U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended: March 31, 2000
[ ] 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
[X] No [ ] 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: 4,544,192 shares of its
$0.001 par value common stock as of March 31, 2000.
Transitional Small Business Disclosure Format (check one) Yes [ ] No
[X]
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PART I-FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ACCOUNTANTS' REVIEW REPORT
Board of Directors
UPLAND ENERGY CORPORATION AND SUBSIDARY
Salt Lake City, Utah
We have reviewed the accompanying condensed balance sheet of Upland Energy
Corporation and Subsidiary as of March 31, 2000, and the related condensed
statements of operations and cash flows for the three months ended March 31,
2000. All information included in these financial statements is the
representation of the management of Upland Energy Corporation and Subsidiary.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review consists
principally of inquiries of Company personnel and analytical procedures
applied to financial data. It is substantially less in scope than an audit in
accordance with generally accepted auditing standards, the objective of which
is the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the condensed financial statements reviewed by us, in order
for them to be in conformity with generally accepted accounting principles.
The accompanying condensed financial statements have been prepared assuming
the Company will continue as a going concern. As discussed in Note 14 to the
financial statements, the Company has incurred substantial losses since its
inception and has current liabilities in excess of current assets. These
factors raise substantial doubt about its ability to continue as a going
concern. Management's plans in 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.
/s/ Pritchett, Siler & Hardy, P.C.
PRITCHETT, SILER & HARDY, P.C.
May 1, 2000
Salt Lake City, Utah
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UPLAND ENERGY CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
[UNAUDITED]
March 31, December 31,
2000 1999
------------ ------------
CURRENT ASSETS:
Cash $ 25,612 $ 18,183
Oil revenue receivable - 14,879
------------ -----------
Total Current Assets 25,612 33,062
PROPERTY AND EQUIPMENT, net 2,749 2,911
OIL AND GAS PROPERTIES, net 334,885 345,530
------------ -----------
$ 363,246 $ 381,505
------------ -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable 4,043 4,989
Other accrued liabilities 42,100 42,100
------------ -----------
Total Current Liabilities 46,143 47,089
------------ -----------
STOCKHOLDERS' EQUITY:
Common stock; $.001 par value, 50,000,000
shares authorized, 4,499,192 shares issued
and outstanding, 1999 4,499 4,499
Capital in excess of par value 2,432,863 2,432,863
Retained (deficit) (2,113,959) (2,096,648)
------------ -----------
323,403 304,714
Less: notes receivable for common stock issued (6,300) (6,300)
------------ -----------
Total Stockholders' Equity 317,103 334,414
------------ -----------
$ 363,246 $ 381,503
=========== ===========
Note: The consolidated balance sheet at December 31, 1999 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
Months Ended
March 31,
2000 1999
--------- ---------
REVENUE:
Oil sales $ 32,335 $ 26,180
--------- ---------
Total Revenue 32,335 26,180
--------- ---------
EXPENSES:
Production expense 19,831 5,561
Depreciation, depletion and
amortization 10,807 8,938
Dryhole, unsuccessful
recompletions and exploration
costs - 100,000
General and administrative
costs 19,008 38,432
--------- ---------
Total Expenses 49,646 153,931
--------- ---------
INCOME (LOSS) FROM OPERATIONS (17,311) (126,751)
OTHER INCOME (EXPENSE):
Interest income - 1,960
Interest expense - (7,200)
--------- --------
Total Other Income (Expense) - 5,240
--------- --------
(INCOME) LOSS BEFORE INCOME
TAXES (17,311) (131,991)
CURRENT TAX EXPENSE - -
DEFERRED TAX EXPENSE - -
--------- ---------
NET INCOME (LOSS) $ (17,311) $(131,991)
--------- ---------
INCOME (LOSS) PER COMMON
SHARE $ (.00) $ (.04)
--------- ---------
The accompanying notes are an integral part of these consolidated financial
statements.
