SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the Fiscal Year ended: SEPTEMBER 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from ___________ to ___________
Commission File No. 0-9295
WINCO PETROLEUM CORPORATION
-----------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
COLORADO 84-0794604
- ------------------------------- ---------------------------------------
(State or Other Jurisdiction of (I.R.S. Employer Identification Number)
Incorporation or Organization)
3118 CUMMINGS
GARDEN CITY, KANSAS 67846
-----------------------------------------------------------
(Address of Principal Executive Offices, Including Zip Code)
Registrant's Telephone Number, Including Area Code: (316) 275-2963
Securities Registered Pursuant to Section 12(b) of the Act: NONE.
Securities Registered Pursuant to Section 12(g) of the Act: COMMON STOCK,
NO PAR VALUE PER SHARE.
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
------- -------
As of February 23, 1997, 40,852,576 shares of Common Stock were
outstanding, and the aggregate market value of the Common Stock of Winco
Petroleum Corporation held by nonaffiliates was not able to be ascertained
as no trading market exists for the Registrant's Common Stock.
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (s. 229.405 of this chapter) is not contained herein,
and will not be contained, to the best of Registrant's knowledge, in
definitive proxy or information statements incorporated by reference in
Part III of this Form 10-KSB or any amendment to this Form 10-KSB. / X /
Documents incorporated by reference: NONE.
This Form 10-KSB consists of 37 pages. The Exhibit Index begins on page
17.
<PAGE>
PART I
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
CERTAIN STATEMENTS IN THIS FORM 10-KSB UNDER "ITEM 1. DESCRIPTION OF
BUSINESS," "ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS," AND ELSEWHERE IN THIS FORM 10-KSB
CONSTITUTE "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995 (THE "REFORM ACT"). SUCH
FORWARD-LOOKING STATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES,
AND OTHER FACTORS WHICH MAY CAUSE THE ACTUAL RESULTS, PERFORMANCE, OR
ACHIEVEMENTS OF THE COMPANY TO BE MATERIALLY DIFFERENT FROM ANY FUTURE
RESULTS, PERFORMANCE, OR ACHIEVEMENTS EXPRESSED OR IMPLIED BY SUCH
FORWARD-LOOKING STATEMENTS. SUCH FACTORS INCLUDE, AMONG OTHERS, THE
FOLLOWING: COMPETITION; SUCCESS OF OPERATING INITIATIVES; DEVELOPMENT AND
OPERATING COSTS; ADVERTISING AND PROMOTIONAL EFFORTS; BRAND AWARENESS;
ADVERSE PUBLICITY; ACCEPTANCE OF NEW PRODUCT OFFERINGS; EXPANSION OF THE
HOME MEAL REPLACEMENT BUSINESS; CHANGES IN BUSINESS STRATEGY OR DEVELOPMENT
PLANS; AVAILABILITY AND TERMS OF CAPITAL; FOOD, LABOR, AND EMPLOYEE BENEFIT
COSTS; CHANGES IN GOVERNMENT REGULATIONS; REGIONAL WEATHER CONDITIONS; AND
OTHER FACTORS REFERENCED IN THIS FORM 10-KSB.
ITEM 1. DESCRIPTION OF BUSINESS.
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GENERAL
Winco Petroleum Corporation (the "Registrant" or the "Company") with
its principal and executive offices at 3118 Cummings, Garden City, Kansas
67846, telephone (316) 275-2963, was incorporated as a Colorado corporation
on June 21, 1979. The Company was formed primarily for the purpose of
exploration, development, and production of oil and gas.
The Registrant investigates potential opportunities to develop, drill
and/or participate in the development of new oil and gas properties
primarily in the West and Midwest regions of the United States. Its
current activities on a yearly basis include identifying and drilling from
one (1) to five (5) oil and gas properties on its own behalf or with other
industry partners. It is likely that any significant expenditures required
of the Registrant in connection with the future exploration activities will
require additional funding from outside sources in the form of debt or
equity. There can be no assurance such funding is or will be available to
the Registrant for this purpose.
BUSINESS STRATEGY
The Registrant's growth strategy is to increase its oil and gas
revenues by drilling and completing, on its own behalf and with other
industry partners, from one (1) to five (5) oil and gas prospects per year.
The Registrant will develop these prospects each year with a view to taking
advantage of industry advances in seismic and drilling technologies and
management's oil and gas experience primarily in Wyoming and Kansas. Of
the projected new prospects, one (1) or two (2) will be intended as higher
potential, higher risk prospects. As indicated above, the Registrant
intends to market its prospects in such a way that will allow it to be able
to control its cost and risks on each prospect.
2
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OPERATIONS
As of September 30, 1997, the Registrant or affiliate entities serve
as operator for all of the Registrant's producing wells and for which it
receives an operating fee for each well. The Registrant believes that, as
operator, it is in a better position to control costs, safety and
timeliness of work as well as other critical factors affecting the
economics of a well or property. The Registrant presently operates wells
which represent virtually 100% of the Registrant's proved reserves.
CUSTOMERS AND MARKETS
Two purchasers each represent in excess of 10% of the Registrant's
total oil and gas revenue for the fiscal years ended September 30, 1997 and
1996. These purchasers are Koch Oil Company, Inc. and Texaco Trading, Inc.
Prices of Registrant's oil and gas are generally set unilaterally by the
individual buyers based upon prevailing market prices paid to oil and gas
producers in that area.
The Registrant's business is not seasonal in nature, except to the
extent that weather conditions at certain times of the year may affect the
Registrant's access to its oil and gas properties and its ability to drill
oil and gas wells. The impact of inflation on the Registrant's activities
is minimal. While gas prices have historically fluctuated between winter
and summer seasons, changes in the market during the last few years have
made such fluctuations unpredictable. For instance, because local gas
utilities around the country need to refill their gas storage facilities in
the summer, prices may be higher during spring or summer months than during
subsequent winter months when temperatures are warmer than normal.
COMPETITION
The Registrant competes with numerous other companies and individuals,
including many that have significantly greater resources, in virtually all
facets of its business. Such competitors may be able to pay more for
desirable leases and to evaluate, bid for and purchase a greater number of
properties that the financial or personnel resources of the Registrant
permit. The ability of the Registrant to increase reserves in the future
will be dependent on its ability to select and acquire suitable producing
properties and prospects for future exploration and development. The
availability of a market for oil and natural gas production depends upon
numerous factors beyond the control of producers, including but not limited
to the availability of other domestic or imported production, the locations
and capacity of pipelines, and the effect of federal and state regulation
on such production. Domestic oil and natural gas must compete with
imported oil and natural gas, coal, atomic energy, hydroelectric power and
other forms of energy. The Registrant does not hold a significant
competitive position in the oil and gas industry.
RECENT DEVELOPMENTS
On September 28, 1997, the Company acquired 100% of the working
interest and operations of an oil lease in Barron County, Kansas, called
the Hofmeister. This lease has one producing oil well, which will
contribute to the Company's cash flow and net income in the next
3
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fiscal year. Part of the working interest acquired (i.e. 12.5%) was
purchased from American Warrior, Inc., a company affiliated by common
ownership. The purchase from American Warrior, Inc. was on the same terms
as the remaining working interest (i.e. 87.5%) that was purchased from
outside parties with no affiliation.
During fiscal 1997, the Company plugged and abandoned an oil and gas
lease in Wyoming, the Hummer-Federal. This well was located in an area in
which the surface acreage was committed for coal production from a strip-
mining operation. As the mining operation was approaching the Company's
well, pursuant to an agreement between the Company and the coal production
company, the Company plugged the well and was reimbursed for lost reserves.
