<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: June 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 N-425 1111 Northshore Drive
Knoxville, Tennessee 37919
Issuer's Telephone Number: (423) 909-0890
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: August 3, 1998
Transitional Small Business Disclosure Format
(Check One): Yes ( ) No (X)
Page 1 of 17
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UNITED PETROLEUM CORPORATION AND SUBSIDIARIES
INDEX
Part I. Financial Information
Item 1. Condensed Financial Statements ( Unaudited )
Condensed consolidated balance sheets - June 30, 1998 and
December 31, 1997
Condensed consolidated statements of operations - Three months
ended June 30, 1998 and 1997; six months ended June 30, 1998
and 1997
Condensed consolidated statement of stockholders' equity
Condensed consolidated statements of cash flows - Six months
ended June 30, 1998 and 1997
Notes to condensed consolidated financial statements -
June 30, 1998
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Part II. Other Information
Signatures
Page 2 of 17
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PART I. - Financial Information Item 1. Financial Statements
United Petroleum Corporation and Subsidiaries
Consolidated Balance Sheets
At June 30, 1998 and December 31, 1997
June 30, 1998 Dec. 31, 1997
------------- -------------
Current Assets
Cash $141,173 $166,180
Accounts and Notes Receivable $125,549 $112,377
Inventories $300,032 $321,948
Other Current Assets $39,722 $373,413
------------ ------------
$606,476 $973,918
Property and Equipment
Gas and Oil properties $4,431,340 $4,798,795
Premises and Equipment (Net) $8,255,469 $8,519,499
Intangibles and Other Assets $204,832 $408,772
------------ ------------
Total Assets $13,498,117 $14,700,984
============ ============
Liabilities and Stockholders' Equity
Current Liabilities
Accounts Payable $367,373 $534,867
Accrued Expenses $2,572,884 $1,368,097
Line of Credit $750,000 $247,829
Current Maturities-Long Term Debt $10,930,767 $9,241,801
------------ ------------
$14,621,024 $11,392,594
Long Term Liabilities
Long Term Debt-Less Current Maturities $931,056 $2,601,686
Deferred Income Taxes $0 $0
------------ ------------
Total Liabilities $15,552,080 $13,994,280
Minority Interest $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 (Common) $26,050,947 $26,036,305
Retained Earnings ($27,273,248) ($24,635,081)
------------ ------------
($916,531) $1,694,136
Less: Stockholder note receivable ($1,187,432) ($1,187,432)
------------ ------------
Total Stockholders' Equity ($2,103,963) $506,704
------------ ------------
Total Stockholders' Equity & Liabilities $13,498,117 $14,700,984
============ ============
The accompanying notes are an integral part of these financial statements.
Page 3 of 17
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United Petroleum Corporation and Subsidiaries
Consolidated Statement of Operations
For The Three Month Periods Ended June 30, 1998 and June 1997
June 30, 1998 June 30, 1997
------------- -------------
Revenues $1,635,985 $2,531,617
Cost of Sales $1,109,637 $1,702,926
------------ ------------
Gross Profit $526,348 $828,691
Operating Expenses:
Salaries and Wages $220,158 $223,335
Payroll Taxes $50,672 $63,760
Other General and Administrative $661,061 $938,546
Interest Expense $320,845 $387,811
Depreciation and Amortization $392,728 $284,625
------------ ------------
$1,645,464 $1,898,077
Other Income (Expense) ($26,421) $28,646
------------ ------------
Net Income Before Income Taxes ($1,145,537) ($1,040,740)
Provision For Income Taxes $0 $0
------------ ------------
Net Income After Taxes ($1,145,537) ($1,040,740)
============ ============
Primary Earnings Per Share ($0.037) ($0.06)
============ ============
Weighted Average Shares Outstanding 30,565,352 17,225,270
============ ============
Fully Diluted Earnings Per Share ($0.037) ($0.06)
============ ============
Fully Diluted Weighted Average Shares 30,565,352 17,225,270
Outstanding
============ ============
The accompanying notes are an integral part of these financial statements.
