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 September 30, 2000
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.
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(Exact Name of Small Business Issuer as Specified in its Charter)
COLORADO 84-0846529
--------------------------------- -----------------------
(State or Other Jurisdiction of (IRS Employer Identi-
Incorporation or Organization) fication Number)
2922 E. CHAPMAN, SUITE 202
ORANGE CALIFORNIA 92869
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Address of Principal Executive Offices
(714) 288-8230
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(Registrant's Telephone Number, Including Area Code)
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 22,171,980 shares of the Registrant's $.001 par value common stock
outstanding as of September 30, 2000.
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
CAPCO ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
September 30, 2000
(Unaudited)
ASSETS
Current Assets:
Cash $ 31,733
Marketable Securities 11,388,196
Accounts Receivables, net 337,952
------------
Total Current Assets 11,757,881
Property and Equipment, net 3,485,565
Other Assets:
Investments 2,958,648
Other Assets 870,061
------------
Total Assets $ 19,072,155
============
Accompanying notes are an integral part of the financial statements.
2
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CAPCO ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET (Continued)
September 30, 2000
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts Payable, Trade $ 947,389
Current Maturities, Long-term Debt 3,341,884
Accrued Expenses 575,189
Dividend Payable 26,673
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Total Current Liabilities 4,891,135
Long Term Debt, less current maturities 1,484,621
Minority Interest in Subsidiary 1,736,064
Commitments and Contingencies
------------
Total Liabilities 8,111,820
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Stockholders' 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;
22,171,980 Shares issued and outstanding 22,172
Paid-In Capital 1,042,703
Cumulative translation Adjustment (35,157)
Cumulative Unrecognized Gains 11,093,118
Retained Earnings (Deficit) (1,455,448)
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Total Stockholders' Equity 10,960,335
------------
Total Liabilities and
Stockholders' Equity $19,072,155
===========
Accompanying notes are an integral part of the financial statements.
3
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CAPCO ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the three months ended September 30, 2000 and 1999
(Unaudited)
2000 1999
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Sales $ 435,655 $ 15,392
Cost of Sales 171,043 506
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Gross Profit 264,612 14,886
Selling, General and Administrative
Expenses 390,756 78,617
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Loss from operations (126,144) (63,731)
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Other Income (Expenses)
Interest Income 23,021 15,570
Interest Expense (149,667) (6,532)
Gain on Sale of Investments 591,173 -
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Total Other Income (Expenses) 464,527 9,038
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Income (Loss) before equity earnings
and Minority Interest 338,383 (54,693)
Minority Interest (86,104) -
Equity Loss in Investments (188,128) -
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Net Income (Loss) $ 64,151 $ (54,693)
=========== ==========
Income (Loss) per Share
Basic and Diluted $ .00 $ (.01)
=========== ==========
Average Shares Outstanding
Basic and Diluted 21,681,129 5,250,000
=========== ==========
Accompanying notes are an integral part of the financial statements.
4
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CAPCO ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the nine months ended September 30, 2000 and 1999
(Unaudited)
2000 1999
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Sales $ 1,061,528 $ 26,841
Cost of Sales 394,022 3,670
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Gross Profit 667,506 23,171
Selling, General and Administrative
Expenses 1,219,113 133,470
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Loss from operations (551,607) (110,299)
Other Income (Expenses)
Interest Income 44,432 31,617
Interest Expense (347,362) (13,385)
Gain on Sale of Investments 983,976 -
----------- ----------
Total Other Income (Expenses) 681,046 18,232
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Income (Loss) before equity earnings
And Minority Interest 129,439 (92,067)
Minority Interest (86,104) -
Equity Loss in Investments (1,091,361) -
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Net Loss $(1,048,026) $ (92,067)
=========== ==========
Income (Loss) per Share
Basic and Diluted $ (.06) $ (.02)
=========== ==========
Average Shares Outstanding
Basic and Diluted 18,596,869 5,250,000
=========== ==========
Accompanying notes are an integral part of the financial statements.
