UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-QSB
(Mark One)
[X] Quarterly report under Section 13 or 15(d) of the Securities Exchange Act of
1934
For the quarterly period ended: MARCH 31, 2005
---------------
[_] Transition report under Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the transition period from _________ to __________
Commission file number: 27339
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BPK RESOURCES, INC.
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(Exact Name of Small Business Issuer as Specified in Its Charter)
NEVADA 88-0426887
- ---------------------------------- ---------------------------------------
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
264 UNION BOULEVARD, FIRST FLOOR
TOTOWA, NEW JERSEY 07512
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(Address of Principal Executive Offices)
(973) 956-8400
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(Issuer's Telephone Number, Including Area Code)
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 [
]
As of May 19, 2005, 54,259,503 shares of the issuer's common stock were
outstanding.
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
BPK RESOURCES, INC.
QUARTERLY REPORT ON FORM 10-QSB
FOR FISCAL QUARTER ENDED MARCH 31, 2005
TABLE OF CONTENTS
PAGE
PART I
Item 1.Financial Statements
Consolidated Balance Sheets 1
Consolidated Statements of Operations 2
Condensed Consolidated Statements of Cash Flows 3
Notes to Consolidated Financial Statements 4
Item 2.Management's Discussion and Analysis 7
Item 3.Controls and Procedures 15
PART II
Item 6.Exhibits 16
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BPK RESOURCES, INC.
Consolidated Balance Sheet
(Unaudited)
ASSETS
March 31,
2005
----------------
Current assets
Cash and cash equivalents $ 14,809
Accounts receivable 31,740
Notes and interest receivable 21,589
Prepaid expenses 4,398
----------------
Total current assets 72,536
Developed oil and gas interests, net of accumulated depletion and impairment
allowance of $2,003,435, using successful efforts 68,911
----------------
$ 141,447
================
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities
Accounts payable and accrued expenses $ 771,996
Accounts payable and accrued expenses - related party 5,168
Notes Payable 58,178
Notes payable - related party 165,000
----------------
Total current liabilities 1,000,342
Commitments and contingencies
Stockholders' deficit
Preferred stock, Series B, $.001 par value authorized 100,000,000 shares;
829,755 shares issued and outstanding as of March 31, 2005 830
Common stock, $.001 par value authorized 100,000,000 shares;
51,259,503 shares issued, issuable and outstanding as of March 31, 2005 51,259
Additional paid in capital 12,037,392
Accumulated deficit (12,948,376)
----------------
Total stockholders' deficit (858,895)
----------------
$ 141,447
================
1
BPK RESOURCES, INC.
Consolidated Statements of Operations
(Unaudited)
Three Months Ended
March 31,
-------------------------------
2005 2004
----------------- -------------
Revenues $ 20,570 $ 5,905
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Operating expenses
Exploration and production expenses 5,716 2,171
Depletion and amortization 6,735 -
General and administrative - related party - 22,500
General and administrative 61,952 139,625
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Total operating expenses 74,403 164,296
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Loss from operations (53,833) (158,391)
----------------- -------------
Other (income) expense
Interest income - (1,000)
Interest expense - related party 1,779 -
Interest expense 374 208,722
Interest expense - Series A Preferred - 90,000
Partnership investment loss - 21,518
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Total other expenses, net 2,153 319,240
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Loss from continuing operations (55,986) (477,631)
Loss from discontinued operations - (3,788)
Extraordinary gain on debt extinguishment - 316,499
----------------- -------------
Net loss (55,986) (164,920)
Preferred dividend on series A preferred stock - 4,652,307
----------------- -------------
Net loss to common shareholders $ (55,986) $ (4,817,227)
================= =============
Basic and diluted loss per common share $ (0.00) $ (0.31)
================= =============
Basic and diluted weighted average common
shares outstanding 51,259,503 15,301,981
================= =============
2
BPK RESOURCES, INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Three Months Ended
March 31,
-----------------------------
2005 2004
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Net cash used in continuing operating activities $ (54,077) $ (193,853)
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Cash flows from investing activities
Loan to unrelated party (2,150) -
Purchase of oil and gas interests - (1,546)
Investment in limited partnerships - (8,000)
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Net cash used in continuing investing activities (2,150) (9,546)
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Cash flows from financing activities
Issuance of debt - related party 55,000 41,000
Issuance of common stock, net of offering costs - 230,000
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Net cash provided by continuing financing activities 55,000 271,000
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Net cash provided by discontinued operations - 3,740
Net increase in cash and cash equivalents (1,227) 71,341
Cash and cash equivalents, beginning of year 16,036 15,832
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Cash and cash equivalents, end of period $ 14,809 $ 87,173
============= ==============
3
BPK RESOURCES, INC.