The reimbursement for reserves and sale of salvaged equipment, net of costs
of plugging, resulted in an amount of $71,204. As the disposition of this
lease involved significant reserves included in the full cost pool of oil
and gas properties, an allocation was made of estimated original cost and
accumulated depreciation, depletion and amortization applicable to this
property, resulting in a gain on disposition of $43,811. The allocation of
net costs of $27,393 recorded as a reduction of capitalized costs was based
on the current production rates of all oil and gas properties in the full
cost pool.
Subsequent to September 30, 1997 and effective January 1, 1998, the
Company sold the remaining oil and gas production in Wyoming, except the
Madsen 12-9 lease. The Madsen 12-9 is operated on behalf of the Company by
an oil and gas operator located in Wyoming, who owns a partial interest in
that lease. This sale will enable the Company to reinvest those resources
in the mid-continent area, probably Kansas, where the Company's operations
will be more concentrated. The seven leases sold, including two non-
producers, contributed about 32% of the Company's oil and gas sales in
fiscal 1997. The reinvestment of the proceeds of this sale will be in oil
and gas leases, whether operated by the Company or by others, which will
have more development potential.
GOVERNMENT REGULATION OF THE OIL AND GAS INDUSTRY
GENERAL
The Registrant's exploration and marketing operations are regulated
extensively at the federal, state and local levels. Gas and oil
exploration, development and production activities are subject to various
laws and regulations governing a wide variety of matters. For example,
hydrocarbon-producing states have statutes or regulations addressing
conservation practices and the protection of correlative rights, and such
regulations may affect the Registrant's operations and limit the quantity
of hydrocarbons the Registrant may produce and sell. Other regulated
matters include marketing, pricing, transportation, and valuation of
royalty payments.
At the U.S. federal level, the Federal Energy Regulatory Commission
("FERC") regulates interstate transportation of natural gas under the
Natural Gas Act and regulates the maximum selling prices of certain
categories of gas sold in "first sales" in interstate and intrastate
commerce under the Natural Gas Policy Act. Effective January 1, 1993, the
Natural Gas Wellhead Decontrol Act deregulated natural gas prices for all
"first sales" of natural gas, which includes sales by the Registrant of its
own production. As a result, all sales of the
4
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Registrant's natural gas produced in the U.S. may be sold at market prices,
unless otherwise committed by contract.
The Registrant's gas sales are affected by regulation of intrastate
and interstate gas transportation. In an attempt to promote competition,
the FERC has issued a series of orders which have altered significantly the
marketing and transportation of natural gas. The Registrant believes that
these changes have generally improved the Registrant's access to
transportation and have enhanced the marketability of its natural gas
production. To date, the Registrant has not experienced any material
adverse effect on gas marketing as a result of these FERC orders; however,
the Registrant cannot predict what new regulations may be adopted by the
FERC and other regulatory authorities, or what effect subsequent
regulations may have on its future gas marketing.
The Registrant also is subject to laws and regulations concerning
occupational safety and health. It is not anticipated that the Registrant
will be required in the near future to expend amounts that are material in
the aggregate to the Registrant's overall operations by reason of
occupational safety and health laws and regulations, but inasmuch as such
laws and regulations are frequently changed, the Registrant is unable to
predict the ultimate cost of compliance.
ENVIRONMENTAL REGULATIONS
Various federal, state and local laws and regulations covering the
discharge of materials into the environment, or otherwise relating to the
protection of the environment, may affect the operations and costs of the
Registrant. It is not anticipated that the Registrant will be required in
the near future to expend amounts that are material in relation to its
total capital expenditure program by reason of environmental laws and
regulations. However, inasmuch as such laws and regulations are frequently
changed, the Registrant is unable to predict the ultimate cost of
compliance.
STATE REGULATION OF OIL AND GAS PRODUCTION
State statutes and regulations require permits for drilling
operations, drilling bonds and reports concerning operations. Most states
in which the Registrant owns and operates properties have statutes, rules
or regulations governing conservation matters, including the unitization or
pooling of oil and gas properties, establishing of maximum rates of
production from oil and gas wells and the spacing of such wells. Many
states also restrict production to the market demand for oil and gas. Some
states have enacted statutes prescribing ceiling prices for gas sold within
their state. The Registrant's Wyoming production is not currently subject
to price regulation. However, the Registrant is unable to predict whether
production rate limitations or price regulations may be imposed in the
future.
TITLE TO PROPERTIES
As is customary in the oil and gas industry, only a preliminary title
examination is conducted at the time properties believed to be suitable for
drilling operations are acquired by the Registrant. Prior to the
commencement of drilling operations, a thorough title examination of the
drill site tract is conducted by independent attorneys. Once production
from a given well
5
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is established, the Registrant prepares a division order title report
indicating the proper parties and percentages for payment of production
proceeds, including royalties. The Registrant believes that titles to its
leasehold properties are good and defensible in accordance with standards
generally acceptable in the oil and gas industry.
OFFICE AND OPERATIONS FACILITIES
The Registrant currently maintains its offices at 3118 Cummings,
Garden City, Kansas. The office space is owned by American Warrior, Inc.
and no rent was charged or paid during fiscal 1997. This arrangement will
be continued for the foreseeable future.
EMPLOYEES
At September 30, 1997, the Registrant did not have any full-time
employees. Services on a part-time basis were provided by employees of
American Warrior, Inc., a company affiliated by ownership of some of the
Company's common stock.
ITEM 2. DESCRIPTION OF PROPERTY.
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OIL AND GAS RESERVES
The table below sets forth the Registrant's quantities of proved
reserves, as estimated by McCartney Engineering, consulting independent
petroleum engineer, all of which are located in the continental U.S., and
the present value of estimated future net revenues from these reserves on
a non-escalated basis discounted by 10 percent per year as of the last two
fiscal years ending September 30, 1997 and 1996. Reserve estimates are
inherently imprecise and are subject to revisions based on production
history, results of additional exploration and development, prices of oil
and gas and other factors outside the Registrant's control.
Year Ended
September 30,
------------------------------
1997 1996
Estimated Proved Gas Reserves 4,271 105,300
(MCF)
Estimated Proved Oil Reserves 99,780 127,400
(Bbls)
Present Value of Future Net 433,181 886,700
Revenues (before future
income tax expense)
Reference should be made to Supplemental Oil and Gas Information on
pages F-8 and F-9 of this Annual Report on Form 10-KSB for additional
information pertaining to the Registrant's proved oil and gas reserves.
During fiscal 1997 the Registrant did not file any
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reports that include estimates of total proved net oil or gas reserves with
any federal agency other than the Securities and Exchange Commission.
PRODUCTION
The following table sets forth the Registrant's net oil and gas
production for the last two fiscal years.
Year Ended
September 30,
------------------------------
1997 1996
Natural Gas (MCF) 6,201 10,100
Crude Oil & Condensate (Bbls) 10,334 9,800
AVERAGE SALES PRICES AND PRODUCTION COSTS
The following table sets forth the average gross sales price and the
average production cost per unit of oil produced, including production
taxes, for the last two fiscal years. For purposes of calculating
production cost per equivalent barrel, MCF's of gas have been converted at
a ratio of six MCF's of gas for each barrel of oil:
Year Ended
September 30,
------------------------------
1997 1996
Average Sales Price
Gas (per MCF) 3.43 1.82
Oil (per Bbl) 19.94 18.36
Average Production Cost Per
Equivalent Barrel 10.47 7.46
PRODUCING WELLS AND DEVELOPMENT ACREAGE
The following table sets forth, as of September 30, 1997, the
approximate number of gross and net producing oil and gas wells and their
related developed acres owned by the Registrant. Productive wells are
producing wells and wells capable of production, including shut-in wells.
Developed acreage consists of acres spaced or assignable to productive
wells.
