ITEM 1. BUSINESS
GENERAL
Meteor Industries, Inc. and certain subsidiaries ("Meteor" or the "Company") own, operate and acquire independent refined petroleum product distribution companies. These marketing and distribution companies sell gasoline, diesel fuel, lubricants, and propane. Meteor has grown through expansion of its existing businesses and the acquisition of established companies in this industry. Since 1993, Meteor has completed eleven acquisitions, nine of which have been acquisitions of petroleum distributors located in the Rocky Mountain Region and Western United States.
Early in the year 2000 Meteor's Board of Directors determined that it is in the best interest of the shareholders of the Company to explore other alternatives to enhance Meteor's shareholder value including sales of assets, mergers and joint ventures.
In December 1999, Meteor sold its retail store operating subsidiary, including all of its retail store operations, to Capco Energy, Inc., its largest shareholder for $1.5 million: $0.2 million in cash paid in January 2000 and a $1.3 million secured note. Meteor sold its retail store operating subsidiary to allow the Company to focus on its core business of commercial, wholesale and cardlock petroleum distribution.
AGREEMENT WITH ACTIVE IQ TECHNOLOGIES, INC.
On January 11, 2001, Meteor executed a definitive agreement to merge with Active IQ. The transaction is planned to close prior to April 16, 2001, and is subject to various contingencies including shareholder approval of both companies. Meteor, in anticipation of the transaction, invested $1.1 million to acquire approximately 10% of Active IQ. Upon shareholder approval, Meteor will issue new shares of common stock and warrants to purchase additional shares to Active IQ shareholders in exchange for all of the equity of Active IQ. Immediately after the merger, Active IQ shareholders will own approximately 50% of the voting shares of the merged company and will control the Board of Directors.
Active IQ is a privately held Minneapolis, Minnesota-based company with other offices in Boston, Massachusetts and Las Vegas, Nevada. Active IQ provides Internet infrastructure software and services for small to medium-sized companies through an affordable, service-based product line that quickly and seamlessly connects sellers to buyers with minimal supplier effort. The company's service, "Epoxy" and its suite of products (Express, Business and Enterprise), connects directly with supplier and buyer back-end business systems to streamline the buy/sell process. Active IQ also recently announced that it has formed a strategic relationship with Intranet Solutions, Inc. (Nasdaq-INRS) to offer Web content management solutions to small and medium- sized businesses worldwide. Intranet Solutions, Inc. is a significant shareholder of Active IQ.
AGREEMENT WITH CAPCO ENERGY, INC.
On January 30, 2001, Meteor executed a definitive agreement to sell, in connection with its planned merger with Active IQ, its subsidiaries and related businesses to its largest shareholder, Capco Energy, Inc. ("Capco")(Nasdaq-CPEG). The sale is contingent upon shareholder approval, the consummation of the Active IQ merger and certain other conditions. The sale price for the subsidiaries will be $5.5 million and certain environmental and other indemnities.
The subsidiaries own substantially all of Meteor's assets and operate all of its businesses; excluded are 400,000 shares of Active IQ's common stock and certain amounts of cash which will remain in Meteor at the time of merger. Also, the subsidiaries contain all of the liabilities of Meteor, except those associated with certain costs relating to the closing of the Active IQ merger.
Capco, located in Orange, California, is a 20-year-old public company. Capco's business is to explore for, develop and produce oil and gas efficiently and to secure strategic acquisitions. Capco holds investments in shares of various publicly traded companies, real estate and producing oil and gas properties.
PROXY STATEMENT FILING
In February 2001, the Company filed a definitive proxy statement on Schedule 14A with the Securities and Exchange Commission for the solicitation of proxies from its shareholders approving three proposals to be considered at a special meeting (the "Special Meeting") of the Company's shareholders (the "Shareholders"). At the Special Meeting the shareholders will be asked to vote on:
(1) A proposal to approve and adopt the Stock Purchase Agreement, dated as of January 30, 2001, by and between the Company and Capco, and the transactions contemplated by that agreement, including the sale of substantially all of the Company's assets (the "Asset Sale") to Capco.
(2) A proposal to approve the reincorporation of the Company under Minnesota law, which reincorporation would be effected by merging the Company with and into a newly formed and wholly owned subsidiary of the Company organized under Minnesota law (the "Reincorporation Merger"), and
(3) A proposal to approve and adopt an Agreement and Plan of Merger, dated as of January 11, 2001, by and among the Company, its wholly owned subsidiary, MI Merger, Inc. and Active IQ (the "Merger")
Because the Asset Sale and the Reincorporation Merger are conditions of the Merger, all three of the above described proposals must be approved by the Shareholders for any of the three proposed transactions to be consummated by the Company. The Asset Sale, the Reincorporation Merger, and the Merger are each subject to the satisfaction or waiver of several conditions, including, but not limited to, stockholder approval by the Company and Active IQ.
The foregoing summary description is qualified in its entirety by reference to the Stock Purchase Agreement, dated as of January 30, 2001, the Agreement and Plan of Merger, dated as of January 11, 2001, and the Company's definitive proxy on Schedule 14A, filed with the Commission February 14, 2001, which are attached as Exhibits 10.1, 10.2 and 20.1 to Meteor's Form 8-K filed on February 13, 2001 and incorporated by this reference.
THE PETROLEUM DISTRIBUTION INDUSTRY
The Department of Energy estimates that the total volume of refined petroleum products sold in the United States is approximately 819 million gallons per day. Refined petroleum products are generally distributed by three types of entities: pipeline companies that distribute directly to large end-users, such as utilities and airports; major oil companies that often supply their own retail outlets and are normally focused on urban areas; and independently owned wholesale petroleum distributors.
According to Petroleum Marketers Association of America there are approx- imately 7,850 independent petroleum distributors in the United States. Collectively, these marketers sell approximately 50% of the gasoline, 60% of the diesel fuel and 80% of the home heating oil consumed in America. Due to these industry characteristics, as well as the relative absence of industry consolidators, the owners of independent petroleum businesses, a majority of which are smaller owner-operators, have limited alternatives to sell their operations. The Company believes these factors create an opportunity for it to be a part of the consolidation of this industry and accomplish additional acquisitions in its existing region and in additional market areas. The ability to so participate is contingent on the availability of financial resources, which availability has been problematic recently, and/or the willingness of sellers to provide significant financing.
PETROLEUM MARKETING OPERATIONS
Meteor operates its petroleum marketing business primarily from its Colorado, New Mexico and Wyoming offices. The Company operates this business through Meteor Marketing, Inc. d/b/a Graves Oil & Butane Co., Inc., Fleischli Oil Company, Inc., and Tri-Valley Gas Co.
The commercial and wholesale diesel fuel, gasoline and lubricant operations are the largest part of the Company's business. These operations have agreements to supply products to customers that include truck stops, retail gasoline service stations, convenience stores, construction companies, commercial fleet distribution centers, the federal government, mining companies and utilities.
The commercial/wholesale operation has distributor agreements to purchase products from Phillips Petroleum Company, Sun Lubricants, Conoco, Inc., Amoco Petroleum Products, Exxon Lubricants, Sinclair Oil Company, Shell Oil Company, Frontier Oil and Refining Company, and Fina Oil Company. These distributor agreements allow the Company to purchase petroleum products at wholesale prices directly from distribution centers, pipeline terminals and refineries controlled by these large oil producer/refiners. The Company is then authorized to resell those products to its customers.
The Company's distribution agreements generally have three-year terms. The distribution agreements do not provide for an exclusive territory and can be terminated by either party upon 30 days notice. There can be no assurance that these agreements will not have to be renegotiated or that they will be renewed. Most recently, due to changes in the industry, the Company has been notified that it will lose certain direct contracts with Sun and Conoco. In addition, Meteor has recently signed a direct supply contract and commenced
doing business with Chevron Lubricants. Although the Company is a relatively long standing distributor of products in the states where it operates, the consolidation in the industry makes it likely that Meteor will lose or add one or more additional contracts. In such an event, the Company's operations can be adversely impacted, however, because Meteor's customer base is larger than the average distributor in the industry, management believes that it has the ability to develop relationships with new suppliers and use its remaining existing suppliers to provide quality products to its customers.
Many of the Company's wholesale customers operate retail gasoline service stations under the banners of various major oil companies. The banner arrangements require that a retail operator purchase fuel exclusively from a distributor, such as the Company, who is authorized to sell branded products. On occasion the Company has supplied new signage and other improvements to retailers so they would switch to a Company brand. The Company's suppliers may subsidize such improvements by providing discounts to the Company or by forgiving certain obligations based on the volume of product sold to such retailer.
The Company also markets its products to commercial and governmental accounts through direct selling efforts of the Company. The majority of the Company's revenues come from repeat orders from existing customers. The Company also advertises in trade journals and attends industry trade shows in its markets.
The Company's wholesale transactions and most of its commercial sales begin with the loading of the Company's trucks at pipeline supplied terminals, refineries or other storage facilities. When sold in transport quantities, the trucks deliver the products directly to the customer with no intermediate storage of fuel. The distribution process for bulk fuel products, from pick-up to delivery to customers, is typically completed in less than two days.
The Company's wholesale/commercial customers are primarily located in New Mexico, Wyoming, Colorado and Nevada. One customer accounted for 12% of the Company's sales in 2000.
The Company operates 17 automated cardlock locations. The cardlock systems provide 24-hour-per-day access to fuel dispensing facilities for commercial fleet customers and customers with automated debit cards. The cardlock systems do not require that a Company employee be present to process the fuel purchase. The cardlock facilities are primarily used by commercial fleet operators in order to take advantage of automated transaction process technology which allows a user to insert a "user card" activating the fuel dispenser and records the transaction. The Company's strategy contemplates increasing the number of cardlock facilities that the Company owns or controls.
ROCKY MOUNTAIN PROPANE LLC
The Company also has a wholesale, retail and commercial propane business. Meteor has over 2,900 residential and over 260 commercial propane customers. Effective in January 2001, Meteor contributed substantially all of its propane assets into a new entity, Rocky Mountain Propane LLC, and sold an interest in such company to Meteor's propane management. Management of Rocky Mountain Propane LLC is actively seeking financing for other propane opportunities in its market areas.
SABA POWER COMPANY LTD.
Saba Power Company Ltd. ("Saba Power") is a limited liability corporation in Pakistan. It was established in early 1995 to pursue development of a power plant project in Pakistan. As discussed below, the Company has an interest in Saba Power, which has a power plant project 40 miles from Lahore, Pakistan (the "Power Project"). Costs for the 125 megawatt plant were approximately $160 million. Construction activity was completed in December of 1999 and the plant began selling electricity in January 2000. Due to the political situation in Pakistan, the debt financing relating to the project is such that substantially all of the cash flow is being applied to pay down the existing debt. If the debt is not restructured, it is estimated to take approximately 7 to 8 years to pay off the existing debt.
At December 31, 2000, the Company had invested $0.7 million for an approximate 1.5% interest in Saba Power. The Company is not required to invest any additional capital related to the Power Project. If additional capital is required, then the Company will have the choice of investing more capital or suffering ordinary dilution to its ownership interest without incurring any penalties.
INNOVATIVE SOLUTIONS AND TECHNOLOGIES, INC.
In August of 1996, the Company acquired Innovative Solutions and Technologies, Inc. ("IST"), a Colorado corporation, which provides environmental consulting services. IST provides consulting services to outside clients as well as Meteor and its affiliates.
INSURANCE
The Company has a commercial liability policy, an umbrella policy, workmen's compensation, as well as other policies covering damage to its properties. These policies cover Company facilities, employees, equipment, inventories and vehicles in all states of operation. While management believes the Company's insurance coverage is adequate for most foreseeable problems, and is comparable with the coverage of other companies in the same business and of similar size, its coverage does not protect the Company for most third party liabilities relating to damage of the environment. Such environmental related coverage to third parties, is generally unavailable or available only at a prohibitive cost.
COMPETITION AND MARKETS
The petroleum marketing business is highly competitive. The Company competes on the basis of price, service and corporate capabilities. In all phases of its operations, the Company encounters strong competition from a number of companies, including some very large companies. Many of these larger competitors possess and employ financial and personnel resources substantially in excess of those which are available to the Company. The Company's marketing division also competes with integrated oil companies which in some cases own or control a majority of their own marketing facilities. These major oil companies may offer their products to the Company's competitors on more favorable terms than those available to the Company from its suppliers. A significant number of companies, including integrated oil companies and petroleum products distribution companies, distribute petroleum products through a larger number of facilities than the Company.
The wholesale and commercial distribution of petroleum products is a highly competitive industry. This competition generally comes from other privately held petroleum jobbers operating in the same geographic region as the Company. The competition is primarily focused on the government contract and commercial fleet segments of the business. The government contract business is awarded via a lowest sealed bid process and the Company competes heavily with several wholesale distributors. Competition also occurs for the gasoline service station customers. In competing for this segment of the business, a customer must be convinced to change the "brand" of the station (i.e., convert a station or store from Conoco to Phillips 66). A change of brands can be expensive and disruptive to the operations of the gasoline service station and therefore does not occur frequently.
GOVERNMENTAL REGULATIONS
ENVIRONMENTAL MATTERS
Various federal and state statutes are designed to identify environmental damage, identify hazardous material and operations, regulate operations engaged in hazardous activities and establish procedures for remedial action. The Company is inspected on a regular basis by state environmental authorities. The Environmental Protection Agency ("EPA") and the various states the Company operates in have instituted environmental compliance regulations designed to prevent leakage and contamination from underground storage tanks. The Company continually expends funds when complying with changing environmental regulations and expects to spend about $0.1 million a year on environmental compliance.
Various states have established trust funds for the clean up of contaminated underground sites. Under most circumstances, the Company's exposure is limited to $10,000 per location, beyond which the state clean-up fund assumes responsibility. Assistance is not available to repair or replace underground tanks or equipment. The law specifies requirements which must be met for an applicant to be eligible, it includes a provision that payments will be made in accordance with regulations and it states that payments from the trust funds are limited to amounts in the fund. There can be no assurance that the trust funds will have sufficient capital, or will agree, to fund remediation of any particular problem.
ENVIRONMENTAL COMPLIANCE. The Company's Regulated Environmental Activities are subject to an extensive variety of evolving federal, state and local laws, rules and regulations governing the storage, transportation, manufacture, use, discharge, release and disposal of product and contaminants into the environment, or otherwise relating to the protection of the environment. While not all-inclusive, exhaustive or complete, below is a listing of the more significant environmental laws which potentially impact the Company's Regulated Environmental Activities:
RESOURCE CONSERVATION AND RECOVERY ACT OF 1976, AS AMENDED IN 1984 ("RCRA"). The United States Congress enacted RCRA in 1976 and amended it in 1984. RCRA established a comprehensive regulatory framework for the management of hazardous wastes at active facilities. RCRA creates a "cradle to grave" system for managing hazardous wastes. Those who generate, transport, treat, store or dispose of waste above certain quantities are required to undertake certain performance, testing and record keeping. The 1984 amendments to RCRA,
known as Hazardous Solids Wastes Act ("HSWA"), increased the scope of RCRA to regulate small quantity hazardous waste generators and waste oil handlers and recyclers as well as require the identification and regulation of underground storage tanks in which liquid petroleum or hazardous substances were stored. HSWA and its implementing regulations require the notification to designated state agencies of the existence and condition of regulated underground storage tanks and impose design, construction and installation requirements; leak detection, spill/over fill protection, reporting, and cleanup requirements; tank closure and removal requirements; and fiscal responsibility requirements.
