SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB/A
[X] Quarterly report under Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the quarterly period ended March 31, 2003
[ ] Transition report under Section 13 or 15(d) of the Exchange Act of 1934
For the transition period from ___________ to ______________
Commission file no. 000-27339
BPK RESOURCES, INC.
-------------------------------
(Exact Name of Small Business Issuer as Specified in
Its Charter)
NEVADA 88-0426887
------------------------------ -------------------------
(State or Other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification No.)
5858 WESTHEIMER STREET, SUITE 709
HOUSTON, TX 77057
------------------------------------------------------
(Address of Principal Executive Offices)
(713) 978-7991
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(Issuer's Telephone Number, including Area Code)
APPLICABLE ONLY TO ISSUERS INVOLVED IN
BANKRUPTCY PROCEEDINGS DURING THE
PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court.
Yes [ ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date : There were 42,459,503 issued
and outstanding shares of the registrant's common stock, par value $.001 per
share, as of April 12, 2004.
Transitional Small Business Disclosure Format (check one):
Yes [ ] No [X]
BPK RESOURCES, INC.
(A DEVELOPMENT STAGE ENTITY)
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Balance Sheets (unaudited) 1
Condensed Statements of Operations - (unaudited) 2
Condensed Statements of Cash Flows - (unaudited) 3
Notes to Condensed Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis or Plan of Operations 15
Item 3. Controls and Procedures 19
PART II. OTHER INFORMATION 20
Item 2. Changes in Securities and Use of Proceeds 20
Item 5. Other Information 21
Item 6. Exhibits and Reports on Form 8-K 21
EXPLANATORY NOTE
BPK Resources, Inc. (the "Company") is filing this Amendment No. 1 (the
"Amendment") to its Quarterly Report on Form 10-QSB for the three month period
ended March 31, 2003 filed with the Securities and Exchange Commission ("SEC")
on May 16, 2003 (the "Original Report").
The Company recently discovered an error in its 2002 consolidated
financial statements included in the Company's Annual Report on Form 10-KSB for
the year ended December 31, 2002. The Company has corrected its 2002 annual
consolidated financial statements to conform them to generally accepted
accounting principles. This correction has impacted the Company's condensed
consolidated financial statements for the period ended March 31, 2003 to reduce
depletion expense and partnership investment loss as more fully explained in
Note 17-Correction Of An Error appearing in Item 1 of this Amendment. The
restated condensed consolidated financial statements for the period ended March
31, 2003 do not reflect any changes in the Company's accounting principles,
practices or procedures.
This Amendment does not reflect events that have occurred after May 16,
2003, the date the Original Report was filed with the SEC, nor does it modify or
update the disclosures set forth in the Original Report, except to reflect the
effects of the restatement of the condensed consolidated financial statements
for the period ended March 31, 2003, or as deemed necessary in connection with
the completion of such financial statements. Information with respect to any
such events has been or will be set forth, as appropriate, in the Company's
filings with the SEC subsequent to May 16, 2003. The remaining information
contained in this Amendment, which consists of all other information originally
contained in the Original Report, is not amended hereby, but is included for the
convenience of the reader.
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BPK RESOURCES, INC.
(A Development Stage Entity)
Condensed Consolidated Balance Sheet
ASSETS
March 31, December 31,
2003 2002
------------------ ---------------
(UNAUDITED) (UNAUDITED)
(Unaudited) (Audited)
Current assets
Cash and cash equivalents $ 42,975 $ 26,980
Accounts receivable 45,466 52,840
Marketable securities 4,356,502 --
Notes and interest receivable 84,655 53,340
Prepaid expenses 268,836 119,524
----------- -----------
Total current assets 4,798,434 252,684
----------- -----------
Developed oil and gas interests net, using successful efforts 101,242 154,665
Oil and gas properties, cost not being amortized 975,766 --
Investment in limited partnerships 475,639 520,195
Goodwill 1,235,248 --
Marketable securities -- 51,761
----------- -----------
$ 7,586,329 $ 979,305
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued expenses $ 415,214 $ 241,030
Payables for oil and gas interests 128,326 25,010
Notes Payable 208,000 11,000
Notes payable - related party 1,775,000 295,000
Convertible notes 561,906 281,082
----------- -----------
Total current liabilities 3,088,446 853,122
----------- -----------
Minority interest 2,100 --
----------- -----------
Commitments and contingencies
Mandatorily redeemable preferred stock, Series A, $.001 par value authorized
- 5,538,461 shares; 5,538,461 shares,
issued and outstanding as of March 31, 2003 and 0 at 2002 3,605,538 --
----------- -----------
Stockholders' equity
Common stock, $.001 par value authorized 100,000,000 shares; 13,817,198
shares, issued and outstanding and 600,000 issuable
as of March 31, 2003 and 13,817,198 at 2002 14,417 13,817
Additional paid in capital 4,205,289 3,076,661
Deferred compensation (35,777) (44,000)
Less stock subscription receivable -- (305,000)
Accumulated other comprehensive loss (21,701) (78,677)
Deficit accumulated during development stage (3,271,983) (2,536,618)
----------- -----------
Total stockholders' equity 890,245 126,183
----------- -----------
$ 7,586,329 $ 979,305
=========== ===========
The accompanying notes are an integral part of these condensed
consolidated financial statements.
-1-
BPK RESOURCES, INC.
(A DEVELOPMENT STAGE ENTITY)
Condensed Consolidated Statements of Operations
(Unaudited)
April 2, 1997
Three Months Ended (Inception) to
March 31, March 31,
------------------------------ ------------
2003 2002 2003
-------------- --------------- ------------
Revenues $ 82,879 $ -- $ 243,846
------------ ------------- ------------
Operating expenses
Production expenses 24,118 -- 105,760
Depletion and amortization 53,423 -- 399,181
Dry hole and impaired properties -- -- 350,354
General and administrative 312,054 106,120 990,126
------------ ------------- ------------
Total operating expenses 389,595 106,120 1,845,421
------------ ------------- ------------
Loss from operations (306,716) (106,120) (1,601,575)
Other (income) expense
Interest income (1,315) -- (37,813)
Interest expense 394,240 11,213 1,192,028
Partnership investment (gain) loss 7,324 -- 487,793
------------ ------------- ------------
Total other expenses, net 400,249 11,213 1,642,008
Loss before minority interest (706,965) (117,333) (3,243,583)
------------ ------------- ------------
Minority interest 1,600 -- 1,600
------------ ------------ ------------
Net loss (705,365) (117,333) (3,241,983)
Preferred dividend on series A preferred stock 30,000 -- 30,000
------------ ------------- ------------
Net loss to common shareholders $ (735,365) $ (117,333) $ (3,271,983)
============ ============= ============
Basic and diluted loss per common share $ (0.05) $ (0.01)
============ =============
Basic and diluted weighted average common
shares outstanding 14,318,297 11,500,000
============ ============
The accompanying notes are an integral part of these condensed
consolidated financial statements.
-2-
BPK RESOURCES, INC.
(A DEVELOPMENT STAGE ENTITY)
Condensed Consolidated Statement of Cash Flows
(Unaudited)
APRIL 2, 1997
THREE MONTHS ENDED (INCEPTION) TO
MARCH 31, MARCH 31,
MARCH 31,
------------------------------------------ -------------
2003 2002 2003
------------------- --------------------- -------------
Net cash used in operating activities $ (336,416) $ (1,544) $(2,032,462)
----------- ----------- -----------
Cash flows from investing activities
Advances (30,000) -- (272,700)
Repayment from unrelated party -- -- 140,600
Loan to unrelated party -- -- (50,000)
Purchases of limited partnership, net of cash (146,821) -- (146,821)
Purchases of oil and gas interests -- -- (850,627)
Distribution from limited partnerships 37,232 -- 119,653
----------- ----------- -----------
Net cash used in investing activities (139,589) -- (1,059,895)
----------- ----------- -----------
Cash flows from financing activities
Issuance of debt 207,000 2,000 1,955,854
Issuance of debt - related party -- -- 645,000
Repayment of debt -- -- (318,000)
Repayment of debt - related party (20,000) -- (370,000)
Issuance of common stock, net costs -- -- 917,478
Collection of subscription receivable 305,000 -- 305,000
----------- ----------- -----------
Net cash provided by financing activities 492,000 2,000 3,135,332
----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents 15,995 456 42,975
Cash and cash equivalents, beginning of period 26,980 47 --
----------- ----------- -----------
Cash and cash equivalents, end of period $ 42,975 $ 503 $ 42,975
=========== =========== ===========
The accompanying notes are an integral part of these condensed
consolidated financial statements.
