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: September 30, 2005
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|_| 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
Incorporation or Organization) Identification No.)
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
|_|
Indicate by check mark whether the registrant is a shell company (as
defined in rule 12b-2 of the Exchange Act). Yes |X| No |_|
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date: There were 54,259,503
issued and outstanding shares of the registrant's common stock, par value $.001
per share, as of November 11, 2005.
Transitional Small Business Disclosure Format (check one): Yes |_| No |X|
BPK RESOURCES, INC.
QUARTERLY REPORT ON FORM 10-QSB
FOR FISCAL QUARTER ENDED SEPTEMBER 30, 2005
TABLE OF CONTENTS
PART I.
Item 1. Financial Statements 2
Condensed Consolidated Balance Sheet (unaudited) 3
Condensed Consolidated Statements of Operations - (unaudited) 4
Condensed Consolidated Statements of Cash Flows - (unaudited) 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis 10
Item 3. Controls and Procedures 17
PART II.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 18
Item 5. Other Information 18
Item 6. Exhibits 18
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BPK RESOURCES, INC.
Condensed Consolidated Balance Sheet
(Unaudited)
ASSETS
September 30,
2005
-------------
Current assets
Cash and cash equivalents $ 29,354
Accounts receivable 32,803
Notes and interest receivable 172,456
Prepaid expenses 2,926
------------
Total current assets 237,539
Developed oil and gas interests, net of accumulated depletion and impairment
allowance of $346,335, using successful efforts 3,665
------------
$ 241,204
============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities
Accounts payable and accrued expenses $ 462,125
Accounts payable and accrued expenses - related party 147,749
Notes Payable 58,179
Notes payable - related party 245,000
------------
Total current liabilities 913,053
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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 September 30, 2005 830
Common stock, $.001 par value authorized 100,000,000 shares;
54,259,503 shares issued, issuable and outstanding as of September 30,
2005 54,259
Additional paid in capital 12,402,314
Accumulated deficit (13,129,252)
------------
Total stockholders' deficit (671,849)
------------
$ 241,204
============
The accompanying notes are an integral part of these condensed
consolidated financial statements.
-3-
BPK RESOURCES, INC.
Condensed Consolidated Statements of Operations
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------------- -----------------------------
2005 2004 2005 2004
------------ ------------ ------------ ------------
Revenues $ 1,511 $ 7,112 $ 11,488 $ 13,463
------------ ------------ ------------ ------------
Operating expenses
Production expenses 994 (30,983) 3,755 6,479
Mining exploration expense -- 77,000 -- 77,000
Depletion and amortization 430 (1,786) 3,921 6,070
Impaired properties -- 4,760 -- --
General and administrative -related party 18,000 18,000 54,000 59,000
General and administrative 120,679 185,948 368,756 581,255
------------ ------------ ------------ ------------
Total operating expenses 140,103 252,939 430,432 729,804
------------ ------------ ------------ ------------
Loss from operations (138,592) (245,827) (418,944) (716,341)
------------ ------------ ------------ ------------
Other (income) expense
Interest income (866) (37) (866) (1,665)
Interest expense - related party 2,291 -- 6,360 --
Interest expense 383 96,893 1,119 683,633
Interest expense - Series A Preferred -- -- -- 90,000
Partnership investment loss -- -- -- 67,758
------------ ------------ ------------ ------------
Total other expenses, net 1,808 96,856 6,613 839,726
------------ ------------ ------------ ------------
Loss from continuing operations (140,400) (342,683) (425,557) (1,556,067)
Income (loss) from discontinued operations,
net of tax benefit 181,095 (7,975) 188,695 (227,533)
Extraordinary gain on debt extinguishment -- -- -- 316,499
------------ ------------ ------------ ------------
Net income (loss) 40,695 (350,658) (236,862) (1,467,101)
Preferred dividend on series A preferred stock -- -- -- 4,652,307
------------ ------------ ------------ ------------
Net loss to common stockholders $ 40,695 $ (350,658) $ (236,862) $ (6,119,408)
============ ============ ============ ============
Basic and diluted loss per common share
From continuing and discontinued
operations $ (0.00) $ (0.01) $ (0.01) $ (0.05)
From extraordinary items $ (0.00) $ (0.00) $ (0.00) $ 0.01
From net loss $ (0.00) $ (0.01) $ (0.01) $ (0.16)
Basic weighted average common
Shares outstanding 54,259,503 51,259,503 53,116,646 38,808,956
============ ============ ============ ============
Diluted weighted average common
Shares outstanding 55,704,503 51,259,503 53,116,646 38,808,956
============ ============ ============ ============
The accompanying notes are an integral part of these condensed
consolidated financial statements.
