SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
For the fiscal year ended DECEMBER 31, 1999
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. 0-10157
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 (I.R.S. Employer Identification No.)
Incorporation or Organization)
2922 East Chapman, Suite 202
Orange, California 92869
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(Address of Principal Executive Office, Including Zip Code)
Registrant's telephone number including area code: (714) 288-8230
Securities registered pursuant to Section 12(b) of the Act: None.
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK,$.001 PAR VALUE
----------------------------
Title of Class
Indicate by check mark whether the registrant (1) has filed all reports required
to have filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934
during the preceding 12 months or for such shorter period that the registrant
was required to file such reports and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
As of September 30, 2000, 22,393,646 shares of common stock were outstanding.
The aggregate market value of the common stock of the Registrant held by
nonaffiliates on that date was approximately $5,200,000.
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State Issuer's revenues for its most recent fiscal year: $89,962
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-KSB is not contained herein, and will not be contained, to the
best of 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. X
DOCUMENTS INCORPORATED BY REFERENCE: See pages 17 to 18.
This Form 10-KSB consists of 66 pages including exhibits. The Exhibit Index
appears on page 20.
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PART I
ITEM 1. BUSINESS
GENERAL DEVELOPMENT OF BUSINESS.
Capco Energy, Inc. ("Capco" or the "Company"), with its mailing address at 2922
East Chapman, Suite 202, Orange, California 92869, telephone number (714)
288-8230, was incorporated as Alfa Resources, Inc. a Colorado corporation on
January 6, 1981. Capco was organized for the purpose of engaging in oil and gas
exploration, development and production activities.
Effective December, 1999, Capco closed on the acquisition of 100% of Capco
Resource Corporation ("CRC"), a corporation involved in oil and gas production.
Based on the ownership of the respective companies at the time of this
acquisition it was determined that a change in control had occurred and
accordingly, the transaction has been considered a reverse acquisition for
accounting. The historical accounts of CRC are reflected in the financial
statements for the period beginning with January 19, 1999 the inception date of
CRC, at cost. The assets of Capco are also included at cost because of the
significant influence over the Company exercised by the shareholders of CRC.
Information for Capco is included since December 31, 1999, the effective closing
date of the acquisition.
Prior to Capco acquiring CRC, CRC acquired for the issuance of 5,250,000 shares
of its common stock certain assets and assumed certain liabilities from Capco
Acquisub, Inc. ("Capcoacq"), a privately held company, which became the majority
stockholder of CRC from the issuance of these shares. Due to the fact that
Capcoacq became the majority stockholder of the Company after this transaction,
the assets and liabilities have been recorded at their historical costs, as
follows:
(i) working interests in oil and gas property located in Lamar County Alabama,
at a historical cost of $377,928;
(ii) title to 25 acres of undeveloped land, held for speculative purposes,
located in Santa Maria County, California, at a historical cost of $301,610;
(iii) title to 160 acres of undeveloped land, held for speculative purposes,
located in Calgary, Canada, at a historical cost of $211,000;
(iv) a 9.9% interest, or 927,821 shares of common stock, in Capco Resources
Ltd. ("CRL") a Canadian publicly held company, at a historical cost of $138,542;
(v) promissory note collateralized by land in Santa Maria, California, in the
amount of $226,481;
(vi) payable to Capcoacq in the amount of $433,881
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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.
In February 2000, the Company completed its acquisition of 80% interest of the
issued and outstanding common stock of Zelcom Industries, Inc., a company
involved in Internet applications. The Company will account for the investment
under the equity method of accounting, as the Company's intent is to reduce its
ownership to below 50% by the end of the fourth quarter of 2000.
In March 2000, the Company increased its investment in CRL 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: i) 1,290,000 shares of common stock, or approximately 30% interest, of
Greka Energy Corporation ("Greka"), which is in the business of oil and gas
production in the United States and Colombia, 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 400,000 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 2000, the Company issued an additional 810,858 shares of common stock to
shareholders of CRL in exchange for 405,429 shares of CRL common stock,
increasing its equity ownership of that company to 86.6%.
NARRATIVE DESCRIPTION OF BUSINESS
GENERAL
Capco is engaged in the business of producing and selling crude oil and natural
gas in the United States and managing its investments.
PROPERTY ACQUISITION AND SALES
Capco attempts to acquire developed and undeveloped oil and gas properties
through the acquisition of leases and other mineral interests or through the
acquisition of companies.
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EQUIPMENT, PRODUCTS AND RAW MATERIALS
Capco owns no drilling rigs and has done no drilling for several years.
Capco's principal products are crude oil and natural gas. Crude oil and natural
gas are sold to various purchasers including pipeline companies which service
the areas in which Capco's producing wells are located. Capco's business is
seasonal in nature, to the extent that weather conditions at certain times of
the year may affect its access to oil and gas properties and the demand for
natural gas.
The existence of commercial oil and gas reserves is essential to the ultimate
realization of value from properties, and thus may be considered a raw material
essential to Capco's business.
4
The acquisition, exploration, development, production and sale of oil and gas
is subject to many factors which are outside Capco's control. These factors
include national and international economic conditions, availability of drilling
rigs, casing, pipe and other fuels, and the regulation of prices, production,
transportation, and marketing by federal and state governmental authorities.
Capco acquires oil and gas properties from landowners, other owners of interests
in such properties, or governmental entities. For information relating to
specific properties of Capco see Item 2. Capco currently is not experiencing any
difficulty in acquiring necessary supplies or services as long as Capco can pay
for the services and supplies nor is it experiencing any difficulty selling its
products.
COMPETITION
The oil and gas business is highly competitive. Capco's competitors include
major companies, independents and individual producers and operators. Many of
Capco's numerous competitors throughout the country are larger and have
substantially greater financial resources than Capco. Oil and gas, as a source
of energy, must compete with other sources of energy such as coal, nuclear
power, synthetic fuels and other forms of alternate energy. Domestic oil and gas
must also compete with foreign sources of oil and gas, the supply and
availability of which have at times depressed domestic prices. Capco has an
insignificant competitive position in the oil and gas industry. The general
economic conditions in the United States and the recession in theoil and gas
industry during the past several years have intensified the search for capital
necessary for participation in the oil and gas business. This shortage of
capital has had the effect of curtailing the operations of many smaller
independent companies with limited resources, including Capco.
GOVERNMENTAL AND ENVIRONMENTAL LAWS
Capco's activities are subject to extensive federal, state and local laws and
regulations controlling not only the exploration for oil and gas, but also the
possible effect of such activities upon the environment. Existing as well as
future legislation and regulations could cause additional expense, capital
expenditures, restrictions and delays in the development of properties, the
extent of which cannot be predicted. Since inception, Capco has not made any
material expenditures for environmental control facilities and does not expect
to make any material expenditures during the current and following fiscal year.
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EMPLOYEES
Capco employs approximately 7 people, none of whom are represented by any
collective bargaining organizations. Management considers its employee relations
to be satisfactory at the present time.
ITEM 2. PROPERTIES
OFFICE FACILITIES. Capco's principal offices are located at 2922 East Chapman
Ave., Suite 202, Orange, California 92869.
OIL AND GAS PROPERTIES. Capco holds interests in producing oil and gas
leaseholds as of December 31, 1999, as follows:
Producing Properties Non-Producing Properties
-------------------- ------------------------
Gross Net Gross Net
State Acres Acres Acres Acres
----- ---- ----- ----- -----
Kansas 1,120 356 26,180 8,325
Alabama 320 88 -- --
Louisiana 640 160 280 280
Total 2,080 604 26,460 8,605
Net acres represent the gross acres in a lease or leases multiplied by Capco's
working interest in such lease or leases.
