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: June 30, 2001
[ ] 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: 8,738,592 shares of its
$0.001 par value common stock as of August 31, 2001.
Transitional Small Business Disclosure Format (check one) Yes [ ] No
[X]
<Page> 2
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
UPLAND ENERGY CORPORATION
FINANCIAL STATEMENTS
(UNAUDITED)
The financial statements for the quarter ended June 30, 2001, 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
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
June 30, December 31,
2001 2000
___________ ___________
CURRENT ASSETS:
Cash $ 5,569 $ 37,684
Oil revenue receivable 16,921 14,977
Loan receivable 25,000 -
___________ ___________
Total Current Assets 47,490 52,661
PROPERTY AND EQUIPMENT, net 1,395 2,057
OIL AND GAS PROPERTIES, net 100,000 364,480
OTHER ASSETS:
Advance to Lifesmart Nutrition, Inc. 818,253 -
___________ ___________
$ 967,138 $ 419,198
___________ ___________
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 21,894 $ 34,601
Other accrued liabilities 6,400 6,400
___________ ___________
Total Current Liabilities 28,294 41,001
___________ ___________
STOCKHOLDERS' EQUITY:
Common stock; $.001 par value,
50,000,000 shares authorized,
8,738,592 and 4,993,592 shares
issued and outstanding
at respectively 8,739 4,994
Capital in excess of par value 3,340,485 2,511,869
Retained deficit (2,410,380) (2,138,666)
___________ ___________
Total Stockholders' Equity 938,844 378,197
___________ ___________
$ 967,138 $ 419,198
___________ ___________
Note: The consolidated balance sheet at December 31, 2000 was taken from
the audited financial statements at that date and condensed.
The accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
4
UPLAND ENERGY CORPORATION AND SUBSIDIARY
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three For the Six
Months Ended Months Ended
June 30, June 30,
__________________ ___________________
2001 2000 2001 2000
________ ________ _________ ________
REVENUE: $ - $ - $ - $ -
________ ________ _________ ________
EXPENSES: - - - -
________ ________ _________ ________
LOSS FROM OPERATIONS - - - -
OTHER EXPENSE:
Interest expense (3,856) - (5,894) -
________ ________ _________ ________
(LOSS) BEFORE INCOME TAXES (3,856) - (5,894) -
CURRENT TAX EXPENSE - - - -
DEFERRED TAX EXPENSE - - - -
________ ________ _________ ________
(LOSS) FROM CONTINUING
OPERATIONS (3,856) - (5,894) -
________ ________ _________ ________
DISCONTINUED OPERATIONS:
Loss from discontinued
oil and gas operations (1,509) (6,975) (23,255) (24,286)
Estimated gain (loss)
on disposal of oil
and gas operations 11,038 - (242,565) -
________ ________ _________ ________
GAIN (LOSS) FROM DISCONTINUED
OPERATIONS 9,849 (6,975) (265,820) (24,286)
________ ________ _________ ________
NET (LOSS) $ 5,993 $(6,975) $(271,714) $(24,286)
________ ________ _________ ________
GAIN (LOSS) PER COMMON
SHARE:
Continuing operations $ (.00) $ - $ (.00) $ -
Discontinued operations (.00) (.00) (.01) (.01)
Disposal of operations .00 - (.04) -
________ ________ _________ ________
LOSS PER COMMON SHARE $ (.00) $ (.00) $ (.05) $ (.01)
________ ________ _________ ________
The accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
5
UPLAND ENERGY CORPORATION AND SUBSIDIARY
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six
Months Ended
June 30,
_________________________
2001 2000
___________ ___________
Cash Flows From Operating Activities:
Net loss $ (271,714) $ (24,286)
Adjustments to reconcile net
loss to net cash used
in operating activities:
Depreciation, depletion and
amortization 22,577 17,444
Estimated loss on disposal of
oil and gas operations 242,565 -
Changes in assets and liabilities:
(Increase) decrease in oil
revenue receivable (1,944) 14,879
Increase (decrease) in
accounts payable 5,293 (946)
Decrease in other accrued
liabilities - (12,500)
___________ ___________
Net Cash (Used) by
Operating Activities (3,223) (5,409)
___________ ___________
Cash Flows From Investing Activities:
Purchase of oil and gas properties - (50,000)
Payments for notes receivable (25,000) -
Advances to Lifesmart Nutrition, Inc. (818,253) -
___________ ___________
Net Cash (Used) by
Investing Activities (843,253) (50,000)
___________ ___________
Cash Flows From Financing Activities:
Proceeds from notes payable 200,000 -
Payments on notes payable (150,000) -
Proceeds from sale of common stock 868,251 50,000
