The following discussion and analysis should be read in conjunction with accompanying financial statements and related notes included elsewhere in this report. It contains forward looking statements that reflect our future plans, estimates, beliefs and expected performance. The forward looking statements are dependent upon events, risks and uncertainties that may be outside our control. Our actual results could differ materially from those discussed in these forward looking statements.
Factors that could cause or contribute to such differences include, but are not limited to, market prices for oil and natural gas, economic and competitive conditions, regulatory changes, estimates of proved reserves, geological, geophysical and engineering risks and uncertainties, potential failure to achieve production from development drilling projects, capital expenditures and other uncertainties, as well as those factors discussed below and elsewhere in this report, particularly in "Risk Factors", all of which are difficult to predict and which expressly qualify all subsequent oral and written forward-looking statements attributable to us or persons acting on our behalf. In light of these risks, uncertainties and assumptions, the forward looking events discussed may not occur. We do not have any intention or obligation to update forward-looking statements included in this report after the date of this report, except as required by law.
Overview
We are an oil and gas company in the business of exploring and developing oil and natural gas reserves on a worldwide basis. Since inception, we have conducted leasehold acquisition, exploration and drilling activities on our North American, Australian and Indonesian prospects. These projects currently encompass approximately 249,042 gross (38,113 net) acres, consisting of mineral leases, production sharing contracts and exploration permits that give us the right to explore for, develop and produce oil and natural gas. Most of these properties are in the exploration, appraisal or development drilling phase and have not begun to produce revenue from the sale of oil and natural gas. Excluding minor interest and dividend income, our only significant cash inflows until 2003 were the recovery of capital invested in projects through sale or other divestiture of interests in oil and gas prospects to industry partners.
Since 2003, substantially all of our revenue has been generated from natural gas sales derived from the Magness #1, the Fannin #1, and the Mitchell #1 wells in the Madisonville Field in East Texas under spot gas purchase contracts at market prices. Natural gas sales from the Madisonville Field are expected to account for all of our revenues for 2012. We expect the majority of our capital expenditures for the remainder of 2012 will be for the Madisonville Project. Considering our liquidity issues, we may have to raise capital or sell assets on less favorable terms than may otherwise be available in order to accomplish our goals.
Results of Operations
The financial information with respect to the three and six months ended June 30, 2012 and 2011 as discussed below is unaudited. In the opinion of management, such information contains all adjustments (consisting primarily of normal recurring accruals) necessary for a fair presentation of the results for such periods. The results of operations for interim periods are not necessarily indicative of the results of operations for the full fiscal years.
| |
|
|
|
|
|
|
| |
|
June 30,
2012
|
|
|
June 30,
2011
|
|
|
June 30,
2012
|
|
|
June 30,
2011
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Statement of Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$ |
- |
|
|
$ |
206,590 |
|
|
$ |
351,082 |
|
|
$ |
607,939 |
|
|
Plant operating
|
|
|
197,688 |
|
|
|
604,781 |
|
|
|
871,549 |
|
|
|
1,321,837 |
|
|
Lease operating
|
|
|
70,313 |
|
|
|
65,842 |
|
|
|
141,225 |
|
|
|
138,465 |
|
|
General and administrative
|
|
|
476,080 |
|
|
|
498,198 |
|
|
|
962,163 |
|
|
|
1,096,619 |
|
|
Depreciation and depletion
|
|
|
82,053 |
|
|
|
93,857 |
|
|
|
266,978 |
|
|
|
221,800 |
|
|
Loss from operations
|
|
|
(826,134 |
) |
|
|
(1,056,088 |
) |
|
|
(1,890,833 |
) |
|
|
(2,170,782 |
) |
|
Net loss
|
|
|
(897,452 |
) |
|
|
(1,227,036 |
) |
|
|
(2,027,211 |
) |
|
|
(2,566,177 |
) |
|
Net loss applicable to common shareholders
|
|
$ |
(978,353 |
) |
|
$ |
(1,338,266 |
) |
|
$ |
(2,189,012 |
) |
|
$ |
(2,789,644 |
) |
Revenue and Operating Trends
For the three and six months ended June 30, 2012, we did not generate sufficient revenues to cover the plant operating expenses and lease operating expenses in our Madisonville Project. This was due to low production volumes, high shrinkage rates in the gas plant and low natural gas prices.
