, Red River, Panola and Gregg Counties of East
Texas and in various areas of North Texas.
With the death of Noel Pautsky, Sandra Pautsky, the Company's
President, and Danny Croker, the Company's Vice President, took over the
origination or selection of the exploration and development prospects in which
the Company participates. Until recent fiscal years, the Company typically
utilized its own funds to acquire oil and gas leases covering the lands
comprising the prospects. The leases were obtained directly from landowners as
well as from lease brokers and other operators not affiliated with the Company
by direct purchase, farmin and option agreements. The Company then conducted any
additional geological and/or geophysical operations considered appropriate. To
share costs, the Company usually sold interests in the prospects to a limited
number of industry participants and private investors.
In fiscal 1997 through 1999, however, to broaden its exploratory
activity exposure, the Company purchased interests of varying size in a number
of exploration prospects which were originated by others (i.e., independent
geologists or other independent oil and gas companies). These prospects covered
lands in the States of Texas, Nevada, Mississippi, New Mexico and Kansas. In
most cases, the originator of the prospect had already assembled the leases and
performed most, if not all, of the necessary geological and/or geophysical work
before the interest in the prospects were offered for sale to the Company. Under
such circumstances, the Company typically paid a percentage of the initial
prospect costs greater than the percentage of ownership interest in the prospect
which the Company acquired.
In June 1998, the Company completed the sale to Mitchell Energy
Corporation of all of the Company's interest in its Limestone County, Texas gas
property effective as of March 1, 1998 for approximately $3,100,000. The
property contributed approximately $700,000 to the Company's revenues during
fiscal 1998 and constituted approximately 65% of the Company's gas production in
that year. The Company applied a portion of the funds received from the sale
into its oil and gas operations and its golf course/real estate development in
Colorado and invested the remainder of the proceeds temporarily, pending future
use in such
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operations. See "Item 6. - Management's Discussion and Analysis or Plan of
Operation - Results of Operations."
COAL AND GRAVEL OPERATIONS
The Company's principal coal and only gravel property is the Carbon
Junction mine located on a portion of the 2,020 acres of land owned by the
Company in fee in La Plata County, Colorado. The Company holds a coal mine
permit on 236.9 acres of the property. During fiscal 1998, the Company's gravel
mining permit on approximately 33 acres of the property was transferred to its
lessee, Durango Construction, Inc. ("Durango Construction"). See "Item 2 -
Description of Property - Coal and Gravel Properties." After the Company
obtained an updated appraisal of the coal deposits on the property at the end of
fiscal 1994 which concluded that the deposits had no value, the Company has
limited its operations at the Carbon Junction mine since then to maintenance and
regulatory compliance activities, and it will continue to do so in the future
until the coal market improves substantially. The Company continues to have
posted with the State of Colorado a reclamation performance bond in the amount
of $816,526 for its Carbon Junction coal operations. The Company renewed its
coal mine permit in July 1998.
The Company received approximately $81,300 in royalty payments and
rentals during fiscal 1999 from its gravel contract and surface lease entered
into during 1993 with Durango Construction pursuant to which such company is
mining sand, gravel and rock products from the gravel permit area. The contract
and lease have remaining terms of approximately three years, and the terms may
be extended under certain conditions. The right obtained by the Company from
Durango Construction in the contract and lease to purchase gravel, asphalt and
cement at an attractive price should be beneficial to the Company's golf course
site work as well as the development of the real estate infrastructure in fiscal
2000.
REAL ESTATE HELD FOR DEVELOPMENT
In fiscal 1999, the Company continued with the preliminary site work on
the golf course portion of its golf course/residential lots development which is
located on approximately 300 acres of the 2,020 acres of land owned by the
Company in La Plata County, Colorado. The land is located adjacent to Durango,
Colorado along the two principal highways leading into Durango from the south.
The entrance to the land is located approximately 2.5 miles southeast of the
City. The land is not currently in the City limits of Durango but possibly could
be annexed in the future.
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In fiscal 1996 and 1997, the Company had initiated the design of the
golf course and obtained a land use permit from La Plata County allowing it to
commence preliminary site work on the golf course, which covers approximately
170 of the 300-acre proposed development. The Company also repaired the heavy
earth-moving equipment which it had originally acquired for its coal operations
so that it could be used to perform as much of the golf course work as possible.
During fiscal 1998, the Company commenced and completed clearing the major brush
off the land and commenced leveling the land for the golf course fairways. The
Company also secured the necessary rights to use water from the nearby Animas
River for an irrigation system which it contemplated installing for the golf
course and purchased an additional 10 acres of land adjacent to the Animas River
as a site for the construction of a station to pump the water from the Animas
River through a line to the proposed system. In fiscal 1999, the Company
completed the "roughing in" of the last nine holes of the golf course and
obtained the permits from the various federal agencies to construct the pumping
station and waterline for the irrigation system. The Company had hoped to
commence construction of the station, line and system in the fall of 1998;
however, after obtaining an $800,000 cost estimate for laying only the water
line to the golf course water storage site and an estimated annual operating
cost of $36,000 to pump the water to the storage site, it elected to delay the
commencement of the construction until other alternatives for acquiring water
for the entire development could be fully evaluated. The Company anticipates
completing this evaluation process in fiscal 2000.
The Company had expected to complete its master plan during fiscal 1999
but Mr. Pautsky's death prevented it from doing any significant work on it. The
selection of a consultant to assist the Company in preparing the master plan and
the completion of such master plan with a definitive cost estimate will be the
primary objective for the Company with respect to the development in fiscal
2000. Considerations involved in developing the master plan include whether a
contemplated additional water reservoir to be constructed by the City of Durango
will be located on a portion of the Company's land and whether the City will
proceed with its planning staff's desire to construct a collector or arterial
road through the Company's land, which has the potential to direct significant
traffic through the golf course.
Further work on the residential lots portion of the development will
require the Company to obtain a revised land use permit and master plan approval
by La Plata County or annexation of the Company's land by the City of Durango
and approval by it. The time period to obtain approval is unknown but could be
lengthy. Any annexation of the land by the City could further extend the time
for approval.
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It should continue to be emphasized that, although the Company believes
that it has a good working relationship with the City and County governments, no
assurances can be given that a revised permit allowing work beyond the
preliminary site work for the golf course and master plan approval can be
obtained within satisfactory time frames and without burdensome conditions
attached.
COMPETITION AND MARKETS
COMPETITION: A large number of companies and individuals are engaged in
the exploration for oil and gas, and most of the companies so engaged possess
substantially greater technical and financial resources than the Company.
Competition for desirable leases and suitable prospects for oil and gas drilling
operations is intense, and in the past the Company has experienced significant
competition in obtaining the services of drilling contractors and in purchasing
tubular goods and other materials necessary to drill and complete wells. In
fiscal 1999, the Company did not experience any difficulty in obtaining services
and materials because the significant product price decreases which occurred in
the industry caused demand for such services and materials to fall drastically.
The coal and gravel industries are also highly competitive. A principal
competitive factor in both industries is product price. In addition, with
respect to coal, its quality and, in regard to major sales agreements, the
financial and organizational ability of the selling company to meet long-term
coal delivery requirements of utility companies, are important. With regard to
quality of coal, the important criteria include BTU (heating value), sulfur and
ash content. The principal competitive hurdles the Company faces in any future
coal operations it conducts are higher production costs resulting from greater
overburden levels, higher transportation costs caused by the lack of railroad
facilities in close proximity to its mine site and the additional costs that
would have to be incurred for its coal to meet acceptable quality standards.
These factors, coupled with the low sale price of coal, have currently
eliminated any value for the Company's coal deposits.
MARKETS: The Company's ability to produce and market oil and gas and
coal profitably depends upon a number of factors which are beyond the control of
the Company, the effect of which cannot be accurately predicted or anticipated.
These factors include the availability of adequate pipeline and other
transportation facilities, the marketing of competitive fuels and other factors
affecting the availability of a ready market, such as fluctuating supply and
demand. Additional factors affecting the marketing of oil, gas and coal include
imports and actions by foreign producing nations.
5
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During the fourth quarter of fiscal 1998, oil prices began a downward
trend that continued throughout fiscal 1999. Consequently, the Company's average
oil price received during fiscal 1999 declined $6.44 per barrel (approximately
35.2%) from that price received in fiscal 1998, and this decline had a material
adverse effect on the Company's revenues in fiscal 1999 and the amount of its
estimated year end proven oil reserves. Although current oil prices being
received by the Company have risen to an approximate $16.00 level, a return to
the oil price environment experienced by the Company in fiscal 1999 would have a
further adverse effect on the Company's revenues and operating cash flow and
could result in additional decreases in the carrying value of the Company's oil
and gas properties.
The Company's average gas price received also fell $.28 per MCF
(approximately 12.3%) during fiscal 1999 from $2.30 per MCF to $2.02 per MCF.
While certain of the Company's gas properties experience seasonal variations in
demand, the Company was not experiencing any significant curtailment, or an
inability to sell all of its deliverable gas, on an overall basis at
February 28, 1999. See "Item 6. - Management's Discussion and Analysis or Plan
of Operation - Results of Operations."
The Company will not undertake any efforts to market its coal until it
believes its coal deposits once again have value. All of the Company's gravel
resources are currently being marketed through its contractual arrangements with
Durango Construction.
REGULATION
OIL AND GAS: The production of oil and gas is subject to extensive
federal and state laws, rules, orders and regulations governing a wide variety
of matters, including the drilling and spacing of wells, allowable rates of
production, prevention of waste and pollution and protection of the environment.
In addition to the direct costs borne in complying with such regulations,
operations and revenues may be impacted to the extent that certain regulations
limit oil and gas production to below economic levels. The regulations are
generally designed to ensure that oil and gas operations are carried out in a
safe and efficient manner and to ensure that similarly situated operators are
provided with reasonable opportunities to produce their respective fair shares
of available oil and gas reserves. Since these regulations generally apply to
all oil and gas producers, the Company believes that these regulations do not
put the Company at a material disadvantage to other oil and gas producers.
