Attached files
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended September 30, 2010
[ ] 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 000-53199
PRECISION PETROLEUM CORPORATION
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Nevada 71-1029846
------------------------------ -------------------
State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
624 W. Independence Suite 101 A. Shawnee, OK 74804
--------------------------------------------------
(Address of principal executive offices)
None
----------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act. [ ] Yes [X] No
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 [X] No
Indicate by check mark whether the issuer (1) filed all reports required to
be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months
(or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past
90 days. [X] Yes [ ] No
Indicate by check mark whether the registrant has submitted electronically
and posted on its corporate Website, if any, every Interactive Data File
required to be submitted and posted pursuant to Rule 405 of Regulation S-T
(232.405 of this chapter) during the preceding 12 months (or for such
shorter period that the registrant was required to submit and post such
files). [ ] Yes [X] No
Indicate by check mark if there is no disclosure of delinquent filers in
response to Item 405 of Regulation S-B is not contained in this form, and no
disclosure will be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by reference in Part
III of this Form 10-K or any amendment to this Form 10-K [X]
Indicate by check mark whether the registrant is a large accelerated filer,
an accelerated filer, a non-accelerated filer, or a smaller reporting
company.
Large Accelerated Filer [ ] Accelerated Filer [ ]
Non-accelerated Filer [ ] (do note check if Smaller reporting
Small Reporting Company [X] company)
Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
Net revenues for its most recent fiscal year: $190,143
Aggregate market value of the voting common equity held by non-affiliates
computed by reference to the price at which the common equity was sold as of
January 13, 2011: $2,575,200
Number of common voting shares issued and outstanding as of
January 13, 2011: 44,400,000 shares of common stock
DOCUMENTS INCORPORATED BY REFERENCE
If the following documents are incorporated by reference, briefly describe
them and identify the part of the Form 10-K (e.g. Part I, Part II, etc.) into
which the document is incorporated: (1) any annual report to security
holders; (2) any proxy or information statement; and (3) any prospectus filed
pursuant to Rule 424(b) or (c) of the Securities Act of 1933. The listed
documents should be clearly described for identification purposes (e.g.,
annual report to security holders for fiscal year ended December 24, 1990).
Transitional Small Business Disclosure Format (Check one):
[ ] Yes [X] No
TABLE OF CONTENTS
Page
PART I
Item 1. Description of Business 3
Item 1A. Risk Factors 4
Item 2. Description of Property 5
Item 3. Legal Proceedings 7
Item 4. Submission of Matters to a Vote of Security Holders 7
PART II
Item 5. Market For Registrant's Common Equity and Related 7
Stockholder Matters and Small Business Issuer
Purchases of Equity Securities
Item 6. Selected Financial Data 9
Item 7. Management Discussion and Analysis of Financial 9
Condition and Results of Operations
Item 7A. Quantitative and Qualitative Disclosures About 11
Market Risk
Item 8. Financial Statements and Supplementary Data 11
Item 9. Changes in and Disagreements With Accountants on 13
Accounting and Financial Disclosure
Item 9A. Controls and Procedures 13
Item 9B. Other Information 13
PART III
Item 10. Directors, Executive Officers, Promoters, 14
Control Persons and Corporate Governance:
Compliance with Section 16(a) of the Exchange Act
Item 11. Executive Compensation 16
Item 12. Security Ownership of Certain Beneficial Owners and 17
Management and Related Stockholder Matters
Item 13. Certain Relationships and Related Transactions 19
and Director Independence
Item 14. Principal Accountant Fees and Services 19
Item 15. Exhibits 20
Signatures 21
2
PART I
ITEM 1. DESCRIPTION OF BUSINESS
Incorporation and Organizational Activities
Precision Petroleum Corporation (the "Corporation") was incorporated on
February 7, 2007, in the State of Nevada under the name "Tidewater Resources
Inc.". On the date of our incorporation, we appointed Bernard Perez as our
sole officer and director. On October 15, 2007, Mr. Munslow, Mr. Ward and Mr.
Lopez were appointed as directors. On September 7, 2008, Messrs Lopez,
Munslow, Perez and Ward resigned as officers and directors of the
Corporation. On September 14, 2008, Sharon Farris was appointed President,
Treasurer and Secretary and elected as the Corporation's sole member of the
Board of Directors. On January 20, 2009, the Corporation appointed Mr.
Richard F. Porterfield as a member of the Corporation's Board of Directors
and as the Corporation's President and Treasurer. On the same date, Ms.
Sharron Farris resigned as a member of the Board of Directors and as
President and Treasurer. Ms. Farris remains the Corporation's Secretary.
On June 3, 2009, Mr. James Kirby was appointed as the Corporation's Chief
Financial Officer.
We were extra-provincially registered under the laws of the Province of
British Columbia, Canada, on March 9, 2007.
On October 27, 2008, we changed our name to "Precision Petroleum
Corporation".
On November 17, 2008, the Corporation authorized a forward stock split of
twelve for one (12:1) of our total issued and outstanding shares of common
stock and was effective January 8, 2009.
Our website is www.precisionpetroleumcorp.com.
Our Business
------------
During the fourth quarter of our fiscal year ended September 30, 2009, we
acquired varying percentages of working interests and overriding royalties in
eighteen (18) operating leases located in Oklahoma. These leases are
producing and generate income for the Company.
See Item 2. and Note 3 to the financial statements for more information on
the oil and gas assets acquired during the fiscal year ended September 30,
2010.
3
ITEM 1A. RISK FACTORS
Risk Related to our Business
You should carefully consider the following risk factors and all other
information contained herein as well as the information included in this
Annual Report in evaluating our business and prospects. The risks and
uncertainties described below are not the only ones we face. Additional
unknown risks and uncertainties, or that we currently believe are immaterial,
may also impair our business operations. If any of the following risks occur,
our business and financial results could be harmed. You should refer to the
other information contained in this Annual Report, including our financial
statements and the related notes.
We Have a Limited Operating History.
We have a limited operating history in the oil and gas industry. Our
operations will be subject to all the risks inherent in the establishment of
a developing enterprise and the uncertainties arising from the absence of a
significant operating history. No assurance can be given that we may be able
to operate on a profitable basis.
We may Require Significant Additional Financing and There is No Assurance
that such Funds will be Available
We need to raise at least $120,000 to fund our operations for the next twelve
(12) months. There can be no assurance that we will be able to obtain
financing on acceptable terms in light of factors such as the market demand
for our securities, the state of financial markets generally and other
relevant factors.
Inability Of Our Officers And Sole Director To Devote Sufficient Time To The
Operation Of Our Business May Limit Our Success.
Presently, our officers and sole director allocate only a portion of their
time to the operation of our business. Should our business develop faster
than anticipated, our officers may not be able to devote sufficient time to
the operation of our business to ensure that it continues as a going concern.
Even if our management's lack of sufficient time is not fatal to our
existence, it may result in our limited growth and success.
4
Unproven Profitably Due to Lack of Operating History Makes an Investment in
Us an Investment in an Unproven Venture.
We were formed on February 7, 2007. From our date of inception until the
acquisition of our oil and gas leases and equipment in the summer of 2009, we
have not had significant revenues or operations and we have few assets. Due
to our lack of operating history, the revenue and income potential of our
business is unproven. If we cannot successfully implement our business
strategies, we may not be able to generate sufficient revenues to operate
profitably. Since our resources are very limited, insufficient revenues
would result in termination of our operations, as we cannot fund unprofitable
operations unless additional equity or debt financing is obtained.
ITEM 2. DESCRIPTION OF PROPERTY.
Our Acquisition of the Claims
On April 19, 2007, we purchased a 100% undivided interest in six contiguous
mineral claims located in the Nanaimo Mining District on Vancouver Island,
British Columbia from David A. Zamida for total consideration of CDN$5,000
(approximately $4,464 based on the foreign exchange rate on April 26, 2007,
the date we made payment, of $1.00: CDN$1.1191). On April 26, 2007, we
entered into a Net Smelter Returns Royalty Agreement with Mr. Zamida whereby
Mr. Zamida is entitled to 2% of net smelter royalty returns from the property
underlying such claims.
During the fiscal year ended September 30, 2009, these claims have expired.
On January 27, 2009, the Company entered into a Participation Agreement with
Nitro Petroleum Incorporated ("Nitro"), pursuant to which the Company
obtained from Nitro the right to participate in Phase One of Nitro's Powder
River Basin Project in Montana. Nitro acquired certain oil and gas leases in
the Powder River Basin in Montana pursuant to a Memorandum of Understanding
dated January 26, 2009 with REDS, LLC.
Pursuant to the terms of the Participation Agreement, Nitro is being carried
to the tanks with respect to a 25% working interest in Phase One of the
Powder River Basin Project. The Company is acquiring a 37.5% working interest
in Phase One of the Powder River Basin Project in exchange for an agreement
to pay 50% of the expenses of Phase One of the Powder River Basin Project.
