<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1999
-----------------
[ ]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________ to __________
Commission File Number 0-22497
----------
Upland Energy Corporation
-----------------------------------
(Exact name of registrant as specified in charter)
Utah 87-0430780
- ------------------------------ -------------------------
State or other jurisdiction of (I.R.S. Employer I.D. No.)
incorporation or organization
712 Arrowhead Lane, Murray, Utah 84107
- ----------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code (801) 281-4966
---------------
Securities registered pursuant to section 12(b) of the Act:
Title of each class Name of each exchange on which registered
None N/A
- ------------------ -----------------------------------------
Securities registered pursuant to section 12(g) of the Act:
Common Stock, $0.001 par value
------------------------------
(Title of class)
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. (1) Yes
[X] No [ ] (2) Yes [X] No [ ]
Check if disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-KSB or any amendment to this Form 10-KSB. [ ]
<PAGE>
<PAGE> 2
State issuer's revenues for its most recent fiscal year: $198,540.
State the aggregate market value of the voting stock held by
nonaffiliates computed by reference to the price at which the stock was sold,
or the average bid and asked prices of such stock, as of a specified date
within the past 60 days: The Company does not have an active trading market
and it is, therefore, difficult, if not impossible, to determine the market
value of the stock. Based on the bid price for the Company's Common Stock at
April 13, 2000, of $0.31 per share, the market value of shares held by
nonaffiliates would be $1,085,289.61.
As of April 12, 2000, the Registrant had 4,544,192 shares of common stock
issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
List hereunder the following documents if incorporated by reference and
the part of the form 10-KSB (e.g., part I, part II, etc.) into which the
document is incorporated: (1) Any annual report to security holders; (2) Any
proxy or other information statement; and (3) Any prospectus filed pursuant to
rule 424(b) or (c) under the Securities Act of 1933: NONE
<PAGE>
<PAGE> 3
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
- -------------------------------------------------
This periodic report contains certain forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of 1995 with
respect to the financial condition, results of operations, business
strategies, operating efficiencies or synergies, competitive positions, growth
opportunities for existing products, plans and objectives of management.
Statements in this periodic report that are not historical facts are hereby
identified as "forward-looking statements" for the purpose of the safe harbor
provided by Section 21E of the Exchange Act and Section 27A of the Securities
Act.
PART I
ITEM 1. DESCRIPTION OF BUSINESS
HISTORY AND ORGANIZATION
- ------------------------
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.
During the 1991 fiscal year, the Company conducted negotiations with
respect to the acquisition of a Florida corporation involved in the
development of a fluid level monitoring system for underground fuel storage
tanks. The acquisition was not completed; however, during the course of
negotiations, the Company loaned such company $25,000 pursuant to the terms of
a promissory note. The note has not been repaid despite demand by the Company
and the Company has concluded that the note is uncollectible.
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. 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 through the activities of its wholly-owned
subsidiary, GSC, 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."
On or about November 17, 1993, GSC entered into an operating agreement
(the "Operating Agreement") with KLM Exploration, Inc. and Kenneth L. Mason
<PAGE> 4
(collectively "KLM") pursuant to which KLM transferred to GSC certain rights
and obligations of KLM under a farmout agreement (the "Farmout Agreement"),
dated August 28, 1993, entered into between KLM and Williams Natural Gas
Company ("Williams") with respect to certain property located in the state of
Kansas commonly referred to as the McLouth Natural Gas Storage Field ("McLouth
Field"). The Operating Agreement was approved by Williams and the Farmout
Agreement was amended to make certain changes agreed to by the parties. GSC
paid KLM $100,000 pursuant to the terms of an earlier agreement in principle
as consideration for KLM entering into the Operating Agreement. Through these
agreements, GSC turned over much of the daily control of these fields to KLM
and its operators. The McLouth Field was originally acquired by Williams who
entered into the Farmout Agreement with KLM. The Farmout Agreement provided
KLM the right and obligation to develop the McLouth Field. KLM then entered
into the agreements with GS&C who paid an initial fee of $100,000 as
consideration for entering into the Operating Agreement and Amended Farmout
Agreement. Under the provisions of the agreements, KLM performed the
exploration, drilling and operation on the McLouth Field with the Company
providing limited financial support. The Company subsequently became
dissatisfied with the operation of the field by KLM and filed a lawsuit to
remove KLM as operator and for other damages. This lawsuit was subsequently
settled and the Company became the operator of the field.
In November 1993, GSC granted an aggregate of 2 1/4% overriding royalty
interest in the McLouth Field against its working interest to T. Kent Rainey,
Stefanie Gillen and Tony Cox, who at the time were directors of GSC, as
compensation for services rendered to GSC. The services performed by the
individuals related to negotiating the Farmout Agreement on the McLouth Field.
During 1995 and 1996, the Company focused on the McLouth Field. However,
management refocused the Company's efforts towards the Hittle Field which,
based on geological test and initial drilling results, appears more promising
than the McLouth Field. The McLouth Field continued to remain unprofitable for
the Company and in July 1999, the Company entered into an agreement with Pace
Exploration, LLC to sell the field for $25,000 cash and the assumption of
$31,552 in debt on the field and all future obligation to William Natural Gas.
The Company felt the decision to sell the McLouth Field to Pace Exploration,
LLC was necessary to stop the monthly drain on the Company form the McLouth
Field.
