SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10/A
AMENDMENT NO. 1
General Form for Registration of Securities
Pursuant to Section 12(b) or (g) of
the Securities Exchange Act of 1934
METEOR INDUSTRIES, INC.
(Exact Name of Registrant as Specified in its Charter)
Colorado 84-1236619
(State or Other Jurisdiction of (I.R.S. Employer Identification Number)
Incorporation or Organization)
216 Sixteenth Street, Suite 730, Denver, Colorado 80202
(Address of Principal Executive Offices, Including Zip Code)
(303) 572-1135
(Registrant's Telephone Number, Including Area Code)
Securities to be Registered Pursuant to Section 12(b) of the Act: None
Securities to be Registered Pursuant to Section 12(g) of the Act:
Common Stock, $.001 Par Value
ITEM 1. BUSINESS.
GENERAL DEVELOPMENT OF BUSINESS
Meteor Industries, Inc. ("Meteor" or the "Company") was incorporated in
Colorado on December 22, 1992, to purchase all the outstanding common stock of
Graves Oil & Butane Co., Inc. ("Graves"). The two companies and Graves' then
sole shareholder ("Seller") entered into a Purchase Agreement on June 23, 1993
and finalized the purchase on September 28, 1993. The purchase price for the
common stock was $4,100,000, which was paid $1,750,000 in the form of cash to
Seller and the discharge of certain of his obligations at closing and
$2,350,000 in the form of a promissory note payable over the following four
years. The Seller also retained preferred stock in Graves with a redemption
value of $3,543,500 plus accrued dividends to be redeemed subsequent to
September 15, 2000, if not earlier converted into common stock.
In January 1994, the Company completed an initial public offering of
200,000 shares of its Common Stock pursuant to Regulation A under the
Securities Act of 1933. The net proceeds of this offering to the Company was
approximately $800,000.
On June 12, 1995, Meteor purchased all of the outstanding shares of
Hillger Oil Company ("Hillger") headquartered in Las Cruces, New Mexico. This
acquisition has doubled Meteor's gasoline sales and improved cash flows.
Hillger operates seven convenience stores and supplies twenty-seven branded
dealers in New Mexico. Graves operates six retail sites and supplies
thirty-eight branded dealers. In connection with the acquisition of Hillger,
Meteor sold 365,000 shares of its common stock for $730,000 in cash and
borrowed $875,000 from Norwest Business Credit, Inc. Meteor is implementing
plans for further expansion in New Mexico. Through a joint venture, Meteor
intends to build a new convenience store in the Albuquerque, New Mexico
metropolitan area.
In June 1995, the Company declared an 8% stock dividend to the
shareholders of record as of June 30, 1995.
In October 1995, the Company formed Pyramid Stores, Inc. ("Pyramid"), a
Colorado corporation, as a wholly owned subsidiary to hold the stock of Graves
and Hillger and operate those companies separately from the Company's other
activities. Pyramid's personnel will focus their efforts and Pyramid's
resources on the distribution and marketing of fuel and related products.
In November 1995, the Company issued 1,745,000 shares of its Common Stock
in exchange for all of the outstanding stock of Capco Resources, Inc. ("CRI"),
a Delaware corporation. The shares of the Company's Common Stock issued in
this transaction, which represent approximately 58% of the shares now
outstanding, were issued to a U.S. subsidiary of Capco Resources Ltd.
("Capco"), an Alberta corporation, which is listed on the Alberta Stock
Exchange. As a result of this transaction, there was a change in control of
the Company and one of the Company's three directors was replaced by a Capco
representative, Ilyas Chaudhary. Accordingly, the transaction has been
considered a reverse acquisition for accounting purposes and the assets of
Meteor, including the assets of Graves and Hillger have been revalued to their
fair value at the date of the transaction. The major assets of CRI include:
(I) an interest in Saba Power Company Ltd., which is involved in the
development of a power plant in Pakistan; (ii) all of the stock of Capco
Analytical Services, Inc., a California environmental services firm; and (iii)
a $1,516,000 promissory note from Saba Petroleum Company and other
miscellaneous assets. CRI personnel intend to focus their efforts on the
financing of Saba Power Company Ltd. and to pursue other international power
projects. However, CRI has no full-time employees or capital resources to
devote to such efforts, and as a result such efforts will be limited to CRI's
management looking for potential opportunities and presenting the opportunity
to potential partners to co-develop.
The Company's headquarters are located at 216 Sixteenth Street, Suite
730, Denver, Colorado 80202, and its telephone number is (303) 572-1135.
SABA POWER COMPANY LTD.
Saba Power Company Ltd. ("Saba Power") is a limited liability corporation
in Pakistan which was established in early 1995 to pursue development of a
power plant project in Pakistan. The Government of Pakistan recognized all of
the owners of Saba Power when it accepted the financing documents to which CRI
is a party. CRI has an interest in Saba Power, which has a power plant
project 40 miles from Lahore, Pakistan. Its venture partner is Cogen
Technologies of Houston, Texas ("Cogen"). Estimated costs for the 115
megawatt plant are approximately $140,000,000. The project has received a
Letter of Support dated September 18, 1994, from the Ministry of Water & Power
of the Government of Pakistan. Such letter requires performance by the
venture partners on various dates with extensions provided therefor. It is
anticipated that financial funding for the project, if achieved, will occur in
June of 1996, and that construction would be underway in the summer of 1996,
with final completion in 1998. However, these dates are tentative and subject
to various potential events beyond the control of the venture partners.
The economic growth in Pakistan combined with the constraints on the
public sector budget has led to a significant shortfall in the electric power
supply in Pakistan. The current total installed capacity of the country is
approximately 10,800 megawatts ("MW") for a population of 125 million people.
With electricity being available to only 40% of the population, and the annual
demand growing at 8% to 10% per year, the situation represents a high degree
of additional suppressed demand. Approximately 35% of existing power
generation in the public sector is based on hydro-electric power which varies
significantly over the year. At peak times in the dry season which lasts for
4-5 months, the shortfall reaches as much as 2,500 MW. In recognition of this
situation, the Government of Pakistan embarked on a program to solicit private
investment in the electric sector approximately 7 years ago. Over the years,
successive governments have strengthened the private power policy in many
ways. In early 1994, the present government codified all these developments
and issued a new Policy Framework for the Private Power which brought
significant responses from investors and developers around the world. The
Government of Pakistan then issued approvals to a limited number of projects.
Saba Power has executed an agreement to sell all capacity and energy from
the project under a 30 year power purchase agreement to the Pakistan Water and
Power Development Authority. A fuel supply agreement has been executed with
the Pakistan State Oil Company and an implementation agreement has been
executed with the Government of Pakistan.
The facility is being developed by Cogen, a privately held independent
power developer based in Houston. Cogen is the largest privately held power
generation company in the United States with approximately 1,500 MW of net
electric generation capacity under ownership from six operating plants and
over 3,000 MW of new projects in development in the United States, Latin
America and Asia. It is also among the 10 largest non-utility electric
generators worldwide.
Operations and maintenance of the facility will be contracted for through
an internationally recognized contractor which will be overseen by Cogen. The
plant will use a conventional oil burning steam generator and is designed to
meet environmental emissions criteria in accordance with World Bank standards.
The project is currently located approximately 3 miles before the town of
Farouqabad just off the Sheikhupura - Sargodha road, which is a local highway
branching off the main north-south national highway in the province of Punjab.
This site is approximately 40 miles west of the city of Lahore and
approximately 7 miles west of the city of Sheikhupura. The site is bounded by
the rail tracks on the north, a drainage channel on the east, a 132 kilovolt
transmission line on the south and partially cultivated farmland on the east.
The site lies in an area which has ground water at shallow depths.
The capitalization of Saba Power has been structured to include
approximately $40 million equity funding and the balance of approximately $100
million will be raised as non-recourse project finance debt. The total
$140,000,000 cost of the project includes development costs and various
reserves.
In June of 1995, CRI entered into a Project Development and Shareholders
Agreement (the "Project Agreement") with Cogen and the two other participants
in this project. The Project Agreement called for CRI to assign to Saba Power
all of its interest in the Letter of Support, obtained from the Government of
Pakistan. It also defines the relationship between the participants
concerning management duties and equity requirements. Cogen, as the largest
shareholder of Saba Power has agreed to carry on the day-to-day operations and
will have control of the Board of Directors. Cogen has the primary
responsibility for design, engineering, hiring of consultants, selection of
equipment, award of contracts, project financing, permitting, contracting and
overseeing of construction and operations. A third party operator will be
hired for actual operations and maintenance of the power plant. Pursuant to
this contract, budgets have been developed and approved by all parties.
Notwithstanding the fact that Cogen controls the Saba Power Board of
Directors, approval by all parties to the above Project Agreement is required
to: 1) change the equity of the participants; 2) expand the business of Saba
Power to activities other than related to the project; 3) merge or
consolidate Saba Power with another company; 4) sell all or a substantial
portion of Saba Power's assets; 5) file bankruptcy; 6) determine the terms of
a public offering of Saba Power's stock; and 7) change the approved
construction budget. In addition, the parties have agreed that Capco will not
sell its interest in Saba Power unless it gives Cogen the prior right to
purchase on the same terms and conditions.
Pursuant to the Project Agreement, with Cogen Technologies, CRI was to
make an additional $4,050,000 cash investment and borrow approximately
$5,000,000 form Cogen in order to fund a 25% interest in the project. The
rest of CRI's investment in the project is to be financed with limited
recourse bank debt. Subsequently, CRI has negotiated revisions to the
original agreement with Cogen allowing CRI to purchase approximately an 8%
interest in the Project for approximately $2,300,000. Also, upon payment of
such sum, Capco shall have the option to increase its interest in the Project
to a total of 23% in March 1997 for an additional investment of approximately
$7,300,000.
CRI has since entered into an agreement with Saba Petroleum Company
whereby Saba intends to participate with CRI in the Power Project. Saba
intends to invest approximately $1,500,000 in the Power Project this year and
will have the option to make an additional investment of approximately
$3,700,000 in early 1997. Saba's initial interest in the project will be
approximately 5% which can be increased to 11.5% pursuant to the option. As a
result of this transaction and CRI's amendment to the agreement with Cogen,
CRI intends to invest $800,000 during the next 60 days for almost a 3%
interest in the project. CRI shall have the option to increase its interest
up to approximately 11.5% by investing up to approximately $4,000,000 by the
first quarter of 1997.
Both Cogen and CRI have the right to withdraw from the project prior to
financial closing at its sole discretion. Although neither participant has
indicated that it intends to withdraw, if either participant decides to
withdraw, such participant has agreed to transfer its interest to the other
and the transferring party will be reimbursed its costs if and when the
project reaches a financial closing.
Assuming: 1) a financial closing is accomplished; 2) the power plant is
built to specifications; and 3) the plant has the ability to produce the
expected output of electricity, the Government of Pakistan has agreed to pay
for a certain percentage of its capacity whether or not such electricity is
ever produced or sold. Because of these contractual rights from the
Government of Pakistan, CRI is relatively confident that the estimated
projected cash flow stream from this project which were prepared for the
project lenders are based upon reasonable assumptions.
CRI's management plans to expend substantial time and effort over the
coming year to expand CRI's business. Management is presently assessing other
international power opportunities and working to close its existing project.
CAPCO ANALYTICAL SERVICES
CRI established Capco Analytical Services, Inc., a California corporation
("CAS"), as an environmental services subsidiary pursuant to an acquisition in
April 1994. CAS provides petroleum and other industrial concerns with
environmental laboratory analysis. This subsidiary presently has 14
employees.
CAS intends to expand the scope of its present activities to include the
acquisition of properties in need of remediation and development. CAS will
then arrange for remediation services to be performed. After the property is
remediated, it will be developed by CAS or sold to a developer. CAS intends
to fund these projects at least partially with project capital raised through
partnerships or other private investment vehicles.
PETROLEUM MARKETING BUSINESS AND OPERATIONS
The Company operates its petroleum marketing and convenience store
business primarily from its Farmington and Las Cruces, New Mexico
headquarters. The Company operates this business through two New Mexico
subsidiaries, Hillger Oil Company and Graves Oil & Butane Co., Inc. The
Company also has operations in Albuquerque, New Mexico.
The commercial/wholesale operations are the largest part of the Company's
business. This operation has fuel delivery contracts with customers that
include truck stops, retail gasoline service stations, convenience stores,
construction companies, commercial fleet distribution centers, the federal
government, coal mining companies, and power plants in both New Mexico and
Arizona.
The wholesale operation has "distribution agreements" with Phillips
Petroleum Company, Sun Oil Company, Conoco, Inc., Texaco, Inc., Diamond
Shamrock and Fina Oil Company. These distribution agreements allow the
Company to purchase petroleum products at wholesale prices directly from
pipeline terminals and refiners controlled by these large oil producers. The
Company is then authorized to resell those products to its customers.
The distribution agreements have three-year terms and the Company has two
years remaining on its agreements with its primary suppliers, Phillips 66 and
Conoco, Inc. The distribution agreements do not provide for an exclusive
territory and can be terminated by either party upon 30 days notice. There
can be no assurance that these agreements will not have to be renegotiated or
that they will be renewed. Although the Company, through its subsidiaries, is
one of the largest and longest standing wholesale distributors of Conoco and
Phillips products in New Mexico, it is possible it could lose such contracts.
In such an event, the Company's operations may be adversely impacted.
Management would attempt to persuade the retail outlets the Company supplies
to switch to another major oil company brand with which it has a contract.
The Company could also buy and sell fuel as an unbranded independent, however,
sales volumes would most likely decrease significantly if the Company did not
have access to branded products.
Many of the Company's wholesale customers operate retail gasoline service
stations under the banners of the various oil companies. The banner
arrangements require that a retail operator purchase fuel exclusively from a
distributor or "jobber" who is authorized to sell branded products. On
occasion the Company has supplied new signage and other improvements to
retailers so they would switch to a Company brand. The Company's suppliers
may subsidize such improvements by providing discounts to the Company or by
forgiving certain obligations based on the volume of product sold to such
retailer.
The Company also markets its products to commercial and governmental
accounts. The marketing department consists of twelve people. The marketing
department is primarily responsible for the direct selling efforts of the
Company and for ensuring that customers accounts are properly serviced. The
majority of the wholesale division's sales are repeat telephone orders from
existing customers. The Company also advertises in trade journals and attends
industry trade shows in its market.
The distribution process of the wholesale division is straightforward.
The distribution channel begins with the loading of the Company's trucks at
pipeline terminals or refineries. When delivered in transport quantities, the
trucks deliver the inventory directly to the wholesale customer with no
intermediate storage of fuel other than trucks en route to a customer. The
distribution process for bulk fuel products, from pick-up to delivery to
customers, is typically complete in two days or less.
Most of the Company's wholesale customers in the three major regional
markets, Farmington, Albuquerque, and Las Cruces, have been with the Company
for many years. No customer accounts for more than 10% of the Company's
sales, however, the loss of one or more major wholesale customers could have a
significant impact on the Company's revenues.
The retail operations have an ownership or leasehold interest in 15
retail outlets which include service stations, convenience stores and lube
pits. The retail operation represents a potential growth area for the
Company.
The retail outlets sell gasoline, propane and other petroleum products
directly to the general public. The services provided are those that would
generally be expected to be provided at this type of facility. The retail
outlets also sells food and tobacco products as a convenience to its
customers. Other than at the convenience stores, non-petroleum products sales
are not a material part of retail revenues. The Company's highest volume
convenience stores are located in the Las Cruces and Albuquerque areas. The
Company intends to expand its convenience store base by acquisition and new
construction in the Albuquerque area.
The Company has four automated cardlock facilities. The cardlock systems
provide 24-hour-per-day access to fuel dispensing facilities for commercial
fleet customers and customers with automated debit cards. The cardlock
systems do not require that a Company employee to be present to process the
fuel purchase. The cardlock facilities are primarily used by commercial fleet
operators in order to take advantage of automated transaction process
technology which allows a user to insert a "user card" activating the fuel
dispenser and records the transaction. The Company's strategy contemplates
increasing the number of cardlock facilities that the Company owns or
controls.
The Company also has a propane and alternative fuels operations. In
November 1993, Graves reentered the residential propane and alternative fuels
business in Farmington, New Mexico. Graves' management and employees have
significant experience in the propane industry and the Company had a
substantial amount of propane equipment that was underutilized. A significant
percentage of the homes and commercial buildings in the Farmington area do not
have access to natural gas lines and must rely on propane for heating.
Management of the Company believes that the residential propane market
provides a significant opportunity for growth. As of the date of this
registration statement, Graves has over 300 residential propane customers and
continues to actively market this product and service. Recently, Graves
became a 33% owner of a residential propane company in Albuquerque, New
Mexico. Management of Graves is actively seeking other propane opportunities
in Southern Colorado and New Mexico.
Due to increasing government incentives and regulatory mandates, both
public and private sector fleets are being converted to clean fuels. Certain
Graves employees have experience converting gasoline powered vehicles to run
on propane. Graves offers conversion services to fleets located in
Farmington. Graves offers both propane conversions and compressed natural gas
conversions. In addition, three propane motor fuel dispensers are owned by
Graves and located at Graves' retail outlets.
INSURANCE
The Company has a commercial liability policy and an umbrella policy with
a coverage limit of $5,000,000 as well as other policies covering damage to
its properties. These policies cover Company facilities, employees,
equipment, inventories, and vehicles in all states of operation. While
Management believes the Company's insurance coverage is adequate for most
foreseeable problems, and is comparable with the coverage of other companies
in the same business and of similar size, its coverage does not protect the
Company for most liabilities relating to damage of the environment. Such
environmental related coverage is generally unavailable or available only at a
prohibitive cost.
COMPETITION
The petroleum marketing business is highly competitive. The Company
competes on the basis of price, service and corporate capabilities. In all
phases of its operations, the Company encounters strong competition from a
number of companies, including some very large companies. Many of these
larger competitors possess and employ financial and personnel resources
substantially in excess of those which are available to the Company. The
Company's marketing division also competes with integrated oil companies which
in some cases own or control a majority of their own marketing facilities.
These major oil companies may offer their products to the Company's
competitors on more favorable terms than those available to the Company from
its suppliers. A significant number of companies, including integrated oil
companies and petroleum products distribution companies, distribute petroleum
products through a larger number of facilities than the Company.
The wholesale distribution of petroleum products is a highly competitive
industry. This competition generally comes from other privately held
petroleum jobbers operating in the same geographic region as the Company. The
competition is primarily focused on the government contract and commercial
fleet segments of the business. The government contract business is awarded
via a lowest sealed bid process and the Company competes heavily with several
wholesale distributors. Competition also occurs for the gasoline service
station customers. In competing for this segment of the business, a customer
must be convinced to change the "brand" of the station (i.e., convert from
Phillips 66 to Texaco). A change of brands can be expensive and disruptive to
the operations of the gasoline service station and therefore does not occur
frequently.
Competition in the retail segment of the gasoline distribution industry
is severe and highly decentralized. Competition comes from numerous gasoline
service stations that have different brands and from many independent
unbranded stations. The Company competes for retail customers based on brand
loyalty and price. The Company attempts to develop brand loyalty as a result
of the friendly service it provides to its customers. To the extent that the
customer does not have brand loyalty, then the Company competes on price. The
Company does not attempt to be a price leader, but instead changes prices to
meet competitive prices.
The convenience store industry is highly competitive, fragmented and
regionalized. It is characterized by a few large companies, some medium-sized
companies, and many small independent companies. Several competitors are
substantially larger and have greater resources than the Company. The
Company's largest competitors include Seven-Eleven, Diamond Shamrock,
Thriftway, and Circle K. The Company also competes with other convenience
stores, small supermarkets, grocery stores and major and independent gasoline
distributors who have converted units to convenience stores. The Company also
will encounter competition in attempting to acquire sites for new stores and
existing groups of convenience stores.
ENVIRONMENTAL ISSUES
Various federal and state statutes are designed to identify environmental
damage, identify hazardous material and operations, regulate operations
engaged in hazardous activities, and establish procedures for remedial action.
The Company is inspected on a regular basis by both federal and state
environmental authorities. The Environmental Protection Agency ("EPA") and
the State of New Mexico have instituted environmental compliance regulations
designed to prevent leakage and contamination from underground storage tanks.
The Company continually expends capital when complying with changing
environmental regulations and expects to spend about $60,000 a year on
environmental compliance.
The State of New Mexico has established the Ground Water Protection Act
for the clean up of contaminated underground sites. Under most circumstances,
the Company's exposure is limited to $10,000 per location, beyond which the
state clean-up fund assumes responsibility. Assistance is not available to
repair or replace underground tanks or equipment. The law specifies
requirements which must have been met for an applicant to be eligible,
includes a provision that payments will be made in accordance with regulations
(which have not yet been issued) and states that payment from the corrective
action fund are limited to amounts in that fund. There can be no assurance
that the New Mexico fund will have sufficient capital, or will agree, to fund
remediation of any particular problem.
In addition, in connection with Company's purchase of the Graves' common
stock, the Seller agreed to indemnify the Company for seven years against
environmental related problems which may arise from activities conducted prior
to the acquisition. The indemnification is not effective unless damages
exceed a minimum of $25,000 per year and the maximum aggregate indemnification
responsibility of Seller over the seven years is $8,000,000.
ENVIRONMENTAL COMPLIANCE. The Company's Regulated Environmental
Activities are subject to an extensive variety of evolving United States
federal, state and local laws, rules and regulations governing the storage,
transportation, manufacture, use, discharge, release and disposal of product
and contaminants into the environment, or otherwise relating to the protection
of the environment. A non-exclusive listing of the environmental laws which
potentially impact the Company's Regulated Environmental Activities is set out
below:
RESOURCE CONSERVATION AND RECOVERY ACT OF 1976, AS AMENDED IN 1984
("RCRA"). The United States Congress enacted RCRA in 1976 and amended it in
1984. RCRA established a comprehensive regulatory framework for the
management of hazardous wastes at active facilities. RCRA creates a "cradle
to grave" system for managing hazardous wastes. Those who generate,
transport, treat, store or dispose of waste above certain quantities are
required to undertake certain performance, testing and record keeping. The
1984 amendments to RCRA known as "HSWA" increased the scope of RCRA to
regulate small quantity hazardous waste generators and waste oil handlers and
recyclers as well as require the identification and regulation of underground
storage tanks in which liquid petroleum or hazardous substances were stored.
HSWA and its implementing regulations require the notification to designated
state agencies of the existence and condition of regulated underground storage
tanks and impose design, construction and installation requirements; leak
detection, presentation, reporting, and cleanup requirements; tank closure and
removal requirements; and fiscal responsibility requirements.
COMPREHENSIVE ENVIRONMENTAL RESPONSE, COMPENSATION AND LIABILITY ACT OF
1980 ("CERCLA" or "Superfund") AS AMENDED IN 1982. CERCLA established the
Superfund program to clean up inactive sites at which hazardous substances had
been released. Superfund has been interpreted to create strict, joint and
several liability for the costs of removal and remediation, other necessary
response costs and damages for injury to natural resources. Superfund
liability extends to generators of hazardous substances, as well as to (i) the
current owners and operators of a site at which hazardous substances were
disposed; (ii) any prior owner or operator of the site at the date of
disposal; and (iii) waste transporters who selected such facilities for
treatment or disposal of hazardous substances. CERCLA allows the EPA to
investigate and remediate contaminated sites and to recover the costs of such
activities (response costs), as well as damages to natural resources, from
parties specified as liable under the statute. CERCLA also authorizes private
parties who incur response costs to seek recovery from statutorily liable
parties. CERCLA was amended by the Superfund Amendments and Reauthorization
Act of 1986 ("SARA"). SARA provides a separate funding mechanism for the
clean up of underground storage tanks. CERCLA excludes petroleum including
crude oil or any fraction thereof, with certain limitations from the
definition of "hazardous substances" for which liability for clean up
of a contaminated site will attach. This exclusion also applies to those
otherwise hazardous substances which are inherent in petroleum, but not to
those added to or mixed with petroleum products.
THE CLEAN WATER ACT OF 1972, AS AMENDED (the "Clean Water Act"). The
Clean Water Act establishes water pollutant discharge standards applicable to
many basic types of manufacturing facilities and imposes standards on
municipal sewage treatment plants. The Clean Water Act requires states to set
water quality standards for significant bodies of water within their
boundaries and to ensure attainment and/or maintenance of those standards.
Many industrial and governmental facilities must apply for and obtain
discharge permits, monitor pollutant discharges and under certain conditions
reduce certain discharges. The Clean Water Act also requires pre-treatment of
certain discharges prior to release into a publicly owned treatment works.
FEDERAL OIL POLLUTION ACT OF 1990 ("OPA"). The OPA amends the Clean
Water Act and expands the liability for the discharge of oil into navigable
waters. Liability is triggered by discharge or substantial threat of a
discharge of oil into navigable waters. OPA defines three classes of parties
subject to liability: (1) owners, operators, and persons chartering vessels;
(2) lessees and permitees of areas where off-shore facilities are located; and
(3) owners and operators of on-shore facilities.
THE CLEAN AIR ACT OF 1970, AS AMENDED (the "Clean Air Act"). The Clean
Air Act required the EPA to establish and ensure compliance with national
ambient air quality standards ("NAAQS") for certain pollutants. The NAAQS
generally are to be achieved by the individual states through state
implementation plans ("SIPs"). SIPs typically attempt to meet the NAAQS by,
among other things, regulating the quantity and quality of emissions from
specific industrial sources. As required by the Clean Air Act, the EPA also
has established regulations that limit emissions of specified hazardous air
pollutants and has established other regulations that limit emissions from new
industrial sources within certain source categories. The Clean Air Act was
amended extensively in 1990, to, among other things, impose additional
emissions standards that must be implemented by the EPA through regulations.
THE TOXIC SUBSTANCES CONTROL ACT OF 1976 ("TSCA"). TSCA authorizes the
EPA to gather information on the risks of chemicals, and to monitor and
regulate the manufacture, distribution, processing, use and disposal of many
chemicals.
The Emergency Planning and Community Right-to-Know Act ("EPCRA"). EPCRA
was passed as a part of SARA. EPCRA resulted from several widely-publicized
events which focused national attention on the dangers posed by toxic
chemicals present at U.S. industrial facilities. EPCRA requires emergency
planning notification, emergency release notification, and reports with
respect to the storage and release of specified chemicals. Industry must
provide information to communities regarding the presence of extremely
hazardous substances at facilities within those communities.
THE OCCUPATIONAL SAFETY AND HEALTH ADMINISTRATION ACT ("OSHA"). OSHA
regulates exposure to toxic substances and other forms of workplace pollution.
The Department of Labor administers OSHA. OSHA specifies maximum levels of
toxic substance exposure. OSHA also sets out a "right-to-know" rule which
requires that workers be informed of, and receive training relating to, the
physical and health hazards posed by hazardous materials in the workplace.
OTHER STATE AS WELL AS LOCAL GOVERNMENT REGULATION. Many states have
been authorized by the EPA to enforce regulations promulgated under various
federal statutes. In addition, there are numerous other state as well as
local authorities that regulate the environment, some of which impose more
stringent environmental standards than Federal laws and regulations. The
penalties for violations of state laws vary but typically include injunctive
relief, recovery of damages for injury to air, water or property, and fines
for non-compliance.
REGULATORY STATUS AND POTENTIAL ENVIRONMENTAL LIABILITY. The operations
and facilities of the Company are subject to numerous federal, state and local
environmental laws and regulations including those described above, as well as
associated permitting and licensing requirements. The Company regards
compliance with applicable environmental regulations as a critical component
of its overall operation and devotes significant attention to protecting the
health and safety of its employees and to protecting the Company's facilities
from environmental problems. Management believes that the Company has
obtained or applied for all permits and approvals required under existing
environmental laws and regulations to operate its current business. In light
of coverage of New Mexico's reimbursement fund and the indemnification of the
Company by the Seller, Management does not believe that any pending or
threatened environmental litigation or enforcement action(s) could materially
and adversely affect the Company's business. While the Company has
implemented, where appropriate, operating procedures at each of its facilities
designed to assure compliance with environmental laws and regulation, given
the nature of its business, the Company always is subject to environmental
risks and the possibility remains that the Company's ownership of its
facilities and its operations and activities could result in civil or criminal
enforcement and public as well as private action(s) against the Company, which
may necessitate or generate mandatory clean up activities, revocation of
required permits or licenses, denial of application for future permits, or
significant fines, penalties or damages, any and all of which could have a
material adverse effect on the Company.
EMPLOYEE RELATIONS
The Company employs approximately 150 people, none of whom is represented
by any collective bargaining organizations. Management considers its employee
relations to be satisfactory at the present time.
ITEM 2. FINANCIAL INFORMATION.
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
The accompanying pro forma consolidated statement of operations for the
year ended December 31, 1995, combines the consolidated operations of Meteor
for the year ended December 31, 1995, the operations of Hillger Oil Company
("Hillger") for the three months ended March 31, 1995, and the operations of
Meteor for the ten months ended October 31, 1995. Hillger's results of
operations for the seven months ended October, 1995, are included in the
operations of Meteor, as Meteor closed this acquisition effective April 1,
1995.
The pro forma consolidated statements of operations are presented as if
all acquisitions had occurred at the beginning of the period presented and are
presented for continuing operations only.
The pro forma consolidated statement of operations is not necessarily
indicative of future operations or the actual results that would have occurred
had the acquisition been consummated at the beginning of the period presented.
The pro forma consolidated statement of operations should be read in
conjunction with the historical financial statements and notes thereto of
Meteor, included elsewhere in this document.
The pro forma net income per share is computed by dividing the pro forma
net income by the pro forma number of shares outstanding during the period.
Entries to reflect pro forma adjustments for the 12 month period:
Debit Credit
(a) Rent Expense 129,300 299,900
Deferred Compensation 642,800
Entry to record reduction of Hillger's 1995 rent expense from the
historical amount of $397,400 to the negotiated future amount of $215,500 and
to eliminate Hillger's deferred compensation of $642,800 as it was paid to the
prior owner as part of the purchase agreement and will not be a recurring
event.
(b) Depreciation Expense 95,000
Provision for Income Taxes 143,000
Entry to reflect additional depreciation related to the step up in
property and equipment and reflect income taxes on a consolidated basis.
METEOR INDUSTRIES, INC.
PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
Meteor Hillger Meteor 10- Pro Forma
Meteor
Year End 1/1/95 to Months ended Debit
Pro Forma
12/31/95 3/31/95 10/31/95 (Credit)
12 month
<S> <C> <C> <C> <C> <C>
REVENUES
Sales $9,828,092 $5,523,734 $42,369,502
$57,721,328
Cost of Sales 7,373,304 4,297,464 36,139,781
47,810,549
Gross Profit 2,454,788 1,226,270 6,229,721 0
9,910,779
EXPENSES
Selling, General &
Administrative 2,243,612 1,989,424 5,475,532 (813,400)
8,895,168
Depreciation/Amortization 151,709 24,540 545,879 95,000
817,128
Total Expenses 2,395,321 2,013,964 6,021,411 (718,400)
9,712,296
Income from operations 59,467 (787,694) 208,310 718,400
198,483
Other income and(expenses)
Interest income 28,047 5,337 182,007
215,391
Interest expense (91,621) (20,955) (454,961)
(567,537)
Gain on sale of assets (7,460) 137,352 17,393
147,285
Other income 0 0 159,075
159,075
Total other income (71,034) 121,734 (96,486) 0
(45,786)
Income(loss) before taxes
and minority interest (11,567) (655,960) 111,824 718,400
152,697
Provision for income tax (1,470) 0 (84,762) 143,000
56,768
Income(loss) before
minority interest (10,097) (665,960) 196,586 575,400
95,929
Minority interest 63,544 317,720
381,264
Net income (loss) $ (73,641) $ (665,960) $ (121,134) $575,400 $
(285,335)
</TABLE>
SELECTED FINANCIAL INFORMATION
Effective November 2, 1995, Meteor Industries, Inc., acquired 100% of the
issued and outstanding common stock of Capco Resources Inc. ("CRI") in
exchange for 1,745,000 shares of Meteor common stock. The acquisition was
treated as a reverse acquisition of Meteor by CRI. Accordingly, the results
of operations of CRI are included in the following financial information since
January 1, 1995. The results of operations of Meteor are included in the
following financial information since the effective date of the acquisition.