5
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CAPCO ENERGY, INC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the nine months ended September 30, 2000 and 1999
(Unaudited)
2000 1999
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Cash Flows used in Operating Activities:
Net Loss $ (1,048,026) $ (92,067)
Adjustments to reconcile net (loss)
to net cash used in operating activities:
Depreciation, depletion and amortization 244,647 6,737
Gain on sale of investments (983,976) -
Minority Interest 86,104 -
Equity loss 1,091,361 -
Changes in Assets and Liabilities:
(Increase) decrease in assets:
Accounts Receivable (322,239) (368,630)
Other Assets (18,648) (5,377)
Increase (decrease) in liabilities:
Accounts payable 331,655 147,346
Accrued Liabilities 511,113 2,646
------------ -----------
Net cash used by operating
activities (108,009) (309,345)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions, net of cash acquired (37,479) -
Purchase of Property and Equipment (502,665) (566,088)
Investments (1,195,684) -
Proceeds from sale of investments 983,976 -
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Net cash (used) by investing activities (751,852) (566,088)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings on Long Term Debt 1,361,593 312,928
Payments on Long-Term Debt (609,159) -
Proceeds from sale of stock 74,477 579,301
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Net cash provided by financing activities 826,911 892,229
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Net (Decrease) Increase in Cash (32,950) 16,796
Cash, Beginning of Period 64,683 -
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Cash, End of Period $ 31,733 $ 16,796
============ ===========
Accompanying notes are an integral part of the financial statements.
6
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CAPCO ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000
(Unaudited)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
GENERAL DEVELOPMENT OF BUSINESS.
NATURE OF OPERATIONS
Capco Energy, Inc.("Capco" or the "Company") is an independent energy company
engaged primarily in the acquisition, development, production for and the sale
of oil, gas and natural gas liquids. The Company's production activities are
located in the United States. Capco treats all operations as one segment of
business. The principal executive offices of the Company are located at 2922
East Chapman, suite 202, Orange, California. The Company was incorporated as
Alfa Resources, Inc. a Colorado corporation on January 6, 1981. In November
1999, the Company amended it articles of incorporation to change its name from
Alfa Resources, Inc. to Capco Energy, Inc. The Company's future financial
condition and results of operations will depend upon prices received for its oil
and natural gas and the costs of finding, acquiring, developing and producing
reserves. Prices for oil and natural gas are subject to fluctuations in response
to changes in supply, market uncertainty and a variety of other factors beyond
the Company's control. These factors include worldwide political instability
(especially in the Middle East), the foreign supply of oil and natural gas, the
price of foreign imports, the level of consumer product demand and the price and
availability of alternative fuels.
BASIS OF PRESENTATION
Effective December 31, 1999, Capco acquired 100% of the outstanding capital
stock of Capco Resource Corporation ("CRC"), a corporation involved in oil and
gas production. As a result, CRC's former shareholders obtained control of
Capco. For accounting purposes, this acquisition has been treated as a reverse
acquisition with CRC as the accounting acquirer. The financial statements
presented include CRC at cost since January 19, 1999, CRC's inception, and Capco
at fair market value as of December 31, 1999.
In March 2000, the Company increased its investment in Capco Resources Ltd.
("CRL"), a Canadian publicly traded company from approximately 9.9% to
approximately 81.9% by the issuance of 12,221,558 shares of its common stock.
CRL is a holding company with a wholly owned subsidiary, Capco Asset Management
("CAM"), which had investments in publicly traded companies, as follows:
7
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i) 1,290,000 shares of common stock, or approximately 30% interest of Greka
Energy Corporation ("GRKA"), which is in the business of oil and gas production
in the United States and China,
ii) 1,238,550 shares of common stock, or approximately 33% interest, of
Meteor Industries, Inc. ("Industries"), which is in the business of petroleum
marketing in the United States, and
iii) approximately 427,000 shares of common stock of Chaparral Resources,
Inc. ("Chaparral"), which is in the business of oil and gas production in North
America and Kazakhstan. CRL accounts for the investments of Industries and
Chaparral under the equity method and Greka under the mark to market method.
