<PAGE>
U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORUM 10-QSB
(X) QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended: June 30, 1996
( ) TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES ACT OF 1934
For the transition period ended:
Commission File Number: 0-25006
Name of Small Business Issuer in Charter: UNITED PETROLEUM CORPORATION
State or Other Jurisdiction of Incorporation or Organization: DELAWARE
I.R.S. Employer I.D. Number: 13-3103494
Address of Principal Executive Offices: 4867 N. Broadway
Knoxville, Tennessee 37918
Issuer's Telephone Number: (615) 688-0582
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Sections 13 or 15(d) of the Securities Act of 1934 during the
preceding 12 months (or for such shorter period that the Registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
(l) Yes (X) No ( ) (2) Yes (X) No ( )
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the numbers of shares outstanding of each of the Registrant's classes
of common stock, as of the latest practicable date:
Common Voting Stock: 4,660,156 Date: July 25, 1996
Transitional Small Business Disclosure Format
(Check One): Yes ( ) No (X)
Page 1 of 18
<PAGE>
UNTIED PETROLEUM CORPORATION AND SUBSIDIARIES
INDEX
Part 1. Financial Information
Item 1. Condensed Financial Statements ( Unaudited )
Condensed consolidated balance sheets - June 30, 1996 and December 31,
1995
Condensed consolidated statements of operations - Three months ended
June 30, 1996 and 1995; six months ended June 30, 1996 and 1995
Condensed consolidated statement of stockholders' equity
Condensed consolidated statements of cash flows - Six months ended
June 30, 1996 and 1995
Notes to condensed consolidated financial statements - June 30, 1996
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Part II. Other Information
Signatures
2 of 18
<PAGE>
PART 1. - Financial Information Item 1. Financial Statements
United Petroleum Corporation and Subsidiaries
Condensed Consolidated Balance Sheets
At June 30, 1996 and December 31, 1995
(Unaudited)
<TABLE>
<CAPTION>
June 30, 1996 Dec.31, 1995
<S> <C> <C>
Current Assets
Cash $3,208,847 $37,941
Accounts and Notes Receivable $212,558 $150,532
Inventories $552,578 $572,808
Other Current Assets $205,933 $452,937
----------- -----------
$4,179,916 $1,214,218
Property and Equipment
Gas and Oil properties $3,550,906 $3,050,680
Premises and Equipment ( Net ) $11,876,323 $11,026,031
Other Assets $2,678,403 $251,314
----------- -----------
Total Assets $22,285,548 $15,542,243
=========== ===========
Liabilities and Stockholders' Equity
Current Liabilities
Accounts Payable $441,430 $602,137
Accrued Expenses $399,658 $337,503
Accrued Federal and State Income Tax $0 $5,160
Bank Line Of Credit $0 $250,000
Current Maturities-Long Term Debt $332,525 $514,968
----------- -----------
$1,173,613 $1,709,768
Long Term Liabilities
Long Term Debt-Less Current Maturitities $9,398,081 $8,359,890
Debentures $6,431,250 $0
Unearned Revenue $200,000 $200,000
Deferred Income Taxes $568,000 $595,000
----------- -----------
$17,770,944 $10,864,658
Stockholders' Equity
Common Stock, $.01 Par Value $46,551 $46,028
(50,000,000 shares authorized,
4,655,156 and 4,602,840 issued)
Additional Paid-ln Capital $4,443,575 $4,321,748
Retained Earnings $24,478 $309,809
----------- -----------
Total Stockholders' Equity $4,514,604 $4,677,585
----------- -----------
Total Stockholders' Equity & Liabilities $22,285,548 $15,542,243
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
Page 3 of 18
<PAGE>
United Petroleum Corporation and Subsidiaries
Condensed Consolidated Statements of Operations
For The Three Month Periods Ended June 30, 1996 and 1995
(Unaudited)
<TABLE>
<CAPTION>
June 30,1996 June 30,1995
<S> <C> <C>