Page 4 of 17
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United Petroleum Corporation and Subsidiaries
Condensed Consolidated Statements of Operations
For The Six Month Periods ended June 30, 1998 and 1997
June 30, 1998 June 30, 1997
------------- -------------
Revenues $3,294,947 $6,230,264
Cost of Sales $2,122,042 $4,319,259
------------ ------------
Gross profit $1,172,905 $1,911,005
Operating Expenses:
Salaries and Wages $461,243 $524,122
Payroll Taxes $98,785 $135,825
Other General and Administrative $1,233,805 $1,528,179
Interest Expense $534,414 $1,474,536
Depreciation and Amortization $583,058 $676,906
------------ ------------
$2,911,305 $4,339,568
Other Income (Expense) $57,711 $42,531
------------ ------------
Net Income Before Taxes ($1,680,689) ($2,386,032)
Provision For Income Taxes $0 $0
------------ ------------
Net Income After Taxes ($1,680,689) ($2,386,032)
============ ============
Primary Earnings Per Share ($0.05) ($0.06)
============ ============
Weighted Average Shares Outstanding 30,565,352 17,225,270
============ ============
Fully Diluted earnings Per Share ($0.05) ($0.06)
============ ============
Fully Diluted Weighted Average Shares 30,565,352 17,225,270
Outstanding
The accompanying notes are an integral part of these statements.
Page 5 of 17
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United Petroleum Corporation and Subsidiaries
Consolidated Statements of Changes in Stockholders' Equity
<TABLE>
<CAPTION>
Series A Series B Common Stock Additional Accumulated
Preferred Preferred Shares Dollars Paid-In Capital Deficit
--------- --------- ---------- -------- --------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1998 $99 $18 29,279,515 $292,795 $26,036,305 ($24,635,081)
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)
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)
-------- -------- ---------- -------- ----------- -------------
$99 $18 30,565,352 $305,653 $26,050,947 ($27,273,248)
<CAPTION>
Stockholder
Note
Receivable Total
------------ ----------
<S> <C> <C>
Balance, January 1, 1998 ($1,187,432) $506,704
Shares issued for services
Dividends Declared-
Class A
Class B
Net Loss
------------ ----------
Balance, March 31, 1998 ($1,187,432) ($489,542)
Shares issued for services
Dividends Declared-
Class A
Class B
Net Loss ($1,187,432) ($2,103,963)
------------ ------------
</TABLE>
Page 6 of 17
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United Petroleum Corporation and Subsidiaries
Consolidated Statements of Cash Flows
For The Six Months Period Ended June 30, 1998 and 1997
June 30, 1998 June 30, 1997
------------- -------------
Operating Activities
Net Income ($1,680,689) ($2,386,032)
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and Amortization $583,058 $676,906
Shares issued for services $12,500 $650,369
Changes in operating assets and liabilities:
Decrease (increase) in-
Accounts notes receivable ($13,172) $158,593
Inventories $21,916 $254,735
Other Current Assets $333,691 $1,259
Increase (decrease) in -
Accounts Payable and Accrued Liabilities $79,815 ($1,346,924)
----------- -----------
($662,881) ($1,991,094)
Investing Activities:
Property & Equipment (Additions) Dispositions ($164,208) $2,364,613
Gas & Oil Properties (Additions) Dispositions $325,000 ($52,454)
Decrease (increase) in other assets $203,940 $62,503
----------- -----------
$364,732 $2,374,662
Financing Activities:
Principal payments on debt ($229,029) ($2,422,156)
Proceeds from short term borrowings $750,000 $203,000
Payments on short term borrowings ($247,829) ($23,000)
Net proceeds from bank financing $0 $435,008
Net proceeds from issuance of debentures $0 $500,000
Proceeds from issuance of common stock $0 $957,876
----------- -----------
$273,142 ($349,272)
----------- -----------
Increase (Decrease) in Cash and Cash Equivalents ($25,007) $34,296
Cash and Cash Equivalents, Beginning of Period $166,180 $19,759
----------- -----------
Cash and Cash Equivalents, End of Period $141,173 $54,055
=========== ===========
The accompanying notes are an integral part of these financial statements.
