<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K-A
(AMENDMENT NO. 2)
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): November 12, 1999
United Petroleum Corporation
(Exact name of registrant as specified in its charter)
Delaware 0-25006 13-3103494
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
5800 N.W. 74TH Avenue, Miami, Florida 33166
(Address of principal executive offices) (Zip code)
(305) 592-3100
(Registrant's telephone number, including area code)
(Former name or former address, if changed since last report)
<PAGE> 2
This form 8-K-A (Amendment 2) amends the Registrant's Current Report on Form
8-K dated November 12, 1999 and filed on November 29, 1999, as amended and
restated by the Registrant's Current Report on Form 8-K-A (Amendment 1) dated
November 12, 1999 and filed on December 1, 1999.
ITEMS 1, 2 AND 3.
Items 1, 2 and 3 are incorporated herein by reference to the
Registrant's Current Report on Form 8-K-A (Amendment 1) dated November 12, 1999
and filed on December 1, 1999.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements of Businesses Acquired
The financial statements filed as a part of this report are listed in
the accompanying Index to Financial Statements on page F-1 of this
report.
(b) Pro Forma Financial Information - United Petroleum Corporation
Unaudited Pro Forma Consolidated Financial Statements (page 3)
Unaudited Pro Forma Consolidated Balance Sheet as of August 29, 1999
(page 5)
Notes to Unaudited Pro Forma Consolidated Balance Sheet as of August
29, 1999 (page 6)
Unaudited Pro Forma Consolidated Statement of Operations for the
Fifty-Two Week Period Ended August 29, 1999 (page 8)
Notes to Unaudited Pro Forma Consolidated Statement of Operations for
the Fifty-Two Week Period Ended August 29, 1999 (page 9)
(c) Exhibits
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)
13.1 United Petroleum Corporation's Annual Report on Form
10-KSB for the year ended December 31, 1998,
including all exhibits, filed on June 2, 1999
(incorporated herein by reference)
13.2 United Petroleum Corporation's Quarterly Report on
Form 10-QSB for the quarter ended September 30,
1999, including all exhibits, filed on December 27,
1999 (incorporated herein by reference)
99.1 Second Amended Plan of Reorganization of United
Petroleum Corporation dated July 23, 1999 (filed as
Exhibit 99.1 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)
2
<PAGE> 3
99.2 Second Amended Disclosure Statement of United
Petroleum Corporation dated July 23, 1999 (filed as
Exhibit 99.2 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)
99.3 Agreement and Plan of Merger dated September 29,
1999 (filed as Exhibit 99.3 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)
99.4 Findings of Fact, Conclusions of Law and Order
Confirming Amended Plan of Reorganization dated
October 7, 1999 (filed as Exhibit 99.4 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)
99.5 License Agreement dated as of November 12, 1999
among Farm Stores Grocery, Inc., United Petroleum
Corporation and United Petroleum Group, Inc. (filed
as Exhibit 99.5 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)
99.6 Employment Agreement dated as of November 3, 1999
between United Petroleum Corporation and Joe P.
Bared (filed as Exhibit 99.6 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)
99.7 Employment Agreement dated as of November 3, 1999
between United Petroleum Corporation and Carlos
Bared (filed as Exhibit 99.7 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)
99.8 Stockholders' Agreement dated as of November 3, 1999
by and among United Petroleum Corporation, Infinity
Investors Limited, Fairway Capital Limited, Seacrest
Capital Limited, and Joe Bared and Miriam Bared
Bared (filed as Exhibit 99.8 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)
99.9 Management Agreement dated as of November 12, 1999
between United Petroleum Group, Inc. and Farm Stores
Grocery, Inc. (filed as Exhibit 99.9 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)
99.10 Loan Agreement dated November 9, 1999 among United
Petroleum Corporation, United Petroleum Group, Inc.,
F.S. Convenience Stores, Inc., et al., as Borrowers,
and Hamilton Bank, N.A., as Lender (filed as Exhibit
99.10 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)
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited pro forma consolidated financial information
reflects (i) the acquisition by Bared of Isaias' interest in Farm Stores and the
transfer of net assets of FSWD to FSCI and (ii) the merger of United Petroleum
Group, Inc., a wholly owned subsidiary of United Petroleum Corporation (the
"Registrant", the "Company" or "UPC") and F.S. Convenience Stores, Inc.