Certain sales, transportation and resales of natural gas by the Company
are subject to both federal and state laws and regulations, including, but not
limited to, the Natural Gas Act (the "NGA"), the Natural Gas Policy Act of 1978
(the "NGPA") and
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regulations promulgated by the Federal Energy Regulatory Commission ("FERC")
under the NGA, the NGPA and other statutes. The provisions of the NGA and the
NGPA, as well as the regulations thereunder, are complex and can affect all who
produce, resell, transport, purchase or consume natural gas.
Although FERC transportation regulations do not directly apply to the
Company because it is not engaged in rendering jurisdictional transportation
services, these regulations do affect the operations of the Company by virtue of
the need to deliver its gas production to markets served by interstate or
intrastate pipelines.
COAL AND GRAVEL: The Company's coal operations are subject to extensive
regulation under the Surface Mining Control and Reclamation Act of 1977 and the
Colorado law of a similar nature and the Clean Air Act of 1990. The effects of
such regulation have been to increase significantly the lead time to commence
actual surface coal mining operations, to make it more costly for the Company's
coal to be marketed and effectively to limit the customers for the Company's
coal to certain types of power plants. The Company's gravel operations are
subject to comparable regulation, but compliance standards are less rigid.
ENVIRONMENTAL AND HEALTH CONTROLS
The Company's operations are subject to numerous federal, state and
local laws and regulations relating to environmental and health protection.
These laws and regulations require the acquisition of a permit before drilling
commences, restrict the type, quantities and concentration of various substances
that can be released into the environment in connection with drilling and
production activities, limit or prohibit drilling activities on certain lands
lying within wilderness, wetlands and other protected areas and impose
substantial liabilities for pollution resulting from oil and gas operations.
These laws and regulations may also restrict air or other discharges resulting
from the operation of pipeline systems and other facilities in which the Company
may own an interest. Although the Company believes that compliance with
environmental laws and regulations will not have a material adverse effect on
operations or earnings, risks of substantial costs and liabilities are inherent
in oil and gas operations, and there can be no assurance that significant costs
and liabilities will not be incurred. Moreover, it is possible that other
developments, such as stricter environmental laws and regulations or claims for
damages to property or persons resulting from the Company's operations, could
result in substantial costs and liabilities.
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OPERATING HAZARDS AND UNINSURED RISKS
The Company's oil and gas operations are subject to all of the risks
normally incident to the oil and gas exploration and production business,
including blowouts, cratering, explosions, pollution and other environmental
damage, any of which could result in substantial losses to the Company due to
injury or loss of life, damage to or destruction of wells, production facilities
and other property, clean-up responsibilities, regulatory investigations and
penalties and suspensions of operations. As is common in the oil and gas
industry, the Company is not fully insured against certain of these risks either
because insurance is not available or because the Company has elected not to
insure due to high premium costs. The Company maintains comparable insurance
coverage for its coal and gravel operations.
EMPLOYEES
As of June 10, 1999, the Company had five full-time employees and one
part-time employee. Two of the employees and the part-time employee were located
at the Company's executive offices, two were located at the Company's coal,
gravel and real estate development operations office in Durango, Colorado and
one was a field employee located in North Texas. The Company considers its
relations with its employees to be satisfactory.
ITEM 2. DESCRIPTION OF PROPERTY.
(a) OIL AND GAS PROPERTIES.
RESERVES
Reference is made to "Supplemental Oil and Gas Data (Unaudited)"
included in the Notes to Financial Statements for additional information
concerning: (i) certain cost and revenue information pertaining to the Company's
oil and gas producing activities; (ii) estimates of the Company's oil and gas
reserves and changes in such reserves; and (iii) a standardized measure of the
discounted future net cash flows from the Company's oil and gas reserves and the
changes in such standardized measure. The engineering report with respect to the
Company's proved oil and gas reserves as of February 28, 1999 was prepared by
Stephens Engineering, independent petroleum engineers, Wichita Falls, Texas
("Stephens Engineering"). At such date, all of the Company's oil and gas
reserves were located in the United States and in the States of Texas,
Mississippi, Colorado and New Mexico. See "Item 6. - Management's Discussion and
Analysis or Plan of Operation - Results of Operations."
No reserve reports pertaining to the Company's proved net oil or gas
reserves were filed with any Federal governmental
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authority or agency during the fiscal year ended February 28, 1999, and no major
discovery is believed to have caused a significant change in the Company's
estimates of proved reserves since that date.
The following table reflects Stephens Engineering's estimate of those
quantities of oil and gas which can be produced from the Company's proved
developed reserves as of February 28, 1999 during the fiscal year ending
February 29, 2000, using equipment installed and under economic and operating
conditions existing at February 28, 1999:
Oil (Bbls.).............. 57,018
Gas (MCF)................ 105,369
The Company is not obligated to provide a fixed and determinable quantity of oil
and gas in the future under any of its existing contracts or arrangements.
PRODUCTION
The following table shows for each of the three fiscal years ended
February 28, 1999 the total production attributable to the Company's oil and gas
interests:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED OIL GAS
FEBRUARY 28 (BBLS.) (MCF)
- ----------------- ------- -------
<S> <C> <C>
1999............. 87,345 133,478
1998............. 147,911 437,064
1997............. 64,868 389,756
</TABLE>
LIFTING COSTS AND AVERAGE SALES PRICES
The Company's production (lifting) costs and average sales prices
received during each of the three fiscal years ended February 28, 1999 were as
shown in the following table:
<TABLE>
<CAPTION>
FISCAL YEAR
ENDED FEBRUARY 28
-----------------------------
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Lifting Costs
-------------
Per Equivalent Unit (Bbls.)... $ 5.27 $ 3.36 $ 3.03
Average Sales Prices
--------------------
Oil (per Bbl.)................ 11.83 18.28 22.62
Gas (per MCF)................. 2.02 2.30 2.52
</TABLE>
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SALES CONTRACTS AND MAJOR CUSTOMERS
The Company does not own any refining facilities and sells its oil
under short-term contracts at f.o.b. field prices posted by the principal
purchasers of oil in the areas in which the Company's producing properties are
located. During the fiscal year ended February 28, 1999, approximately 89% of
the Company's oil sales were made to Plains Marketing & Transportation. During
fiscal 1999, approximately 73% of the Company's gas sales were made on the spot
market to Enserch Energy Services, Inc.
Substantially all of the Company's oil sales to Plains Marketing &
Transportation and its gas sales to Enserch Energy Services, Inc. were from the
Company's Madison County, Texas property.
In the opinion of management, the termination of any of the Company's
sales contracts would not adversely affect the Company's ability to sell its oil
and gas production at comparable prices.
DEVELOPED ACREAGE AND PRODUCTIVE WELLS
As of February 28, 1999, the Company owned working and overriding
royalty interests in 9,593 gross (2,736 net) acres of developed oil and gas
leases and 81 gross (27.01 net) productive oil and gas wells.
The following table summarizes the Company's developed acreage and
productive wells as of February 28, 1999:
<TABLE>
<CAPTION>
Developed Acreage(1) Productive Wells(1)(3)
----------------------------- -----------------------------
Gross(2) Net(2) Gross(2) Net(2)
------------- ------------- ------------- -------------
Oil Gas Oil Gas Oil Gas Oil Gas
----- ----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Texas:
Madison Co...... 4,675 -- 1,169 -- 30 -- 7.50 --
All Other Cos... 2,523 1,793 1,321 150 37 11 18.30 .89
Mississippi....... 40 -- 1 -- 1 -- .01 --
Colorado.......... -- 242 -- 4 -- 1 -- .02
New Mexico........ -- 320 -- 91 -- 1 -- .29
----- ----- ----- ----- ----- ----- ----- -----
Total.... 7,238 2,355 2,491 245 68 13 25.81 1.20
===== ===== ===== ===== ===== ===== ===== =====
</TABLE>
- ------------
(1) Reversionary interests which may increase or decrease the interest shown
have been disregarded for purposes of this table.
(2) "Gross," as it applies to acreage or wells, refers to the number of wells
or acres in which an interest is owned by the Company. "Net," as it applies
to acreage or wells, refers to
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the sum of the fractional ownership interests owned by the Company in gross
wells or gross acres.
(3) Includes 14 gross (5.10 net) shut-in wells.
UNDEVELOPED ACREAGE
The following table shows the gross and net acres of undeveloped oil
and gas leases held by the Company at February 28, 1999:
<TABLE>
<CAPTION>
STATE GROSS ACRES NET ACRES
----- ----------- ---------
<S> <C> <C>
Texas....................... 25,951 7,862
Arkansas.................... 2,428 1,214
Kansas...................... 1,280 256
----------- ---------
Total...... 29,659 9,332
=========== =========
</TABLE>
All of the Company's undeveloped leases in the State of Arkansas cover
lands located in Miller County, and all of such leases in the State of Kansas
pertain to lands located in Greeley County. In the absence of drilling activity
which establishes commercial reserves sufficient to justify retention, the
Company's leases on approximately 68% of its net acres will expire in fiscal
2000, approximately 6% will expire in fiscal 2001, 1% will expire in fiscal
2002, 4% will expire in fiscal 2003 and less than 1% will expire in fiscal 2004.
The remaining approximate 21% of the Company's undeveloped acreage, which
includes all of such acreage in the State of Arkansas and a portion of such
acreage in Gregg County, Texas, is currently held in force by production from
shallow depth horizons in which the Company has no ownership interest.
