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
For the fiscal year ended June 30, 2000 File No. 0-09482
COLORADO WYOMING RESERVE COMPANY
(Name of Small Business Issuer as Specified in its Charter)
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WYOMING 83-0246080
(State of other jurisdiction of (I.R.S. Employer
incorporation) Identification No.)
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751 HORIZON COURT, SUITE 205, GRAND JUNCTION, COLORADO 81506
(Address of Principal Executive Office)
Issuer's telephone number including area code: (970) 255-9995
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) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
YES X NO
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained herein, and no disclosure will be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [ ]
State Issuer's revenues for its most recent fiscal year: None
As of October 9, 2000, 10,607,694 shares of common stock $.01 par value were
outstanding. The aggregate market value of voting stock held by non-affiliates
of the Registrant was $1,485,911 based on the closing price of the Company's
Common Stock of $0.31, as reported by the NASD on the OTC Bulletin Board System
on October 9, 2000.
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PART I
ITEM 1. BUSINESS
GENERAL
Colorado Wyoming Reserve Company (formerly Mystique Developments, Inc.) ("CWYR"
or the "Company"), with its mailing address at 751 Horizon Court, Suite 205,
Grand Junction, Colorado 81506, telephone number (970) 255-9995, was
incorporated as a Wyoming corporation on November 7, 1979.
The Company is an oil and natural gas exploration company with a geographical
focus in the Rocky Mountain region of the western United States. Management's
primary objective is the acquisition of interests in undeveloped oil and gas
properties, and the location and development of economically attractive
accumulations of hydrocarbons in such properties through the use of a
highly-integrated, interpretive approach to the application of three-dimensional
("3-D") geophysical data (seismic data acquired and processed to yield a
three-dimensional picture of the subsurface). The Company's acquisitions of
undeveloped oil and gas properties are accomplished primarily by the acquisition
of direct mineral leasehold interests from private, state and federal lands.
None of the Company's properties are in production, and consequently, the
Company has no operating income or cash flow.
STRATEGY
During fiscal 1998 the Company revised its strategy of seeking to purchase
producing oil and gas properties and, instead, implemented a strategy centered
on exploration. To help implement its new strategy, the Company acquired through
merger Shoreline Resource Company, Inc., now a subsidiary of the Company, which
owns oil and gas exploration properties in the central Paradox Basin area of
southeast Utah (the "Paradox Basin Project").
The Company also purchased in fiscal 1998 a once producing field in North
Dakota, which included seven producing wells and a saltwater disposal well on
approximately 1,300 acres. Subsequently, an additional 1,700 developmental acres
were acquired. However, in order to raise cash to meet its short term
obligations, the Company sold the property in November 1998.
The Company is currently focusing its exploratory efforts on the Paradox Basin
Project, comprised of mineral interests in approximately 55,868 net leased acres
and an additional 4,741 net seismic option acres. Exploration will be conducted
by geoscientists who have had previous success in the Paradox Basin and will
focus on areas previously under-explored by conventional methodology. CWYR has
access to results of previous exploratory drilling in the Paradox Basin Project
area, which provide subsurface geologic information to assist in determining the
best location for a 3-D seismic survey. CWYR does not have the capital necessary
to complete a seismic survey of its Paradox Basin properties. After more than a
year of trying to find a joint venture partner or other party to finance the
Paradox Basin Project, CWYR consummated a farmout arrangement with three related
parties in September 2000.
FARMOUT AGREEMENT
To fund exploration of the Paradox Basin Project, the Company entered into a
Farmout Agreement with ST Oil Company ("ST Oil"), FM Energy, LLC ("FM Energy"),
and The Shoreline Companies, LLC, ("Shoreline") (collectively, "the Farmees"),
effective September 22, 2000. Under the Farmout Agreement, the Company will
assign 50% of its mineral working interests in the Paradox Basin Project to the
Farmees once they have completed, processed, interpreted and provided the
Company with a 3-D seismic survey of up to 50 square miles of land covered by
such oil and gas leases and seismic options (the "Seismic Survey"). The Farmees
will bear the entire cost of the Seismic Survey, up to a maximum of $1,100,000.
The Farmees have agreed to commence the Seismic Survey as soon as reasonably
practicable and to complete the Seismic Survey within 180 days of commencement.
There can be no assurance that the completion of the Seismic Survey will result
in drillable oil and gas prospects. If the Seismic Survey is not completed or
does not result in drillable oil and gas prospects, the Paradox Basin Project
will have little or no value.
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The Farmout Agreement requires the Company to bear one-half of the cost of
maintaining the Paradox Basin Project, which cost is estimated at approximately
$75,000 per year. There can be no assurance that the Company will have the funds
to meet this obligation.
The Farmout Agreement establishes an area of mutual interest (the "AMI") until
September 22, 2010. If during the ten-year term of the AMI, any party to the
Farmout Agreement acquires an oil or gas leasehold interest in the AMI, that
party must give all the other parties the opportunity to participate. The
acquiring party must notify all other parties of the acquisition, and each
recipient of this notice has thirty (30) days to notify the acquiring party of
its election to participate or not participate. If a party elects to
participate, the acquiring party must promptly assign to the party an interest
in the leasehold interest proportionate to the party's interest under the
Farmout Agreement. There can be no assurance that the Company will have the
funds to participate in the acquisition of interests in the AMI should it wish
to do so.
CREDIT AGREEMENT
Effective on September 22, 2000, the Company also entered into a Credit
Agreement with ST, FM and Shoreline. The Credit Agreement establishes a
revolving line of credit for the Company in an aggregate principal amount not to
exceed $100,000, which will be decreased by the amount of any other funds raised
by the Company in excess of $100,000 in the next 12 months. Amounts borrowed
under the Credit Agreement bear interest at the rate of 8% per annum. The total
balance outstanding under the Credit Agreement will be due and payable in full
on the later of September 28, 2001, or the date on which the seismic acquisition
agreement between ST Oil, FM Energy, and Shoreline terminates. There can be no
assurance that the Company will have the funds required to repay those loans.
Borrowings under the revolving loan may be used for general corporate purposes;
however, in order to meet its obligations, the Company will need to raise
capital in addition to the Credit Agreement. See "Item 6 - Management's
Discussion and Analysis of Financial Condition and Results of Operations."
EQUIPMENT
In November 1998, the Company sold all of its developed acreage and currently
owns only leasehold interests in undeveloped acreage in the Paradox Basin. CWYR
owns no drilling rigs, and drilling, if any, will be accomplished by independent
contractors, typically on a footage or day rate basis, for which the Company may
bear the risks of fire, blowout or other catastrophe to its property.
COMPETITION
There is significant competition for the acquisition of properties capable of
producing oil and gas, as well as for the equipment and labor required to
explore, develop and operate such properties. Most of the Company's competitors
have financial resources and exploration and development budgets that are
substantially greater than those of the Company, which adversely affects the
Company's ability to compete with those companies, especially in the acquisition
of attractive oil and gas properties on terms it considers acceptable.
GOVERNMENTAL REGULATION
If the Company is successful in developing the Paradox Basin Project, the
availability of a ready market for its oil and gas production will depend upon
numerous factors beyond the Company's control. These factors include regulation
of natural gas and oil transportation, federal and state regulations governing
environmental quality and pollution control, the amount of natural gas and oil
available for sale, the availability of adequate pipeline and other
transportation and processing facilities and the marketing of competitive fuels.
State and federal regulations generally are intended to prevent waste of natural
gas and oil, protect rights to produce natural gas and oil between owners in a
common reservoir, and control contamination of the environment.
Sales of crude oil, condensate and gas liquids are currently not subject to
federal regulation and are made at market prices. The state of Utah, in which
the Company's Paradox Basin Project is located, regulates the production and
sale of natural gas and oil, including requirements for obtaining drilling
permits, the method of developing new fields, the spacing and operation of wells
and the prevention of waste of natural gas and other resources. Such provisions
may restrict the number of wells that may be drilled on a particular lease or in
a particular field. Recent trends indicate
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increased state and local regulation of oil and gas activities and pipeline
operations which could impact operations on the Paradox Basin Project if an oil
and gas prospect is discovered and developed; however, these impacts are not
expected to be significant.
ENVIRONMENTAL REGULATION
The Company's exploration activities are, and any development or production
activities could be, subject to numerous laws and regulations governing the
discharge of materials into the environment or otherwise relating to
environmental or cultural resource protection. These laws and regulations may
(a) require the acquisition of a permit prior to constructing a drill site,
commencing drilling or constructing pipelines; (b) restrict the types,
quantities and concentration of various substances that can be released into the
environment in connection with drilling and production activities; (c) limit or
prohibit drilling activities on certain lands lying within wilderness, wetlands,
culturally sensitive and other protected areas; and (d) impose substantial
liabilities for pollution resulting from the Company's operations. Moreover, the
recent trend toward stricter standards in environmental legislation and
regulations is likely to continue. Existing, as well as future legislation and
regulations, could cause additional expense, capital expenditures, restrictions
and delays in the development of properties, the extent of which cannot be
predicted. Management believes that the Company is in substantial compliance
with current applicable environmental laws and regulations and that continued
compliance with existing requirements will not have a material adverse impact on
the Company. Since inception, the Company has not been required to make any
material expenditures with respect to compliance with environmental laws and
does not expect to make any material expenditures during the current and
following fiscal year.
EMPLOYEES
As of June 30, 2000, the Company had one part-time employee. The Company employs
consultants as needed.
RISK FACTORS
DEPENDENCE ON A SINGLE PROJECT
CWYR's only properties are its mineral interests and seismic options in the
Paradox Basin Project. CWYR does not have the funds necessary to explore these
properties. In order to fund a seismic survey of a portion of its Paradox Basin
properties, the Company entered into the Farmout Agreement. Under the Farmout
Agreement, the Farmees have agreed to spend up to $1,100,000 to conduct the
Seismic Survey, but CWYR must assign 50% of its mineral working interests in its
properties upon receipt of the Seismic Survey. If the Seismic Survey is not
completed or if the Seismic Survey does not result in drillable oil and gas
prospects, CWYR's only asset would have no value.
FUTURE CAPITAL REQUIREMENTS
CWYR has a history of operating losses, which CWYR anticipates will continue for
the foreseeable future. The Company continues to incur costs related to
maintaining its interests in its properties as well as general and
administrative costs. In addition, CWYR will require substantial additional
capital to further explore and develop its properties and to acquire additional
properties. CWYR does not currently have, nor does it anticipate having, any
producing properties in the foreseeable future and therefore, CWYR has no
prospects for a positive revenue stream. During the duration of the Farmout
Agreement, the Farmees will reimburse the Company for 50% of the costs of
maintaining the oil and gas leases and seismic options on the Paradox Basin
properties. The Company will need to raise additional capital through a debt or
equity financing in the immediate future in order to fund its share of
maintaining the oil and gas leases and seismic options on the Paradox Basin
properties, to acquire additional properties pursuant to the AMI provision of
the Farmout Agreement or otherwise and to cover its general and administrative
expenses. There can be no assurance that the Company will be successful in
obtaining additional financing on terms acceptable to it, if at all. The
Company's failure to obtain additional financing would have a material adverse
effect on the Company's business and financial position, and CWYR may have to
liquidate on terms unfavorable to its stockholders.
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COMPETITION
Competition in the oil and gas industry is intense. Major and independent oil
and gas companies, as well as individuals and drilling programs, actively bid
for desirable oil and gas properties, as well as for the equipment and labor
required to operate and develop such properties. A number of CWYR's competitors
have financial resources and exploration and development budgets that are
substantially greater than those of CWYR, which may adversely affect CWYR's
ability to compete successfully, especially in the acquisition of attractive oil
and gas properties on terms the Company considers acceptable. The effects of
this highly competitive environment could harm the Company's business, financial
condition and results of operations.
EXPLORATION RISKS
CWYR currently is spending its entire capital budget on exploration. Exploration
activities are speculative and involve substantially more risk than development
or exploitation activities. Even when fully utilized and properly interpreted,
3-D seismic data and visualization techniques only assist geoscientists in
identifying subsurface structures and hydrocarbon indicators and do not
conclusively allow the interpreter to know if hydrocarbons will in fact be
present in such structures. In addition, the use of 3-D seismic data and such
technologies requires greater predrilling expenditures than traditional drilling
strategies. Additionally, market forces could increase the costs of further
exploration to make it prohibitive.
NON-OPERATED PROPERTIES
The Company's current exploration activities are being conducted by third
parties. The Company has limited ability under the Farmout Agreement to control
the nature of operations undertaken, such as the scope and timing of the Seismic
Survey. The failure of the Farmees and other third parties to adequately perform
the Seismic Survey, or their breach of the applicable agreements, could
significantly harm the Company's business and financial condition.
UNCERTAINTY OF OIL AND NATURAL GAS PRICES
For much of the past decade, the prices for oil and natural gas have been
extremely volatile. CWYR anticipates that such prices will continue to be
volatile in the foreseeable future. In general, prices of oil, gas and natural
gas liquids are dependent upon numerous external factors such as weather,
various economic, political and regulatory developments and competition from
other sources of energy. The unsettled nature of the energy market and the
unpredictability of worldwide political developments, including, for example,
actions of OPEC members, make it particularly difficult to estimate future
prices. Any substantial price erosion for an extended period of time would have
a material adverse effect on CWYR's ability to raise additional capital in the
future to fund the Company's exploration activities and could harm the Company's
business and financial condition.
