U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-KSB
(Mark One)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the fiscal year ended December 31, 2003
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
Commission file number: 0-27321
Vista Exploration Corporation
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(Name of small business issuer in its charter)
Colorado 84-1493152
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
11011 King Street, Suite 260, Overland Park, KS 66210
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(Address of principal executive offices, including ZIP Code)
Issuer's telephone number: (913) 338-5550
Securities registered under Section 12(b) of the Exchange Act:
Title of each class Name of each exchange on which
registered
N/A N/A
Securities registered under Section 12(g) of the Exchange Act:
No par value common stock
--------------
(Title of Class)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes [ X ] No [ ]
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [X]
The issuer's revenues for its most recent fiscal year ended December 31,
2003 were $0.
The aggregate market value of the 8,333,000 shares of the issuer's
outstanding common stock held by non-affiliates of the issuer was $1,249,950 as
of March 31, 2004. The stock price for computation purposes was $0.15 per share
which was the closing price for our shares on the OTC BB on March 22, 2004.
The issuer had 15,817,000 shares of its common stock issued and outstanding
as of March 31, 2004, the latest practicable date before the filing of this
report.
VISTA EXPLORATION CORPORATION
INDEX TO ANNUAL REPORT ON FORM 10-KSB
Page
PART I................................................................ 1
Item 1. Description of Business................................. 1
Item 2. Description of Property................................. 11
Item 3. Legal Proceedings....................................... 12
Item 4. Submission of Matters to a Vote of Security Holders..... 12
PART II............................................................... 12
Item 5. Market for Common Equity and Related Stockholder Matters 12
Item 6. Plan of Operation....................................... 13
Item 7. Financial Statements.................................... 19
Item 8. Changes In and Disagreements With Accountants on
Accounting and Financial Disclosure..................... 19
Item 8.A. Controls and Procedures............................... 19
PART III.............................................................. 19
Item 9. Directors, Executive Officers, Promoters and Control
Persons; Compliance with Section 16(a) of the
Exchange Act; Audit Committee; and Code of Ethics....... 19
Item 10. Executive Compensation.................................. 23
Item 11. Security Ownership Of Certain Owners And Management..... 24
Item 12. Certain Relationships and Related Transactions.......... 25
Item 13. Exhibits and Reports on Form 8-K........................ 27
Item 14. Principal Accountant Fees and Services.................. 28
PART I
Item 1. Description of Business.
Our history:
We were incorporated in Colorado on April 9, 1998 as a "blank check"
company for the purpose of evaluating, structuring, and completing a merger with
or acquisition of a privately owned corporation. Our purpose was to provide a
method for a foreign or domestic private company to become a reporting (or
public) company whose securities would be qualified for trading in the United
States secondary market. In furtherance of these goals, on September 13, 1999,
our management voluntarily filed a Registration Statement on Form 10 with the
Securities and Exchange Commission and we became a reporting company. Our
management also actively sought a suitable acquisition or merger candidate but
did not find one.
On or about March 3, 2001, we and our largest shareholder, Corporate
Management Services, Inc. (or "CMS") entered into an Agreement for the Purchase
of Common Stock whereby CMS sold a controlling interest in the Company to
Charles A. Ross, Sr. for the purpose of changing us from an inactive company to
an oil and gas company. Prior to entering into the Stock Purchase Agreement, Mr.
Ross was not affiliated with us and did not own any of our common stock. In
connection with the sale, our then sole officer and director, Mr. George
Andrews, resigned and Mr. Ross became our president and sole director. We moved
our principal place of business from Littleton, Colorado to Shawnee Mission,
Kansas and we changed our fiscal year-end from April 30 to March 31 of each
year. Subsequently, we changed our name from Bail Corporation to Vista
Exploration, our current name and commenced operations toward investing in oil
and gas properties. In the spring of 2001, we investigated acquiring 125,000
acres in the northeast region of Alabama but dropped the project when we were
unable to get comfortable with the title to the properties we were looking at.
Subsequently, we attempted to acquire drilling interests on approximately 3,500
acres in Unitah County, Utah but later determined that we did not have the
financial resources to adequately determine the appropriate drilling locations
and determined to pass on this opportunity as well. Subsequently, we became
interested in a coalbed methane play in southeast Kansas. As of February 1,
2002, we had entered into 115 separate leases covering approximately 15,388
acres in Coffey and Lyon Counties, Kansas. All of the leases required annual
payments of $10.00 per acre to maintain the lease. However, as a result of our
very poor financial condition as discussed hereinafter, we were unable to make
the annual lease payments during 2003 and our leases expired. At the present
time, we no longer have any oil and gas properties under lease, active drilling
sites or any other interests in oil and gas properties.
Following Mr. Ross's acquiring control of the Company in the spring of
2001, we sold 4,680,000 common shares in three private offerings for net
proceeds of $217,543 after deducting offering costs of approximately $35,457.
During July 2001, the Company filed a Registration Statement to register for
resale certain of the common shares sold to the original shareholders of Vista
and a majority of the shares sold in the recent private placements. That
registration statement was declared effective in April of 2002 immediately
followed by an application by the Company for a trading symbol with the NASD
which would allow us to commence trading on the Over The Counter Bulletin Board
1
("OTCBB"). As part of the process to obtain the trading symbol, the NASD
objected to certain of the Company's shareholders who it was determined had
prior regulatory problems with the NASD and SEC. As part of this procedure, it
also was determined that several non-offensive shareholders were introduced to
the Company by some of the shareholders who had regulatory issues. As a result
of the objections imposed by the NASD, the Company determined to rescind the
sales of most of the private placement shares sold during 2001 and entered into
settlement agreements with a total of ten shareholders owning a total of
4,400,000 shares of the 4,860,000 sold in the private offerings. Our management
was able to essentially repurchase the shares in exchange for the original
purchase price of a total of $158,696.80 which was paid by the issuance of
corporate promissory notes in that amount as the Company had no cash available
to it. The notes were repayable on November 14, 2002 unless the payment would be
prohibited pursuant to the terms of Section 7-106-401 of the Colorado Business
Corporation Act that restricts a company's ability to pay for a stock redemption
during any period of time when such a redemption would cause it to be insolvent.
Under these circumstances the notes automatically extend without interest until
August 14, 2003, after which date the notes have the same restrictions on
repayment however, they commence accruing interest at the lowest available
applicable federal rates. The notes are guaranteed by Mr. Ross, however, the
guaranty cannot be enforced until such time as the notes may be repaid pursuant
to Colorado law but have not been repaid. At the time of the issuance of the
above referenced notes, the Company received back all 4,400,000 shares of its
common stock being repurchased which shares were cancelled back into authorized
but unissued capital of the Company. Immediately upon confirmation of the stock
repurchase, the NASD approved the Company's request for a trading symbol and the
Company received a trading symbol of "VXPL". The Notes were paid in full on
January 20, 2004.
In November and December 2003, our management identified ICOP Digital,
Inc. as a potential acquisition candidate. At the time, ICOP Digital was a
privately owned, Kansas-based company engaged primarily in the design,
development and marketing of an innovative in-car digital video recorder system
for use in the law enforcement industry. Mr. Ross, the principal stockholder and
sole officer and director of Vista, and Mr. Owen, an optionholder of Vista, were
also affiliated stockholders, officers and directors of ICOP Digital. (See,
"Certain Relationships and Related Party Transactions").
On January 13, 2004, ICOP Digital, Inc., a Nevada corporation, merged with
ICOP Acquisition Corporation, a wholly-owned subsidiary of Vista Exploration
Corporation. This merger was proposed and completed in order to enhance the
capital formation objectives of ICOP Digital, Inc. and to satisfy the stated
business objectives of Vista Exploration Corporation. Prior to the merger, Vista
Exploration Corporation received additional capital investments sufficient to
satisfy all of its outstanding debts at the time of the merger. ICOP Acquisition
Corporation, as a newly formed entity, had no independent assets or liabilities.
Therefore, following the merger, the assets and liabilities of Vista Exploration
Corporation and its affiliates were only those of ICOP Digital, Inc. and its
subsidiaries prior to the merger.
Our Current Business
Currently, we are a Kansas-based company that delivers innovative
mission-critical security, surveillance, and communications solutions that
provide timely and accurate information for security for the public and private
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sectors. ICOP Digital is a development stage company, committed to providing
surveillance and communications solutions that help our customers improve their
safety and security, through effective deployments of innovative technologies.
The Company focused initially on the design, development and marketing of
an innovative in-car digital video recorder system, the ICOP Model 20/20(TM),
for use in the law enforcement industry. ICOP Digital then expanded its vision
to develop video surveillance and communications solutions for the worldwide
Homeland Security market: (1) critical infrastructure (ports, borders, bridges,
energy, telecom, etc.), (2) the private sector, and (3) first responders (law
enforcement, fire, and emergency medical personnel).
Our Products
ICOP Model 20/20(TM)
Law enforcement has long recognized the value of documenting critical
incidents by means of recorded videotape. These benefits include, but are not
limited to, accurately portraying events as they occur, documenting police
contacts with the public, providing strong evidence in court, training
refinement, and protecting law enforcement against false claims of police
misconduct. The result is improved criminal prosecutions, less officer overtime
in court, enhanced training, fewer citizen complaints and reduced exposure to
liability.
In-car video systems in police vehicles first received national attention
in 1991 when a police officer in Texas had a camcorder-type device in his police
vehicle and was filming during a traffic stop. While being recorded, a struggle
ensued between the officer and the violator, which resulted in the officer being
shot and killed. This tape highlighted the usefulness of video in police
vehicles and launched its market due to the national attention the incident
received.
According to Mr. Grady Baker, Director of Research for the International
Association of Chiefs of Police (IACP), video technology has had a significant
impact on law enforcement. Law enforcement agencies across the United States
employ video cameras in patrol vehicles in a variety of ways to serve multiple
purposes.
o Documentation of incident activity (i.e., DWI tests)
o Increase likelihood of successful prosecution through video evidence
in court
o Protection from frivolous lawsuits
o Increased officer safety
o Record suspect behavior
o Record and track initial violations/reasons for stop
o Reduce officer time in court, increasing productivity/realizing
financial savings
o Officer training
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Law enforcement applications of video technology have grown substantially
during the past decade. The advent of the videotape camera in the early 1980s
and the improvements made in the field since that time have given rise to many
new applications of video technology being utilized by law enforcement. Many
agencies in the United States and other nations are applying video technology to
police operations including equipping vehicles with video recorders, monitoring
public areas, and recording booking and other police procedures. The most highly
employed application is the in-car video.
Although there have been advances in video technology, nearly all
applications in law enforcement today still rely on antiquated VHS technology.
In a March 2001 Executive Brief prepared by the International Association of
Chiefs of Police, law enforcement agencies were asked to rank problems with
their current in-car video technologies. Among them were:
o Poor tape quality that makes identification difficult
o Lack of effective zoom capabilities
o Poor design, not adaptable to the operation environment
o Excessive time required to evaluate/catalog recorded material
o Limited area the cameras cover when in a fixed state
Our proprietary digital in-car video system, the "ICOP Model 20/20(TM)",
addresses all of these issues. The ICOP Model 20/20(TM) consists of a digital
video recorder, with display monitor, three video cameras, wireless audio, GPS
component to fix latitude and longitude readings instantaneously, radar
interface and all of the software and integrated architecture to support the
system. This technology should render tape quality issues obsolete. It provides
multiple angles and zoom capabilities, is designed to endure the most extreme
conditions, and will allow efficient storage and viewing capabilities. By
introducing this state-of-the-art technology to the mobile unit, additional
expansion capabilities are numerous and may even include real-time uplink for
remote monitoring of "at the scene" action by supervisory personnel at the
station.
Los Angeles, CA; Kansas City, MO; and Chicago, IL, are among the large
metropolitan areas that have adopted in-car video (ICV) technology. The Chicago
Police Department (CPD) has completed two pilot programs to evaluate the
technology, which they used to videotape driving-under-the-influence cases. Two
issues in implementing ICV in Illinois are State laws regarding audio recording
and eavesdropping, and how to "police the police" and build confidence with
patrol officers. Video technology could provide evidence of crimes or attacks
against officers, streamline the truth-finding process by providing the best
evidence, and encourage the humane treatment of suspects. ICV systems have the
potential to add a layer of accountability and trust between the police and the
public. (Source: The National Criminal Justice Reference Service).
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States and municipalities are moving toward digital video technology. For
example, the State of Texas authorized $18.5 million for the purchase of police
in-car video equipment, through Senate Bill 1074, 77th Legislature. An RFP was
issued in May 2002, and the entire contract was awarded to a competitor in
August 2002.
The ICOP Model 20/20(TM) product has a competitive advantage over the VHS
format for the following reasons:
o Digital video storage is compact
o Digital video playback by computer is random access, not sequential as
with tape systems
o Improved resolution (picture quality)
o Indexing (file locating) by date, time, officer- in- charge, location
etc. is automatic
o Lat/Long information is valuable to track discarded items (i.e.,
drugs, weapons) from fleeing suspects
o Simultaneous dual camera recording
o No image degradation due to copying
o Continuous loop cache memory, saves up to one minute of video per
camera, prior to pushing RECORD
ICOP On Watch(TM) Camera
There is a global explosion in the demand for security solutions. Never
before has there been a greater need for early warning of threats. The growing
use of CCTV, biometrics, access control, radar, and GPS technologies is
accelerating at remarkable rates. New applications for these technologies are
being adopted at military installations, borders, airports, nuclear facilities,
power plants, and pipelines. The Company's growing technology capabilities will
provide integrated solutions for these types of data sources, with
component-based, fully encrypted wireless remote video monitoring and data
systems.
Video surveillance systems are currently undergoing a transition where more
and more analog solutions are being replaced by digital. The number one factor
driving the demand for video surveillance sales today is the replacement of
analog equipment with digital equipment (J.P. Freemen Co, Inc.: 2003 Worldwide
Report on CCTV and Video Surveillance Market). Digital technology enables
audio-video data compression that minimizes transmission bandwidth and storage
requirements and permits security cameras to operate on standard data networks
without the expense of bulky coaxial cables.
An "intelligent camera" is a machine vision camera that does not require a
separate PC to operate, and all the needed functionality is built into the unit.
