10-K 1 v236419_10k.htm ANNUAL REPORT FORM 10-K Unassociated Document

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549


 
FORM 10-K
 

 
(Mark One)
þ     ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended: March 31, 2011
Or

¨     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from: _____________ to _____________
Commission File Number 001-10179
 

 
Glen Rose Petroleum Corporation
(Exact name of registrant as specified in its charter)
 


Delaware
 
87-0372864
(State or Incorporation)
 
(I.R.S. Employer Identification No.)

Suite 515, 22762 Westheimer Parkway, Katy, Texas 77450
(Address of Principal Executive Offices)

(832) 437-0329
(Registrant's telephone number)

Copies of all communications to:
Marc Ross, Esq.
Andrew Smith, Esq.
Sichenzia Ross Friedman Ference Anslow LLP
61 Broadway, 32 nd Floor
New York, New York 10006
Phone: (212) 930-9700
Fax: (212) 930-9725

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(b) of the Act: Common Stock, $0.001 par value

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No  x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No  x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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 registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Sec. 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files.)  x Yes  ¨  No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨

Indicate by check mark whether the registrant is a large accelerated filer, accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act (check one):

Large accelerated filer ¨
Accelerated filer  ¨
Non-accelerated filer   ¨  (Do not check if smaller reporting company)
Smaller reporting company x

Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2).  Yes ¨  No x

The aggregate market value of the Registrant's common stock held by non-affiliates of the Registrant, based upon the last sale price of the Common Stock quoted on the OTC Bulletin Board as of the last business day of the Registrant's most recently completed second fiscal quarter (September 30, 2010), was approximately: $3,027,997
Number of Shares of Common Stock outstanding as of September 28, 2011 was 31,533,867.
 

 
 
 

 

CONTENTS

   
Page
Forward-Looking Statements
 
3
PART I
 
  
Item 1. Business
 
4
     
Item 1A. Risk Factors
 
10
     
Item 2. Properties
 
17
     
Item 3. Legal Proceedings
 
18
     
Item 4. Removed and Reserved.
 
19
     
PART II
   
     
Item 5. Market for Registrant’s Common Equity, Related Shareholder Matters and Sales of Unregistered Equity Securities
 
20
     
Item 6. Selected Financial Data
 
20
     
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation
 
20
     
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
 
30
     
Item 8. Financial Statements and Supplementary Data
 
30
     
Item 9. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure
 
30
     
Item 9A. Controls and Procedures
 
30
     
Item 9B. Other Information
 
32
     
PART III
 
 
     
Item 10. Directors, Executive Officers, and Corporate Governance
 
33
     
Item 11. Executive Compensation
 
36
     
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
 
39
     
Item 13. Certain Relationships and Related Transactions, and Director Independence
 
40
     
Item 14. Principal Accountant Fees and Services
 
42
     
Item 15. Exhibits, Financial Statement Schedules
 
42
     
Signatures
 
46
     
Index To Consolidated Financial Statements
  
F-1

 
2

 

FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K filed by Glen Rose Petroleum Corporation (referred to as “Glen Rose”, the “Company”, “we”, “us” or “our”) contains forward-looking statements. These are statements regarding financial and operating performance and results and other statements that are not historical facts. The words “expect,” “project,” “estimate,” “believe,” “anticipate,” “intend,” “plan,” “forecast,” and similar expressions are intended to identify forward-looking statements. Certain important risks could cause results to differ materially from those anticipated by some of the forward-looking statements. Some, but not all, of these risks include, among other things:

 
·
we may be unable to obtain the financing we need to continue our operations;
 
·
there may be changes in regulatory requirements that adversely affect our business;
 
·
there may be adverse changes in the prices for oil and gas that adversely affect our business;
 
·
recovery methods that we use in our oil and gas operations may not be successful; and
 
·
other uncertainties, all of which are difficult to predict and many of which are beyond our control.

We do not intend to update forward-looking statements. You should refer to and carefully review the information in future documents we file with the Securities and Exchange Commission.

 
3

 

PART I

ITEM 1. BUSINESS

Glen Rose Petroleum Corporation (“we”, “us”, “our”, “Glen Rose”, “the Company”) is a Delaware corporation formed in 2008. The Company was previously United Heritage Corporation, a Utah corporation that was formed in 1981 and was reincorporated in Delaware in 2008. The reincorporation entailed a reincorporation merger agreement between Glen Rose Petroleum Company and United Heritage Corporation, but there were no substantive changes in assets or personnel and we also have continuous financial reporting through the reincorporation.

Glen Rose owns UHC Petroleum Corporation (“UHC Petroleum”), a Texas corporation and licensed operator with the Texas Railroad Commission. UHC Petroleum is an independent producer of crude oil, based in Katy, Texas. UHC Petroleum operates the Wardlaw Lease and Adamson Lease (collectively, the “leaseholds”), located approximately 28 miles west of Rocksprings in Edwards County, Texas. The leaseholds lie in the southeast portion of the Val Verde Basin with oil production from the field currently coming from the Glen Rose formation at a depth of less than 600 feet. The Wardlaw Lease consists of approximately 10,562 gross acres of which approximately 10,500 gross acres are undeveloped. The Adamson Lease consists of approximately 837 gross acres, of which all are undeveloped. The leaseholds currently include 85 wellbores. Of these, 75 are capable of producing. With one swabbing unit, currently we are daily producing from 35 wells. We are in the process of evaluating the remaining wells. In certain older wells, UHC Petroleum operates and owns a gross working interest of 100% and a net revenue interest of 75% of the current Wardlaw Lease production. In other wells, including the new wells which UHC Petroleum is developing, UHC Petroleum operates and owns a gross working interest of 87.5% and a net revenue interest of 65.625% of the current Wardlaw Lease production.  In such cases, the remaining 12.5% working interest and net revenue interest of 9.375% is owned by a separate but related entity called Glen Rose Partners 1, LLC, which is owned and controlled by substantially the same members as Iroquois Capital, a creditor of the Company. The original lease term was extended by a period of 90 days each time a well was drilled; therefore, based on prior drilling, the primary lease term is currently extended to 2014.

We produce a raw commodity. Currently one purchaser, Enterprise Crude Oil, LLC, buys 100% of our production.  However, we believe that other purchasers are available for our production. Our customer risk primarily stems from the purchaser’s solvency relating to outstanding balances. The purchaser has historically timely paid and we have no information that would indicate that it would be unable to continue paying in the future.

We have no patents, trademarks, material license agreements, franchises, or labor contracts.

In addition to UHC Petroleum, Glen Rose also owns, UHC Petroleum Services Corporation (“UHC Services”) a Texas corporation. Our other subsidiary is National Heritage Sales Corporation, a Texas corporation. National Heritage Sales Corporation has not operated for a number of years, and the Company plans to wind up this corporation in the coming year. Until recently, UHC New Mexico Corporation was a non-operating subsidiary of Glen Rose. Pursuant to a Common Stock Purchase Agreement dated February 12, 2010, it was sold to Blackwood Capital Limited, a company controlled by our Chief Executive Officer. At the time of the sale, it had no assets but was subject to a current UCC filing and ongoing expenses relating to maintaining its corporate existence. Glen Rose determined that the expense of enforcing and collecting the indebtedness of UHC New Mexico Corporation owing to Glen Rose likely would exceed the proceeds realized by Glen Rose from such enforcement and collection activities. Accordingly, Glen Rose approved the cancellation and forgiveness of such indebtedness effective as of the date of the closing on the sale to Blackwood Capital Limited.

Material Events during the Fiscal Year Ended March 31, 2011

Restatement of March 31, 2010 Form 10-K

During the January 2011 offering of convertible preferred stock with warrants we realized that on May 22, 2008 when we entered into a statutory merger whereby we moved our state of incorporation from Utah to Delaware (See Note 9 of the financial statements) the number of authorized shares was inadvertently changed from 125,000,000 to 20,000,000.  In conjunction with the January 2011 offering, we applied to the State of Delaware to authorize 150,000,000 shares of common stock, which was completed on March 7, 2011.   For the period from May 22, 2008 through March 7, 2011, we had warrants outstanding for the purchase of common stock in excess of the authorized and unissued common shares and as such in accordance with ASC Topic 815, Derivatives and Hedging, these warrants should have been classified as liabilities. In addition, as part of the process of closing our financial records for the year ended March 31, 2011, we noted the convertible debt and warrants issued in March 2010 and other transactions were not recorded correctly. The conversion option, which includes certain anti-dilution provisions, and a put option that includes a 20% premium, should have been bifurcated from the host contract and adjusted to fair value in accordance with ASC Topic 815.  In addition the warrants also contain anti-dilution provisions that require liability classification in accordance with ASC Topic 815.  As a result, we concluded that our financial statements for the year ended March 31, 2010, required a restatement to reflect these changes.  We will also restate our affected quarterly filings on Form 10-Q as soon as we are able.

 
4

 

See Item 7 for further discussion of the restatement.

Directors

On March 4, 2011, Martin Chopp provided notice of his resignation as a director of the Company, effective March 15, 2011.  He had served as the independent director nominated to the Board by Iroquois Capital.

As of March 18, 2011, Theodore D. Williams was re-classified from an independent director to a non-independent director due to his appointment as the Interim CFO.  See “Officers” section below.

On March 17, 2011, the Company appointed Robert E. Tarrant as an independent director to fill the vacancy created by the resignation of Martin Chopp.

Officers and Consultants

On May 18, 2010, Blackwood Capital, Ltd., a Gibraltar company which was substantially owned and controlled by Andrew Taylor-Kimmins, transferred beneficial ownership and control of 833,334 shares of the Company to a newly formed Swiss company called Compagnie de Ressources Naturelles et d’Investissment S.A. (“CRNI”), which is substantially owned and controlled by Andrew Taylor-Kimmins. CRNI also receives board compensation on behalf of Andrew Taylor-Kimmons.  Similarly, on May 18, 2010, Blackwood Ventures, LLC, a Delaware company which was substantially owned and/or controlled by Andrew Taylor-Kimmins, (i) transferred beneficial ownership and control of 1,276,221 shares of the Company to a newly formed Delaware company called CRNI Holdings I, LLC. (“CRNI I”), which is substantially owned and controlled by Andrew Taylor-Kimmins, and (ii) transferred beneficial ownership and control of 1,433,742 shares of the Company to a newly formed Delaware company called CRNI Holdings II, LLC. (“CRNI II”), which is substantially owned and controlled by Andrew Taylor-Kimmins.  The remaining ownership of Blackwood Ventures is 3,759,997 of common stock, which remains owned and/or controlled by Andrew Taylor-Kimmins.  CRNI has a consulting agreement with the Company pursuant to which Mr. Taylor-Kimmins is employed and compensated by CRNI to serve as the Company’s CEO.

On February 28, 2011, Glen Rose and Mr. Benjamin Lipman of Iroquois Capital entered into a mutual written agreement of termination of the consulting agreement between the parties.  The parties confirmed that (i) all outstanding fees due to the termination date had been paid and (ii) the requisite notice of termination under the original agreement had been delivered.

On February 28, 2011, we amended our Consulting Agreement with Iromad, LLC dated February 24, 2010, in order to reduce the monthly compensation paid thereunder to Iromad from $25,000 to $17,500 effective as of March 1, 2011.  As a result of this amendment, Glen Rose (through its relationship with CRNI) agreed to hire Luis Vierma directly (as opposed to working as a consultant for Iroquois).

On March 15, 2011, Kenneth Martin resigned as our Chief Financial Officer for personal reasons.

As of March 16, 2011, we approved and accepted the engagement of Luis Vierma by CRNI, as Chairman of the Company’s Executive (Technical) Committee pursuant to the engagement letter between CRNI and Mr. Vierma, and agreed that (1) the cash compensation of $15,000 per month paid by CRNI to Mr. Vierma shall be reimbursed to CRNI pursuant to its consulting agreement with the Corporation dated June 25, 2010 (the “CRNI Agreement”) and the CRNI Agreement was amended to reflect the same; and (2) the Company shall issue to Mr. Vierma 600,000 shares of the Corporation’s common stock, as required by the engagement letter with Mr. Vierma;

On March 18, 2011, we entered into an agreement with Point Capital Partners LLC for accounting functions/back office services to be provided us.