("FSCI"). The UPC financial data has been derived from UPC's Form 10-KSB filed
on June 2, 1999 and UPC's 10-QSB for the fiscal quarter ended September 30, 1999
filed on December 27, 1999. The pro forma FSCI financial data is based on the
audited historical financial statements listed in Item 7 of this Report. The
Combined Company shall mean UPC and its subsidiaries, after
3
<PAGE> 4
giving effect to the transactions described in Item 2 of UPC's Current Report
on Form 8-K-A (Amendment 1) filed on December 1, 1999 and the preceding
distributions, contributions, and transfers among the Farm Stores Partnerships,
their partners, UPC, FSCI, Farm Stores Grocery, Inc. and their subsidiaries
(collectively, the "Transactions").
The Unaudited Pro Forma Consolidated Balance Sheet has been prepared
to give effect to the Transactions as if they occurred on August 29, 1999. The
Unaudited Pro Forma Consolidated Statement of Operations has been prepared to
give effect to the Transactions as if they occurred on August 31, 1998. For
financial statement purposes, FSCI is deemed the "accounting acquirer" in a
reverse acquisition transaction.
The unaudited pro forma adjustments are based upon available
information and certain assumptions that the Combined Company believes are
reasonable. The Unaudited Pro Forma Consolidated Financial Statements and the
accompanying notes should be read in conjunction with the historical financial
statements listed in the Index to Financial Statements in Item 7 of this
Report. The Unaudited Pro Forma Consolidated Financial Statements are not
indicative of either future results of operations or the results of operations
that might have occurred if the Transactions had been consummated on the
indicated dates.
4
<PAGE> 5
UNITED PETROLEUM CORPORATION
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
AUGUST 29, 1999
(IN THOUSANDS)
<TABLE>
<CAPTION>
Historical Acquisition Pro forma Reorganized Merger Combined
FSWD Adjustments(1) FSCI UPC(2) Adjustments Company
---------- -------------- ----------- ----------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Cash and cash equivalents $ 38 $ -- $ 38 $ 31 $ 4,106 (3) $ 1,175
(3,000)(5)
Accounts receivable, net of allowance 762 (104) 658 77 735
Inventories 3,826 3,826 149 3,975
Prepaid expenses and other current assets 483 483 61 544
---------- -------------- ----------- ----------- ----------- --------
Total current assets 5,109 (104) 5,005 318 1,106 6,429
Property and equipment, net 3,794 1,052 4,846 11,583 16,429
Goodwill & reorganization value in
excess of identifiable assets -- 14,892 14,892 6,284 14,950(4) 36,126
Investment in Farm Stores Grocery, Inc. 11 11 -- 11
Other assets 89 89 11 1,347(3) 1,447
---------- -------------- ----------- ----------- ----------- --------
$ 9,003 $ 15,840 $ 24,843 $ 18,196 $ 17,403 $ 60,442
========== ============== =========== =========== =========== ========
Long-term debt in default $ -- $ -- $ -- $ 151 $ -- $ 151
Accounts payable 4,972 4,972 683 (411)(3) 5,244
Accrued expenses 1,674 1,674 757 2,431
Current portion of long-term debt 94 94 11 105
---------- -------------- ----------- ----------- ----------- --------
Total current liabilities 6,740 -- 6,740 1,602 (411) 7,931
Liabilities subject to compromise 205 (136)(3) 69
Long-term debt, net of current portion 106 17,000 17,106 776 6,000 (3) 23,882
Other long-term liabilities 224 224 -- 224
---------- -------------- ----------- ----------- ----------- --------
Total liabilities 7,070 17,000 24,070 2,583 5,453 32,106
Stockholders' equity
Preferred stock, Series A, 9%, $.01 par
value, 300,000 shares authorized,
140,000 shares issued and outstanding -- -- 1 1 (4) 2
Common stock, $.01 par value,
10,000,000 shares authorized,
5,000,000 shares issued and outstanding -- -- 26 24 (4) 50
Common stock, $1 par value, 10,000
shares authorized, issued and outstanding -- 10 10 -- (10)(5) --
Additional paid-in capital -- 763 763 15,586 6,999 (4) 28,284
7,926 (4)
(2,990)(5)
---------- -------------- ----------- ----------- ----------- --------
Total stockholders' equity -- 773 773 15,613 11,950 28,336
Division equity 1,933 (1,933) -- -- --
---------- -------------- ----------- ----------- ----------- --------
$ 9,003 $ 15,840 $ 24,843 $ 18,196 $ 17,403 $ 60,442
========== ============== =========== =========== =========== ========
</TABLE>
5
<PAGE> 6
UNITED PETROLEUM CORPORATION
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
AUGUST 29, 1999
(IN THOUSANDS, EXCEPT SHARE DATA)
(1) Represents the adjustments to (i) eliminate the partnership interest of
the Isaias corporations, (ii) capitalize the Bared corporations', equity
interest, (iii) record the portion of the credit facility used to finance
the acquisition, (iv) reflect the fair value of assets acquired and (v)
recognize goodwill which represents the excess of cost over fair value of
net assets acquired.