Notes to Consolidated Financial Statements
NOTE 1 - BASIS OF PRESENTATION
The unaudited condensed financial statements included herein have been prepared
by BPK Resources, Inc. ("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. Although BPK 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 BPK's 2004 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, 2005.
BPK follows the provisions of SFAS No. 123. As permitted under SFAS No. 123, BPK
continues to utilize Accounting Principles Board ("APB") No. 25 in accounting
for its stock-based compensation to employees. Had compensation expense for the
three months ended March 31, 2005 and 2004 been determined under the fair value
provisions of SFAS No. 123, as amended by SFAS 148, BPK's net loss to common
shareholders and net loss per share would have been as follows:
Three Months Ended
March 31,
-------------------------------
2005 2004
-------------- -------------
Net loss, to common stockholders as reported $ (55,986) $ (4,817,227)
Add: Stock-based employee compensation
expense included in reported
net income determined under APB
No. 25, net of related tax effects - 250
Deduct: Total stock-based employee
compensation expense determined
under fair-value-based method for all
awards, net of related tax effects - -
-------------- -------------
Pro forma net income to common
stockholders $ (55,986) $ (4,816,977)
-------------- -------------
Earnings per share:
Basic - as reported $ (0.00) $ (0.31)
Basic - pro forma $ (0.00) $ (0.31)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Reclassifications
Certain reclassifications have been made to conform the prior year's data to the
current presentation. These reclassifications had no effect on reported
earnings.
4
BPK RESOURCES, INC.
Notes to Consolidated Financial Statements
NOTE 3 - NOTES PAYABLE
During 2005, BPK borrowed an additional $55,000 from Montex and issued various
5.25% demand promissory notes for a total outstanding principal balance of
$145,000 as of March 31, 2005.
NOTE 4 - SUBSEQUENT EVENTS
In April 2005, BPK commenced raising capital through a private offering of up to
22,500,000 shares of common stock, $.001 par value per share, and warrants to
acquire up to 11,250,000 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 $0.26 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 April 2005, BPK sold a total of 1,500,000 units for
$390,000.
5
DISCLOSURE REGARDING 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 objective of management for future operations, are forward-looking
statements. In addition, 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.
The following factors, among others, could cause actual results and
future events to differ materially from those set forth or contemplated in the
forward-looking statements:
o our ability to obtain sufficient financing to satisfy capital
calls, debt obligations and operating expenses with respect to
our oil and gas properties;
o the accuracy of our estimates and judgments regarding oil and
gas resources and formations and reservoir performance;
o our ability to identify and acquire properties with
commercially productive reservoirs;
o our failure to identify liabilities associated with the
properties we acquire or obtain protection from sellers
against such liabilities;
o operational and drilling risks inherent in the exploration,
development and production of oil and gas;
o our dependence upon various third-party operators and others
that we do not control;
o the unavailability or high cost of drilling rigs, equipment,
supplies, personnel and oil field services;
o market fluctuations in the prices of oil and gas;
o risks associated with the geographic concentration of
substantially all of our properties in Texas;
o title deficiencies in the properties underlying our leases;
o failure by our operators to maintain adequate insurance on our
properties;
o the impact of environmental and other laws and regulations;
and
o international and domestic political and economic factors.
