FORWARD-LOOKING STATEMENTS
This
report contains forward-looking statements within the meaning of Section 27A of
the Securities Act of 1933, as amended (the Securities Act), and Section 21E
of the Securities Exchange Act of 1934, as amended (the Exchange Act). All
statements other than statements of historical facts are forward-looking
statements. You can find many of these statements by looking for words such as
believes, expects, anticipates, estimates, intends, or similar
expressions used in this report.
These forward-looking
statements are subject to numerous assumptions, risks and uncertainties.
Factors which may cause our actual results, performance or achievements to be
materially different from any future results, performance or achievements
expressed or implied by us in those statements include, among others, the
following:
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the quality of our
properties with regard to, among other things, the existence of reserves in
economic quantities;
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uncertainties about
the estimates of reserves;
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our ability to
increase our production and oil and natural gas income through exploration
and development;
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the number of well
locations to be drilled and the time frame within which they will be drilled;
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the timing and extent
of changes in commodity prices for natural gas and crude oil;
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domestic demand for
oil and natural gas;
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drilling and operating
risks;
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the availability of
equipment, such as drilling rigs and transportation pipelines;
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changes in our
drilling plans and related budgets;
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the adequacy of our
capital resources and liquidity including, but not limited to, access to
additional borrowing capacity; and
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other factors
discussed under Item 1A Risk Factors with the heading Risks Related To Our
Business.
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Because such statements
are subject to risks and uncertainties, actual results may differ materially
from those expressed or implied by the forward-looking statements. You are
cautioned not to place undue reliance on such statements, which speak only as
of the date of this report.
PART I
References to us, we
and our in this report refer to Petrocorp Inc. together with our subsidiaries.
ITEM 1.
BUSINESS.
Background
We were incorporated as GD Conference Center,
Inc. under the laws of Delaware on June 16, 2006. Prior to September 2007, the
Companys business model provided telephonic conferencing services to
businesses, organizations and individuals in North America.
On September 20, 2007, the Company entered
the oil and gas exploration and production business with the acquisition of
three separate farm-out agreements from James Fitzsimons. Mr. Fitzsimons also
purchased 17,800,000 shares of the Companys common stock from certain
shareholders for $454,000. Mr. Fitzsimons was elected a director of the
Company.
3
On October 19, 2007, the Company
amended its certificate of incorporation changing its name to Petrocorp Inc.
and effected a five for one forward stock split which increased the
authorized common stock to 100,000,000 shares at $.0001 par value. On
August 13, 2008, the Companys board of directors approved a stock dividend on
its outstanding common stock. The ratio for the stock dividend was four shares
to each share owned (4:1).
During 2009 the Company changed
its emphasis from an international oil and gas company primarily to a US focused
company because of world economic conditions and lack of debt/capital financing.
The Company disposed of its foreign oil and gas leases/permits in two separate
transactions. The Company completed an extensive review of its Alaska and
Oklahoma oil and gas leases, operations and recorded a $900,865 impairment
charge in 2010 as compared to $639,813 in 2009.
Our Current Business
We are a US exploration stage Company
engaged in the acquisition, exploration and production, if warranted,
development of prospective oil and gas properties. We plan to conduct
exploration work on each of our current and future properties in order to
ascertain whether any of them possess commercially exploitable quantities of
oil and gas reserves. The Company currently has lease holdings on the North
Slope of Alaska and oil and gas production in Oklahoma.
Alaska
On October 25, 2007, Union Energy
(Alaska) LLC (UEA), our subsidiary, was the winning bidder for tracts 254,
258 and 259 in the North Slope Areawide 2007 Competitive Oil and Gas Lease
Sale. The leases, covering 14,680 net acres, were issued on August 1, 2008,
with a term of seven years and subject to a 12.5% royalty interest in favor of the State
of Alaska. These tracts are contiguous and the
Company believes, based upon current available geological data and maps from
the public domain, to contain the Kavik gas field, discovered in 1969, which
has been evaluated in detail by the U.S. Department of the Interior, U.S
Geological Survey ("USGS").
On February 27, 2008, UEA was the
winning bidder for tracts 922, 923, 927, 988, 989, 990, 991, 992 and 925 in the
State of Alaska North Slope Foothills Areawide 2008 Competitive Oil and Gas
Lease Sale. The leases, covering 9,600 net acres, were issued on September 1,
2008, with a term of 10 years and subject to a 12.5% royalty interest in favor of the
State of Alaska. These tracts are contiguous and the
Company believes, based upon current available geological data and maps from the
public domain, to contain the East Kurupa gas field, discovered by Texaco in
1976. The USGS has been studying the potential for unconventional
over-pressured, continuous gas deposits in the Colville basin that contains the
Kurupa anticline and is now interpreting the East Kurupa well to have
encountered a thick section of over-pressured gas in Brookian strata.
Furthermore, any gas recovered from
our Alaska leases will not be salable unless or until a proposed North Slope
gas pipeline is completed.
Oklahoma
On August 12, 2008, the Company acquired from
its President, James Fitzsimons, a 50% working interest (41.25% net revenue
interest) in the Snake Creek prospect, a 3,200 gross (3,022 net) acre gas development
project located in northern Okmulgee County. The Company reimbursed Mr.
Fitzsimons for his historic costs (acreage and drilling) by issuing a secured,
non-interest bearing note, payable on demand for $210,917 and assumed
responsibility for all further costs.
4
On November 30, 2008, the Company acquired from
Mr. Fitzsimons, a 100% working interest (81.25% net revenue interest) in the
Spanish Peak prospect, a 2,041 gross (900 net) acre gas development project
located in Okmulgee County, Oklahoma. The Company reimbursed Mr. Fitzsimons
for his historic costs (acreage) by issuing a secured, non-interest bearing
note, payable on demand for $173,141 and assumed responsibility for all further
costs.
On March 31, 2009, the Company purchased 171 oil
and gas lease interests totaling 3,827 gross (2,666 net) acres in Okfuskee and Okmulgee Counties, Oklahoma from CH4 Energy, Inc., a company controlled by Soladino
Investments SA at a cost of $583,823. The Company reimbursed Soladino for its
historic costs (acreage) by issuing a secured, non-interest bearing note,
payable on demand for $583,823 and assumed responsibility for all further
costs.
The Oklahoma leases are in areas
which the Company believes are promising for oil and gas production although
the Company does not make any representations as to future profitable
production, if any.
Competition
We operate in a highly competitive industry,
competing with major oil and gas companies, independent producers and
institutional and individual investors, which are actively seeking oil and gas
properties throughout the world together with the equipment, labor and
materials required to operate properties. Most of our competitors have
financial resources, staffs and facilities substantially greater than ours. The
principal area of competition is encountered in the financial ability to
acquire good acreage positions and drill wells to explore for oil and gas,
then, if warranted, drill production wells and install production equipment.
Competition for the acquisition of oil and gas acreage is intense. Therefore,
we may not be successful in acquiring and developing profitable properties in
the face of this competition. No assurance can be given that sufficient oil and
gas acreage will be available for acquisition and development.
Government Regulation
Oil and gas exploration and development
companies are subject to various federal, state and local governmental
regulations, which may be changed from time to time in response to economic or
political conditions and can have a significant impact upon overall operations.
Matters subject to regulation include permits for drilling operations, drilling
bonds, reports concerning operations, the spacing of wells, unitization and
pooling of properties, taxation, abandonment and restoration and environmental
protection. These laws and regulations are under constant review for amendment
or expansion. Changes in these regulations could require us to expend
significant resources to comply with new laws or regulations or changes to current
requirements and could have a material adverse effect on us.
Oil and Gas Regulation
The governmental laws and regulations which
could have a material impact on our Company are as follows:
Drilling and Production
These types of regulation include permit
requirements for the drilling of wells, drilling bonds and reports concerning
operations. Most states regulate one or more of the following: (i) the location
of wells; (ii) the method of drilling and casing wells; (iii) the rates of
production or "allowables"; (iv) the surface use and restoration of
properties upon which wells are drilled; (v) the plugging and abandoning of
wells; and (vi) notice to surface owners and other third parties.
5
State laws may regulate the size and shape of
drilling and spacing units or proration units governing the pooling of oil and
natural gas properties. Some states, including Oklahoma, allow forced pooling
or integration of tracts to facilitate exploration while other states rely on
voluntary pooling of lands and leases. In some instances, forced pooling or
unitization may be implemented by third parties and may reduce our interest in
the unitized properties. In addition, state conservation laws establish maximum
rates of production from oil and natural gas wells, generally prohibit the
venting or flaring of natural gas and impose requirements regarding the
ratability of production. These laws and regulations may limit the amount of
natural gas and oil we can produce from our wells or limit the number of wells
or the locations at which we can drill. Moreover, each state generally imposes
a production or severance tax with respect to the production and sale of oil,
natural gas and natural gas liquids within its jurisdiction.
Environmental Regulation
Our activities will be subject to existing
federal, state and local laws and regulations governing environmental quality
and pollution control. Our operations will be subject to stringent
environmental regulation by state and federal authorities including the
Environmental Protection Agency ("EPA"). Such regulation can increase
the cost of such activities. In most instances, the regulatory requirements
relate to water and air pollution control measures.
Waste Disposal
The Resource Conservation and Recovery Act
("RCRA"), and comparable state statutes, affect oil and gas
exploration and production activities by imposing regulations on the
generation, transportation, treatment, storage, disposal and cleanup of
"hazardous wastes" and on the disposal of non-hazardous wastes. Under
the auspices of the EPA, the individual states administer some or all of the
provisions of RCRA, sometimes in conjunction with their own, more stringent
requirements. Drilling fluids, produced waters, and most of the other wastes
associated with the exploration, development, and production of crude oil,
natural gas, or geothermal energy constitute "solid wastes", which
are regulated under the less stringent non-hazardous waste provisions, but
there is no guarantee that the EPA or the individual states will not adopt more
stringent requirements for the handling of non-hazardous wastes or categorize
some non-hazardous wastes as hazardous for future regulation.
Air Emissions
Our operations are subject to local, state and
federal regulations for the control of emissions of air pollution. Major
sources of air pollutants are subject to more stringent, federally imposed
permitting requirements. Administrative enforcement actions for failure to
comply strictly with air pollution regulations or permits are generally resolved
by payment of monetary fines and correction of any identified deficiencies.
Alternatively, regulatory agencies could require us to forego construction,
modification or operation of certain air emission sources.
Clean Water Act
The Clean Water Act ("CWA") imposes
restrictions and strict controls regarding the discharge of wastes, including
produced waters and other oil and natural gas wastes, into waters of the United States, a term broadly defined. Permits must be obtained to discharge pollutants
into federal waters. The CWA provides for civil, criminal and administrative
penalties for unauthorized discharges of oil, hazardous substances and other
pollutants. It imposes substantial potential liability for the costs of removal
or remediation associated with discharges of oil or hazardous substances. State
laws governing discharges to water also provide varying civil, criminal and
administrative penalties and impose liabilities in the case of a discharge of
petroleum or it derivatives, or other hazardous substances, into state waters.
In addition, the EPA has promulgated regulations that may require us to obtain
permits to discharge storm water runoff. In the event of an unauthorized
discharge of wastes, we may be liable for penalties and costs.
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Employees
We have no employees as of the date of this
report and anticipate that our operations will be conducted primarily through
third party consultants and contractors rather than by employees. We do not
anticipate hiring a large number of employees.
Item 1A. Risk Factors.
You should carefully
consider the risks described below, which constitute the material risks facing
us. If any of the following risks actually occur, our business could be
harmed. You should also refer to the other information about us contained in
this Form 10-K, including our financial statements and related notes.
Risks Related to Our Business
Our exploratory drilling operations may not be
successful, our business may fail and investors may lose their entire
investment in our Company.
There can be no assurance that our future
drilling activities will be successful. We may not recover all or any portion
of our capital investment in the wells. Unsuccessful drilling activities would
have a material adverse effect upon our results of operations and financial
condition and would likely result in the ultimate failure of our business
operations. The cost of drilling, completing, and operating wells is often
uncertain, and a number of factors can delay or prevent drilling operations including:
(i) unexpected drilling conditions; (ii) pressure or irregularities in
formation; (iii) equipment failures or accidents; (iv) adverse weather
conditions; and (iv) shortages or delays in availability of drilling rigs and
delivery of equipment. If our exploratory drilling operations are not
successful, our business may fail and investors may lose their entire
investment in our Company.
Oil and gas exploration and development involves
many operating risks. If we were to experience any of these problems, it could
have a material, adverse effect on our operations and possibly cause us to go
out of business and investors to lose their entire investment in our Company.
Our exploration activities will be subject to
many risks, including the risk that we may not discover commercially productive
reservoirs. Exploration for oil and natural gas can be unprofitable, not only
from failing to discover reserves, but from productive wells that do not
produce sufficient revenues to return a profit. In addition, our exploration
activities may be curtailed, delayed or cancelled as a result of other factors,
including:
fires;
explosions;
blow-outs and surface cratering;
uncontrollable flows
of underground natural gas, oil, or formation water;
natural disasters;
facility and equipment
failures;
title problems;
shortages or delays in
the delivery of equipment and services;
abnormal pressure
formations; and,
environmental
hazards such as natural gas leaks, oil spills, pipeline ruptures and discharges
of toxic gases.
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If any of these events occur, we could incur
substantial losses as a result of:
injury or loss of
life;
severe damage to and
destruction of property, natural resources or equipment;
pollution and other
environmental damage;
clean-up responsibilities;
regulatory
investigation and penalties;
suspension of our
operations; or,
repairs necessary to
resume operations.
We may be affected by any of these events more
than larger companies, since we have limited working capital. We have not
obtained any liability insurance for our operations at this time. If we were to
experience any of these problems, it could have a material, adverse effect on
our operations and could cause us to go out of business and investors to lose
their entire investment in our Company.
