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. Due to capital constraints and because its executives could
no longer serve the Company without compensation, the Company decided to change
directions.
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, resulting in him owning 84.5% of the Companys then
outstanding shares 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 effectuated 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). All share and per share amounts have been restated
to reflect these common stock transactions.
During 2009 the Company changed its emphasis from an international oil and gas
company primarily to a US focused company because of current world economic
conditions and lack of debt/capital financing. The Company disposed of its
foreign oil and gas leases/permits in two separate transactions described below.
The Company completed an extensive review of its Alaska and Oklahoma oil and gas
leases, operations and recorded impairment charges of $639,813.
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
(totaling 5,120 acres) of oil sands leases in the Peace River Oil Sands Area of
northern Alberta, Canada for 1,000,000 restricted shares of Tamm Oil and Gas
Corp. The Company acquired these oil sands leases in May 2008 for $250,000.
On November 30, 2009, the Company sold oil and
gas properties with a cost of $448,876 to Soladino Investments SA (Soladino),
a Swiss corporation owned by our president, Mr. Fitzsimons for $596,551. The
purchase price was paid by cash of $96,551 and cancellation of $500,000 of its
notes to Soladino. 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.
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 significant 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. UEA paid a total of $380,021 to the State
of Alaska in respect of the leases. 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. UEA paid a total of $59,565 to the
State of Alaska in respect of the leases. 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.
4
Furthermore, any gas recovered from
our Alaska leases will not be salable unless or until a proposed North Slope gas pipeline is completed. 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 regarding their acreage and to
acquire other land interests within the vicinity of our tracts.
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.
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. We have retained Keith Summar (a member of the American
Association of Petroleum Geologists) as a consultant to assist us in our Oklahoma operations.
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.
5
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.
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.
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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.
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.
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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.
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 depend 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.
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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.
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.
9
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 all 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.
As of December 31, 2009, we have cash on hand of
approximately $38,510 representing the remaining proceeds of our six financing
transactions and loans from our president. In order to commence and complete
all intended test wells on the Oklahoma properties covered by the oil and gas
leases, we anticipate that we will need to spend a minimum of $250,000. 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.
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.
10
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.
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.
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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.
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.
12
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
ITEM
2. PROPERTIES.
Leasehold Acreage
The Company owns
interests in oil and gas acreage in the locations set forth below as of
December 31, 2009 and 2008. These ownership interests generally take the form
of working interests in oil and gas leases or licenses that have varying terms.
|
December 31, 2009
|
|
December 31, 2008
|
|
State or Country
|
Gross
|
|
Net
|
|
Gross
|
|
Net
|
|
Alaska
|
|
24,280
|
|
|
24,280
|
|
|
24,280
|
|
|
24,280
|
|
Oklahoma
|
|
7,204
|
|
|
4,929
|
|
|
6,379
|
|
|
2,809
|
|
Canada (1)
|
|
-
|
|
|
-
|
|
|
286,713
|
|
|
286,713
|
|
Italy (1)
|
|
-
|
|
|
-
|
|
|
-
|
(2)
|
|
-
|
(2)
|
Netherlands (1)
|
|
-
|
|
|
-
|
|
|
-
|
(3)
|
|
-
|
(3)
|
Total
|
|
31,484
|
|
|
29,209
|
|
|
317,372
|
|
|
313,802
|
|
(1)
On November 30, 2009, the Company
sold $448,876 of its foreign oil and gas leases to Soladino Investments SA, an
entity owned and controlled by the president and the majority stockholder of the
Company, for $596,551 by (i) the cancellation of $500,000 of notes and (ii) a
cash payment of $96,551. The sales price over the cost basis of $147,675
was booked as additional paid in capital.
(2)
On January 20, 2009, the Government of Italy made the preliminary awards of the competitive oil and gas exploration licenses, "Fiorenzuola D'Arda" located in the Po Valley and "Montottone" located in the Marche region, in favor of Mac Oil SpA, our former subsidiary.
On March 24, 2009, the Government of Italy made the preliminary award of the competitive oil and gas exploration license, "Melzo" located in the Po Valley, also in favor of Mac Oil SpA. On September 17, 2009, the Government of Italy made the preliminary award of the competitive oil and gas exploration license, "San Grato" located in the Po Valley, again in favor of Mac Oil SpA. The four Italy licenses cover a net surface area of 132,900 hectares (328,181 acres).
The Company also had two competitive oil and gas exploration license applications pending awaiting adjudication by the Ministry of Economic Development in Italy covering a net surface area of 98,332 hectares (242,982 acres).
(3)
The Company had one license application pending covering a net surface area of 45,037 hectares (111,288 acres).
13
Leasehold Acreage Costs
The Company has capitalized leasehold acreage costs in undeveloped oil and
natural gas acreage in the locations set forth below:
|
December 31,
|
|
2009
|
|
2008
|
State or Country
|
|
|
|
|
|
Alaska
|
$
|
442,086
|
|
$
|
442,086
|
Oklahoma (1)
|
|
760,029
|
|
|
520,050
|
Canada (2), (3),
(4)
|
|
-
|
|
|
277,130
|
Italy (3),
(4)
|
|
-
|
|
|
228,867
|
Netherlands (3)
|
|
-
|
|
|
25,760
|
Total
|
$
|
1,202,115
|
|
$
|
1,493,893
|
(1)
The Oklahoma oil and gas leasehold costs are net of a 2009 impairment charge of
$622,966.
(2) 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 (totaling 5,120 acres) of oil
sands leases in the Peace River Oil Sands Area of northern Alberta, Canada for
1,000,000 restricted shares of Tamm Oil and Gas Corp. The Company acquired
these oil sands leases in May 2008 for $250,000.
(3) On November 30, 2009, the Company sold its
foreign oil and gas leases with a cost of $448,876 to Soladino Investments SA
for $596,551.
