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EX-31.1 - Glen Rose Petroleum CORPv172893_ex31-1.htm

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A

Mark One:
 
 
x Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
   
 For the Fiscal Year Ended March 31, 2009 or
   
 
o Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
   
 For the Transition Period from ____________to_____________.
   
 Commission File Number 0-9997

Glen Rose Petroleum Corporation
 (Exact name of registrant as specified in its charter)

Delaware
87-0372864
(State of Incorporation)
(IRS Employer Identification No.)
 
22762 Westheimer Parkway
Suite 515
Katy, Texas 77450
(Address of principal executive offices)
 
(832) 437-4026
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act: Common Stock, $0.001 par value

     
Name of each exchange
 
Title of each class
 
on which registered
 
Common Stock, $0.001 par value
 
Nasdaq Capital Market

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  ¨    No  x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes  ¨    No  x

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   ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.   ¨

Indicate by check mark whether the registrant is a large accelerated filer, 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 (check one):

Large accelerated filer  ¨
Accelerated filer ¨
Non-accelerated filer    ¨    (Do not check if smaller reporting company)
Smaller reporting company   x

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

As of March 31, 2009, the aggregate market value of the registrant’s common stock held by non-affiliates of the registrant was $446,390 based on the closing price as reported on the Nasdaq Capital Market.

Number of Shares of Common Stock outstanding as of March 31, 2009 was 10,816,200.

       As of July 9, 2009, the Company’s shares had a closing bid price of $.16 and a total market capitalization of $ 1,730,592.

 

 

EXPLANATORY NOTE

This Amendment No. 1 on Form 10-K/A amends the Company's Annual Report on Form 10-KSB for the year ended March 31, 2009, filed with the Securities and Exchange Commission ("SEC") on July 13, 2009 (the "Original Annual Report"). This amendment revises our financial statements and certifications in response to a comment letter from the SEC dated October 6, 2009.

Specifically, the financial statements have been amended in this Amended Form 10-K as follows:
 
 
1)
The Critical Accounting Policies and Estimates in Item 6, the Management Discussion and Analysis have been revised to reference the ceiling test in the calculation of depletion and to revise the description of impairment of properties.
 
 
2)
The audit opinion has a city and state where the audit opinion was issued;
 
 
3)
We have revised our balance sheets to combine the carrying value of our unimproved and improved properties. We have further revised the disclosure pertaining to our oil and gas properties to break out the costs of our proven properties ad unproven properties. The carrying costs of our proven properties include the cost of our 103 well bores and the lease of the 502 acres on which the wells situate. The carrying costs of our unproven properties pertain to the lease cost of our 10,000 acres of undeveloped land.  We have also revised our disclosure to indicate that the carrying costs of our unproven properties are not subject to depletion;
 
 
4)
We have revised our accounting policy relating to the ceiling test requirement under Rule 4-10(c)(4);
 
 
5)
We have revised our disclosures relating to the write down of the carrying value of improved properties to our completed ceiling test limitation;

 
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6)
We have revised our  disclosure pertaining to our long-term assets to indicate that we exclude oil and gas properties as being part of our long-term assets that are subject to the requirements of SFAS-144;
 
 
7)
We have revised our disclosure to indicate that the impairment loss relating to oil and gas properties pertains to the amount of the carrying costs of our oil and gas properties that were in excess of our ceiling test limitation as calculated on March 31, 2009; and
 
 
8)
We have revised Note 15 to reorder the columns pertaining to the disclosure of our standardized measure of discounted future net cash flows.
 
Except as described above, no attempt has been made in this Amendment to modify or update other disclosures presented in the Original Annual Report. This Amendment does not reflect events occurring after the filing of the Original Annual Report, or modify or update those disclosures, including the exhibits to the Original Annual Report, affected by subsequent events. Accordingly, this Amendment should be read in conjunction with our filings with the SEC subsequent to the filing of the Original Annual Report, including any amendments to those filings.

ITEM 6.
MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.

Management’s discussion and analysis of results of operations and financial condition is based upon our consolidated financial statements. These statements have been prepared in accordance with accounting principles generally accepted in the United States of America. These principles require management to make certain estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate these estimates based on historical experience and various other assumptions that are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions.

OVERVIEW

We are an independent producer of natural gas and crude oil based in Dallas, Texas. We produce from properties we lease in Texas, the Wardlaw lease in Edwards County, Texas. We currently have 103 wellbores, 90 of which are capable of production, and 44 are currently producing. Our plan has been to develop these properties by reworking many of the existing wells and drilling additional wells. However, the revenues we earned did not provide us with enough money to implement our development plans.

During the 2009 fiscal year, the sale price of oil produced by our properties in Texas fell from $89.36 a barrel, to $33.15 a barrel. The closing price was $79.09 a barrel as of March 31, 2008, versus $35.96, as of March 31, 2009. Production costs during the 2009 fiscal year decreased from $135.87 a barrel during the 2008 fiscal year to $41.29 a barrel, because we were able to increase average daily production, while keeping our field expenses constant.

Except as otherwise discussed in this Annual Report, there are no trends, and events or uncertainties in the oil industry and financial community are reasonably likely to have, a material impact on our short-term or long-term liquidity, as well as our net sales or revenues from continuing operations.

During the next fiscal year, our plan is to continue redevelopment of our properties if we are successful in finding other funding sources or, alternatively, we will seek investors or buyers.

 
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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. We have incurred substantial losses from operations and we have a working capital deficit which raises substantial doubt about our ability to continue as a going concern. We sustained a net loss of $2,181,974 for the fiscal year ended March 31, 2009 and, as of the same period, we had a working capital deficit of $2,702,752. We must obtain financing in order to develop our properties and alleviate the doubt about our ability to continue as a going concern.

Critical Accounting Policies and Estimates
 
Our financial statements are prepared in accordance with accounting principles generally accepted in the United States of America. The reported financial results and disclosures were determined using the significant accounting policies, practices and estimates described below.

Oil and Gas Properties
 
Our financial statements are prepared in accordance with accounting principles generally accepted in the United States of America. The reported financial results and disclosures were determined using the significant accounting policies, practices and estimates described below.
 
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, additional drilling, technological advancements, price 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 is calculated based on reserve quantity estimates and the carrying 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 the costs capitalized. Estimated reserves are used as the basis for calculating the expected future cash flows from a property, which are used in our ceiling test to determine whether that property costs 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 disclosure in Footnote 15 to the consolidated financial statements. Changes in the estimated reserves are considered changes in estimates for accounting purposes and are reflected on a prospective basis.

 
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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.
 
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 other long-lived assets in the consolidated balance sheet to ensure they are fairly presented. We must evaluate these assets for potential impairment when circumstances indicate that the carrying value of an asset could exceed its fair value.

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.

Income Taxes - Included in our net deferred tax assets are approximately $16.4 million of future tax benefits from prior unused tax losses. 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 loss carry-forward benefits before they 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 carry forward our net operating losses.

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.

OFF-BALANCE SHEET ARRANGEMENTS

It is customary for oil and gas companies to seek partners in developing their assets. In doing so, you dilute your ownership but share the risk and capital expense of development. Consequently, Petroleum has accepted a partner in a portion of the development of its Wardlaw Lease in Edwards County, Texas.

 
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On May 27, 2008, Petroleum signed a letter of intent (‘LOI’), to sell for $2.5 million a 50% interest in 2,560 acres (25%) of its Wardlaw Field to Wind Hydrogen Limited (‘WHL’), a publicly-listed company on the Australian Stock Exchange (‘ASX’). The Wardlaw lease is a 10,502 gross acre field located in Edwards County, Texas.  In addition, WHL at closing purchased two options to expand the venture for 2,560 acres each. The Participation Agreement required that WHL pay 100% of the drilling costs, up to $2.5 million, for a 50% working interest in the first 2,546 acres (Phase 1). After funding $1.5 million and participating in the drilling of three wells,

The definitive agreement for this transaction was signed on July 22, 2008.   Petroleum has received $1.5 million toward the participation financing of Phase 1, along with option payments of $150,000 each for Phases 2 and 3.  In addition to the participation and option monies received, Petroleum has recorded $305,979 of non-refundable Administrative and General Expense reimbursements, which are allotted for in the agreement to be reimbursed from WHL. 

As of December 31, 2008, WHL had failed to fund the $1,000,000 cash call issued by Petroleum on November 7, 2008. This failure is a material breach under the Participation Agreement, and Petroleum plans that WHL will no longer provide additional funding and the Participation Agreement has been terminated.
 
The purpose of the Participation Agreement was, in part, to increase the Company’s capital resources available for developmental activities. The Participation Agreement had an impact on the Company’s financial statements for the year ending March 31, 2009 through showing a $1,516,968 advance on the Participation Agreement in the Statement of Cash Flows, Cash Flows from Investing Activities. Because the Participation Agreement is terminated, we do not anticipate that the Participation Agreement will have a material impact on our future financial statements.
 
RESULTS OF OPERATIONS

The following selected financial data for the two years ended March 31, 2009 and March 31, 2008 is derived from our consolidated financial statements. The data is qualified in its entirety and should be read in conjunction with the consolidated financial statements and related notes contained elsewhere herein.
 
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Year Ended
March 31,
   
Year Ended
       
   
2009
   
March 31, 2008
       
   
 
   
 
       
Income Data:
  
 
   
 
       
Revenues
  $ 122,279     $ 62,025        
Income Profit (Loss)
  $ (2,181,974 )     (3,251,650 )      
Income Profit (Loss)
                     
Per Share
  $ (0.21 )   $ (0.46 )      
Weighted Average
                     
Number of Shares
    10,431,234       7,111,758        
                       
Balance Sheet Data:
                     
Working Capital (deficit)
  $ ((2,702,752 )   $       $ (2,714,405 )
Total Assets
  $ 6,249,381     $       $ 6,074,484  
Current Liabilities
  $ 2,948,077     $       $ 2,870,071  
Long-Term Debt
  $ 116,961     $       $ 87,918  
Shareholders’ Equity
  $ 3,184,342     $       $ 3,116,495  

Combined Results

Our revenues for the 2009 fiscal year were $122,279, an increase of $60,254 or approximately 97%, as compared to revenues of $62,025 for the 2008 fiscal year.
 
Total operating expenses of $2,303,828 reflects a decrease of $1,254,916, or approximately 35%, for the 2009 fiscal year as compared to operating expenses of $3,558,744 for the 2008 fiscal year. The significant operating expenses reported for the 2009 fiscal year resulted from the recognition the expense portion of warrants and stock options. General and administrative expenses decreased by $326,116, or approximately 24%, from $1,334,095 in the 2008 fiscal year to $1,007,979 in the 2009 fiscal year. We also incurred a warrants and stock options expense of $1,017,489 during the fiscal year ended March 31, 2009. Interest expense was $3,201 in the 2009 fiscal year, as compared to $70,117 in the 2008 fiscal year.
 
Our net loss for the 2009 fiscal year was $2,181,974 a decrease of $1,069,676 or approximately 33%, as compared to a net loss of $3,251,650 for the 2008 fiscal year

Oil and Gas Activity

Oil and gas sales during the 2009 fiscal year were $122,279, an increase of $60,254 or approximately 97%, as compared to sales of $62,025 during the 2008 fiscal year. Recent volatility in crude oil prices has caused substantial variations in unit prices and our revenues may vary considerably base on crude oil unit prices.
 
Receivables from a single oil and gas customer comprised 61% of our trade receivable balance at March 31, 2009. No allowance for doubtful accounts has been included in our financial statements since recorded amounts are determined to be fully collectible, based on management’s review of customer accounts, historical experience and other pertinent factors. During the fiscal year ended March 31, 2009, we recorded oil and gas sales to only one customer. However, buyers of crude oil are plentiful and can be easily replaced.

