<PAGE>   1

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549

                               FORM 10-KSB/A NO. 1

                 ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

                     FOR THE FISCAL YEAR ENDED JUNE 30, 2000
                        COMMISSION FILE NUMBER 000-28283
                                               ---------

                     DEMARCO ENERGY SYSTEMS OF AMERICA, INC.
               (Exact name of registrant as specified in charter)

           UTAH                                         87-0392000
           ----                                         ----------
(State or other jurisdiction of                      (I.R.S. Employer
incorporation or organization)                      Identification No.)

   12885 HWY 183, STE 108-A, AUSTIN, TEXAS                  78750
  ----------------------------------------               ----------
  (Address of principal executive offices)               (Zip Code)

Registrant's telephone number, including area code         (512) 335-1494
                                                           --------------

Securities registered pursuant to section 12(b) of the Act:

   TITLE OF CLASS                      NAME OF EACH EXCHANGE ON WHICH REGISTERED
       NONE                                              NONE
       ----                                              ----

           SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
                                  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 Securities Exchange Act of 1934 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 of information
statements incorporated by reference in Part 10-KSB or any amendment to this
Form 10-KSB. {X}

State issuer's revenues for its most recent fiscal year: $21,906.

State the aggregate market value of the voting stock held by non-affiliates
computed by reference to the price at which the stock was sold, or the average
bid and asked prices of such stock as of a specified date within the past 60
days: As of September 18, 2000, the aggregate market price of the voting stock
held by non-affiliates was approximately $5,914,512.


<PAGE>   2


State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: As of June 30, 2000, the Company had
outstanding 22,839,414 shares of its common stock, par value $0.001.

                     Transitional Small Business Disclosure
                          Format (Check one): Yes     No  X
                                                  ---    ---

                   Page 1 of 36 consecutively numbered pages.
                        Exhibit index appears on page 31.





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<PAGE>   3


                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
ITEM NUMBER AND CAPTION                                                                                 PAGE
-----------------------                                                                                 ----
<S>                                                                                                     <C>
PART I

  ITEM 1.     DESCRIPTION OF BUSINESS                                                                    4
  ITEM 2.     DESCRIPTION OF PROPERTY                                                                    8
  ITEM 3.     LEGAL PROCEEDINGS                                                                          8
  ITEM 4.     SUBMISSION OF MATTERS TO A VOTE OF
              SECURITY HOLDERS                                                                           8

PART II

  ITEM 5.     MARKET FOR REGISTRANTS COMMON EQUITY AND
              RELATED STOCKHOLDER MATTERS                                                                9
  ITEM 6.     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
              FINANCIAL CONDITION OR PLAN OF OPERATION                                                  12
  ITEM 7.     FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA                                               16
  ITEM 8.     CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
              ON ACCOUNTING AND FINANCIAL DISCLOSURE                                                    17

PART III

  ITEM 9.     DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND
              CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a)
              OF THE EXCHANGE ACT                                                                       27
 ITEM 10.     EXECUTIVE COMPENSATION                                                                    27
 ITEM 11.     SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
              OWNERS AND MANAGEMENT                                                                     27
 ITEM 12.     CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS                                            28
 ITEM 13.     EXHIBITS AND REPORTS ON FORM 8-K                                                          28
</TABLE>




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<PAGE>   4


                                     PART I

ITEM 1. DESCRIPTION OF BUSINESS

BUSINESS

DeMarco Energy Systems, Inc., a Texas corporation, was founded by Mr. Louis
DeMarco, father of Victor DeMarco, our current Chairman, President and Chief
Executive Officer and began operations in June 1983. On November 17, 1989, Mr.
DeMarco, as an individual, acquired a majority interest in Fountain Head, Inc.,
a public shell corporation with shareholders but no operations. We completed a
reverse merger with this shell on December 1, 1989, thereby becoming a publicly
traded corporation, and changed the name of our company to DeMarco Energy
Systems of America Inc. (or, "DeMarco Energy "), a Utah corporation.

Mr. DeMarco and two engineers, who became employees of DeMarco Energy received a
systems patent on September 3, 1985, that was later assigned to DeMarco Energy
Systems, Inc. in December 1989 in exchange for 10,396,790 shares of our common
stock. Of these issued shares, Mr. Victor DeMarco, received 4,900,000 shares
from his father. The remaining shares were issued to Mr. Louis DeMarco for the
rights to the patent. The patent revolves around the interface with a municipal
water main and has three basic components. The first is taking water out of the
municipal water main and running it through a heat exchanger and returning the
water to the municipal water main. Secondly, the water running through a heat
exchange device; and third that heat exchange device being an integral part of a
geothermal heat pump. Our patent consists of all three of these components
connected together in a specific series. The patent is, therefore, primarily an
installation technology. This patent will expire on September 3, 2005.

We provide energy solutions for commercial and residential applications. We sell
an efficient heating/cooling system called the "Energy Miser". The Energy Miser
is a patented geothermal heat pump system utilizing the municipal water main or
any other underground piping loop to heat, cool and provide domestic hot water
for buildings. Based on the results from our limited prototype installations and
a Department of Energy study, we believe these heat pumps are from 30% to 70%
more efficient than other methods for heating and air conditioning. Monthly
operating costs are significantly lower than other methods.

In two of our initial prototype installations in South Dakota, the Energy Miser
reduced the annual energy cost to air condition and heat a facility by 36% at
one location and 72% at the other site. Since our inception we have installed
eleven of our Energy Miser systems in five states. We do not have baseline
information from the other installations from which we can measure reductions in
energy consumption because they are new installations. We cannot assure you that
a specific percentage savings will occur in future installations of our system.

We derive our revenue in the form of royalties from sales of the Energy Miser
system. We have an exclusive brand name agreement with Florida Heat Pump
Manufacturing Inc. ("FHP") located in Florida. FHP manufactures the units,
labels them with the DeMarco Energy Miser name and sells them through their
existing dealer/distributor network. Since the origination of this agreement
(September 14, 1990) to date there have been a minimal number of units sold. We
believe there are at least three (3) reasons for this lack of sales. The primary
reason has been the reluctance of various government agencies to allow us to tap
into municipal water mains for fear of contamination of the potable water
(public drinking water). Another has been our lack of sufficient operating
capital to properly develop a solid marketing campaign to promote our systems
and gain exposure to potential customers. And the last reason has been the need
for an adequate engineering manual to assist sales representatives and dealers
to understand the intricacies of the system and give them a visual method to
promote our products to potential consumers. We now have that manual completed
and ready for distribution.

We have faced government agency constraints in the past in allowing us access to
public water mains. We have spent an inordinate amount of time and effort over
the past years in lobbying state and local government agencies to enact
legislation to change water codes and rules to allow access to that market. We
believe our product does not impose a health or any other risk on the potable
water supply. The United States Department of Energy ("DOE") completed a study
of the effects of geothermal water pumps connected to potable water mains and
released the results in April 1998. The title of their report is "Municipal
Water-Based Heat Pump Heating and/or Cooling Systems". Their



                                       4
<PAGE>   5


findings on the water quality tests included the following: "From the limited
number of installations that were sampled in the two states, it appears from the
data that such systems have limited detectable impact on water quality,
biological growth, metal concentration, and residual chlorine." The DOE study
also concluded that geothermal heat pumps were 50% to 70% more energy efficient
than other types of systems.

Despite our lobbying efforts and the DOE study, to date there has been very
little done by government agencies to enact the above described legislation. As
a result, we have refocused our marketing efforts toward entities that either
own or control their own water systems. Entities and institutions where we are
concentrating our efforts include military bases, school systems, state or city
owned buildings, federal facilities, and large campus type facilities, such as
colleges. These types of facilities utilize large quantities of water and in
several instances control their own water system. We have had prior successes,
though limited in scope, with military installations. We also believe smaller
communities with less stringent government bodies and regulations will be good
prospects for our energy saving products.

We have had inadequate capital in the past in order to mount a viable marketing
plan for our product. Through past sales of our convertible debentures we have
been able to produce updated brochures, an engineering manual, and have updated
our website. We initially intend to hire internally up to three national sales
representatives to call on all members of the FHP sales force to educate them as
to the benefits offered by the Energy Miser system.

