<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1998
----------------
[ ]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________ to __________
Commission File Number 0-22497
----------
Upland Energy Corporation
-----------------------------------
(Exact name of registrant as specified in charter)
Utah 87-0430780
- ------------------------------ -------------------------
State or other jurisdiction of (I.R.S. Employer I.D. No.)
incorporation or organization
712 Arrowhead Lane, Murray, Utah 84107
- ----------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code (801) 281-4966
---------------
Securities registered pursuant to section 12(b) of the Act:
Title of each class Name of each exchange on which registered
None N/A
- ------------------ -----------------------------------------
Securities registered pursuant to section 12(g) of the Act:
None
---------------
(Title of class)
Check whether the Issuer (1) filed all reports required to be
filed by section 13 or 15(d) of the Exchange Act during the past 12
months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. (1) Yes [ ] No [X] (2) Yes [X] No [ ]
Check if disclosure of delinquent filers in response to Item 405
of Regulation S-B is not contained in this form, and no disclosure
will be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by
reference in Part III of this Form 10-KSB or any amendment to this
Form 10-KSB. [ ]
<PAGE>
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State issuer's revenues for its most recent fiscal year: $203,708.
State the aggregate market value of the voting stock held by
nonaffiliates computed by reference to the price at which the stock
was sold, or the average bid and asked prices of such stock, as of
a specified date within the past 60 days: The Company does not
have an active trading market and it is, therefore, difficult, if
not impossible, to determine the market value of the stock. Based
on the bid price for the Company's Common Stock at August 20, 1999, of $.463
per share, the market value of shares held by nonaffiliates would be
$1,649,294.
As of August 20, 1999, the Registrant had 3,562,192 shares of common
stock issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
List hereunder the following documents if incorporated by reference and
the part of the form 10-KSB (e.g., part I, part II, etc.) into which the
document is incorporated: (1) Any annual report to security holders; (2) Any
proxy or other information statement; and (3) Any prospectus filed pursuant to
rule 424(b) or (c) under the Securities Act of 1933: NONE
<PAGE>
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
HISTORY AND ORGANIZATION
- ------------------------
Upland Energy Corporation, a Utah corporation (the "Company") was
originally organized in Utah on January 30, 1986, under the name Upland
Investment Corporation, to engage in the acquisition and/or development of
assets, properties or businesses of any kind. The Company remained inactive
other than raising some capital through the sale of its shares of Common Stock
until 1991.
During the 1991 fiscal year, the Company conducted negotiations with
respect to the acquisition of a Florida corporation involved in the
development of a fluid level monitoring system for underground fuel storage
tanks. The acquisition was not completed; however, during the course of
negotiations, the Company loaned such company $25,000 pursuant to the terms of
a promissory note. The note has not been repaid despite demand by the Company
and the Company has concluded that the note is uncollectible.
In November 1993, the Company acquired G.S. & C., Inc., a Nevada
corporation ("GSC") in a stock for stock transaction. GSC was organized under
the laws of Nevada on September 1, 1993. Prior to the acquisition, the
Company effected a 1-for-2 reverse split in its issued and outstanding shares
of Common Stock reducing the number of shares outstanding immediately prior to
the acquisition of GSC from 13,990,000 to 6,995,000. The Company then issued
25,297,500 post-split shares of its Common Stock to the shareholders of GSC in
exchange for all issued and outstanding shares of GSC. In connection with the
transaction, the name of the Company was changed from Upland Investment
Corporation to Upland Energy Corporation to better reflect the Company's
business activities. For financial statement purposes, the transaction has
been accounted for as a "reverse acquisition" as if GSC had acquired the
Company. As a result, the financial statements included herewith present the
operations of GSC from inception and include Upland's operations only from the
date of the acquisition.
The Company is engaged through the activities of its wholly-owned
subsidiary, GSC, in the business of exploring for and developing oil and gas
reserves. Unless otherwise indicated, GSC and Upland are collectively
referred to herein as the "Company."
On or about November 17, 1993, GSC entered into an operating agreement
(the "Operating Agreement") with KLM Exploration, Inc. and Kenneth L. Mason
(collectively "KLM") pursuant to which KLM transferred to GSC certain rights
and obligations of KLM under a farmout agreement (the "Farmout Agreement"),
dated August 28, 1993, entered into between KLM and Williams Natural Gas
Company ("Williams") with respect to certain property located in the state of
Kansas commonly referred to as the McLouth Natural Gas Storage Field ("McLouth
Field"). The Operating Agreement was approved by Williams and the Farmout
Agreement was amended to make certain changes agreed to by the parties. GSC
paid KLM $100,000 pursuant to the terms of an earlier agreement in principle
as consideration for KLM entering into the Operating Agreement. Through these
agreements, GSC turned over much of the daily control of these fields to KLM
and its operators. The McLouth Field was originally acquired by Williams who
entered into the Farmout Agreement with KLM. The Farmout Agreement
<PAGE> 4
provided KLM the right and obligation to develop the McLouth Field. KLM then
entered into the agreements with GS&C who paid an initial fee of $100,000 as
consideration for entering into the Operating Agreement and Amended Farmout
Agreement. Under the provisions of the agreements, KLM performed the
exploration, drilling and operation on the McLouth Field with the Company
providing limited financial support. The Company subsequently became
dissatisfied with the operation of the field by KLM and filed a lawsuit to
remove KLM as operator and for other damages. This lawsuit was subsequently
settled and the Company became the operator of the field.
In November 1993, GSC granted an aggregate of 2 1/4% overriding royalty
interest in the McLouth Field against its working interest to T. Kent Rainey,
Stefanie Gillen and Tony Cox, who at the time were directors of GSC, as
compensation for services rendered to GSC. The services performed by the
individuals related to negotiating the Farmout Agreement on the McLouth Field.
During 1995 and 1996, the Company focused on the McLouth Field. However,
management refocused the Company's efforts towards the Hittle Field which,
based on geological test and initial drilling results, appears more promising
than the McLouth Field. The McLouth Field continued to remain unprofitable for
the Company and in July 1999, the Company entered into an agreement with Pace
Exploration, LLC to sell the field for $25,000 cash and the assumption of
$31,552 in debt on the field and all future obligation to William Natural Gas.
The Company felt the decision to sell the McLouth Field to Pace Exploration,
LLC was necessary to stop the monthly drain on the Company form the McLouth
Field.
The Hittle Field originally consisted of approximately 560 acres and was
acquired for $6,000 in cash and a 15.6% royalty interest in the leases. In the
first quarter of 1997, the Company expanded its lease holdings on the Hittle
Field through the acquisition of an additional 880 acres at a cost of $3,800
with a 16.01% royalty interest remaining with the lessors.
The Company drilled two initial wells, the Lewis H-1 ("LH-1") and the
Hittle H-1 (the "HH-1"), in the Hittle Field. Both wells initially showed
promising results; however, the LH-1 well had to be shut down due to water
problems and reworked and the HH-1 is producing only approximately 22 barrels
of oil per day. The LH-1 has been reworked and is producing 5 barrels of oil
per day.
In December 1998, the Company hired Pace Exploration to handle all of the
Company's operation and drilling on the Hittle Field. Under the terms of the
Agreement, Pace Exploration received a twenty percent (20%) working interest
in the Hittle Field exclusive of the LH-1 and HH-1 wells.
Under the direction of Pace Exploration, two additional wells were
drilled on the Hittle Field. One of these wells has been completed for
production and is producing approximately 14 barrels of oil per day. The other
well never produced oil in economic quantities and was shut down.
<PAGE>
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ITEM 2. DESCRIPTION OF PROPERTIES
Oil and Gas Properties
- ----------------------
The Company's oil and gas properties are located in Kansas. The
properties now consist of only the Hittle Field with the sale of the McLouth
Field in July 1999. The Company began exploration activities on the Hittle
Field in late 1996 and presently has drilled four wells on the field; three of
which have been completed for production, and one which was shut down. The
Hittle Field is subject to a farm out agreement with Pace Exploration who
receives a 20% working interest in the field. See: Part I, Item 1.
"Description of Business").
In the oil and gas industry and as used herein, the word "gross" well or
acre is a well or acre in which a working interest is owned; the number of
gross wells is the total number of wells in which a working interest is owned.
A "net" well or acre is deemed to exist when the sum of fractional ownership
working interests in gross wells or acres equals one. The number of net wells
or acres is the sum of the fractional working interests owned in gross wells
or acres.
The information presented in this section is in accordance with SEC guidelines
on oil and gas disclosure and in particular those found in Rule 4-10 of
regulation S-X.
Wells and Acreage
- -----------------
Shown below are tabulations of the productive oil (including casinghead
gas) wells and developed and undeveloped acreage owned by the Company as of
December 31, 1998.