 
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Production and operating expenses were $94,541 during the 2009 fiscal year as compared to $72,166 in production and operating expenses during the 2008 fiscal year, an increase of $22,375 or approximately 31%. Depreciation and depletion expense for the 2009 fiscal year was $58,466 as compared to depreciation and depletion expense of $1,868 for the 2008 fiscal year, an increase of $56,598. Demand for oil field service providers may vary substantially with the unit price of gas and crude oil which would have a corresponding effect on the price of oil field goods and services.
 
LIQUIDITY AND CAPITAL RESOURCES
 
Liquidity

Our sales revenues have not been adequate to support our operations

Our current assets increased by $89,659 or approximately 58%, from $155,666 at March 31, 2008 to $245,325 at March 31, 2009. Current liabilities increased from $2,870,071 at March 31, 2008, to $2,948,077 at March 31, 2009, an increase of $78,006 or approximately 3%. The increase in current liabilities was due to increases in accounts payable balances. Working capital was a deficit of $2,702,752 at March 31, 2009 as compared to the March 31, 2008 deficit of $2,714,405, a decrease of $11,654 or less than 1%. The decrease deficit was due primarily to the addition of property, plant and equipment.

Total assets were $6,249,381 at March 31, 2009, an increase of $174,897 as compared to $6,074,484 for the 2008 fiscal year.
 
Capital Resources

Our business plan for the next fiscal year entails redevelopment activities on the Wardlaw properties which may result in a capital expenditure greater than $1 million, in addition to the WHL venture discussed below. Petroleum will not be able to generate this necessary amount internally. Petroleum will rely on additional equity financing, bank debt financing, as well as off balance sheet joint ventures.
 
Petroleum will not be making any commitment of capital resources until it has secured the capital resources necessary to make such a commitment.
 
We also have current accounts payables to oil and gas trade creditors. Our ability to conduct developmental activities will be hindered until we pay those oil and gas trade creditors. We may need to raise new capital to pay those trade creditors.
 
Cash Flow

Our operations used $237,421 of cash in the 2009 fiscal year as compared to $2,172,016 used in the 2008 fiscal year. The cash flow deficits are due to the operating losses incurred.

Cash of $525,981 was used in investing activities during the 2009 fiscal year and cash of $59,348 was used in investing activities for the 2008 fiscal year. Cash of $1,876,191 was used for capital expenditures for our oil and gas properties and for the purchase of equipment. During the 2008 fiscal year, cash flows used in investing activities related primarily to capital expenditures for our oil and gas properties.

In the 2009 fiscal year, cash of $716,500 was provided by financing activities.

At March 31, 2009 we had cash of $18,867.

 
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Subsequent Events
 
The Company entered into a new independent consulting engagement with Barry Pierce, whereby he will provide accounting services to the Company on a month to month basis, and will not be designated as an officer. His prior one year consulting agreement was fulfilled on March 23, 2009.
 
The Company has received a portion of the remaining balance of the January 2009 BVL Sub Debt financing, $105,000.
 
The Company has collected $ 77,743.25 from its loan to Bowie Operating Company, LLC, and the balance is expected in ninety days.
 
The Company and Petroleum have retained counsel to assist in the restructuring of its vendor payables.
 
The Company and Petroleum are in negotiations with several investors about purchase an equity interest in the Company, or purchasing a partial interest in the Wardlaw field. However, there is no assurance of further financing, and the Company would not be cash flow positive from operations without further assistance. Consequently, without further outside capital the Company and Petroleum would not be viable as a going concern.

Non-Compliance with Nasdaq Rules

NASDAQ informed Glen Rose Petroleum Corporation in a letter dated September 22, 2008, that it was in violation of NASDAQ Marketplace Rule 4310(c)(4)  in that the closing bid price for our common stock was below $1.00 for 30 consecutive days.  The NASDAQ letter stated that Glen Rose Petroleum Corporation will have 180 calendar days (until March 23, 2008) to regain compliance with Rule 4310(c)(4) by demonstrating a closing bid price of $1.00 or more for at least ten and up to twenty consecutive business days.

The NASDAQ letter further stated that if Glen Rose Petroleum Corporation cannot demonstrate compliance with Rule 4310(c)(4) by March 23, 2008, the NASDAQ Staff will determine whether it meet the NASDAQ Capital Markets initial listing criteria except for the bid price requirement.  If the Corporation meets the initial listing criteria, it may be granted an additional 180 day compliance period.  If Glen Rose Petroleum Corporation is not eligible for the additional compliance period, NASDAQ staff will provide it with a delisting notice which may be appealed to the NASDAQ Listing Qualifications Panel.

Subsequently, NASDAQ temporarily suspended the compliance dates related to bid price deficiencies for all NASDAQ-listed companies. On December 19, 2008, it announced that it was suspending bid price qualification until April 20, 2009. On March 23, 2009, NASDAQ announced that it was further extending this suspension until July 19, 2009. Consequently, the 88 days between September 22, 2008 and December 19, 2008, count against the listing compliance time period, but not the period between December 19, 2008 and July 19, 2009. Thus, the deadline for the initial 180 day compliance period referenced in the NASDAQ listing deficiency notice letter is now October 19, 2009 with an additional 180 days available for compliance if Glen Rose Corporation meets the initial NASDAQ listing requirements other than bid price.

 
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FACTORS AFFECTING OUR BUSINESS, OPERATING RESULTS AND FINANCIAL CONDITION

Risks Related to Our Business

We do not earn enough money to support our operations. We may be unable to continue our business.

UHC Petroleum Corporation does not earn enough money from our oil and gas sales to pay its operating expenses. Due to our substantial losses and our working capital deficit, Petroleum may be unable to continue as a going concern. If Petroleum does not obtain financing, it will be required to severely curtail, or to completely cease operations.
 
Jonathon P. Reuben, CPA, our independent auditor, has included in its report on our financial statements a paragraph stating that that we may be unable to continue as a going concern.

We have experienced net losses and negative cash flows from operations. We sustained a net loss of $2,181,974 and a working capital deficit of $2,702,752 for the fiscal year ended March 31, 2009. We have an accumulated deficit of $48,432,770. We sold all of our proved reserves in 2007 and we currently do not have significant revenue producing assets. In addition, we have limited capital resources. All of these factors raise substantial doubt about our ability to continue as a going concern. The financial statements included in this report do not include any adjustments that might result from the outcome of these uncertainties. As noted in an explanatory paragraph in the report of Jonathon R. Reuben CPA, our independent certified public accountants, on our consolidated financial statements for the year ended March 31, 2009 these conditions have raised substantial doubt about our ability to continue as a going concern.

We must estimate our proved oil and gas reserves and the estimated future net cash flows from the reserves. These estimates may prove to be inaccurate.

This Form 10-K contains estimates of our proved oil and gas reserves and the estimated future net cash flows from such reserves. These estimates are based upon various assumptions, including assumptions required by the Securities and Exchange Commission relating to oil and gas prices, drilling and operating expenses, capital expenditures, taxes and availability of funds. The process of estimating oil and natural gas reserves is complex. This process requires significant decisions and assumptions in the evaluation of available geological, geophysical, engineering and economic data for each reservoir and is therefore inherently imprecise. Additionally, our interpretations of the rules governing the estimation of proved reserves could differ from the interpretation of staff members of regulatory authorities resulting in estimates that could be challenged by these authorities.

Actual future production, oil and natural gas prices, revenues, taxes, development expenditures, operating expenses and quantities of recoverable oil and gas reserves will most likely vary from those estimated. Any significant variance could materially affect the estimated quantities and present value of reserves set forth in this Annual Report and the information incorporated by reference. Our properties may also be susceptible to hydrocarbon drainage from production by other operators on adjacent properties. In addition, we may adjust estimates of proved reserves to reflect production history, results of exploration and development, prevailing oil and natural gas prices and other factors, many of which are beyond our control.

 
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Our business plan anticipates that we will be able to develop our oil and gas properties. The cost to develop our oil properties is significant, and, to date, we have been unable to do so due to our lack of funds. Unless we can develop our oil properties, our revenues and results of operations will be adversely affected.

We believe that our properties have significant reserves of oil; however, we have not had the funds to fully exploit these resources. The costs associated with the development of oil and gas properties, including engineering studies, equipment purchase or leasing and personnel costs, are significant. In order to become profitable we must enhance our oil production, which means that we must drill and/or recomplete more wells. In order to accomplish this, we must find additional sources of capital.

Even if we fully develop our oil properties, we may not be profitable. Our inability to operate profitably will adversely affect our business.

We have assumed that once we fully develop our oil properties we will be profitable. However, even if we were able to fully develop our properties, there is no guarantee that we would achieve profitability. Our reserves may prove to be lower than expected, production levels may be lower than expected, the costs to exploit the oil may be higher than expected, new regulations may adversely impact our ability to exploit these resources and the market price for crude oil may be lower than current prices.

We also face competition from other oil companies in all aspects of our business, including obtaining oil leases, marketing oil, and obtaining goods, services and labor to exploit our resources. Many of our competitors have substantially larger financial and other resources than we have, and we may not be able to successfully compete against them. Competition is also presented by alternative fuel sources, which may be more efficient and less costly and may result in our products becoming less desirable.

Any of these factors could prevent us from attaining profitability.

The development and exploitation of oil properties is subject to many risks that are beyond our control. The occurrence of any of these events could have a material adverse effect on our business and results of operations.

Our crude oil drilling and production activities are subject to numerous risks, many of which are beyond our control. These risks include the following:

·
that no commercially productive crude oil reservoirs will be found;

·
that crude oil drilling and production activities may be shortened, delayed or canceled; and

·
that our ability to develop, produce and market our reserves may be limited by title problems, weather conditions, compliance with governmental requirements, and mechanical difficulties or shortages or delays in the delivery of drilling rigs and other equipment.

We cannot assure you that the new wells we drill, or the wells that are currently in existence, will be productive or that we will recover all or any portion of our investment in them. Drilling for crude oil and natural gas may be unprofitable. Dry holes and wells that are productive but do not produce sufficient net revenues after drilling, operating and other costs are unprofitable.

Our industry also experiences numerous operating risks. These operating risks include the risk of fire, explosions, blow-outs, pipe failure, abnormally pressured formations and environmental hazards. Environmental hazards include oil spills, natural gas leaks, ruptures or discharges of toxic gases. If any of these industry operating risks occur, we could sustain substantial losses. Substantial losses also may result from injury or loss of life, severe damage to or destruction of property, clean-up responsibilities, regulatory investigation and penalties and suspension of operations.

 
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Any of these events could adversely affect our business.

We may not have enough insurance to cover all of the risks we face. If our insurance coverage is inadequate to pay a claim, we would be responsible for payment. The requirement that we pay a significant claim would materially, adversely impact our financial condition and results of operations.

In accordance with customary industry practices, we maintain insurance coverage against some, but not all, potential losses in order to protect against the risks we face. We may elect not to carry insurance if our management believes that the cost of available insurance is excessive relative to the risks presented. In addition, we cannot insure fully against pollution and environmental risks. The occurrence of an event not fully covered by insurance which we may be required to pay could have a material adverse effect on our financial condition and results of operations.

Oil and natural gas prices are highly volatile in general and low prices negatively affect our financial results.