-3-
BPK RESOURCES, INC.
(A DEVELOPMENT STAGE ENTITY)
Notes to Condensed Consolidated Financial Statements
NOTE 1 - BASIS OF PRESENTATION
The unaudited condensed financial statements included herein have been prepared
by BPK Resources, Inc. (the "Company"), without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. The financial statements
reflect all adjustments that are, in the opinion of management, necessary to
fairly present such information. All such adjustments are of a normal recurring
nature. Although the Company believes that the disclosures are adequate to make
the information presented not misleading, certain information and footnote
disclosures, including a description of significant accounting policies normally
included in financial statements prepared in accordance with accounting
principles generally accepted in the United States of America, have been
condensed or omitted pursuant to such rules and regulations.
These financial statements should be read in conjunction with the financial
statements and the notes thereto included in the Company's 2002 Annual Report on
Form 10-KSB filed with the Securities and Exchange Commission. The results of
operations for interim periods are not necessarily indicative of the results for
any subsequent quarter or the entire fiscal year ending December 31, 2003.
The Company is a Development Stage Enterprise, as defined in Statement of
Financial Accounting Standards ("SFAS") No. 7 "Accounting and Reporting for
Development Stage Enterprises." Under SFAS No. 7, certain additional financial
information is required to be included in the financial statements for the
period from inception of the Company to the current balance sheet date.
NOTE 2 - DESCRIPTION OF BUSINESS
Nature of Operations
Bepariko Biocom, Inc. was incorporated under the laws of the state of Nevada on
April 2, 1997 and was an inactive, publicly-quoted company in 2001. On October
11, 2002, the company changed its name to BPK Resources, Inc.
On November 19, 2001, the Company experienced a change in management when all of
its directors and officers resigned from their positions and new officers and
directors were appointed. In April 2002, the Company's new management
implemented a new business plan and the Company became engaged in the business
of acquiring, exploring, and developing natural gas and oil properties.
The Company is generally not involved as the operator of the projects in which
it participates. Instead, the Company relies on third parties for drilling,
delivering any gas or oil reserves that are discovered, and assisting in the
negotiation of all sales contracts with such purchasing parties. With the
assistance of such third parties, the Company plans to explore and develop these
prospects and sell on the open market any gas or oil that is discovered. The
Company relies on Touchstone Resources USA, Inc., a related party, to assist and
advise the Company regarding the identification and leasing of properties on
favorable terms. The company also relies on Touchstone Resources USA, Inc. to
provide additional reserve assessment analysis and engineering services in
connection with the exploration and development of the prospects. Touchstone
Resources USA, Inc. has a significant level of experience in exploring and
developing gas and oil properties in the regions where the prospects are
located. This strategy is intended to reduce the level of overhead and capital
expenditures required to maintain drilling and production operations. The
Company does not own any drilling rigs, and all of the drilling activities are
conducted by independent drilling contractors. The Company's properties are
primarily located in Texas, specifically, Jefferson County. The Company also has
investments in Louisiana and Thailand.
-4-
BPK RESOURCES, INC.
(A DEVELOPMENT STAGE ENTITY)
Notes to Condensed Consolidated Financial Statements
NOTE 3 - NOTES RECEIVABLE - RELATED PARTY
As of March 31, 2003, the Company had an unsecured demand loan, which it had
made to Touchstone Resources, Inc., a related party, in the amount of $30,000.
The loan bears interest at 10% per annum. The Company has recorded $308 of
interest receivable as of March 31, 2003.
NOTE 4 - OIL AND GAS INTERESTS AND LIMITED PARTNERSHIP INTERESTS
MARCH 31, DECEMBER 31,
2003 2002
----------------- ---------------
Developed Oil and Gas Interests Net, Using Successful Efforts -
Hackberry Prospects - Melton and Hooks Wells
Leasehold Acquisition and Mineral Interests $ 825,010 $ 825,010
Capitalized Costs 25,616 25,616
Depletion (399,030) (345,607)
Well impairment charges (350,354) (350,354)
----------------- ---------------
Total $ 101,242 $ 154,665
================= ===============
Oil and Gas Properties, Cost Not Being Amortized - CSR - Waha
Leasehold Acquisition and Mineral Interests $ 370,005 $ -
Capitalized Costs 192,561 -
Drilling in Progress Intangible 372,235 -
Drilling in Progress Tangible 40,965 -
----------------- --------------
Total $ 975,766 $ -
================= ===============
The following table represents the Investment in Limited Partnership at March
31, 2003:
TOUCHSTONE
RESOURCES
2001 -
HACKBERRY LOUISIANA SOUTH
DRILLING SHELF PHT VALENTINE
PH GAS, LP FUND, LP PARTNERS, LP PARTNERS, LP LP TOTAL
------------- -------------- --------------- --------------- ---------- --------------
Ownership Percentage 32.5% 10.26% 9.405% 4.1% 16.66%
Original Cost Basis $ 150,000 $ 400,000 $ 270,000 $ 50,000 $ 146,838 $ 1,016,838
Pro-rata share of gain (loss) (4,297) (336,658) - - (146,838) (487,793)
Cash Distributions - (39,906) (13,500) - -- (53,406)
------------- -------------- --------------- --------------- ---------- --------------
Total $ 145,703 $ 23,436 $ 256,500 $ 50,000 $ -- $ 475,639
============= ============== =============== =============== ========== ==============
-5-
BPK RESOURCES, INC.
(A DEVELOPMENT STAGE ENTITY)
Notes to Condensed Consolidated Financial Statements
NOTE 4 - OIL AND GAS INTERESTS AND LIMITED PARTNERSHIP INTERESTS (Continued)
The following table represents the Investment in Limited Partnership at December
31, 2002:
TOUCHSTONE
RESOURCES
2001 -
HACKBERRY LOUISIANA SOUTH
DRILLING SHELF PHT VALENTINE
PH GAS, LP FUND, LP PARTNERS, LP PARTNERS, LP LP TOTAL
-------------- -------------- --------------- -------------- ---------- ----------
Ownership Percentage 32.5% 10.26% 9.405% 4.1% 16.66%
Original Cost Basis $ 150,000 $ 400,000 $ 270,000 $ 50,000 $ 146,838 $1,016,838
Pro-rata share of loss (1,806) (331,825) -- -- (146,838) (480,469)
Cash Distributions -- (16,174) -- -- -- (16,174)
--------- --------- --------- --------- ---------- ----------
Total $ 148,194 $ 52,001 $ 270,000 $ 50,000 $ -- $ 520,195
========= ========= ========= ========= ========== ==========
CSR-WAHA PARTNERS, L.P.
On January 15, 2003, the Company purchased a 99% Limited Partnership Interest in
CSR-Waha Partners, LP ("CSR-Waha"), a Delaware Limited Partnership from
Continental Southern Resources, Inc. ("CSOR"), a related party. The purchase
price of $2,000,000 consisted of $150,000 which was payable upon execution of
the agreement, a $1,500,000 promissory note due on April 30, 2003, and 600,000
shares of the common stock of BPK Resources, Inc. The note term was subsequently
extended to June 30, 2004 in consideration of 100,000 shares of the Company's
common stock. CSR-Waha owns a working interest of 12-1/2% in the Waha/Lockridge
oil and gas prospect located in Reeves County, Texas. The Company and CSOR have
one common director who is the President of the Company.
