Attached files
file | filename |
---|---|
EX-31.1 - Glen Rose Petroleum CORP | v168086_ex31-1.htm |
EX-10.5 - Glen Rose Petroleum CORP | v168086_ex10-5.htm |
EX-32.1 - Glen Rose Petroleum CORP | v168086_ex32-1.htm |
EX-10.6 - Glen Rose Petroleum CORP | v168086_ex10-6.htm |
EX-31.2 - Glen Rose Petroleum CORP | v168086_ex31-2.htm |
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
Form
10-Q/A
(Mark
One)
x
|
QUARTERLY
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
For the quarterly period ended
September 30, 2009.
o
|
TRANSITION
REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE
ACT
|
For the
transition period from ___________ to ___________.
Commission
File No. 001-10179
Glen Rose Petroleum
Corporation
(Exact
name of registrant as specified in charter)
Delaware
|
87-0372826
|
|
(State
or other jurisdiction of
incorporation
or organization)
|
(I.R.S.
Employer Identification No.)
|
Suite 200, One Energy Square, 4925 Greenville
Avenue, Dallas, Texas 75206
|
(Address
of principal executive
offices)
|
(214) 800-2663
|
(Issuer’s
telephone number)
|
(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.
x
Yes o No
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.
o Large accelerated
filer
|
o Accelerated
filer
|
o Non-accelerated
filer (Do not check if a smaller reporting company)
|
x Smaller reporting
company
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
oYes xNo
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, 2009, the Company
had 11,131,852 shares outstanding.
Remarks:
This 10-Q
is being re-filed as an amendment to include the Certifications that were
inadvertently excluded from the original submission.
GLEN
ROSE PETROLEUM CORPORATION—FORM 10-Q
TABLE
OF CONTENTS
Page Number
|
|
PART I - FINANCIAL
INFORMATION
|
|
Item
1 - Financial Statements
|
|
Consolidated
Condensed Balance Sheets at September 30, 2009 (unaudited) and March 31,
2009
|
F-1
|
Consolidated
Condensed Statements of Income (unaudited) for the six months ended
September 30, 2009 and September 30, 2008
|
F-3
|
Consolidated
Condensed Statements of Cash Flows (unaudited) for the six months ended
June 30, 2009 and June 30, 2008
|
F-4
|
Notes
to Consolidated Condensed Financial Statements (unaudited)
|
F-5
|
Item
2 - Management’s Discussion and Analysis or Plan of
Operation
|
2
|
Item
3 - Controls and Procedures
|
8
|
PART
II - OTHER INFORMATION
|
|
Item
1 - Legal Proceedings
|
9
|
Item
2 - Unregistered Sales of Equity Securities and Use of
Proceeds
|
11
|
Item
3 - Defaults Upon Senior Securities
|
11
|
Item
4 - Submission of Matters to a Vote of Security Holders
|
11
|
Item
5 - Other Information
|
11
|
Item
6 – Exhibits
|
12
|
SIGNATURES
|
13
|
1
PART
I - FINANCIAL INFORMATION
ITEM
1. FINANCIAL STATEMENTS.
GLEN
ROSE PETROLEUM CORPORATION AND SUBSIDIARIES
CONSOLIDATED
CONDENSED BALANCE SHEETS
September 30,
2009
|
March 31,
2009
|
|||||||
(Unaudited)
|
||||||||
ASSETS
|
||||||||
CURRENT
ASSETS
|
||||||||
Cash
|
$ | 34,243 | $ | 18,867 | ||||
Accounts
receivable, no allowance considered necessary
|
11,632 | 10,273 | ||||||
Receivable
from taxing authority
|
- | 6,697 | ||||||
Notes
receivable– short term
|
171,819 | 176,640 | ||||||
Inventory
|
15,501 | 10,221 | ||||||
Prepaid
expenses
|
7,670 | 22,627 | ||||||
Total current assets
|
240,865 | 245,325 | ||||||
IMPROVED
OIL AND GAS PROPERTIES, accounted for using the full cost
method
|
5,907,350 | 5,798,856 | ||||||
PROPERTY
AND EQUIPMENT, at cost
|
||||||||
Field
equipment
|
149,281 | 171,670 |
|
|||||
Computer
equipment
|
14,206 | 14,206 | ||||||
Vehicles
|
41,281 | 41,281 | ||||||
Less
accumulated depreciation
|
(32,959 | ) | (21,957 | ) | ||||
171,809 | 205,200 | |||||||
TOTAL
ASSETS
|
$ | 6,320,024 | $ | 6,249,381 |
See
notes to the consolidated condensed financial statements.
F-1
GLEN ROSE PETROLEUM
CORPORATION AND
SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE
SHEETS (Continued)
September 30,
2009
|
March 31,
2009
|
|||||||
Unaudited)
|
||||||||
LIABILITIES
AND SHAREHOLDERS’ EQUITY
|
||||||||
CURRENT
LIABILITIES
|
||||||||
Accounts
payable
|
$ | 729,430 | $ | 629,173 | ||||
Accrued
expenses
|
- | - | ||||||
Accounts
payable and accrued expense– related parties
|
130,000 | 140,267 | ||||||
Convertible
Note payable net of unamortized discount and loan fee
|
180,402 | - | ||||||
Note
payable – unrelated party
|
35,947 | 30,867 | ||||||
Accrued
put option liability
|
2,147,770 | 2,147,770 | ||||||
Total
current liabilities
|
3,223,549 | 2,948,077 | ||||||
LONG-TERM
LIABILITIES
|
||||||||
Note
payable – related party
|
346,842 | 116,962 | ||||||
Total
liabilities
|
3,570,391 | 3,065,039 | ||||||
SHAREHOLDERS’
EQUITY
|
||||||||
Preferred
stock, $.0001 par value, 5,000,000 shares authorized, none issued or
outstanding
|
||||||||
Common
stock, $.001 par value, 125,000,000 shares authorized; 11,131,852 shares
issued and outstanding at September 30, 2009, and 10,816,200 at March 31,
2009
|
11,131 | 10,816 | ||||||
Receivable
for common stock
|
(50,000 | ) | (50,000 | ) | ||||
Additional
paid-in capital
|
51,807,067 | 51,656,296 | ||||||
Accumulated
deficit
|
(49,018,565 | ) | (48,432,770 | ) | ||||
Total
shareholders’ equity
|
2,749,633 | 3,184,342 | ||||||
TOTAL
LIABILITIES AND SHAREHOLDERS’ EQUITY
|
$ | 6,320,024 | $ | 6,249,381 |
See
notes to the consolidated condensed financial statements.
