<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: JUNE 30, 1999
[ ] 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: 5800 N.W. 74TH AVENUE
MIAMI, FLORIDA 33166
ISSUER'S TELEPHONE NUMBER: (305) 592-3100
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 [ ] NO [X ] (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: 5,000,000 DATE: DECEMBER 14, 1999
TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT
(CHECK ONE): YES [ ] NO [X]
<PAGE> 2
UNITED PETROLEUM CORPORATION (Debtor-In-Possession)
AND SUBSIDIARIES
<TABLE>
<CAPTION>
PAGE
----
Part I - Financial Information
Item 1. Financial Statements
<S> <C>
Condensed Consolidated Balance Sheets
June 30, 1999 (Unaudited) and December 31, 1998 2
Condensed Consolidated Statements of Operations
Six Months Ended June 30, 1999 and 1998 (Unaudited) 3
Condensed Consolidated Statements of Operations
Three Months Ended June 30, 1999 and 1998 (Unaudited) 4
Condensed Consolidated Statement of Changes in Stockholders' Deficiency
Six Months Ended June 30, 1999 (Unaudited) 5
Condensed Consolidated Statements of Cash Flows
Six Months Ended June 30, 1999 and 1998 (Unaudited) 6
Notes to Condensed Consolidated Financial Statements 7-14
Item 2. Management's Discussion and Analysis or Plan of Operation 15-24
Part II - Other Information
Item 6. Exhibits and Reports on Form 8-K 24
Signatures 25
</TABLE>
-1-
<PAGE> 3
UNITED PETROLEUM CORPORATION (Debtor-In-Possession)
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
JUNE 30, 1999 AND DECEMBER 31, 1998
<TABLE>
<CAPTION>
June December
ASSETS 30, 1999 31, 1998
------ ------------ ------------
(Unaudited) (Note 1)
<S> <C> <C>
Current assets:
Cash $ 17,365 $ 78,216
Accounts receivable 76,335 106,719
Inventories 161,140 171,362
Prepaid expenses and other current assets 54,919 50,794
------------ ------------
Total current assets 309,759 407,091
------------ ------------
Property and equipment:
Oil and gas properties, net 3,024,558 3,043,240
Premises and equipment, net 5,329,482 5,812,192
------------ ------------
Totals 8,354,040 8,855,432
Deferred reorganization costs 553,099 553,099
Property held for sale 2,945,047 2,945,047
Other assets 53,383 97,303
------------ ------------
Totals $ 12,215,328 $ 12,857,972
============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Liabilities not subject to compromise:
Current liabilities:
Current portion of long-term debt $ 974,545 $ 14,224,544
Accounts payable 640,357 319,736
Preferred stock dividends payable 2,113,362
Accrued interest on debentures 1,026,030
Accrued interest on Notes A and B 456,099
Other accrued expenses 92,900 78,934
------------ ------------
Total current liabilities 1,707,802 18,218,705
Liabilities subject to compromise 18,201,879 --
------------ ------------
Total liabilities 19,909,681 18,218,705
------------ ------------
Minority interest in subsidiary 50,000 50,000
------------ ------------
Commitments and contingencies
Stockholders' deficiency:
Cumulative convertible preferred stock; $.01 par value;
10,000,000 shares authorized:
Series A, 7%; 9,912 shares issued and outstanding 99 99
Series B, 8%; 1,833 shares issued and outstanding 18 18
Common stock, $.01 par value; 50,000,000 shares
authorized; 30,565,352 shares issued and outstanding 305,653 305,653
Additional paid-in capital 24,865,373 24,865,373
Accumulated deficit (32,915,496) (30,581,876)
------------ ------------
Total stockholders' deficiency (7,744,353) (5,410,733)
------------ ------------
Totals $ 12,215,328 $ 12,857,972
============ ============
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
-2-
<PAGE> 4
UNITED PETROLEUM CORPORATION (Debtor-In-Possession)
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1999 AND 1998
(Unaudited)
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
Sales $ 2,416,616 $ 3,294,947
Cost of sales 1,927,562 2,368,840
------------ ------------
Gross profit 489,054 926,107
------------ ------------
Operating expenses:
Selling, general and administrative expenses 1,131,587 1,898,805
Gain on sale of property and equipment (30,595)
Abandonment of premises and equipment 325,794
------------ ------------
Totals 1,457,381 1,868,210
------------ ------------
Loss from operations (968,327) (942,103)
------------ ------------
Other income (expense):
Rental and other income from property held for sale 213,595
Interest expense (including all contractual interest on all
outstanding loans and amortization of all loan fees
and debt discount) (791,313) (870,674)
Gain on sale of subsidiary 132,088
------------ ------------
Totals (577,718) (738,586)
------------ ------------
Loss before reorganization items (1,546,045) (1,680,689)
Reorganization items - professional fees (319,121)
------------ ------------
Net loss (1,865,166) (1,680,689)
Preferred stock dividend requirements (including contractual dividends stated
under Chapter 11 proceedings on all
outstanding preferred shares) (468,454) (481,384)
------------ ------------
Net loss applicable to common stockholders $ (2,333,620) $ (2,162,073)
============ ============
Basic net loss per common share $ (.08) $ (.07)
============ ============
Basic weighted average number of common shares
outstanding 30,565,352 30,565,352
============ ============
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
-3-
<PAGE> 5
UNITED PETROLEUM CORPORATION (Debtor-In-Possession)
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1999 AND 1998
(Unaudited)
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
Sales $ 1,134,055 $ 1,635,985
Cost of sales 907,679 1,045,831
------------ ------------
Gross profit 226,376 590,154
------------ ------------
Operating expenses:
Selling, general and administrative expenses 522,415 1,175,588
Gain on sale of premises and equipment (30,595)
Abandonment of premises and equipment 325,794
------------ ------------
Totals 848,209 1,144,993
------------ ------------
Loss from operations (621,833) (554,839)
------------ ------------
Other income (expense):
Rental and other income from property held for sale 97,631
Interest expense (including all contractual interest on all
outstanding loans and amortization of all loan fees
and debt discount) (348,968) (590,698)
------------ ------------
Totals (251,337) (590,698)
------------ ------------
Loss before reorganization items (873,170) (1,145,537)
Reorganization items - professional fees (319,121)
------------ ------------
Net loss (1,192,291) (1,145,537)
Preferred stock dividend requirements (including contractual dividends stated
under Chapter 11 proceedings on all
outstanding preferred shares) (234,227) (481,384)
------------ ------------
Net loss applicable to common stockholders $ (1,426,518) $ (1,626,921)
============ ============
Basic net loss per common share $ (.05) $ (.05)
============ ============
Basic weighted average number of common shares
outstanding 30,565,352 30,565,352
============ ============
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
-4-
<PAGE> 6
UNITED PETROLEUM CORPORATION (Debtor-in-Possession)
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIENCY
SIX MONTHS ENDED JUNE 30, 1999 (Unaudited)
<TABLE>
<CAPTION>
Series A Series B
Preferred Stock Preferred Stock Common Stock Additional
---------------- ---------------- -------------------- Paid-in Accumulated
Shares Amount Shares Amount Shares Amount Capital Deficit Total
------ ------ ------ ------ ---------- -------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1999 9,912 $ 99 1,833 $ 18 30,565,352 $305,653 $24,865,373 $(30,581,876) $(5,410,733)
Dividends declared:
Series A preferred stock at 7% (394,860) (394,860)
Series B preferred stock at 8% (73,594) (73,594)
Net loss (1,865,166) (1,865,166)
------ ------ ------ ------ ---------- -------- ----------- ------------ -----------
Balance, June 30, 1999 9,912 $ 99 1,833 $ 18 30,565,352 $305,653 $24,865,373 $(32,915,496) $(7,744,353)
====== ====== ====== ====== ========== ======== =========== ============ ===========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
-5-
<PAGE> 7
UNITED PETROLEUM CORPORATION (Debtor-In-Possession)
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1999 AND 1998
(Unaudited)
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Operating activities:
