<PAGE> 1
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: September 30, 1998
[ ] 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: Suite A 2620 Mineral Springs Road
Knoxville, Tennessee 37917
Issuer's Telephone Number: (423) 688-6204
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: 30,565,352 Date: November 12, 1998
Transitional Small Business Disclosure Format
(Check One): Yes [ ] No [X]
Page 1 of 18
<PAGE> 2
UNITED PETROLEUM CORPORATION AND SUBSIDIARIES
INDEX
Part I. Financial Information
Item 1. Condensed Financial Statements ( Unaudited )
Condensed consolidated balance sheets - Sept. 30, 1998 and
December 31, 1997
Condensed consolidated statements of operations - Three months
ended Sept. 30, 1998 and 1997; nine months ended Sept. 30,
1998 and 1997
Condensed consolidated statement of stockholders' equity
Condensed consolidated statements of cash flows - Nine months
ended Sept. 30, 1998 and 1997
Notes to condensed consolidated financial statements - Sept.
30, 1998
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Part II. Other Information
Signatures
Page 2 of 18
<PAGE> 3
PART I. - Financial Information Item 1. Financial Statements
United Petroleum Corporation and Subsidiaries
Consolidated Balance Sheets
At September 30, 1998 and December 31, 1997
<TABLE>
<CAPTION>
Sept. 30, 1998 Dec. 31, 1997
<S> <C> <C>
Current Assets
Cash $ 43,894 $ 166,180
Accounts and Notes Receivable $ 114,145 $ 112,377
Inventories $ 231,189 $ 321,948
Other Current Assets $ 51,389 $ 373,413
------------ ------------
$ 440,617 $ 973,918
Property and Equipment
Gas and Oil properties $ 4,430,672 $ 4,798,795
Premises and Equipment ( Net ) $ 8,279,789 $ 8,519,499
Intangibles and Other Assets $ 1,035,001 $ 408,772
------------ ------------
Total Assets $ 14,186,080 $ 14,700,980
============ ============
Liabilities and Stockholders'
Equity
Current Liabilities
Accounts Payable $ 519,406 $ 534,867
Accrued Expenses $ 3,207,347 $ 1,368,097
Bank Line Of Credit $ 0 $ 247,829
Current Maturities $ 12,822,040 $ 9,241,801
------------ ------------
$ 16,548,790 $ 11,392,590
Long Term Liabilities
Long Term Debt-Less Current
Maturities $ 922,284 $ 2,601,686
Deferred Income Taxes $ 0 $ 0
------------ ------------
Total Liabilities $ 17,471,080 $ 13,994,280
Minority Interest In Consolidated
Subsidiary $ 50,000 $ 200,000
Stockholders' Equity
Preferred Stock, $.01 Par Value
Series A $ 99 $ 99
Series B $ 18 $ 18
Common Stock, $.01 Par Value $ 305,653 $ 292,795
(50,000,000 shares authorized,
30,565,352 and 29,279,515 issued)
Additional Paid-In Capital $ 24,863,515 $ 26,036,310
Accumulated Deficit $(28,504,280) $(24,635,080)
------------ ------------
$ (3,334,997) $ 1,694,136
Less: Stockholder note receivable $ (1,187,432)
------------ ------------
Total Stockholders' Equity $ (3,334,997) $ 506,704
------------ ------------
Total Stockholders' Equity &
Liabilities $ 14,186,080 $ 14,700,980
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
Page 3 of 18
<PAGE> 4
United Petroleum Corporation and Subsidiaries
Consolidated Statement of Operations
For the Three Month Periods Ended Sept. 30, 1998 and 1997
<TABLE>
<CAPTION>
Sept. 30, 1998 Sept. 30, 1997
<S> <C> <C>
Revenues $ 1,577,577 $ 1,914,109
Cost of Sales $ 1,115,293 $ 1,182,351
----------- -----------
Gross Profit $ 462,284 $ 731,758
Operating Expenses:
Salaries and Wages $ 197,858 $ 326,580
Payroll Taxes $ 54,006 $ 58,340
Other General and Administrative $ 395,494 $ 576,411
Interest Expense $ 440,095 $ 324,421
Depreciation and Amortization $ 176,817 $ 286,839
----------- -----------
$ 1,264,270 $ 1,572,591
Other Income ( Expense ) $ 57,626 $ 37,558
----------- -----------
Net Income Before Income Taxes $ (744,360) $ (803,275)
Provision For Income Taxes $ 0 $ 0
----------- -----------
Net Income After Taxes $ (744,360) $ (803,275)
Primary Earnings Per Share $ 0.2 $ 0.3
=========== ===========
