SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
[X] Quarterly report under Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended: SEPTEMBER 30, 2004
|_| Transition report under Section 13 or 15(d) of the
Securities 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.)
264 UNION BOULEVARD, FIRST FLOOR
TOTOWA, NJ, 07512
------------------------------------------------------
(Address of Principal Executive Offices)
(973) 956-8400
------------------------------------------------------
(Issuer's Telephone Number, including Area Code)
111 PRESIDENTIAL BOULEVARD, SUITE 165
BALA CYNWYD, PA 19004
- --------------------------------------------------------------------------------
(Former Name, Former Address, and Former Fiscal Year, if Changed
Since Last Report)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes |X| 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 51,259,503 issued
and outstanding shares of the registrant's common stock, par value $.001 per
share, as of November 22, 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 Consolidated Balance Sheets (unaudited) 1
Condensed Consolidated Statements of Operations - (unaudited) 2
Condensed Consolidated Statements of Cash Flows - (unaudited) 3
Notes to Condensed Consolidated Financial Statements - (unaudited) 4
Item 2. Management's Discussion and Analysis or Plan of Operations 18
Item 3. Controls and Procedures 25
PART II. OTHER INFORMATION
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 25
Item 5. Other Information 25
Item 6. Exhibits and Reports on Form 8-K 27
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BPK RESOURCES, INC.
(A Development Stage Entity)
Condensed Consolidated Balance Sheets
ASSETS
September 30, December 31,
2004 2003
------------ ------------
(Unaudited) (Audited)
Current assets
Cash and cash equivalents $ 52,880 $ 13,029
Accounts receivable 27,791 68,144
Notes and interest receivable 18,439 64,309
Prepaid expenses 4,998 86,921
Current assets of discontinued operations -- 105,135
------------ ------------
Total current assets 104,108 337,538
------------ ------------
Oil and gas properties using successful efforts
Developed oil and gas interests net 12,297 18,367
Undeveloped 100,200 310,991
Mineral interests option 1,034,000 --
Investment in limited partnerships -- 940,667
Long-term assets of discontinued operations -- 28,250
------------ ------------
$ 1,250,605 $ 1,635,813
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities
Accounts payable and accrued expenses $ 927,364 $ 707,900
Accounts payable and accrued expenses - related party 2,719 392,707
Payables for oil and gas interests - related party -- 25,010
Notes payable 58,178 8,178
Notes payable - related party 20,000 482,365
Dividends payable on Series A preferred -- 309,708
Current liabilities of discontinued operations -- 2,721,994
------------ ------------
Total current liabilities 1,008,261 4,647,862
Series A Preferred Stock, Subject to Mandatory Redemption -- 3,600,000
------------ ------------
Total Liabilities 1,008,261 8,247,862
------------ ------------
Commitments and contingencies
Minority interest -- --
Stockholders' Equity (Deficit)
Preferred stock, Series A, $.001 par value; authorized 10,000,000 shares; 0
and 5,538,461 shares issued and outstanding as of 2004
and 2003, respectively -- --
Preferred stock, Series B, $.001 par value; authorized 15,000,000 shares;
829,755 and 0 shares issued and outstanding as of 2004 and
2003, respectively 830 --
Common stock, $.001 par value; authorized 100,000,000 shares;
51,259,503 and 14,617,198 issued and outstanding as of 2004 and
2003, respectively 51,259 14,617
Additional paid in capital 16,689,700 3,755,008
Deferred compensation (446) (2,083)
Deficit accumulated during development stage (16,498,999) (10,379,591)
------------ ------------
Total stockholders' equity (deficit) 242,344 (6,612,049)
------------ ------------
$ 1,250,605 $ 1,635,813
============ ============
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 Nine Months Ended
September 30, September 30, (Inception) to
--------------------------- ---------------------------- September 30,
2004 2003 2004 2003 2004
------------ ------------ ------------ ------------ ------------
Revenues $ 7,878 $ 14,035 $ 24,008 $ 96,535 $ 221,554
------------ ------------ ------------ ------------ ------------
Operating expenses
Production expenses (27,586) 5,274 14,854 51,237 102,251
Mining exploration expense 77,000 -- 77,000 -- 77,000
Depletion and amortization 2,974 18,508 6,070 46,247 222,845
Impairment of oil and gas properties -- -- 212,725 -- 2,510,315
General and administrative - related party 18,000 45,000 59,000 67,500 248,630
General and administrative 186,670 105,834 582,471 793,096 2,186,624
------------ ------------ ------------ ------------ ------------
Total operating expenses 257,058 174,616 (952,120) (958,080) 5,347,665
------------ ------------ ------------ ------------ ------------
Loss from continuing operations (249,180) (160,581) (928,112) (861,545) (5,126,111)
------------ ------------ ------------ ------------ ------------
Other (income) expense
Interest income (34) (2,000) (1,665) (4,321) (43,486)
Interest expense 96,893 560,385 683,633 1,412,161 3,122,034
Interest expense - Series A Preferred -- 90,731 90,000 90,731 271,489
Gain on extinguishment debt -- -- (316,499) -- (316,499)
Loss (gain) on sale of stock -- 2,665,918 -- 2,665,918 2,664,573
Loss from limited partnerships and
limited liability companies -- 338,136 67,758 368,800 1,114,156
------------ ------------ ------------ ------------ ------------
Total other expenses, net 96,859 3,653,170 523,227 4,533,289 6,812,267
------------ ------------ ------------ ------------ ------------
Loss from continuing operations
before minority interest (346,039) (3,813,751) (1,451,339) (5,394,834) (11,938,378)
Minority interest -- 1,885 -- 2,187 3,700
------------ ------------ ------------ ------------ ------------
Net loss from continuing operations before
cumulative effect of change in
accounting principle (346,039) (3,811,866) (1,451,339) (5,392,647) (11,934,678)
Income (loss) from discontinued operations (4,619) (8,992) (15,762) 12,560 (431,559)
Cumulative effect of change in accounting Principle
principle -- -- -- -- 647,764
------------ ------------ ------------ ------------ ------------
Net loss (350,658) (3,820,858) (1,467,101) (5,380,087) (11,718,473)
Preferred dividend on series A preferred stock -- -- 4,652,307 120,731 4,780,526
------------ ------------ ------------ ------------ ------------
Net loss to common stockholders $ (350,658) $ (3,820,858) $ (6,119,408) $ (5,500,818) $(16,498,999)
============ ============ ============ ============ ============
Per share of common stock, basic and diluted
Net loss from continuing operations
before cumulative effect of change
in accounting principle $ (0.01) $ (0.26) $ (0.04) $ (0.37) $ (1.10)
Income (loss) from discontinued operations -- -- -- -- (0.04)
Cumulative effect of change in accounting -- -- -- -- 0.06
------------ ------------ ------------ ------------ ------------
Net loss before preferred dividend on Series
A preferred stock $ (0.01) $ (0.26) $ (0.04) $ (0.37) $ (1.08)
Preferred dividend on Series A preferred
stock -- -- $ (0.12) $ (0.01) $ (0.44)
------------ ------------ ------------ ------------ ------------
Net loss to common stockholders $ (0.01) $ (0.26) $ (0.16) $ (0.38) $ (1.52)
============ ============ ============ ============ ============
Weighted average common shares outstanding 51,259,503 14,617,198 38,808,956 14,488,260 10,851,196
============ ============ ============ ============ ============
The accompanying notes are an integral part of these condensed
consolidated financial statements.
- 2 -
BPK RESOURCES, INC.
(A Development Stage Entity)
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Nine Months Ended April 2, 1997
September 30, (inception) to
---------------------------- September 30,
2004 2003 2004
----------- ----------- -----------
Net cash used in operating activities $ (557,767) $ (824,174) $(2,082,705)
----------- ----------- -----------
Cash flows from investing activities
Advances -- -- (242,700)
Repayment from unrelated party 50,000 26,000 216,600
Loan to unrelated party (2,500) -- (52,500)
Loan to related party -- (13,650) (13,650)
Proceeds from sale of marketable securities -- 1,711,322 1,735,897
Purchases of marketable securities -- -- (22,268)
Purchase of limited partnership, net of cash (167,949) -- (314,770)
Purchase of oil and gas interests (1,934) -- (357,551)
Purchase of mining interest (84,000) -- (84,000)
Investment in limited partnerships -- (1,030,095) (1,934,728)
Distribution from limited partnerships -- 37,232 37,232
----------- ----------- -----------
Net cash used in investing activities (206,383) 730,809 (1,032,438)
----------- ----------- -----------
Cash flows from financing activities
Issuance of debt 44,000 1,517,053 2,295,854
Issuance of debt - related party -- 132,000 1,787,053
Repayment of debt -- (470,687) (788,000)
Repayment of debt - related party -- (1,230,000) (1,586,688)
Offering costs -- -- (97,500)
Issuance of common stock, net costs 760,000 -- 1,677,478
Collection of subscription receivable -- 207,500 305,000
Collection of minority subscription receivable -- 1,600 --
----------- ----------- -----------
Net cash provided by financing activities 804,000 157,466 3,593,197
----------- ----------- -----------
Net cash provided by (used in) discontinued operations (2,802) 46,139 (425,174)
----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents 37,048 110,240 52,880
Cash and cash equivalents, beginning of period 15,832 26,980 --
----------- ----------- -----------
Cash and cash equivalents, end of period $ 52,880 $ 137,220 $ 52,880
=========== =========== ===========
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" or "BPK"), 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 except for the Company's accounting for the disposal of
its investments in the oil and gas entities and releases from its liabilities
under the Trident notes and CSOR notes (See Note 9). 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 2003 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, 2004.
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.
