<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: MARCH 31, 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
----
<S> <C>
Part I - Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
March 31, 1999 (Unaudited) and December 31, 1998 2
Condensed Consolidated Statements of Operations
Three Months Ended March 31,1999 and 1998 (Unaudited) 3
Condensed Consolidated Statement of Changes in Stockholders' Deficiency
Three Months Ended March 31,1999 (Unaudited) 4
Condensed Consolidated Statements of Cash Flows
Three Months Ended March 31, 1999 and 1998 (Unaudited) 5
Notes to Condensed Consolidated Financial Statements 6-13
Item 2. Management's Discussion and Analysis or Plan of Operation 14-22
Part II - Other Information
Item 6. Exhibits and Reports on Form 8-K 22
Signatures 23
</TABLE>
-1-
<PAGE> 3
UNITED PETROLEUM CORPORATION (Debtor-In-Possession)
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
MARCH 31, 1999 AND DECEMBER 31, 1998
<TABLE>
<CAPTION>
March December
31, 1999 31, 1998
------------ ------------
(Unaudited) (Note 1)
<S> <C> <C>
ASSETS
Current assets:
Cash $ 55,931 $ 78,216
Accounts receivable 102,253 106,719
Inventories 183,587 171,362
Prepaid expenses and other current assets 57,287 50,794
------------ ------------
Total current assets 399,058 407,091
------------ ------------
Property and equipment:
Oil and gas properties, net 3,033,310 3,043,240
Premises and equipment, net 5,762,527 5,812,192
------------ ------------
Totals 8,795,837 8,855,432
Deferred reorganization costs 553,099 553,099
Property held for sale 2,945,047 2,945,047
Other assets 64,030 97,303
------------ ------------
Totals $ 12,757,071 $ 12,857,972
============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Liabilities not subject to compromise:
Current liabilities:
Long-term debt in default $ 1,010,115 $ 14,224,544
Accounts payable 266,625 319,736
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 108,813 78,934
------------ ------------
Total current liabilities 1,385,553 18,218,705
Liabilities subject to compromise 17,639,353 --
------------ ------------
Total liabilities 19,024,906 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 (31,488,978) (30,581,876)
------------ ------------
Total stockholders' deficiency (6,317,835) (5,410,733)
------------ ------------
Totals $ 12,757,071 $ 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
THREE MONTHS ENDED MARCH 31, 1999 AND 1998
(Unaudited)
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
Sales $ 1,282,561 $ 1,658,962
Cost of sales 1,019,883 1,323,009
------------ ------------
Gross profit 262,678 335,953
Selling, general and administrative expenses 609,172 723,217
------------ ------------
Loss from operations (346,494) (387,264)
------------ ------------
Other income (expense):
Rental and other income from property held for sale 115,964
Interest expense (including contractual interest on all
outstanding loans and amortization of all loan fees
and debt discount) (442,345) (279,976)
Gain on sale of subsidiary 132,088
------------ ------------
Totals (326,381) (147,888)
------------ ------------
Loss before reorganization items (672,875) (535,152)
Reorganization items -- --
------------ ------------
Net loss (672,875) (535,152)
Preferred stock dividend requirements (including contractual
dividends stayed under Chapter 11 proceedings on all
outstanding preferred shares) (234,227) (476,094)
------------ ------------
Net loss applicable to common stockholders $ (907,102) $ (1,011,246)
============ ============
Basic net loss per common share $ (.03) $ (.03)
============ ============
Basic weighted average number of common shares
outstanding 30,565,352 29,879,515
============ ============
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
-3-
<PAGE> 5
UNITED PETROLEUM CORPORATION (Debtor-in-Possession)
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIENCY
THREE MONTHS ENDED MARCH 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Series A Series B Additional
Preferred Stock Preferred Stock Common Stock 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%
(197,430) (197,430)
Series B preferred stock
at 8% (36,797) (36,797)
Net loss (672,875) (672,875)
----- --- ----- --- ---------- -------- ----------- ------------ -----------
Balance, March 31, 1999 9,912 $99 1,833 $18 30,565,352 $305,653 $24,865,373 $(31,488,978) $(6,317,835)
===== === ===== === ========== ======== =========== ============ ===========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
-4-
<PAGE> 6
UNITED PETROLEUM CORPORATION (Debtor-In-Possession)
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1999 AND 1998
(Unaudited)
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
Operating activities:
Net loss $ (672,875) $ (535,152)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 236,593 116,352
Common stock issued for services 15,000
Gain on sale of subsidiary (132,088)
Changes in operating assets and liabilities:
Accounts receivable 4,466 (12,502)
Inventories (12,225) (32,248)
Prepaid expenses and other current assets (5,162) 5,421
Accounts payable and accrued liabilities not subject
to compromise 207,105 304,716
Accounts payable and accrued liabilities subject
to compromise 301,998
------------ ------------
Net cash provided by (used in) operating activities 59,900 (270,501)
------------ ------------
Investing activities:
Payment for property and equipment (56,829)
Proceeds from sale of subsidiary 266,500
------------ ------------
Net cash provided by (used in) investing activities (56,829) 266,500
------------ ------------
Financing activities - principal payments on debt (25,356) (2,305)
------------ ------------
Net decrease in cash (22,285) (6,306)
Cash, beginning of period 78,216 166,180
------------ ------------
Cash, end of period $ 55,931 $ 159,874
============ ============
Supplemental disclosure of cash flow information:
Interest paid $ 20,188 $ 2,525
============ ============
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
-5-
<PAGE> 7
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
March 31, 1999, their results of operations and cash flows for the
three months ended March 31, 1999 and 1998 and their changes in
stockholders' deficiency for the three months ended March 31, 1999.
