GEO PETROLEUM, INC.
18281 Lemon Drive
Yorba Linda, California 92886
July __, 2001
To Our Stockholders:
You are cordially invited to attend the Annual Meeting of Stockholders
of GeoPetroleum, Inc., a California corporation ("Company"), which will be held
at 10:30 a.m., Pacific Standard Time, on August 29, 2001, at the Balboa Bay
Club, 1221 W. Pacific Coast Highway, Newport Beach, California 92660("Annual
Meeting"). All holders of the Company's outstanding common stock as of July 24,
2001, are entitled to vote at the Annual Meeting.
Enclosed is a copy of the Notice of Annual Meeting of Stockholders,
Proxy Statement, and Proxy. A current report regarding the business operations
of the Company will be presented at the Annual Meeting and stockholders will
have an opportunity to ask questions.
We hope you will be able to attend the Annual Meeting. Whether or not
you expect to attend, it is important you complete, sign, date, and return the
proxy in the enclosed envelope in order to make certain that your shares will be
represented at the Annual Meeting.
Sincerely,
Dennis Timpe
Chairman of the Board and Chief Executive Officer
1
GEO PETROLEUM, INC.
18281 Lemon Drive
Yorba Linda, California 92886
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held August 29, 2001
NOTICE IS HEREBY given that the Annual Meeting of Stockholders of Geo
Petroleum, Inc., a California corporation ("Company"), which will be held at
10:30 a.m., Pacific Standard Time, on August 29, 2001, at the Balboa Bay Club,
1221 W. Pacific Coast Highway, Newport Beach, California 92660 ("Annual
Meeting") for the following purposes:
1. To elect four (4) members to the Board of Directors of the Company;
2. To approve and adopt the Company's Stock Option Plan and the inssurance
of options to Dennis Timpe;
3. To approve, adopt and ratify the actions taken by the Company's officers
and directors during the last fiscal year;
4. To approve the selection of Kelly & Company to audit the financial
statements of the Company for the fiscal year ended December 31, 2000;
5. To approve the selection of Kelly & Company to audit the financial
statements of the Company for the fiscal year beginning January 1, 2001;
and
6. To transact such other business as may properly come before the Annual
Meeting or any adjournment or adjournments thereof.
The Board of Directors has fixed the close of business on July 24, 2001,
as the record date for the determination of stockholders entitled to notice of
and to vote at the Annual Meeting and all adjourned meetings thereof.
By Order of the Board of Directors
Dated: July ___, 2001 Dennis Timpe,
Chairman of the Board and Chief Executive Officer
Please fill in, date, sign and return the enclosed proxy in the return envelope
furnished for that purpose as promptly as possible, whether or not you plan to
attend the annual meeting. If you later desire to revoke your proxy for any
reason, you may do so in the manner described in the attached proxy statement.
2
GEO PETROLEUM, INC.
18281 Lemon Drive
Yorba Linda, California 92886
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
To Be Held August 29, 2001
VOTING AND PROXY
This Proxy Statement is being furnished in connection with the solicitation of
proxies by the Board of Directors of GeoPetroleum, Inc., a California
corporation ("Company"), for use at the annual meeting of stockholders of the
Company to be held at 10:30 a.m. Pacific Standard Time on August 29, 2001, at
the Balboa Bay Club, 1221 W. Pacific Coast Highway, Newport Beach, California
92660 ("Annual Meeting"), and at any adjournments thereof. When a Proxy is
properly executed and returned, the shares of the Company's $.001 par value
common stock that such Proxy represents will be voted in accordance with any
directions specified therein. If no specification is indicated, those shares
will be voted "FOR" (i) the election as directors of the Company of the four (4)
nominees named herein; (ii) approval and adoption of the Company's Stock Option
Plan; (iii) approval, adoption and ratification of the actions taken by the
Company's officers and directors during the most recent fiscal year; (iv)
approval and ratification of the selection and appointment of Kelly & Company as
independent certified public accountants of the Company to audit the financial
statements of the Company for the fiscal year ended December 31, 2000; (v)
approval and ratification of the selection and appointment of Kelly & Company as
independent certified public accountants of the Company to audit the financial
statements of the Company for the fiscal year beginning January 1, 2001; and
(vi) to transact such other business as may properly come before the Annual
Meeting or any adjournment or adjournments thereof. We have not held a meeting
of our shareholders since 1997 and urge all shareholders to participate in this
meeting, either in person or by Proxy.
Any stockholder giving a Proxy has the power to revoke that Proxy at any time
before that Proxy is voted by (i) giving to the Secretary of the Company written
notice of such revocation, (ii) issuance of a subsequent Proxy, or (iii) voting
in person at the Annual Meeting.
At the close of business on July 24, 2001, the record date for determining
stockholders entitled to notice of and to vote at the Annual Meeting, the
Company had issued and outstanding ____________ shares of its no par par value
common stock ("Common Stock"). Each share of Common Stock entitles the holder of
record thereof to one vote on any matter coming before the Annual Meeting. Only
stockholders of record at the close of business on July 24, 2001, are entitled
to notice of and to vote at the Annual Meeting or at any adjournments thereof.
3
The Company will pay the expenses of soliciting proxies for the Annual Meeting,
including the cost of preparing, assembling and mailing the proxy solicitation
materials. Proxies may be solicited personally, or by mail or by telephone, by
directors, officers and regular employees of the Company who will not be
additionally compensated therefor. It is anticipated that this Proxy Statement
and accompanying Proxy will be mailed to all stockholders entitled to vote at
the Annual Meeting on or about August 7, 2001.
The matters to be considered and acted upon at the Annual Meeting are referred
to in the preceding notice and are specified more completely below.
ELECTION OF DIRECTORS
(Proposal 1)
Directors of the Company are elected annually and hold office until the next
annual meeting of stockholders of the Company or until their respective
successors are elected and qualified. It is intended that the Proxies solicited
by the Board of Directors of the Company will be voted for election of the four
(4) nominees specified below, unless a contrary instruction is made on the
Proxy. If, for any reason, one or more of these nominees should be unavailable
as a candidate for director of the Company, an event which is not anticipated,
the persons specified in the accompanying Proxy will vote for another candidate
or candidates nominated by the Board of Directors. To be elected to the Board of
Directors of the Company, a nominee must receive the affirmative vote of the
holders of a majority of the total issued and outstanding Common Stock.
Cumulative voting for nominees is not permitted.
Three of the four nominees for director are currently directors of the Company.
The following table sets forth information, as of the record date, with
respect to the beneficial ownership of our Common Stock by: (i) each
stockholder known to us to be the beneficial owner of more than 5% of our
Common Stock; (ii) each director and director nominee; (iii) each of the
Chief Executive Officer and any executive officer that received $100,000 or
more in compensation during the fiscal year. This table takes into account
the additional 1,096,326 shares we were obligated to issue to our creditors
pursuant to our Plan of Reorganization.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission ("Commission") and generally includes voting
or investment power with respect to securities. In accordance with Commission
rules, shares of Common Stock which may be acquired upon exercise of stock
options or warrants which are currently exercisable or which become exercisable
within 60 days of this Proxy
4
Statement are deemed beneficially owned by the optionees. The Stock Option Plan
pursuant to which Mr. Timpe's options were granted has not yet been approved by
the shareholders, and is the subject of one shareholder vote at the annual
meeting.
Amount and
Nature of
Title of Name and Address of Beneficial Percent of
Class Beneficial Owner Ownership Class
- ------------- ------------------------------ -------------- -----------
Ansbacher, Ltd. (1) 3,395,725 20.1%
36568 Mojave Sage Street
Common Stock Palm Desert, California 92211
Lori Timpe-Long(2) 40,000 0.2%
18281 Lemon Drive
Common Stock Yorba Linda, California 92886
Christian Dillon 100,000 0.6%
18281 Lemon Drive
Common Stock Yorba Linda, California 92886
Dennis Timpe (2)(3) 1,232,600 7.3%
18281 Lemon Drive
Common Stock Yorba Linda, California 92886
Greg Tolleson 90,000 0.5%
18281 Lemon Drive
Common Stock Yorba Linda, California 92886
- --------------
(1) In December 1999, Mr. Raydon resigned as an officer and director of the
Company. In November and December 1999, most of Mr. Raydon's shares were
transferred to Ansbacher, Ltd.
(2) In addition to the shares specified on the table above which Mr. Timpe
beneficially owns, Mr. Timpe has options to purchase an additional
4,000,000 shares of our common stock; provided, however, that the stock
option plan under which those options were issued has not yet been
approved by our shareholders. Moreover, Mr. Timpe holds a proxy to vote
3,395,725 of Ansbacher Ltd.'s shares; 2,000 of Mr. Raydon's shares; 8,006
shares held jointly in the name of Mr. Raydon and his spouse; and 2,938
shares held in the name of Mr. Raydon's spouse. Mr. Timpe therefore
currently has the power to vote 4,641,269 shares, or 27.52% of the issued
and outstanding voting shares. The proxy grants Mr. Timpe and his
nominees the right to vote all shares subject to such proxy on all
matters for a period of two years expiring on December 20, 2001.
(3) Does not include options to purchase 4 million shares at $.56 per share,
which are fully vested; however, the stock option plan under which such
options were granted has not yet been approved by our shareholders. If
such options were exercisable immediately, Mr. Timpe's beneficial
ownership of our common stock would be 5,232,600 shares (25.1%) and he
would control the voting power of 41.42% of our common stock .
5
Executive Compensation. Any compensation received by officers and management
personnel of the Company will be determined from time to time by the Board of
Directors of the Company (specifically the Compensation Committee). Officers,
directors and management personnel of the Company will be reimbursed for any
out-of-pocket expenses incurred on behalf of the Company.
Long Term Incentive Plans.
Other than the Stock Option Plan which is the subject of a shareholder vote, the
Company has no long-term incentive plans.
Compensation of Directors.
Directors are currently entitled to receive an annual issuance of 1,000 shares
of common shares as compensation; however, to date such shares have not been
issued. Directors do not receive reimbursement for their out of pocket costs in
attending board meetings.
Employment Contracts and Termination of Employment, and Change-In Control
Arrangements.
Except for the stock option plan which has not yet been approved by our
shareholders, we have no benefit plans and no employment agreements, other than
at will agreements, with any of our employees.
In 1996, the Board authorized the Company to enter into employment contracts for
periods of five years with each of Mr. Gerald T. Raydon, Mrs. Alyda Raydon and
Mr. Eric J. Raydon. Such agreements were executed in August 1997 and provided
for annual compensation of $120,000, $39,000 and $52,000, respectively, all
subject to escalation on an annual basis as approved by the Board. The
agreements did not contain provisions restricting a change of control in the
Company. As a consequence of our Plan of Reorganization, all such contracts were
terminated without payment of accrued but unpaid portions of salaries in
December 1999, other than an allowance to each of Mr. and Mrs. Raydon of $4,300
as priority wage claims. During the pendancy of the bankruptcy proceedings Mr.
Raydon received $5,000 per month and Mrs. Raydon received $3,250 per month.
Summary Compensation Table. The table set forth below summarizes the annual and
long-term compensation for services in all capacities to the Company payable to
the Chief Executive Officer of the Company and the other executive officers of
the Company whose total annual salary and bonus is anticipated to exceed $50,000
during the calendar year ending December 31, 2001.
6
Summary Compensation Table
Long-Term Compensation
------------------------------------------------
Annual Compensation Awards Payouts
---------------------------------- ----------------------- -----------------------
---------------- ------- --------
Name and Year Salary Bonus Other Restrict Securities LTIP All Other
Annual Stock Underlying Payouts Compensation
Comp. Awards Options/SARs
Principal Position ($) ($) ($) ($) (#) ($) ($)
- --------------------------- ------ --------- ------- -------- -------- -------------- -------- --------------
Dennis Timpe, CEO......... 1999 0
Dennis Timpe, CEO 2000 0 400,000(2) (1)
(1) Under its Plan of Reorganization as confirmed by the Bankruptcy Court,
the Company was authorized to issue 4.5 million shares of its common
stock for an aggregate consideration of $500,000 to TD & Associates, a
company owned by Timpe. In January 2000, the Company issued such stock;
the ultimate recipients of such stock were various persons (see "Recent
Sales of Unregistered Securities"). Mr. Timpe received 1.5 million shares
of the Company's common stock from TD & Associates as compensation for
his services to TD & Associates. The compensation received by Mr. Timpe
by reason thereof, if the price paid by other issuees is regarded as the
purchase price, is between 20(cent) and 15(cent) per share or an
aggregate between $225,000 and $300,000. If the closing price of the
common stock in the over-the-counter market is employed as the value of
the shares issued (47(cent) per share), the compensation is $705,000. In
addition, TD & Associates received $50,000 more than the proceeds to the
Company from such share issuance. All of such persons, save Ansbacher
Ltd. and Mr. Timpe , paid 20(cent) per share. Ansbacher Ltd. paid
15(cent) per share for 1 million shares, an aggregate of $150,000. The
aggregate price paid by all purchaserswas $550,000, of which the Company
received $500,000. To the extent that the purchase price is less than
that paid by others or the market price, the difference may be regarded
as compensation. On December 21, 1999, the issuance date, the closing
price of the common stock was $0.47 per share.
(2) In December 1999, the Board authorized the issuance to Mr. Timpe of an
option to purchase four million shares of common stock at a a price of
56(cent) per share. No issuance was effected at such time and in October
2000, the Board adopted, subject to ratification by the shareholders, a
Stock Option Plan. Pursuant to such plan, the Option Committee,
consisting of all members of the Board with Mr. Timpe not acting, issued
to Mr. Timpe an option to purchase four million shares of the common
stock at a price of "56 cents per share," payable in cash, notes or
services, or any combination of the foregoing. The term of such options
expires on September 30, 2005. The options are fully vested and may be
exercised at any time during their term. Issuance of the options is
subject to ratification by the shareholders of the Company's stock option
plan at its 2001 annual meeting. (2) Except for the Company's stock
option plan specified above, the Company has no option or other incentive
compensation plans.
7
Option/SAR Grants In Last Fiscal Year
Number of Percent of Exercise Expiratio
Securities Total or Date
Underlying Options/SARs Base Price
Options/SARs Granted to ($/share)
Granted Employees in
Name (#) 2000
--------------- ------------- --- ----------- ----------
Dennis Timpe1..................................... 4,000,000 100 % 0.56 9/30/05
1Subject to ratification by the shareholders of the Company's Option Plan. The
Company intends to seek such ratification at its next shareholders' meeting. See
footnote (2) above.
Aggregated Option/SAR Exercises In Last Fiscal Year And Fiscal Year-End
Option/SAR Values
Shares Acquired Value No. of Unexercised Value of
on Exercise realized Securities Unexercised
($) Underlying Options In-the-Money
SARs Options/SARs ******check Richard
at FY-End at FY-End
Name (#) ($)
- ----
---------------- -------------- -------------------- ----------------
(Exerciseable/Unexerciseable)
Dennis Timpe.................... 0 4,000,000 (1 footnote) 0
1 See footnote 2 above.
Except for the stock options issued to Dennis Timpe, none of our officers
received compensation, including salary and bonus, in excess of $100,000 during
either of the two preceding years. The following tables contain information
concerning our Chief Executive Officer and any other executive officer whose
aggregate cash compensation exceeds $100,000 per year
Nominees for Directors
Dennis Timpe. Mr. Timpe joined the Company in December 1999, pursuant to
our Plan of Reorganization, and is presently a director of the Company. Mr.
Timpe is the founder of TD & Associates and has been its chief executive officer
since 1986. TD & Associates provides services to companies engaged in the
exploration and development of oil and gas. Mr. Timpe and certain companies with
which he was or is affiliated have been the subject of administrative orders
issued by the securities administrators of the States of Pennsylvania, Indiana,
Montana and Wisconsin, the effect of which is to require Mr. Timpe and such
companies to refrain from selling securities or acting as a broker in such
states unless appropriate registration or qualification is in effect. In
addition, an order was entered against Mr. Timpe, among others, by the Indiana
Securities Commissioner on May 6, 1999 prohibiting Mr. Timpe from transacting
business in Indiana as a broker-dealer or agent for the offer or sale of
securities, and imposing a civil penalty. A preliminary injunction is currently
in force against Mr. Timpe in the Commonwealth Court of Pennsylvania restraining
him from violating an order issued by the Pennsylvania Securities Commission on
October 15, 1990; however, Mr. Timpe believes that he will settle all
outstanding issues with the Pennsylvania Securities Commission this year. Mr.
Timpe is the father of Lori Timpe-Long, the Secretary--Treasurer of the Company
who was appointed to such office pursuant to our Plan of Reorganization.
Lori Timpe-Long. Mrs. Long has been the Treasurer of TD & Associates
since 1986 and is presently a director of the Company. Mrs. Long has a Bachelor
of Arts degree from California State University, Long Beach and a Master of Arts
degree in Psychology from California Graduate Institute. Mrs. Long was appointed
as the Secretary and confirmed as the Treasurer of the Company pursuant to our
Plan of Reorganization.
8
Christian M. Dillon. Mr. Dillon is presently a director of the Company.
He is an attorney in private practice and acts as counsel to the Company and to
TD & Associates. Mr. Dillon received his J.D. degree from Western State
University, College of Law in 1979; he is a member of the State Bar of
California and is admitted to practice in various federal courts.
Greg S. Tolleson is not presently a director of the Company. He is a
Certified Public Accountant with over 22 years' experience in public accounting,
including eleven years with the firm Deloitte & Touche. He is currently a
partner in the Orange County accounting firm of Tolleson & Associates, LLP.
During his tenure with Deloitte & Touche, he served a variety of clients and was
designated by the firm as a specialist in the areas of oil and gas operations,
partnerships and joint ventures, closely-held corporations, real estate and oil
and gas syndications, and international income tax matters. He was the lead
specialist in Southern California in income taxation of oil and gas operations.
He was also responsible for leading the international tax practice in the Orange
County office of Deloitte & Touche.
