1
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB/A
Amendment No. 3
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended: March 31, 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: 5,065,592 shares of its
$0.001 par value common stock as of May 17, 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 March 31, 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
March 31, December 31,
2001 2000
___________ ___________
CURRENT ASSETS:
Cash $ 30,277 $ 37,684
Oil revenue receivable 17,516 14,977
___________ ___________
Total Current Assets 47,793 52,661
PROPERTY AND EQUIPMENT, net 1,737 2,057
OIL AND GAS PROPERTIES, net held for sale 100,000 364,480
OTHER ASSETS:
Advance to Lifesmart Nutrition, Inc. 225,000 -
___________ ___________
$ 374,530 $ 419,198
___________ ___________
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 22,602 $ 34,601
Notes payable 200,000 -
Other accrued liabilities 8,438 6,400
___________ ___________
Total Current Liabilities 231,040 41,001
___________ ___________
STOCKHOLDERS' EQUITY:
Common stock; $.001 par value,
50,000,000 shares authorized,
5,165,592 and 4,993,592 shares
issued and outstanding at 2001
and 2000 5,166 4,994
Capital in excess of par value 2,554,697 2,511,869
Retained deficit (2,416,373) (2,138,666)
___________ ___________
Total Stockholders' Equity 143,490 378,197
___________ ___________
$ 374,530 $ 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
Months Ended
March 31,
_________________________
2001 2000
___________ ___________
REVENUE:
Oil sales $ 67,223 $ 32,335
___________ ___________
Total Revenue 67,223 32,335
___________ ___________
EXPENSES:
Production expense 48,159 19,831
Depreciation, depletion and
amortization 10,877 10,807
General and administrative costs 29,933 19,008
Loss on impairment of oil
and gas properties 253,923 -
___________ ___________
Total Expenses 342,892 49,646
___________ ___________
LOSS FROM OPERATING ACTIVITIES (275,669) (17,311)
OTHER EXPENSE:
Interest expense (2,038) -
___________ ___________
LOSS BEFORE INCOME TAXES (277,707) (17,311)
CURRENT TAX EXPENSE - -
DEFERRED TAX EXPENSE - -
___________ ___________
NET LOSS $ (277,707) $ (17,311)
___________ ___________
LOSS PER COMMON SHARE $ (.06) $ (.00)
___________ ___________
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
Net Increase (Decrease) in Cash
For the Three
Months Ended
March 31,
_________________________
2001 2000
___________ ___________
Cash Flows From Operating Activities:
Net loss $ (277,707) $ (17,311)
Adjustments to reconcile net income
(loss) to net cash used in operating
activities:
Depreciation, depletion and amort-
ization 10,877 10,807
Estimated loss on impairment 253,923 -
Non-cash expenses - -
Changes in assets and liabilities:
Decrease in oil revenue receivable (2,539) 14,879
(Decrease) in accounts payable 6,001 (946)
Increase in other accrued
liabilities 2,038 -
___________ ___________
Net Cash Provided (Used) by
Operating Activities (7,407) 7,429
___________ ___________
Cash Flows From Investing Activities:
Increase in other assets (225,000) -
___________ ___________
Net Cash (Used) by Investing
Activities (225,000) -
___________ ___________
Cash Flows From Financing Activities:
Proceeds from notes payable 200,000 -
Proceeds from sale of common stock 25,000 -
___________ ___________
Net Cash Provided by Financing
Activities 225,000 -
___________ ___________
Net Increase (Decrease) in Cash (7,407) 7,429
Cash at Beginning of Period 37,684 18,183
___________ ___________
Cash at End of Period $ 30,277 $ 25,612
___________ ___________
[Continued]
6
UPLAND ENERGY CORPORATION AND SUBSIDIARY
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Increase (Decrease) in Cash
[CONTINUED]
For the Three
Months Ended
March 31,
_________________________
2001 2000
___________ ___________
Supplemental Disclosures of Cash Flow
Information:
Cash paid during the three-month
period ended March 31
Interest $ - $ -
Income taxes $ - $ -
Supplemental Disclosure of Noncash Investing and Financing Activities:
For the three-months ended March 31, 2001:
The Company issued 72,000 shares of common stock for debt relief of
$18,000, or $.25 per share.
For the three-months ended March 31, 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.
Principles of Consolidation - The consolidated financial statements
include the accounts of the Company and its wholly owned subsidiary.
All significant intercompany transactions have been eliminated in
consolidation.
Property and Equipment - Property and equipment are stated at cost.
Expenditures for major renewals and betterments that extend the useful
lives of property and equipment are capitalized, upon being placed in
service. Expenditures for maintenance and repairs are charged to
expense as incurred. Depreciation is computed using the straight-line
method for financial reporting purposes, with accelerated methods used
for income tax purposes. The estimated useful lives of property and
equipment for purposes of financial reporting range from five to seven
years.
