<PAGE>


                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-KSB
                                  ANNUAL REPORT
                       PURSUANT TO SECTION 13 OR 15(d) OF
                       THE SECURITIES EXCHANGE ACT OF 1934

                     FOR THE FISCAL YEAR ENDED JUNE 30, 2000

                          COMMISSION FILE NUMBER 0-9355



                               CUBIC ENERGY, INC.
                      (FORMERLY ROSELAND OIL AND GAS, INC.)
                 (Name of Small Business Issuer in its Charter)

            TEXAS                                       87-0352095
   (State of Incorporation)                 (I.R.S. Employer Identification No.)


             1720 NORTHWEST HIGHWAY, SUITE 320, GARLAND, TEXAS 75041
                    (Address of Principal Executive Offices)


                            TELEPHONE: (972) 686-0369
                           (Issuer's Telephone Number)


           SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:

                      COMMON STOCK-PAR VALUE $.05 PER SHARE


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

                                 Yes [X] No [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-B is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB.

                                       [X]

As of July 30, 2000, the registrant had outstanding 18,916,947 shares of
common stock, $.05 par value ("Common Stock"), which is registrant's only
class of common stock. There have been no trades in the Common Stock or bid
and ask prices within the past sixty days.

The registrant's revenues for the fiscal year ended June 30, 2000 were $69,850.

Transitional Small Business Disclosure Format:  Yes         No   X
                                                    _____      _____

                                       1

<PAGE>

                               CUBIC ENERGY, INC.
                      (Formerly Roseland Oil and Gas, Inc.)
                               TABLE OF CONTENTS


                                 DESCRIPTION


<TABLE>
<CAPTION>

     Item                                                                                                        Page
                                                      PART I
<S>                                                                                                              <C>
ITEM 1. Description of Business and Properties....................................................................4
   GENERAL........................................................................................................4
   DESCRIPTION OF BUSINESS........................................................................................4
   RESTATEMENT OF FINANCIAL RESULTS...............................................................................5
   PRINCIPAL OIL AND GAS PROPERTIES...............................................................................6
   EXPLORATION ACTIVITIES.........................................................................................6
   MARKETING OF PRODUCTION........................................................................................7
   OIL AND GAS RESERVES...........................................................................................8
   NET PRODUCTION, SALES PRICES AND COSTS.........................................................................9
   PRODUCTIVE WELLS AND ACREAGE..................................................................................10
   OPERATIONS....................................................................................................11
   RISK FACTORS..................................................................................................11
ITEM 2. Description of Properties................................................................................24
ITEM 3. Legal Proceedings........................................................................................25
ITEM 4. Submission of Matters to a Vote of Security Holders......................................................26


                                                      PART II

ITEM 5. Market for Registrant's Common Equity and Related
        Stockholder Matters......................................................................................26
ITEM 6. Management's Discussion and Analysis or Plan of Operations...............................................27
   GENERAL.......................................................................................................27
RESULTS OF OPERATIONS............................................................................................27
   COMPARISON OF FISCAL 2000 TO FISCAL 1999......................................................................27
   LIQUIDITY AND CAPITAL RESOURCES...............................................................................28
ITEM 7. FINANCIAL STATEMENTS.....................................................................................30
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.............................................................................................30


                                                     PART III

ITEM 9. Directors, Executive Officers, Promoters and Control Persons of the
Registrant; Compliance with Section 16(a) of the Exchange Act....................................................30
   COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.............................................................31
ITEM 10. Executive Compensation..................................................................................32
ITEM 11. Security Ownership of Certain Beneficial Owners and Management..........................................32
ITEM 12. Certain Relationships and Related Transactions..........................................................33
ITEM 13. Exhibits, Financial Statement Schedules and Reports on Form 8-K.........................................34
   A. Financial Statements.......................................................................................34
   B. Reports on Form 8-K........................................................................................35
SIGNATURES.......................................................................................................35
INDEX TO FINANCIAL STATEMENTS....................................................................................37

</TABLE>

                                                 2

<PAGE>

SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995

This report contains "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. Such forward-looking statements
are based on current expectations that involve a number of risks and
uncertainties that could cause actual results to differ materially from the
results discussed in the forward-looking statements. Generally,
forward-looking statements include words or phrases such as "management
anticipates", "the Company believes", "the Company anticipates" and words and
phrases of similar impact. The forward-looking statements are made pursuant to
safe harbor provisions of the Private Securities Litigation Reform Act of
1995. The factors that could cause actual results to differ materially from
the forward-looking statements include, but are not limited to: (i) industry
conditions and competition, (ii) the cyclical nature of the industry, (iii)
domestic and worldwide supplies and demand for oil and gas, (iv) operational
risks and insurance, (v) environmental liabilities which may arise in the
future which are not covered by insurance or indemnity, (vi) the impact of
current and future laws and government regulations, as well as repeal or
modification of same, affecting the oil and gas industry and our operations in
particular, (vii) production levels and other activities of OPEC and other oil
and gas producers, and the impact that the above factors and other events have
on the current and expected future pricing of oil and natural gas, and (viii)
the risks described from time to time in our reports filed with the Securities
and Exchange Commission.



















                                       3

<PAGE>

                               Cubic Energy, Inc.
                      (Formerly Roseland Oil and Gas, Inc.)

                                     PART I

ITEM 1. Description of Business and Properties

GENERAL

Cubic Energy, Inc.(formerly Roseland Oil and Gas, Inc.) is an independent
energy company engaged in the development and production of, and exploration
for, crude oil and natural gas.  Our oil and gas assets are concentrated
principally in Texas and Louisiana. At June 30, 2000, our total proved
reserves were 606,680 BOE.

We were incorporated in October 1978 in the State of Texas and in March 1980,
we were merged into a publicly held Utah corporation with the surviving entity
being Roseland Oil and Gas, Inc., a Utah corporation. In August 1991, Roseland
Oil and Gas, Inc., the Utah corporation, was merged into an Oklahoma
corporation and we relocated our corporate offices from Houston, Texas to
Tulsa, Oklahoma. In October of 1999, pursuant to approval of the Shareholders,
Roseland Oil And Gas, Inc. was merged into Cubic Energy, Inc., a Texas
corporation. References to Cubic, Roseland or the Company include the Company
and our predecessors unless the context otherwise requires. Our principal
executive office is located at 1720 Northwest Highway, Suite 320, Garland,
Texas 75041, and our telephone number is (972) 686-0369.

In December 1997, the Company entered into a Stock Purchase Agreement (the
"Agreement") pursuant to which the Company issued 12,500,000 shares of our
common stock in exchange for the conveyance to the Company of certain oil and
gas properties by Calvin A. Wallen III and his affiliates. In connection with
the Stock Purchase Agreement, three of the five members of the Board of
Directors resigned and new directors were appointed, including Mr. Wallen, who
also became President and CEO of the Company.

DESCRIPTION OF BUSINESS

Prior to the December 1997 Stock Purchase Agreement, the Company focused
primarily on the acquisition of non-operated working interests and overriding
royalty interests in oil and gas properties. Subsequent to the Stock Purchase
Agreement in December 1997, the Company moved our headquarters from Tulsa,
Oklahoma to Garland, Texas in order to utilize an affiliate's assembled team
of experienced management whose substantial expertise lay in acquisition,
exploitation and development and the ability to manage both operated and
non-operated oil and gas properties. Current management believes that the
ability to operate our own properties will result in significant cost savings
to the Company. In addition, after reviewing our existing property portfolio
and refining our new business strategy, the management team initiated a
divestment strategy to dispose of our non-strategic assets in non-core areas
in order to concentrate on building core reserves. Pursuant to this strategy,
we are reviewing plans to acquire and develop properties in our core areas in
Texas and Louisiana, as well as establishing a drilling program for the
drilling of exploratory, development and infill wells, a strategy previously
unavailable to the Company due to the technical expertise and experience
required and the lack of available resources. We have made substantial
progress in redirecting our strategic business efforts and believe that
attractive opportunities remain for acquisition and development of our
remaining and future assets.

                                       4

<PAGE>

We also took decisive steps in addressing various accounting issues and, in
accordance with accepted financial and accounting standards, took significant
write-downs of our assets prior to our fiscal year end of June 30, 1999, which
directly impacted our net income. The Company recorded a net loss in fiscal
1999 of $515,933 due largely to depletion and lease operating expense. In
addition, our management requested our prior auditor to provide the Company
with restated audited financial statements for the fiscal year ending June 30,
1998 to accurately reflect the condition of the Company as discussed below and
these restatements are included in this annual report.

In the year ending June 30, 1999, we took a prior year adjustment that
affected the income statement for the year ending June 30, 1997. The
adjustment was necessary to recapture excess depletion to income that should
have been adjusted in 1997. Consequently, the retained deficit for 1999 was
adjusted to reflect $196,491 of prior year excess depletion.

RESTATEMENT OF FINANCIAL RESULTS

Subsequent to the issuance of our financial statements for the fiscal year
ended June 30, 1999 and prior to the issuance of our financial statements for
the fiscal year ended June 30, 1998, our new Board of Directors determined
that the prior management of the Company (i.e., our management prior to the
December 1997 Stock Purchase Agreement) had included assets consisting of oil
and gas properties on our financial statements after the oil and gas
properties had already been sold or transferred by the Company prior to the
periods covered by the 1996 and 1997 financial statements. Upon examination,
the Board of Directors and new management of the Company determined that
certain assets were improperly included on our financial statements for prior
periods and were inappropriately included in calculations of assets,
depletion deductions and net income in our balance sheets and statements of
operations. As a result, the financial statements for June 30, 1999 presented
an accumulated deficit of $2,430,936, and presented a net loss for the year
ended June 30, 1999 of $515,933.

In response to the errors discussed above, a number of conditions, which could
represent a material weakness in our prior internal accounting controls, were
identified. These conditions included a deterioration in our internal
accounting controls under prior management, lack of adequate communication
between our prior management and prior auditors, a failure to stress the
importance of controls by prior management, and an apparent lack of clarity
and consistent understanding within the Company by prior management concerning
the application of our accounting policies to transactions involving the sale
of properties. We have implemented steps that have strengthened our internal
accounting controls. These steps included provision of in house accounting
services through our affiliate, updating our policies regarding accounting and
reporting for transactions, changing our corporate accounting and reporting
structure and hiring a new accounting firm.










                                       5

<PAGE>

PRINCIPAL OIL AND GAS PROPERTIES

  The following table summarizes certain information with respect to our
principal areas of operation at June 30, 2000.


<TABLE>
<CAPTION>

                                                                        Percent               Present
                                Oil                   Gas              of Proved               Value
                               (Bbl)                 (Mcf)             Reserves             (Disc @ 10%)
                               -----                 -----             --------             ------------
<S>                           <C>                 <C>                  <C>                  <C>
Areas

Texas..............               863               255,869                7%                   576,595
Louisiana..........           131,185             2,591,925               93%                $9,364,918
                              --------------------------------------------------------------------------

Total..............           132,048             2,847,794              100%                $9,941,513

</TABLE>

Our Texas properties are situated in Palo Pinto County. At June 30, 2000, the
Texas properties contained 9% of our proved reserves, which represented 6% of
our Present Value of total proved reserves. The Texas properties consist
primarily of wells acquired by the Company in several transactions between
1991 and 1995 and through overriding royalty interests reserved in farmout
agreements in 1998 and 1999.

The Company, or Fossil Operating, Inc., an affiliate, operates five wells in
Palo Pinto County, Texas. In the Costello NW Field, the Reagan #1-11 produces
primarily natural gas with some oil from the Big Saline Conglomerate formation
from perforations between 3,952'-3,962'. The Reagan #2-11 also produced from
3,922'-3,930' in the Costello NW Field with cumulative production in the Big
Saline Conglomerate formation of 593,414 Mcf of natural gas and 969 barrels of
oil before being recompleted in October 1997 in the Strawn formation. Other
producers in the Big Saline formation include the Reagan #1-12 producing
natural gas in the Reagan Field from 4,031'-4,039' and the MPDS Corp. #1-13
producing gas in the MOE Field from 3,806'-3,810'. Producing from the Strawn
formation in the Palo Pinto County Reg. Field, the Reagan #3-12 was perforated
from 2,363'-2,377'. We also hold small working interests and overriding
royalty interests in various non-operated oil and gas wells.

In June 1998, we agreed to a farmout agreement with Cummings Company,
reserving an overriding royalty interest. As of June 30, 2000, Cummings had
completed its drilling program on the farmed out interest and completed four
wells, the Reagan 11-1, Reagan 11-2, Reagan 11-3 and the Reagan 11-4.

Our net production for the fiscal year ending June 30, 2000 for the Texas
wells averaged 60 Mcf of natural gas per day and less than 1 barrel of oil per
day.

The Louisiana properties consist of proved undeveloped leasehold in Webster
Parish that we have placed in our drilling program. The property is limited in
depth to the interval from 9,900' below the surface to a depth of 12,500'
below the surface and contains approximately 84 net acres with a 75% net
revenue interest. Management anticipates the development to be approximately
80% natural gas. Under our new business strategy, the Company intends to drill
on the acreage during the primary term of the leasehold. The properties
contained 93% of our proved reserves and 94% of our Present Value of total
proved reserves. We acquired this property in December 1997 through the Stock
Purchase Agreement transaction.


EXPLORATION ACTIVITIES

Our strategy with respect to our domestic exploration program seeks to
maintain a balanced portfolio of drilling opportunities that range from lower
risk, field

                                      6

<PAGE>

extension wells to higher risk, high reserve potential prospects. Our strategy
focuses primarily on exploration opportunities that can benefit from advanced
technologies, including 3-D seismic, designed to reduce risks and increase
success rates. We develop prospects in-house at an affiliate and through
strategic alliances with exploration companies that have expertise in specific
target areas. In addition, we evaluate some externally generated prospects and
plan to participate in farm-ins to enhance our portfolio.

We are currently focusing our domestic exploration activities to develop our
proved undeveloped leasehold properties in Texas and Louisiana. The proved
undeveloped leasehold properties consist of locations to drill four wells
targeted to offsets in the Conglomerate producing zones and three workovers in
the Strawn Sand in Palo Pinto County, Texas. Also included in proved
undeveloped leasehold are offset development wells targeted for the Red Rock
Smackover Formations in Webster Parish, Louisiana. During fiscal year 2000, we
farmed out our non-producing leasehold in Palo Pinto County, Texas to the
Cummings Company and to Tauren Exploration Inc., reserving overriding royalty
interests. We also have included an acquisition strategy to our business plan
that would allow us to capitalize on producing oil and gas acquisition targets.

MARKETING OF PRODUCTION

Crude Oil and Natural Gas

Our production consists mainly of natural gas. We market our operated
production of natural gas to one purchaser, Mitchell Gas Services LP. We sell
our crude oil and condensate production at or near the well site, although in
some cases it is gathered by us or others and delivered to a central point of
sale. Our crude oil and condensate production is transported by truck or by
pipeline and is typically committed to arrangements having a term of one year
or less. We have not engaged in crude oil hedging or trading activities. We
utilize short-term gas contracts with prices that are related to market
conditions in varying degrees and have not engaged in natural gas hedging or
futures trading.

We believe we would be able to locate alternate purchasers in the event of the
loss of any one of these purchasers, and that any such loss would not have a
material adverse effect on our financial condition or results of operations.
Revenue from the sale of natural gas totaled $63,422 for the fiscal year ended
June 30, 2000 and represented 91% of our total oil and gas revenues for that
fiscal year.

Price Considerations

Crude oil prices are established in a highly liquid, international market,
with average crude oil prices that we receive generally fluctuating with
changes in the futures price established on the NYMEX for West Texas
Intermediate Crude Oil ("NYMEX-WTI"). The average crude oil price per Bbl
received by us in fiscal year 2000 was $21.91.

Natural gas prices in the geographical areas in which we operate are closely
tied to established price indices which are heavily influenced by national and
regional supply and demand factors and the futures price per MMBTU for natural
gas delivered at Henry Hub, Louisiana established on the NYMEX ("NYMEX-Henry
Hub"). At times, these indices correlate closely with the NYMEX-Henry Hub
price, but often there are significant variances between the NYMEX-Henry Hub
price and the indices used to price our natural gas. Average natural gas
prices received by us in each of our operating areas generally fluctuate with
changes in these established indices. The average natural gas price per Mcf
received by us in fiscal 2000 was $3.07.


