UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
X QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
- -- OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2002
TRANSITION REPORT PURSUANT TO 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.
(Exact name of small business issuer as specified in its charter)
California 33-0328958
- ----------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
18281 Lemon Drive, Yorba Linda, California, 92886
- --------------------------------------------------------------------------------
(Address of principal executive offices)
714.779.9897
(Issuer's Telephone Number)
Check whether the Issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act 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 court.
Yes [X] 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 practical date. As of June 30, 2002, there
were 19,501,970 shares of the issuer's no par value common stock issued and
outstanding.
Transitional Small Business Disclosure Format (check one): Yes[ ] No[X]
GEO PETROLEUM, INC.
TABLE OF CONTENTS
PART I Financial Information 3
Item 1. Financial Statements of Geo Petroleum, Inc.:
Balance Sheet (Unaudited) June 30, 2002 3
Statements of Operations (Unaudited) For Each of the
Six Month Periods Ended June 30, 2002 and 2001 5
Statements of Shareholders' Equity (Unaudited) For
the Six Month Period Ended June 30, 2002 7
Statements of Cash Flows (Unaudited) For Each of the
Six Month Periods Ended June 30, 2002 and 2001 8
Notes to the Financial Statements 10
Item 2. Management Discussion and Analysis of Financial
Condition and Results of Operations. 15
PART II Other Information 18
SIGNATURES 18
CERTIFICATION OF STATEMENT 19
GEO PETROLEUM, INC.
BALANCE SHEET
(UNAUDITED)
AS OF JUNE 30, 2002
ASSETS
Current assets:
Cash and equivalents $ 4,859
Accounts receivable, no allowance for doubtful accounts 24,035
Prepaid legal and consulting fees 4,401
Other prepaid expenses 12,540
------------------
Total current assets 45,835
------------------
Restoration and utility deposits 271,887
------------------
Property and equipment:
Oil and gas properties 304,375
Vehicles 36,884
------------------
Total property and equipment 341,259
Less: accumulated depreciation and depletion (29,589)
------------------
Total property and equipment, net 311,670
------------------
TOTAL ASSETS $ 629,392
==================
The accompanying notes are an integral part of the financial statements.
3
GEO PETROLEUM, INC.
BALANCE SHEET
(UNAUDITED)
AS OF JUNE 30, 2002
- --------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable:
Trade and other $ 156,572
Accrued expenses 199,061
Line of credit - related party 58,336
Other liabilities 44,300
Note payable - other, current portion 32,000
------------------
Total current liabilities 490,269
------------------
Total liabilities 490,269
------------------
Shareholders' equity:
Preferred stock; no par value; 100,000 shares
authorized; no shares issued and outstanding at
June 30, 2002. -
Common stock; no par value; 50,000,000 shares
authorized; 21,634,795 shares issued and outstanding
at June 30, 2002. 12,067,762
Accumulated deficit (11,928,639)
------------------
SHAREHOLDERS' EQUITY 139,123
------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 629,392
==================
The accompanying notes are an integral part of the financial statements.
4
GEO PETROLEUM, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
AS OF JUNE 30, 2002 AND
FOR EACH OF THE SIX MONTH PERIODS ENDED JUNE 30, 2002 AND 2001
- --------------------------------------------------------------------------------
For the Three Month Period Ended For the Six Month Period Ended
-------------------------------------- ---------------------------------------
June 30, 2002 June 30, 2001 June 30, 2002 June 30, 2001
----------------- ------------------ ------------------ ------------------
Revenues:
Oil and gas sales - - - $ 132
Waste water disposal services $ 80,379 $ 62,471 $ 117,235 121,898
Total revenues 80,379 62,471 117,235 122,030
----------------- ------------------ ------------------ ------------------
Expenses:
Lease operating expenses 110,821 69,858 283,942 180,376
Lease environmental remediation
expenses 22,623 500 24,123 10,689
Depletion and depreciation 5,211 5,138 10,422 10,276
Professional fees 30,131 54,462 100,268 171,129
General and administrative 38,772 67,676 69,879 175,185
Loss from asset impairment 159,851 - 159,851 -
----------------- ------------------ ------------------ ------------------
Total expenses 367,409 197,634 648,485 547,655
----------------- ------------------ ------------------ ------------------
Loss from operations (287,030) (135,163) (531,250) (425,625)
----------------- ------------------ ------------------ ------------------
Reorganization items:
Professional fees 142 8,752 3,746 14,155
----------------- ------------------ ------------------ ------------------
Total reorganization items 142 8,752 3,746 14,155
----------------- ------------------ ------------------ ------------------
The accompanying notes are an integral part of the financial statements.