Additionally, the Company shall have the right to purchase up to a 37.5%
working interest in Phase Two and Phase Three of the Powder River Basin
Project upon substantially the same terms as Phase One. Nitro will be the
operator of all wells drilled during Phase One of the Powder River Basin
Project. As of September 30, 2010, the Company has paid $57,500 towards the
participation agreement with Nitro Petroleum. The payments have been recorded
in the financial statements as Participation deposits.
Effective July 1, 2009, the Company purchased various producing properties
located in Garvin County, Pottawatomie County, Nowata County and Seminole
County, Oklahoma. The Company utilized short-term financing to acquire these
properties. The various net revenue acquired range from .2808% to a 67.97%
net revenue interest. In 2010, the Company increased their interest in the
Mason Burns, Quinlan #1 and Teresa #1 wells. The Company sold all of its
interest in 2010 in the Jameson lease and the Heath lease.
5
On November 5th, 2009, the Company signed an agreement to purchase a 57.2682%
working interest in the Ed Thompson #2-18, located in Garvin County, Oklahoma
for $28,634. The company has paid $28,000 toward this amount.
On September 1, 2010, the Company purchased a 5% working interest in a 7 well
package located in Garvin County, Oklahoma in the amount of $34,500. The
company financed this transaction with an account payable to the operator of
the wells, Nitro Petroleum Incorporated.
The following table reflects the Company's ownership as of September 30, 2010
in its oil and gas properties located in Oklahoma.
Net Revenue
Lease Name Property Location Ownership Interest
---------- ----------------- ------------------
Jessica 23-A Seminole County 18.0296496%
Karsyn Seminole County 19.6500000%
Thompson #1 Garvin County 23.1222014%
Teresa #1 Garvin County 26.8145000%
Mason Burns Garvin County 38.1653000%
White #12-1 Pottawatomie County 67.9687500%
Crown #1 & #3 Pottawatomie County 8.7890625%
Quinlan #1 Pottawatomie County 22.3945400%
Quinlan #2 Pottawatomie County 0.2808000%
Quinlan #3 Pottawatomie County 8.7750000%
Sharon #1 Garvin County 6.3400000%
Ward McNeil Garvin County 22.6230400%
Fuller #2 Garvin County 3.7898000%
Fuller #3 Garvin County 3.7898000%
Kimberly #3 Garvin County 3.7898000%
Plummer #1 Garvin County 3.9867000%
Plummber #2 Garvin County 3.6914000%
Bromide #1 Garvin County 3.7898000%
Roach SWD well Garvin County 5.0000000%
East & West Moreland Nowata County 3.0000000%
Thompson #2 Garvin County 46.1249365%
See Note 9 of the financial statements for production and reserve study
information.
6
ITEM 3. LEGAL PROCEEDINGS.
On September 16, 2010, the Company, along with Global Energy, LLC
(Plaintiffs), filed a joint petition against Reed Power Tongs, Inc. and 4K
Energy, LLC (Defendants), alleging breach of contract of the joint operating
agreement the Plaintiffs entered into with the Defendants covering the Karsyn
No. 1, the Heath well and the Josh well.
The Plaintiffs are alleging that the Defendants charged excessive fees for
services rendered by unrelated entities, failed to obtain written approval
from working interest owners before charging inflated fees with their
affiliated companies and knowingly and intentionally withholding of
production revenue from both Precision and Global.
The Plaintiffs are demanding an accounting of all charges and revenue for
the Karsyn, Josh and Heath wells and are asking for damages related to
breach of contract and fraud. The Plaintiffs are asking for damages in
excess of $10,000 for four different actions and also for sums in excess of
$10,000 for punitive and exemplary damages for the Defendants conduct
described in the petition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
We have not yet held our annual shareholders' meeting or submitted any
matters to a vote of shareholders during the fiscal year to which this
Annual Report pertains.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
Market for Common Equity and Related Stockholder Matters
(a) Market Information
Our shares of common stock, par value $0.001 per share, were quoted on the
OTC Bulletin Board from July 3, 2008 to January 7, 2008 under the symbol
"TIWR". Since January 8, 2008, our stock has been quoted on the OTCBB reader
under the symbol "PPTO". The table below sets for the high and low closing
bid price of our stock for the last two fiscal years. The information was
acquired from www.alphatrade.com.
Fiscal Year Ended September 30, 2010
Quarter Ended 12/31/09 3/31/10 6/30/10 9/30/10
------------- -------- ------- ------- -------
High $0.22 $0.13 $0.11 $0.04
Low $0.09 $0.04 $0.05 $0.02
Fiscal Year Ended September 30, 2009
Quarter Ended 12/31/08* 3/31/09 6/30/09 9/30/09
------------- -------- ------- ------- -------
High - $1.58 $1.12 $0.60
Low - $0.55 $0.55 $0.13
* Prior to February 2009, there were no trading of our shares on the OTC.BB.
7
(b) Holders
As of September 30, 2010, there were fourteen (14) shareholders of record of
our common stock.
(c) Dividend Policy
We have never declared or paid dividends on our common stock. We intend to
retain earnings, if any, to support the development of our business and
therefore do not anticipate paying cash dividends for the foreseeable future.
Payment of future dividends, if any, will be at the discretion of our board
of directors after taking into account various factors, including current
financial condition, operating results and current and anticipated cash
needs.
(d) Securities authorized for issuance under equity compensation plans
None.
RECENT SALES OF UNREGISTERED SECURITIES
During the period covered by this report, we have not sold any unregistered
securities.
USE OF PROCEEDS FROM REGISTERED SECURITIES
Not applicable.
DESCRIPTION OF SECURITIES
Common Stock
There are presently 44,400,000 shares of common stock issued and
outstanding.
Each record holder of common stock is entitled to one vote for each share
held in all matters properly submitted to the stockholders for their vote.
Cumulative voting for the election of directors is not permitted by the
By-Laws of the Company.
Holders of outstanding shares of common stock are entitled to such dividends
as may be declared from time to time by the Board of Directors out of legally
available funds; and, in the event of liquidation, dissolution or winding up
of the affairs of the Company, holders are entitled to receive, ratably, the
net assets of the Company available to stockholders. Holders of outstanding
shares of common stock have no preemptive, conversion or redemptive rights.
To the extent that additional shares of the Company's common stock are
issued, the relative interest of the existing stockholders may be diluted.
Stock Purchase Warrants
None.
Stock Purchase Options
None.
8
ITEM 6. SELECTED FINANCIAL DATA
This item is not required for Smaller Reporting Companies
ITEM 7. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL POSITION AND RESULTS
OF OPERATIONS
We have generated no operating revenues since our inception. The following
should be read jointly with the financial statements, related notes, and the
cautionary statement regarding forward-looking statements, which appear
elsewhere in this filing.
As used in this Annual Report: (i) the terms "we", "us", "our" and the
"Company" mean Precision Petroleum Corporation (ii) "SEC" refers to the
Securities and Exchange Commission; (iii) "Exchange Act" refers to the United
States Securities Exchange Act of 1934, as amended; and (iv) all dollar
amounts refer to United States dollars unless otherwise indicated.
The following is a discussion of our plan of operations, results of
operations and financial condition as at and for the years ended
September 30, 2010 and 2009.
Liquidity and Capital Resources
The Company had a cash balance of $8,495 as of September 30, 2010, compared
to cash balance of $12,944 as of September 30, 2009. The Company had a
working capital deficiency of $1,245,192 as of September 30, 2010, compared
to working capital deficiency of $1,072,250 as of September 30, 2009.
Our accumulated deficit during the Exploration Stage increased during the
fiscal year ended September 30, 2010 to $405,616 from $185,803. Our
accumulated deficit during the Production Stage increased $219,813. During
this time, our total stockholders' deficit increased to $278,525 from
$58,712. These increases were the result of incurring a net loss from our
operations in the amount of $219,813 for the fiscal year ended
September 30, 2010.
The Company will continue to utilize the free labor of its directors and
stockholder until such time as funding is sourced from the capital markets.
It is anticipated that funding for the next twelve months will be required to
maintain the Company.
9
Results of Operations
For the fiscal year ended September 30, 2010, the Company had revenue of
$190,143 from production of oil and gas, as compared to $59,723 for the
fiscal year ended September 30, 2009.
Operating expenses for the fiscal year ended September 30, 2010
were $296,760, resulting in a net loss for the period of $219,813.
Operating expenses for the fiscal year ended September 30, 2009
was $123,236, resulting in a net loss for the period of $63,513.