Gross Acreage
-------------------------------
Productive Oil Wells Developed Undeveloped
- -------------------- --------- -----------
Gross Net(1) Gross Net(2) Gross Net(3)
----- ------ ----- ------ ----- ------
16 14.4 190 152.50 1560 1560
- -------------------
(1) Based on a 100% ownership working interest on the McLouth Field and an
80% ownership working interest on the Hittle Field.
(2) Calculated on 13 wells with a 100% ownership working interest on the
McLouth Field and two wells with an 80% ownership interest on the Hittle
Field.
(3) Corresponds to 940 undeveloped acres in the McLouth Field with a 100%
ownership interest and 1560 undeveloped acres in the Hittle Field with 100 %
ownership interest.
Fifteen of the above oil wells are all located on the McLouth Field,
which as noted above, has been sold. See notes 3 and the supplemental
<PAGE>
<PAGE> 6
information to the Company's December 31, 1998 and 1997, financial statements
for additional information regarding the Company's oil and gas properties and
producing activities and oil and gas reserves. Such information is based on a
report prepared by Felix Ascanio who was the Company's president, and
therefore, should not be considered independent.
Drilling Activities
- -------------------
Set forth below is a tabulation of wells completed in the period
indicated in which the Company have participated and the results thereof for
the three most recent years ended December 31, 1998.
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------
1996 1997 1998
---- ---- ----
Gross Net Gross Net Gross Net
----- --- ----- --- ----- ---
<S> <C> <C> <C> <C> <C> <C>
Exploratory:
Dry -0- -0- -0- -0- -0- -0-
Oil -0- -0- -0- -0- -0- -0-
Gas -0- -0- -0- -0- -0- -0-
Totals -0- -0- -0- -0- -0- -0-
Development:
Dry -0- -0- -0- -0- -0- -0-
Oil 3 3 2(1) 2(1) 2 2
Gas -0- -0- -0- -0- -0- -0-
Totals 3 3 2 2 2 2
<FN>
(1) The LH-1 was subsequently shut down do to water problems.
</FN>
</TABLE>
Average Prices and Costs
- ------------------------
The average sales prices of oil and gas for the current fiscal year and
the three previous fiscal years are as follows:
Average Sales Price
-------------------
Year Ended Oil Gas
December 31 (per BBL) (per MCF)
----------- --------- ---------
1995 $12.27 NA
1996 $16.34 NA
1997 $14.45 NA
1998 $11.41 NA
Production costs for such wells per equivalent barrel, which includes lifting
costs (electricity, fuel, water disposal, repairs and maintenance, pumper,
transportation, etc.), and production taxes, was $2.87, $3.07, and $4,70 for
the years ended December 31, 1998, 1997, and 1996, respectively.
<PAGE>
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Production and Sale of Oil and Gas
- ----------------------------------
The oil from the McLouth Field is sold to one unaffiliated purchaser.
The sale of oil and gas is subject to price adjustments, production
curtailments, and similar provision in oil and gas purchase contracts, and the
sale of both oil and gas is subject to general economic and political
conditions affecting the production and price of crude oil and natural gas.
For the years ended December 31, 1998, and 1997, the Company produced
approximately 41.52 and 10.711 barrels of oil per day.
ITEM 3. LEGAL PROCEEDINGS
The Company on April 21, 1998, filed a lawsuit against Felix Ascanio, the
former president of the Company, seeking repayment of promissory notes and a
declaratory judgment on the issue of whether Mr. Ascanio was terminated for
cause under the terms of his employment contract, and accordingly, entitled to
no severance payments under the terms of his employment agreement. The action
was subsequently settled. Under the terms of the settlement, Mr. Ascanio and
the Company agreed to cancel 141,689 shares of the Company in satisfaction of
Mr. Ascanio's promissory notes owed to the Company and as settlement of any
amounts the Company may owe Mr. Ascanio. Mr. Ascanio also resigned as a
director of the Company and agreed to the cancellation of his remaining
options to purchase shares of the Company. Additionally, Mr. Ascanio entered
into private transactions to sell, in a private transaction, the remainder of
his shares in the Company to existing shareholders of the Company.
The Company's subsidiary GSC filed a lawsuit on October 19, 1996, against
KLM Exploration Company, Inc. in the District Court of Jefferson County,
Kansas. The lawsuit entitled G.S.&C., Inc. vs. KLM Exploration Company, Inc.,
et al., case no. 96C-92, sought to remove KLM as operator of GSC's oil leases
in the McLouth Field, and for damages in excess of $500,000 for breach of
contract, and for an accounting. This action was settled in July, 1998.
Pursuant to the terms of the settlement agreement, KLM turned over the
operation and its interest in the McLouth Field to the Company as complete
settlement of any and all claims the parties may have. The Company also agreed
to pay $15,000 per year for three years to the Williams Natural Gas Co.
The Company's subsidiary GSC had a lawsuit filed against it on September
11, 1995, by the landowner of certain property in Kansas where the Company has
been drilling. The lawsuit, entitled Herbert N. Edmonds and Eelsa D. Edmonds
vs. G.S. & C., Inc., in the District Court of Jefferson County, Kansas, case
no. 95-C-67, sought cancellation of the lease to GSC from the plaintiff and
quieting of title, plus cost, attorneys' fees and expenses. On October 10,
1997, the court filed an order granting a summary judgment motion for Edmonds'
and ordered termination of the Edmonds B lease. As the Company is no longer
interested in drilling on the lease, management determined that further legal
action on this matter would not be cost effective and accordingly, decided not
to appeal the decision.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
None.
<PAGE>
<PAGE> 8
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is quoted on the National Association of
Securities Dealers Electronic Bulletin Board under the symbol "UPLC." Set
forth below are the high and low bid prices for the Company's Common Stock for
the last three years. Although the Common Stock is quoted on the Electronic
Bulletin Board it has traded sporadically with low volume. Consequently, the
information provided below may not be indicative of the Common Stock price
under different conditions. All prices listed herein reflect inter-dealer
prices, without retail mark-up, mark-down or commissions and may not represent
actual transactions.
Quarter Ended High Bid Low Bid
- ------------- -------- -------
December 1996 $3.125 $0.625
March 1997 $3.875 $2.31
June 1997 $5.625 $2.50
September 1997 $6.25 $4.25
December 1997 $5.25 $3.50
March 1998 $3.875 $2.625
June 1998 $1.438 $1.188
September 1998 $1.188 $0.625
December 1998 $1.340 $0.560
March 1999 $1.375 $0.531
June 1999 $0.531 $0.344
At August 20, 1999, the high and low bid and asked price for the Common
Stock was $0.80 and $0.463, respectively.
Since its inception, the Company has not paid any dividends on its Common
Stock, and the Company does not anticipate that it will pay dividends in the
foreseeable future.
As of August 17, 1999, there were 3,562,192 shares of common stock
outstanding held by approximately 125 active holders of record, including
broker-dealers and clearing corporations holding shares on behalf of their
customers, as reported by the Company's transfer agent.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF PLAN OF OPERATION
Liquidity and Capital Resources
- ---------------------------------------
At December 31, 1998, the Company had assets of $1,026,366. The majority
of these assets, $767,113, represented oil and gas properties with only
$244,626 in current assets. During 1998, the Company used the majority of its
current assets and now must rely on loans from major shareholders and oil
revenues to cover its operating expenses. Additionally, the Company's deposits
of $225,000 at December 31, 1998, were used on oil drilling in the first part
of 1999.
During 1998, the Company funded its operation and exploration expenses
through the sale of equity interest in the Company and shareholder loans. The
<PAGE> 9
Company anticipates it will have to continue to rely on capital through equity
infusion or shareholder loans until its oil revenues increase. The Company
has significantly cut expenses and is hopeful that with the sale of the
McLouth Field it will be able to pay ongoing expenses; however, the Company
would not be able to fund further drilling and exploration and would have to
rely on investors to help fund the further drilling and exploration.
The Company's working capital at December 31, 1998, was negative
$112,441. Presently, the Company must rely on revenue from its operation and
loans from shareholders to cover ongoing operating expenses. The sale of the
McLouth Field reduces some of these payables and the Company is slowly paying
the others.
In November and December 1998, the Company was able to raise an
additional $240,000 through the sale of promissory notes and warrants to fund
the drilling of two wells on the Hittle Field. One of these wells was
completed for production and the other was not.
With little revenue presently being produced, the Company will continue
to rely on the sale of its securities or loans to fund operations. Based on
the working capital position of the Company, management estimates the Company
will need to obtain additional financing to perform further exploration on the
Hittle Field.
Results of Operations
- ---------------------
For the year ended December 31, 1998, the Company had revenue of $203,708
which was up from $163,048 for the same period in 1997. The increase in
revenue was the result of the additional wells on the Hittle Field. The
Company anticipates oil revenue to increase even with the sale of the McLouth
Field. The increase in revenue will be only marginal, however, with the Hittle
Field currently producing less than 50 barrels of oil.
down, the Company expects revenues to remain low even with the addition of
another well on the Hittle field.
