<PAGE>
PROSPECTUS
METEOR INDUSTRIES, INC.
600,000 Shares of Common Stock and 600,000 Redeemable Warrants
--------------------------------
Meteor Industries, Inc., a Colorado corporation (the "Company"), hereby
offers 600,000 shares of common stock, par value $.001 per share (the "Common
Stock"), and 600,000 redeemable common stock purchase warrants (the
"Redeemable Warrants"). The Common Stock and the Redeemable Warrants offered
hereby (sometimes hereinafter collectively referred to as the "Securities")
may be purchased in this offering only together on the basis of one share of
Common Stock and one Redeemable Warrant. Each Redeemable Warrant is
separately transferable immediately upon issuance. Each Redeemable Warrant
entitles the holder to purchase one share of Common Stock at a price of $7.15
per share commencing on the date of this Prospectus until June 3, 1999. The
Redeemable Warrants are redeemable by the Company at a redemption price of
$.10 per Redeemable Warrant at any time commencing 90 days from the date of
this Prospectus on 30 days' prior written notice, provided that the market
price of the Common Stock equals or exceeds $8.25 per share for 10 consecutive
trading days ending within 20 days prior to the notice of redemption. (See
"DESCRIPTION OF SECURITIES.")
The Common Stock and Redeemable Warrants have been approved for listing
on the American Stock Exchange ("AMEX") under the symbols "MTE" and "MTEW",
respectively. On June 3, 1997, the closing bid and ask prices, as reported on
the OTC Bulletin Board, were $5.25 and $5.625 per share, respectively.
--------------------
THESE ARE SPECULATIVE SECURITIES. AN INVESTMENT IN THE SECURITIES OFFERED
HEREIN INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS."
--------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
<TABLE>
<CAPTION>
Price to Underwriting Proceeds to
Public Discount<FN1> Company<FN2>
<S> <C> <C> <C>
Per Share $ 5.50 $ 0.55 $ 4.95
Per Warrant $ 0.10 $ 0.01 $ 0.09
Total<FN3> $3,360,000 $336,000 $3,024,000
__________
<FN>
<FN1>
Does not include (i) a non-accountable expense allowance of 3% of the gross
proceeds from this offering amounting to $100,800 ($115,920 if the Over-
allotment Option is exercised in full) to the Underwriter, of which $20,000
has been paid as of the date of this Prospectus, and (ii) the sale to the
Underwriter by the Company of a warrant (the "Underwriter's Warrants") to
purchase 60,000 shares of Common Stock at $6.875 per share and 60,000
Redeemable Warrants to purchase 60,000 shares of Common Stock at an exercise
price per share of $7.15 at any time after twelve months from the date hereof
and for a period of four years thereafter. The Company has also agreed to
indemnify the Underwriter against certain liabilities, including liabilities
arising under the Securities Act of 1933. (See "UNDERWRITING.")
<FN2>
Before deducing expenses payable by the Company estimated at $239,000,
including the non-accountable expense allowance referred to in footnote 1.
<FN3>
The Company has granted to the Underwriter a 45-day option to purchase up to
90,000 additional Shares and/or 90,000 additional Redeemable Warrants on the
same terms and conditions as set forth above solely to cover over-allotments,
if any. If the over-allotment option is exercised in full, the total Price to
the Public, Underwriting Discount and Proceeds to the Company will be
$3,864,000, $386,400 and $3,477,600 respectively.
</FN>
</TABLE>
------------------------
WESTPORT RESOURCES INVESTMENT SERVICES, INC.
315 Post Road West
Westport, Connecticut 06880
------------------------
The date of this Prospectus is June 4, 1997.
<PAGE>
(INSIDE FRONT COVER)
(Picture of convenience store)
(METEOR INDUSTRIES, INC. LOGO)
(Picture of convenience store)
Convenience Stores, Las Cruces, NM
<PAGE>
IN CONNECTION WITH THE OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SHARES AT A
LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE AMERICAN STOCK EXCHANGE AND, IF COMMENCED,
MAY BE DISCONTINUED AT ANY TIME.
The Securities are being offered on a "firm commitment" basis subject to
receipt and acceptance by the Underwriter, the approval of certain legal
matters by its counsel and prior sale. The Underwriter reserves the right to
withdraw, cancel or modify the offering and to reject any order in whole or in
part. It is expected that delivery of the certificates representing the
Securities will be made on or about four business days from the date of this
Prospectus, at the office of Westport Resources Investment Services, Inc., in
Westport, Connecticut.
ADDITIONAL INFORMATION
A Registration Statement on Form S-1, including amendments thereto,
relating to the securities offered hereby has been filed by the Company with
the Securities and Exchange Commission, Washington, D.C. This Prospectus does
not contain all of the information set forth in the Registration Statement and
the exhibits and schedules thereto. For further information with respect to
the Company and the securities offered hereby, reference is made to such
Registration Statement, exhibits and schedules. Statements contained in this
Prospectus as to the contents of any contract or other document referred to
are not necessarily complete, and in each instance reference is made to the
copy of such contract or other document filed as an exhibit to the
Registration Statement, each such statement being qualified in all respects by
such reference. However, all material elements of such contracts and
documents are disclosed in this Prospectus. A copy of the Registration
Statement may be inspected without charge at the Commission's principal
offices in Washington, D.C., and copies of all or any part thereof may be
obtained from the Commission upon the payment of certain fees prescribed by
the Commission.
The Company is subject to the reporting requirements of Section 13(a)
and to the proxy requirements of Section 14 of the Securities Exchange Act of
1934, as amended, and in accordance therewith files periodic reports, proxy
statements and other information with the Commission. Such reports, proxy
statements and other information concerning the Company may be inspected or
copied at the public reference facilities at the Commission located at 450
Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and at the Commission's
Regional Offices in New York, 7 World Trade Center, New York, New York 10048,
and in Chicago, Northwestern Atrium Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661. Copies of such documents can be obtained at
the public reference section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. Electronic filings made through
the Electronic Data Gathering, Analysis and Retrieval system are publicly
available through the Commission's web site (http.//www.sec.gov).
3
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements appearing elsewhere in this Prospectus.
THE COMPANY
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
engaged in the marketing and distribution of refined petroleum and related
products primarily in northern New Mexico, Colorado, Arizona and Utah. Graves
operates seven retail sites in northern New Mexico. Hillger Oil Company
("Hillger"), which was acquired effective April 1, 1995, is engaged in the
marketing and distribution of refined petroleum and related products primarily
in southern New Mexico and Arizona. Hillger operates nine convenience stores
in southern New Mexico. The Company sells fuel branded Phillips 66, Conoco,
Texaco, Diamond Shamrock and FINA.
In November 1995, the Company acquired all of the outstanding stock of
Capco Resources, Inc. ("CRI"), in exchange for shares of the Company's Common
Stock which represent approximately 53% of the shares now outstanding. CRI is
a holding company involved in 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. Capco Analytical Services, Inc. ("CAS"), a
wholly-owned subsidiary of CRI, is involved in providing environmental
consulting and laboratory analysis and was also acquired in the transaction
with CRI.
Approximately 98% of the Company's gross revenues are presently derived
from the Graves and Hillger subsidiaries.
The proceeds of this offering will be used to reduce accounts payable,
purchase equipment and inventory, the repayment of debt, and the acquisition
of petroleum marketing businesses.
<TABLE>
<CAPTION>
THE OFFERING
<S> <C>
Securities offered 600,000 Shares of Common Stock
600,000 Redeemable Warrants
Shares of Common Stock
Outstanding:
Prior to the offering<FN1> 3,440,228 Shares
After the offering<FN1><FN2> 4,040,228 Shares
AMEX Trading Symbols:
Common Stock MTE
Redeemable Warrants MTEW
__________________
<FN>
<FN1>
Does not include (i) 7,000 shares of Common Stock issuable upon the exercise
of outstanding warrants to purchase Common Stock; (ii) up to 896,911 shares of
Common Stock of the Company issuable upon the exchange of Preferred Stock of a
subsidiary; (iii) 1,250,000 shares of Common Stock reserved for
4
<PAGE>
issuance pursuant to stock options which may be granted under the Company's
Incentive Stock Option Plan and its 1997 Incentive Equity Plan of which
options to purchase 413,300 shares of Common Stock are currently outstanding;
or (iv) 130,000 shares of Common Stock issuable upon the exercise of an option
held by consultants. (See "MANAGEMENT" and "DESCRIPTION OF SECURITIES.")
<FN2>
Does not give effect to an aggregate of 900,000 shares of Common Stock
issuable upon exercise of: (i) the Redeemable Warrants; (ii) the
over-allotment option; (iii) the Underwriter's Warrants; and (iv) the
Redeemable Warrants subject to the over-allotment option.
(See"UNDERWRITING.")
</FN>
</TABLE>
RISK FACTORS: The purchase of these securities involves a high degree
of risk. Prospective investors should review carefully and consider the
factors described under "RISK FACTORS."
USE OF PROCEEDS: The proceeds from the offering will be used to reduce
accounts payable, the repayment of debt, to purchase equipment and inventory,
and the acquisition of petroleum marketing businesses. (See "USE OF
PROCEEDS.")
SUMMARY FINANCIAL DATA: 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 inception of CRI. The results of operations of
Meteor are included in the following financial information since November 2,
1995, the effective date of the acquisition. The following table sets forth
certain selected financial data with respect to the Company and is qualified
in its entirety by reference to the financial statements and notes thereto
included in this Prospectus.
BALANCE SHEET DATA:
(In Thousands)
At December 31
March 31 ------------------------------------------
1997 1996 1995 1994 1993 1992
------- ------- ------- ------ ----- -----
Current Assets $ 9,306 $ 8,488 $ 6,708 $ 126 $ -- $ --
Property and Equipment 8,180 8,277 8,568 250 -- --
Other Assets 3,064 3,669 3,273 164 -- --
Discontinued Operations -- -- -- 572 660 (28)
Total Assets 20,550 20,434 18,549 1,112 660 (28)
Current Liabilities 8,284 8,943 6,921 403 -- --
Long-term Debt 414 446 2,195 -0- -- --
Deferred Tax Liability 1,745 1,773 1,894 -0- -- --
Minority Interest 4,252 4,152 3,615 -0- -- --
Stockholders' Equity 5,855 5,120 3,924 709 660 (28)
5
<PAGE>
STATEMENT OF OPERATIONS DATA:
<TABLE>
STATEMENT OF OPERATIONS DATA:
(In Thousands, Except Per Share Data)
<CAPTION>
FOR THE THREE
MONTHS ENDED FOR THE YEARS INCEPTION TO
MARCH 31 ENDED DECEMBER 31, DECEMBER 31,
------------------- ----------------------------------- ------------
1997 1996 1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C> <C> <C>
Sales. . . . . $ 13,853 $ 13,386 $ 59,984 $ 9,828 $ 473 $ -0- $ -0-
Cost of sales. 11,628 10,830 49,644 7,373 -0- -0- -0-
Operating
Expenses . . 2,192 2,182 9,119 2,395 602 2 -0-
Other income
(Expense) . 485 (42) (79 (71) -0- -0- -0-
Income (loss)
From continu-
ing operations 215 173 462 (74) (129) (2) -0-
Income from dis-
continued
Operations. . -0- -0- -0- 1,871 179 690 765
Net income. . . 215 173 462 1,796 49 688 765
Income (loss) from
continuing oper-
ations per common
share . . . . .06 .06 .15 (.15)(1295.32) (22.82) -0-
Net income per
Common share $ .06 $ .06 $ 0.15 $ 3.67 $ 489.95 $6,883.42 $7,652.20
Weighted average
Shares
outstanding. 3,353,561 3,024,903 3,184,397 489,035 100 100 100
Cash dividends $ -0- $ -0- $ -0- $ -0- $ -0- $ -0- $ -0-
</TABLE>
6
<PAGE>
RISK FACTORS
The securities offered hereby represent a speculative investment and
involve a high degree of risk of a loss of part or all of the investment.
Therefore, prospective investors should read this entire Prospectus and
carefully consider the following risk factors in addition to the other
information set forth elsewhere in this Prospectus prior to making an
investment.
1. SUBSTANTIAL DEBT SERVICE. The structure of Meteor's acquisitions
of Graves and Hillger have resulted in substantial debt service obligations to
be funded by operations. Because of the nature of these leveraged buyouts and
because of the Company's continued expansion and development plans, 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 and
to finance capital expenditures and increased inventory requirements. In order
to pay its debt obligations, the interest on such obligations and other
expenses, the Company must generate cash flows from operations which exceed
that which were achieved in the past. In addition, even if previous cash flows
are exceeded throughout the terms of its obligations, the Company most likely
will be required to raise capital, refinance its existing debt or sell assets
in order to pay its obligations as they become due.
2. RELIANCE ON KEY EMPLOYEES. The Company is wholly dependent on the
personal efforts and abilities of its Officers and key employees. The loss of
or unavailability to the Company of the services of one or more of its key
employees would have a materially adverse effect on the Company's business
prospects and/or potential earning capacity. In particular, the Company's
President, Edward J. Names, who has an employment contract, is instrumental
for the overall planning and management of the Company, its financing and its
growth. There can be no assurance, if the services of any of these individuals
were unavailable to the Company, that the Company would be able to employ a
qualified replacement person or persons on terms suitable to the Company. The
Company presently does not maintain key person life insurance on any of its
key employees but has agreed to obtain a policy on the life of Edward J. Names
in the amount of $1,500,000 upon completion of this offering.
3. FRANCHISE AGREEMENTS. The Company's petroleum marketing is
dependent on franchise agreements with major producers of petroleum products.
The Company's existing contracts with Phillips Petroleum Company, Conoco,
Inc., Diamond Shamrock, Texaco, Inc., Fina Oil Company and Sun Oil Company
have been in place for many years, but each of these contracts is terminable
at the supplier's discretion on short notice. The loss of the Phillips 66 and
Conoco contracts in particular could have a material adverse effect on the
Company's revenues and profits.
4. COMPETITION. The Company's convenience store and gasoline
distribution businesses are highly competitive. The Company competes with
businesses similar in size to itself, with major oil companies with far
greater resources than it possesses, and also with weaker firms who cut prices
and engage in other efforts to remain in business. This competition, from time
to time, adversely impacts operations and earnings. The Company operates 15
convenience stores or retail outlets without convenience stores in connection
with its retail gasoline operations and leases one store to an independent
operator. The convenience store business has been extremely competitive
resulting in bankruptcies and reorganizations for a number of companies in the
industry.