During the fiscal year end September 30, 2010, the amount of cash used in
our operating activities was $18,074 compared to $23,041 of cash used on
operations during the prior fiscal year. During the fiscal year, we used
$11,291 of cash in investing activities, due to the purchase of our oil and
gas leases and equipment. We used $1,039,980 of cash in investing
activities during the prior fiscal year. The Company received $24,916 in
advances from third parties to finance its activities during the fiscal year
compared to financing in the prior year in the amount of $1,076,262.
The Company expects to continue to receive revenues from the properties on
the Oklahoma properties and the Company expects for these revenues to
increase. Planned exploration ventures should increase revenues for the
fiscal year ending September 30, 2011.
Going Concern
The Company has not attained profitable operations and is dependent upon
obtaining financing to pursue any extensive acquisitions and exploration
activities. For these reasons, the Company's auditors stated in their
report on the Company's audited financial statements that they have
substantial doubt the Company will be able to continue as a going concern
without further financing.
Off-Balance Sheet Arrangements
We have not entered into any off-balance sheet arrangements that have or are
reasonably likely to have a current or future effect on our financial
condition, changes of financial condition, revenues, expenses, results of
operations, liquidity, capital expenditures or capital resources that is
material to investors.
Plan of Operation for the Next Twelve (12) Months
The following discussion of our plan of operation, financial condition,
results of operations, cash flows and changes in financial position should be
read in conjunction with our most recent financial statements and notes
appearing elsewhere in this Form 10-K annual report; our Form 10-Q filed
February 12, 2010, our Form 10-Q filed May 20, 2010 and our Form 10-Q filed
August 23, 2010.
10
Our plan of operations for the next twelve months is to maintain the current
properties we have and recomplete some of the properties that we feel will
generate more revenue.
We estimate that our expenditures over the next twelve months will be
$120,000 to cover ongoing general and administrative expenses. As at
September 30, 2010, we had cash and cash equivalents of $8,495 and working
deficit of $1,245,192. We have enough cash on hand to meet our overhead
requirements for the next 6 months. We will need to raise approximately
$120,000 to meet our overhead requirements for the next 12 months.
During the twelve-month period following the date of this report, we
anticipate that we will continue to generate revenue from our oil and gas
leases. However, we anticipate that such revenue will not be sufficient to
cover all of our expenses. Accordingly, we will be required to obtain
additional financing in order to continue our plan of operations during and
beyond the next twelve months. We anticipate that additional funding could be
in the form of either debt or equity financing from the sale of our common
stock. However, we do not have any financing arranged and we cannot provide
investors with any assurance that we will be able to raise sufficient funding
to fund our operations. In the absence of such financing, our business plan
will fail. Even if we are successful in obtaining financing to fund our
operations, there is no assurance that we will obtain the funding necessary
to pursue any further exploration of our properties. If we do not obtain
additional financing, we may be forced to dispose of operating oil and gas
leases located in Oklahoma.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
This item is not required for Smaller Reporting Companies
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements required by this Item 8 begin on Page F-1 of
this Form 10-K, and include: (1) Report of Independent Registered Public
Accounting Firm; (2) Balance Sheets; (3) Statements of Operations,
Statements of Cash Flows, Statement of Stockholders' Deficit; and
(4) Notes to Financial Statements.
11
Precision Petroleum Corporation
(A Production Stage Company)
Financial Statements
(Expressed in U.S. Dollars)
September 30, 2010 and 2009
INDEX TO FINANCIAL STATEMENTS
Report from Independent Registered Public Accounting Firm F-1
Balance Sheets F-2
Statements of Operations F-3
Statement of Stockholders' Deficit F-4
Statements of Cash Flows F-5
Notes to the Financial Statements F-6 - F-22
12
De Joya Griffith & Company, LLC
------------------------------------------
CERTIFIED PUBLIC ACCOUNTANTS & CONSULTANTS
Report of Independent Registered Public Accounting Firm
-------------------------------------------------------
To The Board of Directors and Stockholders
Precision Petroleum Corporation
Shawnee, OK 74804
We have audited the accompanying balance sheets of Precision Petroleum
Corporation as of September 30, 2010 and 2009, and the related statements of
operations, stockholders' deficit, and cash flows for the years then ended.
These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on the financial
statements based on our audits.
We conducted our audits in accordance with standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Precision Petroleum
Corporation as of September 30, 2010 and 2009, and the results of their
operations and cash flows for the years then ended in conformity with
accounting principles generally accepted in the United States.
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. As discussed in Note 1 to the financial
statements, the Company has suffered recurring losses from operations, which
raise substantial doubt about its ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note 1.
The financial statements do not include any adjustments that might result
from the outcome of this uncertainty.
De Joya Griffith & Company, LLC
/s/ De Joya Griffith & Company, LLC
Henderson, Nevada
January 11, 2011
2580 Anthem Village Drive, Henderson, NV 89052
Telephone (702) 563-1600 o Facsimile (702) 920-8049
F-1
PRECISION PETROLEUM CORPORATION
BALANCE SHEETS
(AUDITED)
September 30, September 30,
2010 2009
------------ ------------
ASSETS
Current
Cash and cash equivalents $ 8,495 $ 12,944
Accounts receivable, net 50,417 14,600
Other receivables - 10,028
------------ ------------
Total current assets 58,912 37,572
Oil and gas properties, -using full
cost accounting- net of $82,520 and $26,442
of depletion, respectively 932,079 967,538
Long term assets
Participation deposits 57,500 46,000
------------ ------------
Total long term assets 989,579 1,013,538
------------ ------------
Total assets $ 1,048,491 $ 1,051,110
============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities
Accounts payable and accrued liabilities $ 217,708 $ 48,342
Advances 92,416 67,500
Short-term notes payable 993,980 993,980
------------ ------------
Total current liabilities 1,304,104 1,109,822
------------ ------------
Long term liabilities
Asset retirement obligation 22,912 -
------------ ------------
Total long term liabilities 22,912 -
------------ ------------
Total liabilities 1,327,016 1,109,822
------------ ------------
Capital stock
Authorized:
200,000,000 common stock, $0.001 par value;
Issued and outstanding:
44,400,000 common shares (2009: 44,400,000) 44,400 44,400
Additional paid-in capital 82,691 82,691
Accumulated deficit (405,616) (185,803)
------------ ------------
Total stockholders' deficit (278,525) (58,712)
------------ ------------
Total liabilities and
stockholders' deficit $ 1,048,491 $ 1,051,110
============ ============
See accompanying notes
F-2
PRECISION PETROLEUM CORPORATION
STATEMENTS OF OPERATIONS
(AUDITED)
September 30,
-------------
2010 2009
------------ ------------
Revenues
Oil and gas sales $ 190,143 $ 59,723
------------ ------------
Total revenues 190,143 59,723
------------ ------------
Expenses
Lease operating 75,910 32,313
Production taxes 13,522 4,298
Depletion 56,078 26,442
Accretion expense 2,083 -
Bad debt expense 16,525 -
Legal and accounting 42,090 26,043
Management fees 12,000 18,000
General and administrative 78,552 16,140
------------ ------------
Total operating expenses 296,760 123,236
------------ ------------
Other expense
Interest 113,196 -
------------ ------------
Total other expense 113,196 -
------------ ------------
Net loss $ (219,813) $ (63,513)
============ ============
Basic loss per share $ (0.00) $ (0.00)
============ ============
Weighted average number of shares outstanding-
basic 44,400,000 44,400,000
============ ============
See accompanying notes
F-3
PRECISION PETROLEUM CORPORATION
STATEMENTS OF STOCKHOLDERS' DEFICIT
For the years ended September 30, 2010 and 2009
Common Shares Addi- Other
------------------ tional Accum- Compre-
Par Paid-in ulated hensive
Number Value Capital Deficit Income Total
---------- ------- ------- ---------- ------ ----------
Balance,
as of
Sept. 30,
2008 44,400,000 44,400 67,635 (122,290) 297 (9,958)
Payable paid
by previous
directors and
officers - - 15,056 - - 15,056
Foreign
currency
gain (loss) - - - - (297) (297)
Net loss for
the year - - - (63,513) - (63,513)
---------- ------- ------- ---------- ------ ----------
Balance,
as of
Sept. 30,
2009 44,400,000 44,400 82,691 (185,803) - (58,712)
Net loss for
the year (219,813) (219,813)
---------- ------- ------- ---------- ------ ----------
Balance
as of
Sept. 30,
2010 44,400,000 $44,400 $82,691 $(405,616) $ - $(278,525)
========== ======= ======= ========== ====== ==========
See accompanying notes
F-4
PRECISION PETROLEUM CORPORATION
STATEMENTS OF CASH FLOWS
(AUDITED)
September 30,
-------------
2010 2009
------------ ------------
Operating activities
Net loss for the period $ (219,813) $ (63,513)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depletion 56,078 26,442
Accretion expense 2,083 -
Mineral claim fee - 4,464
Changes in operating assets and liabilities
Accounts receivable (35,816) (14,600)
Other receivables 10,028 (10,028)
Accounts payable and accrued liabilities 169,366 34,194
------------ ------------
Net cash used in operating activities (18,074) (23,041)
------------ ------------
Investing activities
Proceeds from sale of assets 65,000 -
Acquisition of oil and gas properties (64,791) (993,980)
Participation deposits (11,500) (46,000)
------------ ------------
Net cash used in investing activities (11,291) (1,039,980)
------------ ------------
Financing activities
Cash overdraft - (274)
Proceeds from short term note payable - 993,980
Contribution of capital - 15,056
Advances 24,916 67,500
------------ ------------
Net cash provided by financing activities 24,916 1,076,262
------------ ------------
Effect of foreign currency translation - (297)
------------ ------------
Increase (decrease) in cash during the year (4,449) 12,944
Cash, beginning of the year 12,944 -
------------ ------------
Cash, end of the year $ 8,495 $ 12,944
============ ============
Supplemental disclosure of cash flow information:
Cash paid during the year for income taxes $ - $ -
============ ============
Cash paid during the year for interest $ - $ -
============ ============
Non cash investing and financing activities:
Increase in oil and gas properties for
asset retirement obligation $ 20,829 $ -
============ ============
See accompanying notes
F-5
PRECISION PETROLEUM CORPORATION
NOTES TO THE FINANCIAL STATEMENTS
SEPTEMBER 30, 2010 AND 2009
(Audited)
Note 1 Nature and Continuance of Operations
Precision Petroleum Corporation (the "Company") was incorporated under the
name of "Tidewater Resources, Inc." under the laws of the State of Nevada on
February 7, 2007. On October 27, 2008 the Company changed its name to
Precision Petroleum Corporation. The Company has established its corporate
offices in Shawnee, Oklahoma. The Company is engaged primarily in the
acquisition, development, production, exploration for, and the sale of oil,
gas and natural gas liquids. All business activities are conducted in
Oklahoma and the Company sells its oil and gas to a limited number of
domestic purchasers. The Company does not operate the leases; they own a
working and overriding royalty interest and are invoiced monthly for joint
operating costs and receive revenues from third party purchasers of oil and
gas chosen by the operators.
