10-Q 1 geopoint10q20120930.htm GEO POINT TECHNOLOGIES, INC. FORM 10-Q SEPTEMBER 30, 2012 geopoint10q20120930.htm


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2012


Commission File Number 000-53182


GEO POINT TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
 
Utah
11-3797590
(State or other jurisdiction of
(I.R.S. Employer Identification No.)
incorporation or organization)
 
 
2319 Foothill Drive, Suite 160 
Salt Lake City, UT  84109
(Address of principal executive offices)
 
801-810-4662
(Registrant’s telephone number)
 
n/a
(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes
x
No
o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes
xo
No
o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer o
Accelerated filer ¨
Non-accelerated filer o
Smaller reporting company x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
Yes
o
No
x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.  As of November 19, 2012, issuer had 30,065,000 outstanding shares of common stock, par value $0.001.

 
 

 

TABLE OF CONTENTS


 
Page
   
PART I – FINANCIAL INFORMATION
 
 
Item 1. Financial Statements.                                                                                                                    
 
 
Condensed Consolidated Balance Sheets (Unaudited)                                                                                                              
3
 
Condensed Consolidated Statements of Operations and Comprehensive Loss (Unaudited)                                                                                                           
4
 
Condensed Consolidated Statements of Cash Flows (Unaudited)                                                                                                              
5
 
Notes to the Condensed Consolidated Financial Statements (Unaudited)
6
 
Item 2. Management’s Discussion and Analysis of Financial Condition and
 
 
Results of Operations..                                                                                                               
14
 
Item 3. Quantitative and Qualitative Disclosures about Market Risk                                                                                                                    
17
 
Item 4. Controls and Procedures                                                                                                                    
17
     
PART II – OTHER INFORMATION
 
 
Item 1. Legal Proceedings                                                                                                                    
18
 
Item 1A. Risk Factors                                                                                                                    
18
 
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds                                                                                                                    
18
 
Item 3. Defaults Upon Senior Securities                                                                                                                    
18
 
Item 4. Mine Safety Disclosures                                                                                                                    
18
 
Item 5. Other Information                                                                                                                    
18
 
Item 6. Exhibits                                                                                                                    
18
 
Signature                                                                                                                    
19
 
 
2

 

PART I – FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

GEO POINT TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
 
   
             
   
September 30,
2012
   
March 31,
 2012
 
ASSETS
           
             
CURRENT ASSETS
           
Cash and cash equivalents
  $ 27,442     $ 35,249  
Accounts receivable, net
    45,311       3,911  
Inventories
    124,908       285,094  
Prepaids and other current assets
    32,326       36,502  
           Total Current Assets
    229,987       360,756  
                 
OTHER ASSETS
               
Property, plant and equipment, net
    4,005,602       4,243,895  
Value-added tax receivable
    120,934       255,393  
Other assets
    1,000       1,000  
      4,127,536       4,500,288  
                 
TOTAL ASSETS
  $ 4,357,523     $ 4,861,044  
                 
LIABILITIES AND STOCKHOLDERS' EQUITY
               
                 
CURRENT LIABILITIES
               
Accounts payable and accrued liabilies
  $ 1,043,034     $ 1,056,096  
Customer deposits
    478,917       561,899  
Line of credit
    66,030       22,830  
Notes payable
    902,500       902,500  
Capital lease payable
    598,818       610,284  
Payable to related parties
    393,108       252,935  
           Total Current Liabilities
    3,482,407       3,406,544  
                 
LONG-TERM LIABILITIES
               
TOTAL  LIABILITIES
    3,482,407       3,406,544  
                 
Commitments and contingencies
    -       -  
                 
STOCKHOLDERS' EQUITY
               
Preferred stock; $0.001 par value; 5,000,000 shares authorized; none outstanding
    -       -  
Common stock; par value of $0.001; 100,000,000 shares authorized; 30,065,000 shares issued and outstanding at September 30, 2012 and March 31, 2012
    30,065       30,065  
Additional paid-in capital
    5,704,941       5,688,173  
Accumulated deficit
    (3,805,602 )     (3,251,714 )
Other comprehensive loss
    (1,054,288 )     (1,012,024 )
           Total Stockholders' Equity
    875,116       1,454,500  
                 
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY
  $ 4,357,523     $ 4,861,044  

See accompanying notes to the condensed consolidated financial statements.

