<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: June 4, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________________ to __________________________
Commission file number: 2-38375
United Petroleum Corporation
-------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 13-3103494
--------------------------------------------- ---------------------------
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
5800 N.W. 74th Avenue, Miami, Florida 33166
-----------------------------------------------------------------
(Address of principal executive offices)
(Zip Code)
(305) 592-3100
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(Registrant's telephone number, including area code)
N/A
-----------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (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.
Yes X No
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APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes X No
----- -----
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date: 5,000,000 shares of
voting common stock, par value $.01 per share, as of July 17, 2000.
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UNITED PETROLEUM CORPORATION
INDEX
<TABLE>
<CAPTION>
PART I FINANCIAL INFORMATION PAGE NO.
--------
<S> <C>
ITEM 1. Financial Statements
Condensed consolidated balance sheets -
June 4, 2000 and August 29, 1999............................................... 4-5
Condensed consolidated statements of operations -
Twelve and forty weeks ended June 4, 2000 and June 6, 1999..................... 6
Consolidated statement of changes in stockholders' equity -
Forty weeks ended June 4, 2000................................................. 7
Condensed consolidated statements of cash flows -
Forty weeks ended June 4, 2000 and June 6, 1999................................ 8-9
Notes to condensed consolidated financial statements.............................. 10-12
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations................................... 12-16
PART II OTHER INFORMATION
ITEM 1. Legal Proceedings........................................................ 16
ITEM 6. Exhibits and Reports on Form 8-K......................................... 16
</TABLE>
3
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
UNITED PETROLEUM CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 4, AUGUST 29,
ASSETS 2000 1999
----------- ------------
(Unaudited) *
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 68 $ 38
Accounts receivable, net of allowances
of $65,000 in 2000 and 1999 1,593 762
Receivable from affiliated company 204 --
Inventories 4,447 3,826
Prepaid expenses and other current assets 631 483
----------- ------------
Total current assets 6,943 5,109
Property and equipment, net 15,879 3,794
Net assets held for sale 614 --
Goodwill and other intangible assets 35,696 --
Investment in Farm Stores Grocery, Inc. 27 11
Deferred financing costs 1,170 54
Other assets 165 35
----------- ------------
$ 60,494 $ 9,003
=========== ============
</TABLE>
(continued on page 5)
4
<PAGE> 5
UNITED PETROLEUM CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 4, AUGUST 29,
LIABILITIES AND STOCKHOLDERS' EQUITY 2000 1999
----------- ------------
(Unaudited) *
<S> <C> <C>
Current liabilities:
Accounts payable $ 9,157 $ 4,972
Accrued expenses 2,294 1,674
Accrued preferred stock dividends 703 --
Current portion of long-term debt 1,531 94
----------- ------------
Total current liabilities 13,685 6,740
Long-term debt, net of current portion 22,298 106
Other long-term liabilities 131 224
----------- ------------
Total liabilities 36,114 7,070
Stockholders' equity:
Preferred stock, Series A, 9%, $.01 par value, 300,000
shares authorized, 140,000 shares issued and outstanding 2 --
Common stock, $.01 par value, 10,000,000 shares
authorized, 5,000,000 shares issued and outstanding 50 --
Additional paid-in capital 28,355 --
Accumulated deficit (4,027) --
----------- ------------
Total stockholders' equity 24,380 --
----------- ------------
Division equity -- 1,933
----------- ------------
$ 60,494 $ 9,003
=========== ============
</TABLE>
* Condensed from audited financial statements.
The accompanying notes are an integral part of these condensed consolidated
financial statements.
