-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, OCPQDgCZDvE84c0qVLZDkySOAR0AjjUvfBD1SamYvc0fbfKW7daSzu3qM4s+DW3R obS3SHJloDMNPW9/L8hnbw== /in/edgar/work/20001103/0001090002-00-000374/0001090002-00-000374.txt : 20001106 0001090002-00-000374.hdr.sgml : 20001106 ACCESSION NUMBER: 0001090002-00-000374 CONFORMED SUBMISSION TYPE: 10KSB PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20001103 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CAPCO ENERGY INC CENTRAL INDEX KEY: 0000354767 STANDARD INDUSTRIAL CLASSIFICATION: [1311 ] IRS NUMBER: 840846529 STATE OF INCORPORATION: CO FISCAL YEAR END: 0531 FILING VALUES: FORM TYPE: 10KSB SEC ACT: SEC FILE NUMBER: 000-10157 FILM NUMBER: 752235 BUSINESS ADDRESS: STREET 1: 2922 EAST CHAPMAN AVENUE STREET 2: SUITE 202 CITY: ORANGE STATE: CA ZIP: 92869 BUSINESS PHONE: 7142888230 MAIL ADDRESS: STREET 1: 216 16TH ST STE 730 CITY: DENVER STATE: CO ZIP: 80202 FORMER COMPANY: FORMER CONFORMED NAME: ALFA RESOURCES INC DATE OF NAME CHANGE: 19920703 10KSB 1 0001.txt ANNUAL REPORT ON FORM 10KSB SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-KSB X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934 For the fiscal year ended DECEMBER 31, 1999 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ___________ to _____________ Commission File No. 0-10157 CAPCO ENERGY, INC. ----------------------------------------------------------------- (Exact Name of Small Business Issuer as Specified in its Charter) COLORADO 84-0846529 - -------------------------------- ------------------------------------ (State or other jurisdiction of (I.R.S. Employer Identification No.) Incorporation or Organization) 2922 East Chapman, Suite 202 Orange, California 92869 --------------------------------------------------------------- (Address of Principal Executive Office, Including Zip Code) Registrant's telephone number including area code: (714) 288-8230 Securities registered pursuant to Section 12(b) of the Act: None. Securities registered pursuant to Section 12(g) of the Act: COMMON STOCK,$.001 PAR VALUE ---------------------------- Title of Class Indicate by check mark whether the registrant (1) has filed all reports required to have filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934 during the preceding 12 months or for such shorter period that the registrant was required to file such reports and (2) has been subject to such filing requirements for the past 90 days. Yes X No As of September 30, 2000, 22,393,646 shares of common stock were outstanding. The aggregate market value of the common stock of the Registrant held by nonaffiliates on that date was approximately $5,200,000. State Issuer's revenues for its most recent fiscal year: $89,962 Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-KSB is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. X DOCUMENTS INCORPORATED BY REFERENCE: See pages 17 to 18. This Form 10-KSB consists of 66 pages including exhibits. The Exhibit Index appears on page 20. PART I ITEM 1. BUSINESS GENERAL DEVELOPMENT OF BUSINESS. Capco Energy, Inc. ("Capco" or the "Company"), with its mailing address at 2922 East Chapman, Suite 202, Orange, California 92869, telephone number (714) 288-8230, was incorporated as Alfa Resources, Inc. a Colorado corporation on January 6, 1981. Capco was organized for the purpose of engaging in oil and gas exploration, development and production activities. Effective December, 1999, Capco closed on the acquisition of 100% of Capco Resource Corporation ("CRC"), a corporation involved in oil and gas production. Based on the ownership of the respective companies at the time of this acquisition it was determined that a change in control had occurred and accordingly, the transaction has been considered a reverse acquisition for accounting. The historical accounts of CRC are reflected in the financial statements for the period beginning with January 19, 1999 the inception date of CRC, at cost. The assets of Capco are also included at cost because of the significant influence over the Company exercised by the shareholders of CRC. Information for Capco is included since December 31, 1999, the effective closing date of the acquisition. Prior to Capco acquiring CRC, CRC acquired for the issuance of 5,250,000 shares of its common stock certain assets and assumed certain liabilities from Capco Acquisub, Inc. ("Capcoacq"), a privately held company, which became the majority stockholder of CRC from the issuance of these shares. Due to the fact that Capcoacq became the majority stockholder of the Company after this transaction, the assets and liabilities have been recorded at their historical costs, as follows: (i) working interests in oil and gas property located in Lamar County Alabama, at a historical cost of $377,928; (ii) title to 25 acres of undeveloped land, held for speculative purposes, located in Santa Maria County, California, at a historical cost of $301,610; (iii) title to 160 acres of undeveloped land, held for speculative purposes, located in Calgary, Canada, at a historical cost of $211,000; (iv) a 9.9% interest, or 927,821 shares of common stock, in Capco Resources Ltd. ("CRL") a Canadian publicly held company, at a historical cost of $138,542; (v) promissory note collateralized by land in Santa Maria, California, in the amount of $226,481; (vi) payable to Capcoacq in the amount of $433,881 3 In January 2000, the Company acquired a 35% interest in Meteor Stores, Inc. ("MSI") and financed an unrelated third party's, (the current President of MSI), acquisition of the remaining 65% interest in MSI, which is involved in operating petroleum distribution through convenience stores. The Company paid $250,000 and issued a note payable in the amount of $1,296,618 for the purchase of 100% of the issued and outstanding common stock of MSI and in turn received $215,000, consisting of $50,000 in cash and 132,000 shares of the Company's common stock and a note receivable in the amount of $860,000 for the sale of 65% of the issued and outstanding common stock of MSI. The note payable is collateralized by 100% of the issued and outstanding common stock of MSI and 210,000 shares of the Company's holdings in Meteor Industries and the note receivable is collateralized by 65% of the issued and outstanding common stock of MSI. The sale of the 65% interest was closed in September 2000 with an effective date of January 1, 2000. Since the sale of the 65% ownership interest is a highly leveraged transaction, the Company will account for the acquisition using the equity method of accounting. In February 2000, the Company completed its acquisition of 80% interest of the issued and outstanding common stock of Zelcom Industries, Inc., a company involved in Internet applications. The Company will account for the investment under the equity method of accounting, as the Company's intent is to reduce its ownership to below 50% by the end of the fourth quarter of 2000. In March 2000, the Company increased its investment in CRL from approximately 9.9% to approximately 81.9% by the issuance of 12,221,558 shares of its common stock. CRL is a holding company with a wholly owned subsidiary, Capco Asset Management ("CAM") which had investments in publicly traded companies, as follows: i) 1,290,000 shares of common stock, or approximately 30% interest, of Greka Energy Corporation ("Greka"), which is in the business of oil and gas production in the United States and Colombia, ii) 1,238,550 shares of common stock, or approximately 33% interest, of Meteor Industries, Inc. ("Industries"), which is in the business of petroleum marketing in the United States, and iii) approximately 400,000 shares of common stock of Chaparral Resources, Inc. ("Chaparral"), which is in the business of oil and gas production in North America and Kazakhstan. CRL accounts for the investments of Industries and Chaparral under the equity method and Greka under the mark to market method . In July 2000, the Company issued an additional 810,858 shares of common stock to shareholders of CRL in exchange for 405,429 shares of CRL common stock, increasing its equity ownership of that company to 86.6%. NARRATIVE DESCRIPTION OF BUSINESS GENERAL Capco is engaged in the business of producing and selling crude oil and natural gas in the United States and managing its investments. PROPERTY ACQUISITION AND SALES Capco attempts to acquire developed and undeveloped oil and gas properties through the acquisition of leases and other mineral interests or through the acquisition of companies. 4 EQUIPMENT, PRODUCTS AND RAW MATERIALS Capco owns no drilling rigs and has done no drilling for several years. Capco's principal products are crude oil and natural gas. Crude oil and natural gas are sold to various purchasers including pipeline companies which service the areas in which Capco's producing wells are located. Capco's business is seasonal in nature, to the extent that weather conditions at certain times of the year may affect its access to oil and gas properties and the demand for natural gas. The existence of commercial oil and gas reserves is essential to the ultimate realization of value from properties, and thus may be considered a raw material essential to Capco's business. 4 The acquisition, exploration, development, production and sale of oil and gas is subject to many factors which are outside Capco's control. These factors include national and international economic conditions, availability of drilling rigs, casing, pipe and other fuels, and the regulation of prices, production, transportation, and marketing by federal and state governmental authorities. Capco acquires oil and gas properties from landowners, other owners of interests in such properties, or governmental entities. For information relating to specific properties of Capco see Item 2. Capco currently is not experiencing any difficulty in acquiring necessary supplies or services as long as Capco can pay for the services and supplies nor is it experiencing any difficulty selling its products. COMPETITION The oil and gas business is highly competitive. Capco's competitors include major companies, independents and individual producers and operators. Many of Capco's numerous competitors throughout the country are larger and have substantially greater financial resources than Capco. Oil and gas, as a source of energy, must compete with other sources of energy such as coal, nuclear power, synthetic fuels and other forms of alternate energy. Domestic oil and gas must also compete with foreign sources of oil and gas, the supply and availability of which have at times depressed domestic prices. Capco has an insignificant competitive position in the oil and gas industry. The general economic conditions in the United States and the recession in theoil and gas industry during the past several years have intensified the search for capital necessary for participation in the oil and gas business. This shortage of capital has had the effect of curtailing the operations of many smaller independent companies with limited resources, including Capco. GOVERNMENTAL AND ENVIRONMENTAL LAWS Capco's activities are subject to extensive federal, state and local laws and regulations controlling not only the exploration for oil and gas, but also the possible effect of such activities upon the environment. Existing as well as future legislation and regulations could cause additional expense, capital expenditures, restrictions and delays in the development of properties, the extent of which cannot be predicted. Since inception, Capco has not made any material expenditures for environmental control facilities and does not expect to make any material expenditures during the current and following fiscal year. 5 EMPLOYEES Capco employs approximately 7 people, none of whom are represented by any collective bargaining organizations. Management considers its employee relations to be satisfactory at the present time. ITEM 2. PROPERTIES OFFICE FACILITIES. Capco's principal offices are located at 2922 East Chapman Ave., Suite 202, Orange, California 92869. OIL AND GAS PROPERTIES. Capco holds interests in producing oil and gas leaseholds as of December 31, 1999, as follows: Producing Properties Non-Producing Properties -------------------- ------------------------ Gross Net Gross Net State Acres Acres Acres Acres ----- ---- ----- ----- ----- Kansas 1,120 356 26,180 8,325 Alabama 320 88 -- -- Louisiana 640 160 280 280 Total 2,080 604 26,460 8,605 Net acres represent the gross acres in a lease or leases multiplied by Capco's working interest in such lease or leases. PROVED DEVELOPED AND PROVED UNDEVELOPED RESERVES. The following table sets forth the proved developed and proved undeveloped oil or gas reserves accumulated by Capco, for the fiscal period ended December 31, 1999, May 31, 1999, and May 31, 1998. The reserve reports for the fiscal period ended December 31, 1999 were prepared by management and reviewed by independent engineers. The reserve estimates (and related values) for the fiscal years ended May 31, 1999 and 1998 were prepared by management. All such reserves are located in the continental United States. December 31,1999 May 31, 1999 May 31,1998 ---------------- ------------ ------------- Oil Gas Oil Gas Oil Gas (Bbls) (MCF) (Bbls) (MCF) (Bbls) (MCF) Proved Developed Reserves 587,807 281,871 1,275 0 4,206 0 Proved Undevel- oped Reserves 299,346 0 0 0 0 0 Total Reserves 887,553 281,871 1,275 0 4,206 0 6 No major discovery or other favorable or adverse event has occurred since December 31, 1999, which is believed to have caused a material change in the proved reserves of Capco. RESERVES REPORTED TO OTHER AGENCIES. There have been no reserve estimates filed with any other United States federal authority or agency. NET OIL AND GAS PRODUCTION. The following table sets forth the net quantities of oil (including condensate and natural gas liquids) and gas produced during the fiscal period ended December 31, 1999, May 31, 1999, and May 31, 1998. December 1999 May 31, 1999 May 31, 1998 ------------- ------------ ------------ Oil (Bbls) 16,375 1,241 1,357 Gas (MCF) 25,572 352 519 The following table sets forth the average sales price and production cost per unit of production for the fiscal periods ended December 31, 1999, May 31,1999, and May 31, 1998. December 31, 1999 May 31, 1999 May 31, 1998 ----------------- ------------ ------------ Average Sales Price: Per Equivalent Barrel of Oil $29.06 $11.59 $16.73 Average Production (Lifting) Costs: Per Equivalent Barrel of Oil $ 9.62 $ 9.78 $16.12 During the periods covered by the foregoing tables, Capco was not a party to any long-term supply or similar agreements with foreign governments or authorities in which Capco acted as a producer. PRODUCTIVE WELLS. The following table sets forth Capco's total gross and net productive oil and gas wells as of December 31, 1999: PRODUCTIVE WELLS(1). OIL GAS --------------------- ------------------------ State Gross(2) Net(3) Gross(2) Net(3) ----- -------- ------ -------- ------ Kansas 42 7.1 -- -- Alabama -- -- 2 .6 Louisiana 2 .5 -- -- Total 44 7.6 2 .6 (1) Productive wells are producing wells and wells capable of production including wells that are shut in. 7 (2) A gross well is a well in which a working interest is owned. The number of wells is the total number of wells in which a working interest is owned. (3) A net well is deemed to exist when the sum of fractional ownership working interests owned in gross wells equals one. The number of net wells is the sum of the fractional ownership working interests owned in gross wells expressed in whole numbers and fractions thereof. UNDEVELOPED PROPERTIES. Capco had no significant interest as of December 31, 1999 in undeveloped properties. Capco's oil and gas properties are in the form of mineral leases. As is customary in the oil and gas industry, a preliminary investigation of title is made at the time of acquisition of undeveloped properties. Title investigations are generally completed, however, before commencement of drilling operations. Capco believes that its methods of investigating are consistent with practices customary in the industry and that it has generally satisfactory title to the leases covering its proved reserves. DRILLING ACTIVITY. Capco drilled no productive or dry exploratory and development wells during the fiscal periods ended December 31, 1999, May 31, 1999 or 1998. DELIVERY COMMITMENTS. Capco is not obligated to provide a fixed and determinable quantity of oil and gas in the future pursuant to existing contracts or agreements. ITEM 3. LEGAL PROCEEDINGS. In August, 2000, CRL entered into a settlement agreement with Greka Energy Corporation to sell 800,000 shares of Greka common stock to Greka at a negotiated price of $6.50 per share. The negotiated price will be reduced by $500,000 as settlement of all its outstanding debts owed to Greka and dismissal of the related litigation. The closing of the sale of the shares occurred on October 30, 2000. Of the remaining 490,000 shares of GREKA common stock previously issued to Capco in connection with GREKA's acquisition of Saba Petroleum Company, GREKA will be given voting control over those shares owned by CRL through December 31, 2002. The settlement agreement further provides that CRL's continued ownership of 75,000 of these shares is contingent upon CRL's full payment of margin debt related to those shares. CRL agreed to pay this debt, using the proceeds from the sale of the Greka shares to Greka, and made that payment on October 30, 2000. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. During the fourth quarter of the fiscal year covered by this Annual Report, no matter was submitted to a vote of Capco's security holders through the solicitation of proxies or otherwise. 8 PART II ITEM 5. MARKET FOR CAPCO'S COMMON EQUITY AND RELATED SECURITY HOLDER MATTERS. PRICE RANGE OF COMMON STOCK The Common Stock of Capco has been traded on the Bulletin Board since June, 2000. The following table sets forth the high and low bid prices of the Common Stock in the over-the-counter market for the periods indicated. The bid prices represent prices between dealers, and do not include retail markups, markdowns or commissions, and may not represent actual transactions. Public trading in the Common Stock of Capco is minimal. Quarter Ended Bid High Bid Low ------------- -------- ------- March 31, 1998 No Bid No Bid June 30, 1998 No Bid No Bid September 30, 1998 No Bid No Bid December 31, 1998 No Bid No Bid March 31, 1999 No Bid No Bid June 30, 1999 No Bid No Bid September 30, 1999 No Bid No Bid December 31, 1999 No Bid No Bid March 31, 2000 No Bid No Bid June 30, 2000 No Bid No Bid September 30, 2000 $1.25 $ .56 The number of record holders of Common Stock of Capco as of September 30, 2000, was approximately 550. Additional holders of Capco's Common Stock hold such stock in street name with various brokerage firms. Holders of Common Stock are entitled to receive dividends as may be declared by the Board of Directors out of funds legally available. No common stock dividends have been declared to date by Capco, nor does Capco anticipate declaring and paying common stock cash dividends in the foreseeable future. ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION. This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 that include, among others, statements concerning: the benefits expected to result from Capco's acquisition of CRC, CRL and Zelcom. Including synergies in the form of increased revenues, decreased expenses and avoiding expenses and expenditures that are expected to be realized by Capco as a result of the acquisitions, and other statements of: expectations, anticipations, beliefs, estimations, projections, and other similar matters that are not historical facts, including such matters as: future capital, development and exploration expenditures (including the amount and nature thereof), drilling of wells, reserve estimates (including estimates of future net revenues associated with such reserves and the present value of such future net revenues), future production of oil and gas, repayment of debt, business strategies, and expansion and growth of business operations. 9 These statements are based on certain assumptions and analyses made by the management of Capco in light of: past experience and perception of: historical trends, current conditions, expected future developments, and other factors that the management of Capco believes are appropriate under the circumstances. Capco cautions the reader that these forward-looking statements are subject to risks and uncertainties, including those associated with: the financial environment, the regulatory environment, and trend projections, that could cause actual events or results to differ materially from those expressed or implied by the statements. Such risks and uncertainties include those risks and uncertainties identified below. Significant factors that could prevent Capco from achieving its stated goals include: the failure by Capco to integrate the respective operations of Capco and its acquisitions or to achieve the synergies expected from the acquisitions, declines in the market prices for oil and gas, increase in refined product prices, and adverse changes in the regulatory environment affecting Capco. The cautionary statements contained or referred to in this report should be considered in connection with any subsequent written or oral forward-looking statements that may be issued by Capco or persons acting on its or their behalf. Capco undertakes no obligation to release publicly any revisions to any forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. LIQUIDITY AND CAPITAL RESOURCES In December 31, 1999, the company had a negative working capital of ($1,833,222). This negative working capital is principally due to the acquisition for property with short-term debt. Cash flows used in operations for the period ended December 31,1999 were $518,768. Cash used during this period is principally due to the net operating loss and to increased activity of the company. Cash flows used in investing activities for the period ended December 31, 1999, were $1,513,798. This use is principally due to the acquisition of oil and gas properties. Cash flows provided by financing activities for the period ended December 31, 1999 were $2,097,249. This source is principally due to the sale of stock and borrowings. Capco sells most of its oil production to certain major oil companies. However, in the event these purchasers discontinued oil purchases, Capco has made contact with other purchasers who would purchase the oil. The Company is responsible for any contamination of land it owns or leases. The company plans to continue to sell its marketable securities and to use the proceeds to invest in oil and gas production. The company also plans to reduce its ownership in its other subsidiaries and use the proceeds to invest in oil and gas production. 10 RESULTS OF OPERATIONS YEAR ENDED DECEMBER 31, 1999 Capco's revenues from its oil and gas activities were $89,962 in 1999. This revenue is primarily due to production from properties acquired this fiscal year. Selling, general and administrative costs were $431,360 related to increased activities. Total other expense was $45,870 principally due to increased interest expense due to borrowings. Net operating revenues from Capco's oil and gas production are very sensitive to changes in the price of oil; thus it is difficult for management to predict whether or not the Company will be profitable in the future. EFFECT OF CHANGES IN PRICES Changes in prices during the past few years have been a significant factor in the oil and gas industry. The price received for the oil produced by Capco fluctuated significantly during the last year. Changes in the price that Capco receives for its oil and gas is set by market forces beyond Capco's control as well as governmental intervention. The volatility and uncertainty in oil and gas prices have made it more difficult for a company like Capco to increase its oil and gas asset base and become a significant participant in the oil and gas industry. Continued volatility or downward price pressure could cause the Company to cease operations. ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. Included at Pages F-1 through F-24 hereof. ITEM 8. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. No response required 11 PART III ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Below are the names of all Directors and Executive Officers of the Company, all positions and offices with the Company held by each such person, the period during which he has served as such, and the principal occupations and employment of such persons during at least the last three years: NAME: POSITIONS: Period Served: - ---- --------- ------------- Ilyas Chaudhary Director, President, CEO November 18,1999 to Present Dennis R. Staal Director, CFO February 24,1999 to Present Irwin Kaufman Director November 18,1999 to Present William J. Hickey Director November 18,1999 to Present Paul L. Hayes Director July 19, 2000 to Present Gene E. Hays Secretary June 5, 2000 to Present ILYAS CHAUDHARY - Mr. Chaudhary, 52, has been CEO, President and Director of the Company since November 1999. He was an officer and a director of Saba Petroleum Company, (now Greka Energy Corporation) a publicly held oil and gas company from 1985 until 1998. Mr. Chaudhary is a director of Meteor Industries, Inc. an S.E.C. reporting company, and Capco Resources Ltd., a Canadian publicly held company. Mr. Chaudhary has 25 years of experience in various capacities in the oil and gas industry, including eight years of employment with Schlumberger Well Services from 1972 to 1979. Mr. Chaudhary received a Bachelor of Science degree in Electrical Engineering from the University of Alberta, Canada. DENNIS R. STAAL - Mr. Staal, 51, has over 25 years of experience in various capacities in the finance industry. He has been CFO and Director since March 2000. From 1970 through 1973, he was a CPA with Arthur Andersen & Co. From 1973 through 1976, he was Controller for the Health Planning Council of Omaha. From 1977 through 1981, he served as a Director of Wulf Oil Corporation and as President of such company from 1979 to 1981. From 1979 through 1982, he served as a Director of Chadron Energy Corporation, and as Director of the First National Bank of Chadron. From 1982 through 1984, he was Chief Financial Officer of High Plains Genetics, Inc. From 1986 to 1991, Mr. Staal was Director and President of Saba Petroleum Company. From 1993 to 1999 Mr. Staal was Chief Financial Officer of Meteor Industries, Inc. Mr. Staal received his Bachelor's degree in Business Administration from the University of Nebraska. Mr. Staal is a director of Meteor Industries, Inc. and Stansbury Holdings Corporation both public reporting companies. 12 IRWIN KAUFMAN - Mr. Kaufman, 63, has been a director of the Company since November 1999. Mr. Kaufman is a financial consultant facilitating contacts with the investment community. Mr. Kaufman helps arrange financing for small and mid-sized companies and consults with management to enhance shareholder value. Mr. Kaufman has also been a principal consultant for Computer and Mathematics Education for the Sherman Fairchild Foundation. Mr. Kaufman provides consulting services to the Company on an as needed basis. Mr. Kaufman also serves as a director for Meteor Industries, Inc. WILLIAM J. HICKEY - Mr. Hickey, 63, has been a director since November 1999. Prior to joining the Company, he was a director, secretary, and legal advisor to Saba Petroleum. Earlier, he was a Vice President, and General Counsel to Litton Industries Inc. and Consolidated Freightways Inc. In addition, he has been a Division Legal Counsel to the General Electric Company. Mr. Hickey received his Doctorate in Law from Cornell University and attended the Harvard Business School's Executive Management Program. PAUL L. HAYES - Mr. Hayes, 64, has over twenty years experience in the securities industry. He has been an investment banker, analyst and research director. His undergraduate degree is a B.S. in Petroleum Engineering from Oklahoma University and his graduate degree is an M.B.A from Harvard University. GENE E. HAYS, JD - Mr. Hays, 29, has served as the Secretary of the Company since June, 2000 and works in the Legal Department where he maintains the company's corporate records, SEC filings, contracts and relations with the company's shareholders. Prior to joining Capco, Mr. Hays worked in civil law, both in the public interest and private sectors. From 1996 to 1998, Mr. Hays worked for the Fair Housing Council of Orange County as a Certified Mediator, and on real property issues. During the years 1998 and 1999, Mr. Hays worked for Hall, Rice & Associates, APC, on contract matters, and at the Law Offices of Steven Weinberger on both contract and tort matters. Mr. Hays obtained his Bachelor of Arts Degree in Government from the University of Redlands, his Juris Doctor Degree from Western State University College of Law, and is certified by the State of California as a mediator. There is no family relationship between any Director or Executive Officer of the Company. ITEM 10. EXECUTIVE COMPENSATION The Company's compensation program for executive officers is based on the following principles: Compensation should be reflective of overall Company financial performance and an individual's contribution to the Company's success. Compensation packages should be based on competitive practices designed to attract and retain highly qualified executive officers. Long-term incentive compensation should be construed to closely follow increases in stockholder return. 13 Cash bonuses and stock options are provided on a discretionary basis but the amount of options issued are generally tied to the performance and prospects of the Company. Individual executive officers and managers can earn a portion of their cash and option bonuses based on financial performance of the Company compared to budget and additional bonuses are paid at the discretion of the compensation committee and approved by the Board of Directors. The following table sets forth each executive officer of the Company, with his/her respective compensation arrangement. EXECUTIVE OTHER EXECUTIVE SALARY BONUS EQUITIES BENEFITS - --------- ------ ----- --------- --------- Ilyas Chaudhary $200,000 None 200,000 Medical/Vehicle Dennis Staal $150,000 None 200,000 Medical Gene E. Hays $45,000 None 50,000 Medical ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth the number and percentage of shares of the Company's $.001 par value common stock owned beneficially, as of September 30, 2000, by any person, who is known to the Company to be the beneficial owner of 5% or more of such common stock, and, in addition, by each Director of the Company, Nominee for Director, and by all Directors, Nominees for Director and Executive Officers of the Company as a group. Information as to beneficial ownership is based upon statements furnished to the Company by such persons. *Note: Please see below explanations of subscripts beside each beneficial owner (1-5). NAME AND ADDRESS OF AMOUNT OF BENEFICIAL PERCENTAGE OF BENEFICIAL OWNER OWNERSHIP CLASS - ------------------ -------------------- ------------- Bushra Chaudhary (1) 10441 Villa del Cerro Santa Ana, CA 92805 3,171,079 14.2% Ilyas Chaudhary (2) 10441 Villa del Cerro Santa Ana, CA 92805 4,026,580 18.1% Danyal Chaudhary Foundation (3) 2922 E. Chapman Ave., Suite #202 Orange, CA 92869 5,375,500 24.1% 14 NAME AND ADDRESS OF AMOUNT OF BENEFICIAL PERCENTAGE OF BENEFICIAL OWNER OWNERSHIP CLASS - ------------------ -------------------- ------------- Nova International Corporation 3834 Mira Loma Drive Santa Maria, CA 93455 1,534,308 6.9% Faisal Chaudhary (4) 10441 Villa del Cerro Santa Ana, CA 92805 3,313,079 14.9% Dennis Staal 1975 Otero Lane Littleton, CO 80122 131,348 .6% William J. Hickey (5) 505 Saturmino Drive Palm Springs, CA 92262 17,958 .1% Paul L. Hayes Jr. 209 Middle Ridge Road Stratton Mountain, VT 05155 0 0% Irwin Kaufman 8224 Paseo Vista Drive Las Vegas, NV 89128 17,500 .1% Gene E. Hays 3603 W. 11th Street Inglewood, CA 90303 0 0% All Executive Officers And Directors as a Group 4,193,386 18.8% (6 persons) (1)Includes 3,171,079 restricted common shares held by Bushra Chaudhary, the wife of the CEO and Chairman of the company, who claims no beneficial ownership of those shares. Consists of 16,100 controlled common shares held directly by Mr. Chaudhary and 4,010,480 shares of the Company held by Sedco, Inc., a private holding company of which Mr. Chaudhary is Chairman of the Board, Chief Executive Officer and beneficially owns 100% of Sedco, Inc. outstanding stock. (2) Includes 5,375,500 common shares held by the Danyal Chaudhary Foundation, a California non-profit organization in which the trustees are Bushra Chaudhary, Faisal Chaudhary, and Ilyas Chaudhary, who claims no beneficial ownership of these shares. (4) Represents 3,313,079 restricted common shares held by Faisal Chaudhary, the adult son of the CEO of the Company, who claims no beneficial ownership of those shares. (5) Includes 17,958 restricted common shares held directly by Shirley C. Spear, the wife of Mr. William J. Hickey. 