The company was an exploration stage company in the years prior to the year
ended September 30, 2009.
These financial statements have been prepared in accordance with generally
accepted accounting principles applicable to a going concern, which assumes
that the Company will be able to meet its obligations and continue its
operations for its next fiscal year. Realization values may be substantially
different from carrying values as shown and these financial statements do not
give effect to adjustments that would be necessary to the carrying values and
classifications of assets and liabilities should the Company be unable to
continue as a going concern. At September 30, 2010, the Company had not yet
achieved profitable operations, has accumulated losses of $405,616 since its
inception, has a working capital deficiency of $1,245,192 and expects to
incur further losses in the development of its business, all of which casts
substantial doubt about the Company's ability to continue as a going
concern. The Company's ability to continue as a going concern is dependent
upon its ability to generate future profitable operations and/or to obtain
the necessary financing to meet its obligations and repay its liabilities
arising from normal business operations when they come due. Management has
no formal plan in place to address this concern but considers that the
Company will be able to obtain additional funds by equity financing and/or
related party advances, however there is no assurance of additional funding
being available. The accompanying financial statements do not include any
adjustments relating to the recoverability and classification of recorded
asset amounts or amounts and classification of liabilities that might result
from the outcome of this uncertainty.
F-6
PRECISION PETROLEUM CORPORATION
NOTES TO THE FINANCIAL STATEMENTS
SEPTEMBER 30, 2010 AND 2009
(Audited)
Note 2 Summary of Significant Accounting Policies
The financial statements of the Company have been prepared in accordance with
accounting principles generally accepted in the United States of America.
Because a precise determination of many assets and liabilities is dependent
upon future events, the preparation of financial statements for a period
necessarily involves the use of estimates, which have been made using careful
judgment. Actual results may vary from these estimates.
The financial statements have, in management's opinion, been properly
prepared within the framework of the significant accounting policies
summarized below:
Cash and cash equivalents
The Company considers cash and cash equivalents to be all highly liquid debt
instruments with a maturity when purchased of three months or less.
The Company maintains its cash balances in one financial institution in
Shawnee, Oklahoma The balance at this institution is generally insured by
the Federal Deposit Insurance Corporation (FDIC) up to $250,000. As of
September 30, 2010 and 2009, the Company's cash in this financial institution
was less than the federally insured limits.
Allowance for doubtful accounts
Accounts receivable are stated at the amount management expects to collect
from balances outstanding at year end. Management provides for probable
uncollectible amounts through a charge to earnings and a credit to an
allowance based on its assessment of the current status of individual
accounts. Balances that are still outstanding after management has used
reasonable collection efforts are written off through a charge to the
valuation allowance. Changes in the allowance have not been material to
the financial statements.
Property and equipment
Equipment is recorded at cost. Depreciation is provided using the straight
line method. As of September 30, 2010 and 2009 the Company did not have any
property or equipment.
F-7
PRECISION PETROLEUM CORPORATION
NOTES TO THE FINANCIAL STATEMENTS
SEPTEMBER 30, 2010 AND 2009
(Audited)
Oil and Gas Properties
The Company follows the full cost method of accounting for oil and gas
operations whereby all costs of exploring for and developing oil and gas
reserves are initially capitalized on a country-by-country (cost center)
basis. Such costs include land acquisition costs, geological and
geophysical expenses, carrying charges on non-producing properties, costs
of drilling and overhead charges directly related to acquisition and
exploration activities.
Costs capitalized, together with the costs of production equipment,
are depleted and amortized on the unit-of-production method based on the
estimated gross proved reserves. Petroleum products and reserves are
converted to a common unit of measure, using 6 MCF of natural gas to one
barrel of oil.
Costs of acquiring and evaluating unproved properties are initially excluded
from depletion calculations. These unevaluated properties are assessed
annually to ascertain whether impairment has occurred. When proved reserves
are assigned or the property is considered to be impaired, the cost of the
property or the amount of the impairment is added to costs subject to
depletion calculations.
Future net cash flows from proved reserves using period-end, non-escalated
prices and costs are discounted to present value and compared to the carrying
value of oil and gas properties.
Proceeds from a sale of petroleum and natural gas properties are applied
against capitalized costs, with no gain or loss recognized, unless such a
sale would alter the rate of depletion by more than 25%.
Asset Retirement Obligations
The Company recognizes the fair value of a liability for an asset retirement
obligation in the year in which it is incurred when a reasonable estimate of
fair value can be made. The carrying amount of the related long-lived asset
is increased by the same amount as the liability.
F-8
PRECISION PETROLEUM CORPORATION
NOTES TO THE FINANCIAL STATEMENTS
SEPTEMBER 30, 2010 AND 2009
(Audited)
Changes in the liability for an asset retirement obligation due to the
passage of time will be measured by applying an interest method of
allocation. The amount will be recognized as an increase in the liability
and an accretion expense in the statement of operations. Changes resulting
from revisions to the timing or the amount of the original estimate of
undiscounted cash flows are recognized as an increase or a decrease in the
carrying amount of the liability for an asset retirement obligation and the
related asset retirement cost capitalized as part of the carrying amount of
the related long-lived asset.
The Company owns interests in oil and natural gas properties, which may
require expenditures to plug and abandon the wells when the oil and natural
gas reserves in the wells are depleted. Fair value of legal obligations to
retire and remove long-lived assets is recorded in the period in which the
obligation is incurred (typically when the asset is installed at the
production location). When the liability is initially recorded, this cost
is capitalized by increasing the carrying amount of the related properties
and equipment. Over time the liability is increased for the change in its
present value, and the capitalized cost in properties and equipment is
depreciated over the useful life of the remaining asset. The Company does
not have any assets restricted for the purpose of settling the plugging
liabilities.
The following table shows the activity for the years ended September 30,
2010 and 2009 relating to the Company's retirement obligation for plugging
liability:
2010 2009
---- ----
Beginning balance at October 1 $ - $ -
Liabilities incurred 20,829 -
Liabilities settled - -
Accretion expense 2,083 -
Revision estimate - -
--------- ---------
Ending balance at September 30 $ 22,912 $ -
========= =========
F-9
PRECISION PETROLEUM CORPORATION
NOTES TO THE FINANCIAL STATEMENTS
SEPTEMBER 30, 2010 AND 2009
(Audited)
Impairment of Long-Lived Assets
The Company has adopted FASB Codification Topic 360-10 ("ASC 360-10"),
"Property, Plant, and Equipment", which requires that long-lived assets to be
held and used be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Oil and gas properties accounted for using the full cost method
of accounting, a method utilized by the Company, are excluded from this
requirement, but will continue to be subject to the ceiling test limitations.