The operations and the potential profitability
of oil and gas exploration and development companies often depends upon factors
beyond our control. If our operations and potential profitability are
negatively impacted because of these factors, our business could suffer and
investors could lose all or part of their investment in our Company.
The potential profitability of oil and gas
properties is dependent upon many factors beyond our control. For instance,
world prices and markets for oil and gas are unpredictable, highly volatile and
potentially subject to governmental price fixing, pegging and controls, or any
combination of these and other factors, responding to changes in domestic,
international, political, social, and economic environments. Additionally, due
to worldwide economic uncertainty, the availability and cost of funds and other
expenses have become increasingly difficult, if not impossible, to project.
These and other changes and events may materially affect our financial
performance.
Adverse weather conditions can also hinder
drilling operations. A productive well may become uneconomic in the event water
or other deleterious substances are encountered which impair or prevent the
production of oil and/or gas from the well. In addition, production from any
well may be unmarketable if it is impregnated with water or other deleterious
substances. The marketability of oil and gas, which may be acquired or
discovered will be affected by numerous factors beyond our control. These
factors include, but are not limited to, the proximity and capacity of oil and
gas pipelines and processing equipment, market fluctuations of prices, taxes,
royalties, land tenure, allowable production and environmental protection.
These factors cannot be accurately predicted. If our operations and potential
profitability are negatively impacted because of these factors, our business
could suffer and investors could lose all or part of their investment in our Company.
The oil and gas industry is highly competitive
and there is no assurance that we will be successful in acquiring further oil
and gas exploration prospects and hiring qualified personnel. If we do not
compete successfully in these areas, our operations will likely suffer and our Company
will likely be unsuccessful.
The oil and gas industry is intensely
competitive, and we compete with other companies that have greater resources.
Many of these companies not only explore for and produce oil and natural gas,
but also carry on refining operations and market petroleum and other products
on a regional, national or worldwide basis. These companies may be able to pay
more for productive oil and natural gas properties and exploratory prospects or
define, evaluate, bid for and purchase a greater number of properties and
prospects than our financial or human resources permit. In addition, these
companies may have a greater ability to continue exploration activities during
periods of low oil and natural gas market prices. Our larger competitors may be
able to absorb the burden of present and future laws and regulations more
easily than we can, which would adversely affect our competitive position. Our
ability to acquire additional properties and to discover reserves in the future
will be dependent upon our ability to evaluate and select suitable properties
and to consummate transactions in a highly competitive environment. These
companies also may be better able to attract the qualified personnel required
to run a successful oil and gas exploration company.
8
Oil and gas operations are subject to
comprehensive regulation which may cause substantial delays or require capital
outlays in excess of those anticipated causing an adverse effect on us.
Oil and gas operations are subject to federal,
state, and local laws relating to the protection of the environment, including
laws regulating removal of natural resources from the ground and the discharge
of materials into the environment. Oil and gas operations are also subject to
federal, state, and local laws and regulations which seek to maintain health
and safety standards by regulating the design and use of drilling methods and
equipment. Various permits from government bodies are required for drilling
operations to be conducted; no assurance can be given that such permits will be
received. Environmental standards imposed by federal, state, or local
authorities may be changed and any such changes may have material adverse
effects on our activities. Moreover, compliance with such laws may cause
substantial delays or require capital outlays in excess of those anticipated,
thus causing an adverse effect on us. Additionally, we may be subject to
liability for pollution or other environmental damages which we may elect not
to insure against due to prohibitive premium costs and other reasons. To date
we have not been required to spend material amounts on compliance with
environmental regulations. However, we may be required to do so in future and
this may affect our ability to expand or maintain our operations.
Oil and gas exploration and development
activities are subject to certain environmental regulations which may prevent
or delay the commencement or continuance of our operations.
Our oil and gas exploration and development
activities will be subject to certain federal, state and local laws and
regulations relating to environmental quality and pollution control. Such laws
and regulations increase the costs of these activities and may prevent or delay
the commencement or continuance of a given operation. Compliance with these
laws and regulations has not had a material effect on our operations or
financial condition to date. Specifically, we are subject to legislation
regarding emissions into the environment, water discharges and storage and
disposition of hazardous wastes. In addition, legislation has been enacted
which requires well and facility sites to be abandoned and reclaimed to the
satisfaction of state authorities. However, such laws and regulations are
frequently changed and we are unable to predict the ultimate cost of
compliance.
Risks Related to Our Company
If we do not continue to obtain additional
financing, our business will fail.
Our current operating funds are less than
necessary to commence and complete intended test wells on the Oklahoma and Alaska
properties covered by our oil and gas leases. Therefore, we will need to obtain
additional financing in order to complete our business plan. We currently have
limited operations and we have minimal oil and gas sales.
At December 31, 2010, we have cash of $29,404
representing the remaining proceeds of our financing transactions and loans
from our president. In order to commence and complete intended test wells on
the Oklahoma properties we anticipate that we will need to spend a minimum of $100,000.
Exploration (and if successful, development) of the Alaska prospects is
unlikely to commerce until the next decade and it is impossible to forecast
these costs at this time. Nevertheless, we will require substantial additional
financing to cover such costs. Furthermore, we will require additional
financing to sustain our business operations if we are not successful in
earning revenues once drilling is complete.
9
We do not currently have any arrangements for
financing and may not be able to find such financing. Our ability to obtain
additional financing will be subject to a number of factors, including the
market price for oil and gas, the success of our initial test wells and general
market conditions. These factors will make the timing, amount, terms or conditions
of financing uncertain and additional financing may be unavailable to us. If
we do not obtain additional financing, our business will fail.
We are a new entrant into the oil and gas
industry without a profitable or long operating history. We do not have any significant
income producing oil and gas properties and we have limited financial
resources. We have not yet commenced our exploration activities nor have we
generated any significant revenue since our incorporation. There is no means by
which investors can evaluate our potential for success and there is no
assurance that we will ever operate profitably.
We have a limited operating history and must be
considered in the exploration stage. Our Company's operations will be subject
to all the risks inherent in the establishment of an exploration stage
enterprise and the uncertainties arising from the absence of a significant
operating history. Potential investors should be aware of the difficulties
normally encountered by oil and gas exploration and development companies and
the high rate of failure of such enterprises, especially those with a limited
operating history such as ours. The likelihood of success must be considered in
light of the problems, expenses, difficulties, complications and delays
encountered in connection with the oil and gas exploration that we plan to
undertake. These potential problems include, but are not limited to,
unanticipated problems relating to exploration, and additional costs and
expenses that may exceed current estimates. The expenditures to be made by us
in our oil and gas exploration may not result in the discovery of oil and gas
reserves. If the results of our exploration do not reveal commercially viable
oil or gas reserves, we may decide to abandon our leasehold interests and
acquire new oil and gas interests for exploration or cease operations. The
acquisition of additional oil and gas interests will be dependent upon us
possessing capital resources in order to purchase such interests. If no funding
is available, we may be forced to abandon our operations. No assurance can be
given that we will ever operate on a profitable basis.
Potential investors should be aware of the
difficulties normally encountered by new resource companies and the high rate
of failure of such enterprises. There is a high risk that our business will
fail.
Because our directors have other business
interests, they may not be able or willing to devote a sufficient amount of
time to our business operations, causing our business to suffer and possibly
fail
.
Our directors intend to spend a minority of
their business time providing their services to us. While they presently
possess adequate time to attend to our interests, it is possible that the
demands on our directors from their other obligations could increase, or the
demands of our business operations could increase, with the result that they
would no longer be able to devote sufficient time to the management of our
business. If this happens, our Company will not likely perform to its potential
and may fail.
Prospects that we decide to drill may not yield
natural gas or oil in commercially viable quantities. If this happens, our
business will likely fail and investors would likely lose their entire
investment in our Company.
None of our properties covered by the oil and
gas leases/permits have yet been fully evaluated by the Company. We will not
know for certain, prior to drilling and testing, whether natural gas or oil
will be present in those properties or, if present, whether natural gas or oil
will be present in sufficient quantities to recover drilling or completion
costs or to be economically viable. The cost of drilling, completing and
operating any well is uncertain and any wells we drill may not be productive.
If we never find commercially viable resources of oil and gas, our business
will fail and investors will likely lose their entire investment in our Company.
10
Our Alaska prospects are in areas believed to
contain gas, but presently lacking gas transportation facilities
.
While our Alaska prospects are in areas that are
promising for gas discovery, there are no existing pipeline facilities
available to transport any gas they may produce to market. Unless such
facilities are built and available to us, our gas would be stranded gas with
little or no market value. The Company believes that a pipeline facility will
be built within the terms of our leases, however, whether a pipeline is built,
the timing of the construction of the pipeline and whether and on what terms
the pipeline is made available to transport our gas are all matters beyond our
control which could have significant impacts on our future results.
James Fitzsimons, our president, owns Soladino
Investments SA, a Swiss corporation, that owns approximately 78.5% of our common
stock and this interest could conflict with other investors, which could cause
other investors to lose all or part of their investment.
James Fitzsimons, our president and a director, owns
Soladino Investments SA, a Swiss corporation that owns 17,800,000 shares of our
common stock, or 78.5% of the Companys issued and outstanding shares. Due to this
stock ownership, James Fitzsimons is able to substantially influence all
matters requiring shareholder approval, including the election of directors and
approval of significant corporate transactions. Such concentration of
ownership may also have the effect of delaying or preventing a change in
control, which may be to the benefit of our management but not in the interest
of the shareholders. This stock ownership and potential effective control on
all matters relating to the business and operations of our Company could
eliminate the possibility of shareholders changing the management in the event
that the shareholders did not agree with the conduct of the officers and
directors. Additionally, the shareholders would potentially not be able to
obtain the necessary shareholder vote to effect any change in the course of
business of our Company. This lack of shareholder control could prevent the
shareholders from removing from the board of directors any directors who are
not managing the Company with sufficient skill to make it profitable, which
could prevent us from becoming profitable and cause investors to lose all or
part of their investment in our Company.
Risks Related to Our Securities
If a liquid market for our common stock does not
develop, shareholders may be unable to sell their shares.
There is currently no liquid market for our
common stock and no certainty that a liquid market will develop. While our
common stock is quoted for trading on the OTC Bulletin Board, there has only
been sporadic trading of our common stock. If a liquid market is not developed
for our shares, it will be difficult for shareholders to sell their stock.
A purchaser of our stock is purchasing penny
stock which limits his or her ability to sell the stock.
Our shares of common stock are considered penny
stock under the Exchange Act. The shares will remain penny stock for the
foreseeable future. The classification of penny stock makes it more difficult
for a broker-dealer to sell the stock into a secondary market, thus limiting
investment liquidity. Any broker-dealer engaged by the purchaser for the
purpose of selling his or her shares in our Company will be subject to rules
15g-1 through 15g-10 of the Exchange Act. Rather than creating a need to comply
with those rules, some broker-dealers will refuse to attempt to sell penny
stocks such as ours.
11
We do not intend to pay dividends and there will
be less ways in which you can make a gain on any investment in our Company.
We have never paid any cash dividends and
currently do not intend to pay any dividends for the foreseeable future. To the
extent that we require additional funding currently not provided for in our
financing plan, our funding sources may likely prohibit the payment of a
dividend.
Our board of directors
is authorized to issue shares of preferred stock, which may have rights and
preferences detrimental to the rights of the holders of our common shares
.
We are authorized to issue up to 1,000,000
shares of preferred stock, $.0001 par value. To date we have not issued any
shares of preferred stock and have no plans to do so. Our preferred stock may
bear such rights and preferences, including dividend and liquidation
preferences, as the board of directors may fix and determine from time to
time. Any such preferences may operate to the detriment of the rights of the
holders of our common shares.
Our Articles of Incorporation provide for
indemnification of officers and directors at our expense and limit their
liability which may result in a major cost to us and hurt the interests of our
shareholders because corporate resources may be expended for the benefit of
officers and/or directors.
Our Articles of Incorporation and applicable Delaware law provide for the indemnification of our directors, officers, employees, and
agents, under certain circumstances, against attorney's fees and other expenses
incurred by them in any litigation to which they become a party arising from
their association with or activities on our behalf. We will also bear the
expenses of such litigation or any of our directors, officers, employees, or
agents, upon such person's promise to repay us, therefore, if it is ultimately
determined that any such person should not have been entitled to
indemnification this indemnification policy could result in substantial
expenditures by us, which we will be unable to recoup.
We have been advised that, in the opinion of the
SEC, indemnification for liabilities arising under federal securities laws is
against public policy as expressed in the Securities Act of 1933 and is,
therefore, unenforceable. In the event that a claim for indemnification
against these types of liabilities, other than the payment by us of expenses
incurred or paid by a director, officer or controlling person in the successful
defense of any action, suit or proceeding, is asserted by a director, officer
or controlling person in connection with the securities registered in our SB-2,
we will (unless in the opinion of our counsel, the matter has been settled by
controlling precedent) submit to a court of appropriate jurisdiction, the
question whether indemnification by us is against public policy as expressed in
the Securities Act and will be governed by the final adjudication of such
issue. The legal process relating to this matter if it were to occur is likely
to be very costly and may result in us receiving negative publicity, either of
which factors is are likely to materially reduce the market and price for our
shares, if such a market ever develops.
ITEM 1B. UNRESOLVED STAFF COMMENTS.