BALANCE SHEET DATA:
(In Thousands)
At
March 31 At December 31
1996 1995 1994 1993
Current Assets $ 6,732 $ 6,660 $ 126 $-0-
Property and Equipment 8,473 8,568 250 -0-
Other Assets 3,752 3,623 164 -0-
Discontinued Operations -- -- 572 660
Total Assets 18,957 18,851 1,112 660
Current Liabilities 6,974 6,873 403 -0-
Long-term Debt 2,122 2,195 -0- -0-
Stockholders' Equity 4,447 4,274 709 660
STATEMENT OF OPERATIONS DATA:
<TABLE>
(In Thousands, Except Per Share Data)
<CAPTION>
For the Three For the From
Months Ended Years Ended Inception
to
March 31, 1995 (Pro December 31, December
31
1996 1995 Forma)<FN1> 1995 1994 1993
1992
<S> <C> <C> <C> <C> <C> <C> <C>
Sales $ 13,386 $ 165 $ 14,279 $ 9,828 $ 473 $ -0- $
-0-
Cost of Sales 11,135 -0- 11,680 7,373 -0- -0-
-0-
Operating Expenses 2,182 257 2,685 2,395 602 2
-0-
Other Income
(Expense) 263 -0- 85 (71) -0- -0-
-0-
Income (Loss) from
Continuing
Operations 173 (92) (94) (74) (129) (2)
-0-
Income from Dis-
continued
Operations -0- 79 79 1,508 179 690
765
Net Income 173 (13) (15) 1,434 49 688
765
Net Income Per
Common Share $ 0.06 $134.53 $ (.01) $ 2.93 $489.95 $6,883.42
$7,652.20
Weighted Average
Shares
Outstanding 3,024,903 100 1,745,000 489,135 100 100
100
Cash Dividends $ -0- $ -0- $ -0- $ -0- $ -0- $ -0- $
-0-
<FN>
<FN1>
The pro forma operations for the quarter ended March 31, 1995 combines the
operations of Meteor for the quarter ended February 28, 1995, the operations
of Hillger for the three months ended March 31, 1995, and the operations of
CRI for the three months ended March 31, 1995.
</FN>
</TABLE>
The following tables set forth certain financial data with respect to Meteor
on a historical basis, before accounting for the acquisition of CRI as a
reverse acquisition:
BALANCE SHEET DATA:
(In Thousands)
At August 31
1995 1994 1993
Current Assets $ 6,683 $ 6,556 $-0-
Property and Equipment 5,768 4,562 -0-
Other Assets 2,131 1,138 79
Total Assets 14,582 12,256 79
Current Liabilities 6,951 5,606 48
Long-term Debt 2,096 2,604 -0-
Stockholders' Equity 1,014 482 31
STATEMENT OF OPERATIONS DATA:
(In Thousands, Except Per Share Data)
From
For the Fiscal Years Inception
Ended August 31, to August 31,
1995 1994 1993
Sales $44,971 $38,763 $-0-
Cost of Sales 38,519 33,476 -0-
Gross Profit 6,452 5,287 -0-
Operating Expenses 6,366 5,259 -0-
Other Income (Expense) (125) (38) -0-
Net Income (229) (474) -0-
Net Income (Loss) Per
Common Share (.22) (.69) -0-
Weighted Average
Shares Outstanding 1,056 691 -0-
Cash Dividends Per
Common Share $ -0- $ -0- $-0-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS FOR METEOR INDUSTRIES, INC.
Effective November 2, 1995, Meteor acquired CRI. The acquisition was
treated as a reverse acquisition of Meteor by CRI. Accordingly, the
historical accounts of CRI are reflected in the financial statements, so
comparisons with prior year are not meaningful.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities totaled $856,000 for the three
months ended March 31, 1996. The increase is primarily related to increases
in net income and accounts payable.
As of March 31, 1996, the Company had a working capital deficit of
$243,000 compared to a working capital deficit of $214,000 at December 31,
1995. The principal increase is additional taxes payable.
Net cash used by investing activities totaled $95,000 for the three
months ended March 31, 1996, for equipment purchases.
Because of the Company's continued expansion and development efforts, the
Company's liquidity requirements have increased and are expected to continue
to increase as a result of the need to reduce the Company's existing debt
related to prior acquisitions.
Net cash used by financing activities totaled $836,000 for the three
months ended March 31, 1996. The use is primarily related to payments on
short term debt.
The Company has two revolving bank credit facilities with Norwest
Business Credit, Inc. - one for $3,000,000 and one for $1,500,000. The credit
lines are subject to the borrowing base of the Company's subsidiaries, as
defined and on March 31, 1996, $1,475,000 and $44,000 were borrowed against
the facilities.
The Company has a term loan with a New Mexico bank which is due in
January, 1998 and a term loan with Norwest Business Credit, Inc which is due
in June, 1998. The balances at March 31, 1996, were $437,000 and $304,000,
respectively. The loans are collateralized by real estate and buildings and
equipment.
A subsidiary of the Company has preferred stock outstanding which
requires no periodic payments but accrues an 8% dividend and must be redeemed
for $3,543,500 plus accrued dividends at the holders request any time after
September 15, 2000 unless earlier converted into common stock pursuant to its
terms. This preferred stock is treated as a minority interest on the balance
sheet and recorded at its discounted value.
The Company owes the founder of one of its subsidiaries $1,958,000
payable in semi-annual installments of $200,000 which includes principal and
interest calculated at 2 percentage points in excess of Citibank's prime rate.
All previously unpaid principal and interest is due October 1, 1997. It is
anticipated that $425,000 will be offset by payments on notes receivable from
the founder also due October 1, 1997.
The Company is obligated to pay lease costs of approximately $61,000
monthly for land, building, facilities, and equipment.
In order to pay its obligations, the interest on such obligations and
other expenses, the Company must generate cash flow from operations which
exceed that which were achieved in the past. In addition, even if historical
cash flow is exceeded throughout the terms of its obligations, the Company
will probably be required to raise capital or refinance its existing debt in
order to pay its obligations as they become due.
In March 1996, the Company reaffirmed a Letter of Intent with an
underwriter concerning a proposed second public offering of the Company's
Common Stock. Under the terms of the Letter of Intent, the proposed offering
would be for at least $2 million on a "firm commitment" basis. Such offering
is expected to occur during the third quarter of 1996, subject to a number of
contingencies including a registration statement to be filed with the
Securities and Exchange Commission becoming effective.
The Company utilizes underground tanks at various locations to store
petroleum products and is therefore subject to various federal and state
statutes concerning environmental protection, as well as the New Mexico Ground
Water Protection Act. The various federal and state statutes are designed to
identify environmental damage, identify hazardous material and/or operations,
regulate operations engaged in hazardous activities, and establish procedures
for remedial action as necessary.
The state of New Mexico has recognized the potential cleanup costs
resulting from regulations, and the New Mexico Ground Water Protection Act has
included the establishment of a corrective action fund. The purpose of the
fund is to provide monetary assistance in both assessing site damage and
correcting the damage where such costs are in excess of $10,000. Assistance
is not available to repair or replace underground tanks or equipment. The law
specifies requirements which must have been met for an applicant to be
eligible, including a provision that payments will be made in accordance with
regulations (which have not yet been issued), and states that payment from the
corrective action fund are limited to amounts in that fund. The Company is
responsible for any contamination of land it owns or leases; however, the
Company's responsibilities may be limited as a result of possible claims for
reimbursement from third parties. Management does not anticipate any
potential liabilities that will have a material adverse effect on the
consolidated financial position of the Company.
The Pakistan Power Project will not provide any cash flow to the Company
for approximately four years. On March 31, 1996, CRI executed an amendment to
the Project Development and Shareholder Agreement. This Agreement allows CRI
to make a $2,314,000 equity investment in the Project (such investment is
expected to be made prior to June 30, 1996) in exchange for approximately an
8% interest in the Project. In addition, CRI will have an option to increase
its interest in the Project to 23% for a one year period ending March 31,
1997. If CRI decides to exercise such option, it will be required to invest
approximately $7,300,000 in additional equity. CRI can take advantage of this
option to a lesser degree by making a proportionately smaller equity
investment. CRI subsequently entered into an agreement with Saba Petroleum
Company ("Saba") whereby Saba, a related party, intends to participate with
CRI in the Project. Saba intends to invest approximately $1,500,000 in the
Project this year and will have the option to make an additional investment of
approximately $3,700,000 in the first quarter of 1997. Saba's initial interest
in the Project will be approximately 5.0% which can be increased to 11.5%
pursuant to the option. As a result of this transaction CRI intends to invest
$800,000 during 1996 for approximately 3% interest in the project. CRI shall
have the option to increase its interest up to approximately 11.5% by
investing up to approximately $4,000,000 by the first quarter of 1997.
CRI intends to obtain the necessary financing for its share of the
initial equity commitment through the sale of its common stock and/or the
partial collection of notes receivable. CRI has a commitment outstanding for
$75,000 as a finders fee relating to the project of which one half is expected
to be reimbursed by one of the partners.
In March 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" ("SFAS No.
121"). The standard requires the recognition of an impairment loss on certain
identifiable intangible assets and long-lived assets in use or held for
disposal when events or circumstances indicate the carrying value of these
assets may not be recoverable or exceeds their fair value. At this time, the
Company does not expect the adoption of SFAS No. 121 to have a material impact
on the Company's financial position or results of operations.
In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" ("SFAS No. 123"). The standard encourages, but does
not
require, companies to recognize compensation expense for grants of stock,
stock options and other equity instruments to employees based on fair value
accounting rules. The standard requires companies that choose not to adopt
the new fair value accounting rules to disclose pro forma net income and
earnings per share under the new method. The standard is effective for fiscal
years beginning after December 15, 1995. The Company will adopt only the
disclosure provisions of SFAS No. 123 in 1996.
RESULTS OF OPERATIONS
COMPARISON OF THE THREE MONTHS ENDED MARCH 31, 1996 TO MARCH 31, 1995
The Company is primarily engaged in the business of marketing and
distributing refined petroleum and related products employing wholesale,
convenience store operations and environmental services.
The following table sets forth, for the three month period ended March
31, 1996 and 1995 certain items of the Company's Consolidated Statements of
Operations.
<TABLE>
<CAPTION>
Percentage of Sales
1996 1995 1995 <FN1>
(Pro Forma)
<S> <C> <C> <C>
Sales 100.0% 100.0% 100.0%
Cost of Sales 83.2% --% 81.8%
Gross Profit 16.8% 100.0% 18.2%
Selling, General &
Administrative Expenses 16.3% 155.8% 18.8%
Interest Expense 1.0% 1.3% 1.0%
Other Income 3.0% 1.0% 1.6%
Income Taxes 0.5% --% --%
Net Income from continuing
operations 2.0% (8.2)% --%
_______________
<FN>
<FN1>
The pro forma operations for the quarter ended March 31,1995 combines the
operations of Meteor for the quarter ended February 28, 1995, the operations
of Hillger for the three months ended March 31, 1995, and the operations of
CRI for the three months ended March 31, 1995.
</FN>
</TABLE>
The Company's sales for the three months ended March 31, 1996, were
$13,386,000 compared to $165,000 for the comparable period ending March 31,
1995 and $14,279,000 on a pro forma basis. The reduction in revenue on a pro
forma basis is due to a reduction in sales at Graves of $582,000, Hillger of
$365,000 and an increase of $54,000 at CAS. The reduction in revenue at
Graves is primarily related to fewer diesel gallons sold to the construction
and oil field sectors in the Farmington, New Mexico area. Graves is unable to
determine if this is a trend or related to an abnormal year for construction
and oil field exploration. The reduction in sales at Hillger is primarily
related to the elimination of unprofitable business. The increase in revenues
at CAS is due to additional lab analysis which trend is expected to continue
throughout the remainder of the year.
The Company's gross profit for the three months ended March 31, 1996, was
$2,250,000 compared to $165,000 for the comparable period ended March 31, 1995
and $2,599,000 on a pro forma basis. The reduction is principally related to
lower sales and a reduction in gasoline margins as the cost of gasoline rose
faster than the retail price.
The Company's operating expenses were $2,182,000 for the three months
ended March 31, 1996, compared to $257,000 for the three months ended March
31, 1995 and $2,685,000 on a pro forma basis. The reduction in expenses on a
pro forma basis is related to combining the operations of Hillger and Graves
and realizing the benefits of overhead reduction and reduction of certain
operating costs.
The Company's other income for the three months ended March 31, 1996 was
$263,001 compared to $0 for the comparable period ended March 31, 1995 and
$85,000 on a pro forma basis. The reasons for the increase are primarily
related to a reduction in interest expense due to a reduction in long term
debt and one-time refund of a petroleum product loading fee in 1996 of
approximately $250,000.
The Company's income from continuing operations for the three months
ended March 31, 1996 was $269,000 compared to a loss from continuing
operations of $92,000 in the prior year and $94,000 on a pro forma basis due
to the above described items.
COMPARISON OF THE YEAR ENDED AUGUST 31, 1995 TO AUGUST 31, 1994
The Company's principal revenues are derived from the wholesale and
retaildistribution of propane and refined petroleum products.
The following table sets forth, for the twelve month period ended August
31,1995 and 1994, certain items of the Company's Consolidated Statements of
Operations:
Percentage of Sales
1995 1994
Sales 100.0% 100.0%
Cost of Sales 85.7% 86.4%
Gross Profit 14.3% 13.6%
Operating Expenses 12.8% 12.3%
Depreciation and Amortization 1.3% 1.2%
Interest Expense 1.1% 1.1%
Other Income 0.8% 1.3%
Income Taxes (0.4%) 0.0%
Net Income (Loss) 0.3% 0.0%
The Company's sales for the twelve months ended August 31, 1995, were
$44,971,000 compared to $38,763,000 for the comparable period ending August
31,1994. The $6,208,000 (16.0%) twelve month increase is attributable to the
acquisition of Hillger Oil Company ("Hillger") effective April 1, 1995. This
acquisition increased sales by $8,385,000, while Graves Oil and Butane Co.,
Inc.("Graves") sales decreased by $2,177,000 due primarily to fewer gallons of
dieselsold in the Farmington, New Mexico area.
The Company's gross profit for the twelve months ended August 31, 1995,
was$6,452,000 compared to $5,288,000 for the comparable period ended August
31, 1994, an increase in margin from 13.6% to 14.3%. This increase is due to
additional higher-margin sales at Hillger.
The Company's operating expenses were $5,774,000 for the twelve months
ended August 31, 1995, compared to $4,802,000 for the twelve months ended
August 31,1994. This increase is attributable to the purchase of Hillger.
For the period, Hillger's operations added $1,197,000 in expenses while
Graves' expenses declined by $225,000. The Graves decline represents lower
trucking costs due to a decline in volume, transportation efficiencies and
lower insurance costs due to a change in insurance companies and improved
incurred loss ratios.
The Company's net income for the twelve months ended August 31,1995, was
$152,000 compared to a net income of $19,000 in the prior year. This change
is due in part to income tax provisions resulting from tax benefits.
YEAR ENDED AUGUST 31, 1994
The Company's principal revenues are derived from the wholesale and
retail distribution of propane and refined petroleum products.
Since the Company was formed in 1993 for the purpose of acquiring Graves,
there are no comparative results for the prior year. The following table sets
forth, for the twelve month period ended August 31, 1994, certain items of the
Company's Consolidated Statement of Operations:
Percentage of Sales
1994
Sales 100.0%
Cost of Sales 86.4%
Gross Profit 13.6%
Operating Expenses 12.3%
Depreciation and Amortization 1.2%
Interest Expense 1.1%
Other Income 1.3%
Income Taxes 0.0%
Net Income (Loss) 0.0%
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS FOR METEOR INDUSTRIES, INC. AFTER ACCOUNTING FOR THE ACQUISITION OF
CRI AS A REVERSE ACQUISITION.
YEAR ENDED DECEMBER 31, 1994 COMPARED TO 1993
Since CRI had no revenues from continuing operations in 1993, there are
no comparative numbers.
CRI's revenues from continuing operations for 1994 were $472,000 and
expenses were $602,000. The loss is due to starting laboratory analysis work
in 1994.
DISCONTINUED OPERATIONS
CRI had been involved in the production of oil and gas prior to the
transaction with the Company. Those operations were discontinued and will
have no impact on future operations. CRI had these operations in
subsidiaries.
On September 15, 1995, CRI sold the shares of Saba de Colombia, Inc., a
U.S. subsidiary engaged in the exploration and development of petroleum and
natural gas in Colombia, to a third party for consideration of $2,601,719, and
realized a gain net of taxes on the sale of the shares of $1,108,939. The
consideration received was in the form of:
Cash $2,401,719
400,000 cumulative, convertible,
redeemable first preferred shares
of Petrosandtander Inc. bearing
Dividends at 8.5% 200,000
$2,601,719
Cash of $150,000 and the preferred shares remain in escrow pending review
by Colombian taxing authorities. This subsidiary was sold by CRI in order to
make another investment.
On December 1, 1995, CRI transferred to CAPCO Acquisub, Inc., a
wholly-owned subsidiary of CAPCO Resources Ltd., all of its holdings of Saba
Petroleum Company and certain other assets and liabilities. This transaction
was recorded at book value. The net assets transferred had a book value of
approximately $50,111. These assets were transferred so that the Company
would not be involved in oil and gas production.
The net income from discontinued operations was $398,789 and the gain on
disposition, net of taxes was $1,108,939 for the year ended December 31, 1995.
ITEM 3. PROPERTIES.
The Company owns a 4,300 square foot office building in Farmington, New
Mexico. This office building plus a 4,400 square foot truck repair shop, two
warehouses totaling 15,800 square feet and an 1,855 square foot three bay
service station are located on a 4.7 acre site. While the above-mentioned
buildings are owned by the Company, they are located on property leased from
an affiliated party. The Company pays rent of $550 per month on this land and
the lease terminates on September 30, 2018, with two ten year options to
extend. The Company also owns an additional 2.5 acres adjacent to this
property where it stores moveable above ground fuel tanks.
Also, in Farmington, New Mexico, the Company owns two additional gasoline
stations, two fast lube pits and one cardlock location. The Company operates
an additional cardlock/retail location on leased property.
In Albuquerque, New Mexico, the Company owns one bulk petroleum storage
facility which includes a 7,200 square foot warehouse on five acres with a
rail spur. Also, the Company owns a 2,400 square foot convenience store, with
a car wash and quick lube pit in a separate 6,300 square foot building and a
propane distribution and cardlock facility. This convenience store and
related facilities are located on 1.6 acres of land. Also, in Albuquerque,
the Company leases two warehouses and a service station and cardlock facility.
In the Las Cruces area, the Company leases an office building, warehouse
and bulk plant and seven retail outlets. The lease relating to such
properties is a ten (10) year lease with three five (5) year options to renew.
The Company leases a truck stop in Cortez, Colorado from an affiliated
party and subleases the property to a truck stop operator. It also leases a
convenience store in Pagosa Springs, Colorado. The Company owns a service
station in St. John's, Arizona.
The Company owns a substantial amount of personal property, including
above and below ground tanks located at its bulk plants, service stations and
lube pits described above. It also owns approximately 150 portable above
ground commercial fuel tanks, over 750 propane tanks, 38 automobiles and small
trucks, and a fleet of 25 tractors with trailers.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth, as of January 26, 1996, each person known
by the Company to be the beneficial owner of five percent or more of the
Company's Common Stock, all Directors individually and all Directors and
Officers of the Company as a group. Except as noted, each person has sole
voting and investment power with respect to the shares shown.
<TABLE>
<CAPTION>
Name and Address Amount of Beneficial
of Beneficial Owner Ownership Percentage of Class
<S> <C> <C>
Capco Resources Ltd. 1,745,000<FN1> 57.7%
#950, 444 - 5th Avenue, S.W.
Calgary, Alberta
Canada T2P 2T8
Edward J. Names 330,640<FN2> 10.9%
216 - 16th Street, Suite 730
Denver, CO 80202
Ilyas Chaudhary 1,745,000<FN3> 57.7%
#950, 444 - 5th Avenue, SW
Calgary, Alberta
Canada T2P 2T8
Dennis R. Staal 107,067<FN4> 3.5%
216 - 16th Street, Suite 730
Denver, CO 80202
Adres Chaudhary 378,000 12.5%
600 Hunter Trail, Suite #4
Glendora, CA 91740
Theron J. Graves 863,148<FN5> 22.2%
761 South Miller
Farmington, NM 87499
All Executive Officers and 2,182,707 72.1%
Directors as a Group
(4 Persons)
__________________
<FN>
<FN1>
Excludes 75,000 shares which have been pledged to Capco Resources Ltd. to
secure certain guarantees made to it by NFF, Ltd. and PAMDEN, Ltd. See FN2
and FN3 below.
<FN2>
Represents 33,240 shares held directly by Mr. Names, 265,000 shares held by
NFF, Ltd., a limited partnership of which he served as general partner; and
32,400 shares held by his wife of which he disclaims beneficial ownership. Of
the shares held by NFF, Ltd., 55,000 have been pledged to Capco Resources Ltd.
to secure a guarantee made by NFF, Ltd.
<FN3>
Includes 1,745,000 shares of the Company held by Capco Resources Ltd. of which
Mr. Chaudhary is Chairman of the Board, Chief Executive Officer and
beneficially owns over 50% of its outstanding stock.
<FN4>
Includes 5,400 shares held directly by Mr. Staal; 100,000 shares held by
PAMDEN, Ltd., a limited partnership of which Mr. Staal is general partner; and
1,667 shares underlying stock options exercisable within 60 days by Mr. Staal.
Of the shares held by PAMDEN, Ltd., 20,000 have been pledged to Capco
Resources Ltd. to secure a guarantee made by PAMDEN, Ltd.
<FN5>
Represents shares of the Company's Common Stock which Mr. Graves presently has
the right to acquire upon the conversion of shares of Graves Preferred Stock
held by him.
</FN>
</TABLE>
ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS.
The Directors and Officers of the Company are as follows:
Name Age Positions and Offices Held
Edward J. Names 44 President, Chief Operating Officer
and Director
Ilyas Chaudhary 48 Chairman, Chief Executive Officer
and Director
Dennis R. Staal 47 Secretary/Treasurer and Director
There is no family relationship between any Director or Executive Officer
of the Company.
Capco Acquisub, Inc. has the right to appoint two directors, however only
one, Ilyas Chaudhary, is currently representing Capco Acquisub, Inc.
The Company presently has no committees.
Set forth 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 five
years:
Edward J. Names - President, Chief Operating Officer and Director. Mr.
Names has been President and a Director of the Company since 1993. Mr. Names
has extensive experience in mergers and asset acquisitions as well as small
business matters such as business planning, financing, management and contract
negotiation. Mr. Names was President of Alfa Resources, Inc. and its
subsidiaries from 1983 to 1995. Mr. Names resigned as President of Alfa
Resources, Inc. as of the closing of the CRI acquisition, but continues to
serve as a director of that company. Alfa Resources, Inc. is an oil and gas
company which files reports pursuant to the Securities and Exchange Act of
1934. In 1987, Mr. Names became Special Counsel to the law firm of Wills and
Sawyer, P.C., Denver, Colorado, and maintained that relationship until
December 1992. Mr. Names was associated with the firm of Nelson & Harding,
Denver, Colorado, from 1980 to 1981, and the law firm of Schmidt, Elrod &
Wills, Denver, Colorado, where he practiced corporate and securities law and
became a Partner in October 1982. Mr. Names received a Bachelor of Arts
Degree in Economics from the University of Colorado in 1973, and a Juris
Doctorate from the University of Denver College of Law in 1980. He devotes
his full time to the business of the Company and its subsidiaries.
Ilyas Chaudhary - Chairman of the Board, Chief Executive Officer and
Director. Mr. Chaudhary has been Chairman of the Board, Chief Executive
Officer and a Director of the Company since November 1995, and has been the
sole officer and director of Capco Resources, Inc. ("CRI"), which is now a
wholly-owned subsidiary of the Company, since October 1993. He has also been
a director of Saba Petroleum Company, a publicly held oil and gas company
listed on the American Stock Exchange, since 1985, and has served as its
Chairman of the Board since 1993. He has been Saba Petroleum Company's Chief
Executive Officer since 1993 and its President since 1994. Mr. Chaudhary is a
director and controlling shareholder of Capco Resources Ltd., the Company's
majority shareholder. Mr. Chaudhary has 24 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 - Secretary and Treasurer and Director. Mr. Staal has
been Secretary and Treasurer and a Director of the Company since July 1993.
He also serves as an officer and director of several of the Company's wholly
owned subsidiaries. Mr. Staal is a graduate of the University of Nebraska,
where he received a Bachelor of Science degree in Business Administration in
1970. 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. Mr. Staal is currently
Treasurer of Alfa Resources, Inc. and an officer and director of its
subsidiaries. Mr. Staal also is President and a Director of Mystique
Developments, Inc., an oil and gas company which files reports pursuant to the
Securities Exchange Act of 1934. He devotes approximately 80% of his time to
the business of the Company and its subsidiaries.
ITEM 6. EXECUTIVE COMPENSATION.
The following information regarding the executive compensation for the
Company's President for the fiscal years ended August 31, 1995, 1994 and 1993.
No other executive officer received compensation in excess of $100,000 during
such periods.
<TABLE>
Summary Compensation Table
<CAPTION>
Long Term Compensation
Annual Compensation Awards Payouts
Securities
Other Underlying
All
Annual Restricted Options/
Other
Name and Principal Compen- Stock SARs LTIP
Compen-
Position Year Salary Bonus sation Award(s) (Number)
Payouts sation
<S> <C> <C> <C> <C> <C> <C> <C>
<C>
Edward J. Names 1995 $78,000 -- -- -- -- --
$4,512*
President 1994 $62,769 -- -- -- -- --
$3,384*
1993 $ -0- -- -- -- -- --
--
___________________
* Represents premiums paid on health insurance policies for Mr. Names.
</TABLE>
Edward J. Names, President and Chief Operating Officer of the Company,
entered into a five-year employment agreement with the Company which became
effective in January 1994, which provides that Mr. Names is required to devote
substantially all his work time to the Company. The agreement was amended in
November 1995 to provide for an annual salary of $105,000. Pursuant to his
employment agreement, Mr. Names is allowed to devote up to 10 hours per month
to other business operations including his duties as a director or officer in
other companies including Alfa Resources, Inc., an oil and gas company of
which he is currently a director. Absent notice to the contrary from the
Company or Mr. Names, the five-year term of the employment agreement will
renew automatically each year. The Company can terminate his employment,
however, at any time without cause and be obligated only for one year's
salary. The employment agreement includes a covenant not to compete which is
effective for two years after termination of employment.
Ilyas Chaudhary, Chairman of the Board and Chief Executive Officer of the
Company, presently receives no salary.
Dennis R. Staal, Secretary/Treasurer of the Company, presently receives
an annual salary totaling $36,000 per year from the Company and a subsidiary.
Commencing on January 1, 1996, Mr. Staal's annual salary will increase to
$55,000 and he will devote approximately 80% of his time to the business of
the Company and its subsidiaries.
STOCK OPTION PLAN
A stock option plan providing for the issuance of incentive stock options
and non-qualified stock options to the Company's employees was approved by the
Company's shareholders on April 15, 1993. Pursuant to the Plan, 500,000
shares of the Company's $.001 par value Common Stock have been reserved for
issuance. On October 1, 1993, incentive stock options were granted to
employees. As of December 1, 1995, out of these options, options to purchase
43,000 shares were outstanding (after deducting options which expired as a
result of termination of employment). These options are exercisable at $3.00
per share and vest in five equal installments each year following the date of
grant.
On February 1, 1994, additional incentive stock options were granted to
employees. As of December 1, 1995, out of these options, options to purchase
49,600 shares were outstanding (after deducting options which expired as a
result of termination of employment). Included in these options is an option
to purchase 17,000 shares granted to C. Thomas Houseman, a former Director of
the Company. These options are exercisable at $5.25 per share and vest in
three equal installments each year following the date of grant.
On August 4, 1995, incentive stock options to purchase 10,000 shares each
of Common Stock were granted to Dennis R. Staal, Secretary/Treasurer of the
Company, and C. Thomas Houseman, a former Director of the Company, and an
incentive stock option to purchase 1,000 shares was granted to an employee.
These options are exercisable at $3.00 per share and vest over three years on
a pro rata monthly basis following the date of grant.
On November 30, 1995, the Board of Directors granted options to Edward J.
Names, President of the Company, and Ilyas Chaudhary, Chairman and Chief
Executive Officer, each to purchase 100,000 shares of the Company's Common
Stock, and Dennis R. Staal, Secretary/Treasurer of the Company, to purchase
15,000 shares of Common Stock. These options are exercisable at $3.50 per
share and vest over a period of three years on a pro rata quarterly basis
following the date of grant.
CONSULTANTS' OPTIONS
In November 1995, the Company granted options to two consultants to
purchase a total of 100,000 shares of the Company's Common Stock. These
options are exercisable at $2.50 per share and expire on June 30, 1996.
DIRECTOR COMPENSATION
Directors of the Company do not receive any fees for their services in
such capacity. However, each Director is reimbursed for all reasonable and
necessary costs and expenses incurred as a result of being a Director of the
Company.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The Board of Directors of the Company is of the opinion that the terms of
each of these transactions were at least as favorable to the Company as could
have been obtained from unaffiliated parties. All ongoing and future
transactions with affiliates will be on terms no less favorable than those
which could be obtained from unaffiliated parties.
TRANSACTIONS INVOLVING THE COMPANY'S OFFICERS AND DIRECTORS
During 1993, Edward J. Names, Dennis R. Staal, Daniel B. Matter and C.
Thomas Houseman, the Company's founders, purchased a total of 475,500 shares
of the Company's Common Stock for total consideration of $30,750 cash and $800
in interest expense and services rendered. In addition, these persons have
advanced funds to the Company from time to time.
Edward J. Names, President of Meteor, has personally guaranteed debt due
to Norwest Business Credit, Inc., as described above, up to a maximum of
$250,000 related to the Graves acquisition and $250,000 related to the Hillger
acquisition. Mr. Names and Dennis R. Staal, who is Secretary and Treasurer of
Meteor, each have agreed to personally guarantee the debts of Graves and
Hillger to its major suppliers and a debt to a Farmington, New Mexico bank.
Capco Resources Ltd. has agreed to indemnify Edward Names and Dennis Staal
relating to such guarantees.
TRANSACTIONS INVOLVING GRAVES
On September 28, 1993, the Company acquired all of the issued and
outstanding common stock of Graves Oil & Butane Co., Inc. from its sole
shareholder, Theron J. Graves. As a result of the transaction, Theron J.
Graves retired as the Company's chief executive officer but agreed to provide
consulting services for a period of seven years. Mr. Graves continues his
investment by holding 1,000,000 shares of convertible cumulative preferred
stock of Graves with a liquidation preference of $3,543,500, and a promissory
note from the Company for $2,350,000, which, as of August 31, 1995, had an
outstanding balance of $2,040,921.
The structure of the acquisition is summarized below:
Purchase Price for Common Stock: $4,100,000
Cash Paid at Closing: $1,750,000
Financing Provided by Seller: $2,350,000 note with interest at 2% over
prime, payable $200,000 (including principal and interest) every six months
and the balance on October 1, 1997 (the "Note"). This Note is secured by 50%
of the Graves common stock purchased by the Company.
Preferred Stock Retained by Seller: 1,000,000 shares of convertible
preferred stock with a total liquidation preference of $3,543,500 and
dividends accruing at a rate of 8% per annum until the date of redemption,
which shall be no earlier than September 15, 2000 (the "Convertible
Securities"). In the event of a default under the promissory note issued to
purchase the Graves common stock, the holders of the Graves Series A Preferred
have the ability to elect all the Graves directors. The Company's preferred
stock obligations are secured by the unencumbered fixed assets of Graves.
These securities are convertible into common stock of Graves or the Company at
the bid price on the date of conversion or a maximum of 22.2% of the Company,
whichever calculation yields fewer shares. The preferred stock, on
conversion, also carries certain piggy-back registration rights.
Indemnifications: Theron Graves has agreed to indemnify the Company for
seven years against all losses and expenses exceeding $25,000 per year up to a
cumulative total of $8,000,000 relating to environmental liabilities
associated with the properties of the Company as of the closing date or any
inaccuracies in the representations and warranties in the purchase agreement.
Prior to the Company's acquisition, Mr. Graves owed approximately
$650,000 to Graves. In connection with the acquisition, Mr. Graves executed
two promissory notes payable on the date the Meteor note to Mr. Graves is due
(October 1, 1997) plus interest at the same rate as the Company's note. One
promissory note is for $100,000 representing the price of an airplane Mr.
Graves purchased from the Company. The other promissory note for $550,000
represents funds advanced to or on behalf of Mr. Graves from time to time over
several years. This note is secured by unimproved real estate Mr. Graves owns
in the Albuquerque, New Mexico area ("Coors Road Property"). If such property
is sold by Mr. Graves, the principal amount of the $550,000 note (up to the
amount of the property's sales price) becomes immediately payable and is to be
discharged by reducing the principal amount of the Company's $2,350,000 note
to Mr. Graves, and the liquidation value of Mr. Graves' preferred stock
retained in Graves Oil, each by one-half the amount accelerated under the
$550,000 note. In addition, the Company has both (I) a right of first refusal
on the entire Coors Road Property, and (ii) a right to purchase a portion of
such property sufficient to build a retail gas station at fair market value,
and all or a portion of the resulting consideration due can be paid by the
Company by reducing the $550,000 note from Mr. Graves.