Weighted Average Shares Outstanding 30,565,350 23,131,260
=========== ===========
Fully Diluted Earnings Per Share $ 0.2 $ 0.3
=========== ===========
Fully Diluted Weighted Average
Shares Outstanding 30,565,350 23,131,260
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
Page 4 of 18
<PAGE> 5
United Petroleum Corporation and Subsidiaries
Condensed Consolidated Statements of Operations
For the Nine Month Periods Ended Sept. 30, 1998 and 1997
<TABLE>
<CAPTION>
Sept. 30, 1998 Sept. 30, 1997
<S> <C> <C>
Revenues $ 4,847,336 $ 8,144,372
Cost of Sales $ 3,248,493 $ 5495,089
----------- -----------
Gross Profit $ 1,598,843 $ 2,649,283
Operating Expenses:
Salaries and Wages $ 786,213 $ 969,327
Payroll Taxes $ 152,792 $ 194,167
Other General and Administrative $ 1,466,109 $ 1,977,450
Interest Expense $ 974,509 $ 1,797,864
Depreciation and Amortization $ 759,877 $ 963,745
----------- -----------
$ 4,139,500 $ 5,902,553
Other Income (Expense) $ 115,608 $ 61,087
----------- -----------
Net Income Before Taxes $(2,425,049) $(3,192,183)
Provision For Income Taxes $ 0 $ 0
----------- -----------
Net Income After Taxes $(2,425,049) $(3,192,183)
=========== ===========
Primary Earnings Per Share $ (0.079) $ (0.138)
=========== ===========
Weighted Average Shares Outstanding 30,565,350 23,131,260
=========== ===========
Fully Diluted earnings Per Share $ (0.079) $ (0.138)
Fully Diluted Weighted Average 30,565,350 23,131,260
Shares Outstanding
</TABLE>
The accompanying notes are an integral part of these statements.
Page 5 of 18
<PAGE> 6
United Petroleum Corporation and Subsidiaries
Consolidated Statements of Changes in Stockholders' Equity
<TABLE>
<CAPTION>
Series A Series B Common Stock Additional Accumulated Stockholder Total
Preferred Preferred Shares Dollars Paid-In Deficit Note
Capital Receivable
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1998 $ 99 $ 18 29,279,515 $ 292,795 $26,036,305 $(24,635,081) $(1,187,432) $ 506,704
Shares issued for services 600,000 $ 6,000 $ 9,000
Dividends Declared-
Class A $ (439,930)
Class B $ (36,164)
Net Loss $ (535,152)
----------- ---------- ---------- ---------- ----------- ------------ ----------- -----------
Balance, March 31, 1998 $ 99 $ 18 29,879,515 $ 298,795 $26,045,305 $(25,646,327) $(1,187,432) $ (489,542)
Shares issued for services 685,837 $ 6,858 $ 5,642
Dividends Declared-
Class A $ (444,818)
Class B $ (36,566)
Net Loss $ (1,145,537)
----------- ---------- ---------- ---------- ----------- ------------ ----------- -----------
Balance, June 30, 1998 $ 99 $ 18 30,565,352 $ 305,653 $26,050,947 $(27,273,248) $(1,187,432) $(2,103,963)
Dividends Declared-
Class A $ (449,706)
Class B $ (36,968)
Write-off, Stockholder
Note $(1,187,432) $ 1,187,432
Net Loss $ (744,360)
----------- ---------- ---------- ---------- ----------- ------------ ----------- -----------
Balance, September 30, 1998 $ 99 $ 18 30,565,352 $ 305,653 $24,863,515 $(28,504,282) $ 0 $(3,334,997)
</TABLE>
Page 6 of 18
<PAGE> 7
United Petroleum Corporation and Subsidiaries
Consolidated Statements of Cash Flows
For the Nine Month Periods Ended Sept. 30, 1998 and 1997
<TABLE>
<CAPTION>
Sept. 30, 1998 Sept. 30, 1997
---------------------------------
<S> <C> <C>
Operating Activities
Net Income $(2,425,049) $(3,192,183)
Adjustments to reconcile net income to
net cash provided by operating activities
Depreciation and Amortization $ 759,877 $ 963,745
Shares issued for services $ 12,500 $ 986,514
Changes in operating assets and liabilities
Decrease ( increase ) in-
Accounts notes receivable $ (1,768) $ (19,497)
Inventories $ 90,759 $ 278,294
Other Current Assets $ 322,024 $ (199,897)
Proceeds from unearned purchase discounts
Increase ( decrease ) in -
Accounts Payable and Accrued Liabilities $ 1,823,789 $(1,361,772)
----------- -----------
$ 582,132 $(2,544,796)
Investing Activities:
Property & Equipment(Additions)Dispositions $ 239,710 $ 5,197,884
