<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, 1999

                          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 [X] No [ ]

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

As of September 30, 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 September 30, 1999 was
$886,244, computed by reference to the average traded value.

The registrant's revenues for the fiscal year ended June 30, 1999 were
$58,452.

Transitional Small Business Disclosure Format:  Yes     No   X
                                                   -----  ------

<PAGE>

                           ROSELAND OIL AND GAS, INC.

                                TABLE OF CONTENTS

                                   DESCRIPTION

<TABLE>
<CAPTION>

          Item                                                                Page

                                     PART I

<S>                                                                              <C>
ITEM 1. Description of Business and Properties...................................4
   GENERAL.......................................................................4
   DESCRIPTION OF BUSINESS.......................................................4
   RESTATEMENT OF FINANCIAL RESULTS..............................................5
   PRINCIPAL OIL AND GAS PROPERTIES..............................................6
   EXPLORATION ACTIVITIES........................................................7
   MARKETING OF PRODUCTION.......................................................7
   OIL AND GAS RESERVES..........................................................8
   NET PRODUCTION, SALES PRICES AND COSTS.......................................10
   PRODUCTIVE WELLS AND ACREAGE.................................................11
   OPERATIONS...................................................................12
   RISK FACTORS.................................................................12
ITEM 2. Description of Properties...............................................27
ITEM 3. Legal Proceedings.......................................................27
ITEM 4. Submission of Matters to a Vote of Security Holders.....................28


                                     PART II

ITEM 5. Market for Registrant's Common Equity and Related Stockholder Matters...29
ITEM 6. Management's Discussion And Analysis Or Plan Of Operations..............29
   GENERAL......................................................................30
RESULTS OF OPERATIONS...........................................................30
   COMPARISON OF FISCAL 1999 TO FISCAL 1998.....................................30
   COMPARISON OF FISCAL 1998 TO FISCAL 1997.....................................31
   LIQUIDITY AND CAPITAL RESOURCES..............................................32
ITEM 7. FINANCIAL STATEMENTS....................................................35
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND.........35
FINANCIAL DISCLOSURE............................................................35


                                    PART III

ITEM 9. Directors, Executive Officers, Promoters and Control Persons of the
        Registrant; Compliance with Section 16(a) of the Exchange Act...........35
   COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT............................37
ITEM 10. Executive Compensation.................................................37
ITEM 11. Security Ownership of Certain Beneficial Owners and Management.........37
ITEM 12. Certain Relationships and Related Transactions.........................39
Item 13. Exhibits, Financial Statement Schedules and Reports on Form 8-K........40
   A. Financial Statements......................................................40
   B. Reports on Form 8-K.......................................................41
SIGNATURES......................................................................41
INDEX TO FINANCIAL STATEMENTS...................................................43
</TABLE>


                                       2
<PAGE>

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

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












                                       3
<PAGE>

                           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, 1999, our total proved
reserves were 654,943 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

                                       4
<PAGE>

previously unavailable to the Company due to the technical expertise and
experience required and the lack of available resources. We have made
substantial progress in redirecting our strategic business efforts and
believe that attractive opportunities remain for acquisition and development
of our remaining and future assets.

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 ended 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 ended 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.

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

RESTATEMENT OF FINANCIAL RESULTS

Subsequent to the issuance of our financial statements for the fiscal 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 $2,430,936, a
reduction in assets from $3,118,928 to $1,117,734 at June 30, 1997, a
restated net loss of $47,405 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

                                       5
<PAGE>

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.

PRINCIPAL OIL AND GAS PROPERTIES

  The following table summarizes certain information with respect to our
principal areas of operation at June 30, 1999.

<TABLE>
<CAPTION>

                                                                 PERCENT          PRESENT
                           OIL               GAS                OF PROVED          VALUE
         AREAS            (Bbl)             (Mcf)                RESERVES       (DISC @ 10%)
         -----            -----             -----               ---------       ------------

<S>                      <C>               <C>                     <C>          <C>
Texas ............           604             546,998                17%         $   729,470

Louisiana ........       131,185           2,591,925                83%         $ 4,421,145
                         -------           ---------               ----         -----------

Total ............       131,789           3,138,923               100%         $ 5,150,615
</TABLE>


Our Texas properties are situated in Palo Pinto County. At June 30, 1999, the
Texas properties contained 17% of our proved reserves, which represented 14%
of our Present Value of total proved reserves. The Texas properties consist
primarily of wells acquired by the Company in several transactions between
1991 and 1995 and through overriding royalty interests reserved in farmout
agreements in 1998 and 1999.

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

In June 1998, we agreed to a farmout agreement with Cummings Company,
reserving an overriding royalty interest. As of June 30, 1999, Cummings had
completed its drilling program on the farmed out interest and completed four
wells, the Reagan 11-1, Reagan 11-2, Reagan 11-3 and the Reagan 11-4. These

                                       6
<PAGE>

properties are the subject of an override purportedly granted by prior
management that the Company is trying to overturn. See "Legal Proceedings".
Our net production for the fiscal year ending June 30, 1999 for the Texas
wells averaged 60 Mcf of natural gas per day and less than 1 barrel of oil
per day.

The Louisiana properties consist of proved undeveloped leasehold in Webster
Parish that we have placed in our drilling program. The property is limited
in depth to the interval from 9,900' below the surface to a depth of 12,500'
below the surface and contains approximately 84 net acres with a 75% net
revenue interest. Management anticipates the development to be approximately
80% natural gas. Under our new business strategy, the Company intends to
drill on the acreage during the primary term of the leasehold. The properties
contained 83% of our proved reserves and 86% of our Present Value of total
proved reserves. We acquired this property in December 1997 through the Stock
Purchase Agreement transaction.

EXPLORATION ACTIVITIES

Our strategy with respect to our domestic exploration program seeks to
maintain a balanced portfolio of drilling opportunities that range from lower
risk, field 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,
Tauren Exploration which is owned by Calvin Wallen III, our C.E.O., 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 1999,
we farmed out our non-producing leasehold in Palo Pinto County, Texas to the
Cummings Company and to Tauren Exploration Inc. (an affiliate of Calvin
Wallen III, our C.E.O.), reserving overriding royalty interests. We also have
included an acquisition strategy to our business plan that would allow us to
capitalize on producing oil and gas acquisition targets.

MARKETING OF PRODUCTION

Crude Oil and Natural Gas

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

                                       7
<PAGE>

utilize short-term gas contracts with prices that are related to market
conditions in varying degrees and have not engaged in natural gas hedging or
futures trading.

We believe we would be able to locate alternate purchasers in the event of
the loss of any one of these purchasers, and that any such loss would not
have a material adverse effect on our financial condition or results of
operations. Revenue from the sale of natural gas totaled $52,939 for the
fiscal year ended June 30, 1999 and represented 77% 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 1999 was $11.56.

Natural gas prices in the geographical areas in which we operate are closely
tied to established price indices which are heavily influenced by national
and regional supply and demand factors and the futures price per MMBtu for
natural gas delivered at Henry Hub, Louisiana established on the NYMEX
("NYMEX-Henry Hub"). At times, these indices correlate closely with the
NYMEX-Henry Hub price, but often there are significant variances between the
NYMEX-Henry Hub price and the indices used to price our natural gas. Average
natural gas prices received by us in each of our operating areas generally
fluctuate with changes in these established indices. The average natural gas
price per Mcf received by us in fiscal 1999 was $1.93.

