Attached files
file | filename |
---|---|
EX-31.2 - Glen Rose Petroleum CORP | v211982_ex31-2.htm |
EX-31.1 - Glen Rose Petroleum CORP | v211982_ex31-1.htm |
EX-32.1 - Glen Rose Petroleum CORP | v211982_ex32-1.htm |
EX-32.2 - Glen Rose Petroleum CORP | v211982_ex32-2.htm |
EX-10.28 - Glen Rose Petroleum CORP | v211982_ex10-28.htm |
EX-10.29 - Glen Rose Petroleum CORP | v211982_ex10-29.htm |
EX-10.22(A) - Glen Rose Petroleum CORP | v211982_ex10-22a.htm |
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
Form
10-Q
(Mark
One)
x
|
QUARTERLY REPORT UNDER SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For
the quarterly period ended December 31, 2010
¨
|
TRANSITION REPORT UNDER SECTION
13 OR 15(d) OF THE EXCHANGE
ACT
|
For the
transition period from ___________ to ___________.
Commission
File No. 001-10179
Glen Rose Petroleum
Corporation
(Exact
name of registrant as specified in charter)
Delaware
|
87-0372864
|
|
(State
or other jurisdiction of
incorporation
or organization)
|
(I.R.S.
Employer Identification
No.)
|
22762
Westheimer Parkway, Suite 515, Katy, Texas 77450
(832)
437-0329
(Issuer’s telephone number)
(Former
name, former address and former fiscal year if changed since last
report)
Copies of
all communications to:
Marc
Ross, Esq.
Andrew
Smith, Esq.
Sichenzia
Ross Friedman Ference LLP
61
Broadway, 32nd Floor
New York,
New York 10006
Phone:
(212) 930-9700
Fax:
(212) 930-9725
Securities registered pursuant to
Section 12(b) of the Act: None
Securities
registered pursuant to Section 12(b) of the Act: Common Stock, $0.001 par
value
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. x
Yes ¨
No
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files). Yes ¨ No ¨
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company.
See the
definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.
¨ Large
accelerated filer
|
¨ Accelerated
filer
|
¨
Non-accelerated filer (Do not check if a smaller reporting
company)
|
x Smaller
reporting company
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
¨ Yes x No
Indicate
the number of shares outstanding of each of the issuer’s classes of common
stock, as of the latest practicable date. As of February 11, 2011, the Company
had 17,659,677 shares outstanding.
GLEN
ROSE PETROLEUM CORPORATION—FORM 10-Q
TABLE
OF CONTENTS
Page Number
|
||
P ART I - FINANCIAL
INFORMATION
|
||
Item
1 - Financial Statements
|
F-1
|
|
Condensed
Consolidated Balance Sheets at December 31, 2010 (unaudited) and March 31,
2010
|
F-1
|
|
Condensed
Consolidated Statements of Operations for the three months and nine months
ended December 31, 2010 and December 31, 2009 – Unaudited
|
F-3
|
|
Condensed
Consolidated Statements of Cash Flows for the nine months ended December
31, 2010 and December 31, 2009 - Unaudited
|
F-4
|
|
Notes
to Unaudited Condensed Consolidated Financial Statements
|
F-6
|
|
Item
2 - Management’s Discussion and Analysis or Plan of
Operation
|
1
|
|
Item
4 - Controls and Procedures
|
8
|
|
PART
II - OTHER INFORMATION
|
||
8
|
||
9
|
||
9
|
||
Item
4 – Removed and Reserved
|
9
|
|
9
|
||
10
|
||
|
13
|
PART
I - FINANCIAL INFORMATION
FINANCIAL
STATEMENTS.
GLEN
ROSE PETROLEUM CORPORATION AND SUBSIDIARIES
December
31,
|
March 31,
|
|||||||
2010
|
2010
|
|||||||
(Unaudited)
|
||||||||
|
||||||||
CURRENT
ASSETS
|
||||||||
Cash
|
$ | 29,382 | $ | 455,233 | ||||
Cash
held in escrow
|
- | 2,750,000 | ||||||
Accounts
receivable
|
165,197 | - | ||||||
Security
deposits
|
1,000 | - | ||||||
Notes
receivable
|
226,292 | 197,808 | ||||||
Inventory
|
55,433 | 54,947 | ||||||
Prepaid
expenses
|
39,078 | 121,667 | ||||||
Total
current assets
|
516,382 | 3,579,655 | ||||||
OIL
AND GAS PROPERTIES, accounted for using the full cost
method
|
||||||||
Unproven
|
1,116,150 | 1,050,000 | ||||||
Proven
|
4,503,109 | 4,096,039 | ||||||
5,619,259 | 5,146,039 | |||||||
PROPERTY
AND EQUIPMENT, at cost
|
||||||||
Asset
held under capital lease
|
26,571 | - | ||||||
Field
equipment
|
897,310 | 123,666 | ||||||
Computer
equipment
|
38,333 | 15,833 | ||||||
Vehicles
|
87,472 | 41,281 | ||||||
1,049,686 | 180,780 | |||||||
Less
accumulated depreciation
|
(92,491 | ) | (36,981 | ) | ||||
|
957,195 | 143,799 | ||||||
OTHER
ASSETS:
|
||||||||
Equipment
deposit
|
- | 8,907 | ||||||
TOTAL
ASSETS
|
$ | 7,092,836 | $ | 8,878,400 |
See
notes to the consolidated condensed financial statements.
F-1
GLEN ROSE PETROLEUM
CORPORATION AND
SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE
SHEETS (Continued)
December
31,
|
March 31,
|
|||||||
2010
|
2010
|
|||||||
(Unaudited)
|
||||||||
CURRENT
LIABILITIES
|
||||||||
Accounts
payable and accrued expense
|
$ | 955,944 | $ | 752,133 | ||||
Accrued
interest
|
271,566 | 53,675 | ||||||
Note
payable – related party
|
30,714 | 28,935 | ||||||
Notes
payable – other
|
44,893 | 39,258 | ||||||
Current
portion of obligation under capital lease
|
6,480 | - | ||||||
Total
current liabilities
|
1,309,597 | 874,001 | ||||||
Asset
retirement obligation
|
74,128 | 71,686 | ||||||
Convertible
notes payable, net of unamortized discount and loan fee
|
2,649,291 | 1,906,908 | ||||||
Notes
payable - other
|
2,489,780 | 2,489,780 | ||||||
Total
liabilities
|
6,522,796 | 5,342,375 | ||||||
SHAREHOLDERS’
EQUITY
|
||||||||
Preferred
stock, $.0001 par value, 5,000,000 shares authorized, none issued or
outstanding
|
- | - | ||||||
Common
stock, $.001 par value, 20,000,000 shares authorized; 17,631,441 shares
issued and outstanding at
December
31, 2010, and 16,659,641 shares issued and outstanding at March 31,
2010
|
17,631 | 16,660 | ||||||
Common
stock subscription receivable
|
(91,282 | ) | (88,912 | ) | ||||
Additional
paid-in capital
|
55,129,949 | 54,550,837 | ||||||
Members'
distributions*
|
(5,762 | ) | - | |||||
Accumulated
deficit
|
(54,480,496 | ) | (50,942,560 | ) | ||||
Total
shareholders’ equity
|
570,040 | 3,536,025 | ||||||
TOTAL
LIABILITIES AND SHAREHOLDERS’ EQUITY
|
$ | 7,092,836 | $ | 8,878,400 |
*
Variable interest entity activity, see Note 9 to the accompanying financial
statements.
See
notes to the consolidated condensed financial statements.
F-2
GLEN
ROSE PETROLEUM CORPORATION AND SUBSIDIARIES
CONSOLIDATED
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
Three
Months Ended
|
Nine
Months Ended
|
|||||||||||||||
December
31,
|
December
31,
|
|||||||||||||||
2010
|
2009
|
2010
|
2009
|
|||||||||||||
OPERATING
REVENUES
|
||||||||||||||||
Oil
and gas sales
|
$ | 477,403 | $ | 33,660 | $ | 747,640 | $ | 97,801 | ||||||||
TOTAL
OPERATING REVENUES
|
477,403 | 33,660 | 747,640 | 97,801 | ||||||||||||
OPERATING
COSTS AND EXPENSES
|
||||||||||||||||
Production
and operating
|
334,193 | 16,083 | 570,791 | 81,000 | ||||||||||||
Impairment
of long-term asset
|
- | - | 124,870 | - | ||||||||||||
Depreciation,
depletion and accretion
|
117,181 | 7,198 | 205,692 | 37,774 | ||||||||||||
General
and administrative
|
501,981 | 208,930 | 1,802,842 | 600,396 | ||||||||||||
Stock
compensation expense
|
124,038 | 169,580 | 580,085 | 260,814 | ||||||||||||
TOTAL
OPERATING COSTS AND EXPENSES
|
1,077,393 | 401,791 | 3,284,280 | 979,984 | ||||||||||||
LOSS
FROM OPERATIONS
|
(599,990 | ) | (368,131 | ) | (2,536,640 | ) | (882,183 | ) | ||||||||
OTHER
INCOME (EXPENSE)
|
||||||||||||||||
Interest
income
|
10,778 | 8,287 | 31,117 | 23,472 | ||||||||||||
Gain
on cancellation of indebtedness
|
- | 3,000 | 34,860 | 3,000 | ||||||||||||
Loss
on disposal of asset
|
- | - | - | (23,712 | ) | |||||||||||
Other
income
|
- | 2,000 | - | 4,550 | ||||||||||||
Interest
expense
|
(366,766 | ) | (43,630 | ) | (1,067,274 | ) | (109,395 | ) | ||||||||
NET
LOSS
|
$ | (955,978 | ) | $ | (398,474 | ) | $ | (3,537,937 | ) | $ | (984,268 | ) | ||||
Loss
per share (basic and diluted)
|
$ | (0.05 | ) | $ | (0.03 | ) | $ | (0.20 | ) | $ | (0.09 | ) | ||||
Weighted
average number of shares outstanding (basic and diluted)
|
17,577,055 | 11,541,361 | 17,265,027 | 11,541,361 |
See
notes to the consolidated condensed financial statements.