5
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UNITED PETROLEUM CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
-------------------------- --------------------------
TWELVE WEEKS ENDED FORTY WEEKS ENDED
-------------------------- --------------------------
JUNE 4, JUNE 6, JUNE 4, JUNE 6,
2000 1999 2000 1999
<S> <C> <C> <C> <C>
Sales $ 34,067 $ 26,514 $ 99,072 $ 84,078
Cost of sales 27,379 20,456 78,656 63,494
----------- ----------- ----------- -----------
Gross profit 6,688 6,058 20,416 20,584
Operating expenses:
Store operating expenses 5,077 4,834 16,620 16,423
Depreciation and amortization 664 142 1,741 384
General & administrative expenses 1,144 1,177 4,012 3,738
----------- ----------- ----------- -----------
Total 6,885 6,153 22,373 20,545
----------- ----------- ----------- -----------
Income (loss) from operations (197) (95) (1,957) 39
Other income (expense):
Interest expense (635) (7) (1,557) (26)
Interest income 3 23 30 95
Other income (expense) 48 97 40
Equity in earnings (loss) of Farm Stores Grocery, Inc. 13 33 16 (20)
Gain (loss) from disposition of property and equipment 122 37 47 23
----------- ----------- ----------- -----------
Net income (loss) (646) $ (9) (3,324) $ 151
=========== ===========
Preferred stock dividends (291) (703)
----------- -----------
Net income (loss) applicable to common stockholders $ (937) $ (4,027)
=========== ===========
Earnings (loss) per share
Basic and diluted earnings (loss) per share $ (0.19) $ (0.81)
Weighted average number of shares 5,000 5,000
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
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<PAGE> 7
UNITED PETROLEUM CORPORATION
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FORTY WEEKS ENDED JUNE 4, 2000
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
Series A
Preferred Stock Common Stock
----------------------- ------------------------
Shares Amount Shares Amount
<S> <C> <C> <C> <C>
Balance at August 29, 1999 -- $ -- -- $ --
Settlement of partners' interest in Division Equity -- -- -- --
FSCI common stock outstanding -- -- 10,000 10
---------- ---------- ---------- ----------
FSCI balance at November 12, 1999 prior to merger -- -- 10,000 10
Acquisition of FSCI common stock -- -- (10,000) (10)
UPC preferred and common stock issued to FSCI
shareholder for the acquisition of FSCI 70,000 1 2,400,000 24
Issuance of new preferred and common stock to
UPC's pre-merger shareholders 70,000 1 2,600,000 26
Dividends declared:
Series A preferred stock at 9% -- -- -- --
Net loss -- -- -- --
---------- ---------- ---------- ----------
Balance at June 4, 2000 140,000 $ 2 5,000,000 $ 50
========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
Additional Total
Paid-in Accumulated Division Stockholders'
Capital Deficit Equity Equity
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Balance at August 29, 1999 $ -- $ -- $ 1,933 $ 1,933
Settlement of partners' interest in division equity 844 -- (1,933) (1,089)
FSCI common stock outstanding (10) -- -- --
------------- ------------- ------------- -------------
FSCI balance at November 12, 1999 prior to merger 834 -- -- 844
Acquisition of FSCI common stock (2,990) -- (3,000)
UPC preferred and common stock issued to FSCI
shareholder for the acquisition of FSCI 14,925 -- -- 14,950
Issuance of new preferred and common stock to
UPC's pre-merger shareholders 15,586 -- -- 15,613
Dividends declared:
Series A preferred stock at 9% -- (703) -- (703)
Net loss -- (3,324) -- (3,324)
------------- ------------- ------------- -------------
Balance at June 4, 2000 $ 28,355 $ (4,027) $ -- $ 24,380
============= ============= ============= =============
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
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<PAGE> 8
UNITED PETROLEUM CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
FORTY WEEKS ENDED
------------------------
JUNE 4, JUNE 6,
2000 1999
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (3,324) $ 151
Adjustments for non-cash items:
Depreciation and amortization 1,741 384
Amortization of deferred loan costs 148 --
Equity in (earnings) loss of Farm Stores Grocery, Inc. (16) 20
Loss (gain) on disposition of property and equipment (47) (23)
Change in assets and liabilities:
Accounts receivable (863) (16)
Receivable from affiliated company (204)
Inventories (472) 223
Prepaid expenses and other current assets (172) 43
Other assets (437) 18
Accounts payable 3,238 320
Accrued expenses (212) (541)
Other long-term liabilities (93) 223
---------- ----------
Cash provided by (used in) operating activities (713) 802
---------- ----------
Cash flows from investing activities:
Payments for acquisitions, net of cash acquired (19,936) --
Purchases of property and equipment (972) (768)
Proceeds from disposition of property and equipment 197 38
---------- ----------
Net cash used in investing activities (20,711) (730)
---------- ----------
Cash flows from financing activities:
Proceeds from issuance of long-term debt, net of loan costs 21,751 --
Principal payments on long-term debt (297) (82)
---------- ----------
Net cash provided by (used in) financing activities 21,454 (82)
---------- ----------
Net increase (decrease) in cash and cash equivalents 30 (10)
Cash and cash equivalents, at beginning of period 38 41
---------- ----------
Cash and cash equivalents, at end of period $ 68 $ 31
========== ==========
</TABLE>
Continued on page 9
8
<PAGE> 9
UNITED PETROLEUM CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
FORTY WEEKS ENDED
---------------------
JUNE 4, JUNE 6,
2000 1999
--------- ---------
<S> <C> <C>
Supplemental cash flow information:
Cash paid for interest $ 1,361 $ 27
========= =========
Supplemental schedule of non-cash investing and financing
activities:
Accrued dividends on preferred stock $ 703
=========
Preferred and common stock issued to acquire the net assets of
FSCI $ 14,950
=========
Net reorganized value of UPC and preferred and common stock
issued to UPC's pre-merger shareholders $ 15,613
=========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
9
<PAGE> 10
UNITED PETROLEUM CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements for
United Petroleum Corporation (the "Company" or "UPC") have been prepared in
accordance with (i) generally accepted accounting principles for interim
financial reporting and (ii) the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
only of normal recurring accruals) considered necessary for a fair presentation
have been included.
This Form 10-Q should be read in conjunction with the financial statements and
notes thereto included in the Company's audited financial statements as of
August 29, 1999 as presented in the Company's Form 8-K/A(2) dated November 12,
1999 and filed with the Securities and Exchange Commission on January 28, 2000.
The financial statements of the Company at August 29, 1999 reflect the equity of
the Farm Stores Walk-in Division (shown as "Division Equity") consisting of the
assets, liabilities, and operations of the traditional walk-in convenience
stores owned and operated by two partnerships having common ownership. The
Walk-in Division was segregated and reported on separately to reflect the
effects of the Transactions as defined in Note 2 herein.
Operating results for the forty weeks ended June 4, 2000 are not necessarily
indicative of operating results that may be expected for the full fiscal year.
Fiscal Year
The Company operates on a fifty-two/fifty-three week fiscal year ending on the
Sunday nearest August 31. The accompanying financial statements include
operations for the first quarter ended December 19, 1999 and December 20, 1998,
each encompassing a total of sixteen weeks and the second and third quarters,
each encompassing a total of twelve weeks.
Earnings (loss) per Share
The Company has adopted Statement of Financial Accounting Standards No. 128
"Earnings per Share" ("SFAS") which requires the presentation of "basic" and, if
appropriate, "diluted" earnings per common share. Earnings per share for the
twelve and forty weeks ended June 6, 1999 was not presented in the accompanying
unaudited condensed consolidated statements of operations because the operations
for which the data is presented were held in partnership form.
Recent Accounting Pronouncements
The Securities and Exchange Commission (the "SEC") has issued Staff Accounting
Bulletin ("SAB") No. 101, Revenue Recognition in Financial Statements, as
amended on June 26, 2000. SAB No. 101 provides the SEC staff's views in
applying generally accepted accounting principles to selected revenue
recognition issues. The Company must implement applicable provisions of SAB
101 no later than the fourth quarter of fiscal 2001. The Company has not yet
evaluated the effects of implementation, if any, on the Company's financial
statements.
Segment Information
The Company primarily operates in one segment, convenience stores, and in one
geographic area, Florida. Although the Company operates in another segment,
consisting of oil and gas operations, and in other geographic
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<PAGE> 11
areas (Georgia and Tennessee), the operations of these segments are
insignificant to the operations of the Company as a whole, and are therefore not
reported on separately.