(2) The effects of the Plan and fresh start reporting on UPC's condensed
consolidated balance sheet as of September 30, 1999 are as follows (in
thousands):
<TABLE>
<CAPTION>
Discharge
of Liabilities
UPC Prior to Subject to Fresh Reorganized
Reorganization Compromise (a) Start (b) UPC
-------------- -------------- ------------ ------------
<S> <C> <C> <C> <C>
Current assets $ 318 $ -- $ -- $ 318
Property and equipment, net 10,548 1,035 11,583
Deferred reorganization costs 553 (553) --
Reorganization value in excess of
identifiable assets -- 6,284 6,284
Other assets 11 11
-------------- -------------- ------------ ------------
$ 11,430 $ -- $ 6,766 $ 18,196
============== ============== ============ ============
Current liabilities $ 1,011 $ -- $ 591 $ 1,602
Liabilities subject to compromise 18,853 (18,648) 205
Long-term debt 776 776
-------------- -------------- ------------ ------------
Total liabilities 20,640 (18,648) 591 2,583
Stockholders' equity (deficiency)
Preferred stock 0 1 1
Common stock 306 (280) 26
Additional paid-in capital 24,865 (9,279) 15,586
Accumulated deficit (34,381) 28,206 6,175 --
-------------- -------------- ------------ ------------
Total stockholders' equity (deficiency) (9,210) 18,648 6,175 15,613
-------------- -------------- ------------ ------------
$ 11,430 $ -- $ 6,766 $ 18,196
============== ============== ============ ============
</TABLE>
(a) To record the discharge of liabilities subject to compromise
pursuant to the Plan, the cancellation of all of UPC's
outstanding securities and the issuance of new common and
preferred stock.
(b) To record the fresh start reorganization equity value at
$15,613, adjust net assets to fair value and accrue for
additional reorganization costs.
6
<PAGE> 7
(3) To record a portion of the credit facility used to finance the merger as
follows:
<TABLE>
<S> <C>
Proceeds from credit facility .......... $ 6,000
Debt financing costs capitalized ....... (1,347)
Payment of outstanding payables ........ (547)
--------
Net proceeds ........................... $ 4,106
========
</TABLE>
(4) To record the non-cash consideration issued to FSCI's shareholders for
the purchase of UPC's 100% interest in FSCI and the resulting goodwill.
<TABLE>
<S> <C>
Non-cash consideration issued:
Preferred stock, 70,000 shares, $.01 par value $ 1
Additional paid-in capital (preferred stock liquidation value $7,000) 6,999
Common stock, 2,400,000 shares, $.01 par value 24
Additional paid-in capital (common stock value of $3.3126 per share) 7,926
----------
Total non-cash consideration to FSCI's shareholders & goodwill $ 14,950
==========
</TABLE>
(5) To record the cash payment in the merger of $3,000 to the shareholders
of FSCI.
7
<PAGE> 8
UNITED PETROLEUM CORPORATION
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE FIFTY-TWO WEEK PERIOD ENDED AUGUST 29, 1999
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Reorganized
UPC
12 Months
Historical Acquisition Pro Forma Ended Merger Combined
FSWD Adjustments FSCI 9/30/99(3) Adjustments Company
---------- ----------- --------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Sales $ 108,514 $ -- $ 108,514 $ 4,762 $ -- $ 113,276
Cost of sales 82,350 82,350 4,287 86,637
---------- ----------- --------- ----------- ----------- ---------
Gross profit 26,164 -- 26,164 475 -- 26,639
Operating expenses:
Store operating and general and administrative
expenses 26,221 26,221 1,068 27,289
Depreciation and amortization expense 490 769(1) 1,259 1,438 748(6) 3,445
Loss on impairment of assets -- -- 1,067 1,067
Loss on sale of premises and equipment -- -- 345 345
---------- ----------- --------- ----------- ----------- ---------
Total 26,711 769 27,480 3,918 748 32,146
---------- ----------- --------- ----------- ----------- ---------
Operating loss (547) (769) (1,316) (3,443) (748) (5,507)
Other income (expense):
Reorganization items - professional fees -- -- (440) (440)
Lease and other income 113 113 450 563
Equity in earnings (loss) of FSG (32) (32) -- (32)
Write off of loan costs -- -- (354) (354)
Interest income (expense), net (8) (1,833)(2) (1,841) (50) (864)(4) (2,755)
---------- ----------- --------- ----------- ----------- ---------
Net loss (474) (2,602) (3,076) (3,837) (1,612) (8,525)
Preferred stock dividends -- -- -- (630) (630)(5) (1,260)
---------- ----------- --------- ----------- ----------- ---------
Net loss attributable to common shareholders $ (474) $ (2,602) $ (3,076) $ (4,467) $ (2,242) $ (9,785)
========== =========== ========= =========== =========== =========
Earnings (loss) per share
Basic and diluted
Earnings (loss) per share $ (1.72) $ (1.96)
Weighted average number of shares 2,600 5,000
</TABLE>
8
<PAGE> 9
UNITED PETROLEUM CORPORATION
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE FIFTY-TWO WEEK PERIOD ENDED AUGUST 29, 1999
(IN THOUSANDS)
(1) To reflect amortization of goodwill over 20 years of $745 and additional
depreciation expense of $24 on the write-up of property and equipment to
fair value.