None
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ITEM
2. PROPERTIES.
Leasehold Acreage
The Company owns
interests in oil and gas acreage in the locations set forth below as of
December 31, 2010 and 2009. These ownership interests generally take the form
of working interests in oil and gas leases that have varying terms.
|
December 31, 2010
|
|
December 31, 2009
|
|
Gross
|
|
Net
|
|
Gross
|
|
Net
|
|
|
|
|
|
|
|
|
Alaska
|
|
24,280
|
|
|
24,280
|
|
|
24,280
|
|
|
24,280
|
Oklahoma
|
|
4,209
|
|
|
2,968
|
|
|
7,204
|
|
|
4,929
|
Total
|
|
31,484
|
|
|
29,209
|
|
|
31,484
|
|
|
29,209
|
Leasehold Acreage Costs
The Company has
capitalized leasehold acreage costs, net of impairment charges and accumulated
depletion, depreciation and amortization, in undeveloped oil and natural gas
acreage in the locations set forth below:
|
|
December 31,
|
|
|
2010
|
|
2009
|
|
|
|
|
|
|
|
Alaska (1)
|
|
$
|
194,800
|
|
$
|
442,086
|
Oklahoma (2)
|
|
|
76,450
|
|
|
760,029
|
Total
|
|
$
|
271,250
|
|
$
|
1,202,115
|
(1) The
2010 Alaska oil and gas leasehold costs are net of a $247,286 impairment
charge.
(2) The
2010 Oklahoma oil and gas leasehold costs are net of a $653,579 impairment
charge and accumulated depletion, depreciation and amortization of $30,000.
The 2009 oil and gas leasehold costs are net of $885,445 in acquisitions, a
$639,813 impairment charge and accumulated depletion, depreciation and
amortization of $26,200.
Oil and Gas Drilling
Activity
We own working interests
in five gross producing oil wells and seven gross producing gas wells at
December 31, 2010. Of the five gross producing oil wells two were dual
completions (oil and gas). At December 31, 2010, we had no wells in progress.
The Company currently does not have sufficient production records to compute
the quantities of proved oil and gas reserves as required by SEC Regulation
S-X, Rule 4-10(a).
Corporate Offices
Our office
is located at 1065 Dobbs Ferry Road, White Plains, NY 10607 and our telephone
number is (914) 674-4373. Should we require a regular permanent office we will attempt
to locate one in the vicinity of our leases and we believe that suitable
properties are available at reasonable costs.
13
ITEM 3. LEGAL
PROCEEDINGS.
We currently have no legal proceedings pending nor have any
legal proceeding been threatened against us or any of our officers, directors
or control persons of which we are aware.
ITEM 4. REMOVED AND RESERVED.
PART
II
ITEM 5. MARKET for REGISTRANTS COMMON EQUITY and ISSURER
PURCHASES of EQUITY SECURITIES.
Stock Split/
Dividends
None
Market Information
Our common stock trades on the Over the Counter
Bulletin Board under the symbol PTCP. The following table sets forth for the
periods indicated the high and low prices per share of our common stock as
quoted by the OTCBB, respectively:
|
|
Price Range of
|
|
|
Common Stock
|
|
|
High
|
|
Low
|
Year Ended December 31, 2010
|
|
|
|
|
|
|
Fourth Quarter
|
|
$
|
2.00
|
|
$
|
2.00
|
Third Quarter
|
|
$
|
2.00
|
|
$
|
2.00
|
Second Quarter
|
|
$
|
2.00
|
|
$
|
2.00
|
First Quarter
|
|
$
|
2.50
|
|
$
|
2.00
|
|
|
|
|
|
|
|
Year Ended December 31, 2009
|
|
|
|
|
|
|
Fourth Quarter
|
|
$
|
2.50
|
|
$
|
2.50
|
Third Quarter
|
|
$
|
2.50
|
|
$
|
2.25
|
Second Quarter
|
|
$
|
2.25
|
|
$
|
2.25
|
First Quarter
|
|
$
|
2.25
|
|
$
|
2.10
|
Reports to Shareholders
We plan to
furnish our shareholders with an annual report for each fiscal year ending
December 31 containing financial statements audited by our independent
certified public accountants. Additionally, we may, in our sole discretion,
issue unaudited quarterly or other interim reports to our shareholders when we
deem appropriate. We intend to maintain compliance with the periodic reporting
requirements of the Securities Exchange Act of 1934.
Holders
As of March 31, 2011, we had five shareholders of record and 22,680,000
common shares issued and outstanding. The number of holders does not include the
shareholders for whom shares are held in a "nominee" or
"street" name.
14
Dividend Policy
We have not declared or paid any dividends on our common
stock to date. We anticipate that any future earnings will be retained as
working capital and used for business purposes. Accordingly, it is unlikely
that we will declare or pay any such dividends in the foreseeable future.
Securities
Authorized for Issuance under Equity Compensation Plans
None
Recent Sales
of Unregistered Securities
None
ITEM 6. SELECTED FINANCIAL DATA.
Not applicable
ITEM 7.
MANAGEMENTS DISCUSSION and ANALYSIS of FINANCIAL CONDITIONS and RESULTS OF
OPERATION.
Overview
We caution you that reliance on any forward-looking statement
involves risks and uncertainties, and that although we believe the assumptions
on which our forward-looking statements are based are reasonable, any of those
assumptions could prove to be inaccurate, and as a result, the forward-looking
statements based on those assumptions could be incorrect. In light of these
and other uncertainties, you should not conclude that we will necessarily
achieve any plans and objectives or projected financial results referred to in
any of the forward-looking statements. We do not undertake to release the
results of any revisions of these forward-looking statements to reflect future
events or circumstances. Some of the factors that may cause actual results,
developments and business decisions to differ materially from those
contemplated by such forward-looking statements include the following:
|
our ability to raise additional
capital and secure additional financing;
|
|
anticipated trends in our
financial condition and results of operations;
|
|
our ability to hire and retain key
employees;
|
|
Risks related to diverting
managements attention from ongoing business operations.
|
Background
During 2009 the Company
changed its emphasis from an international oil and gas company primarily to a
US focused company because of world economic conditions and lack of
debt/capital financing. The Company disposed of its foreign oil and gas
leases/permits in two separate transactions. The Company completed an
extensive review of its Alaska and Oklahoma oil and gas leases, operations and
recorded a $900,865 impairment charge in 2010 as compared to $639,813 in 2009.
Plan of Operation
Our plan of operation for 2011 is to continue
drilling test wells on our Oklahoma oil and gas leases. We anticipate the cost
of these programs will be approximately $100,000, however, this figure could be
reduced by third-party working interest participation, arising particularly as
a result of spacing and pooling applications and hearings.
15
During 2011 we also anticipate spending $100,000
on administrative expenses, including fees payable in connection with our compliance
reporting obligations as a public company, such as legal, accounting and audit
fees.
Total expenditures in 2011 therefore could be at
least $200,000. We have limited cash to cover some of these expenses and will
require additional funding. We anticipate this additional funding will be
provided in the form of equity financing from the sale of our common stock or
loans from our majority stockholder. We cannot provide investors with any
assurance that additional funds will be raised. Currently, we do not have any
arrangements in place for future equity financings.
We are in the process of determining our
personnel needs. We intend to hire consultants over the course of the next
twelve months. To attract qualified personnel, we intend to offer percentages
of the Companys working interest in its oil and gas properties.
Results of Operations
For the
year ended December 31, 2010, we had revenues of $109,298, oil and gas
exploration costs of $179,478 and incurred a net loss of $1,273,048, as
compared to revenues of $70,961, oil and gas exploration costs of $210,641 and
a net loss of $1,237,259 in 2009. Salaries in 2010 were $120,000 same as in 2009. Professional
fees - CFO and Secretary in 2010 were $102,000 as compared to $98,506 in 2009. Professional
fees - audit and reviews in 2010 were $23,500 as compared to $20,000 in 2009. Professional fees
- foreign were $0 in 2010 as compared to $120,174 in 2009. General
and administrative expenses for 2010 were $8,028 as compared to $26,918 in 2009.
During 2009 the Company disposed
of its foreign oil and gas leases/permits in two separate transactions. The
Company completed an extensive review of its Alaska and Oklahoma oil and gas
leases, operations and recorded a $900,865 impairment charge in 2010 as
compared to $639,813 in 2009.
In addition, we incurred
interest expense of $58,507 in 2010 as compared to $72,895 in 2009.
Liquidity and Capital Resources
On June 4, 2010, the Company exchanged $294,000
of Tamm Oil and Gas Corp. shares (980,000 shares) with a cost basis of $245,000
with Soladino Investments SA (Soladino) for cancellation of $294,000 of
notes. These shares were valued at $.30 per share and the quoted offer price
was $.25 per share. The Company recorded the $49,000 gain as a capital
contribution.
Soladino, a Swiss
corporation owned by our president, loaned the Company $143,975 in 2010
($64,010 in July, $29,965 in August and $50,000 in December). At December 31, 2010,
the Company has $949,950 in notes (four) payable to Soladino Investments SA.
The notes are
secured by the Companys oil and gas leases, are non interest bearing and
payable upon demand.
Our Company's principal cash requirements are
for exploration expenses which we anticipate will rise as we proceed to
determine the feasibility of developing our current or future property
interests. At December 31, 2010, we had cash of $29,404 and negative working
capital of $934,965. Our net cash provided by financing activities from June
19, 2006 (inception) to December 31, 2010 was $2,416,992.
16
We anticipate that additional funding will be
provided in the form of equity financing from the sale of our common stock or
loans from our majority stockholder. We cannot provide investors with any
assurance that additional funds will be raised. Currently, we do not have any
arrangements in place for future equity financings.
Seasonality and Inflation
We do not believe that our business will be
seasonal to any material extent except that exploratory operations,
particularly in Alaska, may be hampered by severe winter weather conditions.
Since energy costs are a key component of inflation, we do not believe that our
results will be materially impacted by inflation in the current fiscal year.
Critical Accounting Policies
Financial Reporting Release No. 60 of the SEC encourages
all companies to include a discussion of critical accounting policies or
methods used in the preparation of the financial statements. There are no material
revenue generating activities that give rise to significant assumptions or estimates.
Our most critical accounting policies relate to the accounting and disclosure
of related party transactions. Our financial statements filed as part of this
annual report include a summary of the significant accounting policies and
methods used in the preparation of our financial statements.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements that have
or are reasonably likely to have a current or future effect on our financial
condition, changes in financial condition, revenues or expenses, results of
operations, liquidity, capital expenditures or capital resources that is
material to investors.
ITEM 7A. QUANTITATIVE and
QUALITATIVE DISCLOSURES about MARKET RISK.
Not applicable
ITEM 8. FINANCIAL STATEMENTS and SUPPLEMENTARY DATA.
Our financial statements for the years ended December 31,
2010 and 2009, and the reports thereon of Li & Company, respectively are
included in this annual report.
ITEM 9. CHANGES in and DISAGREEMENTS with ACCOUNTANTS on
ACCOUNTING and FINANCIAL DISCLOSURE.
None
ITEM 9A(T). CONTROLS and PROCEDURES.
Disclosure Controls and
Procedures
Regulations under the Securities
Exchange Act of 1934 (the Exchange Act) require public companies to maintain
disclosure controls and procedures, which are defined as controls and other
procedures that are designed to ensure that information required to be
disclosed by the issuer in the reports that it files or submits under the
Exchange Act is recorded, processed, summarized and reported, within the time
periods specified in the Securities and Exchange Commission's rules and
forms. Disclosure controls and procedures include, without
limitation, controls and procedures designed to ensure that information
required to be disclosed by an issuer in the reports that it files or submits
under the Exchange Act is accumulated and communicated to the issuer's
management, including its principal executive and principal financial officers,
or persons performing similar functions, as appropriate to allow timely decisions
regarding required disclosure.
17
We conducted an evaluation, with the
participation of our Chief Executive Officer and Chief Financial Officer, of
the effectiveness of our disclosure controls and procedures as of December 31,
2010. Based on that evaluation, our Chief Executive Officer and
Chief Financial Officer have concluded that as of December 31, 2010, our
disclosure controls and procedures were not effective at the reasonable
assurance level due to the material weaknesses described below.
In light of the material weaknesses
described below, we performed additional analysis and other post-closing
procedures to ensure our financial statements were prepared in accordance with
generally accepted accounting principles. Accordingly, we believe
that the financial statements included in this report fairly present, in all
material respects, our financial condition, results of operations and cash
flows for the periods presented.
A material weakness is a control
deficiency (within the meaning of the Public Company Accounting Oversight Board
(PCAOB) Auditing Standard No. 2) or combination of control deficiencies that
result in more than a remote likelihood that a material misstatement of the
annual or interim financial statements will not be prevented or detected. Management
has identified the following two material weaknesses which have caused
management to conclude that, as of December 31, 2010, our disclosure controls
and procedures were not effective at the reasonable assurance level:
1. We
do not have written documentation of our internal control policies and
procedures. Written documentation of key internal controls over
financial reporting is a requirement of Section 404 of the Sarbanes-Oxley Act
which is applicable to us for the year ending December 31, 2010. Management
evaluated the impact of our failure to have written documentation of our
internal controls and procedures on our assessment of our disclosure controls
and procedures and has concluded that the control deficiency that resulted
represented a material weakness.
2. We
do not have sufficient segregation of duties within accounting functions, which
is a basic internal control. Due to our size and nature, segregation
of all conflicting duties may not always be possible and may not be
economically feasible. However, to the extent possible, the
initiation of transactions, the custody of assets and the recording of
transactions should be performed by separate individuals. Management
evaluated the impact of our failure to have segregation of duties on our
assessment of our disclosure controls and procedures and has concluded that the
control deficiency that resulted represented a material weakness.
To address these material
weaknesses, management performed additional analyses and other procedures to
ensure that the financial statements included herein fairly present, in all
material respects, our financial position, results of operations and cash flows
for the periods presented.
