SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
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, 1998
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 May 1, 1999, 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 (| 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 41 pages. The Exhibit Index begins on page 16.
<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 and/or
acquire producing oil and gas properties in the Midcontinent region 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 possible that
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 acquiring and/or 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 identify and acquire or develop
these prospects each year with a view to taking advantage of industry
advances in seismic, drilling and other technologies and management's oil
and gas experience in Kansas and Oklahoma. Of the projected new prospects,
one (1) or two (2) may be intended as higher potential, higher risk
prospects. AS indicated above, the Registrant intends to approach its
prospects in such a way that will allow it to be able to control its cost
and risks on each prospect.
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OPERATIONS
As of September 30, 1998, the Registrant or affiliate entities serve as
operator for all of the Registrant's producing wells. 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, directly or through
a designated affiliate, presently operates wells which represent virtually
100% of the Registrant's proved reserves.
CUSTOMERS AND MARKETS
Three purchasers each represent in excess of 10% of the Registrant's
total oil and gas revenue for the fiscal years ended September 30, 1998 and
1997. These purchasers are Koch Oil Company, Inc., Texaco Trading and
Transportation, Inc. and National Cooperative Refinery Association. Prices
for oil and gas produced from Registrant's properties 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 there are gas
storage facilities around the country which are filled during the summer,
prices may be higher during some spring or summer months than during some
winter months if temperatures are relatively warmer than usual.
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 than 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, development and
production. 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 Registrant acquired 100% of the working
interest and operations of an oil lease in Barton County, Kansas, called
the Hofmeister. This lease has one producing oil well, which will
contribute to the Registrant's cash flow and net income in the next 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.
3
<PAGE>
During fiscal 1997, the Registrant plugged and abandoned an oil and
gas lease in Wyoming, called 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
Registrant's well, pursuant to an agreement between the Registrant and the
coal production company, the Registrant 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.
Effective January 1, 1998,, the Registrant 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 Registrant by an oil and gas operator in
Wyoming, who owns a partial interest in that lease. The seven leases sold,
including two non-producers, contributed about 32% of the Registrant's oil
and gas sales in fiscal 1997. This sale of properties was for $210,000.
The recognition of this sale, including the removal of all associated
costs, accumulated depreciation and depletion and other capitalized
amounts, resulted in a gain of $106,245, as under the full-cost method of
accounting, previous credits or proceeds had been capitalized and are now
recognized.
The sale of the Wyoming production will enable the Registrant to
reinvest those resources in the mid-continent area, probably Kansas, where
the Registrant's operations will be more concentrated. The reinvestment of
such proceeds will be in oil and gas leases, whether operated by the
Registrant or others, which will have more development potential. The
Registrant believes that the extremely low oil price of 1998 - 1999 will
eventually cause a number of producing properties to be available for sale
at relatively reasonable or even bargain prices. Consistent with
Registrant's business strategy, selection of properties for acquisition
will not only be based on their production and cash flow capability, but
also on additional 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. Oil and gas
exploration, development and production activities are subject to various
laws and regulations governing a wide variety of matters. For example,
hydro-carbon-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 Registrant's natural gas
produced in the U.S. may be sold at market prices, unless otherwise
committed by contract.
4
<PAGE>
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 access to transportation and have
enhanced the marketability of 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, subsequent to the afore-mentioned
sale of its Wyoming properties, the Registrant does not currently
have any natural gas production and Registrant cannot predict what new
regulations may be adopted by the FERC and other regulatory authorities, or
what effect subsequent regulations may have on future gas marketing, if any.
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. However, 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 effect 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 Wyoming production previously owned by the Registrant was
not 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 and development 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 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.
5
<PAGE>
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 1998 and 1997. This
arrangement will be continued for the foreseeable future.
EMPLOYEES
At September 30, 1998 and 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 common ownership of some
of the Registrant's common stock.
ITEM 2. DESCRIPTION OF PROPERTY
- - - - - - - - - - - - - --------------------------------
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. The
table also sets forth the present value of estimated future net revenues
from these reserves on a non-escalated basis discounted at ten percent
(10%) annually. The reserve and present value information are presented
for the last two fiscal years ending September 30, 1198 and 1997. 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,
------------------------------
1998 1997
Estimated Proved Gas Reserves (MCF) 0 4,271
Estimated Proved Oil Reserves (Bbls) 68,293 99,780
Present Value of Future Net Revenues 172,807 433,181
(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 1998 the Registrant did not file any 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.