At the discretion of CSR, LLC, the general partner, available cash will be
distributed 99% to the limited partner to the extent of its unreturned capital
balance and 1% to CSR, LLC until all unreturned capital balances have been
returned and then 80% to the limited partner in proportion to their percentage
interest and 20% to CSR, LLC. Distributions in liquidation of the partnership
will be made in accordance with the capital accounts subject to the above
distributions. In general, profits will be allocated after giving effect to
certain regulatory allocations and cumulative prior allocations 75% to the
limited partner and 25% to CSR, LLC. Losses in general will be allocated after
giving effect to regulatory allocations and certain proportionate allocations to
all partners with a positive capital account in proportion to the extent of
their balances and then entirely to CSR, LLC. In connection with the acquisition
of CSR-Waha, the Company recorded $1,235,248 of goodwill.
The Company accounts for its investment in CSR Waha Partners, L.P. using the
consolidation method.
PH GAS, L.P. - SELECTED INFORMATION
The Company is not subject to capital calls in connection with its limited
partnership interest in PH Gas, L.P. However, PH Gas, L. P. is subject to cash
calls from its investment in APICO, LLC ("APICO") as explained below. If PH Gas,
L. P. does not meet its cash calls, then the Company's investment in PH Gas,
L.P. may become impaired. The APICO membership agreement provides that PH Gas,
L.P. and the other APICO members will be called upon from time to time for
additional contributions so as to meet the reasonable capital requirements of
APICO. If PH Gas, L.P., or any other member, fails to make required capital
contributions or meet the required cash calls in the amounts and at the times
specified in the membership agreement, then they would be in default. If the
default is not cured within 45 days, then APICO has the right to repurchase the
defaulting members' interests for 1% of their original purchase price.
-6-
BPK RESOURCES, INC.
(A DEVELOPMENT STAGE ENTITY)
Notes to Condensed Consolidated Financial Statements
NOTE 4 - OIL AND GAS INTERESTS AND LIMITED PARTNERSHIP INTERESTS (Continued)
Louisiana Shelf Partners, L.P. - selected information
Pursuant to the partnership agreement, the Company and the other partners of
Louisiana Shelf Partners, L.P. ("LSP") will be called upon from time to time for
additional contributions to meet the reasonable capital requirements of LSP. LSP
received an AFE from the operator for approximately $4,800,000 related to
proposed exploration in the Cameron Parish prospect. The Company's portion of
this AFE is approximately $432,000.
The Company accounts for this interest using the equity method.
NOTE 5 - MARKETABLE SECURITIES
On February 21, 2003, the Company entered into an investment agreement with
Ocean Resources Capital Holding PLC ("ORCH"). In accordance with the agreement,
the Company issued 5,583,461 shares of its Series A 10% Convertible Preferred
Stock in exchange for 4,390,000 ordinary shares of ORCH, along with warrants to
purchase an additional 1,463,333 shares. ORCH trades on the London Stock
Exchange in the Alternative Investment Market ("AIM"). The Company also entered
into a loan facility agreement with ORCH whereby the Company intends to borrow
$600,000 which is to be secured by the Company's shares of ORCH. The loan
matures on May 31, 2003 and bears interest at LIBOR plus 2%.
The Company will not be entitled to dispose of any of the ORCH shares prior to
or during a period of at least 2 months from admission to AIM without the prior
consent of ORCH. The Company agreed to place $720,000 of the net proceeds from
the sale of the ORCH shares in an escrow account until the second anniversary of
the original agreement, on terms satisfactory to ORCH, on the basis that such
amount is equal to two years' dividends in respect of the Company's shares and
the funds standing to the credit of the escrow account shall be used solely for
payment of dividends in respect of the Company's shares. The Company agreed that
other than day to day creditors and the proposed $600,000 margin account, the
Company will not incur more than $1,000,000 further indebtedness, without the
prior written permission of ORCH. The Company agreed that ORCH shall be entitled
to nominate a director to the Company's board of directors and shall take all
such steps that may be required to appoint such person to serve on the board of
directors of the Company until the next meeting of the stockholders of the
Company held for the purpose of electing directors.
Available-for-sale securities consist of the following at March 31, 2003:
GROSS
UNREALIZED
COST LOSS FAIR VALUE
---------------- --------------- ----------------
Stock - CYTR $ 130,439 $ $ 126,298
(4,141)
Stock - ORCH 3,490,050 - 3,490,050
Warrants - ORCH 757,714 (17,560) 740,154
---------------- --------------- ----------------
Total Current $ 4,378,203 $ $4,356,502
(20,701)
================ =============== ================
-7-
BPK RESOURCES, INC.
(A DEVELOPMENT STAGE ENTITY)
Notes to Condensed Consolidated Financial Statements
NOTE 6 - NOTES PAYABLE
Notes payable consisted of the following at:
MARCH 31, DECEMBER 31,
2003 2002
--------------- ---------------
12% Secured convertible note $ 1,500,000 $ 1,500,000
10% Promissory note - related party 1,775,000 295,000
10% Promissory note 208,000 11,000
--------------- ---------------
3,483,000 1,806,000
Less unamortized discount 938,094 1,218,918
--------------- ---------------
$ 2,544,906 $ 587,082
=============== ===============
12% SECURED CONVERTIBLE NOTE
In April 2002, the Company entered into a loan agreement pursuant to which it
borrowed $1,500,000 from Gemini Growth Fund, LP ("Gemini"), a Delaware limited
partnership. Gemini subsequently changed their name to Trident Growth Fund, L.P.
The Company's obligation to repay the loan is evidenced by a 12% secured
convertible promissory note. The Company's obligation to repay the note is
secured by a security interest granted to the lender covering substantially all
of the assets of the Company including a collateral mortgage and assignment of
lease and working interests. The note matures on October 31, 2003; however, the
Company has the option to redeem the note at 100% of face value prior to the
maturity date. Gemini has the option to convert the principal amount of the note
plus all accrued interest into common stock of the Company at a conversion rate
of $0.55 per share. Gemini was issued warrants to purchase 300,000 shares of the
Company's common stock as additional incentive to make the loan. The warrants
expire on the earlier of April 30, 2012 or the date on which the entire
principal amount of the convertible notes is converted to common stock.
The conversion rate of the note and exercise price of the warrants is $0.55
which is subject to antidilution and price adjustments per the agreements. The
Company paid loan commitment and origination fees of 1% and 4%, respectively,
which were recorded as loan costs. These costs will be amortized over the term
of the loan. Interest is payable in cash unless Gemini elects to have the
interest paid in common stock of the Company. As described in the loan
covenants, the Company is required to comply with various financial covenants.
Any failure to comply with such covenants may be deemed a default on the loan by
Gemini. As of March 31, 2003, the Company failed to comply with three financial
covenants but received a waiver from the lender.
Under the terms of the loan agreement, the Company was required to register all
shares of its common stock issuable upon conversion of the note or exercise of
the warrants within 180 days from the date of the closing of the loan. The
Company was originally required to fully register the common stock by October
2002. The Company would have been subject to a monthly penalty of 0.1% shares of
its common stock then outstanding computed on a fully diluted basis per day
until the shares are registered; however, Gemini waived the specific covenants
for six months.
As of March 31, 2003, the Company granted warrants to purchase 25,000 shares of
common stock at an initial exercise price of $0.55, subject to periodic
adjustments based on market trading price, which expire on April 30, 2012 to
Gemini in consideration for the granting of a waiver due to the Company's
failure to meet their loan covenants.
-8-
BPK RESOURCES, INC.
