U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[X] Annual report under Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the fiscal year ended December 31, 1998.
[ ] Transition report under Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the transition period from _______ to ________ .
Commission File Number: 0-9435
FIELDPOINT PETROLEUM CORPORATION
--------------------------------
(Name of Small Business Issuer in Its Charter)
Colorado 84-0811034
-------- ----------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
1703 Edelweiss Drive
Cedar Park, Texas 78613
- --------------------- -----
(Address of Principal Executive Offices) (Zip Code)
(512) 250-8692
-------------
(Issuer's Telephone Number, Including Area Code)
Securities registered under Section 12(b) of the Exchange Act:
(None)
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, $.01 Par Value
----------------------------
Title of Class
Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No
------ ------
Check if disclosure of delinquent filers in response to Item 405 of Regulation
S-B is not contained in this form, and no disclosure will be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [X]
The issuer's revenues for its most recent fiscal year were $606,764.
As of December 31, 1998, 4,613,259 shares of the Registrant's common stock par
value $.01 per share, were outstanding. The aggregate market value of the voting
stock held by non-affiliates of the Registrant at March 26, 1999, was
$1,518,672.
Documents Incorporated by Reference: None.
1
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PART I
ITEM 1- BUSINESS
--------
General
FieldPoint Petroleum Corporation, (formerly Energy Production Company)a Colorado
corporation (the "Company"), was formed on March 11, 1980, for the purpose of
identifying, acquiring, and enhancing the production of mature oil and natural
gas fields located primarily in the mid-continent and the Rocky Mountain region.
From 1980 the Company was engaged in oil and gas operations, and beginning in
December 1986, the Company divested all of its oil and gas assets and
operations. Since December 1986, the Company has not engaged in any oil and gas
operations until the completion of the reverse acquisition described below on
December 31, 1997.
Reverse Acquisition - The Company entered into an Agreement dated as of December
22, 1997, with Bass Petroleum, Inc., a Texas corporation ("BPI"), pursuant to
which, on December 31, 1997, the Company acquired from the shareholders of BPI
an aggregate of 8,655,625 shares of capital stock of BPI, in exchange for the
issuance of 4,000,000 unregistered shares of the Company's common stock. The
transaction was treated, for accounting purposes, as an acquisition of
FieldPoint Petroleum Corporation by Bass Petroleum, Inc. The historical
information prior to December 31,1997 represents the production and activity of
BPI. On December 31,1997, the Company changed its name from Energy Production
Company to FieldPoint Petroleum Corporation.
Recent Acquisition and Development
On January 11, 1999, the Company entered into an agreement with W.B. McKee
Securities to act as placement agent in the selling of up to a maximum of
1,466,667 Units each consisting of one share of the Company's Common Stock and
one common stock warrant, with its exercise price of $1.25, (the "Warrants"), on
a "best efforts all or none" basis with respect to the first 533,333 Units (the
"Minimum Offering"), and a "best efforts" basis with respect to the remaining
933,3334 Units (the "Maximum Offering") as more fully described in the Private
Placement Memorandum. The purchase price for the Units shall be (US) $.75 per
Unit. Proceeds from the offering will be used to fund the acquisition of certain
oil and gas properties from Pontotoc Production, Inc. As outlined in the
purchase sale agreement between the Company and Pontotoc Production dated
January 8,1999.
Forward-Looking Statements
Certain statements contained in this document, including without limitation
statements containing the words "believes," "anticipates," "intends," "expects,"
and words of similar import, constitute "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act. Such forward-looking
statements involve known and unknown risks, uncertainties and other factors that
may cause the actual results, performance or achievements of the company to
materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements.
2
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Business Strategy
The Company's business strategy is to continue to expand its reserve base and
increase production and cash flow through the acquisition of producing oil and
gas properties. Such acquisitions will be based on an analysis of the
properties' current cash flow and the Company's ability to profit from the
acquisition. The Company's ideal acquisition will include not only oil and gas
production, but also leasehold and other working interest in exploration areas.
The Company will also seek to identify promising areas for the exploration of
oil and gas through the use of outside consultants and the expertise of the
Company. This identification will include collecting and analyzing geological
and geophysical data for exploration areas. Once promising properties are
identified, the Company will attempt to acquire the properties either for
drilling oil and natural gas wells, using independent contractors for drilling
operations, or for sale to third parties.
The Company recognizes that the ability to implement its business strategies is
largely dependent on the ability to raise additional debt or equity capital to
fund future acquisition, exploration, drilling and development activities. The
Company's capital resources are discussed more thoroughly in Part II, Item 6, in
Management's Discussion and Analysis.
Operations
As of December 31, 1998, the Company had varying ownership interest in 79 gross
productive wells (34.67 net) located in 2 states. The Company operates 59 of the
79 wells; the other wells are operated by independent operators under contracts
that are standard in the industry. It is a primary objective of the Company to
operate most of the oil and gas properties in which it has an economic interest.
The Company believes, with the responsibility and authority as operator, it is
in better position to control cost, safety, and timeliness of work as well as
other critical factors affecting the economics of a well.
Market for Oil and Gas
The demand for oil and gas is dependent upon a number of factors, including the
availability of other domestic production, crude oil imports, the proximity and
size of oil and gas pipelines in general, other transportation facilities, the
marketing of competitive fuels, and general fluctuations in the supply and
demand for oil and gas. The Company intends to sell all of its production to
traditional industry purchasers, such as pipeline and crude oil companies, who
have facilities to transport the oil and gas from the wellsite.
Competition
The oil and gas industry is highly competitive in all aspects. The Company will
be competing with major oil companies, numerous independent oil and gas
producers, individual proprietors, and investment programs. Many of these
competitors possess financial and personnel resources substantially in excess of
those which are available to the Company and may, therefore, be able to pay
greater amounts for desirable leases and define, evaluate, bid for and purchase
a greater number of potential producing prospects that the Company's own
resources permit. The Company's ability to generate resources will depend not
only on its ability to develop existing properties but also on its ability to
identify and acquire proven and unproven acreage and prospects for further
exploration.
3
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Environmental Matters and Government Regulations
The Company's operations are subject to numerous federal, state and local laws
and regulations controlling the discharge of materials into the environment or
otherwise relating to the protection of the environment. Such matters have not
had a material effect on operations of the Company to date, but the Company
cannot predict whether such matters will have any material effect on its capital
expenditures, earnings or competitive position in the future.
The production and sale of crude oil and natural gas are currently subject to
extensive regulations of both federal and state authorities. At the federal
level, there are price regulations, windfall profits tax, and income tax laws.
At the state level, there are severance taxes, proration of production, spacing
of wells, prevention and clean-up of pollution and permits to drill and produce
oil and gas. Although compliance with their laws and regulations has not had a
material adverse effect on the Company's operations, the Company cannot predict
whether its future operations will be adversely effected thereby.
Operational Hazards and Insurance
The Company's operations are subject to the usual hazards incident to the
drilling and production of oil and gas, such as blowouts, cratering, explosions,
uncontrollable flows of oil, gas or well fluids, fires, pollution, releases of
toxic gas and other environmental hazards and risks. These hazards can cause
personal injury and loss of life, severe damage to and destruction of property
and equipment, pollution or environmental damage and suspension of operations.
The Company maintains insurance of various types to cover its operations. The
Company's insurance does not cover every potential risk associated with the
drilling and production of oil and gas. In particular, coverage is not
obtainable for certain types of environmental hazards. The occurrence of a
significant adverse event, the risks of which are not fully covered by
insurance, could have a material adverse effect on the Company's financial
condition and results of operations. Moreover, no assurance can be given that
the Company will be able to maintain adequate insurance in the future at rates
it considers reasonable.
