<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended: March 12, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________________ to __________________________
Commission file number: 2-38375
United Petroleum Corporation
-------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 13-3103494
- --------------------------------------------- -------------------
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
5800 N.W. 74th Avenue, Miami, Florida 33166
-----------------------------------------------------------------
(Address of principal executive offices)
(Zip Code)
(305) 592-3100
----------------------------------------------------------
(Registrant's telephone number, including area code)
N/A
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
----- -----
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APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes X No
----- -----
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date: 5,000,000 shares of
voting common stock, par value $.01 per share, as of April 21, 2000.
2
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UNITED PETROLEUM CORPORATION
INDEX
<TABLE>
<CAPTION>
PART I FINANCIAL INFORMATION PAGE NO.
--------
<S> <C>
ITEM 1. Financial Statements
Condensed consolidated balance sheets -
March 12, 2000 and August 29, 1999......................................... 4-5
Condensed consolidated statements of operations -
Twelve and twenty-eight weeks ended March 12, 2000 and March 14, 1999...... 6
Consolidated statement of changes in stockholders' equity -
Twenty-eight weeks ended March 12, 2000.................................... 7
Condensed consolidated statements of cash flows -
Twenty-eight weeks ended March 12, 2000 and March 14, 1999................. 8-9
Notes to condensed consolidated financial statements.......................... 10-11
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations............................... 12-15
PART II OTHER INFORMATION
ITEM 3. Legal Proceedings.................................................... 16
ITEM 6. Exhibits and Reports on Form 8-K..................................... 16
</TABLE>
3
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
UNITED PETROLEUM CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 12, AUGUST 29,
2000 1999
------------ ------------
(Unaudited)
<S> <C> <C>
Cash and cash equivalents $ 807 $ 38
Accounts receivable, net of allowances
of $65,000 in 2000 and 1999 1,796 762
Receivable from affiliated company 394
Inventories 4,579 3,826
Prepaid expenses and other current assets 505 483
------------ ------------
Total current assets 8,081 5,109
Property and equipment, net 16,383 3,794
Goodwill and other intangible assets 36,120 --
Investment in Farm Stores Grocery, Inc. 14 11
Deferred loan costs, net 1,231 54
Other assets 177 35
------------ ------------
$ 62,006 $ 9,003
============ ============
</TABLE>
(continued on page 5)
4
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UNITED PETROLEUM CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 12, AUGUST 29,
2000 1999
---------- ----------
(Unaudited)
<S> <C> <C>
Current liabilities
Accounts payable $ 10,204 $ 4,972
Accrued expenses 2,085 1,674
Accrued preferred stock dividends 412 --
Current portion of long-term debt 306 94
---------- ----------
Total current liabilities 13,007 6,740
Long-term debt, net of current portion 23,539 106
Other long-term liabilities 143 224
---------- ----------
Total liabilities 36,689 7,070
Stockholders' equity
Preferred stock, Series A, 9%, $.01 par value, 300,000
shares authorized, 140,000 shares issued and outstanding 2 --
Common stock, $.01 par value, 10,000,000 shares
authorized, 5,000,000 shares issued and outstanding 50 --
Additional paid-in capital 28,355 --
Accumulated deficit (3,090)
---------- ----------
Total stockholders' equity 25,317 --
---------- ----------
Division equity -- 1,933
---------- ----------
$ 62,006 $ 9,003
========== ==========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
5
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UNITED PETROLEUM CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
TWELVE WEEKS ENDED TWENTY-EIGHT WEEKS ENDED
---------------------------- ----------------------------
MARCH 12, MARCH 14, MARCH 12, MARCH 14,
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Sales $ 31,297 $ 24,736 $ 65,005 $ 57,564
Cost of sales 25,050 18,380 51,277 43,038
------------ ------------ ------------ ------------
Gross profit 6,247 6,356 13,728 14,526
Operating expenses:
Store operating expenses 5,281 5,061 11,543 11,589
Depreciation and amortization 681 102 1,077 242
General & administrative expenses 1,304 1,095 2,868 2,561