Approximately one-third of Mr. Tolleson's current practice concerns
independent oil and gas companies. He is a member of the American Institute of
Certified Public Accountants, the California Society of Certified Public
Accountants, the California Independent Petroleum Association (where he was
formerly co-chairman of the Tax and Accounting Practices Committee), and the
Council of Petroleum Services.
Board of Directors Meetings During Last Fiscal Year
The Board of Directors during the last fiscal year consisted of Mr. Timpe,
Mrs. Timpe-Long and Mr. Dillon. Some corporate action was taken by written
consent in lieu of holding Board of Directors' meetings. The Company does not
currently have standing audit, nominating and compensation committes of the
Board of Directors, or committees peforming similar functions. The Company
contemplates that the directors elected at the Annual Meeting will form a
Compensation Committee consisting of two directors, at least one of whom
shall be an independent director, and shall make recommendations concerning
salaries and incentive compensation for employees (including officers and
management personnel) of the Company. The Company also contemplates the
formation of an Audit Committee consisting of two (2) directors, at least one
of whom shall be an independent director, which shall review the results and
scope of the audits and other services provided by the Company's independent
auditors.
All directors of the Company hold office until the next annual meeting of
stockholders of the Company and the election and qualification of their
successors. Officers of the Company are appointed annually by, and serve at the
discretion of, the Board of Directors.
9
APPROVAL OF STOCK OPTION PLAN AND GRANT OF OPTIONS TO DENNIS TIMPE
(Proposal 2)
Management of the Company believes that it is in the best interests of the
Company to reserve certain authorized shares of Common Stock pursuant to the
terms and subject to the conditions specified in the Company's Stock Option
Plan, which was approved and adopted by the Company's Board of Directors on or
about October 26, 2000, and which is attached hereto as Appendix A-1. The stock
options so specified are intended to serve as an incentive to, and to encourage
stock ownership by, certain directors, officers, employees and certain persons
rendering service to the Company so that they may acquire or increase their
proprietary interest in the success of the Company, and to encourage them to
remain in the Company's service. All of the options authorized have been
granted to Dennis Timpe, our chief executive officer and a director. His
Incentive Stock Option Agreement is attached hereto as Appendix A-2.
Approval of the proposal to approve and adopt the Company's Stock Option Plan
and grant of options to Dennis Timpe requires the affirmative vote of the
holders of a majority of the total issued and outstanding Common Stock.
RATIFICATION OF ACTIONS BY OFFICERS AND DIRECTORS
DURING THE COMPANY'S LAST FISCAL YEAR
(Proposal 3)
Management of the Company will report to the Company's shareholders regarding
the actions taken by the Company's officers and sole director during the last
fiscal year, including, but not limited to, material contracts entered into by
the Company.
Management of the Company believes that these actions taken by the Company's
officers and sole director and the material contracts entered into by the
Company have been in the best interests of the Company and its shareholders,
and, therefore, will request that holders of the issued and outstanding Common
Stock vote to approve, consent to, adopt and ratify each of those actions and
material contracts.
Approval of the proposal to approve, adopt and ratify the actions taken by the
Company's officers and sole director during the Company's most recent fiscal
year requires the affirmative vote of the holders of a majority of the issued
and outstanding Common Stock.
10
INDEPENDENT AUDITORS - KELLY & COMPANY
(Proposal 4)
Management of the Company selected the certified public accounting firm of Kelly
& Company to audit and comment on the Company's financial statements for the
Company's fiscal year ended December 31, 2000, and to conduct whatever audit
functions were deemed necessary pursuant thereto. On January 18, 2000, we
engaged Kelly & Company to replace Ernst & Young, LLP, who declined to stand for
reelection as our independent accountants on November 11, 1999. Such firm did
not issue an opinion on our 1998 financial statements. Our Board of Directors
approved the change in our independent accountant.
The independent auditor's report of Ernst & Young, LLP for our financial
statements for the year ended December 31, 1997 contained a going concern
qualification but otherwise did not contain an adverse opinion or a disclaimer
of opinion, and was not modified as to uncertainty, audit scope, or accounting
principles. The report of Kelly & Company contains a similar going concern
qualification.
During our two most recent fiscal years and through the date of the resignation
of Ernst & Young, LLP, We did not have any disagreements with Ernst & Young, LLP
on any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure.
Approval of Kelly & Company to audit the financial statements of the Company for
the fiscal year ending December 31, 2000, requires the affirmative vote of the
holders of a majority of the issued and outstanding Common Stock.
INDEPENDENT AUDITORS - KELLY & COMPANY
(Proposal 5)
Management of the Company has selected the certified public accounting firm of
Kelly & Company to audit and comment on the Company's financial statements for
the Company's fiscal year commencing January 1, 2001, and conduct whatever audit
functions are deemed necessary pursuant thereto. It is anticipated that a
representative of Kelly & Company will be present at the Annual Meeting and will
be given the opportunity to make a statement, if desired, and to respond to
appropriate questions, if any, concerning the Company's engagement of that
accounting firm.
Approval of the proposal to approve the selection of Kelly & Company to audit
the financial statements of the Company for the fiscal year beginning January 1,
2001, requires the affirmative vote of the holders of a majority of the total
issued and outstanding Common Stock.
11
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In 1998, we filed a voluntary petition for Reorganization under Chapter 11 of
the Bankruptcy Code in the U.S. Bankruptcy Court, Central District of
California, Santa Barbara Division (No. ND 98-15477-RR). In December 1999, our
Third Amended Plan of Reorganization was confirmed by the Court.
Until December 1999, Capitan Resources, Inc. owned an undivided 25% interest in
the waste disposal facilities owned and operated by us at our Oxnard properties.
Gerald T. Raydon and his family own all of the stock of Capitan Resources, Inc.
As part of our Reorganization, we acquired all of the interests of Capitan
Resources in the jointly owned properties and terminated the agreement pursuant
to which Capitan operated such properties. Relations between the Company and
Capitan Resources were governed by an agreement, which provides for a
proportionate sharing of costs and revenues.
During 1996, affiliates of Drake Investment Securities, Inc. invested $50,000 in
Capitan in exchange for an undivided 25% share of profits in the disposal of
solid wastes by Capitan. This interest was subsequently acquired by the Company.
Capitan Resources, Inc. was the purchaser of natural gas from our Bandini-East
Los Angeles properties, which were sold during 1998. Capitan purchased the
natural gas under a contract dated June 30, 1991, which provides for a payment
to Capitan of 30% of gross sales in exchange for advancing capital and other
costs of gas processing and transportation. Capitan then resold the natural gas
to other purchasers. This contract was terminated as part of our reorganization.
From time to time there were outstanding balances and credits between Capitan
and us pursuant to the agreements above mentioned. Credits and balances were
outstanding from time to time with respect to the Bandini-East Los Angeles
properties and Vaca properties; during the two years ended December 1999, the
largest balance receivable from Capitan was approximately $1 million and on
December 31, 1999, the receivable balance was $0 as a consequence of our Plan of
Reorganization which provided for the release of all claims of Capitan against
us and all of our claims against Capitan in exchange for the conveyance to us of
Capitan's interest in the waste disposal project and termination of its
operating contract.
The Harriman affiliated group currently owns approximately 365,576 shares or
2.27% of our outstanding common stock. In 1992, members of the group provided
collateral to a bank for a loan to us in the principal amount of $1,200,000
($650,000 as of June 30, 1997). The group received 273,669 shares of our common
stock as partial consideration for providing such collateral. The loan was
extended to January 15, 1998 on the condition that it be reduced by one-half,
which we did by making a $750,000 payment in December, 1996. We paid the
Harriman group 51,010 shares of the common stock in
12
1996 as consideration for retaining the use of their collateral for the loan
through the period of extension. In 1998, a further extension was granted in
exchange for an additional 25,000 shares of common stock. The indebtedness was
discharged in our reorganization and the Harriman affiliated group received
$664,990 in allowed claims as a creditor.
In 1998, Drake Energy Company, an affiliate of Drake Securities Corporation,
loaned us $16,500 and purchased 33,000 shares of common stock for $16,500. The
note was discharged in the bankruptcy and Drake Energy received an allowed
unsecured claim for $16,500.
Under our Plan of Reorganization, which was confirmed on December 15, 1999, the
following transactions, among others, occurred:
1. TD & Associates, a company owned by Mr. Dennis Timpe received
1,500,000 shares of our common stockout of our sale of4,500,000 common shares in
exchange for $550,000, of which TD & Associates retained $50,000. Those shares
were thereafter transferred to Mr. Timpe as compensation for services which he
provided to TD & Associates.
2. Capitan Resources, Inc., a company owned by Mr. G. T. Raydon,
relinquished all of its rights under agreements with us by which Capitan
operated certain of our properties, acted as natural gas reseller for us, and
released any claims it may have had against us. We released Capitan and Mr.
Raydon from any claims we may have had against either. We asserted claims of
approximately $1 million against Capitan.
3. Mr. Raydon released claims for 1,390,000 shares of our common stock as
replacement for shares owned by him lost through sale by a third party, which
were provided by Mr. Raydon as collateral for an indirect loan to us.
4. Mr. Raydon released certain collateral and claims secured thereby on
certain of our properties.
5. The Harriman affiliated group released its claims against us,
including that for repayment of $652,000, in exchange for the payment of
$25,000, a two year installment ($2,487.50 monthly) note bearing 8% interest,
principal amount of $55,000, and a general unsecured claim of $584,990 for which
they have received 210,595 shares of common stock and will receive a maximum of
497,978 additional shares.
6. Unsecured notes in the amount of $185,000 held by Mr. And Mrs. Raydon
are to be discharged and various liens of the Raydons on our properties were
released.
7. Advances in the amounts of $33,000 from Mr. Eric Raydon, son of Mr.
And Mrs. G. T. Raydon and a former employee of Geo, were discharged in exchange
for an allowed claim of $33,919 for which he received shares of the Common Stock
on the same basis as other creditors of his class.
13
As a condition to investing in our common stock, Mr. Timpe required that Mr. G.
T. Raydon grant Mr. Timpe a proxy covering all of the shares owned of record by
Mr. Raydon. Such proxy was granted in December 1999, and permits Mr. Timpe and
his nominees to vote the shares subject thereto for a period ending December 20,
2001. During December 1999, our Board of Directors authorized the grant of
options to purchase 4 million shares of our common stock to Mr. Timpe, such
options being exercisable at $.56 per share and expiring on September 30, 2005.
The options are exercisable in whole or in part at any time and are fully
vested. In October 2000, the Company adopted a stock option plan, subject to
shareholder ratification, and granted such options to Mr. Timpe.
In 2000, TD & Associates, a company owned by Dennis Timpe, entered into an
agreement with Geo Petroleum, Inc. pursuant to which the former agreed to loan
to the latter a maximum of $100,000 on an unsecured essentially demand basis at
an interest rate which is two percentage points over prime. At December 31,
2000, approximately $85,000 principal and interest of $1,471 had accrued.
OTHER MATTERS
The Board of Directors of the Company knows of no other matters to be brought
before the Annual Meeting. If, however, other matters should come before the
Annual Meeting, it is the intention of each person specified in the Proxy to
vote such Proxy in accordance with his or her judgment on such matters.
ANNUAL REPORT ON FORM 10-KSB
A copy of the Company's Annual Report on Form 10-KSB filed with the Commission
on April 13, 2001, is available without charge to stockholders and may be
obtained by writing to the Company at 18281 Lemon Drive, Yorba Linda, California
92886, Attention: Information Agent.
The Company is a reporting company with the Commission, and is now obligated to
file quarterly and annual reports, which include financial statements. Due to
the Company's bankruptcy proceedings many of these reports have been filed late.
The public may read and copy any materials filed with the Commission at the
Commission's Public Reference Room at 450 Fifth Street N.W., Washington, D.C.
20549, or by accessing the Commission's website at http://www.sec.gov. A summary
of the Company's Annual Report on Form 10-KSB filed with the SEC on April 13,
2001, is attached hereto as Appendix B.
STOCKHOLDER PROPOSALS
Any proposals of security holders which are intended to be presented at next
year's annual meeting must be received by the Company at its principal executive
offices on or before January 1, 2002, in order to be considered for inclusion in
the Company's Proxy materials relating to that annual meeting.
14
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PROXY CARD
GEO PETROLEUM, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF GEO PETROLEUM,
INC., A CALIFORNIA CORPORATION ("COMPANY").
This proxy, when properly executed, will be voted in the manner directed by the
undersigned stockholder. If no direction is made, this proxy will be voted for
the proposals indicated, and in accordance with the discretion of the proxy
holder regarding any other business. All other proxies heretofore given by the
undersigned in connection with the actions proposed herein are hereby expressly
revoked. This proxy may be revoked at any time before it is voted by written
notice to the secretary of the Company, by issuance of a subsequent proxy or by
voting at the annual meeting in person.
INSTRUCTIONS. Except with respect to the election of directors, to vote in favor
of a proposal, circle the phrase "FOR approval". To vote against a proposal,
circle the phrase "AGAINST approval". To abstain from voting on a proposal,
circle the phrase "ABSTAIN".
The undersigned stockholder of the Company hereby constitutes and appoints
Dennis Timpe, with the power to appoint his substitute, as attorney and proxy,
to appear, attend and vote all of the shares of common stock of the Company
standing in the name of the undersigned on the record date at the Annual Meeting
of Stockholders of the Company to be held at 10:30 a.m., Pacific Standard Time,
on August 29, 2001, at the Balboa Bay Club, 1221 W. Pacific Coast Highway,
Newport Beach, California 92660, and at any adjournment thereof, upon the
following:
1. To elect four (4) directors as follows:
FOR all nominees listed below, except as marked to the contrary
[Additional Instructions: To withhold authority to vote for any individual
nominee, strike a line through that nominee's name specified below.]
Dennis Timpe Lori Timpe-Long Christopher Dillon Greg Tolleson
2. To approve and adopt the Company's Stock Option Plan and the Incentive Stock
Option Agreement dated October 26, 2000 between the Company and Dennis Timpe;
FOR approval AGAINST approval ABSTAIN
3. To approve, adopt and ratify the actions taken by the Company's officers and
directors during the most recent fiscal year;
FOR approval AGAINST approval ABSTAIN
15
4. To approve the selection of Kelly & Company to audit the financial statements
of the Company for the fiscal year ended December 31, 2000;
FOR approval AGAINST approval ABSTAIN
5. To approve the selection of Kelly & Company to audit the consolidate
financial statements of the Company for the fiscal year beginning January 1,
2001;
FOR approval AGAINST approval ABSTAIN
6. To vote in his or her discretion on such other business as may properly come
before the meeting, or any adjournment thereof.
Please mark, date, sign and return this proxy promptly.When shares of the
Company's no par value common stock are held by joint tenants, both joint
tenants should sign this proxy. When signing as attorney, executor,
administrator, trustee, or guardian, please specify your complete title as such.
If shares of the Company's common stock are held by a corporation, please sign
in full that corporation's name and execute this proxy by the President or other
authorized officer of that corporation. If shares of the Company's common stock
are held by a partnership, please execute this proxy in that partnership's name
by an authorized general partner or other authorized representative of that
partnership.
Dated:
------------ ------------------------------
(Signature of Shareholder)
------------------------------
(Printed Name of Shareholder)
PLEASE CHECK IF YOU ARE PLANNING TO ATTEND THE MEETING.
- ----
16
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APPENDIX A-1
STOCK OPTION PLAN
Article
I. Purposes of the Plan
II. Amount of Stock Subject to Plan
III. Effective Date and Term of the Plan
IV. Administration
V. Eligibility
VI. Limitation on Exercise of Incentive Options
VII. Options: Price and Payment
VIII. Use of Proceeds
IX. Term of Options and Limitations on the Right of Exercise
X. Exercise of Options
XI. Nontransferability of Options and Stock Appreciation Rights
XII. Termination of Directors, Employees and Independent
Contractors
XIII. Adjustment of Shares; Effect of Certain Transactions
XIV. Right to Terminate Employees and Independent Contractors
XV. Purchase for Investment
XVI. Issuance of Certificates; Legends; Payment of Expenses
XVII. Withholding Taxes
XVIII. Listing of Shares and Related Matters
XIX. Amendment of the Plan
XX. Termination or Suspension of the Plan
XXI. Governing Law
XXII. Partial Invalidity
17
GEO PETROLEUM, INC. 2000 STOCK OPTION PLAN
I. PURPOSES OF THE PLAN
1.01 Geo Petroleum, Inc., a California corporation ("Company"), desires
to provide to certain of its directors, employees and independent contractors,
and the directors, employees and independent contractors of any subsidiary
corporation or parent corporation of the Company who are responsible for the
continued growth of the Company, an opportunity to acquire a proprietary
interest in the Company, and, therefore, to create in such directors, employees
and independent contractors an increased interest in, and a greater concern for,
the welfare of the Company.
The Company, by this Geo Petroleum, Inc. 2000 Stock Option Plan (the
"Plan"), desires to retain the services of persons now serving in certain
capacities and to secure the services of persons capable of serving in similar
capacities.
1.02 The stock options ("Options") offered pursuant to the Plan are a
matter of separate inducement and are not in lieu of any salary or other
compensation for the services of any director, employee or independent
contractor.
1.03 The Options are intended to be either incentive stock options
("Incentive Options") within the meaning of Section 422A of the Internal Revenue
Code of 1986, as amended (the "Code"), or options that do not satisfy the
requirements for Incentive Options ("Non-Qualified Options"), but the Company
makes no assurance, warranty or guarantee as to the qualification of any Option
as an Incentive Option.
II. AMOUNT OF STOCK SUBJECT TO THE PLAN
2.01 The total number of shares of common stock of the Company which
may be purchased pursuant to the exercise of Options shall not exceed, in the
aggregate, four million (4,000,000) shares of the authorized common stock, no
par value per share, of the Company (the "Shares"); provided, however, in no
event and at no time shall the number of shares of common stock of the Company
issuable upon exercise of all outstanding Options pursuant to the Plan or any
similar plan adopted by the Board of Directors of the Company, exceed a number
of shares which is equal to thirty percent (30%) of the then outstanding shares
of common stock of the Company. For purposes of calculating that thirty percent
(30%), convertible preferred shares or convertible senior common shares of the
Company will be counted on an "as if converted" basis.