5
GEO PETROLEUM, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
AS OF JUNE 30, 2002 AND
FOR EACH OF THE SIX MONTH PERIODS ENDED JUNE 30, 2002 AND 2001
- --------------------------------------------------------------------------------
For the Three Month Period Ended For the Six Month Period Ended
--------------------------------------- ---------------------------------------
June 30, 2002 June 30, 2001 June 30, 2002 June 30, 2001
------------------ ------------------ ------------------ ------------------
Other income (expense):
Interest income $ 1,184 $ 4,077 $ 3,479 $ 6,382
Interest expense (2,169) (4,146) (3,629) (5,273)
------------------ ------------------ ------------------ ------------------
Total other (expense) income (985) (69) (150) 1,109
------------------ ------------------ ------------------ ------------------
Loss before provision for income taxes (288,157) (143,984) (535,146) (438,671)
Provision for income taxes - 800 800 800
------------------ ------------------ ------------------ ------------------
Net loss $ (288,157) $ (144,784) $ (535,946) $ (439,471)
================== ================== ================== ==================
Net loss per share, basic and diluted $ (0.01) $ (0.01) $ (0.03) $ (0.02)
================== ================== ================== ==================
The accompanying notes are an integral part of the financial statements.
6
GEO PETROLEUM, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
(UNAUDITED)
FOR EACH OF THE SIX MONTH PERIODS ENDED JUNE 30, 2002 AND 2001
- --------------------------------------------------------------------------------
Common Common Accumulated
Shares Stock Deficit Total
-------------- ------------------ ------------------ --------------
BALANCE, DECEMBER 31, 2000 18,177,805 $ 11,225,293 $ (10,653,889) $ 571,404
Common shares issued in a private placement 322,500 161,250 - 161,250
Common shares issued in a private placement 984,259 147,639 - 147,639
Common shares issued for services 399,000 133,000 - 133,000
Common shares retired that were originally issued
pursuant to the confirmed plan of reorganization
but that were not required (671,609) - - -
Net loss - - (738,804) (738,804)
------------- ------------------ ------------------ --------------
BALANCE, DECEMBER 31, 2001 19,211,955 11,667,182 (11,392,693) 274,489
Common shares issued in a private placement 2,178,499 326,775 - 326,775
Common shares issued in satisfaction of a liability 173,500 54,805 - 54,805
Common shares issued for services 80,000 19,000 - 19,000
Common shares retired that were originally issued
pursuant to the confirmed plan of reorganization
but that were not claimed by the debtors (9,159) - - -
Net loss - - (535,946) (535,946)
------------- ------------------ ------------------ --------------
BALANCE, JUNE 30, 2002 21,634,795 $ 12,067,762 $ (11,928,639) $ 139,123
============= ================== ================== ==============
The accompanying notes are an integral part of the financial statements.
7
GEO PETROLEUM, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
FOR EACH OF THE SIX MONTH PERIODS ENDED JUNE 30, 2002 AND 2001
- --------------------------------------------------------------------------------
For the For the
Six Month Six Month
Period Ended Period ended
June 30, 2002 June 30, 2001
------------------ ------------------
Cash flows from operating activities:
Net loss $ (535,946) $ (439,471)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation 10,422 10,276
Loss from asset impairment 159,851 -
Common shares issued for satisfaction of liability 73,805 48,500
Decrease (increase) in assets:
Accounts receivable 44,247 (10,509)
Prepaid legal and consulting fees (4,401) 115,154
Other prepaid expenses 39,329 9,000
Restoration and utility deposits (357) 19,681
Increase (decrease) in liabilities:
Accounts payable - trade (116,828) 59,655
Account payable - related party (54,805) -
Accrued expenses 93,827 -
Other liabilities 40,000 (17,465)
Line of credit -related party (63,466) -
------------------ ------------------
Net cash used in operating activities (314,322) (205,179)
------------------ ------------------
Cash flows provided by (used in) investing activities:
Purchase of facilities and equipment - (972)
Capital expenditures on oil and gas properties (8,000) (38,900)
Payments on notes receivable - 7,100
------------------ ------------------
Net cash used in investing activities (8,000) (32,772)
------------------ ------------------
The accompanying notes are an integral part of the financial statements.