CONFLICTS OF INTEREST
Certain conflicts of interest exist between CWYR and its officers and directors.
Kim M. Fuerst, CWYR's Chairman, President, Chief Executive Officer, Treasurer,
Secretary and stockholder, as well as J. Samuel Butler, F. Robert Tiddens and
John F. Greene, all directors and stockholders of the Company, are officers,
directors and/or stockholders of the Farmees under the Farmout Agreement. In
addition Mr. Butler is the President of Trinity Petroleum Management, LLC
("Trinity"), a privately-held company providing accounting and other
administrative services to CWYR. The agreement with Trinity requires payment by
CWYR to Trinity of a monthly fee and reimbursement of expenses. See Item 12,
"Certain Relationships and Related Transactions."
LIMITED PUBLIC FLOAT; SHARES ELIGIBLE FOR FUTURE SALE; POTENTIAL VOLATILITY OF
STOCK PRICE
As of October 9, 2000, CWYR had 10,607,694 shares of Common Stock issued and
outstanding with approximately 2,467,694 of those shares eligible for public
trading, which number includes 842,306 shares issued over two years ago and
which are now freely transferable pursuant to Rule 144(k) under the Securities
Act of 1933, as amended. In addition, CWYR has granted options and issued
warrants to purchase 2,890,000 shares of Common Stock, all of which are
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presently exercisable. Sales of substantial amounts of Common Stock by CWYR's
principal stockholders in the public market could adversely affect the
prevailing market price of the Common Stock.
CONTROL BY INSIDERS
Of the Company's currently-outstanding Common Stock, approximately 55 percent is
held by the Company's directors, officers and affiliates. In addition, options
or warrants for 1,880,000 shares of Common Stock have been granted to the
Company's directors, officers and affiliates and are currently outstanding, all
of which are presently exercisable. If all such currently exercisable options
were exercised, the Company's directors, officers and affiliates would
beneficially own approximately 61.6 percent of the total outstanding shares of
Common Stock of CWYR. Consequently, they will be able to exercise significant
control over all matters requiring stockholder approval. Such voting
concentration may have the effect of discouraging, delaying or preventing a
change in control of CWYR or a sale of CWYR's assets.
DELINQUENT REPORTING UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED
The Company was delinquent in filing its Annual Report on Form 10-KSB for the
fiscal year ended June 30, 1999, its Quarterly Report on Form 10Q-SB for the
quarter ended December 31, 1999 and its Quarterly Report on Form 10Q-SB for the
quarter ended March 31, 2000. The Company's delinquency in filing certain of its
reports as required by the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), prohibits CWYR from utilizing a short-form registration
statement on Form S-3 to register shares of its restricted Common Stock until it
has been in compliance with Exchange Act filing requirements for a period of at
least twelve calendar months immediately preceding such registration statement
filing. The inability of the Company to use a short form registration statement
may delay future financings. In addition, the Company's delinquency in filing
such reports could have an impact on the ability of its stockholders to sell
restricted shares of Common Stock pursuant to the exemption from registration
provided by Rule 144 of the Securities Act of 1933, as amended. Finally, an
extended delay in filing such reports would cause the NASD to remove the Company
from the OTCBB. If the Company's Common Stock is not able to trade on the OTC
Bulletin Board System and, instead, is traded on the "pink sheets" maintained by
the National Quotation Bureau, the ability of stockholders to sell their CWYR
Common Stock may be harmed.
TITLE TO PROPERTIES
Title matters relating to oil and gas properties can be subject to some doubt.
In most states, it is not possible or customary in the oil and gas industry to
purchase title insurance. The decision of whether or not to expend funds for
additional title work is made by management on a case-by-case basis. In some
cases, title may be found to be defective and the cost to cure title may be
prohibitive.
GOVERNMENTAL REGULATION
CWYR's business is subject to federal, state and local laws and regulations
relating to the exploration for natural gas and oil. Although CWYR believes it
is in substantial compliance with all applicable laws and regulations, legal
requirements are frequently changed and subject to interpretation, and the
Company is unable to predict the ultimate cost of compliance with these
requirements or their effect on its operations.
ENVIRONMENTAL REGULATION
CWYR's operations are subject to complex environmental laws and regulations
adopted by federal, state and local governmental authorities. Environmental laws
and regulations are frequently changed. The implementation of new, or the
modification of existing, laws or regulations could have a material adverse
effect on the Company. The discharge of natural gas, oil or other pollutants
into the air, soil or water may give rise to significant liabilities on the part
of CWYR to the government and third parties and may require CWYR to incur
substantial costs of remediation. No assurance can be given that existing
environmental laws or regulations, as currently interpreted or reinterpreted in
the future, or future laws or regulations will not substantially harm CWYR's
financial condition and results of operations.
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LIMITED DIRECTOR LIABILITY
The liability of a director to CWYR or any shareholder for monetary damages for
breach of his fiduciary duties as a director is limited by CWYR's Articles of
Incorporation, with certain exceptions. In addition, CWYR will provide officers
and directors the maximum indemnification allowable from time to time under
Wyoming law. These provisions limit CWYR's and its stockholders' ability to
obtain damages or other relief from its officers and directors in the event of a
claimed wrongdoing.
ABSENCE OF A LIQUID MARKET FOR SHARES
Shares of CWYR common stock are listed on the NASD's OTCBB. The rules of the
OTCBB do not require any market maker or specialist to maintain a market for the
listed shares at all times. Therefore, the OTCBB listing does not assure a
stockholder that there will be a purchaser for the shares when the stockholder
wishes to sell.
PENNY STOCK RULES
Shares of CWYR Common Stock are subject to rules adopted by the Securities and
Exchange Commission regulating broker-dealer practices in connection with
transactions in "penny stocks." Such rules require that prior to effecting any
transaction in a penny stock, a broker or dealer must give the customer a risk
disclosure document that describes various risks associated with an investment
in penny stocks, as well as various costs and fees associated with such an
investment. It is possible that some brokers may be unwilling to engage in
transactions of shares of CWYR Common Stock because of these added disclosure
requirements, which would make it more difficult for a stockholder to sell his
shares.
ITEM 2. PROPERTIES
The Company's principal office is located at 751 Horizon Court, Suite 205, Grand
Junction, Colorado 81506.
PRODUCING WELLS
CWYR owned no productive oil and gas wells or developed acreage at June 30,
2000.
ACREAGE
The Company has acquired mineral interests in approximately 61,000 acres in
selected areas of the central Paradox Basin, San Juan County, Utah. The
following table sets forth the Company's interest in undeveloped acreage at June
30, 2000:
Undeveloped Acreage
Gross Net
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Utah 55,868 55,868
In addition to the 55,868 net leased acres, CWYR has acquired an additional
4,741 net seismic option acres in selected areas of the central Paradox Basin.
Seismic options held on the 4,741 acres give CWYR the right to shoot seismic
across the lands under option as well as an exclusive right to lease the lands.
The seismic options expire February 1, 2001. To exercise the options, CWYR must
enter into a three-year lease at $35 per net mineral acre, or a total of
approximately $166,000 for all 4,741 net acres under option. If assignment
occurs under the Farmout Agreement prior to February 1, 2001, the Farmees will
be assigned 50% of CWYR's interest in the seismic options. If assignment under
the Farmout Agreement does not occur by February 1, 2001, then the exercise of
the seismic options will be governed by the area of mutual interest or AMI
provisions under the Farmout Agreement.
CWYR's oil and gas properties are in the form of mineral leases. As is customary
in the oil and gas industry, a preliminary investigation of title is made at the
time of acquisition of undeveloped properties. Title investigations are
generally completed, however, before commencement of drilling operations. CWYR
believes that its methods of investigating are consistent with practices
customary in the industry and that it has generally satisfactory title to its
leases.
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During fiscal 2000 and 1999:
o There have been no reserve estimates filed with any other United States
federal authority or agency.
o The Company was not a party to any long-term supply or similar agreements
with foreign governments or authorities in which CWYR acted as a producer.
o The Company drilled no productive or dry exploratory or development wells.
o The Company was not (nor is it currently) obligated to provide a fixed and
determinable quantity of oil and gas pursuant to any contracts or
agreements.
Average Sales Price and Production Cost
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1999 1999
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Average sales price per equivalent $ NA $ 8.36
barrel of oil
Average production (lifting) cost per $ NA $ 13.32
equivalent barrel of oil (1)
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(1) Natural gas equivalents are determined using a ratio of six MCF of natural
gas to one barrel of crude oil.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of the fiscal year covered by this Annual Report on
Form 10-KSB, no matter was submitted to a vote of CWYR's security holders
through the solicitation of proxies or otherwise.
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PART II
ITEM 5. MARKET FOR COMPANY'S COMMON STOCK AND RELATED SECURITY HOLDER MATTERS
PRICE RANGE OF COMMON STOCK
CWYR's common stock, par value $0.01 per share ("Common Stock"), is traded on
the National Association of Securities Dealers, Inc. Over-the-Counter Bulletin
Board System (the "OTCBB"). The following table sets forth the high and low bid
prices of the Common Stock as reported by the NASD in the over-the-counter
market for the periods indicated. The bid prices represent prices between
dealers, without retail markups, markdowns or commissions, and may not represent
actual transactions. Public trading in the Common Stock of CWYR is minimal.
For the Quarter Ended Low High
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September 30, 1998 $ .81 $1.81
December 31, 1998 $ .88 $1.75
March 31, 1999 $ .25 $1.50
June 30, 1999 $ .25 $1.00
September 30, 1999 $ .75 $1.13
December 31, 1999 $ .31 $1.25
March 31, 2000 $ .38 $1.00
June 30, 2000 $ .38 $1.00
The number of record holders of Common Stock of CWYR as of October 9, 2000, was
approximately 2,768. The closing price as of that date, as quoted by the OTCBB
under the symbol "CWYR," was $0.31.
Holders of Common Stock are entitled to receive dividends as may be declared by
the Board of Directors out of funds legally available therefor. No dividends
have been declared to date by CWYR, nor does CWYR anticipate declaring and
paying cash dividends in the foreseeable future.
RECENT SALES OF UNREGISTERED SECURITIES
There were no sales of unregistered securities during fiscal 2000.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
UNCERTAINTY OF FORWARD-LOOKING INFORMATION
This annual report on Form 10-KSB includes statements that are not purely
historical and are "forward-looking statements" within the meaning of Section
27A of the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. Forward-looking statements involve risks and
uncertainties that could cause actual results to differ from projected results.
Such statements address activities, events or developments that the Company
expects, believes, projects, intends or anticipates will or may occur,
particularly its ability to raise capital sufficient enough to cover the
Company's normal and recurring expenses through the completion of a seismic
shoot on the Company's Paradox Basin properties. Factors that could cause actual
results to differ materially ("Cautionary Disclosures") include, among others:
general economic conditions, the market price of oil and natural gas,
concentration of the Company's properties in a small area in the Paradox Basin,
the strength and financial resources of the Company's competitors, climatic
conditions, environmental risks, the results of financing efforts and regulatory
developments. Many of such factors are beyond the Company's ability to control
or predict. All forward-looking statements included or incorporated by reference
in this Form 10-KSB are based on information available to the Company on the
date hereof.
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Although the Company believes that the assumptions and expectations
reflected in such forward-looking statements are reasonable, it can give no
assurance that such expectations will prove to have been correct or that the
Company will take any actions that may presently be planned. All forward-looking
statements attributable to the Company or persons acting on its behalf are
expressly qualified in their entirety by the Cautionary Disclosures.
LIQUIDITY AND CAPITAL RESOURCES
During fiscal 1998 the Company revised its strategy of seeking to purchase
producing oil and gas properties and, instead, implemented a strategy centered
on exploration. To help implement its new strategy, the Company entered into an
exploration joint venture and a merger agreement. In conjunction with its merger
with Shoreline Resource Company, Inc., the Company obtained its Paradox Basin
acreage.
Pursuant to the joint venture mentioned above, the Company purchased a once
producing field in North Dakota from a financially distressed entity. The
purchase included seven producing wells, a saltwater disposal well and a total
of 1,300 acres. Subsequently, an additional 1,700 developmental acres were
acquired. However, in order to raise cash to meet its short term obligations,
the Company sold the property during the quarter ended December 31, 1998.