Revenues $3,253,888 $3,148,714
Cost of Sales $2,209,676 $2,183,678
---------- ----------
Gross Profit $1,044,212 $965,036
Operating Expenses:
Salaries and Wages $295,529 $275,817
Payroll Taxes $75,056 $70,350
Other General and Administrative $623,646 $400,549
Depreciation and Amortization $201,452 $118,697
---------- ----------
$1,195,683 $865,413
---------- ----------
Operating Income(Loss) ($151,471) $99,623
Interest Expense $198,298 $178,221
Other Income ( Expense ) $30,060 $248,709
---------- ----------
Net Income(Loss) Before Income Taxes ($319,709) $170,111
Provision For Income Taxes $32,493 ($60,166)
---------- ----------
Net Income(Loss) After Taxes ($287,216) $109,945
========== ==========
Primary Earnings(Loss) Per Share ($0.06) $0.03
========== ==========
Weighted Average Shares Outstanding 4,623,313 3,902,267
========== ==========
Fully Diluted Earnings Per Share ($0.06) $0.02
========== ==========
Fully Diluted Weighted Average Shares
Outstanding 4,623,313 4,518,264
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
Page 4 of 18
<PAGE>
United Petroleum Corporation and Subsidiaries
Condensed Consolidated Statements of Operations
For The Six Month Periods Ended June 30, 1996 and 1995
(Unaudited)
<TABLE>
<CAPTION>
June 30, 1996 June 30, 1995
<S> <C> <C>
Revenues $6,598,717 $6,455,059
Cost of Sales $4,426,945 $4,375,096
---------- ----------
Gross Profit $2,171,772 $2,079,963
Operating Expenses
Salaries & Wages $549,002 $564,388
Payroll Taxes $164,658 $151,488
Other General and Administrative $1,193,607 $848,514
Depreciation and Amortization $320,588 $236,578
---------- ----------
$2,227,855 $1,800,968
---------- ----------
Operating Income(Loss) ($56,083) $278,995
Interest Expense $305,305 $329,107
Other Income ( Expense ) $43,897 $260,113
---------- ----------
Net Income(Loss) Before Income Taxes ($317,491) $210,001
Income Tax (Expense)Benefit $32,160 ($66,150)
---------- ----------
Net Income(Loss) ($285,331) $143,851
========== ==========
Primary Earnings(Loss) Per Share ($0.06) $0.04
========== ==========
Weighted Average Shares Outstanding 4,623,313 3,902,267
========== ==========
Fully Diluted Earnings(Loss) Per Share ($0.06) $0.04
========== ==========
Fully Diluted Weighted Average Shares
Outstanding 4,623,313 4,518,264
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements
Page 5 of 18
<PAGE>
United Petroleum Corporation and Subsidiaries
Condensed Consolidated Statement of Stockholders' Equity
For The Six Month Period Ended June 30, 1996
<TABLE>
<CAPTION>
Common Stock
Additional
Shares Amount Paid-In Retained Total
Capital Earnings
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1995 4,602,840 $46,028 $5,681,124 $309,809 $6,036,961
Adjustment to reflect receivable
from shareholder ($1,359,376) ($1,359,376)
--------- ------- ----------- --------- -----------
December 31, 1995 restated to
reflect shareholder receivable 4,602,840 $46,028 $4,321,748 $309,809 $4,677,585
Shares issued for services 18,500 $185 $51,330 $51,515
Shares issued in cancellation of
warrants 2,334 $23 ($23) $0
Shares issued to acquire oil
& gas properties 31,482 $315 $70,520 $70,835
Net Income (Loss) ($285,331) ($285,331)
--------- ------- ----------- --------- -----------
Balance, June 30, 1996 4,655,156 $46,551 $4,443,575 $24,478 $4,514,604
========= ======= =========== ========= ===========
</TABLE>
Page 6 of 18
<PAGE>
United Petroleum Corporation and Subsidiaries
Condensed Consolidated Statements of Cash Flows
For The Six Month Periods Ended June 30, 1996 and 1995
<TABLE>
<CAPTION>
June 30, 1996 June 30, 1995
<S> <C> <C>
Operating Activities
Net Income(Loss) ($285,331) $143,851
Adjustments to reconcile net income(loss) to
net cash provided by operating activities:
Depreciation and Amortization $320,588 $236,578