Management's Report on Internal Control Over Financial Reporting
Our management is responsible for
establishing and maintaining adequate internal control over financial
reporting. Internal control over financial reporting is defined in
Rule 13a-15(f) or 15d-15(f) promulgated under the Exchange Act as a process
designed by, or under the supervision of, the issuers principal executive and
principal financial officers and effected by the issuers board of directors,
management and other personnel, to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external
purposes in accordance with accounting principles generally accepted in the
United States of America and includes those policies and procedures that:
18
|
|
Pertain to the maintenance of
records that in reasonable detail accurately and fairly reflect the
transactions and dispositions of the assets of the issuer;
|
|
|
Provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial
statements in accordance with accounting principles generally accepted in the
United States of America and that receipts and expenditures of the Company
are being made only in accordance with authorizations of management and
directors of the issuer; and
|
|
|
Provide reasonable assurance
regarding prevention or timely detection of unauthorized acquisition, use or
disposition of the issuers assets that could have a material effect on the
financial statements.
|
Because of its inherent limitations,
internal control over financial reporting may not prevent or detect
misstatements. Projections of any evaluation of effectiveness to
future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate. All internal control
systems, no matter how well designed, have inherent
limitations. Therefore, even those systems determined to be
effective can provide only reasonable assurance with respect to financial
statement preparation and presentation. Because of the inherent
limitations of internal control, there is a risk that material misstatements
may not be prevented or detected on a timely basis by internal control over
financial reporting. However, these inherent limitations are known
features of the financial reporting process. Therefore, it is
possible to design into the process safeguards to reduce, though not eliminate,
this risk.
As of the end of our most recent
fiscal year, management assessed the effectiveness of our internal control over
financial reporting based on the criteria for effective internal control over
financial reporting established in Internal ControlIntegrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway Commission
("COSO") and SEC guidance on conducting such
assessments. Based on that evaluation, they concluded that, as
of December 31, 2010, such internal control over financial reporting was not
effective. This was due to deficiencies that existed in the design
or operation of our internal control over financial reporting that adversely
affected our internal controls and that may be considered to be material
weaknesses.
The matters involving internal
control over financial reporting that our management considered to be material
weaknesses under the standards of the Public Company Accounting Oversight Board
were: (1) lack of a functioning audit committee due to a lack of a majority of
independent members and a lack of a majority of outside directors on our board
of directors, resulting in ineffective oversight in the establishment and
monitoring of required internal controls and procedures; and (2) inadequate
segregation of duties consistent with control objectives of having segregation
of the initiation of transactions, the recording of transactions and the
custody of assets. The aforementioned material weaknesses were
identified by our Chief Financial Officer in connection with the review of our
financial statements as of December 31, 2010.
Management believes that the
material weaknesses set forth in items (1) and (2) above did not have an effect
on our financial results. However, management believes that the lack of a
functioning audit committee and the lack of a majority of outside directors on
our board of directors results in ineffective oversight in the establishment
and monitoring of required internal controls and procedures, which could result
in a material misstatement in our financial statements in future periods.
19
This annual report does not include
an attestation report of the Company's registered public accounting firm
regarding internal control over financial reporting. Management's
report was not subject to attestation by the Company's registered public
accounting firm pursuant to temporary rules of the SEC that permit the Company
to provide only the management's report in this annual report.
Management's Remediation Initiatives
In an effort to remediate the
identified material weaknesses and other deficiencies and enhance our internal
controls, we have initiated, or plan to initiate, the following series of
measures:
We will increase our personnel
resources and technical accounting expertise within the accounting function
when funds are available to us. First, we will create a position to segregate
duties consistent with control objectives of having separate individuals
perform (i) the initiation of transactions, (ii) the recording of transactions
and (iii) the custody of assets. Second, we will create a senior position
to focus on financial reporting and standardizing and documenting our
accounting procedures with the goal of increasing the effectiveness of the
internal controls in preventing and detecting misstatements of accounting
information. Third, we plan to appoint one or more outside directors to our
board of directors who shall be appointed to an audit committee resulting in a
fully functioning audit committee who will undertake the oversight in the
establishment and monitoring of required internal controls and procedures such
as reviewing and approving estimates and assumptions made by management when
funds are available to us. We anticipate the costs of implementing these
remediation initiatives will be approximately $37,500 to $75,000 a year in
increased salaries, legal and accounting expenses.
Management believes that the
appointment of one or more outside directors, who shall be appointed to a fully
functioning audit committee, will remedy the lack of a functioning audit
committee and a lack of a majority of outside directors on our Board.
We anticipate that these initiatives
will be at least partially, if not fully, implemented by December 31, 2011.
Changes in Internal Control
over Financial Reporting
There have been no changes in our
internal control over financial reporting (as such term is defined in Rules
13a-15(f) and 15d-15 (f) under the Exchange Act) during the fourth quarter of
2010 that have materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.
ITEM 9B. OTHER INFORMATION.
None
20
PART 1II
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS and CORPORATE
GOVERNANCE.
Our directors and officers as of March
31, 2011 are:
Name
|
Age
|
Position(s) with the
Company
|
James Fitzsimons
|
50
|
Director, CEO and President
(1)
|
Stephen M. Siedow
|
60
|
Director and CFO
(1)
|
Frank J. Hariton
|
62
|
Secretary
|
(1) Mr. Siedow was appointed CFO on March 16, 2009 effective March 1, 2009.
James Fitzsimons
has been a director of
our Company since September 20, 2007. Mr. Fitzsimons is an elected member of
the Schweizerische Vereinigung von Petroleum-Geologen und Ingeneuren (Swiss
Association of Petroleum Geologists and Engineers) and during the past five
years has been employed by Reta Holding SA of Paradiso, Switzerland, also
serving on the board of directors of Kapital Finanz und Treuhand Gesellshaft
(Capital Finance and Trust Company) a licensed and regulated asset and fund
management company and a full member of SECA (Swiss Private Equity &
Corporate Finance Association). Mr. Fitzsimons has been active in the mineral
extraction industry for over 15 years, and has been involved in the Oklahoma oil and gas industry for over five years. Mr. Fitzsimons received a Bachelor of
Laws degree from University College London. His industry knowledge comes from
direct experience of the oil and gas business both in Europe and the United States.
Stephen M. Siedow
has been a director of
our Company since December 2007. Mr. Siedow is a member of the American
Institute of Certified Public Accountants and the Colorado Society of Certified
Public Accountants. From 1974 to 1982 he was with the audit department of
Ernst & Young, Certified Public Accountants in Denver, Colorado and in
1982, he formed Stephen M. Siedow, PC a professional accounting firm providing
auditing, management consulting and tax services to corporations, partnerships
and individuals. Mr. Siedow specializes in public and SEC accounting and has
experience in industries including construction, mining, oil and gas, and
mergers/acquisitions.
Frank J. Hariton
has been secretary of
our Company since September 2007 and is an attorney in private practice in New York State. Mr. Hariton received his BA (1971) and JD (1974 from Case Western Reserve University.
Family Relationships
There are no family relationships
among our officers or directors.
Involvement in Certain Legal
Proceedings
None of our directors, director
nominees or executive officers has been involved in any transactions with us or
any of our directors, executive officers, affiliates or associates that are
required to be disclosed pursuant to the rules and regulations of the SEC other
than as set forth in Item 13. Certain Relationships and Related Transactions,
and Director Independence below. None of the directors, director designees or
executive officers to our knowledge has been convicted in a criminal
proceeding, excluding traffic violations or similar misdemeanors, or has been a
party to any judicial or administrative proceeding during the past five years
that resulted in a judgment, decree or final order enjoining the person from
future violations of, or prohibiting activities subject to, federal or state
securities laws, or a finding of any violation of federal or state securities
laws, except for matters that were dismissed without sanction or settlement.
21
Term
of Office
The term of office of
the current directors shall continue until new directors are elected or
appointed.
Committees of the Board
and Financial Expert
We do not have a
separately-designated audit or compensation committee of the Board or any other
Board-designated committee. Audit and compensation committee functions are
performed by our Board of Directors. We will form such committees in the future
as the need for such committees may arise. In addition, at this time we have
determined that we do not have an audit committee financial expert as defined
by the SEC on our Board.
Code
of Ethics
Due to its
small size, the Company has not adopted a code of ethics. The Company will adopt a code of ethics for our senior officers,
including our principal executive officer, principal financial officer,
principal accounting officer or controller and any person who may perform
similar functions. As required by SEC rules, we will report the nature of any
change or waiver of our code of ethics.
ITEM 11.
EXECUTIVE COMPENSATION.
Compensation of Executive Officers
The
following table sets forth information concerning the compensation of our named
executive officers for the fiscal years ended December 31, 2010 and 2009;
provided, however, any payments to these officers were paid as consultants, not
employees, of the Company, as the Company has not yet hired full or part-time
employees. We may, once we are operational, implement employee benefits that
will be generally available to all employees and subsidiary employees,
including medical, dental and life insurance benefits and a 401(k) retirement
savings plan. Except as listed below, there were no bonuses, other annual
compensation, restricted stock awards or stock options/SARs or any other
compensation paid to the named executive.
Name and
Principal Position
|
|
Year
|
Salary
($)
|
Bonus
($)
|
Stock
Award
($)
|
Option
Awards
($)
|
Non-Equity
Incentive
Plan
Compensation
($)
|
Change in
Pension
Value and
Nonqualified
Deferred
Compensation
Earnings
($)
|
All Other
Compensation
($)
|
Total
($)
|
|
|
|
|
|
|
|
|
|
|
|
James
Fitzsimons,
CEO,
President, CFO and Director
(1)
|
|
2010
|
$120,000
|
|
|
|
|
|
|
$120,000
|
|
2009
|
$120,000
|
|
|
|
|
|
|
$120,000
|
|
|
|
|
|
|
|
|
|
|
Stephen M.
Siedow,
CFO and Director
(2)
|
|
2010
2009
|
$-0-
$-0-
|
|
|
|
|
|
|
$-0-
$-0-
|
|
|
|
|
|
|
|
|
|
|
|
Frank J.
Hariton,
Secretary
(3)
|
|
2010
|
$-0-
|
|
|
|
|
|
|
$-0-
|
|
2009
|
$-0-
|
|
|
|
|
|
|
$-0-
|
|
|
|
|
|
|
|
|
|
|
|
(1
)
|
|
James Fitzsimons has
been
the
Companys CEO and President since December 17, 2007. Mr. Fitzsimons was CFO
of our Company from December 17, 2007 through March 16, 2009. Mr. Fitzsimons
was elected a director of our Company on September 20, 2007.
|
|
|
|
(2
)
|
|
Stephen M. Siedow has been a director
since December 2007. Mr. Siedow was appointed CFO on March 16, 2009 effective March
1, 2009. The
Company paid Mr. Siedow $72,000 for accounting services in 2010 and $68,300
in 2009.
|
|
|
|
(3
)
|
|
Frank J. Hariton has been the
Companys secretary since September 2007. Mr. Hariton was paid $30,000 for
legal services in 2010 and 2009.
|
22
Compensation of Directors
The Company has no standard arrangements in place or
currently contemplated to compensate the Companys directors for their service
as directors or as members of any committee of directors.
Employment Agreements
We do not have employment agreements
with any of our executive officers or directors. We have verbal understandings
with our executive officers regarding monthly retainers and reimbursement for
actual out-of-pocket expenses.
Termination of
Employment
There are no
compensatory plans or arrangements, including payments to be received from the
Company, with respect to any person named in the Summary Compensation Table set
forth above that would in any way result in payments to any such person because
of his or her resignation, retirement or other termination of such persons
employment with us.
Employee Benefit Plans
None
Indemnification of Directors and Executive Officers and Limitation
of Liability
Pursuant to
the General Corporation Law of Delaware our Certificate of Incorporation
provides that no director will have any personal liability to us or to any of
our shareholders for monetary damages for breach of fiduciary duty as a
director; provided, however, that this exclusion does not eliminate or limit
the liability of a director (i) for any breach of the director's duty of
loyalty to us or our shareholders, (ii) for acts or omissions not in good faith
or which involve intentional misconduct or a knowing violation of law, (iii)
under §174 of the General Corporation Law of Delaware, or (iv) for any
transaction from which the director derived an improper personal benefit.
ITEM 12. SECURITY OWNERSHIP of
CERTAIN BENEFICIAL OWNERS and MANAGEMENT and RELATED STOCKHOLDER MATTERS.
Security
Ownership of Certain Beneficial Owners
The following table sets
forth, as of March 31, 2011, the stock ownership of (i) each of our named
executive officers and directors, (ii)all executive officers and directors as a
group, and (iii) each person known by us to be a beneficial owner of 5% or more
of our common stock. No person listed below has any option, warrant or other
right to acquire additional securities from us, except as may be otherwise
noted. We believe that all persons named in the table have sole voting and
investment power with respect to all shares of common stock beneficially owned
by them except as stated therein.
23
Name and Address
|
|
Amount & Nature
|
|
|
of Beneficial
|
|
of Beneficial
|
|
Percent
|
Owner (1)
|
|
Ownership (2)
|
|
of Class
|
|
|
|
|
|
James Fitzsimons (3)
|
|
17,800,000
|
|
78.5%
|
Selnaustrasse 3
|
|
|
|
|
8001 Zurich
|
|
|
|
|
Switzerland
|
|
|
|
|
|
|
|
|
|
Stephen M. Siedow
|
|
-0-
|
|
-0-%
|
13047 W. Iliff Drive
|
|
|
|
|
Lakewood, CO 80228
|
|
|
|
|
|
|
|
|
|
Frank J. Hariton
|
|
-0-
|
|
-0-%
|
1065 Dobbs Ferry Road
|
|
|
|
|
White Plains, NY 10607
|
|
|
|
|
|
|
|
|
|
Soladino Investments SA (3)
|
|
17,800,000
|
|
78.5%
|
Via Quadrellas 4
|
|
|
|
|
CH-7500 St.
|
|
|
|
|
Moritz, Switzerland
|
|
|
|
|
|
|
|
|
|
All officers and directors
|
|
17,800,000
|
|
78.5%
|
as a group (3 persons)
|
|
|
|
|
(1
)
|
|
Beneficial ownership
is determined in accordance with the Rule 13d-3(a) of the Securities Exchange
Act of 1934, as amended, and generally includes voting or investment power
with respect to securities. Except as subject to community property laws,
where applicable, the person named above has sole voting and investment power
with respect to all shares of our common stock shown as beneficially owned by
him.
|
|
|
|
(2
)
|
|
The beneficial
ownership percent in the table is calculated with respect to the number of
outstanding shares 22,680,000 of the Companys common stock as of March
31,
2011, and each stockholders ownership is calculated as the number of shares
of common stock owned plus the number of shares of common stock into which
any preferred stock, warrants, options or other convertible securities owned
by that stockholder can be converted within 60 days.
|
|
|
|
(3
)
|
|
Soladino Investments
SA is a Swiss corporation owned by James Fittzsimons
.
|
The term named
executive officer refers to our principal executive officer, our two most
highly compensated executive officers other than the principal executive
officer who were serving as executive officers at the end of 2010, and two
additional individuals for whom disclosure would have been provided but for the
fact that the individuals were not serving as executive officers of the Company
at the end of 2010.