------------ ------------ ------------ ------------
Total 7,266 6,258 15,488 14,392
------------ ------------ ------------ ------------
Income (loss) from operations (1,019) 98 (1,760) 134
Other income (expense):
Interest expense (632) (12) (922) (19)
Interest income 1 3 27 72
Other income 30 24 49 40
Equity in earnings (loss) of FSGI (11) (43) 3 (53)
Gain (loss) from disposition of properties (62) (9) (75) (14)
------------ ------------ ------------ ------------
Net income (loss) (1,693) $ 61 (2,678) $ 160
============ ============
Preferred stock dividends (291) (412)
------------ ------------
Net income (loss) applicable to common stockholders $ (1,984) $ (3,090)
============ ============
Earnings (loss) per share
Basic earnings (loss) per share $ (0.40) $ (0.62)
Weighted average number of shares 5,000 5,000
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
6
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UNITED PETROLEUM CORPORATION
Consolidated Statement of Changes in Stockholders' Equity
Twenty-eight Weeks Ended March 12, 2000
(Unaudited)
<TABLE>
<CAPTION>
Series A
Preferred Stock Common Stock
-------------------------- --------------------------
(In thousands, except share data) Shares Amount Shares Amount
<S> <C> <C> <C> <C>
Balance at August 29, 1999 -- $ -- -- $ --
Settlement of partners' interest in division equity -- -- -- --
FSCI common stock outstanding -- -- 10,000 10
----------- ----------- ----------- -----------
FSCI balance at November 12, 1999 prior to merger -- -- 10,000 10
Acquisition of FSCI common stock -- -- (10,000) (10)
UPC preferred and common stock issued to FSCI
shareholder for the acquisition of FSCI 70,000 1 2,400,000 24
Issuance of new preferred and common stock to
UPC's pre-merger shareholders 70,000 1 2,600,000 26
Dividends declared:
Series A preferred stock at 9% -- -- -- --
Net loss -- -- -- --
----------- ----------- ----------- -----------
Balance at March 12, 2000 140,000 $ 2 5,000,000 $ 50
=========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
Additional Total
Paid-in Accumulated Division Stockholders'
Capital Deficit Equity Equity
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Balance at August 29, 1999 $ -- $ -- $ 1,933 $ 1,933
Settlement of partners' interest in division equity 844 -- (1,933) (1,089)
FSCI common stock outstanding (10) -- -- --
----------- ----------- ----------- -----------
834 -- -- 844
Acquisition of FSCI common stock (2,990) -- -- (3,000)
UPC preferred and common stock issued to FSCI
shareholder for the acquisition of FSCI 14,925 -- -- 14,950
Issuance of new preferred and common stock to
UPC's pre-merger shareholders 15,586 -- -- 15,613
Dividends declared:
Series A preferred stock at 9% -- (412) -- (412)
Net loss -- (2,678) -- (2,678)
----------- ----------- ----------- -----------
Balance at March 12, 2000 $ 28,355 $ (3,090) $ -- $ 25,317
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
7
<PAGE> 8
UNITED PETROLEUM CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
TWENTY-EIGHT WEEKS ENDED
----------------------------
MARCH 12, MARCH 14,
2000 1999
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (2,678) $ 160
Adjustments for non-cash items:
Depreciation and amortization 1,077 242
Amortization of deferred loan costs 87 --
Equity in (earnings) loss of FSG (3) 53
Loss (gain) on disposal of fixed assets 75 5
Change in assets and liabilities:
Accounts receivable (1,459) (46)
Inventories (604) (80)
Prepaid expenses and other current assets (46) (12)
Other assets (449) 14
Accounts payable 4,286 389
Accrued expenses (421) (294)
Other long-term liabilities (81) 120
------------ ------------
Cash provided by (used in) operating activities (216) 551
------------ ------------
Cash flows from investing activities:
Payments for acquisitions, net of cash acquired (19,936) --
Purchases of property, plant and equipment (567) (541)
Proceeds from disposition of property, plant and equipment 18 51
------------ ------------
Net cash used in investing activities (20,485) (490)
------------ ------------
Cash flows from financing activities:
Proceeds from issuance of long-term debt, net of loan costs 21,751 --
Principal payments on long-term debt (281) (64)
------------ ------------
Net cash provided by (used in) financing activities 21,470 (64)
------------ ------------
Net increase (decrease) in cash and cash equivalents 769 (3)
Cash and cash equivalents, beginning 38 41
------------ ------------
Cash and cash equivalents, ending $ 807 $ 38
============ ============
</TABLE>
Continued on page 9
The accompanying notes are an integral part of these condensed consolidated
financial statements.