The Hittle Field originally consisted of approximately 560 acres and was
acquired for $6,000 in cash and a 15.6% royalty interest in the leases. In the
first quarter of 1997, the Company expanded its lease holdings on the Hittle
Field through the acquisition of an additional 880 acres at a cost of $3,800
with a 16.01% royalty interest remaining with the lessors.
The Company drilled two initial wells, the Lewis H-1 ("LH-1") and the
Hittle H-1 (the "HH-1"), in the Hittle Field. Both wells initially showed
promising results; however, the LH-1 well had to be shut down due to water
problems and reworked and the HH-1 is producing only approximately 22 barrels
of oil per day. The LH-1 has been reworked and is producing 5 barrels of oil
per day.
In 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 (20%) working interest
in the Hittle Field exclusive of the LH-1 and HH-1 wells.
<PAGE> 5
Under the direction of Pace Exploration, two additional wells were drilled on
the Hittle Field. One of these wells has been completed for production and is
producing approximately 14 barrels of oil per day. The other well never
produced oil in economic quantities and was shut down.
ITEM 2. DESCRIPTION OF PROPERTIES
Oil and Gas Properties
- ----------------------
The Company's oil and gas properties are located in Kansas. The
properties now consist of only the Hittle Field with the sale of the McLouth
Field in July 1999. The Company began exploration activities on the Hittle
Field in late 1996 and presently has drilled four wells on the field; three of
which have been completed for production, and one which was shut down. The
Hittle Field is subject to a farm out agreement with Pace Exploration who
receives a 20% working interest in the field. See: Part I, Item 1.
"Description of Business").
In the oil and gas industry and as used herein, the word "gross" well or
acre is a well or acre in which a working interest is owned; the number of
gross wells is the total number of wells in which a working interest is owned.
A "net" well or acre is deemed to exist when the sum of fractional ownership
working interests in gross wells or acres equals one. The number of net wells
or acres is the sum of the fractional working interests owned in gross wells
or acres.
The information presented in this section is in accordance with SEC
guidelines on oil and gas disclosure and in particular those found in Rule 4-
10 of regulation S-X.
Wells and Acreage
- -----------------
Shown below are tabulations of the productive oil (including casinghead
gas) wells and developed and undeveloped acreage owned by the Company as of
December 31, 1999.
Gross Acreage
-------------------------------
Productive Oil Wells Developed Undeveloped
- -------------------- --------- -----------
Gross Net(1) Gross Net(2) Gross Net(3)
----- ------ ----- ------ ----- ------
3 190 152.50 1560 1560
- -------------------
(1) Based on a 80% ownership working interest on the Hittle Field.
(2) Calculated on the Hittle Field.
(3) Corresponds to 1560 undeveloped acres in the Hittle Field with 100%
ownership interest.
See notes 3 and the supplemental information to the Company's December 31,
1999 and 1998, financial statements for additional information regarding the
Company's oil and gas properties and producing activities and oil and gas
<PAGE> 6
reserves. Such information is based on a report prepared by Felix Ascanio who
was the Company's president, and therefore, should not be considered
independent.
Drilling Activities
- -------------------
Set forth below is a tabulation of wells completed in the period
indicated in which the Company have participated and the results thereof for
the three most recent years ended December 31, 1999.
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------
1997 1998 1999
---- ---- ----
Gross Net Gross Net Gross Net
----- --- ----- --- ----- ---
<S> <C> <C> <C> <C> <C> <C>
Exploratory:
Dry -0- -0- -0- -0- -0- -0-
Oil -0- -0- -0- -0- -0- -0-
Gas -0- -0- -0- -0- -0- -0-
Totals -0- -0- -0- -0- -0- -0-
Development:
Dry -0- -0- -0- -0- -1- -1-
Oil 2(1) 2(1) 2 2 -2- -2-
Gas -0- -0- -0- -0- -2- -2-
Totals 2 2 2 2 _-2- -2-__ ____
</TABLE>
(1) The LH-1 was subsequently shut down do to water problems.
Average Prices and Costs
- ------------------------
The average sales prices of oil and gas for the current fiscal year and
the three previous fiscal years are as follows:
Average Sales Price
-------------------
Year Ended Oil Gas
December 31 (per BBL) (per MCF)
----------- --------- ---------
1995 $12.27 NA
1996 $16.34 NA
1997 $14.45 NA
1998 $11.41 NA
1999 $15.62 NA
Production costs for such wells per equivalent barrel, which includes lifting
costs (electricity, fuel, water disposal, repairs and maintenance, pumper,
transportation, etc.), and production taxes, was $3.09, $2.87, and $3.07 for
the years ended December 31, 1999, 1998, and 1997, respectively.
<PAGE>
<PAGE> 7
Production and Sale of Oil and Gas
- ----------------------------------
The sale of oil and gas is subject to price adjustments, production
curtailments, and similar provision in oil and gas purchase contracts, and the
sale of both oil and gas is subject to general economic and political
conditions affecting the production and price of crude oil and natural gas.
For the years ended December 31, 1999, and 1998, the Company produced
approximately 32.4 and 41.52 barrels of oil per day.
ITEM 3. LEGAL PROCEEDINGS
All of the Company's prior legal proceedings were settled in 1998. For
further information on prior lawsuits please see the Company's form 10KSB for
December 31, 1998.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
None.
