<PAGE>   1
                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-KSB

                                   (MARK ONE)
  [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
  EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998 OR

  [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
  EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ______ TO ______.

                           COMMISSION FILE NO. 0-25006

                          UNITED PETROLEUM CORPORATION

                 (NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)

               DELAWARE                                        13-3103494
   (STATE OR OTHER JURISDICTION OF                          (I.R.S. EMPLOYER
    INCORPORATION OR ORGANIZATION)                         IDENTIFICATION NO.)

    2620 MINERAL SPRINGS ROAD, SUITE A, KNOXVILLE, TN              37917
          (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)               (ZIP CODE)

          ISSUER'S TELEPHONE NUMBER, INCLUDING AREA CODE: 423-688-6204

           SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
                                      NONE

           SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
                     COMMON STOCK, $.01 PAR VALUE PER SHARE

         Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or 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 [ ] No [X]

         Check if there is no disclosure of delinquent filers in response to
item 405 of Regulation S-B is not contained in this form and no disclosure will
be contained, to the best of the registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ ]

         State issuer's revenues for the most recent fiscal year: $6,179,556

         Check whether the issuer has filed all documents and reports required
to be filed by Section 12, 13, or 15(d) of the Securities Exchange Act of 1934
subsequent to the distribution of securities under a plan confirmed by a court.

         Yes [ ] No [X] [Not applicable].





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         State the aggregate market value of the voting stock held by
nonaffiliates (based on the most recent reported trade in the "pink sheets" on
May 14, 1999 of $.01): $251,316

         State the number of shares outstanding of the registrant's $.01 par
value common stock as of the close of business on the latest practicable date
(May 18, 1999): 30,565,352

         Documents incorporated By Reference: None

         Transitional Small Business Disclosure Format (check one): Yes [ ]
No [X]


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PART I.

ITEM I.  BUSINESS

THE COMPANY

     United Petroleum Corporation ("UPC" or the "Company") is a holding company
that has two operating subsidiaries: Calibur Systems, Inc. ("Calibur") and
Jackson-United Petroleum Corporation ("Jackson"). Calibur's primary business
activities consist of the operation of retail car wash and automotive related
service facilities, and Jackson's primary business activities consist of the
acquisition and development of oil and gas properties. As of the date of this
Annual Report, Calibur operates eight car wash facilities in Tennessee and
Georgia and leases two facilities to an independent operator in Georgia. Of
these facilities, three have on-site convenience stores that offer a variety of
automotive products and snack foods, beverages and sundries to customers. Four
of the facilities sell gasoline, diesel fuel and/or other petroleum products and
five provide express lubrication services. In addition, Calibur has three free
standing express lubrication locations. Jackson owns a seventy-five percent
(75%) working interest in sixteen oil and gas wells located in Pennsylvania,
which is the subject of a sales contract. In November 1998, the Company entered
into an agreement with Kastle Resources Enterprises, Inc. ("Kastle") pursuant to
which the Company has agreed to sell its working interest in the sixteen wells
to Kastle. Kastle made an initial payment to the Company of $40,000 and has
agreed to make monthly payments to the Company of $30,000 which includes the
revenue produced by the 16 Pennsylvania wells until November 1999, at which time
Kastle has agreed to pay the Company $650,000 and the Company will sell the
working interests to Kastle. Jackson also has a mineral lease covering
approximately 26,000 acres of real property located in central Kentucky.

RECENT DEVELOPMENTS -- BANKRUPTCY FILING

     On January 14, 1999 (the "Petition Date"), the Company filed a voluntary
petition for reorganization under Chapter 11 of Title 11 of the United States
Code (the "Bankruptcy Code") in the United States Bankruptcy Court for the
District of Delaware (the "Bankruptcy Court"). On February 16, 1999, the Company
filed a proposed plan of reorganization (the "Plan") and related disclosure
statement (the "Disclosure Statement") with the Bankruptcy Court. A hearing to
consider the adequacy of the Disclosure Statement was originally scheduled for
April 1, 1999. Two objections were filed to approval of the Disclosure
Statement. The hearing has been adjourned pending the completion of discussions
with the Company's primary secured and unsecured creditors, regarding potential
changes to the structure of the Plan and modifications to the Disclosure
Statement. The changes to the structure of the Plan could be substantial and may
involve an acquisition by the Company, although there can be no assurances in
this regard.

     Since the Petition Date, the Company has continued to operate its business
and manage its property as a debtor in possession pursuant to sections 1107(a)
and 1108 of the Bankruptcy Code. During the period immediately following the
Petition Date, the Company sought and obtained authority from the Bankruptcy
Court with respect to a number of matters deemed by the Company to be essential
to its smooth efficient transition into chapter 11 administration and to
stabilize its operations.

     In addition to seeking an order relating to the use of cash collateral,
shortly after the commencement of the Chapter 11 Case, the Company sought
certain additional orders, including the following: (a) orders authorizing the
retention of professionals (including accountants and attorneys) in connection
with the Chapter 11 case, (b) an order authorizing the Company to maintain its
prepetition bank account and to continue use of existing business forms and
existing books and records, (c) an order authorizing the payment of certain
pre-petition payroll taxes, and (d) an order extending the Company's time to
file its schedules of assets and statement of financial affairs.

     In addition, the Company commenced a declaratory judgment action against
the plaintiffs in the Pisacreta/Tucci action (see Item 3 -- Legal Proceedings)
requesting a preliminary and permanent injunction preventing the plaintiffs from
continuing to prosecute the action. By Order dated April 22, 1999, the Tennessee
Federal Court dismissed the TAJ action (see Item 3--Legal Proceedings) with
respect to TAJ and Mr. Wilbur Jurdine pursuant to Federal Rule of Civil
Procedure 4(m) for failure to serve these parties in a timely fashion.
Additionally, the Tennessee Federal Court has directed the Company to show cause
why the TAJ action should not be dismissed with respect to National for failure
of prosecution. The Company has moved for reconsideration of the Tennessee
Federal Court's Order dismissing in part the TAJ action, and has likewise
responded with respect to maintenance of the TAJ action against National as
well.

     The Company can provide no assurances that the Bankruptcy Court will
approve its proposed plan of reorganization.

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     Background of the Bankruptcy Filing -- In 1996, the Company undertook a
business strategy of growing through acquisitions. In order to fund anticipated
acquisitions, the Company, in a series of private placement offerings, issued
convertible debentures in the approximate principal amount of $27,500,000 (the
"Debentures"). The anticipated acquisitions, however, did not take place as a
result of the Company's inability to identify suitable acquisition candidates on
acceptable terms, and the Company then used a portion of the proceeds of the
offerings to fund a drilling program. Subsequently, the Company suffered
significant cash losses when amounts advanced to underwriters and consultants
(in order to fund the repurchase of shares of the Company's common stock and to
prevent the disorderly liquidation of a large block of stock held by such
groups) were not utilized as expected or repaid to the Company. See "Item 3 --
Legal Proceedings -- TAJ/National."

     Notwithstanding management's efforts, the Company's revenues were
insufficient to satisfy the Company's obligations. In April 1997, the Company
restructured the Debentures, exchanging a substantial portion of such Debentures
for shares of preferred stock (the "Preferred Stock"), and borrowed additional
funds for working capital needs. Despite these efforts, the Company was still
unable to generate sufficient revenues to satisfy its obligations. The Company's
results of operations, combined with the potential conversion of the Debentures
and Preferred Stock depressed the price of the Company's Common Stock and
adversely affected the Company's ability to raise additional needed capital. In
the second quarter of 1998, two holders of Calibur's mortgage notes in the
outstanding principal amount of approximately $2,500,000 declared the notes in
default and demanded payment in full. These notes, as well as Calibur's
remaining mortgage notes, were refinanced in June and August of 1998 through a
line of credit provided by Infinity Investors, Ltd. ("Infinity") which matured
on January 1, 1999. The Company's management and Board of Directors have
determined that the continuing viability of the Company requires the conversion
of a substantial portion of its indebtedness and Preferred Stock to common
equity by means that can only be implemented in Chapter 11.

     The Company has proposed the Plan to achieve changes in its financial
structure that the Company believes are necessary to alleviate the problems
caused by the Company's excessive debt levels and fixed charges (including its
obligations to make payments in respect of interest and dividends), to enable
the Company to continue to implement its revised business strategy and to help
assure the Company's long-term viability. The Plan is designed to (a)
substantially reduce the Company's debt service and dividend obligations, (b)
eliminate miscellaneous existing and potential litigation, and (c) create a
capital structure that allows the Company to continue in operation as a going
concern. As noted above, the structure of the Plan may be modified
substantially. Management hopes that ultimately, it will be able to confirm and
implement a chapter 11 plan. Management believes that implementation of the Plan
will allow it to concentrate on improving the Company's business operations
rather than on managing its obligations to debt and Preferred Stock holders and
defending litigation.

HISTORY OF THE COMPANY

     The Company was organized under the laws of the State of Delaware on May
19, 1970, under the name "Don Reid Productions, Inc." The Company was formed as
an independent producer of television programs. From 1971 until the early part
of 1977, the Company developed and produced a number of new series and special
programs for television and acquired various interests in scripts and other
original literary rights for stage, television and motion picture production,
all with limited success. The Company was inactive from 1977 until 1982.
Effective November 12, 1982, United Petroleum Corporation, a Delaware
corporation ("United Petroleum-Delaware"), merged with and into the Company, and
the Company changed its name to "United Petroleum Corporation" and commenced to
engage in the business of acquiring and developing oil and gas leases.

     The Company was inactive from 1986 until receiving a proposal in the later
part of 1992 from Calibur Systems, Inc., a newly formed Tennessee corporation
("Calibur Systems"), and its sole stockholder, Michael F. Thomas, pursuant to
which the Company eventually acquired Calibur Systems in a transaction viewed as
a "reverse merger". In contemplation of this transaction, the Company organized
a wholly owned subsidiary in December 1992, Calibur-United Petroleum
Corporation, a Tennessee corporation ("Calibur-United Petroleum). On April 22,
1993, an Agreement and Plan of Merger ("Merger Agreement") between the Company,
Calibur-United Petroleum, Calibur Systems and the sole stockholder of Calibur
Systems, Mr. Thomas, was completed; this Merger Agreement was deemed effective
for accounting purposes as of December 31, 1992. Pursuant to the Merger
Agreement, the Company issued 9,795,200 restricted shares of its common stock to
Mr. Thomas, and Calibur-United Petroleum merged with and into Calibur Systems,




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with Calibur Systems being the surviving corporation; Calibur Systems became a
wholly-owned subsidiary of the Company, and the Company succeeded to its
business operations.

     In February 1994, trading of the Company's shares of Common Stock resumed
in the over-the-counter market. The Company had two operating subsidiaries:
Calibur Systems, Inc. and Jackson-United Petroleum Corporation.

     In June 1995 the Company effected a one for three (1:3) reverse stock split
of the Company's outstanding Common Stock. On June 23, 1995 the Company's Common
Stock began trading on the Nasdaq SmallCap market.

     During the period from May 1996 to October 1996 the Company completed the
private placement of thirteen convertible Debentures pursuant to an exemption
from registration afforded by Regulation S ("Regulation S") as promulgated by
the Securities and Exchange Commission ("SEC"), under the Securities Act of
1933, as amended. The Debentures had a maturity of approximately two years with
interest rates of six percent and seven percent. The aggregate face value of the
Debentures issued was $27,500,000 with net proceeds to the Company of
approximately $20,631,500 before expenses of approximately $2,890,000.

     Notwithstanding the representations in the Subscription Agreement executed
by the Debenture Holders, commencing in the middle of June 1996 and continuing
throughout the year certain Debenture holders, at the earliest date possible,
converted large amounts of the Debentures into substantial numbers of shares of
the Company's Common Stock and it appears they immediately then sold and in some
cases they sold short prior to converting their Debentures and then upon
conversion, used the shares to cover their short positions.

     In June 1996 the Company engaged TAJ Global Equities, Inc. ("TAJ") to act
as the Company's underwriter, stockbroker, agent, depository and fiduciary for
specific transactions. TAJ and its affiliated parties acted wrongfully with the
Company's funds and have caused the Company to incur substantial losses. The
Company has sued TAJ and its affiliates alleging a conspiracy to engage in a
course of misconduct intended to defraud the Company. For additional information
regarding this topic see "Item 3 -- Legal Proceedings" contained in this report.

     In March 1997, the Company filed a charter amendment with the State of
Delaware increasing the Company's authorized capital to 60,000,000 shares, of
which 10,000,000 shares are Preferred Stock, par value $.01 per share, issuable
in one or more classes or series, and 50,000,000 shares are Common Stock, par
value $.01 per share. All or any part of the Common Stock and the Preferred
Stock may be issued by the Company from time to time and for such consideration
as the Board of Directors may determine. All such shares, if and when issued,
and upon receipt of such consideration by the Company, shall be fully paid and
non-assessable.

     Effective April 30, 1997, the Company entered into an agreement with
holders of $16,822,400 of Debentures. The agreement provided among other things,
for the exchange of $9,912,000 worth of Debentures into 9,912 shares of "Series
A" Preferred Stock, after a reduction of ten percent in the face amount of the
Debentures. The "Series A" Preferred Stock will pay a cumulative dividend of
eighteen percent for a period of one year. Thereafter, at the option of the
preferred shareholder, the dividend shall either be reduced to seven percent for
the second year or, a Preferred shareholder, at his option, may surrender to the
Company ten percent of the Preferred Stock and continue to receive a dividend of
eighteen percent. In April 1998, the holders of the preferred stock elected to
reduce the dividend rate to seven percent. At the option of the Company,
dividends may be paid in cash or in the Company's Common Stock. The Company is
in default under its obligations under the preferred stock.

     Preferred shareholders have voting rights equal to those which they would
have if they converted their Preferred shares to Common Stock at the then
current conversion price; provided, however, that no Preferred shareholder or
group of affiliated Preferred shareholders may, at any one time, vote more than
4.99% of the total of the stock entitled to vote.




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     Commencing July 1, 1997, one-thirteenth of the Preferred Stock may be
converted each month on a cumulative basis. The conversion price shall be the
lesser of (x) $3.00 (as adjusted by the following clauses) and (y) the greater
of (i) the Fixed Conversion Price and (ii) the Market Price of the Common Stock
shall be the average for the five (5) consecutive trading days immediately
preceding the Conversion date; provided, if the Monthly Price for the preceding
month is greater than $3.00 (the "Ceiling Price"), then the Ceiling Price for
such month shall be the greater of (x) $3.00 and (y) 66-2/3rds% of the Monthly
Price for such preceding month. The "Fixed Conversion Price" shall be equal to
the following: $2.50 per share through September 30, 1997; $2.00 per share from
October 1, 1997 through December 31, 1997; $1.50 per share from January 1, 1998
through March 31, 1998; $1.00 per share after April 1, 1998; in each case
adjusted as follows: if the Market Price for the trading days in the applicable
calendar month (the "Monthly Price") of the Common Stock for any calendar month
commencing October 1997 is greater than the Fixed Conversion Price, then the
Fixed Conversion Price shall be the greater of the Fixed Conversion Price and
66-2/3rds% of the Monthly Price for the for the preceding calendar month.

     The Preferred shares may be automatically converted by the Company by
notice given between October 1, 1999 and October 10, 1999 at a price equal to
the average of the closing bid prices for the five trading days prior to giving
of the notice. Each Preferred share shall have liquidation rights equal to
$1,000 and shall have a preference over Common shareholders and junior Preferred
shareholders. The Company may redeem the Preferred shares at any time upon
payment of the liquidation price together with any accrued dividends.

     The agreement provides that the Preferred shareholders shall vote their
shares for the continuation of current management and shall not participate in
any proxy contests as long as the Company is not in default with respect to any
of the provisions of the agreement, the Preferred shares or the Debentures.
Because of the existing defaults under the agreement, Preferred Shares and
Debentures, these provisions are not currently binding on the holders.

     The agreement provides that the holders of approximately $3,943,466 of the
Debentures shall receive in their place Amended Convertible Debentures in the
amount of approximately $3,549,120 in face value after a reduction of the face
value of the old Debentures equal to ten percent (10%). The maturity date of the
amended debentures is September 1, 1999.

     The interest rate on the Amended Debentures is eighteen percent (18%) for
one year and seven percent (7%) thereafter; provided, however, that the Amended
Debenture holders shall have the option at the end of one year to surrender to
the Company, for no consideration, ten percent (10%) of their Amended Debentures
and to receive interest of eighteen percent (18%) on the remaining Amended
Debentures. In April 1998, the holders of the Debentures elected to reduce the
interest rate to seven percent (7%). At the option of the Company, interest may
be paid in cash or in Common Stock. The Company is in default under its
obligations under the Debentures.

     One of the Debenture holders subscribed for $666,666 worth of New
Debentures to be issued pursuant to Regulation S. The purchase price for these
New Debentures was $500,000. These funds were used by the Company for working
capital purposes. This New Debenture is convertible under the same terms and
conditions as the Amended Debentures.

     As part of the agreement, Debentures with a face value of approximately
$623,500, together with shares issued in payment of interest accrued through
April 30, 1997 were converted into Common Stock at a price of $.50 per share.

     The above referenced transactions, effective April 30, 1997, reduced the
liabilities of the Company and increased the equity of the Company for the
following reasons: (1) the conversion of Debentures into Common Stock, (2) the
conversion of Debentures into Preferred Stock and (3) the forgiveness of
Debenture balances with a face value equal to approximately $1,495,680. In the
case of the debenture restructure agreement, the debenture holders received an
increased yield in return for the forgiveness. The Company has recorded the
amount forgiven as "unearned discount" and amortized the amount over the life of
the Debentures, which expired during 1998.

     An action, as more fully described in the Company's annual report on Form
10-KSB for the period ended December 31, 1997, entitled Mantel International
Investments, Limited ("Mantel"), Plaintiff, vs. United Petroleum Corporation and
Interwest Transfer Co., Inc., Defendants, was settled on July 1, 1997. The
settlement



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agreement contains, among other items, the following provisions: (1) that
466,667 shares of the Company's Common Stock which were held in escrow pending
the outcome of the action be released to Mantel, (2) the Company authorized the
issuance of 2,000 shares of newly created "Series B" Convertible Preferred
Stock, (3) the Company acknowledge that Mantel retains $1,833,333 in principal
amount of the Company's Convertible Debenture due May 1, 1998 with an original
face amount of $2,666,666 and (4) that the Company allow Mantel to exchange the
$1,833,333 remaining balance of the debenture for 1,833 "Series B" Preferred
Shares and a Warrant to purchase 300,000 shares of the Company's Common Stock at
a price of $1.00 per share. The Preferred shares will bear a dividend rate of
eight percent (8%) per annum with dividends payable quarterly. At the option of
the Company the dividends may be paid in cash or in Common Stock of the Company.
The conversion of the Preferred Shares is limited such that no more than 1/15th
of the "Series B" Preferred Shares may be converted per month commencing July 1,
1997. Further, the Company has the right to automatically convert any remaining
"Series B" Preferred Shares into Common Stock of the Company on October 10,
2000. The mandatory conversion price shall be equal to the average market price
for the five (5) consecutive trading days immediately preceding the conversion
date. Regarding conversion prior to the mandatory conversion, the conversion
price shall be equal to the lesser of (x) $3.00 (as adjusted pursuant to the
following clauses) and (y) the greater of (i) the fixed conversion price and
(ii) the average market price for the five (5) consecutive trading days
immediately preceding the conversion date; provided, if the average monthly
price for the preceding month is greater than $3.00, then the price for such
month shall be the greater of (x) $3.00 and (y) 66-2/3% of the average monthly
price for each preceding month. The "fixed conversion price" shall be equal to
the following: (1) $2.50 per share through September 30, 1997, (2) $2.00 per
share from October 1, 1997 through December 31, 1997, (3) $1.50 per share from
January 1, 1998 through March 31, 1998 and (4) $1.00 per share after April 1,
1998. In each case adjusted as follows: if the average monthly market price for
the trading days in the applicable calendar month of the Common Stock for any
calendar month commencing October 1997 is greater than the fixed conversion
price, then the fixed conversion price shall be the greater of the fixed
conversion price and 66-2/3% of the average monthly price for the preceding
calendar month.

     On August 29, 1997 the Company entered into an agreement with one of the
holders of the Company's Preferred Stock and Amended Convertible Debentures to
amend the terms of the Preferred Shares set forth in the Certificate of
Designation by reducing the Fixed Conversion Price after April 1, 1998 from
$1.00 to $.50 per share. The Company further agreed to amend the terms of the
Amended Convertible Debentures by reducing the Fixed Conversion Price after
October 1, 1997 from $2.00 to $.50 per share. In addition, the agreement further
provided that the Company issue a promissory note in the form of a convertible
debenture in the amount of $1,575,000 for a cash purchase price of $1,250,000.
The difference in the amount of the note and the purchase price being a discount
in the amount of $325,000. Said note was funded in two advances. The first
advance was in the amount of $625,000 face value of the note for proceeds of
$500,000. The second advance was in the amount of $950,000 face value of the
note with proceeds of $750,000. The note had a maturity date of February 28,
1998 with interest payable monthly at the rate of 18%. Interest on the two
advances was prepaid through October 31, 1997 at closing. Closing costs equal to
$25,000 were also deducted from the first advance. The note is unsecured. In
conjunction with the issuance of the note the Company issued 400,000 Warrants to
purchase Common Stock with an initial purchase price of $.3688 per share. The
agreement contains provisions such that the number of Warrants could increase
and/or the exercise price of the Warrants could be adjusted subject to specific
anti-dilutive provisions agreed to by the Company. The agreement also contains a
covenant by the Company to file a registration statement regarding the resale of
the Warrants if and when exercised, the resale of their Common Stock issued as
payment of interest regarding the obligation and the resale of the Common Stock
issued by the Company in the event the holder converts all or a portion of the
obligation into Common Stock. The holder is entitled, at its option, at any time
commencing from and after March 31, 1998 to convert up to 100% of the unpaid
principal amount of the Debenture into Common Stock of the Company at a
conversion price equal to the lesser of (i) $1.00 per share and (ii) the average
market price of the Company's Common Stock for the five (5) consecutive trading
days immediately preceding the conversion date.

     On October 3, 1997 the Company received notification that the Nasdaq Stock
Exchange had decided to delist the Company's common stock from trading on the
Nasdaq Small Cap market, which delisting was effective at the close of business
on December 8, 1997, creating events of default under the Debentures and
preferred stock. For more information regarding this topic see "Item 5 -- Market
for Common Equity and Related Stockholder Matters" contained in this report.



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     The Company's principal executive offices are located at Suite A, 2620
Mineral Springs Road, Knoxville, Tennessee 37917. The Company's telephone number
is (423) 688-6204.

RETAIL CAR WASH AND AUTOMOTIVE RELATED SERVICES SUBSIDIARY - CALIBUR SYSTEMS,
INC.

     This business division, formerly Calibur Car Wash Systems, was founded by
Michael F. Thomas in 1977. At the end of fiscal 1998, Calibur operated eight car
wash facilities in Tennessee and Georgia and leased two facilities to an
independent operator in Georgia. Of these facilities, three have on-site
convenience stores that offer a variety of automotive products and snack foods,
beverages and sundries to customers. Four of the facilities sell gasoline,
diesel fuel and/or other petroleum products and five provide express lubrication
services. In addition, Calibur has three free standing express lubrication
locations.

