<PAGE>
U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-QSB
(X) QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended: March 31, 1997
( ) 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.
(1) 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: 15,552,371 Date: April 30, 1997
Transitional Small Business Disclosure Format
(Check One): Yes ( ) No (X)
Page 1 of 21
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UNITED PETROLEUM CORPORATION AND SUBSIDIARIES
INDEX
Part I. Financial Information
Item 1. Condensed Financial Statements ( Unaudited )
Condensed consolidated balance sheets - March 31, 1997 and December
31, 1996
Condensed consolidated statements of operations - Three months ended
March 31, 1997 and 1996
Condensed consolidated statement of stockholders' equity
Condensed consolidated statements of cash flows - Three months ended
March 31, 1997 and 1996
Notes to condensed consolidated financial statements - March 31, 1997
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Part II. Other Information
Signatures
Page 2 of 21
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PART I. - Financial Information Item 1. Financial Statements
United Petroleum Corporation and Subsidiaries
Consolidated Balance Sheets
At March 31, 1997 and December 31, 1996
Mar. 31, 1997 Dec. 31, 1996
Current Assets
Cash ($ 37,806) $ 19,759
Marketable Securities $ 103,831 $ 122,373
Accounts and Notes Receivable $ 442,667 $ 472,123
Inventories $ 389,813 $ 634,265
Other Current Assets $ 49,499 $ 71,081
-----------------------------
$ 948,004 $ 1,319,601
Property and Equipment
Gas and Oil properties $ 8,290,790 $ 8,236,094
Premises and Equipment ( Net ) $ 10,551,256 $ 12,875,902
Deferred Tax Assets $ 2,972,100 $ 2,972,100
Intangibles and Other Assets $ 1,341,952 $ 1,663,553
-----------------------------
Total Assets $ 24,104,102 $ 27,067,250
=============================
Liabilities and Stockholders' Equity
Current Liabilities
Accounts Payable $ 727,183 $ 636,966
Accrued Expenses $ 491,407 $ 678,533
Accrued Interest $ 581,035 $ 0
Accrued and Deferred Taxes $ 11,798 $ 0
Bank Line Of Credit $ 224,000 $ 250,000
Current Maturities-Long Term Debt $ 1,405,378 $ 1,669,836
-----------------------------
$ 3,440,801 $ 3,235,335
Long Term Liabilities
Long Term Debt-Less Current Maturities $ 19,794,514 $ 22,229,143
Unearned Revenue $ 200,000 $ 200,000
Deferred Income Taxes $ 87,100 $ 87,100
-----------------------------
Total Liabilities $ 23,522,415 $ 25,751,578
Stockholders' Equity
Common Stock, $.01 Par Value $ 141,185 $ 118,281
(50,000,000 shares authorized,
14,118,700 and 11,828,156 issued)
Additional Paid-In Capital $ 14,285,281 $ 13,696,878
Retained Earnings ($ 12,607,776) ($ 11,262,484)
-----------------------------
$ 1,818,690 $ 2,552,675
Less: Stockholder note receivable ($ 1,237,003) ($ 1,237,003)
-----------------------------
Total Stockholders' Equity $ 581,687 $ 1,315,672
-----------------------------
Total Stockholders' Equity & Liabilities $ 24,104,102 $ 27,067,250
=============================
The accompanying notes are an integral part of these financial statements.
Page 3 of 21
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United Petroleum Corporation and Subsidiaries
Consolidated Statement of Operations
For The Three Month Periods Ended March 31, 1997 and 1996
Mar. 31, 1997 Mar. 31, 1996
Revenues $ 3,698,647 $ 3,344,829
Cost of Sales $ 2,616,333 $ 2,217,269
------------------------------
Gross Profit $ 1,082,314 $ 1,127,560
Operating Expenses:
Salaries and Wages $ 300,787 $ 253,473
Payroll Taxes $ 72,065 $ 89,602
Other General and Administrative $ 589,633 $ 569,961
Interest Expense $ 1,086,725 $ 107,007
Depreciation and Amortization $ 392,281 $ 119,136
------------------------------
$ 2,441,491 $ 1,139,179
Other Income (Expense) $ 13,885 $ 13,837
------------------------------
Net Income Before Income Taxes ($ 1,345,292) $ 2,218
Provision For Income Taxes $ 0 $ 333
------------------------------
Net Income After Taxes ($ 1,345,292) $ 1,885
==============================
Primary Earnings Per Share ($ 0.095) $ 0.000
==============================
Weighted Average Shares Outstanding 14,118,700 4,623,674
==============================
Fully Diluted Earnings Per Share ($ 0.095) $ 0.000
==============================
Fully Diluted Weighted Average Shares 14,118,700 4,623,674
Outstanding
==============================
The accompanying notes are an integral part of these financial statements.