Net loss $(1,865,166) $(1,680,689)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 433,617 327,043
Common stock issued for services 27,500
Gain on sale of subsidiary (132,088)
Gain on sale of property and equipment (30,595)
Loss on abandonment of premises and equipment 325,794
Changes in operating assets and liabilities:
Accounts receivable 30,384 (13,172)
Inventories (11,570) 21,916
Prepaid expenses and other current assets (2,794) 16,451
Accounts payable and accrued liabilities not subject
to compromise 565,787 378,545
Accounts payable and accrued liabilities subject
to compromise 600,887
----------- -----------
Net cash provided by (used in) operating activities 76,939 (1,085,089)
----------- -----------
Investing activities:
Payments for property and equipment (101,865)
Proceeds from sale of property and equipment 52,526
Proceeds from sale of subsidiary 266,500
----------- -----------
Net cash provided by (used in) investing activities (101,865) 319,026
----------- -----------
Financing activities:
Principal payments on debt (35,925) (8,944)
Proceeds from issuance of debt 750,000
----------- -----------
Net cash provided by (used in) financing activities (35,925) 741,056
----------- -----------
Net decrease in cash (60,851) (25,007)
Cash, beginning of period 78,216 166,180
----------- -----------
Cash, end of period $ 17,365 $ 141,173
=========== ===========
Supplemental disclosure of cash flow information:
Interest paid $ 24,345 $ 4,741
=========== ===========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
-6-
<PAGE> 8
UNITED PETROLEUM CORPORATION (Debtor-In-Possession)
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1 - Basis of presentation:
In the opinion of management, the accompanying unaudited
condensed consolidated financial statements reflect all
adjustments, consisting of normal recurring accruals, necessary
to present fairly the financial position of United Petroleum
Corporation (the "Parent") and its subsidiaries (collectively,
the "Company") as of June 30, 1999, their results of operations
for the six and three months ended June 30, 1999 and 1998, their
changes in stockholders' deficiency for the six months ended
June 30, 1999 and their cash flows for the six months ended June
30, 1999 and 1998. Information included in the condensed
consolidated balance sheet as of December 31, 1998 has been
derived from the audited consolidated balance sheet included in
the Company's annual report on Form 10-KSB for the year ended
December 31, 1998 (the "10-KSB") previously filed with the
Securities and Exchange Commission (the "SEC"). Pursuant to the
rules and regulations of the SEC, certain information and
disclosures normally included in financial statements prepared
in accordance with generally accepted accounting principles have
been condensed or omitted from these consolidated financial
statements unless significant changes have taken place since the
end of the most recent fiscal year. Accordingly, these unaudited
condensed consolidated financial statements should be read in
conjunction with the consolidated financial statements, notes to
consolidated financial statements and the other information in
the 10-KSB. The consolidated results of operations for the six
and three months ended June 30, 1999 are not necessarily
indicative of the results for the full year.
The Company has been suffering from recurring losses from
operations. At December 31, 1998 and at June 30, 1999 (as
further explained in Note 4 to the consolidated financial
statements in the 10-KSB), the Company was in violation of
certain loan and convertible debenture covenants. In addition,
the Company has been unable to meet certain of its convertible
debenture and other loan obligations as they have become due.
On January 14, 1999 (the "Petition Date"), the Parent
voluntarily filed a petition in the United States Bankruptcy
Court for the District of Delaware seeking relief under Chapter
11 of the Federal bankruptcy laws ("Chapter 11"). Under Chapter
11, certain claims against the Parent in existence prior to the
filing of the petition for relief under the Federal bankruptcy
laws are stayed, while the Parent continues business operations
as a debtor-in-possession subject to the jurisdiction of the
U.S. Bankruptcy Court for the District of Delaware. These claims
are reflected in the June 30, 1999 condensed consolidated
balance sheet as "Liabilities subject to compromise".
On July 23, 1999, the Company filed its Second Amended Plan of
Reorganization (the "Plan") with the Bankruptcy Court.
-7-
<PAGE> 9
UNITED PETROLEUM CORPORATION (Debtor-In-Possession)
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1 - Basis of presentation (concluded):
Actions to enforce liabilities subject to compromise are stayed
while the Parent is under the protection of the Bankruptcy Code.
As part of the Chapter 11 reorganization process, the Parent has
endeavored to notify all known or potential creditors of the
process for identifying all pre-petition claims against the
Parent. Generally, creditors whose claims arose prior to the
Petition Date had until the March 30, 1999 "Bar Date" to file
claims or be barred from asserting claims against the Parent in
the future, except in instances of claims arising from the
subsequent rejection of executory contracts by the Parent. There
may be differences between the amounts at which any such
liabilities are recorded in the financial statements and the
amounts claimed by the Company's creditors. In addition, the
Company will incur significant costs associated with the
reorganization. The amount of these expenses, which are being
expensed as incurred, is expected to significantly affect future
operations.
The petition for bankruptcy relief did not include the Parent's
two operating subsidiaries, Calibur Systems, Inc. ("Calibur")
and Jackson United Petroleum Corporation ("Jackson"). However,
all of the Company's assets, including the common stock of the
subsidiaries owned by the Parent, had been pledged as collateral
for the debts of the Parent. The condensed consolidated
financial statements include the accounts of the subsidiaries of
the Parent.
In accordance with Statement of Position 90-7 "Financial
Reporting by Entities in Reorganization under the Bankruptcy
Code," an unaudited condensed balance sheet at June 30, 1999 and
unaudited condensed statements of operations and cash flows for
the six months ended June 30, 1999 for the Parent (reporting as
a debtor-in-possession) have been presented in Note 7. The
Parent has continued, as a debtor-in-possession in Chapter 11,
to conduct its business in the ordinary course, subject to
control of the Bankruptcy Court.
Although the Chapter 11 filing and the other matters discussed
above raise substantial doubts about the Company's ability to
continue as a going concern, the accompanying unaudited
condensed consolidated financial statements have been prepared
on a going concern basis which contemplates the continuation of
operations, the realization of assets and the discharge of
liabilities in the ordinary course of business. Also, the
aforementioned financial statements do not present the amount
which will ultimately be paid to settle liabilities and
contingencies which may be allowed in the Company's Chapter 11
reorganization plan.
-8-
<PAGE> 10
UNITED PETROLEUM CORPORATION (Debtor-In-Possession)
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 2 - Earnings per share:
As further explained in Note 1 of notes to consolidated
financial statements included in the 10-KSB, the Company has
adopted the provisions of Statement of Financial Accounting
Standards No. 128, Earnings per Share, which requires the
presentation of "basic" and, if appropriate, "diluted" earnings
(loss) per common share. Diluted per share amounts have not been
presented in the accompanying unaudited condensed consolidated
statements of operations because the Company had a net loss for
the six and three months ended June 30, 1999 and 1998 and,
accordingly, the assumed effects of the conversion of all of the
Company's outstanding convertible debentures and preferred
shares and the exercise of all of the Company's outstanding
stock options and the application of the treasury stock method
would have been anti-dilutive.
