INTERLINE RESOURCES CORP, 10KSB, 2000-03-31

INTERLINE RESOURCES CORP
10KSB, 2000-03-31
CRUDE PETROLEUM & NATURAL GAS

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U.S. SECURITIES AND EXCHANGE COMMISSION

FORM 10-KSB

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999

[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934

Commission file number 0-18995

INTERLINE RESOURCES CORPORATION
(Exact name of small business issuer as specified in its charter)

Utah 87-0461653
----------------- -----------
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification No.)

160 West Canyon Crest Road, Alpine, UT 84004
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(Address of principal executive offices)

Registrant's telephone number, including area code: (801) 756-3031
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Securities registered pursuant to Section 12(b) of the Exchange Act:

Common Stock $.005 Par Value
----------------------------
Title of Class

Securities registered pursuant to Section 12(g) of the Exchange Act: None

Check whether the Issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. Yes X No____.

Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of Issuer's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. X

The Issuers revenues for the fiscal year ending December 31, 1999 were
$3,898,803

As of March 22, 2000, 14,066,052 shares of the Issuers common stock were
issued and outstanding, 9,169,826 of which were held by non-affiliates. As of
March 22, 2000, the aggregate market value of shares held by non-affiliates
(based upon the closing price) was approximately $1,719,342.

DOCUMENTS INCORPORATED BY REFERENCE: NONE

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<PAGE>

PART I

ITEM 1. DESCRIPTION OF BUSINESS

General

Interline Resources Corporation (the Company), is a Utah corporation with
its principal and executive offices located at 160 West Canyon Crest Road, Utah
84004 (801) 756-3031. The Company's current operating subsidiaries are (1)
Interline Energy Services, Inc. ("Interline Energy") a Wyoming corporation which
manages the Company's oil and gas operations located in Wyoming which consist of
natural gas gathering, natural gas processing, over the road NGL truck
transportation and oil well production. and (2) Interline Hydrocarbons, Inc.
("Interline Hydrocarbons") a Wyoming corporation which owns and operates the
Company's used oil refining technology.

On September 26, 1997, the Company filed a Petition for Reorganization
under Chapter 11 (the Petition) of the United States Bankruptcy Code. The
Company continued its operations as a debtor-in-possession under the Bankruptcy
Code. The Company's subsidiaries did not join the Company in the Petition and
were not directly involved in the Bankruptcy Reorganization Proceedings.

On June 18, 1998, the Company filed a Plan of Reorganization and
Disclosure Statement to the Plan of Reorganization with the United States
Bankruptcy Court for the District of Utah, Central Division. On July 14, 1998,
the Company's Plan of Reorganization and Disclosure Statement to the Plan of
Reorganization was approved and circulation thereof was authorized by the United
States Bankruptcy Court for the District of Utah, Central Division.

On September 10, 1998, the Plan of Reorganization was confirmed by the
United States Bankruptcy Court for the District of Utah. As a result, restraints
on the activities of Interline imposed by the Bankruptcy code were removed.
Interline reached agreement with its major creditor during the Chapter 11 case
and the terms of the agreement (See Part 1 - Item 2 - Liquidity and Capital
Resources) were incorporated in the plan. All other creditors were paid in full
under the plan.

Interline Energy Services - Oil and Gas Operations.

The Company has been engaged in the oil and gas industry since 1990, and
currently operates in east-central Wyoming near Douglas. The Company's oil and
gas operations include the Well Draw Gas Plant, a crude gathering pipeline, a
20.4% interest in the Hat Creek Partnership, NGL trucking and four producing oil
and gas wells.

<PAGE>

Well Draw Gas Plant

The Well Draw Gas Plant (the "Plant"), is a natural gas liquids (NGLs)
processing plant with a 150,000 gallon per day capacity. The Plant processes
NGL's into propane, butane and natural gasoline. As part of the Plant system,
the Company owns a natural gas gathering pipeline system. The gathering system
is connected to the Well Draw Gas Plant and supplies a small percentage of
liquids for the Plant. Most of the NGL's originate from liquids that are trucked
into the Plant from outside sources. During 1999, the plant processed a numeric
average of 95,900 gallons per day compared to 78,100 gallons per day during
1998.

Amoco Agreement

During 1994, the Company entered into a six year contract with Amoco
Production Company to process NGLs with the initial term expiring on June 1,
2000. Thereafter, the contract automatically renews for one year terms, unless
Amoco serves the Company with notice to terminate 90 days prior to the end of a
term. The Company did not receive a termination notice from Amoco, so the next
expiration date is June 1, 2001. The Amoco agreement is the largest liquids
contract the Company has. To fulfill the contract, the Company made
modifications to the Well Draw Gas Plant to increase its processing capacity
from 90,000 to approximately 150,000 gallons per day. The Company also
constructed an amine treating unit to reduce sulfur concentrations of the NGLs
at Amoco's' Bairoil, Wyoming plant where the NGLs are collected. In 1999, the
Company processed an average of 50,359 gallons per day of Amoco liquids compared
to 45,800 gallons per day for 1998. The Amoco contract accounted for 52.51% of
the total NGLs processed for 1999 and 58.64% for 1998.

KN Gas Gathering Agreement

During 1998, the Company entered into an agreement with KN Gas Gathering,
Inc. ("KNGG") to process NGLs on a month to month basis. During 1999, the
Company processed an average of 34,595 gallons per day of NGLs under the KNGG
contract compared to 22,400 gallons per day for 1998. The KNGG contract
accounted for 36.07% of the total NGLs processed at the Plant for 1999 compared
to 28.68% of the total NGLs processed for 1998. During the first two months of
the year 2000, the Company has processed an average of 57,275 gallons per day of
NGLs for KNGG. On February 28, 2000, due to a decrease in NGL prices, KNGG
informed the Company of its intentions to cease processing liquids at the
Company's plant starting in March 2000.

<PAGE>

Conoco Pipeline

The Conoco Pipeline, purchased by the Company from Conoco Pipeline Company
in January of 1995 is a 180 mile crude gathering and trunk pipeline with
associated pumping stations and storage tanks. The pipeline transports oil from
oil producing fields in Converse County, Wyoming to Conoco's Lance Creek Station
where it connects with an interstate crude oil pipeline system. The Company
receives revenues from operation of the Conoco Pipeline by charging a
transportation fee. The pipeline gathered and transported approximately 239,252
barrels of oil during 1999 compared to 242,387 during 1998.

Hat Creek Partnership

The Hat Creek Partnership, of which Interline Energy owns a 20.4%
interest, owned working interests in two oil and gas wells -- the Hat Creek #2,
and CH Federal wells -- and a 13 mile gathering line interconnected to the Well
Draw Gas Plant. Effective July 1, 1999, the Company sold its interests in the
Hat Creek #2 well for the sum of $2,040 to Dakota Oil LLC. Dakota Oil LLC is a
company formed and owned in part by Company insiders, to attempt a recompletion
of the Dakota producing zone in the Hat Creek #2 well, which if successful,
would have provided additional natural gas reserves to the Company's Well Draw
Gas Plant. Unfortunately, the recompletion was unsuccessful.

Oil Well Production

The Company owns working interests in four wells located in Converse
County, Wyoming. The Company is also the operator of these wells. During 1999,
the wells produced approximately 5,432 barrels of oil and 12,190 Mcf of natural
gas compared to approximately 6,343 barrels of oil and 14,708 Mcf of natural gas
for 1998.

NGL Trucking Operations

The Company entered the NGL transportation business to truck liquids for
Amoco Production Company. In the last five years, the Company has greatly
increased its transportation of NGLs and finished product in the Rocky Mountain
region. Four years ago, Interline had one truck and two drivers. Today,
Interline has seven trucks and eleven drivers. Collectively, these trucks
traveled 892,924 miles during year ended December 31, 1999, and carried a total
of 39 million gallons of raw and finished product. These trucks transport NGLs,
propane and butane and natural gasoline to and from the Well Draw Gas Plant. The
trucks travel as far away as Nebraska, Montana, Utah and Colorado.

<PAGE>

Interline Hydrocarbon - Used Oil Refining.

In January, 1993, the Company acquired certain patent rights to a used oil
reprocessing technology from Petroleum Systems Inc., ("PSI"). However, as a
result of substantial independent research and development of used oil
technologies and processes since 1993, the Company has been able to develop a
new process which does not utilize the PSI technology. As a result, on September
10, 1998 the Company reassigned to PSI all of the intellectual rights it
obtained from it under the assignment agreement. In making that re-assignment,
the Company assigned all rights it had to receive royalties from any plants
constructed by the Company which utilized PSI technology.

To date, the Company has constructed or licensed six used oil plants. Each
are discussed below.

Genesis Petroleum

On September 13, 1994, the Company entered into an exclusive license
agreement with Q Lube, Inc., a wholly owned subsidiary of Quaker State, for the
licensing and construction of used oil plants throughout North America.
Subsequently, the Company and a division of Quaker State formed Genesis
Petroleum, a joint venture to construct, own and operate the first U.S. based
plant in Salt Lake City. The Company was a 26% owner. Start up of the plant
commenced in February 1996. In June 1996, Genesis elected not to continue with
its exclusive license to the technology, and, under the terms of the agreement
between the Company and Genesis, the Company was obligated to repurchase Genesis
Petroleum's 74% interest in the Salt lake plant. The Company was unable to
perform that obligation. As part of the Company's Chapter 11 bankruptcy Plan of
Reorganization, on January 20, 1998 the United States Bankruptcy Court approved
a settlement agreement between the Company and Genesis Petroleum for this
obligation. The settlement agreement provided for, among other things: 1) the
litigation between them was terminated; 2) Interline paid Genesis the sum of
$750,000; 3) the Company granted Genesis a license to build and operate three
additional used oil refineries using the technology assigned to it by PSI
without the payment of any royalties or other payments to the Company; 4) the
Company transferred all of its rights in the joint venture and in the Salt Lake
Refinery to Genesis; and, 5) all previous agreements between the Company and
Genesis were terminated, 6) Genesis transferred to the Company 108,115 shares of
the Company's common stock owned by Genesis.

In July of 1998, Quaker State sold the Genesis Plant to a third party.
That third party did not operate the plant, and has subsequently disassembled
and removed it from its location.

<PAGE>

Interline U.K., Stoke-on-Trent, England

In February 1995, the Company formed Interline (UK) Limited, a joint
venture with Whelan Environmental Services, Ltd. of Birmingham, England, to
construct a refinery in Stoke, England. As part of the transaction, the Company
executed a licensing agreement with the joint venture giving it the right to
own, operate and practice the Interline used oil technology. The terms of the
joint venture provided the Company a 40% ownership interest, and under the
license agreement, the right to receive a 6 cent gross royalty per gallon of oil
processed. The refinery was completed in early 1996 and officially opened in
July 1996. The refinery, with a capacity to process 24,000 gallons of used oil
per day, is in current production. In April of 1997 the Company sold its 40%
interest in the joint venture to John Whelan for $500,000. Whelan is now the
sole owner of the used oil refinery in Stoke-on-Trent, and is authorized to use
the Interline technology under the original licensing agreement. As a result of
the realities of the pricing structure in England for used oil products, and the
higher than expected operating costs to operate the England plant, the 6 cent
royalty called for in the license agreement was reduced to 3 cents and is not
payable until the refinery is profitable. To date, the Company has not received
any royalty revenue from the English plant. Further, John Whelan had only paid
$200,000 of the purchase price. After attempted settlement negotiations broke
down, on November 19, 1998 the Company instituted a legal proceeding against him
in the High Court of Justice, Queens Bench Division, Bristol District Registry,
Bristol Mercantile Court.