PROVED DEVELOPED AND PROVED UNDEVELOPED RESERVES. The following table sets forth
the proved developed and proved undeveloped oil or gas reserves accumulated by
Capco, for the fiscal period ended December 31, 1999, May 31, 1999, and May 31,
1998. The reserve reports for the fiscal period ended December 31, 1999 were
prepared by management and reviewed by independent engineers. The reserve
estimates (and related values) for the fiscal years ended May 31, 1999 and 1998
were prepared by management.
All such reserves are located in the continental United States.
December 31,1999 May 31, 1999 May 31,1998
---------------- ------------ -------------
Oil Gas Oil Gas Oil Gas
(Bbls) (MCF) (Bbls) (MCF) (Bbls) (MCF)
Proved Developed
Reserves 587,807 281,871 1,275 0 4,206 0
Proved Undevel-
oped Reserves 299,346 0 0 0 0 0
Total Reserves 887,553 281,871 1,275 0 4,206 0
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No major discovery or other favorable or adverse event has occurred since
December 31, 1999, which is believed to have caused a material change in the
proved reserves of Capco.
RESERVES REPORTED TO OTHER AGENCIES. There have been no reserve estimates filed
with any other United States federal authority or agency.
NET OIL AND GAS PRODUCTION. The following table sets forth the net quantities of
oil (including condensate and natural gas liquids) and gas produced during the
fiscal period ended December 31, 1999, May 31, 1999, and May 31, 1998.
December 1999 May 31, 1999 May 31, 1998
------------- ------------ ------------
Oil (Bbls) 16,375 1,241 1,357
Gas (MCF) 25,572 352 519
The following table sets forth the average sales price and production cost per
unit of production for the fiscal periods ended December 31, 1999, May 31,1999,
and May 31, 1998.
December 31, 1999 May 31, 1999 May 31, 1998
----------------- ------------ ------------
Average Sales Price: Per
Equivalent Barrel of Oil $29.06 $11.59 $16.73
Average Production (Lifting)
Costs: Per Equivalent
Barrel of Oil $ 9.62 $ 9.78 $16.12
During the periods covered by the foregoing tables, Capco was not a party to any
long-term supply or similar agreements with foreign governments or authorities
in which Capco acted as a producer.
PRODUCTIVE WELLS. The following table sets forth Capco's total gross and net
productive oil and gas wells as of December 31, 1999:
PRODUCTIVE WELLS(1).
OIL GAS
--------------------- ------------------------
State Gross(2) Net(3) Gross(2) Net(3)
----- -------- ------ -------- ------
Kansas 42 7.1 -- --
Alabama -- -- 2 .6
Louisiana 2 .5 -- --
Total 44 7.6 2 .6
(1) Productive wells are producing wells and wells capable of production
including wells that are shut in.
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(2) A gross well is a well in which a working interest is owned. The number of
wells is the total number of wells in which a working interest is owned.
(3) A net well is deemed to exist when the sum of fractional ownership working
interests owned in gross wells equals one. The number of net wells is the sum of
the fractional ownership working interests owned in gross wells expressed in
whole numbers and fractions thereof.
UNDEVELOPED PROPERTIES. Capco had no significant interest as of December 31,
1999 in undeveloped properties.
Capco's oil and gas properties are in the form of mineral leases. As is
customary in the oil and gas industry, a preliminary investigation of title is
made at the time of acquisition of undeveloped properties. Title investigations
are generally completed, however, before commencement of drilling operations.
Capco believes that its methods of investigating are consistent with practices
customary in the industry and that it has generally satisfactory title to the
leases covering its proved reserves.
DRILLING ACTIVITY. Capco drilled no productive or dry exploratory and
development wells during the fiscal periods ended December 31, 1999, May 31,
1999 or 1998.
DELIVERY COMMITMENTS. Capco is not obligated to provide a fixed and determinable
quantity of oil and gas in the future pursuant to existing contracts or
agreements.
ITEM 3. LEGAL PROCEEDINGS.
In August, 2000, CRL entered into a settlement agreement with Greka Energy
Corporation to sell 800,000 shares of Greka common stock to Greka at a
negotiated price of $6.50 per share. The negotiated price will be reduced by
$500,000 as settlement of all its outstanding debts owed to Greka and dismissal
of the related litigation. The closing of the sale of the shares occurred on
October 30, 2000.
Of the remaining 490,000 shares of GREKA common stock previously issued to Capco
in connection with GREKA's acquisition of Saba Petroleum Company, GREKA will be
given voting control over those shares owned by CRL through December 31, 2002.
The settlement agreement further provides that CRL's continued ownership of
75,000 of these shares is contingent upon CRL's full payment of margin debt
related to those shares. CRL agreed to pay this debt, using the proceeds from
the sale of the Greka shares to Greka, and made that payment on October 30,
2000.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
During the fourth quarter of the fiscal year covered by this Annual Report, no
matter was submitted to a vote of Capco's security holders through the
solicitation of proxies or otherwise.
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PART II
ITEM 5. MARKET FOR CAPCO'S COMMON EQUITY AND RELATED SECURITY HOLDER
MATTERS.
PRICE RANGE OF COMMON STOCK
The Common Stock of Capco has been traded on the Bulletin Board since June,
2000. The following table sets forth the high and low bid prices of the Common
Stock in the over-the-counter market for the periods indicated. The bid prices
represent prices between dealers, and do not include retail markups, markdowns
or commissions, and may not represent actual transactions. Public trading in the
Common Stock of Capco is minimal.
Quarter Ended Bid High Bid Low
------------- -------- -------
March 31, 1998 No Bid No Bid
June 30, 1998 No Bid No Bid
September 30, 1998 No Bid No Bid
December 31, 1998 No Bid No Bid
March 31, 1999 No Bid No Bid
June 30, 1999 No Bid No Bid
September 30, 1999 No Bid No Bid
December 31, 1999 No Bid No Bid
March 31, 2000 No Bid No Bid
June 30, 2000 No Bid No Bid
September 30, 2000 $1.25 $ .56
The number of record holders of Common Stock of Capco as of September 30, 2000,
was approximately 550. Additional holders of Capco's Common Stock hold such
stock in street name with various brokerage firms.
Holders of Common Stock are entitled to receive dividends as may be declared by
the Board of Directors out of funds legally available. No common stock dividends
have been declared to date by Capco, nor does Capco anticipate declaring and
paying common stock cash dividends in the foreseeable future.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
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 CRC, CRL and Zelcom. 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.
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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
In December 31, 1999, the company had a negative working capital of
($1,833,222). This negative working capital is principally due to the
acquisition for property with short-term debt. Cash flows used in operations for
the period ended December 31,1999 were $518,768. Cash used during this period is
principally due to the net operating loss and to increased activity of the
company.
Cash flows used in investing activities for the period ended December 31, 1999,
were $1,513,798. This use is principally due to the acquisition of oil and gas
properties.
Cash flows provided by financing activities for the period ended December 31,
1999 were $2,097,249. This source is principally due to the sale of stock and
borrowings.
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.
The company plans to continue to sell its marketable securities and to use the
proceeds to invest in oil and gas production. The company also plans to reduce
its ownership in its other subsidiaries and use the proceeds to invest in oil
and gas production.