F-2
GLEN
ROSE PETROLEUM CORPORATION AND SUBSIDIARIES
CONSOLIDATED
CONDENSED STATEMENTS OF INCOME (UNAUDITED)
THREE MONTHS ENDED
September 30,
|
SIX MONTHS ENDED
September 30,
|
|||||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||
(Unaudited)
|
(Unaudited)
|
(Unaudited)
|
(Unaudited)
|
|||||||||||||
OPERATING
REVENUES
|
||||||||||||||||
Oil
and gas sales
|
$ | 28,932 | $ | 57,662 | $ | 64,142 | $ | 72,871 | ||||||||
TOTAL
OPERATING REVENUES
|
28,932 | 57,662 | 64,142 | 72,871 | ||||||||||||
OPERATING
COSTS AND EXPENSES
|
||||||||||||||||
Production
and operating
|
26,544 | (84,111 | ) | 64,918 | 54,128 | |||||||||||
Depreciation
and depletion
|
13,352 | 2,604 | 30,577 | 3,471 | ||||||||||||
Accretion
of asset retirement obligation
|
- | 1,244 | - | 2,488 | ||||||||||||
General
and administrative
|
183,940 | 427,736 | 391,465 | 861,160 | ||||||||||||
Bad
debt expense
|
- | - | - | - | ||||||||||||
Stock
Compensation Expense
|
41,610 | 583,529 | 91,235 | 683,006 | ||||||||||||
TOTAL
OPERATING COSTS AND EXPENSES
|
265,446 | 931,002 | 578,195 | 1,604,253 | ||||||||||||
LOSS
FROM OPERATIONS
|
(236,514 | ) | (873,340 | ) | (514,053 | ) | (1,531,382 | ) | ||||||||
OTHER
INCOME (EXPENSE)
|
||||||||||||||||
Interest
income
|
7,572 | - | 15,184 | - | ||||||||||||
Net
loss on disposal of equipment
|
(24,312 | ) | - | (23,712 | ) | (749 | ) | |||||||||
Other
income
|
2,549 | 2,549 | - | |||||||||||||
Interest
expense
|
(56,088 | ) | - | (65,764 | ) | - | ||||||||||
NET
INCOME (LOSS)
|
$ | (306,793 | ) | $ | (873,340 | ) | $ | (585,796 | ) | $ | (1,532,131 | ) | ||||
Income
(Loss) per share (basic)
|
$ | (0.03 | ) | $ | (0.09 | ) | $ | (0.05 | ) | $ | (0.16 | ) | ||||
Weighted
average number of shares (basic)
|
10,882,142 | 9,834,666 | 11,073,156 | 9,834,666 |
See
notes to the consolidated condensed financial statements.
F-3
GLEN
ROSE PETROLEUM CORPORATION AND SUBSIDIARIES
CONSOLIDATED
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
SIX
MONTHS ENDED
September
30,
|
||||||||
2009
|
2008
|
|||||||
(Unaudited)
|
(Unaudited)
|
|||||||
CASH
FLOWS FROM OPERATING ACTIVITIES
|
|
|
||||||
Net
loss
|
$ | (585,796 | ) | $ | (1,532,131 | ) | ||
Adjustments
to reconcile net loss
|
||||||||
to
net cash used in operating activities:
|
||||||||
Depreciation
and depletion
|
30,577 | 3,471 | ||||||
Accretion
of asset retirement obligation
|
- | 2,488 | ||||||
Stock
compensation expense
|
91,235 | 480,238 | ||||||
Net
loss on disposal of equipment
|
23,712 | - | ||||||
Changes
in operating assets and liabilities:
|
||||||||
Accounts
receivable
|
5,338 | (13,719 | ) | |||||
Short
term notes receivable
|
(15,116 | ) | - | |||||
Inventory
|
(5,280 | ) | 36,140 | |||||
Other
assets
|
14,957 | 261 | ||||||
Interest
added to note payable
|
10,492 | - | ||||||
Interest
on amortization of discount
|
43,856 | - | ||||||
Accounts
payable and accrued expenses – related party
|
(10,267 | ) | - | |||||
Accounts
payable and accrued expenses
|
100,259 | (23,840 | ) | |||||
Net
cash used in operating activities
|
(296,033 | ) | (1,047,092 | ) | ||||
CASH
FLOWS FROM INVESTING ACTIVITIES
|
||||||||
Additions
to oil and gas properties
|
(126,092 | ) | (774,822 | ) | ||||
Proceeds
on disposal of equipment
|
2,600 | |||||||
Proceeds
from repayment on note receivable
|
19,937 | - | ||||||
Proceeds
from grant of options related to participation agreement
|
- | 300,000 | ||||||
Advances
on joint participation agreement
|
- | 1,500,000 | ||||||
Purchases
of property and equipment
|
(5,900 | ) | (139,845 | ) | ||||
Net
cash used in investing activities
|
(109,455 | ) | 885,333 | |||||
CASH
FLOWS FROM FINANCING ACTIVITIES
|
||||||||
Proceeds
from borrowings
|
440,364 | - | ||||||
Issuance
of common stock
|
- | 988,507 | ||||||
Loan
Fees
|
(7,500 | ) | ||||||
Advances
on related party loans
|
- | |||||||
Repayments
on loans payable
|
(12,000 | ) | - | |||||
Net
cash provided by financing activities
|
420,864 | 988,507 | ||||||
Net
(decrease) increase in cash
|
15,376 | 826,748 | ||||||
Cash
at beginning of period
|
18,867 | 65,769 | ||||||
Cash
at end of period
|
$ | 34,243 | $ | 892,517 | ||||
Non-cash
Investing and Financing Activities
|
||||||||
Beneficial
conversion feature on note payable
|
59,850 | - | ||||||
Receivable
from related party for common stock
|
- | (50,000 | ) |
See
notes to the consolidated condensed financial statements.
F-4
GLEN
ROSE PETROLEUM CORPORATION AND SUBSIDIARIES
NOTES
TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
NOTE
1 – BASIS OF PRESENTATION
Glen Rose
Petroleum Corporation’s (the “Company”, “we” or “our”) interim consolidated
financial statements are unaudited. They contain all necessary adjustments
(consisting only of normal recurring adjustments) for a fair statement of the
referenced interim period results. These interim period results do not indicate
expected full-year results or results for future quarters/periods, due to
several factors, including price volatility of crude oil and natural gas, price
volatility of commodity derivatives, volatility of interest rates, estimates of
reserves, drilling risks, geological risks, transportation restrictions, timing
of acquisitions, product demand, market competition, interruption(s) in
production, our ability to obtain additional capital, and the success of
proposed enhanced oil recovery work (EOR). These consolidated interim financial
statements should be read in conjunction with the audited consolidated financial
statements and related notes included in Glen Rose Petroleum Corporation’s
Form 10-K dated March 31, 2009.
We
prepared the accompanying financial statements in accordance with accounting
principles generally accepted in the United States of America (“GAAP”) and
included the accounts of Glen Rose Petroleum Corporation and its wholly-owned
subsidiaries. We eliminated intercompany accounts and transactions. Management
has made certain estimates and assumptions that affect reported amounts in the
financial statements and disclosures of contingencies. Actual results may differ
from those estimates. We made significant assumptions in valuing the Company’s
unproved oil and natural gas reserves, which may affect the amounts at which oil
and natural gas properties are recorded. We have computed the Company’s stock
based compensation expense using assumptions such as volatility, expected life
and the risk-free interest rate. Those assumptions may be revised in the near
term, in which case these estimates will revised, and these revisions could be
material.
We
prepared the Company’s financial statements on a going concern basis which
contemplates the realization of assets and the liquidation of liabilities in the
ordinary course of business. The Company has incurred substantial losses from
operations and has a working capital deficit, which history and circumstance
raise substantial doubt as to the Company’s ability to continue as a going
concern. The Company had a net loss of $585,796 for the six months ended
September 30, 2009 and a net loss of $2,181,974 for the fiscal year ended March
31, 2009 and, as of the same periods, the Company had an accumulated deficit of
$49,018,565, and $48,432,770, respectively. During the quarter ended September
30, 2009, the Company received $315,280 of net debt financing. The Company is
currently seeking additional debt, equity and tax-benefitted financing to
provide the needed funds to develop its properties and expand. However; the
Company can provide no assurance that it will be able to obtain the financing it
needs. Until such funding is obtained and/or positive results from planned
property development materialize, doubt about its ability to continue as a going
concern may remain.
Currently
we have one customer who buys 100% of our production.
NOTE
2 – RECENT ACCOUNTING PRONOUNCEMENTS
The
Company also adopted SFAS No. 159, The Fair Value Option for Financial
Assets and Financial Liabilities, effective in this period ending
September 30, 2009. SFAS No. 159 provides an option to elect fair value as
an alternative measurement basis for selected financial assets and financial
liabilities. As a result of adopting SFAS No. 159, the Company did not
elect fair value accounting for any other assets and liabilities not previously
carried at fair value.
