<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended: June 30, 1999
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE EXCHANGE ACT OF 1934
Commission File Number: 0-22497
UPLAND ENERGY CORPORATION
-----------------------------------------------
(Exact name of small business issuer as specified in its charter)
Utah 87-0430780
- ------------------------------- --------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
712 Arrowhead Lane, Murray, Utah 84107
-------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(801) 281-4966
-------------------------------
(Issuer telephone number)
Check whether the Issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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 [ ] No [X] Yes [X] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: 3,695,378 shares of its
$0.001 par value common stock as of October 29, 1999.
Transitional Small Business Disclosure Format (check one) Yes [ ] No [X]
<PAGE>
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PART I-FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
UPLAND ENERGY CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
[UNAUDITED]
June 30, December 31,
1999 1998
------------ ------------
CURRENT ASSETS:
Cash $ 3,525 $ 4,890
Oil revenue receivable 1,632 4,340
Interest receivable related parties 14,316 10,396
Deposits - 225,000
------------- -----------
Total Current Assets 19,473 244,626
PROPERTY AND EQUIPMENT, net 4,301 4,627
OIL AND GAS PROPERTIES, net 914,923 767,113
RESTRICTED CASH - 10,000
------------ ------------
$ 938,697 $ 1,026,366
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable - related parties $ 245,000 $ 245,000
Accounts payable 63,517 105,967
Other accrued liabilities 24,100 6,100
Interest payable 14,400 -
------------ -----------
Total Current Liabilities 347,017 357,067
------------ -----------
STOCKHOLDERS' EQUITY:
Common stock; $.001 par value, 50,000,000
shares authorized, 3,562,192 shares issued
and outstanding, respectively 3,562 3,562
Capital in excess of par value 2,188,300 2,188,300
Retained (deficit) (1,499,952) (1,382,333)
------------ -----------
691,910 809,529
Less: notes receivable for common stock issued (100,230) (140,230)
------------ -----------
Total Stockholders' Equity 591,680 669,299
$ 938,697 $ 1,026,366
=========== ===========
Note: The balance sheet at December 31, 1998 was taken from the audited
financial statements at that date and condensed.
The accompanying notes are an integral part of this consolidated financial
statement.
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UPLAND ENERGY CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
[UNAUDITED]
For the Three Month For the Six Month
Period Ended Period Ended
June 30, June 30,
---------------------- ----------------------
1999 1998 1999 1998
REVENUE:
Oil sales $ 59,084 $ 61,568 $ 85,264 $ 99,809
--------- --------- --------- ---------
Total Revenue 59,084 61,568 85,264 99,809
--------- --------- --------- ---------
EXPENSES:
Production expense 11,038 41,562 16,599 83,049
Depreciation, depletion and
amortization 11,828 14,364 20,766 28,726
Dryhole, unsuccessful
recompletions and exploration
costs - - 100,000 -
General and administrative
costs 16,606 52,163 55,038 109,292
--------- --------- --------- ---------
Total Expenses 39,472 108,089 192,403 221,067
--------- --------- --------- ---------
INCOME (LOSS) FROM OPERATIONS 19,612 (46,521) (107,139) (121,258)
OTHER INCOME (EXPENSE):
Interest income 1,960 3,506 3,920 4,629
Interest expense (7,200) - (14,400) -
Loss on disposal of assets - (8,430) - (8,430)
--------- --------- --------- ---------
Total Other Income (Expense) (5,240) (4,924) (10,480) (3,801)
--------- --------- --------- ---------
(INCOME) LOSS BEFORE INCOME
TAXES 14,372 (51,445) (117,619) (125,059)
CURRENT TAX EXPENSE - - - -
DEFERRED TAX EXPENSE - - - -
--------- --------- --------- ---------
NET INCOME (LOSS) $ 14,372 $ (51,445) $(117,619) $(125,059)
--------- --------- --------- ---------
INCOME (LOSS) PER COMMON
SHARE $ .00 $ (.01) $ (.03) $ (.04)
--------- --------- --------- ---------
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
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UPLAND ENERGY CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
[UNAUDITED]
For the Six Month
Period Ended
June 30,
---------------------
1999 1998
--------- ---------
Cash Flows Provided by Operating Activities:
Net loss $(117,619) $(125,059)
--------- ---------
Adjustments to reconcile net income (loss) to
net cash used in operating activities:
Depreciation, depletion and amortization 20,766 28,726
