-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, FBqOCTg6tlnybz/a0/tM0FGcgQ2Yfa4xz0FGSd+WxZKkFOGrJo/JNhRpiwRnToJD Ig8lwD+YZXEuqjGR4yFaPA== 0001015769-02-000305.txt : 20020708 0001015769-02-000305.hdr.sgml : 20020708 20020708105149 ACCESSION NUMBER: 0001015769-02-000305 CONFORMED SUBMISSION TYPE: 10-K/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20011231 FILED AS OF DATE: 20020708 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GEOTEC THERMAL GENERATORS INC CENTRAL INDEX KEY: 0001087717 STANDARD INDUSTRIAL CLASSIFICATION: OIL & GAS FILED MACHINERY & EQUIPMENT [3533] IRS NUMBER: 593357040 STATE OF INCORPORATION: FL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 000-26315 FILM NUMBER: 02697527 BUSINESS ADDRESS: STREET 1: 5956 N.W. 63RD WAY CITY: PARKLAND STATE: FL ZIP: 33067 BUSINESS PHONE: 9543404694 MAIL ADDRESS: STREET 1: 162 EAST RIVERBEND DR CITY: ALTAMONTE SPRINGS STATE: FL ZIP: 32779 FORMER COMPANY: FORMER CONFORMED NAME: KENNSINGTON CAPITAL & EQUITY CORP DATE OF NAME CHANGE: 19990601 10-K/A 1 amend110ksb123101.txt SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-KSB/A AMENDMENT NO. 1 [X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2001 [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number GEOTEC THERMAL GENERATORS, INC (Name of Small Business Issuer in Its Charter) FLORIDA 59-3357040 (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification No.) 1615 S. Federal Highway, Suite 101, Boca Raton, Florida 33432 (Address of Principal Executive Offices)(Zip Code) (561) 447-7370 (Issuer's Telephone Number, Including Area Code) Securities registered under Section 12(b) of the Securities Exchange Act of 1934: Title of Each Class Name of Each Exchange on Which Registered None None Securities registered under Section 12(g) of the Securities Exchange Act of 1934: COMMON STOCK, PAR VALUE $.001 PER SHARE (Title of Class) Check whether the registrant: (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Check if disclosure of delinquent filers in response to Item 405 of Regulation S-B is not contained in this form, and no disclosure will be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. [X] State registrant's revenues for the year ended December 31, 2001 $0 State the aggregate market value of the voting stock held by non-affiliates of the registrant on March 31, 2002, computed by reference to the closing bid price of the Geotec Thermal Generators, Inc. Common Stock as reported by OCTBB on that date $.17: $997,153 APPLICABLE ONLY TO CORPORATE ISSUERS The number of shares outstanding of the registrant's Common Stock, par value $.001 per share (the "Common Stock"), as of March 28, 2002, was 23,001,108 Transitional Small Business Disclosure Format (check one): Yes No X ------- ------- DOCUMENTS INCORPORATED BY REFERENCE None PART 1 ITEM 1. DESCRIPTION OF BUSINESS 1. General The Company was incorporated in the State of Florida in February 1998 to provide services in the energy industry. The Company's offices are located at. 1615 S. Federal Highway, Suite 101, Boca Raton, Florida 33432. The telephone number is (561)447-7370 the fax number (561)447-7371 and the e-mail address is rlueck@mindspring.com. The Company has obtained a ten-year exclusive license to market and sell a unique oil treatment service to customers in North, Central, and South America. This technology, Gas Generators(TM) (or the "Generators(TM)"), is designed to produce a thermo-chemical treatment of oil and gas wells, designed to restore and increase output capacities, thereby enabling increased production of oil. The proprietary technology was developed by the former Soviet Union Military Research and Production Facility, ("FR&PC ALTAI,") for the USSR Ministry of Geology. This increase in oil production can be measured in barrels per year, with one barrel of oil valued at approximately US$ 21.00 as of December 2001. The Company was granted an exclusive license to import the Generators(TM) for use in the oil and gas exploration industry in August 1998 and three subsequent contracts comprise the patent-ability, long-term agreement and transfer of technology. 2. Background FR&PC ALTAI, manufactures many technologies, from atomic-size diamond powders and nitrogen air bag technology to advanced military weapons and rocket fuel. Their firm has been developing (since the 1950's) and manufacturing the Generators(TM) since the early 1970's (experimentation on 6,500 wells prior to 1986, and subsequent commercialization with an additional 30,000 wells since 1986), and have continued to refine the technology, striving to make the Generators(TM) suitable for all geological conditions to depths below 22,000 feet. The USSR Ministry of Geology approached FR&PC ALTAI in the early 1970's to resolve the problem of under-productive oil wells, and then to design an economical process that would increase the commercial growth of oil and gas inventories while simultaneously raising the efficiency of oil, gas and input wells. Upon evaluating the filtration properties of the rock formations in various formations, they identified the problem of rock formations suffering typically irreversible changes during the operation and servicing of the wells. The current model, PGDBK Generator, has been activated in more than 30,000 wells since its development. For example, in the Tyumen oil basin in Russia, the result was an additional extraction of 295 million tons of oil (i.e. 2.36 billion barrels of oil, when valued per barrel at $15.25, is approximately US$36 Billion). Using the Generators(TM) in the Aktyubiinsk region, several oil wells that had been considered to be "exhausted" have been revived, with their capacity greatly increased. The additional extraction from the successfully treated wells has averaged 12,000 barrels of oil per year/per well (US$183,000). Wells in specific fields have yielded results averaging 125 barrels per day increase. Once a well is treated, the service benefits can last from several months up to several years, depending on the geological characteristics of the area and several technical characteristics at the site. 3. Generator(TM) Technology/Applications PGDBK Gas Generators(TM) perform an advanced well stimulation process designed to increase oil and natural gas output. The technology has been proven to be safe and effective throughout regions of Asia and Eastern Europe. Compared to similar services, such as hydraulic fracturing or acidizing, the Generators(TM) are much more effective and safe, and much less costly. The Generators(TM) were developed utilizing a method of bed fracture with the pressure of a solid, pulsating propellant charge. The Generators(TM) do not contain explosives and a combustion blast does not occur, which is obviously important for governmental safety and environmental considerations. Customers best suited for using the Generators(TM) are sites with high pressure, oil-rich levels where filtration properties of the local rock formation/structure have undergone irreversible changes, thereby causing the well to become non-producing or inactive. More than twenty-five years of Russian service experience has provided the Company with data that verifies that the Generators(TM) utilize a process which is a clean, safe, economical and environmentally-sound procedure which is capable of creating the rebirth of non-producing wells. Until now, comparative services have been cumbersome and costly. However, the Generators(TM) do not require any pumps or other compressor-type machinery, which can be prohibitive, as they are often bulky and difficult to use. This makes the Generators(TM) ideal for regions/sites, which are difficult to access due to certain geological properties and characteristics. The reduced cost to operators is profound when compared to conventional hydraulic fracturing methods. The procedure is relatively simple, and easily handled by small personal units. The entire Generator (TM) treatment process can be completed in several hours, and always in less than one entire day. The hydraulic fracturing process typically takes several days due to its complexity, and in difficult scenarios, the process has been known to take weeks with substantial cost to obtain noticeable results at a much lower success rate and yield than the Company's exclusive technology. 4. Patents and Trademarks The Company believes that the technology and resulting processes and methods developed by FR&PC ALTAI have not been discovered/utilized by any other competitors on an international basis. As such, the Company has filed US and international patents on several composite materials, and on the use characteristics of the Generators(TM) for oil, gas and water wells. In addition, confidential and proprietary information owned by the Company, has been protected by Confidentiality Agreements and Employee Contracts, designed to cover all proprietary technology and other confidential information. Trademarks and trade names will and do protect both the Company and the Generator(TM) registered names. 