Page 4 of 21
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United Petroleum Corporation and Subsidiaries
Consolidated Statements of Cash Flows
For the Three Month Periods Ended March 31, 1997 and 1996
Mar. 31, 1997 Mar. 31, 1996
---------------------------
Operating Activities
Net Income ($ 1,345,292) $ 1,885
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and Amortization $ 392,281 $ 119,136
Shares issued for services $ 207,356 $ 51,515
Changes in operating assets and liabilities:
Decrease (increase) in-
Accounts notes receivable $ 29,456 $ 73,949
Inventories $ 244,452 $ 37,699
Other Current Assets $ 40,124 $ 144,110
Proceeds from unearned purchase discounts $ 0 $ 0
Increase (decrease) in -
Accounts Payable and Accrued Liabilities $ 495,924 $ 54,956
--------------------------
$ 64,301 $ 483,250
Investing Activities:
Property and Equipment Additions $ 1,932,365 ($ 399,221)
Acquisition of gas and oil properties ($ 54,696) ($ 116,021)
Decrease (increase) in other assets $ 321,601 ($ 227,168)
--------------------------
$ 2,199,270 ($ 742,410)
Financing Activities:
Principal payments on debt ($ 2,699,087) ($ 122,097)
Proceeds from short term borrowings $ 0 $ 0
Payments on short term borrowings ($ 26,000) $ 0
Net proceeds from bank financing $ 0 $ 482,337
Net proceeds from issuance of debentures $ 0 $ 0
Proceeds from issuance of common stock $ 403,951 $ 0
--------------------------
($ 2,321,136) $ 360,240
--------------------------
Increase(Decrease) in Cash and Cash Equivalents ($ 57,565) $ 101,080
Cash and Cash Equivalents, Beginning of Period $ 19,759 $ 37,941
--------------------------
Cash and Cash Equivalents, End of Period ($ 37,806) $ 139,021
==========================
The accompanying notes are an integral part of these financial statements.
Page 5 of 21
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United Petroleum Corporation and Subsidiaries
Consolidated Statement of Stockholders' Equity
<TABLE>
<CAPTION>
Additional Stockholder
Common Stock Paid-In Retained Note
Shares Amount Capital Earnings Receivable Total
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1997 11,828,156 $ 118,281 $ 13,696,878 ($11,262,484) ($ 1,237,003) $ 1,315,672
Shares issued for services 749,540 $ 7,495 $ 199,861 $ 207,356
Shares issued to effect 1,445,948 $ 14,459 $ 342,945 $ 357,404
conversion of debentures(net)
Shares issued in payment of 95,066 $ 950 $ 45,597 $ 46,547
interest on debentures
Net Income ($ 1,345,292) ($ 1,345,292)
------------ ------------ ------------ ----------- ----------- ------------
Balance, March 31, 1997 14,118,710 $ 141,185 $ 14,285,281 ($12,607,776) ($ 1,237,003) $ 581,687
</TABLE>
Page 6 of 21
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United Petroleum Corporation and Subsidiaries
Notes to Consolidated Financial Statements
Periods Ended March 31, 1997 and 1996
Note 1 - Summary of Significant Accounting Policies
Basis of Presentation - The accompanying unaudited 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-X. 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
1996 financial statements in order for them to conform with classifications used
in 1997. Operating results for the three months ended March 31, 1997 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 1997. 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, 1996.
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. Results of operations of companies purchased are included from
the dates of acquisition.
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 was formed 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, Pennsylvania and
Missouri.
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 7 of 21
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United Petroleum Corporation and Subsidiaries
Notes to Consolidated Financial Statements - Continued
Periods Ended March 31, 1997 and 1996
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 8 of 21
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United Petroleum Corporation and Subsidiaries
Notes to Consolidated Financial Statements - Continued
Periods Ended March 31, 1997 and 1996
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.
