<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, 1998

                         COMMISSION FILE NUMBER 0-9355



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

              OKLAHOMA                               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 [ ]   No [X]

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-K or any amendment to this
Form 10-K. [X]

As of April 15, 1999, the registrant had outstanding 18,238,347 shares of common
stock, $.05 par value ("Common Stock"), which is registrant's only class of
common stock. The aggregate market value of the voting and non-voting common
equity held by non-affiliates as of December 31, 1998 was $886,244, computed by
reference to the average traded value.

The registrant's revenues for the fiscal year ended June 30, 1998 were $174,982.

Transitional Small Business Disclosure Format:  Yes______   No___X___

<PAGE>
<TABLE>
<CAPTION>

                           ROSELAND OIL AND GAS, INC.
                                TABLE OF CONTENTS

                                   DESCRIPTION

 Item                                                                     Page
 <S>                                  PART I                              <C>

 1. DESCRIPTION OF BUSINESS...........................................     3
 2. DESCRIPTION OF PROPERTIES.........................................    26
 3. LEGAL PROCEEDINGS.................................................    26
 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS...............    27

                                     PART II

 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED
        STOCKHOLDER MATTERS...........................................    28
 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS........    29
 7. FINANCIAL STATEMENTS..............................................    33
 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
        ACCOUNTING AND FINANCIAL DISCLOSURE...........................    34

                                   PART III

 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
         COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT............    34
10. EXECUTIVE COMPENSATION............................................    36
11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
         MANAGEMENT...................................................    37
12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS....................    38
13. EXHIBITS AND REPORTS ON FORM 8-K..................................    39
</TABLE>

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.

                                       2

<PAGE>

                           Roseland Oil and Gas, Inc.

                                     PART I

ITEM 1. Description of Business and Properties

GENERAL

Roseland Oil and Gas, Inc. (the "Company" or "Roseland") 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, 1998, our total proved reserves
were 1,005,616 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.
References to 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 three new directors were appointed, including Mr. Wallen,
who also became President and CEO of the Company. The new Board of Directors and
officers were ratified by our shareholders at an Annual Shareholder Meeting held
June 24, 1998. The new directors and our new management team have commenced to
restructure the Company, by moving operations to the Dallas area, selling
certain assets, and resolving certain lawsuits and accounting issues.


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

                                       3

<PAGE>

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.

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, 1998 which
directly impacted our net income. The Company recorded a net loss in fiscal 1998
of $641,446 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 years ending June 30, 1996 and 1997
to accurately reflect the condition of the Company as discussed below and these
restatements are included in this annual report.

RESTATEMENT OF FINANCIAL RESULTS

Subsequent to the issuance of our financial statements for the fiscal years
ended June 30, 1996 and 1997 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 accompanying financial statements as of June 30, 1998 and 1997,
and for the years then ended, present the restated accumulated deficit at June
30, 1998 of $2,627,427, a reduction in assets from $3,118,928 to $1,117,734 at
June 30, 1997, a restated net loss of $243,896 for the year ended June 30, 1997
from a net income of $39,520 and a net loss for the year ended June 30, 1998 of
$641,446.

The omissions resulted from the failure of prior management to properly account
for sales of oil and gas properties from 1995 through 1997. A summary of the
effects of the restatement is set forth in footnote 11 to the notes to our
financial statements contained herein. Financial statements and related
disclosures contained in this filing reflect, where appropriate, changes to
conform to the restatements of our financial results discussed above.

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 plans to strengthen our internal accounting controls. These
plans include 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.

                                       4

<PAGE>

PRINCIPAL OIL AND GAS PROPERTIES

  The following table summarizes certain information with respect to our
principal areas of operation at June 30, 1998.

<TABLE>
<CAPTION>
                                                        Percent             Present
                            Oil            Gas         of Proved             Value
         Areas             (MBbl)         (MMcf)        Reserves          (Disc @ 10%)
         -----             ------         ------      ------------       --------------
<S>                        <C>            <C>         <C>                <C>
Texas .................         5          2,325           39%           $  1,557,177

Louisiana .............       130          2,583           56%           $  3,082,601

Other areas ...........         6            278            5%           $   218,037
                           ------         ------         ------          --------------
Total .................       141          5,186          100%           $  4,857,815
</TABLE>

Our Texas properties are situated in Palo Pinto, Duval and Goliad Counties. At
June 30, 1998, the Texas properties contained 39% of our proved reserves, which
represented 32% 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.

There are ten wells in Duval County and a gas gathering system that transports
the gas to the sales point. The wells are located in the Lil Miss and Thomas
Lockhart Fields. In the Lil Miss Field, the Rogers #3 produces oil out of the
Hockley formation at a depth of 3,897'-3,902' and the Rogers #4 produces natural
gas from an interval of 4,596'-4,649' in the Pettus formation. There are also
two water disposal wells and one reserve disposal well on the Rogers lease. The
Moffett #1-277 produces oil from the Hockley formation at intervals between
3,905'-3,913' and has two saltwater disposal wells on the Moffett lease to
handle the disposal of water produced from this formation. The Parr #1 is in the
Thomas Lockhart Field and produces oil and casinghead gas from a depth of 3,321'
from the Cole Sand on a 2 1/4" tubing pump. All of the wells in the Lil Miss and
Thomas Lockhart Fields are hooked up to a gas gathering system owned
proportionately by the Company and the other working interest owners in the
wells and as of June 30, 1998, the gas was sold to New Mexico Natural Gas, Inc.

In Goliad County, the Priess #2 produces natural gas from perforations between
3,076'-3,277' in the Frio sand in the North Fannin Field and produces into a gas
gathering system owned by the Company and the other working interest owners in
the well. The Priess #1 is shut-in having produced a cumulative 284,854 Mcf from
perforations between 3,080'-3,164' in the Frio formation. All of the wells in
Duval and Goliad Counties were non-operated as of June 30, 1998 although the
Company owned a large percentage of the working interest in each well.

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

                                       5

<PAGE>

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.

Our net production for the fiscal year ending June 30, 1998 for the Texas wells
averaged 318 Mcf of natural gas per day and 9 barrels 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 56%
of our proved reserves and 64% of our Present Value of total proved reserves. We
acquired this property in December 1997 through the Stock Purchase Agreement
transaction.

The remainder of the properties containing 5% of the proved reserves and 4% of
our Present Value of total proved reserves were attributed to several
non-operated, non-core properties in which the Company owned a very small
working interest or overriding royalty interest. These properties were acquired
in various acquisitions from 1991 to 1995 and the Company divested our interest
in these wells subsequent to our fiscal year ending June 30, 1998.


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
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 1998, we recompleted
one well and did not participate in any development or acquisitions other than
the working interest acquired in the Stock Purchase Agreement.

                                       6

<PAGE>

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. The non-operated gas
production in Texas is sold through the operator to New Mexico Natural Gas,
Inc., a reseller who delivers our gas into Valero, Koch and Delhi pipelines and
the oil is sold to Gulfmark Energy, Inc. 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 or more 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 $171,752 for the fiscal
year ended June 30, 1998 and represented 80% 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
1998 was $15.22.

Natural gas prices in each of 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 1998 was $2.11.


OIL AND GAS RESERVES

The following tables set forth the proved developed and undeveloped reserves at
June 30, 1998, 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, 1998, 1997 and 1996:

<TABLE>
<CAPTION>

Category             Oil (Bbls)        Gas (Mcf)        Total (Mcfe)         Income       10%Discount
--------             ---------        ---------        ------------        ----------     -----------
<S>                  <C>              <C>              <C>                 <C>            <C>
Proved Producing         5,556          277,985             311,321        $  322,561     $  218,037
Proved Undeveloped     135,736        4,907,957           5,734,699        $7,038,462     $4,639,778
</TABLE>
                                       7

<PAGE>
<TABLE>
<CAPTION>

                                                                AT JUNE 30,
                                             ----------------------------------------------
                                               1998               1997               1996
<S>                                       <C>                <C>                <C>
Proved reserves:
     Oil (Bbl) .........................      141,292             54,338            103,178
     Gas (Mcf) .........................    5,185,942          8,198,818          8,348,104
       BOE .............................    1,005,616          1,420,808          1,494,528
     Estimated future net revenues
         (before income tax) ...........  $ 7,361,023        $13,115,835         13,534,374
     Standardized Measure(1) ...........  $ 3,624,587        $ 8,302,443        $ 8,720,982
Proved developed reserves:
     Oil (Bbl) .........................        5,556             28,117             71,759
     Gas (Mcf) .........................      277,985            103,129            574,160
       BOE .............................       51,887             45,305            167,452
     Estimated future net revenues
         (before income tax) ...........  $   322,561        $   631,406        $ 1,054,884
     Present Value .....................  $   218,037        $   381,169        $   803,034
     Standardized Measure (1) ..........  $   104,524        $   250,237        $   251,850
Weighted average sales prices:
     Oil (per Bbl) .....................  $     11.00        $     16.70        $     17.14
     Gas (per Mcf) .....................         1.79               1.17               1.19
</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 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). A decline in prices relative to fiscal year
end 1998 could cause a significant decline in the Present Value attributable to
our proved reserves at June 30, 1998. Since June 30, 1998, prices continued to
decline until early 1999, although they had rebounded to an extent by April
1999. 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.