Note 3 - Liabilities subject to compromise:
Liabilities subject to compromise at June 30, 1999 consisted of
the following:
<TABLE>
<S> <C>
Long-term debt in default (Notes 4 and 6) $13,331,709
Accounts payable 205,309
Preferred stock dividends payable 2,581,816
Accrued interest on debentures (Notes 4 and 6) 1,049,694
Accrued interest on Notes A and B (Notes 4 and 6) 1,033,351
-----------
Total $18,201,879
===========
</TABLE>
Note 4 - Long-term debt in default:
Long-term debt, all of which was in default, consisted of the
following at June 30, 1999:
<TABLE>
<S> <C>
Long-term liabilities not subject to compromise:
U.S. Small Business Administration note payable in monthly
installments of $6,369 including interest at 8% through
July 2019, personally guaranteed by a principal stockholder
and collateralized by certain property $753,860
U.S. Small Business Administration note payable in monthly
installments of $1,863 including interest at 8% through July
1999, personally guaranteed by a principal stockholder and
collateralized by certain property 149,994
Unsecured note payable in monthly installments of
$10,370 including interest at 8% through December 1999,
personally guaranteed by a principal stockholder 70,691
--------
Total long-term debt in default not subject to compromise (a) 974,545
--------
</TABLE>
-9-
<PAGE> 11
UNITED PETROLEUM CORPORATION (Debtor-In-Possession)
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 4 - Long-term debt in default (concluded):
<TABLE>
<S> <C>
Long-term liabilities subject to compromise:
Convertible debentures in default with coupon rates of 6%
and 7%, net of discount of $117,632 (b) $6,331,179
Consolidated loan in default (Note "A"). Principal was
due on January 1, 1999 with interest due monthly at 15%,
personally guaranteed by a principal stockholder,
secured by the stock of all subsidiaries and
collateralized by all assets of the Company 4,200,000
Consolidated bridge loan in default (Note "B").
Principal and interest at 15% was due on January 1,
1999, personally guaranteed by a principal stockholder,
secured by the stock of all subsidiaries and
collateralized by all assets of the Company (b) 2,800,530
-----------
Total long-term debt in default subject to compromise
(Note 3) 13,331,709
-----------
Total long-term debt in default (c) $14,306,254
===========
</TABLE>
(a) Classified as current liabilities due to defaults.
(b) Represents direct outstanding obligations of the
Parent (see Note 6).
(c) See Note 4 of the notes to the consolidated
financial statements included in the 10-KSB for
additional information related to long-term debt.
Note 5 - Contingency:
As explained in Note 13 to the consolidated financial statements
in the 10-KSB, the Company was party to various class action
lawsuits brought against certain debentureholders. Pursuant to
the Merger Agreement and Plan of Merger (as explained in Note
8), certain debentureholders and other parties have released the
Company from claims for indemnification in the class action
lawsuits.
-10-
<PAGE> 12
UNITED PETROLEUM CORPORATION (Debtor-In-Possession)
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 6 - Segment information:
As further explained in Note 11 of the notes to the consolidated
financial statements in the 10-KSB, the Company operates two
reportable segments -- the retail segment, which operates the
Company's convenience stores, express lube and car wash
operations, and the oil and gas segment, which operates the
Company's oil and gas properties.
Summarized financial information for the Company's reportable
segments as of and for the six months ended June 30, 1999 and
1998 is shown in the following table:
<TABLE>
<CAPTION>
Retail Oil and Gas Corporate Total
---------- ----------- --------- ----------
<S> <C> <C> <C> <C>
1999:
Sales $2,365,839 $50,777 $2,416,616
Income (loss) from operations (662,012) 21,326 $(327,641) (968,327)
Other income (expense):
Lease and other income 99,894 113,701 213,595
Interest expense (381,767) (409,546) (791,313)
Income (loss) before reorganization
items (943,885) 135,027 (737,187) (1,546,045)
Reorganization items - professional
fees (319,121) (319,121)
Net income (loss) (943,885) 135,027 (1,056,308) (1,865,166)
1998:
Sales $3,200,604 $94,343 $3,294,947
Income (loss) from operations (195,758) 33,409 $(779,754) (942,103)
Other income (expense):
Interest expense (458,641) (18,740) (393,293) (870,674)
Gain on sale of subsidiary 132,088 132,088
Net income (loss) (654,399) 14,669 (1,040,959) (1,680,689)
</TABLE>
Note 7 - Condensed consolidated financial statements of the Parent:
The unaudited condensed balance sheet, statement of operations
and statement of cash flows of the Parent, which is the
debtor-in-possession as of and/or for the six months ended June
30, 1999 follow:
Condensed balance sheet as of June 30, 1999:
<TABLE>
<S> <C>
Current assets:
Cash $ 736
Prepaid expenses and other current assets 39,002
----------
Total current assets 39,738
Equipment, net 24,572
Deferred reorganization costs 553,099
Investments in subsidiaries, at equity 5,592,344
Other assets 42,589
----------
Total $6,252,342
==========
</TABLE>
-11-
<PAGE> 13
UNITED PETROLEUM CORPORATION (Debtor-In-Possession)
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 7 - Condensed consolidated financial statements of the Parent (continued):
<TABLE>
<S> <C>
Liabilities not subject to compromise:
Current liabilities:
Accounts payable $ 386,708
Intercompany payables 179,967
------------
Total liabilities not subject to compromise 566,675
------------
Liabilities subject to compromise:
Long-term debt in default 9,131,711
Accounts payable 205,309
Preferred stock dividends payable 2,581,816
Accrued interest on Note B 411,490
Accrued interest on debentures 1,049,694
------------
Total liabilities subject to compromise 13,380,020
------------
Total liabilities 13,946,695
------------
Minority interest in subsidiary 50,000
------------
Commitments and contingencies
Stockholders' deficiency:
Cumulative convertible preferred stock; $.01 par
value; 10,000,000 shares authorized:
Series A, 7%, 9,912 shares issued and outstanding 99
Series B, 8%, 1,833 shares issued and outstanding 18
Common stock, $.01 par value; 50,000,000 shares
authorized; 30,565,352 shares issued and outstanding 305,653
Additional paid-in capital 24,865,373
Accumulated deficit (32,915,496)
------------
Total stockholders' deficiency (7,744,353)
------------
Total $ 6,252,342
============
Condensed statement of operations for the six months ended June
30, 1999:
Selling, general and administrative expenses $ 327,641
------------
Other expenses:
Interest expense (including all contractual interest and
amortization of all loan fees and debt discount) 409,546
Equity in net losses of subsidiaries 808,858
------------
Total 1,218,404
------------
Loss before reorganization items (1,546,045)
Reorganization items - professional fees (319,121)
------------
Net loss $ (1,865,166)
============
</TABLE>
-12-
<PAGE> 14
UNITED PETROLEUM CORPORATION (Debtor-In-Possession)
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 7 - Condensed consolidated financial statements of the Parent (concluded):
<TABLE>
<S> <C>
Condensed statement of cash flows for six months ended June 30, 1999:
Operating activities:
Net loss $(1,865,166)
Adjustments to reconcile net loss to cash provided by
operating activities:
Amortization of loan fees and debt discount 160,226
Equity in net losses of subsidiaries 808,858
Expenses paid by subsidiaries 179,967
Changes in operating assets and liabilities:
Prepaid expenses and other current assets (16,124)
Accounts payable and accrued expenses subject to
compromise 249,259
Accounts payable and accrued expenses not subject to
compromise 483,716
-----------
Cash provided by operating activities and net
increase in cash $ 736
===========
</TABLE>
Note 8 - Subsequent events:
On September 29, 1999, as contemplated by the Plan, the Company
entered into an Agreement and Plan of Merger (the "Merger
Agreement") with F.S. Convenience Stores, Inc., a Florida
corporation ("FSCI"). FSCI is a partner in a partnership that
owns and/or operates a Florida-based chain of walk-in
convenience stores under the trade name "Farm Stores". Pursuant
to the Plan and the Merger Agreement, the Parent formed a
wholly-owned subsidiary (United Petroleum Group, Inc., f/k/a
United Petroleum Subsidiary, Inc.) and FSCI agreed to merge with
and into that subsidiary.
