U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended September 30, 2000
------------------------------
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from ___________ to ___________
Commission file number
GEOTEC THERMAL GENERATORS, INC
(Name of Small Business Issuer in Its Charter)
FLORIDA 59-3357040
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
1615 S. Federal Highway, Suite 101, Boca Raton, Florida 33432
(Address of Principal Executive Offices)(Zip Code)
(561) 447-7370
(Issuer's Telephone Number, Including Area Code)
Check mark whether the Issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 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. Yes [X] No [ ]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required
to be filed by Section 12, 13 or 15(d) of the Exchange Act after the
distribution of securities under a plan confirmed by a court. Yes [ ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date: 21,492,774 shares of Common
Stock as of September 30, 2000.
<PAGE>
Geotec Thermal Generators, Inc.
INDEX
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheet - September 30, 2000 1
Statements of Operations (unaudited) for the Three
and nine Months Ended September 30, 2000 2
Statements of Cash Flows (unaudited) for the three
and nine Months Ended September 30, 2000 and 1999 3
Notes to Financial Statements 4
Item 2. Management's Discussion and Analysis and Plan of
Operation 5-6
PART II. OTHER INFORMATION
Item 6. Exhibits and reports on Form 8-K 7
Signatures 8
<PAGE>
GEOTEC THERMAL GENERATORS, INC.
BALANCE SHEET
Assets September 30,
2000
(Unaudited)
CURRENT ASSETS
Cash $ 36,437
Accounts Receivable, net 76,131
Inventories 50,540
Prepaid Expenses, net 18,700
Due from Officer 3,522
------------------
TOTAL CURRENT ASSETS 185,330
------------------
PROPERTY AND EQUIPMENT, net 50,352
ORGANIZATION COSTS, net 435
OTHER ASSETS 26,786
------------------
$ 262,903
==================
LIABILITIES AND SHAREHOLDERS" DEFICIT
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 198,356
Note Payable 434,445
------------------
TOTAL CURRENT LIABILITES 632,801
------------------
NOTE PAYABLE 119,500
------------------
SHAREHOLDER'S DEFICIT:
Common stock, $.001 par value, 50,000,000
shares authorized; 21,492,774 shares
issued and outstanding 21,492
Additional paid-in capital 3,495,607
Deferred Compensation (96,838)
Accumulated deficit (3,909,659)
------------------
TOTAL STOCKHOLDERS' DEFICIT (489,398)
------------------
$ 262,903
==================
See notes to financial statements
1
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<TABLE>
<CAPTION>
GEOTEC THERMAL GENERATORS, INC.
STATEMENT OF OPERATIONS
For the Three Months For the Nine Months
Ended September 30 Ended September 30
2000 1999 2000 1999
-------------- ------------- -------------- --------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
REVENUES $ 80,646$ - $ 152,261 $ -
COST OF GOODS SOLD 7,890 - 158,308 -
-------------- ------------- -------------- --------------
GROSS PROFIT / (LOSS) 72,756 - (6,047) -
COSTS AND EXPENSES:
General and administrative 948,739 85,521 1,474,327 236,568
Stock compensation expense - - 1,586,950 -
-------------- ------------- -------------- --------------
OPERATING LOSS (875,983) (85,521) (3,067,324) (236,568)
OTHER EXPENSES
Interest (expense) (15,989) - (38,800) -
-------------- ------------- -------------- --------------
NET LOSS $ (891,972) $ (85,521) $ (3,106,124) $ (236,568)
============== ============= ============== ==============
BASIC AND DILUTED NET LOSS PER SHARE $ (0.04) $ (0.00) $ (0.15) $ (0.01)
============== ============= ============== ==============
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 21,811,066 20,714,518 21,104,934 20,714,518
============== ============= ============== ==============
</TABLE>
See notes to financial statements
2
<PAGE>
<TABLE>
<CAPTION>
GEOTEC THERMAL GENERATORS, INC.
STATEMENTS OF CASH FLOWS
For the Nine Months
Ended September 30
2000 1999
------------- -------------
(Unaudited) (Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net loss $ (3,106,124) $ (236,568)
------------- -------------
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 10,057 2,851
Deferred Compensation 13,412 -
Issuance of common stock options 388,400 -
Stock issued for compensation 1,134,000 -
Stock issued for services 775,938 -
Changes in assets and liabilities:
Increase in accounts receivable (76,131) -
Decrease (Increase) in inventories 79,420 -
Increase in prepaid expenses (18,700) -
Increase: Due from officer (3,522) -
Increase in other assets (9,908) -
Increase in accounts payable
and accrued expenses 188,618 3,585
------------- -------------
NET CASH USED IN OPERATING ACTIVITIES (624,540) (230,132)
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of Property and equipment (52,609) (4,580)
------------- -------------
NET CASH USED IN INVESTING ACTIVITIES (52,609) (4,580)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of debt (120,000) -
Proceeds from issuance of debt 434,445 -
Proceeds from issuance of common stock 374,748 243,250
------------- -------------
NET CASH PROVIDED BY FINANCING ACTIVITIES
689,193 243,250
------------- -------------
NET INCREASE (DECREASE) IN CASH 12,044 8,538
CASH, beginning of period 24,393 21
------------- -------------
CASH, end of period $ 36,437 $ 8,559
============= =============
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for:
Income taxes $ - $ -
============= =============
Interest $ 4,825 $ -
============= =============
Non-cash investing and financing activity:
Common stock issued for services $ 1,596,950 $ -
============= =============
</TABLE>
See notes to financial statements
3
<PAGE>
Geotec Thermal Generators,Inc.