                                       7
<PAGE>


OIL AND GAS RESERVES

The following tables set forth the proved developed and undeveloped reserves at
June 30, 2000, the estimated future net revenues from such proved reserves and
the Present Value and Standardized Measure of Discounted Future Net Cash Flows
attributable to our reserves at June 30, 2000, 1999 and 1998:

<TABLE>
<CAPTION>

Category               Oil (Bbls)      Gas (Mcf)      Total (Mcfe)      Income        10% Discount
                       ----------      ---------      ------------      ------        ------------
<S>                    <C>             <C>            <C>             <C>             <C>
Proved Producing             863         255,869          261,047     $ 1,174,611     $    576,595
Proved Undeveloped       131,185       2,591,925        3,379,035     $13,986,254     $  9,364,918



                                                                         AT JUNE 30,
                                                      -------------------------------------------
                                                           2000            1999            1998

Proved reserves:
     Oil (Bbl).....................                       132,048         131,789         141,292
Gas (Mcf).....................                          2,847,794       3,138,923       5,185,942
BOE.........................                              606,680         654,943       1,005,616
Estimated future net revenues
         (before income tax) ...........              $14,959,135     $ 7,804,070     $ 7,361,023
     Standardized Measure(1).........                 $ 7,742,838     $ 3,863,014     $ 3,624,587
Proved developed reserves:
     Oil (Bbl) .....................                          863             604           5,556
Gas (Mcf).......................                          255,872         546,998         277,985
BOE............................                            43,509          91,770          51,887
Estimated future net revenues
         (before income tax) ............             $   972,881     $ 1,174,611     $   322,561
Present Value....................                     $   575,595     $   729,470     $   218,037
Standardized Measure (1).........                     $   397,286     $   445,141     $   104,524
Weighted average sales prices:
     Oil (per Bbl)....................                $     20.91     $     11.56     $     11.00
Gas (per Mcf)....................                            3.07            1.93            1.79

</TABLE>

(1)      The Standardized Measure of Discounted Future Net Cash Flows prepared
         by the Company represents the present value (using an annual discount
         rate of 10%) of estimated future net revenues from the production of
         proved reserves, after giving effect to income taxes. See the
         Supplemental Financial Information attached to the Financial Statements
         of the Company included elsewhere in this Report for additional
         information regarding the disclosure of the Standardized Measure
         information in accordance with the provisions of Statement of Financial
         Accounting Standards ("SFAS") No. 69, "Disclosures about Oil and Gas
         Producing Activities."


All information set forth in this Report relating to our proved reserves,
estimated future net revenues and present values is taken from reports prepared
by Coburn Engineering Corp., a firm of independent petroleum engineers. The
estimates of these engineers were based upon review of production histories and
other geological, economic, ownership and engineering data provided by the
Company. No reports on our reserves have been filed with any federal agency. In
accordance with guidelines of the Securities and Exchange Commission (the
"SEC"), our estimates of proved reserves and the future net revenues from which
Present Values are derived

                                       8
<PAGE>


are made using year end oil and gas sales prices held constant throughout the
life of the properties (except to the extent a contract specifically provides
otherwise). An increase in prices relative to fiscal year end 2000 did cause
a significant increase in the Present Value attributable to our proved
reserves at June 30, 2000. Since June 30, 2000, prices had rebounded to the
highest since 1990. Operating costs, development costs and certain
production-related taxes were deducted in arriving at estimated future net
revenues, but such costs do not include debt service, general and
administrative expenses.

There are numerous uncertainties inherent in estimating oil and gas reserves and
their values, including many factors beyond our control. The reserve data set
forth in this Report represents estimates only. Reservoir engineering is a
subjective process of estimating the sizes of underground accumulations of oil
and gas that cannot be measured in an exact manner. The accuracy of any reserve
estimate is a function of the quality of available data, engineering and
geological interpretation, and judgment. As a result, estimates of different
engineers, including those used by us, may vary. In addition, estimates of
reserves are subject to revision based upon actual production, results of future
development, exploitation and exploration activities, prevailing oil and gas
prices, operating costs and other factors, which revisions may be material.
Accordingly, reserve estimates are often different from the quantities of oil
and gas that are ultimately recovered and are highly dependent upon the accuracy
of the assumptions upon which they are based. There can be no assurance that
these estimates are accurate predictions of our oil and gas reserves or their
values. Estimates with respect to proved reserves that may be developed and
produced in the future are often based upon volumetric calculations and upon
analogy to similar types of reserves rather than actual production history.
Estimates based on these methods are generally less reliable than those based on
actual production history.

Subsequent evaluation of the same reserves based upon production history will
result in variations, which may be substantial, in the estimated reserves.

NET PRODUCTION, SALES PRICES AND COSTS

  The following table presents certain information with respect to oil and gas
production, prices and costs attributable to all oil and gas property interests
owned by us for the period ended June 30, 2000.

<TABLE>
<CAPTION>

                                             YEAR ENDED             YEAR ENDED
                                          JUNE 30, 2000           JUNE 30, 1999
                                          -------------           -------------
<S>                                       <C>                     <C>
PRODUCTION VOLUMES:
     Oil (Bbl)  .................                  38                      667

     Gas (Mcf)  .................              20,688                   21,129

WEIGHTED AVERAGE SALES PRICES:
     Oil (per Bbl)...............             $ 20.91                  $ 11.56

     Gas (per Mcf)................            $  3.07                  $  1.93

SELECTED EXPENSES PER BOE:
     Lease operating..............            $  8.47                  $ 14.07

     Depreciation, depletion and
     amortization ...............             $  3.24                  $  3.24

     General and administrative...            $ 95.09                  $108.18

</TABLE>

                                        9
<PAGE>


PRODUCTIVE WELLS AND ACREAGE

 Productive Wells

  The following table sets forth our domestic productive wells at June 30, 2000:

<TABLE>
<CAPTION>

                Oil                    Gas                    Total
         ------------------       -------------         -----------------
         Gross          Net       Gross      Net        Gross         Net
         ------        ----       -----      ---        -----        ----
         <S>                      <C>                   <C>
           0            0           8         3           8            3

</TABLE>

Acreage

The following table sets forth our undeveloped and developed gross and net
leasehold acreage at June 30, 2000. Undeveloped acreage includes leased acres on
which wells have not been drilled or completed to a point that would permit the
production of commercial quantities of oil and gas, regardless of whether or not
such acreage contains proved reserves.

<TABLE>
<CAPTION>

              Undeveloped              Developed               Total
           ----------------         --------------        -----------------
           Gross        Net         Gross      Net        Gross         Net
           -----        ---         -----      ---        -----         ---
           <S>                      <C>                   <C>
            608         107         180        96          788          203

</TABLE>

All the leases for the undeveloped acreage summarized in the preceding table
will expire at the end of their respective primary terms unless prior to that
date the existing leases are renewed or production has been obtained from the
acreage subject to the lease, in which event the lease will remain in effect
until the cessation of production. As is customary in the industry, we generally
acquire oil and gas acreage without any warranty of title except as to claims
made by, through or under the transferor. Although we have title to developed
acreage examined prior to acquisition in those cases in which the economic
significance of the acreage justifies the cost, there can be no assurance that
losses will not result from title defects or from defects in the assignment of
leasehold rights. In many instances, title opinions may not be obtained if in
our judgment it would be uneconomical or impractical to do so.

On June 18, 1998, the Company farmed-out 188 acres of the Reagan lease in
Section 11, Palo Pinto County, Texas to the Cummings Company, Inc. retaining a
6.25% overriding royalty interest in any wells drilled under the Farm-out
Agreement.

In addition, on December 10, 1998, the Company entered into an agreement with
Tauren Exploration Inc. ("Tauren") that provides for Tauren to drill on the
Company's Section 11 in Palo Pinto County, Texas. The agreement grants Tauren
Exploration Inc. a farm-out retaining a 7.5% overriding royalty interest. The
agreement also provides for a preferential right in the event that Tauren, at
some later date, decides to dispose of a part or all of their interest in the
drilled wells. Tauren is an affiliate of Calvin Wallen, III, an officer,
director and majority shareholder of the Company.


                                       10
<PAGE>


OPERATIONS

Although in the past we have not been the operator of our wells, in the future
we generally intend to seek to be named operator for wells in which we acquire a
significant interest or will appoint an operator on our behalf. As is common in
the industry, this typically occurs only when we own the major portion of the
working interest in a particular well or field. At June 30, 2000, third parties
operated our wells under specific agreements.

Through the specific agreements providing for third party operations of majority
owned wells, we are able to exercise a great deal of influence over the
development and enhancement of a well and to supervise operation and maintenance
activities. We have not conducted the actual drilling of wells on properties in
which we have acted as operator in the past, but in the future we plan to engage
independent contractors who are supervised by the Company. We have contract
relationships with petroleum engineers, geologists and other operations and
production specialists who we believe will be able to improve production rates,
increase reserves and/or lower the cost of operating our oil and gas properties.

Oil and gas properties are customarily operated under the terms of a joint
operating agreement, which provides for reimbursement of the operator's direct
expenses and monthly per well supervision fees. Per well supervision fees vary
widely depending on the geographic location and producing formation of the well,
whether the well produces oil or gas and other factors.


RISK FACTORS

Holders of our Common Stock and future investors in the Company should be aware
of the following factors in evaluating their investment in the Company.


Competition

The oil and gas industry is highly competitive. The Company encounters
competition from other oil and gas companies in all areas of its operations,
including the acquisition of producing properties and sale of crude oil and
natural gas. The Company's competitors include major integrated oil and gas
companies and numerous independent oil and gas companies, individuals and
drilling and income programs. Many of its competitors are large, well
established companies with substantially larger operating staffs and greater
capital resources than the Company. Such companies may be able to pay more for
productive oil and gas properties and exploratory prospects and to define,
evaluate, bid for and purchase a greater number of properties and prospects than
the Company's financial or human resources permit. The Company's ability to
acquire additional properties and to discover reserves in the future will depend
upon its ability to evaluate and select suitable properties and to consummate
transactions in this highly competitive environment.


Drilling and Operating Risks

Drilling activities are subject to many risks, including the risk that no
commercially productive oil or gas reservoirs will be encountered. There can be
no assurance that new wells drilled by the Company will be productive or that
the Company will recover all or any portion of its investment. Drilling for oil
and gas may involve unprofitable efforts, not only from dry wells, but also from
wells that are productive but do not produce sufficient net revenues to return a
profit after drilling, operating and other costs. The cost of drilling,
completing and operating

                                       11
<PAGE>


wells is often uncertain. The Company's drilling operations may be curtailed,
delayed or canceled as a result of a variety of factors, many of which are
beyond its control, including economic conditions, mechanical problems,
pressure or irregularities in formations, title problems, weather conditions,
compliance with governmental requirements and shortages in or delays in the
delivery of equipment and services. Such equipment shortages and delays
sometimes involve drilling rigs where inclement weather prohibits the
movement of land rigs causing a high demand for rigs by a large number of
companies during a relatively short period of time. The Company's future
drilling activities may not be successful. Lack of drilling success could
have a material adverse effect on the Company's financial condition and
results of operations.

The Company's operations are also subject to all the hazards and risks normally
incident to the development, exploitation, production and transportation of, and
the exploration for, oil and gas, including unusual or unexpected geologic
formations, pressures, down hole fires, mechanical failures, blowouts, catering,
explosions, uncontrollable flows of oil, gas or well fluids and pollution and
other environmental risks. These hazards could result in substantial losses to
the Company due to injury and loss of life, severe damage to and destruction of
property and equipment, pollution and other environmental damage and suspension
of operations. The Company participates in insurance coverage maintained by the
operator of its wells, although there can be no assurances that such coverage
will be sufficient to prevent a material adverse effect on the Company in such
events.


Limited Operating History; Capital Intensive Business; Need for Additional Funds

From its inception through December 1997, the Company was engaged principally in
non-operating activities. While the Company's new management has extensive
experience in oil and gas exploration and operating activities, the Company has
had very limited experience in these operations. The Company's business is
highly capital-intensive requiring continuous development and acquisition of oil
and gas reserves. In addition, capital is required to operate and expand the
Company's oil and gas field operations and purchase equipment. At June 30, 2000,
the Company had a working capital deficit of approximately $721,910. As a result
of the Company's determination to operate in the future, the Company's working
capital requirements may be expected to increase significantly over prior
periods. The Company anticipates that it will be able to meet its cash
requirements for the next 12 months. However, if such plans or assumptions
change or prove to be inaccurate, the Company could be required to seek
additional financing sooner than currently anticipated. The Company has no
commitments to obtain any additional debt or equity financing and there can be
no assurance that additional funds will be available, when required, on terms
favorable to the Company. Any future issuances of equity securities would likely
result in dilution to the Company's then existing shareholders while the
incurring of additional indebtedness would result in increased interest expense
and debt service changes. See "Management's Discussion and Analysis or Plan of
Operations."


History of Losses

The Company incurred losses before income tax benefits of $515,933 and $372,895
for the fiscal years ended June 30, 1999 and 2000, respectively. The Company's
accumulated deficit as of June 30, 2000 was $3,319,764.The Company does not have
a bank line of credit. The Company has funded its operating losses, acquisitions
and expansion costs primarily through a combination of private offerings of
convertible debt and equity securities and proceeds from the exercise of
warrants. The success of the Company in obtaining the necessary capital
resources to fund future costs associated with its operations and expansion
plans is dependent upon the Company's

                                       12
<PAGE>


ability to: (i) increase revenues through acquisitions and recovery of the
Company's proved producing and proved developed non-producing oil and gas
reserves; (ii) maintain effective cost controls at the corporate
administrative office and in field operations; and (iii) obtain the exercise
of outstanding warrants. However, even if the Company achieves some success
with its plans, there can be no assurance that it will be able to generate
sufficient revenues to achieve significant profitable operations or fund its
expansion plans. See "Management's Discussion and Analysis or Plan of
Operations".

Significant Capital Expenditures Necessary for Undeveloped Properties

The vast majority of the Company's oil and gas reserves are classified as Proved
Undeveloped Reserves, meaning very little production currently exists. Recovery
of the Company's Proved Undeveloped Reserves will require significant capital
expenditures. Management estimates that aggregate capital expenditures of
approximately $300,000 will be required to fully develop some of these reserves
in the next twelve months. No assurance can be given that the Company's
estimates of capital expenditures will prove accurate, that its financing
sources will be sufficient to fully fund its planned development activities or
that development activities will be either successful or in accordance with the
Company's schedule. Additionally, any significant decrease in oil and gas prices
or any significant increase in the cost of development could result in a
significant reduction in the number of wells drilled and/or reworked. No
assurance can be given that any wells will produce oil or gas in commercially
profitable quantities.


No Assurance of Additional Financing

Development of the Company's properties will require additional capital
resources. The Company has no commitments to obtain any additional debt or
equity financing and there can be no assurance that additional financing will be
available, when required, on favorable terms to the Company. The inability to
obtain additional financing could have a material adverse effect on the Company,
including requiring the Company to curtail significantly its oil and gas
acquisition and development plans or farm-out development of its properties. Any
additional financing may involve substantial dilution to the interests of the
Company's shareholders at that time. See "Management's Discussion and Analysis
or Plan of Operations."


Exploration and Development Risks

The Company intends to increase its development and, to a lesser extent,
exploration activities. Exploration drilling and, to a lesser extent,
development drilling of oil and gas reserves involve a high degree of risk that
no commercial production will be obtained and/or that production will be
insufficient to recover drilling and completion costs. The cost of drilling,
completing and operating wells is often uncertain. The Company's drilling
operations may be curtailed, delayed or canceled as a result of numerous
factors, including title problems, weather conditions, compliance with
governmental requirements and shortages or delays in the delivery of equipment.
Furthermore, completion of a well does not assure a profit on the investment or
a recovery of drilling, completion and operating costs.


                                       13
<PAGE>


Volatility of Oil and Gas Prices

The Company's revenues, profitability and the carrying value of its oil and gas
properties are substantially dependent upon prevailing prices of, and demand
for, oil and gas and the costs of acquiring, finding, developing and producing
reserves. The Company's ability to obtain borrowing capacity, to repay future
indebtedness, and to obtain additional capital on favorable terms is also
substantially dependent upon oil and gas prices. Historically, the markets for
oil and gas have been volatile and are likely to continue to be volatile in the
future. Prices for oil and gas are subject to wide fluctuations in response to:
(i) relatively minor changes in the supply of, and demand for, oil and gas; (ii)
market uncertainty; and (iii) a variety of additional factors, all of which are
beyond the Company's control. These factors include domestic and foreign
political conditions, the price and availability of domestic and imported oil
and gas, the level of consumer and industrial demand, weather, domestic and
foreign government relations, the price and availability of alternative fuels
and overall economic conditions. Furthermore, the marketability of the Company's
production depends in part upon the availability, proximity and capacity of
gathering systems, pipelines and processing facilities. Volatility in oil and
gas prices could affect the Company's ability to market its production through
such systems, pipelines or facilities. Substantially all of the Company's gas
production is currently sold to one gas marketing firm on a month-to-month basis
at prevailing spot market prices. Oil prices remained subject to unpredictable
political and economic forces during fiscal 1999 and the first half of fiscal
2000 and experienced fluctuations similar to those seen in natural gas prices
for the year, but showing a great upward trend. We believe that oil prices will
continue to fluctuate in response to changes in the policies of the Organization
of Petroleum Exporting Countries (OPEC), changes in demand from many Asian
countries, current events in the Middle East and other factors associated with
the world political and economic environment. As a result of the many
uncertainties associated with levels of production maintained by OPEC and other
oil producing countries, the availabilities of worldwide energy supplies and
competitive relationships and consumer perceptions of various energy sources, we
are unable to predict what changes will occur in crude oil and natural gas
prices.