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 three months ended March
31, 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 March 31, 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 March
31,1999 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.
-6-
<PAGE> 8
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 March 31, 1999 and unaudited
condensed statements of operations and cash flows for the three
months ended March 31, 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.
-7-
<PAGE> 9
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 three months ended March 31, 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 March 31, 1999 consisted of the
following:
<TABLE>
<S> <C>
Long-term debt in default (Notes 4 and 6) $13,302,301
Accounts payable 205,309
Preferred stock dividends payable 2,347,588
Accrued interest on debentures (Notes 4 and 6) 1,049,694
Accrued interest on Notes A and B (Notes 4 and 6) 734,461
-----------
Total $17,639,353
===========
</TABLE>
Note 4 - Long-term debt in default:
Long-term debt, all of which was in default, consisted of the
following at March 31, 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 $ 757,659
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
collaterlized by certain property 152,462
Unsecured note payable in monthly installments
of $10,370 including interest at 8% through
December 1999, personally guaranteed by a
principal stockholder 99,994
-----------
Total long-term debt in default not subject
to compromise (a) 1,010,115
-----------
</TABLE>
-8-
<PAGE> 10
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 $147,047
(b) $ 6,301,771
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) 13,302,301
-----------
Total long-term debt in default (c) $14,312,416
===========
</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.
-9-
<PAGE> 11
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 three months ended March 31, 1999 and
1998 is shown in the following table:
<TABLE>
<CAPTION>
Retail Oil and Gas Corporate Total
------------ ----------- ----------- ---------
<S> <C> <C> <C> <C>
1999:
Sales $ 1,256,789 $ 25,772 $ 1,282,561
Income (loss) from operations (166,087) 10,878 $ (191,285) (346,494)
Other income (expense):
Lease and other income 49,091 66,873 115,964
Interest expense (187,761) (254,584) (442,345)
Net income (loss) (304,757) 77,751 (445,869) (672,875)
1998:
Sales $ 1,617,975 $ 40,987 $ 1,658,962
Income (loss) from operations (19,846) 11,177 $ (378,595) (387,264)
Other income (expense):
Interest expense (113,959) (166,017) (279,976)
Gain on sale of subsidiary 132,088 132,088
Net income (loss) (134,005) 10,152 (411,299) (535,152)
</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 three months ended March
31, 1999 follow:
<TABLE>
<S> <C>
Condensed balance sheet as of March 31, 1999:
Current assets:
Cash $ 795
Prepaid expenses and other current assets 40,370
-----------
Total current assets 41,165
Equipment, net 24,572
Deferred reorganization costs 553,099
Investments in subsidiaries, at equity 6,174,194
Other assets 53,236
-----------
Total $ 6,846,266
===========
</TABLE>
-10-
<PAGE> 12
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 $ 14,716
Intercompany payables 96,501
------------
Total liabilities not subject to compromise 111,217
------------
Liabilities subject to compromise:
Long-term debt in default 9,102,301
Accounts payable 205,309
Preferred stock dividends payable 2,347,588
Accrued interest on Note B 297,992
Accrued interest on debentures 1,049,694
------------
Total liabilities subject to compromise 13,002,884
------------
Total liabilities 13,114,101
------------
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 (31,488,978)
------------
Total stockholders' deficiency (6,317,835)
------------
Total $ 6,846,266
============
</TABLE>
Condensed statement of operations for the three months ended March
31, 1999:
<TABLE>
<S> <C>
Selling, general and administrative expenses $ 191,283
------------
Other expenses:
Interest expense (including all contractual interest and
amortization of all loan fees and debt discount) 254,584
Equity in net losses of subsidiaries 227,008
------------
Total 481,592
------------
Net loss $ (672,875)
============
</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 (concluded):
Condensed statement of cash flows for three months ended March 31,
1999:
<TABLE>
<S> <C>
Operating activities:
Net loss $ (672,875)
Adjustments to reconcile net loss to cash provided by
operating activities:
Amortization of loan fees and debt discount 120,170
Equity in net losses of subsidiaries 227,008
Expenses paid by subsidiaries 96,501
Changes in operating assets and liabilities:
Prepaid expenses and other current assets (17,493)
Accounts payable and accrued expenses subject to
compromise 134,414
Accounts payable and accrued expenses not subject to
compromise 113,070
------------
Cash provided by operating activities and net increase in cash $ 795
============
</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.
