-----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, E7mzwiZbJh6Xjjzc1unABcZ1uesXNMnzpfEBM6JUvTPV+lI/a8bKoymiHbi/nJ40 GjJANRW0gobXM0ZcP/eMBw== 0001018523-97-000027.txt : 19971117 0001018523-97-000027.hdr.sgml : 19971117 ACCESSION NUMBER: 0001018523-97-000027 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971114 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: 10QSB SEC ACT: SEC FILE NUMBER: 000-20915 FILM NUMBER: 97719134 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 10QSB 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington D.C. 20549 Form 10-QSB QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES AND EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1997 BUSINESS ISSUERS Commission File Number 0-20915 ------------------------------ GEO PETROLEUM, INC. ------------------- (Name of Small Business Issuer in its charter) California 33-0328958 ---------- ---------- (State or other (I.R.S. Employer jurisdiction of Identification No.) incorporation or organization) 501 Deep Valley Drive, Suite 300 -------------------------------- Rolling Hills Estates, California 90274 ------------------------------------------------------ (Address of principal executive offices) (Zip Code) Issuer's telephone number (310) 265-0721 -------------- Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15 (d) of the Exchange Act during the past 12 months (or for such shorter period that the Registrant was required to file reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ---- The issuer became a reporting company when its Form 10-SB registration statement was cleared on August 12, 1996. Indicate the number of shares outstanding of each of the issuer's classes of common stock as of the latest practicable date. Class Outstanding at September 30, 1997 ----- ---------------------------- Common stock, no par value 7,750,432 PART 1 FINANCIAL INFORMATION Geo Petroleum, Inc. Unaudited Condensed Balance Sheet
September 30, December 31, 1997 1996 ------------- ------------ Assets Current assets: Cash and cash equivalents $ 289,819 $ 2,228,826 Accounts receivable: Accrued oil and gas revenues 30,635 151,586 Joint interest and other 805,277 419,361 Prepaid expenses and other 69,072 52,876 ------------ ------------ Total current assets 1,194,803 2,852,649 Property and equipment: Oil and gas properties 6,502,070 4,927,176 Office furniture and equipment 129,871 51,989 ------------ ------------ 6,631,942 4,979,165 Accumulated depletion and depreciation (1,182,552) (1,098,805) ------------ ------------ 5,449,390 3,880,360 ------------ ------------ Total assets $ 6,644,192 $ 6,733,009 ============ ============
Geo Petroleum, Inc. Unaudited Condensed Balance Sheet
September 30, December 31, 1997 1996 ------------- ------------ Liabilities and shareholders' equity Current liabilities: Accounts payable: Accrued royalties $ 359,666 $ 431,388 Trade and other 234,403 396,110 Dividends payable - 14,104 Accrued expenses 100,752 119,643 Current portion of notes payable 590,000 325,022 ------------ ------------ Total current liabilities 1,284,821 1,286,267 Long term portion of notes payable 220,824 530,000 Redeemable convertible preferred stock $1,000 par value; authorized 100,000 shares; no shares issued and outstanding at September 30, 1997 - 101,289 Stockholders' equity Common stock, no par value; authorized 50,000,000 shares; issued and outstanding 7,750,432 and 7,603,324 shares at September 30, 1997 and December 31, 1996, respectively 6,686,185 6,615,634 Accumulated deficit (1,547,638) (1,800,181) ------------ ------------ Total stockholders' equity 5,138,548 4,815,453 ------------ ------------ Total liabilities and stockholders' equity $ 6,644,192 $ 6,733,009 ============ ============
Geo Petroleum, Inc. Unaudited Condensed Statements of Operations
Three Months Ended September 30, ------------- 1997 1996 ------------ ------------ Revenues: Oil and gas sales $ 149,450 $ 220,559 Other revenue 414,288 164,431 Interest income 7,795 153 ------------ ------------ 571,533 385,144 Expenses: Lease operating expenses 106,038 213,086 Depletion, depreciation, and amortization 37,787 49,121 General and administrative 84,090 65,682 Interest expense 18,798 77,825 ------------ ------------ Income (loss) before income taxes 324,820 (20,570) Provision for income taxes - - ------------ ------------ Net income (loss) 324,820 (20,570) Less preferred stock dividends - (16,305) ------------ ------------ Net income (loss) applicable to common stock $ 324,820 $ (36,875) ============ ============ Net income (loss) per share of common stock $ 0.04 $ (0.01) ============ ============ Weighted average number of common shares outstanding, assuming warrant conversion 8,748,393 5,203,787 ============ ============
Geo Petroleum, Inc. Unaudited Condensed Statements of Operations