Gas & Oil Properties(Additions)Dispositions $ 368,123 $ (7,452)
Decrease ( increase ) in other assets $ (626,229) $ 20,970
----------- -----------
$ (18,396) $ 5,211,402
Financing Activities:
Principal payments on debt $(6,811,416) $(5,582,009)
Proceeds from short term borrowings $ 7,123,223 $ 203,000
Payments on short term borrowings $ (997,829) $ (23,000)
Net proceeds from bank financing $ 0 $ 435,008
Net proceeds from issuance of debentures $ 0 $ 1,725,000
Proceeds from issuance of common stock $ 0 $ 957,876
----------- -----------
$ (686,022) $(2,284,125)
----------- -----------
Increase(Decrease) in Cash and Cash Equivalents $ (122,286) $ 382,481
Cash and Cash Equivalents, Beginning of Period $ 166,180 $ 19,759
----------- -----------
Cash and Cash Equivalents, End of Period $ 43,894 $ 402,240
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
Page 7 of 18
<PAGE> 8
United Petroleum Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements
Periods Ended September 30, 1998 and 1997
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-X, and has been presented on the
basis that the Company is a going concern which contemplates the realization of
assets and satisfaction of liabilities in the normal course of business (see
Note 18 of the notes to the Company's consolidated financial statements included
in the Registrant's annual report on Form 10-KSB for the year ended December 31,
1997). 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 1997 financial statements in
order for them to conform with classifications used in 1998. Operating results
for the three month and nine month periods ended September 30, 1998 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 1998. 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, 1997. The year end
condensed balance sheet was derived from audited financial statements, but does
not include all disclosures required by generally accepted accounting
principles.
Principles of Consolidation - The consolidated financial statements include the
accounts of United Petroleum Corporation (the "Company") and its wholly owned
subsidiaries, Calibur Systems, Inc., Jackson-United Petroleum Corporation and
CTV Studios, Inc.. 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 corporation 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 Kentucky, Pennsylvania and Missouri.
CTV Studios, Inc. was formed to conduct activities in the broadcasting industry
and had not commenced operations as of September 30, 1998.
Page 8 of 18
<PAGE> 9
United Petroleum Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements - Continued
Periods Ended September 30, 1998 and 1997
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.
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.
Page 9 of 18
<PAGE> 10
United Petroleum Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements - Continued
Periods Ended September 30, 1998 and 1997
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 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 third quarter of 1998 the Company did not issue any common or
preferred shares.
In the third quarter of 1998, management determined to write off the remaining
balance of $1,187,432 related to a promissory note from one of the Company's
former public relations firms. The note had an original principal balance of
$1,359,376 and was delivered in connection with the exercise of options held by
the firm. Management believes that it has exhausted all reasonable efforts to
collect on the note and has sold the collateral securing the note for proceeds
of $171,944. As a result, management determined to write off the remaining
balance of the note in the third quarter as uncollectible. The balance has been
written off through the equity account because the note was given in connection
with the exercise of options and the services were never rendered by the firm.