F-5-1
In May
2009, the FASB issued SFAS No. 165, Subsequent Events, which
requires entities to disclose the date through which they have evaluated
subsequent events and whether the date corresponds with the release of its
financial statements. The statement established general standards of accounting
for and disclosure of events that occur after the balance sheet date but before
financial statements are issued or are available to be issued. SFAS No. 165 is
effective for interim or annual financial periods ending after June 15, 2009,
and shall be applied prospectively. The adoption of SFAS No. 165 did not have a
material impact on the Company’s financial statements.
In June
2009, the FASB issued SFAS No. 166, Accounting for Transfers of
Financial Assets (“SFAS 166”). Statement 166 is a revision to FASB
Statement No. 140, Accounting
for Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities, and will require more information about transfers of
financial assets, including securitization transactions, and where entities have
continuing exposure to the risks related to transferred financial assets. It
eliminates the concept of a “qualifying special-purpose entity,” changes the
requirements for derecognizing financial assets, and requires additional
disclosures. SFAS 166 enhances information reported to users of financial
statements by providing greater transparency about transfers of financial assets
and an entity’s continuing involvement in transferred financial
assets.
SFAS 166
will be effective at the start of a reporting entity’s first fiscal year
beginning after November 15, 2009. Early application is not permitted. The
Company does not anticipate the adoption of SFAS 166 will have an impact on its
consolidated results of operations or consolidated financial
position.
In June
2009, the FASB issued SFAS No. 167, Amendments to FASB Interpretation
No. 46(R) (“SFAS 167”). Statement 167 is a revision to FASB
Interpretation No. 46 (Revised December 2003), Consolidation of Variable Interest
Entities, and changes how a reporting entity determines when an entity
that is insufficiently capitalized or is not controlled through voting (or
similar rights) should be consolidated. The determination of whether a reporting
entity is required to consolidate another entity is based on, among other
things, the other entity’s purpose and design and the reporting entity’s ability
to direct the activities of the other entity that most significantly impact the
other entity’s economic performance. SFAS 167 will require a reporting
entity to provide additional disclosures about its involvement with variable
interest entities and any significant changes in risk exposure due to that
involvement. A reporting entity will be required to disclose how its involvement
with a variable interest entity affects the reporting entity’s financial
statements. SFAS 167 will be effective at the start of a reporting entity’s
first fiscal year beginning after November 15, 2009. Early application is not
permitted. The Company is currently evaluating the impact, if any, of
adoption of SFAS 167 on its financial statements.
In June
2009, the FASB issued Statement No. 168, The FASB Accounting Standards
Codification and the Hierarchy of Generally Accepted Accounting
Principles (“SFAS 168”). SFAS 168 is the single source of authoritative
nongovernmental U.S. generally accepted accounting principles (“GAAP”),
superseding existing FASB, American Institute of Certified Public Accounts
(“AICPA”), Emerging Issues Task Force (“EITF”), and related accounting
literature. SFAS 168 reorganized the thousands of GAAP pronouncements into
roughly 90 accounting topics and displays them using a consistent structure.
Also included is relevant Securities and Exchange Commission guidance organized
using the same topical structure in separate sections. SFAS 168 will be
effective for financial statements issued for reporting periods that end after
September 15, 2009. The Company adopted the Codification during the current
period ending September 30, 2009. There was no impact upon
adoption.
F-5-2
FAS 157-4
- In April 2009, the Financial Accounting Standards Board (FASB) issued
FASB Staff Position (FSP) Financial Accounting Standard (FAS) 157-4, Determining Fair Value When the
Volume and Level of Activity for the Asset or Liability Have Significantly
Decreased and Identifying Transactions That Are Not
Orderly. Based on the guidance, if an entity determines that
the level of activity for an asset or liability has significantly decreased and
that a transaction is not orderly, further analysis of transactions or quoted
prices is needed, and a significant adjustment to the transaction or quoted
prices may be necessary to estimate fair value in accordance with Statement of
Financial Accounting Standards (SFAS) No. 157 Fair Value Measurements. This
FSP is to be applied prospectively and is effective for interim and annual
periods ending after June 15, 2009 with early adoption permitted for
periods ending after March 15, 2009. The company adopted this FSP for its
quarter ending June 30, 2009. There was no impact upon
adoption.
FSP FAS
115-2 and FAS 124-2 - In April 2009, the FASB issued FSP FAS 115-2 and FAS
124-2, Recognition and
Presentation of Other-Than-Temporary Impairments. The guidance applies to
investments in debt securities for which other-than-temporary impairments may be
recorded. If an entity’s management asserts that it does not have the intent to
sell a debt security and it is more likely than not that it will not have to
sell the security before recovery of its cost basis, then an entity may separate
other-than-temporary impairments into two components: 1) the amount related to
credit losses (recorded in earnings), and 2) all other amounts (recorded in
other comprehensive income). This FSP is to be applied prospectively and is
effective for interim and annual periods ending after June 15, 2009 with
early adoption permitted for periods ending after March 15, 2009. The
company adopted this FSP for its quarter ending June 30, 2009. There was no
impact upon adoption.
FSP FAS
107-1 and APB 28-1 - In April 2009, the FASB issued FSP FAS 107-1 and
Accounting Principles Board (APB) 28-1, Interim Disclosures about Fair Value
of Financial Instruments. The FSP amends SFAS No. 107 Disclosures about Fair Value of
Financial Instruments to require an entity to provide disclosures about
fair value of financial instruments in interim financial information. This FSP
is to be applied prospectively and is effective for interim and annual periods
ending after June 15, 2009 with early adoption permitted for periods ending
after March 15, 2009. The company included the required disclosures in its
quarter ending June 30, 2009.
NOTE
3 – INVENTORY
Inventory
consists of oil in tanks of $15,501 and $10,221 at September 30, 2009 and March
31, 2009, respectively. Inventory is valued at the lower of cost to produce the
oil or the current available sales price.
NOTE
4 – LOSS PER COMMON SHARE
Basic
loss per share of common stock is based on the weighted average number of shares
outstanding during the six months ended September 30, 2009 and September 30,
2008. Diluted loss per common share is computed assuming all dilutive potential
common shares were issued. Diluted loss per share has not been presented since
the inclusion of potential common shares would be antidilutive.
The
following is a summary of potentially dilutive securities excluded from the
calculation of diluted loss per share because their effects would be
antidilutive.
F-5-3
Six Months Ended
September 30,
|
||||||||
2009
|
2008
|
|||||||
Stock
Options
|
2,245,000 | 2,185,000 | ||||||
Warrants
|
22,556,420 | 21,806,420 | ||||||
24,801,420 | 23,991,420 |
NOTE
5 - ACCRUED PUT OPTION LIABILITY
The
holders of our Put Option liability are prior employees, officers and directors
of United Heritage Corporation. These individuals had accrued this compensation
in prior years. To record this obligation, we entered into option agreements
dated May 30, 2003 and May 24, 2004 under our 2000 Stock Option Plan
to purchase shares of $.001 par value stock of United Heritage Corporation at a
price of $1.50 per share as adjusted for reverse stock splits. As a result of
the proposed merger with Lothian Oil, Inc., these option agreements were
modified via amendment on or about February 16, 2006, to grant the
Purchaser a put option to require United Heritage Corporation to purchase said
options for a price of $4.00 per share less the purchase price, as adjusted by
reverse stock splits, of $1.50 per share by making demand between April 1,
2008 and April 10, 2008 (“Put Option”). The Put Holders demanded their
rights in the required period and this obligation of the Company was recognized
as a liability. The accrued Put Option liability totaled $2,147,770 at
September 30, 2009 and September 30, 2009.