6
<PAGE>
Year Ended
September 30,
------------------------------
1998 1997
Natural Gas (MCF) 243 6,201
Crude Oil & Condensate (Bbls) 13,628 10,334
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,
-----------------------------
1998 1997
Average Sales Price
Gas (per MCF) 1.75 3.43
Oil (per Bbl) 14.16 19.94
Average Production Cost Per
Equivalent Barrel 5.60 10.47
PRODUCING WELLS AND DEVELOPMENT ACREAGE
The following table sets forth, as of September 30, 1998 and 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
1998 5 3.39 0 0 895 489
1997 9 5.96 0 0 1,960 1,203
UNDEVELOPED ACREAGE
At September 30, 1998, the Registrant did not hold undeveloped acreage.
DRILLING ACTIVITIES
The Registrant had no drilling activities for the years ended
September 30, 1998 and 1997. 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.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS.
- - - - - - - - - - - - - --------------------------------------------------------------
None.
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, 1998 and 1997 are reported as
follows:
Quarter Ended High Low
------------- ---- ---
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, 1998 No quote No quote
March 31, 1998 No quote No quote
June 30, 1998 No quote No quote
September 30, 1998 No quote No quote
December 31, 1998 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,
1998 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.
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.
8
<PAGE>
YEAR ENDED SEPTEMBER 30,
------------------------------
1998 1997
Revenues $ 109,109 $ 227,300
Net Earnings (Loss) 8,453 62,602
Net Earnings (Loss)
Per Common Share $ -- * $ -- *
========= =========
Total Assets $ 807,514 $ 580,142
========= =========
Long-term Obligations -- --
========= =========
___________________
* Less than one cent per share.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS.
- - - - - - - - - - - - - --------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30, 1998 VS. SEPTEMBER 30, 1997
- - - - - - - - - - - - - ----------------------------------------------------
RESULTS OF OPERATIONS
The Registrant had net income for the year ended September 30, 1998
totalling $8,453 compared to net income of $62,602 at September 30, 1997.
The current year net income resulted from a gain recognized by the
Registrant on the sale of almost all of the producing properties in
Wyoming. Proceeds from the sale were $210,000; however, the removal of
capitalized amounts from the records, including proceeds and credits
previously capitalized under the full-cost method of accounting, resulted
in a net gain of $106,245. Operations without such gain, reflected a
loss after depreciation and depletion, due to abnormally low oil prices.
REVENUES
Oil and gas sales for the year ended September 30, 1998 totalled
$109,109 compared to revenues of $227,300 for the year ended September 30,
1997. Oil production increased from 10,334 barrels to 13,628 barrels for
a net increase of 3,294 barrels or 31.88%. Gas production decreased from
6,201 MCF's to 243 MCF's. These changes in revenue and fluctuation in
production resulted primarily from the purchase of one additional oil
property and the sale of the five Wyoming properties which produced oil and
some gas. Due to the significantly lower than normal oil prices, the
Registrant has elected to only sell oil production in excess of storage
capacity on the leases and to shut-in one of the properties until prices do
recover somewhat.
9
<PAGE>
COSTS AND EXPENSES
Oil and gas production costs for the year ended September 30, 1998
totalled $99,206 for a 8.34% (or $9,024) decrease from the year ended
September 30, 1997 costs of $108,230. The reduced costs were primarily a
result of the sale of the Wyoming properties.
General and administrative expenses totalled $33,338 at September 30,
1998 as compared to $86,741 at September 30, 1997 for a total decrease of
61.57%. This decrease was due to substantial reductions of costs as a
result of relocating the Registrant's office in 1997.
Depreciation, depletion and amortization costs for the year ended
September 30, 1998 totalled $63,715 for an increase of $35,581 (or 126.47%)
over the year ended September 30, 1997 costs of $28,134. This increase
resulted from the higher costs to be amortized due to the inclusion of
acquired properties, many of which were amortized more rapidly due to
increased production levels under the units of production calculation for
cost depletion and an additional charge due to the "capitalization ceiling"
determined by the Registrant's reserve study.
Exploration costs and dry hole costs were not incurred during fiscal
years September 30, 1998 and 1997.
OTHER INCOME (LOSS)
Other income (loss) for the year ended September 30, 1998, was
$95,603, an increase of $37,196 from the year ended September 30, 1997
amount of $58,407, due to the gain on sale as previously discussed.
LIQUIDITY AND CAPITAL RESOURCES
During the year ended September 30, 1998, the Registrant's working
capital increased from $191,902 at September 30, 1997 to $345,492 at
September 30, 1998.