On March 18, 2011 the Company appointed Ted Williams as the Chief Financial Officer of the Company, effective as of March 18, 2011.  Mr. Williams is also a managing partner of Point Capital Partners, LLC and this appointment was made in conjunction with the Company entering into the agreement stated above.

 
5

 

Regulation S Offering

On January 21, 2011, we completed an offering to accredited non-U.S. investors, and in connection with the offering issued an aggregate of 7,280 shares of the Company’s Series D Convertible Preferred Stock (including 280 shares issued to ABG Sundal Collier Norge ASA who acted as advisor to the investors in connection with the sales), par value $.0001 per share (the “Shares”).  The Shares were convertible into 7,280,000 shares of our common stock, automatically, upon the effectiveness of an amendment to our articles of incorporation increasing its authorized common stock to not less than 125 million shares.

On March 7, 2011, we filed with the Secretary of State of the State of Delaware an amendment to the Company’s articles of incorporation increasing its authorized common stock to 150 million shares.  Accordingly, the Shares automatically converted into, and the Company issued to the investors, 7,280,000 shares of the Company’s common stock.

On January 21, 2011, we issued warrants to purchase 7,280,000 shares of common stock with the strike price of $0.40 and warrants to purchase 7,280,000 shares of common stock with the strike price of $0.60 to the accredited non-U.S. investors who also received the Company’s Series D-Convertible Preferred Stock as described above.  The expiration dates of the warrants are January 21, 2013 and January 21, 2014 respectively.  The warrants carry anti-dilution provisions that would reset the exercise prices if at any time through January 2012 we issue shares of common stock at a price lower than the then current exercise price.

New Oil and Gas Leases

On June 14, 2010 and December 14, 2010, the Company entered into new Oil and Gas leases consisting of 665 acres and 172 acres, respectively (collectively, the “Adamson Lease”) immediately to the north of the currently leased acreage, the Wardlaw Lease, and option to lease a further 4,619 contiguous acres to the north.  The leases are for the shallow rights from surface to 1,500 feet with an 80% Net Royalty Interest and 87.5% Working Interest to the Company.  Glen Rose Equity Partners I, LLC will be taking up its right to participate up to 12.5% Working Interest and will contribute accordingly as determined by the Joint Operating Agreement with UHC Petroleum Corporation.

The 2011 Fiscal Year

On-Going Operations

UHC Petroleum operates the Wardlaw and Adamson Leases, located approximately 28 miles west of Rocksprings in Edwards County, Texas. The leaseholds lie in the southeast portion of the Val Verde Basin with historical and current oil production from the field coming from the Glen Rose formation at a depth of less than 600 feet. The leaseholds include the Wardlaw Lease, consisting of approximately 10,562 gross acres of which approximately 10,500 gross acres are undeveloped, and the Adamson Lease, consisting of approximately 837 gross acres, of which all are undeveloped. The leaseholds currently include 85 wellbores. Of these wells, approximately 75 are currently capable of production. Up until March of 2010, utilizing one swabbing unit, we were daily producing from 42 wells under five (5) barrels of oil per day.  After March 2010, the Company began a rigorous testing program of all of the existing non-plugged well bores and a broad re-evaluation of both the regional and local geography.  This testing and re-evaluation program led the Company to workover and/or re-complete certain existing wells that were deemed as relatively more productive wells as well as to drill five (5) new test wells in a deeper zone called the Trinity Basil Sands.  The workover and re-complete program had the effect of significantly increasing  the average daily production of up to over 90-100 net barrels of oil per day in October 2010 which has settled into a consistent 40-50 net barrels of oil per day for the month ended March 2011.  This same average net production rate has continued through July 2011.  The new Trinity Basil Sands drilling program yielded what is believed as a significant new oil production zone at a depth of approximately 1,000 feet in at least two of the five well bores.  As of March 2011, the Company had not completed this new zone to evaluate its effective production and extraction capability.  The Company is in the process of completing and testing these new zones as of August 2011.

The following table shows the total net oil and gas production from Texas for each of the three most recent fiscal years. Oil production is shown in barrels (Bbl), and natural gas production is shown in thousand cubic feet (Mcf).

   
March 31,
 
Area
 
2011
 
2010
 
2009
 
Texas
                 
Oil
   
14,974 Bbl
 
2,549 Bbl
   
2,164 Bbl
 
Gas
   
 
   
 

The following table illustrates the average sales price, net of production taxes, and the average production (lifting) costs per barrel and per thousand cubic feet for each of the three most recent fiscal years.

 
6

 

         
March 31,
       
   
2011
   
2010
   
2009
 
Items
 
Oil
   
Gas
   
Oil
   
Gas
   
Oil
   
Gas
 
Texas
                                   
Avg. Sales Price/Unit
  $ 73.68           $ 48.97           $ 56.51        
Avg. Prod. Cost/Unit
  $ 64.63           $ 44.85           $ 43.69        

The following table illustrates the results of the drilling activity during each of the three most recent fiscal years.
 
   
March 31,
 
   
2011
   
2010
   
2009
 
   
Net
   
Dry
   
Net
   
Dry
   
Net
   
Dry
 
Wells Drilled
 
Productive Holes
   
Productive Holes
   
Productive Holes
 
Texas
                                   
Exploratory
    5       3       3       1       3       1  
Development
    2             2             2        
TOTAL
                                               
Exploratory
    5       3       3       1       3       1  
Development
    2             2             2        

The following table illustrates estimates of the proved oil and gas reserves, for the leaseholds, as of March 31, 2009, 2010 and 2011.

   
As Restated ***
   
As Originally Reported
 
   
Oil (Bbls)
   
Gas
(Mcf)
   
Oil (Bbls)
   
Gas (Mcf)
 
Balance at March 31, 2009
    605,475       379,101       602,591       357,657  
Extensions, additions and discoveries
    -       -       -       -  
Revisions of previous estimates
    104,940       (72,063 )     (183,822 )     (357,657 )
Production
    (2,549 )     -       (3,398 )     -  
Balance at March 31, 2010
    707,866       307,038       415,371       -  
                                 
Extensions, additions and discoveries
    -       -                  
Revisions of previous estimates
    (80,552 )     211,732                  
Production
    (14,974 )     -                  
Balance at March 31, 2011
    612,340       518,770                  

We have no oil and gas reserves or production subject to long-term supply, delivery or similar agreements. Estimates of our total proved oil and gas reserves have not been filed with or included in reports to any federal authority or agency other than the Securities and Exchange Commission.

As reported in the Company’s previous Form 10-K, the Company plugged its gas well with the intent toward future development.

*** We corrected our previous reserve report for fiscal year ended March 31, 2010 in order to ensure the reserve estimates were prepared in compliance with the Securities and Exchange Commission’s rules and accounting standards based on the twelve month un-weighted first-day-of –the-month average price for March 31, 2010.  In addition, we reevaluated our overall reserves and the ability to commercialize them, as well as the underlying assumptions from our previous reserve reports, and determined a need to revise and restate the reserves to correct previously disclosed reserves of 415,371 Bbls of oil and 0 Mcf of gas.  See Item 7 for further discussion of the restatement.

 
7

 

The following table illustrates the total gross and net oil and gas wells in which we had an interest at March 31, 2011. The existence of a productive well does not mean that the well is currently producing or will continue to be productive. For a portion of the wells on the Wardlaw Lease and Adamson Lease, UHC holds a 100% working interest and a 75% net revenue interest while for other wells within the leaseholds, UHC has an 87.5% working interest and a 65.625% net revenue interest.

   
Productive Wells
 
   
Gross
   
Net
 
Area
 
Oil
   
Gas
   
Oil
   
Gas
 
                         
Texas
    35             26        
TOTAL
    35             26        

The following table illustrates the gross and net acres of developed and undeveloped gas and oil leases held by us at March 31, 2011.

   
Developed Acres
   
Undeveloped Acres
 
Area
 
Gross
   
Net
   
Gross
   
Net
 
                         
Texas – Wardlaw
    62       47       10,500       7,875  
Texas – Adamson
    0       0       837       628  
TOTAL
    62       47       11,337       8,503  

Competition

The oil and gas industry is highly competitive. We compete with other oil and gas companies and investors in searching for, and obtaining, future desirable prospects, in securing contracts with third parties for the development of oil and gas properties, in securing contracts for the purchase or rental of drilling rigs and other equipment necessary for drilling operations, and in purchasing equipment necessary for the completion of wells, as well as in the marketing of any oil and gas which may be discovered. Many of our competitors are larger than we are and have substantially greater access to capital and technical resources than we do, giving them a substantial competitive advantage. We do not represent a significant presence in the oil and gas industry.

Regulation

State Regulation of Oil and Gas Production. Oil and gas operations are subject to various types of regulation by state and federal agencies. Legislation affecting the oil and gas industry is under constant review for amendment or expansion. Also, numerous departments and agencies, both federal and state, are authorized by statute to issue rules and regulations binding on the oil and gas industry and its individual members, some of which carry substantial penalties for failure to comply. The regulatory burden on the oil and gas industry increases the cost of doing business and, consequently, affects our profitability.

We currently have oil and gas operations only within the State of Texas. Our developmental activities require permits from the Texas Railroad Commission, a state agency that regulates oil and gas operations. The Texas Railroad Commission regulation includes requirements governing obtaining drilling permits, developing new fields, spacing and operation of wells and preventing waste of oil and gas resources. Our ongoing non-developmental activities must comply with Texas Railroad Commission requirements. This includes reporting production and maintaining an oil and gas operator’s license in good standing. To date, we have not found compliance with these regulations to be burdensome.

Environmental Regulations. Our activities are subject to federal and state laws and regulations governing environmental quality and pollution control. These regulations have a material effect on our operations, but the cost of such compliance has not been material to date. However, we believe that the oil and gas industry may experience increasing liabilities and risks under the Comprehensive Environmental Response, Compensation and Liability Act, as well as other federal, state and local environmental laws, as a result of increased enforcement of environmental laws by various regulatory agencies. As an “owner” or “operator” of property where hazardous materials may exist or be present, we, like all others in the petroleum industry, could be liable for fines and/or “clean-up” costs, regardless of whether the release of a hazardous substance was due to our conduct.

 
8

 

Our properties are subject to extensive and changing federal, state and local laws and regulations designed to protect and preserve our natural resources and the environment. The recent trend in environmental legislation and regulation is generally toward stricter standards, and this trend is likely to continue. These laws and regulations often require a permit or other authorization before construction or drilling commences and for certain other activities; limit or prohibit access, seismic acquisition, construction, drilling and other activities on certain lands lying within wilderness and other protected areas; impose substantial liabilities for pollution resulting from our operations; and require the reclamation of certain lands.

The permits required for many of our operations are subject to revocation, modification and renewal by issuing authorities. Governmental authorities have the power to enforce compliance with their regulations, and violations are subject to fines, injunctions, or both. In the opinion of management, we are in substantial compliance with current applicable environmental laws and regulations, and we have no material commitments for capital expenditures to comply with existing environmental requirements. Nevertheless, changes in existing environmental laws and regulations or in interpretations thereof could have a significant impact on us, as well as the oil and natural gas industry in general. The Comprehensive Environmental Response, Compensation and Liability Act (CERCLA) and comparable state statutes impose strict and arguably joint and several liabilities on owners and operators of certain sites and on persons who disposed of or arranged for the disposal of “hazardous substances” found at such sites. It is not uncommon for the neighboring landowners and other third parties to file claims for personal injury and property damage allegedly caused by the hazardous substances released into the environment. The Resource Conservation and Recovery Act (RCRA) and comparable state statutes govern the disposal of “solid waste” and “hazardous waste” and authorize imposition of substantial fines and penalties for noncompliance. Although CERCLA currently excludes petroleum from its definition of “hazardous substance,” state laws affecting our operations impose clean-up liability relating to petroleum and petroleum related products. In addition, although RCRA classifies certain oil field wastes as “non-hazardous,” such exploration and production wastes could be reclassified as hazardous wastes, thereby making such wastes subject to more stringent handling and disposal requirements.