Stock offering costs (103,890) -
___________ ___________
Net Cash Provided by
Financing Activities 814,361 50,000
___________ ___________
Net Increase (Decrease) in Cash (32,115) (5,409)
Cash at Beginning of Period 37,684 18,183
___________ ___________
Cash at End of Period $ 5,569 $ 12,774
___________ ___________
6
[Continued]
UPLAND ENERGY CORPORATION AND SUBSIDIARY
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Increase (Decrease) in Cash
[CONTINUED]
For the Six
Months Ended
June 30,
_________________________
2001 2000
___________ ___________
Supplemental Disclosures of
Cash Flow Information:
Cash paid during the period for
Interest $ 5,894 $ -
Income taxes $ - $ -
Supplemental Disclosure of Noncash Investing and Financing Activities:
For the six months ended June 30, 2001:
The Company issued 272,000 shares of common stock for debt relief of
$68,000, or $.25 per share.
For the six months ended June 30, 2000:
None
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
and has been engaged in the development, production and selling of oil
and gas in the State of Kansas.
During November 1993, PARENT acquired SUBSIDIARY in a transaction
accounted for as a recapitalization of subsidiary in a manner similar to
a reverse purchase. Accordingly, Subsidiary is treated as the purchaser
entity in the transaction.
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 June 30, 2001 and for all periods
presented have been made.
Certain information and footnote disclosure normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. It is suggested
that these condensed financial statements be read in conjunction with
the financial statements and notes thereto included in the Company's
December 31, 2000 audited financial statements. The results or
operations for the period ended June 30, 2001 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.
Stock Offering Costs - Costs related to proposed stock offerings are
deferred and are offset against the proceeds of the offering in capital
in excess of par value. In the event a stock offering is unsuccessful,
the costs related to the offering will be written-off directly to
expense.
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.
8
UPLAND ENERGY CORPORATION AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [Continued]
Stock Based Compensation - The Company accounts for its stock based
compensation in accordance with Statement of financial Accounting
Standard 123 "Accounting for Stock-Based Compensation". This statement
establishes an accounting method based on the fair value of equity
instruments awarded to employees as compensation. However, companies
are permitted to continue applying previous accounting standards in the
determination of net income with disclosure in the notes to the
financial statements of the differences between previous accounting
measurements and those formulated by the new accounting standard. The
Company has adopted the disclosure only provisions of SFAS No. 123,
accordingly, the Company has elected to determine net income using
previous accounting standards.
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.
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.
Oil and Gas Properties - The Company uses the successful efforts method
of accounting for oil and gas producing activities. Under that method,
costs are accounted for as follows:
a.Geological and geophysical costs and costs of carrying and
retaining undeveloped properties are charged to expense as
incurred.
b.Costs of drilling exploratory wells and exploratory-type
stratigraphic test wells that do not find proved reserves are
charged to expense when the wells do not find proved reserves.
c.Costs of acquiring properties, costs of drilling development wells
and development-type stratigraphic test wells, and costs of
drilling successful exploratory wells and exploratory-type
stratigraphic test wells are capitalized.
d.The capitalized costs of wells and related equipment are amortized
over the life of proved developed reserves that can be produced
from assets represented by those capitalized costs. Mineral
acquisition costs (leasehold) are amortized as the proved reserves
are produced.
e.Costs of unproved properties are periodically assessed for
realization in accordance with SFAS 121, and if the carrying value
of the properties exceeds the recoverable value, the properties are
deemed to be impaired and the carrying value of the properties are
reduced and a loss is recognized.