Administration
Office Facilities- The office space for the Company's executive offices at 1703
Edelweiss Drive, Cedar Park, Texas 78613, is currently provided by the majority
shareholder at a cost of $1000.00 per month as of December 31, 1998.
Employees- As of March 15, 1998, the Company had 2 employees, the Company
considers its relationship with its employees satisfactory.
ITEM 2- PROPERTIES
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Principal Oil and Gas Interest
West Allen Field Pontotoc County Oklahoma is a producing oil and gas field
located approximately 100 miles south of Oklahoma City, Oklahoma. The Company
has a 9.50% working interest in the Butler and Diamond lease, the leases have
multiple wellbores which the Company has plans to participate in the
recompletion of behind pipe zones.
4
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Giddings Field Fayette County Texas is the prolific Austin Chalk field located
in various counties surrounding the city of Giddings, Texas. In February 1998,
the company acquired a 97% working interest in the Shade lease. The lease
currently has 3 producing oil and gas wells with a daily production rate of
approximately 120 Mcfe net to the Company. Oil and Gas are produced from the
Austin chalk formation; the Company will evaluate whether additional reserves
can be developed by use of horizontal well technology.
Big Muddy Field Converse County Wyoming is a producing oilfield located
approximately thirty miles south of Casper, Wyoming. FieldPoint Petroleum owns a
100% working interest in the Elkhorn and J.C. Kinney lease which consists of 3
oil wells producing out of the Wallcreek and Dakota formations at depth ranging
in general from approximately 3,200 feet to approximately 4,000 feet.
Serbin Field Lee and Bastrop Counties Texas is an oil and gas field located
approximately 50 miles east of Austin and 100 miles west of Houston. The Company
has a working interest in 74 producing oil and gas wells with a production rate
for 1997 of approximately 100 barrels of oil equivalent ("BOE") net to the
Company. Oil and gas are produced from the Taylor Sand at depths ranging from
approximately 5,300 feet to approximately 5,600 feet; it is a 46-gravity oil
sand.
Production
The table below sets forth oil and gas production from the Company's net
interest in producing properties for each of its last two fiscal years.
Oil and Gas Production
Quantities 1998 1997
---- ----
Oil (Bbls) 28,788 25,846
Gas (Mcf) 89,127 67,683
Average Sales Price
Oil ($/Bbl) $11.96 $19.51
Gas ($/Mcf) $1.50 $2.00
Average Production Cost ($/BOE) $6.31 $5.25
The Company's oil and gas production is sold on the spot market and the Company
does not have any production that is subject to firm commitment contracts.
During the year ended December 31, 1998, purchases by each of four customers,
Dorado Oil Company, Conoco, GPM Gas Corporation, and Aquila Pipeline Corporation
represented more than 10% of the total Company revenues. Neither of these four
customers, or any other customers of the Company, has a firm sales agreement
with the Company. The Company believes that it would be able to locate alternate
customers in the event of the loss of one or all of these customers.
5
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Productive Wells
Productive Wells
----------------
Oil Gas
State Gross(1) Net(2) Gross(1) Net(2)
- ----- ----- --- ----- ---
Oklahoma - -
Texas 69 28.29 7 3.8
Wyoming 3 2.58 - -
- --------- ----- ----- ----- ---
Total 72 30.87 7 3.8
Drilling Activity
The Company had no drilling activity in each of the last two fiscal years.
Reserves
The following reserve related information for years ended December 31, 1997 and
1998, is based on estimates prepared by an independent petroleum engineer. The
Company's reserve estimates are developed using geological and engineering data
and interest and burdens information developed by the Company. Reserve estimates
are inherently imprecise and are continually subject to revisions based on
production history, results of additional exploration and development, prices of
oil and gas, and other factors. The notes following the table should be read in
connection with the reserve estimates.
Estimated Proved Reserves
At December 31,(3)
1998 1997
------------------------
Proved Developed Reserves (Bbls) 153,076 192,047
Proved Developed Reserves (Mcf) 488,947 436,717
Total Proved Crude Oil Equivalents (BOE)(4) 234,567 264,833
Present Value of Estimated Future Net Revenues
(in thousands), discounted at 10% $523,000 $994,000
Reference should be made to the supplemental oil and gas information included in
this form 10-KSB for additional information pertaining to the Company's proved
oil and gas reserves as of the end of each of the last two fiscal years.
- -----------------------
(1) A gross well or acre is a well or acre in which a working interest is owned.
The number of gross wells is the total number of wells in which a working
interest is owned. The number of gross acres is the total number of acres in
which a working interest is owned.
(2) A net well or acre is deemed to exist when the sum of fractional ownership
working interests in gross wells or acres equals one. The number of net wells or
acres is the sum of the fractional working interests owned in gross wells or
acres expressed as whole numbers and fractions thereof.
(3) The Company's annual reserve reports are prepared as of December 31, which
is the end of the Company's fiscal year.
(4) Gas is converted to barrel of oil equivalent at 6,000 cubic feet equals one
barrel.
6
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Acreage
The following tables set forth the gross and net acres of developed and
undeveloped oil and gas leases in which the Company had working interest and
royalty interest as of December 31, 1998. The category of "Undeveloped Acreage"
in the table includes leasehold interest that already may have been classified
as containing proved undeveloped reserves.
Developed(1) Undeveloped(2)
State Gross(3) Net(4) Gross(3) Net(4)
- ------ ----- --- ----- ---
Oklahoma - - 200 19
Texas 1560 390 1360 1000
Wyoming 200 173 400 350
- --------- ---- --- ----- ----
Total 1760 560 1960 1369
ITEM 3-LEGAL PROCEEDINGS
-----------------
The Company is a party to a lawsuit arising in the ordinary course of business.
In the opinion of management, final judgement or settlement, if any, that may be
awarded or entered into in connection with this suit would not have a material
adverse effect on the Company's financial position or results of operations.
ITEM 4-SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
None.
PART II
ITEM 5-MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
--------------------------------------------------------
The Company's Common Stock is traded in the over-the-counter market and listed
on the Bulletin Board under the symbol "FPPC." Prior to January 1998 the
Company's symbol was "ENEU." Also prior to January 1998, the Company's Common
Stock experienced only limited trading and its prices were quoted irregularly in
the National Quotation Bureau's "Pink Sheets." Information regarding bid prices
and closing bids has been obtained from the National Quotation Bureau. The
following quotations, where quotes were available, reflect inter-dealer prices,
without retail mark-up, markdown or commission and may not necessarily represent
actual transactions.
- ----------------------
(1) Developed acreage is acreage spaced for or assignable to productive wells.
(2) Undeveloped acreage is oil and gas acreage on which wells have not been
drilled or to which no Proved Reserves other than Proved Undeveloped Reserves
have been attributed.
(3) A gross well or acre is a well or acre in which a working interest is owned.
The number of gross wells is the total number of wells in which a working
interest is owned. The number of gross acres is the total number of acres in
which a working interest is owned.
(4)A net well or acre is deemed to exist when the sum of fractional ownership
working interests in gross wells or acres equals one. The number of net wells or
acres is the sum of the fractional working interests owned in gross wells or
acres expressed as whole numbers and fractions thereof.
7
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FISCAL 1997 CLOSING BID
----------- -----------
HIGH LOW
---- ---
First Quarter .0001 .0001
Second Quarter .0001 .0001
Third Quarter .0001 .0001
Fourth Quarter .0001 .0001
FISCAL 1998
-----------
HIGH LOW
---- ---
First Quarter .8125 .3750
Second Quarter 1.5625 .8125
Third Quarter 1.7500 .8125
Fourth Quarter 1.3750 .8750
At March 26, 1999, the approximate number of shareholders of record was 1,020.