8
<PAGE> 9
UNITED PETROLEUM CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
TWENTY-EIGHT WEEKS ENDED
---------------------------
MARCH 12, MARCH 14,
2000 1999
------------ ------------
<S> <C> <C>
Supplemental cash flow information:
Cash paid for interest $ 735 $ 22
============ ============
Supplemental schedule of non-cash investing and financing activities:
Accrued dividends on preferred stock $ 412
============
Net reorganized value of UPC and preferred and common stock
issued to UPC's pre-merger shareholders $ 15,613
============
Preferred and common stock issued to acquire the net assets of
FSCI $ 14,950
============
</TABLE>
9
<PAGE> 10
UNITED PETROLEUM CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements
for United Petroleum Corporation (the "Company" or "UPC") have been prepared in
accordance with (i) generally accepted accounting principles for interim
financial reporting and (ii) the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
only of normal recurring accruals) considered necessary for a fair presentation
have been included.
This Form 10-Q should be read in conjunction with the financial
statements and notes thereto included in the Company's audited financial
statements as of August 29, 1999 as presented in the Form 8-K/A(2) dated
November 12, 1999 and filed with the Securities and Exchange Commission on
January 28, 2000.
The financial statements of the Company as of August 29, 1999 reflect
the equity of the Farm Stores Walk-in Division (shown as "Division Equity")
consisting of the assets, liabilities, and operations of the traditional walk-in
convenience stores owned and operated by two partnerships having common
ownership. The Walk-in Division was segregated and reported on separately to
reflect the effects of the Transactions as defined in Note 2 herein.
Operating results for the twenty-eight weeks ended March 12, 2000 are
not necessarily indicative of operating results that may be expected for the
full fiscal year.
Fiscal Year
The Company operates on a fifty-two/fifty-three week fiscal year ending
on the Sunday nearest August 31. The accompanying financial statements include
operations for the first quarter ended December 19, 1999 and December 20, 1998,
each encompassing a total of sixteen weeks and the second quarter ended March
12, 2000 and March 14, 1999, each encompassing a total of twelve weeks.
Earnings (loss) per Share
The Company has adopted Statement of Financial Accounting Standards No.
128 "Earnings per Share" ("SFAS") which requires the presentation of "basic"
and, if appropriate, "diluted" earnings per common share. Diluted earnings per
share have not been presented in the accompanying unaudited condensed
consolidated statements of operations because the Company had a net loss for the
twelve and twenty-eight weeks ended March 12, 2000 and, accordingly, the assumed
effects of the conversion of all of the Company's preferred stock would have
been anti-dilutive. Earnings per share for the twelve and twenty-eight weeks
ended March 14, 1999 was not presented in the accompanying unaudited condensed
consolidated statements of operations because the operations for which the data
is presented were held in partnership form.
Segment information
The Company primarily operates in one segment, convenience stores, and
in one geographic area, Florida. Although the Company operates in another
segment, consisting of oil and gas operations, and in other geographic
10
<PAGE> 11
areas (Georgia and Tennessee), the operations of these segments are
insignificant to the operations of the Company as a whole, and are therefore not
reported on separately.