Oil and Gas Properties - The Company uses the successful efforts method
of accounting for oil and gas producing activities. Under that method,
costs are accounted for as follows:
a. Geological and geophysical costs and costs of carrying and
retaining undeveloped properties are charged to expense as
incurred.
b. Costs of drilling exploratory wells and exploratory-type
stratigraphic test wells that do not find proved reserves are
charged to expense when the wells do not find proved reserves.
c. Costs of acquiring properties, costs of drilling development wells
and development-type stratigraphic test wells, and costs of
drilling successful exploratory wells and exploratory-type
stratigraphic test wells are capitalized.
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]
e. Costs of oil and gas 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. The recoverable value of assets
is the sum of the expected future undiscounted future cash flows.
Revenue Recognition - The Company's revenue is generated primarily by
the production and sale of oil and gas. Revenue from oil and gas sales
is recognized when the product is transferred to the purchaser.
Stocked Based Compensation - The Company accounts for its stock based
compensation in accordance with Statement of financial Accounting
Standard 123 "Accounting for Stock-Based Compensation". This statement
establishes an accounting method based on the fair value of equity
instruments awarded to employees as compensation. However, companies
are permitted to continue applying previous accounting standards in the
determination of net income with disclosure in the notes to the
financial statements of the differences between previous accounting
measurements and those formulated by the new accounting standard. The
Company has adopted the disclosure only provisions of SFAS No. 123,
accordingly, the Company has elected to determine net income using
previous accounting standards.
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].
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 7].
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.
9
UPLAND ENERGY CORPORATION AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [Continued]
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.
NOTE 2 - 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 expected
to be completed in May of 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.
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.
10
UPLAND ENERGY CORPORATION AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - PROPOSED BUSINESS ACQUISITION [Continued]
The agreement also stated that the Company was to raise a minimum of
$500,000 in a private offering. Net proceeds are to be invested in
Lifesmart Nutrition, Inc.
During the three months ended March 31, 2001, the Company had received
$25,000 in proceeds from sale of its common stock and had advanced the
$25,000 to Lifesmart Nutrition, Inc. The Company also received
$200,000 in notes payable proceeds which the Company has also advanced
to Lifesmart Nutrition, Inc.
NOTE 3 - LOSS ON IMPAIRMENT
During March 2001, the Company agreed to pursue a business acquisition
(See Note 2) 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 has reduced the carrying
value of its oil and gas properties to $100,000 and recorded a loss on
impairment of $253,923 on the oil and gas properties.
NOTE 4 - 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 three month ended March 31, 2001 and 2000, the
Company recorded depletion of $9,222 and $10,685, 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 has reduced the carrying value of its
oil and gas properties to $100,000 and recorded a loss on impairment of
$253,923 on the oil and gas properties [See Note 3].
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.
11
UPLAND ENERGY CORPORATION AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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 750,000 units. Each unit consisted of four shares
of common stock at $.25 per share and one warrant to purchase one share
of common stock at $.50 per share. In March 2001, the Company issued
100,000 shares of common stock for $25,000 cash, or $.25 per share as
part of this private offering.
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.
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 was expensed against legal
fees in 2000.
Warrants - During February and March 2001, the Company issued warrants
to purchase 25,000 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.
12
UPLAND ENERGY CORPORATION AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 - COMMON STOCK TRANSACTIONS [Continued]
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.
The fair value of each option granted is estimated on the date granted
using the Black-Scholes option pricing model with the following
weighted-average assumptions used for grants during the period ended
December 31, 2000 risk-free interest rates of 6.33% expected dividend
yields of zero, expected life of 5 years, and expected volatility 78%.
At March 31, 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 three months ended March
31, 2001.
NOTE 6 - 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 three months ended
March 31, 2001 and 2000:
2001 2000
____________ ____________
Income (loss) from continuing operations
available to common stockholders used
in earnings (loss) per share (Numerator) $ (277,707) $ 17,311
____________ ____________
Weighted average number of common shares
used in earnings (loss) per share out-
standing during the period (Denominator) 5,006,925 4,499,192
____________ ____________
Dilutive earnings per share was not presented, as its effect was anti-
dilutive for the three months ended March 31, 2001 and 2000.
13
UPLAND ENERGY CORPORATION AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 - INCOME TAXES
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109 Accounting for Income Taxes
[FASB 109]. FASB 109 requires the Company to provide a net deferred
tax asset or liability equal to the expected future tax benefit or
expense of temporary reporting differences between book and tax
accounting and any available operating loss or tax credit
carryforwards. At March 31, 2001 and December 31, 2000, the total of
all deferred tax assets was $963,104 and $957,109 and the total of the
deferred tax liabilities was $112,426 and $115,261. 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 $850,678 and $841,848
as of March 31, 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 March 31, 2001 and December 31, 2000
amounted to approximately $8,800 and $7,300, respectively.
As of March 31, 2000, 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 $2,603,000 that expire in various years between 2002 and
2021.
NOTE 8 - 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.