OIL AND GAS RESERVES

The following tables set forth the proved developed and undeveloped reserves
at June 30, 1999, 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, 1999, 1998 and 1997:

<TABLE>
<CAPTION>

                                                                                        ESTIMATED
CATEGORY                      OIL (Bbls)        GAS (Mcf)        TOTAL (Mcfe)             INCOME           10% DISCOUNT
--------                      ----------        ----------       -------------          ----------         ------------
<S>                           <C>               <C>              <C>                    <C>                <C>
Proved Producing ...........       604             546,998             550,622          $1,174,611          $  729,470
Proved Undeveloped .........   131,185           2,591,925           3,379,035          $6,629,459          $4,421,145
</TABLE>

<TABLE>
<CAPTION>


                                                                 AT JUNE 30,
                                            -----------------------------------------------------
                                                1999                 1998                 1997

<S>                                         <C>                  <C>                  <C>
Proved reserves:
     Oil (Bbl) ...........................      131,789              141,292               54,338
     Gas (Mcf) ...........................    3,138,923            5,185,942            8,198,818
       BOE ...............................      654,943            1,005,616            1,420,808
     Estimated future net revenues
         (before income tax) .............  $ 7,804,070          $ 7,361,023          $13,115,835
     Standardized Measure(1) .............  $ 3,863,014          $ 3,624,587          $ 8,302,443

                                       8
<PAGE>

<S>                                         <C>                  <C>                  <C>
Proved developed reserves:
     Oil (Bbl) ...........................          604                5,556               28,117
     Gas (Mcf) ...........................      546,998              277,985              103,129
       BOE ...............................       91,770               51,887               45,305
     Estimated future net revenues
         (before income tax) .............  $ 1,174,611          $   322,561          $   631,406
     Present Value .......................  $   729,470          $   218,037          $   381,169
     Standardized Measure (1) ............  $   445,141          $   104,524          $   250,237
Weighted average sales prices:
     Oil (per Bbl) .......................  $     11.56          $     11.00          $     16.70
     Gas (per Mcf) .......................  $      1.93          $      1.79          $      1.17
</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 1999 could cause
a significant decline in the Present Value attributable to our proved
reserves at June 30, 1999. Since June 30, 1999, prices had rebounded to an
extent. Operating costs, development costs and certain production-related
taxes were deducted in arriving at estimated future net revenues, but such
costs do not include debt service, general and administrative expenses.

There are numerous uncertainties inherent in estimating oil and gas reserves
and their values, including many factors beyond our control. The reserve data
set forth in this Report represents estimates only. Reservoir engineering is
a subjective process of estimating the sizes of underground accumulations of
oil and gas that cannot be measured in an exact manner. The accuracy of any
reserve estimate is a function of the quality of available data, engineering
and geological interpretation, and judgment. As a result, estimates of
different engineers, including those used by us, may vary. In addition,
estimates of reserves are subject to revision based upon actual production,
results of future development, exploitation and exploration activities,
prevailing oil and gas prices, operating costs and other factors, which
revisions may be material. Accordingly, reserve estimates are often different
from the quantities of oil and gas that are ultimately recovered and are
highly dependent upon the accuracy of the assumptions upon which they are

                                       9
<PAGE>

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, 1999.

<TABLE>
<CAPTION>

                                            YEAR ENDED         YEAR ENDED
                                           JUNE 30, 1999      JUNE 30, 1998
                                          ---------------     -------------

<S>                                       <C>                 <C>
PRODUCTION VOLUMES:
     Oil (Bbl) .........................         667               2,766

     Gas (Mcf) .........................      21,129              81,485


WEIGHTED AVERAGE SALES PRICES:
     Oil (per Bbl) .....................  $    11.56          $    15.22

     Gas (per Mcf) .....................  $     1.93          $     2.11


SELECTED EXPENSES PER BOE:
     Lease operating ...................  $    14.07          $     7.23

     Depreciation, depletion and
         amortization ..................  $    11.01          $    20.07

     General and administrative ........  $   110.09          $    13.10
</TABLE>



                                      10

<PAGE>

PRODUCTIVE WELLS AND ACREAGE

 Productive Wells

  The following table sets forth our domestic productive wells at June 30, 1999:

<TABLE>
<CAPTION>

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

Acreage

The following table sets forth our undeveloped and developed gross and net
leasehold acreage at June 30, 1999. 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
          -----------------        ---------------       ------------------
          <S>          <C>         <C>        <C>        <C>           <C>
          Gross        Net         Gross      Net        Gross         Net
          -----       ----         -----      ---        -----        ----
          608         107           180       96          788         203
</TABLE>

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

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

In addition, on December 10, 1998, the Company entered into an agreement with
Tauren Exploration Inc. ("Tauren") that provides for Tauren to drill on the
Company's Section 11 in Palo Pinto County, Texas. The agreement grants Tauren 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

                                       11

<PAGE>

drilled wells. Tauren is an affiliate of Calvin Wallen, III, an officer,
director and majority shareholder of the Company.

OPERATIONS

Although in the past we have not been the operator of our wells, in the future
we generally intend to seek to be named operator for wells in which we acquire a
significant interest, or we will appoint an operator on our behalf. As is common
in the industry, this typically occurs only when we own the major portion of the
working interest in a particular well or field. At June 30, 1999, our wells were
operated by third parties under specific agreements.

Through the specific agreements providing for third party operations of majority
owned wells, we are able to exercise influence over the development and
enhancement of a well and to supervise operation and maintenance activities. We
have not conducted the actual drilling of wells on properties in which we have
acted as operator in the past, but in the future we plan to engage independent
contractors who are supervised by the Company or its affiliates. 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.

                                       12

<PAGE>

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 or on behalf of the Company will be
productive or that the Company will recover all or any portion of its
investment. Drilling for oil and gas may involve unprofitable efforts, not only
from dry wells, but also from wells that are productive but do not produce
sufficient net revenues to return a profit after drilling, operating and other
costs. The cost of drilling, completing and operating 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.

Possible adverse consequences due to claims and legal proceedings

In the spring of 1998, 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.

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 in April
1999. 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

                                       13

<PAGE>

Gas, Inc. v. William Vandever, et al.", against Kees, Vandever, Larry
Bradford, Regal Petroleum and other 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.

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. 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, 1999, the Company had a working
capital deficit of approximately $415,766. As a result of the Company's
determination to have it or an affiliate 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 to be
generated from operations or securities offerings, that it will be able to meet
its cash requirements. However, if such plans or assumptions change or prove to
be inaccurate, the Company could be required to seek additional financing sooner
than currently anticipated. The Company has no commitments to obtain any
additional debt or equity financing and there can be no assurance that
additional funds will be available, when required, on terms favorable to the
Company. Any future issuances of equity securities would likely result in
dilution to the Company's then existing shareholders while the incurring of
additional indebtedness would result in increased interest expense and debt
service changes. See "Management's Discussion and Analysis or Plan of
Operations."

History of Losses

The Company incurred losses before income tax benefits of $641,446 and $515,933
for the fiscal years ended June 30, 1998 and 1999, respectively. The Company's
accumulated deficit as of June 30, 1999 was $2,946,869. 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. 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".

                                       14

<PAGE>

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 $480,000 will be required to fully develop these reserves, of
which none $240,000 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.

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.

                                       15

<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.

                                       16

<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.