For a more in-depth discussion of these factors and other factors that may cause
our actual results to differ materially from those indicated in our
forward-looking statements, please see the information set forth under the
caption "Risk Factors" in our Annual Report on Form 10-KSB.
6
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
our forward-looking statements based on changes in internal estimates or
expectations or otherwise.
Unless the context otherwise requires, references to the "Company,"
"BPK Resources," "we," "us" or "our," mean BPK Resources, Inc. and our
consolidated subsidiaries.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS.
This Management's Discussion and Analysis and other parts of this
report contain forward-looking statements that involve risks and uncertainties.
All forward-looking statements included in this report are based on information
available to us on the date hereof, and we assume no obligation to update any
such forward-looking statements. Our actual results could differ materially from
those anticipated in these forward-looking statements as a result of a number of
factors, including those set forth under the heading "Disclosure Regarding
Forward-Looking Statements" above and under the caption "Risk Factors" in our
Annual Report on Form 10-KSB. The following should be read in conjunction with
our audited financial statements and the related notes included elsewhere
herein.
OVERVIEW
We are an independent energy company engaged in the acquisition,
development and production of oil and natural gas reserves. We target
high-potential oil and gas assets located primarily in the traditional oil and
gas producing states in the southern United States and internationally. We seek
to create shareholder value by building oil and gas reserves, production
revenues and operating cash flow. We believe that building oil and gas reserves
and production, on a cost-effective basis, are the most important indicators of
performance success for an independent oil and gas company. We seek to build oil
and gas reserves, production and cash flow through a balanced program of capital
expenditures involving acquisition, exploitation and exploration activities.
To date, we have conducted our acquisition, exploration and development
activities primarily in Texas, Louisiana and Thailand. These regions are
characterized by long-lived reserves with predictable and relatively low
production depletion rates, multiple geologic targets that decrease risk, strong
natural gas prices, lower service costs than in more competitive or remote
areas, a favorable regulatory environment that encourages drilling efforts, and
virtually no federal land or land access impediments.
We believe that attractive acquisition opportunities will continue to
arise in these regions as the major integrated oil companies and other large
independent oil and gas exploration and production companies continue to divest
small, less capital-intensive properties to focus on larger, more
capital-intensive projects that better match their long-term strategic goals. We
believe that these asset divestitures as well as the resource constraints of
major integrated oil companies and other large upstream companies may allow us
to acquire attractive prospects at favorable prices with a significant portion
of the up-front development expenses, such as infrastructure and seismic,
already invested.
7
Our ability to generate future revenues, operating cash flow and
earnings is dependent on the successful development of our inventory of capital
projects, the volume and timing of our production, our ability to identify,
acquire and successfully exploit properties containing oil and gas reserves in
commercial quantities, and the commodity prices for oil and gas. Such pricing
factors are largely beyond our control, and may result in fluctuations in our
financial condition and results of operations.
Our ability to generate future revenues, operating cash flow and
earnings will also be influenced the by exploration and development expenses we
incur. Our exploration and development efforts are focused on discovering
reserves on acreage already under lease. The investment associated with the
development of a project depends principally upon the complexity of the
geological formations involved, the depth of the well or wells, whether the well
or project can be connected to existing infrastructure or will require
additional investment in infrastructure, and, if applicable, the water depth of
the well or project. If we underestimate the amount of exploration and
development costs necessary to exploit the oil or gas reserves of our prospects,
we may incur substantially more exploration and development costs than planned,
which may have a material adverse effect on our financial condition and results
of operations.
CURRENT OIL AND GAS PROJECTS
We currently own an interest in two oil and gas projects with an
aggregate of 1,950 gross acres under lease. A description of each of our oil and
gas projects is provided below.
CSR-Waha Project
We own a 99% limited partnership interest in CSR-Waha Partners, L.P.
("CSR-Waha"). CSR, LLC serves as the sole general partner, and Patterson-UTI
Energy, Inc. ("Patterson-UTI") serves as the operator of the project. CSR-Waha
owns a 12.5% leasehold interest in 1,650 acres in the Waha/Lockridge oil and gas
prospect located in Reeves County, Texas. The Waha/Lockridge prospect was being
drilled to test the Ellenburger Formation at depths in excess of 17,000 feet. To
date, four wells have been drilled in this project, two of which are in
production and the remainder of which are shut in awaiting evaluation for
recompletion. We may recomplete several of our existing wells during the
remainder of 2005.
