U.S. Securities and Exchange Commission Washington, D.C. 20549 FORM 10-QSB (X) QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended: June 30, 1998 ( ) TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES ACT OF 1934 For the transition period ended: Commission File Number: 0-25006 Name of Small Business Issuer in Charter: UNITED PETROLEUM CORPORATION State or Other Jurisdiction of Incorporation or Organization: DELAWARE I.R.S. Employer I.D. Number: 13-3103494 Address of Principal Executive Offices: Suite N-425 1111 Northshore Drive Knoxville, Tennessee 37919 Issuer's Telephone Number: (423) 909-0890 Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. (1) Yes (X) No ( ) (2) Yes (X) No ( ) APPLICABLE ONLY TO CORPORATE ISSUERS Indicate the numbers of shares outstanding of each of the Registrant's classes of common stock, as of the latest practicable date: Common Voting Stock: 30,565,352 Date: August 3, 1998 Transitional Small Business Disclosure Format (Check One): Yes ( ) No (X) Page 1 of 17 UNITED PETROLEUM CORPORATION AND SUBSIDIARIES INDEX Part I. Financial Information Item 1. Condensed Financial Statements ( Unaudited ) Condensed consolidated balance sheets - June 30, 1998 and December 31, 1997 Condensed consolidated statements of operations - Three months ended June 30, 1998 and 1997; six months ended June 30, 1998 and 1997 Condensed consolidated statement of stockholders' equity Condensed consolidated statements of cash flows - Six months ended June 30, 1998 and 1997 Notes to condensed consolidated financial statements - June 30, 1998 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Part II. Other Information Signatures Page 2 of 17 PART I. - Financial Information Item 1. Financial Statements United Petroleum Corporation and Subsidiaries Consolidated Balance Sheets At June 30, 1998 and December 31, 1997 June 30, 1998 Dec. 31, 1997 ------------- ------------- Current Assets Cash $141,173 $166,180 Accounts and Notes Receivable $125,549 $112,377 Inventories $300,032 $321,948 Other Current Assets $39,722 $373,413 ------------ ------------ $606,476 $973,918 Property and Equipment Gas and Oil properties $4,431,340 $4,798,795 Premises and Equipment (Net) $8,255,469 $8,519,499 Intangibles and Other Assets $204,832 $408,772 ------------ ------------ Total Assets $13,498,117 $14,700,984 ============ ============ Liabilities and Stockholders' Equity Current Liabilities Accounts Payable $367,373 $534,867 Accrued Expenses $2,572,884 $1,368,097 Line of Credit $750,000 $247,829 Current Maturities-Long Term Debt $10,930,767 $9,241,801 ------------ ------------ $14,621,024 $11,392,594 Long Term Liabilities Long Term Debt-Less Current Maturities $931,056 $2,601,686 Deferred Income Taxes $0 $0 ------------ ------------ Total Liabilities $15,552,080 $13,994,280 Minority Interest $50,000 $200,000 Stockholders' Equity Preferred Stock, $.01 Par Value Series A $99 $99 Series B $18 $18 Common Stock, $.01 Par Value $305,653 $292,795 (50,000,000 shares authorized, 30,565,352 and 29,279,515 issued) Additional Paid-In Capital (Common) $26,050,947 $26,036,305 Retained Earnings ($27,273,248) ($24,635,081) ------------ ------------ ($916,531) $1,694,136 Less: Stockholder note receivable ($1,187,432) ($1,187,432) ------------ ------------ Total Stockholders' Equity ($2,103,963) $506,704 ------------ ------------ Total Stockholders' Equity & Liabilities $13,498,117 $14,700,984 ============ ============ The accompanying notes are an integral part of these financial statements. Page 3 of 17 United Petroleum Corporation and Subsidiaries Consolidated Statement of Operations For The Three Month Periods Ended June 30, 1998 and June 1997 June 30, 1998 June 30, 1997 ------------- ------------- Revenues $1,635,985 $2,531,617 Cost of Sales $1,109,637 $1,702,926 ------------ ------------ Gross Profit $526,348 $828,691 Operating Expenses: Salaries and Wages $220,158 $223,335 Payroll Taxes $50,672 $63,760 Other General and Administrative $661,061 $938,546 Interest Expense $320,845 $387,811 Depreciation and Amortization $392,728 $284,625 ------------ ------------ $1,645,464 $1,898,077 Other Income (Expense) ($26,421) $28,646 ------------ ------------ Net Income Before Income Taxes ($1,145,537) ($1,040,740) Provision For Income Taxes $0 $0 ------------ ------------ Net Income After Taxes ($1,145,537) ($1,040,740) ============ ============ Primary Earnings Per Share ($0.037) ($0.06) ============ ============ Weighted Average Shares Outstanding 30,565,352 17,225,270 ============ ============ Fully