Page 7 of 17
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United Petroleum Corporation and Subsidiaries
Notes to Consolidated Financial Statements
Periods Ended June 30, 1998 and 1997
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, 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 to 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 and six month
periods ended June 30, 1998 are not necessarily indicative of the results that
may be expected for the year ended 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. 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 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 Kentucky, Pennsylvania and Missouri. CTV Studios, Inc.
was formed to conduct activities in the broadcasting industry and had not
commenced operations as of June 30, 1998.
Page 8 of 17
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United Petroleum Corporation and Subsidiaries
Notes to Consolidated Financial Statements - Continued
Periods Ended June 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 17
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United Petroleum Corporation and Subsidiaries
Notes to Consolidated Financial Statements - Continued
Periods Ended June 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.
During the quarter the Company issued 685,837 shares for services and other
minor obligations. This included 500,000 shares which bear a restrictive legend
and were issued at 50% of the market value as of the date of issue. These shares
were issued at $.025 per share which was half of the market price per share on
the date issued. The remaining 185,837 shares were issued to one of the
Company's debenture holders in payment of interest in 1997 but were not shown in
the Company's share balances through an oversight.
Page 10 of 17
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Item 2. - Management's Discussion and Analysis of Operations
The Company realized a net loss of ($1,145,537) for the three month period
ended June 30, 1998, compared to a net loss of ($1,040,740) for the same period
last year.
A summary of comparative results between the second quarter of 1998 and the
second quarter of 1997 is as follows:
Revenues were realized as follows:
Quarter Ended Quarter Ended
June 30, 1998 June 30, 1997
------------- -------------
Retail Subsidiary:
Gasoline $ 467,730 $ 756,408
Car Wash 731,353 1,145,851
Oil & Lube 315,236 397,412
Grocery 46,342 93,651
Other Sales 21,968 85,450
Energy Subsidiary:
Natural Gas 45,505 28,957
Crude Oil 7,851 23,888
------------- -------------
Total Revenue For Quarter $ 1,635,985 $ 2,531,617
============= =============
Retail Subsidiary (Calibur Systems, Inc.)
Sales decreased approximately 36.1% from $2,478,772 in the second quarter
of 1997 to $1,582,629 in the second quarter of 1998. A comparison of these two
quarters shows that, in the aggregate, (i.) gasoline sales decreased by 38.2%,
(ii.) car wash sales decreased by 36.1%, (iii.) oil & lube sales decreased by
20.7%, (iv.) grocery sales decreased by 50.5% and (v.) other sales decreased by
74.3%. The majority of such decreases are attributed to the sale and/or closing
of Company locations. For the same time period, same store sales increased
approximately 2.1% from $1,346,483 to $1,375,015.
The Company experienced a decreased gross profit margin on gasoline sales
from 6.5 % in the second quarter of 1997 to 5.1 % in the second quarter of 1998.
Volume decreased from 747,147 gallons in the second quarter of 1997 to 482,092
gallons in the second quarter of 1998 for a decrease of 35.5%. The majority of
the decrease is related to the sale and/or closing of Company locations which
sold gasoline in the previous year. For the same period of time, same store
sales increased $45,160 from $396,567 to $441,727. For further information
related to the sale or closing of Company locations refer to the annual report
of the Company on Form 10-KSB for the period ended December 31, 1997.
Page 11 of 17
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Management's Discussion and Analysis of Operations - Continued
Car wash revenue was $731,353 for the second quarter as compared to
$1,145,851 for the same quarter last year which represents a decrease of
approximately 36.2 %. The majority of this decrease can be attributed to the
sale of Company locations which offered full service car washes in the previous
year. For the same period of time, same store car wash sales increased $24,030
from $611,679 to $635,709. For further information related to the sale of
Company locations refer to the annual report of the Company on Form 10-KSB for
the period ended December 31, 1997.
Oil and lube revenue was $315,236 for the second quarter as compared to
$397,412 for the same period last year which represents a decrease of
approximately 20.6%. The majority of this decrease can be attributed to the sale
and/or closing of Company locations which provided this service in the previous
year. For the same period of time, same store oil and lube sales declined by
$13,369.