<PAGE>
<PAGE> 8
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is quoted on the National Association of
Securities Dealers Electronic Bulletin Board under the symbol "UPLC." Set
forth below are the high and low bid prices for the Company's Common Stock for
the last three years. Although the Common Stock is quoted on the Electronic
Bulletin Board it has traded sporadically with low volume. Consequently, the
information provided below may not be indicative of the Common Stock price
under different conditions. All prices listed herein reflect inter-dealer
prices, without retail mark-up, mark-down or commissions and may not represent
actual transactions.
Quarter Ended High Bid Low Bid
- ------------- -------- -------
March 1997 $3.875 $2.31
June 1997 $5.625 $2.50
September 1997 $6.25 $4.25
December 1997 $5.25 $3.50
March 1998 $3.875 $2.625
June 1998 $1.438 $1.188
September 1998 $1.188 $0.625
December 1998 $1.340 $0.560
March 1999 $1.375 $0.531
June 1999 $0.531 $0.344
September 1999 $0.50 $0.375
December 1999 $0.437 $0.312
At April 13, 2000, the high and low bid and asked price for the Common
Stock was $0.31 and $0.38, respectively.
Since its inception, the Company has not paid any dividends on its Common
Stock, and the Company does not anticipate that it will pay dividends in the
foreseeable future.
As of April 12, 2000, there were 4,544,192 shares of common stock
outstanding held by approximately 126 active holders of record, including
broker-dealers and clearing corporations holding shares on behalf of their
customers, as reported by the Company's transfer agent.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF PLAN OF OPERATION
Liquidity and Capital Resources
- ---------------------------------------
At December 31, 1999, the Company had assets of $381,503. The majority
of these assets, $345,530, represented oil and gas properties with only
$33,062 in current assets. During 1999, the Company used the majority of its
current assets and now must rely on loans from major shareholders and oil
revenues to cover its operating expenses. As a result the Company had a
negative working capital position of $14,027 which was an improvement on the
$112,441 negative working capital position in December 31, 1998.
<PAGE> 9
During 1999, the Company funded its operation and exploration expenses
through the sale of equity interest in the Company and shareholder loans. The
Company anticipates it will have to continue to rely on capital through equity
infusion or shareholder loans until its oil revenues increase. The Company
has significantly cut expenses and is hopeful that with the sale of the
McLouth Field it will be able to pay ongoing expenses; however, the Company
would not be able to fund further drilling and exploration and would have to
rely on investors to help fund the further drilling and exploration.
In December 1999, the Company issued 982,000 shares to pay $245,000 in
notes payable. Each shares was issued for $0.25 of debt previously owed.
These shares were issued to existing shareholders.
With little revenue presently being produced, the Company will continue
to rely on the sale of its securities or loans to fund operations. Based on
the working capital position of the Company, management estimates the Company
will need to obtain additional financing to perform further exploration on the
Hittle Field.
Results of Operations
- ---------------------
For the year ended December 31, 1999, the Company had revenue of $198,540
which was down from $203,708 for the same period in 1998 due to the sale of
the McLouth Field. The Company anticipates oil revenue to increase as the
result of increased oil prices. The increase in revenue will be only marginal,
however, with the Hittle Field currently producing less than 50 barrels of oil
per day.
Expenses for the year ended December 31, 1999, were $413,810 which were
down from $774,087 from the year ended December 31, 1998. Expenses for the
year ended December 31, 1999, were down principally due to the sale of the
McLouth Field and a reduction in exploration cost from 376,078 to 100,000.
General and administrative expenses were down as the Company has reduced its
payroll.
For the year ended December 31, 1999, the Company continued to suffer
loses from operations with a net loss of $714,315. This loss was up from the
$567,168 loss in 1998 as a result of the loss on disposition of the McLouth
Field of 477,079. The Company anticipates it will continue to have a loss in
2000 however the loss should be substantially smaller than in prior years and
reflect its retrenching efforts with the sale of the McLouth Field and the
reduction in exploration cost. The Company is hopeful with the signing of the
Pace Exploration contract that it will maintain reduced general and
administrative expenses relying on Pace Exploration for the operation of the
Hittle Field. The Company will in turn maintain only limited other business
operations until revenues justify an expansion of its corporate staff and
other experts.
ITEM 7. FINANCIAL STATEMENTS
The financial statements of the Company are set forth immediately
following the signature page to this form 10-KSB.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
The Company has had no disagreements with its certified public
accountants with respect to accounting practices or procedures or financial
disclosure.
<PAGE> 10
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS, PROMOTERS, AND CONTROL
PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
The names of the Company's executive officers and directors and the
positions held by each of them are set forth below:
Name Position
- ---- --------
Lee Jackson President and Director
Michael L. Labertew Secretary, Treasurer and Director
The term of office of each director is one year and until his successor
is elected at the Company's annual shareholders' meeting and is qualified,
subject to removal by the shareholders. The term of office for each officer
is for one year and until a successor is elected at the annual meeting of the
board of directors and is qualified, subject to removal by the board of
directors. The Company is actively searching for a third director
Biographical Information
Set forth below is certain biographical information with respect to each
of the Company's officers and directors.
Lee Jackson, age 71, has been retired since 1993 and spends his time
focusing on real estate management and investments. Prior to retiring, Mr.