Uncertainty of Estimates of Reserves and Future Net Cash Flows

This Annual Report contains estimates of the Company's oil and gas reserves and
the future net cash flows from those reserves, which have been prepared by
certain independent petroleum consultants. There are numerous uncertainties
inherent in estimating quantities of reserves of oil and gas and in projecting
future rates of production and the timing of development expenditures, including
many factors beyond the Company's control. The reserve estimates in this Annual
Report are based on various assumptions, including, for example, constant oil
and gas prices, operating expenses, capital expenditures and the availability of
funds, and, therefore, are inherently imprecise indications of future net cash
flows. Actual future production, cash flows, taxes, operating expenses,
development expenditures and quantities of recoverable oil and gas reserves may
vary substantially from those assumed in the estimates. Any significant variance
in these assumptions could materially affect the estimated quantity and value of
reserves set forth in this Annual Report. Additionally, the Company's reserves
may be subject to downward or upward revision based upon actual production
performance, results of future development and exploration, prevailing oil and
gas prices and other factors, many of which are beyond the Company's control.

The present value of future net reserves discounted at 10% (the "PV-10") of
Proved Reserves referred to in this Annual Report should not be construed as the
current market value of the estimated Proved Reserves of oil and gas
attributable to the

                                       14
<PAGE>


Company's properties. In accordance with applicable requirements of the
Commission, the estimated discounted future net cash flows from Proved
Reserves are generally based on prices and costs as of the date of the
estimate, whereas actual future prices and costs may be materially higher or
lower. Actual future net cash flows also will be affected by: (i) the timing
of both production and related expenses; (ii) changes in consumption levels;
and (iii) governmental regulations or taxation. In addition, the calculation
of the present value of the future net cash flows using a 10% discount as
required by the Commission is not necessarily the most appropriate discount
factor based on interest rates in effect from time to time and risks
associated with the Company's reserves or the oil and gas industry in
general. Furthermore, the Company's reserves may be subject to downward or
upward revision based upon actual production, results of future development,
supply and demand for oil and gas, prevailing oil and gas prices and other
factors. See "Properties -- Oil and Gas Reserves."

Operating Hazards and Uninsured Risks; Production Curtailments

The Company's oil and gas business involves a variety of operating risks,
including, but not limited to, unexpected formations or pressures,
uncontrollable flows of oil, gas, brine or well fluids into the environment
(including groundwater contamination), blowouts, fires, explosions, pollution
and other risks, any of which could result in personal injuries, loss of life,
damage to properties and substantial losses. Although the Company carries
insurance at levels that it believes are reasonable, it is not fully insured
against all risks. The Company does not carry business interruption insurance.
Losses and liabilities arising from uninsured or under-insured events could have
a material adverse effect on the financial condition and operations of the
Company.

From time to time, due primarily to contract terms, pipeline interruptions or
weather conditions, the producing wells in which the Company owns an interest
have been subject to production curtailments. The curtailments range from
production being partially restricted to wells being completely shut-in. The
duration of curtailments varies from a few days to several months. In most
cases the Company is provided only limited notice as to when production will
be curtailed and the duration of such curtailments. The Company is not
currently experiencing any material curtailment of its production.

Dependence on Key Personnel

The Company depends to a large extent on the services of Calvin A. Wallen III,
the Company's President, Chairman of the Board, and Chief Executive Officer. The
loss of the services of Mr. Wallen would have a material adverse effect on the
Company's operations. The Company has not entered into any employment contracts
with its executive officer and has not obtained key personnel life insurance on
Mr. Wallen, its President and Chief Executive Officer.


Concentration of Voting Power

The Company's executive officers, directors and their affiliates and certain 5%
shareholders hold approximately 80% of the Company's outstanding shares of
Common Stock. As a result, officers, directors and their affiliates and such
shareholders have the ability to exert significant influence over the business
affairs of the Company, including the ability to control the election of
directors and results of voting on all matters requiring shareholder approval.
This concentration of voting power may delay or prevent a potential change in
control.

                                       15
<PAGE>


Conflicts of Interests

Certain officers, directors and related parties, including entities controlled
by Calvin A. Wallen III, our President and Chief Executive Officer, have engaged
in business transactions with the Company which were not the result of arm's
length negotiations between independent parties. Management believes that the
terms of these transactions were as favorable to the Company as those that could
have been obtained from unaffiliated parties under similar circumstances. All
future transactions between the Company and its affiliates will be on terms no
less favorable than could be obtained from unaffiliated third parties and will
be approved by a majority of the disinterested members of the Board of Directors
of the Company.


Public Market and Possible Volatility

Our Common Stock is traded on "over-the-counter" market and is listed in the
"pink sheets". There is presently only a limited public market for our Common
Stock, and there is no assurance that a ready public market for our securities
will develop. It is likely that any market that develops for our Common Stock
will be highly volatile and that the trading volume in such market will be
limited. The trading price of our Common Stock could be subject to wide
fluctuations in response to quarter-to-quarter variations in our operating
results, announcements of drilling results by the Company and other events or
factors. In addition, the U.S. stock market has from time to time experienced
extreme price and volume fluctuations that have affected the market price for
many companies and which often have been unrelated to the operating performance
of these companies. These broad market fluctuations may adversely affect the
market price of the Company's securities.


Additional risks related to the Company's common stock's status as a low
price or "penny" stock

The trading price of our Common Stock is below $5.00 per share. As long as the
trading price of our Common Stock remains below $5.00 per share, trading in our
Common Stock is subject to the requirements of certain rules under the Exchange
Act which require additional disclosure by broker-dealers in connection with any
trades generally involving any non-NASDAQ equity security that has a market
price of less than $5.00 per share, subject to certain exceptions. Such rules
require the delivery, prior to any penny stock transaction, of a disclosure
schedule explaining the penny stock market and the associated risks, and impose
various sales practice requirements on broker-dealers who sell penny stocks to
persons other than established customers and accredited investors. For these
types of transactions, the broker-dealer must make a special suitability
determination for the purchaser and have received the purchaser's written
consent to the transaction prior to sale. The additional burdens imposed upon
broker-dealers by such requirements may discourage broker-dealers from effecting
transactions in our Common Stock, which could severely limit the market
liquidity of our Common Stock.


Possible limits on trading common stock

We intend to qualify our Common Stock on the OTC inter-dealer Electronic
Bulletin Board. There can be no assurance that we will be successful in this
attempt. The liquidity of our Common Stock may be adversely affected, and
purchasers of our Common Stock may have difficulty selling our Common Stock, if
we are unsuccessful in qualifying our Common Stock for trading in a suitable
trading market.

                                       16
<PAGE>


Possible adverse consequences due to the indemnification of officers and
directors

Provisions of our Certificate of Incorporation and By-Laws provide that we will
indemnify any director and officer as to those liabilities and on those terms
and conditions to the fullest extent of Texas law. Further, we may purchase and
maintain insurance on behalf of any such persons whether or not we would have
the power to indemnify such person against the liability insured against. The
foregoing could result in substantial expenditures by us and prevent any
recovery from our officers, directors, agents and employees for losses incurred
by us as a result of their actions. Further, the SEC takes the position that
indemnification against liability under the Securities Act is against the public
policy as expressed in the Securities Act, and is, therefore, unenforceable.


Texas law and our charter documents contain anti-takeover provisions that may
discourage a change in control

Provisions of Texas law and our Certificate of Incorporation and By-Laws may
have the effect of delaying or preventing a change in control or acquisition of
our Company. Our Certificate of Incorporation and By-Laws include provisions for
a classified Board of Directors (although we do not currently have a classified
board), "blank check" preferred stock (the terms of which may be fixed by our
Board of Directors without stockholder approval), purported limits on
stockholder action by written consent in lieu of a meeting, and certain
procedural requirements governing stockholder meetings. These provisions could
have the effect of delaying or preventing a change in control of our Company.


No Dividends

The Company's board of directors presently intends to retain all of its earnings
for the expansion of its business. The Company therefore does not anticipate the
distribution of cash dividends in the foreseeable future. Any future decision of
the Company's board of directors to pay cash dividends will depend, among other
factors, upon the Company's earnings, financial position and cash requirements.


Title To Properties

The Company's contract land professionals have reviewed title records or other
title review materials relating to substantially all of its producing
properties. The title investigation performed by the Company prior to acquiring
undeveloped properties is thorough, but less rigorous than that conducted prior
to drilling, consistent with industry standards. The Company believes it has
satisfactory title to all its producing properties in accordance with standards
generally accepted in the oil and gas industry. The Company's properties are
subject to customary royalty interests, liens incident to operating agreements,
liens for current taxes and other burdens, which the Company believes do not
materially interfere with the use of or affect the value of such properties. At
June 30, 2000, the Company's leaseholds for approximately 59% of its net acreage
were being kept in force by virtue of production on that acreage in paying
quantities. The remaining net acreage was held by lease rentals and similar
provisions and requires production in paying quantities prior to expiration of
various time periods to avoid lease termination.

The Company expects to make acquisitions of oil and gas properties from time to
time subject to available resources. In making an acquisition, the Company
generally focuses most of its title and valuation efforts on the more
significant

                                       17
<PAGE>


properties. It is generally not feasible for the Company to review in-depth
every property it purchases and all records with respect to such properties.
However, even an in-depth review of properties and records may not
necessarily reveal existing or potential problems, nor will it permit the
Company to become familiar enough with the properties to assess fully their
deficiencies and capabilities. Evaluation of future recoverable reserves of
oil and gas, which is an integral part of the property selection process, is
a process that depends upon evaluation of existing geological, engineering
and production data, some or all of which may prove to be unreliable or not
indicative of future performance. To the extent the seller does not operate
the properties, obtaining access to properties and records may be more
difficult. Even when problems are identified, the seller may not be willing
or financially able to give contractual protection against such problems, and
the Company may decide to assume environmental and other liabilities in
connection with acquired properties.

Governmental Regulation

The Company's operations are affected from time to time in varying degrees by
political developments and federal, state and local laws and regulations. In
particular, oil and gas production and related operations are or have been
subject to price controls, taxes and other laws and regulations relating to the
oil and gas industry. Failure to comply with such laws and regulations can
result in substantial penalties. The regulatory burden on the oil and gas
industry increases the Company's cost of doing business and affects its
profitability. Although the Company believes it is in substantial compliance
with all applicable laws and regulations, because such laws and regulations are
frequently amended or reinterpreted, the Company is unable to predict the future
cost or impact of complying with such laws and regulations.

Sales of natural gas by the Company are not regulated and are generally made at
market prices. However, the Federal Energy Regulatory Commission ("FERC")
regulates interstate natural gas transportation rates and service conditions,
which affect the marketing of natural gas produced by the Company, as well as
the revenues received by the Company for sales of such production. Sales of the
Company's natural gas currently are made at uncontrolled market prices, subject
to applicable contract provisions and price fluctuations that normally attend
sales of commodity products.

Since the mid-1980's, the FERC has issued a series of orders, culminating in
Order Nos. 636, 636-A and 636-B ("Order 636"), that have significantly altered
the marketing and transportation of natural gas. Order 636 mandated a
fundamental restructuring of interstate pipeline sales and transportation
service, including the unbundling by interstate pipelines of the sale,
transportation, storage and other components of the city-gate sales services
such pipelines previously performed. One of the FERC's purposes in issuing the
orders was to increase competition within all phases of the natural gas
industry. Order 636 and subsequent FERC orders issued in individual pipeline
restructuring proceedings have been the subject of appeals, and the courts have
largely upheld Order 636. Because further review of certain of these orders is
still possible, and other appeals may be pending, it is difficult to exactly
predict the ultimate impact of the orders on the Company and its natural gas
marketing efforts. Generally, Order 636 has eliminated or substantially reduced
the interstate pipelines' traditional role as wholesalers of natural gas, and
has substantially increased competition and volatility in natural gas markets.

While significant regulatory uncertainty remains, Order 636 may ultimately
enhance the Company's ability to market and transport its natural gas, although
it may also

                                       18
<PAGE>


subject the Company to greater competition, more restrictive pipeline
imbalance tolerances and greater associated penalties for violation of such
tolerances.

The FERC has announced several important transportation-related policy
statements and proposed rule changes, including the appropriate manner in which
interstate pipelines release capacity under Order 636 and, more recently, the
price which shippers can charge for their released capacity. In addition, in
1995, the FERC issued a policy statement on how interstate natural gas pipelines
can recover the costs of new pipeline facilities. In January 1997, the FERC
issued a policy statement and a request for comments concerning alternatives to
its traditional cost-of-service rate making methodology. A number of pipelines
have obtained FERC authorization to charge negotiated rates as one such
alternative. While any additional FERC action on these matters would affect the
Company only indirectly, these policy statements and proposed rule changes are
intended to further enhance competition in natural gas markets. The Company
cannot predict what action the FERC will take on these matters, nor can it
predict whether the FERC's actions will achieve its stated goal of increasing
competition in natural gas markets. However, the Company does not believe that
it will be treated materially differently than other natural gas producers and
marketers with which it competes.

The price the Company receives from the sale of oil is affected by the cost of
transporting such products to market. Effective January 1, 1995, the FERC
implemented regulations establishing an indexing system for transportation rates
for oil pipelines, which, generally, would index such rates to inflation,
subject to certain conditions and limitations. These regulations could increase
the cost of transporting oil by interstate pipelines, although the most recent
adjustment generally decreased rates. These regulations have generally been
approved on judicial review. The Company is not able to predict with certainty
the effect, if any, of these regulations on its operations. However, the
regulations may increase transportation costs or reduce wellhead prices for oil.

The State of Texas and many other states require permits for drilling
operations, drilling bonds and reports concerning operations and impose other
requirements relating to the exploration for and production of oil and gas. Such
states also have statutes or regulations addressing conservation matters,
including provisions for the unitization or pooling of oil and gas properties,
the establishment of maximum rates of production from wells and the regulation
of spacing, plugging and abandonment of such wells. The statutes and regulations
of certain states limit the rate at which oil and gas can be produced from the
Company's properties. However, the Company does not believe it will be affected
materially differently by these statutes and regulations than any other
similarly situated oil and gas company.


Environmental Matters

The Company's operations and properties are subject to extensive and changing
federal, state and local laws and regulations relating to environmental
protection, including the generation, storage, handling and transportation of
oil and gas and the discharge of materials into the environment, and relating to
safety and health. The recent trend in environmental legislation and regulation
generally is toward stricter standards, and this trend will likely continue.
These laws and regulations may require the acquisition of a permit or other
authorization before construction or drilling commences and for certain other
activities; limit or prohibit construction, drilling and other activities on
certain lands lying within wilderness and other protected areas; and impose
substantial liabilities for pollution resulting from the Company's operations.
The permits required for the Company's various operations are subject to
revocation, modification and renewal by issuing authorities. Governmental
authorities have the power to enforce compliance with their regulations, and
violations are subject to fines, penalties or

                                       19
<PAGE>

injunctions. In the opinion of management, the Company is in substantial
compliance with current applicable environmental laws and regulations, and
the Company has no material commitments for capital expenditures to comply
with existing environmental requirements. Nevertheless, changes in existing
environmental laws and regulations or in interpretations thereof could have a
significant impact on the Company. The impact of such changes, however, would
not likely be any more burdensome to the Company than to any other similarly
situated oil and gas company.

The Comprehensive Environmental Response, Compensation, and Liability Act
("CERCLA"), also known as the "Superfund" law, and similar state laws impose
liability, without regard to fault or the legality of the original conduct, on
certain classes of persons that are considered to have contributed to the
release of a "hazardous substance" into the environment. These persons include
the owner or operator of the disposal site or sites where the release occurred
and companies that disposed or arranged for the disposal of the hazardous
substances found at the site. Persons who are or were responsible for releases
of hazardous substances under CERCLA may be subject to joint and several
liability for the costs of cleaning up the hazardous substances that have been
released into the environment and for damages to natural resources. Furthermore,
neighboring landowners and other third parties may file claims for personal
injury and property damage allegedly caused by the hazardous substances released
into the environment.

The Company generates typical oil and gas field wastes, including hazardous
wastes that are subject to the federal Resources Conservation and Recovery Act
and comparable state statutes. The United States Environmental Protection Agency
and various state agencies have limited the approved methods of disposal for
certain hazardous and non-hazardous wastes. Furthermore, certain wastes
generated by the Company's oil and gas operations that are currently exempt from
regulation as "hazardous wastes" may in the future be designated as "hazardous
wastes," and therefore be subject to more rigorous and costly operating and
disposal requirements.

The Oil Pollution Act ("OPA") imposes a variety of requirements on responsible
parties for onshore and offshore oil and gas facilities and vessels related to
the prevention of oil spills and liability for damages resulting from such
spills in waters of the United States. The "responsible party" includes the
owner or operator of an onshore facility or vessel or the lessee or permittee
of, or the holder of a right of use and easement for, the area where an onshore
facility is located. OPA assigns liability to each responsible party for oil
spill removal costs and a variety of public and private damages from oil spills.
Few defenses exist to the liability for oil spills imposed by OPA. OPA also
imposes financial responsibility requirements. Failure to comply with ongoing
requirements or inadequate cooperation in a spill event may subject a
responsible party to civil or criminal enforcement actions.