We currently owe Patterson-UTI approximately $280,000 for our share of
drilling and operating expenses previously incurred by Patterson-UTI.
Accordingly, our share of the revenues generated by this project is being
reduced by our share of Patterson-UTI's current and past operating and
development expenses.
Hackberry Project
We own a 6.25% leasehold interest in the Hackberry Project. Touchstone
Resources USA, Inc., a Texas corporation ("Touchstone Texas"), serves as the
operator of the project. The Hackberry Project consists of the South French
prospect, which contains an aggregate of 302 gross acres in the Hackberry Trend
located in Jefferson County, Texas. This prospect is currently producing from
hydrocarbons located in the Hackberry formation. The Hackberry formation is
located generally at a depth of about 10,900 feet. To date, two wells have been
drilled in this project and a third well has been acquired by the project. Of
these three wells, two wells are in production and the remaining well has been
plugged and abandoned.
8
CRITICAL ACCOUNTING POLICIES
Our financial statements are prepared in accordance with accounting
principles generally accepted in the United States. The preparation of our
financial statements requires us to make estimates and judgments that affect the
reported amount of assets, liabilities, revenues and expenses. These estimates
are based on information that is currently available to us and on various other
assumptions that we believe to be reasonable under the circumstances. Actual
results could vary significantly from those estimates under different
assumptions and conditions.
Critical accounting policies are defined as those significant
accounting policies that are most critical to an understanding of a company's
financial condition and results of operation. We consider an accounting estimate
or judgment to be critical if: (i) it requires assumptions to be made that were
uncertain at the time the estimate was made, and (ii) changes in the estimate or
different estimates that could have been selected could have a material impact
on our results of operations or financial condition.
We believe that the following significant accounting policies will be
most critical to an evaluation of our future financial condition and results of
operations.
Revenue Recognition
Oil and gas revenues are recognized when production is sold to a
purchaser at a fixed or determinable price, when delivery has occurred and title
has transferred, and if the collection of the revenue is probable. When we have
an interest in a property with other producers, we use the sales method of
accounting for our oil and gas revenues. Under this method of accounting,
revenue is recorded based upon our physical delivery of oil and gas to our
customers, which can be different from our net working interest in field
production. These differences create imbalances that are recognized as a
liability only when the estimated remaining reserves will not be sufficient to
enable the under-produced party to recoup its entitled share through production.
As of December 31, 2004, deliveries of oil and gas in excess of or less than our
working interest were not significant.
Proved Oil and Natural Gas Reserves
Proved reserves are defined by the Securities and Exchange Commission
("SEC") as the estimated quantities of crude oil, condensate, natural gas and
natural gas liquids that geological and engineering data demonstrate with
reasonable certainty are recoverable in future years from known reservoirs under
existing economic and operating conditions. Prices include consideration of
changes in existing prices provided only by contractual arrangements, but not on
escalations based upon future conditions. Prices do not include the effect of
derivative instruments, if any, entered into by the Company.
Proved developed reserves are those reserves expected to be recovered
through existing equipment and operating methods. Additional oil and gas
expected to be obtained through the application of fluid injection or other
9
improved recovery techniques for supplementing the natural forces and mechanisms
of primary recovery are included as proved developed reserves only after testing
of a pilot project or after the operation of an installed program has confirmed
through production response that increase recovery will be achieved.
Proved undeveloped oil and gas reserves are reserves that are expected
to be recovered from new wells on non-drilled acreage, or from existing wells
where a relatively major expenditure is required for re-completion. Reserves on
non-drilled acreage are limited to those drilling units offsetting productive
units that are reasonably certain of production when drilled. Proved reserves
for other non-drilled units are claimed only where it can be demonstrated with
certainty that there is continuity of production from the existing productive
formation.