(2) Reflects the net increase in interest expense resulting from the
$17,000,000 credit facility used to finance the acquisition as follows:
<TABLE>
<S> <C>
Interest expense resulting from the borrowing of $10,467 on $ 1,178
a term loan at 11.25%
Interest expense resulting from the borrowing of $2,811 as 279
part of a mortgage loan at 9.93%
Interest expense resulting from the borrowing of $3,722 as
part of a revolving line of credit at 9.81% 365
Amortization of deferred financing costs of $54 11
----------
Net increase in interest expense $ 1,833
==========
</TABLE>
Borrowings under the revolving credit facility, mortgage loan and term
loan bear interest at a variable rate. A one-eighth of a percentage
point increase or decrease in the applicable interest rate would
increase or decrease adjusted net interest expense by $21.
9
<PAGE> 10
(3) The effects of the Plan and fresh start reporting on UPC's consolidated
condensed results of operations as of September 30, 1999 are as follows
(in thousands):
<TABLE>
<CAPTION>
Discharge
of Liabilities
UPC Prior to Subject to Fresh Reorganized
Reorganization Settlement Start UPC
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Gross profit $ 475 $ -- $ -- $ 475
Store operating and general and administrative
expenses 1,068 1,068
Depreciation and amortization expense 1,094 344(c) 1,438
Loss on impairment of assets 1,067 1,067
Loss on sale of premises and equipment 345 345
-------------- -------------- -------------- --------------
Total 3,574 -- 344 3,918
-------------- -------------- -------------- --------------
Operating loss (3,099) -- (344) (3,443)
Other income (expense):
Reorganization items - professional fees (440) (440)
Lease and other income 450 450
Write off of loan costs (354) (354)
Interest expense (1,549) 1,499(a) (50)
-------------- -------------- -------------- --------------
Net loss (4,992) 1,499 (344) (3,837)
Preferred stock dividends (885) 255(b) (630)
-------------- -------------- -------------- --------------
Net loss attributable to common shareholders $ (5,877) $ 1,754 $ (344) $ (4,467)
============== ============== ============== ==============
Earnings (loss) per share
Basic and diluted
Earnings (loss) per share $ (0.19) $ (1.72)
Weighted average number of shares 30,565 2,600
</TABLE>
(a) To record the elimination of historical interest expense
related to the debt that was discharged.
(b) Reflects the net decrease in preferred stock dividends as
follows:
<TABLE>
<S> <C>
Dividends on new preferred stock at 9% of $7,000 $ 630
Elimination of dividends on preferred stock that was cancelled (885)
----------
Net decrease in preferred stock dividends $ (255)
==========
</TABLE>
(c) To reflect amortization of the reorganization value in excess
of identifiable costs over 20 years of $314 and additional
depreciation expense of $30 on the write-up of property and
equipment to fair value.
10
<PAGE> 11
(4) Reflects the net increase in interest expense resulting from the
Transactions as follows:
<TABLE>
<S> <C>
Interest expense resulting from the borrowing of $5,489 as
part of a mortgage loan at 9.93% $ 545
Interest expense resulting from the borrowing of $511 as
part of a revolver line of credit 50
Amortization of deferred financing costs of $1,347 269
----------
Net increase in interest expense $ 864
==========
</TABLE>
Borrowings under the revolving credit facility, mortgage loan and term
loan bear interest at a variable rate. A one-eighth of a percentage
point increase or decrease in the applicable interest rate would
increase or decrease adjusted net interest expense by $8.