                                       8

<PAGE>

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, 1998.

<TABLE>
<CAPTION>
                                                YEAR ENDED
                                              JUNE 30, 1998
                                              -------------
<S>                                           <C>
PRODUCTION VOLUMES:
     Oil (Bbl) .......................               2,766

     Gas (Mcf) .......................              81,485


WEIGHTED AVERAGE SALES PRICES:
     Oil (per Bbl) ...................          $    15.22

     Gas (per Mcf) ...................          $     2.11


SELECTED EXPENSES PER BOE:
     Lease operating .................          $     7.23

     Depreciation, depletion and
         amortization ................          $    20.07

     General and administrative ......          $    13.10
</TABLE>

                                       9
<PAGE>

PRODUCTIVE WELLS AND ACREAGE

 Productive Wells

  The following table sets forth our domestic productive wells at June 30,
1998:

<TABLE>
<CAPTION>
                Oil                    Gas                    Total
         ------------------       --------------        -----------------
         Gross          Net       Gross      Net        Gross         Net
         -----          ---       -----      ---        -----         ---
         <S>           <C>        <C>        <C>        <C>          <C>
          11             4          18        6           29          10
</TABLE>

Acreage

The following table sets forth our undeveloped and developed gross and net
leasehold acreage at June 30, 1998. 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>        <C>        <C>           <C>
           325         325          308       278         633          603
</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. 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, 1998, our wells were operated by third parties under specific
agreements although we owned the majority of the interest.

Through the specific agreements providing for third party operations of majority
owned wells, we are able to exercise only limited 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 for which it
has 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

                                       11
<PAGE>

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 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, downhole fires, mechanical failures, blowouts, cratering,
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, 1998,
the Company had a working capital deficit of approximately $340,769. As a result
of the Company's determination to serve as operator in the future, the Company's
working capital requirements may be expected to increase significantly over
prior periods. The Company anticipates, based on its currently proposed plans
and assumptions relating to its operations, including proceeds from the exercise
of outstanding warrants, together with cash expected to be generated from
operations or securities offerings, that it will be able to meet its cash
requirements for at least 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

                                       12
<PAGE>

service changes. See "Management's Discussion and Analysis or Plan of
Operations."

History of Losses

The Company incurred losses before income tax benefits of $243,896 and $641,446
for the fiscal years ended June 30, 1997 and 1998, respectively. The Company's
accumulated deficit as of June 30, 1998 was $2,627,427. 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 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 $1,505,000 will be required to fully develop these reserves, of
which $450,000 is expected to be incurred during 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."

                                       13
<PAGE>

Exploration and Development Risks

The Company intends to increase its development and, to a lesser extent,
exploration activities, however, the Company does not intend to engage in any
significant exploration drilling activities during fiscal 1999. 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.


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 gas marketing firms on the spot market on a
month-to-month basis at prevailing spot market prices. The Company normally
sells its oil under month-to-month contracts with a variety of purchasers. Oil
prices remained subject to unpredictable political and economic forces during
fiscal 1998 and the first half of fiscal 1999 and experienced fluctuations
similar to those seen in natural gas prices for the year, but showing a general
downward 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), weakened 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.

                                       14
<PAGE>

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 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.

                                       15
<PAGE>

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 81% 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.


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

                                       16
<PAGE>

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.


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, officer, agent and/or employee as to those liabilities
and on those terms and conditions as are specified under Oklahoma 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.

                                       17

<PAGE>

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

Provisions of Oklahoma 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, 1998, the Company's leaseholds for approximately 49% 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 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

                                       18

<PAGE>

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 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

                                       19

<PAGE>

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

                                       20

<PAGE>

with their regulations, and violations are subject to fines, penalties or
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

                                       21

<PAGE>

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.

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, 1998, 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, 1999. 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 Clifford 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.

                                       22

<PAGE>

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 monetary damages against the named defendants.
This lawsuit was filed on April 26, 1999. The Company plans to vigorously pursue
this action.


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.

                                       23

<PAGE>

  "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.

  "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

                                       24

<PAGE>

         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.

  "PROVED UNDEVELOPED RESERVES" means reserves that are expected to be 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.

                                       25

<PAGE>

   "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."


ITEM 3. Legal Proceedings

First National Bank of Oklahoma (the "Bank") filed a lawsuit in Kay County,
Oklahoma against two of our directors, William Vandever and Gene Howard,
alleging that these two directors 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". The two Company directors have moved to
transfer the suit to the Texas bankruptcy court. Two years have elapsed since
this Motion to Transfer was filed, and the bankruptcy court has still not ruled
on the Motion. The Bank has taken no action in the prosecution of this lawsuit
in the past two years.

The two directors may seek reimbursement from the Company for defense costs and
the amounts of any judgement 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 the two directors intend to vigorously defend against
the claims if they are pursued further. The legal fees expended by the two
directors for their defense is believed to be approximately $4,000. Howard,
Widdows, Bufogle and Vaughn, PC are counsel of record for Gene Howard and
William Vandever.

                                       26
<PAGE>

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. All contracts under which Regal
filed suit involved agreements executed by the prior management of the Company.

On December 30, 1998, 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 Clifford 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 monetary damages against the named defendants.
This lawsuit was filed on April 26, 1999. The Company plans to vigorously pursue
this action.


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

 During the fourth quarter of the fiscal year ended June 30, 1998, proxies were
mailed to shareholders of record as of May 14, 1998 for the Annual Stockholder
meeting that was held June 24, 1998 in Garland, Texas. Security holders were
asked to ratify the selection of the Company's new accounting firm, the
Strategem Group and to vote on directors of the Company with the directors
elected to serve one year or until their replacement was elected. The Company
terminated its relationship with the Strategem Group following the death of the
principal accountant at that firm and selected Hoffman McBryde, P.C. which
subsequently merged with Weaver and Tidwell, L.L.P.

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

                                       27
<PAGE>

<TABLE>
<CAPTION>

APPROVAL OF ACCOUNTANTS                              YES VOTES         NO VOTES      ABSTENTIONS
<S>                                                  <C>               <C>           <C>
Strategem Group                                      14,537,309          1,123             0

ELECTION OF DIRECTORS

Calvin Wallen III                                    14,537,415          1,017             0
William Vandever                                     11,537,411          1,021       3,000,003
Gene Howard                                          11,537,411          1,021       3,000,003
Stacy Hacker                                         14,537,415          1,017             0
Jon Ross                                             14,537,415          1,017             0
</TABLE>


                                   PART II


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

The Common Stock has been thinly traded on the "over-the-counter" market under
the symbol "RGAS" since 1980. Our market maker is Brookstreet Securities
Corporation, 2361 Campus Dr. #210, Irvine, CA 92715. In January 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 April 15, 1999, there were 18,238,347 shares of Common Stock outstanding held
by approximately 880 shareholders of record.

Under a Limited Offering Memorandum in 1996, we issued 470,000 warrants to
purchase one share of common stock for each right at $.50 per share of common
stock. These rights 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 that was used primarily as
settlement of the Regal Petroleum lawsuit described in Item 3 "Legal
Proceedings" and to pay other debt incurred by former management. The Company
also issued 43,000 warrants in connection with the Regal Settlement Agreement,
exercisable at $1.00 per share of common stock and expiring December 31, 2000.

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.

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.

                                       28
<PAGE>

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 three-year period ended June 30, 1998. 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. At June 30, 1998, the Company's proved reserves were comprised of
approximately 5% proved developed reserves and we have an inventory of
development drilling locations to pursue after the fiscal year ending June
30, 1998. 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.

As a result of the restatements of the Company's financial statements for the
fiscal years ended June 30, 1997 and 1996, certain information contained in this
item related to the fiscal years ended June 30, 1997 and 1996 has changed from
that which appeared in the Company's originally filed Form 10-KSB for those
periods.