At September 30, 2010 and 2009, the Company had not recognized any impairment
to its oil and gas properties.
Income Taxes
The Company accounts for income taxes under FASB Codification Topic 740 ("ASC
740"). Under ASC 740, deferred tax assets and liabilities are recognized for
the future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled. Under
ASC 740, the effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment date.
As of September 30, 2010 and 2009, the Company has a net operating loss
carryforward of approximately $339,966 and $185,803 available to offset
taxable income through 2030 (Refer to Note 6).
Basic and Diluted Loss Per Share
Basic loss per share is computed using the weighted average number of shares
outstanding defined by FASB Accounting Standards Codification Topic 260,
"Earnings Per Share" during the period. Fully diluted earnings (loss) per
share are computed similar to basic income (loss) per share except that the
denominator is increased to include the number of common stock equivalents
(primarily outstanding options and warrants). Common stock equivalents
represent the dilutive effect of the assumed exercise of the outstanding
stock options and warrants, using the treasury stock method, at either the
beginning of the respective period presented or the date of issuance,
whichever is later, and only if the common stock equivalents are considered
dilutive based upon the Company's net income (loss) position at the
calculated date. Diluted loss per share has not been provided as it would be
anti-dilutive. As of September 30, 2010 and 2009, the Company did not have
any outstanding stock options or warrants.
F-10
PRECISION PETROLEUM CORPORATION
NOTES TO THE FINANCIAL STATEMENTS
SEPTEMBER 30, 2010 AND 2009
(Audited)
Financial Instruments
Fair value is defined as the price that would be received upon sale of an
asset or paid upon transfer of a liability in an orderly transaction between
market participants at the measurement date and in the principal or most
advantageous market for that asset or liability. The fair value should be
calculated based on assumptions that market participants would use in pricing
the asset or liability, not on assumptions specific to the entity. In
addition, the fair value of liabilities should include consideration of non-
performance risk including our own credit risk.
In addition to defining fair value, the disclosure requirements around fair
value establishes a fair value hierarchy for valuation inputs which is
expanded. The hierarchy prioritizes the inputs into three levels based on
the extent to which inputs used in measuring fair value are observable in the
market. Each fair value measurement is reported in one of the three levels
which is determined by the lowest level input that is significant to the fair
value measurement in its entirety. These levels are:
Level 1 - inputs are based upon unadjusted quoted prices for identical
instruments traded in active markets.
Level 2 - inputs are based upon significant observable inputs other than
quoted prices included in Level 1, such as quoted prices for identical or
similar instruments in markets that are not active, and model-based valuation
techniques for which all significant assumptions are observable in the market
or can be corroborated by observable market data for substantially the full
term of the assets or liabilities.
Level 3 - inputs are generally unobservable and typically reflect
management's estimates of assumptions that market participants would use in
pricing the asset or liability. The fair values are therefore determined
using model-based techniques that include option pricing models, discounted
cash flow models, and similar techniques.
The carrying value of the Company's financial assets and liabilities which
consist of cash, accounts payable and accrued liabilities, and notes payable
are valued using level 1 inputs. The Company believes that the recorded
values approximate their fair value due to the short maturity of such
instruments. Unless otherwise noted, it is management's opinion that the
Company is not exposed to significant interest, exchange or credit risks
arising from these financial instruments.
F-11
PRECISION PETROLEUM CORPORATION
NOTES TO THE FINANCIAL STATEMENTS
SEPTEMBER 30, 2010 AND 2009
(Audited)
Revenue Recognition
Revenue from the sale of the oil and gas production is recognized when title
passes from the operator of the oil and gas properties to purchasers.
Newly Issued Accounting Pronouncements
In June 2009 the Financial Accounting Standards Board ("FASB") issued
Accounting Standards Codification ("ASC") 105, "Generally Accepted Accounting
Principles". ASC 105 establishes the Codification as the sole source of
authoritative accounting principles to be applied in the preparation of
financial statements in conformity with GAAP. The adoption of this statement
did not have a material impact on the Company's financial position or results
of operations.
In January 2010, the FASB (Financial Accounting Standards Board) issued
Accounting Standards Update 2010-03 (ASU 2010-03), Extractive Activities-Oil
and Gas (Topic 932): Oil and Gas Reserve Estimation and Disclosures. This
amendment to Topic 932 has improved the reserve estimation and disclosure
requirements by (1) updating the reserve estimation requirements for changes
in practice and technology that have occurred over the last several decades
and (2) expanding the disclosure requirements for equity method investments.
This is effective for annual reporting periods ending on or after December
31, 2009. However, an entity that becomes subject to the disclosures because
of the change to the definition oil- and gas- producing activities may elect
to provide those disclosures in annual periods beginning after December 31,
2009. Early adoption is not permitted. The Company does not expect the
provisions of ASU 2010-03 to have a material effect on the financial
position, results of operations or cash flows of the Company.
In January 2010, the FASB (Financial Accounting Standards Board) issued
Accounting Standards Update 2010-06 (ASU 2010-06), Fair Value Measurements
and Disclosures (Topic 820): Improving Disclosures about Fair Value
Measurements. This amendment to Topic 820 has improved disclosures about fair
value measurements on the basis of input received from the users of financial
statements. This is effective for interim and annual reporting periods
beginning after December 15, 2009, except for the disclosures about
purchases, sales, issuances, and settlements in the roll forward of activity
in Level 3 fair value measurements. Those disclosures are effective for
fiscal years beginning after December 15, 2010, and for interim periods
within those fiscal years. Early adoption is permitted. The Company does not
expect the provisions of ASU 2010-06 to have a material effect on the
financial position, results of operations or cash flows of the Company.
F-12
PRECISION PETROLEUM CORPORATION
NOTES TO THE FINANCIAL STATEMENTS
SEPTEMBER 30, 2010 AND 2009
(Audited)
In February 2010, the FASB issued Accounting Standards Update 2010-09 (ASU
2010-09), Subsequent Events (Topic 855), amending guidance on subsequent
events to alleviate potential conflicts between FASB guidance and SEC
requirements. Under this amended guidance, SEC filers are no longer required
to disclose the date through which subsequent events have been evaluated in
originally issued and revised financial statements. This guidance was
effective immediately and we adopted these new requirements for the period
ended September 30, 2010. The adoption of this guidance did not have a
material impact on our financial statements.
In April 2010, the FASB (Financial Accounting Standards Board) issued
Accounting Standards Update 2010-14 (ASU 2010-14), Accounting for Extractive
Activities - Oil and Gas. This amendment makes amendments to paragraph 932-
10-S99-1 due to SEC release No. 33-8995, Modernization of Oil and Gas
Reporting. The Company does not expect the provisions of ASU 2010-14 to have
a material effect on the financial position, results of operations or cash
flows of the Company.
Note 3 Oil and Gas Properties
At September 30, 2010 and 2009 the producing oil and gas properties were
as follows:
2010 2009
Cost ---- ----
Oklahoma Properties $1,014,599 $ 993,880
Less: Accumulated depletion 82,520 26,442
---------- ---------
$ 932,079 $ 967,538
========== =========
Depletion expense for the years ended September 30, 2010 and 2009, was
$56,078 and $26,442, respectively.
F-13
PRECISION PETROLEUM CORPORATION
NOTES TO THE FINANCIAL STATEMENTS
SEPTEMBER 30, 2010 AND 2009
(Audited)
The following are descriptions of the oil and gas activities in 2010 and
2009:
a) Effective July 1, 2009, the Company purchased various producing
properties located in Garvin County, Pottawatomie County, Nowata County
and Seminole County, Oklahoma. The Company utilized short-term financing
to acquire these properties.
The various net revenue acquired range from .2808% to a 67.97% net revenue
interest.
Lease Interest
Name Purchased Total
----- --------- -----
Jessica #23-A 18.0296496% $ 14,481
Karsyn 19.6500000% 118,036
Heath 7.8000000% 50,602
Thompson #1 23.1222014% 249,658
Teresa 18.8585400% 39,295
Mason Burns 17.8527800% 33,609
White #12-1 67.9687500% 237,242
Crown #1 & #3 8.7890625% 26,946
Quinlan #1 22.3945400% 110,276
Quinlan #2 .2808000% 710
Quinlan #3 8.7750000% 60,609
Jameson 5 wells 1 swd 100.0000000% 23,900
Sharon #1 6.3400000% 23,413
Ward McNeil 22.6230400% 5,203
East & West Moreland
3% overriding royalty -
----------
Total original cost $ 993,980
==========
b) In an agreement dated on December 1, 2009, but made effective January 1,
2010, the Company sold all of its working interest in the Heath lease
located in Seminole County, Oklahoma. The sales price for this transaction
was $55,000, to be paid on or before one year from the date of the
agreement. The Company received a payment in the amount of $4,583 from the
purchaser with a balance due of $50,417. Although the amount due is part of
a lawsuit and no payments have been received, the amount is not considered in
default as of September 30, 2010.