(4)
At December 31, 2009, the Company wrote off $7,978 and $8,669 of remaining
Canadian and Italian oil and gas leasehold costs as an impairment charge,
respectively.
Oil and Gas Drilling
Activity
We own working interests in five gross producing oil wells and seven gross
producing gas wells at December 31, 2009. Of the five gross producing oil
wells two were dual completions (oil and gas). At December 31, 2009, 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.
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.
14
PART
II
ITEM 5. MARKET for REGISTRANTS COMMON EQUITY and ISSURER
PURCHASES of EQUITY SECURITIES.
Stock Split/
Dividends
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).
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
(1)
|
|
|
High
|
|
Low
|
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
|
|
|
|
|
|
|
|
Year Ended December 31,
2008
|
|
|
|
|
|
|
Fourth Quarter
|
|
$
|
2.10
|
|
$
|
2.10
|
Third Quarter
|
|
$
|
2.20
|
|
$
|
2.10
|
Second Quarter
|
|
$
|
1.80
|
|
$
|
1.80
|
First Quarter
|
|
$
|
-
|
|
$
|
-
|
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, 2009, 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.
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.
15
Securities
Authorized for Issuance under Equity Compensation Plans
None
Recent Sales
of Unregistered Securities
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). The shares were sold in transactions exempt from registration
under Regulation S of the Securities Act of 1933, as amended. The 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 the 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 the shares under the
Securities Act. The proceeds from the sale of the shares will be used for
working capital purposes.
ITEM 6. SELECTED FINANCIAL DATA.
Not applicable
ITEM 7.
MANAGEMENTS DISCUSSION and ANALYSIS of FINANCIAL CONDITIONS and REULTS 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
Prior to September 2007, the Companys 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 directions.
During 2009 the Company changed its emphasis from an International oil and gas
company primarily to a US focused company because of current world economic
conditions and lack of debt/capital financing. The Company disposed of its
foreign oil and gas leases/permits in two separate transactions described below.
The Company completed an extensive review of its Alaska and Oklahoma oil and gas
leases, operations and recorded impairment charges of $639,813.
16
Plan of Operation
Our plan of operation for 2010 is to continue
drilling test wells on our Oklahoma oil and gas leases. We anticipate the cost
of these programs will be approximately $250,000, however, this figure could be
reduced, possibly substantially, by third-party working interest participation,
arising particularly as a result of spacing and pooling applications and
hearings.
During 2010 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 2010 therefore could be at
least $350,000. We have limited cash on hand 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, sale of our Tamm Oil and Gas Corp (TAMO) 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, 2009, we had revenues of $70,961, oil and gas
exploration costs of $210,641 and incurred a loss of $1,237,259, as compared to
revenues of $24,151, oil and gas exploration costs of $28,297 and a loss of
$346,414 in 2008. Salaries in 2009 and 2008 were $120,000. Professional fees in
2009 were $238,680 as compared to $156,368 in 2008. General and
administrative expenses for 2009 were $26,918 as compared to $36,985 in 2008.
The Company disposed of its foreign oil and gas leases/permits in two separate
transactions described below. The Company completed an extensive review of
its Alaska and Oklahoma oil and gas leases, operations and recorded an
impairment charge of $639,813.
In addition, we incurred
interest expense of $72,895 in 2009 as compared to $30,633 in 2008.
Liquidity and Capital Resources
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.
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
(totaling 5,120 acres) of oil sands leases in the Peace River Oil Sands Area of
northern Alberta, Canada for 1,000,000 restricted shares of Tamm Oil and Gas Corp.
The Company acquired these oil sands leases in May 2008 for $250,000.
17
Soladino Investments SA, a Swiss corporation
owned by our president, loaned the Company $182,094 on August 19, 2009 and
$100,000 on October 13, 2009. The notes are secured, non-interest bearing and
payable on demand.
On November 30, 2009, the Company sold oil and
gas properties with a cost of $448,876 to Soladino Investments SA for
$596,551. The purchase price was paid by cash of $96,551 and cancellation of
$500,000 of its notes to Soladino. 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.
At December 31, 2009, the Company has $1,099,975
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. As of
December 31, 2009, we had cash of $38,510 and negative working capital of
$820,289. Our net cash provided by financing activities from June 19, 2006
(inception) to December 31, 2009 was $2,273,017.
We anticipate that additional funding will be
provided in the form of equity financing from the sale of our common stock,
sale of our Tamm Oil and Gas Corp (TAMO) 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.
18
ITEM 8. FINANCIAL STATEMENTS and SUPPLEMENTARY DATA.
Our financial statements for the years ended December 31,
2009 and 2008, 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.
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,
2009. Based on that evaluation, our Chief Executive Officer and
Chief Financial Officer have concluded that as of December 31, 2009, 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,
2009, 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, 2009. 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.
19
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:
|
|
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, 2009, 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.
20
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, 2009.
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.
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 $50,000 to $100,000 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, 2010.
21
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
2009 that have materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.
ITEM 9B. OTHER INFORMATION.
On November 30, 2009, the Company sold oil and
gas properties with a cost of $448,876 to Soladino Investments SA for
$596,551. The purchase price was paid by cash of $96,551 and cancellation of
$500,000 of its notes to Soladino. 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.
PART 1II
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS and CORPORATE
GOVERNANCE.
Our directors and officers as of March 31, 2010 are:
Name
|
Age
|
Position(s) with the
Company
|
James Fitzsimons
|
49
|
Director, CEO and President
(1)
|
Stephen M. Siedow
|
59
|
Director and CFO
(1)
|
Frank J. Hariton
|
61
|
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.
22
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.
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, 2009 and 2008;
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.
23
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)
|
|
2009
|
$120,000
|
|
|
|
|
|
|
$120,000
|
|
2008
|
$120,000
|
|
|
|
|
|
|
$120,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stephen M.
Siedow,
CFO and Director
(2)
|
|
2009
2008
|
$-0-
$-0-
|
|
|
|
|
|
|
$-0-
$-0-
|
|
|
|
|
|
|
|
|
|
|
|
Frank J.
