UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
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: June 30, 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.
- --------------------------------------------------------------------------------
(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 August 11, 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 JUNE 30, 2005
TABLE OF CONTENTS
Page
PART I
Item 1. Financial Statements .............................................
Condensed Consolidated Balance Sheet ..........................1
Condensed Consolidated Statements of Operations ...............2
Condensed Consolidated Statements of Cash Flows ...............3
Notes to Condensed Consolidated Financial Statements ..........4
Item 2. Management's Discussion and Analysis .............................8
Item 3. Controls and Procedures .........................................15
PART II
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds .....16
Item 5. Other Information ...............................................16
Item 6. Exhibits ........................................................17
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BPK RESOURCES, INC. Condensed Consolidated
Balance Sheet (Unaudited)
ASSETS
------
June 30,
2005
----
Current assets
Cash and cash equivalents $ 123,509
Accounts receivable 34,015
Notes and interest receivable 21,589
Prepaid expenses 4,098
---------------
Total current assets 183,211
Developed oil and gas interests, net of accumulated depletion and impairment
allowance of $2,009,448, using successful efforts 62,898
---------------
$ 246,109
===============
LIABILITIES AND STOCKHOLDERS' DEFICIT
-------------------------------------
Current liabilities
Accounts payable and accrued expenses $ 628,022
Accounts payable and accrued expenses - related party 127,454
Notes Payable 58,178
Notes payable - related party 145,000
---------------
Total current liabilities 958,654
---------------
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 June 30, 2005 830
Common stock, $.001 par value authorized 100,000,000 shares;
54,259,503 shares issued, issuable and outstanding as of June 30, 2005 54,259
Additional paid in capital 12,402,314
Accumulated deficit (13,169,948)
---------------
Total stockholders' deficit (712,545)
---------------
$ 246,109
===============
The accompanying notes are an integral part of these condensed consolidated
financial statements.
1
BPK RESOURCES, INC.
Condensed Consolidated Statements of Operations
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
-------- --------
2005 2004 2005 2004
---- ---- ---- ----
Revenues $ 14,473 $ 10,226 $ 35,043 $ 16,131
------------ ------------ ------------ ------------
Operating expenses
Exploration and production expenses 5,104 40,269 10,820 42,440
Depletion and amortization 6,012 7,856 12,747 7,856
Impairment of oil and gas properties -- 207,965 -- 207,965
General and administrative -related party 36,000 18,500 36,000 41,000
General and administrative 186,277 256,176 248,229 395,801
------------ ------------ ------------ ------------
Total operating expenses 233,393 530,766 307,796 695,062
------------ ------------ ------------ ------------
Loss from operations (218,920) (520,540) (272,753) (678,931)
------------ ------------ ------------ ------------
Other (income) expense
Interest income -- (628) -- (1,628)
Interest expense - related party 2,290 -- 4,069 --
Interest expense 362 378,018 736 586,740
Interest expense - Series A Preferred -- -- -- 90,000
Partnership investment loss -- 46,240 -- 67,758
------------ ------------ ------------ ------------
Total other expenses, net 2,652 423,630 4,805 742,870
------------ ------------ ------------ ------------
Loss from continuing operations (221,572) (944,170) (277,558) (1,421,801)
Loss from discontinued operations -- (7,353) -- (11,141)
Extraordinary gain on debt extinguishment -- -- -- 316,499
------------ ------------ ------------ ------------
Net loss (221,572) (951,523) (277,558) (1,116,443)
Preferred dividend on series A preferred stock -- -- -- 4,652,307
------------ ------------ ------------ ------------
Net loss to common stockholders $ (221,572) $ (951,523) $ (277,558) $ (5,768,750)
============ ============ ============ ============
Basic and diluted loss per common share
From continuing and discontinued
operations $ (0.00) $ (0.02) $ (0.01) $ (0.04)
From extraordinary items $ (0.00) $ (0.00) $ (0.00) $ 0.01
From net loss $ (0.00) $ (0.02) $ (0.01) $ (0.18)
Basic and diluted weighted average common
Shares outstanding 53,797,965 49,355,239 52,535,746 32,320,729
============ ============ ============ ============
The accompanying notes are an integral part of these condensed consolidated
financial statements.