Concentration of Voting Power

The Company's executive officers, directors and their affiliates and certain 5%
shareholders hold approximately 85% 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 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

                                       17

<PAGE>

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 Articles 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.

                                       18

<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 has never paid any cash dividends on its common stock. 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, 1999, the Company's leaseholds for approximately 59% of its net acreage
were being kept in force by virtue of production on that acreage in paying
quantities. The remaining net acreage was held by lease rentals and similar
provisions and requires production in paying quantities prior to expiration of
various time periods to avoid lease termination.

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

                                       19

<PAGE>

unreliable or not indicative of future performance. To the extent the seller
does not operate the properties, obtaining access to properties and records
may be more difficult. Even when problems are identified, the seller may not
be willing or financially able to give contractual protection against such
problems, and the Company may decide to assume environmental and other
liabilities in connection with acquired properties.

Governmental Regulation

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

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

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

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

                                       20

<PAGE>

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

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

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

Environmental Matters

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

                                     21

<PAGE>

authorities. Governmental authorities have the power to enforce compliance
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

                                     22

<PAGE>

been taken for disposal. These properties may be subject to federal or state
requirements that could require the Company to remove any such wastes or to
remediate the resulting contamination. All of the Company's properties are
operated by third parties over whom the Company has limited control.
Notwithstanding the Company's lack of control over properties operated by
others, the failure of the previous owners or operators to comply with
applicable environmental regulations may, in certain circumstances, adversely
impact the Company.

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, 1999, 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, with an annual renewal
clause. 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.

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.

                                     23

<PAGE>

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

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

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

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

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

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

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

  "GAS" means natural gas.

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

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

  "MCF" means thousand cubic feet.

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

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

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

  "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,

                                     24

<PAGE>

net of estimated production and future development costs, using prices and
costs as of the date of estimation without future escalation (except to the
extent a contract specifically provides otherwise), without giving effect to
non-property related expenses such as general and administrative expenses,
debt service, future income tax expense and depreciation, depletion and
amortization, and discounted using an annual discount rate of 10%.

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

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

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

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

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

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

  "PROVED UNDEVELOPED RESERVES" means reserves that are expected to be recovered
from new wells on undrilled acreage, or from existing wells where a

                                     25

<PAGE>

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

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

  "RESERVES" means proved reserves.

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

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

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

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

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

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

                                     26

<PAGE>

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 one of our directors, Gene Howard, and a former director,
William Vandever, alleging that these two persons 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 director and former director have moved to
transfer the suit to the Texas bankruptcy court. Earlier this year, the Texas
bankruptsey court ruled against the motion to transfer filed by the two
individuals, citing a lack of jurisdiction. The Bank has taken no action in the
prosecution of this lawsuit in the past three years.

The two individuals may seek reimbursement from the Company for defense costs
and the amounts of any judgment attained against them. The Bank is seeking
$65,000, plus interest and legal fees. The Company believes that the lawsuit
filed by the Bank is without merit and the two individuals intend to vigorously
defend against the claims if they are pursued further. The legal fees expended
by the two individuals 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.

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 1998, 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.

                                     27

<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 one hundred twenty 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, Larry Bradford, Regal Petroleum and other 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 has
retained Gardere & Wynne, LLP to vigorously pursue this action.

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

No meetings of shareholders were held in the fourth quarter of the Company's
fiscal year ended June 30, 1999. During the first quarter of the fiscal year
ended June 30, 2000, proxies were mailed to shareholders of record as of July
30, 1999 for the Annual Stockholder meeting that was held August 16, 1999 in
Minneapolis, Minnesota. Security holders were asked to ratify the selection of
the Company's accounting firm, Weaver and Tidwell L.L.C., to vote on directors
of the Company with the directors elected to serve one year or until their
replacement was elected and to approve the Company's proposal to execute a
reincorporation merger with Cubic Energy, Inc., a wholly owned Texas subsidiary.

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

<TABLE>
<S>                                           <C>             <C>          <C>
APPROVAL OF ACCOUNTANTS                       YES VOTES       NO VOTES     ABSTENTIONS

Weaver and Tidwell L.L.C                      14,357,788         417               0

ELECTION OF DIRECTORS

Calvin Wallen III                             14,357,005       1,200               0
William Bruggeman                             14,356,995       1,210               0
Gene Howard                                   14,349,608       8,597               0
Jon Ross                                      14,357,005       1,200               0

APPROVAL OF MERGER WITH CUBIC ENERGY          14,356,805         400           1,000
</TABLE>

                                     28

<PAGE>

                                     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 June 30, 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.

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.

UNREGISTERED COMMON STOCK ISSUANCES - In August 1998, the Company issued 190,000
shares of restricted common stock to existing shareholders for prior paid stock
subscriptions and in November 1998, the Company issued 188,500 restricted shares
to various vendors for services rendered. In December 1998, 129,000 restricted
common shares were issued in the settlement with Regal Petroleum and outstanding
warrants held by existing shareholders were exercised for 120,000 shares which
had not been issued as of September 6, 1999.

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, 1999. 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.

                                     29

<PAGE>

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, 1999, the Company's proved reserves were comprised of
approximately 14% proved developed reserves and we have an inventory of
development drilling locations to pursue after the fiscal year ending June
30, 1999. 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 year ended June 30, 1997, certain information contained in this item
related to the fiscal year ended June 30, 1997, has changed from that which
appeared in the Company's previously filed Form 10-KSB for that period.

RESULTS OF OPERATIONS
COMPARISON OF FISCAL 1999 TO FISCAL 1998

REVENUES

OIL AND GAS SALES decreased 67% to $52,939 in the fiscal year ended June 30,
1999 ("fiscal 1999") from $162,299 in the fiscal year ended June 30, 1998
("fiscal 1998"), primarily because of lower oil and gas prices and the
disposition of oil and gas properties during fiscal 1999. The Company disposed
of non-operated and marginally producing wells on which the expenses exceeded
revenues.

OTHER REVENUES decreased 57% to $5,513 in fiscal 1999 from $12,683 in fiscal
1998 primarily as a result of the decrease in overhead recovery fees from fiscal
1999 as compared to fiscal 1998, and as a result of the sale of non-strategic
oil and gas properties during fiscal 1999.

                                     30

<PAGE>

<PAGE>

COSTS AND EXPENSES

PRODUCTION AND OPERATING EXPENSE similarly decreased 80% to $58,951 in fiscal
1999 from $301,198 in fiscal 1998. The decrease was primarily attributable to
the disposal of oil and gas properties. In December 1998, the Company
assigned its interest in several uneconomical wells to Regal Petroleum, the
operator of the wells, as partial settlement of a lawsuit. See "Legal
Proceedings". In addition, in September 1998, the Company sold its interest
in several non-operated wells to a third party.

DEPRECIATION, DEPLETION AND AMORTIZATION decreased 85% to $46,124 in fiscal
1999 from $304,958 in fiscal 1998. The decrease was primarily attributable to
the sale of the associated oil and gas properties.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSE ("G&A") increased 128% to
$461,152 in fiscal 1999 from $198,554 in fiscal 1998. 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. See "Legal Proceedings"
and "Financial Restatements".

INTEREST EXPENSE decreased 50% to $12,143 in fiscal 1999 from $24,279 in
fiscal 1998 as a result of decreased interest paid on current liabilities for
the fiscal year ending June 30, 1999.

LOSS ON SALE OF ASSETS was $16,178 in fiscal year 1999 compared to a loss of
$12,230 in fiscal year 1998 due to the sale of certain oil and gas assets.