F-3
GLEN
ROSE PETROLEUM CORPORATION AND SUBSIDIARIES
CONSOLIDATED
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
For
the Nine Months Ended
|
||||||||
December
31,
|
||||||||
2010
|
2009
|
|||||||
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
||||||||
Net
loss
|
$ | (3,537,937 | ) | $ | (984,268 | ) | ||
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
||||||||
Loss
on impairment of long-term asset
|
124,870 | - | ||||||
Depreciation,
depletion and accretion
|
205,692 | 37,774 | ||||||
Net
gain on settlement of debt
|
34,860 | - | ||||||
Stock
compensation expense
|
580,085 | 260,814 | ||||||
Net
loss on disposal of equipment
|
- | 23,712 | ||||||
Gain
on relief of indebtedness
|
- | (3,000 | ) | |||||
Changes
in assets and liabilities:
|
||||||||
Trade
and other receivables
|
(167,568 | ) | 16,422 | |||||
Short
term notes receivable
|
(28,483 | ) | (22,856 | ) | ||||
Inventory
|
(486 | ) | (24,178 | ) | ||||
Prepaid
expenses and other assets
|
137,233 | 22,627 | ||||||
Accounts
payable and accrued expenses - related party
|
- | (100,178 | ) | |||||
Accounts
payable and accrued expenses
|
162,786 | 334,181 | ||||||
Interest
added to note payable
|
398,159 | 26,887 | ||||||
Interest
on amortization of discount and loan fees
|
569,529 | 59,850 | ||||||
Net
cash used in operating activities
|
(1,521,260 | ) | (352,213 | ) | ||||
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
||||||||
Additions
to oil and gas properties
|
(745,830 | ) | (200,936 | ) | ||||
Proceeds
from sale of property, plant and equipment
|
- | 2,352 | ||||||
Additions
to equipment
|
(834,888 | ) | (5,900 | ) | ||||
Loan
repayments
|
- | 19,937 | ||||||
Net
cash used in investing activities
|
(1,580,718 | ) | (184,547 | ) | ||||
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
||||||||
Proceeds
from borrowings
|
- | 500,380 | ||||||
Issuance
of common stock
|
- | 100,000 | ||||||
Reduction
in capital lease obligation
|
(12,466 | ) | - | |||||
Payments
on notes payable
|
(55,645 | ) | (12,000 | ) | ||||
Distribution
to members *
|
(5,762 | ) | - | |||||
Net
cash provided by (used in) financing activities
|
(73,873 | ) | 588,380 | |||||
NET
INCREASE (DECREASE) IN CASH
|
(3,175,851 | ) | 51,620 | |||||
CASH, beginning of
year
|
3,205,233 | 18,867 | ||||||
CASH, end of
year
|
$ | 29,382 | $ | 70,487 |
*
Variable interest entity activity, see note 9 to the accompanying financial
statements.
See
notes to the consolidated condensed financial statements.
F-4
For
the Nine Months Ended
|
||||||||
December
31,
|
||||||||
2010
|
2009
|
|||||||
(Unaudited)
|
(Unaudited)
|
|||||||
SUPPLEMENTAL
DISCLOSURES OF CASH FLOW INFORMATION:
|
|
|
||||||
Cash
paid during the year for:
|
||||||||
Interest
|
$ | 94,916 | $ | - | ||||
Taxes
|
$ | - | $ | - | ||||
SUPPLEMENTAL
SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
|
||||||||
Beneficial
conversion feature on note payable
|
$ | - | $ | - |
F-5
NOTES
TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
NOTE
1 – BASIS OF PRESENTATION
Glen Rose
Petroleum Corporation’s (the “Company,” “we” or “our”) interim condensed
consolidated financial statements are unaudited. They contain all necessary
adjustments (consisting only of normal recurring adjustments) for a fair
statement of the referenced interim period results. These interim period
results do not indicate expected full-year results or results for future
quarters/periods, due to several factors, including price volatility of crude
oil and natural gas, price volatility of commodity derivatives, volatility of
interest rates, estimates of reserves, drilling risks, geological risks,
transportation restrictions, timing of acquisitions, product demand, market
competition, interruption(s) in production, our ability to obtain additional
capital, and the success of proposed enhanced oil recovery work (EOR). These
consolidated interim financial statements should be read in conjunction with the
audited consolidated financial statements and related notes included in Glen
Rose Petroleum Corporation’s Form 10-K and Form 10-K/A for the year ended
March 31, 2010.
We
prepared the accompanying financial statements in accordance with accounting
principles generally accepted in the United States of America (“GAAP”) and
included the accounts of Glen Rose Petroleum Corporation and its wholly-owned
subsidiaries and variable interest entities in which management considers the
Company to be the primary beneficiary. We eliminated intercompany accounts
and transactions. Management has made certain estimates and assumptions
that affect reported amounts in the financial statements and disclosures of
contingencies. Actual results may differ from those estimates. We
made significant assumptions in valuing the Company’s unproved oil reserves,
which may affect the amounts at which oil properties are recorded. We have
computed the Company’s stock-based compensation expense using assumptions such
as volatility, expected life and the risk-free interest rate. Those
assumptions may be revised in the near term, in which case these estimates will
revised, and these revisions could be material.
We
prepared the Company’s financial statements on a going concern basis which
contemplates the realization of assets and the liquidation of liabilities in the
ordinary course of business. The Company has incurred substantial losses
from operations and has a working capital deficit, which history and
circumstance raise substantial doubt as to the Company’s ability to continue as
a going concern. The Company had a net loss of $3,537,937 for the nine months
ended December 31, 2010 and a net loss of $2,509,790 for the fiscal year ended
March 31, 2010 and, as of the same periods, the Company had an accumulated
deficit of $54,480,496, and $50,942,560, respectively. During the quarter
ended December 31, 2010, the Company did not raise any gross proceeds of
additional equity financing. The Company is currently seeking additional
capital to develop its properties and expand its operations. However; the
Company can provide no assurance that it will be able to obtain the needed
funds. Until such funds are obtained and/or positive results from planned
property development materialize, doubt about its ability to continue as a going
concern may remain.
Currently
we have one customer who buys 100% of our production.
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 and National Heritage Sales Corporation. In addition,
Glen Rose Partners I LLC, a variable interest entity for which the Company has
been determined to be the primary beneficiary, is also included in the condensed
consolidated financial statements.
In
February 2010, UHC New Mexico Corporation (“New Mexico”), a wholly-owned
non-operating subsidiary of the Company was transferred to Blackwood Capital
Limited, a company controlled by our Chief Executive Officer. The transfer was a
requirement of the Iroquois financing (See Note 6).
The name
of the Company was changed from United Heritage Corporation to Glen Rose
Petroleum Corporation in May, 2008.
F-6
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 properties located in Edwards County, Texas and does not operate
oil or 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.
During
the quarter ended December 31, 2010, the Company’s oil and gas properties did
not have an impairment to recognize because it did not exceed its ceiling test
limit.
F-7
GLEN
ROSE PETROLEUM CORPORATION AND SUBSIDIARIES
NOTES
TO CONSOLIDATED CONDENSED 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. During the nine months ended December 31, 2010 and
December 31, 2009, the Company recorded depreciation expense of $55,510 and
$18,203 respectively, which was charged to operations as incurred.
Earnings
(Loss) per Common Share
The
Company adopted the provisions of ASC Topic 260-10, Earnings Per Share (“EPS”).
ACS Topic 260-10 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 nine months ended December 31, 2010 and December 31, 2009, 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. At December 31, 2010, the Company had potential common
shares consisting of options and warrants exercisable into 28,226,420
shares, debt of $3,350,000 convertible into 11,666,667 shares,
and an option granted to convert a 12.5% working interest in the
Company’s Wardlaw lease into 2,222,222 shares. At December 31, 2009, the Company
had potential common shares consisting of options and warrants exercisable
into 25,634,752 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.
Concentration
of Credit Risk
The
Company primarily transacts its business with one financial institution. The
account balances in that institution may from time-to-time exceed the federally
insured limit of $250,000.
During
the nine months ended December 31, 2010 and 2009, substantially all of the
Company’s revenue was generated from contracts with one customer.
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.
F-8
Financial
Instruments
Financial
instruments consist of cash and cash equivalents, accounts receivable, accounts
payable and notes payable. Recorded values of cash, receivables, payables and
short-term debt approximate their respective fair values due to short maturities
of these instruments. Recorded values of long-term notes payable approximate
fair values, since their effective interest rates are commensurate with
prevailing market rates for similar obligations.
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 ASC Topic
505-10 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 ASC Topic 505-10, 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.
Long-Lived
Assets
Long-lived
assets to be held and used by the Company 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 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. For the nine months ended December 31, 2010, under the
ceiling test pertaining to its oil properties, the Company did not have an
impairment.
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 ASC Topic
740-10, 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.
NOTE
2 – RECENT ACCOUNTING PRONOUNCEMENTS
In
January 2011, the Financial Accounting Standards Board (FASB) issued Accounting
Standards Update 2011-01 (ASU 2011-01) Receivables (Topic 310): Deferral of
the Effective Date of Disclosures about Troubled Debt Restructurings in Update
No. 2010-20 . ASU 2011-01 temporarily delay the effective date
of the disclosures about troubled debt restructurings. The effective
date of the new disclosures about troubled debt restructurings for public
entities and the guidance for determining what constitutes a troubled debt
restructuring will then be coordinated. Currently, the guidance is
anticipated to be effective for interim and annual period ending after June 15,
2011. The Company does not expect the provisions of ASU
2011-01 to have a material effect on its financial position, results of
operations or cash flows.