The Company leases real estate in Colorado from Mr. Theron Graves and
subleases the property to a truck stop operator. Graves pays ad valorem taxes
and insurance expense on the property. In addition, the Company leases land
from Mr. Graves on which a yard, warehouses and offices are located. The
parties have entered into an agreement which provides for regular payments of
$500 per month beginning September 1, 1993. The rent escalates at 5% per
annum, the lease term is 25 years, and the Company has two ten year options to
extend such lease.
TRANSACTIONS INVOLVING CAPCO RESOURCES LTD.
In June 1995, Capco Resources, Inc. ("CRI") purchased 378,000 (as
adjusted for the 8% stock dividend) shares of the Company's Common Stock for
$700,000 in cash. As a result of this transaction, CRI's parent, Capco
Resources Ltd. ("Capco"), became a principal shareholder of the Company.
Immediately prior to the acquisition of CRI by the Company, CRI sold all
378,000 shares held by it to Adres Chaudhary (who is not related to Ilyas
Chaudhary) for the forgiveness of debt in the amount of approximately
$700,000. CRI offered Adres Chaudhary this asset to reduce its debt to him.
In November 1995, the Company issued 1,745,000 shares of its Common Stock
in exchange for all of the outstanding stock of CRI. The shares of the
Company's Common Stock issued in this transaction, which represent
approximately 58% of the shares now outstanding, were issued to a U.S.
subsidiary of Capco. As a result of this transaction, there was a change in
control of the Company and two of the Company's three directors were replaced
by Capco representatives. The major assets of CRI include: (I) an interest in
Saba Power Company Ltd., which is involved in the development of a power plant
in Pakistan; (ii) all of the stock of Capco Analytical Services, Inc., a
California environmental services firm; and (iii) a $1,516,000 promissory note
from Saba Petroleum Company and other miscellaneous assets. Saba Petroleum
Company is a publicly-held company of which Ilyas Chaudhary, the Company's
Chief Executive Officer, is an officer, director and principal shareholder.
The promissory note bears interest at 9% and is due in 2006. However, Capco
has agreed to guarantee the prepayment of such note prior to the time it is
required by Cogen to fund the first installment of the Pakistani power project
investment. If such note is not prepaid prior to such date, Capco has agreed
to return to the Company 872,500 shares of Meteor's Common Stock.
In connection with the agreement with Capco, NFF, Ltd. and PAMDEN, Ltd.,
limited partnerships which are controlled by Edward J. Names and Dennis R.
Staal, respectively, guaranteed on a limited recourse basis the
representations and warranties of the Company in the agreement. To secure
these guarantees, NFF, Ltd. and PAMDEN, Ltd. pledged 55,000 and 20,000 shares,
respectively, to Capco.
Also in connection with this agreement a subsidiary of Capco agreed to
indemnify Edward J. Names and Dennis R. Staal against any liability they may
incur as a result of the personal guarantees they have given in order to
assist the Company and its subsidiaries.
CONFLICTS OF INTEREST
All of the Company's Officers and Directors have been in the past and may
continue to be active in other business with other companies and on their own
behalf. These activities could give rise to potential conflicts with the
interests of the Company. The Company's officers, directors, and other
management personnel are subject to the doctrine of corporate opportunities
only insofar as it applies to business opportunities in which the Company has
indicated an interest, either through its proposed business plan or by way of
an express statement of interest contained in the Company' minutes. Pursuant
to a resolution of the Board of Directors of the Company, the Officers are
required to make available to the Company any business opportunity relating to
the wholesale and retail distribution of refined petroleum products which
comes to the attention of any such Officer, and the Company shall have a right
of first refusal with regard to such opportunity. A second resolution of the
Board of Directors sets forth that if a business opportunity relating to the
wholesale and retail distribution of refined petroleum comes to the attention
of a Director and specifically is presented to the Director in his capacity as
such, it must be disclosed to the Company and made available to it. If an
Officer or Director owes a fiduciary duty to another entity similar to the
duty owed to the Company, it is possible that the conflict may be impossible
to resolve in a manner that is equitable to both entities.
A majority of the disinterested Directors may reject a corporate
opportunity for various reasons. If the Company rejects an opportunity, then
any Director or Officer may avail himself or themselves of such opportunity.
In addition, if an opportunity is presented to the Company, and one or more of
the Company's Officers or Directors has an interest in the opportunity, the
opportunity will be reviewed at a meeting of the Board of Directors and the
interested Director(s) will not vote on issues relating to such opportunity.
The Board of Directors has not yet adopted any resolutions related to
other aspects of the Company's business.
ITEM 8. LEGAL PROCEEDINGS.
The Company is not a party to any material pending legal proceedings
otherwise than in the normal course of business, and no such proceedings are
known to be contemplated.
ITEM 9. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS.
The principal market for trading the Company's Common Stock has been the
over-the-counter market. Prices for the Common Stock are quoted on the OTC
Bulletin Board.
The range of high and low bid quotations for the Company's Common Stock
since public trading began in January 1994 provided below were obtained from
the National Quotation Bureau for periods through August 31, 1995, and from
Paragon Capital, a market maker, after that date. The stock is principally
owned or controlled by officers and directors, and the bid prices reported may
not be indicative of the value of the Common Stock. The volume of trading in
the Company's Common Stock has been very limited. The existence of an active
trading market may not exist at any given time and shareholders may have
difficulty selling their shares. These over-the-counter market quotations
reflect inter-dealer prices without retail markup, markdown or commissions and
may not necessarily represent actual transactions.
Bid*
Period High Low
Quarter Ended February 28, 1994. . . . $4.63 $4.17
Quarter Ended May 31, 1994 . . . . . . $4.17 $3.70
Quarter Ended August 31, 1994. . . . . $4.17 $2.78
Quarter Ended November 30, 1994. . . . $4.63 $2.78
Quarter Ended February 28, 1995. . . . $4.63 $3.94
Quarter Ended May 31, 1995 . . . . . . $4.63 $3.47
Quarter Ended August 31, 1995. . . . . $4.28 $2.50
Month Ended September 30, 1995 . . . $3.00 $3.00
Quarter Ended December 31, 1995. . . . $3.00 $3.00
Quarter Ended March 31, 1996 . . . . . $4.25 $3.00
__________________
* As restated to give retroactive affect to a stock dividend of 8% which
was paid to shareholders of record as of June 30, 1995.
As of December 20, 1995, there were approximately 30 record holders of
the Company's Common Stock. Based on securities position listings, the
Company believes that there are approximately 100 beneficial holders of the
Company's Common Stock.
The Company has paid no cash dividends on its Common Stock and has no
present intention of paying cash dividends in the foreseeable future. In June
1995, the Company declared an 8% stock dividend on its outstanding Common
Stock. It is the present policy of the Board of Directors to retain all
earnings to provide for the growth of the Company. Payment of cash dividends
in the future will depend, among other things, upon the Company's future
earnings, requirements for capital improvements and financial condition.
The Company's ability to pay any cash dividends on the Company's Common
Stock in the future will be limited by the dividend requirements of the
Preferred Stock of a Subsidiary.
ITEM 10. RECENT SALES OF UNREGISTERED SECURITIES.
During its past three fiscal years, the Company issued securities which
were not registered under the Securities Act of 1933, as amended (the "Act"),
as follows. The numbers of shares of Common Stock stated give retroactive
effect to an 8% stock dividend which was effected in June 1995.
During the period from April 15, 1993 through August 16, 1993, the
Company issued 635,000 shares of its Common Stock to 27 persons who were
officers, directors and sophisticated investors (includes the conversion of
Series A Preferred Stock into Common Stock) as follows:
<TABLE>
<CAPTION>
Amount and Type
Name Number of Shares of Consideration
<S> <C> <C>
Edward J. Names<FN1> 325,000 $12,500 Cash
$ 300 Services
Dennis R. Staal<FN2> 105,000 $17,000 Cash
$ 300 Services
Almo Industries 50,000 $ 6,250 Cash
$ 300 Services
John D. Bellino 2,000 $ 2,000 Cash
John E. Bradley 2,000 $ 2,000 Cash
Richard B. Cutforth 5,000 $ 5,000 Cash
Michael J. Derrick 2,500 $ 2,500 Cash
Donald A. French 5,000 $ 5,000 Cash
Geraldine Gibson 3,000 $ 3,000 Cash
John A. Gould 5,000 $ 5,000 Cash
Gerald M. Greenberg 10,000 $10,000 Cash
H. Wayne Hoover 2,500 $ 2,500 Cash
Kim E. Hensley 30,000 $30,000 Cash
C. Thomas Houseman 5,000 $ 5,000 Cash
Lear 171 Inc. 10,000 $10,000 Cash
James L. Lewis 2,500 $ 2,500 Cash
Phil & Barbara Minnis 10,000 $10,000 Cash
C.L. Nordstrom 5,000 $ 5,000 Cash
Sandra L. Schlueter 3,000 $ 3,000 Cash
Michael Skurich 5,000 $ 5,000 Cash
ENS Family Partnership 10,000 $10,000 Cash
John & Dinah Sullivan, TTEE 10,000 $10,000 Cash
TBT Family Partners, Ltd. 5,000 $ 5,000 Cash
Gary R. Tice 5,000 $ 5,000 Cash
Daniel J. Vogl 5,000 $ 5,000 Cash
Pamela J. Wilkinson 2,500 $ 2,500 Cash
ITEN 10,000 $10,000 Cash
<FN>
<FN1>
Includes shares issued to Mr. Names' wife
<FN2>
Includes shares issued to a corporation controlled by Mr. Staal.
</FN>
</TABLE>
In connection with these issuances, the Company relied on Section 4(2) of
the Securities Act of 1933, as amended. The shares were offered for
investment only and not for the purpose of resale or distribution, and the
transfer thereof was appropriately restricted by the Company.
During January 1994, the Company sold 200,000 shares of Common Stock for
an aggregate of $1,000,000 in cash. The Company paid a commission of $100,000
to VTR Capital, Inc. for its services as underwriter, and issued it
Underwriter's Warrants to purchase 17,000 shares of the Company's Common
Stock.
With respect to these sales, the Company relied on Section 3(b) of the
Securities Act of 1933, as amended, and Regulation A promulgated thereunder.
Each investor was given a copy of an Offering Circular containing complete
information concerning the Company, an Offering Statement on Form 1-A was
filed with the SEC and the Company complied with the other applicable
requirements of Regulation A.
In June 1995, the Company sold 396,360 shares of its Common Stock to four
sophisticated investors for an aggregate of $734,000 in cash as follows:
Amount and Type
Name Number of Shares of Consideration
Capco Resources, Inc.* 378,000 $700,000 in cash
C. Thomas Houseman 2,160 $ 4,000 in cash
Charles R. Gwirtsman 10,800 $ 20,000 in cash
Sawyer Family Partners 5,400 $ 10,000 in cash
__________________
* The shares sold to Capco Resources, Inc. were subsequently resold to
Adres Chaudhary.
In connection with these issuances, the Company relied on Section 4(2) of
the Securities Act of 1933, as amended. The shares were offered for
investment only and not for the purpose of resale or distribution, and the
transfer thereof was appropriately restricted by the Company.
In November 1995, the Company issued 1,745,000 shares of its Common Stock
in exchange for all of the outstanding stock of Capco Resources, Inc., a
Delaware corporation. The shares of the Company's Common Stock issued in this
transaction were issued to a U.S. subsidiary of Capco Resources Ltd., an
Alberta corporation, which is listed on the Alberta Stock Exchange.
In connection with this issuance, the Company relied on Section 4(2) of
the Securities Act of 1933, as amended. The shares were offered for
investment only and not for the purpose of resale or distribution, and the
transfer thereof was appropriately restricted by the Company.
ITEM 11. DESCRIPTION OF REGISTRANT'S SECURITIES TO BE REGISTERED.
COMMON STOCK
The Company's Articles of Incorporation authorize the issuance of
10,000,000 shares of Common Stock, $.001 par value. Each record holder of
Common Stock is entitled to one vote for each share held on all matters
promptly submitted to the stockholders for their vote. Cumulative voting for
the election of directors is not permitted by the Articles of Incorporation.
Holders of outstanding shares of Common Stock are entitled to such
dividends as may be declared from time to time by the Board of Directors out
of legally available funds; and, in the event of liquidation, dissolution or
winding up of the affairs of the Company, holders are entitled to receive,
ratably, the net assets of the Company available to stockholders after
distribution is made to the preferred stockholders, if any, who are given
preferred rights upon liquidation. Holders of outstanding shares of Common
Stock are, and all unissued shares when offered and sold will be, duly
authorized, validly issued, fully paid, and nonassessable. To the extent that
additional shares of the Company's Common Stock are issued, the relative
interests of the existing stockholders may be diluted.
PREFERRED STOCK
The Company's Articles of Incorporation authorize the issuance of
10,000,000 shares of Preferred Stock, $1.00 par value. The Board of Directors
of the Company is authorized to issue the Preferred Stock from time to time in
series and is further authorized to establish such series, to fix and
determine the variations in the relative rights and preferences as between
series, to fix voting rights, if any, for each series, and to allow for the
conversion of Preferred Stock into Common Stock. At present, no Preferred
Stock is issued or outstanding or contemplated to be issued.
SECURITIES OF SUBSIDIARY
The Company's Graves subsidiary has authorized 1,000,000 shares of $.01
par value common stock, all of which is issued, outstanding and owned by the
Company. Graves also has authorized 1,000,000 shares of Series A Preferred
Stock, all of which are issued, outstanding and held by Theron J. Graves, the
former 100% shareholder of Graves. (See "CERTAIN TRANSACTIONS --Transactions
Involving Graves.") The Graves Series A Preferred Stock has a liquidation
value of $3.5435 per share, accrues a dividend of 8% per year, and is
redeemable at liquidation value plus accrued dividends by the holder any time
after September 15, 2000. The Graves Series A Preferred Stock is convertible
into either the common stock of Meteor or the common stock of Graves at the
option of the holder. The conversion rate is based on the bid price of the
common stock, if a trading market exists, but the total common shares issued
on conversion of all preferred stock can not exceed 22.2% of the issuing
company's outstanding common stock. The 22.2% limit, however, is reduced pro
rata based on the number of common shares the Company has registered with the
Securities and Exchange Commission prior to a conversion. The obligations of
Graves under the Series A Preferred Stock is secured by the fixed assets of
Graves. In the event of a default under the Meteor promissory note issued to
purchase the Graves common stock, the holders of the Graves Series Preferred
have the ability to elect all the Graves Directors. The holder of the common
stock received on conversion is entitled to certain rights to have such common
stock registered for sale.
UNDERWRITER'S WARRANTS
In connection with the Company's initial public offering, the Company
issued to the managing underwriter Underwriter's Warrants to purchase shares
of Common Stock. The Warrants are presently exercisable to purchase
approximately 30,250 shares of Common Stock at a price of approximately $3.40
per share through January 13, 1999. The exercise price of the Underwriter's
Warrants and the number of shares of Common Stock underlying said
Underwriter's Warrants was subject to adjustment under certain circumstances
to prevent dilution to the holders in the event of stock dividends, stock
splits, stock combinations or upon a sale of assets, merger or consolidation.
Holders of the shares of Common Stock underlying the Underwriter's
Warrants have the right to join in any registration statement or offering
filed by the Company under the Securities Act of 1933 to register the
Underwriter's Warrants and underlying securities for a period of seven years
from January 14, 1994. In addition, for a period of five years from January
14, 1994, the Company agreed, upon request of the holders of not less than
fifty percent of the Underwriter's Warrants or underlying securities, to file,
not more than once, a registration statement or offering statement under
Regulation A registering or qualifying the underlying shares at the Company's
expense. All expenses of such registration or qualification (except for
underwriting commissions and expense) including, but not limited to, legal,
accounting, state and federal filing fees and the cost of printing offering
statements, will be borne by the Company, which will be a substantial cost to
the Company.
In March, 1996, the Company and the holder of the Underwriter's Warrants
agreed to reduce the number of shares issuable upon exercise of such Warrants
to 17,000 and reduce the exercise price on those Warrants to $1.00 per share.
The holder of the Underwriter's Warrants also agreed to eliminate the demand
registration rights and the anti-dilution provisions of the Warrants.
DIVIDENDS
No dividends have been paid by the Company on any of its securities in
the past and such dividends are not contemplated in the foreseeable future.
Dividends will be dependent directly on earnings of the Company, financial
needs, and other similar unpredictable factors and will be declared solely at
the discretion of the Board of Directors.
REPORTS TO INVESTORS
The Company intends to provide holders of its securities with annual
reports containing financial statements. The Company also will issue
quarterly or other interim reports to its stockholders as it deems
appropriate.
TRANSFER AGENT
American Securities Transfer, Inc., 938 Quail Street, No. 101, Lakewood,
Colorado 80215, serves as the transfer agent for the Common Stock of the
Company.
ITEM 12. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
As permitted by Colorado law, the Company's Articles of Incorporation
provide that the Company will indemnify its directors and officers against
expenses and liabilities they incur to defend, settle, or satisfy any civil or
criminal action brought against them on account of their being or having been
Company directors or officers unless, in any such action, they are adjudged to
have acted with gross negligence or willful misconduct. Insofar as
indemnification for liabilities arising under the Securities Act of 1933 may
be permitted to directors, officers or persons controlling the Company
pursuant to the foregoing provisions, the Company has been informed that, in
the opinion of the Securities and Exchange Commission, such indemnification is
against public policy as expressed in that Act and is, therefore,
unenforceable.
Pursuant to the provisions of the Colorado Business Corporation Act, the
Company's Articles of Incorporation exclude personal liability for its
directors for monetary damages based upon any violation of their fiduciary
duties as directors, except as to liability for any breach of the duty of
loyalty, acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, acts in violation of Section
7-108-403 of the Colorado Business Corporation Act, or any transactions from
which a director receives an improper personal benefit.
ITEM 13. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The financial statements appear at pages F-1 through F-93 of this filing.
ITEM 14. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
The Company has had no disagreements with accountants on accounting and
financial disclosure. The Company has changed accountants from Coopers &
Lybrand L.L.P. to Squire and Woodward, P.C. in 1994 and back to Coopers &
Lybrand L.L.P. in 1996.
In March 1994, the Company engaged Squire & Woodward, P.C. as its
independent accountants for the fiscal year ended August 31, 1994. Also in
March 1994, Coopers & Lybrand L.L.P. were dismissed as the Company's
independent accountants. Coopers & Lybrand L.L.P.'s report on the financial
statements for the fiscal year ended August 31, 1993, contained no adverse
opinion or disclaimer of opinion, nor was it qualified as to uncertainty,
audit scope or accounting principles. The Company's Board of Directors made
the decision to engage Squire & Woodward, P.C. The Company has no audit or
similar committee.
In connection with the prior audit for the fiscal year ended August 31,
1993, and during the interim period from August 31, 1993 to March 1994, there
were no disagreements with Coopers & Lybrand L.L.P. on any matter of
accounting principles or practices, financial statement disclosure, or
auditing scope or procedure.
The Company did not consult with Squire & Woodward, P.C. with regard to
any matter concerning the application of accounting principles to any specific
transactions, either completed or proposed, or the type of audit opinion that
might be rendered with respect to the Company's financial statements.
The Company has requested that Coopers & Lybrand L.L.P. review this
disclosure and that firm has been given an opportunity to furnish the Company
with a letter addressed to the Commission containing any new information,
clarification of the Company's expression of its views, or the respect in
which it does not agree with the statements made by the Company herein. Such
letter is filed as an exhibit hereto.
In March 1996, the Company engaged Coopers & Lybrand L.L.P. as its
independent accountants for the Company's next fiscal year. Also in March
1996, Squire & Woodward, P.C. were dismissed as the Company's independent
accountants. Squire & Woodward, P.C.'s report on the financial statements for
the fiscal years ended August 31, 1995 and 1994, contained no adverse opinion
or disclaimer of opinion, nor was it qualified as to uncertainty, audit scope
or accounting principles. The Company's Board of Directors made the decision
to engage Coopers & Lybrand L.L.P. The Company has no audit or similar
committee.
In connection with the prior audit for the fiscal years ended August 31,
1995 and 1994, and during the interim period from August 31, 1995 to March
1996, there were no disagreements with Squire & Woodward, P.C. on any matter
of accounting principles or practices, financial statement disclosure, or
auditing scope or procedure.
The Company did not consult with Coopers & Lybrand L.L.P. with regard to
any matter concerning the application of accounting principles to any specific
transactions, either completed or proposed, or the type of audit opinion that
might be rendered with respect to the Company's financial statements.
The Company has requested that Squire & Woodward, P.C. review this
disclosure and that firm has been given an opportunity to furnish the Company
with a letter addressed to the Commission containing any new information,
clarification of the Company's expression of its views, or the respect in
which it does not agree with the statements made by the Company herein. Such
letter is filed as an exhibit hereto.
ITEM 15. FINANCIAL STATEMENTS AND EXHIBITS.
(a) FINANCIAL STATEMENTS. The following financial statements are filed
as part of this Report:
Page(s)
METEOR INDUSTRIES, INC. FINANCIAL STATEMENTS (UNAUDITED)
Consolidated Balance Sheet - March 31, 1996 and December 31, 1995 . . . F-1
Consolidated Statements of Operations - March 31, 1996 and 1995 . . . . F-2
Consolidated Statements of Cash Flows- March 31, 1996 and 1995 . . . . F-3
Notes to Consolidated Financial Statements. . . . . . . . . . . . . . . F-4
METEOR INDUSTRIES, INC. FINANCIAL STATEMENTS
Reports of Independent Accountants . . . . . . . . . . . . . . . . . . F-5
Consolidated Balance Sheet - December 31, 1995. . . . . . . . . . . . . F-6
Consolidated Statement of Income - December 31, 1995. . . . . . . . . . F-8
Consolidated Stockholders' Equity - December 31, 1995 . . . . . . . . . F-9
Consolidated Statement of Cash Flow - December 31, 1995 . . . . . . . . F-10
Notes to Consolidated Financial Statements. . . . . . . . . . . . . . . F-12
Independent Auditors' Report. . . . . . . . . . . . . . . . . . . . . . F-23
Consolidated Balance Sheets - August 31, 1995 and 1994. . . . . . . . . F-24
Consolidated Statements of Income - August 31, 1995 and 1994. . . . . . F-26
Consolidated Statements of Stockholders' Equity - August 31,
1995 and 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-27
Consolidated Statements of Cash Flow - August 31, 1995 and 1994 . . . . F-28
Notes to Consolidated Financial Statements. . . . . . . . . . . . . . . F-30
Independent Auditor's Report. . . . . . . . . . . . . . . . . . . . . . F-42
Balance Sheet - August 31, 1993 . . . . . . . . . . . . . . . . . . . . F-43
Statement of Operations - August 31, 1993 . . . . . . . . . . . . . . . F-44
Statement of Changes in Stockholders' Equity - August 31, 1993. . . . . F-45
Statement of Cash Flow - August 31, 1993. . . . . . . . . . . . . . . . F-46
Notes to Financial Statements. . . . . . . . . . . . . . . . . . . . . . F-47
CAPCO RESOURCES, INC. FINANCIAL STATEMENTS
Auditor's Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-50
Consolidated Balance Sheet - December 31, 1994 and 1993. . . . . . . . . F-51
Consolidated Statement of Operations and Retained Earnings (Deficit)
- year end December 31, 1994 and 1993 . . . . . . . . . . . . . . . F-52
Consolidated Statement of Changes in Financial Position - year end
December 31, 1994 and 1993. . . . . . . . . . . . . . . . . . . . . F-53
Notes to Consolidated Financial statements . . . . . . . . . . . . . . . F-54
HILLGER OIL COMPANY FINANCIAL STATEMENTS
Independent Auditors' Report . . . . . . . . . . . . . . . . . . . . . . F-60
Balance Sheet - March 31, 1995 and 1994. . . . . . . . . . . . . . . . . F-61
Statement of Income - March 31, 1995, 1994 and 1993. . . . . . . . . . . F-63
Statement of Stockholders' Equity - March 31, 1995 and 1994. . . . . . . F-64
Statement of Cash Flow - March 31, 1995. 1994 and 1993 . . . . . . . . . F-65
Notes to Financial Statements. . . . . . . . . . . . . . . . . . . . . . F-66
GRAVES OIL & BUTANE CO., INC. FINANCIAL STATEMENTS
Independent Auditors' Report . . . . . . . . . . . . . . . . . . . . . . F-75
Consolidated Balance Sheet - August 31, 1993 . . . . . . . . . . . . . . F-76
Consolidated Statement of Income - August 31, 1993 . . . . . . . . . . . F-78
Consolidated Statement of Retained Earnings - August 31, 1993. . . . . . F-79
Consolidated Statement of Cash Flows - August 31, 1993 . . . . . . . . . F-80
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . F-82
(b) EXHIBITS:
Exhibit
Number Description Location
3.1 Articles of Incorporation, Incorporated by reference--
as amended to Exhibit 2.1 to Regis-
trant's Form 1-A Offering
Statement (SEC File No.
24D-3802 SML)
3.2 Bylaws Incorporated by reference--
to Exhibit 2.2 to Regis-
trant's Form 1-A Offering
Statement (SEC File No.
24D-3802 SML)
10.1 Stock Option Plan Incorporated by reference--
to Exhibit 6.1 to Regis-
trant's Form 1-A Offering
Statement (SEC File No.
24D-3802 SML)
10.2 Stock Purchase Agreement Incorporated by reference--
among Registrant, Graves to Exhibit 6.2 to Regis-
Oil & Butane Co., Inc. and trant's Form 1-A Offering
Theron J. Graves dated Statement (SEC File No.
June 23, 1993, Amendment 24D-3802 SML)
dated August 23, 1993, and
Closing Memorandum dated
September 28, 1993
10.3 $2,350,000 Promissory Note Incorporated by reference--
Payable to Theron J. Graves to Exhibit 6.3 to Regis-
and Security Agreement trant's Form 1-A Offering
Statement (SEC File No.
24D-3802 SML)
10.4 Notes Receivable ($550,000 Incorporated by reference--
and $100,000) from Theron J. to Exhibit 6.4 to Regis-
Graves trant's Form 1-A Offering
Statement (SEC File No.
24D-3802 SML)
10.5 Registration Agreement re- Incorporated by reference--
garding Subsidiary's Pre- to Exhibit 6.5 to Regis-
ferred Stock trant's Form 1-A Offering
Statement (SEC File No.
24D-3802 SML)
10.6 Security Agreement regarding Incorporated by reference--
Subsidiary's Preferred Stock to Exhibit 6.6 to Regis-
trant's Form 1-A Offering
Statement (SEC File No.
24D-3802 SML)
10.7 Consulting Agreement with Incorporated by reference--
Theron J. Graves to Exhibit 6.7 to Regis-
trant's Form 1-A Offering
Statement (SEC File No.
24D-3802 SML)
10.8 Lease regarding corporate Incorporated by reference--
Offices and storage yard to Exhibit 6.11 to Regis-
trant's Form 1-A Offering
Statement (SEC File No.
24D-3802 SML)
10.9 Lease regarding Albuquerque Incorporated by reference--
warehouse to Exhibit 6.12 to Regis-
trant's Form 1-A Offering
Statement (SEC File No.
24D-3802 SML)
10.10 Lease regarding East Main Incorporated by reference--
Properties to Exhibit 6.13 to Regis-
trant's Form 1-A Offering
Statement (SEC File No.
24D-3802 SML)
10.11 Norwest Credit and Security Incorporated by reference--
Agreement to Exhibit 6.14 to Regis-
trant's Form 1-A Offering
Statement (SEC File No.
24D-3802 SML)
10.12 $4,000,000 Note Payable to Incorporated by reference--
Norwest (partially drawn upon) to Exhibit 6.15 to Regis-
trant's Form 1-A Offering
Statement (SEC File No.
24D-3802 SML)
10.13 Meteor Corporate Guarantee Incorporated by reference--
as regarding Norwest to Exhibit 6.16 to Regis-
trant's Form 1-A Offering
Statement (SEC File No.
24D-3802 SML)
10.14 Employment Agreement with Incorporated by reference--
Edward J. Names to Exhibit 6.17 to Regis-
trant's Form 1-A Offering
Statement (SEC File No.
24D-3802 SML)
10.15 Leases regarding Cortez Incorporated by reference--
truck stop to Exhibit 6.18 to Regis-
trant's Form 1-A Offering
Statement (SEC File No.
24D-3802 SML)
10.16 Agreement between the Included in initial filing
Registrant and Hillger Oil
Co., Inc., as amended
10.17 Lease Agreement between Included in initial filing
Hillger Oil Co., Inc. and
Hillco, Inc.
10.18 Credit and Security Agree- Included in initial filing
ment between Hillger Oil
Co., Inc. and Norwest
Business Credit, Inc.
10.19 Project Development and Included in initial filing
Shareholders' Agreement
for Pakistan Power Project
10.20 Amended and Restated Share Included in initial filing
Exchange and Reorganization
Agreement
10.21 Amendment to Employment Included in initial filing
Agreement with Edward J.
Names
10.22 Amended and Restated Included in initial filing
Promissory Note from
Saba Petroleum Company
to Capco Resources, Inc.
10.23 Amendment to Project Filed herewith electronically
Development and Shareholders'
Agreement for Pakistan Power
Project
10.24 Agreement between Capco Filed herewith electronically
Resources, Inc. and Saba
Petroleum Company dated
April 24, 1996
27.1 Financial Data Schedule Filed herewith electronically
for quarter ended
March 31, 1996
27.2 Financial Data Schedule Filed herewith electronically
for fiscal year ending
December 31, 1995
99.1 Letter from Coopers & Included in initial filing
Lybrand L.L.P.
99.2 Letter from Squire & Included in initial filing
Woodward P.C.
<PAGE> METEOR INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEET
ASSETS
March 31, December 31,
1996 1995
CURRENT ASSETS
Cash and cash equivalents $ 131,116 $ 95,150
Restricted cash 431,895 541,964
Accounts receivable-trade, net of allowance 4,362,628 4,232,071
Notes receivable 54,462 156,962
Inventory 1,411,208 1,332,642
Deferred tax asset 140,614 149,824
Other current assets 199,648 151,103
Total current assets 6,731,571 6,659,716
Property, plant and equipment, net 8,473,111 8,568,392
Other assets
Notes receivable, related party 2,255,740 2,202,210
Investments in closely held businesses 759,141 759,141
Other assets 737,040 661,737
Total other assets 3,751,921 3,623,088
TOTAL ASSETS $18,956,603 $18,851,196
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable, trade $ 3,629,531 $ 2,870,045
Bank overdraft -- 71,657
Current portion, long-term debt 576,823 561,048
Accrued expenses 243,825 196,909
Taxes payable 1,005,169 898,102
Revolving credit facility 1,518,947 2,275,512
Total current liabilities 6,974,295 6,873,273
Long-term debt 2,122,487 2,194,773
Deferred tax liability 1,701,646 1,893,579
Minority interest in subsidiary 3,710,714 3,615,398
Total liabilities 14,509,142 14,577,023
SHAREHOLDERS' EQUITY
Common stock, $.001 par value; authorized
10,000,000 shares, 3,024,903 shares issued
and outstanding 3,025 3,025
Paid-in capital 2,640,063 2,640,063
Retained earnings 1,804,373 1,631,085
Total shareholders' equity 4,447,461 4,274,173
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $18,956,603 $18,851,196
The accompanying notes are an integral part of the financial statements.
F-1
<PAGE>
METEOR INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months Ended March 31, 1996 and 1995
March 31, March 31,
1996 1995
Net sales $13,385,539 $165,033
Cost of sales 11,135,244 --
Gross profit 2,250,295 165,033
Selling, general and
administrative expenses 1,961,050 257,157
Depreciation 221,089 --
Total expenses 2,182,139 257,157
Income (loss) from operations 68,156 (92,124)
Other income and (expenses)
Interest income 54,701 --
Interest expense (127,700) --
Gain (loss) on sale of assets 31,105 --
Other income 305,321 --
Total other income 263,427 --
Income (loss) before income
taxes and minority interest 331,583 (92,124)
Provision for income taxes 62,979 --
Income (loss) from continuing operations
before minority interest 268,604 (92,124)
Minority interest 95,316 --
Income (loss) from continuing operations 173,288 (92,124)
Discontinued operations:
Income from discontinued operations -- 78,671
Net income (loss) $ 173,288 $(13,453)
Income (loss) per common share from
continuing operations $ .06 $( .05)
Net income per common share $ .06 $( .01)
The accompanying notes are an integral part of the financial statements.