Expenses for the year ended December 31, 1998, were $774,081 which were
up from $540,545 from the year ended December 31, 1997. Expenses for the year
ended December 31, 1998, were up principally due to an increased oil
exploration and dry hole and unsuccessful completion costs of $376,078.
General and administrative expenses were down as the Company has reduced its
payroll.
For the year ended December 31, 1998, the Company continued to suffer
loses from operations with a net loss of $570,379. This loss was up from the
$377,497 loss in 1997 as a result of the increase in dry hole costs. The
Company anticipates it will continue to have a loss in 1999 as it incurred
additional unsuccessful drilling attempts and dry hole costs. The Company is
hopeful with the signing of the Pace Exploration contract that it will
maintain reduced general and administrative expenses relying on Pace
Exploration for the operation of the Hittle Field. The Company will in turn
maintain only limited other business operations until revenues justify an
expansion of its corporate staff and other experts.
ITEM 7. FINANCIAL STATEMENTS
The financial statements of the Company are set forth immediately
following the signature page to this form 10-KSB.
<PAGE> 10
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
The Company has had no disagreements with its certified public
accountants with respect to accounting practices or procedures or financial
disclosure.
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS, PROMOTERS, AND CONTROL
PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
The names of the Company's executive officers and directors and the
positions held by each of them are set forth below:
Name Position
- ---- --------
Lee Jackson President and Director
Michael L. Labertew Secretary, Treasurer and Director
<PAGE>
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The term of office of each director is one year and until his successor
is elected at the Company's annual shareholders' meeting and is qualified,
subject to removal by the shareholders. The term of office for each officer
is for one year and until a successor is elected at the annual meeting of the
board of directors and is qualified, subject to removal by the board of
directors. The Company is actively searching for a third director
Biographical Information
Set forth below is certain biographical information with respect to each
of the Company's officers and directors.
Lee Jackson, age 71, has been retired since 1993 and spends his time
focusing on real estate management and investments. Prior to retiring, Mr.
Jackson owned Jackson Insurance Agency which he later sold to his son. Prior
to establishing his own insurance agency, Mr. Jackson was a real estate agent
and broker. Mr. Jackson was employed by Allstate Insurance for 17 years where
he was an agent, a commercial sales supervisor and sales manager. Mr. Jackson
received his bachelor of science degree in business from the University of
Utah in 1951.
Michael Labertew, age 35, was appointed a director and subsequently
secretary and treasure of the Company in 1998. Mr. Labertew is and has been
for the last 9 years an attorney in Salt Lake City, Utah. Mr. Labertew has a
bachelor of science degree from the University of Iowa and a Juris Doctorate
from the University of Utah.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
The Company believes that under the SEC's rules for reporting of
securities transactions by directors and executive officers, all required
reports have been timely filed, except Michael L. Labertew filed his form 3
late and one form 4 late; Felix Ascanio filed his form 3 late and two form 4's
late; Lee Jackson filed two form 4's late; Ervin Brown filed his form 3 late
and one form 4 late; and John Hobbs filed one form 4 late.
<PAGE>
<PAGE> 12
ITEM 10. EXECUTIVE COMPENSATION
The following tables set forth certain summary information concerning the
compensation paid or accrued for each of the Company's last three completed
fiscal years to the Company's or its principal subsidiaries chief executive
officer and each of its other executive officers that received compensation in
excess of $100,000 during such period (as determined at December 31, 1998, the
end of the Company's last completed fiscal year):
SUMMARY COMPENSATION TABLE
--------------------------
<TABLE>
<CAPTION>
Long Term Compensation
----------------------
Annual Compensation Awards Payouts
Other Restricted
Name and Annual Stock Options LTIP All other
Principal Position Year Salary Bonus($) Compensation Awards /SARs Payout Compensation
- ------------------ ---- ------ -------- ------------ ------ ------- ------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Lee Jackson 1998 $38,000 -0- -0- -0- 10,000 -0- -0-
President
Felix A. Ascanio 1997 $60,000 -0- -0- -0- -0- -0- -0-
President and CEO 1996 $60,000 -0- -0- -0- 325,000(1) -0- -0-
<FN>
(1) Mr. Ascanio received 300,000 options at $0.20 and 25,000 options at $2.00 during 1996.
(2) Mr. Jackson received 10,000 options at $0.625 per share in 1998.
</FN>
</TABLE>
Options/SAR Grants in Last Fiscal Year
- --------------------------------------
The Following table sets forth information respecting all individual grants of
options and stock appreciation rights ("SARs") made during the fiscal year
ended December 31, 1998, to the named executive officer of the Company.
<TABLE>
<CAPTION>
% of Total
# of Securities Options/SARS
Underlying Granted to Market Price
Options/SARs Employees in Exercise or Base on Date of
Name Granted Fiscal Year Price ($/Share) Grant Expiration Date
- ---- --------------- ------------ ---------------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
Lee Jackson -0- -0- -0- -0- -0-
</TABLE>
Bonuses and Deferred Compensation:
- ---------------------------------
None
Compensation Pursuant to Plans:
- ------------------------------
<PAGE>
<PAGE> 13
All options received are pursuant to the Company's 1996 Stock Option Plan
which has reserved 650,000 shares for issuance under the plan. Options are
issued under the plan at the discretion of the Company's board of directors.
Pension Table:
- -------------
Not Applicable
Other Compensation:
- ------------------
None
Compensation of Directors:
- -------------------------
Directors of the Company receive only $100 per directors meeting
attended.
Termination of Employment and Change of Control Arrangement
- -----------------------------------------------------------
With the departure of Mr. Ascanio and Mr. John "Jack" Hobbs, none of the
Company's officers have an employment contract. One employee of the Company
has an employment contract paying him $24,000 per year plus product bonus of
$0.05 per barrel through December 1999.
Officer and Director Remuneration
- ---------------------------------
Mr. Jackson, the Company's current president receives a salary of
$3,000.00 per month and Mr. Labertew receives a salary of $0.00 per month.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the number of shares of the Company's
Common Stock, par value $0.001, held by each person who is believed to be the
beneficial owner of 5% or more of the 3,695,378 shares of the Company's common
stock outstanding at August 17, 1999, based on the Company's transfer agent's
list, representations and affidavits from shareholders and beneficial
shareholder lists provided by the Depository Trust and securities broker
dealers, and the names and number of shares held by each of the Company's
officers and directors and by all officers and directors as a group.
Title of Name and Address Amount and Nature of Percent
Class Of Beneficial Owner Beneficial Ownership of Class
- -------- ------------------- --------------------- --------
Common Lee Jackson (1) 438,350 11.86
712 Arrowhead Lane
Murray, Utah 84107
Common The Depository Trust
(Cede & Co.) 1,583,308 42.85
P.O. Box 222
New York, New York 10274
<PAGE> 14
Common Frank Gillen 257,011 6.95
175 South Main, Ste. 1240
Salt Lake City, Utah 84111
Officers, Directors and Nominees
Common Lee Jackson, Director ---------See Above---------
Common Michael Labertew -0- -0-
Secretary/Treasurer, Director
All Officers, Directors, and
Nominees as a Group (2 Persons) 438,350 11.86
- --------------------------------
(1) Mr. Jackson owns 343,350 shares in his own name and 100,000 shares in Lee
Jackson Investments. Mr. Jackson also owns 25,000 warrants and 25,000 options
to purchase a like number of shares of Common Stock at an exercise price of
$2.00 per share.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In January 1997, Felix Ascanio, the Company's president, and John Hobbs,
the Company's secretary, at that time, exercised options in the Company
delivering promissory notes in the amount of $55,000 and $80,000,
respectively, to the Company for their exercise price. The promissory notes
were due January 17, 2001, with interest at eight and one half percent (8-1.2%).
In April 1997, the Company loaned Mr. Ascanio $84,376 and Mr. Hobbs $29,449 to
pay taxes due on the options exercised. Due to Messrs. Ascanio's and Hobbs'
relationships to the Company, these transactions should not be considered arms
length. Under the terms of a settlement agreement with Mr. Ascanio, all of
his debt to the Company was canceled and 141,689 of Mr. Ascanio's shares in
the Company returned to the Company for cancellation. Mr. Hobbs subsequently
paid his promissory notes off.
During 1996, a shareholder and an officer of the Company advanced the
Company $3,600. Of the $3,600 that was advanced, the Company paid $3,000 back
during the year leaving a balance of $600 which was paid in 1998. The
advances are non-interest bearing.
During 1998, Lee Jackson, the Company's new president loaned the Company
20,000 receiving a promissory note and for $5,000 at 10% interest due on June
1, 1999 and a promissory note for $15,000 which contains an option to convert
shares of Common Stock at the rate of $0.40 per share.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed below by the following persons on behalf
of the Registrant and in the capacities and on the dates indicated:
Upland Energy Corporation
Date: August 30, 1999 By /s/Lee Jackson, President and Director
(Principal Executive Officer)
<PAGE>
<PAGE> 15
Pritchett, Siler & Hardy, P.C.