Notes to Condensed Financial Statements
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying condensed financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with instructions to Form 10-QSB. Accordingly, they 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 accruals) considered
necessary for a fair presentation have been included. The results of operations
for the three-month and nine-month period ended September 30,2000 are not
necessarily indicative of the results to be expected for the year ended December
31, 2000. The condensed interim financial statements should be read in
conjunction with the audited financial statements and notes, contained in the
Company's Annual Report on Form 10-KSB for the year-ended December 31, 1999.
2. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following as of September 30, 2000
Furniture and Fixtures 5 Years $ 33,990
Data processing equipment 3 Years 30,931
-------------
64,921
Less: accumulated depreciation (14,569)
-------------
$ 50,352
=============
3. NOTES PAYABLE
In November 1999, the Company borrowed $119,500 from an Investment Trust based
in the Bahamas. The note was repaid in September 2000.
During the three months end September 30,2000 the Company borrowed a total of
$199,444 from several investors. The notes bear interest at 12.5% per annum and
payable one year from the date of issuance.
4.COMMON STOCK
In March 2000, the Company completed a private placement of 10,250 shares of its
common stock for net proceeds of $30,000.
In April 2000, the Company issued 200,000 shares of common stock valued at
$600,000 to a consultant for financial services.
In April 2000, the Company issued 378,000 shares of common stock valued at
$1,134,000 to three employees.
In April 2000, the Company completed a private placement of 100,000 shares of
common stock for net proceeds of $300,000. In connection with this placement,
the Company also issued 50,000 common stock warrants expiring April 2003. Each
warrant entitles the holder to purchase one share of common stock at a price of
$4.50.
Between May and June 2000, the Company completed a private placement of 9,250
shares of its common stock for net proceeds of $32,248.
In June 2000, the Company issued 30,000 shares of common stock valued at
$129,000 for investor relation services.
In July 2000 the Company completed a private placement of 4,500 shares of common
stock for net proceeds of $13,500.
4
<PAGE>
ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
This Quarterly Report on Form 10-QSB contains "forward-looking statements"
within the meaning of section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. All statements,
other than statements of historical facts, included in or incorporated by
reference into this Form 10-QSB, are forward-looking statements. In addition,
when used in this document, the words "anticipate," "estimate," "project" and
similar expressions are intended to identify forward-looking statements. These
forward-looking statements are subject to certain risks, uncertainties and
assumptions including risks relating to our limited operating history and
operations losses; significant capital requirements; development of markets
required for successful performance by the Company as well as other risks
described in the Company's Annual Report on Form 10-KSB as well as in this
report on Form 10-QSB. Should one or more of these risks or uncertainties
materialize, or should underlying assumptions prove incorrect, actual results
may vary materially from those anticipated, estimated or projected. Although the
Company believes that the expectations we include in such forward-looking
statements are reasonable, we cannot assure you that these expectations will
prove to be correct
The following discussion and analysis should be read in conjunction
with the financial statements of the Company and the notes thereto appearing
elsewhere herein.
WELL TREATMENT
In the late spring/early summer of 2000, Geotec treated 20 wells to qualify
and prove the technology according to the standards established in the Agreement
between the Russian Federation and The Company.
The purpose of these well treatments was to:
o Demonstrate the technology worked according to the representations made
by the Russian Federation, the manufacturer of the gas generators;
o Prove that the generators communicated with the hydrocarbon reservoir
such that increases in hydrocarbons could be reasonably expected in all
future well treatments;
o Acquire the technology from the Russian technical staff, that treated
the wells alongside the Company's staff;
o Demonstrate that no damage was done to the well casing, cement around
the casing as well as the rock formation;
o Prove that the yields could be expected from different rock
formations at different depths, for the generators available to the
Company for these treatments (future treatments will require a greater
inventory of generators for different depths and rock formations);
o Show increases in marginal wells, where other methods could not
provide economically viable well hydrocarbon increases;
o Establish the economies of the well treatment
o Train the Company's staff such that the staff could utilize the
generators without assistance from the Russian training crews;
o Establish data from all the wells, to utilize in publications and
with well operators, including the filming of the process, to confirm
the technology;
RESULTS OF OPERATIONS
Since its inception, on February 2, 1998(Inception), the Company's efforts have
been principally devoted to research, development, initial marketing activities,
licensing and raising capital. The Company has incurred substantial operating
losses to date, which losses are continuing. Since inception, the Company has
sustained cumulative losses of ($3,909,659).
