UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-QSB
Quarterly Report Under Section 13 or 15(d) of
The Securities Exchange Act of 1934
CENTRAL UTILITIES PRODUCTION CORPORATION
(Name of Small Business Issuer)
June 30, 2001 0-27187
For the Quarter Ended Commission File Number
Nevada 88-0361127
(State of Incorporation) (I.R.S. Employer Identification Number)
1039 North I-35 #301 Carrollton, Texas 75006.
(Address of Principal Executive Offices Including Zip Code)
(972) 446-8775
(Issuers 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 such shorter
period that the registrant was required to file such reports), and (2) has been
subject to filing requirements for the past 90 days. YES [X] NO [ ]
Number of shares outstanding of each of the issuer's classes of common equity,
as of August 10, 2001 247,850,152
Transitional Small Business Disclosure Format: Yes [ ] No [ ]
Central Utilities Production Corporation
INDEX
Page
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PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
Consolidated Balance Sheet at June 30, 2001 3
Consolidated Statements of Operations for the three months
and six months ended June 30, 2001 and 2000 4
Consolidated Statements of Cash Flows for the six months
ended June 30, 2001 and 2000 5
Item 2 - Management's Discussion and Analysis 10
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 11
Item 2. Changes in Securities and Use of Proceeds 11
Item 3. Default Upon Senior Securities 11
Item 4. Submission of Matters to a Vote of Security Holders 12
Item 5. Other Information 12
Item 6. Exhibits and Reports on Form 8-K 12
1
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CENTRAL PRODUCTION UTILITIES, INC.
UNAUDITED CONSOLIDATED BALANCE SHEET
JUNE 30, 2001
ASSETS
CURRENT ASSETS
Cash $ 109,342
Accounts receivable 12,318
------------
Total current assets 121,660
------------
PROPERTY AND EQUIPMENT 13,378
OIL AND GAS PROPERTIES 43,859,093
OTHER ASSETS 5,000
------------
TOTAL ASSETS $ 43,999,131
============
LIABILITIES AND STOCKHOLDERS' EQUITY:
CURRENT LIABILITIES:
Accounts payable $ 45,618
Accrued liabilities 59,768
Legal settlement payable 345,000
Convertible debentures 1,000,000
------------
Total current liabilites 1,450,386
------------
STOCKHOLDERS' EQUITY:
Preferred stock, $.0001 par value, 3,000,000 shares
authorized, none issued
Common stock, $.0001 par value, 47,000,000 share authorized,
247,850,152 issued and outstanding 24,785
Paid in capital 43,025,251
Accumulated deficit (501,291)
------------
Total stockholders' equity (deficit) 42,548,745
------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 43,999,131
============
The accompanying notes are an integral part of
this consolidated financial statement.
2
CENTRAL PRODUCTION UTILITIES, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2001 AND 2000
Three months June 30, Six months June 30,
---------------------------- --------------------------
2001 2000 2001 2000
----------- ----------- ----------- -----------
SALES $ 12,318 $ -- $ 12,318 $ --
COST OF SALES 7,433 -- 7,433 --
----------- ----------- ----------- -----------
Gross profit 4,885 -- 4,885 --
----------- ----------- ----------- -----------
OTHER (INCOME) AND EXPENSES
General and administrative expense 133,329 76,533 134,406 149,081
Interest expense 355,256 250,564 370,256 258,827
Settlement expense -- 500,000 -- 500,000
Other income -- --
----------- ----------- ----------- -----------
Total other expense (income) 488,585 827,097 504,662 907,908
----------- ----------- ----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES, DISCONTINUED
OPERATIONS AND EXTRAORDINARY ITEM (488,585) (827,097) (504,662) (907,908)
DISCONTINUED OPERATIONS
-- (834,706) 3,371 (747,973)
INCOME TAX (PROVISION) BENEFIT -- -- -- --
----------- ----------- ----------- -----------
NET INCOME (LOSS) BEFORE EXTRAORDINARY ITEM (488,585) (1,661,803) (501,291) (1,655,881)
EXTRAORDINARY ITEM - NET GAIN ON LIABILITIES
TO BE DISCHARGED IN BANKRUPTCY (net of income
taxes of $0 and $0 ) -- -- -- --
----------- ----------- ----------- -----------
NET INCOME (LOSS) $ (488,585) $(1,661,803) $ (501,291) $(1,655,881)
=========== =========== =========== ===========
The accompanying notes are an integral part of
these consolidated financial statements.