5. Vendors, Suppliers, Distributors, Customers The Company and management have spent considerable time, effort, and expense in developing strong relationships and alliances with several organizations involved in the energy industry throughout the world. The Company's exclusive Gas Generators(TM) Development Agreement, with FR&PC ALTAI, signed in 1998, includes a long-term Technology Agreement (effectively triggered in July 2000, and with the first contract delivered in the Fall 2001, with the Company's acceptance of the technology) for ten years, with a ten-year renewal option. The exclusive service areas presently encompass North, Central, and South America. Of the 2.9 million oil/gas wells in the US and Canada and 2.5 million wells in South/Central America, it is estimated that the majority of the wells contain the general geological criteria necessary to allow successful treatment from the Company's exclusive Generators(TM) technology. The Company will purchase the generators through a Russian company, which regulates the sale and subsequent use of the technology. In 1993, Russian President Boris Yeltsin established Rosvooruzhenie, now known as Rosoboronexport, a government-controlled company to import and export military type technology. In August 1997, it was reorganized into the Federal State Unitary Enterprise, State Company, Rosvooruzhenie, and has become the largest trader in Russia, controlling more than 90% of the country's exports of weapons and military type equipment, by dealing with over fifty different countries. All of the Company's Generators(TM) will be imported to the United States by Rosvooruzhenie. The Company retains the right to decline to treat any well, designed for instances when a particular well does not meet the Generators(TM) requirements for successful treatment. The Company estimates that eighty percent (80%) of the stripper wells in the US and Canada are candidates to be successfully treated with the Generators(TM) process. In addition, a fee for a service pricing structure has been established with a view to be price competitive to other fracturing methods, including nitrogen or CO2 bed fracturing. This procedure is scientific in nature with the ability to calculate the success potential and yield for any well with the proper data inserted into formulas that comprise the body of knowledge for use of the PDGBK gas generators. The first 60 generators were received in the Companies US warehouse in the Spring of 2000. The Company is required to purchase a minimum of 5,000 generators over the next ten years. A total of 1,000 generators are required to be ordered in the first two years (starting with the acceptance of the technology in July 2000 and first contract completed by Rosoboronexport, (by the Company), with a minimum of 500 units per year in the subsequent eight years. In the late spring/early summer of 2000, Geotec treated 20 wells to qualify and prove the technology according to the standards established in the Agreement between the Russian Federation and the Company. The purpose of these well treatments was to: o Demonstrate the technology worked according to the representations made by the Russian Federation, the manufacturer of the gas generators; o Prove that the generators communicated with the hydrocarbon reservoir such that increases in hydrocarbons could be reasonably expected in all future well treatments; o Acquire the technology from the Russian technical staff, that treated the wells alongside the Company's staff; o Demonstrate that no damage was done to the well casing, cement around the casing as well as the rock formation; o Prove that the yields could be expected from different rock formations at different depths, for the generators available to the Company for these treatments (future treatments will require a greater inventory of generators for different depths and rock formations); o Show increases in marginal wells, where other methods could not provide economically viable well hydrocarbon increases; o Establish the economies of the well treatment o Train the Company's staff such that the staff could utilize the generators without assistance from the Russian training crews; o Establish data from all the wells, to utilize in publications and with well operators, including the filming of the process, to confirm the technology; The Company has not treated any additional oil wells. The Company is arranging for the return of representatives from the Russian Federation to complete the training of the Company's staff. The Company expects to complete training in the second quarter of 2002, concurrent with the training of its joint venture partner, J-TEX Corporation, a Nevada Corporation. A team of FR&PC ALTAI scientists did join the Company's US treatment team in the Spring and Summer of 2000, for purposes of treating the initial wells that were utilized to transfer the technology to the Company. Final field training is scheduled in the second quarter of 2002, concurrent with the training of its joint venture partner, J-TEX Corporation. Results from the first treated wells, confirmed the value of the technology. Also, during the treatments, the Company's technical personnel were trained on safety and effectively conducted the entire procedure, from assembly and ignition down to data collection. In 20 out of 20 wells, the technology established communication with the reservoir. This was seen instantly on the well site. In some cases, initial production was generated from the wellhead. No known damage was created in the wells, as demonstrated, by water (in the case of a water injection well that was treated) or hydrocarbon increased production. The Company contracted for these wells, without having the technology transferred, which was the purpose of these well treatments. Of the 20 wells, 15 wells were shut in for 4-15 years, and the balance of the wells were producing 1 barrel of oil, or less per day, prior to treatment. The technology, as transferred, in management's opinion, would only be used in those wells to be commercially viable which are about 7 of the wells that were treated. Now that the technology has been acquired, the Company can determine, in advance, which wells should be treated and what the yields should be from the mathematical probability curves. These treatments confirmed to management that the claims made by FR&PC ALTAI, which are included on the Company's web site, for success and hydrocarbon yield, are actually exceeded by proper use of the technology. 6. The Market: Target Customers and Marketing Strategy There are 2.9 million oil and gas wells in North America and 2.5 million wells in Central and South America. The Company believes a substantial portion of these wells will benefit from stimulation with the PGDBK Generators(TM). Of the number stimulated, FR&PC ALTAI has determined an average success rate of 70% for oil wells and 90% for gas wells. Short Term Strategy The Company has determined that its Generator(TM) services can be provided at an almost negligible cost when compared to the profit potential available for oil and gas wells, with a high rate of success. This success is documented though results -- evidenced by the Russian certification of the Generator(TM) process, which shows a 65%+ success rate of first 6,500 well treatments during the product development stage, which was concluded in 1986. The Company will not benefit from its process unless the Generator(TM) well treatment is successful. The Company will treat a well for 38-50% (or a negotiated fee for service) of increased production of new oil or gas, as produced by the Company's treatment process. (The revenue sums are subsequent to the land lease override and state production taxes, which generally account for 20% of the gross production.) As an example, if the oil well is producing 20 barrels per day before treatment, and produces 120 barrels of oil per day after treatment; then the Company would receive one half of 100 barrels per day (120 less the 20 barrels for the land lease and state production taxes) or about $1,250 per day. (calculated at $25 per barrel) Annual revenue would be approximately $300,000 per year for a well with this increased yield. As with any well treatment procedure, this process works for a specific period of time. The Company will subsequently re-treat the well, as in the example cited above, then split the gross revenues with the well operator, less the land lease override and state production taxes. Well treatment will be made available as long as, in the Company's opinion, there remains a substantial opportunity to the increase well production and oil or gas output, or the well operator may opt to pay a fee for service, if the Company is unwilling to continue treatments. The Company anticipates expanding its sales and technical staff upon receipt of additional financing, and plans to continue contracting through its joint venture with J-TEX Corporation in North South and Central America. Of the 2.9 million wells in the US and Canada, 2.5 million wells are inactive or are very low producers. The Company estimates that at least two-thirds of these wells are owned by small or intermediate-sized companies, comprising 85% of the oil and gas production in the US and Canada. The joint venture agreement with J-TEX Corporation calls for exclusive representation of new well contracts, while the Company can treat wells where J-TEX is not operational. The agreement also states that J-TEX plans to provide and treat 80 wells per month on an ongoing basis, after training and the start-up phase, and annually 1500 wells, or more, in subsequent years. While the Agreement allows for the continuation of production override service contracts, based upon hydrocarbon increases, a fee for service option is provided for well operators, which also takes into consideration the government ownership of wells in South and Central America. The Company has also entered into a joint venture Agreement with Representaciones Barki Cia, of Quito, Ecuador. The joint venture calls for minimum purchases of gas generators equal to $550,000 in the first year and $1,100,000 in the second year, with profit sharing above the minimum purchase costs. As of this annual report, scheduling of training for the Barki Cia's staff was scheduled for February 2002, however has been delayed due to government employment strikes. Those strikes have just be resolved, and the Company is expecting training and the technology introduction to PetroEcuador within the next 30 days. Long Term Strategy Company's management feels that a great opportunity exists with large oil and gas companies in the US, Canada, and offshore wells. The Company does not believe that