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
and nine months ended September 30, 2004 and 2003 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:
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------- --------------------------
2004 2003 2004 2003
----------- ----------- ----------- -----------
Net loss, to common stockholders as reported $ (350,658) $(3,820,858) $(6,119,408) $(5,500,818)
Add: Stock-based employee compensation
expense included in reported net income
determined under APB No. 25, net of
related tax effects 1,137 250 1,637 --
Deduct: Total stock-based employee
compensation expense determined under
fair-value-based method for all awards, net
of related tax effects -- -- -- (99,500)
----------- ----------- ----------- -----------
Pro forma net loss to common stockholders $ (349,521) $(3,820,608) $(6,117,771) $(5,600,318)
----------- ----------- ----------- -----------
Earnings per share:
Basic - as reported $ (0.01) $ (0.26) $ (0.16) $ (0.38)
Basic - pro forma $ (0.01) $ (0.26) $ (0.16) $ (0.39)
- 4 -
BPK RESOURCES, INC.
(A Development Stage Entity)
Notes to Condensed Consolidated Financial Statements
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ADOPTED IN 2004
Reclassifications
Certain reclassifications have been made to conform the prior year's data to the
current presentation. These reclassifications had no effect on net loss.
Mining Interest Option
Mineral interests option consists of interests in mining concession held by
third parties. The Company records these interests at cost based on the value of
the consideration paid. The Company expenses, as incurred, the exploration and
development costs relating to unproven mineral properties. When proven and
probable reserves are determined for a property and a feasibility study
prepared, then subsequent exploration and development costs of the property
would be capitalized. The capitalized costs of such properties would then be
measured periodically for recoverability of carrying values.
Segment Information
Under SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information," the Company has determined it has two reportable operating
segments being the acquiring, exploration and development of mining properties
and the acquiring, exploration and development of natural gas and oil
properties. The Company's operations are conducted in three geographic segments.
The following amounts exclude the loss from limited partnerships which have been
sold and the December 31, 2003 and prior periods have been restated to exclude
the discontinued operations:
Operating revenues for the nine month periods ended September 30, 2004 and 2003
by geographical area were as follows:
Oil and Gas Mining
----------------------------- -----------------------------
September 30, September 30, September 30, September 30,
2004 2003 2004 2003
------------- ------------- ------------- -------------
United States $24,008 $ 96,535 $ -- $ --
Mongolia -- -- -- --
------- --------- ------- --------
$24,008 $ 96,535 $ -- $ --
======= ========= ======= ========
Operating revenues for the three month periods ended September 30, 2004 and 2003
by geographical area were as follows:
Oil and Gas Mining
----------------------------- ------------------------------
September 30, September 30, September 30, September 30,
2004 2003 2004 2003
------------- ------------- ------------- -------------
United States $ 7,878 $14,035 $ -- $ --
Mongolia -- -- -- --
------- ------- -------- --------
$ 7,878 $14,035 $ -- $ --
======= ======= ======== ========
- 5 -
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ADOPTED IN 2004 -
(continued)
Long-lived assets as of September 30, 2004 and December 31, 2003 by business
segment and geographical area were as follows:
Oil and Gas Mining
------------------------------ -------------------------------
September 30, December 31, September 30, December 31,
2004 2003 2004 2003
---------- ---------- ----------- --------
United States $ 112,497 $ 329,357 $ -- $ --
Mongolia -- -- 1,034,000 --
---------- ---------- ----------- --------
$ 112,497 $ 329,357 $ 1,034,000 $ --
========== ========== =========== ========
Loss before minority interest as of nine months and three months ended September
30, 2004 and 2003 by business segment and geographical area were as follows:
Nine Months Ended September 30, 2004
-----------------------------------------------------------------------
Corporate
Mining Oil and Gas Overhead Total
----------- ----------- ----------- -----------
United States $ -- $ (209,641) $(1,096,940) $(1,306,581)
Mongolia (77,000) -- -- (77,000)
----------- ----------- ----------- -----------
Loss before minority interest $ (77,000) $ (209,641) $(1,096,940) $(1,383,581)
=========== =========== =========== ===========
Nine Months Ended September 30, 2003
--------------------------------------------------------------------
Corporate
Mining Oil and Gas Overhead Total
-------- ------------ ----------- -----------
United States $ -- $ (949) $(5,022,898) $(5,023,847)
Mongolia -- -- -- --
------ ----------- ----------- -----------
Loss before minority interest $ -- $ (949) $(5,022,898) $(5,023,847)
====== =========== =========== ===========
Three Months Ended September 30, 2004
------------------------------------------------------------------
Corporate
Mining Oil and Gas Overhead Total
--------- ----------- ---------- ---------
United States $ -- $ 32,490 $(301,529) $(269,039)
Mongolia (77,000) -- -- (77,000)
--------- --------- --------- ---------
Loss before minority interest $ (77,000) $ 32,490 $(301,529) $(346,039)
========= ========= ========= =========
- 6 -
BPK RESOURCES, INC.
(A Development Stage Entity)
Notes to Condensed Consolidated Financial Statements
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ADOPTED IN 2004 - (continued)
Three Months Ended September 30, 2003
-----------------------------------------------------------------
Corporate
Mining Oil and Gas Overhead Total
------ ----------- ----------- -----------
United States $ -- $ (9,747) $(3,465,868) $(3,475,615)
Mongolia -- -- -- --
------ ----------- ----------- -----------
Loss before minority interest $ -- $ (9,747) $(3,465,868) $(3,475,615)
====== =========== =========== ===========
NOTE 3 - GOING CONCERN
The accompanying financial statements have been prepared in accordance with U.S.
generally accepted accounting principles, which contemplates continuation of the
Company as a going concern. The Company incurred net losses to common
stockholders of $6,119,408 for the nine months ended September 30, 2004 and
$16,498,999 for the period April 2, 1997 (date of inception) to September 30,
2004. The net losses from inception to September 30, 2004 included non-cash
charges related to services provided, amortization of debt discount and loan
cost and preferred dividends of $5,373,249. Consequently, the aforementioned
items raise substantial doubt about the Company's ability to continue as a going
concern.
The Company is in its development state and will need significant funds to meet
its cash calls on its various interests in mining and oil and gas prospects to
explore, produce, develop, and eventually sell the underlying mineral and
natural gas and oil products under its interest and to acquire additional
properties.
The Company believes that the release from its obligations under the Trident
Notes and CSOR Note (see Note 7), sales of equity and debt securities in private
placements in 2004 and projected nominal revenues from oil and gas operations
will provide sufficient funds to fund its operations through December 2004. The
Company will be required to raise additional capital in order to have the funds
necessary to meet its working capital requirements, and cash calls related to
various interest in mining and oil and gas prospects, complete other
acquisitions and continue its operations in 2005.
The Company's ability to continue as a going concern is dependent upon raising
capital through equity and debt financing and other means on terms desirable to
the Company. 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 strategy of
acquiring oil, gas and mining interests or even be required to relinquish some
or all of its oil and gas and mining interests or in the extreme situation,
cease operations. The financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
NOTE 4 - DESCRIPTION OF BUSINESS
Nature of Operations
The Company is generally not involved as the operator of the projects in which
it participates. Instead, the Company relies on third parties for mining and
drilling, delivering any gas or oil reserves or mineral reserves that are
discovered, and assisting in the negotiation of all sales contracts with such
purchasing parties. With the
- 7 -
BPK RESOURCES, INC.
(A Development Stage Entity)
Notes to Condensed Consolidated Financial Statements
NOTE 4 - DESCRIPTION OF BUSINESS - (continued)
assistance of such third parties, the Company plans to explore and develop these
prospects and sell on the open market any minerals or gas or oil that is
discovered. The Company relies on Touchstone Resources USA, Inc., to assist and
advise the Company regarding the identification and leasing of oil and gas
properties on favorable terms. The company also relies on Touchstone Resources
USA, Inc. to provide additional oil and gas 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 located in Mongolia and Texas.
NOTE 5 - OIL AND GAS INTERESTS AND EQUITY INVESTMENTS IN LIMITED PARTNERSHIPS
AND LIMITED LIABILITY COMPANIES AND DISPOSITION
On July 20, 2004, the Company entered into a Purchase and Sale Agreement with BP
Preferred Acquisition, LLC, a Delaware limited liability company ("BP
Acquisition") related through common ownership (the "Transaction"). FEQ Gas, LLC
("FEQ Gas") and Montex Exploration, Inc. ("Montex") may be deemed to control BP
Acquisition and BP Investments Group, LLC, the beneficial owner of approximately
54% of the Company's issued and outstanding shares of common stock. Pursuant to
the terms of the Agreement, the Company disposed of 100% of its ownership
interests in CSR-Hackberry Partners, L.P. ("CSR-Hackberry"), BPK South
Valentine, L.P., PH Gas, L.P., Touchstone Resources 2001-Hackberry Drilling
Fund, L.P., Louisiana Shelf Partners, L.P., PHT Partners, L.P. and LS Gas, LLC,
in consideration for which BP Acquisition agreed to cause the Company to be
released from its liabilities and obligations under the Trident Notes and CSOR
Note (See Note 7). As of September 30, 2004, the Company has obtained releases
from such obligations. See Note 9 for description of accounting for this
transaction.
The assets and liabilities of CSR-Hackberry and BPK South Valentine, L.P. have
been classified as "assets of discontinued operations" and "liabilities of
discontinued operations" for all periods presented. The net results of
operations for these two entities have been classified as "discontinued
operations" for all periods presented. The revenues for these entities for the
nine months ended September 30, 2004 and 2003 were $11,846 and $143,328,
respectively. The revenue since inception was $233,043.