The Company is developing an intelligent camera, called the ICOP On Watch(TM),
which can continuously monitor an at-risk site, such as a border. The system can
5
detect motions and distinguish between naturally occurring movements (such as
leaves waving in the wind) and a human being. Alerts are issued automatically to
appropriate security personnel, to facilitate further investigation. With this
automated monitoring and recognition of possibly hostile intruders, large areas
can be efficiently monitored, with minimal man-power, enabling a site to be
warned quickly.
The ICOP "On Watch(TM)" intelligent video surveillance camera, currently
under development, is projected for completion in the first quarter of 2005.
ICOP On Watch(TM) includes proprietary technologies for a video surveillance
camera for use in video surveillance for at-risk facilities (such as airports,
borders, seaports, utilities, private industry, etc.). Using proprietary
intelligent cameras and surveillance image analyzing software, and a standard
cellular phone network, the system will provide a comprehensive view of a
defined area, centrally monitor contracted sites 24/7 in real time, and detect
threats and issue warnings when there is an intrusion, thereby improving
security and reducing overall security costs.
A few key benefits of the ICOP On Watch(TM) camera will include:
o All-digital "intelligent camera" adds advanced capabilities such as
motion detection and stabilization, with encryption
= Minimum monitoring requirements
= Enhanced security
o High-compression ratio for storage of high-resolution images
= High integrity of data
= High speed data transmission
= Lower storage requirements
o Design flexibility for development of multiple products for multiple
applications, multiple price points
o Reduction of human oversight and human error
o Wired, fiber, and wireless media
= Infinitely expandable
The Market for our Products
The 2004 security industry is a $150 billion industry in the United States
alone, and is expected to grow to more than $170 billion in 2006. The current
administration in Washington, and Congress, is strongly voicing its commitment
6
to combating terrorism worldwide, and is committing $40 billion for security for
2004 and another $40 billion in 2005.
ICOP Digital Inc. has three core business (customer) segments, which
include:
(1) First Responders includes law enforcement, military, fire departments,
and emergency medical personnel.
(2) Critical Infrastructure are those assets and facilities needed to
support commerce and the lives of citizens (banking and financial institutions,
energy and chemical sites (gas, electric power, water, and nuclear power
plants), transportation (rail, road transportation, marine transportation, and
airports), telecommunications, government facilities, bridges, dams, border
patrol, seaports, federal monuments and national icons.
(3) Private Industry
There are more than 18,000 law enforcement departments in the U.S., and it
is estimated that there are 440,000 police vehicles currently in service in the
U.S. alone. Approximately 70,000 new vehicles are leased and/or purchased by law
enforcement agencies each year. Due to varying budgets and replacement
schedules, it is difficult to project the size of the annual market and of
course it is not possible to estimate how much of the Market we can expect to
receive. This application is also useful in many other special use vehicles
including fire trucks, EMT vehicles, school buses, trains, taxi cabs, etc.
As new technology for in-car video becomes available, departments will want
to upgrade old-style systems. In addition, old systems will be dropping out of
warranty, needing service, etc. allowing for the purchase of replacement,
upgraded models.
The market for video recording technology in public and private sector
applications has realized only about 10 percent of its potential, estimates
Michael Shanahan, co-chairman of the International Association of Chiefs of
Police (IACP) Private Sector Liaison Committee and a retired University of
Washington police chief. "The market opportunity is vast. We're in the infancy
of the use of this technology on a broad basis."
"It is projected that there will 9 million video surveillance cameras in
operation in the U.S. by 2005, however, there will not be 9 million security
personnel monitoring those cameras. This gap demands that new technologies
perform much of the monitoring work themselves, providing "auto alerts" to
security personnel as needed." (Kirk Evans, PhD, Program Manager - Border and
Transportation Security Directorate, U.S. Department of Homeland Security - 2004
Department of Homeland Security Industry Forum)
In addition to the hardware and servicing we offer, we also will offer
financing options to our customers, such as installment payment plans, and lease
options for our equipment through a wholly-owned, indirect subsidiary, ICOP
Financial Services, Inc., a Nevada corporation.
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Marketing
ICOP Model 20/20(TM)
The Company markets the ICOP Model 20/20 through distributors with
extensive experience in marketing to law enforcement agencies.
This arrangement gives the Company representation in all fifty states, as
well as abroad. For example, the ICOP Model 20/20 is being considered by the New
South Wales Police in Australia as a possible solution for their in-car video
needs.
The distributor network calls on all levels of city, county, state and
federal law enforcement agencies. They also attend national, state and local
trade shows representing the Company and the ICOP Model 20/20.
The sales staffs of our distribution network have established reputations
for bringing innovative and quality products to the law enforcement community.
ICOP On Watch(TM) Camera
The ICOP On Watch(TM) camera will be marketed through strategic
partnerships with best-in-class product and service providers around the world -
solutions providers of complimentary technologies and/or consulting services, to
meet the growing demands for our heightened security awareness. The Company will
also license its technology to third party vendors.
ICOP Digital will forge partnerships and alliances in the private sector to
deliver surveillance and communications solutions to our three core market
segments, to provide end-to-end surveillance and communications solutions, to
mitigate risk exposure, better respond to emergencies, and reduce operational
costs for customers. Our partners will benefit by enhanced profitability and
innovative customer solutions. Partners will be able to enhance the value of
their security products and services by allowing ICOP's surveillance and
communications solutions to complement their existing security strategies. ICOP
Digital will provide our partners with the support needed in order to present
our products to prospective customers - a team of professional engineers, sales
executives, and marketing materials.
8
Potential partners include, but are not limited to organizations with
expertise in threat assessments, social contingency planning, crisis management,
architectural and personal safety and security, and information and intelligence
management.
We also plan on marketing to IT Integrators: While operatives in this field
have historically been oriented toward the sale of computer and software systems
to integrate enterprise functions, their knowledge of computer technology easily
equips them to sell video surveillance systems. Many IT integrators include
video security in their product offering. Integrators are better skilled than
dealers or distributors. They also tend to focus on system sales rather than
recurring revenue generated by monitoring contracts. Systems Integrators do not
normally market their own name-branded equipment. They are the fastest growing
sales by distribution channel for video surveillance systems. Integrator video
surveillance system sales increased 44% from 2000 to 2002. (J.P. Freeman Co.,
Inc. 2003 Report on the Worldwide CCTV and Digital Video Surveillance Market).
Competition
The digital in-car video market has several key competitors, including
Kustom Signals (approximately 50% of the market for in-car video), Motorola,
Mobile-Vision, and IBM. Starting with just a few manufacturers with very few
sales of in-car video systems, the industry has now grown into several
manufacturers and millions of dollar per month in sales. It is estimated that
less than 40% of the police vehicles in the United States have video systems,
though this figure is growing rapidly.
Currently, there are four different types of in-car recording devices being
sold:
o Camcorder Type Units: These are priced at the low end of the market.
The disadvantages of these systems are that they are mounted on the
dash and are not very secure and, as such, can be a projectile in an
accident or chase. The only advantage other than price is that they
can be removed from the vehicle to record other events. There are
three companies selling this type of system to law enforcement.
o Trunk Mounted, Two or Three Piece Units with VCR: This is the leading
type of unit being sold as it has been in the market the longest. The
disadvantages of this system include: difficult installation, takes up
too much trunk space, uses old technology, tape storage problems, and
temperature sensitive (heat and cold affect it). The advantage is that
it is the most well known and fully accepted system at this time.
There are approximately 8-10 companies selling this type of system to
law enforcement.
o One-Piece Hi-8 Systems: The big advantage of this type of unit is that
it is in one piece that mounts on the headliner of the police vehicle.
Installation is quick and easy, it is not as vulnerable to temperature
extremes, and the storage tapes are smaller and easier to store. The
disadvantages include the inability for it to fit in all vehicles,
ongoing tape management, and old technology. There are currently three
companies offering this system to law enforcement.
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o Digital Systems: These are the newest technology available for in-car
video systems in the marketplace. Digital systems are what police
departments are asking for today. Some of the digital units offered by
the competition have been developed for installation of the main unit
in the trunk of the vehicle, resulting in prolonged installation time,
and inefficient servicing of the units. ICOP's new digital system was
developed based on our surveys of the law enforcement industry. Our
system addresses and resolves many problems inherent in the products
we compete against.
The video surveillance market is poised for explosive growth. Many companies are
entering this space. Key competitors in the video surveillance camera market
include Pelco, Panasonic, Sony, Sanyo, and Philips. This product category is
much more a wide open market than it had been previously with many brands at
market share levels of 4% or less.
We face competition in all geographic markets and each industry sector in
which we operate. We expect aggressive competition from video, GPS and radar
technology industry companies. We also face aggressive competition from the
traditional product lines in this industry. In addition, relatively few barriers
prevent entry into the video technology, GPS and radar markets by others. The
effect of this competition could reduce our revenues, limit our ability to grow,
increase pricing pressure on our products, and otherwise affect our financial
results.
Employees
At the present time, we have a total of 7 full-time employees of which 5
are in management and administration and 2 are in engineering. The Company also
has agreements with several engineers as independent consultants to develop and
engineer the ICOP On Watch (TM) camera. ICOP Digital, Inc. will own any and all
intellectual property which is developed by these engineers, and will retain
exclusive rights to future product development, marketing, and licensing of the
technology.
Manufacturing Operations
The Company does not intend to expend significant operating capital for
in-house manufacturing capabilities but plans to take advantage of the
availability of offshore and domestic high-tech contract manufacturing firms.
Our personnel have considerable experience in negotiating purchasing contracts
with such firms.
Inventory Systems
Inventory warehousing and shipping is managed out of the Overland Park,
Kansas facility. The Company utilizes standard warehousing systems to store,
retrieve, monitor and manage its inventory. The Company does not warehouse the
multitude of smaller component pieces thereby reducing the inventory carrying
cost, effort, space and control features necessary to facilitate such an effort.
Intellectual Property
Wherever possible and applicable, the Company will protect its technology,
processes and designs with patents and trademarks. The Company has engaged the
services of Blackwell Sanders Peper Martin, LLP to assist in the protection of
its intellectual properties. Patent applications were filed with the U.S. Patent
and Trademark Office for the ICOP Model 20/20(TM) in August 2003. Trademarks
have been approved for both the "ICOP" name and for the stylistic use of the
logo.
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ICOP Digital currently has the following patent applications:
Ref # 16967.10002 - Provisional Application - Data Acquisition and Display
system and method of operating same; filed 8/26/2003.
Ref # 16967.10004 - PCT Application - Data Acquisition and Display system and
method of operating same; filed 10/1/2003 with a priority date of 8/26/2003.
Ref # 16967.10001 - Provisional Application - Data Acquisition and Display
System/Method of Establishing Chain of custody; file 10/22/2003.
Material Contracts
ICOP Digital has a $2,500,000 letter of credit facility with Bank of
America which requires full cash collateral before letters of credit may be
issued under it.
The Company has arranged to have its principal product, the ICOP Model
20/20(TM), produced by a manufacturer in Japan. We currently owe the
manufacturer approximately $1.7 million. While the Japanese manufacturer has
assisted in the development of the ICOP Model 20/20(TM), the Company maintains
the intellectual property rights necessary to produce this product. However,
this manufacturer has the intellectual property rights to a method of data
compression used in the ICOP Model 20/20(TM). If this data compression
technology were no longer available to the Company, the ICOP Model 20/20(TM)
could still be produced by another manufacturer; however, a partial redesign
would be required and likely result in a production delay. Production of the
ICOP Model 20/20(TM) is expected to increase as additional manufacturing
capacity is dedicated to this product, as additional purchase orders are
received and as working capital becomes available.
Item 2. Description of Property.
The Company offices are located at 11011 King Street, Suite 260, Overland
Park, Kansas 66210 in approximately 4,500 square feet of leased office space.
The Company has an arrangement with a contract manufacturing group in Japan for
turn-key production of the ICOP Model 20/20(TM). Other products marketed by the
11
Company are manufactured in the U.S. by third party manufacturers, therefore, at
the present time we don't require any manufacturing facilities. All of our space
is leased from third party landlords and we believe our leased space and our
leases are adequate for the terms of the leases for our current and expected
needs.
Item 3. Legal Proceedings.
We do not know of any pending or threatened legal proceedings to which we
or any of our executive officers or directors are a party as a result of their
activities as such on behalf of the Company. We also are not aware of any
proceedings being contemplated by governmental authorities against us.
Item 4. Submission of Matters to a Vote of Security Holders.
There were no items submitted during the fourth quarter of the fiscal year
covered by this Report to a vote of stockholders, through the solicitation of
proxies, or otherwise.
PART II
Item 5. Market for Common Equity and Related Stockholder Matters
(a) Principal Market or Markets. The Company's stock was granted the symbol
"VXPL" on December 31, 2002 to permit it to trade on the Over the Counter
Bulletin Board ("OTCBB"). To date upon information there has been only limited
trading in the Company's stock. A registration statement on Form SB-2 was
declared effective in April of 2002 and subsequently a post-effective Amendment
was declared effective in July of 2002. However, the information contained in
the Registration Statement is currently out of date and no trading can occur in
reliance on that Registration Statement until it is subsequently amended. We
plan on filing a post-effective Amendment to our Registration Statement as soon
as practicable. The posted closing price on March 22, 2004 was $.15 per share
and to our knowledge that was the last trade. The highest price from January 2,
2003 to December 31, 2003 was $.15 and the lowest price was $.01. These prices
were on the OTC BB and may not reflect actual trades and do not reflect mark-up
or mark-downs.
(b) Approximate Number of Holders of Common Stock. The number of holders of
record of our common stock as of July 11, 2003, was approximately 184.
(c) Dividends. Holders of our common stock are entitled to receive such
dividends as may be declared by our Board of Directors. We did not declare or
pay any dividends on our common stock during the periods reported herein nor do
we anticipate paying dividends in the foreseeable future.
(d) Securities Authorized for Issuance Under Equity Compensation Plans. The
following table sets forth information regarding our equity compensation plans
as of the most recently completed fiscal year.