The amount of the write off was reserved in the financial statements under
stockholders' equity during 1995, and therefore the write off did not cause a
further reduction in the net worth of the Company.
Page 10 of 18
<PAGE> 11
Item 2. - Management's Discussion and Analysis of Operations
The Company realized a net loss of ($744,360) for the three month period
ended September 30, 1998, compared to a net loss of ($803,275) for the same
period last year.
A summary of comparative results between the third quarter of 1998 and the
third quarter of 1997 is as follows:
Revenues were realized as follows:
<TABLE>
<CAPTION>
Quarter Ended Quarter Ended
Sept. 30, 1998 Sept. 30, 1997
<S> <C> <C>
Retail Subsidiary:
Gasoline $ 517,630 $ 396,828
Car Wash 696,398 996,049
Oil & Lube 293,172 321,224
Grocery 42,232 56,483
Other Sales 15,550 36,309
Energy Subsidiary:
Natural Gas 7,243 78,268
Crude Oil 5,352 28,948
--------------- ---------------
Total Revenue For Quarter $ 1,577,577 $ 1,914,109
=============== ===============
</TABLE>
Retail Subsidiary (Calibur Systems, Inc.)
The Company experienced an increased gross profit margin on gasoline sales
from 3.8 % in the third quarter of 1997 to 4.8% in the third quarter of 1998.
Volume increased from 357,089 gallons in the third quarter of 1997 to 584,854
gallons in the third quarter of 1998 for an increase of approximately 61.8 %.
The increase in volume is attributed to the Company's decision to be more price
competitive at its gasoline locations.
Car wash revenue was $299,651 lower for the quarter as compared to the same
quarter last year. Same store car wash revenue decreased from $802,121 in the
third quarter of 1997 to $695,453 in the third quarter of 1998 which represents
a decline of $106,668 or approximately 13.3%. The remaining decrease is
attributed to the decrease in the number of full service car wash locations
which went from 11 locations during the third quarter of 1997 to 8 locations at
present. For further information related to the decrease in the number of the
Company's full service car wash locations refer to the "Expansion, Capital
Requirements and Divestitures" section of this report located in the
Management's Discussion and Analysis of Operations section.
Page 11 of 18
<PAGE> 12
Item 2 - Management's Discussion and Analysis of Operations - Continued
Oil and lube revenue was $28,052 lower for the quarter as compared to the
same quarter last year which represents a decrease of approximately 8.7 %.
Revenues from new locations was $37,545 for the quarter. Same store revenue
declined $11,499. The balance of the decrease is attributed to the decrease in
the number of Company locations offering oil and lube services. As of the end of
the third quarter of this year the Company had eight oil and lube centers in
operation as compared to nine oil and lube centers open at the end of the third
quarter in 1997. For further information related to the decrease in the number
of Company locations offering oil and lube services refer to the "Expansion,
Capital Requirements and Divestitures" section of this report located in the
Management's Discussion and Analysis of Operations section.
Grocery revenue was $42,232 for the quarter as compared to $56,483 for the
same period last year. Other revenues were $15,550 for the quarter as compared
to $36,309 for the same period last year. The decrease in both cases is mainly
attributed to the decrease in the number of locations carrying such products.
For further information related to the decrease in the number of the Company's
locations selling grocery and other items refer to the "Expansion, Capital
Requirements and Divestitures" section of this report located in the
Management's Discussion and Analysis of Operations section.
The Calibur Systems, Inc. subsidiary had a net loss of ($240,796) for the
quarter as compared to a net loss of ($164,268) for the same period last year.
Energy Subsidiary (Jackson-United Petroleum Corporation)
Natural gas revenues decreased to $27,243 for the quarter as compared to
$78,268 for the same period last year. The majority of these revenues were from
the sixteen Pennsylvania wells drilled in 1996 under a joint venture agreement
with Kastle Resources Enterprises, Inc. ("Kastle") of Edinboro, Pennsylvania.