The Company owns or leases properties that for many years have produced oil and
gas. The Company also owns natural gas gathering systems. It is not uncommon for
such properties to be contaminated with hydrocarbons. Although the Company or
previous owners of these interests may have used operating and disposal
practices that were standard in the industry at the time, hydrocarbons or other
wastes may have been disposed of or released on or under the properties or on or
under other locations where such wastes have been taken for disposal. These
properties may be subject to federal or state requirements that could require
the Company to remove any such wastes or to remediate the resulting
contamination. All of the Company's properties are operated by third parties
over whom the Company has limited control. Notwithstanding the Company's lack of
control over properties operated by others, the failure of the previous owners
or operators to comply with applicable environmental regulations may, in certain
circumstances, adversely impact the Company.


                                      20
<PAGE>


Abandonment Costs

The Company is responsible for payment of plugging and abandonment costs on its
oil and gas properties pro rata to its working interest. Based on its
experience, the Company anticipates that the ultimate aggregate salvage value of
lease and well equipment located on its properties will exceed the costs of
abandoning such properties. There can be no assurance, however, that the Company
will be successful in avoiding additional expenses in connection with the
abandonment of any of its properties. In addition, abandonment costs and their
timing may change due to many factors, including actual production results,
inflation rates and changes in environmental laws and regulations.

Employees

At June 30, 2000, the Company had no full time employees. In December 1997, the
Company entered into a contract with an affiliate controlled by our President
and Chief Executive Officer to provide certain technical, administrative and
management services needed to conduct its business. The terms of the contract
provided for personnel to be contracted at current market rates in effect at the
time the agreement was executed. The Company believes that the terms of the
contract are at least as favorable to the Company as are available from an
unaffiliated third party.

Facilities

The Company's principal executive and administrative offices are located at 1720
Northwest Highway, Suite 320, Garland, Texas. The offices are subleased from an
affiliate controlled by our President and Chief Executive Officer and the
offices are subleased through November 30, 2000. The monthly amount charged to
the Company is based on actual costs of materials and man-hours of the
affiliates that are used pursuant to the terms of the agreement. The Company
believes that there is other appropriate space available in the event the
Company should terminate its current leasing arrangement.

Possible adverse consequences due to claims and legal proceedings

In the spring of 1999, the Company became aware of the claim of Clifton Kees,
Jr. ("Kees"), a geologist, to a 1% overriding royalty interest in Reagan
Sections 11 and 12, Palo Pinto County, Texas. Kees filed an assignment in Palo
Pinto County, Texas, after December 1, 1997, upon which Kees bases his claim.
The Company, after its initial investigation, disputes Kees' legal rights to the
overriding royalty and has filed suit to challenge this royalty.

William Vandever, during the period of time in which he served as the President
and Chief Executive Officer of the Company, purportedly granted some
preferential rights with respect to 75% of the Reagan leases in Section 11, Palo
Pinto County, Texas, to participants (including Kees and Vandever himself) in
the re-work of the Reagan #2-11 well. Mr. Vandever also purportedly granted the
same rights to himself as a participant. The Company discovered this within the
past sixty days. Claims related to preferential rights with regard to the Reagan
lease in Section 11 could materially and adversely affect the financial
condition and the outlook of the Company. Based upon information obtained by the
Company, the Company has filed suit in the 29th Judicial District Court in Palo
Pinto County, Texas, styled "Roseland Oil and Gas, Inc. v. William Vandever, et
al.", against Kees, Vandever and various persons, seeking a judicial
determination that all grants of preferential rights in the Reagan Section 11
are void. This suit also seeks


                                      21
<PAGE>


monetary damages against the named defendants. This lawsuit was filed on
April 26, 2000. The Company is pursuing this action vigorously.

Glossary of Oil and Gas Terms

  The following are abbreviations and definitions of terms commonly used in the
oil and gas industry that are used in this Report.

  "BBL" means a barrel of 42 U.S. gallons.

  "BOE" means barrels of oil equivalent; converting volumes of natural gas to
oil equivalent volumes using a ratio of six Mcf of natural gas to one Bbl of
oil.

  "COMPLETION" means the installation of permanent equipment for the
production of oil or gas.

  "DEVELOPMENT WELL" means a well drilled within the proved area of an oil or
gas reservoir to the depth of a stratigraphic horizon known to be productive.

  "DRY HOLE" or "DRY WELL" means a well found to be incapable of producing
hydrocarbons in sufficient quantities such that proceeds from the sale of such
production exceed production expenses and taxes.

  "EXPLORATORY WELL" means a well drilled to find and produce oil or gas
reserves not classified as proved, to find a new production reservoir in a field
previously found to be productive of oil or gas in another reservoir or to
extend a known reservoir.

  "FARM-OUT" means an agreement pursuant to which the owner of a working
interest in an oil and gas lease assigns the working interest or a portion
thereof to another party who desires to drill on the leased acreage. Generally,
the assignee is required to drill one or more wells in order to earn its
interest in the acreage. The assignor usually retains a royalty or reversionary
interest in the lease. The interest received by an assignee is a "farm-in" and
the assignor issues a "farm-out".

  "FARM-IN" see "FARM-OUT" above.

  "GAS" means natural gas.

  "GROSS" when used with respect to acres or wells, refers to the total acres or
wells in which we have a working interest.

  "INFILL DRILLING" means drilling of an additional well or wells provided for
by an existing spacing order to more adequately drain a reservoir.

  "MCF" means thousand cubic feet.

  "BTU" means British Thermal Units. British Thermal Unit means the quantity
of heat required to raise the temperature of one pound of water by one degree
Fahrenheit.

  "NET" when used with respect to acres or wells, refers to gross acres or wells
multiplied, in each case, by the percentage working interest owned by the
Company.

  "NET PRODUCTION" means production that is owned by the Company less royalties
and production due others.


                                      22
<PAGE>


  "OPERATOR" means the individual or company responsible for the exploration,
development and production of an oil or gas well or lease.

  "PRESENT VALUE" ("PV") when used with respect to oil and gas reserves, means
the estimated future gross revenues to be generated from the production of
proved reserves calculated in accordance with the guidelines of the SEC, net of
estimated production and future development costs, using prices and costs as of
the date of estimation without future escalation (except to the extent a
contract specifically provides otherwise), without giving effect to non-property
related expenses such as general and administrative expenses, debt service,
future income tax expense and depreciation, depletion and amortization, and
discounted using an annual discount rate of 10%.

  "PRODUCTIVE WELLS" or "PRODUCING WELLS" consist of producing wells and wells
capable of production, including wells waiting on pipeline connections.

  "PROVED DEVELOPED RESERVES" means reserves that can be expected to be
recovered through existing wells with existing equipment and operating methods.
Additional oil and gas expected to be obtained through the application of fluid
injection or other improved recovery techniques for supplementing the natural
forces and mechanisms of primary recovery will be included as "proved developed
reserves" only after testing by a pilot project or after the operation of an
installed program has confirmed through production response that increased
recovery will be achieved.

  "PROVED RESERVES" means the estimated quantities of crude oil and natural gas
which upon analysis of geological and engineering data appear with reasonable
certainty to be recoverable in future years from known reservoirs under existing
economic and operating conditions, i.e., prices and costs as of the date the
estimate is made. Prices include consideration of changes in existing prices
provided only by contractual arrangements, but not on escalations based upon
future conditions.

        (i)   Reservoirs are considered proved if either actual production or
        conclusive formation tests support economic producibility. The area of a
        reservoir considered proved includes (A) that portion delineated by
        drilling and defined by gas-oil and/or oil-water contacts, if any; and
        (B) the immediately adjoining portions not yet drilled, but which can be
        reasonably judged as economically productive on the basis of available
        geological and engineering data. In the absence of information on fluid
        contacts, the lowest known structural occurrence of hydrocarbons
        controls the lower proved limit of the reservoir.

        (ii)  Reserves which can be produced economically through application of
        improved recovery techniques (such as fluid injection) are included in
        the "proved" classification when successful testing by a pilot project,
        or the operation of an installed program in the reservoir, provides
        support for the engineering analysis on which the project or program
        was based.

        (iii) Estimates of proved reserves do not include the following: (A)
        oil that may become available from known reservoirs but is classified
        Separately as "indicated additional reserves"; (B) crude oil and
        natural gas, the recovery of which is subject to reasonable doubt
        because of uncertainty as to geology, reservoir characteristics or
        economic factors; (C) crude oil and natural gas that may occur in
        undrilled prospects; and (D) crude oil and natural gas that may be
        recovered from oil shales, coal, gilsonite and other such resources.


                                      23
<PAGE>


  "PROVED UNDEVELOPED RESERVES" means reserves that are recovered from new wells
on undrilled acreage, or from existing wells where a relatively major
expenditure is required for completion. Reserves on undrilled acreage shall be
limited to those drilling units offsetting productive units that are reasonably
certain of production when drilled. Proved reserves for other undrilled units
can be claimed only where it can be demonstrated with certainty that there is
continuity of production from the existing productive formation. Under no
circumstances should estimates for proved undeveloped reserves be attributable
to any acreage for which an application of fluid injection or other improved
recovery technique is contemplated, unless such techniques have been proved
effective by actual tests in the area and in the same reservoir.

  "RECOMPLETION" means the completion for production of an existing well bore in
another formation from that in which the well has been previously completed.

  "RESERVES" means proved reserves.

  "RESERVOIR" means a porous and permeable underground formation containing a
natural accumulation of producible oil and/or gas that is confined by
impermeable rock or water barriers and is individual and separate from other
reservoirs.

  "ROYALTY" means an interest in an oil and gas lease that gives the owner of
the interest the right to receive a portion of the production from the leased
acreage (or of the proceeds of the sale thereof), but generally does not require
the owner to pay any portion of the costs of drilling or operating the wells on
the leased acreage. Royalties may be either landowner's royalties, which are
reserved by the owner of the leased acreage at the time the lease is granted, or
overriding royalties, which are usually reserved by an owner of the leasehold in
connection with a transfer to a subsequent owner.

   "2-D SEISMIC" means an advanced technology method by which a cross-section of
the earth's subsurface is created through the interpretation of reflecting
seismic data collected along a single source profile.

  "3-D SEISMIC" means an advanced technology method by which a three dimensional
image of the earth's subsurface is created through the interpretation of
reflection seismic data collected over surface grid. 3-D seismic surveys allow
for a more detailed understanding of the subsurface than do conventional surveys
and contribute significantly to field appraisal, development and production.

  "WORKING INTEREST" means an interest in an oil and gas lease that gives the
owner of the interest the right to drill for and produce oil and gas on the
leased acreage and requires the owner to pay a share of the costs of drilling
and production operations. The share of production to which a working interest
owner is entitled will always be smaller than the share of costs that the
working interest owner is required to bear, with the balance of the production
accruing to the owners of royalties.

  "WORKOVER" means operations on a producing well to restore or increase
production.

ITEM 2. Description of Properties.

         See "ITEM 1.  Description of Business."



                                      24
<PAGE>


ITEM 3.  Legal Proceedings

First National Bank of Oklahoma (the "Bank") filed a lawsuit in Kay County,
Oklahoma against a former Company Director, William Vandever, and a current
Company Director, Gene Howard, alleging that these individuals, while acting in
the capacity of Directors for the Companies, breached their fiduciary
responsibility allegedly owed to the Bank with respect to a former subsidiary of
the Company, Hiland Properties, Inc. ("Hiland"). In a prior Texas bankruptcy
proceeding involving Hiland, the Bank failed to assert its claims as a Hiland
creditor. Following the bankruptcy court approval of the Hiland settlement and
distribution of properties, the Bank filed suit in the bankruptcy court to set
aside the settlement. After the bankruptcy court dismissed the Bank's claims,
the Bank filed the lawsuit in Kay County styled "The First National Bank of
Oklahoma vs. Nora Gordon, et al". Mr. Vandever and Mr. Howard moved to transfer
the suit to the Texas Bankruptcy Court. In the fall of 1999, the Texas
Bankruptcy Court denied the Motion To Transfer filed by Mr. Vandever and Mr.
Howard. The Bank has taken no action in the prosecution of this lawsuit in the
past three years. Mr. Vandever and Mr. Howard may seek reimbursement from the
Company for defense costs and the amounts of any judgment attained against them.
The Bank is seeking $65,000, plus interest and legal fees. The Company believes
that the lawsuit filed by the Bank is without merit and Mr. Vandever and Mr.
Howard intend to vigorously defend against the claims if they are pursued
further. The legal fees expended by Mr. Vandever and Mr. Howard for their
defense is believed to be approximately $4,000. Howard, Widdows, and Bufogle, PC
is counsel of record for Gene Howard and William Vandever.

On February 4, 1999, in the 236th District Court, Tarrant County, Texas, Regal
Petroleum Services, Inc. ("Regal") filed suit against the Company. Regal's
lawsuit against the Company alleged that the Company was in breach of several
contracts, for which Regal sought money for work performed as operator of wells
in which the Company maintained an interest. All contracts under which Regal
filed suit involved agreements executed by the prior management of the Company.
On December 30, 1999, Regal and the Company executed a final, limited Settlement
Agreement, resolving Regal's claims in this lawsuit. In settlement, the Company
transferred to Regal cash, restricted common shares and warrants with an
expiration date of December 31, 2000, at an exercise price of $1.00 per share.
The management of the Company believes that the settlement procured with Regal
was fair and reasonable to the Company and to its shareholders.

In the spring of 1999, the Company became aware of the claim of Clifton Kees,
Jr. ("Kees"), a geologist, to a 1% overriding royalty interest in Reagan
Sections 11 and 12, Palo Pinto County, Texas. Kees filed an assignment in Palo
Pinto County, Texas, after December 1, 1997, upon which Kees bases his claim.
The Company, after its initial investigation, disputes Kees' legal rights to the
overriding royalty and has filed suit to challenge this royalty as described
below.

William Vandever, during the period of time in which he served as the President
and Chief Executive Officer of the Company, purportedly granted some
preferential rights with respect to 75% of the Reagan leases in Section 11, Palo
Pinto County, Texas, to participants (including Kees and Vandever himself) in
the re-work of the Reagan #2-11 well. Mr. Vandever also purportedly granted the
same rights to himself as a participant. The Company discovered this within the
past sixty days. Claims related to preferential rights with regard to the Reagan
lease in Section 11 could materially and adversely affect the financial
condition and the outlook of the Company. Based upon information obtained by the
Company, the Company has filed suit in the 29th Judicial District Court in Palo
Pinto County, Texas, styled "Roseland Oil and Gas, Inc. v. William Vandever, et
al.", against Kees, Vandever and various persons, seeking a judicial
determination that all grants of preferential rights in the Reagan Section 11
are void. This suit also seeks


                                      25
<PAGE>


monetary damages against the named defendants. This lawsuit was filed on
April 26, 2000. The Company plans to vigorously pursue this action.

ITEM 4.  Submission of Matters to a Vote of Security Holders

 During the first quarter of the fiscal year ended June 30, 2000, proxies were
mailed to shareholders of record as of August 11, 2000 for the Annual
Stockholder meeting that was held on September 13, 2000 in Dallas, Texas.
Security holders were asked to ratify the selection of the Company's accounting
firm, Philip Vogel & Co., PC, and to vote on directors of the Company with the
directors elected to serve one year or until their replacement was elected.

The shareholders approved the Company's selection of accounting firms, and
elected the directors with the following vote:

<TABLE>
<CAPTION>

APPROVAL OF ACCOUNTANTS                  YES VOTES      NO VOTES   ABSTENTIONS
<S>                                      <C>            <C>        <C>
Philip Vogel & Co., PC                   14,738,763        0          2200

ELECTION OF DIRECTORS

Calvin Wallen III                        14,740,923        0            40
Gene Howard                              14,740,919        4            40
Jon Ross                                 14,740,923        0            40

</TABLE>


                                     PART II


ITEM 5.  Market for Registrant's Common Equity and Related Stockholder Matters

The Common Stock had been thinly traded on the "over-the-counter" market under
the symbol "RGAS" from 1980 through the fall of 1999; with Brookstreet
Securities Corporation, 2361 Campus Dr. #210, Irvine, CA 92715 acting as the
market maker. In 1999, the NASD approved the Company's request to change its
trading symbol to "QBIC" in connection with the Company's intention to change
its corporate name to Cubic Energy, Inc.

At June 30, 2000, there were 18,916,947 shares of Common Stock outstanding held
by approximately 800 shareholders of record.


On September 5, 1997, the Company amended its Certificate of Incorporation with
the Secretary of State of Oklahoma to increase the aggregate number of
authorized shares of common stock from 10,000,000 shares to 50,000,000 shares.

In the fall of 1999, Roseland Oil And Gas, Inc. was merged into Cubic Energy,
Inc., a Texas corporation and a wholly owned subsidiary of Roseland Oil And Gas,
Inc. Under its Texas Articles Of Incorporation, Cubic is authorized to issue one
class of 50,000,000 common shares, par value $0.05/share and one class of
10,000,000 preferred shares, par value $0.01/share. An exchange of one common
share of Roseland for one common share of Cubic was effectuated in the merger.
At the time of the merger, and as of June 30, 2000, there were no preferred
shares of the Company outstanding.