The Company has not paid any dividends on its Common Stock and does not expect
to do so in the foreseeable future.
Recent Sales of Unregistered Securities
During the fiscal year ended December 1997, the Company issued the following
securities without registration under the Securities Act of 1933, as amended.
On December 31, 1997, pursuant to a Plan of Exchange (the "Plan") by and among,
the Company, Bass Petroleum, Inc. (BPI), and the shareholders of BPI, the
Company issued an aggregate 4,000,000 unregistered shares to the shareholders of
BPI. The shares were issued on a pro rata basis, in exchange for an aggregate of
8,655,625 shares of capital stock of BPI.
As to the issuance of securities identified above, the Company relied upon
Section 4(2) of the Securities Act in claiming exemption from the registered
requirement of the Securities Act. All the persons to whom the securities were
issued had full information concerning the business and affairs of the Company
and acquired the shares for investment purposes. Certificates representing the
securities issued bear a restrictive legend prohibiting transfer of the
securities except in compliance with applicable securities laws.
ITEM 6-MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
---------------------------------------------------------
The following discussion should be read in conjunction with the Company's
Financial Statements, and respective notes thereto, included elsewhere herein.
The information below should not be construed to imply that the results
discussed herein will necessarily continue into the future or that any
conclusion reached herein will necessarily be indicative of actual operating
results in the future. Such discussion represents only the best present
assessment of the management of FieldPoint Petroleum Corporation.
8
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Overview
FieldPoint Petroleum Corporation derives its revenues from its operating
activities including sales of oil and gas and operating oil and gas properties.
The Company's capital for investment in producing oil and gas properties has
been provided by cash flow from operating activities and from bank financing.
The Company categorizes its operating expenses into the categories of production
expenses and other expenses. Due to cost associated with operations, the
Company's net expenses for the year ended December 31, 1998 were substantially
higher than net expenses for the year ended December 31, 1997.
Comparison of Year Ended December 31, 1998 to Year Ended December 31, 1997
--------------------------------------------------------------------------
Results of Operation
Revenues decreased 18% or $132,646 to $606,764 for the year ended December 31,
1998, from the comparable 1997 period. Oil production volumes increased by 11%
at the same time the average price per barrel decreased 39% during 1998 to
$11.96 verse the comparable 1997 period average price of $19.51 per barrel. Also
in 1998, the gas production volume increased by 31% while the average price per
Mcf was $1.50, a 25% decrease from the 1997 comparable.
Year Ended December 31,
1997 1997
---- ----
Oil Production 28,788 25,846
Average Sales Price Per Bbl ($/Bbl) $11.96 $19.51
Gas Production 89,127 67,683
Average Sales Price Per Mcf ($/Mcf) $1.50 $2.00
Production expenses increased 41% or $80,688 to $275,519 for the year ended
December 31, 1998, from the comparable 1997 period. This was due to the
additional operations in Wyoming, repair of a casing leak, and additional
workovers in the form of remedial repairs. Depletion and depreciation expense
increased 35% or $44,091 to $169,323 for the year ended December 31, 1998, from
the comparable 1997 period. The increase in depletion and depreciation was due
to increased levels of production and an increase in oil and gas properties.
General and administrative overhead cost remained relatively stable and
increased 2% or $6,129 to $312,266 for the 1998 period verse the 1997 comparable
period.
Net other expenses for the year ended December 31, 1998, was $50,374 compared to
net other expenses of $69,443 for 1997. This decrease was primarily due to
expenses related to the reverse acquisition in 1997.
The Company's net income decreased by $183,746 to a loss of $159,763 for the
year ended December 31, 1998, from the comparable 1997 period. The decrease in
net income was primarily due to lower prices received for oil and gas sales.
9
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Liquidity and Capital Resources
Cash flow from operating activities was a negative $36,272 for the year ended
December 31, 1998, compared to a positive $67,591 for the year ended December
31, 1997. The decrease in cash flow from operating activities was primarily due
to the net loss for the year ended December 31, 1998.
Cash flow used by investing activities was $441,944 in the period ended December
31, 1998, compared to $99,996 for December 31, 1997. This is primarily due to
increased purchases of oil and gas properties in 1998. Cash flow from financing
activities was $431,131 for the period ended December 31, 1998, compared to
$23,408 for the same period in 1997. This was due to increases in long-term debt
used to fund purchases of oil and gas properties.
The worldwide crude oil prices continued to fluctuate in 1998. The Company
cannot predict how prices will vary during 1999 and what effect they will
ultimately have on the Company. However, management believes that the Company
will be able to generate sufficient cash from operations to service its bank
debt and provide for maintaining current production of its oil and gas
properties.
Commitments for future capital expenditures were not material at December 31,
1998. The timing of most capital expenditures for new operations is relatively
discretionary. Therefore, the Company can plan expenditures to coincide with
available funds in order to minimize business risks.
Capital Requirements
Management believes the Company will be able to meet its current operating needs
through internally generated cash from operations. Management believes that oil
and gas property investing activities in 1999 can be financed through cash on
hand, cash from operating activities, and bank borrowing. The Company
anticipates continued investments in proven oil and gas properties in 1999. If
bank credit is not available, the Company may not be able to continue to invest
in strategic oil and gas properties. The Company cannot predict how oil and gas
prices will fluctuate during 1999 and what effect they will ultimately have on
the Company, but Management believes that the Company will be able to generate
sufficient cash from operations to service its bank debt and provide for
maintaining current production of its oil and gas properties. The Company had no
significant commitments for capital expenditures at December 31, 1998.
Year 2000 Compliance
The Company is assessing the impact of year the 2000 issue on its operations,
including the development and implementation of project plans and cost estimates
required to make its information systems Year 2000 compliant. Based on existing
information, the Company believes that anticipated spending necessary to become
Year 2000 compliant will not have a material effect on the financial position,
cash flows or results of operations of the Company. There can be no assurance,
however, as to the ultimate effect of the Year 2000 issue on the Company.
ITEM 7-FINANCIAL STATEMENTS
--------------------
The information required is included in this report as set forth in the "Index
to Financial Statements."
10
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Index to Financial Statements
-----------------------------
Independent Auditor's Report F-1
Consolidated Balance Sheets F-2
Consolidated Statements of Operations F-3
Consolidated Statements of Stockholders' Equity F-4
Consolidated Statements of Cash Flows F-5
Notes to Consolidated Financial Statements F-6-F-13
Supplemental Oil and Gas Information (Unaudited) F-14-F-16
ITEM 8-CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
-------------------------------------------------------------------------
None.
PART III
ITEM 9-DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(a) OF THE EXCHANGE ACT
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(a) Identification of Directors and Executive Officers. The following table
sets forth the names and ages of the Directors and Executive Officers of
the Company, all positions and offices with the Company held by such
person, and the time during which each such person has served:
Name Age Position with Company Period Served
- ---- --- --------------------- -------------
Ray D. Reaves 37 Director, President, Chairman, May 1997-present
Chief Executive Officer and
Chief Financial Officer
Roger D. Bryant 56 Director July 1997-present
Robert A. Manogue 74 Director July 1997-present
Mr. Reaves, age 37, has been Chairman, Director, President, Chief Executive
Officer and Chief Financial Officer of the Company since May 22, 1997. Mr.
Reaves has also served as Chairman, Chief Executive Officer, Chief Financial
Officer and Director of BPI from October 1989 to the present and as President of
Field Point Inc., a private investment firm.
Mr. Reaves will serve until the next meeting of the shareholders or until his
successor(s) have been duly elected and qualified.