Certified Public Accountants
430 East 400 South
Salt Lake City, Utah 84111
(801) 328-2727 Fax (801) 328-1123
INDEPENDENT AUDITOR'S REPORT
Board of Directors
UPLAND ENERGY CORPORATION AND SUBSIDIARY
Salt Lake City, Utah
We have audited the consolidated balance sheet of Upland Energy Corporation
and Subsidiary as of December 31, 1998, and the related consolidated
statements of operations, stockholders' equity and cash flows for the years
ended December 31, 1998 and 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the 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 financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Upland Energy
Corporation and Subsidiary as of December 31, 1998, and the consolidated
results of their operations and their consolidated cash flows for the years
ended December 31, 1998 and 1997, in conformity with generally accepted
accounting principles.
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. As discussed in Note 14, the Company has
experienced continuing operating losses the past few years and has current
liabilities in excess of current assets. These factors raise substantial doubt
about the ability of the Company to continue as a going concern. Management's
plans with regard to these matters is also described in Note 14. The
financial statements do not include any adjustments that might result from the
outcome of these uncertainties.
The ultimate realization of the Company's investment in oil and gas properties
is dependent upon the Company being able to economically recover and sell its
oil and gas reserves and to be able to fund the maintenance and operations of
its wells. Further, the Company's estimates of oil and gas reserves were
produced internally by management and others who were not independent with
respect to the Company. The financial statements do not include any
adjustments related to the uncertainty that the Company might not recover its
estimated reserves.
The Company has not presented the supplemental oil and gas information that
the Financial Accounting Standards Board has determined is necessary to
supplement, although not required to be part of, the basic financial
statements. The missing supplemental information relates to reserves
quantities, capitalized costs related to oil and gas production activities,
results of operations of oil and gas production activities and a standardized
measure of discounted future net cash flows related to reserves quantities.
/s/Pritchett, Siler & Hardy
May 13, 1999
Salt Lake City, Utah
<PAGE> 16
UPLAND ENERGY CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
ASSETS
December 31,
1998
_________________
CURRENT ASSETS:
Cash $ 4,890
Oil revenue receivable 4,340
Deposits 225,000
Interest receivable - related parties 10,396
_________________
Total Current Assets 244,626
PROPERTY AND EQUIPMENT, net 4,627
OIL AND GAS PROPERTIES, net 767,113
RESTRICTED CASH 10,000
_________________
$ 1,026,366
_________________
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable - related parties $ 245,000
Accounts payable 105,967
Other accrued liabilities 6,100
_________________
Total Current Liabilities 357,067
STOCKHOLDERS' EQUITY:
Common stock; $.001 par value, 50,000,000
shares authorized, 3,562,192 shares issued
and outstanding at 1998 3,562
Capital in excess of par value 2,188,300
Retained earnings (deficit) (1,382,333)
_________________
809,529
Less: notes receivable for common stock issued (140,230)
_________________
Total Stockholders' Equity 669,299
_________________
$ 1,026,366
_________________
The accompanying notes are an integral part of this consolidated financial
statement.
<PAGE>
<PAGE> 17
UPLAND ENERGY CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended
December 31,
_______________________________
1998 1997
_______________ _______________
REVENUE:
Oil sales $ 203,708 $ 163,048
_______________ _______________
Total Revenue 203,708 163,048
_______________ _______________
EXPENSES:
Production expense 150,093 85,621
Depreciation, depletion and
amortization 57,454 44,650
Dryhole, unsuccessful recompletions
and exploration costs 376,078 -
General and administrative costs 190,462 410,274
_______________ _______________
Total Expenses 774,087 540,545
_______________ _______________
LOSS FROM OPERATIONS (570,379) (377,497)
OTHER INCOME (EXPENSE):
Interest Income 11,641 36,881
Loss on disposition of assets (8,430) -
_______________ _______________
Total Other Income (Expense) 3,211 36,881
_______________ _______________
LOSS BEFORE INCOME TAXES (567,168) (340,616)
CURRENT TAX EXPENSE - -
DEFERRED TAX EXPENSE - -
_______________ _______________
NET LOSS $ (567,168)$ (340,616)
_______________ _______________
LOSS PER COMMON SHARE $ (.16)$ (.10)
_______________ _______________
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
<PAGE> 18
UPLAND ENERGY CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FROM DECEMBER 31, 1996 THROUGH
DECEMBER 31, 1998
<TABLE>
<CAPTION>
Common Stock Capital in Retained
________________________ Excess of Earnings
Shares Amount Par Value (Deficit)
___________ __________ ___________ _____________
<S> <C> <C> <C> <C>
BALANCE, December 31, 1996 2,710,378 2,710 1,358,320 (474,549)
Director/officer options exercised for notes
receivable, January 1997, at $.20 per share 325,000 325 64,675 -
Director/officer options exercised for notes
receivable, January 1997, at $.70 per share 100,000 100 69,900 -
Issuance of 500,000 shares common
stock for cash, February 1997, at $1.50
per share, net of $25,000 of offering costs 500,000 500 724,500 -
Issuance of 55,000 shares common
stock for notes receivable, August 1997,
at $2.00 per share 55,000 55 109,945 -
Issuance of 5,000 shares common
stock for cash, October 1997, at $2.00
per share 5,000 5 9,995 -
Net loss for the year ended
December 31, 1997 - - - (340,616)
___________ __________ ___________ _____________
BALANCE, December 31, 1997 3,695,378 $ 3,695 $ 2,337,335 $ (815,165)
----------- ---------- ----------- -------------
Cancellation of 133,186 shares of
Common stock, May 1998, fair market
Value was at $1.12 per share, for
Cancellation of note receivable (133,186) (133) (149,035)
Net loss for the year ended
December 31, 1998 - - - (567,168)
----------- ---------- ----------- -------------
BALANCE, December 31, 1998 3,562,192 $ 3,562 $ 2,188,300 $ (1,382,333)
=========== ========== =========== =============
</TABLE>
The accompanying notes are an integral part of this consolidated financial
statement.
<PAGE>
<PAGE> 19
UPLAND ENERGY CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Increase (Decrease) in Cash
For the Years Ended
December 31,
_______________________________
1998 1997
_______________ _______________
Cash Flows from Operating Activities:
Net loss $ (567,168) $ (340,616)
_______________ _______________
Adjustments to reconcile net income (loss) to
net cash used in operating activities:
Depreciation, depletion and amortization 57,454 44,650
Non-cash expenses 87,200 7,145
Dry hole expense 376,078 -
Disposition of assets 8,430 -
Change in assets and liabilities:
(Increase) decrease in oil revenue receivable 50,045 (45,640)
(Increase) in advance receivable -
related party 17,049 (17,049)
(Increase) decrease in prepaid assets (225,000) 1,778
(Increase) decrease in deferred tax assets - 77,737
(Increase) in interest receivable related
parties - (14,417)
Increase in accounts payable - related party (13,335) 13,335
Increase in accounts payable (15,679) 108,010
(Decrease) in other accrued liabilities (81,000) 87,000
Increase (decrease) in deferred tax liability - (77,737)
_______________ _______________
Total Adjustments 261,242 184,812
_______________ _______________
Net Cash (Used) by Operating Activities (305,926) (155,804)
_______________ _______________
Cash Flows from Investing Activities:
Purchase of property and equipment - (35,233)
Purchase of oil and gas properties - (546,329)
Receipts on notes receivable 28,000 23,535
Issuance of notes receivable - (113,825)
_______________ _______________
Net Cash (Used) by Investing Activities 28,000 (671,852)
_______________ _______________
Cash Flows from Financing Activities:
Proceeds from issuance of common stock - 760,000
Proceeds from notes payable - related parties 245,000 -
_______________ _______________
Net Cash Provided by Financing Activities 245,000 760,000
_______________ _______________
Net Increase (Decrease) in Cash (32,926) (67,656)
Cash at Beginning of Year 37,816 105,472
_______________ _______________
Cash at End of Year $ 4,890 $ 37,816
_______________ _______________
[Continued]
<PAGE> 20
UPLAND ENERGY CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Increase (Decrease) in Cash
[CONTINUED]
For the Years Ended
December 31,
_______________________________
1998 1997
_______________ _______________
Supplemental Disclosures of Cash Flow Information:
Cash paid during the year for
Interest $ - $ -
Income taxes $ - $ -
Supplemental Disclosure of Noncash Investing and Financing Activities:
For the year ended December 31, 1998:
The Company cancelled 133,186 shares of common stock from the Company's
former president. The stock was recorded at $1.12 per share and was
acquired by cancellation of a note receivable in the amount of $134,376.