We have also prepared a marketing presentation of the Energy Miser system which
targets Energy Service Companies (ESCOs). ESCOs are subsidiaries of large power
companies that market their power services to large energy usage clients such as
federal buildings. Some of the power companies that have these ESCO subsidiaries
include Reliant, Northern States Power, Duke and Southern California Edison.
Some other corporations that also have ESCOs include Johnson Controls, Honeywell
and Chevron. The creation of ESCOs stemmed from a federal mandate signed in 1993
by President Clinton called the Climate Change Action Plan. It basically
mandates that all federally owned facilities save 30% of their total energy
consumption by the year 2010. ESCOs offer performance contracting for projects
generally greater than $10 million, most of which require retrofitting heating
and cooling systems. ESCOs implement systems that provide the greatest
percentage of energy reduction to maximize savings benefits and focus on the
shortest return on investment cycle. We cannot assure you that the marketing
program will produce the desired results of substantially increasing revenues or
profitability.

We have filed a second patent application with the United States Patent office.
This patent is for an invention that relates to heat pumps that are
automatically thermodynamically balanced to operate at optimum conditions using
water, and in this case reuse water systems. This patent, while similar to our
current patent, was designed to utilize reuse water from private, public or
other types of managed secondary water lines with the DeMarco Energy Miser
heating and cooling system. Reuse water is defined as treated sewer water that
falls below the standards of drinking water. For many years, reuse water has
been used in secondary water systems for watering lawns and charging fire
hydrants, as well as other non-potable water applications. It has only been in
recent years that the secondary water systems have been given greater
consideration due to water shortages. If this patent is granted we believe that
government agencies will be much less reluctant to allow us to tap into reuse
water mains, although we can give no assurances that they will be receptive. We
have received initial comments from the Patent Office and have replied to those
comments. We are currently waiting for any further responses from that office
regarding this patent application.

In July 1996, we founded Cyberlink Systems, Inc. ("Cyberlink"), a wholly owned
subsidiary. Cyberlink which was organized to refurbish and market used computer
components such as computer monitors and printers. Due to the continued decline
in costs of new computer equipment our profit margins eroded and continuing to
operate became unfeasible. Cyberlink ceased doing business in 1998. All
activities regarding Cyberlink were wound down over the next year and it was
dissolved in June 2000.


THE PRODUCTS

The DeMarco Energy Miser Heating and Cooling System



                                       5
<PAGE>   6


A traditional heat pump system transfers energy to and from outside air.
Geothermal heat pumps normally use the heat absorbing, or heat supplying,
capacity of large bodies of water such as lakes, ponds, water wells or specially
constructed networks of pipe called ground loops. The requirements for a "large
body of water" as the external source or the costly excavating required for the
heat pump, imposes three constraints on anyone wanting to take advantage of the
system. The first is the need to be located near such a body of water if a
natural source is going to be used. The second is the added expense of drilling
a water-well. The third is the need for enough property to accommodate the
underground installation of several hundred feet of plastic pipe.

The Energy Miser system is a geothermal heat pump system that uses water to
provide the thermal energy needed to heat and cool. Our system is different in
that it utilizes municipal water mains, reused water or any other managed water
supply. There is no need for ground loops, wells, chillers, cooling towers or
boilers. We believe this makes the Energy Miser system much more viable for the
consumer market. Although some government regulators and others have expressed
concerns about the integrity of the water, we believe the concerns are unfounded
because the water simply passes through a double walled plate heat exchanger
with no chance of contamination and is returned to the water source with only a
slight temperature change.


The Energy Miser system has to date (pending the outcome of the second patent
application for the utilization of reuse water sources) only utilized potable
water systems as demonstrated within military bases, as well as other commercial
and institutional applications nationwide. If the patent for the utilization of
reuse water is approved we believe we will have greater success in gaining
acceptance from government regulators as their concerns over contamination of
the potable water supply will be lessened. These reuse water sources are
controlled at the municipal level and we intend to launch marketing efforts in
cities using or proposing to implement reuse water systems. Although we
anticipate an increase in revenues if the reuse water patent is approved there
can be no assurances that such marketing efforts will have their intended effect
of increasing revenues or profitability.


Energy Efficient Lighting Systems

We have not been involved in energy efficient lighting systems in the past,
however, we have recognized the need to either acquire an entity that is or
joint venture with such an entity. We have found that most projects that we are
bidding on for our air conditioning and heating systems also require the
installation of energy efficient lighting. We believe that by combining the
bidding process for both types of energy saving services we can generate
additional sales revenues. However, we cannot assure you that such additional
sales will occur.

We have signed a Strategic Partnership agreement with Lighting Management
Consultants (LMC) in Houston, Texas. The agreement provides for forthcoming
lighting projects awarded to DeMarco to be performed by LMC within their
geographic business environment. This agreement was signed on December 20, 1999
and will continue in force until terminated by either party with 60 days written
notice. All projects that are in place at the time of termination will be
completed by LMC. LMC will be responsible for all aspects of the lighting
project including performing energy audits, preparing the lighting bids and
completing the installation per the terms of the project requirements. We will
receive 5% of the revenue generated from all accepted bid contracts.
Additionally, we have entered into a Strategic Partnership with SLi, Inc.
(NYSE:SLI), which provides for SLi to perform lighting retrofit and energy
management services for DeMarco awarded contracts outside the parameters, scope
and geography of the LMC partnership. This agreement was signed May 19, 2000 and
contains the same termination and responsibility provisions as the LMC
agreement. As of the date of this filing there have been no sales generated from
these agreements.

In commercial facilities, lighting typically represents 30 to 40 percent of a
commercial facility's energy consumption. By reducing the kilowatts used for
lighting, utility costs can be reduced. Efficient lighting systems can reduce
consumption by as much as 50 percent, without reducing lumens.

The lighting retrofit services may be offered as a combined package with the
DeMarco Energy Miser system, creating a marketing/sales program based upon
return on investment time parameters. Sub-contractors generally located within
the geographic region of the project perform lighting retrofit installations.
These sub-contractors are



                                       6
<PAGE>   7


identified, recruited and managed by DeMarco's partners. As of the date of this
filing, we have not initiated sales efforts for lighting products.

On June 27, 2000, we signed a letter of intent to acquire Lighting Management
Consultants. Terms of the acquisition included cash and stock for one hundred
percent of the equity in LMC. Because of the results of financing and certain
conditions arising from the negotiations of the acquisition, both parties to the
letter of intent have agreed to place on hold and revisit the acquisition
discussions in 2001.

MARKETING AND COMPETITION

We market and sell our Energy Miser system through a brand name partnership
agreement with FHP, of Ft. Lauderdale, Florida, and via exposure through the
Geothermal Heat Pump Consortium. The Geothermal Heat Pump Consortium is a
consortium of over 80 of the largest utilities in the United States. A majority
of the heat pump manufacturers deal with the Environmental Protection Agency
("EPA"). These utilities and manufacturers have formed what is called the
Geothermal Heat Pump Consortium or Geo Exchange based in Washington, D.C. This
is our industry association. It provides a constant source of leads and
technical papers and research materials. DeMarco and FHP focus primarily on the
commercial and institutional markets. We display the Energy Miser at trade shows
in booths for public exhibition and education. In addition to trade shows, we
market the Energy Miser directly to end users, architects, designers and
installers of HVAC (Heating, Ventilation and Air Conditioning) equipment. The
market for HVAC equipment and installation exceeds $10 billion (according to the
Markintel Report, an InvesText market research firm in Boston, MA.) annually and
is expected to eclipse $17.5 billion (Markintel Report) by year-end 2002. In
this business segment, we are in competition with all other producers of HVAC
systems, most of which are more firmly established in the marketplaces and have
substantially greater financial resources than us.