RESULTS OF OPERATIONS
COMPARISON OF FISCAL 1998 TO FISCAL 1997

REVENUES

OIL AND GAS SALES decreased 43% to $162,299 in the fiscal year ended June 30,
1998 ("fiscal 1998") from $281,349 in the fiscal year ended June 30, 1997
("fiscal 1997"), primarily because of lower oil and gas prices and the
disposition of oil and gas properties during fiscal 1998 and the latter half
of fiscal 1997.

                                       29
<PAGE>

OTHER REVENUES decreased 89% to $12,683 in fiscal 1998 from $113,447 in
fiscal 1997 primarily as a result of the decrease in overhead recovery fees
from fiscal 1998 compared to fiscal 1997, and as a result of the sale of
non-strategic oil and gas properties and the disposition of real estate owned
by the Company during fiscal 1998 and the latter half of fiscal 1997.

COSTS AND EXPENSES

PRODUCTION AND OPERATING EXPENSE increased 109% to $301,198 in fiscal 1998
from $143,772 in fiscal 1997. The increase was primarily attributable to the
loss associated with the disposal of properties, the write down of retired
assets and to higher field operating costs on the Company's Duval County
wells which were considered marginal producers by the Company. Subsequent to
June 30, 1998, the Duval County wells were traded to the operator as partial
settlement of the operating costs incurred by the Company over the last
several years. See "Legal Proceedings".

DEPRECIATION, DEPLETION AND AMORTIZATION increased 273% to $304,958 in fiscal
1998 from $81,618 in fiscal 1997. The increase 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") increased 64% to $198,554
in fiscal 1998 from $120,820 in fiscal 1997. The increase in G&A was
attributable primarily to accounting, legal and administration costs arising
from the Company's obligation to correct the Company's financial statements
for the periods ending June 30, 1997, 1996 and 1995.

INTEREST EXPENSE increased 80% to $24,279 in fiscal 1998 from $13,508 in
fiscal 1997 as a result of increased field expense, primarily attributable to
the Regal Petroleum non-operated properties, for the fiscal year ending June
30, 1997.

GAIN ON SALE OF ASSETS was $12,230 in fiscal year 1998 compared to a loss of
$277,893 in fiscal year 1997 due to the sale of certain oil and gas and other
assets.


NET INCOME

Net income decreased 162% to reflect a loss of $641,446 in fiscal 1998 from a
loss of $243,896 in fiscal 1997 primarily as a result of lower revenues, the
sale of oil and gas properties, higher production and operating costs and
increased depletion, depreciation and amortization.

FISCAL 1997 AS COMPARED TO FISCAL 1996

From July 1, 1996, to June 30, 1997, the Company recorded a net loss of
$243,896 compared to a net loss of $431,099 for fiscal year 1996. This
reduction in loss is due to the reduced G&A and production expenses
associated with the sale of assets.

GENERAL AND ADMINISTRATIVE COSTS decreased 7% to $120,820 in 1997 from
$131,027 in fiscal 1996 due to administrative cost reductions.

                                       30
<PAGE>

PRODUCTION AND OPERATING COSTS decreased 17% from $174,119 in fiscal 1996 to
$143,772 in fiscal 1997 due to the sale of assets.

DEPLETION, DEPRECIATION AND AMORTIZATION decreased 50% from $166,068 in 1996
compared to $81,618 in 1997 due to the sale of assets.

OIL AND GAS REVENUES decreased from $387,783 to $281,349 reflecting a 27%
decrease due to the sale of assets.

OTHER INCOME was reduced 40% from $190,655 in 1996 to $113,447 in 1997 due to
the sale of assets.


FISCAL YEAR 1996 AS COMPARED TO FISCAL YEAR 1995

The Company incurred a net loss in 1996 of $431,099 compared to a net loss of
$166,414 in fiscal 1995. Substantially all of the increase was incurred due to
the sale of assets.

OIL AND GAS REVENUES were reduced 28% and OTHER INCOME was reduced 9% due to the
sale of assets.

PRODUCTION AND OPERATING COSTS were reduced 44%, DD&A was reduced 21% and a 22%
reduction in G&A in fiscal 1996 were all attributable to the sale of the
Company's assets.


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 $340,769 at June 30, 1998.

The following discussion sets forth the Company's current plans for capital
expenditures in fiscal 1999, and the expected capital resources needed to
finance such plans.


CAPITAL EXPENDITURES

At the present time, the Company anticipates spending on exploration and
development activities during fiscal 1999 to be minimal but is in the process
of developing 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.

                                       31
<PAGE>

The Company may increase its planned activities for 1999 if product prices
improve 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 1998, the Company generated a cash flow deficit from operating
activities of $97,779.

The Company's working capital decreased from $12,326 at June 30, 1997 to a
deficit of $340,769 at June 30, 1998.

On March 24, 1999, 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, 1998, 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 believes 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 1999.
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 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.

                                       32
<PAGE>

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 1998.


INFORMATION SYSTEMS FOR THE YEAR 2000

Historically, certain computer software systems, as well as certain hardware
containing embedded chip technology, such as micro-controllers and
microprocessors, were designed to utilize a two-digit date field and
consequently, they may not be able to properly recognize dates in the year
2000. This could result in system failures. The Company relies on our
computer-based management information systems, as well as embedded
technology, to operate instruments and equipment in conducting our day-to-day
business activities. Certain of these computer-based programs and embedded
technology may not have been designed to function properly with respect to
the application of dating systems relating to the year 2000.

In response, we have developed a "Year 2000 Plan" and, in 1998, established
an internal group to identify and assess potential areas of risk and to make
any required modifications to our computer systems and equipment used in oil
and gas exploration, production, gathering and gas processing activities. The
Year 2000 Plan is comprised of various phases, including assessment,
remediation, testing and contingency plan development. The Company believes
this plan will provide reasonable assurance that our business activities and
facilities will continue to operate safely and reliably, and without material
interruption after 1999.

We have completed all phases of the Year 2000 Plan as it relates to our
internal systems and hardware. The Company's inventory of computer hardware
and software is substantially Year 2000 compliant.

To date, the costs to implement the Year 2000 Plan have been nominal. The
Company does not expect to incur any significant costs during the remainder
of 1999 to complete the Year 2000 Plan.

Although the Company anticipates minimal business disruptions as a result of
Year 2000 issues, in the event the computer-based programs and embedded
technology equipment of the Company, or that owned and operated by Third
Party Providers, should fail to function properly, possible consequences
include, but are not limited to, loss of communication links, inability to
produce, process and sell oil and natural gas, loss of electric power, and
inability to automatically process commercial transactions or engage in
similar automated or computerized business activities.


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 43
through 62 of this Report and are incorporated herein by reference.

                                       33
<PAGE>

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

As disclosed in the Company's current reports on Form 8-K filed with the
Commission on August 25, 1998 and March 3, 1999, the Company dismissed its
prior accountants, William "Gayle" Matthews, C.P.A. and appointed Hoffman
McBryde (now known as Weaver and Tidwell L.L.P.) as its auditors.



                                    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       43    Chairman of the Board, President
                                & Chief Executive Officer                1997
Jon S. Ross             34    Director, Secretary                        1998
William Vandever        72    Director                                   1991
Gene Howard             71    Director                                   1991

Stacy Hacker            40    Director, Resigned October 1998            1997
</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 1998. Mr. Wallen has over 20 years of experience in the oil and
gas industry 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.

                                       34
<PAGE>

GENE C. HOWARD is the Senior Partner of the law firm of Howard, Widdows,
Bufogle and Vaughn, 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").

WILLIAM G. VANDEVER served as the Chief Executive Officer and President of
the Company from August 1991 until December 1997 and as the Chairman of the
Board from August 1991 until November 1998. He continues to serve as a
Director of the Company. His business experience as a Corporate Chief
Executive includes oil and gas, banking, finance, real estate, retailing and
insurance. Over the past fifteen years, he has drilled over two hundred wells
in Oklahoma, Texas, Kansas, Arkansas and Ohio. He served as President of
Professional Investors Life Insurance Company ("PILIC"), Bonneville Life
Insurance Company, Thurston Fire and Casualty Company and Progress Life and
Accident Company, all insurance companies based in Tulsa, Oklahoma from 1990
through 1992 when PILIC was sold to a third party. Mr. Vandever served as a
director of EntreCap from 1991 to August 1992 and as a director of
Hinderliter Industries, Inc. from 1991 until August 1992. For more than the
past five years, Mr. Vandever has served as an officer and/or director of
Kansas Energy Corporation, Mohawk Oil and Gas Corporation, Tulsa Petroleum
Corporation and William G. Vandever Company, Inc.