In January of 2000, the Company was required to deposit approximately
$80,000 security bond with Bristol Mercantile Court. The Company was also faced
with spending $50,000 to litigate the case. Due to the Company's cash restraints
and in the best interest of the Shareholders, the Company elected not to proceed
with the case and the action against John Whelan was dismissed. The Company has
the option to re-file this claim against John Whelan for five years.

Dukeun Industrial Company - South Korea

In April 1995, the Company signed an agreement with Dukeun Industrial
Company, Ltd. of Seoul, South Korea, to build a 24,000 gallon per day used oil
refinery in Seoul. The refinery was constructed in 1996 by Gagon Mechanical and
installation and start up was completed in July of 1997. In April of 1997 the
Company signed a marketing agreement with Dukeun allowing them to be the only
company other than Interline to market the Company's technology in South Korea,
Japan and China. In exchange for the marketing rights, Dukeun paid the Company
$400,000. For every unit the Company sells through Dukeun's marketing efforts,
the Company will pay Dukeun a commission of approximately 10 percent of the
purchase price of the plant. The term of the marketing agreement is 10 years.
Additionally, an amendment to the original license

<PAGE>

agreement relieves Dukeun of its obligation to pay a royalty to the Company for
this first Dukeun Refinery built in Seoul. The Dukeun Plant is in current
operations, utilizing the first phase portion of the process to produce a
burning fuel.

Transpacific Industries - Australia
In September 1996, the Company signed an exclusive purchase agreement with
Transpacific Group of Companies granting them exclusive rights to the Technology
for all of Australia. Under the terms of the agreement, Transpacific purchased
from the Company a 24,000 gallon per day plant for $3.4 million. On July 16,
1997, Transpacific announced that it had formed a new Australian national used
oil collection, recycling and refining company called Nationwide Oil Pty. Ltd.
with Shell Australia Ltd., and Mobil Oil Australia Ltd. to own and operate the
plant.

The Company completed construction of the Nationwide plant in Sydney in
August of 1998 and the plant has been operating since that time. Per the
purchase agreement, upon completion of the plant the Company is entitled to
retention monies in the amount of $186,509 and ongoing royalties of 6 cents per
gallon. Since the inception of the startup of the Australian plant, the Company
has tried on many occasions to receive these outstanding sums and to resolve the
royalty issues with Transpacific. These negotiations have not been successful.
In February of 2000, the Company hired legal counsel in Australia to pursue
money due under the purchase agreement.

Gadgil Western Corporation

In December 1993, the Company signed an agreement with Gadgil Western
Corporation of New Delhi, India, for exclusive rights to the Company's
technology in 10 Middle Eastern and Far Eastern countries. In 1995, Gadgil
Western also purchased the exclusive rights to Bahrain and Singapore. Gadgil
Western intended to use the Company's technology to extract gasoline and diesel
from low-grade hydrocarbons.

The first refinery under the Gadgil Westerns exclusive agreement was built
in Dubai, United Arab Emirates and completed in June 1995. Western's market
approach was to process low-grade hydrocarbons into diesel and other burner
fuels, however, the economic spread prices between the feed produce and final
product failed to achieve economic viability. As a result, the plant was shut
down. Gadgil Western failed to fulfilled the terms of its exclusive license (as
reported in the 1995 and 1994 FORM 10- KSB) and is therefore in breach of the
agreements and the Company, and accordingly the agreements were terminated. The
Company has not received any royalties from Gadgil Western nor does it expect
to. To the Company's knowledge the plant still stands in Dubai, but does not
operate and creditor banks of Gadgil Western are seeking to sell the facility.

<PAGE>

Ecolube, S.A. - Madrid, Spain

On June 10, 1998 the Company signed an engineering and marketing agreement
with Ecolube, S.A., a subsidiary of Sener Engineering of Madrid, Spain. Under
the agreement, the Company provided Ecolube with engineering specifications and
construction drawings for the building of a 24,000 gallon per day waste oil
re-refinery in Madrid. Under the agreement, Interline receives a $534,000
engineering and licensing payment and running royalties of $0.0175 on each
gallon produced and sold for 10 years. Ecolube has the right to build additional
plants in the Iberian Peninsula (Spain and Portugal) for a four year period
commencing from the date of plant start up. The Ecolube Plant has now been
constructed, and is currently (March 24, 2000) being started up. Full
commissioning is expected to be complete during April 2000.

Customers and Markets

The Company does not refine the oil it produces from its oil and gas
operations, but does engage in natural gas liquids processing and fractionation.
The Company's production is sold to unaffiliated oil and gas purchasing
companies in the area where it is produced. Production is transported by trucks
and pipelines. Crude oil, condensate and natural gas liquids are sold under
short-term contracts at competitive prices based on postings by major purchasers
of similar products to whom area producers sell. Natural gas is sold to major
interstate natural gas pipeline companies generally under one year contracts.
The Company also sells some gas on a month to month spot pricing basis.

The availability of a ready market for oil, gas and natural gas liquids
owned or acquired by the Company depends on many factors beyond its control.
These factors include the extent of domestic production and imports of oil and
gas, the proximity and capacity of natural gas pipelines and other
transportation facilities, fluctuating demand for oil, gas and natural gas
liquids, the marketing of competitive fuels, and the effects of state and
federal regulation of oil and gas production and sales. Since the Company has
engaged in oil and gas activities, it has not had any material difficulties in
marketing its oil and gas products, and the Company believes this will be the
case in the future.

Used oil refining operations for both feedstock and finished products
depend on many factors, some of which include the availability of used oil at
reasonable prices and the finished product markets for base oil and/or diesel
and burner fuels. International customers and markets for used oil refining
operations differ depending on the location and political climate of each
country. Typical finished products from a used oil refinery include base lube
stock, industrial lube stock, diesel fuels, other burner fuels and an asphalt
modifier.

<PAGE>

The Company's main focus is to license and provide technical services to
companies worldwide that have used oil collection services and the ability to
market the finished products.

Governmental Regulation

Interline Energy Services activities are subject to existing federal and
state laws and regulations which are applicable to natural gas processing, gas
gathering and oil and gas production. In general, oil and gas production
operations and natural gas processing and their economics are affected by tax
and environmental impacts as well as other laws relating to the petroleum
industry. Crude gathering operations are regulated as a utility by the state of
Wyoming. Transportation of NGLs and finished products are regulated by the U.S.
Department of Transportation.

The following overview is intended to focus only on the regulations of
primary concern to the Company and is by no means complete with respect to
specific regulatory compliance issues. The following description of certain laws
and regulations are, therefore, qualified in their entirety by reference
thereto.

Environmental Regulation. The Company's activities are subject to various
federal and state laws and regulations which are applicable to all areas of
business. These laws and regulations cover the discharge of materials into the
environment, or otherwise relate to the protection of the environment. The
environmental regulations to which the Company is subject include: (1) exposure
to asbestos, regulated by the EPA and OSHA; (2) air quality control, regulated
by both the Federal government under the Federal Clean Air Act and the various
state Departments of Environmental Air Quality; (3) regulation of solid and
hazardous wastes regulated by the EPA under the Resource Conservation and
Recovery Act (RCRA) of 1976; (4) the Federal Clean Water Act which controls the
discharge of toxic discharges into surface streams; and (5) the regulation of
underground storage tanks and pits under the Subtitle I of the Resources
Conservation and Recovery Act.

The Company's activities are subject to all existing federal and state
laws and regulations governing environmental impacts, of which the above are
representative. Such laws and regulations may substantially increase operational
costs and may prevent or delay the commencement or continuation of a given
operation. The Company's management believes that its present operations comply
with applicable environmental legislation and regulations, and that the
existence of such regulations have had no material adverse effect on the
Company's operations to date. However, future compliance may entail significant
operating expenses over time. As with any industry that is subject to such
environmental risks, there exists potential liabilities for the Company.

<PAGE>

Transportation Regulation. Transportation of NGLs and associated finished
products are regulated by the U.S. Department of Transportation. Some of these
regulations include requirements of placards on trucks, in-depth maintenance and
record- keeping, insurance, driver training and safety.

State Regulation of Oil and Gas Production. In all areas where the Company
conducts activities there are statutory provisions regulating the production of
oil and natural gas. State statutes and regulations require permits for drilling
operations, drilling bonds and reports concerning operations. In addition, there
are state statutes, rules and regulations governing conservation matters,
including the utilization of pooling of oil and gas properties, establishment of
maximum rates of production from oil and gas wells and the spacing, plugging and
abandonment of such wells. Such provisions may limit the rate at which oil and
gas could otherwise be produced from the Company's properties including wells
owned by others connected to Company facilities and may restrict the number of
wells that may be drilled on a particular lease or in a particular field.

Operating Hazards and Uninsured Risks

The Company's operations are subject to the risks normally incident to the
operation of natural gas processing plants, gathering systems, and oil and gas
production. Those risks include fires, explosions, pipeline ruptures, pollution
and hazardous material releases, equipment malfunction and breakdowns, and
operations errors and omissions, any of which could result in damage to or
destruction of Company facilities or a suspension of operations or damage to
persons or property. Although the Company carries insurance coverage which
management believes to be adequate and comparable to that carried by other
companies in the same business, the Company is not fully insured against certain
of these risks, either because insurance is unavailable, because management
elects not to insure due to high premium costs, or because the insurance is not
necessary in the judgment of management. The occurrence of an event not fully
insured against could have a material adverse effect on the Company's financial
position.

Employees

At March 22, 2000, the Company and its subsidiaries employed 21 full-time
employees and 1 part-time employee, compared to 24 full-time employees and 1
part-time employee as of March 17, 1999. During 1999, the Company reduced one
manager and two operations positions. From time to time, the Company utilizes
the services of consulting geologists, engineers and land men as well as various
laborers, operators, truck drivers, tradesmen and mechanics.

<PAGE>

ITEM 2. PROPERTIES

The Company's executive, administrative and accounting offices are located
at 160 West Canyon Crest Rd., Alpine, Utah 84004. This facility consists of
approximately 11,659 square feet of office space on about 1.5 acres of land that
is owned by the Company. Interline Hydrocarbon and Interline Energy Services
also lease an office at 3211 Energy Lane, Suite 105, Casper, Wyoming 82602.

Interline Energy Services Well Draw Gas Plant is located 17 miles from
Douglas, Wyoming. The Plant facilities consist of 17.85 acres of property, gas
chillers, gas-to-gas exchangers, storage tanks, four steel buildings enclosing
the equipment, compressors, de- ethanizer columns, fractionating columns, truck
weighing scales and scale house and other assets. The gathering system consists
of approximately 251 miles of high and low pressure pipelines and the associated
chart recorders and wellhead connection meter runs.

The Hat Creek Partnership, of which Interline Energy Services owns 20.4%,
owns working interests in one oil and gas well and a 13 mile gathering line
interconnected to the Well Draw Gas Plant, all located in Niobrara County,
Wyoming.

Interline Energy Services owns working interests in 4 wells. The physical
assets of each well consist of casing and tubing, pump jacks and drivers,
product storage tanks, separators and other associated wellhead facilities.