Included below is the Company's investments and activity in oil and gas
activities, which consisted of the following at September 30, 2004:
Accumulated
Total Cost of Depletion and Net
Oil and Gas Impairment Capital
Properties Allowance Assets
---------- ---------- ----------
Unproved properties acquisition costs $1,716,729 $1,616,529 $ 100,200
Proved properties acquisition costs 355,617 343,320 12,297
---------- ---------- ----------
Net $2,072,346 $1,959,849 $ 112,497
========== ========== ==========
- 8 -
BPK RESOURCES, INC.
(A Development Stage Entity)
Notes to Condensed Consolidated Financial Statements
NOTE 5 - OIL AND GAS INTERESTS AND EQUITY INVESTMENTS IN LIMITED PARTNERSHIPS
AND LIMITED LIABILITY COMPANIES AND DISPOSITION - (continued)
Included below is the Company's investments and activity in oil and gas
activities which consisted of the following at December 31, 2003:
Accumulated
Total Cost of Depletion and Net
Oil and Gas Impairment Capital
Properties Allowance Assets
---------- ---------- ----------
Unproved properties acquisition costs $1,714,795 $1,403,804 $ 310,991
Proved properties acquisition costs 1,626,912 1,580,295 46,617
---------- ---------- ----------
Net $3,341,707 $2,984,099 $ 357,608
========== ========== ==========
As a result of the Transaction described above, as of September 30, 2004, the
Company had no equity interests in any limited partnership or limited liability
company. The Company had contributed in 2004 $127,900 and $40,049 to PH Gas,
L.P. and PHT Partners, L.P., respectively prior to the transaction.
The following table represents the Company's equity investment in the limited
partnerships and limited liability company at December 31, 2003:
Touchstone
Resources
2001 -
Hackberry Louisiana PHT
Drilling Shelf Partners, LS
PH Gas, LP Fund, LP Partners, LP LP Gas, LLC Total
----------- ----------- ----------- ----------- ----------- -----------
Ownership Percentage 30.12% 10.26% 9.90% 4.23% 2.0%
Original Cost Basis $ 263,900 $ 403,997 $ 913,500 $ 76,493 $ 142,000 $ 1,799,890
Pro-rata share of loss (27,972) (320,210) (447,635) -- -- (795,817)
Cash Distributions (10,000) (39,906) (13,500) -- -- (63,406)
----------- ----------- ----------- ----------- ----------- -----------
Total $ 225,928 $ 43,881 $ 452,365 $ 76,493 $ 142,000 $ 940,667
=========== =========== =========== =========== =========== ===========
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
Endeavour International Corporation, formerly known as Continental Southern
Resources, Inc. ("CSOR" or "Endeavour"), a then 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 Company's common stock. The note term was subsequently extended to
June 30, 2004 in consideration of the Company's issuance of 100,000 shares of
common stock to CSOR. On July 20, 2004, the Company was released from its
obligation under the note as a result of the Transaction. (See Note 7) 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 had one common director
who was the President of the Company at the time the transaction was completed.
- 9 -
BPK RESOURCES, INC.
(A Development Stage Entity)
Notes to Condensed Consolidated Financial Statements
NOTE 5 - OIL AND GAS INTERESTS AND EQUITY INVESTMENTS IN LIMITED PARTNERSHIPS
AND LIMITED LIABILITY COMPANIES AND DISPOSITION - (continued)
As of September 30, 2004, CSR-Waha owed the operator of the wells approximately
$389,527 and had not made a payment to the operator since 2002. As a result of
not paying the operator, CSR-Waha did not receive any royalty checks from the
operator, nor did it receive any production data or reserve estimates and was,
therefore, unable to determine the amounts of proved reserves available as of
September 30, 2004 or December 31, 2003. CSR-Waha has recorded impairment
charges of $212,725 and $938,592 during the quarter ended June 30, 2004 and year
ended December 31, 2003, respectively, as a result of certain wells going
offline during 2004 and 2003. In addition, the Company recorded an impairment
charge of $1,235,248 on its investment in CSR-WAHA during 2003. Because of these
factors, CSR-Waha has reflected its remaining capitalized costs as unproved
property acquisition costs in the amount of $100,200 and $310,991 as of
September 30, 2004 and December 31, 2003, respectively.
The Company accounts for its investment in CSR-Waha using the consolidation
method.
NOTE 6 - MINERAL INTERESTS OPTION
In April 2004, the Company entered into an Assignment and Assumption Agreement
with Montex Exploration, Inc. ("Montex") (the "Agreement") whereby the Company
assumed all of the rights and responsibilities of Montex under a binding letter
of intent entered into by Montex with Bell Coast Capital Corp. ("Bell Coast")
with respect to exploration of the Shadow Mountain Project in Mongolia (the
"Interest"). The Company paid $184,000 to Montex and issued 5,000,000 shares of
its common stock valued at $950,000 (based on the closing price of the Company's
common stock on the date of the agreement) to Montex, and reimbursed Montex for
all fees and expenses incurred by Montex in connection with the preparation,
negotiation and execution of the letter of intent in consideration for the
assignment. Under the terms of the Agreement, BPK can maintain a 50% interest in
the Interest by contributing $CDN 2.4 million in exploration costs within 18
months of the signing of the Agreement. In the event the Company fails to
contribute $CDN 2.4 million, its interest will be reduced proportionally. If the
Company contributes less than $CDN 500,000, then it surrenders its entire
interest back to Bell Coast. During the third quarter of 2004, the Company
received a refund of $100,000 for the excess payment Montex originally made to
Bell Coast, which has been recorded as a reduction of the Company's investment.
The Shadow Mountain Property is a copper and gold mining prospect, which is
composed of two licenses totaling 55,219 ha (approximately 138,000 acres) in the
South Gobi Province of Mongolia.
NOTE 7 - NOTES PAYABLE
Notes payable and convertible notes consisted of the following at:
September 30, December 31,
2004 2003
----------- -----------
12% Secured convertible note $ -- $ 2,100,000
10% Promissory notes - related party 20,000 715,000
3% Promissory notes 58,178 15,178
Approx. 6% Loan Facility - related party -- 456,365
----------- -----------
78,178 3,286,543
Less unamortized discount -- (101,232)
----------- -----------
$ 78,178 $ 3,185,311
=========== ===========
- 10 -
BPK RESOURCES, INC.
(A Development Stage Entity)
Notes to Condensed Consolidated Financial Statements
NOTE 7 - NOTES PAYABLE - (continued)
12% Secured Convertible Note
In April 2002 and in July 2003, the Company entered into two loan agreements
pursuant to which it borrowed a total of $2,100,000 from Trident Growth Fund,
L.P. ("Trident"). The Company's obligation to repay the loans were evidenced by
two 12% convertible promissory notes ("Trident Notes") in the principal amounts
of $1,500,000 and $600,000, respectively and secured by substantially all of the
assets of the Company including a collateral mortgage and assignment of lease
and working interests in the Company's oil and gas wells. The loans originally
matured on October 31, 2003, and were amended to extend the maturity dates to
June 30, 2004 and July 31, 2004. As an inducement for Trident to make the loans,
extend the maturity date of the loan and waive certain loan covenants, the
Company issued Trident warrants to purchase a total of 545,000 shares of the
Company's common stock, with initial exercise prices ranging from $1.00 to $0.38
per share and a term of 10 years. In February and March 2004, the conversion
price of the loan and warrants were reset to $0.20 and $0.13 per share,
respectively.
Under Emerging Issues Task Force ("EITF") 00-27: "Application of Issue No. 98-5
to Certain Convertible Instruments," the Company has allocated the proceeds from
the original issuances of the convertible promissory notes and warrants based on
a fair value basis of each item. The fair value of the warrants was determined
to be $225,000 for the 300,000 warrants issued with the original convertible
loan from April 2002 and $39,600 for the 120,000 warrants issued for the
additional loan in July 2003. A beneficial conversion discount of $1,275,000 for
the original convertible note was recorded in 2002. In 2003 the Company recorded
a beneficial conversion discount of 118,547 on the second loan from Trident. The
Company recorded an additional $441,853 beneficial conversion feature in 2004
related to the reset of the conversion price. For the nine months ended
September 30, 2004 and 2003, the Company amortized $499,997 and $1,064,381,
respectively of the discount related to the value of the warrant and beneficial
conversion feature as interest expense.
In February 2004, Trident exercised its rights under the loan agreements and
converted $30,000 of principal into 150,000 shares of common stock of the
Company.
During July 2004, as a result of the Transaction (See Note 5), BP Acquisition
caused the Company to be released from its liabilities and obligations under the
Trident Notes, which cured the default of the original $1,500,000 Trident Note.
As an inducement to release the Company of the Trident loans, the Company issued
Trident warrants to purchase 400,000 shares of the Company's common stock, with
an exercise price of $0.13 per share. The warrants expire in five years. The
warrants were valued at $43,100 using the Black-Scholes Model and recorded as
debt release fee.
10% Promissory Notes - Related Party
In January 2003, the Company financed $1.5 million of the purchase price of
CSR-Waha with a promissory note issued to CSOR ("CSOR Note"). The note bore
interest at the rate of 10% per annum, initially matured on April 30, 2003 and
was extended to June 30, 2004. In consideration for the extension, the Company
issued CSOR 100,000 shares of the Company's common stock. The Company recorded
financing costs of $47,000 in connection with the extension and amortized the
costs over the life of the extension. The Company and CSOR had one common
director on their Board of Directors who also served as President of the
Company.
During July 2004, as a result of the Transaction (see Note 5), BP Acquisition
caused the Company to be released from its liabilities and obligations under the
CSOR note.
Other Notes Payable
During 2004, the Company borrowed an additional $44,000 from 1025 Investments
and issued various 3% demand promissory notes for a total outstanding principal
balance of $50,000 as of September 30, 2004.