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UPLAND ENERGY CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
[UNAUDITED - See Accountants' Review Report)
Net Increase (Decrease) in Cash
For the Three
Months Ended
March 31,
---------------------
2000 1999
--------- ---------
Cash Flows Provided by Operating Activities:
Net loss $ (17,311) $(131,991)
--------- ---------
Adjustments to reconcile net income (loss) to
net cash used in operating activities:
Depreciation, depletion and amortization 10,807 8,938
Non-cash expenses - 83,332
Change in assets and liabilities:
Decrease in oil revenue receivable 14,879 2,708
Decrease in prepared assets - 225,000
Decrease in restricted cash - 10,000
(Increase) in interest receivable-related parties - (1,960)
Increase in interest payable-related party - 7,200
(Decrease)in accounts payable (946) -
Increase in other accrued liabilities - 9,000
--------- ---------
Total Adjustments 24,740 79,119
--------- ---------
Net Cash Provided (Used) by Operating Activities 7,429 128,895
--------- ---------
Cash Flows (Used) Provided by Investing Activities:
Purchase of oil and gas properties - (142,842)
Receipts on notes receivable 40,000
--------- ---------
Net Cash (Used) by Investing Activities - (102,842)
--------- ---------
Cash Flows Provided by Financing Activities:
Proceeds from notes payable - related parties - 2,000
--------- ---------
Net Cash Provided by Financing Activities - 2,000
--------- ---------
Net (Decrease) in Cash 7,429 28,053
Cash at Beginning of Period 18,183 4,890
--------- ---------
Cash at End of Period $ 25,612 $ 32,943
--------- ---------
The accompanying notes are an integral part of these consolidated financial
statements.
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UPLAND ENERGY CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
[UNAUDITED - See Accountants' Review Report)
Net Increase (Decrease) in Cash
(Continued)
For the Three
Months Ended
March 31,
---------------------
2000 1999
--------- ---------
Supplemental Disclosures of Cash Information:
Cash paid during the three month period ended
March 31 interest $ - $ -
Income taxes $ - $ -
Supplemental Disclosures of Noncash Investing and
Financing Activities
For the period ended March 31, 2000:
None
For the Period ended March 31, 1999:
None
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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
March 31, 2000 and for all the periods 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, 1999 audited financial
statements. The results of operations for the period ended March 31, 2000 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.
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UPLAND ENERGY CORPORATION AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [Continued]
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.
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.
Loss Per Share The Company accounts for 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
loss per share is based on the weighted average number of shares outstanding
during the period presented.
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].
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.
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UPLAND ENERGY CORPORATION AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [Continued]
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, SFAS No. 135, Rescission of FASB Statement No. 75 and Technical
Corrections, SFAS No. 136, Transfers of Assets to a not for profit
organization or charitable trust that raises or holds contributions for
others, and SFAS No. 137, Accounting for Derivative Instruments and Hedging
Activities deferral of the effective date of FASB statement No. 133 ( an
amendment of FASB Statement No. 133.), were recently issued. SFAS No. 132,
133, 134, 135, 136 and 137 have no current applicability to the Company or
their effect on the financial statements would not have been significant.
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, consist of the following at
March 31:
2000
---------
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.
NOTE 5 PROPERTY AND EQUIPMENT
The following is a summary of property and equipment - at cost, less
accumulated depreciation as of March 31, 2000 and December 1999:
2000 1999
-----------------
Furniture and office equipment $6,050 $6,050
Less: accumulated depreciation (3,301) (3,139)
-----------------
Total $2,749 $2,911
-----------------
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UPLAND ENERGY CORPORATION AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 PROPERTY AND EQUIPMENT (Continued)
Depreciation expense charged to operations was $162 and $163 for the three
months ended March 31, 2000 and 1999.
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
periods ended March 31, 2000 and 1999, the Company recorded depletion of
$10,685 and $8,775, 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 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.
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.