Revenue increased from $0 for the three months ended September 30, 1999, to
$80,646 for the three months and ended September 30, 2000. Revenue increased
from $0 for the nine months ended September 30, 1999 to $152,261 for the nine
months ended September 30, 2000. In May 2000, the Company began the transfer of
technology from Russian Federation and began treating wells in the United
States. Revenues for the Company are not immediate. An oil or gas well is
treated with all the expense for the Company occurring at the moment of treating
the well. It can take 60-90 days after a well treatment before the Company will
see the initial revenues. The process requires that well be cleaned (or
swabbed), tubing, rods, oil tanks and pump must be replaced or installed and the
well flowed, while monitoring fluid levels, for a few weeks to establish the
optimum production for the formation. Finally, oil is collected in tanks, and
periodically, delivered for payment. The oil wholesaler pays the operator and
the Company approximately 30 days later. The Company has not treated any
additional oil wells in the three months ended September 30, 2000. The Company
is arranging for the return of representatives from the Russian Federation to
complete the training of the Company's staff. The Company expects to complete
training the first quarter of 2001.
5
<PAGE>
While the costs are incurred up front, the well revenue can last for many months
or years without additional expense to the Company.
Cost of goods sold increased from $0 for the three months ended September
30,1999 to $7,890 for the three months ended September 30, 2000. Cost of goods
sold increased from $0 for the nine months ended September 30, 1999 to $158,309
for the nine months ended September 30,2000. Cost of goods sold represents the
cost incurred with treating the company's initial wells. Even though the Company
expects future revenue from these treatments it has elected to expense costs as
they are incurred. The Company incurred only nominal cost of goods sold for the
quarter ended September 30, 2000 as it did not treat any new oil wells.
General and administrative expenses increased from $86,521 for the three months
ended September 30, 1999 to $948,739 for the three months ended September 30,
2000, an increase of $862,218. General and administrative expenses increased
from $236,568 for the nine months ended September 30, 1999 to $1,474,327 for the
nine months ended September 30, 2000, an increase of $1,237,759. The increases
were due to additional employees hired, and increased legal and accounting fees
incurred in connection with the Company's expanding activities and patent
applications. During the quarter ended September 30, 2000, the Company expensed
deferred compensation in the amount of $568,052. Such amounts represent stock
issued for financial consulting services. The Company has decided to cancel the
consulting services agreement.
Stock compensation expense was from $0 for the three months ended September 30,
1999 and September 30, 2000. For the nine months ended September 30, 1999, stock
compensation expense was $0 compared to $1,586,950 for the nine months ended
September 30, 2000. The Company issued common stock to three employees of the
Company, in lieu of and as replacement of employee stock options, and issued
common stock for financial consulting and public relation services.
LIQUIDITY AND CAPITAL RESOURCES
In March 2000, the Company borrowed a total of $242,500 from four investors. The
notes bear interest at 12.5% per annum and are payable one year from date of
issuance.
In March 2000 the Company completed a private placement of 10,250 shares of its
common stock for net proceeds of $30,000.
In April 2000, the Company issued 200,000 shares of common stock valued at
$600,000 to a consultant for financial services.
In April 2000, the Company issued 378,000 shares of common stock valued at
$1,134,000 to three employees.
In April 2000, the Company completed a private placement of 100,000 shares of
common stock for net proceeds of $300,000. In connection with this placement,
the Company also issued 50,000 common stock warrants expiring April 2003. Each
warrant entitles the holder to purchase one share of common stock at a price of
$4.50.
Between May and June 2000 the Company completed a private placement of 9,250
shares of its common stock for net proceeds of $32,248.
In June 2000 the Company issued 30,000 shares of common stock valued at $129,000
for investor relation services.
In September 2000 the Company repaid a note of $119,500 from an Investment Trust
based in the Bahamas.
During the third quarter ended September 30, 2000 the Company borrowed a total
of $199,444 for several investors. The notes bear interest at 12.5% per annum
and payable one year from the date of issuance.
In July 2000 the Company completed a private placement of 4,500 shares of common
stock for net proceeds of $13,500.
