<PAGE>
                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                 FORM 10-KSB/A
(Mark One)

[X]      Annual report under Section 13 or 15(d) of the Securities Exchange Act
         of 1934.

         For the fiscal year ended December 31, 2002

                                       or

[ ]      Transition report under Section 13 or 15(d) of the Securities Exchange
         Act of 1934.

         For the transition period from __________ to ___________

                         Commission file number 1-13513
                                                -------

                         UNITED STATES EXPLORATION, INC.
                 ----------------------------------------------
                 (Name of small business issuer in its charter)


            Colorado                                              84-1120323
-------------------------------                              -------------------
(State or other jurisdiction of                              (I.R.S. Employer
incorporation or organization)                               Identification No.)


1560 Broadway, Suite 1900, Denver, Colorado                         80202
-------------------------------------------                       ----------
(Address of principal executive offices)                          (Zip Code)

                                 (303) 863-3550
                ------------------------------------------------
                (Issuer's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Exchange Act:


      Title of each class              Name of each exchange on which registered

Common Shares, $.0001 par value               The American Stock Exchange
-------------------------------               ---------------------------

Securities registered pursuant to Section 12(g) of the Exchange 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.
Yes [X]     No [ ]



<PAGE>

Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B 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. [ ]

The issuer's revenues for its most recent fiscal year were $10,090,635.

The aggregate market value of the common equity held by non-affiliates of the
registrant as of March 13, 2003, was approximately $18,478,000 based upon the
last reported sale of the registrant's Common Shares on that date.

The total number of Common Shares outstanding as of March 13, 2003 was
18,739,939.

                      DOCUMENTS INCORPORATED BY REFERENCE:

                                      None.

Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]



<PAGE>
                                EXPLANATORY NOTE

     The Company is filing this Amendment No. 1 to the Annual Report on Form
10-KSB/A to restate its audited financial statements for the fiscal years ended
December 31, 2002 and 2001 and to revise certain disclosures in response to
comments received from the Staff of the Division of Corporation Finance of the
United States Securities and Exchange Commission in connection with the Staff's
review of the Company's preliminary proxy statement on Schedule 14A filed on
October 8, 2003 to solicit shareholder approval of the proposed merger between
the Company and a wholly owned subsidiary of U.S. Exploration Holdings, Inc.

     The restatement relates to the manner in which the Company accounted for
the sale of an oil and gas project located in Neosho County, Kansas in June
2001 and to the recognition of contracting and operating fees during 2002 and
2001. The details of the restatement are presented in Note 1 of the Notes to
Consolidated Financial Statement.

     The Items of the Company's Annual Report on Form 10-KSB for the year ended
December 31, 2002 which are amended by this Amendment No. 1 are as following:
Items 1 and 2 - Description of Business and Properties; Item 6 - Management's
Discussion and Analysis or Plan of Operation; and Item 7 - Financial Information
(including the Consolidated Financial Statements, Notes to Consolidated
Financial Statements and the Report of Independent Certified Public
Accountants). All other Items contained within this Amendment No. 1 are
unchanged from the Company's Annual Report on Form 10-KSB for the year ended
December 31, 2002. This Amendment No. 1 does not reflect events occurring after
April 15, 2003, the filing date of the original Form 10-KSB, and the Company
recommends that you read this report in conjunction with the Company's reports
filed after that date.
<PAGE>

                                TABLE OF CONTENTS


<Table>
<Caption>
                                                                                                PAGE
<S>                                                                                             <C>
PART I
         Items 1 and 2.     Description of Business and Properties                                1

         Item 3.            Legal Proceedings                                                     9

         Item 4.            Submission of Matters to a Vote of
                            Security Holders                                                      9

PART II

         Item 5.            Market for Common Equity and Related
                            Stockholder Matters                                                   9

         Item 6.            Management's Discussion and Analysis or
                            Plan of Operation                                                    10

         Item 7.            Financial Statements                                                 22

         Item 8.            Changes in and Disagreements with Accountants
                            on Accounting and Financial Disclosure                               22

PART III

         Item 9.            Directors, Executive Officers, Promoters and
                            Control Persons; Compliance With Section
                            16(a) of the Exchange Act                                            23

         Item 10.           Executive Compensation                                               26

         Item 11.           Security Ownership of Certain Beneficial Owners                      28
                            and Management

         Item 12.           Certain Relationships and Related Transactions                       31

         Item 13.           Exhibits and Reports on Form 8-K                                     32

         Item 14.           Controls and Procedures                                              35

Index to Financial Statements
Signature Page
</Table>



<PAGE>

                             ADDITIONAL INFORMATION

         Descriptions in this Report are qualified by reference to the contents
of any contract, agreement or other documents and are not necessarily complete.
Reference is made to each such contract, agreement or document filed as an
exhibit to this Report, or previously filed by the Company pursuant to
regulations of the Securities and Exchange Commission (the "Commission").
(See "Item 13. Exhibits and Reports on Form 8-K.")

                           FORWARD-LOOKING STATEMENTS

         See "Special Note Regarding Forward-Looking Statements" at the end of
"Item 6. Management's Discussion and Analysis or Plan of Operation" for
cautionary statements concerning forward-looking information contained in this
report.



<PAGE>

ITEMS 1. AND 2. DESCRIPTION OF BUSINESS AND PROPERTIES

GENERAL

         United States Exploration, Inc. ("UXP" or the "Company") is an
independent producer of oil and natural gas. Our oil and gas properties are
located in the Wattenberg area of the Denver- Julesburg Basin in northeastern
Colorado. During 2001, we sold our oil and gas properties and natural gas
gathering systems in Kansas. We are a Colorado corporation originally
incorporated in 1989.

OIL AND GAS PRODUCTION

         Net oil and gas production (after royalties), average production costs
and average sales prices for our products for the years ended December 31, 2002,
2001 and 2000 are shown in the table below:

                           NET OIL AND GAS PRODUCTION,
                    AVERAGE PRODUCTION COSTS AND SALES PRICES


<Table>
<Caption>
                                    Net                      Production            Average Sales Price
                                 Production                   Cost Per           --------------------------
                        -----------------------------        Equivalent          Per Bbl            Per Mcf
Period                  Oil (Mbbl)         Gas(Mmcf)          Unit(1)            of Oil             of Gas
------                  ----------         ----------        ----------          -------            -------
<S>                     <C>                <C>               <C>                 <C>                <C>
Year ended
December 31,
2002(2)                    134.1              2,493              $4.99               $25.52           $2.54

Year ended
December 31,
2001(3)                    178.3              1,879              $5.01               $26.19           $3.98

Year ended
December 31,
2000(3)                    132.2              1,955              $6.71               $29.30           $3.64
</Table>

----------

(1)      Production cost per equivalent unit is calculated at the rate of 6 Mcf
         of natural gas per Bbl of oil.

(2)      All production is from the Colorado properties. In computing average
         sales prices for oil and gas, total revenues from oil have been reduced
         $70,000 and total revenues from natural gas have been reduced $263,000
         for revenues during 2002 not attributable to 2002 production.



                                      -1-
<PAGE>

(3)      Substantially all of the oil and gas production is attributable to the
         Colorado properties. Production for 2000 includes four months of
         production from 60 wells in Colorado sold to an unaffiliated oil and
         gas company effective May 1, 2000 and 12 months of production from our
         wells in Kansas. Production for 2001 includes five months of production
         from our wells in Kansas which were sold effective June 1, 2001.

         Gas from our operated wells is delivered through lines constructed by
us or others to gathering systems where the gas is moved to our purchasers. For
some gathering systems, a separately stated fee is paid to the owner of the
system. Some gas from our non-operated wells is sold by the operator pursuant to
arrangements made by it and we are paid by the operator rather than the
purchaser. However, we take our share of the gas produced from most non-operated
wells in kind and sell it under the same procedures that we sell gas produced
from wells operated by us. Oil from our operated wells is sold under contracts
to purchasers who pick up the oil from stock tanks located on or near our
leases. Oil from non-operated wells is sold by the operator of the well pursuant
to arrangements made by it and we are paid by the operator for our share of the
oil.

         Natural gas that we sell is sold under contracts at prices determined
on a monthly basis by reference to various published futures or spot prices for
gas. Oil is also sold at prevailing spot prices. During the year ended December
31, 2002, there were two purchasers or operators who accounted for more than 10%
of our revenues from produced oil and gas sales. EnCana Energy Resources Inc.
(formerly Pan Canadian Energy Resources, Inc.) and Valero Energy (formerly
Diamond Shamrock) purchased from the Company or sold for the Company's account
oil and gas constituting 54% and 17%, respectively, of total 2002 sales. The
loss of either of these purchasers would temporarily affect our revenues, but we
believe we will continue to have a market for our products for the foreseeable
future.

         The availability of a ready market for our oil and gas depends upon
numerous factors beyond our control, including the extent of domestic production
and importation of oil and gas, the relative status of the domestic and
international economies, the proximity of our properties to gas gathering
systems, the capacity of those systems, the marketing of other competitive
fuels, fluctuations in seasonal demand and governmental regulation of
production, refining, transportation and pricing of oil, natural gas and other
fuels.

         We have not incurred and do not anticipate incurring material costs for
compliance with existing or probable government regulations. Nor do we
anticipate incurring material costs or experiencing material effects from
compliance with environmental laws, whether federal, state or local. Although we
are required to comply with various laws and regulations applicable to our
operations, the cost of compliance is not significant and is a part of our
ordinary operating costs.

 PROPERTIES

         The following table summarizes our gross and net producing wells and
gross and net developed acres at December 31, 2002, all of which are in
Colorado. The undeveloped acres shown in the table do not include the acreage
covered by the Exploration Agreement described below because we have to drill
wells to earn acreage under that agreement.


<Table>
<Caption>

           Producing Wells
-------------------------------------             Developed                 Undeveloped
       Gas                   Oil                    Acres                      Acres
---------------        --------------        -------------------         -----------------
Gross       Net        Gross      Net        Gross         Net           Gross         Net
-----       ---        -----      ---        -----        ------         -----        -----
<S>         <C>        <C>        <C>        <C>          <C>            <C>          <C>
 282        122         153        87        65,996       52,593         5,599        2,235
</Table>

         Please see the Glossary at the end of this Item for definitions of
gross and net wells and gross and net acres. We own different interests in
different productive or potentially productive formations on many of our
properties. The net acres reflected in the table are based on our interests in
the formation from which most of our production is derived (the J formation).
Our interests in other formations can be different based upon the terms of the
many agreements under which the interests were acquired. No material portion of
our leases expire during the years 2003 through 2005.



                                      -2-
<PAGE>

         We operated 113 of the wells in which we owned an interest as of
December 31, 2002.

         As part of the acquisition of our Colorado properties in May 1998, we
entered into an Exploration Agreement with Union Pacific Resources Company, now
Anadarko Petroleum Corporation ("UPR"), giving us the right to explore and
develop parts of UPR's undeveloped acreage in the Denver-Julesburg Basin,
excluding certain acreage already committed to other agreements. The Exploration
Agreement covers approximately 400,000 gross acres and will also cover any
undeveloped acreage currently committed to other agreements that revert to UPR
during the term of the Exploration Agreement. The Exploration Agreement had an
initial term of 18 months that ended on November 30, 1999, and we have the right
to renew the Exploration Agreement for up to five 12-month option periods,
assuming that we have drilled the required number of commitment wells during the
preceding period. We do not have to extend the Exploration Agreement for any 12-
month option period unless we choose to do so. To preserve our right to extend,
we were required to drill, deepen or re-enter 15 commitment wells during the
initial 18-month term and are required to drill 20 commitment wells during each
12-month option term for which we elect to extend. We fulfilled the commitment
well requirements for the initial term and each of the first three option
periods and have elected to extend the Exploration Agreement for the fourth
option period ending November 30, 2003. We drilled more than 20 wells in the
third option period and five of those excess wells will carry over and count as
commitment wells in the fourth option period. At March 13, 2003, including the
five wells carried forward to the fourth option period, 17 of the 20 wells
required to be drilled in the fourth option period have been or are in the
process of being drilled. If we do not drill the required number of commitment
wells during any option period for which the Exploration Agreement has been
extended, the Exploration Agreement will terminate at the end of the period and
we will be required to pay liquidated damages of $125,000 for each commitment
well that we did not drill during the period. The failure to drill the
commitment wells during any option period might have a material adverse effect
on the financial condition and prospects of the Company. See "Item 6.
Management's Discussion and Analysis or Plan of Operation--Liquidity and Capital
Resources" and Note 13 of Notes to Consolidated Financial Statements.

         In addition, the Exploration Agreement requires UPR to transfer to us
any working interests in wells in the subject area that UPR acquires under
existing agreements during the term of the Exploration Agreement. That
requirement covers a number of existing wells in which UPR has the right to
obtain a working interest or convert an overriding royalty interest into a
working interest after payout has been reached and will cover other wells that
may be drilled by operators with whom UPR has existing farm-out or similar
agreements. We also have the right to take over wells on the UPR lands that are
required to be offered to UPR prior to abandonment.

DRILLING ACTIVITY

         The following table summarizes our drilling activities during the years
ended December 31, 2002, 2001 and 2000.



                                      -3-
<PAGE>

<Table>
<Caption>
                                   2002                    2001                      2000
                           --------------------     --------------------     --------------------
                           Productive      Dry      Productive      Dry      Productive      Dry
                           ----------     -----     ----------     -----     ----------     -----
<S>                        <C>            <C>       <C>            <C>       <C>            <C>
Gross new wells(1)              56.00      2.00          48.00      1.00          39.00      1.00
Net new wells                   40.37       .13           8.78       .50           9.90       .12

Gross re-entries(2)                --        --             --        --           5.00        --
Net re-entries                     --        --             --        --           5.00        --

Gross deepenings(3)              2.00        --           5.00        --           5.00        --
Net deepenings                   1.00        --           2.08        --           1.86        --

Gross recompletions(4)           4.00      1.00          15.00        --          19.00        --
Net recompletions                1.11       .38          13.09        --          17.53        --
</Table>

----------

         (1) Most of the new Colorado wells in 2001 and 2000 were drilled under
farm-out arrangements pursuant to which the Company was carried on most costs
through commencement of production. The Company owns 100% of the working
interest in 36 of the 56 new productive wells drilled during 2002.

         (2) Represents previously plugged well bores re-entered by the Company
to reestablish production.

         (3) Represents productive wells deepened to establish production from a
deeper formation.

         (4) Represents productive wells recompleted to establish production in
a shallower formation.

----------

         Please see the Glossary at the end of this Item for definitions of
gross and net wells. All of the wells shown in the above table are located in
Northeastern Colorado, except three gross and net new productive wells drilled
in 2000 which were located in Kansas.

         All of the wells reflected in the table were development wells. Of the
wells drilled, re- entered, deepened or recompleted during the last three years,
we were or are the operator of the following net wells:



                                      -4-
<PAGE>

<Table>
<Caption>
                              2002                     2001                     2000
                      --------------------     --------------------     --------------------
                      Productive      Dry      Productive      Dry      Productive      Dry
                      ----------     -----     ----------     -----     ----------     -----
<S>                   <C>            <C>       <C>            <C>       <C>            <C>
Net new wells              36.62        --              2        --              4        --
Net re-entries                --        --             --        --              5        --
Net deepenings                --        --             --        --             --        --
Net recompletions              1        --              4        --              3        --
</Table>

         From December 31, 2002 through March 13, 2003, we have participated in
the drilling of 16 new development wells (3.2 net wells). At March 13, 2003, two
gross wells (.4 net wells) were in the process of being drilled.

RESERVES

         The following is a summary of our estimated proved reserves as of
December 31, 2002 and 2001:


<Table>
<Caption>
                         December 31
                  -------------------------
                     2002           2001
                  ----------     ----------
                    Total          Total
                  ----------     ----------
<S>               <C>            <C>
Crude Oil -
  Mbbl               2,001.8        2,146.7
Natural Gas -
  Mmcf              46,547.4       37,259.0
Total - Mmcfe       58,558.2       50,139.2
</Table>

----------

         Effective June 1, 2001 we sold our Kansas properties to an unaffiliated
oil and gas company that had previously managed our field operations in Kansas.

         See Note 15 of Notes to Consolidated Financial Statements for more
detailed information concerning changes in our estimated oil and gas reserves
during 2002 and 2001. As of December 31, 2002, oil and gas reference prices in
effect included a Valero West Texas Intermediate posted price of $28.00 per
barrel and a NYMEX Henry Hub spot market price of $4.74 per MMBTU. The average
effective prices in the December 31, 2002 reserve estimates include an oil price
of $30.27 per barrel and a gas price of $4.19 per MCF. As of December 31, 2001,
oil and gas reference prices in effect included a Diamond Shamrock West Texas
Intermediate posted price of $16.75 per barrel and a NYMEX Henry Hub spot market
price of $2.65 per MMBTU. The average effective prices in the December 31, 2001
reserve estimates include an oil price of $19.20 per barrel and a gas price of
$2.04 per MCF.

         No reserve estimates were filed with any other federal authorities or
agencies since January 1, 2002.



                                      -5-
<PAGE>

FACILITIES

         We occupy a portion of our executive and administrative offices at 1560
Broadway, Suite 1900, Denver, Colorado, pursuant to a Cost and Expense Sharing
Agreement with Benson Mineral Group, Inc. ("BMG"), an affiliate of Bruce D.
Benson, Chairman of the Board, Chief Executive Officer and President of the
Company. Pursuant to that Agreement, we share approximately 8,440 square feet of
office space with BMG and pay our pro rata share of office rent, personnel
costs, administrative costs and expenses to BMG on a monthly basis. During 2002,
we paid or accrued approximately $110,596 in rent and common expenses to BMG
under this Agreement.