5. NARROW MARGINS FOR REFINED PETROLEUM PRODUCTS AND MARKET SHARE
CONFLICTS. The distribution of refined petroleum products by the Company is
7
<PAGE>
extremely competitive, with narrow margins, requiring constant, careful
attention, supervision and controls. Management has limited control over the
competitive pricing of petroleum products. Foreign producers and refiners of
petroleum products from time to time may affect materially the available
supply of petroleum products, which could affect pricing and margins. Also,
major oil companies, concerned with maintaining or increasing their respective
market shares, sometimes depress prices and margins to attain or sustain
product volume. These practices from time to time impact the earnings and
operations of independent distributors such as the Company.
6. POTENTIAL ACCIDENTS. The Company owns and operates gasoline
storage tanks, a fleet of 34 tank trucks, and wholesale and retail outlets for
refined petroleum products. The presence of flammable and combustible products
at these facilities provides the potential for fires and explosions which
could destroy both property and human life. These products, almost all
liquids, also have the potential to impose environmental damage if released.
The Company has general liability coverage and a commercial umbrella liability
policy with total coverage limits of $5 million as well as other insurance
covering damage to its properties. 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 necessarily protect the Company for
ultimate liability for any damage to the environment, especially if such
environmental damage is caused by leaking lines or tanks. Such environmental
related coverage generally is unavailable or available a prohibitive cost. See
the heading "Environmental Risks" below.
7. PAKISTAN POWER PROJECT. Due to general political and economic
instability in Pakistan, the Company's investment of approximately $685,000 in
Saba Power Company Ltd. may not yield any return to the Company. (See
"Business - Saba Power Company Ltd.)
8. CONTROL BY MANAGEMENT AND PRINCIPAL SHAREHOLDERS. Management and
principal shareholders will beneficially own 75.8% of the outstanding common
stock after this offering. Effective control of the Company will remain in
the hands of such persons.
9. LIMITED DIRECTOR LIABILITY. The liability of a Director to the
Company or any Shareholder for monetary damages for breach of his fiduciary
duties as a Director is limited by the Company's Articles of Incorporation
with certain exceptions. In addition, the Company will provide Officers and
Directors the maximum indemnification allowable from time to time under
Colorado law. These provisions limit the Company's and its Shareholders'
ability to obtain damages or other relief from its Officers and Directors in
the event of claimed wrongdoing.
10. GENERIC PREFERRED STOCK AUTHORIZED. The Company's Articles of
Incorporation authorize the issuance of up to 10,000,000 shares of Preferred
Stock, the terms, preferences, rights and restrictions of which may be
established by its Board of Directors. Other companies on occasion have issued
series of such preferred stock with terms, rights, preferences and re-
strictions that could be considered to discourage other persons from
attempting to acquire control of such companies and thereby insulate incumbent
management. It is possible the Company could issue shares of its Preferred
Stock for such a purpose. In certain circumstances, the existence of corporate
devices which would inhibit or discourage takeover attempts could have a
depressive effect on the market value of the stock of a company. The Board of
Directors has no current plans to issue any shares of Preferred Stock.
8
<PAGE>
11. NO DIVIDENDS. The Company has paid no dividends on its Common
Stock since incorporation. The Company does not anticipate paying dividends on
its Common Stock in the foreseeable future and intends to devote any earnings
to the development of the Company's business or the repayment of debt.
12. CONFLICTS OF INTEREST. Certain conflicts of interest may exist
between the Company and its officers and directors. Each of such individuals
has other business interests to which they devote their attention, and they
are expected to continue to do so. As a result, conflicts of interest may
arise that can be resolved only through their exercise of such judgment as is
consistent with their fiduciary duties to the Company. No officer or director
owes a fiduciary duty to another entity regarding business opportunities
related to lines of business similar to that of the Company.
13. ENVIRONMENTAL ISSUES. The Company's operations, which include
distribution and jobbing of refined petroleum products (collectively the above
operations are referred to as "Regulated Environmental Activities") are
subject to a variety of federal, state and local laws, rules and regulations
governing the storage, translation, manufacture, use, discharge, release and
disposal of products and contaminants into the environment or otherwise
relating to the protection of the environment. The Company's Regulated
Environmental Activities, by their very nature, give rise to the potential for
substantial environmental risks including:
RISK OF RELEASE OF PETROLEUM AND RELATED PRODUCTS AND WASTES. The
accidental or unintended release or discharge of petroleum and related
products and wastes which result from normal activities at tank farms and
service stations and during the transportation or manufacture of such products
and wastes, or the release or discharge of such products or waste in excess of
permitted levels, may occur despite the operational controls and procedures
established by the Company. Releases or discharge of such petroleum and
related products and associated wastes, could contaminate the environment.
Such releases or discharges may give rise to potential liability under the
environmental laws, rules and regulations of the United States, individual
states, and local jurisdictions relating to contamination or threat of
contamination of air, soil, groundwater and surface waters. Such liability
could expose the Company to fines or other penalties, both civil and criminal,
and could result in the Company being required to institute extensive cleanup
and remediation activities.
RISK OF VIOLATION OF ENVIRONMENTAL REGULATIONS. The Company is
subject to numerous environmental laws, rules and regulations covering its
Regulated Environmental Activities. The Company's failure to comply with any
applicable environmental regulation, whether or not intentional, can give rise
to fines, penalties and sanctions, including criminal charges against
employees and management, and may under certain circumstances require the
closure of such non-complying facilities.
RISK OF FUTURE ENVIRONMENTAL REGULATIONS. The environmental laws,
rules and regulations which cover the Company's Regulated Environmental
Activities continue to evolve. Stricter environmental regulations and controls
or modified environmental regulations and controls could impose added costs on
the operation of the Company, or cause the manufacture, storage,
transportation or sale of some of the Company's products to become either
unprofitable or illegal.
RISK OF ENVIRONMENTAL HEALTH AND SAFETY OF PERSONS. Exposure of
the Company's employees or the public to certain petroleum and related
products or waste could result in damage to human health and safety, and give
rise to
9
<PAGE>
liability to the Company, thereby impacting the economic value of the Company.
RISK OF ENVIRONMENTAL REIMBURSEMENT PROCEDURES. Certain of the
Company's Regulated Environmental Activities, such as leaking petroleum
storage tank remediation, give rise to a potential for reimbursement of all or
a portion of the amounts expended from applicable governmental reimbursement
programs. Such reimbursement programs are subject to changes in applicable
statutes or the interpretation of the law, which could alter the timing or
availability of reimbursement funds to the Company and its customers.
14. OUTSTANDING OPTIONS AND WARRANTS. Currently, the Company has
outstanding options and warrants to purchase up to 550,300 shares of Common
Stock at prices ranging from $1.00 to $5.25 per share, and has the ability to
grant options to purchase 836,700 additional shares under its Incentive Stock
Option Plan and its 1997 Incentive Equity Plan. Additionally, the Company has
agreed to sell to the Underwriter and its designees Underwriter's Warrants to
purchase up to 60,000 shares of Common Stock and 60,000 Redeemable Warrants
exercisable during the four year period commencing one year from the date of
this Prospectus at $6.875 per share of Common Stock and $7.15 per Redeemable
Warrant, subject to adjustment. The Underwriter will have certain
registration rights with respect to the Underwriter's Warrants and the shares
of Common Stock underlying such warrants.
For the term of such options and warrants, the holders thereof will have
an opportunity to profit from the rise in the market price of the Company's
Common Stock without assuming the risks of ownership. This may have an
adverse effect on the terms upon which the Company could obtain additional
capital. Furthermore, it might be expected that the holders of such options
and warrants would exercise them at a time when the Company would be able to
obtain equity capital on terms more favorable than those provided for by the
options and warrants. (See "MANAGEMENT," "DESCRIPTION OF SECURITIES" and
"UNDERWRITING.")
15. POTENTIAL SECURITIES LAW LIABILITIES FOR PRIVATE OFFERING. During
February and March 1997, the Company sold 130,000 shares of its Common Stock
and warrants to purchase 130,000 shares of Common Stock to 16 accredited
investors for a total of $520,000 in a private offering. Because such sales
were made at a time when the Registration Statement relating to this public
offering was on file with the SEC and because such sales were made within 6
months of this public offering, the private sales might be considered to be
"integrated," or part of the same offering as this public offering. The
Company does not believe that the two offerings would be integrated for
several reasons, one of which is that the proceeds of the offerings are to be
used for different purposes. However, if it was determined that the two
offerings were to be integrated, the sales to the private investors should
have been registered under the Securities Act of 1933, as amended, because
they were part of a "public offering." As a result, if the persons who
purchased the shares in February and March 1997 were to bring a legal action
against the Company alleging violation of the securities laws and were to be
successful, then the Company could be held liable to those persons for up to
the full amount of the purchase price ($520,000) plus interest. No legal
actions have been threatened or are pending with respect to this matter. If
any such legal actions should be brought against the Company, the Company
intends to vigorously maintain a defense against such actions.
16. PREFERRED STOCK OF SUBSIDIARY. Graves Oil & Butane Co., Inc., a
subsidiary of the Company has outstanding shares of preferred stock. held by
Theron J. Graves, which currently may be exchanged for shares of the Company's
Common Stock at the current bid price or up to 22.2% of the shares of the
Company's Common Stock outstanding after such exchange, whichever yields fewer
shares. As a result, after this offering Mr. Graves will have the right to
10
<PAGE>
acquire a maximum of 896,911 shares of the Company's Common Stock assuming
that no options or warrants are exercised. Mr. Graves would have certain
piggy-back registration rights with respect to any shares which he receives
upon exchange. As a result, Mr. Graves has the right to acquire a substantial
number of shares of the Company's Common Stock in the future, and the resale
of such shares could adversely affect the market for the Company's Common
Stock. (See "SECURITY OWNERSHIP OF MANAGEMENT AND PRINCIPAL SHAREHOLDERS" and
"DESCRIPTION OF SECURITIES.")
17. COMMON STOCK ELIGIBLE FOR RESALE. Of the 3,440,228 shares of
Common Stock outstanding as of the date of this Prospectus, approximately
2,999,100 shares are "restricted securities" and under certain circumstances
may be sold in compliance with Rule 144 adopted under the Securities Act of
1933, as amended. Of such shares, approximately 2,869,100 shares are presently
eligible for resale under Rule 144 and the remaining 130,000 shares will be
eligible for sale in February and March of 1998. The Company has obtained the
agreement of its Officers, Directors and record shareholders who own 5% or
more of the Company's outstanding common stock to not sell, publicly transfer
or assign more than 25,000 of the 2,598,371 shares of Common Stock currently
owned by them (including shares underlying their stock options which are
currently exercisable or exercisable within 60 days), for a period of one
year from the date of this Prospectus without the prior written consent of the
Underwriter. The Company has agreed to use reasonable efforts to register
640,000 shares of restricted Common Stock for resale by the holders thereof,
and the Company may file such registration statement within three to nine
months after the date of this Prospectus. The Company also intends to file an
S-8 registration statement which would register the shares of Common Stock
issuable on the exercise of stock options granted under the Company's stock
option plans, which would allow the resale of such shares. (See "DESCRIPTION
OF SECURITIES -- Shares Eligible for Future Sale.") Future sales of such
shares will in all likelihood depress the market price of the Company's Common
Stock.
18. POSSIBLE VOLATILITY OF PRICE OF SHARES. The price of shares of
publicly-traded corporations tend to fluctuate over a wide range. It can be
expected, therefore, that there may be wide fluctuations in the market price
for the Common Stock. There is no assurance that an active market will
develop in the Common Stock. The lack of a current market for the Common
Stock and fluctuations in trading interest and changes in the Company's
operating results, financial condition and prospects could have a significant
impact on the market price for the Common Stock.
19. RISKS ASSOCIATED WITH FORWARD-LOOKING STATEMENTS INCLUDED IN THIS
PROSPECTUS. This Prospectus contains certain forward-looking statements
within the meaning of Section 27A of the Securities Act and Section 21E of the
Exchange Act which are intended to be covered by the safe harbors created
thereby. These statements include the plans and objectives of management for
future operations, including plans and objectives relating to (i) petroleum
marketing and (ii) acquisitions and financing. The forward-looking statements
included herein are based on current expectations that involve numerous risks
and uncertainties. Although the Company expects to operate its petroleum
marketing business, and make acquisitions with financing from major oil
companies, there can be no assurance that competitive conditions within the
industry will not change materially or adversely, and that there will be no
material adverse change in the Company's operations or business. Assumptions
relating to the foregoing involve judgments with respect to, among other
things, future economic, competitive and market conditions and future business
decisions, all of which are difficult or impossible to predict accurately and
many of which are beyond the control of the Company. Although the Company
believes that the assumptions underlying the forward-looking statements are
reasonable, any of the assumptions could be
11
<PAGE>
inaccurate and, therefore, there can be no assurance that the forward-looking
statements included in this Prospectus will prove to be accurate. In light of
the significant uncertainties inherent in the forward-looking statements
included herein, the inclusion of such information should not be regarded as a
representation by the Company of any other person that the objectives and
plans of the Company will be achieved.
12
<PAGE>
THE COMPANY
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 in June, 1993
and finalized the purchase in September, 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 doubled Meteor's gasoline sales and improved cash flows. Hillger
operates nine convenience stores and supplies 22 branded dealers in New
Mexico. Graves operates seven retail sites and supplies 42 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.
In June 1995, the Company declared an 8% stock dividend to the share-
holders 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.
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 52.7% 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 when
acquired by Meteor included: (i) an interest in Saba Power Company Ltd., which
is one of the developers 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 receivable from Saba Petroleum Company
and other miscellaneous assets. Since November 1995, CRI has focused most of
its efforts on the financing of Saba Power Company Ltd. All of CRI's assets,
other than the power project, have now been transferred out of CRI and into
Meteor.
The Company's headquarters are located at 216 Sixteenth Street, Suite
730, Denver, Colorado 80202, and its telephone number is (303) 572-1135.
13
<PAGE>
The following organizational chart shows the Company's subsidiaries and
its percentage ownership in each:
-----------------------------------------------
Meteor Industries, Inc.
-----------------------------------------------
: : : :
: : : :
------------------- ---------------- -------------- -------------------
Meteor Holdings LLC Capco Analytical Pyramid Stores Innovative Services
73% Services, Inc. Inc. & Technologies, Inc.
------------------- 100% 100% 100%
: ---------------- -------------- -------------------
: : :
-------------------- ----------- --------------------
Capco Resources Inc. Hillger Oil Graves Oil & Butane
100% Company Co., Inc.
-------------------- 100% 100% of common stock
: ----------- ---------------------
: : : : : : :
-------------------- : : : : : :
Saba Power Company ------------- ---------- : : : -----------
Ltd. Hatch Pyramid Graves Rio : : : El Boracho,
2% LLC Rancho LLC : : : Inc.