F-2
<PAGE>
METEOR INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended March 31, 1996 and 1995
March 31, March 31,
1996 1995
Cash flows from operating activities
Net income (loss) $ 173,288 $(13,453)
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 221,089 --
Gain (loss) on disposal of property & equipment (31,105) --
Deferred income taxes (182,723) --
Minority interest 95,316 --
Changes in assets and liabilities, net of
effects from reverse acquisition
(Increase) decrease in accounts receivable (130,557) 26,850
Increase) in inventories (78,566) --
(Increase) decrease in other current assets (48,545) (124)
Increase in accounts payable 759,486 55,053
Increase in accrued liabilities 46,916 --
Increase in taxes payable 107,067 --
(Increase) in other assets (75,302) --
Discontinued operations -- (78,671)
Net cash provided by operating activities 856,364 (10,345)
Cash flows from investing activities
Purchases of property and equipment (94,704) (2,666)
Net cash used by investing activities (94,704) (2,666)
Cash flows from financing activities
Payments on revolving credit facilities (756,565) --
Decrease in bank overdraft (71,657) --
Note receivable payments 48,970 --
Payments on long-term debt (56,511) --
Restricted Cash 110,069 --
Net cash used by financing activities (725,694) --
Net increase in cash and equivalents 35,966 (13,011)
Cash and equivalents, beginning of period 95,150 1,277
Cash and equivalents, end of period $ 131,116 $(11,734)
The accompanying notes are an integral part of the financial statements.
F-3
<PAGE>
METEOR INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996
NOTE 1 -- BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
Meteor Industries, Inc. ("Meteor" or "Company") was incorporated on December
22, 1992, as a Colorado based holding company. Graves Oil & Butane Co., Inc.
("Graves"), which was acquired effective September 1, 1993, is a wholesale and
retail distributor of petroleum products primarily in northern New Mexico,
Colorado, Arizona and Utah. Graves also operates retail gasoline and
convenience stores in northern New Mexico and Colorado. El Boracho, Inc.,
which was acquired September 1, 1993, holds a liquor license for use by an
Albuquerque, New Mexico convenience store. Hillger Oil Company ("Hillger"),
which was acquired effective April 1, 1995, is a wholesale and retail
distributor of petroleum products primarily in southern New Mexico. In
addition, Hillger operates retail gasoline and convenience stores in southern
New Mexico. Capco Resources, Inc. ("CRI"), is a holding Company involved in
developing a power project in Pakistan, and Capco Analytical Services, Inc.
("CAS") is involved in providing environmental consulting and laboratory
analysis in California, both were acquired in November 1995. The acquisition
of CRI was accounted for as a reverse acquisition with CRI treated as the
acquirer. The historical accounts of CRI are reflected in the financial
statements for the previous year.
The consolidated financial statements include the accounts of Meteor
Industries, Inc., and its wholly owned subsidiaries, Graves, (including its
wholly owned subsidiary, El Boracho, Inc.) Hillger, CRI and CAS. All
significant intercompany transactions and balances have been eliminated in
consolidation.
These financial statements have been prepared in accordance with generally
accepted 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, 1995.
Earnings per common and common equivalent share are computed by dividing the
net income by the weighted average number of common shares. The number of
shares used in the earnings per share computation for 1996 is 3,024,903 and
for 1995 is 1,745,000 (equivalent Meteor shares, actual shares outstanding are
100).
F-4
<PAGE>
Report of Independent Accountants
To the Board of Directors
Meteor Industries, Inc.:
We have audited the accompanying balance sheet of Meteor Industries, Inc., as
of December 31, 1995, and the related statements of income, stockholders'
equity and cash flows for the year then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
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 misstatements. 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 financial statements referred to above presently fairly,
in all material respects, the financial position of Meteor Industries, Inc. as
of December 31, 1995, and the results of its operations and its cash flows for
the year then ended, in conformity with generally accepted accounting
principles.
By /s/ Coopers & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P.
Denver, Colorado
May 31, 1996
F-5
<PAGE>
METEOR INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEET
December 31, 1995
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 95,150
Restricted cash 541,964
Accounts receivable-trade, net of
allowance of $206,979 4,232,071
Notes receivable 156,962
Inventory 1,332,642
Deferred tax asset 149,824
Other current assets 151,103
Total current assets 6,659,716
Property, plant and equipment, net 8,568,392
Other assets
Notes receivable, related party $ 2,202,210
Investments in closely held businesses 759,141
Other assets 661,737
Total other assets 3,623,088
TOTAL ASSETS $18,851,196
The accompanying notes are an integral part of the financial statements.
F-6
<PAGE>
METEOR INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEET
December 31, 1995
(Continued)
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable, trade $ 2,870,045
Bank overdraft 71,657
Current portion, long-term debt 561,048
Accrued expenses 196,909
Taxes payable 898,102
Revolving credit facility 2,275,512
Total current liabilities 6,873,273
Long-term debt 2,194,773
Deferred tax liability 1,893,579
Minority interest in subsidiary 3,615,398
Total liabilities 14,577,023
Commitments and contingencies (Notes 11, 12 and 13)
SHAREHOLDERS' EQUITY
Common stock, $.001 par value; authorized
10,000,000 shares, 3,024,903 shares issued and
outstanding 3,025
Paid-in capital 2,640,063
Retained earnings 1,631,085
Total shareholders' equity 4,274,173
TOTAL LIABILITIES AND SHARE-
HOLDERS' EQUITY $ 18,851,196
The accompanying notes are an integral part of the financial statements.
F-7
<PAGE>
METEOR INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Year Ended December 31, 1995
Net sales $ 9,828,092
Cost of sales 7,373,304
Gross profit 2,454,788
Selling, general and administrative expenses 2,243,612
Depreciation 151,709
Total expenses 2,395,321
Income from operations 59,467
Other income and (expenses)
Interest income 28,047
Interest expense (91,621)
Loss on sale of assets ( 7,460)
Total other expenses (71,034)
Loss from continuing operations before income
taxes and minority interest (11,567)
Income tax benefit 1,470
Loss from continuing operations before minority
interest (10,097)
Minority interest (63,544)
Loss from continuing operations (73,641)
Discontinued operations:
Income from discontinued operations (net of
applicable income taxes of $180,130) 398,789
Gain on disposal of discontinued operations
(net of applicable taxes of $812,725) 1,108,939
Net income $ 1,434,087
Loss per common share from continuing operations $ (.15)
Net income per common share $ 2.93
The accompanying notes are an integral part of the financial statements.
F-8
<PAGE>
METEOR INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
For the Year Ended December 31, 1995
<TABLE>
<CAPTION>
Additional
Additional
Common Stock Paid-In Retained
Shares Amount Capital Earnings
Total
<S> <C> <C> <C> <C> <C>
Balance - January 1, 1995 100 $ 100 $ 511,920 $ 196,998 $
709,018
Stock issued and
restated for reverse
acquisition 3,022,803 2,923 2,124,145
2,127,068
Stock issued during
the year 2,000 2 3,998
4,000
Net income 1,434,087
1,434,087
Balance - December 31, 1995 3,024,903 $3,025 $2,640,063 $1,631,085
$4,274,173
</TABLE>
The accompanying notes are an integral part of the financial statements
F-9
<PAGE>
METEOR INDUSTRIES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
For the Year Ended December 31, 1995
Cash flows from operating activities
Net income $1,434,087
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 159,416
Loss on disposal of property & equipment 7,460
Deferred income taxes (1,470)
Minority interest 63,544
Changes in assets and liabilities, net of
effects from reverse acquisition
(Increase) in accounts receivable (79,762)
(Increase) in inventories (32,022)
Decrease in other current assets 22,297
Increase in accounts payable 289,544
Decrease in accrued liabilities (113,889)
Decrease in taxes payable 12,115
Other assets 8,207
Discontinued operations 331,565
Net cash provided by operating activities 2,101,092
Cash flows from investing activities
Purchases of property and equipment (57,003)
Net cash from reverse acquisition 537,853
Investment in closely held business (401,999)
Net cash used by investing activities 78,851
Cash flows from financing activities
Borrowings on revolving credit facilities 7,734,473
Payments on revolving credit facilities (7,922,104)
Loans to related parties (1,516,000)
Increase in bank overdraft 71,657
Note receivable payments 58,556
Borrowings on long-term debt 82,215
Payments on long-term debt (56,903)
Proceeds from common stock issued 4,000
Restricted cash (541,964)
Net cash used by financing activities (2,086,070)
Net increase in cash and equivalents 93,873
Cash and equivalents, beginning of period 1,277
Cash and equivalents, end of period $ 95,150
F-10
<PAGE>
METEOR INDUSTRIES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
For the Year Ended December 31, 1995
(Continued)
NON CASH INVESTING AND FINANCING ACTIVITIES
Acquisition of CRI by issuance of stock accounted
for as a reverse acquisition
Property, plant and equipment $2,066,503
Deferred taxes $ (805,936)
Stockholders' equity $1,260,567
Cash paid for taxes $ 34,152
Cash paid for interest $ 53,005
The accompanying notes are an integral part of the financial statements
F-11
<PAGE>
METEOR INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Meteor Industries, Inc. ("Meteor" or "Company") was incorporated on December
22, 1992, as a Colorado based holding company. Graves Oil & Butane Co., Inc.
("Graves"), which was acquired effective September 1, 1993, is a wholesale and
retail distributor of petroleum products primarily in northern New Mexico,
Colorado, Arizona and Utah. Graves also operates retail gasoline and
convenience stores in northern New Mexico and Colorado. El Boracho, Inc.,
which was acquired September 1, 1993, holds a liquor license for use by an
Albuquerque, New Mexico convenience store. Hillger Oil Company ("Hillger"),
which was acquired effective April 1, 1995, is a wholesale and retail
distributor of petroleum products primarily in southern New Mexico and
Arizona. In addition, Hillger operates retail gasoline and convenience stores
in southern New Mexico. Capco Resources, Inc. ("CRI"), is a holding Company
involved in providing environmental consulting and laboratory analysis and the
development of a power project in Pakistan. The acquisition of CRI was
accounted for as a reverse acquisition with CRI treated as the acquirer (See
Note 15). The historical accounts of CRI are reflected in the financial
statements for the full year. Information for Meteor is included since
November 2, 1995, the date of acquisition.
PRINCIPLES OF CONSOLIDATION AND ORGANIZATION - The consolidated financial
statements include the accounts of Meteor Industries, Inc., and its wholly
owned subsidiaries, Graves, including its wholly owned subsidiary, El Boracho,
Inc., Hillger and CRI, including its wholly owned subsidiary, Capco Analytical
Services, Inc. ("CAS"). All significant intercompany transactions and balances
have been eliminated in consolidation.
F-12
<PAGE>
CASH AND CASH EQUIVALENTS - Cash and cash equivalents include certificates of
deposit or cash in local banks.
RESTRICTED CASH - The Company has revolving bank credit facilities which
require the use of depository accounts from which collected funds are
transferred to the lender. The lender then applies these collections to the
revolving credit facilities. These accounts are controlled by the lender.
INVENTORIES - Inventories of petroleum products, greases and oils, and related
products are stated at weighted average cost, which is not in excess of
market. Sundries inventories are valued by the retail method and stated on the
first in, first out (FIFO) basis which is lower than market.
PROPERTY AND EQUIPMENT - Property 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 expended 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 income.
REVENUE RECOGNITION - Revenue from product sales is recognized when the
product is delivered. Revenue from services is recognized when the services
are performed and billable.
DEPRECIATION - Depreciation is recorded principally 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
Buildings and improvements 5 to 40 years
Equipment 5 to 20 years
COST IN EXCESS OF NET ASSETS ACQUIRED AND OTHER INTANGIBLES - The Company
continually monitors its costs in excess of net assets acquired (goodwill) and
its other intangibles to determine whether any impairment of these assets has
occurred. In making such determination with respect to goodwill, the Company
evaluates the performance using cash flows, on an undiscounted basis, of the
underlying businesses which gave rise to such amount. With respect to other
intangibles, which include the cost of license agreements, covenants not to
compete and organization costs, the Company bases its determination on the
performance using cash flows, on an undiscounted basis, of the related
products. The Company's goodwill results from the acquisition of Hillger.
The assets acquired in these transactions continue to contribute a
significant portion of the Company's net revenues and earnings.
Substantially all costs in excess of net assets (goodwill) of subsidiaries
acquired are being amortized on the straight-line method over fifteen years.
Other intangibles, which include the costs of license agreements, covenants
not to compete and organization costs are being amortized over five years
using the straight-line method.
INCOME TAXES - Income taxes are provided for the tax effects of transactions
reported in the financial statements and consist of taxes currently due plus
deferred taxes related primarily to differences between the basis of certain
assets and liabilities for financial and tax reporting. The deferred taxes
represent the future consequences of those differences, which will either be
taxable or deductible when the assets and liabilities are recovered or
settled.
ENVIRONMENTAL EXPENDITURES - Expenditures that relate to current operations
are expended or capitalized as appropriate for each expenditure. Whenever an
expenditure relates to an existing condition caused by past operations and
does not contribute to future revenues, the expenditure is expensed currently.
Liabilities are recorded when remedial efforts are probable and the cost can
be reasonably estimated.
EARNINGS PER SHARE - Earnings per common and common equivalent share are
computed by dividing the net income by the weighted average number of common
shares. The number of shares used in the earnings per share computation is
489,035, which reflects CRI's equivalent share activity for ten months and
Meteor share activity from the date of the reverse acquisition.
NOTE 2 -- PROPERTY AND EQUIPMENT
The major classifications of property and equipment are as follows:
Description Amount
Land $ 1,334,374
Buildings and improvements 899,089
Equipment 6,511,294
8,744,757
Accumulated depreciation ( 176,365)
Net property and equipment $ 8,568,392
For the year ended December 31, 1995, the Company recorded depreciation
expense of $151,709.
NOTE 3 -- NOTES RECEIVABLE - RELATED PARTIES
The Company has two outstanding notes receivable from its minority interest
shareholder (100% preferred stockholder of Graves) in the amounts of $550,000
and $100,000. The $550,000 note is due October 1, 1997, and is collateralized
by real estate. However, if the collateral is sold prior to satisfaction of
this note, then one half of the lesser of the outstanding balance or the sale
proceeds of the assets will be applied to reduce the liquidation preference of
the preferred stock, and the remaining one half will be applied to reduce the
note payable to the minority interest shareholder. Interest is receivable
semiannually and is determined at each anniversary based on Citibank of New
York prime plus 2%. The interest rate at December 31, 1995, was 8.50%. The
$100,000 note is unsecured and is due October 1, 1997, with interest accrued
from September 28, 1994. Interest is computed semiannually at Citibank of New
York prime plus 2%, being 8.50% at December 31, 1995. Accrued interest
receivable at December 31, 1995, totaled $36,210.
The Company has a note receivable from another controlled subsidiary of Capco
Resources Ltd. in the amount of $1,516,000 due April 1, 2006. Interest is
receivable semiannually at a rate of 9%.
NOTE 4 -- INVESTMENTS IN CLOSELY HELD BUSINESSES
The Company owns 50% of the Graves Rio Rancho No. 1 Ltd. Co. The investment
was acquired in May 1994. The Company reports their investment in this
limited liability company using the equity method. The value is $133,263.
This investment is not publicly traded.
The Company owns 33 % of American L.P., Ltd. The investment was acquired in
December 1995, for $100,014. The Company reports their investment in this
limited liability Company using the equity method. This investment is not
publicly traded.
At December 31, 1995, the Company, through its subsidiary CRI, owned 25.2% of
Saba Power Company, Ltd. During 1994, Saba Power and several partners
including Cogen Technologies Inc. ("Cogen") received approval to develop,
construct and operate a 115 Megawatt power generating plant in the Islamic
Republic of Pakistan. At December 31, 1995, CRI's $175,865 investment
represents its share of project development costs including legal fees,
engineering feasibility costs, environmental fees, performance guarantee and
other costs incurred to that date. At construction funding these costs will be
treated as equity contributions to the project. The recoverability of the Saba
Power investment is dependent upon successful completion of the project and
commencement of commercial production. The Company and its partners provided
a performance guarantee through a bank in Pakistan, in the original amount of
approximately $355,000 (10,900,000 Rupees.)
The agreements between the partners and the Government of Pakistan have
several conditions, the most significant being:
i) Cogen agreed to fund all project development costs subsequent to
September 30, 1994, and will carry on day to day operations of the project,
including design, engineering, selecting equipment, obtaining financing and
overseeing construction and operations.
ii) In order to maintain its 25.2% ownership CRI must reimburse its
proportionate share of all project developments costs, paid for by Cogen,
including interest at 15% per annum. CRI will be responsible for its
proportionate share of all remaining project costs as incurred. In the event
that CRI does not make any additional equity contributions then CRI will not
be obligated on any performance guarantees or any additional costs, but its
ownership will be reduced proportionately.
iii) On December 19, 1995, Saba Power entered into an agreement with the
Government of Pakistan to increase the Performance Guarantee to $1,456,000 (46
million Rupees) valid up to April 18, 1996, and to move the date of Financial
Closing under the Letter of Support to March 17, 1996. Effective April 1,
1996, Saba Power received from the Government of Pakistan acknowledgment of
financial closing. Final approvals of certain financing documents are
expected to be completed prior to June 30, 1996.
iv) On March 31, 1996, CRI executed an amendment to the Project
Development and Shareholder Agreement. This Agreement allows CRI to make a
$2,314,000 equity investment in the Project (such investment is expected to be
made prior to June 30, 1996) in exchange for approximately an 8% interest in
the Project. In addition, CRI will have an option to increase its interest in
the Project to 23% for a one year period ending March 31, 1997. If CRI decides
to exercise such option, it will be required to invest approximately
$7,300,000 in additional equity. CRI can take advantage of this option to a
lesser degree by making a proportionately smaller equity investment. CRI
subsequently entered into an agreement with Saba Petroleum Company whereby
Saba intends to participate with CRI in the Project. Saba intends to invest
approximately $1,500,000 in the Project this year and will have the option to
make an additional investment of approximately $3,650,000 in the first quarter
of 1997. Saba's initial interest in the Project will be approximately 5.4%
which can be increased to 11.5% pursuant to the option. As a result of this
transaction CRI intends to invest $800,000 during 1996 for almost a 3%
interest in the project. CRI shall have the option to increase its interest up
to approximately 11.5% by investing up to approximately $4,000,000 by the
first quarter of 1997.
CRI intends to obtain the necessary financing for its share of the initial
equity commitment through the sale of its common stock and/or the partial
collection of notes receivable. CRI has a commitment outstanding for $75,000
as a finders fee relating to the project of which one half is expected to be
reimbursed by one of the partners.
The Company has an investment of 400,000 shares in a Canadian corporation with
a cost of $200,000 at December 31, 1995. The Company also has a $150,000
escrow deposit with this corporation related to the sale of a subsidiary in
1995. This deposit is recorded as an investment. Both the deposit and the
shares are subject to reduction depending on various factors related to the
subsidiary sale. The Company does not believe any significant adjustments
will be made.
NOTE 5 -- REVOLVING CREDIT FACILITY
Revolving Credit Facility at December 31, 1995, consisted of the following:
$3,000,000 revolving bank credit facility, payable to Norwest
Business Credit, Inc., bearing interest at Norwest Bank
Minnesota, N.A., base rate plus 2.5% (11.25% at December 31,
1995), due June 1998. Collateralized by trade accounts
receivable and inventory of Graves Oil & Butane Co., Inc. $2,039,944
$1,500,000 revolving bank credit facility, payable to Norwest
Business Credit, Inc., bearing interest at Norwest Bank
Minnesota, N.A., base rate plus 2% (10.75% at December 31,
1995), due June 30, 1998. Collateralized by trade
accounts receivable and inventory of Hillger Oil Company 235,568
The revolving bank credit facility agreements require the Company to maintain
certain net worth and performance ratio levels. As discussed in Note 1,
payments on these loans are made through collateral cash accounts in the name
of the lender.
Graves and Hillger were in default of certain reporting requirements as set
forth in Sections 6.1(b), (c), (d) and (g) of the Credit Agreements with
Norwest Bank for the revolving credit facilities. Total borrowings under
these facilities were $2,275,512 at December 31, 1995. Those defaults concern
untimely filing of financial reports for November 1995, December 1995, January
1996 and February 1996. Graves and Hillger received a waiver for these items
from the bank.
NOTE 6 -- LONG-TERM DEBT
Long-term debt at December 31, 1995 consisted of the following:
Note payable to Theron Graves, semiannual payments of $200,000
including interest at prime plus 2% (10.75% at December 31,
1995), collateralized by half of Graves common stock, matures
October 1997. 1,955,663
Note payable to First National Bank of Farmington, monthly
payments of $19,000 including interest at prime plus 2%
(10.75% at December 31,1995), collateralized by mortgage on
buildings and land, matures January 1998. 388,048
Note payable to Norwest Business Credit, Inc., monthly
payments of $10,417 plus interest at Norwest Bank of
Minnesota, N.A. base rate plus 3.0% (11.75% at December 31,
1995), collateralized by property and equipment, due June 30,
1998. 312,498
Note payable to Ford Motor Credit, monthly payments of $329
including interest at 11.9%, collateralized by equipment,
matures December, 1999. 12,459
Note payable to GMAC, monthly payments of $604, including
interest at 10.12%, collateralized by equipment, matures
December, 1999. 23,754
Leases payable 63,399
Total 2,755,821
Current portion (561,048)
Long-term debt $2,194,773
The following is a schedule by years of the repayment of long-term debt:
Period ending
December 31, Amount
1996 $ 561,048
1997 2,110,008
1998 73,735
Remaining 11,030
Total $2,755,821
NOTE 7 -- MINORITY INTEREST IN SUBSIDIARY
The Series A Convertible Preferred Stock of Graves Oil & Butane Co., Inc., is
limited voting stock and is entitled to cumulative annual dividends at a rate
of 8% of the liquidation value. These securities are convertible into common
stock of Graves or Meteor at the bid price on the date of conversion or 22.2%
of Meteor based on whichever calculation yields fewer shares. The record
holder has the right to vote on matters which affect the rights of the class
and to elect two of the seven members of Graves' board of directors. In the
event of default under the Meteor promissory note issued to purchase the
Graves common stock, the holder of the Series A Convertible Preferred Stock
has the ability to elect all of the Graves directors. The Company may at any
time redeem all or any portion of the Series A Convertible Preferred Stock
outstanding at an amount equal to the liquidation value plus all accrued and
unpaid dividends. At any time after September 15, 2000, the record holder
shall have the right to have the Company redeem all or any portion of the
shares outstanding at the price stated above. No dividends have been
declared by the board of directors. Dividends in arrears amount to $685,075
as of December 31, 1995. The minority interest is recorded at its discounted
value. Dividends and accretion of the preferred stock discount are reflected
in minority interest on the income statement.
NOTE 8 -- INCOME TAXES
The provision for income taxes from continuing operations consists of the
following components:
Current tax expense $ 0
Deferred tax expense (benefit) ( 1,470)
Total provision $ ( 1,470)
The provision differs from federal statutory rate due to permanent differences
and state taxes.
The deferred tax asset (liability) in the accompanying balance sheet includes
the following components:
Current:
Deferred tax asset, federal $ 130,616
Deferred tax asset, state 19,208
Net current deferred asset $ 149,824
Noncurrent:
Deferred tax liability, federal $(1,650,812)
Deferred tax liability, state (242,767)
Net noncurrent deferred tax liability $(1,893,579)
Temporary differences giving rise to the deferred tax liability consist
primarily of the excess of depreciation and amortization for financial
reporting purposes over the amount for tax purposes. The deferred tax asset
results from an allowance for bad debts that is not deductible for tax
purposes until losses are identified and written off and from net operating
loss carryovers available to offset future taxable income. The net operating
loss carryover expires in 2007. Management has determined, based on the
carryforward period for the deferred tax asset, no valuation allowance was
necessary at December 31, 1995.
NOTE 9 -- DEFINED CONTRIBUTION PLAN
Graves adopted a 401(k) profit sharing plan effective January 1, 1994.
Excluded from the plan are employees whose employment is governed by a
collective bargaining agreement that includes retirement benefits.
Contributions to the plan are voluntary through a salary reduction agreement
up to a maximum of 15% of compensation. Matching contributions and other
additional contributions may be made by the employer at the employer's
discretion. No contributions were made for the period ended December 31, 1995.
Hillger adopted a 401(k) profit sharing plan effective April 1, 1994. No
employees are excluded from the plan. Contributions to the plan are voluntary
through a salary reduction agreement up to a maximum of 15% compensation.
Matching contributions and other additional contributions may be made by the
employer at the employer's discretion. For the period ended December 31,
1995,
Hillger's contribution was $4,346.
NOTE 10 -- RELATED PARTY TRANSACTIONS
The Company uses space, telephone and secretarial services of a corporation
controlled by officers of the Company. Rent is currently $1,000 per month and
secretarial services are currently $2,000 per month. Other expenses are paid
by the Company as invoiced. At December 31, 1995, amounts payable to related
parties were $21,256.
The following are transactions that occurred with the minority interest (100%
preferred stockholder) in Graves Oil & Butane Co., Inc.:
The Company leases certain real estate from the preferred stockholder of one
of its subsidiaries. For the period ended December 31, 1995, rents paid were
$9,102.
The Company has land, buildings, and equipment in Springerville, Arizona, and
equipment in St. Johns, Arizona, which are used by a relative of the preferred
stockholder of one of its subsidiaries. The Company does not charge for the
use of its properties but received revenue from the sale of its products.
During the period ended December 31, 1995, revenues reported amounted to
$56,864.
The Company sells its products to other entities controlled by the preferred
stockholder of one of its subsidiaries. During the period ended December 31,
1995, revenues reported amounted to $224,425.
The preferred stockholder of one of its subsidiaries is indebted to the
Company on two notes totaling $650,000 as described in Note 3. Interest
receivable at December 31, 1995, was $36,210. Interest earned during the
period ended December 31, 1995, was $11,677.
The Company is indebted to the preferred stockholder of one of its
subsidiaries for $1,955,663 as described in Note 6. Interest payable at
December 31, 1995, was $54,903. Interest expense during the period ended
December 31, 1995, for this note was $36,602.
The Company has entered into a consulting agreement with the preferred
stockholder of one of its subsidiaries which provides for payments of $1,500
per month and the use of a vehicle; fuel for such vehicle; a personal
automobile; health, life, disability, and automobile insurance; and
reimbursement of various expenses including club dues. During the period
ended December 31, 1995, the fees paid were $3,570.
NOTE 11 -- ENVIRONMENTAL PROTECTION EXPENDITURES
The Company utilizes underground tanks at various locations to store petroleum
products and is therefore subject to various federal and state statutes
concerning environmental protection, as well as the New Mexico Ground Water
Protection Act. The various federal and state statutes are designed to
identify environmental damage, identify hazardous material and/or operations,
regulate operations engaged in hazardous activities, and establish procedures
for remedial action as necessary.
The state of New Mexico has recognized the potential cleanup costs resulting
from regulations, and the New Mexico Ground Water Protection Act has included
the establishment of a corrective action fund. The purpose of the fund is to
provide monetary assistance in both assessing site damage and correcting the
damage where such costs are in excess of $10,000. Assistance is not available
to repair or replace underground tanks or equipment. The law specifies
requirements which must have been met for an applicant to be eligible,
including a provision that payments will be made in accordance with
regulations (which have not yet been issued), and states that payment from the
corrective action fund are limited to amounts in that fund.
The Company is responsible for any contamination of land it owns or leases.
However, the Company may have limitations on any potential contamination
liabilities as well as claims for reimbursement from third parties. During
the period ended December 31, 1995, the Company expended $5,876 for site
assessment and related cleanup costs. Included in other assets at December
31, 1995, are unreimbursed costs from the State of New Mexico of $94,593.
NOTE 12 -- COMMITMENTS AND CONTINGENCIES
The Company is contingently liable for certain costs associated with leasehold
improvements made by a supplier on property of customers of Graves. The
liability for the costs is amortized over a five-year period with the Company
becoming responsible for payment to the supplier if fuel purchases fail to
meet certain volumes. At December 31, 1995, the Company was contingently
liable for $31,175 in unamortized costs. Future losses, if any, cannot be
estimated at this time.
NOTE 13 -- OPERATING LEASES
The Company has entered into various noncancelable leases for land, building
and equipment with terms ranging from 3 to 15 years. Under most leasing
arrangements, the Company pays the property taxes, insurance, maintenance, and
expenses related to the leased property. Total rent expense under operating
leases for the period ended December 31, 1995, was $123,723.
Minimal future obligations on leases in effect at December 31, 1995, are:
December 31, 1996 $ 739,000
December 31, 1997 $ 743,000
December 31, 1998 $ 734,000
December 31, 1999 $ 697,000
December 31, 2000 $ 658,000
Thereafter $2,799,000
Annual minimum future rental payments have not been reduced by $42,000 of
sublease rentals to be received in the future under non-cancelable subleases.
NOTE 14 -- CAPITAL LEASES
As of December 31, 1995, leased property under capital leases by major classes
was as follows:
Buildings and improvements $ 18,141
Equipment 106,292
Accumulated amortization (44,350)
Net leased property $ 80,083
The following is a schedule by years of future minimum lease payments under
capital leases together with the present value of the net minimum lease
payments as of December 31, 1995:
December 31, 1996 $38,527
December 31, 1997 28,952
December 31, 1998 1,837
Total minimum lease payments 69,316
Less: amount representing interest 5,917
Present value of minimum lease payments $63,399
NOTE 15 - BUSINESS COMBINATION
Effective November 2, 1995, Meteor Industries, Inc. acquired 100% of the
issued and outstanding common stock of Capco Resources Inc. ("CRI") in
exchange for 1,745,000 shares of Meteor common stock. The shares were valued
at $2.51 each for a total consideration of $4,379,950. The $2.51 value was
determined using the market price of the Company's stock at the date of the
transaction and averaging that with a recent private placement. The
acquisition was treated as a reverse acquisition of Meteor by CRI.
Accordingly, the results of operations of CRI are included in the accompanying
financial statements since January 1, 1995. The results of operations of
Meteor are included in the accompanying financial statements since the
effective date of the acquisition. The total cost of acquisition exceeded the
net assets of Meteor by $2,066,503. The excess was allocated to property and
equipment based on appraised value and will be depreciated over the estimated
remaining useful lives of the assets.
NOTE 16 -- STOCK OPTION PLAN
A stock option plan providing for the issuance of incentive stock options and
nonqualified stock options to the Company's key employees was approved by the
Company's stockholders on April 15, 1994. Pursuant to the plan, 500,000
shares of the Company's $.001 par value common stock have been reserved for
issuance. Options must be granted at prices not less than 100% of fair market
value at the time the option is granted. Options issued to each employee vest
in equal installments on the anniversary dates of the date the options were
granted. No options have been exercised. Options have been granted as
follows:
Number of Exercise price
Date options granted options per share Vesting period
October 1, 1993 43,000 $ 3.00 5 years
February 1, 1994 49,600 $ 5.25 3 years
August 4, 1995 21,000 $ 3.00 3 years
November 30, 1995 215,000 $ 3.50 3 years
At December 31, 1995, 328,600 options were exercisable.
NOTE 17 -- DISCONTINUED OPERATIONS
a) On September 15, 1995, CRI sold the shares of Saba de Colombia,
Inc., a U.S. subsidiary engaged in the exploration and development of
petroleum and natural gas in Colombia, to a third party for consideration of
$2,601,719, and realized a gain net of taxes on the sale of the shares of
$1,108,939. The consideration received was in the form of:
Cash $2,401,719
400,000 cumulative, convertible,
redeemable first preferred shares
of Petrosandtander Inc. bearing
dividends at 8.5% 200,000
$2,601,719
Cash of $150,000 and the preferred shares remain in escrow pending
review by Colombian taxing authorities.
b) On December 1, 1995, CRI transferred to CAPCO Acquisub, Inc., a
wholly-owned subsidiary of CAPCO Resources Ltd., all of its holdings of Saba
Petroleum Company and certain other assets and liabilities. This transaction
was recorded at book value. The net assets transferred had a book value of
approximately $50,111.
The discontinued operations results for 1995 are as follows:
Year Ended
December 31, 1995
Income
Oil and gas sales (net of royalties) $14,197,860
Other income 843,793
15,041,653
Expenses
Production and operating 9,010,631
General and administrative 1,986,967
Interest and bank charges 1,065,011
Depreciation, depletion and amortization 2,413,743
14,476,352
Operating income 565,301
Income tax expense 180,130
Foreign exchange (gain) loss 51,237
Minority interest 114,655
Dilution gain (179,510)
166,512
Net Income $ 398,789
Gain on disposition, net of tax of $812,725 $ 1,108,939
NOTE 18 -- NEW ACCOUNTING PRONOUNCEMENTS
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" ("SFAS No.
121"). The standard requires the recognition of an impairment loss on certain
identifiable intangible assets and long-lived assets in use or held for
disposal when events or circumstances indicate the carrying value of these
assets may not be recoverable or exceeds their fair value. At this time, the
Company does not expect the adoption of SFAS No. 121 to have a material impact
on the Company's financial position or results of operations.