Diluted Earnings Per Share ($0.037) ($0.06) ============ ============ Fully Diluted Weighted Average Shares 30,565,352 17,225,270 Outstanding ============ ============ The accompanying notes are an integral part of these financial statements. Page 4 of 17 United Petroleum Corporation and Subsidiaries Condensed Consolidated Statements of Operations For The Six Month Periods ended June 30, 1998 and 1997 June 30, 1998 June 30, 1997 ------------- ------------- Revenues $3,294,947 $6,230,264 Cost of Sales $2,122,042 $4,319,259 ------------ ------------ Gross profit $1,172,905 $1,911,005 Operating Expenses: Salaries and Wages $461,243 $524,122 Payroll Taxes $98,785 $135,825 Other General and Administrative $1,233,805 $1,528,179 Interest Expense $534,414 $1,474,536 Depreciation and Amortization $583,058 $676,906 ------------ ------------ $2,911,305 $4,339,568 Other Income (Expense) $57,711 $42,531 ------------ ------------ Net Income Before Taxes ($1,680,689) ($2,386,032) Provision For Income Taxes $0 $0 ------------ ------------ Net Income After Taxes ($1,680,689) ($2,386,032) ============ ============ Primary Earnings Per Share ($0.05) ($0.06) ============ ============ Weighted Average Shares Outstanding 30,565,352 17,225,270 ============ ============ Fully Diluted earnings Per Share ($0.05) ($0.06) ============ ============ Fully Diluted Weighted Average Shares 30,565,352 17,225,270 Outstanding The accompanying notes are an integral part of these statements. Page 5 of 17 United Petroleum Corporation and Subsidiaries Consolidated Statements of Changes in Stockholders' Equity Series A Series B Common Stock Additional Accumulated Preferred Preferred Shares Dollars Paid-In Capital Deficit --------- --------- ---------- -------- --------------- ------------- Balance, January 1, 1998 $99 $18 29,279,515 $292,795 $26,036,305 ($24,635,081) Shares issued for services 600,000 $6,000 $9,000 Dividends Declared- Class A ($439,930) Class B ($36,164) Net Loss ($535,152) -------- --------- ---------- -------- ----------- ------------- Balance, March 31, 1998 $99 $18 29,879,515 $298,795 $26,045,305 ($25,646,327) Shares issued for services 685,837 $6,858 $5,642 Dividends Declared- Class A ($444,818) Class B ($36,566) Net Loss ($1,145,537) -------- -------- ---------- -------- ----------- ------------- $99 $18 30,565,352 $305,653 $26,050,947 ($27,273,248) Stockholder Note Receivable Total ------------ ---------- Balance, January 1, 1998 ($1,187,432) $506,704 Shares issued for services Dividends Declared- Class A Class B Net Loss ------------ ---------- Balance, March 31, 1998 ($1,187,432) ($489,542) Shares issued for services Dividends Declared- Class A Class B Net Loss ($1,187,432) ($2,103,963) ------------ ------------ Page 6 of 17 United Petroleum Corporation and Subsidiaries Consolidated Statements of Cash Flows For The Six Months Period Ended June 30, 1998 and 1997 June 30, 1998 June 30, 1997 ------------- ------------- Operating Activities Net Income ($1,680,689) ($2,386,032) Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and Amortization $583,058 $676,906 Shares issued for services $12,500 $650,369 Changes in operating assets and liabilities: Decrease (increase) in- Accounts notes receivable ($13,172) $158,593 Inventories $21,916 $254,735 Other Current Assets $333,691 $1,259 Increase (decrease) in - Accounts Payable and Accrued Liabilities $79,815 ($1,346,924) ----------- ----------- ($662,881) ($1,991,094) Investing Activities: Property & Equipment (Additions) Dispositions ($164,208) $2,364,613 Gas & Oil Properties (Additions) Dispositions $325,000 ($52,454) Decrease (increase) in other assets $203,940 $62,503 ----------- ----------- $364,732 $2,374,662 Financing Activities: Principal payments on debt ($229,029) ($2,422,156) Proceeds from short term borrowings $750,000 $203,000 Payments on short term borrowings ($247,829) ($23,000) Net proceeds from bank financing $0 $435,008 Net proceeds from issuance of debentures $0 $500,000 Proceeds from issuance of common stock $0 $957,876 ----------- ----------- $273,142 ($349,272) ----------- ----------- Increase (Decrease) in Cash and Cash Equivalents ($25,007) $34,296 Cash and Cash Equivalents, Beginning of Period $166,180 $19,759 ----------- ----------- Cash and Cash Equivalents, End of Period $141,173 $54,055 =========== =========== The accompanying notes are an integral part of these financial statements. Page 7 of 17 United Petroleum Corporation and Subsidiaries Notes to Consolidated Financial Statements Periods Ended June 30, 1998 and 1997 Note 1 - Summary of Significant Accounting Policies Basis of Presentation - The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-QSB of Regulation S-X, and has been presented on the basis that the Company is a going concern which contemplates the realization of assets and satisfaction of liabilities in the normal course of business (see Note 18 to the notes to the Company's consolidated financial statements included in the Registrant's annual report on Form 10-KSB for the year ended December 31, 1997). Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Certain reclassifications have been made to the 1997 financial statements in order for them to conform with classifications used in 1998. Operating results for the three and six month periods ended June 30, 1998 are not necessarily indicative of the results that may be expected for the year ended December 31, 1998. For further information, refer to the consolidated financial statements and footnotes thereto included in the Registrant and Subsidiaries' annual report on Form 10-KSB for the year ended December 31, 1997. The year end condensed balance sheet was derived from audited financial statements but does not include all disclosures required by generally accepted accounting principles. Principles of Consolidation - The consolidated financial statements include the accounts of United Petroleum Corporation (the "Company") and its wholly owned subsidiaries, Calibur Systems, Inc., Jackson-United Petroleum Corporation and CTV Studios, Inc.. All significant intercompany accounts and transactions have been eliminated in consolidation. Results of operations of companies purchased are included from the dates of acquisition. Business Activities - The Company's business activities are conducted through its subsidiaries and are contained within two primary industry segments. Calibur Systems, Inc. operates convenience stores, express lube centers, and car washes providing a variety of car wash and detail services, gasoline, automotive, food and beverage and related products throughout eastern Tennessee and northern Georgia. Jackson-United Petroleum Corporation was formed for the purpose of developing gas and oil properties and marketing of gas and oil production. Currently all of the Company's gas and oil properties are located within the United States in central Kentucky, Pennsylvania and Missouri. CTV Studios, Inc. was formed to conduct activities in the broadcasting industry and had not commenced operations as of June 30, 1998. Page 8 of 17 United Petroleum Corporation and Subsidiaries Notes to Consolidated Financial Statements - Continued Periods Ended June 30, 1998 and 1997 Cash and Cash Equivalents - The Company considers cash on hand, deposits in banks, certificates of deposit and investments with original maturity of three months or less to be cash or cash equivalents. Inventories - Inventories are stated at the lower of cost or market. Cost of gasoline sales is determined using the first-in first-out method. Cost of convenience store sales is determined using the average retail cost method. Gas and Oil Properties - The Company follows the full cost method of accounting for gas and oil properties. Accordingly, all costs associated with acquisition, exploration and development of gas and oil reserves, including directly related overhead costs, are capitalized. All capitalized costs of gas and oil properties, including the estimated future costs to develop proved reserves, are amortized on the unit-of-production method using estimates of proved reserves. Investments in unproved properties and major development projects are not amortized until proved reserves associated with the projects can be determined or until impairment occurs. If the results of an assessment indicate that the properties are impaired, the amount of the impairment is added to the capitalized costs to be amortized. In addition, the capitalized costs are subject to a "ceiling test", which basically limits such costs to the aggregate of the "estimated present value", discounted at 10 percent interest rate of future net reserves from proved reserves, based on current economic and operating conditions, plus lower of cost or fair market value of unproved properties. Retail Operations - Property and equipment of the retail operations is stated at cost. Routine repairs and maintenance are charged to expense as incurred. Upon disposition, the cost and related accumulated depreciation are removed from the accounts and resulting gain or loss is reflected