9
UPLAND ENERGY CORPORATION AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [Continued]
Earnings (Loss) Per Share - The Company accounts for earnings (loss) per
share in accordance with Statement of Financial Accounting Standards
(SFAS) No. 128 "Earnings Per Share," which requires the Company to
present basic earnings per share and dilutive earning per share when the
effect is dilutive. The computation of earnings (loss) per share is
based on the weighted average number of shares outstanding during the
period presented [See Note 6].
Income Taxes - The Company accounts for income taxes in accordance with
Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes." This statement requires an asset and liability approach
for accounting for income taxes [See Note 8].
Dividend Policy - The Company has not paid any dividends on common stock
to date and does not anticipate paying dividends on common stock in the
foreseeable future.
Accounting Estimates - The preparation of the financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities, the disclosures of contingent assets
and liabilities at the date of the financial statements and the reported
amount of revenues and expenses during the reporting period. Actual
results could differ from those estimated.
Recently Enacted Accounting Standards - Statement of Financial
Accounting Standards (SFAS) No. 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,
"Recission 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, 139 and 140 have no current applicability to the Company or
their effect on the financial statements would not have been
significant.
10
NOTE 2 - PROPERTY AND EQUIPMENT
The following is a summary of property and equipment - at cost, less
accumulated depreciation as of:
June 30, December 31,
2001 2000
_________ ________
Furniture and office equipment $ 6,428 $ 6,428
Less: accumulated depreciation (5,033) (4,371)
_________ ________
Total $ 1,395 $ 2,057
_________ ________
Depreciation expense charged to operations was $662 and $324 for the six
months ended June 30, 2001 and 2000.
NOTE 3 - 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 six months ended June 30, 2001 and 2000, the Company
recorded depletion, depreciation and amortization expense of $21,915 and
$17,120, respectively.
The Company's oil and gas leases have terms of three to five years and
do not provide for any minimum lease payments. The leases are held by
production and are renewable by the Company so long as there is
production.
During March 2001, the Company agreed to pursue a business acquisition
[See Note 4] and determined to spin-off or sell its subsidiary (GS&C)
along with all its oil and gas operations. The oil and gas production
properties, equipment, and all rights related to the oil and gas
production, shall be transferred from Upland to GS&C. If Upland is
unable to complete this spin-off within twelve months of closing its
business acquisition, Lee Jackson and Maven Properties, LLC. shall
jointly have the right or option, for a period of sixty days from the
end of the twelve-month period, to buy GS&C along with its oil and gas
assets for $100,000. Accordingly, the Company is accounting for its oil
and gas operations as a discontinued operation, is reducing the carrying
value of its properties to $100,000 and has recorded an estimated loss
on disposal of its oil and gas properties of $242,565. During the six
months ended June 30, 2001 and 2000 the Company had revenues of $133,161
and $74,757 from oil sales.
NOTE 4 - PROPOSED BUSINESS ACQUISITION
On March 19, 2001, the Company entered an agreement and plan of
reorganization with Lifesmart Nutrition, Inc. If completed, Lifesmart
will be the surviving entity. The closing of the agreement is subject
to shareholder approval and other conditions being met and is currently
expected to be completed in August of 2001. Final consummation of the
proposed reorganization is not guaranteed.
11
UPLAND ENERGY CORPORATION AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 - PROPOSED BUSINESS ACQUISITION - Continued
Each Lifesmart share outstanding on the effective date of the merger
shall be converted into seven tenths of one Upland share. A total of
7,897,785 shares of common stock are estimated to be issued to
shareholders of Lifesmart Nutrition, Inc.
