<PAGE>
FORM 10-SB/A
GENERAL FORM FOR REGISTRATION OF SECURITIES OF SMALL
BUSINESS ISSUERS
Under Section 12(b) or (g) of the Securities Exchange Act of 1934
Geo Petroleum, Inc.
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(Name of Small Business Issuer in its charter)
California
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(State or other jurisdiction of
incorporation or organization)
25660 Crenshaw Boulevard, Suite 201
-----------------------------------
Torrance, California
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(Address of principal executive offices)
33-0328958
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(I.R.S. Employer Identification No.)
90505
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(Zip Code)
Issuer's telephone number (310) 539-8191
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Securities to be registered under Section 12(b) of the Act:
Title of each class to be so registered
Inapplicable
Name of each exchange on which each class is to be registered
Inapplicable
Securities to be registered under Section 12(g) of the Act:
Common shares
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(Title of Class)
<PAGE>
Registrant, Geo Petroleum, Inc. hereby amends the
Registration Statement on Form 10SB dated June 18, 1996, by
amending the item numbers of such form identified below to read
as follows:
ITEM 2. MANAGEMENT DISCUSSION
The following discussion and analysis for the quarters ended
March 31, 1995 and March 31, 1996 should be read in combination
with the Unaudited Financial Statements presented elsewhere
herein.
RESULTS OF OPERATIONS
FIRST QUARTER 1996 COMPARED WITH FIRST QUARTER 1995.
During the quarter ended March 31, 1996, GEO had a net loss
of $52,785 and cash used in operations of $43,783, compared to
net income of $39,955 and cash provided by operations of $155,978
for the comparable 1995 quarter. Oil and gas revenues declined
to $226,150 for the 1996 period, compared to $437,698 for the
first quarter 1995. This was attributable mostly to normal
declines and to a reduction of the number of wells on production
in the Rosecrans and East Los Angeles Fields as a result of
temporary mechanical malfunctions. Average oil prices increased
to $17.53 per barrel in the 1996 period, compared to $15.66 per
barrel in the comparable 1995 period, while gas prices remained
about unchanged at $1.45 per mcf.
Lease operating expenses for the first quarter of 1996
declined to $247,174, as compared to $264,119 in the comparable
1995 period, a 7% decrease reflecting the fewer number of wells
on production. However, average production costs per barrel of
oil and equivalents increased to $13.97 in the 1996 period from
$7.01 in the 1995 period, due to increased repair costs and due
to allocating fixed operating costs to a smaller quantity of
produced barrels. In addition to the normal operating expenses
of existing wells, expenses were incurred in repairing and
recompleting wells to bring them on production, performing
repairs on wells and facilities damaged by a fire caused by
contractor negligence, and putting into service automated custody
transfer facilities necessary for the delivery of oil into a
refiner's pipeline.
General and administrative expenses for the 1996 quarter
were $52,075, as compared to $112,834 for the 1995 period, a
decrease of 54%. The decrease was largely due to a reduction in
legal costs and fees after substantially resolving two lawsuits
successfully, and due to lower accounting and consulting fees.
<PAGE>
Interest expense for the 1996 quarter was $56,314, as
compared to $105,758 for the comparable 1995 period, a decrease
of 47%. This decrease was due primarily to the exchange of
short-term loans for the Company's preferred stock. The
Company's provision for depletion and depreciation decreased to
$49,121 for the first quarter of 1996, as compared to $55,016
for the 1995 period, a decrease of 11%.
CAPITAL RESOURCES AND LIQUIDITY
FINANCIAL POSITION.
At March 31, 1996, the Company had a working capital
deficiency of $2,338,410, which deficiency is greater by $35,050
than such deficiency at December 31, 1995. The Company has
requested a one year extension of its bank loan of $1,460,000 now
due July 15, 1996. Negotiations are continuing and the Company
expects its bank to respond to the request by July 15, 1996.