(A DEVELOPMENT STAGE ENTITY)
Notes to Condensed Consolidated Financial Statements
NOTE 6 - NOTES PAYABLE (Continued)
10% Promissory Notes
As of March 31, 2003, the Company had borrowed $1,775,000 with interest payable
at 10% per annum from Continental Southern Resources, Inc. (a related party).
The $1,500,000 note plus accrued interest was due on April 30, 2003, and
subsequently extended to June 30, 2004 in consideration of 100,000 shares of the
Company's common stock. The remaining $275,000 of notes plus accrued interest
are payable on demand. As of March 31, 2003 the Company has accrued $51,347 of
interest related to the notes. The Company and Continental Southern Resources,
Inc. have one common director on their Board of Directors who also serves as
president of the Company.
As of March 31, 2003, the Company had borrowed $178,000 with interest payable at
10% per annum from 1025 Investments, Inc. The notes plus accrued interest are
payable on demand. As of March 31, 2003 the Company has accrued $2,179 of
interest related to the notes.
As of March 31, 2003, the Company had borrowed $30,000 with interest payable at
10% per annum from Louisiana Shelf Partners, LP (a related party). The notes
plus accrued interest are payable on demand.
NOTE 7 - MANDATORILY REDEEMABLE PREFERRED STOCK
In March 2003, the Company's Board of Directors designated 5,538,461 of the
10,000,000 shares of its preferred stock as mandatorily redeemable preferred
stock to be non-voting Series A 10% Convertible Preferred Stock, all of which
are outstanding. The holders of shares of this stock will be entitled to receive
dividends at a rate of 10% per annum which accrue from the date of issuance of
each share payable semi-annually in arrears on June 30 and December 31 of each
year. These dividends have preference over common stock cash dividends. The
total amount of dividends accrued at March 31, 2003 was $30,000.
Each Series A Share is immediately convertible, at the option of the holder,
into one share of common stock, subject to a cap which prohibits conversion to
the extent that conversion would result in the holder beneficially owning in
excess of 4.99% of our common stock. In the event of a liquidation, dissolution
or winding up of the Company, or a merger or consolidation in which the Company
is not the surviving entity, all Series A Shares automatically convert into
shares of common stock. We have the option to redeem all Series A Shares at any
time by payment of an amount pre share equal to $.65 plus all accrued and unpaid
dividends and are required to redeem all such shares by payment of such amount
no later than February 28, 2006. The Series A Shares contain anti-dilution and
conversion price adjustment provisions if certain events occur. Other than as
provided by applicable law, holders of the Series A Shares have no voting
rights.
The shares were issued in consideration for 4,390,000 ordinary shares and
warrants to acquire 1,450,000 ordinary shares of ORCH.
-9-
NOTE 8 - STOCKHOLDER'S EQUITY
On January 15, 2003, the Company purchased a 99% Limited Partnership Interest in
CSR-WAHA Partners, LP, a Delaware Limited Partnership from Continental Southern
Resources, Inc. The Company issued 600,000 shares of its common stock as part of
the purchase price.
On January 30, 2003, the Company issued options to purchase 200,000 shares of
common stock at an exercise price of $0.65 per share to the Chief Executive
Officer, also a Director of the Company. The options are immediately exercisable
and terminate on the earlier of three years from the date of grant or three
months after cessation of service to the Company. As a result, deferred
compensation of $2,000 was recorded and will be amortized over three years.
On January 31, 2003, the Company issued options to purchase 100,000 shares of
common stock at an exercise price of $0.65 per share to each of two directors of
the Company in connection with their appointments to serve as director. The
options are fully vested and terminate on the earlier of three years from the
date of grant or three months after cessation of service to the Company.
Deferred compensation of $2,000 was recorded and will be amortized over a
three-year period.
In connection with the ORCH transaction, the Company is obligated to issue
400,000 options to Rhodes Ventures, S.A.
STOCK WARRANTS
The Company had the following warrants to purchase its common stock at March 31,
2003:
EXPIRATION DATE EXERCISE PRICE SHARES
--------------------------- ---------------- -------------------
April 2004 $ 1.25 310,000
April 2012 $ 0.55 325,000
November 2005 $ 0.60 702,666
-------------------
Common Stock 1,337,666
===================
-10-
BPK RESOURCES, INC.
(A DEVELOPMENT STAGE ENTITY)
Notes to Condensed Consolidated Financial Statements
NOTE 8 - STOCKHOLDER'S EQUITY (Continued)
Stock Options
The Company follows the provisions of SFAS No. 123. As permitted under SFAS No.
123, the Company has continued to utilize APB 25 in accounting for its
stock-based compensation to employees. Had compensation expense for the three
months ended March 31, 2003 and 2002 been determined under the fair value
provisions of SFAS No. 123, as amended by SFAS 148, the Company's net loss and
net loss per share would have been the following:
MARCH 31,
---------------------------
2003 2002
---------- ------------
Net income, as reported $(735,365) $ (117,333)
Add: Stock-based employee compensation expense included
in reported net income determined under APB No. 25,
net of related tax effects -- --
Deduct: Total stock-based employee compensation expense
determined under fair-value-based method for all awards,
net of related tax effects (98,400) --
--------- -----------
Pro forma net income $(833,765) $ (117,333)
--------- -----------
Earnings per share:
Basic - as reported $ (0.05) $ (0.01)
Basic - pro forma $ (0.06) $ (0.01)
The Company had the following outstanding common stock options to purchase its
securities as of:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------------------------------- ----------------------------------
NUMBER OF WEIGHTED WEIGHTED NUMBER WEIGHTED
RANGE OF OUTSTANDING SHARES AVERAGE AVERAGE EXERCISABLE AT AVERAGE
EXERCISE AT MARCH 31, REMAINING EXERCISE MARCH 31, EXERCISE
PRICES 2003 CONTRACT LIFE PRICE 2003 PRICE
- ------------------- --------------------- --------------- -------------- ------------------ ------------
$ 0.60 200,000 1.0 $ 0.60 200,000 $ 0.65
$ 0.65 800,000 3.0 $ 0.65 800,000 $ 0.60
NOTE 9 - NET LOSS PER SHARE
Loss per common share is calculated in accordance with SFAS No. 128, "Earnings
Per Share". Basic loss per common share is computed based upon the weighted
average number of shares of common stock outstanding for the period and excludes
any potential dilution. Shares associated with stock options, warrants and
convertible debt are not included because their inclusion would be antidilutive
(i.e., reduce the net loss per share). At March 31, 2003 and December 31, 2002,
the total number of potentially dilutive shares excluded from diluted net loss
per common share were of 10,603,400 and 4,239,939, respectively.
-11-
BPK RESOURCES, INC.
(A DEVELOPMENT STAGE ENTITY)
Notes to Condensed Consolidated Financial Statements
NOTE 10 - COMPREHENSIVE LOSS
Excluding net loss, the Company's source of comprehensive loss is from the net
unrealized loss on its marketable debt securities, which are classified as
available-for-sale. The following summarizes the components of comprehensive
loss:
THREE MONTHS
ENDED
MARCH 31, 2003
--------------
Net loss $(735,365)
Unrealized loss, net (21,701)
------------
Total comprehensive loss $(757,066)
============
NOTE 11 - RELATED PARTY TRANSACTIONS - NOT DECSRIBED ELSEWHERE / CONCENTRATIONS
In January 2003, Mark Bush, president of Touchstone Resources USA, Inc., became
a director of the Company. Mr. Bush is also the managing member of LS Gas, LLC,
which is the general partner of Louisiana Shelf Partners, L.P. In addition, he
owns a 25% membership interest in PHT Gas, LLC which is the general partner of
PHT Partners, L.P., PH Gas, L.P., BPK South Valentine Partners, L.P. and
CSR-Hackberry Partners, L.P.
NOTE 12 - LIQUIDITY AND CAPITAL RESOURCES
The accompanying financial statements have been prepared in accordance with U.S.
