-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, NqH3izKGQQPcR82SCk7b29lAZ4ZfQ+1aK5umZL3FDR7kMjJ06SrecPyYp+One7Mu EY9lcaW6IgQmfMrqayXHHw== 0001018523-97-000023.txt : 19970912 0001018523-97-000023.hdr.sgml : 19970912 ACCESSION NUMBER: 0001018523-97-000023 CONFORMED SUBMISSION TYPE: 10KSB/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970829 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: GEO PETROLEUM INC CENTRAL INDEX KEY: 0001016275 STANDARD INDUSTRIAL CLASSIFICATION: CRUDE PETROLEUM & NATURAL GAS [1311] IRS NUMBER: 330328958 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10KSB/A SEC ACT: SEC FILE NUMBER: 000-20915 FILM NUMBER: 97672747 BUSINESS ADDRESS: STREET 1: 501 DEEP VALLEY DRIVE STREET 2: SUITE 300 CITY: ROLLING HILLS STATE: CA ZIP: 90274 BUSINESS PHONE: 3105398191 MAIL ADDRESS: STREET 1: 501 DEEP VALLEY DRIVE STREET 2: SUITE 300 CITY: ROLLING HILLS STATE: CA ZIP: 90274 10KSB/A 1 U.S. SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10KSB/A [ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1996 [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to . -------- -------- Commission file number 0-20915 GEO PETROLEUM, INC. (Name of Small Business Issuer in Its Charter) California 33-0328958 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 501 Deep Valley Drive, Suite 300 Rolling Hills Estates, California 90274 (Address of principal executive offices) (Zip Code) Issuers telephone number (310) 265-0721 Securities registered under Section 12(b) of the Exchange Act: Name of each Exchange Title of each class on which registered ------------------- ---------------------- Common NASD Bulletin Board Securities registered pursuant to Section 12(g) of the Act: Common Stock, No Par Value (Title of Class) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [ X ]YES [ ]NO Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-B is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. [ ] The Registrant's revenues for its fiscal year ended December 31, 1996 were $1.01 million. At March 31, 1997, 7,521,606 shares of Common Stock (the Registrant's only class of voting stock) were outstanding. The aggregate market value of the Common Stock on that date (based upon the closing price on the NASD Electronic Bulletin Board on March 14, 1997 of $6.88) held by non-affiliates was approximately $25,400,000. Documents incorporated by reference: Certain portions of the Registrant's definitive proxy statement to be filed with the Commission pursuant to Regulation 14A - Part III, Items 9, 10, 11, and 12. Transitional Small Business Disclosure Format. [ ]YES [ X ]NO Geo Petroleum, Inc. hereby amends the Annual Report on Form 10KSB dated December 31, 1996, by amending "ITEM 7. FINANCIAL STATEMENTS, Geo Petroleum, Inc., Notes to Financial Statements, ITEM 7. COMMON STOCK" of such form to read as follows: ITEM 7. FINANCIAL STATEMENTS The following financial statements and supplementary data for the Company are included as part of this form 10-KSB: Page Number ------ Report of Ernst & Young LLP, Independent Auditors F-1 Balance Sheets at December 31, 1996 and 1995 F-2 Statements of Operations for the years ended December 31, 1996 and 1995 F-4 Statements of Stockholders' Equity for the years ended December 31, 1996 and 1995 F-5 Statements of Cash Flows for the years ended December 31, 1996 and 1995 F-6 Notes to Financial Statements F-9 ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE The Company changed its independent accountants as of the end of its 1994 year. Deloitte & Touche LLP had audited the financial statements of Geo for the year ended December 31, 1994. There were no disagreements with Deloitte & Touche LLP respecting accounting or auditing matters. Effective January 1, 1996, Geo as a matter of business judgment engaged the services of Ernst & Young LLP for Geo's 1995 audit. The change was approved by the Board of Directors of Geo. A letter confirming the foregoing from Deloitte & Touche LLP was filed as an exhibit to Geo's Form 10-SB registration statement. Geo did not discuss the application of accounting principles to any specific transaction or the type of audit opinion that might be rendered, prior to engaging its new accounting firm. Report of Independent Auditors Stockholders and Board of Directors Geo Petroleum, Inc. We have audited the accompanying balance sheets of Geo Petroleum, Inc. as of December 31, 1996 and 1995 and the related statements of operations, stockholders' equity, and cash flows for the years 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 audits. We conducted our audits in accordance with generally accepted auditing standards. 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 Geo Petroleum, Inc. at December 31, 1996 and 1995, and the results of its operations and its cash flows for the years then ended in conformity with generally accepted accounting principles. Ernst & Young LLP Los Angeles, California March 28, 1997 Geo Petroleum, Inc. Balance Sheets
DECEMBER 31 1996 1995 --------------------------- ASSETS Current assets: Cash and cash equivalents $ 2,228,826 $ 100,565 Accounts receivable: Accrued oil and gas revenues (net of allowance for doubtful accounts of $17,775 in 1995) 151,586 161,308 Joint interest and other 419,361 200,026 Prepaid expenses and other, net 52,876 52,413 --------------------------- Total current assets 2,852,649 514,312 Property and equipment: Oil and gas properties 4,927,176 4,698,877 Office furniture and equipment 51,989 65,948 --------------------------- 4,979,165 4,764,825 Accumulated depletion and depreciation (1,098,805) (1,037,404) --------------------------- 3,880,360 3,727,421 --------------------------- Total assets $ 6,733,009 $ 4,241,733 =========================== SEE ACCOMPANYING NOTES.