Prior to the closing of this agreement, Upland shall effect a one-for-
two reverse stock split.
As part of the merger, Upland shall prepare and file a registration
statement to spin off or transfer its ownership in GS&C. The
shareholders of Upland prior to merger, shall receive one share of GS&C
for every ten shares held in Upland. Lifesmart shareholders will
receive one share of GS&C for every one hundred shares held in
Lifesmart. The oil and gas production properties, equipment, and all
rights related to the oil and gas production, shall be transferred from
Upland to GS&C. If Upland is unable to complete this spin off within
twelve months of closing, Lee Jackson and Maven Properties, LLC. shall
jointly have the right or option, for a period of sixty days from the
end of the twelve-month period, to buy GS&C along with its oil and gas
assets for $100,000.
The agreement also stated that the Company was to raise a minimum of
$500,000 in a private offering. All proceeds are to be invested in
Lifesmart Nutrition, Inc.
During the six months ended June 30, 2001, the Company had received
$868,251 in proceeds from sale of its common stock and had advanced the
$818,253 to Lifesmart Nutrition, Inc. The Company has paid $103,890 in
stock offering costs which has been netted with the stock proceeds.
Loan receivable - On June 29, 2001, the Company loaned Lifesmart
Nutrition, Inc. $25,000. The loan bears no interest and is due in sixty
days.
NOTE 5 - COMMON STOCK TRANSACTIONS
Private Placement - In March 2001, the Company entered an agreement and
plan of reorganization with Lifesmart Nutrition, Inc. The agreement
stated that the Company would raise a minimum of $500,000 in equity
prior to the closing of the agreement. The Company has commenced a
private offering of 1,350,000 units. Each unit consists of four shares
of common stock at $.25 per share and one warrant to purchase one share
of common stock at $.50 per share. At June 30, 2001, the Company had
issued 3,673,000 shares of common stock for $868,251 in cash and $50,000
in debt relief, or $.25 per share as part of this private offering. The
Company has paid $103,890 in stock offering costs which has been offset
against the proceeds.
12
UPLAND ENERGY CORPORATION AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 - COMMON STOCK TRANSACTIONS - [Continued]
In February 2001, the Company issued 72,000 shares of common stock for
debt relief of $18,000 accrued at December 31, 2000, or $.25 per share.
In August 2000, the Company issued 94,400 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.
Warrants - From March through June 2001, the Company issued warrants to
purchase 918,250 shares of common stock at $.50 per share as part of a
private offering.
In February 2001, the Company issued two warrants to purchase 300,000
post-split shares of common stock at $.50 per share. These warrants
were issued in connection with $200,000 proceeds of notes payable.
December 2000, the Company issued 100,000 warrants to an officer and a
consultant, to purchase one share of common stock each for $.25 per
share.
Stock Options - The Company applies APB Option No. 25 in accounting for
its options granted under the employment agreements. Compensation of $0
and $0 was recorded in 2001 and 2000, respectively. The Corporation has
adopted the disclosure-only provisions of Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation."
The effect on net income from the adoption of Statement of Financial
Accounting Standards No. 123 "Accounting for Stock Based Compensation"
are the same.
At June 30, 2001, the Company had options outstanding to purchase
155,000 shares of common stock at $1.28 per share. No options were
exercised, expired, or forfeited during the six months ended June 30,
2001.
13
UPLAND ENERGY CORPORATION AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 -LOSS PER SHARE
The following data show the amounts used in computing loss per share and
the effect on income and the weighted average number of shares of
dilutive potential common stock for the:
For the Three For the Six
Months Ended Months Ended
June 30, June 30,
____________________ ____________________
2001 2000 2001 2000
_________ _________ _________ _________
Net gain (loss) available to
common shareholders $ 5,993 $ (6,975) $(271,714) $ (24,286)
_________ _________ _________ _________
Weighted average number of
common shares outstanding 6,544,284 4,532,159 5,795,365 4,499,192
_________ _________ _________ _________
Dilutive earnings per share was not presented, as its effect was anti-
dilutive for the periods ended June 30, 2001 and 2000.
