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 MARCH 31, 1997
BUSINESS ISSUERS
Commission File Number 0-20915
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GEO PETROLEUM, INC.
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(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)
25660 Crenshaw Boulevard, Suite 201
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Torrance, California 90505
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number (310) 539-8191
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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 March 31, 1997
----- -----------------------------
Common stock, no par value 7,600,533
<PAGE>
PART 1 FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Geo Petroleum, Inc.
Unaudited Condensed Balance Sheet
March 31 December 31
1997 1996
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<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 1,088,924 $ 2,228,826
Accounts receivable:
Accrued oil and gas revenues 264,858 151,586
Joint interest and other 387,024 419,361
Prepaid expenses and other 76,045 52,876
------------ ------------
Total current assets 1,816,851 2,852,649
Property and equipment:
Oil and gas properties 5,413,457 4,927,176
Office furniture and equipment 110,777 51,989
Financing and restructuring 111,033 -
------------ ------------
5,635,268 4,979,165
Accumulated depletion and
depreciation (1,120,954) (1,098,805)
------------ ------------
4,514,314 3,880,360
Total assets $ 6,331,164 $ 6,733,009
============ ============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Geo Petroleum, Inc.
Unaudited Condensed Balance Sheet
March 31 December 31
1997 1996
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<S> <C> <C>
Liabilities and shareholders' equity
Current liabilities:
Accounts payable:
Accrued royalties $ 342,023 $ 431,388
Trade and other 204,011 396,110
Dividends payable - 14,104
Accrued expenses 86,084 119,643
Current portion of notes payable 160,000 325,022
------------ ------------
Total current liabilities 792,117 1,286,267
Long term portion of notes payable 545,000 530,000
Redeemable convertible preferred stock
$1,000 par value; authorized
100,000 shares; issued and
outstanding no shares at
March 31, 1997 - 101,289
Stockholders' equity
Common stock, no par value;
authorized 50,000,000 shares;
issued and outstanding
7,600,533 at March 31, 1997 6,784,227 6,615,634
Accumulated deficit (1,790,180) (1,800,181)
------------ ------------
Total stockholders' equity 4,994,047 4,815,453
------------ ------------
Total liabilities and
stockholders' equity $ 6,331,164 $ 6,733,009
============ ============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Geo Petroleum, Inc.
Unaudited Condensed Statements of Operations
Three Months Ended
March 31,
---------
1997 1996
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<S> <C> <C>
Revenues:
Oil and gas sales $ 241,203 $ 226,813
Other revenue 106,992 81,631
Interest income 17,664 1,618
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365,859 310,061
Expenses:
Lease operating expenses 150,751 253,398
Depletion and depreciation 22,149 22,149
General and administrative 145,811 45,151
Interest expense 22,846 70,158
------------ ------------
Income (loss) before income taxes 24,302 (80,795)
Provision for income taxes - -
------------ ------------
Net income (loss) 24,302 (80,795)
Less preferred stock dividends - (18,920)
------------ ------------
Net income (loss) applicable to
common stock $ 24,302 $ (99,715)
============ ============
Net income (loss) per share of
common stock $ 0.00 $ (0.02)
============ ============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Geo Petroleum, Inc.
Unaudited Condensed Statements of Cash Flows
Three Months Ended
March 31,
---------
1997 1996
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<S> <C> <C>
Operating activities
Net income (loss) $ 24,302 $ (80,795)
Adjustments to reconcile net
income (loss) to net cash
Provided by (used in) operating
activities:
Depletion and depreciation 22,149 22,149
Amortization of deferred
loan costs - 16,890
Payment in common stock
for services - 24,040
Changes in operating assets
and liabilities:
Accounts receivable (379,260) (48,324)
Prepaid expenses and other (66,632) 3,963
Accounts payable (213,339) 29,033
Accrued expenses 10,425 7,035
------------ ------------
Net cash provided by (used in)
operating activities (602,355) (26,009)
Investing activities
Acquisition of Drake
Investment Corp. - -
Additions to property and equipment (472,397) (76,685)
Sale of property - 36,000
------------ ------------
Net cash used in investing activities (472,397) (40,685)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Geo Petroleum, Inc.
Unaudited Condensed Statements of Cash Flows
(CONTINUED)
Three Months Ended
March 31,
---------
1997 1996
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<S> <C> <C>
Financing activities
Proceeds from notes payable 15,000 80,406
Payments on notes payable (165,022) -
Payments in common stock for interest 31,672 -
Bank overdraft - -
Common stock sold in private
placements 168,593 -
Preferred stock sold - 68,795
Dividends paid (14,104) (18,920)
Preferred stock redeemed (101,289) -
------------ ------------
Net cash provided by financing
activities (65,150) 130,281
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Net increase (decrease) in cash and
cash equivalents (1,139,902) 63,587
Cash and cash equivalents at
beginning of period 2,228,826 100,565
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Cash and cash equivalents at
end of period $ 1,088,924 $ 164,152
============ ============
Supplemental disclosure of cash
flow information:
Cash paid during the period for
interest $ 22,846 $ 70,158
============ ============
Cash paid during the period for
income taxes $ - $ -
============ ============
</TABLE>
<PAGE>
Geo Petroleum, Inc.