         On July 1, 1998, we leased approximately 11,850 square feet of
additional office space adjacent to the space we share with BMG. The additional
space was obtained to accommodate expansion in our operations following the UPR
acquisition. The term of the lease is 117 months. The minimum rental is $14,817
per month, increasing to $19,411 per month after 57 months. At December 31,
2002, there are 63 months remaining on the lease. We are currently attempting to
sub- lease substantially all of this office space.

         Since July 1, 1998, when the additional space was rented, BMG has
waived its right under the Cost and Expense Sharing Agreement to charge us a
portion of its rent costs for its currently leased space, other than a portion
of Mr. Benson's office being a total of $1,432 monthly. This waiver was given to
recognize the fact that we could move into the new leased space and thereby
avoid the charge from BMG. By staying in BMG's space without paying rent, both
we and BMG avoided the cost and inconvenience of relocating.

EMPLOYEES

         At March 13, 2003, we had twelve employees, all of whom are executive
and office personnel. For all of 2002, five of these employees were on the BMG
payroll. Under our Cost and Expense Sharing Agreement with BMG, we share with
BMG certain employees who keep track of the time spent on our business and on
BMG's business. We reimburse BMG for a portion of its costs for shared BMG
employees corresponding to the portion of their time spent on our business and
BMG reimburses us for a portion of our costs for our employees corresponding to
the portion of their time spent on BMG's business. During 2002, BMG paid us
approximately $71,000 and we paid BMG approximately $250,000 under this
arrangement. Based upon time charged during 2002, the Company used the services
of the equivalent of 8.59 full-time employees in that year.

         We also engage independent contractors to supplement the services of
our employees as needed. At March 13, 2003, we were using the services of
approximately four independent contractors on a full-time equivalent basis. The
independent contractors include all of the personnel used in our field
operations, including a field supervisor and three pumpers.

COMPETITION

         Our competitors include major oil companies and other independent
operators, most of which have financial resources, staffs and facilities
substantially greater than ours. Competition in the oil and gas industry is
intense. We also face competition in obtaining capital for drilling and
acquisitions and are at a competitive disadvantage compared with larger
companies.

GOVERNMENT REGULATION

         The production and sale of oil and gas are subject to various federal,
state and local governmental regulations, which may be changed from time to time
in response to economic or political conditions. Matters subject to regulation
include discharge permits for drilling operations, drilling bonds, reports
concerning operations, the spacing of wells, unitization and pooling of
properties, taxation and environmental protection. Changes in these regulations
could have a material adverse effect on the Company.

                                      -6-
<PAGE>

                                GLOSSARY OF TERMS




Bbls:                      Barrels of oil.

Gross acre:                An acre in which a working interest is owned, without
                           regard to the size of the interest.

Gross well:                An oil or gas well in which a working interest is
                           owned, without regard to the size of the interest.

Leases:                    Full or partial leasehold interests in oil and gas
                           prospects, authorizing the owner thereof to drill
                           for, reduce to possession and produce and sell oil
                           and gas, subject to the payment of rentals, bonuses
                           and/or royalties.

Mbbls:                     Thousand Bbls.

Mcf:                       Thousand cubic feet.

Mmcf:                      Million cubic feet.

Mmcfe:                     Million cubic feet of gas equivalent, calculated on
                           the basis of six Mcf of gas for one Bbl of oil.

Net acres:                 One net acre is deemed to exist when the sum of the
                           fractional working interests owned in gross acres
                           equals one. The number of net acres is the sum of the
                           fractional working interests owned in gross acres.

Net well:                  One net well is deemed to exist when the sum of
                           fractional working interests owned in gross wells
                           equals one. The number of net wells is the sum of the
                           fractional working interests owned in gross wells.

Proved                     Proved reserves that are  expected to be recovered
Developed                  through  existing wells with existing equipment and
Reserves:                  operating methods.



                                      -7-
<PAGE>

Proved                     Quantities of oil and gas which geological and
Reserves:                  engineering data demonstrate with reasonable
                           certainty to be recoverable in future years from
                           known reservoirs under existing economic and
                           operating conditions.

Proved                     Proved reserves that are expected to be recovered
Undeveloped                from new wells or from existing wells where a
Reserves:                  relatively major expenditure is required for
                           recompletion.

     The definitions given above relating to proved reserves are abbreviated
versions of the definitions of proved developed reserves, proved reserves and
proved undeveloped reserves in Rule 4-10(a) of Regulation S-X of the Securities
and Exchange Commission. Reference is made to paragraphs (2) through (4) of
that Rule for the full text of those definitions, which are followed by the
Company in classifying its reserves for purposes of this report.



                                      -8-
<PAGE>

ITEM 3. LEGAL PROCEEDINGS

         We are not a party to any pending legal proceeding. We are not aware of
any proceeding that a governmental authority is contemplating against us or our
property.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

         There were no items submitted to a vote of our Shareholders during the
quarter ended December 31, 2002.

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

         Our common stock is listed on the American Stock Exchange. The
following table sets forth the high and low sales prices for our common stock
reported by the American Stock Exchange for each quarter of 2002 and 2001.

<Table>
<Caption>
                                         HIGH       Low
                                        ------     -----
<S>                                     <C>        <C>
2002
Fourth Quarter                          $1.68      $0.75
Third Quarter                           $1.70      $1.35
Second Quarter                          $2.55      $1.50
First Quarter                           $2.00      $1.35

2001
Fourth Quarter                          $2.25      $1.51
Third Quarter                           $2.85      $1.65
Second Quarter                          $4.24      $1.53
First Quarter                           $2.00      $1.06
</Table>

         As of December 31, 2002, there were 384 holders of record of our common
stock. We estimate that there were approximately 1,500 beneficial owners of our
common stock as of that date.

         No dividends on the common stock have been paid to date nor do we
anticipate that dividends will be paid in the foreseeable future. Our credit
facility with Bank of Oklahoma prohibits the payment of dividends on our common
stock.

         In December 2002, we acquired, pursuant to a tender offer, 139,590
shares of our outstanding common stock at $1.58 per share, including $.08 per
share in allocated external costs. These shares are held in the Company's
treasury.



                                      -9-
<PAGE>
         On April 30, 2001, we called for redemption of all of our outstanding
Series C Convertible Preferred Stock. Accrued dividends from July 1, 1998
through March 31, 2001 were paid in the amount of $584,980. The redemption date
was May 21, 2001 and the redemption price per share, including $.07 in accrued
dividends from April 1, 2001 through the redemption date was $6.07. Holders of
the Series C Convertible Preferred Stock had the right until May 3, 2001 to
convert all or part of their shares into shares of our common stock at a
conversion price of $2.69 (2.32048 shares of common stock for each share of
Series C Convertible Preferred Stock). We issued 144,981 shares of common stock
to the holders who elected to convert plus cash of $2,600 for dividends through
May 2, 2001 to the holders whose shares were converted. The payment of dividends
in arrears reduced the number of persons on the Company's Board of Directors
because the terms of the two board members elected by the holders of the Series
C Convertible Preferred Stock automatically terminated upon such payment.

ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

INTRODUCTION

Restatement of 2002 and 2001 Financial Statements

         In June 2001, the Company sold certain non-producing leases for
approximately $6 million. It had acquired these leases in March 2001 for
approximately $1.5 million and had spent approximately $500,000 on the
properties following their acquisition. The proceeds from the sale of these
leases represented approximately 28% of the Company's full-cost pool at the
time of the sale. No proved reserves were assigned to these leases. Due to the
significance of the proceeds to the Company's full-cost pool, the Company
accounted for the sale of these leases by recognizing a $4,027,835 gain as
opposed to crediting the proceeds to the full-cost pool.

         During 2003, upon further review of this transaction, the Company
determined that while the proceeds from the sale were significant to the
capitalized costs, the impact of crediting the proceeds to the Company's
full-cost pool on its future amortization rate was not as significant. The
change in the amortization rate was less significant because the calculation of
the amortization rate included significant future development costs on unproved
reserves. Crediting the proceeds from the sale of these assets to the full-cost
pool lowered the amortization rate by approximately 5%.

         As a result of the above analysis, the Company has restated its 2001
financial statements to remove the $4,027,835 gain from this sale from the
income statement and credit the proceeds to the full-cost pool. It also lowered
the amortization rate applied to the full-cost pool based on actual production
since the date of the sale which had the impact of lowering the Company's
depletion, depreciation, and amortization expense in 2001 by $112,050 and 2002
by $258,827. For the reasons described in Note 9 of Notes to Financial
Statements, the Company recognized the deferred tax asset resulting from this
restatement in 2002 rather than 2001.

         In addition, the Company incorrectly recognized as revenue contracting
and operating fees of $101,980 in 2002, and $53,792 in 2001. The Company
restated its 2002 and 2001 financial statements by removing these fees from
revenues in 2002 and 2001, crediting the full cost pool by $72,083 in 2002 and
$18,900 in 2001, and reducing general and administrative costs by $29,897 in
2002 and $34,892 in 2001.

         The net effect of the adjustments described above on the 2002 and 2001
financial statements as reported in the Company's annual report on Form 10-KSB
and quarterly reports on Form 10-QSB is as follows:

<Table>
<Caption>
                                           2002             2001
                                           ----             ----
<S>                                    <C>              <C>
Income statement effect:
Net income as originally reported      $ 5,464,991      $ 8,048,911

Sale of non-producing leases                             (4,027,835)

Decrease in amortization rate              258,826          112,050

Reversal of drilling income                (72,083)         (18,900)

Income tax benefit                       1,389,500
                                       -----------      -----------
Net income as restated                 $ 7,041,234      $ 4,114,226
                                       ===========      ===========

Basic and diluted earnings per share
  As originally reported                     $0.29            $0.42
                                       ===========      ===========
  As restated                                $0.37            $0.21
                                       ===========      ===========

Balance sheet effect:

Total assets:
  As originally reported               $36,165,618      $25,942,020
  As restated                           33,807,176       22,007,335

Total shareholders' equity:
  As originally reported               $27,673,532      $22,386,093
  As restated                           25,315,090       18,451,408
</Table>
                                      -10-
<PAGE>
<Table>
<Caption>
                                       Quarter          Quarter       Quarter        Quarter       Year
                                       Ended            Ended         Ended          Ended         Ended
                                       31-Mar-2001      30-Jun-2001   31-Sep-2001    31-Dec-2001   31-Dec-2001
<S>                                    <C>              <C>           <C>            <C>           <C>
Income statement effect:
Net income as originally reported      $ 2,804,980      $4,255,062    $225,750       $763,119     $ 8,048,911

Sale of non-producing leases                    --      (4,002,748)    (25,087)            --      (4,027,835)

Decrease in amortization rate                   --          12,923      61,024         38,103         112,050

Reversal of drilling income                (10,850)         (8,050)         --             --         (18,900)

Net income as restated                 $ 2,794,130      $  257,187    $261,687       $801,222     $ 4,114,226

Basic earnings per share
  As originally reported                     $0.15           $0.23       $0.01          $0.03           $0.42
  As restated                                $0.15           $0.01       $0.01          $0.04           $0.21

Diluted earnings per share
  As originally reported                     $0.14           $0.22       $0.01          $0.05           $0.42
  As restated                                $0.14           $0.01       $0.01          $0.05           $0.21
</Table>

<Table>
<Caption>
                                       Quarter          Quarter       Quarter        Quarter       Year
                                       Ended            Ended         Ended          Ended         Ended
                                       31-Mar-2002      30-Jun-2002   31-Sep-2002    31-Dec-2002   31-Dec-2002
<S>                                    <C>              <C>           <C>            <C>           <C>
Income statement effect:
Net income as originally reported      $   127,561      $1,214,337    $351,606       $3,761,487     $ 5,464,991

Decrease in amortization rate               70,147          69,231      66,014           53,344         258,826

Reversal of drilling income                 (4,317)        (13,883)    (31,004)         (22,879)        (72,083)

Deferred income tax benefit                     --              --          --        1,389,500       1,389,500

Net income as restated                 $ 2,794,130      $  257,187    $261,687       $5,181,453     $ 7,041,234

Basic earnings per share
  As originally reported                     $0.01           $0.06       $0.02            $0.20           $0.29
  As restated                                $0.01           $0.07       $0.02            $0.27           $0.37

Diluted earnings per share
  As originally reported                     $0.01           $0.06       $0.02            $0.20           $0.29
  As restated                                $0.01           $0.07       $0.02            $0.27           $0.37
</Table>

Overview

         Oil and gas prices were very high as we entered 2001 and were low as we
entered 2002. Oil prices increased during 2002 but gas prices in the Rocky
Mountain Region have been low throughout the year.

         We own 100% of the working interest in 36 of the 56 new wells in which
we participated during 2002. Twenty-nine of those 36 wells are in a new area and
are in various stages of being hooked up to a gathering system. In February
2003, we were selling gas from 25 of these 29 wells. Sales from some of these
wells began in the fourth quarter of 2002 and were approximately $292,000 for
the year. We expect production from these wells to be significant during 2003.
We also participated in development operations proposed by other operators
during 2002, including the drilling of 22 new gross wells (4.50 net wells), two
gross (0.13 net) of which were dry. We intend to use borrowings under our
$15,000,000 credit facility, to the extent needed and to the extent not limited
by the financial covenants contained in our credit facility, to actively develop
our oil and gas properties and participate in other activities that, in the
judgment of the Board of Directors, will increase shareholder value. We continue
our efforts to consolidate our interests in northeastern Colorado to simplify
operations.

         The Company's operating results in 2001 and 2002 have been adversely
affected by low prevailing prices for natural gas in the Rocky Mountain region.
The negative differential between prices paid for gas in the Rocky Mountain
region and prices paid in other areas of the country has increased
significantly. During 2001, the differential ranged from $0.36 to $1.33 per mcf.
and during 2002, the differential ranged from $0.60 to $1.50 per mcf. We measure
the differential as the difference between the price we receive for our gas and
the NYMEX natural gas futures prices for the same period. Lower prices in the
Rocky Mountains result from a number of factors, including an oversupply of gas
in relation to local demand and the absence of transmission facilities to
deliver the excess gas to undersupplied markets in other areas. Increased
capacity of two major transmission lines serving markets to the east and west of
the Rocky Mountains is currently in various stages of planning or construction,
which should allow more gas from the Rocky Mountain area to


                                      -11-
<PAGE>
move to other markets and reduce the price differential. However, there can be
no assurance that projects will be completed or that the basis differentials
will be reduced as a result.

         In December, 2000, we retained McDonald Investments, Inc., a Key Corp.
company, to provide advisory services in connection with the Board of Directors'
analysis of strategies to maximize shareholder value. Our board of directors is
continuing to explore the alternatives that may be available to translate our
improved financial condition and operating results into additional value for our
shareholders.

LIQUIDITY AND CAPITAL RESOURCES

Bank Credit Facilities

         We have a revolving credit facility with Bank of Oklahoma, N.A. that is
available through May 1, 2004. Based upon a borrowing base redetermination in
October 2002, the amount available under the line is $15 million, which may be
decreased based on subsequent borrowing base determinations by the lender twice
yearly at each April 1 and October 1. The loan bears interest at rates varying
from lender prime to 0.75% below lender prime, depending upon the outstanding
principal balance of the loan, and is secured by all of our oil and gas
properties. Interest is payable monthly and principal is payable at the end of
the credit term. Financial covenants included in the credit agreement require us
to (i) maintain a tangible net worth of $8,000,000, (ii) maintain a debt
coverage ratio (as defined in the credit agreement) of 1.25 to 1 and (iii)
maintain an EBITDA to consolidated interest ratio (as defined in the credit
agreement) of 2.5 to 1. Failure to meet these covenants at the end of any
quarterly reporting period would, among other ramifications, prevent further
borrowings under the credit facility. At March 14, 2003, borrowings outstanding
under the line were approximately $4,000,000.

Capital Expenditures

         Our capital expenditures for 2002 were $13,407,419 as compared to
$6,439,262 for 2001. These capital expenditures consist primarily of costs
incurred in the continuing development of our oil and gas properties. The
increase in capital expenditures reflects primarily our increased drilling
activity in the Kersey area. We own 100% of the working interest in most of the
wells drilled in that area and operate most of those wells, with the result
that we are able to control the pace of development.

         Of the $13,407,419 in capital expenditures for 2002, $3,359,682 were
spent to develop reserves that were included as proved undeveloped reserves in
our January 1, 2002 reserve estimates. Of the $6,439,262 in capital
expenditures for 2001, $532,077 were spent to develop reserves that were
included as proved undeveloped reserves in our January 1, 2001 reserve
estimates. Our reserve estimates and the Standardized Measure of Discounted
Future Net Cash Flows included in Note 15 of Notes to Financial Statements are
based on projected capital expenditures of $5,850,700 in 2003 and $5,889,800 in
2004 to develop reserves that are included as proved undeveloped reserves in
our January 1, 2003 reserve estimates. Additional capital expenditures will be
necessary in subsequent years to fully develop those reserves.

         Under the Exploration Agreement with UPR described in Note 13 of the
Consolidated Financial Statements, we have an obligation to drill or commence
the drilling of 20 commitment wells during the 12-month period ending November
30, 2003. If the wells are not commenced by the deadline, the Exploration
Agreement is terminated and we will be obligated to pay UPR liquidated damages
of $125,000 for each well not commenced. As of March 13, 2003, 17 commitment
wells have been or are in the process of being drilled. Management believes that
the remainder of the commitment under the Exploration Agreement during the
current period will be satisfied.