     In 1997, the Company operated ten car wash facilities in Tennessee and
Georgia, all of which offered other services, six of which also served as
gasoline stations and six of which also provided express lubrication services.
At the end of 1997, the Company had four free standing lubrication locations
located on properties leased from non-affiliated third parties. In the past,
several Company locations were leased from Michael F. Thomas, the Company's
President and CEO. At year-end 1997, there were no properties being leased from
Michael F. Thomas other than office space at 4867 N. Broadway in Knoxville,
Tennessee. Payments under the office lease were $2,500 per month. In 1998, the
Company relocated its corporate offices and at year-end 1998, the Company did
not lease any properties from Mr. Thomas. For more information related to
acquisitions and divestitures related to this subsidiary, refer to "Item 6 --
Management's Discussion and Analysis of Financial Condition and Results of
Operations" contained in this report.

OIL AND GAS SUBSIDIARY - JACKSON-UNITED PETROLEUM CORPORATION

     The Company is engaged in activities related to the exploration and
development of oil and gas. This energy products division has all of its assets
in the United States. Jackson owns a seventy-five percent (75%) working interest
in sixteen oil and gas wells located in Pennsylvania, which is the subject of a
sales contract as described below. Jackson also has a mineral lease covering
approximately 26,000 acres of real property located in central Kentucky.

     In late 1996 and early 1997 the Company completed a joint venture drilling
program with Kastle Resources Enterprises, Inc. ("Kastle") of Edinboro,
Pennsylvania in which the Company has a seventy-five percent (75%) working
interest in sixteen wells. During 1997, the wells produced a net revenue to the
Company of approximately $252,000. This is well below the anticipated level of
revenues as expected at the onset of the drilling program.

     As a result of this level of performance and based on an engineering report
prepared by Wright & Company of Nashville, Tennessee, the Company took a write
off in 1997 associated with these wells. For further information regarding this
issue refer to "Item 6 -- Management's Discussion and Analysis of Financial
Condition and Results of Operations" contained in this report.

     In November 1998, the Company entered into an agreement with Kastle
pursuant to which the Company has agreed to sell its working interest in the
sixteen wells to Kastle. Kastle made an initial payment to the Company of
$40,000 and has agreed to make monthly payments to the Company of $30,000 which
includes the revenues produced from the 16 Pennsylvania wells until November
1999, at which time Kastle has agreed to pay the Company $650,000 and the
Company will sell the working interests to Kastle. The net book value of the 16
wells approximated $1,095,000. Accordingly, the Company has written down the 16
wells to $650,000, less costs to sell, which are estimated to be negligible,
resulting in a $445,000 impairment loss, which is included in the 1998
consolidated statements of operations. The wells are classified as property held
for sale in the consolidated balance sheet.



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     In 1997, the Company decided to write down four wells drilled in Eastern
Kentucky to their fair value of $300,000. In 1998, the Company sold these wells
for approximately $411,000, which consisted of cash of $340,000 and forgiveness
of accounts payable of approximately $71,000. In connection therewith, the
Company incurred expenses of approximately $34,000, resulting in a gain of
$77,000, which is included in the 1998 consolidated statements of operations.
For further information regarding this issue refer to "Item 6 -- Management's
Discussion and Analysis of Operations" section of this report.

     In 1998, the Company elected not to proceed with its remaining wells and
abandoned the wells, which resulted in a writedown of approximately $296,000,
which is included in the 1998 consolidated statements of operations.




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ENVIRONMENTAL IMPACT

     The present and contemplated business operations of the Company are subject
to compliance with numerous federal, state and local environmental laws, rules
and regulations designed to protect the environment and require remediation of
environmental contamination. Many of these risks can not be insured against, and
when insurance is available, the cost is often prohibitive. The Company does not
carry any environmental hazard insurance coverage.

     In general the Company is impacted by Federal and State laws, rules and
regulations summarized below:

     Federal - The federal government has broad discretion in matters relating
to the enforcement of environmental laws and remediation of environmental
contamination. Under the enabling statutes, the Environmental Protection Agency
(the "EPA") has the discretionary power to conduct investigations into suspected
violations, to enjoin questionable business practices and to bring civil or
criminal proceedings against persons or companies that violate the federal
environmental laws. While the Company believes that its business operations are
conducted in a manner that no laws, rules or regulations are violated, there can
be no assurance that the EPA will not institute enforcement proceedings or
conduct investigations and issue injunctions against the Company, if it reaches
a determination that its practices violate applicable laws, rules or
regulations. Any violations of these regulations could have a material adverse
effect on the business and financial resources of the Company.

     State - In addition to the potential for Federal regulation of the Company,
many states have created administrative agencies that have the statutory
authority to regulate operations such as those conducted by the Company, thereby
increasing regulatory burdens on the Company. The adverse impact these
regulations will have on the Company's potential profitability might preclude
the Company from operating in certain markets. Most states, including Georgia
and Tennessee, the two states in which the Company presently conducts its
principal retail business operations, have adopted statutes regulating
installation of underground storage tanks for gasoline, diesel fuel or other
hazardous products, which contain stringent guidelines relative to the location
of such tanks to ground water resources, tank design, tank composition,
installation and leak monitoring. In Georgia, a fine of up to $10,000 per day
per tank may be levied for non-compliance. A tax equal to $.002 per gallon for
all fuel sales is deposited in the Georgia Underground Storage Trust Fund ("GUS
Trust Fund") to help remediate environmental spills. Owners or operators owning
less than one hundred (100) underground storage tanks are required to pay the
first $10,000 in clean-up and remediation expenses, and the total liability of
the GUS Trust Fund is one million dollars ($1,000,000); if the owner or operator
has in excess of two hundred (200) underground storage tanks, the total
liability of the GUS Trust Fund is two million dollars ($2,000,000).
Registration of underground storage tanks is required, but there is no initial
or annual filing fee. In Tennessee, a fine of up to $5,000 per day per tank may
be levied for non-compliance. A tax equal to $.004 per gallon for all fuel sales
is deposited in the Petroleum Storage Tank Environmental Assurance Fund
Commission ("Assurance Fund") to help remediate environmental spills. Owners or
operators owning six (6) or more underground storage are required to pay the
first $25,000 in clean-up and remediation expenses. For owners and operators
owning less than one hundred (100) underground storage tanks, the total
liability of the Assurance Fund is one million dollars ($1,000,000); if the
owner or operator has in excess of two hundred (200) underground storage tanks,
the total liability of the Assurance Fund is two million dollars ($2,000,000).
Tennessee law requires registration of all underground storage tanks and
provides for the owner or operator to pay the first seventy-five thousand
($75,000) and everything over one million dollars ($1,000,000), and the first
one hundred fifty thousand ($150,000) and everything over one million dollars
($1,000,000) on third party claims. Each underground storage tank must be
registered at an annual fee of one hundred dollars ($100); the Company's
estimated annual expense for registration of underground storage tanks is
approximately $1,800 in 1998.

     The Company estimates that it expends approximately fifty (50) man-hours
per month on environmental compliance, at an estimated cost of approximately
$1,000 per month. The Company strives to be in compliance with all applicable
federal, state and local environmental laws, rules and regulations. Continued
compliance or failure to comply with future legislation, however, may have a
material adverse impact on the Company's present and contemplated operations.




                                       10
<PAGE>   11

     Potential Liability; No Insurance for Environmental Claims - The Company
does not presently maintain insurance and has not posted bonds in material
amounts to compensate for any environmental damage that may occur at any of its
retail business locations, or in the drilling of any oil and gas wells other
than the legally required insurance and/or cash bonds which assure that funds
will be available to plug any dry holes which might be drilled; the cost of
these types of insurance policies are deemed to be prohibitive, even if
available. However, liability may in some instances be limited in connection
with claims made against the GUS Trust Fund and Assurance Fund for environmental
spills. The Company does maintain general liability coverage for personal
injuries and damages occurring at its locations, and will review the possibility
of obtaining similar insurance for any contemplated oil and gas operations. Any
claim filed for environmental contamination at any business location of the
Company could have a materially adverse impact on the Company's financial
condition.

COMPETITION

     The Company's oil and gas exploration activities are a highly competitive
and speculative business. In seeking any other suitable oil and gas properties
for acquisition, or drill rig operators and related personnel and equipment, the
Company will be competing with a number of other companies, including large oil
and gas companies and other independent operators with greater financial
resources, and in many cases, management with more experience in this industry.
The Company's competitive position in the oil and gas industry is not
significant. The Company will be in direct competition with numerous oil and gas
companies in the acquisition of oil and gas properties, and the availability of
drilling rigs, including many companies with resources that are substantially
greater than those of the Company. No assurance can be given that the Company
can successfully compete with these companies.

     The major competition in the markets where the Company presently has
operating locations generally follow regional guidelines. Exxon, Amoco, Shell
and Texaco are the major competition in the sales of gasoline. Car wash
competition in the Chattanooga area include Eastgate, Hy's and King of Clean;
oil and lube sales competitors are Mastercare, Jiffy Lube, Midas and Valvoline.

EMPLOYEES

     As of December 31, 1998, the Company employed 92 full time personnel as
follows: 10 in management and supervision, 76 in sales and service, and 6 in
administrative and clerical. In addition, the Company has approximately 111 part
time employees. Employee turnover is high, but is considered within the norm for
the car wash industry.


ITEM 2.  DESCRIPTION OF PROPERTIES

     The Company's executive offices consist of space located at 2620 Mineral
Springs Road, Suite A, Knoxville, Tennessee 37917. The lease expires on August
31, 2000 and has a monthly lease payment of $1,950.

     As of the date of this Annual Report, Calibur operates eight car wash
facilities in Tennessee and Georgia and leases two facilities to an independent
operator in Georgia. Of these facilities, three have on-site convenience stores
that offer a variety of automotive products and snack foods, beverages and
sundries to customers. Four of the facilities sell gasoline, diesel fuel and/or
other petroleum products and five provide express lubrication services. In
addition, Calibur has three free standing express lubrication locations. At the
end of fiscal 1997, the Company operated ten car wash facilities in Georgia and
Tennessee, all of which offered other services. Six of the car wash facilities
also served as gasoline stations and six of the car wash facilities also
provided express lubrication services at the end of fiscal 1997. At the end of
fiscal 1997 the Company had four free standing lubrication locations. All four
of the free standing lubrication locations were on properties leased from
non-affiliated third parties. In the past, several Company locations were leased
from Michael F. Thomas, the Company's President and CEO. At the end of fiscal
1998, there were no properties being leased from Michael F. Thomas. For more
information related to acquisitions and divestitures, see "Item 6 --
Management's Discussion and Analysis of Financial Condition and Results of
Operations" section contained in this report. For further information related to




                                       11
<PAGE>   12

the acquisition or divestiture of properties involving Company insiders, see
"Item 12 -- Certain Relationships and Related Transactions" contained in this
report.

     The following is summary of the Company's retail locations:

<TABLE>
<CAPTION>
                                                                  NATURE OF          MONTHLY
         ADDRESS                         FACILITIES               INTEREST             RENT              COMMENCED
    -------------------               -----------------        --------------       ----------          ------------
<S>                                   <C>                      <C>                  <C>                 <C>
    No. 1                             Full service car wash    Fee simple(1)         NA                     1978
    917 Keith Street                  Express lube center
    Cleveland, TN 37311


    No. 2                             Full service car wash    Leased(2)             $8,804.09              1984
    1291 Oak Ride Turnpike            Express Lube Center
    Oak Ridge, TN 37830


    No. 3                             Full service car wash    Fee simple(1)         NA                     1985
    1500 E. Stone Dr.                 Self service gasoline
    Kingsport, TN 37660


    No. 4                             Full service car wash    Fee simple(1)         NA                     1985
    4717 Hixon Pike                   Self service gasoline
    Chattanooga, TN 37343             Express lube center


    No. 5                             Full service car wash    Leased and Fee        $2,120.00              1995
    703 Parkway                       Express lube center      simple(1)(3)
    Sevierville, TN 37862


    No. 6                             Self service gasoline    Fee simple(1)         NA                     1989
    1107 W. Market                    Full service car wash
    Johnson City, TN 37601            Convenience store


    No. 7                             Detail shop              Fee simple(1)         NA                     1989
    700 Battlefield Pky.              Self service gasoline
    Ft. Oglethorpe, GA 37601          Full service car wash
                                      Convenience store

    No. 8                             Express lube center      Fee simple(1)         NA                     1993
    1014 E. Walnut Ave.               Full service car wash
    Dalton, GA


    No. 9                             Self service car wash    Leased(4)             $1,000.00              1995
    8016 Kingston Pike                Express lube center
    Knoxville, TN 37919


    No. 10                            Express lube center      Leased(5)             $4,475.00              1996
    1039 Crosby Road
    Newport, TN 37821

    No. 11                            Express lube center      Leased(6)             $4,750.00              1997
    2519 E. Morris Blvd.
    Morristown, TN 37813
</TABLE>



                                       12
<PAGE>   13

----------

(1)  All mortgages are held by Infinity, which acquired and refinanced the
     mortgages in the second and third quarter of 1998.

(2)  During 1997 the Company completed a sale/leaseback regarding this location
     (which included the land, the building and the gasoline equipment) with a
     non-affiliated third party. This lease has a term of ten years with two
     option periods of five years each.

(3)  Approximately one-half of the Sevierville property is owned fee simple, the
     remaining half is leased. The lease had an original term of five years
     (which expired December 31, 1996) and five option periods of five years
     each. The first such period is currently in effect.

(4)  This lease has a term of twelve years (commencing on February 12, 1996),
     with two option periods of ten years each.

(5)  This lease has a term of fifteen years (commencing upon completion of
     construction) with two option periods of five years each.

(6)  This lease has a term of fifteen year (commencing upon completion of
     construction) with two option periods of five years each.

     The Company's oil and gas subsidiary, Jackson, owns a seventy-five percent
(75%) working interest in sixteen oil and gas wells located in Pennsylvania,
which is the subject of a sales contract as described above under "Item 1 --
Business". Jackson also has a mineral lease covering approximately 26,000 acres
of real property located in central Kentucky.

ITEM 3.  LEGAL PROCEEDINGS

     1.  Chapter 11 Proceedings.

     On January 14, 1999, the Company filed a voluntary petition for
reorganization under Chapter 11 of Title 11 of the United States Code in the
United States Bankruptcy Court for the District of Delaware. See "Item 1 --
Recent Developments -- Bankruptcy Filing."

     2. NASDAQ Allegations.

     In 1997, NASDAQ alleged that the Company (a) had entered into various
consulting agreements with the sole purpose of expanding investor interest in
the Company's shares, which arrangements are said to have led to a deterioration
of stockholder value, (b) facilitated and pursued manipulative transactions in
the Company's stock, and (c) violated various other NASDAQ rules. Despite the
Company's vigorous response and objection to NASDAQ's allegations, NASDAQ
delisted the Common Stock from the NASDAQ SmallCap Market in December 1997.

     3. TAJ/National.

     In the fall of 1996, the price of the Common Stock began to fall sharply.
Believing that the lower prices were not justified, and in an effort to
stabilize the market in the shares, the Company's Board of Directors authorized
a share buy-back program, which was never successfully implemented. In
connection with this program, the Company deposited some of the proceeds of the
Debenture sale with TAJ Global Securities ("TAJ"), a broker/dealer, for use if
and when purchases were desired. At that time, the Company had engaged TAJ to
act as the Company's underwriter for a planned offering of Common Stock.



                                       13
<PAGE>   14

     TAJ, without the Company's knowledge or consent, purchased a large quantity
of shares from its own customers when the price of the shares began to fall.
Those purchases were initially made through the TAJ trading account apparently
maintained by TAJ for its own trading activities. The shares were subsequently
transferred to the account of Strategic Holdings Corporation ("Strategic") from
which TAJ had a power of attorney. Strategic, which had assisted the Company in
connection with the sale of the Debentures and which had a consulting agreement
with the Company, contends that it did not authorize such transaction and that
it did not know they had taken place.

     When TAJ and Strategic were unable to pay for the shares they had acquired,
TAJ and National Financial Services Corporation ("National"), TAJ's clearing
broker, demanded payment from the Company, threatening to summarily liquidate
the shares and thereby transform the orderly market in the Company's Common
Stock into a disorderly market, an action which would have damaged the interests
of the Company's stockholders. In an effort to prevent such consequences, the
Company paid for the shares.

     In March 1997, the Company commenced a civil action styled United Petroleum
Corporation v. TAJ Global Equities, Inc., et al (the "TAJ Action") against TAJ,
Mr. Wilbur Jurdine (a principal of TAJ) and National, in the United States
District Court for the Eastern District of Tennessee (the "Tennessee Federal
Court"). In it, the Company seeks compensatory and punitive damages arising from
a conspiracy to engage in a course of misconduct intended to defraud the
Company, for conversion of the Company's property, and under theories of unjust
enrichment, breach of fiduciary duty and other causes of action. In April 1999
the court dismissed the Company's lawsuit against TAJ and Mr. Jurdine as a
result of the Company's failure to effect service of process on these defendants
and the Court ordered the Company to show cause as to why its claims against
National should not be dismissed for failure to pursue the lawsuit. The Company
has filed responses to the Court's orders in these cases and the Company
believes that the bankruptcy proceedings should stay the dismissal. Although the
timing, amount and likelihood of any recovery are impossible to predict at this
time, if the Company's Plan of Reorganization is not consummated, it is unlikely
that the Company will have the funds or personnel to pursue the action.

     4.  Strategic.

     On October 6, 1998, the Company was sued by Strategic Holdings Corporation
of Miami, Florida. The suit, styled Strategic Holdings Corporation v. United
Petroleum Corporation, was filed in the Circuit Court of the 11th Judicial
Circuit in and for Dade County, Florida. The action seeks damages of
approximately $550,000 arising from the Company's alleged breach of an
agreement. The Company believes the claims are without merit. As of the date the
Company filed its petition for relief under the bankruptcy laws, the time for
the Company to answer or otherwise respond had not occurred. If Strategic's
claim are determined to have merit, Strategic would have a general unsecured
claim in the Company's bankruptcy proceedings.

     5.  Ishmael.

     In June of 1997, the Company was sued by Kevin Ishmael, a former employee,
alleging that the Company had dismissed him improperly. Ishmael obtained a final
judgment against the Company for back pay and damages totaling $54,422.03. The
Company has also been ordered to reinstate the employee. This matter has been
resolved by the payment of the back pay and damages.

     6.  In re United Petroleum.

     On May 18, 1998, an involuntary bankruptcy petition, styled In re United
Petroleum Corporation d/b/a Jackson-United Petroleum Corporation and Calibur
Systems, Inc. was filed in the United States Bankruptcy Court in the Eastern
District of Tennessee by three preferred stockholders of the Company. This
petition was never served on the Company, and the petitioners' counsel of record
subsequently withdrew and was not replaced. On July 28, 1998, the Company filed
a motion to dismiss the petition for lack of standing. On September 10, 1998,
the plaintiff requested that the court dismiss the petition and on that date the
court entered an order dismissing the case.






                                       14
<PAGE>   15
     7. Pisacreta/Tucci.

     In March 1997, a putative class action lawsuit (the "Pisacreta Action") was
filed by John Pisacreta, a stockholder of the Company, in the Tennessee Federal
Court, purportedly on behalf of all stockholders who purchased shares of Common
Stock during the period of May 1, 1996 through January 16, 1997. This suit was
filed against Ronald Berkovitz, Infinity Investors Limited, Dan Dotan, Fairway
Capital Limited, Lake Management LDC, Laurel Angela MacDonald, Seacrest Capital
Limited and Mohamed Ghaus Khalifa. In the lawsuit, the plaintiff alleges that
the defendants, in acquiring and disposing of certain of the Company's
debentures, participated in a fraudulent and manipulative scheme in violation of
certain provisions of the securities laws of the United States. The plaintiff
also alleges that the defendants committed fraud and deceit under common law and
breached a contract between the defendants and the Company. The defendants filed
a motion to dismiss the complaint for failure to state a claim upon which relief
can be granted. The Tennessee Federal Court granted the motion in part,
dismissing one of the two federal securities law claims, as well as the claim
for common law fraud. Discovery on the class certification issue is currently
proceeding.

     In November 1997, Lisa Tucci, a stockholder of the Company, filed a
putative class action lawsuit (the "Tucci Action") in the Tennessee Federal
Court against Clark K. Hunt ("Hunt"), purportedly on behalf of all persons and
entities who purchased Common Stock from May 1, 1996 through January 16, 1997.
The lawsuit is based on the identical factual allegations set forth in the
Pisacreta Action, described above. The plaintiff claims that Hunt is the
controlling person of certain of the purchasers of the Debentures and is
secondarily liable under the securities laws of the United States for the
violations alleged in the Pisacreta Action.

     In January 1998, the defendant filed a motion to dismiss for failure to
state a claim or alternatively to dismiss the complaint for improper venue. In
April 1998, the Tennessee Federal Court dismissed the Tucci Action for improper
venue. In May 1998, the plaintiff filed a notice of her intent to appeal the
court's ruling to the United States Court of Appeals. After the appeal was filed
in the Tucci Action, the plaintiff in the Pisacreta Action filed a motion to
amend his complaint to add Hunt as a defendant under the theory of controlling
person liability. The motion was ultimately granted and Hunt was added as a
defendant in the Pisacreta Action (as amended, the "Pisacreta/Tucci Action").

     In December 1998, Hunt answered the complaint in the Pisacreta/Tucci Action
and impleaded the Company as a third-party defendant, alleging that the Company
is liable for any claims of the plaintiffs under theories of indemnity and
contribution. Thereafter, the Tennessee Federal Court entered an agreed order
permitting Infinity, Fairway, and Seacrest to assert similar causes of action
against the Company.

     The Company believes that the relief sought in the remaining causes of
action asserted by the plaintiffs in the Pisacreta/Tucci Action are derivative
in nature and that such claims properly belong to the Company. The Company has
asserted that the securities law claim is not premised on unique harm or injury
to my particular stockholder, but rather, is based on the argument that the
defendants' conduct improperly diluted the interests of all stockholders. The
Company has further asserted that the breach of contract claim is based on the
Infinity Parties alleged breach of a contract with the Company, not the
plaintiffs. As a result, the Company believes that the claims asserted in the
Pisacreta/Tucci Action belong to the Company's chapter 11 estate and that the
plaintiffs are stayed from prosecuting the claims. Perhaps more importantly,
based on the Company's assessment of the claims, the Company believes that they
are appropriately resolved pursuant to the settlement between the Company and
the Infinity Parties contained in the Company's proposed bankruptcy plan. On
February 4, 1999, the Company commenced an action in the Bankruptcy Court to
stay the Pisacreta/Tucci Action and for a determination of whether the claims
asserted in such action are derivative in nature. After briefing and a hearing
on February 25, 1999, the Bankruptcy Court ruled largely in favor of the
Company, agreeing to preliminarily enjoin the plaintiff in the Pisacreta/Tucci
Action from continuing to prosecute its action in the Tennessee Federal Court in
any way except (i) continued prosecution of Plaintiff's motion to sever the
Company from the Tennessee litigation, (ii) continued efforts to take certain
discovery and (iii) continuing plaintiffs' efforts to take the deposition of Mr.
Clark K. Hunt. Additionally, the Bankruptcy Court specifically ruled that its
Order would expire on the earlier of May 27, 1999 or confirmation of the
Company's plan of reorganization. On March 15, 1999, Mr. Pisacreta filed a
motion to dismiss the adversary proceeding in lieu of filing an answer therein.
The Company has filed its response in opposition to that Motion to Dismiss, and
the Bankruptcy Court has not yet ruled thereon.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     None

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

     On October 3, 1997 the Company received notification that Nasdaq had
decided to delist its Common Stock from trading on the Nasdaq SmallCap market,
which delisting was effective as of the close of business on December 8, 1997.
The Company is presently trading in the "pink sheets" although there has not
been substantial trading in the Company's stock following the bankruptcy filing.