8
GEO PETROLEUM, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
FOR EACH OF THE SIX MONTH PERIODS ENDED JUNE 30, 2002 AND 2001
- --------------------------------------------------------------------------------
For the For the
Six Month Six Month
Period Ended Period ended
June 30, 2002 June 30, 2001
------------------ ------------------
Cash flows provided by (used in) financing activities:
Payments on line of credit - related party - $ 25,000
Payments on notes payable - (16,403)
Net proceeds from the issuance of common stock $ 326,775 161,249
------------------ --------------------
CASH PROVIDED BY FINANCING ACTIVITIES 326,775 169,846
------------------ ------------------
NET INCREASE (DECREASE) IN CASH 4,453 (68,105)
CASH AND EQUIVALENTS AT BEGINNING OF YEAR 406 70,173
------------------ ------------------
CASH AND EQUIVALENTS AT END OF YEAR $ 4,859 $ 2,068
================== ==================
Supplemental Disclosures of Cash Flow Information
Interest paid $ 3,629 $ 3,137
Income taxes paid $ 800 $ 800
Supplemental Disclosure of Non-Cash Investing and Financing Activities
Issuance of common stock for prepaid legal fees:
Prepaid legal and consulting fees - $ 50,000
Common stock - $ (50,000)
Purchase of land for note:
Oil and gas properties $ 32,000 -
Notes payable, current portion $ (32,000) -
Issuance of common stock for satisfaction of liability:
Account payable - related party $ 54,805 -
Common stock $ (54,805) -
The accompanying notes are an integral part of the financial statements.
9
GEO PETROLEUM, INC.
NOTES TO THE FINANCIAL STATEMENTS
(UNAUDITED)
As of June 30, 2002 and
For Each of the Six Month Periods Ended June 30, 2002 and 2001
- --------------------------------------------------------------------------------
1. DESCRIPTION OF THE COMPANY'S BUSINESS
-------------------------------------
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. All of the Company's properties are located in California.
Certain of the wells on one of the Company's properties are used for waste
water disposal services.
2. BASIS OF PRESENTATION
---------------------
In the opinion of the management of Geo Petroleum, Inc., the accompanying
unaudited condensed financial statements contain all adjustments,
consisting of only normal recurring adjustments, necessary to present
fairly its financial position as of June 30, 2002, the results of its
operations, shareholders' equity, and cash flows for each of the six month
periods ended June 30, 2002 and 2001. Certain information and footnote
disclosures normally included in financial statements prepared in
accordance with generally accepted principles have been condensed or
omitted pursuant to the rules and regulations promulgated by the
Securities and Exchange Commission. The statements should be read in
conjunction with the financial statements and footnotes for the year ended
December 31, 2002 included in the Company's Form 10K-SB. The results of
operations for the interim period are not necessarily indicative of the
results to be expected for the full year.
3. NOTE PAYABLE
------------
In January 2002, the Company acquired land in the area of its Rosecrans
oil and gas properties for $5,000 in cash and a noninterest bearing note
payable of $35,000 secured by the property. The note had a final balloon
payment of $32,000 that was due on July 1, 2002 and has not as of yet been
paid. The Company is now in default on the note.
4. COMMITMENTS AND CONTINGENCIES
-----------------------------
CONCENTRATION OF CREDIT RISK
Financial instruments, which potentially subject the Company to
concentrations of credit risk, consist primarily of cash and cash
equivalents and accounts receivable. The Company places its cash and cash
equivalents with high quality financial institutions. Exposure to losses
on accounts receivable is principally dependent on the individual
customer's financial condition, as credit sales are not collateralized.