Roger D. Bryant, age 56, has been a Director of the Company since July 1997.
From November 1994 to present, Bryant has been President of Canmax Corporation.
From May 1993 to October 1994, Bryant was President of Network Data Corporation.
From January 1993 to May 1993, he served as Senior Vice President, Corporate
Development, of Network Data Corporation. From January 1993 to May 1993, he
served as Senior Vice President, Corporate Development, of Network Data
Corporation. From May 1991 to July 1992, he served as President of Dresser
Industries, Inc., Wayne Division, a leading international manufacturer of fuel
dispensing equipment. Additionally, from August 1989 to May 1991, Bryant was
President of Schlumberger Limited, Retail Petroleum Systems Division, U.S.A., a
division of Schlumberger Corporation.
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Robert A. Manogue, age 74, has been a Director of the Company since July 1997.
Since 1982, Manogue has been retired and has been involved in house construction
in Albuquerque, New Mexico under R.A. Manogue Construction. From 1976 to 1982,
Manogue was President of C.P. Clare International N.V. in Brussels, Belgium, a
$50 million subsidiary of General Instruments Corporation. He also served as
Vice President of Marketing for Emerson Electric Company, a manufacturer and
marketer of consumer and industrial products, from 1971 to 1976.
(b) Identification of Significant Employees. The Company does not employ any
persons, other than its President, who make or are expected to make any
significant contributions to the business of the Company.
(c) Family Relationships. There is no family relationship between any present
director, executive officer or person nominated or chosen by the Company to
become a director or executive officer.
(d) Involvement in Certain Legal Proceedings. No present director or executive
officer of the Company has been the subject of any civil or criminal
proceeding during the past five years which is material to an evaluation of
his integrity or ability to serve as an officer or director, nor is any
such person the subject of any order, judgment or decree of any federal or
state authority which is material to an evaluation of his abilities or
integrity.
ITEM 10-EXECUTIVE COMPENSATION
----------------------
The following table sets forth in summary form the compensation received during
each of the Company's last three completed fiscal years by each of the Company's
Chief Executive Officer and President. No employee of the Company received total
salary and bonus exceeding $100,000 during the last three fiscal years.
Long-Term
Name and Compensation
Principal Position Fiscal Year Salary Bonus Options (#)
- --------------------------------------------------------------------------------
Ray D. Reaves 1998 $90,000 --
Chief Executive Officer 1997 $72,000 200,000
and President 1996 $72,000 $25,000 --
Option Grants Table
The following table sets forth information concerning individual grants of stock
options made during the fiscal years ended December 31, 1997 and 1998, to the
Company's Officers and Directors.
Name Options Granted (#) Price ($/sh.) Expiration Date
- --------------------------------------------------------------------------------
Ray D. Reaves 200,000 $.10 12/31/2001
President and CEO
Roger D. Bryant 100,000 $.10 12/31/2001
Director
Robert A. Manogue 100,000 $.10 12/31/2001
Director
Kelly Latz 5,000 $.88 12/31/1999
Corporate Secretary
12
<PAGE>
ITEM 11-SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the persons known to the Company to own
beneficially more than five percent of the outstanding shares of Common Stock as
of December 31, 1998 and information as of December 31, 1998, with respect to
the ownership of Common Stock by each director and executive officer of the
Company. In all cases, the owners have sole voting and investment powers with
respect to the shares.
Name and Address of Amount and Nature
Beneficial Owner of Beneficial Owner Percent of Class
- ---------------- ------------------- ----------------
Bass Petroleum, Inc. 210,000 4.8%
1703 Edelweiss Drive
Cedar Park, Texas 78613
Mildred Babich 325,801 7.4%
4225 Clear Lake
Ft. Worth, Texas 76109
Peter Babich 323,490 7.3%
3310 Parkside Rd.
Flint, Michigan 48503
The Delray Trust 604,928 13.7%
3606 Belle Grove
Sugar Land, Texas 77479
Ray D. Reaves 2,811,625(1) 61.2%
1703 Edelweiss Drive
Cedar Park, Texas 78613
Robert A. Manogue 377,277(2) 8.3%
1703 Edelweiss Drive
Cedar Park, Texas 78613
Roger D. Bryant 100,000(3) 2.2%
1703 Edelweiss Drive
Cedar Park, Texas 78613
All Officers and Directors 3,288,902 68.7%
as a Group (3 persons)
- ------------------------
(1)Includes (i) shares beneficially owned based on position with BPI; (ii)
estimated shares received in Reverse Acquisition in exchange for common stock of
BPI owned by Mr. Reaves; and (iii) 200,000 shares of Common Stock underlying an
option granted to Mr. Reaves by BPI, which option has been assumed by the
Company.
(2) Includes (i) shares owned by a partnership of which Mr. Manogue is a
partner; and (ii) 100,000 shares of Common Stock underlying an option of BPI
granted to Mr. Manogue by BPI, which option has been assumed by the Company.
(3) Includes 100,000 shares of Common Stock underlying an option granted to Mr.
Bryant.
13
<PAGE>
ITEM 12-CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In August 1994, the Company entered into a lease agreement with the controlling
shareholder, Ray D. Reaves, to rent office space. The lease extended through
July 31, 1997, and has continued thereafter on a month-to-month basis. The
monthly rent was $750 until December 31, 1997 and $1,000 thereafter.
During 1997, the Company acquired various oil and gas interest from a company
owned by the controlling shareholder for $88,000. During 1996, the Company
acquired an oil and gas well from its controlling shareholder, Ray D. Reaves for
$44,000. As partial considerations, the Company retired a note receivable from
Ray D. Reaves of $38,000, which had arisen from a cash advance in 1994.
At December 31, 1998, the Company had a liability to its majority stockholder of
$15,000 for short-term, non-interest bearing operating expenses.
At December 31, 1998, the Company had notes payable to two stockholders in the
amount of $220,000.
ITEM 13-EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Financial Statements of the Company as set forth under Item 7 of this
Report on Form 10-KSB
3.1 Articles of Incorporation (incorporated by reference to Amendment No.
1 to Form S-2 dated August 1, 1980.)
3.2(b) Articles of Amendment of Articles of Incorporation, dated December
31, 1997 (incorporated by reference to the Company's 10KSB for the
year ended December 31, 1997.)
3.3 Bylaws (incorporated by reference to Amendment No. 1 to Form S-2 dated
August 1, 1980.)
4.1 Plan of Exchange (incorporated by reference to the Company's
definitive proxy statement dated December 8, 1997).
(b) Reports on Form 8-K
There were no reports on Form 8-K filed by the Company during the last
quarter of its fiscal year.
14
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
FIELDPOINT PETROLEUM CORPORATION
--------------------------------
(Registrant)
By: /s/ Ray Reaves
----------------------
Ray Reaves, President
Date: 3/30/99
-------
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By: /s/ Ray Reaves
----------------------
Ray Reaves, President, Chief Executive Officer, Director,
Chairman, Chief Financial Officer
Date: 3/30/99
-------
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH
REPORTS FILED PURSUANT TO SECTION 15(d) OF THE
EXCHANGE ACT BY NON-REPORTING ISSUERS
No annual report or proxy material has been sent to security holders. Proxy
material, which is to be furnished to security holders subsequent to the filing
of the annual report on this form, shall be furnished to the Commission when it
is sent to security holders.
15
<PAGE>
INDEPENDENT AUDITOR'S REPORT
Board of Directors and Stockholders
FieldPoint Petroleum Corporation
Austin, Texas
We have audited the accompanying consolidated balance sheets of FieldPoint
Petroleum Corporation as of December 31, 1998 and 1997, and the related
consolidated statements of operations, changes in stockholders= equity and cash
flows for the years then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated 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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of FieldPoint Petroleum
Corporation as of December 31, 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.