                                       15
<PAGE>   16

     Nasdaq first alleged that the Company had entered into various consulting
agreements with the sole purpose of expanding investor interest in the Company's
shares, which arrangements are said to have led to a deterioration of
shareholder value. It is the Company's position that the consulting arrangements
were not solely or even primarily for the purpose of expanding shareholder
interest, but, rather were for the purpose of obtaining investment banking
assistance, primarily in connection with the location of possible acquisitions
and in arranging financing for those acquisitions and for the development of the
Company's oil and gas properties. Moreover, the Company does not believe that
these arrangements, in any way, led to a deterioration of shareholder value.
Compensation for these services was paid primarily with stock or options and the
number of shares involved did not significantly dilute shareholder equity.

     Nasdaq further alleged that the Company facilitated and pursued
manipulative transactions in the Company's stock. This allegation apparently
refers to the sale of convertible debentures and the actions thereafter which
were initiated by virtue of the improper actions of certain of the purchasers of
the debentures. The Debentures contained provisions prohibiting short sales and
contained representations that they were being purchased for investment not for
resale. In fact, certain of the debenture holders apparently sold short
substantial quantities of shares prior to conversion of their debentures placing
downward pressure on the price of the shares. The Company was unaware of these
activities until the price of the shares began to fall sharply. Believing that
the lower prices were not justified, and in an effort to stabilize the market in
the shares, the Company's Board of Directors authorized a share buy-back
program. However, the Company never actually put this program into effect. It
deposited some of the proceeds of the debenture sale with TAJ Global Securities,
a broker/dealer, for use if and when purchases were desired. At that time, the
Company had engaged TAJ to act as an underwriter for a proposed public offering
of shares of the Company's stock.

     TAJ, without the Company's knowledge or consent, purchased a large quantity
of shares from its own customers when the price of the shares commenced to drop.
Those purchases were initially made through the TAJ trading account apparently
maintained by TAJ for its own trading activities. Apparently, when that account
became too large, the shares were transferred to the account of Strategic
Holding Corporation ("Strategic") from which TAJ had a power of attorney.
Strategic, which had assisted the Company in connection with the sale of the
Debentures and which had a consulting agreement with the Company, contends that
it did not authorize such transaction and that it did not even know they had
taken place. None of these shares were initially purchased in the Company
account at TAJ.

     When TAJ and Strategic were unable to pay for these trades, TAJ and
National Financial Services, TAJ's clearing broker, made demands upon the
Company to pay for those trades, threatening to summarily liquidate the shares
and thereby transform the orderly market in the Company's Common Stock into a
disorderly market, an action which would have clearly damaged the interests of
the shareholders. The Company, with good intentions, but, perhaps unwisely, made
payment for those shares. All these transactions took place over a period of a
little over a month.

     There was no intent on the part of the Company to manipulate or facilitate
the manipulation of the price of the Company's stock. Unfortunately, the
Company's activities which were intended to protect the shareholders were
unsuccessful. The price of the stock remained at a very low level which enabled
debenture holders to obtain large quantities of stock upon conversion, which,
according to the terms of the Debentures was at market. It was as a result of
these conversions that the equity of the shareholders was seriously diluted, not
through any fault of the Company.

     The 1,834,407 shares which were purchased through the Strategic account
were placed in escrow as collateral for the return of the money which had been
advanced by the Company. They were never transferred to the Company and were
never treated as redeemed stock by the Company. The Company recorded a deferred
tax asset as a result of the loss resulting from the write-off of the advance
for the payment for the Strategic shares. Accordingly, the funds transferred
from the Company for the TAJ/Strategic transactions resulted in the Company
recording a loss of approximately $11 million. Additionally, the loss on the
TAJ/Strategic transactions contributed to the significant net operating loss for
which the Company recognized a deferred tax asset




                                       16
<PAGE>   17
in 1996. There were no disagreements with the Company's auditors with respect to
the accounting treatment of the TAJ/Strategic transactions in the Company's 1996
consolidated financial statements. The Company did not repurchase its shares
through the Strategic account.

     The allegations set forth by Nasdaq also relates to the valuation placed
upon the Company's reserves of oil and gas by virtue of the purported doubt
about the Company's abilities to exploit these reserves. In fact, the Company
has been exploiting its reserves. At present the Company has sixteen (16)
producing wells which are producing revenues, as to which the Company has
entered into a sales contract as described above under Item 1.

     With respect to the concern expressed over the Company's attempt to enter
into unrelated fields of business, none of the transactions has been
consummated. If and when any of these acquisitions were finalized, the Company
would have first satisfied itself of the availability of competent management.
The financing of these transactions was intended to be accomplished with the
participation of the debenture holders in an agreement which would have reduced
the Company's debt and provide the Company with additional sources of income.

     Finally, it was asserted that the Company has violated Marketplace Rule
4330(c) by failing to respond to the staff's requests for information and by
failing to meet the staff's deadlines for responding. The Company did provide
all information requested and provided most of such information in a timely
fashion. A small portion of the responses were provided a short time after the
deadline as a result of work pressure in the Company's offices and the large
effort required to accumulate all of the requested information. The Company
believes that it acted in good faith and to the best of its ability.

     In December 1996, the Company entered into an escrow agreement with
Strategic regarding 1,834,407 shares of Company stock acquired by Strategic from
TAJ (the "Shares"). The Shares were pledged by Strategic as collateral on a note
from the Company to Strategic. The Shares were held in escrow as follows:
334,407 of the Shares were held in escrow by counsel for Strategic as security
for management fees due Strategic and the remaining 1,500,000 of the Shares were
held in escrow by Neal Melnick, legal counsel for the Company and a member of
the Board of Directors. The December 1996 agreement provides for Strategic to
receive a minimum of $465,000 or five percent (5%) of the sales price of such
Shares whichever is greater, payable at a minimum of $200,000 in 1997 and
$265,000 in 1998. The agreement further provides that the Company was to pay
Strategic a management fee of $5,000 per month for two months and $7,500 a month
thereafter for a minimum of one year or until such time as all of the collateral
Shares have been sold or transferred whichever is later. For further information
regarding this agreement and the events leading up to the execution of the
agreement refer to the Company's annual report on Form 10-KSB for the period
ended December 31, 1997.

     During late 1997 the escrowed Shares were released from escrow and were
distributed as follows: (1) 184,000 shares to Robert Brent dba Royal Pictures,
Inc. in payment of expenses related to the aborted purchase of his company, (2)
900,000 shares to Strategic in settlement of the escrow agreement and (3)
750,000 shares to Equity Management Partners in payment of expenses and pre-paid
commissions associated with acquisitions. The market price of the Company's
common stock at the time of the release was approximately $.25 per share. The
aggregate value of the shares released was approximately $458,600 which was less
than the aggregate balance due Strategic under the terms of the agreement. The
Company has been informed by Strategic that they do not consider the release of
the shares to have satisfied the Company's obligation to Strategic and Strategic
filed suit against the Company on October 6, 1998. See "Item 3 -- Legal
Proceedings."

     The range of the high and low bid quotations for the Company's common stock
during the fiscal years ended December 31, 1998 and 1997 are set forth below.
Such bids represent prices between dealers without retail mark-up, mark-down or
commissions, and do not necessarily reflect actual transactions. The bid prices
for the period between January 1, 1997 and December 8, 1997 are as reported by
The Nasdaq Stock Market, and the bid prices for the period from December 9, 1997
to December 31, 1998 are as reported from "pink sheet" transactions subsequent
to the delisting of the Company's common stock.



                                       17
<PAGE>   18
<TABLE>
<CAPTION>

Fiscal Year Ended                High Bid         Low Bid
December 31, 1997
------------------------------------------------------------
<S>                              <C>              <C>
First Quarter                    $.90625          $.1875
Second Quarter                   $.46875          $.21875
Third Quarter                    $.50             $.1875
Fourth Quarter                   $.3125           $.01
</TABLE>

<TABLE>
<CAPTION>

Fiscal Year Ended                High Bid         Low Bid
December 31, 1998
------------------------------------------------------------
<S>                              <C>              <C>
First Quarter                    $.06             $.01
Second Quarter                   $.02             $.01
Third Quarter                    $.05             $.01
Fourth Quarter                   $.03             $.01
</TABLE>



     As of March 31, 1999, the number of shareholders of record of the Company's
common stock was five hundred thirty-three (533). Management believes that there
are approximately two thousand (2,000) beneficial owners of the Company's common
stock.

     The Company has not paid cash dividends on its common stock and does not
anticipate paying cash dividends on its common stock in the foreseeable future.
In addition, the Company's loan agreements prohibit the payment of cash
dividends.


ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
         AND RESULTS OF OPERATIONS

     The following management's discussion and analysis of results of operations
and financial condition contains certain forward-looking statements with respect
to the Company's future financial performance. These forward-looking statements
are subject to various risks and uncertainties, which could cause actual results
to differ materially from historical results and those currently anticipated.
See "Forward-Looking Statements" contained in this Section.

GENERAL

     On January 14, 1999 United Petroleum Corporation (the "Company") filed a
petition for relief under Chapter 11 of the Federal bankruptcy laws in the
United States Bankruptcy Court for the District of Delaware. The petition for
relief does not include the Company's two operating subsidiaries, Calibur
Systems, Inc. and Jackson United Petroleum Corporation. The Company has
continued, as debtor-in-possession in Chapter 11, to conduct its business in
the ordinary course subject to control of the court. The Company intends to
propose a plan of reorganization with its creditors and shareholders that will
provide for the satisfaction of their respective claims and interests on terms
agreed upon with its creditors and stockholders. However, there is no assurance
that the Company will be able to reach an accommodation with its creditors and
stockholders under Chapter 11.

RESULTS OF OPERATIONS

     The following discussion and analysis of our results of operations,
financial condition and cash flows should be read along with the Consolidated
Financial Statements and accompanying notes.

RETAIL OPERATIONS

     The retail operations segment loss increased to $757,154 in 1998 from
$129,444 in 1997, an increase of $627,710 or 484.9%. The increase is primarily
due to the decrease in sales.



                                       18
<PAGE>   19

     Retail operations sales decreased to $6,064,357 in 1998 from $9,428,519 in
1997, an decrease of $3,364,162 or 35.7%. The decrease is primarily due to the
sale or closing of six locations.

     The table below shows comparable sales by category for 1998 and 1997.

<TABLE>
<CAPTION>
                                                1998                1997
----------------------------------------------------------------------------
<S>                                         <C>                 <C>
Gasoline                                    $1,692,877          $2,901,079
Car Wash                                     2,965,263           4,423,673
Oil & Lube                                   1,172,635           1,397,871
Grocery                                        164,975             357,669
Other Sales                                     68,607             348,227
----------------------------------------------------------------------------
                            Total           $6,064,357          $9,428,519
                                            ==========          ==========
</TABLE>


     The gross profit percentage for the retail operations segment decreased to
22.0 % in 1998 from 23.7% in 1997. The decrease is primarily due to the
Company's more aggressive gasoline pricing strategy implemented in 1998.

     The table below shows that on a comparable basis, current year same store
sales remained constant for 1998 and 1997.

<TABLE>
<CAPTION>
                                                1998               1997
----------------------------------------------------------------------------
<S>                                         <C>                <C>
Gasoline                                    $1,649,438         $1,465,347
Car Wash                                     2,727,733          2,827,777
Oil & Lube                                     720,598            772,583
Other Sales                                    206,970            234,257
----------------------------------------------------------------------------
                            Total           $5,304,739         $5,299,964
                                            ==========         ==========
</TABLE>


     Gasoline sales increased to $1,649,438 in 1998 from $1,465,347 in 1997, an
increase of $184,091 or 12.6%. The increase is primarily due the increase in
volume, which is attributable to the Company's decision to be more price
competitive.

     Car wash sales decreased to $2,727,723 in 1998 from $2,827,777 in 1997, a
decrease of $100,054 or 3.5%. The decrease is primarily due to the above average
rainfall in the Southeastern United States.

     Oil and lube sales decreased to $720,598 in 1998 from $772,583 in 1997, a
decrease of $51,985 or 6.7%. The decrease is due to the combination of the above
average rainfall that occurred in the Southeastern United States and the lack of
aggressive lube center managers. The Company since has replaced numerous
managers in an attempt to stimulate sales.

OIL AND GAS OPERATIONS

     Oil and gas revenues decreased to $115,189 in 1998 from $292,342 in 1997,
an decrease of $177,153 or 60.1%. The decrease is primarily attributable to the
decrease in production of certain wells.

     The loss in the oil and gas segment decreased to $734,285 in 1998 from
$3,339,528 in 1997, a decrease of $2,605,243 or 78.0%. The decrease is primarily
due to the Company recording an asset impairment write down of $3,366,730 on
certain oil and gas properties in 1997 compared to a $741,430 write down in
1998.

     Selling, general and administrative expenses decreased to $3,299,618 in
1998 from $3,642,102 in 1997, an decrease of $342,484 or 9.4%. The decrease in
selling, general and administrative expenses is due to cost cutting measures
employed by the Company due to its financial position, including a decrease in
administrative payroll.

     Lease and other income increased to $187,740 in 1998 from $73,125 in 1997,
an increase of $114,615 or 156.7%. The increase is primarily due to the Company
having entered into lease agreements for two of its retail



                                       19
<PAGE>   20

locations that grant the lessee the option to purchase the underlying premises
through the lease term. In 1998 lease income was approximately $100,000.

     Interest expense decreased to $1,662,364 in 1998 from $2,846,906 in 1997,
an decrease of $1,184,542 or 41.6%. The decrease is a combination of the
decrease in the number of convertible debentures that were converted into shares
of the Company's common stock in 1998 which led to a decrease in the
amortization of discount and the decrease in notes payable due to the sale of
certain Calibur locations.

     In January 1998, the Company sold a subsidiary for $266,500, resulting in a
gain of approximately $132,000.

     Generally, the Company's loss before income taxes decreased to $4,320,109
in 1998 from $9,253,042 in 1997, a decrease of $4,932,933 or 53.3%. The decrease
is primarily attributable to the following: (1) a decrease in selling, general
and administrative expenses of $342,484, (2) a decrease in write-downs for asset
impairment of $2,956,321, (3) a decrease in interest expense of $1,184,542 and
(4) a decrease in other expenses of $1,047,811.

LIQUIDITY AND SOURCES OF CAPITAL

     During the year ended December 31, 1998, the Company primarily funded its
operating loss through proceeds received from loans and the sale of one of its
subsidiaries.

     In April 1998, the Company received a $750,000 bridge loan from a preferred
stockholder. In June 1998, the preferred stockholder purchased an aggregate of
eleven secured loans to Calibur totaling $4,985,385 from the original lenders.
In August 1998, the Company received an additional bridge loan from the
preferred stockholder, which provided for additional financing totaling
$1,236,616. In August 1998, the preferred stockholder and the Company agreed to
refinance and consolidate the loans into a Consolidated Credit Agreement (the
"Credit Agreement"). The Credit Agreement is divided into the A Note and the B
Note. Both notes were scheduled to mature on January 1, 1999 and originally
provided for interest at twelve percent (12%). The Company did not have the
funds to repay the notes and as a result, the Company is in default of its
covenants and as provided in the Credit Agreement, in the event of default the
interest is to be computed at fifteen percent (15%).

     In December 1998, the Company received a note for $119,208. The loan bears
interest at twelve percent and is due in December 1999 and guaranteed by a
stockholder.

     For the year ended December 31, 1998, the Company used cash for operating
activities of approximately $1,732,000 compared to cash used from operations for
the year ended 1997 of approximately $985,000. Cash used for the year ended
December 31, 1998 resulted from the Company's net loss of approximately
$4,320,000 offset by depreciation and amortization of approximately $945,000,
write-downs for asset impairment of approximately $741,000, common stock issued
for services of approximately $29,000, decrease in accounts receivable of
approximately $6,000, decrease in inventories of approximately $151,000,
increase in other assets of approximately $45,000 and a increase of accounts
payable and accrued expenses of approximately $834,000 offset by gain on sale of
property and equipment of approximately $31,000 and a gain on sale of subsidiary
of approximately $132,000.

     For the year ended December 31, 1998, the Company generated cash from
investing activities of approximately $112,000 compared to cash used from
investing activities for the year ended 1997 of approximately $1,009,000. Cash
generated from investing activities used for the year ended December 31, 1998
resulted from the proceeds from sale of property and equipment of approximately
$53,000, proceeds from sale of subsidiary of approximately $266,000, offset by
payments for oil and gas properties of approximately $12,000 and payments for
property and equipment of approximately $195,000.

     For the year ended December 31, 1998, the Company generated cash from
financing activities of approximately $1,532,000 compared to cash generated from
financing activities of approximately $2,140,000 for the year ended 1997, of
which approximately $1,800,000 arose from the issuance of convertible
debentures. Cash generated from financing activities resulted from the proceeds
from notes payable of approximately $2,110,000 offset by payments for
reorganization costs of approximately $553,000 and principal payments on notes
payable of approximately $25,000.

                                       20
<PAGE>   21
     At December 31, 1998, the Company had a working capital deficit of
approximately $17,811,000 and a current ratio deficit of .02 to 1.

     The Company has no present plans that will require material capital
expenditures for any of the Company's segments.

INFLATION

     There was no significant impact on the Company's operations as a result of
inflation during the current year or prior year.




                                       21
<PAGE>   22



YEAR 2000

     The year 2000 ("Y2K") problem stems from computer programs written in a way
that differentiates calendar years by utilizing two rather than four digits. As
a result, many information systems may be unable to properly recognize and
process date sensitive information beyond December 31, 1999. The Company is
addressing the Y2K situation by establishing processes for evaluating and
attempting to manage the risks associated with this issue.

     The Company intends to replace or upgrade its computer systems to make them
Y2K compliant in the event the Company has sufficient resources following the
confirmation of its bankruptcy plan, and would seek to have remediation
completed by the second half of 1999 for all significant computer systems.
Testing is expected to continue throughout 1999. The new information systems are
estimated to cost approximately $30,000, a substantial portion of which will be
capitalized. Spending for the Y2K project is not expected to have a material
impact on the Company's results of operations or cash flows. Although the
Company does not currently have a complete contingency plan for Y2K compliance,
it intends to develop one during fiscal year 1999.

     While the Company believes all necessary work will be completed on a timely
basis if the Company's plan of reorganization is completed in the first half of
1999, there can be no guarantee that all systems will be fully compliant by
December 31, 1999. Estimated time and costs may vary, particularly where
external systems of other companies and government agencies on which the Company
relies must be converted in a timely manner.

     The Company will evaluate the Y2K readiness of all purchased hardware and
software systems used within the enterprise and will attempt to obtain, where
feasible, contractual warranties from system vendors that their products (i) are
or will be Y2K compliant by December 31, 1999, or (ii) will be replaced or
updated by a product with similar or improved functional characteristics that
are compliant. The Company will attempt to require Y2K contractual warranties
from all vendors of new software and hardware.

     The Company intends to enter communications with its suppliers, banks and
other business partners or vendors seeking assurances they will be Y2K
compliant. Although no method exists for achieving certainty that any
significant business partners will function without disruption after December
31, 1999, the Company's goal is to obtain as much information as possible about
its significant partners' Y2K plans. This process should assist in identifying
those companies that potentially pose a significant risk of failure to perform
their obligations to the Company as a result of the Y2K problem. The Company
plans, where appropriate, to review such significant partners throughout 1999 to
confirm their level of preparedness for 2000, and to make adjustments where
necessary to avoid utilization of those partners who present an unacceptable
level of risk.

     The Company currently is not dependent on a single source for any of its
products or services. In the event a significant supplier, bank or other
business partner or vendor were unable to provide services to the Company due to
a Y2K failure, the Company believes it would have adequate alternate sources for
such products or services. There can be no guarantee, however, that similar or
identical products or services would be available on the same terms and
conditions or that the Company would not experience some adverse effects as a
result of switching to such alternate sources.

     Like most business enterprises, the Company is dependent upon its own
internal computer technology and relies upon timely performance by its business
partners. A large-scale Y2K program failure could impair the Company's ability
to timely deliver service, or products or administer its accounts payable or
receivable functions, resulting in potential lost sales opportunities and
additional expenses. The Company's Y2K program will seek to identify and
minimize this risk and will include testing of its internal systems and
purchased hardware and software, to ensure, to the extent feasible, all such
systems will be Y2K compliant. The Company intends to refine its understanding
of the risk the Y2K situation poses to its significant business partners.

FORWARD-LOOKING STATEMENTS

     From time to time the Company and its representatives may provide
information, whether orally or in writing, including certain statements in this
Form 10-KSB which are deemed to be "forward-looking" within the meaning of



                                       22
<PAGE>   23

the Private Securities Litigation Reform Act of 1995 ("Litigation Reform Act").
These forward-looking statements and other information relating to the Company
are based on the beliefs of management as well as assumptions made by and
information currently available to management.

     The words "anticipate," "believe," "estimate," expect," "intend," "will,"
and similar expressions, as they relate to the Company or the Company's
management, are intended to identify forward-looking statements. Such statements
reflect the current views of the Company with respect to future events and are
subject to certain risks, uncertainties and assumptions. These risks and
uncertainties include, but are not limited to, the Company's emergence from
bankruptcy proceedings; successful execution of internal plans; retention of key
personnel; availability of labor; issues with key suppliers, subcontractors and
business partners; legal proceedings; market risks; weather patterns; prices for
oil and gas; the effect of economic conditions; the impact of competition; Year
2000 compliance; and legislative or regulatory actions. Should one or more of
these risk or uncertainties materialize, or should underlying assumptions prove
incorrect, actual results may vary materially from those described herein as
anticipated, believed, and estimated or expected.

     In accordance with the Litigation Reform Act, the Company is making
investors aware that such "forward-looking" statements, because they relate to
future events, are by their very nature subject to many important factors which
could cause actual results to vary materially from those contained in the
"forward-looking" statements. These factors are detailed from time to time in
the Company's filings with the Securities and Exchange Commission and include
those set forth below.