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UPLAND ENERGY CORPORATION AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 - OIL AND GAS PROPERTIES [Continued]
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 During the periods ended March 31, 2000 and 1999 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 March 31, 2000 and December 31, 1999, the
total of all deferred tax assets was $954,000 and $951,000 and the total of
the deferred tax liabilities was $98,000 and $102,000. 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 $856,000 and $849,000 as of March 31, 2000 and December
31, 1999, which has been offset against the deferred tax assets. The net
increase in the valuation allowance during the periods ended March 31, 2000
and December 31, 1999 amounted to approximately $7,000 and $263,000,
respectively.
As of March 31, 2000 and December 31, 1999, 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 $2,536,000 that expire in various years between 2001 and 2019.
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.
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,
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UPLAND ENERGY CORPORATION AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9 - COMMON STOCK TRANSACTIONS (Continued)
During December 1999, the Company issued 982,000 shares of common stock valued
at $.25 per share in payment of Notes Payable.
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 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. 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.
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UPLAND ENERGY CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9 COMMON STOCK TRANSACTIONS (CONTINUED)
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.
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 March 31, 2000 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.
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
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 periods ended March 31, 2000 and 1999:
For The Period Ended
March 31,
----------------------
2000 1999
--------- ---------
Income (loss) from continuing
operations available to common
stockholders used in earnings (loss)
per share $ (17,311) $(131,991)
--------- ---------
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<PAGE> 14
UPLAND ENERGY CORPORATION AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13 EARNINGS (LOSS) PER SHARE (Continued)
Weighted average number of
common shares used in earnings
(loss) per share outstanding during
the period 4,499,192 3,562,192
--------- ---------
NOTE 14 GOING CONCERN
Dilutive earnings per share was not presented, as its effect was anti-dilutive
for the period ended March 31, 2000 and 1999. 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 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. 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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<PAGE> 15
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.
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 March 31, 2000, the Company had assets of $363,246. The Company had
current assets of only $25,612 with current liabilities of $46,143 resulting
in a negative working capital position of $20,531.
<PAGE>
<PAGE> 16
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 March 31, 2000, the Company had revenue of $32,335
which was up from $26,180 for the same quarter in 1999. The increase was
partly the result of increased oil prices.
Expenses for the quarter ended March 31, 2000, decreased to $49,646 from
$153,931 for the same period in 1999. For the quarter ended March 31, 2000,
general and administrative expenses decreased to $19,008 from $38,432 for the
same period in 1999 as the Company reduced its payroll expenses by not
replacing officers and employees who left. The Company also saved $100,000 in
Dryhole and unsuccessful recompletions and exploration cost over 1999.
Production expenses increased as the Company farmed all of this work to third
parties to reduce its staffing. As a result production expenses increased to
$19,831 from $5,561 in the first quarter of 1999. As a result of the overall
decrease in expenses, the Company posted a smaller loss from operations of
$17,311 as opposed to prior quarters losses in 1999 of $126,751. The Company
is hopeful that with strong oil prices, it can produce a small profit as it
seeks additional financing. As a result of the changes made by the Company
over the past year, the Company actually had $7,429 in cash provided by
operations.
<PAGE>
<PAGE> 17
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
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
----------
Exhibit # SEC Ref. # Title of Exhibit Location
- --------- --------- ---------------- --------
10.01 10 Purchase and Sale Agreement
McLouth Field 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: May 15, 2000 By: /s/ signature
------------ -------------
Lee Jackson, President and Principal
Accounting and Chief Financial Officer
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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 25,612
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 25,612
<PP&E> 348,478
<DEPRECIATION> 10,847
<TOTAL-ASSETS> 363,246
<CURRENT-LIABILITIES> 46,143
<BONDS> 0
0
0
<COMMON> 2,437,362
<OTHER-SE> (2,113,959)
<TOTAL-LIABILITY-AND-EQUITY> 317,103
<SALES> 32,335
<TOTAL-REVENUES> 32,335
<CGS> 0
<TOTAL-COSTS> 49,646
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (17,311)
<INCOME-TAX> 0
<INCOME-CONTINUING> (17,311)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (17,311)
<EPS-BASIC> (0.00)
<EPS-DILUTED> (0.00)
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