The Registrant anticipates revenues from operations of the remaining
wells to be sufficient for its working capital needs. Substantially all of
the cash balances held by the Registrant are available for the acquisition
of additional oil and gas producing properties. The Registrant anticipates
that there will be increasing opportunities to acquire producing properties
as many operators are affected by the continued low oil prices.
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) 69 President, Chief Executive Officer
and a Director since 1996
Daniel L. Dalke (1) 48 Secretary, Treasurer, Chief Financial
Officer and a Director since 1996
G. Allan Nelson 75 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 Chief Executive Officer and President of
American Warrior, Inc., a Kansas corporation involved in oil and gas
development, since 1984. He has also been Chief Executive Officer and
President of Mid-Continent Resources, Inc., a Kansas corporation involved
in oil and gas development, since 1984. Mr. O'Brate has also been Chief
Executive Officer 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 farming and implement dealerships. Mr. O'Brate
devotes part-time to the Registrant.
DANIEL LEE 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 hods 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 officers and
directors.
(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.
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(a)(b) GENERAL AND SUMMARY COMPENSATION TABLE.
The following sets forth all compensation paid or accrued by the
Registrant for services rendered during fiscal years ended September 30,
1996, 1997 and 1998 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 Other Annual 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, 1998 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
President and 1997 0 $ 0 $ 0 0 0 0 0
Chief Executive 1996 0 $ 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 OPTIONS/SAR
VALUE TABLE.
Not applicable.
(e) TERM INCENTIVE PLAN ("LTIP") AWARDS TABLE.
Not applicable.
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(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, 1998, 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 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
Betty Lee Winkler 7,049,300 17.25%
P.O. Box 399
Garden City, KS 67846
13
<PAGE>
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 13-d-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.
(4) As of September 30, 1998. the Registrant has purchased 1,262,485
shares or 3.09% of its common stock which is now held in
Treasury. If such stock was not considered outstanding, the
beneficial ownership calculated for Cecil O'Brate, Betty Lee
Winkler and American Warrior, Inc. would be 42.81%, 17.81% and
42.81%, respectively.
(c) CHANGES IN CONTROL.
No understandings, arrangements or agreements are know 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 interest 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
14
<PAGE>
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, commercially reasonable and on terms and conditions not
less favorable to the Registrant than those available from unaffiliated
third parties.
(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 Registrant with copies of all
Section 16(a) forms they file.
Based solely on the Registrant's view of the copies of such forms
received by it during the fiscal year ended September 30, 1998, 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.
15
<PAGE>
PART IV
-------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
- - - - - - - - - - - - - -------------------------------------------------------------------------
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 Sheets - September 30, 1998 and 1997 F-2
Statements of Operations for the years ended
September 30, 1998 and 1997 F-3
Statements of Stockholders' Equity for the
years ended September 30, 1998 and 1997 F-4
Statements of Cash Flows for the years ended
September 30, 1998 and 1997 F-5
Notes to Financial Statements F-6 to 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 FORMS 8-K. The Registrant did not file a report
on Form 8-K during the period covered by this report.
16
<PAGE>
WINCO PETROLEUM CORPORATION
FINANCIAL STATEMENTS
SEPTEMBER 30, 1998 AND 1997
WITH
INDEPENDENT AUDITORS' REPORT
<PAGE>
WINCO PETROLEUM CORPORATION
FINANCIAL STATEMENTS
September 30, 1998 and 1997
TABLE OF CONTENTS
-----------------
Page
--------
Independent Auditors' Report . . . . . . . . . . . . . . . . . . . . . 1
Financial Statements:
Balance Sheets. . . . . . . . . . . . . . . . . . . . . . . . . . 2
Statements of Operations. . . . . . . . . . . . . . . . . . . . . 3
Statements of Stockholders' Equity. . . . . . . . . . . . . . . . 4
Statements of Cash Flows. . . . . . . . . . . . . . . . . . . . . 5
Notes to Financial Statements . . . . . . . . . . . . . . . . 6 - 16
<PAGE>
INDEPENDENT AUDITORS' REPORT
----------------------------
Board of Directors and Stockholders
WINCO PETROLEUM CORPORATION
We have audited the accompanying balance sheets of Winco Petroleum
Corporation as of September 30, 1998 and 1997, 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 audits 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 Winco Petroleum
Corporation as of September 30, 1998 and 1997, and the results of its
operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.
/s/ ALLEN, GIBBS & HOULIK, L.C.