NET INCOME/LOSS

The Company's net deficit decreased 20% to reflect a loss of $515,933 in
fiscal 1999 from a deficit of $641,446 in fiscal 1998 primarily as a result
of the sale of oil and gas properties and management's efforts to manage
costs.

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.

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.

                                     31

<PAGE>

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 and the restated financials.

NET INCOME

Net income decreased to a loss of $641,446 in fiscal 1998 from a loss of
$47,405 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.

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 $423,767 at June 30, 1999.

                                     32

<PAGE>

The following discussion sets forth the Company's current plans for capital
expenditures in fiscal 2000, 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 2000 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.

The Company may increase its planned activities for 2000 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 1999, the Company generated a cash flow deficit from operating
activities of $155,350.

The Company's working capital decreased from a deficit of $340,769 at June
30, 1998 to a deficit of $423,767 at June 30, 1999.

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 including Mr.
William Bruggeman, currently a director and greater than 5% shareholder of
the Company, 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 sale of assets, combined with operating cash flow and funds
advanced from affiliates, will be adequate to fund the projected capital
expenditures for fiscal 2000. 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

                                     33

<PAGE>

to sustain the Company's exploratory and development activities or for the
Company to continue its operations.

If funds available from asset sales, combined with operating cash flow and
affiliate funding, 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 assure you 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.

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 1999.

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

                                     34

<PAGE>

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 46
through 60 of this Report and are incorporated herein by reference.

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

As disclosed in the Company's current 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 as of October 6, 1999, 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       44    Chairman of the Board, President
                              & Chief Executive Officer                   1997
Jon S. Ross             35    Director, Secretary                         1998
Gene Howard             72    Director                                    1991
William Bruggeman       65    Director                                    1999
</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

                                     35

<PAGE>

company that has evolved into Tauren Exploration, Inc. Mr. Wallen did his
undergraduate studies at Texas A&M University in College Station, Texas.

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

GENE C. HOWARD is the Senior Partner of the law firm of Howard, Widdows,
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 BRUGGEMAN is the Chief Executive Officer and Chairman of the Board of
Diversified Dynamics Corporation. Mr. Bruggeman is an engineer and
entrepreneur. Among his accomplishments, he was responsible for the
development of a high pressure pump that formed the basis for the building of
Cat Pumps, a company established to manufacture and distribute the pump. In
addition to Cat Pumps, Mr. Bruggeman also was instrumental in developing the
"Paint Stick" and other home improvement products giving rise to a second
company, HomeRight, which together with Cat Pump, are subsidiaries of
Diversified Dynamics Corporation. Mr. Bruggeman served in the U.S. Navy as a
pilot and later served in Korea. Upon return to the U.S., he held engineering
and management positions with Scott Atwater, Minneapolis Moline and L & A
Products. Mr. Bruggeman has extensive experience developing and growing
start-up companies such as IDI, Spearhead Marketing, Cat Pumps, HomeRight,
North American Diesel and VEG. Mr. Bruggeman graduated from the University of
Minnesota.

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

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

We have no employment agreements with its officers or key executives.

                                     36

<PAGE>

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, 1999 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, 1999.

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
                                            Fiscal  Annual  Other Annual
Name and Principal Position                  Year   Salary  Compensation
---------------------------                 ------  ------  ------------
<S>                                         <C>     <C>     <C>
William G. Vandever,                          1999       0            0
   Former President and CEO                   1998  15,000            0
                                              1997  40,500            0

Calvin Wallen III, President and CEO          1999*      0            0
                                              1998       0            0
                                              1997       0            0
</TABLE>
-----------------------------
*Mr. Wallen was elected CEO, President & Director in December 1997 and as of
October 1, 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.

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 October 1, 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

                                     37

<PAGE>

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 September 7, 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/             52.1%
1720 Northwest Highway, Ste. 320
Garland, TX   75041

Earthstock Resources, Inc.                   3,500,000                 19.2%
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/              5.1%
1724 East 15th St.
Tulsa, OK   74104

William Bruggeman                            3,819,694 /3/             20.9%
20 Anemone Circle
North Oaks, MN   55127

Gene Howard                                    322,245 /4/              1.8%
2402 East 29th St.
Tulsa, OK   74114

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

All officers and directors
as a group (4 persons):                     13,656,939 /5/             74.9%
</TABLE>

*Less than one percent.

/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

                                     38

<PAGE>

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

/5/ Includes the shares referred to above in Footnotes 1, 3 and 4


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, which represented 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. In August 1999, Mr.
Bruggeman was elected to the Board of Directors.

On December 1, 1997, the Company entered into a contract with an affiliate
controlled by our President and Chief Executive Officer to provide certain
technical, administrative and management services needed to conduct its
business. The terms of the contract provided for personnel to be contracted
at current market rates in effect at the time the agreement was executed. In
addition, the offices are subleased from an affiliate controlled by our
President and Chief Executive Officer and the offices are subleased through
November 30, 1999, with options to renew annually. 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, 1999, the Company had accumulated $456,351 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

                                      39
<PAGE>

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
and director, loaned $60,400 to the Company. As of June 1999, Mr. Bruggeman
had agreed to convert this loan into shares of common stock which had not
been issued as of October 7, 1999. 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 44:

     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 are
     incorporated by reference to the Company's June 30, 1998 Form 10-K.

     3.2 -- Bylaws of the Company and amendments are incorporated by reference
     to the Company's June 30, 1998 Form 10-K.

     4.1 -- Form of Certificate of Common Stock, par value $.05 per share, of
     the Company are incorporated by reference to the June 30, 1998 Form 10-K.

     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

                                      40
<PAGE>

     the Company's 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., incorporated by reference to June 30,
     1998 Form 10-K.

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.

B. Reports on Form 8-K.

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 13TH DAY
OF OCTOBER, 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.

                                      41
<PAGE>

<TABLE>

<S>                                     <C>                                      <C>
       SIGNATURE                                     TITLE                             DATE

/s/ Calvin Wallen III                     President, Chief Executive             October 13, 1999
-------------------------------              Officer and Director
Calvin Wallen III                       (Principal Executive Financial,
                                              Accounting Officer)



/s/ Jon Stuart Ross                     Director, Secretary                      October 13, 1999
-------------------------------
Jon Stuart Ross



/s/ Gene Howard                         Director                                 October 13, 1999
-------------------------------
Gene Howard



/s/ William Bruggeman                   Director                                 October 13, 1999
-------------------------------
William Bruggeman
</TABLE>











                                      42
<PAGE>

                           ROSELAND OIL AND GAS, INC.

                          INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>

                                                                       PAGE
                                                                       ----

<S>                                                                     <C>
Report of Independent Auditors.....................................     44

Balance Sheets.....................................................     46

Statements of Operations...........................................     48

Statements of Changes in Stockholders' Equity......................     49

Statements of Cash Flows...........................................     51

Notes to Financial Statements......................................     53
</TABLE>










                                      43
<PAGE>

                        REPORT OF INDEPENDENT ACCOUNTANTS

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


























                                      44
<PAGE>

                       REPORT OF INDEPENDENT AUDITOR


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



We have audited the accompanying balance sheets of Roseland Oil and Gas, Inc.
(an Oklahoma Corporation) as of June 30, 1999 and 1998, and the related
statements of operations, stockholders' equity and cash flows for the years
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.