In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS No. 123"). The standard encourages, but does not
require, companies to recognize compensation expense for grants of stock,
stock options and other equity instruments to employees based on fair value
accounting rules. The standard requires companies that choose not to adopt
the new fair value accounting rules to disclose pro forma net income and
earnings per share under the new method. The standard is effective for fiscal
years beginning after December 15, 1995. The Company will adopt only the
disclosure provisions of SFAS No. 123 in 1996.
<PAGE>
SQUIRE & WOODWARD, P.C.
Certified Public Accountants - Consultants
2730 San Pedro NE, Suite D
Albuquerque, New Mexico 87110
505/881-3408
FAX 505/881-6597
To the Board of Directors and Stockholders
of Meteor Industries, Inc.
Denver, Colorado
INDEPENDENT AUDITORS' REPORT
We have audited the accompanying consolidated balance sheets of Meteor
Industries, Inc. and subsidiaries, as of August 31, 1995 and 1994, and the
related consolidated statements of income, stockholders' equity, and cash
flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
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
uspporting 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 financial statements referred to above present fairly, in
all material respects, the financial position of Meteor Industries, Inc. and
subsidiaries, as of August 31, 1995 and 1994, and the results of their
operations and their cash flows for the years then ended in conformity with
generally accepted accounting principles.
/s/ Squire & Woodward
SQUIRE & WOODWARD, P.C.
November 22, 1995
F-23
<PAGE>
METEOR INDUSTRIES, INC.
AND SUBSIDIARIES
Consolidated Balance Sheets
As of August 31, 1995 and 1994
ASSETS
1995 1994
Current assets
Cash $ 244,206 $ 292,121
Cash - restricted 476,007 230,508
Accounts receivable, net of an allowance
for doubtful accounts of $195,500 for
1995 and $165,000 for 1994 4,041,591 4,784,370
Inventory, pledged 1,426,901 853,671
Notes receivable 14,969 21,588
Deferred tax asset 257,893 135,409
Prepaid expenses 184,956 217,931
Other current assets 35,980 20,664
Total current assets 6,682,503 6,556,262
Property and equipment, at cost, partially pledged
net of accumulated depreciation of $5,601,000 for
1995 and $5,533,417 for 1994 5,767,704 4,561,713
Other assets
Notes receivable 271,438 40,833
Notes receivable - related parties 732,625 698,919
Intangibles, net of accumulated
amortization of $70,031
for 1995 and $54,136 for 1994 104,448 120,343
Investment in closely held business 110,000 110,000
Goodwill, net of accumulated amortization
of $3,784 818,121
Other assets 94,449 167,504
Total other assets 2,131,081 1,137,599
TOTAL ASSETS $14,581,288 $12,255,574
See accompanying notes to consolidated financial statements.
F-24
<PAGE>
METEOR INDUSTRIES, INC.
AND SUBSIDIARIES
Consolidated Balance Sheets
As of August 31, 1995 and 1994
LIABILITIES AND STOCKHOLDERS' EQUITY
1995 1994
Current liabilities
Accounts payable $ 2,746,718 $ 1,711,450
Notes payable 2,002,085 2,700,165
Bank overdraft 124,166
Current portion of long-term debt 822,112 407,736
Due to related parties 91,077 2,827
Taxes payable 837,042 601,529
Accrued expenses 327,374 182,384
Total current liabilities 6,950,574 5,606,091
Long-term debt, net of current portion
Notes payable 2,095,660 2,603,626
Deferred taxes 1,032,670 456,669
Minority interest in subsidiary 3,488,310 3,107,048
Commitments and contingencies (Notes 15, 16,
17 and 18)
Stockholders' equity
Common stock, $.001 par value,
10,000,000 shares authorized;
1,272,903 shares issued and
outstanding in 1995; 835,500
shares issued and outstanding in 1994 1,273 835
Additional paid-in capital 1,715,290 954,865
Retained deficit (702,489) (473,560)
Total stockholders' equity 1,014,074 482,140
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $14,581,288 $12,255,574
See accompanying notes to consolidated financial statements.
F-25
<PAGE>
METEOR INDUSTRIES, INC.
AND SUBSIDIARIES
Consolidated Statements of Income
As of August 31, 1995 and 1994
1995 1994
Sales $44,970,956 $38,763,225
Cost of sales 38,518,916 33,475,541
Gross profit 6,452,040 5,287,684
Operating expenses
Selling, general, and administrative 5,537,753 4,786,779
Depreciation and amortization 592,773 456,996
Bad debts expense 236,138 14,931
Total operating expenses 6,366,664 5,258,706
Income from operations 85,376 28,978
Other income and expense
Interest income 234,096 235,593
Dividend income 5,452 3,398
Gain on sale of assets 41,110 32,599
Other income 121,314 125,017
Interest expense (526,665) (434,778)
Total other income (124,693) (38,171)
Loss before income taxes and
minority interest (39,317) (9,193)
Provision for income taxes (191,650) (28,562)
Net income before minority interest 152,333 19,369
Minority interest (381,262) (492,929)
Net loss $ (228,929) $ (473,560)
Income per common share (weighted average common
shares outstanding 1,056,191 for 1995 and 691,300
for 1994) $ (.22) $ (.69)
See accompanying notes to consolidated financial statements.
F-26
<PAGE>
METEOR INDUSTRIES, INC.
AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
As of August 31, 1995 and 1994
Preferred Stock Common Stock Additional
Number Number Paid-in Retained
of Shares Amount of Shares Amount Capital Earnings
Balance -
September 1, 1993 $ 475,000 $ 475 $ 30,575 $
Stock issued 160,000 160,000 200,500 200 764,350
Stock warrants
issued 100
Conversion of
preferred stock (160,000) (160,000) 160,000 160 159,840
Net loss (473,560)
Balance -
August 31, 1994 0 0 835,500 835 954,865 (473,560)
Stock issued 372,373 373 760,490
Stock dividend 65,030 65 (65)
Net income (228,929)
Balance -
August 31, 1995 0 $ 0 1,272,903 $1,273 $1,715,290 $(702,489)
See accompanying notes to consolidated financial statements.
F-27
<PAGE>
METEOR INDUSTRIES, INC.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
As of August 31, 1995 and 1994
1995 1994
Cash flows from operating activities
Net income $ 152,333 $ 19,369
Adjustments to reconcile net income to net
cash provided (used) by operating activities:
Depreciation and amortization 592,773 456,994
Gain on disposal of property and equipment (41,072) (32,599)
Gain on disposal of investments (38)
Other income from basis adjustment
to property and equipment (65,000)
Deferred income taxes (252,475) (28,769)
Changes in assets and liabilities, net of
effects from purchase of subsidiaries:
Decrease (increase) in accounts
receivable 1,223,429 (1,056,469)
Decrease (increase) in inventories (35,852) 189,761
Decrease (increase) in other current
assets 193,406 (193,178)
Decrease (increase) in other assets 73,635 (164,537)
Increase in bank overdraft 124,166
Increase in accounts payable 148,184 205,043
Decrease in accrued liabilities (1,407) (32,890)
Net cash provided (used) by
operating activities 2,177,082 (702,275)
Cash flows from investing activities
Cash paid for the purchase of subsidiaries,
net of cash acquired (546,657) (1,832,635)
Cash paid for purchase of investment securities (365) (110,000)
Cash paid for purchases of property and
equipment (377,210) (442,016)
Cash proceeds from sale of investment
securities 657 243,595
Cash proceeds from sale of property 117,199 80,472
Cash paid on notes receivable (205,972) 30,357
Cash paid on related party receivables (24,706) 134,916
Net cash used by investing activities (1,037,056) (1,895,311)
Cash flows from financing activities
Proceeds from short-term borrowings 42,695,070 42,760,933
Principal payments on short-term debt (43,452,946) (40,260,768)
Proceeds from borrowing on long-term debt 536,000
Principal payments on long-term debt (1,569,679) (295,883)
Proceeds from stock and stock warrants issued 760,863 924,650
Net borrowings on related party payables 88,250 (8,923)
Net cash provided (used) by financing
activities (942,442) 3,120,009
Net increase in cash and equivalents 197,584 522,423
Cash and equivalents, beginning of year 522,629 206
Cash and equivalents, end of year $ 720,213 $ 522,629
See accompanying notes to consolidated financial statements.
F-28
<PAGE>
METEOR INDUSTRIES, INC.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
As of August 31, 1995 and 1994
SUPPLEMENTAL INFORMATION
1995 1994
Cash paid (refunds received) for income taxes $(97,845) $ 155,107
Cash paid for interest $515,806 $ 320,651
NONCASH INVESTING AND FINANCING ACTIVITIES
1995 1994
The minority interest in subsidiary was adjusted
to record the dividend in arrears and the accretion
of preferred stock of Graves Oil & Butane Co., Inc. $381,262 $ 492,929
A stock dividend was issued for holders of record at
June 30, 1995, at 8% $ 65
Long-term debt incurred in the acquisition of
subsidiary $2,350,000
Acquisition of land from minority interest
through recapitalization of subsidiary $ 83,853
Reduction of stockholder note receivable in
exchange for reduction of stockholder note payable $ 100,000
Capital lease obligations incurred in the
acquisition of property and equipment $ 124,433
As a result of the purchase of the subsidiary,
the purchase premium increased additional paid-in
capital and was allocated as follows:
Marketable securities $ 47,824
Inventory 299,593
Property and equipment 759,190
Investment in closely held business 55,500
Deferred taxes payable (453,222)
Increase in additional paid-in capital $ 708,885
See accompanying notes to consolidated financial statements.
F-29
<PAGE>
METEOR INDUSTRIES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
As of August 31, 1995 and 1994
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting policies of Meteor Industries, Inc.
(the company) and Subsidiaries is presented to assist in the understanding of
the company's financial statements. The financial statements and notes are
representations of the company's management, who are responsible for their
integrity and objectivity. These accounting policies conform to generally
accepted accounting principles and have been consistently applied in the
preparation of the financial statements.
PRINCIPALS OF CONSOLIDATION AND ORGANIZATION - The consolidated financial
statements include the accounts of Meteor Industries, Inc. and its wholly
owned subsidiaries, Graves Oil & Butane Co., Inc., including its wholly owned
subsidiary, El Boracho, Inc., and Hillger Oil Company. All significant
intercompany transactions and balances have been eliminated in consolidation.
Meteor Industries, Inc., was incorporated on December 22, 1992, as a Colorado
based holding company. Graves Oil & Butane Co., Inc., which was acquired
effective September 1, 1993, is a wholesale and retail distributor of
petroleum products primarily in northern New Mexico, Colorado, Arizona, and
Utah. The company also operates retail gasoline and convenience stores in
northern New Mexico and Colorado. El Boracho, Inc., which was acquired
September 1, 1993, holds a liquor license for use by an Albuquerque, New
Mexico convenience store. Hillger Oil Company, which was acquired effective
April 1, 1995, is a wholesale and retail distributor of petroleum products
primarily in southern New Mexico and Arizona. In addition, the company
operates retail gasoline and convenience stores in southern New Mexico.
ACCOUNTS RECEIVABLE - Accounts receivable are stated at net realizable value,
using the allowance method of accounting for bad debts.
INVENTORIES - Inventories of petroleum products, greases and oils, and related
products for Hillger Oil Company are stated at weighted average cost, which is
not in excess of market. Inventories of petroleum products, greases and oils,
and related products for Graves Oil & Butane Co., Inc., are valued at Last In,
First Out (LIFO) cost, which is not in excess of market. Graves Oil & Butane
Co., Inc., determines its LIFO reserve using the link chain dollar value
method. At August 31, 1995 and 1994, inventories valued using the LIFO method
were $789,788 and $868,068, respectively. The LIFO reserves were $315,163 and
$307,473, respectively. Sundries inventories are valued by the retail method
and stated on the First In, First Out (FIFO) basis which is lower than market.
PROPERTY AND EQUIPMENT - Property 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 expended 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
income.
DEPRECIATION - Depreciation is recorded principally on the straight-line
method at rates based on the estimated useful lives of the assets. The
estimated useful lives are as follows:
F-30
<PAGE>
Description Lives
Buildings and improvements 5 to 40 years
Office equipment 5 to 7 years
Operating equipment 5 to 16 years
General and administrative 5 to 20 years
Marketing equipment 5 to 10 years
Delivery equipment 5 to 10 years
AMORTIZATION OF COVENANTS - Covenants not to compete are valued at cost and
are amortized over a 60-month period. Goodwill represents the excess of the
cost of Hillger Oil Company over the fair value of its net assets at the
effective date of acquisition and is being amortized using the straight line
method over 15 years.
INCOME TAXES - Income taxes are provided for the tax effects of transactions
reported in the financial statements and consist of taxes currently due plus
deferred taxes related primarily to differences between the basis of certain
assets and liabilities for financial and tax reporting. The deferred taxes
represent the future consequences of those differences, which will either be
taxable or deductible when the assets and liabilities are recovered or
settled. Deferred taxes are also recognized for operating losses that are
available to offset future income taxes.
ENVIRONMENTAL EXPENDITURES - Expenditures that relate to current operations
are expended or capitalized as appropriate for each expenditure. Whenever an
expenditure relates to an existing condition caused by past operations and
does not contribute to future revenues, the expenditure is expensed currently.
Liabilities are recorded when remedial efforts are probable and the cost can
be reasonably estimated.
EARNINGS PER SHARE - Earnings per common and common equivalent share are
computed by dividing the net income by the weighted average number of common
shares, and if dilutive, common stock equivalent shares (options and warrants)
outstanding during the respective period. Fully diluted earnings per share is
not materially different than primary earnings per share and has not been
presented. The number of shares used in the earnings per share computation is
1,056,191 for 1995 and 691,300 for 1994.
COMPENSATED ABSENCES - Employees of the company are entitled to paid vacation
and paid sick days off, depending on length of service and other factors.
CASH AND CASH EQUIVALENTS - Cash and cash equivalents include certificates of
deposit or cash in local banks. See Note 2.
RECLASSIFICATIONS - Certain 1994 amounts have been reclassified to conform
with the 1995 presentation.
USE OF ESTIMATES - The process of preparing financial statements in conformity
with generally accepted accounting principles requires the use of estimates
and assumptions regarding certain types of assets, liabilities, revenues, and
expenses. Such estimates primarily relate to unsettled transactions and
events as of the date of the financial statements. Accordingly, upon
settlement, actual results may differ from estimated amounts.
NOTE 2 -- CASH - RESTRICTED
The company has revolving bank credit facilities (See Note 7) which require
the use of depository accounts called collateral accounts from which collected
funds are transferred to the lender. The lender then applies these
collections to the revolving credit facilities. These accounts are controlled
by the lender.
NOTE 3 -- PROPERTY AND EQUIPMENT
The major classifications of property and equipment are as follows:
Description 1995 1994
Land $ 1,037,170 $ 1,032,514
Buildings and improvements 4,113,280 3,980,515
Delivery equipment 2,446,471 2,495,329
Operating equipment 3,264,448 2,079,841
General and administrative 331,205 330,801
Office equipment 96,315 96,315
Marketing equipment 79,815 79,815
11,368,704 10,095,130
Accumulated depreciation (5,601,000) (5,533,417)
Net property and equipment $ 5,767,704 $ 4,561,713
For the years ended August 31, 1995 and 1994, the company deducted
depreciation of $587,388 and $441,098, respectively.
NOTE 4 -- NOTES RECEIVABLE - RELATED PARTIES
The company has two outstanding notes receivable from its minority interest
shareholder (100% preferred stockholder of Graves) in the amounts of $550,000
and $100,000. The $550,000 note is due October 1, 1997, and is secured by
real estate. However, if the underlying security is sold prior to
satisfaction of this note, then one half of the lesser of the outstanding
balance or the sale proceeds of the security will be applied to reduce the
liquidation preference of the preferred stock, and the remaining one half will
be applied to reduce the note payable to Theron Graves. Interest is
receivable semiannually and is determined at each anniversary based on
Citibank of New York prime plus 2%. The interest rate at August 31, 1995 and
1994, was 11% and 8.25%, respectively. The $100,000 note is unsecured and is
due October 1, 1997, with interest accrued from September 28. Interest is
computed semiannually at Citibank of New York prime plus 2%, being 11% and
8.25% at August 31, 1995 and 1994, respectively. Accrued interest receivable
at August 31, 1995 and 1994, totaled $73,625 and $48,919, respectively.
NOTE 5 -- INTANGIBLES
Intangible assets consist of organization costs of $3,000, net of accumulated
amortization of $1,200 and $600 for the years ended August 31, 1995 and 1994,
respectively, and a five-year covenant not to compete agreement resulting from
the acquisition of Southwest Petroleum on September 1, 1990, of $76,479 at
August 31, 1995 and 1994, net of accumulated amortization of $68,831 and
$53,536, respectively, and a liquor license acquired in 1991 at a cost of
$95,000.
NOTE 6 -- INVESTMENTS IN CLOSELY HELD BUSINESS
The company owns 50% of the Graves Rio Rancho No. 1 Ltd Co. The investment
was acquired in May 1994 for $110,000. The company reports the investment in
the limited liability company using the equity method. This investment is not
publicly traded. The members of Graves Rio Rancho No. 1 Ltd. Co. set a fair
market value of their company at $220,000.
NOTE 7 -- NOTES PAYABLE
Notes payable at August 31, 1995 and 1994, consisted of the following:
1995 1994
Revolving bank credit facility, payable to
Norwest Business Credit, Inc., bearing interest
at Norwest Bank Minnesota, N.A., base rate
plus 2.5%, being 11.25% for 1995 and 9.75% for
1994. Due June 1998. Collateralized by trade
accounts receivable and inventory of Graves Oil &
Butane Co., Inc. Unused credit at August 31,
1995, was $1,061,474. $1,938,526 $2,700,165
Revolving bank credit facility payable to Norwest
Business Credit, Inc., bearing interest at Norwest
Bank Minnesota, N.A., base rate plus 2%, being
10.75%. Due June 30, 1998. Collateralized
by trade accounts receivable and inventory of
Hillger Oil Company. Unused credit at August 31,
1995, was $1,499,364. 63,559
Total notes payable $2,002,085 $2,700,165
The agreements require the company to maintain certain net worth and
performance ratio levels. As discussed in Note 2, payments on these loans are
made through collateral cash accounts in the name of the lender.
NOTE 8 -- LONG-TERM DEBT
Long-term debt at August 31, 1995 and 1994, consisted of the following:
1995 1994
Note payable, Theron Graves, semiannual
payments of $200,000, including interest
at prime plus 2% per annum. Collateralized
by half of Graves common stock. Matures
October 1997. $2,040,921 $2,244,200
Note payable, First National Bank
of Farmington, monthly payments
of $19,000 including interest at prime
plus 2% per annum. Collateralized by
mortgage on buildings and land.
Matures January 1996. 448,709 620,108
Note payable, Federal Land Bank of
Durango, payments of $350 monthly
including interest at 8.25% per annum
(variable rate), collateralized by mortgage on
house and land in Pagosa Springs, Colorado.
Matures in June 2011. 43,364
Note payable, Norwest Business Credit,
Inc., monthly payments of $10,417
plus interest at Norwest Bank of
Minnesota, N.A. base rate plus 3.0%,
being 11.75% per annum, collateralized by
property and equipment. Due June 30, 1998. 354,166
Lease payable, Norwest Equipment
Finance, Inc., monthly payments of $2,276.68
including interest at 8.04% per annum,
collateralized by equipment. Matures
December 1997. 54,159 76,156
Lease payable, Norwest Equipment
Finance, Inc., monthly payments of $306.23
including interest at 10.00% per annum,
collateralized by equipment. Matures July 1998. 9,034 11,661
Lease payable, Dericks Leasing & Financial
Company, monthly payments of $627.68
including interest at 17.93% per annum,
collateralized by equipment. Matures June 1997. 10,783 15,873
Total 2,917,772 3,011,362
Current portion (822,112) (407,736)
Long-term debt, net $2,095,660 $2,603,626
The following is a schedule by years of the repayment of long-term debt:
Year ending
August 31, Amount
1996 $ 822,112
1997 364,761
1998 1,730,899
$2,917,772
NOTE 9 -- MINORITY INTEREST IN SUBSIDIARY
The Series A Convertible Preferred Stock of Graves Oil & Butane Co., Inc., is
limited voting stock and is entitled to cumulative annual dividends at a rate
of 8% of the liquidation value per annum. These securities are convertible
into common stock of Graves or Meteor at the bid price on the date of
conversion or 22.2% of the company whichever calculation yields fewer shares.
The record holder has the right to vote on matters which affect the rights of
the class and to elect two of the seven members of the board of directors. In
the event of default under the Meteor promissory note issued to purchase the
Graves common stock, the holder of the Series A Convertible Preferred Stock
has the ability to elect all of the Graves directors. The company may at any
time redeem all or any portion of the Series A Convertible Preferred Stock
outstanding at an amount equal to the liquidation value plus any accrued and
unpaid dividends. At any time after September 15, 2000, the record holder
shall have the right to have the company redeem all or any portion of the
shares outstanding at the price stated above. No dividends were declared by
the board of directors. Dividends in arrears amount to $.56696 and $.28348
per share or $566,960 and $283,480 as of August 31, 1995 and 1994,
respectively.
Included in the minority interest component of the statement of income for the
year ended August 31, 1995, are dividends in arrears of $283,480, and $97,782
which represent the accretion of the preferred stock discount.
The minority interest component for the year ended August 31, 1994, included
dividends in arrears of $283,480, a deemed dividend of $121,881, which
represents the minority interest's share of the difference between the
purchase price and the book value of Graves at the time of acquisition and
$87,568, which represents the accretion of preferred stock discount.
NOTE 10 -- STOCKHOLDERS' EQUITY
During the year ended August 31, 1995, the company issued 372,373 shares of
the company's common stock for a total of $760,863. On July 9, 1995, the
company distributed 65,030 shares of common stock in connection with an 8%
stock dividend. As a result of the stock dividend, common stock was increased
by $65, and additional paid-in capital was decreased by $65.
On August 31, 1995, the company issued 100,000 stock options to outside
consultants in connection with the various completed and pending acquisitions.
The options issued have an exercise price of $2.50 and expire June 30, 1996.
NOTE 11 -- PREFERRED STOCK
During the year ended August 31, 1994, the company sold 160,000 shares of
preferred stock, which was designated as Series A, for $160,000. The shares
had a liquidation preference of $1.00 each, paid no dividends, had limited
voting rights, and were convertible into the company's common stock on a
one-for-one basis. The shares were required to be redeemed by the company on
August 31, 1998, at $1.25 per share if they were not converted earlier. The
shares were converted into the company's common stock on January 24, 1994,
when an offering circular covering the issuance of such common stock was
closed.
NOTE 12 -- INCOME TAXES
The provision for income taxes from continuing operations consists of the
following components:
1995 1994
Current tax expense $ $ 207
Deferred tax expense (benefit) (191,650) (28,769)
Total provision $ (191,650) $ (28,562)
The following reconciles the tax provision with the expected provision
obtained by applying statutory rates to pre-tax income:
1995 1994
Expected tax provision $ (13,368) $ (3,126)
Nondeductible expenses 2,157 1,159
Benefit of NOL carryover (1,872) (50,060)
Change in temporary differences (176,820) 25,048
Income tax benefits of other tax
jurisdictions (1,747) (1,583)
Total provision $ (191,650) $(28,562)
A consolidated tax return will be filed with the subsidiaries of Meteor
Industries, Inc. The provision for income taxes was calculated by using a
method that allocates current and deferred taxes to members of the group by
applying the Financial Accounting Standards Board Statement 109 to the members
as if they were separate taxpayers. The deferred tax asset (liability) in the
accompanying balance sheet includes the following components:
1995 1994
Current:
Deferred tax asset, federal $ 224,927 $ 124,896
Deferred tax asset, state 32,966 10,513
Net current deferred asset $ 257,893 $ 135,409
Noncurrent:
Deferred tax liability, federal $ (957,120) $ (401,825)
Deferred tax liability, state (75,550) (54,844)
Net noncurrent deferred tax liability $(1,032,670) $ (456,669)
The following temporary differences gave rise to the deferred tax asset and
deferred tax liability at August 31, 1995 and 1994:
1995 1994
Excess of tax amortization and depreciation
over financial accounting amortization and
depreciation $ 2,933,026 $1,181,842
Accrued expenses deducted for financial
accounting purposes, not deductible for tax
purposes until paid $ (269,403) $
Net operating loss and contribution carryovers $ (370,076) $ (364,572)
The deferred tax asset and deferred tax liability comprised the following at
August 31, 1995 and 1994:
Deferred tax asset:
1995 1994
Net operating loss and contribution carryovers $ 148,030 $ 135,409
Inventory and accounts receivable 88,410
Employee benefits 21,453
$ 257,893 $ 135,409
Deferred tax liability:
Depreciation and amortization $ 1,032,670 $ 456,669
The company has available at August 31, 1995, $364,064 of unused operating
loss carryforwards that may be applied against future taxable income and that
expire as follows:
August 31, 2007 $105,877
August 31, 2009 180,757
August 31, 2010 77,430
NOTE 13 -- RETIREMENT PLANS
Graves Oil & Butane Company, Inc., adopted a 401(k) profit sharing plan
effective January 1, 1994. In order to be eligible to participate in the
plan, the employee must have completed 12 months of employment and be credited
with a year of service, and must have attained age 21. Excluded from the plan
are employees whose employment is governed by a collective bargaining
agreement that includes retirement benefits. Contributions to the plan are
voluntary through a salary reduction agreement up to a maximum of 15% of
compensation. Matching contributions and other additional contributions may
be made by the employer at the employer's discretion. For the year ended
August 31, 1995, the amount of pension expense was $26,779. For the year
ended August 31, 1994, no matching contributions had been made.
Hillger Oil Company adopted a 401(k) profit sharing plan effective April 1,
1994. In order to be eligible to participate in the plan, the employee must
have completed 12 months of employment and be credited with a year of service,
and must have attained age 21. No employees were excluded from the plan.
Contributions to the plan are voluntary through a salary reduction agreement
up to a maximum of 15% of compensation. Matching contributions and other
additional contributions may be made by the employer at the employer's
discretion. For the five months ended August 31, 1995, the amount of pension
expense was $9,421.
Prior to acquisition, Hillger Oil Company had adopted a defined benefit plan.
Participation in the plan required an employee to complete one year of service
and be at least 21 years old. Participants were vested in their accounts over
a period of six years. The employer had a fixed obligation to contribute each
plan year to the trust fund the amount the plan's actuary determined was
necessary to fund retirement benefits under the plan. Plan assets consist
primarily of investments in corporate debt and equity securities. The plan
was terminated effective March 31, 1995, prior to the acquisition by Meteor
Industries, Inc. The plan assets have not yet been settled.
NOTE 14 -- RELATED PARTY TRANSACTIONS
The company uses space, telephone and secretarial services of a company
controlled by officers of Meteor Industries, Inc. Rent is currently $1,000
per month and secretarial services are currently $2,000 per month. Other
expenses are reimbursed to the company as invoiced. For the years ended
August 31, 1995 and 1994, the total amount paid to the company was $32,272 and
$18,946, respectively. At August 31, 1995 and 1994, amounts payable to
related parties were $1,500 and $2,827, respectively.
During the year ended August 31, 1994, the company repaid advances made by
various officers for acquisition costs incurred in the prior year. The total
amount repaid was $11,750.
During the year ended August 31, 1994, Almo Industries loaned $10,000 to the
company. The loan, including interest at 5% per annum and 500 shares of
common stock, was repaid from the proceeds of the company's public offering.
During the year ended August 31, 1994, the company received $10,000 from a
stockholder of Meteor Industries, Inc. The note was repaid with interest of
$141.
During the year ended August 31, 1995, the company controlled by officers of
Meteor Industries, Inc., loaned the company $95,000. This amount was repaid
with interest in the amount of $1,876.
The company also reimbursed officers for out-of-pocket expenses and some
consulting services. For the year ended August 31, 1995, total amounts paid
to officers was $37,356. Also during the year, an officer loaned the company
$46,000 which is included in the balance sheet as due to related parties.
Included in the amount of stock issued during the year ended August 31, 1995,
as discussed in Note 10, were 5,373 shares issued to the subsidiaries
retirement plan as an employer matching contribution in the amount of $26,779.
The following are transactions that occurred with the minority interest (100%
preferred stockholder) in Graves Oil & Butane Co., Inc:
The company leases certain real estate from the preferred stockholder. For
the years ended August 31, 1995 and 1994, rents paid were $57,286 and $53,000,
respectively.
The company has land, buildings, and equipment in Springerville, Arizona, and
equipment in St. Johns, Arizona, which are used by a relative of its preferred
stockholder. The company does not charge for the use of its properties but
receives revenue from the sale of its products. During the years ended August
31, 1995 and 1994, revenues reported amounted to $413,987 and $567,995,
respectively.
The company sells its products to other entities controlled by the preferred
stockholder. During the years ended August 31, 1995 and 1994, revenues
reported amounted to $1,152,825 and $558,939, respectively.
The preferred stockholder is indebted to the company on two notes totaling
$650,000 as described in Note 4. Interest receivable at August 31, 1995 and
1994, was $73,625 and $48,919, respectively. Interest received during the
years ended August 31, 1995 and 1994, was $41,393 and $29,360, respectively.
The company has entered into a consulting agreement with its preferred
stockholder which provides for payments of $1,500 per month and the use of a
vehicle; fuel for such vehicle; a personal automobile; health, life,
disability, and automobile insurance; and reimbursement of various expenses
including club dues. During the years ended August 31, 1995 and 1994, the
fees paid were $30,021 and $24,606, respectively.
As discussed in Note 19, the company has entered into a purchase agreement
with Mr. Graves in which a note payable in the amount of $2,350,000 was
established. See Note 8. For the years ended August 31, 1995 and 1994,
interest paid on the note was $196,722 and $94,200, respectively. As of
August 31, 1995 and 1994, accrued interest was $94,106 and $90,000,
respectively. Pursuant to the purchase agreement, additional land in the
amount of $83,853 was contributed to the company.
Other transactions:
Hillger Oil Company leases various real property and equipment from a company
in which an employee is a stockholder. Included in rent expense is $208,950
paid to the related party for the five months ended August 31, 1995.
NOTE 15 -- ENVIRONMENTAL PROTECTION EXPENDITURES
The company utilizes underground tanks at various locations to store petroleum
products and is therefore subject to the various federal and state statutes
concerning environmental protection, as well as the New Mexico Ground Water
Protection Act. The various federal and state statutes are designed to
identify environmental damage, identify hazardous material and/or operations,
regulate operations engaged in hazardous activities, and establish procedures
for remedial action as necessary.
The state of New Mexico has recognized the potential cleanup costs resulting
from such regulations, and the New Mexico Ground Water Protection Act has
included the establishment of a corrective action fund. The purpose of the
fund is to provide monetary assistance in both assessing site damage and
correcting the damage where such costs are in excess of $10,000. Assistance
is not available to repair or replace underground tanks or equipment. The law
specifies requirements which must have been met for an applicant to be
eligible, including a provision that payments will be made in accordance with
regulations (which have not yet been issued), and states that payment from the
corrective action fund are limited to amounts in that fund.
The company is responsible for any contamination of land it owns or leases.
However, the company may have limitations on any potential contamination
liabilities as well as claims for reimbursement from third parties. During
the years ended August 31, 1995 and 1994, the company expended $47,013 and
$69,702, respectively, for site assessment and related cleanup costs.
Reimbursement from the state of New Mexico for the year ended August 31, 1995,
amounted to $23,485. Included in other assets at August 31, 1995, are
unreimbursed costs of $86,982.
NOTE 16 -- PURCHASE COMMITMENTS
The company is contingently liable for certain costs associated with leasehold
improvements made by a supplier on property of customers of Graves Oil &
Butane Co., Inc. The liability for the costs is amortized over a five-year
period with the company becoming responsible for payment to the supplier if
fuel purchases fail to meet certain volumes. Originally, the company was
contingently liable on $84,576 in unamortized costs. At August 31, 1995 and
1994, the company was contingently liable on $31,175 and $52,116,
respectively, in unamortized costs. For the years ending August 31, 1995 and
1994, the company made payments to the supplier totaling $8,480 and $4,228,
respectively, for periods when purchase commitments were not met. Future
losses, if any, cannot be estimated at this time.
NOTE 17 -- OPERATING LEASES
The company has entered into various noncancelable leases for land, building,
and equipment with terms ranging from 3 to 15 years. Under most leasing
arrangements, the company pays the property taxes, insurance, maintenance, and
expenses related to the leased property. Total rent expense under operating
leases for the years ended August 31, 1995 and 1994, was $466,106 and
$164,069, respectively.
