-----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, OIvkxM/Cm6esX0QVxjIQtBCupz1NZO3hXb+XGGd6kQezNVHXzCjdCtIZEZZsc7UY RJM6hmMJgzAzXbSfE+Z2zw== /in/edgar/work/20001103/0001090002-00-000375/0001090002-00-000375.txt : 20001106 0001090002-00-000375.hdr.sgml : 20001106 ACCESSION NUMBER: 0001090002-00-000375 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000331 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: 10QSB SEC ACT: SEC FILE NUMBER: 000-10157 FILM NUMBER: 752237 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 10QSB 1 0001.txt QUARTERLY REPORT PERIOD ENDING MARCH 31, 2000 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-QSB X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. For the quarterly period ended March 31, 2000. OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. For the transition period from _______, 19___ to _______, 19___. Commission File Number: 0-10157 CAPCO ENERGY, INC. --------------------------------------------------------------- (Exact Name of Small Business Issuer as Specified in its Charter) COLORADO 84-0846529 - - ------------------------------- ----------------------- (State or Other Jurisdiction of (IRS Employer Identi- Incorporation or Organization) fication Number) 2922 E. CHAPMAN, SUITE 202 ORANGE CALIFORNIA 92869 -------------------------------------- Address of Principal Executive Offices (714) 288-8230 -------------------------------------------------- (Registrant's Telephone Number, Including Area Code) Check whether the Issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the Issuer was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. X Yes No There were 21,303,838 shares of the Registrant's $.001 par value common stock outstanding as of March 31, 2000. PART I. FINANCIAL INFORMATION Item 1. Financial Statements CAPCO ENERGY, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET March 31, 2000 (Unaudited) ASSETS Current Assets: Cash $ 19,300 Marketable Securities 7,981,777 Accounts Receivables, net 259,818 Accounts Receivables, related parties - ------------ Total Current Assets 8,260,895 ------------ Property and Equipment, net 3,362,139 ------------ Other Assets: Investments 3,673,696 Other Assets 293,686 ------------ Total Assets $ 15,590,416 ============ Accompanying notes are an integral part of the financial statements. 2 CAPCO ENERGY, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET March 31, 2000 (Unaudited) LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Accounts Payable, Trade $ 868,822 Current Maturities, Long-term Debt 3,062,048 Accrued Expenses 54,482 Dividend Payable 26,673 ------------ Total Current Liabilities 4,012,025 ------------ Long Term Debt, less current maturities 1,515,854 Commitments and Contingencies Total Liabilities 5,527,879 ------------ 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; 21,303,838 Shares issued and outstanding 21,304 Paid-In Capital 3,148,753 Cumulative Translation Adjustment 6,704 Cumulative Unrecognized Gains 7,878,467 Retained Earnings (Deficit) (1,285,638) ------------ Total Stockholders' Equity 10,062,537 ------------ Total Liabilities and Stockholders' Equity $ 15,590,416 ============ Accompanying notes are an integral part of the financial statements. 3 CAPCO ENERGY, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS For the three months ended March 31, 2000 and 1999 (Unaudited) 2000 1999 ----------- --------- Sales $ 85,940 $ - Cost of Sales 145,250 - ----------- --------- Gross Profit (59,310) - Selling, General and Administrative Expenses 244,909 39,662 ----------- --------- Loss from operations (304,219) (39,662) Other Income (Expenses) Interest Income - 524 Interest Expense ( 72,176) (99) Gain on Sale of Assets 17,213 - ----------- --------- Total Other Income (Expenses) ( 54,963) 425 ----------- --------- Loss before equity earnings (359,182) (39,237) Equity Loss in Investments (519,034) - ----------- --------- Net Loss $ (878,216) (39,237) =========== ========= Loss per Share Basic and Diluted $ (.05) $ (.01) =========== ========= Average Shares Outstanding Basic and Diluted 17,163,319 4,141,667 Accompanying notes are an integral part of the financial statements. 4 CAPCO ENERGY, INC AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS For the three months ended March 31, 2000 and 1999 (Unaudited) 2000 1999 ----------- ------------ Cash Flow from Operating Activities: Net(Loss) $ (878,216) $ (39,237) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization 1,561 - (Gain) on sale of assets (17,213) - Equity loss in investments 519,034 - Decrease (increase) in: Accounts Receivable, (net) (477,927) (42,999) Increase (decr.) in accounts payable 263,089 38,823 Increase (decr.) in accrued liabilities (9,594) - Decrease (increase) other assets - (350) ----------- ------------ Net cash (used) by operating activities (599,266) (43,763) ----------- ------------ Cash Flow from Investing Activities: Acquisition, Net of Cash 4,264 Cash proceeds from sale of property 17,212 Purchases of Property and Equipment (150,493) (23,608) Investment in closely held business (296,149) - ----------- ------------ Net cash (used) by investing activities (425,166) (23,608) ----------- ------------ Cash Flow from Financing Activities: Borrowings on long term debt 454,049 50,000 Sale of Stock 525,000 - ----------- ------------ Net cash provided by financing activities 979,049 50,000 ----------- ------------ Net Decrease in Cash (45,383) (17,371) Cash, Beginning of Period 64,683 0 ----------- ------------ Cash, End of Period $ 19,300 $ (17,371) =========== ============ Accompanying notes are an integral part of the financial statements. 