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 monetary damages against the named defendants. This lawsuit was
filed on April 26, 1999. The Company plans to vigorously pursue this action.

STACY HACKER was elected as a director in December 1997. Mr. Hacker has over
fifteen years experience in the international business and finance arena. He
has taken the lead in the financial and corporate development of several
international business entities and has orchestrated the development and sale
of a large international company. Mr. Hacker submitted his resignation
October 28, 1998 to pursue business opportunities.

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

                                       35
<PAGE>

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 is to terminate December 1998.


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, 1998 all Section 16(a) filing requirements applicable to its
directors, executive officers and greater than 10% beneficial owners have
been met.



ITEM 10. Executive Compensation

The total compensation for the three fiscal years ended June 30, 1998, for
William Vandever, the Company's former Chief Executive Officer and Calvin
Wallen III, the Company's current Chief Executive Officer 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, 1998.


<TABLE>
<CAPTION>

SUMMARY COMPENSATION TABLE

                                            Fiscal  Annual  Other Annual
Name and Principal Position                  Year   Salary  Compensation
---------------------------                 ------  ------  ------------
<S>                                         <C>     <C>     <C>
William G. Vandever,                          1998  15,000           0
Former President and CEO
                                              1997  40,500           0
                                              1996  72,000           0
Calvin Wallen III, President and CEO          1998*      0           0
                                              1997       0           0
                                              1996       0           0
</TABLE>

-----------------------------
*Mr. Wallen was elected CEO, President & Director in December 1997 and as of
June 15, 1999, has not received any compensation from the Company for his
services as Chief Executive Officer.


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

                                       36
<PAGE>

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 April 15, 1999 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 April 15,
1999 are outstanding.

<TABLE>
<CAPTION>

                                              NUMBER             APPROXIMATE
 NAME AND ADDRESS                           OF SHARES          PERCENT OF CLASS
------------------                          ---------          ----------------
<S>                                         <C>                <C>
Calvin Wallen III                           9,515,000 /1/                  52.5%
1720 Northwest Highway, Ste. 320
Garland, TX   75041

Earthstock Resources, Inc.                  3,500,000                      19.3%
1720 Northwest Highway, Ste. 320
Garland, TX   75041

William G. Vandever                         1,137,433 /2/                   6.2%
1724 East 15th St.
Tulsa, OK   74104

Margaret Vandever                             927,433 /2/                   5.0%
1724 East 15th St.
Tulsa, OK   74104

William and Ruth Bruggeman                  3,489,694 /3/                  19.2%
20 Anemone Circle
North Oaks, MN   55127

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

Jon S. Ross                                         0 /5/                    *
1720 Northwest Highway, Ste. 320
Garland, TX   75041



All officers and directors
as a group (4 persons):                    10,974,678 /6/                  60.6%

</TABLE>

*Less than one percent.

                                       37

<PAGE>

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

/2/   Includes 927,433 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 the Bruggemans, 60,000 shares owned by Consumer Products Corp.
in which Mr. Bruggeman's wife Ruth is a joint owner and 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

/5/   Mr. Ross is a current director and presently owns no stock

/6/   See footnotes #1, #2, & #4 above

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.

In connection with the Agreement, as of December 10, 1997, three directors and
officers resigned from the Company. On such date, Calvin Wallen III and two
others were appointed to serve as additional directors of the Company (together
with William G. Vandever and Gene C. Howard, each of whom continued to serve as
directors), and Calvin Wallen III was elected to serve as the Company's
President, Vice President and Treasurer.

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

                                       38

<PAGE>

President and Chief Executive Officer and the offices are subleased through
November 30, 1999. 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, 1998, the Company had accumulated
$196,628 in accounts payable due affiliates that includes the amounts owed for
personnel and leasing of office space.

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
     43:

     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

       *3.1 -- Certificate of Incorporation of the Company and amendments.

       *3.2 -- Bylaws of the Company and amendments.

                                       39

<PAGE>

       *4.1  -- Form of Certificate of Common Stock, par value $.05 per share,
        of the Company.

        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).

       *10.2 -- Consulting Agreement, dated as of December 1, 1997, between the
        Company and Tauren Exploration, Inc. (filed herewith).


23.1* -- Consent of Weaver & Tidwell L.L.P.

23.2* -- Consent of Wm. Matthews, CPA S.C.

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

+ Executive Compensation Plan or Arrangement previously filed pursuant to Item
14(c).
B. Reports on Form 8-K.

The Company filed no current reports on Form 8-K for the fourth quarter of the
fiscal year ended June 30, 1998. Subsequent to the end of the fiscal year ended
June 30, 1998, the Company filed with the Securities and Exchange Commission a
current report on Form 8-K dated August 26, 1998, and an amendment to such Form
8-K dated October 9, 1998, related to the change of the Company's certified
public accountants (Item 4), as well as a Form 8-K filed in March 1999 related
to the change in the Company's accountants that resulted from the merger of its
accountants into another firm.





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 20TH DAY OF JUNE,
1999.


                                            Roseland Oil and Gas, 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.

                                       40

<PAGE>

         SIGNATURE                            TITLE                   DATE

/s/ Calvin Wallen III          President, Chief Executive    June 20, 1999
-------------------------------  Officer and Director
Calvin Wallen III     (Principal Executive Financial, Accounting Officer)



/s/ Jon Stuart Ross             Director, Secretary          June 20, 1999
-------------------------------
Jon Stuart Ross


/s/ Gene Howard                 Director                     June 20, 1999
-------------------------------
Gene Howard


/s/ Bill Vandever               Director                     June 20, 1999
-------------------------------
Bill Vandever

                                       41

<PAGE>
<TABLE>
<CAPTION>
                           ROSELAND OIL AND GAS, INC.

                          INDEX TO FINANCIAL STATEMENTS


                                                                       PAGE
                                                                       ----
<S>                                                                    <C>
Report of Independent Auditors.....................................     43

Balance Sheets.....................................................     45

Statements of Operations...........................................     47

Statements of Changes in Stockholders' Equity......................     48

Statements of Cash Flows...........................................     49

Notes to Financial Statements......................................     51
</TABLE>

                                       42

<PAGE>
[Logo]
  WILLIAM
 MATTHEWS
C.P.A., S.C.

                         INDEPENDENT AUDITOR'S REPORT




          To the Board of Directors and Stockholders of
          Roseland Oil and Gas, Inc.


          We have auditied the accompanying balance sheet of Roseland Oil and
          Gas, Inc. as of June 30, 1997 and 1996, and the related statements
          of operations, changes in stockholders equity and cash flows for
          the fiscal years ended June 30, 1997, 1996, and 1995.  These
          financial statements and schedules 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
          Roseland Oil and Gas, Inc. as of June 30, 1997, and 1996, and the
          results of its operations and cash flows for the years then ended
          in conformity with generally accepted accounting principles.

                                     /s/ William Matthews, C.P.A., S.C.

          William Matthews, C.P.A., S.C.
          Elm Grove, Wisconsin
          September 28, 1997 and April 29, 1999




414-784-5775
FAX: 414-784-3558
500 Elm Grove Rd., Suite 101
Elm Grove, Wisconsin 53122             43
WILLIAM MATTHEWS, C.P.A., S.C.
CERTIFIED PUBLIC ACCOUNTANT

<PAGE>

                             REPORT OF INDEPENDENT AUDITOR


Stockholders and Board of Directors
ROSELAND OIL AND GAS, INC.

We have audited the accompanying balance sheet of Roseland Oil and Gas, Inc.
(an Oklahoma Corporation) as of June 30, 1998, and the related statements of
operations, stockholders' equity and 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 Roseland Oil and Gas, Inc. as
of June 30, 1998, and the results of its operations and its cash flows for
the year then ended in conformity with generally accepted accounting
principles.


/s/ Weaver and Tidwell, L.L.P.
WEAVER AND TIDWELL, L.L.P.