18
2.02 Shares which may be acquired pursuant to the Plan may be either
authorized but unissued Shares, Shares of issued stock held in the Company's
treasury, or both, at the discretion of the Company. If and to the extent that
Options expire or terminate without having been exercised, new Options may be
granted with respect to Shares subject to such expired or terminated Options;
provided, however, that the grant and the terms of such new Options shall, in
all respects, comply with the provisions of the Plan.
III. EFFECTIVE DATE AND TERM OF THE PLAN
3.01 The Plan shall become effective on the date (the "Effective Date")
on which it is adopted by the Board of Directors of the Company (the "Board of
Directors"); provided, however, that if the Plan is not approved by a vote of
the shareholders of the Company within twelve (12) months before or after the
Effective Date, the Plan and any Options granted shall terminate.
3.02 The Company may, from time to time during the period beginning on
the Effective Date and ending on September 30, 2005 ("Termination Date"), grant
Options to persons eligible to participate in the Plan, pursuant to the terms of
the Plan. Options granted prior to the Termination Date may extend beyond that
date, in accordance with the terms thereof.
3.03 As used in the Plan, the terms "subsidiary corporation" and
"parent corporation" shall have the meanings ascribed to such terms,
respectively, in Sections 425(f) and 425(e) of the Code.
3.04 A director, employee or independent contractor to whom Options are
granted may be referred to herein as a "Participant."
IV. ADMINISTRATION
4.01 The Board of Directors shall designate an Option Committee (the
"Committee") which shall consist of no fewer than two (2) and no more than three
(3) directors, each of whom shall be a "disinterested person" within the meaning
of Rule 16b-3 (or any successor rule or regulation) promulgated pursuant to the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), to administer
the Plan. A majority of the members of the Committee shall constitute a quorum,
and the act of a majority of the members of the Committee shall be the act of
the Committee. Any member of the Committee may be removed at any time either
with or without cause by resolution adopted by the Board of Directors, and any
vacancy on the Committee may at any time be filled by resolution adopted by the
Board of Directors.
4.02 Any or all powers and functions of the Committee may, at any time
and from time to time, be exercised by the Board of Directors; provided,
however, that, with respect to the participation in the Plan by members of the
Board of Directors, such powers
19
and functions of the Committee may be exercised by the Board of Directors only
if, at the time of such exercise, a majority of the members of the Board of
Directors, as the case may be, and a majority of the directors acting in the
particular matter, are "disinterested persons" within the meaning of Rule 16b-3
(or any successor rule or regulation) promulgated pursuant to the Exchange Act.
Any reference in the Plan to the Committee shall be deemed also to refer to the
Board of Directors, to the extent that the Board of Directors is exercising any
of the powers and functions of the Committee.
4.03 Subject to the express provisions of the Plan, the Committee
shall have the authority, in its discretion,
(i) to determine the directors, employees and independent
contractors to whom Options shall be granted, the time when
such Options shall be granted, the number of Shares which
shall be subject to each Option; the purchase price or
exercise price of each Share which shall be subject to each
Option, the period(s) during which such Options shall be
exercisable (whether in whole or in part), and the other terms
and provisions of the respective Options (which need not be
identical);
(ii) to construe the Plan and Options;
(iii) to prescribe, amend and rescind rules and regulations
relating to the Plan; and
(iv) to make all other determinations necessary or advisable for
administering the Plan.
4.04 Without limiting the generality of the foregoing, the Committee
also shall have the authority to require, in its discretion, as a condition of
the granting of any Option, that any Participant agree (i) not to sell or
otherwise dispose of Shares for a period of twelve (12) months following the
date of acquisition of such Shares and (ii) that in the event of termination of
directorship, employment, term of any independent contractor relationship or
agreement, or term of any consulting relationship agreement of such Participant,
other than as a result of dismissal without cause, such Participant will not,
for a period to be determined at the time of the grant of the Option, enter into
any employment or participate, directly or indirectly, in any business or
enterprise which is competitive with the business of the Company or any
subsidiary corporation or parent corporation of the Company, or enter into any
employment or participate, directly or indirectly, in any business or enterprise
in which such person will be requested to utilize special knowledge obtained by
directorship, employment, or during the term of any independent contractor
relationship or agreement, or during the term of any consulting relationship
agreement with the Company or any subsidiary corporation or parent corporation
thereof.
20
The determination of the Committee on matters referred to in this
Article IV shall be conclusive.
4.05 The Committee may employ such legal counsel, consultants and
agents as it may deem desirable for the administration of the Plan and may rely
upon any opinion received from any such counsel or consultant and any
computation received from any such consultant or agent. Expenses incurred by the
Committee in the engagement of such counsel, consultant or agent shall be paid
by the Company. No member or former member of the Committee or of the Board of
Directors shall be liable for any action or determination made in good faith
with respect to the Plan or any Option.
V. ELIGIBILITY
5.01 Non-Qualified Options may be granted only to directors, employees
and independent contractors of the Company, or of any subsidiary corporation or
parent corporation of the Company now existing or hereafter formed or acquired,
except as hereinafter provided. Any person who shall have retired from active
employment by the Company, including such person who entered into an independent
contractor agreement with the Company, shall also be eligible to receive an
Option.
VI. LIMITATION ON EXERCISE OF INCENTIVE OPTIONS
6.01 Except as otherwise provided pursuant to the Code, to the extent
that the aggregate fair market value of Shares with respect to which Incentive
Options are exercisable for the first time by an employee or independent
contractor during any calendar year (pursuant to all stock options plans of the
Company and any parent corporation or subsidiary corporation of the Company)
exceeds One Hundred Thousand Dollars ($100,000.00), such Options shall be
treated as Non-Qualified Options. For purposes of this limitation, (i) the fair
market value of Shares shall be determined as of the time the underlying Option
is granted, and (ii) the limitation will be applied by taking into account
Options in the order in which they were granted.
21
VII. OPTIONS: PRICE AND PAYMENT
7.01 The purchase price for each Share shall be such amount as the
Committee shall, in its best judgment, determine to be not less than eighty-five
percent (85%) of the fair market value per Share on the date the underlying
Option is granted; provided, however, that in the case of any Option granted to
a Participant who, at the time such Option is granted, owns stock possessing
more than ten percent (10%) of the total combined voting power of all classes of
stock of the Company or of any subsidiary corporation or parent corporation of
the Company, the purchase price for each Share shall be such amount as the
Committee shall, in its best judgment, determine to be not less than one hundred
ten percent (110%) of the fair market value per Share at the date such Option is
granted.
7.02 If the Shares are listed on a national securities exchange in the
United States on any date on which the fair market value per Share is to be
determined, the fair market value per Share shall be deemed to be the average of
the high and low quotations at which such Shares are sold on such national
securities exchange on such date. If the Shares are listed on a national
securities exchange in the United States of America on such date but the Shares
are not traded on such date, or such national securities exchange is not open
for business on such date, the fair market value per Share shall be determined
as of the closest preceding date on which such exchange shall have been open for
business and the Shares were traded. If the Shares are listed on more than one
national securities exchange in the United States of America on the date any
such Option is granted, the Committee shall determine which national securities
exchange shall be used for the purpose of determining the fair market value per
Share.
7.03 If a public market exists for the Shares on any date on which the
fair market value per Share is to be determined, but the Shares are not listed
on a national securities exchange in the United States of America, the fair
market value per Share shall be deemed to be the closing bid quotation in the
over-the-counter market for the Shares on such date. If there are no bid
quotations for the Shares on such date, the fair market value per Share shall be
deemed to be the closing bid quotation in the over-the-counter market for the
Shares on the closest date preceding such date for which such quotation is
available.
7.04 If no public market exists for the Shares on any date on which the
fair market value per Share is to be determined, the Committee shall, in its
sole discretion and best judgment, determine the fair market value of a Share.
For purposes of the Plan, the determination by the Committee of the fair market
value of a Share shall be conclusive.
7.05 Upon the exercise of an Option, the Company shall cause the
purchased Shares to be issued only when the Company shall have received the full
and complete purchase price for the Shares in cash or by certified check;
provided, however, that in lieu of cash or certified check, the Participant may
(if and to the extent the terms of the Option, as specified by the Committee, in
its sole discretion, so provide, and to the extent permitted by applicable law),
exercise an Option in whole or in part, by delivering to the Company a
promissory note, in form acceptable to the Committee, or otherwise pay the
exercise price for such Shares, in whole or in part, by compensation for
services rendered (the fair value of such services having been determined by the
Board of Directors or the Committee).
22
VIII. USE OF PROCEEDS
8.01 The cash proceeds of the sale of Shares are to be added to the
general funds of the Company and used for the Company's general corporate
purposes as the Board of Directors shall determine.
IX. TERM OF OPTIONS AND LIMITATIONS
ON THE RIGHT OF EXERCISE
9.01 Any Option shall be exercisable at such times, in such amounts and
during such period or periods as the Committee shall determine at the date of
the grant of such Option; provided, however, that an Incentive Option shall not
be exercisable after the expiration of five (5) years from the date such
Incentive Option is granted; and provided, further, however, that, in the event
that an Incentive Option granted to a Participant who, at the time such Option
is granted, owns stock of the Company possessing more than ten percent (10%) of
the total combined voting power of all classes of stock of the Company or of any
subsidiary corporation or parent corporation of the Company, such Incentive
Option shall not be exercisable after the expiration of three (3) years from the
date such Incentive Option is granted.
9.02 Subject to the provisions of Article XX of the Plan, the Committee
shall have the right to accelerate, in whole or in part, from time to time,
conditionally or unconditionally, rights to exercise any Option.
9.03 To the extent that an Option is not exercised within the period of
exerciseability specified herein, such Option shall expire as to the then
unexercised part. In no event shall an Option be exercisable for a fraction of a
Share.
23
X. EXERCISE OF OPTIONS
10.01 Any Option shall be exercised by the Participant holding such
Option as to all or part of the Shares contemplated by such Option by giving
written notice of such exercise to the Secretary of the Company at the principal
business office of the Company, specifying the number of Shares to be purchased
and specifying a business day not more than fifteen (15) days from the date such
notice is given, for the payment of the purchase price for delivery of the
Shares being purchased. Subject to the terms of Articles XV, XVII and XVIII of
the Plan, the Company shall cause certificates for the Shares so purchased to be
delivered to the Participant at the principal business office of the Company, in
exchange for payment of the full and complete purchase price, as specified in
Section 7.05 of the Plan, on the date specified in the notice of exercise.
XI. NONTRANSFERABILITY OF OPTIONS
AND STOCK APPRECIATION RIGHTS
11.01 No Option shall be transferable, whether by operation of law or
otherwise, other than by Will or the laws of descent and distribution. Each
Option shall be exercisable, during the lifetime of the Participant, only by
such Participant.
XII. TERMINATION OF DIRECTORS, EMPLOYEES
AND INDEPENDENT CONTRACTORS
12.01 Upon termination of the directorship, employment, term of any
independent contractor relationship or agreement, or term of any consulting
relationship agreement of any Participant with the Company and any subsidiary
corporations and parent corporations of the Company now existing or hereafter
formed or acquired, and unless specified to the contrary in the respective Stock
Option Agreement to which the Company and such Participant are parties and which
relates to such Option, any Option previously granted to such Participant,
shall, to the extent not theretofore exercised, terminate and become null and
void, provided that:
(a) if such Participant shall die while serving as a director, while in
the employ of such corporation, during the term of any independent
contractor relationship or agreement, or during the term of any
consulting relationship agreement or during either the three (3)
month or one (1) year period, whichever is applicable, specified in
clause (b) below and at a time when such Participant was entitled to
exercise an Option as specified in the Plan, the legal
representative of such Participant, or such person who acquired such
Option by bequest or inheritance or by reason of the death of such
Participant, may, not later than one (1) year from the date of death
of such Participant, exercise such Option, to the extent not
theretofore exercised, in respect of any or all of such number of
Shares as specified by the Committee in such Option; and
(b) if the directorship, employment, term of any independent contractor
relationship or agreement, or term of any consulting relationship
agreement with any Participant to whom such Option shall have been
granted shall terminate by reason of the Participant's retirement
(at such age or upon such conditions as shall be specified by the
Committee), disability (as described in Section 22(e)(3) of the
Code) or dismissal by the Company or any subsidiary corporation or
parent corporation of the Company now existing or hereafter formed
or acquired other than for cause (as defined below), and while such
Participant is entitled to exercise such Option, as herein provided,
such Participant shall have the right to exercise such Option, to
the extent not theretofore exercised, for any or all of such number
of Shares as specified by the Committee in such Option, at any time
up to and including (i) three (3) months after the date of such
termination of directorship, employment, term of any independent
contractor relationship or agreement, or term of any consulting
relationship agreement in the event of termination because of
retirement or dismissal other than for cause and (ii) one (1) year
after the date of termination of directorship, employment, term of
any independent contractor relationship or agreement, or term of any
consulting relationship agreement in the event of termination
because of disability.
In no event, however, shall any person be entitled to exercise any
Option after the expiration of the period of exerciseability of such Option
specified in the agreement granting such Option.
12.02 If a Participant voluntarily terminates his directorship,
employment, term of any independent contractor relationship or agreement, or
term of any consulting relationship agreement, or is discharged for cause,
unless specified to the contrary in the respective Stock Option Agreement to
which the Company and such Participant are parties, and which relates to such
Option, any Option shall forthwith terminate with respect to any unexercised
portion thereof.
12.03 If an Option shall be exercised by the legal representative of a
deceased Participant, or by a person who acquired an Option by bequest or
inheritance or because of the death of any Participant, written notice of such
exercise shall be accompanied by a certified copy of letter testamentary or
equivalent proof of the right of such legal representative or other person to
exercise such Option.
12.04 For the purposes of the Plan, the term "for cause" shall mean and
be defined as (i) with respect to an employee who is a party to a written
agreement with, or, alternatively, participates in a compensation or benefit
plan of the Company or a subsidiary corporation or parent corporation of the
Company now existing or hereafter
24
formed or acquired, which agreement or plan specifies a definition of "for
cause" or "cause" (or words of similar meaning) for purposes of termination of
employment pursuant thereto by the Company or such subsidiary corporation or
parent corporation of the Company, "for cause" or "cause" as defined in the most
recent of such agreements or plans; or (ii) a party to any independent
contractor relationship or agreement or any consulting relationship or
agreement, whether oral or written; or (iii) in all other situations, as
determined by the Board of Directors, in its sole discretion, (a) the willful
commission by an employee or independent contractor of a criminal or other act
that causes or probably will cause substantial economic damage to the Company or
any such subsidiary corporation or parent corporation of the Company or
substantial injury or damage to the business reputation of the Company or any
such subsidiary corporation or parent corporation of the Company; (b) the
commission by an employee or independent contractor of an act of fraud in the
performance of such employee's duties on behalf of the Company or any such
subsidiary corporation or parent corporation of the Company; (c) the continuing
willful failure of an employee or independent contractor to perform the duties
of such employee or independent contractor to the Company or any such subsidiary
corporation or parent corporation of the Company (other than such failure
resulting from the employee's or independent contractor's incapacity because of
physical or mental illness) after written notice thereof (specifying the
particulars thereof in reasonable detail) and a reasonable opportunity to be
heard and cure such failure are given to the employee or independent contractor
by the Board of Directors; or (d) the order of a court of competent jurisdiction
requiring the termination of the employee's employment, or term of any
independent contractor relationship or agreement, or term of any consulting
relationship agreement. For purposes of the Plan, no act, or failure to act, on
the employee's or independent contractor's part shall be considered "willful"
unless done or omitted to be done by the employee or independent contractor not
in good faith and without reasonable belief that the employee's or independent
contractor's action or omission was in the best interests of the Company or a
subsidiary corporation or parent corporation of the Company now existing or
hereafter formed or acquired.
12.05 For the purposes of the Plan, an employment relationship shall be
deemed to exist between a person and the Company if, at the time of the
determination, such person was an "employee" of the Company for purposes of
Section 422A(a) of the Code. If a person is on maternity, military, or sick
leave or other bona fide leave of absence, such person shall be considered an
"employee" for purposes of the exercise of an Option and shall be entitled to
exercise such Option during such leave if the period of such leave does not
exceed ninety (90) days, or, if longer, if such person's right to reemployment
with the Company is guaranteed either by statute or by contract. If the period
of leave exceeds ninety (90) days, the employment relationship shall be deemed
to have terminated on the ninety-first (91st) day of such leave, unless such
person's right to reemployment is guaranteed by statute or contract.
25
12.06 An employee or independent contractor shall not be deemed
terminated by reason of (i) the transfer of a Participant from the Company to a
subsidiary corporation or a parent corporation of the Company now existing or
hereafter formed or acquired or (ii) the transfer of a Participant from a
subsidiary corporation or a parent corporation of the Company now existing or
hereafter formed or acquired by the Company or by another subsidiary corporation
or parent corporation of the Company.
XIII. ADJUSTMENT OF SHARES; EFFECT OF CERTAIN TRANSACTIONS
13.01 In the event of any change in the issued and outstanding shares
of the Company's no par common stock as a result of merger, consolidation,
reorganization, recapitalization, stock dividend, stock split, split-up,
split-off, spin-off, combination or exchange of shares, or other similar change
in capital structure of the Company, an adjustment shall be made to each
outstanding Option such that such Option shall thereafter be exercisable for
such securities, cash or other property as would have been received in respect
of the Shares subject to such Option had such Option been exercised in full
immediately prior to such change, and such an adjustment shall be made
successively each time any such change shall occur. The term "Shares" after any
such change shall refer to the securities, cash or property then receivable upon
exercise of an Option. In addition, in the event of any such change, the
Committee shall make any additional adjustment as may be appropriate to
accommodate the (i) maximum number of Shares subject to the Plan; (ii) maximum
number of Shares, if any, for which Options may be granted to any one employee
or independent contractor; and (iii) number of Shares and price per Share
subject to issued and outstanding Options as shall be appropriate to prevent any
reduction or increase of rights pursuant to such Options, and the determination
of the Committee as to these matters shall be conclusive. Notwithstanding the
foregoing, (i) each such adjustment with respect to an Incentive Option shall
comply with the rules of Section 425(a) of the Code, and (ii) each such
adjustment shall comply with the rules of Section 422A of the Code.