3
CENTRAL PRODUCTION UTILITIES, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS - CONTINUED
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2001 AND 2000
Three months ended June 30, Six months ended June 30,
------------------------------ ------------------------------
2001 2000 2001 2000
------------ ------------ ------------ ------------
NET INCOME (LOSS) PER COMMON SHARE
Basic:
Before discontinued operations and
extraordinary item $ * $ * $ * $ *
Discontinued operations * -- * --
Extraordinary item -- -- -- --
------------ ------------ ------------ ------------
Total $ * $ * $ * $ *
============ ============ ============ ============
Diluted:
Before discontinued operations and
extraordinary item $ * $ * $ * $ *
Discontinued operations * -- * --
Extraordinary item -- -- -- --
------------ ------------ ------------ ------------
Total $ * $ * $ * $ *
============ ============ ============ ============
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
Basic 237,816,009 228,000,000 232,935,121 228,000,000
============ ============ ============ ============
Diluted 237,816,009 228,000,000 232,935,121 228,000,000
============ ============ ============ ============
* Less than $0.01 per share.
The accompanying notes are an integral part of
these consolidated financial statements.
4
CENTRAL PRODUCTION UTILITIES, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30,
2001 2000
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (501,291) $(1,655,881)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Deferred income taxes -- (2,948)
Issuance of stock for compensation and services rendered -- 2,585
Discontinued operations (3,371) 747,973
Legal settlement 500,000
Impairment loss 250,000
Amortization of debt discount 333,333
Changes in assets and liabilities:
Accounts receivable (12,318)
Deposits (5,000)
Income tax payable -- 8,850
Accounts payable (24,928) 28,794
Accrued settlement payable
Accrued liabilities 41,808 19,986
----------- -----------
Net cash (used in) provided by continuing operations (171,767) (100,641)
Net cash provided by discontinued operations 3,371 (41,051)
----------- -----------
Net cash used in operating activities (168,396) (141,692)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of oil and gas properties (237,000)
Purchase of property, machinery and equipment (13,378) (10,428)
----------- -----------
Net cash (used in) investing activities (250,378) (10,428)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings on bank line of credit -- (4,018)
Borrowings on long-term debt -- --
Principal payments on long-term debt -- (68,274)
Payments on capital lease obligations -- (11,259)
Proceeds from sale of convertible debentures 500,000 250,000
----------- -----------
Net cash (used in) financing activities 500,000 166,449
----------- -----------
(DECREASE) INCREASE IN CASH 81,226 14,329
CASH, BEGINNING OF PERIOD 28,116 13,315
----------- -----------
CASH, END OF PERIOD $ 109,342 $ 27,644
=========== ===========
The accompanying notes are an integral part of
these consolidated financial statements.
5
CENTRAL PRODUCTION UTILITIES, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30,
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING
AND FINANCING ACTIVITIES:
Machinery and equipment acquired under
capitalized leases $ -- $24,135
============ =======
Book value of net assets transferred in connection
with reverse merger consummated by issuance of
common stock $ 43,622,093 $ --
============ =======
The accompanying notes are an integral part of
these consolidated financial statements.
6
CENTRAL PRODUCTION UTILITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2001
STATEMENT OF INFORMATION FURNISHED
The accompanying financial statements have been prepared in accordance with
Form 10-QSB instructions and in the opinion of management contain all
adjustments (consisting of only normal and recurring accruals) necessary to
present fairly the financial position as of June 30, 2001, and the results of
operations for the three and six months ended June 30, 2001and 2000 and cash
flows for the six months ended June 30, 2001 and 2000. These results have been
determined on the basis of generally accepted accounting principles and
practices applied consistently with those used in the preparation of the
Company's 2000 financial statements included in Form 10-KSB.
Certain information and footnote disclosure normally included in financial
statements presented in accordance with generally accepted accounting principles
have been condensed or omitted. It is suggested that the accompanying financial
statements be read in conjunction with the financial statements and notes
thereto included in the Company's Form 10-KSB.
(1) BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles ("GAAP") for interim
financial information and the instructions to Form 10-QSB. Accordingly, they do
not include all the information and footnotes required by GAAP for complete
financial statements. In the opinion of management, all adjustments (which
include only normal recurring adjustments) necessary for a fair presentation of
the results for the interim period presented have been made. The results for the
three and six-month periods ending June 30, 2001 may not be indicative of the
results for the entire fiscal year. These financial statements should be read in
conjunction with the Company's Form 10-KSB/A for the year ended December 31,
2000.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash includes all short-term highly liquid investments that are readily
convertible to known amounts of cash and have original maturities of three
months or less.