2. Acquisitions and Other Significant Events
On November 12, 1999, a series of transactions occurred as described in Item 2
of the Company's Current Report on Form 8-K/A (Amendment 1) filed on December 1,
1999 (together with the preceding distributions, contributions and transfers
among the Farm Stores Partnerships, their partners, pre-merger UPC, Farm Stores
Convenience Stores, Inc. ("FSCI"), Farm Stores Grocery, Inc. and their
subsidiaries, the "Transactions"). The Transactions included the merger of FSCI
and United Petroleum Group, Inc. ("UPG", a wholly-owned subsidiary of the
Company). UPG is the surviving entity. As a result, UPG is the legal acquirer of
FSCI's walk-in convenience stores business and its 10% equity interest in Farm
Stores Grocery, Inc. ("FSG"), a drive-thru convenience store business. As part
of the merger, the shareholders of FSCI received total consideration of
approximately $17,950,000, consisting of 2,400,000 shares of UPC's common stock
which represents a 48% ownership interest (valued at $7,926,240), 70,000 shares
of UPC's preferred stock (valued at $7 million) which represents a 50% interest,
and $3 million in cash. UPG incurred $6 million of debt to finance the $3
million payment. The remaining proceeds were used for loan closing costs,
payment of outstanding liabilities and working capital. In addition, UPG assumed
$17 million of debt which FSCI incurred in connection with the Transactions.
FSCI is the accounting acquirer; accordingly, the transaction is accounted for
as a reverse acquisition. The accompanying financial statements include the
operations of Calibur Systems, Inc. and Jackson United Petroleum Corporation,
UPC's two pre-Transaction subsidiaries (the "Calibur Companies"), and expenses
relating to their operations for the period following consummation of the
Transactions.
3. Receivable from Affiliated Company
Receivable from affiliated company at June 4, 2000 represents the balance due
from FSG, in which the Company has a 10% equity interest. The amount receivable
relates to the management fee that the Company charges FSG for providing general
and administrative services for FSG. The fee is based on the number of stores
FSG operates in accordance with the management agreement between the Company and
FSG. The receivable balance also includes charges by the Company's maintenance
department for work performed on FSG's stores, also pursuant to the terms of
such management agreement.
4. Current Portion of Long-term Debt
Current portion of long-term debt includes a loan to the Company in the amount
of $144,915 which has matured. The loan is secured by a mortgage encumbering a
property located in Georgia which is leased by the Company's subsidiary to an
unrelated third party. The lease requires the tenant to make all payments coming
due under the loan, and upon exercising an option to purchase the property, to
assume the loan. The tenant continues to make monthly payments under the loan
and has advised the Company that it has exercised its option to purchase the
property. The sale is expected to close during the fourth quarter.
5. Net Assets Held for Sale
Net assets held for sale consists of land, building and equipment for the
property referred to in note 4 and is stated at the lower of cost or market.
6. Contingencies
The Company is a defendant in various legal proceedings arising in the normal
course of business. In the opinion of management, based on the nature of these
proceedings and the amounts of damages claimed, the ultimate
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<PAGE> 12
resolution of these legal proceedings will not have a material adverse effect on
the Company's financial position or results of operations.
6. Subsequent Events
On July 15, 2000 the Company issued 7,026 shares of preferred stock in payment
of accrued dividends on the Series A, 9% preferred stock through the third
quarter.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
Certain statements in this Management's Discussion and Analysis of
Financial Condition and Results of Operations, including without limitation
expectations as to future revenues and profitability, constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995 (the "Reform Act"). Such forward-looking
statements involve known and unknown risks, uncertainties and other factors
which may cause the actual results, performance or achievements of the Company
and its subsidiaries to be materially different from any future results,
performance or achievements expressed or implied by such forward-looking
statements.
In the following comparison of the results of operations, the twelve
and forty week periods ended June 4, 2000 and June 6, 1999 are referred to as
2000 and 1999, respectively.