Federal regulations require certain owners or operators of facilities that store or otherwise handle oil, such as us, to prepare and implement spill prevention, control countermeasure and response plans relating to the possible discharge of oil into surface waters. The Oil Pollution Act of 1990 (OPA) contains numerous requirements relating to the prevention of and response to oil spills into waters of the United States. For onshore and offshore facilities that may affect waters of the United States, the OPA requires an operator to demonstrate financial responsibility. Regulations are currently being developed under federal and state laws concerning oil pollution prevention and other matters that may impose additional regulatory burdens on us. In addition, the Clean Water Act and analogous state laws require permits to be obtained to authorize discharge into surface waters or to construct facilities in wetland areas. The Clean Air Act of 1970 and its subsequent amendments in 1990 and 1997 also impose permit requirements and necessitate certain restrictions on point source emissions of volatile organic carbons (nitrogen oxides and sulfur dioxide) and particulates with respect to certain of our operations. We are required to maintain such permits or meet general permit requirements. The EPA and designated state agencies have in place regulations concerning discharges of storm water runoff and stationary sources of air emissions. These programs require covered facilities to obtain individual permits, participate in a group or seek coverage under an EPA general permit. Most agencies recognize the unique qualities of oil and natural gas exploration and production operations. A number of agencies including but not limited to the EPA, the BLM, the TCEQ, the LDNR, the NDIC, the OCC, the WOGCC, the MBOGC and similar commissions within these states and of other states in which we do business have adopted regulatory guidance in consideration of the operational limitations on these types of facilities and their potential to emit pollutants. We believe that we will be able to obtain, or be included under, such permits, where necessary, and to make minor modifications to existing facilities and operations that would not have a material effect on us.

Climate Change

Climate change has emerged as an important topic in public policy debate regarding our environment. It is a complex issue, with some scientific research suggesting that rising global temperatures are the result of an increase in greenhouse gas emissions (GHGs) which may ultimately pose a risk to society and the environment. Products produced by the oil and natural gas exploration and production industry is a source of certain GHGs, namely carbon dioxide and methane, and future restrictions on the combustion of fossil fuels or the venting of natural gas could have a significant impact on our future operations.

Employees

As of March 31, 2011, we had 11 full-time employees. In addition, we have consulting agreements with 2 management officers, which account for a significant portion of their business activity.

 
9

 

ITEM 1A.  RISK FACTORS.

You should carefully consider the following risk factors and all other information contained herein as well as the information included in this Annual Report in evaluating our business and prospects. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties, other than those we describe below, that are not presently known to us or that we currently believe are immaterial, may also impair our business operations. If any of the following risks occur, our business and financial results could be harmed. You should refer to the other information contained in this Annual Report, including our consolidated financial statements and the related notes.

Risks Relating to Our Business

We Have a History Of Losses Which May Continue, and Which May Negatively Impact Our Ability to Achieve Our Business Objectives.

We incurred net losses of $14,662,555 and $12,176,826 for the years ended March 31, 2011 and 2010, respectively. We also incurred net losses attributable to common shareholders of $17,865,461 and $12,176,826 for the years ended March 31, 2011 and 2010, respectively.  We cannot assure you that we can achieve or sustain profitability on a quarterly or annual basis in the future. Our operations are subject to the risks and competition inherent in the establishment of a business enterprise. There can be no assurance that future operations will be profitable. Revenues and profits, if any, will depend upon various factors, including whether we will be able to continue expansion of our revenue. We may not achieve our business objectives and the failure to achieve such goals would have an adverse impact on us.

We do not have sufficient revenues to fund our current operations.

The Company’s operating subsidiary, UHC Petroleum does not earn enough money from our oil and gas sales to pay its operating expenses or those expenses attributable to the Company’s corporate overhead. Due to our substantial losses and our working capital deficit, we may be unable to continue as a going concern. If we do not obtain additional capital, we will be required to severely curtail, or to completely cease operations. There is no assurance that such additional capital will be available or will be available on acceptable terms.

Our independent auditor has included in its report on our financial statements a paragraph stating that we may be unable to continue as a going concern.

We have experienced net losses and negative cash flows from operations. We sustained a net loss attributable to common shareholders of $17,865,461 for fiscal year ended March 31, 2011. We have an accumulated deficit of $67,984,551. In addition, we have limited capital resources. All of these factors raise substantial doubt about our ability to continue as a going concern. The financial statements included in this report do not include any adjustments that might result from the outcome of these uncertainties. As noted in an explanatory paragraph in the report of our independent certified public accountants, on our consolidated financial statements for the year ended March 31, 2011 these conditions have raised substantial doubt about our ability to continue as a going concern.

Natural gas and oil drilling is a speculative activity and involves numerous risks and substantial and uncertain costs that could adversely affect us.

An investment in us should be considered speculative due to the nature of our involvement in the exploration for, and the acquisition, development and production of, oil and natural gas in North America. Oil and gas operations involve many risks, which even a combination of experience and knowledge and careful evaluation may not be able to overcome. There is no assurance that commercial quantities of oil and natural gas will be discovered or acquired by us.

We depend on successful exploration, development and acquisitions to maintain reserves and revenue in the future.

Acquisitions of crude oil and natural gas issuers and crude oil and natural gas assets are typically based on engineering and economic assessments made by independent engineers and our own assessments. These assessments will include a series of assumptions regarding such factors as recoverability and marketability of crude oil and natural gas, future prices of crude oil and natural gas and operating costs, future capital expenditures and royalties and other government levies which will be imposed over the producing life of the reserves. Many of these factors are subject to change and are beyond our control. In particular, the prices of and markets for oil and natural gas products may change from those anticipated at the time of making such assessment. In addition, all such assessments involve a measure of geologic and engineering uncertainty that could result in lower production and reserves than anticipated. Initial assessments of acquisitions may be based on reports by a firm of independent engineers that are not the same as the firm that we use for our year-end reserve evaluations. Because each of these firms may have different evaluation methods and approaches, these initial assessments may differ significantly from the assessments of the firm used by us.

 
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In addition, our review of records and properties of potential acquisitions may not necessarily reveal existing or potential problems, nor will we necessarily become sufficiently familiar with the properties before we acquire them to assess fully their deficiencies and potential. Environmental problems, such as soil or ground water contamination, are not necessarily observable even when an inspection on a well is undertaken and even when problems are identified, we may often assume certain environmental and other risks and liabilities in connection with acquired properties.

We have substantial capital requirements that, if not met, may hinder our operations.

If we have insufficient revenues, we may have limited ability to expend the capital necessary to undertake or complete future drilling programs. There can be no assurance that debt or equity financing, or cash generated by operations will be available or sufficient to meet these requirements or for other corporate purposes, or if debt or equity financing is available, that it will be on terms acceptable to us. Moreover, future activities may require us to alter our capitalization significantly. Our inability to access sufficient capital for our operations could have a material adverse effect on our financial condition, results of operations or prospects.

Because we are small and have limited access to additional capital, we may have to limit our exploration activity, which may result in a loss of investment.

We have a small asset base and limited access to additional capital. Accordingly, we must limit our exploration activity. As such, we may not be able to complete an exploration program that is as thorough as our management would like. In that event, existing reserves may go undiscovered. Without finding reserves, we cannot generate revenues and investors may lose their investment.

We must estimate our proved oil and gas reserves and the estimated future net cash flows from the reserves. These estimates may prove to be inaccurate.

This annual report on Form 10-K contains estimates of our proved oil and gas reserves and the estimated future net cash flows from such reserves. These estimates are based upon various assumptions, including assumptions required by the Securities and Exchange Commission relating to oil and gas prices, drilling and operating expenses, capital expenditures, taxes and availability of funds. The process of estimating oil and natural gas reserves is complex. This process requires significant decisions and assumptions in the evaluation of available geological, geophysical, engineering and economic data for each reservoir and is therefore inherently imprecise. Additionally, our interpretations of the rules governing the estimation of proved reserves could differ from the interpretation of staff members of regulatory authorities resulting in estimates that could be challenged by these authorities.

Actual future production, oil and natural gas prices, revenues, taxes, development expenditures, operating expenses and quantities of recoverable oil and gas reserves will most likely vary from those estimated. Any significant variance could materially affect the estimated quantities and present value of reserves set forth in this Annual Report and the information incorporated by reference. Our properties may also be susceptible to hydrocarbon drainage from production by other operators on adjacent properties. In addition, we may adjust estimates of proved reserves to reflect production history, results of exploration and development, prevailing oil and natural gas prices and other factors, many of which are beyond our control.

Our business plan anticipates that we will be able to develop our oil and gas properties. The cost to develop our oil properties is significant, and, to date, we have been unable to do so due to our lack of funds. Unless we can develop our oil properties, our revenues and results of operations will be adversely affected.

We believe that our properties have significant reserves of oil. However, we have not had the funds to fully exploit these resources. The costs associated with the development of oil and gas properties, including engineering studies, equipment purchase or leasing and personnel costs, are significant. In order to become profitable we must enhance our oil production, which means that we must drill and/or recomplete more wells. In order to accomplish this, we must find additional sources of capital. There is no assurance that such additional capital will be available or will be available on acceptable terms.

Even if we fully develop our oil properties, we may not be profitable. Our inability to operate profitably will adversely affect our business.

We have assumed that once we fully develop our oil properties we will be profitable. However, even if we were able to fully develop our properties, there is no guarantee that we would achieve profitability. Our reserves may prove to be lower than expected, production levels may be lower than expected, the costs to exploit the oil may be higher than expected, new regulations may adversely impact our ability to exploit these resources and the market price for crude oil may be lower than current prices.

 
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We also face competition from other oil companies in all aspects of our business, including obtaining oil leases, marketing oil, and obtaining goods, services and labor to exploit our resources. Many of our competitors have substantially larger financial and other resources than we have, and we may not be able to successfully compete against them. Competition is also presented by alternative fuel sources, which may be more efficient and less costly and may result in our products becoming less desirable.

The development and exploitation of oil properties is subject to many risks that are beyond our control. The occurrence of any of these events could have a material adverse effect on our business and results of operations.

Our crude oil drilling and production activities are subject to numerous risks, many of which are beyond our control. These risks include the following:

 
·
that no commercially productive crude oil reservoirs will be found;
 
·
that crude oil drilling and production activities may be shortened, delayed or canceled; and
 
·
that our ability to develop, produce and market our reserves may be limited by title problems, weather conditions, compliance with governmental requirements, and mechanical difficulties or shortages or delays in the delivery of drilling rigs and other equipment.

We cannot assure you that the new wells we drill, or the wells that are currently in existence, will be productive or that we will recover all or any portion of our investment in them. Drilling for crude oil and natural gas may be unprofitable. Dry holes and wells that are productive but do not produce sufficient net revenues after drilling, operating and other costs are unprofitable.

Our industry also experiences numerous operating risks. These operating risks include the risk of fire, explosions, blow-outs, pipe failure, abnormally pressured formations and environmental hazards. Environmental hazards include oil spills, natural gas leaks, ruptures or discharges of toxic gases. If any of these industry operating risks occur, we could sustain substantial losses. Substantial losses also may result from injury or loss of life, severe damage to or destruction of property, clean-up responsibilities, regulatory investigation and penalties and suspension of operations.

Any of these events could adversely affect our business.

We may not have enough insurance to cover all of the risks we face. If our insurance coverage is inadequate to pay a claim, we would be responsible for payment. The requirement that we pay a significant claim would materially, adversely impact our financial condition and results of operations.

In accordance with customary industry practices, we maintain insurance coverage against some, but not all, potential losses in order to protect against the risks we face. We may elect not to carry insurance if our management believes that the cost of available insurance is excessive relative to the risks presented. In addition, we cannot insure fully against pollution and environmental risks. The occurrence of an event not fully covered by insurance which we may be required to pay could have a material adverse effect on our financial condition and results of operations.

Oil and natural gas prices are highly volatile in general and low prices negatively affect our financial results.