5 CAPCO ENERGY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2000 (Unaudited) 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES GENERAL DEVELOPMENT OF BUSINESS. NATURE OF OPERATIONS Capco Energy, Inc. ("Capco" or the "Company") is an independent energy company engaged primarily in the acquisition, development, production for and the sale of oil, gas and natural gas liquids. The Company's production activities are located in the United States. Capco treats all operations as one segment of business. The principal executive offices of the Company are located at 2922 East Chapman, suite 202, Orange, California. The Company was incorporated as Alfa Resources, Inc. a Colorado corporation on January 6, 1981. In November 1999, the Company amended it articles of incorporation to change its name from Alfa Resources, Inc. to Capco Energy, Inc. The Company's future financial condition and results of operations will depend upon prices received for its oil and natural gas and the costs of finding, acquiring, developing and producing reserves. Prices for oil and natural gas are subject to fluctuations in response to changes in supply, market uncertainty and a variety of other factors beyond the Company's control. These factors include worldwide political instability (especially in the Middle East), the foreign supply of oil and natural gas, the price of foreign imports, the level of consumer product demand and the price and availability of alternative fuels. BASIS OF PRESENTATION Effective December 31, 1999, Capco acquired 100% of the outstanding capital stock of Capco Resource Corporation ("CRC") a corporation involved in oil and gas production. As a result, CRC's former shareholders obtained control of Capco. For accounting purposes, this acquisition has been treated as a reverse acquisition with CRC as the accounting acquirer. The financial statements presented include CRC at cost since January 19, 1999, CRC's inception, and Capco at fair market value as of December 31, 1999. 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. 6 USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates with regard to these financial statements include the estimate of proved oil and gas reserve volumes and the related present value of estimated future net revenues therefrom. FAIR VALUE OF FINANCIAL INSTRUMENTS The Company measures its financial assets and liabilities in accordance with generally accepted accounting principles. For certain of the Company's financial instruments, including accounts receivable and accounts payable and accrued expenses, the carrying amounts approximate fair value due to their short maturities. The amounts owed for long-term debt also approximate fair value because current interest rates and terms offered to the Company are at current market rates. 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. 7 Future development, site restoration, and dismantlement and abandonment costs, net of salvage values, are estimated on a property-by-property basis based on current economic conditions and are amortized to expense as the Company's capitalized oil and gas property costs are amortized. The Company's properties are all onshore, and the Company expects that the salvage value of the tangible equipment will offset any site restoration and dismantlement and abandonment costs. Non-oil and gas producing properties and equipment are stated at cost; major renewals and improvements are charged to the property and equipment accounts; while replacements, maintenance and repairs, which do not improve or extend the lives of the respective assets, are expensed currently. At the time property and equipment are retired or otherwise disposed of, the asset and related accumulated depreciation accounts are relieved of the applicable amounts. Gains or losses from retirements or sales are credited or charged to operations. DEPRECIATION AND DEPLETION The provision for depreciation, 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. This calculation is done on a country-by-country basis for those countries with oil and gas production. The cost of unevaluated properties not being amortized, to the extent there is such a cost, is assessed quarterly to determine whether the value has been impaired below the capitalized cost. Any impairment assessed is added to the cost of proved properties being 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 March 31, 2000. At the end of each quarterly reporting period, the unamortized cost of oil and gas properties, net of related deferred income taxes, is limited to the sum of the estimated future net revenues from proved properties using current prices, discounted at 10%, and the lower of cost or fair value of unproved properties, adjusted for related income tax effects ("Ceiling Limitation"). The calculation of the ceiling limitation and provision for depreciation and depletion is based on estimates of proved reserves. There are numerous uncertainties inherent in estimating quantities of proven reserves and in projecting the future rates of production, timing, and plan of development. The accuracy of any reserves estimate is a function of the quality of available data and of engineering and geological interpretation and judgment. Results of drilling, testing, and production subsequent to the date of the estimate may justify revision of such estimate. Accordingly, reserve estimates are often different from the quantities of oil and gas that are ultimately recovered. 