2. Acquisitions and Other Significant Events
On November 12, 1999, a series of transactions occurred as described in
Item 2 of the Company's Current Report on Form 8-K/A (Amendment 1) filed on
December 1, 1999 (together with the preceding distributions, contributions and
transfers among the Farm Stores Partnerships, their partners, pre-merger UPC,
FSCI, Farm Stores Grocery, Inc. and their subsidiaries, the "Transactions". The
Transactions included the merger of Farm Stores Convenience Stores, Inc.
("FSCI") and United Petroleum Group, Inc. ("UPG", a wholly-owned subsidiary of
the Company). UPG is the surviving entity. As a result, UPG is the legal
acquirer of FSCI's walk-in convenience stores business and its 10% equity
interest in Farm Stores Grocery, Inc. ("FSG"), a drive-thru convenience store
business. As part of the merger, the shareholders of FSCI received total
consideration of approximately $17,950,000, consisting of 2,400,000 shares of
UPC's common stock which represents a 48% ownership interest (valued at
$7,926,240), 70,000 shares of UPC's preferred stock (valued at $7 million) which
represents a 50% interest, and $3 million in cash. UPG incurred $6 million of
debt to finance the $3 million payment. The remaining proceeds were used for
loan closing costs, payment of outstanding liabilities and working capital. In
addition, UPG assumed $17 million of debt which FSCI incurred in connection with
the Transactions. FSCI is the accounting acquirer; accordingly, the transaction
is accounted for as a reverse acquisition. The accompanying financial statements
include the operations of Calibur Systems, Inc. and Jackson United Petroleum
Corporation, UPC's two pre-transaction subsidiaries, and expenses relating to
their operations (the "Calibur Companies"), for the period following
consummation of the Transactions.
3. Receivable from Affiliated Company
Receivable from affiliated company at March 12, 2000 represents the balance due
from FSG in which the Company has a 10% equity interest. The amount receivable
relates to the management fee that the Company charged FSG for providing general
and administrative services for FSG. The fee is based on the number of stores
FSG operates in accordance with the management agreement between the Company and
FSG. The receivable balance also includes charges by the Company's maintenance
department for work performed on FSG's stores also pursuant to the terms of such
management agreement.
4. Current Portion of Long-term Debt
Current portion of long-term debt includes a loan to the Company in the amount
of $144,915 which has matured. The loan is secured by a mortgage encumbering a
property located in Georgia which is leased by the Company's subsidiary to an
unrelated third party. The lease requires the tenant to make all payments coming
due under the loan, and upon exercising an option to purchase the property, to
assume the loan. The tenant has advised the Company that it has exercised its
option to purchase the property, and continues to make monthly payments under
the loan.
5. Contingencies
The Company is a defendant in various legal proceedings arising in the normal
course of business. In the opinion of management, based on the nature of these
proceedings and the amounts of damages claimed, the ultimate resolution of these
legal proceedings will not have a material adverse effect on the Company's
financial position or results of operations.
11
<PAGE> 12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Certain statements in this Management's Discussion and Analysis of
Financial Condition and Results of Operations, including without limitation
expectations as to future revenues and profitability, constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995 (the "Reform Act"). Such forward-looking
statements involve known and unknown risks, uncertainties and other factors
which may cause the actual results, performance or achievements of the Company
and its subsidiaries to be materially different from any future results,
performance or achievements expressed or implied by such forward-looking
statements.
In the following comparison of the results of operations, the twelve
and twenty-eight week periods ended March 12, 2000 and March 14, 1999 are
referred to as 2000 and 1999, respectively.
The Company's results of operations for 2000 reflect the operations of
the Calibur Companies from the date of its merger with FSCI.