During the quarter ended June 30, 1999, the Company raised approximately
$785,000 ($767,000 net of offering costs) in a private equity sale. The proceeds
allowed the Company to settle all outstanding payables, and provided funds for
recurring administrative costs and the cost of marketing its Paradox Basin
Project. The proceeds, together with advances totaling $32,200 from the
Company's president and the sale to ST Oil Company of an option (the "ST
Option") to participate in the Paradox Basin acreage for $24,000 (see Item 12
"Certain Relationships and Related Transactions"), also allowed the Company to
meet delay lease rental obligations (necessary for the Company to maintain
ownership of the leases underlying its Paradox Basin Project) during fiscal
2000. The Company had virtually no cash at June 30, 2000.
On September 28, 2000, the Company entered into a Farmout Agreement with ST Oil,
FM Energy and The Shoreline Companies, collectively, "the Farmees," the terms of
which provide for the Company to assign 50% of its mineral working interests in
and to its Paradox Basin to the Farmees once they have completed, processed,
interpreted and provided the Company with a three-dimensional seismic survey of
up to 50 square miles of land covered by such oil and gas leases and seismic
options. The Farmees will bear the entire cost of the Seismic Survey, up to a
maximum of $1,100,000.
On September 28, 2000, the Company also entered into a Credit Agreement with ST,
FM and Shoreline. The Credit Agreement establishes a revolving line of credit
for the Company in an aggregate principal amount not to exceed $100,000, which
will be decreased by the amount of any funds privately raised by the Company in
excess of $100,000 in the next 12 months. Amounts borrowed under the Credit
Agreement bear interest at the rate of 8% per annum. The total balance
outstanding under the Credit Agreement will be due and payable in full on the
later of September 28, 2001, or the date on which the Seismic Acquisition
Agreement between ST, FM, and Shoreline terminates.
Although the $100,000 made available to the Company pursuant to the Credit
Agreement will provide a degree of liquidity to the Company, the Company's
current liabilities exceed the available cash and the Company has no revenues.
In order to remedy the working capital deficit, the Company will need to raise
additional capital through a debt or equity financing. If the Company is not
successful in raising additional capital, the Company may have to liquidate on
terms unfavorable to its shareholders.
OPERATIONS. Cash used in operating activities was $332,524 during fiscal 2000
compared to $512,441 during fiscal 1999, primarily as a result of losses of
$445,441 and $873,611, respectively, offset by increases in the Company's trade
payables balance at June 30, 2000, and noncash expenses incurred in fiscal 1999.
INVESTING. The Company made additions to its Paradox Basin property during both
fiscal 2000 ($19,205) and fiscal 1999 ($28,473). Proceeds from the sale of an
option right in unproved properties of $24,000 during fiscal 2000 represent the
cash received from the sale of the ST Option. The 1999 proceeds from asset sales
of $61,562 represent funds received for the sale of the Company's producing
properties. Net cash provided by investing activities was $3,527 in fiscal 2000
compared to $33,089 in fiscal 1999.
-10-
<PAGE>
FINANCING. At June 30, 1999 the Company had a subscriptions receivable balance
of $78,500 from the sale of 7,845,000 shares of Common Stock at $0.10 per share
during the fourth quarter of fiscal 1999, which balance which was converted to
cash during the first quarter of fiscal 2000. Additionally, the Company realized
$9,250 from the proceeds of stock option exercises during 2000. During fiscal
1999, the Company also sold 24,000 shares of stock at $1.00 per share. During
fiscal 1999, the Company also repaid borrowings of $130,000 from the proceeds
from the sale of common stock.
RESULTS OF OPERATIONS
OIL AND GAS OPERATIONS. The Company's producing properties began losing money
during fiscal 1998. For this reason, and due to the Company's lack of liquidity,
all of the Company's producing properties were sold during fiscal 1998 and 1999.
EXPLORATION COSTS. Exploration costs incurred during the year ended June 30,
2000, of $90,643 were higher than those incurred during the previous year of
$64,215 due to higher delay lease rentals paid to maintain CWYR's ownership
position in certain Paradox Basin leases. Additionally, the Company purchased a
seismic option for $10,883 during 2000.
GENERAL AND ADMINISTRATIVE EXPENSE. Fiscal 1999 general and administrative
expense of $628,111 included a noncash compensation expense charge of $252,600;
there was no such charge incurred during 2000 (total general and administrative
expense in fiscal 2000 of $356,451). The 1999 figure, exclusive of the noncash
charge, was $375,511. The 5 percent decrease in general and administrative
expense exclusive of noncash items from 1999 to 2000 results primarily from
lower 2000 salary expense and legal fees, net of increases in consulting fees
related to the marketing of the Company's Paradox Basin project.
OTHER. Interest income of $4,879 earned during 2000 was generated from the
investment of the Company's common stock sale proceeds. Interest expense of
$154,831 (including amortization of a note payable discount of $148,000)
incurred during the year ended June 30, 1999 related to the short term financing
entered into by the Company during fiscal 1999.
EFFECTS OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board ("FASB") issued Statement of Financial
Accounting Standard ("SFAS") 133 Accounting for Derivative Instruments and
Hedging Activities in June 1998. SFAS 133 established new accounting and
reporting standards for derivative instruments and for hedging activities. This
statement requires an entity to establish at the inception of a hedge, the
method it will use for assessing the effectiveness of the hedging derivative and
the measurement approach for determining the ineffective aspect of the hedge.
Those methods must be consistent with the entity's approach to managing risk. In
June 1999 the FASB issued SFAS 137, Accounting for Derivative Instruments and
Hedging Activities - Deferral of the Effective Date of FASB Statement 133. SFAS
137 states that SFAS 133 shall be effective for all fiscal quarters beginning
after June 15, 2000.
The Company believes that this statement will have no material effect on the
Company's financial statements
In March 2000 the FASB adopted FASB Interpretation No. 44, Accounting for
Certain Transactions including Stock Compensation. Accordingly, beginning with
the first quarter of fiscal 2001, the Company will be required to value any
options repriced subsequent to December 15, 1998 as if the options were granted
pursuant to a variable stock plan. This could result in additional expense being
recorded in future periods as a result of price increases in the Company's
traded common stock.
-11-
<PAGE>
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
PAGE
Report of Independent Accountants....................................... 13
Consolidated Balance Sheet as of June 30, 2000.......................... 14
Consolidated Statements of Operations for the Years Ended June 30, 2000
and June 30, 1999....................................................... 15
Consolidated Statements of Stockholders' Equity for the Years Ended June
30, 2000 and June 30, 1999.............................................. 16
Consolidated Cash Flow Statements for the Years Ended June 30, 2000 and
June 30, 1999........................................................... 17
Notes to Consolidated Financial Statements.............................. 18
-12-
<PAGE>
INDEPENDENT AUDITOR'S REPORT
Board of Directors
Colorado Wyoming Reserve Company
Grand Junction, Colorado
We have audited the accompanying consolidated balance sheet of Colorado Wyoming
Reserve Company and subsidiary as of June 30, 2000, and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of the
years in the two-year period ended June 30, 2000. 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 audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Colorado Wyoming
Reserve Company and subsidiary as of June 30, 2000, and the results of their
operations and their cash flows for each of the years in the two-year period
ended June 30, 2000 in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has suffered recurring negative cash flows
from operations and has limited available funds. These items raise substantial
doubt about its ability to continue as a going concern. Management's plans in
regard to these matters are also described in Note 1. The financial statements
do not include any adjustments that might result from the outcome of this
uncertainty.
HEIN + ASSOCIATES LLP
Denver, Colorado
October 9, 2000
-13-
<PAGE>
COLORADO WYOMING RESERVE COMPANY
CONSOLIDATED BALANCE SHEET
AS OF JUNE 30, 2000
JUNE 30,
2000
--------------
CURRENT ASSETS:
Cash and cash equivalents $ 208
Prepaid expenses 1,500
-----------
Total current assets 1,708
PROPERTY AND EQUIPMENT:
Unproved oil and gas properties under successful
efforts 562,764
Other property and equipment 14,914
-----------
577,678
Less accumulated depreciation, other property and
equipment (13,885)
-----------
Net property and equipment 563,793
-----------
Total assets $ 565,501
===========
CURRENT LIABILITIES:
Trade accounts payable $ 59,011
Other accrued liabilities 18,418
Related party payables 80,841
-----------
Total current liabilities 158,270
STOCKHOLDERS' EQUITY:
Common Stock, $.01 par value: authorized--
75,000,000 shares; issued and outstanding--
10,607,694 shares 106,077
Additional paid-in capital 5,262,976
Warrants 148,100
Accumulated deficit (5,109,922)
-----------
407,231
-----------
Total liabilities and stockholders' equity $ 565,501
===========
The accompanying notes are an integral part of these financial statements.
-14-
<PAGE>
COLORADO WYOMING RESERVE COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED JUNE 30, 2000 AND 1999
Years Ended June 30,
----------------------------
2000 1999
REVENUES:
Oil and gas sales $ -- $ 7,517
EXPENSES:
Operation of producing properties -- 16,635
Exploration cost 90,643 64,215
Depreciation, depletion and amortization 3,226 4,276
General and administrative 356,451 628,111
------------ ------------
Total expenses 450,320 713,237
------------ ------------
Operating loss (450,320) (705,720)
OTHER INCOME (EXPENSE)
Interest income (expense) 4,879 (154,831)
Loss on sale of assets -- (13,060)
------------ ------------
Loss before income taxes (445,441) (873,611)
Provision for income taxes -- --
------------ ------------
Net loss $ (445,441) $ (873,611)
============ ============
Basic and diluted loss per share $ (0.04) $ (0.19)
============ ============
Weighted average common shares outstanding 10,603,036 4,511,570
============ ============
The accompanying notes are an integral part of these financial statements.
-15-
<PAGE>
COLORADO WYOMING RESERVE COMPANY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED JUNE 30, 2000 AND 1999
<TABLE>
<CAPTION>
Common Stock
------------------------- Additional
Subscription Paid-in Accumulated
Shares Par Value Warrants Receivable Capital Deficit Total
----------- ----------- ----------- ------------ ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C
BALANCE, JUNE 30, 1998 2,467,694 $ 24,677 $ -- $ -- $ 4,283,320 $(3,790,870) $ 517,127
Equity issued as
compensation 216,000 2,160 -- -- 250,440 -- 252,600
Warrants issued pursuant -- -- 148,100 -- -- 148,100
to financing
Sale of common stock 7,869,000 78,690 -- (78,500) 720,516 -- 720,706
Net (loss) for the
year ended -- -- -- -- -- (873,611) (873,611)
BALANCE JUNE 30, 1999
----------- ----------- ----------- ---------- ----------- ------------ -----------
$10,552,694 $ 105,527 $ 148,100 $ (78,500) $ 5,254,276 $(4,664,481) $ 764,922
Stock option exercise 55,000 550 -- -- 8,700 -- 9,250
Collection of
subscription receivable -- -- -- 78,500 -- -- 78,500
Net (loss) for the
year ended June 30, 2000 -- -- -- -- -- (445,441) (445,441)
----------- ----------- ----------- ---------- ----------- ----------- -----------
BALANCE, JUNE 30, 2000 10,607,69 $ 106,077 $ 148,100 $ -- $ 5,262,976 $(5,109,922) $ 407,231
=========== =========== =========== ========== =========== =========== ===========
</TABLE>
-16-
<PAGE>
COLORADO WYOMING RESERVE COMPANY
CONSOLIDATED CASH FLOW STATEMENTS
YEARS ENDED JUNE 30, 2000 AND 1999
Years Ended
June 30,
-----------------------
2000 1999
---------- ---------
Cash flows from operating activities:
Net loss $(445,441) $(873,611)
Adjustments to reconcile net loss to
net used in operating activities:
Depletion, depreciation and
amortization 3,226 4,276
Loss on asset sale -- 13,060
Amortization of note payable discount -- 148,000
Equity issued as compensation -- 252,600
Other non-cash compensation -- 50,000
Changes in current assets and liabilities:
Receivables 2,144 1,449
Payables 105,823 (110,677)
Prepaids 1,724 2,462
--------- ---------
Net cash (used in) operating activities (332,524) (512,441)
Cash flows from investing activities:
Additions to unproved properties (19,205) (28,473)
Sale of option right in unproved properties 24,000 --
Asset purchases (1,268) --
Proceeds from asset sales -- 61,562
--------- ---------
Net cash provided by
investing activities 3,527 33,089
Cash flows from financing activities:
Notes payable -- 57,693
Repayment of note payable -- (130,000)
Sale of warrants -- 72,408
Sale of common stock 87,750 720,706
--------- ---------
Net cash provided by financing activities 87,750 720,807
--------- ---------
Net (decrease) increase in cash and
equivalents (241,247) 241,455
Cash and equivalents at beginning of
period 241,455 --
--------- ---------
Cash and equivalents at end of period $ 208 $ 241,455
========= =========
The accompanying notes are an integral part of these financial statements.
-17-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND NATURE OF OPERATIONS:
Colorado Wyoming Reserve Company ("The Company" or "CWYR) is an oil and
natural gas exploration company with a geographical focus in the Rocky
Mountain region of the western United States. Management's primary
objective is the acquisition of interests in undeveloped oil and gas
properties, and the location and development of economically attractive
accumulations of hydrocarbons in such properties through the use of a
highly-integrated, interpretive approach to the application of 3-D
geophysical data (seismic data acquired and processed to yield a
three-dimensional picture of the subsurface). The Company's acquisitions
of undeveloped oil and gas properties are accomplished primarily by the
acquisition of direct mineral leasehold interests from private, state
and federal lands.