PRINCIPLES OF CONSOLIDATION. The consolidated financial statements include
the accounts of the Company and its wholly owned subsidiaries, Enpetro Mineral
Pool, Inc. and Accord SEG. Accord SEG is being liquidated under Chapter 7 of the
United States Bankruptcy Code. All significant intercompany accounts and
transactions are eliminated.
INCOME TAXES. The Company provides for income taxes based on the provisions
of Statement of Financial Accounting Standards No. 109, Accounting for Income
Taxes, which among other things, requires that recognition of deferred income
taxes be measured by the provisions of enacted tax laws in effect at the date of
financial statements.
USE OF ESTIMATES. The preparation of 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 and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Estimates have been made with respect to the liquidation value of the net assets
of Accord SEG.
7
RECENTLY ISSUED ACCOUNTING STANDARDS. In June 1998, SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities, was issued
effective for fiscal years beginning after June 15, 2000 (as amended). SFAS No.
133 establishes accounting and reporting standards requiring that derivative
instruments be recorded on the balance sheet as either an asset or liability
measured at its fair value. This statement also requires that changes in the
derivative's fair value be recognized in earnings unless specific hedge
accounting criteria are met. The adoption of SFAS No. 133 will have no impact on
the Company.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin ("SAB") No. 101, Revenue Recognition in Financial
Statements. SAB No. 101 summarizes the staff's views in applying generally
accepted accounting principles to revenue recognition in financial statements.
The adoption of the provisions of SAB No. 101 did not have a material effect on
the Company's revenues or revenue recognition policy.
(3) BASIS OF PRESENTATION
The Company entered into an Agreement and Plan of Reorganization in which
the Company will merge with Enpetro Mineral Pool, Inc. ("Enpetro"). The
agreement is subject to shareholder approval. Enpetro is a newly formed entity
and intends to develop certain oil and natural gas reserves. The agreement
stipulates that the Company will acquire all of the outstanding voting shares of
Enpetro for 228,000,000-post reverse split common shares of the Company. The
shareholders of Enpetro will own a substantial controlling interest in the
Company. The Company changed its name from Accord Advanced Technologies, Inc. to
Central Utilities Production Corporation.
For financial accounting purposes, the acquisition was a reverse
acquisition of the Company by Enpetro, under the purchase method of accounting,
and was treated as a recapitalization with Enpetro as the acquirer. Accordingly,
the historical financial statements have been restated after giving effect to
the acquisition of the Company. The financial statements have been prepared to
give retroactive effect to January 1, 2001, of the reverse acquisition, and
represent the operations of Enpetro. Consistent with reverse acquisition
accounting: (i) all of Enpetro's assets, liabilities, and accumulated deficit,
are reflected at their combined historical cost (as the accounting acquirer) and
(ii) the preexisting outstanding shares of the Company (the accounting acquiree)
are reflected at their net asset value as if issued on the date of acquisition.
Enpetro acquired certain oil and gas properties for the issuance of its
common shares. The value of the transaction was determined on the basis of the
estimated fair value of those oil and gas properties, primarily interest in oil
and gas leases. The valuation was assessed by an outside party certified to be a
specialist in determining oil and gas reserves and valuation of the related
properties. The value was determined to be $43,634,593.
The prior year periods reflect the operations of the Company. There were no
operations for Enpetro prior to the reverse acquisition.
(4) DISCONTINUED OPERATIONS
In the year ended December 31, 2000, the Company's only operating
subsidiary, Accord SEG, began the process of being liquidated under Chapter 7 of
the United States Bankruptcy Code. Liquidation through the bankruptcy court is
expected to be completed in 2001. Revenues from the discontinued operations
totaled $58,134 and $1,812,638 for the six months ended June 30, 2001 and 2000
respectively. Revenues from the discontinued operations totaled $-0- and
$259,500 for the three months ended June 30, 2001 and 2000 respectively.