12
No. of Securities to Weighted-Average No. of Securities
be issued Upon Exercise Price of Remaining Available
Exercise of Outstanding for Future Issuance
Equity Compensation Outstanding Options, Options Warrants Under Equity
Plans Warrants & Rights(1) & Rights Compensation Plans
---------------------------- ----------------------- ------------------------- ----------------------
Approved by security holders 0 $0.00 0
Not approved by security
holders 1,950,000 $1.00 0
--------------------------------
(1) Results from cancellation of all prior options of Vista and substitution of
plans acquired as a result of ICOP acquisition and the subsequent cancellation
of the Ken McCoy option upon termination of the investment in McCoy's Law Line.
(e) During the last quarter of the year-ended December 31, 2003, the
Company issued a total of 600,000 shares of its common stock, 300,000 shares
each to two accredited investors for a purchase price of $0.50 per share. Net
proceeds to the Company were $300,000 as no discounts or commissions were paid.
The sales were made pursuant to Section 4(2) of the Securities Act of 1933.
Effective with the date of the acquisition of ICOP Digital, one of our
directors, Charles A. Ross, Sr. cancelled back into treasury, 500,000 shares of
our common stock previously owned by him. Therefore, at the effective date of
the acquisition of ICOP Digital, January 13, 2004, a total of 1,790,000 shares
of the Registrant's common stock were issued and outstanding as a result of the
merger, and an additional approximately 14,577,000 were issued on a pro rata
basis to all of the shareholders of ICOP Digital.
During the first quarter of 2004, Ken McCoy cancelled back to treasury
700,000 shares of our common stock and 500,000 options at $1.00 as part of the
sale of our investment in an unconsolidated subsidiary.
Item 6. Plan of Operation.
Change of Fiscal Year and Name
As a result of the acquisition of ICOP Digital, Inc. on January 13, 2004,
we have changed our fiscal year end to December 31 from March 31. Also, at its
next shareholder meeting, management intends to propose an amendment to the
Company's Articles of Incorporation, among others, to change the Company's name
from Vista Exploration Corporation to ICOP Digital, Inc.
Critical Accounting Policies
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
13
disclosure of the contingent assets and liabilities at the date of the financial
statements and revenue and expenses for the period reported. Estimates are based
upon historical experience and various other assumptions that are believed to be
reasonable under the circumstances. These estimates are evaluated periodically
and form the basis for making judgments regarding the carrying values of assets
and liabilities and the reported amount of revenue and expenses. Actual results
may differ from these estimates under different assumptions.
The Company's critical accounting policies are those that it believes are
the most important in determining its financial condition and results, and
requires significant subjective judgment by management. A summary of the
Company's significant accounting policies, including the critical accounting
policies discussed below, is set out in the notes to the financial statements.
Basis of Presentation
The Company is a development stage enterprise in accordance with Statement
of Financial Accounting Standard (SFAS) No. 7. The Company has been in the
development stage since inception in May 2002 and has had no operating revenues
or earnings from operations. The Company's success is dependent upon developing
or acquiring commercial products and developing commercial markets adequate to
achieve profitable operations. There is no assurance that the Company can
achieve such products and markets. These factors, among others, raise
substantial doubt about its ability to continue as a going concern.
The accompanying financial statements have been prepared on a going concern
basis, which contemplates the realization of assets and satisfaction of
liabilities in the normal course of business. As shown in the accompanying
consolidated financial statements, the Company has suffered significant losses
since inception and has a deficit working capital position and a net capital
deficiency at December 31, 2003. These factors, among others, may indicate that
the Company will be unable to continue as a going concern.
The financial statements do not include any adjustments relating to the
recoverability and classification of liabilities that might be necessary should
the Company be unable to continue as a going concern. The Company's continuation
as a going concern is dependent upon its ability to generate sufficient cash
flow to meet its obligations on a timely basis and ultimately to attain
profitability. During the years ended December 31, 2003 and 2002, the Company
raised capital through the sale of common stock. The Company plans to seek
additional funding to maintain its operations through debt and equity financing.
There is no assurance that the Company will be successful in its efforts to
raise additional working capital or achieve profitable operations. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty. The Company's continuation as a going concern is dependent
upon its ability to meet its obligations on a timely basis, and ultimately to
attain profitability.
Investment in Unconsolidated Subsidiary
The Company invested in a marketing company in February 2003 and terminated
the investment in March 2004. This investment was accounted for using the equity
method of accounting for temporary investments and was reflected on the balance
14
sheet as "Investment in unconsolidated subsidiary" in the statement of
operations as "Equity in losses of equity-method investee." The amount of the
charge to the statement of operations of $450,000 was the net cost of ownership
of the subsidiary for the period of time that it was owned.
Business Restructuring
Effective December 31, 2003, ICOP Digital, Inc. exchanged all of its
outstanding shares of common stock for shares of common stock of Vista
Exploration Corporation, representing 89 percent of the outstanding shares of
the combined company. The combination has been treated as a recapitalization of
ICOP, with Vista as the surviving entity. Since Vista had no assets, net
liabilities and no operations at the time of the combination, the
recapitalization has been accounted for as the sale of 1,790,000 shares of ICOP
common stock for the net liabilities of Vista. The historical financial
statements presented herein are those of ICOP.
Research and Development Costs
Research and development costs are charged to expense as incurred. No costs
are deferred since the requirements that a product under development be clearly
defined, have identifiable costs, be technically feasible, and have a clearly
defined market or use, and the Company have the financial resources to complete
the project are not objectively assured. If the costs associated with the
project were deferred, any deferred costs would be recovered as charges against
earnings in future periods.
Foreign Currency Translation
The company outsourced certain research and development to a Japanese firm.
Services and products were billed to the Company in the local currency.
Liabilities in foreign currencies are translated at exchange rates prevailing at
the balance sheet date. Costs and expenses are translated into US dollars at
average exchange rates for the period. Gains and losses resulting from
translation are accumulated as a component of other comprehensive income (loss).
Realized gains and losses from foreign currency transactions are recognized as
other income.
Forward-Looking Statements
This report on Form 10-KSB contains forward-looking statements that concern
our business. Such statements are not guarantees of future performance and
actual results or developments could differ materially from those expressed or
implied in such statements as a result of certain factors, including those
factors set forth in "Description of Our Business," "Plan of Operation" and
elsewhere in this report. All statements, other than statements of historical
facts, included in this report that address activities, events or developments
that we expect, believe, intend or anticipate will or may occur in the future,
including the following matters, are forward looking statements:
o the success of ICOP's new business plan;
o our ability to raise enough capital to continue development and
marketing of our products;
15
o the ability of our management to file and have declared effective a
registration statement, re-registering the resale of our common
shares; and
o the expansion and growth of our operations.
These statements are based on certain assumptions and analyses made by us
in light of our experience and our product research. Such statements are subject
to a number of assumptions including the following:
o risks and uncertainties, including the risks discussed in this annual
report,
o general economic and business conditions,
o market acceptance of our products; and
o changes in laws or regulations and other factors, many of which are
beyond our control.
The cautionary statements contained or referred to in this report should be
considered in connection with any subsequent written or oral forward-looking
statements that may be issued by us or persons acting on our behalf. We
undertake no obligation to release publicly any revisions to any forward-looking
statements to reflect events or circumstances after the date hereof or to
reflect the occurrence of unanticipated events.
Our Revenue Goals
We are in the final design stages to commence manufacturing of the ICOP
Model 20/20(TM) digital cameral device for installation in police and other
emergency vehicles. We expect to begin receiving revenues from the sales of the
ICOP Model 20/20(TM) commencing in the third quarter of 2004. Based on our
current estimates, we believe initially we will be able to generate gross
margins of approximately 40% of all sales from this product line, which should
permit us to reach the break even mark from operations before the end of the
fourth quarter of 2004, based on our perceived product demand.
Our Twelve Month Plan of Operations
We expect to execute a manufacturing agreement to produce up to 1,100 ICOP
Model 20/20(TM) units over the following six months. Under the terms of this
agreement, the manufacturer will be responsible for purchasing the components to
be utilized in the units and manufacturing the units, and we will be required to
provide a letter of credit to be used when the units enter the United States.
Our distribution partner is presently pursuing and taking orders for the units
and will be required to provide a letter of credit when the orders are placed.
As of this date, we believe we will have a need for at least $5,000,000 in
additional financing to cover our outstanding engineering expenses, our letter
of credit costs and continued operations pending delivery of the first orders.
Our expenses continue to exceed our cash flow by approximately $200,000 per
month, principally related to product development of the ICOP Model 20/20(TM)
and the ICOP On Watch (TM) Camera. Any proceeds in excess of the minimum
financing necessary of $3,000,000 will be used to build inventory. We expect our
capital raising efforts to be completed by not later than July 1, 2004, which
will thereafter allow us to conclude sales orders, accelerate the manufacturing
process, and accelerate delivery of the ICOP Model 20/20(TM) by approximately
the later part of the third quarter of 2004. We believe the time from when we
release product for manufacturing until units are completed and can be delivered
to our customers will be approximately four to six weeks, depending on the
availability of certain of the components.
Currently, our "burn rate" is $200,000 per month. Prior to the receipt of
material revenue from sales of the ICOP Model 20/20, we believe the burn rate
should increase to approximately $250,000 per month, until such time as unit
sales of the ICOP Model 20/20(TM) increase to 200 per month, at which point we
should be at approximately break even. During the next 12 months, we anticipate
spending approximately $1,500,000 on research and development to make
enhancements to the ICOP Model 20/20(TM) device and the ICOP On Watch (TM)
Camera. We have also anticipated annual expenses for warranty service of
approximately $150,000 for the next 12 months, which should remain reasonably
constant during follow-on years as a result of an expected decrease in the
number of warranty claims as a result of our additional research and
development, and debugging of the system, notwithstanding increased sales which
are expected during follow-on periods.
16
We do not expect to increase our administrative staff substantially in the
near term, since all of our manufacturing and marketing of the ICOP Model
20/20(TM) will be handled by third parties.
The timing of additional activities and the penetration of other markets
beyond those described above, depends on the speed with which we penetrate the
digital video market in the police and other emergency vehicle units.
Additionally, while it is not likely, it is possible that we might consider
manufacturing our own systems once the process is substantially automated and
should we be able to determine that we can do so cost effectively.
Results of Operation
Since the Company was formed on the 24th of May, 2002, the period reported
through December 31 of 2002 is essentially seven months versus the full twelve
month period ended December 31, 2003 in this comparison. Selling, general and
administrative expenses increased from $258,000 for the short period ended
December 31, 2002 to $1,055,000 for the year ended December 31, 2003 principally
as a result of the short period but in addition the greatly stepped up activity
in preparation for the marketing of the ICOP Model 20/20(TM) system. Research
and development expense increased from $178,000 in the period ended December 31,
2002 to $2,828,000 in the 12 months ended December 31, 2003. Once again, this
was impacted by the short period but also reflects the additional cash available
for research and development created by the additional investment
17
received during the year ended 2003. While there were no expenses related to
losses in equity investments for 2003, we recorded $450,000 of such expenses for
the year ended December 31, 2003 as a result of the sale of our investment in
the McCoy's Law Line. Total operating expenses increased from $536,000 in the
period ended December 31, 2002 to $4,333,000 for the year ended December 31,
2003 and the losses from operations increased by the same amounts for the
corresponding periods reflecting the fact that the Company recorded no revenue
during either period to offset against total operating expenses for each of
these periods. The basic and diluted weighted average common shares outstanding
increased from 7,341,944 for the period ended December 31, 2002 to 13,435,832
shares for the period ended December 31, 2003. The increase in weighted average
common shares outstanding reflects principally our success in raising capital to
fund research and development and other operating expenses during the year ended
December 31, 2003.
Looking forward, as set forth elsewhere in this report, management expects
to commence receipt of revenues from the sale of its ICOP Model 20/20 systems
during the second quarter of 2004. If sales meet managements expectations, it is
expected that absent any material change in our operating expenses or an
acceleration in our research and development expenses that we could reach break
even during the third quarter of 2004. Of course, there are several unknowns
including general economic, geopolitical and fluctuations in currencies which
could impact this projection negatively.
Liquidity and Future Capital Requirements
Our Revenue Goals
We are in the final design stages to commence manufacturing of the ICOP
Model 20/20(TM) digital camera device for installation in police and other
emergency vehicles. We expect to begin receiving revenues from the sales of the
ICOP Model 20/20(TM) commencing in the third quarter of 2004. Based on our
current estimates, we believe initially we will be able to generate gross
margins of approximately 40% of all sales from this product line, which should
permit us to reach the break even mark from operations before the end of the
fourth quarter of 2004, based on our perceived product demand.
Our Twelve Month Plan of Operations
We expect to execute a manufacturing agreement to produce up to 1,100 ICOP
Model 20/20(TM) units over the following six months. Under the terms of this
agreement, the manufacturer will be responsible for purchasing the components to
be utilized in the units and manufacturing the units, and we will be required to
provide a letter of credit to be used when the units enter the United States.
Our distribution partner is presently pursuing and taking orders for the units
and will be required to provide a letter of credit when the orders are placed.
As of this date, we believe we will have a need for at least $5,000,000 in
additional financing to cover our outstanding engineering expenses, our letter
of credit costs and continued operations pending delivery of the first orders.
Our expenses continue to exceed our cash flow by approximately $200,000 per
month, principally related to product development of the ICOP Model 20/20(TM)
and the ICOP On Watch (TM) Camera. Any proceeds in excess of the minimum
financing necessary of $3,000,000 will be used to build inventory. We expect our
capital raising efforts to be completed by not later than July 1, 2004, which
will thereafter allow us to conclude sales orders, accelerate the manufacturing
process, and accelerate delivery of the ICOP Model 20/20(TM) by approximately
the later part of the third quarter of 2004. We believe the time from when we
release product for manufacturing until units are completed and can be delivered
to our customers will be approximately four to six weeks, depending on the
availability of certain of the components.
Currently, our "burn rate" is $200,000 per month. Prior to the receipt of
material revenue from sales of the ICOP Model 20/20, we believe the burn rate
should increase to approximately $250,000 per month, until such time as unit
sales of the ICOP Model 20/20(TM) increase to 200 per month, at which point we
should be at approximately break even. During the next 12 months, we anticipate
spending approximately $1,500,000 on research and development to make
enhancements to the ICOP Model 20/20(TM) device and the ICOP On Watch (TM)
Camera. We have also anticipated annual expenses for warranty service of
approximately $150,000 for the next 12 months, which should remain reasonably
constant during follow-on years as a result of an expected decrease in the
number of warranty claims as a result of our additional research and
development, and debugging of the system, notwithstanding increased sales which
are expected during follow-on periods.