On October 7, 1999, the United States Bankruptcy Court for the
District of Delaware issued an order confirming the Company's
Plan dated July 23, 1999. The Merger Agreement and Plan of
Merger were consummated and the Plan became effective on
November 12, 1999 (the "Effective Date"). As a result of the
Plan and the Merger Agreement, the following occurred: (1) all
of the Company's securities in existence immediately prior to
the effective date, including, but not limited to, shares of the
Company's issued and outstanding classes of common stock ("Old
Common Stock"), preferred stock ("Old Preferred Stock"), stock
options and warrants are cancelled, (2) the Company amended and
restated its Certificate of Incorporation by authorizing up to
10,000,000 shares of $.01 par value common stock and up to
300,000 shares of $.01 par value preferred stock issued as Class
A 9% preferred stock. Each share of preferred stock carries a
dividend rate of 9% and is cumulative and payable in cash or, at
the Company's option, in addition each share of preferred stock
has a liquidation preference of $100, (3) the stockholders of
FSCI will receive 48% of the
-13-
<PAGE> 15
UNITED PETROLEUM CORPORATION (Debtor-In-Possession)
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 8 - Subsequent events (concluded):
newly issued and outstanding shares of the new common stock and
50% of the newly issued and outstanding shares of the new
preferred stock of the Company and receive $3,000,000 in cash,
(4) the Company will issue shares of new common stock to
existing holders of Old Common Stock, Old Preferred Stock and
debentures and (5) the Company would issue 50% of its newly
issued and outstanding new preferred stock to the holders of
certain secured indebtedness of the Company. Management of FSCI
assumed management of the Company. The Merger Agreement will be
accounted for as a business combination and a reverse
acquisition in which FSCI is the accounting acquirer and the
Company is the legal acquirer.
Following the Effective Date, the Company will operate 90
walk-in convenience stores (the "Stores") in the State of
Florida. Of these Stores, 69 sell gasoline (of which 60 are
leased from third parties and 9 are owned by the Company's
subsidiaries), and 21 (all of which are leased from third
parties to F.S. Non-Gas Subsidiary, Inc., a wholly owned
subsidiary of the Company) do not sell gas. All of these Stores
do business under the licensed trade name "Farm Stores." In
addition, the Company, through its subsidiary, F.S. Non-Gas
Subsidiary, Inc., owns a 10% interest in Farm Stores Grocery,
Inc., a Delaware corporation, which operates 109 drive thru
specialty retail stores in Florida and which owns and licenses
to the Company the trade name "Farm Stores". Two of the walk-in
stores that sell gasoline were destroyed in casualties prior to
the Merger and are subject to the Company's option to rebuild
them or return them to Farm Stores Grocery, Inc.
Prior to the Merger, and as a condition to its consummation, the
Company entered into a loan agreement dated November 9, 1999 and
related documents pursuant to which the Company received a loan
in the aggregate principal amount of $23,000,000 from Hamilton
Bank, N.A., secured by its respective assets. FSCI borrowed
$17,000,000 of this amount and used the proceeds to purchase a
portion of the interest of its former partner in the walk-in
convenience store and gasoline station operations which they
conducted in Florida, and to purchase from an affiliate of the
same former partner its interest in the walk-in convenience
stores without gasoline station operations and a 10% interest in
the drive-thru specialty grocery business, both conducted in
Florida with an affiliate of FSCI.
* * *
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<PAGE> 16
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS
The following management's discussion and analysis of results of
operations and financial condition contains forward-looking statements with
respect to the Company's future financial performance. Forward-looking
statements are made pursuant to the safe harbor provisions of Section 21E of the
Securities Exchange Act of 1934. Statements that are not strictly historical
statements, including, without limitation, statements regarding current or
future financial performance, management's plans and objectives for future
operations, management's assessment of market factors, and statements regarding
the Company's strategy and plans, constitute forward-looking statements. These
forward-looking statements are not guarantees of the Company's future
performance and are subject to various risks and uncertainties, which could
cause actual results to differ materially from historical results and those
currently anticipated. See "Forward-Looking Statements" contained in the
Company's Annual Report on Form 10-KSB for the year ended December 31, 1998.
On January 14, 1999, United Petroleum Corporation (the "Company") filed
a petition for relief under chapter 11 of title 11 of the United States Code (11
U.S.C. Sections 101 et. seq., the "Bankruptcy Code") with the United States
Bankruptcy Court for the District of Delaware (the "Bankruptcy Court"). On July
23, 1999, the Company filed with the Bankruptcy Court its second amended plan of
reorganization (the "Plan", a copy of which, together with the Second Amended
Disclosure Statement, are filed as Exhibits 99.1 and 99.2, respectively, to the
Company's Current Report on Form 8K/A (Amendment No. 1) filed on November 29,
1999 (the "8-K Report"), and are incorporated herein by reference).
On September 29, 1999, as contemplated by the Plan and subject to,
among other things, its confirmation, the Company, United Petroleum Group, Inc.
("UPG"), a newly-formed, wholly-owned subsidiary of the Company (f/k/a United
Petroleum Subsidiary, Inc.), and F.S. Convenience Stores, Inc. ("FSCI"), entered
into an Agreement and Plan of Merger (the "Merger Agreement", a copy of which is
filed as Exhibit 99.3 to the 8-K Report and is incorporated herein by reference)
pursuant to which FSCI agreed to merge with and into UPG, with UPG as the
surviving entity (the "Merger").
On October 7, 1999, the Bankruptcy Court entered an order (the
"Confirmation Order", a copy of which is filed as Exhibit 99.4 to the 8-K Report
and is incorporated herein by reference) confirming the Plan. The transactions
contemplated by the Plan, as modified by the Confirmation Order and the Merger
Agreement, were substantially consummated and the Plan became effective on
November 12, 1999 (the "Effective Date").
On the Effective Date, pursuant to the Plan, the Confirmation Order,
and the Merger Agreement, the following transactions and other events occurred:
1) FSCI merged with and into UPG. As a result, UPG acquired
FSCI's walk-in convenience store business, and now operates 90
walk-in convenience stores in the State of Florida. Of these
stores, 69 sell gasoline (of which 60 are leased from third
parties to, and 9 are owned by, the Company's subsidiaries),
and 21 (all of which are leased from third parties to
F.S.Non-Gas Subsidiary, Inc., a wholly-owned subsidiary of
UPG) do not sell gas. All of these convenience stores do
business under the licensed trade name "Farm Stores." In
addition, UPG, through its subsidiary, F.S. Non-Gas
Subsidiary, Inc., owns a 10% interest in Farm Stores Grocery,
Inc., a Delaware corporation, which operates 109 drive-thru
specialty retail stores in Florida and which owns and licenses
to the Company and UPG the trade name "Farm Stores" pursuant
to that certain License Agreement dated as of November 12,
1999, a copy of which is filed as Exhibit 99.5 to the 8-K
Report and is incorporated herein by reference. Two of the
stores that sell gasoline were destroyed in casualties prior
to the Merger, and are subject to UPG's option (exercisable
within 3 months after the Effective Date) to rebuild the
stores or transfer them to Farm Stores Grocery, Inc.
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<PAGE> 17
2) All of the Company's issued and outstanding securities,
including all pre-Merger Old Common Stock, Old Preferred
Stock, Debentures, options, warrants and other rights to
acquire securities, were canceled.