8
(5) LEGAL SETTLEMENT
The registrant entered into a settlement agreement with GEM Partners et al,
which calls for the company to make cash payments of $500,000.00 within one
year. Two Hundred and Twenty Thousand Dollars ($220,000) has been paid toward
that settlement. The company has not met its obligation to remit the next
payment of $100,000 and a consent judgment has been entered in the court against
the company. The registrant, on May 18, 2001, settled this matter with GEM by
entering into a Convertible Debenture Purchase Agreement and a 2% Convertible
Debenture for $340,000 and attorney fees in the amount of $5,000. The consent
judgment has been placed in escrow and upon the conversion of the underlying
shares or payment the judgment will be set aside and the case will be dismissed.
The Convertible Debenture includes a below market interest rate, a
conversion rate at a discount to the trading value of the Company's common
stock. The $345,000 was accrued at December 31, 2000.
COMMON STOCK
The Company's shareholders approved a one for two reverse stock split.
The Company shareholders approved an increase in the number of authorized
shares to 500,000,000.
The Company issued 228,000,000 shares in connection with the reverse
merger.
CONVERTIBLE DEBENTURES
On June 22, 2000, the Company executed a Secured Convertible Debenture Purchase
Agreement in the amount of $1,000,000. Of the total commitment amount, $500,000
was funded by the purchaser. The debentures are due June 30, 2001 and bear
interest at 12% per annum. The debenture agreement also provides the purchaser
warrants to purchase 500,000 shares of the Company's common stock at $0.253 per
share. The debentures are convertible into the Company's common stock at the
lower of $0.23 per share or 60% of the lowest three inter-day trading price. The
Company recorded a discount on the debentures of $500,000 representing the
maximum discount for the beneficial conversion feature contained in the
debentures. The discount was amortized as of the date of issuance due to the
immediate conversion option of the purchaser. The Company is attempting to
refinance the debenture.
In connection with the reverse merger, the Company entered into an agreement to
sell $500,000 of convertible debentures. The debentures will be due May 31, 2002
and bear interest at 12% per annum. The debentures are convertible at the lower
of $0.23 per share or 60% of the average of the lowest three inter-day trading
price. The debenture holders also will receive warrants to purchase 250,000
shares of the Company's common stock at $0.253 per share. The debentures contain
a beneficial conversion feature and under generally accepted accounting
principles, the intrinsic value of the beneficial conversion feature was
recorded as a discount to the related debentures. The discount was determined to
be $333,333 and was amortized as interest expense immediately resulting in a non
cash charge of $333,333 in the three months ended June 30, 2001 because the
debenture holders have the right to convert the debentures immediately upon
issuance.
9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This Form 10-QSB contains certain statements that are not related to
historical results, including, without limitations, statements regarding the
company's business strategy and objectives and future financial position, are
forward looking statements within the meaning of section 27A of the securities
act and section 21E of the Exchange Act and involve risks and uncertainties.
Although the company believes that the assumptions on which these forward
looking statements are based are reasonable, there can be no assurance that such
assumptions will prove to be accurate and actual results could differ materially
from those discussed in the forward looking statements. Factors that could cause
or contribute to such differences include but are not limited to, those set
forth in the preceding paragraph, as well as those discussed elsewhere in this
report. All forward-looking statements contained in this report are qualified in
their entirety by this cautionary statement.
The registrant has developed a new strategic direction. The registrant
agreed to enter into an Agreement and Plan of Reorganization with Enpetro
Mineral Pool, a Nevada Corporation subject to the settlement of the issues with
GEM Management, Ltd. and Successway Holdings Ltd.
Enpetro Mineral Pool is a Nevada corporation with offices in Dallas Texas
and New York City. It was formed in October of 2000. Enpetro exchanged its stock
for oil and gas leases from Central Utilities LPC, Inc. The value of the
transaction is $43,634,593. Enpetro has merged with the registrant and the
registrant has changed its name to Central Utilities Production, Corporation.
On May 18th 2001, GEM Management, Ltd. and Successway Holdings Ltd. entered
into a settlement agreement with the registrant as set out in Item 3 "Legal
Proceedings".
The registrant, on May 18th 2001 entered into an Agreement and Plan of
Reorganization with Enpetro Mineral Pool, a Nevada Corporation. The agreement
called for the acquisition of all the shares of stock of Enpetro to be purchased
by the registrant for 228,000,000 common shares, restricted pursuant to Rule
144, of the registrant. The agreement also called for the resignation of Travis
Wilson the registrant's President and CEO, a reverse stock split of two shares
of the old company for 1 share of the new company. The agreement went on to
require the registrant to change its name to Central Utilities Production
Corporation. In order to facilitate the agreement it was also required to
increase the number of authorized shares to 500,000,000. The majority of the
Shareholders have approved all of the above conditions found in the Agreement.