The Company's results of operations for 2000 reflect the operations of
the Calibur Companies from the date of its merger with FSCI.
COMPARISON OF THE TWELVE WEEKS ENDED JUNE 4, 2000 AND JUNE 6, 1999
Revenues and gross profit for 2000 were $34.1 million and $6.7 million,
respectively, as compared to $26.5 million and $6.1 million, respectively for
1999. The Company generated a net loss of $937,000 in 2000, compared to a net
loss of $9,000 in 1999 due to the effects of the Transactions and their
financing totaling $1.4 million as follows: (i) interest expense including
amortization of deferred loan costs of $635,000 (ii) amortization of goodwill
and other intangible assets of $423,000, (iii) accrued preferred dividends
totaling $291,000, and (iv) depreciation expense on the write-up of assets to
fair value of $17,000.
Revenues increased $7.6 million or 28.5% from the prior year mostly due
to the significant increase in gasoline sales and the inclusion of $1 million of
revenues generated by the Calibur Companies subsequent to its acquisition. A
summary of revenues by source for the comparative twelve week period is as
follows (in thousands):
<TABLE>
<CAPTION>
Twelve Weeks Ended
June 4, June 6,
2000 1999
--------- ---------
<S> <C> <C>
Grocery $ 13,855 $ 14,657
Gasoline 19,467 11,795
Other 745 62
--------- ---------
Total $ 34,067 $ 26,514
========= =========
</TABLE>
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<PAGE> 13
Grocery revenues decreased by $802,000 or 5.5%, in 2000 as compared to
1999 due to temporarily closing 6 locations for replacement of gasoline
dispensing equipment and permanently closing 5 underperforming stores. Although
the closing of the underperforming stores reduces revenues, it does not have a
material impact on the results of operations, because these stores had been
operating at a loss.
Gasoline revenues increased 65% or $7.7 million to $19.5 million in
2000 from $11.8 million in 1999. The increase is due to a $0.38 increase in the
average retail price per gallon from $1.13 per gallon in 1999 to $1.51 per
gallon in 2000 coupled with an increase of 2.4 million gallons sold from 10.4
million gallons in 1999 to 12.8 million gallons in 2000. The increase in gallons
sold resulted from the installation of new fuel dispensing equipment in 40
stores as of the end of the quarter and the inclusion of the Calibur Companies'
3 gas stores which sold approximately 215,000 gallons during the quarter. This
increase was partially offset by a decrease in gallons sold by the stores that
were temporarily and permanently closed as mentioned above. The Company will
continue to upgrade its fuel dispensing equipment at various locations during
the remainder of the year.
Gross profit increased by $630,000 in 2000 primarily as a result of the
significant increase in gasoline sales. Gross profit realized on other sales by
the Calibur Companies was partially offset by the decrease in gross profit
earned on grocery sales due to the reduction in the number of stores.
Store operating expenses increased by $243,000 in 2000 primarily due to
the inclusion of the Calibur Companies' store operating expenses of
approximately $290,000 partially offset by temporary and permanent store
closings which resulted in reduced payroll and payroll-related costs and store
occupancy costs.
Depreciation and amortization expense increased $552,000 in 2000 mostly
due to the amortization of goodwill and other intangible assets of $423,000. The
remaining increase is due to the inclusion of the Calibur Companies'
depreciation expense of $104,000 and depreciation on capital expenditures.
General and administrative expenses decreased by $33,000 despite the
inclusion of $215,000 in 2000 relating to the Calibur Companies due to lower
payroll and payroll-related costs of $150,000 and a decrease in consulting
expense of $67,000 which was incurred in 1999 mainly to make the Company's
computer systems Year 2000 compliant.
The increase in interest expense of $628,000 resulted from the
borrowing of $23 million used to finance the Transactions and the amortization
of related deferred loan costs of $61,000.