3) The Company amended and restated its Certificate of
Incorporation (a copy of which is filed as Exhibit 3(i) to the
8-K Report and is incorporated herein by reference) to (i)
authorize 10 million shares of common stock, par value, $.01
per share ("New Common Stock") and 300,000 shares of Class A
9% preferred stock ("New Preferred Stock"); (ii) prohibit the
issuance of non-voting equity securities by the Company (as
required by the Bankruptcy Code), (iii) opt out of Section 203
of the Delaware General Corporation Law, and (iv) restrict,
for a period of two years, purchases and sales of its stock by
beneficial owners of 5% or more of the total fair market value
of the Company's stock. Pursuant to the Company's Certificate
of Designation - Class A 9% Preferred Stock (a copy of which
is filed as Exhibit 4 to the 8-K Report and is incorporated
herein by reference), the New Preferred Stock issued by the
Company in connection with the Plan and Merger is subordinate
to all debts of the Company. Each share of New Preferred Stock
carries a dividend rate of 9%. The dividends are cumulative
and payable in cash or, at the Company's option, in additional
shares of New Preferred Stock. Each share of New Preferred
Stock has a liquidation preference over the Company's New
Common Stock in the amount of $100 (plus cumulative unpaid
dividends thereon), payable out of net proceeds (after
payments to all creditors but before payments in respect of
the Company's New Common Stock) from any liquidation or sale
of the Company's assets. In addition, the Company amended and
restated its By-laws, a copy of which is filed as Exhibit
3(ii) to the 8-K Report and is incorporated herein by
reference.
4) The Company issued a total of 5,000,000 shares of New Common
Stock and 140,000 shares of New Preferred Stock. Holders of
the following debt and equity securities of the Company
received the following aggregate amounts of New Common Stock
in exchange for their pre-Merger holdings:
<TABLE>
<CAPTION>
Percent of Shares
Number of Shares of of New Common Stock
Holdings Exchanged New Common Stock Issued Issued and Outstanding
------------------ ----------------------- ----------------------
<S> <C> <C>
Debentures 1,750,000 shares 35.00%(1)
Old Preferred Stock 650,000 shares 13.00%(1)
Old Common Stock 200,000 shares 4.00%
</TABLE>
5) The shareholders of FSCI, consisting of Mr. Joe Bared and
Miriam Bared, his wife, were issued (i) 2,400,000 shares of
New Common Stock, representing 48% of the issued and
outstanding shares of New Common Stock, (ii) 70,000 shares of
New Preferred Stock, representing 50% of the issued and
outstanding shares of New Preferred Stock, and (iii) $3
million in cash.
6) Infinity Investors Limited, a Nevis, West Indies corporation
("Infinity") was issued (i) 1,360,862 shares of New Common
Stock, representing 27.2% of the issued and outstanding shares
of New Common Stock (which amount is included in the table set
forth in Paragraph 4, above) in exchange for the Debentures
and Old Preferred Stock held by it, and (ii) 70,000 shares of
New Preferred Stock of the Company, representing 50% of the
issued and outstanding shares of New Preferred Stock, in
exchange for satisfaction of the obligations of the Company
and its wholly-owned subsidiaries, Calibur Systems, Inc. and
Jackson-United Petroleum Corporation,
- --------
(1) Certain holders of the Company's securities have asserted a right to receive
distributions as the holders of Debentures, even though such holders previously
exchanged their Debentures for Old Preferred Stock. The Company has disputed
such claims. Pending their resolution, the Company has reserved 365,273 shares
of New Common Stock that would otherwise be available for distribution to the
holders of Debentures.
-16-
<PAGE> 18
under secured notes dated August 5, 1998 in the original
principal amounts of $4,200,000 and $2,800,000 (the A and B
Notes) and related agreements. Seacrest Capital Limited, and
Fairway Capital Limited, both Nevis, West Indies
corporations and wholly-owned subsidiaries of Infinity
(collectively, the "Infinity Parties") were each issued
62,731 shares of New Common Stock, each representing 1.3% of
the issued and outstanding shares of New Common Stock of the
Company (which amounts are included in the table set forth
in Paragraph 4, above), in exchange for the Debentures and
Old Preferred Stock held by them. As a result of these
exchanges, the Infinity Parties own an aggregate of
1,486,324 shares of New Common Stock, representing
approximately 29.7% of the issued and outstanding shares of
New Common Stock of the Company. Upon resolution of the
disputed claims described in footnote 1 to the table set
forth in Paragraph 4, above, the Company expects the
Infinity Parties to be issued up to an additional 334,538
shares of New Common Stock, which would increase their
aggregate ownership of New Common Stock to up to 1,820,862
shares, representing up to approximately 36% of the issued
and outstanding shares of New Common Stock of the Company.
7) A trust (the "UPC Trust") is being created and funded with
200,000 shares of New Common Stock, representing 4.00% of the
issued and outstanding shares of New Common Stock of the
Company, which shares would otherwise have been issued to
Infinity and are included in the table set forth in Paragraph
4, above. All Infinity Securities Claims (as defined in the
Plan), except for those asserted in the lawsuit styled
Pisacreta vs. Infinity Investors Limited, et al., Civil Action
No. 3:97-CV-226 in the United States District Court for the
Eastern District of Tennessee were channeled and transferred
to the UPC Trust. The Infinity Parties have released the
Company, its affiliates, and their respective officers,
directors and employees from all claims, including but not
limited to claims for contribution and indemnity, in respect
of the Infinity Securities Claims.
8) The Company reconstituted its Board of Directors to initially
include Mr. Joe P. Bared of Miami, Florida, Mr. Carlos E.
Bared of Miami, Florida, Mr. Clark K. Hunt of Dallas, Texas,
Mr. Stuart J. Chasanoff of Dallas, Texas, and Mr. L. Grant
Peeples of Miami, Florida.
9) The Company entered into employment agreements with Mr. Jose
Bared and Mr. Carlos Bared, each for a term of three years.
Copies of these agreements are filed as Exhibits 99.6 and
99.7, respectively, to the 8-K Report and are incorporated
herein by reference.
10) The Company, the Infinity Parties, and Jose P. and Miriam
Bared (the "Bareds") entered into a Stockholders Agreement
dated as of November 3, 1999 (the "Stockholders Agreement"), a
copy of which is filed as Exhibit 99.8 to the 8-K Report and
is incorporated herein by reference. Pursuant to the
Stockholders Agreement, among other things, the Bareds, on the
one hand, and the Infinity Parties, on the other hand, agreed
to vote their shares of New Common Stock so that the Board of
Directors of the Company will continue to consist of two
representatives selected by the Bareds (the "Bared
Directors"), two representatives selected by the Infinity
Parties (the "Infinity Directors"), and an independent
director initially designated as Mr. L. Grant Peeples.
Currently, the Bared Directors are Jose P. Bared and Carlos E.
Bared, his son, and the Infinity Directors are Clark K. Hunt
and Stuart J. Chasanoff. The Stockholders Agreement also
provides that, by majority vote of the Company's stockholders
at a duly called meeting of stockholders, the Board can be
expanded and/or the independent director changed. The
Stockholders Agreement also contains other provisions
restricting disposition of the shares of New Common Stock held
by the Bareds and the Infinity Parties, including for a two
year period in which the shares cannot be transferred without
the consent of the parties to the Stockholders Agreement, as
well as certain provisions granting certain registration and
other rights relating to the New Common Stock.
11) UPG and Farm Stores Grocery, Inc. ("FSG") entered into a
Management Agreement dated as of November 12, 1999 (a copy of
which is filed as Exhibit 99.9 to the 8-K Report and is
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<PAGE> 19
incorporated herein by reference) pursuant to which UPG will
manage and provide all general and administrative services for
FSG's business and operations, in exchange for management fees
FSG pays to UPG based on the number of stores FSG operates.
