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