In April 2012, the Company's wholly-owned subsidiary, Redwood Energy Production, L.P., elected to temporarily shut-in its natural gas production at the Madisonville Field, Madison County, Texas in light of currently depressed natural gas prices caused by the oversupply of natural gas and the abnormally warm winter weather which has reduced the demand for natural gas. The Company plans to resume its natural gas production from the Madisonville Field when natural gas prices recover from the recently depressed levels, thus providing a better economic return. The Company will monitor market conditions and bring its natural gas production back on stream as market conditions warrant.
Subject to capital availability, we plan to workover the Mitchell #1 well and to frac and connect via gathering line the Wilson #1 well during the fiscal periods of 2012 and 2013. Once the above production enhancements are completed, the Company expects the combined Rodessa formation production to increase from current rates. The Company hopes to continue to realize both intermediate and long term cost and operating efficiencies generated by consolidating the upstream and midstream portions of the Madisonville Project under common ownership. We will continue to explore other long term cost savings and efficiency measures at the natural gas treatment plant. Future plans are to expand the plant capacity from the current design capacity of 18 MMcf/d to 30 MMcf/d.
Industry Overview for the three and six months ended June 30, 2012
Natural gas prices have been volatile due to concerns surrounding the recent global financial crisis and a resultant decline in demand for natural gas, an increase in production from shale gas, and the relatively mild winter just completed. Fluctuations in the price for natural gas are closely associated with customer demand relative to the volumes produced and the level of inventory in underground storage. These factors have recently led to natural gas prices falling to 10-year lows.
Company Overview for the three and six months ended June 30, 2012
Our net loss applicable to common shareholders for the three and six months ended June 30, 2012 was $978,353 and $2,189,012, respectively. From our inception through mid-2003, we only received nominal revenues from our oil and natural gas activities, while incurring substantial acquisition and exploration costs and overhead expenses which have resulted in an accumulated deficit through June 30, 2012 of $47,657,943. All of our natural gas sales for three and six months ended June 30, 2012 were derived from our Madisonville Project, from three producing wells, the Magness #1 well, the Fannin #1 well and the Mitchell #1 well.
Comparison of Results of Operations for the three months ended June 30, 2012 and 2011
We had no gross natural gas revenues for the three months ended June 30, 2012. Gross natural gas revenues for the three months ended June 30, 2011 were $206,590. During this 2011 period, the sales of natural gas from our wells amounted to 52,255 Mcf and our average natural gas price realized was $3.95 per Mcf. The decrease in revenues was due to the temporary shut-in of the Madisonville Field in 2012 as a result of low natural gas prices.
Plant operating expenses for the three months ended June 30, 2012 were $197,688 as compared to $604,781 for the three months ended June 30, 2011. The decrease in plant operating expenses of $407,093 or 67% was primarily attributable to the suspension of plant operations as a result of the temporary shut-in of the Madisonville Field.
Lease operating expenses for the three months ended June 30, 2012 were $70,313. Lease operating expenses for the three months ended June 30, 2011 were $65,842. Our net average lifting cost for this 2011 period was $1.26 per Mcf. The increase in total lifting cost of $4,471 or 7% was primarily attributable to the payment of shut-in royalties in 2012, despite other reductions in our lease operating expenses.
General and administrative expenses ("G&A") for the three months ended June 30, 2012 were $476,080 as compared to $498,198 for the three months ended June 30, 2011. The decrease in G&A of $22,118 or 4% was primarily attributable to a one time listing fee for newly issued common shares in 2011.
Depreciation, depletion and amortization expense ("DD&A") for the three months ended June 30, 2012 was $82,053 as compared to $93,857 for the three months ended June 30, 2011. The 13% decrease was primarily attributable to reduced depletion as a result of the temporary shut-in of the Madisonville Field.
The loss from operations for the three months ended June 30, 2012 was $826,134 as compared to $1,056,088 for the three months ended June 30, 2011. The decrease in the loss from operations was primarily attributable to lower plant operating expenses as a result of the temporary shut-in of the Madisonville Field.
Interest expense for the three months ended June 30, 2012 was $72,616 as compared to $174,833 for the three months ended June 30, 2011. The decrease in interest expense was primarily attributable to the retirement of the Bank of Oklahoma debt in September 2011.