Jackson owned Jackson Insurance Agency which he later sold to his son. Prior
to establishing his own insurance agency, Mr. Jackson was a real estate agent
and broker. Mr. Jackson was employed by Allstate Insurance for 17 years where
he was an agent, a commercial sales supervisor and sales manager. Mr. Jackson
received his bachelor of science degree in business from the University of
Utah in 1951.
Michael Labertew, age 35, was appointed a director and subsequently
secretary and treasure of the Company in 1998. Mr. Labertew is and has been
for the last 9 years an attorney in Salt Lake City, Utah. Mr. Labertew has a
bachelor of science degree from the University of Iowa and a Juris Doctorate
from the University of Utah.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
The Company believes that under the SEC's rules for reporting of
securities transactions by directors and executive officers, all required
reports have been timely filed, except Michael L. Labertew filed his form 3
late and one form 4 late.
ITEM 10. EXECUTIVE COMPENSATION
The following tables set forth certain summary information concerning the
compensation paid or accrued for each of the Company's last three completed
fiscal years to the Company's or its principal subsidiaries chief executive
officer and each of its other executive officers that received compensation in
excess of $100,000 during such period (as determined at December 31, 1999, the
end of the Company's last completed fiscal year):
<PAGE> 11
SUMMARY COMPENSATION TABLE
--------------------------
<TABLE>
<CAPTION>
Long Term Compensation
----------------------
Annual Compensation Awards Payouts
Other Restricted
Name and Annual Stock Options LTIP All other
Principal Position Year Salary Bonus($) Compensation Awards /SARs Payout Compensation
- ------------------ ---- ------ -------- ------------ ------ ------- ------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Lee Jackson 1999 $38,000 -0- -0- -0- -0- -0- -0-
President 1998 $38,000 -0- -0- -0- $6,250 (1) -0- -0-
Felix A. Ascanio 1997 $60,000 -0- -0- -0- -0- -0- -0-
President and CEO
</TABLE>
(1) Mr. Jackson received 10,000 options at $0.625 per share in 1998.
Options/SAR Grants in Last Fiscal Year
- --------------------------------------
The Following table sets forth information respecting all individual grants of
options and stock appreciation rights ("SARs") made during the fiscal year
ended December 31, 1999, to the named executive officer of the Company.
<TABLE>
<CAPTION>
% of Total
# of Securities Options/SARS
Underlying Granted to Market Price
Options/SARs Employees in Exercise or Base on Date of
Name Granted Fiscal Year Price ($/Share) Grant Expiration Date
- ---- --------------- ------------ ---------------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
Lee Jackson -0- -0- -0- -0- -0-
</TABLE>
Bonuses and Deferred Compensation:
- ---------------------------------
None
Compensation Pursuant to Plans:
- ------------------------------
<PAGE>
<PAGE> 12
All options received are pursuant to the Company's 1996 Stock Option Plan
which has reserved 650,000 shares for issuance under the plan. Options are
issued under the plan at the discretion of the Company's board of directors.
Pension Table:
- -------------
Not Applicable
Other Compensation:
- ------------------
None
Compensation of Directors:
- -------------------------
Directors of the Company receive only $100 per directors meeting
attended.
Termination of Employment and Change of Control Arrangement
- -----------------------------------------------------------
With the departure of Mr. Ascanio and Mr. John "Jack" Hobbs, none of the
Company's officers have an employment contract.
Officer and Director Remuneration
- ---------------------------------
Mr. Jackson, the Company's current president receives a salary of
$3,000.00 per month and Mr. Labertew does not take a salary.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the number of shares of the Company's
Common Stock, par value $0.001, held by each person who is believed to be the
beneficial owner of 5% or more of the 4,544,192 shares of the Company's common
stock outstanding at April 12, 2000, based on the Company's transfer agent's
list, representations and affidavits from shareholders and beneficial
shareholder lists provided by the Depository Trust and securities broker
dealers, and the names and number of shares held by each of the Company's
officers and directors and by all officers and directors as a group.
Title of Name and Address Amount and Nature of Percent
Class Of Beneficial Owner Beneficial Ownership of Class
- -------- ------------------- --------------------- --------
Common Lee Jackson (1) 622,250 13.69
712 Arrowhead Lane
Murray, Utah 84107
Common The Depository Trust
(Cede & Co.) 2,541,028 55.92
P.O. Box 222
New York, New York 10274
Common Frank Gillen 421,011 9.26
175 South Main, Ste. 1240
Salt Lake City, Utah 84111
<PAGE> 13
Officers, Directors and Nominees
Common Lee Jackson, Director ---------See Above---------
Common Michael Labertew -0- -0-
Secretary/Treasurer, Director
All Officers, Directors, and
Nominees as a Group (2 Persons) 622,250 13.69
- --------------------------------
(1)Mr. Jackson also owns 25,000 warrants and 25,000 options to purchase a
like number of shares of Common Stock at an exercise price of $2.00 per share.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In January 1997, Felix Ascanio, the Company's president, and John Hobbs,
the Company's secretary, at that time, exercised options in the Company
delivering promissory notes in the amount of $55,000 and $80,000,
respectively, to the Company for their exercise price. The promissory notes
were due January 17, 2001, with interest at eight and one half percent
(8 1/2%).
In April 1997, the Company loaned Mr. Ascanio $84,376 and Mr. Hobbs $29,449 to
pay taxes due on the options exercised. Due to Messrs. Ascanio's and Hobbs'
relationships to the Company, these transactions should not be considered arms
length. Under the terms of a settlement agreement with Mr. Ascanio, all of
his debt to the Company was canceled and 141,689 of Mr. Ascanio's shares in
the Company returned to the Company for cancellation. Mr. Hobbs subsequently
paid his promissory notes off.