8 Depreciation for non-oil and gas properties is recorded on the straight-line method at rates based on the estimated useful lives of the assets. The estimated useful lives are as follows: DESCRIPTION LIVES Equipment 3 to 20 years INVESTMENT IN EQUITY SECURITIES For equity securities that the Company i) does not exercise control in the investee and ii) expects to divest within a short period of time, the Company accounts for the investment under the provisions of Financial Accounting Standards Board ("FASB") Statement of Financial Accounting Standards ("SFAS") No. 115, "Accounting for Certain Investments in Debt and Equity Securities". For equity investments that the Company i) exercises control in the investee and ii) expects to 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 Statement of Financial Accounting Standard ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of", Long-lived assets to be held and used are analyzed for impairment whenever events or changes in circumstances indicate that the related carrying amounts may not be recoverable. The Company evaluates at each balance sheet date whether events and circumstances have occurred that indicate possible impairment. If there are indications of impairment, the Company uses future undiscounted cash flows of the related asset or asset grouping over the remaining life in measuring whether the assets are recoverable. In the event such cash flows are not expected to be sufficient to recover the recorded asset values, the assets are written down to their estimated fair value. Long-lived assets to be disposed of are reported at the lower of carrying amount or fair value of asset less cost to sell. 9 REVENUE RECOGNITION Revenue from product sales is recognized when the product is delivered. Revenue from services is recognized when the services are performed and billable. 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 by SFAS No. 109, "Accounting for Income Taxes". As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes. 10 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 March 31, 2000, the Company has no items that represent comprehensive income and, therefore, has not included a schedule of comprehensive income in the accompanying consolidated financial statements. NET LOSS PER SHARE The Company uses SFAS No. 128, "Earnings Per Share" for calculating the basic and diluted loss per share. Basic loss per share is computed by dividing net loss attributable to common stockholders by the weighted average number of common shares outstanding. Diluted loss per share is computed similar to basic loss per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. At March 31, 2000, the Company had no potentially dilutive shares NEW ACCOUNTING PRONOUNCEMENT In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("FAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities." This statement establishes accounting and reporting standards requiring that every derivative instrument be recorded on the balance sheet as either an asset or liability measured at its fair value. FAS No.133 also requires that changes in the derivative's fair value be recognized currently in earnings unless specific hedge accounting criteria are met. In June 1999, the FASB issued FAS no. 137 which defers the effective date of FAS No. 133 to fiscal years beginning after June 15, 2000. The Company will adopt FAS No. 133 in the first quarter of fiscal 2001, but does not expect such adoption to materially affect its financial statement presentation. BASIS OF PRESENTATION These financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, such interim statements reflect all adjustments (consisting of normal recurring accruals) necessary to present fairly the financial position and the results of operations and cash flows for the interim periods presented. The results of operations for these interim periods are not necessarily indicative of the results to be expected for the full year. These financial statements should be read in conjunction with the audited consolidated financial statements and footnotes for the year ended December 31, 1999, filed with the Company's Form 10-KSB. 11 CONTINGENCIES The Company is subject to various federal, state and local environmental laws and regulations. Although Company environmental policies and practices are designed to ensure compliance with these laws and regulations, future developments and increasingly stringent regulations could require the Company to make additional unforeseen environmental expenditures. Environmental accruals are routinely reviewed on an interim basis as events and developments warrant. ACQUISITIONS 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 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% 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 Chapparal Resources, Inc. ("Chapparal"), which is in the business of oil and gas production in North America and Kazakhstan. CRL accounts for the investments of Industries and Chapparal under the equity method and Greka under the mark to market methods. 