March 22, 1999
<PAGE>
WINCO PETROLEUM CORPORATION
BALANCE SHEETS
September 30, 1998 and 1997
ASSETS
------
1998 1997
----------- -----------
CURRENT ASSETS
Cash and cash equivalents $ 328,202 $ 166,605
Accounts receivable 19,164 38,437
Accounts receivable - related party 19,134 31,490
---------- ----------
Total current assets 366,500 236,532
---------- ----------
PROPERTY AND EQUIPMENT
Investment in oil and gas properties,
at cost (full cost method) 262,180 1,054,867
Furniture, fixtures and vehicles, at cost 22,698 22,698
---------- ----------
284,878 1,077,565
Less accumulated depreciation,
depletion and amortization (111,717) (767,173)
---------- ----------
173,161 310,392
---------- ----------
OTHER ASSETS
Well equipment inventory,
at lower of cost or market -- 32,218
Other assets 1,000 1,000
---------- ----------
1,000 33,218
---------- ----------
$ 540,661 $ 580,142
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
-------------------------------------
1998 1997
----------- -----------
CURRENT LIABILITIES
Accounts payable:
Trade $ 5,180 $ 13,630
Related party 15,828 25,035
Accrued expenses -- 5,965
---------- ----------
Total current liabilities 21,008 44,630
---------- ----------
COMMITMENT
STOCKHOLDERS' EQUITY
Common stock, no par value; 500,000,000
shares authorized; 41,152,606 shares
issued and outstanding; (1,262,485
shares held in Treasury for 1998) 307,000 307,000
Additional paid-in capital 1,288,520 1,281,520
Deficit (1,044,555) (1,053,008)
---------- ----------
550,965 535,512
Less treasury stock at cost (31,312) --
---------- ----------
Total stockholders' equity 519,653 535,512
---------- ----------
$ 540,661 $ 580,142
========== ==========
The accompanying notes are an integral
part of these financial statements.
2
<PAGE>
WINCO PETROLEUM CORPORATION
STATEMENTS OF OPERATIONS
Years Ended September 30, 1998 and 1997
1998 1997
----------- -----------
Oil and gas sales $ 109,109 $ 227,300
---------- ----------
Costs and expenses:
Lease operating, including production
taxes 99,206 108,230
Depreciation, depletion and amortization 63,715 28,134
General and administrative 33,338 86,741
---------- ----------
196,259 223,105
---------- ----------
OPERATING (LOSS) INCOME (87,150) 4,195
---------- ----------
Other income (expense):
Interest income 10,654 3,251
Gain on sale of assets 106,245 43,811
Other (21,296) 11,345
---------- ----------
95,603 58,407
---------- ----------
INCOME BEFORE TAXES 8,453 62,602
Income tax expense (benefit) -- --
---------- ----------
NET INCOME $ 8,453 $ 62,602
========== ==========
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, 1998 and 1997
<TABLE>
<CAPTION>
Common Additional
Stock Common Paid-in Treasury
Issued Stock Capital Deficit Stock Total
---------- ---------- --------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance,
September 30, 1996 41,152,606 $ 307,000 $1,260,920 $(1,154,610) $ -- $452,310
Services contributed -- -- 20,600 -- -- 20,600
Net income -- -- -- 62,602 -- 62,902
---------- --------- ---------- ---------- -------- --------
Balance,
September 30, 1997 41,152,606 307,000 1,281,520 (1,053,008) -- 535,512
Services contributed -- -- 7,000 -- -- 7,000
Treasury stock
purchased (average
$.25 per share) -- -- -- -- (31,312) (31,312)
Net income -- -- -- 8,453 -- 8,453
---------- --------- ---------- ---------- -------- --------
Balance,
September 30, 1998 41,152,606 $ 307,000 $1,288,520 $(1,044,555) $(31,312) $519,653
========== ========= ========== ========== ======== ========
</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, 1998 and 1997
1998 1997
----------- -----------
Cash flows from operating activities:
Net income $ 8,453 $ 62,602
Adjustments to reconcile net income to
net cash (used in) provided by operating
activities:
Services contributed 7,000 20,600
Depreciation, depletion and amortization 63,715 28,134
Gain on sale of assets (106,245) (43,811)
Change in current assets and current
liabilities:
Accounts receivable 31,629 12,243
Prepaid expenses -- 6,389
Accounts payable (17,657) 20,371
Accrued expenses (5,965) (13,747)
---------- ----------
NET CASH (USED IN)
PROVIDED BY OPERATING ACTIVITIES (19,070) 92,781
---------- ----------
Cash flows from investing activities:
Purchase of investment in oil and
gas properties and office equipment -- (116,579)
Net proceeds from sale of investment
in oil and gas properties 211,979 71,204
Proceeds from sale of well equipment
inventory -- 21,258
---------- ----------
NET CASH PROVIDED BY
(USED IN) INVESTING ACTIVITIES 211,979 (24,117)
---------- ----------
Cash flows from financing activities:
Purchase of treasury stock (31,312) --
---------- ----------
NET CASH USED IN FINANCING ACTIVITIES (31,312) --
---------- ----------
INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS 161,597 68,664
Cash and cash equivalents, beginning of year 166,605 97,941
---------- ----------
CASH AND CASH EQUIVALENTS,
END OF YEAR $ 328,202 $ 166,605
========== ==========
Supplemental schedule of non-cash operating
and investing activities:
Additional paid-in capital for services
rendered by a related party $ 7,000 $ 20,600
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 AND CASH EQUIVALENTS - The Company considers all highly liquid
investments with a maturity of three months or less when purchased to
be cash equivalents.