------------------- 75% 50% : : : 100%
------------- ---------- : : : ------------
------------ : -----------
Bloomfield : American LP
Pyramid LLC : 33%
100% : -----------
------------ :
-----------------
Coors Pyramid LLC
50%
-----------------
14
<PAGE>
PRICE RANGE OF COMMON STOCK
The principal market for trading Meteor's Common Stock has been the
over-the-counter market. Prices for the Common Stock have been quoted on the
OTC Bulletin Board.
The range of high and low bid quotations for Meteor's Common Stock since
public trading began in January 1994 provided below were obtained from the
National Quotation Bureau. Beginning in the second quarter of 1995, the
information shown is for closing bid quotations. The stock is principally
owned or controlled by Officers and Directors of Meteor, and the bid prices
reported may not be indicative of the value of the Common Stock. The volume
of trading in Meteor's Common Stock has been very limited. 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 $2.50
Quarter Ended December 31, 1995 . . . . . $3.25 $2.00
Quarter Ended March 31, 1996. . . . . . . $3.75 $2.00
Quarter Ended June 30, 1996 . . . . . . . $4.25 $1.75
Quarter Ended September 30, 1996. . . . . $4.25 $2.87
Quarter Ended December 31, 1996 . . . . . $5.87 $3.62
Quarter Ended March 31, 1997. . . . . . . $5.25 $3.50
* 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 May 19, 1997, there were approximately 70 record holders of the
Company's Common Stock. Based on securities position listings, the Company
believes that there are approximately 265 beneficial holders of the Company's
Common Stock.
DIVIDEND POLICY
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.
15
<PAGE>
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
inception of CRI. The results of operations of Meteor for 1995 are included in
the following financial information since November 2, 1995, the effective
date of the acquisition.
BALANCE SHEET DATA: (In Thousands)
At December 31
March 31 ------------------------------------------
1997 1996 1995 1994 1993 1992
------- ------- ------- ------ ----- -----
Current Assets $ 9,306 $ 8,488 $ 6,708 $ 126 $ -- $ --
Property and Equipment 8,180 8,277 8,568 250 -- --
Other Assets 3,064 3,669 3,273 164 -- --
Discontinued Operations -- -- -- 572 660 (28)
Total Assets 20,550 20,434 18,549 1,112 660 (28)
Current Liabilities 8,284 8,943 6,921 403 -- --
Long-term Debt 414 446 2,195 -0- -- --
Deferred Tax Liability 1,745 1,773 1,894 -0- -- --
Minority Interest 4,252 4,152 3,615 -0- -- --
Stockholders' Equity 5,855 5,120 3,924 709 660 (28)
STATEMENT OF OPERATIONS DATA:
<TABLE>
STATEMENT OF OPERATIONS DATA:
(In Thousands, Except Per Share Data)
<CAPTION> FOR THE THREE MONTHS FOR THE YEARS INCEPTION TO
ENDED MARCH 31 ENDED DECEMBER 31, DECEMBER 31,
1997 1996 1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C> <C> <C>
Sales. . . . . $ 13,853 $ 13,386 $ 59,984 $ 9,828 $ 473 $ -0- $ -0-
Cost of sales. 11,628 10,830 49,644 7,373 -0- -0- -0-
Operating
Expenses . . 2,192 2,182 9,119 2,395 602 2 -0-
Other income
(Expense) . 485 (42) (79 (71) -0- -0- -0-
Income (loss)
From continu-
ing operations 215 173 462 (74) (129) (2) -0-
Income from dis-
continued
Operations. . -0- -0- -0- 1,871 179 690 765
Net income. . . 215 173 462 1,796 49 688 765
Income (loss) from
continuing oper-
ations per common
share . . . . .06 .06 .15 (.15)(1295.32) (22.82) -0-
Net income per
Common share $ .06 $ .06 $ 0.15 $ 3.67 $ 489.95 $6,883.42 $7,652.20
Weighted average
Shares
outstanding. 3,353,561 3,024,903 3,184,397 489,035 100 100 100
Cash dividends $ -0- $ -0- $ -0- $ -0- $ -0- $ -0- $ -0-
</TABLE>
16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS FOR METEOR INDUSTRIES, INC.
This Prospectus contains forward-looking statements within the meaning
of the "safe harbor" provisions of the Private Securities Litigation Reform
Act of 1995. Such statements are based on management's current expectations
and are subject to a number of factors and uncertainties which could cause
actual results to differ materially from those described in the forward-looking
statements.
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 very meaningful.
The selected financial information should be read in conjunction with
the historical financial statements and notes thereto of Meteor, included
elsewhere in this document.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities totaled $521,000 for the three
months ended March 31, 1997 compared to $856,000 for the period ended March
31, 1996. The decrease in cash provided is primarily related to the timing of
payments of accounts payable.
As of March 31, 1997, the Company had a working capital of $1,022,000
compared to a working capital deficit of $455,000 at December 31, 1996. The
increase in the working capital is due primarily to sale of stock and partial
collection of a note receivable from related party.
Net cash provided by investing activities totaled $423,000 for the three
months ended March 31, 1997, compared to cash used of $46,000 for the period
ended March 31, 1996. The increase is primarily a result of the partial
collection of a loan to related party. This was partially offset by
purchases of property and equipment.
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. During the first quarter the Company
raised $520,000 in a private placement of stock.
Net cash used by financing activities totaled $403,000 for the three
months ended March 31, 1997, compared to a use of $775,000 for the period
ended March 31, 1996. The decrease in cash used is primarily related to the
sale of stock.
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, 1997, $1,565,000 and $250,000 were borrowed against
the facilities which are recorded as current liabilities. The Company has
been in default on the timely filing of information with the lender. The
Company was also in default of the net worth requirements for one of the
subsidiaries, which default has been corrected. The lender waived these
defaults. The Company is and will continue to be in default in timely filing
of information and one of the Company's subsidiaries is in violation of its
debt service coverage requirements. The Company has not requested waivers of
these violations. However, it is expected that the lender will continue to
waive these violations as they have in the past.17
<PAGE>
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, 1997, were $160,000 and $156,000,
respectively. The loans are collateralized by real estate and buildings and
equipment and require approximately $29,000 per month in payments.
At March 31, 1997, the Company owned 50% of a limited liability company
which in June 1996 acquired a convenience store for $610,000 using financing
from Phillips Performance Fund Inc. The balance of the loan at March 31, 1997
was $496,000. The Company is a co-signer on this loan which has a term of 10
years. The Company records its investment using the equity method, which
reflects only the Company's share of the net worth of the limited liability
company.
The Company owns 75% of a limited liability company which in December
1996 acquired a convenience store for $415,000 using seller financing of
$315,000. The loan has quarterly payments of $14,000 and a term of 7 years.
A subsidiary of the Company has preferred stock outstanding which
requires no periodic payments but accrues an 8% dividend and must be redeemed
for $3,543,000 plus accrued dividends at the holder's 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 $1,759,000
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 $670,000 will be offset by payments on notes receivable from
the founder also due October 1, 1997. The Company plans to pay this debt by
drawing down its $3,000,000 line of credit or possibly selling or refinancing
one of its convenience stores.
The Company is obligated to pay lease costs of approximately $66,000
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
exceeds that which has been 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. The Company has filed
a registration statement pursuant to which it expects to sell 600,000 shares
of stock during the second quarter of 1997.
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
18
<PAGE>
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.
The Company maintains detailed inventory records and performs tank and
line tightness tests on a regular basis on all underground storage tanks.
Management has assessed the environmental contingencies and does not
anticipate any potential liabilities that will have a material adverse effect
on the consolidated financial position, results of operation, or liquidity of
the Company.
RESULTS OF OPERATIONS
COMPARISON OF THE THREE MONTHS ENDED MARCH 31, 1997 TO MARCH 31, 1996
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 Company's sales for the three months ended March 31, 1997, were
$13,853,000 compared to $13,386,000 for the comparable period ending March 31,
1996. The increase in revenue of $467,000 is primarily related to increases in
propane sales and sales at the convenience stores. Sales are expected to be
similar to the previous year assuming no significant acquisitions are made.
The Company's cost of sales for the three months ended March 31, 1997,
were $11,628,000 (83.9% of sales) compared to $10,830,000 (80.1% of sales) for
the comparable period ended March 31, 1996. The increase of $798,000 in cost
of sales is primarily due to an increase in fuel costs which the Company was
not able to pass on to its customers due to competition.
The Company's gross profit for the three months ended March 31, 1997,
was $2,224,000 compared to $2,556,000 for the comparable period ended March
31, 1996. The decrease of $332,000 is primarily related to a decrease in
gasoline margins. Gasoline margins are dictated by competition in a given area
and the Company has limited control over such margins.
The Company's selling, general and administrative expenses were
$1,973,000 for the three months ended March 31, 1997, compared to $1,961,000
for the comparable period ended March 31, 1996. Even though the Company has
cut expenses at the subsidiary levels, total expenses have increased due to an
increase in corporate overhead related to acquisition activity and capital
raising activities.
The Company's depreciation for the three months ended March 31, 1997,
was $220,000 compared to $221,000 for the comparable period ended March 31,
1996.
The Company's other income for the three months ended March 31, 1997 was
$485,000 compared to $0 for the comparable period ended March 31, 1996. The
increase is related to a settlement of litigation for $480,000, net of
expenses.
The Company's provision for income taxes for the three months ended
March 31, 1997, was $202,000 compared to $63,000 for the comparable period
ended March 31, 1996. This increase is due to more income and the utilization
of a loss carryforward in 1996.
19
<PAGE>
The Company's net income for the three months ended March 31, 1997, was
$215,000 compared to $173,000 in the prior period. The change in net income
is due to the above described items. It should be noted that if the Company
had not had other income from the settlement of litigation of approximately
$480,000, the Company would have recorded a net loss of approximately $78,000
for the three months ended March 31, 1997.
COMPARISON OF THE YEARS ENDED DECEMBER 31, 1996 TO DECEMBER 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 discussion for comparisons is limited because the
historical accounts for 1995 reflect only two months of revenue and expense
for Meteor due to the reverse acquisition by CRI in November, 1995, while 1996
reflects a full year of operations for Meteor.
The Company's sales for the year ended December 31, 1996, were
$59,984,000 compared to $9,828,000 for the comparable period ending December
31, 1995. The increase in revenues is due to increases in gasoline volumes
and prices at the retail level. Sales are expected to be relatively constant
next year assuming no significant acquisitions are made.
The Company's cost of sales for the year ended December 31, 1996, were
$49,644,000 compared to $7,373,000 for the comparable period ended December
31, 1995. The increase in costs of sales is due to an increase in sales as
discussed above.
The Company's gross profit for the year ended December 31, 1996, was
$10,340,000 compared to $2,455,000 for the comparable period ended December
31, 1995. The increase is partially related to higher sales and increased
margins for gasoline at the retail level. Retail gasoline margins are
dictated by competition in a given area and the Company has no control over
such margins.
The Company's selling, general and administrative expenses were
$8,269,000 for the year ended December 31, 1996, compared to $2,244,000 for
the comparable period ended December 31, 1995. The increase in expenses is
related to combining the operations of Hillger, Graves and CRI. As a
percentage of sales general and administrative expenses declined from 23% to
14% reflecting benefits of combining the companies.
The Company's depreciation for the year ended December 31, 1996, was
$850,000 compared to $152,000 for the comparable period ended December 31,
1995. The increase in depreciation expense is due primarily to acquisition of
buildings and equipment.
The Company's other expenses for the year ended December 31, 1996 was
$79,000 compared to $71,000 for the comparable period ended December 31, 1995.
The reasons for the decrease are primarily related to an increase in interest
income, an increase in interest expense, and sales of assets this year.
The Company's provision for income taxes for the year ended December 31,
1996, was $395,000 compared to $(1,470) for the comparable period ended
December 31, 1995. This increase is due to more income. The expected tax
provision based on statutory rates would have been $446,000. The variance
from the effective rate is principally due to benefit of the loss
carryforward.
20
<PAGE>
The Company's income from continuing operations for the year ended
December 31, 1996, was $462,000 compared to a loss from continuing operations
of $74,000 in the prior year due to the above described items.
COMPARISON OF THE YEAR ENDED DECEMBER 31, 1995 TO DECEMBER 31, 1994
The Company's sales for the year ended December 31, 1995, were
$9,828,000 compared to $473,000 for the comparable period ending December 31,
1994. The increase in revenue is due to an increase in sales due to
acquisition of Meteor of $8,868,000 and an increase of $487,000 at CAS. The
increase in revenues at CAS is due to additional lab analysis which trend is
expected to continue.
The Company's cost of sales for the year ended December 31, 1995, were
$7,373,000 compared to $0 for the comparable period ended December 31, 1994.
The increase in costs of sales is due to the acquisition of CRI by Meteor. The
Company's gross profit for the year ended December 31, 1995, was $2,455,000
compared to $473,000 for the comparable period ended December 31, 1994. The
increase is related to the inclusion of Meteor's gross profits for the two
months ended December 31, 1995.
The Company's selling, general and administrative expenses were
$2,224,000 for the year ended December 31, 1995 compared to $602,000 for the
year ended December 31, 1994. The increase in expenses of $1,388,000 is
related to the acquisition of CRI by Meteor and an increase at CAS of $405,000
due to increased activity at the laboratory.
The Company's other expenses for the year ended December 31, 1995 were
$71,000 compared to $0 for the comparable period December 31, 1994. The
reasons for the increase is due to the acquisition of CRI by Meteor.
The Company's loss from continuing operations for the year ended
December 31, 1995, was $74,000 compared to a loss from continuing operations
of $129,000 in the prior year due to the above described items.
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.
In 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.
In 1995, CRI transferred to Capco Resources, Ltd. and 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.
The income from discontinued operations was $441,197 and the gain on
disposition, net of taxes was $1,429,256 for the year ended December 31, 1995.
21
<PAGE>
USE OF PROCEEDS
The estimated net proceeds from the sale of the 600,000 Shares of Common
Stock and 600,000 Redeemable Warrants offered hereby will be approximately
$2,785,000 after deducting underwriting discounts and expenses of the
offering based on an offering price of $5.50 per Share and $.10 per Warrant.
Such proceeds will be applied substantially as follows:
<TABLE>
<CAPTION> APPROXIMATE
APPLICATION OF PROCEEDS DOLLAR AMOUNT
<S> <C>
Payment of Accounts Payable $ 200,000
Repayment of Debt<FN1> 500,000
Purchase of Equipment and Inventory 300,000
Acquisition of Petroleum Marketing Businesses<FN2> 1,785,000
Total $2,785,000
__________________
<FN>
<FN1>
Such amounts will be used to either pay down amounts outstanding under one of
the Company's lines of credit from Norwest Business Credit, Inc., or a
promissory note held by Theron J. Graves. The line of credit bears interest
at the prime rate plus 2.0%, is collateralized by trade accounts receivable
and inventory of the Company's Graves subsidiary, and is due in June 1998. As
of March 31, 1997, $1,565,000 was outstanding under this line of credit. The
promissory note to Mr. Graves bears interest at 2% over the prime rate and is
secured by 50% of the Graves common stock held by the Company. As of March
31, 1997, $1,759,000 was outstanding under this promissory note.