COMPREHENSIVE ENVIRONMENTAL RESPONSE, COMPENSATION AND LIABILITY ACT OF 1980 ("CERCLA" OR "SUPERFUND") AS AMENDED IN 1982. CERCLA established the Superfund program to clean up inactive sites at which hazardous substances had been released. Superfund has been interpreted to create strict, joint and several liability for the costs of removal and remediation, other necessary response costs and damages for injury to natural resources. Superfund liability extends to generators of hazardous substances, as well as to (i) the current owners and operators of a site at which hazardous substances were disposed; (ii) any prior owner or operator of the site at the date of disposal; and (iii) waste transporters who selected such facilities for treatment or disposal of hazardous substances. CERCLA allows the EPA to investigate and remediate contaminated sites and to recover the costs of such activities (response costs), as well as damages to natural resources, from parties specified as liable under the statute. CERCLA also authorizes private parties who incur response costs to seek recovery from statutorily liable parties. CERCLA was amended by the Superfund Amendments and Reauthorization Act of 1986 ("SARA"). SARA provides a separate funding mechanism for the clean up of underground storage tanks. CERCLA excludes petroleum including crude oil or any fraction thereof, with certain limitations from the definition of "hazardous substances" for which liability for clean up of a contaminated site will attach. This exclusion also applies to those otherwise hazardous substances which are inherent in petroleum, but not to those added to or mixed with petroleum products.
THE CLEAN WATER ACT OF 1972, AS AMENDED (THE "CLEAN WATER ACT"). The Clean Water Act establishes water pollutant discharge standards applicable to many basic types of manufacturing facilities and imposes standards on municipal sewage treatment plants. The Clean Water Act requires states to set water quality standards for significant bodies of water within their boundaries and to ensure attainment and/or maintenance of those standards. Many industrial and governmental facilities must apply for and obtain discharge permits, monitor pollutant discharges and under certain conditions reduce certain discharges.
FEDERAL OIL POLLUTION ACT OF 1990 ("OPA"). The OPA amends the Clean Water Act and expands the liability for the discharge of oil into navigable waters. Liability is triggered by discharge or substantial threat of a discharge of oil into navigable waters. OPA defines three classes of parties subject to liability: (1) owners, operators, and persons chartering vessels; (2) lessees and permits of areas where off-shore facilities are located; and (3) owners and operators of on-shore facilities.
THE CLEAN AIR ACT OF 1970, AS AMENDED (THE "CLEAN AIR ACT"). The Clean Air Act required the EPA to establish and ensure compliance with national ambient air quality standards ("NAAQS") for certain pollutants. The NAAQS generally are to be achieved by the individual states through state implementation plans ("SIPs"). SIPs typically attempt to meet the NAAQS by, among other things, regulating the quantity and quality of emissions from specific industrial sources. As required by the Clean Air Act, the EPA also has established regulations that limit emissions of specified hazardous air pollutants and has established other regulations that limit emissions from new industrial sources within certain source categories. The Clean Air Act was amended extensively in 1990, to, among other things, impose additional emissions standards that must be implemented by the EPA through regulations.
THE EMERGENCY PLANNING AND COMMUNITY RIGHT-TO-KNOW ACT ("EPCRA"). EPCRA was passed as a part of the Superfund Amendments and Reauthorization Act (SARA). EPCRA requires emergency planning notification, emergency release notification, and reports with respect to the storage and release of specified chemicals. Industry must provide information to communities regarding the presence of hazardous and extremely hazardous substances at facilities within those communities.
THE OCCUPATIONAL SAFETY AND HEALTH ADMINISTRATION ACT ("OSHA"). OSHA regulates exposure to toxic substances and other forms of workplace pollution and hazards. The Department of Labor administers OSHA. OSHA specifies maximum levels of toxic substance exposure. OSHA also sets out a "right-to-know" rule which requires that workers be informed of, and receive training relating to, the physical and health hazards posed by hazardous materials in the workplace.
OTHER STATE, AS WELL AS, LOCAL GOVERNMENT REGULATION. Many states have been authorized by the EPA to enforce regulations promulgated under various federal statutes. In addition, there are numerous other state as well as local authorities that regulate the environment, some of which impose more stringent environmental standards than Federal laws and regulations. The penalties for violations of state laws vary but typically include injunctive relief, recovery of damages for injury to air, water or property, and fines for non-compliance.
REGULATORY STATUS AND POTENTIAL ENVIRONMENTAL LIABILITY. The operations and facilities of the Company are subject to numerous federal, state and local environmental laws and regulations including those described above, as well as associated permitting and licensing requirements. The Company regards compliance with applicable environmental regulations as a critical component of its overall operation and devotes significant attention to protecting the health and safety of its employees and to protecting the Company's facilities from environmental problems. Management believes that the Company has obtained or applied for all permits and approvals required under existing environmental laws and regulations to operate its current business. In light of coverage of the state reimbursement funds and certain indemnification provisions included in various acquisition contracts, management does not believe that any pending or threatened environmental litigation or enforcement action(s) will materially and adversely affect the Company's business. While the Company has implemented appropriate operating procedures at each of its facilities designed to assure compliance with environmental laws and regulations, given the nature of its business, the Company always is subject
to environmental risks and the possibility remains that the Company's ownership of its facilities and its operations and activities could result in civil or criminal enforcement and public as well as private action(s) against the Company, which may necessitate or generate mandatory clean up activities, revocation of required permits or licenses, denial of application for future permits, or significant fines, penalties or damages, any and all of which could have a material adverse effect on the Company.
EMPLOYEES
The Company employs approximately 220 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.
ITEM 2. PROPERTIES
The Company leases its corporate office in Denver, Colorado from a joint venture affiliate that owns the building. Meteor owns approximately 25% of the joint venture.
The Company operates an additional office for accounting and operations in Cheyenne, Wyoming.
The Company operates fourteen terminals/bulk plants/warehouse combinations. Of these, eleven are owned and three are leased. Three are located in New Mexico, four in Wyoming, six in Colorado and one in Nevada.
The Company owns an interest in nine retail locations located in New Mexico and Colorado which are leased to a third party operator.
The Company operates seventeen cardlock facilities, of which thirteen are owned. Four are located in New Mexico, seven in Colorado, five in Wyoming and one in Nevada.
The Company owns a substantial amount of personal property, including above and below ground tanks located at its bulk plants, warehouses and cardlocks described above. It also owns approximately 2,650 portable above ground fuel and propane tanks, 5 automobiles, 97 trucks/bobtails, 72 tractors/trucks, 128 trailers and 18 forklifts. The Company also leases approximately 16 tractors/trucks under operating leases.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
The Company is a party to certain litigation that has arisen in the normal course of its business and that of its subsidiaries. In the opinion of management, none of this litigation is likely to result in a material effect on the Company's financial position or results of operations.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of the calendar year covered by this annual report, no matter was submitted to a vote of the Company's shareholders through the solicitation of proxies or otherwise.
PART II
ITEM 5.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
PRICE RANGE OF COMMON STOCK
Prices for the Common Stock are quoted on the NASDAQ Small Cap.
Bid Period High Low
Quarter Ended March 31, 1999. . . . . . $3.00 $2.38 Quarter Ended June 30, 1999 . . . . . . $3.50 $2.50 Quarter Ended September 30, 1999. . . . $4.06 $3.13 Quarter Ended December 31, 1999 . . . . $3.50 $2.63
Quarter Ended March 31, 2000. . . . . . $3.13 $2.31 Quarter Ended June 30, 2000 . . . . . . $4.88 $3.19 Quarter Ended September 30, 2000. . . . $6.38 $4.69 Quarter Ended December 31, 2000 . . . . $4.75 $2.88 __________________
As of the date of this report, there were approximately 62 record holders of the Company's Common Stock. Based on securities position listings, the Company believes that there are approximately 500 beneficial holders of the Company's Common Stock.
DIVIDENDS
The Company has paid no cash dividends on its Common Stock and has no present intention of paying cash dividends in the foreseeable future. It is the present policy of the Board of Directors to retain all earnings to provide for the growth of the Company. Payment of cash dividends in the future will depend, among other things, upon the Company's future earnings, requirements for capital improvements and financial condition. Under the current debt covenant agreements, the Company is subject to restrictions on its ability to pay cash dividends.
PRIVATE SALES OF SECURITIES
During the years ended December 31, 2000, 1999 and 1998, the Company sold shares of its Common Stock and issued warrants and options the underlying shares for which were not registered under the Securities Act of 1933, as amended, as follows:
In June of 2000, Meteor sold 365,000 shares of Series B Convertible Preferred Stock in a private placement to five accredited investors. The preferred shares were sold for $2.00 each for total proceeds of $0.7 million. Each share of Series B Convertible Preferred Stock is convertible into one share of the Company's common stock and a 5-year warrant to purchase one share of common stock at a price of $2.50 per share.
In 2000, the Company issued 23,887 common shares for services and 401(k) matching.
In April of 1999, the Company issued 113,750 warrants to outside consultants. The warrants have an exercise price of $2.90 per share and expire in April 2003.
In September of 1999, the Company issued 64,000 common shares and guaranteed a note of $1.4 million in exchange for a 25% interest in the office building in which the Company's offices are located.
In 1999, the Company issued 36,475 common shares for services and 401(k) matching.
In 1998, the Company issued 10,164 common shares for services and 401(k) matching.
In 1998, the Company issued a total of 560,000 warrants in exchange for services by non-employees and non-affiliates. The average exercise price of these warrants was $3.67 per share. In 1998, 350,000 of these warrants were cancelled. In 1999, the remaining 210,000 warrants expired.
During January 1999, the Company issued 300 shares of Series A preferred stock with extraordinary voting rights. This was done in order to ensure that the Company's current board members remained in control of Meteor until such time as Nevada Manhattan Group Inc. delivered a valuable contract to Meteor as required by written agreement. Since the Nevada Manhattan transaction has been rescinded, Meteor redeemed and cancelled all of the Series A preferred stock in February 2000 at no cost.
In the first quarter of 2001, the Company completed a private placement to five accredited investors. The private placement consisted of approximately 123,000 units at $15 per unit for total proceeds of $1.9 million. Each unit consists of 5 shares of common stock and 3 common stock purchase warrants with an exercise price of $5.50 per share. The warrants expire 5 years from the date of issue. The proceeds were issued to purchase approximately 10% of the outstanding common stock of Active IQ ($1.1 million) and the remaining proceeds will be used for general working capital needs.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
STATEMENT OF OPERATIONS DATA:
(Dollars in Thousands, Except Per Share Data)
For the Years Ended December 31, 2000 1999 1998 1997 1996 -------- -------- --------- -------- -------- Sales $196,800 $155,211 $118,362 $88,440 $59,984 Cost of sales 174,497 130,417 97,558 75,439 49,644 Operating expenses 21,409 23,232 17,905 11,814 9,119 Other (expense) income (2,116) (602) (348) 397 (79) Net (loss) income $ (949) $ 259 $ 1,168 $ 601 $ 462
(Loss) earnings per share: Basic $ (.27) $ .07 $ .31 $ .16 $ .15 Diluted $ (.27) $ .07 $ .31 $ .16 $ .14
Weighted average number of common shares and common share equivalents: Basic 3,537,555 3,454,146 3,792,197 3,821,061 3,184,397 Diluted 3,537,555 3,459,798 3,796,864 3,862,826 3,227,496
BALANCE SHEET DATA: (Dollars in Thousands) At December 31,
2000 1999 1998 1997 1996 -------- -------- -------- ------- --------- Current assets $25,477 $ 22,032 $ 16,096 $15,826 $ 8,488 Property, plant and equipment, net 16,437 17,905 19,235 13,940 8,277 Other assets 3,241 3,503 4,059 2,175 3,669 Total assets 45,155 43,440 39,390 31,941 20,434 Current liabilities 27,255 22,655 16,506 12,935 8,943 Long-term debt 7,202 5,865 6,390 2,912 446 Deferred tax liability 2,556 2,606 3,686 2,288 1,773 Minority interest 250 5,412 4,952 4,515 4,152 Shareholders' equity 7,424 6,902 7,856 9,291 5,120
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Report contains forward-looking statements within the meaning of the "safe harbor" provisions of the Private Securities Litigation Act of 1995. Such statements are based on management's current expectations and are subject to a number of factors and uncertainties which could cause actual results to differ materially from those described in the forward-looking statements.
The following discussion of the Company's financial condition and results of operations should be read in conjunction with the historical financial statements and notes thereto of Meteor, included elsewhere in this document.
The Company is engaged in the distribution and marketing of refined petroleum products including gasoline, diesel fuel, propane and lubricants. The Company's growth, since its inception in 1992, has been primarily through the acquisition of businesses in the petroleum marketing industry.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 2000, the Company had a working capital deficit of $1.8 million compared to a working capital deficit of $0.6 million at December 31, 1999. The decrease in working capital is primarily attributable to the restructuring agreement with the former shareholder of a subsidiary.
Net cash provided by operating activities totaled $3.3 million for the year ended December 31, 2000, compared to cash used in operating activities of $1.1 million for the year ended December 31, 1999 and $3.0 million provided by operating activities for the year ended December 31, 1998. The net cash provided by operating activities in 2000 is principally related to improved collections of accounts receivable while pricing has increased.
Net cash used in investing activities totaled $0.2 million for the year ended December 31, 2000, compared to cash used of $3.7 million for the year ended December 31, 1999 and $4.0 million for the year ended December 31, 1998. The use of cash in investing activities in 2000 is attributable to purchases of property, plant and equipment.
Net cash used in financing activities totaled $3.2 million for the year ended December 31, 2000, compared to cash provided of $4.6 million for the year ended December 31, 1999 and $1.2 million for the year ended December 31, 1998. This use of cash for financing activities is related to payments on long-term debt and the reduction of the revolving credit facility.
The Company has a revolving bank credit facility with Wells Fargo Business Credit, Inc. allowing for borrowings to a maximum of $12.5 million which expires December 31, 2002. The credit line is subject to a borrowing base, as defined. At December 31, 2000, the borrowing base was approximately $11.6 million. $8.6 million was borrowed against the facility and is recorded as a current liability. During the year the Company was out of compliance with several covenants contained in the agreement and the Company obtained waivers from the lender for noncompliance.
The Company has various loans with banks, suppliers and individuals which require principal payments of $3.8 million in 2001.