                                      26
<PAGE>


The Company does not have a written cash dividend policy, has not paid cash
dividends on its common stock in the past and does not expect to pay cash
dividends in the foreseeable future. It is the present intention of management
to utilize all available funds for the development of the Company's business.


ITEM 6.  Management's Discussion And Analysis Or Plan Of Operations

  The following discussion is intended to assist in an understanding of the
Company's historical financial position and results of operations for each year
in the two-year period ended June 30, 2000. The Company's Financial Statements
and notes thereto included elsewhere in this Report contain detailed information
that should be referred to in conjunction with the following discussion.

GENERAL

The Company's future results of operations and growth are substantially
dependent upon (i) its ability to acquire or find and successfully develop
additional oil and gas reserves and (ii) the prevailing prices for oil and gas.
We have an inventory of development drilling locations to pursue after the
fiscal year ending June 30, 2000. If we are unable to economically acquire or
find significant new reserves for development and exploitation, the Company's
oil and gas production, and thus its revenues, would likely decline gradually as
its reserves are produced. In addition, oil and gas prices are dependent upon
numerous factors beyond the Company's control, such as economic, political and
regulatory developments and competition from other sources of energy. The oil
and gas markets have historically been very volatile, and any significant and
extended decline in the price of oil or gas would have a material adverse effect
on the Company's financial condition and results of operations, and could result
in a reduction in the carrying value of the Company's proved reserves and
adversely affect its access to capital.

THIS MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION CONTAINS
FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES
ACT OF 1933, AS AMENDED, AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934,
AS AMENDED. ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE PROJECTED IN THE
FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN FACTORS DESCRIBED HEREIN AND
IN OTHER DOCUMENTS. READERS SHOULD CAREFULLY REVIEW THE RISK FACTORS DESCRIBED
IN THIS ANNUAL REPORT AND THE DOCUMENTS THE COMPANY FILES FROM TIME TO TIME WITH
THE SECURITIES AND EXCHANGE COMMISSION.

RESULTS OF OPERATIONS

COMPARISON OF FISCAL 2000 TO FISCAL 1999 REVENUES

OIL AND GAS SALES increased 32% to $69,850 in the fiscal year ended June 30,
2000 ("fiscal 2000") from $52,939 in the fiscal year ended June 30, 1999
("fiscal 1999"), primarily because of higher oil and gas prices.

OTHER REVENUES decreased to $0 in fiscal 2000 from $5,513 in fiscal 1999. This
category of Other Revenue was totally comprised of income from property rental
in fiscal 1999. This property was disposed of in fiscal 1999.


                                      27
<PAGE>


COSTS AND EXPENSES

PRODUCTION AND OPERATING EXPENSE decreased 50% to $29,500 in fiscal 2000 from
$58,951 in fiscal 1999. The decrease was primarily attributable to improved
efficiency of field operations and operator reducing costs.

DEPRECIATION, DEPLETION AND AMORTIZATION decreased 55% to $13,544 in fiscal 2000
from $29,946 in fiscal 1999. The decrease was primarily attributable to a
non-recurring accounting adjustment due to the Company's revised annual reserve
analysis.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSE ("G&A") decreased 28% to $331,463,
in fiscal 2000 from $461,152 in fiscal 1999. The decrease in G&A was largely
attributable to the non-recurring restatements in fiscal 1999 of the Company's
financial statements (including re-filing of 10K's) for the periods ending June
30, 1998, 1997, 1996 and 1995.

INTEREST EXPENSE decreased 47% to $6,503 in fiscal 2000 from $12,143 in
fiscal 1999.  The decrease was a result of converting some company debt into
equity.

LOSS ON SALE OF ASSETS was $75,562 in fiscal year 2000 compared to $0 in fiscal
year 1999 due to loss on the sale of the Comanche Energy, Inc. stock owned by
the Company.

NET INCOME

Net loss decreased 28% to reflect a loss of $372,895 in fiscal 2000 from a loss
of $515,933 in fiscal 1999 as a result of higher market prices for oil and gas,
lower cost of operations from improved efficiency of field operations and
operator reducing costs, reduction of G&A in accounting and audit fees,
Depreciation, Depletion and Amortization reduced to reflect current reserve
report projections and interest expense reduced by converting some company debt
into equity.

LIQUIDITY AND CAPITAL RESOURCES

OVERVIEW

The Company's primary financial resource is its oil and gas reserves. The
Company does not have any credit facilities to supplement its internally
generated cash flow as a source of financing for its capital expenditure
programs. Product prices, over which we have no control, have a significant
impact on revenues from production and the value of such reserves and thereby on
the Company's borrowing capacity in the event the Company determines to borrow
funds. Within the confines of product pricing, the Company must be able to find
and develop or acquire oil and gas reserves in a cost effective manner in order
to generate sufficient financial resources through internal means to complete
the financing of its capital expenditure program.

The Company had a net working capital deficit of $721,910 at June 30, 2000.

The following discussion sets forth the Company's current plans for capital
expenditures in fiscal 2001, and the expected capital resources needed to
finance such plans.


                                      28
<PAGE>


CAPITAL EXPENDITURES

At the present time, the Company anticipates to increase spending on exploration
and development activities during fiscal 2001 through the development of
strategic alliances that will position the Company to take advantage of possible
acquisition objectives that will fit into the Company's core activity areas of
oil and gas production.

The Company will increase its planned activities for fiscal 2001 if product
prices remain strong and if we are able to obtain the capital resources
necessary to finance such activities. See "BUSINESS - DRILLING, EXPLORATION
AND PRODUCTION ACTIVITIES."

WORKING CAPITAL AND CASH FLOW

During fiscal 2000, the Company generated a cash flow deficit from operating
activities of $60,917.

The Company's deficit in working capital increased to a deficit of $721,910 at
June 30, 2000 from a deficit of $423,767 at June 30, 1999.

On March 24, 2000, the Company offered the holders of a promissory note dated
October 1, 1996 the opportunity to convert that debt, estimated to amount to
$118,760 in principal and interest, to equity at a conversion rate of the three
of the Company's common shares for every dollar of principal and interest owed
by the Company. All of the secured parties have agreed to convert their
interests. See "Certain Relationships and Related Transactions".

On December 30, 1999, 470,000 warrants, each exercisable at $0.50 for one share
of the Company's common stock, were due to expire. These warrants contained a
provision to extend the expiration date but the Company did not choose to do so.
Prior to the expiration date, warrant holders exercised 240,000 warrants for a
total of $120,000, used primarily to settle the Regal Petroleum lawsuit and to
pay on other debt incurred by former management.

CAPITAL RESOURCES

The Company cannot be certain that the funds which will be available from the
completed and pending sales of assets, combined with operating cash flow, will
be adequate to fund the projected capital expenditures for fiscal 2001. However,
because future cash flows and the availability of borrowings are subject to a
number of variables, such as prevailing prices of oil and gas, actual production
from existing and newly-completed wells, the Company's success in developing and
producing new reserves, and the uncertainty with respect to the amount of funds
which may ultimately be required to finance the Company's exploration program,
there can be no assurance that the Company's capital resources will be
sufficient to sustain the Company's exploratory and development activities.

If funds available from asset sales, combined with operating cash flow, are not
sufficient to fund its anticipated levels of capital expenditures, the Company
will be required to seek alternative forms of capital resources, including the
sale of other assets and the issuance of debt or equity securities. Although the
Company believes it will be able to obtain funds pursuant to one or more of
these alternatives, if needed, management cannot be assured that any such
capital resources will be available to the Company. If additional capital
resources are needed, but we are unable to obtain such capital resources on a
timely basis, the


                                      29
<PAGE>


Company may not be able to maintain a level of liquidity sufficient to meet its
obligations as they mature or to implement its capital expenditures or develop
its assets.

INFLATION

Although the level of inflation affects certain of the Company's costs and
expenses, inflation did not have a significant effect on the Company's results
of operations during fiscal 2000.

INFORMATION SYSTEMS FOR THE YEAR 2000

The Company completed implementation of a "Year 2000 Plan" in the fiscal year
ended June 30, 2000; and through June 30, 2000, the Company experienced no
effects of its information systems from "Y2K". Though not expected, it is still
possible that "Y2K" issues could have a material effect on the operations,
productivity, and profitability of the Company.

ITEM 7.  FINANCIAL STATEMENTS

The Report of Independent Accountants, Financial Statements and any
supplementary financial data required by this Item are set forth on pages F1
through F23 of this Report and are incorporated herein by reference.

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

As disclosed in the Company's current report on Form 8-K filed with the
Commission on March 6, 2000, the Company dismissed its prior accountants, Weaver
and Tidwell L.L.P. as its auditors, and retained Philip Vogel & Co., PC to
replace them.

                                   PART III

ITEM 9. Directors, Executive Officers, Promoters and Control Persons of the
Registrant; Compliance with Section 16(a) of the Exchange Act.

The following table sets forth the name and age of each director and executive
officer and the period during which each has served as a director of the
Company:

<TABLE>
<CAPTION>

NAME                    AGE   POSITION WITH ROSELAND             DIRECTOR SINCE
----                    ---   ----------------------             --------------
<S>                     <C>   <C>                                <C>
Calvin Wallen III       45    Chairman of the Board, President        1997
                              & Chief Executive Officer

Jon S. Ross             36    Director, Secretary                     1998

Gene Howard             73    Director                                1991
</TABLE>


CALVIN A. WALLEN III has served as the President and Chief Executive Officer of
the Company since December 1997, and as Chairman of the Board of Directors since
June 1999. Mr. Wallen has over 20 years of experience in the oil and gas
industry


                                      30
<PAGE>


working as a drilling and petroleum engineer. He was employed by Superior Oil
and various other drilling contractors including Resource, Tom Brown and
Rowan International. He assisted in the design and construction of several
land rigs with advanced drilling systems and has domestic and international
experience in drilling engineering. While employed by Rowan International,
Mr. Wallen gained experience in drilling high angle directional wells at
Prudhoe Bay on contract to Arco. In 1982 Mr. Wallen began acquiring and
developing oil and gas properties, forming a production company that has
evolved into Tauren Exploration, Inc. Mr. Wallen did his undergraduate
studies at Texas A&M University in College Station, Texas.

JON S. ROSS has served as a director of the Company since April 1998 and as
Secretary since November 1998. Since 1989, Mr. Ross has been a practicing
attorney in Dallas, Texas specializing in the representation of over fifty
corporate entities within the past eight years. He has served on several
community and not-for-profit committees and Boards and has been asked to speak
to corporate and civic leaders on a variety of corporate law topics. Mr. Ross
graduated from St. Mark's School of Texas with honors in 1982 and graduated from
the University of Texas at Austin in 1986 with a B.B.A. in Accounting. He then
graduated from the University of Texas School of Law in 1989 attaining a Juris
Doctorate degree.

GENE C. HOWARD is the Senior Partner of the law firm of Howard, Widdows, and
Bufogle, P.C. of Tulsa, Oklahoma and has been engaged primarily in the
private practice of law over the past thirty-five years.  Mr. Howard served
in the Oklahoma State Senate from 1964 through 1982 and was President Pro Tem
from 1975 through 1981.  In addition, he served as the Chairman of the Board
of Farmers and Exchange Bank from 1972 through 1991 and on the Board of
Directors of Local Federal Bank of Oklahoma.  Mr. Howard is a Director of the
Oklahoma State Education and Employment Group Insurance Board and presently
acts as Chairman.  Mr. Howard served as Director of EntreCap and Hinderliter
corporations from 1991 to August of 1992.  He is also Chairman of the Board
of Philadelphia Mortgage Trust ("PMT").

Directors do not receive any compensation for their services as directors except
that the Company reimburses all travel expenses.

There are no family relationships among any of the directors or executive
officers of the Company. See "Certain Relationships and Related Transactions"
for a description of transactions between the Company and its directors,
executive officers or their affiliates.

We have no employment agreements with its officers or key executives, however,
the Company did execute a consulting agreement with William Vandever that
terminated in December 1999.

COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT

To the Company's knowledge, based solely on a review of the copies of the
reports required pursuant to Section 16(a) of the Securities Exchange Act of
1934, as amended, that have been furnished to the Company and written
representations that no other reports were required, during the year ended June
30, 2000 all Section 16(a) filing requirements applicable to its directors,
executive officers and greater than 10% beneficial owners have been met.


                                      31
<PAGE>


ITEM 10.  Executive Compensation

The total compensation for the three fiscal years ended June 30, 2000, for
Calvin Wallen III, the Company's current Chief Executive Officer and Jon S.
Ross, the Company's current Secretary is set forth below in the following
Summary Compensation Table. No other person received cash compensation in excess
of $100,000 during the fiscal year ended June 30, 2000.


SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
                                                  Fiscal       Annual    Other Annual
Name and Principal Position                       Year         Salary    Compensation
---------------------------                       ------       ------    ------------
<S>                                               <C>          <C>       <C>
Calvin Wallen III, President and CEO               2000          0            0
                                                   1999          0            0
                                                   1998          0            0
Jon S. Ross, Secretary                             2000          0            0
                                                   1999          0            0
</TABLE>


There were no options granted or exercised by any of the Company's directors or
officers.


ITEM 11.  Security Ownership of Certain Beneficial Owners and Management

The following table sets forth the number of shares of the Company's Common
Stock beneficially owned, as of June 30, 2000 by (i) each person known to the
Company to beneficially own more than 5% of the Common Stock of the Company (the
only class of voting securities now outstanding), (ii) each director and
executive officer, and (iii) all directors and executive officers as a group.
Unless otherwise indicated, the number of shares and percentage of ownership of
Common Stock for each of the stockholders set forth below assumes that shares of
Common Stock that the stockholder may acquire within sixty days of June 30, 2000
are outstanding.

<TABLE>
<CAPTION>
                                               NUMBER          APPROXIMATE
 NAME AND ADDRESS                            OF SHARES      PERCENT OF CLASS
------------------                           ---------      ----------------
<S>                                        <C>              <C>
Calvin Wallen III                          9,176,300 /1/          48.5%
1720 Northwest Highway, Ste. 320
Garland, TX 75041

William G. Vandever                        1,042,433 /2/           5.5%
1724 East 15th St.
Tulsa, OK 74104

William Bruggeman                          3,875,556 /3/          20.5%
20 Anemone Circle
North Oaks, MN 55127

Gene Howard                                  322,245 /4/           1.7%
2402 East 29th St.
Tulsa, OK 74114

Jon S. Ross                                   50,000               *
1720 Northwest Highway, Ste. 320
Garland, TX 75041



                                      32
<PAGE>


All officers and directors
as a group (3 persons):                    9,548,545              50.5%
</TABLE>

*Less than one percent.

/1/  Includes 3,500,000 shares held by Earthstock Resources, Inc., a company
controlled by Mr. Wallen

/2/  Includes 862,433 shares presently held by Mr. Vandever's wife, Margaret,
of which Mr. Vandever claims no beneficial ownership

/3/ Includes 500,000 shares held by Diversified Dynamics Corp., a company
controlled by William Bruggeman, includes 120,000 shares owned by Consumer
Products Corp. in which Mr. Bruggeman's wife Ruth is a joint owner, and includes
2,500,000 shares held jointly by William Bruggeman & Ruth Bruggeman JTWROS

/4/  All 322,245 shares are held by Mr. Howard's wife, Belva, of which Mr.
Howard claims no beneficial ownership


 ITEM 12.  Certain Relationships and Related Transactions

In December 1997, the Company entered into a Stock Purchase Agreement (the
"Agreement") with Calvin Wallen III or his designees, William Bruggeman and Ruth
Bruggeman, and Diversified Dynamics, Inc. (together, the "Buyers"). Pursuant to
the Agreement, the Company issued (i) 7,000,000 shares of its common stock to
Calvin Wallen III; (ii) 2,500,000 shares of common stock to Earthstock
Resources, Inc., all of the shares of which are owned by Mr. Wallen; (iii)
2,500,000 shares of common stock to William Bruggeman and Ruth Bruggeman as
joint tenants with rights of survivorship; and (iv) 500,000 shares of common
stock to Diversified Dynamics, which is controlled by the Bruggemans,
representing an aggregate of approximately 71.3% of the issued and outstanding
shares of common stock of the Company, with the shares issued to Mr. Wallen and
his affiliates representing approximately 54.2% of the issued and outstanding
shares of common stock of the Registrant. In exchange for the issuance of the
Shares, the Buyers conveyed to the Registrant the interests in certain oil and
gas properties owned by the Buyers, as well as the Buyers' entire interest in
any contracts, leases, records and insurance policies affecting such interests
(the "Consideration"). The amount of the Consideration was the result of an
agreed negotiation between the Buyers and the Company. Prior to the negotiation
and execution of the Agreement, there were no material relationships between the
Company or any affiliates, officers or directors of the Company, on the one
hand, and any of the Buyers, or any affiliates, officers or directors of any of
the Buyers, on the other hand.