13.02 For purposes of the Plan, a "change in control" of the Company
occurs if (a) any "person" (defined as such term is used in Sections 13(d) and
14(d)(2) of the Exchange Act, as amended); other than a current shareholder, is
or becomes the beneficial owner, directly or indirectly, of securities of the
Company representing ten percent (10%) or more of the combined voting power of
the Company's issued and outstanding securities then entitled to vote for the
election of directors; or (b) during any period of two (2) consecutive years,
persons who at the beginning of such period constitute the Board of Directors
cease, for any reason, to constitute, at least, a majority thereof; or (c) the
Board of Directors shall approve the sale of all or substantially all of the
assets of the Company or any merger, consolidation, issuance of securities or
purchase of assets, the result of which would be the occurrence of any event
described in clause (a) or (b) of this section.
13.03 In the event of a change in control of the Company (defined
above), the Committee, in its discretion, may determine that all of the then
issued and outstanding Options shall immediately become exercisable.
26
XIV. RIGHT TO TERMINATE EMPLOYEES
AND INDEPENDENT CONTRACTORS
14.01 The Plan shall not impose any obligation on the Company or on any
subsidiary corporation or parent corporation of the Company now existing or
hereafter formed to continue the retention of any Participant; and it shall not
impose any obligation on the part of any Participant to remain in the employ of
the Company or of any such subsidiary corporation or parent corporation.
XV. PURCHASE FOR INVESTMENT
15.01 Except as provided otherwise in the Plan, a Participant shall,
upon any exercise of an Option, execute and deliver to the Company a written
statement, in form satisfactory to the Company, in which such Participant
represents and warrants that such Participant is purchasing or acquiring the
Shares acquired pursuant thereto for such Participant's own account, for
investment only and not with an intention of the resale or distribution of the
Shares, and agrees that any subsequent offer for sale, sale, or distribution of
any of such Shares shall be made only pursuant to either (a) a Registration
Statement on an appropriate form pursuant to the Securities Act of 1933, as
amended (the "Securities Act"), which Registration Statement has become
effective and is current with regard to the Shares being offered or sold, or (b)
a specific exemption from the registration requirements of the Securities Act,
but in claiming such exemption the holder shall, if so requested by the Company,
prior to any offer for sale or sale of such Shares, obtain a prior favorable
written opinion, in form and substance satisfactory to the Company and its
counsel, from counsel for or approved by the Company, as to the applicability of
such exemption. The foregoing restriction shall not apply to (i) issuances of
Shares by the Company if the Shares being issued are registered pursuant to the
Securities Act and a prospectus in respect thereof is current and delivered or
(ii) reofferings of Shares by affiliates of the Company (as defined in Rule 405
or any successor rule or regulation promulgated pursuant to the Securities Act)
if the Shares being reoffered are registered pursuant to the Securities Act and
a prospectus in respect thereof is current and delivered.
XVI. ISSUANCE OF CERTIFICATES; LEGENDS; PAYMENT OF EXPENSES
16.01 Upon any exercise of an Option and payment of the exercise price
therefor, a certificate or certificates for the Shares as to which such Option
has been exercised shall be issued by the Company in the name of the person
exercising such Option and shall be delivered to or upon the order of such
person.
27
16.02 The Company may endorse such legend or legends upon the
certificates for Shares issued upon exercise of an Option and may issue such
"stop transfer" instructions to the Company's transfer agent in respect of such
Shares as, in the discretion of the Board of Directors, the Company determines
to be necessary or appropriate to (i) prevent a violation of, or to perfect an
exemption from, the registration and prospectus delivery requirements of the
Securities Act, (ii) implement the provisions of the Plan and any agreement
between the Company and any Participant with respect to such Shares, or (iii)
permit the Company to determine the occurrence of a disqualifying disposition,
within the meaning of Section 421(b) of the Code, of Shares transferred upon
exercise of an Incentive Option.
16.03 The Company shall pay all issue or transfer taxes with respect to
the issuance or transfer of Shares, and all fees and expenses incurred by the
Company in connection with such issuance or transfer. All Shares issued shall be
fully paid and non-assessable to the extent permitted by law.
XVII. WITHHOLDING TAXES
17.01 The Company may require an employee or independent contractor
exercising a Non-Qualified Option or disposing of Shares acquired pursuant to
the exercise of an Incentive Option in a disqualifying disposition (within the
meaning of Section 421(b) of the Code), to reimburse the Company for any taxes
required by any government to be withheld or otherwise deducted and paid by the
Company in respect of the issuance or disposition of such Shares. In lieu
thereof, the Company shall have the right to withhold the amount of such taxes
from any other amounts due or to become due from the Company to the employee or
independent contractor upon such terms and conditions as the Committee shall
prescribe. The Company may, in its sole discretion, hold the stock certificate
to which such employee or independent contractor is entitled upon the exercise
of an Option as security for the payment of such withholding tax liability,
until cash sufficient to pay that liability has been accumulated.
XVIII. LISTING OF SHARES AND RELATED MATTERS
18.01 If, at any time, the Board of Directors shall determine, in its
discretion, that the listing, registration or qualification of the Shares upon
any national securities exchange or pursuant to any state or federal law, or the
consent or approval of any governmental regulatory agency, is necessary or
desirable as a condition of, or in connection with, the sale or purchase of
Shares, no Shares shall be issued unless and until such listing, registration,
qualification, consent or approval shall have been effected or obtained, or
otherwise provided for, free of any conditions not acceptable to the Board of
Directors.
28
XIX. AMENDMENT OF THE PLAN
19.01 The Board of Directors or the Committee may, from time to time,
amend the Plan, provided that, notwithstanding anything to the contrary in the
Plan, no amendment shall be made, without the approval of the shareholders of
the Company, that will (i) increase the total number of shares of the Company's
no par common stock reserved for Options (other than an increase resulting from
an adjustment provided for in Article XIII), (ii) reduce the exercise price of
any Incentive Option to an amount less than the price required by Article VII,
(iii) modify the provisions of the Plan relating to eligibility, or (iv)
materially increase the benefits accruing to Participants pursuant to the Plan.
The Board of Directors or the Committee shall be authorized to amend the Plan
and the Options to permit the Incentive Options to qualify as "incentive stock
options" within the meaning of Section 422A of the Code. The rights and
obligations pursuant to any Option granted before amendment of the Plan or any
unexercised portion of such Option shall not be adversely affected by amendment
of the Plan or such Option without the consent of the holder of such Option.
XX. TERMINATION OR SUSPENSION OF THE PLAN
20.01 The Board of Directors or the Committee may, at any time and for
any or no reason, suspend or terminate the Plan. The Plan, unless sooner
terminated pursuant to Article III of the Plan or by action of the Board of
Directors, shall terminate at the close of business on the Termination Date. An
Option may not be granted while the Plan is suspended or after the Plan is
terminated. Options granted while the Plan is in effect shall not be altered or
impaired by suspension or termination of the Plan, except upon the consent of
the person to whom the Option was granted. The power of the Committee pursuant
to Article IV of the Plan to construe and administer any Options granted prior
to the termination or suspension of the Plan shall continue after such
termination or during such suspension.
XXI. GOVERNING LAW
21.01 The Plan, the Options and all related matters shall be governed
by, and construed and enforced in accordance with, the laws of the State of
California, as from time to time amended.
XXII. PARTIAL INVALIDITY
22.01 The invalidity or illegality of any provision of the Plan shall
not be deemed to affect the validity of any other provision of the Plan.
29
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Appendix A-2
- --------------------------------------------------------------------------------
INCENTIVE STOCK OPTION AGREEMENT
INCENTIVE STOCK OPTION AGREEMENT
THIS INCENTIVE STOCK OPTION AGREEMENT ("Agreement") is made and entered
into in duplicate this 26th day of October, 2000, between Geo Petroleum, Inc., a
California corporation having a principal place of business at 18281 Lemon
Drive, Yorba Linda, CA 92886 ("Employer"), and Dennis Timpe ("Holder"), with
respect to the following facts:
Pursuant and subject to the Geo Petroleum 2000 Stock Option Plan, a
copy of which is furnished to the Holder with a copy of this Agreement and the
provisions of which, by this reference, are made a part of this Agreement as
though specified completely and specifically verbatim in this Agreement (the
"Plan"), the Employer's Board of Directors has determined that it is in the best
interests of the Employer and its stockholders to grant the option provided for
herein to the Holder. The parties agree as follows:
Option Granted
1. Employer grants to Holder an Option to purchase 4,000,000 shares of
no par value common stock of Employer at a purchase price of $0.56 per share
("Option"), such Option being further subject to the provisions of the Plan, as
administered by the Option Committee.
Time of Exercise of Option
2. Holder may exercise the Option at any time, and from time to time
until termination of the Option as provided in Paragraph 11 of this Agreement,
so long as at all times, beginning with the date of the grant of the Option and
ending thirty (30) days prior to the date of exercise, or twelve (12) months
prior to the date of exercise, if Holder is disabled within the meaning of
Internal Revenue Code Section 22(e)(3), Holder remains employed. For purposes of
this Agreement, "employment" and "employed" mean that Employee is employed by
Employer, a parent or subsidiary corporation of Employer, or a corporation (or a
parent or subsidiary corporation of such a corporation) issuing or assuming a
stock option in a transaction to which Internal Revenue Code Section 424(a)
applies.
Method of Exercise
3. The Option shall be exercised by written notice delivered to
Employer at its principal place of business, specifying the number of shares of
no par value common stock of Employer for which the Option is being exercised.
The notice must be accompanied by payment (by cash, check, promissory note, or
other means of payment as specified by the Option Committee) for the amount of
the purchase price for the shares of no par value common stock of Employer
purchased pursuant to the exercise of the Option.
30
Capital Adjustments
4.(a) The existence of the Option shall not affect in any way the right
or power of Employer or its stockholders to make or authorize any or all
adjustments, recapitalizations, reorganizations, or other changes in Employer's
capital structure or its business, or any merger or consolidation of Employer or
any issue of bonds, debentures, preferred stock having a preference to or
affecting Employer's common stock or the rights thereof, or the issuance of any
securities convertible into any such common stock or of any rights, options, or
warrants to purchase any such common stock, or the dissolution or liquidation of
Employer, any sale or transfer of all or any part of its assets or business, or
any other act or proceeding of Employer, whether of a similar character or
otherwise.
(b) The securities with respect to which the Option is granted are
shares of the no par value common stock of Employer as presently constituted,
but if and whenever, prior to the delivery by Employer of all the shares of the
common stock with respect to which the Option is granted, Employer shall effect
a subdivision or consolidation of shares or other capital readjustment, the
payment of a stock dividend, or other increase or reduction of the number of
shares of such common stock outstanding without receiving compensation therefor
in money, services, or property, the number of shares of such common stock then
remaining subject to the Option shall be adjusted as specified in the Plan.
Merger and Consolidation
5.(a) Following the merger of one or more corporations with and into
Employer or any consolidation of Employer and one or more corporations in which
Employer is the surviving corporation, the exercise of the Option shall apply to
the shares of common stock of the surviving corporation.
(b) Notwithstanding any other provision of this Agreement, the Option
shall terminate on the dissolution or liquidation of Employer, or on any merger
or consolidation in which Employer is not the surviving corporation.
Investment Undertaking
6. The Holder will hold the Option and the rights constituent thereto
for investment and not with an intention of distribution, and upon exercise will
deliver a letter confirming the Holder's nondistributive intent with respect to
the shares of Employer's no par value common stock received as a result of the
exercise of the Option.
Representations of Employer
7. During such time as the Option remains outstanding and unexpired,
Employer will reserve for issuance, upon the exercise of the Option, the number
of shares of Employer's no par value common stock that are subject to the
Option. The shares of Employer's no par value common stock subject to the
Option, when issued, shall be fully paid and nonassessable. Employer will pay,
31
when due and payable, any and all taxes or fees that may be payable by Employer
with respect to the grant of the Option or the issuance of any shares of
Employer's no par value common stock or certificates therefor subject to the
Option. This does not include, however, any federal, state or other personal
income tax payable by Holder because of (i) the grant of the Option; (ii) the
issuance of any share of the Employer's no par value common stock upon exercise
thereof; or (iii) any subsequent disposition of such shares, which shall remain
the obligation of Holder.
Withholding Taxes
8. If Employer determines that it is required to withhold federal,
state or local tax as a result of the exercise of the Option, Holder, as a
condition to the exercise of the Option, shall make arrangements satisfactory to
Employer to enable it to satisfy such withholding requirements.
Committee Determination Final
9. The interpretation of the Plan and this Agreement, including any
inconsistency between the two documents, shall be reserved to and made by the
Option Committee, which is the Committee of the Board of Directors of Employer
provided for in the Plan. The Option Committee's determinations shall be final
as between the parties hereto, unless otherwise determined by the Board of
Directors of Employer.
Transfer of Option
10. During Holder's lifetime, the Option shall be exercisable only by
Holder. The Option shall not be transferable by Holder, other than by the laws
of descent and distribution upon Holder's death. In the event of Holder's death
during employment or during the applicable period after termination of
employment specified in Paragraph 2 of this Agreement, Holder's personal
representatives may exercise any portion of the Option that remains unexercised
at the time of Holder's death; provided, however, that any such exercise must be
made, if at all, during the period within one year after Holder's death, and
subject to the option termination date specified in Paragraph 11(c) of this
Agreement.
Termination of Option
11. The Option shall terminate on the earliest to occur of the
following dates:
(a) The expiration of three (3) months from the date of Holder's
termination of employment, as defined in Paragraph 2 of this Agreement, except
for termination because of death or permanent and total disability;
32
(b) The expiration of twelve (12) months from the date on which
Holder's employment, as defined in Paragraph 2 of this Agreement, is terminated
because of permanent and total disability, as defined in Internal Revenue Code
Section 22(e)(3) ; or
(c) September 30, 2005.
Rights as Shareholder
12. Holder will not be deemed to be a holder of any shares of
Employer's no par value common stock pursuant to the exercise of the Option
until Holder pays the purchase price therefor and a stock certificate is
delivered to Holder for those shares. No adjustment shall be made for dividends
or other rights for which the record date is prior to the date such stock
certificate is delivered.
IN WITNESS WHEREOF, the parties have made and entered into this
Agreement in duplicate on the date specified in its preamble.
EMPLOYER
Geo Petroleum, Inc.,
a California corporation
By: /s/
-----------------------
Its: President
By: /s/
-----------------------
Its: Secretary
HOLDER
/s/ [signature of Holder]
---------------------
/s/ Dennis Timpe [printed or typed name of Holder]
---------------------
33
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APPENDIX B
Summary of Annual Report
To our Stockholders:
The following is a summary of the Company's Annual Report on Form
10-KSB filed with the Securities & Exchange Commission ("SEC") on April 13,
2001. A complete copy of the Annual Report is available without charge to our
stockholders and may be obtained by writing to the Company at 18281 Lemon Drive,
Yorba Linda, California 92886 Attention: Information Agent. In addition, the
Company's Annual Report may be viewed at the SEC's Public Reference Room at 450
Fifth Street N.W., Washington, D.C. 20549, or by accessing the SEC's website at
http://www.sec.gov.
Description of Business.
(a) Business Development
Geo Petroleum, Inc. is a California corporation formed in 1986 by Gerald
T. Raydon, who, until December 15, 1999, was our chief executive officer and
majority shareholder. We were formed primarily to develop a large tar sand
deposit in Ventura County, Californiaand to engage in the oil field waste
disposal business. Our principal place of business is located at 18281 Lemon
Drive, Yorba Linda, California 92886. Our telephone number is (714) 779-9897 and
our facsimile number is (714) 779-0814.
Reorganization of the Company
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, relinquishment by Mr. Raydon and certain
affiliates of claims to 1.39 million shares of common stock in favor of our
creditors, and a change in our management. Pursuant to the Plan of
Reorganization, during the year 2000 we issued 803,674 shares of our common
stock to our creditors and we are required toissue an additional 1,096,326
shares to our creditors. We expect to issue such shares during the first half of
2001. 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.
Shortly before filing the petition for reorganization in the bankruptcy
court, we sold for cash, and relief of indebtedness and other obligations, all
of our interests in our
34
Bandini and East Los Angeles oil and gas properties. Such properties had
produced approximately 89% of our oil production and 95% of our production of
natural gas during the calendar year 1998 (the year during which such properties
were sold). We also reduced the carrying cost of our remaining oil and gas
properties. These items resulted in the decrease in the carrying value of these
properties from approximately $6,343,000 at December 31, 1997 to $0 at December
31, 1998. The rapidly declining prices received for oil and gas production
caused the present value of net future cash flows to be zero. Consequently, even
though the current estimated future cash flows from our properties exceed the
carrying value of our properties, the properties are carried on our books at
nominal value.
Since we emerged from bankruptcy, our income from operations has not been
sufficient to maintain the Company. Our president does not receive cash
compensation. Were it not for the fact that we have sold equity during the year
2000, the Company would not be able to continue operating. At year-end 2000,
only our waste disposal facility was producing significant revenues.
We filed our first annual report on form 10KSB (for the year ended
December 31, 1999) during the third quarter of 2000, and our quarterly reports
for the first three quarters of the year 2000, during the last quarter of 2000.
Prior to those filings we had made no public reports under the Securities
Exchange Act since filing a report on Form 10-QSB for the third quarter of the
calendar year 1998 and a report on Form 8-K regarding our petition in
bankruptcy.
We have not held a meeting of our shareholders since 1997.