DRILLING ACTIVITY
The following table sets forth the results of the Company's drilling
activity for each of the three fiscal years ended February 28, 1999:
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<TABLE>
<CAPTION>
Fiscal Year Exploratory Wells
----------------------------------------------------
Ended Gross Net
------------------------ -------------------------
February 28 Productive Dry Total Productive Dry Total
- ----------------- ---------- ---- ----- ---------- ---- -----
<S> <C> <C> <C> <C> <C> <C>
1997........... 3 3 6 .50 .68 1.18
1998........... 3 2 5 .38 .45 .83
1999........... 2 6 8 .29 1.20 1.49
---------- ---- ----- ---------- ---- -----
Total..... 8 11 19 1.17 2.33 3.50
========== ==== ===== ========== ==== =====
</TABLE>
<TABLE>
<CAPTION>
Fiscal Year Development Wells
----------------------------------------------------
Ended Gross Net
------------------------ -------------------------
February 28 Productive Dry Total Productive Dry Total
- ----------------- ---------- ---- ----- ---------- ---- -----
<S> <C> <C> <C> <C> <C> <C>
1997........... 20 -- 20 3.47 -- 3.47
1998........... 15 1 16 2.94 .25 3.19
1999........... 4 -- 4 1.00 -- 1.00
---------- ---- ----- ---------- ---- -----
Total..... 39 1 40 7.41 .25 7.66
========== ==== ===== ========== ==== =====
</TABLE>
As of February 28, 1999, the Company was not in the process of drilling any
exploratory or development wells.
(b) COAL AND GRAVEL PROPERTIES.
As of February 28, 1999, the Company held 3,156 (1,787 net) acres of
coal leases as described in the following table:
<TABLE>
<CAPTION>
GROSS ACRES NET ACRES
----------- ---------
<S> <C> <C>
Colorado:
La Plata Co.(1)............ 1,825 456
Routt Co.(2)............... 1,331 1,331
----------- ---------
Total.............. 3,156 1,787
=========== =========
</TABLE>
- ------------
(1) The leases were acquired in October 1990 and have a remaining primary term
of approximately 16 years. No annual delay rentals or advance minimum
royalties are required. See discussion following this table.
(2) The lease was acquired in January 1991 and has a remaining primary term of
approximately two years with annual delay rentals of $1 per acre and
advance minimum royalties of $10 per acre.
The Company's Carbon Junction coal mine is located upon the 1,825 acres
in La Plata County, Colorado described in the foregoing table. The renewal mine
permit issued by the State of Colorado for such coal mine pertains to
approximately 237 acres out
12
<PAGE> 17
of such 1,825 acres. The leases described in note (1) to the table cover a 25%
interest in the coal under the 1,825 acres. The Company owns the surface estate
and the remaining 75% interest in the coal and has the executive rights (i.e.,
the exclusive right to sign coal leases) on the remaining 25% interest in the
coal.
In 1991, the Company purchased the surface estate, a 75% interest in
the coal and the executive rights to the remaining 25% interest in the coal of
200 additional acres in La Plata County adjacent to the 1,825 acre tract. The
Company has not yet leased the remaining 25% interest in the coal. By virtue of
its fee and lease ownership and the executive rights it holds, the Company
controls 100% of the above described 1,825 acre and 200 acre tracts. The Company
has no current plans to attempt to operate the Carbon Junction coal mine.
The Company also owns 55% of the gravel, oil, gas and other mineral
rights with respect to the 1,825 acre tract in La Plata County, Colorado and has
the executive rights on the remaining 45%. During fiscal 1998, the Company's
permit from the State of Colorado to mine gravel from 33 acres on such tract was
transferred to Durango Construction, which is currently mining sand, gravel and
rock products from the permit area pursuant to its contract and lease with the
Company. See "Item 1. - Description of Business - Coal and Gravel Operations."
(c) REAL ESTATE.
The surface of the land in La Plata County, Colorado described in "Coal
and Gravel Properties" above is held for development by the Company.
Approximately 300 acres of such land is the subject of a golf course/residential
lots development by the Company. During fiscal 1998, the Company purchased an
additional 10 acres of land for use in the development but donated approximately
15 acres of land to La Plata County for use as trails, thereby reducing the
total acreage in the development to 2,020 acres. See "Item 1. - Description of
Business - Real Estate Held for Development."
(d) OFFICE BUILDING.
The Company owns a one-story office building situated at 4613 Jacksboro
Highway in Wichita Falls, Texas in which its executive offices are located. The
building is located on .519 acres of land and contains 5,117 square feet of
space.
ITEM 3. LEGAL PROCEEDINGS.
The Company is not a party to any pending litigation. To the best
knowledge of the Company, there are no legal proceedings to which any director,
officer or affiliate of the Company, any
13
<PAGE> 18
owner of record or beneficially of more than five percent (5%) of any class of
voting securities of the Company, or any associate of any such director, officer
or security holder is a party adverse to the Company or has a material interest
adverse to the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matter was submitted during the fourth quarter of the fiscal year
ended February 28, 1999 to a vote of the Company's security holders, through the
solicitation of proxies or otherwise.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's common stock, $.04 par value, is traded in the
over-the-counter market. The following table shows the range of bid quotations
for the common stock during the two fiscal years ended February 28, 1999 by
quarters. Such quotations were furnished to the Company by the National
Quotation Bureau, LLC and were supplied by The National Association of
Securities Dealers ("NASD") through the NASD OTC Bulletin Board, the NASD's
automated system for reporting NON-NASDAQ quotes and the National Quotation
Bureau's Pink Sheets. The quotations represent prices between dealers and do not
include retail markups, markdowns or commissions and do not necessarily
represent actual transactions.
<TABLE>
<CAPTION>
PERIOD HIGH LOW
- ------ ---- ---
<S> <C> <C>
Fiscal Year Ended February 28,
1998:
Quarter Ended May 31, 1997 $ 2.50 $ 2.00
Quarter Ended August 31, 1997 2.75 2.50
Quarter Ended November 30, 1997 2.88 2.13
Quarter Ended February 28, 1998 2.88 2.75
Fiscal Year Ended February 28,
1999:
Quarter Ended May 31, 1998 $ 2.88 $ 2.75
Quarter Ended August 31, 1998 2.88 2.88
Quarter Ended November 30, 1998 2.88 2.50
Quarter Ended February 28, 1999 2.50 2.13
</TABLE>
As of May 21, 1999, the approximate number of holders of record of the
common stock of the Company was 503.
The Company did not pay any dividends during the two fiscal years ended
February 28, 1999. There are currently no restrictions upon the Company's
ability to pay dividends; however, the Company does not anticipate paying any
dividends in fiscal 1999.
14
<PAGE> 19
The Company did not make any sales of equity securities during the two
fiscal years ended February 28, 1999.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR
PLAN OF OPERATION.
The following discussion and analysis should be read in conjunction
with the Financial Statements and Notes thereto included in Item 7.
RESULTS OF OPERATIONS
During the fiscal year ended February 28, 1999, the Company incurred a
net loss of $525 ($.00 per share) compared to net income of $410,791 ($.08 per
share) during the fiscal year ended February 28, 1998. The net loss was
primarily the result of substantially lower oil and gas revenues. Absent the
significant gain the Company recognized on the sale of its Limestone County,
Texas property in the first quarter of the fiscal year, the Company would have
incurred a much greater net loss for the 1999 fiscal year as the Company totaled
an approximate $1,547,000 loss from operations.
Oil and gas revenues decreased approximately $2,486,100 (64.7%) in
fiscal 1999 due to the following reasons:
o A substantial decrease in oil and associated gas production from
the Company's principal property in Madison County, Texas.
o The absence of any revenues from the Company's Limestone County,
Texas property sold as of the first of the fiscal year.
o A sharp drop in the average oil and gas prices received by the
Company during the year.
Production from the Company's Madison County, Texas property peaked in
fiscal 1998 and started an expected decline in fiscal 1999 despite the addition
of three gross (.75 net) new wells during the year which completed the
development of the field. As the decline began, some of the wells discontinued
natural flow and were placed on pumps to lift the product automatically to the
surface. At year end, 10 wells had been placed on the pump at an average net
cost to the Company of $15,700 per well. During portions of fiscal 1999, the
operator of the property also restricted production somewhat due to the low
price of oil. Sales from the Company's interest in the property during fiscal
1999 totaled 77,860 barrels of oil and 78,969 MCF of gas, down approximately
56,000 barrels (41.8%) and 59,500 MCF (43.0%) from the fiscal 1998 totals. The
production drops, coupled with over
15
<PAGE> 20
35% and 12% declines in the average oil and gas prices received, respectively,
from the property resulted in a decrease in total revenues from the property of
approximately $1,719,500 during fiscal 1999. The Company's interest in the
Limestone County, Texas property contributed approximately $700,000 to oil and
gas revenues in fiscal 1998 but none in fiscal 1999.
During fiscal 1999, worldwide crude oil supply continued to exceed
demand, resulting in a decrease in worldwide crude oil prices to their lowest
level in at least 40 years, adjusted for inflation. Consequently, the Company's
average oil price received in fiscal 1999 declined approximately $6.44 per
barrel (35.2%) to $11.83 per barrel. This decline followed a $4.34 per barrel
decrease in such price suffered in fiscal 1998. Cumulatively, the Company's
average oil price received has fallen almost 50% since its recent peak in fiscal
1997. The decrease in the Company's average gas price received in fiscal 1999
was not quite as severe as it fell from $2.30 per MCF to $2.02 per MCF, an
approximate 12.3% decline. Overall, price declines negatively impacted oil and
gas revenues by approximately $603,000 in fiscal 1999.