On December 1, 1997, the Company entered into a contract with an affiliate
controlled by our President and Chief Executive Officer to provide certain
technical, administrative and management services needed to conduct its
business. The terms of the contract provided for personnel to be contracted at
current market rates in effect at the time the agreement was executed. In
addition, the offices are subleased from an affiliate controlled by our
President and Chief Executive Officer and the offices are subleased through
November 30, 2000. The monthly amount charged to the Company is based on actual
costs of materials and man-hours of the affiliates that are used pursuant to the
terms of the agreement. As of June 30, 2000, the Company had accumulated
$196,628 in accounts payable due affiliates that includes the amounts owed for
personnel and leasing of office space.


                                      33
<PAGE>


On December 10, 1998, the Company entered into an agreement with Tauren
Exploration Inc. ("Tauren") that provides for Tauren to drill on the
Company's Section 11 in Palo Pinto County, Texas. The agreement grants Tauren
Exploration Inc. a farm-out retaining a 7.5% overriding royalty interest. The
agreement also grants the Company preferential rights in the event that
Tauren, at some later date, decides to divest part or all of their interests
in the drilled wells. Tauren is an affiliate of Calvin Wallen, III, an
officer, director and majority shareholder of the Company.

William Vandever purportedly granted himself, as well as other purported
participants in the Reagan #2-11 well, preferential rights as disclosed in legal
proceedings. The Company has filed a lawsuit to void this transaction. See
"Legal Proceedings".

In October 1996, William Bruggeman, who subsequently became a 5% shareholder,
loaned $60,400 to the Company.  See "Management Discussion and Analysis;
Liquidity and Capital Resources".

Item 13.  Exhibits, Financial Statement Schedules and Reports on Form 8-K

A.   Financial Statements

     The following documents are filed as part of this Report commencing on page
F-1:

     1.  Report of Independent Auditors

         Statements of Income and Retained Earnings

         Balance Sheets

         Statements of Cash Flows

         Notes to Financial Statements


     2.  Schedules are omitted because they are not applicable or the required
     information is shown in the financial statements or notes thereto listed
     above.

     3.  Exhibits

         2.1 -- Agreement And Plan Of Merger between Roseland Oil And Gas, Inc.,
         an Oklahoma corporation and Cubic Energy, Inc., a Texas corporation
         (incorporated by reference herein to Exhibit 2.1 of the Company's 10Q,
         filed with the SEC for the quarter ended September 30, 1999).

         3.1 -- Certificate of Incorporation of Cubic Energy, Inc. (incorporated
         by reference to Exhibit 3.1 of the Company's 10Q, filed with the SEC
         for the quarter ended September 30, 1999).

         3.2*  -- By-Laws of Cubic Energy, Inc.

         10.1 -- Stock Purchase Agreement, dated December 7. 1997, among the
         Company, Calvin Wallen III or his designees, Diversified Dynamics,
         William and Ruth Bruggeman (incorporated by reference to Exhibit 2.1 to
         the Company's Current Report on Form 8-K, filed with the SEC on
         December 24, 1997).


                                      34
<PAGE>


         10.2 -- Consulting Agreement, dated as of December 1, 1997, between the
         Company and Tauren Exploration, Inc. (incorporated by reference to
         Exhibit 10.2 of the Company's 10K, filed with the SEC for the year
         ended June 30, 1998).

23.1* -- Consent of Philip Vogel & Co., PC

23.2* -- Consent of Weaver & Tidwell, LLP

27.1* -- Financial Data Schedule.
* Filed herewith.

B.   Reports on Form 8-K.
The Company filed an 8-K on March 6, 2000 with the Securities and Exchange
Commission describing the change in the Company's certified public accountants
from Weaver & Tidwell, LLP to Philip Vogel & Co., PC.

SIGNATURES

  PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS
BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, ON THE 26TH DAY OF
SEPTEMBER, 2000.


                                             Cubic Energy, Inc.

                                        By: /s/ Calvin Wallen III
                                            ---------------------------------
                                            CALVIN WALLEN III
                                            PRESIDENT AND CHIEF
                                            EXECUTIVE OFFICER


PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED.

<TABLE>
<CAPTION>

         SIGNATURE                        TITLE                               DATE
<S>                              <C>                                   <C>
/s/ Calvin Wallen III            President, Chief Executive            September 26, 2000
-------------------------------  Officer and Director
Calvin Wallen III                (Principal Executive Financial,
                                 Accounting Officer)


/s/ Jon Stuart Ross              Director, Secretary                   September 26, 2000
-------------------------------
Jon Stuart Ross


/s/ Gene Howard                  Director                              September 26, 2000
-------------------------------
Gene Howard

</TABLE>


                                      35
<PAGE>


















                               CUBIC ENERGY, INC.
                      (FORMERLY ROSELAND OIL AND GAS, INC.)

                              FINANCIAL STATEMENTS
                                       AND
                           INDEPENDENT AUDITORS' REPORT

                             JUNE 30, 2000 AND 1999




















                                      36

<PAGE>

                               CUBIC ENERGY, INC.
                      (FORMERLY ROSELAND OIL AND GAS, INC.)

                              FINANCIAL STATEMENTS
                                       AND
                           INDEPENDENT AUDITORS' REPORT

                             JUNE 30, 2000 AND 1999




                          INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                                                         PAGE
                                                                         ----
<S>                                                                      <C>

Report of Independent Auditors.....................................      F1

Balance Sheets.....................................................      F2-3

Statements of Operations...........................................      F4

Statements of Changes in Stockholders' Equity......................      F5-6

Statements of Cash Flows...........................................      F7-8

Notes to Financial Statements......................................      F9-22

</TABLE>















                                      37

<PAGE>

                                                                            F-1




                          INDEPENDENT AUDITORS' REPORT



To the Board of Directors and Stockholders
    of Cubic Energy, Inc.



We have audited the balance sheet of Cubic Energy, Inc., a Texas corporation,
(formerly Roseland Oil and Gas, Inc., an Oklahoma corporation) as of June 30,
2000, and the related statements of operations, of changes in stockholders'
equity and of cash flows for the year then ended. 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 audit.

We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Cubic Energy, Inc. as of June
30, 2000, and the results of its operations and its cash flows for the year
then ended, in conformity with generally accepted accounting principles.



                                             PHILIP VOGEL & CO. PC


                                             /s/ Philip Vogel & Co. PC

                                             Certified Public Accountants


Dallas, Texas

August 23, 2000


<PAGE>

                                                                            F-2

                               CUBIC ENERGY, INC.
                     (FORMERLY ROSELAND OIL AND GAS, INC.)

                                 BALANCE SHEETS
                            JUNE 30, 2000 AND 1999

<TABLE>
<CAPTION>
                                                               2000                                  1999
                                                        ------------------                    -----------------
<S>                                                     <C>                                   <C>

         ASSETS

Current assets:
   Cash and cash equivalents                            $             20                      $        1,374
   Marketable securities                                               0                             101,711
   Accounts receivable - trade                                     8,416                              23,600
                                                        ------------------                    -----------------
         Total current assets                           $          8,436                      $      126,685




Property and equipment (at cost):
   Oil and gas properties, full cost method:
      Proved properties (including wells and
         related equipment and facilities)              $      1,607,893                      $    1,607,893
   Office and other equipment                                        910                                 910
                                                        ------------------                    -----------------
                                                        $      1,608,803                      $    1,608,803
   Less accumulated depreciation, depletion
      and amortization                                           211,567                             198,003
                                                        ------------------                    -----------------
                                                               1,397,236                           1,410,800



Other assets                                                           0                                   0
                                                        ------------------                    -----------------

                                                        $      1,405,672                      $    1,537,485
                                                        ==================                    =================
</TABLE>

<PAGE>

                                                                             F-3


<TABLE>
<CAPTION>

                                                                      2000                                   1999
                                                         --------------------------------     ---------------------------------
<S>                                                      <C>              <C>                 <C>               <C>
         LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
   Accounts payable                                      $        49,369                      $         67,946
   Accrued liabilities                                                 0                                26,155
   Due to affiliates                                             680,977                               456,351
                                                         ----------------                     -----------------

         Total current liabilities                                        $       730,346                       $       550,452

Long-term debt, less current portion                                                    0                               118,760

Commitments and contingencies (Note I)

Stockholders' equity:
   Preferred stock - $.01 par value,
     authorized 10,000,000 shares,
     issued none                                         $             0                      $              0
   Common stock - $.05 par value,
     authorized 50,000,000 shares, issued
     18,916,947 in 2000 shares and 18,238,347                    945,848                               911,918
     18,238,347 shares in 1999
   Additional paid-in capital                                  3,049,242                             2,817,138
   Stock subscribed and paid - to be issued                            0                               120,000
   Accumulated deficit                                        (3,319,764)                           (2,946,869)
   Accumulated other comprehensive loss                                0                               (33,914)
                                                         ----------------                     -----------------

         Stockholders' equity                                                     675,326                               868,273
                                                                          ----------------                      ----------------

                                                                          $     1,405,672                       $     1,537,485
                                                                          ================                      ================

</TABLE>

<PAGE>

                                                                             F-4


                                                 CUBIC ENERGY, INC.
                                      (FORMERLY ROSELAND OIL AND GAS, INC.)

                                            STATEMENTS OF OPERATIONS
                                FOR THE YEARS ENDED JUNE 30, 2000, 1999 AND 1998


<TABLE>
<CAPTION>

                                                                           2000               1999                1998
                                                                    -----------------  -----------------   ------------------
<S>                                                                 <C>                <C>                 <C>
Revenues:
   Oil and gas sales                                                $          69,850  $          52,939   $         162,299
   Rental income from operating leases                                              0              5,513               6,192
   Overhead recovery fees                                                           0                  0               4,579
   Other                                                                            0                  0               1,912
                                                                    -----------------  -----------------   ------------------

         Total revenues                                             $          69,850  $          58,452   $         174,982
                                                                    -----------------  -----------------   ------------------

Costs and expenses:
   Oil and gas production, operating and
      development costs                                             $          29,500  $          58,951   $         301,198
   Selling, general and administrative expenses                               331,463            461,152             198,554
   Depreciation, depletion and amortization                                    13,544             29,946             304,958
                                                                    -----------------  -----------------   ------------------

         Total costs and expenses                                   $         374,507  $         550,049   $         804,710
                                                                    -----------------  -----------------   ------------------

         Operating income (loss)                                    $        (304,657) $        (491,597)  $        (629,728)
                                                                    -----------------  -----------------   ------------------

Non-operating income (expense):
   Gain (loss) on sales of securities and assets                    $         (75,562) $               0   $          12,230
   Other income (loss)                                                         13,827            (12,193)                331
   Interest expense                                                            (6,503)           (12,143)            (24,279)
                                                                    -----------------  -----------------   ------------------

         Total non-operating income (expense)                       $         (68,238) $         (24,336)  $         (11,718)
                                                                    -----------------  -----------------   ------------------

(Loss) from operations before income taxes:                         $        (372,895) $        (515,933)  $        (641,446)
   Provision for income taxes                                                       0                  0                   0
                                                                    -----------------  -----------------   ------------------

         Net loss                                                   $        (372,895) $        (515,933)  $        (641,446)

Other comprehensive income (loss), net of tax:
   Unrealized gain (loss) on securities                                             0              4,836             (38,750)
   Reclassification adjustment                                                 33,914                  0                   0
                                                                    -----------------  -----------------   ------------------

         Comprehensive loss                                         $        (338,981) $        (511,097)  $        (680,196)
                                                                    =================  =================   ==================

Net loss per common share - basic and diluted                       $           (0.02) $           (0.03)  $           (0.05)
                                                                    =================  =================   ==================

</TABLE>



                                                CUBIC ENERGY, INC.
                                       (FORMERLY ROSELAND OIL AND GAS, INC.)

                                  STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
                                FOR THE YEARS ENDED JUNE 30, 2000, 1999 AND 1998


<PAGE>

<TABLE>
<CAPTION>
                                                                                                                     F-5

                                                                              COMMON STOCK
                                                  CUMULATIVE    ----------------------------------------   ADDITIONAL
                                                   PREFERRED           SHARES               PAR             PAID-IN
                                                     STOCK          OUTSTANDING            VALUE            CAPITAL
                                                ------------------------------------------------------------------------
<S>                                               <C>               <C>              <C>                <C>
Balance, June 30, 1997                                     0             5,230,847   $       261,543    $     2,385,400

   Subscriptions                                           0                     0                 0                  0
   Reimbursement of capital                                0                     0                 0             (3,851)
   Unrealized loss on securities                           0                     0                 0                  0
   Stock purchase                                          0            12,500,000           625,000            255,264
   Net loss, year ended June 30, 1998                      0                     0                 0                  0
                                                ------------------------------------------------------------------------

Balance, June 30, 1998                                     0            17,730,847   $       886,543    $     2,636,813

   Stock issued  - previously                              0               200,000            10,000            100,000
   Stock issued - services rendered                        0               178,500             8,925             80,325
   Stock issued - to settle lawsuit
      (Regal Petroleum)                                    0               129,000             6,450                  0
   Unrealized gain on securities                           0                     0                 0                  0
   Warrants exercised                                      0                     0                 0                  0
   Net loss, year ended June 30, 1999                      0                     0                 0                  0
                                                ------------------------------------------------------------------------

Balance, June 30, 1999                                     0            18,238,347   $       911,918    $     2,817,138

   Stock issued - conversion of notes payable              0               439,600            21,980            124,554
   Stock issued - previously subscribed                    0               240,000            12,000            108,000
   Stock purchase                                          0                (1,000)              (50)              (450)
   Reclassification adjustment on sale of
     securities                                            0                     0                 0                  0
   Net loss, year ended June 30, 2000                      0                     0                 0                  0
                                                ------------------------------------------------------------------------

Balance, June 30, 2000                                     0            18,916,947   $       945,848    $     3,049,242
                                                ========================================================================

</TABLE>

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
<PAGE>


<TABLE>
<CAPTION>
                                                                                      F-6


                                                  ACCUMULATED
         STOCK                                        OTHER                 TOTAL
    SUBSCRIPTIONS         ACCUMULATED            COMPREHENSIVE           STOCKHOLDERS'
         PAID               DEFICIT                   LOSS                 EQUITY
    ---------------    -------------------    ---------------------   ------------------
    <S>                <C>                    <C>                     <C>
    $       71,500     $       (1,789,490)    $                 0     $         928,953

            38,500                      0                       0                38,500
                 0                      0                       0                (3,851)
                 0                      0                 (38,750)              (38,750)
                 0                      0                       0               880,264
                 0               (641,446)                      0              (641,446)
    ---------------    -------------------    ---------------------   ------------------

    $      110,000     $       (2,430,936)    $           (38,750)    $       1,163,670

          (110,000)                     0                       0                     0
                 0                      0                       0                89,250

                 0                      0                       0                 6,450
                 0                      0                   4,836                 4,836
           120,000                      0                       0               120,000
                 0               (515,933)                      0              (515,933)
    ---------------    -------------------    ---------------------   ------------------

    $      120,000     $       (2,946,869)    $           (33,914)    $         868,273

                 0                      0                       0               146,534
          (120,000)                     0                       0                     0
                 0                      0                       0                  (500)

                 0                      0                  33,914                33,914
                 0               (372,895)                      0              (372,895)
    ---------------    -------------------    ---------------------   ------------------

    $            0     $       (3,319,764)    $                 0     $         675,326
    ===============    ===================    =====================   ==================

</TABLE>

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
<PAGE>

<TABLE>
<CAPTION>

                                                                                                                F-7
                                                      CUBIC ENERGY, INC.
                                            (FORMERLY ROSELAND OIL AND GAS, INC.)

                                                   STATEMENTS OF CASH FLOWS
                                       FOR THE YEARS ENDED JUNE 30, 2000, 1999 AND 1998


                                                                     2000               1999              1998
                                                              ------------------ ----------------- -----------------
<S>                                                             <C>                <C>               <C>
Cash flows from operating activities:
 Net loss                                                       $   (372,895)      $    (515,933)    $     (641,446)
 Adjustments to reconcile net loss to cash
   provided (used) by operating activities:
   Depreciation, depletion and amortization                           13,564              29,946            304,958
   (Gain) loss on sale of assets                                      75,562                   0            (12,230)
   Non-cash interest expense                                           6,039                   0                  0
   Change in assets and liabilities:
    Decrease in accounts receivable                                   15,184              33,330             90,927
    Decrease in inventory                                                  0                   0             14,194
    Decrease in notes receivable                                           0                   0              1,500
    (Increase) decrease in other assets                                    0              (4,252)            49,696
    Increase in loan from affiliates                                 224,626             259,723            196,628
    Increase (decrease) in accounts payable
     and accrued liabilities                                         (22,997)             41,837             94,622
                                                              ------------------ ----------------- -----------------

    Net cash provided (used) by operating activities            $    (60,917)      $    (155,349)    $       98,849
                                                              ------------------ ----------------- -----------------

Cash flows from investing activities:
 Proceeds from sale of securities                               $     60,063       $           0     $            0
 Proceeds from disposal of property and equipment                          0              38,000                  0
 Purchase of property and equipment                                        0              (1,580)          (150,752)
                                                              ------------------ ----------------- -----------------

    Net cash provided (used) by investing activities            $     60,063       $      36,420     $     (150,752)
                                                              ------------------ ----------------- -----------------

Cash flows from financial activities:
 Proceeds from stock subscriptions                              $          0       $     120,000     $       38,500
 Payment for reimbursement of capital                                      0                   0             (3,851)
 Purchase of outstanding stock                                          (500)                  0                  0
 Payment on debt                                                           0                   0             (1,588)
                                                              ------------------ ----------------- -----------------

    Net cash provided (used) by financing activities            $       (500)      $     120,000     $       33,061
                                                              ------------------ ----------------- -----------------

Net increase in cash and cash equivalents                       $     (1,354)      $       1,071     $      (18,842)

Cash and cash equivalents:
 Beginning of year                                                     1,374                 303             19,145
                                                              ------------------ ----------------- -----------------

 End of year                                                    $         20       $       1,374     $          303
                                                              ================== ================= =================

Supplemental cash flows information:
 Cash paid during the year for:
    Interest                                                               0                   0             24,279
    Income taxes                                                           0                   0                  0

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.