Our revenue, profitability, cash flow, future growth and ability to borrow funds or obtain additional capital, as well as the carrying value of our properties, are substantially dependent upon prevailing prices of oil and natural gas. Historically, the markets for oil and natural gas have been volatile, and such markets are likely to continue to be volatile in the future. Prices are subject to wide fluctuation in response to relatively minor changes in the supply of and demand for oil and natural gas, market uncertainty and a variety of additional factors that are beyond our control. These factors include the level of consumer product demand, weather conditions, domestic and foreign governmental regulations, the price and availability of alternative fuels, political conditions, the foreign supply of oil and natural gas, the price of foreign imports and overall economic conditions. While we attempt to mitigate price volatility when we can by acquiring “puts” to protect our prices, we cannot assure you that such transactions will reduce the risk or minimize the effect of any decline in oil or natural gas prices. Any substantial or extended decline in the prices of or demand for oil or natural gas would have a material adverse effect on our financial condition and results of operations.

 
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Government regulation and liability for environmental matters may adversely affect our business and results of operations.

Oil and natural gas operations are subject to various federal, state and local government regulations, which may be changed from time to time. Matters subject to regulation include discharge permits for drilling operations, drilling bonds, reports concerning operations, the spacing of wells, unitization and pooling of properties and taxation. From time to time, regulatory agencies have imposed price controls and limitations on production by restricting the rate of flow of oil and natural gas wells below actual production capacity in order to conserve supplies of oil and natural gas. There are federal, state and local laws and regulations primarily relating to protection of human health and the environment applicable to the development, production, handling, storage, transportation and disposal of oil and natural gas, by-products thereof and other substances and materials produced or used in connection with oil and natural gas operations. Furthermore, we may be liable for environmental damages caused by previous owners of property we purchase or lease. As a result, we may incur substantial liabilities to third parties or governmental entities. We are also subject to changing and extensive tax laws, the effects of which cannot be predicted. While the regulations governing our industry have not had a material adverse effect on our operations to date, the implementation of new laws or regulations, or the modification of existing laws or regulations, could have a material adverse effect on us.
 
Regulations related to greenhouse gas emissions may adversely affect demand for our oil and gas.

Climate change has emerged as an important topic in public policy debate regarding our environment.  It is a complex issue, with some scientific research suggesting that rising global temperatures are the result of an increase in greenhouse gas emissions (GHGs) which may ultimately pose a risk to society and the environment.  Products produced by the oil and natural gas exploration and production industry is a source of certain GHGs, namely carbon dioxide and methane, and future restrictions on the combustion of fossil fuels or the venting of natural gas could have a significant impact on our future operations.

We may not be able to replace production with new reserves.

In general, the volume of production from oil and gas properties declines as reserves are depleted. The decline rates depend on reservoir characteristics. Our aggregate reserves will decline as they are produced unless we acquire properties with proved reserves or conduct successful development and exploration drilling activities. Our future natural gas and oil production is highly dependent upon our level of success in finding or acquiring additional reserves.

Our lack of diversification will increase the risk of an investment in us, and our financial condition and results of operations may deteriorate if we fail to diversify.

Our current business focus is on the oil and gas industry in a limited number of properties in Texas. Larger companies have the ability to manage their risk by diversification. However, we currently lack diversification, in terms of both the nature and geographic scope of our business. As a result, we will likely be impacted more acutely by factors affecting our industry or the region in which we operate than we would if our business were more diversified, enhancing our risk profile.

We face strong competition from other oil and gas companies.

We encounter competition from other oil and gas companies in all areas of our operations, including the acquisition of exploratory prospects and proven properties. Our competitors include major oil and gas companies and numerous independent oil and gas companies, individuals and drilling and income programs. Many of our competitors have been engaged in the oil and gas business much longer than we have and possess substantially larger operating staffs and greater capital resources than us. These companies may be able to pay more for exploratory projects and productive oil and gas properties and may be able to define, evaluate, bid for and purchase a greater number of properties and prospects than our financial or human resources permit. In addition, these companies may be able to expend greater resources on the existing and changing technologies that we believe are and will be increasingly important to attaining success in the industry. Such competitors may also be in a better position to secure oilfield services and equipment on a timely basis or on favorable terms. We may not be able to conduct our operations, evaluate and select suitable properties and consummate transactions successfully in this highly competitive environment.

Current global financial conditions have been characterized by increased volatility which could have a material adverse effect on our business, prospects, liquidity and financial condition.

Current global financial conditions and recent market events have been characterized by increased volatility and the resulting tightening of the credit and capital markets has reduced the amount of available liquidity and overall economic activity. There can be no assurance that debt or equity financing, the ability to borrow funds or cash generated by operations will be available or sufficient to meet or satisfy our initiatives, objectives or requirements. Our inability to access sufficient amounts of capital on terms acceptable to us for our operations could have a material adverse effect on our business, prospects, liquidity and financial condition.

The potential profitability of oil and gas properties depends upon factors beyond our control.

The potential profitability of oil and gas properties is dependent upon many factors beyond our control. For instance, world prices and markets for oil and gas are unpredictable, highly volatile, potentially subject to governmental fixing, pegging, controls, or any combination of these and other factors, and respond to changes in domestic, international, political, social, and economic environments. Additionally, due to worldwide economic uncertainty, the availability and cost of funds for production and other expenses have become increasingly difficult, if not impossible, to project. These changes and events may materially affect our financial performance. In addition, a productive well may become uneconomic in the event that water or other deleterious substances are encountered which impair or prevent the production of oil and/or gas from the well. In addition, production from any well may be unmarketable if it is impregnated with water or other deleterious substances. These factors cannot be accurately predicted and the combination of these factors may result in us not receiving an adequate return on invested capital.

 
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Seasonal weather conditions and other factors could adversely affect our ability to conduct drilling activities.

Our operations could be adversely affected by seasonal weather conditions and wildlife restrictions on federal leases. In some areas, certain drilling and other oil and gas activities can only be conducted during limited times of the year, typically during the summer months. This would limit our ability to operate in these areas and could intensify competition during those times for drilling rigs, oil field equipment, services, supplies and qualified personnel, which may lead to periodic shortages. These constraints and the resulting shortages or high costs could delay our operations and materially increase our operating and capital costs, which could have a material adverse effect upon us and our results of operations.

If we are unable to retain qualified managerial and field personnel having experience in oil and gas exploration, we may not be able to continue our operations.

Our success depends to a significant extent upon the continued services of our directors and officers and, in particular, Ruben Alba, Chief Operations Officer and Sam Smith, Chief Geologist. Loss of the services of either of these persons could have a material adverse effect on our growth, revenues, and prospective business. We have not and do not expect to obtain key man insurance on our management. In addition, in order to successfully implement and manage our business plan, we will be dependent upon, among other things, successfully recruiting qualified managerial and field personnel having experience in the oil and gas exploration business. Competition for qualified individuals is intense. There can be no assurance that we will be able to find, attract and retain existing employees or that we will be able to find, attract and retain qualified personnel on acceptable terms.

The marketability of natural resources will be affected by numerous factors beyond our control.

The markets and prices for oil and gas depend on numerous factors beyond our control. These factors include demand for oil and gas, which fluctuate with changes in market and economic conditions, and other factors, including:

 
·
worldwide and domestic supplies of oil and gas;
 
·
actions taken by foreign oil and gas producing nations;
 
·
political conditions and events (including instability or armed conflict) in oil-producing or gas-producing regions;
 
·
the level of global and domestic oil and gas inventories;
 
·
the price and level of foreign imports;
 
·
the level of consumer demand;
 
·
the price and availability of alternative fuels;
 
·
the availability of pipeline or other takeaway capacity;
 
·
weather conditions;
 
·
domestic and foreign governmental regulations and taxes; and
 
·
the overall worldwide and domestic economic environment.

Significant declines in oil and gas prices for an extended period may have the following effects on our business:

 
·
adversely affect our financial condition, liquidity, ability to finance planned capital expenditures and results of operations;
 
·
cause us to delay or postpone some of our capital projects;
 
·
reduce our revenues, operating income and cash flow; and
 
·
limit our access to sources of capital.

We may have difficulty distributing our oil and gas production, which could harm our financial condition.

In order to sell the oil and gas that we are able to produce, we may have to make arrangements for storage and distribution to the market. We will rely on local infrastructure and the availability of transportation for storage and shipment of our products, but infrastructure development and storage and transportation facilities may be insufficient for our needs at commercially acceptable terms in the localities in which we operate. This situation could be particularly problematic to the extent that our operations are conducted in remote areas that are difficult to access, such as areas that are distant from shipping and/or pipeline facilities. These factors may affect our ability to explore and develop properties and to store and transport our oil and gas production and may increase our expenses.  Furthermore, weather conditions or natural disasters, actions by companies doing business in one or more of the areas in which we will operate, or labor disputes may impair the distribution of oil and/or gas and in turn diminish our financial condition or ability to maintain our operations.

 
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CREDIT CONCENTRATION RISK

We produce a raw commodity. Currently one purchaser buys 100% of our production. Although we believe that other purchasers are available for our production, this has not yet developed and we are subject to the risk of the purchaser’s solvency relating to outstanding balances. Although the purchaser has historically timely paid and we have no information that would indicate that it would be unable to continue paying in the future, there are no assurances that this will continue. Any disruption in payments from the purchaser would materially and adversely affect our results, business condition and ability to continue as a going concern.

Oil and gas operations are subject to comprehensive regulation which may cause substantial delays or require capital outlays in excess of those anticipated, causing an adverse effect on us.

Oil and gas operations are subject to federal, state, provincial and local laws relating to the protection of the environment, including laws regulating removal of natural resources from the ground and the discharge of materials into the environment. Oil and gas operations are also subject to federal, state, provincial and local laws and regulations which seek to maintain health and safety standards by regulating the design and use of drilling methods and equipment. Various permits from government bodies are required for drilling operations to be conducted; no assurance can be given that such permits will be received.  Further, hydraulic fracturing, the process used for releasing natural gas from shale rock, has recently come under increased scrutiny and could be the subject of further regulation that could impact the timing and cost of development.

Exploration activities are subject to certain environmental regulations which may prevent or delay the commencement or continuance of our operations.

In general, our exploration activities are subject to certain federal, state and local laws and regulations relating to environmental quality and pollution control. Such laws and regulations increase the costs of these activities and may prevent or delay the commencement or continuance of a given operation. Compliance with these laws and regulations has not had a material effect on our operations or financial condition to date. Specifically, we are subject to legislation regarding emissions into the environment, water discharges and storage and disposition of hazardous wastes. In addition, legislation has been enacted which requires well and facility sites to be abandoned and reclaimed to the satisfaction of state authorities. However, such laws and regulations are frequently changed and we are unable to predict the ultimate cost of compliance. Generally, environmental requirements do not appear to affect us any differently or to any greater or lesser extent than other companies in the industry.

With the introduction of the Kyoto Protocol, oil and gas producers may be required to reduce greenhouse gas emissions. This could result in, among other things, increased operating and capital expenditures for those producers. This could also make certain production of crude oil or natural gas by those producers uneconomic, resulting in reductions in such production.

We are not fully insured against all possible environmental risks.

Exploratory drilling involves many risks and we may become liable for pollution or other liabilities which may have an adverse effect on our financial position.

Drilling operations generally involve a high degree of risk. Hazards such as unusual or unexpected geological formations, power outages, labor disruptions, blow-outs, sour gas leakage, fire, inability to obtain suitable or adequate machinery, equipment or labor, and other risks are involved. We may become subject to liability for pollution or hazards against which we cannot adequately insure or for which we may elect not to insure. Incurring any such liability may have a material adverse effect on our financial position and operations.

Any change in government regulation and/or administrative practices may have a negative impact on our ability to operate and on our profitability.

The laws, regulations, policies or current administrative practices of any government body, organization or regulatory agency in the U.S. may be changed, applied or interpreted in a manner which will fundamentally alter our ability to carry on our business. The actions, policies or regulations, or changes thereto, of any government body or regulatory agency, or other special interest groups, may have a detrimental effect on us. Any or all of these situations may have a negative impact on our ability to operate and/or our profitability.

 
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No assurance can be given that defects in our title to natural gas and oil interests do not exist.