Shares Issued For Services $51,515
Changes in operating assets and liabilities:
Decrease ( increase ) in-
Accounts notes receivable ($62,026) ($359,980)
Inventories $20,230 ($110,180)
Other Current Assets $247,004 ($64,101)
Proceeds from unearned purchase discounts $40,000
Increase ( decrease ) in -
Accounts Payable and Accrued Liabilities ($130,712) $206,844
----------- -----------
Net Cash Provided By Operating Activities $161,268 $93,012
Investing Activities
Property and Equipment Additions ($1,170,880) ($1,493,855)
Acquisition of gas end oil properties ($429,391) ($55,665)
Decrease (Increase) in other assets ($818,756) ($402,004)
----------- -----------
Net Cash Provided By Investing Activities ($2,419,027) ($1,951,524)
Financing Activities
Principal payments on debt ($512,413) ($546,917)
Proceeds from short term borrowings $0 $135,000
Payments on short term borrowings ($250,000) ($7,237)
Net proceeds from bank financing $1,368,161 $1,366,321
Net proceeds from issuance of debentures $4,822,917 $0
Proceeds from issuance of common stock $0 $759,769
----------- -----------
Net Cash Provided By Financing Activities $5,428,665 $1,706,936
----------- -----------
Increase (Decrease) in Cash and Cash Equivalents $3,170,906 ($151,576)
Cash and Cash Equivalents, Beginning of Period $37,941 $189,350
----------- -----------
Cash and Cash Equivalents, End of Period $3,208,847 $37,774
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
Page 7 of 18
<PAGE>
United Petroleum Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 1 - Summary of Significant Accounting Policies
Basis of Presentation - The accompanying unaudited condensed consolidated
financial statements have been prepared in accordance with generally accepted
accounting principles for interim financial information and with the
instructions to Form 10-QSB of Regulation S-B. Accordingly, they do not include
all of the information and footnotes required by generally accepted accounting
principles for complete statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for a
fair presentation have been included. Certain reclassifications have been made
to the 1995 financial statements in order for them to conform with
classifications used in 1996. Operating results for the three month and six
month periods ended June 30, 1996 are not necessarily indicative of the results
that may be expected for the year ended December 31, 1996. For further
information, refer to the consolidated financial statements and footnotes
thereto included in the Registrant and Subsidiaries' annual report on Form
10-KSB for the year ended December 31, 1995.
Principles of Consolidation - The consolidated financial statements include the
accounts of United Petroleum Corporation (the "Company") and its wholly owned
subsidiaries, Calibur Systems, Inc. and Jackson-United Petroleum Corporation.
All significant intercompany accounts and transactions have been eliminated in
consolidation.
Business Activities - The Company's business activities are conducted through
its subsidiaries and are contained within two primary industry segments. Calibur
Systems, Inc. operates convenience stores, express lube centers, and car washes
providing a variety of car wash and detail services, gasoline, automotive, food
and beverage and related products throughout middle and eastern Tennessee and
northern Georgia. Jackson-United Petroleum Corporation is a newly formed
corporation for the purpose of developing gas and oil properties and marketing
of gas and oil production. Currently all of the Company's gas and oil properties
are located within the United States in central and eastern Kentucky and are
under development. No operating revenues have been derived from oil and gas
production as of June 30, 1996.