Notes Payable and Warrants - The Company received $200,000 in proceeds
from notes payable from two shareholders. [See Note 9 ] The two
shareholders were granted warrants to each purchase 150,000 shares of
common stock at $.50 per share. [See Note 5]
NOTE 9 - NOTES PAYABLE
In February 2001, the Company received $100,000 in convertible notes
payable from two shareholders of the Company, for a total of $200,000.
The notes have a three-month term bearing eight percent interest rate.
Each note is accompanied by warrants to purchase 150,000 post-split
shares of common stock at $.50 per share. The warrants carry a three
year term. At March 31, 2001, the Company had accrued $2,038 in
interest payable associated with those notes payable. Subsequent to
March 2001, a total of $50,000 of these notes was converted to units of
common stock and the remainder of the notes was paid in full.
14
UPLAND ENERGY CORPORATION AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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 of 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 this 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 December 31, 2000, 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 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. The
president has been continuing on a month to month basis.
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 purchasers stopped buying products from the Company,
the Company would be forced to contract with other purchasers available
in the areas where the oil is produced. The effect of a purchaser
pulling out would at least put a temporary downward pressure on prices
in the area but it is not currently possible for the Company to
estimate how the Company would be affected. Management believes that
its oil is a commodity that is readily marketable and that the
marketing method it follows is typical of similar companies in the
industry.
15
UPLAND ENERGY CORPORATION AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13 - 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. Further,
the Company has current liabilities in excess of current assets at
March 31, 2001. 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.
NOTE 14 - RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS
The Company previously issued March 31, 2001 financial statements which
have been restated to reflect an impairment write down of the Company's
oil and gas properties from $353,923 to $100,000. [See Note 3]. The
following schedule provides disclosure of the effects of the
restatement.
March 31,
2001 as March 31,
previously 2001 as
reported corrected Change
____________ ____________ ____________
Net (Loss) available to
common shareholders $ (23,784) $ (277,707) $ (253,923)
____________ ____________ ____________
Loss per common share $ (.00) $ (.06) $ (.06)
____________ ____________ ____________
NOTE 15 - SUBSEQUENT EVENTS
Other Assets - Subsequent to March 31, 2001, the Company advanced an
additional $275,000 to Lifesmart Nutrition, Inc.
Notes Payable - In April and May 2001, the Company received $275,000 in
proceeds from convertible notes payable. The notes are convertible at
$1 per unit. Each unit consists of four shares of common stock and a
warrant to purchase one share of common stock at $.50 per share. All
of these notes were subsequently paid in full or converted to common
stock.
16
UPLAND ENERGY CORPORATION AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 15 - SUBSEQUENT EVENTS [Continued]
Private Stock Offering - Subsequent to March 31, 2001 the Company
issued 3,673,000 common shares and 918,250 warrants to purchase common
shares at $.50 per share for gross proceeds of $868,250 and conversion
of a $50,000 of notes payable under a completed private stock offering.
Offering costs in connection with the private offering amounted to
$103,890. The proceeds were used to repay notes payable of 150,000 and
the $664,360 remainder was advanced to Lifesmart Nutrition, Inc. These
advanced satisfied the conditions under the merger to raise a minimum
of $500,000.
17
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
General
---------
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
5,165,592 to 2,532,796 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.
18
Liquidity and Capital Resources
---------------------------------------
At March 31, 2001, Upland had assets of $374,530, which included an
advance to LifeSmart of $225,000. The Company had current assets of only
$47,793 with current liabilities of $231,040 resulting in a negative working
capital of $183,247. The current liabilities include $200,000 in notes from
shareholders to help fund the amounts loaned LifeSmart. Exclusive of the
$200,000 notes, Upland's other current liabilities where only $31,040 which is
an improvement from prior quarters. Upland will have to raise additional
capital, however, to pay for the notes which funded LifeSmart. Upland is
hopeful once the LifeSmart transaction is closed, we will be able to raise the
additional funds.
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
---------------------
During March 2001, Upland agreed to pursue a business acquisition 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 from the closing of the transaction with
LifeSmart, to buy GS&C along with its oil and gas assets for $100,000.
Accordingly, Upland has recorded a loss on impairment of $253,923 on the oil
and gas properties.
For the quarter ended March 31, 2001, Upland's oil and gas operations had
a loss of $277,707 on revenue of $67,223. The loss reflected the loss on
impairment of oil and gas properties which was recorded as $253,923. Without
including the loss on impairment of oil gas operations, Upland would have lost
only $23,784. Part of the loss is the result of higher general and
administrative expenses which increased $10,925 over the 2000 quarter as a
result of the need to hire attorneys and accountants to assist in the
LifeSmart transaction. Production cost also increased as a percentage of
revenue from the March 2000 quarter as oil prices decreased slightly per
barrel.
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 Upland's current operations.
19
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company has settled all of its outstanding litigation matters.
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
--------
None
(b) Reports on From 8-K.
--------------------
None
20
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: October 30, 2001 By:
------------------------------------
Lee Jackson, President and Principal
Accounting and Chief Financial Officer