PRODUCING WELLS DEVELOPED ACRES
----------------------------------- ---------------
OIL GAS GROSS NET
-------------- -------------- ----- ---
GROSS NET GROSS NET
9 5.96 0 0 1,960 1,203
7
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UNDEVELOPED ACREAGE
At September 30, 1997, the Registrant held undeveloped acreage as set
forth below:
UNDEVELOPED ACREAGE
------------------------------
LOCATION GROSS NET
Kansas 0 0
Wyoming 1,400 1,400
DRILLING ACTIVITIES
The Registrant had no drilling activities for the years ended
September 30, 1997 and 1996. The Registrant's drilling activities, when
conducted, are on a contract basis with independent drilling contractors.
ITEM 3. LEGAL PROCEEDINGS.
- --------------------------
The Registrant is not engaged in any material pending legal
proceedings to which the Registrant is a party or to which any of its
property is subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS.
- --------------------------------------------------------------
None.
8
<PAGE>
PART II
-------
ITEM 5. MARKET FOR THE REGISTRANT'S EQUITY STOCK AND RELATED STOCKHOLDER
- -------------------------------------------------------------------------
MATTERS.
- -------
(a) PRINCIPAL MARKET OR MARKETS. The Registrant's common stock, no
par value, is traded in the national over-the-counter market and quotes for
such common stock are reported by the National Association of Securities
Dealers, Inc. on its "pink sheets" under the symbol "WNCO." The range of
high and low bid prices for each quarterly period during the two most
recent fiscal years ended September 30, 1997 and 1996 are reported as
follows:
Quarter Ended High Low
------------- ---- ---
December 31, 1995 No quote No quote
March 31, 1996 No quote No quote
June 30, 1996 No quote No quote
September 30, 1996 No quote No quote
December 31, 1996 No quote No quote
March 31, 1997 No quote No quote
June 30, 1997 No quote No quote
September 30, 1997 No quote No quote
December 31, 1997 No quote No quote
The trading market for the Registrant's Common Stock is extremely
sporadic and limited.
(b) SECURITY HOLDERS. The approximate number of security holders of
record of the Registrant's no par value common stock as of September 30,
1997 was approximately 2,350.
(c) Dividends. Holders of Common Stock are entitled to receive such
dividends as may be declared by the Registrant's Board of Directors. No
dividends have been paid with respect to the Registrant's common stock and
the Registrant has no present plans to pay dividends in the foreseeable
future.
9
<PAGE>
ITEM 6. SELECTED FINANCIAL INFORMATION.
- ---------------------------------------
The following is a summary of selected financial data which the
Registrant believes highlights its financial condition and results of
operations.
Year Ended September 30,
------------------------------
1997 1996
Revenues $ 227,300 $ 158,821
Net Earnings (Loss) 62,602 (60,876)
Net Earnings (Loss)
Per Common Share $ -- * $ -- *
========= =========
Total Assets 580,142 490,316
Long-term Obligations -- --
========= =========
___________________
* Less than one cent per share.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS.
- ------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30, 1997 VS. SEPTEMBER 30, 1996
- ----------------------------------------------------
RESULTS OF OPERATIONS
The Registrant had a net income for the year ended September 30, 1997
totaling $62,602, compared to a net loss of $60,876 at September 30, 1996.
This improvement was primarily a result of increased oil and gas income
from the newer properties acquired, reduced general and administrative
costs and the reimbursement for reserves from plugging the Hummer Federal
lease in Wyoming.
REVENUES
Oil and gas sales for the year ended September 30, 1997 totaled
$227,300 compared to revenues of $163,422 for the year ended September 30,
1996. Oil production increased from 9,800 barrels to 10,334 barrels for a
net increase of 534 barrels or 5.45%. Gas production decreased from 10,100
MCFs to 6,201 MCFs for a net decrease of 3,899 MCFs or 38.6%. These
changes in revenue and fluctuations in production were created primarily by
the purchase by the Registrant of four (4) producing wells and the plugging
of two wells.
10
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COSTS AND EXPENSES
Oil and gas production costs for the year ended September 30, 1997
totaled $108,230 for a 12.64% (or $12,143) increase over the year ended
September 30, 1996 costs of $96,087. The increased costs were primarily a
result of the cost of production from additional properties less a
reduction of workover expenses which were incurred in 1996.
General and administrative expenses totaled $86,741 at September 30,
1997 as compared to $105,233 at September 30, 1996 for a total decrease of
17.57%. This decrease was due to additional costs in the previous year and
substantial reductions of costs as a result of the relocating the Company's
office.
Depreciation, depletion and amortization costs for the year ended
September 30, 1997 totaled $28,134 for an increase of $7,238 (or 34.64%)
over the year ended September 30, 1996 costs of $20,896. This increase
resulted from the inclusion of properties acquired last year.
Exploration costs and dry hole costs were not incurred during fiscal
years September 30, 1996 and 1997.
OTHER INCOME (LOSS)
Other income (loss) for the year ended September 30, 1997, was
$58,407, an increase of $53,972 from the year ended September 30, 1996
amount of $4,435.
LIQUIDITY AND CAPITAL RESOURCES
During the year ended September 30, 1997, the Registrant's working
capital increased from $148,494 at September 30, 1996 to $191,902 at
September 30, 1997.
The Registrant anticipates revenues from operations with the
additional wells acquired to facilitate its working capital needs.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
- ----------------------------------------------------
See Part IV, page F-1 of this Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
- ------------------------------------------------------------------------
FINANCIAL DISCLOSURE.
- --------------------
Not Applicable.
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PART III
--------
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS.
- ---------------------------------------------------------------------
(a)(b) IDENTIFICATION OF DIRECTORS, EXECUTIVE OFFICERS AND
SIGNIFICANT EMPLOYEES.
The following sets forth certain information with respect to the
officers and directors of the Registrant.
Name Age Position
---- --- --------
Cecil O'Brate (1) 68 President, Chief Executive Officer
and a Director since 1996
Daniel L. Dalke (1) 47 Secretary, Treasurer, Chief Financial
Officer and a Director since 1996
G. Allan Nelson 74 Director since 1989
___________________________
(1) Elected officers and directors of the Registrant on July 3, 1996.
The directors of the Registrant are elected to hold office until the
next annual meeting of shareholders and until their respective successors
have been elected and qualified. Officers of the Registrant are elected by
the Board of Directors and hold office until their successors are elected
and qualified.
The Registrant has no audit or compensation committee.
Biographical information concerning each director and executive
officer, including business experience for the past five years is as
follows:
CECIL O'BRATE has been Chairman of the board and President of American
Warrior, Inc., a Kansas corporation involved in oil and gas development,
since 1984. He has also been Chairman of the Board and President of
Mid-Continent Resources, Inc., a Kansas corporation involved in oil and gas
development, since 1984. Mr. O'Brate has also been chairman of the board
and President of Palmer Mfg. & Tank, Inc., a Kansas corporation
manufacturing storage vessels for various industries, since 1966. Mr.
O'Brate also holds investments in other closely-held corporations involved
in banking, farming and implement dealerships. Mr. O'Brate devotes part-time
to the Registrant.
DANIEL L. DALKE has been Assistant Secretary-Treasurer and Controller
of American Warrior, Inc., Mid-Continent Resources, Inc. and Palmer Mfg. &
Tank, Inc. since 1984. Mr. Dalke holds a degree in accounting from Wichita
State University and is a Certified Public Accountant. Mr. Dalke devotes
part-time to the Registrant.
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G. ALLAN NELSON was the Secretary of the Registrant from 1989 to 1996.