15 ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS No Director or officer of Capco Energy, Inc., nominee for election as a Director, security holder who is known to the Company to own of record or beneficially more than 5% of any class of the Company's voting securities, or any relative or spouse of any of the foregoing persons, or any relative of such spouse, who has the same home as such person or who is a Director or officer of any parent or subsidiary of Capco Energy, Inc., has had any transaction or series of transactions exceeding $60,000 during the Company's past two fiscal years, or has any presently proposed transactions to which Capco was or is a party, in which any of such persons had or is to have direct or indirect material interest. TRANSACTIONS INVOLVING THE COMPANY'S OFFICERS AND DIRECTORS Effective January 2000, the Company completed the purchase of 35% Meteor Stores, Inc. (MSI). MSI leases and operates seventeen convenience stores in Colorado and New Mexico. The total purchase price for MSI was approximately $1,500,000. $250,000 was paid in cash at closing. The company executed a promissory note for the balance payable in monthly installments of interest only during calendar year 2000 and the balance amortized over a 10-year period with a balloon payment of the remaining principal balance on December 31, 2001. Payments may be made either in cash or shares of Meteors Common stock at a value of $3.00 per share. The promissory note bears interest at 9.25% per annum and is secured by all of the outstanding shares of MSI and by 210,000 shares of Meteor Industries, Inc. (METR) common stock. Capco, through one of its investments, currently controls approximately 33% of the Common Stock of METR. Ilyas Chaudhary, a CEO and Director of the Company, is a director of METR, Dennis Staal, CFO and a Director of the Company, is also a director of METR. Irwin Kaufman, a Director of the Company, is also a director of METR. During the year ended December 31, 1999, the company had several transactions with various companies controlled by its CEO and major shareholder. Those transactions related to payables included the purchase of land, receivables, stock in subsidiaries and other miscellaneous items. Those transactions related to receivables include advances of cash and payments on behalf of those companies. At December 31, 1999, those companies owed Capco $16,691. 16 PART IV ITEM 13. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K. Documents filed as part of this Report: (1) The following Financial Statements are filed as part of this Report: Page Independent Auditor's Report, October 30, 2000 F-1 Consolidated Balance Sheet, December 31, 1999 F-2 Consolidated Statement of Operations for the period ended December 31, 1999 F-4 Consolidated Statement of Changes in Stockholders' Equity for the period ended December 31, 1999 F-5 Consolidated Statement of Cash Flows for the period ended December 31, 1999 F-6 Notes to Consolidated Financial Statements F-8 EXHIBITS Exhibit Number Description Location - ------- -------------------------- ------------------------------------ 2 Not applicable 3.1 Articles of Incorporation (incorporated by reference to and bylaws Exhibits 4 and 5, respectively, to Registration Statement No. 2-73529). 3.2 Articles of Amendment (incorporated by reference to the company's Form 10-K filed May 31, 1984) 3.3 Articles of Amendment (incorporated by reference to the company's Form 10-K filed May 31, 1985) 3.4 Articles of Amendment (incorporated by reference to the Company's Form 10-QSB filed January 19, 2000) 17 Exhibit Number Description Location - ------- -------------------------- ------------------------------------ 4. Instruments Defining the (incorporated by reference to Rights of Security Holders, Exhibits 4 and 5, respectively, Including Indentures to Registration Statement No. 2-73529). 9. Not applicable 10.1 1999 Incentive Equity Plan (incorporated by reference to the Company's definite proxy statement filed December 2, 1999) 10.2 Stock Exchange Agreement between the Company and Sedco related to Capco Resource Corporation Filed herewith electronically 10.3 Purchase Agreement related to Meteor Stores, Inc. Filed herewith electronically 10.4 Sale Agreement related to Meteor Stores, Inc. Filed herewith electronically 13. Not applicable 16.1 Letter on Change of (incorporated by reference to Accountants the company's Form 8-K filed July 28, 2000) 16.2 Letter on Change of (incorporated by reference to the Accountants company's form 8-K filed October 20, 2000) 18. Not applicable 21. List of Subsidiaries Filed herewith electronically 23. Not applicable 24. Not applicable 25. Not applicable 27. Financial Data Schedule Filed herewith electronically 18 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized. CAPCO ENERGY, INC. /s/ Ilyas Chaudhary Dated: November 2, 2000 By ---------------------- Ilyas Chaudhary, President Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated. /s/ Ilyas Chaudhary Dated: November 2, 2000 By ----------------------- Ilyas Chaudhary, President and Director /s/ Dennis R. Staal Dated: November 2, 2000 By ------------------------ Dennis R. Staal, Chief Financial Officer and Director /s/ Irwin Kaufman Dated: November 2, 2000 By ---------------------------- Irwin Kaufman, Director 19 INDEPENDENT AUDITORS' REPORT The Board of Directors Capco Energy, Inc. Orange, California We have audited the consolidated balance sheet of Capco Energy, Inc. (formerly Alfa Resources, Inc.) and subsidiary (a Colorado corporation), as of December 31, 1999 and the related consolidated statements of operations, stockholders' equity and cash flows for the period from January 19, 1999 (inception) to December 31, 1999. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Capco Energy, Inc. and subsidiary, as of December 31, 1999, and the consolidated results of operations and consolidated cash flows for the period from January 19, 1999 (inception) to December 31, 1999 in conformity with generally accepted accounting principles. /s/ Stonefield Josephson, Inc. Stonefield Josephson, Inc. October 30, 2000 F-1 CAPCO ENERGY, INC. AND SUBSIDIARY CONSOLIDATED BALANCE SHEET DECEMBER 31, 1999 ASSETS Current Assets: Cash $ 64,683 Accounts Receivables, net 73,624 Accounts Receivables, related parties 16,691 ----------- Total Current Assets 154,998 ----------- Property and Equipment, net 3,095,586 ----------- Other Assets: Investments 142,653 Other Assets 21,228 ----------- Total Assets $ 3,414,465 =========== See accompanying independent auditors' report and notes to the consolidated financial statements. F-2 CAPCO ENERGY, INC. AND SUBSIDIARY CONSOLIDATED BALANCE SHEET DECEMBER 31, 1999 LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Accounts Payable and accrued expenses $ 209,024 Current Maturities, Long Term Debt 1,795,005 ----------- Total Current Liabilities 2,004,029 ----------- Long Term Debt, Less Current Maturities 184,198 Commitments and Contingencies (Note 6) Total Liabilities 2,188,227 ----------- Stockholders' equity Preferred Stock, $1.00 par value; Authorized 10,000,000 shares; 292,947 Shares issued and outstanding 292,947 Common Stock, $.001 par value; Authorized 150,000,000 shares; 8,322,030 Shares issued and outstanding 8,322 Additional Paid-In Capital 1,332,392 Accumulated Deficit (407,423) ----------- Total Stockholders' Equity 1,226,238 ----------- Total Liabilities and Stockholders' Equity $ 3,414,465 =========== See accompanying independent auditors' report and notes to the consolidated financial statements. F-3 CAPCO ENERGY, INC. AND SUBSIDIARY CONSOLIDATED STATEMENT OF OPERATIONS For the Period from January 19, 1999 (Inception) to December 31, 1999 Sales $ 89,962 Cost of Sales 20,155 ----------- Gross Profit 69,807 Selling, General and Administrative Expenses 431,360 ----------- Loss from Operations (361,553) Interest Expense, net (45,870) ----------- Net Loss $ (407,423) =========== (Loss) per Share Basic and Diluted $ (0.07) =========== Weighted Average Shares Outstanding Basic and Diluted 5,745,732 See accompanying independent auditors' report and notes to the consolidated financial statements. F-4
CAPCO ENERGY, INC. AND SUBSIDIARY Consolidated Statement of Stockholders' Equity For the Period from January 19, 1999 (inception) to December 31, 1999 Preferred Stock Common Stock Additional ----------------- ------------------ Paid In Accumulated Shares Amount Shares Amount Capital Deficit Total -------- -------- --------- ------- ---------- ---------- --------- Balance, January 19, 1999 - $ - - $ - $ - $ - $ - Shares Issued in exchange for property and investment 5,250,000 5,250 363,468 368,718 Shares issued in exchange for relief of liability 717,500 717 409,283 410,000 Net proceeds from issuance of common stock 997,500 998 561,608 562,606 Shares issued in exchange for reverse acquisition 292,947 292,947 1,357,030 1,357 687,226 981,530 Related parties Accounts Receivable (689,193) (689,193) Net loss (407,423) (407,423) -------- -------- --------- ------ ---------- ---------- --------- Balance, December 31, 1999 292,947 $292,947 8,322,030 $8,322 $1,332,392 $(407,423) $1,226,238 ======== ======== ========= ====== ========== ========== ==========
See accompanying independent auditors' report and notes to the consolidated financial statements. F-5 CAPCO ENERGY, INC AND SUBSIDIARY CONSOLIDATED STATEMENT OF CASH FLOWS For the Period from Inception January 19, 1999 to December 31, 1999 Cash Flows Used In Operating Activities: Net Loss $ (407,423) Adjustments to reconcile net loss to net cash used in operating activities Depreciation, depletion and amortization 25,475 Changes in Assets and Liabilities: (Increase) decrease in assets: Accounts Receivable (73,624) Other Assets (21,228) Increase (decrease) in liabilities: Accounts payable and accrued expenses 129,322 ------------- Net cash used in operating activities (347,478) ------------- Cash Flows from Investing Activities: Acquisition 72,210 Net advances Accounts Receivables, related parties 262,741 Purchase of Property and Equipment (1,582,046) Investments ( 4,112) ------------- Net cash used in investing activities (1,251,207) ------------- Cash Flows from Financing Activities: Proceeds from Long-Term Debt 1,554,129 Payment on long term debt (453,367) Proceeds from sale of common stock 562,606 ------------- Net cash provided by financing activities 1,663,368 ------------- Net Increase in Cash 64,683 Cash, Beginning of Period - ------------ Cash, End of Period $ 64,683 ============= Continued on Next Page F-6 CAPCO ENERGY, INC AND SUBSIDIARY CONSOLIDATED STATEMENT OF CASH FLOWS For the Period from January 19, 1999 (inception) to December 31, 1999 Supplemental disclosure of cash flow information: Interest Paid $ 45,582 ======== Supplemental Disclosure of non-cash financing and investing activities: Common stock issued in exchange for subsidiary (see Note 2) $981,530 ======== Commons stock issued for relief of liability $410,000 ======== Note payable issued in exchange for automobile $ 18,079 ======== Common stock issued in exchange for following (see Note 2): Interest in oil and gas properties $377,928 Undeveloped land 512,610 Investment 138,542 Debt assumed (660,362) -------- Net assets acquired $368,718 ======== See accompanying independent auditors' report and notes to the consolidated financial statements. F-7 CAPCO ENERGY, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1999 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES NATURE OF OPERATIONS Capco Energy, Inc. ("Capco" or the "Company") is an independent energy company engaged primarily in the acquisition, development, production for and the sale of oil, gas and natural gas liquids. The Company's production activities are located in the United States. Capco treats all operations as one segment of business. The principal executive offices of the Company are located at 2922 East Chapman, suite 202, Orange, California. The Company was incorporated as Alfa Resources, Inc. a Colorado corporation on January 6, 1981. In November 1999, the Company amended it articles of incorporation to change its name from Alfa Resources, Inc. to Capco Energy, Inc. The Company's future financial condition and results of operations will depend upon prices received for its oil and natural gas and the costs of finding, acquiring, developing and producing reserves. Prices for oil and natural gas are subject to fluctuations in response to changes in supply, market uncertainty and a variety of other factors beyond the Company's control. These factors include worldwide political instability (especially in the Middle East), the foreign supply of oil and natural gas, the price of foreign imports, the level of consumer product demand and the price and availability of alternative fuels. BASIS OF PRESENTATION Effective December 31, 1999, Capco acquired 100% of the outstanding capital stock of Capco Resource Corporation ("CRC") (See Note 2) a corporation involved in oil and gas production. As a result, CRC's former stockholders obtained control of Capco. For accounting purposes, this acquisition has been treated as a reverse acquisition with CRC as the accounting acquirer. The financial statements presented include CRC at cost since January 19, 1999, CRC's inception, and Capco at fair market value as of December 31, 1999. BASIS OF CONSOLIDATION The consolidated financial statements include the accounts of Capco and its wholly owned subsidiary CRC. Accordingly, all references herein to Capco or the Company include the consolidated results. All significant intercompany accounts and transactions have been eliminated in consolidation. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates with regard to these financial statements include the estimate of proved oil and gas reserve volumes and the related present value of estimated future net revenues therefrom (Supplemental Oil and Gas Disclosures). F-8 FAIR VALUE OF FINANCIAL INSTRUMENTS The Company measures its financial assets and liabilities in accordance with generally accepted accounting principles. For certain of the Company's financial instruments, including accounts receivable and accounts payable and accrued expenses, the carrying amounts approximate fair value due to their short maturities. The amounts owed for long-term debt also approximate fair value because interest rates and terms offered to the Company are at current market rates. CONCENTRATION OF CREDIT RISK The Company places its cash in what it believes to be credit-worthy financial institutions. However, cash balances may exceed FDIC insured levels at various times during the year. PROPERTY AND EQUIPMENT The Company follows the "full-cost" method of accounting for oil and gas property and equipment costs. Under this method, all productive and nonproductive costs incurred in the acquisition, exploration, and development of oil and gas reserves are capitalized. Such costs include lease acquisitions, geological and geophysical services, drilling, completion, equipment, and certain general and administrative costs directly associated with acquisition, exploration, and development activities. General and administrative costs related to production and general overhead are expensed as incurred. No gains or losses are recognized upon the sale or disposition of oil and gas properties, except in transactions that involve a significant amount of reserves. The proceeds from the sale of oil and gas properties are generally treated as a reduction of oil and gas property costs. Fees from associated oil and gas exploration and development partnerships, if any, will be credited to oil and gas property costs to the extent they do not represent reimbursement of general and administrative expenses currently charged to expense. Such costs can be directly identified with acquisition, exploration and development activities and do not include any costs related to production, general corporate overhead or similar activities. Future development, site restoration and dismantlement and abandonment costs, net of salvage values, are estimated on a property-by-property basis based on current economic conditions and are amortized to expense as the Company's capitalized oil and gas property costs are amortized. The Company's properties are all onshore, and the Company expects that the salvage value of the tangible equipment will offset any site restoration and dismantlement and abandonment costs. Non-oil and gas producing properties and equipment are stated at cost; major renewals and improvements are charged to the property and equipment accounts; while replacements, maintenance and repairs, which do not improve or extend the lives of the respective assets, are expensed currently. At the time property and equipment are retired or otherwise disposed of, the asset and related accumulated depreciation accounts are relieved of the applicable amounts. Gains or losses from retirements or sales are credited or charged to operations. F-9 DEPRECIATION AND DEPLETION The provision for depreciation, depletion, and amortization of oil and gas properties is computed on the unit-of-production method. Under this method, the Company computes the provision by multiplying the total unamortized costs of oil and gas properties including future development, site restoration, and dismantlement and abandonment costs, but excluding costs of unproved properties by an overall rate determined by dividing the physical units of oil and gas produced during the period by the total estimated units of proved oil and gas reserves. If the Company produces oil in other countries, this calculation is done on a country-by-country basis for those countries with oil and gas production. As of December 31, 1999, the Company only operates in the United States. The cost of unevaluated properties not being amortized, to the extent there is such a cost, is assessed quarterly to determine whether the value has been impaired below the capitalized cost. Any impairment assessed is added to the cost of proved properties being amortized. The costs associated with unevaluated properties relate to projects which were undergoing exploration or development activities or in which the Company intends to commence such activities in the future. The Company will begin to amortize these costs when proved reserves are established or