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RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1999
Capco's revenues from its oil and gas activities were $89,962 in 1999. This
revenue is primarily due to production from properties acquired this fiscal
year. Selling, general and administrative costs were $431,360 related to
increased activities. Total other expense was $45,870 principally due to
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.
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 produced by Capco
fluctuated significantly during the last year. Changes in the price that Capco
receives for its oil and gas is set by market forces beyond Capco's control as
well as governmental intervention. The volatility and uncertainty in oil and gas
prices have made it more difficult for a company like Capco to increase its oil
and gas asset base and become a significant participant in the oil and gas
industry. Continued volatility or downward price pressure could cause the
Company to cease operations.
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Included at Pages F-1 through F-24 hereof.
ITEM 8. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
No response required
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PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Below are the names of all Directors and Executive Officers of the Company,
all positions and offices with the Company held by each such person, the period
during which he has served as such, and the principal occupations and employment
of such persons during at least the last three years:
NAME: POSITIONS: Period Served:
---- --------- -------------
Ilyas Chaudhary Director, President, CEO November 18,1999 to Present
Dennis R. Staal Director, CFO February 24,1999 to Present
Irwin Kaufman Director November 18,1999 to Present
William J. Hickey Director November 18,1999 to Present
Paul L. Hayes Director July 19, 2000 to Present
Gene E. Hays Secretary June 5, 2000 to Present
ILYAS CHAUDHARY - Mr. Chaudhary, 52, has been CEO, President and Director of the
Company since November 1999. He was an officer and a director of Saba Petroleum
Company, (now Greka Energy Corporation) a publicly held oil and gas company from
1985 until 1998. Mr. Chaudhary is a director of Meteor Industries, Inc. an
S.E.C. reporting company, and Capco Resources Ltd., a Canadian publicly held
company. Mr. Chaudhary has 25 years of experience in various capacities in the
oil and gas industry, including eight years of employment with Schlumberger Well
Services from 1972 to 1979. Mr. Chaudhary received a Bachelor of Science degree
in Electrical Engineering from the University of Alberta, Canada.
DENNIS R. STAAL - Mr. Staal, 51, has over 25 years of experience in various
capacities in the finance industry. He has been CFO and Director since March
2000. From 1970 through 1973, he was a CPA with Arthur Andersen & Co. From 1973
through 1976, he was Controller for the Health Planning Council of Omaha. From
1977 through 1981, he served as a Director of Wulf Oil Corporation and as
President of such company from 1979 to 1981. From 1979 through 1982, he served
as a Director of Chadron Energy Corporation, and as Director of the First
National Bank of Chadron.
From 1982 through 1984, he was Chief Financial Officer of High Plains Genetics,
Inc. From 1986 to 1991, Mr. Staal was Director and President of Saba Petroleum
Company. From 1993 to 1999 Mr. Staal was Chief Financial Officer of Meteor
Industries, Inc. Mr. Staal received his Bachelor's degree in Business
Administration from the University of Nebraska. Mr. Staal is a director of
Meteor Industries, Inc. and Stansbury Holdings Corporation both public reporting
companies.
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IRWIN KAUFMAN - Mr. Kaufman, 63, has been a director of the Company since
November 1999. Mr. Kaufman is a financial consultant facilitating contacts with
the investment community. Mr. Kaufman helps arrange financing for small and
mid-sized companies and consults with management to enhance shareholder value.
Mr. Kaufman has also been a principal consultant for Computer and Mathematics
Education for the Sherman Fairchild Foundation. Mr. Kaufman provides consulting
services to the Company on an as needed basis. Mr. Kaufman also serves as a
director for Meteor Industries, Inc.
WILLIAM J. HICKEY - Mr. Hickey, 63, has been a director since November 1999.
Prior to joining the Company, he was a director, secretary, and legal advisor to
Saba Petroleum. Earlier, he was a Vice President, and General Counsel to Litton
Industries Inc. and Consolidated Freightways Inc. In addition, he has been a
Division Legal Counsel to the General Electric Company. Mr. Hickey received his
Doctorate in Law from Cornell University and attended the Harvard Business
School's Executive Management Program.
PAUL L. HAYES - Mr. Hayes, 64, has over twenty years experience in the
securities industry. He has been an investment banker, analyst and research
director. His undergraduate degree is a B.S. in Petroleum Engineering from
Oklahoma University and his graduate degree is an M.B.A from Harvard University.
GENE E. HAYS, JD - Mr. Hays, 29, has served as the Secretary of the Company
since June, 2000 and works in the Legal Department where he maintains the
company's corporate records, SEC filings, contracts and relations with the
company's shareholders. Prior to joining Capco, Mr. Hays worked in civil law,
both in the public interest and private sectors. From 1996 to 1998, Mr. Hays
worked for the Fair Housing Council of Orange County as a Certified Mediator,
and on real property issues. During the years 1998 and 1999, Mr. Hays worked for
Hall, Rice & Associates, APC, on contract matters, and at the Law Offices of
Steven Weinberger on both contract and tort matters.
Mr. Hays obtained his Bachelor of Arts Degree in Government from the University
of Redlands, his Juris Doctor Degree from Western State University College of
Law, and is certified by the State of California as a mediator.
There is no family relationship between any Director or Executive Officer of the
Company.
ITEM 10. EXECUTIVE COMPENSATION
The Company's compensation program for executive officers is based on the
following principles:
Compensation should be reflective of overall Company financial
performance and an individual's contribution to the Company's success.
Compensation packages should be based on competitive practices designed
to attract and retain highly qualified executive officers.
Long-term incentive compensation should be construed to closely follow
increases in stockholder return.
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Cash bonuses and stock options are provided on a discretionary basis but
the amount of options issued are generally tied to the performance and prospects
of the Company. Individual executive officers and managers can earn a portion of
their cash and option bonuses based on financial performance of the Company
compared to budget and additional bonuses are paid at the discretion of the
compensation committee and approved by the Board of Directors.
The following table sets forth each executive officer of the Company,
with his/her respective compensation arrangement.
EXECUTIVE OTHER
EXECUTIVE SALARY BONUS EQUITIES BENEFITS
--------- ------ ----- --------- ---------
Ilyas Chaudhary $200,000 None 200,000 Medical/Vehicle
Dennis Staal $150,000 None 200,000 Medical
Gene E. Hays $45,000 None 50,000 Medical
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the number and percentage of shares of the
Company's $.001 par value common stock owned beneficially, as of September 30,
2000, by any person, who is known to the Company to be the beneficial owner of
5% or more of such common stock, and, in addition, by each Director of the
Company, Nominee for Director, and by all Directors, Nominees for Director and
Executive Officers of the Company as a group. Information as to beneficial
ownership is based upon statements furnished to the Company by such persons.
*Note: Please see below explanations of subscripts beside each beneficial owner
(1-5).
NAME AND ADDRESS OF AMOUNT OF BENEFICIAL PERCENTAGE OF
BENEFICIAL OWNER OWNERSHIP CLASS
------------------ -------------------- -------------
Bushra Chaudhary (1)
10441 Villa del Cerro
Santa Ana, CA 92805 3,171,079 14.2%
Ilyas Chaudhary (2)
10441 Villa del Cerro
Santa Ana, CA 92805 4,026,580 18.1%
Danyal Chaudhary Foundation (3)
2922 E. Chapman Ave.,
Suite #202
Orange, CA 92869 5,375,500 24.1%
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NAME AND ADDRESS OF AMOUNT OF BENEFICIAL PERCENTAGE OF
BENEFICIAL OWNER OWNERSHIP CLASS
------------------ -------------------- -------------
Nova International Corporation
3834 Mira Loma Drive
Santa Maria, CA 93455 1,534,308 6.9%
Faisal Chaudhary (4)
10441 Villa del Cerro
Santa Ana, CA 92805 3,313,079 14.9%
Dennis Staal
1975 Otero Lane
Littleton, CO 80122 131,348 .6%
William J. Hickey (5)
505 Saturmino Drive
Palm Springs, CA 92262 17,958 .1%
Paul L. Hayes Jr.