Our revenue, profitability, cash flow, future growth and ability to borrow funds or obtain additional capital, as well as the carrying value of our properties, are substantially dependent upon prevailing prices of oil and natural gas. Historically, the markets for oil and natural gas have been volatile, and such markets are likely to continue to be volatile in the future. Prices are subject to wide fluctuation in response to relatively minor changes in the supply of and demand for oil and natural gas, market uncertainty and a variety of additional factors that are beyond our control. These factors include the level of consumer product demand, weather conditions, domestic and foreign governmental regulations, the price and availability of alternative fuels, political conditions, the foreign supply of oil and natural gas, the price of foreign imports and overall economic conditions. While we attempt to mitigate price volatility when we can by acquiring “puts” to protect our prices, we cannot assure you that such transactions will reduce the risk or minimize the effect of any decline in oil or natural gas prices. Any substantial or extended decline in the prices of or demand for oil or natural gas would have a material adverse effect on our financial condition and results of operations.

Government regulation and liability for environmental matters may adversely affect our business and results of operations.

Oil and natural gas operations are subject to various federal, state and local government regulations, which may be changed from time to time. Matters subject to regulation include discharge permits for drilling operations, drilling bonds, reports concerning operations, the spacing of wells, unitization and pooling of properties and taxation. From time to time, regulatory agencies have imposed price controls and limitations on production by restricting the rate of flow of oil and natural gas wells below actual production capacity in order to conserve supplies of oil and natural gas. There are federal, state and local laws and regulations primarily relating to protection of human health and the environment applicable to the development, production, handling, storage, transportation and disposal of oil and natural gas, by-products thereof and other substances and materials produced or used in connection with oil and natural gas operations. Furthermore, we may be liable for environmental damages caused by previous owners of property we purchase or lease. As a result, we may incur substantial liabilities to third parties or governmental entities. We are also subject to changing and extensive tax laws, the effects of which cannot be predicted. While the regulations governing our industry have not had a material adverse effect on our operations to date, the implementation of new laws or regulations, or the modification of existing laws or regulations, could have a material adverse effect on us.

 
12

 

We may not be able to replace production with new reserves.

In general, the volume of production from oil and gas properties declines as reserves are depleted. The decline rates depend on reservoir characteristics. Our aggregate reserves will decline as they are produced unless we acquire properties with proved reserves or conduct successful development and exploration drilling activities. Our future natural gas and oil production is highly dependent upon our level of success in finding or acquiring additional reserves.

SIGNATURES
 
Pursuant to the requirements of Section 13 or 15(d) 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.

Date: February 2, 2010
GLEN ROSE PETROLEUM CORPORATION
   
 
By:
/s/ Andrew Taylor-Kimmins
   
Andrew Taylor-Kimmins
   
President and Chief Financial Officer
   
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated below on this 1st day of February 2010.

SIGNATURE, TITLE
 
/s/ Andrew Taylor-Kimmins
 
Andrew Taylor-Kimmins
 
President, Secretary, and Chief Financial Officer (Principal Accounting Officer) and Director  
  
/s/ Ted Williams
Ted Williams
Director
 
/s/ Paul K. Hickey
Paul K. Hickey
Director
 
13


INDEX TO FINANCIAL STATEMENTS

 
PAGE
   
Report of Independent Registered Public Accounting Firms
F-1
   
Consolidated Balance Sheets at March 31, 2009 and 2008
F-3
   
Consolidated Statements of Operations for the Years Ended March 31, 2009 and 2008
F-5
   
Consolidated Statements of Changes in Shareholders’ Equity for the Years Ended March 31, 2009 and 2008
F-6
   
Consolidated Statements of Cash Flows for the Years Ended March 31, 2009 and 2008
F-7
   
Notes to Consolidated Financial Statements
F-8
 
 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders
Glen Rose Petroleum Corporation
Dallas, Texas

We have audited the accompanying consolidated balance sheet of Glen Rose Petroleum Corporation and subsidiaries (the “Company”) as of March 31, 2008, and the related consolidated statements of operations, changes in shareholders’ equity and cash flows for the year then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company as of March 31, 2008, and the consolidated results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.

We were not engaged to examine management’s assertion about the effectiveness of the Company’s internal control over financial reporting as of March 31, 2008 included in the accompanying Form 10-K and, accordingly, we do not express an opinion thereon.

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has limited capital resources and no significant revenue producing assets which combine to raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also discussed in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

/s/ HEIN & ASSOCIATES LLP
Dallas, Texas
July 11, 2008

 
F-1

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders
Glen Rose Petroleum Corporation
Dallas, Texas

We have audited the accompanying consolidated balance sheet of Glen Rose Petroleum Corporation and subsidiaries (the “Company”) as of March 31, 2009, and the related consolidated statements of operations, changes in shareholders’ equity and cash flows for the year then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company as of March 31, 2009, and the consolidated results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.

We were not engaged to examine management’s assertion about the effectiveness of the Company’s internal control over financial reporting as of March 31, 2009 included in the accompanying Form 10-K and, accordingly, we do not express an opinion thereon.

The accompanying financial statement has been prepared assuming that the Company will continue as a going concern. As shown in the financial statements, the Company has negative working capital, incurred significant losses, and has an accumulated deficit of $48,432,770 as of March 31, 2009. As discussed in Note 2, these conditions raise substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty..

/s/ Jonathon P. Reuben CPA,
An Accountancy Corporation
Torrance, California
July 10, 2009

 
F-2

 

GLEN ROSE PETROLEUM CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS AT MARCH 31, 2009 AND 2008
 
ASSETS
 
   
MARCH 31,
 
   
2009
   
2008
 
CURRENT ASSETS:
               
Cash and cash equivalents
 
$
18,867
   
$
65,769
 
Accounts receivable, no allowance considered necessary
   
10,273
     
2,081
 
Receivable from taxing authority
   
6,697
     
-
 
Notes receivable related parties – short term
   
176,640
     
-
 
Inventory
   
10,221
     
79,241
 
Prepaid expenses
   
22,627
     
8,575
 
Total current assets
   
245,325
     
155,666
 
                 
OIL AND GAS PROPERTIES, full cost method
   
5,798,856
     
5,915,184
 
                 
PROPERTY AND EQUIPMENT, at cost:
               
Field equipment
   
171,670
     
-
 
Computer equipment
   
14,206
     
2,699
 
Vehicles
   
41,281
     
6,752
 
     
227,157
     
9,451
 
Less Accumulated Depreciation
   
(21,957
   
(5,817
     
205,200
     
3,634
 
                 
Total assets
 
$
6,249,381
   
$
6,074,484
 
- Continued -

 
F-3

 

LIABILITIES AND SHAREHOLDERS’ EQUITY
 
   
MARCH 31,
 
   
2009
   
2008
 
CURRENT LIABILITIES:
               
Accounts payable
 
$
629,173
   
$
364,819
 
Accounts payable — related parties
   
140,267
     
13,732
 
Accrued expenses
   
-
     
   343,750
 
Note payable — related party
   
30,867
     
-
 
Accrued put option liability
   
2,147,770
     
2,147,770
 
Total current liabilities
   
2,948,077
     
2,870,071
 
                 
LONG-TERM LIABILITIES:
               
Asset retirement obligation
   
-
     
87,918
 
Note payable – related party
   
116,962
     
-
 
Total liabilities
   
3,065,039
     
2,957,989
 
                 
Commitments and Contingencies (Notes 6, 7, and 13)
               
                 
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; 10,816,200 issued and outstanding at March 31, 2009 and  9,424,214 issued and outstanding  at March 31, 2008
   
10,816
     
9,424
 
Common stock subscription receivable  - related party
   
(50,000)
     
-
 
Additional paid-in capital
   
51,656,296
     
49,357,867
 
Accumulated deficit
   
(48,432,770
)    
(46,250,796
)
Total shareholders’ equity
   
3,184,342
     
3,116,495
 
                 
Total liabilities and shareholders’ equity
 
$
6,249,381
   
$
6,074,484
 

See accompanying notes to these consolidated financial statements

 
F-4

 

GLEN ROSE PETROLEUM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
 
   
FOR THE YEARS ENDED
 
   
MARCH 31,
 
   
2009
   
2008
 
OPERATING REVENUES –
               
Oil and gas sales
 
$
122,279
   
$
62,025
 
Total operating revenues
   
122,279
     
62,025
 
                 
OPERATING COSTS AND EXPENSES:
               
Production and operating
   
94,541
     
72,166
 
Impairment: Unproved Properties
   
125,353
     
-
 
Depreciation and depletion
   
58,466
     
1,868
 
Accretion of asset retirement obligation
   
-
     
4,976
 
General and administrative
   
1,007,979
     
1,334,095
 
Bad debt expense
   
-
     
258,814
 
Warrants expense
   
-
     
1,156,049
 
Stock based compensation
   
1,017,489
     
476,857
 
Put option expense
   
-
     
253,919
 
Total operating costs and expenses
   
2,303,828
     
3,558,744
 
                 
LOSS FROM OPERATIONS
   
(2,181,549
   
(3,496,719
                 
OTHER INCOME (EXPENSE):
               
Loss on cancellation of indebtedness
   
(4,856
   
-
 
Gain on sale of investments
   
-
     
303,155
 
Gain (loss) on sale of property and equipment
   
(749
   
12,031
 
Interest income
   
8,381
     
-
 
Interest expense
   
(3,201
   
(70,117
Total other income (expense)
   
(425
   
245,069
 
                 
NET LOSS
 
$
(2,181,974
 
$
(3,251,650
                 
LOSS PER COMMON SHARE:
               
Basic and diluted
 
$
(0.21
)
 
$
(0.46
Weighted average number of shares outstanding, basic and diluted
   
10,431,234
     
7,111,758
 

See accompanying notes to these consolidated financial statements 

 
F-5

 

GLEN ROSE PETROLEUM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDER EQUITY
FOR YEARS ENDED MARCH 31, 2009 AND 2008

                     
Additional
             
   
Common Stock
   
Subscription
   
Paid-in
   
Accumulated
       
   
Shares
   
Amount
   
Receivable
   
Capital
   
Deficit
   
Totals
 
BALANCE, March 31, 2007
      6,446,758     $ 6,447     $     $ 43,796,676     $ (42,999,146 )   $ 803,977  
                                                 
Compensation recognized on stock option grants
      —         —             358,504       —         358,504  
                                                 
Issuance of stock for conversion of debt
      498,606         499             434,708       —         435,207  
                                                 
Issuance of common stock for cash
      1,238,038         1,238             802,994       —         804,232  
                                                 
Issuance of common stock for conversion of put option
      1,111,113         1,111             910,002       —         911,113  
Issuance of common stock for services
      129,699         129             118,225       —         118,354  
                                                 
Related party forgiveness of debt
      —         —             1,780,709       —         1,780,709  
                                                 
Warrants issued for service
      —         —             1,156,049       —         1,156,049  
                                                 
Net loss
      —         —                   (3,251,650 )       (3,251,650 )
                                                 
BALANCE, March 31, 2008
      9,424,214     $ 9,424     $     $ 49,357,867     $ (46,250,796 )     $ 3,116,495  
                                                 
Compensation recognized on stock option grants
      —         —             913,607       —         913,607  
                                                 
Issuance of stock for conversion of debt
      353,810         353             318,228       —         318,581  
                                                 
Issuance of common stock for cash
      700,000         700             569,300       —         570,000  
                                                 
Issuance of common stock for services
      275,676         276             103,606       —         103,882  
                                                 
Issuance of common stock for cancellation of options
      62,500         63             343,688       —         343,751  
                                                 
Issuance of common stock for note
      —         —       (50,000 )     50,000       —          
                                                 
Net loss
      —         —                   (2,181,974 )       (2,181,974 )
                                                 