The Company is obligated to pay operating lease costs of approximately $1.0 million in 2001 for land, building, facilities and equipment.
The prices the Company pays for gasoline and diesel products are subject to market fluctuation and not in the control of the Company. Prices for these products can and have fluctuated significantly. Higher product prices could have a significant impact on the Company's borrowing capabilities due to the generally faster timing required for payments to the Company's suppliers compared to the timing of collection of receivables from its customers. When necessary, the Company finances these working capital requirements through its revolving bank credit facility. This facility contains certain financial covenants which are based on the Company's budgeted results. If, as a result of price changes or other factors, the Company is unable to meet its debt covenants, its ability to continue to borrow under the revolving credit facility could be limited. If that were to occur, the Company would have to make alternative financial arrangements, which could include seeking additional debt or equity financing which may or may not be available.
In August 2000, the Company acquired for retirement the Series A Convertible preferred stock of a subsidiary in exchange for a $4.4 million note payable and the assumption of certain environmental liabilities. The note is being amortized over a four-year period plus interest at 8%. The note requires a $1.5 million payment to be made from the receipts from the future sale or refinancing of certain assets. This payment was made in connection with the Rocky Mountain Propane transaction. The note is secured by certain assets of the subsidiary. The excess of the carrying value of the minority interest (the preferred shares) over the liabilities recorded in the transaction was credited to paid in capital.
The Company is responsible for any contamination of land it owns or leases. However, the Company's cost may have limitations on any potential contamination liabilities, as well as claims for reimbursement from third parties. For the periods ended December 31, 2000, 1999 and 1998, the Company recorded expenses of $0.2 million, $0.1 million and $0.1 million, respectively, for site assessment, cleanup related costs and regulatory compliance. The Company has accrued $1.0 million at December 31, 2000, for environmental remediation, which amount management believes to be adequate to cover known remediation requirements in the future which are not expected to be reimbursed by third parties.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's exposure to interest rate changes is primarily related to its variable rate debt issued under its $12.5 million revolving credit facility (See Note 7 to the Financial Statements). Because the interest rate on this facility is variable, based upon the lender's base rate, the Company's interest expense and net income are affected by interest rate fluctuations. If interest rates were to increase or decrease by 100 basis points, the result, based upon the existing outstanding debt as of December 31, 2000 would be an annual increase or decrease of approximately $86,000 in interest expense and a corresponding decrease or increase of approximately $52,000 in the Company's net income (loss) after taxes.
RESULTS OF OPERATIONS
COMPARISON OF THE YEAR ENDED DECEMBER 31, 2000 TO DECEMBER 31, 1999
The Company is primarily engaged in the business of marketing and distributing refined petroleum products and related products employing wholesale and retail operations. The Company's principal products are gasoline, diesel fuel, propane, greases and lubricants, convenience store items and other products (antifreeze, chemicals, services, hardware and miscellaneous items).
In December 1999, the Company sold its retail stores operating subsidiary to its largest shareholder. The Company retained the property, plant and equipment of nine of the retail locations and continues to lease these assets to the purchaser. The Company will continue to supply gasoline, diesel fuel and propane to the retail sites.
The Company had sales of $196.8 million in 2000 compared to $155.2 million in 1999, a $41.6 million (27%) increase. The increase is primarily due to higher product prices during the current period partially offset by a decrease in sales volumes.
Gross profit for 2000 and 1999 was $22.3 million and $24.8 million respec- tively, a decrease of $2.5 million (10%). The decrease is due to the exchange of higher retail margins with lower wholesale margins resulting from the sale of the retail stores business at the end of 1999, partially offset by an increase in freight revenue, resulting from the pass-through of higher fuel prices to our customers.
The Company experienced a net loss of $0.9 million for 2000 compared to $0.3 million of net income in 1999. The decrease is due to increased interest expense as a result of higher product pricing and other expenses related to environmental compliance and the write off of $0.6 million in costs associated with an acquisition that was terminated.
Gasoline sales volumes decreased to 49.0 million gallons in 2000 from 53.0 million gallons in 1999, a decrease of 4.0 million gallons (8%) due to a decrease in demand for gasoline as a result of the pass-through of higher product prices.
Gasoline sales increased to $50.5 million in 2000 from $41.5 million in 1999, an increase of $9.0 million (22%) due to higher product prices during the current period partially offset by the decrease in sales volumes. Gross profit decreased to $3.3 million in 2000 from $4.8 million in 1999, a decrease of $1.5 million (31%). Gross profit per gallon of gasoline sold decreased to $.07 in 2000 from $.09 in 1999 due to the exchange of higher retail margins with lower wholesale margins resulting from the sale of the retail stores business.
Diesel sales volumes decreased to 108.3 million gallons in 2000 from 109.9 million in 1999, a decrease of 1.6 million gallons (1%), due to one large mining customer accepting a bid directly from another diesel supplier, although the Company retained the trucking services. Diesel sales increased to $113.2 million in 2000 from $77.7 million in 1999, an increase of $35.5 million (46%) due to the pass-through of higher product prices during the current period partially offset by the decrease in sales volumes. Gross profits increased to $8.4 million in 2000 from $8.3 million in 1999, an increase of $0.1 million (1%). Gross profit per gallon of diesel sold remained constant at $.08 in 2000 and 1999.
Propane sales volumes decreased to 7.3 million gallons in 2000 from 8.1 million gallons in 1999, a decrease of 0.8 million gallons (10%) due to a decrease in wholesale volume caused by unseasonably warm weather in our marketing area. Propane sales increased to $6.7 million in 2000 from $4.8 million in 1999, an increase of $1.9 million (40%) due to higher product prices during the current period partially offset by the decrease in sales volumes. Gross profits increased to $2.2 million in 2000 from $1.9 million in 1999 due to an increase in the gross profit per gallon of propane sold to $.31 in 2000 from $.24 in 1999, and a larger decrease in wholesale propane sales volumes versus a lower decrease of higher margin residential sales volumes.
Greases and lubricants sales increased to $18.4 million in 2000 from $16.7 million in 1999, an increase of $1.7 million (10%) due to higher product prices during the current period. Gross profit decreased to $3.4 million in 2000 from $3.5 million in 1999, a decrease of $0.1 million (3%) due to an increase in product pricing resulting in lower demand.
There were no sales of convenience store items in 2000 from $6.7 million in 1999 due to the sale of the retail stores business in December 1999.
Other sales (anti-freeze, chemicals, services, hardware, rental income, freight revenue and miscellaneous items), increased to $8.0 million in 2000
from $7.7 million in 1999, an increase of $0.3 million (4%). Gross profit increased to $4.9 million in 2000 from $4.6 million in 1999, an increase of $0.3 million (7%). The increase in sales and gross profit is primarily due to an increase in freight revenue resulting from the pass-through of higher fuel prices to our customers.
Selling, general, and administrative expense was $19.0 million for the year ended December 31, 2000, compared to $21.0 million for the year ended December 31, 1999, a decrease of $2 million (10%). The decrease is due to a reduction in SG&A expenses resulting from the sale of the retail stores business, partially offset by the acquisition of Carroll Oil Company and an increase in the level of activity and costs incurred to build the infrastructure necessary for future growth of the Company.
Depreciation and amortization for the year ended December 31, 2000, was $2.4 million compared to $2.2 million for the year ended December 31, 1999. The increase is attributable to the Carroll Oil Company acquisition and property, plant and equipment additions.
Interest expense increased to $1.7 million for the year ended December 31, 2000, compared to $1.2 million for the year ended December 31, 1999, an increase of $0.5 million (44%). The increase is due to the additional financing necessary to carry higher average levels of accounts receivable and inventory. Accounts receivable and inventory are significantly higher during 2000 versus 1999 due to the rapid increase in the price levels for petroleum based products.
The Company recognized other expense of $0.4 million for the year ended December 31, 2000, compared to other income of $0.6 million in 1999. In the third quarter of 2000, the Company terminated all negotiations to acquire Jardine Petroleum Company and Innovative Drug Delivery Systems, Inc. resulting in one time expenses of approximately $0.6 million. The Company recognized other income for the year ended December 31, 1999, of $0.3 million related to the sale of 250,000 shares in a Canadian corporation.
The provision for income taxes for the year ended December 31, 2000, was $0.6 million benefit compared to $0.2 million expense for the period ended December 31, 1999. The decrease is primarily due to lower income.
COMPARISON OF THE YEAR ENDED DECEMBER 31, 1999 TO DECEMBER 31, 1998
The Company had sales of $155.2 million in 1999 compared to $118.4 million in 1998, a $36.8 million (31%) increase. The increase is due to the Company's acquisitions of subsidiaries and due to higher product prices during 1999.
Gross profit for 1999 and 1998 was $24.8 million and $20.8 million respec- tively, an increase of $4.0 million (20%). The increase is due to acquisitions generating greater volume, partially offset by a decline in retail gasoline margins during the current period.
Net income decreased in 1999 to $0.3 million from $1.2 million in 1998, a decrease of $0.9 million (78%). The decrease is due to expenses incurred in building the infrastructure necessary for future growth of the Company and increased expenses encountered in operating the retail stores. In addition, interest, depreciation and amortization expense increased due to acquisitions. These expenses were partially offset by an increase in gross profit resulting from greater volume and lower income tax expense.
Gasoline sales volumes increased to 53.0 million gallons in 1999 from 43.5 million gallons in 1998, an increase of 9.5 million gallons (22%) due primarily to acquisitions. Gasoline sales increased to $41.5 million in 1999 from $28.1 million in 1998, an increase of $13.4 million (48%) due to the increase in sales volumes and higher product prices during the current period. Gross profit increased to $4.8 million in 1999 from $4.3 million in 1998. Gross profit per gallon of gasoline sold decreased to $.09 in 1999 from $.10 in 1998 due to lower gross margin wholesale accounts acquired in the Carroll Oil acquisition.
Diesel sales volumes increased to 109.9 million gallons in 1999 from 94.3 million in 1998, an increase of 15.6 million gallons (17%), due primarily to acquisitions. Diesel sales increased to $77.7 million in 1999 from $56.7 million in 1998, an increase of $21.0 million (37%) due to the increase in sales volumes and higher product prices during the current period. Gross profits increased to $8.3 million in 1999 from $6.2 million in 1998. Gross profit per gallon of diesel increased to $.08 in 1999 from $.07 in 1998, due to increased purchasing volumes which resulted in lower costs.
Propane sales volumes increased to 8.1 million gallons in 1999 from 8.0 million gallons in 1998, an increase of 0.1 million gallons (1%) due to the acquisition of Tri-Valley, partially offset by a reduction in wholesale volume due to unseasonably warm weather in our marketing area. Propane sales increased to $4.8 million in 1999 from $3.8 million 1998, an increase of $1.0 million (26%) due to generally higher product prices during the current period. Gross profit increased to $1.9 million in 1999 from $1.4 million in 1998 due to an increase in the gross profit per gallon of propane sold to $.24 in 1999 from $.18 in 1998, and increased sales of residential propane versus lower-margin wholesale accounts.
Greases and lubes sales decreased to $16.7 million in 1999 from $16.9 million in 1998, a decrease of $0.2 million (1%). Gross profit increased to $3.5 million in 1999 from $3.4 million in 1998, an increase of $0.1 million (3%). Greases and lubes remained relatively constant in 1999 as compared to 1998 as the product group was not the focal point in the latest acquisitions.
Sales of convenience store items increased to $6.7 million in 1999 from $5.7 million in 1998, an increase of $1.0 million (18%). Gross profit increased to $1.7 million in 1999 from $1.5 million in 1998. Sales and gross profit increased primarily due to operating four additional convenience stores in Colorado.
Other sales (anti-freeze, chemicals, services, hardware, rental income and miscellaneous items), increased to $7.7 million in 1999 from $7.1 million in 1998, an increase of $0.6 million (9%). Gross profit increased to $4.6 million in 1999 from $3.9 million in 1998, an increase of $0.7 million (17%). The increase in sales and gross profit is primarily due to acquisitions and an increase in services to the mining industry.
Selling, general, and administrative expense was $21.0 million for the year ended December 31, 1999, compared to $16.4 million for the year ended December 31, 1998, an increase of $4.6 million (28%). The increase is related to acquisitions and corresponding increases in the level of activity and costs incurred to build the infrastructure necessary for future growth of the Company.
Depreciation and amortization for the year ended December 31, 1999, was $2.2 million compared to $1.5 million for the year ended December 31, 1998. The increase is attributable to acquisitions and property, plant and equipment additions.
Other expense for the year ended December 31, 1999, was $0.6 million compared to $0.3 million for the year ended December 31, 1998. The increase is due to additional interest expense related to debt for acquisitions and property, plant and equipment purchases.
The provision for income taxes for the year ended December 31, 1999, was $0.2 million compared to $0.9 million for the period ended December 31, 1998. The decrease is due to lower income and a reduction in the state tax rate due to changes in the relative volume of business conducted in various states.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Included at through and S-1.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None. PART III
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The Directors and Executive Officers of the Company are as follows:
Name Age Positions and Offices Held --------------- --- ------------------------------------------- Edward J. Names 49 President, Chief Executive Officer and Director
Richard E. Kisser 46 Chief Financial Officer and Secretary/ Treasurer
Dennis R. Staal 52 Director
Ilyas Chaudhary 53 Director
Irwin Kaufman 64 Director
Richard E. Dana 57 Director
Darrell O. Owen 31 President and Chief Operating Officer of Subsidiaries
There is no family relationship between any Director or Executive Officer of the Company.
Capco Acquisub, Inc. has the right to appoint two Directors, however only one, Ilyas Chaudhary, is currently representing Capco Acquisub, Inc.
On November 10, 1998, an Annual Meeting of the Board of Directors was held. A compensation committee was established and Irwin Kaufman, Richard Dana and Dennis Staal were appointed to the committee. Also established was an Audit Committee. Irwin Kaufman, Richard Dana and Edward Names were appointed to the audit committee. Since November 10, 1998, the Compensation Committee has met 2 times and the audit committee has met 4 as of the date of this filing.
Set forth below are the names of all Directors and Executive Officers of the Company and its major subsidiaries, all positions and offices with the Company held by each such person, the period during which he has served as such, and the principal occupations and employment of such persons during at least the last five years:
EDWARD J. NAMES - President, Chief Executive Officer and Director. Mr. Names has been President and a Director of Meteor since it was incorporated in 1993. Mr. Names has extensive experience in mergers and acquisitions as well as such business matters as business planning, financing, management and contract negotiation. Mr. Names was President of Alfa Resources, Inc. and its subsidiaries from 1983 to 1995 and resigned as a director in 1997. In 1987, Mr. Names became Special Counsel to the law firm of Wills and Sawyer, P.C., Denver, Colorado, and maintained that relationship until December 1992. Mr. Names was associated with the firm of Nelson & Harding, Denver, Colorado, from 1980 to 1981, and the law firm of Schmidt, Elrod & Wills, Denver, Colorado, where he practiced corporate and securities law and became a Partner in October 1982. Mr. Names received a Bachelor of Arts Degree in Economics from the University of Colorado in 1973, and a Juris Doctorate from the University of Denver College of Law in 1980. He devotes his full time to the business of the Company and its subsidiaries.