NOTE
6 – INCOME TAXES
Included
in Company’s net deferred tax assets are approximately $16.5 million of
potential future tax benefits from prior unused tax losses. Realization of these
tax assets depends on sufficient future taxable income before the benefits
expire. It is not certain that the Company will have sufficient future taxable
income to utilize the loss carry-forward benefits before they expire. Therefore,
an allowance has been provided for the full amount of the net deferred tax
asset. The Company’s recent change of majority ownership significantly reduced
its ability to utilize its net operating losses.
NOTE
7 – STOCK OPTIONS
The
following table summarizes pertinent information with regard to our stock option
Plans for the three months ended September 30, 2009:
F-5-4
Weighted Average
|
|||||
Option and
|
Exercise
|
||||
Rights
|
Price
|
||||
Outstanding
at beginning of year, April 1, 2009
|
2,215,000
|
1.30
|
|||
Granted
|
30,000
|
0.24
|
|||
Exercised
|
|||||
Forfeited
|
|||||
Expired
|
|||||
Outstanding
at September 30, 2009
|
2,245,000
|
1.29
|
|||
Exercisable
at September 30, 2009
|
2,245,000
|
1.29
|
The
weighted average contractual life of options outstanding and exercisable at
September 30, 2009 was 1.27 years. The weighted average grant date fair value
for options granted was $0.35 for the six months ending September 30,
2009.
During
the quarter ended September 30, 2009. the Company granted options to purchase
10,000 shares to one of the Company’s Directors. at a weighted average exercise
price of $0.25 per share, which vested immediately. During the quarter, the
Company recognized compensation expense of $1,603 on the issuance of these stock
options.
NOTE
8 – MANAGEMENT COMPENSATION
Effective
April 1, 2009, the Company changed its compensation policy in regards to issuing
its common shares to its directors on a quarterly basis. Under the revised
policy, the Company will accrue the compensation earned under the compensation
plan and will issue the underlying common shares at the earlier of when other
share issuances are required or at the end of the year, For the six months
ended September 30, 2009, compensation of $91,235 was accrued and charged to
operations.
NOTE
9 – NOTES PAYABLE
Blackwood Ventures LLC
During
the quarter ended September 30, 2009, Blackwood Ventures LLC has made advances
to the Company totaling $115,180. These advances were combined with earlier
advances. Total advances as of September 30, 2009 totaled $336,180, which are
assessed interest at an annual rate of 8%. Accrued interest is payable quarterly
commencing on April 1, 2009. The advances and accrued interest are
evidenced by a Convertible Debenture Agreement. Pursuant to the terms of the
Debenture, in lieu of receiving cash, Blackwood has the right to receive shares
of the Company’s common stock as payment for accrued interest at a conversion
price of 5% over the bid price on the date of payment. The advances are
convertible into common stock of the Company at price per share of $
0.19. The debenture matures on September 30, 2010. Interest
accruing on the debenture during the quarter ended September 30, 2009 amounted
to $6,185, which was charged to operations. The balance of the Debenture,
including accrued interest, as of September 30, 2009 was $346,842. Blackwood is
the Company’s majority shareholder.
F-5-5
Howard
Berg
On August
5, 2009, we entered into an agreement to borrow a total of $250,000 from Mr.
Howard Berg of which $200,000 was actually received during the quarter. The
amounts borrowed bears interest at a rate of 18% per annum. Accrued interest and
principal are fully due and payable on October 30, 2009. The amounts borrowed
and accrued interest are secured by all of the shares of UHC Petroleum
Corporation owned by the Company. In connection with the loan, the Company
granted warrants to Berg to purchase 250,000 shares of its common stock at $0.33
per share expiring on January 3, 2011 and warrants purchase 250,000 shares of
its common stock at $0.67 per share expiring on January 3, 2012. The granted
warrants allow for cashless exercises.
The
Company has valued the note and warrants pursuant to EITF Issue No. 98-5 using
the “Relative Fair Value” approach. Accordingly, the Company recognized a
$59,850 discount on the $200,000 principal amount of the note. The discount is
being amortized over the 3 month life of the note. Interest charged to operation
on the note for the quarter ending September 30, 2009 amounted to $3,896.
Interest charged to operation on the discount for the quarter ending September
30, 2009 to $36,356.
Buccaneer
Energy Corporation
During
the quarter ended September 30, 2009, the Company accrued $1,590 in interest on
its obligation to Buccaneer that was charged to operations. The principal and
interest balance of the note as of September 30, 2009 was $35,947, which is due
on demand after December 31, 2009. Buccaneer is managed by the Company’s
former President and was previously identified as a related party.
Payable to
Consultant
On May 4,
2009, Glen Rose Petroleum Corporation and an outside consultant entered into a
promissory note of $13,630 for prior amounts due the consultant. The principal
and accrued interest of $507 was fully paid during the quarter ended September
30, 2009.
NOTE
10 - NOTE RECEIVABLE
Bowie
Operating Company LLC
During
the quarter ended September 30, 2009, the Company accrued $6,260 on its note
receivable from Bowie Operating Company LLC that was credited to operations. The
Note is unsecured, bears interest at a rate of 18% per annum, and is
due on demand after September 1, 2009. The balance of the note, including
accrued interest as of September 30, 2009 was $142,178. Bowie was previously
identified as a related party.
Buccaneer
Energy Corporation
During
the quarter ended September 30, 2009, the Company accrued $1,311 on its note
receivable from Buccaneer Energy Corporation. The note is unsecured, bears
interest at a rate of 18% per annum, and is due on demand after
December 31, 2009. The balance of the note, including accrued interest as
of September 30, 2009 was $29,641. Buccaneer also is managed by the Company’s
former President, Mr. Langston and was previously identified as a related
party.
F-5-6
NOTE
11 – COMMITMENTS AND CONTINGENCIES
The
Company is involved in various claims incidental to the conduct of our business.
Based on consultation with legal counsel, we do not believe that any claims,
either individually or in the aggregate, to which the Company is a party will
ultimately have a material adverse effect on our financial condition or results
of operations.
The
Company Board of Directors and Joseph Langston are in discussion relating to
warrants to purchase 250,000 shares of common stock. A disagreement exists
between the parties on whether all or some of these warrants were actually
issued to or earned by to Mr. Langston. The Company could have a contingent
liability for these warrants.
All the
Company insurance policies lapsed due to nonpayment, and the Company has no
insurance coverage in force as of November 17, 2009. The Company could be
subject to significant losses and liabilities if the Company incurs property
damage or claims are filed against the Company by personnel or third parties for
personal injuries or other actions. The Company is currently in the process of
having its insurance policies reinstated. The Company has not accrued any
reserve on its financial statements for any potential liabilities relating to
the lack of insurance coverage.
NOTE
12 – SUBSEQUENT EVENTS
The
Company has evaluated subsequent events through November 17, 2009, the date
these financial statements were issued.
On July
21, 2009, Joseph Langston resigned his position as a Director of the Company.
Additionally, Mr. Langston resigned as President and Chief Financial Officer of
the Company and all its subsidiaries on July 29, 2009. Mr. Langston has remained
a consultant to the Company pursuant to his Amended Consulting Agreement dated
June 30, 2009 pending the completion of a full review of the terms and
conditions under which Mr. Langston’s relationship with Glen Rose will be
terminated. Mr. Langston was replaced as the Company’s President and Chief
Financial Officer by Andrew Taylor-Kimmins, who was elected to the Board of
Directors as Chairman of the Board. Mr. Taylor-Kimmins currently works for
Blackwood Capital Limited. In addition, on July 21, 2009, Joseph Tovey was
retained to assist the Company in its management, financing and accounting
activities. The Board has granted Mr. Tovey authority to act on behalf of the
Company in certain management and financial matters.
