UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
For the quarterly period ended November 30, 1999.
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
For the transition period from _______, 19___ to _______, 19___.
Commission File Number: 0-10157
CAPCO ENERGY, INC.
-----------------------------------------
(Exact Name of Small Business Issuer as Specified in its Charter)
COLORADO 84-0846529
- ------------------------------ -----------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
2922 EAST CHAPMAN AVENUE, SUITE 202
ORANGE, CA 92869
--------------------------------------
Address of Principal Executive Offices
(714) 288-8230
-------------------------
(Registrant's Telephone Number, Including Area Code)
ALFA RESOURCES, INC.
218 CARMEN LANE, SUITE 208
SANTA MARIA, CA 93458
--------------------------------------------------
(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)
Check whether the Issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the Issuer was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
X Yes No
---- ----
There were 1,000,000 shares of the Registrant's $.001 par value Common Stock
outstanding as of December 31, 1999.
<PAGE>
CAPCO ENERGY, INC.
BALANCE SHEET
NOVEMBER 30, 1999
(Unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 129
Total current assets 129
PROPERTY AND EQUIPMENT
Oil and gas properties using
the full cost method 633,750
Other 376
634,126
Less: depletion, depreciation
and amortization (3,729)
Total property and equipment 630,397
Other assets 328,203
TOTAL ASSETS $ 958,729
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 11,902
Dividends payable 26,673
Current portion of long term debt 72,273
Total current liabilities 110,848
LONG TERM DEBT
Property production payable 117,122
SHAREHOLDERS' EQUITY
Preferred stock, $1.00 par value;
authorized 10,000,000 shares, 292,947
shares issued and outstanding 292,947
Common stock, $.001 par value; authorized
150,000,000 shares; 1,000,000 shares
issued and outstanding 1,000
Additional paid-in capital 2,521,976
Accumulated deficit (2,085,164)
Total shareholders' equity 730,759
TOTAL LIABILITIES AND SHARE-
HOLDERS' EQUITY $ 958,729
The accompanying notes are an integral part of the financial statements.
-2-
<PAGE>
CAPCO ENERGY, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
Six Months Three Months
Ended November 30 Ended November 30
----------------- -----------------
1999 1998 1999 1998
------- ------- ------ -------
REVENUES
Oil and gas sales $11,021 $ 7,637 $ 9,771 $ 4,237
Interest and other income 70 147 -- 54
Gain on sale of oil and gas properties 4,055 -- -- --
Total revenues 15,146 7,784 9,771 4,291
EXPENSES
Production 36,738 7,472 35,838 4,047
General and administrative 53,938 17,599 35,592 8,281
Depletion, depreciation
and amortization 3,729 3,600 3,529 1,800
Interest expense 4,928 -- 2,886 --
Total expenses 99,333 28,671 77,845 14,128
Loss from operations (84,187) (20,887) (68,074) (9,837)
Income tax expense -- -- -- --
Net loss $(84,187) $(20,887) $(68,074) $(9,837)
Net loss per share $ (0.08) $(0.04) $(0.07) $(0.02)
Weighted average shares
outstanding 990,710 465,768 991,429 482,884
The accompanying notes are an integral part of the financial statements.
-3-
<PAGE>
CAPCO ENERGY, INC.
STATEMENTS OF CASH FLOWS
For the Six Months Ended November 30, 1999 and 1998
(Unaudited)
1999 1998
-------- --------
Cash Flows from Operating Activities
Net loss $(84,187) $(20,887)
Adjustments:
Depletion, depreciation and amortization 3,729 3,600
Issuance of Common Stock for services 1,000 5,135
Decrease in accounts receivable 700 354
Decrease in prepaid expense -- 2,900
Decrease in other assets 3,000 --
(Decrease) increase in accounts payable (12,039) 10,243
(Decrease) in accrued expenses -- (336)
Net cash (used in) provided by operating
activities (87,797) 1,009
Cash Flows from Investing Activities:
Expenditures for property and equipment (9,126) --
Net cash used in investing activities (9,126) --
Cash Flows from Financing Activities:
Advances from affiliates 86,797 --
Payments on long-term debt (10,605) --
Net cash provided by financing activities 76,192 --
Net (decrease) increase in cash (20,731) 1,009
Cash, beginning of period 20,860 10,830
Cash, end of period $ 129 $ 11,839
The accompanying notes are an integral part of the financial statements.