COMPARISON OF THE TWELVE WEEKS ENDED MARCH 12, 2000 AND MARCH 14, 1999
Revenues and gross profit for 2000 were $31.3 million and $6.2 million,
respectively, as compared to $24.7 million and $6.4 million, respectively for
1999. The Company generated a net loss of $2.0 million in 2000, compared to net
income of $61,000 in 1999. The effects of the Transactions and their financing
contributed $1.1 million of the net loss in 2000 as follows: (i) amortization of
goodwill and other intangible assets of $423,000, and (ii) interest expense
including amortization of deferred loan costs of $632,000. Also included in the
net loss in 2000 are accrued preferred dividends totaling $291,000. The balance
of the net loss in 2000 is primarily due to reduced profit margins on gasoline
sales caused by sharply increasing retail prices during this period.
Revenues increased $6.6 million or 26.5% from the prior year mostly due
to the significant increase in gasoline sales and the inclusion of $1.3 million
of revenues generated by the Calibur Companies subsequent to its acquisition. A
summary of revenues by source for the comparative twelve week period is as
follows (in thousands):
<TABLE>
<CAPTION>
Twelve Weeks Ended
March 12, March 14,
2000 1999
------------ ------------
<S> <C> <C>
Grocery $ 13,376 $ 14,443
Gasoline 16,954 10,219
Other 967 74
------------ ------------
Total $ 31,297 $ 24,736
============ ============
</TABLE>
Grocery revenues decreased by $1.1 million or 7.4%, in 2000 as compared
to 1999 due to temporarily closing 17 locations for replacement of gasoline
dispensing equipment and permanently closing 1 underperforming store. Although
the closing of the underperforming store reduces revenues, it does not have a
material impact on the results of operations, because this store had been
operating at a loss.
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<PAGE> 13
Gasoline revenues increased $6.7 million or 65.9% in 2000 as compared
to 1999. The increase is due to a $0.40 increase in the average retail price per
gallon from $1.01 per gallon in 1999 to $1.41 per gallon in 2000 coupled with an
increase of 1.9 million gallons sold from 10.1 million gallons in 1999 to 12.0
million gallons in 2000. The increase in gallons sold resulted from the
installation of new fuel dispensing equipment in 21 stores as of the end of the
quarter and the inclusion of the Calibur Companies' 3 gas stores which sold
approximately 246,000 gallons during the quarter. This increase was partially
offset by a decrease in gallons sold by the stores that were temporarily and
permanently closed as mentioned above. The Company will continue to upgrade its
fuel dispensing equipment at various locations during the third quarter.
Gross profit decreased by $109,000 in 2000 despite the increase in
revenues primarily due to the decrease in the gross profit earned on gasoline
sales. The gross profit percentage on gasoline sales was 6.3% in 2000 compared
to 13.8% in 1999 reflecting a 51.7% increase in average fuel costs from $0.87
per gallon in 1999 to $1.32 per gallon in 2000. Competitive factors prevented
the Company (and its competitors) from passing along the full effect of these
cost increases while maintaining the same gross profit margins.
Store operating expenses increased by $220,000 in 2000 primarily due to
the inclusion of the Calibur Companies' store operating expenses of
approximately $715,000 partially offset by temporary and permanent store
closings which resulted in reduced payroll and payroll-related costs and store
occupancy costs.
Depreciation and amortization expense in 2000 includes the amortization
of goodwill and other intangible assets of $423,000. The remaining increase is
due to the inclusion of the Calibur Companies' depreciation expense of $112,000
and depreciation on capital expenditures.
General and administrative expenses increased by $209,000 due to the
inclusion of $80,000 in 2000 relating to the Calibur Companies subsequent to its
acquisition and an increase in the general and administrative expenses absorbed
by the Company in 2000. In 1999 total corporate overhead expenses such as
finance, information systems, marketing and senior management were allocated to
FSCI, FSG, and the dairy plant operations based on various factors including
sales volume, inventory levels and personnel and store counts. The allocation of
corporate overhead expenses to FSCI in 1999 was lower as a percentage of the
total than in 2000. The dairy plant ceased operations in 1999. FSG is now
charged a management fee based on the number of stores in accordance with the
management agreement between the Company and FSG.