12 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 that include, among others, statements concerning: the benefits expected to result from Capco's acquisition of CRL, CRC and MSI. Including synergies in the form of increased revenues, decreased expenses and avoiding expenses and expenditures that are expected to be realized by Capco as a result of the acquisitions, and other statements of: expectations, anticipations, beliefs, estimations, projections, and other similar matters that are not historical facts, including such matters as: future capital, development and exploration expenditures (including the amount and nature thereof), drilling of wells, reserve estimates (including estimates of future net revenues associated with such reserves and the present value of such future net revenues), future production of oil and gas, repayment of debt, business strategies, and expansion and growth of business operations. These statements are based on certain assumptions and analyses made by the management of Capco in light of: past experience and perception of: Historical trends, current conditions, expected future developments, and other factors that the management of Capco believes are appropriate under the circumstances. Capco cautions the reader that these forward-looking statements are subject to risks and uncertainties, including those associated with: the financial environment, the regulatory environment, and trend projections, that could cause actual events or results to differ materially from those expressed or implied by the statements. Such risks and uncertainties include those risks and uncertainties identified below. Significant factors that could prevent Capco from achieving its stated goals include: the failure by Capco to integrate the respective operations of Capco and its acquisitions or to achieve the synergies expected from the acquisitions, declines in the market prices for oil and gas, increase in refined product prices, and adverse changes in the regulatory environment affecting Capco. The cautionary statements contained or referred to in this report should be considered in connection with any subsequent written or oral forward-looking statements that may be issued by Capco or persons acting on its or their behalf. Capco undertakes no obligation to release publicly any revisions to any forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. LIQUIDITY AND CAPITAL RESOURCES At March 31, 2000, the company has working capital of $4,248,870 compared to a deficit of $1,844,920 at December 31, 1999. This change in working capital is principally due to the acquisition of CRL and its investments. The Company through its subsidiaries has investments in various public companies. The majority of these investments are restricted and are not readily saleable. The Company through its subsidiaries is also involved in litigation regarding the investment in Greka Energy Corporation. 13 Cash flows used in operations for the three months ended March 31, 2000, and March 31, 1999, were $599,266 and $43,763 respectively. The increase in cash used during this period is principally due to the increased loss of the company. Cash flows used in investing activities for the three months ended March 31, 2000, were $425,166 compared to $23,608 in the prior year. This increase is principally due to the acquisition of oil and gas properties and investments in closely held businesses. Cash flows provided by financing activities for the three months ended March 31, 2000, were $979,049 compared to $50,000 in the prior year. This increase 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. However, the Company may have limitations on any potential contamination liabilities due to state reimbursement programs. RESULTS OF OPERATIONS THREE MONTHS ENDED MARCH 31, 2000 COMPARED TO MARCH 31, 1999 Capco's revenues from its oil and gas activities were $85,940 in 2000 compared to $0 in 1999. This revenue is primarily due to production from properties acquired in the second half of year 1999. Capco's cost of sales were $145,250 in 2000 compared to $0 in 1999. This increase is primarily due to increased production from the recent acquisitions. Selling, general and administrative costs were $244,909 in 2000 compared to $39,662 in 1999. This increase is primarily related to increased activities. Total other expense was $54,963 in 2000 compared to income of $425 in 1999, 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 and gas produced by Capco has 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. That uncertainty in oil and gas prices makes it more difficult for a company like Capco to increase its oil and gas asset bases and become a significant participant in the oil and gas industry. 14 PART II - OTHER INFORMATION Item 1. Legal Proceedings. 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 owned 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. Item 2. Changes in Securities. None. Item 3. Defaults Upon Senior Securities. None. Item 4. Submission of Matters to a Vote of Security Holders. None. Item 5. Other Information. None. 15 Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits Exhibit Number Description - ------- ----------- 27 Financial Data Schedule (b) Reports on Form 8-K Current Report on Form 8-K dated February 15, 2000, which reported events under Item 5, Other Events. SIGNATURES In accordance with the requirements of the Exchange Act, the Issuer caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized. CAPCO ENERGY, INC. Dated: November 2, 2000 By: /s/ Dennis R. Staal -------------------- Dennis R. Staal, Chief Financial and Accounting Officer 16 EX-27 2 0002.txt FINANCIAL DATA SCHEDULE
5 This schedule contains summary financial information extracted from the Consolidated balance sheets and consolidated statements of operations found on Page 2, 3 and 4 of the Company's Form 10-QSB for the quarter ended February 29, 2000, and is qualified in its entirety by reference to such financial statements. 3-MOS DEC-31-2000 MAR-31-2000 19,300 0 259,818 0 0 8,260,895 3,362,139 0 15,590,416 4,012,025 0 21,304 0 292,947 9,748,286 15,590,416 85,940 85,940 145,250 244,909 0 0 72,176 (878,216) 0 (878,216) 0 0 0 (878,216) (0.05) (0.05)
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