(5) Reflects dividends on the new preferred stock issued to FSCI's shareholders
for the purchase of UPC's 100% interest in FSCI.
(6) To reflect amortization of goodwill over 20 years of $748.
11
<PAGE> 12
ITEM 8. CHANGE IN FISCAL YEAR.
The Registrant has elected to use the accounting year of the accounting
acquirer which consists of a fifty-two/fifty-three week fiscal year ending on
the Sunday nearest August 31 rather that the fiscal year of the legal acquirer
which was December 31. The new fiscal year will consist of 16 weeks in the
first quarter and 12 weeks in the second, third and fourth quarter. The report
covering the transition period will be filed on Form 10-Q for the quarter
ending December 19, 1999.
12
<PAGE> 13
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, hereunto duly authorized.
UNITED PETROLEUM CORPORATION
(Registrant)
By: /s/Carlos Bared
--------------------------------
Carlos Bared
Senior Vice President, Finance and
Chief Financial Officer
Date: January 28, 2000
<PAGE> 14
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Farm Stores Walk-In Division, Predecessor to F.S. Convenience Stores, Inc. and Subsidiaries
Independent Auditors' Report................................................................................ F-2
Combined Financial Statements:
Balance Sheets as of August 29, 1999 and August 30, 1998................................................. F-3
Statements of Operations and Division Equity for the fifty-two week periods
ended August 29, 1999, August 30, 1998 and August 31, 1997............................................. F-4
Statements of Cash Flows for the fifty-two week periods ended August 29,
1999, August 30, 1998 and August 31, 1997............................................................... F-5
Notes to combined financial statements.................................................................... F-6
</TABLE>
F-1
<PAGE> 15
INDEPENDENT AUDITORS' REPORT
To the Owners of Farm Stores:
We have audited the combined balance sheets of Farm Stores Walk-in Division
("FSWD"), predecessor to F.S. Convenience Stores, Inc. and subsidiaries, both of
which are under common ownership and common management, as of August 29, 1999
and August 30, 1998 and the related combined statements of operations and
division equity and of cash flows for the fifty-two week periods ended August
29, 1999, August 30, 1998 and August 31, 1997. These financial statements are
the responsibility of FSWD's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the combined financial position of FSWD as of August 29, 1999 and
August 30, 1998 and the combined results of its operations and its combined cash
flows for the fifty-two week periods ended August 29, 1999, August 30, 1998 and
August 31, 1997 in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Certified Public Accountants
Miami, Florida
January 27, 2000
F-2
<PAGE> 16
FARM STORES WALK-IN DIVISION
PREDECESSOR TO F.S. CONVENIENCE STORES, INC. AND SUBSIDIARIES
COMBINED BALANCE SHEETS
AUGUST 29, 1999 AND AUGUST 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 37,600 $ 40,650
Accounts receivable - net of allowance
for doubtful accounts of $64,517 in 1999 and $0 in 1998 762,180 941,171
Inventories 3,826,047 4,359,130
Prepaid expenses 482,723 452,280
------------ ------------
Total current assets 5,108,550 5,793,231
Property, plant and equipment, net 3,794,301 3,167,808
Investment in Farm Stores Grocery, Inc. 11,052 43,223
Other assets 88,578 51,112
------------ ------------
$ 9,002,481 $ 9,055,374
============ ============
LIABILITIES AND DIVISION EQUITY
Accounts payable $ 4,971,482 $ 4,154,723
Accrued payroll 804,873 906,413
Other accrued expenses 868,846 901,964
Current portion of long-term debt 94,341 110,578
------------ ------------
Total current liabilities 6,739,542 6,073,678
Long-term debt, net of current portion 105,940 200,281
Other long-term liabilities 224,146 373,856
------------ ------------
Total liabilities 7,069,628 6,647,815
Division equity 1,932,853 2,407,559
------------ ------------
$ 9,002,481 $ 9,055,374
============ ============
</TABLE>
See accompanying notes to the combined financial statements.