Grocery and other sales were $68,310 for the second quarter as compared to
$179,101 for the same quarter last year which represents an decrease of
approximately 61.8%. The majority of this decrease is attributed to the sale or
closing of Company locations which contained or offered these items for sale.
The Calibur Systems, Inc. subsidiary had a net loss of ($517,471) for the
quarter as compared to a net loss of ($234,723) for the same quarter last year.
During the quarter, the Company took a one time charge in the amount of
($56,608) related to the abandonment of improvements at a location under lease
which was closed during the quarter and took a one time charge in the amount of
($218,000) related to the amortization of loan costs.
Energy Subsidiary (Jackson-United Petroleum Corporation)
Natural gas revenue increased to $45,505 for the second quarter as compared
to $28,957 in the second quarter of last year.
Oil revenue decreased to $7,851 for the second quarter as compared to
$23,888 in the second quarter of last year. The majority of the decline is
attributed to the fact that oil prices have fallen significantly from the
previous year.
The Jackson-United Petroleum Corporation subsidiary had a net income of
$22,964 for the quarter as compared to a net income of $18,632 for the same
quarter last year. The subsidiary had an operating loss of ($64,239) for the
quarter and a gain on the sale of certain assets during the quarter of $87,203.
The gain on sale was the result of the sale of four (4) wells and one (1) lease
in eastern Kentucky for a total of $340,000. Three of the wells known as the
Bogar #1, the Wilson #1 and the TL #1 which were located in Pike County,
Kentucky were sold to Penn
Page 12 of 17
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Management's Discussion and Analysis of Operations - Continued
Virginia Oil & Gas for $240,000. The fourth well known as the Stepp #1 and a
lease known as the Robinson/Duncan lease, both located in Martin County,
Kentucky, were sold to Interstate Natural Gas for $100,000. As a result of the
sale, the Company was able to satisfy all liens, payables and judgments
associated with the oil and gas subsidiary. The net cash provided to the Company
after the payment of all expenses, liens, judgments and payables associated with
the wells was approximately $33,000.
Consolidated Operations
Operating expenses were $1,645,464 for the second quarter of 1998 as
compared to $1,898,077 for the same period last year. This decrease is primarily
attributed to several factors as follows: (1.) a decrease in interest paid on
debentures, (2.) a decrease in amortized costs associated with the issuance of
the debentures and (3.) a decrease in selling, general and administrative
expense due to the reduced number of Company locations. The decrease was
partially off-set by a one-time charge in the amoun of ($218,000) related to the
amortization of loan costs in the Calibur subsidiary.
Losses for the second quarter were greater than expected by management. The
primary factors associated with the increased losses were: (1.) lower than
desired gasoline margins, (2.) lower than expected gasoline volume, (3.) lower
than expected car wash revenue, (4.) higher than expected loan cost
amortization, (5.) the settlement of a lawsuit which cost the Company $56,608,
(6.) lower than expected oil & lube revenues and (7.) higher than expected costs
of goods sold in the oil and lube division.
Financial Condition -
The working capital deficit increased to approximately ($14,014,548) as of
June 30, 1998 as compared to approximately ($10,418,676) as of December 31,
1997. The majority of this increase can be 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 Decembe 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 real estate debt as mentioned above and the debentures,
which total approximately $10,930,000, are included in the current maturities of
the Company.
The net worth of the Company decreased to ($2,103,963) as of June 30, 1998
as compared to $506,704 as of December 31, 1997. The decrease is attributed to
the operating loss of
Page 13 of 17
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Management's Discussion and Analysis of Operations - Continued
($1,738,400) sustained by the Company and non-operating income of $57,711 which
combined create a loss for the year of ($1,680,689). The net worth was further
reduced by the amount of the accrued preferred stock dividends in the amount of
$1,444,153. During the quarter, interest on debentures in the amount of $124,640
was off-set due to the amortization of unearned discounts related to the face
value of debentures forgiven by debenture holders pursuant to the restructure
agreement completed by the Company effective April 30, 1997.