Glossary of Terms Used in The Company's Annual Report
The terms below are used in this document and have specific SEC
definitions as follows:
Proved oil and gas reserves. 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, i.e., prices and costs as of the date the estimate is
made. Prices include consideration of changes in existing prices provided only
by contractual arrangements, but not on escalations based upon future
conditions.
Proved developed oil and gas reserves. Proven developed oil and gas
reserves are reserves that can be expected to be recovered through existing
wells with existing equipment and operating methods. Additional oil and gas
expected to be obtained through the application of fluid injection or other
improved recovery techniques for supplementing the natural forces and mechanisms
of primary recovery should be included as "proved developed reserves" only after
testing by a pilot project or after the operation of an installed program has
confirmed through production response that increased recovery will be achieved.
35
Proved undeveloped reserves. Proved undeveloped oil and gas reserves are
reserves that are expected to be recovered from new wells on undrilled acreage,
or from existing wells where a relatively major expenditure is required for
recompletion. Reserves on undrilled acreage shall be limited to those drilling
units offsetting productive units that are reasonably certain of production when
drilled. Proved reserves for other undrilled units can be claimed only where it
can be demonstrated with certainty that there is continuity of production from
the existing productive formation. Under no circumstances should estimates for
proved undeveloped reserves be attributable to any acreage for which an
application of fluid injection or other improved recovery technique is
contemplated, unless such techniques have been proved effective by actual tests
in the area and in the same reservoir.
As used in this Annual Report:
"Mcf" means thousand cubic feet, "MMcf" means million cubic feet, "Bcf"
means billion cubic feet, "Bbl" means barrel, "MBbls" means thousand barrels,
"MMBbls" means million barrels, "BOE" means equivalent barrels of oil, "MBOE"
means thousand equivalent barrels of oil .
Unless otherwise indicated in this Annual Report, gas volumes are stated
at the legal pressure base of the state or area in which the reserves are
located and at 60 degrees Fahrenheit. Equivalent barrels of oil are determined
using the ratio of 5.56 Mcf of gas to 1 Bbl of oil.
The term "gross" refers to the total acres or wells in which we have a
working interest, and "net" refers to gross acres or wells multiplied by the
percentage working interest owned by us. "Net production" means production that
is owned by us less royalties and production due others.
Cautionary Information about Forward-Looking Statements
This document contains forward-looking statements within the meaning of
Section 27A of the Securities Act and Section 21E of the Exchange Act. All
statements, other than statements of historical facts, included in or
incorporated by reference into the Company's Annual Report on Form 10-KSB which
address activities, events or developments, which we expect, believe, or
anticipate will or may occur in the future are forward-looking statements. The
words "believes," "intends," "expects," "anticipates," "projects," "estimates,"
"predicts" and similar expressions are also intended to identify forward-looking
statements. These forward-looking statements include, among others, statements
concerning:
36
o the benefits expected to result from implementation of our proposed
development of our Vaca Tar Sands property, discussed below,
including increased revenues and oil production, other statements of:
o expectations,
o anticipations,
o beliefs,
o estimations,
o projections, and other similar matters that are not historical facts,
including such matters as: o future capital, o development and
exploration expenditures (including the timing, amount and nature
thereof), o drilling and reworking of wells, reserve estimates
(including estimates of future net revenues associated with such
reserves and the present value of such future net revenues),
o future production of oil and gas,
o repayment of debt,
o business strategies,
o oil and gas prices and demand,
o exploitation and exploration prospects,
o expansion and other development trends of the oil and gas
industry, and
o expansion and growth of business operations.
These statements are based on certain assumptions and analyses made by
the management of Geo in light of our experience and our perception of
historical trends, current conditions and expected future developments as well
as other factors we believe are appropriate in the circumstances.
These forward-looking statements are subject to risks and uncertainties,
including those associated with:
o the financial environment,
o general economic, market and business conditions,
o the regulatory environment,
37
o business opportunities that may be presented to and pursued by Geo, o
changes in laws or regulations
o exploitation and exploration successes,
o availability of additional financing on favorable conditions,
o trend projections, and
o other factors, many of which are beyond our control that could cause
actual events or results to differ materially from those expressed or
implied by the statements. Such risks and uncertainties include those
risks and uncertainties identified in the Description of the Business
and Management's Discussion and Analysis sections of this document
and risk factors discussed from time to time in our filings with the
Securities and Exchange Commission. In addition, the reserve
estimates contained herein are based upon assumptions as to prices,
timing of operations and other factors. To the extent that any of
such assumptions prove to be inaccurate, the quantities of oil and
gas and the timing of production may vary from those contained in
this report. See "Description of Properties--Cautionary Note."
Significant factors that could prevent us from achieving our stated goals
include:
o the inability of Geo to obtain financing for capital expenditures and
acquisitions,
o declines in the market prices for oil, gas and asphalt, and
o adverse changes in the regulatory environment affecting us.
The cautionary statements contained or referred to in this document
should be considered in connection with any subsequent written or oral
forward-looking statements that may be issued by us or persons acting on our
behalf. We undertake no obligation to release publicly any revisions to any
forward-looking statements to reflect events or circumstances after the date
hereof or to reflect the occurrence of unanticipated events.
(b) Business of Issuer
Competition and Position in the Industry
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, Rosecrans and Waste Disposal properties, each
of which require significant cash expenditures to operate and develop During the
year 2000, we produced and sold small amounts of oil from our Vaca properties,
none from our Rosecrans properties and steadily increased our revenues from our
Waste Disposal operations.
38
Regulation
Our operations are regulated by certain federal and state agencies. In
particular, oil and natural gas production and related operations are or have
been subject to price controls, taxes and other laws relating to the oil and
natural gas industry. We cannot predict how existing laws and regulation may be
interpreted by enforcement agencies or court rulings, whether additional laws
and regulations will be adopted, or the effect such changes may have on our
business or financial condition.
All of our operations are subject to extensive federal, state and local
laws and regulations relating to the generation, storage, handling, and
transportation of materials and their potential discharge into the environment.
Permits are required for all of our operations, and these permits are subject to
revocation, modification and renewal by issuing authorities.
Governmental authorities have the power to enforce compliance with their
regulations, and violators are subject to fines, injunctions or both. It is
possible that increasingly strict requirements will be imposed by environmental
laws and enforcement policies thereunder. We do not anticipate that we will be
required in the near future to expend amounts that are material to the Company's
financial position or results of operations by reason of environmental laws and
regulations, but because such laws and regulations are frequently changed, we
are unable to predict the ultimate cost of such compliance.
It is our belief that the oil and gas industry may experience increasing
liabilities and risks under the Comprehensive Environmental Response,
Compensation and Liability Act, as well as other federal, state and local
environmental laws, as a result of increased enforcement of environmental laws
by various regulatory agencies. As an "owner" or "operator" of property where
hazardous materials may exist or be present, we, like all others engaged in the
oil and gas industry, could be liable for the release or remediation of any
hazardous substances. Under previous management, we have been subject to
imposition of "clean-up" orders by the government for accidental spillage of
oil, but have not been subject to hazardous waste removal orders, but the
potential for sudden and unpredictable liability for environmental problems is a
consideration of increasing importance to us and to the oil and gas industry as
a whole. We have suffered some oil spills, in amounts which we consider to have
been minor and have cleaned up such spills. At times we have been supervised in
so doing by governmental agencies.
During 1997, regulatory agencies of the State of California and Los
Angeles County cited us for an accidental oil spill at a property which we no
longer own. We complied with the citation requirements and were required to pay
fines and fees
39
(approximately $28,000) that were discharged in bankruptcy. As a result of the
citation, we were placed on a probationary status. In 1999, while we were in
bankruptcy, local agencies alleged that we had violated various environmental
and other regulatory requirements in failing to clean up a small oil spill and
to maintain our Rosecrans properties in compliance with applicable regulations.
Duringand after our bankruptcy, we were able to obtain funds enabling us to
remedy the asserted violations. In addition, on November 22, 1999, the District
Attorney of Los Angeles County, California filed information accusing us and
certain of our former officers of violating certain provisions of the County
Health Code and various provisions of the fire protection ordinances as a result
of the allegations described above. All proceedings and our probationary status
were terminated without fines being assessed on October 24, 2000, and we were
not subjected to any additional penalties; however, a former officer was
compelled to accept performance of 100 hours of community service. The Company
estimates that costs of compliance with environmental laws and regulations in
1999 was negligible; was approximately $23,800 during the year 2000; and will
amount to approximately $29,000 during 2001.
We are required to comply with various federal and state regulations
regarding plugging and abandonment of oil and gas wells. We provide a reserve
for the estimated cost of plugging and abandoning our wells on a unit of
production basis. We maintain a $160,000 certificate of deposit for State of
California authorization purposes to perform additional oil and gas well
recompletions and a $50,000 certificate of deposit covering our disposal well.
These funds are subject to withdrawal restrictions. We also have $50,000 with
the City of Los Angeles and $10,000 with Ventura County, for the purposes of
paying for any future environmental liabilities that could arise. See Note 3 to
Financial Statements. In addition, we carry $3,000,000 in pollution insurance,
which covers many, but not all, sources of pollution.
Principal Purchasers and Marketing of Production
During the calendar year 2000, we produced and sold insignificant amounts
of oil and no gas. The principal purchaser of our oil and gas during such period
was Equiva Trading Co.We produced very small amounts of oil and gas during the
first three quarters of the year 2000. Commencing in the third quarter 2000, we
began production and sales of oil from our Vaca Tar Sands Propertyto Equiva
Trading Co. Despite our current sale to only one purchaser, we believe that
multiple purchasers of any oil produced by us exist and that the loss of any one
purchaser would not have a material effect on our ability to sell our oil and
gas. Alternative purchasers are available for all of our production, except for
gas production at the Rosecrans field where there is currently only one
purchaser who has completed a gas processing facility that is now connected by
pipeline to our wells.
Essentially all of the oil that may be produced from our properties is
transported to the purchaser by truck, which reduces the net price we receive
for our oil.
40
Volatility of Commodity Prices and Markets
Oil and gas prices have been and are likely to continue to be volatile
and subject to wide fluctuations in response to the following and other factors
o changes in the supply of and demand for oil and gas;
o market uncertainty;
o political conditions in international oil producing regions;
o the extent of domestic production and importation of oil in certain
relevant markets;
o the level of consumer demand;
o weather conditions;
o the competitive position of oil or gas as a source of energy as
compared with other energy sources;
o the refining capacity of oil purchasers;
o the effect of regulation on the production, transportation and sale
of oil and natural gas, and other factors beyond our control.
Employees and Consultants. We have 5 full time employees, 3 of whom are
professional or technical and 2 who are management. 2 of our employees are
located at our executive offices at Yorba Linda, California, 2 are engaged full
time at our Vaca facility and 1, our Vice President in charge of disposal
operations, typically works in the field. In addition, we retain two engineering
consultants at our Vaca facility on an almost full time basis.
Management's Discussion and Analysis of Financial Condition and Results of
Operations
The following discussion and analysis for the years ended December 31,
2000 and December 31, 1999 should be read in conjunction with the Financial
Statements of the Company and the Notes thereto.
During 1998 we filed a petition for relief under Chapter 11 of the
United States Bankruptcy Code. As a result of the proceedings under Chapter 11,
we continued operations as Debtor-in-possession and the court ultimately
approved a Plan of Reorganization in December 1999. The Plan of Reorganization
includes the compromise of most of our liabilities and the infusion of $500,000
of additional capital from the sale of 4,500,000 shares of our common stock. In
addition, new management has replaced the former President and Chief Executive
Officer, Secretary/Treasurer and other members of management.
41
During 1998 and 1999 we disposed of significant assets by sale or by
transfer as part of the bankruptcy proceedings. Also, the operations of
remaining oil and gas properties as well as waste disposal operations were
curtailed during 1998 and ultimately ceased during 1999. However, despite these
constrictions of our asset base and operations, significant assets have been
retained and we are pursuing development of these assets. An immediate priority
is the restoration of the waste disposal operations and some of the oil and gas
operations to provide an internal source of cash flow. Further, we are
continuing efforts to obtain additional funds so that we can meet our
obligations, resume operations and develop our oil and gas properties. Potential
opportunities for additional funds include, among other things, private
placement of debt and/or equity securities, bank loans using oil and gas
properties as collateral, and/or the sale of the interests in certain oil and
gas properties, and/or entering into joint ventures or partnerships to develop
oil and gas properties.
The year 2000 represented the Company's first year of operations after
emerging from Bankruptcy in December 1999. During the year the Company was able
to raise additional equity to provide the funds necessary to begin the process
of restoring the assets of the Company and, thereby, generating cash flow from
operations. This equity was also used to pay remaining expenses incurred in
connection with the Bankruptcy and to fund current administrative costs incurred
by the Company.
During 2000 the Company was able to restore its income stream from the
waste disposal operations and generated $40,899 of gross income from this
activity. Based upon current income and expected new customers, Management
expects this income to increase substantially in 2001. In addition, the Company
was able to begin limited production from the Vaca Tar Sands Unit. Oil was
produced from this property during the last quarter of the year; however,
production was ceased in December due to poor economics. Because the oil
produced from Vaca is very thick, it requires heating and mixing with diluents.
The cost of natural gas required to run the heaters is currently very high. This
cost along with the cost of diluents and other operating costs rendered this
limited production operation unprofitable. Because of this disappointment,
Management has altered its priorities and strategy for restoring the assets of
the Company and generating positive cash flow from operations. Future
investments will be made in the Rosecrans property and other oil & gas
properties until such time that the economics improve on the Vaca Tar Sands
Unit.
42
The Company is currently attempting to raise additional capital to
restore the Rosecrans property to full operation. It is anticipated that this
property has the potential to produce sufficient income to generate positive
cash flow. The cash flow from this property in combination with the waste
disposal operations should result in Geo Petroleum, Inc. having positive cash
flow from operations sometime during 2001. In addition, Management is
considering other possible acquisitions or joint ventures to acquire additional
oil and gas properties. Further, Management is continuing efforts to obtain
additional funds so that the Company can meet its obligations, fund operating
expenses and make additional investments in oil and gas properties. Potential
opportunities for additional funds include, among other things, private
placement of debt, and/or equity securities, bank loans using oil and gas
properties as collateral, and/or sale of the interests in certain oil and gas
properties, and/or entering into joint ventures or partnerships to develop oil
and gas properties.
RESULTS OF OPERATIONS
During the year ended December 31, 2000, the Company had a loss of
$743,257 and negative cash flow from operations of $893,126 compared to a loss
of $1,028,762 and negative cash flow of $69,945 in 1999.
Revenues from the sale of oil and gas in 2000 were $40,901 . There was
effectively no income from these sources in 1999 because all operations were
ceased while the Company was in Bankruptcy. All production during 2000 was from
the Vaca Tar Sands Unit.
Industrial waste disposal revenues decreased from $157,529 in 1999 to
$40,899 in 2000. The decrease is due to the fact that this operation was also
disrupted by the Bankruptcy proceedings. The operations ceased in the latter
part of 1999 resulting in a new start-up period required to restore revenues.
Operations were restored in September 2000. Now that operation of the waste
disposal property has been restored, it is expected that revenues will increase
substantially as customer relations are re-established.
Lease operating expenses increased from $204,336 to $323,023 in 2000.
This increase is due primarily to the restoration of limited production
capabilities on the Vaca Tar Sands Unit. Because of the nature of this property,
significant operating costs were required to produce the first oil quantities
when the wells resumed production. Further, the cost of natural gas required to
heat the oil produced went up significantly in 2000 causing increased production
costs.
Expenses incurred for environmental remediation decreased from $42,832
in 1999 to $6,607 in 2000. The decrease is due to the fact that the Company had
no costs for oil spill clean up in 2000. Generally, such costs are incurred
after a period of oil and gas production. However, since there was no
significant production in 1999, there were no spills requiring clean up.
43
Professional fees increased from $76,911 in 1999 to $292,443 in 2000.
The increase is due primarily to the cost of outside accounting firms and
attorneys. In order to restore Geo to compliance with the Securities and
Exchange Commission regulations, the accounting records for 1998 and 1999 had to
be reconstructed and the resulting financial statements audited. Legal fees were
incurred to comply with SEC documentation requirements.
General and administrative expenses increased from $122,858 in 1999 to
$195,228 in 2000. The increase is due to the increase in activity of the Company
as the restoration of properties progressed. Additionally, the cost of corporate
promotion increased significantly as the Company began to operate in the public
market.
Reorganization items represent costs incurred during 1999 in connection
with the Bankruptcy proceedings. No additional costs were incurred in 2000.
CAPITAL RESOURCES AND LIQUIDITY
As of December 31, 2000, the Company's total assets were $996,641.
Total assets increased from $729,896 at December 31, 1999. The increase in
assets represents the Company's investment in its' waste disposal operations and
oil & gas operations.
Current assets decreased from $559,619 in 1999 to $245,462 at December
31, 2000. Cash was used to finance operations, invest in the Company's
properties and reduce debt. Consequently, cash decreased from $436,916 as of
December 31, 1999 to $70,173 as of December 31, 2000. During 2000 the Company
expended $893,126 to fund operations. Another $461,786 was spent for facilities
and capitalized costs incurred on oil and gas properties. The additional cash
required for these expenditures was provided from the issuance of stock totaling
$929,573.
Prepaid legal and consulting fees as of December 31, 2000 totaled
$125,228. This asset represents prepayment of certain attorneys and consultants
for services to be rendered to the Company. Payment to these professionals was
made in common stock.
Total liabilities decreased from $721,554 at December 31, 1999 to
$425,237 at December 31, 2000. This decrease is a result of the Company paying
debts approved by the Bankruptcy court. The only new source of debt financing
during 2000 was a line of credit for $85,000 from a related party.
44
The Company's primary sources of liquidity and capital resources in the
near term will consist of the working capital on hand and funds derived from oil
and gas production and waste disposal operations. The Company intends to
concentrate its efforts on restoring operation of the waste disposal facility
and selected oil and gas wells in order to reestablish sources of cash flow.