Non-cash expenses - 35,598
Change in assets and liabilities:
(Increase) decrease in oil revenue receivable 2,709 48,087
(Increase) decrease in advance receivable
related party - 17,049
Decrease in prepaid assets 225,000 -
Decrease in restricted cash 10,000 -
(Increase) decrease in interest receivable
related parties (3,920) 10,423
Increase in interest payable related party 14,400 -
Increase (decrease) in accounts payable (42,450) (43,271)
Increase (decrease) in other accrued liabilities 18,000 (87,000)
--------- ---------
Total Adjustments 244,505 9,612
--------- ---------
Net Cash Provided (Used) by Operating Activities 126,886 (115,447)
--------- ---------
Cash Flows (Used) Provided by Investing Activities:
Purchase of oil and gas properties (168,251) -
Receipts on subscription receivable 40,000 113,825
--------- ---------
Net Cash (Used) by Investing Activities (128,251) 113,825
--------- ---------
Cash Flows Provided by Financing Activities - -
--------- ---------
Net Cash Provided by Financing Activities - -
--------- ---------
Net (Decrease) in Cash (1,365) (1,622)
Cash at Beginning of Period 4,890 37,816
--------- ---------
Cash at End of Period $ 3,525 $ 36,194
--------- ---------
Supplemental Disclosures of Cash Flow Information:
Cash paid during the six months ended June 30
Interest $ - $ -
Income taxes $ - $ -
Supplemental Disclosures of Noncash Investing and
Financing Activities:
For the period ended June 30, 1999:
None
For the period ended June 30, 1998:
None
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE> 5
UPLAND ENERGY CORPORATION AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization Upland Energy Corporation ["PARENT"] was incorporated under the
laws of the State of Utah on January 30, 1986 as Upland Investment
Corporation. Parent changed its name to Upland Energy Corporation during
November 1993. G. S. & C., Inc. ["SUBSIDIARY"], was incorporated under
the laws of the State of Nevada on September 1, 1993. Parent and Subsidiary
[the Company] are engaged in the development, production and selling of oil
and gas in the State of Kansas.
Condensed Financial Statements The accompanying financial statements have
been prepared by the Company without audit. In the opinion of management, all
adjustments (which include only normal recurring adjustments) necessary to
present fairly the financial position, results of operations and cash flows at
June 30, 1999 and for all the period presented have been made.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been read in conjunction with the financial statements and
notes thereto included in the Company's December 31, 1998 audited financial
statements. The results of operations for the period ended June 30, 1999 are
not necessarily indicative of the operating results for the full year.
Principles of Consolidation The consolidated financial statements include
the accounts of the Company and its wholly-owned subsidiary. All significant
intercompany transactions have been eliminated in consolidation.
Property and Equipment Property and equipment are stated at cost.
Expenditures for major renewals and betterments that extend the useful lives
of property and equipment are capitalized, upon being placed in service.
Expenditures for maintenance and repairs are charged to expense as incurred.
Depreciation is computed using the straight-line method for financial
reporting purposes, with accelerated methods used for income tax purposes. The
estimated useful lives of property and equipment for purposes of financial
reporting range from five to seven years.
Oil and Gas Properties The Company uses the successful efforts method of
accounting for oil and gas producing activities. Under that method, costs are
accounted for as follows:
a. Geological and geophysical costs and costs of carrying and retaining
undeveloped properties are charged to expense as incurred.
b. Costs of drilling exploratory wells and exploratory-type stratigraphic
test wells that do not find proved reserves are charged to expense when the
wells do not find proved reserves.
c. Costs of acquiring properties, costs of drilling development wells and
development-type stratigraphic test wells, and costs of drilling successful
exploratory wells and exploratory-type stratigraphic test wells are
capitalized.
d. The capitalized costs of wells and related equipment are amortized over
the life of proved developed reserves that can be produced from assets
represented by those capitalized costs. Mineral acquisition costs (leasehold)
are amortized as the proved reserves are produced.