Nine Months Ended September 30, ------------- 1997 1996 ------------ ------------ Revenues: Oil and gas sales $ 564,894 $ 646,756 Other revenue 640,814 335,512 Interest income 34,054 4,382 ------------ ------------ 1,239,763 986,650 Expenses: Lease operating expenses 480,055 615,775 Depletion, depreciation, and amortization 101,520 147,363 General and administrative 332,039 203,792 Interest expense 58,375 238,665 ------------ ------------ Income (loss) before income taxes 267,775 (218,945) Provision for income taxes - - ------------ ------------ Net income (loss) 267,775 (218,945) Less preferred stock dividends - (44,346) ------------ ------------ Net income (loss) applicable to common stock $ 267,775 $ (263,291) ============ ============ Net income (loss) per share of common stock $ 0.03 $ (0.05) ============ ============ Weighted average number of common shares outstanding, assuming warrant conversion 8,748,393 5,203,787 ============ ============
Geo Petroleum, Inc. Unaudited Condensed Statements of Cash Flows
Nine Months Ended September 30, ------------- 1997 1996 ------------ ----------- Operating activities Net income (loss) $ 267,775 $ (218,945) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depletion and depreciation 101,520 147,363 Gain on sale of property and equipment 36,000 (166,000) Changes in operating assets and liabilities: Accounts receivable (264,965) (9,365) Prepaid expenses and other (16,196) - Financing and restructuring - - Accounts payable (247,533) 206,843 Accrued expenses (18,891) 27,758 ------------ ------------- Net cash provided by (used in) operating activities (142,289) (12,346) Investing activities Additions to property and equipment (1,824,468) (353,369) Sale of property (36,000) 166,000 ------------ ------------- Net cash used in investing activities (1,860,468) (187,369) Financing activities Proceeds from notes payable 221,143 151,246 Payments on notes payable (120,000) (66,994) Bank overdraft (line of credit) (17,006) - Common stock sold in private placements 8,065 - Preferred stock sold - 130,156 Dividends paid (750) - Preferred stock redeemed (27,702) - ------------ ------------- Net cash provided by financing activities 63,751 214,408 ------------ ------------- Net increase (decrease) in cash and cash equivalents (1,939,007) 14,694 Cash and cash equivalents at beginning of period 2,228,826 100,565 ------------ ------------- Cash and cash equivalents at end of period $ 289,819 $ 115,259 ============ ============= Supplemental disclosure of cash flow information: Cash paid during the period for interest $ 58,375 $ 238,665 ============ ============ Cash paid during the period for income taxes $ - $ - ============ ============
Geo Petroleum, Inc. Statements of Cash Flows September 30, 1997 Supplemental disclosure of non-cash investing and financing activities: During the nine month period ended September 30, 1997, the Company issued 29,326 shares of the Company's common stock and 14,663 three-year warrants for the purchase of restricted common stock at $3 per share in exchange for the retirement of certain notes payable aggregating $73,314. During the nine-month period ended September 30, 1997, the Company redeemed $28,452 in preferred stock. The Company issued 29,135 shares of the Company's stock and 14,567 three-year warrants for the purchase of restricted common stock at $3 per share in exchange for the retirement of 73 shares of the Company's redeemable convertible preferred stock aggregating $72,837. The common stock in said transactions is currently a non-marketable security. The common stock cannot be sold in the public market for a period of one year from the date of conversion, or until the registration of the common stock in a Secondary Public Offering, whichever occurs first. Geo Petroleum, Inc. Notes to Unaudited Condensed Financial Statements September 30, 1997 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. 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. 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 1997 and 1996 relate to recompletions of existing producing or previously producing wells. During 1996, the Company received $166,000 from the sale of certain oil and gas interests which were credited to property and equipment. 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 customers. 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 1997 and 1996 which comprised approximately 82% and 53% of gross oil and gas sales, respectively. 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 (8,748,393 shares in 1997 and 7,603,324 shares in 1996). Such calculations for 1997 assume exercise of outstanding warrants into common stock. 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. 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:
September 30, 1997 ------------- Note payable to bank $ 605,173 Convertible subordinated debentures 205,650 ------------ 810,823 Less current portion (590,000) ------------ Total long-term debt $ 220,824 ============