GAAP, which contemplates continuation of the Company as a going concern. In
2002, the Company hired new management and has implemented its business plan.
The Company is in its development stage and has significant debt obligations to
repay in future years. Additionally, the Company will need significant funds to
meet its cash calls on its various interests in oil and gas prospects to
explore, produce, develop, and eventually sell the underlying natural gas and
oil products under its interests and to acquire additional properties. The
Company believes that its projected revenues from its gas and oil operations and
sale of its marketable securities will provide sufficient funds to fund its
operations through December 2003. In the event that the Company locates
additional prospects for acquisitions, experiences cost overruns at its
prospects, or fails to generate projected revenues, the Company will be required
to raise funds through additional offerings of its securities in order to have
the funds necessary to complete these acquisitions and continue its operations.
If the Company is unable to obtain additional funds when they are required or if
the funds cannot be obtained on terms favorable to the Company, management may
be required to delay, scale back or eliminate its well development program or
license third parties to develop or market products that the Company would
otherwise seek to develop or market itself, or even be required to relinquish
its interest in the properties. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
-12-
BPK RESOURCES, INC.
(A DEVELOPMENT STAGE ENTITY)
Notes to Condensed Consolidated Financial Statements
NOTE 13 - COMMITMENTS AND CONTINGENCIES
GENERAL
The oil and gas industry is regulated by federal, state and local authorities.
In particular, gas and oil production operations and economics are affected by
environmental protection statutes, tax statutes and other laws and regulations
relating to the petroleum industry, as well as changes in such laws, changing
administrative regulations and the interpretations and application of such laws,
rules and regulations. The Company believes it is in compliance with all
federal, state and local laws, regulations, and orders applicable to the Company
and its properties and operations, the violation of which would have a material
adverse effect on the Company or its financial condition.
OPERATING HAZARDS AND INSURANCE
The gas and oil business involves a variety of operating risks, including the
risk of fire, explosions, blow-outs, pipe failure, abnormally pressured
formation, and environmental hazards such as oil spills, gas leaks, ruptures or
discharges of toxic gases, the occurrence of any of which could result in
substantial losses to the Company due to injury or loss of life, severe damage
to or destruction of property, natural resources and equipment, pollution or
other environmental damage, cleanup responsibilities, regulatory investigation
and penalties and suspension of operations.
There can be no assurance that insurance, if any, will be adequate to cover any
losses or exposure to liability. Although the Company believes certain policies
obtained by operators provide coverage in scope and in amounts customary in the
industry, they do not provide complete coverage against all operating risks. An
uninsured or partially insured claim, if successful and of significant
magnitude, could have a material adverse effect on the Company and its financial
condition via its contractual liability to the Prospect.
Potential Loss of Oil and Gas Interests/ Cash Calls
The Company is subject to cash calls related to its various investments in oil
and gas prospects.
NOTE 14 - CONCENTRATIONS
The Company has four investments in Oil and Gas Interests and operates in a
single industry. If these interests prove to be unsuccessful, the concentration
of four investments could have a material adverse effect on the Company.
-13-
BPK RESOURCES, INC.
(A DEVELOPMENT STAGE ENTITY)
Notes to Condensed Consolidated Financial Statements
NOTE 15 - SUPPLEMENTAL EQUITY INVESTMENT DISCLOSURES - UNAUDITED
The following schedule lists the total assets, liabilities and results of
operations of the limited partnerships which the Company is invested in at March
31, 2003:
TOUCHSTONE
RESOURCES-2001
HACKBERRY LOUISIANA SHELF
PH GAS, LP DRILLING FUND, LP PARTNERS, LP
------------ ----------------- ----------------
Total Assets $ 498,493 $ 214,905 $ 5,724,756
=========== =========== ===========
Total Liabilities 50,000 193,063 6,912
=========== =========== ===========
Results of Operations
Sales -- 98,991 --
Gross profit -- 66,030 --
Net income (loss) $ (7,666) $ (47,097) $ (9,972)
NOTE 16 - SUBSEQUENT EVENTS
On April 18, 2003, Mark A. Bush resigned as a Director of the Company.
On April 26, 2003, the limited partnership agreement of PH Gas, L.P. was amended
to allow two additional partners which reduced the Company's interest from 32.5%
to approximately 30.9%.
On April 30, 2003, the Company exercised its option to extend the due date of
its $1,500,000 promissory note to Continental Southern Resources, Inc., a
related party, from April 30, 2003 to June 30, 2004. The company issued
Continental Southern Resources, Inc. 100,000 shares of common stock of the
Company for extending the note.
In May 2003, the Company received funds through demand promissory notes totaling
$5,500 from an unrelated party.
During April 2003, APICO issued a capital call of $1,000,000 to its members for
exploration costs in the PhuHorm prospect. PH's portion of this call was $97,600
due on April 25, 2003. On April 25, 2003, the Company paid $97,600 related to
its portion of the capital call. APICO advised PHT that they anticipate
additional capital calls of $625,000 due on each May 25 and June 25, 2003.
NOTE 17 - CORRECTION OF AN ERROR
The original condensed consolidated financial statements issued for these
periods have been corrected as a result of the Company's 2002 annual financial
statements being corrected to conform them to generally accepted accounting
principles.
The correction of the 2002 annual financial statements involved applying FAS
144, "Accounting for the Impairment or Disposal of Long-Lived Assets" which
required the Company to (a) recognize an impairment loss if the carrying amount
of a long-lived asset is not recoverable from its undiscounted cash flows and
(b) measure the impairment loss as the difference between the carrying amount
and fair value of the asset.
The Company has now recorded in the 2002 annual financial statements an
impairment loss of $350,354 and additional partnership investment loss of
$265,578 which reduced the amount of oil and gas interests to be depleted and
amortized in subsequent periods. Consequently, depletion expense and loss from
investment in partnership for this quarter have been reduced in the aggregate by
$84,435 and the originally reported net loss has been reduced by an identical
amount.
-14-
CAUTIONARY STATEMENT FOR FORWARD-LOOKING STATEMENTS
The information contained in this Report on Form 10-QSB and in other
public statements by the Company and Company officers include or may contain
certain forward-looking statements. The words "may", "intend", "will", "expect",
"anticipate", "believe", "estimate", "project", and similar expressions used in
this Report are intended to identify forward-looking statements within the
meaning of Section 27A of the U.S. Securities Act of 1933 and Sections 21E of
the U.S. Securities Exchange of 1934. You should not place undue reliance on
these forward-looking statements, which speak only as of the date made. We
undertake no obligation to publicly release the result of any revision of these
forward-looking statements to reflect events or circumstances after the date
they are made or to reflect the occurrence of unanticipated events. You should
also know that such statements are not guarantees of future performance and are
subject to risks, uncertainties and assumptions. These factors include, but are
not limited to, those risks described in detail in the Company's Annual Report
on Form 10-KSB under the caption "Risk Factors" and other filings with the
Securities and Exchange Commission. Should any of these risks or uncertainties
materialize, or should any of our assumptions prove incorrect, actual results
may differ materially from those included within the forward-looking statement.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OVERVIEW
Unless the context otherwise requires, references to the "Company",
"BPK", "we", "us" or "our", mean BPK Resources, Inc. or any of our consolidated
subsidiaries or partnership interests. The following discussion should be
read in conjunction with our Condensed Consolidated Financial Statements and
related Notes thereto included elsewhere in this Report.
We are in the oil and gas exploration and development business. We
target high-potential oil and gas assets primarily in the Texas, Louisiana and
other traditional oil producing states in the southwestern United States. Our
operations are focused on exploration activities to find and evaluate
prospective oil and gas properties and providing capital to participate in these
projects. We participate in projects directly, through our consolidated
subsidiaries, and as equity participants in limited partnerships.