HEIN + ASSOCIATES LLP
Dallas, Texas
January 20, 1999
F-1
<PAGE>
<TABLE>
<CAPTION>
FIELDPOINT PETROLEUM CORPORATION
CONSOLIDATED BALANCE SHEETS
ASSETS
DECEMBER 31,
--------------------------
1998 1997
----------- -----------
<S> <C> <C>
CURRENT ASSETS:
Cash $ 1,375 $ 48,457
Trading securities 2,880 2,880
Accounts receivable:
Due from investor 9,000 --
Oil and gas sales 50,026 73,159
Joint interest billings, less allowance for doubtful
account of $20,000 and $0, respectively 67,225 61,392
Income taxes recoverable 48,000 --
Prepaid expenses 2,535 1,635
----------- -----------
Total current assets 181,041 187,523
PROPERTY AND EQUIPMENT:
Oil and gas properties (successful efforts method):
Unproved leasehold costs 180,000 --
Proved leasehold costs 1,115,176 954,995
Lease and well equipment 172,860 95,504
Furniture and equipment 31,432 30,758
Transportation equipment 74,945 74,945
Less accumulated depletion and depreciation (523,258) (353,935)
----------- -----------
Net property and equipment 1,051,155 802,267
EARNEST MONEY DEPOSIT 40,000 --
OTHER ASSETS 16,815 20,000
----------- -----------
Total assets $ 1,289,011 $ 1,009,790
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 449,500 $ 160,544
Accounts payable and accrued expenses 128,347 111,255
Oil and gas revenues payable 62,538 96,512
Due to related party 15,000 --
----------- -----------
Total current liabilities 655,385 368,311
LONG-TERM DEBT, net of current portion 374,070 255,877
COMMITMENTS (Note 9)
STOCKHOLDERS= EQUITY:
Common stock, $.01 par value, 75,000,000 shares authorized;
4,613,259 and 4,413,259 shares issued and outstanding, respectively 46,132 44,132
Additional paid-in capital 117,723 83,906
Treasury stock, 210,000 shares, at cost (2,100) --
Retained earnings 97,801 257,564
----------- -----------
Total stockholders' equity 259,556 385,602
----------- -----------
Total liabilities and stockholders' equity $ 1,289,011 $ 1,009,790
=========== ===========
</TABLE>
See accompanying notes to these financial statements.
F-2
<PAGE>
FIELDPOINT PETROLEUM CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31,
--------------------------
1998 1997
----------- -----------
REVENUE:
Oil and gas sales $ 443,448 $ 561,875
Well operational and pumping fees 163,316 175,535
Other
-- 2,000
----------- -----------
Total revenue 606,764 739,410
COSTS AND EXPENSES:
Production expense 275,519 194,831
Depletion and depreciation 169,323 125,232
General and administrative 312,266 306,137
----------- -----------
Total costs and expenses 757,108 626,200
OTHER INCOME (EXPENSE):
Gain on sale of assets 875 3,235
Acquisition expenses -- (45,000)
Interest expense, net (56,351) (33,830)
Miscellaneous 5,102 6,152
----------- -----------
Total other income (expense) (50,374) (69,443)
----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES (200,718) 43,767
INCOME TAX BENEFIT (PROVISION) - CURRENT 40,955 (19,784)
----------- -----------
NET INCOME (LOSS) $ (159,763) $ 23,983
=========== ===========
BASIC AND DILUTED EARNINGS (LOSS) PER SHARE $ (.04) $ .01
=========== ===========
WEIGHTED AVERAGE SHARES OUTSTANDING 4,211,592 4,137,399
=========== ===========
See accompanying notes to these financial statements.
F-3
<PAGE>
<TABLE>
<CAPTION>
FIELDPOINT PETROLEUM CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS= EQUITY
FOR THE PERIOD FROM JANUARY 1, 1997 TO DECEMBER 31, 1998
Common Stock Treasury Stock Additional
--------------------- ---------------------- Paid-In Retained
Shares Amount Shares Amount Capital Earnings Total
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCES, January 1, 1997 4,000,000 $ 40,000 -- $ -- $ 88,038 $ 233,581 $ 361,619
Purchase of common stock for cash in May 1997 223,040 2,230 -- -- (2,230) -- --
Issuance of common stock to acquire net
assets of Energy Production Company 190,219 1,902 -- -- (1,902) -- --
Net income for the year -- -- -- -- -- 23,983 23,983
--------- --------- --------- --------- --------- --------- ---------
BALANCES, December 31, 1997 4,413,259 44,132 -- -- 83,906 257,564 385,602
Record value of treasury shares -- -- 214,000 (2,140) 2,140 -- --
Issuance of options to consultant -- -- -- -- 9,732 -- 9,732
Exercise of options by former director 200,000 2,000 -- -- 18,000 -- 20,000
Sale of treasury stock -- -- (4,000) 40 3,945 -- 3,985
Net loss for year -- -- -- -- -- (159,763) (159,763)
--------- --------- --------- --------- --------- --------- ---------
BALANCES, December 31, 1998 4,613,259 $ 46,132 210,000 $ (2,100) $ 117,723 $ 97,801 $ 259,556
========= ========= ========= ========= ========= ========= =========
</TABLE>
See accompanying notes to these financial statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
FIELDPOINT PETROLEUM CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31,
------------------------
1998 1997
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $(159,763) $ 23,983
Adjustments to reconcile to net cash from operating activities:
Depletion and depreciation 169,323 125,232
Gain on sale of assets (875) (3,235)
Options issued for services 9,732 --
Changes in assets and liabilities:
Accounts receivable 2,033 4,470
Income taxes recoverable (48,000) --
Prepaid expenses and other assets (6,815) 5,000
Accounts payable and accrued expenses 17,092 13,913
Oil and gas revenues payable (33,974) (26,426)
Federal income taxes payable -- (47,022)
Due to related party 15,000 (27,733)
Other (25) (591)
--------- ---------
Net cash (used) provided by operating activities (36,272) 67,591
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of equipment -- 11,000
Purchase of oil and gas properties (411,270) (163,270)
Purchase of furniture and equipment (674) (47,726)
Increase in earnest money deposit (40,000) --
Decrease in restricted cash 10,000 100,000
--------- ---------
Net cash used by investing activities (441,944) (99,996)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt 595,000 272,421
Repayments of long-term debt (187,851) (249,013)
Proceeds from sales of common stock 20,000 --
Proceeds from sales of treasury stock 3,985 --
--------- ---------
Net cash provided by financing activities 431,134 23,408
--------- ---------
NET DECREASE IN CASH (47,082) (8,997)
CASH, beginning of the year 48,457 57,454
--------- ---------
CASH, end of the year $ 1,375 $ 48,457
========= =========
SUPPLEMENTAL INFORMATION:
Cash paid during the year for interest $ 58,462 $ 41,219
========= =========
Cash paid during the year for income taxes $ 7,045 $ 18,000
========= =========
Oil and gas properties acquired for forgiveness of receivables $ 6,267 $ 13,247
========= =========
</TABLE>
See accompanying notes to these financial statements.
F-5
<PAGE>
FIELDPOINT PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
------------------------------------------
Organization and Nature of Operations
-------------------------------------
FieldPoint Petroleum Corporation (the "Company") is incorporated under the
laws of the state of Colorado. The Company is engaged in the acquisition,
operation and development of oil and gas properties, which are located in
South-Central Texas and Wyoming as of December 31, 1998. The Company also
has a working interest in unproved leasehold acreage in Oklahoma as of
December 31, 1998.