Comparison of Results of Operations for the six months ended June 30, 2012 and 2011
Gross natural gas revenues for the six months ended June 30, 2012 were $351,082. During this 2012 period, the sales of natural gas from our wells amounted to 161,377 Mcf and our average natural gas price realized was $2.18 per Mcf. Gross natural gas revenues for the six months ended June 30, 2011 were $607,939. During this 2011 period, the sales of natural gas from our wells amounted to 159,201 Mcf and our average natural gas price realized was $3.82 per Mcf. Revenues decreased for the six months ended June 30, 2012 as compared to the prior year period, despite a 1% increase in production volumes, due to a 43% decrease in natural gas prices.
Plant operating expenses for the six months ended June 30, 2012 were $871,549 as compared to $1,321,837 for the six months ended June 30, 2011. The decrease in plant operating expenses of $450,288 or 34% was primarily attributable to the suspension of plant operations as a result of the temporary shut-in of the Madisonville Field.
Lease operating expenses for the six months ended June 30, 2012 were $141,225. Our net average lifting cost for this 2012 period was $0.88 per Mcf. Lease operating expenses for the six months ended June 30, 2011 were $138,465. Our net average lifting cost for this 2011 period was $0.87 per Mcf. The average lifting cost per Mcf in 2012 was slightly higher due to the payment of shut-in royalties in 2012, despite other reductions in our lease operating expenses.
General and administrative expenses ("G&A") for the six months ended June 30, 2012 were $962,163 as compared to $1,096,619 for the six months ended June 30, 2011. The decrease in G&A of $134,456 or 12% was primarily attributable to reduced expenses for investor relations, professional fees and the one time listing fee for newly issued common shares in 2011.
Depreciation, depletion and amortization expense ("DD&A") for the six months ended June 30, 2012 was $266,978 as compared to $221,800 for the six months ended June 30, 2011. These amounts primarily represent amortization of the oil and gas properties. The 20% increase was primarily attributable to higher depreciation for the Madisonville treatment plant.
The loss from operations for the six months ended June 30, 2012 was $1,890,833 as compared to $2,170,782 for the six months ended June 30, 2011. The decrease in the loss from operations was primarily attributable to lower plant operating expenses as a result of the temporary shut-in of the Madisonville Field.
Interest expense for the six months ended June 30, 2012 was $139,958 as compared to $399,411 for the six months ended June 30, 2011. The decrease in interest expense was primarily attributable to the retirement of the Bank of Oklahoma debt in September 2011.
In March 2012, Stuart J. Doshi, President and CEO, advanced to the Company a loan in the amount of $100,000. The note bears interest at 10% per annum and is payable on demand. In connection with the note, the Company agreed to issue 20,000 warrants to purchase our common stock. Each warrant entitles the holder to acquire one common share at a price of $0.50 for a period of three years.
In March 2012, we completed a unit sale through a private placement transaction to an individual accredited investor. Units were priced at $0.25 per unit, and each unit consisted of one share of no par value common stock, and a one-half common share purchase warrant. Each one whole warrant entitles the holder to acquire one common share at a price of $0.50 for a period of three years. The total aggregate purchase price for the units sold was $250,000, and represented the sale of 1,000,000 common shares and 500,000 warrants. We agreed to grant "piggyback" registration rights to the investor with respect to the shares of common stock and common stock issuable upon exercise of the warrants which the investor acquired in the transaction.
In April 2012, the Company's wholly-owned subsidiary, Redwood Energy Production, L.P., elected to temporarily shut-in its natural gas production at the Madisonville Field, Madison County, Texas in light of currently depressed natural gas prices caused by the oversupply of natural gas and the abnormally warm winter weather which has reduced the demand for natural gas. We plan to resume our natural gas production from the Madisonville Field when natural gas prices recover from the recently depressed levels, thus providing a better economic return. We will monitor market conditions and bring our natural gas production back on stream as market conditions warrant.
In April 2012, Nick DeMare indicated that he will not stand for reelection at this year's Annual Meeting. Mr. DeMare did not reference any disagreement with the Company on any matter. Mr. DeMare indicated that he needed to resign in order to devote all of his attention to managing his own company and his other business interests.
In April 2012, in accordance with the provisions of the Company's Bylaws, the Board of Directors unanimously adopted a resolution to reduce the size of the Board of Directors from 6 to 5 directors, effective upon the expiration of the current directors' term of office.