We are generally not involved as the operator of the projects in which
we participate. Instead, we rely on third parties for drilling, delivering any
gas or oil reserves that are discovered, and assisting in the negotiation of all
sales contracts with any purchasing parties. With the assistance of such third
parties, we plan to explore and develop these prospects and sell on the open
market any gas or oil that we discover. We rely on Touchstone Resources USA,
Inc., the Executive Vice President of which sits on our board of directors, to
assist and advise us regarding the identification and leasing of properties on
favorable terms. We also rely upon Touchstone Resources USA, Inc. to provide us
with additional reserve assessment analysis and engineering services in
connection with the exploration and development of our prospects. Touchstone
Resources USA, Inc. has a significant level of experience in exploring and
developing gas and oil properties in the regions where our prospects are
located.
-15-
We play an active role in evaluating prospects and providing financial
and other management functions with respect to the operations at each of our
properties and rely on third parties for most operational activities. This
strategy is intended to reduce the level of overhead and capital expenditures
required to maintain drilling and production operations. As we subcontract the
performance of substantially all of the physical operations at our properties,
we do not anticipate incurring a substantial amount of expenses related to the
purchase of plant, machinery or equipment in connection with the exploration and
development of our properties. Similarly, we do not anticipate any substantial
increase in the number of persons that we employ.
In April 1997, we were granted worldwide patent rights, pursuant to an
Exclusive Worldwide Licensing Agreement, covering electronic multiple
fingerprint recognition system. Since the date of the Exclusive Worldwide
Licensing Agreement, we have unsuccessfully attempted to exploit these patent
rights. While we still hold these patent rights, we are no longer devoting
substantial efforts to the exploitation of these patent rights and are currently
soliciting offers to sell or assign these rights. We plan to use any proceeds
received from the sale or assignment of these rights for working capital
purposes and to purchase additional leasehold interests in natural gas and oil
properties.
BUSINESS STRATEGY
Our strategy is to develop reserves and generate revenue through the
exploration and development of our existing prospects in Louisiana, Texas and
Thailand and the selective acquisition of additional properties both offshore
and onshore in Texas, Louisiana and other traditional oil producing states in
the southwestern United States. Our strategy also includes selling all or part
of our interests in certain of our partnerships or all or part of leasehold
interests we own to realize immediate proceeds and limit or eliminate future
risk associated with such projects. As of the date of this Report, we have not
sold any such interests and all of our revenues have been derived from our share
of sales of oil and gas reserves in our various projects.
We intend to execute our strategy by focusing on the following:
o High potential exploratory drilling
o Opportunistic acquisitions with additional exploratory and/or
development potential
HIGH POTENTIAL EXPLORATORY DRILLING IN LOUISIANA, TEXAS AND
THAILAND. During 2002, operators at our prospects in Jefferson County, Texas
completed drilling two exploratory wells, both of which are currently in
production and beginning to generate revenue. Operators at our Jefferson and
Reeves County, Texas, Thailand, and Louisiana prospects are currently drilling
one exploratory well and plan to drill five additional exploratory wells during
the remainder of 2003. We believe we have assembled a ten year inventory of
exploration and development drilling opportunities in Texas and Louisiana.
OPPORTUNISTIC ACQUISITIONS. Although our primary strategy is to grow
our reserves through drilling, in the next twelve months we anticipate making
opportunistic acquisitions in Texas, Louisiana and other southwestern states
with exploratory potential and in core areas of operation with exploitation and
development potential.
-16-
We may increase or decrease our planned activities for 2003,
depending upon drilling results, product prices, the availability of capital
resources, and other factors affecting the economic viability of such
activities. We do not attempt to forecast our potential success rate on
exploratory drilling.
RESULTS OF OPERATIONS
Three Months Ended March 31, 2003 As Compared To Three Months Ended March 31,
2002
Revenues
- --------
We generated $82,879 of revenue during the three months ended March
31, 2003 consisting of oil and gas revenues from our net revenue interest
in the Hackberry Prospect located in Jefferson County, Texas
("Hackberry Prospect"). We did not generate any revenue during the corresponding
period in 2002.
Production Expenses
- ------------------
Production Expenses were $24,118 and depletion and amortization
expenses were $52,423 during the three months ended March 31, 2003. We did not
incur any operating expenses during the corresponding period in 2002 as we did
not generate any revenue during such period. The production expense of $24,118
consisted of expenses incurred from our working interest in the Hackberry
Prospect. The depletion and amortization expenses were due to the
depletion of the Hackberry Prospect based on the units produced.
General and Administrative Expenses
- -----------------------------------
General and administrative expenses increased $205,934 to $312,054
during the three months ended March 31, 2003 as compared to $106,120 for the
corresponding period in 2002. The increase was primarily due to an increase in
consulting expenses and professional fees.
Other (income) and expense
- --------------------------
Other expense increased $389,036 to $400,249 during the
three months ended March 31, 2003 as compared to $11,213 for the corresponding
period in 2002. The increase was primarily due to an increase in interest
expense of $383,027 as a result of the issuance of a $1.5 million principal
amount convertible promissory note and a $1.5 million note issued in connection
with our purchase of a 99% limited partnership interest in CSR-Waha Partners,
L.P.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operating activities during the three months ended
March 31, 2003 was $336,416 compared to $1,544 during the three months ended
March 31, 2002. The primary use of cash during the three months ended March 31,
2003 was to fund the net loss. Net cash used in investing activities during the
three months ended March 31, 2003 was $139,589 and consisted primarily of the
purchase of oil and gas interests and limited partnership interests. We did not
use any cash in investing activities during the three months ended March 31,
2002.
-17-
Net cash provided by financing activities during the three months ended March
31, 2003 was $492,000 compared to $2,000 in the same period in 2002 and
consisted primarily of the issuances of unsecured promissory notes which were
partially offset by costs relating to such financings, including commitment and
origination fees.
Working capital increased $2,310,424 during the three
months ended March 31, 2003 to $1,709,986 as compared to a deficit of $600,438
as of December 31, 2002. This increase was primarily due to an increase in
marketable securities of approximately $4,300,000 as a result of our purchase of
ordinary shares of Ocean Resources Capital Holdings PLC. This amount was offset
by an increase in notes payable to $2,544,906 as compared to $587,082 at
December 31, 2002 due primarily to the purchase of a 99% limited partnership
interest in CSR-Waha Partners, L.P.
In April 2002, we issued a $1,500,000 convertible promissory note (the
"Convertible Note") to Trident Growth Fund f/k/a Gemini Growth Fund, LP
("Trident"). The Convertible Note is due October 31, 2003, accrues interest at
12% per annum payable monthly in arrears, is secured by substantially all of our
assets, is convertible at the option of Gemini into shares of our common stock
at an initial conversion price of $2.00 per share (currently $.55 per share as a
result of adjustment pursuant to anti dilution provisions of the Convertible
Note), and is redeemable at our option at 100% of par prior to maturity.
Interest is payable in cash unless Trident elects to have it paid in shares of
common stock. The Convertible Note contains various financial covenants with
which we are required to comply. We failed to comply with three financial
covenants and received a waiver from Trident which expires July 13, 2003. In
August 2002, we received repayment of $140,600 of the principal amount of our
note receivable from Global Genomic Capital ("GGC") and we issued $470,000
principal amount of 10% demand promissory notes. On October 18, 2002 we issued a
$175,000 12% promissory note. We used approximately $1,445,000 of these funds to
acquire our leasehold interests in the Jefferson County Prospects, our limited
partnership interests in PH Gas, L.P., and our units in Touchstone Resources -
2001 Hackberry Drilling Fund, L.P. We used approximately $310,000 to repay
Series 1 Promissory Notes in the aggregate principal amount of $310,000.
During the fourth quarter of 2002, we raised gross cash proceeds of
$1,309,600 through the issuance and sale of our equity securities. We used the
proceeds of these offerings to purchase our interests in Louisiana Shelf
Partners, L.P. and CSR-WAHA Partners, L.P. In connection with our purchase of an
interest in CSR-WAHA, we issued a $1,500,000 note which is due June 30, 2004.