During 1998, Lee Jackson, the Company's new president loaned the Company
20,000 receiving a promissory note and for $5,000 at 10% interest due on June
1, 1999 and a promissory note for $15,000 which contains an option to convert
shares of Common Stock at the rate of $0.40 per share.
During December 1999, the Company converted $245,000 in debt to 982,000
shares of common stock of the Company. The note were held by officers and
major shareholders of the Company who previously loaned the Company money to
complete some exploration work.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed below by the following persons on behalf
of the Registrant and in the capacities and on the dates indicated:
Upland Energy Corporation
Date: April 13, 2000 By /s/Lee Jackson, President and Director
(Principal Executive Officer)
<PAGE> 14
INDEPENDENT AUDITOR'S REPORT
Board of Directors
UPLAND ENERGY CORPORATION AND SUBSIDIARY
Salt Lake City, Utah
We have audited the consolidated balance sheet of Upland Energy Corporation
and Subsidiary as of December 31, 1999, and the related consolidated
statements of operations, stockholders' equity and cash flows for the years
ended December 31, 1999 and 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements audited by us present fairly, in all
material respects, the consolidated financial position of Upland Energy
Corporation and Subsidiary as of December 31, 1999, and the consolidated
results of their operations and their consolidated cash flows for the years
ended December 31, 1999 and 1998, in conformity with generally accepted
accounting principles.
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. As discussed in Note 14, the Company has
experienced continuing operating losses the past few years and has current
liabilities in excess of current assets. These factors raise substantial
doubt about the ability of the Company to continue as a going concern.
Management's plans with regards to these matters are also described in Note
14. The financial statements do not include any adjustments that might result
from the outcome of these uncertainties.
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 its
oil and gas reserves and to be able to fund the maintenance and operations of
its wells. Further, the Company's estimates of oil and gas reserves were
produced internally by management and others who were not independent with
respect to the Company. The financial statements do not include any
adjustments related to the uncertainty that the Company might not recover its
estimated reserves.
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.
PRITCHETT, SILER & HARDY, P.C.
430 East 400 South
Salt Lake City, UT84111
February 15, 2000
<PAGE> 15
UPLAND ENERGY CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
ASSETS
December 31,
1999
-------------
CURRENT ASSETS:
Cash $ 18,183
Oil revenue receivable 14,879
-------------
Total current Assets 33,062
PROPERTY AND EQUIPMENT, net 2,911
OIL AND GAS PROPERTIES, net 345,530
-------------
$ 381,503
=============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable 4,989
Other accrued liabilities 42,100
-------------
Total Current Liabilities 47,089
STOCKHOLDERS' EQUITY:
Common stock:$.001 par value 50,000,000
shares authorized, 4,494 192 shares issued
and outstanding 4,949
Capital in excess of par value 2,432,868
Retained (deficit) (2,096,684)
-------------
304,714
Less: notes receivable for common stock issued (6,300)
-------------
Total Stockholders' Equity 334,414
-------------
$ 381,503
=============
The accompanying notes are an integral part of this consolidated financial
statement.
<PAGE> 16
UPLAND ENERGY CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended
December 31,
-------------------
1999 1998
-------- ---------
REVENUE:
Oil sales $ 198,540 $ 203,708
-------- ---------
Total Revenue 198,540 203,708
-------- ---------
EXPENSES:
Production expense 93,125 150,093
Depreciation, depletion
and amortization 44,853 57,454
Dry hole, unsuccessful recompilations
and exploration costs 100,000 376,078
General and administrative costs 175,832 190,462
-------- ---------
Total Expenses 413,810 774,087
-------- ---------
LOSS FROM OPERATIONS (215,270) (570,379)
-------- ---------
OTHER INCOME (EXPENSE):
Interest Income 2,170 11,641
Interest Expense (24,136) -
Loss of disposition of assets (477,079) (8,430)
--------- --------
Total Other Income (Expense) (499,045) 3,211
--------- --------
LOSS BEFORE INCOME TAXES (714,315) (567,168)
CURRENT TAX EXPENSE - -
DEFERRED TAX EXPENSE - -
--------- --------
NET LOSS $ (714,315) (567,168)
--------- --------
LOSS PER COMMON SHARE $ (.20) $ (.16)
--------- --------
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE> 17
UPLAND ENERGY CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FROM DECEMBER 31, 1996 THROUGH
DECEMBER 31, 1999
Common Stock Capital in Retained
---------------- Excess of Earnings
Shares Amount Par Value (deficit)
------- ------ --------- ---------
BALANCE, December 31,1997 3,695,378 3,695 2,337,335 (815,165)
Cancellation of 133,186
shares of common stock,
May 1998, fair market
value was at $1.12 per
share, for cancellation
of note receivable (133,186) (133) (149,035) -
Net loss for the year
ended December 31,1989 - - - (567,168)
------- ------- --------- ---------
BALANCE, December 31, 1998 3,562,192 3,562 2,188,300 (1,382,333)
Issuance of 982,000 shares
of common stock in lieu of
note payable at $.25 per
share, December 1999 982,000 982 244,518 -
Cancellation of 50,000
shares of common stock
December 1999 (45,000) (45) 45 -
Net loss for the year
ended December 31, 1999 - - - (714,315)
------- ------- --------- ---------
BALANCE, December 31, 1999 4,499,192 $ 4,499 $ 2,432,863 $(2,096,648)
------- ------- --------- ---------
The accompanying notes are an integral part of this consolidated financial
statement.