In
October 2009, the remaining $50,000 was received on the Berg loan (See Note
9)
F-5-7
ITEM
2. MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
The
following discussion and analysis of our financial condition, plan of operation
and liquidity should be read in conjunction with our unaudited consolidated
condensed financial statements and the notes thereto included in Part I, Item 1
of this quarterly report on Form 10-Q, and our audited financial statements and
the notes thereto and our Management’s Discussion and Analysis or Plan of
Operation contained in our annual report on Form 10-K for the fiscal years ended
March 31, 2009 and 2008.
OVERVIEW
Glen Rose
Petroleum Corporation (“Glen Rose”) is a Delaware corporation formed in 2008.
The Company was previously United Heritage Corporation, a Utah corporation that
was formed in 1981 and was reincorporated in Delaware in 2008. The
reincorporation entailed a reincorporation merger agreement between Glen Rose
Petroleum Company and United Heritage Corporation, but there were no substantive
changes in assets or personnel and we also have continuous financial reporting
through the reincorporation.
Glen Rose
owns UHC Petroleum Corporation (“Petroleum”), a Texas corporation, which is a
licensed operator with the Texas Railroad Commission. Petroleum is an
independent producer of natural gas and crude oil based in Dallas, Texas and
Edwards County, Texas. Petroleum operates the Wardlaw Field. The Wardlaw
Field lies in Edwards County, Texas in the southeast portion of the Val Verde
Basin and is approximately 28 miles west of Rocksprings and 550 miles west of
Dallas. Current oil production from the field comes from the Glen Rose
formation at a depth of less than 600 feet. The Company’s petroleum
leaseholds consist of approximately 10,502 gross acres, of which more than
10,000 acres are
undeveloped. The leaseholds include 103 wellbores. Of these wells,
approximately 90 are currently capable of producing and 44 wells are producing.
We are in the process of evaluating the wells’ design and pattern and are
developing a detailed plan for developing the shallow (less than 1,000 feet
depth) formation of the entire field, with particular focus on water-flooding
the area which is currently producing. Petroleum has a gross working
interest of 100% and a net revenue interest of 75% of the Wardlaw
Field. The lease terms provide that the leases on our entire acreage is
extended by a period of 90 days each time a well (successful or not) is drilled;
therefore, based on drilling to date, the primary lease term currently extended
to 2014.
Currently
we have one customer who buys 100% of our production; but we believe that other
purchasers are available for our production. We have commenced evaluation of our
over-all relationship with our customer, with a view to improving realizations.
Our customer credit risk primarily stems from the purchaser’s solvency relating
to outstanding balances. The purchaser has historically timely paid and we
have no information that would indicate that it would be unable to continue
paying in the future.
We have
no patents, trademarks, material intellectual property license agreements,
franchises, or labor contracts.
In
addition to Petroleum, Glen Rose also owns UHC Petroleum Services Corporation
(“Services”), a Texas corporation; UHC New Mexico Corporation, a New Mexico
corporation; and National Heritage Sales Corporation, a Texas corporation. UHC
New Mexico Corporation and National Heritage Sales Corporation have not operated
for a number of years, and the Company anticipates disposing of or winding up
UHC New Mexico Corporation in the coming year.
2
CAUTIONARY
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This
quarterly report on Form 10-Q and other reports filed from time to time with the
Securities and Exchange Commission by Glen Rose Petroleum Corporation (referred
to as the “Company”, “we”, “us” or “our”), contains certain forward-looking
statements and information based upon the beliefs of, and data currently
available to, our management, as well as estimates and assumptions made by our
management regarding the Company’s financial condition, future operating
performance, results of operations and other statements that are not statements
of historical fact. The words “expect”, “project”, “estimate”, “believe”,
“anticipate”, “intend”, “plan”, “forecast” or the negative of these terms and
similar expressions and variations thereof are intended to identify such
forward-looking statements. These forward-looking statements appear in a number
of places in this Form 10-Q and reflect the current view of our management with
respect to future events. Such forward-looking statements are not guarantees of
future performance and are subject to certain important risks, uncertainties,
assumptions and other factors relating to our industry and operations which
could cause results to differ materially from those anticipated, believed,
estimated, expected intended or planned. Some of these risks include, among
other things:
|
·
|
whether
we will be able to find financing/produce cash flows to continue/expand
our operations;
|
|
·
|
whether
changes in regulatory requirements will adversely affect our
business;
|
|
·
|
environmental
risks;
|
|
·
|
volatility
in commodity prices, supply of, and demand for, oil and natural
gas;
|
|
·
|
whether
the recovery methods that we use in or will use in our oil and gas
operations succeed;
|
|
·
|
the
ability of our management to execute its plans to meet its
goals;
|
|
·
|
general
economic conditions, whether internationally, nationally, or in the
regional and local markets in which we operate, which may be less
favorable than expected;
|
|
·
|
the
difficulty of estimating the presence or recoverability of oil and natural
gas resources and future production rates and associated
costs;
|
|
·
|
the
ability to retain key members of management and key employees and to
attract additional talent as
required;
|
|
·
|
drilling
and operating risks and expense cost escalations;
and
|
|
·
|
other
uncertainties, all of which are difficult to predict and many of which are
beyond our control.
|
Except as
otherwise required by law, we undertake no obligation to update any of the
forward-looking statements contained in this quarterly report Form 10-Q after
the date of this report.
GOING
CONCERN STATUS
Our
financial statements have been prepared on a going concern basis which
contemplates the realization of assets and the liquidation of liabilities in the
ordinary course of business. As of the filing date of this quarterly report on
Form 10-Q, we have incurred substantial losses from our operations and we have a
working capital deficit which raises substantial doubt as to our ability to
continue as a going concern. We had net loss of $585,796 for the six months
ended September 30, 2009 and a net loss of $2,181,974 for the fiscal year ended
March 31, 2009. As of the same periods, we had an accumulated deficit of
$49,018,565 and $48,432,770, respectively. Unless we are able to attract the
financing needed to develop our properties, there can be no assurance that we
will be able to continue as a going concern.
Management
is currently reviewing the Company’s operations with the intent of increasing
revenue and reducing expenses. In addition, Management is also seeking funding
with third parties through the issuance of debt and equity and through
attracting tax-benefitted investment. In addition, we are also in discussions
with third parties regarding sharing arrangements relating to our interest in
the Wardlaw Field including farm outs. There is no assurance that our attempts
to obtain funding or find a suitable party in connection with the further
development of the Wardlaw Field will be successful.
3
CRITICAL
ACCOUNTING POLICIES AND ESTIMATES
Our
critical accounting policies, including the assumptions and judgments underlying
those policies, are more fully described in the notes to our audited financial
statements contained in our annual reports on Forms 10-K for the fiscal years
ended March 31, 2009 and March 31, 2008. We have consistently applied these
policies in all material respects. Investors are cautioned, however, that these
policies are not guarantees of future performance and involve risks and
uncertainties, and that actual results may differ materially. Set forth below
are the accounting policies that we believe most critical to an understanding of
our financial condition and liquidity.
Oil
and Gas Properties
Proved Reserves - Proved
reserves are defined by the Securities and Exchange Commission as those volumes
of crude oil; condensate, natural gas liquids and natural gas that geological
and engineering data demonstrate with reasonable certainty are recoverable from
known reservoirs under existing economic and operating conditions. Proved
developed reserves are volumes expected to be recovered through existing wells
with existing equipment and operating methods. Although our engineers are
knowledgeable of and follow the guidelines for reserves established by the
Securities and Exchange Commission, the estimation of reserves requires
engineers to make a significant number of assumptions based on professional
judgment. Reserve estimates have been updated at least annually and consider
recent production levels and other technical information about each well.
Estimated reserves are often subject to future revision, which could be
substantial, based on the availability of additional information including:
reservoir performance; new geological and geophysical data, including that
provided by additional drilling; technological advancements; price and cost
changes; and other economic factors. Changes in oil and gas prices can lead to a
decision to start-up or shut-in production, which can lead to revisions to
reserve quantities. Reserve revisions in turn cause adjustments in the depletion
rates utilized by the Company. The Company cannot predict what reserve
revisions may be required in future periods.