F-9
In
December 2010, the Financial Accounting Standards Board (FASB) issued Accounting
Standards Update 2010-29 (ASU 2010-29) Business Combinations (Topic 805): Disclosure of Supplementary Pro
Forma Information for Business Combinations (a consensus of the FASB Emerging
Issues Task Force). The amendments in this Update specify that
if a public entity presents comparative financial statements, the entity should
disclose revenue and earnings of the combined entity as though the business
combination(s) that occurred during the current year had occurred as of the
beginning of the comparable prior annual reporting period only. The
amendments in the Update also expand the supplemental pro forma disclosures
under Topic 805 to include a description of the nature and amount of material,
nonrecurring pro forma adjustments directly attributable to the business
combination included in the reported pro forma revenue and
earnings. The amendments in the Update are effective prospectively
for business combinations for which the acquisition date is on or after the
beginning of the first annual reporting period beginning on or after December
15, 2010. The Company does not expect the provisions of ASU 2010-29
to have a material effect on its financial position, results of operations or
cash flows.
In
December 2010, the Financial Accounting Standards Board (FASB) issued Accounting
Standards Update 2010-28 (ASU 2010-28) Intangibles – Goodwill and Other
(Topic 350): When to Perform Step 2 of the Goodwill Impairment Test for
Reporting Units with Zero or Negative Carrying Amounts (a consensus of the FASB
Emerging Issued Task Force). The amendments in the Update modify Step 1
of the goodwill impairment test for reporting units with zero or negative
carrying amounts. For those reporting units, an entity is required to
perform Step 2 of the goodwill impairment test if it is more likely than not
that a goodwill impairment exists. In determining whether it is more
likely than not that a goodwill impairment exists, an entity should consider
whether there are any adverse qualitative factors indicating that an impairment
may exist. The qualitative factors are consistent with the existing
guidance which requires that goodwill of a reporting unit be tested for
impairment between annual tests if an event occurs or circumstances change that
would more like than not reduce the fair value of a reporting unit below its
carrying amount. For public entities, the amendments in this Update
are effective for fiscal years, and interim periods within those years,
beginning after December 15, 2010. Early adoption is not
permitted. The Company does not expect the provisions of ASU 2010-28
to have a material effect on its financial position, results of operations or
cash flows.
NOTE
3 – INVENTORY
Inventory
consists of oil in tanks of $55,433 and $54,947 at December 31, 2010 and March
31, 2010, respectively. Inventory is valued at the lower of cost to
produce the oil or the current available sales price.
NOTE
4 – INCOME TAXES
Included
in Company’s net deferred tax assets are approximately $4,977,000 of potential
future tax benefits from prior unused tax losses. Realization of these tax
assets depends on sufficient future taxable income before the benefits expire.
It is not certain that the Company will have sufficient future taxable income to
utilize the loss carry-forward benefits before they expire. Therefore, an
allowance has been provided for the full amount of the net deferred tax asset.
The Company’s recent change of majority ownership significantly reduced its
ability to utilize its net operating losses.
NOTE
5 – STOCK OPTIONS
The
following table summarizes pertinent information with regard to our stock option
Plans for the nine months ended December 31, 2010:
Option
and
|
Weighted Average
Exercise
|
|||||||
Rights
|
Price
|
|||||||
Outstanding
at beginning of year, April 1, 2010
|
1,020,000
|
$
|
1.63
|
|||||
Granted
|
||||||||
Exercised
|
||||||||
Forfeited
|
||||||||
Expired
|
||||||||
Outstanding
at December 31, 2010
|
1,020,000
|
1.63
|
||||||
Exercisable
at December 31, 2010
|
1,020,000
|
$
|
1.63
|
The
weighted average contractual life of options outstanding and exercisable at
December 31, 2010 was 1.15 years. The weighted average grant date fair value for
options granted was $0.95 for the nine months ended December 31,
2010.
During
the quarter ended December 31, 2010, the Company did not grant any
options.
F-10
NOTE
6 – NOTES PAYABLE
Blackwood
Ventures LLC
During
the quarter ended December 31, 2010 and 2009, the Company accrued interest in
the amount of $607 and $7,036 respectively, which was charged to
operations. As of December 31, 2010, the note balance, including
accrued interest was $30,714. Blackwood Ventures LLC was a related
party at the inception of the note. This note is currently subject to a lawsuit
with a former officer of the Company.
Buccaneer
Energy Corporation
During
the quarter ended December 31, 2010 and 2009, the Company accrued interest in
the amount of $1,977 and $1,619, which was charged to operations. The
balance of this note at December 31, 2010 was $44,893. Buccaneer Energy
Corporation was a related party at the inception of the note. This
note is currently subject to a lawsuit with a former officer of the
Company.
Installment
Obligation
The
Company is financing premiums on certain insurance policies. The obligation is
paid in three quarterly installments of $19,196 including interest assessed at
an annual rate of 6.91%. The first installment was due and paid in June 2010.
The balance of this obligation was fully paid at December 31, 2010. Interest
charged to operations on this obligation during the quarter ended December 31,
2010 totaled $486.
Lothian
Put Option Holders
In
February 2010, the Company entered into novation agreements with the option
holders to convert the put option liabilities into unsecured notes payable
totaling $2,489,780. These notes are assessed interest at an annual rate of 4%
and mature on September 30, 2011, when the principal balances and accrued
interest thereon are due; however, the Company has the right to extend the
maturity dates to September 30, 2012 with an increase in the interest rate
charged on the notes to 6% per annum. Interest accrued on these notes
and charged to operations for the quarter ended December 31, 2010 amounted to
$38,177. The balance of this obligation at December 31, 2010, including accrued
interest of $136,523, totaled $2,626,303.
Iroquois
Capital Opportunity Fund, LP
Convertible
Debt
On March
3, 2010, the Company issued secured convertible notes and warrants to Iroquois
Capital Opportunity Fund and 12 other investors in exchange for $3,350,000. The
notes mature in two years and accrue interest at an annual rate of 8%. The
Company, at its election during the first 180 days and, with the Note holder’s
permission, thereafter, can elect to defer the required quarterly interest
payments by calculating accrued interest for the quarter using the rate of 12%
per annum and agreeing to add the accrued interest amount to the principal
amount of the notes. The outstanding principal and interest on the
notes is convertible into Company common stock at the option of each note holder
at $0.30 per share with the Company having the right to force conversion once
the Company achieves a greater than $1.25 share price and minimum daily volume
of $2,000,000. The maximum number of conversion common stock shares
for the notes’ principal amounts, assuming all shares are converted, is
11,666,667 common stock shares. The notes are secured by all of the
Company’s and its subsidiaries’ assets. The investors are also
receiving a total of 11,666,667 warrants exercisable at $0.60 per share with
five year terms. The warrants have cashless exercise
provisions. Should the Company issue common stock to third parties
for consideration less than the note conversion price or the warrant exercise
price during the term of the notes or warrants, the note conversion price and
the warrant exercise price shall be adjusted downward to equal the price at
which the Company issued that common stock. The Company incurred loans fees of
$250,311 which is being amortized over the life of the loan and is being netted
against the balance of the notes.
F-11
The
subscription agreement also calls for the Company to have a director nominated
by Iroquois Capital Opportunity Fund LP or its assignee. Accordingly,
the Company has amended its bylaws to provide for such a “Nominated
Director.” Further, under the amended bylaws, the Nominated Director
must approve certain business decisions without regard to the vote of the other
Directors, including (i) the Company’s or Subsidiary’s annual budget; (ii)
acquisition or disposition of material assets, outside the ordinary course of
business; (iii) formation or dissolution of the Company or Subsidiary; (iv)
expenditure of or incurring of an obligation of $20,000 or more for a single
purpose during any consecutive twelve month period unless such expenditure has
been approved in a budget approved by the board of directors of the Company or
Subsidiary (“single purpose” may include an approved general plan of operations
relating to oil and gas production and shall not be a reference to the
engagement of any single vendor in connection with such approved general plan of
operations relating to oil and gas production), provided such expenditure has
been approved in a budget approved by the board of directors of the Company and
Subsidiary, as applicable; (v) open or close any account with any
financial institution; (vi) initiation or settlement of any litigation,
arbitration or judicial proceeding; and (vii) the issuance of any equity of the
Company or right to receive or acquire any equity of the Company, or
modification of any of the foregoing outstanding at any time. The
Nominated Director bylaw provision ceases to be effective when the notes are
paid.
In
accordance with terms of the loan, the $3,350,000 was placed in escrow. Pursuant
to the terms of the Escrow Agreement, funds held in escrow are released at the
Company’s written request promptly after the Escrow Agent receives a certified
resolution of the Company’s board of directors which must include the
affirmative approval of the Nominated Director. As of December 31, 2010, no
funds remained in escrow.
Pursuant
to ASC Topic 470-20, “Debt with Conversion and Other Options,” the convertible
notes were recorded net of discounts that include the relative fair value of the
warrants amounting to $1,999,257. The discounts are amortized and
charged to operations over the two year life of the debt using the effective
interest method. The initial value of the warrants of $1,999,257 was
calculated using the Black Scholes Option Model with a risk free interest rate
of 2.27%, volatility of 121.39%, and trading price of $0.24 per
share.
Pursuant
to the terms of the promissory notes, for the first 180 days after delivery of
the promissory notes, the Company is to either pay accrued interest by the end
of each calendar quarter or deliver each note holder an Allonge which increases
the principal amount of the holder’s note by adding the accrued
interest. The promissory notes also provide that if the Company pays
by cash the interest rate for calculating interest due is at the rate of 8% per
annum and if the Company elects to deliver an Allonge to each of the note
holders a 12% interest rate shall be applied to the interest
accrued. A default interest rate of 15% will be applicable during any
event of default and until the default is cured.
From July
1, 2010 to August 20, 2010 the Company was in default for having failed to send
the Allonges to the note holders. The Company accrued interest in the
amount of $74,576 for this period at the 15% default rate. The
Company cured the default on August 20, 2010. An election was made by
the Company to pay 9 of the 13 note holders the 8% interest in the amount of
$94,916 from the cure date to the end of the quarter. The interest
was paid on October 4, 2010 as agreed by the Company and the note
holders. The remaining 4 note holders and the Company elected to
execute an Allonge and to have their interest accrued at the rate of 12% from
the cure date to the end of the quarter. This interest totaled
$5,238. Interest charged to operations on the cumulative
principal of the notes for quarter ended September 30, 2010 totaled
$108,297. The balance of the notes at September 30, 2010, net of
discounts and loan fees totaling $1,063,329, was $2,446,143.