BALANCE, March 31, 2009
      10,816,200     $ 10,816     $ (50,000 )   $ 51,656,296     $ (48,432,770 )     $ 3,184,342  

See accompanying notes to these consolidated financial statements

 
F-6

 

GLEN ROSE PETROLEUM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR YEAR ENDED MARCH 31, 2009

   
FOR THE YEARS ENDED
 
   
MARCH 31,
 
   
2009
   
2008
 
CASH FLOWS FROM OPERATING ACTIVITIES:
 
   
   
 
 
Net loss
  $ (2,181,974 )     $ (3,251,650 )
Adjustments to reconcile net loss to net cash used in operating activities:
               
Impairment loss
    125,353       -  
Depreciation, depletion and amortization
    58,466       1,868  
Loss on sale of oil and gas assets
    749       -  
Gain on sale of investments
    -       (303,155 )  
Gain on sale of property and equipment
    -       (12,301 )  
Put option expense
    -       253,919  
Stock compensation expense
    1,017,489       1,514,553  
Accretion of asset retirement obligation
    -       4,976  
Loss on forgiveness of debt
    4,856          
Changes in assets and liabilities:
               
Trade and other receivables
    (14,889 )       468,589  
Short term notes receivable
    (8,381 )     -  
Inventory
    69,020       (47,824 )  
Prepaid expenses
    (14,052 )       26,334  
Accounts payable and accrued expenses
    579,407       (827,325 )  
Accounts payable related party
    126,535       -  
Net cash used in operating activities
    (237,421 )       (2,172,016 )
                 
CASH FLOWS FROM INVESTING ACTIVITIES:
               
Additions to oil and gas properties
    (1,602,339 )       (50,597 )
Proceeds from sale of property, plant and equipment
    1,500       -  
Disposal of property, plant and equipment
    -       (8,751 )
Advances on joint participation agreement
    1,516,968       -  
Additions to equipment
    (273,852 )         -  
Advances on related party loans
    (183,258 )     -  
Repayment on related party loans
    15,000       -  
Net cash used in investing activities
    (525,981 )       (59,348 )  
                 
CASH FLOWS FROM FINANCING ACTIVITIES:
               
Proceeds from borrowings – related parties
    146,500       153,218  
Issuance of common stock
    570,000       804,232  
Payments on notes payable – related parties
    -       (331,989 )
Net cash provided by financing activities
    716,500       625,461  
                 
NET DECREASE IN CASH
    (46,902 )       (1,605,903
                 
CASH, beginning of year
    65,769       1,671,672  
                 
CASH, end of year
  $ 18,867     $ 65,769  
                 
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
               
Cash paid during the year for:
               
Interest
  $ 3,201     $ 70,117  
Taxes
  $ -     $ -  
                 
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
               
Investment exchanged for notes payable and accrued interest, related party
  $ -     $ 2,130,155  
Stock issued for conversion of debt and put option
  $ 313,726     $ 1,346,320  
Issuance of common stock for cancellation of options
  $ 343,750     $ -  
Related party forgiveness of debt
  $ -     $ 1,780,709  
See accompanying notes to these consolidated financial statements

 
F-7

 

GLEN ROSE PETROLEUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation and Presentation
The consolidated financial statements include the accounts of Glen Rose Petroleum Corporation (the “Company”, “we” or “our”) and its wholly owned subsidiaries, Glen Rose Petroleum Services, UHC Petroleum Corporation, UHC Petroleum Services Corporation, UHC New Mexico Corporation and National Heritage Sales Corporation.

The name of the Company was changed from United Heritage Corporation to Glen Rose Petroleum Corporation in May, 2008.

Concurrent with the name change, the Company entered into a statutory merger whereby it moved its state of incorporation from Utah to Delaware and United Heritage Corporation, the Utah Corporation, merged into the newly formed Delaware Corporation, Glen Rose Petroleum Corporation.

All significant intercompany transactions and balances were eliminated in consolidation.

Nature of Operations
Glen Rose Petroleum Corporation owns contiguous oil and gas properties located in Edwards County, Texas. The Company began production of the Texas properties during the year ended March 31, 2000. The Company sold a significant portion of its oil and gas properties in 2007. The Company continues to operate its remaining contiguous oil and gas properties located in Edwards County, Texas and does not operate oil and gas properties in any other fields or areas.

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 in the accompanying consolidated financial statements.

Inventory
Inventory consists of oil in tanks, which is valued at the lower of the cost to produce the oil or the current available sales price.

Oil and Gas Properties

The Company uses the full cost method of accounting under which all costs incurred in the acquisition, exploration and development of oil and natural gas reserves, including costs related to unsuccessful wells and estimated future site restoration and abandonment, are capitalized until such time as the aggregate of such costs net of accumulated depletion and oil and natural gas related deferred income taxes, on a country-by-country basis, equals the sum of 1) the discounted present value (at 10%), using prices as of the end of each reporting period on a constant basis, of the Company’s estimated future net cash flows from estimated production of proved oil and natural gas reserves as determined by independent petroleum consultants, less estimated future expenditures to be incurred in developing and producing the proved reserves but excluding future cash outflows associated with settling asset retirement obligations accrued on the balance sheet; plus 2) the cost of major development projects and unproven properties not subject to depletion, if any; plus 3) the lower of cost or estimated fair value of unproven properties included in costs subject to depletion; less 4) related income tax effects.  If net capitalized costs exceed this limit, the excess is expensed unless subsequent market price changes eliminate or reduce the indicated write-down in accordance with U.S. SEC Staff Accounting Bulletin (“SAB”) Topic 12D.  Depletion is computed using the units-of-production method whereby capitalized costs, net of estimated salvage values, plus estimated future costs to develop proved reserves and satisfy asset retirement obligations, are amortized over the total estimated proved reserves on a country-by-country basis. Investments in major development projects are not depleted until either proved reserves are associated with the projects or impairment has been determined.

Under the above indicated ceiling test, the Company determined that as of March 31, 2009, its carrying cost of its oil and gas properties exceeded the ceiling test limit and charged $125,353 to operations as an impairment expense. The Company determined its oil and gas properties were not impaired for the year ended March 31, 2008.

 
F-8

 

GLEN ROSE PETROLEUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Property and Equipment
Property and equipment are stated at cost, less accumulated depreciation. Depreciation is provided over the estimated useful lives of the assets primarily by the straight-line method as follows:

Equipment
 
3-14 years
Vehicles
 
3-5 years

 Gains and losses resulting from sales and dispositions of property and equipment are included in current operations. Maintenance and repairs are charged to operations as incurred. Depreciation expense for the year ended March 31, 2009 and 2008 amounted $16,590 and $1,868, respectively.

Earnings (Loss) per Common Share
The Company adopted the provisions of SFAS No. 128, Earnings Per Share (“EPS”).  SFAS No. 128 provides for the calculation of basic and diluted earnings per share.   Basic EPS includes no dilution and is computed by dividing income or loss available to common shareholders by the weighted average number of common shares outstanding for the period.  Diluted EPS reflects the potential dilution of securities that could share in the earnings or losses of the entity.  For the years ended March 31, 2009 and 2008 basic and diluted loss per share are the same since the calculation of diluted per share amounts would result in an anti-dilutive calculation that is not permitted and therefore not included.  The Company’s diluted loss per share would include options and warrants exercisable into 24,021,420 shares of common stock and debt convertible into 615,589 shares of common stock.  At March 31, 2008, the Company had potentially dilutive options and warrants totaling 23,701,420 shares.
 
Cash Flows Presentation
For purposes of the consolidated statement of cash flows, the Company considers all highly liquid investments purchased with original maturities of three months or less to be cash equivalents.

Use of Estimates
The preparation of consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Estimates of oil and gas reserves, the asset retirement obligation and impairment on unproved properties are inherently imprecise and may change materially in the near term.

Financial Instruments
Financial instruments consist of cash and cash equivalents, accounts receivable, accounts payable and notes payable. Recorded values of cash, receivables and payables approximate fair values due to short maturities of the instruments.

Issuance of Stock for Non-Cash Consideration
All issuances of the Company's stock for non-cash consideration have been assigned a per share amount equaling either the market value of the shares issued or the value of consideration received, whichever is more readily determinable. The majority of the non-cash consideration received pertains to services rendered by consultants and others and has been valued at the market value of the shares on the dates issued.

The Company's accounting policy for equity instruments issued to consultants and vendors in exchange for goods and services follows the provisions of EITF 96-18, Accounting for Equity Instruments That are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services and EITF 00-18, Accounting Recognition for Certain Transactions Involving Equity Instruments Granted to Other Than Employees.  The measurement date for the fair value of the equity instruments issued is determined at the earlier of (i) the date at which a commitment for performance by the consultant or vendor is reached or (ii) the date at which the consultant or vendor's performance is complete.  In the case of equity instruments issued to consultants, the fair value of the equity instrument is recognized over the term of the consulting agreement.  In accordance with EITF 00-18, an asset acquired in exchange for the issuance of fully vested, nonforfeitable equity instruments should not be presented or classified as an offset to equity on the grantor's balance sheet once the equity instrument is granted for accounting purposes.  Accordingly, the Company records the fair value of the fully vested non-forfeitable common stock issued for future consulting services as prepaid services in its consolidated balance sheet.

 
F-9

 

GLEN ROSE PETROLEUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Share-Based Compensation
We measure and record compensation expense for all share-based payment awards to consultants, employees and directors based on estimated fair values. Additionally, compensation costs for share-based awards are recognized over the requisite service period based on the grant-date fair value.

Long-Lived Assets
Long-lived assets to be held and used by the Company, other than oil and gas properties, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Company periodically evaluates the recoverability of its long-lived assets based on estimated future cash flows and the estimated fair liquidation value of such long-lived assets, and provides for impairment if such undiscounted cash flows are insufficient to recover the carrying amount of the long-lived assets.

Income Taxes
Provisions for income taxes are based on taxes payable or refundable for the current year and deferred taxes on temporary differences between the amount of taxable income and pretax financial income and between the tax bases of assets and liabilities and their reported amounts in the financial statements. Deferred tax assets and liabilities are included in the financial statements at currently enacted income tax rates applicable to the period in which the deferred tax assets and liabilities are expected to be realized or settled as prescribed in FASB Statement No. 109,  Accounting for Income Taxes. As changes in tax laws or rate are enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes.

RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS

FASB issued Staff Position No. 142-3 - In April 2008, the FASB issued Staff Position No. 142-3, “Determination of the Useful Life of Intangible Assets” (“FSP 142-3”). FSP 142-3 amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under FASB Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets”. FSP 142-3 is effective for the Company in the first quarter of 2009. The adoption of FSP 142-3 has not had a significant impact on our financial statements.
 
FASB issued Staff Position No. EITF 03-6-1 - In June 2008, the FASB issued Staff Position No. EITF 03-6-1, “Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities” (“EITF 03-6-1”). EITF 03-6-1 addresses whether instruments granted in share-based payment transactions are participating securities prior to vesting, and therefore, need to be included in the earnings allocation in calculating earnings per share under the two-class method described in FASB Statement of Financial Accounting Standards No. 128, “Earnings per Share.” EITF 03-6-1 requires companies to treat unvested share-based payment awards that have non-forfeitable rights to dividend or dividend equivalents as a separate class of securities in calculating earnings per share. EITF 03-6-1 is effective for fiscal years beginning after December 15, 2008. EITF 03-6-1 is effective for the Company in the first quarter of 2009. The adoption of EITF 03-6-1 has not had a significant impact on our financial statements

SFAS No. 157 - The Company adopted in the first quarter of fiscal 2009, the Statement of Financial Accounting Standards No. 157, Fair Value Measurements, (“SFAS No. 157”) for all financial assets and financial liabilities and for all non-financial assets and non-financial liabilities recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). SFAS No. 157 defines fair value, establishes a framework for measuring fair value, and enhances fair value measurement disclosure. The effect on the Company’s periodic fair value measurements for financial and non-financial assets and liabilities was not material.