The Company is currently focusing its exploratory efforts in the central
Paradox Basin areas of southeastern Utah (the "Paradox Basin Project"),
having sold its North Dakota properties in November 1998. As a result of
this and other producing property sales, the Company has no revenues and
continues to incur certain general and administrative expenses and
obligations related to the Paradox Basin Project. On September 28, 2000,
the Company entered into a Farmout Agreement with ST Oil, FM Energy and
The Shoreline Companies, collectively, "the Farmees," the terms of which
provide for the Company to assign 50% of its mineral working interests
in and to its Paradox Basin to the Farmees once they have completed,
processed, interpreted and provided the Company with a three-dimensional
seismic survey of up to 50 square miles of land covered by such oil and
gas leases and seismic options (see Note 8, Subsequent Events). The
Farmout Agreement provides for seismic to be shot and interpreted on the
Company's Paradox Basin acreage.
GOING CONCERN:
The Company currently has no significant revenue source and continues to
incur obligations with respect to certain general and administrative
items. Accordingly, there is substantial doubt about the Company's
ability to continue as a going concern. During the fourth quarter of
fiscal 1999, the Company raised additional capital through a private
placement of its common stock. The Company anticipates the undertaking
of an effort to raise additional capital during the quarter ending
December 31, 2000. However, there is no assurance that the Company will
be successful. Failure to raise additional capital could result in the
liquidation of the Company.
The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
CASH AND CASH EQUIVALENTS:
The Company considers all highly liquid investments purchased with an
initial maturity of three months or less to be cash equivalents. The
carrying value of cash and cash equivalents approximates fair value
because the instruments have maturity dates of three months or less.
CONCENTRATION OF CREDIT RISK:
The Company currently has no material trade receivables. Historically,
however, substantially all of the Company's trade receivables were
within the oil and gas industry, primarily from purchasers of oil and
gas and joint venture participants, and collectibility has been
dependent upon the general economic conditions of the industry. The
receivables were not collateralized.
The Company generally invests its excess cash in money market funds
having minimal credit risk.
-18-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OIL AND GAS ACTIVITIES:
The Company follows the successful efforts method of accounting for its
oil and gas properties. Under this method of accounting, all property
acquisition costs and costs of exploratory and development wells are
capitalized when incurred, pending determination of whether the well has
found proved reserves. If an exploratory well has not found proved
reserves, the costs of drilling the well are charged to expense. The
costs of development wells are capitalized whether productive or
nonproductive.
Geological and geophysical costs on exploratory prospects and the costs
of carrying and retaining unproved properties are expensed as incurred.
An impairment allowance is provided to the extent that capitalized costs
of unproved properties, on a property-by-property basis, are considered
to be not realizable.
Should the Company own producing properties in the future, it will test
for impairment of those producing properties by comparing expected
undiscounted future net revenues on a property-by-property basis with
the related net capitalized costs at the end of each period. When the
net capitalized costs exceed the undiscounted future net revenues, the
cost of the property is written down to "fair value," which is estimated
using discounted future net revenues from the producing property. Gains
and losses are recognized on sales of entire interests in proved and
unproved properties. Sales of partial interests are generally treated as
recoveries of costs. With regard to properties held for sale, the
Company uses the estimated net sales proceeds as its estimate of fair
value. Depletion, depreciation and amortization ("DD&A") of capitalized
costs of proved oil and gas properties will be provided on a
property-by-property basis using the units of production method based
upon proved reserves. The computation of DD&A takes into consideration
restoration, dismantlement and abandonment costs and the anticipated
proceeds from equipment salvage.
OTHER PROPERTY AND EQUIPMENT:
Other property and equipment is depreciated using the straight line
method over the estimated useful life of the property.
PRINCIPLES OF CONSOLIDATION:
The consolidated financial statements include the accounts of the
Company's wholly-owned subsidiary, Shoreline Resources Company, Inc.
Inter-company transactions and accounts are eliminated in consolidation.
INCOME TAXES:
Deferred income taxes are provided on the difference between the tax
basis of an asset or liability and its reported amount in the financial
statements. This difference will result in taxable income or deductions
in future years when the reported amount of the asset or liability is
recovered or settled, respectively.
STOCK OPTIONS:
As permitted under the Statement of Financial Accounting Standards No.
123 (SFAS No. 123), Accounting for Stock-Based Compensation, the Company
accounts for its stock-based compensation for options issued to
employees and directors in accordance with the provisions of Accounting
Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to
Employees. As such, compensation expense is recorded on the date of
grant only if the current market price of the underlying stock exceeded
the exercise price. Certain pro forma net income and EPS disclosures for
employee stock option grants are also included in the notes to the
financial statements as if the fair value methods as defined in SFAS No.
123 had been applied. Transactions in equity instruments with
non-employees for goods or services are accounted for by the fair value
method.
For repriced options, the Company determines the fair value of the
option immediately preceding the repricing, and any incremental
difference to the fair value of the option after repricing is either
disclosed in the pro forma
-19-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
information for options issued to employees or directors or expensed
in operations for options issues to others. In March 2000 the
Financial Accounting Standards Board adopted FASB Interpretation No.
44, Accounting for Certain Transactions including Stock Compensation.
Accordingly, beginning with the first quarter of fiscal 2001, the
Company will be required to value any options repriced subsequent to
December 15, 1998 as if the options were granted pursuant to a
variable stock plan. This could result in additional expense being
recorded in future periods as a result of price increases in the
Company's traded common stock.
COMPREHENSIVE INCOME:
The Company has adopted SFAS No. 130, Reporting Comprehensive Income.
SFAS No. 130 establishes new rules for the reporting and display of
comprehensive income and its components; however, it has no impact on
the Company's net loss or stockholders' equity.
NET LOSS ATTRIBUTABLE TO COMMON SHARES:
The Company has adopted Statement of Financial Accounting Standard 128,
Earnings per Share ("SFAS 128"). SFAS 128 requires the presentation of
basic and diluted earnings per share. Basic earnings per share are
calculated by dividing income available to common shareholders by the
weighted average number of common shares outstanding. Diluted earnings
per share is calculated by taking into account all potentially dilutive
securities. The Company has not included potentially dilutive securities
consisting of options and warrants to purchase 2.89 million shares and
2.445 million shares in 2000 and 1999, respectively, because they would
be anti-dilutive.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Significant estimates made by CWYR include the ultimate realization of
the cost of the Company's unproved oil and gas properties. Depending on
the results of the seismic activity to be conducted on the Company's
unproved acreage during the forthcoming fiscal year, the Company's
estimate as to the realization of the unproved property cost could
materially change.
RECENTLY ISSUED FINANCIAL ACCOUNTING STANDARDS:
The Financial Accounting Standards Board ("FASB") issued Statements of
Financial Accounting Standards ("SFAS") 133, 137 and 138, all related to
Accounting for Derivative Instruments and Hedging Activities. SFAS 133,
as amended, established new accounting and reporting standards for
derivative instruments and for hedging activities. This statement
requires an entity to establish at the inception of a hedge, the method
it will use for assessing the effectiveness of the hedging derivative
and the measurement approach for determining the ineffective aspect of
the hedge. Those methods must be consistent with the entity's approach
to managing risk.
The Company believes that these statements will have no material effect
on its financial statements.
2. INCOME TAXES
No tax benefits from the losses incurred during fiscal 2000 and 1999
were recognized due to the substantial uncertainty as to their eventual
utilization.
-20-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Effective tax rates differ from the Federal income tax rate as shown in
the following table.
Percent of Pretax
(Loss)
Income
----------------------
2000 1999
--------- ---------
Federal statutory rate (34)% (34)%
State income taxes (3)% (3)%
Change in valuation allowance 14% 30%
Expiration of prior year loss carryforwards 23% 7%
--------- ---------
Effective rate -- --
========= =========
Deferred income taxes reflect the impact of temporary differences
between amounts of assets and liabilities for financial reporting
purposes and such amounts as measured by tax laws. The tax effect of
the temporary differences and carryforwards giving rise to the
Company's deferred tax assets and liabilities at June 30, 2000 and 1999
are as follows:
2000 1999
------------ -------------
Deferred tax assets
Net operating loss and tax credit $ 968,000 $ 1,211,000
carryforwards
Valuation allowance (968,000) (1,211,000)
---------- -----------
Net deferred tax assets $ -- $ --
========== ===========
SFAS No. 109 requires that a valuation allowance be provided if it is
more likely than not that some portion or all of a deferred tax asset
will not be realized. The Company's ability to realize the benefit of
its tax assets will depend on the generation of future taxable income
through profitable operations and expansion of the Company's oil and gas
producing properties. The market, capital, and environmental risks
associated with that growth requirement are considerable, resulting in
the Company's conclusion that a full valuation allowance be provided,
except to the extent that the benefit of operating loss carry forwards
can be used to offset future reversals of existing deferred tax
liabilities. The Company decreased its valuation allowance by $243,000
in fiscal 2000 and increased it by $326,000 fiscal 1999.
At June 30, 2000, the Company had tax basis net operating loss carry
forwards available to offset future taxable income of $2.6 million,
which expire from 2001 to 2014. Of that amount, approximately $2 million
can never be used by the Company and the usage of approximately $200,000
is limited to certain maximum yearly amounts over a 14-year period, as a
result of the changes in control occurring during fiscal 1999 and 1998.
3. MAJOR CUSTOMERS
During fiscal 1999, JN Petroleum Marketing accounted for 42 percent of
the Company's revenues and Duke Energy for the remaining 58 percent. The
Company had no revenues during fiscal 2000.
4. COMMITMENTS, CONTINGENCIES AND RELATED PARTY TRANSACTIONS
Effective January 1, 1998, the Company entered into an Agreement for
Administrative Services (the "Trinity Agreement") with Trinity Petroleum
Management LLC, a Colorado limited liability company ("Trinity").
Pursuant to the terms of the Trinity Agreement, Trinity performs certain
management functions for the Company. Trinity bills for its services on
an hourly basis, receives a flat fee of $1,000 per month (formerly
-21-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
$3,000 per month) and is reimbursed for third party expenses. The
Trinity Agreement is for a term of one year, continuing thereafter on a
month-to-month basis, terminable upon 60 days written notice by either
party. J. Samuel Butler, a member of the Board of Directors of the
Company, currently serves as President of Trinity and owns approximately
24 percent of Trinity through his ownership of Butler Resources, LLC. In
connection with certain additional services provided to the Company by
Trinity as part of the merger with Shoreline Resource Company, Inc. on
January 22, 1998 the Company issued to Trinity 25,000 restricted shares
of Common Stock as well as an option to purchase up to 100,000 shares of
the Company's Common Stock at an exercise price of $1.50 per share,
subsequently repriced to $.10 per share in May 1999.
Effective January 1, 1998, the Company entered into an Agreement for
Consulting Services (the "SCI Agreement") with Sayed Consulting, Inc., a
Nevada corporation ("SCI"). Pursuant to the terms of the SCI Agreement,
SCI performed certain investor and public relations functions for the
Company for a fee of $1,000 per month and reimbursement of third party
expenses. The SCI Agreement was for a term of one year. On January 30,
1998 in connection with the SCI Agreement, the Company issued to SCI an
option to purchase up to 200,000 shares of the Company's Common Stock at
an exercise price of $1.75 per share (repriced in December 1998 to $1.00
per share and in May 1999 to $.25 per share). Waseem A. Sayed owns 100
percent of SCI and serves as its President. Mr. Sayed's brother, Rafiq
A. Sayed, was appointed as a member of the Company's Board of Directors
effective September 4, 1998. Dr. Syed A. Daud, a recently-appointed
member of the Board of Directors, serves as Vice President of Investor
Relations & Communications for SCI.
The Company entered into a Contract Operator Agreement and Operating
Agreement, effective March 13, 1998 with ST Oil Company, a Nevada
corporation ("ST"), pursuant to which ST serves as managing agent and
attorney-in-fact for the Company, and as operator of record of the
Companies properties located in North Dakota (the "ST Agreement"). In
return for its services, ST is entitled to receive, at payout, a five
percent working interest in the leases and wells. Mr. Butler owns
approximately 28 percent of ST and serves as its President and Chief
Executive Officer. During fiscal 1999, the ST Agreement was assigned by
the Company to FM Energy, LLC in connection with the North Dakota
Agreement (defined and described below).
The Company entered into an employment contract with its president, Mr.
Kim M. Fuerst on October 1, 1996 pursuant to which Mr. Fuerst received a
salary of $10,000 per month and was granted incentive stock options to
purchase up to 500,000 shares of the Company's Common Stock at an
exercise price of $1.00 per share (repriced to $.25 per share in May
1999). The contract is for an initial term of three years commencing
October 1, 1996 and may be terminated by Mr. Fuerst, if for Cause (as
defined in the contract). The Company's salary obligation to Mr. Fuerst
of $10,000 per month for the months of June through October 1998 was
extinguished in connection with the purchase by FM Energy, LLC (of which
Mr. Fuerst owns 50 percent and serves as co-manager) of the Company's
properties located in North Dakota. The satisfaction of the Company's
salary obligation for such months served as partial consideration for
the purchase. Mr. Fuerst determined to forego his salary during the
months of November and December 1998, and January through April 1999. In
May 1999, Mr. Fuerst's salary was reduced to $5,000 per month pursuant
to an amendment to his employment agreement. During July 1999, the
Company granted Mr. Fuerst an incentive stock option pursuant to the
Equity Incentive Plan, to purchase 500,000 shares of Common Stock at an
exercise price of $.75 per share (determined to be at least 110% of the
fair market value at the date of grant). The option has a five year life
and is exercisable as of the date of grant.