COMPARISON OF THE FORTY WEEKS ENDED JUNE 4, 2000 AND JUNE 6, 1999
Revenues and gross profit for 2000 were $99.1 million and $20.4
million, respectively, as compared to $84.1 million and $20.6 million,
respectively for 1999. The Company generated a net loss of $4 million in 2000,
compared to net income of $151,000 in 1999. The effects of the Transactions and
their financing contributed $3.3 million of the net loss in 2000 as follows: (i)
interest expense including amortization of deferred loan costs of $1.6 million,
(ii) amortization of goodwill and other intangible assets of $1 million, (iii)
accrued preferred dividends totaling $703,000 and (iv) depreciation expense on
the write-up of assets to fair value of $41,000. The balance of the net loss in
2000 is primarily due to losses incurred by the Calibur Companies of $399,000
and the decline in the gross profit percentage realized on grocery sales as a
result of the decrease in grocery sales.
Revenues increased $15 million or 17.8% from the prior year due to the
increase in gasoline sales and the inclusion of $2.6 million of revenues
generated by the Calibur Companies subsequent to its acquisition. A summary of
revenues by source for the comparative forty week period is as follows (in
thousands):
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<PAGE> 14
<TABLE>
<CAPTION>
FORTY WEEKS ENDED
JUNE 4, JUNE 6,
2000 1999
----------- -----------
<S> <C> <C>
Grocery $ 44,245 $ 47,478
Gasoline 52,775 36,338
Other 2,052 262
----------- -----------
Total $ 99,072 $ 84,078
=========== ===========
</TABLE>
Grocery revenues decreased by $3.2 million or 6.8%, in 2000 as compared
to 1999 due to temporarily closing 40 locations in 2000 for replacement of
gasoline dispensing equipment and permanently closing 8 underperforming store
locations. Although the closing of the 8 underperforming stores reduces
revenues, it does not have a material impact on the results of operations,
because these stores had been operating at a loss.
Gasoline revenues increased $16.4 million or 45.2% in 2000 as compared
to 1999. The increase is mostly due to a $0.35 increase in the average retail
price per gallon from $1.07 per gallon in 1999 to $1.41 per gallon in 2000, an
increase of approximately 3.2 million gallons sold as a result of the
installation of new fuel dispensing equipment in 40 locations since the
beginning of the fiscal year and the inclusion of the Calibur Companies' 3 gas
stores which sold approximately 504,000 gallons during the period. Gallons sold
were down by 1.1 million gallons in the first quarter when compared to the same
quarter of the prior year but rose 19% in the second quarter and 23% in the
third quarter over the same quarter in the prior year as a result of the fuel
the upgrades completed during 2000. The Company will continue to upgrade its
fuel dispensing equipment at various locations and expects to complete 12
additional stores by the end of the fiscal year.
Gross profit decreased by $168,000 in 2000 due to the $1 million
decrease in grocery gross profit as a result of lower grocery sales partially
offset by the gross profit realized by the Calibur Companies of $848,000. The
gross profit dollars realized on gasoline sales is consistent with the prior
year as the significant increase in sales was offset by the decrease in the
gross profit percentage. The gross profit percentage on gasoline sales was 8.2%
in 2000 compared to 12% in 1999 as a result of a 38% increase in average fuel
costs from $0.94 per gallon in 1999 to $1.30 per gallon in 2000. Competitive
factors prevented the Company (and its competitors) from passing along the full
effect of these cost increases while maintaining the same gross profit margins.
Store operating expenses increased by $197,000 in 2000 primarily due to
the inclusion of the Calibur Companies' operating expenses of $1.4 million
partially offset by the temporary and permanent store closings which resulted in
a reduction in payroll and payroll-related costs and store occupancy costs.
Depreciation and amortization expense increased $1.1 million in 2000
primarily due to the amortization of goodwill and other intangible assets of $1
million and depreciation expense of $41,000 related to the write-up of property
and equipment to fair value in connection with the Transactions. The remaining
increase of $292,000 is due to the inclusion of the Calibur Companies'
depreciation expense of $264,000 and depreciation on capital expenditures.