The lower prices also had an adverse effect on the Company's proven oil
and gas reserves and the present worth of the future net revenues from such
reserves, as estimated by the Company's independent petroleum engineers at
fiscal 1999 year end. See "Supplemental Oil and Gas Data (Unaudited)" included
in the Notes to Financial Statements. Under the Securities and Exchange
Commission's required method of estimating proven reserves, the product prices
actually being received at year end must be used, without escalations (other
than those established by contract), in all calculations made over the life of
the reserves. The oil prices being received by the Company at February 28, 1999
were at their lowest point of the year. As a result, certain of the Company's
properties, particularly certain of those located in the North Texas area, were
non-commercial at year end prices, and some potential drilling locations which
contained commercial reserves at February 28, 1998 did not have sufficient
reserves to be commercial at February 28, 1999. Other wells which the report
indicated would need to be placed on the pump to obtain the maximum reserves did
not have sufficient reserves using the February 28, 1999 prices to support the
cost of the pumping equipment and installation. In these cases, the cash flow
estimated by the report had to be stopped when the wells were estimated to quit
flowing.
Given the "worst case" reserve scenario reflected by the February 28,
1999 product prices, the management of the Company requested the independent
petroleum engineers also to prepare reserve estimates using the same gas prices
but a $16.00 per barrel oil price, which happens to be a price close to what the
Company is currently receiving for its oil sales. The following table compares
the Company's estimated proved developed producing oil and gas reserves, the
future net revenues from such reserves and the
16
<PAGE> 21
present value of such revenues using actual product prices being received at
February 28, 1999 and those obtained using a $16.00 per barrel oil price and the
same gas price:
<TABLE>
<CAPTION>
Based Upon Based Upon
Actual Prices $16/Bbl.
at Oil Percentage
February 28, 1999 Price Difference
----------------- ----------- ----------
<S> <C> <C> <C>
Oil (Bbls.) 295,096 370,498 + 25.6%
Gas (MCF) 453,155 544,333 + 20.1%
Future Net
Revenues $1,588,211 $3,640,454 + 129.2%
Present Value
of Future Net
Revenues $1,180,350 $2,532,260 + 114.5%
</TABLE>
The foregoing table does not include information pertaining to the
Company's proven undeveloped oil reserves. The $16.00 per barrel oil price does
not increase the amount of proven undeveloped oil reserves although it does
positively effect the future net revenues from such reserves and the present
value of such revenues.
The table is presented to give shareholders a better understanding of
the effect that the particular date used in estimating and valuing reserves has
when oil prices have a wide swing during the fiscal year. The Company can give
no assurances that either one of the pricing methods used in the table will be
comparable to the actual product prices received by the Company over the life of
its proven reserves.
The Company has two sources of gravel revenues. One is from the
Company's surface lease with Durango Construction which permits such company to
mine the Company's gravel reserves, and the other is the royalty the Company
receives from Durango Construction's gravel sales. Revenues from the Company's
gravel operations increased approximately $22,900 (39.1%) in fiscal 1999 as the
Company's royalty income rose due to the higher level of gravel sales made by
Durango Construction from the Company's property during the year. Rentals
received by the Company from the surface lease were the same in both fiscal
years. The Company had no coal revenues in either fiscal year.
The expenses of the Company's oil and gas operations declined
approximately $95,400 (3.9%) in fiscal 1999 as all categories of such expenses
decreased with the exception of lease impairment charges. Depletion and
depreciation expense declined approximately $38,600 (3.2%) due to the absence of
any expense from the Limestone County, Texas property and the lower level of oil
and gas production during the year. The magnitude of the decline was
substantially offset by a significant increase in the per barrel
17
<PAGE> 22
amortization rate resulting from the Company's lower oil reserves at year end,
particularly with respect to the Company's Madison County and Red River County
properties in Texas. Lease operating expense fell approximately $165,900 (21.2%)
in fiscal 1999. Production and ad valorem taxes, which are included in this
category, dropped collectively approximately $123,500 due to the absence of any
production from the Limestone County, Texas property, lower production levels
from the Madison County, Texas property and in the North Texas area and
decreased valuations resulting from lower oil prices. The remainder of lease
operating expense decreased approximately $42,400 due to the absence of any
expense from the Limestone County, Texas property and lower expense from the New
Mexico area. These decreases were partially offset by a significant increase in
lease operating expense from the Madison County, Texas property. The latter
resulted from an increase in the number of wells being operated in the field,
more wells being in operation for the full year compared to fiscal 1998 and
greater per well expense being incurred as the field matured.
Lease impairment expense increased approximately $176,600 in fiscal
1999 due to charges associated with a recently completed exploratory well in
Panola County, Texas and three wells on the Freestone County, Texas property
where reserves did not fully support the expenses incurred. Exploration expense
(i.e., geological and geophysical expense and dry hole expense) fell
approximately $67,500 (16.7%) in fiscal 1999. Geological and geophysical expense
decreased approximately $19,500 (42.5%) in fiscal 1999 due to the Company's cut
back in exploration activity during the year. Dry hole expense, including
abandoned leasehold expense, declined approximately $48,000 (13.4%) in fiscal
1999 due to an approximate $67,400 decrease in abandoned leasehold expense
during the year. In fiscal 1998, the Company dropped leases on two prospects in
New Mexico and Kansas. In fiscal 1999, the Company condemned leases on only one
prospect in the North Texas area, and the costs of such prospect were not as
substantial as those for the prior year's prospects. Dry hole expense, exclusive
of abandoned leasehold expense, increased approximately $19,400 (7.7%) in fiscal
1999 due to expense of unsuccessful completions in two formations of an
exploratory well drilled in Gregg County, Texas.
The expenses of the Company's coal and gravel operations were lower by
approximately $24,200 (18.0%) in fiscal 1999 as virtually all categories of
operating expense declined. An increase in depletion expense resulting from the
higher level of gravel sales from the Company's property partially offset the
operating expense decline. Real estate development expense decreased
approximately $16,800 (17.8%) in fiscal 1999, generally reflecting a lower level
of activity with respect to work on the golf course in the latter part of the
year as the Company considered alternative water sources for the development as
a whole before proceeding with construction of an irrigation system for the
course.
18
<PAGE> 23
General and administrative expense declined approximately $18,800
(3.8%) in fiscal 1999. In fiscal 1998, the Company incurred $17,750 in bad-debt
expense and a charge of $49,700 for the value of approximately 15 acres of the
Company's land which it donated to La Plata County, Colorado for use as trails.
There were no comparable expenses in fiscal 1999, but higher payroll, general
depreciation, auditing and governmental reporting expenses and fees of
approximately $12,200 paid by the Company to renew the letters of credit
supporting land reclamation bonds required for the Company's coal permit in
Colorado partially offset the amount of the resulting decline.
Other income (expense) changed from an approximate $59,600 expense item
in fiscal 1998 to an approximate $1,397,800 income item in fiscal 1999, a
positive swing of approximately $1,457,400 which was responsible for keeping the
Company's net loss for the year to a minimal level. The principal reason for the
swing was an approximate $1,552,900 gain realized by the Company from the sale
of its Limestone County, Texas property during the first quarter of the year.
This category was adversely effected, however, by writedowns in fiscal 1999
totaling approximately $297,500 in the carrying value of the Company's
investment in an equity security, which were made at various intervals during
the year following declines in the fair value of the security that were
considered to be other than temporary. The writedowns incurred in fiscal 1999
were an increase of approximately $35,400 from those incurred in 1998. Interest
income and other, net income (expense) decreased approximately $58,800 (29.0%)
in fiscal 1999. In fiscal 1998, the Company recorded an approximate $81,700 gain
on the sale of other assets. There was no comparable other income item in fiscal
1999. Interest income alone increased approximately $15,500 (8.3%) in fiscal
1999 due to interest earned on the approximate $2,990,400 in net proceeds from
the sale of the Limestone County, Texas property. The Company did not incur any
interest expense in fiscal 1999, as compared to approximately $11,400 in such
expense recorded in fiscal 1998.
The Company's provision for income taxes changed from an expense item
in fiscal 1998 to a benefit item in fiscal 1999 due to the pre-tax loss incurred
for the year. The amount of the benefit in fiscal 1999 was greater than what
would be normally expected from the Company's loss level due to the effect of
statutory depletion and a revision of a prior year's estimated tax provision.
The Company's weighted average shares outstanding declined
approximately 4.5% during the fiscal year ended February 28, 1999 as compared to
such shares outstanding at year end 1998. Purchases made by the Company in
fiscal 1999 totaled 254,000 shares, 158,000 of which were made from affiliates.
60,000 of the shares purchased from affiliates were from the Noel Pautsky
Estate, 20,000 of such shares were from the Company's President and 78,000
19
<PAGE> 24
of such shares were from or for the account of a shareholder owning in excess of
5% of the Company's outstanding common stock who is not a member of the Noel
Pautsky family. The Company may purchase a non-material amount of its shares
from the Estate of Noel Pautsky prior to such Estate's filing its federal estate
tax return in August 1999.
FINANCIAL CONDITION AND LIQUIDITY
During fiscal 1999, the Company's investing activities funded its
operating and financing activities, resulting in an approximate $1,737,500
increase in cash and cash equivalents at February 28, 1999. Investing activities
provided approximately $2,696,800 in funds during the year as proceeds from
sales of oil and gas properties, principally the Limestone County, Texas
property, and proceeds from sales and redemptions of investment securities
totaled approximately $4,307,100 and more than offset additions to oil and gas
properties and real estate held for development aggregating approximately
$1,755,400. The Company's operating activities and financing activities
(entirely purchases of shares of the Company's stock) used approximately
$155,000 and $804,300, respectively. At February 28, 1999, the Company had no
indebtedness and cash, cash equivalents and investment securities available for
sale totaling approximately $3,039,900.
Assuming that oil and gas prices hold at roughly the current levels
throughout the remainder of fiscal 2000, the Company expects to fund its
contemplated operations during the year and any purchases of the Company's stock
that it makes from its cash and cash equivalents, sales or maturities of all or
a portion of its investment securities available for sale and the anticipated
cash flow from its oil and gas properties. If oil and gas prices fall
substantially below current levels, the Company will likely take a more limited
approach in its expenditures for real estate development or the drilling of new
exploratory oil and gas wells.