Historically, the net cash flow from the properties of the
Company has been sufficient to fund its costs of operations but
insufficient to fund such costs 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 water 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 oil and gas
sales in excess of production and operating expenses during the
first quarter of 1996 and 1995 were ($21,024) and $173,579,
respectively. This decline is primarily attributable to the drop
in revenues in the first quarter 1996 which was previously
discussed.
Cash used in operations for the quarter ended March 31,
1996, was $43,783 compared to cash provided by operations of
$155,978 for the period ended March 31, 1995. This decrease in
cash provided by operations of $199,761 is primarily a result of
decreased oil and gas production and revenues, increased costs
per unit of production, and costs of repair of fire damage.
GEO is seeking long-term equity financing. The first step
in obtaining it was a merger with Drake Investment Corporation,
which closed on April 9, 1996. This was for the purpose of
increased access to capital sources. The Company plans now to
sell additional shares of its common or preferred stock in equity
offerings, which, if successfully completed, will permit it to
eliminate its working capital deficiency, debt, and interest
obligations, to perform improvement and remedial work on its
existing properties, to acquire additional properties, and to
drill new wells. All of these activities are expected to
<PAGE>
substantially increase the revenues of the Company and permit it
to continue to operate on a positive cash flow basis.
SOURCES OF CAPITAL RESOURCES. During 1996, the Company
obtained agreements to extend the maturity date of its bank
credit facility in the amount of $1,460,000 from April 15, 1996,
to June 15, 1996, and a later extension to July 15, 1996. The
Company, its bank and the pledgors of the loan collateral have
been negotiating to obtain a one-year extension of the loan.
These negotiations are expected to continue into July, 1996.
This facility is secured by collateral pledged by minority
shareholders of the Company and is not secured by any of the
assets of the Company. A portion of the proceeds from the
planned equity offering will be dedicated to the repayment of
such indebtedness.
The Company's cash used in investing activities, primarily
additions to its oil and gas properties, net of any sales or
disposals, was $30,173 in the first quarter of 1996 and $127,032
for the period ending December 31, 1995.
<PAGE>
PART F/S
<TABLE>
<CAPTION>
GEO PETROLEUM, INC.
UNAUDITED CONDENSED BALANCE SHEET
MARCH 31
1996
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<S> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 141,802
Accounts receivable:
Accrued oil and gas revenues 61,639
Joint interest and other 195,226
Prepaid expenses and other 52,413
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Total current assets 451,080
Property and equipment:
Oil and gas properties 4,765,050
Office furniture and equipment 65,948
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4,830,998
Accumulated depletion and depreciation (1,086,525)
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3,744,473
Total Assets $4,195,553
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</TABLE>
<PAGE>
<TABLE>
<CAPTION>
GEO PETROLEUM, INC.
UNAUDITED CONDENSED BALANCE SHEET
MARCH 31
1996
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<S> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable:
Accrued royalties $ 443,614
Trade and other 214,624
Dividends payable 7,126
Accrued expenses 75,657
Current portion of notes payable 2,048,469
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Total current liabilities 2,789,490
Redeemable convertible preferred stock,
$1,000 par value; authorized 100,000
shares; issued and outstanding 538.65
shares at March 31, 1996 578,945
Stockholders' equity
Common stock, no par value; authorized
50,000,000 shares; issued and outstanding
1,755,700 at March 31, 1996 2,157,702
Accumulated deficit (1,330,584)
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Total stockholders' equity 827,118
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Total liabilities and stockholders' equity $4,195,553
===========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
GEO PETROLEUM, INC.