Statements of Cash Flows
March 31, 1997 Supplemental disclosure of non-cash investing and
financing activities:
Dividends on the Company's redeemable convertible preferred
stock, amounting to $14,104, were accrued at December 31, 1996.
No dividends were declared during the quarter ended March 31,
1997. During the three month period ended March 31, 1997, $9,068
of the accrued dividends were converted into 3,627 shares of the
Company's common stock, and 1,814 warrants to purchase a share of
the Company's common stock at $3.00 per share which expire at
various dates during 2000.
Current portion of notes payable at December 31, 1996 was
$325,022. During the three month period ended March 31, 1997,
$145,841 of the notes payable were converted into 58,336 shares
of the Company's common stock, and 29,168 warrants to purchase a
share of the Company's common stock at $3.00 per share which
expire at various dates during 2000.
<PAGE>
Geo Petroleum, Inc.
Notes to Unaudited Condensed Financial Statements
March 31, 1997
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-KSB filed April 11, 1997, which
is available without cost from Geo Petroleum, Inc. upon request.
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. Additionally, the Company maintains a
$50,000 cash bond with the City of Los Angeles, and a $10,000
cash bond with the County of Ventura.
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.
<PAGE>
Geo Petroleum, Inc.
Notes to Unaudited Condensed Financial Statements
March 31, 1997
1. Organization and Summary of Significant Accounting
Policies (Continued)
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 additionally in Note 11
of the financial statements and notes thereto included in Form
10-KSB filed April 11, 1997. 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 in the
quarter ended March 31, 1997 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 $22,149 for the quarter ended
March 31, 1997.
<PAGE>
Geo Petroleum, Inc.
Notes to Unaudited Condensed Financial Statements
March 31, 1997
1. Organization and Summary of Significant Accounting
Policies (Continued)
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 the quarter ended
March 31, 1997 which comprised approximately 82% and 53% of gross
oil and gas sales, respectively.
Other Revenue
Included in other revenue for the quarter ended March 31, 1997 is
$15,000 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.
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 the quarter ended March 31, 1997
(7,600,533 shares). Such calculations for the quarter ended March
31, 1997 do not assume any exercise of outstanding warrants into
common stock because such assumptions are anti-dilutive.
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.
<PAGE>
Geo Petroleum, Inc.
Notes to Unaudited Condensed Financial Statements
March 31, 1997
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 wells it has drilled until its costs are recouped. After the
$10,000,000 expenditure is made, the Company shall participate as
to its one-third (1/3) interest in the property.
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.
<PAGE>
Geo Petroleum, Inc.
Notes to Unaudited Condensed Financial Statements
March 31, 1997
4. Notes Payable
Notes payable consisted of the following:
<TABLE>
<CAPTION>
March 31,
1997
---------
<S> <C>
Note payable to bank $ 705,000
Notes payable to investors -
-----------
705,000
Less current portion (160,000)
------------
Total long-term debt $ 545,000
============
</TABLE>
Note Payable to Bank
The note payable to bank bears interest at prime plus 2.0%. At
March 31, 1997 the prime rate was 8.25%. 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.
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 $1,986,250 at March 31, 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. During 1996, in
connection with the extension of the maturity date of the bank
<PAGE>
Geo Petroleum, Inc.
Notes to Unaudited Condensed Financial Statements
March 31, 1997
4. Notes Payable (Continued)
Note Payable to Bank (Continued)
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.
Current portion of notes payable at December 31, 1996 was
$325,022. During the three month period ended March 31, 1997,
$145,841 of the notes payable were converted into 58,336 shares
of the Company's common stock, and 29,168 warrants to purchase a
share of the Company's common stock at $3.00 per share which
expire at various dates during 2000.
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 $73,237 for the quarter
ended March 31, 1997. At March 31, 1997, the Company had a net
receivable balance of $299,282, 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
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 March 31, 1997.
<PAGE>
Geo Petroleum, Inc.
Notes to Unaudited Condensed Financial Statements
March 31, 1997
5. Related Party Transactions (Continued)
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%, was
callable by the Company at par at any time on notice to the
holder. If the Company had not called the preferred stock for
redemption by January 1, 1997, the holder could 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 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.
<PAGE>
Geo Petroleum, Inc.