Geo Petroleum, Inc. Balance Sheets (Continued)
DECEMBER 31 1996 1995 --------------------------- LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable: Accrued royalties $ 431,388 $ 438,507 Trade and other 396,110 283,161 Dividends payable 14,104 20,120 Accrued expenses 119,643 107,821 Current portion of notes payable 325,022 1,968,063 --------------------------- Total current liabilities 1,286,267 2,817,672 Long-term portion of notes payable 530,000 - Redeemable convertible preferred stock, $1,000 par value; authorized 100,000 shares; issued and outstanding 101.29 and 505.15 shares at December 31, 1996 and 1995, respectively 101,289 505,150 Stockholders' equity: Common stock, no par value; authorized 50,000,000 shares; issued and outstanding 7,603,324 and 4,477,913 shares at December 31, 1996 and 1995, respectively 6,615,634 2,157,702 Accumulated deficit (1,800,181) (1,238,791) --------------------------- Total stockholders' equity 4,815,453 918,911 --------------------------- Total liabilities and stockholders' equity $ 6,733,009 $ 4,241,733 =========================== SEE ACCOMPANYING NOTES.
Geo Petroleum, Inc. Statements of Operations
YEAR ENDED DECEMBER 31 1996 1995 --------------------------- Revenues: Oil and gas sales $ 823,695 $ 1,563,206 Other revenue 176,043 552,544 Interest income 6,208 3,102 --------------------------- 1,005,946 2,118,852 Expenses: Lease operating expenses 675,292 943,283 Depletion and depreciation 88,596 196,484 Amortization of deferred loan costs 34,929 45,000 General and administrative 277,107 402,978 Interest expense 360,581 377,706 --------------------------- Income (loss) before income taxes (430,559) 153,401 Provision for income taxes - - --------------------------- Net income (loss) (430,559) 153,401 Less preferred stock dividends (130,831) (20,120) --------------------------- Net income (loss) applicable to common stock $ (561,390) $ 133,281 =========================== Net income (loss) per share of common stock $ (0.11) $ 0.03 =========================== SEE ACCOMPANYING NOTES.
Geo Petroleum, Inc. Statements of Stockholders' Equity
Number of Common Shares Common Accumulated Outstanding Stock Deficit Total ----------------------------------------------------- Balance at December 31, 1994 4,288,454 $ 2,147,702 $(1,372,072) $ 775,630 Net income - - 153,401 53,401 Issuance of common stock as payment for services 189,459 10,000 - 10,000 Preferred stock dividends - - (20,120) (20,120) ----------------------------------------------------- Balance at December 31, 1995 4,477,913 2,157,702 (1,238,791) 918,911 Net loss - - (430,559) (430,559) Issuances of common stock: Sold in private placements 2,320,506 3,779,790 - 3,779,790 Conversion of redeemable convertible preferred stock and related dividends payable 156,749 391,872 - 391,872 Exchange of certain notes payable and related accrued interest 74,570 186,428 - 186,428 Payment for services 76,040 79,842 - 79,842 Acquisition of Drake Investment Corp. 497,546 20,000 - 20,000 Preferred stock dividends - - (130,831) (130,831) ----------------------------------------------------- Balance at December 31, 1996 7,603,324 $ 6,615,634 $(1,800,181) $ 4,815,453 ===================================================== SEE ACCOMPANYING NOTES.