Volumes of reserves are estimates that, by their nature, are subject to
revision. The estimates are made using all available geological and reservoir
data as well as production performance data. There are numerous uncertainties in
estimating crude oil and natural gas reserve quantities, projecting future
production rates and projecting the timing of future development expenditures.
Oil and gas reserve engineering must be recognized as a subjective process of
estimating underground accumulations of oil and gas that cannot be measured in
an exact way and estimates of engineers that we use may differ from those of
other engineers. The accuracy of any reserve estimate is a function of the
quantity of available data and of engineering and geological interpretation and
judgment. Accordingly, future estimates are subject to change as additional
information becomes available.
Successful Efforts Accounting
We utilize the successful efforts method to account for our crude oil
and natural gas operations. Under this method of accounting, all costs
associated with oil and gas lease acquisition costs, successful exploratory
wells and all development wells are capitalized and amortized on a
unit-of-production basis over the remaining life of proved developed reserves
and proved reserves on a field basis. Unproved leasehold costs are capitalized
pending the results of exploration efforts. Exploration costs, including
geological and geophysical expenses, exploratory dry holes and delay rentals,
are charged to expense when incurred.
Impairment of Properties
We review our proved properties at the field level when management
determines that events or circumstances indicate that the recorded carrying
value of the properties may not be recoverable. Such events include a projection
of future oil and natural gas reserves that will be produced from a field, the
timing of this future production, future costs to produce the oil and natural
gas, and future inflation levels. If the carrying amount of an asset exceeds the
sum of the undiscounted estimated future net cash flows, we recognize impairment
expense equal to the difference between the carrying value and the fair value of
the asset which is estimated to be the expected present value of future net cash
flows from proved reserves, utilizing a risk-free rate of return. We cannot
predict the amount of impairment charges that may be recorded in the future.
Unproved leasehold costs are reviewed periodically and a loss is recognized to
the extent, if any, that the cost of the property has been impaired.
10
Property Retirement Obligations
We are required to make estimates of the future costs of the retirement
obligations of our producing oil and gas properties. This requirement
necessitates that we make estimates of property abandonment costs that, in some
cases, will not be incurred until a substantial number of years in the future.
Such cost estimates could be subject to significant revisions in subsequent
years due to changes in regulatory requirements, technological advances and
other factors that may be difficult to predict.
Income Taxes
We are subject to income and other related taxes in areas in which we
operate. When recording income tax expense, certain estimates are required by
management due to the timing and impact of future events on when we recognize
income tax expenses and benefits. We will periodically evaluate our tax
operating loss and other carryforwards to determine whether a gross deferred tax
asset, as well as a related valuation allowance, should be recognized in our
financial statements.
RECENT ACCOUNTING PRONOUNCEMENTS
In December 2004, FASB issued Statement of Financial Accounting
Standards No. 123R, "Share-Based Payment" ("SFAS No. 123R"), which revised
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation." SFAS No. 123R establishes standards for the accounting for
transactions in which an entity exchanges its equity instruments for goods or
services. This Statement focuses primarily on accounting for transactions in
which an entity obtains employee services in share-based payment transactions.
SFAS No. 123R requires that the fair value of such equity instruments be
recognized as expense in the historical financial statements as services are
performed. Prior to SFAS No. 123R, only certain pro forma disclosures of fair
value were required. SFAS No. 123R will be effective for small business issuers
as of the beginning of the first interim or annual reporting period that begins
after December 15, 2005. The impact of the adoption of this new accounting
pronouncement would be similar to the Company's calculation of the pro forma
impact on net income of SFAS 123 included in Note 1 to our consolidated
financial statements beginning on page 4.
For a more complete discussion of our accounting policies and
procedures, see our Notes to consolidated financial statements beginning on page
4.