UNAUDITED CONDENSED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED
MARCH 31,
1996 1995
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<S> <C> <C>
Revenues:
Oil and gas sales $ 226,150 $ 437,698
Other revenue 124,131 154,712
Interest income 1,618 869
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351,899 93,279
Expenses:
Lease operating expenses 247,174 264,119
Depletion and depreciation 49,121 55,613
Amortization of deferred loan
costs - 15,000
General and administrative 52,075 112,834
Interest expense 56,314 105,758
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Income (loss) before income taxes (52,785) 39,955
Provision for income taxes - -
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Net income (loss) (52,785) 39,955
Less preferred stock dividends (39,008) -
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Net income (loss) applicable to
common stock $ (91,793) $ 39,955
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Net income (loss) per share of
common stock $ (0.02) $ 0.01
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Weighted average number of common
shares outstanding 4,477,913 4,288,454
========== ==========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
GEO PETROLEUM, INC.
UNAUDITED CONDENSED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED
MARCH 31,
1996 1995
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<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ (52,785) $ 39,955
Adjustments to reconcile net
income (loss) to net cash
provided by (used in)
operating activities:
Depletion and depreciation 49,121 55,613
Amortization of deferred
loan costs - 30,000
Gain on sale of property
and equipment (36,000) -
Changes in operating assets
and liabilities:
Accounts receivable 104,469 57,125
Prepaid expenses and
other - (13,053)
Accounts payable (56,304) (21,817)
Accrued expenses (52,284) 8,155
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Net cash provided by (used in)
operating activities (43,783) 155,978
INVESTING ACTIVITIES
Additions to property and
equipment (70,173) (127,032)
Proceeds on sale of property and
equipment 40,000 -
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Net cash used in investing
activities (30,173) (127,032)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
GEO PETROLEUM, INC.
UNAUDITED CONDENSED STATEMENTS OF CASH FLOWS (CONTINUED)
THREE MONTHS ENDED
MARCH 31,
1996 1995
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<S> <C> <C>
FINANCING ACTIVITIES
Proceeds from notes payable 96,693 -
Payments on notes payable (5,000) (70,695)
Bank overdraft - (26,002)
Preferred stock issued 23,500 -
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Net cash provided by financing
activities 115,193 (96,697)
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Net increase (decrease) in cash
and cash equivalents 41,237 (67,751)
Cash and cash equivalents at
beginning of period 100,565 139,874
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Cash and cash equivalents at end
of period 141,802 72,123
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION:
Cash paid during the period for
interest 18,299 103,705
Cash paid during the period for
income taxes $ - $ -
========== ===========
</TABLE>
<PAGE>
GEO PETROLEUM, INC.
STATEMENTS OF CASH FLOWS
MARCH 31, 1996
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING
ACTIVITIES:
During the quarter ended March 31, 1996, the Company issued 10
shares of the Company's redeemable convertible preferred stock in
exchange for the retirement of a certain note payable aggregating
$10,000, and the Company sold an additional 23.5 shares of the
Company's redeemable convertible preferred stock for $23,500.
Dividends on the Company's redeemable convertible preferred
stock, amounting to $32,354, were declared during the quarter
ended March 31, 1996. However, $25,422 of said dividends were
automatically reinvested into additional shares of preferred
stock. Additionally, $14,872 of dividends payable at December
31, 1995 were automatically reinvested into additional shares of
preferred stock during the quarter ended March 31, 1996.
<PAGE>
GEO PETROLEUM, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Geo Petroleum, Inc. (the Company) is a private oil and gas
production company that was founded in 1986 in the state of
California. The Company engages in the development, production
and management of oil and gas properties located in California.
On April 9, 1996, a proposed merger with Drake Investment Corp.
(Drake) became effective after approval by the Company's Board of
Directors and by Shareholders.
On June 20, 1996, the Company filed a Form 10-SB General Form for
Registration of Securities of Small Business Issuers with the
Securities and Exchange Commission, under Section 12 (b) or (g)
of the Securities Exchange Act of 1934.
BASIS OF PRESENTATION
The accompanying unaudited financial statements have been
prepared in accordance with Item 310 of Regulation S-B and do not
include all of the information and footnotes required by
generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments
(consisting of normal recurring adjustments) considered necessary
for a fair presentation have been included. These statements
should be read in conjunction with the financial statements and
notes thereto included in Form 10-SB filed June 21, 1996, which
is available without cost from Geo Petroleum, Inc. upon request.