In May 2012, the Company extended the maturities of five promissory notes totaling $1,150,000 to January 2014 and two promissory notes totaling $365,000 to May 2014. In connection with these extensions, the Company extended 151,500 warrants to purchase our common stock associated with the notes for an additional year and reduced the exercise price to purchase the common shares from $1.00 to $0.50 per share.
In May 2012, Stuart J. Doshi, President and CEO, advanced to the Company two loans totaling $75,000. The notes bear interest at 10% per annum and are payable on demand. In connection with these notes, the Company agreed to issue 15,000 warrants to purchase our common stock. Each warrant entitles the holder to acquire one common share at a price of $0.50 for a period of three years.
In June 2012, Stuart J. Doshi, President and CEO, advanced to the Company four loans totaling $225,000. The notes bear interest at 10% per annum and are payable on demand. In connection with these notes, the Company agreed to issue 45,000 warrants to purchase our common stock. Each warrant entitles the holder to acquire one common share at a price of $0.50 for a period of three years.
In June 2012, the Company’s wholly owned subsidiary, GeoPetro Canada Ltd., acquired the remaining two-thirds (2/3) working interest in the Swan Hills Project, Central Alberta, Canada in exchange for an overriding royalty interest. Following the acquisition, the Company now owns 100% of the working interest in the Project.
On June 28, 2012, the Company received notice from NYSE MKT LLC (the “Exchange”) indicating that the Company is not in compliance with one of the Exchange’s continued listing standards. Specifically, the Exchange has notified the Company that it is not in compliance with Section 1003(a)(iv) of the Exchange’s Company Guide in that the Exchange believes that the Company has sustained losses which are so substantial in relation to its overall operations or its existing financial resources, or its financial condition has become so impaired that it appears questionable, in the opinion of the Exchange, as to whether the Company will be able to continue operations and/or meet its obligations as they mature. In order to maintain the listing of the Company’s common stock on the Exchange, the Company was required to submit a plan to the Exchange by July 30, 2012, addressing how the Company intended to regain compliance with Section 1003(a)(iv) by September 28, 2012 (the “Plan Period”). On July 30, 2012, the Company filed a plan with the Exchange as required. If the Exchange accepts the plan, then the Company may be able to continue the listing of its common stock on the Exchange during the Plan Period, during which time the Company will be subject to periodic reviews to determine whether it is making progress consistent with the plan. If the Company has failed to submit a plan acceptable to the Exchange or if the Company is not in compliance with the continued listing standards of the Exchange’s Company Guide by September 28, 2012, or if the Exchange determines that the Company is not making progress consistent with the plan during the Plan Period, then the Exchange will initiate delisting proceedings as appropriate.
In July 2012, Stuart J. Doshi, President and CEO, advanced to the Company two loans totaling $75,000. The notes bear interest at 10% per annum and are payable on demand. In connection with these notes, the Company agreed to issue 15,000 warrants to purchase our common stock. Each warrant entitles the holder to acquire one common share at a price of $0.50 for a period of three years.
Liquidity and Capital Resources
We had a working capital deficit of $2,503,179 at June 30, 2012 versus $2,059,100 at December 31, 2011. Our working capital deficit increased during the six months ended June 30, 2012 due primarily to losses incurred in connection with natural gas operations. Due to the current natural gas commodity price environment and the temporary shut-in of the Madisonville Field, the results of our natural gas operations amounted to a loss of $1,890,833 for the six months ended June 30, 2012.
Our cash balance at June 30, 2012 was $113,084 as compared to $916,741 at December 31, 2011. The change in our cash balance is summarized as follows:
|
Cash balance at December 31, 2011
|
|
$
|
916,741
|
|
|
Sources of cash:
|
|
|
|
|
Cash provided by financing activities
|
|
|
|
|
Total sources of cash including cash on hand
|
|
1,566,741
|
|
|
Uses of cash:
|
|
|
|
|
Cash used in operating activities
|
|
(1,326,352
|
)
|
|
Cash used in investing activities
|
|
|
)
|
|
Total uses of cash
|
|
(1,453,657
|
)
|
|
Cash balance at June 30, 2012
|
|
|
|
|
Net cash used in operating activities of $1,326,352 and $2,477,064 for the six months ended June 30, 2012 and 2011 respectively are attributable to our net income adjusted for non-cash charges as presented in the consolidated statements of cash flows and changes in working capital as discussed above.