<PAGE> 6
UPLAND ENERGY CORPORATION AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [Continued]
Oil and Gas Properties [Continued]
e. Costs of unproved properties are assessed periodically, and a loss is
recognized if the properties are impaired.
Revenue Recognition The Company's revenue is generated primarily
by the production and sale of oil and gas. Revenue from oil and gas sales is
recognized when the product is transferred to the purchaser.
Stocked Based Compensation The Company accounts for its stock based
compensation in accordance with Statement of financial Accounting
Standar12Accounting for Stock-Based Compensation". This statement establishes
an accounting method based on the fair value of equity instruments awarded to
employees as compensation. However, companies are permitted to continue
applying previous accounting standards in the determination of net income with
disclosure in the notes to the financial statements of the differences
between previous accounting measurements and those formulated by the new
accounting standard. The Company has adopted the disclosure only provisions
of SFAS No. 123, accordingly, the Company has elected to determine net income
using previous accounting standards.
Earnings (Loss) Per Share The Company accounts for earnings (loss) per share
in accordance with Statement of Financial Accounting Standards (SFAS) No. 128
Earnings Per Share," which requires the Company to present basic earnings per
share and dilutive earning per share when the effect is dilutive. The
computation of earnings (loss) per share is based on the weighted average
number of shares outstanding during the period presented [See Note 11].
Cash and Cash Equivalents For purposes of the statements of cash flows, the
Company considers all highly liquid debt investments purchased with a maturity
of three months or less to be cash equivalents.
Income Taxes The Company accounts for income taxes in accordance with
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes. This statement requires an asset and liability approach for accounting
for income taxes [See Note 6].
Dividend Policy The Company has not paid any dividends on common stock to
date and does not anticipate paying dividends on common stock in the
foreseeable future.
Accounting Estimates The preparation of the financial statements in
conformity with generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported amounts of assets
and liabilities, the disclosures of contingent assets and liabilities at the
date of the financial statements and the reported amount of revenues and
expenses during the reporting period. Actual results could differ from those
estimated.
<PAGE>
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UPLAND ENERGY CORPORATION AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 NOTES RECEIVABLE FOR COMMON STOCK ISSUED
Notes receivable [See Note 8] consist of the following at June 30:
1999
----------
Note receivable from legal counsel in the original
amount of $20,000 received as consideration for
exercise of stock options, interest at 8.5% per
annum, due on or before January 17, 2001,
unsecured, unpaid accrued interest of $435 10,230
Note receivable from legal counsel received as
consideration for exercise of stock options, interest
at 8.5% per annum, due on or before January 17,
2001, unsecured, unpaid accrued interest of $13,881 90,000
---------
$100,230
---------
The notes receivable are presented on the balance sheet as a reduction to
stockholders' equity because the Company issued common stock for the notes.
NOTE 3 NOTES PAYABLE RELATED PARTIES
During November through December 1998, the Company raised an additional
$245,000 in financing by issuing convertible promissory notes with redeemable
warrants in units of $5,000 each. Each unit consisted of a convertible
promissory note for $5,000 and 5,000 redeemable warrants to purchase the
Company's common stock at $.875 per share. The convertible promissory notes
have a maturity of one year, bear interest at 12% per annum, and are secured
by the oil production from the Company's Hittle Field in Central Kansas. The
promissory notes are convertible into the Company's common stock, at the
holder's option, at the rate of one share for each $1.50 of principal and
accrued but unpaid interest. The warrants are exercisable for two years from
the date of exercising the conversion feature of the promissory note. Each
warrant is redeemable at the redemption price of $.10 per warrant on the
company's 30 day written notice to the holders if the closing bid price for
the Common Stock, as reported on the National Associations of Securities
Dealers Electronic Bulletin Board, is $1.50 per share or more for
ten consecutive trading days or is $1.50 per share or more for 15 trading days
in any 30 trading day period.