impairment is determined. Management believes no such impairment exists at December 31, 1999. At the end of each quarterly reporting period, the unamortized cost of oil and gas properties, net of related deferred income taxes, is limited to the sum of the estimated future net revenues from proved properties using current prices, discounted at 10%, and the lower of cost or fair value of unproved properties, adjusted for related income tax effects ("Ceiling Limitation"). The calculation of the ceiling limitation and provision for depreciation, depletion, and amortization is based on estimates of proved reserves. There are numerous uncertainties inherent in estimating quantities of proven reserves and in projecting the future rates of production, timing, and plan of development. The accuracy of any reserves estimate is a function of the quality of available data and of engineering and geological interpretation and judgment. Results of drilling, testing, and production subsequent to the date of the estimate may justify revision of such estimate. Accordingly, reserve estimates are often different from the quantities of oil and gas that are ultimately recovered. Depreciation for non-oil and gas properties is recorded on the straight-line method at rates based on the estimated useful lives of the assets. The estimated useful lives are as follows: DESCRIPTION LIVES ----------- ----- Equipment 3 to 20 years F-10 INVESTMENT IN EQUITY SECURITIES For equity securities that the Company i) does not exercise control in the investee and ii) expects to divest within a short period of time, the Company accounts for the investment under the provisions of Financial Accounting Standards Board ("FASB") Statement of Financial Accounting Standards ("SFAS") No. 115, "Accounting for Certain Investments in Debt and Equity Securities". For equity investments that the Company i) exercises control in the investee and ii) expects to hold for long term investment, the Company accounts for the investment under the provisions of Accounting Principles Board Opinion ("APB") No. 18 "The Equity Method of Accounting for Investments in Common Stock". In accordance with FASB No. 115, equity securities that have readily determinable fair values are classified as either trading or available-for-sale securities. Securities that are bought and held principally for the purpose of selling them in the near term (thus held for only a short period of time) the Company classifies as trading securities and all other securities are classified as available-for-sale. Trading and available-for-sale securities are measured at fair value in the balance sheet. For trading securities any realized holding gains and losses are reported in the statement of operations. For available-for-sale securities any unrealized holding gains and losses are reported as a separate component of stockholders' equity until realized. In accordance with APB No. 18, under the equity method the Company records the initial investment at cost, then reduces it by dividends and increases or decreases it by the Company's proportionate share of the investee's net earnings or loss. IMPAIRMENT OF LONG-LIVED ASSETS In accordance with SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of", long-lived assets to be held and used are analyzed for impairment whenever events or changes in circumstances indicate that the related carrying amounts may not be recoverable. The Company evaluates at each balance sheet date whether events and circumstances have occurred that indicate possible impairment. If there are indications of impairment, the Company uses future undiscounted cash flows of the related asset or asset grouping over the remaining life in measuring whether the assets are recoverable. In the event such cash flows are not expected to be sufficient to recover the recorded asset values, the assets are written down to their estimated fair value. Long-lived assets to be disposed of are reported at the lower of carrying amount or fair value of asset less cost to sell. REVENUE RECOGNITION Revenue from product sales is recognized when the product is delivered. F-11 STOCK BASED COMPENSATION The Company accounts for employee stock options in accordance with APB No. 25 "Accounting for Stock Issued to Employees". Under APB 25, the Company recognizes no compensation expense related to employee stock options, as no options are granted at a price below market price on the date of grant. In 1996, SFAS No. 123 "Accounting for Stock-Based Compensation", became effective for the Company. SFAS No. 123, which prescribes the recognition of compensation expense based on the fair value of options on the grant date, allows companies to continue applying APB 25 if certain pro forma disclosures are made assuming hypothetical fair value method, for which the Company uses the Black-Scholes option-pricing model. For non-employee stock based compensation the Company recognizes an expense in accordance with SFAS No. 123 and values the equity securities based on the fair value of the security on the date of grant. For stock-based awards the value is based on the market value for the stock on the date of grant and if the stock has restrictions as to transferability a discount is provided for lack of tradability. Stock option awards are valued using the Black-Scholes option-pricing model. ENVIRONMENTAL EXPENDITURES The Company expenses environmental expenditures related to existing conditions resulting from past or current operations and from which no future benefit is discernible. Expenditures, which extend the life of the related property or mitigate or prevent future environmental contamination, are capitalized. The Company determines and records its liability on a site-by-site basis at the time when it is probable and can be reasonably estimated. The Company's estimated liability is recorded net of the anticipated participation of other potentially responsible parties in those instances where it is probable that such parties are legally responsible and financially capable of paying their respective shares of the relevant costs. INCOME TAXES Provisions for income taxes are based on taxes payable or refundable for the current year and deferred taxes on temporary differences between the amount of taxable income and pretax financial income and between the tax bases of assets and liabilities and their reported amounts in the financial statements. Deferred tax assets and liabilities are included in the financial statements at currently enacted income tax rates applicable to the period in which the deferred tax assets and liabilities are expected to be realized or settled as prescribed SFAS No. 109, "Accounting for Income Taxes". As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes. F-12 COMPREHENSIVE INCOME SFAS No. 130, "Reporting Comprehensive Income" establishes standards for the reporting and display of comprehensive income and its components in the financial statements. As of December 31, 1999, the Company has no items that represent comprehensive income and, therefore, has not included a schedule of comprehensive income in the accompanying consolidated financial statements. NET LOSS PER SHARE The Company uses SFAS No. 128, "Earnings Per Share" for calculating the basic and diluted loss per share. Basic loss per share is computed by dividing net loss attributable to common stockholders by the weighted average number of common shares outstanding. Diluted loss per share is computed similar to basic loss per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. At December 31, 1999, the Company had no potentially dilutive shares. NEW ACCOUNTING PRONOUNCEMENTS: In December 1999, the Securities and Exchange Commission (the Commission) issued Staff Accounting Bulletin No. 101, Revenue Recognition in Financial Statements, which is to be applied beginning with the fourth fiscal quarter of fiscal years beginning after December 15, 1999, to provide guidance related to recognizing revenue in circumstances in which no specific authoritative literature exists. The Company is reviewing the application of the Staff Accounting Bulletin to the Company's financial statements, however, any potential accounting changes are not expected to result in a material change in the amount of revenues we ultimately expect to realize. In March 2000, the Financial Accounting Standards Board (FASB) issued FASB Interpretation No. 44 (Interpretation 44), "Accounting for Certain Transactions Involving Stock Compensation". Interpretation 44 provides criteria for the recognition of compensation expense in certain stock-based compensation arrangements that are accounted for under APB Opinion No. 25, Accounting for Stock-Based Compensation. Interpretation 44 is effective July 1, 2000, with certain provisions that are effective retroactively to December 15, 1998 and January 12, 2000. Interpretation 44 is not expected to have an impact on the Company's financial statements. In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133, as amended by SFAS No. 137, is effective for fiscal years beginning after June 15, 2000. SFAS No. 133 requires the Company to recognize all derivatives as either assets or liabilities and measure those instruments at fair value. It further provides criteria for derivative instruments to be designated as fair value, cash flow and foreign currency hedges and establishes respective accounting standards for reporting changes in the fair value of the derivative instruments. Upon adoption, the Company will be required to adjust hedging instruments to fair value in the balance sheet and recognize the offsetting gains or losses as adjustments to be reported in net income or other comprehensive income, as appropriate. The Company is evaluating its expected adoption date and currently expects to comply with the requirements of SFAS 133 in fiscal year 2001. The Company does not expect the adoption will be material to the Company's financial position or results of operations since the Company does not believe it participates in such activities. F-13 2. BUSINESS COMBINATION, ACQUISITION AND DIVESTITURES: In December 1999, Capco issued or committed to issue 6,965,000 shares of common stock to acquire all of the issued and outstanding shares of CRC. A. As a result of this transaction, the former stockholders of CRC acquired or exercised control over a majority of Capco's common stock. Accordingly, the transaction has been treated for accounting purposes as a reverse acquisition with CRC as the accounting acquiror, and, therefore, these financial statements represent a continuation of the legal subsidiary, CRC, not Capco, the legal parent. In accounting for this transaction: (i) CRC is deemed to be the purchaser and parent company for accounting purposes. Accordingly, its assets and liabilities are included in the consolidated balance sheet at their historical book values; (ii) Control of the net assets and business of Capco was acquired effective December 31, 1999 (the "Effective Date"). This transaction has been accounted for as a purchase of the assets and liabilities of Capco by CRC at the fair value of $981,530. The historical cost of the net assets acquired was $981,530. A summary of the assigned values of the net assets acquired is as follows: Net Working capital $ 551,134 Petroleum interests, net 630,396 Less long term debt (200,000) ----------- Net assets acquired $ 981,530 =========== (iii) The consolidated statements of operations and cash flows include CRC's results of operations and cash flows from January 19, 1999 (inception) and Capco's results of operations from the Effective Date. B. Prior to Capco acquiring CRC, CRC acquired for the issuance of 5,250,000 shares of its common stock certain assets and assumed certain liabilities from Capco Acquisub, Inc. ("Capcoacq"), a privately held company, which became the majority stockholder of CRC as a result of the issuance of these shares. Due to the fact that the assets and liabilities have been acquired from a related party, the assets and liabilities have been recorded at their historical costs of $1,029,080 less assumed liabilities of $660,362 for net assets of $368,718, as follows: (i) working interests in oil and gas property located in Lamar County Alabama, at a historical cost of $377,928; (ii) title to 25 acres of undeveloped land, held for speculative purposes, located in Santa Maria County, California, at a historical cost of $301,610 and assumed a promissory note collateralized by land in the amount of $226,481; (iii) title to 160 acres of undeveloped land, held for speculative purposes, located in Calgary, Canada, at a historical cost of $211,000 and assumed a liability collateralized by land in the amount of $433,881; (iv) a 9.9% interest, or 927,821 shares of common stock, in Capco Resources Ltd. ("CRL") a Canadian publicly held company, at a historical cost of $138,542; F-14 C. The Company had the following gas and oil land acquisitions as of December 31, 1999: In July 1999, the Company entered into an asset purchase agreement with Medallion Exploration Company to purchase a proven oil and gas property in Kansas for $1,506,140, consisting of a note payable for $1,350,000 and $156,140 cash (Note 10). In July 1999, the Company purchased 25% of the working interest in oil, gas and mineral leases on property located in the Parish of LaSalle, Louisiana for relief of a liability due a related party for approximately $434,650, net of an assumption of liabilities totaling $200,000. 3. PROPERTY AND EQUIPMENT: Property and equipment consisted of the following as of December 31, 1999: Oil and gas property $ 2,513,449 Land 521,248 Acquisitions in progress 50,363 Automobiles 18,079 Furniture and fixtures 17,769 ----------- Total $ 3,120,908 Less accumulated depreciation and depletion 25,322 ----------- Total $ 3,095,586 =========== Depreciation and depletion expense totaled $25,322 for the period from January 19, 1999 (inception) through December 31, 1999. 4. INVESTMENT In January 1999, the Company acquired a 9.9% interest in CRL, a Canadian publicly held company. The Company acquired the investment from the majority stockholder of both CRL and the Company for the issuance of 3,500,000 shares of the Company's common stock, which were valued at $138,542, the historical cost paid by the stockholder (see Notes 2B, 7 and 10). Also, the Company had $4,112 of out of pocket expense for legal costs relating to the investment. F-15 5. NOTES PAYABLE Notes payable consisted of the following as of December 31, 1999: Note payable, secured by purchased property, interest at 10% per annum, due in monthly installments of interest only of $11,250 through November 2000 on which date all principal and unpaid interest is due. Effective January 1, 2000, the Company shall pay 7.5% of net receipts, as defined, to the noteholder. The Company shall issue 250,000 warrants at an exercise price of $1.00. The majority stockholder of the Company has provided further collateral of common stock of a publicly held company (Note 10). $ 1,350,000 Note payable to a bank, secured by land in Santa Barbara County, CA, interest at 8% per annum, due in monthly installments of principal and interest of $2,912 through May 2008. In March 2000 the note was paid. 213,521 Note payable secured by purchased property, interest at 12%, due in monthly installments from production revenue of the related property until paid. 200,000 Note payable to an individual, unsecured, interest at 27% per annum, due in monthly installments of interest only of $4,000. The note matured in September 2000 and was not repaid. 148,580 Note payable to an individual, secured by securities owned by the Company, variable interest at 15% per annum, plus an incremental interest rate of 1% for every $1 that West Texas Intermediate Crude ("WTIC") exceeds $16 per barrel. The note matured in August 2000 and was not repaid. 50,000 Note payable secured by the purchased automobile, interest at 0.9% per annum, due in monthly installments of principal and interest of $502 through November 2002. 17,102 ----------- Total Debt 1,979,203 Less current maturities 1,795,005 ----------- Long term debt $ 184,198 ========== F-16 5. NOTES PAYABLE (continued) The following is a summary of the principal amounts payable over the next five years and thereafter. 2000 $ 1,795,005 2001 33,445 2002 33,253 2003 30,500 2004 37,500 2005 49,500 ----------- Total $ 1,979,203 =========== Interest expense for all corporate borrowings totaled $46,444 for the period from January 19, 1999 (inception) through December 31, 1999. 