The Company monitors its exposure to credit loss and reserves those
accounts receivable that it deems to be uncollectible.
10
GEO PETROLEUM, INC.
NOTES TO THE FINANCIAL STATEMENTS
(UNAUDITED)
As of June 30, 2002 and
For Each of the Six Month Periods Ended June 30, 2002 and 2001
- --------------------------------------------------------------------------------
4. COMMITMENTS AND CONTINGENCIES, CONTINUED
----------------------------------------
CASH IN EXCESS OF FEDERAL DEPOSIT INSURANCE CORPORATION INSURED LIMITS
The Company maintains its cash in bank deposit accounts, which, at times,
may exceed federally insured limits. Accounts are guaranteed by the
Federal Deposit Insurance Corporation ("FDIC") up to $100,000. At June 30,
2002, the Company does not have any funds in excess of FDIC insured
limits. The Company has not experienced any losses in such accounts.
RISKS OF THE INDUSTRY IN WHICH THE COMPANY OPERATES
The Company participates in an industry that is characterized by
competitive pressure, changes in the prices of oil and gas on a world-wide
basis, federal, state, and local regulations governing production and
development of its oil and gas reserves and compliance with various
environmental laws and regulations. The Company's results of operations
are affected by a wide variety of factors, including world events, general
economic conditions, changes in average selling prices over the productive
life of oil and gas reserves, the timing of production from new and
existing proved developed and undeveloped reserves by the Company, its
competitors, and others, the ability to produce sufficient quantities of
oil and gas reserves in a timely manner, and the timely implementation of
new and alternative reserve recovery process technologies. Based on the
factors noted herein, the Company may experience substantial
period-to-period fluctuations in future operating results.
MINIMUM ROYALTIES
The Company has commitments for minimum royalty payments on certain of its
oil and gas properties, which total approximately $36,000 annually.
PROPERTY LEASE RISKS
The Company's oil and gas leases on its Vaca Tar Sands and Rosecrans
properties contain provisions, which provide for minimum production
requirements and periods. The Company's failure to meet those minimum
requirements could result in a termination of the lease(s) and loss of all
its rights thereunder. However, the Company believes it is in compliance
with the lease(s) provisions and has not received notification from anyone
to the contrary.
11
GEO PETROLEUM, INC.
NOTES TO THE FINANCIAL STATEMENTS
(UNAUDITED)
As of June 30, 2002 and
For Each of the Six Month Periods Ended June 30, 2002 and 2001
- --------------------------------------------------------------------------------
5. RELATED PARTY TRANSACTIONS
--------------------------
The Company rents on a month-to-month basis its office facilities at
$5,000 per month from an entity that is wholly-owned by a company officer,
who is a major shareholder.
6. LOSS PER SHARE
--------------
Basic and diluted loss per common share has been computed by dividing the
loss available to common shareholders by the weighted-average number of
common shares for the period.
The computations of basic and diluted loss per common share are as
follows:
For the For the
Three Month Three Month
Period Ended Period Ended
June 30, 2002 June 30, 2001
--------------------- ----------------------------
Numerator:
Net loss available to common shareholders $ (288,157) $ (144,784)
Denominator:
Weighted-average shares basic and diluted 21,464,691 18,616,838
------------------ ------------------
LOSS PER COMMON SHARE, BASIC AND DILUTED $ (0.01) $ (0.01)
================== ==================
For the For the
Six Month Six Month
Period Ended Period Ended
June 30, 2002 June 30, 2001
--------------------- ----------------------------
Numerator:
Net loss available to common shareholders $ (535,946) $ (439,471)
Denominator:
Weighted-average shares basic and diluted 20,670,972 18,624,297
------------------ ------------------
LOSS PER COMMON SHARE, BASIC AND DILUTED $ (0.03) $ (0.02)
================== ==================
12
GEO PETROLEUM, INC.
NOTES TO THE FINANCIAL STATEMENTS
(UNAUDITED)
As of June 30, 2002 and
For Each of the Six Month Periods Ended June 30, 2002 and 2001
- --------------------------------------------------------------------------------
6. LOSS PER SHARE, CONTINUED
-------------------------
The following additional potential common shares were outstanding during
2002 and 2001, but were not included in the computation of diluted loss
per share, because to do so would have been antidilutive for the periods
presented.