 
F-10

 

GLEN ROSE PETROLEUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In October 2008, the Financial Accounting Standards Board (“FASB”) issued Financial Staff Position 157-3, Determining the Fair Value of a Financial Asset When the Market for That Asset Is Not Active, (“FSP 157-3”). FSP 157-3 clarifies the application of SFAS No. 157 in a market that is not active, and addresses application issues such as the use of internal assumptions when relevant observable data does not exist, the use of observable market information when the market is not active, and the use of market quotes when assessing the relevance of observable and unobservable data. FSP 157-3 is effective for all periods presented in accordance with SFAS No. 157. The adoption of FSP 157-3 did not have a significant impact on our financial statements or the fair values of our financial assets and liabilities.
 
In December 2008, the FASB issued Financial Staff Position (“FSP”) Financial Accounting Standard No. 140-4 and FASB Interpretation 46(R)-8, Disclosures by Public Entities (Enterprises) about Transfers of Financial Assets and Interests in Variable Interest Entities (“FSP FAS 140-4” and “FIN 46(R)-8”). The document increases disclosure requirements for public companies and is effective for reporting periods (interim and annual) that end after December 15, 2008. FSP FAS 140-4 and FIN 46(R)-8 became effective for us on December 31, 2008. The adoption of FSP FAS 140-4 and FIN 46(R)-8 did not have a significant impact on our financial statements.

In December 2007, the Financial Accounting Standards Board issued Emerging Issues Task Force (EITF) Issue No. 07-1, Accounting for Collaborative Arrangements, which applies to collaborative arrangements that are conducted by the participants without the creation of a separate legal entity for the arrangement and clarifies, among other things, how to determine whether a collaborative arrangement is within the scope of this issue. EITF Issue No. 07-1 is effective for financial statements issued for fiscal years beginning after December 15, 2008. The adoption of EITF Issue No. 07-1 did not have a significant impact on our financial statements.

In December 2007, SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements — an Amendment of ARB No. 51, was issued. SFAS No. 160 amends ARB 51 to establish accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. It clarifies that a noncontrolling interest in a subsidiary, which is sometimes referred to as minority interest, is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements. Among other requirements, this statement requires consolidated net income to be reported at amounts that include the amounts attributable to both the parent and the noncontrolling interest. It also requires disclosure, on the face of the consolidated income statement, of the amounts of consolidated net income attributable to the parent and to the noncontrolling interest. SFAS No. 160 is effective for financial statements issued for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2008. The effect of adopting SFAS No. 160 is not currently expected to have an effect on our consolidated financial position, results of operations, or cash flows.

In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities, which provides entities with an option to report selected financial assets and liabilities at fair value. SFAS No. 159 also establishes presentation and disclosure requirements designed to facilitate comparisons between entities that choose different measurement attributes for similar types of assets and liabilities. This Statement is effective as of the beginning of the first fiscal year that begins after November 15, 2007 and thus applies to the Company’s fiscal year ending March 31, 2009. The adoption of SFAS No. 159 did not have a significant impact on our financial statements.

In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivatives Instruments and Hedging Activities, an Amendment of FASB Statement No. 133, Accounting for Derivative Instruments and Hedging Activities (“FAS 161”). FAS 161 changes the disclosure requirements for derivative instruments and hedging activities. Entities are required to provide enhanced disclosures stating how and why an entity uses derivative instruments; how derivative instruments and related hedged items are accounted for under SFAS No. 133 and its related interpretations; and how derivative instruments and related hedged items affect an entity’s financial position, financial performance and cash flows. FAS 161 require that objectives for using derivative instruments be disclosed in terms of underlying risk and accounting designation. FAS 161 are effective for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged. FAS 161 also encourage, but do not require, comparative disclosures for earlier periods at initial adoption The adoption of SFAS No 161 has not had a significant impact on our financial statements

 
F-11

 

GLEN ROSE PETROLEUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In December 2007, the FASB issued SFAS No. 141 (revised 2007), Business Combinations ("SFAS No. 141R"). Among other things, SFAS No. 141R establishes principles and requirements for how the acquirer in a business combination (i) recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquired business, (ii) recognizes and measures the goodwill acquired in the business combination or a gain from a bargain purchase, and (iii) determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. SFAS No. 141R is effective for fiscal years beginning on or after December 15, 2008, with early adoption prohibited. This standard will change our accounting treatment for business combinations on a prospective basis.

Reclassifications
Certain prior year amounts have been reclassified to conform to the current year presentation. Such reclassifications had no impact on the reported prior year net loss.

2. GOING CONCERN

The Company’s 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. The Company has incurred substantial losses from operations and it has a working capital deficit which raises substantial doubt about its ability to continue as a going concern. The Company sustained a net loss of $2,181,974 for the fiscal year ended March 31, 2009 and it had a working capital deficit of $2,702,752 at March 31, 2009. The Company is currently looking for financing to provide the needed funds for operations. However, the Company can provide no assurance that it will be able to obtain the financing it needs to develop its properties and alleviate doubt about its ability to continue as a going concern.

3. NOTE RECEIVABLE– RELATED PARTY

Bowie Operating Company LLC
During the year ended March 31, 2009, the Company advanced Bowie $157,401 of which $15,000 was repaid. The advances are assessed interest at rate of 18% per annum. The advances are evidenced by a secured promissory note that is due on demand after September 1, 2009. Interest accruing on the note and charged to operations during the year ended March 31, 2009 was $7,138. The balance of the note as of March 31, 2009 was $149,539. Bowie is managed by the Company’s President.

Buccaneer Energy Corporation
During the year ended March 31, 2009, Glen Rose Petroleum Corporation advanced Buccaneer totaling $25,858 to pay for Buccaneer’s accounting services. The advances are assessed interest at rate of 18% per annum. The advances are evidenced by an unsecured promissory note that is due on demand after December 31, 2009. Interest accruing on the note and charged to operations during the year ended March 31, 2009 was $1,243. The balance of the note as of March 31, 2009 was $27,101. Buccaneer also is managed by the Company’s President.

4. ASSET RETIREMENT OBLIGATIONS

The FASB issued SFAS No. 143, Accounting for Asset Retirement Obligations, which is effective for fiscal years beginning after June 15, 2002. This statement, adopted by the Company as of April 1, 2003, establishes accounting and reporting standards for the legal obligations associated with the retirement of tangible long-lived assets that result from the acquisition, construction or development and the normal operation of long-lived assets. It requires that the fair value of the liability for asset retirement obligations be recognized in the period in which it is incurred. Upon initial recognition of the asset retirement liability, an asset retirement cost is capitalized by increasing the carrying amount of the long-lived asset by the same amount as the liability. In periods subsequent to initial measurement, the asset retirement cost is allocated to expense using a systematic method over the asset’s useful life. Changes in the liability for the asset retirement obligation are recognized for (a) the passage of time and (b) revisions to either the timing or the amount of the original estimate of undiscounted cash flows.

 
F-12

 

GLEN ROSE PETROLEUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

A reconciliation of the changes in the estimated asset retirement obligation follows:

   
2009
   
2008
 
Beginning asset retirement obligations
 
$
87,918
   
$
82,942
 
Additional liability incurred
   
-
     
-
 
Liabilities assumed by others
   
-
     
-
 
Accretion expense
           
4,976
 
Asset retirement costs incurred
   
(87,918
)        
Ending asset retirement obligation
 
$
-
     
87,918
 

During the years ended March 31, 2009 and 2008, asset retirement costs expense of $0 and $4,976, respectively, was recognized and is reported in the consolidated statements of operations.  During 2009, the Company determined that it no longer was subject to any legal obligation associated with the retirement of its long-term assets and therefore it charged off its asset retirement obligation.

5. INVENTORY
Inventory consists of the following:
 
   
March 31
 
   
2009
   
2008
 
Oil in tanks
  $ 10,220     $ 79,241  

6. NOTES PAYABLE, RELATED PARTIES

Lothian Oil, Inc.
During the year ended March 31, 2008, Lothian, a former majority shareholder of the Company, forgave a debt totaling $1,780,709 that was credited to equity.

Blackwood Ventures LLC
During the year ended March 31, 2009, Blackwood Ventures LLC has made advances to the Company totaling $116,000. The advances are assessed interest at an annual rate of 8%. Accrued interest is payable quarterly commencing on April 1, 2009. In lieu of receiving cash, Blackwood has the right to receive sharers 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 evidenced by a debenture which is convertible into common stock of the Company at price per share of $ 0.19. The debenture matures on September 30, 2010.  Accrued interest on the Note for the year ended March 31, 2009 amounted to $962, which was charged to operations. The balance of the note as of March 31, 2009 was $116,962. Blackwood is the Company’s majority shareholder.

Buccaneer Energy Corporation
During the year ended March 31, 2009, Buccaneer advanced $30,500 to UHC Petroleum Corporation. The advances are evidenced by an unsecured promissory note that is due on demand after December 31, 2009. Interest accruing on the note and charged to operations during the year ended March 31, 2009 was $367. The balance of the note as of March 31, 2009 was $30,867. As indicated, Buccaneer is managed by the Company’s President.

 
F-13

 

GLEN ROSE PETROLEUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

7. 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.

8. MAJOR CUSTOMERS

During the years ended March 31, 2009 and 2008, the Company’s only operations pertained to its oil and gas producing activities in which it sold its production to one customer.

9. UNREGISTERED SALE OF EQUITY SECURITIES

Private Placement

On November 28, 2007 the Company completed the sale and issuance of units having a total gross value of $600,000 in a private placement to accredited investors. Each unit was comprised of (i) 32,000 shares of the Company’s common stock, par value $0.001 per share, and (ii) a 5 year callable warrant to purchase up to 52,253 shares of the Company’s common stock, subject to certain vesting requirements, at an exercise price of $1.40 per share. The warrants were not exercisable until the Company obtained shareholder approval of their issuance. The Company sold and issued a total of 21 units at a price of $24,000 per unit, for net cash proceeds of approximately $504,000. The Company also converted debt in the amount of $96,000 owed to Blackwood, its largest shareholder, into 4 units. No underwriting discounts or commissions were paid in connection with the November Offering. The Company is obligated to register the shares underlying the warrants, subject to compliance with Rule 415 promulgated under the Securities Act of 1933, as amended.

On March 11, 2008, Blackwood Ventures, LLC purchased an additional 566,038 shares of our common stock at $.53 per share resulting in proceeds received by the company of $300,000.

On May 23, 2008, by the way of a 14C our shareholders’ approved a private placement in accredited investors in which a total of 550,000 shares of our common stock at a price of $0.75 per share were issued for gross proceeds of $412,500.  The Company also approved the issuance of a subscription receivable to Joseph Langston, its CFO and President, in which a total of 66,667 shares of our common stock at a price of $0.75 per share were issued for a $50,000 long term subscription receivable.

On June 12, 2008, Wind Hydrogen, Ltd. purchased 150,000 shares at $0.75 per share for $112,500 of the $500,000 private placement. In addition, Wind Hydrogen, Ltd. purchased 150,000 shares at $1.05 per share for $157,500, which the Board approved on June 30.