Effective November 1, 1998, the Company accepted an Offer to Purchase
certain of its properties located in North Dakota (the "North Dakota
Agreement") submitted by FM Energy, LLC ("FM"), a California limited
liability company collectively owned by the Company's President, Mr.
Fuerst, and the Trust. Pursuant to the North Dakota Agreement, the
Company sold its interest in certain properties in North Dakota in
return for (a) a cash payment to the Company of $50,000; (b)
extinguishment of the Company's $50,000 obligation to Kim M. Fuerst as
compensation for his services as President of the Company for the months
of June through October 1998; and (c) an extension of the repayment date
for the Bridge Loan from October 31, 1998 to November 30, 1998
(subsequently extended, in a series of transactions, to May 28, 1999).
The Company had acquired the North Dakota properties during fiscal 1998
for $113,392.
-22-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On April 29, 1999, the Company entered into a Letter Agreement with F.
Robert Tiddens, a director and stockholder of the Company. Pursuant to
the terms of this agreement, the retainer fee due Mr. Tiddens under the
Merger Agreement, dated February 6, 1998, was reduced to $27,000,
payable within five (5) days of the effective date of the agreement.
Mr. Tiddens agreed to solicit industry partners for the Company for the
sum of $40 per hour plus reasonable expenses. In addition, the
agreement stated that if Mr. Tiddens or others successfully consummated
for the Company a sharing arrangement, defined as any arrangement that
will significantly enhance the value of the Paradox Project such as a
seismic survey and/or a drilling commitment, the Company would assign
to Mr. Tiddens an overriding royalty interest of 1% of 8/8ths on all
acreage subject to the resulting agreement. The Board agreed to
transfer a 1% overriding royalty interest as a result of the Company's
entering into the Farmout Agreement (discussed in Note 8) in
satisfaction of the agreement. Effective September 22, 2000, the
consulting agreement with Mr. Tiddens was terminated.
During fiscal 2000, Mr. Fuerst made advances on behalf of the Company
in the form of interest-free loans of $32,200 for lease rental payments
and of $11,000 for general and administrative expenses.
See also Note 8, Subsequent Event.
5. OPTIONS, WARRANTS AND RESERVED SHARES
On October 18, 1996 the Board of Directors of the Company adopted the
Incentive Stock Option Plan ("the ISO Plan"). On April 5, 1997 the Board
adopted the Equity Incentive Plan ("the Equity Plan"). Both plans were
approved by stockholders at the Company's 1997 annual meeting. On
February 11, 1998, the Equity Plan was amended to delete the automatic
six-month vesting requirement for options granted thereunder to allow
the Board of Directors or committee broad discretion in determining such
requirements.
The ISO Plan was established for the purpose of providing an option to
purchase the Company's common stock to one key employee of the Company,
while the Equity Plan allows option grants to various employees,
non-employees, directors, consultants and advisors.
Options under both the plans may have a term of up to five years or ten
years; the actual term and any vesting requirements are set at the
discretion of the Board of Directors or a Committee thereof. The maximum
number of shares authorized for issuance under the ISO Plan is 500,000
shares; under the Equity Plan the maximum is 2.5 million shares.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following is a summary of the Company's option and warrant activity
for the years ended June 30, 2000 and June 30, 1999:
2000 1999
-------------------- --------------------
Weighted Weighted
Options Average Options Average
and Exercise and Exercise
Warrants Price Warrants Price
-------------------- -------------------
Options outstanding,
beginning of year 2,445,000 $0.20 1,915,000 $1.36
Granted
Exercise price same as -- -- -- --
market price
Exercise price less than -- -- 250,000 $1.00
market price
Exercise price greater 500,000 $0.75 280,000 $1.00
than market price
Expired -- -- -- --
Repriced options:
Cancelled -- -- (1,915,000) $1.34
Reissued -- -- 1,915,000 $0.23
Exercised (55,000) $0.17 -- --
---------- -----------
Options outstanding, end
of year 2,890,000 $0.31 2,445,000 $0.20
==================== ====================
Exercisable at end of year 2,890,000 $0.31 2,445,000 $0.20
==================== ====================
During the fourth quarter of fiscal 1999, the Company repriced options
covering 530,000 shares of common stock to $.10 per share; the remaining
1,915,000 shares under option were repriced to $.25 per share. There was
no increase in incremental value on the repriced options over the value
of the options immediately preceding the repricing.
Exercise prices for options and warrants outstanding as of June 30,
2000:
Options and
Warrants Weighted Options and
Outstanding Average Warrants
Exercise June 30, Contractual Exercisable
Price 2000 Life June 30, 2000
----------- ------------ ------------- --------------
$0.10 500,000 6.84 500,000
$0.25 1,890,000 6.81 1,890,000
$0.75 500,000 4.04 500,000
------------ --------------
2,890,000 6.34 2,890,000
============ ==============
In October 1995, the FASB issued SFAS No. 123, "Accounting for
Stock-Based Compensation." This Statement establishes a fair value
method of accounting for stock-based compensation plans either through
recognition or disclosure. The Company has elected to continue following
Accounting Principles Board Opinion No. 25 ("APB No. 25"), Accounting
for Stock Issued to Employees, and has elected to adopt SFAS No. 123
through compliance with the disclosure requirements set forth in the
Statement. Pro forma information regarding net income and earnings per
share is required by SFAS No. 123 and has been determined as if the
Company had accounted for its employee stock options under the fair
value method of that Statement. The fair value of all options was
estimated at the date of grant using the Black-Scholes option pricing
model with the following weighted-average assumptions.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended June 30,
-----------------------------
2000 1999
---- ----
Risk free interest rate 6.2% 4.7% to 4.9%
Volatility factor 185% 134% to 166%
Dividend yield 0% 0%
Expected term of options five years ten years
Weighted average fair value
of options granted:
Exercise price same as market price n.a. n.a.
Exercise price less than market price n.a. $0.81
Exercise price greater than market price $0.66 $1.50
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting
restrictions and are fully transferable. In addition, option valuation
models require the input of highly subjective assumptions including the
expected stock price volatility. Because the Company's employee stock
options have characteristics significantly different from those of
traded options, and because changes in the subjective input assumptions
can materially affect the fair value estimate, it is management's
opinion that the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.
Had compensation cost been determined based on the fair value at grant
dates for all stock option awards consistent with SFAS No. 123, the
Company's net loss and net loss per share would have been increased to
the pro forma amounts indicated below:
For the Years Ended June 30,
---------------------------------------
2000 1999
------------------ --------------
Net loss as reported $ (445,441) $ (873,611)
Pro forma $ (777,299) $ (873,611)
Basic loss per share as reported $ (0.04) $ (0.19)
Pro forma $ (0.07) $ (0.19)
6. SUPPLEMENTAL OIL AND GAS INFORMATION
Capitalized costs relating to oil and gas producing activities at June
30, 2000 and 1999 are as follows:
2000 1999
------------ ------------
Unproved oil and gas properties $ 562,764 $ 567,559
Costs incurred in oil and gas property acquisition, exploration, and
development activities for the years ended June 30, 2000 and 1999 are as
follows:
2000 1999
------------ ------------
Acquisition of unproved properties $ 19,205 $ 28,473
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Results of operations for oil and gas producing activities (excluding
corporate overhead and interest costs) for the years ended June 30, 2000
and 1999 are as follows:
2000 1999
------------ ------------
Revenues $ -- $ 7,517
Production costs -- 16,635
------------ ------------
Net $ -- $ (9,118)
============ ============
RESERVES (UNAUDITED)
The Company had no proved oil and gas reserves at June 30, 2000 and
1999.
7. FINANCINGS
On September 2, 1998, the Company completed a financing transaction
with the James E. Moore Revocable Trust, u/d/t/ dated July 28, 1994
(the "Trust"), by executing a Loan Agreement, dated as of August 25,
1998 (the "Loan Agreement"), pursuant to which the Trust loaned
$120,000 (the "Bridge Loan") to the Company to be repaid on or before
October 31, 1998. In return for the Bridge Loan, the Company granted
the Trust a security interest in its properties located in the Paradox
Basin of southern Utah and a ten-year warrant to purchase up to
180,000 shares of the Company's Common Stock at an exercise price of
$1.00 per share. In addition, Mr. Rafiq A. Sayed was appointed to
serve on the Company's Board of Directors as a designee of the Trust
in connection with the Bridge Loan. Effective as of November 23, 1998,
the Trust conveyed warrants to purchase up to 150,000 shares of the
Company's Common Stock to various third parties in private
transactions. The repayment date of the Bridge Loan was subsequently
extended to November 30, 1998 in connection with the North Dakota
Agreement (as defined and described in Note 4).
On December 4, 1998, the Trust agreed to extend the repayment date for
the Bridge Loan from November 30, 1998 to January 15, 1999 (the "Second
Loan Extension"). As partial consideration therefore, the Trust received
an additional warrant for the purchase of up to 100,000 shares of Common
Stock at a price per share of the lower of (i) $1.00 or (ii) the lowest
price per share of Common Stock or Common Stock equivalent issued by the
Company in any offering of its securities occurring prior to Apri1 1999.
As additional consideration for the Second Loan Extension, the Company
agreed (a) to reprice the warrants to purchase 180,000 shares of Common
Stock previously granted to the Trust at $1.00 in accordance with the
price described above for the newly-granted warrants; (b) to reprice
certain other options held by a key consultant to the Company from $1.75
to $1.00 per share; and to appoint Dr. S.M. Aslam Daud as a member of
the Board of Directors.
Effective December 30, 1998, the principal amount of the Bridge Loan was
increased by $10,000 to $130,000 in exchange for a cash payment to the
Company to enable it to meet certain lease rental obligations due
January 1, 1999. At the same time, the repayment due date of January 15,
1999 was further extended to February 15, 1999 (the "Third Loan
Extension") and as consideration therefore, the Company agreed to issue
to the Trust an additional warrant to purchase 50,000 shares of the
Company's Common Stock under the same terms and conditions applicable to
the previously-issued warrant, and to extend the expiration of the
warrant exercise price adjustment mechanism for all warrants issued in
connection with the Bridge Loan, from April 1, 1999 to July 1, 1999.
In conjunction with the warrants issued as consideration for the Loan
Extensions, $148,000 was recorded as loan discount and amortized as
interest expense.
Subsequent to the Third Loan Extension, the Bridge Loan repayment date
was further extended to April 30, May 17 and May 28, 1999 to accommodate
a delay in closing the Company's private financing transaction.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
During May 1999, the options and warrants described in this note (other
than those issued to Trinity and the Trust) were repriced to $.25 per
share. Pursuant to the terms of the Second Loan Extension and the Third
Loan Extension, the Trust warrants, as well as options and warrants
previously granted to Trinity, were repriced to $.10 per share. See
Note 5.
The Company closed a private equity offering on May 28, 1999, selling
7.845 million restricted shares of Common Stock at $.10 per share
pursuant to an exemption from registration under Rule 505 of Regulation
D of the Securities Act of 1933, as amended. The Trust purchased 2.8
million shares and Mr. Kim Fuerst, the Company's president, purchased 2
million shares. At June 30, 1999, 785,500 private offering shares were
subscribed but not paid for; payment for those shares occurred during
the first quarter of fiscal 2000.
See also Note 8, Subsequent Event.
8. SUBSEQUENT EVENT
On September 28, 2000, the Company entered into a Farmout Agreement,
effective as of September 22, 2000, with ST, FM, and The Shoreline
Companies, LLC, a Colorado limited liability company ("Shoreline")
(collectively, the "Farmees"). The Company's Chief Executive Officer and
President and certain directors and stockholders of the Company are
directors, officers and controlling stockholders of ST, FM, and
Shoreline.
Under the Farmout Agreement, the Company has agreed to assign 50% of its
mineral working interests in and to certain oil and gas leases and
seismic options covering approximately 61,000 acres of land located in
the Paradox Basin in San Juan County, Utah, to the Farmees once they
have completed, processed, interpreted and provided the Company with a
three-dimensional seismic survey of up to 50 square miles of land
covered by such oil and gas leases and seismic options (the "Survey").
The Farmees will bear the entire cost of the Survey, up to a maximum of
$1,100,000. The Company is not obligated to assign any interests unless
and until it has received the Survey in a form reasonably acceptable to
it.
The Farmees have agreed to begin work on the Survey as soon as
reasonably practicable and to complete the Survey within 180 days of
commencement.
On September 28, 2000, the Farmees deposited $1,000,000 with a managing
agent to fund the Survey.