We do not expect to increase our administrative staff substantially in the
near term, since all of our manufacturing and marketing of the ICOP Model
20/20(TM) will be handled by third parties.
The timing of additional activities and the penetration of other markets
beyond those described above, depends on the speed with which we penetrate the
digital video market in the police and other emergency vehicle units.
Additionally, while it is not likely, it is possible that we might consider
manufacturing our own systems once the process is substantially automated and
should we be able to determine that we can do so cost effectively.
Liquidity and Future Capital Requirements
Our auditors included an explanatory paragraph in their opinion on our
financial statements for the year ended December 31, 2003, to state that our
losses, working capital deficit, and net shareholder deficit at December 31,
2003 raised substantial doubt about our ability to continue as a going concern.
Our ability to continue as a going concern is dependent upon raising additional
capital and achieving profitable operations through the manufacture and sale of
the ICOP Model 20/20(TM) product. We cannot assure you that our business plans
will be successful in addressing this issue.
Since the inception of our current business plan in 2002, we have financed
our operations primarily through the private sale of our common stock and
preferred stock. As of December 31, 2003, we had approximately $118,780 of cash
and cash equivalents, and a net working capital deficit of $2,019,330.
During 2003, we raised approximately $2,596,000 through the sale of our
common shares. During the first three months of 2004, we raised an additional
approximate $1,100,000 through the sale of our preferred stock. We have the
immediate need for approximately an additional $5,000,000 to pay our outstanding
engineering costs, begin the manufacturing of our product, promote sales, and
support our operations in the near term, as described in our 12 month plan of
operation. We anticipate obtaining agreements to pay the outstanding engineering
costs, totaling approximately $1,800,000 over a period of time as units are
manufactured and sold, leaving $3,200,000 to be raised from other sources. If we
are unable to close the sale of this additional financing before the end of July
2004, it would place us in a very hazardous position and we would be required
to, at the very least, discontinue the product development of the ICOP Model
20/20(TM). The additional funds may take the form of debt or equity securities,
or a combination or both. Holders of debt or equity, or equity securities issued
in the future, could have rights, preferences and privileges senior to holders
of our common and preferred stock, and the terms of any debt could restrict our
operations. Furthermore, the sale of additional equity or convertible debt
securities could result in additional dilution to our existing shareholders.
We currently do not have any commitment for, or readily available source of
this additional financing, nor can we assure you that additional financing will
be available to us on commercially reasonable terms. We cannot estimate at what
price we may be able to sell our securities, or what type of security may be
sold; however, our last private offering prior to filing this registration
statement, was at a price of $6.00 per share of convertible preferred stock.
Each share of this preferred convertible stock can be converted into eight
shares of common stock and includes a warrant for the same number of additional
shares of common stock at a price of $1.80 per share.
18
We currently do not have any commitment for, or readily available source of
this additional financing, nor can we assure you that additional financing will
be available to us on commercially reasonable terms. We cannot estimate at what
price we may be able to sell our securities, or what type of security may be
sold; however, our last private offering prior to filing this registration
statement, was at a price of $6.00 per share of convertible preferred stock.
Each share of this preferred convertible stock can be converted into eight
shares of common stock and includes a warrant for the same number of additional
shares of common stock at a price of $1.80 per share.
Item 7. Financial Statements.
The independent auditors' report and the financial statements listed on the
accompanying index at page F-1 of this report are filed as part of this report
and incorporated herein by reference.
Item 8. Changes In and Disagreements With Accountants on Accounting and
Financial Disclosure.
We did not have any disagreements on accounting and financial disclosure
with our present accounting firm during the reporting period.
Item 8.A. Controls and Procedures.
The Company maintains a system of disclosure controls and procedures that
are designed for the purposes of ensuring that information required to be
disclosed in our SEC reports is recorded, processed, summarized, and reported
within the time periods specified in the SEC rules and forms, and that such
information is accumulated and communicated to our management, including the
Chief Executive and Chief Financial Officers as appropriate to allow timely
decisions regarding required disclosure.
Charles A. Ross, Sr., who serves as the Company's Chief Executive Officer
and David C. Owen, who serves as our Chief Financial and Accounting Officer,
after evaluating the effectiveness of the Company's disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14(c) as of December 31, 2003,
(the "Evaluation Date") concluded that as of the Evaluation Date, the Company's
disclosure controls and procedures were adequate and effective to ensure that
material information relating to the Company and its consolidated subsidiaries
would be made known to them by individuals within those entities, particularly
during the period in which this annual report was being prepared. There were no
significant changes in the Company's internal controls or in other factors that
could significantly affect the Company's disclosure controls and procedures
subsequent to the Evaluation Date, nor any significant deficiencies or material
weaknesses in such disclosure controls and procedures requiring corrective
actions. As a result, no corrective actions were taken.
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance
with Section 16(a) of the Exchange Act; Audit Committee; and Code of Ethics.
19
MANAGEMENT
Directors and Officers
The following table sets forth the name, age and position of each of
our officers and directors as of this date.
Name Age Position Term
---- --- -------- ----
Charles A. Ross, Sr. 63 Chairman, CEO and Director April 2001 to present
David C. Owen 65 CFO and Director February 2003 to present
Laura E. Owen 46 Vice President of Administration
and Corporate Secretary June 2003 to present
Roger L. Mason 51 Director January 2003 to present
Charles A. Ross, Sr. -- Chairman, Chief Executive Officer and Director
Charles A. Ross, Sr. has been our Chief Executive Officer and a Director
since April 10, 2001 and since May of 2002, CEO and a director of ICOP Digital,
Inc., a development stage company developing electronic surveillance equipment
for law enforcement agencies.
From January 2001 through March 2001, Mr. Ross was exploring opportunities
in the oil and gas business, which led to his investment in us. From July 1999
until December 2000, he owned and operated a business that supplied recruiting
and business cards to a number of multi-level marketing companies. From June
1998 through July 1999, Mr. Ross was self-employed designing musical instrument
amplifiers, an industry in which he has been involved since the 1960's.
From August 1995 until May 1998, he was the President and CEO and a
director of Edgerton Technology, Inc. and from July 1996 until May 1998 he was
the Chairman of the Board, President, CEO and Treasurer of Edgerton Musical
Amplifiers, Inc. From August 1992 to August 1995, Mr. Ross was a self-employed
consultant and investor.
Other public companies in which Mr. Ross served as an officer or director
include Copilot Electronic Products, Inc. from 1989 to 1992, Birdview Satellite
Communications, Inc. from 1981 to 1986, and Kustom Electronics, Inc. from 1965
to 1973. In 1968 he was named Kansas Small Businessman of the Year by the Small
Business Administration.
David C. Owen, 65 -- President and CFO:
Mr. Owen has been an officer and director of ICOP since February 2003, and
of Vista since January 2004. Mr. Owen has been president of Owen & Associates,
Inc. since 1998, a private investment and management entity. He has more than 40
years experience in the financial industry having served as Chairman, President
and CEO of two banks in the Kansas City area and Regional Manager for Stephens,
Inc.- an investment banking firm located in Little Rock, Arkansas.
20
Mr. Owen has extensive experience in mergers and acquisitions and in the
financial reporting requirements of public companies. He is active in the
community having served as State Senator and Lt. -Governor of Kansas. He is a
graduate of Ottawa University, Ottawa, Kansas with a degree in Economics. He
also received post graduate training at Ohio State University and Rutgers
University in conjunction with the American Bankers Association. He is currently
a member of the Board of Trustees of Ottawa University, Member of the Executive
Committee and Board of the Greater Kansas City Fellowship of Christian Athletes.
Laura E. Owen, 46 -- Vice President of Administration and Corporate Secretary:
Ms. Owen has been with ICOP since May of 2002 and is responsible for
shareholder relations, assisting with the strategic development of the Company,
the management of leasing operations, and corporation administration. From 1998,
until joining ICOP, she served as President of Unicard, a privately held travel
insurance business. She has worked in large corporations, owned small
businesses, and worked in investment banking. Ms. Owen was the first woman to be
appointed Secretary of Commerce (KDOC) for the State of Kansas, the state's
leading economic development agency. She has served on numerous state boards and
commissions, including KTEC (Kansas Technology Enterprise Corporation), a
public/private organization whose mission is to increase the presence of
technological companies in the State of Kansas. Ms. Owen has a degree in
Business Administration from Delaware Valley College in Philadelphia,
Pennsylvania. She also studied at the Sorbonne University in Paris, and has
traveled extensively abroad in support of business projects. She currently
serves on the board of Heart To Heart International, a humanitarian organization
which delivers pharmaceuticals and medical supplies worldwide.
Roger L. Mason, 52 -- Director
Mr. Mason has been a director of ICOP since May of 2002. Mr. Mason has
owned his own real estate development business since 1995 in Olathe, Kansas. He
also has twenty years of experience (Road Electronics, Birdview Satellite
Communications, Cobalt Boats, and Mason Electronics) in various capacities
centering around corporate purchasing and manufacturing management, which
provides him a solid base of understanding as it pertains to the various methods
and procedures in manufacturing and purchasing departments for a high technology
company.
Mr. Ross was elected to serve a three-year term at our annual meeting which
occurred in 2001 as a Class A director. Mr. Ross will be up for reelection at
our next annual meeting to occur during the third quarter of 2004. At the first
board of directors meeting held subsequent to the acquisition of ICOP, Mr. Ross
appointed our Chairman and Chief Financial Officer, David C. Owen, to join him
as a Class A director whose term will also expire at the next annual meeting.
Roger L. Mason, our independent director, was appointed to serve as a Class C
director whose term will expire after our annual meeting held in 2006.
21
Staggered terms tend to protect against sudden changes in management and
may have the effect of delaying, deferring or preventing a change in our control
without further action by our shareholders, such as removing directors from our
board as provided under Colorado law.
Our officers are elected by the board of directors at the first board of
directors meeting after each annual meeting of our shareholders and hold office
until their successors are duly elected and qualified in accordance with our
Bylaws. Our next annual meeting of shareholders is scheduled for August 10,
2004.
There are no agreements or understandings for our sole officer and director
to resign at the request of another person nor is he acting on behalf of or at
the direction of any other person.
Laura E. Owen and David C. Owen are husband and wife.
The Registrant is not a listed issuer, and has no nomination committee or
executive compensation committee, as these functions are performed by the board
of directors.
Section 16(a) Beneficial Reporting Compliance
Based upon information provided to us by our directors, executive officers
and persons holding more than 10% of our common stock, we believe that there
were no late filings.
Audit Committee and Financial Expert
The Company's Board of Directors functions as its audit committee and
performs some of the same functions of an audit committee, such as recommending
a firm of independent certified public accountants to audit the annual financial
statements; reviewing the independent auditors independence, the financial
statements and their audit report; and reviewing management's administration of
the system of internal accounting controls. The Company does not currently have
a written audit committee charter or similar document.
Code of Ethics
A code of ethics relates to written standards that are reasonably designed
to deter wrongdoing and to promote;
o Honest and ethical conduct, including the ethical handling of actual
or apparent conflicts of interest between personal and professional
relationships;
o Full, fair, accurate, timely and understandable disclosure in reports
and documents that are filed with, or submitted to, the SEC and in
other public communications made by an issuer;
o Compliance with applicable governmental laws, rules and regulations;
o The prompt internal reporting of violations of the code to an
appropriate person or persons identified in the code; and
o Accountability for adherence to the code.
22
Due to the limited scope of our current operations, we have not adopted a
corporate code of ethics that applies to our principal executive officer,
principal accounting officer, or persons performing similar functions.
Item 10. Executive Compensation.
This section sets out the annual compensation paid to our officers for the
last fiscal year and includes the historic income received from ICOP. No
executive officer of ours received annual compensation in excess of $100,000
during the last fiscal year.
Long-Term Compensation
Annual Compensation Awards
Payouts
Securities All
Fiscal Other Restricted Underlying LTIP Other
Name and Principal Year Salary Bonus Annual Stock Awards Options/ Payouts Comp.
Position Ending ($) ($) Comp. ($) SARs (#) ($) ($)
------------------ ------ ------ ----- ----- ------------ ---------- ------- -----
Charles A. (Bud)
Ross, Sr., Chief
Executive Officer 2003 $60,000 0 0 0 0 0 0
2002 95,000 0 0 0 500,000(1) 0 0
2001 40,000 0 0 0 0 0 0
(1) Cancelled by Agreement effective January 13, 2004.
Option/SAR Grants in last Fiscal
Year(1) (Individual Grants) Percent of total Exercise or
Number of Securities Underlying options/SARs granted to base price Expiration
Name and Principal Position Options/SARs granted (#) employees in fiscal year ($/Sh) Date
--------------------------- ----------- ---- ------ ----
Owen Enterprises, LLC.(2) 1,000,000 51% $1.00 Dec. 31, 2007
Laura E. Owen 175,000 8.9% $1.00 Dec. 31, 2007
------------------------------
(1) This information is as of December 31, 2003
(2) David C. Owen is the Manager of Owen Enterprises LLC.
Laura E. Owen, wife of David C. Owen, is Vice President of Administration and
Corporate Secretary.
Officer Compensation
David C. Owen, President and Chief Financial Officer, had a base salary,
pursuant to his Executive Employment Agreement commenced on March 24, 2003, of
$60,000 per year. Effective January 1, 2004, the annual compensation increased
to $90,000 per year. Mr. Owen is also entitled to participate in the Company's
Stock Option Plan and 401(k) Plan.
Charles A. (Bud) Ross, Sr., Chairman and Chief Executive Officer, had a
salary pursuant to his Executive Employment Agreement commenced on March 24,
2003, of $60,000 per year. Effective January 1, 2004, the annual compensation
increased to $90,000 per year. Mr. Ross is also entitled to participate in the
Company's Stock Option Plan and 401(k) Plan.
Laura E. Owen, Vice President of Administration and Corporate Secretary
commenced employment in June 2003 with the Company, and has an annual
compensation of $70,000. Ms. Owen is also entitled to participate in the
Company's Stock Option Plan and 401(k) Plan.