General and administrative expenses increased $274,000 from 1999 due to
the inclusion of $323,000 in 2000 relating to the Calibur Companies partially
offset by a decrease in payroll and payroll-related costs.
The increase in interest expense of $1.5 million resulted from the
borrowing of $23 million used to finance the Transactions and the amortization
of related deferred loan costs of $148,000.
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<PAGE> 15
CREDIT FACILITIES
The Company has a $23 million credit facility with a bank. This facility
provides credit in the form of a $10,467,000 term loan, an $8,300,000 mortgage
loan and a $4,233,000 revolving line of credit, and matures on October 30, 2004.
The term loan bears interest at prime plus 3%, payable monthly with monthly
principal payments of $121,146 beginning after the first twelve months. The $8.3
million mortgage loan bears interest at the 180-day libor rate plus 4%, payable
monthly at approximately $20,000 plus interest. The $4,233,000 revolving loan
bears interest at the 30-day libor rate plus 3.875%, payable monthly and is
advanced against the Company's inventory and receivables. The Company is
required to comply with various covenants in connection with this facility and
borrowings on the revolving line of credit are subject to a borrowing base
calculated from the Company's inventory and receivables. In addition, the
agreement prohibits the payment of any cash dividends unless approval is
obtained from the lender. At June 4, 2000, the Company had used all $4,233,000
under its revolving credit facility.
LIQUIDITY AND CAPITAL RESOURCES
The Company meets its short-term liquidity needs through cash provided by
operations, accounts payable and a credit facility with a bank. Lease
obligations, mortgage notes and term loans are additional sources for the
longer-term liquidity and financing needs of the Company. Management believes
the Company's available sources of cash will enable it to fulfill its known
liquidity requirements for the foreseeable future.
2000 Cash Flows:
During the forty weeks ended June 4, 2000 the Company used $713,000 in its
operating activities mainly due to interest payments made on the debt incurred
to finance the Transactions of $1.6 million, an increase in inventory mostly due
to higher fuel costs and an increase in accounts receivable due in part to the
significant increase in credit card sales as a result of the newly-installed
pay-at-the-pump gasoline dispensers. These uses of cash were partially offset by
an increase in accounts payable mostly due to the increase in fuel costs, an
increase in the money orders payable as a result of the increase in money order
sales which are typically higher at the beginning of the month, and extended
terms with the Company's primary grocery vendor. The Company used the net
proceeds from its financing and investing activities to offset those used by its
operating activities.
During the forty weeks ended June 4, 2000 the Company initiated a program to
upgrade and improve its fuel dispensing equipment using cash of approximately
$412,000 for installation and long-term lease financing for the acquisition of
the related equipment. Management believes that once this program is complete,
revenues and gross profit from fuel sales will increase and that cash flow from
operating activities will be sufficient to fulfill its liquidity requirements
for the next year.
CAPITAL EXPENDITURES
Capital expenditures during the 40 weeks ended June 4, 2000 consist mostly of
costs incurred for gasoline dispensing equipment and building improvements. The
Company anticipates spending approximately $500,000 during the remainder of the
fiscal year to improve and maintain existing store and gasoline dispensing
equipment. The Company will fund these expenditures by cash from operations,
long-term lease obligations and other forms of equipment financing.
CONTRACT WITH OASIS OUTSOURCING, INC.
During the third quarter, the Company entered into a Client Service Agreement
with Oasis Outsourcing, Inc., a subsidiary of The Wackenhut Corporation.
Pursuant to the agreement, Oasis will provide professional employment services
to the Company, including becoming the employer and paying (subject to the
Company's reimbursement obligations) the total compensation for all executive
and non-executive personnel working for the Company, and maintaining and
administering workers' compensation and unemployment insurance and employee
benefit plans, including group health insurance and a 401(k) plan. The Company
believes that the engagement of
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this professional employment organization will significantly reduce the
Company's workers' compensation insurance expense. The Company has issued surety
bonds in the amount of $285,000 during the term of the contract and an
additional $400,000 for the first 6 months to secure default in the payment of
wages to Oasis in accordance with the terms of the agreement.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
Reference is made to the Company's Reports on Form 10-Q for the quarterly
periods ended December 19, 1999 and March 12, 2000 for a description of legal
proceedings which first became a reportable event during such quarter or in
which there were material developments.