Natural gas production and revenues in both Pennsylvania and Kentucky were below
anticipated levels. Natural gas revenues for the quarter were further reduced by
$20,000 due to an adjustment in accounts receivable.
Oil revenue for the quarter was $5,352 for the quarter as compared to
$28,948 for the same period last year. These revenues were produced from several
of the Pennsylvania wells drilled under a joint venture agreement with Kastle as
mentioned above. No revenues were realized from the "pilot" phase of a
water-flood project which is a joint venture with Western Engineering, Inc.
("Western") of Evansville, Indiana.
Page 12 of 18
<PAGE> 13
Item 2 - Management's Discussion and Analysis of Operations - Continued
The Jackson-United Petroleum Corporation subsidiary had a net loss of
($31,059) for the quarter as compared to a net income of $41,338 for the same
period last year. Depreciation and depletion were $5,668 for the quarter as
compared to $45,000 last year for the same period.
Consolidated Operations
The decrease in revenues and cost of sales, as reported for the quarter and
year to date, are attributed to the decrease in the number of Calibur locations
operated by the Company. For further information related to the number of
Company locations operated in the Calibur subsidiary refer to the "Expansion,
Capital Improvements and Divestitures" section of this report located in the
Management's Discussion and Analysis of Operations section.
Operating expenses were $1,264,270 for the third quarter of 1998 as
compared to $1,572,591 for the same period last year. The decrease is attributed
to the reduction in the size of the Company.
Management expected a loss for the quarter. However, the loss for the third
quarter exceeded the expectations of management. The primary factors associated
with the losses were: (1.) lower than expected car wash revenue, (2.) lower than
expected lube center revenues and (3.) several non-recurring expenses which
occurred during the quarter.
Financial Condition - The working capital deficit of the Company as of
September 30, 1998 is approximately ($16,108,175) as compared to a deficit of
approximately ($10,418,676) as of December 31, 1997. The majority of this
increase is attributed to the following factors: (1.) increases in accrued
interest on debentures - the Company ceased payment of interest on all
debentures effective December 31, 1997, (2.) increases in accrued dividends on
preferred stock - the Company ceased payment of dividends on all preferred stock
effective December 31, 1997, (3.) the fact that the majority of the Company's
real estate debt has a maturity of less than one year and (4.) all of the
Company's outstanding debentures are now in default due to the fact that the
Company ceased paying interest on the debentures effective December 31, 1997.
The net worth of the Company decreased from ($2,103,963) as of June 30,
1998 to ($3,334,997) as of September 30, 1998. The decrease is attributed to the
operating loss of ($801,986) sustained by the Company and partially off-set by
non-operating income of $57,626. The net worth was further reduced by the amount
of the accrued preferred stock dividend of $486,674 for the quarter.
Page 13 of 18
<PAGE> 14
Item 2 - Management's Discussion and Analysis of Operations - Continued
In the third quarter of 1998, management determined to write off the
remaining balance of $1,187,432 related to a promissory note from one of the
Company's former public relations firms. The note had an original principal
balance of $1,359,376 and was delivered in connection with the exercise of
options held by the firm. Management believes that it has exhausted all
reasonable efforts to collect on the note and has sold the collateral securing
the note for proceeds of $171,944. As a result, management determined to write
off the remaining balance of the note in the third quarter as uncollectible.
The balance has been written off through the equity account because the note
was given in connection with the exercise of options and the services were
never rendered by the firm. The amount of the write off was reserved in the
financial statements under stockholders' equity during 1995, and therefore the
write off did not cause a further reduction in the net worth of the Company.
During the quarter, the Company defaulted under the terms of an agreement
with Infinity Investors, Ltd. ("Infinity") regarding certain loans made to the
Company by Infinity. On August 5, 1998, approximately $5,000,000 in mortgage
notes held by Infinity and a short term loan of $750,000 held by Infinity were
refinanced and Infinity provided the Company approximately $1,300,000 in
additional financing.
The refinancing is divided into two notes, designated as the A-Note and the
B-Note, and both notes are secured by the stock of the subsidiaries of the
Company and substantially all of the assets of the Company and each subsidiary.