Issuance of Common Stock for Conversion of Debt

On December 19, 2007, the Company entered into an Agreement to Convert Debt with Richardson & Patel, LLP pursuant to which Richardson & Patel LLP agreed to accept (i) 296,856 shares of our common stock and (ii) a warrant for the purchase of 222,642 shares of our common stock in full payment of $237,485 in legal services previously rendered. The warrant has an exercise price of $1.40 per share; a term of seven years and a cashless exercise provision, at the holders’ election, such that fewer than 222,642 shares may be issued upon full exercise. The warrant was valued at $103,015. The debt was converted at the rate of $0.80 per share before considering the value of the warrant. On December 18, 2007, the closing price of our common stock was $0.92. The transaction resulted in a loss on conversion of $35,262.

 
F-14

 

GLEN ROSE PETROLEUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

On December 19, 2007, the Company entered into an Agreement to Convert Debt with Blackwood Ventures LLC, our largest shareholder, pursuant to which Blackwood Ventures LLC agreed to accept (i) 48,750 shares of our common stock, representing a price of $0.80 per share, and (ii) a warrant to purchase 36,563 shares of our common stock at an exercise price of $1.40 per share in return for the cancellation of $39,000 of debt owed by us to Blackwood resulting from its prior discharge of certain of our accounts payable. The warrant will have a term of seven years and was valued at $16,917. On December 18, 2007, the last trading day immediately prior to the execution of the Agreement to Convert Debt, the last sale price of our common stock was $0.92. The transaction resulted in a loss on conversion of $5,850.

On June 30, 2008 the Board approved the offer by Richardson Patel to convert $215,738 of indebtedness due them for past legal services into common stock. The Company issued 253,810 shares of its common stock in consideration for the cancellation and recognized a $22,844 loss on the conversion that was charged to operations.

On September 18, 2008, the Company issued 100,000 shares of its common stock to Porter LeVay in consideration for the cancellation of $97,988 of indebtedness due them for past public relation services.  The Company recognized a $17,988 gain on the cancellation of the debt that was credited to operation.

Issuance of Common Stock for Cancellation of Options

On September 25, 2008, the Company agreed to issue 62,500 restricted common shares to its former CEO, Scott Wilson, in exchange for the cancellation of 500,000 stock options and mutual releases of claims.  On the original grant, the Company recorded the option value of $343,750 as accrued compensation. Upon the issuance of the shares and cancellation of the grant, the Company reclassed the $343,750 to equity.

Issuance of Common Stock for Conversion of Put Option

On January 15, 2008 the Company entered into an agreement to cancel an $833,335 option put held by Walter G. Mize (“Mize”), Consideration for the cancellation included 1,111,113 shares of the Company’s common stock and a stock warrant to purchase 555,556 shares of the Company’s common stock at an exercise price of $1.50 per share. The warrant expires in three years and was valued at $88,220. The per share market price of the common stock at the time of conversion was $0.82. The transaction resulted in a loss on conversion of $77,778.
 
Stock and Warrants Issued for Service

During the year ended March 31, 2008 as part of Joseph F. Langston’s consideration for services as a Company officer and director, he received 30,000 shares valued at $36,600.

Mr. Langston’s long term consulting agreement, entered into on December 18, 2007, provides for an annual salary of $60,000 per year and a $60,000 bonus paid in shares. The bonus resulted in the issuance of 65,217 common shares valued at $53,478. In addition to this basic compensation, Mr. Langston receives up to 1,200,000 stock purchase warrants which are earned based on net production in the Wardlaw Field measured on an average daily basis by month determination and 300,000 warrants based on the successful closing of a Company financing of $1 million or more. The warrants have not been earned and no expense has been recognized as of March 31, 2008 and 2009.

Applewood Energy plc represents the services to be provided by Paul Watson, the Company Chairman and Chief Executive Officer. Similar to Mr. Langston, Applewood received a consulting agreement on November 27, 2007, providing for an annual salary of $60,000 per year and a $60,000 bonus paid in shares. The bonus resulted in the issuance of 34,482 common shares valued at $28,276. Mr. Watson is a geologist and engineering professional with direct oversight of field operations. Consequently, in addition to this basic compensation, Applewood receives up to 1,600,000 stock purchase warrants which are earned based on net production in the Wardlaw Field measured on an average daily basis by month determination. The warrants have not been earned and no expense has been recognized as of March 31, 2008 and 2009.

 
F-15

 

GLEN ROSE PETROLEUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

On November 28, 2007 we entered into, a 12 month consulting agreement with DK True Energy Development Ltd. and RTP Secure Energy Corp. These Consultants are to provide us services that include reservoir, geological, and engineering analysis. These Consultants agreed to accept warrants to purchase up to a total of 9,000,000 shares of our common stock at an exercise price of $1.05 per share, exercisable after December 31, 2007 and only on a cashless basis in place of cash compensation. The number of shares that would be issued is determined by multiplying the difference between the fair market value of the common stock and the warrant exercise price times the number of shares to be purchased and divide the product by the fair market value of the common stock. The fair market value of the common stock is computed by taking the average of the closing bid and asked prices of the common stock quoted in the Over-The-Counter Market or the last reported sale price of the common stock or the closing price quoted on the Nasdaq Capital Market or on any exchange on which the common stock is listed for the 30 trading days prior to the date of the company’s receipt of the warrant. The warrants will have a 5 year term. DK True Energy Development Ltd. will have the right to purchase 5,250,000 shares of our common stock and RTP Secure Energy will have the right to purchase 3,750,000 shares of our common stock. Blackwood Ventures LLC, has executed a voting agreement to approve the Consultants’ warrants. The right to purchase 1,147,500 shares of our common stock will vest 20 days following the date the information statement was sent to our shareholders; the right to purchase 2,452,500 shares of common stock will vest when we announce that we are implementing a development program based on the results of a pilot program completed for the Wardlaw field; and the right to purchase 5,400,000 shares of our common stock will vest at the rate of 675,000 shares when we produce an average of 250 barrels of oil per day over 30 days (“bopd30av”), 500 bopd30av, 750 bopd30av, 1,000 bopd30av, 1,250 bopd30av, 1,500 bopd30av, 1750 bopd30av and 2,000 bopd30av. The warrant will be fully vested when production reaches 2,000 bopd30av. This warrant issuance resulted in an expense of $395,346 during the year ended March 31, 2008.

On January 15, 2008, the Company entered into a consulting agreement with Blackwood Capital Ltd. effective September 1, 2007, for a term of one year, which can be terminated by either party on 45 days notice, for cash compensation of $15,000 per month, plus expense reimbursement. In addition, the Company issued a warrant for the purchase of 1,500,000 shares of our common stock at an exercise price of $1.05 per share. The term of the warrant is four years and the warrant has a cashless exercise provision, at the holder’s election, such that fewer than 1,500,000 shares may be issued upon full exercise. On January 15, 2008, the closing price of our common stock was $0.82. The issuance of this warrant required the expense of $552,550.

On June 30, 2008, the Company amended its Directors’ compensation plan.  At the end of each month, each director has the option of receiving $5,000 in the form of shares of the Company’s common stock or stock options to purchase 5,000 shares of the Company’s common stock. The price per share assigned to each issuance is equal to the closing average bid price of the Company’s common stock for the previous quarter.  The previous agreement provided for the grant of 5,000 stock purchase options per month, with the price to be calculated on the average closing bid price for the month. In addition to the option grant indicated above, the Company also granted its President options to purchase 500,000 shares of the Company’s common stock at a price per share of $0.99. These 500,000 options fully vested on December 31, 2008.

During the year ended March 31, 2009, the Company issued 275,676 shares of common stock to certain Board of Directors as compensation for their services rendered.  The shares were valued at $103,882 which was charged to operations.

During the year ended March 31, 2009, the Company granted options to purchase 620,000 shares of common stock to certain directors and officers as compensation for their services.  The options were valued at $688,227, which was charged to operations.  The exercise prices of these options range from $0.39 per share to $0.99 per share. In addition, during the year ended March 31, 2009, the Company granted options to certain consultants to purchase 200,000 shares of the Company’s common stock. The options were valued at $225,380.

 
F-16

 

GLEN ROSE PETROLEUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

10. STOCK-BASED COMPENSATION

Stock Option Plans
In January 2008, our board of directors approved and adopted the United Heritage Corporation 2008 Equity Incentive Plan (the “Plan”). We have reserved 5,000,000 shares of common stock for awards that will be granted from the Plan. The awards are subject to adjustment in the event of stock dividends, recapitalizations, stock splits, reverse stock splits, subdivisions, combinations, reclassifications or similar changes in our capital structure. The Plan became effective upon adoption by the board, and, unless earlier terminated in accordance with the terms and provisions thereof, will remain in effect for a period of ten years from the date of adoption.

Directors of the Company adopted the 1998 Stock Option Plan effective July 1, 1998. This Plan and its subsequent amendment set aside 66,667 shares of the authorized but unissued common stock of the Company for issuance under the Plan. Options may be granted to directors, officers, consultants, and/or employees of the Company and/or its subsidiaries. Options granted under the Plan are exercisable over a period to be determined when granted, but may be affected by the termination of employment. As a result of a grant in January 2006 to the Company’s chief executive officer, discussed in more detail below, options to purchase 66,667 shares are outstanding under this plan.

Directors of the Company adopted the 2000 Stock Option Plan effective June 5, 2000. This Plan set aside 1,666,667 shares of the authorized but unissued common stock of the Company for issuance under the Plan. Options may be granted to directors, officers, consultants, advisors, and/or employees of the Company and/or its subsidiaries. Options granted under the Plan must be exercised within the number of years determined by the Stock Option Committee and allowed in the Stock Option Agreement. The Stock Option Agreement may provide that a period of time must elapse after the date of grant before the options are exercisable. The options may not be exercised as to less than 100 shares at any one time.

On January 3, 2006, the Company granted options to purchase 500,000 shares to the Company’s chief executive officer for and in consideration of services provided to the Company. The options were issued with an exercise price of $1.05 per share for a term of three years with one-third of the options being exercisable immediately and one-third exercisable in each of the following two years. In September 2008, these options were cancelled in consideration for issuing 500,000 shares of the Company’s common stock. Upon the original issuance of the options, the Company recorded $343,750 as accrued compensation. The accrued compensation was reclassed   to equity upon the issuance of the 500,000 shares.

During the year ended March 31, 2008, the Company granted options to purchase 170,000 shares of common stock to certain directors and officers as compensation for their services.  The options were valued at $44,137, which was charged to operations. The exercise prices of these options range from $0.63 per share to $1.71 per share. The options expire three years from date of grant.

The Company granted options to purchase 5,000 shares to the Company’s Directors at the end of each month during the month ended April 30, 2008 for and in consideration of services provided to the Company.  The options to purchase 25,000 shares of common stock were issued at a weighted average exercise price of $0.78 per share for a term of three years. The Company recognized compensation expense of $8,310 on the issuance of these stock options.

The Company granted options to purchase 5,000 shares to the Company’s Directors at the end of each month during the month ended May 31, 2008 for and in consideration of services provided to the Company.  The options to purchase 25,000 shares of common stock were issued at a weighted average exercise price of $0.85 per share for a term of three years. The Company recognized compensation expense of $20,081 on the issuance of these stock options.

The Company granted options to purchase 5,000 shares to the Company’s Directors at the end of each month during the month ended June 30, 2008 for and in consideration of services provided to the Company.  The options to purchase 25,000 shares of common stock were issued at a weighted average exercise price of $1.35 per share for a term of three years. The Company recognized compensation expense of $28,573 on the issuance of these stock options.

On June 30, 2008, the Board of Directors awarded Mr. Langston 500,000 stock purchase options, vesting over six months with each priced as of the closing average bid price for the quarter ended June 30, 2008. The Company recognized compensation expense of $630,774 on the issuance of these stock options.