Title to natural gas and oil interests is often not possible to determine without incurring substantial expense. An independent title review was completed with respect to certain of the more valuable natural gas and oil rights acquired by us and the interests in natural gas and oil rights owned by us. Also, legal opinions have been obtained with respect to the spacing units for the wells which have been drilled to date and which have been operated by us.

However, no assurance can be given that title defects do not exist. If a title defect does exist, it is possible that we may lose all or a portion of the properties to which the title defect relates. Our actual interest in certain properties may therefore vary from our records.

Risks Relating to our Common Stock

If we fail to remain current in our reporting requirements, we could be removed from the OTC Bulletin Board which would limit the ability of broker-dealers to sell our securities and the ability of stockholders to sell their securities in the secondary market.

Companies trading on the OTC Bulletin Board, such as us, must be reporting issuers under Section 12 of the Securities Exchange Act of 1934, as amended, and must be current in their reports under Section 13, in order to maintain price quotation privileges on the OTC Bulletin Board. If we fail to remain current on our reporting requirements, we could be removed from the OTC Bulletin Board. As a result, the market liquidity for our securities could be severely adversely affected by limiting the ability of broker-dealers to sell our securities and the ability of stockholders to sell their securities in the secondary market.

The market price for our common stock may be highly volatile.

The market price for our common stock may be highly volatile and could be subject to wide fluctuations. Some of the factors that could negatively affect such share price include:

 
·
actual or anticipated fluctuations in our quarterly results of operations;
 
·
liquidity;
 
·
sales of common stock by our shareholders;
 
·
changes in oil and natural gas prices;
 
·
changes in our cash flows from operations or earnings estimates;
 
·
publication of research reports about us or the exploration and production industry generally;
 
·
increases in market interest rates which may increase our cost of capital;
 
·
changes in applicable laws or regulations, court rulings and enforcement and legal actions;
 
·
changes in market valuations of similar companies;
 
·
adverse market reaction to any increased indebtedness we incur in the future;
 
·
additions or departures of key management personnel;
 
·
actions by our shareholders;
 
·
commencement of or involvement in litigation;
 
·
news reports relating to trends, concerns, technological or competitive developments, regulatory changes and other related issues in our industry;
 
·
speculation in the press or investment community regarding our business;
 
·
general market and economic conditions; and
 
·
domestic and international economic, legal and regulatory factors unrelated to our performance.

Financial markets have recently experienced significant price and volume fluctuations that have affected the market prices of equity securities of companies and that have, in many cases, been unrelated to the operating performance, underlying asset values or prospects of such companies.  Accordingly, the market price of our common stock may decline even if our operating results, underlying asset values or prospects have not changed. Additionally, these factors, as well as other related factors, may cause decreases in asset values that are deemed to be other than temporary.

We do not anticipate paying dividends on our common stock in the foreseeable future.

We do not expect to declare or pay any cash or other dividends in the foreseeable future on our common stock, as we intend to use cash flow generated by operations to develop our business.

 
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Our common stock is subject to the “penny stock” rules of the SEC and the trading market in our securities is limited, which makes transactions in our common stock cumbersome and may reduce the value of an investment in our common stock.

The SEC has adopted Rule 3a51-1 which establishes the definition of a “penny stock,” for the purposes relevant to us, as any equity security that (i) has a market price of less than $5.00 per share or with an exercise price of less than $5.00 per share, or (ii) is not registered on a national securities exchange or listed on an automated quotation system sponsored by a national securities exchange. For any transaction involving a penny stock, unless exempt, Rule 15g-9 of the Exchange Act requires:

 
·
that a broker or dealer approve a person’s account for transactions in penny stocks; and
 
·
the broker or dealer receive from the investor a written agreement to the transaction, setting forth the identity and quantity of the penny stock to be purchased.

In order to approve a person’s account for transactions in penny stocks, the broker or dealer must:

 
·
obtain financial information and investment experience objectives of the person; and
 
·
make a reasonable determination that the transactions in penny stocks are suitable for that person and the person has sufficient knowledge and experience in financial matters to be capable of evaluating the risks of transactions in penny stocks.

The broker or dealer must also deliver, prior to any transaction in a penny stock, a disclosure schedule prescribed by the SEC relating to the penny stock market, which, in highlight form:

 
·
sets forth the basis on which the broker or dealer made the suitability determination; and
 
·
attests that the broker or dealer received a signed, written agreement from the investor prior to the transaction.

Disclosure also has to be made about the risks of investing in penny stocks in both public offerings and in secondary trading, and about the commissions payable to both the broker-dealer and the registered representative. Current quotations for the securities and the rights and remedies and to be available to an investor in cases of fraud in penny stock transactions. Finally, monthly statements have to be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks. Generally, brokers may be less willing to execute transactions in securities subject to the “penny stock” rules.

We have historically had weak internal controls over financial reporting.

We have recently gone through an extensive review of our historical internal controls and financial reporting, under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer. The evaluation was undertaken in consultation with our accounting personnel. Based on that evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that, due to the loss of a number of employees, we no longer have the capacity to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms.  In management's opinion, based on the assessment completed for the year ended March 31, 2011, the internal control over financial reporting were not operating effectively. Further, in management’s opinion, based on the assessment completed for the year ended March 31, 2011, the disclosure controls and procedures were not operating effectively.  There can be no guarantee that the restatements associated with these conclusions will not adversely impact the price of our common stock.

Investors may be unable to enforce judgments against us and certain of our directors and officers.

Certain of our directors and officers reside principally outside the U.S. Because all or substantially all of the assets of these persons are located outside the U.S., it may not be possible for you to effect service of process within the U.S. upon us or those persons. Furthermore it may not be possible for you to enforce judgments obtained in U.S. courts based upon the civil liability provisions of the U.S. federal securities laws or other laws of the U.S. against us or those persons.

ITEM 2. PROPERTIES

Our corporate headquarters is located at Suite 515, 22762 Westheimer Parkway, Katy, Texas 77450. This is not a long term lease.

 
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UHC Petroleum leases oil fields in Edwards County, Texas consisting of the Wardlaw and Adamson Leases.  The Wardlaw Lease consists of approximately 10,562 gross acres of which approximately 10,500 gross acres are undeveloped and the Adamson Lease, consisting of approximately 837 gross acres, of which all are undeveloped. Pursuant to the leases, UHC Petroleum receives a 75% net revenue interest from production on some wells and controls a 100% working interest in the expenses. On other wells, UHC Petroleum receives a 65.625% net revenue interest from production on some wells and controls a 87.5% working interest in the expenses.  For these wells, the owner of the other 9.375% net revenue interest and 12.5% working interest is a separate but related company called Glen Rose Partners 1, LLC (“GRP1”).  The members of GRP1 are substantially the same members as the creditors connected to Iroquois Capital, one of our creditors. The fields are located in the southeast portion of the Val Verde Basin, 28 miles west of the city of Rocksprings, Texas.

ITEM 3. LEGAL PROCEEDINGS

Black Sea Investments, Ltd. Lawsuit.

On November 21, 2007, a jury in Johnson County, Texas rendered a verdict in a trial in favor of the Company against Black Sea Investments, Ltd., Bradford A. Phillips, Clifton Phillips, Ryan T. Phillips, and F. Terry Shumate. On February 15, 2008, the 249th District Court in Johnson County, Texas entered a judgment in the amount of $4,020,551 with interest accruing at a rate of $583 per day until paid against these defendants in favor of the Company.

On March 17, 2008, the individual defendants filed a motion for new trial which was overruled by operation of law on April 30, 2008. The individual defendants then timely filed a Notice of Appeal for the matter to be heard by the Court of Appeals for the Tenth District of Texas, in Waco, Texas.  On October 8, 2008, individual defendants filed a brief with the Tenth Court of Appeals. On January 14, 2009, the Company filed its brief in this matter. The defendants filed a reply brief on February 5, 2009. Also, a Baylor Law School professor filed an amicus letter with the Court on February 3, 2009. As of July 7, 2009, there had been no opinion released by the Texas Tenth Court of Appeals.  In January 2009 Justice Rex D. Davis has recused himself from considering the matter.

On May 26, 2010, the Court of Appeals for the Tenth District reversed the judgment of the trial court and determined that the Company shall “take nothing”. The Company has determined not to pursue the matter further.

Recon Petrotechnologies Oklahoma, Inc., v. UHC Petroleum Corporation and Glen Rose Petroleum Corp.

On August 12, 2009, Recon Petrotechnologies Oklahoma, Inc. filed a lawsuit to foreclose on an alleged mineral contractor’s lien. On September 8, 2009, Defendants transferred the case to federal court for the Western District of Texas, Del Rio division. UHC Petroleum Corporation and Glen Rose Petroleum Corporation have filed counterclaims for negligence.  This matter was settled on April 25, 2011 for the sum of $80,000. This payable to Recon was paid in full after March 31, 2011.

Forbes Energy Services, LLC successor in interest to CC Forbes Company, LP v. UHC Petroleum Corporation

On June 11, 2009 Forbes Energy Services, LLC filed a lawsuit against UHC Petroleum Corporation in the 79th District Court of Jim Wells County, Texas alleging breach of contract, sworn account, and quantum meruit. The Company has agreed with Forbes Energy Services to settle the matter for the sum of $15,000, which has been paid.

Paradigm Lift Technologies, LLC v. UHC Petroleum Corporation

On September 21, 2009 Paradigm Lift Technologies, LLC filed a lawsuit against UHC Petroleum Corporation in the 63rd District Court in Edwards County, Texas for sworn account for equipment allegedly purchased by UHC Petroleum Corporation.  The case is in the discovery stage.

Jeff Toth v. Glen Rose Petroleum Corp.

On January 27, 2010, Jeff Toth filed a petition in the 63rd District Court in Edwards County, Texas against Glen Rose Petroleum Corporation for trespass, surface damage, and use of filler.  The petition was served on February 18, 2010 and is in the discovery period and the parties have submitted to mediation.

 
18

 

Langston Family Partnership and Buccaneer Energy Corporation v. Glen Rose Petroleum Corporation

On October 9, 2009, an action was commenced in the District Court in Kaufman County, TX, by Langston Family Limited Partnership and Buccaneer Energy Corporation against the Company seeking recovery of funds and compensation for services allegedly advanced to the Company.  The Company was served in March 2010 and defended the action. The action was amended on May 4, 2010 to, among other things, add Mr. Langston as a plaintiff.  See, also Glen Rose Petroleum Corporation v. Joseph Langston, below.  As of August 2, 2011, this matter, along with the related matter of Glen Rose Petroleum Corporation v. Joseph Langston, below, was settled. Langston agreed to discontinue and withdraw his claims with prejudice in exchange for receiving $80,000 in a lump sum payment and $3,333 each month for twelve (12) months thereafter and returning all shares of the Company’s common stock in which he or anyone related to him had beneficial control or ownership.

Glen Rose Petroleum Corporation v. Joseph Langston

On April 1, 2010, the Company filed an action in the Delaware Court of Chancery against Mr. Langston, the Company’s former Chief Executive Officer, based upon alleged breaches of fiduciary duties as an officer and director of the Company and alleged self-dealing.  On July 8, 2010, the Court denied jurisdiction in Delaware due to the prior action of Mr. Langston in Kaufman County, TX, and directed the Company to proceed in the Texas Court. See also, Langston Family Partnership and Langston Family Partnership and Buccaneer Energy Corporation, above, which was settled. As of August 2, 2011, the Company agreed to discontinue its claims and pay Langston $80,000 in a lump sum payment and $3,333 each month for twelve (12) months thereafter in consideration for Langston forfeiting all shares of the Company’s common stock in which he or anyone related to him had beneficial control or ownership.

Pernice v. Glen Rose Petroleum, et. al.

On or about April 15, 2011, the Company was advised of an action filed in the Los Angeles Superior Court, in the State of California, by an individual against the Company and others, including Blackwood Capital Limited and Andrew Taylor-Kimmins, our CEO. The claim alleges, among other things, breach of contract and negligent misrepresentations arising out of a proposed transaction related to certain securities and indebtedness of the Company purportedly held by the individual. The amount claimed to be owing is approximately $187,000.  On August 2, 2011, the parties agreed to a settlement that includes a lump sum payment to Mr. Pernice of $110,267, which has been paid subsequent to March 31, 2011.