YEAR 2000 COMPLIANCE
The Company has prepared for the year 2000 through the replacement of
its computers and the updating of its software and network systems at a cost of
approximately $21,000; it does not anticipate incurring any additional
significant costs. Both the software manufacturer and the Company have tested
the Company's oil and gas operations software, and the Company has also tested
its spreadsheet and word processing software. All software worked properly for
the year 2000. The oil and gas operator who is responsible for the distribution
of most of the Company's revenues and to whom the Company pays many expense
items has been contacted, and it has provided documentation to the Company
indicating that it is in year 2000 compliance and that it has contacted its
major purchasers and is waiting upon their confirmations of compliance.
20
<PAGE> 25
The Company reports to and communicates with other computer systems in
private industry and with government agencies, however, and an interdependence
between systems and dependence on civilian power systems could result in the
failure of one system disrupting the others. The Company considers the greatest
possible impact on it would be if there was a lack of power.
The Company believes that the risks to it from the year 2000 problem
are minimal because of its small size and the precautions that it has taken
already and will take prior to January 1, 2000. In the event of a power failure,
timing would be the major effect of waiting for power to be restored. To guard
against a power failure, the Company intends to print out all ledgers in order
to have hard copy of accounting information. The Company can operate without the
benefit of its in-house computers and, if necessary, can maintain cash funds
sufficient in size to function for an extended length of time without outside
sources.
ITEM 7. FINANCIAL STATEMENTS.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report 22
Balance Sheets as of February 28, 1999 and 1998 23
Statements of Operations for the years ended
February 28, 1999 and 1998 25
Statements of Stockholders' Equity for the
years ended February 28, 1999 and 1998 26
Statements of Cash Flows for the years ended
February 28, 1999 and 1998 27
Notes to Financial Statements 28
</TABLE>
21
<PAGE> 26
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Oakridge Energy, Inc.:
We have audited the accompanying balance sheets of Oakridge Energy, Inc. (the
Company) as of February 28, 1999 and 1998, and the related statements of
operations, stockholders' equity, and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with 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 Oakridge Energy, Inc. as of
February 28, 1999 and 1998, and the results of its operations and its cash flows
for the years then ended in conformity with generally accepted accounting
principles.
KPMG LLP
Dallas, Texas
May 7, 1999
22
<PAGE> 27
OAKRIDGE ENERGY, INC.
Balance Sheets
February 28, 1999 and 1998
<TABLE>
<CAPTION>
ASSETS 1999 1998
------------ ----------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 2,614,499 877,006
Trade accounts receivable 139,556 386,353
Investment securities available for sale (note 2) 425,350 1,637,047
Deferred income taxes (note 3) 303,784 81,729
Prepaid expenses and other 74,372 36,117
------------ ----------
Total current assets 3,557,561 3,018,252
------------ ----------
Investment securities available for sale (note 2) -- 326,667
Oil and gas properties, at cost, using the successful
efforts method of accounting:
Proved developed properties 6,453,058 7,336,399
Accumulated depletion and depreciation (4,447,294) (3,863,223)
------------ ----------
2,005,764 3,473,176
Unproved properties 277,927 261,728
------------ ----------
Net oil and gas properties 2,283,691 3,734,904
------------ ----------
Coal and gravel properties, at cost:
Undeveloped properties 6,063,374 6,062,042
Mining and service equipment 2,674,222 2,674,069
------------ ----------
8,737,596 8,736,111
Accumulated depletion and depreciation (8,384,397) (8,347,878)
------------ ----------
Net coal and gravel properties 353,199 388,233
------------ ----------
Other property and equipment, net of accumulated
depreciation of $686,404 in 1999 and $647,603 in 1998 183,260 188,876
Real estate held for development 2,704,381 2,474,309
Other noncurrent assets (note 6) 1,082,826 1,272,354
------------ ----------
$ 10,164,918 11,403,595
============ ==========
</TABLE>
23
<PAGE> 28
OAKRIDGE ENERGY, INC.
Balance Sheets, Continued
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY 1999 1998
------------ ----------
<S> <C> <C>
Current liabilities:
Accounts payable $ 106,380 281,209
Accrued expenses 80,243 59,194
------------ ----------
Total current liabilities 186,623 340,403
Deferred income taxes (note 3) 464,917 722,299
------------ ----------
Total liabilities 651,540 1,062,702
------------ ----------
Stockholders' equity:
Common stock, $.04 par value, 20,000,000
shares authorized, 10,157,803 shares issued 406,312 406,312
Additional paid-in capital 805,092 805,092
Retained earnings 17,598,645 17,599,170
Accumulated other comprehensive loss -
unrealized loss on investment securities,
net of income taxes (123,700) (100,993)
------------ ----------
18,686,349 18,709,581
Less treasury stock, at cost; 5,540,199 shares
in 1999 and 5,286,194 shares in 1998 (note 5) (9,172,971) (8,368,688)
------------ ----------
Total stockholders' equity 9,513,378 10,340,893
Commitments and contingencies (note 6)
------------ ----------
$ 10,164,918 11,403,595
============ ==========
</TABLE>
See accompanying notes to financial statements.
24
<PAGE> 29
OAKRIDGE ENERGY, INC.
Statements of Operations
For the years ended February 28, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
------------ ----------
<S> <C> <C>
Revenues:
Oil and gas $ 1,354,859 3,840,993
Gravel 81,349 58,497
------------ ----------
Total revenues 1,436,208 3,899,490
------------ ----------
Operating expenses:
Oil and gas:
Depletion and depreciation 1,155,584 1,194,220
Lease operating 616,005 781,874
Lease impairment (note 1(h)) 212,113 35,500
Exploration costs 336,250 403,753
------------ ----------
2,319,952 2,415,347
Coal and gravel 110,377 134,586
Real estate 77,677 94,492
General and administrative 475,233 494,023
------------ ----------
Total operating expenses 2,983,239 3,138,448
------------ ----------
Income (loss) from operations (1,547,031) 761,042
------------ ----------
Other income (expense):
Interest income and other, net 143,681 202,465
Gain on sales of oil and gas properties 1,551,560 --
Writedown of investment securities (note 2) (297,470) (262,087)
------------ ----------
Total other income (expense) 1,397,771 (59,622)
------------ ----------
Income (loss) before income taxes (149,260) 701,420
Income tax expense (benefit) (note 3) (148,735) 290,629
------------ ----------
Net income (loss) $ (525) 410,791
============ ==========
Basic and diluted earnings per common share $ -- 0.08
============ ==========
Weighted average shares outstanding 4,732,891 4,957,329
============ ==========
</TABLE>
See accompanying notes to financial statements.
25
<PAGE> 30
OAKRIDGE ENERGY, INC.
Statements of Stockholders' Equity
For the years ended February 28, 1999 and 1998
<TABLE>
<CAPTION>
ACCUMULATED
ADDITIONAL OTHER
COMMON PAID-IN RETAINED COMPREHENSIVE TREASURY COMPREHENSIVE
STOCK CAPITAL EARNINGS LOSS STOCK TOTAL INCOME (LOSS)
--------- ---------- ---------- ------------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, February 28, 1997 $ 406,312 805,092 17,188,379 (86,002) (7,730,557) 10,583,224
Purchases of treasury stock
(note 5) -- -- -- -- (638,131) (638,131)
Net income -- -- 410,791 -- -- 410,791 410,791
Change in unrealized losses
on investment securities,
net of income taxes
(note 2) -- -- -- (14,991) -- (14,991) (14,991)
--------- ---------- ---------- ------------- ---------- ---------- -------------
Comprehensive income for
year 395,800
=============
Balance, February 28, 1998 406,312 805,092 17,599,170 (100,993) (8,368,688) 10,340,893
Purchases of treasury stock
(note 5) -- -- -- -- (804,283) (804,283)
Net loss -- -- (525) -- -- (525) (525)
Change in unrealized losses
on investment securities,
net of income taxes
(note 2) -- -- -- (22,707) -- (22,707) (22,707)
--------- ---------- ---------- ------------- ---------- ---------- -------------
Comprehensive loss for year (23,232)
=============
Balance, February 28, 1999 $ 406,312 805,092 17,598,645 (123,700) (9,172,971) 9,513,378
========= ========== ========== ============= ========== ==========
</TABLE>
See accompanying notes to financial statements.
26
<PAGE> 31
OAKRIDGE ENERGY, INC.
Statements of Cash Flows
For the years ended February 28, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
------------ ----------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (525) 410,791
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depletion and depreciation 1,246,079 1,245,979
Gain on sales of oil and gas properties (1,551,560) --
Abandoned leaseholds 39,683 107,055
Oil and gas lease impairment 212,113 35,500
Deferred income taxes (479,437) 188,644
Write-down of investment securities 297,470 262,087
Other 26,383 (48,636)
Net changes in operating assets and liabilities:
Trade accounts receivable 246,797 450,210
Prepaid expenses and other noncurrent assets 6,006 10,272
Federal income taxes (49,768) 230,602
Accounts payable and accrued expenses (148,273) 44,489
------------ ----------
Net cash provided by (used in) operating activities (155,032) 2,936,993
------------ ----------
Cash flows from investing activities:
Additions to oil and gas properties (1,510,118) (1,891,395)
Additions to real estate held for development (245,247) (218,856)
Additions to other property and equipment (34,670) --
Purchases of investment securities -- (152,156)
Proceeds from sales and redemptions of investment securities 1,250,959 690,000
Proceeds from sale of oil and gas properties 3,056,102 --
Proceeds from sale of limited partnership 116,968 --
Investments in limited partnerships 57,233 (45,475)
Other 5,581 395
------------ ----------
Net cash provided by (used in) investing activities 2,696,808 (1,617,487)
------------ ----------
Cash flows from financing activities - purchases of treasury stock (804,283) (638,131)
------------ ----------
Net increase in cash and cash equivalents 1,737,493 681,375
Cash and cash equivalents at beginning of year 877,006 195,631
------------ ----------
Cash and cash equivalents at end of year $ 2,614,499 877,006
============ ==========
</TABLE>
See accompanying notes to financial statements
27
<PAGE> 32
OAKRIDGE ENERGY, INC.