in operations of the period. The Company generally depreciates property and equipment on a straight-line basis over the useful lives of the related assets estimated to be 15 to 20 years for buildings and improvements, 6 to 10 years for equipment, and 3 to 4 years for vehicles. Capitalized Interest - The Company capitalizes interest on construction in progress and expenditures made in connection with exploration and development projects that are not subject to current amortization. Interest is capitalized only for the period that activities are in progress to bring these projects to their intended use. Page 9 of 17 United Petroleum Corporation and Subsidiaries Notes to Consolidated Financial Statements - Continued Periods Ended June 30, 1998 and 1997 Income Taxes - Deferred Taxes are provided in accordance with Statement and Financial Accounting Standards Number 109, Accounting For Income Taxes. Deferred taxes are provided to account for accumulated temporary differences for assets and liabilities for financial reporting and income tax purposes, including alternative minimum taxes. The Company's temporary differences are primarily due to different financial reporting and tax methods of accounting for depreciation and intangible drilling costs. Non-Cash Equity Transactions - Goods and services acquired through the issuance of the Company's common stock are valued at the fair market value of the stock on the date of acquisition. When restricted shares are issued, the value of the shares given in exchange is discounted approximately 50 % from the fair market value of freely traded common stock. It is the intent of management to reduce the discount related to the issuance of restricted shares if and when the market for the Company's common stock becomes less volatile and the average daily trading volume increases significantly. During the quarter the Company issued 685,837 shares for services and other minor obligations. This included 500,000 shares which bear a restrictive legend and were issued at 50% of the market value as of the date of issue. These shares were issued at $.025 per share which was half of the market price per share on the date issued. The remaining 185,837 shares were issued to one of the Company's debenture holders in payment of interest in 1997 but were not shown in the Company's share balances through an oversight. Page 10 of 17 Item 2. - Management's Discussion and Analysis of Operations The Company realized a net loss of ($1,145,537) for the three month period ended June 30, 1998, compared to a net loss of ($1,040,740) for the same period last year. A summary of comparative results between the second quarter of 1998 and the second quarter of 1997 is as follows: Revenues were realized as follows: Quarter Ended Quarter Ended June 30, 1998 June 30, 1997 ------------- ------------- Retail Subsidiary: Gasoline $ 467,730 $ 756,408 Car Wash 731,353 1,145,851 Oil & Lube 315,236 397,412 Grocery 46,342 93,651 Other Sales 21,968 85,450 Energy Subsidiary: Natural Gas 45,505 28,957 Crude Oil 7,851 23,888 ------------- ------------- Total Revenue For Quarter $ 1,635,985 $ 2,531,617 ============= ============= Retail Subsidiary (Calibur Systems, Inc.) Sales decreased approximately 36.1% from $2,478,772 in the second quarter of 1997 to $1,582,629 in the second quarter of 1998. A comparison of these two quarters shows that, in the aggregate, (i.) gasoline sales decreased by 38.2%, (ii.) car wash sales decreased by 36.1%, (iii.) oil & lube sales decreased by 20.7%, (iv.) grocery sales decreased by 50.5% and (v.) other sales decreased by 74.3%. The majority of such decreases are attributed to the sale and/or closing of Company locations. For the same time period, same store sales increased approximately 2.1% from $1,346,483 to $1,375,015. The Company experienced a decreased gross profit margin on gasoline sales from 6.5 % in the second quarter of 1997 to 5.1 % in the second quarter of 1998. Volume decreased from 747,147 gallons in the second quarter of 1997 to 482,092 gallons in the second quarter of 1998 for a decrease of 35.5%. The majority of the decrease is related to the sale and/or closing of Company locations which sold gasoline in the previous year. For the same period of time, same store sales increased $45,160 from $396,567 to $441,727. For further information related to the sale or closing of Company locations refer to the annual report of the Company on Form 10-KSB for the period ended December 31, 1997. Page 11 of 17 Management's Discussion and Analysis of