NOTE 4 PROPERTY AND EQUIPMENT
The following is a summary of property and equipment - at cost, less
accumulated depreciation as of June 30:
1999 1998
--------- ---------
Furniture and office equipment $8,602 $8,602
Vehicle -
Less: accumulated depreciation (4,301) (3,975)
---------- ---------
Total $4,301 $4,627
---------- ---------
Depreciation expense charged to operations was $326 and $486 for the six month
periods ended June 30, 1999 and 1998.
<PAGE> 8
UPLAND ENERGY CORPORATION AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 - OIL AND GAS PROPERTIES
Upon placing oil and gas properties and production equipment in use, the unit-
of-production method, based upon estimates of proven developed and undeveloped
reserves, is used in the computation of depreciation and depletion. For the
six month periods ended June 30, 1999 and 1998, the Company recorded depletion
of $20,440 and $28,240, respectively.
The estimates of oil and gas reserves used by the Company were produced
internally by management and others who were not independent with respect to
the Company (who subsequently are no longer employed by the Company). The
Company has experienced continuing operating losses the past few years and has
experienced some cash flow shortages. Due to the cash shortages, management
has not hired an independent reserve engineer to update its reserve
information. Accordingly, the Company has not presented the supplemental oil
and gas information that the Financial Accounting Standards Board has
determined is necessary to supplement, although not required to be part of,
the basic financial statements. The missing supplemental information relates
to reserves quantities, capitalized costs related to oil and gas production
activities, results of operations of oil and gas production activities and a
standardized measure of discounted future net cash flows related to reserves
quantities. Management in the past has also depended on related parties and
others to provide financing for operations plus additional capital through
sale of its common stock or loans.
The ultimate realization of the Company's investment in oil and gas properties
is dependent upon the Company being able to economically recover and sell a
minimum quantity of its oil and gas reserves and to be able to fund the
maintenance and operations of its wells. The financial statements do not
include any adjustments related to the uncertainty that the Company might not
recover its estimated reserves.
Robinson Project During October through December 1997, the Company entered
into five oil and gas leases for a total of 498.12 acres on the McLouth field,
located in Jefferson County, Kansas. Each lease agreement provides for the
Company to lease the property for a term of ten years [PRIMARY TERM] and as
long thereafter as oil, liquid hydrocarbons, gas, or their respective
constituent products, are produced. If operations for drilling are not
commenced on or before one year from the date of each lease, each lease shall
terminate. If however, on or before one year from the date of each lease the
Company pays an additional rental of $5.00 per acre per lease, the Company may
defer commencement of drilling operations for an additional period of 12
months on each lease. In like manner and upon payments of $5.00 per acre per
lease, the commencement of drilling operations may be further deferred
(without cancellation of lease) for additional periods of 12 months each
during the PRIMARY TERM. Upon production, a royalty fee of 12.5% of total
sellable production is payable to the property owner of each producing lease.
No operations for drilling ever commenced on any of these leases and all of
these lease agreements expired.
During July 1999, the Company sold the Robinson Project [See Note 13].
Hittle Project During 1998 the Company capitalized $0 additional funds into
the Hittle Project. During 1997, the Company included $558,861 in oil and gas
properties for the Hittle field. This included initial investments into
several new leases as well as drilling costs. During September 1997, the
Company began producing on the Hittle field. During April 1997, the Company
entered into seven oil and gas leases for a total of 880 acres on the Hittle
<PAGE> 9
UPLAND ENERGY CORPORATION AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
field, located in Cowley County, Kansas. The lease agreements provide for the
Company to lease the property for a term of two or three years [PRIMARY TERM]
and as long thereafter as oil, liquid hydrocarbons, gas, or their respective
constituent products, are produced. If operations for drilling are not
commenced on or before one year from the date of each lease, each lease shall
terminate. If however, on or before one year from the date of each lease, the
Company pays an additional rental for each lease of $5.00 or $1.00 per acre
depending on lease ($4,040 total for renewal of all seven leases), the Company
may defer commencement of drilling operations for an additional period of 12
months. In like manner and upon payments of $5.00 or $1.00 per acre depending
on lease, the commencement of drilling operations may be further deferred
(without cancellation of lease) for additional periods of 12 months each per
lease during the PRIMARY TERM. Upon production, a royalty fee of 12.5%,
15.6%, or 18.8%, of total sellable production is payable to property owner.