CONVERTIBLE SUBORDINATED DEBENTURES During the nine month period ended September 30, 1997, the Company Issued $205,650 in convertible subordinated debentures. $166,250 of these debentures were issued to Gerald and Alyda Raydon, principals of the Company, in exchange for cash. The debentures are transferable only on the books of the Corporation by the holder in person or by Attorney upon surrender of the debenture certificate properly endorsed. Said debentures are issued under the following terms: Term: three years. Yield: 10% per year. Interest payments: monthly. Conversion rights: convertible into common stock for a period of three years. Conversion price: $4.50 (10% discount off the closing price at the date of the debenture). Registration rights: on demand on sixty days' notice. Maturity: principal and any accrued interest will be paid in full at the end of three years. Corporate obligation: the debentures are the unconditional corporate obligations of Geo Petroleum, Inc. During the nine month period ended September 30, 1997, the Company issued 29,326 shares of the Company's common stock and 14,663 three-year warrants for the purchase of restricted common stock at $3 per share in exchange for the retirement of certain notes payable aggregating $73,314. The common stock in said transactions is currently a non-marketable security. The common stock cannot be sold in the public market for a period of one year from the date of conversion, or until the registration of the common stock in a Secondary Public Offering, whichever occurs first. At September 30, 1997, there were no notes payable by the Company to investors. 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 September 30, 1997 and December 31, 1996, the prime rate was 8.5%. 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 September 30, 1997, 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. 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 $2,041,000 at September 30, 1997. 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 waste 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 $339,838 and $127,000 in 1997 and 1996, respectively. At September 30, 1997 and December 31, 1996, the Company had a net receivable balance of $595,986 and $191,230, respectively, from the other entity. 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. During the first nine-month period of 1997, notes payable by the Company to a relative of the principal officer/shareholder totaling $52,212 were converted into: $40,197 in cash; $9,014 into 3,606 shares of the Company's common stock (see Note 7); and $3,000 in Net Profit Interests in the Vaca Oil Sand Property. Additionally, 1,803 warrants were issued to purchase a share of the Company's common stock at $3.00 per share which expire at various dates during 2000. The common stock in said transactions is currently a non-marketable security. The common stock cannot be sold in the public market for a period of one year from the date of conversion, or until the registration of the common stock in a Secondary Public Offering, whichever occurs first. At September 30, 1997, there were no notes payable by the Company to a relative of the principal officer/shareholder. During the nine month period ended September 30, 1997, the Company Issued $205,650 in convertible subordinated debentures. $166,250 of these debentures were issued to Gerald and Alyda Raydon, principals of the Company, in exchange for cash (See Note 4). 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 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 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. During the nine-month period ended September 30, 1997, the Company redeemed $28,452 in preferred stock. The Company issued 29,135 shares of the Company's stock and 14,567 three-year warrants for the purchase of restricted common stock at $3 per share in exchange for the retirement of 73 shares of the Company's redeemable convertible preferred stock aggregating $72,837. The common stock in said transactions is currently a non-marketable security. The common stock cannot be sold in the public market for a period of one year from the date of conversion, or until the registration of the common stock in a Secondary Public Offering, whichever occurs first. At September 30, 1997, there was no preferred stock issued by the Company that hadn't been redeemed or retired. 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. 7. COMMON STOCK 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 1,764,000 shares of the Company's common stock to private parties at a price of $1.50 per share for cash totaling $2,646,000 (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. At September 30, 1997, an aggregate of 997,961 warrants to purchase a share of the Company's common stock at $3.00 per share which expire at various dates during 1999 and 2000 were outstanding. During the nine month period ended September 30, 1997, the Company issued $205,650 in convertible subordinated debentures. $166,250 of these debentures were issued to Gerald and Alyda Raydon, principals of the Company, in exchange for cash (See Note 4). Said debentures are issued under the following terms: Term: three years. Yield: 10% per year. Interest payments: monthly. Conversion rights: convertible into common stock for a period of three years. Conversion price: $4.50 (10% discount off the closing price at the date of the debenture). Registration rights: on demand on sixty days' notice. Maturity: principal and any accrued interest will be paid in full at the end of three years. Corporate obligation: the debentures are the unconditional corporate obligations of Geo Petroleum, Inc. 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:
September 30, 1997 ------------- Deferred income tax asset - operating loss carryforwards $ 1,500,000 Deferred income tax liability - differences between book and tax basis of property (1,120,000) Valuation allowance (380,000) ------------ Net deferred income taxes $ - ============
As of December 31, 1996, 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 for 1996, and expire during the years 2001 through 2009. For state income tax purposes, net operating loss carryforwards amounted to approximately $2,680,000 for 1996, 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 1995 and 1996 income tax returns. 9. COMMITMENTS Total rental expense incurred under all lease agreements was $50,455 and $43,598 for the period ended September 30, 1997 and year ended December 31, 1996, respectively. At September 30, 1997, all of the Company's leases were on a month-to-month basis, except for its office space, which is on a five-year lease, at $2,800 per month, commencing August 1, 1997, and terminating June 15, 2002. 10. OTHER REVENUE In September, 1997, the Company obtained a judgment for $213,629 against a contractor who had negligently damaged its facilities. Geo is now taking action to collect the amounts owing. The Company estimates, after considering legal fees and costs and the timing of collection of such amounts, that the estimated net present value of the judgment is $100,000. Any amounts collected in excess of such value will be booked as received. Geo Petroleum, Inc. Notes to Unaudited Condensed Financial Statements September 30, 1997 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis for the two quarters ended September 30, 1997, and September 30, 1996, are to be read in combination with the Financial Statements presented elsewhere herein. Results of Operations Third quarter 1997 compared with third quarter 1996 Recurring sources of Other Revenue consist of sales of interests in future net profits, miscellaneous income, and waste disposal fees. Other sources include proceeds from the rental of a wellhead and related facilities for use in an exploratory well that Geo is a participant in. Other Revenues for the three-month periods ended September 30, 1997 and September 30, 1996 are itemized as follows:
Three Months Ended September 30, ------------- 1997 1996 ------------ ----------- Other revenue Net Profits Interests $ 14,600 $ 7,200 Miscellaneous Income 21,471 6,704 Industrial Waste Disposal 187,217 20,527 Legal Settlement 100,000 - Gain on Sale of Assets - 130,000 Income - Other 91,000 - ------------ ----------- Total $ 414,288 $ 164,431 ============ ===========
The reasons for the increase in Other Revenues from the three months ended September 30, 1996 to the comparable 1997 period are as follows: a) Net Profits Interests: 1997 sales of these interests were higher than 1996 sales, due to intensified marketing and sales efforts. b) Miscellaneous Income: Represents primarily management fees and royalties earned by the Company which were higher in 1997 than in 1996 due to fees generated by a joint venture with Southwest Petroleum, Inc. c) Waste Disposal: 1997 volumes of wastes received were much higher than in 1996. Additionally, in 1997 the Company obtained regulatory approval to dispose of tank bottoms and other produced fluids associated with the production of oil and gas. The disposal of these substances contributed significantly to waste disposal revenues in 1997. No such revenue existed in the comparable 1996 period. d) Legal Settlement: In 1997, Geo was awarded a judgment against a contractor whom Geo had sued for negligence. No such income existed in the comparable 1996 period. e) Gain on Sale of Assets: Geo did not realize any such income in the 1997 period. f) Income-other: In 1997, Geo received $91,000 in profits on a turnkey joint venture with T.D. and Associates, an independent oil and gas company. Geo did not receive any such income in 1996. During the quarter ended September 30, 1997, Geo had a net income of $324,820 compared to a net loss of $20,570 for the comparable 1996 period. Oil and gas revenues decreased to $149,450 for the 1997 period, compared to $220,559 for the 1996 period. This was attributable to an increase in the number of wells that Geo has taken off production as part of an extensive rework and recompletion program in the Rosecrans and East Los Angeles/Bandini Fields, and do to decrease oil prices. Average oil prices decreased to $17.39 per barrel in the 1997 period, compared to $20.65 per barrel in the comparable 1996 period, while gas prices increased from $2.09 to $2.45 per Mcf. Lease operating expenses for the third quarter of 1997 decreased to $106,038, as compared to $213,086 in the comparable 1996 period, as the result of an aggressive cost cutting program and the decrease in production of oil and gas. Average production costs per barrel of oil and equivalents increased to $11.75 in the 1997 period from $9.83 in the 1996 period. This was the result of the decrease in production of oil and gas. General and administrative expenses for the 1997 third quarter were $84,090, as compared to $65,682 for the 1996 period. The increase was largely due to increased legal and accounting costs associated with the reporting requirements of a public company, increased public and investor relations costs, and increased executive compensation, primarily to