Operations - Continued Car wash revenue was $731,353 for the second quarter as compared to $1,145,851 for the same quarter last year which represents a decrease of approximately 36.2 %. The majority of this decrease can be attributed to the sale of Company locations which offered full service car washes in the previous year. For the same period of time, same store car wash sales increased $24,030 from $611,679 to $635,709. For further information related to the sale of Company locations refer to the annual report of the Company on Form 10-KSB for the period ended December 31, 1997. Oil and lube revenue was $315,236 for the second quarter as compared to $397,412 for the same period last year which represents a decrease of approximately 20.6%. The majority of this decrease can be attributed to the sale and/or closing of Company locations which provided this service in the previous year. For the same period of time, same store oil and lube sales declined by $13,369. Grocery and other sales were $68,310 for the second quarter as compared to $179,101 for the same quarter last year which represents an decrease of approximately 61.8%. The majority of this decrease is attributed to the sale or closing of Company locations which contained or offered these items for sale. The Calibur Systems, Inc. subsidiary had a net loss of ($517,471) for the quarter as compared to a net loss of ($234,723) for the same quarter last year. During the quarter, the Company took a one time charge in the amount of ($56,608) related to the abandonment of improvements at a location under lease which was closed during the quarter and took a one time charge in the amount of ($218,000) related to the amortization of loan costs. Energy Subsidiary (Jackson-United Petroleum Corporation) Natural gas revenue increased to $45,505 for the second quarter as compared to $28,957 in the second quarter of last year. Oil revenue decreased to $7,851 for the second quarter as compared to $23,888 in the second quarter of last year. The majority of the decline is attributed to the fact that oil prices have fallen significantly from the previous year. The Jackson-United Petroleum Corporation subsidiary had a net income of $22,964 for the quarter as compared to a net income of $18,632 for the same quarter last year. The subsidiary had an operating loss of ($64,239) for the quarter and a gain on the sale of certain assets during the quarter of $87,203. The gain on sale was the result of the sale of four (4) wells and one (1) lease in eastern Kentucky for a total of $340,000. Three of the wells known as the Bogar #1, the Wilson #1 and the TL #1 which were located in Pike County, Kentucky were sold to Penn Page 12 of 17 Management's Discussion and Analysis of Operations - Continued Virginia Oil & Gas for $240,000. The fourth well known as the Stepp #1 and a lease known as the Robinson/Duncan lease, both located in Martin County, Kentucky, were sold to Interstate Natural Gas for $100,000. As a result of the sale, the Company was able to satisfy all liens, payables and judgments associated with the oil and gas subsidiary. The net cash provided to the Company after the payment of all expenses, liens, judgments and payables associated with the wells was approximately $33,000. Consolidated Operations Operating expenses were $1,645,464 for the second quarter of 1998 as compared to $1,898,077 for the same period last year. This decrease is primarily attributed to several factors as follows: (1.) a decrease in interest paid on debentures, (2.) a decrease in amortized costs associated with the issuance of the debentures and (3.) a decrease in selling, general and administrative expense due to the reduced number of Company locations. The decrease was partially off-set by a one-time charge in the amoun of ($218,000) related to the amortization of loan costs in the Calibur subsidiary. Losses for the second quarter were greater than expected by management. The primary factors associated with the increased losses were: (1.) lower than desired gasoline margins, (2.) lower than expected gasoline volume, (3.) lower than expected car wash revenue, (4.) higher than expected loan cost amortization, (5.) the settlement of a lawsuit which cost the Company $56,608, (6.) lower than expected oil & lube revenues and (7.) higher than expected costs of goods sold in the oil and lube division. Financial Condition - The working capital deficit increased to approximately ($14,014,548) as of June 30, 1998 as compared to approximately ($10,418,676) as of