Dallas, Texas
February 28, 1999, except for Note 9, as to which the date is April 23, 1999









                                       44
<PAGE>

                           ROSELAND OIL AND GAS, INC.
                                 BALANCE SHEETS
                             JUNE 30, 1998 AND 1997

                                     ASSETS

<TABLE>
<CAPTION>
                                                                  1998          1997
                                                               ----------    ----------
<S>                                                            <C>           <C>
CURRENT ASSETS
    Cash and cash equivalents                                  $      303    $   19,145
    Accounts receivable - Trade                                    56,930       147,857
    Notes receivable - Trade                                            0         1,500
    Inventory                                                           0        14,194
                                                               ----------    ----------
          Total current assets                                     57,233       182,696
                                                               ----------    ----------

PROPERTY AND EQUIPMENT, at cost:
    Oil and gas properties (successful efforts method):
      Proved properties (including wells and related
        equipment and facilities)                               2,314,466     1,358,859
    Real estate holdings
      Buildings                                                         0       210,000
      Office and other equipment                                      910        71,537
                                                               ----------    ----------
              Total property and equipment                      2,315,376     1,640,396

         Less accumulated depreciation, depletion,
          and amortization                                      1,020,503       806,433
                                                               ----------    ----------
                                                                1,294,873       833,963
                                                               ----------    ----------
OTHER ASSETS
    Marketable equity securities                                   96,875             0
    Other                                                          34,959       101,075
                                                               ----------    ----------
                                                                  131,834       101,075
                                                               ----------    ----------
TOTAL ASSETS                                                   $1,483,940    $1,117,734
                                                               ==========    ==========
</TABLE>

The Notes to Financial Statements are an integral part of these statements.


                                      45
<PAGE>

                           ROSELAND OIL AND GAS, INC.
                                 BALANCE SHEETS
                             JUNE 30, 1998 AND 1997

                       LIABILITIES AND STOCKHOLDERS EQUITY

<TABLE>
<CAPTION>
                                                                   1998            1997
                                                               -----------     -----------
<S>                                                            <C>             <C>
CURRENT LIABILITIES
     Current portion of long-term debt                         $         0     $    18,652
     Accounts payable                                              188,554          92,725
     Oil and gas revenues payable                                        0           1,205
     Accrued liabilities                                            12,820          57,788
     Due to affiliates                                             196,628               0
                                                               -----------     -----------
              Total current liabilities                            398,002         170,370
                                                               -----------     -----------

LONG-TERM DEBT, less current portion:                              118,760         214,903
                                                               -----------     -----------

DEFERRED INCOME TAXES                                                    0               0


COMMITMENTS AND CONTINGENCIES                                            0               0

STOCKHOLDERS EQUITY

    Series A preferred stock, par value $.01 per share
      authorized 10,000,000 shares,
    Common stock, $.05 par value, authorized
      50,000,000 shares, issued 17,730,847
      and 5,230,847 shares                                         886,543         261,543
    Additional paid-in capital                                   2,636,812       2,385,399
    Stock subscribed and paid - to be issued                       110,000          71,500
    Accumulated deficit                                         (2,627,427)     (1,985,981)
    Unrealized loss on securities                                  (38,750)              0
                                                               -----------     -----------
              Total stockholders equity                            967,178         732,461
                                                               -----------     -----------

TOTAL LIABILITIES AND STOCKHOLDERS EQUITY                      $ 1,483,940     $ 1,117,734
                                                               ===========     ===========
</TABLE>

The Notes to Financial Statements are an integral part of these statements.


                                      46
<PAGE>


                           ROSELAND OIL AND GAS, INC.
                             STATEMENTS OF OPERATION
                    YEARS ENDED JUNE 30, 1998, 1997, AND 1996


<TABLE>
<CAPTION>
                                                            1998        1997          1996
                                                         ---------    ---------    ---------
<S>                                                      <C>          <C>          <C>
Revenues:
    Oil and gas sales                                    $ 162,299    $ 281,349    $ 387,783
    Rental income from operating leases                      6,192        8,028        8,591
    Overhead recovery fees                                   4,579      105,419      182,064
    Other                                                    1,912
                                                         ---------    ---------    ---------
          Total revenues                                   174,982      394,796      578,438

Costs and expenses:
    Oil and gas production, operating
      and development costs                                301,198      143,772      174,119
    Selling, general and administrative expenses           198,554      120,820      131,027
    Depreciation, depletion and amortization               304,958       81,618      166,068
                                                         ---------    ---------    ---------

              Total costs and expenses                     804,710      346,210      471,214
                                                         ---------    ---------    ---------
Operating income (loss):                                  (629,728)      48,586      107,224

Non-operating income (expenses):
    Interest income                                              0          346        4,374
    Gain (loss) on sale of assets                           12,230     (277,893)    (519,107)
    Other income (loss)                                        331       (1,427)      (5,136)
    Interest expense                                       (24,279)     (13,508)     (18,454)
                                                         ---------    ---------    ---------
              Total non-operating income (expenses)        (11,718)    (292,482)    (538,323)

Income (loss) from continuing operations:
    Before provision for income taxes                     (641,446)    (243,896)    (431,099)
    Provision (benefit) for income taxes                         0            0            0
                                                         ---------    ---------    ---------

Net loss                                                 $(641,446)   $(243,896)   $(431,099)
                                                         =========    =========    =========


Net loss per common share - Basic and diluted            $   (0.05)   $   (0.05)   $   (0.09)
</TABLE>

The Notes to Financial Statements are an integral part of these statements.


                                      47
<PAGE>

                           ROSELAND OIL AND GAS, INC.
                  STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
                FOR THE YEARS ENDED JUNE 30, 1998, 1997, AND 1996

<TABLE>
<CAPTION>
                                          Cum.     Common      Common      Addtnl.                       Stock        Pref.
                                          Pref.    Shares       Stock      Paid-In       Accum.      Subscriptions     Div.
                                          Stock  Outstanding  Par Value    Capital       Deficit          Paid       Payable
                                         ------  -----------  ---------   ----------   -----------   -------------   --------
<S>                                      <C>     <C>          <C>         <C>          <C>           <C>             <C>
Balance, June 30, 1995                    2,000    4,502,149   $224,544   $2,254,130   $(1,302,988)     $      0     $      0
  Preferred dividend                          0            0          0            0        (7,998)            0            0
  Sale of stock - private placements          0      270,000     13,499      120,150             0             0            0
  Net loss, year ended June 30, 1996          0            0          0            0      (431,099)            0            0
                                         ------  -----------  ---------   ----------   -----------      --------     --------
Balance, June 30, 1996                    2,000    4,772,149    238,043    2,374,280    (1,742,085)            0            0
  Preferred dividend                          0            0          0            0             0             0       35,000
  Conversion of preferred to common      (2,000)     400,000     20,000       13,500             0             0            0
  Conversion of dividend pay to stock         0       58,698      3,500        4,769             0             0      (35,000)
  Sale of stock - private placements          0            0          0            0             0        71,500            0
  Sale of stock - 10% commission              0            0          0       (7,150)            0             0            0
  Net loss, year ended June 30, 1997          0            0          0            0      (243,896)            0            0
                                         ------  -----------  ---------   ----------   -----------      --------     --------
Balance, June 30, 1997                        0    5,230,847    261,543    2,385,399    (1,985,981)       71,500            0
  Subscriptions                               0            0          0            0             0        38,500            0
  Reimbursement of capital                    0            0          0       (3,851)            0             0            0
  Unrealized loss on securities               0            0          0            0             0             0            0
  Stock purchase                              0   12,500,000    625,000      255,264             0             0            0
  Net loss, year ended June 30, 1998          0            0          0            0      (641,446)            0            0
                                         ------  -----------  ---------   ----------   -----------      --------     --------
Balance, June 30, 1998                        0   17,730,847   $886,543   $2,636,812   $(2,627,427)     $110,000     $      0
                                         ======  ===========  =========   ==========   ===========      ========     ========

<CAPTION>
                                                       Total
                                        Unrealized   Stckhldrs'
                                           Loss        Equity
                                        ----------   ----------
<S>                                     <C>          <C>
Balance, June 30, 1995                   $      0    $1,175,686
  Preferred dividend                            0        (7,998)
  Sale of stock - private placements            0       133,649
  Net loss, year ended June 30, 1996            0      (431,099)
                                         --------    ----------
Balance, June 30, 1996                          0       870,238
  Preferred dividend                            0        35,000
  Conversion of preferred to common             0        33,500
  Conversion of dividend pay to stock           0       (26,731)
  Sale of stock - private placements            0        71,500
  Sale of stock - 10% commission                0        (7,150)
  Net loss, year ended June 30, 1997            0      (243,896)
                                         --------    ----------
Balance, June 30, 1997                          0       732,461
  Subscriptions                                 0        38,500
  Reimbursement of capital                      0        (3,851)
  Unrealized loss on securities           (38,750)      (38,750)
  Stock purchase                                0       880,264
  Net loss, year ended June 30, 1998            0      (641,446)
                                         --------    ----------
Balance, June 30, 1998                   $(38,750)   $  967,178
                                         ========    ==========
</TABLE>

The Notes to Financial Statements are an integral part of these statements.