     A.  Risks Relating to the Company's Financial Condition

     The Company has experienced substantial net losses from operations in
recent years, with a net loss of $4,320,109 and $12,138,042 for the years ended
December 31, 1998 and 1997, respectively. As of December 31, 1998, the Company
had a working capital deficit of $17,811,614, current liabilities of $18,218,705
and approximately $407,091 of current assets. The Company failed to achieve an
operating profit from its business operations during 1997 and 1998. Sales of the
Company declined from $9.7 million for the year ended December 31, 1997 to
$6,179,556 for the year ended December 31, 1998. Even if the Company's
bankruptcy plan is approved and consummated, there can be no assurance that the
Company will not continue to experience losses. The Company's ability to become
profitable and generate cash flow will likely depend upon its ability to raise
additional debt or equity capital and to successfully implement its business
strategy. There can be no assurance that the Company will be able to accomplish
the foregoing.

     B.  Liquidity Risks

     The Company is presently in default under the A Note, the B Note, its
outstanding Debentures and the Preferred Stock. The Company ceased paying
interest on the Debentures and ceased paying dividends on the outstanding
Preferred Stock effective December 31, 1997. Prior to this date, the Company had
been paying interest on the Debentures and dividends on Preferred Stock via the
issuance of shares of Common Stock. As of December 31, 1998, accrued interest on
the Debentures totaled $1,026,030 and accrued dividends on the Preferred Stock
totaled $2,113,362. In addition, the Company is in default under the A Note and
B Note, which matured on January 1, 1999. The terms of the Replacement Loan
Documents to be issued to the holders of the B Note require that the Company pay
60% of its EBITDA to the holders of the B Note for the next three years
following the consummation of the Restructuring, if completed (or until the B
Note is paid in full). There can be no assurance that the Company's
deteriorating financial condition will provide the Company with adequate
resources to continue operations, even after the Plan, if completed, and there
can be no assurance that the Company will be successful in the implementation of
its business strategy.

     The Company's proposed bankruptcy plan is intended to convert much of the
debt and Preferred Stock of the Company into shares of new UPC common stock, new
UPC preferred stock or refinanced indebtedness of the post-reorganization
company. However, the Company's historical capital requirements have been
significant and the Company's future capital requirements could vary
significantly and may be affected by general economic conditions, industry
trends, weather conditions and other factors, many of which are not within the
Company's control.




                                       23
<PAGE>   24

Historically, the Company has had difficulty financing its operations due, in
part, to its significant losses, and there can be no assurance that the Company
will be able to obtain financing in the future. Even if the Plan is approved and
consummated, there can be no assurance that the Company will not continue to
experience losses. The Company's ability to become profitable and generate cash
flow will likely depend upon its ability to raise additional debt or equity
capital and to successfully implement its business strategy. There can be no
assurance that the Company will be able to accomplish the foregoing. The Company
anticipates that it will need additional capital in January 2002 when the
principal amounts under the B Note will be payable.

     C. Ability of the Company to Continue as a Going Concern; Explanatory
Paragraph in Auditors' Report

     The Company's independent auditors have included an explanatory paragraph
in their report for the fiscal year ended December 31, 1998, stating that the
consolidated financial statements included in this Annual Report have been
prepared assuming that the Company will continue as a going concern and that the
Company's financial condition raises substantial doubts about its ability to
continue as a going concern. The form and content of future auditors' reports
(including any explanatory paragraphs the auditors deem necessary) will be based
upon, among other factors, the application of their professional judgment to the
facts and circumstances related to the Company and its business at the time any
such report is rendered. Accordingly, there can be no assurance that future
auditors' reports on the Company's financial statements will not include
explanatory paragraphs relating to uncertainties regarding the Company's ability
to continue as a going concern, even if the Plan is consummated. The existence
of an explanatory paragraph may materially adversely affect the Company's
ability to raise additional funds, and its relationships with suppliers and
prospective suppliers, restrict ordinary credit terms or require guarantees of
payment, and therefore could have a material adverse effect on the Company's
business, financial condition and results of operations.

     D.  Risks Relating to Confirmation of the Plan

     Section 1129 of the Bankruptcy Code, which sets forth the requirements for
confirmation of a plan of reorganization, requires, among other things, a
finding by the bankruptcy court (1) that the plan is "feasible" (i.e., that
confirmation of the plan is not likely to be followed by the liquidation, or the
need for further financial reorganization, of the debtor), (2) that all Claims
and Interests have been classified in compliance with the provisions of section
1122 of the Bankruptcy Code, and (3) that, under the plan, holders of Claims and
Interests within Impaired Classes either accept the plan or receive or retain
cash or property of a value, as of the date the plan becomes effective, that is
not less than the value such holders would receive or retain if the debtor was
liquidated under Chapter 7 of the Bankruptcy Code. Although the Company believes
that the Plan complies with all relevant requirements for confirmation, there
can be no assurance that the Bankruptcy Court will agree without first requiring
material modifications which may or may not be acceptable to the Company, the
Infinity Parties and other parties in interest or which would not require a
resolicitation of votes on the Plan.

     The confirmation and effectiveness of the Plan are also subject to certain
conditions being satisfied on or prior to the first business day which is ten
days after the entry of the confirmation order by the Bankruptcy Court (the
"Effective Date"). No assurances can be given that these conditions will be
satisfied or waived or that any necessary consent will be obtained.

     In the event any Impaired Class of Claims or Interests rejects the Plan,
the Bankruptcy Court, pursuant to section 1129(b) of the Bankruptcy Code (the
"cramdown" provisions), may nevertheless confirm the Plan at the Company's
request if at least one Impaired Class of Claims has accepted the Plan (with
such acceptance being determined without including the acceptance of any
"insider" in such Class) and, as to each Impaired Class which has not accepted
the Plan, the Bankruptcy Court determines that the Plan "does not discriminate
unfairly" and is "fair and equitable" with respect to such Impaired Class and if
all of the other applicable requirement of section 1129(a) of the Bankruptcy
Code are met. The Company reserves the right to request confirmation pursuant to
section 1129(b) of the Bankruptcy Code in the event that any Impaired Class of
Claims or Interests rejects the Plan. If the Plan is not confirmed as a result
of the rejection by any Impaired Class of Claims or Interests and the Plan is
not confirmed pursuant to section 1129(b) of the Bankruptcy Code, then the
Company may be required to continue its bankruptcy case without the agreement of
its major creditors as to the terms of a reorganization plan, possibly resulting
in the complications discussed above.





                                       24
<PAGE>   25

     E.  Risks Relating to Approval of the UPC Trust

     Bankruptcy Court approval of the UPC Trust and the channeling of all
Securities Claims against UPC and the Infinity Parties to the UPC Trust is a
condition precedent to Infinity's willingness to support the Plan. Although the
Company believes that a channeling injunction such as that proposed by the Plan
is appropriate and within the equitable power of the Bankruptcy Courts, it is
not certain that the Bankruptcy Court will reach the same conclusion. In making
its decision whether the UPC Trust and channeling injunction should be approved,
it is likely that the Bankruptcy Court will review the following factors: (1)
whether the nondebtor has contributed substantial assets to the reorganization;
(2) whether the injunction is essential to reorganization and, without it, there
is little likelihood of success; (3) whether the plan provides a mechanism for
the payment of the claims of the class or classes affected by the injunction;
and (4) whether there is an identity of interest between the debtor and the
third party (e.g. an indemnity relationship), such that a suit against the
non-debtor either operates as a suit against the debtor or will deplete assets
of the estate. In addition, certain holders of claims or interests and the
Securities and Exchange Commission have filed objections or challenges to the
creation of the UPC Trust and the channeling of the Securities Claims against
UPC and the Infinity Parties. There can be no assurance that the Company will be
able to implement a Plan including these provisions.

     F.  Risks Relating to the Company

     1.  Weather Related Risk.

     The largest single source of revenues for Calibur is from the operation of
car washes, which represented approximately 48.0% and 46.9% of the Company's
revenues for the years ended December 31, 1998 and 1997, respectively. These
revenues are significantly adversely affected by adverse weather conditions,
since car washes are generally utilized less frequently during wet and/or severe
freezing weather. During 1997 and the first and second quarters of 1998, the El
Nino weather condition has produced unusually wet weather, which has resulted in
decreased usage of the Company's facilities and had a negative effect on
revenues. Long term weather conditions are difficult, if not impossible, to
predict accurately and may have a material adverse effect on the Company's
results of operations and financial condition.

     2.  Dependence on Economic Factors; Geographic Concentration.

     Because the Company derives a substantial portion of its revenues from the
sale of merchandise in its car wash convenience stores, its revenues may be
adversely affected by economic conditions that adversely affect potential
customers and suppliers. Approximately 3.8% and 8.6% of the Company's revenues
were derived from the sales of merchandise for the years ended December 31, 1998
and 1997, respectively. In particular, operating results in individual
geographic markets will be adversely affected by local and or regional economic
downturns. Such economic downturns could have an adverse impact on the Company's
financial condition and results of operations. In addition, the Company's
operations are concentrated geographically and the Company lacks the geographic
diversity that could mitigate such economic downturns.

     3.  Competition.

     The industries in which the Company operates are all highly competitive.
The Company encounters significant competition in all areas of its operations.
The Company's competitors include major integrated convenience store chains and
oil and natural gas companies, numerous independent companies, individuals and
drilling and income programs. Many of its competitors are large,
well-established companies with substantially larger staffs and greater capital
resources than the Company and which, in many instances, have been engaged in
the business for a much longer time than the Company. Such companies may be able
to pay more for productive properties and prospects and to define, evaluate, bid
for and purchase a greater number of properties and prospects than the Company's
financial or human resources permit. Even assuming the reorganization proposed
in the Plan is completed, there can be no assurance that the Company will be
able to compete effectively.



                                       25
<PAGE>   26

     4.  Drilling Risks.

     The Company currently anticipates that it will sell its non-producing oil
and gas properties after the Effective Date. Nevertheless, to the extent the
Company undertakes drilling activities, they involve numerous risks, including
the risk that no commercially productive natural gas or oil reservoirs will be
discovered. The cost of drilling, completing and operating wells is often
uncertain, and drilling operations may be curtailed, delayed or canceled as a
result of a variety of factors, including unexpected drilling conditions or
pressure irregularities in formations, equipment failures, accidents, adverse
weather conditions and shortages or delays in the delivery of equipment. The
Company's drilling activities have in the aggregate been historically
unproductive and may be unsuccessful in the future and, if unsuccessful, such
failure will have an adverse effect on Company's future results of operations
and financial condition.

     5. Uncertainty of Reserve Information and Future Net Revenue Estimates.

     There are numerous uncertainties inherent in estimating oil and natural gas
reserves and their estimated values, including many factors beyond the control
of the producer. Reservoir engineering is a subjective process of estimating
underground accumulations of oil and natural gas that cannot be measured in an
exact manner. Estimates of economically recoverable oil and gas reserves and of
future net cash flows necessarily depend upon a number of variable factors and
assumptions, such as historical production from the area compared with
production from other producing areas, the assumed effects of regulations by
governmental agencies and assumptions concerning future oil and gas prices,
future operating costs, severance and excise taxes, development costs and
workover and remedial costs, all of which may in fact vary considerably from
actual results. For these reasons, estimates of the economically recoverable
quantities of oil and natural gas attributable to any particular group of
properties, classifications of such reserves based on risk of recovery, and
estimates of the future net cash flows expected therefrom prepared by different
engineers or by the same engineers at different times may vary substantially and
such reserve estimates may be subject to downward or upward adjustment based
upon such factors. Actual production, revenues and expenditures with respect to
Company's reserves will likely vary from estimates, and such variances may be
material.

     6. Volatility of Natural Gas and Oil Prices.

     Revenues generated from the sale of the Company's oil and gas properties,
and from the Company's oil and gas exploration and production operations are
highly dependent upon the price of, and demand for, oil and natural gas.
Historically, the markets for oil and natural gas have been volatile and are
likely to continue to be volatile in the future. Prices for oil and natural gas
are subject to wide fluctuations in response to relatively minor changes in the
supply of and demand for oil and natural gas, market uncertainty and a variety
of additional factors that are beyond the control of the Company. These factors
include the level of consumer product demand, weather conditions, domestic and
foreign governmental regulations, the price and availability of alternative
fuels, political conditions in the Middle East, the foreign supply of oil and
natural gas, the price of foreign imports and overall economic conditions.
During the past year, the price of oil per barrel received by the Company has
ranged from a high of approximately $17.00 per barrel to a low of approximately
$9.25 per barrel, with the price in December at an average of $10.25 per barrel.
The impact of lower oil prices is to lower the revenue received by the Company
for its oil production. This is of minimal effect on the Company as a whole due
to the fact that the Company has very little oil production. The Company
considers the price of oil to be low based on the fact that in recent history
prices have been higher. The current price of $11.25 per barrel is $1.00 higher
per barrel than one year ago. This represents an increase of approximately 9.7%
from the price one year ago. It is impossible to predict future oil and natural
gas price movements with any certainty. Declines in oil and natural gas prices
may materially adversely affect Company's financial condition, liquidity and
results of operations. Lower oil and natural gas prices also may reduce the
amount of Company's oil and natural gas that can be produced economically.

     7.  Replacement of Reserves.

     In general, the volume of production from oil and gas properties declines
as reserves are depleted. Except to the




                                       26
<PAGE>   27

extent the Company acquires properties containing proved reserves or conducts
successful development and exploration activities, or both, the proved reserves
of the Company will decline as reserves are depleted. The Company's future oil
and natural gas production is, therefore, highly dependent upon its level of
success in finding or acquiring additional reserves. The business of exploring
for, developing or acquiring reserves is capital intensive. Because of the
Company's negative historical and projected cash flows from operations and
limited external sources of capital, the Company's ability to make the necessary
capital investment to maintain or expand its asset base of oil and natural gas
reserves is impaired.

     8. Impairment of Oil and Gas Properties; Risks Related to Kastle Sale.

     The Company uses the full cost method of accounting for its investment in
oil and natural gas properties. Under the full cost method of accounting, all
costs of acquisition, exploration and development of oil and natural gas
reserves are capitalized into a "full cost pool" as incurred, and properties in
the pool are depleted and charged to operations using the unit-of-production
method based on the ratio of current production to total proved oil and natural
gas reserves. To the extent that such capitalized costs (net of accumulated
depreciation, depletion and amortization) less deferred taxes exceed the present
value (using a 10% discount rate) of estimated future net cash flows from proved
oil and natural gas reserves, and the lower of cost or fair value of unproved
properties after income tax effects, such excess costs are charged to
operations. Once incurred, a write-down of oil and natural gas properties is not
reversible at a later date even if oil or natural gas prices increase.
Significant downward revisions of reserve estimates or declines in oil and gas
prices which are not offset by other factors could result in a write-down for
impairment of oil and gas properties. In addition, the failure of Kastle to
perform under the sale agreement related to certain of the Company's working
interests in oil and gas properties would have a material adverse effect on the
Company and its financial condition and results of operations.

     9.  Government Regulation and Environmental Matters.

     The Company's business is regulated by certain local, state and federal
laws and regulations relating to the exploration for, and the development,
production, marketing, pricing, transportation and storage of, oil and natural
gas. The Company's business is also subject to extensive and changing
environmental and safety laws and regulations governing plugging and
abandonment, the discharge of materials into the environment or otherwise
relating to environmental protection. As with any owner of property, Company is
also subject to cleanup costs and liability for hazardous materials, asbestos or
any other toxic or hazardous substance that may exist on or under any of its
properties. The implementation of new, or the modification of existing, laws or
regulations could have a material adverse effect on the Company. The gasoline
sales operations conducted by the Company imposes certain inherent environmental
risks. Each operation utilizes underground storage tanks for its petroleum
products. While the Company has no information and has received no notification
that any of its tanks are leaking, the leakage of underground storage tanks
would impose environmental remediation obligations for the Company under federal
and state environmental laws and could give rise to third party claims. The
Company does not presently maintain insurance and has not posted bonds to
compensate for any environmental damage that may occur.

     10. Operating Risks of Oil and Gas Operations.

     The oil and gas business involves certain operating hazards such as well
blowouts, cratering, explosions, uncontrollable flows of oil, natural gas or
well fluids, fires, formations with abnormal pressures, pollution, releases of
toxic gas and other environmental hazards and risks, any of which could result
in substantial losses to the Company. The availability of a ready market for the
Company's oil and natural gas production also depends on the proximity of
reserves to, and the capacity of, oil and gas gathering systems, pipelines and
trucking or terminal facilities. In addition, the Company may be liable for
environmental damage caused by previous owners of property purchased and leased
by the Company. As a result, liabilities to third parties or governmental
entities may be incurred, the payment of which could reduce or eliminate the
funds available for development, acquisitions or exploration, or result in the
loss of the Company's properties. The Company does not carry business
interruption insurance. The occurrence of an event not covered by insurance
could have a material adverse effect on the financial condition and results of
operations of the Company.



                                       27
<PAGE>   28

     11. Dependence on Personnel.

     The business of the Company depends upon the ability and expertise of
certain key employees, including Michael F. Thomas, its President and Chief
Executive Officer. If one or more key employees of the Company terminate their
employment, the Company's operations could be adversely affected. There can be
no assurance that one or more key employees will not resign from employment with
the Company. In addition, the Company depends upon a significant number of
hourly workers to operate its auto service business, and these employees are
often difficult to recruit and retain, especially in markets with lower
unemployment rates.

     12. No Active Market for Securities; Possible Volatility of Stock Price.

     There is no current active market for the Common Stock or other securities
of the Company and there can be no assurance that an active trading market will
develop or, if developed, that such market will be sustained or that the market
price of the Common Stock or the securities proposed to be issued as a result of
the bankruptcy plan will not decline. The trading price of the Common Stock has
been subject to wide fluctuations, and the trading price of the new securities
could be subject to wide fluctuations in the future in response to variations in
the Company's results of operations, as well as developments that affect the
industry, the overall economy and the financial markets.

     13. Control by Principal Stockholder.

     If the Company's current bankruptcy plan is implemented, after the
Effective Date, the Infinity Parties will own approximately 74% of the
outstanding shares of New UPC Common Stock. This ownership will give the
Infinity Parties control over any stockholder vote, including a vote for
election of all of the members of the Company's Board of Directors, a vote for
the adoption of amendments to the Company's charter and bylaws and a vote for
the approval of a merger, consolidation, asset sale or other corporate
transaction requiring approval of the stockholders of the Company.

     14. Need For Additional Financing

     In the event that cash from operations and other available funds prove to
be insufficient to fund the Company's presently anticipated operations, the
Company will be required to seek additional financing. Even if the Company has
no future capital expenditures, the Company's operations could require more cash
than is generated from the Company's operations and other available funds, in
which case the Company would require additional financing. There can be no
assurance that, if additional financing is required, it will be available on
acceptable terms, or at all. Nor can any assurances be given that current
investors would be willing to fund any additional operational requirements of
the Company in the future. Additional financing may involve substantial dilution
to the interests of the Company's then-current stockholders, including the
holders of the New UPC Common Stock.

     15. Legal Proceedings.

     The Company is involved in certain legal proceedings as described in "Item
3 -- Legal Proceedings." While the Company intends to defend such lawsuits, any
adverse decisions or settlements and the costs of defending such suits, could
have a material adverse effect on the Company. In addition, the Company has
filed a lawsuit seeking the recovery of substantial damages. See "Legal
Proceedings -- TAJ/National." This lawsuit is in the early stages and there can
be no assurances of the timing or amounts of any recovery. In the event the
Company is ultimately successful in such lawsuit, the holders of the Common
Stock of the Company would receive less of the benefits from the recovery, if
any, if the Plan is confirmed and consummated. However, if the Plan is not
approved, the Company would not have sufficient funds to pursue the litigation.

     16. Year 2000 Compliance.

     Many currently installed computer systems and software products are coded
to accept only two digit entries in




                                       28
<PAGE>   29

the date code field. These date code fields will need to accept four digit
entries to distinguish 21st century dates from 20th century dates. As a result,
in less than twelve months, computer systems and/or software used by many
companies will need to be upgraded to comply with such "Year 2000" requirements.
Systems that do not properly recognize such information could generate erroneous
data or cause a system to fail. Significant uncertainty exists in the software
industry concerning the potential effects associated with such compliance.
Management does not anticipate that the Company will incur significant operating
expenses or be required to invest heavily in computer systems improvements to be
Year 2000 compliant. The occurrence of any of the foregoing could have a
material adverse effect on the Company's business, operating results or
financial condition.

     Although the Company believes the software and hardware it uses internally
comply with Year 2000 requirements and is not aware of any material operational
issues or costs associated with preparing its internally used software and
hardware for the Year 2000, there can be no assurances that the Company will not
experience serious, unanticipated negative consequences and/or material costs
caused by undetected errors or defects in the technology used in its internal
systems. The occurrence of any of the foregoing could have a material adverse
effect on the Company's business, operating results or financial condition.

     17. No Dividends.

     The Company does not anticipate that it will be able to pay any dividends
on its currently outstanding securities or the securities proposed to be issued
under the Company's bankruptcy plan for the foreseeable future. The Company is
currently restricted from paying dividends on its Common Stock under the terms
of its indebtedness and Preferred Stock. If the plan is adopted, the Company
will be subject to similar or more stringent restrictions on the payment of
dividends on its securities.


ITEM 7.  FINANCIAL STATEMENTS

     The financial statements and supplementary data commence on page F-1.


ITEM 8.  CHANGES IN AND DISAGREEMENT WITH ACCOUNTANTS ON ACCOUNTING
         AND FINANCIAL DISCLOSURE

     As previously reported by the Company in its Current Report on Form 8-K
filed on March 26, 1999, and an amendment to the Form 8-K filed on April 6,
1999, the Company has changed its independent public accountants.


PART III


ITEM 9.  DIRECTORS, EXECUTIVE OFFICERS PROMOTERS AND CONTROL PERSONS,
         COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT

    The following table sets forth the name, age and position of each director
and executive officer of the Company:

<TABLE>
<CAPTION>
                               NAME, AGE AND ADDRESS                        POSITION
                ------------------------------------------------------------------------------------------------

<S>                                                                  <C>
                MICHAEL F. THOMAS, 46                                CEO, President and Director
                  2620 Mineral Springs Road, Suite A
                  Knoxville, TN 37917

                DWIGHT S. THOMAS, 46                                 Secretary, Treasurer and Director
                  2620 Mineral Springs Road, Suite A
                  Knoxville, TN 37917
</TABLE>





                                       29
<PAGE>   30

<TABLE>

<S>                                                                  <C>
                WALTER L. HELTON, 65                                 Director
                  c/o Tennessee Tech University
                  P.O. Box 5062
                  Cookeville, TN 38505

                STEVEN BAUER                                         Director


                EUGENIO (ROLANDO) MARTINEZ, 76                       Director
                  Apt. 106 1821 Jefferson
                  Miami Beach, FL 33139

                ANTONIO JULIO GONZALEZ GIMENEZ                       Director
                  Av. Diaz Moreno Edif. El Juncal
                  Piso 3, Oficina 33
                  Valencia, Edo. Carobobo, Venezuela

                L. DOUGLAS KEENE, JR., 45                            Executive Vice President and CFO
                  2620 Mineral Springs Road, Suite A
                  Knoxville, TN 37917
</TABLE>

     Michael F. Thomas and Dwight S. Thomas are cousins. There are no other
family relationships between any directors or executive officers of the Company.