In July and September 2000, the Company issued an additional 810,858 and 177,334
shares of common stock to shareholders of CRL in exchange for 405,429 and 88,667
shares, respectively, of CRL common stock, increasing its equity ownership of
that company to 87.3%.
BASIS OF CONSOLIDATION
The consolidated financial statements include the accounts of Capco and its
wholly and partially owned subsidiaries. Accordingly, all references herein to
Capco or the Company include the consolidated results. All significant
intercompany accounts and transactions have been eliminated in consolidation.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates. Significant estimates with
regard to these financial statements include the estimate of proved oil and gas
reserve volumes and the related present value of estimated future net revenues
therefrom.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company measures its financial assets and liabilities in accordance with
generally accepted accounting principles. For certain of the Company's financial
instruments, including accounts receivable and accounts payable and accrued
expenses, the carrying amounts approximate fair value due to their short
maturities. The amounts owed for long-term debt also approximate fair value
because current interest rates and terms offered to the Company are at current
market rates.
8
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CONCENTRATION OF CREDIT RISK
The Company places its cash in what it believes to be credit-worthy financial
institutions. However, cash balances may exceed FDIC insured levels at various
times during the year.
PROPERTY AND EQUIPMENT
The Company follows the "full-cost" method of accounting for oil and gas
property and equipment costs. Under this method, all productive and
nonproductive costs incurred in the acquisition, exploration, and development
ofoil and gas reserves are capitalized. Such costs include lease acquisitions,
geological and geophysical services, drilling, completion, equipment, and
certain general and administrative costs directly associated with acquisition,
Exploration, and development activities. General and administrative costs
related to production and general overhead are expensed as incurred. No gains or
losses are recognized upon the sale or disposition of oil and gas properties,
except in transactions that involve a significant amount of reserves. The
Proceeds from the sale of oil and gas properties are generally treated as a
reduction of oil and gas property costs.
Fees from associated oil and gas exploration and development partnerships, if
any, will be credited to oil and gas property costs to the extent they do not
represent reimbursement of general and administrative expenses currently charged
to expense. Such costs can be directly identified with acquisition, exploration
and development activities and do not include any costs related to production,
general corporate overhead, or similar activities.
Future development, site restoration, and dismantlement and abandonment costs,
net of salvage values, are estimated on a property-by-property basis based on
current economic conditions and are amortized to expense as the Company's
capitalized oil and gas property costs are amortized. The Company's properties
are all onshore, and the Company expects that the salvage value of the tangible
equipment will offset any site restoration and dismantlement and abandonment
costs. Non-oil and gas producing properties and equipment are stated at cost;
major renewals and improvements are charged to the property and equipment
accounts; while replacements, maintenance and repairs, which do not improve or
extend the lives of the respective assets, are expensed currently. At the time
property and equipment are retired or otherwise disposed of, the asset and
related accumulated depreciation accounts are relieved of the applicable
amounts. Gains or losses from retirements or sales are credited or charged to
operations.
DEPRECIATION AND DEPLETION
The provision for depreciation and depletion of oil and gas properties is
computed on the unit-of-production method. Under this method, the Company
computes the provision by multiplying the total unamortized costs of oil and gas
properties including future development, site restoration, and dismantlement and
abandonment costs, but excluding costs of unproved properties by an overall rate
determined by dividing the physical units of oil and gas produced during the
period by the total estimated units of proved oil and gas reserves.
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This calculation is done on a country-by-country basis for those countries with
oil and gas production. The cost of unevaluated properties not being amortized,
to the extent there is such a cost, is assessed quarterly to determine whether
the value has been impaired below the capitalized cost. Any impairment assessed
is added to the cost of proved properties being The costs associated with
unevaluated properties relate to projects which were undergoing exploration or
development activities or in which the Company intends to commence such
activities in the future. The Company will begin to amortize these costs when
proved reserves are established or impairment is determined. Management believes
no such impairment exists at September 30, 2000. At the end of each quarterly
reporting period, the unamortized cost of oil and gas properties, net of related
deferred income taxes, is limited to the sum of the estimated future net
revenues from proved properties using current prices, discounted at 10%, and the
lower of cost or fair value of unproved properties, adjusted for related income
tax effects ("Ceiling Limitation"). The calculation of the ceiling limitation
and provision for depreciation and depletion is based on estimates of proved
reserves.