                                      -12-
<PAGE>

Cash Balances and Cash Flow

         Cash and cash equivalents were approximately $475,000 as of December
31, 2002, compared to approximately $3,750,000 as of December 31, 2001. Our
primary use of cash was for capital expenditures in our ongoing development
program. As of March 14, 2003 we had minimal cash and cash equivalents because
our available cash is used to offset borrowings under our Bank of Oklahoma
credit facility. Current production levels are expected to produce a positive
cash flow before capital spending in 2003, based on current prices. However,
there can be no assurance that prices will remain at current levels and that
cash flow will be positive.

        Accounts receivable increased to $2,498,424 as of December 31, 2002 from
$1,619,975 at December 31, 2001, primarily as a result of the timing of payments
from gas purchasers, which were not received until shortly after year end 2002.
Accounts payable increased to $2,260,498 at December 31, 2002 from $1,104,449 at
December 31, 2001, primarily as a result of the level of drilling activity in
late 2002. Revenues payable increased to $1,055,918 at December 31, 2002, from
$682,691 at December 31, 2001, paralleling the increase in accounts receivable.

Treasury Stock

         In November 2002, we made a tender offer to purchase up to 1,500,000
shares of our outstanding common stock at $1.50 per share. The tender offer
expired on December 23, 2002 and 139,590 shares were acquired by us as treasury
stock. Including the external costs of the tender offer, which were added to the
total cost of the treasury stock, our cost was $220,552 or $1.58 per share.
External costs in excess of $0.08 per share have been charged to general and
administrative expenses.

Property Sales

         During the first quarter of 2002, we agreed to sell our exploration
rights under approximately 680 acres to the owner of the surface rights in order
to allow for residential development. The proceeds of $500,000 were credited to
our full cost pool of oil and gas property and equipment.

         On March 1, 2001, our board of directors approved the purchase of an
oil and gas project located in Neosho County, Kansas from Benson Mineral Group,
Inc. ("BMG"). The Chairman of the board of directors, being the president of
BMG, abstained from the vote. The purchase price of the property was
approximately $1,540,000, which was BMG's cost basis in the property (including
related inventory). The Company incurred approximately $500,000 in costs with
respect to the property following the acquisition. On June 14, 2001, we sold our
interest in this project. The costs of the non-producing properties contained in
this project were not included in the amortizable portion of the Company's full
cost pool of oil and gas property and equipment. The proceeds were credited to
our full cost pool of oil and gas properties and equipment on the balance sheet.

         In July of 2001, we sold our Kansas gas gathering systems and oil and
gas properties for $550,000. Included in the sale was the stock of our wholly
owned subsidiary Producers Service Incorporated. We allocated $150,000 of the
sales proceeds to the gas gathering systems and pipeline lease. At June 30,
2001, we impaired the value of our gas gathering systems, pipeline lease and
field inventory by $1,107,990 to reflect the fair market of these assets. The
$400,000 received for the oil and gas properties was credited to the full cost
pool of oil and gas properties and equipment and no gain or loss was recognized
on this part of the sale.



                                      -13-
<PAGE>
Property Claimed

         During the third quarter of 2002, we were successful in litigation
establishing the right of UPR to receive by reversion, at the expiration of a
license limited by time, an interest in a producing oil property in northeast
Colorado. We believe we are entitled to receive this interest under our
Exploration Agreement with UPR. The value of the interest is dependent upon oil
prices. This property is not reflected in our reserve estimates and is not
expected that it would have a significant impact on our reserves, financial
position or results of operations.

Contractual Obligations

         We have an operating lease for office space which is described in Note
13 of Notes to Consolidated Financial Statements. The table below sets forth the
approximate minimum rental commitment over the life of the commitment.

<Table>
<Caption>
                                    Payments Due by Period
         ---------------------------------------------------------------------------
          Less than                                            Over
           1 year          1-3 years        4-5 years         5 years        Total
         -----------       ---------        ---------         -------     ----------
<S>                        <C>              <C>               <C>         <C>
         $219,150          $465,864         $465,864          $58,233     $1,209,111
</Table>

RESULTS OF OPERATIONS

Introduction

         In 2002 we experienced low natural gas prices in the Rocky Mountain
Region throughout the year. We participated in drilling 58 wells during 2002 (56
of which were productive) at a total cost of approximately $13,400,000 (compared
to approximately $4,400,000 of development costs in 2001). These increased
capital expenditures primarily reflect our activity in the Kersey area where we
own 100% of the working in most wells and act as operator of most wells, with
the result that we are able to control the pace of development. We own 100% of
the working interest in 36 of the new productive wells. A significant number of
the new wells began producing in late 2002, so revenues from these wells were
small during 2002 but are expected to be significant for 2003. In 2001, we sold
our Kansas properties and related gathering systems, which we had impaired by
$1,107,990 experienced production curtailments resulting from other parties'
work on their gathering and transmission facilities and experienced significant
reductions in gas prices during the year.

2002 Compared to 2001

         We realized net income of $7,041,234 ($0.37 per share) in 2002 compared
to $4,114,226 in 2001. After preferred stock dividends, net income for



                                      -14-
<PAGE>
2001 was $4,031,974 ($0.21 per share). All outstanding preferred stock was
redeemed or converted to common stock during 2001. Net income for 2002 included
the recognition of a $4,449,000 deferred tax asset. Net income for 2001 included
a provision for impairment of $1,107,999 relating to properties in Kansas sold
during that year. From time to time we may sell oil and gas properties, but such
sales are not part of our core business.

         Income from operations was $2,611,462 for 2002 compared to $4,147,690
for 2001. Without the transaction described above, income from operations in
2001 would have been $5,255,689.

         The following table compares some of the other components or statistics
related to net income:

<Table>
<Caption>
                                                       2002              2001
                                                   ------------      ------------
<S>                                                <C>               <C>
Oil produced (Mbbl)                                       134.1             178.3
Average sale price of oil (per Bbl)                $      25.52      $      26.19
Natural gas produced (Mmcf)                               2,493             1,879
Average sales price of natural gas (per Mcf)       $       2.54      $       3.98
Total sales of Company produced
  oil and gas                                      $ 10,090,635      $ 12,148,964
Production costs                                   $  2,743,270      $  2,463,770
Production costs per equivalent Bbl                $       4.99      $       5.01
  (calculated at the rate of 6 Mcf of
  natural gas per Bbl of oil)
Value related production taxes included            $    667,211      $    402,834
  in production costs
Depletion, depreciation and amortization           $  2,750,928      $  2,446,484
  (based upon rates per Mcf or Bbl
  established by reference to the
  engineering studies prepared at
  December 31, 2002 and 2001)(1)
Sales of purchased gas less related gas                      --      $    161,023
  acquisition costs and transportation costs(2)
General and administrative expenses                $  1,899,191      $  1,960,425
External costs related to the Board                          --      $    207,529
  of Directors analysis of strategic
  alternatives included in G&A expenses
Provision for doubtful accounts included           $     47,263                --
  in G&A expenses
Interest income                                    $     30,427      $     45,607
Interest expense                                   $     44,735      $     82,248
Income tax expense (benefit)                       $ (4,449,000)               --
</Table>
-----------------
         (1) Represents depletion, depreciation and amortization relating to oil
and gas property and equipment. Does not include depletion, depreciation and
amortization relating to other equipment and leasehold improvements. See Note 4
of Notes to Financial Statements.

         (2) All sales of purchased gas were from our pipeline in Kansas, which
was sold in 2001.



                                      -15-
<PAGE>
         As indicated in the statistics shown above, the $2,058,329 decrease in
sales of Company produced oil and gas from 2001 to 2002 (down approximately 17%)
is largely attributable to a significant decrease in gas prices (down
approximately 36%), which more than offset increased gas production (up
approximately 33%), and a significant decrease in oil production (down
approximately 25%), coupled with a small decline in oil prices (down
approximately 2.6%). The higher gas production in 2002 reflects the effects of
our ongoing development program. The higher oil production in 2001 reflects the
effects of recompletions in the Codell formation of a number of wells previously
producing only from other formations, which, as is typical of Codell production,
resulted in short-term "flush" production in 2001 that declined to more normal
levels in 2002.

         The $279,500 increase in production costs from 2001 to 2002 is largely
attributable to production tax refunds and other adjustments in 2001 which
reduced production costs by approximately $300,000 in that year.

         Without the external costs and provision for doubtful accounts included
in general and administrative expenses in 2001 and 2002 as indicated in the
table above, general and administrative expenses increased approximately $99,000
from 2001 to 2002. That increase was attributable primarily to increased
insurance costs, which are expected to continue for the foreseeable future.

         Interest expense for 2002 and 2001 was incurred under our credit
facility with Bank of Oklahoma N.A. Borrowings under the credit facility were
reduced to zero during the second quarter of 2001 and we began to borrow again
during the third quarter of 2002. Lower interest rates and reduced average
borrowings during 2002 are the reasons for the $37,513 reduction in interest
costs from 2001 to 2002. Interest income from excess cash during the last half
of 2001 and the first half of 2002 results from investment of the excess cash in
a money market fund.

         The income tax benefit recognized in 2002 resulted from the reversal of
valuation allowances previously recorded for our operating loss carryforwards
and other deferred tax assets. See Note 9 of Notes to Consolidated Financial
Statements for a description of our deferred tax assets and valuation
allowances. A valuation allowance is recorded when we are unsure whether we will
have sufficient taxable income in future years to realize the benefit of the
deferred tax asset. During 2002, we reassessed our ability to generate
sufficient taxable income in the future to utilize our net operating loss
carryforwards and other deferred tax assets. These deferred tax assets have
generally been fully covered by a valuation allowance of an equal amount. During
the past three years, including 2002, we have generated operating profits of
approximately $12.1 million. Due to the recent and expected continued success of
our developmental drilling program, we now believe that, at currently prevailing
prices, it is more likely than not that we will generate sufficient taxable
income to fully utilize these deferred tax assets. The net operating loss
carryforwards which comprise over 60% of total deferred tax assets expire in
2018 and 2019.

         We will reassess the need for a valuation allowance on our deferred tax
assets on a quarterly basis. Uncertainties that could negatively affect our
future earnings, and thus our ability to utilize the net operating loss
carryforwards, include: (a) oil and gas prices, (b) oil and gas production
volumes, (c) the success of our developmental drilling program, (d) the
availability of transportation facilities and markets for our oil and gas
production, (e) the continued availability of financing for our development
program and (f) the effects of government regulations on our business.


                                      -16-
<PAGE>
2001 Compared to 2000

         We realized net income of $4,114,226 in 2001 compared to net income of
$17,963,797 for 2000. After preferred stock dividends, net income for 2001 was
$4,031,974 ($0.21 per share). Net income for 2000 includes an extraordinary gain
of $16,292,093 ($.93 per share) resulting from the settlement in May 2000 with
our former lender.

         Income from operations was $4,147,690 for 2001 compared to $3,167,465
for 2000. Without provisions for impairment ($1,107,990 in 2001 relating to the
sale of the Kansas properties and related gathering systems and $170,000 in 2000
relating to the Texas land held for resale), income from operations was
$5,255,680 for 2001 and $3,337,465 for 2000. Production costs for 2001 were
$2,463,770, including $402,834 in production taxes based upon the value of
products sold, while production costs for 2000 were $3,070,926, including
$815,114 in production taxes. Depletion, depreciation and amortization for oil
and gas properties decreased from $2,618,000 in 2000 to $2,446,484 in 2001 based
upon rates per equivalent Mcf or Bbl established by reference to the engineering
studies prepared at December 31, 2001 and 2000. Gas sold in 2001 was 1,879,000
Mcf at an average price of $3.98/Mcf compared to gas sold in 2000 of 1,955,000
Mcf at an average price of $3.64/Mcf. Oil sold in 2001 was 178,300 Bbl at an
average price of $26.19/Bbl compared to oil sold in 2000 of 132,200 Bbl at an
average price of $29.30/Bbl. Production costs were $5.01 per equivalent Bbl in
2001 ($.84 per equivalent Mcf) as compared to $6.71 per equivalent Bbl ($1.12
per equivalent Mcf) in 2000.

         Sales of purchased gas less the related gas acquisition costs and
transmission costs produced an operating profit of $161,032 for 2001 compared to
an operating profit of $240,072 for 2000. No depreciation or amortization
expense is included in these calculations. We sold our Kansas gas gathering
systems effective June 1, 2001 and the 2001 results include only five months of
operations from those systems.

         In 2001, we took a $1,107,990 impairment in value related to the July
2001 sale of the Kansas gas gathering systems, pipeline lease and field
inventory and in 2000 we took a $170,000 impairment in value to the Texas land
held for sale.

         General and administrative expenses for 2001 were $1,960,425 and
include costs of $207,529 for external services provided in connection with the
Board's analysis of strategic alternatives to enhance shareholder value. General
and administrative expenses for 2000 were $1,912,685. We are attempting to
sublease substantially all of our office space. The rental for this office space
for 2001 was approximately $183,000.



                                      -17-
<PAGE>

         Other income for the year 2000 ($135,205) includes refunds received
relating to production taxes.

         Interest expense for 2001 was $82,248, all of which was incurred under
our credit agreement with Bank of Oklahoma N.A. Interest expense of $1,651,250
for 2000 consists of $112,386 to the Bank of Oklahoma for the period August 25,
2000 through December 31, 2000, $97,533 to BMG for the period May 18, 2000
through August 24, 2000, and $1,441,331 on the credit facility with our former
lender, which accrued at the default interest rate before the settlement with
that lender. All unpaid interest due the former lender was eliminated in that
settlement.

         We realized an extraordinary item of income in May 2000 resulting from
the settlement with our prior lender. The extraordinary item is comprised of the
following:

<Table>
<S>                                                                   <C>
Loan principal due through May 17, 2000                               $31,250,000
Loan interest due through May 17, 2000                                  2,729,789
                                                                      -----------
                                                                       33,979,789
Less previously capitalized loan costs (net of
amortization to May 17, 2000) and transaction costs                       687,696
                                                                      -----------
                                                                       33,292,093
Less cash paid                                                         17,000,000
                                                                      -----------

         Extraordinary item                                           $16,292,093
                                                                      ===========
</Table>

CRITICAL ACCOUNTING POLICIES

         Our Consolidated Financial Statements are prepared in accordance with
accounting principles generally accepted in the United States, which require us
to make estimates and assumptions. We believe that, of our significant
accounting policies described in Notes 1 and 15 to the Consolidated Financial
Statements, the full cost method of accounting for oil and gas properties, the
estimates of oil and gas reserves and the estimation of income taxes involves
higher degrees of judgment and complexity, and are therefore considered critical
accounting policies.



                                      -18-
<PAGE>

Full Cost Method

         Under the full cost method of accounting, as defined by the Securities
and Exchange Commission, all costs incurred are capitalized in connection with
the acquisition, exploration and development of oil and gas properties, whether
productive or unproductive. Capitalized costs relating to proved properties,
estimated future costs to be incurred in the development of proved reserves and
estimated future dismantlement and abandonment costs are amortized using the
units- of-production method. Capitalized costs associated with significant
investments in unproved properties are excluded from the amortization base until
such time as these properties are evaluated. Additionally, no gains or losses
are recognized upon the disposition of oil and gas properties.

         We are required to record an impairment provision if the net book value
of our oil and gas properties less related deferred tax balances exceeds a
ceiling value equal to the present value of future cash inflows from proved
reserves, discounted at 10%. The oil and gas prices used in calculating such
future cash inflows are based upon the market price on the last day of the
accounting period. Due to the volatility of oil and gas prices, the oil and gas
prices used in the ceiling computation may significantly differ from the actual
prices we ultimately receive. If market prices on the last day of the accounting
period are low, it is possible that we will be required to record an impairment
provision related to our oil and gas properties. If market prices subsequently
increase, we would not reverse any impairment provisions previously recorded.
Instead, we would record lower depletion expense in the future as any prior
ceiling impairment provisions would have reduced the net book value of our oil
and gas properties. The recoverability of our oil and gas properties is also
subject to the risk that estimated reserves are less than eventual production
from existing wells. There were no impairments recorded on our oil and gas
properties during the year ended December 31, 2002. In 2001, we recorded an
impairment of $1,107,990 in anticipation of the sale of our Kansas properties.

Oil and Gas Reserves

         As Note 15 to the Consolidated Financial Statements describes, the
estimate of the proved oil and gas reserves at one point in time is highly
interpretive, inherently imprecise and subject to ongoing revisions which may be
substantial. The reserve estimates are updated at least annually. Revisions in
the estimated reserves may be necessary for many reasons, including well
performance, drilling activity, oil and gas commodity prices, drilling and
operating cost changes, new scientific data and other economic factors. We can
not predict the amounts or timing of future reserve revisions.

         Depletion, depreciation and amortization rates are calculated using
both reserve quantity estimates and the capitalized costs of our oil and gas
property and equipment. Changes in the reserve quantity estimates can alone,
without any yearly production changes or changes in capitalized oil and gas and
equipment costs, change the results of the calculation of depletion,
depreciation and amortization expense. Reserve quantity estimates are used to
provide the supplemental information contained in Footnote 15 and, as discussed
above in full cost method, are used to analyze the potential impairment of the
full cost pool of our oil and gas properties. Changes in estimated reserves are
considered changes in estimates for accounting purposes and are reflected on a
prospective basis.


                                      -19-
<PAGE>

Income Taxes

         The estimation of income tax expense (benefit) to be recorded by us
involves interpretation of complex laws, regulations and court decisions.
Significant judgment is required to estimate whether a valuation reserve is
required for 2002 on our deferred tax assets. During 2002, we reversed a
$4,449,000 valuation reserve. We believe our estimates are adequate but
differences of opinion could later occur.

