1
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended: September 30, 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: 4,993,272 shares of its
$0.001 par value common stock as of November 13, 1999.
Transitional Small Business Disclosure Format (check one) Yes [ ] No
[X]
2
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
UPLAND ENERGY CORPORATION
FINANCIAL STATEMENTS
(UNAUDITED)
The financial statements included herein have been prepared by the
Company, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted.
However, in the opinion of management, all adjustments (which include only
normal recurring accruals) necessary to present fairly the financial position
and results of operations for the periods presented have been made. These
financial statements should be read in conjunction with the accompanying
notes, and with the historical financial information of the Company.
3
UPLAND ENERGY CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
[UNAUDITED]
September 30, December 31,
2000 1999
---- ----
CURRENT ASSETS:
Cash $ 28,320 $ 18,183
Oil revenue receivable - 14,879
-------- --------
Total Current Assets 28,320 33,062
PROPERTY AND EQUIPMENT, net 2,423 2,911
OIL AND GAS PROPERTIES, net 375,053 345,530
-------- --------
$405,796 $381,503
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable 5,670 4,989
Other accrued liabilities 100 42,100
-------- ---------
Total Current Liabilities 5,770 47,089
-------- ---------
STOCKHOLDERS' EQUITY:
Common stock; $.001 par value, 50,000,000
shares authorized, 4,993,272 and 4,499,192
shares issued and outstanding at respectively
4,993 4,499
Capital in excess of par value 2,511,869 2,432,863
Retained deficit (2,110,536) (2,096,648)
--------- ---------
406,326 340,714
Less: notes receivable for common stock issued (6,300) (6,300)
--------- ---------
Total Stockholders' Equity 400,026 334,414
--------- ---------
$405,796 $381,503
======== ========
Note: The balance sheet at December 31, 1998 was taken from the audited
financial statements at that date and condensed.
The accompanying notes are an integral part of this consolidated financial
statement.
4
UPLAND ENERGY CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
[UNAUDITED]
For the Three Month For the Nine Months
Ended Ended
September 30, September 30,
---------------------- ----------------------
2000 1999 2000 1999
---- ---- ---- ----
REVENUE:
Oil sales $ 38,753 $ 42,180 $ 113,510 $ 127,444
--------- --------- --------- ---------
Total Revenue 38,753 42,180 113,510 127,444
--------- --------- --------- ---------
EXPENSES:
Production expense 13,584 15,033 57,474 31,632
Depreciation, depletion and
amortization 3,521 14,362 20,965 43,086
Dryhole, unsuccessful
recompletions and exploration
costs - - - 100,000
General and administrative
costs 11,250 13,829 48,959 60,909
--------- --------- --------- ---------
Total Expenses 28,355 43,224 127,398 235,627
--------- --------- --------- ---------
INCOME (LOSS) FROM OPERATIONS 10,398 (1,044) (13,888) (108,183)
OTHER INCOME (EXPENSE):
Interest income - 3,040 - 6,960
Interest expense - (7,200) - (21,600)
Loss on disposal of assets - (493,790) - (493,790)
--------- --------- --------- ---------
Total Other Income (Expense) 10,398 (497,950) - (508,430)
--------- --------- --------- ---------
(INCOME) LOSS BEFORE INCOME
TAXES - (498,994) (13,888) (616,613)
CURRENT TAX EXPENSE - - - -
DEFERRED TAX EXPENSE - - - -
--------- --------- --------- ---------
NET INCOME (LOSS) $ 10,398 $(498,994) $ (13,888) $(616,613)
--------- --------- --------- ---------
INCOME (LOSS) PER COMMON
SHARE $ .00 $ (.14) $ (.00) $ (.17)
--------- --------- --------- ---------
The accompanying notes are an integral part of these consolidated financial
statements.