The Company places its cash with high credit quality institutions. At
times, deposits may be in excess of federally insured limits. The
Company has not experienced losses in any such accounts and believes
it is not exposed to any significant credit risk on cash and 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 1998 and
1997 are accounted for at cost, in a discreet pool applicable to such
properties. The Company has not incurred any development costs in
1998 or 1997.
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, the total capitalized cost of oil and gas
properties did not exceed the capitalization ceiling and, thus, no
additional depletion, depreciation, and amortization provision was
taken for fiscal 1997. At September 30,1998, the total capitalized
cost of oil and gas properties exceeded the capitalization ceiling.
Additional depletion, depreciation and amortization was taken in the
amount of $37,141 to reduce the net capitalized cost to an amount
equal to the capitalization ceiling.
(Continued)
6
<PAGE>
WINCO PETROLEUM CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Continued)
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
Based on independent engineers' estimates for fiscal 1998 and 1997,
the provision for depreciation, depletion and amortization on a per
equivalent barrel basis was approximately $.93 and $.58 for 1998 and
1997, respectively.
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. During 1998, the Company disposed of all
its well equipment inventory.
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 PER COMMON SHARE - Earnings per common share is computed
utilizing the weighted average number (41,152,606 in 1998 and 1997) 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.
(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
-----------------------------
1998 1997
---------- ----------
Capitalized costs:
Property acquisition costs $ -- $ 116,579
---------- ----------
Production costs:
Lease operating costs 89,508 96,206
Production and transportation
taxes 3,627 5,774
Ad Valorem taxes 6,071 6,250
---------- ----------
99,206 108,230
---------- ----------
$ 99,206 $ 224,809
========== ==========
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
-----------------------------
1998 1997
---------- ----------
Proved properties $ 262,180 $1,054,867
Unproved properties -- --
---------- ----------
262,180 1,054,867
---------- ----------
Accumulated depreciation,
depletion and amortization 52,239 278,813
Additional accumulated
depreciation, depletion and
amortization "capitalization
ceiling" 37,141 465,662
---------- ----------
89,380 744,475
---------- ----------
Net capitalized costs $ 172,800 $ 310,392
========== ==========
(Continued)
8
<PAGE>
WINCO PETROLEUM CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Continued)
2. OIL AND GAS ACTIVITIES (CONTINUED)
MAJOR CUSTOMERS
The Company's oil and gas sales consisted of sales to unaffiliated
purchasers primarily as follows:
Years Ended
September 30
-----------------------------
1998 1997
---------- ----------
Purchaser
A $ 62,414 $ 194,912
B 17,764 11,125
C 28,140 --
---------- ----------
$ 108,318 $ 206,037
========== ==========
% to total oil and gas sales 99.28% 90.65%
========== ==========
PROPERTIES ACQUIRED
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 $116,579. 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
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
affiliations.
(Continued)
9
<PAGE>
WINCO PETROLEUM CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Continued)
2. OIL AND GAS ACTIVITIES (CONTINUED)
PROPERTIES DISPOSED OF
Effective January 1, 1998, the Company sold its remaining oil and gas
production in Wyoming, except the Madsen 12-9 lease, for approximately
$210,000. The Madsen 12-9 is operated on behalf of the Company by an
unrelated 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 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. As the properties sold represented
almost all of the Company's Wyoming production and the remainder of
the full-cost pool, the Company recognized the sale by removing all
associated costs, accumulated depreciation, depletion and amortization
and other capitalized amounts. Due to previous sales and credits not
recognized under the full-cost method, the removal of such capitalized
items resulted in a net credit of $106,245 reflected as an additional
gain in other income.