Potential Shareholder Derivative Litigation

On June 25, 2010, the Company was advised by its counsel in the Langston matters that the firm received a letter from Mr. Langston’s counsel purportedly constituting a notice to the Company and its directors of “a potential shareholder derivative lawsuit against the officer and directors of Glen Rose Petroleum”.

In the course of events, this matter no longer is applicable due to a settlement having been reached between the Company and Langston (see Langston Family Partnership and Buccaneer Energy Corporation v. Glen Rose Petroleum Corporation, above, and Glen Rose Petroleum Corporation v. Joseph Langston, above).

 Other

The Company does not have any other litigation current or contemplated. However, the Company terminated Geoff Beatson, an engineering consultant, and has taken issue with various vendors, any of which could result in litigation, which the Company will vigorously pursue and defend.

Also, we may routinely be involved in government administrative proceedings relating to our oil and gas operations. The Texas Railroad Commission regulates the oil and gas industry in Texas and Texas law requires that the Texas Railroad Commission issue permits for a variety of activities. Petroleum can provide no assurance that all of the Company’s requested permits will be granted.

ITEM 4.
REMOVED AND RESERVED.

 
19

 

PART II

ITEM 5.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND SALES OF UNREGISTERED EQUITY SECURITIES.

Market Information

The principal market for our common stock until April 29, 2010 was the Nasdaq Capital Market. On that date, because we no longer satisfied the listing standards for the Nasdaq Capital Market, our common stock ceased to be listed on the Nasdaq. Since then, our common stock has been quoted on the Over-the-Counter Bulletin Board (the “OTCBB”) under the symbol “GLRP.OB”

The following table sets forth, for the periods indicated, the high and low sale price per share of our common stock as reported by Nasdaq, or as reported by the OTCBB, as the case may be. For OTCBB quotations, the quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission, and may not necessarily represent actual transactions.
 
   
High
   
Low
 
Fiscal Year Ended March 31, 2011
           
First Quarter
 
.75
   
$
.20
 
Second Quarter
 
$
.62
   
$
.25
 
Third Quarter
 
$
.45
   
$
.16
 
Fourth Quarter
 
$
.74
   
$
.26
 
             
Fiscal Year Ended March 31, 2010
           
First Quarter
 
.50
   
$
.15
 
Second Quarter
 
$
.42
   
$
.15
 
Third Quarter
 
$
.42
   
$
.15
 
Fourth Quarter
 
$
1.55
   
$
.20
 

Shareholders

As of September 28, 2011, there were approximately 1,500 record holders of our common stock. This does not include an indeterminate number of shareholders whose shares are held by brokers in street name.

Dividends

We have never declared any cash dividends on our common stock and we do not anticipate declaring a cash dividend in the foreseeable future.

Recent Sales of Unregistered Securities

We have issued the following securities that were not registered under the Securities Act of 1933, as amended and not reported in our reports on Form 10-Q or on Form 8-K, as applicable, filed with the SEC:

On January 1, 2011, the Company, for consulting services rendered, issued warrants to purchase 25,000 shares of common stock.  The warrants have a strike price of $0.40 and an expiration date of December 31, 2013.

On January 21, 2011, the Company completed an offering to accredited non-U.S. investors, and in connection with the offering issued an aggregate of 7,280 shares of the Company’s Series D Convertible Preferred Stock (which includes 280 shares issued to ABG Sundal Collier Norge ASA who acted as advisor to the investors in connection with the sales), par value $.0001 per share (the “Shares”).  These Shares were convertible into 7,280,000 shares of the Company’s common stock, automatically, upon the effectiveness of an amendment to the Company’s articles of incorporation increasing its authorized common stock to not less than 125 million shares.  On March 7, 2011, the Company filed with the Secretary of State of the State of Delaware an amendment to the Company’s articles of incorporation increasing its authorized common stock to 150 million shares.  Accordingly, the Shares automatically converted into, and the Company issued to the investors, 7,280,000 shares of the Company’s restricted common stock.

 
20

 
 
On January 21, 2011, the Company issued warrants to purchase 7,280,000 shares of common stock with the strike price of $0.40 and warrants to purchase 7,280,000 shares of common stock with the strike price of $0.60 to the accredited non-U.S. investors who also received Company Series D-Convertible Preferred Stock as described above.  The expiration dates of the warrants are January 21, 2013 and January 21, 2014 respectively.  The warrants carry anti-dilution provisions that would reset the exercise prices if at any time through January 2012 the Company issued shares of common stock at a price lower than the then current exercise price.

As a result of the issuance of the Series D Convertible Preferred Stock noted above, the anti-dilution provisions of certain outstanding warrants required the issuance of warrants for an additional 11,166,667 shares of common stock, to the holders, and the downward adjustment of the strike price for all such warrants from $0.60 to $0.30. The additional warrants have the same expiration date as the original warrants, which is March 3, 2015.

Equity Compensation Plan Information

The 2008 Equity Incentive Plan.   In January 2008, our board of directors approved and adopted the United Heritage Corporation 2008 Equity Incentive Plan (the “Plan”). We have reserved 5,000,000 shares of common stock for awards that will be granted from the Plan. The awards are subject to adjustment in the event of stock dividends, recapitalizations, stock splits, reverse stock splits, subdivisions, combinations, reclassifications or similar changes in our capital structure. The Plan became effective upon adoption by the board, and, unless earlier terminated in accordance with the terms and provisions thereof, was to remain in effect for a period of ten years from the date of adoption. As of March 31, 2011 there were no awards outstanding under the plan.

Other Plans - The 1995 Stock Option Plan was effective September 11, 1995 and included 66,667 shares of our authorized but unissued common stock. As of March 31, 2010 and 2011 no awards were outstanding under this plan. The 1998 Stock Option Plan was effective July 1, 1998 and included 66,667 shares of our authorized but unissued common stock. As of March 31, 2010 and 2011, no awards were outstanding.  The 2000 Stock Option Plan of United Heritage Corporation was effective on June 5, 2000 and included 1,666,667 shares of our authorized but unissued common stock. As of March 31, 2011 and 2010, no awards were outstanding.

Director’s compensation was amended on June 30, 2008. Under the revised plan, each director can choose each month to receive either $5,000 in the form of the Company’s common stock or stock options to purchase 5,000 shares of common stock. The option price is equal to the Company’s closing average bid price for the previous ended quarter. The previous agreement provided for 5,000 stock purchase options per month, with the price to be calculated on the average closing bid price for the month.  Under the Plan, 150,000 stock options were granted to the Company’s Directors during the years ended March 31, 2009 and March 31, 2010.  15,000 options were retired as part of the litigation settlement with Joseph F. Langston Jr.  135,000 stock options remain outstanding under this Plan as of March 31, 2011.
 
During the year ended March 31, 2008, 100,000 stock options were issued to an employee and were not part of the plans mentioned above. These options were outstanding as of March 31, 2011.
 
The director’s compensation was changed on April 1, 2010 to 20,000 shares of common stock per month delivered quarterly in advance.  On June 30, 2011, the Board of Directors changed the director compensation to be 20,000 shares of common stock per month, earned in arrears at the end of each month served, and issued quarterly.
 
ITEM 6.
SELECTED FINANCIAL DATA.

Not applicable.

ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION.

Management’s discussion and analysis of results of operations and financial condition (“MD&A”) is based upon our consolidated financial statements. These statements have been prepared in accordance with accounting principles generally accepted in the United States of America. These principles require management to make certain estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate these estimates based on historical experience and various other assumptions that are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions.

 
21

 

This MD&A contains forward-looking statements regarding our business development plans, timing, strategies, expectations, anticipated expense levels, projected profits, business prospects and positioning with respect to market and pricing trends, business outlook, technology spending and various other matters (including contingent liabilities and obligations and changes in accounting policies, standards and interpretations) and express our current intentions, beliefs, expectations, strategies or predictions.  These forward-looking statements are based on a number of assumptions and currently available information and are subject to a number of risks and uncertainties.

Forward-looking statements are generally identifiable by the use of terms such as “anticipate,” “will,” “expect,” “believe,” “should” or similar expressions. Although we believe that the assumptions on which the forward-looking statements contained herein are reasonable, any of those assumptions could prove to be inaccurate given the inherent uncertainties as to the occurrence or nonoccurrence of future events. These statements are not guarantees of future performance and involve risks and uncertainties that are difficult to predict.  Therefore, actual outcomes and results may, and are likely to, differ materially from what is expressed or forecasted in the forward-looking statements due to numerous factors, including the potential risks and uncertainties set forth in Item 1A of this Form 10-K and relate to our business plan, our business strategy, development of our technology and our resources, timing of such development, timing results of drilling program, implementation of our strategic, operating and people initiatives, benefits to be derived from personnel and directors, our assumptions regarding cash flow from operations and cash on-hand, the amount and timing of operating costs and capital expenditures relating to the expansion of our business, operations and infrastructure, our ability to obtain additional capital as, and when, needed, and on acceptable terms and general economic conditions specific to our industry, any of which could impact sales, costs and expenses and/or planned strategies and timing.  If we are not able to generate sufficient liquidity from operations or raise sufficient additional capital, this could have a material adverse effect on our business, results of operations, liquidity and financial condition. We assume no obligation to, and do not currently intend to, update these forward-looking statements.

This MD&A should also be read in conjunction with the Item 1.A. “Risk Factors.”

 
22

 

OVERVIEW

We are an independent producer of crude oil based in Katy, Texas. We produce from properties we lease in Texas, the Wardlaw lease in Edwards County, Texas. We currently have 85 wellbores, 75 of which are capable of production, and 42 of which are currently producing. Up until March of 2010, utilizing one swabbing unit, the Company produced oil from 42 wells at a total production rate of less than five (5) barrels of oil per day.  After Ruben Alba joined us as our Chief Operating Officer in March 2010, the Company began a rigorous testing program of all the existing non-plugged well bores and a broad re-evaluation of both the regional and local geography.  This testing and re-evaluation program led the Company to workover and/or re-complete certain existing wells that were deemed relatively more productive wells as well as to drill five (5) new test wells in a deeper zone called the Trinity Basil Sands.  The workover and re-complete program had the effect of significantly increasing  the average daily production of up to over 90-100 net barrels of oil per day in October 2010 which has settled into a consistent 40-50 net barrels of oil per day for the month ended March 2011.  This same average net production rate has continued consistently through June 2011.  The new Trinity Basil Sands drilling program yielded what is believed as a significant new oil production zone at a depth of approximately 1,000 feet in at least two of the five well bores drilled.  As of March 2011, the Company had not completed this new zone to evaluate its effective production and extraction capability.  The Company is in the process of completing and testing these new zones as of August 2011.

During the 2011 fiscal year, the sale price of oil produced by our properties in Texas increased from $38.68 a barrel, to $53.76 a barrel. The closing spot for West Texas Intermediate price was $106.19 per barrel as of March 31, 2011, versus $83.45, as of March 31, 2010. Production costs during the 2011 fiscal year decreased from $33.64 per barrel during the 2010 fiscal year to $32.72 per barrel, because we were able to significantly increase average daily production, while keeping the field expenses relatively constant.

Except as otherwise discussed in this Annual Report, there are no trends, and events or uncertainties in the oil industry and financial community are reasonably likely to have, a material impact on our short-term or long-term liquidity, as well as our net sales or revenues from continuing operations.

During the next fiscal year, our plan is to continue redevelopment of our properties if we are successful in finding other funding sources or, alternatively, we will seek investors or buyers.

Going Concern Status

Our financial statements have been prepared on a going concern basis which contemplates the realization of assets and the liquidation of liabilities in the ordinary course of business. The Company has incurred substantial losses from operations and it has negative operating cash flow which raises substantial doubt about its ability to continue as a going concern. The Company sustained a net loss attributable to common shareholders of $17,865,461 for the fiscal year ended March 31, 2011 and an accumulated deficit of $67,984,551.

We intend to continue our planned capital expenditures to continue our reworking and drilling programs, as discussed, but we do not have sufficient realized revenues in order to finance these activities internally.  As such, we intend to seek capital in order to fund our working capital and capital expenditure needs.