Geo Petroleum, Inc. Statements of Cash Flows
YEAR ENDED DECEMBER 31 1996 1995 --------------------------- OPERATING ACTIVITIES Net income (loss) $ (430,559) $ 153,401 Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities: Depletion and depreciation 88,596 196,484 Amortization of deferred loan costs 34,929 45,000 Payment in common stock for services 79,842 10,000 Changes in operating assets and liabilities: Accounts receivable (209,613) (107,626) Prepaid expenses and other (463) (46,619) Accounts payable 99,814 (77,920) Accrued expenses 11,822 29,124 --------------------------- Net cash (used in) provided by operating activities (325,632) 201,844 INVESTING ACTIVITIES Acquisition of Drake Investment Corp. 20,000 - Additions to property and equipment (396,565) (451,551) Sale of property 106,000 - --------------------------- Net cash used in investing activities (270,565) (451,551)
Geo Petroleum, Inc. Statements of Cash Flows (Continued)
YEAR ENDED DECEMBER 31 1996 1995 --------------------------- FINANCING ACTIVITIES Proceeds from notes payable $ 171,246 $ 307,000 Payments on notes payable (1,075,178) (121,000) Payments in common stock for interest 43,565 - Bank overdraft - (26,002) Common stock sold in private placements 3,779,790 - Preferred stock sold 23,500 50,400 Dividends paid (72,523) - Preferred stock redeemed (145,942) - --------------------------- Net cash provided by financing activities 2,724,458 210,398 --------------------------- Net increase (decrease) in cash and cash equivalents 2,128,261 (39,309) Cash and cash equivalents at beginning of year 100,565 139,874 --------------------------- Cash and cash equivalents at end of year $ 2,228,826 $ 100,565 =========================== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid during the year for interest $ 308,261 $ 414,821 =========================== Cash paid during the year for income taxes $ 810 $ 800 ===========================
Geo Petroleum, Inc. Statements of Cash Flows (continued) SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES: During 1995, the Company issued 454.75 shares of the Company's redeemable convertible preferred stock in exchange for the retirement of certain notes payable aggregating $454,750. Additionally, the Company issued 2.4 shares of the Company's redeemable convertible preferred stock to an individual as a finder's fee for services rendered in 1995. In connection with the issuance of the Company's redeemable convertible preferred stock, fourth quarter dividends amounting to $20,120 were declared and payable as of December 31, 1996. Also, the Company issued 189,459 shares of common stock to a consulting company as payment for services that were performed in 1995 and 1994. During 1996, the Company issued 66.25 shares of the Company's redeemable convertible preferred stock in exchange for the retirement of certain notes payable aggregating $66,250. Additionally, the Company issued 74,570 shares of the Company's common stock in exchange for the retirement of certain notes payable and related accrued interest aggregating $186,428. The Company issued 156,749 shares of the Company's stock in exchange for the retirement of 347.67 shares of the Company's redeemable convertible preferred stock and related dividends payable aggregating $391,872. Also, the Company issued 51,040 shares of common stock to the holders of the collateral for the note payable to bank as compensation for extending the availability of the collateral for the note to January 1, 1998. Also, the Company issued 25,000 shares of common stock for legal services that were performed in 1996. SEE ACCOMPANYING NOTES. Geo Petroleum, Inc. Notes to Financial Statements December 31, 1996 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION Geo Petroleum, Inc. (the "Company") is an oil and gas production company founded in 1986 and incorporated in the state of California. The Company engages in the development, production and management of oil and gas properties located in California. COMMON STOCK SPLIT On April 30, 1996, the Company's common stock was split at a rate of 2.5505-for-1 in accordance with a resolution of the Company's Board of Directors. All references to the number of common stock shares contained in these financial statements have been adjusted to reflect the stock split. CASH AND CASH EQUIVALENTS Cash equivalents include certificates of deposit with original maturity dates of less than three months. The Company maintains a $100,000 certificate of deposit for state of California authorization purposes to perform oil and gas well recompletions. These funds are subject to certain withdrawal restrictions until completion of the work. DEFERRED CHARGE The deferred charge consists of unamortized loan costs. Certain deferred loan costs were amortized over five years through September 1995 (see Note 4), and related amortization expense was $45,000 in 1995. Other deferred loan costs of $77,992 were incurred in 1996 and are being amortized over the term of the Company's note payable to bank which is due January 1, 1998. Related amortization expense was $34,929 in 1996. Geo Petroleum, Inc. Notes to Financial Statements (continued) 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) INVESTMENT IN PARTNERSHIP Included in oil and gas properties is an investment in a general partnership that was created in 1991 to produce oil at a well located on one of the Company's oil and gas properties. The Company is the managing partner in this general partnership, and this investment is accounted for under the pro rata consolidation method. PROPERTY AND EQUIPMENT The Company follows the full cost method of accounting for oil and gas properties. Accordingly, all costs