There are numerous uncertainties inherent in estimating quantities of proven
reserves and in projecting the future rates of production, timing, and plan of
development. The accuracy of any reserves estimate is a function of the quality
of available data and of engineering and geological interpretation and judgment.
Results of drilling, testing, and production subsequent to the date of the
estimate may justify revision of such estimate. Accordingly, reserve estimates
are often different from the quantities of oil and gas that are ultimately
recovered.
Depreciation for non-oil and gas properties is recorded on the straight-line
method at rates based on the estimated useful lives of the assets. The estimated
useful lives are as follows:
DESCRIPTION LIVES
----------- -----
Equipment 3 to 20 years
INVESTMENT IN EQUITY SECURITIES
For equity securities that the Company (i) does not exercise control in the
investee and ii) expects to divest within a short period of time, the Company
accounts for the investment under the provisions of Financial Accounting
Standards Board ("FASB") Statement of Financial Accounting Standards ("SFAS")
No. 115, "Accounting for Certain Investments in Debt and Equity Securities". For
equity investments that the Company i) exercises control in the investee and ii)
expects to _old for long term investment, the Company accounts for the
investment under the provisions of Accounting Principles Board Opinion ("APB")
No.18 "The Equity Method of Accounting for Investments in Common Stock". In
accordance with FASB No.115, equity securities that have readily determinable
fair values are classified as either trading or available-for-sale securities.
Securities that are bought and held principally for the purpose of selling them
in the near term (thus held for only a short period of time) the Company
classifies as trading securities and all other securities are classified as
available-for-sale.
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Trading and available-for-sale securities are measured at fair value in the
balance sheet.
For trading securities any realized holding gains and losses are rep_rted in the
statement of operations. For available-for-sale securities any unrealized
holding gains and losses are reported as a separate component of Stockholders'
equity until realized. In accordance with APB No.18, under the equity method the
Company records he initial investment at cost, then reduces it by dividends and
increases or decreases it by the Company's proportionate share of the investee's
net earnings or loss.
IMPAIRMENT OF LONG-LIVED ASSETS
In accordance with Statement of Financial Accounting Standard ("SFAS") No.
121,"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of", long-lived assets to be held and used are analyzed
for impairment whenever events or changes in circumstances indicate that the
related carrying amounts may not be recoverable. The Company evaluates at each
balance sheet date whether events and circumstances have occurred that indicate
possible impairment.
If there are indications of impairment, the Company uses future undiscounted
cash flows of the related asset or asset grouping over the remaining life in
measuring whether the assets are recoverable. In the event such cash flows are
not expected to be sufficient to recover the recorded asset values, the assets
are written down to their estimated fair value. Long-lived assets to be disposed
of are reported at the lower of carrying amount or fairvalue of asset less cost
to sell.
REVENUE RECOGNITION
Revenue from product sales is recognized when the product is delivered.
Revenuefrom services is recognized when the services are performed and billable.
STOCK BASED COMPENSATION
The Company accounts for employee stock options in accordance with APB No. 25
"Accounting for Stock Issued to Employees". Under APB 25, the Company recognizes
no compensation expense related to employee stock options, as no options are
granted at a price below market price on the date of grant. In 1996, SFAS No.
123 "Accounting for Stock-Based Compensation", became effective for the Company.
SFAS No. 123, which prescribes the recognition of compensation expense based on
the fair value of options on the grant date, allows companies to continue
applying APB 25 if certain pro forma disclosures are made assuming hypothetical
fair value method, for which the Company uses the Black-Scholes option-pricing
model.For non-employee stock based compensation the Company recognizes an
expense in accordance with SFAS No. 123 and values the equity securities based
on the fair value of the security on the date of grant.
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For stock-based awards the value is based on the market value for the stock on
the date of grant and if the stock has restrictions as to transferability a
discount is provided for lack of tradability. Stock option awards are valued
using the Black-Scholes option-pricing model.