F-14
PRECISION PETROLEUM CORPORATION
NOTES TO THE FINANCIAL STATEMENTS
SEPTEMBER 30, 2010 AND 2009
(Audited)
On September 16, 2010, the Company, along with Global Energy, LLC
(Plaintiffs), filed a joint petition against Reed Power Tongs, Inc. and 4K
Energy, LLC (Defendants), alleging breach of contract of the joint operating
agreement the Plaintiffs entered into with the Defendants covering the Karsyn
No. 1, the Heath well and the Josh well.
The Plaintiffs are alleging that the Defendants charged excessive fees for
services rendered by unrelated entities, failed to obtain written approval
from working interest owners before charging inflated fees with their
affiliated companies and knowingly and intentionally withholding of
production revenue from both Precision and Global.
The Plaintiffs are demanding an accounting of all charges and revenue for the
Karsyn, Josh and Heath wells and are asking for damages related to breach of
contract and fraud. The Plaintiffs are asking for damages in excess of
$10,000 for four different actions and also for sums in excess of $10,000 for
punitive and exemplary damages for the Defendants conduct described in the
petition.
On February 22, 2010, the Company sold all of its working interest in the
Jameson lease, retaining a three percent (3%) overriding royalty interest.
The sale price for this transaction was $10,000 and has been paid in full.
In June of 2010, the Company acquired an additional 25% working interest in
the Mason Burns well in exchange for the assumption of the seller's debt to
the operator of the well in the amount of $1,657.
The Company also increased their working interest in the Teresa #1 well by
11% and in the Quinlan #1 by 2%.
c) On January 27, 2009, the Company entered into a Participation Agreement
with Nitro Petroleum Incorporated ("Nitro"), pursuant to which the Company
obtained from Nitro the right to participate in Phase One of Nitro's Powder
river Basin Project in Montana. Nitro acquired certain oil and gas leases in
the Powder River Basin in Montana pursuant to a Memorandum of Understanding
dated January 26, 2009 with REDS, LLC.
F-15
PRECISION PETROLEUM CORPORATION
NOTES TO THE FINANCIAL STATEMENTS
SEPTEMBER 30, 2010 AND 2009
(Audited)
Pursuant to the terms of the Participation Agreement, Nitro is being carried
to the tanks with respect to a 25% working interest in Phase One of the
Powder River Basin Project. The Company is acquiring a 37.5% working
interest in Phase One of the Powder River Basin Project in exchange for an
agreement to pay 50% of the expenses of Phase One of the Powder River Basin
Project. Additionally, the Company shall have the right to purchase up to a
37.5% working interest in Phase Two and Phase Three of the Powder River Basin
Project upon substantially the same terms as Phase One. Nitro will be the
operator of all wells drilled during Phase One of the Powder River Basin
Project.
During the year the Company paid $11,500 towards the Participation Agreement
with Nitro. The payments have been recorded in the financial statements as
participation deposits.
d) On November 5th, 2009, the Company signed an agreement to purchase a
57.2682% working interest in the Ed Thompson #2-18 for $28,634. The company
has paid $28,000 toward this amount.
e) On September 1, 2010, the Company purchased a 5% working interest in a
7 well package located in Garvin County, Oklahoma in the amount of $34,500.
Note 4 Mineral Property
Pursuant to a mineral property staking and Net Smelter Returns Royalty
agreement (the "Agreement") dated April 19, 2007, the Company acquired a 50%
undivided right, title and interest in a gold/silver/copper mineral claim
unit of the Kammatika Claims (the "Claims"), located in the province of
British Columbia, Canada for a cash payment of $4,464. As of September 30,
2009, the Company's claims have expired. Consequently, the Company expensed
the claims during the year ended September 30, 2009.
Note 5 Notes Payable and Short-Term Financing
At September 30, 2010, the Company had an unsecured short term note payable
to Sierra Growth, Inc., an investment company located in Charlestown, Nevis,
West Indies. This note bears an interest rate of 10% per annum and is due
upon demand. If the Holder makes a demand for repayment, the Company must
repay the principal balance of this note and accrued and unpaid interest
thereon within sixty (60) days. Interest has been accrued in the amount of
$75,171 as of September 30, 2010 (2009, $0) and has a principal balance of
$751,714 (2009, $751,714).
F-16
PRECISION PETROLEUM CORPORATION
NOTES TO THE FINANCIAL STATEMENTS
SEPTEMBER 30, 2010 AND 2009
(Audited)
At September 30, 2010, the Company had an unsecured short term note payable
to Global Energy, LLC, an oil and gas company located in Shawnee, Oklahoma.
This note bears an interest rate of 10% per annum and is payable upon demand.
If the Holder makes a demand for repayment, the Company must repay the
principal balance of this note and accrued and unpaid interest thereon within
sixty (60) days. Interest has been accrued in the amount of $24,227 as of
September 30, 2010 (2009, $0) and has a principal balance of $242,266 (2009,
$242,266).
The Company has also obtained financing from a consultant with a balance of
$31,754 (2009, $20,518) and also has received advances of $92,416 (2009,
$67,500) from unrelated third parties. The balances are due on demand and
are not interest bearing. However, Generally Accepted Account Principles
(GAAP) requires interest expense to be imputed on the outstanding balances of
the advances. The Company has accrued interest in the amount of $13,030 for
these advances as of September 30, 2010 (2009, $0).
Note 6 Income Taxes
At September 30, 2010, the Company has accumulated net operating loss carry
forwards totaling $339,966 (2009, $185,803), which may be applied against
future years income and expire commencing in 2029.
Significant components of the Company's future tax assets and liabilities,
after applying enacted corporate income tax rates, are as follows:
2010 2009
---- ----
Future income tax assets
Net tax operating loss carryforward $ 117,446 $ 65,031
Sale of oil and gas properties 22,100 -
Less: Valuation allowance (139,546) (65,031)
--------------- ------------
$ - $ -
=============== ============
The Company recorded no income tax expense for the years ended September 30,
2010 and 2009, as a result of the net loss recognized in each of these years.
Further, an income tax benefit was not recognized in either of the years due
to the uncertainty of the Company's ability to recognize the benefit from the
net operating losses and, therefore, has recorded a full valuation allowance
against the deferred tax assets.
F-17
PRECISION PETROLEUM CORPORATION
NOTES TO THE FINANCIAL STATEMENTS
SEPTEMBER 30, 2010 AND 2009
(Audited)
The benefit for income taxes is different from the amount computed by
applying the U.S. statutory corporate federal income tax rate to pre-tax
loss as follows:
2010 2009
Amount Amount
------ ------
Income tax benefit computed at the
statutory rate of 34% $ 74,736 $ 65,031
Increase (reduction) in tax benefit
Resulting from:
Permanent items (221) -
Valuation allowance (74,515) (65,031)
----------- ------------
Income tax benefit $ - $ -
=========== ============
Note 7 Related Party Transactions
During the year ended September 30, 2010 and 2009, the Company incurred
management fees charged by a director of the Company totaling $12,000 and
$18,000, respectively.
Note 8 Common Stock
The Company's capitalization is 200,000,000 common shares with par value of
$.001 per share. On November 17, 2008, the Company authorized a forward stock
split of twelve for one (12:1) of our total issued and outstanding shares of
common stock and was effective January 8, 2009. All references in these
financial statements to number of shares, price per share, and weighted
average number of common shares outstanding prior to the 12:1 forward stock
split have been adjusted to reflect the split on a retroactive basis unless
otherwise noted.
a. Upon incorporation on February 7, 2007, the Company issued 12 post
split share of common stock to its founding officer and director for nominal
consideration.
b. In October 2007, the Company issued 36,000,000 shares of common
stock at $0.001 per share to directors of the Company for gross proceeds of
$3,000.
F-18
PRECISION PETROLEUM CORPORATION
NOTES TO THE FINANCIAL STATEMENTS
SEPTEMBER 30, 2010 AND 2009
(Audited)
c. In October 2007, the Company issued 48,000,000 shares of common
stock at $0.02 per share for gross proceeds of $80,135.
d. In September 2008, the Company's officers and directors resigned from
their positions with the Company. In connection with such resignations, such
officers and directors surrendered all of their shares of the Company's
common stock, totaling 39,600,012 post split shares, which were then
cancelled and returned to treasury. No compensation was paid for the
surrender of these shares.