The majority of the acquiring shareholders and especially the new CEO of
the registrant have over 30 years of experience developing oil and gas
properties in this region and expended over 30 Million dollars acquiring oil and
gas assets, some of which now form the core of Central Utilities Production
Corp.
10
The core of the existing business is the large quantity of proven natural
gas reserves accessible to and owned by the registrant. Expanding from this base
the company intends to develop an integrated network of natural gas transmission
and distribution systems to sell this gas directly to industrial, commercial and
residential customers. This network will be developed through a combination of
acquisition of existing utility companies, pipelines, and distribution systems
as well as the construction of new pipelines and distribution systems where
economics dictate. As the network develops additional gas reserves will be
acquired to ensure a long-term supply.
Based upon the report of an independent petroleum engineer who is also a
certified professional geologist the net present value of the oil and gas assets
of the company, after substantial discounts, totals $43,634,593.
Upon the settlement with GEM and Successways and the merger with Enpetro,
two existing debenture holders of the registrant, AJW Partners, LLC. and New
Millennium Capital Partners II, LLC. purchased a total of $500,000 in new 12%
convertible debentures due May 31, 2002. The holders were also granted a total
of 250,000 warrants at $.253 per share. The registrant and the debenture holders
executed a second amendment to the original Secured Convertible Purchase
Debenture Agreement.
The company will register the shares underlying the above Convertible
Debentures
On May 23, 2001 the company was deleted from trading on the OTC BB and is
now quoted on the Pink Sheets. The quote may be found on www.pinksheets.com.
LIQUIDITY AND CAPITAL RESOURCES
The company is using the funds operating the oil and gas properties with
the funds raised through the convertible debenture.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
A former employee has brought a lawsuit against the subsidiary company
claiming unpaid commissions. It is management's position that the matter has
been discharged in the Bankruptcy of the subsidiary.
The registrant entered into a settlement agreement with GEM Partners et al,
which calls for the company to make cash payments of $500,000.00 within one
year. Two Hundred and Twenty Thousand Dollars ($220,000) has been paid toward
that settlement. The company has not met its obligation to remit the next
payment of $100,000 and a consent judgment has been entered in the court against
the company. The registrant, on May 18, 2001, settled this matter with GEM by
entering into a Convertible Debenture Purchase Agreement and a 2% Convertible
Debenture for $340,000. The consent judgment has been placed in escrow and upon
the conversion of the underlying shares or payment the judgment will be set
aside and the case will be dismissed.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None
ITEM 3. DEFAULT UPON SENIOR SECURITIES
None
11
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The majority of the security holders have given their consent to the
following:
1. Approval of a reverse stock split of the corporation's common stock of
one (1) new share for each 2 old shares.
2. Approval to amend the applicable Articles of Incorporation to change the
name of the corporation to Central Utilities Production, Corporation and to
increase the authorized common shares to 500,000,000.
3. Approval of the acquisition of ENPETRO MINERAL POOL a Nevada corporation
by the corporation wherein the corporation will issue a total of 228,000,000,
post rollback, shares of restricted common stock in exchange for all of the
issued and outstanding shares of ENPETRO MINERAL POOL
4. Approval of the voting rights of the control shares resulting from the
acquisition of ENPETRO MINERAL POOL pursuant to Nevada Revised Statutes Section
78.379.l.
5. Election of the following to the Board of Directors:
Stanley Dedmon
William Trantham
Carl P. Ranno
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3.1 Amendment to Articles of Incorporation Dated May 24, 2001
changing the registrant's name to Central Utilities Production
Corporation and the authorized common shares to 500,000,000.
(b) Reports on Form 8-K
The Company filed two reports on Form 8-K during its second quarter to
the date of this report, which by reference are incorporated herein.
An 8-K filed on April 20, 2001 announcing that the merger disclosed on
February 14, 2001 has been withdrawn and the subsidiaries conversion of the
Chapter 11 Bankruptcy to a Chapter 7.
An 8-K filed July 9, 2001 announcing the change of control, new
directors, name change, increased authorized shares and pro-forma financial
statements.
12
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934,
the Registrant caused this registration statement to be signed on its behalf by
the undersigned thereunto duly authorized.
Central Utilities Production, Corporation
August 12, 2001 By /s/ Stan Dedmon
-------------------------------------
Stan Dedmon
Director and President
13