Capital resources will be augmented by the sale of equity in the Company and
transfer of partial interests in its properties in exchange for development
capital.
II. Financial Statements
INDEX TO THE FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2000 AND 1999 AND
FOR EACH OF THE TWO YEARS IN THE PERIOD ENDED DECEMBER 31, 2000
- --------------------------------------------------------------------------------
Report of Independent Auditors ...............................................1
Financial Statements of Geo Petroleum, Inc.:
Balance Sheets, December 31, 2000 and 1999..................................2
Statements of Operations For Each of the Two Years in the Period Ended
December 31, 2000.......................................................4
Statements of Shareholders' Equity For Each of the Two Years in the Period
Ended December 31, 2000.................................................5
Statements of Cash Flows For Each of the Two Years in the Period Ended
December 31, 2000.......................................................6
Notes to the Financial Statements.............................................9
45
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors
Geo Petroleum, Inc.
We have audited the accompanying balance sheets of Geo Petroleum, Inc. as of
December 31, 2000 and 1999, and the related statements of operations,
shareholders' equity and cash flows for each of the two years in the period
ended December 31, 2000. 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 2000 and 1999 financial statements referred to above present
fairly, in all material respects, the financial position of Geo Petroleum, Inc.
as of December 31, 2000 and 1999, and the results of its operations and its cash
flows for each of the two years in the period ended December 31, 2000, in
conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company has suffered recurring losses from operations,
has negative working capital, filed for relief under the federal bankruptcy laws
in November 1998 from which it emerged in December 1999, needs to attain
positive cash flow from operations, and obtain additional funds to commence
operations and development of its oil and gas properties. These matters raise
substantial doubt about the Company's ability to continue as a going concern.
Management's plans in regard to these matters are partially described in Note 2.
The accompanying financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
Kelly & Company
Newport Beach, California
March 20, 2001
46
GEO PETROLEUM, INC.
BALANCE SHEETS
DECEMBER 31, 2000 AND 1999
ASSETS
2000 1999
---------- ---------
Current assets:
Cash and equivalents $ 70,173 $ 436,916
Accounts receivable, net of allowance for
doubtful accounts of $29,944 in 1999. 33,961 4,069
Joint interest and other receivable, net of allowance for
doubtful accounts of $131,508 in 1999. - 70,000
Prepaid legal and consulting fees 125,228 -
Other prepaid expenses 9,000 3,634
Note receivable 7,100 45,000
---------- ---------
Total current assets 245,462 559,619
---------- ---------
Restoration and utility deposits 290,936 160,592
---------- ---------
Property and equipment:
Oil and gas properties 261,311 -
Vehicles 36,884 20,884
Facilities and equipment 184,475 -
---------- ---------
482,670 20,884
Less: accumulated depreciation and depletion (22,427) (11,199)
---------- ---------
460,243 9,685
---------- ---------
Total assets $ 996,641 $ 729,896
========== =========
The accompanying notes are an integral part of the financial statements.
47
GEO PETROLEUM, INC.
BALANCE SHEETS
DECEMBER 31, 2000 AND 1999
LIABILITIES AND SHAREHOLDERS' EQUITY
2000 1999
--------- ----------
Current liabilities:
Accounts payable:
Trade $160,901 $ 29,912
Related party 54,805 14,149
Accrued expenses 91,635 220,408
Income tax payable - 3,039
Installment obligation, current maturity - 48,000
Line of credit - related party 85,000 -
Other liabilities 4,300 255,046
Note payable, current maturity 28,596 26,404
---------- ---------
Total current liabilities 425,237 596,958
Installment obligation, net of current maturity - 96,000
Note payable, net of current maturity - 28,596
---------- ---------
TOTAL LIABILITIES 425,237 721,554
---------- ---------
Commitments and contingencies
Shareholders' equity:
Preferred stock; no par value; 100,000 shares authorized; no
shares issued and outstanding at December 31, 2000
and 1999, respectively - -
Common stock; no par value; 50,000,000 shares authorized;
18,177,805 and 15,215,995 shares issued and outstanding at
December 31, 2000 and 1999, repectively 11,225,293 9,918,974
Accumulated deficit (10,653,889) (9,910,632)
------------ ----------
Total shareholders' equity 571,404 8,342
Total liabilities and shareholders' equity $ 996,641 $ 729,896
============ ===========
The accompanying notes are an integral part of the financial statements.
48
GEO PETROLEUM, INC.
STATEMENTS OF OPERATIONS
FOR EACH OF THE TWO YEARS IN THE PERIOD ENDED DECEMBER 31, 2000
2000 1999
---------- ---------
Revenues:
Oil and gas sales $ 40,901 $ 872
Waste water disposal services 40,899 -
Waste water disposal services, related party - 157,529
Other revenue - 4,000
---------- -----------
Total revenues 81,800 162,401
Expenses:
Lease operating expenses 323,023 204,336
Lease environmental remediation expenses 6,607 42,832
Depreciation 11,228 23,194
Professional fees 292,443 76,911
General and administrative 195,228 122,858
---------- -----------
Total expenses 828,529 470,131
---------- -----------
Loss from operations (746,729) (307,730)
---------- -----------
Reorganization items:
Loss on disposal of equipment - (5,228)
Professional fees - (226,883)
Capitan and other settlements - (648,248)
---------- -----------
Total reorganization items - (880,359)
---------- -----------
Other income (expense):
Interest income 10,249 5,225
Interest expense (contractual interest of $75,883 in 1999) (5,977) (865)
---------- -----------
4,272 4,360
---------- -----------
Loss before provision for income taxes and extraordinary
item (742,457) (1,183,729)
Provision for income taxes (800) (800)
---------- -----------
Loss before extraordinary item (743,257) (1,184,529)
Extraordinary gain from claims discharged in bankruptcy,
net of application income taxes of $0 - 155,767
---------- -----------
Net loss $ (743,257) $ (1,028,762)
========== ===========
Net loss per share, basic and diluted $ (0.04) $ (0.11)
========== ===========
The accompanying notes are an integral part of the financial statements.
49
GEO PETROLEUM, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
FOR EACH OF THE TWO YEARS IN THE PERIOD ENDED DECEMBER 31, 2000
Common Common Accumulated
Shares Stock Deficit Total
------------- ------------- ------------- --------------
BALANCE, DECEMBER 31, 1998 8,815,995 $ 7,276,413 $ (8,881,870) $ (1,605,457)
Common shares issued to unsecured creditors
pursuant to the confirmed plan of reorganization 1,900,000 2,142,561 - 2,142,561
Common shares issued for cash 4,500,000 500,000 - 500,000
Net loss - - (1,028,762) (1,028,762)
------------- ------------- ------------- --------------
BALANCE, DECEMBER 31, 1999 15,215,995 9,918,974 (9,910,632) 8,342
Common shares issued in settlement of liabilities 402,967 169,246 - 169,246
Common shares and warrants issued for services 150,000 207,500 - 207,500
Common shares issued for cash 2,408,843 929,573 - 929,573
Net loss - - (743,257) (743,257)
------------- ------------- -------------- --------------
BALANCE, DECEMBER 31, 2000 18,177,805 $ 11,225,293 $ (10,653,889) $ 571,404
============= ============= ============== ==============
The accompanying notes are an integral part of the financial statements.
50
GEO PETROLEUM, INC.
STATEMENTS OF CASH FLOWS
FOR EACH OF THE TWO YEARS IN THE PERIOD ENDED DECEMBER 31, 2000
2000 1999
-------------- --------------
Cash flows from operating activities:
Net loss $ (743,257) $ (1,028,762)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation 11,228 23,194
Issuance of common stock and warrants
for services 81,875 -
Loss on settlement with Capitan Resources Inc. - 503,248
Extraordinary gain from claims discharged in
bankruptcy - (155,767)
Loss on disposal of equipment - 5,228
Decrease (increase) in assets:
Accounts receivable trade 40,108 (4,069)
Due from Capitan Resources, Inc., net - 53,255
Due from a related party 37,900 -
Prepaid expenses (4,969) (3,634)
Restoration and utility deposits (130,344) -
Increase (decrease) in liabilities:
Accounts payable, trade 130,989 29,912
Accounts payable, related party 40,656 14,149
Accrued expenses (128,772) 268,816
Income tax payable (3,039) 3,039
Other liabilities (160,746) 221,446
Installment obligation (64,755) -
-------------- --------------
NET CASH USED IN OPERATING ACTIVITIES (893,126) (69,945)
-------------- --------------
The accompanying notes are an integral part of the financial statements.
51
GEO PETROLEUM, INC.
STATEMENTS OF CASH FLOWS
FOR EACH OF THE TWO YEARS IN THE PERIOD ENDED DECEMBER 31, 1999
2000 1999
-------------- --------------
Cash flows used in investing activities
Purchases of facilities and equipment $ (184,475) -
Purchase of vehicles (16,000) -
Capital expenditures on oil and gas properties (261,311) -
-------------- --------------
NET CASH USED IN INVESTING ACTIVITIES (461,786) -
-------------- --------------
Cash flows provided by (used in) financing activities:
Proceeds from line of credit, related party 110,000 -
Payment on line of credit, related party (25,000) -
Payment on note payable. (26,404) -
Net proceeds from the issuance of common stock 929,573 $ 500,000
-------------- --------------
CASH PROVIDED BY FINANCING ACTIVITIES 988,169 500,000
-------------- --------------
NET INCREASE (DECREASE) IN CASH (366,743) 430,055
CASH AND EQUIVALENTS AT BEGINNING OF YEAR 436,916 6,861
-------------- --------------
CASH AND EQUIVALENTS AT END OF YEAR $ 70,173 $ 436,916
============== ==============
Supplemental Disclosures of Cash Flow Information
Interest paid $ 3,446 -
Income taxes paid $ 3,839 -
Supplemental Schedule of Non-Cash Investing and Financing Activities
Satisfaction of federal bankruptcy proceedings allowed claims
through issuance of common stock:
Allowed claims satisfied - $ 2,142,561
Shares issued - $ (2,142,561)
Issuance of common stock for prepaid legal and consulting fees:
Prepaid legal and consulting fees $ 125,625 -
Issuance of common stock $ (125,625) -
The accompanying notes are an integral part of the financial statements.
52
GEO PETROLEUM, INC.
STATEMENTS OF CASH FLOWS
FOR EACH OF THE TWO YEARS IN THE PERIOD ENDED DECEMBER 31, 1999
Supplemental Schedule of Non-Cash Investing and Financing Activities, Continued
2000 1999
--------------- ---------------
Issuance of common stock to pay federal bankruptcy proceeding expenses:
Accrued legal fees $ 90,000 -
Professional fees $ 79,246 -
Issuance of common stock $ (169,246) -
The accompanying notes are an integral part of the financial statements.
53
GEO PETROLEUM, INC.
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2000 AND 1999 AND
FOR EACH OF THE TWO YEARS IN THE PERIOD ENDED DECEMBER 31, 2000
- --------------------------------------------------------------------------------
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. During the year ended December 31, 1999, these
disposal operations were conducted by a related party (see Note 10), and
the Company had a 75% revenue interest in such operations. During the year
ended December 31, 2000, the Company directly operated its waste water
disposal wells, and as a result of the Plan, received all of the revenue
related to this activity.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
--------------------------------------------
Basis of Presentation
The accompanying financial statements have been prepared on a going-concern
basis, which contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. The Company incurred net
losses of $743,257 and $1,028,762 and negative cash flows from operations
of $893,126 and $69,945 for the years ended December 31, 2000 and 1999,
respectively. At December 31, 2000 the Company had an accumulated deficit
of $10,653,889, and its current liabilities exceed its current assets by
$179,775. In June 1998, the Company decided to shut-in its oil and gas
production at all of its property locations except certain of the oil wells
and the waste water disposal wells on the Vaca Tar Sands property, and the
Rosecrans Field gas production. It planned to focus its resources on the
development of the Vaca Tar Sands property. In November 1998, the Company
filed for protection under the federal bankruptcy laws. Effectively, the
Company curtailed its oil and gas production in 1999, and substantially
reduced its waste water disposal operations. In December 1999, the
bankruptcy court confirmed the Plan (see Note 5) and the Company received
$500,000 from the sale of 4,500,000 shares of its common stock and emerged
from bankruptcy. In the fourth quarter of 2000, the Company began oil
production and waste water disposal services at its Vaca Tar Sands
properties. The production requires steam injection recovery techniques.
This process uses substantial quantities of natural gas. Due to
inordinately high natural gas costs, the Company curtailed its oil
production efforts.
The Company's continuation as a going concern is dependent upon its ability
to repair and modify equipment and commence production from its Rosecrans
oil and gas properties, generate sufficient cash flow to meet its current
obligations on a timely basis, to obtain additional financing, and
ultimately to attain profitable oil and gas and waste water disposal
operations. In 2000, management obtained approximately $930,000 in
additional equity financing through private placement of its common stock
and is continuing its efforts to obtain additional funds so that the
Company can meet
54
GEO PETROLEUM, INC.
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2000 AND 1999 AND
FOR EACH OF THE TWO YEARS IN THE PERIOD ENDED DECEMBER 31, 2000
- --------------------------------------------------------------------------------
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
-----------------------------------------------------
Basis of Presentation, Continued
its obligations, commence oil and gas operations, and develop its oil and
gas properties. These potential alternatives include, among other things,
private placement of debt and/or equity securities, bank loans using oil
and gas properties as collateral and/or the sale of the interests in its
oil and gas properties. There can be no assurance that any of these
potential alternatives will materialize. The financial statements do not
include any adjustments that might result from the outcome of this
uncertainty.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect amounts reported in the financial statements.
Changes in these estimates and assumptions are considered reasonably
possible and may have a material impact on the financial statements.
Facilities 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 Company has not capitalized any interest or any of its
internal costs related to its oil and gas properties.
In addition, the capitalized costs are subject to a "ceiling test," which
basically limits such costs to the aggregate of the "estimated present
value" of future net revenues from proved reserves, discounted at a
10-percent interest rate, based on current economic and operating
conditions, plus the lower of cost or fair market value of unproved
properties. Any unamortized costs capitalized in the cost center in excess
of the cost center ceiling are charged to expense in the period in which
the excess occurs.
Sales of proved and unproved properties are accounted for as adjustments of
capitalized costs with no gain or loss recognized, unless such adjustments
would significantly alter the relationship between capitalized costs and
proved reserves of oil and gas, in which case the gain or loss is
recognized in the determination of income or loss. Abandonments of
properties are accounted for as adjustments of capitalized costs with no
loss recognized.
All capitalized costs of oil and gas properties, including the estimated
future costs to develop proved reserves, are amortized over the estimated
useful lives of the properties by application of the
55
GEO PETROLEUM, INC.
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2000 AND 1999 AND
FOR EACH OF THE TWO YEARS IN THE PERIOD ENDED DECEMBER 31, 2000
- --------------------------------------------------------------------------------
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
-----------------------------------------------------
Facilities and Equipment, Continued
unit-of-production method using only estimated proved oil and gas reserves,
excluding future estimated costs and related oil reserves at the Vaca Tar
Sands property, which relate to a significant development project involving
an enhanced recovery process. Evaluations of the oil and gas reserves for
the Company's Rosecrans and Vaca Tar Sands properties were prepared by
independent petroleum engineers. Such estimates of oil and gas reserves are
inherently imprecise and estimates of new discoveries are more imprecise
than those of producing oil and gas properties. As a result, these
estimates are expected to change as future information becomes available,
and such change can be significant.
Substantially all additions to oil and gas properties in 2000 relate to
improvements to waste water disposal wells, facilities and equipment and
development costs associated with its Vaca Tar Sands properties. There were
no additions in 1999.
The Company's oil and gas producing properties are estimated by the
Company's independent petroleum engineers to have remaining producing lives
ranging from 6 to 30 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 furniture and equipment, and vehicles, is computed
using the straight-line method, with depreciation rates based upon
estimated useful lives of five years.
Depreciation of plant and equipment is computed using the straight-line
method, with depreciation rates based upon estimated useful lives of
fourteen years.
Revenue Recognition
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.
During 1999, all of the Company's revenue from waste water disposal
services and a portion of its gas revenues arose from operating and sales
agreements with a related party (see Note 10), which operated the Company's
waste water disposal well and sold gas produced from wells owned by the
Company. The Company accrued its share of waste water disposal revenues
when payment for services was received by the related party. As described
in Note 5, under the Plan the rights to the operation and sales agreements
were transferred to the Company.
56
GEO PETROLEUM, INC.
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2000 AND 1999 AND
FOR EACH OF THE TWO YEARS IN THE PERIOD ENDED DECEMBER 31, 2000
- --------------------------------------------------------------------------------
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
-----------------------------------------------------
Long-Lived Assets
Long-lived assets held and used by the Company are reviewed for impairment
whenever events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. When circumstances indicate that
the carrying amount of a long-lived asset, other than oil and gas
properties, is not recoverable, as demonstrated by the projected
undiscounted cash flows, an impairment loss is recognized.
The Company accounts for its oil and gas properties under the full cost
method and evaluates these assets separately in accordance with applicable
cost ceiling limitations. The Company's management has determined that
there was no impairment of long-lived assets at December 31, 2000 and 1999,
respectively.
Income Taxes
The Company uses the asset and liability method to account for income
taxes. Deferred income tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the carrying
amounts of existing assets and liabilities for accounting purposes, and
their respective tax bases. Deferred income tax assets and liabilities are
measured using statutory tax rates expected to apply to taxable income in
the years in which those temporary differences are expected to be recovered
or settled. The effect on deferred income tax assets and liabilities of a
change in statutory tax rates is recognized in net income in the year of
change. A valuation allowance is recorded for those deferred income tax
assets whose recoverability is not sufficiently likely.
Earnings (Loss) per Common Share
Basic earnings (loss) per common share is computed by dividing net earnings
(loss) applicable to common shareholders by the weighted-average number of
common shares outstanding during the period. Diluted earnings (loss) per
common share is determined using the weighted-average number of common
shares outstanding during the period, adjusted for the dilutive effect of
common stock equivalents, consisting of shares that might be issued upon
exercise of common stock options and warrants. In periods where losses are
reported, the weighted-average number of common shares outstanding excludes
common stock equivalents, because their inclusion would be anti-dilutive.