Depletion
rates are determined based on reserve quantity estimates and the capitalized
costs of producing properties. As the estimated reserves are adjusted, the
depletion expense for a property will change, assuming no change in production
volumes or in the costs capitalized. Estimated reserves are used as the basis
for calculating the expected future cash flows from a property, which are used
to determine whether that property’s reported value may be impaired.
Reserves are also used to estimate the supplemental disclosure of the
standardized measure of discounted future net cash flows relating to oil and gas
producing activities and reserve quantities in Note 15 to the consolidated
financial statements in our March 31, 2009 Form 10-K. Changes in the estimated
reserves are considered changes in estimates for accounting purposes and are
reflected on a prospective basis.
We employ
the full cost method of accounting for our oil and gas production assets, which
are located in the southwestern United States. Under the full cost method, all
costs associated with the acquisition, exploration and development of oil and
gas properties are capitalized and accumulated in cost centers on a
country-by-country basis. The sum of net capitalized costs and estimated future
development and dismantlement costs for each cost center is depleted on the
equivalent unit-of-production basis using proved oil and gas reserves as
determined by independent petroleum engineers.
4
Net
capitalized costs are limited to the lower of unamortized cost net of related
deferred tax or the cost center ceiling. The cost center ceiling is defined as
the sum of (i) estimated future net revenues, discounted at 10% per annum, from
proved reserves, based on un-escalated year-end prices and costs; (ii) the cost
of properties not being amortized; (iii) the lower of cost or market value of
unproved properties included in the costs being amortized; less (iv) income tax
effects related to differences between the book and tax basis of the oil and gas
properties.
The
ceiling test is affected by a decrease in net cash flow from reserves due to
higher operating or finding costs or reduction in market prices for natural gas
and crude oil. These changes can reduce the amount of economically producible
reserves. If the cost center ceiling falls below the capitalized cost for the
cost center, we would be required to report an impairment of the cost center’s
oil and gas assets at the reporting date.
Impairment of Properties - We
will continue to monitor our long-lived assets recorded in oil and gas
properties in the consolidated balance sheet to ensure they are fairly
presented. We must evaluate our properties for potential impairment when
circumstances indicate that the carrying value of an asset could exceed its fair
value. A significant amount of judgment is involved in performing these
evaluations since the results are based on estimated future events. Such events
include a projection of future oil and natural gas sales prices, an estimate of
the ultimate amount of recoverable oil and gas reserves that will be produced
from a field, the timing of future production, future production costs, and
future inflation. The need to test a property for impairment can be based on
several factors, including a significant reduction in sales prices for oil
and/or gas, unfavorable adjustment to reserves, or other changes to contracts,
environmental regulations or tax laws. All of these factors must be considered
when testing a property's carrying value for impairment. We cannot predict
whether impairment charges may be required in the future.
Revenue Recognition - Oil and
gas production revenues are recognized at the point of sale. Production not sold
at the end of the fiscal year is included as inventory at the lower of cost or
market value.
Income Taxes - Included in our
net deferred tax assets are approximately $16.5 million of potential future
tax benefits from prior unused tax losses (“income tax loss-carryfords”).
Realization of these tax assets depends on sufficient future taxable income
before the benefits expire. We are unsure if we will have sufficient future
taxable income to utilize the benefits from loss carry-forward before the
losses expire. Therefore, we have provided an allowance for the full amount of
the net deferred tax asset. Moreover, our recent change of majority ownership
significantly reduced our ability to utilize our net operating losses carry
forward.
Accounting Estimates -
Management uses estimates and assumptions in preparing financial statements in
accordance with accounting principles generally accepted in the United States of
America. Those estimates and assumptions affect the reported amounts of assets
and liabilities, the disclosure of contingent assets and liabilities, and the
reported revenues and expenses. In particular, there is significant judgment
required to estimate oil and gas reserves, impairment of unproved properties and
asset retirement obligations. Actual results could vary significantly from the
results that are obtained by using management’s estimates as well as those of
independent third-party petroleum engineering firms.
5
Convertible Debentures - If
the conversion feature of conventional convertible debt provides for a rate of
conversion that is below market value, this feature is characterized as a
beneficial conversion feature (“BCF”). A BCF is recorded as a debt
discount pursuant to EITF Issue No. 98-5 (“EITF 98-05”), Accounting for
Convertible Securities with Beneficial Conversion Features or Contingency
Adjustable Conversion Ratio, and EITF Issue No. 00-27, Application of EITF Issue
No. 98-5 to Certain Convertible Instruments. In those circumstances,
the convertible debt will be recorded net of the discount related to the
BCF. The Company amortizes the discount to interest expense over the
life of the debt using the effective interest method.
RESULTS
OF OPERATIONS
The
following comparison of selected financial data for the six months ended
September 30, 2009 financial data of the six months ended September 30, 2008 are
derived from our unaudited consolidated condensed financial statements included
in Part I, Item 1 of this quarterly report on Form 10-Q. This information is
qualified in its entirety by, and should be read in conjunction with, such
financial statements and related notes contained therein.
Six
months ended
|
||||||||
September
30,
|
||||||||
2009
|
2008
|
|||||||
(Unaudited)
|
||||||||
Income
Data
|
||||||||
Revenues
|
$ | 64,142 | $ | 72,871 | ||||
Depreciation
and depletion
|
30,577 | 3,471 | ||||||
Total
operating costs and expenses
|
578,195 | 1,604,254 | ||||||
Loss
from operations
|
(514,053 | ) | (1,531,382 | ) | ||||
Income
tax
|
- | - | ||||||
Net
loss
|
$ | (585,796 | ) | $ | (1,532,131 | ) | ||
Basic
and diluted loss per share
|
$ | (0.05 | ) | $ | (0.16 | ) | ||
Weighted
average number of shares outstanding
|
(11,073,156 | ) | 9,834,666 |
Oil
and Gas Results
Our
revenues decreased $8,729, or approximately 12%, from $72,871 for the six months
ended September 30, 2008, to $64,142 for the six months ended September 30,
2009. The reduction in revenue in 2009 compared to 2008 was caused by us not
having any sale from oil production in August 2009 due to reworking our wells.
Our total operating costs and expenses decreased $1,026,059 or approximately
64%, from 1,604,254 for the six months ended September 30, 2008, to $578,195 for
the six months ended September 30, 2009. The decrease in our operating expenses
was primarily attributable to decreases in stock compensation expense and other
general and administrative expenses for the six months ended September 30,
2009.
Our
depreciation and depletion increased by $30,577, or approximately 781%, from
$3,471 for the six months ended September 30, 2008, to $30,577 for the six
months ended September 30, 2009.
6
General
and administrative expenses decreased $305,764, or approximately 44%, from
$697,230 for the six months ended September 30, 2008, to $391,466 for the six
months ended September 30, 2009. This decrease in our general and administrative
expenses during the current six month period is primarily attributable to
reduced stock compensation expense, legal fees accounting and other professional
fees. The $697,230 in general and administrative expense incurred during the six
months ended September 30, 2008 was net of approximately $251,000 that we were
reimbursed through our participation agreement with Wind Hydrogen, Ltd,, which
was terminated in January 31, 2009.
Our loss
from operations decreased from $1,531,382 for the six months ended September 30,
2008, to $514,053 for the six months ended September 30, 2009. This change in
our loss from operations is primarily attributable to a decrease in stock
compensation expenses, professional fees and the other factors discussed
above.
Our net
loss decreased $946,335, from $1,532,131 for the six months ended September 30,
2008, to $585,796 loss for the six months ended September 30, 2009.