On January 1, 1995, Interline Energy Services acquired a crude oil
gathering pipeline located in Converse and Niobrara counties of Wyoming from
Conoco Pipeline Company. This system consists of approximately 180 miles of 3,
4, and 6 inch gathering and trunk lines, five pump stations with a total of
approximately 50,000 barrels of storage, various pumps for wellhead and mainline
movement of crude oil, a three acre site with mainline pumps and several small
spare parts storage structures.

In connection with its NGL trucking activities, Interline Energy Services
has seven tractors and eight trailers. Interline also leases (month to month)
two trailers from an outside party.

ITEM 3. LEGAL PROCEEDINGS

Bankruptcy Proceedings

On September 26, 1997, the Company filed a Petition for Reorganization
under Chapter 11 (the "Petition") of the United States Bankruptcy Code. The
Company continued its operations as a debtor-in-possession under the Bankruptcy
Code. The Company's subsidiaries did not join the Company in the Petition and
were not directly involved in the Bankruptcy Reorganization Proceeding.

<PAGE>

On June 18, 1998, the Company filed a Plan of Reorganization and
Disclosure Statement to the Plan of Reorganization with the United States
Bankruptcy Court for the District of Utah, Central Division. On July 14, 1998,
the Company's Plan of Reorganization and Disclosure Statement to the Plan of
Reorganization was approved and circulation thereof authorized by the United
States Bankruptcy Court for the District of Utah, Central Division.

On September 10, 1998, the plan of reorganization under Chapter 11 of
Interline Resources Corporation was confirmed by the United States Bankruptcy
Court for the District of Utah. As a result, restraints on the activities of
Interline imposed by the Bankruptcy code have been removed. Interline reached
agreement with its major creditor during the Chapter 11 case and the terms of
the agreement were incorporated in the plan.
All other creditors will be paid in full under the plan.

Petroleum Systems Inc

The Company has executed license agreements with licensees to utilize
Interlines used oil technology which includes technology received from Petroleum
System, Inc. ("PSI") through an assignment agreement of certain patent rights
(PSI technology). Under the assignment agreement the Company is obligated to pay
royalties to PSI for those Interline plants using PSI technology.

On March 26, 1998, PSI filed claim against the Company in the bankruptcy
proceeding seeking royalties of $420,000, asserting breaches of the assignment
agreement and requesting the return of a prototype production device ("Baby M")
held by the Company. The Company filed an objection to the claim, and a trial of
the claims was held on June 5 and 8, 1998. After hearing testimony of witnesses,
receiving exhibits and hearing arguments of counsel, the court entered an order
denying PSIs claim for $420,000, ordering that the Company return Baby M to PSI
and denying all other claims brought by PSI. The Company has returned Baby M to
PSI.

On May 29, 1998, PSI filed a motion for relief from the automatic stay in
the bankruptcy court seeking the right to proceed with its State Court Action
against the Company and the Company's subsidiary Interline Hydrocarbons. After
argument and hearing, the bankruptcy court requested counsel for PSI to prepare
an order granting relief from the automatic stay. The Company objected to the
proposed order granting relief from the automatic stay and a hearing was set
before the court on August 13, 1998. After argument, the Court entered its order
granting relief from the automatic stay, but limited PSI cause of action against
the Company by prohibiting any money damage to be assessed against the Company.

<PAGE>

On September 10, 1998, on its own initiative, the Third District Court
scheduled an Order to Show Cause for on October 15, 1998. Its purpose was to
advise the court as to the progress of the action. The hearing was held on
October 15, 1998 and the court entered an order that the case be certified ready
for trail within 90 days - January 13, 1999. PSI was to amend or otherwise file
a new complaint against the Company. PSI took no steps to proceed on its
complaint against the Company and on January 9, 1999 the Company filed a motion
to dismiss the PSI claim. On January 27, 1999 the court granted the motion, and
extend its order dismissing the lawsuit.

Interline U.K.

<PAGE>

Transpacific Industries - Australia

In September 1996, the Company signed an exclusive purchase agreement with
Transpacific Group of Companies granting them exclusive rights to the Technology
for all of Australia. Under the terms of the agreement, Transpacific purchased
from the Company a 24,000 gallon per day plant for $3.4 million.

The plant was completed and has been operating since August of 1998. Per
the purchase agreement, upon completion of the plant the Company is entitled to
retention monies in the amount of $186,509 and ongoing royalties of 6 cents per
gallon. Since the inception of the startup of the Australian plant, the Company
has tried on many occasions to receive these outstanding sums and to resolve the
royalty issues with Transpacific. These negotiations have not been successful.
In February of 2000, the Company hired legal counsel in Australia to pursue
money due under the purchase agreement.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS
None

PART II

ITEM 5. MARKET PRICE OF AND DIVIDENDS ON THE COMPANY'S
COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Market for Common Stock

Prior to July 30, 1997 the Company's common stock was listed on the
American Stock Exchange Emerging Company Market Place under the symbol "IRC.EC"
Prior to July, 1994, the Company's common stock was quoted on the NASDAQ Small
Cap Market. On July 30, 1997 AMEX halted trading of the Company's common stock
as a result of the announcement of the filing of a petition for involuntary
bankruptcy. The Company determined not to appeal the decision. Currently, the
Company's common stock is listed in the over-the-counter market with price
quotations published on the NASD Electronic Bulletin Board under the symbol IRCE

The information contained in the following table was obtained from
information obtained by a licensed stock broker and shows the range of
representative prices for the Company's common stock for the periods indicated.
The prices represent quotations between dealers and do not include retail
mark-up, mark-down or commission, and do not necessarily represent actual
transactions.

<PAGE>

High Low
----- ----
1998
-----

First Quarter $0.35 $0.21
Second Quarter $0.35 $0.13
Third Quarter $0.27 $0.10
Fourth Quarter $0.18 $0.06

1999
----

First Quarter $0.11 $0.05
Second Quarter $0.35 $0.04
Third Quarter $0.32 $0.06
Fourth Quarter $0.22 $0.05

2000
-----

First Quarter $0.44 $0.06

(Through March 25, 2000)

Record Holders of Common Stock

The number of record holders of the Registrants common stock as of March
20 2000, is 387.

Dividends

The Company has not paid any cash dividends to date and does not
anticipate or contemplate paying dividends in the foreseeable future. It is the
present intention of management to utilize all available funds for the
development of the Company's business.

ITEM 6. MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

General

Interline Energy Service - Oil and Gas Operations

<PAGE>

The Company has been engaged in the oil and gas industry since 1990. These
operations primarily involve natural gas gathering and processing, crude oil
gathering, fractionation and marketing of natural gas liquids, and nominal oil
and gas production

At the Well Draw Gas Plant ("Well Draw") the Company buys mixed liquids
from several different plants, transports them to Well Draw, fractionates the
liquids into commercial propane, butane, and natural gasoline, and re-markets
these products for its own account. The Company enters into agreements for
fractionation of liquids from others on a fee basis, including the Amoco
contract and others. The plant processed and fractionated a total of 95,900
gallons a day of natural gas liquids for the year ended December 31, 1999
compared to 78,100 gallons a day for the year ended December 31, 1998. Of the
total gallons fractionated and processed, 8,734 gallons per day was for the
Company and 87,166 gallons per day for others, as compared to 9,900 and 50,359
gallons per day respectively in 1998. In 1999, the Company processed an average
of 45,800 gallons a day of NGLs for Amoco and an average of 34,595 gallons per
day of NGLs for KNGG.

The Company's natural gas liquids transportation operation transported
approximately 39 million gallons of raw and finished products during the year
ended December 31, 1999. The Company operates seven tractor-trailer-pup
combination units to move unprocessed natural gas liquids to Well Draw for
fractionation, and takes propane, butane, and natural gasoline from Well Draw to
various refiners, chemical plants, and end-users. When time permits, these
trucks also move liquids on a common carrier basis for third parties. The
Company intends to continue to emphasize this profitable business segment, and
believes that our reputation for flexibility and customer service will allow us
to maximize opportunities.

Oil and natural gas production from the Company's wells in Wyoming
continue to be a small but profitable segment of operations. During 1999 oil and
gas prices have increased significantly compared to prices during 1998, and the
Company intends to continue producing these wells.

Management has put strict restraints on all capital expenditures
with the exception of any necessary expenditures to maintain current operations.
Management is unaware of any significant future capital expenditures except for
the upgrade and overhaul of its compressor located at the Well Draw Gas Plant.
The total cost of this addition will be approximately $80,000. However, the very
nature of equipment operation, ware and tear and replacement in this type of
operation can be significant. Further, it is noted that most of the revenues
earned by the Well Draw Plant are derived from the Amoco contract which will
expire in June 1, 2001 unless the Company does not receive written notice of
termination from Amoco. If this contract is not renewed, it will have a
substantial impact on the ability of the Well Draw plant to continue operations.

<PAGE>

Management continues to seek other liquids and gas connections to expand and
diversify its operations in Wyoming, however, its operations are in a limited
and well defined area and expansion is difficult.

Interline Hydrocarbon - Used Oil Refining

Revenues to the Company, from its used oil refining technology can come
from five sources: 1) profits made from constructing a used oil plant, 2)
granting exclusive territories to licensee, 3) receiving royalties based on
either production or a flat yearly licensing fee, 4) taking partnership
interests in operating Plants by either contributing the technology and/or
making cash contributions for partnership interests and, 5) rather than build
plants, sell the construction plans and provide consultation and expertise so
that the customer can build the Plant.

Based on the experiences with the six Plants that have been built by the
Company, managements current feelings are to not be in the construction
business. Further, until the Company gets into better financial condition, it is
not in a position to take interests in operating Plants. Management believes
that the best way to capitalize on the technology is to sell the construction
plans for a Plant and provide consultation services to the purchaser.

It has also become evident to management that demanding royalties based on
production in many situations and countries is difficult. Unless and until the
rerefined oil produced in a Plant can be sold at higher values based on pricing
similar to base lubricating oils, on-going royalties based on production is
difficult to obtain. The most viable opportunities management has discovered are
in countries that have governmental concessions resulting in economic incentives
for collecting and processing used oil. This reality has been seen in both
Korea, where the royalty was terminated for the first plant, and England where,
as described in previous filings, the royalties were reduced and not payable
until profitable.

Management still believes that there exists economic justification and
interest in the technology. The Company continues to improve the technology, and
on May 28, 1998 filed a patent application in the United States Patent Office
for a new and alternative method from the PSI technology for processing used
oil. This new technology has been implemented in the Korean, Australian and
Spanish Plants. While management continues to receive inquiries about the
technology, the Company is selective as to potential purchasers. From
experience, management is aware of the complicated nature between the balance of
supply and demand. Management has become much more selective in its
consideration of selling the technology to prospective purchasers and unless
favorable conditions exist the Company discourages the purchaser. Management

<PAGE>

has become much more active in helping potential customers evaluate their
end-product sales markets.

Results of Operations

The following analysis of the financial condition and results of
operations should be read in conjunction with the Financial Statements and Notes
thereto, included elsewhere in this report.