Stock Option Plans
Financial Accounting Standards Board ("FASB") Statement No. 123, Accounting
for Stock-Based Compensation, ("FAS No. 123") encourages, but does not
require, companies to record
57
GEO PETROLEUM, INC.
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2000 AND 1999 AND
FOR EACH OF THE TWO YEARS IN THE PERIOD ENDED DECEMBER 31, 2000
- --------------------------------------------------------------------------------
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
-----------------------------------------------------
Stock Option Plans, Continued
compensation cost for stock-based employee compensation plans based on the
fair value of options granted. The Company has elected to continue to
account for stock-based compensation using the intrinsic value method
prescribed in Accounting Principles Board Opinion No. 25, Accounting for
Stock Issued to Employees ("APB No. 25") and related interpretations and to
provide additional disclosures with respect to the pro forma effects of
adoption had the Company recorded compensation expense as provided in FAS
No. 123. In accordance with APB No. 25, compensation cost for stock options
is recognized in the statement of operations based on the excess, if any,
of the quoted market price of the stock at the grant date of the award or
other measurement date over the amount an employee must pay to acquire the
stock. Generally, the exercise price for stock options granted to employees
equals or exceeds the fair market value of the Company's common stock at
the date of grant, thereby resulting in no recognition of compensation
expense by the Company.
Environmental Costs
Costs related to environmental remediation are charged to expense. Other
environmental costs are also charged to expense unless they increase the
value of the property and/or provide future economic benefits, in which
event they are capitalized. Liabilities are recognized when the
expenditures are considered probable and can be reasonably estimated.
Measurement of liabilities is based on currently enacted laws and
regulations, existing technology, and undiscounted site-specific costs.
Generally, such recognition coincides with the Company's commitment to a
formal plan of action.
Accruals for environmental matters are recorded when it is probable that a
liability has been incurred and the amount of the liability can be
reasonably estimated, or if an amount is likely to fall within a range and
no amount within that range can be determined to be the better estimate,
the minimum amount of the range is recorded. Accruals for environmental
matters exclude claims for recoveries from insurance carriers and other
third parties until it is probable that such recoveries will be realized.
New Pronouncements
In June 1998, the FASB issued Statement No. 133, Accounting for Derivative
Instruments and Hedging Activities, as amended by FASB Statements No. 137
and 138. The new statement requires companies to report, among other
things, the fair market value of derivatives on the balance sheet and
record in income or other comprehensive income, as appropriate, any changes
in the fair value
58
GEO PETROLEUM, INC.
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2000 AND 1999 AND
FOR EACH OF THE TWO YEARS IN THE PERIOD ENDED DECEMBER 31, 2000
- --------------------------------------------------------------------------------
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
-----------------------------------------------------
New Pronouncements, Continued
of the derivatives. FASB Statement No. 133, as amended, will become
effective with respect to the Company for the fiscal year beginning January
1, 2001.
The Company is currently evaluating the effect of this new statement, but
does not believe it will have a material impact on the Company's financial
statements.
3. RESTORATION AND UTILITY DEPOSITS
--------------------------------
The Company has deposits with a utility that supplies natural gas, as well
as with the State of California, the County of Ventura and the City of Los
Angeles that are required by these governmental agencies in connection with
the Company's oil and gas operations. The deposits with the State of
California and Ventura County are in certificates of deposit that are
subject to withdrawal restrictions imposed by these agencies. The deposit
with the City of Los Angeles is in the form of a noninterest bearing cash
deposit. The amounts of these deposits at December 31, 2000 and 1999 are as
follows:
2000 1999
------------ -------------
Utility $ 18,800 -
State of California 211,495 $ 100,387
County of Ventura 10,641 10,205
City of Los Angeles 50,000 50,000
------------- ------------
TOTAL RESTORATION AND UTILITY DEPOSITS $ 290,936 $ 160,592
============= ============
59
GEO PETROLEUM, INC.
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2000 AND 1999 AND
FOR EACH OF THE TWO YEARS IN THE PERIOD ENDED DECEMBER 31, 2000
- --------------------------------------------------------------------------------
4. LINE OF CREDIT AND NOTE PAYABLE
-------------------------------
December 31,
---------------------------------
2000 1999
------------- -------------
Line of Credit
Line of credit payable to TD & Associates, Inc., a related
party. Borrowings under the line bear interest at prime
plus 2%, payable monthly, with the principal due in full
on September 7, 2001. The line is not collateralized, and
no amounts remain available under the line. The weighted
average interest rate on borrowings under the line was 11.5%. $ 85,000 -
============= =============
Note Payable
Note payable to shareholders, with an interest rate of 8% per annum,
payable in monthly installments of principal and interest of $2,487,
due in December 2001 and collateralized by 33% net revenue interest
in the Company's Vaca Tar Sands oil and gas properties $ 28,596 $ 55,000
Total note payable 28,596 55,000
Less: current maturities (28,596) (26,404)
------------- -------------
LONG-TERM PORTION OF NOTE PAYABLE - 28,596
============= =============
Future maturities of long-term debt are as follows at December 31, 2000:
2001 $ 28,596
-------------
Total maturities of long-term debt $ 28,596
=============
5. PLAN OF REORGANIZATION
----------------------
On November 16, 1998, Geo Petroleum, Inc. (the "Debtor") filed a petition
for relief under Chapter 11 of the federal bankruptcy laws in the United
States Bankruptcy Court for the Central District of California, Santa
Barbara Division (the "bankruptcy court").
During 1999, the Debtor received approval from the bankruptcy court to pay
or otherwise honor certain of its prepetition obligations, including
employee wages when the Company's Third Amended Plan of Reorganization (the
"Plan") was approved. The Debtor determined that there was insufficient
collateral to cover the interest portion of scheduled payments on its
prepetition debt
60
GEO PETROLEUM, INC.
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2000 AND 1999 AND
FOR EACH OF THE TWO YEARS IN THE PERIOD ENDED DECEMBER 31, 2000
- --------------------------------------------------------------------------------
5. PLAN OF REORGANIZATION, CONTINUED
---------------------------------
obligations. Therefore, the debtor discontinued accruing interest on these
obligations. Contractual interest on those obligations for the year ended
December 31, 1999, amounted to $75,883, which is $75,018 in excess of
reported interest expense.
On December 15, 2000, the bankruptcy court confirmed the Plan under which:
a. The Company consummated a stock purchase and sale agreement with an
investor and sold 4,500,000 shares of the Company's common stock for
$500,000 in cash. Of this amount, $300,000 was used to fund the
payments required under the Plan and the balance was used for working
capital.
b. Certain controversies with Capitan Resources, Inc. ("Capitan") and
related parties were settled and (a) Capitan, a related party (see
Note 10) transferred to the Company all of its rights under its
operating and sales agreements with the Company and withdrew all
claims it may have had against the Company, (b) a former officer and
major shareholder of the Company released his rights to reimbursement
for his stock sold by a creditor to satisfy a debt incurred for the
benefit of the Company and to his stock incentive compensation
totaling 1,390,000 shares of the Company's common stock and agreed to
only serve as consultant to the Company at the discretion of new
management on a fee for service basis, (c) all deeds of trust held by
the former officer and major shareholder, the former
Secretary/Treasurer, who is the wife of the former officer and major
shareholder, and other insiders of the Company on the East
L.A./Bandini properties were assigned to the Company, and all deeds of
trust held by insiders on property of the Company were released and
(d) the Company released and waived all claims and other causes of
action it may have had against Capitan Resources, Inc., the former
officer and major shareholder, and the former Secretary/Treasurer, who
is the wife of the former officer and major shareholder.
c. The Company assumed certain executory contracts and unexpired leases
and paid "executory Contract Cure Amounts" totaling $39,004.
d. The remaining unsecured creditor claims totaled approximately
$2,375,000 and were satisfied generally through cash payments,
issuance of a note payable, and a pro rata distribution of 1,900,000
shares of the Company's common stock. Also, after payments of allowed
administrative expenses, tax priority payroll amounts, Class 2
creditor claims and Executory Contract Cure amounts, these unsecured
creditors were entitled to receive a pro rata distribution of any
amounts remaining from the $300,000 in funds available for required
payments under the Plan and $195,000 to be paid over approximately 12
quarters from up to 30% of future quarterly
61
GEO PETROLEUM, INC.
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2000 AND 1999 AND
FOR EACH OF THE TWO YEARS IN THE PERIOD ENDED DECEMBER 31, 2000
- --------------------------------------------------------------------------------
5. PLAN OF REORGANIZATION, CONTINUED
---------------------------------
net income, if any (as defined). As the allowed administrative
expenses, taxes, priority payroll, and other allowable amounts
exceeded the $495,000 total of these amounts at December 31, 2000, no
further amounts are due under this provision. As a result,
approximately $65,000 of 2000 expenses were offset against previously
recorded liabilities.
e. The creditors' claims submitted during the bankruptcy that were
objected to by the Company were all resolved by November 2000. These
settlements pertained primarily to two of the leases associated with
the Company's oil and gas production and to two waste water disposal
agreements. In general, these settlements resulted in obligations for
payments by the Company and increased royalty rates from 12.5% to
16.67% on one of its leases and an increase of 1.04% on another lease.
The settlements provided for a decrease in disposal royalties on solid
wastes from 12.5% to 10%. The Company also agreed to pay minimum
royalties totaling approximately $36,000 annually. Royalties paid
during the course of operations will be credited against the minimum
royalty payments. One of these settlements also resulted in the
termination of the Company's oil and gas lease rights representing
approximately 8.87% of the Vaca Tar Sands property oil and gas
reserves.
Fresh-Start Reporting
Because the holders of existing voting shares immediately before
confirmation of the Plan maintain more than 50% of the voting shares of the
reorganized Company, the Company has not adopted "Fresh-start" reporting
upon its emergence from the federal bankruptcy proceeding. Accordingly, the
historical cost basis of accounting has been continued by the Company.
62
GEO PETROLEUM, INC.
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2000 AND 1999 AND
FOR EACH OF THE TWO YEARS IN THE PERIOD ENDED DECEMBER 31, 2000
- --------------------------------------------------------------------------------
6. INCOME TAXES
------------
The components of the provision for income taxes are as follows:
December 31,
---------------------------------
2000 1999
--------------- ---------------
Current tax expense:
Federal - -
State $ 800 $ 800
--------------- --------------
800 800
--------------- ---------------
Deferred tax expense:
Federal - -
State - -
--------------- ---------------
TOTAL PROVISION $ 800 $ 800
=============== =============
Significant components of the Company's deferred income tax assets and
liabilities at December 31, 2000 and 1999 are as follows:
December 31,
-----------------------------------------
2000 1999
---- ----
Deferred income tax assets:
Net operating loss carryforward $ 2,970,630 $ 2,523,507
Allowance for doubtful accounts - 67,403
Differences between book and tax basis of property 35,831 -
Other 272 272
--------------- ---------------
NET DEFERRED INCOME TAX ASSET 3,006,733 2,591,182
--------------- ---------------
Deferred income tax liability:
Differences between book and tax basis of property - 76,718
--------------- ---------------
TOTAL DEFERRED INCOME TAX LIABILITY - 76,718
--------------- ---------------
Net 3,006,733 2,514,464
Valuation allowance (3,006,733) (2,514,464)
---------------- ----------------
Net deferred income taxes - -
================ ================
63
GEO PETROLEUM, INC.
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2000 AND 1999 AND
FOR EACH OF THE TWO YEARS IN THE PERIOD ENDED DECEMBER 31, 2000
- --------------------------------------------------------------------------------
6. INCOME TAXES, CONTINUED
-----------------------
The Company, based upon its recent history of losses and management's
assessment of when operations are anticipated to generate taxable income,
has concluded that it is more likely than not that none of the net deferred
income tax assets will be realized through future taxable earnings and has
established a valuation allowance for them.
Reconciliation of the effective tax rate to the U.S. statutory rate is as
follows:
December 31,
------------------------------
2000 1999
------ ------
Tax expense at U.S. statutory rate (34.0)% (34.0)%
State tax provision 0.1 -
Change in valuation allowance 34.0 34.0
------------ -----------
EFFECTIVE INCOME TAX RATE 0.1% -
============ ===========
At December 31, 2000, the Company has available unused net operating loss
carryforwards that expire as follows:
Federal Net State Net
Year of Operating Loss Operating Loss
Expiration Carryforwards Carryforwards
2001 - $ 310,900
2002 - 523,848
2003 - 826,296
2004 - 524,454
2005 - 581,535
Thereafter up to 2020 $ 8,017,720 -
-------------- ---------------
TOTAL $ 8,017,720 $ 2,767,033
=============== ===============
The Company has determined that there will be significant limitations on
the future utilization of the net operating loss carryforwards due to
ownership changes in the Company.
64
GEO PETROLEUM, INC.
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2000 AND 1999 AND
FOR EACH OF THE TWO YEARS IN THE PERIOD ENDED DECEMBER 31, 2000
- --------------------------------------------------------------------------------
7. 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. The Company had one significant customer
for its oil and gas production in 2000 that accounted for approximately 99%
of gross oil and gas sales. This customer accounted for $4,878 of the
Company's accounts receivable at December 31, 2000. The Company had three
significant customers for its waste water disposal services in 2000 that
accounted for approximately 46%, 15% and 13% of gross waste water disposal
services revenue, respectively. At December 31, 2000, the Company had
accounts receivable due from two of these customers for $13,200.
Cash in Excess of Federal Deposit Insurance Corporation Insured Limits
The Company maintains its cash in bank depository accounts, which, at
times, may exceed federally insured limits. Accounts are guaranteed by the
Federal Deposit Insurance Corporation ("FDIC") up to $100,000. At December
31, 2000, the Company had approximately $103,526 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.
65
GEO PETROLEUM, INC.
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2000 AND 1999 AND
FOR EACH OF THE TWO YEARS IN THE PERIOD ENDED DECEMBER 31, 2000
- --------------------------------------------------------------------------------
7. COMMITMENTS AND CONTINGENCIES, CONTINUED
----------------------------------------
Risks of the Industry in Which the Company Operates, Continued
The Company does not have any commitments for future minimum lease payments
at December 31, 2000. Rental expense recorded for the years ended December
31, 2000 and 1999 was $60,000 and $6,667, respectively.
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.
8. DISCLOSURES ABOUT FAIR VALUES OF FINANCIAL INSTRUMENTS
------------------------------------------------------
The Company's financial instruments are cash and cash equivalents, accounts
receivable, notes receivable, accounts payable, and notes payable. The
recorded values of cash and cash equivalents, accounts receivable, notes
receivable, accounts payable, and notes payable approximate their fair
values based on their short-term nature. The recorded values of notes
receivable and notes payable approximate their fair values, as interest
approximates market value.
9. FARM-OUT OF VACA TAR SANDS PROPERTY
-----------------------------------
In prior years, the Company entered into an agreement with Saba Petroleum,
Inc. ("Saba") to farm-out for the development and operations of the
Company's Vaca Tar Sands property.
The agreement, as modified, requires Saba to pay for one-half (1/2) of the
operating and development costs until they expend $5,000,000. At that
point, Saba will have earned a one-third (1/3) interest and the Company
will retain a two-thirds (2/3) interest in the property and these two
parties will share in the costs and revenues based on their respective
interests.
66
GEO PETROLEUM, INC.
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2000 AND 1999 AND
FOR EACH OF THE TWO YEARS IN THE PERIOD ENDED DECEMBER 31, 2000
- --------------------------------------------------------------------------------
9. FARM-OUT OF VACA TAR SANDS PROPERTY, CONTINUED
----------------------------------------------
This agreement was assumed as an executory contract under the Plan as
described in Note 5. During 1999, the Company incurred certain costs and
expenses in connection with its Vaca Tar Sands property that management
believes are related to the Farm-Out agreement. However, at December 31,
2000, the portion of these expenditures that management believes are
reimbursable by Saba under the Farm-Out agreement are in dispute.
Management intends to pursue reimbursement of these amounts from Saba, but
it is uncertain if any of these amounts will ultimately be recovered.
10. RELATED PARTY TRANSACTIONS
--------------------------
Capitan Resources, Inc.
Until the confirmation of the Plan of Reorganization on December 15, 1999,
the Company had certain agreements with Capitan to sell gas produced from
wells owned by the Company and to offer waste water disposal services on
sites owned by the Company. A former officer and major shareholder of the
Company was also the principal officer and shareholder of Capitan. Under
the agreements, the Company was to receive 70% of Capitan's net revenues
from gas sales and 75% of Capitan's net revenues from waste water disposal
services.
In connection with the Plan of Reorganization, Capitan's rights under these
agreements were transferred to the Company, and controversies between the
Company and Capitan were settled. As a result, the Company recognized a
Capitan settlement loss of $418,703, which is included in the $648,248
Reorganization Settlement Loss recorded in the year ended December 31,
1999.
Other
The Company's former officer and major shareholder holds a 5% net profit
interest in the Vaca Tar Sands oil and gas properties. Under the terms of
the Agreement, the former officer and major shareholder does not share in
the net profits of the properties until the Company has recovered his
proportionate share of the cumulative losses previously incurred on the
properties. At December 31, 2000, the former officer and major
shareholder's proportionate share of the cumulative losses totaled
approximately $14,000.
In addition, 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.
67
GEO PETROLEUM, INC.