Mr. Nelson holds a degree in geology from the University of Texas. He has
been a member of the American Association of Petroleum Geologists since
1948, and an active member since 1954. Mr. Nelson is also an active member
of the Rocky Mountain Association of Geologists, the Wyoming Geological
Association, and the East Anshuta Ranch Field Unit Arbitration Panel. Mr.
Nelson is an independent consulting geologist.
(c) FAMILY RELATIONSHIPS.
There are no family relationships between or among any officer and
director.
(d) INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS.
No officer, director, significant employee, promoter or control person
of the Registrant has been involved in any event of the type described in
Item 401(d) of Regulation S-B during the past five years.
ITEM 11. EXECUTIVE COMPENSATION.
- --------------------------------
(a)(b) GENERAL AND SUMMARY COMPENSATION TABLE.
The following table sets forth all compensation paid or accrued by the
Registrant for services rendered during the fiscal years ended September
30, 1995, 1996 and 1997 by its Chief Executive Officer. No other executive
officers received a salary and other compensation which exceeded $100,000
during any year.
<TABLE>
<CAPTION>
Annual Compensation Long Term Compensation
-------------------------------------------- --------------------------------------------
Name and Restricted
Principal Stock Options/ LTIP All Other
Position Year Salary Bonuses($) Compensation Awards SARS Payouts($) Compensation
-------- ---- ------ ---------- ------------ ------ ---- --------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Cecil O'Brate, 1997 $ 0 -0- $ -0- -0- -0- -0- -0-
President and 1996 N/A -0- $ -0- -0- -0- -0- -0-
Chief Executive 1995 N/A -0- $ -0- -0- -0- -0- -0-
Officer
</TABLE>
(c) OPTION/SAR GRANTS TABLE.
There were no options to purchase shares of Common Stock granted to
the Executive Officers of the Registrant listed in the Executive
Compensation Table during the Registrant's last fiscal year.
(d) AGGREGATED OPTION/SAR EXERCISE AND FISCAL YEAR-END OPTION/SAR
VALUE TABLE.
Not applicable.
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(e) TERM INCENTIVE PLAN ("LTIP") AWARDS TABLE.
Not applicable.
(f) COMPENSATION OF DIRECTORS.
STANDARD ARRANGEMENTS. All Directors are reimbursed for reasonable
out-of-pocket expenses incurred related to Board duties assigned and in
connection with attending Board and Shareholders' meetings.
OTHER ARRANGEMENTS. There are no other arrangements pursuant to which
the Registrant's Directors receive compensation from the Registrant for
services as Directors.
(g) EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND
CHANGE-IN-CONTROL ARRANGEMENTS.
None.
(h) REPORTING ON REPRICING OF OPTIONS/SARS.
Not Applicable.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
- -----------------------------------------------------------------------
(a)(b) SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
The following table sets forth, as of September 30, 1996 the ownership
of the Registrant's Common Stock by (i) each Director of the Registrant,
(ii) all Executive Officers and Directors of the Registrant as a group, and
(iii) all persons known by the Registrant to own more than 5% of the
Registrant's Common Stock.
Beneficial Ownership (1)
------------------------
Name Number of Shares Percentage
---- ---------------- ----------
Cecil O'Brate 16,949,947 (2) 41.52%
P.O. Box 399
Garden City, KS 67846
Daniel Lee Dalke 0 0.0%
P.O. Box 399
Garden City, KS 67846
G. Allen Nelson 8,300 .04%
P.O. Box 399
Garden City, KS 67846
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Betty Lee Winkler 7,049,300 17.25%
P.O. Box 399
Garden City, KS 67846
American Warrior, Inc. 16,949,947 41.52%
P.O. Box 399
Garden City, KS 67846
All Directors and Officers 16,958,247 (3) 41.56%
as a Group (4 persons) (2)
_________________________________
(1) Calculated pursuant to Rule 13d-3(d) of the Securities Exchange Act of
1934. Unless otherwise stated below, each such person has sole voting
and investment power with respect to all such shares. Under Rule
13d-3(d), shares not outstanding which are subject to options, warrants,
rights or conversion privileges exercisable within 60 days are deemed
outstanding for the purpose of calculating the number and percentage
owned by such person, but are not deemed outstanding for the purpose
of calculating the percentage owned by each other person listed.
(2) Cecil O'Brate is the President, a director and the majority
shareholder of American Warrior, Inc. and therefore may be deemed to
be the beneficial owner of the shares owned by American Warrior, Inc.
(3) Includes 16,949,947 shares owned by American Warrior, Inc., as to
which Cecil O'Brate, a Director and Officer of the Registrant, may be
deemed to have beneficial ownership by virtue of being a Director and
Officer of American Warrior, Inc.
(c) CHANGES IN CONTROL.
No understandings, arrangements or agreements are known by management
at this time which would result in a change in control of the Registrant.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
- --------------------------------------------------------
(a)(b) TRANSACTIONS WITH MANAGEMENT AND OTHERS.
On July 3, 1996, the Registrant issued 16,959,947 shares of the
Registrant's Common Stock to American Warrior, Inc. in consideration for
the transfer and assignment of working interests in four oil and gas
producing properties in Kansas and Wyoming to the Registrant.
The Registrant's Board of Directors and its officers are subject to
certain provisions of Colorado law which are designed to eliminate or
minimize the effects of certain potential conflicts of interest. In
addition, the Board of Directors has adopted a policy that provides that
any transaction between the Registrant and an interested party must be
fully disclosed to the Board of Directors, and that a majority of the
directors not otherwise interested in the transaction (including a majority
of disinterested directors) must make a determination that such transaction
is fair, competitive and commercially reasonable and on terms and
conditions not less favorable to the Registrant than those available from
unaffiliated third parties.
15
<PAGE>
(c) PARENTS OF THE REGISTRANT.
None.
(d) TRANSACTIONS WITH PROMOTERS.
Information required by Item 404 of Regulation S-B is not required to
be presented inasmuch as the Registrant has been organized for more than
five years.
(e) COMPLIANCE WITH SECTION 16 OF THE SECURITIES EXCHANGE ACT OF
1934, AS AMENDED.
Section 16(a) of the Securities Exchange Act of 1934 requires the
Registrant's Directors and Officers, and persons who own more than 10% of
a registered class of the Registrant's equity securities, to file reports
of ownership and changes in ownership with the Securities and Exchange
Commission ("SEC"). Officers, directors and greater than 10% stockholders
are required by SEC regulation to furnish the Registrant with copies of all
Section 16(a) forms they file.
Based solely on the Registrant's review of the copies of such forms
received by it during the fiscal year ended September 30, 1996, and written
representations that no other reports were required, the Registrant
believes that each person who, at any time during such fiscal year, was a
director, officer or beneficial owner of more than 10% of the Registrant's
Common Stock complied with all Section 16(a) filing requirements during
such fiscal year or prior fiscal year:
16
<PAGE>
PART IV
-------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
- ------------------------------------------------------------------------
(a) The following documents are filed as part of this report:
(1) FINANCIAL STATEMENTS. The following financial statements are filed as
part of this report:
Page
----
Reports of Independent Certified Public
Accountants. . . . . . . . . . . . . . . . . . . . . . . . . F-1
Balance Sheet - September 30, 1997 . . . . . . . . . . . . . F-2
Statements of Operations for the years
ended September 30, 1997 and 1996 . . . . . . . . . . . . . F-3
Statements of Stockholders' Equity
for the years ended September 30,
1997 and 1996 . . . . . . . . . . . . . . . . . . . . . . . F-4
Statements of Cash Flows for the years
ended September 30, 1997 and 1996 . . . . . . . . . . . . . F-5
Notes to Financial Statements. . . . . . . . . . . . . . . . F-6-F-17
All Schedules are omitted because they are not required, inapplicable,
or the information is included in the financial statements or notes
thereto.