Total Revenues

Revenues increased $362,006 or 10.24%, to $3,898,803 for the year ended
December 31, 1999 as compared to $3,536,797 for the year ended December 31,
1998. The revenue increase included a $757,322 or 24.67%, increase in oil and
gas revenues; a $365,368, or 84.31% decrease in used oil refining revenues and a
$29,948 decrease in other revenues. The Company's total revenues, on a segment
basis, for the year ended December 31, 1999 and 1998 were as follows:

Revenues For Year December 31, 1999 and 1998
--------------------------------------------

1999 % 1998 %
-------------------------------------------------------

Oil and Gas $3,826,723 98.15% $3,069,401 86.78%

Used Oil refining 68,000 1.74% 433,368 12.25%

Other 4,080 .11% 34,028 .97%

Total Revenue $3,898,803 100% $3,536,797 100%

------------------------------------------------------

Oil and Gas Revenues

Oil and gas revenues contributed approximately 98.15% of total revenues
for the year ended December 31, 1999, as compared to approximately 86.78% for
the year ended December 31, 1998. Revenues increased $757,322 or 24.67% to
$3,826,723 for the year ended December 31, 1999 as compared to $3,069,401 for
the year ended December 31, 1998.

During the year ended December 31, 1999 revenues increased $757,322, or
24.67%. This revenue increase was mainly attributed to a $389,880, or 44.63%
increase

<PAGE>

in liquids (NGLs) sold to the local market under the account of the Company, a
$278,860, or 40.01% increase in fractionation fees and an increase of $87,095,
or 7.39% in transportation fees.

The increase in liquids (NGLs) sold to the local market was mainly
attributed to an increase of 63.93% in liquid prices for the year ended December
31, 1999 compared to December 31, 1998. The increase in fractionation fees and
transportation fees was mainly attributed to an increase in liquids (NGLs)
processed for others at the Well Draw Gas Plant. During the year ended December
31, 1999 the Company processed for others, an average of 87,166 gallons per day
of NGLs compared to 68,200 gallons a day for the year ended December 31, 1998.

The Company's Oil & Gas Operations revenues for the year ended December
31, 1999 and 1998 were as follows:

Oil & Gas Operations Revenue For Year Ended December 31, 1999 and 1998

1999 % 1998 %
- -------------------------------------------------------------------------------
Liquids (NGL) Sold $1,263,438 33.02% $873,558 28.46%
Fractionation Fees 975,882 25.50% 697,022 22.71%
Transportation Fees 1,265,039 33.06% 1,177,944 38.38%
Crude Tariff Fees 177,604 4.64% 182,439 5.94%
Crude Oil Sold 84,004 2.20% 80,981 2.64%
Residue Gas Sold 38,376 1.00% 31,464 1.03%
Other 22,380 0.58% 25,993 .84%

- ------------------------------------------------------------------------------
Total Revenue $3,826,723 100% $3,069,401 100%
==============================================================================

Used Oil Refining Revenues

Since it commenced operations in the used oil refining business, the
Company has primarily derived revenues attributed to fees for engineering, plant
design, license, exclusively or other services associated with the Company's
used oil refining technology. The revenue attributed to the used oil refining
business varies significantly from quarter to quarter reflecting the status of
the Company's fees and plant design services.

<PAGE>

Used oil refining revenues contributed 1.74% of total revenues for the
year ended December 31, 1999 compared to 12.25% for the year ended December 31,
1998. The revenues decreased of $365,368, or 84.31%, to $68,000 for the year
ended December 31, 1999 compared to $433,368 for the year ended December 31,
1998. The $433,368 revenue for year ended December 31, 1998 was mainly derived
of $83,368 which was associated with the Australian refinery and $350,000 for
the engineering and licensing agreement with Ecolube, S.A., a subsidiary of
Sener Engineering of Madrid, Spain. Under the Ecolube agreement, the Company
will receive a total engineering and licensing payment of $534,000. During 1999,
the Company recorded revenues of $68,000 from relating to the Ecolube agreement.
The Company received no revenue for royalties for it used oil technology during
year ended December 31, 1998 and 1999.

Direct Costs

Direct costs increased $18,440 or .80%, to $2,334,348 for the year ended
December 31, 1999 compared to $2,315,908 for the year ended December 31, 1998.
As a percent of revenues, direct costs decreased 5.61%, to 59.87% for the year
ended December 31, 1999 compared to 65.48% for the year ended December 31, 1998.

This decrease of 5.61%, as a percent of revenues is mainly attributed the
oil and gas segment. As a percent of revenues, direct cost in the oil and gas
segment decrease 10.17%, to 59.03% for the year ended December 31, 1999 compared
to 69.20% for the year ended December 31, 1998. Many of the direct costs as they
relate to the oil and gas segment are considered partly fixed and do not change
in proportion to increases in revenue. Because of these partially fixed direct
costs, when revenues increase, direct costs as a percent of revenue have a
tendency to decrease.

Selling, General and Administrative

Selling, general and administrative expenses consist principally of
salaries and benefits, travel expenses, insurance, legal and accounting, outside
contract services, information and technical services and administrative
personnel of the Company.

Selling, general and administrative expenses decreased $153,262, or
13.42%, to $988,992 for the year ended December 31, 1999 compared to $1,142,254
for the year December 31, 1998. As a percent of revenues, selling, general and
administrative expenses were 25.37% for the year ended December 31, 1999
compared to 32.30% for the year ended December 31, 1998.

The decrease of $153,262, or 13.42%, in selling, general and
administrative expenses were mainly attributed to decreases in legal and
accounting, outside contract service and travel. The Company reduced outside
legal and accounting fees by $74,583,

<PAGE>

to $89,695 for the year ended December 31, 1999 compared to $164,278 for the
year ended December 31, 1998. These legal costs were mainly attributed to the
Company's legal proceedings, patent protection and bankruptcy filing. The
Company also reduced outside contract services by $34,615 and travel expense by
$23,826.

Depreciation and Amortization

Depreciation and amortization expenses increased $59,178 or 9.04% to
$713,881 for the year ended December 31, 1999 compared to $654,703 for the year
ended December 31, 1998. As a percent of revenues, depreciation and amortization
expenses increased to 18.31% for the year ended December 31, 1999 compared to
18.51% for the year ended December 31, 1998.

Research and Development

Research and development expenses were mainly attributable to the
development and enhancement of the Company's used oil refining technology. The
Company will continue to incur research and development expenses as it continues
to develop its used oil refining technology.

Research and development expenses decreased $8,733, or 12.25%, to $62,563
for the year ended December 31, 1999 compared to $71,296 for the year ended
December 31, 1998. As a percent of revenues, research and development expenses
increased to 1.60% for the year ended December 31, 1999 compared to 2.02% for
the year ended December 31, 1998.

(Loss) from operations

Loss from operations decreased $446,383, or 68.95%, to $200,981 for the
year ended December 31, 1999 compared to a $647,364 loss for the year ended
December 31, 1998. The $446,383 decrease in loss from operations was mainly
attributed to an increase in gross margin of $343,566 from the Company's focus
on increasing margins on liquid contracts and increasing revenues in its oil and
gas segment. Also the Company's selling, general and administrative expenses
decreased by $153,262, or 13.42%, and research and development expenses decrease
by $8,733, or 12.25%. These decreases were attributed to the plan implemented by
management (1997-1998) to increase cash flow and reduce expenses.

Other income (expenses)

Net interest income (expense) increased $34,852, or 147.50%, to $58,480
for the year ended December 31, 1999 compared to $23,628 for the year end
December 31,

<PAGE>

1998. The net increase was mainly attributed to a decrease in interest earned
during 1999 on the Company's money market and interest bearing accounts due to
less cash and cash equivalents.

Interest expense to a related party increased $147,062 or 124.68%, to
$265,006 for the year ended December 31, 1999 compared to $117,944 for the year
ended December 31, 1998. This $147,062 increase in interest expense to a related
party was attributed to the Company new note agreement. As part of the plan of
reorganization under Chapter 11 the Company executed a new note agreement for
$3,600,000. Under the new note agreement the Company is required to pay interest
rate of 7%.

Income (Loss) from discontinued operations

As disclosed in previous SEC filings, during 1997 the Company discontinued
the operations of the Utah Oil and Gas Operations (May 1997), Gagon Mechanical
(May 1997) and the Salt Lake Refinery (September 1997). Refer to the Company's
previous SEC filings for full explanation.

Loss from discontinued operations is $-0- for the year ended December 31,
1999 compared to a loss of $8,643 for the year ended December 31, 1998. The
Company's total income (loss) from discontinued operations, on a segment basis,
for the year ended December 31, 1999 and 1998 were as follows:

Income (Loss) From Discontinued Operations
For The Year Ended December 31, 1999 and 1998
----------------------------------------------------

1999 1998 Change
-------------------------------------

Utah Oil and Gas $0 $0 $0
Gagon Mechanical 0 -8,643 -8,643
Genesis Refinery 0 0 0
- --------------------------------------------------------------------

Total $0 -$8,643 -$8,643
- --------------------------------------------------------------------

Liquidity and Capital Resources

Sources of liquidity for the Company are revenues from oil and gas
operations and revenues from the sale of its hydrocarbon refining technology.
Currently, the only

<PAGE>

consistent ongoing revenue sources to the Company are from its oil and gas
operations in Wyoming. The Company receives revenues from its used oil refining
technology when a sale or license is executed. On-going royalty fees will be
received only from the Australia Plant, and the Spanish Plant, when constructed
and operational. While the Company continues to work with potential purchasers
of its technology, such sales and expected revenues are uncertain and
unpredictable.

On September 9, 1998, the plan of reorganization under Chapter 11 was
confirmed by the United States Bankruptcy Court for the District of Utah. The
Company reached an agreement with its major creditor during the Chapter 11 case
and the terms of the agreement were incorporated in the plan. The terms of the
agreement included a new trust deed note dated September 22, 1998 for
$3,600,000, together with interest at the rate of 7% per annum on the unpaid
principal. The Company is obligated to make quarterly payments of all accrued
interest beginning on December 22, 1998 and continuing until September 22, 2002.
The Company is also obligated to make principal payments of $750,000 on
September 22, 1999 (the Company did not make this installment - see below);
$1,000,000 on September 22, 2000; $1,000,000 on September 22, 2001 and $850,000
on September 22, 2002. The note is secured by Trust Deeds securing a security
interest in the Company's Alpine Office located in Alpine, Utah and a security
interest in all assets of Interline Energy Service, Inc. The Company executed a
new Pledge Agreement with this major creditor pledging stock of all subsidiaries
of the Company.

In August of 1999, the Company received $4,080 for its interest in the Hat
Creek #2 well. Under the pledge agreement with this major creditor, all proceeds
from the sell of Company assets will go to pay down the principal portion of the
note. After applying the proceeds from this sell the note was reduced to
$3,595,920.

At the time the plan was confirmed, management believed the Company's cash
from the oil and gas operating activities, cash received from the sale of its
hydrocarbon refining technology and cash retained under the reorganization plan
would be adequate to meet its operating needs in the near term and would provide
a plan to meet debt obligations. Certain assumptions where made in the plan of
reorganization that the Company would receive cash from the marketing of its
hydrocarbon refining technology. Since September 10, 1998 when the Bankruptcy
Plan was confirmed, the Company has received $68,000 cash from the marketing of
it refining technology.

<PAGE>

default occurs in the payment of installments of principal or interest, the
holder hereof, at its option and without notice or demand, may declare the
entire principle balance and accrued interest due and payable. Also if default
occurs any installments not paid when due shall bear interest thereafter at the
rate of fourteen percent (14%) per annum until paid. The note is secured by
Trust Deeds securing a security interest in the Company's Alpine Office located
in Alpine, Utah and a security interest in all assets of Interline Energy
Service, Inc. The Company executed a pledge agreement with this major creditor
pledging stock of all subsidiaries of the Company. Per the trust deed note and
pledge agreement, upon default, the major creditor can exercise his rights and
sell or demand the Company to sell the collateral or any part of the collateral
to cure the installment in default ($750,000) or the total ($3,595,920) due
under the note. As of March 22, 2000, the Company is current on all interest
payments.