GOVERNMENT REGULATION

A significant obstacle we have confronted in the marketing of the Energy Miser
is local governmental interpretation and regulation. Local water regulations
vary from one local government agency to the next but most are centered around
concern over contamination of the local potable water supply. The Energy Miser
requires a constant flow of water, the volume of which must increase as the
amount of space to be air-conditioned and or heated increases. For many
applications, this requires connecting into the public water supply to gain
access to "main" water lines. In some cases public officials in charge of
maintaining public water supplies challenge any such tapping into the public
potable water supply. We contend that the Energy Miser does not use water - it
only uses the thermal properties of the water, meaning that the water removed
from the main is returned at a slightly different temperature. We are not aware
of any proof to support water quality concerns of public officials (See the DOE
report under "Business"). However, we can offer no assurances that we will ever
be able to overcome the concerns of public water officials.

At the federal level there has been some positive impact from government
relations. The Climate Change Action Plan was signed in 1993. This required all
federally owned facilities to save 20% of their total energy consumption by
2005. That act has been revised twice, and, as of 1999, federal facilities were
required to save 35% of their total energy consumption by 2010. This is a
federal mandate. Most of the military and federal buildings have not met this
goal. We believe most of the military and federal facilities are continuing to
attempt to find ways to save energy. We further believe our technology has the
ability to save the government facility that energy percentage requirement just
by changing to our air conditioning and heating system technology. On the
negative side, the federal government does not have any regulations (i.e. the
EPA or federal plumbing codes). There are no federal codes drawn around the use
of municipal water for this purpose, which means we are subject to the varying
local laws.

According to information obtained from the City of Austin, Texas web site
(http://www.ci.austin.tx.us/wri/waterreuse.htm), secondary water systems have
been used for more than twenty years, and recently became the initiative of
approximately 2,000 communities throughout the United States. Currently, more
than 1,500 cities worldwide employ this technology as a water conservation
measure. Secondary water systems provide water treated to a standard less than
that of potable water, and referred to as either reuse, gray, or brown water.
This water type is used for applications other than human or animal consumption,
such as cooling towers and boiler systems, lawn sprinklers and fire prevention.



                                       7
<PAGE>   8


RECENT DEVELOPMENTS

The Counsel of Governments in Washington, D.C. has awarded a contract to PG&E
Energy Services (an Energy Services Company, or ESCO (NYSE:PCG)), whose bid
included the DeMarco Energy Miser for geothermal heating and cooling systems for
upgrades and retrofits. PG&E Energy Services division was recently acquired by a
Chevron Energy Solutions division (NYSE:CHV). PG&E Energy Services management
has confirmed that our contract was conveyed in the sale and we have received
confirmation from Chevron of their acceptance of this conveyance. The project is
expected to include retrofitting 154 public schools, 4000 HUD homes, plus
government owned facilities throughout the jurisdiction of the Counsel of
Governments.


We have estimated that the heating and cooling portion of this contract could
represent up to $50,000,000 in sales of our systems for FHP (the manufacturer of
the Energy Miser) if our bids are accepted, with our portion of the royalties
ranging from $5,000,000 to $10,000,000. Work on the contract has been
rescheduled to begin as early as the spring of 2001. We have received
confirmation from Chevron that they want to use our technology at the water
treatment facility in Washington D.C. and we will be making a presentation in
the first quarter of calendar year 2001 to the Counsel of Governments to give
them a better understanding of the benefits of our Energy Miser system. There
can be no assurances that our bids will be acceptable for these projects.

The Counsel of Governments includes municipalities and local governments
surrounding Washington, D.C., which may include the public school systems in
several counties and municipalities as well as public housing authorities. Other
agencies that may become users of this program, greatly expanding the scope and
business potential, include agencies of the Federal Government and other
municipalities outside of the immediate Washington, D.C. metropolitan area.
DeMarco Energy has also been invited to bid lighting portions of the project
from the ESCO.

During the eight-month period from January through August 2000, we issued a
series of convertible debentures bearing 8% interest. A total of $229,000 was
raised from this issuance. The debentures mature in 24 months from the time of
issue. Interest payments are calculated quarterly and totaled upon conversion
and included in the stock distribution. The debentures carry various conversion
rights ranging from $0.10 to $0.45 a share. The holders have the right to
convert any or all of the principal into our common stock at any time after the
first 12 months from issuance. If all debenture holders elect to convert, we
will issue approximately 1.2 million shares of our common stock to the holders
and be relieved of the debt. We utilized the proceeds of these convertible
debentures to reduce accounts payable and for operating expenses.

ITEM 2. DESCRIPTION OF PROPERTY

We occupy approximately 1,200 square feet of office space at 12885 Hwy 183,
Suite 108-A, Austin, Texas 78750. We own no property other than office
furniture, equipment, software and the patent for the Energy Miser System.

We currently employ 4 full time people. It is anticipated that up to 20
additional personnel will be required to meet the demands of the projected
market over the next five years. Most of these positions will be added in the
areas of sales, marketing and project management as our projected volume
increases. We cannot assure you that such volume increases will occur.


ITEM 3. LEGAL PROCEEDINGS

We are not a party to any material legal proceedings, and no material legal
proceedings have been threatened by or, to the best of our knowledge, against
us.


ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

The Company did not hold a shareholders meeting during the time period covered
by this report.




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<PAGE>   9
PART II

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED
        STOCKHOLDER MATTERS

MARKET FOR COMMON STOCK

The Common Stock is traded in the over-the-counter market and quoted on OTC EBB
under the symbol "DMES" and quoted in the pink sheets published by the National
Quotations Bureau. Since 1990, from time to time, a very small number of
securities broker-dealers published only intermittent quotations for the Common
Stock, and there was no continuous, consistent trading market. The trading
volume in the Common Stock has been and is extremely limited. During the above
period, the limited nature of the trading market created the potential for
significant changes in the trading price for the Common Stock as a result of
relatively minor changes in the supply and demand for Common Stock and perhaps
without regard to our business activities. Because of the lack of specific
transaction information and our belief that quotations during the period were
particularly sensitive to actual or anticipated volume of supply and demand, we
do not believe that such quotations during this period are reliable indicators
of a trading market for the Common Stock.

As of June 30, 2000, there were approximately 1,500 holders of record of our
Common Stock.

TRANSFER AGENT

The transfer agent for our Common Stock is Fidelity Transfer Company, 1800 South
West Temple, Salt Lake City, Utah 84115.


Subject to the above limitations, we believe that during the eight fiscal
quarters preceding the date of this filing, the high and low sales prices for
the Common Stock during each quarter are as set forth in the table below (such
prices are without retail mark-up, mark-down, or commissions). The sales prices
were obtained from the stock sales history charts from the on-line stock quote
site quicken.com. Quicken quotes are provided by S&P Comstock Historical
information supplied by Iverson Financial Systems.


<TABLE>
<CAPTION>
  QUARTER ENDED                 HIGH         LOW
------------------              ----         ----
<S>                             <C>          <C>
June 30, 2000                   .875         .281
March 31, 2000                  .531         .125
December 31, 1999                .25         .125
September 30, 1999               .35         .125
June 30, 1999                   .281         .125
March 31, 1999                   .53         .125
December 31, 1998               .281         .094
September 30, 1998              .375         .125
</TABLE>


We have not paid any dividends to date. We can make no assurance that our
proposed operations will result in sufficient revenues to enable profitable
operations or to generate positive cash flow. For the foreseeable future, we
anticipate that we will use any funds available to finance the growth of our
operations and that we will not pay cash dividends to stockholders. The payment
of dividends, if any, in the future is within the discretion of the Board of
Directors and will depend on our earnings, capital requirements, restrictions
imposed by lenders and financial condition and other relevant factors.



                                       9
<PAGE>   10


RECENT SALES OF UNREGISTERED SECURITIES

On September 13, 1999, we completed a private placement (the "Placement") of
696,852 shares of our Common Stock to 33 individual and institutional investors.
The aggregate sales proceeds of the Placement were $174,300. We believe that the
issuance of shares of Common Stock in the Placement was exempt from the
registration requirements of the Securities Act under Rule 504 under the
Securities Act. There was no underwriter involved and all persons acquiring the
stock were accredited investors.