Although we recently obtained additional financing of approximately $1.9 million in July 2011, which should provide the needed funds for continued operations and our drilling program in the short term, we can provide no assurance that we will be able to obtain sufficient additional funds to develop our properties and alleviate doubt about our ability to continue as a going concern.  We cannot be certain that additional funds, even if available, will be on acceptable terms.  To the extent the Company raises additional funds by issuing equity securities, our stockholders may experience significant dilution.  Any debt financing, if available, may involve restrictive covenants that impact our ability to conduct business.  Furthermore, certain of our current creditors may be required to approve any such transaction and may require the issuance of securities convertible into equity of the Company that can result in significant dilution.
 
The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
 
Critical Accounting Policies and Estimates

Our financial statements are prepared in accordance with accounting principles generally accepted in the United States of America. The reported financial results and disclosures were determined using the significant accounting policies, practices and estimates described below.

 
23

 

Oil and Gas Properties

Proved Reserves - Proved reserves are defined by the Securities and Exchange Commission as those volumes of crude oil; condensate, natural gas liquids and natural gas that geological and engineering data demonstrate with reasonable certainty are recoverable from known reservoirs under existing economic and operating conditions. Proved developed reserves are volumes expected to be recovered through existing wells with existing equipment and operating methods. Although our engineers are knowledgeable of and follow the guidelines for reserves established by the Securities and Exchange Commission, the estimation of reserves requires engineers to make a significant number of assumptions based on professional judgment. Reserve estimates have been updated at least annually and consider recent production levels and other technical information about each well. Estimated reserves are often subject to future revision, which could be substantial, based on the availability of additional information including: reservoir performance, new geological and geophysical data, additional drilling, technological advancements, price changes and other economic factors. Changes in oil and gas prices can lead to a decision to start-up or shut-in production, which can lead to revisions to reserve quantities. Reserve revisions in turn cause adjustments in the depletion rates utilized by the Company. The Company cannot predict what reserve revisions may be required in future periods.

Depletion rates are determined based on reserve quantity estimates and the capitalized costs of producing properties. As the estimated reserves are adjusted, the depletion expense for a property will change, assuming no change in production volumes or the costs capitalized. Estimated reserves are used as the basis for calculating the expected future cash flows from a property, which are used to determine whether that property may be impaired. Reserves are also used to estimate the supplemental disclosure of the standardized measure of discounted future net cash flows relating to oil and gas producing activities and reserve quantities disclosure in Footnote 15 to the consolidated financial statements. Changes in the estimated reserves are considered changes in estimates for accounting purposes and are reflected on a prospective basis.

We employ the full cost method of accounting for our oil and gas production assets, which are located in the southwestern United States.  Under the full cost method, all costs associated with the acquisition, exploration and development of oil and gas properties are capitalized and accumulated in cost centers on a country-by-country basis.  As all of our acquisitions, explorations and development are located in Edwards county Texas; one cost center is used for accounting purposes.  The sum of net capitalized costs and estimated future development and dismantlement costs for each cost center is depleted on the equivalent unit-of-production basis using proved oil and gas reserves as determined by independent petroleum engineers.

Net capitalized costs are limited to the lower of unamortized cost net of related deferred tax or the cost center ceiling. The cost center ceiling is defined as the sum of (i) estimated future net revenues, discounted at 10% per annum, from proved reserves, based on un-escalated year-end prices and costs; (ii) the cost of properties not being amortized; (iii) the lower of cost or market value of unproved properties included in the costs being amortized; less (iv) income tax effects related to differences between the book and tax basis of the oil and gas properties.

The ceiling test is affected by a decrease in net cash flow from reserves due to higher operating or finding costs or reduction in market prices for natural gas and crude oil. These changes can reduce the amount of economically producible reserves. If the cost center ceiling falls below the capitalized cost for the cost center, we would be required to report an impairment of the cost center’s oil and gas assets at the reporting date.

Impairment of Properties - We will continue to monitor our long-lived assets recorded in oil and gas properties in the consolidated balance sheet to ensure they are fairly presented. We must evaluate our properties for potential impairment when circumstances indicate that the carrying value of an asset could exceed its fair value. A significant amount of judgment is involved in performing these evaluations since the results are based on estimated future events. Such events include a projection of future oil and natural gas sales prices, an estimate of the ultimate amount of recoverable oil and gas reserves that will be produced from a field, the timing of future production, future production costs, and future inflation. The need to test a property for impairment can be based on several factors, including a significant reduction in sales prices for oil and/or gas, unfavorable adjustment to reserves, or other changes to contracts, environmental regulations or tax laws. All of these factors must be considered when testing a property's carrying value for impairment. We cannot predict whether impairment charges may be required in the future.

Revenue Recognition - Oil and gas production revenues are recognized at the point of sale. Production not sold at the end of the fiscal year is included as inventory.

Income Taxes –  Included in our net deferred tax assets are approximately $2.98 million of future tax benefits from prior unused tax losses. Realization of these tax assets depends on sufficient future taxable income before the benefits expire. We are unsure if we will have sufficient future taxable income to utilize the loss carry-forward benefits before they expire. Therefore, we have provided an allowance for the full amount of the net deferred tax asset.  We have determined that we have experienced multiple ownership changes since inception, but we do not believe that these past changes in ownership will restrict our ability to use our losses and credits with the carry forward period.

 
24

 

Warrant and Derivative Liabilities - We issued, in March 2010, convertible notes payable with warrants and, in a separate transaction in January 2011, issued Series D convertible preferred stock with warrants. In analyzing the March 2010 convertible notes and the January 2011 financing transaction, the conversion option for the notes payable and warrants associated with both transactions each have certain anti-dilution and other provisions that cause them to be a derivative and liability. The put option provision of the March 2010 convertible notes is at a 20% premium which causes it also to be a derivative.  The derivative liabilities associated with the March 2010 convertible note will be revalued each reporting period and any increase or decrease will be recorded to the statement of operations under the caption “Change in value of derivative liability - Iroquois”.  The warrant liabilities associated with the March 2010 convertible note will be revalued each reporting period and any increase or decrease will be recorded to the statement of operations under the caption “Change in value of warrant liability - Iroquois”.  The warrant liabilities associated with the January 2011 financing transaction will be revalued each reporting period and any increase or decrease will be recorded to the statement of operations under the caption “Change in value of warrant liability - ABG”.
 
In order to properly evaluate the fair value of the derivatives and warrants, we engaged an independent valuation firm to perform a model valuation.  Together with this independent valuation firm, we determined that the fair value of the derivatives is estimated by calculating the fair value of the convertible notes with and without the derivatives and that the difference is the estimated fair value of the derivatives. The independent valuation firm created a Monte Carlo simulation model which more adequately captures the dilution effects of our entire capital structure by modeling the derivatives and all the classes of warrants which might have a material dilutive effect. Within each trial of the simulation, the common stock price is based on the simulated enterprise value. For each class of warrants, if the stock price is above the current strike price on the exercise date, the warrant is assumed to be exercised. In order to determine the stock price for any given enterprise value the simulation is repeated multiple times until the stock price converges. This approach effectively captures the dilution effects of warrants and convertible note and its derivatives.  The underlying value of the model is Enterprise Value, and each Claim is treated as a Claim on the Enterprise Value.  Enterprise Value is assumed to be log-normally distributed. Since the common stock price is not the underlying value, the volatility implied by the model is not equal to the volatility used under a closed-form Black-Scholes model which values the warrants with the common stock as the underlying security. In the opinion of the independent valuation firm and management, modeling Enterprise Value is preferable due to the high level of risk of our debt and the lack of an exogenous source for the size and volatility of our credit spread. Moreover, the Enterprise Value model more effectively captures the default feature of notes and the down round feature of the warrants.

Accounting Estimates - Management uses estimates and assumptions in preparing financial statements in accordance with accounting principles generally accepted in the United States of America. Those estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenues and expenses. In particular, there is significant judgment required to estimate oil and gas reserves, impairment of unproved properties and asset retirement obligations. Actual results could vary significantly from the results that are obtained by using management’s estimates.

Off-Balance Sheet and/or Working Interest Arrangements - It is customary for oil and gas companies to seek partners in developing their assets. In doing so, you dilute your ownership but share the risk and capital expense of development. Consequently, UHC Petroleum has accepted partners in a portion of the development of its Wardlaw and Adamson Leases in Edwards County, Texas.

On March 5, 2010, upon completion of the Iroquois Capital debt financing transaction, certain Iroquois-related parties formed a separate company called Glen Rose Partners 1, LLC (“GRP1”) in order to purchase a 12.5% working interest in certain defined existing wells owned by UHC Petroleum as well as 12.5% working interests in new wells being drilled and developed by UHC Petroleum.  The purchase price for these working interests was $1 million and was paid by GRP1 coincident with the closing of the debt financing transaction.  As a condition for this purchase and sale transaction, GRP1 would earn its 9.375% net revenue interest less its pro-rata 12.5% costs each month on producing wells that were included in the purchase and sale transaction.  However, GRP1 would not pay for its 12.5% share of the developmental costs for new wells or workover wells until the Company had spent a cumulative amount of $2 million on behalf of GRP1.  The $1 million purchase consideration and any payments toward the $2 million carry commitment have been included in the full cost pool.

Accounting Adjustments and Restatement of FYE 2010 Results

During the January 2011 Regulation S Offering of convertible preferred stock with warrants, we realized that on May 22, 2008 when we entered into a statutory merger whereby we moved our state of incorporation from Utah to Delaware (See Note 9 of the Financial Statements) the number of authorized shares was inadvertently changed from 125,000,000 to 20,000,000.  In conjunction with the January 2011 Regulation S Offering, we applied to the State of Delaware to authorize 150,000,000 shares of common stock, which was completed on March 7, 2011.  For the period from May 22, 2008 through March 7, 2011, we had warrants outstanding in excess of the authorized and unissued common shares and as such in accordance with ASC Topic 815, Derivatives and Hedging, these warrants should have been classified as liabilities. In addition, as part of the process of closing our financial records for the year ended March 31, 2011, we noted the convertible debt and warrants issued in March 2010 and other transactions were not recorded correctly. The conversion option, which includes certain anti-dilution provisions, and a put option that includes a 20% premium, should have been bifurcated from the host contract and adjusted to fair value in accordance with ASC Topic 815.  In addition the warrants also contain anti-dilution provisions that require liability classification in accordance with ASC Topic 815.  As a result, we concluded that our financial statements for the year ended March 31, 2010, required a restatement to reflect these changes.

 
25

 

A summary of significant effects of the restatement follows:

On May 22, 2008, we had 20,307,087 warrants outstanding that carried a fair value of $11,926,934 as of that date and a fair value of $1,784,348 as of March 31, 2009.  As of May 22, 2008, we made an adjustment to reclassify the warrants from equity to a liability and at March 31, 2009 the fair value was adjusted.  For the year ended March 31, 2010, 3,733,332 warrants at a fair value of $536,746 at grant date were issued and 9,000,000 warrants at a fair value of $1,391,495 at termination date were cancelled.  At March 31, 2010 the fair value of the warrants outstanding, not including the warrants issued with the convertible notes, was $3,992,172.   For the year ended March 31, 2011, 2,913,336 warrants at a fair value of $860,384 at grant date were issued, not including warrants issued with the January 2011 Regulation S Offering. On March 7, 2011, the fair value of the warrants outstanding, not including the warrants issued with convertible notes or with the January 2011 Regulation S Offering or 1,335,000 warrants due to certain consultants (See Note 9 of the Financial Statements) was $4,525,117 and was reclassified to additional paid-in capital.
 
The convertible notes issued on March 3, 2010 included anti-dilution provisions in the conversion option and the warrants that allow for a reset of the respective conversion and exercise prices in certain situations when we issue common shares at a lower price.  Additionally, the convertible notes include a provision that allows the creditors to put the notes back to us at a 20% premium in certain change of control or default situations.  In order to determine the fair value of the embedded derivatives and the warrant liability we utilized a Monte Carlo simulation methodology. As of March 3, 2010, the fair value of the derivatives was $1,593,002 and the fair value of the warrant liability was $4,258,094.  Due to the number of common shares on a fully-diluted basis offered to the creditors, the fair value of the derivatives and the warrant liability exceeded the principal amount of the convertible notes and so we recorded interest expense of $2,501,096 upon the date of issuance.  The original issue discount of $3,350,000 is being amortized over the life of the debt using the effective interest rate method and for the year ended March 31, 2010 the amortization was $38,548.
 