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)
3. RELATED PARTIES
As of September 30, 1998 and 1997, the Company had no employees.
Administrative and operations management services are provided to the
Company by American Warrior, Inc. (AWI), an oil and gas operating
company affiliated with the Company. AWI owns 41.52% of the Company.
Further, the majority stockholder and CEO of AWI is the CEO and
President of the Company, and the Assistant Secretary-Treasurer of AWI
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:
1998 1997
--------------- --------------
Service Hours Amount Hours Amount
---------------- ----- ------ ----- ------
Administration 25 $ 2,500 80 $ 8,000
Accounting 75 4,500 210 12,600
-------- --------
$ 7,000 $ 20,600
======== ========
In addition to the above contributed services, AWI was paid $3,350 in
cash for similar services. Further, at September 30, 1998 and 1997,
the Company had amounts receivable from this affiliate for oil sales
not yet distributed in the amounts of $19,134 and $31,490,
respectively, and had amounts payable to this affiliate for the
purchase of a working interest in an oil and gas property (1997) and
for operating expenses in the amounts of $15,828 and $25,035,
respectively. The Company owns undivided working interests in oil and
gas properties; it has not historically been the operator of such
properties, instead relying on other operators. As of September 30,
1998, substantially all of the Company's oil and gas production is
operated by AWI or affiliates of AWI (the Operating Affiliates).
Accordingly, the Company executes customary transactions with its
Operating Affiliates, as appropriate, relative to certain oil and gas
sales, most operating expenses, and some general and administrative
expenses.
(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:
1998 1997
---------- ----------
Computed income tax expense
at 34% $ 2,875 $ 21,285
Utilization of net operating
loss carryforwards (2,875) (21,285)
---------- ----------
$ -- $ --
========== ==========
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:
1998 1997
---------- ----------
Deferred tax assets
Depletion, depreciation and
amortization $ 84,900 $ 71,400
Net operating loss carryforward 241,600 254,500
Adjustment to value of well
equipment inventory -- 19,900
---------- ----------
Net deferred tax asset 326,500 345,800
Valuation allowance (326,500) (345,800)
---------- ----------
Net deferred tax asset
(liability) $ -- $ --
========== ==========
During the years ended September 30, 1998 and 1997, the Company
recorded a valuation allowance of $326,500 and $345,800, respectively,
on the deferred tax assets to reduce the total to an amount that
management believes will ultimately be realized. Realization of
deferred tax assets is dependent upon sufficient future taxable income
during the period that deductible temporary differences and
carryforwards are expected to be available to reduce taxable income.
(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, 1998 as follows:
Year net operating loss carryforward expires
-------------------------------------------
2000 $ 36,722
2001 89,721
2002 63,660
2003 115,138
2004 105,735
2006 17,770
2007 34,960
2008 57,939
2009 67,927
2010 66,169
2011 54,259
----------
$ 710,000
==========
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. No contribution was made during fiscal 1997. In
fiscal 1997, the Plan was terminated and the individual employees were
able to receive a lump sum distribution or roll-over their balance
into an individual IRA.
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 can be
volatile, and are not within the Company's control. For example, at
November 30, 1998, the price of crude oil generally received by the
Company was approximately $8.50 per Bbl. versus $12.75 at September
30, 1998. At March 22, 1999, the price was $12. As of September 30,
1998, one of the Company's producing properties was shut-in as the
currently low oil prices would not cover the cost of operations.
(Continued)
13
<PAGE>
WINCO PETROLEUM CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Continued)
7. UNAUDITED OIL AND GAS RESERVE INFORMATION
The reserve estimates presented as of September 30, 1998 and 1997 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.
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, 1997 and 1998
Proved Reserves Oil (Bbls) Gas (Mcf)
---------------------------------- ---------- ---------
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
Revisions of previous estimates (17,900) (4,300)
Production (13,600) --
-------- --------
Estimated quantity, September 30, 1998 68,300 --
======== ========
(Continued)
14
<PAGE>
WINCO PETROLEUM CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Continued)
7. UNAUDITED OIL AND GAS RESERVE INFORMATION (CONTINUED)
Proved Reserves
-------------------------------
Developed Undeveloped Total
--------- ----------- -----
Oil (Bbls)
September 30, 1997 99,800 -- 99,800
September 30, 1998 68,300 -- 68,300
Gas (Mcf)
September 30, 1997 4,300 -- 4,300
September 30, 1998 -- -- --
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.
STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS
AND CHANGES THEREIN RELATING TO PROVED OIL AND GAS RESERVES
AT SEPTEMBER 30,
1998 1997
---------- ----------
Future cash inflows $ 819,500 $1,770,100
Future production and
development costs (566,800) (1,098,700)
Future income tax expenses -- --
---------- ----------
Future net cash flows 252,700 671,400
10% annual discount for
estimated timing of cash flows (79,900) (238,200)
---------- ----------
Standardized measure of
discounted future net cash flows $ 172,800 $ 433,200
========== ==========
(Continued)
15
<PAGE>
WINCO PETROLEUM CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Continued)
7. UNAUDITED OIL AND GAS RESERVE INFORMATION (CONTINUED)
Following are the principal sources of change in the standardized
measure of discounted future net cash flows during the years ended
September 30:
1998 1997
---------- ----------
Standardized measure of discounted
future net cash flows,
beginning $ 433,200 $ 886,700
---------- ----------
Sales and transfers of oil and
gas produced, net of
production costs (54,600) (119,100)
Net changes in prices and
production costs (57,500) (211,800)
Sales of minerals in place (113,800) (113,000)
Acquisition of reserves -- --
Change in prices and production
costs on acquired properties -- --
Revisions of previous quantity
estimates (34,500) (9,600)
---------- ----------
(260,400) (453,500)
---------- ----------
Standardized measure of discounted
future net cash flows, ending $ 172,800 $ 433,200
========== ==========
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
---------------------- ---------- ----------
1999 $ 40,700 $ 40,700
2000 35,900 35,900
2001 31,500 31,500
Remainder 144,600 144,600
---------- ----------
$ 252,700 $ 252,700
========== ==========
PRESENT VALUE OF FUTURE NET CASH FLOWS
OF PROVED RESERVES DISCOUNTED AT 10% PER YEAR
September 30
-----------------------
1998 1997
---------- ----------
Proved developed $ 172,800 $ 433,200
Proved undeveloped -- --
---------- ----------
Total proved $ 172,800 $ 433,200
========== ==========
16
<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: May 18, 1999 By /s/ Cecil O'Brate
-------------------------------------
Cecil O'Brate, President, Chief
Executive Officer, and Director
Date: May 18, 1999 By /s/ Daniel Lee Dalke
-------------------------------------
Daniel Lee Dalke, Secretary,
Treasurer, Principal Financial Officer
and Director
Date: May 18, 1999 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
May 11, 1999
Mr. Dan Dalke
American Warrior, Inc.
P.O. Box 399
Garden City, Kansas 67846
Re: Winco Petroleum Corporation 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,
1998. Results are summarized below:
Estimated Future
Net Remaining Reserves Net Revenue
As of September 30, 1998 Discounted at
Reserve Category Oil (BBL) Undiscounted 10 Percent
- - - - - - - - - - - - - ---------------- --------- ------------ ----------
Proved Producing 68,293 $ 252,662 $ 172,807
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, and performance history 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, LLC as presented. McCartney Engineering, LLC 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.
Reserve Category
- - - - - - - - - - - - - ----------------
The reserves included in this report are classified in the proved developed
producing
<PAGE>
Mr. Dan Dalke
May 11, 1999
Page 2
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 price used in this evaluation was $12.00/BBL as requested by Mr.
Dan Dalke. 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.
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.
<PAGE>
Mr. Dan Dalke
May 11, 1999
Page 3
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.