associated with the acquisition, exploration and development of oil and gas reserves are capitalized as incurred. The costs of oil and gas properties are accumulated in a cost center and are subject to a cost center ceiling which such costs do not exceed. The Company has not capitalized any of its internal costs in oil and gas properties. All capitalized costs of oil and gas properties, including the estimated future costs to develop proved reserves, are depleted over the estimated useful lives of the properties by application of the unit-of-production method using only proved oil and gas reserves, excluding future estimated costs and related proved undeveloped oil reserves at the Vaca Oil Sands property, which relate to a major development project involving an enhanced recovery process as more fully discussed additional in Note 11. The evaluations of the oil and gas reserves were prepared by Sherwin D. Yoelin, a petroleum engineer. Depletion expense recorded for the years ended December 31, 1996 and 1995 was $83,417 and $196,484, respectively. Substantially all additions to oil and gas properties in 1996 and 1995 relate to recompletions of existing producing or previously producing wells. During 1996, the Company received of $166,000 from the sale of certain oil and gas interests which were credited to property and equipment. Geo Petroleum, Inc. Notes to Financial Statements (continued) 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) PROPERTY AND EQUIPMENT (CONTINUED) The Company's oil and gas producing properties are estimated by the Company's independent petroleum engineer to have remaining producing lives in excess of 17 years. The Company's policy for accruing site restoration and environmental exit costs related to its oil and gas production is that such costs are accounted for in the Company's calculation of depletion expense. Depreciation of office equipment and furniture is computed using the straight-line method, with depreciation rates based upon their estimated useful lives, which range between five and seven years. Depreciation expense was $5,179 and $5,198 for the years ended December 31, 1996 and 1995, respectively. REVENUE Revenue from oil and gas sales is recognized upon delivery of the oil and gas to the Company's customer. Such revenue is recorded net of royalties and certain other costs that the Company incurs to bring the oil and gas into salable condition. The Company had one significant customer in 1996 and 1995 which comprised approximately 82% and 53% of gross oil and gas sales, respectively. OTHER REVENUE Included in other revenue for 1995 is $250,000 received from the settlement of a lawsuit against a contractor for damages incurred while performing services on one of the Company's oil and gas properties. Geo Petroleum, Inc. Notes to Financial Statements (continued) 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) EARNINGS (LOSS) PER COMMON SHARE Net income (loss) per common share is based upon average number of outstanding common shares, adjusted for the stock split described above, during each year (4,976,764 shares in 1996 and 4,383,183 shares in 1995). Such calculations for 1996 do not assume any conversion of the redeemable convertible preferred stock into common stock or the exercise of outstanding warrants into common stock because such assumptions are anti-dilutive. Such calculations for 1995 do not assume any conversion of the redeemable convertible preferred stock into common stock because determination of the conversion price was subject to future events at that time. USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS 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 disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 2. ACQUISITION OF DRAKE INVESTMENT CORP. On April 9, 1996, the Company acquired all of the outstanding common stock of Drake Investment Corp. ("Drake") in exchange for 497,546 shares of the Company's common stock. The primary purpose of the acquisition was to expand the base of the Company's stockholders. Drake's net assets were comprised primarily of cash and cash equivalents. This transaction was accounted for as a purchase in accordance with Accounting Principles Bulletin No. 16, "Business Combinations," and the transaction was recorded at the fair value, $20,000, of the assets received for the Company's common stock. Geo Petroleum, Inc. Notes to Financial Statements (continued) 3. FARM-OUT OF VACA OIL SANDS PROPERTY On December 23, 1996, the Company entered into an agreement with Saba Petroleum, Inc. ("Saba") to farm-out two-thirds (2/3) of the Company's rights and interests in the Vaca Oil Sands property in exchange for Saba to expend a minimum of $10,000,000 in operating and developing the property over a two year period from the date of the agreement. Saba has the right to receive all revenues from the properties until its costs are recouped. Subsequent thereto, the Company shall participate as to its one-third (1/3) interest in the property and shall co-operate the property with Saba. If Saba does not expend the agreed sum of $10,000,000 within the two year term or ceases operations at the property for a period of 90 days after assuming operations, Saba shall re-assign all interests in the property to the Company except for any property interests acquired by Saba and spacing units, as defined in the agreement, around each well Saba wishes to retain. The agreement calls for Saba to attempt to acquire certain other interests in the property not previously acquired by the Company. The Company has the option to participate as to a one-third (1/3) interest in such acquisitions by reimbursing Saba for one-third (1/3) of its acquisition cost. 4. NOTES PAYABLE Notes payable consist of the following:
DECEMBER 31 1996 1995 --------------------------- Note payable to bank $ 710,000 $ 1,460,000 Notes payable to investors 145,022 508,063 --------------------------- 855,022 1,968,063 Less current portion 325,022 1,968,063 --------------------------- Total long-term debt $ 530,000 $ - ===========================
Geo Petroleum, Inc. Notes to Financial Statements (continued) 4. NOTES PAYABLE (CONTINUED) NOTES PAYABLE TO INVESTORS The Company has issued notes payable to various investors bearing an interest rate of 10% and a guaranteed oil and gas production payment equal to 20% of the outstanding principal amount per annum. The holders of certain of the notes have extended the maturities of the notes to various dates in 1997, and all of the notes are secured by interests in the Company's oil and gas properties. During 1996, $171,246 of new notes payable to investors were issued, $325,178 of notes payable were repaid, $142,863 of notes payable were exchanged for shares of the Company's common stock, and $66,246 of notes payable were exchanged for shares of the Company's redeemable convertible preferred stock. NOTE PAYABLE TO BANK The note payable to bank bears interest at prime plus 2.0%. At December 31, 1996 and 1995, the prime rate was 8.25% and 8.5%, respectively. Interest payments are due monthly. During 1996 and 1995, the bank extended the maturity of the note several times. On October 11, 1996, retroactive to June 15, 1996, the bank amended certain terms and extended the maturity date of the note from June 15, 1996 to January 1, 1998, including a $750,000 principal payment due January 15, 1997 and subsequent principal payments in the amount of $20,000 per month due on the 15th of each month beginning April 15, 1997. On December 13, 1996, the Company made the principal payment of $750,000. As of December 31, 1996, the Company was in compliance with all loan covenants. During most of 1995 and 1996, the Company was not in compliance with certain loan covenants, including restrictions on incurring additional debt and failure to make certain payments to outside vendors on a timely basis. While the bank did not take any action regarding such noncompliance, the covenants were not waived through this period. As a result, the bank note payable was classified as current at December 31, 1995. Geo Petroleum, Inc. Notes to Financial Statements (continued) 4. NOTES PAYABLE (CONTINUED) NOTE PAYABLE TO BANK (CONTINUED) In 1990, the Company issued 273,669 shares of common stock, an option to purchase 180,660 additional shares of common stock at $2.35 per share and a recorded deed of trust on 20% of the Company's interest in its Vaca Oil Sands property to certain parties in exchange for those parties providing the collateral, 35,000 shares of Union Pacific Corp. common stock, for the Company's note payable to a bank. The consideration issued was valued at $300,000, its estimated fair market value, and was amortized as additional loan costs over five years. The 35,000 shares of Union Pacific Corp. common stock is held in a trust and had an approximate value of $2,104,375 at December 31, 1996. In the event of default on the bank note payable, the parties providing the collateral may take steps to recover from the Company the value of any collateral taken by the bank. The collateral agreements and the stock purchase option expired on September 11, 1995. During 1996, in connection with the extension of the maturity date of the bank note payable to January 1, 1998, the collateral agreement was extended to January 1, 1998. As compensation for this extension, the Company issued 51,040 shares of the Company's common stock to the owners of the collateral. The parties agreed that the stock issued had a value of $53,592 or $1.05 per share. 5. RELATED PARTY TRANSACTIONS The Company has entered into agreements with another entity to sell gas and offer water disposal services at certain locations. The principal officer/shareholder of the Company is also the principal officer/shareholder of the other entity. Total revenue to the Company from these agreements was $127,000 and $257,024 in 1996 and 1995, respectively. At December 31, 1996 and 1995, the Company had a net receivable balance of $191,230 and $155,686, respectively, from the other entity. The Company's principal officer/shareholder previously held a net profit interest of 25% in the East Los Angeles and Vaca Oil Sands oil and gas properties. In 1994, the Company acquired the 25% net profit interest in the East Los Angeles property and 20% of the net profit interest in the Vaca Oil Sands property from the principal officer/shareholder. In exchange for these interests, the Company issued 1,148,054 shares of common stock valued at $103,421, which was the approximate cost of the properties to the principal officer/shareholder. At the date of the acquisition in Geo Petroleum, Inc. Notes to Financial Statements (continued) 5. RELATED PARTY TRANSACTIONS (CONTINUED) 1994, the principal officer/shareholder owed the Company $31,516, which amount was forgiven as part of the purchase consideration. In 1987, the Company acquired certain interests in oil and gas properties from its principal officer/shareholder in exchange for 2,125,587 shares of the Company's common stock valued at 781,400, which was the approximate cost of the properties to the principal officer/shareholder. At December 31, 1995, the Company had notes payable to relatives of the principal officer/shareholder totaling $53,563. No such amounts were payable at December 31, 1996. In December 1995, notes payable by the Company to a relative of the principal officer/shareholder totaling $30,000 were converted into 30.0 shares of the Company's redeemable convertible preferred stock aggregating $30,000 (see Note 6). During 1996, notes payable by the Company to a relative of the principal officer/shareholder totaling $46,250 were converted into 46.25 shares of the Company's redeemable convertible preferred stock aggregating $46,250 (see Note 6). During 1996, notes payable by the Company to a relative of the principal officer/shareholder totaling $121,850 were converted into 48,740 shares of the Company's common stock aggregating $121,850 (see Note 7). Additionally, 24,370 warrants were issued to purchase a share of the Company's common stock at $3.00 per share which expire at various dates during 1999. 