Prior to the Merger, and as a condition to its consummation, the
Company, UPG, FSCI, and related entities (collectively, the "Borrowers") entered
into a Loan Agreement dated November 9, 1999 (a copy of which is filed as
Exhibit 99.10 to the 8-K Report and is incorporated herein by reference) and
related documents pursuant to which the Borrowers received a loan in the
aggregate principal amount of $23 million from Hamilton Bank, N.A., secured by
their respective assets. FSCI borrowed $17 million of this amount and used the
proceeds to purchase a portion of the interest of its former partner in the
walk-in convenience store and gasoline station operations which they conducted
in Florida, and to purchase from an affiliate of the same former partner its
interest in the walk-in convenience stores without gasoline station operations
and a 10% interest in the drive-thru specialty grocery business, both conducted
in Florida with an affiliate of FSCI.
Results of Operations
The Company realized a net loss of ($1,192,291) for the three months ended
June 30, 1999, compared to a net loss of ($1,145,537) for the three months ended
June 30, 1998 and a net loss of ($1,865,166) for the six months ended June 30,
1999, compared to a net loss of ($1,680,689) for the six months ended June 30,
1998.
A summary of comparative results between the three and six months ended
June 30, 1999 and the three and six months ended June 30, 1998 is as follows:
Revenues were realized as follows:
<TABLE>
<CAPTION>
Six Months Ended Six Months Ended
June 30, 1999 June 30, 1998
<S> <C> <C>
Retail Subsidiary:
Gasoline $ 553,864 $ 783,261
Car Wash 1,186,099 1,663,044
Oil & Lube 539,212 622,860
Grocery 61,993 86,560
Other Sales 24,671 44,879
Energy Subsidiary:
Natural Gas 50,777 76,978
Crude Oil 17,365
--------------- ---------------
Total Revenue $ 2,416,616 $ 3,294,947
=============== ===============
Three Months Ended Three Months Ended
June 30, 1999 June 30, 1998
Retail Subsidiary:
Gasoline $ 223,606 $ 467,730
Car Wash 553,290 731,353
Oil & Lube 290,336 315,236
Grocery 30,551 46,342
Other Sales 11,567 21,968
Energy Subsidiary:
Natural Gas 24,705 45,505
Crude Oil 7,851
--------------- ---------------
Total Revenue $ 1,134,055 $ 1,635,985
</TABLE>
=============== ===============
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<PAGE> 20
Retail Subsidiary (Calibur Systems, Inc.)
Sales decreased $834,765 or 26.1% to $2,365,839 for the six months
ended June 30, 1999 from $3,200,604 for the six months ended June 30, 1998. The
decrease is primarily related to the sale and/or closing of six stores. Sales
decreased $472,279, or 29.8%, to $1,110,350 for the three months ended June 30,
1999 from $1,582,629 for the three months ended June 30, 1998. The decrease is
also primarily related to the sale and/or closing of six stores.
The Company experienced a decrease in gross profit on gasoline sales
from 4.4% for the three months ended June 30, 1998 to 2.1% for the three months
ended June 30, 1999. Volume decreased from 482,092 gallons for the three months
ended June 30, 1998 to 238,373 gallons in the second quarter of 1999 for an
decrease of 50.5%. The Company experienced a decrease in gross profit on
gasoline sales from 6.6% for the six months ended June 30, 1998 to 3.9% for the
six months ended June 30, 1999. Volume decreased from 799,628 gallons for the
six months ended June 30, 1998 to 621,742 gallons for the six months ended June
30, 1999 for a decrease of 22.2%. The decrease in volume is attributed to the
closing or sale of three of the Company's gas locations. The Company went from
six locations selling gasoline as of June 30, 1998 to three locations selling
gasoline as of June 30, 1999.
Car wash revenue was $178,063 lower for the three months ended June 30,
1999, as compared to the three months ended June 30, 1998. Same store car wash
revenue decreased from $568,446 for the three months ended June 30, 1998 to
$510,452 for the three months ended June 30, 1999 which represents a decrease of
$57,994 or 10.2%. Car wash revenue was $476,945 lower for the six months ended
June 30, 1999 as compared to the six months ended June 30, 1998. Same store car
wash revenue decreased from $1,259,723 for the six months ended June 30, 1998 to
$1,056,643 for the six months ended June 30, 1999 which represents a decrease of
$203,080 or 16.1%. The decrease is attributed to the decrease in the number of
full service car wash locations, which went from 11 locations in 1998 to 8
locations in 1999. For further information related to the decrease in the number
of the Company's full service car wash locations refer to "Expansion, Capital
Requirements and Divestitures".
Oil and lube revenue was $24,900 lower for three months ended June 30,
1999 as compared to the three months ended June 30, 1998 which represents a
decrease of 7.9%. Same store revenue decreased $2,582. Oil and lube revenue was
$83,648 lower the six months ended June 30, 1999 as compared to the six months
ended June 30, 1998. Same store revenue increased $9,809. The decline in
revenues reflects a reduction in store count, partially offset by slight
increases in sales per store. The balance of the decrease is attributed to the
decrease in the number of Company locations offering oil and lube services. As
of June 30, 1999, the Company had 6 oil and lube centers in operation as
compared to 10 oil and lube centers there were in operations open during the six
months ended June 30, 1998. For further information related to the decrease in
the number of Company locations offering oil and lube services refer to
"Expansion, Capital Requirements and Divestitures".
Grocery revenue was $30,551 for the three months ended June 30, 1999 as
compared to $46,342 for the three months ended June 30, 1998. Other revenues
were $11,567 for the three months ended June 30, 1999 compared to $21,968 for
the three months ended June 30, 1998. Grocery revenue was $61,993 for the six
months ended June 30, 1999 as compared to $ 86,560 for six months ended June 30,
1998. Other revenues were $24,671 for the six months ended June 30, 1999
compared to $44,879 for the six months ended June 30, 1998. 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 "Expansion,
Capital Requirements and Divestitures".
As a result of all the foregoing factors, the Calibur Systems, Inc.
subsidiary (Calibur) had a net loss of ($639,128) for the three months ended
June 30, 1999, as compared to a net loss of ($520,394) for the three months
ended June 30, 1998. Calibur had a net loss of ($943,885) for the six months
ended June 30, 1999 as compared to a net loss of ($654,399) for the six months
ended June 30, 1998.
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<PAGE> 21
Energy Subsidiary (Jackson-United Petroleum Corporation)
Natural gas revenues decreased to $20,008 for the three months ended
June 30, 1999 as compared to $45,505 for three months ended June 30, 1998.
Natural gas revenues decreased to $50,777 for the six months ended June 30, 1999
as compared to $76,978 for the six months ended June 30, 1998. 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. In November 1998, the Company entered into an agreement
with Kastle pursuant to which the Company has agreed to sell its working
interest in the sixteen wells to Kastle for $650,000. At that time, the net book
value of the Company's interest in these wells approximated $1,095,000.
Accordingly, the Company wrote down the wells to $650,000 less costs to sell
which were estimated to be negligible, resulting in a $445,000 impairment loss.
Therefore, the wells have been classified a property held for sale as of June
30, 1999 and December 31, 1998. Kastle made an initial payment to the Company of
$40,000 and has agreed to make monthly payment to the Company of $30,000,which
includes the estimated monthly revenue that 16 wells would have produced until
November 1999.
Oil revenue was $ 0 for the three months ended June 30, 1999 as
compared to $7,851 for the three months ended June 30, 1998. Oil revenue was $
50,777 for the six months ended June 30, 1999 as compared to $76,978 for the six
months ended June 30, 1998. 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.
Jackson-United Petroleum Corporation (Jackson) had a net income of
$57,276 for the three months ended June 30, 1999 as compared to a net income
$4,517 for the three months ended June 30, 1998. For the six months ended June
30, 1999, Jackson had a net income of $135,027 as compared to a $14,669 for the
six months ended June 30, 1998. The increase in the net income for the six and
three months ended June 30, 1999 as compared to the six and three months ended
June 30, 1998 is primarily due to the monthly payments of $30,000 as discussed
above.