23
Option Exercises and Values
Laura E. Owen owns 175,000 options to purchase common stock at $1.00 per
share. None of our other executive officers holds any stock options of our
common stock.
Long-Term Incentive Plans
We have a Stock Option Plan that authorizes the grant of incentive stock
options within the meaning of Section 422 of the Internal Revenue Code of 1986,
as amended and nonqualified stock options for the purchase of an aggregate of
5,000,000 shares of Common Stock, subject to adjustment for stock splits and
similar capital changes. Employees and, in the case of nonqualified stock
options, directors, consultants or any affiliate are eligible to receive grants
under our plans. As of March 31, 2004, there are 1,950,000 outstanding options
under our Stock Option Plan.
We also have established a 401(k) plan which will enroll employees April 1,
2004, with an effective date of January 1, 2004. It is a 3% Safe Harbor Plan,
which also allows individual optional employee deferrals. This plan also
includes an optional Profit Sharing Plan, which is funded annually at the
discretion of the Board of Directors.
Employment Contracts and Termination of Employment Arrangements
Except as set forth above under Officer Compensation, there are no other
compensatory plans or arrangements, including payments to be received from us,
with respect to the resignation, retirement or other termination of the
employment of any executive officer or related to a change in control in us.
Director Compensation
None of our directors received any compensation during our most recent
fiscal year for serving in their position as directors. If we do have funds
available in the future, we likely will reimburse our directors for expenses
incurred by them in their duties as a director.
Limitation of Liability and Indemnification
Our Articles of Incorporation contain a provision eliminating our
directors' liability to us or our shareholders for monetary damages for a breach
of their fiduciary duty. However, a director's liability is not eliminated in
circumstances involving certain wrongful acts, such as the breach of a
director's duty of loyalty or acts or omissions which involve intentional
misconduct or a knowing violation of law. Our Articles of Incorporation also
obligate us to indemnify our directors and officers to the fullest extent
permitted under Colorado law. While we believe that these provisions are very
standard and necessary to assist us in attracting and retaining qualified
individuals to serve as directors, they could also serve to insulate our
directors against liability for actions which damage us or our shareholders.
Furthermore our assets could be used or attached to satisfy any liabilities
subject to such indemnification.
Item 11. Security Ownership Of Certain Owners And Management.
The following table sets forth information regarding the beneficial
ownership of our common stock as of March 31, 2004 by (i) each of our executive
officers, directors and director nominees, (ii) all executive officers,
directors and director nominees as a group, and (iii) each person who
24
beneficially owns more than 5% of our common stock (each a "Principal
Stockholder"). As of March 31, 2004, there were 15,817,000 shares of our common
stock issued and outstanding.
Shares of Percent
Common Stock of Class
Name and Address of Beneficially Beneficially
Beneficial Owner Owned Owned
----------------- ----- -----
Charles A. "Bud" Ross 3,000,000 18.97%
David C. Owen(1)(2) 2,819,000 17.82%
Laura E. Owen(3) 215,000 1.36%
Roger L. Mason 600,000 3.80%
Kenneth L. McCoy 850,000 5.37%
--------- -----
Total Ownership by Directors and Officers 7,484,000 47.32%
--------- -----
Total Shares Outstanding 15,817,000 100.0%
(1) Includes common shares that may be held by a spouse, trust or business
entity under the control of the listed stockholder.
(2) Includes 1,000,000 unexercised options to purchase additional common shares
at $1.00 per share owned by Owen Enterprises, LLC.
(3) Includes 40,000 common shares, also included in a total for Dave Owen and
175,000 unexercised options to purchase additional common shares at $1.00
per share.
Assumes sale and conversion or exercise of all Shares of Preferred Stock and
Warrants offered hereby.
Rule 13d-3 under the Securities Exchange Act of 1934 provides the
determination of beneficial owners of securities. That rule includes as
beneficial owners of securities, any person who directly or indirectly has, or
shares, voting power and/or investment power with respect to such securities.
Rule 13d-3 also includes as a beneficial owner of a security any person who has
the right to acquire beneficial ownership of such security within sixty days
through any means, including the exercise of any option, warrant or conversion
of a security. Any securities not outstanding which are subject to such options,
warrants or conversion privileges are deemed to be outstanding for the purpose
of computing the percentage of outstanding securities of the class owned by such
person. Those securities are not deemed to be outstanding for the purpose of
computing the percentage of the class owned by any other person.
Item 12. Certain Relationships and Related Transactions.
On April 11, 1998, we issued a total of 1,000,000 shares of our common
stock to Corporate Management Services, Inc., or CMS, in exchange for services
related to management and organization costs of $500. Mr. George Andrews, our
sole officer and director until April 2001, is the sole director and a 50%
shareholder of CMS. From April 11, 1998, to April 10, 2001, CMS provided us with
administrative and marketing services on an as-needed basis without additional
charge.
25
Additionally, from our inception to March 31, 2001, we incurred an expense
of $100 per month for rent and other administrative services that were performed
by CMS on our behalf. As of March 31, 2001, we had incurred rent and
administrative service expenses totaling $3,600, which amount has been credited
to additional paid-in capital on our financial statements.
From April 11, 1998, to April 10, 2001, CMS advanced to us any additional
funds which we needed for operating capital and for costs in connection with
searching for or completing an acquisition or merger. Such advances were made
without expectation of repayment (other than offsets of earned interest) unless
the owners of a business which we acquired or merged with agreed to repay all or
a portion of such advances. As of March 31, 2001, CMS had advanced a total of
$5,155 to us for legal, accounting, general and administrative expenses, which
amount was treated as an accrued liability on our financial statements but which
was forgiven by CMS as of April 30, 2001. No funds were advanced to us by CMS
subsequent to March 2001.
On or about March 3, 2001, CMS entered into an Agreement for the Purchase
of Common Stock with Charles A. Ross, Sr. pursuant to which CMS sold 900,000
shares of our common stock to Mr. Ross for $1,000. Pursuant to that agreement,
on April 10, 2001, Mr. Andrews resigned as our sole officer and director and Mr.
Ross became our sole officer and director.
On June 17, 2001, we acquired a one-year option for a lease on 4,560 acres
in Island Township, Blaine County, Montana from Geominerals Corp. for $1,400.
Geominerals Corp. is controlled by George Andrews, our former president and
director. If we exercise the option, we will pay $2.50 per acre for a total
purchase price of $10,000 (after credit of the amount paid for the option).
However, we currently do not intend to exercise this option.
In anticipation of Mr. Charles Ross' acquisition of shares from CMS, he
advanced to us $10,500 for working capital on February 28, 2001. The advance
carried no interest rate and was payable on demand. We repaid the advance in
April 2001 from the proceeds of our private placement in April 2001. Mr. Ross
also paid travel and administrative expenses totaling $6,115 on our behalf prior
to March 31, 2001, and $18,403 during the fiscal year ended March 31, 2003. Mr.
Ross received reimbursements and advances from us totaling $32,783 during the
fiscal year ended March 31, 2003. The net advance of $8,265 is included in our
financial statements as expenses advanced to an officer at March 31, 2003.
During November 2002, Laredo Enterprises, LLC and Owen Enterprises, LLC
loaned us $2,500 and $7,500 respectively and received 500,000 and 1,000,000
options respectively as consideration for the loan and for consulting services
to be rendered for strategic planning and asset acquisitions. The Note is a
demand Note bearing interest at the rate of 10% per annum. The options are
exercisable for a period of five years at a price of $.10 per share of common
stock.
Effective January 13, 2004, ICOP Acquisition was merged with and into ICOP
Digital, with ICOP Digital continuing as a subsidiary of Vista. Vista's sole
asset new consists of its ownership of ICOP Digital. Pursuant to the Merger
Agreement, Vista issued approximately 14,500,000 new shares of Vista common
stock as consideration for the approximately 14,500,000 new ICOP Digital shares
issued and outstanding immediately prior to the Merger.
26
Prior to the Merger, ICOP Digital and been a privately owned, Kansas-based
company engaged primarily in the design, development and marketing of an
innovative in-car digital video recorder system for use in the law enforcement
industry. Charles A. Ross, Sr., the principal stockholder and sole officer and
director of Vista and David C. Owen, an optionholder of Vista, were also
stockholders, officers and directors of ICOP Digital. Upon completion of the
Merger, Messrs. Ross and Owen cancelled all of their equity interests in Vista.
In addition, Mr. Ross terminated his employment agreement with Vista and waived
all accrued compensation. The Merger was proposed and completed in order to
enhance the capital formation objectives of ICOP Digital and to satisfy the
business objectives of Vista. Prior to the Merger, Vista received additional
capital investments sufficient to satisfy all of its outstanding debts at the
time of the Merger. As a result of the Merger, all Vista notes that had been
personally guaranteed by Mr. Ross were paid in full. ICOP Acquisition, as a
newly formed entity, had no independent assets or liabilities. Therefore,
following the Merger, the assets and liabilities of Vista and its affiliates
were only those of ICOP Digital and its subsidiaries prior to the Merger. While
this was not an arms length transaction, the board of directors of both
companies believe the transaction was fair in all material respects to the
respective shareholders of each constituent company.
Item 13. Exhibits and Reports on Form 8-K.
(a) The following exhibits are furnished as part of this report:
Exhibit No. Description
----------- -----------
3.1 Articles of Incorporation (incorporated by reference to Exhibit
2.1 of the Registration Statement on Form 10 filed with the
Commission on September 13, 1999).
3.2 First Articles of Amendment to Articles of Incorporation
(incorporated by reference to Exhibit 3.1 of the Form 8-K filed
August 16, 2001.
3.3 Amended and Restated Bylaws (incorporated by reference to Exhibit
3.2 of the Form 8-K filed August 16, 2001).
10.1 Agreement for the Purchase of Common Stock dated as of February
27,2001, and effective as of March 3, 2001, by and between
Corporate Management Services, Inc., Bail Corporation and Charles
A. Ross, Sr. (incorporated by reference to Exhibit 7.1 of the
Form 8-K filed March 9, 2001).
10.2 Mutual Release dated as of April 30, 2001, between Bail
Corporation and Corporate Management Services, Inc. (incorporated
by reference to Exhibit 10.2 of the 10-KSB for the period ended
March 31, 2001).
10.3 Agreement dated June 22, 2002, between Bail Corporation, TCC
Royalty Corp. and Austin Exploration L.L.C. regarding Shiloh
Project/Cherokee Basin Coal Bed Methane (incorporated by
reference to Exhibit 10.2 of the 10-KSB for the period ended
March 31,2001).
10.4 Agreement and Plan of Merger with ICOP (incorporated by reference
to Exhibit 2.1 to Form 8-K for event dated 2/13/04.)
10.5 Stock Purchase Agreement with McCoy's Law Line*.
10.6 First Amendment to Employment Agreement between Vista Exploration
Corporation and Charles A. Ross, Sr. dated as of June 1, 2003
(incorporated by reference to Exhibit 10.6 to Form 10-KSB for
year ended March 31, 2002 (file No. 000-27321)).
31.1 Certification of Chief Executive Officer pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.
31.2 Certification of Chief Financial Officer pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.
32.1 Certification of Chief Executive Officer pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.
----------------------------------
* Filed herewith.
27
(b) Reports on Form 8-K.
None.
Item 14. Principal Accountant Fees and Services
2002 2003
1) Audit Fees $5,525 $4,322.50
2) Audit related fees and services* 0 150.00*
3) Fees for tax related services 0 0
4) All other fees 0 0
*Review of Stock Options
28
VISTA EXPLORATION CORPORATION
Index to Financial Statements
Page
----------
Report of Independent Auditors......................................... F-2
Balance Sheet at December 30, 2003..................................... F-3
Statements of Operations for the period from April 1, 2003 through
December 30, 2003 and the year ended March 31, 2003............... F-4
Statement of Changes in Shareholders' Deficit for the period from
April 1, 2002 through December 30, 2003........................... F-5
Statements of Cash Flows for the period from April 1, 2003 though
December 30, 2003 and the year ended March 31, 2003............... F-6
Notes to Financial Statements.......................................... F-7
F-1
Report of Independent Auditors
To the Board of Directors and Shareholders:
Vista Exploration Corporation
We have audited the balance sheet of Vista Exploration Corporation as of
December 30, 2003 and the related statements of operations, changes in
shareholders' deficit and cash flows for the period from April 1, 2003 through
December 30, 2003 and the year ended March 31, 2003. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Vista Exploration Corporation
as of December 30, 2003, and its results of operations and its cash flows for
the period from April 1, 2003 through December 30, 2003 and the year ended March
31, 2003 in conformity with accounting principles generally accepted in the
United States of America.
As more fully discussed in Note 1 to the financial statements, the Company has
consummated a merger with ICOP Digital, Inc.
/s/ Cordovano and Honeck, P.C.
------------------------------
Cordovano and Honeck, P.C.