For the Three For the Three
and Six Month and Six Month
Periods Ended Periods Ended
June 30, 2002 June 30, 2001
--------------------- -----------------------
Shares of common stock issuable under:
Warrants $ 455,151 $ 655,151
Options 4,000,000 4,000,000
------------------ ------------------
Total shares of common stock issuable 4,455,151 4,655,151
================== ==================
7. STOCK AND WARRANT TRANSACTIONS
------------------------------
COMMON SHARES SOLD IN A PRIVATE PLACEMENT
During the six month period ended June 30, 2001, the Company sold 322,500
shares of its common stock at $0.50 per share to private investors and
received total cash proceeds of $161,249. The Company issued 100,000
shares of its common stock for legal services for the period from January
2001 through December 2001. The shares were valued at the market price of
the stock at the date the services were agreed to be provided. In
addition, the Company issued 90,000 common shares that were valued at the
fair value of the services of $36,000. Also, the Company issued 25,000
common shares for services, which were valued based on the market value of
the shares at the date of issuance totaling $12,500.
During the six month period ended June 30, 2002, the Company sold
2,178,499 shares of its common stock at $0.15 per share to private
investors and received total cash proceeds of $326,775.
COMMON SHARES ISSUED IN SATISFACTION OF DEBT AND FOR SERVICES
During the six month period ended June 30, 2002, the Company issued
173,500 shares of common stock in satisfaction of amounts due a related
party of $54,805. The Company also issued 80,000 shares of its common
stock for consulting services of $19,000.
13
GEO PETROLEUM, INC.
NOTES TO THE FINANCIAL STATEMENTS
(UNAUDITED)
As of June 30, 2002 and
For Each of the Six Month Periods Ended June 30, 2002 and 2001
- --------------------------------------------------------------------------------
8. ORDER BY THE STATE OF CALIFORNIA
--------------------------------
The Company's waste water disposal well located in the Vaca Tar Sands
region of the Oxnard Oil Fields had been the subject of an ongoing dispute
between the Company and the California Department of Conservation (the
"State"). The basis for the dispute centered on the Company's use of its
waste water disposal well and whether their injection of waste water was
damaging the production of wells operated on adjacent leases.
In July 2002, the State issued an order directing the Company to cease
injecting waste water brought from outside the Oxnard Oil Field and
revoked the Company's state-issued waste water disposal permit for the
Vaca Tar Sands region, thereby terminating the Company's only current
source of revenue.
Based on what the Company currently has knowledge of, it does not believe
there is a reasonable likely chance that its actions related to the waste
water well or the July 2002 State order will result in any significant
environmental liability.
As a result of the State order, the Company has determined that an impairment
now exists to the value of the Vaca waste water well facilities and equipment
and accordingly has recognized a loss from asset impairment of $159,851 in the
quarter ended June 30, 2002.
14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The purpose of this section is to discuss and analyze the Company's results of
operations, liquidity and capital resources. This section should be read in
conjunction with the financial statements and notes thereto included in Item 1
to this Quarterly Report, and the annual report on Form 10-KSB.
THIS FOLLOWING INFORMATION SPECIFIES CERTAIN FORWARD-LOOKING STATEMENTS OF
MANAGEMENT OF THE COMPANY. FORWARD-LOOKING STATEMENTS ARE STATEMENTS THAT
ESTIMATE THE HAPPENING OF FUTURE EVENTS AND ARE NOT BASED ON HISTORICAL FACT.
FORWARD-LOOKING STATEMENTS MAY BE IDENTIFIED BY THE USE OF FORWARD-LOOKING
TERMINOLOGY, SUCH AS "MAY", "SHALL", "WILL", "COULD", "EXPECT", "ESTIMATE",
"ANTICIPATE", "PREDICT", "PROBABLE", "POSSIBLE", "SHOULD", "CONTINUE", OR
SIMILAR TERMS, VARIATIONS OF THOSE TERMS OR THE NEGATIVE OF THOSE TERMS. THE
FORWARD-LOOKING STATEMENTS SPECIFIED IN THE FOLLOWING INFORMATION HAVE BEEN
COMPILED BY OUR MANAGEMENT ON THE BASIS OF ASSUMPTIONS MADE BY MANAGEMENT AND
CONSIDERED BY MANAGEMENT TO BE REASONABLE. OUR FUTURE OPERATING RESULTS,
HOWEVER, ARE IMPOSSIBLE TO PREDICT AND NO REPRESENTATION, GUARANTY, OR WARRANTY
IS TO BE INFERRED FROM THOSE FORWARD-LOOKING STATEMENTS.