On August 2, 2000, the Company entered into a Private Equity Line of Credit
Agreement with a private investor as arranged by Jesup & Lamont, Investment
Bankers pursuant to which the Company will have the right to sell up to
6,000,000 shares of its common stock following effectiveness of the Company's
registration statement relating to the transaction. Under the agreement, Geotec
would have the right to provide put notices for its Common Stock in amounts not
less than $200,000 nor in excess of the lesser of $2,500,000 or 15% of the
weighted average price of its Common Stock during the applicable trading period
multiplied by the total trading volume of Geotec Common Stock during this
trading period. The purchase price for these shares is equal to 88% of the
specified market price during the evaluation period for the put. The Company
also issued to IIL a warrant to purchase 500,000 shares of Common Stock of the
Company, which is exercisable during its three-year term at an exercise price of
$4.89, subject to certain adjustments as provided in the Warrant. Under the
terms of the Agreement, the Company is also authorized to issue separate
warrants equal to 50% of the number of shares purchased as part of the put
Agreement. Geotec has agreed to file a registration statement for the
transaction within 60 days of the date of execution of the contract. The Company
has also agreed to limit future financing during the commitment period of the
Agreement, subject to various expectations and financings in which IIL would
have a right of first refusal
In October 3, 2000 the Company decided not to proceed with funding with the
Private Equity Line of Credit Agreement with a private investor as arranged by
Jesup & Lamont, Investment Bankers. The Company believes that its current share
price it is not in the best interest of the Company or its Stockholders to
proceed with this agreement. The Company is currently is exploring other
financing alternatives, as well as Investment Banking, that will be more
beneficial to the Company and its shareholders.
The Company anticipates that its use of cash will be substantial for
the foreseeable future. In particular, management of the Company expects
substantial expenditures in connection with the treatment of additional wells.
The Company expects that funding for these expenditures will be available out of
the Company's future cash flow and issuance of equity and/or debt securities
during the next 12 months and thereafter. There can be no assurance whether or
not such financing will be available on terms satisfactory to management.
6
<PAGE>
PART II. OTHER INFORMATION-Emerald Production and Restoration Company
The Company treated 8 of the 120 Emerald wells in early summer 2000. One of the
wells was an injection well and no hydrocarbon yield was expected. What was
unknown to Geotec at the time of treatment, and not disclosed as per bankruptcy
law, was that Emerald Production and Restoration Company had applied for
bankruptcy under Chapter 11. Geotec has filed 8 liens against payment owed to
Geotec under its production override agreement, and the Company believes that it
now becomes the largest creditor.
The Emerald wells responded well to the Company's treatment. Of the 8 wells, all
8 had communication with the reservoir at the time of treatment. Only 5 wells
have been put on pump due to Emerald's financial limitation, and approximately
50-60 barrels of oil are produced per day. Hydrostatic levels have not been
measured, again due to lack of funding and operational ability of Emerald, such
that the optimized production levels cannot be established. The Company believe
that these 7 wells, when they are all on pump and optimized, should produce over
100 barrels per day.
From the Geotec Engineering, the Company believes that if it could treat all of
these wells, that approximately 50 of the 120 wells should be treated, with
average production exceeding 15 BOPD per well, or 750 BOPD. (Barrels of Oil per
Day)
ITEM 2. Changes in Securities and Use of Proceeds
In March, the Company completed a private placement of 10,250 of its common
stock.
In April 2000, the Company issued 200,000 shares of common stock to a consultant
for financial services.
In April 2000, the Company issued 378,000 of common stock to three employees.
In April 2000, the Company completed a private placement of 100,000 shares of
common stock. In connection with this placement the Company also issued 50,000
common stock warrants expiring April 2003. Each Warrant entitles the holder to
purchase one share of common stock at a price of $4.50.
Between May and June 2000, the Company has completed a private placement of
9,250 shares of its common stock.
In June 2000, the Company issued 30,000 shares of common stock for investor
relation services.
In June 2000 the Company issued 30,000 shares of common stock for investor
relation services.
In July 2000, the Company completed a private placement of 4,500 shares of
common stock.
ITEM 5. Other Information
In October 2000, the Company received a private investment from an existing
shareholder of 83,333 shares of common stock at $3 per share gross proceeds of
$250,000.
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits required by item 601 of Regulation S-B
The following exhibits are filed as part of this report:
27.1 Financial Data Schedule
(b) Reports on Form 8-K
No Reports were filed during the period ended September 30,
2000.
7
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934,
the Registrant has caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Geotec Thermal Generators, Inc.
DATE: November 13,2000 By: /s/ Daniel Pepe
President and COB
In accordance with 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 dates indicated:
DATE: November 13, 2000 By: /s/ Daniel Pepe
President and COB
DATE: November 13, 2000 By: /s/ W. Richard Lueck
CEO, Secretary and Treasurer
DATE: November 13, 2000 By: /s/ Martin P. Scott
Chief Financial Offficer
8