The Farmout Agreement also establishes an area of mutual interest (the
"AMI") for a term of ten years from the effective date of the Farmout
Agreement. If during the ten-year term, any party to the Farmout
Agreement acquires an oil or gas leasehold interest in the AMI, that
party must give all other parties the opportunity to participate.
On September 28, 2000, the Company also entered into a Credit Agreement
with ST, FM, and Shoreline. The Credit Agreement establishes a revolving
line of credit for the Company in an aggregate principal amount not to
exceed $100,000, which will be decreased by the amount of any funds
privately raised by the Company in excess of $100,000 in the next 12
months. Amounts borrowed under the Credit Agreement bear interest at the
rate of 8% per annum. The total balance outstanding under the Credit
Agreement will be due and payable in full on the later of September 28,
2001, or the date on which the Seismic Acquisition Agreement between ST,
FM, and Shoreline terminates.
Previous to the farmout arrangement described above, in April 2000 the
Company had entered into an Option Agreement with ST and Edwards Energy
Corporation, a Letter of Intent with FM Energy and a Letter of Intent
with Shoreline, which agreements contemplated a joint venture
arrangement to be established by all the parties similar to the
arrangement set forth in the Farmout Agreement and the Credit Agreement
described herein. Pursuant to the terms of the Option Agreement, the
Company was paid $24,000 during the last quarter of fiscal 2000 for the
option. The option and the letters of intent expired according to their
terms on August 30, 2000.
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<PAGE>
The Farmout Agreement and the Credit Agreement reflect the final
agreement of the parties regarding the acquisition by ST, FM, and
Shoreline of an aggregate 50% of the Company's working interests in
certain leases and seismic options in exchange for providing the Company
with a seismic survey of certain acreage covered by such leases and
options.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
There were no changes in accountants or disagreements between the Company and
its accountants on any matter of accounting principles, practices or financial
statement disclosure during the fiscal year ended June 30, 2000.
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<PAGE>
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT; COMPLIANCE WITH
SECTION 16(A) OF THE EXCHANGE ACT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the names, ages and titles of the executive
officers and the members of the Board of Directors of the Company.
Name Age Position
------------------------- ------------ --------------------------------------
Kim M. Fuerst.......... 49 President, Chief Executive Officer,
Treasurer, Secretary and Director
J. Samuel Butler....... 55 Director
John F. Greene......... 60 Director
F. Robert Tiddens...... 46 Director
Rafiq A. Sayed......... 46 Director
Dr. Syed A. Daud....... 36 Director
KIM M. FUERST has been President, Chief Executive Officer and Director
since September 1996, and Treasurer and Chief Financial and Accounting Officer
since October 17, 1997. From 1994 to 1996 he was a Vice President and head of
the energy group of Van Kasper and Company, an investment banking firm. From
1989 to 1994 he served in various capacities at Great Northern Gas Company
including Vice President of Finance and as a Director. From 1982 to 1990 he was
President and Chief Operating Officer of Karen Oil Company which, during this
period, drilled over 100 wells and operated those wells that were producing
wells. Over the past 25 years he has worked in a variety of energy related
positions, both as an independent producer and as an investment banker.
J. SAMUEL BUTLER has been a Director of the Company since September 1996.
Mr. Butler formed Trinity Petroleum Management, LLC and ST Oil Company in 1996
and serves as President and Chief Executive Officer of both companies. During
1998, Mr. Butler was instrumental in organizing Professional Energy Advisors,
LLC, and serves on the Board of Managers thereof. In addition, he became a
member of the Board of Directors of Greystone Energy, Inc., a Colorado
corporation, in 1998. From 1989 to 1994, he served as a director, President and
Chief Executive Officer of Sterling Energy Corp. and the Chief Executive Officer
of Sheffield Exploration Company, Inc. from September 1990 to May 1996. Also
during the period of September, 1989 to December, 1994, Mr. Butler was a
founding principal in Petrie Parkman & Co., an investment banking firm
specializing in upstream energy financing. Previously, he was President and
Chief Operating Officer of Columbus Energy Corp. (Denver, Colorado) from 1985 to
1989, and today, continues to serve as a director at Columbus. Mr. Butler joined
the predecessor of Columbus, Consolidated Oil and Gas, Inc., in 1974 and held
the position of Vice President of Exploration, Senior Vice President of Oil and
Gas Operations and Executive Vice President and Chief Operating Officer. After
receiving a degree in Petroleum Engineering from the Colorado School of Mines,
Mr. Butler pursued graduate studies in the field of Mineral Economics at that
institution. He is a past director of the Independent Petroleum Association of
America and past director of the Independent Petroleum Association of the
Mountain States.
DR. SYED ASLAM DAUD has been a Director of the Company since December 1998.
Dr. Daud is currently Vice President, Investor Relations & Communications of
Sayed Consulting Inc. in Toronto, Ontario, Canada, a position he has held since
January 1996. During a nine-month period from December 1997 to September of
1998, Dr. Daud was also an Investor Relations and Communications officer of
Trivalence Mining Corporation. Prior to joining Sayed Consulting, Inc., he
worked from September 1990 to October 1995 in various capacities at Shoppers
Drug Mart and Shoppers Home Health Care (a division of Iamsco, Inc.), including
Pharmacy System Trainer and Corporate Manager.
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<PAGE>
Since 1994, Dr. Daud has served as national President of a non-profit youth
organization. Dr. Daud received his M.B.B.S. degree in Medicine and Surgery from
Dow Medical College, University of Karachi, Pakistan.
JOHN F. GREENE has been a Director of the Company since February 1998.
Mr. Greene has over 25 years experience in the oil and gas exploration and
production industry. From 1985 until his retirement in 1995, Mr. Greene served
as executive vice president of worldwide exploration and production for the
Louisiana Land and Exploration Company, where he served on the board of
directors from 1989 until his retirement. From 1981 to 1985, Mr. Greene was
president and chief executive officer for Milestone Petroleum and then executive
vice president of exploration for Meridian Oil and Gas Company via its merger
with Milestone. He began his career at Continental Oil Company holding various
positions including director of exploratory projects for onshore and offshore
offices and a division exploration manager for the western United States. Mr.
Greene has been a director of Basin Exploration, Inc. since February 1996.
RAFIQ A. SAYED has been a Director of the Company since September 1998.
Mr. Sayed is a technology executive with over 22 years of experience in the
global telecommunications and energy industries and broad based technical
management experience. Presently, Mr. Sayed is consulting for Enron Energy
Services where he supports the Chief Information Officer in defining business
processes relative to deregulation. He served on the Board of Directors of
Meteor Industries, Inc., a position he held from April 1996 until September
1998. From 1981 to 1997 Mr. Sayed was with Nortel Technology in various
positions of increasing responsibility, and most recently as Senior Director
managing over 300 professionals and a budget in excess of $30 million, and where
he was the architect in charge of the design of a state-of-the-art automation
platform for large telephony switching platforms and for re-engineering of the
feature processing environment for the DM8-100. Mr. Sayed graduated from
Southbank College in London, England in 1975 with an H.N.D. in
Electrical/Electronic Engineering (equivalent of a BSEE). He also attended Essex
University in London, England where he was enrolled in an advanced computer
science program with an emphasis in Operating Systems, Software Engineering and
Programming.
F. ROBERT TIDDENS has been a Director of the Company since February 1998.
Mr. Tiddens has over 20 years experience in oil and gas exploration, production
and acquisition activities in all producing states in the continental United
States. Since 1995, Mr. Tiddens was President and Chief Executive Officer of
Shoreline Resource Company, Inc., a Denver based private oil and gas exploration
concern he founded and subsequently merged into a subsidiary of the Company in
February 1998, at which time he became a director of the Company. From 1990 to
1995, Mr. Tiddens was a consultant advising client companies in all facets
relating to the oil and gas industry. Prior thereto, Mr. Tiddens was Vice
President of Land & Acquisitions for Presidio Oil Company, a rapidly-growing
American Stock Exchange Company based in Denver and New York. Mr. Tiddens is a
graduate of the University of Wisconsin with a finance/economics degree.
All directors of the Company serve one year terms and hold office until
the annual meeting in the year in which their respective terms expire or until
their respective successors are duly elected and qualified. Mr. Sayed and Dr.
Daud were selected to serve on the Board of Directors pursuant to certain
agreements between the Company and The Trust in connection with a loan from the
Trust to the Company, and an extension of the repayment due date of such loan.
See Item 12 "Certain Relationships and Related Transactions" for additional
discussion regarding the loan and related documents. All officers of the Company
serve at the discretion of the Board of Directors and until the next annual
meeting of directors of the Company. There are no family relationships between
any director, officer or person nominated or chosen to become a director or
officer and any other such persons.
COMMITTEES AND MEETINGS
During the fiscal year ended June 30, 2000, the Board of Directors held
one meeting. The Board of Directors of the Company has no established committees
to which it has delegated any authority.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
The Company's directors, executive officers and persons who are
beneficial owners of more than ten percent of the Company's Common Stock are
required to file reports of their holdings and transactions in Common Stock with
the Commission and to furnish the Company with such reports. Based solely upon
its review of the copies the Company
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<PAGE>
has received or upon written representations it has obtained from certain of
these persons, the Company believes that, for the fiscal year ended June 30,
2000, Kim M. Fuerst failed to timely file a Form 5 to report the grant of an
option.
ITEM 10. EXECUTIVE COMPENSATION
EXECUTIVE COMPENSATION
The following table sets forth the aggregate compensation paid for each
of the Company's last three fiscal years by the Company to its chief executive
officer.
SUMMARY COMPENSATION TABLE
Annual
Compensation Awards Long Term Compensation
------------------ --------------------------
Awards
--------------------------
Name and Position(1) Year Salary ($) Securities Underlying
Options (#)
------ ------------------ --------------------------
Kim M. Fuerst 2000 60,000 500,000
Chief Executive 1999 50,000(2)(3 500,000(4)
Officer, President, 1998 120,000(3) --
Treasurer and
Secretary
-----------------------
(1) The Company had no other executive officer during the fiscal year ended
June 30, 2000.
(2) Mr. Fuerst determined to forego his monthly salary of $10,000 for the
months of November and December 1998, and January through April 1999, and
received $5,000 per month for each of May and June 1999 in accordance with
an amendment to his employment agreement.
(3) Includes $40,000 in fiscal 1999 and $10,000 in fiscal 1998 of salary
obligation of the Company to Mr. Fuerst extinguished as partial payment for
the purchase of the Company's North Dakota properties by FM Energy, LLC, of
which Mr. Fuerst owns 50 percent. See Item 12.
(4) The options shown were originally granted in 1996. On May 17, 1999, the
options were repriced to $0.25 per share.
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The following table shows stock option grants to the Company's only
executive officer during fiscal 2000. The Company does not grant stock
appreciation rights.
OPTION GRANTS IN LAST FISCAL YEAR
Individual Grants
-------------------------------------------------------------------------------
% of % of
Total Total
Number Options Options
of Granted Granted
Securities to to
Underlying Employees Employees Exercise
Option in Fiscal in Fiscal Price Expiration
Name Granted Year Year ($/Sh) Date
------------------- ---------- ---------- ----------- ------- ------------
Kim M. Fuerst..... 500,000(1) 100% 100% $0.75 July 26, 2004
Chief Executive
Officer,
President,
Treasurer and
Secretary
------------------------
(1) The option was immediately exercisable upon grant.
The following table shows the number of shares covered by all
exercisable and unexercisable stock options held by the named executive officer
as of June 30, 2000, as well as the value of unexercised "in the money" options
at such date. No stock options were exercised by the named executive officer
during the last fiscal year.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES
Number of
Securities Value of Unexercised
Underlying in the Money
Name Unexercised Options/SARs at
Options/SARs at FY-End
FY-End (#) Exercisable/
Exercisable/ Unexercisable
unexercisable Unexercisable
---------------------- --------------------- -----------------------
Kim M. Fuerst 1,000,000/0 $100,000/0 (1)
------------------------
(1) Amount shown represents aggregated fair market value based upon the closing
price on June 30, 2000, of $0.45 per share less the exercise price of $0.25
per share for 500,000 shares of the unexercised in-the-money options held.
Actual gains, if any, on exercise will depend on the value of the Common
Stock on the date of exercise.
EMPLOYMENT CONTRACTS
The Company entered into an employment contract with Mr. Fuerst on
October 1, 1996 pursuant to which Mr. Fuerst received a salary of $10,000 per
month and was granted incentive stock options to purchase up to 500,000 shares
of Common Stock at an exercise price of $1.00 per share. The contract is for an
initial term of three years commencing October 1, 1996 and is renewed
automatically for succeeding periods of one year unless terminated. The contract
may be terminated by Mr. Fuerst upon 90 days prior written notice to the
Company, and by the Company without prior notice to Mr. Fuerst, if for Cause (as
defined in the contract). The Company's salary obligation to Mr. Fuerst of
$10,000 per month for the months of June through October 1998 was extinguished
in connection with the purchase by FM Energy, LLC (of which Mr. Fuerst owns 50
percent and serves as co-manager) of the Company's properties located in North
Dakota. The satisfaction of the Company's salary obligation for such months
served as partial consideration for the purchase. In May 1999, Mr. Fuerst's
employment agreement was amended to reduce his salary to $5,000 per month. See
Item 12 - "Certain Relationships and Related Transactions."