THE ASSUMPTIONS USED FOR PURPOSES OF THE FORWARD-LOOKING STATEMENTS SPECIFIED IN
THE FOLLOWING INFORMATION REPRESENT ESTIMATES OF FUTURE EVENTS AND ARE SUBJECT
TO UNCERTAINTY AS TO POSSIBLE CHANGES IN ECONOMIC, LEGISLATIVE, INDUSTRY, AND
OTHER CIRCUMSTANCES. AS A RESULT, THE IDENTIFICATION AND INTERPRETATION OF DATA
AND OTHER INFORMATION AND THEIR USE IN DEVELOPING AND SELECTING ASSUMPTIONS FROM
AND AMONG REASONABLE ALTERNATIVES REQUIRE THE EXERCISE OF JUDGMENT. TO THE
EXTENT THAT THE ASSUMED EVENTS DO NOT OCCUR, THE OUTCOME MAY VARY SUBSTANTIALLY
FROM ANTICIPATED OR PROJECTED RESULTS, AND, ACCORDINGLY, NO OPINION IS EXPRESSED
ON THE ACHIEVABILITY OF THOSE FORWARD-LOOKING STATEMENTS. NO ASSURANCE CAN BE
GIVEN THAT ANY OF THE ASSUMPTIONS RELATING TO THE FORWARD-LOOKING STATEMENTS
SPECIFIED IN THE FOLLOWING INFORMATION ARE ACCURATE, AND WE ASSUME NO OBLIGATION
TO UPDATE ANY SUCH FORWARD-LOOKING STATEMENTS.
OUR BUSINESS. Geo Petroleum, Inc. is a California corporation formed in 1986
primarily to develop a large tar sand deposit in Ventura County, California and
to engage in the oil field waste disposal business. We are a minor factor in the
California oil and gas industry and face competition from numerous companies,
which have considerably more financial resources, property and manpower, than do
we. We are in a weak financial condition and must rely upon third party sources
of funds to conduct our proposed operations. Essentially, our only revenue
producing operations are expected to be our Vaca Tar Sands and Rosecrans
properties, each of which require significant cash expenditures to operate and
develop. We are in the process of ratifying existing lease agreements and taking
new leases with respect to Rosecrans mineral owners and we hope to make a
capital investment of approximately $750,000 to bring 18 to 20 idle wells into
full production on the Rosecrans property. The results of our operations for the
second quarter of 2002 are discussed below.
In 1998, we filed for protection under Chapter 11 of the U.S. Bankruptcy Code.
In December, 1999 we emerged from bankruptcy under a plan which, among other
things, provided for the issuance of approximately 1,900,000 shares of our
common stock to our creditors and a change in our management. Present management
was installed as part of our reorganization. At the time of our bankruptcy
filing, we had sold or otherwise transferred a substantial portion of our oil
and gas holdings and had interests in approximately 2,230 gross acres (2,030 net
acres) of oil and gas leases or mineral rights, of which approximately 1,630
gross acres (1,410 net acres) were developed for oil and gas production and
approximately 600 gross and net acres were undeveloped. After emerging from
bankruptcy, our oil and gas holdings were approximately 2,000 gross and 1,830
net acres.
Since we emerged from bankruptcy, our income from operations has not been
sufficient to maintain the Company.
On July 10, 2002, an Order was issued by the state of California Oil and Gas
Supervisor of the California Department of Conservation directing us to cease
injecting waste water brought from outside the Oxnard Oil Fuel into the Monterey
and/or Pliocene Vacca Tar Sands. Additionally, that Order revoked the Vacca Tar
Sands Unit Class II Commercial Waste Water Disposal Permit granted to us and
dated June 16, 2000.