Michael F. Thomas

    Mr. Thomas has been a director since January 1993 and received a B.A. Degree
in Accounting in 1975 from Tennessee Technological University in Cookeville,
Tennessee. He was the manager of the finance and billing department for the City
of Cookeville from 1975 to 1976, and from 1976 to 1977, he was the department
manager for Fleetguard, Inc., a manufacturer of heavy duty filters, which is a
division of Cummins Engine. As department manager, he supervised thirty
employees and coordinated production. Mr. Thomas founded Calibur Car Wash
Systems as a sole proprietorship until organizing Calibur on October 1, 1992. In
1984, Mr. Thomas also formed TCS, which designs, manufacturers and sells car
wash equipment and related supplies.

Dwight S. Thomas

    Mr. Thomas has been a director since January 1993 and received an A.S.
Degree in Criminology in 1975 and a B.S. Degree in Sociology in 1977 from
Tennessee Technological University in Cookeville, Tennessee. From June, 1981
until March, 1987, he was location manager for Calibur Car Wash Systems,
responsible for approximately twenty hourly employees, hiring, dismissals,
training, labor, inventory controls, daily reports, bank deposits, customer
relations and quality control. From 1987 to April 1999, he has been the District
manager for Calibur Car Wash Systems, responsible for fifteen salaried managers,
hiring and training managers and communicating daily with the Company's
locations. Mr. Thomas was also responsible for implementing training programs
for all phases of operations, setting goal incentives for management programs
and organizing and implementing testing for OSHA guidelines. Effective April 1,
1999, Mr. Thomas became a part-time employee assisting the Company on an
"as-needed" basis.

Walter L. Helton

    Mr. Helton has been a director since December 1996 and is the founder of the
geology department at Tennessee Technological University located in Cookeville,
Tennessee and has been a member of the faculty there since 1966. He earned a
Doctorate in Geology from the University of Tennessee in 1967. He has formerly
served as a consultant to other public companies such as Marathon Oil and as a
consultant to numerous private energy companies including B. Ray Thompson Coal
Company. Among his other accomplishments, he is widely published in the energy
field and has authored many university level text books as well as been
contracted to perform mapping services for both the States of Tennessee and
Kentucky Geological departments.




                                       30
<PAGE>   31

Steven Bauer

    Mr. Bauer has been a director since August 1997 and is a Cuban born movie
star who made his film debut as "Manolo," Al Pacino's right hand man and
brother-in-law in "Scarface" in 1983. He has substantial contacts in the
entertainment and film industry.

Eugenio (Rolando) Martinez

    Mr. Martinez has been a director since August 1997 and was born in Artemisa,
Cuba. After opposing both the Batista and Castro regimes, he came to the United
States in 1959 and joined the Central Intelligence Agency. He is currently a
resident of Miami, Florida engaged in consulting on international trade and
finance.

Antonio Julio Gonzalez Gimenez

    Mr. Gimenez has been a director since August 1997 and is President of Hotel
Tacarigua, C.A., which owns the Hotel Inter-Continental in Valencia, Venezuela.
He has extensive experience in international business affairs led to his
appointment to the board. His contacts in South America's oil industry are
extensive and may prove beneficial to future business of the Company.

L. Douglas Keene, Jr.

    Mr. Keene received a B.S. Degree in Business Administration, majoring in
Banking and Finance, from the University of Tennessee in 1976. Mr. Keene
graduated from the Tennessee School of banking at Vanderbilt University in 1980,
where he achieved the highest score in the class. He graduated from the National
Commercial Lending School in Norman, Oklahoma in 1981. Mr. Keene's banking
career began in 1976 with the Citizens bank in Pikeville, Kentucky. He remained
in the banking industry until April, 1985, when he resigned as Vice President,
Commercial Loans, at First Tennessee Bank in Knoxville, Tennessee, to establish
Keene Financial Corporation. He was the principal of Keene Financial Corporation
from April 1983 to August 1993, which was established to provide mortgage
banking services and financial consultation to entrepreneurs in the Southeast.
Mr. Keene joined the Company in August 1993, and has served as an Executive Vice
President since August 1993 and as Chief Financial Officer since November 1997.

    UPET has a classified board of directors consisting of three classes of
directors, one class of which is elected each year. Messrs. Michael Thomas and
Dwight Thomas are Class A Directors with terms expiring in 1999. The remaining
directors were not assigned to a class upon their election. The officers of the
Company are elected by the Board of Directors and hold office until their
successors are elected and qualified, until their death or until they resign or
have been removed from office. All corporate officers serve at the direction of
the Board of Directors.

    Steven Bauer, Antonio Gonzalez Gimenez and Eugenio (Rolando) Martinez were
appointed to the Board of Directors during August 1997 to fill vacant seats and
were not elected by stockholders. Their remaining on the Board of Directors
beyond the next annual meeting of stockholders will depend upon their being
nominated for the board positions and their ratification by stockholders. David
Olinsky was also appointed to the Board of Directors in 1997 to fill a vacant
seat. However, he resigned soon after the appointment and never participated in
any board meetings or actions.




                                       31
<PAGE>   32

     There is no understanding or arrangement between any director or any other
persons pursuant to which such individual was or is to be selected as a director
or nominee of the Company.


ITEM 10.  EXECUTIVE COMPENSATION

     The following table sets forth a summary of all compensation awarded to,
earned by or paid to, the Company's Chief Executive Officer and all other
executive officers who were paid or accrued compensation in excess of $100,000
per annum for such fiscal years (the "Named Executive Officers") for services
rendered in all capacities to the Company and its subsidiaries during fiscal
years ended December 31, 1998, 1997 and 1996.


                           SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>

------------------------------------------------------------------------------------------------------------------------------
            NAME/POSITION                 YEAR          SALARY ($)        BONUS ($)     OTHER COMPENSATION         OPTIONS
------------------------------------------------------------------------------------------------------------------------------

<S>                                       <C>            <C>              <C>           <C>                     <C>
Michael F. Thomas (1)                     1998           $200,000            -0-          $ 19,299 (2)(3)               -0-
Chief Executive Officer                   1997           $350,000            -0-          $123,780 (2)(3)        1,183,334 (4)
                                          1996           $300,000            -0-          $ 98,682 (5)           1,183,334 (6)

L. Douglas Keene, Jr.,                    1998           $115,083            -0-          $  8,900 (7)                  -0-
Executive Vice President                  1997           $ 87,500            -0-          $ 10,700 (7)             250,000 (8)
And CFO                                   1996           $ 89,500            -0-          $  9,800 (7)             250,000 (8)
</TABLE>



1. As of December 31, 1998, Mr. Thomas held 2,329,214 restricted shares of the
Company's common stock with an aggregate market value of approximately
$23,292.14 based upon the most recent trade in the "Pink Sheets" of $.01 per
share.

2. For fiscal years ended December 31, 1998, December 31, 1997 and December 31,
1996, Mr. Thomas was paid the sum of $0, $177,000 and $356,000, respectively,
which approximates the debt service for the lease of three Calibur retail
locations. See ITEM 12 "Certain Relationships and Related Party Transactions".

3. During 1998, Mr. Thomas' other compensation consisted of health insurance,
life insurance and an auto allowance, all totaling $19,299. During the fiscal
year ended December 31, 1997 the Company issued Michael F. Thomas 200,000
restricted shares of the Company's common stock as payment for services. The
shares were issued with an aggregate value of $37,500 which represented 50% of
the market value of the stock as of the date issued. In addition, during the
year the Company issued Mr. Thomas 20,000 shares for his services related to the
Board of Directors. Said shares were issued at market value as of the date of
issuance which was $.25 for an aggregate amount of $5,000. In addition, during
1997 the Company paid a fee to Mr. Thomas of $81,280 which represents a one
percent (1%) fee charged to the Company for Mr. Thomas' personal guaranty of the
Company's debt.

4. Represents four options granted to Mr. Thomas. All of which have been
replaced with options having a lower exercise price.

5. Represents a one percent (1%) fee charged to the Company for Mr. Thomas'
personal guaranty of the Company's debt.

6. Represents four options granted to Mr. Thomas. All of which have been
replaced with options having a lower exercise price.

7. Represents payment of health insurance premiums and an automobile allowance.



                                       32
<PAGE>   33
8. Represents options granted to Mr. Keene, all of which have been replaced with
options having a lower exercise price.

EMPLOYMENT AND CHANGE IN CONTROL AGREEMENTS

     In 1996, the Company entered into employment agreements with both its Chief
Executive Officer and Chief Financial Officer which will expire in September
2001. Compensation under these agreements aggregated approximately $325,000 in
1998 and will be approximately $225,000 annually thereafter, including payments
of $125,000 to the Company's Chief Executive Officer and $100,000 to its Chief
Financial Officer.

COMPENSATION OF DIRECTORS

     In January of 1997 replacement options with a lower exercise price of $.26
per share were granted to directors to replace the options granted to directors
in fiscal year 1996. The lower price represents the twenty day average price of
the Company's shares prior to the date of the grant as reported by Nasdaq. The
lower price was granted to all directors with no distinction as to whether the
director was considered inside or outside the Company. The term of the
replacement options remained the same as the options that were replaced. The
replacement options were granted in order to provide the incentive for increased
service to the Company by the option holders, which was negated by the decline
in the market price of the Company's Common Stock.

OPTION GRANTS

     The following table sets forth certain information relating to stock option
grants during fiscal 1998 to the Company's Chief Executive Officer and the Named
Executive Officers:


                        OPTION GRANTS IN LAST FISCAL YEAR
                                INDIVIDUAL GRANTS

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------
                                                                 PERCENT OF TOTAL
                                   NUMBER OF SECURITIES           OPTIONS/SAR'S
                                   UNDERLYING OPTIONS/              GRANTED TO             EXERCISE OR
                                          SAR'S                    EMPLOYEES IN            BASE PRICE            EXPIRATION
      NAME                             GRANTED (#)                 FISCAL 1998              ($, SH.)                DATE
-----------------------------------------------------------------------------------------------------------------------------
<S>                                <C>                           <C>                      <C>                    <C>
Michael F. Thomas                          -0-                          NA                     NA                    NA

L. Douglas Keene, Jr.                      -0-                          NA                     NA                    NA
</TABLE>


OPTION EXERCISES

     The following table sets forth certain information relating to option
exercises effected during fiscal year 1998, and the value of options held as of
such date by the Company's Chief Executive Officer and the Named Executive
Officers for 1998:


                   AGGREGATE OPTION EXERCISES FOR FISCAL 1998
                           AND YEAR END OPTION VALUES

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------
                                                                           NUMBER OF SECURITIES         VALUE OF UNEXERCISED
                                                                          UNDERLYING UNEXERCISED            IN-THE-MONEY
                                    SHARES ACQUIRED                        OPTIONS/SAR'S AS OF           OPTIONS/SAR'S AS OF
        NAME                         ON EXERCISE      VALUE REALIZED       DECEMBER 31, 1998             DECEMBER 31, 1998
-----------------------------------------------------------------------------------------------------------------------------
<S>                                <C>                <C>                <C>                           <C>
Michael F. Thomas                         -0-               -0-               1,183,334 / 0                      -0-

L. Douglas Keene, Jr.                     -0-               -0-                250,000 / 0                       -0-
</TABLE>



                                       33
<PAGE>   34

ITEM 11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The following tables set forth, as of May 28, 1999, certain information
concerning ownership of voting securities of the Company by: (i) each person who
is known by the Company to own beneficially more than 5% of the voting
securities of the Company, (ii) each current executive officer, director and
nominee for director individually, and (iii) all current directors, nominees for
director, and executive officers of the Company as a group. Except as described
below, each of the persons and groups listed below has sole voting and
investment power with respect to the securities shown.

<TABLE>
<CAPTION>

                                                                              AMOUNT OF         APPROXIMATE
                                                                              BENEFICIAL         PERCENT OF
                  NAME AND ADDRESS OF BENEFICIAL OWNER                       OWNERSHIP(1)           CLASS
          -----------------------------------------------------------------------------------------------------

<S>                                                                         <C>                 <C>
          MICHAEL F. THOMAS                                                  4,162,548(2)           13.6%
            2620 Mineral Springs Road, Suite A
            Knoxville, TN 37917

          DWIGHT S. THOMAS                                                    396,384(3)             1.3%
            2620 Mineral Springs Road, Suite A
            Knoxville, TN 37917

          WALTER L. HELTON                                                    118,000(4)         Less than 1%
            c/o Tennessee Tech University
            P.O. Box 5062
            Cookeville, TN 38505

          L. DOUGLAS KEENE, JR.                                               281,830(5)         Less than 1%
            2620 Mineral Springs Road, Suite A
            Knoxville, TN 37917

          EUGENIO (ROLANDO) MARTINEZ                                          175,000(6)         Less than 1%
            Apt. No. 106
            1821 Jefferson Avenue
            Miami Beach, FL 33139

          ANTONIO JULIO GONZALEZ GIMENEZ                                      150,000(6)         Less than 1%
            Av. Diaz Moreno Edif. El Juncal
            Piso 3, Oficina 33
            Valencia, Edo. Carobobo, Venezuela

          STEVEN BAUER                                                        150,000(6)         Less than 1%

          ---------------------------------------------------------------- ------------------ -------------------

          All directors and officers as a group (7 persons)                 5,433,762(7)            17.8%
</TABLE>

----------

(1)  Unless otherwise stated, all shares of Common Stock are directly held with
     sole voting and dispositive power.

(2)  Consists of 2,329,214 shares held directly and currently exercisable
     options to purchase 1,833,334 shares.

(3)  Consists of 60,050 shares held directly and currently exercisable options
     to purchase 333,334 shares.

(4)  Consists of 68,000 shares held directly and currently exercisable options
     to purchase 50,000 shares.

(5)  Consists of 31,830 shares held directly and currently exercisable options
     to purchase 250,000 shares.

(6)  Includes currently exercisable options to purchase 150,000 shares.

(7)  Consists of 2,667,094 shares held directly and currently exercisable
     options to purchase 2,466,668 shares.


                                       34
<PAGE>   35
ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         Transactions involving Michael F. Thomas. During 1998, the Company did
not engage in any material transactions with its executive officers or
directors, other than as set forth below.

         On July 1, 1997, the Company entered into a five year agreement with a
related corporation engaged in manufacturing and distribution which is
controlled by the Company's Chief Executive Officer, Michael F. Thomas. The
agreement provides for the Company to purchase exclusively, in areas served by
the related corporation, its gasoline inventories at a price of $.01 per gallon
above cost plus freight. For the years ended December 31, 1998 and 1997,
purchases under this agreement were approximately $989,000 and $525,000,
respectively. During the year ended December 31, 1997, transactions between the
Company and the related corporation also included equipment sales, chemicals,
supplies and certain ongoing construction activities conducted for the Company
by the related corporation. In 1997, equipment sales and construction activities
and repairs and maintenance were approximately $258,000 and $323,000,
respectively. Amounts included in accounts payable approximated $19,000 as of
December 31, 1998. There were no construction activities in 1998.

         In 1996, the Chief Executive Officer entered into certain lease
agreements with the Company which provided for an aggregate monthly rental of
$27,000. In 1997, some of the leases, by mutual agreement, were terminated. In
1998, the Company relocated its corporate headquarters and terminated the
remaining lease agreement with the Chief Executive Officer. For the years ended
December 31, 1998 and 1997, rent expense paid to the Chief Executive Officer
approximated $22,000 and $177,000, respectively.

    During 1997, the Company sold a number of retail facilities to Mr. Thomas,
the Company's President and Chief Executive Officer.

    One location (Farragut) was sold for $1,140,000 (it had an appraised value
of $1,100,500). This location was declared in default by its lender shortly
before the sale and the Company determined that it was not able to refinance the
location. Mr. Thomas had guaranteed this obligation on behalf of the Company.

    The second location (Cookeville) was sold for $879,000 (it had an appraised
value of $961,500). This location had been operating at a cash flow loss to the
Company prior to its sale and the Company was unable to refinance the mortgage
on this location such that the location would contribute to the cash flow of the
Company. The Board therefore determined that it was in the best interests of the
Company to sell the location. Mr. Thomas had guaranteed this obligation on
behalf of the Company.

    A third location (Murfreesboro) was transferred to Mr. Thomas in exchange
for Mr. Thomas's assumption and repayment of the debt on the location, for which
he was a guarantor. The Company had received a notice of foreclosure on this
location and the Board determined that it was in the best interests of the
Company to sell this location.

    A fourth location (Knoxville) was sold to Mr. Thomas for $300,000 in order
to raise working capital for the Company. This location consisted only of a
lease of the land and buildings occupied by the store and was under
environmental remediation with an estimated cost of $50,000, which Mr. Thomas
assumed. There was no debt on this location.

    The Company also transferred a piece of unimproved real estate located in
Knoxville to Mr. Thomas in exchange for Mr. Thomas' assumption of the debt on
the location, for which he was a guarantor. The property had been acquired from
Exxon for approximately $125,000 in 1995. The outstanding debt on the property
was approximately $138,000 and Mr. Thomas paid approximately $150,000 for the
property including the assumption of the debt.

    During the third quarter of 1997, the Company sold a location (Oak Ridge) to
a non-affiliated local petroleum distributor in order to repay a loan in the
amount of $300,000 to Mr. Thomas and to raise additional capital. The




                                       35
<PAGE>   36

sale enabled the Company to pay off the existing first mortgage from
NationsBank, pay off the note to Mr. Thomas and raise approximately $144,548 in
working capital. The location continues to be operated by the Company as the
transaction was in the form of a sale/lease back. The Company entered into a ten
year lease with the non-affiliated distributor with monthly payments of $8,804.
At the option of the Company, the lease may be canceled after the first six
months and the Company has the option to repurchase the store during the first
year at a purchase price of $950,000, and during the second year at a purchase
price of $1,000,000.

    During the third quarter of 1997, the leases of two locations that were
being leased from Mr. Thomas for a monthly rental of $27,000, were canceled by
mutual agreement between the Company and Mr. Thomas as a result of the Company's
failure to pay 1996 and 1997 property taxes, which had caused loans owed by Mr.
Thomas related to the properties to be in default. The two locations produced a
combined annual cash flow of approximately $100,000, and Mr. Thomas agreed to a
reduction of his annual compensation by $100,000 in exchange for the
cancellation of the leases. The lease payments on these properties, included on
the income statements among general and administrative expenses, amounted to
approximately $177,000 in 1997 and $356,000 in 1996, and the Company had not
paid $91,796 in property taxes for 1996 and 1997 that Mr. Thomas assumed. In
other lease transactions with Mr. Thomas, the Company rented, under month-to-
month operating leases, certain vehicles. Expenses related to these transactions
were approximately $25,000 and $45,000 in 1997 and 1996, respectively.

    During the third quarter of 1997, the Company transferred an Exxon
distributorship contract to TCS Systems, Inc. ("TCS"), a corporation controlled
by Mr. Thomas and engaged in the manufacturing and distribution of items related
to the Company's automotive subsidiary. Upon the expiration of the letter of
credit posted by the Company in favor of Exxon in connection with the contract,
Exxon required that the letter of credit be renewed and increased from $100,000
to $200,000. Because the Company was unable to obtain such letter of credit, the
contract was transferred to TCS, which continues to make available to the
Company gasoline for $0.01 per gallon above the wholesale price available to
TCS, plus freight charges.

    The above referenced transfers of Company properties and assets to Mr.
Thomas were analyzed and approved by the UPET's Board of Directors, Chief
Financial Officer and accounting department. In order to ensure that the
transactions were fair and equitable to the Company, an assumption agreement was
entered into between the Company and Mr. Thomas on July 3, 1997. The agreement
provided, among other things, that Mr. Thomas would assume or pay the following:
(i) a note payable to Pennzoil in the approximate amount of $219,829, (ii) the
Pennzoil Unearned Discount in the amount of $200,000, (iii) a note payable to
Coffman Oil Company, Inc. in the approximate amount of $25,406, (iv) a note
payable to Sun Trust Bank in the approximate amount of $389,387, (v) a note
payable to First American bank in the approximate amount of $140,000, (vii) real
estate taxes in the approximate amount of $85,529 and (viii) pay cash to the
Company in the sum of $300,000. As a result of the divestitures and the
assumption of numerous debts of the Company, the Company experienced a loss on
the sales of approximately ($22,966.27). These transactions decreased the
liabilities of the Company by approximately $1,137,935. As of August 19, 1998,
these assumptions had been completed.

    In August 1998, Mr. Thomas guaranteed the payment of indebtedness of the
Company to Infinity under the A Note referred to in Management's Discussion and
Analysis of Financial Condition and Results of Operations. In fiscal 1997, the
Company paid Mr. Thomas fees for acting as guarantor on Company indebtedness of
$81,280 (one percent of the amount guaranteed).

    Transactions involving Dwight S. Thomas. During 1997, the Company sold a
location (Cookeville) to Dwight S. Thomas, the Company's Secretary and a member
of the Company's Board of Directors. The purpose of the sale was to raise
working capital. The location was sold for $516,000 (it had an M.A.I. appraised
value of $536,000) and




                                       36
<PAGE>   37

resulted in net proceeds to the Company of approximately $152,385. The location
was in need of capital improvements, including approximately $80,000 worth of
environmental updates of underground petroleum storage tanks necessary to meet
1998 standards. In exchange for the sale, Dwight Thomas agreed to the
cancellation of his employment contract with the Company dated December 2, 1996.

The foregoing transactions were all approved by the votes of directors not
involved in the applicable related transaction, and the Board believes that the
transactions were on no less favorable terms than would have been available if
the parties were unaffiliated.



                                       37
<PAGE>   38



 ITEM 13.  EXHIBITS AND REPORTS ON FORM 8-K

(a)      EXHIBIT INDEX

    EXHIBIT
    NUMBER                              DESCRIPTION
    -------          ----------------------------------------------

      2.1     --     Agreement and Plan of Merger, dated March 2, 1993,
                     between Calibur Systems, Inc. and United Petroleum
                     Corporation, filed as Exhibit 2.1 to the Company's Form 8-K
                     filed with the Commission on April 22, 1993, and
                     incorporated herein by reference.

      2.2     --     Articles of Merger, filed as Exhibit 30 to the Company's
                     Transition Report on Form 10-KSB for the period from June
                     30, 1993 to December 31, 1993, and incorporated herein by
                     reference.

      2.3     --     Agreement and Certificate of Merger, by and between
                     United Petroleum Corporation and United Petroleum Delaware,
                     filed as Exhibit 3.4 to the Company's Annual Report on Form
                     10-KSB for the fiscal year ended June 30, 1991, and
                     incorporated herein by reference.

      3.1     --     Articles of Incorporation, filed as Exhibit 3.1 to the
                     Company's Annual Report on Form 10-KSB for the fiscal year
                     ended June 30, 1991, and incorporated herein by reference.

      3.2     --     Certificate of Amendment Authorizing Increase in
                     Capitalization to 50,000,000 shares, filed as Exhibit 3.8
                     to the Company's Annual Report on Form 10-KSB for the
                     fiscal year ended June 30, 1991, and incorporated herein by
                     reference.

      3.3     --     Certificate of Amendment Authorizing 3 for 4 reverse split,
                     filed as Exhibit 3 to the Company's Transition Report on
                     Form 10-KSB for the period beginning June 30, 1993 and
                     ended December 31, 1993, and incorporated herein by
                     reference.