During the eight-month period from January through August 2000, we issued a
series of convertible debentures bearing 8% interest. A total of $229,380 was
raised from this issuance. The debentures mature in 24 months from the time of
issue. Interest payments are calculated quarterly and totaled upon conversion
and included in the stock distribution. The debentures carry various conversion
privileges ranging from $0.10 to $0.45 a share. The debenture holders have the
right to convert any or all of the principal into our Common Shares at any time
after the first 12 months from issuance. If all debenture holders elect to
convert, we will issue approximately 1,200,000 shares of our Common Stock to the
holders and be relieved of the debt. We believe that the issuance of shares of
Common Stock in the Placement was exempt from the registration requirements of
the Securities Act under Rule 504 under the Securities Act. There was no
underwriter involved and all persons acquiring the debentures were accredited
investors. The following table lists the amount of debentures issued and the
date of issuance:

<TABLE>
<CAPTION>
   DEBENTURE AMOUNT                    ISSUE DATE
---------------------------------   ----------------
<S>                                 <C>
                    $       2,500   January 20, 2000
                           10,000   January 20, 2000
                            3,000   January 20, 2000
                            1,000   January 20, 2000
                            3,000   January 20, 2000
                              200   January 22, 2000
                            2,000   January 26, 2000
                            2,500   January 26, 2000
                            1,000   January 26, 2000
                            2,000   January 26, 2000
                            3,000   January 26, 2000
                            2,500   January 26, 2000
                            1,000   January 26, 2000
                              500   January 26, 2000
                            2,500   January 26, 2000
                              500   January 26, 2000
                            1,000   January 26, 2000
                              500   January 26, 2000
                            2,000   January 26, 2000
                            1,000   January 26, 2000
                              500   January 26, 2000
                            1,000   January 26, 2000
                            7,000   January 30, 2000
                            1,000  February 15, 2000
                            1,000  February 16, 2000
                            4,000  February 17, 2000
                            1,000  February 29, 2000
                            1,000     April 11, 2000
                           22,500     April 13, 2000
                            3,000     April 19, 2000
                            3,000       May 11, 2000
                            5,000       May 12, 2000
                            3,000       May 25, 2000
                            5,000       May 26, 2000
                            6,000       June 5, 2000
                           35,000       June 9, 2000
                            2,500       June 9, 2000
                            2,500      June 13, 2000
                           57,500    August 25, 2000
                           26,180    August 28, 2000
                   --------------
                   $      229,380
</TABLE>



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<PAGE>   11


On September 26, 2000, we entered into an agreement with AJW Partners, LLC. and
New Millennium Capital Partners II, LLC. for the private placement of $1,500,000
of our Secured Convertible Debentures. These debentures are convertible into
shares of our Common Stock. The funding of the debentures will occur in two
phases with the first $500,000 (less legal and consulting fees of $45,000) being
received by us on September 27, 2000. The remaining $1,000,000 will be funded
within 30 days following the effective registration with the Securities and
Exchange Commission of the underlying securities of DeMarco Energy. If all
debenture holders elect to convert, we will issue approximately 10,869,564
shares of our Common Stock to the holders and will be relieved of the debt.
Since the debentures were sold in a private transaction, solely to accredited
institutional investors, we believe that the issuance of the debentures was
exempt from registration requirements of the Securities Act under Regulation D
and Section 4(2) of the Securities Act.

Mr. Victor DeMarco, the Company's controlling shareholder and Chief Executive
Officer and director had personally loaned us approximately $99,000 through the
period ended June 30, 2000. On September 29, 2000, Mr. DeMarco converted this
entire debt into 1,650,000 shares of our Common Stock at a conversion price of
$0.06 per share. Because Mr. DeMarco is an officer and director of DeMarco
Energy, we believe the issuance of shares to Mr. DeMarco was exempt from the
registration requirements of the Securities Act under Regulation D and Section
4(2) of the Securities Act.

Mr. Peter Des Camps, formerly our Senior Vice President of Corporate Development
also serves as President and Chief Executive Officer for Lead Capital Ventures
("LCV"), a private investment company formed in 1999. LCV paid a debt of DeMarco
Energy in the amount of $20,000 and acquired the Common Stock conversion rights
associated with that debt. The conversion rights were at $0.156 per share which
resulted in 133,333 shares of Common Stock being issued to LCV. This transaction
occurred on September 29, 2000. Because LCV is an accredited institutional
investor and Mr. Des Camps was an officer of DeMarco Energy, we believe this
transaction was exempt from registration requirements of the Securities Act
under Regulation D and Section 4(2) of the Securities Act.





                                       11
<PAGE>   12


ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

The financial information set forth in the following discussion should be read
in conjunction with, and qualified in its entirety by, the financial statements
of the Company included elsewhere herein.

FINANCIAL CONDITION AND CHANGES IN FINANCIAL CONDITION

Overall Operating Results

Fiscal year ended June 30, 2000 compared to fiscal year ended June 30, 1999:

We had net royalty revenues of $22,000 for the fiscal year ended June 30, 2000.
Prior year royalty revenues were $3,000. We anticipate that increased marketing
efforts in the future will generate ample revenues to sustain the anticipated
growth of DeMarco Energy. Marketing expenses for the current fiscal year
amounted to approximately $39,000. Prior year marketing expenses were
approximately $11,000. These expenses were incurred primarily in the development
of the Energy Miser Engineering Manual. It is anticipated that the development
and distribution of this manual will aid sales representatives in their
presentations to prospective customers and therefore lead to increased sales of
our systems. In addition, we expect to see increased revenue upon the initiation
of the PG&E Energy Services (now a subsidiary of Chevron Corporation), contract
with the Council of Governments in Washington, D.C. (See "Recent Developments").
We can give no assurances that such sales will occur. Operating expenses and
interest expenses increased $27,000 or 10% to $293,000 as compared to the prior
year expenses of $266,000. The primary areas where expenses increased were in
legal fees, which increased to $36,000 for the current year as opposed to
$14,000 for the prior year. These fees were incurred in connection with the
recent patent application and in registering our securities pursuant to the
Securities Exchange Act of 1934 in November 1999. Other expense items which
increased during the current year were accounting fees incurred with the audit
of our financials. These fees were $21,000 for the current period as compared to
$11,000 for June 1999. We also increased expenditures for advertising from
$2,000 in 1999 to $27,000 for 2000. These expenses were for updating our
advertising brochures. Travel also increased from $12,000 for the prior year to
$27,000 for the current period. These travel expense increases were incurred in
conjunction with attending more trade shows and evaluating acquisition
prospects.

Other income was $0 for the current year as compared to $10,000 for the prior
year. In the prior year we paid $50,000 earnest money to an acquisition target
for exclusive rights to negotiate the acquisition. The contract provided for
full refund of the earnest money, secured by the accounts receivable of the
target company, if the acquisition could not be completed. The acquisition was
never completed, and we exercised our right to a refund of the earnest money.
Ultimately, we collected $60,000 as a refund of the earnest money which included
$10,000 as reimbursement of expenses which was included in other income.

We incurred a net loss for the current fiscal year of $271,000 as compared to a
net loss of $187,000 from continuing operations for the prior fiscal year. We
continue to closely monitor expenses and anticipate focusing our expenditures on
marketing efforts for the foreseeable future. The prior year loss includes a
one-time gain of $66,000, included in extraordinary items, for the forgiveness
of debt owed to the former majority shareholder, Louis DeMarco. The loss from
continuing operations for the fiscal year ended June 30, 1999 would have been
$253,000 if that gain had been excluded.

One sale was completed during the first quarter of fiscal year 2000. The U.S.
Government authorized the Marine Air Station in Beaufort, South Carolina to
purchase the DeMarco Energy Miser heating and cooling system and employ the
base's water main. The gross sale for the system was $220,000, and during the
second quarter of calendar year 2000, we received royalty compensation of
$21,906. DeMarco Energy and FHP have previously agreed to a standard royalty fee
of twenty percent, however, under certain circumstances, and with our prior
approval, this fee may be negotiated as part of the bidding process. The
Beaufort, South Carolina installation was subject to such negotiation. The sales
process for this installation site from bid notification until contract a ward
required approximately one year. The sales process for the Energy Miser systems
can range from as little as one month to as much as two years based on our prior
experience.