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COMPENSATION OF DIRECTORS
The Directors of CWYR do not receive annual salaries or retainers from CWYR but
do receive reimbursement for travel expenses.
On April 29, 1999, the Company entered into a Letter Agreement with F. Robert
Tiddens, a director and stockholder of the Company. Pursuant to the terms of
this agreement, the retainer fee due Mr. Tiddens under the Merger Agreement,
dated February 6, 1998, was reduced to $27,000, payable within five (5) days of
the effective date of the agreement. Mr. Tiddens agreed to solicit industry
partners for the Company for the sum of $40 per hour plus reasonable expenses.
In addition, the agreement stated that if Mr. Tiddens or others successfully
consummated for the Company a sharing arrangement, defined as any arrangement
that will significantly enhance the value of the Paradox Project such as a
seismic survey and/or a drilling commitment, the Company would assign to Mr.
Tiddens an overriding royalty interest of 1% of 8/8ths on all acreage subject to
the resulting agreement. The Board agreed to transfer a 1% overriding royalty
interest as a result of the Company's entering into the Farmout Agreement in
satisfaction of the agreement. Effective September 22, 2000, the consulting
agreement with Mr. Tiddens was terminated.
During fiscal 1998, the Board of Directors and Shareholders approved an Equity
Incentive Plan (the "Equity Plan") in which Directors are eligible to
participate. A total of 2,500,000 shares of Common Stock have been reserved for
issuance under the Equity Plan, subject to adjustments to reflect changes in the
Company's capitalization resulting from stock splits, stock dividends and
similar events. The Equity Plan currently is administered by the Board of
Directors, but may be administered by a committee appointed by the Board.
Options granted to directors under the Equity Plan expire ten years from the
date of grant. The option exercise price for non-statutory options is determined
by the Board of Directors and may be paid in cash or by surrendering to the
Company outstanding Common Stock already owned by the optionee, valued at fair
market value, by delivering a promissory note, or by a combination of such means
of payment, as may be determined by the Board. Options granted pursuant to the
Equity Plan may not be exercised more than three months after the option holder
ceases to be a director of the Company, except that in the event of the death or
permanent and total disability of the option holder, the option may be exercised
by the holder (or his estate, as the case may be), for a period of up to one
year after the date of death or permanent or total disability. Options granted
to directors under the Equity Plan are treated as non-statutory stock options
under the Internal Revenue Code. The Board of Directors determines the vesting
requirement for options granted under the Equity Plan.
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ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as to the number of shares of
Common Stock of the Company beneficially owned as of October 11, 2000, by (i)
each person who is known to the Company to be the beneficial owner of more than
five percent of the Common Stock of the Company; (ii) each of the Company's
directors; (iii) the five most highly compensated executive officers, including
the Chief Executive Officer; and (iv) all of the executive officers and
directors of the Company as a group. Except as otherwise indicated, the Company
believes that the beneficial owners of the Common Stock listed below, based on
information furnished by such holders, have sole investment and voting power
with respect to such shares, subject to community property laws, where
applicable.
<TABLE>
<CAPTION>
PERCENTAGE
NUMBER OF BENEFICIALLY OWNED
NAME AND ADDRESS SHARES(A) (B)
<S> <C> <C>
Kim M. Fuerst...................................... 3,112,500(c) 26.8%
751 Horizon Court, Ste. 205
Grand Junction, Colorado 81506
J. Samuel Butler................................... 325,000(d) 3.0%
1801 Broadway, Suite 600
Denver, Colorado 80202
Syed A. Daud....................................... 100,000(e) 0.9%
64 Hainsworth Ct.
Markham, Ontario L3S1T5
Canada
John F. Greene..................................... 453,303(e) 4.2%
1569 Royal Buffalo Drive
Silverthorne, Colorado 80498
Rafiq A. Sayed..................................... 108,600(e) 1.0%
102 Avenue of the Estates
Cary, North Carolina 27511
F. Robert Tiddens.................................. 545,030(e) 5.1%
8360 East Hinsdale Avenue
Englewood, Colorado 80112
The James E. Moore Revocable Trust,................ 3,050,000(f) 28.3%
u/d/t dated July 28, 1994
7827 Berger Avenue
Playa del Rey, California 90293
All executive officers and directors as a Group
(six persons)...................................... 4,644,433(g) 37.7%
</TABLE>
(a) All shares are owned both of record and beneficially unless otherwise
specified by footnote to this table.
(b) Based on 10,607,694 shares of Common Stock outstanding at October 11, 2000.
(c) Includes 500,000 shares issuable upon exercise of stock options granted
under the Incentive Stock Option Plan in 1996, and 500,000 shares issuable
upon exercise of stock options granted under the Equity Incentive Plan.
(d) Includes 200,000 shares issuable upon exercise of stock options granted
under a director stock option plan in 1996; 100,000 shares issuable upon
exercise of a stock option granted to Trinity Petroleum Management LLC, of
which Mr. Butler owns approximately 24 percent and serves as the President
and CEO; and 25,000 restricted shares owned by ST Oil Company, of which Mr.
Butler owns approximately 28 percent and serves as the President and CEO.
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<PAGE>
(e) Includes 100,000 shares issuable upon exercise of director stock options
granted under the Equity Incentive Plan.
(f) Includes 180,000 shares issuable upon exercise of warrants granted in
connection with Bridge Loan and extensions thereof.
(g) Includes 1,700,000 shares issuable upon exercise of options and warrants.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Set forth below is a description of transactions entered into between the
Company and certain of its officers, directors, and/or employees during the last
two fiscal years.
CONSULTING AND EMPLOYMENT AGREEMENTS
Effective January 1, 1998, the Company entered into an Agreement for
Administrative Services (the "Trinity Agreement") with Trinity Petroleum
Management LLC, a Colorado limited liability company ("Trinity"). Pursuant to
the terms of the Trinity Agreement, Trinity performs certain management
functions for the Company. Trinity bills for its services on an hourly basis,
receives a flat fee of $1,000 per month (formerly $3,000 per month) and is
reimbursed for third party expenses. The Trinity Agreement is for a term of one
year, continuing thereafter on a month-to-month basis, terminable upon 60 days
written notice by either party. J. Samuel Butler, a member on the Board of
Directors of the Company, currently serves as President of Trinity and owns
approximately 24 percent of Trinity through his ownership of Butler Resources,
LLC. During the fiscal years ended June 30, 2000, and June 30, 1999, the Company
incurred fees to Trinity of $44,803 and $82,960, respectively, pursuant to the
Trinity Agreement.
In January 1998, as partial consideration for certain additional services
provided to the Company by Trinity in connection with the Company's merger with
Shoreline Resource Company, Inc., the Company issued to Trinity 25,000
restricted shares of Common Stock as well as an option to purchase of up to
100,000 shares of the Company's Common Stock at an exercise price of $1.50 per
share, subsequently repriced to $.10 per share in May 1999. During the last
fiscal year, the Company paid Trinity $82,960 for its services.
Effective as of January 1, 1998, the Company entered into an Agreement for
Consulting Services (the "SCI Agreement") with Sayed Consulting, Inc., a Nevada
corporation ("SCI"). Pursuant to the terms of the SCI Agreement, SCI performed
certain investor and public relations functions for the Company for a fee of
$1,000 per month and reimbursement of third party expenses. The SCI Agreement
was for a term of one year. On January 30, 1998 in connection with the SCI
Agreement, the Company issued to SCI an option to purchase up to 200,000 shares
of the Company's Common Stock at an exercise price of $1.75 per share, (repriced
in December 1998 to $1.00 per share and in May 1999 to $.25 per share). Waseem
A. Sayed owns 100 percent of SCI and serves as its President. Mr. Sayed's
brother, Rafiq A. Sayed, was appointed as a member of the Company's Board of
Directors effective September 4, 1998. Dr. Syed A. Daud, a recently-appointed
member of the Board of Directors, serves as Vice President of Investor Relations
& Communications for SCI.
The Company entered into a Contract Operator Agreement and Operating Agreement,
effective March 13, 1998 with ST Oil pursuant to which ST Oil serves as managing
agent and attorney-in-fact for the Company, and as operator of record of the
Companies properties located in North Dakota (the "ST Agreement"). In return for
its services, ST Oil is entitled to receive, at payout, a five percent working
interest in the leases and wells. Mr. Butler owns approximately 28 percent of ST
and serves as its President and Chief Executive Officer. During fiscal 1999, the
ST Agreement was assigned by the Company to FM Energy, LLC in connection with
the sale of the Company's North Dakota properties.
FINANCINGS
On September 2, 1998, the Company completed a financing transaction with the
James E. Moore Revocable Trust, u/d/t dated July 28, 1994 (the "Trust"), by
executing a Loan Agreement, dated as of August 25, 1998 (the "Loan Agreement"),
pursuant to which the Trust loaned $120,000 (the "Bridge Loan") to the Company
to be repaid on or before October 31, 1998. In return for the Bridge Loan, the
Company granted the Trust a security interest in its properties located in the
Paradox Basin of southern Utah, and a ten-year warrant to purchase up to 180,000
shares of the Company's Common Stock at an exercise price of $1.00 per share. In
addition, Mr. Rafiq A. Sayed was appointed to serve on the Company's
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<PAGE>
Board of Directors as a designee of the Trust in connection with the Bridge
Loan. As of September 2, 1998, the Trust beneficially owned approximately 9.4
percent of the Company's Common Stock. However, effective as of November 23,
1998, the Trust conveyed warrants to purchase up to 150,000 shares of the
Company's Common Stock to various third parties in private transactions, thereby
reducing the Trust's beneficial ownership in the Company to approximately four
percent. The repayment date of the Bridge Loan was subsequently extended to
November 30, 1998 in connection with the North Dakota Agreement (as defined and
described below).
On December 4, 1998, the Board of Directors of the Company approved an agreement
with the Trust to extend the repayment date for the Bridge Loan from November
30, 1998 to January 15, 1999 (the "Second Extension"). As partial consideration
therefore, the Trust received an additional warrant for the purchase of up to
100,000 shares of Common Stock at $0.10 per share, the lesser of (i) $1.00 or
(ii) the lowest price per share of Common Stock or Common Stock equivalent
issued by the Company in any offering of its securities occurring prior to April
1, 1999 (the "Option Price Formula"), thereby increasing the beneficial
ownership by the Trust to approximately 7.6 percent. As additional
consideration, the Second Extension agreement provided that the Company (a)
reprice the warrants to purchase 180,000 shares of Common Stock previously
granted to the Trust at $1.00 in accordance with the Option Price Formula; (b)
reprice the options held by SCI from $1.75 to $1.00 per share; and (c) appoint
Dr. Daud as a member of the Board of Directors.
Effective as of December 30, 1998, the Company's Board of Directors approved an
agreement to increase the principal of the Bridge Loan from $120,000 to $130,000
in exchange for a cash payment to the Company, and to extend further the
repayment date to February 15, 1999 (the "Third Extension"). As partial
consideration for the Third Extension, the Trust received another Warrant for a
price of $50.00. Pursuant to the Warrant Agreement, dated as of December 30,
1998, the Trust is entitled to purchase up to 50,000 shares of restricted common
stock at an exercise price determined by the Option Price Formula.
The Warrant Agreement in connection with the Third Extension also provides for
(a) an extension of the date of the Option Price Formula from April 1, 1999 to
July 1, 1999 for all warrants previously issued to the Trust in connection with
the original loan and Second Extension and (b) the repricing of certain director
options previously issued by the Company from $3.75 to $1.00 per share.
On May 28, 1999, the Company closed a private placement of 7,845,000 shares of
its Common Stock at a price of $0.10 per share, raising $785,000 ($767,000 net
of placement costs). The proceeds were used to repay the Bridge Loan and for
working capital. Mr. Fuerst purchased 2,000,000 shares for a purchase price of
$200,000. The Trust purchased 2,800,000 shares for a total price of $280,000. As
a result of the per share price established in the private placement, the
exercise price for warrants issued to the Trust in connection with the Bridge
Loan and Extensions was set at $0.10 per share. Following repayment of the
Bridge Loan by the Company, the security interest in the Company's Paradox Basin
properties held by the Trust was released.
During fiscal 2000, Kim Fuerst, a director, executive officer and principal
stockholder of the Company, made advances on behalf of the Company in the form
of interest-free loans of $32,200 for lease rental payments and of $11,000 for
general and administrative expenses.
On September 28, 2000, the Company entered into a Farmout Agreement, effective
as of September 22, 2000, with ST Oil Company, FM Energy LLC, and The Shoreline
Companies, LLC (collectively, the "Farmees"). FM Energy is jointly owned by Kim
M. Fuerst and The James E. Moore Revocable Trust, a principal stockholder of the
Company, and Mr. Moore, the trustee and sole beneficiary under the Trust, and
Mr. Fuerst serve as Co-Chairman of FM Energy. ST Oil has as its Chairman, Chief
Executive Officer and principal stockholder J. Samuel Butler, who is also a
director and principal stockholder of the Company. F. Robert Tiddens, a director
and stockholder of the Company, is the President, Chief Executive Officer and
50% stockholder of The Shoreline Companies. John Green, who is also a director
and stockholder of the Company, is a director and 50% stockholder of The
Shoreline Companies.