<FN2>
Until such funds are actually used to acquire petroleum marketing businesses,
the Company may use such funds to temporarily pay down the line of credit
described in Note (1) above. In the event that the Company does not use all
of the amounts allocated for the acquisition of petroleum marketing businesses
within 12 months of the date of this Prospectus, the Company intends to use
such unused funds to enhance its current business through capital expenditures
(See "BUSINESS -- Petroleum Marketing")
</FN>
</TABLE>
It is expected that the net proceeds from this offering will satisfy the
cash requirements of the Company for a period of approximately 12 months, and
that during that period it will not be necessary for the Company to raise
additional funds, except for further expansion and business opportunities not
yet defined.
Any additional proceeds received upon the exercise of the Over-allotment
Option, the Redeemable Warrants and the Underwriter's Warrants to be sold to
the Underwriter will be used for general corporate purposes.
Pending utilization of the proceeds of this offering, the Company may
invest such net proceeds in short-term government securities in a
nondiscretional account of the Company.
22
<PAGE>
BUSINESS
GENERAL
Meteor Industries, Inc. ("Meteor" or the "Company"), through its wholly-
owned subsidiaries, is engaged in the marketing and distribution of refined
petroleum and related products and provides environmental services. In
addition, through its Meteor Holdings LLC and Capco Resources, Inc. ("CRI")
subsidiaries, the Company has an interest in Saba Power Company Ltd., which is
in the process of building a power project in Pakistan.
PETROLEUM MARKETING BUSINESS AND OPERATIONS
The Company operates its petroleum marketing and convenience store
business primarily from its Farmington, Albuquerque and Las Cruces, New Mexico
offices. The Company operates this business through Pyramid Stores, Inc. and
its two New Mexico subsidiaries, Hillger Oil Company and Graves Oil & Butane
Co., Inc.
The commercial/wholesale operations are the largest part of the
Company's business. This operation has fuel delivery agreements with
customers that include truck stops, retail gasoline service stations,
convenience stores, construction companies, commercial fleet distribution
centers, the federal government, mining companies, and utilities.
The wholesale operation has distributor agreements with Phillips
Petroleum Company, Sun Oil Company, Conoco, Inc., Texaco, Inc., Diamond
Shamrock Corp. and Fina Oil Company. These distributor agreements allow the
Company to purchase petroleum products at wholesale prices directly from
pipeline terminals and refineries controlled by these large oil
producer/refiners. The Company is then authorized to resell those products to
its customers.
The distribution agreements have three-year terms and the Company has
one to 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 larger and longer standing wholesale distributors
of Conoco and Phillips products in New Mexico, it is possible the Company
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 oil company brand with which it has
a contract. The Company could also buy and sell fuel as an unbranded
independent, however, sales volumes and/or margins would likely decrease
materially 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, such as the Company 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 11 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
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wholesale revenues come from repeat telephone orders from existing customers.
The Company also advertises in trade journals and attends industry trade shows
in its market.
The Company's wholesale distribution process 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 completed 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 Company's retail operations consist of ownership or leasehold
interests in 22 retail outlets which include service stations, convenience
stores and lube pits. Sixteen outlets are operated by the Company and six are
leased or subleased to third parties. 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 sell food and tobacco products as a convenience to their
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.
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 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 retail and commercial propane operations. In
November 1993, Graves reentered the residential propane markets 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 rural areas around Farmington 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 Prospectus, Graves has over
350 residential and over 200 commercial 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.
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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 the Company, through its subsidiary CRI, is a party. The
Company has an interest in Saba Power, which has a power plant project 40
miles from Lahore, Pakistan. The Company has two unrelated joint venture
partners, Cogen Technologies of Houston, Texas ("Cogen") and Coastal Saba
Power Ltd. ("Coastal"). Estimated costs for the 125 megawatt plant are
approximately $150,000,000. The project received a Letter of Support dated
September 18, 1994, and an acknowledgment of financial closing on April 3,
1996, from the Ministry of Water & Power of the Government of Pakistan. All
documentation relating to the project's permanent debt financing was approved
in May of 1996 and all documentation relating to the construction financing
was finalized on or prior to March 4, 1997. Limited activities related to
the construction of the project were commenced in late August of 1996 but were
suspended in October. Construction activity is again underway and although
there can be no assurances, the project is expected to be completed in
approximately two years.
At December 31, 1996, the Company, had invested $683,162 in Meteor
Holdings LLC ("MHL") MHL owns an equity interest in Saba Power Company, Ltd.
(the "Power Project") through its ownership of CRI. The investment in the
Power Project is reported using the cost method. The Company also entered
into an agreement with Saba Petroleum Company ("Saba") whereby Saba, a related
party, participated in the Power Project. Saba invested $250,000 in MHL
resulting in MHL's total investment of $933,162 in the Power Project. Saba
owns a .5% interest in the Power Project through its ownership of 27% of MHL.
The Company owns 1.5% of the Power Project through its ownership of 73% of
MHL. Saba's .5% interest in the project is subject to the same terms and
conditions as the Company's 1.5% interest. These percentages, however, could
be reduced in the event that other shareholders of Saba Power are required to
make additional contributions to equity.
MHL has obtained the right to sell its interest in Saba Power to an
affiliate of one of the other shareholders for approximately the amount of its
contribution on October 26, 1997, for a period of 120 days. The Company's
investment in the Power Project is not expected to provide any significant
cash flow to the Company for at least three to four years. Further, if during
the next 2-3 years certain enhancements to the Power Project contracts are not
obtained from the Government of Pakistan, cash flow from the Power Project
will not be earned by or distributed to the Company.
During 1996, Saba Power Company Ltd. and the shareholders thereof,
including the Company, completed the final negotiations with the project's
construction lender and the engineering procurement and construction
contractor was given a limited release to commence construction activities on
the project, which was subsequently suspended. On March 4, 1997, all required
equity capital was fully subscribed and paid by the partners in the form of
cash or letters of credit; all documentation fees were paid to the Government
of Pakistan; and the construction contractor was given a full release. All
required consents were obtained from the Government of Pakistan, and all
defaults were cured. Due to the changing political climate in Pakistan and the
economic risks involved, the Company's management decided not to invest
additional capital in the project. All debt and equity financing for the
Power Project was completed on March 4, 1997, in the total amount of over
$150,000,000.
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In connection with this transaction, the Company's co-developer Cogen
Technologies agreed to pay a consulting fee for services provided in 1996, to
the founding partners, of which MHL's share totals $400,000 with the
possibility of receiving up to an additional $350,000 over a three year period
if certain contract enhancements are obtained from the Government of Pakistan;
however, there can be no assurance that such enhancements can or will be
obtained. MHL incurred approximately $124,000 in expenses to outside sources
in providing these consulting services. The Company's share of the $276,000
in net revenues totals $200,000 by virtue of its 73% ownership of in MHL.
The Company is not required to invest any additional capital related to
the Power Project. If costs of the project exceed budget and capital is
required then the Company will have the choice of investing more capital or
suffering ordinary dilution to its ownership interest without incurring any
penalties.
ENVIRONMENTAL CONSULTING
Capco Analytical Services Inc.("CAS") is an environmental consulting
company and analytical laboratory located in California. CAS provides
environmental consulting services to its customers throughout the Western
United States including other subsidiaries of Meteor. In addition, CAS may
expand the scope of its present activities to include the possible acquisition
of properties in need of remediation and development. After purchasing a
property, CAS would then arrange for remediation services to be performed.
After remediation is complete, the property could be developed by CAS or sold
to a developer. CAS intends to fund these projects at least partially with
project capital raised through partnerships and/or other private investment
vehicles.
In August of 1996, the Company acquired Innovative Solutions and
Technologies, Inc. ("IST"), a small Colorado corporation, which provides
environmental consulting services. IST was acquired for a nominal cash
consideration. Through its president and sole employee, IST provides
consulting services to outside clients as well as Meteor and its affiliates.
INSURANCE
The Company has a commercial liability policy and an umbrella policy, as
well as other policies covering damage to its properties. These policies
cover Company facilities, employees, equip-ment, 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 AND MARKETS
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
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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 and commercial 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 a station or store from Texaco to Phillips 66). 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 Giant and other major oil companies that own and operate their
own stores in the Company's market areas such as Texaco and Phillips 66. 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.
Meteor Industries, Inc. ("Meteor" or the "Company"), through its
wholly-owned subsidiaries, is engaged in the marketing and distribution of
refined petroleum and related products and provides environmental services.
In addition, through its Capco Resources, Inc. ("CRI") subsidiary, the Company
has an interest in Saba Power Company Ltd., which is in the process of co-
developing a power project in Pakistan, and owns Capco Analytical Services,
Inc., which provides environmental consulting and laboratory analysis
services.
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 envi-ronmental 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.
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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 re-
quirements 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
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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 permits 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
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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 160 people, none of whom is
represented by any collective bargaining organizations. Management considers
its employee relations to be satisfactory at the present time.
FACILITIES
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 Farm-ington,
New Mexico, the Company owns two additional gasoline stations, two
fast lube pits, one car wash, and one cardlock location. The lube pits and
car wash are leased to an unaffiliated third party, the Company operates three
additional cardlock/retail locations 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
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wash and quick lube pit in a separate 6,300 square foot building and a propane
distribution and cardlock facility. The carwash and quick lube pit are leased
to an unaffiliated third party. 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. Through joint
ventures, the Company owns 50% of a 1,800 square foot convenience store and a
one acre undeveloped convenience store site.
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 owns one retail outlet in Truth or Consequences, New Mexico that
it leases to an unaffiliated third party. The Company owns a 3,000 square
foot convenience store located in Hatch, New Mexico.
The Company leases a truck stop in Cortez, Colorado from an affiliated
party and subleases the property to an unaffiliated truck stop operator.
The Company's CAS subsidiary leases 8,000 square feet of space for its
laboratory in Ventura, California.
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, various automobiles and
small trucks, and a small fleet of tractors with trailers.
LEGAL PROCEEDINGS
The Company is a party to certain litigation that has arisen in the
normal course of its business and that of its subsidiaries. In the opinion of
management, none of this litigation is likely to have a material effect on the
Company's financial position or results of operations, except that in March
1997, the Company agreed to an out of court settlement with one of its former
insurers whereby such insurer has agreed to pay the Company an amount which,
after deducting the Company's costs and attorney's fees, will result in the
Company receiving approximately $480,000. The Company received such payment
during May 1997.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
NAME AGE POSITIONS AND OFFICES HELD
Edward J. Names 45 President and Director
Ilyas Chaudhary 49 Chairman, Chief Executive Officer and Director
Dennis R. Staal 48 Secretary/Treasurer and Director
Paul W. Greaves 44 President of Subsidiaries
There is no family relationship between any Director or Executive
Officer of the Company.
In connection with the Company's listing on the American Stock Exchange
the Company has agreed to add two independent directors to its Board of
Directors within thirty days after the effective date of the Prospectus.
These persons have not yet been identified by 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 and its major subsidiaries, 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 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. He has also been
an 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
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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. From June, 1992 to September, 1996, Mr. Staal was 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.
PAUL W. GREAVES - President and Chief Executive Officer of the
subsidiaries. Mr. Greaves has been the President and Chief Executive Officer
of the following subsidiaries: Pyramid Stores, Inc. and its subsidiaries,
Graves Oil & Butane Co., Inc. and Hillger Oil Company since in April, 1996.
Prior to working for the Company, Mr. Greaves held the position of Regional
Manager, Rocky Mountain Region, for Propane Continental of Overland Park,
Kansas, from April 1994 to April 1996. From 1989 until 1994, Mr. Greaves was
Director of Business Development for the Wescourt Group of Denver, Colorado, a
petroleum marketing and distribution holding company. Mr. Greaves devotes his
full time to the business of the Company's subsidiaries described above.
EXECUTIVE COMPENSATION
The following information regarding the executive compensation for the
Company's Chief Executive Officer and President for the fiscal years ended
December 31, 1996, 1995 and August 31, 1994. 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 Re- Underlying All
Annual stricted 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>
Ilyas Chaudhary 1996 $ -0- -- -- -- -- -- --
Chairman of 1995 $ -0- -- -- -- 100,000 -- --
Board and
Chief Executive
Officer
33
<PAGE>
Edward J. Names 1996 $101,250 -- -- -- -- -- $5,040
President 1995 $ 78,000 -- -- -- 100,000 -- $4,512*
1994 $ 62,769 -- -- -- -- -- $3,384*
__________________
* Represents premiums paid on health insurance policies for Mr. Names.
</TABLE>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUES
SECURITIES
UNDERLYING VALUE OF UNEXER-
SHARES UNEXERCISED CISED IN-THE
ACQUIRED OPTIONS SARs MONEY OPTIONS/
ON AT FY-END SARs AT FY-END
EXERCISE VALUE EXERCISABLE/ EXERCISABLE/
NAME (NUMBER) REALIZED UNEXERCISABLE UNEXERCISABLE
- ---------------- -------- -------- ------------- ----------------
Ilyas Chaudhary -0- -0- 33,333/66,667 $63,541/$127,084
Edward J. Names -0- -0- 33,333/66,667 $63,541/$127,084
EMPLOYMENT ARRANGEMENTS
EDWARD J. NAMES, President 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 $55,000 per year from the Company and a subsidiary.
He devotes approximately 80% of his time to the business of the Company and
its subsidiaries.
PAUL W. GREAVES entered into a three year employment agreement with the
Company's subsidiary, Pyramid Stores, Inc. ("Pyramid") which became effective
in April of 1996. Mr. Greaves is required to devote full time to the business
of Pyramid and its subsidiaries; Graves Oil & Butane Co., Inc. and Hillger Oil
Company. The agreement calls for a base salary of $80,000 per year plus an
annual bonus of 5% of any increases in earnings before interest, taxes,
depreciation and amortization of Pyramid and its subsidiaries from the prior
year. The Company may terminate Mr. Greaves's employment at any time, without
cause and be obligated for only six months base salary and accrued but unpaid
bonuses. The employment agreement includes a covenant not to compete which is
effective for two years after termination of employment.
34
<PAGE>
STOCK OPTION PLAN
A stock option plan providing for the issuance of incentive stock
options and non-qualified stock options to Meteor's employees was approved by
Meteor's shareholders on April 15, 1993. Pursuant to the Plan, 500,000 shares
of Meteor'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 31, 1996, out of these options, options to purchase 41,000 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.
They expire ten years after the date of grant.