2
BPK RESOURCES, INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Six Months Ended
June 30,
--------
2005 2004
---- ----
Net cash used in continuing operating
activities $(312,799) $(505,005)
--------- ---------
Cash flows from investing activities
Repayment from unrelated party -- 50,000
Loan to unrelated party (2,150) --
Loan to related party -- (1,500)
Purchase of limited partnership, net of cash -- (167,949)
Purchase of oil and gas interests -- (1,734)
Purchase of mining interest -- (161,000)
--------- ---------
Net cash used in continuing investing activities (2,150) (282,183)
--------- ---------
Cash flows from financing activities
Issuance of debt -- 41,000
Issuance of debt - related party 55,000 --
Repayment of debt - related party (20,000) --
Issuance of common stock, net of offering costs 387,422 760,000
--------- ---------
Net cash provided by continuing financing activities 422,422 801,000
--------- ---------
Net cash provided by discontinued operations -- (49)
Net increase in cash and cash equivalents 107,473 13,763
Cash and cash equivalents, beginning of year 16,036 13,029
--------- ---------
Cash and cash equivalents, end of period $ 123,509 $ 26,792
========= =========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
BPK RESOURCES, INC.
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. ("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 Six Months Ended
June 30, June 30,
-------- --------
2005 2004 2005 2004
---- ---- ---- ----
Net loss, to common stockholders as reported $ (221,572) $ (951,523) $ (277,558) $(5,768,750)
Add: Stock-based employee compensation
expense included in reported net income
determined under APB No. 25, net of
related tax effects -- 250 -- 500
Deduct: Total stock-based employee
compensation expense determined under
fair-value-based method for all awards, net
of related tax effects (14,000) -- (14,000) --
----------- ----------- ----------- -----------
Pro forma net income to common stockholders $ (235,572) $ 951,273) $ (291,558) $(5,768,250)
----------- ----------- ----------- -----------
Net loss per common share:
Basic and diluted - as reported $ (0.00) $ (0.02) $ (0.01) $ (0.18)
Basic and diluted - pro forma $ (0.00) $ (0.02) $ (0.01) $ (0.18)
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 loss.
4
BPK RESOURCES, INC.
Notes to Condensed Consolidated Financial Statements
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 $277,558 for the six months ended June 30, 2005 and $17,822,254
for the period April 2, 1997 (date of inception) to June 30, 2005. Consequently,
the aforementioned items raise substantial doubt about the Company's ability to
continue as a going concern.
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 oil and gas prospects, complete other acquisitions and
continue its operations through June 2006.
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 and gas interests or even be required to relinquish some or all of
its oil and gas 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 - 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"). 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. ("BPK SV"), 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 notes payable to
Trident Growth Fund LP and Endeavour International, Inc (formally Continental
Southern Resources, Inc).
The net results of operations for CSR-Hackberry and BPK SV have been classified
as "discontinued operations" for the three and six months periods ended June 30,
2004. The revenues for these entities for the six months ended June 30, 2004 was
$9,527. The revenue since inception was $230,724.
NOTE 5 - NOTES PAYABLE - RELATED PARTY
During 2005, BPK borrowed an additional $55,000 from Montex and issued various
5.00% demand promissory notes. During June 2005, the Company repaid $20,000 of
these notes for which a total outstanding principal balance of $125,000 remains
as of June 30, 2005.
5
BPK RESOURCES, INC.
Notes to Condensed Consolidated Financial Statements
NOTE 6 - STOCKHOLDERS' DEFICIT
In March 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. During April 2005, BPK sold a total of 1,500,000 units for
$390,000. In addition, the Company accrued $19,500 for finders fees related to
this transaction and the fees were still unpaid as of June 30, 2005. The holders
of the units have been granted piggyback registration rights on the next
registration statement that the Company issues covering the stock and the stock
underlying the warrants. This private offering was closed as June 30, 2005.
On June 21, 2005, the Company issued options to purchase 50,000 shares of the
Company's common stock at $0.17 per share to each of its two new directors. The
options have a term of five years and vest immediately.
NOTE 7 - 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 six months ending June 30, 2005
and 2004, the total number of potentially dilutive shares excluded from diluted
net loss per common share were 5,949,775 and 15,512,441, respectively.