During the quarter the Company issued 749,540 common shares as payment for
services. All of the shares issued pursuant to the Company's S-8 registration
were issued at market value as of the date of issuance. Restricted shares issued
for services were valued at fifty percent (50%) of market value as of the date
of issuance. Said shares were issued at prices ranging from $0.125 to $0.56 per
share. The aggregate issuance price associated with the issued shares was
$207,356. The majority of the shares were issued for services related to
construction projects in the Calibur Systems, Inc. subsidiary and for services
related to the development of the oil and gas subsidiary, Jackson-United
Petroleum Corporation.
During the quarter the Company issued 1,445,948 common shares to effect
conversion of debentures with an approximate face value of $700,000 at prices
between $0.275 and $0.50 per share. During the quarter the Company issued 95,066
shares of the Company's common stock as payment for interest payable to
debenture holders.
Page 9 of 21
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Item 2. - Management's Discussion and Analysis of Operations
The Company realized a net loss of ($1,345,292) for the three month period
ended March 31, 1997, compared to a net income of $1,885 for the same period
last year.
A summary of comparative results between the first quarter of 1997 and the
first quarter of 1996 is as follows:
Revenues were realized as follows:
Quarter Ended Quarter Ended
March 31, 1997 March 31, 1996
Retail Subsidiary:
Gasoline $1,359,799 $1,056,127
Car Wash 1,487,432 1,705,520
Oil & Lube 368,432 271,437
Grocery 171,972 152,414
Other Sales 239,226 159,331
Energy Subsidiary:
Natural Gas 62,753 0
Crude Oil 9,032 0
---------- ----------
Total Revenue For Quarter $3,698,647 $3,306,346
========== ==========
Retail Subsidiary (Calibur Systems, Inc.)
The Company experienced a decreased gross profit margin on gasoline sales
from 7.4 % in the first quarter of 1996 to 4.1 % in the first quarter of 1997.
Volume increased from 963,204 gallons in the first quarter of 1996 to 1,164,004
gallons in the first quarter of 1997 for an increase of 20.8%. The majority of
this increase, 207,495 gallons, is attributed to a new Exxon location on
Cumberland Avenue in Knoxville, Tennessee. The new location was leased from
Michael F. Thomas, the Company's principal officer, on a month to month basis.
The Company ceased to operate the location effective March 2, 1997. Management
estimated, based on the results of operations for this location during January
and February, that the location would be a drain on earnings for an unacceptable
period of time. Operations were ceased because management did not believe the
Company should incur the losses related to the operation of this location. Also
during the first quarter, the Company closed an existing leased gasoline
location in Solway, Tennessee. Volume at the Solway location was 122,501 gallons
in the first quarter of 1996 and 27,162 during the first quarter of 1997. This
location became unprofitable over the past two years as increased competition
entered the Solway area. It is the opinion of management that major improvements
would be required to be competitive and that the cost of the improvements would
not be justified. The decision was made to cease operations at the Solway
location at the end of the lease in January of 1997. Volume at same store
locations increased 20,467 gallons compared to the first quarter of last year.
Page 10 of 21
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Items 2. - Management's Discussion and Analysis of Operations - Continued
Car wash revenue was $1,487,432 for the first quarter as compared to
$1,705,520 for the same quarter last year which represents a decrease of
$218,088 or approximately 12.8%. Approximately $45,260 of this decrease is
related to the sale of the Farragut, Tennessee location discussed later in this
report. The remaining $172,828 is a decrease in same store revenues. It is the
belief of management that excessive rainfall during the first quarter prevented
the desired level of revenue from being achieved.
Oil and lube revenue was $96,995 higher for the quarter as compared to the
same quarter last year which represents an increase of 35.7%. Of this amount
$102,956 is attributed to the following new locations: (1.) Newport, Tennessee,
(2.) Oak Ridge, Tennessee and (3.) Knoxville, Tennessee. Same store revenues
decreased by $5,961. This decrease is attributed to excessive rainfall which
occurred in the first quarter. As of the end of the first quarter of this year
the Company has nine oil and lube centers in operation as compared to six oil
and lube centers open at the end of first quarter in 1996. Revenues from the
three above referenced locations are expected to grow substantially over the
next few years. Subsequent to the end of the quarter the Company opened a new
oil and lube center in Morristown, Tennessee in May of 1997. Two additional oil
and lube centers are presently under construction. These new locations are being
constructed in Ft. Oglethorpe, Georgia and Knoxville, Tennessee.