<PAGE> 18
UPLAND ENERGY CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Net Increase (Decrease) in Cash
For the Years Ended
December 31,
-----------------------
1999 1998
---------- ---------
Cash Flows from Operating Activities:
Net loss $ (714,315) $ (567,168)
---------- ---------
Adjustments to reconcile net income
(loss) to cash used in operating
activities:
Depreciation, depletion and amortization 44,297 57,454
Loss from discontinued operations 489,006 -
Non-cash expenses 115,931 87,200
Dry hole expense - 376,078
Disposition of assets - 8,430
Change in assets and liabilities:
Decrease in deposits 10,000 -
(Increase)decrease in oil revenue receivable (8,908) 50,045
(Increase)in advance receivable-related party 10,369 (17,049)
(Increase) decrease in prepaid assets 225,000 (225,000)
(Increase)in accounts payable-related party - (13,335)
(Decrease)in accounts payable (100,978) (15,679)
(Decrease)in other accrued liabilities 36,000 (81,000)
---------- ---------
Total Adjustments 820,744 261,242
---------- ---------
Net Cash (Used) by Operating Activities (106,429) (305,926)
---------- ---------
Cash Flows from Investing Activities:
Proceeds from sale of equipment 25,000 -
Purchase of oil and gas properties (158,136) -
Receipts on notes receivable 40,000 28,000
---------- ---------
Net Cash (Used) by Investing Activities (93,136) 28,000
---------- ---------
Cash Flows from Financing Activities:
Proceeds from notes payable-related parties - 245,000
---------- ---------
Net Cash Provided by Financing Activities - 245,000
---------- ---------
Net Increase (Decrease) in Cash 13,293 (32,926)
Cash at Beginning of Year 4,890 37,816
---------- ---------
Cash at End of Year $ 18,183 4,890
---------- ---------
<PAGE> 19
UPLAND ENERGY CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Increase (Decrease) in Cash
(Continued)
For the Years Ended
December 31,
-------------------------
1999 1998
----------- ----------
Supplemental Disclosures of Cash Flow Information:
Cash paid during the year for
Interest $ 24,135 $ -
Income taxes $ - $ -
Supplemental Disclosures of Noncash Investing and Financing Activities:
For the year ended December 31, 1999:
The Company issued 982,000 of common stock to retire notes payable at
$.25 per share.
A shareholder of the Company returned 45,000 shares of common stock of
the Company for cancellation as a capital contribution.
Notes Receivables in the amount of $24,529 was written off as bad debt
expense and $69,401 was netted against accounts payable owing for legal
fees.
For the year ended December 31, 1998:
The Company cancelled 133,186 shares of common stock form the Company's
former president. The stock was recorded at $1.12 per share and was
acquired by cancellation of a note receivable in the amount of $134,376.
Legal counsel billed the Company for legal services totaling $4,380, of
which $3,235 was offset against a $20,000 note receivable and $1,145 was
offset against the corresponding interest receivable accrued on the note.
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE> 20
UPLAND ENERGY CORPORATION AND SUBSIDIARY
NOTES TO 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 and is engaged in the
development, production and selling of oil and gas in the State of Kansas.
During November 1993, PARENT acquired SUBSIDIARY in a transaction accounted
for as a recapitalization of subsidiary in a manner similar to a reverse
purchase. Accordingly, Subsidiary is treated as the purchaser entity in the
transaction.
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.
e. Costs of unproved properties are assessed periodically, and a loss is
recognized if the properties are impaired.
<PAGE>
<PAGE> 21
UPLAND ENERGY CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONTINUED
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 Standard 123
"Accounting 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 13].
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 8].
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.
Recently Enacted Accounting Standards - Statement of Financial Accounting
Standards (SFAS) No. 132, "Employer's Disclosure about Pensions and Other
Postretirement Benefits", SFAS No. 133, "Accounting for Derivative Instruments
and Hedging Activities", SFAS No. 134, "Accounting for Mortgage-Backed
Securities " and SFAS No. 135, "Rescission of FASB Statement No. 75 and
Technical Corrections" were recently issued. SFAS No. 132, 133, 134 and 135
have no current applicability to the Company or their effect on the financial
statements would not have been significant.
<PAGE> 22
UPLAND ENERGY CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - DISCONTINUED OPERATIONS - SUBSIDIARY
On August 5, 1999, G. S. & C., Inc. ("Subsidiary") sold all of its oil and
gas properties for $25,000 cash, assumption of $32,552 of accounts payable and
assumption of a $10,000 note payable. The sale resulted in the Subsidiary
becoming inactive (no on-going operations). On a consolidated basis the
Company is still operating in the Oil and Gas Production Industry and
accordingly the sale is not considered a discontinued operation for purposes
of consolidated reporting.
NOTE 3 - NOTES RECEIVABLE - RELATED PARTIES
Notes receivable, which include related parties [See Note 7], consist of the
following at December 31:
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 $0 6,300
------
$6,300
------
The notes receivable are presented on the balance sheet as a reduction to
stockholders' equity because the Company issued common stock for the notes.