The A-Note is in the amount of $4,200,000 at an interest rate of twelve percent
(12%) per annum and will mature on January 1, 1999. The interest on this note is
to be paid monthly. As of the date of this report no interest payments on this
note have been made by the Company. This note is guaranteed by the President of
the Company. The B-Note is in the amount of $2,800,000 at an interest rate of
twelve percent (12%) per annum and will mature on January 1, 1999. The interest
on this note is to be paid at maturity. There can be no assurance that the
Company will be able to access the total amount of funds under the B-Note. The
balance of the B-Note as of September 30, 1998 was $2,173,223. Subsequent to the
end of the quarter, an additional advance was made in the amount of $277,397 to
pay payroll taxes owed by the Company. Under the terms of the refinancing, the
remaining funds of approximately $349,380 are to be available to the Company if
the Company is not in default under the terms of the agreement. The Company is
presently in default under the terms of the agreement and has been unable to
draw the remaining funds as of the date of this report. The primary reasons for
the default are as follows: (1.) failure to provide monthly financial
information on a timely basis and (2.) the failure to pay the accrued interest
on the A-Note.
As a condition precedent to the refinancing, the Company agreed to work
with Infinity towards an amicable recapitalization of the Company and its
subsidiaries. Plans for the recapitalization are incomplete at this time.
During 1998 and 1999, the Company will continue to seek additional sources
of capital to continue as a going concern. No assurance can be given that the
Company will be able to obtain the desired capital.
Expansion, Capital Improvements and Divestitures
As of September 30, 1998, the Company is not committed to any expansion
projects in the retail subsidiary or the oil and gas subsidiary.
During the quarter the Company did not cease operations at any Calibur
Systems, Inc. locations. However, during the past year several divestitures did
occur which have had a
Page 14 of 18
<PAGE> 15
Management's Discussion and Analysis of Operations - Continued
significant effect on the quarter to quarter comparison of financial information
contained in this report. The divestitures are summarized as follows:
(1.) In September, 1997, a car wash and gasoline facility at 795 South
Jefferson Avenue in Cookeville, Tennessee was sold to, Dwight Thomas, the
Company's Secretary and a member of the Company's Board of Directors. The
location was sold for $516,000 and there was an M.A.I. appraised value of
$536,000 on this location. The price was deemed acceptable due to the fact that
the location was in need of capital improvements, including environmental
updates of underground petroleum storage tanks necessary to meet 1998 standards,
in excess of approximately $80,000 as of the date of the sale.
(2.) In May, 1998, an oil and lube facility located on Merchants Road in
Knoxville, Tennessee was closed. The location was operated by the Company under
a short term lease. The location was unprofitable during the time it was
operated by the Company and in 1998 had a loss of ($14,198) before taxes and
insurance. The Company was successful in finding a non-affiliated third party
operator willing to take over the long term lease and acquire the Company's
inventory at the location. A one time charge in the amount of approximately
($56,608) was taken in the second quarter of 1998 as a result of ceased
operations.
(3.) In June, 1998, a car wash and gasoline facility located on Canton
Highway in Marietta, Georgia was closed. The location is now being leased from
the Company by a non-affiliated third party under a one year lease agreement
with the Company which grants the tenant the option to purchase the location
from the Company for an amount equal to the debt on the location of
approximately $922,000. The location has been unprofitable for the past couple
of years and the 1998 year to date loss was ($27,704) as of the date of closing.
The lease is triple net and the lease payments are equal to the existing debt
service of the Company for the location. The tenant has already applied to the
Company's lender, the Small Business Administration, to assume the debt and
exercise their right to purchase the location from the Company. No assurance can
be given that the tenant will be able to assume the existing debt or be able to
find appropriate financing to acquire the location.