December 31, 1997. The majority of this increase can be attributed to the following factors: (1.) increases in accrued interest on debentures - the Company ceased payment of interest on all debentures effective December 31, 1997, (2.) increases in accrued dividends on preferred stock - the Company ceased payment of dividends on all preferred stock effective Decembe 31, 1997, (3.) the fact that the majority of the Company's real estate debt has a maturity of less than one year and (4.) all of the Company's outstanding debentures are now in default due to the fact that the Company ceased paying interest on the debentures effective December 31, 1997. The real estate debt as mentioned above and the debentures, which total approximately $10,930,000, are included in the current maturities of the Company. The net worth of the Company decreased to ($2,103,963) as of June 30, 1998 as compared to $506,704 as of December 31, 1997. The decrease is attributed to the operating loss of Page 13 of 17 Management's Discussion and Analysis of Operations - Continued ($1,738,400) sustained by the Company and non-operating income of $57,711 which combined create a loss for the year of ($1,680,689). The net worth was further reduced by the amount of the accrued preferred stock dividends in the amount of $1,444,153. During the quarter, interest on debentures in the amount of $124,640 was off-set due to the amortization of unearned discounts related to the face value of debentures forgiven by debenture holders pursuant to the restructure agreement completed by the Company effective April 30, 1997. During the quarter, approximately $5,000,000 of the mortgage notes owed by the Company's subsidiary, Calibur Systems, Inc., were purchased by, Infinity Investors Limited ("Infinity"), one of the holders of the Company's convertible debentures and preferred stock. As reported earlier, certain of the Company's lenders had declared approximately $2,500,000 of the mortgage notes in default and had made a demand for payment in full. These mortgage notes and the bridge loan described below in the amount of $750,000 were refinanced in August of 1998. In addition, during the quarter Infinity provided to the Company a loan in the amount of $750,000. The loan bore an interest rate of twelve percent (12%) with an original maturity date of September 30, 1998. The loan was secured by the Company's stock in each subsidiary and further secured by the assets of the oil and gas subsidiary. The loan allowed the Company to bring numerous taxes and other payables current. However, the amount of the loan was insufficient to bring all payables current as of the date of the closing. Prior to the refinancing discussed below the Company had defaulted under the terms of this loan. Subsequent to the end of the quarter, Infinity refinanced the foregoing obligations and provided the Company approximately $1,300,000 in additional financing. The refinancing is divided into two notes, designated as the "A" and "B" notes and both notes are secured by the stock of the subsidiaries of the Company and substantially all of the assets of the Company and each subsidiary. The "A" note is in the amount of $4,200,000 at an interest rate of twelve percent (12%) per annum and will mature on January 1, 1999. The interest on this note is to be paid monthly. This note is guaranteed by the President of the Company. The "B" note is in the amount of $2,800,000 at an interest rate of twelve percent (12%) per annum and will mature on January 1, 1999. The interest on this note is to be paid at maturity. As a condition precedent to the refinancing, the Company agreed to work with Infinity towards an amicable recapitalization of the Company and its subsidiaries. Plans for the recapitalization are incomplete at this time. During 1998, the Company will continue to seek additional sources of capital to continue as a going concern. No assurance can be given that the Company will be able to obtain the desired capital. Page 14 of 17 Management's Discussion and Analysis of Operations - Continued Expansion, Capital Improvements and Divestitures As of June 30, 1998 the Company is not committed to any expansion projects in the retail subsidiary or the oil and gas subsidiary. During the quarter the Company ceased operations at three locations formerly operated in the Calibur Systems, Inc. subsidiary. The following is a summary of the locations in which operations ceased. All locations were closed due to a lack of profitability. (1.) In May, 1998, an oil and lube facility