- 11 -
BPK RESOURCES, INC.
(A Development Stage Entity)
Notes to Condensed Consolidated Financial Statements
NOTE 7 - NOTES PAYABLE - (continued)
As of September 30, 2004, the Company had other demand notes totaling $8,178.
Libor Loan Facility
In connection with the investment transaction in April 2003 with Ocean Resource
Capital Holdings, PLC ("ORCH"), the Company borrowed $587,053 under a loan
facility with a maturity date of May 31, 2003. The loan facility required
interest at the rate of the London Inter-Bank Offering Rate ("LIBOR") at the end
of each month the loan was outstanding plus two percent. The loan facility was
secured by the shares issued to the Company by ORCH. The Company also incurred
an arrangement fee of 4% on the amount of each draw on the facility. In August
2003, the Company repaid $130,687 of principal. On February 27, 2004, the
Company satisfied all its outstanding indebtedness to ORCH, including the loan
facility, all accrued and unpaid interest and the arrangement fee totaling
$504,348 through the issuance of 829,755 shares of Series B Convertible
Preferred Stock plus warrants to acquire 150,000 shares of common stock of the
Company (see Note 9).
NOTE 8 - MANDATORILY REDEEMABLE PREFERRED STOCK
In March 2003, the Company's Board of Directors issued 5,538,461 of the
10,000,000 shares of Series A 10% Convertible Preferred Stock authorized for
issuance, all of which were outstanding as of December 31, 2003. The holders of
shares of this stock were entitled to receive dividends at a rate of 10% per
annum which accrued from the date of issuance of each share payable
semi-annually in arrears on June 30 and December 31 of each year. These
dividends had preference over common stock cash dividends.
Each Series A Share was immediately convertible, at the option of the holder,
into one share of common stock, subject to a cap which prohibited conversion to
the extent that conversion would result in the holder beneficially owning in
excess of 4.99% of the Company's common stock. In the event of 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 would
have converted into shares of common stock. The Company had 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 was required to redeem all such shares
by payment of such amount no later than February 28, 2006. The Series A Shares
contained anti-dilution and conversion price adjustment provisions if certain
events occur. Other than as provided by applicable law, holders of the Series A
Shares had 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.
On February 27, 2004, BP Investments, LP ("BP") entered into an agreement to
purchase 5,538,461 shares of the Company's Series A Convertible Preferred Stock
from ORCH. Subsequent to the sale, on March 23, 2004, the Company authorized
certain amendments to the certificate of designation of the Series A Convertible
Preferred Stock. The restriction limiting the number of shares convertible by
the holder of the Series A Convertible Preferred stock to an amount that would
result in the holder beneficially owning less than 4.99% of the issued and
outstanding common stock was eliminated. The conversion rate for the holder was
also increased from one share of Series A Convertible Preferred convertible into
one share of common stock to one share of Series A Convertible Preferred Stock
convertible into five shares of common stock. On the date of change in the
conversion rate of the Series A Shares, the closing price of the common stock of
the Company was $0.21 per share. As of September 30, 2004 the Company had
recorded a preferred dividend, which amounted to $4,652,307 based on the value
of the additional shares of common stock issuable on conversion at the new
conversion rate. On April 12, 2004, BP Investments exercised its rights and
converted 100% of the outstanding shares of Series A Convertible Preferred Stock
into 27,692,305 shares of common stock of the Company, which may have resulted
in a change in control of the Company, since this represented approximately 65%
of the issued and outstanding common stock of the Company on that date. This
resulted in the Company recording additional equity of $3,999,708, which
included the reversal of the accrued dividend of $399,708.
- 12 -
BPK RESOURCES, INC.
(A Development Stage Entity)
Notes to Condensed Consolidated Financial Statements
NOTE 9 - STOCKHOLDER'S EQUITY - NOT DISCLOSED ELSEWHERE
In January 2004, the Company commenced raising capital through a private
offering of up to 7,500,000 shares of common stock, $.001 par value per share,
and warrants ("Warrants") to acquire up to 3,750,000 shares of common stock. The
shares and warrants were sold in units comprised of two shares of common stock
and one warrant ("units"). The units were sold at a purchase price of $0.40 per
unit. Each warrant is initially exercisable into one share of common stock at an
exercise price of $0.30 per share, subject to adjustment; for a period of three
years from the date of issuance. In February 2004, the Company sold a total of
650,000 units for $260,000.
On February 27, 2004 the Company entered into a securities purchase agreement
with ORCH, whereby ORCH purchased 829,755 shares of the Company's Series B
Convertible Preferred Stock and warrants to purchase 150,000 shares of the
Company's common stock at an exercise price of $0.55 per share which expire on
February 27, 2007. On the date of issuance, the closing price of the common
stock of the Company was $0.21 cents per share. Based on this closing price, the
Company valued the Series B Convertible Preferred Stock in the amount of
$174,249 and using the Black-Scholes model, valued the warrants at $13,600 for
total consideration of $187,849. In consideration for the receipt of the Series
B Convertible Preferred Stock and warrants, ORCH agreed to cancel the total
outstanding principal balance on the Libor Loan Facility and to waive the
interest payable and the arrangement fee on the facility, the total of which
amounted to $504,348 as of February 27, 2004.
Under the guidance of Financial Accounting Standard 15 "Accounting by Debtors
and Creditors for Troubled Debt Restructurings", the Company recorded a gain in
the amount of the difference between the value of the loans, interest and fees
extinguished in excess of the value of the securities issued to satisfy those
liabilities, which amounted to $316,499 as of September 30, 2004.
The Series B Convertible Preferred Shares are non-voting and automatically
convert to common stock of the Company upon the bankruptcy or dissolution of the
Company. The holder of the Series B Convertible Preferred Stock may convert one
preferred share into one share of common stock at any time, subject to
adjustment. The Company may redeem the Series B Convertible Preferred Shares for
$0.01 per share upon 30 days written notice provided that (i) the average of the
closing bid price of the Company's common stock is in excess of $1.00 per share
for twenty (20) trading days preceding the date of the redemption notice and
(ii) the shares of common stock issuable upon conversion of the Series B
Convertible Preferred Stock are either subject to an effective registration
statement or transferable pursuant to rule 144(k) promulgated under the
Securities Act of 1933. The redemption notice shall call upon each holder of
Series B Convertible Preferred Stock to either surrender the Series B
Convertible Preferred Stock held or convert it to common stock prior to the date
of redemption.
In April 2004, the Company entered into a Securities Purchase Agreement with
Ritchie Long/Short Trading, Ltd., a Cayman Islands exempted company ("Ritchie
Trading"). Under the Securities Purchase Agreement, Ritchie Trading purchased
from the Company 1,250,000 units, resulting in gross proceeds to the Company of
$500,000. Each unit consists of two shares of common stock of the Company and
one warrant to acquire one share of common stock of the Company with an exercise
price of $0.30 cents per share and an expiration date three years from the date
of grant.
During July 2004, the Company disposed of 100% of its interests in the various
limited partnerships and limited liability companies, in consideration for which
BP Acquisition caused the Company to be released from its liabilities and
obligations under the Trident Notes and CSOR note (see Note 5 and Note 7). Since
certain common ownership and control exist between the Company and BP
Acquisition and in accordance with Staff Accounting Bulletin 79, Topic 5T
"Accounting for Expenses or Liabilities Paid by Principal Stockholder", the
Company accounted for the disposal of the assets and releases from its
liabilities under the original notes as a contribution of additional paid in
capital in the amount of $1,910,546.
- 13 -
BPK RESOURCES, INC.
(A Development Stage Entity)
Notes to Condensed Consolidated Financial Statements
NOTE 9 - STOCKHOLDER'S EQUITY - NOT DISCLOSED ELSEWHERE (Continued)
Stock Warrants
The Company had the following warrants outstanding at September 30, 2004:
Expiration Date Exercise Price Shares
---------------- ---------------- -------------------
November 2005 $ 0.60 702,666
February 2007 $ 0.55 150,000
February 2007 $ 0.30 650,000
April 2007 $ 0.30 1,250,000
July 2008 $ 0.13 120,000
April 2012 $ 0.13 425,000
July 2009 $ 0.13 400,000
-------------------
Common Stock 3,697,666
===================
The Company had the following options outstanding as of September 30, 2004:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------------------------------- ----------------------------------
Number of Weighted Weighted Number Weighted
Range of Outstanding Shares Average Average Exercisable at Average
Exercise at September 30, Remaining Exercise September 30, Exercise
Prices 2004 Contract Life Price 2004 Price
- ------------------- --------------------- --------------- -------------- ------------------ ------------
$ 0.40 25,000 .75 $ 0.40 25,000 $ 0.40
$ 0.65 500,000 1.33 $ 0.65 500,000 $ 0.60
NOTE 10 - 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). For the nine months ending September 30,
2004 and 2003, the total number of potentially dilutive shares excluded from
diluted net loss per common share were 5,052,441 and 9,687,929, respectively.
NOTE 11 - RELATED PARTY TRANSACTIONS - NOT DISCLOSED ELSEWHERE / CONCENTRATIONS
The Company entered into a consulting agreement with ESC Consulting Services
Corp. on May 31, 2002. This agreement is for 36 months with a total compensation
of $216,000, to be paid $6,000 on the first day of each month. The Company
incurred $54,000 of consulting expense as of September 30, 2004 and 2003. In
April 2004, the president of ESC Consulting became a director and sole officer
of the Company after the resignation of the Company's former director and sole
officer. In July 2004, the president of ESC Consulting resigned as the Company's
director and sole officer and was replaced by the current director and sole
officer of the Company.
- 14 -
BPK RESOURCES, INC.