Denver, Colorado
March 17, 2004
F-2
VISTA EXPLORATION CORPORATION
Balance Sheet
December 30, 2003
Assets
Total assets ................................................... $ --
=========
Liabilities and Stockholders' Deficit
Current Liabilities:
Accounts payable ........................................... $ 9,432
---------
Total Current Liabilities ...................................... 9,432
---------
Stockholders' Deficit
Preferred stock, $.001 par value, 5,000,000 shares
authorized, no shares issued and outstanding ........... --
Common stock, no par value, 50,000,000 shares
authorized, 17,900,000 shares
issued and outstanding ................................. 365,119
Retained deficit ........................................... (374,551)
---------
Total Stockholders' Deficit .................................... (9,432)
---------
Total Liabilities and Stockholders' Deficit .................... $ --
=========
See accompanying notes to financial statements
F-3
VISTA EXPLORATION CORPORATION
Statements of Operations
April 1, 2003
through Year Ended
December 30, March 31,
2003 2003
----------- -----------
Costs and expenses
General and administrative ................... $ 21,580 $ 120,184
Stock based compensation ..................... -- 80,000
Impairment of oil and gas properties ......... -- 40,832
----------- -----------
Total Operating Expenses ......................... 21,580 241,016
----------- -----------
Operating Loss ................................... (21,580) (241,016)
Interest (Expense) ............................... (8,581) (379)
----------- -----------
Net loss before debt forgiveness and income taxes (30,161) (241,395)
Gain on debt forgiven (Notes 2 and 6) ............ 69,895 --
----------- -----------
Net income (loss) before income taxes ............ 39,734 (241,395)
Provision for income taxes (Note 3) .............. -- --
----------- -----------
Net Income (Loss) ................................ $ 39,734 $ (241,395)
=========== ===========
Basic Income (Loss) Per Share .................... $.0.02 $ (0.06)
=========== ===========
Basic Weighted Average
Shares Outstanding ............................ 1,690,000 3,715,205
=========== ===========
See accompanying notes to financial statements
F-4
VISTA EXPLORATION CORPORATION
Statement of Changes in Shareholders' Deficit
Common Stock Outstanding
------------------------ Stock Accumulated
Shares Amount Options Deficit Total
---------- ---------- ---------- ---------- ----------
Balance, March 31, 2002 .............. 6,090,000 $ 223,816 $ -- $ (252,890) $ (29,074)
Repurchase of common stock,
$.01 per share (Note 4) .......... (3,200,000) (32,000) -- -- (32,000)
Repurchase of common stock,
$.10 per share (Note 4) .......... (1,000,000) (100,000) -- -- (100,000)
Repurchase of common stock,
$.13 per share (Note 4) .......... (200,000) (26,697) -- -- (26,697)
Stock options issued ................. -- -- 80,000 -- 80,000
Net loss for year .................... -- -- -- (241,395) (241,395)
---------- ---------- ---------- ---------- ----------
Balance, March 31, 2003 .............. 1,690,000 65,119 80,000 (494,285) (349,166)
Cancellation of common stock (Note 2) (500,000) -- -- -- --
Cancellation of stock options (Note 5) -- -- (80,000) 80,000 --
Sale of common stock ................. 600,000 300,000 -- -- 300,000
Net income for period from
April 1, to December 30, 2003 .... -- -- -- 39,734 39,734
---------- ---------- ---------- ---------- ----------
Balance, December 30, 2003 ........... 1,790,000 $ 365,119 $ -- $ (374,551) $ (9,432)
========== ========== ========== ========== ==========
See accompanying notes to financial statements
F-5
VISTA EXPLORATION CORPORATION
Statements of Cash Flows
April 1, 2003
through Year Ended
December 30, March 31,
2003 2003
--------- ---------
Cash Flows From Operating Activities:
Net Income (loss) .................................. $ 39,734 $(241,395)
Adjustments to reconcile net loss to net
cash used in operating activities:
Impairment of oil and gas properties ............ -- 40,832
Stock options granted (Note 5) .................. -- 80,000
Increase in accounts receivable and advances .... -- 8,265
Increase (decrease) in accounts payable ......... (171,890) 98,139
--------- ---------
Net Cash Used in Operating
Activities ........................................ (132,156) (14,159)
--------- ---------
Cash Flows From Financing Activities:
Proceeds from sale of common stock (Note 5) ........ 300,000 --
Proceeds from notes payable - shareholders (Note 2) 5,700 10,000
Repayments of note payable - stockholders (Note 4) . (174,397) --
--------- ---------
Net Cash Provided By Financing Activities ............ 131,303 10,000
--------- ---------
Net change in cash ................................... (853) (4,159)
Cash, beginning of period ............................ 853 5,012
--------- ---------
Cash, end of period .................................. $ -- $ 853
========= =========
Cash Paid During the Period For:
Interest ........................................... $ 8,946 $ --
========= =========
Income taxes ....................................... $ -- $ --
========= =========
Non-cash financing activities
Notes issued to acquire common stock ............... $ -- $ 158,697
========= =========
Extraordinary gain forgiveness of debt ............. $ 69,895 $ --
========= =========
See accompanying notes to financial statements
F-6
VISTA EXPLORATION CORPORATION
Notes to Financial Statements
(1) Organization, Merger, and Summary of Significant Accounting Policies
Organization
Vista Exploration Corporation (the "Company") was incorporated under the laws of
Colorado on April 9, 1998 to engage in any lawful corporate undertaking. The
Company was a development stage enterprise in accordance with Statement of
Financial Accounting Standard ("SFAS") No. 7 until March 31, 2003. The Company
was originally formed as a "blank check" company with the purpose to evaluate,
structure and complete a merger with, or acquisition of, a privately owned
corporation.
Effective March 3, 2001, approximately 73 percent (900,000 shares) of the
Company's issued and outstanding common stock was sold, resulting in a change in
control of the Company and a revision to the Company's business plan. The
Company's revised business plan was to engage in the oil and gas business by
acquiring oil and gas properties and developing those properties and/or
purchasing producing properties principally located in the mid-western and
western United States. Following the change in control, the Company sold
4,860,000 shares of its no par value common stock through three private
offerings for net proceeds of $217,543 after deducting offering costs of $35,457
(see Note 5). The Company used the net proceeds from those offerings for
administrative and professional fees required to transition the business and to
lease oil and gas properties and develop a drilling program. The Company
completed its leasing activities but was unable to obtain additional financing
to implement the next phase of its plan of operation and in 2003, as existing
leases expired, abandoned the project.
Merger
Effective December 31, 2003, ICOP Digital, Inc. ("ICOP") exchanged 100 percent
of its outstanding shares of common stock for 14,577,000 shares of the common
stock of the Company. This acquisition has been treated as a reverse acquisition
whereby ICOP Digital, Inc. is considered the surviving entity. Costs of the
transaction have been charged to the period. The acquisition took place on
December 31, 2003 and was completed in January 2004. However, the financial
statements have been prepared as if the transaction was completed on December
31, 2003.
Accounting and tax year-end change
The Company has elected to change its year-end to December 31.
Cash Equivalents
The Company considers all highly liquid securities with original maturities of
three months or less when acquired to be cash equivalents. The Company had no
cash equivalents at December 30, 2003.
Financial Instruments
The Company has determined, based on available market information and
appropriate valuation methodologies, the fair values of its financial
instruments approximate carrying values. The carrying amounts of cash, accounts
payable, and other current liabilities approximate fair value due to the
short-term maturity of the instruments. At December 30, 2003, based on rates for
similar types of debt, the fair value of notes payable to stockholders and
former stockholders was not materially different from its carrying amount.
Use of estimates
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect certain reported amounts of assets and liabilities;
disclosure of contingent assets and liabilities at the date of the financial
statements; and the reported amounts of revenues and expenses during the
reporting period. Accordingly, actual results could differ from those estimates.
F-7
VISTA EXPLORATION CORPORATION
Notes to Financial Statements
Loss per common share
The Company reports loss per share using a dual presentation of basic and
diluted loss per share. Basic loss per share excludes the impact of common stock
equivalents. Diluted loss per share uses the average market price per share when
applying the treasury stock method in determining common stock equivalents.
However, the Company has a simple capital structure for the period presented
and, therefore, there is no variance between the basic and diluted loss per
share.
Income Taxes
The Company reports income taxes in accordance with SFAS No. 109, "Accounting
for Income Taxes", which requires the liability method in accounting for income
taxes. Deferred tax assets and liabilities arise from the difference between the
tax basis of an asset or liability and its reported amount on the financial
statements. Deferred tax amounts are determined by using the tax rates expected
to be in effect when the taxes will actually be paid or refunds received, as
provided under currently enacted law. Valuation allowances are established when
necessary to reduce the deferred tax assets to the amounts expected to be
realized. Income tax expense or benefit is the tax payable or refundable,
respectively, for the period plus or minus the change during the period in the
deferred tax assets and liabilities.
Stock based Compensation
The Company accounts for stock-based employee compensation arrangements in
accordance with Accounting Principles Board ("APB") Opinion 25, "Accounting for
Stock Issued to Employees" and complies with the disclosure provisions of SFAS
No. 123, "Accounting for Stock-Based Compensation." Under APB No. 25,
compensation expense is recorded under the intrinsic value method and is based
on the difference, if any, on the date of grant, between the fair value of the
Company's stock and the exercise price. The Company accounts for stock issued to
non-employees in accordance with the provisions of SFAS No. 123. SFAS 123
requires the fair value based method of accounting for stock issued to
non-employees in exchange for services.
Companies that elect to use the method provided in APB 25 are required to
disclose pro forma net income and pro forma earnings per share information that
would have resulted from the use of the fair value based method. The Company has
elected to continue to determine the value of stock-based compensation
arrangements under the provisions of APB 25.
(2) Related Party Transactions
Advances and Expenses Paid on Behalf of the Company
During all periods presented, an officer paid expenses on behalf of the Company
and then was later reimbursed. No amount is due to the officer at December 30,
2003 as in contemplation of the merger with ICOP, the officer forgave $16,700 in
un-reimbursed expenses.
Common Stock Transactions
In contemplation of the merger with ICOP, the principle stockholder returned
500,000 shares of common stock to the Company's treasury. The shares were
subsequently cancelled and returned to authorized status.
Notes Payable-stockholders
During November 2002, the Company issued promissory notes to two affiliates
totaling $7,500 and $2,500. During the period from April 1 2003 through December
30, 2003, the Company issued promissory notes to two affiliates and the
principle stockholder totalling $5,700. In December 2003, the Company paid off
the notes and accrued interest. The notes each carried a ten percent interest
rate and were payable on demand.
(3) Income Taxes
Following are reconciliations of the United States statutory federal income tax
rate to the effective rate:
F-8
VISTA EXPLORATION CORPORATION
Notes to Financial Statements
April 1,
2003
through Year Ended
December 30, March 31,
2003 2003
------- -------
U.S. statutory federal rate ................. 14.25% 31.69%
State income tax rate, net of federal benefit 4.00% 2.73%
Net operating loss (NOL) for which no tax
benefit is currently available .......... -18.25% -34.42%
------- -------
0.00% 0.00%
======= =======
The valuation allowance offsets the net deferred tax asset for which there is no
assurance of recovery. The changes in the valuation allowance for the period
from April 1, 2003 though December 30, 2003 and the year ended March 31, 2003
were ($7,251) and $82,197, respectively. Net operating loss carryforwards,
totalling $376,106 at December 31, 2003, will expire through 2023.
The valuation allowance will be evaluated at the end of each year, considering
positive and negative evidence about whether the asset will be realized. At that
time, the allowance will either be increased or reduced; reduction could result
in the complete elimination of the allowance if positive evidence indicates that
the value of the deferred tax asset is no longer impaired and the allowance is
no longer required.
Because the Company underwent an ownership change, as defined in Section 382 of
the Internal Revenue Code, the Company's tax net operating loss carryforwards
generated prior to the ownership change will be subject to an annual limitation
which could reduce or defer the utilization of those losses.
(4) Notes Payable-Former Shareholders
In August 2002, the Company acquired 4,400,000 shares of its issued and
outstanding common stock by the issuance of promissory notes totalling $158,697.
The notes matured on November 14, 2002 and were paid off, including accrued
interest, in December 2003. Interest on the notes accrued at 10 percent
beginning in August 2003. The notes were guaranteed by an officer of the
Company.
(5) Shareholders' Deficit
Preferred Stock
The preferred stock may be issued in series as determined by the Board of
Directors. As required by law, each series must designate the number of share in
the series and each share of a series must have identical rights of (1)
dividend, (2) redemption, (3) rights in liquidation, (4) sinking fund provisions
for the redemption of the share, (5) terms of conversion and (6) voting rights.
Common Stock Transactions
In December 2003, the Company sold 600,000 shares of common stock at $.50 per
share. The securities sold have not been registered pursuant to the Securities
Act of 1933, as amended (the "ACT"), nor have they been registered under the
securities act of any state. These securities were offered pursuant to an
exemption from registration requirements of the Act and exemptions from
registration provided by applicable state securities laws. Management of the
Company, who were not paid any commission or compensation for offering or
selling the securities, sold the securities.
F-9
VISTA EXPLORATION CORPORATION
Notes to Financial Statements
Common Stock Options
The Company granted five-year options to an officer and two outside entities,
respectively, to purchase 500,000 and 1,500,000 shares of common stock at a
price of $0.10 per share. The fair value of these options was estimated to be
$80,000 in accordance with Statement of Financial Accounting Standards 123,
utilizing the Black-Scholes pricing model. This value was based on a weighted
average risk-free interest rate of 1.98%, expected option life of 5 years,
expected volatility of 10.0% and no expected dividend yield. The Company
expensed the options in 2003. In contemplation of the merger with ICOP, the
officer cancelled the options to purchase 500,000 shares of common stock and the
two affiliates cancelled the options to purchase 1,500,000 shares of common
stock.
The following schedule summarizes the Company's stock option activity:
Options Outstanding and Exercisable
----------------------------------- Weighted Average
Number of Exercise Price Exercise Price
Shares Per Share Per Share
---------- -------- --------
Balance at April 1, 2002 ... -- $ -- $ --
Options granted ......... 2,000,000 $ 0.10 $ 0.10
Options exercised ....... -- $ -- $ --
Options canceled ........ -- $ -- $ --
---------- -------- --------
Balance at March 31, 2003 .. 2,000,000 $ 0.10 $ 0.10
Options granted ......... -- $ -- $ --
Options exercised ....... -- $ -- $ --
Options cancelled ....... (2,000,000) $ (0.10) $ (0.10)
---------- -------- --------
Balance at December 30, 2003 -- $ -- $ --
========== ======== ========
(6) Gain on Debt Restructure
During the period from April 1, 2003 through December 30, 2003, a vendor forgave
$53,195 in trade accounts payable.
F-10
VISTA EXPLORATION CORPORATION
(Formerly ICOP DIGITAL, INC.)
(A Development Stage Company)
Financial Statements
December 31, 2003
(with Independent Auditors' Report)
F-11
VISTA EXPLORATION CORPORATION
(Formerly ICOP DIGITAL, INC.)