                                      48
<PAGE>

                           ROSELAND OIL AND GAS, INC.
                            STATEMENTS OF CASH FLOWS
                    YEARS ENDED JUNE 30, 1998, 1997, AND 1996

<TABLE>
<CAPTION>
                                                              1998         1997         1996
                                                           ---------    ---------    ---------
<S>                                                        <C>          <C>          <C>
Cash flows from operating activities:
    Net loss                                               $(641,446)   $(243,896)   $(431,099)
    Adjustments to reconcile net income (loss)
     to cash provided (used) by operating activities:
      Depreciation, depletion and amortization               304,958       81,618      166,068
      (Gain) loss from sale of assets                        (12,230)     277,893      519,107
      Change in assets and liabilities:
        (Increase) decrease in accounts receivable            90,927       69,973      (14,981)
        Decrease in inventory                                 14,194       26,008        2,386
        Decrease in notes receivable                           1,500       48,752        8,548
        (Increase) decrease in other assets                   49,696      230,127       48,935
        Increase (decrease) in accounts payable
          and accrued liabilities                             94,622      (22,444)    (126,529)
        Decrease in oil and gas
          revenues payable                                         0      (42,497)    (129,732)
                                                           ---------    ---------    ---------
    Net cash provided (used) by operating
      activities                                             (97,779)     425,534       42,703
                                                           ---------    ---------    ---------
Cash flows from investing activities:
    Proceeds from disposal property and equipment                  0            0      277,306
    Purchase of property and equipment                      (150,752)    (501,745)    (193,782)
                                                           ---------    ---------    ---------
    Net cash provided (used) by investing
      activities                                            (150,752)    (501,745)      83,524
                                                           ---------    ---------    ---------
Cash flows from financing activities:
    Proceeds from stock subscriptions                         38,500            0            0
    Payment for reimbursement of capital                      (3,851)           0            0
    Issuance of common stock                                       0      141,119      133,649
    Issuance of preferred stock                                    0       (2,000)           0
    Dividend payment                                               0      (35,000)      (7,998)
    Additional debt                                                0      150,421      122,538
    Proceeds of loan from affiliate                          196,628            0            0
    Payments on debt                                          (1,588)    (177,835)    (367,176)
                                                           ---------    ---------    ---------
    Net cash provided (used) by financing
      activities                                             229,689       76,705     (118,987)
                                                           ---------    ---------    ---------
    Net increase (decrease) in cash and cash
      equivalents                                            (18,842)         494        7,240

    Cash and cash equivalents, beginning of year              19,145       18,651       11,411
                                                           ---------    ---------    ---------
    Cash and cash equivalents, end of year                 $     303    $  19,145    $  18,651
                                                           =========    =========    =========
</TABLE>

The Notes to Financial Statements are an integral part of these statements.


                                      49
<PAGE>

                           Roseland Oil and Gas, Inc.
                             Statement of Cash Flow
                        For the Year Ended June 30, 1998
                                   (continued)

<TABLE>
<CAPTION>
<S>                                                                       <C>        <C>
Supplemental cash flows information:

    Cash paid during the year for:
        Interest                                                                     $  24,279
        Income taxes                                                                         0


Noncash investing and financing activities - debit (credit):              1998
    Acquisition of marketable securities:
        Marketable securities                                             135,625
        Oil and gas properties                                            (90,550)
        Gain on sale of properties                                        (45,075)

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

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

The Notes to Financial Statements are an integral part of these statements.


                                       50
<PAGE>
                           ROSELAND OIL AND GAS, INC.
                          NOTES TO FINANCIAL STATEMENTS
                          JUNE 30, 1998, 1997 AND 1996


1.       BACKGROUND AND GENERAL

         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.

         Roseland Oil and Gas, Inc. ("Company") is an Oklahoma corporation. In
         June 1998, in connection with a change of the Company's management, the
         Company relocated its corporate offices from Tulsa, Oklahoma to
         Garland, Texas.

2.       SIGNIFICANT ACCOUNTING POLICIES

         PROPERTY AND EQUIPMENT - The Company utilizes the successful efforts
         method of accounting for its oil and gas producing activities. Under
         the successful efforts method, the Company capitalizes all oil and gas
         leasehold acquisition costs, consisting principally of acquisition
         costs of proved producing oil and gas properties, including wells and
         related equipment and facilities. For unproved properties, leasehold
         impairment is recognized based upon an individual property assessment
         and exploration experience. Upon discovery of commercial reserves, such
         leasehold costs are transferred to proved properties.

         Geological and geophysical expenses, delay rentals, production costs
         and overhead are charged against income as incurred. Exploratory
         drilling costs are capitalized when incurred. If exploratory wells are
         determined to be unsuccessful, applicable costs are expensed. Costs
         incurred to drill and equip developmental wells, including unsuccessful
         developmental wells, are capitalized.

         Well workover projects which entail drilling to a deeper producing
         formation or plugging back to a more shallow producing formation
         ("recompletions") increase the production potential of reserves and are
         capitalized. In addition, well workovers which are required on newly
         acquired oil and gas properties in order to restore efficient and/or
         commercial production are capitalized. All other workover costs are
         expensed as incurred. These costs include those for deepening existing
         producing wells within the same producing formation when such
         operations are conducted for the purpose of restoring efficient
         operating conditions, as well as other repairs, reconditioning or
         reworking costs of wells already drilled and operating.

         Depreciation, depletion and amortization of the costs of proved
         producing oil and gas properties, with the exception of lease and well
         equipment, are determined by the units-of-production method based on
         quantities produced as a percent of estimated proved recoverable
         reserves. Depreciation of lease and well equipment is computed by the
         straight-line method over estimated useful lives ranging from five to
         ten years. Depreciation, depletion, and amortization of producing oil
         and gas properties amounted to $288,356, $81,618, and $166,068 for the
         years ended June 30, 1998, 1997, and 1996, respectively.

         When complete units of depreciable property are retired or sold, the
         asset cost and related accumulated depreciation and depletion are
         eliminated and any gain or loss is reflected in income. When less than
         complete units of depreciable property are retired or sold, the
         difference between asset cost and sales price or salvage value is
         charged or credited to accumulated depreciation and depletion.

         Office and other equipment are carried 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 $182, $8,602, and $12,164 for the years ended
         June 30, 1998, 1997, and 1996, respectively.

         INCOME TAXES - Deferred tax liabilities or assets arise from temporary
         differences between the tax basis of an asset or liability and its
         reported amount in the balance sheet. Principally, these differences
         are related to depreciation, depletion, and amortization, net operating
         losses and valuation of the properties acquired in the acquisition
         described in Note 5.. The amount of deferred tax liabilities or assets
         is calculated by applying the provisions of enacted tax law to
         determine the amount of taxes payable or recoverable currently or in
         future years.

         EARNINGS (LOSS) PER COMMON SHARE - Earnings (loss) per share are
         calculated based upon the weighted-average number of outstanding common
         shares. Diluted earnings (loss) per share are calculated based upon the
         weighted-average number of outstanding common shares, plus the effect
         of dilutive stock options, warrants, convertible preferred stock and
         convertible debentures.

         The Company has adopted Statement of Financial Accounting Standards
         (SFAS) No. 128 "Earnings Per Share", which requires that both basic
         earnings (loss) per share and diluted earnings (loss) per share be
         presented on the face of the statement of operations.

         As discussed in Note 6, there were no dilutive securities during the
         years ended June 30, 1998 and 1997. The weighted average number of
         common and common equivalent shares outstanding was 12,491,121;
         5,037,314; and 4,569,135 for the years ended June 30, 1998, 1997, and
         1996, respectively.

                                       51

<PAGE>

         IMPAIRMENTS - Impairments, measured using fair market value, are
         recognized whenever events or changes in circumstances indicate that
         the carrying amount of long-lived assets (other than unproved oil and
         gas properties discussed above) may not be recoverable and the future
         undiscounted cash flows attributable to the asset are less than its
         carrying value.

         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 flow, the
         Company considers all certificates of deposit and other securities or
         debt instruments with maturities of three months or less, when
         purchases, to be cash equivalents.