RECENT ACCOUNTING PRONOUNCEMENTS

         In July 2001, the Financial Accounting Standards Board issued Statement
No. 141, Business Combinations ("SFAS 141") and Statement No. 142, Goodwill and
Other Intangible Assets ("SFAS 142"). SFAS 141 requires companies to reflect
intangible assts apart from goodwill and supersedes previous guidance related to
business combinations.

         SFAS 142 eliminates amortization of goodwill and amortization of
indefinite-lived intangible assets. However, SFAS 142 also requires the Company
to perform impairment tests at least annually on all goodwill and other
intangible assets. These statements were adopted by the Company on January 1,
2002. The Company does not expect the impact of the statements on its financial
position, results of operations, and cash flows to be significant.

         During June 2001, the Financial Accounting Standards Board issued
Statement No. 143, Accounting for Asset Retirement Obligations ("SFAS 143"),
which is effective for the Company beginning in 2003. SFAS 143 requires that the
fair value of a liability for an asset retirement obligation be recognized in
the period in which the obligation is incurred. The associated asset retirement
costs are capitalized as part of the carrying amount of the long-lived asset.
The Company is currently evaluating the impact of adoption of SFAS 143 on its
consolidated financial position, results of operations and cash flows.

         During December 2002, the Financial Accounting Standards Board issued
Statement No. 148, Accounting for Stock Based Compensation-Transition and
Disclosure ("SFAS 148"). SFAS 148 provides alternative methods of transition for
a voluntary change to the fair value based method of accounting for stock-based
employee compensation. SFAS 148 also requires that disclosures of the pro forma
effect of using the fair value method of accounting for stock-based employee
compensation be displayed more prominently. Additionally, SFAS 148 requires
disclosure of the pro forma effect in interim financial statements. The Company
currently does not plan to transition to fair value method of accounting for
stock-based employee compensation. However, the Company has adopted the
disclosure provisions required by SFAS 148 as of December 31, 2002. The
Company's pro forma net income is not materially different from net income as
reported, and there is no difference in net income per share for the years ended
December 31, 2002 and December 31, 2001.

                SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

         Portions of this Report contain "forward-looking statements" within the
meaning of the federal securities laws. Such forward-looking statements include,
without limitation, statements regarding our need for and potential sources of
capital, oil and gas reserves, future revenues and results of operations, plans
for future development operations, plans for dealing with third parties and
efforts to maximize shareholder value, and are identified by words such as
"anticipates," "plans," "expects," "intends," "projects" and "estimates."
Factors that could cause actual results to differ materially from these
contemplated by such forward-looking statements include, among others, the
following:

         Oil and Gas Prices and Markets. Our revenues are dependent upon
prevailing prices for oil and gas. Oil and gas prices can be extremely volatile.
Prevailing prices are also affected by the actions of the United States
government, foreign governments and international cartels. Price declines have
in the past and may in the future adversely affect the Company, both in lower
prices received for our oil and gas and in reductions in the estimated proved
reserves attributable to our properties. Our revenues increased significantly in
early 2001 as a result of increases in oil and gas prices, and later decreases
in oil and gas prices in 2001 and 2002 have had an equally significant effect on
revenues in the other direction. In addition, our revenues depend upon the
marketability of production, which is influenced by the availability and
capacity of gas gathering systems and pipelines, as well as the effects of
federal and state regulation and general economic conditions.

         Availability of Services and Materials. Our current development program
requires significantly higher levels of third-party services and materials. Such
services and materials can be scarce when there is increased oil and gas
activity. The unavailability of a sufficient number of drilling rigs or other
goods or services could impede our ability to achieve our objectives and
significantly increase the costs of our operations. In addition, we have in the
past experienced increased costs for such services and materials in times of
increased oil and gas activity and may


                                      -20-
<PAGE>

experience higher costs in the future. Such increased costs could have an
adverse effect on our results of operations, reserve estimates and financial
condition.

         Additional Financing. We increased the maximum amount of our credit
facility to $15,000,000 during 2002. However, the actual amount available under
the facility is based on a borrowing base that is redetermined by the lender
each October 1 and April 1. Based on the borrowing base determination as of
October 1, 2002, the full $15,000,000 is available under the credit facility as
long as all of the financial covenants contained in the credit agreement are met
at the end of each calendar quarter. Failure to meet the financial covenants at
the end of any quarter would, among other ramifications, prevent further
borrowings under the credit facility. Although management believes that, based
on current oil and gas prices, our proved reserves can support a borrowing base
of $15,000,000, there can be no assurance that future declines in oil and gas
prices or other factors will not cause the borrowing base to decrease. Material
changes in the borrowing base could result in the Company not having sufficient
capital to develop its oil and gas properties as contemplated and there can be
no assurance that funding for such development would be available from other
sources.

         Reserve Estimates. Estimates of proved reserves of oil and gas and
future net cash flows therefrom are based on various assumptions and
interpretations and, therefore, are inherently imprecise. Actual future
production, revenues, taxes, development expenditures, operating expenses and
other factors may vary significantly from current estimates and the estimated
quantities of recoverable oil and gas reserves may be subject to revision based
upon production history, results of future exploration and development,
prevailing oil and gas prices, operating costs and other factors. Revisions in
reserve estimates can affect us in various ways, including changes in the
borrowing base under our loan agreement, changes in depreciation, depletion and
amortization expense and, in the case of reductions in reserve estimates, the
need to create a provision for impairment of our oil and gas assets.

         Reliance on Key Personnel. We are dependent upon our executive officers
and key employees, particularly Bruce D. Benson, our Chief Executive Officer.
The unexpected loss of the services of one or more of these individuals could
have a detrimental effect on the Company. We do not have key person life
insurance on any of our officers. We do not have an employment agreement with
any of our officers.

         Government Regulation. Changes in government regulations applicable to
the production and sale of oil and gas may adversely affect the Company.

         Most of these factors are beyond our control. Investors are cautioned
not to place undue reliance on forward-looking statements. We undertake no
obligation to update any forward-looking statements in this report.



                                      -21-
<PAGE>

ITEM 7. FINANCIAL STATEMENTS

         Reference is made to the Index to Financial Statements following the
Signature Page of this report for a listing of the financial statements included
in this report.

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

         Not applicable.



                                      -22-
<PAGE>

                                    PART III

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

DIRECTORS AND EXECUTIVE OFFICERS

         The directors and executive officers of the Company are as follows:

<Table>
<Caption>
NAME                            AGE             POSITION
----                            ---             --------
<S>                             <C>             <C>
Bruce D. Benson                 64              Chairman of the Board of
                                                  Directors, Chief Executive
                                                  Officer and President
Thomas W. Gamel                 62              Director
Bruce A. Hocking                55              Director
Robert J. Malone                58              Director
Richard L. Robinson             73              Director
F. Michael Murphy               61              Chief Financial Officer, Vice
                                                President and Secretary
John Wallace                    43              Vice President of Exploration
                                                  and Acquisitions
Shirley Kovar                   53              Vice President-Land
</Table>

         Bruce D. Benson has been the Chairman of the Board of Directors, Chief
Executive Officer and President of the Company since August 1997. Since 1965,
Mr. Benson has been the owner and president of BMG, a privately held company
involved in oil and gas production, gas processing and oil and gas pipeline
operations. BMG and Mr. Benson have also been active investors in a variety of
other industries including real estate, banking, mortgage servicing, cable
television, real estate investment trusts and franchise restaurants. Mr. Benson
is a director of American Land Lease, Inc., a publicly held company listed on
the New York Stock Exchange. He is the Chairman of the Denver Public School
Foundation, Chairman of the Governor's Blue Ribbon Panel for Higher Education
and Chairman of the Board of Trustees of Metropolitan State College. He is a
trustee and past president and past chairman of the Denver Area Council of the
Boy Scouts of America, Past Chairman of the Denver Zoological Foundation,
National Chairman of the University of Colorado Comprehensive Capital Campaign
and past chairman of the Colorado Commission on Higher Education.

         Thomas W. Gamel has been a director of the Company since August 1997.
Since 1992, Mr. Gamel has served as chairman of Rockmont Capital Partners, LLC,
a privately held investment company. He has been an owner and director of Timpte
Industries, Inc., a



                                      -23-
<PAGE>

diversified private holding company, since 1970, and is an owner and director of
several other private companies.

         Bruce A. Hocking has been a director of the Company since July 2002.
Mr. Hocking, a certified public accountant, is a member of Hocking & Reid, LLC,
a certified public accounting firm. Prior to that, he was a tax partner with
Coopers & Lybrand for 15 years, and subsequent thereto, spent two years as a
sole proprietor practicing in the area of taxation. Mr. Hocking has served on
the boards of several charitable and community organizations, including The
Lincoln Chamber of Commerce, Goodwill and The Lincoln Community Foundation.
Additionally, he serves as chief executive officer and director on several other
private companies.

         Robert J. Malone has been a director of the Company since August 1997.
From 1992 to 1996, Mr. Malone was the chairman and chief executive officer of
Colorado National Bank of Denver, Colorado (now US Bank of Denver, Colorado) and
continued as the chairman of the board until April 30, 2000. From 1990 to 1992,
he was chairman of the board, president and chief executive officer of Western
Capital Investment Inc. and its principal subsidiary, Bank Western. Western
Capital was merged into First Bank Systems, Inc. (now U.S. Bancorp) in December
1992. Mr. Malone has served on the boards of several community and charitable
organizations, including the Denver Metro Chamber of Commerce, the Denver Art
Museum, and the Denver Zoological Foundation. He is past-president of the Young
Presidents Organization and past chairman of the board of Regis University and
Colorado Ocean Journey. He sits on the Board of Directors of Jones Knowledge,
Inc. and on the Board of Trustees of Oppenheimer Funds.

         Richard L. Robinson has been a director of the Company since August
1997. Since 1975, Mr. Robinson has served as Chief Executive Officer of Robinson
Dairy LLC. He presently serves on the Board of Directors of Horizon Organic
Holding Company, a publicly held company listed on the Nasdaq. He also is a
managing member of Consolidated Container Corporation, LLC and a member of the
Board of Governors of HCA/HealthOne Joint Venture. He presently serves on the
boards of many charitable and community organizations including Rose Community
Foundation, Regis University and Children's Hospital. He is past Chairman of the
Denver Chamber of Commerce, Denver Area Council of Boy Scouts, Mountain States
Employers Council and the past president of the State Board of Agriculture, the
governing body of the Colorado State University system.

         F. Michael Murphy was appointed Chief Financial Officer, Vice President
and Secretary of the Company in August 1997. He has been employed by BMG since
1977, first as tax manager and since 1980 as chief financial officer. Mr. Murphy
is a certified public accountant, having begun his career with Arthur Young (now
Ernst & Young).

         John Wallace was appointed Vice President of Exploration and
Acquisitions in May 1998. For more than five years prior to joining the Company,
Mr. Wallace was President of



                                      -24-
<PAGE>

The Esperanza Corporation, a privately held oil and gas acquisition company, and
Vice President of Dual Resources, Inc., a privately held oil and gas exploration
company. Esperanza has effected more than 25 acquisitions of producing
properties throughout the United States. In addition, Esperanza formed and
administered royalty programs for private investors, primarily in the Rocky
Mountain region, and has participated in a number of international exploration
projects. Dual Resources is in the business of generating and selling
exploration prospects, several of which have resulted in new field discoveries.

         Shirley Kovar was appointed Vice President-Land of the Company in
January 1999. Ms. Kovar joined UXP in April 1998 as Manager of the Land
Department. Prior to that she worked as an independent consultant in the oil and
gas industry for more than five years. Ms. Kovar has more than 30 years of
experience in the industry and is a member of the American, Colorado and Denver
Bar Associations.

         Directors are elected annually to serve until the next annual meeting
of shareholders or until their successors are elected. Executive officers serve
at the pleasure of the Board. There is no family relationship between any of the
Company's directors or executive officers. Messrs. Benson and Murphy continue to
serve as officers of BMG and do not devote their full business time to the
Company.

BOARD OF DIRECTORS' MEETINGS AND COMMITTEES

         During 2002, the Company's Board of Directors met 12 times. Mr. Benson
was present, either in person or by telephone, at each meeting of the Board of
Directors. Mr. Malone and Mr. Robinson were present, either in person or by
telephone, for 11 meetings. Mr. Gamel was present, either in person or by
telephone for 7 meetings. Mr. Hocking was present, either in person or by
telephone, for all seven meetings held while he was a member of the Board of
Directors.

         The Board of Directors of the Company maintains a standing Audit
Committee and a standing Compensation Committee. The Audit Committee is
responsible for reviewing and evaluating the Company's financial controls and
financial reporting obligations. The members of the Audit Committee are Messrs.
Gamel (Chairman), Hocking, Malone and Robinson. The Compensation Committee is
responsible for reviewing and evaluating the duties and performance of the
Company's officers and key employees and making recommendations concerning their
compensation. The members of the Compensation Committee are Messrs. Malone
(Chairman), Gamel, Hocking and Robinson. During 2002, the Audit Committee met
six times. Mr. Malone and Mr. Robinson were present for all six meetings. Mr.
Gamel was present for four meetings and Mr. Hocking was present for all three
meetings held while he was on the Committee. The Compensation Committee met once
during 2002 with all members present. The Company does not maintain a standing
nominating committee.



                                      -25-
<PAGE>

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

         Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's directors and executive officers, and any persons who own more than 10
percent of the Company's Common Stock, to file with the Securities and Exchange
Commission initial reports of ownership and reports of changes in ownership of
Common Stock. The Company believes that all such Section 16(a) reports were
filed on a timely basis during the fiscal year ended December 31, 2002.

ITEM 10. EXECUTIVE COMPENSATION

         The following table summarizes the total compensation for the Company's
Chief Executive Officer and its three other officers whose compensation exceeded
$100,000 for 2002 (the "Named Executive Officers"):

<Table>
<Caption>
                           Summary Compensation Table
-------------------------------------------------------------------------------------
                              Annual                 Long-Term
                           Compensation            Compensation
                       --------------------        -------------
                                                    Securities
Name and                            Salary          Underlying          All Other
Principal Position     Year          ($)            Options (#)      Compensation(1)
------------------     ----        --------        -------------     ----------------
<S>                    <C>         <C>             <C>               <C>
Bruce D. Benson,       2002         150,000                   --     $          7,500
Chairman of the        2001         150,000                   --                7,500
Board, Chief           2000(2)      150,000                   --                8,500
Executive Officer
and President

John Wallace           2002         147,000                   --                7,350
Vice President of      2001         147,000                   --                7,350
Exploration and        2000         147,000                   --                7,393
Acquisitions

F. Michael Murphy      2002              --(3)                --                   --
Chief Financial        2001         101,500(3)                --                5,075
Officer, Vice          2000         174,000(3)            50,000                8,500
President and
Secretary

Shirley Kovar          2002(4)      132,000                   --                6,600
Vice President -       2001(4)      120,000                   --                6,000
Land                   2000         106,667               50,000                5,381
</Table>

----------

(1)      Consists of Company contributions to defined contribution plan.



                                      -26-
<PAGE>

(2)      Mr. Benson took no salary for July 1999 through September 1999. His
         salary for October 1999 through December, 1999 ($37,500) was accrued at
         December 31, 1999 and was paid in 2000.

(3)      For 2002, Mr. Murphy was on the BMG payroll for the entire year at a
         salary of $174,000 and BMG billed the Company $111,112 for time spent
         on Company business. For 2001, Mr. Murphy was on the Company payroll
         until August 1, 2001. The amount shown for 2001 reflects Mr. Murphy's
         salary for seven months of 2001. For the period Mr. Murphy was on the
         BMG payroll, BMG billed the Company $40,740 for Mr. Murphy's time spent
         on Company business. For the period of time Mr. Murphy was on the
         Company payroll, the Company billed BMG $31,296 for time spent on BMG
         business. For 2000, the Company billed BMG $64,412 for Mr. Murphy's
         time spent on BMG business.

(4)      The salary shown for Ms. Kovar is for the entire year. The Company
         billed BMG $9,011 in 2002 and $7,191 in 2001 for time spent on BMG
         business.

         No options were granted or exercised by the Named Executive Officers
during 2002. The following table sets forth the value of unexercised options
held by the Named Executive Officers at December 31, 2002:

<Table>
<Caption>
                                 2002 Year-End Option Values
-----------------------------------------------------------------------------------------------
                                        Number of Securities
                                       Underlying Unexercised              Value of Unexercised
                                          Options at Fiscal                In-the-Money Options
                                            Year End (#)                    at Fiscal Year end
Name                                  Exercisable/Unexercisable                   ($)(1)
----                                  -------------------------            --------------------
<S>                                   <C>                                  <C>
Shirley Kovar                                   75,200/0                          $10,250
F. Michael Murphy                              200,000/0                          $10,250
</Table>

----------

(1)      Based upon the last sales price of the Common Stock as reported by The
         American Stock Exchange (Consolidated Market) on December 31, 2002 of
         $1.58. Only 50,000 options for each of the executive officers reflected
         in the table were in the money at December 31, 2002 with an exercise
         price of $1.375.

EMPLOYMENT AGREEMENT

         The Company has no employment agreements with any officers or
employees.



                                      -27-
<PAGE>

COMPENSATION OF DIRECTORS

         Each member of the Board of Directors who is not an employee of the
Company is entitled to receive $1,000 for each Board meeting and $500 for each
committee meeting not held in conjunction with a Board Meeting attended in
person or by telephone. Effective April 1, 1998, the Board of Directors adopted
a Director's Fee Stock Plan whereunder outside directors' fees are paid in
Common Stock of the Company rather than in cash. The number of shares issued to
each outside director each year is determined by dividing the director's fees
earned by that director during the year by the average of the trading prices of
the Company's Common Stock on the first and last trading days of the year. If a
director joins or leaves the Board during the year, the day of his appointment
or resignation is substituted for the first or last trading day in that
calculation. For their services for 2002, the Company's outside directors were
issued a total of 23,623 shares of stock under the plan and for their services
for 2001, the Company's outside directors were issued a total of 36,440 shares
of stock under this plan.