On February 1, 1994, additional incentive stock options were granted to
employees. As of December 31, 1996, out of these options, options to purchase
31,300 shares were outstanding (after deducting options which expired as a
result of termination of employment). These options are exercisable at $5.25
per share and vest in three equal installments each year following the date of
grant. They expire ten years after 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
Meteor, and C. Thomas Houseman, a former Director of Meteor, 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 annual basis following the date of grant. They expire five years after
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 Meteor'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 annual basis following the
date of grant.
In May of 1996, the Board of Directors granted options to Paul W.
Greaves to purchase 50,000 shares of Meteor's Common Stock. These options are
exercisable at $3.50 per share and vest on a pro rata annual basis over five
years. These options expire five years after the date of grant.
In May of 1996, stock options were granted to two employees to purchase
an aggregate of 55,000 shares of Meteor's Common Stock at $3.50 per share.
The options vest in five equal installments each year following the date of
grant. These options expire five years after the date of grant. As of the
date of this prospectus only 5,000 of such options remain outstanding.
On January 2, 1997, Meteor granted options to four employees to purchase
an aggregate of 20,000 shares of Common Stock at $5.07 per share. These
options vest over five years and expire on January 2, 2002.
On February 14, 1997, Meteor granted an option to Dennis R. Staal,
Secretary and Treasurer of Meteor, to purchase 25,000 shares of Common Stock
at $3.50. Also on February 14, 1997, Meteor granted an option to the
president of IST, one of Meteor's subsidiaries, to purchase 5,000 shares of
Common Stock at $3.50 per share. These options vest over three years on a
annual basis and expire five years from the date of grant.
35
<PAGE>
INCENTIVE EQUITY PLAN
The Board of Directors adopted the 1997 Incentive Equity Plan of the
Company (the "Incentive Plan") on January 2, 1997, subject to approval by the
Stockholders of the Company at the next Annual Meeting.
The purpose of the Incentive Plan is to enable the company to attract
officers and other key employees and consultants and to provide them with
appropriate incentives and rewards for superior performance. The Incentive
Plan affords the Company the ability to respond to changes in the competitive
and legal environments by providing the Company with greater flexibility in
key employee and executive compensation than was available through the
previously approved plan or individual stock option agreements. This plan is
designed to be an omnibus plan allowing the Company to grant a wide range of
compensatory awards including stock options, stock appreciation rights,
restricted stock, deferred stock and performance shares or units. The
Incentive Plan is intended to encourage stock ownership by recipients by
providing for or increasing their proprietary interests in the Company,
thereby encouraging them to remain in the Company's employment. The Incentive
Plan has been prepared to comply with all applicable tax and securities laws,
including Section 16(b) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act") and state and federal tax laws.
Subject to adjustment as provided in the Incentive Plan, the number of
shares of Common Stock that may be issued or transferred, plus the amount of
shares of common Stock covered by outstanding awards granted under the
Incentive Plan, shall not in the aggregate exceed 750,000. The number of
Performance Units granted under the Incentive Plan shall not in the aggregate
exceed 200,000. The number of shares of Common Stock granted under the
Incentive Plan to any individual in any calendar year shall not in the
aggregate exceed 100,000.
To the date of this report, no options, awards or other benefits have
been granted under the Incentive Plan.
CONSULTANTS' OPTIONS
In November 1995, Meteor granted an option to a consultant to purchase a
total of 100,000 shares of Meteor's Common Stock. This option was exercisable
at $2.50 per share, but expired unexercised on January 31, 1997.
On February 14, 1997, Meteor granted options to three consultants to
purchase an aggregate of 130,000 shares of Meteor's Common Stock. These
options are exercisable at $3.50 per share and expire on February 13, 1998.
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.
36
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth, as of May 20, 1997, the stock ownership
of 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>
PERCENTAGE OF CLASS
NAME AND ADDRESS AMOUNT OF BENEFICIAL PRIOR TO AFTER
OF BENEFICIAL OWNER OWNERSHIP OFFERING OFFERING
- --------------------------- -------------------- --------------------
<S> <C> <C> <C>
Capco Resources Ltd. 1,745,000<FN1> 50.7% 43.2%
#950, 444 - 5th Avenue, S.W.
Calgary, Alberta CANADA T0P 2T8
Edward J. Names 333,973<FN2> 9.7% 8.2%
216 - 16th Street, Suite 730
Denver, CO 80202
Ilyas Chaudhary 1,778,333<FN3> 51.7% 43.7%
#950, 444 - 5th Avenue, SW
Calgary, Alberta CANADA TOP 2T8
Dennis R. Staal 92,765<FN4> 2.7% 2.3%
216 - 16th Street, Suite 730
Denver, CO 80202
Adres Chaudhary 378,000 11.0% 9.4%
600 Hunter Trail, Suite #4
Glendora, CA 91740
Theron J. Graves 767,711<FN5> 22.2% 22.2%
761 South Miller
Farmington, NM 87499
All Executive Officers and 2,220,371<FN6> 64.3% 53.8%
Directors as a Group
(4 Persons)
__________________
<FN>
<FN1>
Includes 75,000 shares which have been pledged to Capco Resources Ltd. to
secure certain guarantees made to it by NFF, Ltd. and PAMDEN, Ltd.
<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; 2,400
shares held by his wife of which he disclaims beneficial ownership, and
33,333 shares underlying stock options exercisable within 60 days by Mr.
Names. 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 and 33,333 shares
underlying stock options exercisable within 60 days by Mr. Chaudhary.
37
<PAGE>
<FN4>
Includes 5,400 shares held by Mr. Staal; 70,000 shares held by PAMDEN, Ltd., a
limited partnership of which Mr. Staal is general partner; 8,432 shares held
by Mystique Resources Company which is wholly owned by PAMDEN, Ltd.; 600 shares
held by an IRA and 8,333 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 exchange of shares of Graves Preferred Stock
held by him. Following the completion of this offering, the maximum number of
shares of Common Stock which Mr. Graves could receive upon exchange will
increase to 896,911. (See "DESCRIPTION OF SECURITIES.")
<FN6>
Includes 5,300 shares held directly and 10,000 shares underlying stock options
exercisable within 60 days held by Paul W. Greaves, who is President and Chief
Executive Officer of certain of the Company's subsidiaries.
</FN>
</TABLE>
38
<PAGE>
CERTAIN 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.
In February, 1997, the Company agreed to sell a total of a 25% interest
in the Hatch Pyramid LLC to Edward J. Names and Dennis R. Staal for a total
for $38,000. Such investment would be made on the same terms and conditions
as the Company offered and sold a 25% interest to one of Meteor's minority
interest holders. Hatch Pyramid LLC was formed for the purpose of acquiring
and operating a convenience store in Hatch, New Mexico. The Company intends
to retain a 50% interest in the entity. In the past the Company has sold a
50% interest of two other limited liability companies to outside investors as
part of its expansion plan. The Company intends to continue to buy and build
convenience stores using money from outside investors including employees of
the Company.
TRANSACTIONS INVOLVING GRAVES
On September 28, 1993, the Company acquired all of the issued and out-
standing common stock of Graves Oil & Butane Co., Inc. from its sole share-
holder, 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 December 31, 1996, had an
outstanding balance of $1,759,000.
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
39
<PAGE>
"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
until September 2000 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 collateralized 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 property 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
40
<PAGE>
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 represented
approximately 53% 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 one of the Company's three directors was replaced
by a Capco representative. The major assets of CRI included: (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. Subsequent to
December 31, 1996, $500,000 has been paid. Capco has agreed to guarantee the
prepayment of such note prior to 2006 and has agreed to pay an additional 2%
interest until the note is fully paid.
Subsequent to November 1995, all of the assets of CRI, except its
interest in Saba Power Company Ltd., have been transferred to the Company.
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.
TRANSACTION WITH SABA PETROLEUM COMPANY
On December 27, 1996, the Company entered into an agreement with Saba
Petroleum Company concerning the ownership of Meteor Holdings LLC. The terms
for this agreement are set forth in this Prospectus under "BUSINESS -- SABA
POWER COMPANY LTD." Ilyas Chaudhary is President, Chief Executive Officer and
a Director of Saba Petroleum Company, which is listed on the American Stock
Exchange. Mr. Chaudhary is also a principal shareholder of Capco Resources,
Ltd., which owns a majority of the stock of Saba Petroleum Company and Meteor
Industries, Inc.
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
41
<PAGE>
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. No
Officer or Director owes a fiduciary duty to another entity similar to the
duty owed to the Company regarding business opportunities related to services
and products provided by the Company.
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.
DESCRIPTION OF SECURITIES
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.
REDEEMABLE WARRANTS
The following discussion of certain terms and provisions of the
Redeemable Warrants is qualified in its entirety by reference to the Warrant
Agreement (as hereinafter defined) and also the detailed provisions of the
form of Warrant attached to the Warrant Agreement between the Company and
American Stock Transfer & Trust, Inc. (the "Warrant Agent").
Each Redeemable Warrant entitles the holder to purchase, at a price of
$7.15 subject to adjustment, one share of Common Stock at any time commencing
on the date of this Prospectus until June 3, 1999 (two years from the date of
this Prospectus). The Company may redeem the Redeemable Warrants at $.10 per
Warrant upon 30 days' prior written notice in the event that the Common Stock
has traded above 150% of the exercise price of the Redeemable Warrants for 10
consecutive trading days ending not more than ten days prior to the mailing of
the notice of redemption.
42
<PAGE>
For purposes of determining the daily trading price of the Company's
Common Stock, if the Common Stock is listed on a national securities exchange,
is admitted to unlisted trading privileges on a national securities exchange,
or is on NASDAQ, then the last reported sale price of the Common Stock on such
exchange or NASDAQ each day shall be used. If the Common Stock is not so
listed on such exchange or system or admitted to unlisted trading privileges
then the average of the last reported bid prices reported by the OTC Bulletin
Board each day shall be used to determine such daily trading price.
The Redeemable Warrants may only be redeemed if a current registration
statement is in effect. Any Warrant holder who does not exercise prior to the
redemption date, as set forth in the Company's notice of redemption, will
forfeit the right to purchase the shares of Common Stock underlying the
Redeemable Warrants and, after the redemption date, any outstanding Redeemable
Warrants will become void and be of no further force or effect. If the
Company does not redeem the Redeemable Warrants, such Warrants will expire,
become void and be of no further force or effect on conclusion of the exercise
period. All of the Redeemable Warrants must be redeemed if any are to be
redeemed.
The Redeemable Warrants have been issued pursuant to a Warrant Agreement
between the Company and the Warrant Agent. The Company has authorized and
reserved for issuance the shares of Common Stock issuable upon exercise of the
Redeemable Warrants. When delivered, all shares of Common Stock issued upon
exercise of the Redeemable Warrants will be duly and validly authorized and
issued, fully paid and nonassessable, and no preemptive rights or rights of
first refusal will exist with respect thereto.
Redeemable Warrants may be exercised upon surrender of the Warrant
certificate on or prior to its expiration date (or earlier redemption date) at
the offices of American Securities Transfer & Trust, Inc., the Warrant Agent,
with the form of "Election to Purchase" on the reverse side of the Warrant
certificate completed and executed as indicated, accompanied by payment of the
full exercise price (by certified check or bank check payable to the order of
the Company) for the number of shares with respect to which such Warrant is
being exercised.
The exercise price of the Redeemable Warrants and the number of shares
to be obtained upon exercise of such Warrant are subject to adjustment in
certain circumstances including a stock split of, or stock dividend on, or a
subdivision, combination, or recapitalization of the Common Stock. In the
event of liquidation, dissolution or winding up of the Company, holders of the
Redeemable Warrants, unless exercised, will not be entitled to participate in
the assets of the Company. Holders of the Redeemable Warrants will have no
voting, preemptive, liquidation or other rights of a shareholder, and no
dividends will be declared on the Redeemable Warrants.
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.
43
<PAGE>
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 cannot exceed 22.2% of the issuing
company's outstanding common stock. 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.
PRIOR UNDERWRITER'S WARRANTS
In connection with the Company's initial public offering, the Company
issued to the managing underwriter warrants to purchase shares of Common Stock
(the "Prior Underwriter's Warrants"). These warrants were 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 Prior Underwriter's Warrants and the number of shares of Common Stock
underlying such 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 Prior Underwriter's
Warrants had the right to join in any registration statement or offering filed
by the Company under the Securities Act of 1933 to register the Prior
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 Prior 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) are the responsibility of the Company.
In March 1996, the Company and the holders of the Prior 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 holders of the Prior Underwriter's Warrants also agreed to
eliminate the demand registration rights and the anti-dilution provisions of
the warrants. As of the date of this Prospectus, 10,000 warrants have been
exercised and 7,000 remain outstanding.
PRIVATE PLACEMENT WARRANTS
In February and March 1997, the Company sold warrants to purchase up to
130,000 shares of Common Stock as part of a private placement. These warrants
44
<PAGE>
are exercisable at $5.00 during the period from March 28, 1998 until March 27,
1999.
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 & Trust, Inc., 938 Quail Street, No. 101,
Lakewood, Colorado 80215, serves as the transfer and warrant agent for the
Common Stock and Redeemable Warrants of the Company.
SHARES ELIGIBLE FOR FUTURE SALE
Of the 3,440,228 shares of Common Stock presently outstanding,
approximately 441,128 may be traded without registration or further
registration under most circumstances. The remaining approximately 2,999,100
shares are "restricted securities" as defined by Rule 144 under the Securities
Act of 1933, as amended, and may in the future be resold by existing
shareholders under that rule. In general, Rule 144 provides that a person (or
persons whose shares are aggregated) who has satisfied a one-year holding
period may, under certain circumstances, sell within any three-month period a
number of securities which does not exceed the greater of 1% of the then
outstanding Common Stock or the average weekly trading volume of the class
during the four calendar weeks prior to such sale. Rule 144 also permits,
under certain circumstances, the sale of securities, without any limitation,
by a person who is not an affiliate of the Company and who has satisfied a
three-year holding period.
Of the approximately 2,999,100 restricted shares of Common Stock
outstanding, all but 510,000 shares are presently eligible for resale under
Rule 144. Of those 510,000 shares 270,000 will become eligible in June of
1997 and 140,000 will become eligible in the first quarter of 1998. The
Company has agreed to register 640,000 shares of restricted Common Stock some
of which are not yet eligible for resale under Rule 144, and intends to file a
registration statement for this purpose within three to nine months of the
completion of this offering.
In addition to the above, the Company's Graves subsidiary has outstanding
shares of preferred stock which may be exchanged for shares of the
Company's Common Stock. Such preferred stock may presently be exchanged for
up to 763,711 shares of the Company's Common Stock and following this offering
may be exchanged for up to 896,911 shares of the Company's Common Stock. Upon
the exchange of any of this preferred stock, Theron J. Graves, who owns all of
the preferred stock, would have piggy-back registration rights with respect to
such shares.