Minimal future obligations on leases in effect at August 31, 1995, are:
August 31, 1996 $ 731,532
August 31, 1997 730,537
August 31, 1998 745,138
August 31, 1999 733,031
Thereafter 3,456,615
Annual minimum future rental payments have not been reduced by $42,000 of
sublease rentals to be received in the future under non-cancelable subleases.
NOTE 18 -- CAPITAL LEASES
As of August 31, 1995 and 1994, leased property under capital leases by major
classes was as follows:
1995 1994
Buildings and improvements $ 18,141 $ 18,141
Operating equipment 94,117 94,117
General and administrative 12,175 12,175
Accumulated amortization (36,286) (12,096)
Net leased property $ 88,147 $112,337
The following is a schedule by years of future minimum lease payments under
capital leases together with the present value of the net minimum lease
payments as of August 31, 1995:
August 31, 1996 $ 38,527
August 31, 1997 36,016
August 31, 1998 7,616
Total minimum lease payments 82,159
Less: amount representing interest (8,183)
Present value of minimum lease payments $ 73,976
NOTE 19 -- BUSINESS COMBINATION
On June 12, 1995, Meteor Industries, Inc. acquired 100% of the issued and
outstanding common stock (2,500 shares, $100 par value) of Hillger Oil Company
for cash. The acquisition was effective as of April 1, 1995. As part of the
purchase agreement, all of the long-term debt of Hillger Oil Company was
reorganized. At closing, Hillger Oil Company obtained a new revolving credit
line and a term note, the terms of which are discussed in Notes 7 and 8. A
total of $875,000 was borrowed at closing to payoff existing debt and
consummate the transaction. The results of operations of Hillger Oil Company
are included in the accompanying financial statements since the effective date
of the acquisition. The acquisition was accounted for as a purchase and "push
down accounting" was applied, with the result that purchase accounting
adjustments were reflected in the accounting of the company. The total cost
of acquisition exceeded the net assets of Hillger Oil Company by $1,123,144.
Part of the excess was allocated to property and equipment based on appraised
values and will be depreciated over the estimated remaining useful lives of
the assets. The remaining excess was recorded as goodwill and is being
amortized on the straight line method over 15 years.
Effective September 1, 1993, Meteor Industries, Inc., purchased 100% of the
common stock of Graves Oil & Butane Co., Inc., for cash and notes amounting to
$4,100,000. Additional costs of $281,750 were incurred in the acquisition.
Graves Oil & Butane Co., Inc., sells petroleum products at the wholesale and
retail level. The business combination was accounted for under the purchase
method. Results of operations of Graves for the years ended August 31, 1995
and 1994, are included in the income statements of Meteor Industries, Inc. As
part of the acquisition, a note payable to the preferred stockholder of Graves
in the amount of $2,350,000 was incurred. The note payable was included in
long-term debt, which is detailed in Note 8.
NOTE 20 -- SUBSEQUENT EVENTS
In October 1995 the company formed Pyramid Stores, Inc., a Colorado
corporation, as a wholly owned subsidiary to hold all of the stock of Graves
Oil & Butane Co., Inc., and Hillger Oil Company and operate those companies
separately from the company's other activities.
In November 1995, the company issued 1,745,000 shares of its common stock in
exchange for all the outstanding stock of Capco Resources, Inc., (CRI) a
Delaware corporation, which is a U.S. subsidiary of Capco Resources, Ltd. The
shares of the company's common stock issued represent approximately 58% of the
shares now outstanding. The shares were issued to Capco Resources, Ltd.
(Capco), an Alberta corporation which is listed on the Alberta Stock Exchange.
As a result of this transaction, there was a change in control of the company
and two of the company's three directors were replaced by Capco
representatives. The major assets of CRI include: (I) an interest in Saba
Power Company Ltd., which is involved in the development of a power plant in
Pakistan; (ii) all of the stock of Capco Analytical Services, Inc., a
California environmental services firm; and (iii) a $1,516,000 promissory note
from Saba Petroleum Company and other miscellaneous assets.
NOTE 21 -- STOCK OPTION PLAN
A stock option plan providing for the issuance of incentive stock options and
nonqualified stock options to the company's key employees was approved by the
company's stockholders on April 15, 1993. Pursuant to the plan, 500,000
shares of the company's $.001 par value common stock have been reserved for
issuance. Such shares will be issued upon the exercise of options at prices
not less than 100% of fair market value at the time the option is granted.
The options so granted do not vest and are not exercisable by the holder
except on the continued employment of the recipient. Options issued to each
employee vest in equal installments on the anniversary dates of the date the
options were granted. Options have been granted as follows:
Number of Exercise Price Vesting
Date options granted Options Per share Period
October 1, 1993 64,000 $3.00 5 years
February 1, 1994 49,600 $5.25 3 years
F-41
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Stockholders of Meteor Industries, Inc.
We have audited the accompanying balance sheet of Meteor Industries, Inc. as
of August 31, 1993 and the related statement of operations, changes in
stockholders' equity and cash flows for the period from December 22, 1992
(inception) to August 31, 1993. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepting auditing
standards. Those standards required that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatements. 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 opinions.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Meteor Industries, Inc. as of
August 31, 1993 and the results of its operations and its cash flows for the
period from December 22, 1992 (inception) to August 31, 1993 in conformity
with generally accepted account principles.
/s/ Coopers & Lybrand
COOPERS & LYBRAND
Denver, Colorado
February 16, 1994
F-42
<PAGE>
METEOR INDUSTRIES, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
AUGUST 31, 1993
ASSETS
Current assets
Cash $ 206
Other assets
Organization costs 3,000
Acquisition costs 41,481
Deferred financing costs 34,000
Other 294
78,775
Total assets $ 78,981
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Accounts payable $ 36,181
Accounts payable-related parties 11,750
Total liabilities 47,931
Stockholders' equity
Preferred stock $1.00 par value per share,
1,000,000 shares authorized and -0- shares
issued 0
Common stock $.001 par value per share,
10,000,000 shares authorized and 475,000
shares issued and outstanding 475
Additional paid in capital 30,575
Total stockholders' equity 31,050
Total liabilities and stockholders' equity $ 78,981
The accompanying notes are an integral part of these financial statements.
F-43
<PAGE>
METEOR INDUSTRIES, INC.
STATEMENT OF OPERATIONS
PERIOD FROM DECEMBER 22, 1992 (INCEPTION)
TO DECEMBER 31, 1993
Income $ 0
Expense 0
Net income during Development Stage $ 0
Net Income per share of Common Stock $ 0
Weighted Average Shares Outstanding 358,500
The accompanying notes are an integral part of these financial statements.
F-44
<PAGE>
METEOR INDUSTRIES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CHANGES IN STOCKHOLDERS EQUITY
PERIOD FROM DECEMBER 22, 1992 (INCEPTION)
TO AUGUST 31, 1993
COMMON STOCK ADD'L
--------------- PAID IN ACCUMULATED
SHARES AMOUNT CAPITAL DEFICIT TOTAL
Balance December
22,1992 (inception) 0 $ 0 $ 0 $ 0 $ 0
Stock for services
April 14,1993($.003
per share) 90,000 90 210 0 300
Stock for Cash Ad-
vanced for Costs
April 15,1993($.003
per share) 150,000 150 350 0 500
June 15,1993 ($.03
per share) 30,000 30 970 0 1,000
June 25,1993 ($.03
per share) 120,000 120 3,880 0 4,000
July 12,1993 ($.20
per share) 5,000 5 995 0 1,000
August 18,1993($.50
per share) 2,000 2 998 0 1,000
Stock for Cash
July 12, 1993 ($.20
per share) 25,000 25 4,975 0 5,000
July 12, 1993 ($.20
per share) 15,000 15 2,985 0 3,000
July 19, 1993 ($.20
per share) 12,500 12 2,488 0 2,500
August 16,1993($.50
per share) 25,500 26 12,724 0 12,750
Net Income 0 0 0 0 0
Balance August 31,
1993 475,000 $475 $30,575 0 $31,050
The accompanying notes are an integral part of these financial statements.
F-45
<PAGE>
METEOR INDUSTRIES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CASH FLOWS
PERIOD FROM DECEMBER 22, 1992 (INCEPTION)
TO AUGUST 31, 1993
Cash provided by operations
Net Income $ 0
Cash provided by operations 0
Cash provided by financing activities
Proceeds from borrowings from related parties 9,250
Issuance of stock for cash 23,250
Deferred financing costs (32,000)
Other (294)
Cash provided by financing activities 206
Net increase in cash 206
Cash, beginning of period 0
Cash, end of period 206
Supplemental schedule of non-cash investing and
financing activities:
Issuance of 397,000 shares of common stock for
acquisition costs incurred by related parties $ 7,800
Accounts payable to related parties for
acquisition costs paid on behalf of the
Company $ 2,500
The accompany notes are an integral part of these financial statements.
F-46
<PAGE>
METEOR INDUSTRIES, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Meteor Industries, Inc. (the "Company") was incorporated under the laws of the
State of Colorado on December 22, 1992. The Company is in the development
stage of operations. Planned principal operations of the Company had not yet
commenced on August 31, 1993, and activities to date have been limited to its
formation, obtaining initial capitalization of $31,050 through the issuance of
475,000 shares of common stock, entering into an agreement to acquire Graves
Oil & Butane Co., Inc. ("Graves") and preparing a confidential private
placement memorandum related to the sale of 160,000 shares of the Company's
preferred stock.
DEFERRED FINANCING COSTS
These costs represent the cost of obtaining the line of credit for the
acquisition of Graves (See Note 5). These costs will be amortized over the
term of the agreement.
ACQUISITION COSTS
Acquisition costs represent direct costs incurred associated with the
acquisition of Graves (See Note 5). These costs will be allocated as part of
the purchase.
ORGANIZATION COSTS
Organization costs will be amortized over 5 years.
INCOME TAXES
The Company has recorded no income taxes as it has had no income or
expenses.
INCOME PER SHARE
The net income per share of common stock is computed by dividing the net
income by the weighted average number of common shares outstanding during the
year.
NOTE 2 - PREFERRED STOCK
The preferred stock may be issued by the Board of Directors in more than one
series. The Board will determine the distinguishing features of each
including preference, rights and restrictions, upon the establishment of each
series.
Subsequent to August 31, 1993, the Company sold 160,000 shares of preferred
stock for $160,00, including $10,000 to related parties, which was designated
as Series A. The Shares had a liquidation preference of $1.00 each, paid no
dividends, had limited voting rights, and were convertible into the Company's
common stock on a one-for-one basis. The Shares were required to be redeemed
by the Company on August 31, 1998 at $1.25 per share if they were not
F-47
<PAGE>
converted earlier. The Shares were converted into the Company's common stock
on January 24, 1994 when an Offering Circular covering the issuance of such
common stock was closed. Such common stock is subject to certain restrictions
on transfer imposed by the underwriter of the public offering.
NOTE 3 - RELATED PARTY TRANSACTIONS
The Company issued 30,000 common shares each, to its President, its Secretary
and to Almo Industries in exchange for services valued at $300, which was
based on time spent in the organization of the Company.
The Company issued 270,000 common shares to its President for cash advanced
for acquisition costs of $4,500, 15,000 common shares for cash of $3,000, and
10,000 common shares to his wife for cash of $5,000.
The Company issued 20,000 common shares to Almo Industries for cash of $6,250.
The Company's President advanced $3,500, the secretary advanced $6,000, Almo
Industries advanced $1,250 and a company controlled by the President and
Secretary advanced $1,000 for acquisition costs. These amounts are included
in accounts payable at August 31, 1993.
The Company uses space, telephone and secretarial services of a company
controlled by the President and Secretary. Subsequent to August 31, 1993 the
Company began paying $400 a month for the space, telephone and services.
Subsequent to August 31, 1993 Almo Industries loaned $10,000 to the Company.
The loan, including interest at 5% per annum and 500 shares of common stock,
is to be repaid from the proceeds of the Company's public offering.
Subsequent to August 31, 1993, the Company entered into a 5 year employment
agreement with its president which renews automatically every year. The
Company, however, can terminate the president, without cause, and will be
obligated for one year's salary.
NOTE 4 - STOCK OPTION PLAN
On April 15, 1993, the Company's Board of Directors authorized an Incentive
Stock Option Plan and reserved 500,000 shares of the Company's $.001 par value
common stock for key employees. The Board of Directors is authorized to
determine the exercise price, the time period, the number of shares subject to
the option and the identity of those receiving the options. As of August 31,
1993, no stock options had been granted pursuant to this plan. On October 1,
1993, 65,000 options were granted with an exercise price of $3.00 per share.
NOTE 5 - SUBSEQUENT EVENTS
On September 28, 1993, and effective September 1, 1993, the Company completed
its acquisition of all of the outstanding common stock of Graves. Graves had
total assets and stockholders equity of approximately $9,700,000 and
$6,200,000, respectively, as of August 31, 1993. The Purchase price for the
common stock was $4,100,000 paid in the form of $1,750,000 of cash and the
discharge of certain of the Seller's obligations at closing and a $2,350,000
promissory note payable over the next four years which bears interest at 2%
over prime. In connection with the acquisition the Company guaranteed a line
of credit with Norwest Business Credit, Inc. of up to $4,000,000 subject to
the borrowing base of Graves. In addition an officer of the Company has
personally guaranteed up to $250,000 on amounts outstanding under the line of
credit. At closing $1,850,000 was borrowed.
On January 24, 1994, the Company completed its offering of 200,000 common
shares at a price of $5.00 per share in a public offering underwritten on a
firm commitment basis by VTR Capital, Inc. After deducting offering expenses,
the Company netted approximately $837,500 from this offering. In connection
with the offering the Company issued warrants to purchase 17,000 shares of
common stock to the underwriter. The warrants are exercisable at a price of
$6.00 per share for a 5 year period commencing January 14, 1995. Also, the
Company entered into a contract with the underwriter to consult on financial
matters and provide investment banking services for a 12 month period for a
fee of $25,000.
F-49
<PAGE>
PRICE WATERHOUSE
Chartered Accountants
1200, 425 - 1st Street S.W.
Calgary, Alta. T2P 3V7
403/267-1200
Telecopier: 403/233-0883
May 17, 1995, except for Notes 3, 5, 10(b), 10(c) and 10(d) which are as of
September 15, 1995 for Notes 3(a) and 10(c) December 1, 1995, for Notes 3(b)
and 10(b) and December 29, 1995 for Notes 5 and 10(d)
AUDITORS' REPORT
To the Shareholder of
CAPCO Resources Inc.
We have audited the consolidated balance sheet of CAPCO Resources Inc. as at
December 31, 1994 and 1993 and the consolidated statements of operations and
retained earnings (deficit) and changes in financial position for the three
years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to
obtain reasonable assurance 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.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the Company as at December 31,
1994 and 1993 and the results of its operations and the changes in its
financial position for the three years then ended in accordance with Canadian
generally accepted accounting principles.
/s/ Price Waterhouse
Chartered Accountants
COMMENTS BY AUDITORS FOR U.S. READERS ON CANADA - U.S. REPORTING CONFLICT
In the United States, reporting standards for auditors require the addition of
an explanatory paragraph (following the opinion paragraph) when the financial
statements are affected by significant uncertainties such as that referred to
in the attached consolidated balance sheet of CAPCO Resources Inc. as at
December 31, 1994 and 1993 and as described in Note 2 of the consolidated
financial statements. Our report to the shareholders dated May 17, 1995,
except for Notes 3, 5, 10(b), 10(c) and 10(d) which are as of September 15,
1995 for Notes 3(a) and 10(c), December 1, 1995, for Notes 3(b) and 10(b) and
December 29, 1995 for Notes 5 and 10(d) is expressed in accordance with
Canadian reporting standards which do not permit a reference to such an
uncertainty in the auditors' report when the uncertainty is adequately
disclosed in the financial statements.
/s/ Price Waterhouse
Chartered Accountants
F-50
<PAGE>
CAPCO RESOURCES INC.
CONSOLIDATED BALANCE SHEET
(in U.S. dollars)
December 31
1994 1993
ASSETS
Current assets
Cash $ 1,277 $ -
Accounts receivable 124,263 -
125,540 -
Capital assets (Note 4) 250,344 -
Other assets
Investment in Saba Power Company Limited
(Note 5) 150,865 -
Deposits and other 12,776 -
Net assets from discontinued operations
(held primarily through shares of other
companies) (Note 3) 572,036 660,023
$1,111,561 $ 660,023
LIABILITIES
Current liabilities
Accounts payable $ 287,814 $ -
Accrued liabilities 114,729 -
402,543 -
SHAREHOLDER'S EQUITY
Share capital
Authorized
10,000 of $.01 par value common voting
shares
Issued and outstanding
100 common voting shares 100 100
Contributed surplus 511,920 511,920
Retained earnings 196,998 148,003
709,018 660,023
$1,111,561 $ 660,023
Commitments and contingencies
(Notes 5, 8 and 10)
Approved by the Board ______________________ Director
______________________ Director
F-51
<PAGE>
CAPCO RESOURCES INC.
CONSOLIDATED STATEMENT OF OPERATIONS AND RETAINED EARNINGS
(DEFICIT)
(in U.S. dollars)
Year ended December 31
1994 1993 1992
Revenue
Analytical services and other $ 472,148 $ - $ -
Expenses
General and administrative 577,024 2,282 -
Depreciation and amortization 24,656 - -
601,680 2,282 -
(Loss) for the year before
discontinued operations (129,532) (2,282) -
Income from discontinued
operations (Note 3) 178,527 690,624 765,220
Net income for the year 48,995 688,342 765,220
Retained earnings (deficit),
beginning of year 148,003 (540,339) (1,305,559)
Retained earnings (deficit),
end of year $ 196,998 $ 148,003 $ (540,339)
(Loss) per share from
continuing operations $(1,295.32) $ (22.82) $ -
Earnings per share $ 489.95 $6,883.42 $ 7,652.20
F-52
<PAGE>
CAPCO RESOURCES INC.
CONSOLIDATED STATEMENT OF CHANGES IN FINANCIAL POSITION
(in U.S. dollars)
Year ended December 31
1994 1993 1992
Cash provided by (used in)
operating activities
Loss for the year before
discontinued operations $ (129,532) $ (2,282) $ -
Items not affecting cash
Depreciation and amortization 24,656 - -
(104,876) (2,282) -
Net change in non-cash working
capital deficiency 278,280 - -
Cash provided by (used in)
discontinued operations 266,514 2,282 (511,920)
439,918 - (511,920)
Cash used in investing activities
Purchase of capital assets (275,000) - -
Investment in Saba Power
Company Limited (Note 5) (150,865) - -
Deposits and other (12,776) - -
(438,641) - -
Cash provided by (used in) financing
activities
Issue of share capital - 100 -
Contributed surplus - - 511,920
Increase in notes receivable,
related party - (100) -
- - 511,920
Net change in cash for the year 1,277 - -
Cash, beginning of year - - -
Cash, end of year $ 1,277 $ - $ -
Supplemental disclosure of cash
flow information
Cash paid during year for Interest
in discontinued operations $1,071,405 $790,960 $ 440,078
Income taxes in discontinued
operations $1,315,480 $ 72,064 $ 112,873
F-53
<PAGE>
<PAGE>
CAPCO RESOURCES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1994
(In U.S. dollars)
1. SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES
The consolidated financial statements of the Company have been prepared in
accordance with accounting principles generally accepted in Canada.
Underlying these principles is the assumption that the Company will be able to
realize its assets and pay its liabilities in the normal course of business
(refer to Note 2). The more significant of the Company's accounting policies
are:
a) PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
its subsidiary, CAPCO Analytical Services Inc. Oil and gas and other
miscellaneous operations were treated as discontinued operations as a
definitive merger agreement which contemplated the sale of these assets was
signed January 20, 1995 (see Note 3).
b) ANALYTICAL EQUIPMENT
Analytical equipment is stated at cost less accumulated depreciation.
Depreciation of equipment is provided principally on the straight-line method
over the estimated useful life of the equipment, ranging from three to seven
years.
c) INVESTMENT IN SABA POWER COMPANY LIMITED
The investment in Saba Power Company Limited is recorded using the equity
method. All operations to date have been pre-operational project development
costs and such costs have been capitalized.
d) EARNINGS PER SHARE
Earnings per share is calculated using the weighted monthly average number of
shares outstanding.
2. CORPORATE ITEMS
a) FINANCIAL ITEMS
At December 31, 1994, the Company had a working capital deficiency of
$277,003. The Company's ability to continue as a going concern and to realize
its assets and to discharge its liabilities (see Notes 3 and 5) is dependent
upon the Company obtaining profitable operations or receiving financial
support from its controlling shareholder.
b) CONTROL
At December 31, 1994, the Company was indirectly controlled by an individual
who indirectly held 85.29% of the issued common shares of the parent company,
CAPCO Resources Ltd. (see Note 10(b)).
F-54
<PAGE>
c) CAPCO ANALYTICAL SERVICES INC.
In April 1994, the Company formed CAPCO Analytical Services, Inc. ("CAS").
CAS acquired $275,000 in assets to be used in laboratory analyses. CAS
assumed liabilities related to the assets of $230,000 and agreed to pay the
remaining $45,000 by providing discount laboratory analysis to the seller.
d) ACCOUNTING PRESENTATION
The Company was incorporated in October 1993 and commenced operations when the
U.S. assets of its parent company were transferred to it for corporate
planning purposes. The historical comparative financial information has been
presented as if the Company owned the assets from the time acquired by the
parent company as the purchase transaction occurred between companies under
common control. Subsequent to December 31, 1994, the majority of the assets
transferred by its parent company to the Company were transferred to a related
party or sold, and accounted for as discontinued operations.
3. DISCONTINUED OPERATIONS
a) On September 15, 1995, the Company sold the shares of Saba de Colombia,
Inc., a U.S. subsidiary engaged in the exploration and development of
petroleum and natural gas in Colombia, to a third party for fair market value
of $2,601,719, and realized a gain net of taxes on the sale of the shares of
$1,426,395. The consideration received was in the form of:
Cash $2,401,719
400,000 cumulative, convertible, redeemable
first preferred shares of Petrosandtander
Inc. bearing dividends at 8.5% per annum 200,000
$2,601,719
$150,000 and the preferred shares remain in escrow pending review by Colombian
taxing authorities.
b) On December 1, 1995, the Company transferred to CAPCO Acquisub Inc., a
wholly-owned subsidiary of CAPCO Resources Ltd., all of its holdings of Saba
Petroleum Company certain other assets and liabilities. This transaction was
recorded at book value. The net assets transferred had a book value of
approximately $1,220,000.
The discontinued operations results for 1994, 1993, and 1992 are as follows:
Year ended December 31
1994 1993 1992
Income
Oil and gas sales
(net of royalties) $16,561,431 $14,888,250 $10,736,986
Other income 996,658 729,234 516,759
17,558,089 15,617,484 11,253,745
Expenses
Production and operating 10,807,058 8,392,673 6,070,781
General and administrative 2,530,929 2,998,152 1,775,247
Interest and bank charges 1,252,507 810,168 498,607
Depreciation, depletion
and amortization 2,744,054 2,555,213 1,551,673
17,334,548 14,756,206 9,896,308
Income before the following 223,541 861,278 1,357,437
Income tax expense 540,043 486,947 675,471
Foreign exchange (gain) loss (373,787) (114,313) (224,115)
Minority interest 249,665 (36,676) 140,861
Dilution gain (370,907) (165,304) -
45,014 170,654 592,217
Income for the year $ 178,527 $ 690,624 $ 765,220
The following summarizes the carrying value of major assets and liabilities of
the discontinued operations transferred which has been reflected in the
consolidated balance sheet as net assets from discontinued operation. The
assets and liabilities were held primarily through investments in shares in
other companies and were not directly owned:
Year ended December 31
1994 1993 1992
Net working capital $(4,026,062) $(2,583,420) $(2,527,348)
Capital assets 16,798,922 13,060,590 13,169,002
Other assets 652,415 680,222 378,768
Minority interest (3,080,083) (1,834,087) (1,548,533)
Long-term debt (5,385,221) (4,875,000) (3,612,649)
Deferred tax and other (664,617) (306,786) (37,000)
Pension liability (1,844,360) (1,554,154) (1,765,644)
Deferred foreign exchange gain (420,379) (450,270) -
Due to affiliated companies (1,458,579) (1,476,872) (4,084,913)
$ 572,036 $ 660,023 $ (28,317)
4. CAPITAL ASSETS
December 31
1994 1993
Accumulated Net book Net book
Cost amortization value value
Analytical equipment $275,000 $24,656 $250,344 $ -
5. INVESTMENT IN SABA POWER COMPANY LIMITED ("SABA POWER")
During 1994, Saba Power and several partners received approval to develop,
construct and operate a 109 Megawatt power generating plant in the Islamic
Republic of Pakistan. The Company holds an indirect equity investment in Saba
Power of 25.2%. At December 31, 1994, the Company's investment represents its
share of project development costs incurred to that date.
The recoverability of the investment is dependent upon successful completion
of the project and commencement of commercial production. The Company and its
partners provided a performance guarantee through a bank in Pakistan, in the
amount of approximately $355,000 at December 31, 1994 (10,900,000 Rupees).
The agreements between the partners and the Government of Pakistan have
several conditions, the most significant being:
i) To maintain its 25.2% interest in the project, the Company must fund an
initial equity investment of $6.75 million which includes earning a
development fee from the project of $2.7 million, which must be reinvested as
part of the Company's equity commitment. In a letter dated December 29, 1995,
the Company agreed with the majority equity holder, Cogen Technologies Inc.
("Cogen"), that the Company would borrow all additional equity from Cogen,
which is necessary to fund the amount in excess of $6.75 million, including
interest at 15% per annum to be paid out of the cashflow of the project if not
paid sooner by the Company. The Company also confirms that, at the financial
closing (currently March 17, 1996) of the project, it will deposit 50% of the
$4.05 million required, after receiving the development fee, and the amount
borrowed from Cogen. The remaining 50% will be deposited with Cogen on the
first anniversary of the financial closing. Should the Company not meet its
required equity commitment, the majority equity partner will fund the
difference and reduce the Company's interest proportionately.
ii) Cogen agreed to fund all project development costs subsequent to
September 30, 1994 and will carry on day to day operations of the project,
including design, engineering, selecting equipment, obtaining financing and
overseeing construction and operations.
iii) The Company must reimburse its proportionate share of all project
development costs, paid for by Cogen, including interest at 15% per annum.
The Company will be responsible for its proportionate share of all remaining
project costs as incurred.
iv) On September 17, 1995 Saba Power entered into an agreement with the
Government of Pakistan to increase the Performance Guarantee to $728,000 (23
million Rupees) valid up to January 18, 1996 and to move the date of Financial
Close under the Letter of Support to December 17, 1995.
The Company has not yet determined how it will obtain the necessary financing
for its share of the initial equity commitment but is investigating options
available to it.
The Company has a commitment outstanding for $75,000 as a finders fee relating
to the project and $60,750 as a letter of credit fee.
6. INCOME TAXES
The provision for income taxes in the Statement of Operations varies from the
amount that would be computed by applying the expected income tax rate of
37.5% (1993 and 1992 - 37.5%) to income from continuing operations. The
principal reasons for the difference between such "expected" income tax
expense and the amount actually recorded are as follows:
Year ended December 31
1994 1993 1992
Computed "expected" income tax recovery $(48,575) $(856) $ -
Tax losses carried forward applied 48,575 856 -
$ - $ - $ -
7. SEGMENTED INFORMATION
During 1994 and 1993 the Company operated predominately in one industry
segment - Laboratory Analysis in the United States and invested in a Power
Project in Pakistan (see Note 5).
United
1994 States Pakistan Other Total
Revenue $ 472,148 $ - $ - $ 472,148
Segment operating profit (loss) $(129,532) $ - $ 178,527 $ 48,995
Identifiable assets $ 388,660 $ 150,865 $ 572,036 $1,111,561
Depreciation and amortization $ 24,656 $ - $2,744,054 $2,768,710
1993
Revenue $ - $ - $ - $ -
Segment operating profit (loss) $ (2,282) $ - $ 690,624 $ 688,342
Identifiable assets $ - $ - $ 660,023 $ 660,023
Depreciation and amortization $ - $ - $2,555,213 $2,555,213
8. COMMITMENTS AND CONTINGENCIES
The Company is subject to extensive Federal, State and local environmental
laws and regulations. These laws, which are constantly changing, include
regulations of the discharge of materials into the environment. The Company
believes that it is in compliance with existing laws and regulations.
LEASES
The Company is committed under non-cancellable leases for office space, which
expire in 1998. Future minimum payments are as follows:
1995 $80,400
1996 80,400
1997 80,400
1998 33,500
9. RELATED PARTY TRANSACTIONS
Related party transactions are described as follows:
The Company has in the past, advanced and received funds with related parties.
All of these transactions have been included in discontinued operations (see
Note 3), including the amount from net assets from discontinued operations.
10. SUBSEQUENT EVENTS
a) On April 22, 1995, the Company signed a Project Development and
Shareholders' Agreement relating to the power generating plant in Pakistan
which converted the indirect equity holding into direct investment in Saba
Power.
b) On January 20, 1995, the Company's parent entered into a definitive
merger agreement with Meteor Industries, Inc. (Meteor), a United States public
company engaged in the wholesale and retail marketing of petroleum products
with operations in Colorado and New Mexico. The Company's parent was to
exchange shares of the parent for all the shares of Meteor. Although the
number of shares was to be determined, the Company's parent would issue a
maximum of 2,091,250 shares. This agreement was cancelled and a new agreement
between the Company, its parent, and Meteor was entered into and closed on
December 1, 1995.
The new agreement merged the Company with Meteor in a reverse takeover whereby
all of the shares of the Company were exchanged for 1,745,000 shares of
Meteor, representing 57.8% of the total outstanding shares of Meteor after the
transaction. In connection with this agreement, the Company transferred its
interest in Saba Petroleum Company and certain other assets and liabilities to
another wholly-owned subsidiary of the Company's parent. This resulted in the
discontinuation of operations in oil and gas production and in other assets,
liabilities and revenues and expenses which are allocated to discontinued
operation (see Note 3). The acquisition will be accounted for as a purchase
of Meteor by the Company with income being recorded from the date of
acquisition. The estimated purchase price allocation based upon the August 31,
1995 financial statements of Meteor is as follows:
Current assets $ 6,682,503
Capital assets 7,677,652
Other assets 2,131,081
Current liabilities (6,950,574)
Long-term liabilities (2,095,660)
Deferred taxes (1,682,051)
Minority interest (3,488,310)
$ 2,274,641
c) On September 15, 1995, the Company sold its interest in Saba de Colombia,
Inc. The proceeds of the sale were used to advance monies to Saba Petroleum
Company and to pay some liabilities. The operations of Saba de Colombia, Inc.
and the gain on sale are included in discontinued operations (see Note 3).
d) Restructuring of the Saba Power commitment as disclosed in Note 5.
11. DIFFERENCES BETWEEN CANADIAN AND U.S. GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES ("GAAP")
There are no material differences between Canadian and U.S. GAAP.
F-59
<PAGE>
SQUIRE & WOODWARD, P.C.
Certified Public Accountants - Consultants
2730 San Pedro NE, Suite D
Albuquerque, New Mexico 87110
505/881-3408
FAX 505/881-6597
To the Board of Directors and Stockholders
of Hillger Oil Company
Las Cruces, New Mexico
INDEPENDENT AUDITORS' REPORT
We have audited the accompanying balance sheets of Hillger Oil Company as of
March 31, 1995 and 1994, and the related statements of income, stockholders'
equity, and cash flows for the years ended March 31, 1995 and 1994, and the
statements of income and cash flows for the year ended March 31, 1993. These
financial statements are the responsibility of the company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
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 financial statements referred to above present fairly, in
all material respects, the financial position of Hillger Oil Company as of
March 31, 1995 and 1994, and the results of their operations and their cash
flows for the years ended March 31, 1995, 1994 and 1993, in conformity with
generally accepted accounting principles.
/s/ Squire & Woodward, P.C.
Squire & Woodward, P.C.
August 18, 1995
F-60
<PAGE>
HILLGER OIL COMPANY
BALANCE SHEETS
March 31, 1995 and 1994
ASSETS
March 31, March 31,
1995 1994
Current assets
Cash $1,087,592 $ 394,704
Accounts receivable, net of an allowance
for doubtful accounts of $15,700 for
1995 and $11,400 for 1994 480,650 498,674
Investments 254 200,296
Inventory 537,378 548,889
Note receivable 18,014 25,135
Deferred tax asset 80,789 14,355
Other current assets 175,747 93,134
Total current assets 2,380,424 1,775,187
Property and equipment, at cost, partially
pledged net of an accumulated depreciation of
$1,291,356 for 1995, and $1,236,293 for 1994 458,685 1,241,589
Other assets
Note receivable 18,0014
Notes receivable - related parties 9,000 27,929
Loans receivable - related parties 75,290
Other assets 580 43,782
Total other assets 9,580 165,015
Total assets $2,848,689 $3,181,791
See accompanying notes to financial statements.