Subsequent
to the end of the quarter ended December 31, 2010, the Company and the holder of
a majority-in-interest of the Company’s convertible promissory notes sold to
Iroquois Capital Opportunity Fund and other investors negotiated an adjustment
to the interest rate under the promissory notes for the quarter. It was agreed
that interest would accrue at 15% for the entire quarter and that the portion of
the interest accrued at 8% would be paid in cash on January 24, 2011, and that
the remaining accrued interest could be paid at the Company’s election in cash
or by delivery on January 24, 2011, of allonges to the promissory notes
increasing the principal balances thereof. The cash interest payment
and allonges were delivered on January 24, 2011.
Interest
charged to operations on the cumulative principal of the notes for quarter ended
December 31, 2010 totaled $135,043. The balance of the notes at
December 31, 2010, net of discounts and loan fees totaling $873,563, was
$2,649,291.
NOTE
7 - NOTE RECEIVABLE
Bowie
Operating Company LLC
The loan
due from Bowie Operating Company, LLC is assessed interest at rate of 18% per
annum. The loan is evidenced by a secured promissory note, which is currently in
default, and was due on demand after September 1, 2009. Interest accruing on the
note and credited to operations during the quarter ended December 31, 2010 and
2009 was $8,334 and $6,404, respectively. The balance of the principal and
interest on the note as of December 31, 2010 was $189,274. Bowie Operating
Company LLC was a related party at the inception of this note. This note is
currently subject to a lawsuit with a former officer of the Company. The Company
continues to record interest on the note as well as the notes principal on its
financials until the lawsuit dispute is resolved.
F-12
Buccaneer
Energy Corporation
The loan
due from Buccaneer Energy Corporation is assessed interest at rate of 18% per
annum. The loan is evidenced by a secured promissory note, which is currently in
default, and was due on demand after December 31, 2009. Interest accruing on the
note and credited to operations during the quarter ended December 31, 2010 was
$1,630. The balance of the principal and interest on the note as of December 31,
2010 was $37,017. Buccaneer Energy Corporation was a related party at
the inception of this note. This note is currently subject to a
lawsuit with a former officer of the Company. The Company continues to record
interest on the note as well as the notes principal on its financials until the
lawsuit dispute is resolved.
NOTE
8– STOCKHOLDERS’ EQUITY
In
January 2008, the Company reincorporated and changed its domicile from Utah to
Delaware pursuant to a Reincorporation and Merger Agreement. Prior to the
reincorporation, the Company had 120 million common shares authorized. In the
reincorporation, the Company believed it maintained the same number of
authorized shares. However, by reason of an administrative error on the part of
the Company, this was not the case, and only 20 million common shares were
authorized for issuance. The Company discovered this technical defect in
December 2010 and immediately acted to cure the defect by obtaining majority
shareholder approval to increase the number of authorized shares to 150 million
(See Note 11 – Subsequent Events).
During
the quarter ended December 31, 2010, the Company did not issue shares of common
stock to directors as compensation for their services
rendered. The Company previously issued 240,000 shares of
common stock to certain directors as prepaid compensation, at quarter ended
September 30, 2010. The services were rendered during the quarter
ended December 31, 2010 and, accordingly, the $84,000 (representing the value of
the shares) was charged to operations and is included in stock compensation
expense.
During
the quarter ended December 31, 2010, the Company issued 53,500 shares of common
stock to its Chief Financial Officer as incentive compensation for services
rendered under his contract. The shares were valued at $11,235 which was charged
to operations.
During
the quarter ended December 31, 2010, the Company issued warrants to purchase
70,000 shares of common stock to its Chief Financial Officer as compensation for
his services. The options were valued at $15,303 which was charged to
operations. The exercise prices of these options were range from
$0.75 per share to $1.50 per share.
During
the quarter ended December 31, 2010, the Company issued 37,500 shares of common
stock to James Casperson, a consultant as compensation for services to be
rendered under his consulting engagement agreement.. The shares were valued at
$13,500 which was charged to operations.
NOTE
9- VARIABLE INTEREST ENTITY
In
February 2010, the Company sold a 12.5% working interest in the production of
newly drilled wells located in Wardlaw Field to Glen Rose Partners I, LLC,
(“Partners”) for $1,000,000. Pursuant to the terms of the purchase and sale
agreement, the Company is required to pay all of Partners’ drilling and
production costs until Partners’ carried costs equal
$2,000,000. Further, for five
years, Partners will also have conversion rights to
convert its working interest in the Wardlaw Prospect with an imputed value equal
to the working interest purchase price as adjusted, into the Company’s common
stock in the same manner as the secured convertible notes are convertible,
except that Partners conversion price shall be 150% of the secured convertible
notes’ conversion price in effect as of the conversion date, provided that the
secured convertible notes remain outstanding on the date of such
conversion. Partners is an affiliate of Iroquois Capital Opportunity
Fund, LP
The Company complies with
the accounting guidance related to consolidation of variable interest entities
(“VIEs”). Under this guidance, a reporting entity is required to determine the
primary beneficiary who would consolidate the VIE in its financial statements.
The determination uses a qualitative approach based upon which variable interest
holder has the power to direct economic performance related activities of the
VIE, as well as the obligation to absorb losses or right to receive benefits
that could potentially be significant to the VIE. This guidance requires the
primary beneficiary assessment to be performed on an ongoing basis. The Company has evaluated its relationship with Partners
and has determined it is the primary beneficiary because until Partners receives
$2,000,000 in revenue 1) the Company has all decision making control on the
respective wells and 2) the Company is required to incur all of the financial
risks pertaining to the respective wells’ drilling and production
costs.
Partners’
operating activity included in the accompanying condensed consolidated
statements of operations is as follows:
Three Months Ended
|
Nine Months Ended
|
|||||||||||||||
December 31,
|
December 31,
|
|||||||||||||||
2010
|
2009
|
2010
|
2009
|
|||||||||||||
(Unaudited)
|
(Unaudited)
|
(Unaudited)
|
(Unaudited)
|
|||||||||||||
Oil
and gas sales
|
$ | 808 | $ | - | $ | 6,816 | $ | - | ||||||||
Operating
costs and expenses Production taxes
|
(33 | ) | - | (279 | ) | - | ||||||||||
Net
income from operations
|
$ | 775 | $ | - | $ | 6,537 | $ | - |
F-13
NOTE
10 – COMMITMENT AND CONTINGENCIES
Commitment
The
Company entered into a consulting agreement in February 2010, for a period of
thirty six months. Under the agreement, $25,000 is to be paid monthly
to the consultant, If the hours expended by the consultant in any month exceed
100 hours, the consultant shall have the right to limit each future month’s
commitment to 100 hours in the absence of an agreement for compensation for such
excess work.
Minimum
future consulting payments are as follows:
December
31,
|
||||
2011
|
$
|
300,000
|
||
2012
|
300,000
|
|||
2013
|
25,000
|
|||
Total
minimum consulting payments
|
$
|
625,000
|
Contingencies
The
Company is involved in various claims incidental to the conduct of our business.
Based on consultation with legal counsel, we do not believe that any claims,
either individually or in the aggregate, to which the Company is a party will
ultimately have a material adverse effect on our financial condition or results
of operations.
For a
current report regarding ongoing legal proceedings involving the Company and
other material claims, reference is made to Item 3 of Part I of the Company’s
Annual Report on Form 10-K, filed with the Securities and Exchange Commission on
July 14, 2010, which is incorporated herein.
NOTE
11 – SUBSEQUENT EVENTS.
|
a)
|
Increase
in number of authorized common and preferred
shares
|
On December 22, 2010, the Company’s
majority stockholders, by written consent in lieu of a meeting, approved the
Certificate of Amendment to the Company’s Articles of Incorporation increasing
the Company’s authorized common shares to 150,000,000 and its preferred shares
to 5,000,000. The increase will be effective upon the filing of the Certificate
of Amendment.
|
b)
|
Designation
of Series D Convertible Preferred
Stock
|
On
January 6, 2011, the Company filed the Amended and Restated Certificate of
Designation of Preferences, Rights and Limitations of Series D Convertible
Preferred Stock (the “Designation”), with the Secretary of State of Delaware
which designates 15,000 of its preferred shares as Series D Convertible
Preferred Stock (“Series D”). Under the designation, the purchase price per each
share of Series D is $300. Each holder of Series D is entitled to 1,000 votes
and shall vote in the same class as the common shares. Upon the confirmation by
the Secretary of State of the filing of the above-indicated amendment to the
Company’s articles of incorporation, each share of Series D that is then issued
and outstanding will automatically convert into 1,000 shares of the Company’s
common stock. The designation provides for penalties to the Company if it fails
to convert the Series D shares into common shares within three days from the
date the Secretary of State confirms the filing of the amendment to the articles
of incorporation.
|
c)
|
Sale
of Series D Preferred Shares
|
On
January 21, 2011the Company entered into purchase agreements (the “Purchase
Agreements”) with accredited non-U.S. investors (the “Investors”) for the
issuance and sale of an aggregate of 7,000 shares of the Company’s Series D
Convertible Preferred Stock, for aggregate proceeds equal to $2.1 million. ABG
Sundal Collier Norge ASA (“ABG”) who acted as an advisor to the investors in
connection with the sale, was issued 280 shares of preferred stock in connection
with the sale. The shares will automatically convert into 7,280,000
shares of the Company’s common stock upon the effectiveness of the amendment to
the Company’s articles of incorporation increasing its authorized common stock,
as discussed above.
