PETROCORP INC.
(An Exploration Stage Company)
Notes to the Consolidated
Financial Statements (Unaudited)
1. Basis
of Presentation
The accompanying unaudited consolidated
financial statements have been prepared in accordance with the accounting
principles generally accepted in the United States of America for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by accounting principles generally accepted in the United States of America for annual financial statements. In the opinion of management,
all adjustments, consisting of normal recurring accruals considered necessary
for a fair presentation, have been included. Operating results for the three and
six months ended June 30, 2008 are not necessarily indicative of the results
that may be expected for the year ending December 31, 2008. These financial statements should be read in conjunction
with the financial statements of the Company for the year ended December 31,
2007 and notes thereto contained in the Report on Form 10-KSB of the
Company as filed with the United States Securities and Exchange Commission (the
“SEC”) on April 11, 2008.
2. Exploration
S
tage C
ompany
The Company is an exploration stage company
as defined by SFAS No 7 “
Accounting and Reporting by Development Stage
Enterprises”
. 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
Company’s exploration stage activities.
3.
Notes to an Officer/Stockholder
The
Company has a $350,000 unsecured, non-interest bearing note, payable on demand
with its President and major stockholder James Fitzsimons. In June 2008, the
Company repaid a $90,000 unsecured, non-interest bearing note with Mr.
Fitzsimons. During the three and six-month period ended June 30, 2008 the
Company recorded interest expense of $6,313 and $12,877, respectively. Interest
is computed at an implied rate of 6% and this amount was recorded as a capital
contribution by the Company.
4. Common Stock
On
March 18, 2008, the Company sold 200,000 shares of its common stock to one investor
at $5.00 per share (an aggregate of $1,000,000).
5.
Subsequent Events
On
August 13, 2008, the Company’s Board of Directors approved a stock dividend on
its outstanding shares of common stock. The ratio for the stock dividend is four
shares to each share owned (4:1). Each shareholder holding one share of common
stock will be entitled to receive an additional three shares of the Company’s common
stock. The shares will be mailed to the Company’s shareholders on or about August
31, 2008. The Company’s issued and outstanding common stock post stock dividend
will be 22,680,000 shares.
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PETROCORP INC.
(An Exploration Stage Company)
Notes to the
Consolidated Financial Statements (Unaudited)
On
August 13, 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, Oklahoma. The first well on this acreage, the Snake Creek #1,
spaced on 160 acres, has been successfully drilled and completed. Production
equipment, electric power and gas sales meter were connected the first week of August.
The Upper Dutcher zone was fracture stimulated on August 8. The Company will reimburse
Mr. Fitzsimons for his historic costs (acreage and drilling) by issuing a
secured, non-interest bearing note, payable on demand for $221,665 and will assume
responsibility for all further costs.
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Item 2 – Management’s Discussion and Analysis or
Plan of Operation
References to “Company”, “we”
or “us” refer to Petrocorp Inc., unless the context requires otherwise.
Forward Looking Statements
The
following is provided to supplement, and should be read in conjunction with,
our financial statements and the accompanying notes included in our Form 10-KSB
as of December 31, 2007. This report contains forward-looking statements and
information relating to us that is based on the beliefs of our management as
well as assumptions made by, and information currently available to, our
management. When used in this report, the words “anticipate”, “believe”,
“estimate”, “expect”, “intend”, “plan” and similar expressions, as they relate
to us or our management, are intended to identify forward-looking statements.
These statements reflect management’s current view of us concerning future
events and are subject to certain risks, uncertainties and assumptions,
including among many others:
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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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risks
and uncertainties described in the Risk Factors section or elsewhere in our
Annual Report on Form 10-KSB.
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Should
one or more of these risks or uncertainties materialize or should the
underlying assumptions prove incorrect, actual outcomes and results could
differ materially from those indicated in the forward-looking statements.
Any
forward-looking statement speaks only as of the date on which such statement is
made, and we undertake no obligation to update any forward-looking statement or
statements to reflect events or circumstances after the date on which such
statement is made or to reflect the occurrence of unanticipated events. New
factors emerge from time to time and it is not possible for management to
predict all of such factors, nor can it assess the impact of each factor on the
business or the extent to which any factor, or combination of factors, may
cause actual results to differ materially from those contained in any
forward-looking statements.
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Business
Overview
Petrocorp Inc. (formerly GD Conference
Center, Inc.), was incorporated on June 19, 2006 under the laws of the State of
Delaware. Prior to September 2007, the Company’s business model provided
telephonic conferencing services to businesses, organizations and individuals
in North America. Due to capital constraints and because its executives could
no longer serve the Company without compensation, the Company decided to change
its business directions.
We are an exploration stage Company
engaged in the acquisition, exploration and, if warranted, development of
prospective oil and gas properties. The Company has significant lease holdings
on the North Slope of Alaska, the Canadian Provinces of Alberta and Quebec and permit applications pending in Italy.