6. REDEEMABLE CONVERTIBLE PREFERRED STOCK During 1994, the Company authorized 100,000 shares of preferred stock with a par value of $1,000 per share. The series of preferred stock issued, carrying an annual dividend of 30%, is callable by the Company at par at any time on notice to the holder. If the Company has not called the preferred stock for redemption by January 1, 1997, the holder may require the Company to redeem the preferred stock (see Note 10). As originally issued, the preferred stock was convertible into common stock, at the option of the holder, at a price equal to 80% of the price at which the common stock may be sold in an initial public offering of the common stock of the Company. During the year ended Geo Petroleum, Inc. Notes to Financial Statements (continued) 6. REDEEMABLE CONVERTIBLE PREFERRED STOCK (CONTINUED) December 31, 1996, the Company and the holders of the preferred stock agreed that each share of the preferred stock could be converted into 400 shares of the Company's common stock and 200 warrants to purchase a share of the Company's common stock at $3.00 per share which expire at various dates during 1999. In December 1995, the Company issued 48.0 shares of its redeemable convertible preferred stock to three investors for cash totaling $48,000. Additionally, the Company issued 2.4 shares to an individual as a finders fee payment for services performed in 1995. Also during December 1995, 17 holders of notes payable totaling $454,750 converted such notes into 454.75 shares of the Company's redeemable convertible preferred stock. In January 1996, the Company issued 23.5 shares of its redeemable convertible preferred stock to two investors for cash totaling $23,500. During 1996, three holders of notes payable totaling $66,250 converted such notes into 66.25 shares of the Company's redeemable convertible preferred stock. During 1996, 347.69 shares of the Company's redeemable convertible preferred stock totaling $347,668 were converted into 139,067 shares of the Company's common stock and 69,534 warrants to purchase a share of the Company's common stock at $3.00 per share which expire at various dates during 1999. During 1996, accrued dividends on the Company's redeemable convertible preferred stock totaling $44,204 were converted into 17,682 shares of the Company's common stock and 8,841 warrants to purchase a share of the Company's common stock at $3.00 per share which expire at various dates during 1999. The Company believes that the fair value of its issued redeemable convertible preferred stock, at its date of issuance, approximates its carrying value in the Company's balance sheets. This is based upon the sales of shares of the preferred stock at par value for an equivalent amount of cash in December 1995 and during 1996, to unrelated parties in arm's length transactions. Geo Petroleum, Inc. Notes to Financial Statements (continued) 7. COMMON STOCK (AS AMENDED AUGUST 27, 1997 TO REVISE THIS ------------------------------------------------------- NOTE 7 ONLY) ------------ During 1996, the Company's Articles of Incorporation were amended to provide for an authorized capital of fifty million shares of common stock. In December 1996, the Company sold 522,000 shares of the Company's common stock attached with 522,000 warrants to purchase a share of the Company's common stock at $3.00 per share, which expire at various dates during 1999, at a price of $2.50 per share for cash totaling $1,305,000, before related commissions, costs and expenses of $187,301. On December 31, 1996, the Company sold 1,750,000 shares of the Company's common stock to private parties at a price of $1.50 per share for cash totaling $2,625,000 (see Note 3), before related costs and expenses of $63,159. The Company also sold 300,000 warrants at a price of $15,000, in connection with services provided to the Company related to the sale of the stock. Each warrant provides for the purchase of a share of the Company's common stock at $3.00 per share and expires on December 31, 1999. At December 31, 1996, an aggregate of 957,946 warrants to purchase a share of the Company's common stock at $3.00 per share which expire at various dates during 1999 were outstanding. 8. INCOME TAXES Deferred income taxes result from temporary differences in the recognition of revenues and expenses for financial accounting and tax reporting purposes. Net deferred income taxes were composed of the following:
DECEMBER 31 1996 1995 --------------------------- Deferred income tax asset - operating loss carryforwards $ 1,700,000 $ 1,450,000 Deferred income tax liability - differences between book and tax basis of property (1,120,000) (1,050,000) Valuation allowance (580,000) (400,000) --------------------------- Net deferred income taxes $ - $ - ===========================