located on Merchants Road in Knoxville, Tennessee was closed. The location was operated by the Company under a long term lease. The location was unprofitable during the time it was operated by the Company and in 1998 had a net loss of ($14,198) before taxes and insurance. The Company was successful in finding a non-affiliated third party operator willing to take over the long term lease and acquire the Company's inventory at the location. A one time charge in the amount of approximately ($56,608) was taken during the quarter as a result of ceased operations. (2.) In June, 1998, a car wash and gasoline facility located on Canton Highway in Marietta, Georgia was closed. The location is now being leased from the Company by a non-affiliated third party under a one year lease agreement with the Company which grants the tenant the option to purchase the location from the Company for an amount equal to the debt on the location of approximately $932,000. The location has been unprofitable for the past couple of years and the 1998 year to date loss was ($27,704). The lease is triple net and the lease payments are equal to the existing debt service of the Company for the location. The tenant has already applied to the Company's lender, the Small Business Administration, to assume the debt and exercise their right to purchase the location from the Company. No assurance can be given that the tenant will be able to assume the existing debt or be able to find appropriate financing to acquire the location. (3.) In June, 1998, a car wash, gasoline and oil and lube facility located on Memorial Drive in Atlanta, Georgia was closed. The location is now being leased from the Company by a non-affiliated third party under a five year triple net lease with payments of $6,000 per month for the first six months and then $7,500 per month for the remaining term of the lease. Said lease also has a purchase option for the tenant which allows the tenant to purchase the location for $900,000 if acquired on or before January 1, 1999 and said price increases $50,000 per year on each January 1st during the lease term. The location has been unprofitable for the past couple of years and the year to date 1998 loss was ($33,961). Although the tenant is expected to purchase the location during the lease term, no assurance can be given that such sale will take place. Page 15 of 17 Part II - Other Information Item 1 Legal Proceedings On May 18, 1998 an involuntary bankruptcy petition, styled in re: United Petroleum Corporation dba Jackson-United Petroleum and Calibur Systems, Inc., was filed in the United States Bankruptcy Court in the Eastern District of Tennessee against the Company by three preferred shareholders of the Company. This petition was never served on the Company, and the petitioners counsel of record has subsequently withdrawn and has not been replaced. The Company does not believe that the petitioners have the right under existing bankruptcy law to file such a petition against the Company as the petitioners are equity holders of the Company. On July 28, 1998, the Company filed a motion to dismiss the petition. To date, no response has been filed by the petitioners and the court has taken no action on the motion. Item 2 Changes In Securities - None Item 3 Defaults Upon Senior Securities The Company is presently in default regarding both the Company's outstanding debentures and preferred stock. The Company ceased paying interest on the debentures and ceased paying dividends on the outstanding preferred stock effective December 31, 1997. Prior to this date the Company had been paying interest on the debentures via the issuance of common stock in the Company and had been paying the dividend on preferred stock via the issuance of common stock of the Company. Accrued interest on debentures presently totals $812,310. Accrued dividends on preferred stock presently totals $1,444,153. Although the Company had been in default under its mortgage notes and bridge loan, the defaults were eliminated by the Infinity refinancing in August of 1998. Item 4 Submission of Matters to a Vote of Security Holder - None Item 5 Other Information - None Item 6 Exhibits and Reports on Form 8-K (a.) Exhibits - None (b.) Reports on Form 8-K - None Page 16 of 17 Signatures Pursuant to the requirement of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. United Petroleum Corporation Dated: August 14, 1998 By: /s/ Michael F. Thomas ----------------- ------------------------- Michael F. Thomas President & CEO Page 17 of 17