The accompanying unaudited financial statements have been
prepared on a going concern basis, which contemplates the
realization of assets and the satisfaction of liabilities in the
normal course of business. As shown in the financial statements,
as of March 31, 1996, the Company's accumulated deficit totaled
$1,330,584, and current liabilities exceeded current assets by
$2,338,410. These factors, among others, may indicate that the
Company will be unable to continue as a going concern for a
reasonable period of time.
The Company's continuation as a going concern is dependent upon
its ability to generate sufficient cash flow to meet its current
obligations on a timely basis, to obtain additional financing,
and ultimately to obtain successful operations. Management is
continuing its efforts to obtain additional funds so that the
Company can meet its obligations and sustain operations. These
potential alternatives include, among other things, a private and
public placement of debt or equity, extending or refinancing the
<PAGE>
bank loan using oil and gas properties as collateral, sale of oil
and gas properties, and obtaining an advance on future production
from an end user. As a first step in a potential public or
private offering, the Company has signed an agreement to merge
with Drake. There can be no assurance that any of these potential
alternatives will materialize. The financial statements do not
include any adjustments that might result from the outcome of
this uncertainty.
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 additional 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.
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. The evaluations of the oil and gas reserves
were prepared by Sherwin D. Yoelin, a petroleum engineer.
Substantially all additions to oil and gas properties during the
quarter ended March 31, 1996, relate to recompletions of
existing producing or previously producing wells.
<PAGE>
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.
REVENUE
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 two significant customers during the quarters
ended March 31, 1996 and 1995, which comprised approximately 75%
and 52% of gross oil and gas sales, respectively.
Included in other revenues during the quarter ended March 31,
1996, is $45,000 received from the settlement of a lawsuit
against an adjacent property owner for damages to Company
property incurred while trespassing on a Company easement.
EARNINGS PER COMMON SHARE
Net income (loss) per common share for all periods presented is
based upon average outstanding common shares, adjusted for the
stock split described in Note 5. Such calculations do not assume
any conversion of the redeemable convertible preferred stock into
common stock because determination of the conversion price is
subject to future events.
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.
RECLASSIFICATIONS
Certain prior year amounts in the financial statements have been
reclassified to conform to current year presentation.
<PAGE>
2. NOTES PAYABLE
Notes payable consisted of the following:
<TABLE>
<CAPTION>
MARCH 31
1996
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<S> <C>
Note payable to bank $1,460,000
Notes payable to investors 588,469
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2,048,469
Less current portion 2,048,469
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Total long-term debt $ -
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</TABLE>
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 the notes have extended the maturities of
the notes to various dates in 1996, and all of the notes are
secured by interests in the Company's oil and gas properties.
The note payable to bank bears interest at prime plus 2.0%. At
March 31, 1996, the prime rate was 8.25%. Interest payments are
due monthly, and the outstanding principal amount and all unpaid
interest was due on October 15, 1995. In October 1995, the bank
extended the maturity date of the note payable to April 15, 1996.
In June 1996, the bank further extended the maturity date of the
note payable to July 15, 1996. The bank has indicated that it
will not foreclose on the note, so long as negotiations for a
further extension continue on a good faith basis. The Company
was not in compliance with certain loan covenants at and
subsequent to March 31, 1996, including restrictions on incurring
additional debt and failure to make certain payments to outside
vendors on a timely basis. While the bank has not taken any
action regarding such noncompliance, the covenants have not been
waived through the extended maturity date. As a result, the note
is classified as current at March 31, 1996. The Company is
engaged in discussions with the bank to further extend the
maturity of the note for up to one year from June 15, 1996.