In May 2000, Murphy Oil USA, Inc. filed a lawsuit in the Circuit Court of the
Nineteenth Judicial Circuit in and for Okeechobee County, Florida styled Murphy
Oil USA, Inc. vs. Farm Stores Grocery, Inc. and Shell Oil Company. The complaint
seeks injunctive and declaratory relief for allegedly selling, offering to sell,
or advertising the sale of gasoline at two of the Company's stores in Okeechobee
County, Florida in alleged violation of the Florida Motor Fuel Marketing
Practices Act (the "MFMPA"). Murphy Oil alleges that the gasoline price offered
at these locations, when paid for with the Shell MasterCard credit card (which
offers a five percent discount on gasoline purchases) violates the MFMPA's
prohibition against selling gasoline below cost. The Company has not yet filed a
response to the complaint. Sales of gasoline paid for with a Shell MasterCard
credit card at these locations account for approximately 6% of the Company's
gasoline sales at these locations.
Although the Company, doing business under the fictitious name "Farm Stores",
owns and/or operates the two Okeechobee stores, the plaintiff has named Farm
Stores Grocery, Inc. as a defendant in the lawsuit.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<S> <C>
3(i) Amended and Restated Certificate of Incorporation of United
Petroleum Corporation (filed as Exhibit 3(i) to the Company's
Current Report on 8K/A (Amendment 1) dated November 12, 1999 and
filed on December 1, 1999, and incorporated herein by reference)
3(ii) Amended and Restated Bylaws of United Petroleum Corporation (filed
as Exhibit 3(ii) to the Company's Current Report on 8K/A
(Amendment 1) dated November 12, 1999 and filed on December 1,
1999, and incorporated herein by reference)
4 Certificate of Designation - Class A 9% Preferred Stock (filed as
Exhibit 4 to the Company's Current Report on 8K/A (Amendment 1)
dated November 12, 1999 and filed on December 1, 1999, and
incorporated herein by reference)
10 Client Service Agreement dated May 5, 2000 between the Company and
Oasis Outsourcing, Inc. (filed herewith)
19 Current Report on Form 8/K/A(Amendment 2) dated November 12, 1999
and filed on January 28, 2000 (incorporated herein by reference)
27 Financial Data Schedule (filed herewith)
</TABLE>
(b) Reports on Form 8-K.
No reports on Form 8-K have been filed during the quarter for which this report
is filed.
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SIGNATURES
Pursuant to the requirements of the Securities 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
---------------------------------------------------
(Registrant)
Date: July 19, 2000 /s/ Carlos E. Bared
---------------------------------------------------
Carlos E. Bared
Sr. Vice President and Chief Financial Officer
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EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<S> <C>
3(i) Amended and Restated Certificate of Incorporation of United
Petroleum Corporation (filed as Exhibit 3(i) to the Company's
Current Report on 8K/A (Amendment 1) dated November 12, 1999 and
filed on December 1, 1999, and incorporated herein by reference)
3(ii) Amended and Restated Bylaws of United Petroleum Corporation (filed
as Exhibit 3(ii) to the Company's Current Report on 8K/A
(Amendment 1) dated November 12, 1999 and filed on December 1,
1999, and incorporated herein by reference)
10 Client Service Agreement dated May 5, 2000 between the Company and
Oasis Outsourcing, Inc.
4 Certificate of Designation - Class A 9% Preferred Stock (filed as
Exhibit 4 to the Company's Current Report on 8K/A (Amendment 1)
dated November 12, 1999 and filed on December 1, 1999, and
incorporated herein by reference)
19 Current Report on Form 8-K/A (Amendment 2) dated November 12, 1999
and filed on January 28, 2000 (incorporated herein by reference)
27 Financial Data Schedule
</TABLE>
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