Under the Farmout Agreement, the Company has agreed to assign 50% of its mineral
working interests in and to certain oil and gas leases and seismic options
covering approximately 61,000 acres of land located in the Paradox Basin in San
Juan County, Utah, to the Farmees once they have completed, processed,
interpreted and provided the Company with a three-dimensional seismic survey of
up to 50 square miles of land covered by such oil and gas leases and seismic
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<PAGE>
options (the "Survey"). The Farmees will bear the entire cost of the Survey, up
to a maximum of $1,100,000. The Farmout Agreement also establishes an area of
mutual interest (the "AMI") for a term of ten years from the effective date of
the Farmout Agreement.
On September 22, 2000, the Company also entered into a Credit Agreement with ST
Oil, FM Energy and The Shoreline Companies. The Credit Agreement establishes a
revolving line of credit for the Company in an aggregate principal amount not to
exceed $100,000, which will be decreased by the amount of any funds privately
raised by the Company in excess of $100,000 in the next 12 months. Amounts
borrowed under the Credit Agreement bear interest at the rate of 8% per annum.
The total balance outstanding under the Credit Agreement will be due and payable
in full on the later of September 28, 2001, or the date on which the Seismic
Acquisition Agreement between ST Oil, FM Energy and The Shoreline Companies
terminates.
In April 2000 the Company had entered into an Option Agreement with ST Oil and
Edwards Energy Corporation, a Letter of Intent with FM Energy and a Letter of
Intent with The Shoreline Companies, which agreements contemplated a joint
venture arrangement to be established by all the parties similar to the
arrangement set forth in the Farmout Agreement and the Credit Agreement
described above. Pursuant to the terms of the Option Agreement, the Company was
paid $24,000 during the last quarter of fiscal 2000 for the option. The option
and the letters of intent expired according to their terms on August 30, 2000.
The Farmout Agreement and the Credit Agreement reflect the final agreement of
the parties regarding the acquisition by ST Oil, FM Energy and The Shoreline
Companies of an aggregate 50% of the Company's working interests in certain
leases and seismic options in exchange for providing the Company with a seismic
survey of certain acreage covered by such leases and options.
OTHER
In connection with their respective appointments to the Board of Directors, each
of Mr. Sayed and Dr. Daud received options to purchase 100,000 shares of Common
Stock on September 4, 1998 and December 4, 1998, respectively. The options were
granted pursuant to the Company's Equity Incentive Plan, were originally
exercisable at $1.00 (the fair market value at the date of grant) and were
immediately vested. Effective May 17, 1999, the Board of Directors voted to
reprice all outstanding options to $.25 per share to reflect a decrease in the
fair market value of the Company's Common Stock.
Effective as of November 1, 1998, the Company accepted an Offer to Purchase
certain of its properties located in North Dakota (the "North Dakota Agreement")
submitted by FM Energy, LLC ("FM"), a California limited liability company
collectively owned by the Company's President, Kim M. Fuerst, and the Trust.
Pursuant to the North Dakota Agreement, the Company sold its interest in certain
properties located in North Dakota in return for (a) a cash payment to the
Company of $50,000; (b) extinguishment of the Company's $50,000 obligation to
Kim M. Fuerst as compensation for his services as President of the Company for
the months of June through October 1998; and (c) an extension of the repayment
date for the Bridge Loan from October 31, 1998 to November 30, 1998. The Company
had acquired the North Dakota properties during fiscal 1998 for $113,392. See
Item 6 - "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
A list of the Exhibits required by Item 601 of Regulation S-B to be
filed as part of this report is set forth in the Index to Exhibits and
is incorporated herein by reference.
(b) Reports on Form 8-K
No current reports on Form 8-K were filed during fiscal 2000.
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<PAGE>
(c) The following Financial Statements are filed as part of this Report:
PAGE
Report of Independent Accountants................................
Consolidated Balance Sheets as of June 30, 2000 and
June 30, 1999....................................................
Consolidated Statements of Operations for the Years Ended
June 30, 2000 and June 30, 1999..................................
Consolidated Statements of Stockholders' Equity for the
Years Ended June 30, 2000 and June 30, 1999......................
Consolidated Cash Flow Statements for the Years Ended
June 30, 2000 and June 30, 1999..................................
Notes to Consolidated Financial Statements.......................
All Financial Statement Schedules are omitted because they are not required, are
inapplicable or the information is included in the financial statements or notes
thereto.
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<PAGE>
SIGNATURE PAGE
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this Report to be signed on its
behalf by the undersigned thereunto duly authorized.
COLORADO WYOMING RESERVE COMPANY
Dated: 10/12/00 By: /S/ KIM M. FUERST
--------------------------------------
Kim Fuerst, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the date indicated.
By: /S/ KIM FUERST
--------------------------------------
Kim Fuerst, President, Chief Executive
Dated: 10/12/00 Officer, Treasurer and Secretary
------------------------ (Principal Executive Officer, Chief
Financial and Accounting Officer)
By: /S/ J. SAMUEL BUTLER
--------------------------------------
Dated: 10/12/00 J. Samuel Butler, Director
--------------------------
By: /S/ JOHN F. GREENE
--------------------------------------
Dated: 10/12/00 John F. Greene, Director
--------------------------
By: /S/ F. ROBERT TIDDENS
--------------------------------------
Dated: 10/12/00 F. Robert Tiddens, Director
--------------------------
By:
--------------------------------------
Dated: Rafiq A. Sayed, Director
-------------------------
By: /S/ SYED A DAUD
--------------------------------------
Dated: 10/12/00 Syed A. Daud, Director
-------------------------
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<PAGE>
INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION
3.1 Articles of Incorporation, incorporated by reference to the
Company's Annual Report on Form 10-K for the fiscal year ended
May 31, 1983.
3.2 Bylaws, incorporated by reference to the Company's Annual Report
on Form 10-K for the fiscal year ended May 31, 1983.
10.1 Employment Agreement between the Company and Kim M. Fuerst, dated
October 1, 1996, incorporated by reference to the Company's
Quarterly Report on Form 10-QSB for the quarter ended March 31,
1997, and as amended by Amendment, dated May 17, 1999,
incorporated by reference to the Company's Annual Report on Form
10-KSB for the year ended June 30, 1999.
10.2 Incentive Stock Option Plan, dated October 18, 1996, incorporated
by reference to the Company's Quarterly Report on Form 10-QSB for
the quarter ended March 31, 1997.
10.3 Incentive Stock Option Agreement between the Company and Kim M.
Fuerst, dated October 18, 1996, incorporated by reference to the
Company's Quarterly Report on Form 10-QSB for the quarter ended
March 31, 1997.
10.4 The Company's Equity Incentive Plan, incorporated by reference to
the Company's Quarterly Report on Form 10-QSB for the quarter
ended March 31, 1997.
10.5 Warrant, dated March 31, 1997, from the Company to Trinity
Petroleum Management, LLC, incorporated by reference from the
Company's Quarterly Report on Form 10-QSB for the quarter ended
March 31, 1997.
10.6 Agreement for Administrative Services between the Company and
Trinity Petroleum Management, LLC, dated as of January 1, 1998,
incorporated by reference to the Company's Annual Report on Form
10-KSB for the fiscal year ended June 30, 1998.
10.7 Agreement for Consulting Services between the Company and Sayed
Consulting, Inc., dated as of January 1, 1998, incorporated by
reference to the Company's Quarterly Report on Form 10-QSB for
the quarter ended March 31, 1998.
10.8 Agreement and Plan of Merger, dated as of February 6, 1998,
between the Company, CW Sub, Inc., Shoreline Resource Company,
Inc., F. Robert Tiddens, John F. Greene and Cindy L. Stewart,
incorporated by reference to the Company's Quarterly Report on
Form 10-QSB for the quarter ended March 31, 1998.
10.9 Loan Agreement, dated as of August 25, 1998, between the Company
and the James E. Moore Revocable Trust, u/d/t dated July 28, 1994
(the "Trust"), incorporated by reference to the Company's Annual
Report on Form 10-KSB for the fiscal year ended June 30, 1998.
10.10 Mortgage, Deed of Trust, Security Agreement and Financing
Statement, dated as of August 25, 1998, from the Company to James
A. Holtkamp, Trustee and the Trust, incorporated by reference to
the Company's Annual Report on Form 10-KSB for the fiscal year
ended June 30, 1998.
10.11. Promissory Note, dated August 25, 1998 in the principal amount of
$120,000.00, from the Company to the Trust, incorporated by
reference to the Company's Annual Report on Form 10-KSB for the
fiscal year ended June 30, 1998.
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<PAGE>
10.12 Warrant Agreement, dated as of August 25, 1998, between the
Company and the Trust, incorporated by reference to the Company's
Annual Report on Form 10-KSB for the fiscal year ended June 30,
1998.
10.13 Registration Rights Agreement, dated as of August 25, 1998,
between the Company and the Trust, incorporated by reference to
the Company's Annual Report on Form 10-KSB for the fiscal year
ended June 30, 1998.
10.14 Extension, dated as of December 4, 1998, to the Bridge Loan
between the Company and the Trust, incorporated by reference to
the Company's Annual Report on Form 10-KSB for the fiscal year
ended June 30, 1998.
10.15 Amendment No. 1 to Registration Rights Agreement and Promissory
Note, dated as of December 4, 1998, between the Company and the
Trust, incorporated by reference to the Company's Annual Report
on Form 10-KSB for the fiscal year ended June 30, 1998.
10.16 Warrant Agreement, dated as of December 4, 1998, between the
Company and the Trust, incorporated by reference to the Company's
Annual Report on Form 10-KSB for the fiscal year ended June 30,
1998.
10.17 Offer to Purchase, dated November 2, 1998, from FM Energy, LLC to
the Company, incorporated by reference to the Company's Annual
Report on Form 10-KSB for the fiscal year ended June 30, 1998.
10.18 Warrant Agreement, dated December 30, 1998, between the Company
and the Trust, incorporated by reference to the Company's
Quarterly Report on Form 10-QSB for the quarter ended December
31, 1998.
10.19 Amendment No. 2 to Registration Rights Agreement and Promissory
Note, dated as of December 30, 1998, between the Company and the
Trust, incorporated by reference to the Company's Quarterly
Report on Form 10-QSB for the quarter ended December 31, 1998.
10.20 Promissory Note, dated as of December 30, 1998, in original
principal amount of $10,000 from the Trust, incorporated by
reference to the Company's Quarterly Report on Form 10-QSB for
the quarter ended December 31, 1998.
10.21 Extension, dated as of February 17, 1999, to the Bridge Loan
between the Company and the Trust, incorporated by reference to
the Company's Quarterly Report on Form 10-QSB for the quarter
ended March 31, 1999.
10.22 Extension, dated as of March 31, 1999 to the Bridge Loan between
the Company and the Trust, incorporated by reference to the
Company's Quarterly Report on Form 10-QSB for the quarter ended
March 31, 1999.
10.23 Extension, dated as of April 9, 1999, to the Bridge Loan between
the Company and the Trust, incorporated by reference to the
Company's Annual Report on Form 10-KSB for the year ended June
30, 1999.
10.24 Extension, dated as of April 30, 1999, to the Bridge Loan between
the Company and the Trust, incorporated by reference to the
Company's Annual Report on Form 10-KSB for the year ended June
30, 1999.
10.25 Extension, dated as of May 17, 1999, to the Bridge Loan between
the Company and the Trust, incorporated by reference to the
Company's Annual Report on Form 10-KSB for the year ended June
30, 1999.
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<PAGE>
10.26 Letter Agreement, dated April 29, 1999, by and between the
Company and F. Robert Tiddens.
10.27 Option Agreement, dated May 10, 2000, by and between the Company
and ST Oil Company, incorporated by reference to the Company's
Quarterly Report on Form 10-QSB for the quarter ended March 31,
2000.
10.28 Letter of Intent, dated May 15, 2000, by and between the Company
and FM Energy, LLC, incorporated by reference to the Company's
Quarterly Report on Form 10-QSB for the quarter ended March 31,
2000.
10.29 Letter of Intent, dated May 10, 2000, by and between the Company
and The Shoreline Companies, LLC, incorporated by reference to
the Company's Quarterly Report on Form 10-QSB for the quarter
ended March 31, 2000.
10.30 Farmout Agreement, dated September 22, 2000, by and among the
Company, ST Oil Company, FM Energy, LLC and The Shoreline
Companies, LLC, incorporated by reference to the Company's
Current Report on Form 8-K dated September 22, 2000.
10.31 Credit Agreement, dated September 22, 2000, by and among the
Company, ST Oil Company, FM Energy LLC and The Shoreline
Companies, LLC, incorporated by reference to the Company's
Current Report on Form 8-K dated September 22, 2000.
21 Subsidiaries of the Company:
Shoreline Resource Company, Inc., a Colorado corporation
23 Consent of Hein + Associates LLP
27 Financial Data Schedule
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