During 1999, Notes Receivable totaling $69,401 were netted against accounts
payable owing for legal fees and $24,529 was written off as a bad debt
expense.
NOTE 4 - 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.
During 1999 these notes payable totaling $245,000 were converted to 982,000
shares of common stock, valued at $.25 per share (See Note 9).
<PAGE> 23
UPLAND ENERGY CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 - PROPERTY AND EQUIPMENT
The following is a summary of property and equipment - at cost, less
accumulated depreciation as of December 31:
1999 1998
------ ------
Furniture and office equipment $6,050 $8,602
Vehicle
Less: accumulated depreciation (3,139) (3,978)
------ ------
Total $2,911 $4,627
------ ------
Depreciation expense charged to operations was $1,716 and $1,842 for the years
ended December 31, 1999 and 1998.
NOTE 6 - 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
year ended December 31, 1999 and 1998, the Company recorded depletion of
$42,581 and $55,613, respectively.
UPLAND ENERGY CORPORATION AND SUBSIDIARY
NOTE 6 - OIL AND GAS PROPERTIES
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 plus additional capital through sale 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 of its wells. The financial statements do not
include any adjustments related to the uncertainty that the Company might not
recover its estimated reserves.
Hittle Project - 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.
<PAGE> 24
UPLAND ENERGY CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 - OIL AND GAS PROPERTIES CONTINUED
During 1998 and 1997, the Company capitalized $0 and $558,861, respectively,
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 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.
Discontinued Operations of Subsidiary - On August 5, 1999, G. S. & C., Inc.
("Subsidiary") sold all of its oil and gas properties for $25,000 cash,
assumption of $32,552 of accounts payable and assumption of a $10,000 note
payable. The assets sold consisted primarily of the well equipment and leases
in the McLouth field.
NOTE 7 - RELATED PARTY TRANSACTIONS
Office Space - The Company has not had a need to rent office space. An
office/shareholder of the Company is allowing the Company to use his home as a
mailing address, at no expense to the Company.
NOTE 8 - INCOME TAXES
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109 Accounting for Income Taxes [FASB 109].
FASB 109 requires the Company to provide a net deferred tax asset or liability
equal to the expected future tax benefit or expense of temporary reporting
differences between book and tax accounting and any available operating loss
or tax credit carryforwards. At December 31, 1999 and 1998, the total of all
deferred tax assets was $951,076 and $774,896 and the total of the deferred
tax liabilities was $101,929 and $189,178. The amount of and ultimate
realization of the benefits from the deferred tax assets for income tax
purposes is dependent, in part, upon the tax laws then in effect, the
Company's future earnings, and other future events, the effects of which
cannot presently be determined. Because of the uncertainty surrounding the
realization of the deferred tax assets, the Company has established a
valuation allowance of $849,147 and $585,719 as of December 31, 1999 and 1998,
which has been offset against the deferred tax assets. The net increase in
the valuation allowance during the years ended December 31, 1999 and 1998
<PAGE> 25
UPLAND ENERGY CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
amounted to approximately $263,428 and $226,586, respectively.
As of December 31, 1999 and 1998, the Company has net tax operating loss [NOL]
carryforwards available to offset its future income tax liability. The NOL
carryforwards have been used to offset deferred taxes for financial reporting
purposes. The Company has federal NOL carryforwards of approximately
$2,528,376 that expire in various years between 2001 and 2019.
The components of income tax expense from continuing operations for the years
ended December 31, 1999 and 1998 consist of the following:
December 31,
---------------
1999 1998
---------- ----------
Current income tax expense:
Federal $ - $ -
State - -
---------- -----------
Net current tax expense - -
---------- -----------
Deferred tax expense (benefit) arising from:
Excess of tax over financial accounting
depreciation $ 51,588 $ (169,147)
Net operating loss carryforwards (122,330) (89,628)
Accrued compensation (5,540) -
Litigation reserve - (32,190)
Valuation allowance 86,2822 26,585
----------- -----------
Net deferred tax expense $ - $ -
----------- -----------
Deferred income tax expense results primarily from the reversal of temporary
timing differences between tax and financial statement income.
A reconciliation of income tax expense at the federal statutory rate to income
tax expense at the Company's effective rate is as follows:
December 31,
---------------
1999 1998
---------- ----------
Computed tax at the expected federal
statutory rate $ (76,605) $ (206,437)
Other (2,918) (1,933)
State income taxes, net of federal income
tax benefits (6,759) (18,215)
Valuation allowance 86,282 226,583
---------- ----------
Computed tax at the effective income
tax rates $ - $ -
---------- ----------
The temporary differences and carryforwards gave rise to the following
deferred tax asset (liability) at December 31, 1999 and 1998:
<PAGE> 26
UPLAND ENERGY CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 - INCOME TAXES CONTINUED
December 31,
---------------
1999 1998
---------- ----------
Excess of tax over book accounting
depreciation (101,929) (189,178)
Accrued compensation 15,540 -
Contribution carryover 37 37
NOL carryforwards 935,499 774,859
As of December 31, 1999 and 1998, the deferred taxes reflected in the
consolidated balance sheet are as follows:
December 31,
---------------
1999 1998
---------- ----------
Short term asset (liability) $ - $ -
Long term asset (liability) $ - $ -
NOTE 9 - COMMON STOCK TRANSACTIONS
During December 1999, the Company issued 982,000 shares of common stock valued
at $.25 per share in payment of Notes Payable (See Note 4).