The Company paid the $5.00 rental per acre on all of these leases and deferred
commencement of drilling.
During May 1999, the Company completed the drilling of two additional wells in
the Hittle Project.
New Wells During 1999, the Company applied its deposit of $225,000 and
drilled two additional wells on the Hittle Field. These wells have been
completed for production, one well was a dry hole and the company has planned
to use it as a disposal well. The other well is producing oil.
Mclouth Project - During September, 1993 the Company entered into a farm-out
agreement with Kenneth L. Mason, individually and KLM Exploration, Inc., a
Kansas corporation (collectively referred to as KLM), wherein the Company
would perform drilling and production operations on leases currently "farmed-
out" to KLM from Williams Natural Gas Company. The agreement provided that
KLM would assign its interests in the properties to the Company in return for
a cash payment of $100,000 and a 25% working interest in the location, carried
through the tanks resulting in a net royalty interest, after taking all other
interest holders into account, of 58.5%. KLM would operate the wells for a
fee of $75-$100 per well. The operating contract had no termination date.
KLM's farm-out agreement with the other company terminates when production
activities cease. During 1996, the Company filed a lawsuit against KLM who in
turn filed a counterclaim against the Company. The lawsuits were settled.
During February 1998, the Company settled litigation with KLM. As settlement
of the litigation, KLM turned over the operation and its interest in the
McLouth field to the Company and the Company agreed to pay $1,500 for certain
equipment. The Mclouth leases were sold subsequent to the date of these
financial statements [See Note 14].
NOTE 6 INCOME TAXES
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109 "Accounting for Income Taxes". FASB
109 requires the Company to provide a net deferred tax asset/liability equal
to the expected future tax benefit/expense of temporary reporting differences
between book and tax accounting methods and any available operating loss or
tax credit carryforwards.
The Company has available, at June 30, 1999, unused operating loss
carryforwards and depletion timing differences of approximately $1,700,000.
The net operating losses of approximately $2,200,000 may be applied against
future taxable income and expire in 2005 through 2019. The amount of and
ultimate realization of the benefits from the operating loss carryforwards for
income tax purposes is dependent, in part, upon the tax law in effect, the
future earnings of the Company, and other future events, the effects of which
<PAGE> 10
UPLAND ENERGY CORPORATION AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
cannot be determined. Because of the uncertainty surrounding the realization
of the loss carryforwards the Company has established a valuation allowance
equal to the tax effect of the loss carryforwards. The net deferred tax
assets are approximately $578,000 as of June 30, 1999 with an offsetting
valuation allowance of the same amount resulting in a change in the valuation
allowance for approximately $107,000 during the six months ended June 30,
1999.
NOTE 7 - COMMON STOCK TRANSACTIONS
During August 1998, the Company granted options to purchase 50,000 shares of
the Company's common stock at $1.00 per share to its legal counsel. However,
during November 1998 the company canceled these options and granted legal
counsel options to purchase 50,000 shares of the company's common stock at
$.625 per share. During August 1998, the Company granted options to a new
director to purchase 10,000 shares of the Company's common stock at $1.00 per
share. However, during November 1998 the company canceled these options and
granted the director options to purchase 10,000 shares of the company's common
stock at $.625 per share. Also during November 1998 the Company granted two
officers and shareholders of the company options to purchase 20,000 shares
(10,000 each) of the Company's common stock at $.625 per share On December 16,
1996 the Board of Directors resolved that 60,000 shares of common stock be
reserved for issuance upon exercise of options granted to legal counsel for
services to be performed in the amount of $25,000. The exercise price for the
options is $2.00, the options vest on December 16, 1996, and the options
expire on December 16, 2001. The cost of the legal services has been
accounted for as an addition to prepaid expenses and a charge to additional
paid-in capital. The prepaid expense reversed during 1997 and was offset
against additional paid-in capital as a stock offering expense. The options
had previously been granted during 1996 in connection with services to be
performed in 1997. The Company received cash of $10,000 and two notes
receivable totaling $110,000 (a $90,000 note and a $20,000 note)as
consideration for the exercise price of the options. Both notes provide
for interest at 8.5% per annum and are to be repaid in full on or before
January 17, 2001. The note for $90,000 may be paid for by the cancellation of
obligations owed by the Company for legal services. The Company received
total proceeds of $120,000 for exercise of the options. Both notes have been
classified as a reduction of stockholders' equity on the balance sheet [See
Note 2].