Hariton,
Secretary
(3)
|
|
2009
|
$-0-
|
|
|
|
|
|
|
$-0-
|
|
2008
|
$-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 first 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 $68,300 for accounting/consulting fees in 2009 and $77,700
in 2008.
|
|
|
|
(3
)
|
|
Frank J. Hariton has been the
Companys secretary since September 2007. Mr. Hariton was paid $30,000 for
legal services in 2009 and $26,500 in 2008.
|
|
|
|
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.
24
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, 2010, 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.
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)
|
|
|
|
|
25
(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,
2010, 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 Fitzsimons
.
|
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 2009, 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 2009.
Changes 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 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, Oklahoma. 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.
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 December 1, 2008, James 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 Company issued Soladino a
$734,058 note, which
is secured by the Companys oil and gas leases, is non interest bearing and
payable upon demand.
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.
26
Soladino loaned the Company $182,094 on August
19, 2009 and $100,000 on October 13, 2009. The notes are secured, non-interest
bearing and payable on demand.
On November 30, 2009, the Company sold oil and
gas properties with a cost of $448,876 to Soladino Investments SA for
$596,551. The purchase price was paid by cash of $96,551 and cancellation of
$500,000 of its notes to Soladino. 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.
At December 31, 2009, the Company has $1,099,975
in secured, non-interest bearing notes (four), payable on demand with its
majority stockholder Soladino. During the years ended December 31, 2009 and
2008, the Company imputed interest expense related to these notes of $72,895
and $30,274, respectively. 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
our president, Mr. Fitzsimons during 2009 and 2008 at no cost. The Company
recorded the $120,000 estimated 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 $68,300 in 2009
and $77,700 in 2008 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 2009 and $26,500 in 2008 for these
services.
Director
Independence
Our current directors are James Fitzsimons and Stephen 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 2009 and 2008 were $17,500 and $14,000, respectively.
Audit Related Fees
None
27
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.
28
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
21, 2010
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
21,
2010
|
|
|
|
/s/ Stephen M. Siedow
Stephen M. Siedow
|
Director and CFO
|
April
21,
2010
|
|
|
|
|
|
|
|
29
PETROCORP INC.
(An Exploration Stage
Company)
December
31, 2009 and 2008
Index to Consolidated Financial
Statements
|
|
Page
|
|
|
|
Report of Independent
Registered Public Accounting Firm
|
|
F-1
|
|
|
|
Consolidated Balance
Sheets at December 31, 2009 and 2008
|
|
F-2
|
|
|
|
Consolidated
Statements of Operations for the years ended December 31, 2009 and
|
|
|
2008 and for the
period June 19, 2006 (inception) through December 31, 2009
|
|
F-3
|
|
|
|
Consolidated Statement of Stockholders' Equity for the period June 19, 2006
|
|
|
(inception) through
December 31, 2009
|
|
F-4
|
|
|
|
Consolidated
Statements of Cash Flows for the years ended December 31, 2009 and
|
|
|
2008 and for the
period June 19, 2006 (inception) through December 31, 2009
|
|
F-5
|
|
|
|
Notes to the
Consolidated Financial Statements
|
|
F-7-F-17
|
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, 2009 and 2008
and the related statements of operations, stockholders' equity and cash flows
for the years then ended,
and for the
period June 19, 2006 (inception) through December 31, 2009. 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, 2009 and
2008 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, 2009, 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, 2009, a net loss from operations
and net cash used in operations 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 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
21, 2010
F-1
PETROCORP INC.
|
(An Exploration Stage Company)
|
Consolidated Balance Sheets
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
2008
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
Cash
|
|
|
$
|
38,510
|
|
$
|
556,035
|
Revenue receivables
|
|
|
|
24,474
|
|
|
33,962
|
Marketable securities
|
|
|
|
250,000
|
|
|
-
|
Total current assets
|
|
|
|
312,984
|
|
|
589,997
|
|
|
|
|
|
|
|
|
Oil and gas properties
(successful efforts method):
|
|
|
|
|
|
|
|
Unproven acreage
|
|
|
|
1,228,365
|
|
|
1,497,643
|
Less depletion,
depreciation and amortization
|
|
|
|
(26,250)
|
|
|
(3,750)
|
|
|
|
|
1,202,115
|
|
|
1,493,893
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
$
|
1,515,099
|
|
$
|
2,083,890
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
Accrued expenses
|
|
|
$
|
33,298
|
|
$
|
71,317
|
Notes payable to majority
stockholder
|
|
|
|
1,099,975
|
|
|
734,058
|
Total current liabilities
|
|
|
|
1,133,273
|
|
|
805,375
|
|
|
|
|
|
|
|
|
Stockholders' equity:
|
|
|
|
|
|
|
|
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
|
|
|
|
2,051,752
|
|
|
1,711,182
|
Deficit accumulated during
the exploration stage
|
|
|
|
(1,672,194)
|
|
|
(434,935)
|
|
|
|
|
381,826
|
|
|
1,278,515
|
|
|
|
|
|
|
|
|
Total liabilities and
stockholders equity
|
|
|
$
|
1,515,099
|
|
$
|