In
connection with the sale, the Investors also were issued two series of warrants
(the “Warrants”) to purchase shares of the Company’s common stock, par value
$.001 (the “Common Stock”). One series consists of two year warrants to
purchase, in the aggregate, 7,000,000 shares of common stock with an exercise
price of $0.40 per share. The second series consists of three year warrants to
purchase, in the aggregate, 7,000,000 shares of common stock with an exercise
price of $0.60 per share. The warrants do not permit cashless exercise and are
closed to exercise for 6 months. ABG also received a two year warrant
and three year warrant, each for the purchase of up to 280,000 shares of common
stock under the same terms as discussed above.
|
d)
|
Issuance
of Common Shares
|
On
February 10, 2011, the Company issued 150,000 shares of its common stock to The
Hewlett Fund in consideration of the conversion $45,000 of their convertible
note.
F-14
ITEM
2. MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
The
following discussion and analysis of our financial condition, plan of operation
and liquidity should be read in conjunction with our unaudited condensed
consolidated financial statements and the notes thereto included in Part I, Item
1 of this quarterly report on Form 10-Q, and our audited financial statements
and the notes thereto and our Management’s Discussion and Analysis or Plan of
Operation contained in our annual report on Form 10-K for the fiscal year ended
March 31, 2010.
OVERVIEW
Glen Rose
Petroleum Corporation (“Glen Rose”) is a Delaware corporation formed in
2008. The Company was previously United Heritage Corporation, a Utah
corporation that was formed in 1981 and was reincorporated in Delaware in 2008.
The reincorporation entailed a reincorporation merger agreement between Glen
Rose Petroleum Company and United Heritage Corporation, but there were no
substantive changes in assets or personnel and we also have continuous financial
reporting through the reincorporation.
Glen Rose
owns UHC Petroleum Corporation (“Petroleum”), a Texas corporation, which is a
licensed operator with the Texas Railroad Commission. Petroleum is an
independent producer of crude oil based in Katy, Texas. Petroleum
operates the Wardlaw Field. The Wardlaw Field lies in Edwards County,
Texas in the southeast portion of the Val Verde Basin and is approximately 28
miles west of Rocksprings and 550 miles west of Dallas. Current oil
production from the field comes from the Glen Rose formation at a depth of less
than 600 feet. The Company’s petroleum leaseholds consist of
approximately 10,502 gross acres, of which more than 10,000 acres are
undeveloped. The leaseholds include 85 wellbores. Of
these, 75 are capable of producing. The Company has recorded and installed pumps
on 48 of these wellbores and is in the process of ongoing evaluation to
determine which of the available 75 wellbores are best suited for production. We
are currently producing between 85 - 105 barrels of oil per day and look to
increase this to a target of 125 - 150 barrels per day upon the completion of an
evaluation of all wells and processes. Petroleum has a gross working interest of
100% and a net revenue interest of 75% of the current Wardlaw Field production.
The original lease term was extended by a period of 90 days each time a well was
drilled; therefore, based on prior drilling, the primary lease term is currently
extended to 2014.
1
The
Company entered into a new lease on June 14, 2010 with Carol Ann Adamson, who is
Trustee of the Sandra Jym Adamson Trust, as well as the agent and
attorney-in-fact for Sandra Jym Adamson. The lease is adjacent to the
Company’s Wardlaw lease and consists of 665 acres. The term is for 3
years, which will pay royalties in the amount of 20% of the gross production,
with an option for a further 779 acres to be leased at $50 per acre for not less
than 160 acres every 6 months.
We
produce a raw commodity. Currently one purchaser buys 100% of our
production. However, we believe that other purchasers are available
for our production. Our customer risk primarily stems from the purchaser’s
solvency relating to outstanding balances. The purchaser has historically paid
in a timely manner and we have no information that would indicate that it would
be unable to continue paying in the future.
We have
no patents, trademarks, material intellectual property license agreements,
franchises, or labor contracts.
In
addition to Petroleum, Glen Rose also owns, UHC Petroleum Services Corporation
(“Services”) a Texas corporation. Our other subsidiary is National Heritage
Sales Corporation, a Texas corporation. National Heritage Sales Corporation has
not operated for a number of years, and the Company plans to wind up this
corporation in the coming year. Until recently, UHC New Mexico Corporation was a
non-operating subsidiary of Glen Rose. Pursuant to a Common Stock Purchase
Agreement dated February 12, 2010, it was sold to Blackwood Capital Limited, a
company controlled by our Chief Executive Officer. At the time of the sale, it
had no assets but was subject to a current UCC filing and ongoing expenses
relating to maintaining its corporate existence. Glen Rose determined that the
expense of enforcing and collecting the indebtedness of UHC New Mexico
Corporation owing to Glen Rose likely would exceed the proceeds realized by Glen
Rose from such enforcement and collection activities. Accordingly, Glen Rose
approved the cancellation and forgiveness of such indebtedness effective as of
the date of the closing on the sale to Blackwood Capital Limited.
CAUTIONARY
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This
quarterly report on Form 10-Q and other reports filed from time to time with the
Securities and Exchange Commission by Glen Rose Petroleum Corporation (referred
to as the “Company”, “we”, “us” or “our”), contains certain forward-looking
statements and information based upon the beliefs of, and data currently
available to, our management, as well as estimates and assumptions made by our
management regarding the Company’s financial condition, future operating
performance, results of operations and other statements that are not statements
of historical fact. The words “expect,” “project,” “estimate,” “believe,”
“anticipate,” “intend,” “plan” “forecast” or the negative of these terms and
similar expressions and variations thereof are intended to identify such
forward-looking statements. These forward-looking statements appear in a number
of places in this Form 10-Q and reflect the current view of our management with
respect to future events. Such forward-looking statements are not guarantees of
future performance and are subject to certain important risks, uncertainties,
assumptions and other factors relating to our industry and operations which
could cause results to differ materially from those anticipated, believed,
estimated, expected intended or planned. Some of these risks include, among
other things:
|
·
|
whether we will be able to find
financing/produce cash flows to continue/expand our
operations;
|
|
·
|
whether changes in regulatory
requirements will adversely affect our
business;
|
|
·
|
environmental
risks;
|
|
·
|
volatility in commodity prices,
supply of, and demand for, oil and natural
gas;
|
|
·
|
whether the recovery methods that
we use in or will use in our oil and gas operations
succeed;
|
|
·
|
the ability of our management to
execute its plans to meet its
goals;
|
|
·
|
general economic conditions,
whether internationally, nationally, or in the regional and local markets
in which we operate, which may be less favorable than
expected;
|
|
·
|
the difficulty of estimating the
presence or recoverability of oil and natural gas resources and future
production rates and associated
costs;
|
2
|
·
|
the ability to retain key members
of management and key employees and to attract additional talent as
required;
|
|
·
|
drilling and operating risks and
expense cost escalations;
and
|
|
·
|
other uncertainties, all of which
are difficult to predict and many of which are beyond our
control.
|
Except as
otherwise required by law, we undertake no obligation to update any of the
forward-looking statements contained in this quarterly report Form 10-Q after
the date of this report.
GOING
CONCERN STATUS
Our
financial statements have been prepared on a going concern basis which
contemplates the realization of assets and the liquidation of liabilities in the
ordinary course of business. As of the filing date of this quarterly
report on Form 10-Q, we have incurred substantial losses from our operations and
we have a working capital deficit which raises substantial doubt as to our
ability to continue as a going concern. We had net loss of $3,537,937
for the nine months ended December, 2010 and a net loss of $2,509,790 for the
fiscal year ended March 31, 2010. As of the same periods, we had an
accumulated deficit of $54,480,496 and $50,942,560,
respectively. Unless we are able to attract the financing needed to
develop our properties, there can be no assurance that we will be able to
continue as a going concern.
Management
is currently reviewing the Company’s operations with the intent of increasing
revenue and reducing expenses. In addition, Management is also seeking funding
with third parties through the issuance of debt and equity and through
attracting tax-benefitted investment. In addition, we are also in discussions
with third parties regarding sharing arrangements relating to our interest in
the Wardlaw Field including farm outs. There is no assurance that our attempts
to obtain funding or find a suitable party in connection with the further
development of the Wardlaw Field will be successful.
CRITICAL
ACCOUNTING POLICIES AND ESTIMATES
Our
critical accounting policies, including the assumptions and judgments underlying
those policies, are more fully described in the notes to our audited financial
statements contained in our annual reports on Forms 10-K for the fiscal years
ended March 31, 2010 and March 31, 2009. We have consistently applied
these policies in all material respects. Investors are cautioned, however, that
these policies are not guarantees of future performance and involve risks and
uncertainties, and that actual results may differ materially. Set
forth below are the accounting policies that we believe most critical to an
understanding of our financial condition and liquidity.
Oil
and Gas Properties
Proved Reserves - Proved
reserves are defined by the Securities and Exchange Commission as those volumes
of crude oil; condensate, natural gas liquids and natural gas that geological
and engineering data demonstrate with reasonable certainty are recoverable from
known reservoirs under existing economic and operating conditions. Proved
developed reserves are volumes expected to be recovered through existing wells
with existing equipment and operating methods. Although our engineers are
knowledgeable of and follow the guidelines for reserves established by the
Securities and Exchange Commission, the estimation of reserves requires
engineers to make a significant number of assumptions based on professional
judgment. Reserve estimates have been updated at least annually and
consider recent production levels and other technical information about each
well. Estimated reserves are often subject to future revision, which could be
substantial, based on the availability of additional information including:
reservoir performance; new geological and geophysical data, including that
provided by additional drilling; technological advancements; price and cost
changes; and other economic factors. Changes in oil and gas prices
can lead to a decision to start-up or shut-in production, which can lead to
revisions to reserve quantities. Reserve revisions in turn cause adjustments in
the depletion rates utilized by the Company. The Company cannot
predict what reserve revisions may be required in future
periods.
3
Depletion
rates are determined based on reserve quantity estimates and the capitalized
costs of producing properties. As the estimated reserves are adjusted, the
depletion expense for a property will change, assuming no change in production
volumes or in the costs capitalized. Estimated reserves are used as
the basis for calculating the expected future cash flows from a property, which
are used to determine whether that property’s reported value may be
impaired. Reserves are also used to estimate the supplemental
disclosure of the standardized measure of discounted future net cash flows
relating to oil and gas producing activities and reserve quantities in Note 15
to the consolidated financial statements in our March 31, 2010 Form 10-K.