 
F-17

 

GLEN ROSE PETROLEUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

On June 30, 2008 the Board of Directors approved the hiring of Bill Hopper as Vice President of Operations.  His employment agreement included 100,000 stock purchase options priced as of May 1, 2008, and vested in one year. The Company recognized compensation expense of $88,526 on the issuance of these stock options.

On June 30, 2008 the Board approved the independent consulting agreement of Barry Pierce and the hiring of him as Controller with a one year contract, this agreement included 100,000 stock purchase options to purchase 100,000 shares of common stock at $1.00 per share, fully vested after one year. The Company recognized compensation expense of $125,788 on the issuance of these stock options.

Director’s compensation was amended on June 30, 2008.  Under the revised plan, each director can choose each month to receive either $5,000 in the form of the Company’s common stock or stock options to purchase 5,000 shares of common stock. The option price is equal to the Company’s closing average bid price for the previous ended quarter.  The previous agreement provided for 5,000 stock purchase options per month, with the price to be calculated on the average closing bid price for the month.

The Company granted options to purchase 5,000 shares to the Company’s Directors at the end of each month during the quarter ended March 31, 2009 for and in consideration of services provided to the Company.  The options to purchase 15,000 shares of common stock were issued at a weighted average exercise price of $0.39 per share for a term of three years. The Company recognized compensation expense of $2,221 on the issuance of these stock options.

The Black-Scholes option-pricing model was used to estimate the option fair values. The option-pricing model requires a number of assumptions, of which the most significant are the risk free rate, the expected stock price volatility, the expected pre-vesting forfeiture rate and the expected option term (the amount of time from the grant date until the options are exercised or expire). The risk-free rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant. Expected volatility was calculated based upon actual historical stock price movements over the most recent periods ending March 31, 2009. The expected option term was calculated based on the vesting period and the polling of the option holder. The expected forfeiture rate is based on historical experience and expectations about future forfeitures.

The fair value of each option award is estimated on the date of grant using the Black-Scholes option valuation model that uses the assumptions noted in the following table.

Weighted average Black-Scholes fair value
           
assumptions:
 
2009
   
2008
 
Risk free rate
   
2.58
%
   
2.48
%
Expected life
 
3 yrs
     
3 yrs
 
Expected volatility
   
103
%
   
84
%
Expected dividend yield
   
0.0
%
   
0.0
%

 
F-18

 

GLEN ROSE PETROLEUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following is an option activity summary under the plans for the years ending March 31, 2008 and 2009.

                                   
Weighted
 
                   
Weighted
           
Average
 
           
Weighted
   
Average
           
Grant
 
           
Average
   
Remaining
   
Aggregate
   
Fair
 
   
Number of
   
Exercise
   
Contractual
   
Intrinsic
   
Value
 
   
Stock Options
   
Price
   
Life (years)
   
Value
   
Date
 
Outstanding, March 31, 2007
   
1,725,000
   
$
1.40
     
4.08
   
$
*
         
                                         
Granted
   
170,000
   
$
1.03
     
           
$
 0.25
 
Exercised
   
     
     
                 
Forfeited or Expired
   
     
     
                 
                                         
Outstanding, March 31, 2008
   
1,895,000
   
$
1.37
     
3.07
   
$
*
         
                                         
Granted
   
820,000
   
$
0.35
     
           
$
1.17
 
Exercised
   
     
     
                 
Forfeited or expired
   
(500,000
)  
$
(1.05
)    
                 
                                         
Outstanding, March 31, 2009
   
2,215,000
   
$
1.30
     
1.06
   
$
*
         
                                       
Exercisable, March 31, 2009
   
2,115,000
   
$
1.31
     
1.05
   
$
*
         

*
As of March 31, 2008 and 2009, there is no intrinsic value associated with the outstanding or exercisable options as the Company’s stock price is lower than the exercise price of the options.
 
No options were exercised in the year ended March 31, 2009. No options remained unvested as of March 31, 2009.

The Company recognized $476,857 and $913,607 compensation expense on the granting of options in the years ended March 31, 2008 and 2009.

 
F-19

 

GLEN ROSE PETROLEUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table summarizes information for options outstanding as of March 31, 2009:

Options Outstanding
   
Options Exercisable
 
             
Weighted
   
Weighted
           
Weighted
   
Weighted
 
             
Average
   
Average
           
Average
   
Average
 
             
Remaining
   
Exercise
           
Exercise
   
Remaining
 
Exercise Price
   
Number
   
Life-Years
   
Price
   
Number
   
Price
   
Life-Years
 
$ < 1.00      
920,000
     
2.18
   
$
0.93
     
820,000
   
$
0.9493
     
2.17
 
  1.35      
25,000
     
2.25
     
1.35
     
25,000
     
1.35
     
2.25
 
  1.45      
20,000
     
1.92
     
1.45
     
20,000
     
1.45
     
1.92
 
  1.50      
1,185,000
     
0.17
     
1.50
     
1,185,000
     
1.50
     
0.17
 
  1.71      
25,000
     
1.92
     
1.71
     
25,000
     
1.71
     
1.92
 
  2.91      
40,000
     
0.17
     
2.91
     
40,000
     
2.91
     
0.17
 
$ <1.00-$2.91      
2,215,00000
     
1.06
   
$
1.30
     
2,115,000
   
$
1.32
     
1.01
 

           
Weighted
 
           
Average
 
   
Number of
   
Grant Date
 
   
Shares
   
Fair Value
 
Nonvested, April 1, 2008
   
180,000
         
Granted
   
170,000
   
$
 0.25
 
Vested
   
(350,000
)        
Expired/forfeited
   
         
Nonvested, March 31, 2008
   
         
Granted
   
700,000
   
$
0.97
 
Vested
   
(600,000
)        
Expired/forfeited
   
         
Nonvested, March 31, 2008
   
100,000
   
$
 0.82
 

The stock options described in Note 10 related to the options with $1.50 and $2.91 exercise prices were modified to extend the expiration date to March 31, 2009, 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 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 options are classified as liability awards and recorded at fair value. A liability and corresponding expense of $2,727,186 has been recorded in the accompanying financial statements as of March 31, 2007. The liability was $2,147,770 at March 31, 2008 and 2009. An additional expense of $253,919 was incurred during the year end March 31, 2008 related to the accrued put options.

On January 15, 2008, the Company entered into an agreement to convert an $833,335 option put right held by Walter G. Mize (“Mize”) into 1,111,113 shares of the Company’s common stock and a three-year warrant to purchase 555,556 shares of the Company’s common stock at an exercise price of $1.50 per share (the “Mize Agreement”).

Stock Warrants
The Company entered into stock warrant agreements effective January 12, 2004. Pursuant to the agreements, the Company issued 500,000 warrants to purchase common stock $2.25 (250,000 warrants) and $3.00 (250,000 warrants) in connection with a private placement. The stock purchase price and warrant numbers as stated are adjusted for the December 2005 reverse stock split. Warrants issued under the agreements must be exercised by March 15, 2014.

 
F-20

 

GLEN ROSE PETROLEUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

As referenced in previous financial statements, the Company entered into stock warrant agreements effective April 2004 in connection with the offering of convertible promissory notes relating to a proposed merger. That merger never occurred and no promissory notes or warrants were issued, or obligated to be issued, in connection with this offering.
 
The Company granted 50,234 warrants were issued for legal services exercisable at $1.50 per share to satisfy liabilities in fiscal 2006.

Warrants were issued in fiscal 2008 for private placements, consulting agreements, conversion of debt and put conversion. The warrants have an average term of 5.2 years. The following schedule summarizes these warrants.

 
1)
Private placement warrants for the purchase of 1,306,325 shares with an exercise price of $1.40 per share;

 
2)
Consulting agreement warrants for the purchase of 14,600,000 shares with an average exercise price of $1.40 per share;

 
3)
Debt conversion agreement warrants for the purchase of 259,205 shares with an average exercise price of $1.40 per share;

 
4)
Put conversion agreement warrants for the purchase of 555,556 shares with an average exercise price of $1.50 per share;

The following schedule summarizes pertinent information with regard to the stock warrants for the years ended March 31:

   
2009
   
2008
 
           
Weighted
           
Weighted
 
           
Average
           
Average
 
   
Shares
   
Exercise
   
Shares
   
Exercise
 
   
Outstanding
   
Price
   
Outstanding
   
Price
 
Beginning of year:
   
21,806,420
   
$
1.80
     
5,085,334
   
$
3.08
 
Granted
   
     
     
16,721,086
     
1.41
 
Exercised
   
     
     
     
 
Forfeited
   
     
     
     
 
Expired
   
     
     
     
 
End of year
   
21,806,420
   
$
1.80
     
21,806,420
   
$
1.80
 
Exercisable
   
21,806,420
   
$
1.80
     
21,806,420
   
$
1.80
 

The following table summarizes information for warrants outstanding as of March 31, 2009:

Warrants Outstanding
   
Warrants Exercisable
 
             
Weighted
   
Weighted
           
Weighted
 
             
Average
   
Average
           
Average
 
Exercise Price
           
Remaining
   
Exercise
           
Exercise
 
Range
   
Number
   
Life-Years
   
Price
   
Number
   
Price
 
$ 1.05 - $2.20      
14,121,086
     
3.63
   
$
1.23
     
4,746,086
   
$
1.22
 
$ 2.25 - $3.00      
4,778,667
     
4.23
   
$
2.49
     
2,178,667
   
$
2.62
 
$ 3.15 - $3.75      
2,906,667
     
1.72
   
$
3.42
     
2,906,667
   
$
3.42
 
                                             
$ 1.05 - $3.75      
21,806,420
     
3.51
   
$
1.80
     
9,831,420
   
$
2.18
 
 
 
F-21

 

GLEN ROSE PETROLEUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

During the year ended March 31, 2008, the Company recorded expenses for services rendered related to warrants issued under the agreements in the amount $1,156,049.  During the year ended March 31, 2009, the Company did not record any expenses for services rendered related to warrants issued under the agreements.

11. INCOME TAXES
Deferred income tax assets and liabilities are computed annually for differences between financial statement and tax bases of assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. Income tax expense is the tax payable or refundable for the period plus or minus the change during the period in deferred tax assets and liabilities.

The Company has no federal tax provision due to its operating losses.
The effective tax rate on the net loss before income taxes differs from the U.S. statutory rate as follows:
 
   
2009
   
2008
 
U.S. statutory rate
   
34
%
   
34
%
Related party forgiveness of debt
   
     
(19
)% 
Valuation allowance
   
(34
)%
   
(13
)%
Other
   
     
(2
 )%
Effective tax rate
   
     
 

At March 31, the deferred tax asset and liability balances are as follows:

   
2009
   
2008
 
Deferred tax asset:
               
Net operating loss
 
$
1,052,895
   
$
5,587,522
 
Accrued put option
   
-
     
730,242
 
Stock option expense
   
1,017,489
     
121,891
 
Long-term assets
   
106,834
         
Accrued expenses
   
-
     
146,767
 
     
2,177,218
     
6,586,422
 
                 
Deferred tax liability – difference in basis long -term assets
   
-
     
(555,586
)
                 
Net deferred tax asset
   
2,.177,218
     
6,030,836
 
Valuation allowance
   
(2,177,218
)
   
(6,030,836
)
Deferred tax asset (liability)
 
$
   
$
 

The net change in the valuation allowance for 2009 was a decrease of $4,977,941 and 2008 had an increase of $431,483. The deferred tax asset is due primarily to the net operating loss carryover and the accrued put option expense.