The Company began operations as Bass Petroleum, Inc. (Bass) in October
1989. On December 31, 1997, the shareholders of Bass exchanged all their
shares for approximately 97% (including the 6% of EPC previously purchased
by Bass) of Energy Production Company (EPC), a public company, and Bass
became a wholly-owned subsidiary of EPC (see Note 2). The management of
Bass became the management of the combined company. Concurrent with the
transaction, the Company changed its name to FieldPoint Petroleum
Corporation and declared a 75 to 1 reverse stock split. Although EPC is the
acquiring entity for legal purposes, Bass was considered the acquirer for
accounting purposes, and the financial statements of the combined company
reflect the historical accounts of Bass and include the operations of EPC
beginning May 22, 1997. However, because EPC is the acquiring entity for
legal purposes, all stockholders' equity information in the accompanying
financial statements and footnotes has been restated to conform to EPC's
capital structure. The Company changed its name to FieldPoint Petroleum
Corporation following the share exchange with EPC.
Cash and Cash Equivalents
-------------------------
The Company considers all highly liquid debt instruments purchased with an
original maturity of three months or less to be cash equivalents.
Oil and Gas Producing Operations
--------------------------------
The Company uses the successful efforts method of accounting for its oil
and gas producing activities. Costs incurred by the Company related to the
acquisition of oil and gas properties and the cost of drilling successful
wells are capitalized. Costs incurred to maintain wells and related
equipment and lease and well operating costs are charged to expense as
incurred. Gains and losses arising from sales of properties are included in
income. Unproved properties are assessed periodically for possible
impairment. Any impaired amounts are charged to expense. The Company had no
impaired unproved properties as of December 31, 1998.
Capitalized amounts attributable to proved oil and gas properties are
depleted by the unit-of-production method based on proved reserves.
Depreciation and depletion expense for oil and gas producing property and
related equipment was $152,093 and $111,820 for the years ended December
31, 1998 and 1997, respectively.
Capitalized costs are evaluated for impairment based on an analysis of
undiscounted future net cash flows in accordance with Financial Accounting
Standards Board Statement No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of". If
impairment is indicated, the asset is written down to its estimated fair
value based on expected future discounted cash flows.
F-6
<PAGE>
FIELDPOINT PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Joint Interest Billings Receivable and Oil and Gas Revenue Payable
------------------------------------------------------------------
Joint interest billings receivable represent amounts receivable for lease
operating expenses and other costs due from third party working interest
owners in the wells that the Company operates. The receivable is recognized
when the cost is incurred and the related payable and the Company's share
of the cost is recorded.
Oil and gas revenue payable represents amounts due to third party revenue
interest owners for their share of oil and gas revenue collected on their
behalf by the Company. The payable is recorded when the Company recognizes
oil and gas sales and records the related oil and gas sales receivable.
Other Property
--------------
Other assets classified as property and equipment are primarily office
furniture and equipment and vehicles, and are carried at cost. Depreciation
is provided using the straight-line method over estimated useful lives
ranging from five to seven years. Gain or loss on retirement or sale or
other disposition of assets is included in income in the period of
disposition. Depreciation expense for other property and equipment was
$17,230 and $13,412 for the years ended December 31, 1998 and 1997,
respectively.
Earnings (Loss) Per Share
-------------------------
Basic earnings (loss) per share is computed based on the weighted average
number of shares of common stock outstanding during the period. Diluted
earnings (loss) per share takes common stock equivalents (such as options
and warrants) into consideration. As of December 31, 1998, the Company had
outstanding options for 455,000 shares of common stock which are not
included in the dilutive calculation of earnings (loss) per share as the
effect would be antidilutive.
Income Taxes
------------
Income taxes are provided for the tax effects of transactions reported in
the financial statements and consist of taxes currently due, if any, plus
net deferred taxes related primarily to differences between the bases of
assets and liabilities for financial and income tax reporting. Deferred tax
assets and liabilities represent the future tax return consequences of
those differences, which will either be taxable or deductible when the
assets and liabilities are recovered or settled. Deferred tax assets
include recognition of operating losses that are available to offset future
taxable income and tax credits that are available to offset future income
taxes. Valuation allowances are recognized to limit recognition of deferred
tax assets where appropriate. Such allowances may be reversed when
circumstances provide evidence that the deferred tax assets will more
likely than not be realized.
Stock-Based Compensation
------------------------
In January 1997, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 123 "Accounting for Stock-Based Compensation", which
requires recognition of the value of stock options and warrants granted
based on an option pricing model. However, as permitted by SFAS 123, the
Company continues to account for stock options and warrants granted to
directors and employees pursuant to Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees", and related
interpretations. See Note 7.
F-7
<PAGE>
FIELDPOINT PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Use of Estimates and Certain Significant Estimates
--------------------------------------------------
The preparation of the Company's financial statements in conformity with
generally accepted accounting principles requires the Company's management
to make estimates and assumptions that affect the amounts reported in these
financial statements and accompanying notes. Actual results could differ
from those estimates. Significant assumptions are required in the valuation
of proved oil and gas reserves, which as described above may affect the
amount at which oil and gas properties are recorded. It is at least
reasonably possible those estimates could be revised in the near term and
those revisions could be material.
Reclassifications
-----------------
Certain reclassifications have been made to conform the December 31, 1997
financial statements to the presentation in 1998. The reclassifications had
no effect on net income.
2. ACQUISITION OF ENERGY PRODUCTION COMPANY
----------------------------------------
In May 1997, Bass acquired an 81% interest in EPC, an inactive public
company. Bass acquired approximately 54% of EPC from EPC's controlling
shareholder for $45,000 as well as an additional ownership interest in EPC
in the form of 44,300,000 newly-issued common shares, in exchange for two
oil and gas properties with a cost basis of $23,500, and $5,000 in cash.
The $45,000 cash payment was charged against operations during the year
ended December 31, 1997 as EPC had no identifiable assets at the time of
acquisition.
In October 1997, EPC and Bass rescinded the sale of the newly-issued EPC
common shares to Bass. Bass returned the shares to EPC in exchange for
return of the purchase price. After returning the shares, Bass owned 54% of
EPC, or 223,040 shares (which represented an approximate 6% ownership
interest after the reverse acquisition described below).
In December 1997, Bass completed the reverse acquisition as described in
Note 1. After the reverse acquisition, Bass and its shareholders owned 97%
of the common stock of EPC.
From 1980 to 1986, EPC was engaged in the acquisition, development and
operations of oil and gas properties. In December 1986, EPC began to divest
its remaining oil and gas assets and operations and was relatively inactive
since that time with no significant operating revenues or operations. Since
1986, the only assets of EPC have been cash and related party receivables.
EPC had a substantial accumulated deficit as of the acquisition date.
No pro forma financial statements have been prepared to reflect the results
of operations as if EPC had been acquired at the beginning of the period,
because EPC's operations were not material.
3. ACQUISITION OF OIL AND GAS PROPERTIES
--------------------------------------
In February 1998, the Company acquired interests in certain producing
properties in Texas for consideration of $190,000. The acquisition was
financed with an extension of the Company's existing borrowing facility
F-8
<PAGE>
with a bank. The following unaudited proforma information is presented as
if the interests in the property had been acquired at the beginning of the
respective periods.
Year Ended December 31,
------------------------
1998 1997
---------- ---------
Revenues $ 626,366 $ 861,326
Net income (loss) $ (145,443) $ 53,083
Net income (loss) per share $ (.03) $ .01
4. Related Party Transactions
--------------------------
During 1997, the Company acquired various oil and gas interests from its
majority stockholder for $88,000.