 
3

 

GEO POINT TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE LOSS
(Unaudited)
 
                         
   
For the Three Months Ended
 September 30,
   
For the Six Months Ended
September 30,
 
   
2012
   
2011
   
2012
   
2011
 
                         
                         
REVENUES:
                       
Refining
  $ -     $ 24,459     $ 216,966     $ 78,427  
Environmental services
    89,343       34,291       116,497       60,802  
Total revenues
    89,343       58,750       333,463       139,229  
                                 
COSTS AND OPERATING EXPENSES:
                               
Cost of refining revenues
    -       34,947       194,125       58,004  
Cost of environmental services revenues
    13,621       4,185       21,235       12,903  
General and administrative
    150,501       201,764       281,082       427,578  
Depreciation and amortization
    80,474       89,727       167,990       178,275  
         Total costs and operating expenses
    244,596       330,623       664,432       676,760  
                                 
OPERATING LOSS
    (155,253 )     (271,873 )     (330,969 )     (537,531 )
                                 
OTHER INCOME (EXPENSE)
                               
Interest expense
    (115,698 )     (118,895 )     (222,919 )     (234,089 )
         Total other expense
    (115,698 )     (118,895 )     (222,919 )     (234,089 )
                                 
NET LOSS
  $ (270,951 )   $ (390,768 )   $ (553,888 )   $ (771,620 )
                                 
Other comprehensive loss - foreign currency translation adjustments
    (14,806 )     (81,012 )     (42,264 )     (40,084 )
                                 
COMPREHENSIVE LOSS
  $ (285,757 )   $ (471,780 )   $ (596,152 )   $ (811,704 )
                                 
Basic and dilutive loss per share
  $ (0.01 )   $ (0.02 )   $ (0.02 )   $ (0.03 )
Basic and dilutive weighted average common shares outstanding
    30,065,000       30,065,000       30,065,000       30,065,000  

See accompanying notes to the condensed consolidated financial statements.

 
4

 


GEO POINT TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 
             
   
For the Six Months Ended
September 30,
 
   
2012
   
2011
 
CASH FLOWS FROM OPERATING ACTIVITIES
           
Net loss
  $ (553,888 )   $ (771,620 )
Adjustments to reconcile net loss to net cash used in operating activities:
               
Imputed interest on notes payable to related parties
    16,768       16,768  
Depreciation
    167,990       178,275  
Change in operating assets and liabilities, net of amount acquired in 2011:
               
Accounts receivable
    (41,444 )     19,453  
Inventories
    156,692       (87,416 )
Prepaids and other current assets
    3,604       (295,965 )
Valued-added tax receivable
    131,221       3,527  
Accounts payable and accrued liabilies
    (465 )     359,821  
Customer deposit
    (73,298 )     444,331  
          Net cash used in operating activities
    (192,820 )     (132,826 )
                 
CASH FLOWS FROM INVESTING ACTIVITIES
               
Net repayment from (advances to) related parties
    -       -  
Purchase of property, plant and equipment
    (1,163 )     (9,939 )
         Net cash used in investing activities
    (1,163 )     (9,939 )
                 
CASH FLOWS FROM FINANCING ACTIVITIES
               
Net proceeds (payments) on revolving notes payable to related parties
    146,669       54,153  
Proceeds from notes payable
    -       -  
Payments on capital lease obligations
    -       (49,205 )
Net borrowings (repayments) on lines of credit
    39,600       (1,428 )
         Net cash provided by financing activities
    186,269       3,520  
                 
EFFECT OF FOREIGN EXCHANGE RATES ON CASH AND CASH EQUIVALENTS
    (93 )     (439 )
NET DECREASE IN CASH AND CASH EQUIVALENTS
    (7,807 )     (139,684 )
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
    35,249       191,545  
CASH AND CASH EQUIVALENTS AT END OF PERIOD
  $ 27,442     $ 51,861  
                 
CASH PAID FOR:
               
Interest
  $ -     $ 67,109  
Income taxes
  $ -     $ -  
                 
NON-CASH INVESTING AND FINANCING ACTIVITIES:
               
Conversion of accured interest into note payable
 
  $ -     $ 152,500  
See accompanying notes to the condensed consolidated financial statements.

 
5

 

GEO POINT TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

1.             GENERAL INFORMATION

Background

On May 7, 2010, Geo Point Technologies, Inc. (“Geo Point”), entered into a Share Exchange Agreement (the “Agreement”) with Summit Trustees PLLC, a Utah professional limited liability company (“Summit”), to acquire all of the issued and outstanding stock of GSM Oil Holdings Ltd. (“GSM”), a limited liability company organized in Cyprus on June 2, 2009.  Summit acted for the benefit and on behalf of certain beneficial stockholders of GSM.  On October 28, 2010, Geo Point completed the acquisition of all the assets and business of GSM in exchange for 26,808,000 shares of Geo Point’s common stock.  Pursuant to the terms of the Agreement, GSM became a wholly owned subsidiary of Geo Point, and the GSM shareholders assumed the controlling interest in Geo Point.  GSM had recently completed the acquisition of Sinur Oil LLP, a limited liability partnership organized in Kazakhstan (“Sinur Oil”), through its wholly owned subsidiary, GSM OIL B.V., a Dutch private company limited by shares (the “Subsidiary”).  Sinur Oil was organized on January 19, 2007 (“Inception”).  The transaction between GSM and Sinur Oil was between related entities held by the same shareholder.  The purpose of the transaction was for corporate structure strategies.