In an effort to cure the default status with its major creditor, the
Company is seeking to sell its Alpine Office Building located in Utah. Also the
Company is trying to raise cash from the marketing of it refining technology or
raise additional financing through the sale of equity, sale of debt or assets.
If the Company is unable to raise additional cash it may be forced to cease
operations and liquidate the assets of the Company.

Management has put strict restraints on all capital expenditures with the
exception of any necessary expenditures to maintain current operations. The
Company will continue to incur research and development costs as it continues to
develop its refining technology. At present, these activities are being
performed by current Company employees and part time contract consultants.

The Company's net cash used by continuing operations was $259,882 for the
year ended December 31, 1999 compared to net cash used by continuing operations
of $875,424 for the year ended December 31, 1998. Of the $875,424 cash used in
continuing operations for the year ended December 31, 1998, $750,000 was
attributed to an one time payment to Genesis Petroleum, Inc. to settle all
claims with Genesis Petroleum (refer to the Company's December 31, 1998 Form
10-KSB under "Legal Proceeding"). Without the one time payment to Genesis
Petroleum, Inc., cash used in continuing operations for the year ended December
31, 1998 was $125,424. The $134,458 increase in cash used by continuing
operations (exclusive of the $750,000 payment to Genesis Petroleum, Inc.) was
mainly attributed to an increase of $251,360 in accounts receivable and a
$176,155 decrease in accounts payable.

Inflation

The Company's business and operations have not been materially affected by
inflation during the past three years and the current calendar quarter. The
Company

<PAGE>

believes that inflation will not materially nor adversely impact its business
plans for the future.

ITEM 7. FINANCIAL STATEMENTS

All schedules are omitted because they are not applicable or the required
information is shown in the financial statements or notes thereto.

<PAGE>

INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Stockholders of
Interline Resources Corporation

We have audited the accompanying consolidated balance sheet of Interline
Resources Corporation as of December 31, 1999, and the related consolidated
statements of operations, stockholders' equity and cash flows for the years
ended December 31, 1999 and 1998. 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 Interline
Resources Corporation as of December 31, 1999, and the results of their
operations and their cash flows for the years ended December 31, 1999 and 1998,
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 2, the Company
has had significant operating losses and has a deficit in working capital. In
addition, from September 26, 1997 to September 10, 1998 the Company petitioned
for relief under Chapter 11 of the U.S. Bankruptcy Code. These issues 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 2. The accompanying
financial statements do not include any adjustment that might result from the
outcome of this uncertainty.

TANNER + CO.

Salt Lake City, Utah
January 20, 2000

<PAGE>

INTERLINE RESOURCES CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheet

December 31, 1999
- ------------------------------------------------------------------------------

Assets

Current assets:
Cash and cash equivalents $ 255,735
Accounts receivable 521,080
Inventories 40,772
Note receivable 77,500
Other current assets 16,628
------------

Total current assets 911,715
------------

Property and equipment, net 3,676,385
Technology and marketing rights, net 569,285
------------

Total assets $ 5,157,385
============

- ------------------------------------------------------------------------

Liabilities and Stockholders' Equity

Current liabilities:
Accounts payable $ 191,012
Accrued liabilities 39,468
Current portion of long-term debt 3,742,310
------------

Total current liabilities 3,972,790
------------

Long-term debt 647,616
------------

Total liabilities 4,620,406
------------

Commitments and contingencies -

Stockholders' equity:
Preferred stock - $.01 par value, 25,000,000 shares
authorized, no shares issued and outstanding -
Common stock - $.005 par value, 100,000,000 shares
authorized; 14,066,052 shares issued and outstanding 70,330
Additional paid-in capital 9,209,058
Accumulated deficit (8,742,409)
------------

Total stockholders' equity 536,979
------------

Total liabilities and stockholders' equity $ 5,157,385
============

- ------------------------------------------------------------------------------

See accompanying notes to consolidated financial statements.
27

<PAGE>

INTERLINE RESOURCES CORPORATION AND SUBSIDIARIES
Consolidated Statement of Operations

Years Ended December 31,
- ------------------------------------------------------------------------------

1999 1998
------------------------

Revenue $ 3,898,803 $ 3,536,797
Direct costs 2,334,348 2,315,908
------------------------

Gross margin 1,564,455 1,220,889
------------------------

Operating expenses:
Selling, general and administrative expenses 988,992 1,142,254
Depreciation, depletion and amortization 713,881 654,703
Research and development 62,563 71,296
------------------------

Total operating expenses 1,765,436 1,868,253
------------------------

Loss from operations (200,981) (647,364)

Other income (expense):
Interest expense, net (58,480) (23,628)
Interest expense, related party (265,006) (117,944)
Gain (loss) on sale of assets 18,908 (2,088)
------------------------

Loss before benefit for income taxes
and discontinued operations (505,559) (791,024)

Benefit for income taxes - -

Loss from discontinued operations - (8,643)
------------------------

Net loss $ (505,559) $ (799,667)
========================

Loss per common share - basic and diluted $ (.04) $ (.06)
========================

Weighted average shares - basic and diluted 14,066,052 14,065,800
========================

- ------------------------------------------------------------------------------

See accompanying notes to consolidated financial statements.
28

<PAGE>

INTERLINE RESOURCES CORPORATION AND SUBSIDIARIES
Consolidated Statement of Stockholders' Equity

Years Ended December 31, 1999 and 1998
- ------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Additional
Preferred Stock Common Stock Paid-In Accumulated
Shares Amount Shares Amount Capital Deficit Total
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>

Balance,
January 1, 1998 - $ - 13,974,167 $69,871 $9,185,517 $(7,437,183) $1,818,205

Shares issued for
services - - 100,000 500 23,500 - 24,000

Shares received and
retired in settlement of
litigation - - (8,115) (41) 41 - -

Net loss - - - - - (799,667) (799,667)
-----------------------------------------------------------------------------

Balance,
December 31, 1998 - - 14,066,052 70,330 9,209,058 (8,236,850) 1,042,538

Net loss - - - - - (505,559) (505,559)
-----------------------------------------------------------------------------

Balance,
December 31, 1999 - $ - 14,066,052 $ 70,330 $9,209,058 $(8,742,409) $536,979
=============================================================================

</TABLE>

See accompanying notes to consolidated financial statements.
29

<PAGE>

INTERLINE RESOURCES CORPORATION AND SUBSIDIARIES
Consolidated Statement of Cash Flows

Years Ended December 31,
- ------------------------------------------------------------------------------

1999 1998
------------------------
Cash flows from operating activities:
Net loss $ (505,559) $ (799,667)
Adjustment to reconcile net loss to net cash
used in operating activities:
Depreciation, depletion and amortization 713,881 654,703
Impairment loss 145,000 -
(Gain) loss on sale of assets (18,908) 2,088
Common stock issued for services - 24,000
Forgiveness of debt 17,458 (20,000)
(Increase) decrease in:
Accounts receivable (251,360) 34,370
Inventories 14,453 (31,056)
Other current assets 3,867 813
Increase (decrease) in:
Accounts payable (176,155) 68,231
Accrued liabilities (150,507) (799,971)
Deferred revenue (52,052) (9,041)
------------------------

Net cash used in continuing operations (259,882) (875,424)

Net cash provided by discontinued - 683,853
operations ------------------------

Net cash used in
operating activities (259,882) (191,571)
------------------------

Cash flows from investing activities:
Proceeds from sale of assets 47,071 4,700
Decrease in note receivable 14,763 19,058
Purchase of property, plant and equipment (158,937) (88,935)
------------------------

Net cash used in
investing activities (97,103) (65,177)
------------------------

Cash flows from financing activities-
payments on long-term debt (149,739) (133,992)
------------------------

Net decrease in cash (506,724) (390,740)

Cash, beginning of year 762,459 1,153,199
------------------------

Cash, end of year $ 255,735 $ 762,459
========================

- ------------------------------------------------------------------------------

See accompanying notes to consolidated financial statements.
30

<PAGE>

INTERLINE RESOURCES CORPORATION AND SUBSIDIARIES
Consolidated Statement of Cash Flows
Continued

- ------------------------------------------------------------------------------

Supplemental Disclosure of Cash Flow Information
1999 1998
------------------------
Actual cash amounts paid for:

Interest $ 332,885 $ 181,019
========================

Income taxes $ - $ -
========================

Supplemental Schedule of Non-Cash Investing and Financing Activities

During the year ended December 31, 1999, property and equipment with an
aggregate value of $160,080 was purchased with debt.

During the year ended December 31, 1998, property and equipment with an
aggregate value of $77,400 was purchased with debt. In addition, as part of the
bankruptcy proceedings $925,911 of accrued interest was included as part of
long-term debt.

- ------------------------------------------------------------------------------

See accompanying notes to consolidated financial statements.
31

<PAGE>

INTERLINE RESOURCES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements

December 31, 1999 and 1998
- ------------------------------------------------------------------------------

1. Summary of Significant Accounting Policies

Principles of Consolidation
The consolidated financial statements include the financial statements of
Interline Resources Corporation, Inc. (the Company) and its subsidiaries
Interline Hydrocarbons, Inc., Interline Energy Services, Inc., NRG Fuels, Inc.,
and Interline Crude Gathering Company. All significant intercompany transactions
and balances have been eliminated in consolidation.

Business Activity
The Company's principal segments of operation consist of the following
industries:

Oil and Gas
The Company's operations involve natural gas gathering and processing, crude
oil gathering, fractionation, marketing of natural gas liquids, and oil and
gas production. The gas is processed and fractionated into its constituent
natural gas liquid products and remaining residue gas. Residue gas is sold
into a major interstate pipeline and the natural gas liquid products are sold
to both end users and other major refineries for further refinement.

Used Oil Technology
The Company has technology which refines various types of used oils,
producing a usable product. The Company's marketing efforts extend to a
worldwide market. Revenues are generated through consultation regarding the
process and royalties on the technology.

Concentration of Credit Risk
Financial instruments which potentially subject the Company to concentration of
credit risk consist primarily of accounts receivable. In the normal course of
business, the Company provides credit terms to its customers. Accordingly, the
Company performs ongoing credit evaluations of its customers and maintains
allowances for possible losses which, when realized, have been within the range
of management's expectations.

The Company maintains its cash in bank deposit accounts which, at times, may
exceed federally insured limits. The Company has not experienced any losses in
such accounts and believes it is not exposed to any significant credit risk on
cash and cash equivalents.

- ------------------------------------------------------------------------------

<PAGE>

Notes to Consolidated Financial Statements
Continued

- ------------------------------------------------------------------------------

1. Summary of Significant Accounting Policies
Continued

Oil and Gas Accounting
The Company uses the "successful efforts" method to account for oil and gas
operations. The use of this method results in the capitalization of costs
related to acquisition, exploration, and development of revenue producing oil
and gas properties. The costs of unsuccessful exploration efforts are expensed
in the period in which they are determined unrecoverable by future revenues.
Provision for depreciation and depletion of oil and gas properties is based on
the units of production method, based on proven oil and gas reserves.

Segment information concerning oil and gas reserves and related disclosures are
not presented since the operations are not significant in relation to the
financial statements taken as a whole.

Cash Equivalents
For purposes of the consolidated statement of cash flows, cash includes all cash
and investments with original maturities to the Company of three months or less.