NOTE 8 - SUBSEQUENT EVENTS
On July 20, 2005, CSR Waha Partners, L.P. ("CSR Waha") (a 99% owned subsidiary)
entered into an agreement with Patterson Petroleum, LP ("Patterson"), pursuant
to which CSR Waha surrendered all interests in the Ligon State 22-1H, Ligon
State 22-2, Ligon State 22-3, Ligon State 22-5 and the associated leasehold to
Patterson through a special warranty deed and paid Patterson $20,000 in cash in
exchange for Patterson releasing CSR Waha of all unpaid joint interest billings.
At June 30, 2005, the carrying value of the disposed oil and gas assets of CSR
Waha amounted to approximately $59,000 and the carrying value of the disposed
liabilities were approximately $265,000.
6
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.
7
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.
8
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 by the 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 one oil and gas project with an aggregate
of 300 gross acres under lease. We recently disposed of all of our interest in
1,650 acres in the Waha/Lockridge oil and gas prospect located in Reeves County,
Texas. See, "Part II Item 5 Other Information." A description of our oil and gas
project is provided below.
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.
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.
9
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
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.
10
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.
Property Retirement Obligations
We are required to make estimates of the future costs of the retirement
obligations of 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.
11
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.
Comparison of Three and Six Months Ended June 30, 2005 June 30, 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. We generated $14,473
of revenue during the three months ended June 30, 2005 as compared to $10,226
during the three months ended June 30, 2004. The $4,247 difference in revenues
was due primarily to the reclassification of revenues in connection with our
disposition of certain oil and gas assets and limited partnership investments in
the third quarter of 2004 which are reflected under discontinued operations.
We generated $35,043 of revenue during the six months ended June 30, 2005
as compared to $16,131 during the six months ended June 30, 2004. The $18,912
difference in revenues was due primarily to reclassification of revenues in
connection with the disposition of certain oil and gas assets and limited
partnership investments in the third quarter of 2004 which are reflected under
discontinued operations. We expect revenues to decrease in future periods as the
result of the disposition of our interests in oil and gas wells and leaseholds
in the Waha/Lockridge prospect in July 2005.
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 were $5,104 during the three
months ended June 30, 2005 as compared to $40,269 during the three months ended
June 30, 2004. We incurred $6,012 in depletion and amortization expenses during
the three months ended June 30, 2005 as compared to $7,856 and of such expenses
during the three months ended June 30, 2004. The decreases in production
expenses and depletion and amortization expenses were due to a decrease in the
exploration activities in our Hackberry Prospect located in Jefferson County,
Texas ("Hackberry Prospect"), in our Waha/Lockridge Prospect in Reeves County,
Texas, and the disposition of certain oil and gas assets and limited partnership
investments in the third quarter of 2004.
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Exploration and production expenses were $10,820 during the six months
ended June 30, 2005 as compared to $42,440 during the six months ended June 30,
2004. We incurred $12,747 in depletion and amortization expenses during the six
months ended June 30, 2005 as compared to $7,856 of such expenses during the six
months ended June 30, 2004. The decreases in production expenses and depletion
and amortization expenses were due to a decrease in the exploration activities
in our Hackberry Prospect, Waha/Lockridge prospect, and the disposition of
certain oil and gas assets and limited partnership investments in the third
quarter of 2004. We expect our exploration and production costs to decrease in
future periods as a result of the disposition of our interests in oil and gas
wells and leaseholds in the Waha/Lockridge prospect in July 2005.
Impaired Properties Expense
We did not have any impaired properties expense during the three and six
months ended June 30, 2005, respectively, as compared to $207,965 in impaired
properties expense during the corresponding periods in 2004. In 2004, we
impaired the value of our interests in the Waha/Lockridge prospect.
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, including those from related parties, were $222,277
during the three months ended June 30, 2005 as compared to $274,676 during the
three months ended June 30, 2004. The $52,399 decrease during the three months
ended June 30, 2005 was primarily due to a decrease in professional fees related
to our year end accounting.
General and administrative expenses, including those from related parties,
were $284,229 during the six months ended June 30, 2005 as compared to $436,801
during the six months ended June 30, 2004. The $152,572 decrease during the six
months ended June 30, 2005 was primarily due to a decrease in professional fees
related to our year end accounting and to a general reduction in operations in
2005 as compared to 2004. We expect general and administrative expenses to
remain at current levels during the remainder of 2005.