The primary assets of Sinur Oil include an oil refinery in Karatau, Kazakhstan.  The refinery consists of a main refining stack that has a processing capacity of approximately 2,000 tons of crude oil per month.  The refinery is located on a site that contains the refining equipment, storage tanks, administrative buildings, boilers, pumps, a warehouse, and a rail spur.  The three main refined products are diesel fuel, gasoline, and mazut, a heating oil.

The condensed consolidated financial statements presented herein include the operations of GSM and Sinur Oil from the date of Sinur Oil’s Inception and the operations of Geo Point from the date of the reverse acquisition of October 28, 2010 (all entities collectively referred to as the “Company”).

Geo Point’s operations are located in Santa Ana, California.  Geo Point provides geological and earth study services related to: land surveying for new construction; soil testing and environmental risk and impact assessments; natural resource assessments with an emphasis on oil; and gas deposit discovery.

On June 13, 2012, Geo Point Resources, Inc. a Nevada Corporation, (“Geo Point Nevada”) was formed as a wholly-owned subsidiary and into which we simultaneously authorized the conveyance of the segment of our business comprising all of our Environmental and Engineering Divisions’ assets, business, operations, rights or otherwise, along with our “Hydrocarbon Identification Technology” (“HI Technology”) License Agreement dated January 31, 2008 (the “License Agreement”), subject to the assumption of all related liabilities and the indemnification of us from any such liabilities by Geo Point Nevada.  Also on June 13, 2012, the Board of Directors approved a stock dividend that will result in a spin-off of all of our Geo Point Nevada common stock to our stockholders, pro rata, on the record date.  The spin-off has yet to be accomplished.  We will retain and focus our efforts on our oil refining operations in Karatau, Kazakhstan.

 
6

 

2.             GOING CONCERN

The accompanying condensed consolidated financial statements have been prepared assuming the Company will continue as a going concern.  As shown in the accompanying financial statements, the Company has generated limited revenues during the three and six months ended September 30, 2012, has a working capital deficit of $3,252,420, has limited capital to fund operations, and had a net usage of cash in operations.  Currently, the Company is in default on its capital lease totaling $598,818 and its notes payable and line of credit totaling $968,530.  Additionally, the Company has had difficulties in securing contracts for the consistent delivery of crude oil for it to refine.  These inconsistencies have required the Company to operate the refinery at below capacity and at times required it to close the refinery.  These conditions raise substantial doubt about the Company’s ability to continue as a going concern.

The future of the Company is dependent upon its ability to obtain equity and/or debt financing and ultimately to achieve profitable operations from the development of its business segments.  Since Inception through September 30, 2012, the Company funded operations through related-party borrowings and $750,000 in borrowings from unrelated third parties.  In addition, during the year ended March 31, 2011, the Company assumed a lease for the primary refining equipment in which a significant amount of liabilities were incurred.  Since July 2011 and at September 30, 2012, the Company was in default of the lease agreement.  See Note 6 for additional information.  Currently, the Company does not have any commitments or assurances for additional capital other than the revolving loans payable from the shareholder and related individuals.  There can be no assurance that the revenue from future expected operations from the refinery will be sufficient for the Company to achieve profitability in its operations, and it is possible that additional equity or debt financing may be required for the Company to continue as a going concern.
 
 
The financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts of and classification of liabilities, which might be necessary in the event the Company cannot continue in existence.

3.             SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Consolidation

The condensed consolidated financial statements include the accounts of Geo Point, GSM, GSM Oil, B.V., Sinur Oil and Geo Point Resources, Inc.  All material inter-company accounts and transactions have been eliminated in consolidation.  The results of Geo Point’s operations are included in the accompanying financial statement from the reverse acquisition date of October 28, 2010, through September 30, 2012.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the financial statements and the accompanying notes to financial statements.  Actual results could differ from those estimates.  Significant estimates made by management include the useful life of property, plant, and equipment.

 
7

 

Unaudited Interim Financial Information

The accompanying unaudited interim financial statements have been prepared by the Company pursuant to the rules and regulations of the United States Securities and Exchange Commission.  The accompanying balance sheet as of September 30, 2012, and the statements of operations and comprehensive income, and cash flows for the three and six months ended September 30, 2012 and 2011, are unaudited.  The unaudited interim financial statements have been prepared on the same basis as the annual financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary to present fairly the Company’s financial position, results of operations, and cash flows for such periods.  The financial data and other information disclosed in these notes to the financial statements related to the three-month and six-month periods are unaudited.  The results of the three and six months ended September 30, 2012, are not necessarily indicative of the results to be expected for the year ending March 31, 2013, any other interim period, or any other future year.

Concentration of Credit Risk and Customer Concentration

The Company generates revenues principally from the sale of crude oil and refined oil products and its engineering services.  As a result, the Company’s trade accounts receivable are concentrated primarily in these industries.  The Company performs limited credit evaluations of its customers and generally does not require collateral.  The Company maintains reserves for potential credit losses.  The Company considers the following factors when determining if collection of revenue is reasonably assured: customer creditworthiness, past transaction history with the customer, if any, current economic industry trends, and changes in customer payment terms.  In some cases regarding new customers, management requires payment in full or letters of credit before goods are provided.  If these factors do not indicate collection is reasonably assured, revenue is deferred until collection becomes reasonably assured, which is generally upon receipt of cash.  During the periods presented, credit losses were not significant.