The increase in interest expense of $620,000 resulted from the
borrowing of $23 million used to finance the Transactions and the amortization
of related deferred loan costs of $1.3 million over 5 years.
COMPARISON OF THE TWENTY-EIGHT WEEKS ENDED MARCH 12, 2000 AND MARCH 14, 1999
Revenues and gross profit for 2000 were $65 million and $13.7 million,
respectively, as compared to $57.6 million and $14.5 million, respectively for
1999. The Company generated a net loss of $3.1 million in 2000, compared to net
income of $160,000 in 1999. The effects of the Transactions and their financing
contributed $1.5 million of the net loss in 2000 as follows: (i) amortization of
goodwill and other intangible assets of $600,000, (ii) depreciation expense on
the write-up of assets to fair value of $17,000, and (iii) interest expense
including amortization of deferred loan costs of $909,000. Also included in the
net loss in 2000 are accrued preferred dividends totaling $412,000. The balance
of the net loss in 2000 is primarily due to reduced profit margins on gasoline
sales caused by sharply increasing retail prices during this period.
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<PAGE> 14
Revenues increased $7.4 million or 12.9% from the prior year due to the
significant increase in gasoline sales and the inclusion of $1.6 million of
revenues generated by the Calibur Companies subsequent to its acquisition. A
summary of revenues by source for the comparative twenty-eight week period is as
follows (in thousands):
<TABLE>
<CAPTION>
Twenty-eight Weeks Ended
March 12, March 14,
2000 1999
------------ ------------
<S> <C> <C>
Grocery $ 30,390 $ 32,821
Gasoline 33,308 24,543
Other 1,307 200
------------ ------------
Total $ 65,005 $ 57,564
============ ============
</TABLE>
Grocery revenues decreased by $2.4 million or 7.4%, in 2000 as compared
to 1999 due to temporarily closing 21 locations in 2000 for replacement of
gasoline dispensing equipment and permanently closing 4 underperforming store
locations. Although the closing of the 4 underperforming stores reduces
revenues, it does not have a material impact on the results of operations,
because these stores had been operating at a loss.
Gasoline revenues increased $8.8 million or 35.7% in 2000 as compared
to 1999. The increase is due to a $0.32 increase in the average retail price per
gallon from $1.04 per gallon in 1999 to $1.36 per gallon in 2000 and an increase
of approximately 827,000 gallons sold as a result of installing new fuel
dispensing equipment in 21 locations since the beginning of the fiscal year and
the inclusion of the Calibur Companies' 3 gas stores which sold approximately
289,000 gallons during the period. Gallons sold were down by 1.1 million gallons
in the first quarter when compared to the same quarter of the prior year but
rose significantly in the second quarter to 12 million gallons, a 1.9 million or
19% increase over the prior year since most of the fuel the upgrades were done
in the second quarter. The Company will continue to upgrade its fuel dispensing
equipment at various locations during the remainder of 2000 and expects to
complete 12 additional stores by the end of the third quarter.
Gross profit decreased by $798,000 in 2000 primarily due to the
decrease in the gross profit earned on gasoline sales. The gross profit
percentage on gasoline sales was 7.8% in 2000 compared to 13.1% in 1999 as a
result of a 40% increase in average fuel costs from $0.90 per gallon in 1999 to
$1.26 per gallon in 2000. Competitive factors prevented the Company (and its
competitors) from passing along the full effect of these cost increases while
maintaining the same gross profit margins.
Store operating expenses decreased by $46,000 in 2000 primarily due to
the temporary and permanent store closings which resulted in a reduction in
payroll and payroll-related costs and store occupancy costs partially offset by
the inclusion of the Calibur Companies' operating expenses of $811,000.