Inventories
Inventories consisting of supplies and miscellaneous materials are recorded in
the financial statements at their aggregate lower of cost (first-in, first-out)
or market.

Property, Plant and Equipment
Property, plant and equipment are carried at cost. Depreciation is computed
using straight-line and accelerated methods. When assets are retired or
otherwise disposed of, the cost and related accumulated depreciation are removed
from the accounts, and any resulting gain or loss is recognized in operations
for the period. The cost of maintenance and repairs is charged to operations as
incurred; significant renewals and betterments are capitalized. Deductions are
made for retirements resulting from renewals or betterments. The estimated
useful lives are as follows:

Estimated
Useful
Life
-------------

Buildings and equipment 15-25 years
Equipment and vehicles 3-10 years

- ------------------------------------------------------------------------------

<PAGE>

Notes to Consolidated Financial Statements
Continued

- ------------------------------------------------------------------------------

1. Summary of Significant Accounting Policies
Continued

Income Taxes
Deferred income taxes are provided in amounts sufficient to give effect to
temporary differences between financial and tax reporting.

The Company provides for depreciation on the straight-line and accelerated
methods for financial accounting while using various accelerated methods for
income tax accounting. The tax effects of these differences are reflected as
deferred income taxes.

Earning Per Common and Common Equivalent Share The computation of basic earnings
per common share is computed using the weighted average number of common shares
outstanding during the year. The computation of diluted earnings per common
share is based on the weighted average number of shares outstanding during the
year plus common stock equivalents which would arise from the exercise of stock
options and warrants outstanding using the treasury stock method and the average
market price per share during the year. Common stock equivalents are not
included in the diluted earnings per share calculation when their effect is
antidilutive.

Use of Estimates in 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.

2. Going Concern

The Company has sustained significant operating losses and has a working capital
deficit. In 1997, the Company filed a voluntary petition for relief under
Chapter 11 of the U.S. Bankruptcy Code. On September 10, 1998 the bankruptcy
court approved the Company's plan. Under terms of the confirmed plan certain
obligations were restructured. When the plan was confirmed, it was not known if
the Company would be able to meet its obligations. Currently, the Company has
defaulted on its first principal payment (see note 6). These factors create
substantial doubt about the Company's ability to continue as a going concern.

- ------------------------------------------------------------------------------

<PAGE>

Notes to Consolidated Financial Statements
Continued

- ------------------------------------------------------------------------------

2. Going Concern
Continued

The ability of the Company to continue as a going concern is dependent on the
Company generating cash from the sale of technology, and attaining future
profitable operations. The consolidated financial statements do not include any
adjustment that might be necessary if the Company is unable to continue as a
going concern.

3. Note Receivable

At December 31, 1999, the Company had an unsecured, non-interest bearing note
receivable due from a company for construction completed in 1993. At December
31, 1999, the note totaled $77,500 and has been paid in full in January 2000.

4. Property and Equipment

Property and equipment consists of the following:

Land $ 134,535
Vehicles 130,838
Machinery and equipment 5,116,796
Buildings and structures 822,026
Office furniture and equipment 283,318
------------
6,487,513

Less accumulated depreciation,
amortization, and depletion (2,811,128)
------------

$ 3,676,385
============

- ------------------------------------------------------------------------------

<PAGE>

Notes to Consolidated Financial Statements
Continued

- ------------------------------------------------------------------------------

5. Technology and Marketing Rights

During 1993, the Company entered into an agreement to purchase exclusive
worldwide technology and marketing rights to a refining process for used oil. In
addition, the Company has developed its own technology relating to refining used
oil. The Company is currently working with several entities who desire to use
its refining process. The Company capitalized $2,228,684 of patent, engineering,
and other costs related to this agreement. The Company historically has
evaluated the value of its technology and marketing rights based on comparing
the unamortized balance to undiscounted project operating income over the
remaining technology and marketing rights amortization period.

5. Technology and Marketing Rights
Continued

As a result of the uncertainty of future operating results and the litigation
relating to the technology and marketing rights, the Company has recorded an
impairment loss of $145,000, included under the caption of selling, general and
administrative costs at December 31, 1999, to reduce these assets to their net
estimated realizable value. These rights are being amortized on a straight-line
basis over seven years. Amortization expense of $142,858 was recorded during the
years ended December 31, 1999 and 1998, respectively, and accumulated
amortization after the impairment loss totaled $813,971 at December 31, 1999.

6. Long-Term Debt

Long-term debt is as follows:

- ------------------------------------------------------------------------------

<PAGE>

Notes to Consolidated Financial Statements
Continued

- ------------------------------------------------------------------------------

Note payable to a shareholder of the Company with interest at 7%, secured by a
Trust Deed and a security interest in all assets of the Company. Quarterly
interest and annual principal payments are due through September 22, 2002. The
Company did not make the first principal payment of $750,000, which was due
September 22, 1999. Such late payments bear interest at 14% until paid. In
addition, the holder could declare the entire principal and accrued interest
immediately due and payable.
$ 3,595,920

Notes payable to various financial institutions bearing interest at between 7%
and 10.75%, due in combined monthly installments of $5,621 including interest,
secured by real estate and guaranteed by an officer and certain former
officers/shareholders.
440,123

6. Long-Term Debt
Continued

Notes payable to former shareholders with interest accruing at 7%, due in annual
installments of $8,237 unsecured
94,324

Notes payable to various financial institutions, due in combined monthly
installments of $6,531, including interest at rates between 10.54% and 11.95%,
secured by vehicles
203,377

Capital lease obligations (see note 7) 56,182
---------
4,389,926

Less current portion of long-term debt (3,742,310)
------------

$ 647,616
============

- ------------------------------------------------------------------------------

<PAGE>

Notes to Consolidated Financial Statements
Continued

- ------------------------------------------------------------------------------

Future maturities of long-term debt are as follows:

Year Ending December 31: Amount
------------

2000 $3,742,310
2001 94,164
2002 64,373
2003 81,415
2004 70,016
Thereafter 337,648
------------

$ 4,389,926
============

- ------------------------------------------------------------------------------

<PAGE>

Notes to Consolidated Financial Statements
Continued

- ------------------------------------------------------------------------------

7. Capital
Leases
The Company has entered into several noncancellable capital leases for
equipment. The leases have between three and four year lease terms, aggregate
monthly payments total $3,793. The assets under capital leases have been
capitalized at an aggregate cost of $160,559 and accumulated amortization of
these costs totaled $69,619 at December 31, 1999. Future minimum lease payments
are as follows:

Year Amount
------- ------------

2000 $57,201
----------

Total minimum lease payments 57,201

Less amount representing interest (1,019)
----------

Present value of minimum lease payments $ 56,182
============

8. Income Taxes

The Company's income tax (expense) benefit differed from the statutory federal
rates as follows:

1999 1998
------------------------

Statutory rate applied to loss
before taxes $ 172,000 $ 272,000
State income taxes 25,000 40,000
Other 28,000 -
Increase in valuation allowance (225,000) (312,000)
------------------------

$ - $ -
------------------------

- ------------------------------------------------------------------------------

<PAGE>

Notes to Consolidated Financial Statements
Continued

- ------------------------------------------------------------------------------

8. Income Taxes
Continued

Significant components of the Company's deferred tax assets liabilities at
December 31, 1999 are as follows:

Depreciation $ (402,000)
Net operating losses 3,304,000
Capital loss carryover 70,000
Valuation allowance (2,972,000)
------------

$ -
=============

The Company has approximately $9,717,000 of net operating losses available to
offset future income. These net operating losses expire in the years 2005
through 2013. If certain substantial changes in the Company's ownership should
occur, there would be an annual limitation of the amount of carryforwards which
could be utilized. In addition, the Company has $207,000 of capital loss
carryforwards available to offset income.

It is not possible to estimate the utilization of carrying forward the available
net operating losses to future periods to offset income. Consequently, a
valuation allowance has been established to offset any tax asset.

9. Discontinued
Operations
During 1997, in an effort to increase cash flow and reduce expenses, the Company
discontinued Gagon.

10.Stock Option
Plan
The Company has a stock option plan for officers and directors of the Company
(Officers Option Plan), under which a maximum of 350,000 options may be granted
to purchase common stock at prices generally not less than the fair market value
of common stock at the date of grant. Under the Officers Option Plan, 7,500
options are granted each year to various officers and directors of the Company.
Additional options may be granted at the discretion of the board of directors.

- ------------------------------------------------------------------------------

<PAGE>

Notes to Consolidated Financial Statements
Continued

- ------------------------------------------------------------------------------

10.Stock Option Plan
Continued

The Company also has a stock option plan for non-insiders (Non- Insider Option
Plan), under which a maximum of 750,000 options may be granted to purchase
common stock. Grants are also limited to 250,000 options per year.

Under the Non-Insider Option Plan, all grants are at the discretion of the board
of directors.

All options are exercisable after six months and have a maximum term not to
exceed five years. Options may not be transferred except by reason of death,
with certain exceptions, and termination of employment accelerates the
expiration date of any outstanding options to 90 days from the date of
termination.

A schedule of options and warrants at December 31, 1999 is as follows:

Number of Option Price
Options Per Share
----------------------------

Outstanding at January 1, 1998 734,166 $ 1.08 - 5.65
Granted 22,500 4.50
Expired (650,000) 1.08
Forfeited (7,500) 4.50
----------------------------

Outstanding at December 31, 1998 99,166 4.50 - 5.65
Granted 22,500 .10
Expired (15,000) 4.50 - 5.65
Forfeited - -
----------------------------

Outstanding at December 31,1999 106,666 $ .10 - 4.50
============================

Options exercisable and shares available for future grant are as follows:

- ------------------------------------------------------------------------------

<PAGE>

Notes to Consolidated Financial Statements
Continued

- ------------------------------------------------------------------------------

December 31,
------------------------
1999 1998
------------------------

Options exercisable 106,666 99,166
Shares available for grant 943,334 950,834

11.Stock-Based Compensation
The Company has adopted the disclosure-only provisions of Statement of Financial
Accounting Standards (SFAS) No. 123, Accouting for Stock-Based Compensation.
Accordingly, no compensation cost has been recognized for employees in the
financial statements. Had compensation cost for the Company's stock options been
determined based on the fair value at the grant date for awards in 1999 and
1998, consistent with the provisions of SFAS No. 123, the Company's net earnings
and earnings per share would have been reduced to the pro forma amounts
indicated below:

December 31,
------------------------
1999 1998
------------------------

Net loss - as reported $ (505,559) $ (799,607)
Net loss - pro forma $ (506,985) $ (803,711)
Loss per share - as reported $ (.04) $ (.06)
Loss per share - pro forma $ (.04) $ (.06)

The fair value of each option grant is estimated in the date of grant using the
Black-Scholes option pricing model with the following assumptions:

December 31,
-----------------------
1999 1998
-----------------------

Expected dividend yield $ - $ -
Expected stock price volatility 152% 141%
Risk-free interest rate 5% 5%
Expected life of options 5 years 5 years
-----------------------

The weighted average fair value of options granted during 1999 and 1998 are $.06
and $.18, respectively.