Inventories

Inventories are measured at the lower of cost or market.  The cost of inventories is based on the first-in first-out method and includes expenditures incurred in acquiring the crude oil and additives and other costs incurred in bringing them to their existing location.  Market represents net realizable value of inventories, which is determined as an estimated net sales price in the ordinary course of business, less reasonably predictable cost of completion and disposal.  At September 30, 2012 and March 31, 2012, inventories consisted of crude oil of $0 and $248,910; and refined product of $124,908 and $36,184, respectively.

Revenue Recognition

All proceeds from sales and services for which the Company’s revenue recognition criteria are not met are deferred until such criteria are met.  Such criteria have been disclosed in prior filings.  At September 30, 2012 and March 31, 2012, the Company had customer deposits of $478,917 and $561,899, respectively, which were received for future purchases of the Company’s products.

Environmental Matters

When it is probable that costs associated with environmental remediation obligations will be incurred and they are reasonably estimable, the Company accrues such costs at the most likely estimate.  Accruals for estimated losses from environmental remediation obligations generally are recognized no later than completion of the remedial feasibility study and are charged to provisions for closed operations and environmental matters.  The Company periodically reviews its accrued liabilities for such remediation costs as evidence becomes available indicating that its remediation liability has potentially changed.  Such costs are based on its current estimate of amounts that are expected to be incurred when the remediation work is performed within current laws and regulations.

 
8

 

Accounting for reclamation and remediation obligations, commonly referred to as an asset retirement obligation, requires management to make estimates unique to each operation of the future costs the Company will incur to complete the reclamation and remediation work required to comply with existing laws and regulations.  Actual costs incurred in future periods could differ from amounts estimated, if any.  Under current laws, the Company is not required to perform any reclamation and remediation procedures if the current property were to be abandoned.  However, future changes to environmental laws and regulations could increase the extent of reclamation and remediation work required.  Any such increases in future costs could materially impact the amounts charged to earnings.  As of September 30, 2012, and March 31, 2012, the Company has no accrual for reclamation and remediation obligations because the Company has not engaged in any significant activities that would require remediation under the current laws and regulations.

4.             NOTES PAYABLE AND LINE OF CREDIT

Notes Payable

On April 20, 2010, the Company entered into a $400,000 note payable agreement with an unrelated third party, the proceeds of which were used for operations.  Under the terms of the agreement, the principal balance and interest of $100,000 was due on April 15, 2011.  On June 20, 2011, the Company and the holder agreed to convert accrued interest of $100,000 into the note, incur interest at 30% per annum, and extend the due date to October 15, 2011.  Thus, total principal due at September 30, 2012 was $500,000. The note is denominated in U.S. dollars.  Translation losses are immaterial to the financial statements and have not been recognized.

On November 5, 2010, the Company entered into a $350,000 note payable agreement with the same unrelated third party with the proceeds to be used for operations.  Under the terms of the agreement, the note incurs interest at 30% per annum with principal and interest due April 15, 2011.  On June 20, 2011, the Company and the holder agreed to convert accrued interest of $52,500 into the note, incur interest at 30% per annum, and extend the due date to October 15, 2011. Thus, total principal due at September 30, 2012 was $402,500.  The note is denominated in U.S. dollars. Translation losses are immaterial to the financial statements and have not been recognized. As of September 30, 2012 and March 31, 2012, the Company has accrued interest related to the two notes of $449,577 and $291,374 included in accrued liabilities, respectively.

Line of Credit

In August 2011, the Company entered into a line of credit with the note payable holder described above.  Under the terms of the line of credit, the Company was initially allowed to borrow up to a maximum of $50,000, accruing interest daily at a rate of 24% per annum, was due six months from issuance, and is currently in default.  As of September 30, 2012 and March 31, 2012, the balance of the line of credit was $63,630 and $22,830, respectively. At September 30, 2012, $0 was available on the line of credit. Subsequent to September 30, 2012, the Company received additional advances of $105,592. The Company is currently negotiating the terms of the line of credit but will continue to reflect as a current liability and accrued interest at the current rate.

 
9

 

5.             RELATED PARTY TRANSACTIONS

Revolving Loans Payable to Related Parties

Since Inception, the Company’s operations have been funded in part through revolving loans due to Sinur Oil’s shareholder or direct family members or entities controlled by Sinur Oil’s shareholder.  The following is a summary of loans due to these related parties as of September 30, 2012 and March 31, 2012.

On October 31, 2011, the Company entered into a revolving debt agreement with a direct relative of Sinur Oil’s principal shareholder. Under the terms of the agreement, the Company may borrow up to 27 million KZT, which converts to approximately $176,508 and $180,000 at September 30, 2012 and March 31, 2012, respectively.  The note does not incur interest and was due January 31, 2012, which automatically extends monthly until called by the holder.  As of September 30, 2012 and March 31, 2012, amounts due under this loan were $33,484 and $21,789, respectively. As of September 30, 2012, $163,139 was available under the loan.  The amount due has been reflected as a current liability on the accompanying balance sheet.