Private Offering During August 1996, the Company issued 500,000 units, for
cash at $.70 per unit, which consisted of one share of common stock and one
common stock purchase warrant in a private placement offering. The purchase
warrant allows the holder to purchase another share of common stock at an
exercise price of $1.50. Total proceeds amounted to $350,000. The Company
issued 50,000 units of common stock and warrants for commissions of $35,000 in
connection with the private placement offering. During February, 1997, the
Company made an offering to the holders of the Company's currently outstanding
common stock purchase warrants who exercised their existing warrants by
February 21, 1997, to receive one new common stock purchase warrant
(exercisable into one share of common stock at an exercise price of $2.00 per
share) for every two existing warrants exercised. The Company believes the
offering was exempt from registration with the Securities and Exchange
Commission under Rule 506 of Regulation D as promulgated under the Securities
Act of 1933, as amended. The existing warrants were exercisable into one
share of common stock at an exercise price of $1.50 per share. During
February 1997, 500,000 of the existing warrants were exercised and the Company
received total proceeds of $750,000.
<PAGE> 11
UPLAND ENERGY CORPORATION AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
On December 15, 1996 the Board of Directors resolved that 100,000 shares of
common stock be reserved for issuance upon exercise of options granted to four
officers of the Company. The exercise price for the options is $2.00, and the
options vest on December 15, 1996 and expire on December 15, 2001. During the
year ended December 31, 1998, 25,000 of these options were cancelled as part
of a settlement agreement with the president of the Company.
During January 1997, the secretary/treasurer of the Company exercised stock
options for the purchase of shares of the Company's common stock. The
secretary of the Company gave a note to the Company in the amount of $80,000
at 8.5% interest per annum. The note was paid off during the first quarter of
1999.
Warrants At June 30, 1999 the Company had 500,000 warrants outstanding to
purchase common stock at $2.00 per share and 50,000 warrants to purchase
common stock at $1.50 per share and 245,000 warrants outstanding to purchase
common stock at $.875 per share. The warrants all have a three year life [See
Note 3].
Stock Options - The Company accounts for options agreements under Accounting
Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, and
related interpretations. Had compensation cost for these options been
determined, based on the fair value at the grant dates for awards under these
agreements, consistent with the method prescribed by Statement of Financial
Accounting Standards No. 123, Accounting for Stock-Based Compensation, the
Company's net loss would have been the proforma amounts as indicated below:
For the Six Month
Period Ended
June 30,
-----------------------
1999 1998
---------- ----------
Net Income (loss) applicable
to common stockholders As reported $(117,619) $(125,059)
Proforma $(117,619) $(125,059)
Earnings per Share As reported $ (.03) $ (.04)
Proforma $ (.03) $ (.04)
NOTE 8 - CONTINGENCIES
Litigation The Company may become or is subject to investigation, claim or
lawsuit ensuring out of the normal conduct of its business, including those
related to environmental, safety and health, commercial transactions, etc.
The Company is currently not aware of any such items, which it believes could
have a material adverse affect on its financial position except as disclosed
below.
Realization of Wells The Company has depended on related parties and others
to provide financing for operations through loans and additional purchase of
its common stock. The ultimate realization of the Company's investment in oil
and gas properties is dependent upon the Company being able to economically
recover and sell a minimum quantity of its oil and gas reserves and to be able
to fund the maintenance and operations if its wells. The financial statements
do not include any adjustments related to the uncertainty that the Company
might not recover its estimated reserves.
<PAGE> 12
UPLAND ENERGY CORPORATION AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9 - COMMITMENTS AND AGREEMENTS
During November 1998 the company entered into a one-year employment agreement
with the Company's new president. The terms of the agreement include a base
salary of $3,000 per month that can be paid in cash or converted to stock at
market value. As of June 30, 1999 the Company had not paid out any salary
under this agreement but has accrued $15,000 of unpaid salary.