2,083,890
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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,
|
|
|
2009
|
|
2008
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
Revenues
earned during the exploration stage
|
|
$
|
70,961
|
|
$
|
24,151
|
|
$
|
95,112
|
|
|
|
|
|
|
|
|
|
|
Cost
of revenues during the exploration stage:
|
|
|
|
|
|
|
|
|
|
Oil and gas operating costs
|
|
|
86,398
|
|
|
17,099
|
|
|
103,497
|
Exploration costs
|
|
|
96,634
|
|
|
5,709
|
|
|
102,343
|
Depletion, depreciation and
amortization
|
|
|
22,500
|
|
|
3,750
|
|
|
26,250
|
Production taxes
|
|
|
5,109
|
|
|
1,739
|
|
|
6,848
|
Total cost of revenues during the exploration stage
|
|
|
210,640
|
|
|
28,297
|
|
|
238,938
|
|
|
|
|
|
|
|
|
|
|
Gross profit (loss)
|
|
|
(139,679)
|
|
|
(4,146)
|
|
|
(143,826)
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
Salary - president and
majority stockholder
|
|
|
120,000
|
|
|
120,000
|
|
|
240,000
|
Professional fees - CFO and
secretary
|
|
|
98,506
|
|
|
104,200
|
|
|
202,706
|
Professional fees
|
|
|
140,174
|
|
|
52,168
|
|
|
192,342
|
General and administrative
expenses
|
|
|
26,918
|
|
|
36,985
|
|
|
127,819
|
Impairment charges
|
|
|
639,813
|
|
|
-
|
|
|
656,742
|
Total operating expenses
|
|
|
1,025,411
|
|
|
313,353
|
|
|
1,419,609
|
|
|
|
|
|
|
|
|
|
|
Loss
from operations
|
|
|
(1,165,411)
|
|
|
(317,499)
|
|
|
(1,563,435)
|
|
|
|
|
|
|
|
|
|
|
Other
(income) expenses:
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
(727)
|
|
|
(1,718)
|
|
|
(2,445)
|
Interest expense
|
|
|
-
|
|
|
359
|
|
|
359
|
Interest expense - related
parties
|
|
|
72,895
|
|
|
30,274
|
|
|
109,245
|
Total other (income) expense
|
|
|
72,168
|
|
|
28,915
|
|
|
107,159
|
|
|
|
|
|
|
|
|
|
|
Loss
before income taxes
|
|
|
(1,237,259)
|
|
|
(346,414)
|
|
|
(1,670,594)
|
|
|
|
|
|
|
|
|
|
|
Provision
for income taxes
|
|
|
-
|
|
|
-
|
|
|
1,600
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(1,237,259)
|
|
$
|
(346,414)
|
|
$
|
(1,672,194)
|
|
|
|
|
|
|
|
|
|
|
Net
loss per common share -
|
|
|
|
|
|
|
|
|
|
basic and diluted
|
|
$
|
(0.08)
|
|
$
|
(0.02)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 Stockholder's Equity
|
|
For the Period from June 19, 2006 (inception)
through December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deficit
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
Accumulated
|
|
Total
|
|
|
|
Common Stock
|
|
Paid-in
|
|
during the
|
|
Stockholders'
|
|
|
|
Shares
|
|
Amount
|
|
Capital
|
|
Exploration Stage
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to the consolidated financial
statements.
|
F-4
|
PETROCORP INC.
|
(An Exploration Stage
Company)
|
|
Consolidated
Statements of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 19, 2006
|
|
|
|
|
(inception) to
|
|
|
Year Ended December
31,
|
|
December 31,
|
|
|
2009
|
|
2008
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
Cash flows from
operating activities:
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(1,237,259)
|
|
$
|
(346,414)
|
|
$
|
(1,672,194)
|
Adjustments to
reconcile net loss to net cash
|
|
|
|
|
|
|
|
|
|
used in operating
activities:
|
|
|
|
|
|
|
|
|
|
Depletion,
depreciation and amortization
|
|
|
22,500
|
|
|
3,750
|
|
|
27,321
|
Impairment charges
|
|
|
639,813
|
|
|
|
|
|
656,742
|
Salary contribution
|
|
|
120,000
|
|
|
120,000
|
|
|
240,000
|
Interest contribution
|
|
|
72,895
|
|
|
30,274
|
|
|
109,245
|
Changes in operating
assets and liabilities:
|
|
|
|
|
|
|
|
|
|
Revenue receivables
|
|
|
9,488
|
|
|
(33,962)
|
|
|
(24,474)
|
Accrued expenses
|
|
|
(38,019)
|
|
|
52,431
|
|
|
33,298
|
State of Alaska
payable
|
|
|
|
|
|
(279,500)
|
|
|
-
|
Net cash used in
operating activities
|
|
|
(410,582)
|
|
|
(453,421)
|
|
|
(630,062)
|
|
|
|
|
|
|
|
|
|
|
Cash flows from
investing activities:
|
|
|
|
|
|
|
|
|
|
Acquisition of oil and
gas properties
|
|
|
(569,411)
|
|
|
(728,299)
|
|
|
(1,682,996)
|
Proceeds from sale of
oil and gas properties
|
|
|
96,551
|
|
|
|
|
|
96,551
|
Purchase of equipment
|
|
|
|
|
|
|
|
|
(18,000)
|
Net cash used in
investing activities
|
|
|
(472,860)
|
|
|
(728,299)
|
|
|
(1,604,445)
|
|
|
|
|
|
|
|
|
|
|
Cash flows from
financing activities:
|
|
|
|
|
|
|
|
|
|
Proceeds from notes
payable to
majority stockholder
|
|
|
365,917
|
|
|
|
|
|
805,917
|
Repayment of notes
payable to
majority stockholder
|
|
|
|
|
|
(90,000)
|
|
|
(90,000)
|
Proceeds from sale of
common stock
|
|
|
|
|
|
1,000,000
|
|
|
1,557,100
|
Net cash provided by
financing activities
|
|
|
365,917
|
|
|
910,000
|
|
|
2,273,017
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase
in cash
|
|
|
(517,525)
|
|
|
(271,720)
|
|
|
38,510
|
Cash at beginning of
year
|
|
|
556,035
|
|
|
827,755
|
|
|
-
|
Cash at end of year
|
|
$
|
38,510
|
|
$
|
556,035
|
|
$
|
38,510
|
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
-
|
|
$
|
359
|
|
$
|
359
|
Cash paid for taxes
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosure of noncash investing and
|
|
|
|
|
|
|
|
|
|
financing activities:
|
|
|
|
|
|
|
|
|
|
Forgiveness of debt
by a stockholder
|
|
$
|
-
|
|
$
|
-
|
|
$
|
3,000
|
Salary contribution
|
|
$
|
120,000
|
|
$
|
120,000
|
|
$
|
240,000
|
Interest contribution
|
|
$
|
72,895
|
|
$
|
30,274
|
|
$
|
109,245
|
Acquisition of
undeveloped oil and gas properties
|
|
|
|
|
|
|
|
|
|
from majority
stockholder for notes
|
|
$
|
583,823
|
|
$
|
384,058
|
|
$
|
967,881
|
Sale of
$448,876 of oil and gas properties to Soladino
|
|
|
|
|
|
|
|
|
|
Investments SA, an entity owned by our president 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, 2009 and
2008
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. Prior to September 2007,
the Companys 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.