-4-
<PAGE>
CAPCO ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1999
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
General
- -------
Effective November 18, 1999, shareholders of the Company approved the change of
the name of the Registrant to Capco Energy, Inc.
Basis of Accounting
- -------------------
The accompanying unaudited financial statements have been prepared on a basis
consistent with the accounting principles and policies reflected in the
financial statements for the year ended May 31, 1999, and should be read in
conjunction with the financial statements and notes thereto included in the
Company's Form 10-KSB for the fiscal year ended May 31, 1999. In the opinion of
management, the accompanying unaudited financial statements contain all
adjustments (which, except as otherwise disclosed herein, consist of normal
recurring accruals only) necessary to present fairly the Company's financial
position as of November 30, 1999, and the results of operations for the six and
three month periods ended November 30, 1999 and 1998, and the cash flows for the
six month periods ended November 30, 1999 and 1998.
Management's Plans
- ------------------
The Company's financial statements have been prepared on a going-concern basis
which contemplates the realization of assets and the settlement of liabilities
and commitments in the normal course of business. The Company has depleted its
working capital due to operating losses. With the acquisition of new oil and gas
properties in July 1999 and the increase in oil prices during the year 1999,
management expects to generate net income and continue in operation, but this
cannot be assured. A decrease in the price of oil or other unexpected
circumstances could cause operations to cease within a short period of time. In
December 1999, the Company engaged in a series of transactions designed to
improve the Company's financial position, and increase income from operations
and cash flow (see "Subsequent Events" footnote).
-5-
<PAGE>
Oil and Gas Accounting
- ----------------------
The Company accounts for oil and gas properties using the "full cost" method.
Under this method, all costs associated with property acquisition, exploration
and development activities are capitalized, including costs of unsuccessful
activities. Oil and gas properties are depleted using the units-of-production
method based on the ratio of current period production to estimated proved oil
and gas reserve quantities. No gain or loss resulting from the disposition of
oil and gas properties is recognized unless the relationship between capitalized
costs and reserves in a cost center is significantly changed.
The Company periodically reviews the carrying value of its oil and gas
properties in accordance with requirements of the full cost method of
accounting. Under these rules, capitalized costs of oil and gas properties may
not exceed the present value (discounted at 10%) of estimated future net
revenues from proved reserves, plus the lower of cost or fair market value of
unproved properties, after considering potential future income tax effects.
Application of this ceiling test generally requires pricing future revenue at
the prices in effect as of the end of each reporting period and requires a
writedown for accounting purposes if the ceiling is exceeded.
Revenue from oil and gas production is recognized upon sale to unaffiliated
purchasers.
Cash Equivalents
- ----------------
Cash equivalents include money-market accounts or other highly-liquid debt
instruments with an original maturity of three months or less.
Use of Estimates
- ----------------
Preparation of financial statements in accordance with generally accepted
accounting principles requires the use of estimates. The unaudited oil and gas
reserve estimates prepared by management should be considered as reasonably
possible to change, which can affect depletion and the net carrying value of oil
and gas properties.
Earnings Per Share
- ------------------
Basic earnings per common share are based on the weighted average number of
common shares outstanding during the period. Dual presentation of basic and
diluted earnings per share is required for companies with complex capital
structures. The calculation of diluted earnings per common share includes, when
their effect is dilutive, the incremental shares that would have been
outstanding assuming the exercise of stock options.
-6-
<PAGE>
2. COMMON STOCK
On November 18, 1999, shareholders of the Company adopted a resolution
authorizing the consolidation of the issued and outstanding shares of Common
Stock, $.001 par value, through a reverse stock split on the basis of one (1)
share for each one hundred (100) shares surrendered. All share and per share
amounts have been adjusted to give retroactive effect to this split for all
periods presented.
3. STATEMENT OF CASH FLOWS
Following is certain supplemental information regarding cash flows for the six
month periods ended November 30, 1999 and 1998:
1999 1998
------- -----
Interest paid $ 4,928 $ -0-
Income taxes paid $ -0- $ -0-
Non-cash investing and financing transactions are as follows:
In July 1999, the Company sold oil and gas properties with an historical cost of
$1,430,126 and a net book value of $-0-. The transaction also included the
transfer of liabilities in the amount of $6,467, accounts receivable in the
amount of $700 and other assets in the amount of $3,000 to the purchaser.
In August 1999, the Company acquired producing oil and gas properties at a cost
of $625,000 by reduction of other assets in the amount $425,000 and the
assumption of liabilities in the amount of $200,000.