209 Middle Ridge Road
Stratton Mountain, VT 05155 0 0%
Irwin Kaufman
8224 Paseo Vista Drive
Las Vegas, NV 89128 17,500 .1%
Gene E. Hays
3603 W. 11th Street
Inglewood, CA 90303 0 0%
All Executive Officers
And Directors as a Group 4,193,386 18.8%
(6 persons)
(1)Includes 3,171,079 restricted common shares held by Bushra Chaudhary, the
wife of the CEO and Chairman of the company, who claims no beneficial ownership
of those shares.
Consists of 16,100 controlled common shares held directly by Mr. Chaudhary and
4,010,480 shares of the Company held by Sedco, Inc., a private holding company
of which Mr. Chaudhary is Chairman of the Board, Chief Executive Officer and
beneficially owns 100% of Sedco, Inc. outstanding stock.
(2) Includes 5,375,500 common shares held by the Danyal Chaudhary Foundation, a
California non-profit organization in which the trustees are Bushra Chaudhary,
Faisal Chaudhary, and Ilyas Chaudhary, who claims no beneficial ownership of
these shares.
(4) Represents 3,313,079 restricted common shares held by Faisal Chaudhary, the
adult son of the CEO of the Company, who claims no beneficial ownership of those
shares.
(5) Includes 17,958 restricted common shares held directly by Shirley C. Spear,
the wife of Mr. William J. Hickey.
15
<PAGE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
No Director or officer of Capco Energy, Inc., nominee for election as a
Director, security holder who is known to the Company to own of record or
beneficially more than 5% of any class of the Company's voting securities, or
any relative or spouse of any of the foregoing persons, or any relative of such
spouse, who has the same home as such person or who is a Director or officer of
any parent or subsidiary of Capco Energy, Inc., has had any transaction or
series of transactions exceeding $60,000 during the Company's past two fiscal
years, or has any presently proposed transactions to which Capco was or is a
party, in which any of such persons had or is to have direct or indirect
material interest.
TRANSACTIONS INVOLVING THE COMPANY'S OFFICERS AND DIRECTORS
Effective January 2000, the Company completed the purchase of 35% Meteor
Stores, Inc. (MSI).
MSI leases and operates seventeen convenience stores in Colorado and New
Mexico.
The total purchase price for MSI was approximately $1,500,000. $250,000 was
paid in cash at closing. The company executed a promissory note for the balance
payable in monthly installments of interest only during calendar year 2000 and
the balance amortized over a 10-year period with a balloon payment of the
remaining principal balance on December 31, 2001. Payments may be made either in
cash or shares of Meteors Common stock at a value of $3.00 per share. The
promissory note bears interest at 9.25% per annum and is secured by all of the
outstanding shares of MSI and by 210,000 shares of Meteor Industries, Inc.
(METR) common stock.
Capco, through one of its investments, currently controls approximately 33%
of the Common Stock of METR. Ilyas Chaudhary, a CEO and Director of the Company,
is a director of METR, Dennis Staal, CFO and a Director of the Company, is also
a director of METR. Irwin Kaufman, a Director of the Company, is also a director
of METR.
During the year ended December 31, 1999, the company had several
transactions with various companies controlled by its CEO and major shareholder.
Those transactions related to payables included the purchase of land,
receivables, stock in subsidiaries and other miscellaneous items. Those
transactions related to receivables include advances of cash and payments on
behalf of those companies. At December 31, 1999, those companies owed Capco
$16,691.
16
<PAGE>
PART IV
ITEM 13. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
Documents filed as part of this Report:
(1) The following Financial Statements are filed as part of this Report:
Page
Independent Auditor's Report, October 30, 2000 F-1
Consolidated Balance Sheet, December 31, 1999 F-2
Consolidated Statement of Operations for the
period ended December 31, 1999 F-4
Consolidated Statement of Changes in Stockholders'
Equity for the period ended December 31, 1999 F-5
Consolidated Statement of Cash Flows for the
period ended December 31, 1999 F-6
Notes to Consolidated Financial Statements F-8
EXHIBITS
Exhibit
Number Description Location
------- -------------------------- ------------------------------------
2 Not applicable
3.1 Articles of Incorporation (incorporated by reference to
and bylaws Exhibits 4 and 5, respectively,
to Registration Statement
No. 2-73529).
3.2 Articles of Amendment (incorporated by reference to
the company's Form 10-K filed
May 31, 1984)
3.3 Articles of Amendment (incorporated by reference to
the company's Form 10-K filed
May 31, 1985)
3.4 Articles of Amendment (incorporated by reference to
the Company's Form 10-QSB filed
January 19, 2000)
17
<PAGE>
Exhibit
Number Description Location
------- -------------------------- ------------------------------------
4. Instruments Defining the (incorporated by reference to
Rights of Security Holders, Exhibits 4 and 5, respectively,
Including Indentures to Registration Statement
No. 2-73529).
9. Not applicable
10.1 1999 Incentive Equity Plan (incorporated by reference to the
Company's definite proxy statement
filed December 2, 1999)
10.2 Stock Exchange Agreement
between the Company and
Sedco related to Capco
Resource Corporation Filed herewith electronically
10.3 Purchase Agreement related to
Meteor Stores, Inc. Filed herewith electronically
10.4 Sale Agreement related to
Meteor Stores, Inc. Filed herewith electronically
13. Not applicable
16.1 Letter on Change of (incorporated by reference to
Accountants the company's Form 8-K filed
July 28, 2000)
16.2 Letter on Change of (incorporated by reference to the
Accountants company's form 8-K filed October 20,
2000)
18. Not applicable
21. List of Subsidiaries Filed herewith electronically
23. Not applicable
24. Not applicable
25. Not applicable
27. Financial Data Schedule Filed herewith electronically
18
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this Report to be signed on its
behalf by the undersigned thereunto duly authorized.
CAPCO ENERGY, INC.
/s/ Ilyas Chaudhary
Dated: November 2, 2000 By ----------------------
Ilyas Chaudhary, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the date indicated.
/s/ Ilyas Chaudhary
Dated: November 2, 2000 By -----------------------
Ilyas Chaudhary, President
and Director
/s/ Dennis R. Staal
Dated: November 2, 2000 By ------------------------
Dennis R. Staal, Chief Financial
Officer and Director
/s/ Irwin Kaufman
Dated: November 2, 2000 By ----------------------------
Irwin Kaufman, Director
19
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Capco Energy, Inc.
Orange, California
We have audited the consolidated balance sheet of Capco Energy, Inc. (formerly
Alfa Resources, Inc.) and subsidiary (a Colorado corporation), as of December
31, 1999 and the related consolidated statements of operations, stockholders'
equity and cash flows for the period from January 19, 1999 (inception) to
December 31, 1999. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audit.
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 consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Capco
Energy, Inc. and subsidiary, as of December 31, 1999, and the consolidated
results of operations and consolidated cash flows for the period from January
19, 1999 (inception) to December 31, 1999 in conformity with generally accepted
accounting principles.