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, resulting in him owning 84.5% of the Companys then
outstanding shares for $454,000. Mr. Fitzsimons was elected a director of the
Company.
On October 19, 2007, the Company
amended its certificate of incorporation changing its name to Petrocorp Inc.
and effectuated 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).
All share and per share amounts have been
restated to reflect these common stock transactions.
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 and Mac Oil SpA through November 30, 2009
(collectively, Petrocorp or the Company). 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.
F-6
PETROCORP INC.
(An Exploration Stage Company)
December 31, 2009 and
2008
Notes to the Consolidated Financial Statements
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.
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.
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
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 Tamm Oil and Gas Corp 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 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. TAMO's 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 Company's 1,000,000 TAMO's shares at December 31, 2009 would have been $645,000 based on TAMO's December 31, 2009 closing price. The Management determined that the fair value of these marketable securities was $250,000, its historical cost when taking into consideration of the lack of average trading volume. At December 31, 2009, the Company did not record any unrealized gains or (losses), nor sold any of these marketable securities.
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, Mcfe, 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.
F-7
PETROCORP INC.
(An Exploration Stage Company)
December 31, 2009 and
2008
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 receivable, and accrued expenses approximate their fair
values because of the short maturity of these instruments. The Companys marketable securities
restricted and notes payable to majority stockholder 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 and 2008.
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, 2009 or 2008, nor 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, 2009 and 2008.
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 less estimated future doubtful accounts. 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.
F-8
PETROCORP INC.
(An Exploration Stage Company)
December 31, 2009 and
2008
Notes to the Consolidated Financial Statements
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 loss per share is computed by dividing net
loss applicable to common shareholders by the weighted average number of common
shares outstanding during the period. Diluted loss per 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, 2009 or 2008.
Recently issued accounting pronouncements
On June 5, 2003, the United States
Securities and Exchange Commission (SEC) adopted final rules under Section
404 of the Sarbanes-Oxley Act of 2002 (Section 404), as amended by SEC
Release No. 33-9072 on October 13, 2009. Under the provisions of Section 404 of the
Sarbanes-Oxley Act, public companies and their independent auditors are each
required to report to the public on the effectiveness of a companys internal
controls. The smallest public companies with a public float below $75 million
have been given extra time to design, implement and document these internal
controls before their auditors are required to attest to the effectiveness of
these controls. This extension of time will expire beginning with the annual
reports of companies with fiscal years ending on or after June 15, 2010. Commencing with its annual report for the fiscal year
ending December 31, 2010, the Company will be required to include a report of
management on its internal control over financial reporting. The internal
control report must include a statement
|
of managements responsibility for
establishing and maintaining adequate internal control over its financial reporting;
|
|
of managements assessment of the
effectiveness of its internal control over financial reporting as of year
end; and
|
|
of the framework used by
management to evaluate the effectiveness of the Companys internal control
over financial reporting.
|
F-9
PETROCORP INC.
(An Exploration Stage Company)
December 31, 2009 and
2008
Notes to the Consolidated Financial Statements
Furthermore, it is required to file the
auditors attestation report separately on the Companys internal control over
financial reporting on whether it believes that the Company has maintained, in
all material respects, effective internal control over financial reporting.
In June 2009, the FASB approved the FASB
Accounting Standards Codification (the Codification) as the single source of
authoritative nongovernmental US GAAP to be launched on July 1, 2009. The Codification does not change current US GAAP, but is intended to simplify user
access to all authoritative US GAAP by providing all the authoritative
literature related to a particular topic in one place. All existing accounting
standard documents will be superseded and all other accounting literature not
included in the Codification will be considered non-authoritative. The
Codification is effective for interim and annual periods ending after
September 15, 2009.
In August 2009, the FASB issued the FASB
Accounting Standards Update No. 2009-04
Accounting for Redeemable Equity
Instruments - Amendment to Section 480-10-S99
which represents an update
to section 480-10-S99, distinguishing liabilities from equity, per EITF Topic
D-98,
Classification and Measurement of Redeemable Securities
. The
Company does not expect the adoption of this update to have a material impact
on its consolidated financial position, results of operations or cash flows.
In August 2009, the FASB issued the FASB
Accounting Standards Update No. 2009-05
Fair Value Measurement and
Disclosures Topic 820 Measuring Liabilities at Fair Value
, which
provides amendments to subtopic 820-10, Fair Value Measurements and Disclosures
Overall, for the fair value measurement of liabilities. This update provides
clarification that in circumstances in which a quoted price in an active market
for the identical liability is not available, a reporting entity is required to
measure fair value using one or more of the following techniques: 1. A
valuation technique that uses: a. The quoted price of the identical liability
when traded as an asset b. Quoted prices for similar liabilities or similar
liabilities when traded as assets. 2. Another valuation technique that is
consistent with the principles of topic 820; two examples would be an income
approach, such as a present value technique, or a market approach, such as a
technique that is based on the amount at the measurement date that the
reporting entity would pay to transfer the identical liability or would receive
to enter into the identical liability. The amendments in this update also
clarify that when estimating the fair value of a liability, a reporting entity
is not required to include a separate input or adjustment to other inputs
relating to the existence of a restriction that prevents the transfer of the
liability. The amendments in this update also clarify that both a quoted price
in an active market for the identical liability when traded as an asset in an
active market when no adjustments to the quoted price of the asset are required
are Level 1 fair value measurements. The Company does not expect the adoption
of this update to have a material impact on its consolidated financial
position, results of operations or cash flows.