LIQUIDITY
AND CAPITAL RESOURCES
Liquidity
Our
revenues have not been adequate to support our operations. We anticipate that
this will change in the near future as a result of our capital raising and
development efforts, combined with operating changes.
Current
liabilities also increased from $2,948,077 at March 31, 2009 to $3,223,549 at
September 30, 2009, an increase of $275,472 or approximately 9%. Even though we
have reduced costs in 2009, our cash inflow during these six-months has been
insufficient to meet our overhead costs causing the increased liabilities.We
have a working capital deficit of $2,982,684 at September 30, 2009 as compared
to a working capital deficit of $2,702,752 at March 31, 2009, an increase of
$279,932 or approximately 10%. The increase in our working capital deficit
resulted primarily from the increase in our current liabilities due to increases
in development and production costs during the quarter ending September 30,
2009.
Shareholders’
equity decreased $434,709 from $3,184,342 at March 31, 2009, to $2,749,633 at
September 30, 2009, which was caused by an increase in additional paid in
capital for our stock based compensation and the recordation of beneficial
conversion feature, less our net loss for the six months.
There was
an increase of $70,643, or approximately less than 1% in our total assets, from
$6,249,381 at March 31, 2009 to $6,320,024 at September 30, 2009.
Cash
Flow
Our
operations used $296,031 of cash in the six months ended September 30, 2009.
This is primary due to a net loss of $585,796 adjusted by non-cash activity
totaling $289,765. Cash of $109,455 was used in investing activities during the
six months ended September 30, 2009, which consisted of $126,092 paid for
improvements to our oil and gas properties, $5,900 paid for purchases of
property and equipment, net of the $19,937 received from principal repayments on
a note receivable from Bowie Operating Company, LLC. In comparison, during the
six months ended September 30, 2008 we used $914,667 in cash to improve our oil
and gas properties and purchase equipment.
During
the six months ended September 30, 2009, the Company has received financing of
$420,864 on a privately placed Note.
7
At
September 30, 2009, we had cash on hand in the amount of $34,243 as compared to
$892,517 at September 30, 2008.
The
average sale price of oil produced by our Wardlaw Field wells decreased by
$31.28 a barrel, or approximately 38%, from $83.34 a barrel for the six months
ended September 30, 2008, to $52.06 a barrel for the six months ended September
30, 2009. Production costs per barrel of oil produced for the three months ended
September 30, 2009 decreased $112.43, or approximately 83%, from $135.87 a
barrel for the three months ended March 31, 2009, to $23.44 a barrel for the six
months ended September 30, 2009.
A part of
the costs reported during the past quarter and of those which Glen Rose expects
to incur and report during this current quarter relate to costs and obligations
incurred which were not yet visible or reasonably quantifiable during earlier
periods or which were not previously reported to current management. Such costs
are included in current periods as they manifest themselves and can reasonably
be quantified.
Glen Rose
will incur more significant costs through its planned development program for
its Wardlaw Field leases and related opportunities. Without reference to our
planned increases activity in the Wardlaw Field, we believe that our expenses
would significantly decrease. However, we plan to develop the Wardlaw Field
property over the next several years, cash flow permitting. The program will
begin by reworking 44 of the existing well bores, as part of a pilot flooding
program which will commence upon deploying the necessary funding, a meaningful
portion of which was raised during November 2009. There can be no assurance of
success, and unless production and sales of oil and gas significantly increase,
we may not be able to attain profitability, or even be able to continue as a
going concern.
Except as
otherwise discussed in this quarterly report, we know of no trends, events or
uncertainties that have, or are reasonably likely to have, a material impact on
our short-term or long-term liquidity or on our net sales or revenues from
continuing operations. We do not currently have any significant commitments for
capital expenditures for the next twelve months, but do have significant plans,
depending upon success of the pilot flooding program and our success in
attracting capital.
ITEM 3. CONTROLS AND
PROCEDURES
Glen Rose
carried out an evaluation, under the supervision and with the participation of
management, of the effectiveness of the design and operation of the Company’s
financial controls and procedures for the period April 1, 2009 through July 21,
2009. This evaluation was undertaken in consultation with internal and external
accountants Based on the evaluation, information about which is included in the
following paragraph, our then-Chief Executive Officer and Chief Financial
Officer concluded that our internal controls and reporting procedures were not
effective to ensure that information required to be disclosed by us in the
reports that we filed or submitted under the Securities Exchange Act of 1934 was
recorded, processed, summarized and reported in compliance with internal
controls ordinarily required of publicly-traded firms in the manner specified in
the Securities and Exchange Commission’s rules and forms. There have since been
material changes in internal control over financial reporting during current
quarter that are reasonably likely to materially affect our internal control
over financial reporting. These controls/procedures include utilization of a
third-party firm perform bookkeeping functions, including bank reconciliations
and other reviews of payables, receivables and other assets; another firm to
review such work and prepare adjusting entries, and independent audit by a CPA
firm.
8
Glen Rose
Petroleum Corporation’s management is responsible for establishing and
maintaining systems of adequate internal control over financial reporting, as
such term is defined in Exchange Act Rules 13a-15(f). Because of its inherent
limitations, internal control over and outside independent audit of financial
reporting may not prevent or detect misstatements.
In the
year ending March 31, 2009 Glen Rose Petroleum Corporation’s management team
assessed several of its internal control over financial reporting in accordance
with the standards set forth by the Public Company Accounting Oversight Board
("PCAOB") in the United States.
In
management's opinion, based on the assessment completed for the year ended March
31, 2009, that was completed after June 30, 2009 and is relevant for three-month
time period ending June 30, 2009 as well, the internal controls over financial
reporting are not operating effectively due to limited personnel and a lack of
segregation of duties. Because of the limited personnel and lack of segregation
of duties, management determined that a material weakness existed in the
processes, procedures and controls related to the preparation of our quarterly
and annual financial statements. This material weakness could result in the
reporting of financial information and disclosures in future consolidated annual
and interim financial statements that are not in accordance with generally
accepted accounting principles. However, these weaknesses, including those
related to limited personnel, were addressed during the latter part of the
quarter ended September 30, 2009, procedures for segregation of duties were
implemented, and we believe we are in compliance with the relevant standards
with respect to reporting and internal control.
Current
Company management is in the process of reviewing previous operations and the
results of those operations. When we finish the evaluation, we will make
required reports.
CHANGES
IN INTERNAL CONTROL OVER FINANCIAL REPORTING
Other
than as described above, there were no changes in our internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of their above evaluation.
PART
II - OTHER INFORMATION
ITEM
1. LEGAL PROCEEDINGS.
Black
Sea Investments, Ltd. Lawsuit.
On
November 21, 2007, a jury in Johnson County, Texas rendered a verdict in a trial
in favor of the Company against Black Sea Investments, Ltd., Bradford A.
Phillips, Clifton Phillips, Ryan T. Phillips, and F. Terry
Shumate. On February 15, 2008, the 249th
District Court in Johnson County, Texas entered a judgment in the amount of
$4,020,551.05 with interest accruing at a rate of $583.01 per day until paid
against these defendants in favor of the Company.
On March
17, 2008, the individual defendants filed a motion for new trial which was
overruled by operation of law on April 30, 2008. The individual
defendants then timely filed a Notice of Appeal for the matter to be heard by
Texas Tenth Court of Appeals in Waco, Texas. On October
8, 2008, individual defendants filed a brief with the Tenth Court of
Appeals. On January 14, 2009, the Company filed its brief in this
matter. The defendants filed a reply brief on February 5,
2009. Also, a Baylor Law School professor filed an amicus letter with
the Court on February 3, 2009. As of November 20, 2009, there had been no
opinion released by the Texas Tenth Court of Appeals. In January 2009 Justice
Rex D. Davis has recused himself from considering the matter.