11
COMPARISON OF FISCAL QUARTERS ENDED MARCH 31, 2005 AND 2004
Revenues
Revenues consist of our allocated portion of the proceeds generated by
our various oil and gas projects from the sale of oil and gas. Revenues
increased $14,665 to $20,570 for our fiscal quarter ended March 31, 2005 from
$5,905 for our fiscal quarter ended March 31, 2004. The increase of $14,665
resulted primarily from increased sales of oil and gas produced by our CSR-Waha
Project and Hackberry Project. We expect revenues to remain constant during 2005
as we continue to receive our allocated portion of the proceeds generated by our
CSR-Waha Project and Hackberry Project.
Exploration and Production Expenses
Exploration and production expenses consist of geological and
geophysical costs, exploratory dry hole expenses, leasehold abandonment
expenses, production expenses, and other exploration and development expenses
related to our oil and gas projects. Exploration and production expenses
increased $3,545 to $5,716 for our fiscal quarter ended March 31, 2005 from
$2,171 for our fiscal quarter ended March 31, 2004. The increase of $3,545
resulted primarily from geological and geophysical expenditures supportive of
the exploration activities we conducted in our CSR-Waha Project and Hackberry
Project. We expect exploration and production expenses to remain constant during
2005 as we continue to conduct exploration activities on the prospects in these
projects and engage in exploration activities on various prospects that we may
acquire in the future.
General and Administrative Expenses
General and administrative expenses consist of consulting and
engineering fees, professional fees, employee compensation, office rents, travel
and utilities, and other miscellaneous general and administrative costs. General
and administrative expenses decreased $100,173 to $61,952 for our fiscal quarter
ended March 31, 2005 from $162,125 for our fiscal quarter ended March 31, 2004.
The decrease of $100,173 resulted primarily from the disposition of certain of
our interests in our oil and gas projects on July 20, 2004. The $61,952 of
general and administrative expenses that we incurred for our fiscal quarter
ended March 31, 2005 consisted primarily of $25,539 for professional fees
incurred in connection with our oil and gas projects, financing transactions,
and compliance with our reporting obligations under federal securities laws, and
$36,413 for consulting and engineering fees. We expect general and
administrative expenses to remain constant in future periods as a result of
continued expenditures for consulting and engineering fees, and for professional
fees associated with acquisitions of additional oil and gas properties and
compliance with SEC public reporting and corporate governance requirements.
12
Interest Expense
Interest expense consists of certain noncash charges and interest
accrued on our various debt obligations. Interest expense decreased $296,569 to
$2,153 for our fiscal quarter ended March 31, 2005 from $298,722 for our fiscal
quarter ended March 31, 2004. The decrease of $296,569 resulted primarily from
the disposition of our interests in certain of our oil and gas projects on July
20, 2004 and the corresponding release by Trident Growth Fund, L.P. ("Trident")
and Endeavour International Corporation ("Endeavour") from our debt obligations
to them that we incurred in connection with our acquisition of those interests,
and a one-time noncash charge of $90,000 accrued during our fiscal quarter ended
March 31, 2004 for interest expense representing dividends on our shares of
Series A 10% Convertible Preferred Stock. The $2,153 of interest expense that we
incurred during our fiscal quarter ended March 31, 2005 consisted of interest
expense incurred under our various debt obligations issued for the purpose of
funding our oil and gas exploration and development business. We expect interest
expense under our various debt obligations to remain constant for the
foreseeable future.
Gain (Loss) on Extinguishment of Debt
Gain (loss) on extinguishment of debt consists of the gains and losses
that we recognized upon the extinguishment of various debt obligations. We
recognized a gain on extinguishment of debt of $316,499 for our fiscal quarter
ended March 31, 2004. We did not recognize any gain or loss on extinguishment of
debt for our fiscal quarter ended March 31, 2005. The gain on extinguishment of
debt of $316,499 resulted primarily from Ocean Resource Capital Holdings, PLC
("Ocean Resource") releasing us from our debt obligations to it upon our
issuance of shares of our Series B Convertible Preferred Stock and warrants to
them on February 27, 2004, and represented the difference between the value of
the loans, interest and fees extinguished in excess of the value of the
securities we issued to Ocean Resource to satisfy these obligations. We may in
the future incur additional debt in connection with the funding of our
operations and the acquisition of additional interests in oil and gas projects.