Gerald T. Raydon, who in December 1996 began drawing a regular salary for the first time since inception of the Company. Interest expense for the 1997 third quarter was $18,798, as compared to $77,825 for the comparable 1996 period. This decrease was due primarily to the marked decrease in notes payable to bank and others and the resultant drop in interest payments. The Company's provision for depletion, depreciation and amortization decreased to $37,787 for the third quarter of 1997, as compared to $49,121 for the 1996 period. This was due to decreased production of oil and gas as a result of an increase in the number of wells that Geo has taken off production as part of an extensive rework and recompletion program in the Rosecrans and East Los Angeles/Bandini Fields. Results of Operations The nine-month period ended September 30, 1997 compared with the nine-month period ended September 30, 1996. Recurring sources of Other Revenue consist of sales of interests in future net profits, miscellaneous income, and waste disposal fees. Other sources include proceeds from the rental of a wellhead and related facilities for use in an exploratory well that Geo is a participant in, and the settlement of a lawsuit against a contractor for negligence. Other Revenues for the nine-month periods ended September 30, 1997 and September 30, 1996 are itemized as follows:
Nine Months Ended September 30, ------------- 1997 1996 ------------ ------------ Other revenue Net Profits Interests $ 58,800 $ 31,700 Miscellaneous Income 34,872 22,582 Industrial Waste Disposal 305,142 50,231 Legal Settlement 115,000 45,000 Gain on Sale of Assets - 166,000 Proceeds from Merger - 20,000 Income - Other 127,000 - ------------ ------------ Total $ 640,814 $ 335,512 ============ ============
The reasons for the increase in Other Revenues from the nine months ended September 30, 1996 to the comparable 1997 period are as follows: a) Net Profits Interests: 1997 sales of these interests were higher than 1996 sales, due to intensified marketing and sales efforts. b) Miscellaneous Income: Represents primarily management fees and royalties earned by the Company which were higher in 1997 than in 1996 due to a joint venture with Southwest Petroleum, Inc. c) Waste Disposal: 1997 volumes of wastes received were much higher than in 1996. Additionally, in 1997 the Company obtained regulatory approval to dispose of tank bottoms and other produced fluids associated with the production of oil and gas. The disposal of these substances contributed significantly to waste disposal revenues in 1997. No such revenue existed in the comparable 1996 period. d) Legal Settlement: In 1997, Geo was awarded judgments against contractors whom Geo had sued for negligence. A similar judgment for a smaller amount existed in the comparable 1996 period. e) Gain on Sale of Assets: No such revenue occurred in 1997. f) Income-other: In 1997, Geo received $91,000 in profits on a turnkey joint venture with T.D. and Associates, an independent oil and gas company. Geo did not receive any such income in 1996. Other sources include proceeds from the rental of a wellhead and related facilities for use in an exploratory well that Geo is a participant in. During the nine month period ended September 30, 1997, Geo had a net income of $267,775 compared to a net loss of $218,945 for the comparable 1996 period. Oil and gas revenues decreased to $564,894 for the 1997 period, compared to $646,756 for the 1996 period. Additionally, during the 1997 period, net cash used in operating activities was $142,289, versus net cash used in operating activities of $12,346 for the 1996 period. This was attributable to an increase in the number of wells that Geo has taken off production as part of an extensive rework and recompletion program in the Rosecrans and East Los Angeles/Bandini Fields, and a decrease in oil prices. Average oil prices decreased to $19.24 per barrel in the 1997 period, compared to $19.65 per barrel in the comparable 1996 period, while gas prices increased from $1.81 to $2.54 per Mcf. Lease operating expenses for the 1997 nine-month period decreased to $480,055, as compared to $615,775 in the comparable 1996 period. Average production costs per barrel of oil and equivalents increased to $14.35 in the 1997 period from $12.60 in the 1996 period. This was the result of an increase in the number of wells that Geo has taken off production as part of an extensive rework and recompletion program in the Rosecrans and East Los Angeles/Bandini Fields, and the resultant drop in production. General and administrative expenses for the 1997 nine month period were $332,039, as compared to $203,792 for the 1996 period. The increase was largely due to increased legal and accounting costs associated with the reporting requirements of a public company, increased public and investor relations costs, and increased executive compensation, primarily to Gerald T. Raydon, who in December 1996 began drawing a regular salary for the first time since inception of the Company. Interest expense for the 1997 nine-month period was $58,375, as compared to $238,665 for the comparable 1996 period. This decrease was due primarily to the marked decrease in notes payable