LIQUIDITY AND CAPITAL RESOURCES:



                                       12
<PAGE>   13


We have recently been financed through a private equity offering that ended
during the third quarter of 1999 and a convertible debenture offering that began
in the first quarter of 2000, and have been supported in the interim by loans
from our President and Chief Executive Officer, Victor DeMarco.

DeMarco Energy completed a convertible debenture debt offering of $229,000 (see
"BUSINESS") that began in January 2000 and concluded in August 2000. The
proceeds were utilized for repayment of accounts payable and operating expenses.

On September 26, 2000, we entered into an agreement with AJW Partners, LLC. and
New Millennium Capital Partners II, LLC. (the "Debenture Holders") for the
private placement of $1,500,000 of our 10% Secured Convertible Debentures. These
debentures are convertible into shares of the Common Stock of DeMarco Energy.
The funding of the debentures will occur in two phases. The first $500,000 (less
legal expenses of $25,000 and consulting fees of $20,000) was received by us on
September 27, 2000. The remaining $1,000,000 will be funded within 30 days
following the effective registration with the Securities and Exchange Commission
of the underlying shares of our common stock. We anticipate utilizing the funds
as follows:

<TABLE>
<S>                                                                <C>
     o    Legal fees incurred with the private placement           $ 25,000

     o    Consulting incurred with the private placement             20,000

     o    Paying outstanding accounts payable                        50,000

     o    New Company video for advertising                          19,000

     o    New Company brochure and logo                              10,000

     o    Updating supplies with new logo                             5,000

     o    New engineering manual                                     10,000

     o    Updating the Company website                               25,000

     o    Ongoing attorney's fees                                    25,000

     o    3 months operating expenses                                61,000

     o    Marketing efforts                                         450,000

     o    Set aside for potential acquisitions                      800,000
                                                                 ----------
Total                                                            $1,500,000
</TABLE>

The primary terms of the September 2000 Convertible Debentures are as follows:

-    Entire principal amount will mature on September 26, 2001.

-    Debentures bear 10% interest per annum with interest payments due
     quarterly. Interest to be paid in cash or shares of Common Stock at the
     option of the debenture holders.

-    The debenture holders have the option to convert any unpaid principal and
     accrued interest into shares of our Common Stock at any time after the
     original issue date (subject to certain limitations).

-    The conversion price per share in effect on any conversion date shall be
     the lesser of (1) $0.34 per share or (2) 60% of the average of the lowest
     three inter-day trading prices during the ten trading days immediately
     preceding the applicable conversion date.

-    The debentures bear a mandatory prepayment penalty of 130% of the principal
     and all accrued interest being prepaid.

-    The debentures are secured by all unpledged assets of DeMarco Energy,
     including our current and pending patents.

-    DeMarco Energy is required to file a SB-2 Registration Statement with the
     Securities and Exchange registering 200% of the Common Stock underlying the
     debentures.

We are exploring the possibility of acquiring a company that would be
complementary to our current operations. We believe that the acquisition of a
small energy design engineer firm would be very beneficial to our operations. We
are currently looking for such a company in the Washington, D.C. area which
would complement our involvement with the PG&E Energy Services contract (See:
"Recent Developments"). Another potential area for acquisitions would be small
lighting retrofit organizations. Most projects on which we have bid in the past
and plan on bidding in the future usually encompass both lighting retrofit and
air conditioning and heating components in order to maximize the reduction in
energy consumption. However, at this point we have not identified or contacted
any one specific



                                       13
<PAGE>   14


company regarding acquisition possibilities other than the contact with Lighting
Management Consultants (See: "Recent Developments"), which has been put on hold
at this time.

We had negative working capital of $382,000 at June 30, 2000 as compared to
negative working capital of $87,000 at the end of the prior fiscal year end June
30, 1999. This increase in negative working capital is primarily the result of
the funding of operations to date.

We had a cash balance of $23,000 at June 30, 2000 as compared to a cash balance
of $3,000 at June 30, 1999. This increase in cash balances was caused by the
funding of the aforementioned convertible debentures over the period from
January through June of 2000. We used a portion of these proceeds to fund our
operations for the current six-month period.

Variations in shareholder/insider debt (other than the issuance of the
convertible debentures) are attributable to the settlement of the estate of
Louis DeMarco, the prior majority shareholder, and the dissolution of Cyberlink
Systems, Inc., a former subsidiary of DeMarco Energy (See:"BUSINESS"). Cyberlink
ceased doing business in March 1998 and was officially dissolved in June 2000.
DeMarco Energy continues to honor the outstanding obligations of Cyberlink which
consisted of a $100,000 line of credit and 4 leases on various computer
equipment. At this point, we have paid off the line of credit but still have
approximately $50,000 remaining on the computer equipment leases. We continue to
utilize the computer equipment under these leases. There have not been any
defaults on these obligations to date.

NEW ACCOUNTING PRONOUNCEMENTS

We have adopted FASB Statement 128. It is not expected that we will be impacted
by other recently issued standards. FASB Statement 128 presents new standards
for computing and presenting earnings per share (EPS). The Statement is
effective for financial statements for both interim and annual periods ending
after December 15, 1997.

FASB Statement 131 presents news standards for disclosures about segment
reporting. We do not believe that this accounting standard applies to us as all
of our operations are integrated for financial reporting and decision-making
purposes.

YEAR 2000 PREPAREDNESS

We have not been materially affected with Y2K problems to date.

INFLATION

Our results of operations have not been affected by inflation and we do not
expect inflation to have a significant effect on its operations in the future.

FORWARD-LOOKING INFORMATION

From time to time, we or our representatives have made or may make
forward-looking statements, orally or in writing. Such forward-looking
statements may be included in, but not limited to, press releases, oral
statements made with the approval of an authorized executive officer or in
various filings made by us with the Securities and Exchange Commission. Words or
phrases "will likely result", "are expected to", "will continue", "is
anticipated", "estimate", "project or projected", or similar expressions are
intended to identify "forward-looking statements". Such statements are qualified
in their entirety by reference to and are accompanied by the above discussion of
certain important factors that could cause actual results to differ materially
from such forward-looking statements.

Management is currently unaware of any trends or conditions other than those
previously mentioned in this management's discussion and analysis that could
have a material adverse effect on the Company's consolidated financial position,
future results of operations, or liquidity. However, investors should also be
aware of factors that could have a negative impact on the Company's prospects
and the consistency of progress in the areas of revenue generation, liquidity,
and generation of capital resources. These include: (i) variations in revenue,
(ii) possible



                                       14
<PAGE>   15


inability to attract investors for its equity securities or otherwise raise
adequate funds from any source should the Company seek to do so, (iii) increased
governmental regulation, (iv) increased competition, (v) unfavorable outcomes to
litigation involving the Company or to which the Company may become a party in
the future and, (vi) a very competitive and rapidly changing operating
environment.

The risks identified here are not all inclusive. New risk factors emerge from
time to time and it is not possible for management to predict all of such risk
factors, nor can it assess the impact of all such risk factors on the Company's
business or the extent to which any factor or combination of factors may cause
actual results to differ materially from those contained in any forward-looking
statements. Accordingly, forward-looking statements should not be relied upon as
a prediction of actual results.






                                       15
<PAGE>   16


ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA






                                       16
<PAGE>   17


                          INDEX TO FINANCIAL STATEMENTS


                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                                 PAGE
                                                                                                 ----
<S>                                                                                              <C>
Independent Auditor's Report (Nathan M. Robnett, CPA)                                              F-2
Comparative Balance Sheet at June 30, 1999 and June 30, 2000                                       F-3
Comparative Statement of Operations for the Years ended
  June 30, 1999 and June 30, 2000                                                                  F-4
Comparative Statement of Cash Flows for the Year ended
  June 30, 1999 and June 30, 2000                                                                  F-5
Comparative Statement of Changes in Stockholders' Equity for
  The Two Years ended June 30, 2000                                                                F-6
Notes to Financial Statements                                                                      F-7
</TABLE>




                                       F-1

<PAGE>   18



Report of Independent Auditors


To the Board of Directors of DeMarco Energy Systems, Inc.