Geo Petroleum, Inc. Notes to Financial Statements (continued) 8. INCOME TAXES (CONTINUED) As of December 31, 1996 and 1995, the Company had estimated net operating loss carryforwards available in future periods to reduce income taxes that may be payable at those dates. For federal income tax purposes, net operating loss carryforwards amounted to approximately $4,290,000 and $3,740,000 for 1996 and 1995, respectively, and expire during the years 2001 through 2009. For state income tax purposes, net operating loss carryforwards amounted to approximately $2,680,000 and $1,950,000 for 1996 and 1995, respectively, and expire during the years 2004 through 2010. Due to the "change in ownership" provisions of the Tax Reform Act of 1986, utilization of the Company's net operating loss carryforwards may be subject to a substantial limitation if a greater than 50% ownership change, as defined, occurs subsequent to the incurrence of the losses. The Company is delinquent in filing its 1994 and 1995 income tax returns. 9. COMMITMENTS Total rental expense incurred under all lease agreements was $43,598 and $31,346 for the years ended December 31, 1996 and 1995, respectively. At December 31, 1996, all of the Company's leases were on a month-to-month basis. 10. EVENTS SUBSEQUENT TO DECEMBER 31, 1996 Subsequent to December 31, 1996, $145,022 of notes payable to investors were exchanged for shares of the Company's common stock and warrants to purchase shares of the Company's common stock on a basis consistent with those exchanged during 1996 (see Notes 4 and 5). Also subsequent to December 31, 1996, 101.29 shares of the Company's redeemable convertible preferred stock totaling $101,289 were converted into shares of the Company's common stock and warrants to purchase shares of the Company's common stock on a basis consistent with those converted during 1996 (see Note 6). 11. OIL AND GAS OPERATIONS (UNAUDITED) At December 31, 1996, the Company had interests in oil and gas properties that are principally located in Southern California. The Company does not own or lease any oil and gas properties outside the United States. Geo Petroleum, Inc. Notes to Financial Statements (continued) 11. OIL AND GAS OPERATIONS (UNAUDITED) (CONTINUED) COSTS INCURRED IN OIL AND GAS PRODUCING ACTIVITIES Costs incurred in oil and gas producing activities were as follows:
YEAR ENDED DECEMBER 31 1996 1995 --------------------------- (IN THOUSANDS) (UNAUDITED) Property acquisition costs: Proved properties $ - $ 90,289 Exploration costs - - Development costs 412,974 346,585 --------------------------- Total costs $ 412,974 $ 436,874 ===========================
ESTIMATED QUANTITIES OF PROVED OIL AND GAS RESERVES Reserve information presented herein is based upon reports prepared by the Company's independent petroleum reservoir engineer. Reserve estimates are inherently imprecise and estimates of new discoveries are more imprecise than those of producing oil and gas properties. Accordingly, these estimates are expected to change as future information becomes available. Proved oil and gas reserves are the estimated quantities of crude oil, natural gas and natural gas liquids which geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions. Proved developed oil and gas reserves are those expected to be recovered through existing wells with existing equipment and operating methods. Net quantities of crude oil and natural gas for the Company as of the beginning and the end of the years ended December 31, 1996 and 1995, as well as the changes in proved reserves during such years, are set forth in the tables below: Geo Petroleum, Inc. Notes to Financial Statements (continued) 11. OIL AND GAS OPERATIONS (UNAUDITED) (CONTINUED) OIL AND GAS RESERVE DATA
YEAR ENDED DECEMBER 31 1996 1995 ------------------------------ Oil Gas Oil Gas Bbls MCF Bbls MCF ------------------------------ (IN THOUSANDS) (UNAUDITED) Proved developed and undeveloped reserves (excluding Vaca Oil Sands), net: Beginning of year 3,200 5,531 3,495 5,329 Revisions of previous estimates 649 358 (193) 314 Purchase of reserves in place - - - - Production (45) (62) (102) (112) ------------------------------ End of year 3,804 5,827 3,200 5,531 ============================== Proved developed non-producing Vaca Oil Sands reserves, net: End of year 993 - 775 - ============================== Proved undeveloped Vaca Oil Sands reserves, net: End of year 29,566 - 27,614 - ==============================
The increase in reserves during the year ended December 31, 1996 is due primarily to the addition of proved undeveloped reserves in the East Los Angeles/Bandini Fields. Geo Petroleum, Inc. Notes to Financial Statements (continued) 11. OIL AND GAS OPERATIONS (UNAUDITED) (CONTINUED) OIL AND GAS RESERVE DATA (CONTINUED) With respect to the Vaca Oil Sands property, which contains nearly all of the Company's proven undeveloped reserves, the Company in 1995 had obtained permits for the drilling of 120 wells. Because of the approximately $66,600,000 capital expenditure required to develop the property fully, management decided to obtain a partner who could provide the funds required to at least commence development. In December 1996, the Company entered into a farm-out agreement with Saba to provide at least $10,000,000 for the operation and development of the property, for which Saba would earn a two-thirds interest in the property. The development method envisioned by Saba provides for the drilling of horizontal wells extending as much as 2,600 feet horizontally. Each well will be twinned by a parallel borehole above it into which steam will be injected continuously. The heated, thinned oil will flow from the lower borehole. The cost allocated to the Vaca Oil Sands undeveloped reserves is insignificant at December 31,1996 and the estimated volume of reserves allocated to the property has been excluded from the