RICHARD E. KISSER, Chief Financial Officer, Secretary/Treasurer. Mr. Kisser was hired in June 1998 and was appointed by the Board of Directors to Chief Financial Officer in June 1999. In March 1999, The Board of Directors appointed Mr. Kisser as Secretary/Treasurer for the Company. From 1981 through 1997, Total Petroleum, Inc. employed Mr. Kisser. He started as Assistant Manager of Corporate Accounting in 1981. In 1983, he was appointed Manager of Crude Oil Accounting and held that position until 1988. In 1988, he was promoted to Manager of Financial Services and held that position until 1989 when he became Manager of Crude Oil and Products Accounting. He held that position until 1990 when he was promoted to Director of Internal Audit. From 1978 through 1981, he was an In-Charge Staff Accountant with Price Waterhouse LLP. Mr. Kisser graduated from Central Michigan University, where he received a Bachelor of Science degree in Accounting and Business Management in 1978.
DENNIS R. STAAL - Director. Mr. Staal has been a Director of the Company since 1993 and was Secretary/Treasurer from July, 1993 to March 1999. Mr. Staal was Chief Financial Officer from July 1993 until April 1999. He also serves as a Director of some of the Company's subsidiaries. Since April 1999, Mr. Staal has devoted less than 50% of his time to the Company as a consultant. Mr. Staal is currently a Director and Chief Financial Officer of Capco Energy, Inc. and Stansbury Holdings Corporation. From 1986 to 1991, Mr. Staal was a Director and President of Saba Petroleum Company. From 1982 through 1984, he was Chief Financial Officer of High Plains Genetics, Inc. From 1979 to 1981, Mr. Staal served as President of Wulf Oil Corporation and as Director from 1977 to 1981. Mr. Staal served as a Director of Chadron Energy Corporation and as a Director of the First National Bank of Chadron
from 1979 through 1982. From 1973 through 1976, he was Controller for the Health Planning Council of Omaha. Mr. Staal was a CPA with Arthur Andersen & Co. Mr. Staal is a graduate of the University of Nebraska, where he received a Bachelor of Science degree in Business Administration in 1970.
ILYAS CHAUDHARY - Director. Mr. Chaudhary has been a Director of the Company since November 1995. He has also been an Officer and Director of Capco Resources, Inc. ("CRI"), which became a wholly-owned subsidiary of the Company, in October 1993. 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 and controlling shareholder of Capco Energy, Inc. and Capco Resources Ltd.,an Alberta Stock Exchange listed company and also Meteor's largest shareholder. 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.
IRWIN KAUFMAN - Mr. Kaufman has been a Director of the Company since August 1997. 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. He has worked as a financial consultant for the last several years. 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 on the Board of Directors of Capco Energy, Inc.
RICHARD E. DANA - Mr. Dana has been a Director of the Company since September 1998. Mr. Dana is a business manager with experience covering thirty-four years, the last 28 years of which were in the petroleum industry in both the upstream (oil and gas exploration and production)and the downstream (refining and marketing) sectors. From 1971 until 1998 Mr. Dana was employed by Total Petroleum Ltd. starting as a Controller in 1971, then as Treasurer in 1980 and became a Senior Vice President and Chief Financial Officer in 1989. Mr. Dana provides consulting services and temporary management services to varied enterprises, including the Company on an as needed basis.
DARRELL O. OWEN - President and Chief Operating Officer of the Company's subsidiaries. Mr. Owen graduated from Fort Lewis College, where he received a Bachelor of Arts Degree in Business Administration in 1991. From 1991 until 1997 Mr. Owen was employed by Graves Oil & Butane Co., Inc. and held various positions including Controller, General Manager for Farmington area, and General Manager of New Mexico Commercial Operations. From 1998 until 2000 Mr. Owen was employed by Meteor Industries, Inc. as Manager of Information Systems. Mr. Owen devotes his full time to the business of the Company and its subsidiaries described above.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Based solely on a review of Forms 3 and 4 and amendments thereto furnished to the Company during its most recent fiscal year, and Forms 5 and amendments thereto furnished to the Company with respect to its most recent fiscal year and certain representations, no persons who were either a director, officer, or beneficial owner of more than 10% of the Company's common stock, failed to file on a timely basis reports required by section 16(a) of the Exchange Act during the most recent fiscal year.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
The following is information regarding the executive compensation for the Company's Chief Executive Officer and President for the fiscal years ended December 31, 2000, 1999, and 1998. No other Executive Officer received salary and bonus in excess of $100,000 during such periods.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR VALUES
Securities Underlying Value of Unexer- Shares Unexercised cised in-the Acquired Options SARs Money Options/ On At FY-end SARs AT FY-end Exercise Value Exercisable/ Exercisable/ Name (Number) Realized Unexercisable Unexercisable - ---------------- --------- -------- ------------- ---------------- Edward J. Names -0- -0- 393,979/244,979 $-0-/$-0-
EMPLOYMENT ARRANGEMENTS
EDWARD J. NAMES, President of the Company, entered into a five-year employment agreement with the Company which became effective in January 1994, which provides that Mr. Names is required to devote substantially full time to the business of the Company. The agreement was amended in January 1999 to provide for an annual salary of $125,000 plus an annual bonus based upon the financial performance of the Company. Pursuant to his employment agreement, Mr. Names is allowed to devote up to 10 hours per month to other business operations including his duties as a director or officer in other companies. Absent notice to the contrary from the Company or Mr. Names, the five-year term of the employment agreement renews automatically each year and such agreement has been renewed each year. The Company can terminate his employment, however, at any time without cause and be obligated only for two years salary. The employment agreement includes a covenant not to compete which is effective for one year after termination of employment.
DENNIS R. STAAL, Director of the Company has a three year consulting agreement which provides for a fee of $430 per day for services as well as restricted stock bonuses as approved by the Company's compensation committee. He devotes less than 50% of his time to the business of the Company and its subsidiaries. The Company may terminate Mr. Staal's consulting agreement at any time and be obligated for a maximum payment of approximately $50,000. The agreement includes a covenant not to compete for nine months after termination if Mr. Staal terminates the contract.
RICHARD E. KISSER, Chief Financial Officer, Secretary/Treasurer, entered into a three-year employment agreement with the Company which became effective in January 1999, which provides that Mr. Kisser is required to devote full time to the business of the Company. The agreement calls for a base salary of $85,000 per year plus an annual bonus at the discretion of the Board of Directors. Absent notice to the contrary from the Company or Mr. Kisser, the agreement renews for succeeding periods of one year. The Company can terminate his employment, however, at any time without cause and be obligated to payment of the balance of his base salary or six months base salary whichever is less and any accrued vacation and bonuses earned through the termination date. The employment agreement includes a covenant not to compete which is effective for six months after termination of employment.
STOCK OPTION PLAN
A stock option plan providing for the issuance of incentive stock options and non-qualified stock options to Meteor's employees was approved by Meteor's shareholders on April 15, 1993. Pursuant to the Plan, 500,000 shares of Meteor's $.001 par value Common Stock have been reserved for issuance. As of December 31, 2000, 179,800 options were issued and outstanding under the Plan.
INCENTIVE EQUITY PLAN
The Board of Directors adopted the 1998 Incentive Equity Plan of the Company (the "Incentive Plan") on November 10, 1998, which was approved by the Stockholders at the Special Meeting of Shareholders held on the same day. On April 11, 2000, the Board of Directors amended the Incentive Plan to increase the number of options that can be awarded from 750,000 shares to 2,500,000 shares. Such amendment was presented to the shareholders of the Company and approved at the August 11, 2000 annual meeting.
The purpose of the Incentive Plan is to enable the Company to attract officers and other key employees and consultants and to provide them with appropriate incentives and rewards for superior performance. The Incentive Plan affords the Company the ability to respond to changes in the competitive and legal environments by providing the Company with greater flexibility in key employee and executive compensation than was available through the previously approved plan or individual stock option agreements. This plan is designed to be an omnibus plan allowing the Company to grant a wide range of compensatory awards including stock options, stock appreciation rights, restricted stock, deferred stock and performance shares or units. The Incentive Plan is intended to encourage stock ownership by recipients by providing for or increasing their proprietary interests in the Company, thereby encouraging them to remain in the Company's employment. The Incentive Plan has been prepared to comply with all applicable tax and securities laws, including Section 16(b) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") and state and federal tax laws.
Subject to adjustment as provided in the Incentive Plan, the number of shares of Common Stock that may be issued or transferred, plus the amount of shares of common stock covered by outstanding awards granted under the Incentive Plan, shall not in the aggregate exceed 2,500,000. The number of Performance Units granted under the Incentive Plan shall not in the aggregate exceed 200,000.
In January of 1999, an officer was granted incentive stock options to purchase 10,000 shares at the exercise price of $3.00 per share. These options vest over a three year period.
In January 1999, the five members of the Board of Directors of the Company were issued 250,000 options for services as Directors of the Company. Such options are more fully described below under Director's Compensation.
In April 1999, 78,987 options were issued to officers and employees of the Company. 59,003 of such options vested in April 2000 and are exercisable for five years with an exercise price of $2.87. 19,984 of such options were granted to Edward Names, Director, President and Chief Executive Officer. Such options vested in April 2000 and are exercisable for five years with an exercise price of $3.17.
In August of 1999, Meteor issued a total of 44,384 options to certain employees of the Company as part of the Company 1998 bonus plan. The exercise price is $3.00 and the options vested on August 31, 2000. These options expire on August 31, 2004. Meteor issued a total of 7,085 to Edward Names as part of the Company's incentive equity plan. The exercise price is $3.30. These options expire on August 31, 2004.
In April 2000, a total of 250,000 options and 375,000 "contingent options" were issued to the five board members of the Company. The options are more fully described below under Director Compensation.
In April 2000, 99,500 options were issued to certain key employees of the Company pursuant to the bonus policies of the Company. Such options vest in one year and are exercisable for five years. The exercise price of these options was $2.50. 55,000 options were granted to Edward Names, Director, President and Chief Executive Officer at an exercise price of $2.75. These options shall vest in one year and are exercisable for five years.
In April 2000, the Board of Directors issued 115,000 options to Irwin Kaufman, 115,000 options to Richard Dana and 55,000 options to Dennis Staal for services rendered to the Company over and above those required as directors. Such options vest immediately and are exercisable for five years. The exercise price of all such options is $2.75.
The Board of Directors amended all outstanding employee and director options as of April 2000, to vest immediately upon any change of control of the Company. For the purposes of this amendment change of control is defined as a change of 35% or more of the shareholdings of the Company.
In January 2001, 105,000 options were issued to certain key employees of the Company pursuant to the bonus policies of the Company. Such options vest quarterly in the first year and are exercisable for three years. The exercise price of these options is $3.75. 225,000 options were granted to Edward Names, Ilyas Chaudhary and Dennis Staal at an exercise price of $3.50. These options shall vest immediately and are exercisable for three years.
As of December 31, 2000, 1,495,444 options were issued and outstanding under the Incentive Plan.
DIRECTOR COMPENSATION
Outside Directors of the Company received, in prior years, fees of $250 per meeting for telephone meeting and $750 per meeting for attendance at a meeting in person. This has been discontinued as directors are now only being compensated by options. Each Director is reimbursed for all reasonable and necessary costs and expenses incurred as a result of being a Director of the Company. In addition, the Company issues options to its Directors as determined by the Board. In January of 1999 Meteor issued to all five directors 50,000 options each at the exercise price of $3.75. These options are non-qualified options granted pursuant to the Company's Incentive Equity Plan and vested immediately but become exercisable ratably over four years. In April 2000 the Company issued an additional 50,000 five year options each at an exercise price of $2.75 per share vesting immediately, but becoming exercisable over four years. Also, 375,000 five year options exercisable at $2.75 were issued to the directors. Such options may be deemed to be contingent options and only vest upon a change of control.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the number and percentage of shares of the Company's common stock owned beneficially, as of March 16, 2001, by any person, who is known to the Company to be the beneficial owner of 5 percent or more of the Company's common stock, and, in addition, by each Director and each Executive Officer of the Company, and by all Directors and Executive Officers as a group. Information as to beneficial ownership is based upon statements furnished to the Company by such persons.
NAME AND ADDRESS AMOUNT OF BENEFICIAL PERCENTAGE OF BENEFICIAL OWNER OWNERSHIP OF CLASS
Capco Energy, Inc 1,139,000 27% 2922 E. Chapman Ave. #202 Orange, CA 92869
Ilyas Chaudhary 1,319,000 (1) 30% 2922 E. Chapman Ave. #202 Orange, CA 92869
Edward J. Names 562,619 (2) 13% 1401 Blake Street, Suite 200 Denver, CO 80202
Richard E. Kisser 17,585 (3) *% 1401 Blake Street, Suite 200 Denver, CO 80202
Darrell O. Owen 42,219 (4) 1% 1401 Blake Street, Suite 200 Denver, CO 80202
Dennis R. Staal 253,460 (5) 6% 2922 E. Chapman Ave. #202 Orange, CA 92869
Irwin Kaufman 149,100 (6) 3% 8224 Paseo Vista Drive Las Vegas, NV 89128
Richard Dana 218,000 (7) 5% 128 Ash Street Denver, CO 80220
Henry Fong 383,400 (8) 9% 2401 PGA Boulevard #190 Palm Beach Gardens, FL 33040
Wayne Mills 924,000 (9) 20% 5020 Blake Road Edina, MN 55436
John F. Stapleton 400,000 (10) 9% 3190 High Point Drive Chaska, MN 55318
All Executive Officers and 2,519,764 48% Directors as a Group (6 Persons)
*less than 1 percent __________________
(1) Includes 1,139,000 shares of the Company held by a subsidiary of Capco Energy, Inc. Mr. Chaudhary is Chairman of the Board, Chief Executive Office and beneficially owns over 50% of the outstanding stock of Capco Energy, Inc. Mr. Chaudhary also beneficially owns 180,000 shares of exercisable stock options.
(2) Represents 40,240 shares held directly by Mr. Names, 265,000 shares held by NFF, Ltd., a limited partnership of which he served as general partner; 2,400 shares held by his wife of which he disclaims beneficial ownership, and 254,979 shares underlying stock options exercisable within 60 days by Mr. Names.
(3) Includes 17,585 shares of exercisable stock options held by Richard E. Kisser, the Company's Chief Financial Officer, Secretary/Treasurer.
(4) Includes 1,201 shares held directly and 41,018 shares of exercisable stock options held by Darrell O. Owen, who is President and Chief Operating Officer of certain of the Company's subsidiaries.