On February 2, 2010, the Company entered into a revolving debt agreement with a direct relative of Sinur Oil’s shareholder.  Under the terms of the agreement, the Company may borrow up to 30 million KZT, which converts to approximately $196,119 and $200,000 at September 30, 2012 and March 31, 2012, respectively.  The note does not incur interest and is due February 2, 2013.  As of September 30, 2012 and March 31, 2012, amounts due under this loan were $196,119 and $133,250, respectively.  All amounts have been reflected as current on the accompanying balance sheets.

Assumption of Capital Lease

See Note 6 regarding the assumption of a capital lease from an entity owned by Sinur Oil’s shareholder.  In connection with this assumption, the Company agreed to reimburse the entity payments that it had made on the capital lease.  Additionally, during the six months ended September 30, 2012, that same entity paid an additional $87,561 of interest on behalf of the Company for the lease.  As of September 30, 2012 and March 31, 2012, amounts due to this entity were $163,505 and $97,896, respectively, and are reflected as a current liability on the accompanying balance sheet.

Imputed Interest

Since the above loans do not incur interest, the Company has imputed interest at 19% per annum and recorded these amounts as interest expense with the offset to additional paid-in capital.  Imputed interest during the six months ended September 30, 2012 and 2011, was $16,678 and $16,768, respectively.  In addition, the Company determined that an annual interest rate of 19% was consistent with borrowing rates the Company could receive.

6.             CAPITAL LEASE

On June 28, 2010, the Company assumed a capital lease previously entered into by the shareholder. In connection with the transaction, the Company recorded equipment of $647,314, capital lease liability of $659,083, value-added tax receivable of $77,678, and advances due to a related party of $65,908.   At transfer, the lease required monthly principal payments of $17,813, had a remaining term of 37 months, accrued interest at 19% per annum, and was secured by the assets purchased.  Amounts due to a related party represented the purchase price of the assets in excess of the liability assumed. See Note 5 for additional information.

 
10

 

In July 2011, the Company was in default of July’s payments for this lease and has received a notice from the bank notifying the Company that it is in default and the bank could take such actions as foreclosure and other legal remedies. To date, no additional payments have been made toward the principal on this obligation. Thus, the Company has recorded the entire liability as current on the accompanying balance sheet at September 30, 2012.  The Company is currently attempting to renegotiate the lease and/or obtain an extension. Due to the limited capital resources there are no guarantees that an acceptable agreement can be reached.  At September 30, 2012 and March 31, 2012, the Company accrued interest and penalties of $83,091 and $130,981, respectively, which are included in accounts payable and accrued liabilities on the accompanying balance sheet.  

7.             COMMITMENTS AND CONTINGENCIES

Insurance

The insurance industry in Kazakhstan is at the developing stage and many forms of insurance protection common in other countries of the world are not yet generally available.  The Company does not have full coverage for its plant facilities, losses caused by production stoppages, or third-party liability in respect of property or environmental damages arising from accidents or the Company’s operations.  Until the Company obtains adequate insurance coverage, there is a risk that the loss or destruction of certain assets could have a material adverse effect on the Company’s operations and financial position.

Taxation

Different Kazakhstani legislation acts and norms are often unclear, contradictory, and subject to varying interpretation by different tax authorities and the Ministry of Finance of the Republic of Kazakhstan.  Frequently, disagreements in opinions occur among local, regional, and national tax authorities.  The current regime of imposing fines and penalties for identified violations of Kazakhstani legislation, statutes, and standards is sufficiently severe.  Sanctions include confiscation of questionable amounts (for violation of currency control), as well as fines of 50% of accrued tax.  The penalty rate is 22.5%.  The Company considers that it has accrued or paid all applicable taxes.

Environmental Issues

The Company is subject to various environmental laws and regulations of the Republic of Kazakhstan.  Management believes that the Company complies with all government requirements regarding environment protection.  However, there is no assurance that contingent liabilities will not arise.  See Note 3 for additional information.

Litigation

The Company is involved in legal matters in the ordinary course of business.  Management believes the resolution of these matters will not have a material adverse effect on the Company’s consolidated financial condition.

 
11

 

8.             STOCKHOLDER’S EQUITY

Imputed Interest

See Note 5 for discussion regarding imputed interest on related-party loans payable.

9.             SEGMENT INFORMATION

The Company’s operating segments are organized on the basis of products and services.  At September 30, 2012, the Company had two reporting segments; environmental and engineering services (“Geo Point”), and refining services (“Sinur”).  The Geo Point segment provides environmental and engineering services to the construction industry.  Geo Point’s operations are located in the United States.  The Sinur segment refines crude oil into diesel fuel, gasoline, and mazut, a heating oil, for distribution.  See Note 1 for additional information regarding the Company’s two segments.  Sinur Oil’s operations are located in Kazakhstan.  The Company evaluates the performance of its segments based on net loss.  The Company did not have any unallocated assets, and income and expenses, in the tables presented below.