Interest Expense
Interest expense consists of certain non-cash charges and interest accrued
on our various debt obligations. Interest expenses, including interest expenses
to related parties, decreased $375,366 to $2,652 for the three months ended June
30, 2005 from $378,018 for the three months ended June 30, 2004. The decrease in
interest expense was primarily due to amortizing the remaining debt discounts in
2004 and being released from substantially all of our related debt obligations
in connection with the disposition of certain oil and gas assets and limited
partnership investments in 2004.
13
Interest expenses, including interest expenses to related parties,
decreased $581,935 to $4,805 for the six months ended June 30, 2005 from
$586,740 for the six months ended June 30, 2004. The decrease in interest
expense was primarily due to amortizing the remaining debt discounts in 2004 and
being released from substantially all of our related debt obligations in
connection with the disposition of certain oil and gas assets and limited
partnership investments in the third quarter of 2004.
Liquidity and Capital Resources
Net cash used in operating activities during the six months ended June 30,
2005 was $312,799 compared to $505,005 during the six months ended June 30,
2004. The primary use of cash in operating activities was to fund the net loss.
Net cash used in investing activities for the six months ended June 30,
2005 was $2,150 compared to $282,183 for the six months ended June 30, 2004. Our
use of cash in investing activities decreased primarily because we focused on
developing the oil and gas and mining interests we previously purchased and did
not acquire any new oil and gas assets or make additional investments in
partnerships or other joint ventures during 2005.
Net cash provided by financing activities during the six months ended June
30, 2005 was $422,422 compared to $801,000 during the six months ended June 30,
2004 and consisted primarily of the issuance of common stock and warrants.
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.
During April 2005 we sold 1,500,000 units in the offering for aggregate gross
proceeds of approximately $390,000.
The foregoing 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.
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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 $20,000 for capital calls and production
costs with respect to our oil and gas projects, approximately $200,000 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 June 30, 2005, 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 ("CEO") and Treasurer, who serves as our principal financial
officer ("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.
15
PART II. OTHER INFORMATION
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Sales of Unregistered Securities
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 was comprised of two shares of our common stock and one
warrant. The units were 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. During
April 2005, we sold 1,500,000 units in the offering for aggregate gross proceeds
of $390,000. The offering was made to one accredited investors in a private
offering exempt from the registration requirements of the Securities Act of
1933, as amended, pursuant to Section 4(2) thereof without payment of
underwriting discounts or commissions to any person. We paid a finder's fee of
$19,500 in connection with the issuance.
Item 5. Other Information.
Disposition of Assets
On July 20, 2005, CSR-Waha entered into an agreement with Patterson
Petroleum, LP ("Patterson Petroleum") pursuant to which it surrendered
substantially all of its interests in the Waha/Lockbridge oil and gas prospect
to an affiliate of Patterson Petroleum and a $20,000 cash payment in exchange
for being released from all unpaid joint interest billings owed to Patterson
Petroleum in connection with the prospect in the amount of $324,437. The
interests transferred consisted of CSR-Waha's interest in the four wells drilled
in the prospect and the associated leasehold interests. Other than the foregoing
transaction and Patterson Petroleum serving as the operator of the
Waha/Lockbridge oil and gas prospect, there is no material relationship between
the Company and Patterson Petroleum, between any officer, director or affiliate
of the Company and Patterson Petroleum, or between any associate of any director
or officer of the Company and Patterson Petroleum.
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Item 6. Exhibits
Exhibit No. Exhibit Method of Filing
- --------------------------------------------------------------------------------
10.1 Assignment, Bill of Sale and Filed herewith
Conveyance dated July 20,
2005 by and between CSR-Waha
Partners, LP and TMBR/Sharp
Drilling LLC
31.1 Certification by Principal Filed herewith
Executive Officer and
Principal Financial Officer
pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002
31.2 Certification by Principal Filed herewith
Financial Officer pursuant to
Section 302 of the
Sarbanes-Oxley Act of 2002
32.1 Certification by the Filed herewith
Principal Executive 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
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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: August 15, 2005 /s/ Christopher Giordano
--------------------------------------
Christopher Giordano
Chief Executive Officer, Secretary and
Treasurer
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EXHIBIT INDEX
Exhibit Number Description
- -------------- -----------
10.1 Assignment, Bill of Sale and Conveyance dated July
20, 2005 by and between CSR-Waha Partners, LP and
TMBR/Sharp Drilling LLC
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
19