ENVIRONMENTAL EXPENDITURES
The Company expenses environmental expenditures related to existing conditions
resulting from past or current operations and from which no future benefit is
discernible. Expenditures, which extend the life of the related property or
mitigate or prevent future environmental contamination, are capitalized. The
Company determines and records its liability on a site-by-site basis at the time
when it is probable and can be reasonably estimated. The Company's estimated
liability is recorded net of the anticipated participation of other potentially
responsible parties in those instances where it is probable that such parties
are legally responsible and financially capable of paying their respective
shares of the relevant costs.
INCOME TAXES
Provisions for income taxes are based on taxes payable or refundable for the
current year and deferred taxes on temporary differences between the amount of
taxable income and pretax financial income and between the tax bases of assets
and liabilities and their reported amounts in the financial Statements. Deferred
tax assets and liabilities are included in the financial statements at currently
enacted income tax rates applicable to the period in which the deferred tax
assets and liabilities are expected to be realized or settled as prescribed by
SFAS No. 109,"Accounting for Income Taxes". As changes in tax laws or rates are
enacted, deferred tax assets and liabilities are adjusted through the provision
for income taxes.
COMPREHENSIVE INCOME
SFAS No.130,"Reporting Comprehensive Income" establishes standards for the
reporting and display of comprehensive income and its components in the
financial statements. As of September 30, 2000, the Company has no items that
represent comprehensive income and, therefore, has not included a schedule of
comprehensive income in the accompanying consolidated financial statements.
NET LOSS PER SHARE
The Company uses SFAS No.128, "Earnings Per Share" for calculating the basic and
diluted loss per share. Basic loss per share is computed by dividing net loss
attributable to common stockholders by the weighted average number of common
shares outstanding. Diluted loss per share is computed similar to basic loss per
share except that the denominator is increased to include the number of
additional common shares that would have been outstanding if the potential
common shares had been issued and if the additional common shares were dilutive.
At September 30, 2000, the Company had no potentially dilutive shares.
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NEW ACCOUNTING PRONOUNCEMENT
In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("FAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities.
This statement establishes accounting and reporting standards requiring that
every derivative instrument be recorded on the balance sheet as either an asset
or liability measured at its fair value. FAS No.133 also requires that changes
in the derivative's fair value be recognized currently in earnings unless
specific hedge accounting criteria are met. In June 1999, the FASB issued FAS
no. 137 which defers the effective date of FAS No.133 to fiscal years beginning
after June 15, 2000. The Company will adopt FAS No. 133 in the first quarter of
fiscal 2001, but does not expect such adoption to materially affect its
financial statement presentation.
BASIS OF PRESENTATION
These financial statements have been prepared in accordance with generally
accepted accounting principles for interim financial information. Accordingly,
they do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the opinion
of management, such interim statements reflect all adjustments (consisting of
normal recurring accruals necessary to present fairly the financial position and
the results of operations and cash flows for the interim periods presented. The
results of operations for these interim periods are not necessarily indicative
of the results to be expected for the full year. These financial statements
should be read in conjunction with the audited consolidated financial statements
and footnotes for the year ended December 31, 1999, filed with the Company's
Form 10-KSB.
CONTINGENCIES
The Company is subject to various federal, state and local environmental laws
and regulations. Although Company environmental policies and practices are
designed to ensure compliance with these laws and regulations, future
developments and increasingly stringent regulations could require the Company to
make additional unforeseen environmental expenditures. Environmental accruals
are routinely reviewed on an interim basis as events and developments warrant.
Note 2. Investments
In September 2000, the Company entered into an agreement to increase its
investment in Chaparral by an additional 1,612,903 shares of Chaparral's common
stock for $3,000,000. In October 2000 this amount was paid to Chaparral.
The Company now owns about 14% of Chaparral.