/s/ Stonefield Josephson, Inc.
Stonefield Josephson, Inc.
October 30, 2000
F-1
<PAGE>
CAPCO ENERGY, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1999
ASSETS
Current Assets:
Cash $ 64,683
Accounts Receivables, net 73,624
Accounts Receivables, related parties 16,691
-----------
Total Current Assets 154,998
-----------
Property and Equipment, net 3,095,586
-----------
Other Assets:
Investments 142,653
Other Assets 21,228
-----------
Total Assets $ 3,414,465
===========
See accompanying independent auditors' report and notes to the consolidated
financial statements.
F-2
<PAGE>
CAPCO ENERGY, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1999
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts Payable and accrued expenses $ 209,024
Current Maturities, Long Term Debt 1,795,005
-----------
Total Current Liabilities 2,004,029
-----------
Long Term Debt, Less Current Maturities 184,198
Commitments and Contingencies (Note 6)
Total Liabilities 2,188,227
-----------
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;
8,322,030 Shares issued and outstanding 8,322
Additional Paid-In Capital 1,332,392
Accumulated Deficit (407,423)
-----------
Total Stockholders' Equity 1,226,238
-----------
Total Liabilities and Stockholders' Equity $ 3,414,465
===========
See accompanying independent auditors' report and notes to the consolidated
financial statements.
F-3
<PAGE>
CAPCO ENERGY, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS
For the Period from January 19, 1999 (Inception) to December 31, 1999
Sales $ 89,962
Cost of Sales 20,155
-----------
Gross Profit 69,807
Selling, General and Administrative
Expenses 431,360
-----------
Loss from Operations (361,553)
Interest Expense, net (45,870)
-----------
Net Loss $ (407,423)
===========
(Loss) per Share
Basic and Diluted $ (0.07)
===========
Weighted Average Shares Outstanding
Basic and Diluted 5,745,732
See accompanying independent auditors' report and notes to the consolidated
financial statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
CAPCO ENERGY, INC. AND SUBSIDIARY
Consolidated Statement of Stockholders' Equity
For the Period from January 19, 1999 (inception) to December 31, 1999
Preferred Stock Common Stock Additional
----------------- ------------------ Paid In Accumulated
Shares Amount Shares Amount Capital Deficit Total
-------- -------- --------- ------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January
19, 1999 - $ - - $ - $ - $ - $ -
Shares Issued
in exchange
for property and
investment 5,250,000 5,250 363,468 368,718
Shares issued in
exchange for relief
of liability 717,500 717 409,283 410,000
Net proceeds from
issuance of common
stock 997,500 998 561,608 562,606
Shares issued in
exchange for
reverse acquisition 292,947 292,947 1,357,030 1,357 687,226 981,530
Related parties
Accounts
Receivable (689,193) (689,193)
Net loss (407,423) (407,423)
-------- -------- --------- ------ ---------- ---------- ---------
Balance, December
31, 1999 292,947 $292,947 8,322,030 $8,322 $1,332,392 $(407,423) $1,226,238
======== ======== ========= ====== ========== ========== ==========
</TABLE>
See accompanying independent auditors' report and notes to the consolidated
financial statements.
F-5
<PAGE>
CAPCO ENERGY, INC AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
For the Period from Inception January 19, 1999 to December 31, 1999
Cash Flows Used In Operating Activities:
Net Loss $ (407,423)
Adjustments to reconcile net loss
to net cash used in operating activities
Depreciation, depletion and amortization 25,475
Changes in Assets and Liabilities:
(Increase) decrease in assets:
Accounts Receivable (73,624)
Other Assets (21,228)
Increase (decrease) in liabilities:
Accounts payable and accrued expenses 129,322
-------------
Net cash used in operating activities (347,478)
-------------
Cash Flows from Investing Activities:
Acquisition 72,210
Net advances Accounts Receivables,
related parties 262,741
Purchase of Property and Equipment (1,582,046)
Investments ( 4,112)
-------------
Net cash used in investing activities (1,251,207)
-------------
Cash Flows from Financing Activities:
Proceeds from Long-Term Debt 1,554,129
Payment on long term debt (453,367)
Proceeds from sale of common stock 562,606
-------------
Net cash provided
by financing activities 1,663,368
-------------
Net Increase in Cash 64,683
Cash, Beginning of Period -
------------
Cash, End of Period $ 64,683
=============
Continued on Next Page
F-6
<PAGE>
CAPCO ENERGY, INC AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
For the Period from January 19, 1999 (inception) to December 31, 1999
Supplemental disclosure of cash flow information:
Interest Paid $ 45,582
========
Supplemental Disclosure of non-cash financing and investing activities:
Common stock issued in exchange for subsidiary (see Note 2) $981,530
========
Commons stock issued for relief of liability $410,000
========
Note payable issued in exchange for automobile $ 18,079
========
Common stock issued in exchange for following (see Note 2):
Interest in oil and gas properties $377,928
Undeveloped land 512,610
Investment 138,542
Debt assumed (660,362)
--------
Net assets acquired $368,718
========
See accompanying independent auditors' report and notes to the consolidated
financial statements.
F-7
<PAGE>
CAPCO ENERGY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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") (See Note 2) a corporation involved
in oil and gas production. As a result, CRC's former stockholders 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.
BASIS OF CONSOLIDATION
The consolidated financial statements include the accounts of Capco and its
wholly owned subsidiary CRC. 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 (Supplemental Oil and Gas Disclosures).
F-8
<PAGE>
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 interest rates and terms offered to the Company are at current market
rates.
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 of
oil 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.
F-9
<PAGE>
DEPRECIATION AND DEPLETION
The provision for depreciation, depletion, and amortization 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. If the Company produces oil in other countries, this calculation is
done on a country-by-country basis for those countries with oil and gas
production. As of December 31, 1999, the Company only operates in the United
States. 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 amortized. 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 December 31, 1999.
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,
depletion, and amortization 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
F-10
<PAGE>
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 hold 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. 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 reported 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 the
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 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 fair value of asset less cost to sell.
REVENUE RECOGNITION
Revenue from product sales is recognized when the product is delivered.
F-11
<PAGE>
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. 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 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.
F-12
<PAGE>
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 December 31, 1999, 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 December 31, 1999, the Company had no potentially dilutive shares.
NEW ACCOUNTING PRONOUNCEMENTS:
In December 1999, the Securities and Exchange Commission (the Commission) issued
Staff Accounting Bulletin No. 101, Revenue Recognition in Financial Statements,
which is to be applied beginning with the fourth fiscal quarter of fiscal years
beginning after December 15, 1999, to provide guidance related to recognizing
revenue in circumstances in which no specific authoritative literature exists.
The Company is reviewing the application of the Staff Accounting Bulletin to the
Company's financial statements, however, any potential accounting changes are
not expected to result in a material change in the amount of revenues we
ultimately expect to realize.
In March 2000, the Financial Accounting Standards Board (FASB) issued FASB
Interpretation No. 44 (Interpretation 44), "Accounting for Certain Transactions
Involving Stock Compensation". Interpretation 44 provides criteria for the
recognition of compensation expense in certain stock-based compensation
arrangements that are accounted for under APB Opinion No. 25, Accounting for
Stock-Based Compensation. Interpretation 44 is effective July 1, 2000, with
certain provisions that are effective retroactively to December 15, 1998 and
January 12, 2000. Interpretation 44 is not expected to have an impact on the
Company's financial statements.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133, as
amended by SFAS No. 137, is effective for fiscal years beginning after June 15,
2000. SFAS No. 133 requires the Company to recognize all derivatives as either
assets or liabilities and measure those instruments at fair value. It further
provides criteria for derivative instruments to be designated as fair value,
cash flow and foreign currency hedges and establishes respective accounting
standards for reporting changes in the fair value of the derivative instruments.