/s/ JACK A MCCARTNEY
Jack A. McCartney
Manager
<PAGE>
TABLE #2
WINCO PETROLEUM CORPORATION
SUMMARY
AS OF SEPTEMBER 30, 1998
PROVED PRODUCING RESERVES
<TABLE>
<CAPTION>
GROSS GROSS OIL GROSS GAS NET OIL NET GAS REMOVAL OIL SALES EFFECTIVE GAS SALES
YEAR WELLS (BBL) (MCF) (BBL) (MCF) OIL PRICE ($) GAS PRICE ($)
- - - - - - - - - - - - - ---- ------- --------- --------- ------- ------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 4.00 11187 0 7314 0 12.00 87768 0.000 0
2 4.00 10494 0 6877 0 12.00 82524 0.000 0
3 4.00 9852 0 6472 0 12.00 77664 0.000 0
4 4.00 9245 0 6088 0 12.00 73056 0.000 0
5 4.00 8680 0 5730 0 12.00 68760 0.000 0
6 4.00 8151 0 5393 0 12.00 64716 0.000 0
7 4.00 6634 0 4312 0 12.00 51744 0.000 0
8 3.00 6048 0 3924 0 12.00 47088 0.000 0
9 3.00 5690 0 3703 0 12.00 44436 0.000 0
10 3.00 5356 0 3498 0 12.00 41976 0.000 0
11 3.00 5044 0 3305 0 12.00 39660 0.000 0
12 3.00 4747 0 3122 0 12.00 37464 0.000 0
13 3.00 3415 0 2516 0 12.00 30192 0.000 0
14 2.00 1618 0 1336 0 12.00 16032 0.000 0
15+ 1.00 5734 0 4703 0 12.00 56436 0.000 0
--------- --------- --------- --------- -------- -------- -------- ---------
101895 0 68293 0 12.00 819516 0.000 0
</TABLE>
<TABLE>
<CAPTION>
TOTAL OPERATING PRODUCTION SECTION 29 OTHER NET CUM NET DISC P.W. CUM P.W.
YEAR SALES ($) COSTS TAXES TAX CREDITS EXPENSE REVENUE REVENUE AT 10.0% AT 10.0%
- - - - - - - - - - - - - ---- --------- --------- ---------- ----------- ------- ------- ------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 87768 39440 7663 0 0 40665 40665 38773 38773
2 82524 39440 7195 0 0 35889 76554 31108 69881
3 77664 39440 6760 0 0 31464 108018 24792 94673
4 73056 39440 6348 0 0 27268 135286 19534 114207
5 68760 39440 5966 0 0 23354 158640 15208 129415
6 64716 39440 5607 0 0 19669 178309 11644 141059
7 51744 30720 4580 0 0 16444 194753 8850 149909
8 47088 28977 4182 0 0 13929 208682 6815 156724
9 44436 28977 3938 0 0 11521 220203 5125 161849
10 41976 28977 3711 0 0 9288 229491 3756 165605
11 39660 28977 3498 0 0 7185 236676 2641 168246
12 37464 28977 3296 0 0 5191 241867 1734 169980
13 30192 24323 2458 0 0 3411 245278 1036 171016
14 16032 12449 1202 0 0 2381 247659 657 171673
15+ 56436 47199 4234 0 0 5003 252662 1134 172807
--------- -------- -------- --------- -------- -------- -------- --------- --------
819516 496216 70638 0 0 252662 252662 172807 172807
</TABLE>
<PAGE>
TABLE #2 (CONT'D)
WINCO PETROLEUM CORPORATION
SUMMARY
AS OF SEPTEMBER 30, 1998
PROVED PRODUCING RESERVES
DISCOUNTED PRESENT WORTH VALUE PROFILE
DISCOUNT RATE PRESENT WORTH
------------- -------------
0.100 172,807
0.110 167,493
0.120 162,499
0.130 157,800
0.140 153,378
0.150 149,203
0.160 145,263
0.170 141,537
0.180 138,007
0.190 134,658
0.200 131,480
0.210 128,463
0.220 125,589
0.230 122,853
0.240 120,243
0.250 117,758
0.260 115,381
0.270 113,103
0.280 110,931
0.290 108,846
0.300 106,848
0.310 104,932
0.320 103,088
0.330 101,322
0.340 99,621
0.350 97,987
0.360 96,409
0.370 94,892
0.380 93,429
0.390 92,017
0.400 90,654
0.410 89,335
0.420 88,063
0.430 86,834
0.440 85,641
0.450 84,487
0.460 83,372
0.470 82,291
0.480 81,239
0.490 80,222
0.500 79,235
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE AUDITED FINANCIAL STATEMENTS FOR THE YEAR ENDED SEPTEMBER 30, 1998
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> SEP-30-1998
<CASH> 328,202
<SECURITIES> 0
<RECEIVABLES> 38,298
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 366,500
<PP&E> 284,878
<DEPRECIATION> 111,717
<TOTAL-ASSETS> 540,661
<CURRENT-LIABILITIES> 21,008
<BONDS> 0
0
0
<COMMON> 307,000
<OTHER-SE> 212,653
<TOTAL-LIABILITY-AND-EQUITY> 540,661
<SALES> 109,109
<TOTAL-REVENUES> 226,008
<CGS> 0
<TOTAL-COSTS> 196,259
<OTHER-EXPENSES> 21,296
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 8,453
<INCOME-TAX> 0
<INCOME-CONTINUING> 8,453
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,453
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