Legal counsel billed the Company for legal services totaling $4,380, of
which $3,235 was offset against a $20,000 note receivable and $1,145 was
offset against the corresponding interest receivable accrued on the note.
For the year ended December 31, 1997:
Legal counsel billed the Company for legal services totaling $7,145, of
which $6,535 was offset against a $20,000 note receivable and $610 was
offset against the corresponding interest receivable accrued on the note.
Legal counsel exercised options to purchase a total of 60,000 shares of
common stock, paid $10,000 cash and gave notes of $20,000 and $90,000
(for a total of $110,000) to the Company for consideration.
The prepaid asset in the amount of $25,000 was reversed and the legal
services were accounted for as a non-cash offering expense which is
offset against proceeds from the stock offering.
The president and secretary/treasurer exercised options to purchase a
total of 425,000 shares of common stock and gave notes of $55,000 and
$80,000 (for a total of $135,000), respectively, to the Company for
consideration.
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
<PAGE> 21
UPLAND ENERGY CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization - Upland Energy Corporation ["PARENT"] was incorporated under
the laws of the State of Utah on January 30, 1986 as Upland Investment
Corporation. Parent changed its name to Upland Energy Corporation during
November 1993. G. S. & C., Inc. ["SUBSIDIARY"], was incorporated under the
laws of the State of Nevada on September 1, 1993 and is engaged in the
development, production and selling of oil and gas in the State of Kansas.
During November 1993, PARENT acquired SUBSIDIARY in a transaction accounted
for as a recapitalization of subsidiary in a manner similar to a reverse
purchase. Accordingly, Subsidiary is treated as the purchaser entity in
the transaction.
Principles of Consolidation - The consolidated financial statements include
the accounts of the Company and its wholly-owned subsidiary. All
significant intercompany transactions have been eliminated in
consolidation.
Property and Equipment - Property and equipment are stated at cost.
Expenditures for major renewals and betterments that extend the useful
lives of property and equipment are capitalized, upon being placed in
service. Expenditures for maintenance and repairs are charged to expense
as incurred. Depreciation is computed using the straight-line method for
financial reporting purposes, with accelerated methods used for income tax
purposes. The estimated useful lives of property and equipment for
purposes of financial reporting range from five to seven years.
Oil and Gas Properties - The Company uses the successful efforts method of
accounting for oil and gas producing activities. Under that method, costs
are accounted for as follows:
a.Geological and geophysical costs and costs of carrying and retaining
undeveloped properties are charged to expense as incurred.
b.Costs of drilling exploratory wells and exploratory-type stratigraphic
test wells that do not find proved reserves are charged to expense
when the wells do not find proved reserves.
c.Costs of acquiring properties, costs of drilling development wells and
development-type stratigraphic test wells, and costs of drilling
successful exploratory wells and exploratory-type stratigraphic test
wells are capitalized.
d.The capitalized costs of wells and related equipment are amortized
over the life of proved developed reserves that can be produced from
assets represented by those capitalized costs. Mineral acquisition
costs (leasehold) are amortized as the proved reserves are produced.
e.Costs of unproved properties are assessed periodically, and a loss is
recognized if the properties are impaired.
<PAGE> 22
UPLAND ENERGY CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [Continued]
Revenue Recognition - The Company's revenue is generated primarily by the
production and sale of oil and gas. Revenue from oil and gas sales is
recognized when the product is transferred to the purchaser.
Stocked Based Compensation - The Company accounts for its stock based
compensation in accordance with Statement of Financial Accounting Standards
(SFAS) No. 123, "Accounting for Stock-Based Compensation". This statement
establishes an accounting method based on the fair value of equity
instruments awarded to employees as compensation. However, companies are
permitted to continue applying previous accounting standards in the
determination of net income with disclosure in the notes to the financial
statements of the differences between previous accounting measurements and
those formulated by the new accounting standard. The Company has adopted
the disclosure only provisions of SFAS No. 123, accordingly, the Company
has elected to determine net income using previous accounting standards.
Earnings (Loss) Per Share - The Company accounts for earnings (loss) per
share in accordance with Statement of Financial Accounting Standards No.
128, "Earnings Per Share," which requires the Company to present basic
earnings per share and dilutive earning per share when the effect is
dilutive. The computation of earnings (loss) per share is based on the
weighted average number of shares outstanding during the period presented
[See Note 13].
Cash and Cash Equivalents - For purposes of the statements of cash flows,
the Company considers all highly liquid debt investments purchased with a
maturity of three months or less to be cash equivalents.
Restricted Cash - The Company maintains a certificate of deposit of $10,000
for collateral for a performance bond related to its oil and gas
operations.
Income Taxes - The Company accounts for income taxes in accordance with
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes." This statement requires an asset and liability approach for
accounting for income taxes [See Note 7].
Dividend Policy - The Company has not paid any dividends on common stock to
date and does not anticipate paying dividends on common stock in the
foreseeable future.
Reclassification of Financial Statements - The financial statements for all
periods prior to December 31, 1998 have been reclassified to conform to the
titles and headings used in the December 31, 1998 financial statements.
Accounting Estimates - The preparation of the 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, the disclosures of contingent assets and
liabilities at the date of the financial statements and the reported amount
of revenues and expenses during the reporting period. Actual results could
differ from those estimated.
<PAGE> 23
UPLAND ENERGY CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [Continued]
Recently Enacted Accounting Standards - In June 1997, (SFAS) No's. 130,
"Reporting Comprehensive Income" and 131, "Disclosures about Segments of
an Enterprise and Related Information" were issued. SFAS No. 130 requires
that all items that are required to be recognized as comprehensive
income be reported in a financial statement that is displayed with the
same prominence as the other financial statements. SFAS No. 131 sets
standards for reporting information about operating segments in the
financial statements. SFAS No. 131 also sets standards for the disclosures
about products, major customers, and geographical areas. SFAS No. 132
provides for disclosures about pensions and other post-retirement
benefits. Although such statements are not effective until fiscal years
beginning after December 15, 1997, had such statements been adopted for
the periods presented, their effect on the financial statements would not
have been significant. SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" dictates the accounting standards for
Derivative Instruments and Hedging Activities and is effective for fiscal
years beginning after June 15, 1999. SFAS No. 134, "Accounting for
Mortgage-Backed Securities..." relates to Mortgage Backed Securities and
has no applicability to the Company. Had such SFAS's been adopted for
the periods presented, their effect on the financial statements would not
have been significant.
NOTE 2 - NOTES RECEIVABLE - RELATED PARTIES
Notes receivable, which include related parties [See Note 6], consist of
the following at December 31:
1998
_________
Note receivable from legal counsel in the original
amount of $20,000 received as consideration for
exercise of stock options, interest at 8.5% per
annum, due on or before January 17, 2001,
unsecured, unpaid accrued interest of $0 10,230
Note receivable from a former officer for exercise
of stock options, interest at 8.5% per annum,
due on or before January 17, 2001, unsecured,
unpaid accrued interest of $0 40,000
Note receivable from legal counsel received as
consideration for exercise of stock options, interest
at 8.5% per annum, due on or before January 17,
2001, unsecured, unpaid accrued interest of $10,396 90,000
___________
$ 140,230
___________
The notes receivable are presented on the balance sheet as a reduction to
stockholders' equity because the Company issued common stock for the notes.
<PAGE> 24
UPLAND ENERGY CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 - NOTES PAYABLE - RELATED PARTIES
During November through December 1998, the Company raised an additional
$245,000 in financing by issuing convertible promissory notes with
redeemable warrants in units of $5,000 each. Each unit consisted of a
convertible promissory note for $5,000 and 5,000 redeemable warrants to
purchase the Company's common stock at $.875 per share. The convertible
promissory notes have a maturity of one year, bear interest at 12% per
annum, and are secured by the oil production from the Company's Hittle
Field in Central Kansas. The promissory notes are convertible into the
Company's common stock, at the holder's option, at the rate of one share
for each $1.50 of principal and accrued but unpaid interest. The warrants
are exercisable for two years from the date of exercising the conversion
feature of the promissory note. Each warrant is redeemable at the
redemption price of $.10 per warrant on the company's 30 day written notice
to the holders if the closing bid price for the Common Stock, as reported
on the National Associations of Securities Dealers Electronic Bulletin
Board, is $1.50 per share or more for ten consecutive trading days or is
$1.50 per share or more for 15 trading days in any 30 trading day period.
NOTE 4 - PROPERTY AND EQUIPMENT
The following is a summary of property and equipment - at cost, less
accumulated depreciation as of December 31:
1998 1997
___________ ___________
Furniture and office equipment $ 8,602 $ 12,328
Vehicle - 29,278
Less: accumulated depreciation (3,975) (9,597)
___________ ___________
Total $ 4,627 $ 32,009
___________ ___________
Depreciation expense charged to operations was $1,842 and $7,112 for the
years ended December 31, 1998 and 1997.