<PAGE>


                                                                                                                F-8



(CONTINUED)                                                          2000               1999              1998
                                                              ------------------ ----------------- -----------------
Non-cash investing and financing

   Issue stock for payment of interest:
      Interest expense                                                 6,039                   0                  0
      Accrued interest                                                21,735                   0                  0
      Common stock                                                    (4,166)                  0                  0
      Paid-in capital                                                (23,608)                  0                  0

   Issue stock for conversion on notes payable:
      Notes payable                                                  118,760                   0                  0
      Common stock                                                   (17,814)                  0                  0
      Paid-in capital                                               (100,946)                  0                  0

   Previously subscribed stock issued:
      Common stock                                                   (12,000)            (10,000)                 0
      Paid-in capital                                               (108,000)           (100,000)                 0
      Accounts payable                                               120,000             110,000                  0

   Issue stock for services rendered:
      Common stock                                                         0              (8,925)                 0
      Paid-in capital                                                      0             (80,325)                 0
      Accounts payable                                                     0              89,250                  0

   To settle Regal lawsuit:
      Accounts payable                                                     0              59,860                  0
      Common stock                                                         0              (6,450)                 0
      Properties                                                           0            (704,374)                 0
      Accumulated depreciation, depletion                                  0             650,964                  0

   Acquisition of marketable securities:
      Marketable securities                                                0                   0            135,625
      Oil and gas properties                                               0                   0            (90,550)
      Gain on sale of properties                                           0                   0            (45,075)

   Acquisition of oil and gas property:
      Non-producing leasehold                                              0                   0            880,264
      Common stock                                                         0                   0           (625,000)
      Paid-in capital                                                      0                   0           (255,264)

   Sale of real property in satisfaction of debt:
      Building (net of depreciation)                                       0                   0           (185,739)
      Mortgage payable                                                     0                   0            111,573
      Loss on sale of property                                             0                   0             74,166

</TABLE>


<PAGE>

                                                                            F-9

                               CUBIC ENERGY, INC.
                      (FORMERLY ROSELAND OIL AND GAS, INC.)

                          NOTES TO FINANCIAL STATEMENTS


NOTE A - BACKGROUND AND GENERAL:

    Cubic Energy, Inc. (formerly Roseland Oil and Gas, Inc). is engaged in
domestic crude oil and natural gas exploration, development and production,
with primary emphasis on the production of oil and gas reserves through
acquisitions of proved, producing oil and gas properties in the states of
Texas, Oklahoma and Louisiana.

    During August 1999, the stockholders of Roseland Oil and Gas, Inc. (an
Oklahoma corporation) approved the re-incorporation of the Company into the
state of Texas pursuant to a re-incorporation merger between the Company and a
wholly-owned subsidiary, Cubic Energy, Inc., a Texas corporation. Pursuant to
this transaction, Roseland Oil and Gas, Inc. ceased to exist as a separate
entity.


NOTE B - SIGNIFICANT ACCOUNTING POLICIES:

    OFFICE AND OTHER EQUIPMENT

    Office and other equipment are stated at cost and depreciated by the
straight-line method over estimated useful lives ranging from five to seven
years. Depreciation and amortization of office and other equipment amounted to
$20, $173 and $182 for the years ended June 30, 2000, 1999 and 1998,
respectively.

    FULL COST METHOD OF ACCOUNTING FOR OIL AND GAS PROPERTIES

    The Company has adopted the full cost method of accounting for oil and gas
properties. Management believes adoption of the full cost method more
accurately reflects management's exploration objectives and results by
including all costs incurred as integral for the acquisition, discovery and
development of whatever reserves ultimately result from its efforts as a
whole. Under the full cost method of accounting, all costs associated with
acquisition, exploration and development of oil and gas reserves, including
directly related overhead costs, are capitalized.

    All capitalized costs of oil and gas properties, including the estimated
future costs to develop proved reserves, are amortized on the
unit-of-production method using estimates of proved reserves. Investments in
unproved properties and major development projects are not amortized until
proved reserves associated with the projects can be determined or until
impairment occurs. If the results of an assessment indicate that the
properties are impaired, the amount of the impairment is added to the
capitalized costs to be amortized.

    In addition, the capitalized costs are subject to a "ceiling test," which
basically limits such costs to the aggregate of the "estimated present value,"
discounted at a 10 percent interest rate of future net revenues from proved
reserves, based on current economic and operating conditions, plus the lower
of cost or fair market value of unproved properties.

    Sales of proved and unproved properties are accounted for as adjustments
of capitalized costs with no gain or loss recognized, unless such adjustments
would significantly alter the relationship between capitalized costs and
proved reserves of oil and gas, in which case the gain or loss is recognized
in income.

<PAGE>

                                                                           F-10

                               CUBIC ENERGY, INC.
                      (FORMERLY ROSELAND OIL AND GAS, INC.)

                          NOTES TO FINANCIAL STATEMENTS


    NOTE B - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):

    Depletion of producing oil and gas properties amounted to $13,544,
$20,109 and $288,356 for the years ended June 30, 2000, 1999 and 1998,
respectively.

    INCOME TAXES

    Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
basis. Deferred tax assets and liabilities are measured using enacted tax
rates that will apply in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period
that includes the enactment date.

    EARNINGS (LOSS) PER COMMON SHARE

    The Company has adopted the provisions of Statement of Financial
Accounting Standards (SFAS) No. 128, EARNINGS PER SHARE. SFAS No. 128 requires
the presentation of basic earnings (loss) per share (EPS) and diluted EPS.
Basic EPS is calculated by dividing net income or loss (available to common
stockholders) by the weighted average number of common shares outstanding for
the period. Diluted EPS reflects the potential dilution that could occur if
securities or other contracts to issue common stock, such as stock options,
warrants, convertible preferred stock and convertible debentures, were
exercised or converted into common stock.

    As discussed in Note F, there were no dilutive securities during the years
ended June 30, 2000, 1999 and 1998. The weighted average number of common and
common equivalent shares outstanding was 18,807,797, 18,109,235 and
12,491,121for the years ended June 30, 2000, 1999 and 1998, respectively.

    IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF

    The Company has adopted the provisions of SFAS No. 121, ACCOUNTING FOR THE
IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF.
This statement requires that long-lived assets and certain identifiable
intangibles be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows
expected to be generated by the asset. If such assets are considered to be
impaired, the impairment to be recognized is measured by the amount by which
the carrying amount of the assets exceed the fair value of the assets. Assets
to be disposed of are reported at the lower of the carrying amount or fair
value less costs to sell. During the years ended June 30, 2000, 1999 and 1998,
the Company's analyses indicated that there was not an impairment of its
long-lived assets.

<PAGE>

                                                                           F-11

                               CUBIC ENERGY, INC.
                      (FORMERLY ROSELAND OIL AND GAS, INC.)

                          NOTES TO FINANCIAL STATEMENTS


NOTE B - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):

    CONCENTRATION OF CREDIT RISK

    Financial instruments which potentially subject the Company to a
concentration of credit risk consists primarily of trade accounts receivable
with a variety of local, national, and international oil and natural gas
companies. Such credit risks are considered by management to be limited due to
the financial resources of the oil and natural gas companies.

    CASH EQUIVALENTS

    For purposes of the statements of cash flows, the Company considers all
certificates of deposit and other financial instruments with maturity dates of
three months or less to be cash equivalents.

    COMPREHENSIVE INCOME

    Comprehensive income is the total of (1) net loss plus (2) all other
changes in net assets arising from non-owner sources, which are referred to as
other comprehensive income. In accordance with SFAS No. 130 "Reporting
Comprehensive Income", the Company has presented a statement of operations
that includes other comprehensive income. An analysis of changes in components
of accumulated other comprehensive income is presented in the statement of
changes in stockholders' equity.

    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.

    CERTAIN SIGNIFICANT ESTIMATES

    Management estimates included in these financial statements for which it
is reasonably possible that a future event in the near term could cause the
estimate to change and the change could have a severe impact, are as follows:
Management's estimates of oil and gas reserves are based on various
assumptions, including constant oil and gas prices. Actual future production,
cash flows, taxes, operating expenses, development expenditures and quantities
of recoverable oil and gas reserves may vary substantially from those assumed
in the estimate. The accuracy of any reserve estimate is a function of the
quality of available data, engineering and geological interpretation, and
judgment. Subsequent evaluation of the same reserves based upon production
history will result in variations, which may be substantial, in the estimated
reserves. While it is at least reasonably possible that the estimates above
will change materially in the near term, no estimate can be made of the range
of possible losses that might occur.

<PAGE>

                                                                           F-12


                               CUBIC ENERGY, INC.
                      (FORMERLY ROSELAND OIL AND GAS, INC.)

                          NOTES TO FINANCIAL STATEMENTS


    OIL AND GAS REVENUE

    The Company recognizes oil and gas revenues by the sales method as oil and
gas production is sold. Differences between sales and production volumes
during the years ended June 30, 2000, 1999 and 1998 were not significant.

    FAIR VALUE OF FINANCIAL INSTRUMENTS

    The Company defines the fair value of a financial instrument as the amount
at which the instrument could be exchanged in a current transaction between
willing parties. Financial instruments included in the Company's financial
statements include cash and cash equivalents, short-term investments, accounts
receivable, other receivables, other assets, accounts payable, notes payable
and due to affiliates. Unless otherwise disclosed in the notes to the
financial statements, the carrying value of financial instruments is
considered to approximate fair value due to the short maturity and
characteristics of those instruments. The carrying value of debt approximates
fair value as terms approximate those currently available for similar debt
instruments.

    COMPARABILITY OF FINANCIAL STATEMENTS

    Certain amounts for the years ended June 30, 1999 and 1998, have been
reclassified to conform with the current year presentation. Such
reclassifications have no effect on income (loss) or earnings per share.


NOTE C - MARKETABLE SECURITIES:

    On January 1, 1998 the Company sold all rights in certain oil and gas
properties and gas gathering systems in exchange for 155,000 shares of common
stock of Comanche Energy, Inc. (Comanche). The president of Comanche is a
stockholder and former director of the Company. Management classified the
securities as available for sale and they were reported at fair market value.
During the year ended June 30, 2000, the Company sold all of its stock in
Comanche and recognized a loss on the sale of securities of $75,562.


NOTE D - LONG-TERM DEBT:

    At June 30, 2000 and 1999, long-term debt to banks and others was
comprised of the following:

<TABLE>
<CAPTION>
                                                                                         2000            1999
                                                                                    --------------  --------------
                 <S>                                                                <C>             <C>

                 Note payable to Minneapolis Group                                  $          0    $     118,760
                                                                                    ==============  ==============
</TABLE>

    The Minneapolis Group consisted of nine individuals all holding promissory
notes dated October 1, 1996 with an interest rate of 10% per annum and various
installment payments, each with a maturity date of April 1, 2002. The notes
were

<PAGE>

                                                                           F-13


                               CUBIC ENERGY, INC.
                      (FORMERLY ROSELAND OIL AND GAS, INC.)

                          NOTES TO FINANCIAL STATEMENTS


NOTE D - LONG-TERM DEBT (CONTINUED):

collateralized by various oil and gas properties. Holders of the promissory
notes representing the Minneapolis Group were entitled, at the holder's
option, at any time on or before the date on which the note is paid in full,
to convert the principal amount of the note and any accrued interest into
fully paid and non-assessable shares of common stock at a conversion price of
three shares of common stock for each $1.00 of outstanding balance. Effective
October 1, 1999, the holders of these notes converted $146,534, representing
all principal and accrued interest, into 439,600 shares of common stock.


NOTE E - STOCKHOLDERS' EQUITY:

    The Company's authorized capital is 50,000,000 shares of $0.05 par value
common stock and 10,000,000 shares of $0.01 par value preferred stock. No
shares of preferred stock are issued or outstanding at June 30, 2000 and 1999.

    STOCK PURCHASE AGREEMENT

    In December 1997, the Board of Directors voted to enter into a stock
purchase agreement ("the agreement") in which the Company issued 12,500,000
restricted shares of common stock in exchange for the conveyance to the
Company of certain non-producing leasehold properties valued at $967,215, less
$86,951 of costs associated with the transaction. The valuation of the
property was based on its fair market value as of the exchange date. The
12,500,000 shares issued represent approximately 70% of the issued and
outstanding shares of common stock of the Company. In connection with the
agreement, as of December 10, 1997, three of the five members of the Board of
Directors resigned, three new directors were appointed and new management of
the Company was elected.

    WARRANTS

    Under a Limited Offering Memorandum in 1996, the Company issued 470,000
warrants to purchase one share of common stock for each warrant at $.50 per
share of common stock. These warrants were scheduled to expire December 28,
1998, and contained a provision for extending the expiration date. The Company
did not extend the exercise period of the warrants. As of December 30, 1998,
warrant holders had exercised 240,000 warrants for a total of $120,000 which
was used primarily to fund the settlement of the Regal Petroleum lawsuit
described in Note I and to pay other debt incurred by former management. The
Company also issued 43,000 new warrants in connection with the Regal
Settlement Agreement, exercisable at $1.00 per share of common stock and
expiring December 31, 2000.

<PAGE>

                                                                           F-14

                               CUBIC ENERGY, INC.
                      (FORMERLY ROSELAND OIL AND GAS, INC.)

                          NOTES TO FINANCIAL STATEMENTS


NOTE F - LOSS PER COMMON SHARE:

    Net loss per common share is computed as follows:

<TABLE>
<CAPTION>
                                                                     2000                1999               1998
                                                               -------------------------------------------------------
                 <S>                                           <C>                <C>                 <C>

                 Net loss available to stockholders            $     (372,895)    $       (515,933)   $    (641,446)

                 Weighted average number of shares of
                 common stock                                      18,807,797           18,109,235       12,491,121

                 Loss per common share                         $        (0.02)    $          (0.03)   $       (0.05)
</TABLE>


    Potential dilutive securities (stock warrants, convertible debt) have not
been considered since the Company reported a net loss and, accordingly, their
effects would be antidilutive.


NOTE G - RELATED PARTY TRANSACTIONS:

    On December 10, 1998, the Company entered into an agreement with Tauren
Exploration Inc. ("Tauren") that provides for Tauren to drill on the Company's
Section 11 in Palo Pinto County, Texas. The agreement grants Tauren
Exploration Inc. a farm-out retaining a 7.5% overriding royalty interest. The
agreement also grants the Company preferential rights in the event that
Tauren, at some later date, decides to divest part or all of its interests in
the drilled wells. Calvin Wallen III is an officer, a director and a majority
stockholder of both the Company and Tauren.

    On December 1, 1997, the Company entered into a contract with Tauren to
provide the necessary technical, administrative and management expertise
needed to conduct its business. The Company has no full-time employees. The
Company's offices are subleased from Tauren. The monthly amount charged to the
Company is based on actual costs of materials and labor hours of Tauren that
are used pursuant to the terms of an agreement. Tauren also paid various
organization costs and consulting fees on behalf of the Company. As of June
30, 2000 and 1999, the Company owed Tauren $664,701 and $434,667, as a result
of charges to the Company of $230,034 and $238,039 for the years then ended,
respectively.

    In addition, the wells in which the Company owns a working interest are
operated by an affiliated company, Fossil Operating Inc. ("Fossil"), which is
owned 100% by the Company's President and Chief Executive Officer, Calvin
Wallen III. As of June 30, 2000 and 1999, the Company owed Fossil $16,276 and
$21,684, respectively, in lease operating expenses.

<PAGE>

                                                                            F-15

                               CUBIC ENERGY, INC.
                      (FORMERLY ROSELAND OIL AND GAS, INC.)

                          NOTES TO FINANCIAL STATEMENTS

NOTE H - INCOME TAXES:

    Deferred tax assets and liabilities are computed by applying the effective
U.S. federal income tax rate to the gross amounts of temporary differences and
other tax attributes. Deferred tax assets and liabilities relating to state
income taxes are not material. In assessing the realizability of deferred tax
assets, management considers whether it is more likely than not that some
portion or all of the deferred tax assets will not be realized. The ultimate
realization of deferred tax assets is dependent upon the generation of future
taxable income during the periods in which those temporary differences become
deductible. Management considers the scheduled reversal of deferred tax
liabilities, projected future taxable income, and tax planning strategies in
making this assessment. As of June 30, 2000 and 1999, the Company believed it
was more likely than not that future tax benefits from net operating loss
carry-forwards and other deferred tax assets would not be realizable through
generation of future taxable income; therefore, they are fully reserved.