      3.4     --     Certificate of Amendment dated March 14, 1997, filed as
                     Exhibit 3.10 to the Company's Annual Report on Form 10-KSB
                     for the fiscal year ended December 31, 1996, and
                     incorporated herein by reference.

      3.5     --     Certificate of Designations of Series A Preferred Stock,
                     filed as Exhibit A to Exhibit 10.11 to the Company's
                     Current Report on Form 8-K filed with the Commission on May
                     13, 1997.

      3.6     --     Bylaws of the Company, filed as Exhibit 3.2 to the
                     Company's Annual Report on Form 10-KSB for the year ended
                     June 30, 1991, and incorporated herein by reference.

      3.7     --     Amendment to the Company's Bylaws, filed as Exhibit 3.9 to
                     the Company's Annual Report on Form 10-KSB for the fiscal
                     year ended June 30, 1991, and incorporated herein by
                     reference.

      10.3    --     Distribution Agreement, between Pennzoil and the Company
                     filed as Exhibit 10 to the Company's Annual Report on Form
                     10-KSB for the fiscal year ended December 31, 1991, and
                     incorporated hereby by reference.

      10.5    --     1994 Stock Option and Stock Bonus Plan filed as Exhibit
                     4 to the Company's Annual Report on Form 10-KSB for the
                     fiscal year ended December 31, 1994, and incorporated
                     herein by reference.

      10.6    --     1995 Amendment to the Stock Option and Stock Bonus Plan
                     filed as Exhibit 4.1 to the Company's Annual Report on Form
                     10-KSB for the fiscal year ended December 31, 1994.

      10.7    --     License Agreement dated June 29, 1993, between TCS
                     Systems, Inc. and Calibur Systems, Inc. filed as Exhibit
                     10.1 to the Company's Annual Report on Form 10-KSB for the
                     fiscal year ended December 31, 1994, and incorporated
                     herein by reference.

      10.10   --     Employment Agreement, between the Company and Michael F.
                     Thomas filed as Exhibit 10.8 to the Company's Annual Report
                     on Form 10-KSB for the fiscal year ended December 31, 1996,
                     and incorporated herein by reference.



                                       38
<PAGE>   39

      10.11   --     Promissory Note of Strategic Holdings Corporation to the
                     order of the Company dated October 18, 1996, filed as
                     Exhibit 10.9 to the Company's Annual Report on Form 10-KSB
                     for the fiscal year ended December 31, 1996, and
                     incorporated herein by reference.

      10.12   --     Security Agreement granted by Strategic Holdings
                     Corporation in favor of the Company dated December 11,
                     1996, filed as Exhibit 10.9.1 to the Company's Annual
                     Report on Form 10-KSB for the fiscal year ended December
                     31, 1996, and incorporated herein by reference.

      10.13   --     Escrow Agreement dated December 11, 1996 between the
                     Company and Strategic Holdings Corporation filed as Exhibit
                     10.9.3 to the Company's Annual Report on Form 10-KSB for
                     the fiscal year ended December 31, 1996, and incorporated
                     herein by reference.

      10.15*  --     Amended, Restated and Consolidated Credit Agreement
                     dated August 5, 1998 between the Company and Infinity.

      10.16*  --     A Note dated August 5, 1998 by the Company in favor of
                     Infinity.

      10.17*  --     B Note dated August 5, 1998 by the Company in favor of
                     Infinity.

      10.18*  --     Guaranty dated August 5, 1998 by Michael Thomas in favor of
                     Infinity.

      10.19*  --     Amended and Restated Pledge Agreement dated August 5, 1998
                     between UPET and Infinity.

      10.20*  --     Amended and Restated Security Agreement dated August 5,
                     1998 between the Company and Infinity.

      10.21   --     Form of Debentures, filed as Exhibit 10.11 to the
                     Company's Current Report on Form 8-K filed with the
                     Commission on May 12, 1997 and incorporated herein by
                     reference.

      16.3    --     Letter dated February 20, 1997 from Morton S. Robson to
                     Larry Felts of Coopers & Lybrand filed as Exhibit 16.1 to
                     the Company's Annual Report on Form 10-KSB for the fiscal
                     year ended December 31, 1995, and incorporated herein by
                     reference.

      16.4    --     Letter dated February 28, 1997 from Coopers & Lybrand to
                     the Commission filed as Exhibit 16.2 to the Company's
                     Annual Report on Form 10-K for year ended 12-31-97.

      21*     --     Subsidiaries of the Company.


      23.3    --     Consent of R.W. Coburn, Registered Petroleum Engineer,
                     filed as Exhibit 23 to the Company's Annual Report on Form
                     10-KSB for the fiscal year ended December 31, 1997, and
                     incorporated herein by reference.

      27*     --     Financial Data Schedule

----------

* Filed herewith.

(b) Financial Statements

Balance Sheets
Statement of Income
Statement's of Stockholders' Equity
Statement of Cash Flows

Financial Statement Schedules:



                                       39
<PAGE>   40

Schedule II - Accounts Receivable from
Related Parties,
Underwriters, Promoters,
and Employees other than
Related Parties

Schedule X - Supplementary Income Statement Information

(c)  Reports on Form 8-K

     1. There were no reports on Form 8-K filed for the three months ended
December 31, 1998.

     2. The Company filed a report on Form 8-K on January 19, 1999, under Item
3. Bankruptcy or Receivership, related to the fact that, on January 14, 1999,
United Petroleum Corporation filed a voluntary petition for relief under Chapter
11 of the Federal Bankruptcy Code in the United States Bankruptcy Court for the
District of Delaware.

     The Company also filed a report on Form 8-K on March 7, 1999, under Item 4,
Changes in Registrant's Certifying Accountants, and an amendment to the Form 8-K
on April 6, 1999, in connection with a change in the Company's accountants and
to include the required exhibits.





                                       40
<PAGE>   41




                          United Petroleum Corporation
                                       and
                                  Subsidiaries

                        Consolidated Financial Statements

                           December 31, 1998 and 1997










                                       41
<PAGE>   42



                  UNITED PETROLEUM CORPORATION AND SUBSIDIARIES




                                    I N D E X


<TABLE>
<CAPTION>

                                                                                              PAGE
                                                                                              ----

<S>                                                                                         <C>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS                                                      F-2

CONSOLIDATED:
     BALANCE SHEET
         DECEMBER 31, 1998                                                                    F-3

     STATEMENTS OF OPERATIONS
         YEARS ENDED DECEMBER 31, 1998 AND 1997                                               F-4

     STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIENCY)
         YEARS ENDED DECEMBER 31, 1998 AND 1997                                               F-5

     STATEMENTS OF CASH FLOWS
         YEARS ENDED DECEMBER 31, 1998 AND 1997                                              F-6/7

     NOTES TO FINANCIAL STATEMENTS                                                          F-8/26
</TABLE>



                                      * * *




                                       F-1


<PAGE>   43








                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS


To the Board of Directors and Stockholders
United Petroleum Corporation


We have audited the consolidated balance sheet of UNITED PETROLEUM CORPORATION
AND SUBSIDIARIES as of December 31, 1998, and the related consolidated
statements of operations, stockholders' equity (deficiency) and cash flows for
the year then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit. The consolidated financial statements
of United Petroleum Corporation and Subsidiaries for the year ended December 31,
1997, were audited by other auditors whose report, dated April 14, 1998, on
those statements included an explanatory paragraph describing conditions that
raised substantial doubt about the Company's ability to continue as a going
concern.

We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the 1998 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of United
Petroleum Corporation and Subsidiaries as of December 31, 1998, and their
results of operations and cash flows for the year then ended, in conformity with
generally accepted accounting principles.

The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As shown in the consolidated
financial statements, the Company has suffered recurring losses from operations
and, as more fully discussed in Note 4 to the consolidated financial statements,
at December 31, 1998 the Company is in default of certain loans and debentures.
In addition, as discussed in Note 15 to the consolidated financial statements,
on January 14, 1999, United Petroleum Corporation (the "Parent") filed a
voluntary petition for reorganization under Chapter 11 of the Federal Bankruptcy
Code and was authorized to continue managing and operating the business as a
debtor in possession subject to the control and supervision of the Bankruptcy
Court. These conditions raise substantial doubt about the Company's ability to
continue as a going concern. The consolidated financial statements do not
include any adjustments that might result from the outcome of this uncertainty.


                                                J.H. COHN LLP

Roseland, New Jersey
April 9, 1999

                                      F-2


<PAGE>   44


                  UNITED PETROLEUM CORPORATION AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEET
                                DECEMBER 31, 1998

                                     ASSETS
<TABLE>

<S>                                                                      <C>
Current assets:
     Cash                                                                $       78,216
     Accounts receivable                                                        106,719
     Inventories                                                                171,362
     Prepaid expenses and other current assets                                   50,794
                                                                         --------------
              Total current assets                                              407,091
                                                                         --------------
Property and equipment:
     Gas and oil properties, net                                              3,043,240
     Premises and equipment, net                                              5,812,192
                                                                         --------------
              Total                                                           8,855,432
Deferred costs                                                                  553,099
Other assets                                                                     97,303
Property held for sale                                                        2,945,047
                                                                         --------------
              Total                                                      $   12,857,972
                                                                         ==============
                        LIABILITIES AND STOCKHOLDERS' DEFICIENCY

Current liabilities:
     Current portion of long-term debt                                   $   14,224,544
     Accounts payable                                                           319,736
     Accrued expenses                                                            78,934
     Preferred stock dividends payable                                        2,113,362
     Accrued interest on debentures                                           1,026,030
     Accrued interest on Notes A and B                                          456,099
                                                                         --------------
              Total liabilities                                              18,218,705
                                                                         --------------
Minority interest in subsidiary                                                  50,000
                                                                         --------------
Commitments and contingencies

Stockholders' deficiency:
     Cumulative convertible preferred stock; $.01 par value;
         10,000,000 shares authorized:
         Series A, 7%; 9,912 shares issued and outstanding                           99
         Series B, 8%; 1,833 shares issued and outstanding                           18
     Common stock, $.01 par value; 50,000,000 shares authorized;
         30,565,352 shares issued and outstanding                               305,653
     Additional paid-in capital                                              24,865,373
     Accumulated deficit                                                    (30,581,876)
                                                                         --------------
              Total stockholders' deficiency                                 (5,410,733)
                                                                         --------------
              Total                                                      $   12,857,972
                                                                         ==============

</TABLE>

See Notes to Consolidated Financial Statements.



                                      F-3

<PAGE>   45



                  UNITED PETROLEUM CORPORATION AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF OPERATIONS
                     YEARS ENDED DECEMBER 31, 1998 AND 1997


<TABLE>
<CAPTION>


                                                                   1998            1997
                                                              ------------    ------------

<S>                                                           <C>             <C>
Sales                                                         $  6,179,556    $  9,720,861
Cost of sales                                                    4,793,367       7,333,910
                                                              ------------    ------------

Gross profit                                                     1,386,189       2,386,951
                                                              ------------    ------------

Operating expenses:
     Selling, general and administrative                         3,299,618       3,642,102
     Write-downs for asset impairment                              741,430       3,697,751
     Gain on sale of property and equipment                        (31,403)
     Other                                                                       1,047,811
                                                              ------------    ------------
              Totals                                             4,009,645       8,387,664
                                                              ------------    ------------

Loss from operations                                            (2,623,456)     (6,000,713)
                                                              ------------    ------------

Other income (expense):
     Lease and other income                                        187,740          73,125
     Write-off of loan costs                                      (354,117)       (478,548)
     Interest expense, including amortization of loan fees
         and discount on convertible debentures of $166,457
         and $1,357,229                                         (1,662,364)     (2,846,906)
     Gain on sale of subsidiary                                    132,088
                                                              ------------    ------------
              Totals                                            (1,696,653)     (3,252,329)
                                                              ------------    ------------

Loss before income taxes                                        (4,320,109)     (9,253,042)

Provision for deferred income taxes                                              2,885,000
                                                              ------------    ------------
Net loss                                                        (4,320,109)    (12,138,042)

Preferred stock dividends                                       (1,626,686)     (1,234,555)
                                                              ------------    ------------

Net loss available to common stockholders                     $ (5,946,795)   $(13,372,597)
                                                              ============    ============

Basic net loss per common share                               $       (.20)   $       (.71)
                                                              ============    ============

Basic weighted average number of common shares
     outstanding                                                30,426,352      18,812,739
                                                              ============    ============
</TABLE>




See Notes to Consolidated Financial Statements.


                                      F-4

<PAGE>   46




                  UNITED PETROLEUM CORPORATION AND SUBSIDIARIES

     CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIENCY)
                     YEARS ENDED DECEMBER 31, 1998 AND 1997


<TABLE>
<CAPTION>


                                               Series A                    Series B
                                            Preferred Stock              Preferred Stock                 Common Stock
                                      ---------------------------   ---------------------------   ---------------------------
                                         Shares         Amount         Shares         Amount         Shares          Amount
                                      ------------   ------------   ------------   ------------   ------------   ------------

<S>                                   <C>            <C>            <C>            <C>            <C>            <C>
Balance, January 1, 1997                                                                            11,828,156   $    118,281
Conversion of debentures to
   Series A and B preferred stock,
   net of related cost of issuance,
   discounts and fees of $1,703,962          9,912   $         99          1,833   $         18
Conversion of debentures to
   common stock, net of related
   costs of issuance, discounts
   and fees of $321,586                                                                              7,129,700         71,297
Dividends declared:
   Series A preferred stock at 18%
   Series B preferred stock at 8%
Issuance of common stock for:
   Payment of dividends on
     Series A preferred stock                                                                        2,998,100         29,981
   Payment of interest on debentures                                                                 2,770,000         27,700
   Services                                                                                          4,553,600         45,536
Collections on stockholder note
   receivable
Net loss
                                      ------------   ------------   ------------   ------------   ------------   ------------
Balance, December 31, 1997                   9,912             99          1,833             18     29,279,556        292,795
Dividends declared:
   Series A preferred stock at
     18% and 7%
   Series B preferred stock at 8%
Issuance of common stock for
   services                                                                                          1,285,796         12,858
Write-off of stockholder note
   receivable
Net loss
                                      ------------   ------------   ------------   ------------   ------------   ------------

Balance, December 31, 1998                   9,912   $         99          1,833   $         18     30,565,352   $    305,653
                                      ============   ============   ============   ============   ============   ============

<CAPTION>

                                       Additional                     Stockholder
                                         Paid-in      Accumulated        Note
                                         Capital        Deficit        Receivable         Total
                                      ------------    ------------    ------------    ------------


<S>                                   <C>             <C>             <C>             <C>
Balance, January 1, 1997              $ 13,696,878    $(11,262,484)   $ (1,237,003)   $  1,315,672
Conversion of debentures to
   Series A and B preferred stock,
   net of related cost of issuance,
   discounts and fees of $1,703,962      8,284,721                                       8,284,838
Conversion of debentures to
   common stock, net of related
   costs of issuance, discounts
   and fees of $321,586                  1,492,287                                       1,563,584
Dividends declared:
   Series A preferred stock at 18%                      (1,160,619)                     (1,160,619)
   Series B preferred stock at 8%                          (73,936)                        (73,936)
Issuance of common stock for:
   Payment of dividends on
     Series A preferred stock              717,900                                         747,881
   Payment of interest on debentures     1,066,146                                       1,093,846
   Services                                778,373                                         823,909
Collections on stockholder note
   receivable                                                               49,571          49,571
Net loss                                               (12,138,042)                    (12,138,042)
                                      ------------    ------------    ------------    ------------
Balance, December 31, 1997              26,036,305     (24,635,081)     (1,187,432)        506,704
Dividends declared:
   Series A preferred stock at
     18% and 7%                                         (1,480,024)                     (1,480,024)
   Series B preferred stock at 8%                         (146,662)                       (146,662)
Issuance of common stock for
   services                                 16,500                                          29,358
Write-off of stockholder note
   receivable                           (1,187,432)                      1,187,432
Net loss                                                (4,320,109)                     (4,320,109)
                                      ------------    ------------    ------------    ------------

Balance, December 31, 1998            $ 24,865,373    $(30,581,876)   $         --    $ (5,410,733)
                                      ============    ============    ============    ============
</TABLE>




See Notes to Consolidated Financial Statements.

                                       F-5


<PAGE>   47



                  UNITED PETROLEUM CORPORATION AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                     YEARS ENDED DECEMBER 31, 1998 AND 1997

<TABLE>
<CAPTION>

                                                                                   1998            1997
                                                                              ------------    ------------
<S>                                                                           <C>             <C>
Operating activities:
     Net loss                                                                 $ (4,320,109)   $(12,138,042)
     Adjustments to reconcile net loss to net cash
         used in operating activities:
         Depreciation and amortization                                             945,347       1,578,772
         Deferred income taxes                                                                   2,885,000
         Write-downs for asset impairment                                          741,430       3,697,751
         Gain on sale of property and equipment                                    (31,403)
         Write-off of receivables                                                                   12,423
         Common stock issued for services                                           29,358         823,909
         Common stock issued for payment of interest                                             1,093,846
         Gain on sale of subsidiary                                               (132,088)
         Changes in operating assets and liabilities:
              Accounts receivable                                                    5,658         347,323
              Inventories                                                          150,586         312,317
              Other current assets                                                  45,207        (302,332)
              Accounts payable and accrued expenses                                834,019         704,173
                                                                              ------------    ------------
                  Net cash used in operating activities                         (1,731,995)       (984,860)
                                                                              ------------    ------------

Investing activities:
     Acquisition of gas and oil properties                                         (12,500)        (57,452)
     Acquisition of property and equipment                                        (194,168)     (1,646,192)
     Proceeds from sale of property and equipment                                   52,526         522,527
     Proceeds from sale of marketable securities                                                   171,944
     Proceeds from sale of subsidiary                                              266,500
                                                                              ------------    ------------
                  Net cash provided by (used in) investing activities              112,358      (1,009,173)
                                                                              ------------    ------------

Financing activities:
     Proceeds from issuance of convertible debentures,
         net of discount of $491,666                                                             1,813,425
     Payment of issuance cost of debentures                                                        (63,425)
     Proceeds from short-term borrowings                                                           100,224
     Repayments of short-term borrowings                                                          (102,395)
     Proceeds from issuance of debt                                              2,109,353         395,895
     Principal payments on debt                                                    (24,581)       (203,270)
     Reorganization costs                                                         (553,099)
     Proceeds from minority interest                                                               200,000
                                                                              ------------    ------------
                  Net cash provided by financing activities                      1,531,673       2,140,454
                                                                              ------------    ------------

Net increase (decrease) in cash                                                    (87,964)        146,421

Cash, beginning of year                                                            166,180          19,759
                                                                              ------------    ------------

Cash, end of year                                                             $     78,216    $    166,180
                                                                              ============    ============
</TABLE>


                                      F-6

<PAGE>   48



                  UNITED PETROLEUM CORPORATION AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                     YEARS ENDED DECEMBER 31, 1998 AND 1997


<TABLE>
<CAPTION>

                                                                             1998         1997
                                                                         ----------   ----------

<S>                                                                      <C>          <C>
Supplemental disclosure of cash flow information:
    Interest paid                                                        $   52,880   $  757,493
                                                                         ==========   ==========

    Interest capitalized                                                              $   62,505
                                                                                      ==========


Supplemental disclosure of noncash investing and financing
    activities:
    Sale of retail outlets under debt assumption agreements                           $4,601,931
                                                                                      ==========

    Issuance of preferred stock for debentures                                        $8,284,838
                                                                                      ==========

    Issuance of common stock for the following:
      Debentures                                                                      $1,563,584
                                                                                      ==========
      Services                                                           $   29,358   $  823,909
                                                                         ==========   ==========

      Payment of interest on debentures                                               $1,093,846
                                                                                      ==========
      Payment of dividends on preferred stock                                         $  747,881
                                                                                      ==========

    Purchase of notes payable by related party                           $4,985,385
                                                                         ==========

    Write-off of stockholder note receivable                             $1,187,432
                                                                         ==========
    Forgiveness of payable, in connection with of sale of wells          $   71,208
                                                                         ==========
</TABLE>




See Notes to Consolidated Financial Statements.



                                      F-7

<PAGE>   49


                  UNITED PETROLEUM CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



Note 1 - Business and summary of significant accounting policies:

           Principles of consolidation:

              The consolidated financial statements include the accounts of
              United Petroleum Corporation (the "Parent") and its wholly-owned
              subsidiaries, Calibur Systems, Inc. ("Calibur") and Jackson-United
              Petroleum Corporation ("Jackson"), and its majority owned
              subsidiaries, CTV Studios, Inc. and UCI Teleport, Inc.
              (collectively, the "Company"). All significant intercompany
              accounts and transactions have been eliminated in consolidation.

           Business:

              The Company's business activities are conducted through the
              subsidiaries and are contained within two primary industry
              segments (retail operations and oil and gas operations). Calibur
              conducts the retail operations through convenience stores, express
              lube centers and car washes providing a variety of car wash and
              detailing services, gasoline, automotive, food and beverage and
              related products throughout eastern Tennessee and northern
              Georgia. Jackson is in the business of developing oil and gas
              properties and marketing oil and gas production. Jackson's oil and
              gas properties are located within the United States, primarily in
              eastern Kentucky and western Pennsylvania, and include producing
              properties and properties under development. CTV Studios, Inc. and
              UCI Teleport, Inc., which was sold in 1998, were formed to conduct
              activities in the broadcasting industry. Neither entity had any
              operations in 1998 or 1997.

           Use of estimates:

              The preparation of the financial statements in conformity with
              generally accepted accounting principles requires management to
              make estimates and assumptions that affect certain reported
              amounts and disclosures. Accordingly, actual results could differ
              from those estimates.

           Inventories:

              Inventories are stated at the lower of cost or market. Cost of
              gasoline sales is determined using the first-in, first-out method.
              Cost of convenience store sales is determined using the average
              retail cost method.

           Revenue recognition:

              The Company recognizes revenue as gas is sold or gathered and
              marketed to third parties.



                                      F-8

<PAGE>   50



                  UNITED PETROLEUM CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



Note 1 - Business and summary of significant accounting policies (continued):

           Costs of development and expansion activities:

              When the Company undertakes significant development and expansion
              activities to add new retail outlets, modernize and expand
              existing locations, acquire additional gas and oil properties, and
              continue development of existing gas and oil properties,
              additional costs of staffing and overhead are allocated to these
              assets along with an estimate of incremental overhead costs.
              Additionally, it is the Company's policy to capitalize the cost of
              the estimated time of employees and independent contractors that
              are specifically assigned to these activities to the assets under
              construction or development. These costs totaled $372,284 in 1997.
              No costs were capitalized in 1998.

            Property and equipment:

              Property and equipment are recorded at cost and are depreciated
              and amortized on the straight-line method over the estimated
              useful lives of the assets as follows:

<TABLE>

<S>                                                        <C>
                     Buildings and improvements             15-40 years
                     Machinery and equipment                 6-10 years
                     Automobiles                              3-4 years
</TABLE>

            Oil and gas properties:

              The Company follows the full cost method of accounting for oil and
              gas properties. Accordingly, all costs associated with
              acquisition, exploration and development of gas and oil reserves,
              including directly related overhead costs, are capitalized.