15
It was determined that the volume of waste water injected into our VTSU 3-1 Well
is directly reflected in, and responsible for, the increase in volume of water
produced by the wells on a lease adjacent to our lease. Additionally it was
concluded that the waste water was injected into the Monterey Formation is
invading the Vacca Tar Sands, and chemically and physically is damaging to the
production horizon because of its salinity variances and particulate content, is
mechanically damaging to the production of the wells operated on a lease
adjacent to our lease and injection wells in that these wells become plugged
with imported tank bottom material, thereby unduly inhibiting and preventing the
economic production of oil from the Vacca Tar Sands reservoir.
As a result of that Order, we have no source of revenue. Therefore, the only
source of cash available to us at this time is from the sale of our securities.
RESULTS OF OPERATIONS.
QUARTER ENDED JUNE 30, 2002 COMPARED TO QUARTER ENDED JUNE 30, 2001; SIX MONTHS
ENDED JUNE 30, 2002 COMPARED TO SIX MONTHS ENDED JUNE 30, 2001. During the
quarter ended June 30, 2002, Geo had a net loss of $288,157 compared to a net
loss of $144,784 for the comparable 2001 period. For the six months ended June
30, 2002, Geo had a net loss of $535,946 compared to a loss of $439,471 for the
same period in 2001.Revenues from waste disposal operations increased from
$62,471 for the first three months of 2001, to $80,379 for the first quarter of
2002. However, waste disposal revenue decreased slightly from $121,898 for the
six months ended June 30, 2001 to $117,235 for the six months ended June 30,
2002 due to a relatively slow first quarter of 2002. The increase for the second
quarter of 2002 is the result of increased usage of the waste disposal
facilities by customers during their normal course of business. However, future
income from waste disposal operations is expected to be significantly less due
to an order dated July 10, 2002 by the California Department of Conservation
directing Geo to cease injecting waste into Vaca disposal wells. Further the
Order revoked the Vaca Tar Sands Unit Class H Commercial Waste Water Disposal
Permit granted to us and dated June 16, 2000. This action by the Department of
Conservation has caused the serious impairment of the waste disposal property.
Consequently, Geo has recognized a loss from asset impairment of $159,851 in the
quarter ended June 30, 2002.There were no revenues from oil and gas operations
during the first six months of 2002 or 2001.
Lease operating expenses for the three and six months ended June 30, 2002
increased to $110,821 and $283,942 from $69,858 and $180,376 for the three and
six months ended June 30, 2001.This increase is due primarily to costs incurred
during 2002 to plug and abandon a well located on the Rosecrans property and
additional lease rentals on the Rosecrans property.
Lease environmental costs for the three and six months ended June 30, 2002
increased to $22,623 and $24,123 from $500 and $10,689 for the three and six
months ended June 30, 2001.This increase represents additional costs incurred to
continue cleaning up the Rosecrans property.
Professional fees decreased from $54,462 and $171,129 for the three and six
months ended June 30, 2001 to $30,131 and $100,268 for the same periods in 2002.
This decrease is due to efforts made by Management to decrease Geo's
administrative costs. Some fees paid in 2001 to accounting and law firms were
either not repeated in 2002 or the amount of services were decreased.
General and administrative expenses decreased from $67,676 and $175,185 for the
three and six months ended June 30, 2001 to $38,772 and $69,879 for the same
periods in 2002. This decrease is due primarily to ongoing efforts made by
Management to decrease Geo's administrative expenses.
A loss from impairment in the amount of $159,851 was recorded in the second
quarter of 2002 to write off the remaining cost basis of the waste disposal
property. This asset was seriously impaired by the order from the California
Department of Conservation to cease operations as discussed above.
Reorganization items decreased from $8,752 and $14,155 for the three and six
months ended June 30, 2001 to $142 and $3,746 for the same periods in 2002.
16
Reorganization items represent the minimal ongoing costs incurred in connection
with the bankruptcy filings and reorganization of the Company. These costs
should decrease to zero in the near future.
CAPITAL RESOURCES AND LIQUIDITY.