-12-
<PAGE> 14
UNITED PETROLEUM CORPORATION (Debtor-In-Possession)
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 8 - Subsequent events (concluded):
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 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.
* * *
-13-
<PAGE> 15
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. ss.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> 16
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.
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<PAGE> 17
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> 18
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 ($672,875) for the three months ended
March 31, 1999, compared to a net loss of ($535,152) for the three months ended
March 31, 1998.
A summary of comparative results between the three months ended March
31, 1999 and the three months ended March 31, 1998 is as follows:
Revenues were realized as follows:
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
March 31, 1999 March 31, 1998
------------------ ------------------
<S> <C> <C>
Retail Subsidiary:
Gasoline $ 330,258 $ 315,531
Car Wash 632,809 931,691
Oil & Lube 248,876 307,624
Grocery 31,442 40,219
Other 13,404 22,910
Energy Subsidiary:
Natural Gas 25,772 31,473
Crude Oil 9,514
------------ ------------
Total Revenue For Quarter $ 1,282,561 $ 1,658,962
============ ============
</TABLE>
Retail Subsidiary (Calibur Systems, Inc.)
The Company experienced a decrease in gross profit on gasoline sales
from 8.7% for the three months ended March 31, 1998 to 6.2% for the three
months ended March 31, 1999. Volume increased from 317,528 gallons for the three
months ended March 31, 1998 to 383,369 gallons for the three months ended March
31, 1999 for an increase of 20.7%. The increase in volume is attributed to the
Company's decision to be more price competitive at its gasoline locations.
Car wash revenue was $298,882 lower for the three months ended March 31,
1999 as compared to the three months ended March 31, 1998, which represents a
decrease of 32.1%. Same store car wash revenue decreased from $748,841 for the
three months ended March 31, 1998 to $632,809 for the three months ended
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<PAGE> 19
March 31, 1999 which represents a decrease of $152,752 or 20.4%. The remaining
decrease is attributed to the decrease in the number of full service car wash
locations which went from 11 locations during the three months ended March 31,
1998 to 8 locations for the three months ended March 31, 1999.
Oil and lube revenue was $58,748 lower for the three months ended March
31, 1999 as compared to the three months ended March 31, 1998 which represents a
decrease of 19.1%. Same store revenue decreased $13,636. The balance of the
decrease is attributed to the decrease in the number of Company locations
offering oil and lube services. As of the end of the three months ended March
31, 1999, the Company had 8 oil and lube centers in operation as compared to 10
oil and lube centers open at the end of the three months ended March 31, 1998.
Grocery revenue was $31,442 for the three months ended March 31, 1999 as
compared to $40,219 for the three months ended March 31, 1998. Other revenues
were $13,404 for the three months ended March 31, 1999 as compared to $22,910
for the three months ended March 31, 1998. The decrease in both periods is
mainly attributed to the decrease in the number of locations carrying such
products.
As a result of the foregoing factors, the Calibur Systems, Inc.
subsidiary had a net loss of ($304,757) for the three months ended March 31,
1999 as compared to a net loss of ($134,005) for the three months ended March
31, 1998.