all large oil well companies will provide a percentage of the oil to be produced at the current pricing of oil and gas. Rather, the Company believes it will receive a fee for its Generator treatment services, often as high as $1,000,000 per treatment for offshore wells. Many offshore oilrigs have greater than five wells, drilled below the ocean, and therefore the process may produce a revenue stream without oil override contracts in these instances. It is the Company's strategy to separate itself from any other company using inert gases that are pumped into a well, similar to hydraulic fracturing, with the same 20-30% success rate. It is also the Company's strategy to differentiate itself from any other company utilizing gas generator technology and the Company has: a. Filed for patent, the case-less gas generator, which can be custom fitted to the oil producing zone height at the well site b. Filed for patent, the length between and sequence of the gas igniters, as well as their location inside the propellant c. Filed for patent, the pressure sequence of gases as produced by location of the gas igniters d. Emphasized the proprietary nature of the gas propellant materials, and their method of production e. Filed for patent, the use of the Generators(TM) in several different forms with several well whole temperatures and conditions The Company intends to maintain a high level of secrecy regarding the production and use of Generators(TM) following the acquisition of the technology from FR&PC ALTAI. The Company may transfer a portion of the manufacturing technology to another part of the world such as South America; however, all production technology is not anticipated to be transferred outside of one production facility in the US. With the training believed to be completed with J-TEX and Barki Cia's staff in the second quarter of 2002, revenues are expected throughout the remainder of fiscal of 2002. The Russian Federation has had and will continue to have meeting on behalf of the Company's technology with other governments, within the Company's geographical territory of North, South and Central America. This will be a continuing source of relationships for South and Central American wells for the Company. Multiple zones in wells and wells that have been shut-in are further sources of revenue, with new contracts that will be the source of revenue for the Company for wells with zones that have not been "brought in". 7. Competition Several companies have been involved or are currently involved in some type of gas generating stimulation. The Company believes that the current gas generation technology in use today, while somewhat effective, is inferior to the Company's Generator(TM) technology, as it is more expensive and has not compiled the same success rate. The following companies provide minimal competition: Servo-Dynamics,Inc., Schlumberger Technology, Compulog PST, and Oryx Energy Company. 8. Government Regulations Jurisdiction for importing the Generators(TM) into the US for use in the oil and gas industry is within the scope of the Bureau of Alcohol Tobacco and Firearms (ATF). This agency requires the Company to be licensed under 27 CFR Part 55. The Company has met all the pre-qualifications, and has been issued the necessary importing license. The Company also has a Department of Transportation license for transporting the generators by common carrier in North America from the Company's licensed US depot. Oil Industry Regulation General. Political developments and federal and state laws and regulations (and orders of regulatory bodies pursuant thereto) will affect the Company's oil and natural gas services from time to time in varying degrees. In particular, federal and state tax laws and other regulatory laws relating to the petroleum industry, and changes in those laws and the underlying administrative regulations, govern a wide variety of matters, including the drilling and spacing of wells on producing acreage, allowable rates of production, marketing, pricing, prevention of waste and pollution and protection of the environment. Such laws, regulations and orders may restrict the rate of oil and natural gas production below the rate that would otherwise exist in the absence of such laws, regulations and orders and may restrict the number of wells that may be drilled on a particular lease. Price Regulations. Effective January 28, 1981, Congress abolished all federal controls on the price of domestically produced oil. Since that date, competition and supply and demand primarily have affected the price of oil. Sales of natural gas by the Company's partners will be subject to regulation of production, transportation and pricing by governmental agencies. Generally, the regulatory agency in the state where a producing gas well is located supervises production activities and, in addition, the transportation of natural gas sold intrastate. Since the adoption of the Natural Gas Policy Act of 1978 (the NGPA), the Federal Energy Regulatory Commission (AFERC) has regulated the price of intrastate as well as interstate gas. The NGPA is a complicated and lengthy piece of legislation. It provides for wellhead price controls for specified time periods, decontrol of certain prices depending on location, depth or time of production, emergency allocation authority, curtailment of deliveries to certain consumers coupled with preferential delivery status to other consumers, incremental pricing to large industrial consumers, refunding with interest as to receipts in excess of the ceiling prices, and substantial penalties (both civil and criminal) for violations of the NGPA. Complex pricing provisions of the NGPA include approximately thirteen major pricing categories. Certain states have adopted legislation, which has the effect of setting a ceiling price for certain natural gas sold under existing contracts and not committed or dedicated to interstate commerce before enactment of the NGPA. The United States Supreme Court upheld the constitutionality of that type of state-mandated price control by Kansas. The pricing categories referred to above represent maximum authorized prices. A natural gas purchaser does not necessarily pay those prices, which are generally affected by the level of competition in the area, the availability of pipelines and markets, and the price ceilings under the NGPA. State Regulation. State statutory provisions relating to oil and natural gas generally require permits for the drilling of wells and also cover the spacing of wells, the prevention of waste, the rate of production, the prevention and clean-up of pollution and other matters. Possible Legislation. Currently there are many legislative proposals pertaining to the regulation of the oil and natural gas industry, including decontrol of natural gas prices and modification of legislation affecting pipeline companies. Any of such proposals may directly or indirectly affect the activities of any Company. No prediction can be made as to what additional energy legislation may be proposed, if any, nor which bills may be enacted nor when any such bills, if enacted, would become effective. Regulation of the Environment. The exploration, development, production and processing of oil and natural gas are subject to various federal and state laws and regulations to protect the environment. Various state and governmental agencies are considering, and some have adopted, other laws and regulations regarding environmental control that could adversely affect the activities of the Company. Compliance with such legislation and regulations, together with any penalties resulting from noncompliance therewith, will increase the cost of oil and natural gas development, production and processing. Certain of these costs may ultimately be borne by the Company. Management does not presently anticipate that compliance with federal, state and local environmental regulations will have a material adverse effect on capital expenditures, earnings or the competitive position of the Company in the oil and natural gas industry. The preceding discussion of regulation of the oil and natural gas industry is not intended to constitute a complete discussion of the various statutes, rules, regulations or governmental orders to which the Company's operations, services, and revenues may be subject. ITEM 2. DESCRIPTION OF PROPERTIES PROPERTIES The Company currently leases facilities consisting of approximately 2,700, square feet of office space in Boca Raton, Florida pursuant to a five year lease, with initial monthly base rental amount of $5,969, inclusive of taxes, operating expenses for the common area of the building, maintenance, janitorial services and electricity. The Company also leases a storage facility for its gas generators, which is centrally located in the oil/gas producing states. From this location, the Company can readily ship its generators throughout North America. ITEM 3. LEGAL PROCEEDINGS There are two legal proceedings the Company has been involved with in 2001, that will extend into 2002. The Company has filed, in Circuit Court of the 15th Judicial Circuit in and for Palm Beach County, Florida, a lawsuit alleging fraud, extortion and civil RICO against UltraDiamond Technologies, Inc., a Massachusetts Company, and its principals, Wayne Snow, Joseph Russo, individually, case no 01--7516D. UltraDiamond, and its two principals, Joe Russo and Wayne Snow along with Dan Pepe, Geotec's President with FR & PC Altai's diamond powder starting on or about 1995 and 1996, and UltraDiamond has/had a distribution agreement for the diamond powder which is in dispute between the parties. Geotec received notice from UltraDiamond's attorney, in early 2001, that Geotec is distributing diamond powder, which Geotec responded was not the case, and that it had no interest in distributing Altai's diamond