(A Development Stage Company)
Index to Financial Statements
Page
----
Independent Auditors' Report.............................................. F-13
Balance Sheet at December 31, 2003........................................ F-14
Statements of Operations for the year ended December 31, 2003
from May 24, 2002 (inception) through December 31, 2002, and
from May 24, 2002 (inception) through December 31, 2003.............. F-15
Statement of Changes in Shareholders' Deficit
from May 24, 2002 (inception) through December 31, 2003.............. F-16
Statements of Cash Flows for the year ended December 31, 2003
from May 24, 2002 (inception) through December 31, 2002, and
from May 24, 2002 (inception) through December 31, 2003.............. F-17
Notes to Financial Statements............................................. F-18
F-12
Independent Auditors' Report
The Board of Directors
Vista Exploration Corporation (formerly ICOP Digital, Inc.):
We have audited the accompanying balance sheet of Vista Exploration Corporation
(formerly ICOP Digital, Inc.) (a development stage company) as of December 31,
2003, and the related statements of operations, changes in shareholders'
deficit, and cash flows for the year ended December 31, 2003, the period from
May 24, 2002 (inception) through ended December 31, 2002 and the period from May
24, 2002 (inception) through ended December 31, 2003. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Vista Exploration Corporation
(formerly ICOP Digital, Inc.) as of December 31, 2003, and the results of its
operations and its cash flows for the year ended December 31, 2003, the period
from May 24, 2002 (inception) through ended December 31, 2002 and the period
from May 24, 2002 (inception) through ended December 31, 2003 in conformity with
accounting principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company's significant operating losses since inception
raises substantial doubt about its ability to continue as a going concern. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
/s/ Cordovano and Honeck, P.C.
------------------------------
Cordovano and Honeck, P.C.
Denver, Colorado
March 26, 2004
F-13
VISTA EXPLORATION CORPORATION
(Formerly ICOP DIGITAL, INC.)
(A Development Stage Company)
Balance Sheet
12/31/03
Assets
Cash ................................................................ $ 118,780
Investment in unconsolidated subsidiary, at cost (Note 3) ........... 250,000
Other receivables, net .............................................. 5,400
Property and equipment, at cost, net of
accumulated depreciation (Note 4) ............................... 25,959
Other assets:
Deposits ........................................................ 3,000
-----------
$ 403,139
===========
Liabilities and Shareholders' Deficit
Liabilities:
Accounts payable and accrued liabilities ........................ $ 1,901,470
Due to related parties (Note 2) ................................. 33,878
Notes payable, related party (Note 2) ........................... 200,000
Accrued interest payable, related party (Note 2) ................ 2,762
-----------
Total liabilities ................................. 2,138,110
-----------
Commitment (Note 7) ................................................. --
Shareholders' deficit (Note 6):
Preferred stock, no par value; 5,000,000 shares authorized,
-0- shares issued and outstanding ............................ --
Common stock, no par value; 50,000,000 shares authorized,
16,367,000 shares issued and outstanding ..................... 3,131,268
Stock options outstanding - 500,000 ............................. 90,000
Accumulated other comprehensive loss-foreign currency translation (75,581)
Accumulated deficit ............................................. (4,880,657)
-----------
Total Shareholders' deficit ....................... (1,734,970)
-----------
$ 403,140
===========
See accompanying notes to financial statements
F-14
VISTA EXPLORATION CORPORATION
(Formerly ICOP DIGITAL, INC.)
(A Development Stage Company)
Statements of Operations
Year May 24, 2002 (Inception)
Ended through December 31,
December 31, ----------------------------
2003 2002 2003
------------ ------------ ------------
Operating expenses:
Stock-based compensation (Note 6):
Public relations services ........... $ -- $ 100,000 $ 100,000
Selling, general and administrative .... 1,055,264 258,429 1,313,693
Research and development ............... 2,828,113 178,003 3,006,116
Equity in losses of equity-method
investee, net (Note 3) .............. 450,000 -- 450,000
------------ ------------ ------------
Total operating expenses 4,333,377 536,432 4,869,809
------------ ------------ ------------
Loss from operations ... (4,333,377) (536,432) (4,869,809)
Other (expenses):
Foreign currency translation ........... (4,221) -- (4,221)
Interest expense ....................... (5,444) (1,183) (6,627)
------------ ------------ ------------
Loss before income taxes (4,343,042) (537,615) (4,880,657)
Income tax provision (Note 5) .............. -- -- --
------------ ------------ ------------
Net loss ............... $ (4,343,042) $ (537,615) $ (4,880,657)
============ ============ ============
Basic and diluted loss per share ........... $ (0.32) $ (0.07)
------------ ------------
Basic and diluted weighted average
common shares outstanding .............. 13,435,832 7,341,944
============ ============
See accompanying notes to financial statements
F-15
VISTA EXPLORATION CORPORATION
(Formerly ICOP DIGITAL, INC.)
(A Development Stage Company)
Statement of Changes in Shareholders' Deficit
Accumulated
Common Stock Other
------------------------- Stock Comprehensive Accumulated
Shares Amount Options Loss Deficit Total
----------- ----------- ----------- ----------- ----------- -----------
Balance at May 24, 2002 (inception) ....... -- $ -- $ -- $ -- $ -- $ --
June to August 2002, shares sold in private
placement offering ($.01/share)
(Note 6) .............................. 10,620,000 * 106,200 -- -- -- 106,200
September 2002, shares sold in private
placement offering ($.10/share)
(Note 6) .............................. 1,000,000 * 100,000 -- -- -- 100,000
October to November 2002, shares sold in
private placement offering
($1.00/share) (Note 6) ................ 150,000 * 150,000 -- -- -- 150,000
December 2002, shares issued in exchange
for public relations services
($1.00/share) (Note 6) ................ 100,000 * 100,000 -- -- -- 100,000
Net loss for the period ended
December 31, 2002 ..................... -- -- -- -- (537,615) (537,615)
----------- ----------- ----------- ----------- ----------- -----------
Balance at December 31, 2002 .............. 11,870,000 456,200 -- -- (537,615) (81,415)
January to December 2003, shares sold in
private placement offering
($1.00/share), net of offering costs of
$22,500 (Note 6) ...................... 1,946,000 * 1,923,500 -- -- -- 1,923,500
February 2003, shares issued in exchange
for equipment installation services
($1.00/share) (Note 6) ................ 11,000 * 11,000 -- -- -- 11,000
February 2003, shares issued in exchange
for design services ($1.00/share)
(Note 6) .............................. 50,000 * 50,000 -- -- -- 50,000
February 2003, shares issued to acquire
McCoy's Law Line, Inc. ($1.00/share)
(Note 1) .............................. 700,000 * 700,000 -- -- -- 700,000
Stock options issued in exchange for
services provided ..................... -- -- 90,000 -- -- 90,000
----------- ----------- ----------- ----------- ----------- -----------
Balance at December 30, 2003, prior to
merger ................................ 14,577,000 3,140,700 90,000 -- (537,615) 2,693,085
December 31, 2003, shares issued in
conjunction with merger with ICOP
Digital, Inc. (Note 1) ................ 1,790,000 (9,432) -- -- -- (9,432)
Unrealized effect of the change in foreign
currency exchange rates ............... -- -- -- (75,581) -- (75,581)
Net loss for the year ended
December 31, 2003 ..................... -- -- -- -- (4,343,042) (4,343,042)
----------- ----------- ----------- ----------- ----------- -----------
Balance at December 31, 2003 .............. 16,367,000 $ 3,131,268 $ 90,000 $ (75,581) $(4,880,657) $(1,734,970)
=========== =========== =========== =========== =========== ===========
* Restated, as explained in Note 1
See accompanying notes to financial statements
F-16
VISTA EXPLORATION CORPORATION
(Formerly ICOP DIGITAL, INC.)
(A Development Stage Company)
Statements of Cash Flows
Year May 24, 2002 (Inception)
Ended through December 31,
December 31, --------------------------
2003 2002 2003
----------- ----------- -----------
Cash flows from operating activities:
Net loss ....................................... $(4,343,042) $ (537,615) $(4,880,657)
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation .............................. 17,556 5,352 22,908
Book value of equipment retired ........... 27,103 -- 27,103
Stock-based compensation (Notes 1 and 6) .. 50,000 100,000 150,000
Stock options issued ...................... 90,000 -- 90,000
Loss on unconsolidated subsidiary ......... 450,000 -- 450,000
Changes in operating liabilities:
Increase in accounts receivable
and prepaid expenses ................ 226 (5,626) (5,400)
Increase in accounts payable and
accrued liabilities ................. 1,756,649 72,002 1,828,651
----------- ----------- -----------
Net cash used in
operating activities ....... (1,951,509) (365,887) (2,317,396)
----------- ----------- -----------
Cash flows from investing activities:
Purchases of property and equipment ............ (20,626) (44,344) (64,970)
Liabilities assumed in recapitalization (Note 1) 9,432 -- 9,432
Deposits ....................................... -- (3,000) (3,000)
----------- ----------- -----------
Net cash used in
investing activities ....... (11,194) (47,344) (58,538)
----------- ----------- -----------
Cash flows from financing activities:
Proceeds from issuance of notes payable ........ 374,418 77,813 452,231
Principal payments on notes payable ............ (214,717) -- (214,717)
Proceeds from the sale of common stock ......... 1,923,500 356,200 2,279,700
Payment of offering costs ...................... (22,500) (22,500)
----------- ----------- -----------
Net cash provided by
financing activities ....... 2,060,701 434,013 2,494,714
----------- ----------- -----------
Net change in cash ......... 97,998 20,782 118,780
Cash, beginning of period .......................... 20,782 -- --
----------- ----------- -----------
Cash, end of period ................................ 118,780 $ 20,782 $ 118,780
=========== =========== ===========
Supplemental disclosure of cash flow information:
Income taxes ................................... $ -- $ -- $ --
=========== =========== ===========
Interest ....................................... $ 34,131 $ 848 $ 34,979
=========== =========== ===========
Non-cash investing and financing transactions:
Subsidiary acquired with stock .............. $ 700,000 $ -- $ 700,000
=========== =========== ===========
Foreign currency translation ................ $ 75,581 $ -- $ 75,581
=========== =========== ===========
Equipment acquired with stock ............... $ 11,000 $ -- $ 11,000
=========== =========== ===========
See accompanying notes to financial statements
F-17
VISTA EXPLORATION CORPORATION
(Formerly ICOP DIGITAL, INC.)
(A development stage company)
Notes to Financial Statements
Note 1: Nature of Operations, Merger, and Summary of Significant Accounting
Policies
Operations and Merger
Vista Exploration Corporation (formerly ICOP Digital, Inc.) (the "Company"), was
incorporated in May 2002 in Nevada. It is a development stage enterprise engaged
in the design, development and marketing of an in-car video recorder system for
use in the law enforcement industry. No in-car video units have been sold. The
Company's offices are located in Overland Park, Kansas.
Certain changes have been made to the prior year's financial statements in order
to conform to the current year's presentation.
In February 2003, the Company purchased all of the issued and outstanding common
stock of McCoy's Law Line, Inc. ("McCoy's"). The primary reason for the purchase
was to permit ICOP to sell and distribute law enforcement-related products in
addition to its in-car digital video record system. The purchase price consisted
of 700,000 shares of ICOP common stock valued at $1.00 per share by the
Company's Board of Directors based on contemporaneous stock sales to unrelated
third parties.
On December 31, 2003, ICOP Digital, Inc. (ICOP) exchanged 100 percent of its
outstanding shares of common stock for 14,577,000 shares of the common stock of
Vista Exploration Corporation ("Vista".) In January 2004, the two companies
merged. The acquisition has been treated as a recapitalization of ICOP, with
Vista the legal surviving entity. Since Vista had, prior to the recapitalization
of ICOP, no assets and net liabilities (consisting principally of accounts
payable) and no operations, the recapitalization has been accounted for as the
sale of 1,790,000 shares of ICOP common stock for the net liabilities of Vista.
The historical financial statements presented herein are those of ICOP. Costs of
the transaction have been charged to the period.
Basis of Presentation
The accompanying financial statements have been prepared on a going concern
basis, which contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. As shown in the accompanying
financial statements, the Company has suffered significant losses since
inception. This factor, among others, may indicate that the Company will be
unable to continue as a going concern.
Management plans to continue to sell common stock to raise capital for research
and development and operations. In addition, the Company plans to seek debt
financing to support the manufacture and import of its new products as they come
to market. In the longer term, the Company plans to expand its acquired
operations, commence sale of its new products and become profitable. There is no
assurance that the Company's new products will gain market acceptance or that
the Company will attain profitability.
The financial statements do not include any adjustments relating to the
recoverability and classification of assets and/or liabilities that might be
necessary should the Company be unable to continue as a going concern. The
Company's continuation as a going concern is dependent upon its ability to meet
its obligations on a timely basis, and, ultimately to attain profitability.
F-18
VISTA EXPLORATION CORPORATION
(Formerly ICOP DIGITAL, INC.)
(A development stage company)
Notes to Financial Statements
Use of Estimates
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of financial statements and the
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Cash and Cash Equivalents
The Company considers all highly liquid securities with original maturities of
three months or less when acquired to be cash equivalents. There were no cash
equivalents at December 31, 2003.
Investment in Unconsolidated Subsidiary
Such investments are accounted for using the equity method of accounting if the
investment in a majority-owned company is considered temporary. The Company
reflects its investment in equity-method investees on the balance sheet as
"Investment in unconsolidated subsidiary" and its share of the investees'
earnings or losses as "Equity in losses of equity-method investee, net" on the
statements of operations.
Property and Equipment
Property and equipment are stated at cost. Depreciation is calculated using the
straight-line method over the estimated useful lives of the related assets,
generally ranging from three to five years. Property and equipment under capital
leases are stated at the present value of minimum lease payments and are
amortized using the straight-line method over the shorter of the lease term or
the estimated useful lives of the assets. Leasehold improvements are amortized
using the straight-line method over the estimated useful lives of the assets or
the term of the lease, whichever is shorter. The recoverability of property and
equipment is evaluated whenever indicators of impairment are present and the
undiscounted future cash flows estimated to be generated by those assets are
less than the assets' carrying amount. No impairment charges have been recorded
for the year ended December 31, 2003 and the period from May 24, 2002
(inception) through December 31, 2002.
Research and Development
Research and development costs are charged to the expense, as incurred.
Income Taxes
The Company accounts for income taxes under the provisions of Statement of
Financial Accounting Standards No. 109, Accounting for Income Taxes. Statement
No. 109 requires recognition of deferred tax liabilities and assets for the
expected future tax consequences of events that have been included in the
financial statements or tax returns. Under this method, deferred tax liabilities
and assets are determined based on the difference between the financial
statement and tax bases of assets and liabilities using enacted tax rates in
effect for the year in which the differences are expected to reverse.