Cash and Cash Equivalents - The Company considers cash on hand, deposits in
banks, certificates of deposit and investments with original maturity of three
months or less to be cash or cash equivalents.
Inventories - Inventories are stated at the lower of cost or market. Cost of
gasoline sales is determined using the first-in first-out method. Cost of
convenience store sales is determined using the average retail cost method.
Page 8 of 18
<PAGE>
United Petroleum Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements - Continued
(Unaudited)
Gas and Oil Properties - The Company follows the full cost method of accounting
for gas and oil properties. Accordingly, all costs associated with acquisition,
exploration and development of gas and oil reserves, including directly related
overhead costs, are capitalized.
All capitalized costs of gas and oil 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 10 percent interest rate of future net reserves from proved
reserves, based on current economic and operating conditions, plus lower of cost
or fair market value of unproved properties.
Retail Operations - Property and equipment of the retail operations is stated at
cost. Routine repairs and maintenance are charged to expense as incurred. Upon
disposition, the cost and related accumulated depreciation are removed from the
accounts and resulting gain or loss is reflected in operations of the period.
The Company generally depreciates property and equipment on a straight-line
basis over the useful lives of the related assets estimated to be 15 to 20 years
for buildings and improvements, 6 to 10 years for equipment, and 3 to 4 years
for vehicles.
Capitalized Interest - The Company capitalizes interest on construction in
progress and expenditures made in connection with exploration and development
projects that are not subject to current amortization. Interest is capitalized
only for the period that activities are in progress to bring these projects to
their intended use.
Income Taxes - Deferred Taxes are provided in accordance with Statement and
Financial Accounting Standards Number 109, Accounting For Income Taxes. Deferred
taxes are provided to account for accumulated temporary differences for assets
and liabilities for financial reporting and income tax purposes, including
alternative minimum taxes. The Company's temporary differences are primarily due
to different financial reporting and tax methods of accounting for depreciation
and intangible drilling costs.
Non-Cash Equity Transactions - Goods and services acquired through the issuance
of the Company's common stock are valued at the fair market value of the stock
on the date of
Page 9 of 18
<PAGE>
United Petroleum Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements Continued
(Unaudited)
acquisition. When restricted shares are issued, the value of the shares given in
exchange is discounted approximately 50% from the fair market value of freely
traded common stock. It is the intent of management to reduce the discount
related to the issuance of restricted shares if and when the market for the
Company's common stock becomes less volatile and the average daily trading
volume increases significantly.
Equity Transactions
During the second quarter of 1996 the Company successfully completed a
private placement of convertible debentures which have a maturity of
approximately two years and an interest rate of 7%. The aggregate face value of
the debentures was approximately $6,431,250 with proceeds to the Company of
approximately $4,822,917 before expenses of approximately $611,000. The
debentures ore convertible into common stock of the Company. The conversion
price is equal to 100% of the average market price per share as reported by
Nasdaq for the five business days preceding the conversion date subject to a
$4.00 per share ceiling price.
Subsequent to the end of the quarter the Company successfully completed an
additional private placement of convertible debentures which have a maturity of
approximately two years and an interest rate of 7%. The aggregate face value of
the additional debentures was approximately $7,766,666 with proceeds to the
Company of approximately $5,825,000 before expenses of approximately $737,835.
The debentures are convertible into common stock of the Company. The conversion
price is equal to 100% of the average market price per share as reported by
Nasdaq for the five business days preceding the conversion date subject to a
ceiling price of $4.00 per share on debentures with a face value of
approximately $666,666 and a ceiling price of $5.00 per share on debentures with
a face value of approximately $7,100,000
The Company intends to use the majority of the proceeds of the debentures
to finance drilling operations in eastern Kentucky, to acquire additional oil &
gas properties and to continue expanding the retail subsidiary of the Company.
Page 10 of 18
<PAGE>
Item 2. - Management's Discussion and Analysis of Operations
The Company realized net loss of ($287,216) For the three month period
ended June 30, 1996, compared to net income of $109,945 for the same period last
year.