F-3
<PAGE> 17
FARM STORES WALK-IN DIVISION
PREDECESSOR TO F.S. CONVENIENCE STORES, INC. AND SUBSIDIARIES
COMBINED STATEMENTS OF OPERATIONS AND DIVISION EQUITY
FIFTY-TWO WEEK PERIODS ENDED AUGUST 29,1999, AUGUST 30, 1998 AND AUGUST 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
RETAIL SALES:
Groceries $ 60,766,666 $ 63,014,287 $ 64,954,975
Petroleum 47,747,736 54,355,423 67,383,478
------------- ------------- -------------
Total retail sales 108,514,402 117,369,710 132,338,453
------------- ------------- -------------
COST OF SALES:
Groceries 40,193,558 41,883,929 42,793,790
Petroleum 42,157,049 47,994,970 60,943,675
------------- ------------- -------------
Total cost of sales 82,350,607 89,878,899 103,737,465
------------- ------------- -------------
Gross profit 26,163,795 27,490,811 28,600,988
------------- ------------- -------------
OPERATING EXPENSES:
Store operating expenses 21,237,223 21,124,514 21,891,925
General and administrative expenses 4,984,058 4,881,381 4,744,004
Depreciation expense 489,981 493,656 431,221
------------- ------------- -------------
Total 26,711,262 26,499,551 27,067,150
------------- ------------- -------------
Operating profit (loss) (547,467) 991,260 1,533,838
Interest income (expense), net (8,145) 33,548 54,974
Other income 112,619 62,525 15,310
Equity in earnings (loss) of FSG (32,171) 6,693 (2,237)
Gain (loss) from disposition of properties 458 47,955 (5,128)
------------- ------------- -------------
Net income (loss) (474,706) 1,141,981 1,596,757
DIVISION EQUITY, BEGINNING 2,407,559 1,265,578 100,821
DISTRIBUTIONS TO OWNERS -- -- (432,000)
------------- ------------- -------------
DIVISION EQUITY, ENDING $ 1,932,853 $ 2,407,559 $ 1,265,578
============= ============= =============
</TABLE>
See accompanying notes to the combined financial statements.
F-4
<PAGE> 18
FARM STORES WALK-IN DIVISION
PREDECESSOR TO F.S. CONVENIENCE STORES, INC. AND SUBSIDIARIES
COMBINED STATEMENTS OF CASH FLOWS
FIFTY-TWO WEEK PERIODS ENDED AUGUST 29, 1999, AUGUST 30, 1998 AND
AUGUST 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (474,706) $ 1,141,981 $ 1,596,757
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation 489,981 493,656 431,221
Equity in earnings (loss) of FSG 32,171 (6,693) 2,237
Provision for doubtful accounts 64,517 -- --
(Gain) loss on disposal of fixed assets (458) (47,955) 5,128
Change in assets and liabilities:
Accounts receivable 142,212 (254,073) (72,135)
Inventories 533,083 350,555 80,689
Prepaid expenses (30,443) (76,288) (8,402)
Other assets (37,466) (11,328) (5,319)
Accounts payable 816,759 (881,411) (1,421,386)
Accrued payroll and other accrued expenses (134,658) (254,661) (25,166)
Other long-term liabilities (149,710) (258,560) 144,909
------------- ------------- -------------
Cash provided by operating activities 1,251,282 195,223 728,533
------------- ------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment (1,181,754) (93,048) (398,631)
Proceeds from disposition of property, plant and equipment 38,000 53,700 248,019
------------- ------------- -------------
Net cash used in investing activities (1,143,754) (39,348) (150,612)
------------- ------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions to owners -- -- (432,000)
Principal payments on long-term debt (110,578) (153,525) (144,801)
------------- ------------- -------------
Net cash used in financing activities (110,578) (153,525) (576,801)
------------- ------------- -------------
Net increase (decrease) in cash and cash equivalents (3,050) 2,350 1,120
CASH AND CASH EQUIVALENTS, BEGINNING 40,650 38,300 37,180
------------- ------------- -------------
CASH AND CASH EQUIVALENTS, ENDING $ 37,600 $ 40,650 $ 38,300
============= ============= =============
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest $ 22,596 $ 33,006 $ 44,927
============= ============= =============
</TABLE>
See accompanying notes to the combined financial statements.
F-5
<PAGE> 19
FARM STORES WALK-IN DIVISION
PREDECESSOR TO F.S. CONVENIENCE STORES, INC. AND SUBSIDIARIES
NOTES TO THE COMBINED FINANCIAL STATEMENTS
FIFTY-TWO WEEK PERIODS ENDED AUGUST 29, 1999, AUGUST 30, 1998 AND
AUGUST 31, 1997
- --------------------------------------------------------------------------------
1. ORGANIZATION AND BASIS OF PRESENTATION
The accompanying combined financial statements of Farm Stores Walk-In
Division ("FSWD") consist of the assets, liabilities and operations of the
traditional walk-in convenience stores owned and operated by two
partnerships having common ownership (the "Operations"). Petroleum
products are sold at some of these stores. These stores have previously
been included in the combined financial statements of REWJB Dairy Plant
Associates, REWJB Gas Investments and REWJB Investments, three Florida
general partnerships (collectively "Farm Stores") each owned by the same
two ownership groups. This division of Farm Stores has been segregated and
been reported on separately herein to facilitate the subsequent ownership
change and merger transaction described in Note 8.