NOTE 5 - OIL AND GAS PROPERTIES
Upon placing oil and gas properties and production equipment in use, the
unit-of-production method, based upon estimates of proven developed and
undeveloped reserves, is used in the computation of depreciation and
depletion. For the year ended December 31, 1998 and 1997, the Company
recorded depletion of $55,612 and $37,538, respectively.
<PAGE>
<PAGE> 25
UPLAND ENERGY CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 - OIL AND GAS PROPERTIES [Continued]
The estimates of oil and gas reserves used by the Company were produced
internally by management and others who were not independent with respect
to the Company (who subsequently are no longer employed by the Company).
The Company has experienced continuing operating losses the past few years
and has experienced some cash flow shortages. Due to the cash shortages,
management has not hired an independent reserve engineer to update its
reserve information. Accordingly, the Company has not presented the
supplemental oil and gas information that the Financial Accounting
Standards Board has determined is necessary to supplement, although not
required to be part of, the basic financial statements. The missing
supplemental information relates to reserves quantities, capitalized costs
related to oil and gas production activities, results of operations of oil
and gas production activities and a standardized measure of discounted
future net cash flows related to reserve quantities. Management, in the
past, has also depended on related parties and others to provide financing
plus additional capital through sale of its common stock.
The ultimate realization of the Company's investment in oil and gas
properties is dependent upon the Company being able to economically recover
and sell a minimum quantity of its oil and gas reserves and to be able to
fund the maintenance and operations of its wells. The financial statements
do not include any adjustments related to the uncertainty that the Company
might not recover its estimated reserves.
Robinson Project - During October through December 1997, the Company
entered into five oil and gas leases for a total of 498.12 acres on the
McLouth field, located in Jefferson County, Kansas. Each lease agreement
provides for the Company to lease the property for a term of ten years
["PRIMARY TERM"] and as long thereafter as oil, liquid hydrocarbons, gas,
or their respective constituent products, are produced. If operations for
drilling are not commenced on or before one year from the date of each
lease, each lease shall terminate. If however, on or before one year from
the date of each lease the Company pays an additional rental of $5.00 per
acre per lease, the Company may defer commencement of drilling operations
for an additional period of 12 months on each lease. In like manner and
upon payments of $5.00 per acre per lease, the commencement of drilling
operations may be further deferred (without cancellation of lease) for
additional periods of 12 months each during the PRIMARY TERM. Upon
production, a royalty fee of 12.5% of total sellable production is payable
to the property owner of each producing lease. No operations for drilling
ever commenced on any of these leases and all of these lease agreements
expired.
On December 1, 1997, the Company paid $70 and entered into an oil and gas
lease for 70 acres on the McLouth field, located in Jefferson County,
Kansas. The lease agreement provides for the Company to lease the property
for a term of 120 days ["PRIMARY TERM"] and as long thereafter as oil,
liquid hydrocarbons, gas, or their respective constituent products, are
produced. If operations for drilling are not commenced on or before March
31, 1998, the lease shall terminate. Upon production, a royalty fee of
18.8% of total sellable production is payable to the property owner. No
operations for drilling ever commenced and the lease was terminated.
During 1998, all costs associated with this project have been expensed.
<PAGE> 26
UPLAND ENERGY CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 - OIL AND GAS PROPERTIES [Continued]
Hittle Project - During 1998 the Company capitalized $0 additional funds
into the Hittle Project. During 1997, the Company included $558,861 in oil
and gas properties for the Hittle field. This included initial investments
into several new leases as well as drilling costs. During September 1997,
the Company began producing on the Hittle field. During April 1997, the
Company entered into seven oil and gas leases for a total of 880 acres on
the Hittle field, located in Cowley County, Kansas. The lease agreements
provide for the Company to lease the property for a term of two or three
years ["PRIMARY TERM"] and as long thereafter as oil, liquid hydrocarbons,
gas, or their respective constituent products, are produced. If operations
for drilling are not commenced on or before one year from the date of each
lease, each lease shall terminate. If however, on or before one year from
the date of each lease, the Company pays an additional rental for each
lease of $5.00 or $1.00 per acre depending on lease ($4,040 total for
renewal of all seven leases), the Company may defer commencement of
drilling operations for an additional period of 12 months.
In like manner and upon payments of $5.00 or $1.00 per acre depending on
lease, the commencement of drilling operations may be further deferred
(without cancellation of lease) for additional periods of 12 months each
per lease during the PRIMARY TERM. Upon production, a royalty fee of
12.5%, 15.6%, or 18.8%, of total sellable production is payable to property
owner. The Company paid the $5.00 rental per acre on all of these leases
and deferred commencement of drilling.
During September, 1993 the Company entered into a "farm-out" agreement with
Kenneth L. Mason, individually and KLM Exploration, Inc., a Kansas
corporation (collectively referred to as "KLM"), wherein the Company would
perform drilling and production operations on leases currently "farmed-out"
to KLM from Williams Natural Gas Company. The agreement provided that KLM
would assign its interests in the properties to the Company in return for
a cash payment of $100,000 and a 25% working interest in the location,
carried through the tanks resulting in a net royalty interest, after taking
all other interest holders into account, of 58.5%. KLM would operate the
wells for a fee of $75-$100 per well. The operating contract had no
termination date. KLM's farm-out agreement with the other company
terminates when production activities cease. During 1996, the Company
filed a lawsuit against KLM who in turn filed a counterclaim against the
Company. During February 1998, the Company settled litigation with KLM.
As settlement of the litigation, KLM turned over the operation and its
interest in the McLouth field to the Company and the Company agreed to pay
$1,500 for certain equipment.
NOTE 6 - RELATED PARTY TRANSACTIONS
During 1997 the Secretary/Treasurer of the Company gave a note to the
Company in the amount of $29,449 at 8.5% interest per annum. The note is
due in full on or before July 8, 1998. During 1998, this note plus
corresponding interest was paid in full.
During April 1998 the Company sold a vehicle to the company's president for
$16,600.
<PAGE> 27
UPLAND ENERGY CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 - RELATED PARTY TRANSACTIONS [Continued]
During January 1997, the secretary/treasurer of the Company exercised stock
options for the purchase of shares of the Company's common stock. The
secretary of the Company gave a note to the Company in the amount of
$80,000 at 8.5% interest per annum. This note was to be repaid in three
equal installments of principle and interest per year and was to be paid in
full on or before January 17, 2001. At December 31, 1998, the unpaid
balance on the note amounted to $40,000 with accrued interest of $0 [See
Note 2]. The note has been accounted for as a reduction to stockholders'
equity.
During 1996 the president of the Company advanced the Company $200. The
advances were non-interest bearing and as of December 31, 1997, the unpaid
balance was $200. During the year ended December 31, 1998, the Company
settled the advances from the president of the Company
During 1996 the secretary/treasurer of the Company advanced the Company a
total of $3,600. The advances were non-interest bearing and as of December
31, 1998, the unpaid balance was $0.
NOTE 7 - INCOME TAXES
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards (SFAS) No. 109, "Accounting for Income
Taxes". SFAS No. 109 requires the Company to provide a net deferred tax
asset or liability equal to the expected future tax benefit or expense of
temporary reporting differences between book and tax accounting and any
available operating loss or tax credit carryforwards. At December 31, 1998
and 1997, the total of all deferred tax assets was $774,896 and $717,459,
respectively, and the total of the deferred tax liabilities was $189,178
and $358,325, respectively. The amount of and ultimate realization of the
benefits from the deferred tax assets for income tax purposes is dependent,
in part, upon the tax laws then in effect, the Company's future earnings,
and other future events, the effects of which cannot presently be
determined. Because of the uncertainty surrounding the realization of the
deferred tax assets, the Company has established a valuation allowance of
$585,719 and $359,133 as of December 31, 1998 and 1997, respectively, which
has been offset against the deferred tax assets. The net increase in the
valuation allowance during the years ended December 31, 1998 and 1997
amounted to approximately $226,586 and $155,949, respectively.
As of December 31, 1998 and 1997, the Company has net tax operating loss
[NOL] carryforwards available to offset its future income tax liability.
The NOL carryforwards have been used to offset deferred taxes for financial
reporting purposes. The Company has federal NOL carryforwards of
approximately $1,851,978 that expire in various years between 2001 and
2018.
<PAGE>
<PAGE> 28
UPLAND ENERGY CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 - INCOME TAXES [Continued]
The components of income tax expense from continuing operations for the
years ended December 31, 1998 and 1997 consist of the following:
December 31,
_________________________
1998 1997
____________ ____________
Current income tax expense:
Federal $ - $ -
State - -
____________ ____________
Net current tax expense - -
____________ ____________
Deferred tax expense (benefit) arising from:
Excess of tax over financial accounting
depreciation $ (169,147)$ 168,554
Net operating loss carryforwards (89,628) (370,050)
Excess of financial accounting over tax
compensation - APB 25 - 77,737
Litigation reserve 32,190 (32,190)
Valuation allowance 226,585 155,949
____________ ____________
Net deferred tax expense $ - $ -
____________ ____________
Deferred income tax expense results primarily from the reversal of
temporary timing differences between tax and financial statement income.