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         The following table sets forth, as of December 31, 2002, the beneficial
ownership of the Company's common stock by the Named Executive Officers, each
director of the Company and all directors and executive officers as a group. The
table also reflects the beneficial ownership of the Company's voting securities
by each person known by the Company to own beneficially more than 5% of its
common stock. Shares issuable upon exercise of outstanding options that are
currently exercisable or will become exercisable within 60 days are treated as
outstanding for the purpose of computing the beneficial ownership of the person
who holds the options, but not for the purpose of computing the percentage
ownership of any other person or group. To the Company's knowledge, the
shareholders listed below have sole voting and investment power, except as
otherwise noted. All information is based upon filings with the Securities and
Exchange Commission or upon information provided to the Company.

<Table>
<Caption>
                                      Common Stock
                              ---------------------------
   Name and Address of         Number          Percent of
    Beneficial Owner          of Shares         Class(1)
   -------------------        ---------        ----------
<S>                           <C>              <C>
Bruce D. Benson               3,236,500             17.27%
1560 Broadway, Suite 1900
Denver, CO 80202

Thomas W. Gamel                 609,042(2)           3.21%
700 Broadway, Suite 800
Denver, CO 80202
</Table>



                                      -28-
<PAGE>

<Table>
<S>                           <C>              <C>
Shirley Kovar                    75,200(3)           0.40%
1560 Broadway, Suite 1900
Denver, CO 80202

John Wallace                         --                --
1560 Broadway, Suite 1900
Denver, CO 80202

Robert J. Malone                473,959(4)           2.50%
334 Monroe St
Denver, CO 80206

F. Michael Murphy               200,000(5)           1.06%
1560 Broadway, Suite 1900
Denver, Colorado 80202

Richard L. Robinson             468,959(6)           2.47%
646 Bryant
Denver, CO 80204

Dale M. Jensen                4,886,370(7)          26.07%
26796 N. 98th Way
Scottsdale, AZ 85255

Butte, Inc.                   1,282,818              6.85%
P.O. Box 1328
Cheyenne, WY 82003

Donald Dillon                 1,282,818(8)           6.85%
6600 South 56th Street
Lincoln, NE 68516

Bruce A. Hocking                  4,965(9)           0.03%
5757 S. 34th St., #100
Lincoln, NE 68516

Directors and Executive
Officers as a Group           5,068,255(10)          25.69%
(8 persons)
</Table>

----------

         (1) Based on 18,739,939 shares of common stock outstanding. In the case
of each individual or group, the number of shares beneficially owned includes
the number of shares that such individual has, or the members of such group
have, the right to acquire within 60 days after the date



                                      -29-
<PAGE>

of the table. The number of shares of common stock outstanding, and the number
of shares owned by Messrs. Gamel, Hocking, Malone and Robinson, have been
increased by a total of 23,623 shares issued pursuant to the Directors Fee Stock
Plan after December 31, 2002 in respect of services rendered during 2002.

         (2) Includes (i) 106,288 shares held indirectly through a corporation
of which Mr. Gamel has voting control and (ii) 238,733 shares underlying options
that are currently exercisable.

         (3) Includes 75,200 shares underlying options which are currently
exercisable.

         (4) Includes (i) 6,000 shares held by spouse, (ii) 10,000 shares held
jointly with spouse and (iii) 238,733 shares underlying options that are
currently exercisable.

         (5) Includes 200,000 shares underlying options that are currently
exercisable.

         (6) Includes 238,733 shares underlying options that are currently
exercisable.

         (7) Includes 391,000 shares as to which Mr. Jensen has an irrevocable
proxy.

         (8) Includes 1,282,818 shares owned by Butte, Inc. (which is owned by
Lancaster Ventures, LLC, of which Mr. Dillon is a member).

         (9) Includes 400 shares held in a retirement plan for the benefit of
Mr. Hocking.

         (10) Includes an aggregate of 991,399 shares underlying options that
are currently exercisable.

         The following table provides information as of December 31, 2002 with
respect to our compensation plans under which shares of our common stock are
authorized for issuance:

<Table>
<Caption>
                                                                        Number of
                                   Number of         Weighted            shares
                                    shares           average          available for
                                 issuable upon       exercise        further issuance
                                  exercise of        price of       (excluding shares
                                  outstanding      outstanding      reflected in first
                                    options          options              column)
                                 -------------     ------------     -----------------
<S>                              <C>               <C>              <C>
Equity compensation plans
approved by shareholders               275,200     $       3.05               400,000

Equity compensation plans
not approved by shareholders          746, 199     $       3.38               145,646(1)
                                 -------------                      -----------------

Total                                1,021,399                                545,646
                                 =============                      =================
</Table>



                                      -30-
<PAGE>

----------

         (1) Represents unissued shares that have been approved for listing on
the American Stock Exchange upon issuance pursuant to our Directors Fee Stock
Plan. See Item 10 - Executive Compensation - Compensation of Directors and Note
3 of Notes to Consolidated Financial Statements for a description of that plan.
The Directors Fee Stock Plan does not specify a maximum aggregate number of
shares that can be issued. However, the plan provides that the number of shares
issued in any one year may not exceed 5% of the outstanding common stock at the
time of issuance and the number of shares issued in any five-year period may not
exceed 10% of the outstanding common stock at the time of issuance. In addition,
the Company cannot issue shares under the plan in excess of the number from time
to time approved for listing by the American Stock Exchange.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         The Company shares certain facilities, equipment and personnel with BMG
pursuant to a Cost and Expense Sharing Agreement. Bruce D. Benson, Chairman of
the Board of Directors, Chief Executive Officer and President of the Company, is
also the President, a Director and sole shareholder of BMG. Pursuant to the Cost
and Expense Sharing Agreement, the Company reimburses BMG for office rent,
personnel costs and other overhead and administrative expenses associated with
the operation of its business based upon actual use of the facilities and
personnel by the Company. The Cost and Expense Sharing Agreement is effective
until the date specified in a written notice to the Company from BMG, which date
shall not be less than 60 days after such notice is given. However, BMG has
indicated that the Company can terminate the Cost and Expense Sharing Agreement
at any time. During the years ended December 31, 2002 and 2001, the Company paid
or accrued an aggregate of $361,029 and $206,963, respectively, to BMG for rent,
personnel costs and common expenses pursuant to this arrangement. During the
years ended December 31, 2002 and 2001, BMG paid or accrued an aggregate of
approximately $71,000 and $156,000 to the Company for personnel costs.
Management believes that the terms and conditions of this arrangement are no
less favorable than could be obtained from an unaffiliated third party or than
could be obtained by the Company in leasing separate office space and retaining
separate personnel.

         See Note 7 of Notes to Consolidated Financial Statements included in
this report for information as to a transaction in which the Company purchased
from BMG certain oil and gas properties in the State of Kansas for a price equal
to BMG's cost in the properties. The properties included interests in leases
covering over 50,000 gross acres and interests in 11 test wells which were being
evaluated. The Company sold these oil and gas properties in 2001.



                                      -31-
<PAGE>

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K

         (a) EXHIBITS.

         EXHIBIT NO.

         3.1(1)            Articles of Incorporation of the Company as filed on
                           January 9, 1989, with the Secretary of State of the
                           State of Colorado.

         3.2(1)            Articles of Amendment of the Company filed on June 7,
                           1990 with the Secretary of State of the State of
                           Colorado.

         3.3(2)            Articles of Amendment of the Company filed on
                           September 24, 1996 with the Secretary of State of the
                           State of Colorado.

         3.4(3)            Amended and Restated Bylaws of the Company.

         10.1(1)           1989 Incentive Stock Option Plan of the Company.

         10.2(1)           1990 Non-Qualifying Stock Option Plan.

         10.3(4)           Cost and Expense Sharing Agreement, dated August 7,
                           1997, by and between the Company and Benson Mineral
                           Group, Inc.

         10.4(5)           Purchase and Sale Agreement between the Company and
                           Union Pacific Resources Company dated April 10, 1998.

         10.5(5)           Exploration Agreement between the Company and Union
                           Pacific Resources Company dated May 15, 1998.

         10.6(6)           Office Lease Agreement between the Company and
                           EOP-One Civic Center Plaza, L.L.C. dated October 15,
                           1998.

         10.7(7)           1999 Employee Stock Option Plan.

         10.8(8)           Contract Amendment dated April 21, 1999 - Exploration
                           Agreement effective June 1, 1998 Wattenberg area
                           Weld, Arapahoe and Adams Counties, Colorado.

         10.9(8)           First Amendment to that certain Exploration Agreement
                           dated April 9, 1998 but effective as of June 1, 1998,
                           by and between Union Pacific Resources Company and
                           United States Exploration, Inc.





                                      -32-
<PAGE>

         10.10(9)          Bruce D. Benson Offer to Purchase Common Stock dated
                           April 21, 2000.

         10.11(9)          Registration Rights Agreement dated May 18, 2000
                           between the Company and Bruce D. Benson.

         10.12(10)         2000 Development Agreement between United States
                           Exploration, Inc. and Petroleum Development
                           Corporation dated June 30, 2000.

         10.13(11)         Credit Agreement dated August 25, 2000 by and between
                           United States Exploration, Inc. and Bank of Oklahoma,
                           N.A.

         10.14(12)         Letter Agreement dated December 21, 2000 by and
                           between Benson Mineral Group, Inc. and the Company
                           (re term of Cost and Expense Sharing Agreement).

         10.15(12)         Amendment to Cost and Expense Sharing Agreement made
                           as of the 1st day of March, 2001, by and between
                           Benson Mineral Group, Inc. and the Company.

         10.16(13)         First Amendment to Credit Agreement made and
                           effective May 1, 2002, by and between United States
                           Exploration, Inc. and Bank of Oklahoma, N.A.

         10.17(13)         Amended and Restated Revolving Note of United States
                           Exploration, Inc., dated May 1, 2002, in the amount
                           of $15,000,000 payable to Bank of Oklahoma, N.A.

         10.18(13)         First Supplemental Mortgage, Security Agreement,
                           Assignment and Financing Statement from United States
                           Exploration, Inc. to Bank of Oklahoma, N.A., dated
                           effective May 1, 2002.

         10.19(14)         Amendment to Directors Fee Stock Plan, dated February
                           20, 2003.

         23.1(15)          Consent of Ernst & Young LLP, independent certified
                           public accountants, to incorporation of this report
                           by reference into the Company's Registration
                           Statements on Form S-8 (Registration Nos. 333-60983
                           and 333-47666).

         23.2(15)          Consent of Netherland, Sewell & Associates, Inc.,
                           independent petroleum engineers and geologists, to
                           incorporation of this report by reference into the
                           Company's Registration Statement on Form S-8
                           (Registration Nos. 333-60983 and 333-47666).

         24(15)            Powers of Attorney.

         31.1(15)          Certification of the Chief Executive Officer pursuant
                           to Rule 13a-14(a)/15d-14(a) under the Exchange Act

         31.2(15)          Certification of the Chief Financial Officer pursuant
                           to Rule 13a-14(a)/15d-14(a) under the Exchange Act

         32.1(15)          Certification of Chief Executive Officer pursuant to
                           Section 906 of the Sarbanes-Oxley Act of 2002.

         32.2(15)          Certification of Chief Financial Officer pursuant to
                           Section 906 of the Sarbanes-Oxley Act of 2002.

----------

         (1)      Filed as an Exhibit to Form S-18 dated March 8, 1989 and
                  incorporated herein reference.



                                      -33-
<PAGE>

         (2)      Filed as an Exhibit to Form 8-K dated September 30, 1996 and
                  incorporated herein by reference.

         (3)      Filed as an Exhibit to Form S-8 filed August 7, 1998
                  (Registration No. 333-60983) and incorporated herein by
                  reference.

         (4)      Filed as an Exhibit to Form 10-QSB for the quarter ended June
                  30, 1997, and incorporated herein by reference.

         (5)      Filed as an Exhibit to Form 8-K dated May 26, 1998 and
                  incorporated herein by reference.

         (6)      Filed as an Exhibit to Form 10-KSB for the year ended December
                  31, 1998 and incorporated herein by reference.

         (7)      Filed as Exhibit A to the Proxy Statement of United States
                  Exploration, Inc. Annual Meeting of Shareholders held July 13,
                  1999 and incorporated herein by reference.

         (8)      Filed as an Exhibit to Form 10-QSB for the quarter ended March
                  31, 1999 and incorporated herein by reference.

         (9)      Filed as an Exhibit to Form 10-QSB for the quarter ended March
                  31, 2000 and incorporated herein by reference.

         (10)     Filed as an Exhibit to Form 8-K with a report date of July 19,
                  2000 filed July 19, 2000 and incorporated herein by reference.

         (11)     Filed as an Exhibit to Form 8-K with a report date of August
                  25, 2000 filed September 5, 2000 and incorporated herein by
                  reference.

         (12)     Filed as an Exhibit to Form 10-KSB for the year ended December
                  31, 2000 and incorporated herein by reference.

         (13)     Filed as an Exhibit to Form 10-QSB for the quarter ended March
                  31, 2002 and incorporated herein by reference.

         (14)     Filed as an Exhibit to Form 10-KSB for the year ended December
                  31, 2002 as originally filed and incorporated herein by
                  reference.

         (15)     Filed herewith.

         (b) REPORTS ON FORM 8-K.

         No reports on Form 8-K were filed during the fourth quarter of 2002.



                                      -34-
<PAGE>

ITEM 14.  CONTROLS AND PROCEDURES.

         We maintain a system of controls and procedures designed to provide
reasonable assurance as to the reliability of the financial statements and other
disclosures included in this report. As of April 7, 2003, under the supervision
and with the participation of our Chief Executive Officer and Chief Financial
Officer, management has evaluated the effectiveness of the design and operation
of our disclosure controls and procedures. Based on that evaluation, the Chief
Executive Officer and the Chief Financial Officer concluded that our disclosure
controls and procedures were effective in timely alerting them to material
information required to be included in our periodic filings with the Securities
and Exchange Commission. No significant changes were made to our internal
controls or other factors that could significantly affect those controls
subsequent to the date of their evaluation.



                                      -35-
<PAGE>

                                    SIGNATURE

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

                                       UNITED STATES EXPLORATION, INC.



                                       By: /s/ F. Michael Murphy
                                          --------------------------------------
                                          F. Michael Murphy, Vice President

                                       Date: January 15, 2004

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


<Table>
<Caption>
Signatures                            Title                                         Date
----------                            -----                                         ----
<S>                                   <C>                                      <C>

/s/ F. Michael Murphy                 Vice President, Chief Financial          January 15, 2004
-------------------------             Officer and Secretary (Chief
F. Michael Murphy                     Financial and Accounting
                                      Officer)

Bruce D. Benson                       President, Chief Executive
                                      Officer, and Chairman of
                                      the Board of Directors

Thomas W. Gamel                       Director

Bruce A. Hocking                      Director

Robert J. Malone                      Director

Richard L. Robinson                   Director

By: /s/ F. Michael Murphy                                                      January 15, 2004
   ----------------------
      F. Michael Murphy
      Attorney-In-Fact
</Table>

<PAGE>
                United States Exploration, Inc. and Subsidiaries

                        Consolidated Financial Statements


                     Years ended December 31, 2002 and 2001





                                    CONTENTS

<Table>
<S>                                                                          <C>
Report of Independent Auditors...............................................F-1

Audited Consolidated Financial Statements

Consolidated Balance Sheets..................................................F-2
Consolidated Statements of Operations........................................F-4
Consolidated Statements of Changes in Stockholders' Equity...................F-5
Consolidated Statements of Cash Flows........................................F-6
Notes to Consolidated Financial Statements...................................F-7
</Table>



<PAGE>

                         Report of Independent Auditors

Board of Directors
United States Exploration, Inc.

We have audited the accompanying consolidated balance sheets of United States
Exploration, Inc. and subsidiaries as of December 31, 2002 and 2001, and the
related consolidated statements of operations, changes in stockholders' equity
and cash flows for the years then ended. These financial statements have been
restated as more fully described in Footnote 1 to the financial statements.
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 auditing standards generally accepted
in the United States. 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 United States
Exploration, Inc. and subsidiaries at December 31, 2002 and 2001, and the
consolidated results of their operations and their cash flows for the years then
ended in conformity with accounting principles generally accepted in the United
States.