NOTE 7 - 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 losses since its inception and does not have adequate working
capital. These factors raises 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.
14
UPLAND ENERGY CORPORATION AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 - INCOME TAXES
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income
Taxes". SFAS 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 June 30, 2001 and
December 31, 2000, the total of all deferred tax assets was approximately
$962,000 and $957,000 and the total of the deferred tax liabilities was
approximately $109,000 and $115,000. The amount of and ultimate
realization of the benefits from the deferred tax assets for income tax
purposes is dependent, in part, upon the tax laws then in effect, the
Company's future earnings, and other future events, the effects of which
cannot presently be determined. Because of the uncertainty surrounding the
realization of the deferred tax assets, the Company has established a
valuation allowance of approximately $853,000 and $842,000 as of June 30,
2001 and December 31, 2000, which has been offset against the deferred tax
assets. The net increase in the valuation allowance during the periods
ended June 30, 2001 and December 31, 2000 amounted to approximately $11,000
and $7,000, respectively.
As of June 30, 2001, 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 $2,600,000 that expire in various years through 2021.
NOTE 9 - RELATED PARTY TRANSACTIONS
Office Space - The Company has not had a need to rent office space. An
office/shareholder of the Company is allowing the Company to use his home
as a mailing address. The cost is minimal and had not been recorded as an
expense of the Company.
Warrants - The Company received $200,000 in proceeds from notes payable
from two shareholders. The two shareholders were granted warrants to each
purchase 150,000 shares of common stock at $.50 per share as an
incentive.
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.
15
UPLAND ENERGY CORPORATION AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11 - COMMITMENTS AND AGREEMENTS
Consulting Agreement - During July 2000, the Company entered into a
consulting agreement with a stockholder to provide consulting services
regarding development of new business opportunities at $3,000 per month.
The agreement was terminated on December 31, 2000, at which time the
Company had accrued $18,000 in unpaid consulting fees. In February 2001,
the Company issued 72,000 shares of common stock to satisfy this debt.
Employment Agreement - During November 1998, the Company entered into an
employment agreement with the Company's president. The president serves on
a month-to-month basis and receives a salary of $3,000 per month that can
be paid in cash or stock at market value.
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 one
purchaser because it is able to negotiate more favorable terms with the
purchaser. If the purchaser stopped buying products from the Company,
the Company would be forced to contract with other purchasers available
in the areas where the oil is produced. The effect of a purchaser
pulling out would at least put a temporary downward pressure on prices
in the area but it is not currently possible for the Company to estimate
how the Company would be affected. Management believes that its oil is
a commodity that is readily marketable and that the marketing method it
follows is typical of similar companies in the industry.
NOTE 13 - SUBSEQUENT EVENTS
Proposed Acquisition - On March 19, 2001, the Company entered an
agreement and plan of reorganization with Lifesmart Nutrition, Inc. If
completed, Lifesmart will be the surviving entity. The closing of the
agreement is subject to various conditions being met and is expected to
be completed in 2001. Final consummation of the proposed reorganization
is not guaranteed.
Each Lifesmart share outstanding on the effective date of the merger
shall be converted into seven tenths of one Upland share. A total of
7,897,785 shares of common stock are estimated to be issued to
shareholders of Lifesmart Nutrition, Inc.
Prior to the closing of this agreement, Upland shall effect a one-for-
two reverse stock split.