During 1999, a shareholder of the Company returned 45,000 shares of common
stock of the Company as a contribution to the Company. The shares have been
accounted for as cancelled.
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 legal counsel 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
<PAGE> 27
UPLAND ENERGY CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9 - COMMON STOCK TRANSACTIONS CONTINUED
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. During 1998 the $90,000 was
expensed against legal fees. The remaining $6,300 note has been classified as
a reduction to stockholder's equity on the balance sheet.
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.
Warrants - At December 31, 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 applies APB Option No. 25 in accounting for its
options granted under the employment agreements. Compensation of $0 and $0
was recorded in 1999 and 1998 respectively. The Corporation has adopted the
disclosure-only provisions of Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation." The effect on net income from
the adoption of Statement of Financial Accounting Standards No. 123
"Accounting for Stock Based Compensation" are the same.
The fair value of each option granted is estimated on the date granted using
the Black-Scholes option pricing model with the following weighted-average
assumptions used for grants during the period ended December 31, 1999 risk-
free interest rates of 6.33% expected dividend yields of zero, expected life
of 5 years, and expected volatility 78%.
A summary of the status of the options granted under the Company's stock
option plan at December 31, 1999 and 1998, and changes during the periods then
ended is presented in the table below:
<PAGE> 28
UPLAND ENERGY CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9 - COMMON STOCK TRANSACTIONS CONTINUED
Year Ended Year Ended
December 31, 1999 December 31, 1998
----------------- -----------------
Weighted Average Weighted Average
Shares Exercise Price Shares Exercise Price
-------- ---------------- --------- ----------------
Outstanding at
beginning of
period 155,000 $ 1.28 100,000 $ 2.00
Granted - - 140,000 .78
Exercised - -
Forfeited - - - -
Canceled - - (85,000) 1.30
------- ---------------- ---------- --------------
Outstanding at end
of Period 155,000 1.28 155,000 $ 1.28
-------- ---------------- ---------- --------------
Year Ended Year Ended
December 31, 1999 December 31, 1998
----------------- -----------------
Weighted Average Weighted Average
Shares Exercise Price Shares Exercise Price
-------- ---------------- --------- ----------------
Weighted average
fair value of
options granted 155,000 1.28 155,000 $ 1.28
-------- ---------------- --------- ----------------
A summary of the status of the options outstanding under the Company's stock
option plan at December 31, 1999 is presented below:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------- -------------------
Range of Weighted-Average Weighted Average Weighted-Average
Exercise Number Remaining Exercise Number Exercise
Prices Outstanding Contractual Life Price Exercisable Price
- ------- ----------- ---------------- ---------------- ----------- ---------------
<S> <C> <C> <C> <C> <C>
2.00 75,000 2 Years 2.00 75,000 2.00
.625 80,000 3 Years .625 80,000 .625
- ------- ----------- ---------------- ---------------- ----------- --------------
155,000 155,000
</TABLE>
<PAGE> 29
UPLAND ENERGY CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9 - COMMON STOCK TRANSACTIONS CONTINUED
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 Years Ended
December 31,
-------------------
1999 1998
---- ----
Net Loss applicable to
common stockholders As reported $(714,315) $(567,168)
Proforma $(714,315) $(567,168)
Earnings per Share As reported $ (.20) $ (.16)
Proforma $ (.20) $ (.16)
NOTE 10 - CONTINGENCIES
Realization of Wells - The Company has depended on related parties and others
to provide financing 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.
NOTE 11 - COMMITMENTS AND AGREEMENTS
Employment 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 December 31, 1999 the Company
had not paid out any salary under this agreement but has accrued $42,000 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.
UPLAND ENERGY CORPORATION AND SUBSIDIARY
NOTE 12 - 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
<PAGE> 30
UPLAND ENERGY CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12 - CONCENTRATION OF CREDIT RISKS CONTINUED
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 13 - 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 years ended December 31, 1999 and
1998:
For The Years Ended
December 31,
-------------------
1999 1998
---- ----
Income (loss) from continuing
operations available to common
stockholders used in earnings
(loss)per share $ (714,315) $ (567,168)
---------- ----------
Weighted average number of common
shares used in earnings (loss)
per share outstanding during
the period 3,578,272 3,648,026
---------- ----------
Dilutive earnings per share was not presented, as its effect was anti-dilutive
for the years ended December 31, 1999 and 1998.
NOTE 14 - 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 incurred significant
operating losses the past few years. Further, the Company has current
liabilities in excess of current assets at December 31, 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 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.
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<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 18,183
<SECURITIES> 0
<RECEIVABLES> 14,879
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 33,062
<PP&E> 6,050
<DEPRECIATION> 3,139
<TOTAL-ASSETS> 381,503
<CURRENT-LIABILITIES> 47,089
<BONDS> 0
0
0
<COMMON> 2,437,817
<OTHER-SE> (2,096,648)
<TOTAL-LIABILITY-AND-EQUITY> 381,503
<SALES> 198,540
<TOTAL-REVENUES> 198,540
<CGS> 0
<TOTAL-COSTS> 413,810
<OTHER-EXPENSES> 496,875
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 24,136
<INCOME-PRETAX> (714,315)
<INCOME-TAX> 0
<INCOME-CONTINUING> (714,315)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (714,315)
<EPS-BASIC> (0.20)
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