11.Stock-Based Compensation
Continued

The following table summarized information about fixed stock options outstanding
at December 31, 1999:

Options Outstanding Options Exercisable
- -----------------------------------------------------------------------------
Weighted
Average
Number Remaining Weighted Number Weighted
Range of Outstanding Contractual Average Exercisable Average
Exercise at Life Exercise at Exercise
Prices 12/31/99 (Years) Price 12/31/99 Price
- -----------------------------------------------------------------------------

$ 4.50 84,166 1.53 $ 4.50 84,166 $ 4.50
.10 22,500 4.16 .10 22,500 .10
- -----------------------------------------------------------------------------

$.10-4.50 106,666 2.08 $ 2.00 106,666 $ 2.00
- -----------------------------------------------------------------------------

12.Significant Customers

The Company has a customer whose sales exceed 10% of total revenues. Sales to
this customer were approximately $1,265,000 and $1,220,000 for the years ended
December 31, 1999 and 1998, respectively.

13.Segment Information

The Company operates in two business segments: 1) Oil and gas
refining and distribution; 2) Used oil refining.

The following tables represent financial information by business segment for
years ended December 31, 1999 and 1998.

1999 Oil and Gas Used Oil Corporate Consolidated
- ----------------------------------------------------------------------

Revenue $3,826,723 $ 68,000 $ 4,080 $3,898,803
Direct costs 2,259,241 75,107 - 2,334,348
Operating expenses 973,440 297,393 494,603 1,765,436
Identifiable assets 3,872,415 602,329 682,641 5,157,385
Capital expenditures 309,945 9,072 - 319,017
Depreciation and
amortization 362,998 294,636 56,247 713,881

- ------------------------------------------------------------------------------

<PAGE>

Notes to Consolidated Financial Statements
Continued

- ------------------------------------------------------------------------------

13.Segment Information
Continued

1998 Oil and Gas Used Oil Corporate Consolidated
- --------------------------------------------------------------------------

Revenue $3,069,401 $ 433,368 $ 34,028 $3,536,797
Direct costs 2,124,046 191,862 - 2,315,908
Operating expense 925,413 419,137 523,703 1,868,253
Identifiable assets 3,868,028 1,010,640 1,152,649 6,031,317
Capital expenditures 134,545 27,788 4,002 166,335
Depreciation and
amortization 454,362 144,407 55,934 654,703

14.Profit Sharing
Plan
The Company has a defined contribution retirement plan. Employees who work at
least 1,000 hours during a year and are over age 21 are eligible to participate.
Employees may contribute up to fifteen percent of their annual compensation
subject to regulatory limitations. The Company also contributes a discretionary
amount on behalf of the participating employees. The Company made contributions
of $356 and $712 for the years ended December 31, 1999 and 1998, respectively.

15.Fair Value of
Financial
Instruments
None of the Company's debt instruments are held for trading purposes. The
Company estimates that the fair value of all financial instruments at December
31, 1999, does not differ materially from the aggregate carrying values of its
financial instruments recorded in the accompanying balance sheet.

16.Contingency
The Company has certain agreements related to construction of used oil refinery
plants and sale of used oil refining technology. The contracts include certain
guarantees of performance by the plants and the sold technology. Should the
guarantees of performance not be met, the contracts provide for certain
concessions to be made by the Company.

- ------------------------------------------------------------------------------

<PAGE>

ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURES

No disclosure required.

PART III

ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND
CONTROL PERSONS OF THE COMPANY; COMPLIANCE WITH
SECTION 16(a) OF THE EXCHANGE ACT.

A. Identification of Directors and Executive Officers. The current
directors and executive officers of the Company, who will serve until the next
annual meeting of shareholders or until their successors are elected or
appointed and qualified, are set forth below:

Name Age Position

Michael R. Williams 48 Director/Chairman/CEO/President

Mark W. Holland 43 Director/Chief Financial Officer

Laurie Evans 35 Director/Vice Presidentof
Marketing Interline Energy
Services

Background information concerning the Company's officers and directors is
as follows:

Michael R. Williams. Mr. Williams has been an officer and director of the
Company since October 1990. He was also president, founder and majority owner of
Interline Natural Gas, a privately held company acquired by the Company. Mr.
Williams received his Bachelor of Arts degree in Business Management from
Brigham Young University in 1975.

Mark W. Holland. Mr. Holland has been employed as a Controller for the
Company since 1989 and was appointed Chief Financial Officer in 1994. On May 16,
1997 Mr. Holland was appointed as a Director of the Company. From 1983 to 1989
Mr. Holland was employed by Savage Industries, Inc. as an accountant and as a
Controller for the Ideal Corporation and Cornelius Development Corporation
subsidiaries. Mr. Holland received his Certified Public Accountant certification
in 1989. Mr. Holland received his Bachelor of Science degree in Accounting and
Business Administration from Southern Utah State College in 1983.

<PAGE>

Laurie Evans. Ms. Evans joined the Company in January 1996, and has been a
member of the Company's executive management team serving as Assistant for the
President since July 1997. In September of 1998, Ms. Evans was appointed
Director for the Company and Vice President of Marketing for Interline Energy
Services. In addition to her duties of marketing, Ms Evans makes a significant
contribution in the areas of accounting and operations of the Company. Upon
joining the Company, Ms Evans brought seven years of previous management
experience in retail and medical. Ms. Evans attended Brigham Young University,
where she pursued an undergraduate degree in Business Management.

B. Significant Employees. None.

C. Family Relationships. None.

D. Other: Involvement in Certain Legal Proceedings. None.

E. Compliance With Section 16(a). Section 16 of the Securities Exchange
Act of 1934 requires the filing of reports for sales of the Company's common
stock made by officers, directors and 10% or greater shareholders. A Form 4 must
be filed within 10 days after the end of the calendar month in which a sale or
purchase occurred. Based upon review of Forms 4 filed with the Company, those
officers and directors were current on all filings related to Form 4.

ITEM 10. EXECUTIVE COMPENSATION

The following table sets forth the aggregate compensation paid by the
Company for services rendered during the last three years to the Company's Chief
Executive Officer and to the Company's most highly compensated executive
officers other than the CEO, whose annual salary and bonus exceeded $100,000:

SUMMARY COMPENSATION TABLE

Long-Term Compensation
-----------------------------------
Annual Compensation Awards Payouts
---------------------------- ---------------------------------------------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Other All
Name and Annual Restrict Options/ LTIP Other
Principal ($) ($) Compen- Stock SAR's Payouts Compen-
Postition Year Salary Bonus sation($) Awards($) (#) ($) sation($)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Michael R. Williams 1999 $143,536 $-0- $-0- $-0- 7,500(1) $-0- $-0-
President, CEO 1998 $125,000 $-0- $-0- $-0- 7,500(1) $-0- $-0-
Chairman 1997 $156,216 $-0- $-0- $-0- 7,500(1) $-0- $-0-
- --------------------------------------------------------------------------------------------------------------------
</TABLE>

(1) According to the Company's 1994 Officers and Directors Stock Option Plan
which was approved by the Company's shareholders on May 10, 1994, Mr.
Williams was granted 7,500 shares of the Company common stock on March
1, 1997 and March 1, 1998 at a price of $4.50 and 7,500 share of common
stock on March 1, 1999 at a price of $.10.

<PAGE>

The Company provides health and life insurance to its employees, including
its officers and certain directors.

Stock Options Granted During 1999
The following table provides information on grants of stock options during
1999 to the persons named in the Summary Compensation Table above.

OPTION GRANTS IN 1999 -INDIVIDUAL GRANTS
- -------------------------------------------------------------------------------
(a) (b) (c) (d) (e)
- -------------------------------------------------------------------------------
% of Total
Options Exercise
Options Granted to or Base
Granted Employees Price Expiration
Name (#) in ($/Sh) Date
Fiscal Year
- -------------------------------------------------------------------------------
Michael R. Williams 7,500 33.33% $.10 3/1/03
- -------------------------------------------------------------------------------

Option Values at December 31, 1999

No options were exercised during 1999 by the person named in the Summary
Compensation Table. The following table provides information on the unexercised
options at December 31, 1999 owned by the people named in the Summary
Compensation Table above.

AGGREGATE OPTION EXERCISED IN 1999
AND YEAR-END 1999 OPTION VALUES
- -----------------------------------------------------------------------------------------------------------------
(a) (b) (c) (d) (e)
- -----------------------------------------------------------------------------------------------------------------
Number of Value of Unexercised
Unexercised Options at In-the-Money Options at
Year End 1999 (#) Year End 1999 ($)(1)
Shares
Acquired on Value
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>

Michael R. Williams -0- -0- 37,500 -0- -0- -0-

- ------------------------------------------------------------------------------------------------------------------

</TABLE>

(1) An "In-the-Money" stock option is an option for which the market price of
the Company's common stock underlying the option on December 31, 1999 exceeded
the option price. The value shown represents stock price appreciation since the
date of grant. The market price was based upon the closing price of the
Company's common stock on the obtain by a licensed stock broker on December 31,
1999 ($0.08).

<PAGE>

Employment Agreements

The Company has no written employment agreement with any officers or
directors. Effective November 1997, Michael R. Williams monthly salary was
reduced from $14,000 to $10,417 by the Company.

Compensation of Directors

The Company's directors receive no compensation for Board of Directors
Meetings attended. On February 24, 1994, the Board of Directors adopted an
Officer and Directors Stock Option Plan. The Plan was adopted by the Company's
shareholders on May 10, 1994 and is a "formula" grant plan. The Plan provides
that each director and officer is to receive an option to purchase 7,500 shares
at market value on the initial date of grant or upon becoming an officer or
director of the Company. The initial date of grant was February 24, 1994. On
March 1st of each year thereafter, an additional option for 7,500 shares is
granted. Such additional options are exercisable at the market value on such
date.

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT

A. Security Ownership of Certain Beneficial Owners. The following table
sets forth information regarding shares of the Company's common stock
beneficially owned as of March 22, 2000 by: (i) each officer and director of the
Company; (ii) all officers and directors as a group; and (iii) each person known
by the Company to beneficially own 5 percent or more of the outstanding shares
of the Company's common stock.

Name and Address Percentage
of Beneficial Owner Shares Owned(1) Owned
- -------------------------------------------------------------------------------
Michael R. Williams(2)(3) 2,703,006 19.07%
160 W. Canyon Crest Rd.
Alpine, UT 84004

Maurice D. Sabbah(4) 2,052,666 14.47%
c/o Fortress RE
262 East Morehead St.
PO Box 700
Burlington, NC 27216

Mark W. Holland(2)(5) 239,720 1.69%
160 W. Canyon Crest Rd.
Alpine, UT 84004

<PAGE>

Laurie Evans(2) (6) 15,000 .11%
777 North 1570 West
Pleasant Grove, Utah 84062

All Officers and Directors 2,972,726 20.95%
as a Group (3 persons)
Total Shares Issued and 14,172,718 100%
Outstanding(1)

(1)As of March 22, 2000 there were 14,066,052 shares of the Company's
common stock issued and outstanding. Under the rules of the Securities and
Exchange Commission and for purposes of the above set forth chart, all
shares issuable to the above referenced persons upon the exercise of
options and warrants and conversion rights are deemed to be issued and
outstanding. A total of 106,666 shares are issuable upon currently
exercisable options and debentures owned by the persons set forth in the
table above. Therefore, for purposes of the above set forth chart, there
are deemed to be 14,172,718 shares issued and outstanding.

(2) These individuals are the officers and directors of the Company.

(3) Mr. Williams is a Director and the Company's Chief Executive Officer.
The number of shares indicated as owned by Mr. Williams includes 2,561,056
beneficially owned, 104,450 shares owned by his minor children and 37,500
shares issuable upon the exercise of currently exercisable options.,

(4) Includes 2,052,666 shares which are owned directly by Mr. Sabbah. The
number of shares indicated excludes 29,000 shares owned by Mr. Sabbahs
daughter and 25,000 shares owned by Mr. Sabbahs wife, as to both of which
Mr. Sabbah disclaims beneficial ownership.