F-9
<PAGE>
FIELDPOINT PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
At December 31, 1998, the Company had a liability to its majority
stockholder of $15,000 for short-term, non-interest bearing operating
expenses.
In August 1994, the Company entered into a lease agreement with the
majority stockholder of the Company to rent office space. The lease
extended through July 31, 1997 and has continued thereafter on a
month-to-month basis. The monthly rental was $750 until December 31, 1997
and $1,000 thereafter. Rent expense was $12,000 and $9,000 for the years
ended December 31, 1998 and 1997, respectively.
At December 31, 1998, the Company had notes payable to two stockholders in
the amount of $220,000 as described in Note 5.
5. LONG-TERM DEBT
--------------
Long-term debt at December 31, 1998 and 1997 consisted of the following:
<TABLE>
1998 1997
----- ----
<S> <C> <C>
Note payable to a bank, interest at bank's floating rate (8.75%
at December 31, 1998), monthly payments of principal and interest
of $17,227, until maturity in June 2001. This note is
collateralized by certain oil and gas properties and is
guaranteed by the majority stockholder of the Company. $ 470,601 $ 375,000
Note payable to a bank, interest at bank's floating rate (8.75%
at December 31, 1998), monthly payments of principal of $3,788
plus accrued interest, until maturity in March 2001. This note is
collateralized by certain oil and gas properties and is
guaranteed by the majority stockholder of the Company. 102,273 -
Unsecured note payable to a stockholder, interest at the prime
rate (8.75% at December 31, 1998), principal and accrued interest
due at maturity in February 1999. 180,000 -
Unsecured note payable to a stockholder, interest at the prime
rate (8.75% at December 31, 1998), principal and accrued interest
due at maturity in March 1999. 40,000 -
Note payable to a bank, interest at 10.25%, monthly payments of
principal and interest of $493 until maturity in December 2000.
This note is collateralized by a truck. 10,668 15,209
Note payable to a commercial lender, interest at 3.9%, monthly
payment of $214 of principal and interest until maturity in
February 2002. This note is collateralized by an automobile. 7,623 9,831
Note payable to a commercial lender, interest at 8.75%, monthly
payments of $420 of principal and interest until maturity in
October 2001. This note is collateralized by a truck. 12,405 16,381
----------- -----------
Total 823,570 416,421
Less current portion (449,500) (160,544)
----------- -----------
$ 374,070 $ 255,877
=========== ===========
</TABLE>
F-10
<PAGE>
FIELDPOINT PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Maturities of long-term debt based on contractual requirements for the
years ending December 31, 1999 through 2002 are as follows:
1999 $ 449,500
2000 246,237
2001 127,426
2002 407
---------
$ 823,570
6. INCOME TAXES
The Company's deferred tax assets and (liabilities) are composed of the
following at December 31, 1998 and 1997:
DECEMBER 31,
--------------------
1998 1997
-------- --------
Deferred tax assets:
Non-deductible acquisition cost $ 15,000 $ 17,000
Other items 9,000 11,000
-------- --------
24,000 28,000
-------- --------
Deferred tax liabilities:
Difference in bases of oil and gas properties (11,000) (28,000)
-------- --------
Net asset before valuation allowance 13,000 --
Valuation allowance (13,000) --
-------- --------
Net asset $ -- $ --
======== ========
7. Stock Based Compensation
------------------------
Stock Options
-------------
In 1997, the Company granted 600,000 non-qualified stock options to certain
directors to purchase the Company's common stock at $0.10 per share. The
options may be exercised from January 1, 1998 to December 31, 2001. The
amounts and terms of the options were not affected by the reverse
acquisition described in Note 2.
In January 1998, the Company granted 5,000 non-qualified stock options to
an officer. The options are exercisable at $0.88 per share until expiration
in December 1999.
In January 1998, the Company granted 50,000 non-qualified stock options to
a consultant in exchange for services. The options are exercisable at $0.75
per share until expiration in December 1999. The fair market value of these
options, as determined by the Black-Scholes option pricing model, of $9,732
was recorded as an expense during the year ended December 31, 1998.
F-11
<PAGE>
<TABLE>
<CAPTION>
FIELDPOINT PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following is a summary of activity for the stock options granted for
the years ended December 31, 1998 and 1997:
DECEMBER 31, 1998 DECEMBER 31, 1997
----------------------------- ------------------------
Weighted Weighted
Average Average
Number Exercise Number Exercise
of Shares Price of Shares Price
--------- -------- --------- --------
<S> <C> <C> <C> <C> <C>
Outstanding, beginning of year 600,000 $ 0.10 - -
Canceled or expired - - - -
Granted 55,000 $ 0.76 600,000 $ 0.10
Exercised (200,000) $ 0.10 - -
-------- ------ ------- -------
Outstanding and exercisable, end of year 455,000 $ 0.18 600,000 $ 0.10
======== ====== ======= =======
If not previously exercised, options outstanding at December 31, 1998 will
expire as follows:
Weighted
Average
Number Exercise
of Shares Price
--------- --------
December 31, 1999 55,000 $ 0.76
December 31, 2001 400,000 $ 0.10
------- -------
Total 455,000 $ 0.18
======= =======
Presented below is a comparison of the weighted average exercise prices and
fair values of the Company's common stock on the measurement date for the
stock options granted during fiscal years 1998 and 1997.
1998 1997
------------------------------ -------------------------------
Number Exercise Fair Number Exercise Fair
of Shares Price Value of Shares Price Value
Exercise price greater than market price 55,000 $ 0.76 $0.19 600,000 $ 0.10 $ 0.02
======= ====== ====== ======= ====== ======
</TABLE>
Pro Forma Stock-Based Compensation Disclosures
----------------------------------------------
As discussed in Note 1, the Company applies APB Opinion No. 25 and related
interpretations in accounting for its stock options. Accordingly, no
compensation cost has been recognized for grants of options to employees
since the exercise prices were not lower than the market prices of the
Company's common stock on the measurement date. Had compensation been
determined based on the estimated fair value at the measurement dates for
awards under those plans consistent with the method prescribed by SFAS No.
123, the Company's December 31, 1998 and 1997 income and earnings per share
would have been changed to the pro forma amounts indicated below.
F-12
<PAGE>
FIELDPOINT PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1998 1997
--------- ---------
Net income (loss):
As reported $(159,763) $ 23,983
Pro forma (160,676) $ 14,155
Net income (loss) per common share:
As reported $ (0.04) $ 0.01
Pro forma $ (0.04) *
* Less than $0.01 per share
The estimated fair value of each officer and director option and warrant
granted during fiscal year 1998 and 1997 was estimated on the date of grant
using the Black-Scholes option-pricing model with the following weighted
average assumptions:
1998 1997
--------- ---------
Expected volatility 126.3% 0%
Risk-free interest rate 6.5% 6.13%
Expected dividends - -
Expected terms (in years) 2 5
8. ENVIRONMENTAL ISSUES
--------------------
The Company is engaged in oil and gas exploration and production and may
become subject to certain liabilities as they relate to environmental clean
up of well sites or other environmental restoration procedures as they
relate to the drilling of oil and gas wells and the operation thereof. In
the Company's acquisition of existing or previously drilled well bores, the
Company may not be aware of what environmental safeguards were taken at the
time such wells were drilled or during such time the wells were operated.
Should it be determined that a liability exists with respect to any
environmental clean up or restoration, the liability to cure such a
violation could fall upon the Company. No claim has been made, nor is the
Company aware of any liability which the Company may have, as it relates to
any environmental clean up, restoration or the violation of any rules or
regulations relating thereto.