We have historically financed our business activities principally through issuances of common shares, preferred shares, promissory notes and common share purchase warrants issued in private placements. These financings are summarized as follows:
| |
|
|
|
| |
|
|
|
|
|
|
|
Proceeds from sale of common shares
|
|
$ |
250,000 |
|
|
$ |
1,479,208 |
|
|
Proceeds from promissory notes
|
|
|
- |
|
|
|
600,000 |
|
|
Repayment of promissory notes
|
|
|
- |
|
|
|
(175,000 |
) |
|
Proceeds from related party notes
|
|
|
400,000 |
|
|
|
125,000 |
|
|
Net cash provided by financing activities
|
|
$ |
650,000 |
|
|
$ |
2,029,208 |
|
The net proceeds of our equity and note financings have been primarily used to satisfy working capital requirements and to invest in oil and natural gas properties and the gas treatment plant. These investments totaled $127,305 and $91,417 for the six months ended June 30, 2012 and 2011, respectively.
Our current cash and cash equivalents and anticipated cash flow from operations will not be sufficient to meet our working capital and capital expenditure requirements for the foreseeable future. Additional financing is required to carry out our business plan. See "Outlook for 2012/2013 Capital" for a description of our expected capital expenditures for the years of 2012 and 2013. If we are unable to generate revenues necessary to finance our operations over the long-term, we may have to seek additional capital through the sale of our equity or borrowing. We periodically borrow funds through the issuance of short and long term promissory notes to finance our activities.
We hold working interests and overriding royalty interests in undeveloped leases, seismic options, lease options and foreign concessions and we have participated in seismic surveys and the drilling of test wells on undeveloped properties. We plan further leasehold acquisitions and seismic operations for the remainder of 2012 and future periods. Exploratory and developmental drilling is scheduled during 2012 and future periods on our undeveloped properties. We are attempting to raise additional cash through the sale or farm out of certain of our unproved properties. We may also need to raise additional equity or enter into new borrowing arrangements to finance our operating deficit and our continued participation in planned activities. If additional financing is not available, we will be compelled to reduce the scope of our business activities. If we are unable to fund our operating cash flow needs and planned capital investments, it will be necessary to farm-out our interest in proposed wells, sell a portion of our interest in prospects, sell a portion of our interest in our producing oil and gas properties, sell all or a portion of our gas plant, reduce general and administrative expenses, or a combination of all of these factors. Further, we have debt service and lease obligations that will require cash payments.
As discussed in the "Outlook for 2012/2013 Capital", we are forecasting capital expenditures of $2.4 million during the remainder of 2012 and for 2013. We will need to obtain adequate sources of cash to fund these anticipated capital expenditures, to fund ongoing operations and to follow through with our plans for continued investments in oil and gas properties. Our success, in part, depends on our ability to generate additional financing and/or farmout certain of our projects. Additionally, as a result of the current economic conditions, the Company may have difficulty raising sufficient funds to meet our projected funding requirements.
As a result of the Company's liquidity issues, it may be required to sell certain assets or raise capital with terms that may not be as favorable as might otherwise be available.
Contractual Obligations
We have assumed various contractual obligations and commitments in the normal course of our operations and financing activities. We have described these obligations and commitments in our "Management's Discussion and Analysis of Financial Condition and Results of Operations" section in our Annual Report on Form 10-K for the year ended December 31, 2011. There were no material changes to our contractual obligations since December 31, 2011 except items described in "Recent Developments".
Off Balance Sheet Arrangements
None.
Financial Instruments
We currently have no natural gas price financial instruments or hedges in place. Our natural gas marketing contracts use "spot" market prices. Given the uncertainty of the timing and volumes of our natural gas production this year, we do not currently plan to enter into any long term fixed-price natural gas contracts, swap or hedge positions, or other gas financial instruments in 2012.
Outlook for 2012/2013 Capital
Depending on capital availability, we are forecasting capital spending of up to approximately $2,445,000 during the remainder of fiscal 2012 and 2013, allocated as follows:
|
|
1.
|
Madisonville Project, Madison County, Texas – Approximately $2,095,000 may be expended in the Madisonville Field area as follows: $650,000 for the Mitchell well workover; $1,445,000 toward the fracture stimulation and hook up costs of the Wilson well.
|
|
|
2.
|
California – Approximately $200,000 to be utilized for land and permitting costs.
|
|
|
3.
|
Canada – Approximately $150,000 to be utilized for permitting costs.
|
The Company also has future plans to expand the gas treatment plant at a cost of approximately $4,000,000.