Notes to Financial Statements
February 28, 1999 and 1998
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) GENERAL
Oakridge Energy, Inc. (the Company) is engaged in the exploration,
development, production and sale of oil and gas primarily in Texas
and, to a lesser extent, in the exploration and development of coal
and gravel in Colorado. In addition, the Company holds certain real
estate in Colorado for development.
(b) STATEMENTS OF CASH FLOWS
Cash equivalents of $2,498,649 and $417,772 at February 28, 1999 and
1998, respectively, consisted of interest-bearing cash deposits. For
purposes of the statements of cash flows, the Company considers all
cash and highly liquid investments with original maturities of three
months or less to be cash equivalents.
Supplemental disclosure of cash flow information:
<TABLE>
<CAPTION>
1999 1998
----------- ----------
<S> <C> <C>
Interest paid $ -- 11,359
=========== ==========
Income taxes paid (refunded) $ 295,000 (159,802)
=========== ==========
</TABLE>
(c) INVESTMENT SECURITIES
Investment securities consist of a bank certificate of deposit,
corporate notes and equity securities. The Company's investments are
classified at the time of purchase into one of three categories as
follows:
o Held to Maturity Securities - Debt securities that the Company
has the positive intent and ability to hold to maturity are
reported at amortized cost, adjusted for the amortization or
accretion of premiums and discounts.
o Trading Securities - Debt and equity securities that are bought
and held principally for the purpose of selling them in the near
term are reported at fair value, with unrealized gains and losses
included in earnings.
28
<PAGE> 33
OAKRIDGE ENERGY, INC.
Notes to Financial Statements
February 28, 1999 and 1998
o Available for Sale Securities - Debt and equity securities not
classified as either held to maturity securities or trading
securities are reported at fair value, with unrealized gains and
losses excluded from earnings and reported as a separate
component of stockholders' equity (net of tax effects).
The Company did not have any securities classified as held to maturity
or trading as of February 28, 1999 and 1998.
A decline in the market value of any available for sale or held to
maturity security below cost that is deemed to be other than temporary
results in a reduction of the carrying amount to fair value. The
impairment is charged to earnings and a new cost basis for the
security is established. During 1999 and 1998, the Company recorded
impairment charges of $297,470 and $262,087, respectively. Dividend
and interest income are recognized when earned. Gains and losses on
securities sold are computed under the specific identification method.
(d) OIL AND GAS PROPERTIES
The Company uses the successful efforts method of accounting for oil
and gas producing activities. Costs to acquire mineral interests in
oil and gas properties, to drill exploratory wells that find proved
reserves, and to drill and equip development wells are capitalized.
Geological and geophysical costs, costs to drill exploratory wells
that do not find proved reserves, and nonproducing leasehold
abandonments are expensed as incurred.
Unproved oil and gas properties are periodically assessed for
impairment of value and a loss is recognized at the time of impairment
by providing an impairment allowance. Capitalized costs of producing
oil and gas properties are depleted and depreciated by the
units-of-production method based on proved oil and gas reserves as
estimated by an independent petroleum reservoir engineering firm.
Upon sale or retirement of a proved property, the cost and related
accumulated depletion and depreciation are eliminated from the
property accounts, and any resulting gain or loss is recognized.
(e) COAL AND GRAVEL PROPERTIES
Costs attributable to the acquisition and development of coal and
gravel properties are capitalized, while costs incurred to maintain
the properties are expensed. Undeveloped coal and gravel properties
which are individually significant are periodically assessed for
impairment of value and a loss is recognized at the time of impairment
by providing an impairment allowance. Capitalized costs of producing
properties are depleted on a property-by-property basis using the
units-of-production method.
29
<PAGE> 34
OAKRIDGE ENERGY, INC.
Notes to Financial Statements
February 28, 1999 and 1998
In 1994, the Company recorded an impairment allowance for
substantially all the carrying value of the undeveloped coal
properties and related assets.
Depreciation on mining and service equipment is calculated using
accelerated and straight-line methods over the estimated useful lives
of the assets. Upon sale or abandonment, the cost of the equipment and
related accumulated depreciation are removed from the accounts and any
gains or losses thereon are recognized.
(f) OTHER PROPERTY AND EQUIPMENT
Depreciation on other property and equipment is calculated using
accelerated and straight-line methods over the estimated useful lives
of the assets. Upon sale or abandonment, the cost of the equipment and
related accumulated depreciation are removed from the accounts and any
gains or losses thereon are recognized.
(f) REAL ESTATE HELD FOR DEVELOPMENT
Real estate held for development is carried at cost, which is not in
excess of net realizable value. Real estate development and
construction costs directly identifiable with real estate held for
development are capitalized.
(h) IMPAIRMENT OF LONG-LIVED ASSETS
The carrying value of property and equipment is periodically evaluated
under the provisions of Statement of Financial Accounting Standards
No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of" ("Statement No. 121"). Statement
No. 121 requires long-lived assets and certain identifiable
intangibles to be reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not
be recoverable. When it is determined that an asset's estimated future
net cash flows will not be sufficient to recover its carrying amount,
an impairment loss must be recorded to reduce the carrying amount to
its estimated fair value.
Under Statement No. 121, the Company evaluates impairment of proved
oil and gas properties on a field-by-field basis. On this basis,
certain fields may be impaired because they are not expected to
recover their entire carrying value from future net cash flows. During
the years ended February 28, 1999 and 1998, the Company recorded
impairment losses of $212,113 and $35,500 related to its proved oil
and gas properties. The fair values of the impaired proved oil and gas
properties were determined by using the present value of expected
future cash flows. If estimated future cash flows are not achieved
with respect to certain fields, further writedowns may be required.
30
<PAGE> 35
OAKRIDGE ENERGY, INC.
Notes to Financial Statements
February 28, 1999 and 1998
(i) INCOME TAXES
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income
in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date. In addition, a valuation
allowance is established to reduce any deferred tax asset for which it
is determined that it is more likely than not that some portion of the
deferred tax asset will not be realized.
(j) EARNINGS PER COMMON SHARE
Basic earnings per share is calculated by dividing net income (loss)
(available to common shareholders) by the weighted average number of
common shares outstanding for the period. Diluted earnings per share
reflects the potential dilution that could occur if accounts or other
contracts to issue common stock were exercised or converted into
common stock or resulted in the issuance of common stock that then
shared in the earnings of the entity. For the years and quarters
presented herein, basic and diluted earnings (loss) per share are the
same.
(k) REVENUE RECOGNITION
The Company recognizes revenue as oil and gas are produced based on
contracted or estimated sales prices. Estimated revenue is subject to
adjustments based on final settlement. Such adjustments are reflected
in revenue when received.
(l) INVESTMENT IN PARTNERSHIPS
The Company uses the equity method of accounting for investments in
partnerships where the Company has the ability to exercise significant
influence over such entities. Investment in partnerships of $249,142
and $373,935 at February 28, 1999 and 1998, respectively, are included
in other noncurrent assets in the accompanying balance sheets. The
Company recognized losses pertaining to partnerships of $63,972 and
$56,679 for the years ended February 28, 1999 and 1998, respectively,
which are included in interest income and other, net in the
accompanying statements of operations.
(m) FAIR VALUE OF FINANCIAL INSTRUMENTS
In accordance with the reporting requirements of Statement of
Financial Accounting Standards No. 107, "Disclosures About Fair Value
of Financial Instruments," the Company calculates the fair value of
its assets and liabilities which qualify as financial instruments
under this statement
31
<PAGE> 36
OAKRIDGE ENERGY, INC.
Notes to Financial Statements
February 28, 1999 and 1998
and includes this additional information in the notes to the financial
statements when the fair value is different than the carrying value of
those financial instruments. The estimated fair value of cash
equivalents, accounts receivable and accounts payable approximate
their carrying amounts due to the relatively short maturity of their
instruments.
(n) MANAGEMENT'S 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, disclosure of contingent assets and liabilities at the
date of the financial statements, and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
(o) COMPREHENSIVE INCOME
On March 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income"
(Statement No. 130). Statement No. 130 established standards for
reporting and presentation of comprehensive income and its components
in a full set of financial statements. Comprehensive income (loss)
consists of net income (loss) and net unrealized gains (losses) on
securities and is presented in the consolidated statements of
stockholders' equity. The Statement requires only additional
disclosures in the financial statements; it does not affect the
Company's financial position or results of operations.
(2) INVESTMENT SECURITIES
The amortized cost and fair values of current investment securities as of
February 28, 1999 are as follows:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
AVAILABLE FOR SALE COST GAINS LOSSES VALUE
---------------------- ----------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Certificate of deposit $ 59,156 -- -- 59,156
Equity securities 453,603 -- (187,705) 265,898
Corporate notes 100,014 282 -- 100,296
----------- ---------- ---------- ---------
Total current $ 612,773 282 (187,705) 425,350
=========== ========== ========== =========
</TABLE>
32
<PAGE> 37
OAKRIDGE ENERGY, INC.