-4-
BPK RESOURCES, INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Nine Months Ended
September 30,
--------- ---------
2005 2004
--------- ---------
Net cash used in continuing operating activities $(356,954) $(567,712)
--------- ---------
Cash flows from investing activities
Repayment from unrelated party -- 50,000
Loan to unrelated party (152,150) (2,500)
Loan to related party -- --
Purchase of limited partnership, net of cash -- (167,949)
Purchase of oil and gas interests -- (1,934)
Purchase of mining interest -- (84,000)
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Net cash used in continuing investing activities (152,150) (206,383)
--------- ---------
Cash flows from financing activities
Issuance of debt -- 44,000
Proceeds from notes payable - related party 155,000 --
Payment on note payable - related party (20,000) --
Issuance of common stock, net of offering costs 387,422 760,000
--------- ---------
Net cash provided by continuing financing activities 522,422 804,000
--------- ---------
Net cash provided (used) by discontinued operations -- 7,143
Net increase in cash and cash equivalents 13,318 37,048
Cash and cash equivalents, beginning of year 16,036 15,832
--------- ---------
Cash and cash equivalents, end of period $ 29,354 $ 52,880
========= =========
The accompanying notes are an integral part of these condensed
consolidated financial statements.
-5-
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 except the disposition of a working interest as described in Note 5 and
the related debt extinguishment. 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 and nine months ended September 30, 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 Nine Months Ended
September 30, September 30,
-------------------------- ---------------------------
2005 2004 2005 2004
----------- ----------- ----------- -----------
Net income (loss), to common stockholders as reported $ 40,695 $ (350,658) $ (236,862) $(6,119,408)
Add: Stock-based employee compensation
expense included in reported net income
determined under APB No. 25, net of
related tax effects -- 1,137 -- 1,637
Deduct: Total stock-based employee
compensation expense determined under
fair-value-based method for all awards, net
of related tax effects -- -- (14,000) --
----------- ----------- ----------- -----------
Pro forma net income to common stockholders $ 40,695 $ (349,521) $ (250,862) $(6,117,771)
----------- ----------- ----------- -----------
Net loss per common share:
Basic and diluted - as reported $ (0.00) $ (0.01) $ (0.01) $ (0.16)
Basic and diluted - pro forma $ (0.00) $ (0.01) $ (0.01) $ (0.16)
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.
-6-
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 $236,862 for the nine months ended September 30, 2005 and
$17,781,559 from inception to September 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 September 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 - NOTES RECEIVABLE
During September 2005, the Company had loaned Bright Brains, Inc., an unrelated
party, a total of $150,000. The unsecured loans bear interest at 10% per annum.
The Company recorded interest receivable of $866 on these loans. Both amounts
remained outstanding as of September 30, 2005.
Subsequent to September 30, 2005 the Company made additional advances to Bright
Brains, Inc. (see Note 9). The Company is in discussion with Bright Brains, Inc.
about a possible acquisition. The completion of an acquisition of this nature is
dependent on the satisfaction of a number of material conditions including, but
not limited to, satisfactory completion of a letter of intent, due diligence,
obtaining any necessary financing, approval by the shareholders of Bright Brains
Inc., obtaining third party and regulatory consents, and completion of audited
financial statements for Bright Brains, Inc. Accordingly, there can be no
assurance that the forgoing acquisition will be completed on terms acceptable to
the Company, if at all. As of November 15, 2005 no definitive agreement has been
executed.
NOTE 5 - OIL AND GAS INTERESTS AND EQUITY INVESTMENTS IN LIMITED PARTNERSHIPS
AND LIMITED LIABILITY COMPANIES AND DISPOSITION
On July 20, 2004, the Company entered into a Purchase and Sale Agreement with BP
Preferred Acquisition, LLC, a Delaware limited liability company ("BP
Acquisition") related through common ownership (the "Transaction"). 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 nine months periods ended
September 30, 2004. The revenues for these entities for the nine months ended
September 30, 2004 was $9,527. The revenue since inception was $230,724.
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
in the amount of approximately $265,000. The Company recorded a gain on
disposition of approximately $181,000.
The net results of operations for CSR-Waha have been classified as "discontinued
operations" for the three and nine months periods ended September 30, 2005 and
2004. The revenues for the three and nine months ended September 30, 2005 and
2004 was $0, $25,065, $765 and $10,545, respectively.