Upon adoption, the Company will be required to adjust hedging instruments to
fair value in the balance sheet and recognize the offsetting gains or losses as
adjustments to be reported in net income or other comprehensive income, as
appropriate. The Company is evaluating its expected adoption date and currently
expects to comply with the requirements of SFAS 133 in fiscal year 2001. The
Company does not expect the adoption will be material to the Company's financial
position or results of operations since the Company does not believe it
participates in such activities.
F-13
<PAGE>
2. BUSINESS COMBINATION, ACQUISITION AND DIVESTITURES:
In December 1999, Capco issued or committed to issue 6,965,000 shares of common
stock to acquire all of the issued and outstanding shares of CRC.
A. As a result of this transaction, the former stockholders of CRC acquired or
exercised control over a majority of Capco's common stock. Accordingly, the
transaction has been treated for accounting purposes as a reverse
acquisition with CRC as the accounting acquiror, and, therefore, these
financial statements represent a continuation of the legal subsidiary, CRC,
not Capco, the legal parent. In accounting for this transaction:
(i) CRC is deemed to be the purchaser and parent company for accounting
purposes. Accordingly, its assets and liabilities are included in the
consolidated balance sheet at their historical book values;
(ii) Control of the net assets and business of Capco was acquired effective
December 31, 1999 (the "Effective Date"). This transaction has been accounted
for as a purchase of the assets and liabilities of Capco by CRC at the fair
value of $981,530. The historical cost of the net assets acquired was $981,530.
A summary of the assigned values of the net assets acquired is as follows:
Net Working capital $ 551,134
Petroleum interests, net 630,396
Less long term debt (200,000)
-----------
Net assets acquired $ 981,530
===========
(iii) The consolidated statements of operations and cash flows include
CRC's results of operations and cash flows from January 19, 1999 (inception) and
Capco's results of operations from the Effective Date.
B. Prior to Capco acquiring CRC, CRC acquired for the issuance of 5,250,000
shares of its common stock certain assets and assumed certain liabilities
from Capco Acquisub, Inc. ("Capcoacq"), a privately held company, which
became the majority stockholder of CRC as a result of the issuance of these
shares. Due to the fact that the assets and liabilities have been acquired
from a related party, the assets and liabilities have been recorded at
their historical costs of $1,029,080 less assumed liabilities of $660,362
for net assets of $368,718, as follows:
(i) working interests in oil and gas property located in Lamar County
Alabama, at a historical cost of $377,928;
(ii) title to 25 acres of undeveloped land, held for speculative purposes,
located in Santa Maria County, California, at a historical cost of $301,610 and
assumed a promissory note collateralized by land in the amount of $226,481;
(iii) title to 160 acres of undeveloped land, held for speculative
purposes, located in Calgary, Canada, at a historical cost of $211,000 and
assumed a liability collateralized by land in the amount of $433,881;
(iv) a 9.9% interest, or 927,821 shares of common stock, in Capco Resources
Ltd. ("CRL") a Canadian publicly held company, at a historical cost of $138,542;
F-14
<PAGE>
C. The Company had the following gas and oil land acquisitions as of December
31, 1999:
In July 1999, the Company entered into an asset purchase agreement with
Medallion Exploration Company to purchase a proven oil and gas property in
Kansas for $1,506,140, consisting of a note payable for $1,350,000 and
$156,140 cash (Note 10).
In July 1999, the Company purchased 25% of the working interest in oil, gas
and mineral leases on property located in the Parish of LaSalle, Louisiana
for relief of a liability due a related party for approximately $434,650,
net of an assumption of liabilities totaling $200,000.
3. PROPERTY AND EQUIPMENT:
Property and equipment consisted of the following as of December 31, 1999:
Oil and gas property $ 2,513,449
Land 521,248
Acquisitions in progress 50,363
Automobiles 18,079
Furniture and fixtures 17,769
-----------
Total $ 3,120,908
Less accumulated depreciation and
depletion 25,322
-----------
Total $ 3,095,586
===========
Depreciation and depletion expense totaled $25,322 for the period from January
19, 1999 (inception) through December 31, 1999.
4. INVESTMENT
In January 1999, the Company acquired a 9.9% interest in CRL, a Canadian
publicly held company. The Company acquired the investment from the majority
stockholder of both CRL and the Company for the issuance of 3,500,000 shares of
the Company's common stock, which were valued at $138,542, the historical cost
paid by the stockholder (see Notes 2B, 7 and 10). Also, the Company had $4,112
of out of pocket expense for legal costs relating to the investment.
F-15
<PAGE>
5. NOTES PAYABLE
Notes payable consisted of the following as of December 31, 1999:
Note payable, secured by purchased property, interest at
10% per annum, due in monthly installments of interest only
of $11,250 through November 2000 on which date all principal
and unpaid interest is due. Effective January 1, 2000, the
Company shall pay 7.5% of net receipts, as defined, to the
noteholder. The Company shall issue 250,000 warrants at an
exercise price of $1.00. The majority stockholder of the
Company has provided further collateral of common stock of a
publicly held company (Note 10). $ 1,350,000
Note payable to a bank, secured by land in Santa
Barbara County, CA, interest at 8% per annum, due in
monthly installments of principal and interest of $2,912
through May 2008. In March 2000 the note was paid. 213,521
Note payable secured by purchased property, interest at
12%, due in monthly installments from production revenue
of the related property until paid. 200,000
Note payable to an individual, unsecured, interest at 27%
per annum, due in monthly installments of interest only of
$4,000. The note matured in September 2000 and was not
repaid. 148,580
Note payable to an individual, secured by securities owned
by the Company, variable interest at 15% per annum, plus
an incremental interest rate of 1% for every $1 that West
Texas Intermediate Crude ("WTIC") exceeds $16 per barrel.
The note matured in August 2000 and was not repaid. 50,000
Note payable secured by the purchased automobile, interest
at 0.9% per annum, due in monthly installments of principal
and interest of $502 through November 2002. 17,102
-----------
Total Debt 1,979,203
Less current maturities 1,795,005
-----------
Long term debt $ 184,198
==========
F-16
<PAGE>
5. NOTES PAYABLE (continued)
The following is a summary of the principal amounts payable over the next five
years and thereafter.
2000 $ 1,795,005
2001 33,445
2002 33,253
2003 30,500
2004 37,500
2005 49,500
-----------
Total $ 1,979,203
===========
Interest expense for all corporate borrowings totaled $46,444 for the period
from January 19, 1999 (inception) through December 31, 1999.
6. COMMITMENTS AND CONTINGENCIES
ENVIRONMENTAL
Capco, as owner and operator of oil and gas properties, is subject to various
federal, state, and local laws and regulations relating to discharge of
materials into, and protection of, the environment. These laws and regulations
may, among other things, impose liability on the lessee under and oil and gas
lease for the cost of pollution clean-up resulting from operations, subject the
lessee to liability for pollution damages and impose restrictions on the
injection of liquids into subsurface strata. Capco maintains insurance coverage
that it believes is customary in the industry, although it is not fully insured
against all environmental risks.