24
Change in Control
We know of no
contractual arrangements which may at a subsequent date result in a change of
control in the Company.
ITEM 13. CERTAIN RELATIONSHIPS and RELATED TRANSACTIONS,
and DIRECTOR INDEPENDENCE.
Certain
Relationships and Transactions with Related Persons
On June 4, 2010, the Company exchanged $294,000
of Tamm Oil and Gas Corp. shares (980,000 shares) with a cost basis of $245,000
with Soladino Investments SA (Soladino), a Swiss corporation owned by Mr. Fitzsimons, for cancellation of $294,000
of notes. These shares were valued at $.30 per share and the quoted offer
price was $.25 per share. The Company recorded the $49,000 gain as a capital
contribution.
Soladino loaned the Company $143,975 in 2010
($64,010 in July, $29,965 in August and $50,000 in December). At December 31,
2010, the Company has $949,950 in secured, non-interest bearing notes (four),
payable on demand with its majority stockholder Soladino.
During the year ended December 31, 2010, the
Company imputed interest expense related to these notes of $58,507. Interest
was imputed at an implied rate of 6% per annum and the amounts were recorded as
capital contributions by the Company.
The Company was provided management services by
its president, Mr. Fitzsimons during 2010 at no cost. The Company recorded the
$120,000 estimated annual value of these services as compensation expense and
as a capital contribution.
The Company was provided accounting services by
Mr. Siedow, our chief financial officer. Mr. Siedow was paid $72,000 in 2010
for these services.
The Company was provided legal and
administrative services and office space by Mr. Hariton, our corporate
secretary. Mr. Hariton was paid $30,000 in 2010 for these services.
Director
Independence
Our current directors
are James Fitzsimons and Stephen M. Siedow. We are not currently subject to
corporate governance standards defining the independence of our directors. We
have not yet adopted an independence standard or policy, although we intend to
do so in the near future. Accordingly, the Companys Board currently determines
the independence of each Director and nominee for election as a Director. The
Board has determined that none of the Companys directors currently qualifies
as an independent director. We do not list the independent definition we use
on our Internet website.
ITEM 14. PRINCIPAL ACCOUNTANT FEES and SERVICES.
Audit Fees
The aggregate fees billed by the Companys auditors for
professional services rendered in connection with the audit of the Companys
annual financial statements and reviews of the financial statements included in
the Companys Form 10-Q or services that are normally provided by the
accountant in connection with statutory and regulatory filings or engagements
for fiscal years 2010 and 2009 were $23,500 and $17,500, respectively.
25
Audit Related Fees
None
Tax Fees
None
All Other Fees
None
Pre-Approval
Policies and Procedures
The board of
directors has not adopted any pre-approval policies and approves all
engagements with the Companys auditors prior to performance of services by
them.
PART 1V
ITEM 15. EXHIBITS and FINANCIAL STATEMENT SCHEDULES
The following exhibits are filed with this report, except
those indicated as having previously been filed with the Securities and
Exchange Commission and are incorporated by reference to another report,
registration statement or form. As to any shareholder of record requesting a
copy of this report, we will furnish any exhibit indicated in the list below as
filed with this report upon payment to us of our expenses in furnishing the
information.
Exhibit Number
|
Exhibit Description
|
3.1
|
Certificate of Incorporation (Incorporated
by reference to like numbered exhibit to the Companys Registration Statement
on Form SB-2 File Number 333-141993).
|
3.2
|
Bylaws (Incorporated by reference to
like numbered exhibit to the Companys Registration Statement on Form SB-2
File Number 333-141993).
|
3.3
|
Certificate of Amendment to Certificate
of Incorporation (Incorporated by reference to Exhibit 3.1 to the Companys Current
Report on Form 8-K filed November 5, 2007).
|
4.1
|
Specimen
Stock Certificate (Incorporated by reference to like numbered exhibit to the
Companys Annual Report on Form 10-KSB for the year ended December 31, 2007
filed on April 11, 2008).
|
10.1
|
Consulting
Agreement, dated March 12, 2008, between the Company and Keith G. Summar (Incorporated
by reference to the Companys Annual Report on Form 10-KSB for the year ended
December 31, 2007 filed April 11, 2008).
|
21
|
Description of Subsidiaries. **
|
31.1
|
Certification
of Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of
the Securities Exchange Act, as amended. **
|
31.2
|
Certification
of Principal Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a)
of the Securities Exchange Act, as amended. **
|
32.1
|
Certificate (Pursuant to 18 U.S.C.
Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002) of Chief Executive Officer. **
|
32.2
|
Certificate (Pursuant to 18 U.S.C.
Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002) of Principal Financial Officer. **
|
** Filed herewith.
26
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
Date: April 15, 2011
PETROCORP
INC.
By
/s/ James Fitzsimons
James
Fitzsimons
CEO and President
Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed below by the following persons on behalf
of the registrant and in the capacities and on the dates indicated.
Signature
|
Title
|
Date
|
|
|
|
/s/ James Fitzsimons
James Fitzsimons
|
Director, CEO and President
|
April 15,
2011
|
|
|
|
/s/ Stephen M. Siedow
Stephen M. Siedow
|
Director and CFO
|
April 15,
2011
|
|
|
|
|
|
|
|
27
PETROCORP INC.
(An Exploration Stage
Company)
December 31, 2010 and
2009
Index to Consolidated Financial
Statements
|
|
Page
|
|
|
|
Report of Independent
Registered Public Accounting Firm
|
|
F-1
|
|
|
|
Consolidated Balance
Sheets at December 31, 2010 and 2009
|
|
F-2
|
|
|
|
Consolidated
Statements of Operations for the years ended December 31, 2010 and
|
|
|
2009 and for the
period June 19, 2006 (inception) through December 31, 2010
|
|
F-3
|
|
|
|
Consolidated Statement
of Stockholders Equity (Deficit) for the period June 19, 2006
|
|
|
(inception) through
December 31, 2010
|
|
F-4
|
|
|
|
Consolidated
Statements of Cash Flows for the years ended December 31, 2010 and
|
|
|
2009 and for the
period June 19, 2006 (inception) through December 31, 2010
|
|
F-5
|
|
|
|
Notes to the
Consolidated Financial Statements
|
|
F-6
|
|
|
|
Report of Independent Registered
Public Accounting Firm
To the Board of
Directors and Stockholders of
Petrocorp Inc.
White Plains, New York
We have audited the
accompanying consolidated balance sheets of Petrocorp Inc. and subsidiaries (an
exploration stage company) (collectively, Petrocorp or the Company) as of December 31, 2010 and
2009 and
the related statements of operations, stockholders equity (deficit) and cash
flows for the years then ended, and for the period June 19, 2006 (inception) through December
31, 2010. These
consolidated financial statements are the responsibility of the Companys
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits
in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the
audits to obtain reasonable assurance about whether the financial statements
are free of material misstatement. The Company is not required to have, nor
were we engaged to perform, an audit of its internal control over financial
reporting. Our audit included consideration of internal control over financial
reporting as a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Company's internal control over financial reporting. Accordingly,
we express no such opinion. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the
consolidated financial statements referred to above present fairly, in all
material respects, the financial position of the Company at December 31, 2010 and 2009 and the results of its
operations and its cash flows for the years then ended, and for the period June 19, 2006
(inception) through December 31, 2010, in conformity with accounting principles
generally accepted in the United States of America.
The accompanying
consolidated financial statements have been prepared assuming that the Company will continue as a
going concern. As discussed in Note 3 to the consolidated financial
statements, the Company had a deficit accumulated during the exploration stage
at December 31, 2010, a net loss and net cash used in operating activities for
the year then ended. These
factors raise
substantial doubt about the Companys ability to continue as a going concern. Managements
plans in regards to these matters are also described in Note 3. The consolidated financial
statements do not include any adjustments that might result from the outcome of this
uncertainty.
/s/Li
& Company, PC
Li
& Company, PC
Skillman, New Jersey
April 15, 201
F-1
PETROCORP INC.
|
(An Exploration Stage Company)
|
Consolidated Balance Sheets
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2010
|
|
2009
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
Cash
|
|
|
$
|
29,404
|
|
$
|
38,510
|
Revenue
receivables
|
|
|
|
2,958
|
|
|
24,474
|
Marketable
securities
|
|
|
|
-
|
|
|
250,000
|
Total
current assets
|
|
|
|
32,362
|
|
|
312,984
|
|
|
|
|
|
|
|
|
Oil and gas properties
(successful efforts method):
|
|
|
|
|
|
|
Unproved
acreage
|
|
|
|
327,500
|
|
|
1,228,365
|
Less
depletion, depreciation and amortization
|
|
|
(56,250)
|
|
|
(26,250)
|
|
|
|
|
271,250
|
|
|
1,202,115
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
$
|
303,612
|
|
$
|
1,515,099
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
Accrued
expenses
|
|
|
$
|
17,377
|
|
$
|
33,298
|
Notes
payable to majority stockholder
|
|
|
|
949,950
|
|
|
1,099,975
|
Total
current liabilities
|
|
|
|
967,327
|
|
|
1,133,273
|
|
|
|
|
|
|
|
|
Stockholders equity
(deficit):
|
|
|
|
|
|
|
|
Preferred
stock; $.0001 par value; 1,000,000 shares
|
|
|
|
|
|
|
authorized;
none issued or outstanding
|
|
|
|
-
|
|
|
-
|
Common
stock; $.0001 par value; 100,000,000 shares
|
|
|
|
|
|
|
authorized;
22,680,000 shares issued and outstanding
|
|
|
2,268
|
|
|
2,268
|
Additional
paid-in capital
|
|
|
|
2,279,259
|
|
|
2,051,752
|
Deficit
accumulated during the exploration stage
|
|
|
(2,945,242)
|
|
|
(1,672,194)
|
|
|
|
|
(663,715)
|
|
|
381,826
|
|
|
|
|
|
|
|
|
Total liabilities and
stockholders equity (deficit)
|
|
|
$
|
303,612
|
|
$
|
1,515,099
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to the consolidated
financial statements.
|
F-2
|
PETROCORP INC.
|
(An Exploration Stage Company)
|
Consolidated Statements of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 19, 2006
|
|
|
|
|
(inception) to
|
|
|
Year Ended December 31,
|
|
December 31,
|
|
|
2010
|
|
2009
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
Revenues
earned during the exploration stage
|
|
$
|
109,298
|
|
$
|
70,961
|
|
$
|
204,410
|
|
|
|
|
|
|
|
|
|
|
Cost
of revenues during the exploration stage:
|
|
|
|
|
|
|
|
|
|
Oil
and gas operating costs
|
|
|
74,579
|
|
|
86,398
|
|
|
178,076
|
Exploration
costs
|
|
|
67,031
|
|
|
96,634
|
|
|
169,374
|
Depletion,
depreciation and amortization
|
|
|
30,000
|
|
|
22,500
|
|
|
56,250
|
Production
taxes
|
|
|
7,868
|
|
|
5,109
|
|
|
14,716
|
|
|
|
179,478
|
|
|
210,641
|
|
|
418,416
|
|
|
|
|
|
|
|
|
|
|
Gross profit (loss)
|
|
|
(70,180)
|
|
|
(139,680)
|
|
|
(214,006)
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
Salary
- president and majority stockholder
|
|
|
120,000
|
|
|
120,000
|
|
|
360,000
|
Professional
fees - CFO and secretary
|
|
|
102,000
|
|
|
98,506
|
|
|
304,706
|
Professional
fees - audit and reviews
|
|
|
23,500
|
|
|
20,000
|
|
|
65,500
|
Professional
fees - foreign
|
|
|
-
|
|
|
120,174
|
|
|
150,342
|
General
and administrative expenses
|
|
|
8,028
|
|
|
26,918
|
|
|
135,847
|
Impairment
charges
|
|
|
900,865
|
|
|
639,813
|
|
|
1,557,607
|
|
|
|
1,154,393
|
|
|
1,025,411
|
|
|
2,574,002
|
|
|
|
|
|
|
|
|
|
|
Loss
from operations
|
|
|
(1,224,573)
|
|
|
(1,165,091)
|
|
|
(2,788,008)
|
|
|
|
|
|
|
|
|
|
|
Other
(income) expenses:
|
|
|
|
|
|
|
|
|
|
Gain
from sale of marketable securities
|
|
|
(10,030)
|
|
|
-
|
|
|
(10,030)
|
Interest
income
|
|
|
(2)
|
|
|
(727)
|
|
|
(2,447)
|
Interest
expense
|
|
|
-
|
|
|
-
|
|
|
359
|
Interest
expense - related parties
|
|
|
58,507
|
|
|
72,895
|
|
|
167,752
|
|
|
|
48,475
|
|
|
72,168
|
|
|
155,634
|
|
|
|
|
|
|
|
|
|
|
Loss
before income taxes
|
|
|
(1,273,048)
|
|
|
(1,237,259)
|
|
|
(2,943,642)
|
|
|
|
|
|
|
|
|
|
|
Provision
for income taxes
|
|
|
-
|
|
|
-
|
|
|
1,600
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(1,273,048)
|
|
$
|
(1,237,259)
|
|
$
|
(2,945,242)
|
|
|
|
|
|
|
|
|
|
|
Net
loss per common share -
|
|
|
|
|
|
|
|
|
|
basic
and diluted
|
|
$
|
(0.06)
|
|
$
|
(0.06)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted common shares
outstanding -
|
|
|
|
|
|
|
|
|
|
basic
and diluted
|
|
|
22,680,000
|
|
|
22,680,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to the consolidated
financial statements.