-7-
BPK RESOURCES, INC.
Notes to Condensed Consolidated Financial Statements
NOTE 6 - NOTES PAYABLE - RELATED PARTY
During 2005, BPK borrowed an additional $155,000 from Montex, a shareholder of
the Company, and issued various 5.00% and 5.25% demand promissory notes. During
June 2005, the Company repaid $20,000 of these notes for which a total
outstanding principal balance of $225,000 remains as of September 30, 2005.
NOTE 7 - 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 September 30, 2005. The
holders of the units have been granted piggyback registration rights, on the
next registration statement that the Company files, 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 8 - 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 excluded if their effect would be antidilutive (i.e.,
reduce the net loss per share). For the nine months ending September 30, 2005
and 2004, the total number of potentially dilutive shares excluded from diluted
net loss per common share were 5,924,775 and 5,052,441, respectively. For the
three months ended September 30, 2005, 1,445,000 options and warrants were
included in diluted shares outstanding.
NOTE 9 - SUBSEQUENT EVENTS
On October 14, 2005, the Company borrowed an additional $60,000 from Montex, a
related party, and issued a 10% demand promissory note.
On October 14, 2005, the Company loaned an additional $60,000 to Bright Brains,
Inc. The unsecured loan is payable upon demand and bears interest at 10% per
annum.
On October 28, 2005, the Company entered into a 10%, $500,000 demand promissory
note with the principal of Montex, a related party. As an inducement to make the
loan, the Company issued warrants to purchase 300,000 shares of the Company's
common stock at $0.13. The warrants have a life of three years.
On November 2, 2005, the Company loaned an additional $465,000 to Bright Brains,
Inc. The unsecured loan is payable upon demand and bears interest at 10% per
annum.
-8-
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 objectives of management for future operations, are forward-looking
statements. Forward-looking statements generally can be identified by the use of
forward-looking terminology such as "may," "will," "expect," "intend,"
"project," "estimate," "anticipate," or "believe" or the negative thereof or any
variation thereon or similar terminology. Although we believe that the
expectations reflected in such forward-looking statements are reasonable, we can
give no assurance that such expectations will prove to have been correct.
Important factors that could cause actual results to differ materially
from our expectations include, but are not limited to our ability to secure the
necessary level of financing to continue operations and fund applicable
transaction costs, our ability to identify an operating company to acquire, our
ability to complete a thorough due diligence review of an operating company and
negotiate terms acceptable to us, our assumption that the post closing level of
operations of any business we acquire will be consistent with its level of
historic operations, and our ability to attract and retain additional management
personnel, consultants and advisors to assist us in executing our business plan
and other factors disclosed in our Annual Report on Form 10-KSB under the
caption "Risk Factors" and other filings with the Securities and Exchange
Commission. All subsequent written and oral forward-looking statements
attributable to us, or persons acting on our behalf, are expressly qualified in
their entirety by these cautionary statements. We assume no duty to update or
revise its forward-looking statements based on changes in internal estimates or
expectations or otherwise.........
Item 2. Management's Discussion and Analysis.
Unless the context otherwise requires, references to the "Company," "BPK
Resources," "we," "us" or "our," mean BPK Resources, Inc. and our consolidated
subsidiaries.
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
During the past three years, we have been primarily in the business of
acquiring, exploring and developing natural gas and oil properties. Over the
past eighteen months, we have divested substantially all of our oil and gas
interests and currently maintain an approximate 4.5% working interest in the
Hackberry prospect located in Jefferson County, Texas.
Having been unable to raise the capital necessary to execute our business
plan to acquire and develop working interests our oil and gas exploration and
development projects, we have exited this business and discontinued these
operations. At this time, we have nominal operations and assets and are,
therefore, considered a shell corporation under applicable rules of the
Securities Exchange Commission promulgated under the Securities Exchange Act of
1934, as amended. In that regard, we are actively seeking to complete a business
combination with an operating company.
During the three-month period ended September 30, 2005, we have engaged in
discussions with Bright Brains, Inc., a Texas corporation based in Houston,
Texas ("Bright Brains"), regarding a potential acquisition. We have also loaned
$675,000 to Bright Brains pursuant to various 10% notes which are payable on
demand. Bright Brains is a provider of Web-based environmental health and
safety, human resources, construction, transportation, and custom training
courses to help companies comply with OSHA, EPA, and DOT regulations applicable
to their business. Bright Brains is an early stage company that develops and
distributes training courses on line to employers subject to the forgoing
regulations. As of the date of this report, no definitive agreement has been
executed. The completion of an acquisition of this nature is dependent on the
satisfaction of a number of material conditions including, but not limited to,
satisfactory completion of due diligence, obtaining any necessary financing,
approval by the shareholders of Bright Brains, obtaining third party and
regulatory consents, and completion of audited financial statements for Bright
Brains. Accordingly, there can be no assurance that the forgoing acquisition
will be completed on terms acceptable to us, if at all.