powder. Further, UltraDiamond asserted that Dan Pepe directed the opportunity for Geotec's generators away from UltraDiamond, and that UltraDiamond had a first right of refusal for all of Altai's 100+ technologies. Altai, firmly denied that UltraDiamond had any distribution, at any time, for any of its technologies, other than for the diamond powder and diamond related products. Further, to the best of Geotec's knowledge, UltraDiamond technologies has no full time employees, and Wayne Snow is a full time accountant, and Joe Russo is a food salesman, and they are UltraDiamond's only employees. The Company believes that on or about February, 2001 that Altai, clarified its termination of UltraDiamond, even though, through discovery it appears, in general reading that UltraDiamond's only written contract terminated in 1995, and was renew until December 31, 1996, when it also terminated. No other documents have been received by Geotec that makes any assertion, in the Company's opinion, that UltraDiamond had any rights, at any time, except for diamond powder and related diamond products. In communications with Altai, they believe that UltraDiamond filed its suit against Dan Pepe, to recover their distribution of the diamond powder such that their revenue could continue, without full payment to Altai, as stated by Altai, for the inventory of the diamond powder. On or about April, 2001, following these events, UltraDiamond filed a lawsuit against Dan Pepe, Geotec's President, alleging that Mr. Pepe, interferred with the relationship of UltraDiamond and Altai, and sought to recover unspecified damages from Dan Pepe. Following these events, Joe Russo contact Dan Pepe for a settlement, and communications occurred also with W. Richard Lueck, Geotec's CEO regarding UltraDiamond and its principles demands, which included 6,000,000 shares of Geotec common stock, $200,000 in cash, 5% royalty of all Geotec sales, the sale or distribution of the diamond powder by Geotec for a 5% royalty on all sales to Ultradiamond, and a seat on Geotec's board of directors. Further, communications were made with Geotec, that if these demands were not met, UltraDiamond would post information on bulletin boards, have not ability to finance, and be unable to conduct certain business. Through several conversations and communications with UltraDiamond, its legal counsel and Joseph Russo, they made it clear that they were also going to file a lawsuit against Geotec, if settlement was not offered by Geotec. Geotec filed a torturous interference, fraud and RICO lawsuit, as a results of these actions. Further, in Massachusetts US court, FR & PC Altai has also files for alleged fraud, torturous interference and improper conveyance, including non-payment of contractual funds to Altai and return of UltraDiamond's inventory, which Altai alleges that it has not been paid for. Separately, the Company filed liens against Emerald Restoration and Production Company, a Nevada Corporation, for the non-payment a contract, in which the Company treated 8 wells in or around Gillette, Wyoming. Emerald had apparently filed Chapter 11 bankruptcy, before, and unknown to the Company at the time of Geotec treating Emerald's wells. Subsequently, in the summer of 2001, the Federal Bankruptcy Court dismissed the bankruptcy, allowing the Company to attempt to foreclose on the wells that were treated. During this process, the Wyoming Oil and Gas Commission contacted Geotec and informed the Company that it was going to cap and close all the 120 wells owned by Emerald. The Company could not proceed in a timely fashion to foreclose on these wells, and there was a question of liability for the capping fee costs for all the wells, and pollution in and around the tank batteries, according to the Bureau of Land Management, with the liability estimated at or around $2.4 Million. Further, the equipment on the wells in question was removed, reportedly to pay for the capping fees and costs, such that the business opportunity was questioned by Management. The Company has not foreclosed on these wells as of this annual report. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not Applicable PART II ITEM 5. MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS The Company's Common Stock is traded on the OTCBB under the symbol "GETC." The following sets forth the range of high and low closing bid prices for the Common Stock as reported on NASDAQ during each of the periods presented. The quotations set forth below are inter-dealer quotations, without retail mark-ups, markdowns or commissions, and may not necessarily represent actual transactions. Period High Low 1999 Fourth Quarter $9.000 $3.500 2000 First Quarter $7.750 $3.125 Second Quarter $7.750 $3.375 Third Quarter $6.688 $1.469 Fourth Quarter $1.594 $ .563 2001 First Quarter $1.156 $ .750 Second Quarter $2.100 $ .750 Third Quarter $1.100 $ .450 Fourth Quarter $ .750 $ .220 2002 First Quarter $ .550 $ .150 The Company believes that as of December 31, 2001, there were approximately 83 record holders of the Company's Common Stock. The Company believes that there are substantially in excess of 400 beneficial and round lot holders of the Company's Common Stock. The Company has not paid any cash dividends on its Common Stock and currently does not expect to declare or pay cash dividends in the foreseeable future. The Company presently intends to retain any earnings that may be generated to provide funds for the operation of business. ITEM 6. MANAGEMENT DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS The following discussion and analysis should be read in conjunction with the financial statements of the Company and the notes thereto appearing elsewhere herein. RESULTS OF OPERATIONS Revenues decreased from $152,261 for the year ended December 31, 2000, to $0 for the year ended December 31, 2001. The Company has not treated any additional oil wells since the above mentioned. The Company is arranging for the return of representatives from the Russian Federation to complete the training of the Company's staff. The Company expects to complete training in the second quarter of 2002. Cost of goods sold decreased to $0 for the year ended December 31, 2001 from $111,043 for the year ended December 31, 2000. As mentioned above the Company has not treated any additional wells during fiscal 2001. General and administrative expenses decreased from $1,104,237 for the year ended December 31, 2000 to $1,086,688 for the year ended December 31, 2001 a decrease of $17,549. The decreases were due to payroll reductions, and decreased legal and accounting fees. Stock compensation expense was from $2,467,595 for the year ended December 31, 2000 compared to $340,013 for the year ended December 31, 2002. In Fiscal 2000 the Company issued common stock to three employees of the Company, in lieu of and as replacement for employee stock options, and issued common stock for financial consulting and public relation services. the Company also expensed deferred compensation in the amount of $899,257. Such amounts represent stock issued for financial consulting services. The Company has decided to cancel the consulting services agreement. During Fiscal 2001 the Company issued stock and warrants to certain consultants. Interest expense for the year ended December 31, 2000 was $57,449 compared to $112,624 for the year ended December 31, 2001 an increase of $55,175. The increase is do to the Company's increase in borrowings. INVESTING Cash used in investing activities decreased from $65,648 for the year ended December 31, 2000 to $649 for the year ended December 31, 2001 a decrease of $64,999.The decrease was do to a reduction in purchases. LIQUIDITY AND CAPITAL RESOURCES The Company issued 226,000 shares of common stock valued at $144,920 to several consultants for financial services and investor relations. The Company issued a consultant 400,000 stock options exercisable at prices between $1.50 and $4.00 per share. These options were valued at $51,125. The Company completed a private placement of a total of 20,000 shares of common stock for net proceeds of $6,000. The Company borrowed a total of $460,272 from an Investment Trust based in Bermuda. The notes bear interest at 12.5% per annum and are payable upon demand. In January of 2002 the Company sold a total of 295,000 shares of common stock for gross proceeds of $88,500. The Company also borrowed a total of $60,000 in January of 2002. The notes are payable six months from the date of issuance in the amount of $90,000. The Company also granted a total of 200,001 common stock options exercisable at $.30 to the holders of these notes. In February 2002 the Company issued a total of 500,000 shares of common stock to an employee and several consultants. The report of the independent auditors on the Company's financial statements as of December 31, 2001 contains an explanatory paragraph regarding an uncertainty with respect to the ability of the Company to continue as a going concern. The Company is not generating significant revenues and has an accumulated deficit of ($5,930,924). The Company anticipates that its use of cash will be substantial for the foreseeable future. In particular, management of the Company expects substantial expenditures in connection with the treatment of additional wells. The Company expects that funding for these expenditures will be available out of the Company's future cash flow and issuance of equity and/or debt securities during the next 12 months and thereafter. There can be no assurance whether or not such financing will be available on terms satisfactory to management. If the Company does not obtain additional financing, it will be unable to purchase the minimum amount of generators under its contract with FR&PC ALTAI. ITEM 7. FINANCIAL STATEMENTS See "Index to Financial Statements" for the financial statements included in this Form 10-KSB. INDEX TO FINANCIAL STATEMENTS Independent Auditors' Report F-2 Balance Sheet F-3 Statements of Operations F-4 Statement of Stockholders' Deficit F-5 Statements of Cash Flows F-6 Notes to Financial Statements F-7 - F-12 INDEPENDENT AUDITORS' REPORT To the Board of Directors Geotec Thermal Generators, Inc. We have audited the accompanying balance sheet of Geotec Thermal Generators, Inc. as of December 31, 2001, and the related statements of operations, changes in stockholders' deficit, and cash flows for the years ended December 31, 2001 and 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 audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Geotec Thermal Generators, Inc. as of December 31, 2001, and the results of its operations and its cash flows for the year ended December 31, 2001 and 2000 in conformity with accounting principles generally accepted in the United States of America. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. The Company incurred losses of $1,539,325 and $3,588,063 for the years ended December 31, 2001 and 2000, respectively. Additionally, the Company had a working capital deficiency of $1,633,068 at December 31, 2001. These conditions raised substantial doubt about the Company's ability to continue as a going concern. Management plans with respect to these matters are also described in Note 2 to the financial statements. The accompanying financial statements do not include any adjustments that might result should the Company be unable to continue as a going concern. /S/ Feldman Sherb & Co., P.C. Feldman Sherb & Co., P.C. Certified Public Accountants New York, New York April 9, 2002 F-2 GEOTEC THERMAL GENERATORS, INC. BALANCE SHEET ASSETS CURRENT ASSETS: Cash $ 5,359 Inventories, net 25,270 Due from officer 148,309 ---------------- TOTAL CURRENT ASSETS 178,938 ---------------- PROPERTY AND EQUIPMENT, net 31,110 PATENTS 13,688 DEPOSIT 16,878 ---------------- $ 240,614 ================ LIABILITIES AND STOCKHOLDERS' DEFICIT CURRENT LIABILITIES: Accounts payable and accrued expenses $ 784,389 Notes Payable 1,027,617 ---------------- TOTAL CURRENT LIABILITES 1,812,006 ---------------- STOCKHOLDER'S DEFICIT: Common stock, $.001 par value, 50,000,000 shares authorized; 22,206,108 shares issued and outstanding 22,206 Additional paid-in capital 4,337,326 Accumulated deficit (5,930,924) ---------------- TOTAL STOCKHOLDERS' DEFICIT (1,571,392) ---------------- $ 240,614 ================ See notes to financial statements F-3
GEOTEC THERMAL GENERATORS, INC. STATEMENTS OF OPERATIONS Year Ended December 31 2001 2000 ---------------- ---------------- REVENUES $ - $ 152,261 COST OF GOODS SOLD - 111,043 ---------------- ---------------- GROSS PROFIT - 41,218 COSTS AND EXPENSES: General and administrative 1,086,688 1,104,237 Stock compensation expense 340,013 2,467,595 ---------------- ---------------- OPERATING LOSS (1,426,701) (3,530,614) Interest expense (112,624) (57,449) ---------------- ---------------- NET LOSS $ (1,539,325) $ (3,588,063) ---------------- ---------------- NET LOSS PER SHARE - BASIC AND DILUTED $ (0.07) $ (0.17) ================ ================ WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING - BASIC AND DILUTED 22,206,108 21,220,970 ================ ================ See notes to financial statements
F-4
GEOTEC THERMAL GENERATORS, INC. STATEMENT OF STOCKHOLDERS' DEFICIT Common Stock Additional --------------------------- Paid-in Deferred Accumulated Shares Amount Capital Compensation Deficit Total --------------------------- ------------ --------------- --------------- ---------------- Balance at December 31, 1999 20,737,775 $ 20,738 $ 823,275 $ (110,250) $ (803,536) $ (69,773) Sale of common stock 207,333 207 625,541 - - 625,748 Issuance of stock options for services - - 430,978 (42,138) - 388,840 Stock issued to employees 378,000 378 1,133,622 - - 1,134,000 Shares issued for services 637,000 637 1,122,111 (1,077,250) - 45,498 Amortization of deferred Compensation - - - 899,257 - 899,257 Net Loss (3,588,063) (3,588,063) -------------- ----------- ------------ --------------- --------------- ---------------- Balance at December 31, 2000 21,960,108 21,960 4,135,527 (330,381) (4,391,599) (567,463) Sale of common stock 20,000 20 5,980 - - 6,000 Issuance of stock options for services 51,125 - - 51,125 Shares issued for services 226,000 226 144,694 - - 144,920 Amortization of deferred compensation - - - 330,381 - 330,381 Net Loss - - - - (1,539,325) (1,539,325) -------------- ----------- ------------ --------------- --------------- ---------------- Balance at December 31, 2001 22,206,108 $ 22,206 $ 4,337,326 $ - $ (5,930,924) $ (1,571,392) ============== =========== ============ =============== =============== ================ See notes to financial statements F-5
GEOTEC THERMAL GENERATORS, INC. STATEMENTS OF CASH FLOWS Year ended December 31, 2001 2000 ------------------ ------------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ (1,539,325) $ (3,588,063) ------------------ ------------------ Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 15,970 13,389 Write-off of inventories 25,270 - Amortization of deferred compensation 330,381 899,257 Stock options issued for compensation 51,125 388,840 Stock issued for compensation 144,920 1,179,498 Changes in assets and liabilities: Inventories - 79,420 Due to officers (144,787) (3,522) Prepaid expenses 12,400 (12,400) Organizational costs 374 - Accounts payable and accrued expenses 591,887 182,764 ------------------ ------------------ NET CASH USED IN OPERATING ACTIVITIES (511,785) (860,817) ------------------ ------------------ CASH FLOWS FROM INVESTING ACTIVITIES: Patent expenses (649) (13,039) Purchase of property and equipment - (52,609) ------------------ ------------------ NET CASH USED IN INVESTING ACTIVITIES (649) (65,648) ------------------ ------------------ CASH FLOWS FROM FINANCING ACTIVITIES: Repayment of debt - (120,000) Proceeds from issuance of debt 460,272 447,845 Proceeds from issuance of common stock 6,000 625,748 ------------------ ------------------ NET CASH PROVIDED BY FINANCING ACTIVITIES 466,272 953,593 ------------------ ------------------ NET INCREASE (DECREASE) IN CASH (46,162) 27,128 CASH, beginning of year 51,521 24,393 ------------------ ------------------ CASH, end of year $ 5,359 $ 51,521 ================== ================== SUPPLEMENTAL CASH FLOW INFORMATION: Cash paid for: Income taxes $ - $ - ================== ================== Interest $ - $ 7,260 ================== ================== See notes to financial statements F-6
GEOTEC THERMAL GENERATORS, INC. NOTES TO FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2001 AND 2000 1. ORGANIZATION Geotec Thermal Generators, Inc. ("Geotec" or the "Company") was incorporated on February 2, 1998, in the state of Florida. The Company's intends to commercialize the Russian Federations's technology for secondary oil and gas recovery in North, Central and South America. The technology has been used on approximately 30,000 Russian wells to date. The Company was formed to complete the initial development contract, which was executed in August 1996. Subsequent to the development contract, three contracts were executed, covering patent rights, transfer of technology and a long term exclusive contract for the geographic area as mentioned above. During October 1999, the Company was acquired by Kennsington, Inc. ("Kennsington"), for 18,714,775 shares of Kennsington common stock, for all of the equity of the Company. As a result of this transaction the principals of Geotec received approximately 90% of the total outstanding common stock of Kennsington. Upon completion of the transaction there were 20,714,775 shares of Kennsington issued and outstanding. The acquisition has been accounted for as a reverse acquisition under the purchase method for business combinations. Accordingly, the combination of the two companies is recorded as a recapitalization of the Company, pursuant to which the Company is treated as the continuing entity. In November of 1999, Kennsington changed its name to Geotec Thermal Generators, Inc. as part of the merger of its subsidiary into itself. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A. Basis of Presentation - The Company has incurred operating losses of approximately $1,539,325 and $3,588,063 for the years ended December 31, 2001 and 2000. There is also a working capital deficiency of $1,633,068 at December 31, 2001. No assurances exist that the Company will not encounter substantial delays and expenses related to the financing of its successful completion of its product development and marketing efforts. The Company will be required to expand its management and administrative capabilities in order to manage the aforementioned items as well as to respond to competitive market conditions. These and other factors may require additional funds and the Company may seek such funds through additional equity financing, debt financing, collaborative arrangements or from other resources. Such funds may not be available on terms acceptable to the Company. B. Estimates - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. C. Cash and cash equivalents - The Company considers all highly liquid temporary cash investments with an original maturity of three months or less when purchased, to be cash equivalents. F-7 D. Inventories - Inventories are stated at lower of cost or market on the first-in, first-out method of inventory valuation. E. Property and equipment - Property and equipment is stated at cost. Depreciation of property and equipment is computed using the straight-line method over the estimated useful lives of the assets. F. Stock based compensation - The Company accounts for stock transactions in accordance with APB Opinion No. 25, "Accounting For Stock Issued To Employees." In accordance with Statement of Financial Accounting