(3)(a) EXHIBITS.
19.1 Reserve Report prepared by McCartney Engineering, Inc.
27 Financial Data Schedule
(b) REPORTS ON FORM 8-K. The Registrant did not file a report
on Form 8-K during the period covered by this report.
17
<PAGE>
WINCO PETROLEUM CORPORATION
FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
WITH
INDEPENDENT AUDITORS' REPORT
<PAGE>
TABLE OF CONTENTS
-----------------
Page
--------
Independent Auditors' Report . . . . . . . . . . . . . . . . . . 1
Financial Statements:
Balance Sheet. . . . . . . . . . . . . . . . . . . . . . . . 2
Statements of Operations . . . . . . . . . . . . . . . . . . 3
Statements of Stockholders' Equity . . . . . . . . . . . . 4
Statements of Cash Flows . . . . . . . . . . . . . . . . . . 5
Notes to Financial Statements. . . . . . . . . . . . . . . . 6 - 17
<PAGE>
ALLEN, GIBBS & HOULIK, L.C.
Certified Public Accountants & Consultants
Epic Center * 301 N. Main, Suite 1700
Wichita, Kansas 67202-4868
(316)267-7231 * FAX(316)267-0339
INDEPENDENT AUDITORS' REPORT
----------------------------
Board of Directors and Stockholders
WINCO PETROLEUM CORPORATION
We have audited the accompanying balance sheet of Winco Petroleum
Corporation as of September 30, 1997, and the related statements of
operations, stockholders' equity and cash flows for the year 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 audit.
We conducted our audit 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 audit
provides 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 Winco Petroleum
Corporation as of September 30, 1997, and the results of its operations and
its cash flows for the year then ended, in conformity with generally
accepted accounting principles.
/s/ ALLEN, GIBBS & HOULIK, L.C.
January 30, 1998
<PAGE>
INDEPENDENT AUDITORS' REPORT
----------------------------
Board of Directors and Stockholders
WINCO PETROLEUM CORPORATION
We have audited the accompanying statements of operations, stockholders'
equity and cash flows of Winco Petroleum Corporation for the year ended
September 30, 1996. 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 audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the results of operations and cash
flows of Winco Petroleum Corporation for the year ended September 30,
1996, in conformity with generally accepted accounting principles.
/s/ LARRY VAN ZETTEN, P.C.
- ----------------------------------
January 30, 1998
<PAGE>
WINCO PETROLEUM CORPORATION
BALANCE SHEET
SEPTEMBER 30, 1997
ASSETS
------
CURRENT ASSETS
Cash and cash equivalents $ 166,605
Accounts receivable 38,437
Accounts receivable - related party 31,490
----------
Total current assets 236,532
----------
PROPERTY AND EQUIPMENT
Investment in oil and gas properties, at cost
(full cost method) 1,054,867
Furniture, fixtures and vehicles, at cost 22,698
----------
1,077,565
Less accumulated depreciation, depletion
and amortization (767,173)
----------
310,392
----------
OTHER ASSETS
Well equipment inventory, at lower of cost or market 32,218
Other assets 1,000
----------
33,218
----------
$ 580,142
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES
Accounts payable:
Trade $ 13,630
Directors and shareholders 25,035
Accrued liabilities 5,965
----------
Total current liabilities 44,630
----------
COMMITMENT
STOCKHOLDERS' EQUITY
Common stock, no par value; 500,000,000 shares
authorized; 40,852,576 shares issued and
outstanding 307,000
Additional paid-in capital 1,281,520
Deficit (1,053,008)
----------
Total stockholders' equity 535,512
----------
$ 580,142
==========
The accompanying notes are an integral
part of these financial statements.
2
<PAGE>
WINCO PETROLEUM CORPORATION
STATEMENT OF OPERATIONS
Years Ended September 30, 1997 and 1996
1997 1996
---------- ----------
Oil and gas sales $ 227,300 $ 163,422
---------- ----------
Costs and expenses:
Lease operating, including
production taxes 108,230 96,087
Depreciation, depletion and
amortization 28,134 20,896
General and administrative 86,741 105,233
Write-down of well equipment inventory -- 6,517
---------- ----------
223,105 228,733
---------- ----------
Operating income (loss) 4,195 (65,311)
---------- ----------
Other income (expense):
Interest income 3,251 --
Gain on sale of investment in oil
and gas properties 43,811 --
Gain on sale of assets -- 4,120
Other 11,345 315
---------- ----------
58,407 4,435
---------- ----------
Income (loss) before taxes 62,602 (60,876)
---------- ----------
Income tax expense (benefit) -- --
---------- ----------
Net income (loss) $ 62,602 $ (60,876)
========== ==========
Net earnings (loss) per common share $ -- $ --
========== ==========
The accompanying notes are an integral
part of these financial statements.
3
<PAGE>
WINCO PETROLEUM CORPORATION
STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended September 30, 1997 and 1996
<TABLE>
<CAPTION>
Common Additional
Stock Common Paid-in
Issued Stock Capital Deficit Total
---------- ---------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Balance,
September 30, 1995 23,000,000 $ 173,000 $1,249,320 $(1,054,734) $ 367,586
Issuance of
additional shares 17,852,576 134,000 11,600 -- 145,600
Net loss -- -- -- (60,876) (60,876)
---------- --------- ---------- ---------- ---------
Balance,
September 30, 1996 40,852,576 307,000 1,260,920 (1,115,610) 452,310
Services contributed -- -- 20,600 -- 20,600
Net income -- -- -- 63,602 63,602
---------- --------- ---------- ---------- ---------
Balance,
September 30, 1997 40,852,576 $ 307,000 $1,821,520 $(1,053,008) $ 535,512
========== ========= ========== ========== =========
</TABLE>
The accompanying notes are an integral
part of these financial statements.
4
<PAGE>
WINCO PETROLEUM CORPORATION
STATEMENTS OF CASH FLOWS
Years Ended September 30, 1997 and 1996
1997 1996
---------- ----------
Cash flows from operating activities:
Net income (loss) $ 62,602 $ (60,876)
Adjustments to reconcile net income
(loss) to net cash provided by
(used in) operating activities:
Services contributed 20,600 --
Depreciation, depletion
and amortization 28,134 20,896
Write-down of well equipment
inventory -- 6,517
Gain on sale of investment in
oil and gas properties (43,811) --
Gain on sale of assets -- (4,120)
Change in current assets and
current liabilities:
Accounts receivable 12,243 (32,613)
Prepaid expenses 6,389 170
Accounts payable 20,371 14,170
Accrued expenses (13,747) (2,522)
---------- ----------
NET CASH PROVIDED BY (USED
IN) OPERATING ACTIVITIES 92,781 (58,378)
---------- ----------
Cash flows from investing activities:
Purchase of investment in oil and
gas properties and office equipment (116,579) (3,712)
Net proceeds from sale of investment
in oil and gas properties 71,204 --
Proceeds from sale of assets -- 4,120
Proceeds from sale of well equipment
inventory 21,258 --
---------- ----------
NET CASH (USED IN) PROVIDED
BY INVESTING ACTIVITIES (24,117) 408
---------- ----------
INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 68,664 (57,970)
Cash and cash equivalents,
beginning of year 97,941 155,911
---------- ----------
CASH AND CASH EQUIVALENTS,
END OF YEAR $ 166,605 $ 97,941
========== ==========
Supplemental schedule of non-cash
operating and investing activities:
Common stock issued for investment
in oil and gas properties $ -- $ 145,600
Additional paid-in capital for
services rendered by a related
party 20,600 --
Interest paid -- --
Income taxes paid -- --
The accompanying notes are an integral
part of these financial statements.