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2000 AND 1999 AND
FOR EACH OF THE TWO YEARS IN THE PERIOD ENDED DECEMBER 31, 2000
- --------------------------------------------------------------------------------
11. LOSS PER SHARE
---------------
Basic and diluted loss per common share have 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 Years Ended December 31,
------------------------------------
2000 1999
--------------- --------------
Numerator:
Loss before extraordinary item $ (743,257) $ (1,184,529)
Extraordinary item - 155,767
--------------- ---------------
Net loss and the numerator for basic and diluted loss
per common share $ (743,257) $ (1,028,762)
=============== ===============
Denominator:
Weighted-average shares basic and diluted 16,691,576 9,034,899
=============== ===============
Basic and diluted loss per common share:
Loss before extraordinary item $ (.04) $ (0.13)
Extraordinary gain from debt discharged in bankruptcy - 0.02
--------------- --------------
Net loss per common share $ (.04) $ (0.11)
=============== ===============
The potentially dilutive securities that were outstanding during 2000 and
1999 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 Years Ended December 31,
---------------------------------
2000 1999
----------- ---------------
Shares of common stock issuable under:
Warrants 756,821 856,821
Options 4,000,000 -
--------------- --------------
TOTAL 4,756,821 856,821
=============== ==============
12. STOCK OPTIONS
-------------
During 2000, the Company adopted a Stock Option Plan (the "Option Plan")
under which officers, key employees, and non-employee directors and others
may be granted options to purchase shares of the Company's authorized but
unissued common stock. The maximum number of shares of the Company's common
stock available for issuance under the Option Plan is 4,000,000 shares. The
68
GEO PETROLEUM, INC.
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2000 AND 1999 AND
FOR EACH OF THE TWO YEARS IN THE PERIOD ENDED DECEMBER 31, 2000
- --------------------------------------------------------------------------------
12. STOCK OPTIONS, CONTINUED
--------------------------
Company granted all of the options provided in the Option Plan to purchase
common shares to its president at an exercise price of $.56. The options
are exercisable at any time and expire in September 2005. As of December
31, 2000, there were no shares available for future grants under the Option
Plan. Under the Option Plan, the option exercise price is equal to the fair
market value of the Company's common stock at the date of grant. Options
currently expire no later than 5 years from the grant date and are
exercisable according to terms provided by the option committee at the date
of grant. Proceeds received by the Company from exercises of stock options
are credited to common stock. Additional information with respect to the
Option Plan's stock option activity is as follows:
Weighted
Average
Number of Exercise
Shares Price
------------- -------------
Outstanding at December 31, 1999 - -
Granted 4,000,000 $.56
Exercised - -
Cancelled - -
------------- -------------
Outstanding at December 31, 2000 4,000,000 $.56
============= =============
Options exercisable at December 31, 2000 4,000,000 $.56
============= =============
The following tables summarize information about stock options outstanding
and exercisable at December 31, 2000:
Stock Options Outstanding Stock Options Exercisable
----------------------------------------------------- ---------------------------
Weighted
Average Weighted Weighted
Range of Number of Remaining Average Number of Average
Exercise Shares Contractual Exercise Shares Exercise
Prices Outstanding Life in Years Price Exercisable Price
------------ ------------- -------------- ----------- ----------- ----------
$ .56 4,000,000 4.75 years $ .56 4,000,000 $ .56
------------ ------------- -------------- --------- -------------- ------
4,000,000 4.75 years $ .56 4,000,000 $ .56
============== ============== ========== ============== ======
69
GEO PETROLEUM, INC.
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2000 AND 1999 AND
FOR EACH OF THE TWO YEARS IN THE PERIOD ENDED DECEMBER 31, 2000
- --------------------------------------------------------------------------------
12. STOCK OPTIONS, CONTINUED
------------------------
The Company has elected to follow APB Opinion No. 25, Accounting for Stock
Issued to Employees in accounting for its employee stock options.
Accordingly, no compensation expense is recognized in the Company's
financial statements because the exercise price of the Company's employee
stock options equals the market price of the Company's common stock on the
date of grant. If under Financial Accounting Standards Board Statement No.
123, Accounting for Stock-Based Compensation the Company determined
compensation costs based on the fair value at the grant date for its stock
options, net loss and loss per share would have been increased to the
following pro forma amounts:
2000
--------------
Net loss:
As reported $ (743,257)
==============
Pro forma $ (2,783,257)
==============
Basic and diluted loss per share:
As reported $ (.04)
==============
Pro forma $ (.17)
==============
The weighted average estimated fair value of stock options granted during
2000 was $.51 per share. This amount was determined using the Black-Scholes
option-pricing model, which values options based on the stock price at the
grant date, the expected life of the option, the estimated volatility of
the stock, the expected dividend payments, and the risk-free interest rate
over the expected life of the option. The assumptions used in the
Black-Scholes model were as follows for stock options granted in 2000:
2000
-----------------
Risk-free interest rate 6.17%
Expected volatility of common stock 5.918
Dividend yield 0%
Expected life of options 5 years
70
GEO PETROLEUM, INC.
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2000 AND 1999 AND
FOR EACH OF THE TWO YEARS IN THE PERIOD ENDED DECEMBER 31, 2000
- --------------------------------------------------------------------------------
12. STOCK OPTIONS, CONTINUED
-------------------------
The Black-Scholes option valuation model was developed for estimating the
fair value of traded options that have no vesting restrictions and are
fully transferable. Because option valuation models require the use of
subjective assumptions, changes in these assumptions can materially affect
the fair value of the options, and the Company's options do not have the
characteristics of traded options, the option valuation models do not
necessarily provide a reliable measure of the fair value of its options.
13. STOCK AND WARRANT TRANSACTIONS
-------------------------------
Common Shares Sold in Private Placement Transaction
During March through August 2000, the Company sold 1,916,202 shares of its
common stock in a private placement at $.30 per share and received proceeds
of $584,723.
In October 2000, the Company sold an additional 492,641 shares of its
common stock in a private placement transaction at $.70 per share and
received $344,850 in proceeds.
Common Shares Issued for Services
During 2000, the Company issued 402,967 common shares for $169,246 of
services received from its bankruptcy counsel during the Chapter 11
proceedings.
In August 2000, the Company issued 100,000 common shares for certain legal
services for the period June 1, 2000 through June 1, 2001. The shares and
therefore the services were valued at the market price of the stock at June
1, 2000, the date at which the services were agreed to be provided.
Accordingly, at December 31, 2000, the Company has $37,500 of unamortized
prepaid legal fees and has recognized $52,500 in legal expense for the year
relating to this transaction.
In September 2000, the Company entered into a one-year agreement with an
individual to provide investor relations consulting services to the
Company. The Company issued the consultant 50,000 shares of its common
stock and granted to him warrants to purchase 200,000 shares at $1.25 per
share. The warrants are exercisable any time prior to their expiration on
December 31, 2001. The Company recorded the transaction based on market
value of the shares issued and the fair value of the warrants granted on
the date the transaction was entered into. The closing market price per
share at that date was $.83 and the fair value of the warrants was
determined to be $.38 per share using the Black Scholes Option Pricing
Model. No value was ascribed to the contingently issuable shares.
Accordingly, the Company recognized consulting
71
GEO PETROLEUM, INC.
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2000 AND 1999 AND
FOR EACH OF THE TWO YEARS IN THE PERIOD ENDED DECEMBER 31, 2000
- --------------------------------------------------------------------------------
13. STOCK AND WARRANT TRANSACTIONS, CONTINUED
------------------------------------------
Common Shares Issued for Services, Continued
expense associated with this transaction of $29,375 for the year 2000, and
has unamortized prepaid consulting expense of $88,125 at December 31, 2000.
Common Stock Reserved for Future Issuance
At December 31, 2000 and 1999, the Company has reserved the following
numbers of shares of its authorized but unissued common stock for possible
future issuance in connection with the following:
2000 1999
---- ----
Exercise of stock purchase warrants 756,821 856,821
Exercise of stock options 4,000,000 -
---------- ----------
TOTAL 1,756,821 856,821
========== ==========
Warrants Activity for the Period and Summary of Outstanding Warrants
A summary of warrant activity for the years ending December 31, 2000 and
1999 is as follows:
Weighted Weighted
Average Average
Number of Exercise Warrants Exercise
Warrants Price Exercisable Price
-------------- ---------- ----------- ---------
Outstanding, December 31, 1998 1,449,352 $ 2.65 1,449,352 $ 2.65
Granted -
Exercised -
Expired (592,531) $ 2.50
--------------
Outstanding, December 31, 1999 856,821 $ 2.52 856,821 $ 2.52
Granted 200,000 $ 1.25
Exercised -
Expired (300,000) $ 3.00
--------------
Outstanding, December 31, 2000 756,821 $ 2.26 756,821 $ 2.26
==============
At December 31, 2000, warrants had exercise prices ranging from $1.25 to
$3.00 and a weighted average remaining contractual life of 1.17 years.
72
GEO PETROLEUM, INC.
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2000 AND 1999 AND
FOR EACH OF THE TWO YEARS IN THE PERIOD ENDED DECEMBER 31, 2000
- --------------------------------------------------------------------------------
14. OIL AND GAS OPERATIONS (UNAUDITED)
----------------------------------
At December 31, 2000, the Company had all of its interests in oil and gas
properties located in California.
Costs Incurred in Oil and Gas Producing Activities
Costs incurred in oil and gas producing activities were as follows:
For the Years Ended December 31,
2000 1999
---- ----
(Unaudited) (Unaudited)
----------- -----------
Property acquisition costs:
Proved properties - -
Exploration costs - -
Development costs $ 261,311 -
---------------
Total costs $ 261,311 -
================ ============
Estimated Quantities of Proved Oil and Gas Reserves
Reserve information presented herein is based upon reports prepared by the
Company's independent petroleum engineers. 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.
73
GEO PETROLEUM, INC.
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2000 AND 1999 AND
FOR EACH OF THE TWO YEARS IN THE PERIOD ENDED DECEMBER 31, 2000
- --------------------------------------------------------------------------------
14. OIL AND GAS OPERATIONS (UNAUDITED), CONTINUED
---------------------------------------------
Net quantities of crude oil and natural gas for the Company as of the
beginning and the end of the years ended December 31, 2000 and 1999, as
well as the changes in proved reserves during such years, are set forth in
the following tables:
For the Year Ended
December 31, 2000
-----------------
Unaudited
----------
Oil Gas
Bbls MCF
---- ---
Proved developed reserves, net:
January 1, 2000 827,000 464,000
Revisions of previous estimates 520,200 874,000
Purchase of reserves in place - -
Production (1,200) -
Sale of reserves in place - -
------------ -----------
DECEMBER 31, 2000 1,346,000 1,338,000
============ ============
Proved undeveloped reserves, net:
January 1, 2000 25,513,000 -
Revisions of previous estimates (25,513,000) -
Purchase of reserves in place - -
Sale of reserves in place - -
------------- ------------
DECEMBER 31, 2000 - -
============= ============
74
GEO PETROLEUM, INC.
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2000 AND 1999 AND
FOR EACH OF THE TWO YEARS IN THE PERIOD ENDED DECEMBER 31, 2000
- --------------------------------------------------------------------------------
14. OIL AND GAS OPERATIONS (UNAUDITED), CONTINUED
---------------------------------------------
Estimated Quantities of Proved Oil and Gas Reserves, Continued
For the Year Ended
December 31, 1999
Unaudited
Oil Gas
Bbls MCF
---- ---
Proved developed reserves, net:
January 1, 1999 - -
Revisions of previous estimates 827,000 464,000
Purchase of reserves in place - -
Production - -
Sale of reserves in place - -
------------- ------------
December 31, 1999 827,000 464,000
============= ============
Proved undeveloped reserves, net:
January 1, 1999 - -
Revisions of previous estimates 25,513,000 -
Purchase of reserves in place - -
Sale of reserves in place - -
------------- -------------
December 31, 1999 25,513,000 -
============= ============
The decrease in oil reserves December 31, 2000, is primarily due to the
increase in gas costs.
The proved undeveloped reserves consist principally of the Vaca Tar Sands
property. The Company has permits for the drilling of 120 wells on two
tracts of the Vaca Tar Sand Unit, and for sufficient wells to develop the
remaining tracts. The Company entered into a farm-out agreement with Saba,
which currently provides for Saba to pay for one-half of the operating
costs until they expend $5 million. At that time, Saba will have a
one-third interest in the property and these two parties will share in the
costs and revenues based on their respective interests (see Note 9). The
development method envisioned by the Company provided for the drilling of
one or more horizontal wells extending as much as 2,600 feet horizontally.
Each well was to be twinned by a parallel borehole above it into which
steam will be injected continuously. The heated, thinned oil was to flow
from the lower borehole. Alternatively, one horizontal well would be
drilled and used for both steam injection and oil production.
75
GEO PETROLEUM, INC.
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2000 AND 1999 AND
FOR EACH OF THE TWO YEARS IN THE PERIOD ENDED DECEMBER 31, 2000
- --------------------------------------------------------------------------------
14. OIL AND GAS OPERATIONS (UNAUDITED), CONTINUED
---------------------------------------------
Estimated Quantities of Proved Oil and Gas Reserves, Continued
The cost allocated to the Vaca Tar Sands undeveloped reserves was
insignificant, and the estimated volume of reserves allocated to the
property has been excluded from the calculation of the Company's depletion
expense in the years ended December 31, 2000 and 1999. The costs related to
the Vaca Tar Sands reserves, including future development costs that now
are estimated to be approximately $57,216,000 for facilities and 209 wells
will be included in the Company's calculations of depletion expense when
production of those reserves commence.
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, 2000 and 1999, 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 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.
76
GEO PETROLEUM, INC.
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2000 AND 1999 AND
FOR EACH OF THE TWO YEARS IN THE PERIOD ENDED DECEMBER 31, 2000
- --------------------------------------------------------------------------------
14. OIL AND GAS OPERATIONS (UNAUDITED), CONTINUED
---------------------------------------------
Standardized Measure of Discounted Future Net Cash Flows Relating to Proved
Reserves, Continued
The standardized measure of discounted future net cash flows relating to
proved developed and undeveloped oil and gas reserves at December 31, 2000
and 1999 are summarized below:
For the Years Ended December 31,
--------------------------------
2000 1999
-------- --------
Future cash inflows $ 25,869,000 $ 577,474,000
Future production and development costs (16,156,000) (332,855,000)
Future income tax expenses (3,886,000) (97,848,000)
------------- ------------
Future net cash flows 5,827,000 146,771,000
10% annual discount for estimated timing of cash flows (3,512,000) (65,535,000)
------------- -------------
Standardized measure of discounted future net cash flows $ 2,315,000 $ 81,236,000
============= =============
For the calculations in the preceding table, estimated future cash inflows
from estimated future production of proved reserves were computed using
average year-end oil and gas prices. The average oil price, primarily based
on posted prices, was $23.50 and $23.73 per barrel at December 31, 2000 and
1999, respectively, and the average natural gas price, a combination of
spot gas prices and contract prices, was $0.62 and $0.62 per thousand cubic
feet at December 31, 2000 and 1999, respectively.
77
GEO PETROLEUM, INC.
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2000 AND 1999 AND
FOR EACH OF THE TWO YEARS IN THE PERIOD ENDED DECEMBER 31, 2000
- --------------------------------------------------------------------------------
14. OIL AND GAS OPERATIONS (UNAUDITED), CONTINUED
----------------------------------------------
Changes in Standardized Measure of Discounted Future Net Cash Flows
The changes in standardized measure for discounted future net cash flows
relating to proved reserves for each of the two years ended December 31,
2000 and 1999 is set forth below:
For the Years Ended December 31,
--------------------------------
2000 1999
-------- -------
Sales of oil and gas produced, net of production costs - -
Net changes in sales prices and production costs related to
future production $ (235,886,000) $ 244,619,000
Changes in estimated future development costs - -
Development costs incurred during the period, which were
previously estimated - -
Revisions of previous quantity estimates 980,000 -
Sale of reserves in place - -
Accretion of discount 62,023,000 (65,535,000)
Net change in income taxes 93,962,000 (97,848,000)
Other, principally changes in timing of estimated production - -
-------------- --------------
Net (decrease) increase (78,921,000) 81,236,000
Beginning of year 81,236,000 -
-------------- -------------
End of year $ 2,315,000 $ 81,236,000
============== ==============
15. SUBSEQUENT EVENTS
-----------------
In 2001, the Company sold 225,000 shares of its common stock at $.50 per
share and received net proceeds of $112,500.
78
GEO PETROLEUM, INC.
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2000 AND 1999 AND
FOR EACH OF THE TWO YEARS IN THE PERIOD ENDED DECEMBER 31, 2000
- --------------------------------------------------------------------------------
16. UNAUDITED QUARTERLY FINANCIAL DATA
----------------------------------
The reconciliations of the interim results of operations for 2000, which
were impacted by the effect of year-end adjustments, are as follows:
Quarter Ended Quarter Ended
March 31, 2000 June 30, 2000
--------------------------------- -----------------------------
As Reported In As As Reported in As
Form 10Q-SB Adjusted Form 10Q-SB Adjusted
---------------- -------------- -------------- ------------
Revenues $ 11,695 $ 14,889 $ 258 $ 258
================ ============== ============= =============
Costs and expenses (1) $ 187,917 $ 154,039 $ 177,948 $ 103,992
================ ============== ============= =============
Net income (loss) $ (176,222) $ (139,150) $ (177,690) $ (103,734)
================ ============== ============= =============
Net loss per common
share, basic and
diluted $ (0.01) $ (0.01) $ (0.01) $ (0.01)
================ ============= ============= =============
Weighted average
shares outstanding 15,483,795 15,483,795 16,561,414 16,561,414
================ ============== ============= ============
Quarter Ended Quarter Ended
September 30, 2000 December 31, 2000
--------------------------------- ---------------------
As Reported In As
Form 10Q-SB Adjusted Actual
---------------- -------------- ----------------
Revenues $ 13,405 $ 13,405 $ 64,113
================= ============== ================
Costs and expenses1 $ 262,764 $ 294,821 $ 283,070
================= ============== ================
Net income (loss) $ (249,359) $ (281,416) $ (218,957)
================= ============== ================
Net loss per common
share, basic and
diluted $ (0.01) $ (0.02) $ (0.01)
================= ============== ================
Weighted average
shares outstanding 17,401,314 17,401,314 18,011,806
================= ============== ================
(1) Costs and expenses incurred that were allowable under the Plan of
Reorganization as offsets of unsecured creditor claims.
79