Consolidated Operations
The decrease in revenues and cost of sales, for the six and three
months ended June 30, 1999 as compared to the six and three months ended June
30, 1998 are attributed to the decrease in the number of Calibur locations
operated by the Company.
Selling, general and administrative expenses were $1,131,587 and
$522,415 for the six and three months ended June 30, 1999, respectively, as
compared to $1,898,805 and $1,175,588 for the six and three months ended June
30, 1998, respectively a decrease of $767,218, or 40.4% and $653,173, or 55.6%,
respectively. The decrease is primarily due to cost cutting measures employed by
the Company due to its financial position and reduced store count.
Lease and other income increased to $213,595 and $97,631 for the six
and three months ended June 30,1999, respectively. The increase is primarily due
to the Company having entered into new lease agreements for two of its retail
locations. Those leases grant the lessee the option to purchase the underlying
premises through the lease term. For further information relating to the lease
and other income refer to " Expansion, Capital Requirements and Divestitures".
Interest expense decreased to $791,313 for the six months ended June
30, 1999 compared to $870,674 for the six months ended June 30, 1998 a decrease
of $79,361, or 9.1%. Interest expense decreased to $348,968 for the three months
ended June 30, 1999 as compared to $590,698 for the three months ended June 30,
1998. The decrease for both of these periods is primarily due to the write off
of approximately $118,000 of deferred financing costs recorded on the Company's
balance sheet as of December 31, 1997.
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<PAGE> 22
In May 1999, the Company abandoned a car wash and lube center located
at 1231 Oakridge Highway in Oakridge, Tennessee recognizing a loss of
approximately $326,000. The loss mainly consisted of premises and equipment.
Reorganization items - professional fees increased to $319,121 for the
six months ended June 30, 1999. The professional fees consist of accounting,
legal and other fees relating to the Company's Chapter 11 proceedings.
The Company's net loss for the six months ended June 30, 1999 increased
to $1,865,166 from $1,680,689 for the six months ended June 30, 1998, an
increase of $184,477 or 10.9%. The increase is primarily related to professional
fees of $319,121 incurred by the Company while it was in Chapter 11.
Financial Condition - The working capital deficit of the Company as of
June 30, 1999 was ($19,599,922) as compared to a deficit of approximately
($17,811,614) as of December 31, 1998. The principal reason for the increase is
the accrued interest on the A and B notes.
For the six months ended June 30, 1999, the Company generated cash from
operating activities of approximately $77,000 as compared to cash used from
operating activities of $1,085,0897 for the six months ended June 30, 1998. Cash
generated from operations for the six months ended June 30, 1999 is primarily
related to the delay in payment of pre and post petition liabilities.
For the six months ended June 30, 1999, the Company used cash from
investing activities of approximately $102,000 as compared to cash generated
from investing activities of approximately $319,000 for the six months ended
June 30, 1998. The cash used for investing activities for the six months ended
June 30, 1999 resulted from payments for property and equipment.
For the six months ended June 30, 1999, the Company used cash from
financing activities of approximately $36,000 as compared to cash generated from
financing activities of approximately $741,000 for the six months ended June 30,
1998. The cash used for financing activities for the six months ended June 30,
1999, resulted from principle payments on its long-term debt.
On April 15, 1998, the Company received a $750,000 bridge loan from a
preferred stockholder. In June 1998, the preferred stockholder purchased an
aggregate of eleven secured loans to Calibur totaling $4,495,385 from the
original lenders. On August 5, 1998, the Company received an additional bridge
loan from the preferred stockholder for approximately $1,300,000. On August 5,
1998, the preferred stockholder and the Company agreed to refinance and
consolidate the loans into the Consolidated Credit Agreement (the "Credit
Agreement"). The Credit Agreement is divided into the A Note and the B Note.
Both notes were scheduled to mature on January 1, 1999 and originally provided
for interest at 12% per annum. The interest on the A Note was to be paid monthly
and the interest on the B Note was to be paid on January 1, 1999. The Company
defaulted under the terms of the Credit Agreement and, as provided in the Credit
Agreement, from the time of default interest accrued at the rate of 15% per
annum. In connection with the Merger, described above, the holders of the A and
B Notes were issued 70,000 shares of New Preferred Stock in satisfaction of the
obligations under the Credit Agreement, and the A and B Notes.
Expansion, Capital Improvements and Divestitures
As of June 30, 1999, the Company is not committed to any expansion
projects in the retail subsidiary or the oil and gas subsidiary. During the year
the following divestitures occurred.
In May 1999, the Company abandoned a car wash and a lube center located
at 1231 Oakridge Highway in Oakridge, Tennessee, recognizing a loss of
approximately $326,000 which is included in the consolidated statement of
operations for six months ended June 30, 1999. The loss mainly consisted of
premises and equipment.
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<PAGE> 23
In July 1999, the Company sold a lube center located at 8016 Kingston
Pike in Knoxville, Tennessee to a non-affiliated third party. The Company made a
decision to sell the location based on the following: (1) operation at the
location were unprofitable; (2) the lube center was on leased property; and (3)
the sale would provide much needed working capital in the amount of
approximately $290,000. The approval of the Company's lender, Infinity Investors
Limited, was required in order to transfer the property to the buyer and keep
the net sale proceeds as working capital. Infinity agreed to the release of the
collateral. The Company recognized a loss of approximately $344,000, which is
included in the consolidated statement of operations for the nine months ended
September 30, 1999.
In November 1998, the Company entered into an agreement with Kastle
pursuant to which the Company agreed to sell its working interest in the sixteen
wells to Kastle for $650,000 in November 1999. The net book value of the wells
approximated $1,095,000. Accordingly, the Company wrote down the wells to
$650,000 less costs to sell, which were estimated to be negligible, resulting in
a $445,000 impairment loss. The wells are classified as property held for sale.
In 1998, the Company entered into lease agreements for two of its
retail locations, which grant the lessee the option to purchase the underlying
premises throughout the lease term. One of the leases expires in May 1999 while
the other lease expires in June 2003 and contains three consecutive five year
renewal options. At December 31, 1998, these two retail locations had a net book
value totaling $2,295,047 and accordingly, have been recorded as property held
for sale. Subsequent to the end of the third quarter one of the tenants has
exercised its option to purchase one of the properties. The Small Business
Administration has approved the loan assumption required under the tenants
contract to purchase the location and the loan approximates the net book value
of the retail location. In addition, subsequent to the end of the third quarter,
the Company has been informed that the tenant leasing the other retail location
expects to exercise the option to purchase the property. The purchase price of
the location, if purchased before December 31, 1999, would be approximately
$950,000, and, if purchased in year 2000, would be approximately $1,000,000.
Risk Factors
From time to time the Company and its representatives may provide
information, whether orally or in writing, including certain statements in this
Form 10-QSB which are deemed to be "forward-looking" within the meaning of the
Private Securities Litigation Reform Act of 1995 ("Litigation Reform Act").
These forward-looking statements and other information relating to the Company
are based on the beliefs of management as well as assumptions made by and
information currently available to management.
The words "anticipate," "believe," "estimate," expect," "intend,"
"will," and similar expressions, as they relate to the Company or the Company's
management, are intended to identify forward-looking statements. Such statements
reflect the current views of the Company with respect to future events and are
subject to certain risks, uncertainties and assumptions. These risks and
uncertainties include, but are not limited to: retention of key personnel;
availability of labor; conflicts of interest; issues with key suppliers,
subcontractors and business partners; legal proceedings; market risks; weather
patterns; prices for oil and gas; drilling risks; uncertainty of reserve
information and future net revenue estimates; operating risks of oil and gas
operations; the effect of economic and industry conditions; the impact of
competition; Year 2000 compliance; the possibility of environmental liabilities;
and legislative or regulatory actions. Should one or more of these risk or
uncertainties materialize, or should underlying assumptions prove incorrect,
actual results may vary materially from those described herein as anticipated,
believed, and estimated or expected.