(A Development Stage Entity)
Notes to Condensed Consolidated Financial Statements
NOTE 12 - COMMITMENTS AND CONTINGENCIES
General
The oil and gas industry and mining industry are 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 Mining Interests/ Cash Calls
The Company is subject to cash calls related to its investment in the mining
prospects.
NOTE 13 - SUPPLEMENTAL EQUITY INVESTMENT DISCLOSURES - UNAUDITED
Since the Company divested their interests in all limited partnership interests
during July 2004, no supplemental information is provided at September 30, 2004.
The following schedule lists the total assets, liabilities and results of
operations of the limited partnerships which the Company is invested in at
September 30, 2003:
Touchstone
Resources-2001
Hackberry Louisiana Shelf
PH Gas, LP Drilling Fund, LP Partners, LP
------------- ------------- -----------
Total Assets $ 742,328 $ 214,653 $ 6,398,152
============= ============= ===========
Total Liabilities 3,438 190,133 70,648
============= ============= ===========
Results of Operations
Sales -- -- --
Gross profit -- -- --
Net income (loss) $ (65,770) $ 12,835 $(2,483,792)
- 15 -
BPK RESOURCES, INC.
(A Development Stage Entity)
Notes to Condensed Consolidated Financial Statements
NOTE 14 - SUBSEQUENT EVENTS - RELATED PARTY
In October 2004, the Company entered into the First Amendment to the Purchase
and Sale Agreement with BP Acquisition. Pursuant to the terms of the Amendment,
the Company included the promissory note in the amount of $224,000 due from
CSR-Hackberry as part of the assets it disposed of on July 20, 2004.
In November 2004, the Company's Board of Directors ("Board") approved the
Company's 2004 Stock Incentive Plan (the "Plan"). The Plan reserves 7,500,000
shares of common stock for issuance pursuant to stock options, stock
appreciation rights, restricted stock awards, restricted stock units,
unrestricted stock awards, and other equity based or equity related awards to
employees, officers, directors, or advisors to the Company or its subsidiaries
as well as individuals who have entered into any employment agreement with the
Company and its subsidiaries. The Plan is administered by the Board which has
full and final authority to interpret the Plan, select the persons to whom
awards may be granted, and determine the amount and terms of any award. In order
to comply with certain rules and regulations of the Securities and Exchange
Commission or the Internal Revenue Code, the Board can delegate authority to
appropriate committees of the Board. Although the Plan provides for the issuance
of options that qualify as incentive stock options ("ISOs") under the Internal
Revenue Code of 1986, as amended, since the Plan was not approved by the
Company's stockholders, the Company cannot issue ISOs unless and until it
obtains the requisite shareholder approval. Stock options issued under the Plan
have a term of no more than 10 years, an exercise price equal to at least 85% of
the fair market value of our common stock on the date of grant (100% in the case
of ISOs), are subject to vesting as determined by the Board, and unless
otherwise determined by the Board, may not be transferred except by will, the
laws of descent and distribution, or pursuant to a domestic relations order.
Unless otherwise determined by the Board, awards terminate three months after
termination of employment or other association with the Company or one year
after termination due to disability, or death or retirement. In the event that
termination of employment or association is for a cause, as defined in the Plan,
awards terminate immediately upon such termination.
In November 2004, the Company entered into a letter agreement with the sole
officer of the Company to serve as the Chief Executive Officer of the Company on
an at-will basis.
In November 2004, the Company issued options to purchase 500,000 shares of the
Company's common stock to the sole officer of the Company at an exercise price
of $0.13 per share. The options expire in 10 years.
- 16 -
CAUTIONARY STATEMENT FOR FORWARD-LOOKING STATEMENTS
This report includes "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. All statements other than
statements of historical facts included or incorporated by reference in this
report, including, without limitation, statements regarding our future financial
position, business strategy, budgets, projected revenues, projected costs and
plans and objectives of management for future operations, are forward-looking
statements. Forward-looking statements generally can be identified by the use of
forward-looking terminology such as "may," "will," "expect," "intend,"
"project," "estimate," "anticipate," or "believe" or the negative thereof or any
variation thereon or similar terminology. Although we believe that the
expectations reflected in such forward-looking statements are reasonable, we can
give no assurance that such expectations will prove to have been correct.
Important factors that could cause actual results to differ materially
from our expectations include, but are not limited to, our assumptions about
energy and mineral markets, production levels, reserve levels, operating
results, competitive conditions, technology, the availability of capital
resources, capital expenditure obligations, the supply and demand for oil,
natural gas, minerals and other products or services, the price of oil, natural
gas, minerals and other products or services, currency exchange rates, the
weather, inflation, the availability of goods and services, successful
exploration, drilling and extraction, drilling and extraction risks, future
processing volumes and pipeline throughput, general economic conditions, either
nationally or internationally or in the jurisdictions in which we or any of our
subsidiaries are doing business, legislative or regulatory changes, including
changes in environmental regulation, environmental risks and liability under
federal, state and foreign environmental laws and regulations, the securities or
capital markets and other factors disclosed in our Annual Report on Form 10-KSB
under the caption "Risk Factors" and other filings with the Securities and
Exchange Commission. All subsequent written and oral forward-looking statements
attributable to us, or persons acting on our behalf, are expressly qualified in
their entirety by these cautionary statements. We assume no duty to update or
revise its forward-looking statements based on changes in internal estimates or
expectations or otherwise.
- 17 -
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. and any of our consolidated
subsidiaries and 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.
During the past two years, we have been primarily in the business of
acquiring, exploring and developing natural gas and oil properties. We recently
divested substantially all of our oil and gas interests and currently maintain
an approximate 12.5% working interest in the Waha/Lockridge oil and gas prospect
located in Reeves County Texas. Recently, we entered into the field of mineral
exploration by obtaining exploration rights in the South Gobi Province of
Mongolia. During the next twelve (12) months, we will continue to evaluate
property interests in Texas, Louisiana and other traditional oil and gas
producing states in the southwestern United States, and in oil, gas or mining
projects throughout the world. With the assistance of various third parties, we
plan to explore and develop these prospects and sell on the open market any gas,
oil or minerals discovered.
- 18 -
We intend to continue to subcontract the performance of substantially all
of the physical operations at our properties. As a result, 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 which we employ. We intend to play an active role in
evaluating prospects, and providing financial and other management functions
with respect to each of our properties.
BUSINESS STRATEGY
We seek to create shareholder value by building oil, gas and mineral
reserves, production revenues and operating cash flow. This strategy consists of
three distinct components. First, developing reserves and generating revenue
through the exploration and development of our existing oil and gas prospect in
Texas and our mining project in Mongolia. Second, completing selective
acquisitions of additional oil and gas properties both offshore and onshore in
Texas, Louisiana and other traditional oil and gas producing states in the
southwestern United States, and additional mining projects in traditional
mineral producing properties throughout the world. Third, selling all or part of
our current or future interests in our partnerships or limited liability
companies or all or part of leasehold interests we own to realize immediate
capital and limit or eliminate future risk associated with such projects. As of
the date of this report, none of our projects have any wells producing oil or
gas in commercial quantities.
We will continue to rely on third parties for substantially all
operational activities. We rely on Touchstone Resources USA, Inc., a Texas
corporation, to assist and advise us regarding the identification and leasing of
oil and gas 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. We will also rely upon various third parties to
drill wells, deliver any gas or oil that is discovered to the ultimate
purchasers and assist us in the negotiation of all sales contracts with
purchasing parties.
We currently rely on Bell Coast Capital Corp., which is overseeing
operations at the Mongolian mining property. Bell Coast in turn relies on
various surveyors experienced in Mongolian logistics and operations.
Our ability to generate future revenues and operating cash flow is
dependent on the successful development of our inventory of capital projects,
the volume and timing of any production, our ability to acquire and dispose of
our prospects, as well as commodity prices for oil, gas and minerals. Such
pricing factors are largely beyond our control, and may result in fluctuations
in our earnings. We may increase or decrease our planned activities for 2004,
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.
Successful execution of this strategy depends on our ability to identify
and acquire oil, gas and mineral reserves on a cost-effective basis and
thereafter, to either develop or sell properties in which we have an interest.
We believe that effective reserve assessment analysis, engineering and surveying
of potential prospects in a timely and cost-efficient basis and the ability to
generate capital, either from operations or sales of our debt or equity
securities to exploit available opportunities, are the most important factors to
successfully execute our plan.
- 19 -
RECENT DEVELOPMENTS
In order to strengthen our balance sheet and put us in a better position
to raise the capital necessary to continue to execute our business plan, since
January 1, 2004 we have:
o negotiated the conversion of approximately $460,000 of our
outstanding term indebtedness and $48,000 of accrued interest and
loan arrangement fees into preferred equity;
o negotiated the conversion of $3,600,000 face amount of outstanding
preferred stock subject to mandatory redemption into common stock;
and
o satisfied in excess of $2,700,000 of outstanding indebtedness in
exchange for certain of our oil and gas assets.