Officers, Directors and record shareholders who own 5% or more of the
Company's outstanding Common Stock have agreed not to sell, publicly transfer
or assign more than 5,000 shares each, and 25,000 shares in the aggregate, of
the approximately 2,508,000 shares of Common Stock beneficially owned by them
for a period of one year from the date of this Prospectus without the prior
written consent of the Underwriter.
45
<PAGE>
UNDERWRITING
The Underwriter listed below has agreed, subject to the terms and
conditions set forth in the Underwriting Agreement between the Company and
Westport Resources Investment Services, Inc., to purchase from the Company the
number of shares of Common Stock and Redeemable Warrants set forth opposite
their names as follows:
Name of Underwriter Number of Shares Number of Redeemable Warrants
Westport Resources Investment 600,000 600,000
Services, Inc.
Total 600,000 600,000
The Underwriter proposes to offer the Common Stock and Redeemable
Warrants to the public at the initial public offering prices set forth on the
cover page of this Prospectus and to selected dealers at that price less a
concession of not more than $0.275 per share of Common Stock and $0.005 per
Redeemable Warrant. After the commencement of this Offering, the offering
price and other selling terms may be changed. The Underwriter has informed
the Company that it does not intend to confirm sales to any accounts for which
it exercises discretionary authority. The Common Stock and Redeemable
Warrants will be offered by the Underwriter when, as, and if delivered to and
accepted by the Underwriter and subject to its right to reject orders or
cancel sales in whole or in part and subject to approval of certain legal
matters by legal counsel and to various other conditions.
The Company has granted to the Underwriter an option, exercisable not
later than 45 days after the date of this Prospectus, to purchase up to 90,000
additional shares of Common Stock and/or 90,000 Redeemable Warrants at the
same offering prices less underwriting discounts and the nonaccountable
expense allowance described below. The Underwriter may exercise this option
only for the purpose of covering overallotments that it makes in the sale of
the securities. If purchased, the Underwriter will sell the additional shares
of Common Stock and Redeemable Warrants on the same terms as those on which
the 600,000 shares of Common Stock and 600,000 Redeemable Warrants are
offered.
The Company has agreed to pay the Underwriter a nonaccountable expense
allowance of 3% of the gross proceeds of this Offering, including any
additional proceeds derived from the exercise of the overallotment option, and
has made advance payments totaling $20,000 against this obligation. The
Company and the Underwriter have agreed to indemnify each other and related
persons against certain liabilities, including liabilities under the federal
securities laws, and, if such indemnifications are unavailable or are
insufficient, the Company and the Underwriter have agreed to damage
contribution arrangements between them based upon the relative benefits
received from the Offering and the relative fault resulting in such damages.
Such relative benefits and relative fault would be determined in legal actions
among the parties. Under such contribution arrangements, the maximum amount
payable by the Underwriter would be the public offering price of the
securities underwritten and distributed by the Underwriter.
Commencing one year from the date of this Prospectus, the Company will
pay the Underwriter a fee of 3% of the aggregate price of Redeemable Warrants
solicited by it, if (i) the market price of the Company Common Shares on the
date the Redeemable Warrant is exercised is greater than the then exercise
price of the Redeemable Warrants; (ii) the exercise of the Redeemable Warrant
was solicited by a member of the NASD who is so designated in writing by the
holder exercising the Redeemable Warrant; (iii) the Redeemable Warrant is not
held in
46
<PAGE>
a discretionary account; (iv) disclosure of compensation arrangements was made
both at the time of the offering and at the time of the exercise of the
Redeemable Warrant; and (v) the solicitation of the exercise of the Redeemable
Warrant was not in violation of Regulation M promulgated under the Exchange
Act.
The Company has agreed not to sell any additional securities for one
year after the date of this Prospectus without the Underwriter's prior written
consent, and not to sell or issue any Common Stock, warrants or options to
Officers, Directors or record shareholders who own 5% or more of the Company's
outstanding stock for a period of one year from the date of this Prospectus
without the consent of the Underwriter. In addition, each of the Officers,
Directors, and record shareholders who own 5% or more of the Company's
outstanding stock have agreed not to sell, without the Underwriter's prior
written consent, more than 5,000 of the shares of Common Stock owned by them
as of the date of this Prospectus, for a period of one year from the date of
this Prospectus. Such sales shall not aggregate more than 25,000 shares.
The Company has agreed, upon completion of this Offering, to issue to
the Underwriter, for $100.00, Underwriter's Warrants to purchase 60,000 shares
of Common Stock and 60,000 Redeemable Warrants. The exercise price for the
Underwriter's Warrants will be 125% of the offering price per share of the
Common Stock sold in this Offering and $.125 per Redeemable Warrant. The
Underwriter's Warrants will be exercisable at any time during the four year
period commencing one year after the date of this Prospectus. The Redeemable
Warrants will be exercisable to purchase one share of Common Stock at the same
exercise price as the Redeemable Warrants sold to the public until two years
after the date of this Prospectus. The Underwriter's Warrants contain certain
demand registration rights. The demand registration rights contained in the
Underwriter's Warrants are for a term of four years beginning one year after
the effective date of this Prospectus. Following the exercise of the demand
registration rights, the Underwriter's Warrants provide for piggyback
registration rights for any unsold securities, until five years after the
effective date of this Prospectus.
LEGAL MATTERS
The legality of the securities of the Company offered will be passed on
for the Company by Krys Boyle Freedman Scott & Sawyer, P.C., 600 Seventeenth
Street, Suite 2700, South Tower, Denver, Colorado 80202. Jon D. Sawyer, a
principal in such firm, beneficially owns 5,400 shares of the Company's Common
Stock. The law firm of William M. Prifti, Esq, Lynnfield Woods Office Park,
220 Broadway, Suite 204, Lynnfield, Massachusetts 01940, has acted as legal
counsel to the Underwriter in connection with certain legal matters relating
to this offering.
EXPERTS
The consolidated financial statements of Meteor Industries, Inc. as of
December 31, 1996 and 1995 and for the years then ended, included in this
Prospectus and in the Registration Statement have been included herein in
reliance upon the report of Coopers & Lybrand, L.L.P., independent
accountants, given upon the authority of that firm as experts in accounting
and auditing.
The financial statements of the Company for the years ended August 31,
1995 and 1994, included in this Prospectus and in the Registration Statement,
have been audited by Squire & Woodward, P.C., Certified Public Accountants,
and are included herein in reliance on the authority of such firm as experts
in accounting and auditing.
47
<PAGE>
The financial statements of Capco Resources, Inc. included in this
Prospectus and in the Registration Statement, to the extent and for the
periods set forth in their report appearing elsewhere herein, have been
audited by Price Waterhouse, Chartered Accountants and are included herein in
reliance on the authority of such firm as experts in accounting and auditing.
48
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Page(s)
METEOR INDUSTRIES, INC. FINANCIAL STATEMENTS
Report of Independent Accountants . . . . . . . . . . . . . . . . . . . F-1
Consolidated Balance Sheets - March 31, 1997 (unaudited) December 31,
1996 and 1995. . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-2
Consolidated Statements of Operations - For the Three Months Ended March
31, 1997 and 1996 (unaudited) and For the Years Ended December 31,
1996 and 1995. . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-4
Consolidated Statement of Shareholders' Equity - For the Three Months
Ended March 31, 1997(unaudited) and For the Years Ended December 31,
1996 and 1995. . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-5
Consolidated Statements of Cash Flow - For the Three Months Ended March
31, 1997 and 1996 (unaudited) and For the Years Ended December 31,
1996 and 1995. . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-6
Notes to Consolidated Financial Statements. . . . . . . . . . . . . . . F-8
Independent Auditors' Report. . . . . . . . . . . . . . . . . . . . . . F-22
Consolidated Balance Sheets - August 31, 1995 and 1994. . . . . . . . . F-23
Consolidated Statements of Income - August 31, 1995 and 1994. . . . . . F-25
Consolidated Statements of Stockholders' Equity - August 31,
1995 and 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-26
Consolidated Statements of Cash Flow - August 31, 1995 and 1994 . . . . F-27
Notes to Consolidated Financial Statements. . . . . . . . . . . . . . . F-29
CAPCO RESOURCES, INC. FINANCIAL STATEMENTS
Auditor's Report. . . . . . . . . . . . . . . . . . . . . . . . . . . . F-41
Consolidated Balance Sheet - December 31, 1994 and 1993 . . . . . . . . F-42
Consolidated Statement of Operations and Retained Earnings (Deficit)
- - year end December 31, 1994 and 1993 . . . . . . . . . . . . . . . . . F-43
Consolidated Statement of Changes in Financial Position - year end
December 31, 1994 and 1993. . . . . . . . . . . . . . . . . . . . . . . F-44
Notes to Consolidated Financial statements. . . . . . . . . . . . . . . F-45
49
<PAGE>
Report of Independent Accountants
To the Board of Directors
of Meteor Industries, Inc.:
We have audited the consolidated balance sheets of Meteor Industries, Inc., as
of December 31, 1996 and 1995 and the related consolidated statements of
operations, shareholders' 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 audits.
We conducted our audits 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 audits provide a reasonable
basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Meteor Industries, Inc. as of December 31, 1996 and 1995, and the
consolidated results of its operations and its cash flows for the years then
ended, in conformity with generally accepted accounting principles.
As discussed in Note 17, the accompanying 1995 financial statements have been
restated.
/s/ Coopers & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P.
Denver, Colorado
April 24, 1997
F-1
<PAGE>
METEOR INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
March 31 December 31 December 31
1997 1996 1995
(Unaudited)
CURRENT ASSETS
Cash and cash equivalents $ 692,595 $ 151,992 $ 95,150
Restricted cash 1,249,436 928,355 541,964
Accounts receivable-trade, net of
allowance 5,033,584 5,134,276 4,232,071
Accounts receivable, related party 138,664 109,149 48,000
Notes receivable, related party 766,700 736,045 156,962
Inventory 1,252,482 1,221,729 1,332,642
Deferred tax asset 2,991 -- 149,824
Other current assets 169,042 206,401 151,103
Total current assets 9,305,494 8,487,947 6,707,716
Property, plant and equipment, net 8,180,489 8,277,368 8,568,392
Other assets
Notes receivable, related party 1,048,654 1,598,430 2,202,210
Investments in closely held
businesses 1,290,665 1,285,407 409,141
Other assets 724,561 784,579 661,737
Total other assets 3,063,880 3,668,416 3,273,088
TOTAL ASSETS $20,549,863 $20,433,731 $18,549,196
Continued on next page
F-2<PAGE>
<PAGE>
METEOR INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
(Continued)
LIABILITIES AND SHAREHOLDERS' EQUITY
March 31 December 31 December 31
1997 1996 1995
(Unaudited)
CURRENT LIABILITIES
Accounts payable, trade $ 3,191,495 $ 3,512,257 $ 2,870,045
Bank overdraft -- 170,308 71,657
Current portion, long-term debt 2,104,604 2,176,357 561,048
Accrued expenses 275,014 212,940 196,909
Taxes payable 899,837 730,034 946,102
Revolving credit facility 1,812,629 2,141,027 2,275,512
Total current liabilities 8,283,579 8,942,923 6,921,273
Long-term debt 414,351 445,774 2,194,773
Deferred tax liability 1,744,954 1,773,240 1,893,579
Minority interest in subsidiaries 4,252,333 4,151,903 3,615,398
Total liabilities 14,695,217 15,313,840 14,625,023
Commitments and contingencies
(Notes 11, 12 and 13)
SHAREHOLDERS' EQUITY
Common stock, $.001 par value;
authorized 10,000,000 shares,
3,440,228, 3,310,138 and
3,024,903 shares issued and
outstanding, respectively 3,440 3,310 3,025
Paid-in capital 3,180,843 2,660,973 1,927,338
Retained earnings 2,670,363 2,455,608 1,993,810
Total shareholders' equity 5,854,646 5,119,891 3,924,173
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $20,549,863 $20,433,731 $18,549,196
The accompanying notes are an integral part of the financial statements.
F-3
<PAGE>
METEOR INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months For the Year
Ended March 31 Ended December 31
1997 1996 1996 1995
(Unaudited) (Unaudited)
Net sales $13,852,540 $13,385,539 $59,984,499 $9,828,092
Cost of sales 11,628,471 10,829,923 49,644,010 7,373,304
Gross profit 2,224,069 2,555,616 10,340,489 2,454,788
Selling, general and admin-
istrative expenses 1,972,452 1,961,050 8,269,292 2,243,612
Depreciation 219,515 221,089 849,607 151,709
Total expenses 2,191,967 2,182,139 9,118,899 2,395,321
Income from operations 32,102 373,477 1,221,590 59,467
Other income and (expenses)
Interest income 101,441 54,701 361,271 28,047
Interest expense (115,153 (127,700) (474,136) (91,621)
Gain (loss) on sale of assets 17,500 31,105 34,323 ( 7,460)
Other 480,807 -- -- --
Total other income
and (expenses) 484,595 (41,894) (78,542) (71,034)
Income (loss) from continuing
operations before income taxes
and minority interest 516,697 331,583 1,143,048 (11,567)
Income tax (expense) benefit 201,512 62,979 (394,745) 1,470
Income (loss) from continuing
operations before minority
interest 315,185 268,604 748,303 (10,097)
Minority interest 100,430 95,316 (286,505) (63,544)
Income (loss) from continuing
operations 214,755 173,288 461,798 (73,641)
Discontinued operations:
Income from discontinued
operations (net of applicable
income taxesof $452,620) -- -- -- 441,197
Gain on disposal of discon-
tinued operations (net of
applicable taxes of
$100,000) -- -- -- 1,429,256
Net income $ 214,755 $ 173,288 $ 461,798 $1,796,812
Income(loss) per common share
from continuing operations $ .06 $ .06 $ .15 $ (.15)
Net income per common share $ .06 $ .06 $ .15 $ 3.67
The accompanying notes are an integral part of the financial statements.
F-4<PAGE>
<PAGE>
METEOR INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
For the Years Ended December 31, 1996 and 1995 and
the Three Months Ended March 31, 1997 (Unaudited)
Additional
Common Stock Paid-In Retained
Shares Amount Capital Earnings Total
Balance - January 1, 1995 100 $ 100 $ 511,920 $ 196,998 $ 709,018
Stock issued and restated
for reverse acquisition 3,022,803 2,923 1,411,420 1,414,343
Stock issued during
the year 2,000 2 3,998 4,000
Net income 1,796,812 1,796,812
Balance - December 31,
1995 3,024,903 3,025 1,927,338 1,993,810 3,924,173
Stock issued during
the year 285,325 285 733,635 733,920
Net income 461,798 461,798
Balance - December 31,
1996 3,310,228 3,310 2,660,973 2,455,608 5,119,891
Stock issued during
the period (unaudited) 130,000 130 519,870 520,000
Net income (unaudited) 214,755 214,755
Balance - March 31,
1997 (unaudited) 3,440,228 $3,340 $3,180,843 $2,670,363 $5,854,646
The accompanying notes are an integral part of the financial statements.