Notes to Unaudited Condensed Financial Statements
March 31, 1997
6. Redeemable Convertible Preferred Stock (Continued)
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.
Dividends on the Company's redeemable convertible preferred
stock, amounting to $14,104, were accrued at December 31, 1996.
No dividends were declared during the quarter ended March 31,
1997. During the three month period ended March 31, 1997, $9,068
of the accrued dividends were converted into 3,627 shares of the
Company's common stock, and 1,814 warrants to purchase a share of
the Company's common stock at $3.00 per share which expire at
various dates during 2000.
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.
<PAGE>
Geo Petroleum, Inc.
Notes to Unaudited Condensed Financial Statements
March 31, 1997
7. Common Stock (Continued)
In December 1996, the Company sold 522,000 shares of the
Company's common stock 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.
At March 31, 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.
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:
<TABLE>
<CAPTION>
March 31,
1997
---------
<S> <C>
Deferred income tax asset - operating
loss carryforwards $ 1,700,000
Deferred income tax liability - differences
between book and tax basis of property (1,120,000)
Valuation allowance (580,000)
------------
NET DEFERRED INCOME TAXES $ -
============
</TABLE>
<PAGE>
Geo Petroleum, Inc.
Notes to Unaudited Condensed Financial Statements
March 31, 1997
8. Income Taxes (Continued)
As of March 31, 1997, 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 the quarter ended March 31, 1997,
and expire during the years 2001 through 2009. For state income
tax purposes, net operating loss carryforwards amounted to
approximately $2,680,000 for the quarter ended March 31, 1997 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
$8,161 for the quarter ended March 31, 1997. At March 31, 1997,
all of the Company's leases were on a month-to-month basis.
10. Events Subsequent to March 31, 1997
None.
<PAGE>
Geo Petroleum, Inc.
Notes to Unaudited Condensed Financial Statements
March 31, 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
March 31, 1997, and March 31, 1996, are to be read in combination
with the Financial Statements presented elsewhere herein.
Results of Operations
First quarter 1997 compared with first quarter 1996
During the quarter ended March 31, 1997, Geo had a net income of
$24,302 and cash used in operations of $602,355, compared to net
loss of $80,795 and cash used in operations of $26,009 for the
comparable 1996 period. Oil and gas revenues increased to
$241,203 for the 1997 period, compared to $226,813 for the 1996
period. This was attributable to an increase in the number of
wells on production in the Rosecrans and East Los Angeles/Bandini
Fields as a result of increased capital expenditures and an
extensive rework and recompletion program. Average oil prices
increased to $22.05 per barrel in the 1997 period, compared to
$18.13 per barrel in the comparable 1996 period, while gas prices
increased from $1.66 to $3.04 per mcf.
Lease operating expenses for the first quarter of 1997 decreased
to $150,751, as compared to $253,398 in the comparable 1996
period, a 41% decrease, reflecting an increase in operating
efficiencies due to new and re-manufactured equipment
installations, as well as increased preventive maintenance.
Average production costs per barrel of oil and equivalents
decreased to $11.18 in the 1997 period from $16.44 in the 1996
period. This was the result of an increase in operating
efficiencies due to new and re-manufactured equipment
installations, as well as increased preventive maintenance.
General and administrative expenses for the 1997 first quarter
were $145,811, as compared to $45,151 for the 1996 period, an
increase of 223%. 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.
<PAGE>
Geo Petroleum, Inc.
Notes to Unaudited Condensed Financial Statements
March 31, 1997
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)
Results of Operations
First quarter 1997 compared with first quarter 1996 (Continued)
Interest expense for the 1997 quarter was $22,846, as compared to
$70,158 for the comparable 1996 period, a decrease of 67%. This
decrease was due primarily to the $750,000 decrease in note
payable to bank principal and the resultant drop in interest
payments. Additionally, Geo either paid down or converted into
common stock all of its notes payable to investors, thereby
eliminating the attendant interest payments.
The Company's provision for depletion and depreciation remained
constant at $22,149 for the first quarter of 1997, as compared to
$22,149 for the 1996 period.
Capital Resources and Liquidity
Financial Position
At March 31, 1997, the Company had a working capital surplus of
$1,024,734, $541,648 less as compared to a working capital
surplus of $1,566,382 at December 31, 1996. The Company's
$690,000 bank loan is due January 1, 1998.
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 oil and gas sales in
excess of production and operating expenses during the first
quarter of 1997 and 1996 were $90,452 and $(26,585),
respectively. This increase is primarily attributable to the
drop in lease operating expenses in the first quarter 1997 which
was previously discussed.
<PAGE>
Geo Petroleum, Inc.