We may, in our discretion, decide to allocate resources towards other projects in addition to or in lieu of, those listed above should other opportunities arise and as circumstances warrant. We currently do not have sufficient working capital to fund all of the capital expenditures listed above. We may, in our discretion, fund the foregoing planned expenditures from operating cash flows, asset sales, potential debt and equity issuances and/or a combination of all four. The Madisonville Project forecasted capital expenditures will play an important part in the Company achieving its 2012 and 2013 cash flow projections. See "Liquidity and Capital Resources."
We expect commodity prices to be volatile, reflecting the current supply and demand fundamentals for North American natural gas and world crude oil. Political and economic events around the world, which are difficult to predict, will continue to influence both oil and gas prices. Significant price changes for oil and gas often lead to changes in the levels of drilling activity which in turn lead to changes in costs to explore, develop and acquire oil and gas reserves. Significant change in costs could affect the returns on our capital expenditures.
Impact of Inflation & Changing Prices
We are highly dependent upon natural gas pricing. A material decrease in current and projected natural gas prices could impair our ability to raise additional capital on acceptable terms. Likewise, a material decrease in current and projected natural gas prices could also impact our revenues and cash flows. This could impact our ability to fund future activities.
Changing prices have had a significant impact on costs of drilling and completing wells, particularly in the Madisonville Field area where we are currently the most active. The estimated cost of drilling and completing a Rodessa formation well at approximately 12,300 feet of depth has increased from $3.0 million in 2001 to $4.2 million in 2012 due to higher costs associated with tubular goods, well equipment, and day rates for drilling contracts, among other factors. These higher costs have impacted and will continue to impact our income from operations in the form of higher depletion expense.
Critical Accounting Estimates
Our consolidated financial statements have been prepared by management in accordance with U.S. GAAP. We refer you to the corresponding section in Part II, Item 7 and the notes to the consolidated financial statements of our Annual Report on Form 10-K for the year ended December 31, 2011 for the description of critical accounting policies and estimates.
Risks and Uncertainties
There are a number of risks that face participants in the U.S., Canadian and international oil and natural gas industry, including a number of risks that face us in particular. Accordingly, there are risks involved in an ownership of our securities. See "Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2011 for a description of the principal risks faced by us.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
We are exposed to market risks arising from fluctuating prices of crude oil, natural gas and interest rates as discussed below.
Commodity Risk. Our major commodity price risk exposure is to the prices received for our natural gas production. Realized commodity prices received for our production are the spot prices applicable to natural gas in the East Texas region. Prices received for natural gas are volatile and unpredictable and are beyond our control.
Currency Translation Risk. Because our revenues and expenses are primarily in U.S. dollars, we have little exposure to currency translation risk, and, therefore, we have no plans in the foreseeable future to implement hedges or financial instruments to manage international currency changes.
Interest Rate Risk. Interest rates on future debt offerings could be higher than current levels, causing our financing costs to increase accordingly. We do not currently utilize hedging contracts to protect against interest rate risk.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our President, Chief Executive Officer and Chairman and our Principal Accounting Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of June 30, 2012. Based on this evaluation, we have concluded that, as of June 30, 2012, our disclosure controls and procedures were effective, in that they ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is (1) recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and (2) accumulated and communicated to our management, including our President and Chief Executive Officer and our Principal Accounting Officer, as appropriate to allow timely decisions regarding required disclosure.
During the most recent fiscal quarter, there have been no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
From time to time, we are party to litigation or other legal and administrative proceedings that we consider to be a part of the ordinary course of our business. Currently, we are not involved in any legal proceedings nor are we party to any pending or threatened claims that could, individually or in the aggregate, reasonably be expected to have a material adverse effect on our financial condition, cash flow or results of operations.
As of the date of this filing, there have been no material changes from the risk factors previously disclosed in our "Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2011, referred to as our 2011 Annual Report. An investment in our securities involves various risks. When considering an investment in our company, you should consider carefully all of the risk factors described in our 2011 Annual Report. These risks and uncertainties are not the only ones facing us and there may be additional matters that we are unaware of or that we currently consider immaterial.
Item 2. Unregistered Sales of Securities and Use of Proceeds
Unregistered Sales of Securities
In March 2012, Stuart J. Doshi, President and CEO, advanced to the Company a loan in the amount of $100,000. In connection with the note, the Company agreed to issue 20,000 warrants to purchase our common stock. Each warrant entitles the holder to acquire one common share at a price of $0.50 for a period of three years.