              All capitalized costs of oil and gas properties, including the
              estimated future costs to develop proved reserves, are amortized
              on the unit-of-production method using estimates of proved
              reserves. Investments in unproved properties and major development
              projects are not amortized until proved reserves associated with
              the projects can be determined or until impairment occurs.

              In addition, the capitalized costs are subject to a "ceiling
              test," which basically limits such costs to the aggregate of the
              "estimated present value," discounted using a 10% rate on future
              net revenue from proved reserves, based on current economic and
              operating conditions, plus lower of cost or fair market value of
              unproved properties.

            Capitalized interest:

              The Company capitalizes interest on construction in progress and
              expenditures made in connection with exploration and development
              projects that are not subject to current amortization. Interest is
              capitalized only for the period that activities are in progress to
              bring these projects to their intended use and is amortized over
              the expected life of the related asset.



                                      F-9

<PAGE>   51



                  UNITED PETROLEUM CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



Note 1 - Business and summary of significant accounting policies (continued):

            Deferred reorganization costs:

              The Company has incurred costs relating to its Reorganization Plan
              under Chapter 11 of the Federal Bankruptcy Code (see Note 15). If
              the Reorganization Plan is approved by the Bankruptcy Court, these
              costs will be charged to paid-in capital. If the Reorganization
              Plan is not approved, the costs will be charged to operations. At
              December 31, 1998, deferred reorganization costs amounted to
              $553,099.

            Debenture discount and debenture issue costs:

              Discount and issue costs associated with the convertible
              debentures are being amortized over the terms of the related
              debentures, based on the amount of outstanding debt, using the
              effective interest method. For the years ended December 31, 1998
              and 1997, amortization expense relating to debenture discount and
              debenture issue costs amounted to $233,000 and $1,787,000,
              respectively.

            Deferred loan costs:

              Deferred loan costs, included in other assets, associated with
              various debt issues are being amortized over the terms of the
              related debt using the straight-line method. For the years ended
              December 31, 1998 and 1997, amortization expense relating to
              deferred loan costs amounted to $118,000 and $50,000,
              respectively.

            Property held for sale:

              It is the Company's policy to make available for sale property
              considered by management as excessive and no longer necessary for
              the operations of the Company. At December 31, 1998, the net book
              value of property and equipment classified as held for sale
              consists of the following:

<TABLE>

<S>                                                                            <C>
                     Wells (see Note 3)                                        $   650,000
                     Retail locations, including equipment (see Note 6)          2,295,047
                                                                               -----------
                         Total                                                 $ 2,945,047
                                                                               ===========
</TABLE>

            Income taxes:

              The Company accounts for income taxes pursuant to the asset and
              liability method which requires deferred income tax assets and
              liabilities be computed annually for differences between the
              financial statement and tax bases of assets and liabilities that
              will result in taxable or deductible amounts in the future based
              on enacted tax laws and rates applicable to the periods in which
              the differences are expected to affect taxable income. Valuation
              allowances are established when necessary to reduce deferred tax
              assets to the amount expected to be realized. Income tax expense
              is the tax payable or refundable for the period plus or minus the
              change during the period in deferred tax assets and liabilities.

                                      F-10

<PAGE>   52



                  UNITED PETROLEUM CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1 - Business and summary of significant accounting policies (continued):

            Stock options:

              In accordance with the provisions of Accounting Principles Board
              Opinion No. 25, Accounting for Stock Issued to Employees, the
              Company will recognize compensation costs as a result of the
              issuance of stock options to employees based on the excess, if
              any, of the fair value of the underlying stock at the date of
              grant or award (or at an appropriate subsequent measurement date)
              over the amount the employees must pay to acquire the stock.
              Therefore, the Company will not be required to recognize
              compensation expense as a result of any grants of stock options to
              employees at an exercise price that is equivalent to or greater
              than fair value. The Company will also make pro forma disclosures,
              as required by Statement of Financial Accounting Standards No.
              123, Accounting for Stock-Based Compensation ("SFAS 123"), of net
              income or loss as if a fair value based method of accounting for
              stock options had been applied, if such amounts differ materially
              from the historical amounts.

            Loss per common share:

              The Company presents "basic" and, if applicable, "diluted"
              earnings (loss) per common share pursuant to the provisions of
              Statement of Financial Accounting Standards No. 128, Earnings per
              Share ("SFAS 128") and certain other financial accounting
              pronouncements. Basic earnings (loss) per common share is
              calculated by dividing net income or loss by the weighted average
              number of common shares outstanding during the period. The
              calculation of diluted earnings (loss) per common share is similar
              to that of basic earnings (loss) per common share, except that the
              denominator is increased to include the number of additional
              common shares that would have been outstanding if all potentially
              dilutive common shares, principally those issuable upon the
              conversion of debentures and preferred shares or the exercise of
              stock options, were issued during the period.

              Only basic net loss per common share amounts have been presented
              in the accompanying consolidated statements of operations since
              the Company had a net loss in those years and the assumed effects
              of either the conversion of debentures and preferred shares or the
              exercise of stock options would be anti-dilutive.

            Impairment of long-lived assets:

              The Company reviews its long-lived assets, including property,
              equipment and gas and oil properties for impairment whenever
              events or changes in circumstances indicate that the carrying
              amount of the assets may not be fully recoverable. To determine
              recoverability of its long-lived assets, the Company evaluates the
              probability that future undiscounted net cash flows, without
              interest charges, will be less than the carrying amount of the
              assets. Impairment is measured at fair value.

            Segment information:

              Effective January 1, 1998, the Company adopted Statement of
              Financial Accounting Standards No. 131, Disclosures about Segments
              of an Enterprise and Related Information, ("SFAS 131") which
              requires disclosures for each segment of a business and the
              determination of segments based on its internal management
              structure.


                                      F-11

<PAGE>   53


                 UNITED PETROLEUM CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



Note 1 - Business summary of significant accounting policies (concluded):

            Recent pronouncements:

              The Financial Accounting Standards Board had issued certain other
              pronouncements as of December 31,1998 that will become effective
              in subsequent periods; however, management does not believe that
              any of those pronouncements will effect any financial accounting
              measurements or disclosures the Company will be required to make.

            Reclassifications:

              Certain accounts in the 1997 consolidated financial statements
              have been reclassified to conform to 1998 presentations.


Note 2 - Basis of presentation:

              The accompanying consolidated financial statements have been
              prepared assuming that the Company will continue as a going
              concern. However, the Company's securities have been delisted from
              the NASDAQ stock market, the Company has suffered recurring losses
              from operations and, at December 31,1998, is in violation of
              certain loan and convertible debenture covenants. In addition, the
              Company was unable to meet its loan and convertible debenture
              obligations as they became due (see Note 4). On January 14, 1999,
              the Parent filed a petition in the United States Bankruptcy Court
              for the District of Delaware seeking relief under Chapter 11 of
              the Federal bankruptcy laws (see Note 15). The Parent has
              continued, as debtor in possession in Chapter 11, to conduct its
              business in the ordinary course, subject to control of the Court.
              The Parent intends to propose a Reorganization Plan with its
              creditors and stockholders which will provide for the satisfaction
              of their respective claims and interests on terms to be agreed
              upon with its creditors and stockholders. However, there is no
              assurance that the Parent will be able to reach an accommodation
              with its creditors and stockholders under Chapter 11.

              The Company's ability to continue as a going concern is dependent
              upon the Parent's ability to develop a Reorganization Plan
              acceptable to its creditors and stockholders, obtain Court
              approval of the plan and ultimately, achieve profitable
              operations. The consolidated financial statements do not include
              any adjustments relating to the recoverability and classifications
              of recorded asset amounts or the amounts and classifications of
              liabilities that might be necessary should the Company be unable
              to continue as a going concern.


                                      F-12

<PAGE>   54

                  UNITED PETROLEUM CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Note 3 - Property and equipment:

Premises and equipment:
   Premises and equipment consist of the following:

<TABLE>

<S>                                                            <C>
      Land and buildings                                       $    4,046,174
      Leasehold, paving and other improvements                      1,049,242
      Fixtures and equipment                                        3,598,547
                                                               --------------
          Total                                                     8,693,963
      Less accumulated depreciation and amortization                2,881,771
                                                               --------------
          Total                                                $    5,812,192
                                                               ==============
</TABLE>

              Depreciation and amortization expense for the years ended December
              31, 1998 and 1997 was approximately $541,000 and $577,000,
              respectively.

            Oil and gas properties:

              The Company's oil and gas properties are located within the United
              States. Acquisition costs include costs incurred to purchase,
              lease or otherwise acquire oil and gas properties. Exploration
              costs include the costs of geological and geophysical activity,
              carrying and retaining undeveloped properties and drilling and
              equipping exploratory wells. Development costs include the costs
              of drilling and equipping development wells and facilities to
              extract, treat and gather and store oil and gas. Costs incurred,
              which include amounts that were expensed and capitalized, are
              summarized as follows:

<TABLE>
<CAPTION>

                                                          1998            1997
                                                     ------------    ------------

<S>                                                  <C>             <C>
Proved leasehold properties                          $     12,500    $     10,855
Development costs                                                          46,597
Amortization                                              (51,625)       (128,021)
                                                     ------------    ------------
    Totals                                                (39,125)        (70,569)
Well sold                                                (325,000)
Write-down for impairment                                (741,430)     (3,366,730)
Reclassification of wells available for sale             (650,000)
                                                     ------------    ------------

    Net decrease                                     $ (1,755,555)   $ (3,437,299)
                                                     ============    ============
</TABLE>

              Capitalized costs for oil and gas exploration and production
              activities and the related accumulated amortization are summarized
              as follows:

<TABLE>
<CAPTION>

                                                          1998            1997
                                                     ------------    ------------

<S>                                                  <C>             <C>
Proved properties not subject to amortization        $  3,043,240    $  3,055,740
Proved properties being amortized                                       1,929,132
Less accumulated amortization                                            (186,077)
                                                     ------------    ------------

    Net capitalized costs                            $  3,043,240    $  4,798,795
                                                     ============    ============
</TABLE>


                                      F-13

<PAGE>   55



                  UNITED PETROLEUM CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



Note 3 - Property and equipment (concluded):

            Oil and gas properties (concluded):

              Due to the sharp decline in the market value of the Company's
              shares along with falling prices for natural gas, the Company's
              ability to obtain sufficient financing to further develop its oil
              and gas properties is limited. Accordingly, the Company suspended
              development activities in its oil and gas business segment and has
              abandoned certain properties. For the years ended December 31,
              1998 and 1997, the Company recorded an asset impairment loss of
              $741,430 and $3,366,730, respectively.

              In 1997, the Company decided to write-down certain wells to their
              fair value of $300,000. In 1998, the Company sold these wells for
              approximately $411,000 which consisted of cash of $340,000 and
              forgiveness of accounts payable of approximately $71,000. In
              connection therewith, the Company incurred expenses of
              approximately $34,000 resulting in a gain of $77,000 which is
              included in the 1998 consolidated statement of operations.

              In November 1998, the Company entered into a contract to sell
              sixteen wells (the "Wells") located in Pennsylvania for $650,000.
              The net book value of the Wells approximated $1,095,000.
              Accordingly, the Company has written down the Wells to $650,000
              less costs to sell, which are estimated to be negligible,
              resulting in a $445,000 impairment loss which is included in the
              1998 consolidated statement of operations. The Wells are
              classified as property held for sale in the consolidated balance
              sheet at December 31, 1998. Revenue from the Wells for the years
              ended December 31, 1998 and 1997 was approximately $115,000 and
              $252,000, respectively.

              In 1998, based on the Company's financial condition and the
              ability of the remaining wells to generate revenue, the Company
              abandoned certain other wells which resulted in a write-down of
              approximately $296,000 which is included in the 1998 consolidated
              statement of operations.

              Initial production from the Company's oil and gas properties
              commenced in October 1996. Total revenue in 1998 and 1997 amounted
              to approximately $115,000 and $292,000, respectively. Related
              associated production costs were approximately $13,000 in 1997.
              There were no production costs in 1998.

              In November 1993, the Company acquired the interest of Jackson
              County Gas in certain oil and gas properties comprised of
              approximately 33,000 acres situated in Jackson and Rock Castle
              Counties, Kentucky. Total capitalized costs approximated
              $3,043,000 at December 31, 1998.

                                      F-14


<PAGE>   56



                  UNITED PETROLEUM CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



Note 4 - Long-term debt:

            Long-term debt consists of the following:

<TABLE>

<S>                                                                                      <C>
                Convertible debentures in default with coupon rates of 6%
                and 7%, net of discount of $235,275                                      $   6,213,543

                Calibur consolidated loan in default ("A" Note). Principal
                was due on January 1, 1999 with interest due monthly at
                15%, personally guaranteed by a principal stockholder,
                secured by the stock of the subsidiaries and collateralized
                by all assets of the Company                                                 4,200,000

                Consolidated bridge loan in default ("B" Note). Principal
                and interest at 15% was due on January 1, 1999, personally
                guaranteed by a principal stockholder, secured by the stock
                of the subsidiaries and collateralized by all assets of the
                Company                                                                      2,775,530

                U.S. Small Business Administration note payable in monthly
                installments of $6,369 including interest at 8% through
                July 2019, personally guaranteed by a principal stockholder
                and collateralized by certain property                                         761,383

                U.S. Small Business Administration note payable in monthly
                installments of $1,863 including interest at 8% through July
                1999, personally guaranteed by a principal stockholder and
                collaterlized by certain property                                              154,880

                Unsecured note payable in monthly installments of $10,370
                including interest at 8% through December 1999, personally
                guaranteed by a principal stockholder                                          119,208
                                                                                         -------------
                                                                                            14,224,544
                Less current portion                                                        14,224,544
                                                                                         -------------
                Long-term debt                                                           $          --
                                                                                         =============
</TABLE>

              As the Company is in default under the majority of the
              aforementioned debentures and loans, all of the long-term debt is
              classified as a current liability at December 31, 1998.


                                      F-15

<PAGE>   57



                  UNITED PETROLEUM CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



Note 4 - Long-term debt (continued):

              In 1996, the Company completed a private placement of convertible
              debentures (the "Debentures"). Through the offering, the Company
              sold $27,500,000 Debentures generating net proceeds of
              approximately $18,000,000 after deducting debt discount and
              issuance costs. These Debentures would have expired through
              October 1998 and would have provided for interest at 6% and 7%,
              payable quarterly. The Debentures were convertible into common
              stock at the holders option after passage of the statutory holding
              period (generally forty-five days from the date of issuance).
              After one year from the date of issuance, the Company could
              require conversion of unconverted Debentures. The number of shares
              of common stock issuable upon conversion was based on the average
              of the closing bid prices as quoted by NASDAQ for the five days
              prior to the election to convert.

              On April 30, 1997, the Company and certain Debenture holders (the
              "Holders") entered into a letter agreement (the "Letter
              Agreement") whereby the Company and the Holders agreed to modify
              certain terms of the Debentures in settlement of disputes. The
              Letter Agreement reduced the face amount of the Debentures by 10%
              and increased the interest rates to 18% for a period of one year.
              In addition, the Letter Agreement provided for the conversion of
              $9,912,000 of Debentures into 9,912 shares of newly authorized 18%
              Series A cumulative convertible preferred stock, the conversion of
              $623,200 of Debentures into 1,246,400 shares of common stock, and
              the issuance of 860,774 shares of common stock in settlement of
              all unpaid interest. After one year, at the option of the
              preferred stockholders and the Holders, the dividend rate shall
              either be reduced from 18% to 7% or the preferred stockholders may
              surrender 10% of the preferred stock to the Company and continue
              to receive a dividend of 18%. In April 1998, the preferred
              stockholders elected to reduce the interest and dividend rates to
              7%.

              The principal reduction of the Debentures amounted to $1,495,680
              which was accounted for in accordance with Statement of Financial
              Accounting Standards No. 15, Accounting by Debtors and Creditors
              for Troubled Debt Restructurings, ("SFAS 15"). SFAS 15 generally
              requires that if the carrying amount of the debentures does not
              exceed future cash payments, the carrying amount of the debentures
              should not be adjusted and no gain will be recognized but a new
              effective interest rate is computed and amortized over the life of
              the debentures.

              On April 30, 1997, two of the Debentures with carrying values of
              $3,549,120 were amended and restated to provide for a maturity
              date of September 1, 1999 and interest rates identical to the
              terms in the above mentioned Letter Agreement.

              In July 1997, in settlement of a claim brought against the Company
              in 1996, the plaintiff converted $1,833,333 of Debentures into
              1,833 shares of Series B Cumulative Convertible Preferred Stock.



                                      F-16

<PAGE>   58



                  UNITED PETROLEUM CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



Note 4 - Long-term debt (concluded):

              During 1997, the Company issued two additional convertible
              debentures totaling $2,241,666 generating net proceeds of
              $1,750,000 after deducting debt discount and debt issuance costs
              of $491,666. The debentures provide for payments of interest
              ranging from 6% to 18%. One debenture matures on September 1, 1999
              and the other debenture was scheduled to mature on February 28,
              1998.

              On April 15, 1998, the Company received a $750,000 bridge loan
              from a preferred stockholder. In June 1998, the preferred
              stockholder purchased an aggregate of eleven secured loans to
              Calibur totaling $4,985,385 from the original lenders. On August
              5, 1998, the Company received an additional bridge loan from the
              preferred stockholder which provided for additional financing
              totaling $1,236,616. On August 5, 1998, the preferred stockholder
              and the Company agreed to refinance and consolidate the loans into
              the Consolidated Credit Agreement (the "Credit Agreement"). The
              Credit Agreement is divided into the A Note and the B Note. Both
              notes were scheduled to mature on January 1, 1999 and originally
              provided for interest at 12%. The interest on the A Note was to be
              paid monthly and the interest on the B Note was to be paid on
              January 1, 1999. The Company is presently in default under the
              terms of the Credit Agreement and, as provided in the Credit
              Agreement, in the event of default, interest is to be computed at
              15%.


Note 5 - Provision for income taxes:

              The provision for deferred income taxes in 1997 consists of the
              following:

<TABLE>

<S>                                                                <C>
                  Federal                                          $  2,972,100
                  State (credit)                                        (87,100)
                                                                   ------------
                     Total                                         $  2,885,000
                                                                   ============
</TABLE>

              The provision for income taxes in 1998 and 1997 differs from the
              amount computed using the Federal statutory rate of 34% as a
              result of the following:

<TABLE>
<CAPTION>

                                                                                            1998               1997
                                                                                            ----               ----
<S>                                                                                         <C>                <C>
                  Tax at Federal statutory rate                                                (34)%              (34)%
                  State income taxes, net of Federal tax                                        (4)                 1
                  Reversal of deferred tax assets                                                                  64
                  Valuation allowance                                                           38
                                                                                            ------              -----

                     Effective tax rate                                                         --%                31%
                                                                                            ======              =====
</TABLE>


                                      F-17

<PAGE>   59



                  UNITED PETROLEUM CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Note 5 - Provision for income taxes (concluded):

              At December 31, 1998, deferred tax assets are attributable to the
              following:

<TABLE>

<S>                                                                     <C>
                  Depreciation                                          $      437,000
                  Intangible drilling costs                                  1,439,000
                  Net operating loss carryforwards                           9,133,000
                  Less valuation allowance                                 (11,009,000)
                                                                        --------------

                               Total                                    $           --
                                                                        ==============
</TABLE>


              At December 31, 1998, the Company has Federal and state net
              operating loss carryforwards of approximately $26,000,000 and
              $7,000,000, respectively, which, if unused, will expire through
              2018. Due to the potential changes in the ownership of the Company
              which might result from the Company's Reorganization Plan, the
              utilization of these loss carryforwards may be subject to
              substantial annual limitations. Valuation allowances have been
              recorded since it is more likely than not the Company will not
              realize all of the tax benefits.


Note 6 - Commitments:

            Leases:

              The Company leases some of its retail locations and corporate
              headquarters under operating leases which expire in years between
              2001 and 2010. Three of the leases provide for two consecutive
              five year renewal options, one lease provides for two consecutive
              ten year renewal options and one lease is in its first five year
              renewal option with four consecutive five year renewal options
              remaining. Most of the leases require the Company to pay operating
              expenses.

              Future minimum lease payments in each of the five years subsequent
              to December 31, 1998 and in the aggregate are as follows:

<TABLE>
<CAPTION>

                        Year Ending
                        December 31,                                   Amount
                        ------------                               -------------

<S>                                                                <C>
                            1999                                   $   270,000
                            2000                                       262,000
                            2001                                       245,000
                            2002                                       221,000
                            2003                                       221,000
                            Thereafter                               1,148,000
                                                                   -----------
                               Total                               $ 2,367,000
                                                                   ===========
</TABLE>


              Rent expense amounted to $353,408 and $278,124 in 1998 and 1997,
              respectively.


                                      F-18

<PAGE>   60



                  UNITED PETROLEUM CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Note 6 - Commitments (concluded):

            Leases (concluded):

              In 1998, the Company entered into lease agreements for two of its
              retail locations which grant the lessee the option to purchase the
              underlying premises throughout the lease term. One of the leases
              expires in May 1999 while the other lease expires in June 2003 and
              contains three consecutive five year renewal options. At December
              31, 1998, premises and equipment totaling $2,295,047 has been
              recorded as property available for sale (see Note 1).

              Future minimum lease payments to be received under these leases
              are as follows:

<TABLE>
<CAPTION>

                       Year Ending
                       December 31,                            Amount
                       ------------                           ---------

<S>                                                           <C>
                           1999                             $  113,150
                           2000                                 72,000
                           2001                                 72,000
                           2002                                 72,000
                           2003                                 30,000
                                                            ----------

                              Total                         $  359,150
                                                            ==========
</TABLE>

              Rent income amounted to approximately $100,000 in 1998.

            Employment agreements:

              In 1996, the Company entered into employment agreements with both
              its Chief Financial Officer and Chief Executive Officer which will
              expire in September 2001. Compensation under these agreements
              aggregated approximately $325,000 in 1998 and will be
              approximately $225,000 annually thereafter.


Note 7 - Related party transactions:

              On July 1, 1997, the Company entered into a five year agreement
              with a related corporation engaged in manufacturing and
              distribution which is controlled by the Company's Chief Executive
              Officer. The agreement provides for the Company to purchase
              exclusively, in areas served by the related corporation, its
              gasoline inventories at a price of $.01 per gallon above cost plus
              freight. For the years ended December 31, 1998 and 1997, purchases
              under this agreement were approximately $989,000 and $525,000,
              respectively. During the year ended December 31, 1997,
              transactions between the Company and the related corporation also
              included equipment sales, chemicals, supplies and certain ongoing
              construction activities conducted for the Company by the related
              corporation. In 1997, equipment sales and construction activities
              and repairs and maintenance were approximately $258,000 and
              $323,000, respectively. Amounts included in accounts payable
              approximated $19,000 as of December 31, 1998. There were no
              construction activities in 1998.