However, we do not expect gains and losses on the extinguishment of debt to
constitute a material component of our overall financial performance in the
foreseeable future.
Loss (Profit) From Limited Partnerships and Limited Liability Companies
Loss (profit) from limited partnerships and limited liability companies
includes the income or losses that we recognize from the financial performance
of the oil and gas limited partnerships and limited liability companies in which
we own an equity interest of greater than 5% but less than 50% of the applicable
entity. We did not have any loss or profit from limited partnerships and limited
liability companies for our fiscal quarter ended March 31, 2005. We had a loss
from limited partnerships and limited liability companies of $21,518 for our
fiscal quarter ended March 31, 2004. The loss from limited partnerships and
limited liability companies in 2004 resulted primarily from losses we incurred
in connection with our holdings in PH Gas, Hackberry Drilling Fund and Louisiana
Shelf Partners. We disposed of our interests in the forgoing entities on July
20, 2004. We intend to make similar equity investments in additional limited
partnerships and limited liability companies in the future and expect that loss
(profit) from limited partnerships and limited liability companies may
constitute a material component of our overall financial performance for the
foreseeable future.
13
LIQUIDITY AND CAPITAL RESOURCES
Since our inception, we have funded our operations primarily through
private sales of equity securities and the use of short and long-term debt. As
of March 31, 2005, we had a cash balance of $14,809.
Net cash used in continuing operating activities was $54,077 for our
fiscal quarter ended March 31, 2005 compared to $193,853 for our fiscal quarter
ended March 31, 2004. The $139,776 decrease in cash used in operating activities
was primarily due to a decrease in net loss of $157,823 (excluding non cash
items) which was partially offset by an increase in accounts receivable of
$10,475 and a decrease in accounts payable and accrued expenses of $7,602.
Net cash used in continuing investing activities was $2,150 for our
fiscal quarter ended March 31, 2005 compared to net cash used in investing
activities of $9,546 for our fiscal quarter ended March 31, 2004. The $7,396
decrease in cash used in investing activities was due primarily to a decrease in
investments that we made in limited partnerships and limited liability companies
of $8,000.
Net cash provided by continuing financing activities was $55,000 for
our fiscal quarter ended March 31, 2005 compared to $271,000 for our fiscal
quarter ended March 31, 2004. The $216,000 decrease in net cash provided by
financing activities was due primarily to a decrease in the amount of net
proceeds received from the issuance of our common stock of $230,000, partially
offset by an increase in the amount of proceeds we received upon the issuance of
debt of $14,000.
At March 31, 2005, we had a working capital deficit of $927,806
compared to a working capital deficit of $3,533,489 at March 31, 2004. The
$2,605,683 decrease in working capital deficit was due primarily to a decrease
in accounts payable and accrued expenses of $343,838, notes payable of $548,000,
dividends payable on our shares of Series A Convertible Preferred Stock of
$399,708, and net convertible debentures payable of $1,611,276, partially offset
by decreases in accounts receivable of $137,186, notes and interest receivable
of $10,475, prepaid expenses of $43,868, and cash of $72,364.
On April 21, 2004, we sold 2,500,000 shares of common stock and
warrants to acquire 1,250,000 shares of common stock in consideration for which
we received aggregate gross proceeds of $500,000. These securities were sold in
units comprised of two shares of common stock and one warrant. The units were
sold at a purchase price of $.40 per unit. Each warrant is exercisable
immediately into one share of common stock at an exercise price of $.30 per
share and expires three years after the date of issuance.
On March 21, 2005, we commenced a private offering of up to $975,000 of
units comprised of shares of our common stock and warrants to acquire shares of
common stock. Each unit is comprised of two shares of our common stock and one
warrant. The units are being sold at a purchase price of $.26 per unit. Each
warrant is exercisable immediately into one share of common stock at an exercise
price of $.30 per share and expires three years after the date of issuance. As
of the date of this report, we have sold approximately 1,500,000 units in the
offering for aggregate gross proceeds of approximately $390,000.