Operating Agreement During December 1998, the Company hired Pace Exploration
to handle all of the Company's operation and drilling on the Hittle Field.
Under the terms of the Agreement, Pace Exploration received a twenty percent
working interest in the Hittle Field.
NOTE 10 CONCENTRATION OF CREDIT RISKS
The Company sells substantially all of its oil production to two purchasers
because it is able to negotiate more favorable terms with the purchasers. If
the purchasers stopped buying products from the Company, the Company would be
forced to contract with other purchasers available in the areas where the oil
is produced. The effect of a purchaser pulling out would at least put a
temporary downward pressure on prices in the area but it is not currently
possible for the Company to estimate how the Company would be affected.
Management believes that its oil is a commodity that is readily marketable and
that the marketing method it follows is typical of similar companies in the
industry.
NOTE 11 EARNINGS (LOSS) PER SHARE
The following data show the amounts used in computing earnings (loss) per
share and the effect on income and the weighted average number of shares of
dilutive potential common stock for the periods ended June 30, 1999 and 1998:
For The Six Months Ended
June 30,
-------------------------
1999 1998
----------- -----------
Income (loss) from continuing operations applicable
to common stock $(117,619) $(125,059)
----------- -----------
Income (loss) available to common stockholders
used in earnings (loss) per share $(117,619) $(125,059)
----------- -----------
Weighted average number of common shares used in
earnings (loss) per share outstanding during the
period 3,562,192 3,562,192
----------- -----------
Dilutive earnings per share was not presented, as its effect was anti-dilutive
for the periods ended June 30, 1999 and 1998.
NOTE 12 GOING CONCERN
The accompanying financial statements have been prepared in conformity
with generally accepted accounting principles which contemplate continuation
of the Company as a going concern. However, the Company has not yet
established profitable operations and has incurred significant losses.
Further, the Company has current liabilities in excess of current assets at
June 30, 1999. These factors raise substantial doubt about the ability of the
Company to continue as a going concern. In this regard, management is
proposing to raise additional funds through loans and/or through additional
sales of its common stock and/or sale of non-profitable wells which funds will
<PAGE> 13
UPLAND ENERGY CORPORATION AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
be used to assist in establishing on-going operations. There is no assurance
that the Company will be successful in raising this additional capital or
achieving profitable operations. The financial statements do not include any
adjustments that might result from these uncertainties.
NOTE 13 - SUBSEQUENT EVENTS
Sell of Assets During July, 1999, the Company sold all of the oil and gas
properties of the subsidiary for $25,000 cash and $32,552 in expenses paid on
behalf of the Company. The properties sold consisted of the McLouth leases.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
General
- ---------
Upland Energy Corporation, a Utah corporation (the "Company") was
originally organized in Utah on January 30, 1986, under the name Upland
Investment Corporation, to engage in the acquisition and/or development of
assets, properties or businesses of any kind. The Company remained inactive
other than raising some capital through the sale of its shares of Common Stock
until 1991.
In November 1993, the Company acquired G.S.& C., Inc., a Nevada
corporation ("GSC") in a stock for stock transaction. GSC was organized under
the laws of Nevada on September 1, 1993. Prior to the acquisition, the
Company effected a 1-for-2 reverse split in its issued and outstanding shares
of Common Stock reducing the number of shares outstanding immediately prior to
the acquisition of GSC from 13,990,000 to 6,995,000. The Company then issued
25,297,500 post-split shares of its Common Stock to the shareholders of GSC in
exchange for all issued and outstanding shares of GSC. On March 20, 1995, the
Company effected a 1-for-20 reverse split in its issued and outstanding shares
of Common Stock which reduced the number of issued and outstanding shares from
42,207,501 to approximately 2,110,375 shares. In connection with the
transaction, the name of the Company was changed from Upland Investment
Corporation to Upland Energy Corporation to better reflect the Company's
business activities. For financial statement purposes, the transaction has
been accounted for as a "reverse acquisition" as if GSC had acquired the
Company. As a result, the financial statements included herewith present the
operations of GSC from inception and include Upland's operations only from the
date of the acquisition.