In accordance with the Litigation Reform Act, the Company is making
investors aware that such "forward-looking" statements, because they relate to
future events, are by their very nature subject to many important factors which
could cause actual results to vary materially from those contained in the
"forward-looking" statements. These factors are detailed from time to time in
the Company's filings with the Securities and Exchange Commission and include
those set forth below.
-22-
<PAGE> 24
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
1. Bankruptcy Proceedings
On January 14, 1999 the Company filed a petition for relief under
chapter 11 of the U.S. Bankruptcy Code in the United States Bankruptcy Court for
the District of Delaware. The petition for relief did not include the Company's
two operating subsidiaries, Calibur Systems, Inc. and Jackson-United Petroleum
Corporation.
On October 7, 1999, the United States Bankruptcy Court for the District
of Delaware entered an order (the "Confirmation Order") confirming the Debtor's
Second Amended Plan of Reorganization dated July 23, 1999 (the "Plan"). The
transactions contemplated by the Plan, including the Merger contemplated by the
Plan and described in Item 2, above, were substantially consummated on November
12, 1999. For a description of the transactions and events which occurred
pursuant to the Plan, the Confirmation Order, and the Merger, see the discussion
set forth in Item 2 (Management's Discussion and Analysis of Operations), above.
2. Unifirst
In May of 1997, the Company was sued by Unifirst Corp. ("Unifirst"), a
supplier of work uniforms for breach of contract. While the suit was pending,
counsel for the Company became terminally ill and died. During that period,
counsel for Unifirst obtained a default judgment against the Company in the
amount of $72,844.22. The Company engaged new counsel and petitioned the court
to set aside the default judgment. This case subsequently settled, and
Unifirst voluntarily dismissed the lawsuit in March 1999.
3. Pisacreta/Tucci
Pursuant to the Plan, the Infinity Parties have released the Company,
its affiliates, and their respective officers, directors and employees from
all claims, including but not limited to claims for contribution and
indemnity, asserted by them in this lawsuit. Although the Company had
requested that the claims asserted in this lawsuit be channeled into the UPC
Trust, based on the plaintiffs' objections, the Confirmation Order excludes
the claims asserted in this lawsuit from the channeling order.
4. UPC Trust
In accordance with the Plan, as modified by the Confirmation Order, a
trust (the "UPC Trust") is being created and funded with 200,000 shares of New
Common Stock of the Company, representing 4% of the issued and outstanding
shares of New Common Stock of the Company. All claims against the Infinity
Parties arising from or in connection with the sale, offer, exchange,
conversion, or issuance of, or any transaction involving, the Company's common
stock (but excluding the claims asserted in the Pisacreta/Tucci action and
derivative causes of action belonging to the Company) (the "Infinity
Securities Claims") are channeled and transferred to the UPC Trust. All
holders of Infinity Securities Claims are enjoined from taking certain actions
against the Infinity Parties unless Infinity fails to make any additional
contribution to the UPC Trust within 30 days after the UPC Trustee serves and
files a notice to Infinity stating that the UPC Trust assets have been fully
expended and that additional Allowed Securities Claims exist or that all
Securities Claims have not been resolved, such additional contribution to be
in an amount equivalent to (a) not less than $100,000 (provided that such
amount is at least enough to satisfy all outstanding Allowed Securities Claims
in full and provide at least $25,000 to fund the expenses of the UPC Trust in
liquidating any remaining securities claims) or (b) such lesser amount as may
be agreed to by the UPC Trustee. Any excess assets held by the UPC Trust after
satisfaction of all Securities Claims and related expenses shall be
distributed to the Infinity Parties. The Infinity Parties have released the
Company, its affiliates, and their respective officers, directors and
employees from all claims, including but not limited to claims for
contribution and indemnity, in respect of Infinity Securities Claims.
-23-
<PAGE> 25
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
At June 30, 1999, the Company was in default under 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 that date the Company had been paying
interest on the debentures and dividends on preferred stock by the issuance of
common stock of the Company. Accrued interest on debentures and accrued
dividends as of June 30, 1999 were $1,049,694 and $2,581,815, respectively. In
connection with the Merger, described above, principal and interest outstanding
under the debentures were converted into an aggregate of 1,750,000 shares of New
Common Stock of the Company, and preferred stock interests were converted into
an aggregate of 650,000 shares of New Common Stock.
In addition, at June 30, 1999, the Company was in default under its
mortgage notes (the A and B Notes) to Infinity and its affiliates. The primary
reasons for the default were (1) failure to provide monthly financial
information on a timely basis and (2) failure to pay interest on the A and B
Notes, as discussed in Item 2, above. In connection with the Merger, described
above, the holders of the A and B Notes were issued 70,000 shares of New
Preferred Stock in satisfaction of the obligations under the Credit Agreement,
and the A and B Notes to Infinity.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27.1 Financial Data Schedule.
(b) Reports on Form 8-K
On January 14, 1999, the Company filed a Current Report on
Form 8-K stating under "Item 3. Bankruptcy or Receivership" that the Company
had filed a voluntary petition for relief under Chapter 11 of the Federal
Bankruptcy Code in the United States Bankruptcy Court for the District of
Delaware.
On March 26, 1999, the Company filed a Current Report on Form
8-K stating under "Item 4. Change In Registrant's Certifying Accountants" that,
effective March 22, 1999, the Board of Directors of the Company approved the
engagement of J.H. Cohn LLP as the Company's independent auditors, to replace
the firm of Reel and Swafford, PLLC who were informed by the Company on March
15, 1999 that the Company would seek new independent auditors.
On April 6, 1999, the Company filed an amendment to its
Current Report on Form 8-K filed March 26, 1999 under "Item 4. Change in
Registrant's Certifying Accountants". The amendment stated that Reel & Swafford
(the Company's prior accounting firm) had furnished to the Company a letter
addressed to the Securities and Exchange Commission stating that Reel & Swafford
agreed with the disclosures made in the March 26 Form 8-K.
On November 29, 1999, the Company filed a Current Report on
Form 8-K dated November 12, 1999, reporting matters under Items 1 (Change of
Control of Registrant), 2 (Acquisition or Disposition of Assets), and 3
(Bankruptcy or Receivership).
On December 1, 1999, the Company filed a Current Report on
Form 8-K/A (Amendment No. 1) dated November 12, 1999, amending certain matters
reported in Item 2 of the Company's Current Report on Form 8-K dated November
12, 1999 and filed on November 29, 1999.
-24-
<PAGE> 26
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: December 27, 1999 By: /s/ L. DOUGLAS KEENE, JR.
------------------------------------------
L. Douglas Keene, Jr.
Chief Accounting Officer
(with dual responsibility)
-25-
<PAGE> 27
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
<S> <C>
27.1 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 17,365
<SECURITIES> 0
<RECEIVABLES> 76,335
<ALLOWANCES> 0
<INVENTORY> 161,140
<CURRENT-ASSETS> 309,759
<PP&E> 11,428,121
<DEPRECIATION> 3,074,081
<TOTAL-ASSETS> 12,215,328
<CURRENT-LIABILITIES> 19,909,681
<BONDS> 0
0
117
<COMMON> 305,653
<OTHER-SE> (8,050,123)
<TOTAL-LIABILITY-AND-EQUITY> 12,215,328
<SALES> 0
<TOTAL-REVENUES> 2,416,616
<CGS> 1,927,562
<TOTAL-COSTS> 1,927,562
<OTHER-EXPENSES> 1,562,907
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 791,313
<INCOME-PRETAX> (1,865,166)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,865,166)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,865,166)
<EPS-BASIC> (.08)
<EPS-DILUTED> (.08)
</TABLE>