A summary of comparative results between the second quarter of 1996 and the
second quarter of 1995 is as follows:
Revenues were reached as follows:
Quarter Ended Quarter Ended
June 30, 1996 June 30, 1995
Gasoline $ 1,158,391 $1,286,525
Car Wash 1,457,380 1,338,928
Oil & Lube 295,434 175,839
Grocery 173,354 176,644
Other Sales 169,329 170,778
----------- -----------
Total Revenue For Quarter $ 3,253,888 $ 3,148,714
=========== ===========
The Company experienced an increased gross profit margin on gasoline sales
from 6.7% in the second quarter of 1995 to 14.1% in the second quarter Of
1996. Volume decreased from 1,205,290 gallons in the second quarter of 1995 to
1,181,177 gallons in the second quarter of 1996 for a decrease of 2.0%. The
increased gross profit margin can mainly be attributed to favorable wholesale
gasoline prices.
Car wash revenue was $118,452 higher for the quarter as compared to the
same quarter last year. Of this amount $32,088 is attributed to the new location
in Sevierville, Tennessee. Same store increases of $86,364 accounted for the
balance of the increase. Even though car wash revenue was higher than the same
period last year management had anticipated the increase to be in the area of
$100,000. It is the belief of management that excessive rainfall in the months
of April and June prevented the desired level of revenue from being achieved.
Oil and lube revenue was $119,595 higher for the quarter as compared to the
same quarter last year which represents an increase of 68%. Of this amount
$78,191 is attributed to the following new locations: (1.) Sevierville,
Tennessee, (2.) Atlanta, Georgia and (3.) Cleveland, Tennessee. Same store
increases of $41,404 accounted for the balance of the increase. This trend is
expected to continue as lube centers require approximately two to three years to
reach their potential. As of the end of the second quarter of this year the
Company has six oil and lube centers in operation as compared to three oil and
lube centers open at the end of second quarter in 1995. Revenues from the three
above referenced locations are expected to grow substantially over the next few
years.
Page 11 of 18
<PAGE>
Management's Discussion and Analysis of Operations - Continued
Operating and interest expenses were $1,393,981 for the second quarter of
1996 as compared to $1,043,634 for the same period last year. This increase is
mainly attributed to increases in legal and professional fees and increased
shareholder relations expenses. Interest and depreciation expenses were higher
for the quarter as compared to last year as a result of the continued growth in
retail locations owned by the Company. Additionally, approximately $88,078 in
interest expense was capitalized associated with the carried cost of
non-producing oil and gas properties presently in the development stage. Also
included in the expenses are approximately $87,750 in interest associated with
the convertible debentures, $90,000 associated with the exercise of options
related to M.A.G. & Associates in 1995 which is being written off over the life
of the contract and $21,521 of the discount associated with the convertible
debentures issued by the Company in June of this year.
Earnings for the second quarter did not meet the expectations of
management. The primary factors associated with the decreased income were: (1.)
increases in non-operating expenses as mentioned above, (2.) lower than expected
gasoline volume and (3.) lower than expected car wash revenue in the months of
April and June. These items combined with the increased costs associated with
such costs as legal, professional and shareholder relations were the major
factors which resulted in the loss sustained by the Company in the second
quarter.
As of the date of this report, there has been no production of oil and gas,
and no revenue has been generated from the Company's subsidiary, Jackson-United
Petroleum Corporation. The oil and gas business segment had a net loss ($18,910)
for the quarter ended June 30, 1996.
During the Company's three most recent years, it has drilled four (4)
exploratory wells on the Company's central Kentucky leases, all during 1993 and
1994. Natural gas has been discovered on three (3) of these wells. No gas was
discovered in the fourth well, and the three wells exhibiting the presence of
natural gas are presently shut-in.