5
<PAGE>
WINCO PETROLEUM CORPORATION
NOTES TO FINANCIAL STATEMENTS
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS - Winco Petroleum Corporation (the Company),
incorporated on June 21, 1979, is engaged in the business of acquiring
and developing interests in domestic oil and gas properties, primarily
in Kansas and southeastern Wyoming.
CASH EQUIVALENTS - The Company considers all highly liquid investments
with a maturity of three months or less when purchased to be cash
equivalents.
OIL AND GAS PROPERTIES - The Company follows the "full-cost" method of
accounting for developed oil and gas properties. Under this method,
all costs associated with property acquisition, exploration and
development activities are capitalized in one cost center, including
internal costs that can be identified with those activities. No gains
or losses are recognized on the sale or abandonment of oil and gas
properties, unless it involves the disposition of significant reserves
in which case the gain or loss is recognized in income.
The Company's producing oil and gas properties acquired in 1997 and
1996 are accounted for at cost, in a discreet pool applicable to such
properties. The Company has not incurred any development costs in
1997 or 1996.
Depreciation, depletion and amortization of the full-cost pool and
acquired production are computed using a unit-of-production method
based on proved reserves as determined annually by the Company and
independent engineers. An additional depletion, depreciation and
amortization provision is made if the total capitalized costs of oil
and gas properties in the cost center exceed the "capitalization
ceiling" which is the sum of (1) the present value of future net
revenues from estimated production of proved oil and gas reserves
applicable to such cost center plus (2) the carrying value of the cost
center's unproved properties.
At September 30, 1997 and 1996, the total capitalized cost of oil and
gas properties did not exceed the capitalization ceiling. Therefore,
no additional depletion, depreciation, and amortization provision was
taken for fiscal 1997 or 1996.
Based on independent engineers' estimates for fiscal 1997 and 1996,
the provision for depreciation, depletion and amortization on a per
equivalent barrel basis was approximately $.58 and $1.71 for 1997 and
1996, respectively.
(Continued)
6
<PAGE>
WINCO PETROLEUM CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Continued)
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
UNDEVELOPED OIL AND GAS PROPERTIES - Undeveloped oil and gas leases
represent leasehold and other costs of acquiring leases. Leases are
stated at the lower of cost or market using the specific
identification method.
FURNITURE, FIXTURES AND VEHICLES - Furniture, fixtures and vehicles
are depreciated using accelerated methods over estimated useful lives
ranging from three to seven years.
WELL EQUIPMENT INVENTORY - Well equipment inventory used by the
Company is transferred to the full-cost pool at its carrying value.
The inventory is stated at the lower of cost or market using the
first-in, first-out method.
INCOME TAXES - The Company provides deferred income taxes for
intangible drilling and developmental costs and other costs incurred
that enter into the determination of taxable income and accounting
income in different periods when applicable. The excess of statutory
depletion over cost depletion for income tax purposes will be
recognized as a permanent difference in the period in which the excess
occurs.
EARNINGS (LOSS) PER COMMON SHARE - Earnings (loss) per common share is
computed utilizing the weighted average number (40,852,576 in 1997 and
27,463,144 in 1996) of common shares outstanding.
ESTIMATES - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect 1) the reported amounts of
assets and liabilities, 2) disclosures such as contingencies, and 3)
the reported amounts of revenues and expenses included in such
financial statements. Actual results could differ from those
estimates.
CONCENTRATION - The Company places its cash with high credit quality
institutions. At such times deposits may be in excess of FDIC
insurance limits.
RECLASSIFICATIONS - Certain items have been reclassified on the 1996
financial statements to be consistent with the classifications used in
1997.
(Continued)
7
<PAGE>
WINCO PETROLEUM CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Continued)
2. OIL AND GAS ACTIVITIES
Oil and Gas Operations
----------------------
Information relating to the Company's oil and gas operations,
including costs incurred in such, is summarized below:
YEARS ENDED
SEPTEMBER 30
----------------------------
1997 1996
---------- ----------
Capitalized costs:
Property acquisition costs $ 116,579 $ 145,600
Exploration costs -- 33,811
Recovery of costs/transfer to
well equipment inventory -- (30,100)
---------- ----------
116,579 149,311
---------- ----------
Production costs:
Lease operating costs 96,206 80,669
Production and transportation
taxes 5,774 14,476
Ad Valorem taxes 6,250 942
---------- ----------
108,230 96,087
---------- ----------
$ 224,809 $ 245,398
========== ==========
(Continued)
8
<PAGE>
WINCO PETROLEUM CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Continued)
2. OIL AND GAS ACTIVITIES (CONTINUED)
Capitalized Costs
-----------------
Capitalized costs associated with oil and gas producing activities and
related accumulated depreciation, depletion and amortization are as
follows:
YEARS ENDED SEPTEMBER 30
----------------------------
1997 1996
---------- ----------
Proved properties $1,054,867 $1,233,652
Unproved properties -- --
---------- ----------
1,054,867 1,233,652
---------- ----------
Accumulated depreciation,
depletion and amortization 278,813 251,316
Additional accumulated
depreciation, depletion
and amortization
"capitalization ceiling" 465,662 733,994
---------- ----------
744,475 985,310
---------- ----------
Net capitalized costs $ 310,392 $ 248,342
========== ==========
Major customers
---------------
The Company's oil and gas sales consisted of sales to unaffiliated
purchasers primarily as follows:
YEARS ENDED
SEPTEMBER 30
----------------------------
1997 1996
---------- ----------
Purchaser
A $ 194,912 $ 120,310
B 11,125 16,255
---------- ----------
$ 206,037 $ 136,565
========== ==========
% to total oil and gas sales 90.65% 87.87%
========== ==========
(Continued)
9
<PAGE>
WINCO PETROLEUM CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Continued)
2. OIL AND GAS ACTIVITIES (CONTINUED)
Properties Acquired
-------------------
During 1996, the Company acquired four additional properties in
exchange for 17,852,576 shares of additional stock, 43.7% of the
outstanding shares. In addition, two representatives of the
properties' prior owner were elected to the board of directors, which
totalled three members at September 30, 1997, and were elected to the
offices of Chief Executive Officer/President and Secretary/Treasurer.
For financial statement purposes these properties are valued at the
carryover cost basis of the prior owner, $145,600, since the seller
effectively has control of the Company. Three of the acquired
properties are located in central and western Kansas and one is
located in Wyoming. At the time of the acquisition, reserves from
these properties were estimated to be 76,000 barrels of oil with a
discounted future net cash flow of $477,000.
On September 29, 1997, the Company acquired 100% of the working
interest and operations of an oil lease in Barton County, Kansas,
called the Hofmeister, for $116,580. This lease has one producing oil
well, which is expected to contribute to the Company's cash flow and
net income in the subsequent fiscal year. Part of the working interst
acquired (i.e., 12.5%) was purchased from American Warrior, Inc., a
company affiliated by common ownership. The purchase from American
Warrior, Inc. was on the same terms as the remaining working interest
(i.e., 87.5%) that was purchased from outside parties with no
affiliations.
Properties Disposed Of
----------------------
During fiscal 1997, the Company plugged and abandoned an oil and gas
lease in Wyoming, the Hummer-Federal. This well was located in an
area in which the surface acreage was committed for coal production
from a strip-mining operation. As the mining operation was
approaching the Company's well, pursuant to an agreement between the
Company and the coal production company, the Company plugged the well
and was reimbursed for lost reserves. The reimbursement for reserves
and sale of salvaged equipment, net of costs of plugging, resulted in
net proceeds of $71,204. As the disposition of this lease involved
significant reserves included in the full cost pool of oil and gas
properties, an allocation was made of estimated original cost and
accumulated depreciation, depletion and amortization applicable to
this property, resulting in a gain on disposition of $43,811. The
allocation of net cost of $27,393 recorded as a reduction of
capitalized costs was based on the current production rates of all oil
and gas properties in the full cost pool.