Depreciation and amortization expense in 2000 includes the amortization
of goodwill and other intangible assets of $600,000 and depreciation expense of
$17,000 related to the write-up of property and equipment to fair value in
connection with the Transactions. The remaining increase of $235,000 is due to
the inclusion of the Calibur Companies' depreciation expense of $159,000 and
depreciation on capital expenditures.
General and administrative expenses increased $307,000 from 1999
primarily due to the inclusion of $108,000 in 2000 relating to the Calibur
Companies subsequent to its acquisition and an increase in the general and
administrative expenses absorbed by the Company in 2000. In 1999 total corporate
overhead expenses such as finance, information systems, marketing and senior
management were allocated to FSCI, FSG, and the dairy
14
<PAGE> 15
plant operations based on various factors including sales volume, inventory
levels and personnel and store counts. The allocation of corporate overhead
expenses to FSCI in 1999 was lower as a percentage of the total than in 2000.
The dairy plant ceased operations in 1999. FSG is now charged a management fee
based on the number of stores in accordance with the management agreement
between the Company and FSG.
The increase in interest expense of $903,000 resulted from the
borrowing of $23 million used to finance the Transactions and the amortization
of related deferred loan costs of $1.3 million over 5 years.
CREDIT FACILITIES
The Company has a $23 million credit facility with a bank. This
facility provides credit in the form of a $10,467,000 term loan, an $8,300,000
mortgage loan and a $4,233,000 revolving line of credit, and matures on October
30, 2004. The term loan bears interest at prime plus 3%, payable monthly with
monthly principal payments of $121,146 beginning after the first twelve months.
The $8.3 million mortgage loan bears interest at the 180-day libor rate plus 4%,
payable monthly at $43,000 plus interest. The $4,233,000 revolving loan bears
interest at the 30-day libor rate plus 3.875%, payable monthly and is advanced
against the Company's inventory and receivables. The Company is required to
comply with various covenants in connection with this facility and borrowings on
the revolving line of credit are subject to a borrowing base calculated from the
Company's inventory and receivables. In addition, the agreement prohibits the
payment of any cash dividends unless approval is obtained from the lender. At
March 12, 2000, the Company had used all $4,233,000 under its revolving credit
facility.
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company has generated substantial cash from its
operations since most of its revenues are received in cash. During the
twenty-eight weeks ended March 12, 2000 the Company used $216,000 in its
operating activities. The Company used the net proceeds from its financing and
investing activities to offset those used by its operating activities.
During the twenty-eight weeks ended March 12, 2000 the Company
initiated a program to upgrade and improve its fuel dispensing equipment using
cash of approximately $343,000 for installation and long-term lease financing
for the acquisition of the related equipment. Management believes that once this
program is complete, revenues and gross profit from fuel sales will increase and
that cash flow from operating activities will be sufficient to fulfill its
liquidity requirements for the next year.
CAPITAL EXPENDITURES
Capital expenditures during the year consisting mostly of costs
incurred to upgrade gasoline dispensing equipment and the rebuilding of three
casualty stores were funded by cash from operations. One of the stores reopened
during the first quarter and the remaining two stores are scheduled to reopen
during the third quarter.
The Company anticipates spending approximately $1.8 million in fiscal
year 2000 to improve and maintain existing store and gasoline dispensing
equipment. These improvements will be funded primarily by excess cash generated
from operations and other forms of long-term equipment financing and lease
obligations.
15
<PAGE> 16
PART II - OTHER INFORMATION
ITEM 3. LEGAL PROCEEDINGS.
In early 1999, Mr. Robert Rankin filed a lawsuit in the United States
District Court for the Eastern District of Tennessee, styled Robert Rankin vs.