Energy Subsidiary (Jackson-United Petroleum Corporation)
Natural gas revenues decreased to $25,772 for the three months ended
March 31, 1999 as compared to $31,473 for the three months ended March 31, 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 in November 1999
and the net book value of the wells approximated $1,095,000 and 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 as property held for sale as of March 31, 1999
and December 31, 1998. Kastle made an initial payment to the Company of $40,000
and has agreed to make monthly payments to the Company of $30,000, which
includes the estimated monthly revenue that the 16 wells would have produced
until November 1999.
Oil revenue for the quarter was $0 for the three months ended March 31,
1999, as compared to $9,514 for the three months ended March 31, 1998. Those
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.
The Jackson-United Petroleum Corporation subsidiary had net income of
$77,751 for the three months ended March 31, 1999 as compared to net income of
$10,152 for the three months ended March 31, 1998. The increase is primarily due
to the monthly payments of $30,000 as discussed above.
Consolidated Operations
The decrease in revenues and cost of sales, as reported for the three
months ended March 31, 1999 as compared to the three months ended March 31,
1998, are attributed to the decrease in the number of Calibur locations operated
by the Company. For further information related to the number of Company
locations operated in the Calibur subsidiary refer to "Expansion, Capital
Improvements and Divestitures".
Selling, general and administrative expenses were $609,172 for the three
months ended March 31, 1999 as compared to $723,147 for the three months ended
March 31, 1998. The decrease is attributed to the reduction in the size of the
Company.
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<PAGE> 20
Other expenses were $326,381 for the three months ended March 31, 1999
as compared to $147,888 for the three months ended March 31, 1998. The increase
is primarily due to the increase of interest expense of $162,369, which is
directly related to the A and B Notes.
Liquidity and Capital Resources
The working capital deficit of the Company as of March 31, 1999 is
($18,625,848) as compared to a deficit of ($17,811,614) as of December 31, 1998.
The primary reason for the increase is the accrued interest on the A and B
Notes.
For the three months ended March 31, 1999, the Company generated cash
from operations of approximately $60,000 compared to cash used from operations
of approximately $270,000 for the three months ended March 31, 1998. Cash
generated from operations for the three months ended March 31, 1999 is primarily
related to the delay in payment of pre and post petition liabilities.
For the three months ended March 31, 1999, the Company used cash from
investing activities of approximately $57,000 as compared to cash generated from
investing activities of approximately $266,500 for the three months ended March
31, 1998. The cash used from investing activities for the three months ended
March 31, 1999 resulted from payments for property and equipment.
For the three months ended March 31, 1999, the Company used cash from
financing activities of approximately $25,000 as compared to cash used from
financing activities of approximately $2,000 for the three months ended March
31, 1998. The cash used for financing activities for the three months ended
March 31, 1999 resulted from principle payments on 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 March 31, 1999, the Company is not committed to any expansion
projects in the retail subsidiary or the oil and gas subsidiary.
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 state of operations
for six months ended June 30, 1999. The loss mainly consisted of premises and
equipment.
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
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<PAGE> 21
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 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 expired in May 1999, and the lessee
exercised its option to purchase that property. 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. The closing for the
property on which the option has been exercised has not yet occurred.
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.
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.
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,
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<PAGE> 22
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.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
At March 31, 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 the preferred stock by the issuance
of common stock of the Company. Accrued interest on debentures and accrued
dividends at March 31, 1999 were $1,049,694 and $2,347,588, 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.
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<PAGE> 23
In addition, at March 31, 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.
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.
-22-
<PAGE> 24
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)
-23-
<PAGE> 25
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
27.1 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 55,931
<SECURITIES> 0
<RECEIVABLES> 102,253
<ALLOWANCES> 0
<INVENTORY> 183,587
<CURRENT-ASSETS> 399,058
<PP&E> 11,794,031
<DEPRECIATION> 2,998,194
<TOTAL-ASSETS> 12,757,071
<CURRENT-LIABILITIES> 19,024,906
<BONDS> 0
0
117
<COMMON> 305,653
<OTHER-SE> (6,623,605)
<TOTAL-LIABILITY-AND-EQUITY> 12,757,071
<SALES> 0
<TOTAL-REVENUES> 1,282,561
<CGS> 1,019,883
<TOTAL-COSTS> 1,019,883
<OTHER-EXPENSES> 493,208
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 442,345
<INCOME-PRETAX> (672,875)
<INCOME-TAX> 0
<INCOME-CONTINUING> (672,875)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (672,875)
<EPS-BASIC> (.03)
<EPS-DILUTED> (.03)
</TABLE>