16
UPLAND ENERGY CORPORATION AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13 - SUBSEQUENT EVENTS
As part of the merger, Upland shall prepare and file a registration
statement to spin off or transfer its ownership in GS&C. The
shareholders of Upland prior to merger, shall receive one share of GS&C
for every ten shares held in Upland. Lifesmart shareholders will
receive one share of GS&C for every one hundred shares held in
Lifesmart. The oil and gas production properties, equipment, and all
rights related to the oil and gas production, shall be transferred from
Upland to GS&C. If Upland is unable to complete this spin off within
twelve months of closing, Lee Jackson and Maven Properties, LLC. shall
jointly have the right or option, for a period of sixty days from the
end of the twelve-month period, to buy GS&C along with its oil and gas
assets for $100,000.
17
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, GS&C 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.
The Company has entered into an agreement and plan or reorganization with
Lifesmart Nutrition, Inc., which will result in the Company changing its focus
from the oil and gas industry to the nutritional supplement products such as
creatine and calcium. Under the terms of the proposed reorganization
agreement, Lifesmart's management will assume control over the operations of
the Company and the business focus of the Company will become that of
Lifesmart. As part of the proposed reorganization, the Company will reverse
split its common stock on a 2 to 1 basis reducing its outstanding stock from
78,738,592 to 4,369,296 prior to the reorganization. The Company will issue
to the shareholders of Lifesmart 7,897,785 post reverse split shares for all
of the issued and outstanding shares of Lifesmart.
As part of the negotiated terms of the reorganization agreement, the
Company will spin off GS&C and all of the oil and gas properties of the
Company to its shareholders. The terms of the spinoff will result in each
shareholder of record of the Company on the day before the closing of the
reorganization with Lifesmart receiving one share of GS&C for each ten shares
of the Company held. Shareholders of Lifesmart will receive one one hundredth
(0.01) a share of GS&C for every one share of the Company held after the
reorganization. If the spin off is not completed within one year from the
date of the closing of the reorganization, current majority shareholders and
management of the Company have an option to purchase GS&C for $100,000. The
purchase price of GS&C was determined based on discussions between management
of the Company and Lifesmart after a review of the Company's oil and gas
operations and revenue.
The closing of the reorganization is subject to several events including
the raising of additional capital for Lifesmart of $500,000 and receiving
shareholder approval from the Company's and Lifesmart's shareholders. Until
these conditions are met, there is a chance the reorganization will not be
complete. The Company has raised the $500,000 through the sale of shares of
its common stock. The shares were sold at $0.25 per share and for every four
shares purchased a common stock purchase warrant was also received. Every
warrant allowed investors to buy another share of common stock at $0.50 per
share.
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Liquidity and Capital Resources
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At June 30, 2001, Upland had assets of $967,138, which included an
advance to LifeSmart of $818,253. The Company had current assets of only
$47,490 with current liabilities of $28,294 resulting in working capital of
$19,196. Since the reorganization agreement with LifeSmart was entered, all
monies raised have been used to fund LifSmart's operation with only ongoing
revenue used to support the oil and gas operations.
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. After entering into the agreement with
LifeSmart, Upland wrote its oil and gas properties down to $100,000 reflecting
the price which the properties could be bought for it GS&C is not spun off.
Results of Operations
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For the quarter ended June 30, 2001, Upland reflected the new direction
of moving away from oil and gas into the business of LifeSmart. Accordingly,
no revenue was shown for ongoing operations and all revenue was reflected
under discontinued operations on its financial statements. For the quarter
ended June 30, 2001, Upland's oil and gas operations had loss of $1,509. This
was an improvements over prior quarters as oil prices remained high producing
sufficient revenue to pay most cost.
Future results of operations will depend on the outcome of the LifeSmart
acquisition. If the LifeSmart acquisition is closed, future operating results
will depend more on LifeSmart's business than on the Company's current
operations.
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
19
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
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SEC Ref No. Exhibit No. Title of Document Location
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10 10.1 Extension to Reorganization
Agreement This Filing
(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: September 3, 2001 By: /s/
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Lee Jackson, President and Principal
Accounting and Chief Financial Officer