The following is a schedule of operating activities by segment for the three months ended September 30, 2012:
 
   
Geo Point
   
Sinur Oil
   
Consolidated
 
                   
Revenues:
                 
Refining
  $ -     $ -     $ -  
Environmental services
    89,343       -       89,343  
Total Revenues
    89,343       -       89,343  
                         
Expenses:
                       
Cost of refining revenues
    -       -       -  
Cost of environmental service revenues
    13,621       -       13,621  
General and administrative
    97,019       53,482       150,501  
Depreciation and amortization
    1,000       79,474       80,474  
Total expenses
    111,640       132,956       244,596  
                         
Operating loss
    (22,297 )     (132,956 )     (155,253 )
                         
Other income (expense):
                       
Interest expense
    (2,400 )     (113,298 )     (115,698 )
Total other income (expense)
    (2,400 )     (113,298 )     (115,698 )
                         
Net loss
  $ (24,697 )   $ (246,254 )   $ (270,951 )
 
The following is a schedule of operating activities by segment for the six months ended September 30, 2012:

 
12

 
   
Geo Point
   
Sinur
   
Consolidated
 
                   
Revenues:
                 
Refining
  $ -     $ 216,966     $ 216,966  
Environmental services
    27,154       -       27,154  
Total Revenues
    27,154       216,966       244,120  
                         
Expenses:
                       
Cost of refining revenues
    -       194,125       194,125  
Cost of environmental service revenues
    7,614       -       7,614  
General and administrative
    51,182       79,399       130,581  
Depreciation and amortization
    1,000       86,516       87,516  
Total expenses
    59,796       360,040       419,836  
                         
Operating loss
    (32,642 )     (143,074 )     (175,716 )
                         
Other income (expense):
                       
Interest expense
    (1,200 )     (106,021 )     (107,221 )
Total other income (expense)
    (1,200 )     (106,021 )     136,899  
                         
Net loss
  $ (33,842 )   $ (249,095 )   $ (38,817 )

The following is a schedule of assets by segment as of September 30, 2012:
 
   
Geo Point
   
Sinur
 
             
Current assets
  $ 76,263     $ 153,724  
Property, Plant and Equipment, net
    6,563       3,999,039  
Long term assets
    1,000       120,934  
Total assets
  $ 83,826     $ 4,273,697  

 
The following is a schedule of revenues by geographic area for the three and six months ended September 30, 2012 and 2011:
 
   
Three Months
   
Three Months
   
Six Months
   
Six Months
 
   
Ended
   
Ended
   
Ended
   
Ended
 
   
June 30, 2012
   
June 30, 2011
   
June 30, 2012
   
June 30, 2011
 
                         
United States
  $ 89,343     $ 34,291     $ 116,497     $ 60,802  
Kazakhstan
    -       24,459       216,966       78,427  
Total revenues
  $ 89,343     $ 58,750     $ 333,463     $ 139,229  


10.           SUBSEQUENT EVENTS

See Note 4 for additional borrowings under the revolving line of credit.

 
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ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Certain statements in Management’s Discussion and Analysis, other than purely historical information, including estimates, projections, statements relating to our business plans, objectives, and expected operating results, and the assumptions upon which those statements are based, are “forward-looking statements.”  These forward-looking statements generally are identified by the words “believe,” “project,” “expect,” “anticipate,” “estimate,” “intend,” “strategy,” “plan,” “may,” “should,” and similar expressions.  Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties, which may cause actual results to differ materially from the forward-looking statements.

Overview

We own and operate an oil refinery in Karatau, Kazakhstan, that refines crude oil into diesel fuel, gasoline, and mazut, a heating oil.  Our environmental and engineering division provides geological and earth study services related to land surveying for new construction, soil testing and environmental risk and impact assessments, and natural resource assessments with an emphasis on oil and gas deposit discovery.  During November 2010, we commenced production at the refinery.  The refinery equipment is new and during this initial production startup phase, we have not operated the refinery at its full capacity due to various factors.  During the quarter and subsequent period, at times the refinery was shut down due to the lack of availability of crude oil.

Sources of Revenues

We generate revenues principally from the sale of crude oil and refined oil products in Kazakhstan.  We also generate revenue from our environmental and engineering services in the state of California.

Cost of Revenues and Operating Expenses

Cost of Revenues.  For our refining division, cost of revenues consists of costs of products sold, which includes the cost of crude oil and purchased finished products, direct costs of labor, maintenance materials and services, utilities, marketing expense, transportation costs and other direct operating costs.  Cost of products is presented exclusive of depreciation and amortization.  Cost of revenues in connection with our environmental and engineering division consists of direct supplies and direct labor related to the fulfillment of each job.

General and Administrative.  General and administrative expenses consist of compensation and related expenses for executive, finance, accounting, administrative, legal, professional fees, other corporate expenses, and marketing.