Our office is located at 1065 Dobbs Ferry Road, White Plains, NY 10607 and our telephone number is (914) 674-4373.
Our web-site address is http://petrocorp.us.
Plan
of Operation
Our plan of operation is 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. There is no assurance that a commercially viable oil and gas reserve
exists on any of our current and future properties, and a great deal of further
exploration will be required before a final evaluation as to the economic
feasibility for our future exploration is determined. To date, we do not know
if any economically viable oil and gas reserves exist on any of our current or
future properties and there is no assurance that we will discover any.
United States
Alaska
The Alaska leases are in areas which the
Company believes, based upon current available geological data and maps within
the public domain, are promising for gas production although the Company does
not make any representations as to their future production, if any. Furthermore,
any gas recovered from our Alaska leases will not be salable unless or until a
proposed North Slope gas pipeline is completed.
On October 25, 2007, Union Energy (Alaska)
LLC (“UEA”), a wholly owned 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.
UEA paid a total of $380,021 to the State of Alaska in respect of the leases.
Tracts 254, 258 and 259 are contiguous and are believed by the Company, based
upon current available geological data and maps within 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"). While the USGS evaluation is encouraging, the Company can
not assure that gas in commercial paying quantities will be recovered.
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. UEA paid a total of $59,565 to the State of Alaska and the Company
expects that the leases, covering 9,600 net acres, will be issued on September
1, 2008, with a term of 10 years and subject to
a 12.5%
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royalty interest in favor of the State of Alaska. Tracts 922, 923, 927, 988, 989, 990, 991, 992 and 925
are contiguous and are believed by the Company, based upon current available
geological data and maps within 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. The Company intends to conduct a detailed geological evaluation of the
Kurupa anticline, acquiring seismic data where available.
In Alaska we have retained Frontier Land
Inc. (an established land firm and a member of the American Association of
Professional Landmen) to conduct negotiations with other leaseholders in
respect of their acreage and to acquire other land interests within the
vicinity of various tracts.
Oklahoma
The Company’s three Oklahoma oil and gas
farm out agreements are near oil and gas fields with proved developed
production and within the general area of the "Woodford shale play".
The Company has not yet finalized geological mapping of the leases and does not
make any representations as to their future production, if any.
We must commence an oil and gas test well
on any legal location within any drilling and spacing unit established by the
Oklahoma Corporation Commission which includes all or part of the leasehold
acreage that is the subject of each farm out agreement by December 31, 2008.
In Oklahoma we have retained Keith Summar
(a member of the American Association of Petroleum Geologists) as a consultant
to assist us in our operations.
Internationally
Alberta, Canada
On May 14, 2008, the Company was the
winning bidder in a Crown Land sale for eight contiguous sections (totaling
5,120 acres) of oil sands leases in the Peace River Oil Sands Area of northern Alberta, Canada. The bids totaled $250,000 and the leases were issued by Alberta Energy on
May 15, 2008, with a term of 15 years.
Quebec, Canada
On June 23, 2008, the Company received
notification from the Province of Quebec that it was the successful applicant
for seven oil and gas exploration permits (totaling 121,297 hectares; 299,728
acres) in the Montreal area of the St. Lawrence Lowlands. The Company paid
advance rentals totaling $12,000 to the Province of Quebec and expects that the
permits will be formally issued in the fall of 2008 with an initial term of
five years. The Company has committed to a five-year work program following
the formal issue of the permits with minimum expenditures of (expressed in Canadian
dollars): $0.50 per hectare in the first year; $1.00 per hectare in the second
year; $1.50 per hectare in the third year; $2.00 per hectare in the fourth year;
and $2.50 per hectare in the fifth year.
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Italy
The
Company via its wholly-owned Italian subsidiaries, Mac Oil SRL and Petrocorp
Italia SRL, currently has eight pending oil and gas exploration permit applications
in Italy with a total area of 222,300 hectares (549,309 acres).
Internationally,
we have retained Daniele Albisetti and Christian Ceppi (members of the Swiss Geological
Society, the Società Geologica Italiana (Italian Geological Society) and the
Geological Association of Canada) as consultants to assist us in our
operations.
Results
of Operations
Three
Months Ended June 30, 2008 Compared to Three Months Ended June 30, 2007
During
the quarter ended June 30, 2008, we incurred a net loss of $74,864 compared to
a net loss of $3,152 for the 2007 quarter. During the 2008 quarter, the
Company paid compensation to its President of $30,000 which was recorded as a
capital contribution by the Company and professional fees of $30,300, which
related primarily to the development of the Company’s business plan and costs
associated with being a public company, as compared to $1,000 for the 2007
quarter. Also during the 2008 quarter, the Company paid general and
administrative expenses of $7,892, which included rent, telephone and other
office costs, as compared to $2,152 for the 2007 quarter. Interest expense of
$6,313 was computed on the officer/stockholder loans at an implied rate of 6%
and this amount was recorded as a capital contribution by the Company during
the quarter.