Foreign Currency
The Company outsourced certain research and development to a Japanese firm.
Services and products were billed to the Company in the local currency.
Liabilities in foreign currencies are translated at exchange rates prevailing at
the balance sheet date. Costs and expenses are translated into United States
dollars at average exchange rates for the period. Gains and losses resulting
from translation are accumulated as a component of other comprehensive income
(loss). Realized gains and losses from foreign currency transactions are
recognized as other income.
F-19
VISTA EXPLORATION CORPORATION
(Formerly ICOP DIGITAL, INC.)
(A development stage company)
Notes to Financial Statements
Comprehensive Loss
Comprehensive loss includes all changes in equity (net assets) during a period
from non-owner sources. The change in accumulated other comprehensive income for
all periods presented resulted from foreign currency translation losses.
Stock-based Compensation
The Company accounts for stock-based compensation arrangements in accordance
with Statement of financial Accounting Standards ("SFAS") No. 123, "Accounting
for Stock-Based Compensation," which permits entities to recognize as expense
over the vesting period the fair value of all stock-based awards on the date of
grant. Alternatively, SFAS No. 123 allows entities to continue to apply the
provisions of Accounting Principle Board ("APB") Opinion No. 25 and provide pro
forma net earnings (loss) disclosures for employee stock option grants as if the
fair-value-based method defined in SFAS No. 123 had been applied. The Company
has elected to apply the provisions of APB Opinion No. 25 and provide the pro
forma disclosure provisions of SFAS No. 123. For options granted prior to the
merger with ICOP, the fair value of option grants was determined using the
Black-Scholes option pricing model with a zero volatility assumption. For
options granted subsequent to the merger, the fair value of option grants was
determined using the Black-Scholes option pricing model with volatility
assumptions based on actual or expected fluctuations in the price of our common
stock.
Generally accepted accounting principles require companies who choose to account
for stock option grants using the intrinsic value method to also determine the
fair value of option grants using an option pricing model, such as the
Black-Scholes model, and to disclose the impact of fair value accounting in a
note to the financial statements. In December 2002, the Financial Accounting
Standards Board, or FASB, issued Statement of Financial Accounting Standards No.
148, "Accounting for Stock-Based Compensation Transition and Disclosure, an
Amendment of FASB Statement No. 123." The Company did not elect to voluntarily
change to the fair value based method of accounting for stock based employee
compensation and record such amounts as charges to operating expense.
The Company accounts for stock-based arrangements issued to non-employees using
the fair value based method, which calculates compensation expense based on the
fair value of the stock option granted using the Black-Scholes option pricing
model at the date of grant, or over the period of performance, as appropriate.
Risk-free interest rate......................... 1.98%
Dividend yield.................................. 0.00%
Volatility factor............................... 10.00%
Weighted-average expected life.................. 4 years
Loss per Common Share
The Company reports loss per share using a dual presentation of basic and
diluted loss per share. Basic loss per share excludes the impact of common stock
equivalents. Diluted loss per share uses the average market price per share when
applying the treasury stock method in determining common stock equivalents.
However, the Company has a simple capital structure for the period presented
and, therefore, there is no variance between the basic and diluted loss per
share.
F-20
VISTA EXPLORATION CORPORATION
(Formerly ICOP DIGITAL, INC.)
(A development stage company)
Notes to Financial Statements
Concentrations
During the year ended and as of December 31, 2003, one supplier accounted for
84% of the Company's research and development costs.
Fair Value of Financial Instruments
The Company has determined, based on available market information and
appropriate valuation methodologies, the fair values of its financial
instruments approximate carrying values. The carrying amounts of cash,
receivables, payables, and other current liabilities at December 31, 2003
approximate fair value due to the short-term maturity of the instruments. At
December 31, 2003, based on rates for similar types of debt, the fair value of
notes payable, related party was not materially different from its carrying
amount.
Note 2: Related Party Transactions
Notes payable to related parties consisted of unsecured advances made to the
Company under promissory note agreements for working capital purposes and
accrued interest at from 8 to 10 percent thereon. The notes payable and related
interest is due on demand. During the year ended shareholders and affiliates
advanced $304,000 to the Company and during that period the Company repaid
$104,000. $200,000 is owed to one shareholder as of December 31, 2003. The
Company recorded interest expense of $5,515 and $-0- on the notes for the year
ended December 31, 2003 and the period from May 24, 2002 (inception) through
December 31, 2002, respectively. Accrued interest payable to related party is
$2,762 as of December 31, 2003.
The Company purchased equipment totalling $5,250 from a shareholder. The assets
were valued at predecessor cost.
The Company pays an automobile lease payment of $720 per month on behalf of the
Chairman of the Board. Total payments related to the lease were $6,100 in 2003.
The Company paid consulting fees totalling $16,000 to a shareholder during the
year ended December 31, 2003.
During 2003, certain shareholders advanced to the Company $70,418 for working
capital. The Company repaid $36,541 to those shareholders during the same
period. The advances are interest free and are due as cash becomes available.
The Company owed the shareholders $33,877 as of December 31, 2003.
Note 3: Investment in Unconsolidated Subsidiary
Summarized financial information for the Company's investment in its
unconsolidated subsidiary McCoy's Law line, Inc. is as follows as of December
31, 2003:
F-21
VISTA EXPLORATION CORPORATION
(Formerly ICOP DIGITAL, INC.)
(A development stage company)
Notes to Financial Statements
Financial position information:
Current assets ...................................... $ 753,932
Noncurrent assets ................................... $ 16,296
Current liabilities ................................. $ 1,555,050
Noncurrent liabilities .............................. $ --
Net worth ........................................... $ (784,822)
Operating statement information:
Revenues ............................................ $ 4,541,883
Operating loss ...................................... $ (760,505)
Net loss ............................................ $ (806,938)
The Company's share of McCoy's Law Line, Inc. net loss for 2003 is $450,000.
Note 4: Property and Equipment
Property and equipment consisted of the following as of December 31, 2003:
Equipment ............................................ $ 22,570
Furniture ............................................ 10,691
Leasehold improvements ............................... 9,281
--------
42,542
Less: accumulated depreciation ............ (16,583)
--------
$ 25,959
========
Depreciation expense was $17,556 and $5,352 for the year ended December 31, 2003
and the period from May 24, 2002 (inception) through December 31, 2002,
respectively.
Note 5: Income Taxes
A reconciliation of the U.S. statutory federal income tax rate to the effective
rate is as follows:
May 24, 2002
(Inception)
Year Ended Through
December 31, December 31,
2003 2002
----------- -----------
-- --
U.S. statuatory federal rate ....................... 34% 34%
State income tax rate, net of federal benefits ..... 3% 3%
Net operating loss (NOL) for which no tax
benefit is currently available .................. -37% -37%
----------- -----------
0% 0%
=========== ===========
F-22
VISTA EXPLORATION CORPORATION
(Formerly ICOP DIGITAL, INC.)
(A development stage company)
Notes to Financial Statements
At December 31, 2003, deferred taxes consisted of a net tax asset of $1,806,000
due to operating loss carryforwards of $4,881,000, which was fully allowed for,
in the valuation allowance of $1,806,000. The valuation allowance offsets the
net deferred tax asset for which there is no assurance of recovery. The changes
in the valuation allowance for the year ended December 31, 2003 was $1,607,000.
At December 31, 2002, deferred taxes consisted of a net tax asset of $199,000,
due to operating loss carryforwards of $538,000, which was fully allowed for, in
the valuation allowance of $199,000. The valuation allowance offsets the net
deferred tax asset for which there is no assurance of recovery. The changes in
the valuation allowance for the period from May 24, 2002 (inception) through
December 31, 2002 was $199,000. Net operating loss carryforwards will expire
through 2022.
The valuation allowance will be evaluated at the end of each year, considering
positive and negative evidence about whether the asset will be realized. At that
time, the allowance will either be increased or reduced; reduction could result
in the complete elimination of the allowance if positive evidence indicates that
the value of the deferred tax asset is no longer impaired and the allowance is
no longer required.
Should the Company undergo an ownership change, as defined in Section 382 of the
Internal Revenue Code, the Company's tax net operating loss carryforwards
generated prior to the ownership change will be subject to an annual limitation
which could reduce or defer the utilization of those losses.
Note 6: Shareholders' Equity
Preferred Stock
Preferred stock may be issued in series. Designations, preferences, stated
values, rights, qualifications or limitations are to be determined by the Board
of Directors.
Stock Issued for Cash
From June through August, 2002, the Company sold an aggregate of 10,620,000
shares of its common stock to founders for a total of $106,200, or $.01 per
share. The shares of common stock were sold in the absence of objectively
determinable values.
In September, 2002, the Company sold an aggregate of 1,000,000 shares of its
common stock to founders for a total of $100,000, or $.10 per share. The shares
of common stock were sold in the absence of objectively determinable values.
During October and November 2002, the Company circulated a private offering
memorandum relating to the private offering of up to 2.5 million shares of its
common stock at $1.00 per share. The Company closed the offering after selling
150,000 shares of common stock for proceeds of $150,000.
From January to December 2003, the Company circulated a private offering
memorandum relating to the private offering of up to 2 million shares of its
common stock at $1.00 per share. The Company closed the offering after selling
1,946,000 shares of common stock for net proceeds of $1,923,500, after deducting
offering costs totalling $22,500.
F-23
VISTA EXPLORATION CORPORATION
(Formerly ICOP DIGITAL, INC.)
(A development stage company)
Notes to Financial Statements
The securities sold have not been registered pursuant to the Securities Act of
1933, as amended (the "ACT"), nor have they been registered under the securities
act of any state. These securities were offered pursuant to an exemption from
registration requirements of the Act and exemptions from registration provided
by applicable state securities laws. Management of the Company, who were not
paid any commission or compensation for offering or selling the securities, sold
the securities.
Stock Issued for Consideration Other than Cash
In December 2002, the Company issued 100,000 shares of its common stock for
public relations services. The shares were valued by the Board of Directors at
$1.00 per share based upon contemporaneous sales of stock for cash to unrelated
third parties. Because the shares of common stock were not registered, the stock
certificate bears a certain legend regarding transferability. The Company
recorded compensation expense in the amount of $100,000.
In February 2003, the Company issued 11,000 and 50,000 shares of its common
stock for equipment installation and design services. The shares were valued by
the Board of Directors at $1.00 per share based upon contemporaneous sales of
stock for cash to unrelated third parties. Because the shares of common stock
were not registered, the stock certificates bear certain legends regarding
transferability. The Company recorded an asset and compensation expense in the
amounts of $11,000 and $50,000, respectively.
Stock Options Outstanding
The Company established a Stock Option Plan (the "Plan") in 2002 to attract and
retain directors, officers, key employees and consultants. The plan permits the
Board of Directors to grant (1) options to purchase common stock; (2) restricted
stock awards, and (3) cash, shares of common stock or a combination of both.
The Company granted options to purchase a total of 2,000,000 shares of common
stock to two employees in 2002. The Company valued the option at $-0- using the
intrinsic value method, which calculates compensation expense based on the
difference, if any, on the date of the grant, between the fair value of the
stock and the option exercise price. Had the Company valued the options under
the fair-value method and recognized stock-based compensation expense, the net
loss for the year ended December 31, 2002 would have been $(652,115) instead of
$(537,615), as reported.
The Company granted an option to purchase 500,000 shares of common stock to the
president of ICOP in 2003. The Company valued the option using the intrinsic
value method and recognized $90,000 in stock-based compensation expense in 2003.
F-24
VISTA EXPLORATION CORPORATION
(Formerly ICOP DIGITAL, INC.)
(A development stage company)
Notes to Financial Statements
Options Outstanding and Exercisable
----------------------------------- Weighted Average
Number of Exercise Price Exercise Price
Shares Per Share Per Share
--------- -------- --------
Balance at May 24, 2002 ....... -- $ -- $ --
Options granted ............ 2,000,000 $ 1.00 $ 1.00
Options exercised .......... -- $ -- $ --
Options canceled ........... -- $ -- $ --
--------- -------- --------
Balance at December 31, 2002 .. 2,000,000 $ 1.00 $ 1.00
Options granted ............ 500,000 $ 1.00 $ 1.00
Options exercised .......... -- $ -- $ --
Options cancelled .......... -- $ -- $ --
--------- -------- --------
Balance at December 31, 2003 .. 2,500,000 1.00 $ 1.00
========= ======== ========
Note 7: Commitments
Operating Lease Arrangements
The Company leases office space in Overland Park, Kansas under an operating
lease expiring in 2006. Future minimum payments due under the noncancellable
lease are as follows:
Year ending December 31:
------------------------
2004.................................................... $ 55,962
2005.................................................... 55,962
2006.................................................... 55,962
---------
$ 167,886
=========
Rent expense was $79,128 and $16,206 for the year ended December 31, 2003 and
the period from May 24, 2002 (inception) through December 31, 2002,
respectively.
Royalty Payments
The Company agreed to pay a royalty payment of $100 per unit for the first 1,000
in-car video units sold.
Note 8: Subsequent Events
In January, 2004, the Company repaid the $200,000 owed to a shareholder as of
December 31, 2003. In March 2004, the Company announced an agreement to return
the McCoy's common stock in exchange for the return of its 700,000 shares of
common stock. As part of the agreement, the option to purchase 500,000 shares of
common stock at $1.00 per share granted to the president of McCoy's (and former
president of ICOP) was cancelled and the Company contributed $450,000 to
McCoy's.
F-25
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
VISTA EXPLORATION CORPORATION
Date: April 13, 2004 By: /s/ Charles A. Ross, Sr.
--------------------------------
Charles A. Ross, Sr.,
Chairman and
Chief Executive Officer
By: /s/ David C. Owen
--------------------------------
David C. Owen,
President and
Chief Financial Officer and
Principal Accounting
Officer
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and on
the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Charles A. Ross, Sr. Chief Executive Officer and April 13, 2004
------------------------- Director
Charles A. Ross, Sr.
/s/ David C. Owen Chief Financial Officer and April 13, 2004
------------------------- Director
David C. Owen
/s/ Roger L. Mason Director April 13, 2004
-------------------------
Roger L. Mason
29