Changes in the estimated reserves are considered changes in estimates for
accounting purposes and are reflected on a prospective basis.
We employ
the full cost method of accounting for our oil and gas production assets, which
are located in the southwestern United States. Under the full cost method, all
costs associated with the acquisition, exploration and development of oil and
gas properties are capitalized and accumulated in cost centers on a
country-by-country basis. The sum of net capitalized costs and
estimated future development and dismantlement costs for each cost center is
depleted on the equivalent unit-of-production basis using proved oil and gas
reserves as determined by independent petroleum engineers.
Net
capitalized costs are limited to the lower of unamortized cost net of related
deferred tax or the cost center ceiling. The cost center ceiling is
defined as the sum of (i) estimated future net revenues, discounted at 10% per
annum, from proved reserves, based on un-escalated year-end prices and costs;
(ii) the cost of properties not being amortized; (iii) the lower of cost or
market value of unproved properties included in the costs being amortized; less
(iv) income tax effects related to differences between the book and tax basis of
the oil and gas properties.
The
ceiling test is affected by a decrease in net cash flow from reserves due to
higher operating or finding costs or reduction in market prices for natural gas
and crude oil. These changes can reduce the amount of economically
producible reserves. If the cost center ceiling falls below the
capitalized cost for the cost center, we would be required to report an
impairment of the cost center’s oil and gas assets at the reporting
date.
Impairment of Properties - We
will continue to monitor our long-lived assets recorded in oil and gas
properties in our consolidated balance sheet to ensure they are fairly
presented. We must evaluate our properties for potential impairment
when circumstances indicate that the carrying value of an asset could exceed its
fair value. A significant amount of judgment is involved in
performing these evaluations since the results are based on estimated future
events. Such events include a projection of future oil and natural
gas sales prices, an estimate of the ultimate amount of recoverable oil and gas
reserves that will be produced from a field, the timing of future production,
future production costs, and future inflation. The need to test a
property for impairment can be based on several factors, including a significant
reduction in sales prices for oil and/or gas, unfavorable adjustment to
reserves, or other changes to contracts, environmental regulations or tax
laws. All of these factors must be considered when testing a
property's carrying value for impairment. We cannot predict whether
impairment charges may be required in the future.
Revenue Recognition - Oil and
gas production revenues are recognized at the point of sale. Production not sold
at the end of the fiscal year is included as inventory at the lower of cost or
market value.
Income Taxes - Included in our
net deferred tax assets are approximately $4,977,000 of potential future tax
benefits from prior unused tax losses (“net operating loss
carry-forwards”). Realization of these tax assets depends on
sufficient future taxable income before the benefits expire. We are
unsure if we will have sufficient future taxable income to utilize the benefits
from net operating loss carry-forwards before the losses
expire. Therefore, we have provided an allowance for the full amount
of the net deferred tax asset. Moreover, our recent change of majority ownership
significantly reduced our ability to utilize our net operating losses
carry-forwards.
Accounting Estimates -
Management uses estimates and assumptions in preparing financial statements in
accordance with accounting principles generally accepted in the United States of
America. Those estimates and assumptions affect the reported amounts
of assets and liabilities, the disclosure of contingent assets and liabilities,
and the reported revenues and expenses. In particular, there is significant
judgment required to estimate oil and gas reserves, impairment of unproved
properties and asset retirement obligations. Actual results could
vary significantly from the results that are obtained by using management’s
estimates as well as those of independent third-party petroleum engineering
firms.
4
Convertible Debentures - If
the conversion feature of conventional convertible debt provides for a rate of
conversion that is below market value, this feature is characterized as a
beneficial conversion feature (“BCF”). A BCF is recorded as a debt
discount pursuant to EITF Issue No. 98-5 (“EITF 98-05”), Accounting for
Convertible Securities with Beneficial Conversion Features or Contingency
Adjustable Conversion Ratio, and EITF Issue No. 00-27, Application of EITF Issue
No. 98-5 to Certain Convertible Instruments. In those circumstances,
the convertible debt will be recorded net of the discount related to the
BCF. The Company amortizes the discount to interest expense
over the life of the debt using the effective interest method.
RESULTS
OF OPERATIONS
The
following comparison of selected financial data for the three months and nine
months ended December 31, 2010 and financial data for the three months and nine
months ended December 31, 2009 are derived from our unaudited consolidated
condensed financial statements included in Part I, Item 1 of this quarterly
report on Form 10-Q. This information is qualified in its entirety
by, and should be read in conjunction with, such financial statements and
related notes contained therein.
Three Months Ended
|
Nine Months Ended
|
|||||||||||||||
December 31,
|
December 31,
|
|||||||||||||||
2010
|
2009
|
2010
|
2009
|
|||||||||||||
(Unaudited)
|
(Unaudited)
|
|||||||||||||||
Income
Data
|
||||||||||||||||
Revenues
|
$
|
477,403
|
33,660
|
747,640
|
97,801
|
|||||||||||
Depreciation,
depletion and accretion
|
117,181
|
7,198
|
205,692
|
37,774
|
||||||||||||
Total
operating costs and expenses
|
1,077,393
|
401,791
|
3,284,280
|
979,984
|
||||||||||||
Loss
from operations
|
(599,990)
|
(368,131)
|
(2,536,640)
|
(882,183)
|
)
|
|||||||||||
Income
tax
|
-
|
-
|
-
|
-
|
||||||||||||
Net
loss
|
$
|
(955,978)
|
(398,474)
|
(3,537,937)
|
(984,268)
|
)
|
||||||||||
Basic
and diluted loss per share
|
$
|
(0.05)
|
(0.03)
|
(0.20)
|
(0.09)
|
)
|
||||||||||
Weighted
average number of shares outstanding
|
17,577,055
|
11,541,361
|
17,265,027
|
11,541,361
|
Oil
and Gas Results
Three
Months Ended December 31, 2010 and 2009
Our
revenues increased $443,743 or approximately 1,318%, to $477,403 for the three
months ended December 31, 2010, as compared to $33,660 for the three months
ended December 31, 2009. The increase in revenue in 2010 compared to 2009 was
due to significant increase in production due to new development and the
reworking of our wells.
Our total
operating costs and expenses increased $675,602 or approximately 168%, to
$1,077,393 for the three months ended December 31, 2010, as compared to $401,791
for the three months ended December 31, 2009. The increase in our operating
expenses was primarily attributable to adding new employees, increases in
production activities, and increases in other general and administrative
expenses for the three months ended December 31, 2010.
Our
depreciation, depletion and accretion increased by $109,983, or approximately
1,528%, to $117,181 for the three months ended December 31, 2010, as compared to
$7,198 for the three months ended December 31, 2009. Substantially
all of our increase pertained to the depreciation, depletion and accretion
expenses incurred in our oil properties.
5
General
and administrative expenses increased $293,051, or approximately 140%, to
$501,981 for the three months ended December 31, 2010, as compared to $208,930
for the three months ended December 31, 2009. This increase in our
general and administrative expenses during the current three month period is
primarily attributable the addition of new employees, legal and other
professional fees.
Our loss
from operations increased from $368,131 for the three months ended December 31,
2009, to $599,990 for the three months ended December 31, 2010. This change in
our loss from operations is primarily attributable to an increase in stock
compensation expenses, professional fees and the other factors discussed
above.
Interest
expense increased from $43,630 for the three months ended December 31, 2009 to
$366,766 for the three months ended December 31, 2010.
Our net
loss increased $557,504 from $398,474 for the three months ended December 31,
2009, to $955,978 for the three months ended December 31, 2010.
Nine
Months Ended December 31, 2010 and 2009
Our
revenues increased $649,839, or approximately 664%, to $747,640 for the nine
months ended December 31, 2010, as compared to $97,801 for the nine months ended
December 31, 2009. The increase in revenue in 2010 compared to 2009 was due to
significant increase in production due to new development and the reworking of
our wells.
Our total
operating costs and expenses increased $2,304,296, or approximately 235%, to
$3,284,280 for the nine months ended December 31, 2010, as compared to $979,984
for the nine months ended December 31, 2009. The increase in our operating
expenses was primarily attributable to adding new employees, increases in
production activities, and increases in other general and administrative
expenses for the three months ended December 31, 2010.
Our
depreciation, depletion and accretion increased by $167,918, or approximately
445%, to $205,692 for the nine months ended December 31, 2010, as compared to
$37,774 for the nine months ended December 31, 2009. Substantially
all of our increase pertained to the depreciation, depletion and accretion
expenses incurred in our oil properties.
General
and administrative expenses increased $1,202,446, or approximately 200%, to
$1,802,842 for the nine months ended December 31, 2010, as compared to $600,396
for the nine months ended December 31, 2009. This increase in our
general and administrative expenses during the current three month period is
primarily attributable the addition of new employees, legal and other
professional fees.
Our loss
from operations increased from $882,183 for the nine months ended December 31,
2009, to $2,536,640 for the nine months ended December 31, 2010. This change in
our loss from operations is primarily attributable to an increase in stock
compensation expenses, professional fees and the other factors discussed
above.
Interest
expense increased from $109,395 for the nine months ended December 31, 2009 to
$1,067,274 for the nine months ended December 31, 2010. Interest expensed in
2010 included $135,043 that accrued on our debt due Iroquois and also included
amortization of the discount on this debt totaling $157,792 for the nine months
ended December 31, 2010.
Our net
loss increased $2,553,669 from $984,268 for the nine months ended December 31,
2009, to $3,537,937 for the nine months ended December 31,
2010.
6
LIQUIDITY
AND CAPITAL RESOURCES
Liquidity
Our
revenues have not been adequate to support our operations. We
anticipate that this will change in the near future as a result of our capital
raising and development efforts, combined with operating changes.