We have audited the accompanying balance sheet of DeMarco Energy Systems, Inc.
as of June 30, 1999 and June 30, 2000, and the related statements of income and
retained earnings, and cash flows for the year then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.

We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of DeMarco Energy Systems, Inc. as
of June 30, 1999 and June 30, 2000, respectively, and the results of its
operations and its cash flows for the year then ended in conformity with
generally accepted accounting principles.





Nathan M. Robnett, C. P. A.
September 5, 2000



                                       F-2




<PAGE>   19


DEMARCO ENERGY SYSTEMS, INC.
COMPARATIVE BALANCE SHEET
AS OF JUNE 30, 1999 AND JUNE 30, 2000

<TABLE>
<CAPTION>
                                                                AS OF                 AS OF
                                                            JUNE 30, 1999         JUNE 30, 2000
                                                            -------------         -------------
<S>                                                          <C>                   <C>
ASSETS
      Cash and cash equivalents                              $     2,647           $    23,213
      Accounts Receivable                                         45,000                 3,241
                                                             -----------           -----------
          Total Current Assets                               $    47,647           $    26,454
                                                             -----------           -----------

Capital Assets:
      Fixtures, Equipment and Other                              149,045               151,137
      Accumulated Depreciation                                   (92,712)             (124,331)
                                                             -----------           -----------
          Total Fixed Assets                                 $    56,333           $    26,806
                                                             -----------           -----------

Other Assets:
      Patent Pending Costs                                   $     9,912           $     9,912
      Manuals Development                                                            10,000.00
      Accumulated Amortization                                   (248.00)            (1,330.00)
      Deposits                                                  1,000.00              1,000.00
                                                             -----------           -----------
                                                             $ 10,664.00           $ 19,582.00
                                                             -----------           -----------

TOTAL ASSETS                                                 $   114,644           $    72,842
                                                             ===========           ===========

LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Current Liabilities:
      Accounts payable                                       $    46,108           $    37,656
      Promissory Note (Norwest Bank LOC)                          57,898                34,833
      Current Portion of Long-term Debt                           26,852                29,954
      Convertible Debentures                                                           197,000
      Other Current Liabilities                                    4,388                 1,775
      Note Payable to Shareholders                                                     107,451
                                                             -----------           -----------
          Total Current Liabilities                          $   135,246           $   408,669
                                                             -----------           -----------

      Long-Term Notes Payable                                     52,541                22,586
      Long-Term Notes Payable to Shareholders                     55,420                20,000
                                                             -----------           -----------

          TOTAL LIABILITIES                                  $   243,207           $   451,255
                                                             -----------           -----------

SHAREHOLDERS' EQUITY
      Common Stock, $0.001 par value,
          100,000,000 shares authorized and
          22,453,657 shares issued at 6/30/99                $    22,454           $    43,274
          and 22,839,414 shares issued at 6/30/2000
      Additional paid-in capital                               2,223,892             2,223,892
      Retained deficit                                        (2,164,379)           (2,435,049)
      Subscriptions Receivable                                  (210,530)             (210,530)
                                                             -----------           -----------
          TOTAL SHAREHOLDERS' EQUITY                            (128,563)             (378,413)
                                                             -----------           -----------

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                   $   114,644           $    72,842
                                                             ===========           ===========
</TABLE>


See Notes to Consolidated Financial Statements.



                                       F-3



<PAGE>   20


DEMARCO ENERGY SYSTEMS, INC.
COMPARATIVE STATEMENT OF OPERATIONS
FOR THE YEARS ENDED JUNE 30, 1999 AND JUNE 30, 2000

<TABLE>
<CAPTION>
                                                     FOR THE YEAR         FOR THE YEAR
                                                         ENDED                ENDED
                                                    JUNE 30, 1999         JUNE 30, 2000
                                                    -------------         -------------
<S>                                                  <C>                   <C>
Revenues
       Royalty Fees                                  $     2,693           $    21,906
       Other Income                                       10,000
                                                     -----------           -----------
          Total Revenues                             $    12,693           $    21,906
                                                     -----------           -----------

Costs and expenses
       Selling and Administrative                        213,478           $   230,410
       Depreciation and Amortization                      31,890                32,949
       Interest                                           20,623                29,217
                                                     -----------           -----------
Total Costs and Expenses                                 265,991               292,576
                                                     -----------           -----------

Loss Before Extraordinary Items                      $  (253,298)          $  (270,670)

Extraordinary Items
       Forgiveness of debt                           $    66,356

Loss from Continuing Operations                      $  (186,942)          $  (270,670)
                                                     -----------           -----------

Discontinued Operations
       Loss from Operations of Discontinued
            Subsidiary (CyberLink)                   $   (10,032)

       Loss on disposal of Assets of
            Subsidiary (CyberLink)                   $   (19,866)

Net Loss                                             $  (216,840)
                                                     -----------


Retained deficit at beginning of year                 (1,947,539)           (2,164,379)

Retained deficit at the end of year                  $(2,164,379)          $(2,435,049)
                                                     ===========           ===========


Loss per Common Share                                $    (0.007)          $    (0.012)
                                                     ===========           ===========
</TABLE>



See Notes to Consolidated Financial Statements.


                                       F-4



<PAGE>   21


DEMARCO ENERGY SYSTEMS, INC.
COMPARATIVE STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED JUNE 30, 1999 AND JUNE 30, 2000

<TABLE>
<CAPTION>
                                                                       FOR THE YEAR ENDED                FOR THE YEAR ENDED
                                                                         JUNE 30, 1999                     JUNE 30, 2000
                                                                ------------------------------      -----------------------------
<S>                                                             <C>                 <C>             <C>                <C>
Cash Flows from Operating Activities:
      Net Loss                                                                      $(216,840)                         $(270,670)

Adjustments to reconcile net loss to net cash provided
(used) by operating activities:
      Depreciation and Amortization                                                 $  37,084                          $  32,701

Changes in operating assets and liabilities:
      Prepaid Expenses                                          $  10,157
      Due From Shareholders                                       115,843
      Accounts Receivable                                         (45,000)                          $  45,000
      Inventories                                                   5,545
      Other Assets                                                 (1,000)
                                                                                                       (3,240)
      Accounts Payable                                             (3,350)
                                                                                                       (8,452)
      Other Current Liabilities                                     3,634
                                                                                                       (2,615)
Net Cash Used by Operating Activities                                               $  85,829                          $  30,693

Cash flows used in investing Activities
      Patent Pending                                            -9,912.00
      Manuals Development                                                                             (10,000)
      Equipment Additions                                         -778.00                              (2,092)
      Fixed Asset Retirements                                   32,843.00
      Fixed Asset Depreciation Retirements                     -12,977.00

      Net Cash Used by Investing Activities                                         $   9,176                          ($ 12,092)

Net cash provided (used) by financing activities
      (Repayments) of Line of Credit                            $ (43,141)
      (Repayments) of Promissory Note                                                                 (23,065)
      Current Portion of Long Term Debt                             3,665                               3,102
      (Repayments) Proceeds of Long Term Notes                    (25,873)                            (29,954)
      (Repayments) Proceeds of Notes to Shareholders                                                   72,031
      Proceeds From Convertible Debentures                                                          $ 197,000
      Proceeds From Common Stock Transactions                     104,310                              20,820
                                                                ---------                           ---------
Net Cash provided by financing Activities                                           $  79,996                          $ 239,934


Net increase in Cash and Cash Equivalents                                           $ (4,755)                          $  20,566

Cash and Cash Equivalents at Beginning of Year                                         7,402                               2,647
                                                                                    --------                           ---------

Cash and Cash Equivalents at End of Year                                            $  2,647                           $  23,213
                                                                                    ========                           =========
</TABLE>



See Notes to Consolidated Financial Statements.