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The forgoing constitutes our principal sources of financing during the
past 12 months. We do not currently maintain a line of credit or term loan with
any commercial bank or other financial institution.
We will need approximately $1,000,000 to execute our business plan,
satisfy capital calls, and pay drilling and production costs on our various
interests in oil and gas prospects during the next twelve months. Of this
amount, we will need approximately $25,000 for capital calls and production
costs with respect to our oil and gas projects, approximately $280,000 to repay
amounts owed to Patterson-UTI, approximately $170,000 to repay our outstanding
term indebtedness, and approximately $500,000 for general corporate expenses. In
the event that we locate additional prospects for acquisition, experience cost
overruns at our current prospects or fail to generate projected revenues, we
will need funds in excess of the forgoing amounts during the next 12 months. In
addition, if any of the other owners of leasehold interests in any of the
projects in which we participate, or any of the limited partners or membership
interest holders in the limited partnerships or limited liability companies in
which we invest, respectively, fails to pay their equitable portion of
development costs or capital calls, we may need to pay additional funds to
protect our ownership interests.
Based on our available cash resources, cash flows that we are currently
generating from our oil and gas projects, and projected cash flows that we
expect to generate from our oil and gas projects in the future, we will not have
sufficient funds to continue to meet such capital calls, make such repayments
and operate at current levels for the next 12 months. Accordingly, we will be
required to raise additional funds through sales of our securities or otherwise.
If we are unable to obtain additional funds on terms favorable to us, if at all,
we may be required to delay, scale back or eliminate some or all of our
exploration and well development programs and may be required to relinquish our
interests in one or more of our projects.
OFF-BALANCE SHEET ARRANGEMENTS
As of December 31, 2004, we did not have any relationships with
unconsolidated entities or financial partners, such as entities often referred
to as structured finance or special purpose entities, that had been established
for the purpose of facilitating off-balance sheet arrangements or other
contractually narrow or limited purposes. As such, we are not materially exposed
to any financing, liquidity, market or credit risk that could arise if we had
engaged in such relationships.
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 and Treasurer. Based upon that evaluation, our Chief Executive
Officer and Treasurer concluded that, as of the end of the period covered by
this Annual 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 in accordance with the SEC rules and forms, except that
such controls and procedures were not effective to provide reasonable assurance
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that such reports are filed or submitted timely with the SEC. There has been no
change in our internal control over financial reporting identified in connection
with that evaluation that occurred during our most recent fiscal quarter that
has materially affected, or is reasonably likely to materially affect, our
internal control over financial reporting, except that we recently changed our
independent registered public accounting firm and made adjustments to our
internal accounting processes to better ensure that reports that we file or
submit under the Exchange Act are filed or submitted within the time periods
specified in the SEC rules and forms.
PART II
OTHER INFORMATION
ITEM 6. EXHIBITS
The following documents are filed as exhibits to this report.
Exhibit No. Exhibit
----------- -------
31.1 Certification of Chief Executive Officer of the Company
required by Rule 13a-14(a) under the Securities Exchange Act
of 1934, as amended
31.2 Certification of Treasurer of the Company required by Rule
13a-14(a) under the Securities Exchange Act of 1934, as
amended
32.1 Certification of Chief Executive Officer and Chief Financial
Officer of the Company required by Rule 13a-14(b) under the
Securities Exchange Act of 1934, as amended
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
BPK RESOURCES, INC.
Date: May 23, 2005 /s/ Christopher H. Giordano
---------------------------
Christopher H. Giordano
Chief Executive Officer and Treasurer
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EXHIBIT INDEX
Exhibit No. Exhibit
----------- -------
31.1 Certification of Chief Executive Officer of the Company
required by Rule 13a-14(a) under the Securities Exchange Act
of 1934, as amended
31.2 Certification of Treasurer of the Company required by Rule
13a-14(a) under the Securities Exchange Act of 1934, as
amended
32.1 Certification of Chief Executive Officer and Chief Financial
Officer of the Company required by Rule 13a-14(b) under the
Securities Exchange Act of 1934, as amended
18