As described in Note 2, in the year ended June 30, 1999, the Company adopted
a policy of accounting for costs of its oil and gas activities by the full
cost method, which is a change from the successful efforts method used in
previous years.

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, 1999 and 1998, and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted
accounting principles.




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

Dallas, Texas
September 22, 1999

                                       45
<PAGE>

                                 [LETTERHEAD]


                            INDEPENDENT AUDITOR'S REPORT




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



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



William Matthews, C.P.A., S.C.
Elm Grove, Wisconsin
September 28, 1997 and October 11, 1999

                                      46

<PAGE>

                                  ROSELAND OIL AND GAS, INC.
                                        BALANCE SHEETS
                                    JUNE 30, 1999 AND 1998


                                            ASSETS

<TABLE>
<CAPTION>

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

<S>                                                            <C>                 <C>
CURRENT ASSETS
   Cash and cash equivalents                                   $    1,374          $      303
   Marketable Securities                                          101,711                   0
   Accounts receivable - Trade                                     23,600              56,930
                                                               ----------          ----------
     Total current assets                                         126,685              57,233
                                                               ----------          ----------

PROPERTY AND EQUIPMENT, at cost:
   Oil and gas properties:
     Proved properties (including wells and related
       equipment and facilities)                                1,559,573           2,314,466
     Office and other equipment                                       910                 910
                                                               ----------          ----------
       Total property and equipment                             1,560,483           2,315,376

     Less accumulated depreciation, depletion,
       and amortization                                           179,228             824,012
                                                               ----------          ----------
                                                                1,381,255           1,491,364
                                                               ----------          ----------

OTHER ASSETS
   Marketable equity securities                                         0              96,875
   Other                                                           29,545              34,959
                                                               ----------          ----------
                                                                   29,545             131,834
                                                               ----------          ----------

TOTAL ASSETS                                                   $1,537,485          $1,680,431
                                                               ==========          ==========
</TABLE>







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

                                      47

<PAGE>

                           ROSELAND OIL AND GAS, INC.
                                 BALANCE SHEETS
                             JUNE 30, 1999 AND 1998

                       LIABILITIES AND STOCKHOLDERS EQUITY


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

CURRENT LIABILITIES

   Accounts payable                                  $    67,946      $   188,554
   Accrued liabilities                                    26,155           12,820
   Due to affiliates                                     456,351          196,628
                                                     -----------      -----------
          Total current liabilities                      550,452          398,002
                                                     -----------      -----------

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

DEFERRED INCOME TAXES                                          0                0


COMMITMENTS AND CONTINGENCIES                                  0                0

STOCKHOLDERS EQUITY

   Common stock, $.05 par value, authorized
     50,000,000 shares, issued 18,238,347
     and 17,730,847 shares                               911,918          886,543
   Additional paid-in capital                          2,817,138        2,636,812
   Stock subscribed and paid - to be issued              120,000          110,000
   Accumulated deficit                                (2,946,869)      (2,430,936)
   Accumulated other comprehensive income                (33,914)         (38,750)
                                                     -----------      -----------

              Total stockholders equity                  868,273        1,163,669
                                                     -----------      -----------

TOTAL LIABILITIES AND STOCKHOLDERS EQUITY            $ 1,537,485      $ 1,680,431
                                                     ===========      ===========
</TABLE>

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

                                      48
<PAGE>

                           ROSELAND OIL AND GAS, INC.
                             STATEMENTS OF OPERATION
                    YEARS ENDED JUNE 30, 1999, 1998, AND 1997

<TABLE>
<CAPTION>
                                                            1999           1998          1997
                                                          ---------      ---------     ---------
<S>                                                       <C>            <C>           <C>
Revenues:
    Oil and gas sales                                     $  52,939      $ 162,299     $ 281,349
    Rental income from operating leases                       5,513          6,192         8,028
    Overhead recovery fees                                                   4,579       105,419
    Other                                                                    1,912
                                                          ---------      ---------     ---------
        Total revenues                                       58,452        174,982       394,796

Costs and expenses:
     Oil and gas production, operating
         and development costs                               58,951        301,198       143,772
     Selling, general and administrative expenses           461,152        198,554       120,820
     Depreciation, depletion and amortization                29,946        304,958        81,618
                                                          ---------      ---------     ---------
           Total costs and expenses                         550,049        804,710       346,210
                                                          ---------      ---------     ---------

Operating income (loss):                                   (491,597)      (629,728)       48,586

Non-operating income (expenses):
    Interest income                                               0              0           346
    Gain (loss) on sale of assets                                 0         12,230      (277,893)
    Other income (loss)                                     (12,193)           331       195,064
    Interest expense                                        (12,143)       (24,279)      (13,508)
                                                          ---------      ---------     ---------
           Total non-operating income (expenses)            (24,336)       (11,718)      (95,991)

Income (loss) from continuing operations:
   Before provision for income taxes                       (515,933)      (641,446)      (47,405)
   Provision (benefit) for income taxes                           0              0             0
                                                          ---------      ---------     ---------
Net loss                                                   (515,933)      (641,446)      (47,405)
Other comprehensive income (loss), net of tax:
   Unrealized gain (loss) on securities                       3,191        (25,575)            0
                                                          ---------      ---------     ---------
Comprehensive loss                                        $(512,742)     $(667,021)    $ (47,405)
                                                          =========      =========     =========

Net loss per common share - Basic and diluted             $   (0.03)     $   (0.05)    $   (0.00)
</TABLE>

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

                                      49
<PAGE>

                           ROSELAND OIL AND GAS, INC.
                  STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
                FOR THE YEARS ENDED JUNE 30, 1999, 1998, AND 1997


<TABLE>
<CAPTION>
                                                             Cum.      Common       Common       Addtnl.
                                                            Pref.      Shares        Stock       Paid-In         Accum.
                                                            Stock   Outstanding    Par Value     Capital        Deficit
                                                           ------   -----------    ---------    ---------     -----------
<S>                                                        <C>      <C>            <C>          <C>           <C>
Balance, June 30, 1996                                      2,000    4,772,149       238,043    2,374,280     (1,742,085)
     Preferred dividend                                         0            0             0            0              0
     Conversion of preferred to common                     (2,000)     400,000        20,000       13,500              0
     Conversion of dividend pay to stock                        0       58,698         3,500        4,769              0
     Sale of stock - private placements                         0            0             0            0              0
     Sale of stock - 10% commission                             0            0             0       (7,150)             0
     Net loss, year ended June 30, 1997                         0            0             0            0        (47,405)
                                                           ------   -----------    ---------    ---------     -----------
Balance, June 30, 1997                                          0    5,230,847       261,543    2,385,399     (1,789,490)
     Subscriptions                                              0            0             0            0              0
     Reimbursement of capital                                   0            0             0       (3,851)             0
     Unrealized loss on securities                              0            0             0            0              0
     Stock purchase                                             0   12,500,000       625,000      255,264              0
     Net loss, year ended June 30, 1998                         0            0             0            0       (641,446)
                                                           ------   -----------    ---------    ---------     -----------
Balance, June 30, 1998                                          0   17,730,847      $886,543   $2,636,812    $(2,430,936)
     Stock issued - previously subscribed                       0      200,000        10,000      100,000              0
     Stock issued - services rendered                           0      178,500         8,925       80,325              0
     Stock issued - to settle lawsuit/Regal Petroleum           0      129,000         6,450            0              0
     Unrealized loss/gain on securities                         0            0             0            0              0
     Warrants exercised                                         0            0             0            0              0
     Net loss, year ended June 30, 1999                         0            0             0            0       (515,933)
                                                           ------   -----------    ---------    ---------     -----------
Balance, June 30, 1999                                          0   18,238,347      $911,918   $2,817,138    $(2,946,869)