Standards No. 123 ("SFAS 123"), "Accounting For Stock - Based Compensation," the Company adopted the pro forma disclosure requirements of SFAS 123. G. Concentration of credit risk - Credit losses, if any, have been provided for in the financial Statements and are based on management's expectations. Financial instruments which potentially subject the Company to concentrations of credit risk are primarily cash and accounts receivables. The Company invests its excess cash in high quality short-term liquid money market instruments with major Financial institutions and the carrying values approximate their market value. The Company does not believe that it is subject to any unusual or significant risks, in the normal course of business. H. Income taxes - Income taxes are accounted for under Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes," which is an asset and liability approach that requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the Company's financial statements or tax returns. I. Net loss per share - Basic loss per share has been calculated based upon the weighted average number of common shares outstanding. Stock options have been excluded as common stock equivalents in the diluted earnings per share because they are either antidilutive, or their effect is not material. J. Fair value of financial instruments - The carrying amounts reported in the balance sheet for cash, accounts payable and accrued expenses approximate fair value based on the short-term maturity of these instruments. K. Impairment of long-lived assets - The Company reviews long-lived assets for impairment whenever circumstances and situations change such that there is an indication that the carrying amounts may not be recovered. At December 31, 2001, the Company believes that there has been no impairment of its long-lived assets. L. Recent accounting pronouncements In June 2001, the FASB issued SFAS No. 141, "Business Combination", SFAS No. 142, "Goodwill and Other Intangible Assets" and SFAS No. 143, "Accounting for Asset Retirement Obligations",. SFAS No. 141 requires the use of the purchase method of accounting and prohibits the use of the pooling-of-interest method of accounting for business combinations initiated after June 30, 2001. It also requires that the Company recognize acquired intangible assets apart from goodwill. SFAS No. 142 requires, among other things, that companies no longer amortize goodwill, but instead test goodwill for impairment at least annually. In addition, SFAS No. 142 requires that the Company identify reporting units for the purposes of assessing potential future impairments of goodwill, reassess the useful lives of other existing recognized intangible assets, and cease amortization of intangible assets with an indefinite useful life. SFAS No. 143 establishes accounting standards for recognition and measurement of a liability for an asset retirement obligation and the associated asset retirement cost, which will be effective for financial statements issued for fiscal years beginning after June 15, 2002. The adoption of SFAS No. 141, SFAS No. 142 and SFAS No. 143 is not expected to have a material effect on the Company's financial position, results of operations and cash flows. F-8 3. DUE FROM OFFICERS The Company loaned two Directors of the Company money throughout the year. The loans begin to accrue interest on December 31, 2001 at a rate of 4% per annum. At the Directors discretion the loan can be repaid with Company stock at value of $.50 per share. 4. INVENTORIES The Company as part of their agreement with the Russian Federation (see Note 8) was required to purchase gas generator units. These gas generators can be used only once for each attempt at oil and gas recovery for each well. The generators are stated at lower of cost or market. Cost is determined using the first-in first-out method of inventory pricing. 5. PROPERTY AND EQUIPMENT Property and equipment consisted of the following as of December 31, 2001: Furniture and Fixtures 5 Years $ 33,990 Data processing equipment 3 Years 30,931 ------------- 64,921 Less: accumulated depreciation (33,811) ------------- $ 31,110 ============= 6. NOTES PAYABLE In November 1999, the Company borrowed $119,500 from an Investment Trust based in Bermuda. The loan is due in November 2003, four years from the date of issuance. Interest on the note is 12.50% per annum, payable upon repayment of the principal. During the year ended December 31, 2001 the Company borrowed a total of $460,272 from an Investment Trust based in Bermuda. The notes bear interest at 12.5% per annum and payable upon demand. 7. COMMON STOCK AND STOCK OPTIONS During the year ended December 31, 2000 the Company issued common stock as compensation for services valuing such issues at the fair market value of the common stock issued. The Company issued 637,000 shares of common stock valued at $1,122,748 to several consultants for financial services and investor relations. During the year ended December 31, 2000 the Company issued a consultant 25,000 stock options exercisable at $2.00 per share and 50,000 stock options exercisable at $3.00. These options were valued at $51,730 as per a Black Scholes Valuation. The Company also issued 200,000 stock options exercisable at $5.00 per share to a consultant. These options were valued at $430,978 as per a Black Scholes valuation. During the year ended December 31, 2000 the Company issued common stock as compensation for services valuing such issues at the fair market value of the common stock issued. The Company issued 378,000 shares of common stock valued at $1,134,000 to three employees. F-9 During the year ended December 31, 2000 the Company completed a private placements of a total of 207,333 shares of common stock for net proceeds of $625,748. With prices ranging from $2.50 to $5.00 per share. In connection with one of the placements, the Company also issued 50,000 common stock warrants expiring April 2003. Each warrant entitles the holder to purchase one share of common stock at a price of $4.50. In December 2001 the Company sold 20,000 shares of common stock at a price of $.30 per share. During 2001 the Company issued 226,000 share of common stock to consultants valued at $144,920. The Company also issued a total of 350,000 stock options with prices ranging from $1.50 to $4.00 per share to one of the consultants. The Company incurred an expense of $51,125 as a result of these options as per a Black Scholes valuation. 8. INCOME TAXES The Company accounts for income taxes under Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"). SFAS 109 requires the recognition of deferred tax assets and liabilities for both the expected impact of differences between the financial statements and tax basis of assets and liabilities, and for the expected future tax benefit to be derived from tax loss and tax credit carryforwards. SFAS 109 additionally requires the establishment of a valuation allowance to reflect the likelihood of realization of deferred tax assets. The provision (benefit) for income taxes differs from the amounts computed by applying the statutory federal income tax rate to income (loss) before provision for income taxes is as follows: Year ended December 31, ------------------------------------ 2001 2000 ----------------- ----------------- Taxes benefit computed at statutory rate $ (540,000) $ (1,250,000) Permanent Difference 167,000 - Losses for which no tax benefit utilized 373,000 1,250,000 ----------------- ----------------- Net income tax benefit $ - $ - ================= ================= The Company has a net operating loss carryforward for tax purposes totaling approximately $3,400,000 at December 31, 2001 expiring between the years 2014 and 2019. F-10 Listed below are the tax effects of the items related to the Company's net tax liability: December 31, 2001 --------------------- Tax benefit of net operating loss carryforward $ 1,190,000 Valuation Allowance (1,190,000) --------------------- Net deferred tax asset recorded $ - ===================== 9. COMMITMENTS In December 1999, the Company entered into a five year lease for office space commencing April 2000. Future minimum rental payments under the non-cancelable operating lease are as follows: Year ended December 31, 2002 76,315 2003 71,674 2004 71,516 Thereafter 5,974 ----------------- $ 225,479 ================= The Company entered into an agreement in December 1998 with the Russian Federation whereby upon successful testing of 60 gas generators, the Company is required to order a minimum of 5,000 gas generators over a ten year period. A total of 1,000 generators is required to be ordered in the first two years, with a minimum of 500 units per year in the subsequent eight years. The Company is obligated to purchase approximately $4,500,000 of generators over the next three years. Employment Agreements - In January 1999, the Company entered into five-year employment agreements with two officers. The total annual commitment to the Company for these agreements will aggregate $350,000. On October 1 2000 the Board of Directors increased the salaries to $500,000 per annum. One March 31, 2001 The two officers lowered there salary to $350,000 per annum. F-11 10. STOCK OPTIONS The weighted average fair value of stock options granted during the year ended December 31, 2000 was $4.36. No employee stock options were granted in 2001. Stock option transactions were as follows: Weighted Average Number of options Shares Exercise Price ----------------------------------- ------------- ---------------- Outstanding at December 31, 1998 126,000 $ 2.38 ------------- ---------------- Outstanding at December 31, 1999 126,000 $ 2.38 Granted 275,000 $ 4.36 Cancelled (126,000) $ 2.38 ------------- ---------------- Outstanding at December 31, 2000 275,000 $ 4.36 Granted 350,000 $ 3.07 ------------- ---------------- Balance December 31, 2001 625,000 $ 3.64 ============= ================ The following options were outstanding at December 31, 2001:
Range of Outstanding Weighted Average Exercisable Weighted Average Remaining Exercise Price Options Exercise Price Options Exercise Price Life (Years) ----------------- ---------------- ------------------- -------------- ------------------- -------------- $2.00-$5.00 275,000 $4.36 275,000 $4.36 1 $1.50-$4.00 350,000 $3.07 350,000 $3.07 2
11. Subsequent Events In January of 2002 the Company sold a total of 295,000 shares of common stock for gross proceeds of $88,500. The Company also borrowed a total of $60,000 in January of 2002. The notes are payable six months from the date of issuance in the amount of $90,000. The Company also granted a total of 200,001 common stock options exercisable at $.30 to the holders of these notes. In February 2002 the Company issued a total of 500,000 shares of common stock to an employee and several consultants. F-12 ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 9. MANAGEMENT MANAGEMENT The following table sets forth certain information concerning the current directors of the Company and the executive officers of the Company: MANAGEMENT The officers and directors of the Company are as follows: Name Age Position - -------------------------------------------------------------------------------- Daniel Pepe 47 President and Chairman W. Richard Lueck 52 Chief Executive Officer, Director Secretary/Treasurer Albert O. Banahene 40 Chief Petroleum Engineer The following is a brief description of the business background of the directors/key employees of the Company. Daniel Pepe has been Chairman and President of the Company since 1998. After consulting from 1994-1998 with FR&PC ALTAI, a Russian military research and production facility, he was offered the opportunity to develop their PGDBK Generators in the North, Central, and South America markets. Mr. Pepe worked directly with the firm and their Director General, and then successfully negotiated with the Russian Government, identifying opportunities for successful implementation of the technology into Asian markets. From 1991 until 1996, Mr. Pepe served as President for Lexde Inc., a management company, which helped identify opportunities for US companies to develop and market products in the former Soviet Union. While there, Mr. Pepe worked with US and Russian government agencies, gaining experience and forming strategic alliances with several organizations. In 1994, Mr. Pepe negotiated a contract with FR&PC ALTAI to develop the North American market for the use of their patented atomic-size nano diamond powder within high technologies such as Chemical Vapor Deposition and Physical Vapor Deposition film coatings. In 1991, Mr. Pepe was an independent contractor with WTE, an independent consulting company that identified opportunities for US companies to promote and market their products and services in the former Soviet Union, where he strengthened interpersonal relationships between the companies and high ranking personnel in the Soviet Union government. Mr. Pepe's entrepreneurial experience includes the founding and operating of successful businesses in a vast array of industries, including real estate, ship building, and residential commercial construction. From 1985 until 1991, Mr. Pepe served as Vice President of Sales/Development for Ridgemont Construction, a New England real estate developer, where he helped develop and build residential and commercial projects throughout the region, with the initial project generating $13,000,000. From 1984-85, Mr. Pepe worked as a Sales Representative for PYA Monarch, a wholesale food distributor, where he refined his sales skills, opening new accounts and establishing many customer contacts. From 1982-1984, Mr. Pepe was Manufacture Engineer for General Dynamics, where he was responsible for several manufacturing units, increasing worker output and improving the manufacturing process for various shipping vessels. From 1980-1982, Mr. Pepe was Plant Supervisor for Waganhiem Provisions, Inc., a food wholesale/distribution company, where he managed fifty (50) employees. Mr. Pepe is a member of the Society of Petroleum Engineers (SPE). Mr. Pepe received his BS in Industrial Engineering/Technology from Roger Williams University in 1980. W. Richard Lueck has been the Chief Executive Officer, Secretary and a Director for the Company since its inception in 1998. Mr. Lueck has accumulated over 25 years of experience in financing, building, and managing of several biomedical companies, with jobs and duties covering executive management, marketing, technology acquisition, quality control and operations. Mr. Lueck also currently holds the positions of Executive Vice President for Freedom Motors, Ltd., a company providing rotary engine development, and President of Light Lift, Inc., a company specializing in patented portable scaffolding systems, where he has been responsible for the capitalization structure and obtaining financing for both high-growth companies. From 1992 through 1996, Mr. Lueck served as Executive Vice president for Cytoferon Corporation, where he was responsible for corporate restructuring, finance, marketing, and scientific development of Viragen, Inc. Mr. Lueck spearheaded Viragen's acquisition of Cytoferon Corporation. From 1988-89, Mr. Lueck was Senior Group manager for Coulter Electronics, where he specialized in marketing, product development, and technology transfers. From 1984 until 1988, Mr. Lueck served as Executive Vice President and Director for American Labor, a company specializing in coagulation and hematology products in the medical industry. From 1979 until 1981, Mr. Lueck served as Senior Marketing Manager for Warner-Lambert in Southbridge, MA, where he was involved in multi-plant marketing, manufacturing, and operations. Mr. Lueck was also Executive Vice President of Medical Analysis Systems from 1982-1984, a technology company that stabilized enzymes/clinical reagents. From 1972 until 1974, Mr. Lueck worked at the University of Minnesota, Masonic Hospital as a Research Scientist for Laboratory Operations, Cancer Research, and Virology. Mr. Lueck received his BS in Biological Sciences/Biochemistry from the University of Minnesota in 1974 and select MBA classes at Nova University and New York Institute of Technology from 1976-77. Albert O. Banahene has been the Company's Chief Petroleum Engineer since September 1999. His petroleum industry experience span three continents; North America, Europe and Africa. Practical experience includes reservoir engineering studies, reservoir simulation, well test analysis, production optimization, production forecasting, and oil/gas property evaluation. Mr. Banahene was a Petroleum Engineer with JHR Corporation of Bridgeville, PA responsible for Reservoir Management and Production Optimization (1999). He also worked for Petroleum Reservoir Engineer for GeoKnowledge AS of Oslo developing models for prospect analysis and fiscal regimes (1998). Mr.Banahene acquired extensive Petroleum Production Operations and Reservoir Engineering experience on some West African fields including Nemba Field in Angola; Tano and Saltpond Fields in Ghana; and the Ibex, Kudu and Eland Fields in La Cote d'Ivoire. He worked with the Ghana National Petroleum Corporation for 8 years (1990-1998). During this tenure, he played a key role in developing strategies of integration of West African Energy Projects. He was a member with a dynamic role in a multi-disciplinary team (GNPC-Chevron) in developing some West African oil/gas fields to supply gas to regional thermal plants and other markets - an integrated project. He was part of a multi-disciplinary team (from the World Bank, Ministry of Finance, Ministry of Mines and Energy, National Petroleum and Electric Utility companies) tasked to rank and select proposed thermal power plants to complement existing hydroelectric system. Mr. Banahene has also been involved in petroleum production optimization in Bavli (Byelurus) and Rechitsa (Russia) oil fields in the late 1980's. Albert O. Banahene earned a Masters of Engineering Degree from the Colorado School of Mines (1995). He also holds a Masters of Science in Petroleum Engineering from the Moscow Institute of Oil and Gas, Russia (1989). Albert has also earned credits towards the Master of Energy Management program offered at the Norwegian School of Mines in Norway (1998/99). During the year ended December 31, 2001 the Company's Board of Directors held meetings and took action by unanimous written consent a total of 7 times. Board Committees and Related Information NONE. Compliance with Section 16(a) of the Securities Exchange Act of 1934 Section 16(a) of the Securities Exchange Act of 1934 requires the Company's directors and executive officers, and persons who own more than ten percent of the Company's outstanding Common Stock to file with the Securities and Exchange Commission (the "SEC") initial reports of ownership and reports of changes in ownership of Common Stock. Such persons are required by SEC regulation to furnish the Company with copies of all such reports they file. To the Company's knowledge, based solely on a review of the copies of such reports furnished to the Company and written representations that no other reports were required, all Section 16(a) filing requirements applicable to its officers, directors and greater than ten percent beneficial owners have been complied with for the period for which this report relates. ITEM 10. EXECUTIVE COMPENSATION The following table sets forth the aggregate compensation paid to Daniel Pepe and W. Richard Lueck (the "Named Executive Officers") by the Company. No other executive officer of the Company was paid a total annual salary and bonus for the fiscal year ended December 31, 2001, which was $100,000 or more.