Other sales was $239,226 for the first quarter as compared to $159,331 for
the same quarter last year which represents an increase of $79,895 or
approximately 50%. The majority of this increase is attributed to food court
sales and accessories.
The Calibur Systems, Inc. subsidiary had a net loss of ($16,395) for the
quarter as compared to a net income of $74,397 for the same quarter last year.
Energy Subsidiary (Jackson-United Petroleum Corporation)
Natural gas revenue increased to $62,753 for the first quarter as compared
to $0 in the first quarter of last year. Natural gas revenues were generated as
follows: (1) approximately $44,442 from sixteen Pennsylvania wells drilled
during 1996 under a joint venture agreement with Kastle Resources Enterprises,
Inc. of Edinboro, Pennsylvania, (2) approximately $4,107 from the Stepp #1 well
drilled by the Company in 1996 located in Martin County, Kentucky, (3)
approximately $8,960 from the Bogar #1 well drilled by the Company in 1996 under
a farmout agreement with Penn Virginia Oil and Gas and (4) approximately $5,244
from the Daugh White # 1 well in Clay County, Kentucky. Natural gas production
in both the Pennsylvania and eastern Kentucky wells was below anticipated levels
due to the fact that several wells required additional work which decreased the
number of producing days during the first quarter. The cost of the rework
decreased the net revenues to the Company during the quarter.
Page 11 of 21
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Item 2 - Management's Discussion and Analysis of Operations - Continued
Oil revenue increased to $9,032 for the first quarter as compared to $0 in
the first quarter of last year. The majority of the oil revenue was generated
from several of the wells drilled in Pennsylvania during 1996.
The Jackson-United Petroleum Corporation subsidiary had a net income of
$32,223 for the quarter as compared to a net loss of ($14,009) for the same
quarter last year. Cost of sales were $5,685 for the quarter as compared to $0
for the same quarter last year. Selling, general and administrative expenses for
the subsidiary were $33,877 for the quarter as compared to $13,218 for the same
quarter last year. Included in the selling, general and administrative expenses
is $15,000 in depletion, depreciation and amortization.
Consolidated Operations
Operating expenses were $2,441,491 for the first quarter of 1997 as
compared to $1,139,179 for the same period last year. This increase is mainly
attributed to interest paid on debentures along with amortized costs associated
with the issuance of the debentures. These expenses totaled $1,112,335 during
the first quarter. The remaining increase in operating expenses is mainly
attributed to wages, professional fees and legal fees.
Although management expected a loss as related to the expense associated
with the debentures issued in 1996, earnings for the first quarter did not meet
the expectations of management. The primary factors associated with the
decreased income were: (1.) lower than desired gasoline margins, (2.) lower than
expected gasoline volume and (3.) lower than expected car wash revenue during
the quarter.
Financial Condition -
The working capital deficit increased to approximately ($2,456,797) as of
March 31, 1997 as compared to approximately ($1,915,734) as of December 31,
1996. The majority of this increase can be attributed to accrued interest
related to the debentures issued in 1996. Management expects the working capital
position of the Company to improve as projects presently under construction are
completed and the corresponding assets and liabilities are placed into service
and to further improve as the aggregate level of outstanding debentures
decreases through conversions into common stock of the Company.
The net worth of the Company decreased to $581,687 as of March 31, 1997 as
compared to $1,315,672 as of December 31, 1996. The decrease is primarily
attributed to the operating loss of ($1,345,292) sustained by the Company in the
first quarter. The debt to worth ratio of the Company increased to approximately
40 to 1 as of March 31, 1997 as compared to approximately 20 to 1 as of the year
ended December 31, 1996.
Page 12 of 21
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Item 2 - Management's Discussion and Analysis of operations - Continued
Subsequent to the end of the quarter, effective April 30, 1997, the Company
entered into an agreement with holders of $16,822,400 of debentures. The
agreement provided, among other things, for the exchange of $9,975,000 worth of
debentures into 8,775 shares of Series "A" Preferred Stock, after a reduction of
10% in the face amount of the debentures. The preferred stock will pay a
cumulative dividend of eighteen percent (18%) for a period of one year.