Six
Months Ended June 30, 2008 Compared to Six Months Ended June 30, 2007
During
the six months ended June 30, 2008, we incurred a net loss of $147,414 compared
to a net loss of $12,820 for the 2007 period. The $134,594 net loss increase is
due to the fact that the Company had very limited operations during 2007 and
paid no rent or salaries. During the six months ended June 30, 2008, the
Company paid compensation and professional fees of $115,900, which related
primarily to the development of the Company’s business plan and costs
associated with being a public company, as compared to $10,000 for the 2007
period. Also during the six months ended June 30, 2008, the Company paid
general and administrative expenses of $12,528, which included rent, telephone
and other office costs, as compared to $2,820 for the 2007 period. During the
six months ended June 30, 2008 interest expense of $12,877 was computed on the
officer/stockholder loans at an implied rate of 6% and this amount was recorded
as a capital contribution by the Company during the period.
Liquidity
and Capital Resources
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. As of June 30, 2008, we had cash of
$1,168,736 and working capital of $786,872. Our net cash provided by financing
activities during the period from our inception to June 30, 2008 was $1,904,100.
In
March 2008 we raised $1,000,000 from the sale of 200,000 shares of our common
stock at $5.00 per share. These sales were to unaffiliated parties, completed
pursuant to the exemption from registration under the Securities Act of 1933,
as amended, by Regulation S issued thereunder.
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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
current 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 our December 31, 2007 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
have never entered into any off-balance sheet financing arrangements and have
not formed any special purpose entities. We have not guaranteed any debt or
commitments of other entities or entered into any options on non-financial
assets.
Item
3. Controls and Procedures
An
evaluation was carried out under the supervision and with the participation of
our management, including our Chief Financial Officer and President, of the
effectiveness of our disclosure controls and procedures as of the end of the
period covered by this report on Form 10-Q. Disclosure controls and procedures
are procedures that are designed with the objective of ensuring that
information required to be disclosed in our reports filed under the Securities
Exchange Act of 1934, such as this Form 10-Q, is recorded, processed,
summarized and reported, within the time period specified in the Securities and
Exchange Commission’s rules and forms, and that such information is accumulated
and is communicated to our management, including our principal executive and
principal financial officers, or persons performing similar functions, as
appropriate, to allow timely decisions regarding required disclosure. Based on
that evaluation, our management concluded that, as of June 30, 2008, our disclosure
controls and procedures are effective to satisfy the objectives for which they
are intended.
There
were no changes in our internal control over financial reporting identified in
connection with the evaluation performed that occurred during the fiscal
quarter covered by this report that has materially affected or is reasonably
likely to materially affect, our internal control over financial reporting.
PART II –
OTHER INFORMATION
Item 1 – Legal
Proceedings
The
Company is not currently a party to any legal proceedings.
Item 2 –
Unregistered Sales of Equity Securities and
Use of Proceeds
None.
Item 3 – Defaults Upon
Senior Securities
None.
Item 4 – Submission of
Matters to a Vote of Security Holders
None.
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Item 5 – Other
Information
None.
Item 6 – Exhibits
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Exhibit Number
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Exhibit Description
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3.1
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Certificate of
Incorporation - Incorporated by reference to like numbered exhibit to the
Company’s Registration Statement on Form SB-2 File Number 333-141993.
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3.2
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Bylaws - Incorporated
by reference to like numbered exhibit to the Company’s Registration Statement
on Form SB-2 File Number 333-141993.
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3.3
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Certificate of
Amendment to Certificate of Incorporation - Incorporated by reference to like
numbered exhibit to the Company’s Current Report on Form 8-K filed November
5, 2007.
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4.1
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Specimen Stock Certificate - Incorporated by
reference to like numbered exhibit to the Company’s Annual Report on Form
10-KSB filed on April 11, 2008, File Number 333-141993.
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10.1
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Consulting Agreement, dated March 12, 2008,
between the Company and Keith G. Summary - Incorporated by reference to like
numbered exhibit to the Company’s Annual Report on Form 10-KSB filed on April
11, 2008, File Number 333-141993.
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Description of Subsidiaries.**
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31.1
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Rule 13a-14(a)/15d-14(a)
Certification by the Principal Executive Officer and Principal Financial
Officer.**
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32.2
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Section 1350 Certification by the
Principal Executive Officer and Principal Financial Officer.**
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** Filed herewith
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SIGNATURE
In accordance with the requirements of the Securities
Exchange Act of 1934, as amended, the registrant caused this Report on Form
10-Q to be signed on its behalf by the undersigned, thereunto duly authorized.
PETROCORP INC.
Date:
August 14, 2008
By: /s/ James Fitzsimons
James Fitzsimons, President and CFO
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