-9-
We have limited cash resources, have current liabilities that
substantially exceed our current assets, and have incurred substantial losses
since inception. We will need to raise funds during the next twelve months to
support operations. Due to these and other factors, our independent auditors
have included an explanatory paragraph in their opinion for the year ended
December 31, 2004 as to the substantial doubt about our ability to continue as a
going concern. In order to continue operations, we must continue to raise the
capital necessary to fund operations and our long-term viability and growth will
ultimately depend upon acquiring a successful operating company, as to which
there can be no assurances.
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
-10-
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.
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.
-11-
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.
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 Nine Months Ended September 30, 2005 September 30, 2004
Revenues
We generated $1,511 and $11,488 of revenue during the three and nine
months ended September 30, 2005, respectively, as compared to $7,112 and $13,463
during the corresponding periods in 2004. The revenue consisted of oil and gas
sales from our direct working interest in the Hackberry Project wells. Unless
and until we acquire an operating company, we do not expect to generate any
material revenue in future periods.
-12-
Production Expenses
Production expenses were $994 and $3,755 during the three and nine months
ended September 30, 2005, respectively, as compared to $(30,983) and $6,479
during the corresponding periods in 2004. The forgoing expenses related to our
direct working interest in the our direct working interest in the Hackberry
Project and we do not expect to incur significant production expenses in future
periods.
Depletion and Amortization Expenses
Depletion and amortization expenses were $430 and $3,921 during the three
and nine months ended September 30, 2005, respectively, as compared to $(1,786)
and $6,070 during the corresponding periods in 2004. The forgoing expenses
relate to the Hooks #1 well and we do not expect to incur significant depletion
and amortization expenses in future periods.
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 paid to related parties, were $138,679
during the three months ended September 30, 2005 as compared to $203,948 during
the three months ended September 30, 2004. The $65,269 decrease during the three
months ended September 30, 2005 was primarily due to a decrease in professional
fees and to a general reduction in operations in 2005 as compared to 2004.
General and administrative expenses, including those from related parties,
were $422,756 during the nine months ended September 30, 2005 as compared to
$640,255 during the nine months ended September 30, 2004. The $217,499 decrease
during the nine months ended September 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 decrease during the fourth quarter of 2005 and if we
complete an acquisition, to increase substantially in future periods.
Interest Expense
Interest expense consists of certain charges and interest accrued on our
various debt obligations. Interest expenses, including interest expenses to
related parties, was $2,674 during the three months ended September 30, 2005 as
compared to $96,893 for the three months ended September 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.
Interest expenses, including interest expenses to related parties, was
$7,479 during the nine months ended September 30, 2005 as compared to $773,633
for the nine months ended September 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.
-13-
Liquidity and Capital Resources
Net cash used in operating activities during the nine months ended
September 30, 2005 was $356,954 compared to $567,712 during the nine months
ended September 30, 2004. The primary use of cash in operating activities was to
fund the net loss.
Net cash used in investing activities for the nine months ended September
30, 2005 was $152,500 as compared to $206,383 for the nine months ended
September 30, 2004. The primary use of cash for investment activities during the
nine months ended September 30, 2005 consisted primarily of advances to Bright
Brains and during the nine months ended September 30, 2004 consisted primarily
of investments in oil and gas limited partnerships.
Net cash provided by financing activities during the nine months ended
September 30, 2005 was $522,422 compared to $804,000 during the nine months
ended September 30, 2004 and consisted of the issuance of $387,422 of common
stock and warrants and $155,000 of proceeds from a loan from one of our
shareholders.
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.
Between December 2004 and October 2005, we have received loans from a
principal shareholder in the aggregate amount principal amount of $315,000, of
which $285,000 remain outstanding. The loans are payable on demand and accrue
interest at rates of 5%, 5.25% and 10% per annum.
On October 28, 2005, we have received a loan from an affiliate of a
principal shareholder in the amount of $500,000. The loan is payable on demand
and accrues interest at the rate of 10% per annum.
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. As of the date of this
report, we have cash resources of approximately $22,000.