<CAPTION>

                                                                 Stock          Pref.                      Total
                                                             Subscriptions      Div.     Unrealized      Stckhldrs.'
                                                                  Paid        Payable       Loss           Equity
                                                             -------------    --------   ----------      -----------
<S>                                                          <C>              <C>        <C>             <C>
Balance, June 30, 1996                                                 0            0            0          870,238
     Preferred dividend                                                0       35,000            0           35,000
     Conversion of preferred to common                                 0            0            0           33,500
     Conversion of dividend pay to stock                               0      (35,000)           0          (26,731)
     Sale of stock - private placements                           71,500            0            0           71,500
     Sale of stock - 10% commission                                    0            0            0           (7,150)
     Net loss, year ended June 30, 1997                                0            0            0          (47,405)
                                                               ---------      -------     --------       ----------
Balance, June 30, 1997                                            71,500            0            0          928,952
     Subscriptions                                                38,500            0            0           38,500
     Reimbursement of capital                                          0            0            0           (3,851)
     Unrealized loss on securities                                     0            0      (38,750)         (38,750)
     Stock purchase                                                    0            0            0          880,264
     Net loss, year ended June 30, 1998                                0            0            0         (641,446)
                                                               ---------      -------     --------       ----------
Balance, June 30, 1998                                         $ 110,000            0     $(38,750)      $1,163,669
     Stock issued - previously subscribed                       (110,000)           0            0                0
     Stock issued - services rendered                                  0            0            0           89,250
     Stock issued - to settle lawsuit/Regal Petroleum                  0            0            0            6,450
     Unrealized loss/gain on securities                                0            0        4,836            4,836
     Warrants exercised                                          120,000            0            0          120,000
     Net loss, year ended June 30, 1999                                0            0            0         (515,933)
                                                               ---------      -------     --------       ----------
Balance, June 30, 1999                                         $ 120,000            0     $(33,914)      $  868,273
</TABLE>

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

                           ROSELAND OIL AND GAS, INC.
                            STATEMENTS OF CASH FLOWS
                    YEARS ENDED JUNE 30, 1999, 1998, AND 1997

<TABLE>
<CAPTION>
                                                                     1999           1998          1997
                                                                  ----------     ----------    ----------
<S>                                                               <C>            <C>           <C>
Cash flows from operating activities:
       Net loss                                                   $(515,933)     $(641,446)    $(243,896)
       Adjustments to reconcile net loss
        to cash provided (used) by operating activities:
              Depreciation, depletion and amortization               29,946        304,958        81,618
              (Gain) loss from sale of assets                             0        (12,230)      277,893
              Change in assets and liabilities:
                 Decrease in accounts receivable                     33,329         90,927        69,973
                 Decrease in inventory                                    0         14,194        26,008
                 Decrease in notes receivable                             0          1,500        48,752
                 (Increase) decrease in other assets                 (4,252)        49,696       230,127
                 Increase in loan from affiliate                    259,723        196,628             0
                 Increase (decrease) in accounts payable
                      and accrued liabilities                        41,837         94,622       (22,444)
                 Decrease in oil and gas
                    revenues payable                                      0              0       (42,497)
                                                                  ---------      ---------     ---------
       Net cash provided (used) by operating
          activities                                               (155,350)        98,849       425,534
                                                                  ---------      ---------     ---------

Cash flows from investing activities:
       Proceeds from disposal property and equipment                 38,000              0             0
       Purchase of property and equipment                            (1,580)      (150,752)     (501,745)
                                                                  ---------      ---------     ---------
       Net cash provided (used) by investing
          activities                                                 36,420       (150,752)     (501,745)
                                                                  ---------      ---------     ---------
Cash flows from financing activities:
       Proceeds from stock subscriptions                            120,000         38,500             0
       Payment for reimbursement of capital                               0         (3,851)            0
       Issuance of common stock                                           0              0       141,119
       Issuance of preferred stock                                        0              0        (2,000)
       Dividend payment                                                   0              0       (35,000)
       Additional debt                                                    0              0       150,421
       Payments on debt                                                   0         (1,588)     (177,835)
                                                                  ---------      ---------     ---------
       Net cash provided by financing activities                    120,000         33,061        76,705
                                                                  ---------      ---------     ---------
       Net increase (decrease) in cash and cash
          equivalents                                                 1,071        (18,842)          494

       Cash and cash equivalents, beginning of year                     303         19,145        18,651
                                                                  ---------      ---------     ---------

       Cash and cash equivalents, end of year                     $   1,374      $     303     $  19,145
                                                                  =========      =========     =========
</TABLE>

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

                                      50
<PAGE>

                           Roseland Oil and Gas, Inc.
                             Statement of Cash Flow
                    For the Year Ended June 30, 1999 and 1998
                                   (continued)

<TABLE>
<CAPTION>

Supplemental cash flows information:

         Cash paid during the year for:                                  1999         1998
                                                                       ---------     ---------
<S>                                                                    <C>           <C>
                  Interest                                                    0      $  24,279
                  Income taxes                                                0              0


Noncash investing and financing activities - debit (credit):

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

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

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

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

         To settle Regal lawsuit:
                  Accounts Payable                                       59,860              0
                  Common stock                                           (6,450)             0
                  Properties                                           (704,374)             0
                  Accumulated DD&A                                      650,964              0

         Previously subscribed stock issued:
                  Common  stock                                         (10,000)             0
                  Paid in capital                                      (100,000)             0
                  Subscriptions paid                                    110,000              0
</TABLE>

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

                                      51
<PAGE>

                           ROSELAND OIL AND GAS, INC.
                          NOTES TO FINANCIAL STATEMENTS
                             JUNE 30, 1999 AND 1998

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 - Beginning July 1, 1998, the Company changed
         their method of accounting from the successful efforts method to the
         full cost method of accounting for its oil and gas activities.
         Management believes adoption of the full cost method more accurately
         reflects management's exploration objectives and results by including
         all costs incurred as integral for the acquisition, discovery and
         development of whatever reserves ultimately result from its efforts
         as a whole. As a result of the change, net losses incurred on
         dispositions of oil and gas properties during the year totaling
         $330,492, have been included in capitalized costs. The change did
         not have a material effect on the financial statements for the year
         ended June 30, 1998. Following is a comparison of the two methods.

         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 $20,109, $288,356 and $73,016 for the
         years ended June 30, 1999, 1998, and 1997 respectively. Capitalized
         leasehold, drilling and completion costs totaling $132,956 were fully
         depleted as of June 30, 1999 and 1998.

         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 $173, $182 and $8,602 for the years ended June
         30, 1999, 1998, and 1997, respectively

         SUCCESSFUL EFFORTS METHOD

         Under the successful efforts method, costs to acquire mineral interests
         in oil and gas properties to drill and equip development wells are
         capitalized. Costs to drill exploratory wells that do not find proved
         reserves, geological and geophysical costs, and costs of carrying and
         retaining unproved properties are expensed.