During the second quarter of 1996 the Company drilled one (1) exploratory
well in Pike County, Kentucky under a farmout agreement with Penn Virginia Oil &
Gas Corporation. Results from an independent petroleum engineer retained by the
Company to test the well indicate that the well contains approximately 1.3 BCF
(billion cubic feet) of natural gas. The well is presently being connected to a
pipeline. The pipeline is approximately 60% completed as of the date of this
report and is expected to be completed in late August of 1996. Gas sales are
expected to begin soon after the pipeline is completed. A gas sales agreement is
in place which will allow the Company to sell the gas from the well. Preliminary
flow tests performed on the well indicate a payback of twelve (12) months or
less is possible. Management is extremely pleased with the results of this well
and feels this is an important step toward obtaining profitable operating
results from the oil and gas subsidiary.
Page 12 of 18
<PAGE>
Management's Discussion and Analysis of Operations - Continued
Financial Condition - The working capital deficit of approximately $680,000
as of March 31, 1996 has been reversed. Working capital as of June 30, 1996 is
approximately $3,006,303. Management is quite pleased with this increase in
working capital which resulted from the issuance of $6,431,250 of convertible
debentures during the second quarter of 1996. The debentures were issued at a
twenty-five percent (25%) discount to face value and bear an interest rate of
seven percent (7%). The debentures have a maturity of approximately two years.
Although the working capital position of the Company has greatly improved,
the debt to equity ratio has increased. Management is aware that the present
ratio of 3.94 to 1 is greater than the desired ratio of 2.5 to 1 or less,
however, if and when the debentures are converted into common stock the ratio
should improve significantly and quickly.
During 1996, the Company will continue to seek additional sources of
capital for the following reasons:
(1.) To be able to expand the number of retail locations owned or operated
by the Company by a minimum of four new locations per year. In order to maintain
the necessary financial ratios required by the financial industry and sound
business policies the Company is required to use both equity and debt to finance
new locations. This alone will create the need for substantial capital if the
Company's business is to grow at the pace desired by management. No assurance
can be given that the Company will be able to obtain the desired capital.
(2.) To be able to continue to add services such as lube centers and food
courts to existing locations. A typical lube center added to a location already
owned by the Company can cost as much as $200,000 per location. In most cases
financing for such additions can only be arranged for up to three to five years.
For this reason several lube centers financed entirely by debt can have a
substantial effect on the annual debt service of the Company. It is the intent
of management to decrease annual debt service as much as possible and therefore
increase the Companies ability to generate cashflow, which requires that a large
portion of the funds used to complete new lube centers should be provided
through one or more infusions of additional capital.
(3.) To be able to develop the Company's oil and natural gas properties
and perform under the farmout agreement with Penn Virginia Oil and Gas. Without
sufficient capital the Company will not be able to convert the oil and natural
gas properties to a revenue generating asset. The recent issuance of convertible
debentures by the Company should provide the necessary financing to allow the
Company to complete a portion of the intended development of the gas and oil
properties. No assurance can be given that the Company will be able to raise
sufficient capital to continue the development of the oil and gas properties
such that they become a profitable asset of the Company.
(4.) To increase overall balance sheet liquidity of the Company. Without
the necessary liquidity to be able to act quickly the Company is deprived of the
opportunity to make acquisitions that could be beneficial.
Page 13 of 18
<PAGE>
Management's Discussion and Analysis of Operations - Continued
Expansion and Capital Improvements -
As of June 30, 1996 the Company is committed to certain expansion projects
in the retail subsidiary and they are as follows:
(1.) The Company has a new Pennzoil Ten Minute Lube Center in Oak Ridge,
Tennessee which was built as an extension to the Company's existing car wash
facility at that location. The new lube center was scheduled to open in the
second quarter of 1996, however, due to construction delays this was not
possible. Subsequent to the end of the quarter the lube center was opened in
August of 1996. No further financing is required. A construction and permanent
loan was obtained prior to beginning construction from a bank in an amount
sufficient to cover the estimated costs of the project.