5
UPLAND ENERGY CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
[UNAUDITED]
For the Nine
Months Ended
September 30,
---------------------
2000 1999
--------- ---------
Cash Flows Provided by Operating Activities:
Net loss $ (13,888) $(616,613)
--------- ---------
Adjustments to reconcile net income (loss) to
net cash used in operating activities:
Depreciation, depletion and amortization 20,965 43,086
Non cash assumed debts - (42,552)
Loss on sale of assets - 493,790
Change in assets and liabilities:
Decrease in oil revenue receivable 14,879 4,2340
Decrease in prepaid assets - 225,000
Decrease in restricted cash - 10,000
(Increase) in interest receivable-related
parties - (6,960)
Increase in interest payable-related party - 20,789
(Decrease) in accounts payable 681 (36,721)
Increase in other accrued liabilities - 27,000
--------- --------
Net Cash Provided by Operating Activities 22,637 121,159
--------- --------
Cash Flows From Investing Activities:
Purchase of oil and gas properties (50,000) (136,550)
Salt of oil properties - 25,000
Receipts on notes receivable - 40,000
--------- --------
Net Cash (Used) by Investing Activities (50,000) (71,550)
--------- --------
Cash Flows From Financing Activities:
Proceeds from notes payable-related parties
Proceeds from sale of common stock 50,000 -
Payments of note payable (12,500) (5,000)
--------- ---------
Net Cash Provided by Financing Activities 37,500 (5,000)
--------- ---------
Net Increase (Decrease) in Cash 10,137 44,609
Cash at Beginning of Period 18,183 4,890
--------- ---------
Cash at End of Period $ 28,320 $ 49,499
========= =========
Supplemental Disclosures of Cash Flow
Information:
Cash paid during the ne month period
ended September 30
Interest $ - $ -
Income taxes $ - $ -
Supplemental Disclosure of Noncash Investing
and Financing Activities:
For the nine months ended September 30, 2000:
The company issued 94,080 shares of common stock for debt relief in the
6
UPLAND ENERGY CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Continued
amount of $29,500 or $.3125 per share.
For the nine months ended September 30, 1999:
The Company disposed of oil properties for $25,000 cash and the
purchasers assumed $42,552 in debts.
The accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
7
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
September 30, 2000 and for all the period presented have been made.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been read in conjunction with the financial statements and
notes thereto included in the Company's December 31, 1999 audited financial
statements. The results of operations for the period ended September 30, 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.
c. Costs of acquiring properties, costs of drilling development wells and
development-type stratigraphic test wells, and costs of drilling successful
exploratory wells and exploratory-type stratigraphic test wells are
capitalized.
d. The capitalized costs of wells and related equipment are amortized over
the life of proved developed reserves that can be produced from assets
represented by those capitalized costs. Mineral acquisition costs (leasehold)
are amortized as the proved reserves are produced.
8
UPLAND ENERGY CORPORATION AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Oil and Gas Properties (Continued)
e. Costs of unproved properties are assessed periodically, and a loss is
recognized if the properties are impaired.
Revenue Recognition The Company's revenue is generated primarily
by the production and sale of oil and gas. Revenue from oil and gas sales is
recognized when the product is transferred to the purchaser.
Stocked Based Compensation The Company accounts for its stock based
compensation in accordance with Statement of financial Accounting
Standar12Accounting for Stock-Based Compensation". This statement establishes
an accounting method based on the fair value of equity instruments awarded to
employees as compensation. However, companies are permitted to continue
applying previous accounting standards in the determination of net income with
disclosure in the notes to the financial statements of the differences
between previous accounting measurements and those formulated by the new
accounting standard. The Company has adopted the disclosure only provisions
of SFAS No. 123, accordingly, the Company has elected to determine net income
using previous accounting standards.