                                            /s/ Ernst & Young LLP

Denver, Colorado
March 13, 2003,
except for Note 1
as to which the date
is December 29, 2003


                                      F-1
<PAGE>

                United States Exploration, Inc. and Subsidiaries

                           Consolidated Balance Sheets


<Table>
<Caption>
                                                             DECEMBER 31,
                                                         2002             2001
                                                       Restated         Restated
                                                     ------------     ------------
<S>                                                  <C>              <C>
ASSETS
Current assets:
Cash and cash equivalents                            $    475,607     $  3,742,701
Accounts receivable                                     2,498,424        1,619,975
Due from related parties                                    6,489            8,482
Inventory                                                  13,891               --
Prepaid expenses and deposits                              69,862          412,981
Deferred tax asset--current                             1,682,725               --
                                                     ------------     ------------
Total current assets                                    4,746,998        5,784,139

Property and equipment, net:
   Oil and gas prop. & equip., full cost method        26,133,765       16,017,461
   Other equipment and leasehold improvements             136,946          173,410
                                                     ------------     ------------
                                                       26,270,711       16,190,871
Other assets:
   Loan costs, less accumulated amortization
     of $40,405 at December 31, 2002 and
     $20,722 at December 31, 2001                          23,192           32,325
   Deferred tax asset                                   2,766,275               --
                                                     ------------     ------------
                                                        2,789,467           32,325
                                                     ------------     ------------
Total assets                                         $ 33,807,176     $ 22,007,335
                                                     ============     ============
</Table>



                                      F-2
<PAGE>

<Table>
<Caption>
                                                                       DECEMBER 31,
                                                                  2002              2001
                                                                Restated          Restated
                                                              ------------      ------------
<S>                                                           <C>               <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
   Accounts payable                                           $  2,260,498      $  1,104,449
   Revenues payable                                              1,055,918           682,691
   Taxes payable                                                 1,311,864         1,506,636
   Accrued liabilities                                             198,814           231,103
   Due to related parties                                           31,501            31,048
   Accrued interest                                                    791                --
                                                              ------------      ------------
Total current liabilities                                        4,859,386         3,555,927

Noncurrent liabilities:
   Note payable--Bank                                            3,632,700                --
                                                              ------------      ------------
   Total noncurrent liabilities                                  3,632,700                --
                                                              ------------      ------------
Total liabilities                                                8,492,086         3,555,927

Commitments

Stockholders' equity:
   Common stock--$.0001 par value:
     authorized--500,000,000 shares;
       issued, 18,855,906 shares at December 31, 2002
       (including 139,590 shares in treasury) and
       18,825,328 shares at December 31, 2001                        1,885             1,882
   Capital in excess of par value                               36,726,710        36,683,713
   Accumulated deficit                                         (11,192,953)      (18,234,187)
                                                              ------------      ------------
                                                                25,535,642        18,451,408

Less 139,590 shares held in treasury, at cost                     (220,552)               --
                                                              ------------      ------------
Total stockholders' equity                                      25,315,090        18,451,408
                                                              ------------      ------------
Total liabilities and stockholders' equity                    $ 33,807,176      $ 22,007,335
                                                              ============      ============
</Table>



See accompanying notes.



                                      F-3
<PAGE>

                United States Exploration, Inc. and Subsidiaries

                      Consolidated Statements of Operations


<Table>
<Caption>
                                                          YEAR ENDED DECEMBER 31,
                                                           2002              2001
                                                         Restated          Restated
                                                       ------------      ------------
<S>                                                    <C>               <C>
REVENUES
Sale of company-produced oil and gas                   $ 10,090,635      $ 12,148,964
Sale of purchased gas                                            --         1,238,044
Gain on sale of fixed assets, net                                --            (2,313)
                                                       ------------      ------------
                                                         10,090,635        13,384,695
COSTS AND EXPENSES
Production costs--oil and gas                             2,743,270         2,463,770
Gas acquisition costs                                            --           728,724
Gathering and transmission costs                                 --           348,288
Depletion, depreciation and amortization                  2,836,712         2,627,808
Provision for impairment of assets                               --         1,107,990
General and administrative expenses                       1,899,191         1,960,425
                                                       ------------      ------------
                                                          7,479,173         9,237,005

Income from operations                                    2,611,462         4,147,690

OTHER INCOME (EXPENSE)
Interest income                                              30,427            45,607
Interest expense                                            (44,735)          (82,248)
Other                                                        (4,920)            3,177
                                                       ------------      ------------
                                                            (19,228)          (33,464)
                                                       ------------      ------------
Income before income taxes                                2,592,234         4,114,226
Income tax expense (benefit)                             (4,449,000)               --
                                                       ------------      ------------
Net income                                                7,041,234         4,114,226
Preferred stock dividends applicable to the period               --           (82,252)
                                                       ------------      ------------
Net income applicable to common stockholders           $  7,041,234      $  4,031,974
                                                       ============      ============
Basic and diluted earnings per common share:
   Net income per common share                         $       0.37      $       0.21
                                                       ============      ============

Weighted-average common shares outstanding               18,852,846        18,767,395
                                                       ============      ============
</Table>



See accompanying notes.



                                      F-4
<PAGE>

                United States Exploration, Inc. and Subsidiaries

           Consolidated Statements of Changes in Stockholders' Equity

                      Year ended December 31, 2002 and 2001


<Table>
<Caption>
                                                                                      CAPITAL IN
                                                SERIES C             COMMON STOCK      EXCESS OF   ACCUMULATED
                                         ----------------------   ------------------  -----------  ------------
                                          SHARES      AMOUNT        SHARES    AMOUNT   PAR VALUE     DEFICIT
                                         --------   -----------   ----------  ------  -----------  ------------
<S>                                      <C>        <C>           <C>         <C>     <C>          <C>
Balance, December 31, 2000                443,166   $ 2,658,996   18,620,631  $1,861  $36,226,740  $(21,734,361)
  Issuance of common stock for
     directors' compensation                   --            --       59,716       7       66,987            --
  Redemption and conversion of Series C
     convertible preferred stock         (443,166)   (2,658,996)     144,981      14      389,986            --
  Payment of dividends on Series C
     convertible preferred stock               --            --           --      --           --      (614,052)
  Net income for year (restated)               --            --           --      --           --     4,114,226
                                         --------   -----------   ----------  ------  -----------  ------------
Balance, December 31, 2001
  (restated)                                   --            --   18,825,328   1,882   36,683,713   (18,234,187)

  Purchase of treasury stock                   --            --           --      --           --            --
  Issuance of common stock for
     directors' compensation                   --            --       30,578       3       42,997            --
  Net income for year (restated)               --            --           --      --           --     7,041,234
                                         --------   -----------   ----------  ------  -----------  ------------
Balance, December 31, 2002
  (restated)                                   --   $        --   18,855,906  $1,885  $36,726,710  $(11,192,953)
                                         ========   ===========   ==========  ======  ===========  ============
</Table>

<Table>
<Caption>

                                           TREASURY STOCK
                                         --------------------
                                          SHARES     AMOUNT        TOTAL
                                         --------   ---------   -----------
<S>                                      <C>        <C>         <C>
Balance, December 31, 2000                     --   $      --   $17,153,236
  Issuance of common stock for
     directors' compensation                   --          --        66,994
  Redemption and conversion of Series C
     convertible preferred stock               --          --    (2,268,996)
  Payment of dividends on Series C
     convertible preferred stock               --          --      (614,052)
  Net income for year (restated)               --          --     4,114,226
                                         --------   ---------   -----------
Balance, December 31, 2001
  (restated)                                   --          --    18,451,408

  Purchase of treasury stock             (139,590)   (220,552)     (220,552)
  Issuance of common stock for
     directors' compensation                   --          --        43,000
  Net income for year (restated)               --          --     7,041,234
                                         --------   ---------   -----------
Balance, December 31, 2002
  (restated)                             (139,590)  $(220,552)  $25,315,090
                                         ========   =========   ===========
</Table>



See accompanying notes.



                                      F-5
<PAGE>

                United States Exploration, Inc. and Subsidiaries

                      Consolidated Statements of Cash Flows


<Table>
<Caption>
                                                                 YEAR ENDED DECEMBER 31,
                                                                  2002              2001
                                                                Restated          Restated
                                                              ------------      ------------
<S>                                                           <C>               <C>
CASH FLOWS FROM OPERATIONS
Net income                                                    $  7,041,234      $  4,114,226
Adjustments to reconcile net income to net cash
   provided by operating activities:
     Deferred tax expense (benefit)                             (4,449,000)               --
     Depreciation, depletion and amortization                    2,836,712         2,627,808
     Provision for impairment of assets                                 --         1,107,990
     Loss on sale of assets                                             --            (2,313)
     Stock issued as compensation                                   43,000            66,994
     Decrease (increase) in accounts receivable                   (878,449)        2,112,606
     Decrease in due from related parties                            1,993            17,114
     Decrease (increase) in inventory                              (13,891)            4,690
     Decrease (increase) in prepaid expenses                       343,119          (404,072)
     Increase (decrease) in accounts payable
       and accrued expenses                                      1,303,006          (234,381)
     Increase in due to related parties                                453            11,020
                                                              ------------      ------------
Net cash provided by operating activities                        6,228,177         9,426,308

CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures                                           (13,407,419)       (6,439,262)
Proceeds from sale of properties and equipment                     500,000         6,955,492
                                                              ------------      ------------
Net cash (used in) provided by investing activities            (12,907,419)          516,230

CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of note payable                                       (4,010,500)      (15,609,000)
Proceeds from note payable                                       7,643,200        12,152,800
Treasury stock acquired                                           (220,552)               --
Dividends paid--Series C convertible preferred stock                    --          (614,052)
Redemption of Series C convertible preferred stock                      --        (2,268,996)
                                                              ------------      ------------
Net cash provided by (used in) financing activities              3,412,148        (6,339,248)

Net increase (decrease) in cash and cash equivalents            (3,267,094)        3,603,290
Cash and cash equivalents, beginning of year                     3,742,701           139,411
                                                              ------------      ------------
Cash and cash equivalents, end of year                        $    475,607      $  3,742,701
                                                              ============      ============

Supplemental disclosure of cash flow information:
   Cash paid during the year for interest                     $     43,944      $     80,654
Noncash investing and financing activities:
   Conversion of preferred stock and accrued dividends to
     shares of common stock                                             --           390,000
</Table>



See accompanying notes.



                                      F-6
<PAGE>

                United States Exploration, Inc. and Subsidiaries

                   Notes to Consolidated Financial Statements

                           December 31, 2002 and 2001


1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

COMPANY HISTORY AND NATURE OF OPERATIONS

United States Exploration, Inc. (the "Company") was incorporated on January 9,
1989. The Company operates as a producer of oil and gas. In July 2001, the
Company completed the sale of its gas gathering systems and its oil and gas
wells which were located in southeast Kansas. All of the Company's operations
are currently located in northeast Colorado.

PRINCIPLES OF CONSOLIDATION

The accompanying consolidated financial statements include the accounts of
United States Exploration, Inc. and its wholly owned subsidiary, Producers
Service Incorporated ("PSI"). All significant intercompany transactions and
balances have been eliminated in consolidation. As a part of the sale of its
southeast Kansas properties, PSI was sold in July 2001.

RESTATEMENT OF 2002 AND 2001 FINANCIAL STATEMENTS

In June 2001, the Company sold certain non-producing leases for approximately
$6 million. It had acquired these leases in March 2001 for approximately $1.5
million and had spent approximately $500,000 on the properties following their
acquisition. The proceeds from the sale of these leases represented
approximately 28% of the Company's full-cost pool at the time of the sale. No
proved reserves were assigned to these leases. Due to the significance of the
proceeds to the Company's full-cost pool, the Company accounted for the sale of
these leases by recognizing a $4,027,835 gain as opposed to crediting the
proceeds to the full-cost pool.

During 2003, upon further review of this transaction, the Company determined
that while the proceeds from the sale were significant to the capitalized
costs, the impact of crediting the proceeds to the Company's full-cost pool on
its future amortization rate was not as significant. The change in the
amortization rate was less significant because the calculation of the
amortization rate included significant future development costs on unproved
reserves. Crediting the proceeds from the sale of these assets to the full-cost
pool lowered the amortization rate by approximately 5%.

As a result of the above analysis, the Company has restated its 2001 financial
statements to remove the $4,027,835 gain from this sale from the income
statement and credit the proceeds to the full-cost pool. It also lowered the
amortization rate applied to the full-cost pool based on actual production since
the date of the sale which had the impact of lowering the Company's depletion,
depreciation, and amortization expense in 2001 by $112,050 and in 2002 by
$258,827. For the reasons described in Note 9 below, the Company recognized the
deferred tax asset resulting from this restatement in 2002 rather than 2001.

In addition, the Company incorrectly recognized as revenue contracting and
operating fees of $101,980 in 2002, and $53,792 in 2001. The Company restated
its 2002 and 2001 financial statements by removing these fees from revenues in
2002 and 2001, crediting the full cost pool by $72,083 in 2002 and $18,900 in
2001, and reducing general and administrative costs by $29,897 in 2002 and
$34,892 in 2001.

The net effect of the adjustment described above on the 2002 and 2001 financial
statements as reported in the Company's annual report on Form 10-KSB and
quarterly reports on Form 10-QSB is as follows:



<TABLE>
<CAPTION>

                                                2002           2001
                                             -----------    -----------
<S>                                          <C>            <C>
Income statement effect:
Net income as originally reported            $ 5,464,991    $ 8,048,911

Sale of non-producing leases                          --     (4,027,835)

Decrease in amortization rate                    258,826        112,050

Reversal of drilling income                      (72,083)       (18,900)

Income tax benefit                             1,389,500             --

Net income as restated                       $ 7,041,234    $ 4,114,226

Basic and diluted earnings per share
  As originally reported                           $0.29          $0.42
  As restated                                      $0.37          $0.21

Balance sheet effect:

Total assets:
  As originally reported                     $36,165,618    $25,942,020
  As restated                                 33,807,176     22,007,335

Total shareholders' equity:
  As originally reported                     $27,673,532    $22,386,093
  As restated                                 25,315,090     18,451,408

</TABLE>

                                      F-7


<PAGE>
                United States Exploration, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)


<TABLE>
                                     Quarter        Quarter        Quarter       Quarter        Year
                                      Ended          Ended          Ended         Ended         Ended
                                   -----------    -----------    ----------    ----------    ----------
                                   31-Mar-2001    30-Jun-2001    30-Sep-2001   31-Dec-2001   31-Dec-2001
<S>                                <C>            <C>            <C>           <C>           <C>
Income statement effect:
Net income as originally reported  $2,804,980     $ 4,255,062    $225,750      $763,119      $8,048,911

Sale of non-producing leases                       (4,002,748)    (25,087)           --      (4,027,835)

Decrease in amortization rate                          12,923      61,024        38,103         112,050

Reversal of drilling income           (10,850)         (8,050)         --            --         (18,900)

Net income as restated             $2,794,130     $   257,187    $261,687      $801,222      $4,114,226

Basic earnings per share
  As originally reported                $0.15           $0.23       $0.01         $0.03           $0.42
  As restated                           $0.15           $0.01       $0.01         $0.04           $0.21

Diluted earnings per share
  As originally reported                $0.14           $0.22       $0.01         $0.05           $0.42
  As restated                           $0.14           $0.01       $0.01         $0.05           $0.21
</TABLE>

<TABLE>
                                     Quarter        Quarter        Quarter       Quarter        Year
                                      Ended          Ended          Ended         Ended         Ended
                                   -----------    -----------    ----------    ----------    ----------
                                   31-Mar-2002    30-Jun-2002    30-Sep-2002   31-Dec-2002   31-Dec-2002
<S>                                <C>            <C>            <C>           <C>           <C>
Income statement effect:
Net income as originally reported  $  127,561     $ 1,214,337    $361,606      $3,761,487    $5,464,991

Decrease in amortization rate          70,147          69,321      66,014          53,344       258,826

Reversal of drilling income            (4,317)        (13,883)    (31,004)        (22,879)      (72,083)

Deferred income tax benefit                --              --          --       1,389,500     1,389,500

Net income as restated             $  193,391     $ 1,269,775    $396,616      $5,181,452    $7,041,234

Basic earnings per share
  As originally reported                $0.01           $0.06       $0.02         $0.20           $0.29
  As restated                           $0.01           $0.07       $0.02         $0.27           $0.37

Diluted earnings per share
  As originally reported                $0.01           $0.06       $0.02         $0.20           $0.29
  As restated                           $0.01           $0.07       $0.02         $0.27           $0.37
</TABLE>

USE OF ESTIMATES

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.

REVENUE RECOGNITION

The Company accounts for gas imbalances using the sales method. Under this
method, revenue is recognized based on gas sold rather than the Company's
proportionate share of gas produced. At December 31, 2002 and 2001, the Company
does not have a significant imbalance position.

Revenues from the purchase, sale and transportation of purchased natural gas are
recognized when transported volumes are delivered. Effective with the 2001 sale
of the Kansas gas gathering systems, the Company no longer purchases natural
gas.

The Company recognizes oil sales on delivery. Oil is picked up by the
purchasers from tanks located on or near our leases. Delivery is verified from
run tickets completed by the truck drivers.



                                      F-8
<PAGE>
                United States Exploration, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)


1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

CASH EQUIVALENTS

For purposes of the statements of cash flows, the Company considers all highly
liquid debt instruments purchased with a maturity of three months or less to be
cash equivalents.

FAIR VALUE OF FINANCIAL INSTRUMENTS

Statement of Financial Accounting Standards No. 107, Disclosures About Fair
Value of Financial Instruments, requires that the Company disclose estimated
fair values for its financial instruments. Such information is based on the
requirements set forth in that statement and does not purport to represent the
aggregate net fair value of the Company.

The fair value of the Company's financial instruments, consisting of cash and
cash equivalents, receivables, payables, and bank borrowings, are considered to
approximate their carrying amounts in the Company's balance sheets.

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

OIL AND GAS INTERESTS

The Company follows the full cost method of accounting as defined by the
Securities and Exchange Commission, whereby all costs incurred in connection
with the acquisition, exploration and development of oil and gas properties,
whether productive or unproductive, are capitalized. Capitalized costs which
relate to proved properties and estimated future costs to be incurred in the
development of proved reserves and estimated future dismantlement and
abandonment costs are amortized using the units-of-production method.
Capitalized costs associated with significant investments in unproved properties
are excluded from the amortization base until such time as these properties are
evaluated. Additionally, no gains or losses are recognized upon the disposition
of oil and gas properties. Capitalized costs are subjected to periodic tests of
recoverability by comparison to the present value of future net revenues from
proved reserves. Any capitalized costs in excess of the present value of future
net revenues from proved reserves, adjusted for the cost of certain unproved
properties, are charged to expense in the year such excess occurs.