In November 1999, the Company issued 10,000 shares of Common Stock for services
in the amount of $1,000.
In September 1998, the Company issued 51,350 shares of Common Stock for services
in the amount of $5,135.
4. RELATED PARTY TRANSACTIONS
In August 1999, all of the Company's oil and gas operations held as of May 31,
1999 were assigned to Mystique Resources Company in exchange for services
rendered and assumption of the outstanding liabilities related to those
operations. Mystique Resources Company is owned by a former officer and director
of the Company. The net gain to the Company from this transaction was $4,055.
-7-
<PAGE>
5. SUBSEQUENT EVENTS
In December 1999, the Company initiated an offering to qualified investors of
2,000,000 shares of Common Stock, $.001 par value, at a price of $1.25 per share
("Offering"). The subscription period for the Offering was to continue until (a)
full capitalization, or (b) December 15, 1999, subject to a forty-five day
extension. On December 15, 1999, the subscription period was extended to January
15, 2000. Net proceeds from the Offering, which are estimated to be
approximately $2.35 million if the Offering is fully subscribed, will be used to
finance the acquisition of oil and gas production and the stock of other
entities engaged in the oil and gas business, and for working capital and other
corporate purposes. All proceeds realized from the Offering are to be
immediately deposited and made available to the Company.
In December 1999, the Company entered into agreements with shareholders of Capco
Resources Ltd. ("Resources"), a Canadian public company whose stock is traded on
the Alberta Stock Exchange, to exchange, in the aggregate, 13,096,058 shares of
the Company's Common Stock, for common shares representing approximately 71.6%
of the total issued and outstanding shares of Resources. Resources' assets
consist principally of equity interests in two publicly traded U. S. companies:
approximately 35% ownership of Meteor Industries, Inc. (NASDAQ; METR), and
approximately 30% ownership of Greka Energy Corporation (NASDAQ; GRKA).
In December 1999, the Company entered into agreements with shareholders of Capco
Resource Corporation ("Corporation"), a Delaware corporation, to exchange, in
the aggregate, 5,600,000 shares of the Company's Common Stock, for common shares
representing 80% of the total issued and outstanding shares of Corporation.
Corporation's principal assets include working interests in producing oil and
gas properties in Kansas and an approximate 9% equity interest in Resources.
As a result of the Company's controlling ownership of Corporation, the Company
is deemed to have beneficial ownership of approximately 80.6% of Resources.
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
RESULTS OF OPERATIONS
Comparison of three month periods ended November 30, 1999 and 1998
- ------------------------------------------------------------------
Revenues increased from $4,291 in 1998 to $9,771 in 1999. The increase was
primarily attributable to an increase in oil production volumes resulting from
the producing properties acquired by the Company in July 1999.
Production expenses increased from $4,047 in 1998 to $35,838 in 1999 due
principally to remedial and workover expenses resulting from efforts to increase
oil production rates on properties acquired by the Company in 1999.
-8-
<PAGE>
General and administrative expenses increased from $8,281 in 1998 to $35,592 in
1999 due to the engagement of personnel in anticipation of increased levels of
activity.
Depreciation, depletion and amortization increased from $1,800 in 1998 to $3,529
in 1999 due to transactions in the first fiscal quarter of 1999 whereby the
Company disposed of fully depleted properties and acquired new properties.
Interest expense increased from $-0- in 1998 to $2,886 in 1999 due to long-term
debt in the form of a production payable assumed by the Company in connection
with the acquisition of producing properties in July 1999.
Comparison of six month periods ended November 30, 1999 and 1998
- ----------------------------------------------------------------
Revenues increased from $7,784 in 1998 to $15,146 in 1999. The increase was
attributable to an increase of $3,384 in oil and gas sales resulting from the
producing properties acquired by the Company in July 1999, and a net gain in the
amount of $4,055 from the sale of oil and gas properties in 1999.
Production expenses increased from $7,472 in 1998 to $36,738 in 1999 due
principally to remedial and workover expenses resulting from efforts to increase
oil production rates on properties acquired by the Company in July 1999.
General and administrative expenses increased from $17,599 in 1998 to $53,938 in
1999 due to the engagement of personnel in anticipation of increased levels of
activity.
Depreciation, depletion and amortization increased from $3,600 in 1998 to $3,729
in 1999 due to transactions in the first fiscal quarter of 1999 whereby the
Company disposed of fully depleted properties and acquired new properties.