During the quarter, approximately $5,000,000 of the mortgage notes owed by
the Company's subsidiary, Calibur Systems, Inc., were purchased by, Infinity
Investors Limited ("Infinity"), one of the holders of the Company's convertible
debentures and preferred stock. As reported earlier, certain of the Company's
lenders had declared approximately $2,500,000 of the mortgage notes in default
and had made a demand for payment in full. These mortgage notes and the bridge
loan described below in the amount of $750,000 were refinanced in August of
1998.
In addition, during the quarter Infinity provided to the Company a loan in
the amount of $750,000. The loan bore an interest rate of twelve percent (12%)
with an original maturity date of September 30, 1998. The loan was secured by
the Company's stock in each subsidiary and further secured by the assets of the
oil and gas subsidiary. The loan allowed the Company to bring numerous taxes and
other payables current. However, the amount of the loan was insufficient to
bring all payables current as of the date of the closing. Prior to the
refinancing discussed below the Company had defaulted under the terms of this
loan.
Subsequent to the end of the quarter, Infinity refinanced the foregoing
obligations and provided the Company approximately $1,300,000 in additional
financing. The refinancing is divided into two notes, designated as the "A" and
"B" notes 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. 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.
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, 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.
Page 14 of 17
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Management's Discussion and Analysis of Operations - Continued
Expansion, Capital Improvements and Divestitures
As of June 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 ceased operations at three locations
formerly operated in the Calibur Systems, Inc. subsidiary. The following is a
summary of the locations in which operations ceased. All locations were closed
due to a lack of profitability.
(1.) 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 long term lease. The location was unprofitable during the time it was operated
by the Company and in 1998 had a net 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 during the quarter as a result of ceased operations.
(2.) 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 $932,000. The location has been unprofitable for the past couple
of years and the 1998 year to date loss was ($27,704). 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.
(3.) 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 price increases
$50,000 per year on each January 1st during the lease term. The location has
been unprofitable for the past couple of years and the year to date 1998 loss
was ($33,961). Although the tenant is expected to purchase the location during
the lease term, no assurance can be given that such sale will take place.
Page 15 of 17
<PAGE>
Part II - Other Information
Item 1 Legal Proceedings
On May 18, 1998 an involuntary bankruptcy petition,
styled in re: United Petroleum Corporation dba Jackson-United
Petroleum and Calibur Systems, Inc., was filed in the United
States Bankruptcy Court in the Eastern District of Tennessee
against the Company by three preferred shareholders of the
Company. This petition was never served on the Company, and
the petitioners counsel of record has subsequently withdrawn
and has not been replaced. The Company does not believe that
the petitioners have the right under existing bankruptcy law
to file such a petition against the Company as the petitioners
are equity holders of the Company. On July 28, 1998, the
Company filed a motion to dismiss the petition. To date, no
response has been filed by the petitioners and the court has
taken no action on the motion.
Item 2 Changes In Securities - None
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
$812,310. Accrued dividends on preferred stock presently
totals $1,444,153. Although the Company had been in default
under its mortgage notes and bridge loan, the defaults were
eliminated by the Infinity refinancing in August of 1998.
Item 4 Submission of Matters to a Vote of Security Holder - None
Item 5 Other Information - None
Item 6 Exhibits and Reports on Form 8-K
(a.) Exhibits - None
(b.) Reports on Form 8-K - None
Page 16 of 17
<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: August 14, 1998 By: /s/ Michael F. Thomas
----------------- -------------------------
Michael F. Thomas
President & CEO
Page 17 of 17
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<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 141,173
<SECURITIES> 0
<RECEIVABLES> 125,549
<ALLOWANCES> 0
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<CURRENT-ASSETS> 606,476
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<TOTAL-REVENUES> 1,635,985
<CGS> 1,109,637
<TOTAL-COSTS> 1,109,637
<OTHER-EXPENSES> 1,645,464
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 320,845
<INCOME-PRETAX> (1,145,537)
<INCOME-TAX> 0
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