(2.) The Company presently has a new free standing food court at an
existing location in Cookeville, Tennessee. The food court opened during the
second quarter of 1996. Management is pleased with the sales being achieved at
the new food court which are approximately $30,000 per month. No further
financing is required. A construction and permanent loan was obtained prior to
beginning construction from a bank in an amount sufficient to cover the
estimated costs of the project.
(3.) The Company intends to build a new Pennzoil Ten Minute Lube Center at
8016 Kingston Pike in Knoxville, Tennessee. A loan to cover approximately
seventy-five percent of the estimated costs of the project has recently been
completed. The remainder of the funds necessary for this project will be paid in
cash. The building permit has recently been issued and construction is expected
to begin in August of 1996.
(4.) The Company intends to build a new Pennzoil Ten Minute Lube Center in
both Newport, Tennessee and Morristown, Tennessee. No further financing is
required. A loan to cover the majority of the costs associated with the
construction of these two new lube centers was closed in May 1996. Construction
was scheduled to begin in June of 1996, however, due to delays in other projects
the anticipated start date has been moved to the third quarter of this year.
(5.) The Company desires to open three new Exxon branded gasoline locations
in 1996. The land for these three projects has already been purchased by the
Company. It is the intent of the Company at this time to convey these properties
to Michael F. Thomas, the Company's chief executive officer, or a third party
and execute a lease with the third party such that the Company will operate the
locations but will not own the locations. The locations are as follows: (1)
Ashville Highway in Knoxville, Tennessee, (2) Cumberland Avenue in Knoxville,
Tennessee and (3) Lee Highway in Chattanooga, Tennessee. Financing for the
Cumberland Avenue property was completed subsequent to the end of the second
quarter and construction has begun. No financing has been arranged for the other
two Exxon branded locations and no assurance can be given that suitable
financing will be available to the Company for these two projects.
Page 14 of 18
<PAGE>
Management's Discussion and Analysis of Operations - Continued
As of June 30, 1996 the Company desires to expand drilling operations in
their energy subsidiary. The below outlined plans are not commitments of the
Company, however, Company management is of the opinion that these expenditures
are required to enable the energy subsidiary to contribute to the profitability
of the Company. A summary of the immediate plans are as follows:
(1.) The Company is presently in the process of preparing to drill two (2)
exploratory wells in Martin County, Kentucky on properties which are presently
under lease by the Company. Title work and right-of-ways are now being
completed. It is the desire of the Company to begin drilling operations by
September of 1996. Financing is in place for each well in the form of cash. No
assurance can be given that the wells will exhibit the presence of natural gas.
(2.) The Company is presently in the process of preparing to drill two (2)
exploratory wells in Pike County, Kentucky on properties obtained via a farmout
agreement with Penn Virginia Oil & Gas Corporation. Title work and right-of-ways
are now being completed. It is the desire of the Company to begin drilling
operations by September of 1996. Financing is in place in the form of cash. A
gas sales contract has been completed which will allow the Company to sell the
gas upon the successful completion of the wells. No assurance can be given that
the wells will exhibit the presence of natural gas.
(3.) It is the desire of the Company to drill up to ten (10) wells in
eastern Kentucky during 1996. This figure includes the above mentioned four (4)
wells. No assurance can be given that the Company will be able lo locate the
required number of drilling sites to drill the additional six (6) exploratory
wells. Financing is in place for the additional six (6) wells in the form of
cash.
The Company has recently reviewed several potential acquisitions for its
retail subsidiary and several potential acquisitions for the oil and gas
subsidiary. As of the date of this report none of these potential acquisitions
have become commitments of the Company. In the event the Company should desire
to make such an acquisition or acquisitions substantial capital will be
required. No assurance can be given that the Company will be able to acquire the
necessary capital to make such acquisitions.