(5) Includes 5,400 shares held directly by Mr. Staal; 71,500 shares held by PAMDEN, Ltd., a limited partnership of which Mr. Staal is general partner; 8,432 shares held by Mystique Resources Company which is wholly owned by PAMDEN, Ltd.; 600 shares held by an IRA and 167,528 shares of exercisable stock options by Mr. Staal.
(6) Consists of 135,500 shares underlying stock options and warrants exercisable by Mr. Kaufman and 13,600 shares owned by Mr. Kaufman directly.
(7) Consists of 218,000 shares of exercisable stock options held by Mr. Dana.
(8) Includes (i) 150,000 common shares and 90,000 warrants exercisable by Gulfstream Financial Partners LLC, an entity owned 100% by Mr. Fong, (ii) 123,400 common shares held directly by Mr. Fong, and (iii) 20,000 publicly traded warrants held directly by Mr. Fong. Does not include 120,000 shares of Series B Preferred Stock held of record by an irrevocable trust for the benefit of Mr. Fong's children that is convertible into 120,000 common shares and 120,000 warrants. The preferred stock can be converted immediately and the warrants are exercisable immediately upon conversion. Mr. Fong disclaims beneficial ownership of the shares because he has no beneficial interest in nor any voting power over the trust's assets.
(9) Includes (i) 50,000 shares held of record by his wife of which he disclaims beneficial ownership, (ii) 90,000 issuable upon exercise of warrants, (iii) 584,000 common shares held directly, and (iv) 100,000 shares of Series B Convertible Preferred Stock that is convertible into 100,000 common shares and warrants to purchase 100,000 additional common shares. The Series B Convertible Preferred Stock can be converted immediately and the warrants are exercisable immediately upon conversion.
(10) Includes 250,000 common shares and 150,000 warrants exercisable by Mr. Stapleton.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
TRANSACTIONS INVOLVING THE COMPANY'S OFFICERS AND DIRECTORS
Capco, through a majority-owned subsidiary, currently owns approximately 30% of the Company's Common Stock. Ilyas Chaudhary, a Director of the Company, is an officer, director and a principal shareholder of Capco; Dennis Staal, a Director of the Company, is also an officer of Capco and beneficially owns 35,000 common shares of Capco and 2,286 shares of Series A Preferred shares. Irwin Kaufman, a Director of the Company, is also a director of Capco and owns 20,000 common shares of Capco. Edward Names, President and CEO of the Company personally and through immediate family members may be deemed to beneficially own 64,580 common shares of Capco and 2,286 shares of Series A Preferred shares of Capco.
Effective December 1999, the Company completed the sale of its subsidiary, Meteor Stores, Inc. ("MSI"), to Capco Energy, Inc. ("Capco"), an affiliate of the Company.
The sale of this operating subsidiary was made to allow the Company to focus on its core business of commercial, wholesale and cardlock petroleum distribution. The Company, through a five year supply contract with Capco, will continue to be the supplier of refined petroleum products to these stores.
The total sale price for the sale of MSI was approximately $1,500,000. $250,000 was paid in cash at closing and the Company received a promissory note for $1,250,000 payable in monthly installments of interest only with a balloon payment of the remaining principal balance on December 31, 2001. Payments may be made either in cash or shares of the Company's 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. No gain or loss was recognized on the sale. The promissory note and accrued interest have been classified as an offset to shareholders' equity.
In connection with the sale of MSI to Capco, the Company received a promissory note for the net working capital on MSI's books at closing and for certain funding the Company provided to MSI during 2000. The promissory note is payable in monthly installments of interest only with a balloon payment of the principal balance on December 31, 2001. The promissory note bears interest at 9.25% per annum and is secured by all of the outstanding shares of MSI.
The Company has obtained a pledge and security agreement from Capco for all amounts owed to the Company by Capco and its subsidiaries. Under the agreement Capco grants a security interest in all shares of the Company's common stock owned by Capco or its subsidiaries. The total notes receivable balance at December 31, 2000 and 1999 is $2,367,000 and $2,430,000, respectively.
During 2000, the Company had total sales to Capco of $9,494,000, lease income of $268,000 and had an accounts receivable balance of $820,000 at December 31, 2000.
In September 1999, the Company sold 150,000 shares of a Canadian corporation to Capco Acquisub, Inc., a subsidiary of Capco, for a $300,000 promissory note payable over eighteen months at 8% interest payable in cash or shares of the Company's stock. The total note receivable balance at December 31, 2000 and 1999 is $300,000. The promissory note and accrued interest have been classified as an offset to stockholders' equity.
In September 1999, the Company acquired a 49.5% interest in Meteor Office LLC ("Meteor Office") in exchange for 64,000 shares of Meteor Industries, Inc. common shares. Certain officers and employees of the Company have an equity interest in Meteor Office. Meteor Office is a 50% partner in a joint venture that purchased and operates an office/residential building in Denver, Colorado. The Company's corporate offices are located in the building and are leased from the joint venture at terms that the Company believes are consistent with the market price for such facilities. The Company has an accounts receivable balance from Meteor Office at December 31, 2000 and 1999 of $33,000.
The Company leases certain real estate from the Seller of a subsidiary. The leases were part of the negotiation for the purchase of the subsidiary in September 1993. For the years ended December 31, 2000, 1999 and 1998, rents paid were $55,000, $61,000 and $60,000, respectively.
The Company leases a commercial office building and warehouse from a corporation controlled by a director of one of the Company's subsidiaries. During the years ended December 31, 2000, 1999 and 1998, lease payments amounted to $53,400, $50,400 and $50,400, respectively.
The Company leases rolling stock from various related parties under capital lease agreements. The total obligation paid under these agreements for the years ended December 31, 2000, 1999 and 1998 was $-0-, $62,000, and $69,000, respectively.
The Company sold products to and purchased products from entities controlled by a director of one of the Company's subsidiaries. During the years ended December 31, 2000, 1999 and 1998, revenues reported amounted to $-0-, $4,000 and $66,000, respectively. During the years ended December 31, 2000, 1999 and 1998, purchases amounted to $-0-, $7,000 and $21,000, respectively.
The Company entered into a consulting agreement with a director of the Company. During the year ended December 31, 2000, total fees paid were $67,500.
PART IV
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 10-K
(a) The following statements are filed as part of this Report: Page(s)
Report of Independent Accountants ................................ (1) Consolidated Balance Sheets - December 31, 2000 and 1999 Consolidated Statements of Operations - years ended December 31, 2000, 1999 and 1998....................... Consolidated Statement of Shareholders' Equity - years ended December 31, 2000, 1999 and 1998................. Consolidated Statements of Cash Flows - years ended December 31, 2000, 1999 and 1998....................... Notes to Consolidated Financial Statements ..............
Financial Statement Schedule
(2) Schedule 2 - Valuation and Qualifying Accounts........... S-1
(b)
Exhibit Number Description Location - ------- -------------------------- ------------------------------------ 3.1 Articles of Incorporation, Incorporated by reference to Exhibit as amended 2.1 to Registrant's Form 1-A Offering Statement (SEC File No. 24D-3802 SML)
3.2 Bylaws Incorporated by reference to Exhibit 2.2 to Registrant's Form 1-A Offering Statement (SEC File No. 24D-3802 SML)
10.1 Stock Option Plan Incorporated by reference to Exhibit 6.1 to Registrant's Form 1-A Offering Statement (SEC File No. 24D-3802 SML)
10.2 Stock Purchase Agreement Incorporated by reference to Exhibit among Registrant, Graves 6.2 to Registrant's Form 1-A Offer- Oil & Butane Co., Inc. and ing Statement (SEC File No. 24D-3802 Theron J. Graves dated June SML) 23,1993, Amendment dated August 23, 1993 and Closing Memorandum dated September 28, 1993
10.3 $2,350,000 Promissory Note Incorporated by reference to Exhibit payable to Theron J. Graves 6.3 to Registrant's Form 1-A Offering and Security Agreement Statement (SEC File No. 24D-3802 SML)
10.4 Notes Receivable ($550,000 Incorporated by reference to Exhibit and $100,000) from Theron 6.4 to Registrant's Form 1-A Offer- J. Graves ing Statement (SEC File No. 24D-3802 SML)
10.5 Registration Agreement Incorporated by reference to Exhibit regarding Subsidiary's 6.5 to Registrant's Form 1-A Offering Preferred Stock Statement (SEC File No. 24D-3802 SML)
10.6 Security Agreement regard- Incorporated by reference to Exhibit ing Subsidiary's Preferred 6.6 to Registrant's Form 1-A Offering Stock Statement (SEC File No. 24D-3802 SML)
10.7 Consulting Agreement with Incorporated by reference to Exhibit Theron J. Graves 6.7 to Registrant's Form 1-A Offering Statement (SEC File No. 24D-3802 SML)
10.8 Lease regarding corporate Incorporated by reference to Exhibit offices and storage yard 6.11 to Registrant's Form 1-A Offer- ing Statement (SEC File No. 24D-3802 SML)
10.9 Lease regarding Albuquerque Incorporated by reference to Exhibit warehouse 6.12 to Registrant's Form 1-A Offer- ing Statement (SEC File No. 24D-3802 SML)
10.10 Lease regarding East Main Incorporated by reference to Exhibit Properties 6.13 to Registrant's Form 1-A Offer- ing Statement (SEC File No. 24D-3802 SML)
10.11 Norwest Credit and Security Incorporated by reference to Exhibit Agreement 6.14 to Registrant's Form 1-A Offer- ing Statement (SEC File No. 24D-3802 SML)
10.12 $4,000,000 Note Payable to Incorporated by reference to Exhibit Norwest (partially drawn 6.15 to Registrant's Form 1-A Offer- upon) ing Statement (SEC File No. 24D-3802 SML)
10.13 Meteor Corporate Guarantee Incorporated by reference to Exhibit as regarding Norwest 6.16 to Registrant's Form 1-A Offer- ing Statement (SEC File No. 24D-3802 SML)
10.14 Employment Agreement with Incorporated by reference to Exhibit Edward J. Names 6.17 to Registrant's Form 1-A Offer- ing Statement (SEC File No. 24D-3802 SML)
10.15 Leases regarding Cortez Incorporated by reference to Exhibit truck stop 6.18 to Registrant's Form 1-A Offer- ing Statement (SEC File No. 24D-3802 SML)
10.16 Agreement between the Incorporated by reference to Exhibit Registrant and Hillger Oil 10.16 to Company's Registration Statement on form 10 (SEC File No. 0-27986)
10.17 Lease Agreement between Incorporated by reference to Exhibit Hillger Oil Co., Inc. and 10.17 to Company's Registration Hillco, Inc. Statement on Form 10 (SEC File No. 0-27968)
10.18 Credit and Security Agree- Incorporated by reference to Exhibit ment between Hillger Oil 10.18 to Company's Registration Co., Inc. and Norwest Statement on Form 10 (SEC File No. Business Credit, Inc. 0-27968)
10.19 Project Development and Incorporated by reference to Exhibit Shareholders' Agreement 10.19 to Company's Registration for Pakistan Power Project Statement on Form 10 (SEC File No. 0-27968)
10.20 Amended and Restated Share Incorporated by reference to Exhibit Exchange and Reorganization 10.20 to Company's Registration Agreement Statement on Form 10 (SEC File No. 0-27968)
10.21 Amendment to Employment Incorporated by reference to Exhibit Agreement with Edward J. 10.21 to Company's Registration Names Statement on Form 10 (SEC File No. 0-27968)
10.22 Amended and Restated Incorporated by reference to Exhibit Promissory Note from Saba 10.22 to Company's Registration Petroleum Company to Capco Statement on Form 10 (SEC File No. Resources, Inc. 0-27968)
10.23 1997 Incentive Plan Incorporated by reference to Exhibit 10.23 to Company's Form 10-K dated 12/31/96 (SEC File No. 0-27968)
10.24 Second Amended and Restated Incorporated by reference to Exhibit Agreement between Meteor 10.24 to Company's Form 10-K dated Industries, Inc., Capco 12/31/96 (SEC File No. 0-27968) Resources, Inc. and Saba Petroleum Company
10.25 Shareholder's Agreement Incorporated by reference to Exhibit among Cogen Technologies, 10.25 to Company's Form 10-K dated Saba Capital Company, LLC, 12/31/96 (SEC File No. 0-27968) Capco Resources, Inc., et al
10.26 Letter Agreement with Incorporated by reference to Exhibit Western Energy Resources 10.26 to Company's Form 10-K dated Limited 12/31/96 (SEC File No. 0-27968)
10.27 Letter Agreement between Incorporated by reference to Exhibit Meteor Industries, Inc. 10.27 to Company's Form 10-K dated and Capco Resources, Ltd. 12/31/96 (SEC File No. 0-27968) dated April 23, 1996
10.28 Meteor Corporate Guaranty Incorporated by reference to Exhibit with Norwest Business 10.28 to Company's Form 10-K dated Credit, Inc. 12/31/97 (SEC File No. 0-27968)
10.29 Revolving Note with Nor- Incorporated by reference to Exhibit west Business Credit, Inc. 10.29 to Company's Form 10-K dated 12/31/97 (SEC File No. 0-27968)
10.30 Credit and Security Incorporated by reference to Exhibit Agreement 10.30 to Company's Form 10-K dated 12/31/97 (SEC File No. 0-27968)
10.31 Agreement between Tri- Incorporated by reference to Form 8-K Valley Gas Co.; Share- dated May 29, 1998 (SEC File No. holders and Fleischli Oil 0-27968) Company, Inc. to Purchase Tri-Valley Gas Co.
10.32 Agreement between Capco and Incorporated by reference to Form 8-K Capco Acquisub, Inc. dated December 31, 1998 and Nevada Manhattan Mining (SEC File No. 0-27968) Incorporated to sell Capco shares of Meteor stock
10.33 Agreement between Capco Incorporated by reference to Form 8-K Acquisub, Inc. and Nevada dated January 11, 1999 Manhattan Mining Incor- (SEC File No. 0-27968) porated to change control in of the Corporation
10.34 Agreement with Capco Energy, Incorporated by reference to Form 8-K Inc., as amended dated February 11, 2000 (SEC File No. 0-27968)
10.35 Promissory Note from Capco Incorporated by reference to Form 8-K Energy, Inc. dated February 11, 2000 (SEC File No. 0-27968)
10.36 Pledge and Security Agreement Incorporated by reference to Form 8-K with Capco Energy, Inc. and dated February 11, 2000 (SEC File No. Capco Asset Management, Inc. 0-27968)
10.37 Product Sales Agreement Incorporated by reference to Form 8-K between Meteor Stores, Inc. dated February 11, 2000 (SEC File No. and Meteor Marketing, Inc. 0-27968)
10.38 Stock Purchase Agreement Incorporated by reference to Form 8-K between Meteor Industries, dated February 13, 2001 (SEC File No. Inc. and Capco Energy, Inc. 0-27968) dated January 30, 2001.