                                      F-19

<PAGE>   61



                  UNITED PETROLEUM CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



Note 7 - Related party transactions (concluded):

              During the year ended December 31, 1997, the Company sold certain
              existing locations to its Chief Executive Officer and to a member
              of its Board of Directors. The Company recognized a gain of
              $248,456 on the sale of a retail location to the board member in
              exchange for his assumption of related debt of $356,957 and the
              payment of $152,385 in cash. The Company recognized a net loss of
              $38,944 on the sale of another retail location to the Chief
              Executive Officer. In exchange for the location, the Company
              accepted a receivable of $300,000 from the officer, who also
              assumed liabilities of $3,028,744. In 1998, the receivable was
              repaid.

              Also in 1997, as shown in Note 12, the Company paid the Chief
              Executive Officer a fee of $81,280, approximating 1% of the
              Company's debt for which he served as guarantor.

              During the year ended December 31, 1997, the Company abandoned
              certain leasehold improvements on property the Company leased from
              its Chief Executive Officer. The Company recognized a loss of
              $236,577 on the abandonment.

              In 1996, the Chief Executive Officer entered into certain lease
              agreements with the Company which provided for an aggregate
              monthly rental of $27,000. In 1997, some of the leases, by mutual
              agreement, were terminated. In 1998, the Company relocated its
              corporate headquarters and terminated the remaining lease
              agreement with the Chief Executive Officer. For the years ended
              December 31, 1998 and 1997, rent expense paid to the Chief
              Executive Officer approximated $22,000 and $177,000, respectively.

Note 8 - Sale of subsidiary:

              In January 1998, the Company sold UCI Teleport, Inc. for
              approximately $266,000, net of expenses, resulting in a gain of
              approximately $132,000.

Note 9 - Stock options:

              The Company has a stock option plan (the "Plan") that provides for
              the granting of incentive and nonqualified options to selected key
              employees, officers, directors and consultants.

              Options granted to employees are nontransferable and are for both
              active shares and restricted shares that carry continuing legal
              restrictions on transfer upon exercise of the options. Generally,
              the options are exercisable upon grant date with expiration dates
              ranging from five to ten years from date of grant. There were no
              options granted in 1998.


                                      F-20

<PAGE>   62



                  UNITED PETROLEUM CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



Note 9 - Stock options (concluded):

            Activity in the Plan is as follows:

<TABLE>
<CAPTION>

                                                1998                                             1997
                          -----------------------------------------------   ----------------------------------------------
                              Number of                                      Number of
                               Options          Price          Average        Options           Price          Average
                          ---------------   -------------   -------------   -------------    ------------   --------------
<S>                            <C>            <C>           <C>                 <C>           <C>           <C>
Options outstanding,
   beginning of year           3,016,608      $ .26-$1.00   $         .34       2,200,004     $2.04-$4.06   $        2.47
Original options that
   were canceled due
   to repricing                                                                (1,816,668)    $2.04-$4.06
Options granted due
   to repricing                                                                 1,816,668     $ .26-$1.00
Options granted                                                                 1,200,000     $ .26-$1.00             .47
Options canceled                                                                 (383,336)    $.38-$3.625            2.25
                           -------------                                    -------------

Options outstanding,
   end of year                 3,016,668      $ .26-$1.00   $         .34       3,016,668     $ .26-$1.00   $         .34
                           =============                                    =============
</TABLE>

              The Company has elected to make pro forma disclosures, as required
              by Statement of Financial Accounting Standards No. 123, Accounting
              for Stock-Based Compensation ("SFAS 123"), of net loss as if a
              fair value based method of accounting for stock options had been
              applied if such pro forma amounts differ materially from the
              historical amounts. Therefore, the Company accounts for stock
              options in accordance with the provisions of Accounting Principles
              Board Opinion No. 25, Accounting for Stock Issued to Employees,
              and recognize compensation costs as a result of the issuance of
              stock options based on the excess, if any, of the fair value of
              the underlying stock at the date of grant (or at an appropriate
              subsequent measurement date) over the amount the employee must pay
              to acquire the stock.

              The compensation cost, pro forma loss and loss per common share
              for 1998 and 1997 determined using a fair value based method of
              accounting for the stock options granted in 1997, as required by
              SFAS 123, would not differ materially from the corresponding
              historical amounts.


Note 10- Stockholders' equity:

              In March 1997, the Company amended its charter by authorizing up
              to 10,000,000 shares of $.01 par value preferred stock issuable as
              Series A cumulative convertible preferred stock ("Series A") and
              Series B cumulative convertible preferred stock ("Series B") each
              having a liquidation preference of $1,000 per share. At December
              31, 1998 and 1997, the Company has outstanding 9,912 shares of
              Series A and 1,833 shares of Series B, with a stated liquidation
              preference value of $9,912,000 and $1,833,000, respectively.


                                      F-21

<PAGE>   63



                  UNITED PETROLEUM CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 10- Stockholders' equity (concluded):

              Dividends on the Series A, at the option of the Company, are
              payable in cash or shares of common stock quarterly at 7%.
              Dividends on the Series B, at the option of the Company, are
              payable in cash or stock quarterly at 8%. The shares of the Series
              A and Series B are on par with each other but rank senior to
              common stock.

              Series A and Series B are convertible into shares of the Company's
              common stock, at the preferred stockholder's option, based on the
              liquidation preference plus any unpaid or accrued dividends
              divided by a conversion price up to 1/13 and 1/15, respectively,
              of the stated value of all shares issued to such holder in each
              calendar month, on a cumulative basis, commencing July 1, 1997.
              The conversion price for the Series A and B is computed based on
              the greater of the average market price for the five consecutive
              trading days immediately preceding the conversion date or $1.00
              (the fixed conversion price at December 31, 1998) not to exceed
              the ceiling price which is generally $3.00. Furthermore, at the
              option of the Company, any Series A which is outstanding on
              October 10, 1999 may be converted into shares of common stock at
              the mandatory conversion price as defined in the Letter Agreement.
              Any Series B which is outstanding on October 10, 2000 at the
              option of the Company, may be converted into shares of common
              stock at the mandatory conversion price as defined in the Letter
              Agreement.

              On April 30, 1997, $9,912,000 of the convertible debentures were
              converted into 9,912 shares of Series A. In addition, 1,833 shares
              of Series B were issued in connection with the conversion of
              $1,833,333 of convertible debentures in settlement of litigation
              with a debenture holder (see Note 4).

              During the year ended December 31, 1997, 2,998,100 shares of
              common stock were issued in lieu of payment of $747,881 of
              dividends on the Series A; 2,770,000 shares of common stock were
              issued in lieu of payment of $1,093,846 of interest on the
              convertible debentures; 4,553,600 shares of common stock were
              issued for $823,909 of services rendered; and 7,129,700 shares of
              common stock, net of related cost of issuance, discounts and fees
              of $321,586, were issued upon the conversion of $1,900,000 of
              convertible debentures.

              In connection with Letter Agreement (see Note 4), limitations were
              placed on the maximum number of shares of common stock which the
              group members, as defined in the Letter Agreement, may receive
              with respect to any conversion of convertible debentures or
              preferred shares. In addition, voting rights shall be limited to
              the extent necessary that no preferred stockholder or group of
              affiliated preferred stockholders may vote at any one time more
              than 4.99% of the total common shares.

              In December 1997, the Company's securities were delisted on the
              NASDAQ stock market thereby creating events of default under the
              forementioned agreements.

              During the year ended December 31, 1998, 1,285,796 shares of
              common stock were issued for $29,358 of services rendered.

              During the year ended December 31, 1998, the Company wrote off a
              stockholder note receivable in the amount of $1,187,432 relating
              to the issuance of shares of the Company's common stock prior to
              1997.




                                      F-22

<PAGE>   64

                  UNITED PETROLEUM CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Note 11- Segment and related information:

              The Company operates two reportable segments which are comprised
              of the retail segment which operates the Company's convenience
              stores, express lube and car wash operations, and the oil and gas
              segment, which is comprised of oil and gas properties. In 1998,
              the Company entered into a contract to sell its remaining wells
              for $650,000. As a result of the contract to sell, the Company has
              classified the wells as available for sale property.

              The accounting policies of the reportable segments are the same as
              those described in Note 1. The Company evaluates the performance
              of its operating segments based on sales and loss from operations.

              Summarized financial information concerning the Company's
              reportable segments is shown in the following table:

<TABLE>
<CAPTION>



                                   Retail          Oil and Gas        Corporate          Total
                               --------------    --------------    --------------    --------------
1998:

<S>                            <C>               <C>               <C>                  <C>
Sales                          $    6,064,357    $      115,199                      $    6,179,556
Segment loss                         (757,154)         (734,285)   $   (1,132,017)       (2,623,456)
Total assets                        8,441,736         3,739,719           676,517        12,857,972
Capital expenditures                  185,762            12,500             8,406           206,668
Depreciation and
    amortization on
    property and equip-
    ment                              540,767            51,625                             592,392
</TABLE>



<TABLE>
<CAPTION>


                                   Retail          Oil and Gas        Corporate          Total
                               --------------    --------------    --------------    --------------
1997:


<S>                            <C>               <C>               <C>                  <C>
Sales                          $    9,428,519    $      292,342                      $    9,720,861
Segment loss                         (129,944)       (3,339,528)   $   (2,531,241)       (6,000,713)
Total assets                        9,178,715         4,872,010           650,259        14,700,984
Capital expenditures                1,637,814            57,452             8,378         1,703,644
Depreciation and
    amortization on
    property and equip-
    ment                              572,241           133,385             4,764           710,390
</TABLE>


Note 12- Other expenses:

Other expenses in 1997 consist of the following:

<TABLE>

<S>                                                                                  <C>
   Consulting fees                                                                   $      966,531
   Guarantee fees (see Note 7)                                                               81,280
                                                                                     --------------

      Total                                                                          $    1,047,811
                                                                                     ==============
</TABLE>





                                      F-23

<PAGE>   65


                  UNITED PETROLEUM CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



Note 12- Other expenses (concluded):

              In its efforts to obtain additional capital for its operations,
              the Company engaged brokers, investment bankers and other
              consultants to assist in obtaining financing and pursuing mergers
              and acquisitions. $823,909 of these expenses were paid via the
              issuance of 4,553,625 shares of the Company's common stock in
              1997.


Note 13- Contingencies:

              In June 1996, the Company engaged TAJ Global Equities ("TAJ") to
              act as the underwriter for a planned $20,000,000 offering of the
              Company's common stock. TAJ and Strategic Holdings, Inc.
              ("Strategic") also acted as consultants to the Company in
              connection with the offering and sale of the convertible
              debentures. The planned $20,000,000 offering was subsequently
              withdrawn.

              During the last two quarters of 1996, unusual and significant
              short selling occurred in the Company's common stock. This
              activity caused the Company to believe that purchasers of the
              debentures were involved in short sales in violation of the terms
              of the subscription agreements executed with the Company. The
              short sales activity caused the Company's stock prices to fall
              significantly. The Company's Board of Directors therefore
              authorized the purchase in the open market of up to 1,000,000
              shares of the Company's common stock in an attempt to protect
              stockholders' interests.

              The Company engaged TAJ for this purpose and initially remitted
              approximately $1,800,000 to TAJ for the purpose of acquiring
              shares. The Company believes 117,000 shares at an approximate cost
              of $300,000 were initially purchased by TAJ for the Company, but
              the trade was soon thereafter canceled with the Company ultimately
              having no position in its stock. However, the Company learned that
              TAJ did purchase a significant number of shares (estimated at
              approximately 3,200,000 shares) for either its own account or
              customers' accounts and the Company believes some portion of those
              shares were subsequently resold by TAJ.

              It is the Company's position that TAJ acted without authority in
              the timing and volume of the share acquisitions. Strategic is one
              of the customers for which TAJ acquired shares. Strategic advised
              the Company that TAJ was not expressly authorized to acquire the
              Company's shares on its behalf. The Company was also advised that
              TAJ's acquisitions of the Company's shares were placed through its
              clearing broker, National Financial Service Corporation
              ("National"), and were not paid for. National advised the Company
              that if it did not advance to TAJ and Strategic the funds
              necessary to cover the unpaid trades, that it would liquidate its
              position in the Company's shares, causing a tremendous fall in the
              price of the Company's common stock and severe losses to its
              stockholders. In response to National's communication, the Company
              advanced an additional $1,617,959 and $7,382,703 as payment for
              the TAJ and Strategic respective shares.


                                      F-24

<PAGE>   66



                  UNITED PETROLEUM CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



Note 13- Contingencies (concluded):

             The total cost to the Company for these transactions was
             approximately $11,000,000 which was charged to operations in 1996.

             As a result of this matter, the Company has filed an action against
             TAJ and National and certain individuals alleging conspiracy to
             engage in a course of misconduct intended to defraud the Company,
             conversion, unjust enrichment, breach of fiduciary duty and
             associated causes of action and claiming compensatory and punitive
             damages in excess of $100,000,000. However, the Company does not
             have sufficient funds to pursue the litigation.

             In October 1998, an action was brought against the Company by
             Strategic seeking damages of approximately $550,000 arising from
             the Company's alleged breach of an agreement. The Company believes
             the claims are without merit. If Strategic's claim are determined
             to have merit, Strategic would have a general unsecured claim in
             the Company's bankruptcy proceedings.

             In addition, the Company is a party to various class action
             lawsuits brought against certain debentureholders and stockholders
             alleging that the Company is liable for claims sought by the
             plaintiffs. The Company believes the plaintiffs are stayed from
             pursuing these matters due to the bankruptcy proceedings.

             The Company is subject to extensive and evolving Federal, state and
             local environmental laws and regulations that have been enacted in
             response to technological advances and the public's increased
             concern over environmental issues. As a result of changing
             governmental attitudes in this area, management anticipates that
             the Company will continually modify or replace facilities and alter
             methods of operation. The majority of the expenditures necessary to
             comply with the environmental laws and regulations are made in the
             normal course of business.

             The Company participates in a Superfund (the "Superfund")
             established to clean-up environmental problems associated with
             petroleum caused contamination. Coverage under the Superfund is
             conditional on the Company's continued compliance with all Federal
             and state regulations regarding the sale and underground storage of
             petroleum products. Under the terms of the Superfund program, the
             Company's liability is limited to $20,000 per incident, per
             location. The Company carries no insurance with respect to
             environmental claims not covered by the Superfund. To the best of
             its knowledge, the Company is in compliance in all material
             respects with laws and regulations affecting its operations.

             In addition, the Company is a party to various other legal
             proceedings generally incidental to its business and primarily
             related to employee matters. The Company does not believe that any
             of these lawsuits will have a materially adverse effect on its
             consolidated financial position or results of operations.


                                      F-25


<PAGE>   67

                  UNITED PETROLEUM CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



Note 14- Fair value of financial instruments:

             As discussed in Note 15, on January 14, 1999, the Parent filed a
             petition for relief under Chapter 11 of the Federal bankruptcy laws
             in the United States Bankruptcy Court for the District of Delaware.
             Accordingly, the fair value of financial instruments cannot
             currently be determined.


Note 15- Subsequent event:

             On January 14, 1999, the Parent filed a petition for relief under
             Chapter 11 of the Federal bankruptcy laws in the United States
             Bankruptcy Court for the District of Delaware. The petition for
             relief does not include its two operating subsidiaries, Calibur and
             Jackson. However, as shown in Note 4, all assets of the Parent,
             including the common stock of the subsidiaries, are pledged as
             collateral for the debts of the Parent. Under Chapter 11, certain
             claims against the Parent in existence prior to the filing of the
             petition for relief under the Federal bankruptcy laws are stayed,
             while the debtor continues business operations as a debtor in
             possession. Additional claims (liabilities subject to compromise)
             may arise subsequent to the filing date resulting from rejection of
             executory contracts, including leases, and from the determination
             by the Bankruptcy Court (or agreed to by parties in interest) of
             allowed claims for contingencies and other disputed amounts.




                                      * * *


                                      F-26
<PAGE>   68

SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the registrant has duly caused this report to be signed on
May 28, 1999 on its behalf by the undersigned thereunto duly authorized.

                                      UNITED PETROLEUM CORPORATION

                                      (Registrant)

                                        By: /s/ Michael F. Thomas

                                          Michael F. Thomas, President

     Pursuant to the requirements of the Securities and Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in their capacities and on the dates indicated.

<TABLE>
<CAPTION>

       Signature                                 Title                         Date

<S>                                      <C>                               <C>
/s/ Michael F. Thomas
----------------------------------       Chief Executive Officer            May 28, 1999
Michael F. Thomas                        and Director


/s/ Dwight S. Thomas
----------------------------------       Secretary, Treasurer               May 28, 1999
Dwight S. Thomas                         and Director


/s/ Walter L. Helton
----------------------------------       Director                           May 28, 1999
Walter L. Helton

/s/ Eugenio Martinez
----------------------------------       Director                           May 28, 1999
Eugenio Martinez

                                                                            May 28, 1999
----------------------------------       Director
Antonio Julio Gimenez


----------------------------------       Director
Steven Bauer
</TABLE>



<PAGE>   69

                               INDEX TO EXHIBITS


<TABLE>
<CAPTION>

    EXHIBIT
    NUMBER           DESCRIPTION
    -------          -----------
<S>           <C>    <C>
      2.1     --     Agreement and Plan of Merger, dated March 2, 1993,
                     between Calibur Systems, Inc. and United Petroleum
                     Corporation, filed as Exhibit 2.1 to the Company's Form 8-K
                     filed with the Commission on April 22, 1993, and
                     incorporated herein by reference.

      2.2     --     Articles of Merger, filed as Exhibit 30 to the Company's
                     Transition Report on Form 10-KSB for the period from June
                     30, 1993 to December 31, 1993, and incorporated herein by
                     reference.

      2.3     --     Agreement and Certificate of Merger, by and between
                     United Petroleum Corporation and United Petroleum Delaware,
                     filed as Exhibit 3.4 to the Company's Annual Report on Form
                     10-KSB for the fiscal year ended June 30, 1991, and
                     incorporated herein by reference.

      3.1     --     Articles of Incorporation, filed as Exhibit 3.1 to the
                     Company's Annual Report on Form 10-KSB for the fiscal year
                     ended June 30, 1991, and incorporated herein by reference.

      3.2     --     Certificate of Amendment Authorizing Increase in
                     Capitalization to 50,000,000 shares, filed as Exhibit 3.8
                     to the Company's Annual Report on Form 10-KSB for the
                     fiscal year ended June 30, 1991, and incorporated herein by
                     reference.

      3.3     --     Certificate of Amendment Authorizing 3 for 4 reverse split,
                     filed as Exhibit 3 to the Company's Transition Report on
                     Form 10-KSB for the period beginning June 30, 1993 and
                     ended December 31, 1993, and incorporated herein by
                     reference.

      3.4     --     Certificate of Amendment dated March 14, 1997, filed as
                     Exhibit 3.10 to the Company's Annual Report on Form 10-KSB
                     for the fiscal year ended December 31, 1996, and
                     incorporated herein by reference.

      3.5     --     Certificate of Designations of Series A Preferred Stock,
                     filed as Exhibit A to Exhibit 10.11 to the Company's
                     Current Report on Form 8-K filed with the Commission on May
                     13, 1997.

      3.6     --     Bylaws of the Company, filed as Exhibit 3.2 to the
                     Company's Annual Report on Form 10-KSB for the year ended
                     June 30, 1991, and incorporated herein by reference.

      3.7     --     Amendment to the Company's Bylaws, filed as Exhibit 3.9 to
                     the Company's Annual Report on Form 10-KSB for the fiscal
                     year ended June 30, 1991, and incorporated herein by
                     reference.

      10.3    --     Distribution Agreement, between Pennzoil and the Company
                     filed as Exhibit 10 to the Company's Annual Report on Form
                     10-KSB for the fiscal year ended December 31, 1991, and
                     incorporated hereby by reference.

      10.5    --     1994 Stock Option and Stock Bonus Plan filed as Exhibit
                     4 to the Company's Annual Report on Form 10-KSB for the
                     fiscal year ended December 31, 1994, and incorporated
                     herein by reference.

      10.6    --     1995 Amendment to the Stock Option and Stock Bonus Plan
                     filed as Exhibit 4.1 to the Company's Annual Report on Form
                     10-KSB for the fiscal year ended December 31, 1994.

      10.7    --     License Agreement dated June 29, 1993, between TCS
                     Systems, Inc. and Calibur Systems, Inc. filed as Exhibit
                     10.1 to the Company's Annual Report on Form 10-KSB for the
                     fiscal year ended December 31, 1994, and incorporated
                     herein by reference.

      10.10   --     Employment Agreement, between the Company and Michael F.
                     Thomas filed as Exhibit 10.8 to the Company's Annual Report
                     on Form 10-KSB for the fiscal year ended December 31, 1996,
                     and incorporated herein by reference.
</TABLE>




<PAGE>   70

<TABLE>

<S>           <C>    <C>
      10.11   --     Promissory Note of Strategic Holdings Corporation to the
                     order of the Company dated October 18, 1996, filed as
                     Exhibit 10.9 to the Company's Annual Report on Form 10-KSB
                     for the fiscal year ended December 31, 1996, and
                     incorporated herein by reference.

      10.12   --     Security Agreement granted by Strategic Holdings
                     Corporation in favor of the Company dated December 11,
                     1996, filed as Exhibit 10.9.1 to the Company's Annual
                     Report on Form 10-KSB for the fiscal year ended December
                     31, 1996, and incorporated herein by reference.

      10.13   --     Escrow Agreement dated December 11, 1996 between the
                     Company and Strategic Holdings Corporation filed as Exhibit
                     10.9.3 to the Company's Annual Report on Form 10-KSB for
                     the fiscal year ended December 31, 1996, and incorporated
                     herein by reference.

      10.15*  --     Amended, Restated and Consolidated Credit Agreement
                     dated August 5, 1998 between the Company and Infinity.

      10.16*  --     A Note dated August 5, 1998 by the Company in favor of
                     Infinity.

      10.17*  --     B Note dated August 5, 1998 by the Company in favor of
                     Infinity.

      10.18*  --     Guaranty dated August 5, 1998 by Michael Thomas in favor of
                     Infinity.

      10.19*  --     Amended and Restated Pledge Agreement dated August 5, 1998
                     between UPET and Infinity.

      10.20*  --     Amended and Restated Security Agreement dated August 5,
                     1998 between the Company and Infinity.

      10.21   --     Form of Debentures, filed as Exhibit 10.11 to the
                     Company's Current Report on Form 8-K filed with the
                     Commission on May 12, 1997 and incorporated herein by
                     reference.

      16.3    --     Letter dated February 20, 1997 from Morton S. Robson to
                     Larry Felts of Coopers & Lybrand filed as Exhibit 16.1 to
                     the Company's Annual Report on Form 10-KSB for the fiscal
                     year ended December 31, 1995, and incorporated herein by
                     reference.

      16.4    --     Letter dated February 28, 1997 from Coopers & Lybrand to
                     the Commission filed as Exhibit 16.2 to the Company's
                     Annual Report on Form 10-K for year ended December 31,
                     1997.

      21*     --     Subsidiaries of the Company.


      23.3    --     Consent of R.W. Coburn, Registered Petroleum Engineer,
                     filed as Exhibit 23 to the Company's Annual Report on Form
                     10-KSB for the fiscal year ended December 31, 1997, and
                     incorporated herein by reference.

      27*     --     Financial Data Schedule
</TABLE>


----------

* Filed herewith.