On May 2, 1996 the Company entered into a letter of intent with the Silicon
Group, Inc. (hereinafter "SGI") headquartered in Coral Springs, Florida to
acquire eighty percent (80%) of the outstanding shares of SGI. As of the date of
this report no formal agreement has been completed, however, negotiations are in
process.
On June 24, 1996 the Company entered into a letter of intent with QPQ
Corporation, headquartered in Miami, Florida, to acquire the exclusive rights to
Domino's Pizza locations in Poland. Subsequent investigation and examination of
this acquisition has resulted in a decision by the Board of Directors not to
pursue the matter further. The letter of intent was withdrawn.
During the quarter the Company issued 31,482 common shares as payment for
oil and gas properties. All of the shares were issued at market value as of the
date of issuance. Said shares
Page 15 of 18
<PAGE>
Management's Discussion and Analysis of Operations - Continued
were issued at a price of $2.25 per share. The aggregate issuance price
associated with the issued shares was $70,835.
During the quarter the Company issued options to purchase 1,125,000 shares
of common stock at $2.25 per share to a consultant of the Company. The options
were issued at the fair market value of the Company's common stock as of the
date of the grant. To date none of these options have been exercised.
In June 1996, the Company issued 7% convertible debentures in a private
placement of securities to certain sophisticated investors with a face value of
approximately $6,431,250 resulting in net cash to the Company of approximately
$4,822,917 before expenses of approximately $611,000.
Page 16 of 18
<PAGE>
Part II - Other Information
Item 1 Legal Proceedings
None, not applicable
Item 2 Changes In Securities
None, not applicable
Item 3 Defaults Upon Senior Securities
None, not applicable
Item 4 Submission of Matters to a Vote of Security Holder
None, not applicable
Item 5 Other Information
Subsequent to the end of the quarter the Company issued additional 7%
convertible debentures with an aggregate face value of $7,766,666 resulting in
additional cash being received by the Company in the amount of $5,825,000 before
expenses of approximately $737,835. As of the date of this report and subsequent
to the end of the second quarter approximately $225,000 in face value of
debentures have been converted into common stock at a price of: $3.275.
On July 11, 1996 the Board of Directors authorized the Company to purchase
up to 1,000,000 shares of the Company's common stock.
Item 6 Exhibits and Reports on Form 8-K
(a.) Exhibits -- None
(b.) Reports on Form 8-K -- One
Change of auditors to Coopers & Lybrand Convertible
debenture issuance
Page 17 of 18
<PAGE>
Signatures
Pursuant to the requirement 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.
United Petroleum Corporation
Date: 8/12/96 By: /s/ Michael F. Thomas
Michael F. Thomas
President & CEO
Date: 8/12/96 By: /s/ L. Douglas Keene, Jr.
L. Douglas Keene, Jr.
Executive Vice President &
Chief Financial Officer
Page 18 of 18
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 3,208,847
<SECURITIES> 0
<RECEIVABLES> 212,558
<ALLOWANCES> 0
<INVENTORY> 552,578
<CURRENT-ASSETS> 4,179,916
<PP&E> 15,427,229
<DEPRECIATION> 201,452
<TOTAL-ASSETS> 22,285,548
<CURRENT-LIABILITIES> 1,173,613
<BONDS> 6,431,250
0
0
<COMMON> 46,551
<OTHER-SE> 4,443,575
<TOTAL-LIABILITY-AND-EQUITY> 22,285,548
<SALES> 3,253,888
<TOTAL-REVENUES> 3,253,888
<CGS> 2,209,676
<TOTAL-COSTS> 1,195,683
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,198,298
<INCOME-PRETAX> (319,709)
<INCOME-TAX> 32,493
<INCOME-CONTINUING> (287,216)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (287,216)
<EPS-PRIMARY> (0.06)
<EPS-DILUTED> (0.06)
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