Historically, separate financial statements have not been prepared for
FSWD. The accompanying combined financial statements have been prepared
from the books and records of FSWD and present the assets and liabilities
of the Operations as of August 29, 1999 and August 30, 1998 and the
related revenues and expenses for the fifty-two week periods ended August
29, 1999, August 30, 1998 and August 31, 1997. Accordingly, these
statements do not purport to represent the financial position or results
of operations of Farm Stores on a combined basis. Management believes it
operates in one segment (convenience stores) and in one geographic area
(Florida).
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
FISCAL YEAR - FSWD operates on a fifty-two/fifty-three week period ending
on the Sunday nearest August 31. The accompanying combined financial
statements include operations for periods 1999, 1998 and 1997, each
encompassing a total of fifty-two weeks. FSWD reports internally on 13
periods consisting of four weeks each. The first quarter includes 4
periods for a total of 16 weeks.
USE OF ESTIMATES - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
REVENUE RECOGNITION - Revenues are recognized when earned which is at the
time of sale.
OPERATING EXPENSES - Operating expenses include store operating expenses
such as direct personnel and occupancy costs. General and administrative
expenses include retail administrative expenses specifically attributed to
FSWD. In addition, general and administrative expenses include an
allocation of Farm Stores combined corporate overhead expenses such as
finance, information systems, marketing and senior management. The
allocation was based on various factors including sales volume, inventory
levels and personnel and store counts. In the opinion of management, the
allocations are reasonable and reflect all costs of doing business.
However, such expenses are not necessarily indicative of the level of
expenses that might have been incurred if FSWD had been operating as a
separate entity.
F-6
<PAGE> 20
INCOME TAXES - As partnerships, Farm Stores passes taxable income through
to its partners for income tax purposes. Accordingly, there is no
provision for income taxes in FSWD.
CASH AND CASH EQUIVALENTS - Highly liquid interest-bearing investments
with original maturities of three months or less are considered cash and
cash equivalents. FSWD was part of a centralized cash management system
and the interest income generated by such system was allocated to FSWD on
a prorata basis.
INVENTORIES - Inventories, which consist solely of finished goods, are
stated at the lower of cost, as determined on an average cost basis, or
market.
PROPERTY, PLANT AND EQUIPMENT - Property, plant and equipment are stated
at cost less accumulated depreciation expense. Depreciation expense is
calculated using the straight-line method over the estimated useful lives
of the related assets. A summary of the assets' estimated useful lives is
as follows:
<TABLE>
<CAPTION>
Estimated
Useful Life
<S> <C>
Buildings and improvements 7 - 40 years
Leasehold improvements 3 - 10 years
Equipment 3 - 7 years
</TABLE>
INVESTMENT IN FARM STORES GROCERY, INC. - Investment in Farm Stores
Grocery, Inc. ("FSG"), commonly referred to as the drive-thru stores,
represents a 10% equity interest. The investment is recorded under the
equity method and was retroactively applied since it was a transaction
between entities under common control and common management.
LONG-LIVED ASSETS - FSWD reviews long-lived assets for impairment whenever
events or circumstances indicate that the carrying amount of an asset may
not be recoverable. An impairment is determined when the sum of the
undiscounted cash flows estimated to be generated by those assets is less
than their carrying value. FSWD has reviewed its long-lived assets for
recoverability and determined that an impairment charge is not required.
NEW ACCOUNTING PRONOUNCEMENTS - In June 1998, the Financial Accounting
Standards Board issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 establishes accounting
and reporting standards for derivative instruments, including derivative
instruments embedded in other contracts, and for hedging activities. In
June 1999, the FASB issued SFAS No. 137, " Accounting for Derivative
Instruments and Hedging Activities - Deferral of the Effective Date of FAS
Statement 133," which postponed the adoption of SFAS No. 133. As such,
FSWD is not required to adopt SFAS No. 133 until the fifty-two week period
ended 2001. FSWD has not yet assessed the impact that SFAS No. 133 will
have on its financial statements.