Thereafter, at the option of the preferred shareholder, the dividend shall
either be reduced to seven percent (7%) for the second year or, a preferred
shareholder, at his option, may surrender to the Company ten percent of the
preferred stock and continue to receive a dividend of eighteen percent (18%). At
the option of the Company, dividends may be paid in cash or in the Company's
common stock.
Preferred shareholders shall have voting rights equal to those which they
would have if they converted their preferred shares to common stock at the then
conversion price, provided, however, that no preferred shareholder or group of
affiliated preferred shareholders may, at any time, vote more than 4.99% of the
total of the stock entitled to vote.
Commencing July 1, 1997, one thirteenth of the preferred stock may be
converted each month on a cumulative basis. The conversion price shall be the
lesser of $3.00 or the average closing bid price for the five trading days prior
to the conversion. Notwithstanding the forgoing, the minimum conversion price
for the first three months commencing July 1, 1997 shall be the greater of $2.50
per share or two-thirds of the average of the closing bid prices for the prior
month. For the next three months, the minimum conversion price shall be the
greater of $2.00 per share or two-thirds of the average closing bid prices for
the prior month. For the next three months, the minimum conversion price shall
be the greater of $1.50 per share or two-thirds of the average of the closing
bid prices for the prior month. Thereafter, the minimum conversion price shall
be the greater of $1.00 or two-thirds of the average closing bid prices for the
prior month.
The preferred shares may be automatically converted by the Company by
notice given between October 1, 1999 and October 10, 1999 at a price equal to
the average of the closing bid prices for the five trading days prior to giving
of the notice. Each preferred share shall have liquidation rights equal to
$1,000 and shall have preference over common shareholders and junior preferred
shareholders. The Company may redeem the preferred shares at any time upon
payment of the liquidation price together with any accrued dividends.
The agreement provides that the preferred shareholders shall vote their
shares for the continuation of current management and shall not participate in
any proxy contests so long as the Company is not in default with respect to any
of the provisions of the agreement, the preferred shares or the debentures.
Page 13 of 21
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Item 2 - Management's Discussion and Analysis of Operations - Continued
The agreement provides that the holders of $3,454,511 of the debentures
shall receive in their place amended convertible debentures in a face amount
equal to ninety percent (90%) of the face amount of the old debentures. The
maturity date of the amended debentures is September 1, 1999.
The interest rate on the amended debentures is eighteen percent (18%) for
one year and seven percent (7%) thereafter, provided, however, that the amended
debenture holders shall have the option at the end of one year to surrender to
the Company, for no consideration, ten percent (10%) of their amended debentures
and to receive interest of eighteen percent (18%) on the remaining amended
debentures. At the option of the Company, interest may be paid in cash or common
stock.
The amended debentures are convertible into shares of the Company's common
stock commencing August 1, 1998 at the rate of one-fifth per month. The
conversion price shall be the lesser of $3.00 or the average closing bid prices
for the Company's common stock for the five trading days preceding the notice of
conversion, provided, however, that the minimum conversion price shall be the
greater of $1.00 per share or two-thirds of the average closing bid prices for
the prior month.
The Company may redeem the amended debentures at any time upon payment of
the face amount of the debenture together with accrued interest. No amended
debenture holder or affiliated group of amended debenture holders may convert
their debentures to common stock to the extent that such conversion would cause
them to own more than 4.99% of the Company's outstanding common stock. The
amended debenture holders have agreed to vote any common stock acquired by them
to continue current management so long as no event of default, as defined in the
agreement, has occurred.
One of the debenture holders has subscribed for $666,666 worth of new
debentures to be issued pursuant to Regulation S. The purchase price for these
new debentures is $500,000. These funds are to be used by the Company for
working capital purposes. These debentures are convertible under the same terms
and conditions as the amended debentures.
As part of the agreement, debentures with a face amount of $623,200,
together with shares issued in payment of interest accrued through April 30,
1997 were converted to common stock at a price of $.50 per share.
The above referenced transactions will reduce the liabilities of the
Company and increase the equity of the Company.
Page 14 of 21
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Item 2 - Management's Discussion and Analysis of Operations - Continued
During 1997, the Company will continue to seek additional sources of
capital for the following reasons:
(1.) 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 prove
beneficial. No assurance can be given that the Company will be able to
obtain the desired capital.