|
F-3
|
PETROCORP INC.
|
|
(An Exploration Stage Company)
|
|
Consolidated Statement of Stockholders' Equity
(Deficit)
|
|
For the Period from June 19, 2006 (inception)
through December 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deficit
|
|
Total
|
|
|
|
|
|
|
|
|
Additional
|
|
Accumulated
|
|
Stockholders'
|
|
|
|
Common Stock
|
|
Paid-in
|
|
during the
|
|
Equity
|
|
|
|
Shares
|
|
|
Amount
|
|
Capital
|
|
Exploration Stage
|
|
(Deficit)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 19, 2006
(inception)
|
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued
for cash
|
|
20,000,000
|
|
|
2,000
|
|
|
(1,900)
|
|
|
|
|
|
100
|
|
Common stock issued
for cash
|
|
600,000
|
|
|
60
|
|
|
29,940
|
|
|
|
|
|
30,000
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
(27,397)
|
|
|
(27,397)
|
|
Balance, December 31, 2006
|
|
20,600,000
|
|
|
2,060
|
|
|
28,040
|
|
|
(27,397)
|
|
|
2,703
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued
for cash
|
|
480,000
|
|
|
48
|
|
|
23,952
|
|
|
|
|
|
24,000
|
|
Capital contribution
|
|
|
|
|
|
|
|
3,000
|
|
|
|
|
|
3,000
|
|
Common stock issued
for cash
|
|
800,000
|
|
|
80
|
|
|
499,920
|
|
|
|
|
|
500,000
|
|
Interest contribution
|
|
|
|
|
|
|
|
6,076
|
|
|
|
|
|
6,076
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
(61,124)
|
|
|
(61,124)
|
|
Balance, December 31, 2007
|
|
21,880,000
|
|
|
2,188
|
|
|
560,988
|
|
|
(88,521)
|
|
|
474,655
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued
for cash
|
|
800,000
|
|
|
80
|
|
|
999,920
|
|
|
|
|
|
1,000,000
|
|
Salary contribution
|
|
|
|
|
|
|
|
120,000
|
|
|
|
|
|
120,000
|
|
Interest contribution
|
|
|
|
|
|
|
|
30,274
|
|
|
|
|
|
30,274
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
(346,414)
|
|
|
(346,414)
|
|
Balance, December 31, 2008
|
|
22,680,000
|
|
|
2,268
|
|
|
1,711,182
|
|
|
(434,935)
|
|
|
1,278,515
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales price over cost
of oil and gas
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
properties sold to
majority stockholder
|
|
|
|
|
|
|
|
147,675
|
|
|
|
|
|
147,675
|
|
Salary contribution
|
|
|
|
|
|
|
|
120,000
|
|
|
|
|
|
120,000
|
|
Interest contribution
|
|
|
|
|
|
|
|
72,895
|
|
|
|
|
|
72,895
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
(1,237,259)
|
|
|
(1,237,259)
|
|
Balance, December 31, 2009
|
|
22,680,000
|
|
|
2,268
|
|
|
2,051,752
|
|
|
(1,672,194)
|
|
|
381,826
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on the exchange
of TAMO common
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
stock for
cancellation of notes
|
|
|
|
|
|
|
|
49,000
|
|
|
|
|
|
49,000
|
|
Salary contribution
|
|
|
|
|
|
|
|
120,000
|
|
|
|
|
|
120,000
|
|
Interest contribution
|
|
|
|
|
|
|
|
58,507
|
|
|
|
|
|
58,507
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
(1,273,048)
|
|
|
(1,273,048)
|
|
Balance, December 31,
2010
|
|
22,680,000
|
|
$
|
2,268
|
|
$
|
2,279,259
|
|
$
|
(2,945,242)
|
|
$
|
(663,715)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to the consolidated
financial statements.
|
|
F-4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PETROCORP INC.
|
(An Exploration Stage Company)
|
Consolidated Statements of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 19, 2006
|
|
|
Year Ended
December
|
|
(inception) through
|
|
|
2010
|
|
2009
|
|
December 31, 2010
|
|
|
|
|
|
|
|
|
|
|
Cash flows from operating
activities:
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(1,273,048)
|
|
$
|
(1,237,259)
|
|
$
|
(2,945,242)
|
Adjustments to reconcile
net loss to net cash
|
|
|
|
|
|
|
|
|
|
used in operating
activities:
|
|
|
|
|
|
|
|
|
|
Depletion,
depreciation and amortization
|
|
|
30,000
|
|
|
22,500
|
|
|
57,321
|
Impairment charge
|
|
|
900,865
|
|
|
639,813
|
|
|
1,557,607
|
Salary contribution
|
|
|
120,000
|
|
|
120,000
|
|
|
360,000
|
Interest contribution
|
|
|
58,507
|
|
|
72,895
|
|
|
167,752
|
Changes in operating
assets and liabilities:
|
|
|
|
|
|
|
|
|
|
Revenue receivables
|
|
|
21,516
|
|
|
9,488
|
|
|
(2,958)
|
Accrued expenses
|
|
|
(15,921)
|
|
|
(38,019)
|
|
|
17,377
|
Net cash used in
operating activities
|
|
|
(158,081)
|
|
|
(410,582)
|
|
|
(788,143)
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing
activities:
|
|
|
|
|
|
|
|
|
|
Proceeds from sale of
marketable securities
|
|
|
5,000
|
|
|
-
|
|
|
5,000
|
Acquisition of oil and
gas properties
|
|
|
-
|
|
|
(569,411)
|
|
|
(1,682,996)
|
Proceeds from sale of
oil and gas properties
|
|
|
-
|
|
|
96,551
|
|
|
96,551
|
Purchase of equipment
|
|
|
-
|
|
|
-
|
|
|
(18,000)
|
Net cash provided
by (used in) investing activities
|
|
|
5,000
|
|
|
(472,860)
|
|
|
(1,599,445)
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing
activities:
|
|
|
|
|
|
|
|
|
|
Proceeds from notes
payable to majority stockholder
|
|
|
143,975
|
|
|
365,917
|
|
|
949,892
|
Repayment of notes
payable to majority stockholder
|
|
|
-
|
|
|
-
|
|
|
(90,000)
|
Proceeds from sale of
common stock
|
|
|
-
|
|
|
-
|
|
|
1,557,100
|
Net cash provided
by financing activities
|
|
|
143,975
|
|
|
365,917
|
|
|
2,416,992
|
|
|
|
|
|
|
|
|
|
|
Net change in cash
|
|
|
(9,106)
|
|
|
(517,525)
|
|
|
29,404
|
Cash at beginning of period
|
|
|
38,510
|
|
|
556,035
|
|
|
-
|
Cash at end of period
|
|
$
|
29,404
|
|
$
|
38,510
|
|
$
|
29,404
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of
cash flow information:
|
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
-
|
|
$
|
359
|
|
$
|
359
|
Cash paid for income
taxes
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of
noncash investing and
|
|
|
|
|
|
|
|
|
|
financing activities:
|
|
|
|
|
|
|
|
|
|
Forgiveness of debt by
a stockholder
|
|
$
|
-
|
|
$
|
-
|
|
$
|
3,000
|
Salary contribution
|
|
$
|
120,000
|
|
$
|
120,000
|
|
$
|
360,000
|
Interest contribution
|
|
$
|
58,507
|
|
$
|
72,895
|
|
$
|
167,752
|
Exchange of $294,000 of
marketable securities, $245,000
|
|
|
|
|
|
|
|
|
|
cost basis to
Soladino Investments SA, an entity owned
|
|
|
|
|
|
|
|
|
|
by the president for
cancellation of $294,000 of notes
|
|
$
|
294,000
|
|
$
|
-
|
|
$
|
294,000
|
Acquisition of
undeveloped oil and gas properties
|
|
|
|
|
|
|
|
|
|
from majority
stockholder for notes
|
|
$
|
-
|
|
$
|
583,823
|
|
$
|
967,881
|
Sale of $448,876 of oil
and gas properties to
|
|
|
|
|
|
|
|
|
|
Soladino Investments
SA for cancellation of
|
|
|
|
|
|
|
|
|
|
$500,000 of notes and
cash payment of $96,551
|
|
$
|
-
|
|
$
|
(500,000)
|
|
$
|
(500,000)
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to the consolidated
financial statements.
|
F-5
|
PETROCORP INC.
(An Exploration Stage
Company)
December 31, 2010 and
2009
Notes to the
Consolidated Financial Statements
Note 1 - Organization and Operations
Petrocorp Inc., an
exploration stage company, was incorporated on June 19, 2006 under the laws of the State of Delaware. On September
20, 2007, the Company entered the oil and gas exploration and production
business with the acquisition of three separate farm-out agreements from James
Fitzsimons. Mr. Fitzsimons also purchased 17,800,000 shares of the Companys
common stock from certain shareholders for $454,000. Mr. Fitzsimons was
elected a director of the Company.
On December 1, 2008, Mr.
Fitzsimons transferred his 78.5% stock ownership in Petrocorp Inc. and three
outstanding promissory notes (totaling $734,058) to Soladino Investments SA
(Soladino), a Swiss corporation owned by Mr. Fitzsimons.
Note 2 - Summary of Significant Accounting
Policies
Basis of
presentation
The Companys
consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in the United States of America (US
GAAP).
The consolidated
financial statements include the accounts of Petrocorp Inc. and its
wholly-owned subsidiaries: Petrocorp (Oklahoma) Inc., Union Energy (Alaska) LLC
(collectively, Petrocorp or the Company). Mac Oil SpA is included through
November 30, 2009. All intercompany accounts and transactions have been
eliminated.
Exploration stage company
The Company
is an exploration stage company as defined by section 915-10-20 of the FASB Accounting Standards
Codification. Although the Company has recognized
some nominal amount of revenue since inception, the Company is devoting
substantially all of its efforts on establishing the business and its planned
principal operations have not yet commenced. All losses since inception have
been considered part of the Companys exploration stage activities.
Reclassifications
Certain
amounts in the prior period consolidated financial statements have been
reclassified to conform with the current period presentation. These
reclassifications had no effect on reported losses.
Use of estimates
The preparation of
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 financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
F-6
PETROCORP INC.
(An Exploration Stage
Company)
December 31, 2010 and
2009
Notes to the
Consolidated Financial Statements
Cash equivalents
The Company considers
all highly liquid investments with a maturity of three months or less when
purchased to be cash equivalents.
Marketable securities
The Company accounts for
marketable securities, available for sale, in accordance with sub-topic 320-10
of the FASB Accounting Standards Codification (Sub-topic 320-10). Pursuant to
Section 320-10-35, investments
in debt securities that are classified as available for sale and equity
securities that have readily determinable fair values that are classified as
available for sale shall be measured subsequently at fair value in the
consolidated balance sheets at each balance sheet date. Unrealized holding gains and losses for
available-for-sale securities (including those classified as current assets)
shall be excluded from earnings and reported in other comprehensive income
until realized except an available-for-sale security that is designated as
being hedged in a fair value hedge, from which all or a portion of the
unrealized holding gain and loss of shall be recognized in earnings during the
period of the hedge, pursuant to paragraphs 815-25-35-1 through 35-4.
Oil and gas properties
The Companys oil and
gas exploration and production activities are accounted for using the
successful efforts method. Under this method, all property acquisition costs
and costs of exploratory and development wells are capitalized when incurred,
pending determination of whether the well has found proved reserves. If an
exploratory well does not find proved reserves, the costs of drilling the well
are charged to expense and included within cash flows from investing activities
in the Consolidated Statements of Cash Flows pursuant to Topic 932
Financial Accounting and Reporting by
Oil and Gas Producing Companies
of the
FASB Accounting Standards Codification (Topic 932). The costs of development
wells are capitalized whether productive or nonproductive. Oil and gas lease
acquisition costs are also capitalized. Interest cost is capitalized as a
component of property cost for significant exploration and development projects
that require greater than six months to be readied for their intended use.
Other exploration costs,
including certain geological and geophysical expenses and delay rentals for oil
and gas leases, are charged to expense as incurred. The sale of a partial
interest in a proved property is accounted for as a cost recovery and no gain
or loss is recognized as long as this treatment does not significantly affect
the unit-of-production amortization rate. A gain or loss is recognized for all
other sales of proved properties and is classified in other operating
revenues. Maintenance and repairs are charged to expense, and renewals and
betterments are capitalized to the appropriate property and equipment accounts.
Unevaluated properties
are assessed periodically on a property-by-property basis and any impairment in
value is charged to expense. If the unevaluated properties are subsequently
determined to be productive, the related costs are transferred to proved oil
and gas properties. Proceeds from sales of partial interests in unproved
leases are accounted for as a recovery of cost without recognizing any gain
until all costs are recovered.
The
provision for depreciation, depletion and amortization (DD&A) of oil and
gas properties is calculated on a field-by-field basis using the
unit-of-production method. Oil is converted to natural gas equivalents, Mcf,
at the rate of one barrel to six Mcf. Taken into consideration in the
calculation of DD&A are estimated future dismantlement, restoration and
abandonment costs, which are net of estimated salvage values. At December 31,
2010, the Company has no declared oil and gas reserves.