to bank and others and the resultant drop in interest payments. The Company's provision for depletion and depreciation decreased to $101,520 for the nine month period of 1997, as compared to $147,363 for the 1996 period. This was due to decreased production of oil and gas as a result of an extensive rework and recompletion program in the Rosecrans and East Los Angeles/Bandini Fields. Capital Resources and Liquidity Financial Position At September 30, 1997, the Company had a working capital deficiency of $90,018, compared to a working capital deficiency of $1,041,592 at September 30, 1996. The Company's $590,000 bank loan is due January 1, 1998. Principal is reduced monthly by principal payments of $20,000. The net cash flow from the properties of the Company has been sufficient to fund its costs of operations and its debt servicing requirements. The Company's primary sources of liquidity and capital resources in the near term will consist of working capital derived from its oil and gas production and industrial waste disposal operations, augmented by any such funds as may be derived from the sale of equity in the Company and of participating interests in its operations. The Company's net revenues from industrial waste disposal and oil and gas sales in excess of production and operating expenses during the nine month period of 1997 and 1996 were $389,982 and $82,775, respectively. This increase is due to increased waste disposal sales and aggressive cost cutting. Sources of Capital Resources The status of the Company's bank loan is discussed above in this Item. Net cash provide by financing activities was $63,751 for the 1997 period, versus net cash provided by financing activities of $214,408 for the 1996 period. The Company's primary sources of liquidity and capital resources in the near term will consist of working capital derived from its oil and gas production and industrial waste disposal operations, augmented by any such funds as may be derived from the sale of equity in the Company and of participating interests in its operations. Inflation In recent years inflation has not had a significant impact on the Company, its operations or financial condition. Trends Since the Company completed its equity offerings, the Company anticipates that it will be able to increase its revenues by investing a majority portion of the proceeds in remedial and recompletion operations, development and exploratory drilling and planned acquisitions. As a result of an increase in activities, the Company anticipates that its general and administrative expenses will measurably increase, since the Company is contemplating hiring additional personnel and increasing compensation to its existing staff, including its president. During the first nine months of 1997, crude oil prices have decreased by an average of $.41 per barrel over prices in 1996. During the first nine months of 1997, natural gas prices have increased by an average of $.73 per Mcf over prices in 1996. Geo anticipates that there will be a gradual strengthening in the prices for both its oil and gas production, but that periods of unstable pricing may occur. The Company will be subject to variations in cash flow depending upon changes in prices paid for oil and gas. Based upon historical swings in prices, the Company does not envision a situation where reductions in prices will create an operating loss from its properties at the field level. Severe drops in prices would, however, strain the Company's ability to conduct remedial work using its revenues. Geo Petroleum, Inc. Notes to Unaudited Condensed Financial Statements September 30, 1997 PART II. Other Information. The Company hereby incorporates by reference its discussion in Form 10-SB, Part I, Item 1, Description of Business of the Agreement to Merger dated December 20, 1995, between it and Drake Investment Corporation. Geo's Articles of Incorporation were amended December 5, 1995, authorizing an increase in the number of preferred shares to 100,000 and the common shares to 50,000,000, and the split of each outstanding common share into 2.5505 shares. The Boards of Directors and Shareholders of both companies approved the merger on April 9, 1996, which was the effective date of the merger. The merger was authorized by a Permit issued by the Department of Corporations, State of California. The merger had no significant or appreciable effect on the Company, its operations, or financial condition. Pursuant to the requirements of the Securities Exchange Act of 1934, Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
GEO PETROLEUM, INC. (Registrant) November 13, 1997 /s/ GERALD T. RAYDON --------------------------- By Gerald T. Raydon, President and Chairman /s/ ALYDA L. RAYDON --------------------------- By Alyda L. Raydon, Chief Financial Officer
EX-27 2
5 UNAUDITED CONDENSED FINANCIAL STATEMENTS AT 9/30/97 0001016275 GEO PETROLEUM, INC. 3-MOS DEC-31-1997 JUL-01-1997 SEP-30-1997 $289,819 $0 $835,912 $69,072 $0 $1,194,803 $6,631,942 $(1,182,552) $6,644,192 $1,284,821 $0 $0 $0 $6,686,185 $(1,326,814) $6,644,192 $149,450 $571,533 $106,038 $227,915 $0 $0 $18,798 $324,820 $0 $0 $0 $0 $0 $324,820 $0.04 $0.04
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