Notes to Financial Statements
February 28, 1999 and 1998
The amortized cost and fair values of investment securities as of
February 28, 1998 are as follows:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
AVAILABLE FOR SALE COST GAINS LOSSES VALUE
---------------------- ----------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Current:
Equity securities $ 747,010 -- (136,263) 610,747
Corporate notes 1,020,844 5,456 -- 1,026,300
----------- ---------- ---------- ---------
Total current 1,767,854 5,456 (136,263) 1,637,047
----------- ---------- ---------- ---------
Noncurrent:
U.S. Government
agency bonds, due
within 5 years 222,016 3,265 -- 225,281
Corporate notes, due
within 5 years 100,087 1,299 -- 101,386
----------- ---------- ---------- ---------
Total noncurrent 322,103 4,564 -- 326,667
----------- ---------- ---------- ---------
Total $ 2,089,957 10,020 (136,263) 1,963,714
=========== ========== ========== =========
</TABLE>
(3) INCOME TAXES
Income tax expense (benefit) attributable to income from continuing
operations consists of the following:
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
----------- ---------- ---------
<S> <C> <C> <C>
Year ended February 28, 1999:
U.S. Federal $ 277,555 (492,770) (215,215)
State and local 53,147 13,333 66,480
----------- ---------- ---------
$ 330,702 (479,437) (148,735)
=========== ========== =========
Year ended February 28, 1998:
U.S. Federal $ 76,247 163,416 239,663
State and local 25,738 25,228 50,966
----------- ---------- ---------
$ 101,985 188,644 290,629
=========== ========== =========
</TABLE>
33
<PAGE> 38
OAKRIDGE ENERGY, INC.
Notes to Financial Statements
February 28, 1999 and 1998
Income tax expense (benefit) for the years presented differs from the
"expected" Federal income tax expense (benefit) for those years, computed
by applying the statutory U.S. Federal corporate tax rate of 34% to pretax
income (loss), as a result of the following:
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Computed "expected" tax expense (benefit) $ (50,748) 238,483
State and local income taxes, net of Federal
income tax benefit 43,876 53,437
Statutory depletion (73,100) --
Other, primarily revision of prior year
provision estimate (68,763) (1,291)
----------- -----------
$ (148,735) 290,629
=========== ===========
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at
February 28, 1999 and February 28, 1998 are presented below:
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Deferred tax assets:
Unrealized loss on investment securities
available for sale $ 268,645 81,729
Statutory depletion -- 57,061
Alternative minimum tax credit
carryforward 35,139 124,407
Other -- 53,429
----------- -----------
Total gross deferred tax assets 303,784 316,626
----------- -----------
Deferred tax liabilities:
Oil and gas properties and other property
and equipment, principally due to
depletion and depreciation (390,420) (876,817)
Coal properties, principally due to
differences in depletion (74,497) (80,379)
----------- -----------
Total gross deferred tax liability (464,917) (957,196)
----------- -----------
Net deferred tax liability $ (161,133) (640,570)
=========== ===========
</TABLE>
Based on the future reversal of existing taxable temporary differences and
future earnings expectations, management of the Company believes it is more
likely than not that deferred tax assets will be realized or settled, and
accordingly, no valuation allowance has been recorded.
34
<PAGE> 39
OAKRIDGE ENERGY, INC.
Notes to Financial Statements
February 28, 1999 and 1998
(4) SEGMENT INFORMATION AND MAJOR CUSTOMERS
The following information is presented in accordance with Statement No.
131, "Disclosures about Segments of an Enterprise and Related Information."
The Company's adoption of Statement No. 131 in 1999 and applied
retroactively, did not alter the composition of its reportable segments.
The Company is engaged in oil and gas, coal and gravel activities and real
estate development. The Company has identified such segments based on
management responsibility. There are no major distinctions in geographical
areas served as all operations are in the United States. The Company
measures segment profit (loss) as income (loss) from operations. Total
assets are those assets controlled by each reportable segment. The
following table sets forth certain information about each segment's
financial information in 1999 and 1998:
<TABLE>
<CAPTION>
FEBRUARY 28,
--------------------------
1999 1998
------------ -----------
<S> <C> <C>
Business segment revenue:
Oil and gas $ 1,354,859 3,840,993
Gravel 81,349 58,497
------------ -----------
$ 1,436,208 3,899,490
============ ===========
Business segment profit (loss):
Oil and gas $ (965,093) 1,425,646
Coal and gravel (29,028) (76,089)
Real estate development (77,677) (94,492)
General corporate (475,233) (494,023)
------------ -----------
Income (loss) from operations (1,547,031) 761,042
Interest income and other, net 143,681 202,465
Gain on sales of oil and gas properties 1,551,560 --
Write-down of investment securities (297,470) (262,087)
------------ -----------
Income (loss) before income taxes $ (149,260) 701,420
------------ -----------
</TABLE>
35
<PAGE> 40
OAKRIDGE ENERGY, INC.
Notes to Financial Statements
February 28, 1999 and 1998
<TABLE>
<CAPTION>
YEAR ENDED FEBRUARY 28,
--------------------------
1999 1998
------------ -----------
<S> <C> <C>
Business segment assets:
Depreciation, depletion and amortization:
Oil and gas $ 1,155,584 1,194,220
Coal and gravel 36,519 17,229
Real estate development 15,175 5,524
General corporate 38,801 29,006
------------ -----------
$ 1,246,079 1,245,979
============ ===========
Capital expenditures:
Oil and gas $ 1,510,118 1,891,395
Real estate development 245,247 218,856
------------ -----------
$ 1,755,365 2,110,251
============ ===========
FEBRUARY 28,
--------------------------
1999 1998
------------ -----------
Total assets:
Oil and gas $ 5,980,706 7,417,638
Coal and gravel 353,199 388,233
Real estate development 2,704,381 2,474,309
General corporate 1,126,632 1,123,415
------------ -----------
$ 10,164,918 11,403,595
============ ===========
</TABLE>
Oil sales to customers which accounted for more than 10% of the Company's
total oil sales aggregated approximately $1,035,000 and $2,470,000 in 1999
and 1998, respectively. Gas sales to a customer which accounted for more
than 10% of the Company's total gas sales aggregated approximately $203,000
and $965,000 in 1999 and 1998, respectively.
(5) RELATED PARTY TRANSACTIONS
In the normal course of business, the Company owns interests in various oil
and gas properties in which certain stockholders and affiliates also own
interests.
During fiscal year 1998, the Company purchased 60,000 shares of the
Company's common stock from the Company's Executive Vice President at
$2.875 per share which approximated the share price paid by the Company to
other unaffiliated stockholders.
36
<PAGE> 41
OAKRIDGE ENERGY, INC.
Notes to Financial Statements
February 28, 1999 and 1998
During fiscal year 1999, the Company purchased 20,000 shares of the
Company's common stock from the Company's President at $3.20 per share and
60,000 shares from the Estate of the former President at $3.10 per share,
respectively, which approximated the share price paid by the Company to
other unaffiliated stockholders.
(6) COMMITMENTS AND CONTINGENCIES
The Company is subject to certain claims and litigation. In the opinion of
management, the outcome of such matters will not have a materially adverse
effect on the financial statements of the Company.
As of February 28, 1999 and 1998, the Company has pledged interest-bearing
cash deposits of $816,526 and $875,681, respectively, to secure letters of
credit in favor of the Colorado Bureau of Land Management for state
requirements regarding land reclamation based on future operations with
respect to coal and gravel properties. These pledged cash deposits are
included in other noncurrent assets in the accompanying balance sheets.
(7) QUARTERLY OPERATING RESULTS (UNAUDITED)
Quarterly results of operations for 1999 and 1998 were as follows:
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH FULL
1999 QUARTER QUARTER QUARTER QUARTER YEAR
-------------------------- --------- -------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Total revenues $ 433,836 380,082 351,401 270,889 1,436,208
Loss from operations (139,344) (130,510) (198,410) (1,078,767) (1,547,031)
Net income (loss) 870,447 (56,581) (214,791) (599,600) (525)
Basic and diluted earnings
(loss) per common share .03 (.01) (.05) (.13) (.00)
</TABLE>
During the first, second and third quarters of fiscal 1999, the Company
recorded adjustments of approximately $107,000, $27,000 and $164,000,
respectively, (before income taxes) to record impairment charges on
available-for-sale securities for an other than temporary decline in market
value below cost of certain investment securities. The Company recognized a
gain of $1,551,560 from sales of oil and gas properties in the first
quarter of fiscal 1999. The Company recorded approximately $789,000 in
depreciation and depletion on oil and gas properties during the fourth
quarter of fiscal 1999 ($367,000 recorded for the first three quarters),
primarily due to reduction in reserve estimates associated with the
decline in oil and gas prices.
37
<PAGE> 42
OAKRIDGE ENERGY, INC.
Notes to Financial Statements
February 28, 1999 and 1998
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH FULL
1999 QUARTER QUARTER QUARTER QUARTER YEAR
----------------------------- --------- --------- --------- ------- ---------
<S> <C> <C> <C> <C> <C>
Total revenues $ 919,967 1,027,489 1,144,033 808,001 3,899,490
Income (loss) from operations 183,599 373,308 322,447 (118,312) 761,042
Net income (loss) 153,936 297,046 265,627 (305,818) 410,791
Basic and diluted earnings
(loss) per share .03 .06 .05 (.06) .08
</TABLE>
During the fourth quarter of fiscal 1998, the Company recorded an
adjustment of approximately $262,000 (before income taxes) to record
impairment charges on available-for-sale securities for an other than
temporary decline in market value below cost of certain investment
securities. The Company also recorded approximately $500,000 in
depreciation and depletion on oil and gas properties during the fourth
quarter of fiscal 1998 (approximately $694,000 recorded for the first three
quarters), primarily due to reduction in reserve estimates associated with
the decline in oil and gas prices.
38
<PAGE> 43
OAKRIDGE ENERGY, INC.
Supplemental Oil and Gas Data (Unaudited)
The following tables set forth supplementary disclosures for oil and gas
producing activities in accordance with Statement of Financial Accounting
Standards No. 69 ("Statement No. 69").