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<PAGE>
HILLGER OIL COMPANY
BALANCE SHEETS
March 31, 1995 and 1994
LIABILITIES AND STOCKHOLDERS' EQUITY
March 31, March 31,
1995 1994
Current liabilities
Accounts payable $ 887,084 $ 907,537
Note payable 59,796
Current portion of long-term debt 616,587 91,033
Taxes payable 365,763 397,079
Accrued expenses 16,147 60,803
Total current liabilities 1,945,377 1,456,452
Long-term debt, net of current portion
Notes payable 323,502 940,085
Deferred taxes 68,705 50,426
Total liabilities 2,337,584 2,446,963
Stockholders' equity
Common stock - $100 par value, 2,500
shares authorized; 2,500 shares issued
and outstanding 250,000 250,000
Retained earnings 261,105 484,828
Total stockholders' equity 511,105 734,828
Total liabilities and stockholders'
equity $2,848,689 $3,181,791
See accompanying notes to financial statements.
F-62
<PAGE>
HILLGER OIL COMPANY
STATEMENTS OF INCOME
For the years ended March 31, 1995, 1994 and 1993
1995 1994 1993
Sales $22,433,358 $22,522,125 $ 21,968,747
Cost of sales 18,386,786 18,852,433 18,848,952
Gross profit 4,046,572 3,669,692 3,119,795
Operating expenses
Operating expenses 4,265,018 3,284,376 2,912,747
Depreciation and amortization 196,361 222,869 212,840
Total operating expenses 4,461,379 3,507,245 3,125,587
Income (loss) from
operations (414,807) 162,447 (5,792)
Other income and expenses
Interest income 22,143 14,913 8,597
Dividend income 19,185
Gain on sale of assets 85,090 2,497
Other income 70,408 90,222 200,473
Interest expense (86,439) (94,705) (114,506)
Total other income 110,387 12,927 94,564
Income (loss) before
income taxes (304,420) 175,374 88,772
Provision for income taxes (88,790) 76,838 18,190
Net income (loss) $ (215,630) $ 98,536 $ 70,582
See accompanying notes to financial statements.
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<PAGE>
HILLGER OIL COMPANY
STATEMENTS OF STOCKHOLDERS' EQUITY
For the years ended March 31, 1995, 1994 and 1993
Common Retained
Stock Earnings Total
April 1, 1993 $ 250,000 $ 387,786 $ 637,786
Net income 98,536 98,536
Payment on reissued treasury stock (1,494) (1,494)
March 31, 1994 250,000 484,828 734,828
Net loss (215,630) (215,630)
Payment on reissued treasury stock (8,093) (8,093)
March 31, 1995 $ 250,000 $ 261,105 $ 511,105
See accompanying notes to financial statements.
F-64
<PAGE>
HILLGER OIL COMPANY
STATEMENTS OF CASH FLOWS
For the years ended March 31, 1995, 1994 and 1993
Increase (Decrease) in Cash and Equivalents
1995 1994 1993
Cash flows from operating activities
Cash received from customers $22,437,917 $22,535,310 $21,896,872
Interest and dividends received 41,328 14,913 8,597
Other operating cash receipts 70,408 90,222 200,473
Cash paid to suppliers and employees (21,904,758) (21,991,899) (21,678,371)
Interest paid (86,439) (94,705) (114,506)
Income taxes paid (35,503) (21,344) (10,361)
Other operating cash payments (9,153) (4,973) (1,045)
Net cash provided by
operating activities 513,800 527,524 301,659
Cash flows from investing activities
Cash paid for purchase of investments (400,534) (199,597)
Cash paid for purchases of property
and equipment (79,483) (340,807) (933,517)
Cash proceeds from sale of
investments 405,533
Cash proceeds from sale of property 200,000 172,496
Cash proceeds from image
reimbursements 72,350
Decrease (increase) in notes
receivable 25,135 61,917 (62,734)
Increase in related party receivables (4,587) (16,763) (27)
Net cash provided (used) by
investing activities 218,414 (322,754) (996,278)
Cash flows from financing activities
Long-term borrowings 939,739
Net borrowings on short-term
note payable 59,796 (23,538) 23,538
Principal payments on long-term debt (91,029) (429,055)
Payments made on reissued
treasury stock (8,093) (1,494) (1,409)
Net cash provided (used) by
financing activities (39,326) (454,087) 961,868
Net increase (decrease) in cash and
equivalents 692,888 (249,317) 267,249
Cash and equivalents, beginning of year 394,704 644,021 376,772
Cash and equivalents, end of year $ 1,087,592 $ 394,704 $ 644,021
1995 1994 1993
Reconciliation of net income (loss) to
net cash provided (used) by
operating activities
Net income (loss) $ (215,630) $ 98,536 $ 70,582
Adjustments to reconcile net
income (loss) to net cash
provided (used) by operating
activities:
Depreciation and amortization 196,361 222,869 212,840
Gain on disposal of property and
equipment (113,345) (2,497)
Loss on disposal of investments 28,255
Deferred income taxes (48,155) 52,705 2,196
Deferred compensation 772,615
Decrease in accounts receivable 18,024 22,027 88,807
Decrease (increase) in prepaid
expenses (88,561) 1,323 (34,931)
Decrease (increase) in inventories 11,511 34,309 (62,021)
Decrease (increase) in other
current assets 5,948 (14,110) 4,139
Decrease (increase) in other assets 43,202 (13,351) (30,351)
Decrease in accounts payable (20,453) (12,644) (692)
Increase (decrease) in accrued
liabilities (64,739) 135,568 45,457
Increase (decrease) in income
taxes payable (11,233) 2,789 5,633
Total adjustments 729,430 428,988 231,077
Net cash provided by
operating activities $ 513,800 $ 527,524 $ 301,659
F-65
<PAGE>
HILLGER OIL COMPANY
NOTES TO FINANCIAL STATEMENTS
March 31, 1995
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting policies of Hillger Oil Company (the
company) is presented to assist in the understanding of the company's
financial statements. The financial statements and notes are representations
of the company's management, who are responsible for their integrity and
objectivity. These accounting policies conform to generally accepted
accounting principles and have been consistently applied in the preparation of
the financial statements.
BUSINESS ACTIVITY - The company was incorporated February 20, 1950, under
the laws of the state of New Mexico. The company is a retail and wholesale
distributor of petroleum products and also sells various products at retail in
its convenience stores. The company grants credit to customers, substantially
all of whom are local businesses or individuals.
ACCOUNTS RECEIVABLE - Accounts receivable are stated at net realizable
value, using the allowance method of accounting for bad debts.
INVESTMENTS - Investments consist of marketable securities classified as
available-for-sale and are valued at cost which approximates market value.
INVENTORIES - Inventories of petroleum products, greases and oils, and
related products are valued at average cost which is not in excess of market.
Sundries inventories are valued by the retail method and stated on the
First-In, First-Out (FIFO) basis which is lower than market.
PROPERTY AND EQUIPMENT - Property and equipment are stated at cost less
accumulated depreciation and amortization. Depreciation and amortization are
computed using the straight-line method over the estimated useful lives of the
assets. Maintenance and repairs are charged to expense in the year incurred.
Renewals and material betterments are capitalized. Gains and losses on
disposition are credited or charged to income during the year of disposition.
See Note 3.
DEPRECIATION - Depreciation is recorded principally 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
Buildings and leasehold improvements 5 to 40 years
Equipment 5 to 20 years
Vehicles 5 to 10 years
INCOME TAXES - Income taxes are provided for the tax effects of
transactions reported in the financial statements and consist of taxes
currently due plus deferred taxes related primarily to differences between the
basis of certain assets and liabilities for financial and tax reporting. The
deferred taxes represent the future consequences of those differences, which
will either be taxable or deductible when the assets and liabilities are
recovered or settled. Deferred taxes also are recognized for operating losses
and contribution carryforwards that are available to offset future taxable
income. See Note 7.
F-66
<PAGE>
ENVIRONMENTAL EXPENDITURES - Expenditures that relate to current
operations are expensed or capitalized as appropriate for each expenditure.
Whenever an expenditure relates to an existing condition caused by past
operations and does not contribute to future revenues, the expenditure is
expensed currently. Liabilities are recorded when remedial efforts are
probable and the cost can be reasonably estimated.
COMPENSATED ABSENCES - Employees of the company are entitled to paid
vacation and paid sick days off, depending on length of service and other
factors.
ADVERTISING COSTS - Advertising costs are expensed as incurred. See Note
9.
CASH AND CASH EQUIVALENTS - For purposes of the statements of cash flows,
the company considers all highly liquid debt instruments purchased with a
maturity of three months or less to be cash equivalents.
NOTE 2 - INVESTMENTS
At March 31, 1995 and 1994, investments were classified as
available-for-sale and consisted of the following:
1995 1994
Equity securities:
Tri-state Grocery stock $ $ 699
Debt securities:
Mutual funds investing in U.S.
government securities 254 93,014
Municipal security - 5.875%,
June 1, 2023 106,583
Total investments $ 254 $200,296
Cost approximates fair value of investments. Unrealized holding gains and
losses are considered by management to be immaterial.
For the years ended March 31, 1995 and 1994, sales of investments occurred as
follows:
1995 1994
Proceeds from sales $ 405,533 $
Cost basis (433,788) 0
Net loss on sale of investments $ (28,255) $ 0
Gross realized gains or losses were
as follows:
Gross realized gains $ 1,792 $
Gross realized losses (30,047) 0
Net loss on sale of investments $ (28,255) $ 0
The basis on which cost was determined in computing realized gain or loss was
the specific identification method.
NOTE 3 - PROPERTY AND EQUIPMENT
The major classifications of property and equipment are as follows:
1995 1994
Building and leasehold improvements $ 63,133 $ 747,627
Equipment 1,152,151 1,179,970
Vehicles 534,757 550,285
1,750,041 2,477,882
Accumulated depreciation (1,291,356) (1,236,293)
Net property and equipment $ 458,685 $1,241,589
For the years ended March 31, 1995 and 1994, the company deducted depreciation
of $196,361 and $222,869, respectively.
NOTE 4 - NOTE RECEIVABLE
At March 31, 1995 and 1994, note receivable consisted of the following:
1995 1994
Note receivable, $2,400 per month,
including interest at 11.5%, unsecured. $18,014 $43,149
NOTE 5 - NOTES RECEIVABLE - RELATED PARTIES
At March 31, 1995 and 1994, notes receivable from related parties
consisted of the following:
1995 1994
Note receivable - stockholder, due on
demand with 10% interest, unsecured $ $27,929
Note receivable - employee, due upon
receipt of employee benefit plan
funds (closed March 31, 1995), with
interest at 10%, unsecured 9,000
Total notes receivable -
related parties $9,000 $27,929
NOTE 6 - NOTE PAYABLE
At March 31, 1995, note payable consisted of an insurance note, payable in
quarterly installments of $29,900 with no interest due.
NOTE 7 - INCOME TAXES
At March 31, 1995 and 1994, the net deferred income taxes in the accompanying
balance sheets included the following components:
1995 1994
Current:
Deferred tax asset - federal $(71,935) $(12,579)
Deferred tax asset - state (8,854) (1,776)
Net current deferred tax asset $(80,789) $(14,355)
Noncurrent:
Deferred tax asset - federal $ (748) $
Deferred tax asset - state (92)
Deferred tax liability - federal 61,924 44,188
Deferred tax liability - state 7,621 6,238
Net noncurrent deferred tax liability $ 68,705 $ 50,426
At March 31, 1995, 1994, and 1993, the provision for income taxes consisted of
the following components:
1995 1994 1993
Current income tax (benefit) $(40,635) $24,133 $15,994
Deferred income tax (benefit) (14,240) 52,705 2,196
Benefit of operating loss
carryforward (33,915)
Total provision for income tax $(88,790) $76,838 $18,190
The deferred tax liabilities result from the use of accelerated methods of
depreciation of property and equipment. The deferred tax assets result from
an allowance for bad debts that is not deductible for tax purposes until
losses are identified and written off and from operating loss and contribution
carryforwards that are available to offset future taxable income.
The tax provisions differ from amounts that would be calculated by applying
the statutory rates to income before income taxes because no tax assets have
been recognized for nontaxable income totaling approximately $10,000 for 1995,
and no tax liabilities have been recognized for nondeductible operating
expenses totaling $16,000 for 1995 and 1994, and $24,000 for 1993, the
company is subject to state income taxes, and the tax provisions consider the
effect of graduated rates.
As of March 31, 1995, the company has an operating loss carryforward of
$77,430 and a contribution carryforward of $9,153 available to offset future
taxable income. The operating loss carryforward expires March 31, 2015, and
the contribution carryforward expires March 31, 2000.
NOTE 8 - LONG-TERM DEBT
A summary of long-term debt as of March 31, 1995 and 1994, follows:
1995 1994
Note payable to stockholder,
monthly payments of $2,301.61,
including interest at 10.00%
per annum, due November 7, 2007.
Not secured. $ 194,661 $ 202,071
Note payable to First National
Bank in Albuquerque, monthly
payments of $2,007.98, including
interest at the bank's base rate
plus 1.00% per annum, due
December 3, 1996. Secured by
trailers. 53,300
Mortgage payable to Western
Bank, monthly payments of $6,493.97,
including interest at 8.50% per
annum with the balance of the note due
February 28, 1996. Secured by
stockholder assets. 606,047 631,267
Mortgage payable to Norwest
Bank New Mexico (formerly United New
Mexico Bank), monthly payments of
$1,348.38, including interest at
Chase Manhattan Bank prime plus 1.00%,
balance due April 15, 2000. Secured by
stockholder assets. 139,381 144,480
940,089 1,031,118
Less current maturities (616,587) (91,033)
Net long-term debt $ 323,502 $ 940,085
Long-term debt maturing in the next five years consists of the following:
1996 $616,587
1997 11,643
1998 12,863
1999 14,210
2000 140,607
Thereafter 144,179
NOTE 9 - ADVERTISING
For the years ended March 31, 1995, 1994, and 1993, the total amounts charged
to advertising expense were $14,145, $10,680, and $13,939, respectively.
NOTE 10 - RELATED PARTY TRANSACTIONS
Hillger Oil Company leases from the stockholders, either directly or
indirectly through an affiliated company, various real property and equipment.
Amounts included in rent expense and paid to the related parties for the year
ended March 31, 1995, were $640,522 and approximately $529,000 for each of the
years ended March 31, 1994 and 1993. See Note 16 for additional information
on the operating leases.
Pursuant to an agreement dated August 1, 1962, the company reacquired 201
shares of stock in exchange for forgiveness of debt of $10,647 and $200 per
month so long as the stockholders or the survivor of them shall live. The
stock was subsequently reissued. On November 15, 1993, the Board of Directors
approved an increase in the monthly payment to $600. Pursuant to the sale of
the company, as discussed in Note 17, the agreement was terminated as of March
31, 1995. For the years ended March 31, 1995, 1994, and 1993 payments made
under the agreement were charged to retained earnings in the amount of $8,093,
$1,494, and $1,409, respectively.
The company has advanced various amounts of money to stockholders and
employees. In addition to the notes receivable discussed in Note 5, loans
receivable in the amount of $75,290 from various stockholders existed at March
31, 1994.
In 1992, the company borrowed $214,182 from a stockholder. The terms and
balances of the note are discussed in Note 8. For the years ended March 31,
1995, 1994, and 1993, interest was paid in the amounts of $20,204, $20,906,
and $7,113, respectively.
NOTE 11 - CREDIT RISK
The company grants credit, generally without collateral, to its customers
which are located primarily in New Mexico. Management believes that its
contract acceptance, billing, and collection policies are adequate to minimize
potential credit risk.
NOTE 12 - CONTINGENCIES
The company utilizes underground tanks at various locations to store petroleum
products and is therefore subject to the various federal and state statutes
concerning environmental protection, as well as the New Mexico Ground Water
Protection Act. The various federal and state statutes are designed to
identify environmental damage, identify hazardous material and/or operations,
regulate operations engaged in hazardous activities, and establish procedures
for remedial action as necessary.
Environmental regulation is a relatively new area and its extent as well as
its application will ultimately be defined by case law. The state of New
Mexico has recognized the potential cleanup costs resulting from such
regulations, and the New Mexico Ground Water Protection Act has included the
establishment of a corrective action fund. The purpose of the fund is to
provide monetary assistance in both assessing site damage and correcting the
damage where such costs are in excess of $10,000 per site. Assistance is not
available to repair or replace underground tanks or equipment. The law
specifies requirements which must have been met for an applicant to be
eligible, including a provision that payments will be made in accordance with
regulations (which have not been issued), and states that payments from the
corrective action fund are limited to amounts in that fund.
The company will be responsible for any contamination of land it owns or
leases. However, the company may have limitations on any potential
contamination liabilities as well as claims for reimbursement from third
parties. During the years ended March 31, 1995, 1994, and 1993, the company
expended $26,373, $30,596, and $21,504, respectively for pollution repairs.
NOTE 13 - DEFINED CONTRIBUTION PLAN
The company adopted a 401(k) profit sharing plan effective April 1, 1994. In
order to be eligible to participate in the plan, the employee must be credited
with a year of service, and must have attained the age of 21. No employees
are excluded from the plan. Contributions to the plan are voluntary through a
salary reduction agreement up to a maximum of 15% of compensation. Matching
contributions and other additional contributions may be made by the employer
at the employer's discretion. As of March 31, 1995, $34,018 in matching
contributions had been made by the company.
NOTE 14 - DEFINED BENEFIT PLAN
The company had adopted a defined benefit pension plan. Participation in the
plan required an employee to complete one year of service and be at least 21
years old. Participants were vested in their accounts over a period of six
years. The employer had a fixed obligation to contribute each plan year to
the trust fund the amount the plan's actuary determined was necessary to fund
retirement benefits under the plan. Plan assets consist primarily of
investments in corporate debt and equity securities. The plan was terminated
effective March 31, 1995. The plan assets had not yet been settled.
Pension expense for March 31, 1995, 1994, and 1993, includes the following
components:
1995 1994 1993
Service cost of the current period $ 75,823 $ 42,837 $ 59,418
Interest cost on the projected benefit
obligation 7,916 3,725 2,676
Actual return on assets held in the plan (10,732) (8,890) (24,757)
Net amortization of prior service cost,
transition liability, and net gain 403 1,030 1,400
Pension expense $ 73,410 $ 38,702 $ 38,737
The following sets forth the funded status of the plan and the amounts shown
in the accompanying balance sheet at March 31, 1995 and 1994:
Actuarial present value of benefit obligations:
1995 1994
Vested benefits $ 163,145 $ 159,309
Nonvested benefits
Accumulated benefit obligation 163,145 159,309
Effect of anticipated future
compensation levels and other events 1,049 4,603
Projected benefit obligation 164,194 163,912
Fair value of assets held in the plan 164,194 133,912
Unfunded excess of projected
benefit obligation over plan assets $ 0 $ 30,000
The weighted average discount rate used to measure the projected benefit
obligation is 6%, the rate of increase in future compensation levels is 2%,
and the expected long-term rate of return on assets is 6%. The company uses
the straight-line method of amortization for prior service cost and
unrecognized gains and losses.
NOTE 15 - OPERATING LEASES
At March 31, 1995, the company leased various properties under month-to-month
operating leases. In addition, the company leased two trucks under
month-to-month operating leases. The terms of the various leases require the
company to pay for all taxes, maintenance, insurance, and other operating
expenses.
Aggregate rental expense totaled $689,474, $659,004, and $569,909 for the
years ended March 31, 1995, 1994 and 1993, respectively.
The operating leases for the various properties were renegotiated upon the
sale of Hillger Oil Company to Meteor Industries, Inc. (See Note 17). The new
lease commences on the closing date of the sale of the company for a term of
10 years with an option for three additional 5-year terms. The company is
required to pay for all taxes, maintenance, insurance, and other operating
expenses. The lease payments will start at $38,790 per month for the first
year, with an increase of 2.5% per year for each term under this lease.
Minimum future rental payments under operating leases having remaining terms
in excess of 1 year as of March 31, 1995, for each of the next five years and
in the aggregate are:
Year ended March 31: Amount
1996 $ 465,480
1997 477,117
1998 489,045
1999 501,271
2000 513,803
Subsequent to 2000 2,768,234
Total minimum future rental payments $5,214,950
Annual minimum future rental payments have not been reduced by $42,000 of
sublease rentals to be received in the future under noncancelable subleases.
NOTE 16 - SUBSEQUENT EVENTS
On April 7, 1995, Meteor Industries, Inc., purchased 100% of the issued and
outstanding common stock of Hillger Oil Company for cash and notes.
At closing, Hillger Oil Company obtained a new revolving line-of-credit for
$1,500,000, which is limited to approximately $500,000 until the borrowing
base of Hillger Oil Company as defined in the credit agreement increases or
decreases. The interest rate is the Norwest base rate plus 2%. The line is
secured by the trade accounts receivable and inventory of Hillger Oil Company.
The company also obtained a term note of $375,000. The interest rate is the
Norwest base rate plus 3%. The term note is secured by property and equipment
of Hillger Oil Company. A total of $875,000 was borrowed at closing to pay
off existing debt and consummate the transaction as described above. The
notes are due June 30, 1998.
F-74
<PAGE>
SQUIRE & WOODWARD, P.C.
Certified Public Accountants - Consultants
2730 San Pedro NE, Suite D
Albuquerque, New Mexico 87110
505/881-3408
FAX 505/881-6597
To the Board of Directors and Stockholders
of Graves Oil & Butane Co., Inc. and Subsidiary
Farmington, New Mexico
INDEPENDENT AUDITORS' REPORT
We have audited the accompanying balance sheet of Graves Oil & Butane Co.,
Inc. And subsidiary as of August 31, 1993, and the related consolidated
statements of income, stockholders' equity, and cash flows for the year then
ended. These financial statements are the responsibility of the company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
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 financial statements referred to above present fairly, in
all material respects, the financial position of Graves Oil & Butane Co. and
subsidiary, as of August 31, 1993, and the results of their operations and
their cash flows for the year then ended in conformity with generally accepted
accounting principles.
/s/ Squire & Woodward, P.C.
Squire & Woodward, P.C.
November 23, 1993
F-75
<PAGE>
GRAVES OIL & BUTANE CO., INC.
AND SUBSIDIARY
Consolidated Balance Sheet
As of August 31, 1993
ASSETS
Current assets
Cash and cash equivalents, partially restricted $ 123,634
Marketable securities 41,858
Accounts receivable, net of allowance
for doubtful accounts of $165,000 3,727,901
Notes receivable 32,735
Related party receivable 134,916
Inventory 743,839
Deferred tax asset 189,968
Other current assets 45,417
Total current assets 5,040,268
Property, plant and equipment, net of
accumulated depreciation of $5,680,354 3,599,604
Other assets
Notes receivable 60,043
Notes receivable, shareholder 677,440
Intangibles, net of accumulated
amortization of $38,240 133,239
Investment in closely held business 75,000
Loan receivable, shareholder 100,000
Other assets 24,152
Total other assets 1,069,874
TOTAL ASSETS $ 9,709,746
See accountants' report and notes to financial statements.
F-76
<PAGE>
GRAVES OIL & BUTANE CO., INC.
AND SUBSIDIARY
Consolidated Balance Sheet
As of August 31, 1993
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Note payable $ 200,000
Accounts payable, trade 1,470,226
Current portion, long-term debt 178,661
Loan payable to shareholder 82,000
Accrued wages 62,422
Payroll taxes payable 17,645
Sales taxes payable 54,755
Excise taxes payable 681,729
Income taxes payable 18,252
Total current liabilities 2,765,690
Long-term debt, net of current portion 654,151
Deferred tax payable 86,775
Stockholders' equity
Capital stock ($1.00 par value; 2,000,000 shares
authorized, issued and outstanding 2,000,000
Paid-in capital 108,999
Retained earnings 4,094,131
Total stockholders' equity 6,203,130
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 9,709,746
See accountants' report and notes to financial statements.
F-77
<PAGE>
GRAVES OIL & BUTANE CO., INC.
AND SUBSIDIARY
Consolidated Statement of Income
For the Year Ended August 31, 1993
Revenues
Sales $ 42,889,645
Cost of sales 37,057,554
Gross profit 5,832,091
Expenses
Truck and delivery 1,633,344
Operating 1,951,173
General and administrative 962,626
Selling 218,491
Insurance 489,938
Interest 112,451
Taxes 513,902
Depreciation 357,965
Amortization 15,296
Total expenses 5,355,186
Income from operations 476,905
Other income
Interest income 205,824
Dividend income 50,206
Gain on sale of assets 346,254
Other income 182,522
Income before income taxes 1,261,711
Provision for income taxes (303,499)
Net income $ 958,212
See accountants' report and notes to financial statements.
F-78
<PAGE>
GRAVES OIL & BUTANE CO., INC.
AND SUBSIDIARY
Consolidated Statement of Retained Earnings
For the Year Ended August 31, 1993
Retained earnings - August 31, 1992
as previously reported $ 4,277,230
Prior period adjustments (244,112)
Retained earnings - August 31, 1992
as restated 4,033,118
Net income 958,212
Dividends paid (897,199)
Retained earnings - August 31, 1993 $ 4,094,131
See accountants' report and notes to financial statements.
F-79
<PAGE>
GRAVES OIL & BUTANE CO., INC.
AND SUBSIDIARY
Consolidated Statement of Cash Flows
For the Year Ended August 31, 1993
Cash flows from operating activities
Net income $ 958,212
Adjustments to reconcile net income
to net cash provided by operating activities
Depreciation and amortization 373,261
Equity accounting increase (30,886)
Deferred tax benefit 285,462
Gain on sale of assets (346,254)
Changes in assets and liabilities
Accounts receivable (106,548)
Inventories 37,765
Other current assets 144,917
Accounts payable (319,881)
Accrued wages 24,159
Interest payable (1,228)
Income taxes payable 18,252
Other taxes payable 145,123
Net cash provided by operating activities 1,182,354
Cash flows from investing activities
Cash payments for the purchase of property (169,738)
Cash payments on related party receivable (112,881)
Collections of shareholder note receivable 56,411
Collections on notes receivable 56,111
Collections on related party receivable 484,661
Cash proceeds form the sale of assets
Net cash provided by (used by) investing activities 314,564
Cash flows from financing activities
Cash dividends (225,000)
Net payments on short-term debt (792,117)
Proceeds on loan payable to shareholder 40,255
Principal payments on long-term debt (167,021)
Net cash provided by financing activities (1,143,883)
Net increase (decrease) in cash and cash equivalents 353,035
Cash and cash equivalents at beginning of year (229,401)
Cash and cash equivalents at end of year $ 123,634
See accountants' report and notes to financial statements.
F-80
<PAGE>
GRAVES OIL & BUTANE CO., INC.
AND SUBSIDIARY
Consolidated Statement of Cash Flows
For the Year Ended August 31, 1993
SUPPLEMENTAL INFORMATION
Cash paid for interest during the year $ 112,451
NONCASH TRANSACTIONS
Prior period adjustments
Cost of sales $ 104,432
Notes receivable 145,971
Property, plant and equipment 72,208
Accounts payable 67,955
Income taxes (146,454)
Total change to retained earnings $ 244,112
PROPERTY EXCHANGES
Investments in marketable securities $ (112,439)
Loan receivable from shareholder (100,000)
Property, plant and equipment 212,439
Total property exchanges $ -
NONCASH DIVIDENDS
Investments in marketable securities $ 555,532
Investments in hangar 66,667
Forgiveness of debt on the Note Receivable 50,000
Total noncash dividends $ 672,199
See accountants' report and notes to financial statements.
F-81
<PAGE>
GRAVES OIL & BUTANE CO., INC.
AND SUBSIDIARY
Notes to Financial Statements
As of August 31, 1993
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting policies of Graves Oil & Butane Co.,
Inc. and Subsidiary is presented to assist in the understanding of the
company's financial statements. The financial statements and notes are
representations of the company's management, who are responsible for their
integrity and objectivity. These accounting policies conform to generally
accepted accounting principles and have been consistently applied in the
preparation of the financial statements.
BUSINESS ACTIVITY -- The company was incorporated in September, 1958 in
New Mexico and is also authorized to do business in Arizona, Colorado and
Utah. The company sells petroleum products at the wholesale and retail level
throughout the four state area. In 1991, the company acquired all the stock
of El Boracho, Inc. This subsidiary has no activity other than holding a
liquor license for the Albuquerque convenience store.
PRINCIPALS OF CONSOLIDATION -- The consolidated financial statements of
Graves Oil & Butane Co., Inc. and its consolidated subsidiary, El Boracho,
Inc. include all the accounts of El Boracho, Inc. All intercompany
transactions and balances have been eliminated in consolidation.
CASH AND CASH EQUIVALENTS -- Cash and cash equivalents include
certificates of deposit or cash in local banks. The cash is unrestricted and
can be withdrawn at any time.
INVENTORIES -- Inventories of petroleum products, greases and oils, and
related products are valued at Last In, First Out (LIFO) cost, which is not in
excess of market. The company determines its LIFO reserve using the link
chain dollar value method. Sundries inventories are valued by the retail
method and stated on the First In, First Out (FIFO) basis which is lower than
market.
FIXED ASSETS -- Fixed assets are stated at cost; major renewals and
improvements are charged to the fixed assets accounts, while replacements,
maintenance and repairs, which do not improve or extend the lives of the
respective assets, are expended currently. At the time fixed assets 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 income.
DEPRECIATION -- Depreciation is recorded principally 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
Buildings and improvements 5 to 40 years
Office equipment 5 to 7 years
Operating equipment 3 to 16 years
General and administrative 5 to 20 years
Marketing equipment 5 to 10 years
Delivery equipment 5 to 10 years
AMORTIZATION OF COVENANTS -- Covenants not to compete are valued at cost
and are amortized over a 60 month period.
F-82
<PAGE>
INCOME TAXES -- Income taxes are provided for the tax effects of
transactions reported in the financial statements and consist of taxes
currently due plus deferred taxes related primarily to differences between the
basis of certain assets and liabilities for financial and tax reporting. The
deferred taxes represent the future consequences of those differences, which
will either be taxable when the assets and liabilities are recovered or
settled. Deferred taxes are also recognized for operating losses that are
available to offset future income taxes.
ENVIRONMENTAL EXPENDITURES -- Expenditures that relate to current
operation are expended or capitalized as appropriate for each expenditure.
Whenever an expenditure relates to an existing condition caused by past
operations and does not contribute to future revenues, the expenditure is
expended currently. Liabilities are recorded when remedial efforts are
probable and the cost can be reasonably estimated.
NOTE 2 -- MARKETABLE SECURITIES
The company invests in various publicly traded companies. The cost of these
investments are reported at the original purchase price of each stock. A
summary of these stocks is as follows:
Carrying Fair Market Current
Value Value Dividends
500 shares of Texaco $ 17,000 $ 32,435 $ 1,200
1,000 shares of Kerr McGee 23,390 55,370 1,520
156 shares of Smith International 1,468 1,877 -
$ 41,858 $ 89,682 $ 2,720
NOTE 3 -- NOTES RECEIVABLE
The notes receivable consist of the following:
Current Noncurrent
Total Portion Portion
Note receivable, $423 per month
including interest at 10%, unsecured.
Receivable from officer. $10,282 $ 4,250 $ 6,032
Note receivable, $800 per month
including interest at 12%, unsecured. 29,279 6,087 23,192
Note receivable, $250 per month
including interest at 9%. Also, the
purchaser shall pay 9% of remaining
balance on June 15, secured by real
estate. 7,020 2,368 4,652
Note receivable, $519 per month
including interest at 9%, secured
by real estate. 18,735 4,519 14,216
Note receivable, due January 20, 1995,
for $14,110 plus interest at 10%,
secured by real estate 14,110 14,110 -
Note receivable, $228 per month
including interest at 10%, secured by
real estate. 13,352 1,401 11,951
Total $92,778 $32,735 $60,043
NOTE 4 -- RELATED PARTY RECEIVABLE
During the year, amounts were advanced to a relative of the company's 100%
stockholder for the purchase of equipment necessary to establish a sales
facility for gasoline. The amount was receivable upon completion of
installation of the equipment, which occurred on September 28, 1993.
NOTE 5 -- PROPERTY, PLANT AND EQUIPMENT
The major classifications of property and equipment are as follows:
Amount
Buildings and improvements $ 4,085,363
Delivery equipment 2,369,020
Operating equipment 1,510,796
Land 914,873
Marketing equipment 79,815
General and administrative 236,262
Office equipment 83,839
Accumulated depreciation (5,680,354)
Net property, plant
and equipment $ 3,599,604
For the current year, the company deducted depreciation of $357,965.