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. 136, Transfers of Assets to a not for profit organization
or charitable trust that raises or holds contributions for others, 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.) SFAS No. 138 Accounting for Certain Derivative
Instruments and Certain Hedging Activities - and Amendment of SFAS No. 133,
SFAS No. 139, Recession of SFAS No. 53 and Amendment to SFAS No 63, 89 and 21,
and SFAS No. 140, Accounting to Transfer and Servicing of Financial Assets and
Extinguishment of Liabilities, were recently issued SFAS No. 136, 137, 138 and
140 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:
September 30,
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:
September 30, December 31,
2000 1999
---- ----
Furniture and office equipment $6,050 $6,050
Less: accumulated depreciation (3,627) (3,139)
------ ------
Total $2,423 $2,911
====== ======
10
UPLAND ENERGY CORPORATION AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 - PROPERTY AND EQUIPMENT (Continued)
Depreciation expense charged to operations was $488 and $326 for the nine
months ended September 30, 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 September 30, 2000 and 1999, the Company recorded depletion
of $20,477 and $20,440, respectively.
The estimates of oil and gas reserves used by the Company were produced
internally by management and others who were not independent with respect to
the Company (who subsequently are no longer employed by the Company). The
Company has experienced continuing operating losses the past few years and has
experienced some cash flow shortages. Due to the cash shortages, management
has not hired an independent reserve engineer to update its reserve
information. Accordingly, the Company has not presented the supplemental oil
and gas information that the Financial Accounting Standards Board has
determined is necessary to supplement, although not required to be part of,
the basic financial statements. The missing supplemental information relates
to reserves quantities, capitalized costs related to oil and gas production
activities, results of operations of oil and gas production activities and a
standardized measure of discounted future net cash flows related to reserves
quantities. Management in the past has also depended on related parties and
others to provide financing for operations plus additional capital through
sale of its common stock.
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 asa 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 and additional rental for each lease of
11
UPLAND ENERGY CORPORATION AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 - OIL AND GAS PROPERTIES (Continued)
$5.00 or $1.00 per acre depending on lease ($4,040 total for renewal of all
seven leases), the Company may defer commencement of drilling operations for
an additional period of 12 months.
In like manner and upon payments of $5.00 or $1.00 per acre depending on
lease, the commencement of drilling operations may be further deferred
(without cancellation of lease) for additional periods of 12 month 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 eases 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 September 30, 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 September 30, 2000 and December 31, 1999, the
total of all deferred tax assets was approximately $971,000 and $951,000 and
the total of the deferred tax assets was approximately $971,000 and $951,000
and the total of the deferred tax liabilities was approximately $124,000 and
$102,000. The amount of and ultimate realization of the benefits from the
deferred tax assets for income tax purposes is independent, 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 approximately $847,000 and
$849,000 as of September 30, 2000 and December 31, 1999, which has been offset
against the deferred tax assets. The net increase (decrease) in the valuation
allowance during the periods ended September 30, 2000 and December 31, 1999
amounted to approximately $(2,000) and $263,000, respectively.
As of September 30, 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 $2,583,000 that expire in various years between 2001 and 2020.
12
UPLAND ENERGY CORPORATION AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9 - COMMON STOCK TRANSACTIONS
In August 2000, the Company issued 94,080 shares of common stock for debt
relief from an officer of the Company. Debt relief of $29,500 or $.3125 per
share was received.
During May 2000, the Company issued 400,000 shares of common stock for cash of
$50,000 or $.125 per share.
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 canceled.
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
13
UPLAND ENERGY CORPORATION AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9 - COMMON STOCK TRANSACTIONS (Continued)
Commission under Rule 506 of Regulation D as promulgated under the Securities
Act of 1933, as amended. The existing warrants were exercisable into one
share of common stock at an exercise price of $1.50 per share. During
February 1997, 500,000 of the existing warrants were exercised and the Company
received total proceeds of $750,000.
Warrants - At December 31, 1999, the Company had 500,000 warrants outstanding
to purchase common stock at $2.00 per share and 50,000 warrants to purchase
common stock at $1.50 per share and 245,000 warrants outstanding to purchase
common stock at $.875 per share. The warrants all have a three year life.
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
Consulting Agreement - During July 2000 the Company entered into a six month
consulting agreement with a stockholder to provide consulting services
regarding development of new business opportunities. Under the agreement the
consultant is to be paid $3,000 per month. At the option of the consultant
fee can be paid in cash or in common stock based on the market price as of
July 1, 2000 which was $.3125. As of September 30, 2000, the Company has paid
$3,329 under the agreement and has accrued $5,671 in unpaid consulting fees.