We will need approximately $1,300,000 to execute our business plan and
satisfy outstanding obligations during the next twelve months. Of this amount,
we will need approximately $800,000 to repay outstanding indebtedness all of
which is due on demand, and approximately $500,000 for general corporate
expenses. In the event that we acquire an operating company, we will need
substantially more capital during the next 12 months. Based on our available
cash resources, we will not have sufficient funds to continue to 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 activities in
connection with identifying an acquisition target and in the extreme case,
liquidate our assets.
-14-
Off-Balance Sheet Arrangements
As of September 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 not 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. Specifically, our Chief Executive Officer and Treasurer
concluded that, in light of the fact that we have had to file for extensions of
the due date for a number of the periodic reports we are required to file with
the Securities and Exchange Commission, our controls and procedures were not
effective to provide reasonable assurance that such reports are filed or
submitted timely with the Securities and Exchange Commission. There has been no
change in our internal control over financial reporting identified in connection
with that evaluation that occurred during the period covered by this report that
has materially affected, or is reasonably likely to materially affect, our
internal control over financial reporting.
PART II. OTHER INFORMATION
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
On November 2, 2005, we issued warrants top purchase 300,000 shares of our
common stock to K. David Stevenson in connection with a $5o0,000 loan he made to
us. The warrants are exercisable immediately into one share of common stock at
an exercise price of $.13 per share and expire three years after the date of
issuance. 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.
-15-
Item 5. Other Information.
Entry Into Material Definitive Agreement; Creation of A Direct Financial
Obligation
1. Pursuant to promissory notes dated December 1, 2004, December 9, 2004,
December 31, 2004, January 6, 2005, March 15, 2005, June 22, 2005, and September
15, 2005, we borrowed an aggregate of $315,000 from Montex Exploration, Inc.,
which was a principal shareholder of the Company until October 25, 2005
("Montex"). As of the date of this report, we owe $285,000 to Montex. The
forgoing loans were made pursuant to various demand promissory notes. Notes in
the principal amount of $155,000 accrue interest at the rate of 5.0% per annum,
a note in the principal amount of $100,000 accrues interest at the rate of 10%
per annum, and a note in the principal amount of $60,000 accrues interest at the
rate of 5.25% per annum. The proceeds have been used for general working capital
purposes, including to fund loans made to a company we have identified as an
acquisition target.
2. On October 28, 2005, we borrowed $500,000 from K. David Stevenson, an
affiliate of Montex which was a principal shareholder of the Company until
October 25, 2005, pursuant to the terms of a demand promissory note which
accrues interest at the rate of 10% per annum. In connection with the loan we
issued a warrant to the lender to purchase 300,000 shares of our common stock at
an exercise price of $.13 per share. The proceeds have been used for general
working capital purposes, including $465,000 to fund a loan made to a company we
have identified as an acquisition target.
3. Pursuant to promissory notes dated September 1, September 15, October
14 and November 2, 2005, we have loaned Bright Brains, Inc. an aggregate of
$675,000. The forgoing loans were made pursuant to various demand promissory
notes that accrue interest at the rate of 10% per annum. We have identified
Bright Brains, Inc, as an acquisition target and have been in discussions with
them regarding a potential acquisition.
Item 6. Exhibits
Exhibit No. Exhibit Method of Filing
- --------------------------------------------------------------------------------
10.1 Form of Demand Promissory Note issued to Filed herewith
Montex Exploration, Inc.
10.2 Demand Promissory Note dated October 28, Filed herewith
2005 issued to K.
David Stevenson
10.3 Form of Demand Promissory Note of Bright Filed herewith
Brains, Inc. payable to the Company
31.1 Certification by Principal Executive Filed herewith
Officer and Principal Financial Officer
pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
32.1 Certification by the Principal Executive Filed herewith
Officer and Principal Financial Officer
Pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
-16-
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of
1934, as amended, the registrant caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
BPK RESOURCES, INC.
Date: November 15, 2005 /s/ Christopher Giordano
----------------------------------
Christopher Giordano
Chief Executive Officer, Secretary
and Treasurer
-17-
EXHIBIT INDEX
Exhibit Number Description
- -------------- -----------
10.1 Form of Demand Promissory Note issued to Montex
Exploration, Inc.
10.2 Demand Promissory Note dated October 28, 2005 issued
to K. David Stevenson
10.3 Form of Demand Promissory Note of Bright Brains,
Inc. payable to the Company
31.1 Certificate of CEO and 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
-18-