9. COMMITMENTS
-----------
As of December 31, 1998, the Company has a $10,000 open letter of credit in
favor of the State of Wyoming as a plugging bond. The letter of credit is
collateralized by a certificate of deposit in the same amount.
The Company has entered into a letter of intent to purchase certain working
interests in unproved leasehold acreage in Oklahoma. The Company has given
the seller a $40,000"good faith" earnest money deposit as of December 31,
1998. The Company is committed to fund the purchase of $485,000 of working
interest by April 30, 1999 or lose $20,000 of the deposit and to fund the
purchase of another $425,000 of working interest by June 30, 1999 or lose
the remaining $20,000 of the deposit.
F-13
<PAGE>
FIELDPOINT PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. FAIR VALUE OF FINANCIAL INSTRUMENTS AND CONCENTRATION OF CREDIT RISK
The Company's financial instruments are cash, amounts receivable and
payable and long-term debt. Management believes the fair values of these
instruments, with the exception of the long-term debt, approximate the
carrying values, due to the short-term nature of the instruments.
Management believes the fair value of long-term debt also reasonably
approximates its carrying value, based on expected cash flows and interest
rates.
Financial instruments that subject the Company to credit risk consist
principally of receivables. The receivables are primarily from companies in
the oil and gas business or from individual oil and gas investors. These
parties are primarily located in the Southwestern region of the United
States. The Company does not ordinarily require collateral, but in the case
of receivables for joint operations, the Company often has the ability to
offset amounts due against the participant's share of production from the
related property. The Company believes the allowance for doubtful accounts
at December 31, 1998 and 1997 is adequate.
The Company had the following concentrations in volume of oil and gas sales
revenue:
Customer 1998 1997
------ ------
A 45% 52%
B 17% 16%
C 21% 16%
D 13% 13%
Additionally, the four customers above accounted for a total of 88% and 97%
of accrued oil and gas sales as of December 31, 1998 and 1997,
respectively.
11. SUPPLEMENTAL INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES (UNAUDITED)
------------------------------------------------------------------------
The following table sets forth certain information with respect to the oil
and gas producing activities of the Company:
<TABLE>
YEAR ENDED DECEMBER 31,
---------------------------
1998 1997
----- ----
<S> <C> <C>
Costs incurred in oil and gas producing activities:
Acquisition of unproved properties $ 180,000 $ -
Acquisition of proved properties 237,537 176,517
--------- --------
F-14
<PAGE>
FIELDPOINT PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31,
---------------------------
Total costs incurred $ 417,537 $176,517
========= ========
Net capitalized costs related to oil and gas producing activities:
Unproved leasehold costs $ 180,000 $ -
Proved leasehold costs 1,288,036 1,050,499
Less accumulated depletion and depreciation (460,268) (308,175)
---------- -----------
Net oil and gas property costs $1,007,768 $ 742,324
========== ===========
The following table, based on information prepared by independent petroleum
engineers, summarizes changes in the estimates of the Company's net
interest in total proved reserves of crude oil and condensate and natural
gas, all of which are domestic reserves:
Oil Gas
(Barrels) (MCF)
--------- ---------
Balance, January 1, 1997 152,514 453,873
Purchase of minerals in place 48,258 151,594
Revisions of previous estimates 17,121 (101,067)
Production (25,846) (67,683)
--------- --------
Balance, December 31, 1997 192,047 436,717
Purchase of minerals in place 40,559 238,020
Revisions of previous estimates (50,742) (96,663)
Production (28,788) (89,127)
---------- --------
Balance, December 31, 1998 153,076 488,947
========== ========
</TABLE>
The foregoing reserves are all classified as proved developed at December
31, 1998 and 1997. Proved oil and gas reserves are the estimated quantities
of crude oil, condensate and natural gas 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 reserves that can be
expected to be recovered through existing wells with existing equipment and
operating methods. The above estimated net interests in proved reserves are
based upon subjective engineering judgments and may be affected by the
limitations inherent in such estimation. The process of estimating reserves
is subject to continual revision as additional information becomes
available as a result of drilling, testing, reservoir studies and
production history. There can be no assurance that such estimates will not
be materially revised in subsequent periods.
12. STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS (UNAUDITED)
--------------------------------------------------------------------
The standardized measure of discounted future net cash flows at December
31, 1998 and 1997, relating to proved oil and gas reserves is set forth
below. The assumptions used to compute the standardized measure are those
prescribed by the Financial Accounting Standards Board and, as such, do not
necessarily reflect the Company's expectations of actual revenues to be
derived from those reserves nor their present worth. The limitations
inherent in the reserve quantity estimation process are equally applicable
to the standardized measure computations since these estimates are the
basis for the valuation process.
F-15
<PAGE>
<TABLE>
<CAPTION>
FIELDPOINT PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31,
----------------------------
1998 1997
----------- ------------
<S> <C> <C>
Future cash inflows $ 2,386,000 $ 4,426,000
Future development and production costs (1,660,000) (2,447,000)
----------- ------------
Future net cash flows, before income tax 726,000 1,979,000
Future income taxes (8,000) (420,000)
----------- ------------
Future net cash flows 718,000 1,559,000
10% annual discount (195,000) (565,000)
----------- ------------
Standardized measure of discounted future net cash flows $ 523,000 $ 994,000
========== ============
Future net cash flows were computed using year-end prices and costs, and
year-end statutory tax rates (adjusted for permanent differences) that
relate to existing proved oil and gas reserves at year end. The following
are the principal sources of change in the standardized measure of
discounted net cash flows:
YEAR ENDED DECEMBER 31,
----------------------------
1998 1997
----------- ------------
Sales of oil and gas produced, net of production costs $ (168,000) $ (367,000)
Purchase of minerals in place 192,000 356,000
Net changes in prices and production costs (742,000) (88,000)
Revisions and other (153,000) 44,000
Accretion of discount 100,000 97,000
Net change in income taxes 300,000 (20,000)
----------- -----------
Net change (471,000) 22,000
Balance, beginning of year 994,000 972,000
----------- -----------
Balance, end of year $ 523,000 $ 994,000
=========== ===========
</TABLE>
4. SUBSEQUENT EVENTS
Management is attempting a private placement of 1,466,667 equity units
during February to April 1999. Each unit consists of one share of the
Company's common stock and one Class A warrant which entitles the holder to
purchase one share of the Company's common stock at $1.25 until expiration
three years from the effective date of the offering. Each unit is offered
for $.75 with a minimum investment of 30,000 units. For the offering to
break escrow, the Company must raise a minimum of $400,000. The maximum
offering is $1,100,000.
F-16
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
</LEGEND>
<CIK> 0000316736
<NAME> FieldPoint Petroleum Corporation
<MULTIPLIER> 1
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1
<CASH> 1,375
<SECURITIES> 2,880
<RECEIVABLES> 126,251
<ALLOWANCES> 20,000
<INVENTORY> 0
<CURRENT-ASSETS> 181,041
<PP&E> 1,574,413
<DEPRECIATION> (523,258)
<TOTAL-ASSETS> 1,289,011
<CURRENT-LIABILITIES> 655,385
<BONDS> 0
0
0
<COMMON> 46,132
<OTHER-SE> 117,123
<TOTAL-LIABILITY-AND-EQUITY> 1,289,011
<SALES> 443,448
<TOTAL-REVENUES> 606,764
<CGS> 275,519
<TOTAL-COSTS> 757,108
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 56,351
<INCOME-PRETAX> (200,718)
<INCOME-TAX> 40,955
<INCOME-CONTINUING> (159,763)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (159,763)
<EPS-PRIMARY> (.04)
<EPS-DILUTED> (.04)
</TABLE>