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 September 30, 2000 the Company
had not paid out any salary under this agreement but has accrued $29,500 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
14
UPLAND ENERGY CORPORATION AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12 CONCENTRATION OF CREDIT RISKS (Continued)
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 September 30, 2000 and
1999:
For the Three Month For the Nine Month
Period Ended Period Ended
September 30, September 30,
------------- ------------
2000 1999 2000 1999
---- ---- ---- ----
Income (loss) from
continuing operations
available to common
stockholders used in
earnings (loss) per
share $ 10,398 $(498,994) $ (13,888) $(616,613)
----------- ---------- --------- ---------
Weighted average number
of common shares used in
earnings (loss) per
share outstanding during
the period 4,946,232 3,562,192 4,723,746 3,562,192
---------- ---------- --------- ---------
Dilutive earnings per share was not presented, as its effect was anti-dilutive
for the periods ended September 30, 2000 and 1999.
NOTE 14 GOING CONCERN
The accompanying financial statements have been prepared in conformity
with generally accepted accounting principles which contemplate continuation
of the Company as a going concern. However, the Company has incurred
significant operating losses the past few years and does not have adequate
working capital. 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.
15
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
General
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Upland Energy Corporation, a Utah corporation (the "Company")is engaged
in the business of exploring for and developing oil and gas reserves. Upland
has one wholly owned subsidiary GS&C, Inc., a Nevada corporation which also is
engaged in oil and gas exploration. Unless otherwise indicated, GSC and
Upland are collectively referred to herein as the "Company."
The Company operations are located in southern Kansas where it has an oil
and gas field called the Hittle Field. The Company has been producing oil
from this field which it operates through Pace Exploration. The Company has
reduced further exploration because of financial constraints and does not
anticipate further exploration or drilling unless it raises additional
capital. At this time, management is not seeking to raise any further
capital, except as needed to fund existing operations.
Liquidity and Capital Resources
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At September 30, 2000, the Company had assets of $405,796. The Company
had current assets of only $28,320 with current liabilities of $5,770
resulting in working capital of $22,550. The working capital position is a
major improvement over past quarters when the Company had been operating with
a negative working capital position. The improvement in working capital is
the result of the reduction in overhead, reduce exploration cost and the sale
of the Company's McLouth Field which was unprofitable.
The Company's only oil field now consist of the Hittle 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 allow the Company to continue to
pursue other exploration opportunities or drill further wells on the Hittle
Field. Accordingly, the Company will have to seek additional funding if it
intends to engage in further drilling efforts. 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.
Results of Operations
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For the quarter ended September 30, 2000, the Company had revenue of
$38,753 which was down slightly from the same period in 1999 when revenue was
$42,180. For the nine months ended September 30, 2000, revenue was only
$113,510 which was down $13,934 for the same period in 1999. The decrease in
revenue was predominately due to reduce production from the Hittle Field.
Expenses for the quarter ended September 30, 2000, decreased to $28,355
from $43,224 for the same period in 1999. For the quarter ended September 30,
2000, general and administrative expenses decreased to $11,250 from $13,829
for the same period in 1999 as the Company reduced its payroll expenses by not
replacing officers who left. Production expenses also decreased but the
company saved the most money on depreciation, depletion and amortization
expense which decreased by $10,841. As a result of the overall decrease in
expenses, the Company's made a slight profit of $10,398 for the quarter as
opposed to a loss for prior quarters.
For the nine months ended September 30, 2000, the Company posted a net
loss of $13,888 as the result of the Company's higher general and
administrative cost and production expense which has now been reduced. The
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Company anticipates future cost to be more in line with those of the September
quarter until operations and exploration is expanded.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company has settled all of its outstanding litigation matters.
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) None
(b) Reports on From 8-K.
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None
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
UPLAND ENERGY CORPORATION
Dated: November 14, 2000 By:/s/
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Lee Jackson, President and Principal
Accounting and Chief Financial Officer