10.39 Agreement and Plan of Merger Incorporated by reference to Form by and among Meteor Indus- 8-K dated February 13, 2001 (SEC File tries, Inc., its wholly No. 0-27968) owned subsidiary, MI Merger, Inc. and activeIQ Technol- gies, Inc.
21 Subsidiaries of the Filed herewith electronically Registrant
23.1 Consent of Pricewaterhouse- Filed herewith electronically Coopers LLP
Report of Independent Accountants
To the Stockholders and Board of Directors of Meteor Industries, Inc.:
In our opinion, the consolidated financial statements listed in the accompanying index appearing under Item 14 (a)(1)on page 27 present fairly, in all material respects, the financial position of Meteor Industries, Inc. and its subsidiaries at December 31, 2000 and 1999, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the index appearing under Item 14(a)(2) on page 27 presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedule are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
As discussed in Note 2, the Company has entered into agreements to sell substantially all of its assets to a related entity and then merge the Company with Active IQ Technologies, Inc. Completion of these transactions is dependent upon approval of the shareholders of both companies and certain other conditions.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP Denver, Colorado March 16, 2001
METEOR INDUSTRIES, INC. CONSOLIDATED BALANCE SHEETS
ASSETS (Dollars in Thousands)
December 31, December 31, 2000 1999
CURRENT ASSETS Cash $ 264 $ 288 Restricted cash 2,448 600 Accounts receivable-trade, net of allowance of $275 and $233, respectively 14,759 14,835 Accounts receivable, related party 1,053 678 Income tax receivable 686 -0- Notes receivable, net of allowance of $-0- and $114, respectively 38 290 Notes receivable, related party 1,117 875 Inventory, net 3,921 3,596 Deferred tax asset 324 335 Other current assets 867 535
Total current assets 25,477 22,032
PROPERTY, PLANT AND EQUIPMENT, NET 16,437 17,905
OTHER NONCURRENT ASSETS Notes receivable 115 123 Investments in closely held businesses 1,629 1,544 Intangibles, net 1,230 1,446 Other assets 267 390
Total other noncurrent assets 3,241 3,503
TOTAL ASSETS $45,155 $43,440
Continued on next page
METEOR INDUSTRIES, INC. CONSOLIDATED BALANCE SHEETS (Continued)
LIABILITIES AND SHAREHOLDERS' EQUITY (Dollars in Thousands, except for share information)
December 31, December 31, 2000 1999
CURRENT LIABILITIES Accounts payable, trade $11,039 $ 8,323 Accounts payable, related party 40 14 Book overdraft 1,794 1,924 Current portion, long-term debt 3,798 1,438 Accrued expenses 1,440 755 Fuel taxes payable 574 909 Revolving credit facility 8,570 9,292
Total current liabilities 27,255 22,655
NONCURRENT LIABILITIES Deferred tax liability 2,556 2,606 Long-term debt 7,202 5,865 Accrued expenses 468 -0-
Total noncurrent liabilities 10,226 8,471
MINORITY INTEREST IN SUBSIDIARIES 250 5,412
Total liabilities 37,731 36,538
Commitments and contingencies (Notes 12, 13 and 14)
SHAREHOLDERS' EQUITY Preferred stock, $1.00 par value; 365,000 shares authorized, issued and outstanding, liquidation preference $730 365 -0- Common stock, $.001 par value; authorized 10,000,000 shares, 3,705,903 and 3,656,267 shares issued, respectively 4 4 Paid-in capital 5,695 4,458 Notes receivable, related party (1,686) (1,555) Treasury stock, at cost, 132,098 shares held (489) (489) Retained earnings 3,535 4,484
Total shareholders' equity 7,424 6,902
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $45,155 $43,440
The accompanying notes are an integral part of the financial statements.
METEOR INDUSTRIES, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (Dollars in Thousands except per share information)
For the Year Ended December 31, 2000 1999 1998
Net sales $196,800 $155,211 $118,362 Cost of sales, excluding depreciation 174,497 130,417 97,558
Gross profit 22,303 24,794 20,804
Selling, general and administrative expenses 18,971 21,036 16,369 Depreciation and amortization 2,438 2,196 1,536
Total operating expenses 21,409 23,232 17,905
Income from operations 894 1,562 2,899
Other income and (expenses) Interest income 376 172 128 Interest expense (1,690) (1,177) (828) Other (803) 37 152 Gain on sale of assets 1 366 200
Total other (expenses) (2,116) (602) (348)
(Loss) income before income taxes and minority interest (1,222) 960 2,551 Income tax (benefit) expense (641) 210 939 Minority interest 368 491 444
Net (loss) income $ (949) $ 259 $ 1,168
(Loss) earnings per share: Basic $ (.27) $ .07 $ .31 Diluted $ (.27) $ .07 $ .31
Weighted average common share and common share equivalents: Basic 3,537,555 3,454,146 3,792,197 Diluted 3,537,555 3,459,798 3,796,864
The accompanying notes are an integral part of the financial statements.
METEOR INDUSTRIES, INC. CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY For the Years Ended December 31, 2000, 1999 and 1998 (Dollars in Thousands)
The accompanying notes are an integral part of the financial statements.
METEOR INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in Thousands)
For the Year Ended December 31, 2000 1999 1998
Cash flows from operating activities: Net (loss) income $ (949) $ 259 $1,168 Adjustments to reconcile net (loss) income to net cash provided by (used in) operating activities: Depreciation and amortization 2,438 2,196 1,536 Equity earnings from investment in closely held business (39) -0- -0- (Gain)loss on disposal of assets (1) (366) 10 Deferred income tax (benefit) provision (39) 30 (149) Minority interest 368 491 444 Stock and options issued for 401(k)/services 216 102 21 Write-off of acquisition costs 552 -0- -0-
Change in assets and liabilities (net of acquisitions and disposals): Decrease (increase) in: Accounts receivable, net (842) (5,625) 398 Income tax receivable (686) 0- -0- Inventory, net (325) (340) 175 Other current assets (584) (48) (184) Other assets 123 (28) (183) Increase (decrease) in: Accounts payable 2,742 3,139 (415) Accrued liabilities 705 (462) 479 Fuel taxes payable (335) (419) (343)
Net cash provided by (used in) operating activities 3,344 (1,071) 2,957
Cash flows from investing activities: Acquisition of businesses, net of acquired cash -0- (1,168) (2,238)
Proceeds from sale of property, plant and equipment 203 100 376 Purchases of property, plant and equipment (558) (2,831) (2,358) Investment in closely held business -0- 157 (44) Note receivable payments 278 85 295 Note receivable advances (78) -0- -0-
Net cash (used in) investing activities (155) (3,657) (3,969)
Continued on next page
METEOR INDUSTRIES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in Thousands) (Continued)
For the Year Ended December 31, 2000 1999 1998
Cash flows from financing activities: Borrowings (payments) on revolving credit facility, net (722) 4,125 1,334 Increase (decrease)in book overdraft (130) 471 1,126 Borrowings on long-term debt -0- 1,008 2,300 Payments on long-term debt (1,275) (1,590) (1,399) Proceeds from preferred stock issued 707 -0- -0- Purchase of treasury stock -0- -0- (2,124) Proceeds from stock options exercised 55 -0- -0- Restricted cash (1,848) 622 (71)
Net cash (used in) provided by financing activities (3,213) 4,636 1,166
Net(decrease) increase in cash and equivalents (24) (92) 154
Cash and equivalents, beginning of period 288 380 226
Cash and equivalents, end of period $ 264 $ 288 $ 380
NON CASH INVESTING AND FINANCING ACTIVITIES
Disposal of assets in exchange for notes receivable from a related party $ -0- $1,597 $ -0- Acquisition of property, plant and equipment with debt $ 641 $ -0- $ 1,850 Capital lease assets and obligations assumed $ 57 $ -0- $ 100 Accounts receivable replaced with note receivable $ 341 $ 153 $ 296 Accounts receivable offset with debt $ 182 $ -0- $ -0- Acquisition of minority interest with re- demption of subsidiary's preferred stock $ 624 $ -0- $ -0- Acquisition of minority interest with debt $ 4,456 $ -0- $ -0- Acquisition of minority interest with assumption of liabilities $ 448 $ -0- $ -0-
Stock issued for investment $ -0- $ 240 $ -0-
Debt issued to purchase treasury stock $ -0- $ -0- $ 500
Other operating cash flow information: Income taxes (refunded) paid $ (207) $ 984 $ 1,333 Interest paid $ 1,234 $1,173 $ 660
Continued on next page
METEOR INDUSTRIES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in Thousands) (Continued)
For the Year Ended December 31, 2000 1999 1998
ACQUISITION OF BUSINESSES Accounts and notes receivable $ -0- $ 263 $ 487 Inventory -0- 132 331 Deferred tax asset -0- -0- 47 Property, plant and equipment -0- 639 2,849 Intangible assets -0- 529 1,709 Accounts payable and accrued expenses -0- -0- (474) Current portion, long term debt -0- (98) (248) Long term debt -0- (297) (830) Deferred tax liability -0- -0- (1,633)
Cash paid $ -0- $1,168 $ 2,238
The accompanying notes are an integral part of the financial statements.
METEOR INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2000
NOTE 1 -- ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Meteor Industries, Inc. ("Meteor" or "Company") was incorporated on December 22, 1992, as a Colorado based holding company. Meteor contributed substantially all of its assets and all of its businesses to its newly formed wholly owned subsidiary, Meteor Enterprises, Inc. ("Meteor Enterprises"). Meteor Enterprises was incorporated in December 2000, as a Colorado based holding company. In January 2000, Meteor Marketing, Inc. ("Meteor Marketing"), a Colorado corporation and a wholly owned subsidiary of the company, merged downstream with and into Fleischli Oil Company, Inc. ("Fleischli"), a Wyoming corporation and a wholly owned subsidiary of Meteor Marketing. Fleischli become the surviving corporation and immediately changed its name to "Meteor Marketing, Inc." In addition, the significant wholly owned subsidiaries included in Meteor Marketing are: Graves Oil & Butane Co., Inc. ("Graves"), and Tri-Valley Gas Co. ("Tri-Valley") merged their marketing and distribution operations with and into Meteor Marketing. The Company also owns 73% of Meteor Holdings LLC ("MHL") and 100% Innovative Solutions and Technologies, Inc. ("IST").
In April 1999, the Company acquired certain assets of Carroll Oil Company ("Carroll Oil") for $1.2 million in cash and a $0.4 million promissory note. The acquisition was financed with cash and short and long-term debt. Carroll Oil is a petroleum marketing company doing business in northeastern Colorado.
In December 1999, the Company sold its retail store operating subsidiary for $1.5 million: $0.2 million in cash paid in January 2000 and a $1.3 million secured note. No gain or loss was recognized on the sale. The sale will allow the Company to focus on its core business of commercial, wholesale and cardlock petroleum distribution. (See Note 11 - Related Party Transactions.)
In June 1998, the Company acquired all of the common stock of Tri-Valley Gas Co. for $2.4 million in cash and a $0.6 million promissory note. The purchase price was allocated to the assets acquired based on their estimated fair values. The excess of the purchase price over the fair value of the net assets acquired (goodwill) was approximately $1.7 million and is being amortized on a straight-line basis over 15 years. Tri-Valley is a petroleum marketing and distribution company doing business in Colorado.
In November 1998, the Company acquired certain assets of R & R Oil Company ("R & R") for $0.9 million in cash and $1.2 million in notes. R & R was a petroleum marketing and distribution company doing business in Wyoming.
PRINCIPLES OF CONSOLIDATION AND ORGANIZATION - The consolidated financial statements include the accounts of Meteor Industries, Inc., and its subsidiaries. All significant intercompany transactions and balances have been eliminated in consolidation. The equity method of accounting is used for the Company's 50% or less owned affiliates over which the Company has the ability to exercise significant influence.
USE OF ESTIMATES - The preparation of the Company's consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in these financial statements. Actual results may differ from these estimates.
PRICE LEVEL CHANGES - The prices the Company pays for gasoline and diesel products are subject to market fluctuation and not in the control of the Company. Prices for these products can and have fluctuated significantly. Higher product prices could have a significant impact on the Company's borrowing capabilities due to the generally faster timing required for payments to the Company's suppliers compared to the timing of collection of receivables from its customers. When necessary, the Company finances these working capital requirements through its revolving bank credit facility. This facility contains certain financial covenants which are based on the Company's budgeted results. If, as a result of price changes or other factors, the Company is unable to meet its debt covenants, its ability to continue to borrow under the revolving credit facility could be limited. If that were to occur, the Company would have to make alternative financial arrangements, which could include seeking additional debt or equity financing which may or may not be available.
CASH AND CASH EQUIVALENTS - Cash and cash equivalents consist of short-term, highly liquid investments readily convertible into cash with an original maturity of three months or less. At times, cash balances held at financial institutions are in excess of Federal Deposit Insurance Corporation insurance limits. The Company places its temporary cash investments with high-credit quality financial institutions. The Company believes no significant concentration of credit risk exists with respect to these cash investments.
RESTRICTED CASH - The Company has revolving bank credit facilities which require the use of depository accounts from which collected funds are transferred to the lender. The lender then applies these collections to the revolving credit facilities. These accounts are controlled by the lender.
FAIR VALUE OF FINANCIAL INSTRUMENTS - Cash and cash equivalents, accounts receivable, accounts payable and accrued expenses are stated at fair value due to their short-term nature. The carrying value of notes receivable approximates fair value. The carrying value of the revolving credit facility approximates fair value due to the variable nature of the interest rate. The fair value of long-term debt at December 31, 2000 approximates $10,741,000 compared with the carrying value of $11,000,000. The Company estimated the fair value of the long-term debt using estimates of current interest rates for similar debt. The Company does not believe it is practicable to determine the fair value of the notes receivable, related party due to their related party nature.
ACCOUNTS RECEIVABLE - The Company has a diversified customer base. The Company controls credit risk related to accounts receivable through credit approvals, credit limits and monitoring procedures. Credit risk with respect to accounts receivable is primarily concentrated in the diesel, gasoline and greases and lubricants segments.
INVENTORIES - Inventories are stated at the lower of cost or market. Inventories of petroleum products, greases and lubricants, and related products are stated at the last in first out (LIFO) basis. The amount of inventory valued using the LIFO method is $3,526,000 and $3,596,000 at December 31, 2000 and 1999, respectively. The LIFO reserve at December 31, 2000 and 1999 is $504,000 and $219,000, respectively.
PROPERTY AND EQUIPMENT - Property and equipment are stated at cost; major renewals and improvements are charged to the property and equipment accounts; while replacements, maintenance and repairs which do not improve or extend the lives of the respective assets, are expensed currently.
At the time property and equipment are retired or otherwise disposed of, the asset and related accumulated depreciation accounts are relieved of the applicable amounts. Gains or losses from retirements or sales are credited or charged to operations.