    The components of the net deferred federal income tax assets (liabilities)
were as follows:


<TABLE>
<CAPTION>

                                                                                   2000                1999
                                                                             -----------------   -----------------
       <S>                                                                   <C>                 <C>
       Deferred tax assets:
          Net operating loss carry-forwards                                  $      868,012      $      764,542
          Capital loss carry-forwards                                                25,691                   0
                                                                             $      893,703      $      764,542
                                                                             -----------------   -----------------
       Deferred tax liabilities:
          Depletion basis of assets and related .....................        $     (300,181)     $     (256,790)
                                                                             -----------------   -----------------

       Net deferred tax assets before valuation allowance                    $      593,522      $      507,752

       Valuation allowance                                                         (593,522)           (507,752)
                                                                             -----------------   -----------------

       Net deferred tax assets                                               $            0      $            0
                                                                             =================   =================

</TABLE>

<PAGE>

                                                                            F-16


                               CUBIC ENERGY, INC.
                      (FORMERLY ROSELAND OIL AND GAS, INC.)

                          NOTES TO FINANCIAL STATEMENTS

NOTE H - INCOME TAXES (CONTINUED):

    The following table summarizes the difference between the actual tax
provision and the amounts obtained by applying the statutory tax rate of 34%
to the loss before income taxes for the years ended June 30, 2000, 1999 and
1998.


<TABLE>
<CAPTION>

                                                                   2000                1999                 1998
                                                             -----------------   ------------------  -------------------
     <S>                                                     <C>                 <C>                 <C>
     Tax benefit calculated at statutory rate                $    (101,028)      $      (285,065)    $     (218,092)

     Increase (reductions) in taxes due to:
        Losses not providing tax ..................                101,028               285,065            218,092
                                                             -----------------   ------------------  -------------------

     Current federal income tax provision                    $           0       $             0     $            0
                                                             =================   ==================  ===================

     Change in valuation allowance                           $      85,770       $       284,509     $      (38,698)
                                                             =================   ==================  ===================

</TABLE>

    As of June 30, 2000, the Company had net operating loss carry-forwards of
approximately $2,600,000, which are available to reduce future taxable income
and the related income tax liability. These carry-forwards expire as follows:


<TABLE>
<CAPTION>

                                                               NET OPERATING
                      YEAR                                        LOSSES
                   ------------                        -------------------------
                   <S>                                 <C>
                      2007                             $          134,200
                      2011                                        431,100
                      2012                                        205,100
                      2013                                        639,800
                      2018                                        838,400
                      2019                                        351,400
                                                       -------------------------

                                                       $        2,600,000
                                                       =========================

</TABLE>

NOTE I - COMMITMENTS AND CONTINGENCIES:

    KEY PERSONNEL

    The Company depends to a large extent on the services of Calvin A. Wallen
III, the Company's President, Chairman of the Board, and Chief Executive
Officer. The loss of the services of Mr. Wallen would have a material adverse
effect on the Company's operations. The Company has not entered into any
employment contracts with any of its executive officers, but has obtained key
personnel life insurance on Mr. Wallen.

<PAGE>


                                                                            F-17


                               CUBIC ENERGY, INC.
                      (FORMERLY ROSELAND OIL AND GAS, INC.)

                          NOTES TO FINANCIAL STATEMENTS

    ENVIRONMENTAL MATTERS

    The Company's operations and properties are subject to extensive and
changing federal, state, provincial and local laws and regulations relating to
environmental protection, including the generation, storage, handling and
transportation of oil and gas and the discharge of materials into the
environment. The Company generates typical oil and gas field wastes, including
hazardous wastes that are subject to the federal Resources Conservation and
Recovery Act and comparable state statutes. Furthermore, certain wastes
generated by the Company's oil and gas operations that are currently exempt
from regulation as "hazardous wastes" may in the future be designated as
"hazardous wastes" and therefore be subject to more rigorous and costly
operating and disposal requirements. All of the Company's properties are
operated by third parties over whom the Company has limited control. In
addition to the Company's lack of control over properties operated by others,
the failure of previous owners or operators to comply with applicable
environmental regulations may, in certain circumstances, adversely impact the
Company.

    LITIGATION MATTERS

    First National Bank of Oklahoma has filed a lawsuit against two of the
Company's directors alleging that the directors breached their fiduciary
duties to the Bank as a creditor of a previously wholly-owned subsidiary of
the Company. The Company may be required to indemnify the directors for
defense costs, and for any judgment against the directors. The amount sought
by the Bank is $65,000 plus interest and legal costs. The Company believes the
claims are without merit, and no provision for loss has been made in the
financial statements.

    On February 4, 1998, in the 236th District Court, Tarrant County, Texas,
Regal Petroleum Services, Inc. ("Regal") filed suit against the Company.
Regal's lawsuit against the Company alleged that the Company was in breach of
several contracts, for which Regal sought money for work performed as operator
of wells in which the Company maintained an interest. On December 30, 1998,
Regal and the Company executed a final, limited Settlement Agreement,
resolving Regal's claims in this lawsuit. The Company recognized its liability
to Regal at June 30, 1998, in the amount of $120,209 which is included in
accounts payable. In settlement, the Company transferred to Regal $60,000
cash, its interest in various oil and gas properties of nominal value, 129,000
shares of restricted common stock and 43,000 warrants with an expiration date
of December 31, 2000, at an exercise price of $1.00 per share.

    In the spring of 1999, the Company became aware of the claim of a
geologist filed in December 1997, to a 1% overriding royalty interest in
various properties. The geologist filed an assignment after December 1, 1997.
The Company disputes the geologist's legal right to the overriding royalty and
has filed suit to challenge this claim.

    William Vandever, as the prior President and Chief Executive Officer of
the Company, purportedly granted some preferential right with respect to the
Reagan leases in Section 11, Palo Pinto County, Texas, to participants in the
re-work of the Reagan #2-11 well. The Company has filed suit in the 29th
Judicial Court, Palo

<PAGE>

                                                                            F-18


                               CUBIC ENERGY, INC.
                      (FORMERLY ROSELAND OIL AND GAS, INC.)

                          NOTES TO FINANCIAL STATEMENTS

Pinto County, Texas, styled "Roseland Oil and Gas, Inc. v. William Vandever,
et al.," against various persons, seeking a judicial determination that all
grants of preferential rights in the Reagan Section 11 are void, and seeking
monetary damages. In connection with the lawsuit, the defendant has filed a
counterclaim seeking a declaration that its alleged working interest and right
of first refusal are valid and existing; and has asserted a breach of contract
claim for allegedly failing to honor its purported right of first refusal.
This litigation is in the discovery phase and no judgment can yet be formed
about the probable outcome or whether it would be unfavorable to the Company.
Accordingly, no provision has been made for any possible loss.


NOTE J - OPERATIONS AND MANAGEMENT PLANS:

    At June 30, 2000, the Company had suffered recurring operating losses and
its current liabilities exceeded its current assets by $721,910. As disclosed
in Note G, the Company has entered into strategic alliances with a related
party to develop its proved underdeveloped leaseholds through farm out
agreements. Although management believes the above action will ultimately
provide the Company with the means to become profitable, there is no guarantee
this action will result in such profitable operations. Adverse changes in
prices of oil and gas and/or the inability of the Company to continue to raise
the money necessary to develop existing reserves or acquire new reserves would
have a severe impact on the Company.


NOTE K - COST OF OIL AND GAS PROPERTIES:

    COSTS INCURRED

    Costs (capitalized and expensed) incurred in oil and gas property
acquisition, exploration, and development activities for the years ended June
30, 2000, 1999 and 1998 were as follows:


<TABLE>
<CAPTION>

                                                       2000                1999                    1998
                                                --------------------------------------------------------------
           <S>                                  <C>                  <C>                     <C>
           Property acquisition                 $           0        $        1,580          $     1,031,016
           Exploration                                      0                     0                        0
           Development                                      0                     0                        0
                                                --------------------------------------------------------------

                                                $           0        $        1,580           $    1,031,016
                                                ==============================================================

</TABLE>

       In addition to the costs reflected above for the year ended June 30,
    1999, capitalized costs were increased by $330,492 representing the amount
    of loss on sale of oil and gas properties which was accounted for under the
    full cost method as described in Note B.


<PAGE>

                                                                          F-19


                               CUBIC ENERGY, INC.
                      (FORMERLY ROSELAND OIL AND GAS, INC.)

                          NOTES TO FINANCIAL STATEMENTS


CAPITALIZED COSTS

    The aggregate amounts of capitalized costs relating to oil and gas producing
activities and the aggregate amounts of the related accumulated depreciation,
depletion, and amortization at June 30, 2000 and 1999 were as follows:

<TABLE>
<CAPTION>
                                                                   2000                    1999
                                                              --------------          --------------
               <S>                                            <C>                     <C>
               Proved properties                              $    1,607,893          $    1,607,893
               Unproved properties                                         0                       0
                                                              --------------          --------------

                                                              $    1,607,893          $    1,607,893

               Accumulated depreciation, depletion and
                 amortization                                        210,657                 197,114
                                                              --------------          --------------

               Net properties                                 $    1,397,236          $    1,410,779
                                                              ==============          ==============
</TABLE>

    RESULTS OF OPERATION

    The results of operations from oil and gas producing activities for the
years ended June 30, 2000, 1999 and 1998 were as follows:

<TABLE>
<CAPTION>
                                                                 2000                 1999                   1998
                                                           --------------        --------------         --------------
   <S>                                                     <C>                   <C>                    <C>
   Revenues from unaffiliated customers                    $       69,850        $       52,939         $      166,878
                                                           --------------        --------------         --------------

   Production costs                                        $       29,500        $       58,951         $      301,198
   Exploration expenses                                                 0                     0                      0
   Abandonments                                                         0                     0                      0
   Depreciation, depletion and amortization                        13,544                20,109                288,356
                                                           --------------        --------------         --------------

   Total                                                   $       43,044        $       79,060         $      589,554
                                                           --------------        --------------         --------------

   Results before income taxes                             $       26,806        $      (26,121)        $     (422,676)
   Provision for income taxes                                           0                     0                      0
                                                           --------------        --------------         --------------

   Results of operations(excluding corporate
     overhead and interest expense)                        $       26,806        $      (26,121)        $     (422,676)
                                                           ==============        ==============         ==============
</TABLE>


NOTE L - OIL AND GAS RESERVES INFORMATION (UNAUDITED):

    The estimates of proved oil and gas reserves utilized in the preparation of
the financial statements 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 escalations over
prices and costs existing at year end except by contractual arrangements.

<PAGE>

                                                                          F-20


                               CUBIC ENERGY, INC.
                      (FORMERLY ROSELAND OIL AND GAS, INC.)

                          NOTES TO FINANCIAL STATEMENTS


NOTE L - OIL AND GAS RESERVES INFORMATION (UNAUDITED) (CONTINUED):

    The Company emphasizes that reserve estimates are inherently imprecise.
Accordingly, the estimates are expected to change as more current information
becomes available. The Company's policy is to amortize capitalized oil and gas
costs on the unit of production method, based upon these reserve estimates. It
is reasonably possible that, because of changes in market conditions or the
inherent imprecision of these reserve estimates, that the estimates of future
cash inflows, future gross revenues, the amount of oil and gas reserves, the
remaining estimated lives of the oil and gas properties, or any combination of
the above may be increased or reduced in the near term.

    If reduced, the carrying amount of capitalized oil and gas properties may be
reduced materially in the near term. The following unaudited table sets forth
proved oil and gas reserves, all within the United States, at June 30, 2000,
1999 and 1998 together with the changes therein.

<TABLE>
<CAPTION>
                                                                                     NATURAL GAS (MCF)
                                                               -----------------------------------------------------------
                                                                   2000                  1999                    1998
                                                               -----------            ------------           -------------
     <S>                                                       <C>                    <C>                    <C>
     Proved developed and undeveloped reserves:
        Beginning of year                                        3,138,923              5,185,942              8,198,818
        Revisions of previous estimates                           (270,441)            (2,363,513)              (903,134)
        Purchases of reserves in place                                   0                      0              2,583,033
        Extensions and discoveries                                       0                546,998                      0
        Production                                                 (20,688)               (21,129)               (81,485)
        Sales of reserves in place                                       0               (209,375)            (4,611,290)
                                                               -----------            ------------           -------------

     End of year                                                 2,847,794              3,138,923              5,185,942
                                                               ===========            ===========            =============

<CAPTION>

                                                                              OIL AND CONDENSATE (BBLS)
                                                               -----------------------------------------------------------
                                                                   2000                  1999                     1998
                                                               -----------            ------------           -------------
     <S>                                                       <C>                    <C>                    <C>
     Proved developed and undeveloped reserves:
        Beginning of year                                          131,789               141,292                  54,388
        Revisions of previous estimates                                  0                (4,899)                (23,081)
        Purchases of reserves in place                                   0                     0                 130,545
        Extensions and discoveries                                     297                   604                       0
        Production                                                     (38)                 (667)                 (2,766)
        Sales of reserves in place                                       0                (4,541)                (17,794)
                                                               -----------            ------------           -------------

     End of year                                                   132,048               131,789                 141,292
                                                               ===========            ===========            =============
</TABLE>

<PAGE>

                                                                            F-21


                               CUBIC ENERGY, INC.
                      (FORMERLY ROSELAND OIL AND GAS, INC.)

                          NOTES TO FINANCIAL STATEMENTS

NOTE L - OIL AND GAS RESERVES INFORMATION (UNAUDITED) (CONTINUED):

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

    The standardized measure of discounted future net cash flows was
calculated by applying current year-end prices, considering fixed and
determinable price changes only to the extent provided by contractual
arrangements or law, to estimated future production, less future expenditures
(based on current costs) to be incurred in developing proved undeveloped and
proved producing oil and gas reserves, and future income taxes. The resulting
future net cash flows were discounted using a rate of 10 percent per annum
(Table 1). The standardized measure of discounted net cash flow amounts
contained in the following tabulation does not purport to represent the fair
market value of the Company's oil and gas proved by drilling or production
history. There are significant uncertainties inherent in estimating timing and
amount of future costs. In addition, the method of valuation utilized, based
on current prices and costs and the use of 10 percent discount rate, and is
not necessarily appropriate for determining fair value (Table 2).

    The following is the estimated standardized measure relating to proved oil
and gas reserves at June 30, 2000, 1999 and 1998:


<TABLE>
<CAPTION>


      TABLE 1                                                     2000                   1999                1998
      -------                                              --------------------   -------------------  ------------------
      <S>                                                  <C>                    <C>                  <C>
      Future cash flows                                    $     17,516,546       $      9,522,716     $     10,836,747
      Future production costs                                      (456,000)              (456,000)          (1,085,928)
      Future development costs                                     (655,000)              (480,000)          (1,505,000)
      Future severance tax expense                               (1,446,411)              (782,646)            (884,796)
      Future income taxes                                        (3,308,762)            (1,951,018)          (1,868,811)
                                                           --------------------   -------------------  ------------------

      Future net cash flows                                $     11,650,373       $      5,853,052     $      5,492,212

      Ten percent annual discount for estimated
         timing of net cash flows                                (3,907,535)            (1,990,038)          (1,867,625)
                                                           --------------------   -------------------  ------------------

      Standardized measure of discounted
        future net cash flows                              $      7,742,838       $      3,863,014     $      3,624,587
                                                           ====================   ===================  ==================

</TABLE>


<PAGE>

                                                                            F-22


                               CUBIC ENERGY, INC.
                      (FORMERLY ROSELAND OIL AND GAS, INC.)

                          NOTES TO FINANCIAL STATEMENTS

NOTE L - OIL AND GAS RESERVES INFORMATION (UNAUDITED) (CONTINUED):

    Following is an analysis of changes in the estimated standardized measure
of proved reserves during the years ended June 30, 2000, 1999 and 1998:


<TABLE>
<CAPTION>

      TABLE 2                                                     2000                   1999                1998
      -------                                              --------------------   -------------------  ------------------
      <S>                                                  <C>                    <C>                  <C>

  Changes from:
     Sale of oil and gas produced                          $       (40,350)       $       48,502       $      138,899

  Net changes in prices and production costs                     4,992,169               (48,994)             (23,589)
  Extensions and discoveries                                             0               729,470                    0
  Revision of previous quantity estimates                         (733,510)             (436,670)          (1,008,000)
  Accretion of discounts                                           515,062               137,434              830,244
  Net change in income taxes                                      (855,997)                    0           (1,233,228)
  Purchases of reserves in place                                         0                     0            1,557,177
  Sales of reserves in place                                             0              (191,315)          (4,569,000)
  Other                                                              2,450                     0             (370,359)
                                                           --------------------   -------------------  ------------------

  Standard measure, end of year                            $     3,879,824        $      238,427       $   (4,677,856)
                                                           ====================   ===================  ==================

</TABLE>