On March 4, 2003, we issued 5,538,461 shares of our Series A 10%
Convertible Preferred Stock (the "Series A Preferred Shares") to Ocean Resources
Capital Holdings Plc ("ORCH"), a London, England based company whose shares are
traded on the Alternative Investment Market of the London Stock Exchange. The
shares were issued in consideration of our receipt of 4,390,000 ordinary shares
of ORCH together with warrants to purchase up to an additional 1,450,000
ordinary shares of ORCH at an exercise price of 75p per share and an additional
1,430,000 ordinary shares of ORCH at an exercise price of 100p per share. The
Series A Preferred Shares are immediately convertible at the option of the
holder into one share of common stock, subject to a cap which prohibits
conversion to the extent that conversion would result in the holder beneficially
owning in excess of 4.99% of our outstanding shares. We have the option to
redeem all Series A Preferred Shares at any time by payment of an amount per
share equal to $.65 plus all accrued and unpaid dividends due thereon and are
required to redeem all such shares by payment of such amount no later than
February 28, 2006. The agreement
-18-
under which these shares were purchased precludes us from incurring in excess of
$1,000,000 of additional indebtedness without the consent of ORCH. The ordinary
shares of ORCH are eligible for public resale on the Alternative Investment
Market of the London Stock Exchange and we intend to sell such shares to
generate proceeds for working capital. On March 14, 2003, we entered into a loan
agreement with ORCH in which ORCH agreed to advance $600,000 against the sale of
the ORCH shares. The advance is being used for additional working capital.
The forgoing constitutes our principal sources of financing during the
past twelve months. We do not currently maintain a line of credit or term loan
with any commercial bank or other financial institution. Our capital needs have
been principally met through proceeds from the sale of our equity and debt
securities.
We are in the development stage, have significant debt obligations to
repay in 2003, and our current liabilities exceed our current assets. As of the
date of this Report, we have minimal cash resources. We will need significant
funds to meet cash calls on our various interests in oil and gas prospects to
explore, produce, develop, and eventually sell the underlying natural gas and
oil products. Specifically, PH Gas, L.P. and PHT Partners, L.P., limited
partnerships in which we have an interest, are subject to capital calls in the
approximate amount of $342,000 which are due during the first half of 2003,
which if not paid within 45 days after the due date, could result in such
partnerships being forced to sell their interest for 1% of the total purchase
price. We also have funding commitments of approximately $20,000 to the
Touchstone Resources - 2001 Hackberry Drilling Fund, L.P. as a result of
problems with sand production at C.G. Hooks-State well in The Jefferson County
Prospects. If one or more of the other owners of the leasehold interests in the
projects fails to pay their equitable portion of development costs, we may need
to pay additional funds to protect our ownership interests. In addition, the
Convertible Note and $1,500,000 note payable to Continental Southern Resources
are due and payable October 31, 2003 and June 30, 2004, respectively.
We believe we will need approximately $2,200,000 to sustain operations
at current levels and satisfy any capital calls and other related expenses
during the next twelve months. Based on available cash resources, the sale of
our Series A Preferred Shares, and projected revenue from our various oil and
gas projects, we believe we will have sufficient funds to continue to meet such
capital calls and operate at current levels through December 2003. However, if
we locate additional prospects for acquisition, experience cost overruns at our
existing prospects or fail to generate projected revenues, we will be required
to raise additional funds through sales of our securities or otherwise. If we
are unable to obtain additional funds on terms favorable to us, if at all, we
may be required to delay, scale back or eliminate some or all of our exploration
and well development programs, and may be required to relinquish our interest in
certain prospects.
ITEM 3. CONTROLS AND PROCEDURES
Within the 90-day period prior to the filing of this report, an
evaluation was carried out under the supervision and with the participation of
our management, including our President and Treasurer, of the effectiveness of
our disclosure controls and procedures. Based on that evaluation, our President
and our Treasurer have concluded that our disclosure controls and procedures are
effective to ensure that information, which we are required to disclose in
reports that we file or submit under the Securities Exchange Act of 1934 is
recorded, processed, summarized and reported within the time periods specified
in Securities and Exchange
-19-
Commission rules and forms. There have been no significant changes in our
internal controls or in other factors that could significantly affect internal
controls subsequent to the date we carried out this evaluation.
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
SERIES A 10% CONVERTIBLE PREFERRED STOCK
On or about March 4, 2003, our Board of Directors authorized the
designation of 5,538,461 shares of preferred stock as "Series A 10% Convertible
Preferred Stock" all of which are outstanding. The following describes the
material provisions of the Series A 10% Convertible Preferred Stock (the "Series
A Shares") which are more fully set forth in the Certificate of Designation on
file with the Nevada Secretary of State.
The Series A Shares have an original issue price of $.65 per share and
provide for a 10% dividend payable semi-annually in arrears on June 30 and
December 31 of each year, prior and in preference to the declaration or payment
of any dividends on our common stock. Accordingly, we cannot pay dividends on
our common stock unless we have paid all dividends due on the Series A Shares.
Each Series A Share is immediately convertible, at the option of the
holder, into one share of common stock, subject to a cap which prohibits
conversion to the extent that conversion would result in the holder beneficially
owning in excess of 4.99% of our common stock. In the event of a liquidation,
dissolution or winding up of the Company, or a merger or consolidation in which
the Company is not the surviving entity, all Series A Shares automatically
convert into shares of common stock. We have the option to redeem all Series A
Shares at any time by payment of an amount per share equal to $.65 plus all
accrued and unpaid dividends and are required to redeem all such shares by
payment of such amount no later than February 28, 2006. The Series A Shares
contain anti-dilution and conversion price adjustment provisions if certain
events occur. Other than as provided by applicable law, holders of the Series A
Shares have no voting rights.
RECENT SALES OF UNREGISTERED SECURITIES
On or about April 16, 2003, we issued 100,000 shares of common stock to
Continental Southern Resources, Inc., a company whose shares are traded on the
OTC Bulletin Board ("CSOR"). We issued these shares in consideration of CSOR
extending the maturity date of the $1,500,000 principal amount promissory note
we previously issued to CSOR from April 30, 2003 until June 30, 2004. The shares
were issued in a private placement transaction exempt from the registration
requirements of the Securities Act of 1933, as amended, pursuant to Section 4(2)
thereof without payment of underwriting discounts or commissions to any person.
-20-
ITEM 5. Other Events
On April 18, 2003, Mark Bush resigned from our Board of Directors.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are included herein:
- ----------------------------------------------------------------------------------------------------------
Exhibit No. Exhibit Method of Filing
- ----------------------------------------------------------------------------------------------------------
3.1 Articles of Incorporation Incorporated by reference to Exhibit 3.1 to
the Registrant's Registration Statement on
Form 10-SB dated December 20, 1999
- ----------------------------------------------------------------------------------------------------------
3.2 Bylaws Incorporated by reference to Exhibit 3.2 to
the Registrant's Registration Statement on
Form 10-SB dated December 20, 1999
- ----------------------------------------------------------------------------------------------------------
3.3 Certificate of Amendment to Articles of Incorporated by reference to Exhibit 3.3 to
Incorporation filed October 21, 2002 the Registrant's Quarterly Report on Form
10-QSB for the Quarter Ended September 30, 2002
- ----------------------------------------------------------------------------------------------------------
3.4 Certificate of Designation of Series A 10% Incorporated by reference to Exhibit 3.4 to
Convertible Preferred Stock the Registrant's Annual Report on Form 10-KSB
for the Year Ended December 31, 2002.