A reconciliation of income tax expense at the federal statutory rate to
income tax expense at the Company's effective rate is as follows:
December 31,
_________________________
1998 1997
____________ ____________
Computed tax at the expected federal
statutory rate $ (206,437) $ (115,810)
Other (1,933) (357)
Excess of financial accounting over tax
compensation - APB 25 - (29,563)
State income taxes, net of federal income
tax benefits (18,215) ( 10,219)
Valuation allowance 226,585 155,949
____________ ____________
Computed tax at the effective income tax rates $ - $ -
____________ ____________
<PAGE>
<PAGE> 29
UPLAND ENERGY CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 - INCOME TAXES [Continued]
The temporary differences and carryforwards gave rise to the following
deferred tax asset (liability) at December 31, 1998 and 1997:
1998 1997
____________ ____________
Excess of tax over book accounting
depreciation (189,178) (358,325)
Contribution carryover 37 37
NOL carryforwards 774,859 685,232
Litigation reserve - 32,190
As of December 31, 1998 and 1997, the deferred taxes reflected in the
consolidated balance sheet are as follows:
1998 1997
____________ ____________
Short term asset (liability) $ - $ -
Long term asset (liability) $ - $ -
NOTE 8 - COMMON STOCK TRANSACTIONS
During August 1998, the Company granted options to purchase 50,000 shares
of the Company's common stock at $1.00 per share to its legal counsel.
However, during November 1998 the Company canceled these options and
granted legal counsel options to purchase 50,000 shares of the Company's
common stock at $.625 per share. During August 1998, the Company granted
options to a new director to purchase 10,000 shares of the Company's common
stock at $1.00 per share. However, during November 1998 the company
canceled these options and granted legal counsel options to purchase 10,000
shares of the Company's common stock at $.625 per share. Also during
November 1998 the Company granted two officers and shareholders of the
company options to purchase 20,000 shares (10,000 each) of the Company's
common stock at $.625 per share.
During 1998 the Company cancelled 133,186 shares of common stock from the
company's former president. The market value of the shares was at $1.12
per share. The shares were purchased by cancellation of a note receivable
in the amount of $139,376 that was canceled along with the shares.
On December 16, 1996 the Board of Directors resolved that 60,000 shares of
common stock be reserved for issuance upon exercise of options granted to
legal counsel for services to be performed in the amount of $25,000. The
exercise price for the options is $2.00, the options vest on December 16,
1996, and the options expire on December 16, 2001. The cost of the legal
services has been accounted for as an addition to prepaid expenses and a
charge to additional paid-in capital. The prepaid expense reversed during
1997 and was offset against additional paid-in capital as a stock offering
expense. The options had previously been granted during 1996 in connection
with services to be performed in 1997. The Company received cash of $10,000
and two notes receivable totaling $110,000 (a $90,000 note and a $20,000
note) as consideration for the exercise price of the options. Both notes
provide for interest at 8.5% per annum and are to be repaid in full on or
before January 17, 2001. The note for $90,000 may be paid for by the
cancellation of obligations owed by the Company for legal services. The
Company received total proceeds of $120,000 for exercise of the options.
Both notes have been classified as a reduction of stockholders' equity on
the balance sheet.
<PAGE> 30
UPLAND ENERGY CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 - COMMON STOCK TRANSACTIONS [Continued]
On October 1, 1996, the Board of Directors resolved that 120,000 (initial
shares) and 155,000 (restricted shares) unissued shares of common stock be
granted upon exercise of options granted to an officer of the Company under
the terms of his employment agreement with the Company. The 120,000
(initial shares) and 155,000 (restricted shares) options have an exercise
price of $.20, vest on September 1, 1996 and expire on August 31, 1998.
All 255,000 options were exercised during January, 1997. The Company
received a note receivable as consideration for the exercise price.
Private Offering - During August 1996, the Company issued 500,000 units,
for cash at $.70 per unit, which consisted of one share of common stock and
one common stock purchase warrant in a private placement offering. The
purchase warrant allows the holder to purchase another share of common
stock at an exercise price of $1.50. Total proceeds amounted to $350,000.
The Company issued 50,000 units of common stock and warrants for
commissions of $35,000 in connection with the private placement offering.
During February, 1997, the Company made an offering to the holders of the
Company's currently outstanding common stock purchase warrants who
exercised their existing warrants by February 21, 1997, to receive one new
common stock purchase warrant (exercisable into one share of common stock
at an exercise price of $2.00 per share) for every two existing warrants
exercised. The Company believes the offering was exempt from registration
with the Securities and Exchange Commission under Rule 506 of Regulation D
as promulgated under the Securities Act of 1933, as amended. The existing
warrants were exercisable into one share of common stock at an exercise
price of $1.50 per share. During February 1997, 500,000 of the existing
warrants were exercised and the Company received total proceeds of
$750,000.
On December 15, 1996 the Board of Directors resolved that 100,000 shares of
common stock be reserved for issuance upon exercise of options granted to
four officers of the Company. The exercise price for the options is $2.00,
and the options vest on December 15, 1996 and expire on December 15, 2001.
During the year ended December 31, 1998, 25,000 of these options were
cancelled as part of the settlement agreement with the president of the
Company.
During November, 1996 the Board of Directors resolved that 150,000 unissued
shares of common stock be granted upon exercise of options, under a stock
option plan, to an officer of the Company under the terms of his employment
agreement with the Company. Of the 150,000 options granted, 50,000 options
have an exercise price of $.20, vest on November 12, 1996 and expire on
August 31, 1998. The remaining 100,000 options have an exercise price of
$.70, vest on November 12, 1996 and expire on August 31, 1998. During
January 1997, the secretary/treasurer of the Company exercised options
for a total of 150,000 shares of common stock. The first 50,000 shares
were exercised at $.20 per share and the remaining 100,000 shares
were exercised at $.70 per share. The options had previously been granted
during 1996 in connection with an employment agreement. The Company
received a note receivable as consideration for the exercise price of the
options.
Warrants - At December 31, 1998, the Company had 500,000 warrants
outstanding to purchase common stock at $2.00 per share and 50,000 warrants
to purchase common stock at $1.50 per share and 245,000 warrants
outstanding to purchase common stock at $.875 per share. The warrants all
have a three year life [See Note 3].
<PAGE> 31
UPLAND ENERGY CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 - COMMON STOCK TRANSACTIONS [Continued]
Stock Options - The Company applies APB Option No. 25 in accounting for its
options granted under the employment agreements. Compensation of $0 and $0
was recorded in 1998 and 1997 respectively. The Corporation has adopted
the disclosure-only provisions of Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation." The effect
on net income from the adoption of Statement of Financial Accounting
Standards No. 123 "Accounting for Stock Based Compensation" are the same.
The fair value of each option granted is estimated on the date granted
using the Black-Scholes option pricing model with the following weighted-
average assumptions used for grants during the period ended December 31,
1998, risk-free interest rates of 6.33%, expected dividend yields of zero,
expected life of 5 years, and expected volatility 78%.
A summary of the status of the options granted under the Company's stock
option plan at December 31, 1998 and 1997, and changes during the periods
then ended are presented in the table below:
Year Ended Year Ended
December 31, 1998 December 31, 1997
_________________________ _________________________
Weighted Average Weighted Average
Shares ExercisePrice Shares Exercise Price
_________ _______________ _________ _______________
Outstanding at
beginning of period 100,000 $ 2.00 525,000 $ .64
Granted 140,000 0.78 60,000 2.00
Exercised - - (485,000) .32
Forfeited - - - -
Canceled (85,000) 1.30 - -
_________ _______________ _________ _______________
Outstanding at end of
Period 155,000 $ 1.28 100,000 $ 2.00
_________ _______________ _________ _______________
Weighted average fair value
of options granted 155,000 $ 1.28 60,000 $ 2.00
_________ _______________ _________ _______________
NOTE 8 - COMMON STOCK TRANSACTIONS [Continued]
A summary of the status of the options outstanding under the Company's
stock option plan at December 31, 1998 is presented below:
Options Outstanding Options Exercisable
_____________________________________________ _________________________
Range of Weighted-Average Weighted-Average Weighted-Average
Exercise Number Remaining Exercise Number Exercise
Prices Outstanding Contractual Life Price Exercisable Price
_____________________________________________________________________________
2.00 75,000 4 Years 2.00 75,000 2.00
.625 80,000 5 Years .625 80,000 .625
_____________________________________________________________________________
155,000 155,000
<PAGE> 32
UPLAND ENERGY CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company accounts for option agreements under Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees", and
related interpretations. Had compensation cost for these options been
determined, based on the fair value at the grant dates for awards under
these agreements, consistent with the method prescribed by Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation", the Company's net loss would have been the proforma amounts
as indicated below:
For the Years Ended
December 31,
_______________________________
1998 1997
_______________ _______________
Net Loss applicable to
common stockholders As reported $ (567,168) $ (340,616)
Proforma $ (567,168) $ (340,694)
Earnings per Share As reported $ (.16) $ (.10)
Proforma $ (.16) $ (.10)
NOTE 9 - CONTINGENCIES
Litigation - The Company may become or is subject to investigation, claim
or lawsuit ensuring out of the normal conduct of its business, including
those related to environmental, safety and health, commercial transactions,
etc. The Company is currently not aware of any such items, which it
believes could have a material adverse affect on its financial position
except as disclosed below.