6. COMMITMENTS AND CONTINGENCIES ENVIRONMENTAL Capco, as owner and operator of oil and gas properties, is subject to various federal, state, and local laws and regulations relating to discharge of materials into, and protection of, the environment. These laws and regulations may, among other things, impose liability on the lessee under and oil and gas lease for the cost of pollution clean-up resulting from operations, subject the lessee to liability for pollution damages and impose restrictions on the injection of liquids into subsurface strata. Capco maintains insurance coverage that it believes is customary in the industry, although it is not fully insured against all environmental risks. The Company is not aware of any environmental claims existing as of December 31, 1999, that would have a material impact on its consolidated financial position or results of operations. There can be no assurance, however, that current regulatory requirements will not change, or past non-compliance with environmental laws will not be discovered on the Company's properties. OPERATING LEASES The Company leases its office facility under operating leases expiring through August 2001. As of December 31, 1999, future minimum rental payments required under the operating leases are as follows: Year ending December 31, 2000 $ 61,897 2001 41,664 --------- Total $ 103,561 ========= Rental expense under the operating lease totaled $23,140 for the period from January 19, 1999 (inception) through December 31, 1999. F-17 7. EQUITY PREFERRED STOCK The Series A Preferred Stock issued by Capco, the legal acquiror, on February 28, 1991, has a par value and liquidation value of $1.00 per share, a cumulative 5% dividend and is redeemable by Capco at 110% of par value. Dividends of $28,934 were declared at December 31, 1999, of which $2,261 has been paid and the balance is included in accounts payable and accrued expenses. Unpaid and undeclared dividends amount to $100,087 at December 31, 1999. COMMON STOCK For the period from January 19, 1999 (inception) to December 31, 1999 the Company had the following significant equity transactions: Issued 3,500,000 shares for the acquisition of 927,821 share of common stock of a publicly traded company (see Notes 2B, 4 and 10). The shares were issued to a company that became the majority stockholder of the Company subsequent to this transaction. Since the transaction was with a majority stockholder, the investment was recorded at the stockholder's original costs basis of $138,542. Issued 1,750,000 shares for the acquisition of oil and gas producing properties and land. The shares were issued to a company that became the majority stockholder of the company subsequent to this transaction. Since the transaction was with a majority stockholder, the investment was recorded at the stockholder's original costs basis of $664,057 less assumed liabilities of $660,362. Issued 997,500 shares at $0.50 per share for net cash proceeds of $562,606 in a private placement. Issued 717,500 shares at $0.50 per share in exchange for relief of liability of $410,000. The Company advanced $689,193 to a corporation controlled by the majority stockholder. The intent of the Company and the stockholder is for the stockholder to relinquish a certain number of shares to offset the advances. Therefore, the advances have been treated as a reduction from stockholders' equity. 8. INCOME TAXES The components of the provision for income taxes are as follows for the period from January 19, 1999 (inception) to December 31, 1999: Current Tax Expense: U.S. Federal $ - State and local $ - --------------- Total current $ - --------------- Deferred Tax Expense: U.S. federal $ - State and local $ - --------------- Total deferred $ - --------------- Total Tax Provision $ - =============== F-18 8. INCOME TAXES (continued) The reconciliation of the effective income tax rate to the Federal statutory rate is as follows for the period from January 19, 1999 (inception) to December 31, 1999: Federal income tax rate 34.0 % Effect of valuation allowance (34.0)% -------- Effective income tax rate 0.0 % ======== In December 31, 1999, the Company had net carry forward losses of approximately $407,000. Because of the current uncertainty of realizing the benefit of the tax carry forwards, a valuation allowance equal to the tax benefit for deferred taxes has been established. The full realization of the tax benefit associated with the carry forwards depends predominantly upon the Company's ability to generate taxable income during the carry forward period. The net change in the valuation allowance for the period from January 19, 1999 (inception) to December 31, 1999 increased by approximately $407,000. The net operating loss carry forwards expire in 2019. Deferred tax assets and liabilities reflect the net tax effect of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and amounts used for income tax purposes. Significant components of the Company's deferred tax assets and liabilities are as follows as of December 31, 1999: Deferred Tax Asset Loss carry forward $ 138,000 Less: valuation allowance (138,000) ------------- Net Deferred Tax Assets $ 0 ============= 9. RELATED PARTY TRANSACTIONS During the year ended December 31, 1999, the company had several transactions with various companies controlled by its chief executive officer and major stockholder. Those transactions related to payables included the purchase of land, receivables, stock in subsidiaries and other miscellaneous items. Those transactions related to receivables include advances of cash and payments on behalf of those companies. At December 31, 1999, those companies owed Capco $16,691. F-19 10. SUBSEQUENT EVENTS ACQUISITIONS In January 2000, the Company acquired a 100% interest in Meteor Stores, Inc. ("MSI) for $1,546,618, consisting of $250,000 and a note payable in the amount of $1,296,618, which is collateralized by 100% of the issued and outstanding common stock of MSI. MSI is involved in petroleum distribution through convenience stores. Subsequently, the Company sold 65% of its interest in MSI to an unrelated third party, who was and is the President of MSI, for $1,075,000, consisting of $215,000 ($50,000 in cash and 132,000 shares of the Company's common stock) and a note receivable in the amount of $860,000. The sale of 65% interest was closed in September 2000 with an effective date of January 1, 2000. Since the sale of the 65% is a highly leveraged transaction, the Company will account for the acquisition using the equity method of accounting. In February 2000, the Company completed its acquisition of 80% interest of the issued and outstanding common stock of Zelcom Industries, Inc., a company involved in Internet applications. The Company will account for the investment under the equity method of accounting, as the Company's intent is to reduce its ownership to below 50% by the end of the fourth quarter of 2000. In March 2000, the Company increased its investment in CRL from approximately 9.9% to approximately 81.9% by the issuance of 12,221,558 shares of its common stock. CRL is a holding company with a wholly owned subsidiary, Capco Asset Management ("CAM") which had investments in publicly traded companies, as follows: i) 1,290,000 shares of common stock, or approximately 30% interest, of Greka Energy Corporation ("Greka"), which is in the business of oil and gas production in the United States and Colombia, ii) 1,238,550 shares of common stock, or approximately 33% interest, of Meteor Industries, Inc. ("Industries"), which is in the business of petroleum marketing in the United States, and iii) approximately 400,000 shares of common stock of Chaparral Resources, Inc. ("Chaparral"), which is in the business of oil and gas production in North America and Kazakhstan. CRL accounts for the investments of Industries under the equity method, Chapparal under the cost method, and Greka under the mark to market methods. In July 2000, the Company issued an additional 810,858 shares of common stock to stockholders of CRL in exchange for 405,429 shares of CRL common stock, increasing its equity ownership of that company to 86.6%. In September 2000, the Company entered into an agreement to increase its investment in Chaparral by an additional 1,612,903 shares of Chaparral's common stock for $3,000,000. The Company has secured the agreement with its investment of 400,000 shares of Greka. F-20 SETTLEMENT OF LAW SUIT Capco Resources, Ltd. v. GREKA Energy Corporation and Randeep S. Grewal (Case No. 99-8521-R, U.S. District Court, Central District of California). In August 1999, CRL filed an action against Greka and Randeep S. Grewal, the President of Greka, alleging that Greka breached, and Greka and Mr. Grewal made misrepresentations in connection with, a Stock Exchange Agreement entered into between Greka, CRL and CRL's affiliates (the "Exchange"). CRL claims that it is entitled to $12.25 million in damages, plus interest and costs, and requests that the court require Greka to file a registration statement for the resale of 1,290,000 shares of Greka common stock that CRL received pursuant to the Exchange. Greka filed the case of Greka vs. CRL and Service Asset Management Company d/b/a Penson Financial Services, Inc. d/b/a Global Hanna Trading in the Denver Colorado District Court and obtained a temporary restraining order (Case No. 99-CV-6006). Prior to the preliminary injunction hearing CRL removed the case to the U.S. Federal District Court in Denver, Colorado (Civil Action No.99-K-1814) where the cases were combined. In August 2000, CRL entered into a settlement agreement for Greka to purchase 800,000 shares of Greka for $6.50 per share or $5,200,000 less $500,000, of liabilities owed to Greka from CRL and affiliates, for a total of $4,700,000. Of CRL's remaining 490,000 shares of common stock of Greka, Greka will be given voting control over these shares through December 31, 2002. The settlement further provides that CRL's continued ownership of 75,000 of the 490,000 shares is contingent upon CRL's full payment of margin debt related to those shares. SALE OF PROPERTY In March 2000, the Company sold the land in Santa Maria for $422,730, resulting in a gain to the Company of $115,603. In July 2000, effective January 1, 2000, CRC assigned 50% of its interest in proved property located in Kansas to seven unrelated parties for cash totaling $560,000. AMENDMENT TO NOTES PAYABLE In September 2000, the Company amended its note payable to Whittier Energy Company, in the amount of $1,350,000, to extend the maturity date to November 30, 2000, cancel the net profit interest provision and cancel the issuance of 250,000 stock purchase warrants in exchange for $225,000 cash. COMMON STOCK OPTIONS In April 2000, the Company issued two options to purchase each 500,000 and 500,000 shares of the Company's common stock at an exercise price of $1.00 and $1.50, respectively, exercisable for a period of six months. The options were issued in exchange for consulting services. Due to the relatively expected short life of the options, the per unit weighted-average fair value of unit options granted was $0.00 at the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions: weighted-average risk-free interest rates of 5.63%; dividend yields of 0%; weighted-average volatility factors of the expected market price of the Company's common stock of 0%; and an average expected life of the options ranging from .4 and .8 years. The weighted average exercise price is $1.25 for the options issued. F-21 COMMON STOCK In April 2000, the Company issued 35,000 shares to employees of the Company for services rendered. The Company valued the common stock at $1.00 per share, the fair market value at the date of grant. The total expense for the year ending December 31, 2000 is $35,000. PROFIT SHARING PLAN In April 2000, the Company adopted a defined contribution profit sharing plan covering all eligible employees. Profit sharing contributions are made (i) at the discretion of the Board of Directors; (ii) on the employee's behalf from salary; and (iii) employer discretionary contributions not to exceed 25% of the first four percent of each employee's compensation. SUPPLEMENTAL OIL AND GAS FINANCIAL AND RESERVE INFORMATION (UNAUDITED) Reserve estimates for 1999 were prepared by independent engineers and for 1998 were prepared by Company management. Management cautions that there are many inherent uncertainties in estimating proved reserve quantities and related revenues and expense, and in projecting future production rates and the timing and amount of development expenditures. Accordingly, these estimates will change, as future information becomes available. Proved oil and gas reserves are the estimated quantities of crude oil, condensate, natural gas and natural gas liquids which geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions. Proved developed reserves are those reserves expected to be recovered through existing wells with existing equipment and operating methods. ANALYSIS OF CHANGES IN PROVED RESERVES Estimated quantities of proved reserves and proved developed reserves of crude oil and natural gas, the majority of which are located within the United States, as well as changes in proved reserves during the past two years are indicated below: Oil (Bbl) Natural Gas (MCF) --------- ----------------- Reserves at May 31, 1998 4,206 -- Extensions and discoveries -- -- Purchase of minerals in place -- -- Sales of minerals in place -- -- Production (1,241) (352) Revisions of previous estimates (1,690) 352 --------- ------------ Reserves at May 31, 1999 1,275 -0- F-22 ANALYSIS OF CHANGES IN PROVED RESERVES (continued) Oil (Bbl) Natural Gas (MCF) --------- ----------------- Reserves at May 31, 1999 1,275 -0- Extensions and discoveries -- -- Purchase of minerals in place 888,609 307,175 Sales of minerals in place (1,275) -- Production (1,056) (25,304) Revisions of previous estimates -- -- --------- ------------ Reserves at December 31, 1999 887,553 281,871 There are no reserves attributable to partnership or minority interests at December 31, 1999. All capitalized costs related to oil and gas activities at December 31,1999 are considered related to proved properties. OIL AND GAS OPERATIONS Depletion, depreciation and amortization per equivalent unit of production for the year ended December 31, 1999 was $4.80. In 1999 $1,934,000 was spent on acquisitions. No exploration or development costs were incurred. STANDARDIZED MEASURE OF DISCOUNTED NET CASH FLOW AND CHANGES THEREIN The following table sets forth a standardized measure of the discounted future net cash flows attributable to the Company's proved oil and gas reserves. Future cash inflows were computed by applying year-end prices of oil and gas (with consideration of price changes only to the extent provided by contractual arrangements) and using the estimated future expenditures to be incurred in developing and producing the proved reserves, assuming continuation of existing economic conditions. Future income tax expenses were computed by applying statutory income tax rates to the difference between pretax net cash flows relating to the Company's proven oil and gas reserves and the tax basis of proved oil and gas properties and available operating loss and excess statutory depletion carryovers reduced by investment tax credits. Discounting the annual net cash flows at 10% illustrates the impact of timing on these future cash flows. F-23 STANDARDIZED MEASURE OF DISCOUNTED NET CASH FLOW AND CHANGES THEREIN (continued) December 31,1999 May 31,1999 ---------------- ----------- Future cash inflows $ 22,082,738 $ 15,306 Future cash outflows: Production and development costs (14,412,570) ( 13,314) Future net cash flows before future income taxes 7,670,168 1,992 Future income taxes -- -- Future net cash flows 7,670,168 1,992 Adjustment to discount future annual net cash flows at 10% ( 3,048,019) ( 161) ---------------- ----------- Standardized measure of discounted future net cash flows $ 4,622,149 $ 1,831 The following table summarizes the principal factors comprising the changes in the standardized measure of discounted net cash flows for the years ended December 31, 1999 and May 31, 1999. December 31,1999 May 31,1999 ---------------- ----------- Standardized measure, beginning of period $ 1,831 $ 7,994 Sales of oil and gas, net of production costs (69,807) ( 1,242) Net change in sales prices, net of production costs -- ( 5,953) Changes in estimated future development costs -- -- Purchases of minerals in place 4,691,956 -- Sales of minerals in place (2,014) -- Revisions of quantity estimates -- -- Accretion of discount 183 799 Other, including changes in production rates (timing) -- 233 ---------------- ----------- Standardized measure, end of period $ 4,622,149 $ 1,831 F-24 EXHIBIT INDEX Exhibit Number Description Location - ------- -------------------------- ------------------------------------ 3.1 Articles of Incorporation (incorporated by reference to and bylaws Exhibits 4 and 5, respectively, to Registration Statement No. 2-73529). 3.2 Articles of Amendment (incorporated by reference to the company's Form 10-K filed May 31, 1984) 3.3 Articles of Amendment (incorporated by reference to the company's Form 10-K filed May 31, 1985) 3.4 Articles of Amendment (incorporated by reference to the Company's Form 10-QSB filed 4. Instruments Defining the (incorporated by reference to Rights of Security Holders, Exhibits 4 and 5, respectively, Including Indentures to Registration Statement No. 2-73529). 