- ----------------------------------------------------------------------------------------------------------
4.1 12% Secured Convertible Note in the Incorporated by reference to Exhibit 4.2 to
principal amount of $1,500,000 issued to the Registrant's Quarterly Report on Form
Gemini Growth Fund, L.P. 10-QSB for the Quarter Ended June 30, 2002
- ----------------------------------------------------------------------------------------------------------
4.2 Warrants to purchase 150,000 shares of Incorporated by reference to Exhibit 4.3 to
common stock issued to Gemini Growth Fund, the Registrant's Quarterly Report on Form
L.P. in April 2002 10-QSB for the Quarter Ended June 30, 2002
- ----------------------------------------------------------------------------------------------------------
4.3 Form of 10% Promissory Note in the Incorporated by reference to Exhibit 4.3 to
principal amount of $1,500,000 issued to the Registrant's Annual Report on Form 10-KSB
Continental Southern Resources, Inc. for the Year Ended December 31, 2002.
- ----------------------------------------------------------------------------------------------------------
10.1 Form of Warrant Certificate issued in Incorporated by reference to Exhibit 10.4 to
connection with receipt of proceeds from the Registrant's Annual Report on Form 10-KSB
issuance of Series 1 Promissory Notes in for the Year Ended December 31, 2001
April 2001
- ----------------------------------------------------------------------------------------------------------
-21-
- ----------------------------------------------------------------------------------------------------------
10.2 Partial Assignment of Oil, Gas and Mineral Incorporated by reference to Exhibit 10.2 to
Lease by and between Touchstone Resources, the Registrant's Current Report on Form 8-K
Inc. and the Registrant dated April 25, dated May 13, 2002
2002
- ----------------------------------------------------------------------------------------------------------
10.3 Agreement of Limited Partnership of Incorporated by reference to Exhibit 10.3 to
Touchstone Resources - 2001 Hackberry the Registrant's Current Report on Form 8-K
Drilling Fund, L.P. dated May 13, 2002
- ----------------------------------------------------------------------------------------------------------
10.4 Loan Agreement dated April 25, 2002 by and Incorporated by reference to Exhibit 10.6 to
between the Registrant and Gemini Growth the Registrant's Quarterly Report on Form
Fund, LP 10-QSB for the Quarter Ended June 30, 2002
- ----------------------------------------------------------------------------------------------------------
10.5 Security Agreement dated April 25, 2002 Incorporated by reference to Exhibit 10.7 to
issued to Gemini Growth Fund, L.P. the Registrant's Quarterly Report on Form
10-QSB for the Quarter Ended June 30, 2002.
- ----------------------------------------------------------------------------------------------------------
10.6 Option to Purchase 100,000 Shares of Incorporated by reference to Exhibit 10.6 to
Common Stock issued to Mark A. Bush the Registrant's Annual Report on Form 10-KSB
for the Year Ended December 31, 2002.
- ----------------------------------------------------------------------------------------------------------
10.7 Option to Purchase 100,000 Shares of Incorporated by reference to Exhibit 10.7 to
Common Stock issued to Wes Franklin the Registrant's Annual Report on Form 10-KSB
for the Year Ended December 31, 2002.
- ----------------------------------------------------------------------------------------------------------
10.8 Option to Purchase 200,000 Shares of Incorporated by reference to Exhibit 10.8 to
Common Stock issued to John B. Connally, the Registrant's Annual Report on Form 10-KSB
III for the Year Ended December 31, 2002.
- ----------------------------------------------------------------------------------------------------------
10.9 Form of Warrant to Purchase 25,000 Shares Incorporated by reference to Exhibit 10.9 to
of Common Stock issued to Trident Growth the Registrant's Annual Report on Form 10-KSB
Fund, L.P. for the Year Ended December 31, 2002.
- ----------------------------------------------------------------------------------------------------------
10.10 Form of Investment Agreement by and Incorporated by reference to Exhibit 10.10 to
between the Registrant and Ocean the Registrant's Annual Report on Form 10-KSB
Resources Capital Holdings, PLC dated for the Year Ended December 31, 2002.
February 21, 2002
- ----------------------------------------------------------------------------------------------------------
10.11 Limited Partnership Agreement of PH, GAS, Incorporated by reference Exhibit 10.11 to the
LP dated July 16, 2002 Registrant's Quarterly Report on Form 10-QSB
for the Quarter Ended March 31, 2003,
originally filed May 16, 2003.
- ----------------------------------------------------------------------------------------------------------
10.12 Amendment to Limited Partnership Incorporated by reference to Exhibit 10.12 the
Agreement of PH, GAS, LP Registrant's Quarterly Report on Form 10-QSB
dated April 26, 2003 for the Quarter Ended March 31, 2003,
originally filed May 16, 2003.
- -----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
10.13 Limited Partnership Agreement of Incorporated by reference to Exhibit 10.13 the
CSR-Hackberry Partners, L.P. dated July Registrant's Quarterly Report on Form 10-QSB
31, 2002 for the Quarter Ended March 31, 2003,
originally filed May 16, 2003.
- ----------------------------------------------------------------------------------------------------------
10.14 Limited Partnership Agreement of PHT Incorporated by reference to Exhibit 10.14 the
Partners, L.P. dated August 14, 2002 Registrant's Quarterly Report on Form 10-QSB
for the Quarter Ended March 31, 2003,
originally filed May 16, 2003.
- ----------------------------------------------------------------------------------------------------------
10.15 Limited Partnership Agreement of CSR-WAHA Incorporated by reference to Exhibit 10.15 the
Partners, LP dated June 27, 2002 Registrant's Quarterly Report on Form 10-QSB
for the Quarter Ended March 31, 2003,
originally filed May 16, 2003.
- ----------------------------------------------------------------------------------------------------------
10.16 Amendment to Limited Partnership Agreement Incorporated by reference to Exhibit 10.16 the
of CSR-WAHA Partners, L.P. dated January Registrant's Quarterly Report on Form 10-QSB
15, 2003 for the Quarter Ended March 31, 2003,
originally filed May 16, 2003.
- ----------------------------------------------------------------------------------------------------------
10.17 Limited Partnership Agreement of Louisiana Incorporated by reference to Exhibit 10.17 the
Shelf Partners, LP dated December 31, 2002 Registrant's Quarterly Report on Form 10-QSB
for the Quarter Ended March 31, 2003,
originally filed May 16, 2003.
- ----------------------------------------------------------------------------------------------------------
99.1 Certificate of President of Registrant Filed herewith
Pursuant to 18 USC Section 1350, as
Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
- ----------------------------------------------------------------------------------------------------------
99.2 Certificate of Treasurer of Registrant Filed herewith
Pursuant to 18 USC Section 1350, as
Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
- -----------------------------------------------------------------------------------------------------------
(b) Current Reports on Form 8-K filed during the three month period ended March
31, 2003:
None.
-22-
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of
1934, the registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
BPK RESOURCES, INC.
Date: April 12, 2004 /s/ John B. Connally, III
------------------------
John B. Connally, III
Chief Executive Officer
Date: April 12, 2004 /s/ Cecile T. Coady
------------------------
Cecile T. Coady
Treasurer
-23-
CERTIFICATION
I, John B. Connally, III, certify that:
1. I have reviewed this quarterly report on Form 10-QSB/A (Amendment No. 1) of
BPK Resources, Inc. (the "registrant");
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
c) Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) All significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could
-24-
significantly affect internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: April 12, 2004 /s/ John B. Connally, III
----------------------
John B. Connally, III
Chief Executive Officer
-25-
CERTIFICATION
I, Cecile T. Coady, certify that:
1. I have reviewed this quarterly report on Form 10-QSB/A (Amendment No. 1) of
BPK Resources, Inc. (the "registrant");
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
c) Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) All significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could
significantly affect internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: April 12, 2004 /s/ Cecile T. Coady
--------------------
Cecile T. Coady
Treasurer
-26-
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
99.1 Certificate of President of Registrant to 18 USC Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
99.2 Certificate of Treasurer of Registrant to 18 USC Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
-27-