F-5<PAGE>
<PAGE>
METEOR INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months For the Year
Ended March 31 Ended December 31
1997 1996 1996 1995
(Unaudited) (Unaudited)
Cash flows from operating
activities:
Net income $ 214,755 $ 173,288 $ 461,798 $1,796,812
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation and amortization 219,515 221,089 849,607 159,416
(Gain)/loss on disposal of
property & equipment (17,500) (31,105) (34,323) 7,460
Deferred income taxes (31,277) (182,723) 5,269 (1,470)
Minority interest 100,430 95,316 286,505 63,544
Other -- -- (11,486) --
Changes in assets and liabil-
ities, net of effects from
reverse acquisitions
(Increase)/decrease in accounts
receivable 71,177 (130,557) (1,018,354)
(127,762)
(Increase)/decrease in
inventories (30,753) (78,566) 110,913
(32,022)
(Increase)/decrease in other
current assets 37,359 (48,545) (55,298) 22,297
Increase in accounts payable (320,762) 759,486 642,212 289,544
Increase/(decrease)in accrued
liabilities 62,074 46,916 10,247 (113,889)
Increase/(decrease) in taxes
payable 169,803 107,067 (216,068) 60,115
(Increase)/decrease in other
assets 46,170 (75,302) (219,069) 8,207
Discontinued operations -- -- --
(31,160)
Net cash provided by operating
activities 520,991 856,364 841,953 2,101,092
Cash flows from investing
activities
Cash proceeds from sale of
property 34,893 31,105 116,885 --
Purchases of property and
equipment (126,181) (125,809) (253,202) (57,003)
Loans to related parties -- -- (68,220)(1,516,000)
Net cash from reverse
acquisition -- -- -- 537,853
Investment in closely held
business (5,258) -- (876,266) (401,999)
Note receivable payments 519,121 48,970 158,188 58,556
Net cash provided (used)
by investing activities 422,575 (45,734) (922,615)(1,378,593)
F-6
<PAGE>
METEOR INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Continued)
For the Three Months For the Year
Ended March 31 Ended December 31
1997 1996 1996 1995
(Unaudited) (Unaudited)
Cash flows from financing activities
Borrowings on revolving
credit facilities 14,523,606 12,431,661 56,203,123 7,734,473
Payments on revolving
credit facilities (14,852,004) (13,188,226)(56,337,608) (7,922,104)
Increase in bank overdraft (170,308) (71,657) 98,651 71,657
Borrowings on long-term debt (103,176) -- 133,727 82,215
Sale of minority interest
in subsidiary -- -- 250,000 --
Payments on long-term debt -- (56,511) (582,417) (56,903)
Proceeds from common stock
issued 520,000 -- 733,920 4,000
Restricted cash (321,081) 110,069 (386,391) (541,964)
Insurance Proceeds -- -- 24,499 --
Net cash provided (used)by
financing activities (402,963) (774,664) 137,504 (628,626)
Net increase (decrease) in
cash and equivalents 540,603 35,966 56,842 93,873
Cash and equivalents, beginning
of period 151,992 95,150 95,150 1,277
Cash and equivalents, end
of period $ 692,585 $ 131,116 $ 151,992 $ 95,150
NON CASH INVESTING AND FINANCING ACTIVITIES
Acquisition of CRI by
issuance of stock accounted
for as a reverse acquisition
Property, plant & equipment $ -- $ -- $ -- $2,066,503
Deferred taxes $ -- $ -- $ -- $ (805,936)
Stockholders' equity $ -- $ -- $ -- $1,260,567
Acquisition of property
with debt $ -- $ -- $ 315,000 $ --
Accounts receivable replaced
with note receivable $ -- $ -- $ 55,000 $ --
Other operating cash flow information:
Cash paid for taxes $ -- $ -- $ 537,600 $ 34,152
Cash paid for interest $ 68,075 $ 70,097 $ 485,531 $ 53,005
The accompanying notes are an integral part of the financial statements.
F-7
<PAGE>
METEOR INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 and owns through a subsidiary, Hatch
Pyramid LLC, retail gasoline and convenience stores in southern New Mexico.
Capco Resources, Inc. ("CRI"), is a holding Company involved in 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 1995 financial
statements for the full year. Information for Meteor is included since
November 2, 1995, the date of acquisition. In 1996 the Company transferred
its ownership of CRI to Meteor Holdings LLC ("MHL"). Innovative Solutions and
Technologies, Inc. ("IST") is involved in providing environmental consulting.
Capco Analytical Services, Inc. ("CAS") is involved in providing laboratory
analysis.
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 including its wholly owned subsidiary Hatch Pyramid LLC, CAS and
IST and Meteor's 73% owned subsidiary, Meteor Holdings LLC. All significant
intercompany transactions and balances have been eliminated in consolidation.
USE OF ESTIMATES - The preparation of the Company's consolidated financial
statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the amounts
reported in these financial statements. Actual results may differ from these
estimates.
CASH AND CASH EQUIVALENTS - Cash and cash equivalents include certificates of
deposit with original maturity dates of 3 months or less 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 are stated at the lower of cost or market.
Inventories of petroleum products, greases and oils, and related products are
stated at weighted average cost for Hillger and the last in first out (LIFO)
basis for Graves. Sundries inventories are valued by the retail method and
stated on the first in, first out (FIFO) basis which is lower than market.
Approximately $324,000 of inventory is valued using the LIFO method.
F-8
<PAGE>
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 expensed currently.
At the time property and equipment are retired or otherwise disposed of, the
asset and related accumulated depreciation accounts are relieved of the
applicable amounts. Gains or losses from retirements or sales are credited or
charged to 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.
F-9
<PAGE>
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 outstanding. The number of shares used in the earnings per share
computation for 1996 is 3,184,397 and for 1995 is 489,035. The 1995 number of
shares reflects CRI's equivalent share activity for ten months and Meteor
share activity from the date of the reverse acquisition.
UNAUDITED INTERIM FINANCIAL INFORMATION - The consolidated balance sheet at
March 31, 1997, the consolidated statements of operations and cash flows for
the three month interim periods ended March 31, 1997 and 1996 and the
consolidated statement of stockholders' equity for the three month interim
period ended March 31, 1997, have been prepared by the Company without audit.
In the opinion of management, all adjustments, consisting only of normal
recurring adjustments, necessary to fairly present the interim financial
information have been made. The results of operations for interim periods are
not necessarily indicative of the operating results of a full year or of
future years.
NOTE 2 -- PROPERTY AND EQUIPMENT
The major classifications of property and equipment are as follows:
1996 1995
DESCRIPTION AMOUNT AMOUNT
-------------------------- ---------- -----------
Land $1,326,349 $ 1,334,374
Buildings and improvements 1,378,282 899,089
Equipment 6,512,753 6,511,294
9,217,384 8,744,757
Accumulated depreciation (940,016) ( 176,365)
Net property and equipment $8,277,368 $ 8,568,392
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 (discussed in Note 7), 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, 1996 and 1995, was 10.25% and 10.50%, respectively. 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 10.25% and 10.50% at December 31, 1996 and 1995, respectively.
Accrued interest receivable at December 31, 1996 and 1995, totaled $45,793 and
$36,210, respectively.
The Company has a note receivable from another subsidiary of Capco Resources
Ltd. (a 57% owner of the Company) in the amount of $1,516,000 due April 1,
2006. Interest is receivable semiannually at a rate of 9%.
F-10
<PAGE>
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 its investment in this limited
liability company using the equity method. The carrying value was $133,263 at
December 31, 1996. This investment is not publicly traded.
The Company owns 50% of the Coors Pyramid L.L.C. The investment was acquired
in June, 1996. The Company reports its investment in this limited liability
company using the equity method. The carrying value was $153,680 at December
31, 1996. 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 its investment in this
limited liability Company using the equity method. This investment is not
publicly traded. The carrying value was $65,302 at December 31, 1996.
At December 31, 1996, the Company, had invested $683,162 in Meteor Holdings
LLC ("MHL") MHL owns an interest in Saba Power Company, Ltd. (the "Power
Project"). The investment in the Power Project is reported using the cost
method. The Company also entered into an agreement with Saba Petroleum
Company ("Saba") whereby Saba, a related party, participated in the Power
Project. Saba invested $250,000 in MHL resulting in MHL's total investment
of $933,162 in the Power Project. Saba owns a .5% interest in the Power
Project through its ownership of 27% of MHL. The Company owns 1.5% of the
Power Project through its ownership of 73% of MHL. Saba's .5% interest in the
project is subject to the same terms and conditions as the Company's 1.5%
interest. These percentages, however, could be reduced in the event that
other shareholders of Saba Power are required to make additional contributions
to equity.
MHL has obtained the right to sell its interest in Saba Power to an affiliate
of one of the other shareholders for approximately the amount of its
contribution on October 26, 1996, for a period of 120 days. The Company's
investment in the Power Project is not expected to provide any significant
cash flow to the Company for at least three to four years. Further, if during
the next 2-3 years certain enhancements to the Power Project contracts are not
obtained from the Government of Pakistan, then cash flow from the Power
Project will not be earned by or distributed to the Company.
During 1996, Saba Power Company Ltd. and the shareholders thereof, including
the Company, completed the final negotiations with the project's construction
lender and the engineering procurement and construction contractor was given a
limited release to commence construction activities on the project, which was
subsequently suspended. On March 4, 1997, all required equity capital was
fully subscribed and paid by the shareholders; in the form of cash or letters
of credit; all documentation fees were paid to the Government of Pakistan; the
construction contractor was given a full release. All required consents were
obtained from the Government of Pakistan, and all defaults were cured. Due to
the changing political climate in Pakistan and the economic risks involved,
the Company's management decided not to invest additional capital in the
project. All debt and equity financing for the Power Project was completed on
March 4, 1997, in the total amount of over $150,000,000.
In connection with this transaction, the Company's co-developer, Cogen
Tech-nologies, agreed to pay a consulting fee for services provided in 1996,
to the founding partners, of which MHL's share totals $400,000 with the
possibility of receiving up to an additional $350,000 over a three year period
if certain contract enhancements are obtained from the Government of Pakistan;
F-11
<PAGE>
however, there can be no assurance that such enhancements can or will be
obtained. MHL incurred approximately $124,000 in expenses to outside sources
in pro-viding these consulting services. The Company's share of the $276,000
in net revenues totals $200,000 by virtue of its 73% ownership of in MHL.
The Company is not required to invest any additional capital related to the
Power Project. If costs of the project exceed budget and capital is required
then the Company will have the choice of investing more capital or suffering
ordinary dilution to its ownership interest without incurring any penalties.
NOTE 5 -- REVOLVING CREDIT FACILITY
Revolving Credit Facility at December 31, consisted of the following:
1996 1995
---------- ----------
$3,000,000 revolving bank credit facility,
payable to Norwest Business Credit, Inc.,
bearing interest at Norwest Bank Minnesota,
N.A., base rate plus 2.0% (10.25% and 11.25%
at December 31, 1996 and 1995, respectively),
due June 1999. Collateralized by trade
accounts receivable and inventory of Graves $1,861,189 $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% (10.25% and 10.75%
at December 31, 1996 and 1995, respectively),
due June 30, 1999. Collateralized by trade
accounts receivable and inventory of Hillger 279,838 235,568
The revolving bank credit facility agreements require the Company to maintain
certain net worth and performance ratio levels and meet certain financial
reporting requirements. As discussed in Note 1, payments on these loans are
made through collateral cash accounts in the name of the lender. The unused
borrowing base at December 31, 1996, was $938,606.
Hillger was in default in its net worth requirement in December, 1996, Hillger
received a waiver of this default. Graves and Hillger were in default of
certain financial reporting requirements for which waivers were obtained.
NOTE 6 -- LONG-TERM DEBT
Long-term debt at December 31, consisted of the following:
1996 1995
---------- ----------
Note payable to Theron Graves, semiannual
payments of $200,000 including interest at
prime plus 2% (10.25% and 10.75% at December
31, 1996 and 1995, respectively), collateral-
ized by half of Graves common stock, matures
October 1997. $1,759,139 $1,955,663
Note payable to First National Bank of
Farmington, monthly payments of $19,000
including interest at prime plus 2% (10.25%
F-12
<PAGE>
and 10.75% at December 31, 1996 and 1995,
respectively) collateralized by mortgage on
buildings and land, matures January 1998. 211,872 388,048
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% (11.25% and 11.75% at December 31,
1996 and 1995, respectively), collateralized by
property and equipment, due June 1998. 187,494 312,498
Note payable to The Spot, quarterly payments of
$14,326 plus interest at 7.00%, collateralized
by mortgage on building and land, matures
December, 2003. 315,000 --
Note payable to unaffiliated third party
annual payout of $20,000 with no interest
and no collateral, matures June, 2000.
non-compete agreements 60,000 --
Note payable to Ford Motor Credit, monthly
payments of $329 including interest at 11.9%,
collateralized by equipment, matures
December, 1999. 9,919 12,459
Note payable to GMAC, monthly payments
of $257, including interest at 9.95%,
collateralized by equipment, matures
April, 2000. 8,533 --
Note payable to GMAC, monthly payments
of $387, including interest at 9.95%,
collateralized by equipment, matures
April, 1999. 9,330 --
Note payable to GMAC, monthly payments
of $604, including interest at 10.12%,
collateralized by equipment, matures
December, 1999. 18,681 23,754
Leases payable (Note 14) 42,163 63,399
Total 2,622,131 2,755,821
Current portion (2,176,357) (561,048)
Long-term debt $ 445,774 $2,194,773
The following is a schedule by years of the repayment of long-term debt:
PERIOD ENDING
DECEMBER 31, AMOUNT
------------- ----------
1997 $2,176,357
1998 161,973
1999 68,795
F-13
<PAGE>
2000 58,453
2001 50,464
Remaining 106,089
Total $2,622,131
NOTE 7 -- MINORITY INTEREST IN SUBSIDIARIES
The Series A Convertible Preferred Stock of Graves, 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 $945,192 and $685,075 as of
December 31, 1996 and 1995, respectively. The minority interest is recorded
at its discounted value in the amount of $3,825,903. Dividends and accretion
of the preferred stock discount are reflected in minority interest on the
income statement.
The Company owns 73% of MHL which owns 100% of Capco Resources, Inc. The
minority interest of 27% is recorded at its cost basis of $326,000.