                                       F-5



<PAGE>   22




DEMARCO ENERGY SYSTEMS, INC.
COMPARATIVE STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE TWO YEARS ENDED JUNE 30, 2000


<TABLE>
<CAPTION>
                                          Common            Paid-in           Retained          Subscriptions
                                          Stock             Capital            Deficit           Receivable             Total
<S>                                    <C>                <C>                <C>                 <C>                 <C>
BALANCE, JULY 1, 1998                  $    31,621        $ 2,104,764        $(1,947,539)        $  (204,880)        $   (16,034)

Net Income                                                                      (216,840)
Paid in Capital                                               119,128
Subscriptions Receivable                                                                              (5,650)
Cancelled 9,746,745 shares of
  stock held by L. DeMarco                  (9,747)
Issued 560,262 shares Common
  stock                                        560

BALANCE JUNE 30, 1999                  $    22,434        $ 2,223,892        $(2,164,379)        $   (10,530)        $  (128,583)

Net Income                                                                      (270,670)
Paid in Capital                                                20,454
Issued 385,757 shares Common
  Stock                                        386
BALANCE JUNE 30, 2000                  $    22,820        $ 2,244,346        $(2,435,049)        $  (210,530)        $  (378,413)
</TABLE>



See Notes to Consolidated Financial Statements.


                                       F-6



<PAGE>   23


NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations

DeMarco Energy Systems, Inc. (the Company) was organized under the laws of the
State of Utah in 1983. The Company is primarily engaged in the process of
investigating business opportunities that appear to have profit potential for
the Company. Primary emphasis is being placed on the DeMarco Energy System
water-air heating/cooling systems, energy audits and energy related equipment
such as lighting and electrical fixture retro-fittings.

During 1989, the Company exchanged 10,396,790 shares of its stock for exclusive
rights to a United States patent. The patent was granted for a unique
water-source heat pump system that both heats and cools buildings and provides
domestic hot water at an extremely low cost to install and operate. The heat
pump is specifically designed to utilize municipal water systems as a heat
source/sink. Florida Heat Pump Manufacturing Co. manufactures the DeMarco Energy
Miser System under a patent licensing agreement.

During the fiscal year ending June 30, 1999, the Company filed an application
with the United States Patent Office for a patent covering a heat pump system
using gray water sources, reclaimed water sources and other non-potable water
sources. Costs of approximately $20,000 related to the patent application have
been capitalized. The eventual approval or denial of this patent application is
indeterminable at this time.

DeMarco Energy Systems, Inc. currently has installations in Oregon,
Pennsylvania, Washington, Montana, South Dakota, Mississippi, and California.

BASIS OF FINANCIAL STATEMENT PRESENTATION

The consolidated financial statements include the accounts of the Company and
its subsidiary. Intercompany transactions and accounts have been eliminated.

Furniture and Equipment

Furniture and equipment and other long-term assets are recorded at historical
cost less depreciation and amortization. Depreciation and amortization are
accounted for on the straight-line method based on estimated useful lives.
Betterments and large renewals that extend the life of assets are capitalized
whereas maintenance and repairs and small renewals are expensed as incurred.

ESTIMATES

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.



                                       F-7


<PAGE>   24


CASH AND CASH EQUIVALENTS

Holdings of highly liquid investments with maturities of three months or less
when purchased are considered to be cash equivalents. The carrying amount
reported in the balance sheet for cash and cash equivalents approximates its
fair value.

                              SALES (ROYALTY FEES)

ROYALTY FEES ARE RECOGNIZED IN THE FINANCIAL STATEMENTS WHEN THE CUSTOMER IS
BILLED. FOR THE TWO YEARS ENDED JUNE 30, 2000, NET SALES AND ROYALTY FEES WERE
COMPRISED OF THE FOLLOWING:

YEAR ENDED 6/30/1999

NET SALES         $12,068  SALE OF FINAL INVENTORY FROM SUBSIDIARY CYBERLINK

ROYALTY FEES      $  2,693 THROUGH AGREEMENT WITH FLORIDA HEAT PUMP
                                    Manufacturing, Inc.

OTHER INCOME      $10,000  THE COMPANY PAID $50,000 EARNEST MONEY TO AN
                                    acquisition target for exclusive rights to
                                    negotiate the acquisition. The contract
                                    provided for full refund of the earnest
                                    money, secured by the accounts receivable of
                                    the target company, if the acquisition could
                                    not be completed. The acquisition was never
                                    completed, and the Company exercised its
                                    right to a refund of the earnest money.
                                    Ultimately, the Company collected $60,000 as
                                    refund of the earnest money plus $10,000 as
                                    reimbursement of expenses.

YEAR ENDED 6/30/2000

ROYALTY FEES      $21,906  THROUGH AGREEMENT WITH FLORIDA HEAT PUMP
                                    MANUFACTURING, INC.

                            ROYALTY FEE ARRANGEMENTS

The Company has contracted with Florida Heat Pump Manufacturing, Inc. of Fort
Lauderdale, Florida for the manufacture and distribution of a water source heat
pump. The Company receives a 20% royalty fee, calculated from the base
production price for manufacture of each unit. The base production price may
vary.

The Company has no obligation under the agreement with Florida Heat Pump
Manufacturing, Inc. to provide warranty or servicing services either financially
or otherwise for the equipment sold.



                                       F-8


<PAGE>   25


NOTE B - LONG TERM DEBT

Long-term debt consists of $52,540 in notes to financing companies
collateralized by computer systems that have a net book value of $19525.13. The
amount due within one year is $29,954.

The maturities of long-term debt for each of the succeeding five fiscal years
subsequent to June 30, 2000, are as follows:

<TABLE>
<S>                                <C>
Year ending June 30, 2001          29,954
Year ending June 30, 2002          22,586
                                  -------

                           Total  $52,540
                                  =======
</TABLE>


The Company has financing arrangements with several finance companies as well as
a line of credit at Norwest Bank. The following table discloses the interest
rates and amounts of interest expensed in each of the two years presented with
this report:


<TABLE>
<CAPTION>
                       ANNUAL                           PRINCIPAL                         PRINCIPAL
FINANCE SOURCE         INTEREST     INTEREST EXPENSE    BALANCE        INTEREST EXPENSE   BALANCE
                       RATE         YEAR ENDED 6/30/99  06/30/1999     YEAR ENDED 6/30/00 06/30/2000
<S>                    <C>              <C>             <C>               <C>               <C>
Americorp              15.80%           $  3,403        $20,914           $2,775            $13,993
Copelco Capital        12.25%              2,739         19,194            1,996             12,716
General Electric       13.72%              3,030         18,918            2,195             12,373
Greentree              17.14%              3,923         20,367            2,918             13,458

Totals                                  $ 13,095        $79,393           $9,884            $52,540
</TABLE>


NOTE C - COMMITMENTS AND CONTINGENCIES

The company has entered into an office facility lease calling for the following
future rents:

<TABLE>
<S>                                       <C>
Year ending June 30, 2001                 13,061
Year ending June 30, 2002                  6,683
                                         -------
                          Total          $19,744
                                         =======
</TABLE>


The company has had, and renewed, a short-term promissory note payable. At June
30, 2000, the balance was $34,833. That amount has been paid off in full after
fiscal year end and prior to the report date. Shares in the company owned by the
company's president, Mr. Victor DeMarco, secured the note. The interest rate,
interest expense, and ending balances of this note are reported in the following
table:

<TABLE>
<CAPTION>
PROMISSORY NOTE        ANNUAL                           PRINCIPAL                           PRINCIPAL
FINANCE SOURCE         INTEREST     INTEREST EXPENSE    BALANCE        INTEREST EXPENSE     BALANCE
                       RATE         YEAR ENDED 6/30/99  06/30/1999     YEAR ENDED 6/30/00   06/30/2000
<S>                    <C>          <C>                 <C>            <C>                  <C>
Norwest Bank           9.75%        $7,107              $57,898        $3,724               $34,833
</TABLE>


The president has also guaranteed payments called for under the long-term debt
above and the office facility lease payments.