Notes to Unaudited Condensed Financial Statements
March 31, 1997
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)
Capital Resources and Liquidity
Financial Position (Continued)
Cash used in operations for the quarter ended March 31, 1997, was
$602,355 compared to cash used in operations of $26,009 for the
period ended March 31, 1996. This increase in cash used in
operations of $576,346 is primarily a result of decreased
accounts receivable and accounts payable, due to increased
collection of revenues from customers and increased payment of
debt to vendors.
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 settlement of
legal actions, and gains on sales of assets.
Other Revenues for the three-month periods ended March 31, 1997
and March 31, 1996 are itemized as follows:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1997 1996
------------ ------------
<S> <C> <C>
Other revenue
Net Profits Interests $ 22,000 $ 20,700
Miscellaneous Income 6,473 9,064
Waste Disposal 63,520 15,866
Legal Settlement 15,000 -
Gain on Sale of Assets - 36,000
------------ ------------
TOTAL $ 106,992 $ 81,631
============ ============
</TABLE>
<PAGE>
Geo Petroleum, Inc.
Notes to Unaudited Condensed Financial Statements
March 31, 1997
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)
Capital Resources and Liquidity
Financial Position (Continued)
The reasons for the increase in Other Revenues from the three
months ended March 31, 1997 to the comparable 1996 period are as
follows:
a) Net Profits Interests: 1997 sales of these interests
were higher than 1996 sales.
b) Miscellaneous Income: Represents primarily management
fees and royalties earned by the Company which were
higher in 1996 than in 1997 due to higher production
rates of gas.
c) Waste Disposal: 1997 volumes of wastewater received
were 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 received $15,000 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 did not
receive any such income in the 1996 three-month period.
e) Gain on Sale of Assets: Geo completed the sale of part
of its Cree lease to another independent operator in 1996.
Geo did not receive any such income in 1997.
Sources of Capital Resources
The status of the Company's bank loan is discussed above in this
Item.
The Company's cash used in investing activities, primarily
additions to its oil and gas properties, net of any sales or
disposals, was $472,937 in the first quarter of 1997 and $40,685
for the comparable 1996 period.
Inflation
In recent years inflation has not had a significant impact on the
Company, its operations or financial condition.
<PAGE>
Geo Petroleum, Inc.
Notes to Unaudited Condensed Financial Statements
March 31, 1997
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)
Trends
Since the Company completed its equity offerings, the Company
anticipates that it will be able to increase its revenues by
investing a 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, expanding its administrative offices
and increasing compensation to its existing staff, including its
president.
Legislation has been enacted which permits the export of Alaskan
North Slope crude oil, primarily to the Far East. Previously,
large quantities of such crude were shipped to California for
refining and sale, which depressed prices paid for crude oil
produced in California. The major producer of Alaskan oil began
delivery of a large portion of its oil production from Alaska to
the Far East in 1996. As the predicted reduction of Alaskan
supplies to the West Coast has occurred, it has had a positive
effect upon the price paid for California crude oil.
During the first three months of 1997, crude oil prices have
increased by an average of $3.92 per barrel 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.
<PAGE>
Geo Petroleum, Inc.
Notes to Unaudited Condensed Financial Statements
March 31, 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.
The Company hereby incorporates by reference the financial
statements and notes thereto included in Form 10-KSB filed April
11, 1997.
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)
<TABLE>
<S> <C>
May 14, 1997
GERALD T. RAYDON
---------------------------
By Gerald T. Raydon, President
and Chairman
ALYDA L. RAYDON
---------------------------
By Alyda L. Raydon, Chief
Financial Officer
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
UNAUDITED CONDENSED FINANCIAL STATEMENTS AT 3/31/97
</LEGEND>
<CIK> 0001016275
<NAME> GEO PETROLEUM, INC.
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> $1,088,924
<SECURITIES> $0
<RECEIVABLES> $651,882
<ALLOWANCES> $76,045
<INVENTORY> $0
<CURRENT-ASSETS> $1,816,851
<PP&E> $5,635,268
<DEPRECIATION> $(1,120,954)
<TOTAL-ASSETS> $6,331,164
<CURRENT-LIABILITIES> $792,117
<BONDS> $0
$0
$0
<COMMON> $6,784,227
<OTHER-SE> $(1,245,180)
<TOTAL-LIABILITY-AND-EQUITY> $6,331,164
<SALES> $241,203
<TOTAL-REVENUES> $365,859
<CGS> $150,751
<TOTAL-COSTS> $318,711
<OTHER-EXPENSES> $0
<LOSS-PROVISION> $0
<INTEREST-EXPENSE> $22,846
<INCOME-PRETAX> $24,302
<INCOME-TAX> $0
<INCOME-CONTINUING> $0
<DISCONTINUED> $0
<EXTRAORDINARY> $0
<CHANGES> $0
<NET-INCOME> $24,302
<EPS-PRIMARY> $0
<EPS-DILUTED> $0
</TABLE>