FSWD currently expenses costs associated with start-up activities. In
April 1998, the AICPA issued SOP 98-5, "Reporting on the Costs of Start-up
Activities." This SOP requires that costs incurred to open a new facility,
introduce a new product, commence a new operation or other similar
activity, be expensed as incurred. FSWD will adopt SOP 98-5 for the
fifty-two week period ending September 3, 2000. FSWD does not believe this
SOP will have a material impact on its financial statements.
F-7
<PAGE> 21
3. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following:
<TABLE>
<CAPTION>
<S> <C> <C>
Land $ 955,545 $ 955,545
Buildings and improvements 963,071 962,826
Leasehold improvements 1,058,421 1,062,430
Equipment 2,909,551 1,987,788
Construction in progress 72,684 3,414
------------- -------------
5,959,272 4,972,003
Less accumulated depreciation (2,164,971) (1,804,195)
------------- -------------
$ 3,794,301 $ 3,167,808
============= =============
</TABLE>
Depreciation expense for the fifty-two week periods ended August 29, 1999,
August 30, 1998, and August 31, 1997 was $489,981, $493,656 and $431,221,
respectively.
4. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Various mortgage and equipment notes payable in
installments through 2005, bearing interest at 8%
to 10%, secured by properties and equipment with
a net book value of $332,036 at August 29, 1999 and
$552,986 at August 30, 1998 $ 200,281 $ 310,859
Less: current portion (94,341) (110,578)
----------- -----------
Long-term portion $ 105,940 $ 200,281
=========== ===========
</TABLE>
Aggregate maturities of long-term debt for the indicated periods ended
are as follows:
<TABLE>
<S> <C>
2000 $ 94,341
2001 36,738
2002 16,914
2003 18,318
2004 19,838
Thereafter 14,132
--------------
Total $ 200,281
==============
</TABLE>
Interest expense during the fifty-two week periods ended August 29, 1999,
August 30, 1998 and August 31, 1997 was $22,596, $33,006 and $44,927,
respectively.
F-8
<PAGE> 22
5. OPERATING LEASES
FSWD leases the majority of their retail store locations as well as
certain other properties and equipment under operating leases. Future
minimum lease payments under such non-cancelable agreements are as
follows:
<TABLE>
<CAPTION>
FISCAL
YEAR
<S> <C>
2000 $ 3,055,000
2001 2,468,000
2002 1,997,000
2003 1,758,000
2004 1,514,000
------------
Total $ 10,792,000
============
</TABLE>
Rent expense for the fifty-two week periods ended August 29, 1999, August
30, 1998 and August 31, 1997 approximated $4,084,000 and $4,154,000, and
$4,062,000; including $67,000, $53,000 and $91,000 of contingent rentals
based on sales, respectively.
6. OTHER INCOME
Other income for the fifty-two week periods ended August 29, 1999, August
30, 1998 and August 31, 1997 includes amortization of deferred income of
$50,000, $50,000 and $11,540, respectively, related to $200,000 received
in fiscal 1997 from FSWD's fuel supplier in accordance with the fuel
supply agreement. Other income for the fifty-two week period ended August
29, 1999 also includes $45,000 received from a business interruption claim
related to two store casualties which occurred during fiscal 1998.
7. CONTINGENCIES
FSWD 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
resolution of these legal proceedings will not have a material adverse
effect on FSWD's financial position or results of operations.
8. SUBSEQUENT EVENTS
On November 12, 1999, the minority partner in Farm Stores ("Bared")
acquired the ownership interest of the majority partner ("Isaias") for $20
million, of which $17 million was related to the purchase of the majority
interest of FSWD. After this transaction, Bared owned 100% of Farm Stores;
accordingly "push-down" accounting was used to record the portion of the
net assets acquired at fair value. This acquisition was primarily financed
by a bank loan of $17 million collateralized by all of the assets of FSWD.
In connection with this transaction, the partnerships transferred the
walk-in stores and the 10% ownership interest in the drive-thru stores,
shown herein as FSWD, to Farm Stores Convenience Stores, Inc. ("FSCI") and
its subsidiaries. This transfer was recorded at historical cost since it
was a transaction between entities under common control.
On November 12, 1999, FSCI merged with and into United Petroleum Group,
Inc. ("UPG"), a wholly-owned subsidiary of United Petroleum Corporation
("UPC"). 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 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, 70,000 shares of UPC's
preferred stock which represents a 50% interest and $3 million in cash.
FSCI is the accounting acquirer; accordingly, the transaction is accounted
for as a reverse acquisition.
* * * * * *
F-9