Specifically, on July 20, 2004, we entered into a Purchase and Sale
Agreement with BP Preferred Acquisition, LLC, a Delaware limited liability
company ("BP Acquisition"), which was amended on October 12, 2004. Pursuant to
the terms of the agreement, as amended, we disposed of 100% of our ownership
interests in CSR-Hackberry Partners, L.P., BPK South Valentine, L.P., PH Gas,
L.P., Touchstone Resources 2001-Hackberry Drilling Fund, L.P., Louisiana Shelf
Partners, L.P., PHT Partners, L.P., LS Gas, LLC, and a $224,000 principal amount
promissory note issued by CSR-Hackberry Partners, LP and payable to us in
consideration for which BP Acquisition agreed to cause us to be released from
any and all liabilities and obligations under the following notes and
agreements:
(i) the Loan Agreement, dated April 25, 2002, between the Company
and Trident Growth Fund, L.P. ("Trident"), the Security Agreement, dated
April 25, 2002, between the Company and Trident, and the 12% Secured
Convertible Note, dated April 25, 2002, in the principal amount of
$1,500,000, issued to Trident;
(ii) the First Amended Loan Agreement, dated July 29, 2003, between
the Company and Trident, the First Amended Security Agreement, dated July
29, 2003, between the Company and Trident and the 12% Secured Convertible
Note, dated July 29, 2003, in the principal amount of $600,000, issued to
Trident; and
(iii) the 10% Promissory Note in the original principal amount
$1,500,000, originally issued to Endeavour International Corporation
(f/k/a Continental Southern Resources, Inc.) and currently held by CSOR
Preferred Liquidation, LLC, a Delaware limited liability company, with an
outstanding principal balance of $670,000 (the "CSOR Note") and any and
all other agreements and documents related to the CSOR Note.
- 20 -
In connection with the foregoing transaction, we issued warrants to
Trident to purchase 400,000 shares of common stock as an inducement to release
us from all of our obligations under the outstanding notes due Trident. As a
result of the foregoing transactions, all outstanding term indebtedness has been
converted into equity, none of our preferred stock is subject to mandatory
redemption, and we have no indebtedness other than trade payables. We believe
that this action was necessary to provide us with the ability to fund capital
calls and continue to acquire additional property interest.
We are in the development stage, have limited cash resources, have current
liabilities that substantially exceed our current assets and have incurred
substantial losses since inception. We will need significant funds during the
next twelve months to meet cash calls on our interests in oil, gas and mineral
prospects and to acquire additional properties. Due to these and other factors,
our independent auditors have included an explanatory paragraph in their opinion
for the year ended December 31, 2003 as to the substantial doubt about our
ability to continue as a going concern. In order to continue operations, we must
continue to raise the capital necessary to fund existing and new opportunities
and our long-term viability and growth will ultimately depend upon acquiring
interests in successful projects, as to which there can be no assurances.
RESULTS OF OPERATIONS
As described above, on July 20, 2004 we sold CSR-Hackberry Partners, L.P.
("CSR Hackberry") and BPK-South Valentine, LP ("BPK South Valentine"), two of
our subsidiaries. As a result of this disposition: (i) the assets and
liabilities of BPK South Valentine and CSR Hackberry have been classified as
"Assets of Discontinued Operations" and "Liabilities of Discontinued
Operations," respectively, for all periods presented in the financial statements
included in this report; and (ii) the net results of operations of CSR Hackberry
and BPK-South Valentine have been classified as "Discontinued Operations" for
all periods presented in the financial statements included in this report.
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2004 AS COMPARED TO THREE AND NINE
MONTHS ENDED SEPTEMBER 30, 2003.
Revenues
We generated $7,878 and $24,008 of revenue during the three and nine
months ended September 30, 2004, respectively, as compared to $14,035 and
$96,535 during the corresponding periods in 2003. The revenue consisted of oil
and gas sales from our net revenue interests in the Waha/Lockridge oil and gas
prospect located in Reeves County Texas (the "Waha/Lockridge Prospect") and the
Hackberry oil and gas prospect located in Jefferson County, Texas (the
"Hackberry Prospect"). The $72,527 decrease during the nine months ended
September 30, 2004 was the result of certain wells being offline for
maintenance. Any revenue during the remainder of 2004 will be generated from our
net revenue interests in the Waha/Lockridge Prospect and Hackberry Prospect, our
mineral exploration rights in the South Gobi Province of Mongolia, or from other
oil, gas or mining interests that we may acquire in the future.
- 21 -
Production Expenses
Production expenses were $(27,586) and $14,854 during the three and nine
months ended September 30, 2004, respectively, as compared to $5,274 and
$51,237 during the corresponding periods in 2003. We incurred $2,974 and
$6,070 in depletion and amortization expenses during the three and nine months
ended September 30, 2004, respectively, as compared to $18,508 and $46,247 of
such expenses during the corresponding periods in 2003. The decreases in
production expenses and depletion and amortization expenses were due to a
decrease in the production of our Hackberry Prospect.
We incurred $-0- and $ 212,725 in impaired properties expense during the
three and nine months ended September 30, 2004, respectively. We did not have
any impaired property expense during the corresponding periods in 2003. The
increase was attributable to an impairment of the carrying value of the unproved
properties in the Waha/Lockridge Prospect.
Mining Exploration Expenses
We incurred $77,000 of mining and exploration expenses during the three
months ended September 30, 2004 in connection with our Mongolian mining
property. We did not incur any such expenses during the corresponding period in
2003 as we were not in the mining business in 2003.
General and Administrative Expenses
General and administrative expenses, including those from related parties,
were $204,670 and $641,871 during the three and nine months ended September 30,
2004, respectively, as compared to $150,834 and $860,596 during the
corresponding periods in 2003. The $53,836 increase during the three months
ended September 30, 2004 was due to an increase in professional fees. The
$218,725 decrease during the nine months ended September 30, 2004 was primarily
due to a decrease in consulting expenses, professional fees and marketing
expenses. We expect general and administrative expenses to remain at current
levels during the remainder of 2004.
Other (income) and expense
Other expenses were $96,859 and $523,227 during the three and nine months
ended September 30, 2004, respectively, as compared to $3,653,170 and $4,533,289
for the three and nine months ended September 30, 2003. The expenses incurred in
2003 included a $2,665,918 loss we realized on the sale of 4,390,000 shares and
warrants to acquire 1,463,000 shares of Ocean Resources Capital Holdings Plc, a
London, England based company whose shares are traded on the Alternative
Investment Market of the London Stock Exchange. We did not realize any
such loss in the corresponding periods in 2004.
The remainder of the $3,556,311 decrease during the three months ended
September 30, 2004 was due to a $463,492 decrease in interest expense resulting
from less amortization of debt discounts in connection with loans from Trident
and decrease in interest on outstanding notes due to Trident and Endeavour
International Corporation which were satisfied in July 2004, a $90,731 decrease
in interest expense representing accrued dividends on our series A convertible
preferred stock which contained a mandatory redemption feature and were
converted to common stock in April 2004, and a decrease of $338,136 in losses
from limited liability companies and limited partnerships. The remainder of the
$4,010,062 decrease during the nine months ended September 30, 2004 was due to a
decrease of $728,528 in interest expense as a result of the conversion of the
Ocean Resources note and series A preferred stock into common stock, the
satisfaction of $2,100,000 principal amount of notes due to Trident and $670,000
principal amount note due to Endeavour International Corporation, and a decrease
of $301,042 in losses from limited liability companies and limited partnerships.
The foregoing amounts were offset by a $316,499 gain on extinguishment of debt
incurred in connection with the satisfaction of our indebtedness to ORCH
resulting from the conversion of such debt into shares of our series B
convertible preferred stock.
Discontinued Operations
(Income) loss from discontinued operations includes all revenue, operating
expense and other (income) expense of BPK South Valentine and CSR Hackberry
which we sold on July 20, 2004. Loss from discontinued operations were $4,619
and $15,762 for the three and nine months ended September 30, 2004, respectively
as compared to a loss of $8,992 and income of $12,560 during the corresponding
periods in 2003.
- 22 -
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operating activities during the nine months ended
September 30, 2004 was $557,767 compared to $824,174 during the nine months
ended September 30, 2003. The primary use of cash in operating activities was to
fund the net loss. Net cash used in investing activities for the nine months
ended September 30, 2004 was $206,383 and consisted of the purchase of limited
partnership and mining interest in Mongolia, as compared to $730,809 provided by
investing activities during the nine months ended September 30, 2003.
Net cash provided by financing activities during the nine months ended
September 30, 2004 was $804,000 compared to $157,466 during the nine months
ended September 30, 2003 and consisted primarily of the issuance of common stock
and warrants and the issuance of $44,000 of indebtedness during 2004.
Working capital increased $3,406,171 during the nine-month period ended
September 30, 2004 to a deficit of $904,153 as compared to a deficit of
$4,310,324 as of December 31, 2003. This increase is primarily due to the
elimination of $309,708 of dividends payable on our series A convertible
preferred stock as a result of the conversion of such shares into common stock,
a $1,158,365 decrease in notes payable - related party resulting from the
conversion of such notes into shares of our series B convertible preferred
stock, a $1,998,768 decrease in convertible debentures, and $414,998 decrease in
accounts payable and payables for oil and gas interest-related party These
amounts were offset by an increase in accounts payable and accrued expenses of
$192,238, an increase in notes payable of $50,000, a decrease in accounts
receivable of $142,185 and a decrease in prepaid expenses of $82,423.
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 was initially due October 31, 2003 but on or
about July 29, 2003, we extended the maturity date of the Convertible Note until
June 30, 2004. We also entered into an amendment to our loan agreement with
Trident to obtain an additional $600,000 from Trident pursuant to a second
convertible note (the "July Convertible Note" and together with the Convertible
Note, the "Trident Notes"). Pursuant to the terms of a Purchase and Sale
Agreement dated July 20, 2004 with BP Acquisition LLC (the "Purchase and Sale
Agreement"), we were released from any and all liabilities under the Convertible
Note and the July Convertible Note.
- 23 -
Pursuant to the terms of the Purchase and Sale Agreement, we were also
released from all liabilities and obligations under a promissory note in the
principal amount of $1,500,000 held by CSOR Preferred Liquidation, LLC, which
was initially due April 30, 2003 and subsequently extended to June 30, 2004. The
outstanding principal balance of the note at the time of release was $670,000.