The Company is engaged in the business of exploring for and developing
oil and gas reserves. Unless otherwise indicated, GSC and Upland are
collectively referred to herein as the "Company."
The Company has relied and probably will need to continue to rely on the
sale of its securities to fund operations. In July 1999, the Company sold its
interest in its McLouth Field and presently is focusing only on its Hittle
Field in Kansas. The lack of funding has prevented the Company from engaging
in any further exploration or drilling. Unless additional funding is
obtained, the Company will not be able to engage in further drilling efforts.
Liquidity and Capital Resources
- ---------------------------------------
At June 30, 1999, the Company had assets of $938,697. The Company had
current assets of only $19,473 with current liabilities of $347,017 resulting
in a negative working capital position of $327,544. The current liabilities
consisted of $245,000 owed to the president and principal shareholders of the
Company.
<PAGE> 14
The Company has been selling of its properties, specifically the McLouth
Field to help pay debts. The sale of the McLouth field also reduced the drain
on the Company as it was not profitable at the time of sale.
The Company's only assets consist of the Hittle Field and the wells on
the Field. Although, the Hittle Field has reached a point were it does not
cost the Company money to run, it does not produce enough revenue to cover
current liabilities. Accordingly, the Company will have to seek additional
funding. The financial position of the Company create a situation where the
only viable means of additional capital is from existing principal
shareholders who have not yet committed to provide any funding for the
Company. If these shareholders are unwilling to provide the Company funding,
the Company's future prospects would be in doubt.
Results of Operations
- ---------------------
For the quarter ended June 30, 1999, the Company had revenue of $59,084
which was down $2,484 from the same period in 1998. For the six months ended
June 30, 1999, revenue was only $85,264 which was down $14,545 for the same
period in 1998. The decrease in revenue was predominately due to reduce
production from the McLouth Field.
Expenses for the quarter ended June 30, 1999, decreased to $39,472 from
$108,089 for the same period in 1999. For the quarter ended June 30, 1999,
general and administrative expenses decreased to $16,606 from $52,163 for the
same period in 1998 as the Company reduced its payroll expenses by not
replacing officers who left. Production expenses also decreased by
approximately $30,000 to $11,038 as the Company shut down unprofitable wells
and sold the McLouth Field. As a result of the overall decrease in expenses,
the Company posted a small profit from operations of 19,612 as opposed to
prior quarters losses. This profit was reduce by interest expenses of $7,200
resulting in a net profit of $14,372 for the June 30, 1999 quarter. The
Company is hopeful that with strong oil prices, it can continue to produce a
small profit as it seeks additional financing.
For the six months ended June 30, 1999, the Company posted a net loss of
$117,619 as the result of $100,000 in dryhole, recompletions and exploration
costs and 55,038 in general and administrative costs. Most of these cost were
incurred prior to the Company disposing of the McLouth Filed and ceasing all
but the esential operations on the Hittle Field. The Company anticipates
future cost to be more in line with those of the June quarter until operations
and exploration is expanded.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company has settled all of its outstanding litigation matters.
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
<PAGE> 15
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
---------
Exhibit # SEC Ref. # Title of Exhibit Location
- --------- --------- ---------------- --------
27 27 Financial Data Schedule This Filing
(b) Reports on From 8-K.
--------------------
None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
UPLAND ENERGY CORPORATION
Dated: November 11, 1999 By: /S/ Lee Jackson, President and
Principal Accounting and Chief Financial
Officer
<TABLE> <S> <C>
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<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 3,525
<SECURITIES> 0
<RECEIVABLES> 1,632
<ALLOWANCES> 0
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<PP&E> 4,301
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<CURRENT-LIABILITIES> 347,017
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<COMMON> 2,191,862
<OTHER-SE> (1,499,952)
<TOTAL-LIABILITY-AND-EQUITY> 938,697
<SALES> 85,264
<TOTAL-REVENUES> 85,264
<CGS> 0
<TOTAL-COSTS> 192,403
<OTHER-EXPENSES> 10,480
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<INTEREST-EXPENSE> 14,400
<INCOME-PRETAX> (117,619)
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