         ORGANIZATION COSTS - Organization costs, in the amount of $44,070 are
         being amortized by the straight line method over five years.
         Amortization expense charged to operations for the year ending June 30,
         1998, was $16,420.

         FAIR VALUE OF FINANCIAL INSTRUMENTS - At June 30, 1998, the Company's
         financial instruments consist of marketable securities and long term
         debt. The Company believes that the recorded values approximate fair
         value.

         IMPLEMENTATION OF NEW FINANCIAL ACCOUNTING STANDARDS - In June 1997,
         SFAS No. 130, "Reporting Comprehensive Income", was issued. The
         statement must be adopted by the Company in the first quarter of fiscal
         year ending June 30, 1999. Under provisions of this statement, the
         Company will be required to include a financial statements presentation
         of comprehensive income and its components to conform to these new
         requirements. Implementation of this disclosure standard is not
         expected to affect the Company's financial position or results of
         operations.

         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.

         OIL AND GAS REVENUE

         The Company recognizes oil and gas revenues on the sales method as oil
         and gas production is sold. Differences between sales and production
         volumes during the years ended June 30, 1998 and 1997, were not
         significant.

3.       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 has classified the securities as available for sale, and
         they are reported at fair market value. As of January 1, 1998 the fair
         market value of the shares was $0.875 per share, and as of June 30,
         1998, was $0.625 per share. The unrealized decline in value of $38,750
         has been excluded from earnings and reported as a separate component of
         shareholders equity.

                                       52

<PAGE>
<TABLE>
<CAPTION>

4.       LONG-TERM DEBT - At June 30, 1998 and 1997, long-term debt to banks and
         others was comprised of the following:

                                                            1997          1998
                                                            ----          ----
         <S>                                              <C>           <C>
         9% mortgage on office building, due in 2016      $112,243             0
         Farmers & Merchants Bank                            5,312             0
         Note payable to Minneapolis Group                 116,000       118,760
                                                          --------      --------
                                                          $233,555      $118,760
                                                          ========      ========
</TABLE>


         The Minneapolis Group consists of nine individuals all holding
         promissory notes dated October 1, 1996 with an interest rate of 10% and
         various installment payments, each with a maturity date of April 1,
         2002. The notes are collateralized by various oil and gas properties.

         Holders of the promissory notes representing the Minneapolis Group are
         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 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 note
         balance.

         As of June 30, 1998 all notes are one year in arrears in principal
         payments and are currently in default. As of March 24, 1999, the option
         to accelerate the note balance has been waived by all note holders and
         each has executed a document of intent to convert the note to stock as
         described above. The unpaid balances of these notes are reported in the
         balance sheet at June 30, 1998, as long-term debt.


5.       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.

         WARRANTS - Warrants designated as "Class A Warrants" were issued to
         each record holder of common stock as of July 12, 1991, at the rate of
         two warrants for each share of common stock owned. The warrants were
         exercisable at $2.50 per share beginning on April 30, 1992, rising
         $0.50 per share at the beginning of each of the next four years
         thereafter and expire on April 29, 1997. The warrants were callable in
         total by the Company at a specified redemption price of $0.50 per
         warrant during a call period lasting 10 days immediately succeeding a
         period during which the closing price for the Company's common stock
         has exceeded the exercise price of the warrants for each of ten
         consecutive business days. The warrants were extended by management of
         the Company until April 29, 1998 and were allowed to expire unexercised
         at that time.

         Under a Limited Offering Memorandum in 1996, the Company issued 470,000
         warrants to purchase one share of common stock for each right at $.50
         per share of common stock. These rights 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 9
         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.

         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.

                                       53

<PAGE>

         SUBSEQUENT ISSUANCE OF ADDITIONAL SHARES - Subsequent to June 30, 1998,
         the Company issued the following additional shares of its common stock:

         AUGUST, 1998

                  190,000 shares for $110,000 pursuant to stock subscription
                  agreements

                  170,000 shares, valued at $85,000, for services rendered

         NOVEMBER, 1998

                  8,500 shares, valued at $4,250, for services rendered

         JANUARY, 1999

                  129,000 shares, valued at $60,209 issued as settlement of
                  Regal lawsuit

<TABLE>
<CAPTION>

6.       LOSS PER COMMON SHARE

         Net loss per common share is computed as follows:

                                                           1998              1997              1996
         <S>                                          <C>                <C>               <C>
         Net loss available to shareholders
                 (numerator)                           (641,446)         (243,896)         (431,099)
                                                        -------           -------           -------

         Weighted average number of shares
                 of common stock (denominator)       12,491,121         5,037,314         4,569,135
                                                     ==========         =========         =========

         Loss per common share                       $     (.05)        $    (.05)        $    (.09)
                                                     ==========         =========         =========
</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.


7.       RELATED PARTY 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; 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
         then 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 then issued and outstanding shares of common
         stock of the Company. In exchange for the issuance of the Shares, the
         Buyers conveyed to the Company 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").

         In connection with the Agreement, as of December 10, 1997, three
         directors and officers resigned from the Company. On such date, Calvin
         Wallen III and two others were appointed to serve as additional
         directors of the Company (together with William G. Vandever and Gene C.
         Howard, each of whom continued to serve as directors), and Calvin
         Wallen III was elected to serve as the Company's President, Vice
         President and Treasurer.

                                       54

<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 its interests in the drilled wells. Calvin Wallen, III is an
         officer, director and majority shareholder 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. At June 30, 1998, the Company
         had no full time employees. The Company's offices are subleased from
         Tauren through November 30, 1999. 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, 1998, the Company owed Tauren $196,628.

 8.      INCOME TAXES

         The components of the net deferred federal income tax assets
         (liabilities) recognized in the Company's balance sheet were as
         follows:
<TABLE>
<CAPTION>

                                                                June 30, 1998   June 30, 1997
         <S>                                                    <C>             <C>
         Deferred tax assets
                Net operating loss carryforwards                 $ 480,033      $ 261,941
         Deferred tax liabilities
                 Value of purchased property                      (256,790)             0
                                                                 ---------      ---------
         Net deferred tax assets before valuation allowance        223,243        261,941

         Valuation allowance                                      (223,243)      (261,941)
                                                                 ---------      ---------

         Net deferred tax assets                                 $       0      $       0
                                                                 =========      =========
</TABLE>

         As of June 30, 1998 and 1997, the Company believed it was more likely
         than not that future tax benefits from net operating loss carryforwards
         would not be realizable through generation of future taxable income;
         therefore, they are fully reserved.

         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,
         1998 and 1997.

<TABLE>
<CAPTION>
                                                              1998            1997
         <S>                                               <C>             <C>
         Tax benefit calculated at statutory rate          ($218,092)      ($69,740)


         Increase (reductions) in taxes due to:
           Effect of net operating loss carryforwards        218,092         69,740
                                                           ---------       --------

         Current federal income tax provision              $       0       $      0
                                                           ---------       --------
</TABLE>

         As of June 30, 1998, the Company had net operating loss carryforwards
         of $1,411,861, which are available to reduce future taxable income and
         the related income tax liability. These carryforwards expire as
         follows:

<TABLE>
<CAPTION>
                                                                    Net Operating Losses
         <S>                                                           <C>
         2007                                                          $  134,197
         2011                                                             431,099
         2012                                                             205,119
         2013                                                             641,446
                                                                       ----------

                                       55

<PAGE>

                                                                       $1,411,861
                                                                       ==========
</TABLE>

9.       COMMITMENTS AND CONTINGENCIES

         Consulting agreement

         Effective December 1, 1997 the Company entered into a consulting
         agreement whereby a director and former officer (the consultant) will
         provide services to the Company, from time to time, for a period of one
         year on a specific project basis. For the services provided, as
         requested by the Company, the Company will pay the consultant $3,000
         per month.

         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,
         its President and Chief Executive Officer.

         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, handing 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 is
         vigorously defending the suit.

         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. Based upon
         information obtained by the Company, the Company has filed suit in Palo
         Pinto County, Texas,

                                       56

<PAGE>

         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.


10.      SUBSEQUENT EVENTS

         The following events are disclosed here and elsewhere:

         - Note holders committed to convert the debt described in Note 4
         - The expiration, exercising and issuance of warrants described in
           Note 5
         - The related party transaction involving the farmout agreement
           described in Note 7
         - Litigation matters described in Note 9
         - Issuance of shares of common stock described in Note 5

11.      RESTATEMENT

         Management has determined that its prior year financial statements had
         reported assets that had been previously sold or transferred by the
         Company. Upon examination, it was determined that certain assets were
         improperly included in the Company's prior periods and were
         inappropriately included in calculations of assets and depletion
         deductions within the Balance Sheet and Statement of Operations. As a
         result, the accompanying Financial Statements as of June 30, 1997 and
         1996, and for the years then ended have been restated.