                                      F-9
<PAGE>
                United States Exploration, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)


PROPERTY AND EQUIPMENT

Property and equipment, exclusive of property and equipment included in the full
cost pool, is stated at cost and depreciated using the straight-line method over
the estimated useful lives of the assets as follows:

<Table>
<S>                                                                                    <C>
         Leasehold improvements                                                           10 years
         Natural gas gathering systems                                                 10-17 years
         Equipment                                                                       3-7 years
</Table>

Maintenance, repairs and renewals which neither materially add to the value of
the asset nor appreciably prolong its life are charged to expense as incurred.
Gains or losses on dispositions of these assets are included in operations.

The capitalized loan costs are being amortized over the stated term of the
related borrowings.

INCOME TAXES

Deferred income taxes are based on the liability method as prescribed by
Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes
("SFAS 109"). Under SFAS 109, deferred income taxes are provided for temporary
differences in recognizing certain income and expense items for financial
reporting and tax reporting purposes.

STOCK OPTIONS

The Company has elected to follow Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees ("APB 25"), and related interpretations
in accounting for outstanding stock options. Under APB 25, when the exercise
price of the Company's stock options equals or exceeds the market price of the
underlying stock on the date of grant, no compensation expense is recognized. If
the market price of the underlying stock on the date of grant exceeds the
exercise price of Company's stock options, compensation expense would be
recognized.

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

RECENT ACCOUNTING PRONOUNCEMENTS

In July 2001, the Financial Accounting Standards Board issued Statement No. 141,
Business Combinations ("SFAS 141") and Statement No. 142, Goodwill and Other
Intangible Assets ("SFAS 142"). SFAS 141 requires companies to reflect
intangible assts apart from goodwill and supersedes previous guidance related to
business combinations.



                                      F-10
<PAGE>
                United States Exploration, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)


         SFAS 142 eliminates amortization of goodwill and amortization of
indefinite-lived intangible assets. However, SFAS 142 also requires the Company
to perform impairment tests at least annually on all goodwill and other
intangible assets. These statements were adopted by the Company on January 1,
2002. The Company does not expect the impact of the statements on its financial
position, results of operations, and cash flows to be significant.

         During June 2001, the Financial Accounting Standards Board issued
Statement No. 143, Accounting for Asset Retirement Obligations ("SFAS 143"),
which is effective for the Company beginning in 2003. SFAS 143 requires that the
fair value of a liability for an asset retirement obligation be recognized in
the period in which the obligation is incurred. The associated asset retirement
costs are capitalized as part of the carrying amount of the long-lived asset.
The Company is currently evaluating the impact of adoption of SFAS 143 on its
consolidated financial position, results of operations and cash flows.

         During December 2002, the Financial Accounting Standards Board issued
Statement No. 148, Accounting for Stock Based Compensation-Transition and
Disclosure ("SFAS 148"). SFAS 148 provides alternative methods of transition for
a voluntary change to the fair value based method of accounting for stock-based
employee compensation. SFAS 148 also requires that disclosures of the pro forma
effect of using the fair value method of accounting for stock-based employee
compensation be displayed more prominently. Additionally, SFAS 148 requires
disclosure of the pro forma effect in interim financial statements. The Company
currently does not plan to transition to fair value method of accounting for
stock-based employee compensation. However, the Company has adopted the
disclosure provisions required by SFAS 148 as of December 31, 2002. The
Company's pro forma net income is not materially different from net income as
reported, and there is no difference in net income per share for the years ended
December 31, 2002 and December 31, 2001.

2. EARNINGS PER SHARE

         Basic earnings per share is computed by dividing net income applicable
to common stockholders by the weighted-average common shares outstanding for the
period, including 139,590 shares now held in treasury that were outstanding for
357 days during 2002. Diluted earnings per share reflects the potential dilution
that could occur if common stock options were exercised and preferred stock was
converted into common stock. Diluted earnings per share includes 27,032 shares
presumed to be issued under the treasury stock method for outstanding stock
options and excludes 742,200 shares underlying stock options that had exercise
prices higher than the market price of the Company's common stock at December
31, 2002. However, basic and diluted earnings per share are the same for 2002
and 2001.

3. RELATED PARTY TRANSACTIONS

         The Company has a cost and expense sharing agreement with Benson
Mineral Group, Inc. ("BMG"), a privately held Oklahoma corporation. The
Company's Chairman of the Board and President is also the President, a Director
and sole shareholder of BMG. Pursuant to the cost and expense sharing agreement,
the Company has agreed to compensate BMG for office rent, personnel costs and
other overhead and administrative expenses associated with the operation of its
business based upon actual use of the facilities and personnel by the Company.
During the year ended December 31, 2002, the Company was charged $361,029 by BMG
under this arrangement, of which $250,437 related to personnel costs and
$110,592 related to office rent and other overhead and administrative expenses.
At December 31, 2002, $31,501 was payable to BMG. During the year ended December
31, 2001, the Company was charged $206,963 by BMG under this arrangement, of
which $95,084 related to personnel costs and $111,879 related to office rent and
other overhead and administrative expenses. At December 31, 2001,



                                      F-11
<PAGE>
                United States Exploration, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)


$31,048 was payable to BMG. From January 1, 2001 through July 31, 2001, all
employees were on the Company's payroll and on August 1, 2001, five employees
were transferred to the BMG payroll. The Company billed BMG $71,415 in 2002 and
$156,629 in 2001 for time spent by Company employees on business affairs of BMG,
which has been netted against general and administrative expenses in the
accompanying statements of operations. The cost and expense sharing agreement is
effective until 60 days after BMG gives written notice to the Company of
termination of the cost sharing agreement. However, BMG has indicated that the
Company can terminate the cost and expense sharing agreement at any time.

See Note 7 for a description of the Neosho County, Kansas project which was
purchased from BMG on March 1, 2001.

The outside directors of the Company's Board of Directors received 53,854 shares
of the Company's common stock in 2001 for directors' fees earned and accrued for
during 2000 and 5,862 shares for directors' fees earned and accrued for in 2001;
30,578 shares in 2002 for directors' fees earned and accrued for during 2001. In
addition, 23,623 shares will be issued in 2003 for directors' fees earned and
accrued for during 2002.

The Company is a participating employer of a multi-employer profit sharing plan
sponsored by BMG and has contributed $38,007 and $29,263 for the years 2002 and
2001, respectively.



                                      F-12
<PAGE>

                United States Exploration, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)


4. OIL AND GAS PROPERTIES

The Company's oil and gas activities are conducted within the continental United
States. The following schedules present capitalized costs at December 31, 2002
and 2001, and results of operations for producing activities for the years ended
December 31, 2002 and 2001. At December 31, 2002 and 2001, costs associated with
acquisition and development activities are considered evaluated and subject to
amortization.

<Table>
<Caption>
                                                             DECEMBER 31,
                                                        2002              2001
                                                    ------------      ------------
<S>                                                 <C>               <C>
Capitalized costs:
   Oil and gas properties                           $ 62,582,792      $ 49,734,460
   Accumulated depreciation, depletion,
     amortization and valuation allowance            (36,449,027)      (33,716,999)
                                                    ------------      ------------
Net capitalized costs                               $ 26,133,765      $ 16,017,461
                                                    ============      ============

Results of operations for producing activities:
   Oil and gas sales                                $ 10,090,635      $ 12,148,964
   Production costs                                   (2,743,270)       (2,463,770)
   Depreciation, depletion and amortization           (2,750,928)       (2,446,484)
                                                    ------------      ------------
Results of operations from producing activities
   (excluding overhead expenses)                    $  4,596,437      $  7,238,710
                                                    ============      ============
</Table>

<Table>
<Caption>
                                                      DECEMBER 31,
                                                  2002             2001
                                              ------------     ------------
<S>                                           <C>              <C>
Amortization per equivalent physical unit
   (barrels) of production                    $       5.01     $       4.71
                                              ============     ============
</Table>

Costs incurred in oil and gas acquisition and development activities are as
follows:

<Table>
<Caption>
                               DECEMBER 31,
                          2002             2001
                      ------------     ------------
<S>                   <C>              <C>
Development costs     $ 13,367,234     $  4,403,758
                      ============     ============

Acquisition costs     $          0     $  1,983,720
                      ============     ============

</Table>

4. OIL AND GAS PROPERTIES (CONTINUED)

Statement of Financial Accounting Standards No. 141, Business Combinations and
Statement of Financial Accounting Standards No. 142, Goodwill and Intangible
Assets were issued by the Financial Accounting Standards Board in June 2001 and
became effective for us on July 1, 2001 and January 1, 2002, respectively. SFAS
141 requires all business combinations initiated after June 30, 2001 to be
accounted for using the purchase method. Additionally, SFAS 141 requires
companies to disaggregate and report separately from goodwill certain intangible
assets. SFAS 142 establishes new guidelines for accounting for goodwill and
other intangible assets. Under SFAS 142, goodwill and certain other intangible
assets are not amortized, but rather are reviewed annually for impairment.

One interpretation being considered relative to these standards is that oil and
gas mineral rights held under lease and other contractual arrangements
representing the right to extract such reserves for both undeveloped and
developed leaseholds should be classified separately from oil and gas properties
as intangible assets on our consolidated balance sheets. In addition, the
disclosures required by SFAS 141 and 142 relative to intangibles would be
included in the notes to the consolidated financial statements. Historically, we
like many other oil and gas companies, have included these rights as part of oil
and gas properties, even after SFAS 141 and 142 became effective.

As it applies to companies like us that have adopted full cost accounting for
oil and gas activities, we understand that this interpretation of SFAS 141 and
142 would only affect our balance sheet classification of proved oil and gas
leaseholds acquired after June 30, 2001 and all of our unproved oil and gas
leaseholds. We would not be required to reclassify proved reserve leasehold
acquisitions prior to June 30, 2001 because we did not separately value or
account for these costs prior to the adoption date of SFAS 141. Our results of
operations and cash flows would not be affected, since these oil and gas

                                      F-13

<PAGE>
                United States Exploration, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)


mineral rights held under lease and other contractual arrangements representing
the right to extract oil and gas reserves would continue to be amortized in
accordance with full cost accounting rules.

As of December 31, 2002, we had undeveloped leaseholds of approximately
$110,000, that would be classified on our consolidated balance sheet as
"intangible undeveloped leasehold" if we applied the interpretation discussed
above. We have not acquired any developed leaseholds after June 30, 2001.




                                      F-14
<PAGE>

                United States Exploration, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)


5. EQUIPMENT AND LEASEHOLD IMPROVEMENTS

Equipment and leasehold improvements consisted of the following:

<Table>
<Caption>
                                            DECEMBER 31,
                                       2002              2001
                                   ------------      ------------
<S>                                <C>               <C>
Leasehold improvements             $    111,340      $    111,340
Autos and trucks                         24,137            27,599
Office equipment and furniture          224,123           208,659
                                   ------------      ------------
                                        359,600           347,598
Accumulated depreciation               (222,654)         (174,188)
                                   ------------      ------------
                                   $    136,946      $    173,410
                                   ============      ============
</Table>

6. TREASURY STOCK

In November 2002, the Company made a tender offer to purchase up to 1,500,000
shares of its outstanding common stock at $1.50/share. The tender offer expired
on December 23, 2002 and 139,590 shares were acquired. The Company's cost of the
treasury stock, limited to its market value of $1.58/share on December 23, 2002
was $220,552.

7. NEOSHO COUNTY, KANSAS PROJECT

On March 1, 2001, the Company's Board of Directors approved the purchase of an
oil and gas project from BMG located in Neosho County, Kansas. The Chairman of
the Company's Board of Directors, being the President of BMG, abstained from the
Board's vote on this matter. The purchase price of the property was BMG's cost
basis in the property. On June 14, 2001, the Company sold its interest in this
project for approximately $6 million. The costs of the nonproducing properties
contained in this project were not included in the amortizable portion of the
Company's full cost pool of oil and gas property and equipment. The proceeds
were included as a reduction of the Company's full cost pool of oil and gas
property and equipment on the balance sheet.

8. KANSAS PROPERTY SALE AND IMPAIRMENT

In July of 2001 and effective June 1, 2001, the Company completed the sale of
its Kansas gas gathering systems and oil and gas properties for $550,000.
Included in the sale was the stock of the Company's wholly owned subsidiary,
Producers Service Incorporated. The Company allocated $150,000 of the sales
proceeds to its gas gathering systems and



                                      F-15
<PAGE>
                United States Exploration, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)


8. KANSAS PROPERTY SALE AND IMPAIRMENT (CONTINUED)

pipeline lease. At June 30, 2001, the Company impaired the value of the gas
gathering systems and pipeline lease by $1,107,990 to reflect the fair value of
these assets. The $400,000 received for the oil and gas properties was credited
to the full cost pool of oil and gas properties and equipment and no gain or
loss was recognized on this part of the sale.

9. INCOME TAXES

The tax effects of temporary differences that give rise to deferred tax assets
and liabilities are as follows:

<Table>
<Caption>
                                                          DECEMBER 31,
                                                     2002              2001
                                                 ------------      ------------
<S>                                              <C>               <C>
Deferred tax assets:
   Net operating loss carryforwards              $  2,787,092      $  2,995,833
   Oil and gas properties--tax basis
     exceeds book basis                             1,675,977         2,368,989
   Depreciation on equipment                          (14,069)          (18,030)
                                                 ------------      ------------
                                                    4,449,000         5,346,792
   Less valuation allowance                                --        (5,346,792)
                                                 ------------      ------------
Net deferred amount                                 4,449,000                --
                                                 ------------      ------------
Less: current portion                               1,682,725                --
                                                 ------------      ------------
Noncurrent portion                               $  2,766,275      $         --
                                                 ============      ============
</Table>

During 2002, the Company reassessed its ability to generate sufficient taxable
income in the future to utilize its net operating loss carryforwards and other
deferred tax assets. These deferred tax assets have generally been fully covered
by a valuation allowance of an equal amount. During the past three years,
including 2002, the Company has generated operating profits of approximately
$7.9 million. Due to the current strength of oil and gas prices and the
Company's recent and expected continued success in its developmental drilling
program, it now believes that it is more likely than not that it will generate
sufficient taxable income to fully utilize these deferred tax assets.



                                      F-16
<PAGE>
                United States Exploration, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)


9. INCOME TAXES (CONTINUED)

The effective tax rate on the Company's earnings differed from the federal
statutory tax rates for the following reasons:

<Table>
<Caption>
                                                        DECEMBER 31,
                                                   2002              2001
                                               ------------      ------------
<S>                                            <C>               <C>
Expected federal income tax expense at the
   statutory rate of 35%                       $    907,282      $  1,439,979
Net operating loss carryforwards utilized        (5,434,049)       (1,563,406)
Effect of state income taxes                         77,767           123,427
                                               ------------      ------------
Income tax expense (benefit)                   $ (4,449,000)     $         --
                                               ============      ============
</Table>

The net operating loss carryforwards available to the Company for income tax
purposes are as follows:

<Table>
<Caption>
EXPIRATION DATES
<S>                      <C>
      2018               $  305,312
      2019                7,029,141
                         ----------
                         $7,334,453
                         ==========
</Table>

10. MAJOR CUSTOMERS

The Company sold substantially all of its produced and purchased gas to four
purchasers for the years ended December 31, 2002 and 2001. The Company sold
substantially all of its oil to three purchasers for the years ended December
31, 2002 and 2001.

11. STOCK OPTION PLANS

The Company has elected to follow APB 25 and related interpretations in
accounting for its employee stock options because, as discussed below, the
alternative fair value accounting provided for under Statement of Financial
Standards No. 123, Accounting for Stock-Based Compensation ("SFAS 123"),
requires use of option valuation models that were not developed for use in
valuing employee stock options. Under APB 25, because the exercise price of the
Company's employee stock options equals the market price of the underlying stock
on the date of grant, no compensation expense is recognized.



                                      F-17
<PAGE>
                United States Exploration, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)


11. STOCK OPTION PLANS (CONTINUED)

On May 5, 1999, the Company adopted the 1999 Employee Stock Option Plan (the "99
Plan") and reserved a total of 500,000 common shares for issuance. Options
granted may be Incentive Stock Options or Non-Statutory Options at the
discretion of a committee of the Board of Directors. All options must be granted
within 10 years from May 5, 1999. At December 31, 2001 and 2002, 100,000 options
have been granted under the 99 Plan.

Effective January 13, 1989, the Company adopted an Incentive Stock Option Plan
(the "Plan") and reserved a total of 1,000,000 common shares for issuance. The
Plan expired on January 13, 1999 and no new options can be granted. All options
granted prior to the expiration remain outstanding until they have expired or
been canceled.

Effective May 25, 1990, the Board of Directors adopted a Nonqualifying Stock
Option Plan (the "NQSOP") for the benefit of nonemployee directors of the
Company and others having rendered significant services to the Company. The Plan
expired May 25, 2000 and no new options can be granted. All options granted
prior to the expiration remain outstanding until they have expired or been
canceled.

There were 1,021,399 shares of options outstanding and exercisable with a
weighted-average exercisable price of $3.29 per share at December 31, 2002 and
2001. No stock options were granted in 2001 or 2002. In addition, no options
were exercised or forfeited, and no options expired during 2001 or 2002.