During 1996, the Company filed a lawsuit against an operator of the wells
in the McLouth field. The Company claims the operator failed to service,
maintain, and operate the wells in a reasonable manner. The Company was
asking for damages in excess of $500,000. The operator asserted a
counterclaim against the Company for breech of contract alleging damages in
excess of $500,000. During the year ended December 31, 1998, the Company
negotiated a settlement agreement with the operator wherein the Company
would prepay the plugging costs in the amount of $15,000 in 1998, $15,000
in 1999 and $15,000 in 2000. All lawsuits and countersuits were dropped
and the Company took over as operator of the wells in the McLouth field.
During 1995, a lawsuit was filed against the Company by the landowners of
one of the Company's three developed oil leases in the McLouth field,
generally referred to as the "B" lease. The "B" lease contains two of the
Company's fifteen productive wells. During the year ended 1995 the Company
chose not to produce or further develop on the "B" lease until resolution
of the lawsuit with the landowners. The Company has answered the suit,
denied the plaintiffs' claims, and asserted a counterclaim and affirmative
defenses. The Company disputed the plaintiffs' claims and defended the
case vigorously to protect its interest in the lease. During October 1997,
the district judge entered an order granting summary judgement in favor of
the plaintiffs and decreed cancellation of the "B" Lease. It is
management's and their counsel's opinion that the court's entry of summary
judgement for plaintiffs was erroneous under both the facts and the law.
However, management subsequently determined during 1998 not to appeal the
summary judgement. The remaining assets not covered by the allowance
previously accrued have been written off.
<PAGE>
<PAGE> 33
UPLAND ENERGY CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9 CONTINGENCIES [Continued]
During May 1998, the Company settled a litigation with the former
president of the Company by purchasing 133,186 shares of the Company's
common stock from the president and canceling them. The market value of
the stock was $1.12 per share. All amounts owed to the Company by the
president were canceled in connection with this agreement.
Realization of Wells - The Company has depended on related parties and
others to provide financing through loans and additional purchase of its
common stock. The ultimate realization of the Company's investment in
oil and gas properties is dependent upon the Company being able to
economically recover and sell a minimum quantity of its oil and gas
reserves and to be able to fund the maintenance and operations if is
wells. The financial statements do not include any adjustments related
to the uncertainty that the Company might not recover its estimated reserves.
NOTE 10 - COMMITMENTS AND AGREEMENTS
Employment Agreements - During December, 1997 the Company entered into an
employment agreement with the production supervisor. The agreement has a
one year term and provides for a minimum salary of $24,000 per year during
the term of the agreement. The agreement also provides for a production
bonus of five cents per barrel on all oil produced on the Company's Hittle
Field in Kansas and any subsequent field developed by the Company during
the term of this agreement. During 1998, the Company extended the
employment agreement with the production supervisor for another year.
During October, 1996 the Company entered into employment agreements with
two of its officers. The agreement with the president of the Company has a
two year term and provides for a minimum salary of $60,000 per year during
the term of the agreement. The agreement also provides for commissions of
$1.50 per barrel of oil shipped in any month in excess of 2,000 barrels.
Lastly, the agreement provides for stock options to purchase up to 275,000
shares of common stock. The options may be exercised at any time after
September 1, 1996 [See Note 8]. During 1998, the Company terminated the
employment of the president of the Company. The agreement with the
secretary/treasurer of the Company has a two-year term and provides
for a yearly minimum salary of $36,000. The secretary/treasurer
also received options to purchase up to 150,000 shares of common stock
which may be exercised at any time after November 12, 1996 [See Note 8].
During 1998, the secretary/treasurer terminated his employment with
the Company. These employment agreements amended any prior employment
agreements and canceled any options granted in the prior employment
agreements.
During November 1998 the company entered into a one-year employment
agreement with the Company's new president. The terms of the agreement
include a base salary of $3,000 per month that can be paid in cash or
converted to stock at market value. As of December 31, 1998 the Company
had not paid out any salary but under this agreement has accrued $6,000 of
unpaid salary.
Operating Agreement - During December 1998, the Company hired Pace
Exploration to handle all of the Company's operation and drilling on the
Hittle Field. Under the terms of the Agreement, Pace Exploration received
a twenty percent working interest in the Hittle Field.
<PAGE>
<PAGE> 34
UPLAND ENERGY CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10 COMMITMENTS AND AGREEMENTS [Continued]
Rental Agreements - The Company has entered into various office space and
equipment rental agreements in the normal course of its business. The
agreements are on a month to month basis and, accordingly, are accounted
for on a monthly basis. The minimum amounts presently being paid on those
agreements is approximately $2,400 per month. During 1998, the Company
terminated its office space agreements and entered into an additional
equipment rental agreement with monthly payments of $1,795. The Company
then terminated the additional equipment rental agreement in December 1998.
NOTE 11 - RESTRICTED CASH
The Company has a $10,000 certificate of deposit with an interest rate of
4.60% annually. The certificate of deposit is renewed annually and is
pledged as collateral for a performance bond related to the Company's oil
and gas operations.
NOTE 12 - CONCENTRATION OF CREDIT RISKS
The Company sells substantially all of its oil production to two purchasers
because it is able to negotiate more favorable terms with the purchasers.
If the purchasers stopped buying products from the Company, the Company
would be forced to contract with other purchasers available in the areas
where the oil is produced. The effect of a purchaser pulling out would at
least put a temporary downward pressure on prices in the area but it is not
currently possible for the Company to estimate how the Company would be
affected. Management believes that its oil is a commodity that is readily
marketable and that the marketing method it follows is typical of similar
companies in the industry.
NOTE 13 - EARNINGS (LOSS) PER SHARE
The following data show the amounts used in computing earnings (loss) per
share and the effect on income and the weighted average number of shares of
dilutive potential common stock for the years ended December 31, 1998 and
1997:
For the Years Ended
December 31,
_______________________________
1998 1997
_______________ _______________
Income (loss) from continuing operations
applicable to common stock $ (567,168) $ (340,616)
_______________ _______________
Income (loss) available to common stockholders
used in earnings (loss) per share $ (567,168) $ (340,616)
_______________ _______________
Weighted average number of common shares used in
earnings (loss) per share outstanding during
the period 3,648,026 3,565,542
_______________ _______________
Dilutive earnings per share was not presented, as its effect was anti-
dilutive for the years ended December 31, 1998 and 1997.
<PAGE> 35
UPLAND ENERGY CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14 - GOING CONCERN
The accompanying financial statements have been prepared in conformity
with generally accepted accounting principles which contemplate continuation
of the Company as a going concern. However, the Company has not
yet established profitable operations and has incurred significant
losses. Further, the Company has current liabilities in excess of current
assets at December 31, 1998. These factors raise substantial doubt about
the ability of the Company to continue as a going concern. In this
regard, management is proposing to raise additional funds through
loans and/or through additional sales of its common stock and/or sale of
non-profitable wells which funds will be used to assist in
establishing on-going operations. There is no assurance that the Company
will be successful in raising this additional capital or achieving
profitable operations. The financial statements do not include any
adjustments that might result from these uncertainties.
NOTE 15 - SUBSEQUENT EVENTS
New Wells - During 1999, the Company applied its deposit of $225,000 and
drilled two additional wells on the Hittle Field. These wells have been
completed for production, one well was a dry hole and the company has
planned to use it as a disposal well. The other well is producing oil.
Receipt of Note Receivable - During 1999, the Company received $40,000 from
a former officer for amounts owed the Company [see note 2].
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 4,890
<SECURITIES> 0
<RECEIVABLES> 14,736
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 244,626
<PP&E> 4,627
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,026,366
<CURRENT-LIABILITIES> 357,067
<BONDS> 0
0
0
<COMMON> 2,191,862
<OTHER-SE> (1,522,563)
<TOTAL-LIABILITY-AND-EQUITY> 1,026,366
<SALES> 203,708
<TOTAL-REVENUES> 215,349
<CGS> 0
<TOTAL-COSTS> 774,087
<OTHER-EXPENSES> (8,430)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (567,168)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (567,168)
<EPS-BASIC> (.16)
<EPS-DILUTED> (.16)
</TABLE>