Current
liabilities increased from $874,001 at March 31, 2010 to $1,309,597 at December
31, 2010, an increase of $435,596, or approximately 50%. Increases
during the nine months ended December 31, 2010 were mainly due to the accrual
of interest payable of $271,566 at December 31, 2010 compared to
$53,675 due at March 31, 2010,
We had
working capital deficit of $793,215 at December 31, 2010, as compared to working
capital of $2,705,654 at March 31, 2010, a working capital decrease of
$3,498,869 or approximately 129%. The decrease in our working capital resulted
primarily from the cost outlaid to increase the overall operations and
production of the Company.
Cash
Flow
Our
operations used $1,521,349 of cash in the nine months ended December 31, 2010.
This is primarily due to a net loss of $3,537,937, net of non-cash operating
expenses totaling $2,016,677. Cash of $1,580,718 was used in investing
activities during the same nine month period, which consisted of $745,830 in
expenditures relating to the development of our oil properties, and $834,888 was
incurred in the purchases of related equipment. Cash used in our
financing activity during the nine months ended December 31, 2010 included
$12,466, in payments used to reduce our capital lease obligation and $55,645 in
principal debt reduction on our insurance financing obligation.
At
December 31, 2010, we had cash on hand in the amount of $29,382 as compared to
$70,487 at December 31, 2009.
Glen Rose
will incur significant costs through its planned development program for its
Wardlaw Field leases and related opportunities, cash flow permitting. The
program will begin by reworking many of the existing well bores, as well as
begin to drill new wells, which will be completed upon deploying the necessary
funding. There can be no assurance of success, and unless production
and sales of oil and gas significantly increase, we may not be able to attain
profitability, or even be able to continue as a going concern. We
will require additional funding to attempt to significantly increase our
production and have been attempting to secure such funding.
Except as
otherwise discussed in this quarterly report, we know of no trends, events or
uncertainties that have, or are reasonably likely to have, a material impact on
our short-term or long-term liquidity or on our net sales or revenues from
continuing operations. We do not currently have any significant
commitments for capital expenditures for the next twelve months, but do have
significant plans, depending upon success of the pilot flooding program and our
success in attracting capital.
7
ITEM 4. CONTROLS AND
PROCEDURES
Glen Rose
carried out an evaluation, under the supervision and with the participation of
management, of the effectiveness of the design and operation of the Company’s
financial controls and procedures for the quarter ended December 31, 2010. This
evaluation was undertaken in consultation with internal and external
accountants. Based on the evaluation, information about which is included in the
following paragraph, our then-Chief Executive Officer and Chief Financial
Officer concluded that our internal controls and reporting procedures were not
effective to ensure that information required to be disclosed by us in the
reports that we filed or submitted under the Securities Exchange Act of 1934 was
recorded, processed, summarized and reported in compliance with internal
controls ordinarily required of publicly-traded firms in the manner specified in
the Securities and Exchange Commission’s rules and forms. There have since been
material changes in internal control over financial reporting during current
quarter that are reasonably likely to materially affect our internal control
over financial reporting. These controls/procedures include utilization of
internal accountant to perform accounting and bookkeeping functions, including
bank reconciliations and other reviews of payables, receivables and other
assets; another firm to review such work and prepare adjusting entries, and
independent audit by a CPA firm.
Glen Rose
Petroleum Corporation’s management is responsible for establishing and
maintaining systems of adequate internal control over financial reporting, as
such term is defined in Exchange Act Rules 13(a)-15(f). Because of its inherent
limitations, internal control over and outside independent audit of financial
reporting may not prevent or detect misstatements.
In the
year ending March 31, 2010, Glen Rose Petroleum Corporation's management team
evaluated the effectiveness the design and operation of the Company's financial
controls and procedures and internal control over financial reporting in
accordance with the standards set forth by the Public Company Accounting
Oversight Board ("PCAOB") in the United States.
In
management's opinion, based on the assessment completed for the year ended March
31, 2010 and the assessment for the quarter ended December 31, 2010, the
internal control over financial reporting was and continues to be operating
effectively.
CHANGES
IN INTERNAL CONTROL OVER FINANCIAL REPORTING
During
the quarter ended December 31, 2010, there were no changes in our internal
controls or in other factors that could significantly affect internal control
over financial reporting subsequent to the date of their above
evaluation.
PART
II - OTHER INFORMATION
ITEM
1. LEGAL PROCEEDINGS.
For a
current report regarding ongoing legal proceedings involving the Company and
other material claims, reference is made to Item 3 of Part I of the Company’s
Annual Report on Form 10-K, filed with the Securities and Exchange Commission on
July 14, 2010, which is incorporated herein, subject to the
following:
Recon
Petrotechnologies Oklahoma, Inc., v. UHC Petroleum Corporation and Glen Rose
Petroleum Corp.
Trial has
been scheduled for Spring 2011.
Forbes
Energy Services, LLC successor in interest to CC Forbes Company, LP v. UHC
Petroleum Corporation
Discovery
has begun.
Langston
Family Partnership and Buccaneer Energy Corporation v. Glen Rose Petroleum
Corporation
The
Company has filed a counterclaim in the matter.
Gonzalo
v. Kayla Parks and Glen Rose Petroleum Corp.
On
September 22, 2010, an action was commenced in the District Court in Edwards
County, Texas. The matter appears to be based upon an automobile
accident and it has been referred to the Company’s insurance carrier for
defense.
8
ITEM
2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
There
were no reportable events under this Item 2 during the quarterly period ended
December 31, 2010.
Subsequent
to the quarter ended December 31, 2010, the Company entered into purchase
agreements (the “Purchase Agreements”) dated as of January 21, 2011 with
accredited non-U.S. investors (the “Investors”) for the issuance and sale of an
aggregate of 7,000 shares of the Company’s Series D Convertible Preferred Stock,
par value $.0001 per share (the “Shares”), for aggregate proceeds equal to $2.1
million from the sale (the “Sale”). ABG Sundal Collier Norge ASA (“ABG”) who
acted as an advisor to the investors in connection with the Sale, was issued 280
shares of Preferred Stock in connection with the Sale. The Shares are
convertible into 7,280,000 shares of the Company’s common stock, automatically
upon the effectiveness of an amendment to the Company’s articles of
incorporation increasing its authorized common stock to not less than 125
million shares. The terms of conversion, and other rights and
privileges of the Preferred Stock are provided in the Amended and Restated
Certificate of Designation of Preferences, Rights and Limitations of Series D
Convertible Preferred Stock (the “Designation”), filed with the Secretary of
State of the State of Delaware on January 6, 2011.
In
connection with the Sale, the Investors also were issued two series of warrants
(the “Warrants”) to purchase shares of the Company’s common stock, par value
$.001 (the “Common Stock”). One series consists of two year warrants to
purchase, in the aggregate, 7,000,000 shares of common stock with an exercise
price of $0.40 per share. The second series consists of three year warrants to
purchase, in the aggregate, 7,000,000 shares of common stock with an exercise
price of $0.60 per share. The warrants do not permit cashless exercise and are
closed to exercise for 6 months. ABG also received a two year warrant
and three year warrant, each for the purchase of up to 280,000 shares of common
stock.
The
warrants do not permit cashless exercise and are closed to exercise for 6
months.
In
connection with the Sale, Investors were granted “piggyback” registration rights
with regard to the common stock and demand registration rights under certain
limited circumstances.
The sale
of the Shares and the Warrants was made pursuant to Regulation S of the
Securities Act, and in reliance upon exemptions from registration under
applicable state securities laws.
ITEM
3. DEFAULTS UPON SENIOR SECURITIES.
Buccaneer
Energy Corporation
The
Company is involved in a litigation with Buccaneer Energy Corporation with
regard to its liability owed to Buccaneer as well as Buccaneers receivable owed
the Company. The Company believes the amounts related to the notes
payable and receivable recorded in its financials could be in default depending
on the resolution of the dispute. The Company continues to record the
principal balances of the note payable and note receivable as well as the
interest accruals on both in its financials until this dispute is resolved
between the parties.
Bowie
Operating Company LLC
The
Company is involved in a litigation with Bowie Operating Company LLC with regard
to its liability owed. The Company believes the amounts related to
the notes payable in its financials could be default depending on the resolution
of the dispute. The Company continues to record the principal
balances notes and receivables as well as the interest accruals until this
dispute is resolved between the parties.
Convertible
Promissory Notes
During
the current quarter ended December 31, 2010, the Company became aware of, and
notified the holder of a majority-in-interest of the Company’s convertible
promissory notes sold to Iroquois Capital Opportunity Fund and other investors,
of the existence of a default under the promissory notes by reason of the
Company’s authorized common stock being only 20 million shares. This default was
waived by the holder of a majority-in-interest in connection with the Company’s
Regulation S offering described in Note 11 to our financial statements in this
Report, subject to certain specified conditions in the waiver document filed as
Exhibit 10.3, to our Current Report on Form 8-K filed on January 25,
2011.
ITEM
4. REMOVED AND RESERVED.
ITEM
5. OTHER INFORMATION
None.
9
ITEM 6. EXHIBITS
Exhibits
3.1 Certificate
of Incorporation filed in Delaware on May 22, 2008, incorporated by
reference to Exhibit 3.1 to Registrant’s Form 10-K for period ending
March 31, 2008 filed July 14, 2008.
3.3 Bylaws
of Corporation, incorporated by reference to Exhibit 3.1 to Registrant’s
Form 10-K for period ending March 31, 2008 filed July 14,
2008.
3.3(a)
Amendment to By-Laws, incorporated by reference to Exhibit 3.3(a) to
Registrant’s Form 10-K/A for period ending March 31, 2010 filed
July22, 2010.
3.3(b)
Certificate of Designation of Preferences, Rights and Limitations of Series D
Convertible Preferred Stock, incorporated by reference to Exhibit 4.1 to
Registrant’s Form 8-K filed on January 25, 2011.
3.3(c)
Amended and Restated Certificate of of Preferences, Rights and Limitations of
Series D Convertible Preferred Stock, incorporated by reference to Exhibit 4.1
to Registrant’s Form 8-K filed on January 25, 2011.
4.1 Secured
Convertible Note (Iroquois) (see Exhibit 10.11).