Michael F. Thomas, seeking damages against Mr. Thomas, the Company's former
President and Chief Executive Officer, for allegedly breaching an agreement to
pay Mr. Rankin a commission for locating capital investors or lenders to the
Company in 1994. Mr. Rankin also filed a Proof of Claim against the Company in
the U.S. Bankruptcy Court for the District of Delaware in the approximate amount
of $483,000, asserting the Company's alleged breach of the same agreement. The
Company filed an objection to Mr. Rankin's claim. Upon Mr. Rankin's motion, the
Bankruptcy Court entered an order abstaining from hearing the Company's
objection, and permitting Mr. Rankin to proceed against the Company in his
lawsuit pending against Mr. Thomas in Tennessee. The U.S. District Court for the
Eastern District of Tennessee granted Mr. Rankin's motion to permit him to add
the Company as a defendant and to amend his complaint. The amended complaint
alleges damages against the Company and Mr. Thomas, jointly and severally, in
the approximate amount of $483,000, and against Mr. Thomas, individually, in the
additional amount of approximately $433,000. The Company may be obligated to
indemnify Mr. Thomas for any judgment rendered against him in this lawsuit. The
Company intends to vigorously defend this lawsuit.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
Exhibit
Number Description
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)
19 Current Report on Form 8K/A (Amendment 2) dated November 12, 1999
and filed on January 28, 2000 (incorporated herein by reference)
27 Financial Data Schedule (filed herewith)
16
<PAGE> 17
(b) Reports on Form 8-K.
On January 28, 2000, the Company filed a Current Report on Form 8-K/A(2) dated
November 12, 1999, amending Item 7 of its Current Report on Form 8-K dated
November 12, 1999 and filed November 29, 1999, as amended and restated by
Current Report on Form 8-K/A(1) dated November 12, 1999 and filed on December 1,
1999 to include financial statements and pro forma financial information, and
reporting matters under Item 8 (Change in Fiscal Year).
SIGNATURES
Pursuant to the requirements of the Securities Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
UNITED PETROLEUM CORPORATION
--------------------------------
(Registrant)
Date: April 26, 2000 /s/ Carlos E. Bared
-----------------------------
Carlos E. Bared
Sr. Vice President and Chief
Financial Officer
17
<PAGE> 18
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
3(i) Amended and Restated Certificate of Incorporation of United
Petroleum Corporation (filed as Exhibit 3(i) to the Company's
Current Report on 8K/A (Amendment 1) dated November 12, 1999
and filed on December 1, 1999, and incorporated herein by
reference)
3(ii) Amended and Restated Bylaws of United Petroleum Corporation
(filed as Exhibit 3(ii) to the Company's Current Report on
8K/A (Amendment 1) dated November 12, 1999 and filed on
December 1, 1999, and incorporated herein by reference)
4 Certificate of Designation - Class A 9% Preferred Stock (filed
as Exhibit 4 to the Company's Current Report on 8K/A
(Amendment 1) dated November 12, 1999 and filed on December 1,
1999, and incorporated herein by reference)
19 Current Report on Form 8-K/A (Amendment 2) dated November 12,
1999 and filed on January 28, 2000 (incorporated herein by
reference)
27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM 10-Q AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 7-MOS
<FISCAL-YEAR-END> SEP-03-2000
<PERIOD-START> AUG-30-1999
<PERIOD-END> MAR-12-2000
<EXCHANGE-RATE> 1
<CASH> 807
<SECURITIES> 0
<RECEIVABLES> 1,796
<ALLOWANCES> 65
<INVENTORY> 4,579
<CURRENT-ASSETS> 8,081
<PP&E> 20,821
<DEPRECIATION> (4,438)
<TOTAL-ASSETS> 62,006
<CURRENT-LIABILITIES> 13,007
<BONDS> 9,061
0
2
<COMMON> 50
<OTHER-SE> 25,265
<TOTAL-LIABILITY-AND-EQUITY> 62,006
<SALES> 65,005
<TOTAL-REVENUES> 65,005
<CGS> 51,277
<TOTAL-COSTS> 51,277
<OTHER-EXPENSES> 15,488
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 922
<INCOME-PRETAX> (3,090)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,090)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,090)
<EPS-BASIC> (.62)
<EPS-DILUTED> 0
</TABLE>