The Company is not aware of any environmental claims existing as of December 31,
1999, that would have a material impact on its consolidated financial position
or results of operations. There can be no assurance, however, that current
regulatory requirements will not change, or past non-compliance with
environmental laws will not be discovered on the Company's properties.
OPERATING LEASES
The Company leases its office facility under operating leases expiring through
August 2001. As of December 31, 1999, future minimum rental payments required
under the operating leases are as follows:
Year ending December 31,
2000 $ 61,897
2001 41,664
---------
Total $ 103,561
=========
Rental expense under the operating lease totaled $23,140 for the period from
January 19, 1999 (inception) through December 31, 1999.
F-17
<PAGE>
7. EQUITY
PREFERRED STOCK
The Series A Preferred Stock issued by Capco, the legal acquiror, on February
28, 1991, has a par value and liquidation value of $1.00 per share, a cumulative
5% dividend and is redeemable by Capco at 110% of par value. Dividends of
$28,934 were declared at December 31, 1999, of which $2,261 has been paid and
the balance is included in accounts payable and accrued expenses. Unpaid and
undeclared dividends amount to $100,087 at December 31, 1999.
COMMON STOCK
For the period from January 19, 1999 (inception) to December 31, 1999 the
Company had the following significant equity transactions:
Issued 3,500,000 shares for the acquisition of 927,821 share of common stock of
a publicly traded company (see Notes 2B, 4 and 10). The shares were issued to a
company that became the majority stockholder of the Company subsequent to this
transaction. Since the transaction was with a majority stockholder, the
investment was recorded at the stockholder's original costs basis of $138,542.
Issued 1,750,000 shares for the acquisition of oil and gas producing properties
and land. The shares were issued to a company that became the majority
stockholder of the company subsequent to this transaction. Since the transaction
was with a majority stockholder, the investment was recorded at the
stockholder's original costs basis of $664,057 less assumed liabilities of
$660,362.
Issued 997,500 shares at $0.50 per share for net cash proceeds of $562,606 in a
private placement.
Issued 717,500 shares at $0.50 per share in exchange for relief of liability of
$410,000.
The Company advanced $689,193 to a corporation controlled by the majority
stockholder. The intent of the Company and the stockholder is for the
stockholder to relinquish a certain number of shares to offset the advances.
Therefore, the advances have been treated as a reduction from stockholders'
equity.
8. INCOME TAXES
The components of the provision for income taxes are as follows for the period
from January 19, 1999 (inception) to December 31, 1999:
Current Tax Expense:
U.S. Federal $ -
State and local $ -
---------------
Total current $ -
---------------
Deferred Tax Expense:
U.S. federal $ -
State and local $ -
---------------
Total deferred $ -
---------------
Total Tax Provision $ -
===============
F-18
<PAGE>
8. INCOME TAXES (continued)
The reconciliation of the effective income tax rate to the Federal statutory
rate is as follows for the period from January 19, 1999 (inception) to December
31, 1999:
Federal income tax rate 34.0 %
Effect of valuation allowance (34.0)%
--------
Effective income tax rate 0.0 %
========
In December 31, 1999, the Company had net carry forward losses of approximately
$407,000. Because of the current uncertainty of realizing the benefit of the tax
carry forwards, a valuation allowance equal to the tax benefit for deferred
taxes has been established. The full realization of the tax benefit associated
with the carry forwards depends predominantly upon the Company's ability to
generate taxable income during the carry forward period. The net change in the
valuation allowance for the period from January 19, 1999 (inception) to December
31, 1999 increased by approximately $407,000. The net operating loss carry
forwards expire in 2019.
Deferred tax assets and liabilities reflect the net tax effect of temporary
differences between the carrying amount of assets and liabilities for financial
reporting purposes and amounts used for income tax purposes. Significant
components of the Company's deferred tax assets and liabilities are as follows
as of December 31, 1999:
Deferred Tax Asset
Loss carry forward $ 138,000
Less: valuation allowance (138,000)
-------------
Net Deferred Tax Assets $ 0
=============
9. RELATED PARTY TRANSACTIONS
During the year ended December 31, 1999, the company had several transactions
with various companies controlled by its chief executive officer and major
stockholder. Those transactions related to payables included the purchase of
land, receivables, stock in subsidiaries and other miscellaneous items. Those
transactions related to receivables include advances of cash and payments on
behalf of those companies. At December 31, 1999, those companies owed Capco
$16,691.
F-19
<PAGE>
10. SUBSEQUENT EVENTS
ACQUISITIONS
In January 2000, the Company acquired a 100% interest in Meteor Stores, Inc.
("MSI) for $1,546,618, consisting of $250,000 and a note payable in the amount
of $1,296,618, which is collateralized by 100% of the issued and outstanding
common stock of MSI. MSI is involved in petroleum distribution through
convenience stores. Subsequently, the Company sold 65% of its interest in MSI to
an unrelated third party, who was and is the President of MSI, for $1,075,000,
consisting of $215,000 ($50,000 in cash and 132,000 shares of the Company's
common stock) and a note receivable in the amount of $860,000. The sale of 65%
interest was closed in September 2000 with an effective date of January 1, 2000.
Since the sale of the 65% is a highly leveraged transaction, the Company will
account for the acquisition using the equity method of accounting.
In February 2000, the Company completed its acquisition of 80% interest of the
issued and outstanding common stock of Zelcom Industries, Inc., a company
involved in Internet applications. The Company will account for the investment
under the equity method of accounting, as the Company's intent is to reduce its
ownership to below 50% by the end of the fourth quarter of 2000.
In March 2000, the Company increased its investment in CRL 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: i) 1,290,000 shares of common stock, or approximately 30% interest, of
Greka Energy Corporation ("Greka"), which is in the business of oil and gas
production in the United States and Colombia, 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 400,000 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 under the
equity method, Chapparal under the cost method, and Greka under the mark to
market methods.
In July 2000, the Company issued an additional 810,858 shares of common stock to
stockholders of CRL in exchange for 405,429 shares of CRL common stock,
increasing its equity ownership of that company to 86.6%.
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. The Company has secured the agreement with its investment
of 400,000 shares of Greka.
F-20
<PAGE>
SETTLEMENT OF LAW SUIT
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").
CRL claims that it is entitled to $12.25 million in damages, plus interest and
costs, and requests that the court require Greka to file a registration
statement for the resale of 1,290,000 shares of Greka common stock that CRL
received pursuant to the Exchange. Greka filed the case of Greka vs. CRL and
Service Asset Management Company d/b/a Penson Financial Services, Inc. d/b/a
Global Hanna Trading in the Denver Colorado District Court and obtained a
temporary restraining order (Case No. 99-CV-6006). Prior to the preliminary
injunction hearing CRL removed the case to the U.S. Federal District Court in
Denver, Colorado (Civil Action No.99-K-1814) where the cases were combined.
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. Of
CRL's remaining 490,000 shares of common stock of Greka, Greka will be given
voting control over these shares through December 31, 2002. The settlement
further provides that CRL's continued ownership of 75,000 of the 490,000 shares
is contingent upon CRL's full payment of margin debt related to those shares.
SALE OF PROPERTY
In March 2000, the Company sold the land in Santa Maria for $422,730, resulting
in a gain to the Company of $115,603.
In July 2000, effective January 1, 2000, CRC assigned 50% of its interest in
proved property located in Kansas to seven unrelated parties for cash totaling
$560,000.