(Continued)
10
<PAGE>
WINCO PETROLEUM CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Continued)
2. OIL AND GAS ACTIVITIES (CONTINUED)
Subsequent to September 30, 1997 and effective January 1, 1998, the
Company sold the remaining oil and gas production in Wyoming, except
the Madsen 12-9 lease, for $210,000. The Madsen 12-9 is operated on
behalf of the Company by an oil and gas operator located in Wyoming,
who owns a partial interest in that lease. This sale will enable the
Company to reinvest those resources in the mid-continent areas,
probably Kansas, where the Company's operations will be more
concentrated. The seven leases sold, including two non-producers,
contributed about 32% of the Company's oil and gas sales in fiscal
1997. The reinvestment of the proceeds of this sale is intended to be
in oil and gas leases, whether operated by the Company or by others,
which management believes will have more development potential.
3. RELATED PARTIES
As of September 30, 1997, the Company has no employees.
Administrative and operations management services are provided to the
Company by American Warrior, Inc., an oil and gas operating company
affiliated with the Company. American Warrior, Inc. owns 41.52% of
the Company. Further the majority stockholder and CEO of American
Warrior, Inc. is the CEO and President of the Company and the
Assistant Secretary-Treasurer of American Warrior, Inc. is the
Company's Secretary and Treasurer. The following services were
provided to the Company for the amounts indicated and were recorded as
additional paid-in capital:
Service Amount
------- ----------
Administration 80 Hours $ 8,000
Accounting 210 Hours 12,600
----------
$ 20,600
==========
Further, at September 30, 1997, the Company had amounts receivable
from this affiliate for oil sales not yet distributed in the amount of
$31,490 and had amounts payable to this affiliate for the purchase of
a working interest in an oil and gas property in the amount of
$24,885.
(Continued)
11
<PAGE>
WINCO PETROLEUM CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Continued)
4. INCOME TAXES
A reconciliation between the actual income tax expense and income
taxes computed by applying the statutory Federal income tax rate to
earnings before income taxes is as follows:
1997 1996
---------- ----------
Computed income tax expense
(benefit) at 34% $ 21,285 $ (20,698)
Utilization of net operating
loss carryforwards (21,285) --
Change in valuation allowance -- 20,698
---------- ----------
$ -- $ --
========== ==========
The Company recognizes deferred tax assets and liabilities for future
tax consequences of events that have previously been recognized in the
Company's financial statements or tax returns. The measurement of
deferred tax assets and liabilities is based on provisions of enacted
tax laws. The effects of future changes in tax laws or rates have not
been anticipated.
The net deferred tax assets (liabilities) include the following
components:
Deferred tax liabilities
Depletion, depreciation and amortization $ (71,400)
----------
Deferred tax assets
Net operating loss carryforward 254,500
Adjustment to value of well equipment
inventory 19,900
----------
274,400
----------
Net deferred tax asset 203,000
Valuation allowance (203,000)
----------
Net deferred tax asset (liability) $ --
==========
The Company has investment tax credit carryforwards of approximately
$1,000 for income tax purposes at September 30, 1997, which expire in
1998 and 1999.
(Continued)
12
<PAGE>
WINCO PETROLEUM CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Continued)
4. INCOME TAXES (CONTINUED)
The Company has net operating loss carryforwards for regular income
tax purposes at September 30, 1997 as follows:
Year net operating loss carryforward expires
--------------------------------------------
1998 $ 23,000
2000 53,000
2001 89,000
2002 64,000
2003 115,000
2004 106,000
2006 18,000
2007 35,000
2008 58,000
2009 68,000
2010 66,000
2011 54,000
----------
$ 749,000
==========
5. RETIREMENT PLAN
Under a Simplified Employee Pension - IRA Contribution Agreement, the
Company could contribute the lesser of $15,000 or 15% of each
employee's salary. In fiscal 1996, the Company contributed $5,169 to
the Plan. No contribution was made during fiscal 1997. In fiscal
1997, the Plan was terminated.
(Continued)
13
<PAGE>
WINCO PETROLEUM CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Continued)
6. OFF-BALANCE-SHEET RISK
The Company's future production revenues, development costs and
production expenses are dependent on economic and operating
conditions, such as pricing and production taxes, which are not within
the Company's control. At December 31, 1997, the price of crude oil
was approximately $14.75 per Bbl. versus $18.25 at September 30, 1997.
7. UNAUDITED OIL AND GAS RESERVE INFORMATION
The reserve estimates presented as of September 30, 1997 and 1996 were
prepared by independent petroleum consultants. The Company cautions
that there are many uncertainties inherent in estimating proved
reserve quantities and in projecting future production rates and the
timing of development expenditures. In addition, reserve estimates of
new discoveries that have little production history are more imprecise
than those of properties with more production history. Accordingly,
these estimates are expected to change as future information becomes
available.
Proved oil and gas reserves are the estimated quantities of crude oil,
condensate, natural gas and natural gas liquids which geological and
engineering data demonstrate with reasonable certainty to be
recoverable in future years from known reservoirs under existing
economic and operating conditions.
Proved developed oil and gas reserves are those reserves expected to
be recovered through existing wells with existing equipment and
operating methods.
(Continued)
14
<PAGE>
WINCO PETROLEUM CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Continued)
7. UNAUDITED OIL AND GAS RESERVE INFORMATION (CONTINUED)
Net quantities of proved reserves and proved developed reserves of
crude oil (including condensate) and natural gas (all of which are
located within the United States) are as follows:
RESERVE QUANTITY INFORMATION
For the years ended September 30, 1996 and 1997
Proved Reserves Oil (Bbls) Gas (Mcf)
------------------------------- ---------- ----------
Estimated quantity,
September 30, 1995 36,800 76,500
Proved reserves purchased 76,200 --
Revisions of previous estimates 24,200 38,900
Production (9,800) (10,100)
---------- ----------
Estimated quantity,
September 30, 1996 127,400 105,300
Revisions of previous estimates (17,300) (94,800)
Production (10,300) (6,200)
---------- ----------
Estimated quantity,
September 30, 1997 99,800 4,300
========== ==========
Proved Reserves
------------------------------------
Developed Undeveloped Total
----------- ----------- ----------
Oil (Bbls)
September 30, 1996 127,400 -- 127,400
September 30, 1997 99,800 -- 99,800
Gas (Mcf)
September 30, 1996 105,300 -- 105,300
September 30, 1997 4,300 -- 4,300
The following table sets forth a standardized measure of the
discounted future net cash flows attributable to the Company's proved
oil and gas reserves. Future cash inflows were computed by applying
year-end prices of oil and gas to the estimated future production of
proved oil and gas reserves. The future production and development
costs represent the estimated future expenditures (based on current
costs) to be incurred in developing and producing the proved reserves,
assuming continuation of existing economic conditions. Future income
tax expenses were computed by applying statutory income tax rates to
the difference between pre-tax net cash flows relating to the
Company's proved oil and gas reserves and the tax basis of proved oil
and gas properties and available net operating loss carryforwards,
reduced by investment tax credits. Discounting the annual net cash
inflows at 10% illustrates the impact of the time value of money on
these future cash inflows.