10.1 1999 Incentive Equity Plan (incorporated by reference to the Company's definite proxy statement filed December 2, 1999) 10.2 Stock Exchange Agreement between the Company and Sedco related to Capco Resource Corporation Filed herewith electronically 10.3 Purchase Agreement related to Meteor Stores, Inc. Filed herewith electronically 10.4 Sale Agreement related to Meteor Stores, Inc. Filed herewith electronically 13. Not applicable 16.1 Letter on Change of (incorporated by reference to Accountants the company's Form 8-K filed July 28, 2000) 16.2 Letter on Change of (incorporated by reference to the Accountants company's form 8-K filed October 20, 2000 21. List of Subsidiaries Filed herewith electronically 27. Financial Data Schedule Filed herewith electronically 20 EX-10.2 2 0002.txt STOCK EXCHANGE AGREEMENT RE CRC Exhibit 10.2 Stock Exchange Agreement This Agreement ("Agreement") made this first day of December 1999 by and between Capco Energy Inc., ("Capco") and Danyal Chaudhary Foundation ("DCF"), collectively referred to as Parties. Whereas DCF owns six (6) million shares Capco Resource Corporation, a Delaware Corporation, ("CRC") common stock ("CRC Stock"). Whereas Capco is interested to acquire CRC Stock from DCF and DCF is interested to exchange its CRC Stock for Capco common stock ("Capco Stock"). Whereas the Parties have performed their own necessary due diligence regarding this transaction and the two stocks which are the subject of this transaction. Now, Therefore, in consideration of the above recitals, which are a part of this Agreement, and of the mutual agreements, provisions and covenants herein contained, the parties hereby agree as follows: 1. DCF shall receive seven (7) shares of Capco Stock of each eight (8) shares of CRC Stock resulting in five million, two hundred-fifty thousand (5,250,000) shares of Capco Stock. 2. On or before December 31, 1999, Capco management shall have the proper authority and permissions, as required and necessary, from its shareholders and/or board of directors, to enter into this transaction. 3. On or before December 31, 1999, DCF management shall have the proper authority and permissions, as required and necessary, from its shareholders and/or board of directors, to enter into this transaction. 4. On or before December 31, 1999 DCF will deliver to Capco its stock certificate(s) representing six million shares of CRC stock. 5. On or before December 31, 1999, Capco shall issue instructions to its transfer agent for issuance of five million, two hundred-fifty thousand (5,250,000) shares of Capco stock to DCF or its assignee(s) to be delivered no later than January 31, 1999. 6. On or before April 30, 2000 or as soon as reasonably possible, Capco shall cause the Capco Stock to be fully and properly registered with the Securities and Exchange Commission and the stock shall be free of any and all restrictions. 7. This Agreement and any provision hereof, may not be waived, changed, modified, or discharged orally, but it can be changed by any agreement in writing signed by the parties. 1 8. Time is of the essence regarding this Agreement. 9. This Agreement is the entire Agreement between parties herein. Any changes to this Agreement shall be in a written form and accepted by parties hereto. 10. The law of the state of California shall govern this Agreement. 11. All notices, requests, demands, and other communications under this Agreement shall be in writing and shall be deemed to have been duly given on the date of service if served personally on the party to whom notice is to be given, or on the third day after mailing if mailed to the party to whom notice is to b e given, by first class mail, registered or certified, postage prepaid, and properly addressed as follows: To DCF: To Capco: 10441 Villa Del Cerro 2922 Chapman Avenue, # 202 Santa Ana, CA 92705 Orange, California 93869 Attn: Faisal Chaudhary Attn: Imran Jattala 12. This Agreement shall inure to the benefit of the parties hereto and their heir, executors, personal representatives, successors and assigns. 13. Both parties agree that this document shall be binding upon parties hereto if executed in a Facsimile Form, and that a fully executed original shall be made available within 2 days of signing this Agreement. AGREED TO AND ACCEPTED as of the date first above written. Capco Energy, Inc. Danyal Chaudhary Foundation /s/ Imran Jattala /s/ Faisal Chaudhary - --------------------------------------- --------------------------- By: Imran Jattala By: Faisal Chaudhary Executive Vice President Trustee EX-10.3 3 0003.txt PURCHASE AGREEMENT RE METEOR STORES Exhibit 10.3 AGREEMENT BY AND AMONG CAPCO ENERGY, INC., METEOR STORES, INC., METEOR INDUSTRIES, INC. THE SOLE SHAREHOLDER OF METEOR STORES, INC. AGREEMENT AGREEMENT, made this 31st day of December, 1999, by and among Capco Energy, Inc., a Colorado corporation ("Purchaser"), Meteor Stores, Inc. ("MSI" or the "Company"), a New Mexico corporation, and Meteor Industries, Inc., the sole shareholder of MSI ("Shareholder"). WHEREAS, Purchaser desires to acquire all of the issued and outstanding stock of MSI, held by the Shareholder (the "Common Stock"), in exchange for the consideration and upon the terms described herein (the "Purchase"); and WHEREAS, the Shareholder desires to sell all of the outstanding Common Stock of the Company; and WHEREAS, Purchaser, the Company and Shareholder desire to make certain representations, warranties, covenants and agreements in connection with the Purchase and also desire to prescribe various conditions precedent to the Purchase; NOW, THEREFORE, in consideration of the mutual promises, covenants, provisions, and representations contained herein, THE PARTIES HERETO AGREE AS FOLLOWS: 1 ARTICLE 1 THE PURCHASE 1.1 Sale and Delivery of Common Stock. Subject to all the terms and conditions of this Agreement, the Shareholder shall transfer, convey and deliver to Purchaser at the Closing (as defined in paragraph 1.2 hereof) good, valuable and marketable title to the Common Stock, free and clear of all liens, claims and encumbrances except those created by this Agreement in exchange for the consideration described in this Article 1. 1.2 Effective Date and Closing. The effective date of this transaction shall be December 31, 1999 (the "Effective Date"). The closing of the transaction contemplated herein (the "Closing") shall occur at a mutually agreeable time and place, on the earliest practicable date following the day on which all of the obligations and conditions precedent contained herein are complied with. The closing date shall be on or about December 29, 1999, or a soon thereafter as reasonably practicable (the "Closing"). 1.3 Purchase Price. Subject to adjustment pursuant to Section 1.4, subject to the terms of Section 1.5 and subject to all of the other terms and conditions set forth in the Agreement and in reliance on the representations, warranties and covenants hereinafter set forth, Purchaser shall deliver to Shareholder the amount of $1,596,400 (hereinafter referred to as the "Purchase Price"). 1.4 Adjustments. The Total Purchase Price of the Common Stock shall be defined as $1,596,400. Such amount shall be adjusted as follows: (a) During the three month period following the Closing, Purchaser shall have an independent auditor of its choice audit (using generally accepted accounting principles and practices; fixed assets and inventories and the balance sheet and income statement of the Company as of December 31, 1999 (the "Audit"). Such auditor shall present its audit report to Shareholder and to Purchaser. If the audit report would result in a reduction of the purchase price under subsection (b) of this Section 1.4, below, and if Shareholder disagrees with any portion of the audit report which is material to any such adjustment, the Shareholder shall so notify the Purchaser in writing within five (5) days and, the parties shall attempt to resolve such disagreement through good faith bargaining. If the parties are not successful in resolving such disagreement through bargaining within seven (7) days following Shareholder's notice to Purchaser, the parties shall submit the disagreement for arbitration under Section 13.4 below. (b) If the Purchaser's Audit of the Company shows that the Company's shareholder's equity is less than $1,596,400 then the Total Purchase Price shall be reduced by the amount of such shareholder's equity deficiency. 2 1.5 Payment of Purchase Price. The total Purchase Price shall be paid as follows: (a) $250,000 of the total Purchase Price shall be paid to the Shareholder, by certified or bank check or by electronic wire transfer of immediately available funds, at Closing. (b) $1,100,000 shall be paid at Closing in the form of 366,667shares of Meteor common stock (the Meteor "Common Shares"). The Meteor Common Shares shall be transferred, free and clear of all liens, claims and encumbrances. Any adjustments under Section 1.4 above in excess of $246,400 will result in a refund of Common Shares using a price of $3.00 per share. (c) $246,400 shall be paid on or before March 31, 2000, subject to any adjustments in the purchase price under Section 1.4 above. 1.6 Option to Repurchase Meteor Common Shares. Purchaser shall have the right to repurchase all or part of the Meteor Common Shares transferred pursuant to paragraph 1.5(b) at $3.00 per share plus .77% per month for each unexercised month for eighteen months. These repurchased shares shall have antidilutive provisions. ARTICLE 2 REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND SHAREHOLDER As an inducement to the Purchaser to enter into this Agreement, the Company and the Shareholder hereby represent and warrant to Purchaser that: 2.1 Organization. The Company is a corporation duly organized, validly existing, and in good standing under the laws of New Mexico, has all necessary corporate powers to own its properties and to carry on its business as now owned and operated by it, and is duly qualified to do business and is in good standing in each of the states where its business requires qualification. 2.2 Capital. The authorized capital stock of the Company consists of 2,500 shares common stock, no par value, of which 2,500 shares of common stock are issued and outstanding including -0- shares that are currently held in the treasury of the Company. All of the issued and outstanding shares of the Company are duly and validly issued, fully paid, and non-assessable. There are no outstanding subscriptions, options, rights, warrants, debentures, instruments, convertible securities, or other agreements or commitments obligating the Company, or any subsidiary to issue or to transfer from treasury additional shares of its capital stock. Except for the common stock outstanding, there are no other equity securities of the Company. No taxes or other payments to governmental authorities will be due from the Purchaser upon transfer of the Common Stock as contemplated by this Agreement. 3 2.3 Corporate Books and Records. The minute books of the Company contain accurate records of all meetings and accurately reflect all other actions taken by the Board of Directors and the shareholders of the Company. Complete and accurate copies of all such minute books and of the stock register of the Company have been made available by the Company for inspection by the Purchaser. At the Closing, all of those books and records will be in the possession of the Company. 2.4 Subsidiaries. The Company does not have any subsidiaries or own any interest in any other enterprise, except as described in Exhibit 2.4 attached hereto. 2.5 Directors and Officers. Exhibit 2.5 to this Agreement, contains the names and titles of all directors and officers of the Company. 2.6 Financial Statements. Exhibit 2.6 to this Agreement, includes true and complete copies of the unaudited financial statements of the Company for the fiscal periods ended December 31,1998 and 1997, together with all related notes and schedules thereto. Prior to Closing an unaudited balance sheet as of October 31, 1999, and an unaudited income statement for the fiscal year ending October 31, 1999, shall be delivered to Purchaser and be included as part of Exhibit 2.6 (both sets of financial statements are hereinafter referred to as the "The Company Financial Statements"). Except as set forth in Exhibit 2.6, the Company Financial Statements shall have been prepared in accordance with generally accepted accounting principals and practices of the United States (hereinafter referred to as "GAAP"). Exhibit 2.6 sets forth certain year-end adjustments and tailoring transactions, which will be made and entered into to facilitate this Agreement. As revised by such adjustments and tailoring transactions, the Company Financial Statements are true, accurate and complete, and fairly present the financial position of the Company as of the dates and for the periods mentioned therein. 2.7 Absence of Undisclosed Liabilities. As of the respective dates of the Financial Statements included in Exhibit 2.6, the Company did not have any material debt, liability, or obligation of any nature, whether accrued, absolute, contingent or otherwise, and whether due or to become due, that is not reflected in the Financial Statements. As of the Closing Date, the Company does not have any material liabilities not disclosed in the Company Financial Statements, other than as listed on Exhibit 2.7. For purposes of this Section 2.7, a material liability shall mean a liability of $25,000 or more. Notwithstanding the definition of material liability in the preceding sentence, total undisclosed liabilities shall not exceed $50,000. 2.8 Taxes. To the best knowledge and belief of Shareholder, within the times and in the manner prescribed by law, the Company has filed all tax returns required by law and has paid all taxes, assessments and penalties due and payable in the normal course of its business. To the best knowledge and belief of Shareholder, the provisions for taxes, if any, reflected in the Company Financial Statements, are reasonably adequate for taxes for the periods ending on the date of such financial statements and for all prior periods, whether or not disputed. 4 2.9 Compliance with Laws. To the best of Shareholder's knowledge and belief, the Company is in compliance in all material respects with, and is not in violation of, applicable federal, state, or local statutes, laws or regulations affecting its properties or the operation of its business. 2.10 Litigation. Except as shown on Exhibit 2.10 attached hereto, (1) the Company is not a party to any suit, action, arbitration, or legal, administrative or other proceeding, or governmental investigation pending or threatened against or affecting the Company or its business, assets or financial condition (hereinafter referred to as "Actions"); (2) the Company is not in default with respect to any order, writ, injunction or decree of any federal, state, local or foreign court, department, agency or instrumentality applicable to them; (3) the Company is not engaged in any lawsuits to recover monies due to it. 2.11 Authority. The Board of Directors of the Company has authorized the execution of this Agreement and the consummation of the transactions contemplated herein, and the Company and Shareholder have full power and authority to execute, deliver and perform this Agreement and this Agreement is a legal, valid and binding obligation of the Company and Shareholder, and is enforceable in accordance with its terms. 2.12 Ability to Carry Out Obligations. To the best of the Shareholder's knowledge and belief and except as shown on Exhibit 2.12 attached hereto, the execution and delivery of this Agreement by the Company and Shareholder and the performance by the Company and Shareholder of their obligations hereunder will not cause, constitute or conflict with or result in (a) any breach or violation of any of the provisions of or constitute a default under any license, indenture, mortgage, charter, instrument, articles of incorporation, by-laws, or other agreement or instrument to which the Company is a party, or by which it may be bound, nor will any consents or authorizations of any party other than those hereto be required, (b) an event that would permit any party to any agreement or instrument to terminate such agreement or instrument or to accelerate the maturity of any indebtedness or other obligation of the Company, or (c) an event that would result in the creation or imposition of any lien, charge, or encumbrance on any asset of the Company. Purchaser understands, as hereinafter set forth, upon Closing Shareholder intends and is entitled to withdraw and cancel any guaranties executed by it to suppliers and banks. The withdrawal and cancellation of such guaranties by Shareholder, as here in above and here in after referred to shall not constitute any breach or violation of this Agreement by the Company or Shareholder. 2.13 Validity of The Company Shares. The shares of the Company Common stock to be delivered to Purchaser pursuant to this Agreement, when transferred in accordance with the provisions of this Agreement, will be duly authorized validly issued, fully paid and non-assessable; and free and clear of all liens, claims and encumbrances. 2.14 Assets. The Company has good and marketable and insurable title to all its property and such property is not subject to any liens, claims and/or encumbrances other than disclosed in Exhibit 2.6. Exhibit 2.14 hereto lists all plant property and equipment of the Company with a value of $ 10,000. 