In September 2009, the FASB issued the FASB
Accounting Standards Update No. 2009-08
Earnings Per Share Amendments to
Section 260-10-S99,
which represents technical corrections to topic
260-10-S99, Earnings per share, based on EITF Topic D-53,
Computation of
Earnings Per Share for a Period that includes a Redemption or an Induced
Conversion of a Portion of a Class of Preferred Stock
and EITF Topic D-42,
The
Effect of the Calculation of Earnings per Share for the Redemption or Induced
Conversion of Preferred Stock
. The Company does not expect the adoption of
this update to have a material impact on its consolidated financial position,
results of operations or cash flows.
F-10
PETROCORP INC.
(An Exploration Stage Company)
December 31, 2009 and
2008
Notes to the Consolidated Financial Statements
In September 2009, the FASB issued the FASB
Accounting Standards Update No. 2009-09
Accounting for Investments - Equity
Method and Joint Ventures and Accounting for Equity-Based Payments to
Non-Employees
. This update represents a correction to Section
323-10-S99-4,
Accounting by an Investor for Stock-Based Compensation Granted
to Employees of an Equity Method Investee
. Additionally, it adds observer
comment
Accounting Recognition for Certain Transactions Involving Equity
Instruments Granted to Other Than Employees
to the Codification. The
Company does not expect the adoption to have a material impact on its
consolidated financial position, results of operations or cash flows.
In September 2009, the FASB issued the FASB
Accounting Standards Update No. 2009-12
Fair Value Measurements and
Disclosures Topic 820 Investment in Certain Entities That Calculate Net
Assets Value Per Share (or Its Equivalent)
, which provides amendments to
Subtopic 820-10, Fair Value Measurements and Disclosures-Overall, for the fair
value measurement of investments in certain entities that calculate net asset
value per share (or its equivalent). The amendments in this update permit, as
a practical expedient, a reporting entity to measure the fair value of an
investment that is within the scope of the amendments in this update on the
basis of the net asset value per share of the investment (or its equivalent) if
the net asset value of the investment (or its equivalent) is calculated in a
manner consistent with the measurement principles of Topic 946 as of the
reporting entitys measurement date, including measurement of all or
substantially all of the underlying investments of the investee in accordance
with Topic 820. The amendments in this update also require disclosures by
major category of investment about the attributes of investments within the
scope of the amendments in this update, such as the nature of any restrictions
on the investors ability to redeem its investments a the measurement date, any
unfunded commitments (for example, a contractual commitment by the investor to
invest a specified amount of additional capital at a future date to fund investments
that will be make by the investee), and the investment strategies of the
investees. The major category of investment is required to be determined on
the basis of the nature and risks of the investment in a manner consistent with
the guidance for major security types in US GAAP on investments in debt and
equity securities in paragraph 320-10-50-1B. The disclosures are required for
all investments within the scope of the amendments in this update regardless of
whether the fair value of the investment is measured using the practical
expedient. The Company does not expect the adoption to have a material impact
on its consolidated financial position, results of operations or cash flows.
In January 2010, the FASB issued the FASB
Accounting Standards Update No. 2010-01
Equity Topic 505 Accounting for
Distributions to Shareholders with Components of Stock and Cash
, which
clarify that the stock portion of a distribution to shareholders that allows
them to elect to receive cash or stock with a potential limitation on the total
amount of cash that all shareholders can elect to receive in the aggregate is
considered a share issuance that is reflected in EPS prospectively and is not a
stock dividend for purposes of applying Topics 505 and 260 (Equity and Earnings
Per Share (EPS)). Those distributions should be accounted for and included
in EPS calculations in accordance with paragraphs 480-10-25-14 and 260-10-45-45
through 45-47 of the FASB Accounting Standards codification. The amendments in
this Update also provide a technical correction to the Accounting Standards
Codification. The correction moves guidance that was previously included in
the Overview and Background Section to the definition of a stock dividend in
the Master Glossary. That guidance indicates that a stock dividend takes
nothing from the property of the corporation and adds nothing to the interests
of the stockholders. It also indicates that the proportional interest of each
shareholder remains the same, and is a key factor to consider in determining
whether a distribution is a stock dividend.
F-11
PETROCORP INC.
(An Exploration Stage Company)
December 31, 2009 and
2008
Notes to the Consolidated Financial Statements
In January 2010, the FASB issued the FASB
Accounting Standards Update No. 2010-02
Consolidation Topic 810
Accounting and Reporting for Decreases in Ownership of a Subsidiary a Scope
Clarification
, which provides amendments to Subtopic 810-10 and related
guidance within U.S. GAAP to clarify that the scope of the decrease in
ownership provisions of the Subtopic and related guidance applies to the
following:
|
1.
|
A subsidiary or group of
assets that is a business or nonprofit activity
|
|
|
|
|
2.
|
A subsidiary that is a
business or nonprofit activity that is transferred to an equity method
investee
|
|
|
or joint venture
|
|
|
|
|
3.
|
An exchange of a group of
assets that constitutes a business or nonprofit activity for a
|
|
|
noncontrolling interest in
an entity (including an equity method investee or joint venture).
|
The amendments in this Update also clarify that
the decrease in ownership guidance in Subtopic 810-10 does not apply to the
following transactions even if they involve businesses:
|
1.
|
Sales
of in substance real estate. Entities should apply the sale of real
estate guidance in Subtopics
|
|
|
360-20
(Property, Plant, and Equipment) and 976-605 (Retail/Land) to such
transactions.
|
|
|
|
|
2.
|
Conveyances
of oil and gas mineral rights. Entities should apply the mineral
property conveyance
|
|
|
and related transactions
guidance in Subtopic 932-360 (Oil and Gas-Property, Plant, and Equipment)
|
|
|
to such transactions.
|
If a decrease in ownership occurs in a
subsidiary that is not a business or nonprofit activity, an entity first needs
to consider whether the substance of the transaction causing the decrease in
ownership is addressed in other US GAAP, such as transfers of financial assets,
revenue recognition, exchanges of nonmonetary assets, sales of in substance
real estate, or conveyances of oil and gas mineral rights, and apply that
guidance as applicable. If no other guidance exists, an entity should apply
the guidance in Subtopic 810-10.