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In January 2000, the Company acquired a 35% interest in Meteor Stores,
Inc.("MSI") and financed an unrelated third party's, (the current President of
MSI),acquisition of the remaining 65% interest in MSI, which is involved in
operating petroleum distribution through convenience stores. The Company paid
$250,000 and issued a note payable in the amount of $1,296,618 for the purchase
of 100% of the issued and outstanding common stock of MSI and in turn received
$215,000, consisting of $50,000 in cash and 132,000 shares of the Company's
common stock and a note receivable in the amount of $860,000 for the sale of 65%
of the issued and outstanding common stock of MSI.
The note payable is collateralized by 100% of the issued and outstanding common
stock of MSI and 210,000 shares of the Company's holdings in Meteor Industries
and the note receivable is collateralized by 65% of the issued and outstanding
common stock of MSI. The sale of the 65% interest was closed in September 2000
with an effective date of January 1, 2000. Since the sale of the 65% ownership
interest is a highly leveraged transaction, the Company will account for the
acquisition using the equity method of accounting.
Note 3. Acquisition
In March 2000, the Company increased its investment in Capco Resources Ltd.
("CRL"), a Canadian publicly traded company from approximately 9.9% to
approximately 81.9% by the issuance of 12,221,558 shares of its common stock.
In July and September 2000, the Company issued an additional 810,858 and 177,334
shares of common stock to shareholders of CRL in exchange for 405,429 and 88,667
shares, respectively, of CRL common stock, increasing its equity ownership of
that company to 87.3%.
Assets acquired $11,568,894
Liabilities acquired $ 1,301,518
Cumulative unrecognized gains $ 7,878,467
Stock Issued $ 2,388,909
Note 4. Settlement of lawsuit
Capco Resources, Ltd. v. GREKA Energy Corporation and Randeep S. Grewal
-----------------------------------------------------------------------
(Case No. 99-8521-R,
U.S. District Court, Central District of California).
In August 1999, CRL filed an action against Greka and Randeep S. Grewal, the
President of Greka, alleging that Greka breached, and Greka and Mr. Grewal made
misrepresentations in connection with, a Stock Exchange Agreement entered into
between Greka, CRL and CRL's affiliates (the "Exchange").
In August 2000, CRL entered into a settlement agreement for Greka to purchase
800,000 shares of Greka for $6.50 per share or $5,200,000 less $500,000, of
liabilities owed to Greka from CRL and affiliates, for a total of $4,700,000.
This sale took place in October 2000.
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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This report contains forward-looking statements within the meaning of Section
27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act
of 1934 that include, among others, statements concerning: the benefits expected
to result from Capco's acquisition of CRL and CRC, including synergies in the
form of increased revenues, decreased expenses and avoiding expenses and
expenditures that are expected to be realized by Capco as a result of the
acquisitions, and other statements of: expectations, anticipations, beliefs,
estimations, projections, and other similar matters that are not historical
facts, including such matters as: future capital, development and exploration
expenditures (including the amount and nature thereof), drilling of wells,
reserve estimates (including estimates of future net revenues associated with
such reserves and the present value of such future net revenues), future
production of oil and gas, repayment of debt, business strategies, and expansion
and growth of business operations.
These statements are based on certain assumptions and analyses made by the
management of Capco in light of: past experience and perception of: historical
trends, current conditions, expected future developments, and other factors that
the management of Capco believes are appropriate under the circumstances.
Capco cautions the reader that these forward-looking statements are subject to
risks and uncertainties, including those associated with: the financial
environment, the regulatory environment, and trend projections, that could cause
actual events or results to differ materially from those expressed or implied by
the statements. Such risks and uncertainties include those risks and
uncertainties identified below. Significant factors that could prevent Capco
from achieving its stated goals include: the failure by Capco to integrate the
respective operations of Capco and its acquisitions or to achieve the synergies
expected from the acquisitions, declines in the market prices for oil and gas,
increase in refined product prices, and adverse changes in the regulatory
environment affecting Capco. The cautionary statements contained or referred to
in this report should be considered in connection with any subsequent written or
oral forward-looking statements that may be issued by Capco or persons acting on
its or their behalf. Capco undertakes no obligation to release publicly any
revisions to any forward-looking statements to reflect events or circumstances
after the date hereof or to reflect the occurrence of unanticipated events.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 2000, the Company had working capital of $6,866,746 compared to
a deficit of $1,849,031 at December 31, 1999. This change in working capital is
principally due to the acquisition of CRL and its investments. The Company
through its subsidiaries has investments in various public companies. The
company believes that its working capital is sufficient for its needs for the
year.