Options outstanding at December 31, 2002 have exercise prices ranging from $1.38
to $4.13 with a weighted-average contractual life of 5.46 years. They are
summarized as follows:

<Table>
<Caption>
                                        EXERCISE                             REMAINING
          SHARES                         PRICE                                 LIFE
         ---------                      --------                          -------------
<S>                                     <C>                               <C>
           279,199                        $1.38                               7.4 years
            30,000                         2.00                               1.4 years
           712,200                      4.00-4.13                         4.7-5.5 years
         ---------
         1,021,399
         =========
</Table>

Pro forma information regarding net income and earnings per share is required by
SFAS 123, and has been determined as if the Company had accounted for its
employee stock options under the fair value method of that statement. The fair
value for these options was estimated at the date of grant using the
Black-Scholes option pricing model. No options were granted in 2001 or 2002. For
purposes of pro forma disclosures, the



                                      F-18
<PAGE>
                United States Exploration, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)


11. STOCK OPTION PLANS (CONTINUED)

estimated fair value of the options is amortized to expense over the options'
vesting period. The Company's pro forma net income is not materially different
from net income as reported, and there is no difference in net income per share
for the years ended December 31, 2002 and December 31, 2001.

12. SERIES C CONVERTIBLE PREFERRED STOCK

After obtaining a waiver from its lender, the Company, on April 30, 2001, called
for redemption all of the 443,166 outstanding shares of its Series C convertible
preferred stock. At the same time, accrued dividends on the Series C convertible
preferred stock from July 1, 1998 through March 31, 2001 were declared and paid
in the amount of $584,980. The redemption date was May 21, 2001 and the
redemption price per share, including $.07 in accrued dividends from April 1,
2001 through the redemption date, was $6.07. Holders of the Series C convertible
preferred stock had the right until May 3, 2001 to convert all or part of their
shares into shares of the Company's common stock at a conversion price of $2.69
(2.23048 shares of common stock for each share of Series C convertible preferred
stock). The holders of 65,000 shares of Series C convertible preferred stock
elected to convert. Prior to the conversion, the Company declared and paid
$2,600 in accrued dividends on these shares. As a result, 144,981 shares of the
Company's common stock were issued to those holders electing to convert and the
remaining 378,166 shares of Series C convertible preferred stock were redeemed
for a total of $2,295,468, including $26,472 in accrued dividends.

13. COMMITMENTS

OPERATING LEASES

The Company entered into a 117-month lease, effective July 1, 1998, for office
space. Approximately 12,000 square feet were leased with monthly payments of
$14,817 for the first 57 months and $19,411 for the remainder of the lease term.
The Company has incurred costs of approximately $111,000 for leasehold
improvements, which have a book value at December 31, 2002 of approximately
$64,950. The approximate minimum aggregate rental commitment under the office
space lease is as follows:

<Table>
<S>                                                   <C>
   2003                                               $  219,150
   2004                                                  232,932
   2005                                                  232,932
   2006                                                  232,932
   2007                                                  232,932
Thereafter                                                58,233
                                                      ----------
                                                      $1,209,111
                                                      ==========
</Table>



                                      F-19
<PAGE>
                United States Exploration, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)


13. COMMITMENTS (CONTINUED)

EXPLORATION AGREEMENT

On May 15, 1998, the Company entered into an Exploration Agreement with Union
Pacific Resources Company ("UPR") giving the Company the right to explore and
develop all of UPR's undeveloped acreage in the Denver-Julesburg Basin area,
excluding certain acreage already committed to other agreements. The Exploration
Agreement covers approximately 400,000 gross acres and will also cover any
undeveloped acreage currently committed to another agreement that reverts to UPR
during its term. In order to keep the Exploration Agreement in effect, the
Company drilled 15 commitment wells during the first 18 months ending on
November 30, 1999; drilled 20 commitment wells during the first option period
ending November 30, 2000; drilled 20 commitment wells during the second option
period ending November 30, 2001 and drilled 20 commitment wells during the third
option period ending November 30, 2002. The Company has committed to drill 20
commitment wells for the fourth option period, which ends November 30, 2003 and
15 wells have been commenced at December 31, 2002. There is a maximum of five
12-month option periods under the Exploration Agreement. If the Company does not
drill the required number of commitment wells during any period, the Exploration
Agreement will terminate at the end of the period and the Company will be
required to pay liquidated damages of $125,000 for each commitment well that was
not drilled during the period.

14. CREDIT AGREEMENT AND OTHER BORROWINGS

On August 25, 2000, the Company entered into a credit agreement with the Bank of
Oklahoma, N.A. The revolving credit agreement, as amended, is available through
May 1, 2004 in the amount of $15 million based upon a borrowing base
redetermination in October 2002, which may be decreased based on subsequent
borrowing base determinations by the lender at each April 1 and October 1. The
loan bears interest (3.5% at December 31, 2002) at rates varying from lender
prime to .75% below lender prime, depending upon the outstanding principal
balance of the loan as follows:

<Table>
<Caption>
                                                       APPLICABLE
      OUTSTANDING BALANCE                            INTEREST RATE
      -------------------                            -------------
<S>                                                <C>
    $0-$7,500,000                                  Prime, less 0.75%
    $7,500,000-$11,250,000                         Prime, less 0.50%
    $11,250,000-$13,500,000                        Prime, less 0.25%
    $13,500,000-$15,000,000                        Prime
</Table>



                                      F-20
<PAGE>
                United States Exploration, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)


14. CREDIT AGREEMENT AND OTHER BORROWINGS (CONTINUED)

The loan is secured by all of the Company's oil and gas properties. Interest is
payable monthly and principal is payable at the end of the credit term.
Financial covenants included in the credit agreement require the Company to (i)
maintain a tangible net worth of $8 million, (ii) maintain a debt coverage ratio
(as defined) of 1.25 to 1, and (iii) maintain an Earnings Before Interest Taxes
Depreciation and Amortization ("EBITDA") to consolidated interest ratio (as
defined) of 2.5 to 1. In addition, the facility prohibits the payment of
dividends. The Company was in compliance with its debt covenants at December 31,
2002 and 2001, respectively.



                                      F-21
<PAGE>
                United States Exploration, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)


15. OIL AND GAS INFORMATION (UNAUDITED)

The estimates of the Company's proved oil and gas reserves are based upon
evaluations prepared by Netherland Sewell & Associates, Inc., independent
petroleum engineers as of December 31, 2002 and 2001. All reserves are located
within the United States. Reserves are estimated in accordance with guidelines
established by the Securities and Exchange Commission and the Financial
Accounting Standards Board, which require that reserve estimates be prepared
under existing economic and operating conditions with no provision for price and
cost escalation except by contractual arrangements. Proved reserves are
estimated quantities of oil and natural gas which geological and engineering
data demonstrate with reasonable certainty to be recoverable in future years
from known reserves. Proved developed reserves are those which are expected to
be recovered through existing wells with existing equipment and operating
methods. Reserves are stated in barrels of oil and millions of cubic feet of
natural gas.

<Table>
<Caption>
                                                           DECEMBER 31,
                                    ----------------------------------------------------------
                                               2002                            2001
                                    --------------------------      --------------------------
                                       OIL             GAS             OIL             GAS
                                      (BBLS)          (MMCF)          (BBLS)          (MMCF)
                                    ----------      ----------      ----------      ----------
<S>                                 <C>             <C>             <C>             <C>
Proved developed and
   undeveloped reserves,
   beginning of period               2,146,681          37,259       3,569,186          65,032

Revisions of previous estimates        (55,593)          8,128      (1,306,604)        (27,106)
Extensions and discoveries              44,826           3,653          63,019           1,400
Production                            (134,100)         (2,493)       (178,301)         (1,879)
Dispositions of minerals
   in place                                 --              --            (619)           (188)
                                    ----------      ----------      ----------      ----------
Proved developed and
   undeveloped reserves,
   end of period                     2,001,814          46,547       2,146,681          37,259
                                    ==========      ==========      ==========      ==========

Proved developed reserves:
   Beginning of period               1,419,914          17,831       1,711,974          24,552
   End of period                     1,445,146          29,958       1,419,914          17,831
</Table>



                                      F-22
<PAGE>
                United States Exploration, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)


15. OIL AND GAS INFORMATION (UNAUDITED) (CONTINUED)

Geological and engineering estimates of proved oil and gas reserves at one point
in time are highly interpretive, inherently imprecise, and subject to ongoing
revisions that may be substantial in amount. Although every reasonable effort is
made to ensure that the reserve estimates reported represent the most accurate
assessments possible, these estimates are by their nature generally less precise
than other estimates presented in connection with financial statement
disclosures.

The following schedules present the standardized measure of estimated discounted
future net cash flows from the Company's proved reserves and an analysis of the
changes in these amounts for the periods indicated. Estimated future cash flows
are determined by using period-end prices for December 31, 2002 and 2001,
adjusted only for fixed and determinable increases in natural gas prices
provided by contractual agreements. Estimated future production and development
costs are based on economic conditions at December 31, 2002 and 2001. The
standardized measure of future net cash flows was prepared using the prevailing
economic conditions existing at December 31, 2002 and 2001, and such conditions
continually change. Accordingly, such information should not serve as a basis in
making any judgment on the potential value of recoverable reserves or in
estimating future results of operations. Year-end prices used in the
determination of future cash inflows were $30.27 per bbl of oil and $4.19 per
Mcf of natural gas at December 31, 2002 ($19.20 per bbl of oil and $2.03 per Mcf
of natural gas at December 31, 2001).

            STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS
                     RELATING TO PROVED RESERVES (UNAUDITED)

<Table>
<Caption>
                                                           DECEMBER 31,
                                                     2002                2001
                                                --------------      --------------
<S>                                             <C>                 <C>
Future cash inflows                             $  255,633,400      $  117,421,700
Future production costs                            (74,727,000)        (46,352,100)
Future development costs                           (27,077,700)        (23,379,200)
Future income tax expenses                         (56,373,159)        (15,126,519)
                                                --------------      --------------
Future net cash flows                               97,455,541          32,563,881
10% annual discount for estimated timing of
   cash flows                                      (45,225,113)        (15,403,104)
                                                --------------      --------------
Standardized measure of discounted future
   net cash flows                               $   52,230,428      $   17,160,777
                                                ==============      ==============
</Table>



                                      F-23
<PAGE>
                United States Exploration, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)


15. OIL AND GAS INFORMATION (UNAUDITED) (CONTINUED)

<Table>
<Caption>
                                                         YEAR ENDED DECEMBER 31,
                                                        2002                2001
                                                   --------------      --------------
<S>                                                <C>                 <C>
Amount at beginning of period                      $   17,160,777      $  133,387,384

Net changes in prices and production costs             47,153,302        (185,205,533)
Changes in future development costs                    (8,680,913)         18,176,994
Revisions of previous quantity estimates               11,784,009         (24,023,355)
Extensions and discoveries                              6,124,699           1,204,500
Net change in income taxes                            (21,892,950)         70,855,597
Sales of minerals in place                               (500,000)           (400,000)
Sales and transfers of oil and gas production,
   net of production costs                             (7,347,365)         (9,685,194)
Previously estimated development costs incurred         7,733,000           6,597,600
Accretion of discount                                   1,716,077          13,338,738
Other                                                  (1,020,208)         (7,085,954)
                                                   --------------      --------------
                                                       35,069,651        (116,226,607)
                                                   --------------      --------------
Amount at end of period                            $   52,230,428      $   17,160,777
                                                   ==============      ==============
</Table>



                                      F-24
<PAGE>
                                  EXHIBIT INDEX

<Table>
<S>                        <C>
         3.1(1)            Articles of Incorporation of the Company as filed on
                           January 9, 1989, with the Secretary of State of the
                           State of Colorado.

         3.2(1)            Articles of Amendment of the Company filed on June 7,
                           1990 with the Secretary of State of the State of
                           Colorado.

         3.3(2)            Articles of Amendment of the Company filed on
                           September 24, 1996 with the Secretary of State of the
                           State of Colorado.

         3.4(3)            Amended and Restated Bylaws of the Company.

         10.1(1)           1989 Incentive Stock Option Plan of the Company.

         10.2(1)           1990 Non-Qualifying Stock Option Plan.

         10.3(4)           Cost and Expense Sharing Agreement, dated August 7,
                           1997, by and between the Company and Benson Mineral
                           Group, Inc.

         10.4(5)           Purchase and Sale Agreement between the Company and
                           Union Pacific Resources Company dated April 10, 1998.

         10.5(5)           Exploration Agreement between the Company and Union
                           Pacific Resources Company dated May 15, 1998.

         10.6(6)           Office Lease Agreement between the Company and
                           EOP-One Civic Center Plaza, L.L.C. dated October 15,
                           1998.

         10.7(7)           1999 Employee Stock Option Plan.

         10.8(8)           Contract Amendment dated April 21, 1999 - Exploration
                           Agreement effective June 1, 1998 Wattenberg area
                           Weld, Arapahoe and Adams Counties, Colorado.

         10.09(8)          First Amendment to that certain Exploration Agreement
                           dated April 9, 1998 but effective as of June 1, 1998,
                           by and between Union Pacific Resources Company and
                           United States Exploration, Inc.

         10.10(9)          Bruce D. Benson Offer to Purchase Common Stock dated
                           April 21, 2000.
</Table>



<PAGE>

<Table>
<S>                        <C>
         10.11(9)          Registration Rights Agreement dated May 18, 2000
                           between the Company and Bruce D. Benson.

         10.12(10)         2000 Development Agreement between United States
                           Exploration, Inc. and Petroleum Development
                           Corporation dated June 30, 2000.

         10.13(11)         Credit Agreement dated August 25, 2000 by and between
                           United States Exploration, Inc. and Bank of Oklahoma,
                           N.A.

         10.14(12)         Letter Agreement dated December 21, 2000 by and
                           between Benson Mineral Group, Inc. and the Company
                           (re term of Cost and Expense Sharing Agreement).

         10.15(12)         Amendment to Cost and Expense Sharing Agreement made
                           as of the 1st day of March, 2001, by and between
                           Benson Mineral Group, Inc. and the Company.

         10.16(13)         First Amendment to Credit Agreement made and
                           effective May 1, 2002, by and between United States
                           Exploration, Inc. and Bank of Oklahoma, N.A.

         10.17(13)         Amended and Restated Revolving Note of United States
                           Exploration, Inc., dated May 1, 2002, in the amount
                           of $15,000,000 payable to Bank of Oklahoma, N.A.

         10.18(13)         First Supplemental Mortgage, Security Agreement,
                           Assignment and Financing Statement from United States
                           Exploration, Inc. to Bank of Oklahoma, N.A., dated
                           effective May 1, 2002.

         10.19(14)         Amendment to Directors Fee Stock Plan, dated February
                           20, 2003.


         23.1(15)          Consent of Ernst & Young LLP, independent certified
                           public accountants, to incorporation of this report
                           by reference into the Company's Registration
                           Statements on Form S-8 (Registration Nos. 333-60983
                           and 333-47666).

         23.2(15)          Consent of Netherland, Sewell & Associates, Inc.,
                           independent petroleum engineers and geologists, to
                           incorporation of this report by reference into the
                           Company's Registration Statement on Form S-8
                           (Registration Nos. 333-60983 and 333-47666).

         24(15)            Powers of Attorney.

         31.1(15)          Certification of the Chief Executive Officer pursuant
                           to Rule 13a-14(a)/15d-14(a) under the Exchange Act

         31.2(15)          Certification of the Chief Financial Officer pursuant
                           to Rule 13a-14(a)/15d-14(a) under the Exchange Act

         32.1(15)          Certification of Chief Executive Officer pursuant to
                           Section 906 of the Sarbanes-Oxley Act of 2002.

         32.2(15)          Certification of Chief Financial Officer pursuant to
                           Section 906 of the Sarbanes-Oxley Act of 2002.
</Table>

----------

         (1)      Filed as an Exhibit to Form S-18 dated March 8, 1989 and
                  incorporated herein reference.

         (2)      Filed as an Exhibit to Form 8-K dated September 30, 1996 and
                  incorporated herein by reference.



<PAGE>

         (3)      Filed as an Exhibit to Form S-8 filed August 7, 1998
                  (Registration No. 333-60983) and incorporated herein by
                  reference.

         (4)      Filed as an Exhibit to Form 10-QSB for the quarter ended June
                  30, 1997, and incorporated herein by reference.

         (5)      Filed as an Exhibit to Form 8-K dated May 26, 1998 and
                  incorporated herein by reference.

         (6)      Filed as an Exhibit to Form 10-KSB for the year ended
                  December 31, 1998 and incorporated herein by reference.

         (7)      Filed as Exhibit A to the Proxy Statement of United States
                  Exploration, Inc. Annual Meeting of Shareholders held July 13,
                  1999 and incorporated herein by reference.

         (8)      Filed as an Exhibit to Form 10-QSB for the quarter ended March
                  31, 1999 and incorporated herein by reference.

         (9)      Filed as an Exhibit to Form 10-QSB for the quarter ended March
                  31, 2000 and incorporated herein by reference.

         (10)     Filed as an Exhibit to Form 8-K with a report date of July 19,
                  2000 filed July 19, 2000 and incorporated herein by reference.

         (11)     Filed as an Exhibit to Form 8-K with a report date of August
                  25, 2000 filed September 5, 2000 and incorporated herein by
                  reference.

         (12)     Filed as an Exhibit to Form 10-KSB for the year ended December
                  31, 2000 and incorporated herein by reference.

         (13)     Filed as an Exhibit to Form 10-QSB for the quarter ended March
                  31, 2002 and incorporated herein by reference.

         (14)     Filed as an Exhibit to Form 10-KSB for the year ended December
                  31, 2002 as originally filed and incorporated herein by
                  reference.

         (15)     Filed herewith.