Critical Accounting Policies

Our condensed consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States.  The preparation of these condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, costs and expenses, and related disclosures.  On an ongoing basis, we evaluate our estimates and assumptions.  Our actual results may differ from these estimates under different assumptions or conditions.

We believe that of our significant accounting policies, which are described in Note 3 to the condensed consolidated financial statements, the following accounting policy involves a greater degree of judgmentand complexity.  Accordingly, this is the policy we believe is the most critical to aid in fully understanding and evaluating our financial condition and results of operations.

 
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Revenue Recognition.  Revenue from the sale of crude oil and refined oil products is measured at the fair value of the consideration received or receivable, net of all trade discounts and volume rebates.  Revenue is recognized when the significant risks and rewards of ownership have been transferred to the buyer, recovery of the consideration is probable, the associated costs and possible return of goods can be estimated reliably, there is no continuing management involvement with the goods, and the amount of revenue can be measured reliably.  Transfers of risks and rewards vary depending on the individual terms of the contract of sale.  Our main products will be derived from refined crude oil, although the sale of crude oil is expected to occur from time to time.

Revenues from our environmental and engineering division are recognized over the period of services being performed.

Results of Operations

Comparison of Three Months Ended September 30, 2012 and 2011

Revenues.  Revenues from our refining segment for the three months ended September 30, 2012, were $0, compared to $24,459 during the comparable prior period in 2011.  The decrease in revenues was primarily due to sporadic refinery operations from the inconsistent availability of crude oil.

Cost of Revenues.  Cost of revenues from our refining segment for the three months ended September 30, 2012, was $0, compared to $34,947 in cost of revenues during the comparable prior period in 2011.  The decrease in cost of revenues was primarily due to sporadic refinery operations from the inconsistent availability of crude oil.

General and Administrative Expenses.  General and administrative expenses for the three months ended September 30, 2012, were $150,501, compared to $201,764 for the comparable prior period in 2011.  General and administrative expenses primarily consisted of professional fees, salaries and wages, and stock-based compensation.  The decrease was primarily related to the additional professional expenditures incurred during the prior period in connection with initial expenditures related to public company filings.

Amortization and Depreciation.  Amortization and depreciation for the three months ended September 30, 2012, were $80,474, compared to $89,727 for the comparable prior period in 2011.

Comparison of Six Months Ended September 30, 2012 and 2011

Revenues.  Revenues from our refining segment for the six months ended September 30, 2012, were $216,966, compared to $78,427 during the comparable prior period in 2011.  The increase in revenues was primarily due to sporadic refinery operations from the inconsistent availability of crude oil.

Cost of Revenues.  Cost of revenues from our refining segment for the six months ended September 30, 2012, was $194,125, compared to $58,004 in cost of revenues during the comparable prior period in 2011.  The increase in cost of revenues was primarily due to sporadic refinery operations from the inconsistent availability of crude oil.

 
15

 

General and Administrative Expenses.  General and administrative expenses for the six months ended September 30, 2012, were $281,082, compared to $427,578 for the comparable prior period in 2011.  General and administrative expenses primarily consisted of professional fees, salaries and wages, and stock-based compensation.  The decrease was primarily related to the additional professional expenditures incurred during the prior period in connection with initial expenditures related to public company filings.

Amortization and Depreciation.  Amortization and depreciation for the six months ended September 30, 2012, were $167,990, compared to $178,275 for the comparable prior period in 2011.

Cash Flows from Operating Activities.  Net cash used in operating activities during the six months ended September 30, 2012, was $192,820, compared to net cash used in operating activities for the six months ended September 30, 2011, of $132,326.  This increase in cash used by operations was primarily due to a substantial amount of customer deposits in the prior year that have not been delivered on and the decrease in our inventory due to the delivery of such products during the six months ended September 30, 2012.

Cash Flows from Investing Activities.  Net cash used in investing activities during the six months ended September 30, 2012, was $1,163, compared to net cash used in investing activities for the six months ended September 30, 2011, of $9,939.

Cash Flows from Financing Activities.  Net cash provided by financing activities during the six months ended September 30, 2012, was $186,269, compared to net cash provided by financing activities for the six months ended September 30, 2011, of $3,520.  This increase in cash provided by financing activities is primarily related to increased borrowings against revolving notes and lines of credit, and no payment made on the principal amounts of these items including the capital lease.

Liquidity and Capital Resources

As of September 30, 2012, our principal source of liquidity was cash totaling $27,442.  The primary source of our liquidity during the six months ended September 30, 2012, was cash on hand, sales from refined product and loans from a revolving line of credit and related parties.  The accompanying condensed consolidated financial statements have been prepared assuming we will continue as a going concern.  As shown in the accompanying financial statements, we have generated limited revenues during the six months ended September 30, 2012, have a working capital deficit of $3,252,420 have limited capital to fund operations, and had a net usage of cash in operations.  In addition, we had significant notes payable that were due in October 2011 are currently in default, and for which we are currently negotiating an extension.  Additionally, we have had difficulties in securing contracts for the consistent delivery of crude oil for us to refine.  These inconsistencies have required us to operate the refinery at below capacity and at times required us to close the refinery.  These conditions raise substantial doubt about our ability to continue as a going concern.