Interest expense increased from $-0- in 1998 to $4,928 in 1999 due to long-term
debt in the form of a production payable assumed by the Company in connection
with the acquisition of producing properties in July 1999.
LIQUIDITY AND CAPITAL RESOURCES
Since commencing operations, the Company's liquidity has been materially and
adversely affected by its lack of significant operating revenues and continuing
operating expenses. In the first quarter of the current fiscal year, the Company
sold it's older oil and gas properties, and acquired an interest in other oil
and gas properties which are expected to generate a positive cash flow to the
Company within the next six to eight months. This interest, valued at $625,000,
was acquired through an exchange of other assets in the amount of $425,000, and
the assumption of liabilities in the amount of $200,000. Of these liabilities,
$72,273 is considered to be payable within the next twelve months and
accordingly, is classified as a current liability at November 30, 1999. At
November 30, 1999, the Company had a working capital deficit of $110,719.
-9-
<PAGE>
The Company's liquidity needs to date have principally been satisfied through
funds provided by affiliates. Management believes that the maximum net proceeds
from the offering of Common Stock ("Offering") currently in progress will
generate sufficient working capital to conduct the business of the Company over
the next 12 months. To the extent that the Company's capital resources,
including the proceeds of the Offering, are insufficient to meet its operating
requirements, the Company will seek additional funds through equity or debt
financing, collaborative or other arrangements with corporate partners and
others. The Company has no current arrangements regarding additional financing.
No assurance can be given that additional financing will be available when
needed or upon terms acceptable to the Company. If adequate funds are not
available, the Company may be required to delay or terminate expenditures for
certain programs or technologies that the Company would otherwise seek to
develop or commercialize, which could have a material adverse effect on the
Company.
CASH FLOWS
The Company's net cash used in operating activities increased from an inflow of
$1,009 for the six months ended November 30, 1998, to an outflow of $87,797 for
the six months ended November 30, 1999. The net loss for the six month period
ended November 30, 1999, adjusted for non-cash charges, accounted for $79,458 of
the outflow.
Investing activities in 1999 resulted in an outflow of $9,126 due to
expenditures incurred in connection with the Company's producing oil and gas
properties that were acquired during the period. There were no investing
activities during the same period of 1998.
Financing activities in 1999 resulted in a net cash inflow of $76,192. Cash
inflows of $86,797 were received from affiliated parties, and payments totaling
$10,605 were made in reduction of long term debt. There were no financing
activities during the same period of 1998.
EFFECT OF CHANGES IN PRICES
Changes in prices during the past few years have been a significant factor in
the oil and gas industry. The price received for the oil and gas produced by the
Company has fluctuated significantly during the last year. Changes in the price
that the Company receives for its oil and gas is set by market forces beyond the
Company's control. That uncertainty in oil and gas prices makes it more
difficult for the Company to increase its oil and gas asset base and become a
significant participant in the oil and gas industry. As the Company's results of
operations are very sensitive to changes in the price of oil, it is difficult
for management to predict whether or not the Company will be profitable in the
future.
-10-
<PAGE>
YEAR 2000
The Company has no proprietary software. The Company's software vendor has
provided a new version of software that is Year 2000 compliant. The Company has
not incurred any significant costs related to Year 2000 issues.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
None.
Item 2. Changes in Securities.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
(a) On November 18, 1999, the Company held its Annual Meeting of Stockholders.
(b) The Annual Meeting of Stockholders involved the election of directors of
the Company for a one-year term to expire at the Company's 2000 Annual
Meeting of Stockholders, or until their successors have been elected and
qualified. At such meeting the entire Board of Directors was elected and
the persons listed in (c) below were elected directors of the Company for
the term stated above.
(c) The matters voted upon at the Annual Meeting of Stockholders, and the
results of such voting, are as follows:
1. Election of three directors
Withheld/ Broker
Nominee Votes For Votes Against Abstentions Nonvotes
Sultan Mahmud 51,600,000 -0- 48,400,000 -0-
Nancy Heck 51,600,000 -0- 48,400,000 -0-
C.L. Nordstrom 51,600,000 -0- 48,400,000 -0-
-11-
<PAGE>
2. Approve a 100 to 1 reverse stock split
Withheld/ Broker
Votes For Votes Against Abstentions Nonvotes
51,600,000 -0- 48,400,000 -0-
3. Approve changing the name of the Company to Capco Energy, Inc.
Withheld/ Broker
Votes For Votes Against Abstentions Nonvotes
51,600,000 -0- 48,400,000 -0-
4. Approve the 1999 Incentive Equity Plan
Withheld/ Broker
Votes For Votes Against Abstentions Nonvotes
51,600,000 -0- 48,400,000 -0-
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits. The following exhibits are furnished as part of this report:
Exhibit No. Description
---------- -----------
3.1 Articles of Amendment to the Articles of Incorporation
filed December 6, 1999*
10.1 Capco Energy, Inc. 1999 Incentive Equity Plan
(filed as Appendix A to the Capco Energy, Inc.