F-7
PETROCORP INC.
(An Exploration Stage
Company)
December 31, 2010 and
2009
Notes to the
Consolidated Financial Statements
Fair value of financial instruments
The Company follows
paragraph 825-10-50-10 of the FASB Accounting Standards Codification for
disclosures about fair value of its financial instruments and has adopted
paragraph 820-10-35-37 of the FASB Accounting Standards Codification
(Paragraph 820-10-35-37) to measure the fair value of its financial
instruments. Paragraph 820-10-35-37 establishes a framework for measuring fair
value in accounting principles generally accepted in the United States of America (U.S. GAAP), and expands disclosures about fair value measurements. To
increase consistency and comparability in fair value measurements and related
disclosures, Paragraph 820-10-35-37 establishes a fair value hierarchy which
prioritizes the inputs to valuation techniques used to measure fair value into
three (3) broad levels. The fair value hierarchy gives the highest priority to
quoted prices (unadjusted) in active markets for identical assets or
liabilities and the lowest priority to unobservable inputs. The three (3)
levels of fair value hierarchy defined by Paragraph 820-10-35-37 are described
below:
Level 1 Quoted market prices available in active markets
for identical assets or liabilities as of the reporting date.
Level 2 Pricing inputs other than quoted prices in
active markets included in Level 1, which are either directly or indirectly
observable as of the reporting date.
Level 3 Pricing inputs that are generally observable
inputs and not corroborated by market data.
The carrying
amounts of the Companys financial assets and liabilities, such as cash, revenue
receivables, and accrued expenses approximate their fair values because of the
short maturity of these instruments. The Companys marketable securities approximate the fair value of such instruments
based upon managements best estimate of interest rates that would be available
to the Company for similar financial arrangement at December 31, 2009.
The Company does not
have any assets or liabilities measured at fair value on a recurring or a
non-recurring basis, consequently, the Company did not have any fair value
adjustments for assets and liabilities measured at fair value at December 31,
2010 or 2009; no gains or losses are reported in the statement of operations
that are attributable to the change in unrealized gains or losses relating to
those assets and liabilities still held at the reporting date for the interim
period ended December 31, 2010 and 2009.
F-8
PETROCORP INC.
(An Exploration Stage
Company)
December 31, 2010 and
2009
Notes to the
Consolidated Financial Statements
Revenue recognition
The Company applies paragraph 605-10-S99-1 of the FASB
Accounting Standards Codification for revenue recognition. The Company
recognizes revenue when it is realized or realizable and earned. The Company
considers revenue realized or realizable and earned when all of the following
criteria are met: (i) persuasive evidence of an arrangement exists, (ii) the
product has been shipped or the services have been rendered to the
customer, (iii) the sales price is fixed or determinable, and (iv)
collectability is reasonably assured.
The Company derives revenue primarily from
the sale of produced natural gas and crude oil. The Company reports revenue as
the gross amount received before taking into account production taxes and
transportation costs, which are reported as separate expenses. Revenue is
recorded in the month the Companys production is delivered to the purchaser,
but payment is generally received between thirty (30) and ninety (90) days
after the date of production. No revenue is recognized unless it is determined
that title to the product has transferred to the purchaser. At the end of each
month, the Company estimates the amount of production delivered to the
purchaser and the price the Company will receive.
Income taxes
The Company accounts for income taxes under Section
740-10-30 of the FASB Accounting Standards Codification, which requires
recognition of deferred tax assets and liabilities for the expected future tax
consequences of events that have been included in the financial statements or
tax returns. Under this method, deferred tax assets and liabilities are based
on the differences between the financial statement and tax bases of assets and
liabilities using enacted tax rates in effect for the year in which the
differences are expected to reverse. Deferred tax assets are reduced by a valuation
allowance to the extent management concludes it is more likely
than not that the assets will not be realized. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in the Consolidated Statements of Income and
Comprehensive Income in the period that includes the enactment date.
The Company
adopted section
740-10-25 of the FASB Accounting Standards Codification (Section 740-10-25). Section 740-10-25 addresses
the determination of whether tax benefits claimed or expected to be claimed on
a tax return should be recorded in the financial statements. Under Section
740-10-25, the Company may recognize the tax benefit
from an uncertain tax position only if it is more likely than not that the tax
position will be sustained on examination by the taxing authorities, based on
the technical merits of the position. The tax benefits recognized in the
financial statements from such a position should be measured based on the
largest benefit that has a greater than fifty (50) percent likelihood of being
realized upon ultimate settlement. Section 740-10-25 also provides guidance on de-recognition, classification,
interest and penalties on income taxes, accounting in interim periods and
requires increased disclosures. The Company had no material adjustments to its
liabilities for unrecognized income tax benefits according to the provisions of
Section 740-10-25.
Net loss per common share
Section 260-10-45 of the FASB Accounting Standards Codification requires dual presentation of basic and
diluted earnings or loss per share (EPS) for all entities with complex
capital structures and requires a reconciliation of the numerator and
denominator of the basic EPS computation to the numerator and denominator of
the diluted EPS computation. Basic EPS excludes dilution; diluted EPS reflects
the potential dilution that could occur if securities or other contracts to
issue common stock were exercised or converted into common stock or resulted in
the issuance of common stock that then shared in the earnings of the entity.
Basic net income (loss)
per common share is computed by dividing net income (loss) applicable to common
shareholders by the weighted average number of common shares outstanding during
the period. Diluted net income (loss) per common share reflects the potential
dilution that could occur if dilutive securities and other contracts to issue
common stock were exercised or converted into common stock or resulted in the
issuance of common stock that then shared in the earnings of the Company,
unless the effect is anti-dilutive. The Company had no potentially dilutive
securities for the years ended December 31, 2010 or 2009.
F-9
PETROCORP INC.
(An Exploration Stage
Company)
December 31, 2010 and
2009
Notes to the
Consolidated Financial Statements
Commitment
and contingencies
The Company
follows subtopic 450-20 of the FASB Accounting Standards Codification to report
accounting for contingencies. Liabilities for loss
contingencies arising from claims, assessments, litigation, fines and penalties
and other sources are recorded when it is probable that a liability has been
incurred and the amount of the assessment can be reasonably estimated.
Cash flows
reporting
The Company adopted
paragraph 230-10-45-24 of the FASB Accounting Standards Codification for cash
flows reporting, classifies cash receipts and payments according to whether
they stem from operating, investing, or financing activities and provides
definitions of each category, and uses the indirect
or reconciliation method (Indirect method) as defined by paragraph
230-10-45-25 of the FASB Accounting Standards Codification to report net cash flow from operating activities by
adjusting net income to reconcile it to net cash flow from operating activities
by removing the effects of (a) all deferrals of past operating cash receipts
and payments and all accruals of expected future operating cash receipts and
payments and (b) all items that are included in net income that do not affect
operating cash receipts and payments. The Company reports the reporting
currency equivalent of foreign currency cash flows, using the current exchange
rate at the time of the cash flows and the effect of exchange rate changes on
cash held in foreign currencies is reported as a separate item in the
reconciliation of beginning and ending balances of cash and cash equivalents
and separately provides information about investing and financing activities
not resulting in cash receipts or payments in the period pursuant to paragraph
830-230-45-1 of the FASB Accounting Standards Codification.
Subsequent
events
The Company follows the
guidance in Section 855-10-50 of the FASB Accounting Standards Codification for
the disclosure of subsequent events.
The Company will evaluate subsequent events through the date when the financial
statements are issued. Pursuant to ASU 2010-09 of the FASB Accounting
Standards Codification, the Company as an SEC filer considers its financial statements
issued when they are widely distributed to users, such as through filing them
on EDGAR.
Recently issued
accounting pronouncements
In January 2010, the FASB issued the FASB Accounting
Standards Update No. 2010-06
Fair Value Measurements and Disclosures (Topic
820) Improving Disclosures about Fair Value Measurements
, which provides amendments to Subtopic 820-10 that requires new
disclosures as follows:
1. Transfers in and out of Levels 1 and 2. A reporting entity should
disclose separately the amounts of significant transfers in and out of Level 1
and Level 2 fair value measurements and describe the reasons for the transfers.
2. Activity in Level 3 fair value measurements. In the reconciliation
for fair value measurements using significant unobservable inputs (Level 3), a
reporting entity should present separately information about purchases, sales,
issuances, and settlements (that is, on a gross basis rather than as one net
number).
F-10
PETROCORP INC.
(An Exploration Stage
Company)
December 31, 2010 and
2009
Notes to the
Consolidated Financial Statements
This Update provides amendments to Subtopic
820-10 that clarify existing disclosures as follows:
1. Level of disaggregation. A reporting entity should provide fair
value measurement disclosures for each class of assets and liabilities. A class
is often a subset of assets or liabilities within a line item in the statement
of financial position. A reporting entity needs to use judgment in determining
the appropriate classes of assets and liabilities.
2. Disclosures about inputs and valuation techniques. A reporting
entity should provide disclosures about the valuation techniques and inputs
used to measure fair value for both recurring and nonrecurring fair value
measurements. Those disclosures are required for fair value measurements that
fall in either Level 2 or Level 3.
This Update also
includes conforming amendments to the guidance on employers' disclosures about
postretirement benefit plan assets (Subtopic 715-20). The conforming amendments
to Subtopic 715-20 change the terminology from
major categories
of
assets to
classes
of assets and provide a cross reference to the
guidance in Subtopic 820-10 on how to determine appropriate classes to present
fair value disclosures. The new disclosures and clarifications of existing
disclosures are effective for interim and annual reporting periods beginning
after December 15, 2009, except for the disclosures about purchases, sales,
issuances, and settlements in the roll forward of activity in Level 3 fair
value measurements. Those disclosures are effective for fiscal years beginning
after December 15, 2010, and for interim periods within those fiscal years.
In April
2010, the FASB issued ASU No. 2010-13,
CompensationStock Compensation
(Topic 718):
Effect of Denominating the Exercise Price of a Share-Based
Payment Award in the Currency of the Market in Which the Underlying Equity
Security Trades (ASU 2010-13).
This update provides amendments to Topic
718 to clarify that an employee share-based payment award with an exercise
price denominated in the currency of a market in which a substantial portion of
the entitys equity securities trades should not be considered to contain a
condition that is not a market, performance, or service condition. Therefore,
an entity would not classify such an award as a liability if it otherwise
qualifies as equity. The amendments in ASU 2010-13 are effective for fiscal
years, and interim periods within those fiscal years, beginning on or after
December 15, 2010.
In August 2010, the FASB issued ASU 2010-21,
Accounting for
Technical Amendments to Various SEC Rules and Schedules:
Amendments to
SEC Paragraphs Pursuant to Release No. 33-9026: Technical Amendments to Rules,
Forms, Schedules and Codification of Financial Reporting Policies
(ASU
2010-21)
,
was issued to conform the SECs reporting requirements to the
terminology and provisions in
ASC 805, Business Combinations
, and in
ASC
810-10, Consolidation
. ASU No. 2010-21
was issued to reflect SEC Release No. 33-9026, Technical Amendments to Rules,
Forms, Schedules and Codification of Financial Reporting Policies, which was
effective April 23, 2009. The ASU also proposes additions or modifications to
the XBRL taxonomy as a result of the amendments in the update.
In August 2010, the FASB issued ASU 2010-22,
Accounting for
Various Topics: Technical Corrections to SEC Paragraphs
(ASU 2010-22)
,
which amends various SEC paragraphs based on external comments received and the
issuance of SEC Staff Accounting Bulletin (SAB) No. 112, which amends or
rescinds portions of certain SAB topics. The topics affected include
reporting of inventories in condensed financial statements for Form 10-Q, debt
issue costs in conjunction with a business combination, sales
of stock by subsidiary, gain recognition on sales of business,
business combinations prior to an initial public offering, loss contingent and
liability assumed in business combination, divestitures, and oil and gas
exchange offers.
F-11
PETROCORP INC.
(An Exploration Stage
Company)
December 31, 2010 and
2009
Notes to the
Consolidated Financial Statements
In December 2010, the
FASB issued the FASB Accounting Standards Update No. 2010-28
IntangiblesGoodwill
and Other (Topic 350):
When to Perform Step 2 of the Goodwill Impairment
Test for Reporting Units with Zero or Negative Carrying Amounts
(ASU
2010-28).
Under ASU 2010-28, if the carrying amount of a reporting unit is
zero or negative, an entity must assess whether it is more likely than not that
goodwill impairment exists. To make that determination, an entity should
consider whether there are adverse qualitative factors that could impact the
amount of goodwill, including those listed in ASC 350-20-35-30. As a result of
the new guidance, an entity can no longer assert that a reporting unit is not
required to perform the second step of the goodwill impairment test because the
carrying amount of the reporting unit is zero or negative, despite the
existence of qualitative factors that indicate goodwill is more likely than not
impaired. ASU 2010-28 is effective for public entities for fiscal years, and
for interim periods within those years, beginning after December 15, 2010, with
early adoption prohibited.
In December 2010, the
FASB issued the FASB Accounting Standards Update No. 2010-29
Business
Combinations (Topic 805):
Disclosure of Supplementary Pro Forma
Information for Business Combinations
(ASU 2010-29).
ASU 2010-29
specifies 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 this 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 amended guidance is 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. Early adoption is
permitted.
Management does not
believe that any other recently issued, but not yet effective accounting
pronouncements, if adopted, would have a material effect on the accompanying
consolidated financial statements.
Note 3 - Going Concern
The consolidated
financial statements have been prepared on a going concern basis, which assumes
the Company will be able to realize its assets and discharge its liabilities in
the normal course of business. As reflected in the accompanying consolidated financial
statements,,
the Company had a deficit accumulated during the exploration stage of $2,945,242
at December 31, 2010, a net loss of $1,273,048
and net cash used in operating activities of $158,081 for the year then ended.