NOTE 8 -- INCOME TAXES
The provision for income taxes from continuing operations consists of the
following components:
1996 1995
-------- -------
Current tax expense $359,476 $ 0
Deferred tax expense (benefit) 35,269 (1,470)
Total provision (benefit) $394,745 $(1,470)
The following reconciles the tax provision with the expected provision
obtained by applying federal and state statutory rates to pretax income (loss)
from continuing operations:
1996 1995
-------- -------
Expected tax provision $445,789 $(3,933)
Nondeductible expenses 4,407 2,425
Benefit of operating
loss carryforwards) (40,107) --
Other (15,344) 38
Total provision $394,745 $(1,470)
F-14
<PAGE>
The deferred tax asset (liability) in the accompanying balance sheet includes
the following components:
1996 1995
------------ -----------
Current:
Deferred tax asset(liability), federal $ (5,042) $ 130,616
Deferred tax asset (liability), state (742) 19,208
Net current deferred asset (liability) $ (5,784) $ 149,824
Noncurrent:
Deferred tax liability, federal $(1,535,934) $(1,650,812)
Deferred tax liability, state (237,306) (242,767)
Net noncurrent deferred tax liability $(1,773,240) $(1,893,579)
Net deferred tax liability (1,779,024) (1,743,755)
Components of deferred income taxes at December 31, were as follows:
1996 1995
----------- -----------
Deferred tax asset
Accounts receivable $ 82,776 $ 80,272
Net operating loss carryforwards -- 40,170
Other 23,764 29,382
Total deferred tax liability 106,540 149,824
Deferred tax liability:
Depreciation and amortization $(1,773,240) $(1,893,579)
Inventory (112,324) --
Total deferred tax liability (1,885,564) (1,893,579)
Net deferred tax liability (1,779,024) (1,743,755)
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 year ended December 31, 1995
and contributions for the year ended December 31, 1996, were $17,014.
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 years ended December 31, 1996
and 1995, Hillger's contribution was $13,056 and $4,346, respectively.
F-15
<PAGE>
NOTE 10 -- RELATED PARTY TRANSACTIONS
The Company used space, telephone and secretarial services of a corporation
controlled by officers of the Company. Expenses are paid by the Company as
invoiced. At December 31, 1996 and 1995, amounts payable to related parties
were $-0- and $21,256, respectively. These services were discontinued in
1996.
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 December 31, 1996 and 1995, rents paid were $54,643 and
$9,102, respectively.
The Company has land, buildings, and equipment in Springerville, Arizona, and
equipment in St. Johns, Arizona, which were used by a relative of the
preferred stockholder. The Company did not charge for the use of its
properties but received revenue from the sale of its products. During the
years ended December 31, 1996 and 1995, revenues reported amounted to $56,612
and $56,864, respectively. The properties are now closed and the Company is
in the process of selling the land, buildings, and equipment.
The Company sells its products to other entities controlled by the preferred
stockholder. During the years ended December 31, 1996 and 1995, revenues
reported amounted to $1,018,928 and $224,425, respectively.
The preferred stockholder is indebted to the Company on two notes totaling
$650,000 as described in Note 3. Interest receivable at December 31, 1996 and
1995, was $45,793 and $36,210, respectively. Interest earned during the years
ended December 31, 1996 and 1995, was $66,790 and $11,677, respectively.
The Company is indebted to the preferred stockholder for $1,759,139 as
described in Note 6. Interest payable at December 31, 1996 and 1995, was
$45,078 and $54,903, respectively. Interest expense during the years ended
December 31, 1996 and 1995, for this note was $193,369 and $36,602,
respectively.
The Company has entered into a consulting agreement with the 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 December 31, 1996 and 1995, the
fees paid were $27,232 and $3,570, respectively.
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
F-16
<PAGE>
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
re-quirements 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, 1996 and 1995, the Company expended $31,167 and
$5,876, respectively, for site assessment and related cleanup costs.
Included in other assets at December 31, 1996 and 1995, are unreimbursed costs
from the State of New Mexico of $125,761 and $94,593, respectively.
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, 1996 and 1995, the Company was
contingently liable for $11,462 and $31,175, respectively, in unamortized
costs. Future losses, if any, cannot be estimated at this time.
The Company has in escrow 400,000 shares in a Canadian corporation and a
$150,000 cash deposit related to the sale of a subsidiary in 1995. Both the
deposit and the shares are subject to reduction depending on various factors
related to the subsidiary sale. The Company has not recognized any gain or
asset related to the escrow items.
The Company is a co-signer on the Phillips Performance Fund, Inc. note for
$504,982 for its 50% owned equity investment in Coors Pyramid LLC.
NOTE 13 -- OPERATING LEASES
The Company has entered into various noncancelable leases for land, buildings
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 December 31, 1996 and 1995, was $771,716 and
$123,723, respectively.
Minimum future obligations on leases in effect at December 31, 1996, are:
December 31, 1997 $ 759,000
December 31, 1998 $ 753,000
December 31, 1999 $ 705,000
December 31, 2000 $ 663,000
December 31, 2001 $ 665,000
Thereafter $ 2,145,000
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, leased property under capital leases by major classes was
as follows: F-17
<PAGE>
1996 1995
---------- ---------
Buildings and improvements $ 18,141 $ 18,141
Equipment 119,600 106,292
Accumulated amortization (69,492) (44,350)
Net leased property $ 68,249 $ 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, 1996:
December 31, 1997 $ 32,785
December 31, 1998 5,670
December 31, 1999 3,832
December 31, 2000 3,832
December 31, 2001 2,875
Total minimum lease payments 48,994
Less: amount representing interest 6,831
Present value of minimum lease payments $ 42,163
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 date of
the acquisition. The total cost of the acquisition by CRI exceeded the book
value 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. The unaudited results of operations on
a pro forma basis for the year ended December 31, 1995 are as follows:
Revenues $57,721,328
Income (loss) from continuing operations $ (285,335)
Income (loss) per share $ (.16)
NOTE 16 -- STOCK OPTION AND INCENTIVE EQUITY PLAN
The Company has adopted the disclosure requirements of Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS
No. 123"). Pro forma disclosures as if the Company adopted the expense
recognition requirements under SFAS No. 123 in 1996 are presented below.
A stock option plan providing for the issuance of incentive stock options and
non-qualified 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
F-18
<PAGE>
granted. No options have been exercised. The Company's common stock options
were granted at exercise prices equal to, or in excess of, market prices on
the grant dates, and therefore no compensation cost was recognized. The
majority of the options outstanding at December 31, 1996 will vest by December
31, 1998.
A summary of the status of the Company's stock option plans as of December 31,
1996 and 1995, is presented below:
1996 1995
------------------------ -----------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
SHARES EXERCISE PRICE SHARES EXERCISE PRICE
------- -------------- ------- --------------
Outstanding at beginning
of year 312,400 $ 3.60 108,000 $ 3.90
Granted 105,000 $ 3.50 236,000 $ 3.46
Exercised
Forfeited (54,100) $ 3.63 ( 31,600) $ 3.54
Outstanding at end
of year 363,300 $ 3.57 312,400 $ 3.60
Options exercisable
at Year-End 123,934 $ 3.66 28,400 $ 3.95
Options Available for
Future Grant 136,700 N/A 187,600 N/A
NUMBER OF EXERCISE PRICE
DATE OPTIONS GRANTED OPTIONS PER SHARE VESTING PERIOD
- -------------------- --------- -------------- --------------
October 1, 1993 41,000 $ 3.00 5 years
February 1, 1994 31,300 $ 5.25 3 years
August 4, 1995 21,000 $ 3.00 3 years
November 30, 1995 215,000 $ 3.50 3 years
May 31, 1996 105,000 $ 3.50 5 years
The following table summarizes information about stock options outstanding at
December 31, 1996:
OPTIONS OUT- WEIGHTED AVERAGE OPTIONS EXER-
EXERCISABLE STANDING AT REMAINING CON- CISABLE AT
PRICE DECEMBER 31, 1996 TRACTUAL LIFE DECEMBER 31, 1996
----------- ----------------- ---------------- -----------------
3.00 41,000 7 24,600
5.25 31,300 8 20,867
3.00 21,000 4 7,000
3.50 215,000 4 71,667
3.50 55,000 5 -0-
Had compensation cost been determined based on the fair value at grant dates
for stock option awards consistent with the SFAS No. 123, the Company's net
income and earnings per share for the years ended December 31, 1996 and 1995,
would have been reduced to the pro forma amounts indicated below:
F-19
<PAGE>
1996 1995
---------- ----------
Net Income: As reported $ 461,798 $1,215,337
Pro Forma $ 368,367 $1,138,931
Earnings per share: As reported $ .15 $ 2.49
Pro Forma $ .12 $ 2.33
The pro forma compensation expense based on the fair value of the options is
estimated on the grant date using the Black-Scholes option-pricing model with
the following assumptions used for grants: no dividends both years; an
expected life of 5 years for both years, expected volatility of 95% and 57%
for 1996 and 1995, respectively, and a risk free rate of return of 6.40 and
6.37 percent, respectively. The weighted average fair value of those purchase
rights granted in 1996 and 1995 was $2.54 and $1.75 respectively. SFAS No.
123 does not apply to awards prior to 1995.
In November 1995, Meteor granted an option to a consultant to purchase a total
of 100,000 shares of Meteor's Common Stock. This option was exercisable at
$2.50 per share, but expired unexercised on January 31, 1997.
NOTE 17 -- DISCONTINUED OPERATIONS
The 1995 financial statements have been restated to properly reflect income
and the provision for income taxes related to discontinued operations. The
net impact of these adjustments was as follows:
As Previously As
Reported Restated
------------- ----------
Income from discontinued operations $ 398,789 $ 441,197
Gain on disposal of discontinued operations 890,189 1,429,256
Net income 1,215,337 1,796,812
Net income per share $2.49 $3.67
a) In September, 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 $1,429,256. The
consideration received was in the form of:
Cash $2,401,719
400,000 cumulative, convertible,
redeemable first preferred shares
of PetroSantander 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) In 1995, CRI transferred all of its holdings of Saba Petroleum
Company and certain assets and liabilities to CRL and to CAPCO Acquisub, Inc.,
a wholly-owned subsidiary of CAPCO Resources Ltd. This transaction was
recorded at book value. The net liabilities transferred had a book value of
approximately $400,114.
F-20
<PAGE>
The Company has been indemnified by Capco Resources Ltd. with respect to
certain tax liabilities. The Company has recorded a receivable for $48,000
which was received prior to the issuance of the financial statements.
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 8,695,733
General and administrative 1,986,967
Interest and bank charges 1,065,011
Depreciation, depletion and amortization 2,413,743
14,161,454
Operating income 880,199
Income tax expense 452,620
Foreign exchange (gain) loss 51,237
Minority interest 114,655
Dilution gain (179,510)
439,002
Net Income $ 441,197
Gain on disposition, net of tax
of $100,000 $ 1,429,256
NOTE 18 - NEW ACCOUNTING PRONOUNCEMENTS
In February, 1997, the Financial Accounting Standards Board issued statement
of Financial Accounting Standards No. 128, "Earning per Share" ("SFAS
No.128"). The standard requires presentation of earnings per share on a
"basic" (only shares outstanding) actual and "fully diluted" (actual shares
outstanding plus the effect of other dilutive securities) basis. At this time,
the Company does not expect the adoption of SFAS No.128 to have a material
impact on the Company's earnings per share.
NOTE 19 - SUBSEQUENT EVENTS
In February and March of 1997, the Company sold shares and warrants to
purchase the Company's Common Stock to 16 accredited investors in a private
offering. A Total of 130,000 shares of Common Stock and 130,000 warrants were
sold in this offering for an aggregate of $520,000 in cash. The Company paid
no commissions in connection with this offering. Each warrant allows the
holder to purchase one share of Common Stock at $5.00 per share from March 28,
1998 until March 27, 1999.
In March 1997 the Company entered into an out of court settlement with one of
its former insurers. As a result, the Company will receive approximately
$480,000 in cash after paying its related attorney's fees. Such funds were
received in May 1997.
F-21<PAGE>
<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
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 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-22
<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-23
<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-24<PAGE>
<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-25
<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-26<PAGE>
<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-27
<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-28<PAGE>
<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
based upon 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-29
<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.
F-30
<PAGE>
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.
F-31
<PAGE>
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
F-32
<PAGE>
(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
F-33
<PAGE>
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:
F-34
<PAGE>
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:
F-35
<PAGE>
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
endedAugust 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.
F-36
<PAGE>
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.
F-37
<PAGE>
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
oncerning environmental protection, as well as the New Mexico Ground Water
rotection Act. The various federal and state statutes are designed to ientify
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
F-38
<PAGE>
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.
F-39
<PAGE>
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-40
<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.
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.
Chartered Accountants
F-41
<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-42<PAGE>
<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-43
<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-44
<PAGE>
CAPCO RESOURCES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1994
(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-45
<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
$1,429,256. The consideration received was in the form of:
Cash $2,401,719
400,000 cumulative, convertible, redeemable
first preferred shares of PetroSantander
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 and 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, subsequently restated to ($400,114).
The discontinued operations results for 1994, 1993, and 1992 are as
follows:
F-46
<PAGE>
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 $ -
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<PAGE>
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
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<PAGE>
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 cancelable 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:
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<PAGE>
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 canceled 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.
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<PAGE>
(INSIDE BACK COVER)
(Picture of hot air balloon (Picture of hot air balloon)
with "Graves Oil & Butane"
logo)
(Picture of Graves Oil & (Picture of tank trucks)
Butane tank truck)
<PAGE>
No person is authorized to
give any information or to make
any representation other than
those contained in this Pros-
pectus, and if given or made 600,000 Shares of Common Stock
such information or represen- 600,000 Redeemable Warrants
tation must not be relied upon
as having been authorized.
This Prospectus does not con-
stitute an offer to sell or a METEOR INDUSTRIES, INC.
solicitation of an offer to buy
any securities other than the
securities offered by this Pros-
pectus or an offer to sell or a
solicitation of an offer to buy
the securities in any jurisdic-
tion to any person to whom it is
unlawful to make such offer or
solicitation in such jurisdiction.
TABLE OF CONTENTS
Page
Prospectus Summary.............. 4
Risk Factors.................... 7
The Company..................... 13
Price Range of Common Stock..... 15 __________________
Dividend Policy................. 15
Selected Financial Information.. 16 PROSPECTUS
Management's Discussion and __________________
Analysis of Financial Condi-
tion and Results of Operations. 17
Use of Proceeds................. 22
Business........................ 23
Management...................... 32 Westport Resources
Security Ownership of Manage- Investment Services, Inc.
ment and Principal Shareholders 37
Certain Transactions............ 39
Description of Securities....... 42
Underwriting.................... 46 June 4, 1997
Legal Matters................... 47
Experts......................... 47
Index to Financial Statements... 49