The Company has a net operating loss carryover of approximately $16,400,000 available to offset future income for income tax reporting purposes, which will expire between 2007 and 2029, if not previously utilized. However, due to a change in majority ownership in 2007 and 2008, the Company’s ability to use the carryover net operating loss may be substantially limited or eliminated pursuant to Internal Revenue Code Section 382.

 
F-22

 

GLEN ROSE PETROLEUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

We adopted the provisions of FIN 48, Accounting for Uncertainty in Income Taxes, on April 1, 2007. We had no material unrecognized income tax assets or liabilities at the date of adoption or during the twelve months ended March 31, 2009.

Our policy regarding income tax interest and penalties is to expense those items as general and administrative expense but to identify them for tax purposes. During the twelve months ended March 31, 2009, there were no income tax interest and penalty items in the income statement, or as a liability on the balance sheet. We file income tax returns in the U.S. federal jurisdiction and various state jurisdictions. With few exceptions, we are no longer subject to U.S. federal or state income tax examination by tax authorities for years before 2004. We are not currently involved in any income tax examinations.

12. STOCK BONUS PLAN

The Company has a stock bonus plan, which provides incentive compensation for its directors, officers, and key employees.  The Company has reserved 30,000 shares of common stock for issuance under the plan.  As of March 31, 2007, 27,800 shares had been issued and remain outstanding in accordance with the plan. No shares were issued under the plan in 2008 or 2009.

13. 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 have a material adverse effect on our financial condition or results of operations.

14. FAIR VALUE
 
The Company adopted Statement of Financial Accounting Standard No. 157, Fair Value Measurements (“SFAS 157”), to measure the fair value of certain of its financial assets required to be measured on a recurring basis. The adoption of SFAS 157 did not impact the Company’s consolidated financial position or results of operations.  SFAS 157 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements).  SFAS 157 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants on the measurement date. A fair value measurement assumes that the transaction to sell the asset or transfer the liability occurs in the principal market for the asset or liability. The three levels of the fair value hierarchy under SFAS 157 are described below:
 
Level 1. Valuations based on quoted prices in active markets for identical assets or liabilities that an entity has the ability to access.
 
The Company’s Level 1 assets include cash, accounts payable and accrued expenses. Due to the short term maturity of these liabilities, the Company valued them at net book value.
 
Level 2. Valuations based on quoted prices for similar assets or liabilities, quoted prices for identical assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable data for substantially the full term of the assets or liabilities.
 
The Company has no Level 2 assets or liabilities.
 
Level 3. Valuations based on inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
 
The Company’s Level 3 assets include notes receivable and notes payable.  Due to the short term maturities, the Company valued the respective notes at the face value.

 
F-23

 

GLEN ROSE PETROLEUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The table below presents a reconciliation for all assets and liabilities measured at fair value on a recurring basis.

March 31, 2009
Fair Value Measurements

   
Level 1
   
Level 2
   
Level 3
   
Fair Value
 
                         
Assets
                       
Cash
  $ 18,867     $ -     $ -     $ 18,867  
Accounts receivable
  $ 10,273     $ -     $ -     $ 10,273  
Notes receivable
  $ -     $ -     $ 176,640     $ 176,640  
                                 
Liabilities
                               
Accounts payable and accrued expenses
  $ 769,440     $ -    
$
      $ 769,440  
Notes payable
  $ -     $ -     $ 147,829     $ 147,829  

   
Notes Receivable
   
Notes Payable
 
             
Balance – March 31, 2008
  $ -     $ -  
Increase in receivable/payable
  $ 176,640     $ 147,829  
Balance – March 31, 2009
  $ 176,640     $ 147,829  

15 OIL AND GAS OPERATIONS

Capitalized costs related to oil and gas producing activities and related accumulated depletion, depreciation and amortization at March 31 are as follows:
 
   
2009
   
2008
 
Capitalized costs of oil and gas properties
 
 
   
 
 
Proved
  $ 4,840,732     $ -  
Unproved
    1,000,000           5,915,184   
      5,840,732       5,915,184  
Less: accumulated depletion, depreciation and amortization
    (41,876        -   
    $ 5,798,856     $  5,915,184  

Proved costs pertain to our 103 wells that are located on approximately 502 acres. Unproved costs of approximately $1,000,000 pertain to land lease costs of approximately 10,000 acres and  are not subject to depletion. Depletion expense on our proved properties for the year ended March 31, 2009 totaled $41,876  (approximately $.006 per unit of production). All of our leased acreage is located in Edwards County, Texas, known as the Wardlaw Field.

 
F-24

 

GLEN ROSE PETROLEUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

On July 23, 2008, the Company entered into a Participation Agreement with WHL Energy Limited. Under the terms of the agreement, the Company agreed to assign a 50% interest in certain leaseholds referred to as the Phase I Development in exchange for $2,500,000. Upon the execution of the agreement, WHL also paid $300,000 towards options to participate in the Phase II and Phase III development programs. Under the agreement, the $2,500,000 was paid in phases. WHL had the right not to pay the final $1,000,000 installment that was due in November 2008 and thereby terminate the agreement.   During the year ended March 31, 2009, the Company received a total of $1,800,000 of which $287,241 was applied against the agreed upon monthly non allocable general and administrative reimbursement, $53,447 was allocated against equipment purchases and $1,459,312 was allocated to the cost of the development of the Company’s oil and gas properties. WHL elected not to pay the $1,000,000 final installment for Phase I and thereby terminated the agreement.

 
F-25

 

GLEN ROSE PETROLEUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Costs incurred in oil and gas producing activities were as follows:

   
2009
   
2008
 
Property acquisitions:
               
Proved
 
$
-
   
$
-
 
Unproved
   
-
     
-
 
                 
     Exploration
   
-
         
    Development
   
138,819
*
   
-
 
   
$
138,819
   
$
-
 

* net of $1,459,612 reimbursement under the WHL participation agreement.

Results of operations of oil and gas producing activities for the years ended March 31 are as follows:

   
2009
   
2008
 
Revenues from oil and gas activities:
           
Sales to unaffiliated parties
  $ 122,279     $ 62,025  
Expenses:
               
Production and operating
    94,541       72,166  
Depreciation, depletion and accretion
    55,102       6,844  
General and administrative
    110,783       391,245  
Impairment of proved reserves
    125,353        
Loss on sale of oil and gas assets
           
Total expenses
    385,779       470,255  
Pretax loss from producing activities
    (263,500 )     (408,230 )
Income tax expense
           
Results of oil and gas producing activities
  $ (263,500 )   $ (408,230 )

SUPPLEMENTARY FINANCIAL INFORMATION FOR OIL AND GAS PRODUCING ACTIVITIES (UNAUDITED)

Proved Reserves
Independent petroleum engineers have estimated the Company’s proved oil and gas reserves, all of which are located in Edwards County, Texas. Proved reserves are the estimated quantities that geologic and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions. Proved developed reserves are the quantities expected to be recovered through existing wells with existing equipment and operating methods. Due to the inherent uncertainties and the limited nature of reservoir data, such estimates are subject to change as additional information becomes available.

 
F-26

 

GLEN ROSE PETROLEUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The reserves actually recovered and the timing of production of these reserves may be substantially different from the original estimate. Revisions result primarily from new information obtained from development drilling and production history and from changes in economic factors.

   
Oil (Bbls)
   
Gas (Mcf)
 
March 31, 2007
   
-
     
-
 
Extensions, additions and discoveries
   
-
     
-
 
Revisions of previous estimates
   
528,017
     
-
 
Oil and gas asset sales
   
-
     
-
 
Production
   
(1,255)
     
-
 
Balance, March 31, 2008
   
526,762
     
-
 
                 
Extensions, additions and discoveries
   
78,714
     
357,657
 
Revisions of previous estimates
   
-
     
-
 
Oil and gas asset sales
           
-
 
Production
   
(2,885)
     
-
 
Balance, March 31, 2009
   
602,591
     
357,657
 
                 
Proved Developed Reserves:
               
                 
Balance, March 31, 2008
   
526,762
     
-
 
Balance, March 31, 2009
   
602,591
     
357,657
 

The Company did not commission a reserve report for March 31, 2007 and thus reported zero reserves in its Form 10-K for the period ending March 31, 2007, despite also reporting 44 wells capable of producing as of March 31, 2007.  The Company commissioned a reserve report for March 31, 2008.  This was the primary cause of the revision of previous reserve estimates for March 31, 2007.

During the year ending March 31, 2009, the Company conducted developmental activities on its Edwards County, Texas properties and commissioned a reserve report as of March 31, 2009.  This caused the revision of previous estimates for March 31, 2009.

Standardized Measure

The standardized measure of discounted future net cash flows (“standardized measure”) and changes in such cash flows are prepared using assumptions required by the Financial Accounting Standards Board. Such assumptions include the use of year-end prices for oil and gas and year-end costs for estimated future development and production expenditures to produce year-end estimated proved reserves. Discounted future net cash flows are calculated using a 10% rate. Estimated future income taxes are calculated by applying year-end statutory rates to future pre-tax net cash flows, less the tax basis of related assets and applicable tax credits.

The standardized measure does not represent management’s estimate of the Company’s future cash flows or the value of proved oil and gas reserves. Probable and possible reserves, which may become proved in the future, are excluded from the calculations. Furthermore, year-end prices used to determine the standardized measure of discounted cash flows, are influenced by seasonal demand and other factors and may not be the most representative in estimating future revenues or reserve data.

 
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GLEN ROSE PETROLEUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Standardized Measure of Discounted Future Net Cash Flows Relating to Proved Reserves for its sole oil and gas properties located in Edwards County, Texas.


   
Years ended March 31
 
   
2009
   
2008
 
Future cash inflows (a)
  $ 22,308,530     $ 50,304,485  
Future costs: (a)
               
Production Cost
    (6,178,624     (14,117,866
Development Cost
    (1,444,500 )     (2,002,500 )
Future income tax expense (a)
    (4,993,038 )     (11,078,515 )
Future net cash flows
    9,692,368       23,105,604  
10% annual discount for estimated timing of cash flows
    (3,447,329 )     (10,134,869 )
Standardized measure of discounted future net cash flows related to proved reserves
  $ 6,245,039     $ 12,970,735  

a) Future net cash flows were computed using year-end prices and costs, and year-end statutory tax rates that relate to existing proved oil and gas reserves in which the Company has mineral interest.

Changes in Standardized Measure of Discounted Future Net Cash Flows

   
2009
   
2008
 
Balance Beginning of Year
  $ 12,970,735     $  
Sales of oil and gas, net of production costs
          10,141  
Net changes in prices and production and development costs
    (20,056,713 )     50,437  
Net change in future development costs
    558,000        
Purchase of minerals in place
           
Extensions and discoveries
           
Revision of previous quantity estimates
          21,220,510  
Net change in income taxes
    6,085,477       (7,027,825 )
Accretion of discount
    6,687,540        
Sales of reserves
           
Other
          (1,282,528 )
                 
Balance end of year
  $ 6,245,039     $ 12,970,735  

The major decrease in future net cash flows between 2008 and 2009 pertains to the number of marginal wells that were projected to be drilled in 2008 that were not included in 2009 due to the actual decrease in the price per barrel of oil.
 
16. SUBSEQUENT EVENTS

The Company entered into a new independent consulting engagement with Barry Pierce, whereby he will provide accounting services to the Company on a month to month basis, and will not be designated as an officer.  His prior one year consulting agreement was fulfilled on March 23, 2009.

The Company received $105,000 from Blackwood Ventures, LLC. This $105,000 has been consolidated into the convertible debenture due Blackwood (See Note 6).

 
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