On March 14, 2003, we entered into a loan agreement with Ocean Resources
Capital Holdings, Plc ("ORCH") in which ORCH agreed to advance $600,000 against
the contemplated sale of the ORCH shares we formerly owned. On February 27,
2004, we issued 829,755 shares of our newly designated series B convertible
preferred stock (the "Series B Shares") and warrants to purchase 150,000 shares
of common stock to ORCH in consideration of the cancellation of all indebtedness
due and owing ORCH. Each Series B Share is immediately convertible at the option
of the holder into one share of common stock at an effective conversion price of
$.55 per share.
During the six months ended June 30, 2004, we raised gross cash proceeds
of $760,000 through the issuance and sale of units at a purchase price of $.40
per unit. Each unit consisted of two shares of common stock and warrants to
purchase an additional share of common stock. The warrants are immediately
exercisable at an exercise price of $.30 per share and terminate three years
from the date of grant.
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 and our current liabilities substantially
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, oil or minerals. We owe approximately $390,000
of drilling costs associated with our interest in CSR-Waha Partners, L.P. 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. Under the terms of an assignment and
assumption agreement, we can earn up to a 50% interest in the property rights of
Bell Coast Capital Corp. in approximately 138,000 acres in the South Gobi
Province of Mongolia. To earn this interest, we will be required to contribute
up to $Cdn 2,400,000 over the next eighteen (18) months of which $77,000 has
been funded as of September 30, 2004.
We will not have sufficient funds to conduct operations at current levels
for the next twelve months. Accordingly, we will be required to raise funds
through additional offerings of our securities in order to have the funds
necessary to meet our working capital requirements and cash calls related to our
interests in mining and oil and gas prospects, complete other acquisitions and
continue our operations. Our ability to continue as a going concern is dependent
upon raising capital through equity and debt financing on terms acceptable to
us. If we are unable to obtain additional funds when they are required or if the
funds cannot be obtained on terms favorable to us, we may be required to delay,
scale back or eliminate our mining interest to develop or market products that
we would otherwise seek to develop or market ourselves, or even be required to
relinquish our interest in the properties or in the extreme situation, cease
operations.
- 24 -
ITEM 3. CONTROLS AND PROCEDURES.
An evaluation of the effectiveness of our "disclosure controls and
procedures" (as such term is defined in Rules 13a-15(e) or 15d-15(e) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act")) was carried
out by us under the supervision and with the participation of our Chief
Executive Officer ("CEO") and Treasurer ("Treasurer"). Based upon that
evaluation, our CEO and Treasurer concluded that, as of the end of the period
covered by this quarterly report, our disclosure controls and procedures were
effective to provide reasonable assurance that information we are required to
disclose in reports that we file or submit under the Exchange Act is recorded,
processed, summarized and reported within the time periods specified in the
Securities and Exchange Commission rules and forms. There has been no change in
our internal control over financial reporting identified in connection with that
evaluation that occurred during the period covered by this report that has
materially affected, or is reasonably likely to materially affect, our internal
control over financial reporting.
PART II. OTHER INFORMATION
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
On July 20, 2004, we issued a warrant to Trident Growth Fund, L.P., to
purchase 400,000 shares of common stock at an exercise price of $.13 per share.
The warrant is immediately exercisable in full and expires on July 20, 2009. We
issued the warrant as an inducement to Trident to release us from all
obligations under all outstanding notes and obligations due to Trident. The
warrants were issued to one accredited investor in a private placement
transaction exempt from the registration requirement of the Securities Act of
1933, as amended, pursuant to section 4(2) thereof without payment of
underwriting discounts or commissions to any person.
ITEM 5. OTHER INFORMATION.
2004 Stock Incentive Plan
On November 19, 2004, our Board of Directors adopted the BPK Resources
Inc. 2004 Stock Incentive Plan (the "Plan"). The Plan reserves 7,500,000 shares
of common stock for issuance pursuant to stock options, stock appreciation
rights, restricted stock awards, restricted stock units, unrestricted stock
awards, and other equity based or equity related awards to employees, officers,
directors, or advisors to the Company or any of our subsidiaries as well as
individuals who have entered into an agreement with us under which they will be
employed by the Company or any of our subsidiaries in the future. The Plan is
administered by the Board of Directors (the "Board") of the Company which has
full and final authority to interpret the Plan, select the persons to whom
awards may be granted, and determine the amount and terms of any award. In order
to comply with certain rules and regulations of the Securities and Exchange
Commission or the Internal Revenue Code, the Board can delegate authority to
appropriate committees of the Board. Although the Plan provides for the issuance
of options that qualify as incentive stock options ("ISOs") under the Internal
Revenue Code of 1986, as amended, since the Plan was not approved by our
stockholders, we cannot issue ISOs unless and until we obtain the requisite
shareholder approval.
- 25 -
Stock options issued under the Plan have a term of no more than 10 years,
an exercise price equal to at least 85% of the fair market value of our common
stock on the date of grant (100% in the case of ISOs), are subject to vesting as
determined by the Board, and unless otherwise determined by the Board, may not
be transferred except by will, the laws of descent and distribution, or pursuant
to a domestic relations order. Unless otherwise determined by the Board, awards
terminate three (3) months after termination of employment or other association
with the Company or one (1) year after termination due to disability, or death
or retirement. In the event that termination of employment or association is for
a cause, as that term is defined in the Plan, awards terminate immediately upon
such termination.
The Plan provides for immediate vesting of all options and stock
appreciation rights upon the occurrence of a "Change In Control Event," unless
specifically provided to the contrary in any specific option of stock
appreciation right. In the event of a "Reorganization Event" (regardless of
whether such event also constitutes a "Change In Control Event"), except as
otherwise specifically provided to the contrary in any option or stock
appreciation right, the Plan provides for all outstanding options and stock
appreciation rights to either (i) be assumed by, or equivalent options or rights
substituted by, the acquiring or succeeding corporation; or (ii) if the
acquiring or succeeding corporation does not agree to assume or substitute for
such options or rights, all then unexercised options and stock appreciation
rights will become immediately exercisable in full as of a date prior to the
completion of such Reorganization Event and will terminate immediately prior to
the consummation of such Reorganization Event. In the event that a
Reorganization Event provides for the payment of cash to the Company's
stockholders, the Board may instead provide that all outstanding options and
stock appreciation rights to terminate upon the consummation of such
Reorganization Event and for the holders of such options and stock appreciation
rights to receive a cash payment equal to the amount (if any) by which the price
paid to the Company's stockholders exceeds the aggregate exercise price of such
options or rights.
In the case of outstanding restricted stock or restricted unit awards, the
Plan provides that upon a "Change In Control Event," all restrictions applicable
to such awards to automatically be deemed terminated or satisfied, except as
specifically set forth to the contrary in any award. In the event of a
"Reorganization Event" that is not a "Change in Control Event", the repurchase
and other rights of the Company under such restricted stock or restricted unit
awards shall inure to the benefit of the Company's successor and shall apply to
the cash, securities or other property that the common stock was converted into
or exchanged for pursuant to such Reorganization Event.
The Plan defines "Reorganization Event" to mean: (i) any merger or
consolidation of the Company with or into another entity as a result of which
all of the outstanding shares of common stock are converted into or exchanged
for the right to receive cash, securities or other property; or (ii) any
exchange of all outstanding shares of common stock for cash, securities or other
property pursuant to a share exchange transaction.
The Plan defines a "Change in Control Event" to mean: (i) the acquisition
by an individual, entity or group of 30% or more of the issued and outstanding
shares of common stock of the Company or of the combined voting power of all
outstanding securities of the Company unless such acquisition was directly from
the Company, was acquired by an employee benefit plan of the Company, or
resulted from an acquisition of the Company in which the stockholders of the
Company immediately prior to the acquisition continue to own more than 50% of
the Company's outstanding voting securities and no person (except for the
acquiring corporation or an employee benefit plan of such entity) beneficially
owns in excess of 30% of the Company's outstanding voting shares; (ii) an event
as a result of which persons who were members of the Board of Directors of the
Company on the date the Plan was adopted or were nominated or elected by at
least a majority of such directors fail to constitute a majority of the board of
directors of the Company; or (iii) a merger, consolidation, reorganization,
recapitalization, share exchange or sale or other disposition of all or
substantially all assets of the Company unless immediately following such
transaction, the stockholders of the Company immediately prior to such
transaction continue to own more than 50% of the Company's outstanding voting
securities and no person (except for the acquiring corporation or an employee
benefit plan of such entity) beneficially owns in excess of 30% of the Company's
outstanding voting shares. Transactions with Mr. Giordano
On November 19, 2004, concurrent with the adoption of the Plan, we entered
into an agreement with Mr. Giordano, currently our sole officer and director, to
serve as the Chief Executive Officer of the Company at an annual base salary of
$75,000. The agreement may be terminated at any time by the Company or Mr.
Giordano upon thirty (30) days prior written notice. We also issued a
non-qualified stock option under the Plan to Mr. Giordano to purchase 500,000
shares of common stock at an exercise price of $.13 per share which was fully
vested and exercisable upon issuance.