COSTS INCURRED
A summary of costs incurred in oil and gas property acquisition,
development, and exploration activities (both capitalized and charged to
expense) for the years ended February 28, 1999 and February 28, 1998
follows:
<TABLE>
<CAPTION>
1999 1998
------------ -----------
<S> <C> <C>
Acquisition of unproved properties $ 57,589 147,158
============ ===========
Development costs $ 1,452,529 1,744,237
============ ===========
Exploration costs $ 336,250 403,753
============ ===========
</TABLE>
RESULTS OF OPERATIONS FOR PRODUCING ACTIVITIES
The following table presents the results of operations for the Company's
oil and gas producing activities for the years ended February 28, 1999 and
February 28, 1998.
<TABLE>
<CAPTION>
1999 1998
------------ ----------
<S> <C> <C>
Revenues $ 1,354,859 3,840,993
Production costs (616,005) (781,874)
Depletion, depreciation, and valuation provisions (1,367,697) (1,229,720)
Exploration costs (336,250) (403,753)
------------ ---------
(965,093) 1,425,646
Income tax benefit (expense) 328,132 (470,236)
------------ ---------
Results of operations for producing activities
(excluding corporate overhead and interest
costs) $ (636,961) 955,410
============ =========
</TABLE>
39
<PAGE> 44
OAKRIDGE ENERGY, INC.
Supplemental Oil and Gas Data (Unaudited)
RESERVE QUANTITY INFORMATION
The following table presents the Company's estimate of its proved oil and
gas reserves, all of which are located in the United States. The Company
emphasizes that reserve estimates are inherently imprecise and that
estimates of reserves related to new discoveries are more imprecise than
those for producing oil and gas properties. Accordingly, the estimates are
expected to change as future information becomes available. The estimates
have been prepared with the assistance of an independent petroleum
reservoir engineering firm. Oil reserves, which include condensate and
natural gas liquids, are stated in barrels and gas reserves are stated in
thousands of cubic feet.
<TABLE>
<CAPTION>
OIL GAS
------- ---------
<S> <C> <C>
PROVED DEVELOPED AND UNDEVELOPED RESERVES:
Balance, February 29, 1997 602,772 2,072,920
Revisions of previous estimates 303,628 (159,043)
Extensions and discoveries 113,653 342,204
Production (147,911) (437,064)
------- --------
Balance, February 28, 1998 872,142 1,819,017
Sales of minerals in place (1,084) (1,312,487)
Revisions of previous estimates (41,797) (52,245)
Extensions and discoveries 15,703 132,348
Production (87,345) (133,478)
------- ---------
Balance, February 28, 1999 757,619 453,155
======= =========
PROVED DEVELOPED RESERVES:
February 29, 1997 314,277 1,908,674
======= =========
February 28, 1998 325,946 1,684,528
======= =========
February 28, 1999 295,096 453,155
======= =========
</TABLE>
STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOW AND
CHANGES THEREIN RELATING TO PROVED OIL AND GAS RESERVES
The following table, which presents a standardized measure of discounted
future net cash flows and changes therein relating to proved oil and gas
reserves, is presented pursuant to Statement No. 69. In computing this
data, assumptions other than those required by the Financial Accounting
Standards Board could produce different results. Accordingly, the data
should not be construed as representative of the fair market value of the
Company's proved oil and gas reserves.
40
<PAGE> 45
OAKRIDGE ENERGY, INC.
Supplemental Oil and Gas Data (Unaudited)
Future cash inflows were computed by applying existing contract and
year-end prices of oil and gas relating to the Company's proved reserves to
the estimated year-end quantities of those reserves. Future price changes
were considered only to the extent provided by contractual arrangements in
existence at year-end. Future development and production costs were
computed by estimating the expenditures to be incurred in developing and
producing the proved oil and gas reserves at the end of the year, based on
year-end costs. Future income tax expenses were computed by applying the
year-end statutory tax rate, with consideration of future tax rates already
legislated, to the future pretax net cash flows relating to the Company's
proved oil and gas reserves. The standardized measure of discounted future
cash flows at February 28, 1999 and February 28, 1998, which represent the
present value of estimated future cash flows using a discount rate of 10% a
year, follows:
<TABLE>
<CAPTION>
1999 1998
------------ ----------
<S> <C> <C>
Future cash inflows $ 7,624,686 14,563,635
Future production and development costs (4,297,549) (8,006,427)
Future income tax expenses (537,771) (1,033,620)
------------ ----------
Future net cash flows 2,789,366 5,523,588
10% annual discount for estimated
timing of cash flows (859,036) (1,651,108)
------------ ----------
Standardized measure of discounted
future net cash flows $ 1,930,330 3,872,480
============ ==========
Beginning of year $ 3,872,480 5,788,230
Sales of oil and gas, net of production costs (738,854) (3,016,519)
Extensions, discoveries, and improved
recoveries, less related costs 422,352 504,289
Accretion of discount 387,248 578,823
Net change in sales and transfer prices, net of
production costs (1,176,238) (949,921)
Changes in estimated future development costs 1,164,640 93,187
Net change in income taxes 582,540 650,733
Sales of reserves in place (2,214,788) --
Changes in production rates (timing and other) (237,021) (1,139,944)
Revisions of previous quantities (132,029) 1,363,602
------------ ----------
End of year $ 1,930,330 3,872,480
============ ==========
</TABLE>
41
<PAGE> 46
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE.
The Company did not change its principal independent accounting firm
nor have any disagreements with such firm on accounting and financial disclosure
matters during the two fiscal years ended February 28, 1999.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND
CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a)
OF THE EXCHANGE ACT.
The information required by this item is incorporated by reference to
the definitive proxy statement for the Company's Annual Meeting of Stockholders
for the fiscal year ended February 28, 1999 to be filed with the Securities and
Exchange Commission ("SEC") not later than 120 days after the end of such year.
ITEM 10. EXECUTIVE COMPENSATION.
The information required by this item is incorporated by reference to
the definitive proxy statement for the Company's Annual Meeting of Stockholders
for the fiscal year ended February 28, 1999 to be filed with the SEC not later
than 120 days after the end of such year.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT.
The information required by this item is incorporated by reference to
the definitive proxy statement for the Company's Annual Meeting of Stockholders
for the fiscal year ended February 28, 1999 to be filed with the SEC not later
than 120 days after the end of such year.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by this item is incorporated by reference to
the definitive proxy statement for the Company's Annual Meeting of Stockholders
for the fiscal year ended February 28, 1999 to be filed with the SEC not later
than 120 days after the end of such year.
42
<PAGE> 47
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS
(3)(ii) By-Laws of the Company dated May 23, 1975 filed as
Exhibit A(4) to Form 10 and incorporated herein by reference.
(27) Financial Data Schedule.
(b) REPORTS ON FORM 8-K - There were no reports on Form 8-K filed by the
Company during the last quarter of the period covered by this report.
43
<PAGE> 48
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
OAKRIDGE ENERGY, INC.
By /s/ Sandra Pautsky
----------------------------
Sandra Pautsky, President
DATE: June 14, 1999
In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the registrant and in the capacities and
on the dates indicated.
By /s/ Sandra Pautsky By /s/ Carol J. Cooper
---------------------------- ----------------------------
Sandra Pautsky, President Carol J. Cooper, Chief
(Chief Executive Officer Accounting Officer
and Chief Financial
Officer) and Director
DATE: June 14, 1999 DATE: June 14, 1999
By /s/ Danny Croker By /s/ Randy Camp
---------------------------- ----------------------------
Danny Croker, Director Randy Camp, Director
DATE: June 14, 1999 DATE: June 14, 1999
44
<PAGE> 49
INDEX TO EXHIBITS
The exhibits filed with this Registration Statement are filed in
accordance with the requirements of Item 601 of Regulation S-B for filings on
Form 10-KSB. For convenient reference, each exhibit is listed according to the
number assigned to it in the Exhibit Table of such Item 601.
(2) Plan of acquisition, reorganization, arrangement, liquidation, or
succession - not applicable.
(3)(ii) By-laws - By-Laws of the Registrant dated May 23, 1975 filed as
Exhibit A(4) to Form 10 and incorporated herein by reference.
(4) Instruments defining the rights of security holders, including
indentures - not applicable.
(9) Voting trust agreement - not applicable.
(10) Material contracts - not applicable.
(11) Statement re computation of per share earnings - not applicable.
(13) Annual or quarterly reports, Form 10-Q - not applicable.
(16) Letter on change in certifying accountant - not applicable.
(18) Letter on change in accounting principles - not applicable.
(19) Previously unfiled documents - not applicable.
(21) Subsidiaries of the registrant - not applicable.
(22) Published report regarding matters submitted to vote - not applicable.
(23) Consent of experts and counsel - not applicable.
(24) Power of attorney - not applicable.
(27) Financial Data Schedule.
(99) Additional exhibits - not applicable.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF OAKRIDGE ENERGY, INC. AS OF AND FOR THE PERIOD ENDED
FEBRUARY 28, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> FEB-28-1999
<PERIOD-END> FEB-28-1999
<CASH> 2,614,499
<SECURITIES> 425,350
<RECEIVABLES> 139,556
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 3,557,561
<PP&E> 19,112,922
<DEPRECIATION> 13,588,391
<TOTAL-ASSETS> 10,164,918
<CURRENT-LIABILITIES> 186,623
<BONDS> 0
0
0
<COMMON> 406,312
<OTHER-SE> 9,107,066
<TOTAL-LIABILITY-AND-EQUITY> 10,164,918
<SALES> 1,436,208
<TOTAL-REVENUES> 1,436,208
<CGS> 2,508,006
<TOTAL-COSTS> 2,983,239
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (149,260)
<INCOME-TAX> (148,735)
<INCOME-CONTINUING> (525)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (525)
<EPS-BASIC> .00
<EPS-DILUTED> .00
</TABLE>