9
The
Company can provide no assurance that this judgment will withstand appeal or
that, if upheld the Company will ever realize the collection of money from this
judgment. The Company shares in 45% of these proceeds of the collected amount in
this judgment with its attorney and 50% of the net balance with the Walter Mize
Estate.
UHC
Petroleum Corp. v. Lone Star Production Company, Buffalo Draw Partners, LLC, and
T. Grant Johnson
On August
15, 2008, UHC Petroleum Corp., a wholly-owned subsidiary of the Company, filed a
lawsuit against Lone Star Production Company, Buffalo Draw Partners, LLC, and T.
Grant Johnson in Edwards County, Texas for declaratory judgment, tortuous
interference with peaceful use and enjoyment of property, business disparagement
and injurious falsehood, and tortuous interference with prospective contracts
and business relations. The lawsuit alleges that Lone Star Production
Company top-leased one of the Company’s Wardlaw Field leases in 2004 and in 2008
the defendants engaged in various actions that were detrimental to the
Company.
Country Boy Feed and Supply v.
United Heritage Corporation.
On May 6,
2009, Country Boy Feed and Supply filed a claim in small claims court in Edwards
County, Texas for propane gas and other expenses in the amount of $9,463. This
claim was settled on August 11, 2009 for the sum of $8,500.00 that has been
paid.
Recon
Petrotechnologies Oklahoma, Inc., v. UHC Petroleum Corporation and Glen Rose
Petroleum Corp.
On August
12, 2009, Recon Petrotechnologies Oklahoma, Inc. filed a lawsuit to foreclose on
a alleged mineral contractor’s lien. On September 8, 2009, Defendants
transferred the case to federal court for the Western District of Texas, Del Rio
division. UHC Petroleum Corporation and Glen Rose Petroleum Corporation have
filed counterclaims for negligence. The case is currently in
discovery.
Forbes
Energy Services, LLC successor in interest to CC Forbes Company, LP v. UHC
Petroleum Corporation
On June
11, 2009 Forbes Energy Services, LLC filed a lawsuit against UHC Petroleum
Corporation in the 79th
District Court of Jim Wells County, Texas alleging breach of contract, sworn
account, and quantum meruit. Defendant filed a motion to transfer venue on
November 4, 2009 to transfer the matter to Edwards County, Texas, which awaits
hearing.
Other
The
Company does not have any other litigation current or contemplated. However, the
Company has terminated Geoff Beatson, a former engineering consultant, and taken
issue with various vendors. Any of which could result in litigation, which the
Company will vigorously pursue and defend.
10
The
Company had option agreements to ex-employees and directors which exercised at
$1.50 and $2.91 exercise prices. These options were modified to extend the
expiration date to March 31, 2009, to add a put feature where the option holder
can put the option back to the Company for the difference between $4.00 per
share and the purchase price between April 1, 2008 and April 10, 2008, and to
add a call feature whereby the Company can call the option for the difference
between $7.50 and the purchase price. Since the put feature does not
subject the holder to the normal risks of share ownership, the Company has
classified the put options as liability awards and recorded such at fair value.
A liability and corresponding expense of $2,727,186 has been recorded in the
prior financial statements. A majority of these option puts were exercised. The
Company offered the option put holders the same conversion as Walter Mize
elected on January 16, 2008. On July 3, 2008, owners of approximately 54%
of these options elected to convert the Company’s put obligation to restricted
common stock at $0.75 per share, subject to a voting trust and first right of
refusal to Blackwood Ventures LLC. Approximately 41% elected to continue the
option period until December 31, 2009, for consideration of 10% per annum,
payable quarterly with a provision for payment in kind. Approximately 5% did not
make an election and their units are held as current liability pending
resolution. These transactions have not closed, and are contingent upon
the completion of the definitive agreements. Should these transactions
close, the Company’s liabilities would be reduced by $1,166,669.
Also, we
may routinely be involved in government administrative proceedings relating to
our oil and gas operations. The Texas Railroad Commission regulates the oil and
gas industry in Texas and Texas law requires that the Texas Railroad Commission
issue permits for a variety of activities. Glen Rose can provide no assurance
that all of the Company’s requested permits will be granted.
ITEM
2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
PROCEEDS.
There
were no reportable events under this Item 2 during the quarterly period ended
September 30, 2009.
ITEM
3. DEFAULTS UPON SENIOR SECURITIES.
There
were no reportable events under this Item 3 during the quarterly period ended
September 30, 2009.
ITEM
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There
were no reportable events under this Item 3 during the quarterly period ended
September 30, 2009.
ITEM
5. OTHER INFORMATION
On July
21, 2009, Joseph Langston resigned his position as a Director of the Company.
Additionally, Mr. Langston resigned as President and Chief Financial Officer of
the Company and all its subsidiaries on July 29, 2009. Mr. Langston will remain
a consultant to the Company pursuant to his Amended Consulting Agreement dated
June 30, 2009.
On July
21, 2009 Andrew Taylor-Kimmins was elected to the Board of Directors and as
Chairman of the Board. Mr. Taylor-Kimmins currently works for Blackwood Capital
Limited
On
July 21, 2009, Joseph Tovey was retained to assist the Company in its
management, financing and accounting activities. The Board has granted Mr. Tovey
authority to act on behalf of the Company in certain financial and management
matters.
11
ITEM 6. EXHIBITS
Exhibits
|
|
3.1
|
Certificate
of Incorporation filed in Delaware on May 22, 2008 (1)
|
3.3
|
Bylaws(2)
|
10.1
|
1995
Stock Option Plan (3)
|
10.2
|
1998
Stock Option Plan (4)
|
10.3
|
2000
Stock Option Plan (5)
|
10.4
|
2002
Consultant Equity Plan (6)
|
10.5
|
Consulting
Agreement with Blackwood Capital, Ltd. as amended dated(7)
|
10.6
|
Debenture
Agreement with Blackwood Ventures, LLC dated (9)
|
10.7
|
2008
Stock Option Plan
(8)
|
31.1
|
Certification
of Chief Executive Officer (9)
|
31.2
|
Certification
of Chief Financial Officer (9)
|
32.1
|
Certification
pursuant to Section 906 of the Sarbanes Oxley Act
(9)
|
(1)
|
Incorporated
by reference to Exhibit 3.1 to Registrant’s Form 10-K Annual Report filed
July 14, 2008
|
(2)
|
Incorporated
by reference to Exhibit 3.3 to Registrant’s Form 10-K Annual Report filed
July 14, 2008
|
(3)
|
Incorporated
by reference to Exhibit 10.3 of the Registrant’s Form SB-2 Registration
Statement filed May 4, 2004.
|
(4)
|
Incorporated
by reference to Exhibit 99.01 the Registrant’s Form S-8 registration
statement filed on September 30, 1998 as document number
333-64711.
|
(5)
|
Incorporated
by reference to Exhibit 4.01 of Registrant’s Form S-8 Registration
Statement filed on December 6,
2000.
|
(6)
|
Incorporated
by reference to Exhibit 99-1 of Registrant’s Form S-8 Registration
Statement filed on October 25,
2002.
|
(7)
|
Incorporated
by reference to Exhibit 10.2 of Registrant’s Form 8-K dated January 15,
2008 with additional Amendment attached herewith as Exhibit
10.5
|
(8)
|
Incorporated
by reference to Exhibit 10-1 to Registrant’s Form S-8 Registration
Statement filed May 30, 2008
|
(9)
|
Filed
herewith
|
12
SIGNATURES
In
accordance with the requirements of the Exchange Act, the registrant caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.
GLEN
ROSE PETROLEUM
CORPORATION
|
|||
Date:
December 2, 2009
|
By:
|
/s/
Andrew Taylor-Kimmins
|
|
Andrew
Taylor-Kimmins
|
|||
President
|
13