5 2.15 Material Contracts. Exhibit 2.15 lists each material contract and agreement of the Company (such contracts and agreements listed, being collectively referred to as "Material Contracts"). The Company has delivered, or will deliver on or about the time of execution of this Agreement, to the Purchaser correct and complete copies of all Material Contracts. 2.16 Trade Names and Rights. Except as set forth in Exhibit 2.16 attached hereto, the Company owns all trademarks, service marks, trade names, and copyrights required in its business. A list of trademarks, service marks, trade names and copyrights owned by the Company is included in Exhibit 2.16. No other person or entity owns any trademark, trademark registration or application, service mark, trade name, copyright, or copyright registration or application the use of which is necessary or material in connection with the present or contemplated operations of the Company's business. 2.17 Employees. There are, except as disclosed in Exhibit 2.17 attached hereto, no collective bargaining, bonus, profit sharing, severance, indemnification, compensation or other agreements, trusts, funds, plans or arrangements maintained by the Company or any subsidiary of the Company for the benefit of its directors, officers or employees, and there are no employment, consulting, severance or indemnification arrangements, agreements or understandings between any of the foregoing and the Company. The Company's employee handbook or manual and a complete description of all employee benefits, is included as part of Exhibit 2.17 as of the effective date. All of the Company's employees are at-will employees who have no rights to severance pay. 2.18 Accounts Receivable. Except as covered by any allowance for doubtful accounts booked in the normal course of business in the Company Financial Statements, all accounts receivable of the Company, including those created between the date of the Financial Statements and the Closing, represent transactions in the ordinary course of business, and are current and collectible in the ordinary course of business in the amounts recorded on the Books of the Company. 2.19 Inventories. All inventories of the Company as of October 31, 1999 (to be updated at Closing as of the Effective Date), a complete list of which is attached hereto as Exhibit 2.19, whether or not reflected in the Company Financial Statements, are of a quality and quantity usable and salable in the ordinary course of business and comply in all material respects with applicable standards and regulations of governmental authorities. 2.20 Accounts Payable. The accounts payable reflected on the Company Financial Statements, and those reflected on the books of the Company at the time of the Effective Date will, reflect all amounts owed by the Company in respect of trade accounts due and other payables. 6 2.21 Insurance. The Company has insurance policies in full force and effect which provide for coverages which are usual and customary in its business as to amount and scope, and are adequate to protect the Company against any reasonably foreseeable risk of loss. Such policies will not remain in full force and effect subsequent to Closing. Exhibit 2.21 attached hereto identifies each of the Company's insurance policies, indicating the carrier, amount of coverage, annual premium, risks covered, placing broker or agent, and period through which the policy is paid up and other relevant information as to each. 2.22 Title to and Utilization of Properties. Exhibit 2.22 attached hereto lists all of the Company owned and leased properties. Except as disclosed on Exhibit 2.22, the Company owns fee simple, insured title to all real property owned by it and has the unbridled fight to use the same, and is not aware of any claim, notice or threat to the effect that its fight to own and use such property is subject in any way to any challenge, claim, assertion of rights, proceedings toward condemnation or confiscation in whole or in part, or is otherwise subject to challenge. The Company has valid leases on its leased properties and the expiration dates of such leases are disclosed on Exhibit 2.22. 2.23 Facilities. To Shareholder's best knowledge and belief, the Company facilities are (as to physical plant and structure) structurally sound and none of its facilities, nor any of the vehicles or other equipment used by The Company in connection with its business, has any material defects and all of them are in all material respects in good operating condition and repair and are adequate for the uses to which they are being put. None of such plants, structures, or equipment is in need of maintenance and repairs except ordinary routine maintenance and repairs. Purchaser acknowledges that its representatives have inspected such facilities and have found them to be sound and free of obvious defects. 2.24 Environmental and Other Permits and Licenses, Related Matters. (a) To Shareholder's best knowledge and belief, the Company currently holds all the health and safety and other permits, licenses, authorizations, certificates, exemptions and approvals of governmental authorities (collectively, "PERMITS"), including, without limitation, environmental permits, necessary for the current use, occupancy and operation of each asset and property of the Company and the conduct of its business, and all such permits and environmental permits are in full force and effect. Neither the Company nor any of the Shareholder has received any notice from any governmental authority revoking, canceling, rescinding, materially modifying or refusing to renew any permit or environmental permit or providing written notice of violations under any environmental law which have not been resolved. The Company is in all material respects in compliance with the permits and all applicable Environmental Laws. Exhibit 2.24(a) identifies all permits that will require the consent of any governmental authority to consummate the transactions contemplated by this Agreement. 7 (b) To Shareholder's best knowledge and belief, all equipment owned or used by the Company, including, but not limited to above ground storage tanks, underground storage tanks, and piping associated with such tanks, is in substantial compliance with all applicable Permits and Environmental Laws including the Federal and State 1998 underground storage tank requirements, and can be operated in the ordinary course of business in substantial compliance with all applicable Permits and Environmental Laws. (c) Except as disclosed in Exhibit 2.24(a): (i) Hazardous Materials have not been generated, used, treated, handled or stored on, or transported to or from (other than petroleum products handled, stored or transported in the normal course of business), or released on any owned real property or leased real property by the Company, and the Company and its Shareholder are unaware of any such generation, use, treatment, handling, storage, transportation, or release by any other person or entity, including but not limited to any predecessor in interest; (ii) the Company has reported all Releases of Hazardous Material in accordance with Environmental Laws; (iii) the Company has not Released any Hazardous Materials, and is not responsible or liable for any Release of Hazardous Materials, which must be remediated under applicable Environmental Law (including, but not limited to, any Release which results in the presence of Hazardous Materials in the environment in quantities or amounts that exceed remediation action levels specified by regulation or by governmental policy or guideline) or that any person or entity or governmental authority has requested or required to be remediated; (iv) the Company has disposed of all wastes, including those containing Hazardous Materials, in material compliance with all applicable Environmental Laws and environmental permits; (v) there are no past, pending or threatened Environmental claims against the Company or any of its assets or properties; (vi) the Company has not transported or arranged for the transportation of any Hazardous Materials to any location that is listed or proposed for listing on the National Priorities List under CERCLA or on the CERCLIS or any analogous state list or which is the subject of any environmental claim; and (vii) neither the Company nor any governmental authority is conducting any remediation on or related to the owned real property, the leased real property or the business of the Company. (d) To Shareholder's best knowledge and belief, Exhibit 2.24(d) sets forth the age, contents or former contents of any storage tanks located on the premises owned or operated by the Company. Except as set forth in Exhibit 2.24(d) the Company has not owned or operated any underground storage tanks as defined in the Resource Conservation and Recovery Act ("RCRA"). Except as set forth in. Exhibit 2.24(d), all tanks and pipes pertinent thereto are presently and have been in the past in good condition and tight. (e) To the best knowledge and belief of Shareholder, there are no wastes, drums or containers disposed of or buried on, in or under the ground or any surface waters located on the premises currently or previously owned or operated by the Company. Neither the Company nor any third parties have disposed of or buried any wastes, drums or containers on, in or under the ground or any surface waters located on the premises owned or operated by the Company. Neither the Company nor any party acting on behalf of the Company disposed of or buried, or arranged to dispose of or bury, any waste, drums or containers in or on the premises of a third party other than those pursuant to and in compliance with RCRA. 8 (f) Certain capitalized terms used in this Section 2.24 are defined as follows: Hazardous Materials - means (a) oil, petroleum and petroleum products, radioactive materials, asbestos in any form that is or could become friable, urea formaldehyde foam insulation, transformers or other equipment that contain polychlorinated biphenyls, and radon gas, (b) any other chemicals, materials or substances defined as or included in the definition of "hazardous substances," "hazardous wastes," "hazardous materials," "extremely hazardous wastes," "restricted hazardous wastes," "toxic substances," "toxic pollutants," "contaminants" or "pollutants," or words of similar import, under any applicable Environmental Law, and (c) any other chemical, material or substance exposure to which is regulated by any governmental authority. Environmental Laws - means any law including but not limited to any federal, state, local, law, ordinance, regulation or rule now in effect and any judicial or administrative interpretation thereof, including any judicial or administrative order, consent decree or judgment, relating to the environment, health, safety or Hazardous Materials, including, without limitation, CERCLA; the Resource Conservation and Recovery Act, 42 U.S.C. SS 6901 et seq.; the Hazardous Materials Transportation Act, 49 U.S.C. SS 6901 et seq.; the Clean Water Act, 33 U.S.C. SS 1251 et seq.; the Toxic Substances Control Act, 15 U.S.C. SS 2601 et seq.; the Clean Air Act, 42 U.S.C. SS 7401 et seq.; the Safe Drinking Water Act, 42 U.S.C. SS 300f et seq.; the Atomic Energy Act, 42 U.S.C. SS 2011 et seq.; the Federal Insecticide, Fungicide and Rodenticide Act, 7 U.S.C. SS 136 et seq.; and the Federal Food, Drug and Cosmetic Act, 21 U.S.C. SS 301 et seq. and the state or local equivalents of these laws. Release - means disposing, discharging, injecting, spilling, leaking, leaching, dumping, emitting, escaping, emptying, seeping, placing and the like into or upon any land, water or air or otherwise entering into the environment. 2.25 Customers and Suppliers. Exhibit 2.25 lists all major customers and suppliers which are material to the financial condition or operations of the Company. Since October 31,1998, except as disclosed in Exhibit 2.25, there has been no adverse change in the business relationship of the Company with any such customer or supplier. It is understood and agreed that "material" customers and suppliers provided for in this section are defined as customers purchasing product from the Company in excess of $10,000 per year, and suppliers providing supplies and merchandise to the Company in the amount of $10,000 per year. 2.26 Bank Accounts. Exhibit 2.26 sets forth the names and locations of all banks, trust companies, savings and loan associations and other financial institutions at which the Company maintains current accounts of any nature and the names of all persons authorized to draw thereon or make withdrawals therefrom. 9 ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF PURCHASER As an inducement to the Company and the Shareholder to enter into this Agreement, the Purchaser represents and warrants to the Company and Shareholder that: 3.1 Organization. Purchaser is a corporation duly organized, validly existing, and in good standing under the law of California, has all necessary corporate powers to own properties and to carry on its business as now owned and operated by it, and is duly qualified to do business and is in good standing in each of the states were its business requires qualification. 3.2 Capital. As of the date of this Agreement, the authorized capital stock of Purchaser consists of 150,000,000 shares of $.001 par value Common Stock of which 1,000,000 shares of Common Stock are currently issued and outstanding, and 10,000,000 shares of preferred stock $1.00 par value are authorized of which 292,947 shares are currently outstanding. All of the issued and outstanding shares of Purchaser are duly and validly issued, fully paid and non-assessable. 3.3 Authority. The Board of Directors of Purchaser has authorized the execution of this Agreement and the transactions contemplated herein, and Purchaser has full power and authority to execute, deliver and perform this Agreement and this Agreement is the legal, valid and binding obligation of Purchaser, and is enforceable in accordance with its terms and conditions. 3.4 Ability to Carry Out Obligations. Except as described in Exhibit 3.4, the execution and delivery of this Agreement by Purchaser and the performance by Purchaser of its obligations hereunder will not cause, constitute, or conflict with or result in (a) any breach or violation of any of the provisions of or constitute a default under any license, indenture, mortgage, charter, instrument, certificate of incorporation, bylaw, or other agreement or instrument to which Purchaser is a party, or by which it may be bound, nor will any consents or authorizations of any party other than those hereto be required, (b) an event that would permit any party to any agreement or instrument to terminate it or to accelerate the maturity of any indebtedness or other obligation of Purchaser, or (c) an event that would result in the creation or imposition of any lien, charge, or encumbrance on any asset of Purchaser. 3.5 Directors and Officers. Exhibit 3.5 of this Agreement contains the names and titles of all directors and officers of Purchaser. 3.6 Other information. None of the information and documents which have been furnished or made available by the Purchaser or any of its representatives to Seller or any of its representatives in connection with the transactions contemplated by this Agreement is materially false or misleading or contains any material misstatement of fact or omits any material fact necessary to be stated in order to make the statements and information therein not misleading. 10 ARTICLE 4 COVENANTS 4.1 Investigative Rights. The Company shall provide to Purchaser, and its counsel, accountants, auditors, and other authorized representatives, reasonable access to all of the Company's properties, books, contracts, commitments, and records for the purpose of examining the same. The Company shall furnish Purchaser with all information concerning its affairs as Purchaser may reasonably request. Without in any manner reducing or otherwise mitigating the representations contained herein, Purchaser and/or its representatives shall have the opportunity to meet with accountants to discuss the financial condition of the Company. 4.2 Indemnification of the Company and Shareholder. Purchaser shall be liable for and shall indemnify, defend and hold the Company and the Shareholder and its officers, directors, affiliates, agents and the Shareholder harmless against and in respect of any and all claims, demands, losses, costs, expenses, obligations, liabilities, damages, recoveries and deficiencies, including interest, penalties, and reasonable attorney fees, that they shall incur or suffer, which result from or relate to any activities of the Company or Purchaser subsequent to the Closing Date or which result from or relate to any breach of, or failure by Purchaser to perform any of its representations, warranties, covenants or agreements in this Agreement or in any schedule, certificate, exhibit or other instrument furnished or to be furnished by Purchaser under this Agreement. 