These conditions raise substantial doubt about the Companys ability to
continue as a going concern.
While the Company is
attempting to generate measurable revenues, the Companys cash position may not
be sufficient to support its daily operations. Management intends to raise
additional capital through sales of its securities or loans from its majority stockholder.
The ability of the Company to continue as a going concern is dependent upon its ability to
further implement its business plan, generate sufficient revenues and raise
additional capital.
The financial statements
do not include any adjustments that might be necessary if the Company is unable
to continue as a going concern.
F-12
PETROCORP INC.
(An Exploration Stage
Company)
December 31, 2010 and
2009
Notes to the
Consolidated Financial Statements
Note 4 - Marketable
Securities
Marketable
securities available-for-sale, consisted of 1,000,000 common shares of Tamm Oil and Gas
Corp. (TAMO), a publicly traded company listed on the Over the Counter
Bulletin Board (OTCBB), and are stated at market value based on the most
recently traded price of these marketable securities at December 31, 2009
taking into consideration their lack of liquidity. On June 12, 2009, the
Company exchanged its membership interest in Union Energy (Alberta) LLC, a
Colorado limited liability company, that owned eight contiguous sections (5,120
acres) of oil sands leases in the Peace River Oil Sands Area of northern
Alberta, Canada for the 1,000,000 common shares, restricted for six (6) months
from the date of signing, pursuant to the Agreement and Plan of Reorganization executed
by and between TAMO and the Company. The Company acquired these oil sands
leases in May 2008 for $250,000. Pursuant to Section 320-10-25 of the FASB
Accounting Standards Codification unrealized gains and losses, if any, determined
by the difference between the historical cost of $250,000 and the market value
at each balance sheet date, are recorded as a component of accumulated other
comprehensive income in stockholders equity (deficit) and realized gains and
losses are determined by the difference between the historical cost of $250,000
and the gross proceeds received when these marketable securities are sold.
TAMOs shares traded between
$0.56 per share and $1.05 per share with an average daily volume of 274,000
shares for the period June 12, 2009 through December 31, 2009, with the closing
price at $0.645 per share and a volume of 86,000 shares on December 31, 2009.
The market value of the Companys 1,000,000 TAMOs shares at December 31, 2009
would have been $645,000 based on TAMOs December 31, 2009 closing price. The
Company determined that the fair value of these marketable securities at
December 31, 2009, was $250,000, its historical cost when taking into
consideration the lack of average trading volume.
In February 2010, the
Company sold 20,000 shares of TAMO for $15,030 or $.75 per share, resulted in a
gain of $10,030 from the sale of those marketable securities. On June 4, 2010,
the Company exchanged the remaining 980,000 shares of TAMO shares with a cost
basis of $245,000 with Soladino Investments SA for cancellation of $294,000 of
notes. The quoted offer price was $.25 per share and the Company exchanged those
shares at $.30 per share with Soladino Investments SA, an entity owned and
controlled by the majority stockholder of the Company and recorded the resulting
gain of $49,000 as a capital contribution.
F-13
PETROCORP INC.
(An Exploration Stage
Company)
December 31, 2010 and
2009
Notes to the
Consolidated Financial Statements
Note
5 - Oil and Gas Properties
Leasehold Acreage
The Company owns interests in oil and gas
acreage in the locations set forth below as of December 31, 2010 and 2009.
These ownership interests generally take the form of working interests in oil
and gas leases that have varying terms.
|
December 31, 2010
|
|
December 31, 2009
|
|
Gross
|
|
Net
|
|
Gross
|
|
Net
|
|
|
|
|
|
|
|
|
Alaska
|
|
24,280
|
|
|
24,280
|
|
|
24,280
|
|
|
24,280
|
Oklahoma
|
|
4,209
|
|
|
2,968
|
|
|
7,204
|
|
|
4,929
|
Total
|
|
31,484
|
|
|
29,209
|
|
|
31,484
|
|
|
29,209
|
Leasehold Acreage Costs
The Company has capitalized leasehold acreage
costs (geological, acquisition, drilling and work over costs), net of impairment
charges and accumulated depletion, depreciation and amortization, in unproven oil
and natural gas acreage in the locations set forth below:
|
|
December 31,
|
|
|
2010
|
|
2009
|
|
|
|
|
|
|
|
Alaska (1)
|
|
$
|
194,800
|
|
$
|
442,086
|
Oklahoma (2)
|
|
|
76,450
|
|
|
760,029
|
Total
|
|
$
|
271,250
|
|
$
|
1,202,115
|
(1) The 2010
Alaska oil and gas leasehold costs are net of a $247,286 impairment charge.
(2) The 2010
Oklahoma oil and gas leasehold costs are net of a $653,579 impairment charge
and accumulated depletion, depreciation and amortization of $30,000. The 2009 oil
and gas leasehold costs are net of $885,445 in acquisitions, a $639,813 impairment
charge and accumulated depletion, depreciation and amortization of $26,250.
2010 Detailed Leasehold Acreage Costs
The following table
summarizes the Companys oil and gas property activities for the year ended
December 31, 2010:
|
|
|
|
|
2010 Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Properties
|
|
|
|
|
|
|
|
|
Balance at
|
|
Leasehold
|
|
Well
|
|
Exchanged
|
|
Impairment
|
|
|
|
Balance at
|
|
|
12/31/2009
|
|
Costs
|
|
Costs
|
|
or Sold
|
|
Charge
|
|
Depletion
|
|
12/31/2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alaska
|
|
$
|
442,086
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
(247,286)
|
|
$
|
|
|
$
|
194,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oklahoma (by prospect)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Snake Creek
|
|
|
112,933
|
|
|
|
|
|
|
|
|
|
|
|
(52,949)
|
|
|
|
|
|
59,984
|
Spanish Peak
|
|
|
89,524
|
|
|
|
|
|
|
|
|
|
|
|
(45,998)
|
|
|
|
|
|
43,525
|
Coal Creek
|
|
|
583,823
|
|
|
|
|
|
|
|
|
|
|
|
(554,632)
|
|
|
|
|
|
29,191
|
Accumulated depletion
|
|
|
(26,250)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(30,000)
|
|
|
(56,250)
|
Oklahoma, net
|
|
|
760,029
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(653,579)
|
|
|
(30,000)
|
|
|
76,450
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
oil and gas properties
|
|
$
|
1,202,115
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
(900,865)
|
|
$
|
(30,000)
|
|
$
|
271,250
|
Oil and Gas Drilling
Activity
The Company owns working interests in five (5)
gross producing oil wells and seven (7) gross producing gas wells at December
31, 2010. Of the five (5) gross producing oil wells two (2) were dual
completions (oil and gas). At December 31, 2010, the Company had no wells in
progress and there are no declared reserves.
F-14
PETROCORP INC.
(An Exploration Stage
Company)
December 31, 2010 and
2009
Notes to the
Consolidated Financial Statements
Note 6 - Notes Payable to
Majority Stockholder
On December 1, 2008, Mr.
Fitzsimons transferred his 78.5% stock ownership in Petrocorp Inc. and three
outstanding promissory notes (totaling $734,058) to Soladino Investments SA
(Soladino), a Swiss corporation owned by Mr. Fitzsimons. The Soladino note
is secured,
non-interest bearing and payable on demand.
On March 31, 2009, the
Company purchased 171oil and gas leases totaling 3,827 gross (2,666 net) acres
in Okfuskee and Okmulgee Counties, Oklahoma from CH4 Energy, Inc., a company
controlled by Soladino at a cost of $583,823. The Company reimbursed Soladino
for its historic costs (acreage) by issuing a secured, non-interest bearing
note, payable on demand for $583,823 and assumed responsibility for all further
costs.
On November 30, 2009,
Soladino cancelled $500,000 of the Companys notes in Soladinos acquisition of
Mac Oil SpA and its foreign oil and gas leases in Quebec, Canada.
On June 4, 2010, the
Company exchanged the remaining 980,000 shares of Tamm Oil and Gas Corp. shares
with a cost basis of $245,000 with Soladino Investments SA for cancellation of
$294,000 of notes.
Soladino loaned the
Company $282,094 in 2009 ($182,094 in August and $100,000 in October) and $143,975
in 2010 ($64,010 in July, $29,965 in August and $50,000 in December). The notes
are secured, non-interest bearing and payable on demand. At December 31, 2010,
the Company has $949,950 in secured, non-interest bearing notes (four), payable
on demand with Soladino.
During the years ended December
31, 2010 and 2009, the Company imputed interest expense related to these notes of
$58,507 and $72,895, respectively. Interest was imputed at an implied rate of
6% per annum and the amounts were recorded as capital contributions by the
Company.
Note 7 - Stockholders Equity
(Deficit)
On September
30, 2006, the Company issued 20,000,000 shares of common stock to its founders at par value ($.0001 per
share). During the period July 1 through December 31, 2006, the Company sold 600,000 shares
of its common stock in a private placement at $0.05 per share
(an aggregate of $30,000) to 16 individuals. During the period
from January 1 through September 30, 2007, the Company sold 480,000 shares of
its common stock at $0.05 per share (an aggregate of $24,000) to 24 individuals.
On December 27, 2007,
the Company sold 800,000 shares of its common stock to one investor at $.625
per share (an aggregate of $500,000). On March 18, 2008, the Company sold 800,000
shares of its common stock to one investor at $1.25 per share (an aggregate of
$1,000,000). These shares were sold in transactions exempt from registration
under Regulation S of the Securities Act of 1933, as amended (the Securities
Act). These shares are not registered under the Securities Act or any state
securities laws and, unless so registered, may not be offered or sold except
pursuant to an applicable exemption from the registration requirements of the
Securities Act and applicable state securities laws. The purchasers of these shares
represented that they were acquiring the shares for their own account, for
investment, and that the purchasers were not US Persons within the meaning of
Regulation S. The Company has no obligation to register the resale of these shares
under the Securities Act.
F-15
PETROCORP INC.
(An Exploration Stage
Company)
December 31, 2010 and
2009
Notes to the
Consolidated Financial Statements
Note 8 - Income Taxes
Deferred tax assets
At December 31, 2010,
the Company had net operating loss (NOL) carryforwards for federal income tax purposes
of $1,387,635
exclusive of $1,557,607 impairment charge that may be offset against future taxable
income through 2030. No tax benefit has been reported with respect to these net operating loss
carry-forwards in the accompanying financial statements because the Company
believes that the realization of the
Companys net deferred tax assets of approximately $471,800 was not considered more likely
than not and accordingly, the potential tax benefits of the net loss carry-forwards are fu
lly offset by a valuation allowance
of $471,800.
Deferred
tax assets consist primarily of the tax effect of NOL carry-forwards. The
Company has provided a full valuation allowance on the deferred tax assets
because of the uncertainty regarding its realizability. The
valuation allowance increased approximately $115,100 and $260,900 for the years
ended December 31, 2010 and 2009, respectively.
The components
of net deferred tax assets - noncurrent at December 31, 2010 and 2009 are:
|
|
2010
|
|
2009
|
|
|
|
|
|
|
|
Expected income
tax benefit from NOL carry-forwards
|
|
$
|
471,800
|
|
$
|
356,700
|
Less valuation
allowance
|
|
|
(471,800)
|
|
|
(356,700)
|
Deferred tax
assets, net of valuation allowance
|
|
$
|
-
|
|
$
|
-
|
Income taxes
in the consolidated statements of operations
A reconciliation of the
federal statutory income tax rate and the effective income tax rate as a
percentage of income before income taxes follows:
|
|
For the
Year Ended
|
|
|
December
31,
|
|
|
2010
|
|
2009
|
|
|
|
|
|
Federal
statutory income tax rate
|
|
34.0%
|
|
34.0%
|
Change in
valuation allowance on NOL carry-forwards
|
|
(34.0)
|
|
(34.0)
|
Effective
income tax rate
|
|
0%
|
|
0%
|
Note 9 - Related Party Transactions
On March 31, 2009, the
Company purchased 171 oil and gas lease leases totaling 3,827 gross (2,666 net)
acres in Okfuskee and Okmulgee Counties, Oklahoma from CH4 Energy, Inc., a
company controlled by Soladino Investments SA (Soladino) at a cost of
$583,823. The Company reimbursed Soladino for its historic costs (acreage) by
issuing a secured, non-interest bearing note, payable on demand for $583,823
and assumed responsibility for all further costs.
On November 30, 2009,
the Company sold $448,876 of its oil and gas properties to Soladino for
$596,551. The purchase price was paid by (i) cancellation of $500,000 of its
notes to Soladino and (ii) a cash payment of $96,551. The oil and gas
properties were in Quebec, Canada and its wholly owned subsidiary Mac Oil SpA.
The Company recorded the $147,675 gain as a capital contribution.
On June 4, 2010, the
Company exchanged $294,000 of Tamm Oil and Gas Corp. shares (980,000 shares)
with a cost basis of $245,000 with Soladino for cancellation of $294,000 of
notes. The quoted offer price was $.25 per share and the Company valued these
shares at $.30 per share. The Company recorded the $49,000 gain as a capital
contribution.
Soladino loaned the
Company $282,094 in 2009 ($182,094 in August and $100,000 in October) and
$143,975 in 2010 ($64,010 in July, $29,965 in August and $50,000 in December). The
notes are secured, non-interest bearing and payable on demand.
The Company was provided
management services by its president, Mr. Fitzsimons during 2010 and 2009 at no
cost. The Company recorded the $120,000 estimated annual value of these
services as compensation expense and as a capital contribution.
F-16
PETROCORP INC.
(An Exploration Stage
Company)
December 31, 2010 and
2009
Notes to the
Consolidated Financial Statements
Note 10 - Subsequent Events
The Company has
evaluated all events that occurred after the balance sheet date, December 31,
2010, through the date when the financial statements were issued to determine
if they must be reported. Management of the Company has determined that there
are no reportable subsequent events to be disclosed.
F-17