4.2 Form
of Common Stock Purchase Warrant issued to Iroquois Capital Opportunity Fund,
LLC and other investors on March 3, 2010 (see Exhibit 10.13).
4.3 Form
of Common Stock Purchase Warrant issued to DK True Energy Development Ltd.,
incorporated by reference to Exhibit 4.3 to Registrant’s Form 10-K/A
for period ending March 31, 2010 filed July 22, 2010.
4.4 Form
of Common Stock Purchase Warrant issued to RTP Secure Energy Corp., incorporated
by reference to Exhibit 4.4 to Registrant’s Form 10-K/A for period
ending March 31, 2010 filed July 22, 2010.
4.4(a)
Registration Rights Agreement for Warrant issued to RTP, incorporated by
reference to Exhibit 4.4(a) to Registrant’s Form 10-K/A for period
ending March 31, 2010 filed July 22, 2010.
4.5 Form
of Common Stock Purchase Warrants issued to Joseph Tovey, incorporated by
reference to Exhibit 4.5 to Registrant’s Form 10-K/A for period ending
March 31, 2010 filed July 22, 2010.
4.5(a)
Registration Rights Agreement for Warrant issued to Tovey, incorporated by
reference to Exhibit 4.5(a) to Registrant’s Form 10-K/A for period
ending March 31, 2010 filed July 22, 2010.
4.6
Registration Rights Agreement, with the purchasers of Series D Convertible
Preferred Stock, incorporated by reference to Exhibit 10.2 to Registrant’s Form
8-K filed on January 25, 2011.
4.7 Form
of Warrant issued to purchasers of Series D Convertible Preferred Stock,
incorporated by reference to Exhibit 4.2 to Registrant’s Form 8-K filed on
January 25, 2011.
10.1 1995
Stock Option Plan, incorporated by reference to Exhibit 10.3 of the
Registrant’s Form SB-2 Registration Statement filed May 4,
2004.
10.2 1998
Stock Option Plan, incorporated by reference to Exhibit 99.01 the
Registrant’s Form S-8 registration statement filed on September 30,
1998 as document number 333-64711.
10.3 2000
Stock Option Plan, incorporated by reference to Exhibit 4.01 of
Registrant’s Form S-8 Registration Statement filed on December 6,
2000.
10.4 2008
Stock Option Plan, incorporated by reference to Exhibit 10-1 to
Registrant’s Form S-8 Registration Statement filed May 30,
2008.
10.5
Amended Agreement with Joseph F. Langston, incorporated by reference to Exhibit
10.5 to Registrant’s Form 10-K filed July 13, 2009.
10.7 Debenture
issued to Blackwood Ventures, LLC dated January 28, 2009, incorporated by
reference to Exhibit 10.6 to Registrant’s Form 10-Q filed November 20,
2009.
10.8 Consulting
Agreement with DK True Energy Development Ltd. and RTP Secure Energy Corp. dated
November 27, 2007, incorporated by reference to Exhibit 10-1 to
Registrant’s Form 8-K filed December 3, 2007.
10
10.8a
Termination of Consulting Agreement with DK True EnergyDevelopment Ltd. and
Mutual Release, incorporated by reference to Exhibit 10.8a to the Registrant’s
Form 10-K, filed on July 14, 2010.
10.9 Consulting
Agreement with Blackwood Capital, Ltd. dated January 15, 2008, incorporated
by reference to Exhibit 10-2 to Registrant’s Form 8-K filed
January 22, 2008.
10.9(a)
Amendment to Consulting Agreement with Blackwood Capital, Ltd., incorporated by
reference to Exhibit 10.5 to Registrant’s Form 10-Q filed November 20,
2009.
10.9(b)
8.5% Senior Secured Convertible Debenture and Warrant Purchase Agreement,
incorporated by reference to Exhibit 10.6 to Registrant’s Form 10-Q filed
November 20, 2009.
10.10
Subscription Agreement (Iroquois), incorporated by reference to Exhibit 10.10 to
the Registrant’s Form 10-K, filed on July 14, 2010.
10.11
Form of Secured Convertible Promissory Note (Iroquois), incorporated by
reference to Exhibit 10.11 to the Registrant’s Form 10-K, filed on July 14,
2010.
10.12
Security Agreement (Iroquois), incorporated by reference to Exhibit 10.12 to the
Registrant’s Form 10-K, filed on July 14, 2010.
10.12(a)
Waiver of default, incorporated by reference to Exhibit 10.3 to Registrant’s
Form 8-K, filed on January 25, 2011.
10.13
Form of Warrant (Iroquois), incorporated by reference to Exhibit 10.13 to the
Registrant’s Form 10-K, filed on July 14, 2010.
10.14
Working Interest Purchase and Sale Agreement (Iroquois), incorporated by
reference to Exhibit 10.14 to Registrant’s Form 10-K/A for period
ending March 31, 2010 filed July 22, 2010.
10.15
Consulting Agreement with Blackwood Ventures, LLC dated January 28, 2009,
incorporated by reference to Exhibit 10.5 to Registrant’s Form 10-Q filed
November 20, 2009.
10.16
Consulting Agreement with Iromad, LLC (Iroquois), incorporated by reference to
Exhibit 10.16 to the Registrant’s Form 10-K, filed on July 14,
2010.
10.17
Form of Option Holder Novation Agreement, incorporated by reference to Exhibit
10.17 to the Registrant’s Form 10-K, filed on July 14, 2010.
10.18
Termination and Settlement Agreement with Joseph Tovey, incorporated by
reference to Exhibit 10.18 to the Registrant’s Form 10-K, filed on July 14,
2010.
10.19
Employment Agreement with Ruben Alba, incorporated by reference to
Exhibit 10.19 to Registrant’s Form 10-K/A for period ending
March 31, 2010 filed July 22, 2010.
10.20
Employment Agreement with Kenneth E. Martin, incorporated by reference to
Exhibit 10.20 to the Registrant’s Form 10-K, filed on July 14,
2010.
10.21(a) Agreement
for short-term financing with Dr. Howard Berg, incorporated by reference to
Exhibit 10.21(a) to Registrant’s Form 10-K/A for period ending
March 31, 2010 filed July 22, 2010.
10.21(b)
Senior Secured Note in the principal amount of $250,000, incorporated by
reference to Exhibit 10.21(b) to Registrant’s Form 10-K/A for period
ending March 31, 2010 filed July 22, 2010.
10.21(c)
Security Agreement, incorporated by reference to Exhibit 10.21(c) to
Registrant’s Form 10-K/A for period ending March 31, 2010 filed
July 22, 2010.
11
10.21(d )
Warrants issued to Dr. Howard Berg, incorporated by reference to
Exhibit 10.21(d) to Registrant’s Form 10-K/A for period ending
March 31, 2010 filed July 22, 2010.
10.21(e)
Registration Rights Agreement for Warrants issued to Dr. Howard Berg, ,
incorporated by reference to Exhibit 10.21(e) to Registrant’s
Form 10-K/A for period ending March 31, 2010 filed July 22,
2010.
10.22 Second
Addendum to Amended and Restated Promissory Note made by World Link
Partners, LLC in favor of Registrant, incorporated by reference to Exhibit 10.22
to the Registrant’s Form 10-K, filed on July 14, 2010.
10.22(a)
Third Addendum to Amended and Restated Promissory Note, dated September 24,
2010.*
10.23
Management Consulting Services Agreement with Weisshorn Management Services,
Inc., incorporated by reference to Exhibit 10.23 to the Registrant’s Form 10-K,
filed on July 14, 2010.
10.24
Employment Agreement with Sam Smith, incorporated by reference to Exhibit 10.24
to the Registrant’s Form 10-K, filed on July 14, 2010.
10.25
Consulting Agreement with Compagnie Ressources Naturelles et D’Investissment SA,
incorporated by reference to Exhibit 10.25 to the Registrant’s Form 10-K, filed
on July 14, 2010.
10.26(a)
Adamson-Glen Rose Lease, June 2010, incorporated by reference to
Exhibit 10.26(a) to Registrant’s Form 10-K/A for period ending
March 31, 2010 filed July 22, 2010.
10.26(b)
Adamson-Memorandum of Lease to UHC Petroleum, incorporated by reference to
Exhibit 10.26(b) to Registrant’s Form 10-K/A for period ending
March 31, 2010 filed July 22, 2010.
10.26(c)
Adamson Option, July 2010, incorporated by reference to Exhibit 10.26(c) to
Registrant’s Form 10-K/A for period ending March 31, 2010 filed
July 22, 2010.
10.27
Application Form for the purchase of the Company’s Series D Convertible
Preferred Stock, incorporated by reference to Exhibit 10.1 to Registrant’s Form
8-K filed on January 25, 2011,
10.28
Engagement Letter, dated January 15, 2011, between the Company and Barry J.
Pierce, CPA.*
10.29
Consulting Agreement, dated October 25, 2010, between the Company and James
Casperson.*
14 Code
of Ethics, incorporated by reference to Exhibit 14 to Registrant’s
Form 10-KSB for the year ending March 30, 2004 filed June 29,
2004.
21 Subsidiaries
of the Company, incorporated by reference to Exhibit 21 to
Registrant’s Form 10-K for period ending March 31, 2008 filed
July 14, 2008.
31.1
Certification of Principal Executive Officer*
31.2
Certification of Principal Accounting and Financial Officer*
32 .1
Certification of Principal Executive Officer pursuant to Section 906 of the
Sarbanes Oxley Act*
32.2 Certification
of Principal Accounting and Financial Officer pursuant to Section 906 of
the Sarbanes Oxley Act*
*Filed
herewith.
12
SIGNATURES
In
accordance with the requirements of the Exchange Act, the registrant caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.
GLEN
ROSE PETROLEUM CORPORATION
|
||
Date:
February __, 2011
|
By:
|
/s/
Andrew Taylor-Kimmins
|
Andrew Taylor-Kimmins
|
||
President and Chief Executive
Officer
|
||
Date:
February __, 2011
|
By:
|
/s/ Kenneth E. Martin
|
Kenneth
E. Martin
|
||
Chief
Financial Officer
|
13