DEPRECIATION - Depreciation 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
Buildings and improvements 5 to 40 years Equipment 5 to 20 years
IMPAIRMENT - The Company periodically evaluates its long-lived assets to determine whether any impairment of these assets has occurred. In making such determination the Company evaluates performance using cash flows, on an undiscounted basis, of the underlying businesses or assets which gave rise to such amount. Any impairments are recognized using discounted cash flows or fair values, whichever is more readily determinable.
INTANGIBLES - Goodwill attributable to businesses acquired is being amortized on the straight-line method over fifteen years.
Other intangibles, including the costs of license agreements and covenants not to compete are amortized over five years using the straight-line method.
REVENUE RECOGNITION - The Company recognizes revenue from product sales when the products are delivered, net of applicable provisions for discounts and allowances. Revenue from services is recognized when the services are performed and billable.
INCOME TAXES - The Company provides for the tax effects of transactions reported in the financial statements which consist of taxes currently due plus deferred taxes. Deferred income taxes reflect the differences between the assets and liabilities recognized for financial reporting purposes and amounts recognized for tax purposes.
ENVIRONMENTAL EXPENDITURES - The Company expenses environmental remediation costs related to 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 the costs can be reasonably
estimated. Recoveries of environmental remediation costs from other parties are recorded as assets when their receipt is deemed probable. Both environmental liabilities and recoveries are discounted to their present value when the future cash flows are determinable with reasonable certainty.
EARNINGS (LOSS) PER SHARE - Basic earnings (loss) per common share are computed by dividing net income (loss) by the weighted average number of common shares outstanding. Diluted earnings (loss) per share are calculated taking into account all potentially dilutive securities. A reconciliation of the denominator used in the calculation of basic and diluted earnings per share is presented below. Antidilutive stock options and warrants of 825,600, 1,366,749, and 1,867,733 for the years ended December 31, 2000, 1999 and 1998, respectively, are omitted from the denominator. The numerator is unchanged. The shares available upon exchange of a subsidiary's preferred stock of -0-, 1,043,305 and 1,014,635 for the years ended December 31, 2000, 1999, and 1998, respectively, are omitted as they are antidilutive.
2000 1999 1998 ---- ---- ---- Denominator: Average common shares outstanding 3,537,555 3,454,146 3,792,197 Average dilutive stock options and warrants -0- 5,652 4,667
Diluted shares 3,537,555 3,459,798 3,796,864
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.
RECLASSIFICATION - Certain amounts have been reclassified in prior years to be consistent with the classification as of December 31, 2000.
NOTE 2 - PROPOSED SALE OF ASSETS AND MERGER OF THE COMPANY
On January 11, 2001, Meteor executed a definitive agreement to merge with Active IQ. The transaction is planned to close prior to April 16, 2001, and is subject to various contingencies including shareholder, approval of both companies. Meteor, in anticipation of the transaction, invested $1,100,000 to acquire approximately 10% of Active IQ. Upon shareholder approval, Meteor will issue new shares of common stock and warrants to purchase additional shares to Active IQ shareholders in exchange for all of the equity of Active IQ. Immediately after the merger, Active IQ shareholders will own approximately 50% of the voting shares of the merged company and will control the Board of Directors.
On January 30, 2001, the Company executed a definitive agreement to sell, in connection with its planned merger with Active IQ, its subsidiaries and related businesses to its largest shareholder, Capco Energy, Inc. ("Capco"). The sale is contingent upon shareholder approval, the consummation of the Active IQ merger and certain other conditions. The sale price for the subsidiaries will be $5,500,000 and certain environmental and other indemnities.
The subsidiaries to be sold own substantially all of the Company's assets; excluded are 400,000 shares of Active IQ's common stock purchased as described above and certain amounts of cash which will remain in the Company at the time of merger. Also, the subsidiaries contain all of the liabilities of the Company, except those associated with certain costs relating to the closing of the Active IQ merger. All of the Company's sales and operating activities are managed through its subsidiaries.
In February 2001, the Company filed a definitive proxy statement on Schedule 14A with the Securities and Exchange Commission for the solicitation of proxies from its shareholders approving three proposals to be considered at a special meeting (the "Special Meeting") of the Company's shareholders (the "Shareholders"). At the Special Meeting the shareholders will be asked to vote on:
(1) A proposal to approve and adopt the Stock Purchase Agreement, dated as of January 30, 2001, by and between the Company and Capco, and the transactions contemplated by that agreement, including the sale of substantially all of the Company's assets to Capco.
(2) A proposal to approve the reincorporation of the Company under Minnesota law, which reincorporation would be effectuated by merging the Company with and into a newly formed and wholly owned subsidiary of the Company organized under Minnesota law, and
(3) A proposal to approve and adopt an Agreement and Plan of Merger, dated as of January 11, 2001, by and among the Company, its wholly owned subsidiary, MI Merger, Inc. and Active IQ.
NOTE 3 -- PROPERTY, PLANT AND EQUIPMENT
The major classifications of property, plant and equipment are as follows at December 31:
(Dollars in Thousands) 2000 1999 DESCRIPTION
Land $ 3,164 $ 3,108 Buildings and improvements 5,294 5,133 Equipment 14,268 13,466 In process 5 320 Property, plant and equipment 22,731 22,027 Accumulated depreciation (6,294) (4,122)
Property, plant and equipment, net $16,437 $17,905
Depreciation expense for the years ended December 31, 2000, 1999 and 1998 was $2,218,000, $1,905,000 and $1,476,000, respectively.
NOTE 4 -- INTANGIBLES
Intangibles are as follows at December 31:
(Dollars in Thousands) 2000 1999
Goodwill $ 1,203 $ 1,203 Other intangibles 501 605 Accumulated amortization (474) (362)
Intangibles, net $ 1,230 $ 1,446
Amortization expense for the years ended December 31, 2000, 1999 and 1998 was $219,000, $291,000, and $60,000, respectively.
NOTE 5 -- INVESTMENTS IN CLOSELY HELD BUSINESSES
The Company owns 33% of American L.P., Ltd. Co. ("American L.P."). The Company reports its investment in this limited liability Company using the equity method. This investment is not publicly traded. The carrying value was $-0- at December 31, 2000 and 1999. During the fourth quarter of 1999, the Company wrote down its investment by $73,000 based upon the deterioration in the financial condition of American L.P.
At December 31, 2000, the Company has a $690,000 investment in Meteor Holdings LLC ("MHL") and owns 73% of MHL. MHL owns an interest of approximately 1.5% in Saba Power Company, Ltd. (the "Power Project"). MHL's investment in the Power Project is reported using the cost method. Greka Energy Company, formerly Saba Petroleum Company which was a related party, invested $250,000 and owns approximately 27% of MHL. The MHL percentage interest in the Power Project, however, could be reduced in the event that other shareholders are required to make additional contributions to equity. The Company is not required to invest any additional capital related to the Power Project. If additional capital is required then the Company will have the choice of investing more capital or suffering ordinary dilution to its ownership interest without incurring any penalties.
The Company owns 50% of two entities, which are accounted for under the equity method. Neither of these entities has securities that are publicly traded. The carrying value at December 31, 2000 and 1999 is $307,000 and $317,000, respectively.
NOTE 6 -- REVOLVING CREDIT FACILITY
The Company has a revolving credit facility with a maximum commitment of $12,500,000, which expires on December 31, 2002. The amount available under the revolving credit facility is a function of the sum of eligible accounts receivable and inventory as defined by the revolving credit agreement up to the maximum commitment. Advances requested by the Company are subject to an interest rate of the lender's base rate plus 0.5% (10.0% and 8.5% at December 31, 2000 and 1999, respectively). Additionally, the Company pays a commitment fee of 0.25% of the maximum commitment. The revolving credit facility is collateralized by the Company's trade accounts receivable and inventory.
The terms of the revolving credit agreement contain, among other provisions, requirements for maintaining certain net worth, minimum earnings after taxes, minimum debt service coverage, and other financial ratios and specific limits on additional indebtedness, equity financing, liens and merger activity. During 2000, the Company was out of compliance with several covenants contained in the agreement and the Company obtained waivers from the lender for noncompliance.
The credit agreement contains a subjective acceleration clause, therefore the entire borrowings under the revolving credit facility are classified as a current liability.
NOTE 7 -- LONG-TERM DEBT
Long-term debt is as follows at December 31:
(Dollars in Thousands) 2000 1999
Notes payable to banks with monthly payments ranging from $2,913 to $47,744, interest at 8.75% to 10.0%, maturing from April 2000 to May 2014; collateralized by property and equipment $ 3,216 $ 3,925
Notes payable to suppliers with monthly payments of $4,853 and $8,082, interest at 8.0% and 8.59%, maturing in December 2006 and July 2007; collateralized by property and equipment. 738 789
Notes payable to individuals with monthly payments ranging from $1,111 to $217,963, interest at 7.0% to 8.5%, maturing from June 2001 through November 2013; collateralized by property and equipment. 6,213 2,047
Notes payable to financial institutions with monthly payments ranging from $485 to $6,137, interest at 8.5% to 10.25%, maturing from January 2002 to August 2005; collateralized by vehicles and equipment 771 504
Other 62 38
Total 11,000 7,303
Current portion (3,798) (1,438)
Long-term debt $ 7,202 $ 5,865
Maturities of long-term debt are as follows for the years ended December 31:
2001 $ 3,798 2002 2,768 2003 1,734 2004 1,174 2005 292 Thereafter 1,234
Total $11,000
NOTE 8 -- MINORITY INTEREST IN SUBSIDIARIES
Until September 2000, when the Company acquired the Series A Convertible Preferred Stock of a subsidiary, this stock was limited voting stock and was entitled to cumulative annual dividends at a rate of 8% of the liquidation value. These securities were convertible into common stock of either Graves or Meteor at the option of the holder(s), and at the bid price on the date of conversion, not to exceed 22.2% of the outstanding shares of Meteor.
In August 2000, the Company acquired for retirement the Series A Convertible preferred stock in exchange for a $4,456,000 note payable and the assumption of certain environmental liabilities. The note is being amortized over a four- year period plus interest at 8%. The note requires a $1,500,000 payment to be made from the receipts from the future sale or refinancing of certain assets. This payment was made in January 2001 in connection with the Rocky Mountain Propane transaction (See Note 19 - Subsequent Events). The note is secured by certain assets of the subsidiary. The excess of the carrying value of the minority interest (the preferred shares) over the liabilities recorded in the transaction was credited to paid in capital.
Dividends in arrears amounted to $1,795,000 as of December 31, 1999. The minority interest is recorded at its discounted value in the amount of $5,162,000 at December 31, 1999. Dividends and accretion of the preferred stock discount are reflected in minority interest on the income statement in the amount of $368,000, $491,000 and $444,000 for the years ended December 31, 2000, 1999 and 1998, respectively.
The Company owns 73% of MHL which owns 100% of Capco Resources, Inc. The minority interest of 27% is recorded at $250,000 at December 31, 2000 and 1999.
NOTE 9 -- INCOME TAXES
The provision for income tax (benefit) expense consists of the following components for the years ended December 31:
(Dollars in Thousands) 2000 1999 1998
Current $ (602) $ 180 $1,088 Deferred (39) 30 (149)
Total (benefit) provision $ (641) $ 210 $ 939
The following reconciles the income tax provision with the expected provision obtained by applying the federal statutory rate to pretax income for the years ended December 31:
(Dollars in Thousands) 2000 1999 1998
Expected tax (benefit)provision $ (416) $ 326 $ 867 Nondeductible expenses 44 35 9 Change in state income tax rate -0- (171) -0- Current year credits (213) -0- -0- State income taxes, net of federal benefit (56) 20 63
Total (benefit) provision $ (641) $ 210 $ 939
The components of deferred tax assets and liabilities are as follows at December 31:
(Dollars in Thousands) 2000 1999 Deferred tax asset: Accounts receivable $ 101 $ 128 Inventory -0- 94 NOL carryforwards 34 -0- Accrued environmental costs 268 29 Other 116 84
Total deferred tax asset $ 519 $ 335
Deferred tax liability: Inventory $ 133 $ -0- Prepaids 62 -0- Depreciation and amortization 2,556 2,606
Total deferred tax liability $ 2,751 $ 2,606
Net deferred tax liability $ 2,232 $ 2,271
Financial statements:
Current deferred tax asset $ 324 $ 335 Noncurrent deferred tax liability 2,556 2,606
$2,232 $2,271
NOTE 10 -- DEFINED CONTRIBUTION PLAN
The Company has a 401(k) Profit-Sharing Plan. Employee contributions to the plan are voluntary through a salary reduction agreement and eligible participants may contribute on a pre-tax basis up to 20% of their qualifying annual compensation. Matching contributions and other additional contributions may be made by the Company at its sole discretion. The Company's contributions and payments for administrative fees for the years ended December 31, 2000, 1999, and 1998 were $101,000, $120,000, and $38,000, respectively.
NOTE 11 -- RELATED PARTY TRANSACTIONS
Capco, through a majority-owned subsidiary, currently owns approximately 30% of the Company's Common Stock. Ilyas Chaudhary, a Director of the Company, is an officer, director and a principal shareholder of Capco, Dennis Staal, a Director of the Company, is also an officer of Capco and beneficially owns 35,000 common shares of Capco and 2,286 shares of Series A Preferred shares. Irwin Kaufman, a Director of the Company, is also a director of Capco and owns 20,000 common shares of Capco. Edward Names, President and CEO of the Company personally and through immediate family members may be deemed to beneficially own 64,580 common shares of Capco and 2,286 shares of Series A Preferred shares of Capco.
Effective December 31, 1999, the Company completed the sale of its subsidiary, Meteor Stores, Inc. ("MSI"), to Capco, an affiliate of the Company. The sale of this operating subsidiary was made to allow the Company to focus on its core business of commercial, wholesale and cardlock petroleum distribution. The Company, through a five year supply contract with Capco, will continue to be the supplier of refined petroleum products to these stores.
The total sale price for the sale of MSI was approximately $1,500,000. $250,000 was paid in cash at closing and the Company received a promissory note for $1,250,000 payable in monthly installments of interest only with a balloon payment of the remaining principal balance on December 31, 2001. Payments may be made either in cash or shares of the Company's common stock at a value of $3.00 per share at the discretion of Capco. The promissory note bears interest at 9.25% per annum and is secured by all of the outstanding shares of MSI. No gain or loss was recognized on the sale. The promissory note and accrued interest have been classified as an offset to shareholders' equity.
In connection with the sale of MSI to Capco, the Company received a promissory note for the net working capital on MSI's books at closing and for certain funding the Company provided to MSI during 2000. The promissory note is payable in monthly installments of interest only with a balloon payment of the principal balance on December 31, 2001. The promissory note bears interest at 9.25% per annum and is secured by all of the outstanding shares of MSI.
In September 1999, the Company sold 150,000 shares of a Canadian corporation to Capco Acquisub, Inc., a subsidiary of Capco, for a $300,000 promissory note payable over eighteen months at 8% interest payable in cash or shares of the Company's stock at the discretion of Capco Acquisub, Inc. The promissory note and accrued interest have been classified as an offset to shareholders' equity.