In 1990, the Company issued 107,300 shares of common stock, an
option to purchase 70,833 additional shares of common stock at $6
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
<PAGE>
amortized as additional loan costs over five years. The 35,000
shares of Union Pacific Corp. common stock are held in a trust
and had an approximate value of $2,401,875 at March 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. In connection with the extension of the
maturity date of the bank note payable, the collateral agreement
was extended to July 15, 1996. However, the parties providing
the collateral have indicated that they will not foreclose on the
collateral, so long as negotiations continue on a good faith
basis. No additional consideration was given for this extension.
3. 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 $29,683 during the
quarter ended March 31, 1996. At March 31, 1996, the Company had
a net receivable balance of $139,219 from the other entity.
At March 31, 1996, the Company had notes payable to relatives of
the principal officer/shareholder totaling $118,469.
The principal officer/shareholder of the Company has not taken a
salary since inception of the Company.
4. REDEEMABLE CONVERTIBLE PREFERRED STOCK
During the quarter ended March 31, 1996, the Company issued 10
shares of the Company's redeemable convertible preferred stock in
exchange for the retirement of a certain note payable aggregating
$10,000, and sold an additional 23.5 shares of the Company's
redeemable convertible preferred stock for $23,500.
During the quarter ended March 31, 1996, dividends on the
Company's redeemable convertible preferred stock amounting to
$32,354 were declared. However, $25,422 of said dividends were
automatically reinvested into additional shares of the preferred
stock. Therefore, $6,931 in dividends were payable at March 31,
1996. Additionally, $14,872 of dividends payable at December
31, 1995 were automatically reinvested into additional shares of
preferred stock during the quarter ended March 31, 1996.
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. The preferred stock is
convertible into common stock, at the option of the holder, at a
<PAGE>
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.
5. COMMON STOCK
In June 1995, the Company issued 72,730 shares of common stock to
a consulting company as payment for services that were performed
in 1994 and 1995. The parties agreed that the stock issued had a
value of $10,000 and that approximately 80% of the services were
performed at December 31, 1994. Accordingly, at December 31,
1994, the Company had a payable balance of $8,000 relating to
these services.
On November 17, 1995, the Company's Articles of Incorporation
were amended to provide for an authorized capital of fifty
million shares of common stock. In connection with the merger
with Drake (Note 8), the outstanding shares, including those
issued in connection with the acquisition, were split at the rate
of 2.5505 to 1.
6. 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:
<TABLE>
<CAPTION>
MARCH 31
1996
-----------
<S> <C>
Deferred income tax asset -
operating loss carryforwards $1,470,000
Deferred income tax liability -
differences between book and
tax basis of property (1,050,000)
Valuation allowance (420,000)
-----------
Net deferred income taxes $ -
===========
</TABLE>
As of March 31, 1996, the Company had 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 at March 31, 1996
amounted to approximately $3,800,000, and expire during the years
2001 through 2010. For state income tax purposes, net operating
loss carryforwards at March 31, 1996 amounted to approximately
$2,000,000, and expire during the years 2004 through 2011. The
Company is delinquent in filing its 1994 income tax returns.
<PAGE>
7. COMMITMENTS
The Company leases office space under a noncancelable operating
lease agreement expiring June 30, 1996. The Company also leases
equipment under month-to-month leases.
8. EVENTS SUBSEQUENT TO MARCH 31, 1996
Effective April 9, 1996, the Company merged with Drake. The
agreement provides that 10% of the Company's outstanding common
stock after the merger will be issued to the Drake shareholders
in exchange for the net assets of Drake.
In accordance with Section 12 of the Securities Exchange Act of
1934, the registrant caused this amendment no. 1 to registration
statement to be signed on its behalf of the undersigned,
thereunto duly authorized.
Geo Petroleum Inc.
(Registrant)
<TABLE>
<S> <C>
Date July 1, 1996
By
GERALD T. RAYDON
---------------------------------------
Gerald T. Raydon, president (signature)
</TABLE>
.
.