- 26 -
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
- -------------------------------------------------------------------------------------------------------------
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
- -------------------------------------------------------------------------------------------------------------
- 27 -
- -------------------------------------------------------------------------------------------------------------
Exhibit No. Exhibit Method of Filing
- -------------------------------------------------------------------------------------------------------------
3.4 Certificate of Designation of Series A 10% Incorporated by reference to Exhibit 3.4 to
Convertible Preferred Stock the Registrants Annual Report on Form 10-KSB
for the Year Ended December 31, 2002
- -------------------------------------------------------------------------------------------------------------
3.5 Certificate of Designation of Series B Incorporated by reference to Exhibit 3.5 to
Convertible Preferred Stock the Registrant's Annual Report on Form 10-KSB
for the Year Ended December 31, 2003
- -------------------------------------------------------------------------------------------------------------
3.6 Amended and Restated Certificate of Incorporated by reference to Exhibit 3.6 to
Designation of Series A 10% Convertible the Registrant's Annual Report on Form 10-KSB
Preferred Stock for the Year Ended December 31, 2003
- -------------------------------------------------------------------------------------------------------------
10.1 Warrant to purchase 150,000 shares of Incorporated by reference to Exhibit 4.3 to
Common Stock dated April 25, 2002, issued the Company's Quarterly Report on Form 10-QSB
to Gemini Growth Fund, L.P. for the quarter ended June 30, 2002
- -------------------------------------------------------------------------------------------------------------
10.2 Option to Purchase 100,000 Shares of Incorporated by reference to Exhibit 10.6 to
Common Stock issued to Mark A. Bush the Company's Annual Report on Form 10-KSB
for the year ended December 31, 2002
- -------------------------------------------------------------------------------------------------------------
10.3 Option to Purchase 100,000 Shares of Incorporated by reference to Exhibit 10.7 to
Common Stock issued to Wes Franklin the Company's Annual Report on Form 10-KSB
for the year ended December 31, 2002
- -------------------------------------------------------------------------------------------------------------
10.4 Option to Purchase 200,000 Shares of Incorporated by reference to Exhibit 10.8 to
Common Stock issued to John B. Connally, the Company's Annual Report on Form 10-KSB
III for the year ended December 31, 2002
- -------------------------------------------------------------------------------------------------------------
10.5 Form of Investment Agreement by and Incorporated by reference to Exhibit 10.10 to
between the Company and Ocean Resources the Company's Annual Report on Form 10-KSB
Capital Holdings, PLC dated February 21, for the year ended December 31, 2002
2003
- -------------------------------------------------------------------------------------------------------------
10.6 Limited Partnership Agreement of PH GAS, Incorporated by reference to Exhibit 10.11 to
LP dated July 16, 2003 the Company's Quarterly Report on Form 10-QSB
for the quarter ended March 31, 2003
- -------------------------------------------------------------------------------------------------------------
10.7 Amendment to the Limited Partnership Incorporated by reference to Exhibit 10.12 to
Agreement of PH GAS, LP dated April 26, the Company's Quarterly Report on Form 10-QSB
2003 for the quarter ended March 31, 2003
- --------------------------------------------------------------- -----------------------------------------------
- 28 -
- -------------------------------------------------------------------------------------------------------------
Exhibit No. Exhibit Method of Filing
- -------------------------------------------------------------------------------------------------------------
10.8 Limited Partnership Agreement of Incorporated by reference to Exhibit 10.15 to
CSR-WAHA Partners, LP dated the Company's Quarterly Report on Form 10-QSB
June 27, 2002 for the quarter ended March 31, 2003
- -------------------------------------------------------------------------------------------------------------
10.9 Amendment to The Limited Partnership Incorporated by reference to Exhibit 10.16 to
Agreement of CSR-WAHA Partners, L.P. dated the Company's Quarterly Report on Form 10-QSB
January 15, 2003 for the quarter ended March 31, 2003
- -------------------------------------------------------------------------------------------------------------
10.10 Limited Partnership Agreement of Louisiana Incorporated by reference to Exhibit 10.17 to
Shelf Partners, L.P. dated December 31, the Company's Quarterly Report on Form 10-QSB
2002 for the quarter ended March 31, 2003
- -------------------------------------------------------------------------------------------------------------
10.11 10% Promissory Note dated January 15, Incorporated by reference to Exhibit 4.3 to
2003, issued to Continental Southern the Company's Annual Report on Form 10-KSB
Resources, Inc. for the year ended December 31, 2002
- -------------------------------------------------------------------------------------------------------------
10.12 First Amendment to Loan Agreement dated Incorporated by reference to Exhibit 10.19 to
July 29, 2003, by and between the Company the Company's Quarterly Report on Form 10-QSB
and Trident Growth Fund, L.P. for the quarter ended June 30, 2003
- -------------------------------------------------------------------------------------------------------------
10.13 12% Secured Convertible Note dated July Incorporated by reference to Exhibit 10.20 to
29, 2003, issued to Trident Growth Fund, the Company's Quarterly Report on Form 10-QSB
L.P. for the quarter ended June 30, 2003
- -------------------------------------------------------------------------------------------------------------
10.14 First Amended Security Agreement dated Incorporated by reference to Exhibit 10.21 to
July 29, 2003, by and between the Company the Company's Quarterly Report on Form 10-QSB
and Trident Growth Fund, L.P. for the quarter ended June 30, 2003
- -------------------------------------------------------------------------------------------------------------
10.15 First Amendment to 12% Secured Convertible Incorporated by reference to Exhibit 10.22 to
Note (such original note dated April 25, the Company's Quarterly Report on Form 10-QSB
2002), dated July 29, 2003, issued to for the quarter ended June 30, 2003
Trident Growth Fund, L.P.
- -------------------------------------------------------------------------------------------------------------
- 30 -
- -------------------------------------------------------------------------------------------------------------
Exhibit No. Exhibit Method of Filing
- -------------------------------------------------------------------------------------------------------------
10.16 Warrants to purchase 120,000 shares of Incorporated by reference to Exhibit 10.23 to
Common Stock, dated July 29, 2003, issued the Company's Quarterly Report on Form 10-QSB
to Trident Growth Fund, L.P. for the quarter ended June 30, 2003
- -------------------------------------------------------------------------------------------------------------
10.17 Warrants to purchase 100,000 shares of Incorporated by reference to Exhibit 10.24 to
Common Stock, dated July 29, 2003, issued the Company's Quarterly Report on Form 10-QSB
to Trident Growth Fund, L.P. for the quarter ended June 30, 2003
- -------------------------------------------------------------------------------------------------------------
10.18 First Amendment to Warrants to purchase Incorporated by reference to Exhibit 10.25
to 150,000 shares of Common Stock, the Company's Quarterly Report on Form 10-QSB
dated July 29, 2003, issued for the quarter ended June 30, 2003
to Trident Growth Fund, L.P.
- -------------------------------------------------------------------------------------------------------------
10.19 Assignment and Assumption dated April 19, Incorporated by reference to Exhibit 10.1 to
2004 by and between the Company and Montex the Company's current report on Form 8-K,
Exploration, Inc. dated April 19, 2004
- -------------------------------------------------------------------------------------------------------------
10.20 Purchase and Sale Agreement dated July 20, Incorporated by reference to Exhibit 2.1 to
2004 by and between the Company and BP the Company's current report on Form 8-K,
Preferred Acquisition, LLC. dated August 4, 2004
- -------------------------------------------------------------------------------------------------------------
10.21 First Amendment to Purchase and Sale Incorporated by reference to Exhibit 2.2 to
Agreement dated October 12, 2004 by and Amendment No. 1 to the Company's current
between the Company and BP Preferred report on Form 8-K/A, dated July 20, 2004.
Acquisition LLC
- -------------------------------------------------------------------------------------------------------------
10.22 BPK Resources, Inc. 2004 Stock Incentive Filed herewith
Plan
- -------------------------------------------------------------------------------------------------------------
10.23 Letter Agreement dated November 19, 2004 Filed herewith
by and between the Company and Christopher
Giordano
- -------------------------------------------------------------------------------------------------------------
10.24 Non-Qualified Stock Option Agreement Under Filed herewith
The BPK Resources, Inc. 2004 Stock Option
Plan dated November 19, 2004 by and
between the Company and Christopher H.
Giordano
- -------------------------------------------------------------------------------------------------------------
31.1 Certification by Principal Executive Filed herewith
Officer and Principal Financial Officer
pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
- -------------------------------------------------------------------------------------------------------------
- 31 -
- -------------------------------------------------------------------------------------------------------------
Exhibit No. Exhibit Method of Filing
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
31.2 Certification by Principal Financial Filed herewith
Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
- -------------------------------------------------------------------------------------------------------------
32.1 Certification by the Principal Executive Filed herewith
Officer and Principal Financial Officer
Pursuant to 18 U.S.C. 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
September 30, 2004:
1. On August 4, 2004, we filed a Current Report on Form 8-K dated July 20,
2004, reporting under Items 2.01 and 9.01 the disposition of certain of our
interests in oil and gas limited partnerships and limited liability companies.
2. On October 22, 2004, we filed an amendment to our Current Report on
Form 8-K dated July 20, 2004, reporting under Items 2.01 and 9.01 an amendment
to the purchase agreement relating to our sale of certain of our interests in
oil and gas limited partnerships and limited liability companies and to include
the pro forma financial information required in connection with our disposition
of these assets.
- 32 -
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of
1934, as amended, the registrant caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
BPK RESOURCES, INC.
Date: November 24, 2004 /s/ Christopher H. Giordano
-----------------------------------------
Christopher H. Giordano
Chief Executive Officer, Secretary
and Treasurer
- 33 -
EXHIBIT INDEX
Exhibit Number Description
10.22 BPK Resources, Inc. 2004 Stock Incentive Plan
10.23 Letter Agreement dated November 19, 2004 by and between
the Company and Christopher H. Giordano
10.24 Non-Qualified Stock Option Agreement Under The BPK
Resources, Inc. 2004 Stock Option Plan dated November
19, 2004 by and between the Company and Christopher H.
Giordano
31.1 Certificate of CEO of Registrant required by Rule
13a-14(a) under the Securities Exchange Act of 1934, as
amended
31.2 Certificate of Treasurer of Registrant required by Rule
13a-14(a) under the Securities Exchange Act of 1934, as
amended
32.1 Certificate of CEO and Treasurer of Registrant required
by Rule 13a-14(b) under the Securities Exchange Act of
1934, as amended
- 34 -