NOTE 6 -- NOTE RECEIVABLE STOCKHOLDER
The company has an outstanding note receivable from its 100% stockholder in
the amount of $650,000. The note is payable on demand or at the sale of the
underlying security. Interest is determined using the applicable federal
rate. The note is secured by real estate. At August 31, 1993, accrued
interest receivable totaled $27,440.
NOTE 7 -- INTANGIBLES
Intangible assets consist of a five year covenant not to compete agreement
resulting from the acquisition of Southwest Petroleum on September 1, 1990,
which has a carrying value of $38,239, net of accumulated amortization of
$38,240, and a liquor license acquired in 1991 at a cost of $95,000.
NOTE 8 -- INVESTMENTS IN CLOSELY HELD BUSINESS
The company owns 1,500 shares of common stock, no par value, of the First
Place Financial Corporation. The stocks were acquired in August 1986 for $50
per share. The company reports the stocks of closely held business under the
cost method in the amount of $75,000. These stocks are not publicly traded.
The Board of Directors of First Place Financial Corporation set a fair market
value price of their stocks at $87 per share for a value of $130,500. During
the year, the company received dividends of $6,600.
NOTE 9 - LOAN RECEIVABLE SHAREHOLDER
During the current fiscal year, the company sold an airplane to its 100%
shareholder. Terms of the sale included a loan receivable in the amount of
$100,000.
NOTE 10 -- NOTE PAYABLE
The company has a $1,600,000 revolving bank credit facility which expires
December 31, 1993, bearing interest at prime plus 1.55%, 7.55% at August 31,
1993. The note is secured by trade accounts receivable, inventory, real
estate and First Place Financial Corporation stock. The agreement requires
the company to maintain certain net worth and performance ratio levels. As
discussed in Note 2, payments on this loan are made through collateral cash
accounts in the name of the lender. The balance outstanding at August 31,
1994, was $2,700,165.
NOTE 11 -- LOAN PAYABLE TO SHAREHOLDER
The company leases real estate in Colorado from its 100% shareholder and
subleases the property to a truck stop operator. As of August 31, 1993 unpaid
rent owed by the company to the shareholder totaled $82,000.
NOTE 12 -- LONG-TERM DEBT
Long-term debt at August 31, 1993, consisted of the following:
Current Long-term
Total portion portion
Note payable, First National
Bank of Farmington, payments
of $19,000 monthly including
interest at prime plus 1% per
annum. Secured by mortgage on
buildings and land. Matures
January 1996. $ 788,814 $ 178,069 $ 610,745
Note payable, Federal Land Bank
of Durango, payments of $350
monthly including interest at
7.25% per annum (variable rate),
secured by mortgage on house and
land in Pagosa Springs, Colorado.
Matures in June 2011. 43,998 592 43,406
Total $ 832,812 $ 178,661 $ 654,151
The following is a schedule by years of the repayment of long-term debt:
Year ending
August 31, Amount
1994 $ 179,661
1995 191,679
1996 420,405
1997 758
1998 823
Thereafter 40,486
$ 832,812
NOTE 13 -- INCOME TAXES
The provision for income taxes from continuing operations consists of the
following components:
Current tax expense $ 18,037
Deferred tax expense 285,462
Total provision $ 303,499
The deferred tax asset (liability) in the accompanying balance sheet includes
the following components:
Current Noncurrent
Deferred tax asset, federal $172,956 $ -
Deferred tax asset, state 24,417
Deferred tax liability, federal (6,489) (76,040)
Deferred tax liability, state (916) (10,735)
Deferred tax asset (liability) $189,968 $(86,775)
The deferred tax liabilities result from the use of accelerated methods of
depreciation of property and equipment and from a reduction in the allowance
for bad debts. The deferred tax asset results from a net operating loss
carryover which is available to offset future taxable income. The carryovers
expire as follows:
Contribution carryover
August 31, 1996 $ 3,008
August 31, 1997 515
August 31, 1998 275
3,798
Net operating loss carryover
August 31, 2007 $504,896
NOTE 14 -- RELATED PARTY TRANSACTIONS
The company leases real estate in Colorado from its 100% shareholder and
subleases the property to a truck stop operator. The company pays ad valorem
taxes and insurance expense on the property and as rent expense, pays to its
shareholder an amount equal to $.01 for each gallon of fuel purchased by the
truck stop operator and 7.5% of net restaurant sales. The rent expenses are
credited to an account payable - shareholder and paid as requested. Expense
for the current period was $55,128 and liability for unpaid lease expenses was
$82,000, at August 31, 1993.
The company leases land from its shareholder on which are located its yard,
warehouses and offices. No lease expense was paid or accrued during the
current period but the parties have entered into an agreement which will
provide for regular monthly payments of $500 beginning October 1, 1993. See
Note 19, Graves #2 Station, et al, for details.
The shareholder is indebted to the company for $677,440 as per Note 6.
Interest paid on the note receivable for the year ended August 31, 1993 was
$73,851.
During the current fiscal year, the company sold an airplane to its
shareholder. Terms of the sale included a loan receivable in the amount of
$100,000. No payments have been made as of August 31, 1993.
The company has land, buildings, and equipment in Springerville, Arizona and
equipment in St. Johns, Arizona, which are used by a nephew of its
stockholder. The nephew operates several businesses at the two locations.
The company does not charge for the use of its assets but during the current
period received revenue from the sale of its products in the amounts of
$1,296,605, and $331,630 from St. Johns and Springerville, respectively.
NOTE 15 -- ENVIRONMENTAL PROTECTION EXPENDITURES
The company utilizes underground tanks at various locations to store petroleum
products and is therefore subject to the various federal and state statutes
concerning environmental protection, as well as the New Mexico Ground Water
Protection Act. The various federal and state statutes are designed to
identify environmental damage, identify hazardous material and/or operations,
regulate operations engaged in hazardous activities, and establish procedures
for remedial action as necessary.
Environmental regulation is a relatively new area and its extent as well as
its application will ultimately be defined by case law. The State of New
Mexico has recognized the potential cleanup costs resulting from such
regulations, and the New Mexico Ground Water Protection Act has included the
establishment of a corrective action fund. The purpose of the fund is to
provide monetary assistance in both assessing site damage and correcting the
damage where such costs are in excess of $10,000. Assistance is not available
to repair or replace underground tanks or equipment. The law specifies
requirements which must have been met for an applicant to be eligible,
includes a provision that payments will be made in accordance with regulations
(which have not yet been issued), and states that payment from the corrective
action fund are limited to amounts in that fund.
The company will be responsible for any contamination of land it owns or
leases. However, the company may have limitations on any potential
contamination liabilities as well as claims for reimbursement from third
parties. During the period ended August 31, 1993, the company expended $4,467
for site assessment and related cleanup costs, all of which was capitalized.
The Company paid and expensed clean-up costs of $23,162 at a customer
location.
NOTE 16 -- PURCHASE COMMITMENTS
The company is contingently liable for certain costs associated with leasehold
improvements made by a supplier on property of customers of Graves Oil and
Butane Company, Inc. The liability for the costs is amortized over a five
year period with the company becoming responsible for payment to the supplier
if fuel purchases fail to meet certain volumes. Originally the company was
contingently liable on $84,576 unamortized costs. At August 31, 1993, the
company was contingently liable on $64,802 unamortized costs. To date the
company has made payments to the supplier totaling $4,229 for periods when
purchase commitments were not met. Future losses, if any, cannot be estimated
at this time.
NOTE 17 -- PRIOR PERIOD ADJUSTMENTS
The retained earnings include the following adjustments:
BAD DEBTS -- On August 31, 1992, the company included
doubtful accounts of $145,970 as notes receivable. One
payor had filed for bankruptcy in March, 1992. The
remaining three accounts were outstanding for several
years. For the year ended August 31, 1993 net income
was overstated by $145,970 offset by $54,042 in
federal and state income taxes $ 91,928
GENERAL PROPERTY AND LIABILITY INSURANCE -- On December
31, 1992, the company paid $67,955 in insurance
premiums which had not been properly accrued at
August 31, 1992. For the year ended August 31, 1992,
net income was overstated by $67,955 offset by $25,159
in federal and state income taxes 42,796
PROPERTY AND EQUIPMENT -- The current listing of assets
included land, improvements and tanks that had been
sold or owned by the shareholder. Total cost of these
properties was $148,959 and accumulated depreciation
was $76,750. Federal and state income taxes are $26,734 45,475
COST OF SALES - The cost of certain gasoline sales made
prior to September 1, 1992 were not properly recognized
by the company. For the year ended August 31, 1992, net
income was overstated $104,432 offset by $40,519 in
federal and state income taxes 63,913
$244,112
NOTE 18 -- DIVIDENDS PAID
The sole shareholder received six dividends in the current period. These
dividends included both cash and property. A description of each dividend is
shown below:
Cash $225,000
150,000 shares of stock in Graves Propane of Arizona.
The dividend is valued at the estimated fair market value. 150,000
20,000 shares of stock in Black Mountain Gas Company.
The dividend is reported at the estimated fair market value. 240,000
Joint Venture in Hangar at San Juan Regional Airport.
The dividend is reported at the fair market value based
on subsequent sale. 66,667
One-third ownership of Mesa Propane. Estimated fair market
was 80% of the net book value and a $41,383 loss on disposition
was recorded, prior to the dividend. 165,532
Forgiveness of debt on the Note Receivable from Shareholder 50,000
Total dividends paid $897,199
NOTE 19 -- OPERATING LEASES
The company leases the following properties:
3400 SECOND STREET, ALBUQUERQUE, NEW MEXICO
The company paid rents of $4,500 per month from September 1, 1992 through
November 30, 1992. Effective December 1, 1992, the rent increased to $4,725
per month. The lease accelerates 5% each year and expires on November 30,
2001.
GRAVES #4, FARMINGTON, NEW MEXICO
The company leases land at a base rent of $650 per month plus a premium of one
cent per gallon of petroleum products from the retail outlet and 1/2 cent per
gallon for petroleum products from Cardlock Fuels. The lease expires on June
30, 1998.
M & M TRUCK STOP, CORTEZ, COLORADO
As noted earlier the company leases real estate in Colorado from its 100%
shareholder and subleases the property to a truck stop operator. At the
present time the lease between the company and the 100% shareholder is being
negotiated. Complete details of the new lease are not currently available.
GRAVES #2 STATION, 760 SOUTH MILLER STREET, FARMINGTON YARD, 761 SOUTH MILLER
STREET IN FARMINGTON, NEW MEXICO
The company has entered into an agreement effective October 1, 193, whereby
the company will lease land from a majority shareholder for $500 per month
with annual increases of 5% per year. The lease expires on August 31, 2018.
The company has the option to renew the lease for two periods of ten years.
Future minimum lease payments under these leases are as follows:
August 31, 1994 $ 122,042
August 31, 1995 125,300
August 31, 1996 128,721
August 31, 1997 131,209
August 31, 1998 134,982
NOTE 20 -- SUBSEQUENT EVENTS
In September 1993, Graves Oil and Butane Company, Inc. recapitalized its
outstanding equity securities. The company exchanged all of the outstanding
common stock for one million shares of Series A Convertible Preferred Stock
one cent par value per share (redeemable at the option of the holder after
September 15, 2000, for $3,573,500 plus accrued dividends) and one million
shares of common stock, one cent par value. On September 29, 1993 Meteor
Industries Inc. purchased 100% of the common stock of Graves for cash and
notes. In connection with closing, Graves Oil & Butane Co., Inc. paid a cash
dividend to Meteor Industries Inc. in the amount of $1,750,000 and loaned
Meteor Industries, Inc. $100,000 (which was subsequently repaid).
At closing Graves Oil & Butane Co., Inc. obtained a new revolving line of
credit for $4,100,000 which is limited to approximately $2,200,000 until the
borrowing base of Graves Oil & Butane Co., Inc. as defined in the credit
agreement, increases or decreases. Of the available amount, $1,850,000 was
borrowed at closing to consummate the transaction as described above. The
interest rate is the Norwest base rate plus 1-1/2%. The line is secured by
the trade accounts receivable and inventory of Graves Oil & Butane Co., Inc.
<PAGE> SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act
of 1934, the Registrant has duly caused this Amendment No. 1 to the
Registration Statement to be signed on its behalf by the undersigned thereunto
duly authorized.
METEOR INDUSTRIES, INC.
By/s/ Edward J. Names
Date: June 14, 1996 Edward J. Names, President
<PAGE>
EXHIBIT 10.23
AMENDMENT TO PROJECT DEVELOPMENT AND SHAREHOLDERS' AGREEMENT
This Amendment to Project Development and Shareholders' Agreement dated as of
the 31st day of March, 1996, by and among Capco Resources, Inc., a corporation
duly organized and existing under the laws of Delaware ("Capco"), Powerflow
International ("Pvt.") Ltd., a private corporation duly organized and existing
under the laws of the Islamic Republic of Pakistan ("Powerflow"), Cogen
Technologies Saba Power, L.P., a limited partnership duly organized and
existing under the laws of Delaware ("Cogen") and Nauman Umar, an individual
residing in Islamabad, Pakistan ("Umar") (Capco, Powerflow, Cogen and Umar
being hereafter referred to as "Parties," and each a "Party").
WITNESSETH:
WHEREAS, under date of June 2, 1995, the Parties entered into that certain
Project Development and Shareholders' Agreement (the "Original Agreement") in
regard to the development, financing, construction and operation of a power
generating plant at or near Farouqabad, Pakistan or at another appropriate
site in Pakistan (the "Project") to be owned by Saba Power Company Limited
("Saba" or the "Company"); and
WHEREAS, the Parties desire to amend the Original Agreement as herein set
forth.
NOW, THEREFORE, in consideration of the foregoing premises it is hereby agreed
that the Original Agreement is amended as follows:
1. Unless otherwise defined herein, terms defined in the Original Agreement
shall have such defined meanings when used herein.
2. The first Whereas clause on page one of the Original Agreement is amended
by deleting the number "109" from the second line thereof and inserting in
lieu thereof the number "115."
3. The fourth Whereas clause on page 1 of the Original Agreement is amended by
deleting the last line thereof arid inserting the following language after the
word "Project" in the fourth line thereof: "however the GOP subsequently
changed the reference to Cogen Technologies Capital Company, L.P., which has
now assigned its interest in the Project to Cogen."
4. The fifth Whereas clause on page 1 of the Original Agreement is amended by
adding the following to the end of the sentence: "and the Parties acknowledge
that the participation of Cogen is essential to the development and success of
the Project."
5. Section 1.2 is amended by adding a new sentence at the end as follows:
"The Parties acknowledge that prior to executing this Agreement Powerflow has
a right to acquire 10% of the shares of Saba and have a 10% equity
participation interest in the Project." In addition, in the third line of
Section 1.2 the parenthetical ("Saba") is replaced by the parenthetical
("Saba" or the "Company").
6. Subsections (a) and (b) of Section 1.4 are deleted in their entirety and
replaced with the following:
"1.4(a) The Parties acknowledge that the Project capital cost is approximately
$132 million based on current projections and that approximately $32 million
of such cost is to be funded as base equity capital ("Base Equity') and
approximately $100 million in third-party limited recourse debt. In addition,
the lenders to the Project have required approximately $11.5 million in equity
support for cost overruns in the form of an irrevocable and unconditional
letters of credit, during the construction period ("Overrun Support L/C"), and
approximately $9 million of equity support, in the form of an irrevocable and
unconditional letters of credit, during the operational period ("Ongoing
Support L/C", and together with Overrun Support L/C, the "Equity Support
L/C's"). The Project may require shareholder loans to the Company. In addition
to funding its share of Base Equity, each Party shall be required to fund its
share of the Equity Support L/C's in cash or through irrevocable and
unconditional letters of credit acceptable to the lenders. For purposes of
determining the percentage of equity shares to be subscribed by each Party,
the total equity required herein of a Party shall be the sum of (i) its share
of Base Equity and (ii) its share of the Overrun Support L/C during the
construction period, and (iii) its share of the Ongoing Support L/C during the
operational period and (iv) the principal sum of any loans made by it to the
Company to complete the financing. The total equity of the Project shall be
the sum of (i) - (iv) in the preceding sentence for all of the shareholders
combined. Each party shall be required to provide its equity at the times and
in the form required by the lenders to the Project, including as provided in
Section 1.4(c) and Article IV.
1.4(b) The Parties agree that Capco shall invest $2 million in cash from its
own funds as part of equity. Capco's total equity shall consist of (i) cash
equity invested (ii) one-half of the unreimbursed expenses in accordance with
Schedule 2.1 attached hereto(iii)its share of other unreimbursed costs
acknowledged and approved pursuant to Section 2.1, and (iv) the investment of
any equity credit available to it pursuant to Article IV hereof. Umar's total
equity shall consist of (i) one-half of the unreimbursed expenses in
accordance with Schedule 2.1 attached hereto, and (ii) the investment of any
equity credit available to Umar pursuant to Article IV, hereof, provided
however Umar may borrow funds from Cogen in accordance with Section 1.4(c) to
subscribe to more equity. Powerflow's total equity shall consist of the
investment of any equity credit available to Powerflow pursuant to Article IV
hereof; provided Powerflow may borrow funds from Cogen in accordance with
Article 1.4(c) to subscribe to more equity. Each party shall utilize in total
equity to subscribe to shares of the Company, and fund the required
proportionate share of the Equity Support L/C's for the percentage of shares
bought by it in accordance with this Section 1.4.
The Parties acknowledge that since the Project costs are not yet known with
certainly, the exact percentage of ownership it may have might vary slightly
from the currently estimated percentages. Cogen undertakes to subscribe to all
the remaining shares after the other Parties have subscribed to their shares
In accordance with this Article 1.4(b) utilizing their total equity described
above (but in no event shall Cogen subscribe to less than 65% of all the
shares)."
7. Subsection (c) of Section 1.4 is amended by deleting all of such subsection
through the word "million" in the twelfth line thereof and inserting in lieu
thereof the following:
"Provided Umar and Powerflow shall have purchased the equity as described in
Article 1.4(b), Umar shall have the option of borrowing up to $750,000 for
Base Equity and/or Equity Support L/C's from Cogen or an affiliate designated
by Cogen, and Powerflow shall have the option of borrowing up to $400,000 for
Base Equity and/or Equity Support L/C's, from Cogen or an affiliate designated
by Cogen."
Additionally, the following new sentence is to be inserted before the sentence
that starts "Any such borrowing . . ." in the 21st line thereof:
"Any Equity Support L/C's posted by Cogen for Umar and Powerflow will be cash
collateralized by Cogen and treated as a loan to Umar and Powerflow. Such loan
will be repaid from cash flow otherwise payable to Umar and Powerflow from the
Project. At such time as such loan is repaid in full, then Umar or Powerflow,
as the case may be, will be deemed to own the cash collateral securing such
letter of credit posted on its behalf."
Additionally, all the references to "Capco" in the balance of Section 1.4(c),
sting with the sentence "Any such borrowing . . ." in the 21st line, are
hereby changed to "Umar."
8. Article 1.4(d) is deleted in its entirety and replaced with the following:
"In the event Capco does not fund its cash equity of $2 million as described
in Section 1.4(c), the equity credit to Umar and Capco described in Article IV
shall not be available. In recognition that the lenders to the Project require
an irrevocable and unconditional letter of credit for all equity commitments,
the Capco Group shall be required to post their equity or cash or acceptable
letters of credit concurrently with Cogen posting the letters of credit as
required by the lenders. In the event any of the Capco Group shall fail to do
so by such time, Cogen shall be entitled to fund such equity and the
defaulting party's equity ownership in Saba shall be diluted accordingly in
favor of Cogen."
9. A new Section 1.4(e) shall be inserted into the Agreement as follows:
"The Parties agree that Capco shall have an option to subscribe to up to an
additional amount of the subscribed equity in Saba such that its total equity
is up to 23%, for a period of up to one (1) year after the date of the
Amendment by diluting Cogen's subscription. In order to exercise such option,
Capco must deliver notice to the Parties at least thirty (30) days before such
date in order to acquire such additional interest. In such notice Capco shall
advise of the additional interest for which it desires to subscribe. Capco
will be required to pay for such additional interest at a purchase price equal
to (i) the price subscribed to be paid by Cogen for such purchased shares,
(ii) the value of the corresponding Equity Support L/C's required for such
additional shares, plus (iii) an amount equal to and representing interest on
the amount of (i) and (ii) above, at the rate of fourteen percent (14%) per
annum, from the date hereof until paid. In addition, the provision in Section
1.4(c) regarding the sharing of net profits from sale of shares shall apply to
such shares purchased by Capco referenced in this Section 1.4(c), except that
the profit sharing percentage shall be 15% instead of the 30% referenced in
Section 1.4(c). It is agreed that Cogen's subscription shall be reduced by the
amount of such additional shares subscribed by Capco and Capco will assume all
obligations of Cogen relating to the interest so subscribed by Capco,
including, without limitation, any obligation of Cogen for the Equity Support
L/C's associated with such subscribed equity in connection with the financing
of the Project."
10. A new penultimate sentence is added to Section 1.5 as follows:
"To the extent Powerflow maintains the maximum ownership in the Company
contemplated under this Agreement, Cogen shall make best efforts to cause the
Director of Powerflow to be re-elected for the time period that Cogen has
agreed to control the Project under Article VIII."
11. Article 1.8 is amended by deleting the last sentence thereof.
12. Article 1.9 is amended by among the following at the end:
"In addition to its duties to the Company as a shareholder, Powerflow shall
have a binding obligation to provide any and all assistance and services
reasonably required of it by Cogen on behalf of the Company until the Final
Acceptance of the plant (as defined in the Engineering, Procurement and
Construction Contract the Company is a party to), at no cost to the Company."
13. Section 2.1 is amended as follows by:
(i) inserting at the beginning through the following:
"Notwithstanding the following mechanism for funding of expenses, each Party
shall be ultimately responsible for its share of expenses based on in actual
equity ownership in Saba."
(ii) The sentence starting with "Except as provided in the next . . ." shall
be replaced by the following:
"Except as provided in the next succeeding section hereof, from and after
October 1, 1994, Capco shall be entitled to an equity credit for shares to be
purchased for any and all costs, expenses, services and overhead only up to a
maximum of $225,000 until the occurrence of the Final Acceptance Date (as
defined in the Engineering, Procurement and Construction Contract to be
entered into by Saba for the Project)."
(iii) Deleting the last sentence of 2.1.
14. Section 2.2 is hereby amended by deleting the parenthetical language the
second lieu thereof.
15. Section 2.3 is amended by replacing the first line with "If the Financial
Closing of the Project, as defied in the Implementation Agreement is
successfully."
16. Article IV is deleted in its entirety and replaced with following:
"Cogen recognizes the contribution of Capco and Umar in obtaining approval for
the Project and providing the initial risk capital for the Project. Therefore,
it is agreed that upon Financial Closing, and subsequently as required, Capco
and Umar shall invest disproportionately less than their pro rata share of
equity investment through equity credit being given by the Company, in the
form of shares, for $1.3 million to Capco and $1.1 million to Umar. It is
acknowledged that Capco must invest at least $2.314 million in cash or
unreimbursed expenses for Capco and Umar to be eligible for this equity
credit. In consideration for Powerflow giving up its right to invest in and
own up to ten percent (10%) of the Company, Powerflow shall be given a credit
of equity capital, in the form of shares, for $0.7 million; provided that this
credit shall be increased by $0.4 million, to be credited in four equal
semi-annual installments, starting at the time of the first loan disbursement,
except hat Powerflow has the right to obtain $0.1 million of this amount at
first loan disbursement and $0.1 million of this amount three months after
first loan disbursement, in which case the increase in credit shall be $0.2
million instead of $0.4 million, and Powerflow's equity ownership percentage
shall be diluted accordingly."
17. Article VII is amended by adding the following as new paragraphs at the
end thereof:
"Notwithstanding anything in this Article VII and Section 1.4 appearing to the
contrary, it is agreed that Capco may transfer all or any portion of its
interest in Saba to either of its affiliates, Saba Petroleum Company Limited
or Capco Resources, Ltd. (each a "Capco Affiliate Transferee"), and Umar may
transfer all or any portion of his interest in the Company to his affiliate,
Powerex Holdings Limited ("Powerex"), without, in either case, being required
to comply with the terms of this Article VII; provided, however, any further
transfer by such Capco Affiliate Transferee or Powerex, as applicable, shall
again be subject to the terms of this Article VII just as if Capco had
continued to own the interest so transferred to such Capco Affiliate
Transferee or as if Umar had continued to own the interest so transferred to
Powerex.
Additionally, Powerflow shall have the right to put up to one-half of its
shares in Saba to Cogen at par value, for a period of up to two (2) years,
unless there has been a material adverse change in the Project, in which case
this right shall no longer be effective."
18. A new Article XII is added as follows:
"The Parties hereto agree that if the capital structure as contemplated in
Section 1.4(a) shall change, the Parties agree to further amend the Original
Agreement (as amended hereby) to appropriately reflect such change."
As amended hereby, the Original Agreement is hereby ratified, confirmed and
approved.
EXECUTED as of the date first hereinabove written, in multiple counterpart
originals.
CAPCO RESOURCES, INC.
By:/s/ Edward J. Names
Name: Edward J. Names
Title: President
POWERFLOW INTERNATIONAL [PVT.] LTD.
By:/s/ Anwar Savug
Name: Anwar Savug
Title: Managing Director
COGEN TECHNOLOGIES SABA POWER, L.P.
By: Cogen Technologies Saba Power
GP, Inc., Its General Partner
By:____________________________
Name:__________________________
Title:_________________________
/s/ Nauman Umar
Nauman Umar
<PAGE>
GOVERNMENT OF PAKISTAN
MINISTRY OF WATER & POWER
(PRIVATE POWER & INFRASTRUCTURE BOARD)
No. 1(102)PPIB-9017/96 April 18, 1996
Mr. Nauman Umar
Chief Executive
Saba Power Company Limited
15 Gomal Road, Sector E-7
Islamabad
Fax: 274732
Subject: 114 MW Power Project Sponsored by Saba Power Company Limited
Financial Close
Dear Sir,
As per the requirement of Sections 1.23 and 19.1(a)(i) of the Amended and
Restated Implementation Agreement between the Government of Pakistan (the
"GOP") and Saba Power Company Limited dated March 31, 1996 (the
"Implementation Agreement"), the Private Power and Infrastructure Board
("PPIB") hereby acknowledges the achievement of Financial Closing by the
Company which occurred on April 03,1996; provided, however, by acknowledging
the Financial Closing, GOP/PPIB does not accept and shall not be liable for
any obligations and liabilities of the GOP expressly contained in the
Implementation Agreement and this acknowledgment shall not relieve the Company
from any of its obligations and liabilities under the Implementation Agreement
and the Purchase Agreement between WAPDA and the Company dated December 26,
1994 (the "Power Purchase Agreement").
Capitalized terms used but not defined herein shall have the meanings used in
the Implementation Agreement and the Power Purchase Agreement, as the case may
be.
With best regards,
Yours sincerely,
/s/ Fayyz Elahi
Fayyz Elahi
Managing Director
cc: 1. Chairman, WAPDA, Lahore
2. Managing Director, WPPO, Lahore
<PAGE>
AGREEMENT
This Agreement is made this 23rd day of April 1996, between Capco
Resources, Inc. ("Capco"), a Delaware corporation, and Saba Petroleum Company
("Saba"), a Colorado Corporation.
Whereas Capco Resources, Inc. entered into a Project Development and
Shareholders Agreement dated June 2, 1995 (the "Shareholders' Agreement"),
whereby it has the right to participate in the Saba Power Project, a proposed
115 Megawatt power plant to be located in Lahore, Pakistan (the "Project").
Whereas Capco Resources, Inc. has negotiated revisions to the
Shareholders' Agreement (see attached "Amendment to Shareholders' Agreement")
allowing Capco to purchase an 8.3% interest in the Project for approximately
$2,314,000 to be paid as follows: approximately $500,000 shortly after filing
the finalized Project loan documents with the Government of Pakistan and
approximately $1,800,000 upon the signing of the ancillary documents required
for the Project participants to draw down on the construction facility. Also,
upon payment of such sum, Capco shall have the option to increase its interest
in the Project to a total of 23% upon terms described in the Amendment to
Shareholders' Agreement (the "Option");
Whereas Capco and Saba have negotiated terms pursuant to which Saba can
participate in the Saba Power Project;
In consideration of the mutual covenants and agreements contained herein,
it is hereby agreed among the parties as follows:
1) Saba will put up $350,000 in cash to buy an approximate 1.26%
interest in the Project. This interest shall not include any
interest in the Option. At any time during the one year period
subsequent to the date of this Agreement, Capco shall have the
right to purchase such interest from Saba for $350,000.
2) In addition, Saba shall invest cash of $1,157,000 in the Project in
exchange for an approximate 4.15% interest in the Project and an
option to purchase an additional 7.35% interest on the same terms as
the Capco Option. Saba's option expires on March 31, 1997.
3) Saba shall give Capco written notice of whether or not it will
exercise the above option at least ninety days prior to its
expiration date.
4) Should either party not exercise its share of the Option, in whole
or in part, the other party shall have the right to exercise such
unexercised portion.
5) If required, Capco shall hold Saba's interest in trust pursuant to
a written agreement until such time as it is determined that such
interest can be directly assigned to Saba without any detrimental
effect to the parties hereto or the Project as a whole.
6) Actual interests described herein may change based on any changes in
the Project costs from what is reflected in the Amendment to
Shareholders' Agreement attached hereto.
7) Saba's total cash investment of $1,507,000 shall be paid as follows:
a) approximately $500,000 upon the "true up" of the pre-operational
out-of-pocket development costs expected within seven days of the
date hereof; and b) the balance of approximately $1,000,000 when
such funds are required to be paid pursuant to the Amendment to
Shareholders' Agreement.
8) If Saba fails to invest the approximately $1,000,000 required in
7(b) then Saba's interest in the Project shall be proportionately
reduced based on the amount invested.
9) This Agreement shall be governed by the laws of the State of
Colorado.
10) This Agreement may be signed in counterpart, each of which shall be
deemed an original and together shall constitute one and the same
instrument.
11) This Agreement contains the entire agreement and understanding among
the parties hereto concerning the Project and supersedes all prior
and contemporaneous, agreements, discussions, negotiations and
understandings either written or oral. No amendment or modification
of any of the terms and conditions contained herein shall be made
except by a duly authorized written agreement.
SABA PETROLEUM COMPANY CAPCO RESOURCES, INC.
By: /s/ Ilyas Chaudhary By: /s/ Edward J. Names
Ilyas Chaudhary, President Edward J. Names, President
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
balance sheets and statements of operations found on pages F-1 and F-2
of the Company's Form 10/A for the quarter ended March 31, 1996, and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> MAR-31-1996
<CASH> 563,011
<SECURITIES> 0
<RECEIVABLES> 4,417,090
<ALLOWANCES> 0
<INVENTORY> 1,411,208
<CURRENT-ASSETS> 6,731,571
<PP&E> 8,473,111
<DEPRECIATION> 0
<TOTAL-ASSETS> 18,956,603
<CURRENT-LIABILITIES> 6,974,295
<BONDS> 0
<COMMON> 3,025
0
0
<OTHER-SE> 4,444,436
<TOTAL-LIABILITY-AND-EQUITY> 18,956,603
<SALES> 13,385,539
<TOTAL-REVENUES> 13,385,539
<CGS> 11,135,244
<TOTAL-COSTS> 11,135,244
<OTHER-EXPENSES> 2,182,139
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (127,700)
<INCOME-PRETAX> 331,583
<INCOME-TAX> 62,979
<INCOME-CONTINUING> 173,288
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 173,288
<EPS-PRIMARY> .06
<EPS-DILUTED> .06
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
balance sheets and statements of operations found on pages F-6, F-7 and
F-8 of the Company's Form 10/A for the fiscal year ending December 31,
1995, and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 637,114
<SECURITIES> 000
<RECEIVABLES> 4,596,012
<ALLOWANCES> 206,979
<INVENTORY> 1,332,642
<CURRENT-ASSETS> 6,659,716
<PP&E> 8,568,392
<DEPRECIATION> 151,709
<TOTAL-ASSETS> 18,851,196
<CURRENT-LIABILITIES> 6,873,273
<BONDS> 0
<COMMON> 3,025
0
0
<OTHER-SE> 4,271,148
<TOTAL-LIABILITY-AND-EQUITY> 18,851,196
<SALES> 9,828,092
<TOTAL-REVENUES> 9,828,092
<CGS> 7,373,304
<TOTAL-COSTS> 7,373,304
<OTHER-EXPENSES> 2,395,321
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (91,621)
<INCOME-PRETAX> (11,567)
<INCOME-TAX> (1,470)
<INCOME-CONTINUING> (73,641)
<DISCONTINUED> 398,789
<EXTRAORDINARY> 1,108,939
<CHANGES> 0
<NET-INCOME> 1,434,087
<EPS-PRIMARY> 2.93
<EPS-DILUTED> 2.93
</TABLE>