         Unproved oil and gas properties that are individually significant are
         periodically assessed for impairment of value, and a loss is recognized
         at the time of impairment by providing an impairment allowance. Other
         unproved properties are amortized based on the Company's experience of
         successful drilling and average holding period. Capitalized costs of
         producing oil and gas properties after considering estimated
         dismantlement and abandonment costs and estimated salvage values, are
         depreciated and depleted by the unit-of-production method. Support
         equipment and other property and equipment are depreciated over their
         estimated useful lives.

         On the sale or retirement of a complete unit of a proved property, the
         cost and related accumulated depreciation, depletion and amortization
         are eliminated from the property accounts and the resultant gain or
         loss is recognized. On the retirement or sale of a partial unit of
         proved property, the cost is charged to accumulated depreciation,
         depletion, and amortization with a resulting gain or loss recognized in
         income.

         On the sale of an entire interest in an unproved property for cash or
         cash equivalent, gain or loss on the sale is recognized, taking into
         consideration the amount of any recorded impairment if the property had
         been assessed individually. If a partial interest in an unproved
         property is sold, the amount received is treated as a reduction of the
         cost of the interest retained.

                                     52
<PAGE>

FULL COST METHOD

         Under the full cost method of accounting, all costs associated with
         acquisition , exploration and development of oil and gas reserves,
         including directly related overhead costs, are capitalized.

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

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

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


         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 acquired properties. 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, 1999, 1998 and 1997. The weighted average number
         of common and common equivalent shares outstanding was 18,109,235;
         12,491,121; and 5,037,314 for the years ended June 30, 1999, 1998, and
         1997, respectively.

         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
         purchased, to be cash equivalents.

                                     53

<PAGE>

         ORGANIZATION COSTS - Organization costs, in the amount of $48,320 are
         being amortized by the straight line method over five years.
         Amortization expense charged to operations for the year ending June 30,
         1999, and 1998 was $9,664 and $16,420 respectively.

         FAIR VALUE OF FINANCIAL INSTRUMENTS - At June 30, 1999, the Company's
         financial instruments consist of marketable securities and long term
         debt. The Company believes that the recorded values approximate fair
         value.

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

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

         CERTAIN SIGNIFICANT ESTIMATES - Management estimates included in these
         financial statements for which it is reasonably possible that a future
         event in the near term could cause the estimate to change and the
         change could have a severe impact, are as follows:

         Management's estimates of oil and gas reserves are based on various
         assumptions, including constant oil and gas prices. Actual future
         production, cash flows, taxes, operating expenses, development
         expenditures and quantities of recoverable oil and gas reserves may
         vary substantially from those assumed in the estimate. The accuracy of
         any reserve estimate is a function of the quality of available data,
         engineering and geological interpretation, and judgment. Subsequent
         evaluation of the same reserves based upon production history will
         result in variations, which may be substantial, in the estimated
         reserves.

         While it is at least reasonably possible that the estimates above will
         change materially in the near term, no estimate can be made of the
         range of possible losses that might occur.

         OIL AND GAS REVENUE

         The Company recognizes oil and gas revenues by the sales method as oil
         and gas production is sold. Differences between sales and production
         volumes during the years ended June 30, 1999, 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 classified the securities as available for sale and they
         were reported at fair market value as a non-current asset. Subsequent
         to June 30, 1999, management has sold the shares and they have been
         reclassified as a current asset at that date. As of January 1, 1998 the
         fair market value of the shares was $0.875 per share, and as of June
         30, 1999, was $0.6562 per share.

                                     54
<PAGE>

4.       LONG-TERM DEBT - At June 30, 1999 and 1998, long-term debt to banks and
         others was comprised of the following:

<TABLE>
<CAPTION>
                                                       1999              1998
                                                     --------          --------
<S>                                                  <C>               <C>
         Note payable to Minneapolis Group            118,760           118,760
                                                     --------          --------
                                                     $118,760          $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, 1999 all notes are two years 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, 1999, 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. No shares of preferred stock are issued or outstanding at June
         30, 1999 and 1998.

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

         WARRANTS - Under a Limited Offering Memorandum in 1996, the Company
         issued 470,000 warrants to purchase one share of common stock for each
         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.

                                     55

<PAGE>

6.       LOSS PER COMMON SHARE

         Net loss per common share is computed as follows:

<TABLE>
<CAPTION>
                                                         1999               1998             1997
                                                     -----------       ------------      -----------
<S>                                                  <C>               <C>               <C>
         Net loss available to shareholders
                 (numerator)                            (515,933)          (641,446)         (47,405)
                                                     -----------       ------------      -----------
         Weighted average number of shares
                 of common stock (denominator)        18,109,235         12,491,121        5,037,314
                                                     ===========       ============      ===========
         Loss per common share                       $      (.03)       $      (.05)     $      (.01)
                                                     ===========       ============      ===========
</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

         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. The Company has 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, 1999, the Company owed Tauren $434,667, as a result of charges
         to the Company of $238,039 and $196,628 in 1999 and 1998 respectively.
         In addition, the wells in which the Company owns a working interest are
         operated by an affiliated company, Fossil Operating Inc.("Fossil"),
         which is owned 100% by the Company's President and Chief Executive
         Officer, Calvin Wallen III. As of June 30, 1999, the Company owed
         Fossil $21,684 in lease operating expenses.

 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, 1999    June 30, 1998
<S>                                                             <C>              <C>
         Deferred tax assets
                Net operating loss carryforwards                  $ 764,542        $ 480,033
         Deferred tax liabilities
                 Value of purchased property                       (256,790)        (256,790)
                                                                  ---------        ---------
         Net deferred tax assets before valuation allowance         507,752          223,243

         Valuation allowance                                       (507,752)        (223,243)
                                                                  ---------        ---------
         Net deferred tax assets                                  $       0        $       0
                                                                  =========        =========
</TABLE>

                                     56

<PAGE>

       As of June 30, 1999 and 1998, 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, 1999 and
       1998.

<TABLE>
<CAPTION>
                                                              1999            1998
<S>                                                         <C>            <C>
         Tax benefit calculated at statutory rate           (285,065)      ($218,092)

         Increase (reductions) in taxes due to:
           Losses not providing tax benefits                 285,065         218,092
                                                           ---------       ---------
         Current federal income tax provision              $       0       $       0
                                                           ---------       ---------
</TABLE>

       As of June 30, 1999, the Company had net operating loss carryforwards of
       $2,248,652, 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                                         639,813
       2014                                         838,424
                                                 ----------
                                                 $2,248,652
</TABLE>

9.       COMMITMENTS AND CONTINGENCIES

         Key Personnel

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

         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

                                     57
<PAGE>

         operators to comply with applicable environmental regulations may, in
         certain circumstances, adversely impact the Company.

         Litigation Matters

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

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

         In the spring of 1998, the Company became aware of the claim of a
         geologist filed in December 1997, to a 1% overriding royalty interest
         in various properties. The geologist filed an assignment after December
         1, 1997. The Company disputes the geologist's legal right to the
         overriding royalty and has filed suit to challenge this claim.

         William Vandever, as the prior President and Chief Executive Officer of
         the Company, purportedly granted some preferential right with respect
         to the Reagan leases in Section 11, Palo Pinto County, Texas, to
         participants in the re-work of the Reagan #2-11 well. The Company has
         filed suit in the 29th Judicial Court, Palo Pinto County, Texas, styled
         "Roseland Oil and Gas, Inc. v. William Vandever, et al.", against
         various persons, seeking a judicial determination that all grants of
         preferential rights in the Reagan Section 11 are void, and seeking
         monetary damages. This litigation is in its early stages and no
         judgment can yet be formed about the probable outcome or whether it
         would be unfavorable to the Company. Accordingly, no provision has been
         made for any possible loss.