Preliminary Proxy Statement (Form 14A) on October 22,
1999, SEC file #0-10157 and incorporated by reference
herein)
11.1 Computation of Earnings per Common Share*
27.1 Financial Data Schedule*
* Filed herewith
(b) During the period for which this report is filed, the Registrant filed the
following Report on Form 8-K:
Current Report on Form 8-K dated November 29, 1999, which reported events
under Item 5, Other Events.
-12-
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the Issuer caused
this Report to be signed on its behalf by the undersigned, thereunto duly
authorized.
CAPCO ENERGY, INC.
Dated: January 18, 2000 By: /s/ Ilyas Chaudhary
--------------------------
Ilyas Chaudhary, President
and Chief Executive Officer
Dated: January 18, 2000 By: /s/ John R. Aitken
--------------------------
John R. Aitken, Chief
Financial and Accounting
Officer
-13-
EXHIBIT 3.1
Filed
Colorado Secretary of State
19991227407 M
$ 25.00
Secretary of State
12-06-1999 14:41:21
Secretary of State
Corporations Section
ARTICLES OF AMENDMENT
TO THE
ARTICLES OF INCORPORATION
Pursuant. to the provisions of the Colorado Business Corporation Act, the
undersigned Corporation adopts the following Articles of Amendment to its
Articles of Incorporation:
FIRST: The name of the corporation is ALFA RESOURCES, INC.
SECOND: The following amendment to the Articles of Incorporation was adopted on
NOVEMBER 18, 1999 as prescribed by the Colorado Business Corporation Act, in the
manner marked with an X below:
XXX Such amendment was adopted by a vote of the shareholders. The number of
shares voted for the amendment was sufficient for approval.
THIRD: If changing corporate name, the new name of the corporation is CAPCO
ENERGY, INC.
FOURTH: The manner, if not set forth in such amendment, in which any exchange,
reclassification, or cancellation of issued shares
provided for in the amendment shall be effected, is as follows:
NOT APPLICABLE
ALFA RESOURCES, INC.
----------------------------------
Signature: /s/ William J. Hickey
-----------------------
WILLIAM J. HICKEY
Title: Vice President & Secretary
Exhibit 11.1
CAPCO ENERGY, INC.
Computation of Earnings (Loss) per Common Share
For the Six and Three Month Periods Ended November 30, 1999 and 1998
Six Months Three Months
Ended November 30, Ended November 30,
------------------ -------------------
1999 1998 1999 1998
-------- -------- -------- -------
Basis Earnings
Net loss available
to Common Stock ($84,187) ($20,887) ($68,074) ($9,837)
Basic Shares
Weighted average number
of Common Shares
outstanding 990,710 465,768 991,429 482,884
Basic Earnings per
Common Share
Net loss available to
Common Stock ($0.08) ($0.04) ($0.07) ($0.02)
========= ========= ========= ========
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Company's balance sheet at November 30, 1999, and statement of operations for
the six months ended November 30, 1999, and is qualified in its entirety by
reference to such financial statements presented in quarterly report Form 10-QSB
for the quarterly period ended November 30, 1999.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAY-31-2000
<PERIOD-START> JUN-01-1999
<PERIOD-END> NOV-30-1999
<CASH> 129
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 129
<PP&E> 634,126
<DEPRECIATION> (3,729)
<TOTAL-ASSETS> 958,729
<CURRENT-LIABILITIES> 110,848
<BONDS> 0
0
292,947
<COMMON> 1,000
<OTHER-SE> 436,812
<TOTAL-LIABILITY-AND-EQUITY> 958,729
<SALES> 11,021
<TOTAL-REVENUES> 15,146
<CGS> 36,738
<TOTAL-COSTS> 94,405
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,928
<INCOME-PRETAX> (84,187)
<INCOME-TAX> 0
<INCOME-CONTINUING> (84,187)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (84,187)
<EPS-BASIC> (0.08)
<EPS-DILUTED> 0
</TABLE>