(2.) To further expand the Company's drilling programs and to acquire
producing oil and gas properties. Management is presently negotiating with
several firms in the asset based lending segment of the oil and gas
industry. Firms of this type are willing to finance oil and gas properties
based on the value of each individual acquisition as opposed to requiring a
fixed amount of equity. By means of this type of financing the Company may
have the opportunity to acquire oil and gas properties without the issuance
of additional equity securities. Lenders of this type are also accustomed
to production payments as opposed to fixed payments as required by more
traditional lenders. This would allow the Company to be assured of a
positive cashflow associated with the properties being acquired via this
means of financing. There can be no assurance that the Company will locate
any attractive oil and gas acquisition candidates nor is there any
assurance that the appropriate capital and/or debt financing will be
available to the Company.
(3.) Although the focus of the Company will be on the growth of the
oil and gas subsidiary, the Company will continue to look for attractive
acquisitions in the retail automotive subsidiary. In the event such an
opportunity should arise, capital would be required. There can be no
assurance that the Company will locate any attractive acquisition
candidates for the retail automotive subsidiary nor is there any assurance
that appropriate equity and/or debt financing will be available to the
Company.
Expansion and Capital Improvements
As of March 31, 1997 the Company is committed to certain expansion projects
in the retail subsidiary and they are as follows:
(1.) The Company presently has a new Pennzoil Ten Minute Lube Center
under construction in Ft. Oglethorpe, Georgia which is being built as an
extension to the Company's existing car wash facility at that location. The
new lube center should be open by second quarter of 1997. No further
financing is required. A construction and permanent loan was obtained prior
to beginning construction from Northwest Georgia Bank in an amount
sufficient to cover the estimated costs of the project. No provisions have
been made for cost overruns which may occur related to this project.
Page 15 of 21
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Item 2 - Management's Discussion and Analysis of Operations - Continued
(2.) The Company presently has a new Pennzoil Ten Minute Lube Center
under construction in Morristown, Tennessee. This location is a "build to
suit" and is being leased by the Company. The lessor provided $135,000 in
financing for the project. The total cost of the project is expected to be
approximately $200,000. The Company will be financing the remaining costs
of this project from cashflow. Subsequent to the end of the quarter the
Morristown, Tennessee location was opened for business.
(3.) The Company presently has a new Pennzoil Ten Minute Lube Center
at 8016 Kingston Pike in Knoxville, Tennessee under construction. Although
this location is being constructed on leased property the Company is
responsible for the development costs. The Company obtained a
construction/permanent loan from a division of Citicorp, N.A. in
conjunction with a loan program sponsored by Pennzoil prior to beginning
construction in an amount sufficient to cover the anticipated costs. No
provisions have been made for cost overruns which may occur related to this
project.
(4.) As of the date of this report, the Company has accounts payable
in the energy subsidiary of approximately $375,000 related to the drilling
of wells in eastern Kentucky. The Company intends to leverage the producing
wells in the energy subsidiary to enable the Company to pay the payables.
The Company has recently reviewed several potential acquisitions to 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 may be required.
No assurance can be given that the Company will be able to acquire the necessary
capital to make such acquisitions.
During the quarter the Company sold two retail facilities it owned to,
Michael F. Thomas, the President and CEO of the Company. These facilities were
located in Farragut, Tennessee and Cookeville, Tennessee. The Farragut location
was a car wash, food court, convenience store and Exxon branded gasoline
station. The Cookeville location was an Amoco branded gasoline station,
convenience store, and free standing food court. The Farragut location was sold
for $1,140,000 on February 25, 1997 which was slightly more than the appraised
value of the property as obtained by the Company from Hop Bailey & Company, an
M.A.I. appraisal firm, in the amount of $1,100,500. As of year end 1996 the loan
on the Farragut location was in technical default and payment of the loan was
demanded in full by the lender, First Tennessee Bank. Calibur Systems, Inc. was
unable to re-finance the location. The Cookeville location was sold for $879,000
on March 16, 1997 which was slightly less than the appraised value of $961,500
as obtained by the Company from the Furman Appraisal Agency in Cookeville,
Tennessee. Both of these facilities were operating at a loss. The Company was
unable to refinance the mortgages on these properties and determined it was in
the best interest of the Company to sell them.