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Cash flows used in operations for the nine months ended September 30, 2000, and
for September 30,1999, were $108,009 and $309,345, respectively. The decrease in
cash used during this period is principally due to the increased loss of the
Company offset by increases in liabilities.
Cash flows used in investing activities for the nine months ended September 30,
2000, were $751,852 compared to $566,088 in the prior year. This change is
principally due to the acquisition of oil and gas properties and investments in
closely held businesses, reduced by proceeds from the sale of investments during
the current period.
Cash flows provided by financing activities for the nine months ended September
30, 2000, were $826,911 compared to $892,229 in the prior year. This increase is
principally due to an increase in borrowings on long-term debt, payments on long
term debt and a reduction in proceeds from the sale of common stock during the
current period.
Capco sells most of its oil production to certain major oil companies. However,
in the event these purchasers discontinued oil purchases, Capco has made contact
with other purchasers who would purchase the oil. The Company is responsible for
any contamination of land it owns or leases. However, the company may have
limitations on any potential contamination liabilities due to state
reimbursement programs.
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO SEPTEMBER 30, 1999
Capco's revenues from its oil and gas activities were $1,061,528 in 2000
compared to $26,841 in 1999. This increase is primarily due to production from
properties acquired during the period December 1999 to March 2000. Capco's costs
of sales were $394,022 in 2000 compared to $3,670 in 1999. This increase is
primarily due to increased production from the properties acquired in 1999 and
2000. Selling, general and administrative costs were $1,219,113 in 2000 compared
to $133,470 in 1999. This increase is primarily related to increased activities.
Total other income (expense) was $681,046 in 2000 compared to $18,232 in 1999,
principally due to gain on sale of assets offset by increased interest expense
due to borrowings.
Net operating revenues from Capco's oil and gas production are very sensitive to
changes in the price of oil; thus it is difficult for management to predict
whether or not the Company will be profitable in the future.
THREE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO SEPTEMBER 30, 1999
Capco's revenues from its oil and gas activities were $435,655 in 2000 compared
to $15,392 in 1999. This revenue is primarily due to production from properties
during the period December 1999 to March 2000. Capco's costs of sales were
$171,043 in 2000 compared to $506 in 1999. This increase is primarily due to
increased production from the properties acquired in 1999 and 2000. Selling,
general and administrative costs were $390,756 in 2000 compared to $78,617 in
1999. This increase is primarily related to increased activities. Total other
income (expense) was $464,527 in 2000 compared to $9,038 in 1999, principally
due to gain on sale of assets offset by increased interest expense due to
borrowings.
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Net operating revenues from Capco's oil and gas production are very sensitive to
changes in the price of oil; thus it is difficult for management to predict
whether or not the Company will be profitable in the future.
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
that Capco receives for its oil and gas is set by market forces beyond Capco's
control. That uncertainty oil and gas prices makes it more difficult for a
company like Capco to increase its oil and gas asset bases and become a
significant participant in the oil and gas industry.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
The Greka lawsuit as previously disclosed has been settled.
Item 2. Changes in Securities.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
Exhibit
Number Description
------- ------------
27 Financial Data Schedule (filed herewith)
(b) Reports on Form 8-K
Current Report on Form 8-K dated July 19, 2000, which reported events
under Item 4, Changes in Registrant's Certifying Accountants; and Item 7,
Financial Statements, Pro Forma Financial Information and Exhibits.
Current Report on Form 8-K dated August 31, 2000, which reported
events under Item 5, Other Events.
Current Report on Form 8-K dated September 14, 2000, which reported
events under Item 5, Other Events.
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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: November 20, 2000 By: /s/ Dennis R. Staal
-----------------------------
Dennis R. Staal, Chief Financial and
Accounting Officer
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