FINANCIAL POSITION. As of June 30, 2002 the Company had cash or cash equivalents
of $4,859 and current assets of $45,835 and total assets of $629,392. Although
cash increased a small amount, current assets and total assets decreased by
$60,777 and $238,314, respectively. The decrease in current assets is the result
of collection of receivables and amortization of prepaid assets. Total assets
decreased primarily due to the write-off of the waste disposal property
resulting in a loss of $159,851. As of June 30, 2002, the Company had current
liabilities totaling $490,269. This represents an increase of $14,245.
Geo continues to operate at a deficit and as of June 30, 2002, had an
accumulated deficit of $11,928,639. For the six months ended June 30, 2002, Geo
had negative cash flows from operating activities of $314,322. This includes
expenditures for lease operations, payroll, professional fees, impairment of
assets and general and administrative expenses.
Investing activities during the six months ended June 30, 2002 was comprised of
costs incurred and capitalized as part of the Company's oil and gas properties
full cost pool in the amount of $8,000.
Management does not believe that current assets provide the necessary liquidity
and capital to fund current growth plans. Geo is actively seeking additional
debt and/or equity financing to continue operations and fund future growth. The
need for additional capital in the future is greater without revenue from the
waste disposal property.
Another potential source of liquidity is the future cash flow from the Kentucky
property. During the first quarter of 2002, Geo and its partners funded and
began the completion of a deep test well located in the southern part of the
Illinois Basin in Kentucky, the J.H. Brooks No. 1. Although completion of the
well was delayed by severe weather in the area, the well is now in the process
of undergoing flow testing. Management expects the well to begin generating
revenue sometime in the fall of 2002. Geo owns an option for a 25% carried
working interest in the J.H. Brooks #1.The well is located on the
Hammonville-Magnolia lease block, which extends over a fifty thousand acre area
of interest. Geo expects to participate in another deep gas well later in 2002.
Cash flow from these wells will provide Geo necessary operating capital during
2002 and into the future.
INFLATION. In recent years inflation has not had a significant impact on us, our
operations or our financial condition.
TRENDS. During 2001, oil prices declined to a low of $17.48 per barrel (West
Texas Intermediate spot price) in November 2001. Although recent spot prices for
WTI have recovered to approximately $26 per barrel, they have not approached the
high price of $34.12 experienced in March 2000. This decrease has affected the
operational viability of Geo's existing oil properties. In addition, 2001 saw
the average price of natural gas fall from $6.37 per MCF in the first quarter of
2001 to $2.51 by the end of the year. Despite these downward trends, prices seem
to have stabilized and it is unlikely that they will fall to former lows seen in
earlier years. Forecasts published by the DOE Energy Information Administration
project prices for WTI to range between $27 and $30 per barrel while natural gas
prices are projected to range between $2.78 and $3.25 per MCF during the next
twelve months. The average price for WTI in July 2002 was $27 while spot
wellhead prices for natural gas have been weaving above and below $3.00 per MCF
since mid-March. This sharp price volatility, which occurred over the spring and
early summer months, has recently become calmer now that the summer is more than
half over and a clearer picture of the likely winter storage situation emerges.
17
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
From time to time, we may be involved in legal proceedings, including those
arising from our operations and the amounts due suppliers or royalty owners.
None of such proceedings are generally considered material to our operations or
financial condition.
ITEM 2. CHANGES IN SECURITIES.
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
None.
(b) Reports on Form 8-K
None.
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Geo Petroleum, Inc.,
a California corporation
August 16, 2002 By: /s/ Dennis Timpe
--------------------------
Dennis Timpe
Its: President and a Director
18
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of GEO Petroleum Inc., a California
corporation (the "Company"), on form 10-Q for the period ending June 30, 2002,
as filed with the Securities and Exchange Commission on the date hereof (the
"Report"), I, Dennis Timpe, Chief Executive Officer of the Company, certify,
pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the
Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of
the Securities Exchange Act of 1934; and (2) The information contained in the
Report, fairly presents, in all material respects, the financial condition and
result of operations of the Company.
August 16, 2002 By: /s/ Dennis Timpe
--------------------------
Dennis Timpe
Its: Chief Executive Officer
19