AMENDMENT TO NOTES PAYABLE
In September 2000, the Company amended its note payable to Whittier Energy
Company, in the amount of $1,350,000, to extend the maturity date to November
30, 2000, cancel the net profit interest provision and cancel the issuance of
250,000 stock purchase warrants in exchange for $225,000 cash.
COMMON STOCK OPTIONS
In April 2000, the Company issued two options to purchase each 500,000 and
500,000 shares of the Company's common stock at an exercise price of $1.00 and
$1.50, respectively, exercisable for a period of six months. The options were
issued in exchange for consulting services. Due to the relatively expected short
life of the options, the per unit weighted-average fair value of unit options
granted was $0.00 at the date of grant using the Black-Scholes option pricing
model with the following weighted-average assumptions: weighted-average
risk-free interest rates of 5.63%; dividend yields of 0%; weighted-average
volatility factors of the expected market price of the Company's common stock of
0%; and an average expected life of the options ranging from .4 and .8 years.
The weighted average exercise price is $1.25 for the options issued.
F-21
<PAGE>
COMMON STOCK
In April 2000, the Company issued 35,000 shares to employees of the Company for
services rendered. The Company valued the common stock at $1.00 per share, the
fair market value at the date of grant. The total expense for the year ending
December 31, 2000 is $35,000.
PROFIT SHARING PLAN
In April 2000, the Company adopted a defined contribution profit sharing plan
covering all eligible employees. Profit sharing contributions are made (i) at
the discretion of the Board of Directors; (ii) on the employee's behalf from
salary; and (iii) employer discretionary contributions not to exceed 25% of the
first four percent of each employee's compensation.
SUPPLEMENTAL OIL AND GAS FINANCIAL AND RESERVE INFORMATION (UNAUDITED)
Reserve estimates for 1999 were prepared by independent engineers and for 1998
were prepared by Company management. Management cautions that there are many
inherent uncertainties in estimating proved reserve quantities and related
revenues and expense, and in projecting future production rates and the timing
and amount of development expenditures. Accordingly, these estimates will
change, as future information becomes available.
Proved oil and gas reserves are the estimated quantities of crude oil,
condensate, natural gas and natural gas liquids which geological and engineering
data demonstrate with reasonable certainty to be recoverable in future years
from known reservoirs under existing economic and operating conditions.
Proved developed reserves are those reserves expected to be recovered through
existing wells with existing equipment and operating methods.
ANALYSIS OF CHANGES IN PROVED RESERVES
Estimated quantities of proved reserves and proved developed reserves of crude
oil and natural gas, the majority of which are located within the United States,
as well as changes in proved reserves during the past two years are indicated
below:
Oil (Bbl) Natural Gas (MCF)
--------- -----------------
Reserves at May 31, 1998 4,206 --
Extensions and discoveries -- --
Purchase of minerals in place -- --
Sales of minerals in place -- --
Production (1,241) (352)
Revisions of previous estimates (1,690) 352
--------- ------------
Reserves at May 31, 1999 1,275 -0-
F-22
<PAGE>
ANALYSIS OF CHANGES IN PROVED RESERVES (continued)
Oil (Bbl) Natural Gas (MCF)
--------- -----------------
Reserves at May 31, 1999 1,275 -0-
Extensions and discoveries -- --
Purchase of minerals in place 888,609 307,175
Sales of minerals in place (1,275) --
Production (1,056) (25,304)
Revisions of previous estimates -- --
--------- ------------
Reserves at December 31, 1999 887,553 281,871
There are no reserves attributable to partnership or minority interests at
December 31, 1999.
All capitalized costs related to oil and gas activities at December 31,1999 are
considered related to proved properties.
OIL AND GAS OPERATIONS
Depletion, depreciation and amortization per equivalent unit of production for
the year ended December 31, 1999 was $4.80.
In 1999 $1,934,000 was spent on acquisitions. No exploration or development
costs were incurred.
STANDARDIZED MEASURE OF DISCOUNTED NET CASH FLOW AND CHANGES THEREIN
The following table sets forth a standardized measure of the discounted future
net cash flows attributable to the Company's proved oil and gas reserves. Future
cash inflows were computed by applying year-end prices of oil and gas (with
consideration of price changes only to the extent provided by contractual
arrangements) and using the estimated future expenditures to be incurred in
developing and producing the proved reserves, assuming continuation of existing
economic conditions. Future income tax expenses were computed by applying
statutory income tax rates to the difference between pretax net cash flows
relating to the Company's proven oil and gas reserves and the tax basis of
proved oil and gas properties and available operating loss and excess statutory
depletion carryovers reduced by investment tax credits. Discounting the annual
net cash flows at 10% illustrates the impact of timing on these future cash
flows.
F-23
<PAGE>
STANDARDIZED MEASURE OF DISCOUNTED NET CASH FLOW AND CHANGES THEREIN (continued)
December 31,1999 May 31,1999
---------------- -----------
Future cash inflows $ 22,082,738 $ 15,306
Future cash outflows:
Production and development costs (14,412,570) ( 13,314)
Future net cash flows before
future income taxes 7,670,168 1,992
Future income taxes -- --
Future net cash flows 7,670,168 1,992
Adjustment to discount future
annual net cash flows at 10% ( 3,048,019) ( 161)
---------------- -----------
Standardized measure of discounted
future net cash flows $ 4,622,149 $ 1,831
The following table summarizes the principal factors comprising the changes in
the standardized measure of discounted net cash flows for the years ended
December 31, 1999 and May 31, 1999.
December 31,1999 May 31,1999
---------------- -----------
Standardized measure, beginning of
period $ 1,831 $ 7,994
Sales of oil and gas, net of
production costs (69,807) ( 1,242)
Net change in sales prices, net of
production costs -- ( 5,953)
Changes in estimated future
development costs -- --
Purchases of minerals in place 4,691,956 --
Sales of minerals in place (2,014) --
Revisions of quantity estimates -- --
Accretion of discount 183 799
Other, including changes in production
rates (timing) -- 233
---------------- -----------
Standardized measure, end of period $ 4,622,149 $ 1,831
F-24
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description Location
------- -------------------------- ------------------------------------
3.1 Articles of Incorporation (incorporated by reference to
and bylaws Exhibits 4 and 5, respectively,
to Registration Statement
No. 2-73529).
3.2 Articles of Amendment (incorporated by reference to
the company's Form 10-K filed
May 31, 1984)
3.3 Articles of Amendment (incorporated by reference to
the company's Form 10-K filed
May 31, 1985)
3.4 Articles of Amendment (incorporated by reference to
the Company's Form 10-QSB filed
4. Instruments Defining the (incorporated by reference to
Rights of Security Holders, Exhibits 4 and 5, respectively,
Including Indentures to Registration Statement
No. 2-73529).
10.1 1999 Incentive Equity Plan (incorporated by reference to the
Company's definite proxy statement
filed December 2, 1999)
10.2 Stock Exchange Agreement
between the Company and
Sedco related to Capco
Resource Corporation Filed herewith electronically
10.3 Purchase Agreement related to
Meteor Stores, Inc. Filed herewith electronically
10.4 Sale Agreement related to
Meteor Stores, Inc. Filed herewith electronically
13. Not applicable
16.1 Letter on Change of (incorporated by reference to
Accountants the company's Form 8-K filed
July 28, 2000)
16.2 Letter on Change of (incorporated by reference to the
Accountants company's form 8-K filed October 20,
2000
21. List of Subsidiaries Filed herewith electronically
27. Financial Data Schedule Filed herewith electronically
20