(5) Mr. Holland is Director and Chief Financial Officer of the Company.
The number of shares indicated as owned by Mr. Holland includes 178,054
directly owned by Mr. Holland and 61,666 shares which may be issued upon
the exercise of a currently exercisable stock option.

(6) Mrs. Evans is Director and Vice President of Marketing for Interline
Energy Services. The number of shares indicated as owned by Mrs. Evans
includes 0 directly owned by Mrs. Evans and15,000 shares which may be
issued upon the exercise of a currently exercisable stock option.

B. Security Ownership of Management. See Item 11(a) above.

C. Changes in Control. No changes in control of the Company are
currently contemplated.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED PARTY
TRANSACTIONS

In connection with the Company's purchase of its corporate offices in
Alpine, Utah, in 1992, Michael R. Williams executed a personal and individual
guarantee agreement for the $250,000 SBA 504 portion of the long-term financing.
Michael R. Williams, Timothy G. Williams and Gearle D. Brooks executed
guarantees as individual guarantors of the commercial banks $562,000 first
mortgage.

<PAGE>

During 1993, the Company borrowed funds from officers Michael R. Williams,
Timothy G. Williams and Gearle D. Brooks. These loans accrued interest at the
rate of 7% per annum and are unsecured. The amounts of such loans made by each
lender and the amount due and owed by the Company as of December 31, 1999 was as
follows:

Total Amount Unpaid as of
Lender of Loans 12/31/99
------ ------------ ------------
Michael R. Williams $89,519 $ -0-
Timothy G. Williams $19,000 $14,049
Gearle D. Brooks $79,985 $15,432

As part of the merger with Interline Natural Gas, the Company issued a
total of $300,000 in long-term notes to the shareholders of Interline Natural
Gas. The amounts of such loans made by each lender and the amount due and owed
by the Company as of December 31, 1999 was as follows:

Total Amount Unpaid as of
Lender of Loans 12/31/99
------ ------------ ------------
Michael R. Williams $165,000 $ -0-
Timothy G. Williams $ 60,000 $ -0-
Gearle D. Brooks $ 75,000 $ 64,843

On September 9, 1998, the plan of reorganization under Chapter 11 was
confirmed by the United States Bankruptcy Court for the District of Utah. Under
the plan, the Company will pay Mr. Brooks and Mr. Williams quarterly payments of
interest and 2.16% of the principal balance. The Company also reached agreement
with Maurice D. Sabbah, a shareholder of the Company. The following terms of the
agreement were incorporated in the plan.

The terms of the agreement included a new trust deed note dated September
22, 1998 for $3,600,000, together with interest at the rate of 7% per annum on
the unpaid principal. The Company will make quarterly payments of all accrued
interest beginning on December 22, 1998 and continuing until September 22, 2002.
The Company will also make principal payment of $750,000 on September 22, 1999;
$1,000,000 on September 22, 2000; $1,000,000 on September 22, 2001 and $850,000
on September 22, 2002. The note is secured by Trust Deeds securing a security
interest in the Company's Alpine Office located in Alpine, Utah and a security
interest in all assets of Interline Energy Service, Inc. As obligated in the
previous agreements, the Company executed a new Pledge Agreement with this major
creditor pledging stock of the Company and stock of all subsidiaries of the
Company.

In August of 1999, the Company received $4,080 for its interest in the Hat
Creek #2 well. Under the pledge agreement with this major creditor, all proceeds
from the sell

<PAGE>

of Company assets will go to pay down the principal portion of the note.
After applying the proceeds from this sell the note was reduced to $3,595,920

On September 22, 1999, the Company was obligated to pay this major
creditor $812,000 which consists of principal of $750,000 and interest of
$63,000 under the new trust deed note (see new terms of trust deed above). On
September 22, 1999, the Company paid this major creditor an interest payment of
$63,000, but did not make the principal payment of $750,000 due under the trust
note. As a result, the note for $3,595,920 due to this major creditor is
currently in default. Under the trust deed note if default occurs in the payment
of installments of principal or interest, the holder hereof, at its option and
without notice or demand, may declare the entire principle balance and accrued
interest due and payable. Also if default occurs any installments not paid when
due shall bear interest thereafter at the rate of fourteen percent (14%) per
annum until paid. The note is secured by Trust Deeds securing a security
interest in the Company's Alpine Office located in Alpine, Utah and a security
interest in all assets of Interline Energy Service, Inc. The Company executed a
pledge agreement with this major creditor pledging stock of all subsidiaries of
the Company. Per the trust deed note and pledge agreement, upon default, the
major creditor can exercise his rights and sell or demand the Company to sell
the collateral or any part of the collateral to cure the installment in default
($750,000) or the total ($3,595,920) due under the note. As of March 25, 2000,
the Company is current on all interest payments

Parents of Company

The only parents of the Company, as defined in Rule 12b-2 of the Exchange
Act, are the officers and directors of the Company. For information regarding
the shareholdings of the Company's officers and directors, see Item 11.

REMAINDER OF PAGE INTENTIONALLY LEFT BLANK

<PAGE>

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K

A. The Exhibits which are filed with this Report or which are incorporated
herein by reference are set forth in the Exhibit Index.

B. Reports on Form 8-K. The Company did not file any reports on Form 8-K
during the fiscal year ended December 31, 1999.

Exhibits to Form 10-KSB/A
Sequentially
Exhibit Numbered
Number Exhibit Page
- -------------------------------------------------------------------------------
3.1 Articles of Incorporation - Incorporated by N/A
Reference to Exhibit 3.1 to Registration
Statement No. 33-25011-D on Form S-18

3.2 Amendment to Articles of Incorporation - N/A
Incorporated by reference to Form 8-A
filed January 18, 1991

3.3 Bylaws - Incorporated by reference to Exhibit - N/A
3.2 to Registration Statement 33-25011-D on
Form S-18

10.1 Agreement and Plan of Reorganization - N/A
Northcut Energy effective October 22, 1990.
(Incorporated by reference to Form 8-K filed
October 23, 1990)

10.2 Agreement and Plan of Merger - N/A
Northcut Energy and Interline Natural Gas, Inc.
December 23, 1991. (Incorporated by reference
to Form 8-K dated March 6, 1992)

10.3 License Agreement - Petroleum Systems, Inc. -
(Incorporated by Reference to Form 10-KSB
dated December 31, 1993)

10.4 License Agreement - Gadgil Western Corporation - N/A
(Incorporated by Reference to Form 10-KSB
dated December 31, 1993)

10.5 Stock Option Agreement - Michael R. Williams N/A
dated August 29, 1993
(Incorporated by Reference to Form 10-KSB
dated December 31, 1993)

<PAGE>

10.6 Stock Option Agreement - Timothy G. Williams - N/A
dated August 29, 1993
(Incorporated by Reference to Form 10-KSB
dated December 31, 1993)

10.7 Stock Option Agreement - Gearle D. Brooks - N/A
dated August 29, 1993
(Incorporated by Reference to Form 10-KSB
dated December 31, 1993)

10.8 1994 Non-Insider Stock Option Plan - N/A
dated February 24, 1994
(Incorporated by Reference to Form 10-KSB
dated December 31, 1993)

10.9 1994 Officer and Director Stock Option Plan - N/A
dated February 24, 1994
(Incorporated by Reference to Form 10-KSB
dated December 31, 1993)

10.10 Agreement and Plan of Reorganization - N/A
Gagon Mechanical Contractors, Inc.
(Incorporated by Reference to Form 10-KSB
dated December 31, 1993)

10.11 Quaker State Resources Agreements - N/A
(Incorporated by Reference to Form 8-K
dated September 13, 1994)

10.12 Whelan Environmental Services Agreement - N/A
(Incorporated by Reference to Form 10-KSB
dated December 31, 1994)

10.13 Amoco Processing/Transportation Agreement - N/A
(Incorporated by Reference to Form 10-KSB
dated December 31, 1995)

10.14 PSI Assignment Agreement - N/A
(Incorporated by Reference to Form 10-KSB
dated December 31, 1995)

10.15 Dukeun Industrial Company Agreements N/A
(Incorporated by Reference to Form 10-KSB
dated December 31, 1995)

<PAGE>

10.16 Bahrain and Singapore Agreement - N/A
(Incorporated by Reference to Form 10-KSB
dated December 31, 1995)

10.17 Genesis Petroleum - Salt Lake, L.L.C Agreements - N/A
(Incorporated by Reference to Form 10-KSB
dated December 31, 1995)

10.18 Guarantee - Interline (UK)- N/A
(Incorporated by Reference to Form 10-KSB
dated December 31, 1995)

10.19 Note Purchase Agreement - Maurice Sabbah - N/A
(Incorporated by Reference to Form 10-KSB
dated December 31, 1995)

10.20 Note Purchase Agreement - Maurice Sabbah - N/A
(Incorporated by Reference to Form 8-K
dated June 27, 1996)

10.21 Transpacific Industries License Agreements - N/A

10.22 Q Lube Inc. Letter Agreement -- Termination - N/A
License and Technology Disclosure Agreement
and Related Agreements

10.23 Questar Asset Agreement - Utah Oil and Gas Sale - N/A
(Incorporated by Reference to Form 8-K
dated May 12, 1997)

10.24 Genesis Petroleum Settlement Agreement - N/A
(Incorporated by Reference to Form 8-K
dated January 27, 1998)

21.1 Subsidiaries of Registrat - N/A

REMAINDER OF PAGE INTENTIONALLY LEFT BLANK

<PAGE>

SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the Company
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.

Dated: March 22, 2000 INTERLINE RESOURCES CORPORATION

By /s/ Michael R. Williams
--------------------------------
Michael R. Williams
CEO/President
Principal Executive Officer
Director

By /s/ Mark W. Holland
--------------------------------
Mark W. Holland
Chief Financial Officer / Director

In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the Company and in the capacities and on the
dates indicated.

Date Title Signature

March 22, 2000 CEO/President /s/ Michael R. Williams
and Director -----------------------------
Michael R. Williams

March 22, 2000 Director/ /s/ Laurie Evans
Secretary -----------------------------
Laurie Evans

<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
INTERLINE RESOURCES CORPORATION'S FINANCIAL STATEMENTS AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> 255,735

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<EXCHANGE-RATE> 1
<CASH> 255,735
<SECURITIES> 0
<RECEIVABLES> 521,080
<ALLOWANCES> 0
<INVENTORY> 40,772
<CURRENT-ASSETS> 911,715
<PP&E> 6,487,513
<DEPRECIATION> (2,811,128)
<TOTAL-ASSETS> 5,157,385
<CURRENT-LIABILITIES> 3,972,790
<BONDS> 0
0
0
<COMMON> 70,330
<OTHER-SE> 466,649
<TOTAL-LIABILITY-AND-EQUITY> 5,157,385
<SALES> 0
<TOTAL-REVENUES> 3,898,803
<CGS> 2,334,348
<TOTAL-COSTS> 1,765,436
<OTHER-EXPENSES> (18,908)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 323,486
<INCOME-PRETAX> (505,559)
<INCOME-TAX> 0
<INCOME-CONTINUING> (505,559)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (505,559)
<EPS-BASIC> (.04)
<EPS-DILUTED> (.04)

</TABLE>