(Continued)
15
<PAGE>
WINCO PETROLEUM CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Continued)
7. UNAUDITED OIL AND GAS RESERVE INFORMATION (CONTINUED)
STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS
AND CHANGES THEREIN RELATING TO PROVED OIL AND GAS RESERVES
AT SEPTEMBER 30,
1997 1996
---------- ----------
Future cash inflows $1,770,100 $3,134,400
Future production and
development costs (1,098,700) (1,703,800)
Future income tax expenses -- --
---------- ----------
Future net cash flows 671,400 1,430,600
10% annual discount for
estimated timing of cash flows (238,200) (543,900)
---------- ----------
Standardized measure of
discounted future net cash flows $ 433,200 $ 886,700
========== ==========
Following are the principal sources of change in the standardized
measure of discounted future net cash flows during the years ended
September 30:
1997 1996
---------- ----------
Standardized measure of
discounted future net cash
flows, beginning $ 886,700 $ 185,600
---------- ----------
Sales and transfers of oil
and gas produced, net of
production costs (119,100) (67,500)
Net changes in prices and
production costs (211,800) 83,300
Sales of minerals in place (113,000) --
Acquisition of reserves -- 145,600
Change in prices and
production costs on acquired
properties -- 508,500
Revisions of previous quantity
estimates (9,600) 12,600
Accretion of discount -- 18,600
---------- ----------
(453,500) 701,100
---------- ----------
Standardized measure of
discounted future net cash
flows, ending $ 433,200 $ 886,700
========== ==========
(Continued)
16
<PAGE>
WINCO PETROLEUM CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Continued)
7. UNAUDITED OIL AND GAS RESERVE INFORMATION (CONTINUED)
ESTIMATED FUTURE NET REVENUES FROM
PROVED RESERVES OF OIL AND GAS
(Based on current prices and current cost)
Proved Total
Fiscal year ending developed proved
September 30 reserves reserves
------------------------- ---------- ----------
1998 $ 95,500 $ 95,500
1999 84,900 84,900
2000 75,100 75,100
Remainder 415,800 415,800
---------- ----------
$ 671,300 $ 671,300
========== ==========
PRESENT VALUE OF FUTURE NET CASH FLOWS
OF PROVED RESERVES DISCOUNTED AT 10% PER YEAR
September 30
----------------------------
1997 1996
---------- ----------
Proved developed $ 433,200 $ 886,700
Proved undeveloped -- --
---------- ----------
Total proved $ 433,200 $ 886,700
========== ==========
17
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of Section 12 of the Securities
Exchange Act of 1934, the Registrant has caused this registration statement
to be signed on its behalf by the undersigned, thereunto duly authorized.
WINCO PETROLEUM CORPORATION
Date: February 12, 1998 By /s/ Cecil O'Brate
-----------------------------------
Cecil O'Brate, President, Chief
Executive Officer, and Director
Date: February 12, 1998 By /s/ Daniel L. Dalke
-----------------------------------
Daniel L. Dalke, Secretary,
Treasurer, Principal Financial
Officer and Director
Date: February 12, 1998 By /s/ G. Allan Nelson
-----------------------------------
G. Allan Nelson, Director
EXHIBIT 19.1
McCartney Engineering, LLC
Consulting Petroleum Engineers
- -------------------------------------------------------------------------
1888 Sherman Street, Suite 760 Denver, CO 80203 (303)830-7208
Fax(303)830-7004
January 12, 1998
Mr. Dan Dalke
American Warrior, Inc.
P.O. Box 399
Garden City, Kansas 67846
Re: Property Evaluation
Dear Mr. Dalke:
Pursuant to your request, we have estimated the remaining reserves and
future net revenue for certain developed oil properties owned by Winco
Petroleum Corporation. The effective date of this study is September 30,
1997. Results are summarized below:
Net Remaining Reserves Estimated Future
As of Net Revenue
September 30, 1997 Discounted at
Reserve Category Oil (BBL) Gas (MCF) Undiscounted 10 Percent
- ---------------- --------- --------- ------------ ----------
Proved Producing 99,780 4,271 $ 671,340 $ 433,181
Table #1 is a tabulation by lease of the working and net revenue interests,
gross and net reserves, and projected discounted net revenues of the
individual leases. Table #2 is a cash flow summary reflecting the
estimated remaining reserves and revenue of the Winco Petroleum Corporation
properties. Also included in the report are cash flow projections and
performance curves for the individual leases.
Source of Data
- --------------
Lease names, locations, completion data, performance history, and logs were
supplied by Winco Petroleum Corporation for use in this study. Working
interests and net revenue interests were supplied by Winco personnel, as
were historic oil prices and lease operating expenses. This data was
accepted by McCartney Engineering, Inc. as presented. McCartney
Engineering, Inc. reserves the right to revise the associated reserve and
economic projections if future information indicates discrepancies in the
data provided. No independent well tests or property inspections were made
in conjunction with this study.
<PAGE>
Mr. Dan Dalke
January 12, 1998
Page 2
Reserve Category
- ----------------
The reserves included in this report are classified in the proved developed
producing category. Proved developed reserves are those which are
expected to be recovered through existing wells with existing equipment and
operating methods. Proved developed producing reserves are those which are
expected to be produced from existing completion intervals now open for
production in existing wells.
Method of Assigning Reserves
- ----------------------------
Reserves were determined through the application of evaluation methods
generally accepted in the oil and gas industry. Sufficient production
history was available to estimate remaining reserves from an extrapolation
of past performance.
Oil and Gas Prices
- ------------------
The oil prices used were the latest actual prices received by Winco
Petroleum Corporation, and are believed to be representative of the oil
prices as of September 30, 1997. The gas prices used in the evaluation
were based on the average price received in the previous fiscal year. No
increases or decreases in future sales prices were considered in these cash
flow projections..
Expenses
- --------
The estimated future operating costs were based on historic expense data
supplied by Winco Petroleum Corporation. No provisions were made for
increases or decreases in future operating expenses. Applicable severance,
ad valorem, and production taxes were considered in the cash flow
projections. No deductions were made for general or corporate overhead,
depletion, depreciation, or any other indirect costs. The estimated net
income is before state and federal income tax and does not consider any
encumbrances against the properties, if such exist. The value of
salvageable equipment has not been included in this evaluation.
General
- -------
The accuracy of any reserve estimate, especially when based on volumetric
analysis or limited production history, is a function of available data and
of engineering and geological interpretation and judgment. While the
reserve estimates used herein are believed reasonable, they should be
accepted with the understanding that subsequent reservoir performance,
changes in pricing structure, or market demand may justify their revision.
Reserve estimates based on volumetric analysis and reserves assigned to
behind pipe intervals are inherently less reliable than those based on a
lengthy production history.
<PAGE>
Mr. Dan Dalke
January 12, 1998
Page 3
In our opinion, the above reserve and revenue estimates fairly and
approximately present the proved reserves of Winco Petroleum Corporation
with respect to definitions, assumptions, and methodology described above.
We appreciate the opportunity to provide you with this study. All related
data is in our file and is available for your review.
Very truly yours,
McCartney Engineering, LLC.
Jack A. McCartney
Manager
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE AUDITED FINANCIAL STATEMENTS FOR THE YEAR ENDED SEPTEMBER 30, 1997
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> SEP-30-1997
<CASH> 166,605
<SECURITIES> 0
<RECEIVABLES> 69,927
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 236,532
<PP&E> 1,077,565
<DEPRECIATION> 767,173
<TOTAL-ASSETS> 580,142
<CURRENT-LIABILITIES> 44,630
<BONDS> 0
0
0
<COMMON> 307,000
<OTHER-SE> 228,512
<TOTAL-LIABILITY-AND-EQUITY> 580,142
<SALES> 227,300
<TOTAL-REVENUES> 227,300
<CGS> 108,230
<TOTAL-COSTS> 223,105
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 62,602
<INCOME-TAX> 0
<INCOME-CONTINUING> 62,602
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 62,602
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