In March 2012, we completed a unit sale through a private placement transaction to an individual accredited investor. Units were priced at $0.25 per unit, and each unit consisted of one share of no par value common stock, and a one-half common share purchase warrant. Each one whole warrant entitles the holder to acquire one common share at a price of $0.50 for a period of three years. The total aggregate purchase price for the units sold was $250,000, and represented the sale of 1,000,000 common shares and 500,000 warrants. We agreed to grant "piggyback" registration rights to the investor with respect to the shares of common stock and common stock issuable upon exercise of the warrants which the investor acquired in the transaction.
In May 2012, Stuart J. Doshi, President and CEO, advanced to the Company two loans totaling $75,000. In connection with these notes, the Company agreed to issue 15,000 warrants to purchase our common stock. Each warrant entitles the holder to acquire one common share at a price of $0.50 for a period of three years.
In June 2012, Stuart J. Doshi, President and CEO, advanced to the Company four loans totaling $225,000. In connection with these notes, the Company agreed to issue 45,000 warrants to purchase our common stock. Each warrant entitles the holder to acquire one common share at a price of $0.50 for a period of three years.
In July 2012, Stuart J. Doshi, President and CEO, advanced to the Company two loans totaling $75,000. In connection with these notes, the Company agreed to issue 15,000 warrants to purchase our common stock. Each warrant entitles the holder to acquire one common share at a price of $0.50 for a period of three years.
GeoPetro issued the aforementioned common shares and warrants in reliance on the exemption from registration provided for under Section 4(2) of the Securities Act of 1933, as amended (the "Securities Act"), and Rule 506 of Regulation D thereunder. GeoPetro relied on the exemption from registration provided for under Section 4(2) of the Securities Act based in part on the representations made by the purchasers, including the representations with respect to each purchaser's status as an accredited investor, as such term is defined in Rule 501(a) of the Securities Act, and each purchaser's investment intent with respect to the securities purchased. In addition, the Securities, which were taken for investment purposes and not for resale, were subject to restrictions on transfer. We did not engage in any public advertising or general solicitation in connection with this transaction, and we provided the investors with disclosure of all material aspects of our business, including providing the investor with our reports filed with the Securities and Exchange Commission and other financial, business and corporate information. Based on our investigation, we believed that the accredited investors obtained all information regarding the Company that they requested, received answers to all questions posed and otherwise understood the risks of accepting our Securities for investment purposes.
Use of Proceeds
Proceeds realized will be spent in the following order of priority by the Company:
|
|
(2)
|
General Working Capital
|
|
|
(3)
|
Madisonville Project, Madison County
|
We do not know if, or how many, of the warrants or options will be exercised. This is our best estimate of our use of proceeds generated from the possible exercise of warrants or options based on the current state of our business operations, our current plans and current economic and industry conditions. Any changes in the projected use of proceeds will be made at the sole discretion of our board of directors.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
Not applicable
EXHIBIT INDEX
|
Exhibit
Number
|
|
|
| |
|
|
|
31.1 (1)
|
|
Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer.
|
| |
|
|
|
31.2 (1)
|
|
Rule 13a-14(a)/15d-14(a) Certification of Principal Accounting Officer.
|
| |
|
|
|
32.1 (1)
|
|
Certification of Chief Executive Officer and Principal Accounting Officer of GeoPetro Resources Company pursuant to 18 U.S.C. § 1350.
|
| |
|
|
|
101 (1)
|
|
The following materials from the GeoPetro Resources Company Form 10-Q for the quarter ended June 30, 2012 formatted in Extensible Business Reporting Language (XBRL): (i) the Condensed Consolidated Statements of Operations, (ii) the Condensed Consolidated Balance Sheets, (iii) Condensed Consolidated Statements of Cash Flows and (iv) related notes, tagged as blocks of text.
|
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on August 14, 2012.
|
GEOPETRO RESOURCES COMPANY
|
|
| |
|
|
| |
|
|
|
By:
|
|
|
| |
Stuart J. Doshi
|
|
| |
President, Chief Executive Officer and Chairman of the Board
|
|
| |
|
|
| |
|
|
|
By:
|
|
|
| |
Dale W. Dvoracek
|
|
| |
Principal Accounting Officer
|
|
22