Note 9 Supplemental Oil and Gas Information (Unaudited)
Full Cost
---------------------------------
2010 2009
--------------- ----------------
Capitalized Costs Relating to Oil and Gas
Producing Activities at September 30, 2010
and 2009
Unproved oil and gas properties $ - $ -
Proved oil and gas properties 1,014,599 993,980
Support equipment and facilities - -
--------------- ----------------
1,014,599 993,980
Less accumulated depletion, (82,520) (26,442)
--------------- ----------------
Net capitalized costs $ 932,079 $ 967,538
=============== ================
Costs Incurred in Oil and Gas Producing
Activities for the Year Ended September 30, 2010
and 2009
Property acquisition costs
Proved $ 64,791 $ 993,980
Unproved $ - $ -
Exploration costs $ - $ -
Asset retirement obligation $ 20,829 $ -
Development costs $ - $ -
Amortization rate per equivalent
barrel of production $ 18 $ 25
F-19
PRECISION PETROLEUM CORPORATION
NOTES TO THE FINANCIAL STATEMENTS
SEPTEMBER 30, 2010 AND 2009
(Audited)
Results of Operations for Oil and Gas Producing
Activities for the Year Ended September 30, 2010
and 2009
Oil and gas sales $ 190,143 $ 59,723
Production costs 89,431 36,610
Accretion expense 2,083 -
Exploration costs - -
Depreciation, depletion, and amortization 56,078 26,442
--------------- ----------------
42,551 (3,329)
Income tax expense - -
--------------- ----------------
Results of operations for oil and gas producing
activities (excluding corporate overhead and
financing costs) $ 42,551 $ (3,329)
=============== ================
Reserve Information
The following estimates of proved and proved developed reserve quantities and
related standardized measure of discounted net cash flow are estimates only,
and do not purport to reflect realizable values or fair market values of the
Company's reserves. The Company emphasizes that reserve estimates are
inherently imprecise and that estimates of new discoveries are more imprecise
than those of producing oil and gas properties. Accordingly, these estimates
are expected to change as future information becomes available. All of the
Company's reserves are located in the United States.
Proved reserves are estimated reserves of crude oil (including condensate and
natural gas liquids) and natural gas that geological and engineering data
demonstrate with reasonable certainty to be recoverable in future years from
known reservoirs under existing economic and operating conditions. Proved
developed reserves are those expected to be recovered through existing wells,
equipment, and operating methods.
F-20
PRECISION PETROLEUM CORPORATION
NOTES TO THE FINANCIAL STATEMENTS
SEPTEMBER 30, 2010 AND 2009
(Audited)
The standardized measure of discounted future net cash flows is computed by
applying year-end prices of oil and gas (with consideration of price changes
only to the extent provided by contractual arrangements) to the estimated
future production of proved oil and gas reserves, less estimated future
expenditures (based on year-end costs) to be incurred in developing and
producing the proved reserves, less estimated future income tax expenses
(based on year-end statutory tax rates, with consideration of future tax
rates already legislated) to be incurred on pretax net cash flows less tax
basis of the properties and available credits, and assuming continuation of
existing economic conditions. The estimated future net cash flows are then
discounted using a rate of 10 percent a year to reflect the estimated timing
of the future cash flows.
For the year ended For the year ended
September 30, 2010 September 30, 2009
------------------- -------------------
Oil Gas Oil Gas
(Bbls) (Mcf) (Bbls) (Mcf)
------- ---------- ------- ----------
Proved developed and
undeveloped reserves
Beginning of year 28,932 57,013 - -
Revisions of previous estimates 4,900 35,726 - -
Improved recovery
Purchases of minerals in place 2,540 11,902 29,770 58,290
Extensions and discoveries - - - -
Production (2,102) (5,711) (838) (1,277)
------- ---------- ------- ----------
Sales of minerals in place
End of year 34,270 98,930 28,932 57,013
------- ---------- ------- ----------
Proved developed reserves
Beginning of year 28,932 57,013 - -
End of year 21,544 58,045 28,932 57,013
Standardized Measure of Discounted Future
Net Cash Flows at
September 30, 2010 and 2009
Future cash inflows $3,097,543 1,959,859
Future production costs 1,028,222 715,002
Future development costs 93,899 -
Future income tax expenses 703,569 435,700
---------- ---------
Future net cash flows 1,271,853 809,157
10% annual discount for estimated
timing of cash flows (620,505) (275,113)
---------- ---------
F-21
PRECISION PETROLEUM CORPORATION
NOTES TO THE FINANCIAL STATEMENTS
SEPTEMBER 30, 2010 AND 2009
(Audited)
Standardized measures of discounted future
net cash flows relating to proved oil and
gas reserves $ 651,348 $ 534,044
========== ==========
The following reconciles the change in the
standardized measure of discounted
Future net cash flow during 2010 and 2009.
Beginning of year $ 534,044 $ -
Sales of oil and gas produced, net of
production costs (100,712) (23,112)
Net changes in prices and
production costs - -
Extensions, discoveries, and improved
recovery, less related costs - -
Development costs incurred during the year
which were previously estimated - -
Net change in estimated future development
Costs (93,899) -
Revisions of previous quantity estimates 628,406 -
Net change from purchases and sales of
minerals in place 314,770 1,267,969
Change of discount (363,392) (275,113)
Net change in income taxes (267,869) (435,700)
Other - -
---------- ----------
End of year $ 651,348 $ 534,044
========== ==========
NOTE 10 -SUBSEQUENT EVENTS
The Company has sold interests in oil and gas leases that it presently
owns after the fiscal year ended September 30, 2010.
The Company sold a 30% working interest it owned in the Ed Thompson #2-18
for $8,400 and 19.003906% of their working interest in the Ward McNeil for
$19,440.
F-22
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
ITEM 9A. Controls and procedures
Disclosure Controls and Procedures
The Company, under the supervision and with the participation of the
Company's management, including the Company's Chief Executive Officer and
Chief Financial Officer, performed an evaluation of the effectiveness of
the design and operation of the Company's disclosure controls and procedures
as of September 30, 2010. Based on that evaluation, the Chief Financial
Officer concluded that the Company's disclosure controls and procedures
were effective as of September 30, 2010.
ITEM 9(A)T. INTERNAL CONTROLS AND PROCEDURES
Management's Report on Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate internal
control over financial reporting, as such term is defined in the Securities
Exchange Act of 1934 Rule 13a-15(f). Our Chief Executive Officer and Chief
Financial Officer conducted an evaluation of the effectiveness of our
internal control over financial reporting based on the framework in
Internal Control - Integrated Framework, issued by the Committee of
Sponsoring Organizations of the Treadway Commission ("COSO Framework").
Based on this evaluation, management has concluded that our internal control
over financial reporting was effective as of September 30, 2010.
This annual report does not include an attestation report of the Company's
independent registered public accounting firm regarding internal control over
financial reporting. Management's report was not subject to attestation by
the Company's independent registered public accounting firm pursuant to
temporary rules of the Securities and Exchange Commission that permit the
Company to provide only management's report on internal control in this
annual report.
Changes in Internal Control over Financial Reporting
There were no changes in internal control over financial reporting that
occurred during the last fiscal quarter covered by this report that have
materially affected, or are reasonably likely to affect, the Company's
internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
None.
13
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, CONTROL PERSONS AND
CORPORATE GOVERNANCE: COMPLIANCE WITH SECTION 16A OF THE EXCHANGE
ACT
Directors and Executive Officers
The following sets forth the names, ages and positions of our current
directors and executive officers (and persons nominated or chosen to become
such) including their term(s) of office as a director and the period during
which the person has served: a brief description of the person's business
experience during the past five (5) years; and if a director, or any other
directorship held in reporting companies naming such company.
Name Age Offices Held
Richard Porterfield 64 Director; President
James Kirby 50 Chief Financial Officer
Sharon Farris 50 Secretary
Mr. Richard Porterfield - member of the Board of Directors; President
Mr. Porterfield was appointed as a member of the Corporation's Board of
Directors and as the Corporation's President and Secretary on January 20,
2009. Mr. Porterfield has been working in the oil and gas industry for over
30 years. From November 2008 to May 2009, he worked as a Geologist for Nitro
Petroleum Corp. From January 2004 to April 2006, he worked as a geologist for
Hoco, Inc. and from November 2006 to March 2008, he worked as a geologist for
Bentrock, Inc. Mr. Porterfield earned an AA degree in Business Management
from Rose State College in Midwest City, Oklahoma.
Mr. James Kirby - Chief Financial Officer
Mr. Kirby was appointed as the Company's Chief Financial Officer on June 3,
2009. From September 1997 to present he has been the Vice President of First
National Bank of Shawnee. Mr. Kirby has also been a member of the Board of
Directors of Nitro Petroleum Incorporated since December 2007. Nitro
Petroleum is a public company registered with the SEC. He studied banking at
Seminole College and business at Oklahoma State University.
The Company has not entered into any transaction with Mr. Kirby that would be
regarded as related party transactions.