10.      SUBSEQUENT EVENTS


         On August 16, 1999, the shareholders of the Company approved a reverse
         merger between Roseland, an Oklahoma company and its wholly-owned
         subsidiary, Cubic Energy, Inc., ("Cubic") a Texas corporation which was
         formed on August 27, 1999, with Cubic being the surviving corporation.
         The shareholders in Roseland will be given one share of common stock in
         Cubic for each share of Roseland common stock that they own on a yet
         undetermined record date. The merger will establish the Company in
         Texas where, currently, its operations and corporate office are
         located. As of September 20, 1999, the merger had not occurred.


11.      RESTATEMENT

         It has been determined that the accumulated depletion, depreciation and
         amortization was incorrectly stated in the prior period ending June 30,
         1997 financial statements. The correction of this account affects the
         income statement for the year ending June 30, 1997 and the beginning
         accumulated deficit as of July 1, 1997.

                                     58

<PAGE>

         A summary of the effects of the restatement follows:
<TABLE>
<CAPTION>
                                                            1997
                                                            ----
<S>                                                      <C>
         Accumulated D D & A                              196,491
         Miscellaneous Income                            (196,491)
         Accumulated Deficit                              196,491
</TABLE>

         The restatement resulted in decreasing the 1997 net loss by $196,491
         and decreasing loss per share by $.05.

12.      OPERATIONS AND MANAGEMENT PLANS

         At June 30, 1999, the Company had suffered recurring operating losses
         and its current liabilities exceeded its current assets by $415,766.

         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.

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

         Although management believes the above 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, 1999, 1998, and 1997 were as follows:
<TABLE>
<CAPTION>
                                             1999                1998                1997
                                       ----------          ----------          ----------
<S>                                    <C>                 <C>                 <C>
         Property acquisition          $    1,580          $1,031,016          $        0
         Exploration                            0                   0                   0
         Development                            0                   0             242,419
                                       ----------          ----------          ----------
                                       $    1,580          $1,031,016          $  242,419
                                       ==========          ==========          ==========
</TABLE>
         In addition to the costs reflected above for the year ended June 30,
         1999, capitalized costs were increased by $330,492 representing the
         amount of loss on sale of oil and gas properties which was accounted
         for under the full cost method as described in Note 2.

         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, 1999, 1998, and 1997 were as follows:
<TABLE>
<CAPTION>
                                                   1999            1998            1997
                                             ----------      ----------      ----------
<S>                                          <C>             <C>             <C>
         Proved properties                   $1,559,573      $2,314,466      $1,358,859
         Unproved properties                          0               0               0
                                             ----------      ----------      ----------
                                             $1,559,573      $2,314,466      $1,358,859
         Accumulated depreciation,
            depletion, and amortization         178,339         823,296         520,659
                                             ----------      ----------      ----------
         Total:                              $1,381,234      $1,491,170      $  838,200
                                             ==========      ==========      ==========
</TABLE>

                                     59
<PAGE>

         RESULTS OF OPERATIONS - The results of operations from oil and gas
         producing activities for the years ended June 30, 1999, 1998, and 1997
         were as follows:

<TABLE>
<CAPTION>
                                                              1999            1998            1997
                                                         ---------       ---------       ---------
         <S>                                             <C>             <C>             <C>
         Revenues from unaffiliated customers            $  52,939       $ 166,878       $ 386,768

         Production costs                                   58,951         301,198         143,772
         Exploration expenses                                    0               0               0
         Abandonments                                            0               0               0
         Depreciation, depletion, and amortization          20,109         288,356          81,618
                                                         ---------       ---------       ---------
         Total:                                             79,060         589,554         225,390
                                                         ---------       ---------       ---------
         Results before income taxes                       (26,121)       (422,676)        161,378
         Provision for income taxes                              0               0               0
                                                         ---------       ---------       ---------
         Results of operations (excluding
            corporate overhead and interest
            expenses)                                    $ (26,121)      $(422,676)      $ 161,378
                                                         =========       =========       =========
</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, 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, 1999, 1998 and 1997 together
         with the changes therein.

<TABLE>
<CAPTION>
                                                            Natural Gas (Mcf)                 Oil and Condensate (Bbls)
                                               ----------------------------------------     -----------------------------
                                                   1999           1998           1997        1999       1998        1997
                                               ----------     ----------      ---------     -------    -------    -------
<S>                                            <C>             <C>            <C>          <C>        <C>         <C>
Proved developed and undeveloped reserves:
Beginning of year                               5,185,942      8,198,818      8,509,748     141,292     54,388    103,178
Revisions of previous estimates                (2,363,513)      (903,134)       (23,473)     (4,899)   (23,081)   (18,351)
Purchases of reserves in place                          0      2,583,033              0           0    130,545          0
Extensions and discoveries                        546,998              0              0         604          0          0
Production                                        (21,129)       (81,485)      (285,640)       (667)    (2,766)   (22,919)
Sales of reserves in place                       (209,375)    (4,611,290)        (1,817)     (4,541)   (17,794)    (7,570)
                                               ----------     ----------      ---------     -------    -------    -------
End of year                                     3,138,923      5,185,942      8,198,818     131,789    141,292     54,338
</TABLE>


                                     60
<PAGE>

         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, 1999, 1998, and 1997: (1)

<TABLE>
<CAPTION>
                                                    1999              1998             1997
                                                -----------       -----------      -----------
<S>                                             <C>               <C>              <C>
Future cash inflows                             $ 9,522,716       $10,836,747      $20,052,787
Future production costs                            (456,000)       (1,085,928)      (3,377,904)
Future development costs                           (480,000)       (1,505,000)      (2,032,525)
Future severance tax expenses                      (782,646)         (884,796)      (1,526,523)
Future income taxes                              (1,951,018)       (1,868,811)               0
                                                -----------       -----------      -----------
Future net cash flows                             5,853,052         5,492,212       13,115,835
Ten percent annual discount for
   estimated timing of net cash flows             1,990,038         1,867,625        4,813,392
                                                                  -----------      -----------
Standardized measure of discounted
   future net cash flows                        $ 3,863,014       $ 3,624,587      $ 8,302,443
                                                ===========       ===========      ===========
</TABLE>

Following is an analysis of changes in the estimated standardized measure of
proved reserves during the years ended June 30, 1999, 1998, and 1997: (2)

<TABLE>
<CAPTION>
                                               1999            1998            1997
                                           -----------     -----------       ---------
<S>                                        <C>             <C>               <C>
Changes from:
Sales of oil and gas produced                   48,502         138,899        (281,348)

Net changes in prices and
  production costs                             (48,994)        (23,589)              0

Extensions and discoveries                     729,470               0               0
Revisions of previous quantity
  estimates                                   (436,670)     (1,008,000)         18,922
Accretion of discounts                         137,434         830,244               0
Net change in income taxes                           0      (1,233,228)              0
Purchases of reserves in place                       0       1,557,177               0
Sales of reserves in place                    (191,315)     (4,569,000)       (156,112)
Other                                                0        (370,359)              0
                                           -----------     -----------       ---------

Standardized measure, end of year          $   238,427     $(4,677,856)      $ 418,539
                                           ===========     ===========       =========
</TABLE>

                                     61
<PAGE>

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.


                                     62