Page 16 of 21
<PAGE>
Item 2 - Management's Discussion and Analysis of Operations - Continued
Subsequent to the end of the quarter, effective April 1, 1997, the Company
transferred the Exxon distributorship contract to, Michael F. Thomas, the
Company's President and CEO. Mr. Thomas was the designated "key person" in the
original distributorship contract between the Company and Exxon. The transfer
became necessary due to the fact that the letter of credit posted by the Company
in favor of Exxon matured. Exxon required the letter to be extended and
increased from $100,000 to $200,000. In order to extend and increase the letter
of credit the issuer required the personal guarantee of Michael F. Thomas which
is no longer available to the Company. In return for the transfer of the
distributorship Mr. Thomas agreed to sell Exxon products to the Company at cost
plus shipping.
Page 17 of 21
<PAGE>
Part II - Other Information
Item 1 Legal Proceedings
In March 1997, a civil action was filed by the Company against
TAJ Global Equities, Inc. of Tampa, Florida; Wilbur Jurdine, President
of TAJ Global Equities, Inc. and National Financial Services, Inc. The
suit was filed in the United States District Court for the East
Tennessee District of Tennessee alleging conspiracy to engage in a
course of misconduct intended to defraud the Company, conversion,
unjust enrichment, breach of fiduciary duty and associated causes of
action claiming compensatory and punitive damages in excess of one
hundred million dollars ($100,000,000). Notice of suit and waiver of
service have been sent to each defendant pursuant to the Federal Rules
of Civil Procedure. No responses to the complaint have been received
as of the date of this report.
Item 2 Changes In Securities
In March 1997, the Company filed a charter amendment with the
State of Delaware authorizing the Company to have outstanding at any
one time 60,000,000 shares, of which 10,000,000 shares shall be
preferred stock, par value $.01 per share, issuable in one or more
classes or series, and 50,000,000 shares shall be common stock, par
value $.01 per share. All or any part of the common stock and the
preferred stock may be issued by the corporation from time to time and
for such consideration as the Board of Directors may determine. All
such shares, if and when issued, and upon receipt of such
consideration by the corporation, shall be fully paid and
non-assessable.
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, effective April 30, 1997,
the Company entered into an agreement with holders of $16,822,400 of
debentures. The provisions of the agreement are discussed in length in
this report. Refer to the Management's Discussion and Analysis of
Operations section of this report.
Presented on the following page is a proforma balance sheet,
assuming conversion of the debentures, cancellation of certain
debentures, issuance of the
Page 18 of 21
<PAGE>
Item 5 - Continued
new debentures and the issuance of the preferred shares as referenced
in the April 30, 1997 agreement as if the transaction had taken place
at March 31, 1997.
March 31, 1997 Proforma Balance Sheet
Assets
Current Assets $ 1,448,004
Property and Equipment $ 18,842,046
Deferred Tax Assets $ 2,972,100
Intangibles and Other Assets $ 1,341,952
------------
Total Assets $ 24,604,102
Liabilities and Stockholders' Equity
Current Liabilities $ 2,859,766
Long Term Liabilities $ 10,372,579
------------
Total Liabilities $ 13,232,345
Preferred Stock $ 8,775,000
Common Stock $ 155,523
Additional Paid In Capital $ 5,023,529
Accumulated Deficit $ (1,345,292)
------------
$ 12,608,760
Less: Stockholder Note Receivable $ (1,237,003)
------------
Total Stockholders' Equity $ 11,371,757
------------
Footnote:
The Company believes that an error was made in the computation of
the schedules in the April 30, 1997 agreement. The calculations are
being reviewed by the preferred shareholders and the debenture holders
such that the proper adjustments can be performed which will increase
the number of preferred shares by approximately 1,100 and increase the
outstanding debentures by approximately $438,000.
Page 19 of 21
<PAGE>
Item 6 Exhibits and Reports on Form 8-K
(a.) Exhibits - None
(b.) Reports on Form 8-K - None
Page 20 of 21
<PAGE>
Signatures
Pursuant to the requirement of the Securities and 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
Dated: 5/16/97 By: /S/ Michael F. Thomas
---------------------------
Michael F. Thomas
President & CEO
Dated: 5/16/97 By: /S/ Charles B. Lobetti
---------------------------
Charles B. Lobetti
Chief Financial Officer
Page 21 of 21
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