     A summary of the effects of the restatement follows:

<TABLE>
<CAPTION>
                                                                                                      Total
                                                  1995             1996              1997           Adjustment
                                                  ----             ----              ----           ----------
         <S>                                  <C>               <C>               <C>              <C>
         Property, Plant & Equipment          $(1,078,302)      $(161,721)        $(261,026)       $(1,501,049)

         Accumulated D D & A                       53,063        (130,860)          137,950             60,153

         Other Assets                            (232,857)        (97,489)         (229,952)          (560,298)

         Treasury Stock                           (53,877)              0                 0            (53,877)

         Retained Earnings                      1,311,973         390,070           353,028          2,055,071
                                              ----------------------------------------------------------------


                       Loss Sale of Assets       (297,021)       (502,679)         (283,416)        (1,083,116)
</TABLE>

12.      OPERATIONS AND MANAGEMENT PLANS

         At June 30, 1998, the Company had suffered recurring operating losses
         and its current liabilities exceeded its current assets by $340,769.

         As disclosed in Note 4, the Company has secured executed documents of
         intent from all debt holders for the conversion of debt to common
         stock.

         The settlement of the Regal lawsuit (as disclosed in Note 9) has
         resulted in the reduction of a significant portion of the accounts
         payable that existed at June 30, 1998.

         As disclosed in Note 7, the Company has entered into strategic
         alliances with a related party to develop its proved underdeveloped
         leaseholds through farmout agreements.


                                       57

<PAGE>

         Although management believes the above actions will ultimately provide
         the Company with the means to become profitable, there is no guarantee
         these actions 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.


13.      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, 1998, 1997, and 1996 were as follows:

<TABLE>
<CAPTION>
                                          1998               1997              1996
                                          ----               ----              ----
         <S>                           <C>                 <C>               <C>
         Property acquisition          $1,031,016          $      0          $      0
         Exploration                            0                 0                 0
         Development                            0           242,419           193,782
                                       ----------          --------          --------
                                       $1,031,016          $242,419          $193,782
                                       ==========          ========          ========
</TABLE>
         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, 1998, 1997, and 1996 were as follows:
<TABLE>
<CAPTION>

                                                    1998                1997                1996
                                                    ----                ----                ----
         <S>                                     <C>                 <C>                 <C>
         Proved properties                       $2,314,466          $1,358,859          $1,475,376
         Unproved properties                              0                   0                   0
                                                 ----------          ----------          ----------
                                                 $2,314,466          $1,358,859          $1,475,376
         Accumulated depreciation,
            depletion, and amortization           1,019,787             717,150             979,773
                                                 ----------          ----------          ----------

         Total:                                  $1,294,679          $  641,709          $  495,603
                                                 ==========          ==========          ==========
</TABLE>

         RESULTS OF OPERATIONS - The results of operations from oil and gas
         producing activities for the years ended June 30, 1998, 1997, and 1996
         were as follows:

<TABLE>
<CAPTION>
                                                               1998                1997               1996
                                                               ----                ----               ----
         <S>                                                <C>                 <C>                <C>
         Revenues from unaffiliated customers               $ 166,878           $ 386,768          $ 569,847
                                                            ---------           ---------          ---------

         Production costs                                     301,198             143,772            174,119
         Exploration expenses                                       0                   0                  0
         Abandonments                                               0                   0                  0
         Depreciation, depletion, and amortization            288,356              81,618            166,068
                                                            ---------           ---------          ---------

         Total:                                               589,554             225,390            340,187
                                                            ---------           ---------          ---------

         Results before income taxes                         (422,676)            161,378            229,660
         Provision for income taxes                                 0                   0                  0
         Results of operations (excluding                   ---------           ---------          ----------
            corporate overhead and interest
           expenses)                                        $(422,676)          $ 161,378          $ 229,660
                                                            =========           =========          =========
</TABLE>

14.      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,

                                       58

<PAGE>

         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.

         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, 1998, 1997 and 1996 together
         with the changes therein.

<TABLE>
<CAPTION>

                                                     NATURAL GAS (MCF)                     OIL AND CONDENSATE (BBLS)
                                                     -----------------                     -------------------------
                                              1998          1997         1996          1998          1997          1996
                                              ----          ----         ----          ----          ----          ----
<S>                                       <C>            <C>           <C>           <C>           <C>           <C>
Proved developed and undeveloped
reserves:

Beginning of year                          8,198,818     8,509,748     3,611,014      54,388       103,178       104,614
Revisions of previous estimates             (903,134)      (23,473)    6,182,646     (23,081)      (18,351)       26,871
Purchases of reserves in place             2,583,033             0             0     130,545             0             0
Extensions and discoveries                         0             0             0           0             0             0
Production                                   (81,485)     (285,640)     (282,897)     (2,766)      (22,919)      (10,467)
Sales of reserves in place                (4,611,290)       (1,817)   (1,001,015)    (17,794)       (7,570)      (17,840)
                                          ----------     ---------    ----------     -------       -------       -------

End of year                                5,185,942     8,198,818     8,509,748     141,292        54,338       103,178

Proved developed reserves:

Beginning of year                          8,198,818     8,509,748     3,611,014      54,388       103,178       104,614
End of year                                5,185,942     8,198,818     8,509,748     141,292        54,388       103,178
</TABLE>

         STANDARDIZING 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 (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 as 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 (2).

         The following is the estimated standardized measure relating to proved
         oil and gas reserves at June 30, 1998, 1997, and 1996: (1)

<TABLE>
<CAPTION>
                                                    1998                   1997                   1996
                                                    ----                   ----                   ----
<S>                                             <C>                    <C>                    <C>
Future cash inflows                             $10,836,747            $20,052,787            $20,471,326
Future production costs                          (1,085,928)            (3,377,904)            (3,377,904)
Future development costs                         (1,505,000)            (2,032,525)            (2,032,525)
Future severance tax expenses                      (884,796)            (1,526,523)            (1,526,523)
Future income taxes                              (1,868,811)                     0                      0
                                                -----------            -----------            -----------
</TABLE>
                                       59

<PAGE>
<TABLE>
<CAPTION>
<S>                                              <C>                    <C>                    <C>
Future net cash flows                             5,492,212             13,115,835             13,534,374

Ten percent annual discount for
   estimated timing of net cash flows             1,867,625              4,813,392              4,813,392
                                                  ---------             ----------             ----------

Standardized measure of discounted
   future net cash flows                         $3,624,587             $8,302,443             $8,720,982
                                                 ==========             ==========             ==========
</TABLE>

Following is an analysis of changes in the estimated  standardized  measure
of proved producing during the years ended June 30, 1998, 1997, and 1996: (2)

<TABLE>
<CAPTION>
                                                  1998                  1997                 1996
                                                  ----                  ----                 ----
<S>                                          <C>                     <C>                   <C>
Changes from:
Sales of oil and gas produced                   138,899              (281,348)             (387,783)

Net changes in prices and
  production costs                              (23,589)                    0               174,119

Extensions and discoveries                            0                     0                     0
Revisions of previous quantity
  estimates                                  (1,008,000)               18,922               (83,877)
Accretion of discounts                          830,244                     0                     0
Net change in income taxes                   (1,233,228)                    0                     0
Purchases of reserves in place                1,557,177                     0                     0
Sales of reserves in place                   (4,569,000)             (156,112)             (185,119)
Other                                          (370,359)                5,177                     0
                                             ----------              --------              --------

Standardized measure, end of year           $(4,677,856)             $418,539              $831,900
                                            ===========              ========              ========
</TABLE>

15.      Year 2000 issue (unaudited)

         The Company is working to resolve the potential impact of the year 2000
         on the ability of the Company's computerized information systems to
         accurately process information that may be date sensitive. Any of the
         Company's programs that recognize a date using "00" as the year 1900
         rather than the year 2000 could result in errors or system failures.
         The Company utilizes a number of computer programs across its entire
         operation. Management believes that all of the Company's systems, which
         are primarily purchased software systems, are year 2000 compliant and
         therefore anticipates that this issue will have minimal impact on the
         Company's operations and that future costs relating to year 2000 will
         be minimal. Because of the unprecedented nature of the year 2000 issue,
         its effects and the success of related remediation efforts will not be
         fully determinable until the year 2000 and thereafter.

                                       60