(4.) In June, 1998, a car wash, gasoline and oil and lube facility located
on Memorial Drive in Atlanta, Georgia was closed. The location is now being
leased from the Company by a non-affiliated third party under a five year triple
net lease with payments of $6,000 per month for the first six months and then
$7,500 per month for the remaining term of the lease. Said lease also has a
purchase option for the tenant which allows the tenant to purchase the location
for $900,000 if acquired on or before January 1, 1999 and said purchase price
increases $50,000 per year on each January 1st during the term of the lease. The
location has been unprofitable for the past couple of years and the year to date
loss as of the date closed was ($33,961). Although the tenant is expected to
purchase the location during the term of the lease, no assurance can be given
that such sale will take place.
Page 15 of 18
<PAGE> 16
Part II - Other Information
Item 1 Legal Proceedings
On May 18, 1998, an involuntary bankruptcy petition, styled In
re United Petroleum Corporation and Calibur Systems, Inc. was filed
in the United States Bankruptcy Court in the Eastern District of
Tennessee by three preferred stockholders of the Company. On July 28,
1998, the Company filed a motion to dismiss the petition. On
September 10, 1998, the plaintiff requested that the court dismiss
the petition. On September 10, 1998, the court entered an order
dismissing the case.
Subsequent to the end of the quarter, on October 6, 1998, the
Company was sued by Strategic Holdings Corporation of Miami, Florida.
The suit, styled Strategic Holdings Corporation v. United Petroleum
Corporation, was filed in the Circuit Court of the 11th Judicial
Circuit in and for Dade County, Florida. The action is a request for
damages of approximately $550,000 related to allegations that the
Company breached an agreement. The Company believes it has
significant valid defenses to this suit. On November 23, 1998, the
Company filed a Motion For Enlargement of Time To Respond to The
Complaint.
Item 2 Changes In Securities
None, not applicable
Item 3 Defaults Upon Senior Securities
The Company is presently in default regarding both the Company's
outstanding debentures and preferred stock. The Company ceased paying
interest on the debentures and ceased paying dividends on the
outstanding preferred stock effective December 31, 1997. Prior to
this date the Company had been paying interest on the debentures via
the issuance of common stock in the Company and had been paying the
dividend on preferred stock via the issuance of common stock of the
Company. Accrued interest on debentures presently totals $942,106.
Accrued dividends on preferred stock presently totals $1,930,827.
In addition, the Company is presently in default under its
mortgage notes to Infinity. The primary reasons for the default are
as follows: (1.) failure to provide monthly financial information on
a timely basis and (2.) the failure to pay interest on the Infinity
A-Note as referenced earlier in this report.
Item 4 Submission of Matters to a Vote of Security Holder
None, not applicable
Page 16 of 18
<PAGE> 17
Part II - Other Information - Continued
Item 5 Other Information
Item 6 Exhibits and Reports on Form 8-K
(a.) Exhibit
27.1 Financial Data Schedule.
(b.) Reports on Form 8-K - None
Page 17 of 18
<PAGE> 18
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: November 23, 1998 By: /s/ Michael F. Thomas
------------------ ----------------------------
Michael F. Thomas
President & CEO
Date: November 23, 1998 By: /s/ L. Douglas Keane, Jr.
------------------ ----------------------------
L. Douglas Keane, Jr.
Executive Vice President
Page 18 of 18
<PAGE> 19
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
<S> <C>
27.1 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 43,894
<SECURITIES> 0
<RECEIVABLES> 114,145
<ALLOWANCES> 0
<INVENTORY> 231,189
<CURRENT-ASSETS> 440,617
<PP&E> 13,745,462
<DEPRECIATION> 98,227
<TOTAL-ASSETS> 14,186,079
<CURRENT-LIABILITIES> 16,548,792
<BONDS> 6,448,816
0
11,745,333
<COMMON> 305,653
<OTHER-SE> 24,863,515
<TOTAL-LIABILITY-AND-EQUITY> 14,186,079
<SALES> 1,577,577
<TOTAL-REVENUES> 1,577,577
<CGS> 1,115,293
<TOTAL-COSTS> 1,115,293
<OTHER-EXPENSES> 1,264,270
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 440,095
<INCOME-PRETAX> (744,360)
<INCOME-TAX> 0
<INCOME-CONTINUING> (744,360)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (744,360)
<EPS-PRIMARY> (0.024)
<EPS-DILUTED> (0.024)
</TABLE>