14
Ms. Sharon Farris - Secretary
From September 7, 2008, to January 20, 2009, Ms. Farris served as a member
of the Board of Directors and as the Corporation's President, Treasurer and
Secretary. On January 20, 2009, Ms. Farris resigned as a member of the Board
and as President and Treasurer. Mr. Farris continues to serve as the
Corporation's Secretary. On Ms. Farris has been working in the oil and gas
industry for the past several years. She has worked for Buccaneer Energy
Corporation and HoCo, Inc. for the past two and a half years, working with
the Oklahoma Corporation Commission, Oklahoma Tax Commission, Petroleum
Engineers, Geologist, Landowners, Attorneys, Crude Purchasers as well as
various oil field workers. Ms. Farris was born and raised in Norman,
Oklahoma. She studied overseas at the International School in Islamabad,
Pakistan for two years and spent her last semester at Norman High School,
where she graduated. She then attended the University of Oklahoma,
graduating with a Bachelors of Arts and Science. She has over fifteen years
of management experience and over five years as a Certified Manager Trainer.
She has a family background in the oil and gas industry.
Significant Employees
We have no employees at this time.
Family Relationships
None
Involvement In Certain Legal Proceedings
None.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities and Exchange Act of 1934 requires any person
who is a director or executive officer or who beneficially holds more than
ten percent (10%) of any class of our securities which have been registered
with the Securities and Exchange Commission, to file reports of initial
ownership and changes in ownership with the Securities and Exchange
Commission. These persons are also required under the regulations of the
Securities and Exchange Commission to furnish us with copies of all Section
16(a) reports they file.
To our knowledge, based solely on our review of the copies of the Section
16(a) reports furnished to us and a review of our shareholders of record for
the fiscal year ended September 30, 2010, there were no filing delinquencies.
15
Code of Ethics
We have not yet prepared a written code of ethics and employment standards.
We have only recently commenced operations. We expect to implement a Code of
Ethics during the current fiscal year.
Corporate Governance; Audit Committee Financial Expert
Nominating Committee
We currently do not have a nominating committee. Our Board as a whole acts
as our nominating committee.
Audit Committee
As we currently do not have an audit committee financial expert or an
independent audit committee expert due to the fact that our Board currently
does not have an independent audit committee. Our Board does not have any
(1) independent member, and thus, does not have the ability to create a
proper independent audit committee.
Presently, our Board is performing the duties that would normally be
performed by an audit committee. We intend to form a separate audit
committee, and are seeking potential independent directors. We are seeking
experienced business people and plan to appoint an individual qualified as
an audit committee financial expert.
ITEM 11. EXECUTIVE COMPENSATION.
Other than as described below, our executive officers have not received any
compensation since the date of our incorporation, and we did not accrue any
compensation. There are no securities authorized for issuance under any
equity compensation plan, or any options, warrants, or rights to purchase our
common stock.
During the fiscal year ended September 30, 2010, we paid our President and
Treasurer, Mr. Porterfield, a total of $12,000 in compensation for his
services as our sole executive officer.
During the fiscal year ended September 30, 2009, we paid our President and
Treasurer, Mr. Porterfield, a total of $18,000 in compensation for his
services as our sole executive officer.
Compensation of Directors
We do not compensate our directors for their time spent on our behalf, but
they are entitled to receive reimbursement for all out of pocket expenses
incurred for attendance at our Board of Directors meetings.
16
Pension and Retirement Plans
Currently, we do not offer any annuity, pension or retirement benefits to be
paid to any of our officers, directors or employees, in the event of
retirement. There are also no compensatory plans or arrangements with
respect to any individual named above which results or will result from the
resignation, retirement or any other termination of employment with us, or
from a change in our control.
Employment Agreements
We do not have written employment agreements.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AND RELATED STOCKHOLDER MATTERS
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Securities Authorized for Issuance Under Equity Compensation Plans
There are no securities authorized for issuance under any equity compensation
plan, or any options, warrants, or rights to purchase our common stock.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
We are required under Regulation S-K of the Securities Exchange Act of 1934
(the "Exchange Act") to provide certain information, with respect to any
person (including any "group", as that term is used in Section 13(d)(3) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act")) who is
known to us to be the beneficial owner of more than five (5) percent of any
class of our voting securities, and as to those shares of our equity
securities beneficially owned by each of our directors, our executive
officers and all of our directors and executive officers and all of our
directors and executive officers as a group. Based on our review of
statements filed with the Securities and Exchange Commission (the
"Commission") pursuant to Sections 13 (d), 13 (f), and 13 (g) of the Exchange
Act with respect to our common stock and a review of our shareholders list,
as of January 13, 2011, we had only two (2) shareholders who held 5% or more
of our common stock, which is our only class of capital stock. As of
January 13, 2011, there were 44,400,000 shares of our common stock
outstanding.
17
The number of shares of common stock beneficially owned by each person is
determined under the rules of the Commission and the information is not
necessarily indicative of beneficial ownership for any other purpose. Under
such rules, beneficial ownership includes any shares as to which such person
has sole or shared voting power or investment power and also any shares which
the individual has the right to acquire within sixty (60) days after the date
hereof, through the exercise of any stock option, warrant or other right.
Unless otherwise indicated, each person has sole investment and voting power
(or shares such power with his or her spouse) with respect to the shares set
forth in the following table. The inclusion herein of any shares deemed
beneficially owned does not constitute an admission of beneficial ownership
of those shares.
The table also shows the number of shares beneficially owned as of
December 31, 2010 by each of the individual directors and executive
officers and by all directors and executive officers as a group.
Title of Name and Address of Amount and Nature of Percent of
Class Beneficial Owner Beneficial Ownership Class
-------- --------------------- ------------------------- ----------
Common Richard Porterfield -0- 0%
2205 Rushing Meadows
Edmond, OK 73013
Common James Kirby -0- 0%
P.O. Box 1025
McLoud, OK 74851
Common Sharon Farris -0- 0%
Secretary
9250 75th Street
Lexington, OK 73051
All officers and directors as a group -0- 0%
Beneficial Owners: 2,350,000 5.3%
Common Stonehurst Limited
Suite 13, Oliaji Trade Centre
Francis Rachel St, Victoria Mahe
Seychelles
Common Terra Equity LLC 5,170,000 11.6%
Henville Building
Charleston, Nevis
(1) Percent of Ownership is calculated in accordance with the Securities
and Exchange Commission's Rule 13(d) - 13(d)(1)
Changes in Control
We have not entered into any arrangements which may result in a change in our
control
18
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
Transactions With Related Persons
Other than the stock transactions disclosed below, we have not entered into
any transactions in which any of our directors, executive officers, or
affiliates, including any member of an immediate family that had or are to
have a direct or indirect material interest.
Parents
None
Promoters and Control Persons
None.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Audit and Audit Related Fees.
The aggregate fees billed by our auditors, for audit fees during the years
ended September 30, 2010, and 2009, were $16,500 and $18,750, respectively.
We did not incur any fees billed by our auditors for audited related
services.
Tax Fees.
We did not incur any fees billed by our auditors for tax compliance, tax
advice or tax compliance services during the fiscal year ended
September 30, 2010 and 2009.
All Other Fees.
We did not incur any other fees billed by auditors for services rendered to
us other than the services covered in "Audit Fees" for the fiscal years ended
September 30, 2010 and 2009.
The Board has considered whether the provision of non-audit services is
compatible with maintaining the principal accountant's independence. Since
there is no audit committee, there are no audit committee pre-approval
policies and procedures.
19
ITEM 15. EXHIBITS
Exhibit Index
3.1 (a) Articles of Incorporation*
3.1 (b) Amendments to Articles of Incorporation filed
with the Secretary of State of the State of Nevada
on October 17, 2008, October 27, 2008, November 17,
2008, and December 5, 2008.*
3.2 By-laws*
31.1 Section 302 Certification - President
31.2 Section 302 Certification - Chief Financial Officer
32.1 Certification Pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the President.
32.2 Certification Pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Chief Financial Officer.
*Incorporated by reference to our Registration Statement on Form S-1 file
number 333-149823, filed on March 20, 2008.
20
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized, on
this 13th day of January, 2011.
PRECISION PETROLEUM CORPORATION
Date: January 13, 2011 By: /s/ Richard Porterfield
-------------------------------------
Name: Richard Porterfield
Title: President, Principal Executive
Officer,
By: /s/ James Kirby
-------------------------------------
Name: James Kirby
Title: Chief Financial Officer,
Principal Financial Officer and
Principal Accounting Officer
Pursuant to the requirements of the Securities Act of 1933, this report has
been signed by the following persons on behalf of the registrant and in the
capacities indicated and on the dates indicated:
PRECISION PETROLEUM CORPORATION
Dated: January 13, 2011 By: /s/ Richard Porterfield
-------------------------------------
Name: Richard Porterfield
Title: Director
21