calculation of the Company's depletion expense through December 31, 1996. The costs related to the Vaca Oil Sands reserves, including future development costs, will be included in the Company's calculations of depletion expense when production of those reserves commences. STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS RELATING TO PROVED RESERVES The following tables set forth the computation of the standardized measure of discounted future net cash flows relating to the Company's proved reserves at December 31, 1996 and 1995, respectively. The standardized measure is the estimated future cash inflows from proved reserves less estimated future production and development costs and estimated future income taxes. Future cash inflows represent expected revenues from the production of proved reserves based on prices and any fixed determinable future escalation provided by contractual arrangements in existence at fiscal year end. Escalation based on inflation, federal regulatory changes and supply and demand is not considered. Estimated future production and development costs related to future production of reserves are based on historical Geo Petroleum, Inc. Notes to Financial Statements (continued) 11. OIL AND GAS OPERATIONS (UNAUDITED) (CONTINUED) STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS RELATING TO PROVED RESERVES (CONTINUED) costs. Such costs include, but are not limited to drilling development wells and installation of production facilities. Inflation and other anticipatory costs are not considered until the actual cost change takes effect. Estimated future income tax expenses are computed using the appropriate year-end statutory tax rates. Consideration is given to the effects of permanent differences, tax credits and allowances. A discount rate of 10% is applied to the annual future net cash flows after income taxes. The methodology and assumptions used in calculating the standardized measure are those required by FASB Statement No. 69. It is not intended to be representative of the fair market value of proved reserves. The valuations of revenues and costs do not necessarily reflect the amounts to be received or expended by the Company. In addition to the valuations used, numerous other factors are considered in evaluating known and prospective oil and gas reserves. The standardized measure of discounted future net cash flows relating to proved developed oil and gas reserves, which excludes the Company's proved undeveloped Vaca Oil Sands reserves, follows:
DECEMBER 31 1996 1995 --------------------------- (IN THOUSANDS) (UNAUDITED) Future cash inflows $ 109,744 $ 60,853 Future production and development costs (42,621) (29,699) Future income tax expenses (22,736) (8,727) --------------------------- Future net cash flows 44,387 22,427 10% annual discount for estimated timing of cash flows (20,970) (8,735) --------------------------- Standardized measure of discounted future net cash flows $ 23,417 $ 13,692 ===========================
Geo Petroleum, Inc. Notes to Financial Statements (continued) 11. OIL AND GAS OPERATIONS (UNAUDITED) (CONTINUED) STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS RELATING TO PROVED RESERVES (CONTINUED) For the calculations in the preceding table, estimated future cash inflows from estimated future production of proved developed reserves were computed using average year-end oil and gas prices. The average oil price, primarily based on posted prices, was $20.35 per barrel and $15.84 per barrel at December 31, 1996 and 1995, respectively, and the average gas price, a combination of spot gas prices and contract prices, was $1.91 per thousand cubic feet and $1.84 per thousand cubic feet at December 31, 1996 and 1995, respectively. CHANGES IN STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS The changes in standardized measure for discounted future net cash flows relating to proved developed reserves, which excludes the Company's proved undeveloped Vaca Oil Sands reserves, follows: Geo Petroleum, Inc. Notes to Financial Statements (continued) 11. OIL AND GAS OPERATIONS (UNAUDITED) (CONTINUED) CHANGES IN STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS (CONTINUED)
YEAR ENDED DECEMBER 31 1996 1995 --------------------------- (IN THOUSANDS) (UNAUDITED) Sales of oil and gas produced, net of production costs $ (132) $ (620) Net changes in prices and production costs 16,948 (763) Changes in estimated future development costs (4,186) (332) Development costs incurred during the period 413 347 Revisions of previous quantity estimates 6,738 (1,252) Purchase of reserves in place - - Accretion of discount 1,369 1,496 Net change in income taxes (8,452) 1,022 Other, principally changes in timing of estimated production (2,973) (1,163) --------------------------- Net increase (decrease) 9,725 (1,265) Beginning of year 13,692 14,957 --------------------------- End of year $ 23,417 $ 13,692 ===========================
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. Geo Petroleum Inc. Dated: August 27, 1997 By: /s/ GERALD T. RAYDON ----------------------------------- GERALD T. RAYDON Chairman of the Board and President
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated. Signatures and dates of directors. Signature Title Date Gerald T. Raydon President/Chairman August 27, 1997 Alyda L. Raydon Secretary-Treasurer/Director August 27, 1997 William J. Corcoran Director August 27, 1997 Michael F. Moran Director August 27, 1997 Signatures for all directors and chief executive officer and Principal Financial and Accounting Officer. The above Index to Exhibits and Exhibit Identification form is incorporated herein by reference. -----END PRIVACY-ENHANCED MESSAGE-----