Our future is dependent upon our ability to obtain equity and/or debt financing and ultimately to achieve profitable operations from the development of our business segments.  Since Inception through September 30, 2012, we funded operations through related-party borrowings, $750,000 in borrowing from unrelated third parties, and cash flows generated from the refinery.  We are currently attempting to raise capital through debt and equity offerings and if needed will attempt to negotiate extensions of due dates in connection with capital leases and notes payable that are due in the near future.  Currently, we do not have any commitments or assurances for additional capital other than the revolving loans payable from the shareholder and related individuals.  There can be no assurance that the revenue from future expected operations from the refinery will be sufficient for us to achieve profitability in our operations, and it is possible that additional equity or debt financing may be required for us to continue as a going concern.  We believe that our current cash together with our expected cash flows from operations will be sufficient to meet our anticipated cash requirements for working capital and capital expenditures through January 2013.

 
16

 
Off-Balance Sheet Arrangements

We have no significant off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources that are material to stockholders.
 
ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.


ITEM 4.  CONTROLS AND PROCEDURES

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed by us in the reports that we file or submit to the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized, and reported within the time periods specified by the Securities and Exchange Commission’s rules and forms, and that information is accumulated and communicated to our management, including our principal executive and principal financial officer (whom we refer to in this periodic report as our Certifying Officer), as appropriate to allow timely decisions regarding required disclosure.  Our management evaluated, with the participation of our Certifying Officer, the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act) as of September 30, 2012, pursuant to Rule 13a-15(b) under the Securities Exchange Act.  Based upon that evaluation, our Certifying Officer concluded that, as of September 30, 2012, our disclosure controls and procedures were not effective.

In connection with our fiscal 2012 audit, our independent registered public accounting firm notified us of the following weaknesses in our internal controls, which it considers material weaknesses:

 
Lack of segregation of duties with the cash receipts and disbursements processes.
 
Inadequate controls over the period end closing functions and account reconciliations.

We are currently in the process of remediating the material weaknesses by assessing the current segregations and areas in which improvement can be made.  Due to limited capital and personnel, we may not be able to remediate in the immediate future but are attempting to remediate within fiscal 2013.

There were no changes in our internal control over financial reporting that occurred during our most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 
17

 

PART II – OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

Not applicable.

ITEM 1A.  RISK FACTORS

Not applicable.

ITEM 2.  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Not applicable.

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES

Not applicable.

ITEM 4.  MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5.  OTHER INFORMATION

On June 13, 2012, Geo Point Resources, Inc. a Nevada Corporation, (“Geo Point Nevada”) was formed as a wholly-owned subsidiary and into which we simultaneously authorized the conveyance of the segment of our business comprising all of our Environmental and Engineering Divisions’ assets, business, operations, rights or otherwise, along with our “Hydrocarbon Identification Technology” (“HI Technology”) License Agreement dated January 31, 2008 (the “License Agreement”), subject to the assumption of all related liabilities and the indemnification of us from any such liabilities by Geo Point Nevada.  Also on June 13, 2012, the Board of Directors approved a stock dividend that will result in a spin-off of all of our Geo Point Nevada common stock to our stockholders, pro rata, on the record date.  The spin-off has yet to be accomplished.  We will retain and focus our efforts on our oil refining operations in Karatau, Kazakhstan. For additional information, see our 8-K Current Report dated October 23, 2012, and filed with the Securities and Exchange Commission on October 30, 2012.


ITEM 6.  EXHIBITS

The following exhibits are filed as a part of this report:

Exhibit
Number*
 
Title of Document
 
Location
         
         
Item 31
 
Rule 13a-14(a)/15d-14(a) Certifications
   
31.01
 
Certification of Principal Executive Officer and Principal Financial Officer Pursuant to Rule 13a-14
 
Attached
         

 
18

 
 
Exhibit
Number*
 
Title of Document
 
Location
Item 32
 
Section 1350 Certifications
   
32.01
 
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Chief Executive Officer and Chief Financial Officer)
 
Attached
         
Item 101
 
Interactive Data File
   
101.XML
101.XSD
101.CAL
101.DEF
101.LAB
101.PRE
 
XBRL Instance Document
XBRL Schema Document
XBRL Calculation Linkbase Document
XBRL Definition Linkbase Document
XBRL Label Linkbase Document
XBRL Presentation Linkbase Document
 
Attached
_______________
 
*
All exhibits are numbered with the number preceding the decimal indicating the applicable SEC reference number in Item 601 and the number following the decimal indicating the sequence of the particular document.


SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 
GEO POINT TECHNOLOGIES, INC.
   
(Registrant)
     
     
     
Date: November 19, 2012
By:
/s/ Jeff Jensen
   
Jeff Jensen, President,
Chief Executive Officer, and
Chief Financial Officer
 
19