                                       F-9


<PAGE>   26





NOTE D - EARNINGS (LOSS) PER COMMON SHARE

Earnings (Loss) per common share are computed by dividing net losses by the
average number of common share outstanding during the year. The average number
of common shares outstanding during the year ended June 30, 2000 was
approximately 22,645,000 shares.

NOTE E - INCOME TAXES

As of June 30, 2000, DeMarco Energy Systems, Inc. had an operating loss carry
forwards of approximately $2,203,778 that expire between 2005 and 2014 and are
available to offset future taxable income to the extent permitted under the
Internal Revenue Code.


NOTE F - RELATED PARTY TRANSACTIONS

Mr. Victor DeMarco, president of the company has advanced sums of $99,651 as of
June 30, 2000. Additional advancements totaling $7,800 at June 30, 2000 were
received from Peter Des Camp, Vice President of Corporate Development for the
Company. The loans are non-interest bearing and a repayment period has not been
specified. These notes are included in Notes Payable to Shareholders (current)
in the financial statements.

An additional loan from a shareholder is recorded as having a balance of $20,000
and is included in Long Term Liabilities. This note is non-interest bearing and
a repayment period has not been specified.

During the year ending June 30, 1999, Mr. Louis DeMarco, chairman of the board,
passed away. His estate forgave $66,356 owed by the company and is reported as
an extraordinary item. Additionally, 9,746,745 of his shares were cancelled.

NOTE G - CONVERTIBLE DEBT ISSUANCE

The company issued $194,000 in convertible debentures bearing a stated interest
rate of 8% per year, payable quarterly, and convertible into 856,572 shares of
the Company's common stock. The conversion rates range from $0.10 to $0.45 per
share of common stock.


                                      F-10


<PAGE>   27



ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE

There have been no changes or disagreements with the Company's independent
accountant during the last 2 fiscal years.

No consultations occurred between the Company and Nathan M. Robnett, C.P.A.'s
appointment regarding the application of accounting principles to a specific
completed or contemplated transaction, the type of audit opinion, or other
information considered by the Company in reaching a decision as to an
accounting, auditing, or financial reporting issue.

PART III

ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
        WITH SECTION 16(a) OF THE EXCHANGE ACT

Our Chief Executive Officer, President and sole director is Victor M. DeMarco.
Mr. DeMarco is 36 years old and has served as our President and Chief Executive
Officer since 1992.

All officers and directors devote 100% of their professional time to our
business operations.

During the last five years, no officers or directors have been involved in any
legal proceedings, bankruptcy proceedings, criminal proceedings or violated any
federal or state securities or commodities laws or engaged in any activity that
would limit their involvement in any type of business, securities or banking
activities.

No person who, at any time during our past fiscal year, was a director, officer,
or beneficial owner of more than 10% of any class of equity securities failed to
file, on a timely basis, any report required by Section 16(a) of the Exchange
Act during the most recent fiscal year.

ITEM 10. EXECUTIVE COMPENSATION

The following table reflects compensation paid to the mostly highly compensated
executive officer of the Company.

<TABLE>
<CAPTION>
                                                                                          LONG TERM COMPENSATION
                                                                         ---------------------------------------------------
                                                                                  AWARDS
                                            ANNUAL COMPENSATION          -----------------------           PAYOUTS
                                      -------------------------------    RESTRICTED   SECURITIES  --------------------------
                                                                            STOCK     UNDERLYING    LTIP          ALL OTHER
                                      SALARY       BONUS       OTHER        AWARD      OPTIONS    PAYOUTS       COMPENSATION
NAME AND PRINCIPAL POSITION   YEAR      ($)          ($)        ($)          ($)       SARS(#)      ($)               ($)
---------------------------   ----    -------     -------     -------    ----------  ----------   -------       ------------
<S>                           <C>     <C>         <C>         <C>          <C>        <C>         <C>           <C>
Victor DeMarco ........       2000    $45,600     $     0     $     0      $     0           0           0          $     0
  President & Chief
  Executive Officer
</TABLE>

No other person makes over $100,000 per year.

COMPENSATION OF DIRECTORS

    We do not currently compensate directors in cash for any services provided
as a director.


ITEM 11.   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT



                                       27
<PAGE>   28


    PRINCIPAL STOCKHOLDERS

The following table sets forth, as of June 30, 2000, the name and shareholdings,
including options to acquire our Common Stock, of each person who owns of
record, or was known by the us to own beneficially, 5% or more of the shares of
the Common Stock currently issued and outstanding; the name and shareholdings,
including options to acquire the Common Stock, of each director; and the
shareholdings of all executive officers and directors as a group. The address of
each of the individuals listed below is the address of the Company.



<TABLE>
<CAPTION>
                                                              NATURE OF           NUMBER OF          PERCENTAGE OF
       NAME OF PERSON OR GROUP                                OWNERSHIP         SHARES OWNED           OWNERSHIP
  --------------------------------                         ---------------      ------------         -------------
<S>                                                        <C>                   <C>                      <C>
  Victor DeMarco....................................       Direct/Indirect       7,605,609                33.3%



  All executive officers and
  directors as a group (one person).................       Direct/Indirect       7,605,609                33.3%


            Total...................................        7,605,609                33.3%
</TABLE>


There are currently no outstanding options or warrants to purchase shares of our
stock.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Mr. Victor DeMarco, our controlling shareholder and Chief Executive Officer and
sole director had loaned us approximately $99,000 to cover certain indebtedness
of ours which he had personally guaranteed. We recorded a note payable to him
for that amount. On September 29, 2000, Mr. DeMarco converted this debt into
1,650,000 shares of the Company's Common Stock at a conversion price of $0.06
per share.

Mr. Peter Des Camps, the former Senior Vice President of Corporate Development
also serves as President and Chief Executive Officer for Lead Capital Ventures
("LCV"), a private investment company formed in 1999. LCV paid a debt of DeMarco
Energy in the amount of $20,000 and acquired the Common Stock conversion rights
associated with that debt. The conversion rights were at $0.15625 per share
which resulted in 133,333 shares of Common Stock being issued to LCV. This
transaction occurred on September 29, 2000. This debt was originally in the form
of a $50,000 convertible debenture issued to a current shareholder on March 10,
1999. We had paid the debt down to the $20,000 balance via 2 cash payments
totaling $16,719 in May and August 1999 and the issuance 85,000 shares of our
Common Stock in April 1999 at a conversion price of $0.15625 per share (a value
of $13,281 per the terms of the debenture). The debenture holder individually
contacted Lead Capital Ventures and Mr. Des Camps to purchase the remaining
$20,000 balance of the debenture. LCV agreed to purchase this debt for $20,000
in cash and we agreed to the transfer. We did not participate in or encourage
this transaction. To our knowledge, no other individuals were contacted or had
an offer presented to purchase this debt.

Mr. DeMarco's conversion price of $0.06 was based on the lowest market offer
price for shares of the Common Stock during the prior year and was more
favorable to Mr. DeMarco than could have been obtained from unaffiliated third
parties. LCV's conversion price of $0.15625 was based on the conversion terms of
the debenture.


ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K

 a)  1.  Financial Statements



                                       28
<PAGE>   29



The following financial statements are filed as a part of this Form 10-KSB: The
    Index to Consolidated Financial Statements is set out in Item 7 herein.

Exhibit 27.01 Financial Data Schedule


b)      Reports on Form 8-K

    None



                                       29
<PAGE>   30


                                   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.

                     (Registrant)  DEMARCO ENERGY SYSTEMS OF AMERICA, INC.
                          By    /s/  Victor M. DeMarco
                                Victor M. DeMarco, President/ Chief Operating
                                Officer

                          Date  February 20, 2001

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.

                          By    /s/ Victor M. DeMarco
                                Victor M. DeMarco, President/ Chief Financial
                                Officer, Sole Director
                          Date  February 20, 2001





                                       30
<PAGE>   31



                                INDEX TO EXHIBIT

<TABLE>
<CAPTION>
EXHIBIT
NUMBER                 DESCRIPTION
-------                -----------
<S>      <C>
27.1     Financial Data Schedule
</TABLE>



                                       31