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 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. At December
31, 2009, the Company had a deficit accumulated during the exploration stage of
$1,672,194, a net loss of $1,237,259 with revenues of $70,961 and cash used in
operations of $410,582
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, sale of its Tamm Oil and Gas Corp (TAMO)
stock 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.
F-12
PETROCORP INC.
(An Exploration Stage Company)
December 31, 2009 and
2008
Notes to the Consolidated Financial Statements
The financial statements do not include any
adjustments that might be necessary if the Company is unable to continue as a
going concern.
Note 4 - Marketable Securities
The available-for-sale marketable securities at December 31, 2009 and 2008 are
set forth as follows:
|
|
2009
|
|
2008
|
|
|
|
|
|
|
|
1,000,000 shares of TAMO common stock
|
|
$
|
250,000
|
|
$
|
-
|
Note
5 - Oil and Gas Properties
Leasehold Acreage
Petrocorp owns interests
in oil and gas acreage in the locations set forth below as of December 31, 2009
and 2008. These ownership interests generally take the form of working
interests in oil and gas leases or licenses that have varying terms.
|
December 31, 2009
|
|
December 31, 2008
|
|
State or Country
|
Gross
|
|
Net
|
|
Gross
|
|
Net
|
|
Alaska
|
|
24,280
|
|
|
24,280
|
|
|
24,280
|
|
|
24,280
|
|
Oklahoma
|
|
7,204
|
|
|
4,929
|
|
|
6,379
|
|
|
2,809
|
|
Canada (1)
|
|
-
|
|
|
-
|
|
|
286,713
|
|
|
286,713
|
|
Italy (1)
|
|
-
|
|
|
-
|
|
|
-
|
(2)
|
|
-
|
(2)
|
Netherlands (1)
|
|
-
|
|
|
-
|
|
|
-
|
(3)
|
|
-
|
(3)
|
Total
|
|
31,484
|
|
|
29,209
|
|
|
317,372
|
|
|
313,802
|
|
(1)
On November 30, 2009, the Company sold $448,876 of its foreign oil and gas leases to Soladino Investments SA, an entity owned and controlled by the president and the majority stockholder of the Company, for $596,551 by (i) the cancellation of $500,000 of notes and (ii) a cash payment of $96,551. The sales price over the cost basis of $147,675 was booked as additional paid-in capital.
(2)
On January 20, 2009, the Government of Italy made the preliminary awards of the competitive oil and gas exploration licenses, "Fiorenzuola D'Arda" located in the Po Valley and "Montottone" located in the Marche region, in favor of Mac Oil SpA, our former subsidiary.
On March 24, 2009, the Government of Italy made the preliminary award of the competitive oil and gas exploration license, "Melzo" located in the Po Valley, also in favor of Mac Oil SpA. On September 17, 2009, the Government of Italy made the preliminary award of the competitive oil and gas exploration license, "San Grato" located in the Po Valley, again in favor of Mac Oil SpA. The four Italy licenses cover a net surface area of 132,900 hectares (328,181 acres).
The Company also had two competitive oil and gas exploration license applications pending awaiting adjudication by the Ministry of Economic Development in Italy covering a net surface area of 98,332 hectares (242,982 acres).
(3)
The Company had one license application pending covering a net surface area of 45,037 hectares (111,288 acres).
Leasehold Acreage Costs
Petrocorp has
capitalized leasehold acreage costs, net of accumulated depletion, depreciation
and amortization, in undeveloped oil and natural gas acreage
in the locations set forth below as of December 31, 2009 and 2008:
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
|
|
|
2009
|
|
2008
|
State or Country
|
|
|
|
|
|
|
|
|
|
|
|
Alaska
|
|
|
|
|
|
|
$
|
442,086
|
|
$
|
442,086
|
Oklahoma (1)
|
|
|
|
|
|
|
|
760,029
|
|
|
520,050
|
Canada (2), (3), (4)
|
|
|
|
|
|
|
|
-
|
|
|
277,130
|
Italy (3), (4)
|
|
|
|
|
|
|
|
-
|
|
|
228,867
|
Netherlands (3)
|
|
|
|
|
|
|
|
-
|
|
|
25,760
|
Total
|
|
|
|
|
|
|
$
|
1,202,115
|
|
$
|
1,493,893
|
(1) The Oklahoma oil and gas leasehold costs are net of acquisitions of
$885,445, a 2009 impairment charge of $622,966 and accumulated depletion, depreciation and amortization of $26,200.
(2) 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 (totaling 5,120 acres) of oil
sands leases in the Peace River Oil Sands Area of northern Alberta, Canada for
1,000,000 restricted shares of Tamm Oil and Gas Corp. The Company acquired
these oil sands leases in May 2008 for $250,000.
(3) On November 30, 2009, the Company sold $448,876 of its foreign oil and gas leases to Soladino Investments SA, an entity owned and controlled by the president and majority stockholder of the Company, for $596,551 by (i) the cancellation of $500,000 of notes and (ii) a cash payment of $96,551. The sales price over the cost basis of $147,675 was recorded as additional paid-in capital.