Securities Other Name and Principal Fiscal Underlying Annual Position Year Salary Bonus Options Compensation - -------- ---- ------ ----- ------------- ------------ Daniel Pepe 2001 $193,750 -0- -0- -0- President & Chairman 2000 $126,459 -0- -0- -0- 1999 $107,752 -0- -0- -0- 1998 $68,626 -0- -0- -0- Richard Lueck, 2001 $193,750 -0- -0- -0- Secretary & Treasurer & CEO 2000 $101,250 -0- -0- -0- 1999 $ 37,002 -0- -0- -0- 1998 $ 1,600 -0- -0- -0-
Effective January 1, 1999, the Company entered into five-year employment agreements with each of Daniel Pepe and W. Richard Lueck providing for base annual salaries of $175,000, with their salary increasing to $250,000 per year when annual revenue reaches $5,000,000. On October 1, 2000 the Board of Directors increased Daniel Pepe's and W. Richard Lueck's salary to $250,000 per annum. The employees may receive annual bonuses at the discretion of the Company, with bonuses to be determined by the Compensation and Audit Committee. No formula or criteria have been specifically determined. On March 31, 2001 the Mr. Pepe and Mr. Lueck reduced there salaries back to $175,000 per year. For the year ended December 31, 2001 all of there salary has been accrued and not paid. OPTION GRANTS IN LAST FISCAL YEAR None AGGREGATED FISCAL YEAR END OPTION VALUE TABLE The following table sets forth certain information concerning unexercised stock options held by the Named Executive Officers as of December 31, 2000. No stock options were exercised by the Named Executive Officers during the period ended December 31, 2001. No stock appreciation rights were granted or are outstanding. Number of Unexercised Option Value of Unexercised in the money Held at December 31, 2001 Options at December 31, 2001 -------------------------------------------------------------------- Name Exercisable Unexercisable Exercisable Unexercisable NONE - - - ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth, as of December 31, 2001, information with respect to the beneficial ownership of the Company's Common Stock by (i) each person who is known by the Company to own beneficially more than 5% of its Common Stock, (ii) each director and nominee for director, (iii) each Named Executive Officer (as defined herein), and (iv) all directors and executive officers as a group:
PERCENTAGE OF OUTSTANDING NAME AND ADDRESS OF SHARES OF COMMON STOCK SHARES BENEFI- BENEFICIAL OWNERS(1)(2) BENEFICIALLY OWNED CIALLY OWNED(1) - ----------------------- ---------------------------- --------------- Daniel & Jodi Pepe........................ 637,500 2.9% W. Richard Lueck.......................... 787,500 3.5% ADRP NORM Trust (3)....................... 7,350,000 33.1% Honest Tee Control Trust (4).............. 7,350,000 33.1% All officers and directors as a group (2 persons).................... 16,125,000 72.6%
(1) Unless otherwise indicated below, the persons in the table above have sole voting and investment power with respect to all shares shown as beneficially owned by them, subject to community property laws where applicable. A person is deemed to be the beneficial owner of securities that can be acquired by such person within 60 days from the date indicated above upon the exercise of options. Each person's percentage of ownership is determined by assuming that any options held by such person have been exercised. As December 31, 2001 there were 22,206,108 shares of Common Stock outstanding. (2) Unless otherwise indicated below, the address of each person is c/o the Company at 1615 S.Federal Highway, Suite 101, Boca Raton, Florida 33432 (3) W. Richard and Lori J. Lueck are trustees. (4) Daniel and Jodi Pepe are trustees. ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS All transactions between the Company and its officers, shareholders and each of their affiliated companies have been made on terms no less favorable to the Company than those available from unaffiliated parties. In the future, the Company intends to handle transactions of a similar nature on terms no less favorable to the Company than those available from unaffiliated parties. The Company leases a vehicle from a related party, under an operating lease expiring in February 2003. The Company loaned two Directors money throughout the year. The loans begin to accrue interest on December 31, 2001 at a rate of 4% per annum. At the Directors discretion he may repay the loan with Company stock at value of $.50 per share. ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K. A. EXHIBITS: Exhibit Number Description Exhibit 1 Underwriting Agreement(1) Exhibit 2 Plan of Acquisition, Reorganization, Arrangement, Liquidation, Etc. (1) Exhibit 3 Articles of Incorporation By-laws (as amended) (1) Exhibit 4 Instruments Defining the Rights of Security Holders Above (1) Exhibit 5 Voting Trust Agreement (1) Exhibit 6 Material Contracts (1) Exhibit 7 Letter on Accountant Change (1) Exhibit 8 Information on Subsidiaries (1) Exhibit 9 Power of Attorney (1) Exhibit 10 Employment Agreement with Daniel Pepe (1) Exhibit 11 Employment Agreement with W. Richard Lueck(1) Exhibit 12 Employment Agreement with Albert O. Bahahene (1) Exhibit 14 Lease Agreement with Residuary Trust U/W Leroy E.Dettman(1) Exhibit 15 Consent of Public Accountants * Filed herewith (1) Files as an exhibit to the Company's Registration Statement on Form 10SB12G/A (File No. 000-26315) as filed with and declared effective by the Commission on September 2, 1999. B. REPORTS ON FORM 8-K: SIGNATURES In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Geotec Thermal Generators, Inc. DATE: June__, 2002 By:/s/Daniel Pepe ----------------- President and COB In accordance with the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated: DATE: June__, 2002 /s/ Daniel Pepe ---------------------- President and COB DATE: June__, 2002 /s/ W. Richard Lueck --------------------------------- CEO, Secretary and Treasurer Principal Executive Financial and Accounting Officer -----END PRIVACY-ENHANCED MESSAGE-----