The Company has obtained a pledge and security agreement from Capco for all amounts owed to the Company by Capco and its subsidiaries. Under the agreement Capco grants a security interest in all shares of the Company's common stock owned by Capco or its subsidiaries.
Activity with Capco as of December 31, 2000 and 1999 and for the years ended December 31, 2000 an 1999 is as follows:
(Dollars in Thousands) 2000 1999
Accounts receivable, related party $ 820 $ -0- Notes receivable, related party $ 2,667 $ 2,430 Accrued interest receivable $ 233 $ 5 Accounts payable, related $ 60 $ -0-
Sales $ 9,494 Lease income $ 268 Interest income $ 242 Lease expense $ 30
On September 30, 1999, the Company acquired a 49.5% interest in Meteor Office LLC ("Meteor Office") in exchange for 64,000 shares of the Company's common stock. Certain officers and employees of the Company have an equity interest in Meteor Office. Meteor Office is a 50% partner in a joint venture that purchased and operates an office/residential building in Denver, Colorado. The Company's corporate offices are located in the office/residential building and are leased from the joint venture at terms that the Company believes are consistent with the market price for such facilities. The Company's accounts receivable balance from Meteor Office at December 31, 2000 and 1999 is $33,000.
The Company leases certain real estate from the preferred stockholder of a subsidiary. The leases were part of the negotiation for the purchase of the subsidiary in September 1993. For the years ended December 31, 2000, 1999 and 1998, rents paid were $55,000, $61,000, and $60,000, respectively.
The Company leases a commercial office building and warehouse from a corporation controlled by a director of one of the Company's subsidiaries. During the years ended December 31, 2000, 1999, and 1998, lease payments amounted to $53,400, $50,400, and $50,400, respectively.
The Company leases rolling stock from various related parties under capital lease agreements. The total obligation paid under these agreements for the years ended December 31, 2000, 1999, and 1998 was $-0-, $62,000, and $69,000, respectively.
The Company sold products to and purchased products from entities controlled by a director of one of the Company's subsidiaries. During the years ended December 31, 2000, 1999 and 1998, revenues reported amounted to $-0-, $4,000, and $66,000, respectively. During the years ended December 31, 2000, 1999 and 1998, purchases amounted to $-0-, $7,000 and $21,000, respectively.
The Company entered into a consulting agreement with a director of the Company. During the year ended December 31, 2000, total fees paid were $67,500.
NOTE 12 -- ENVIRONMENTAL PROTECTION EXPENDITURES
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 increasing stringent regulations could require the Company to make additional unforeseen environmental expenditures. The Company accrues for environmental remedial actions, operations, maintenance and monitoring costs based on the net present value of the costs after a remediation plan has been developed. These costs are discounted using a risk free interest rate over the estimated period which the remediation, operation, maintenance and monitoring costs are to be expended.
Environmental accruals are routinely reviewed on an interim basis as events and developments warrant.
The Company operates in various states which have established environmental remediation trusts. The purpose of the funds is to provide monetary assistance in both assessing and correcting a site for environmental problems. As a result, the Company may have limitations on any potential contamination liabilities as well as claims for reimbursement from third parties.
Included in selling, general and administrative expenses, for the years ended December 31, 2000, 1999, and 1998, are $150,000, $136,000, and $144,000, respectively, for site assessment, related cleanup costs and regulatory compliance. Included in other assets at December 31, 2000, and 1999, are unreimbursed costs from the environmental remediation trusts of $454,000 and $91,000, respectively. Included in accrued expenses at December 31, 2000 and 1999 are $990,000 and $79,000, respectively, for environmental remediation which management believes is adequate to cover known environmental remediation problems.
NOTE 13 -- COMMITMENTS AND CONTINGENCIES
The Company is a co-signer on a note for its 50% owned equity investment in a subsidiary. The amount payable on the note at December 31, 2000 and 1999 is $338,866 and $381,000, respectively.
The Company has guaranteed a $1,350,000 note payable on the office building in which the Company's corporate offices are located. (See Note 11 - Related Party Transactions). The principal balance owing on the note at December 31, 2000 and 1999 is $1,135,000 and $1,150,000, respectively.
The Company is a party to certain litigation that has arisen in the normal course of its business and that of its subsidiaries. In the opinion of management, none of this litigation is likely to have a material effect on the Company's financial position or results of operations.
NOTE 14 -- OPERATING LEASES
The Company has entered into various noncancellable leases for land, buildings and equipment with terms ranging from 3 to 15 years. Under most leasing arrangements the Company pays the property taxes, insurance, maintenance and expenses related to the leased property. Total rent expense under operating leases (including related party rent discussed in Note 11) for the years ended December 31, 2000, 1999, and 1998, was $948,000, $1,210,000, and $1,086,000, respectively.
Minimum future obligations on leases in effect at December 31, 2000, are as follows:
(Dollars in Thousands)
2001 $1,003 2002 677 2003 399 2004 305 2005 150 Thereafter 461
Total $2,995
NOTE 15 -- STOCK OPTION AND INCENTIVE EQUITY PLANS
The Company has two Stock Option Plans, the 1994 Stock Option Plan providing for the issuance of incentive stock options and non-qualified stock options to the Company's key employees and the 1998 Incentive Equity Plan. Under the two plans a maximum of 500,000 and 2,500,000 options to purchase shares, respectively, may be granted. Incentive stock options may be granted at prices not less than 100% of the fair market value at the date of the grant. Non-qualified stock options may be granted at prices not less than 75% of the fair market value at the date of the grant. In addition, 200,000 Performance Units may be granted. These units, if and when granted, will be converted to shares of common stock based on the achievement of certain performance criteria as determined by the Board of Directors. These grants may be less than (at least 75% of market value), equal to or greater than the market value per share on the date of grant.
The Company's common stock options were granted at exercise prices equal to, or in excess of, market prices on the grant dates, and therefore no compensation cost was recognized. The options were granted with maximum terms of between one and ten years.
A summary of the status of the Company's stock option plans as of December 31, 2000, 1999, and 1998, is presented below:
Had compensation cost been determined based on the fair value at grant dates for stock option awards consistent with the SFAS No. 123, the Company's net income and earnings per share for the years ended December 31, 2000, 1999, and 1998, would have been reduced to the pro forma amounts indicated below:
(Dollars in thousands except per share information) 2000 1999 1998
Net (loss) income: As reported $ (949) $ 259 $1,168 Pro Forma $(1,325) $ (103) $1,010
(Loss) earnings per share: Basic As reported $ (.27) $ .07 $ .31 Pro Forma $ (.37) $ (.03) $ .27
Diluted As reported $ (.27) $ .07 $ .31 Pro Forma $ (.37) $ (.03) $ .27
The pro forma compensation expense based on the fair value of the options is estimated on the grant date using the Black-Scholes option-pricing model with the following assumptions used for grants: no dividends; expected lives of 5 years for 2000, 4.54 years for 1999, and 3.49 years for 1998; expected volatility of 52%, 69%, and 63%,for 2000, 1999, and 1998, respectively; and a risk free rate of return of 6.19, 5.88, and 5.29 percent, respectively. The weighted average fair value of those purchase rights granted in 2000, 1999, and 1998 was $1.25, $1.60, and $1.64 respectively.
Options were granted to directors, employees and consultants in 2000 resulting in compensation expense recognized by the Company of $137,000.
NOTE 16 -- SHAREHOLDERS' EQUITY
REDEEMABLE WARRANTS
In June of 1997, the Company sold redeemable warrants to purchase up to 690,000 shares of common stock as part of a public offering. In May of 1999, the Company extended by two years the expiration date of its publicly traded warrants. The 690,000 redeemable purchase warrants now expire on June 4, 2001.
In 1998, the Company issued a total of 560,000 warrants in exchange for services by non-employees and non-affiliates. The average exercise price of these warrants was $3.67 per share. In 1998, 350,000 of these warrants were cancelled. In 1999, the remaining 210,000 of these warrants expired.
In April of 1999, the Company issued 113,750 warrants to outside consultants. The warrants have an exercise price of $2.90 per share and expire in April 2003.
PRIOR UNDERWRITING WARRANTS
In connection with the Company's initial public offering, the Company issued to the managing underwriter 17,000 warrants to purchase shares of common stock at $1.00 per share. 10,000 warrants were exercised and 7,000 warrants expired June 30, 2000.
PRIVATE PLACEMENT WARRANTS
In February and March 1997, the Company sold warrants to purchase up to 130,000 shares of common stock as part of a private placement. These warrants were exercisable at $5.00 per share during the period from March 28, 1998 to March 27, 1999. These warrants expired in 1999.
PREFERRED STOCK
During June 2000, the Company issued 365,000 shares of Series B Convertible Preferred Stock. The Company received $707,000, net of issuance costs of $23,000. Each share is: (1) not entitled to dividends, (2) entitled to a liquidation preference of $2.00, (3) entitled to one vote, and (4) not redeemable. Holders of the Series B Convertible Preferred Stock have the right to convert all or a portion of their shares into units, each unit consisting of one share of common stock and one warrant to purchase common stock. The warrants to be issued as part of the units shall be exercisable until May 15, 2005, at an exercise price of $2.50 per share.
TREASURY STOCK
The Company began in November 1997 acquiring shares of its common stock in connection with stock repurchase programs. The programs authorize the Company to purchase up to $2,700,000 in common shares on the open market or pursuant to negotiated transactions at price levels the Company deems attractive. The Company purchased 19,000 shares of common stock in 1997 at an aggregate cost of $89,000 and 698,000 shares of common stock in 1998 at an aggregate cost of $2,600,000. Of the shares purchased in 1998, 533,000 shares were purchased from a Director at a cost of $2,000,000. As of December 31, 1998, 585,000 shares were retired.
NOTE 17 -- BUSINESS SEGMENTS
For the year ended December 31, 2000, the Company operated in five business segments: gasoline, diesel, propane, grease and lubricants, and other products (anti-freeze, chemicals, services, hardware and miscellaneous items). During the years ended December 31, 1999 and 1998, in addition to these five segments, the Company also operated in the segment of convenience store items. In December, 1999 Meteor sold its retail store operating subsidiary to allow the Company to focus on its core business of commercial, wholesale and cardlock petroleum distribution.
For the year ended December 31, 2000, one customer comprised 12% of total sales. No one customer was greater than 10% of sales in 1999 or 1998.
Senior management evaluates and makes operating decisions about each of these operating segments based on a number of factors. The most significant factors used by management in evaluating the operating performance are net sales and gross profit as presented below:
Year ended December 31, 2000 1999 1998 Net sales Gasoline $ 50,524 $ 41,480 $ 28,136 Diesel 113,208 77,741 56,704 Propane 6,723 4,803 3,848 Greases and lubes 18,378 16,744 16,916 Convenience store items -0- 6,696 5,672 Other 7,967 7,747 7,086
Total net sales $ 196,800 $155,211 $118,362
Gross profit Gasoline $ 3,323 $ 4,847 $ 4,280 Diesel 8,364 8,253 6,181 Propane 2,243 1,946 1,414 Greases and lubes 3,435 3,508 3 445 Convenience store items -0- 1,664 1,547 Other 4,938 4,576 3,937
Total gross profit $ 22,303 $ 24,794 $ 20,804
Reconciliation to net (loss) income: Selling, general and administrative $ 18,971 $ 21,036 $ 16,369 Depreciation and amortization 2,438 2,196 1,536
Income from operations 894 1,562 2,899
Other (expense) (2,116) (602) (348) Income tax (benefit)expense (641) 210 939 Minority interest 368 491 444
Net (loss) income $ (949) $ 259 $ 1,168
The Company does not account for assets by business segment and, therefore, depreciation and amortization are not factors used in evaluating operating performance.
NOTE 18 -- QUARTERLY INFORMATION (UNAUDITED)
The summarized quarterly financial data presented below reflects all adjustments which, in the opinion of management, are of a normal and recurring nature necessary to present fairly the results of operations for the periods presented.
NOTE 19 - SUBSEQUENT EVENTS
In the first quarter of 2001, the Company completed a private placement to five accredited investors. The private placement consisted of approximately 123,000 units at $15 per unit for total proceeds of $1,850,000. Each unit consists of 5 shares of common stock and 3 common stock purchase warrants with an exercise price of $5.50 per share. The warrants expire 5 years from the date of issue. The proceeds were used to purchase approximately 10% of the outstanding common stock of Active IQ ($1,100,000) and the remaining proceeds were used for general working capital needs.
Effective in January 2001, Meteor contributed substantially all of its propane assets into a new entity, Rocky Mountain Propane LLC and sold an interest in such company to Meteor's propane management. Management of Rocky Mountain Propane LLC is actively seeking financing for other propane opportunities in its market areas.
SCHEDULE 2
VALUATION AND QUALIFYING ACCOUNTS (Dollars in Thousands)
Additions Balance Charged Balance beginning Charged to other end Description of the year to costs accounts Deductions of year - ----------- ----------- -------- -------- ---------- --------
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Inventory reserve $ 36 $ -0- $ -0- $ (11) $ 25 Bad debt reserve - Accounts receivable $ 233 $ 390 $ -0- $ (348) $ 275 Bad debt reserve - Notes receivable $ 114 $ -0- $ -0- $ (114) $ -0-
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Inventory reserve $ 41 $ 22 $ -0- $ (27) $ 36 Bad debt reserve - Accounts receivable $ 201 $ 249 $ -0- $ (217) $ 233 Bad debt reserve - Notes receivable $ 167 $ 56 $ -0- $ (109) $ 114
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Inventory reserve $ 38 $ 27 $ -0- $ (24) $ 41 Bad debt reserve - Accounts receivable $ 455 $ 40 $ 11(a) $ (305) $ 201 Bad debt reserve - Notes receivable $ 101 $ 85 $ -0- $ (19) $ 167
(a) Acquisition of Tri-Valley Gas Company
S-1
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized.
METEOR INDUSTRIES, INC.
/s/ Edward J. Names Dated: 3/22/01 By:_________________________________ Edward J. Names, President
/s/ Richard E. Kisser Dated: 3/22/01 By:_________________________________ Richard E. Kisser, Secretary/ Treasurer, Chief Financial Officer (Principal Financial and Accounting Officer)
Pursuant to the requirements of the Securities and 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 dated indicated.
/s/ Ilyas Chaudhary Dated: 3/22/01 By:____________________________________ Ilyas Chaudhary, Director
/s/ Edward J. Names Dated: 3/22/01 By:____________________________________ Edward J. Names, President, Chief Executive Officer and Director
/s/ Dennis R. Staal Dated: 3/22/01 By:____________________________________ Dennis R. Staal, Director
/s/ Irwin Kaufman Dated: 3/22/01 By:____________________________________ Irwin Kaufman, Director
/s/ Richard E. Dana Dated: 3/22/01 By:____________________________________ Richard E. Dana, Director