(4) At December 31, 2009, the Company wrote off $7,978 and $8,669 of remaining Canadian and Italian oil and gas leasehold costs as an impairment charge, respectively.
F-13
PETROCORP INC.
(An Exploration Stage Company)
December 31, 2009 and
2008
Notes to the Consolidated Financial Statements
2009 Detailed Leasehold Acreage Costs
|
|
|
|
|
2009 Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Properties
|
|
|
|
|
|
|
|
|
Balance at
|
|
Leasehold
|
|
Well
|
|
Exchanged
|
|
Impairment
|
|
|
|
Balance at
|
|
|
12/31/2008
|
|
Costs
|
|
Costs
|
|
or Sold
|
|
Charge
|
|
Depletion
|
|
12/31/2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State or Country
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alaska
|
|
$
|
442,086
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
442,086
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oklahoma (by
prospect)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
East Okemah
|
|
|
41,998
|
|
|
|
|
|
|
|
|
|
|
|
(41,998)
|
|
|
|
|
|
0
|
Snake Creek
|
|
|
307,803
|
|
|
|
|
|
29,106
|
|
|
|
|
|
(218,977)
|
|
|
|
|
|
117,932
|
Spanish Peak
|
|
|
173,999
|
|
|
65,990
|
|
|
206,526
|
|
|
|
|
|
(361,991)
|
|
|
|
|
|
84,524
|
Coal Creek
|
|
|
-
|
|
|
583,823
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
583,823
|
Accumulated depletion
|
|
|
(3,750)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(22,500)
|
|
|
(26,250)
|
Oklahoma, net
|
|
|
520,050
|
|
|
649,813
|
|
|
235,632
|
|
|
0
|
|
|
(622,966)
|
|
|
(22,500)
|
|
|
760,029
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Canada
|
|
|
277,130
|
|
|
23,715
|
|
|
|
|
|
(292,866)
|
|
|
(7,978)
|
|
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Italy
|
|
|
228,867
|
|
|
121,349
|
|
|
|
|
|
(341,348)
|
|
|
(8,869)
|
|
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Netherlands
|
|
|
25,760
|
|
|
38,902
|
|
|
|
|
|
(64,662)
|
|
|
|
|
|
|
|
|
0
|
Total oil and gas
properties
|
|
$
|
1,493,893
|
|
$
|
833,779
|
|
$
|
235,632
|
|
$
|
(698,876)
|
|
$
|
(639,813)
|
|
$
|
(22,500)
|
|
$
|
1,202,115
|
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, 2009. Of the five (5) gross producing oil wells two (2) were dual completions (oil and gas). At December 31, 2009, the Company had no wells in progress.
F-14
PETROCORP INC.
(An Exploration Stage Company)
December 31, 2009 and
2008
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 171 oil
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
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.
Soladino loaned the Company $182,094 on August
19, 2009 and $100,000 on October 13, 2009. The notes are secured, non-interest
bearing and payable on demand.
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. At December 31, 2009, the
Company has $1,099,975 in secured, non-interest bearing notes (four), payable
on demand with its majority stockholder Soladino.
During the years ended December 31, 2009 and 2008,
the Company imputed interest expense related to these notes of $72,895 and $30,274,
respectively. Interest was imputed at an implied rate of 6% per annum and the
amounts were recorded as capital contributions by the Company.
Note 7 - Stockholders Equity
Common stock
On September 30, 2006, the Company issued 20,000,000
shares of common stock to its founders at par value ($.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. The proceeds from the sale of these shares will be
used for working capital purposes.
F-15
PETROCORP INC.
(An Exploration Stage Company)
December 31, 2009 and
2008
Notes to the Consolidated Financial Statements
Note 8 - Income Taxes
Deferred tax assets
At December 31, 2009, the Company had net
operating loss ("NOL") carry-forwards for Federal income tax purposes of
$1,049,227 exclusive of $639,813 in impairment charges, that may be offset against
future taxable income through 2029. 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 Company's
net deferred tax assets of approximately $356,700 was not considered more likely
than not and accordingly, the potential tax benefits of the net loss
carry-forwards are fully offset by a valuation allowance of $356,700.
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
$260,900 and $78,100 for the year ended December 31, 2009 and 2008, respectively.
The components of deferred tax
assets at December 31, 2009 and 2008 are:
|
|
2009
|
|
2008
|
Net
deferred tax assets - noncurrent:
|
|
|
|
|
|
|
Expected
income tax benefit from NOL carry-forwards
|
|
$
|
356,700
|
|
$
|
95,800
|
Less
valuation allowance
|
|
|
(356,700)
|
|
|
(95,800)
|
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,
|
|
|
2009
|
|
2008
|
Federal statutory income
tax rate
|
|
|
34.0%
|
|
|
34.0%
|
Change in valuation
allowance on net operating loss carry-
|
|
|
|
|
|
|
forwards
|
|
|
(34.0)%
|
|
|
(34.0)%
|
Effective income tax rate
|
|
|
-0-%
|
|
|
-0-%
|
Note 9 - Related Party Transactions
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, Oklahoma. 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.
F-16
PETROCORP INC.
(An Exploration Stage Company)
December 31, 2009 and
2008
Notes to the Consolidated Financial Statements
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 December 1, 2008, James 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 Company issued Soladino a $734,058
note, which
is secured by the Companys oil and gas leases, is non interest bearing and
payable upon demand.
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 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.
Soladino loaned the Company $182,094 on August
19, 2009 and $100,000 on October 13, 2009. The notes are secured, non-interest
bearing and payable on demand.
On November 30, 2009, the Company sold $448,876 of its oil and gas properties to Soladino Investments SA 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.
The Company was provided management services by its president, Mr. Fitzsimons during 2009 and 2008 at no cost. The Company
recorded the $120,000 estimated annual value of these services as compensation expense
and as a capital contribution.
Note 10 - Subsequent Events
The Company has evaluated all events that
occurred after the balance sheet date through December 31, 2009, through April
21, 2010 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