4.3 Indemnification of Purchaser. The Company and Shareholder shall be liable for and shall agree to indemnify, defend and hold Purchaser and its officers, directors, affiliates and agents harmless against and in respect of any and all claims, demands, losses, costs, expenses, obligations, liabilities, damages, recoveries and deficiencies, including interest, penalties, and reasonable attorney fees, that it shall incur or suffer, which result from or relate to any breach of, or failure by the Company to perform any of its respective representations, warranties, covenants and agreements in this Agreement or in any exhibit, schedule, certificate or other instrument furnished or to be furnished by the Company or Shareholder under this Agreement. 4.4 Accounts Payable. With regard to all accounts payable and accrued taxes as of the Effective Date, Purchaser will cause such amounts to be paid according to the payment plan and/or requirements of the creditor or taxing authority, without extension, delinquency or other material deviation from the payment term and plan. Purchaser shall, within fifteen (15) days after Closing, arrange for the release of Shareholder and other key employees of the Company from personal guarantees relating to the business of the Company. 11 4.5 Shareholder's Cooperation After the Closing, Further Action. At any, time and from time to time after the Closing, the Shareholder shall execute and deliver to the Purchaser such other instruments and take such other actions as the Purchaser may reasonably request more effectively to vest title to the Shares in the Purchaser and, to the full extent permitted by law, to put the Purchaser in actual possession and operating control of the Company and its assets, properties and the business. Each of the parties hereto shall use all reasonable efforts to take, or cause to be taken, all appropriate action, do or cause to be done all things necessary, proper or advisable under applicable laws, and execute and deliver such documents and other papers, as may be required to carry out the provisions of this Agreement and to consummate and make effective the transactions contemplated hereby. ARTICLE 5 CONDITIONS PRECEDENT TO PURCHASER'S PERFORMANCE 5.1 Conditions. Purchaser's obligations hereunder shall be subject to the satisfaction, at or before the Closing, of all the conditions set forth in this Article 5. Purchaser may waive any or all of these conditions in whole or in part without prior notice; so long as such waiver is in writing; and provided, however, that no such waiver of a condition shall constitute a waiver by Purchaser of any other condition or any of Purchaser's other rights or remedies, at law or in equity, if the Company and Shareholder shall be in default of any of their representations, warranties, or covenants under this Agreement. 5.2 Accuracy of Representations. Except as otherwise permitted by this Agreement, all representations and warranties by the Company and Shareholder in this Agreement or in any written statement that shall be delivered to Purchaser by the Company under this Agreement shall be true and accurate when made and on and as of the Closing Date with the same force and affect as if made at the Closing. 5.3 Performance. Purchaser shall be reasonably satisfied that the Company and Shareholder shall have performed, satisfied, and complied with all covenants, agreements, and conditions required by this Agreement to be performed or complied with by it, on or before the Closing Date. 5.4 Absence of Litigation. No action, suit, or proceeding before any court or any governmental body or authority, pertaining to the transaction contemplated by this Agreement or to its consummation, shall have been instituted or threatened against any party hereto on or before the Closing Date. 5.5 Directors of the Company. Effective on the Closing Date the Board of Directors of the Company shall be reorganized and be made up of four individuals named by Purchaser. 12 5.6 Closing Documents. The Company and the Shareholder shall be prepared to deliver the closing documents set forth in Article 6 of this Agreement. 5.7 Officer's Certificate. The Company shall have delivered to Purchaser a certificate, dated the Closing Date, and signed by the President of the Company, certifying that each of the special conditions specified in Sections 6.2 hereof have been fulfilled. ARTICLE 6 CONDITIONS PRECEDENT TO THE COMPANY'S AND SHAREHOLDER'S PERFORMANCE 6.1 Conditions. The Company's and Shareholder's obligations hereunder shall be subject to the satisfaction, at or before the Closing, of all the conditions set forth in this Article 6. The Company and Shareholder may waive any or all of these conditions in whole or in part without prior notice; so long as such waiver is in writing; and provided, however, that no such waiver of a condition shall constitute a waiver by the Company and Shareholder of any other condition of or any of the Company's or Shareholder's rights or remedies, at law or in equity, if Purchaser shall be in default of any of its representations, warranties, or covenants under this Agreement. 6.2 Accuracy of Representations. Except as otherwise permitted by this Agreement, all representations and warranties by Purchaser in this Agreement or in any written statement that shall be delivered to the Company and/or Shareholder by Purchaser under this Agreement shall be true and accurate on and as of the Closing Date as though made at that time. (a) The Company shall deliver a signed Consent or Minutes of the Directors of the Company approving this Agreement. Such Minutes shall be certified by an officer of the Company. (b) Each party shall deliver such other documents or information required to be furnished by Closing pursuant to this Agreement. ARTICLE 7 MISCELLANEOUS 7.1 Captions and Headings. The Article and paragraph/section headings through this Agreement are for convenience and reference only, and shall in no way be deemed to define, limit, or add to the meaning of any provision of this Agreement. 7.2 No Oral Change. This Agreement and any provision hereof, may not be waived, changed modified, or discharged orally, but it can be changed by an agreement in writing signed by the party against whom enforcement of any waiver, change, modification, or discharge is sought. 13 7.3 Waiver. Except as otherwise expressly provided herein, no waiver of any covenant, condition, or provision of this Agreement shall be deemed to have been made unless expressly in writing and signed by the party against whom such waiver is charged; and (i) the failure of any party to insist in any one or more cases upon the performance of any of the provisions, covenants, or conditions of this Agreement or to exercise any option herein contained shall not be construed as a waiver or relinquishment for the future of any such provisions, covenants, or conditions (ii) the acceptance of performance of anything required by this Agreement to be performed with knowledge of the breach or failure of a covenant, condition, or provision hereof shall not be deemed a waiver of such breach or failure, and (iii) no waiver by any party of one breach by another party shall be construed as a waiver with respect to any other or subsequent breach. 7.4 Entire Agreement. This Agreement contains the entire Agreement and understanding between the parties hereto, and supersedes all prior agreements and understandings. 7.5 Choice of Law. This Agreement and its application shall be governed by the laws of the State of Colorado. 7.6 Counterparts. This Agreement may be executed simultaneously in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 7.7 Notices. All notices, requests, demands, and other communications under this Agreement shall be in writing and shall be deemed to have been duly given on the date of receipt if served personally on the party to whom notice is to be given, by telecopy or telegram, or mailing if mailed to the party to whom notice is to be given, by first class mail, registered or certified, postage prepaid, and properly addressed as follows: Purchaser: CAPCO ENERGY, INC. 2922 CHAPMAN AVENUE, SUITE 202 ORANGE, CA 92869 ATTENTION: IMRAN, JATTALA, VICE PRESIDENT Shareholder: METEOR INDUSTRIES, INC. 1401 BLAKE STREET, SUITE 200 DENVER, COLORADO 80202 The Company: METEOR STORES, INC. 1401 BLAKE STREET, SUITE 200 DENVER, CO 80202 14 7.8 Binding Effect. This Agreement shall inure to and be binding upon the heirs, executors, personal representatives, successors and assigns of each of the parties to this Agreement. 7.9 Mutual Cooperation. The parties hereto shall cooperate with each other to achieve the purpose of this Agreement, and shall execute such other and further documents and take such other and further actions as may be necessary or convenient to effect the transaction described herein. 7.10 Brokers. Each of the parties hereto shall indemnify and hold the other harmless against any and all claims, losses, liabilities or expenses which may be asserted against it as a result of its dealings, arrangements or agreements with any broker, finder or person. 7.11 Announcements. Purchaser, Shareholder and the Company will consult and cooperate with each other as to the timing and content of any announcements of the transactions contemplated hereby to the general public or to employees, customers or suppliers. Except to the extent that the parties consent in writing otherwise, no party to this Agreement shall make, or cause to be made, any press release or public announcement in respect of this Agreement or the transactions contemplated hereby or otherwise communicate with any news media. Nevertheless, the parties agree that the Purchaser or an affiliate of the Purchaser may make such disclosure (on Form 8-K, by press release or otherwise) regarding the terms of this Agreement and the transactions contemplated hereby as it deems necessary to comply with applicable securities laws or the rules and regulations of the NASDAQ, including a press release following the execution of this Agreement. 7.12 Expenses. Except as specifically provided in this Agreement, all direct costs and expenses including legal, and any other out-of-pocket expenses incurred by Shareholder, in connection with this transaction, shall be paid by the Shareholder. All costs and expenses including legal, accounting and any other out-of-pocket expenses incurred by the Purchaser, in connection with this transaction, shall be paid by the Purchaser. 7.13 Survival of Representations and Warranties. Except as otherwise provided in this Section 9.13, the representations, warranties, covenants and agreements of the parties set forth in this Agreement or in any instrument, certificate, opinion, or other writing providing for in it, shall survive the Closing for a period of one year irrespective of any investigation made by or on behalf of any party. 7.14 Assignment. This Agreement may not be assigned by operation of Law or otherwise by the Shareholder, the Company or the Purchaser. AGREED TO AND ACCEPTED as of the date first above written. PURCHASER: CAPCO ENERGY, INC. SHAREHOLDER: METEOR INDUSTRIES, INC. /s/ Ilyas Chaudhary /s/ Dennis R. Staal, Director By ----------------------- By ---------------------------------- SELLER: METEOR STORES, INC. /s/ Paul W. Greaves, President By ------------------------------- 15 EX-10.4 4 0004.txt SALE AGREEMENT RE METEOR STORES Exhibit 10.4 OneStopPlaza.com 7908 Sierra Vista Street Rancho Cucamonga, CA 91730 Phone: (909) 981-3453 Fax (909) 981-3793 August 23, 2000 Capco Energy, Inc. 2922 E. Chapman Ave., # 202, Orange, CA 92869 Re.: Letter Agreement to Acquire Sixty-five Percent (65%) Equity Position in Meteor Stores, Inc., a New Mexico Corporation ("MSI"). Gentlemen: Pursuant to several previous conversations and negotiations, OneStopPlaza.Com, Inc. ("OSPC") (the "Buyer") hereby agrees to acquire an equity position in MSI from Capco, Energy, Inc. ("CEI") (the "Seller"). This Letter Agreement is contingent upon acceptance of the following terms and conditions by the Buyer and Seller: o Scope of Acquisition: Sixty-five percent (65%) of MSI common stock, which is currently owned and held by CEI. o Purchase Price: The Purchase Price for the stock shall be one million seventy-five thousand US dollars ($1,075,000). The purchase Price shall be paid as following: $215,000 in cash and stock of which fifty thousand dollars shall be in form of cash upon signing of this Letter Agreement by the Seller, Buyer and MSI. Also, the Buyer shall cause a transfer or surrender of 132,000 shares of CEI common stock to CEI. The balance of the Purchase Price in the amount of eight hundred sixty thousand dollars ($860,000) shall be paid by December 31, 2000. During the term of the Note, which will be secured by MSI stock, interest-only payments shall be made on quarterly basis. The interest rate shall be 9% annually on the unpaid principal balance. The interest payments to CEI shall be current with in 30 days of Closing. o Effective Date and Control: The effective date of this transaction shall be January 1, 2000 and the Buyer shall be deemed in control of the management of MSI as of that date. CEI's equity position in MSI shall be for investment purposes only. o Closing: The Closing shall be deemed to have taken place upon execution of this agreement and the payment of the cash and stock portion of the purchase price. o Basis for Purchase Price Determination: The attached schedule ("Exhibit A") was used for determination of the Purchase Price. o Financial Statements: Subject to adjustments noted elsewhere in this Letter Agreement and other adjustments that are necessary in ordinary course of business, MSI' s financial statements as of December 31, 1999 shall set out corporations assets, liabilities and equity. Such financial statements shall be made part of this Letter Agreement and attached as Exhibit B. o CEI's Disclaimer and Assignments: It is understood that the Buyer is conducting this transaction on "as is, where is" basis. CEI will not be held responsible for any actions and / or claims arising out of this transaction. MSI shall continue to be entitled to all the adjustments that are due from Meteor Industries, Inc. ("MMI") resulting from CEI' s acquisition of MSI from MMI. Further, in this regard, CEI will make assignments in favor of MSI for all of the MSI's rights as per acquisition contract(s) between CEI and MMI. o Default Terms: In the event of a default by the Buyer, CEI shall have the right to foreclose against the security unless the interest payment is made and the default is fully cured within 60 days of the default date. o Officers and Directors: MSI's board shall consist of three directors. The Seller, at its own discretion, shall have the right to appoint one director to the MSI board. The Buyer shall appoint the other two directors. If the Seller declines to exercise this right at any time, the Buyer shall inherit that right there forward. o Adjustments and Inter-Company Accounts: CEI shall re-assume the note payable to MII regarding the Petrosantander transaction. All accounts among the Seller and MSI containing pre and post Effective Date transactions ("Inter-company Accounts") shall be reconciled. The Seller shall reimburse MSI for all balances owed to clear Inter-company Accounts with 30 days from the Closing date. Such period may be extended by a mutual agreement. o Post Closing Adjustments and Actions: Any and all post closing adjustments shall be resolved within 120 days from the closing date unless such 120 days period is waived and or extended by a mutual agreement among the Seller and Buyer. CEI shall obtain a release on all of MSI's common stock except for their 35% position in the MSI common stock from any party / parties where MSI stock may have been pledged as a collateral. When fully Signed in the spaces provided below, this Letter Agreement shall be binding upon the Buyer, Seller, and MSI. Agreed to and accepted: Agreed to and accepted: Capco Energy, Inc. OneStopPlaza.Com, Inc. /s/ Ilyas Chaudhary /s/ Imran Jattala ---------------------------- -------------------------- By: Ilyas Chaudhary By: Imran Jattala Its President Its: President Date: 9/27/00 Date: 9/27/00 Agreed to and accepted: Meteor Stores, Inc. /s/ Imran Jattala ---------------------- By: Imran Jattala Its President Date: 09/27/00 EX-21 5 0005.txt SUBSIDIARIES OF REGISTRANT Exhibit 21 SUBSIDIARIES OF REGISTRANT OTHER NAMES JURISDICTION OF UNDER WHICH INCORPORATION OR SUBSIDIARY NAME (AND % OWNED) ORGANIZATION DOES BUSINESS - ------------------------------ ------------------ ------------- Capco Resource Corporation Delaware None (100% owned) EX-27 6 0006.txt FINANCIAL DATA SCHEDULE
5 This schedule contains summary financial information extracted from the consolidated balance sheets and consolidated statements of operations found on pages F-2 to F-4 of the Company's Form 10-KSB for fiscal year ended December 31, 1999, and is qualified in its entirety by reference to such financial statements. YEAR DEC-31-1999 DEC-31-1999 64,683 0 73,624 0 0 154,998 3,095,586 0 3,414,465 2,004,029 0 8,322 0 292,947 1,109,167 3,414,465 89,962 89,962 20,155 431,360 574 0 46,444 (407,423) 0 (407,423) 0 0 0 (407,423) (.07) (.07)
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