Stock based compensation expense of $829,852 was reclassed from a separate category for stock based compensation in the statement of operations to general and administrative expense in accordance with ASC Topic 718, Stock Compensation. Additionally $122,458 of stock based compensation related to warrants issued to consultants was recorded for the year ended March 31, 2010.
 
The disclosures for our deferred tax assets were not in accordance with ASC Topic 740, Income Taxes.  The amounts were not based on cumulative balances and we had not correctly estimated the limitation of the net operating loss carryforwards related to a previous change of control.
 
Independent petroleum engineers have estimated our proved oil and gas reserves, all of which are located in Edwards County, Texas. Proved reserves are the estimated quantities that geologic and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions. Proved developed reserves are the quantities expected to be recovered through existing wells with existing equipment and operating methods. Due to the inherent uncertainties and the limited nature of reservoir data, such estimates are subject to change as additional information becomes available. The reserves actually recovered and the timing of production of these reserves may be substantially different from the original estimate. Revisions result primarily from new information obtained from development drilling and production history and from changes in economic factors.  The original reserve report for fiscal year ended March 31, 2010 was not prepared in compliance with the Securities and Exchange Commission’s rules and accounting standards, which require that calculations be based on the twelve month un-weighted first-day-of –the-month average price for March 31, 2010.  As such, we corrected the report and restated the related disclosures in the supplementary financial information in Note 15 of the financial statements.  The effect of these adjustments was not material to the recorded depreciation, depletion and accretion amounts reported for the year ended March 31, 2010.

 
26

 


 
   
Year Ended March 31,
2010 (As Previously
Reported)
   
Amount of Change
   
Year Ended
March 31, 2010
(As Restated)
 
Statement of Operations
                 
General and administrative
  $ 1,052,914     $ 1,073,332     $ 2,126,246  
Stock based compensation
    829,852       (829,852 )     -  
Interest expense
    237,184       2,491,620       2,728,804  
Change in value of warrant liability
    -       3,062,571       3,062,571  
Change in value of warrant liability - Iroquois
    -       2,148,271       2,148,271  
Change in value of derivative liability - Iroquois
    -       1,721,094       1,721,094  
Net loss
    (2,509,790 )     (9,667,036 )     (12,176,826 )
Loss per share (basic and diluted)
  $ (0.20 )   $ (0.77 )   $ (0.97 )

   
March 31, 2010 (As
Previously Reported)
   
Amount of Change
   
March 31, 2010
(As Restated)
 
Balance Sheet
                 
Convertible notes payable, net of unamortized discount
  $ 1,906,908     $ (1,868,360 )   $ 38,548  
Warrant liability - Convertible note
    -       6,406,365       6,406,365  
Derivatives liability - Convertible note
    -       3,314,096       3,314,096  
Warrant liability - Other
    -       3,992,172       3,992,172  
Additional paid-in capital
    54,550,837       (12,428,673 )     42,122,165  
Accumulated Deficit
  $ (50,942,560 )   $ 823,470     $ (50,119,090 )

RESULTS OF OPERATIONS

The following selected financial data for the two years ended March 31, 2011 and March 31, 2010 is derived from our consolidated financial statements. The data is qualified in its entirety and should be read in conjunction with the consolidated financial statements and related notes contained elsewhere herein.

   
Year Ended
   
Year Ended
 
   
March 31,
2011
   
March 31, 
2010
(Restated)
 
             
Income Data :
 
 
   
 
 
Revenues
  $ 1,103,227     $  124,815  
Net Loss Attributable to Common Shareholders
  $ (17,865,461 )   $  (12,176,826 )
Income (Loss) Per Share
  $ (.95 )   $  (.97 )
Weighted Average Number of Shares
     18,780,262       12,588,610  
                 
Balance Sheet Data :
               
Working Capital
  $ (993,184   $  2,705,654  
Total Assets
  $ 8,246,591     $  9,117,471  
Current Liabilities
  $ 2,020,567     $  874,001  
Long-Term Liabilities
  $ 26,633,296     $  16,312,647  
Shareholders’ Deficit
  $ (20,407,272 )   $  (8,069,177 ) 

 
27

 

Combined Results

Oil sales during the 2011 fiscal year were $1,103,227, an increase of $978,412 or approximately 784%, as compared to sales of $124,815 during the 2010 fiscal year. We sold 19,966 gross barrels of oil during the FYE March 31, 2011 versus 3,398 gross barrels of oil during the FYE March 31, 2010.  Recent volatility in crude oil prices has caused substantial variations in unit prices and our revenues may vary considerably base on crude oil unit prices.  We had $113,006 in receivables from the sale of oil as of March 31, 2011. No allowance for doubtful accounts has been included in our financial statements since recorded amounts are determined to be fully collectible, based on management’s review of customer accounts, historical experience and other pertinent factors. During the fiscal year ended March 31, 2011, we recorded oil and gas sales to only one customer. However, buyers of crude oil are plentiful and can be easily replaced.

Total operating expenses of $5,392,547 reflects an increase of $3,052,559 or approximately 130%, for the 2011 fiscal year as compared to operating expenses of $2,339,988 for the 2010 fiscal year. The significant operating expenses reported for the 2011 fiscal year resulted from a significant increase in production and operating expense and non-cash expenses recognized for impairment of long-term assets.  Production and operating expenses were $967,827 during the 2011 fiscal year as compared to $114,320 in production and operating expenses during the 2010 fiscal year, an increase of $853,507 or approximately 747%, due to our increased effort in re-evaluating our production capacity and focusing on increasing our production capacity from under an average 5 barrels of oil per day during FYE March 31, 2010 to ultimately reaching an average of approximately 100 gross barrels of oil per day in October 2010 and eventually settling back to approximately 45-50 gross barrels of oil per day as of March 31, 2011.  Depreciation and depletion expense for the 2011 fiscal year was $251,599 as compared to depreciation and depletion expense of $54,843 for the 2010 fiscal year, an increase of $196,756.  Demand for oil field service providers may vary substantially with the unit price of gas and crude oil which would have a corresponding effect on the price of oil field goods and services.   General and administrative expenses increased by $2,045,538, or approximately 96%, from $2,126,246 in the 2010 fiscal year to $4,171,604 in the 2011 fiscal year. Interest expense was $1,572,520 in the 2011 fiscal year, as compared to $2,728,804 in the 2010 fiscal year.  The 2011 fiscal year amount includes $898,486 of debt discount amortization, $129,213 of deferred financing costs amortization and $505,004 related to the principal balance of the convertible notes.  The 2010 fiscal year amount includes $38,548 of debt discount amortization, $11,240 of deferred financing costs amortization, $2,501,096 of interest recorded upon issuance of the convertible notes and $31,267 related to the principal balance of the convertible notes.  The convertible notes were outstanding for twelve months in 2011 fiscal year and approximately one month in the 2010 fiscal year.

Our net loss for the 2011 fiscal year was $14,662,555 an increased loss of $2,485,729 or approximately 20%, as compared to a net loss of $12,176,826 for the 2010 fiscal year.  In addition to the changes discussed above, the increase in net loss for the 2011 fiscal year was effected by a change in fair value of derivative and warrant liabilities of $8,731,562 for the 2011 fiscal year compared to a change in fair value of derivative and warrant liabilities of $6,931,936 for the 2010 fiscal year, or an increase of $1,799,626.  This is due to the change in our stock price and the volatility of our common stock.

LIQUIDITY AND CAPITAL RESOURCES

Liquidity

Our sales revenues have not been adequate to support our operations.

Our current assets decreased by $2,552,272 or approximately 71%, from $3,579,655 at March 31, 2010 to $1,027,383 at March 31, 2011. Current liabilities increased from $874,001 at March 31, 2010, to $2,020,567 at March 31, 2011, an increase of $1,146,566 or approximately 131%. Working capital was ($993,184) at March 31, 2011 as compared $2,705,654 at March 31, 2010, a decrease of $3,698,838 or 137%. The decrease was a direct result of the significant exploratory drilling program undertaken by the Company, the classification of the convertible notes from long-term to current and the use of the cash received by the Company from both the Iroquois financing in March 2010 and the Regulation S offering in January 2011.

Total assets were $8,246,591 at March 31, 2011, a decrease of $870,880 as compared to $9,117,471 for the 2010 fiscal year.

Our consolidated financial statements as of March 31, 2011 have been prepared under the assumption that we will continue as a going concern. Our independent registered public accounting firm has issued a report on our financial statements that included an explanatory paragraph referring to our recurring losses from operations and expressing substantial doubt in our ability to continue as a going concern without additional capital becoming available. Our ability to continue as a going concern is dependent upon our ability to obtain additional equity or debt financing, attain further operating efficiencies and, ultimately, to generate revenue. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 
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Capital Resources

Our business plan for the next fiscal year entails redevelopment activities on the Wardlaw and Adamson leaseholds which may result in a capital expenditure greater than $1 million. We will not be able to generate this necessary amount internally. We will rely on additional equity financing, bank debt financing, if available.

Also, see earlier discussion regarding the substantial doubt about our ability to continue as a going concern.

Cash Flow

Our operations used $2,190,035 of cash in the 2011 fiscal year as compared to $992,501 used in the 2010 fiscal year. The cash flow deficits are due to the operating losses incurred.

Cash of $2,070,532 was used in  investing activities during the 2011 fiscal year as compared to cash of $593,090 obtained through investing activities for the 2010 fiscal year.  Cash of $2,070,532 was used for capital expenditures for our oil and gas properties and for the purchase of equipment during the 2011 fiscal year as compared to $406,910 for the 2010 fiscal year. During the 2011 fiscal year, cash flows used in investing activities related to capital expenditures for our oil and gas properties. During the 2010 fiscal year, cash flows obtained through investing activities related primarily to proceeds from the sale of a 12.5% working interest and the additions of capital expenditures for our oil and gas properties.

In the 2011 fiscal year, cash of $4,288,912 was provided by financing activities as compared to $835,777 for the 2010 fiscal year.

At March 31, 2011 we had cash of $851,132 as compared to $3,205,233 at March 31, 2010, including the proceeds of our Reg S offering remaining in escrow.

Inflation

Our opinion is that inflation has not had, and is not expected to have for the current year, a material effect on our operations.

Climate Change

Our opinion is that neither climate change, nor governmental regulations related to climate change, have had, or are expected to have for the current year, any material effect on our operations.

Subsequent Events

On April 5, 2011, we received notice from Iroquois Capital Opportunity Fund, LP (“ICO”) that, pursuant to our Bylaws, ICO has exercised its right to nominate a director to our board of directors, who shall begin to serve immediately as the “Nominated Director” provided for in the Bylaws.  The Bylaws provide that, in the event of any vacancy created by the resignation of the Nominated Director, IOC or its assignee of such rights shall have the right to nominate a replacement Nominated Director, which director shall begin to serve immediately as a director.

On April 5, 2011 we were advised by ICO that the Nominated Director is Mr. Robert Bensh. Mr. Bensh, 44, is Chairman, President and Chief Executive Officer of Condor Exploration, a private oil and gas company operating in Colombia since July of 2007.

On April 8, 2011, we received notice from Mr. Paul K. Hickey that he was resigning as a director of the Company effective immediately. The notice indicated as the reason for Mr. Hickey’s resignation his desire to focus on personal matters.

On May 17, 2011, we announced that John Scott Black was appointed to the Board of Directors to fill the vacancy created by the recent resignation of Paul Hickey as a director.

We entered into purchase agreements dated as of June 24, 2011, June 28, 2011 and July 4, 2011 with accredited non-U.S. investors for the issuance and sale of an aggregate of 4,292,990 shares of the Company’s common stock, for aggregate proceeds equal to approximately $1,921,810.  An additional 373,430 shares were issued to ABG Sundal Collier Norge ASA, as a fee for acting as an advisor to the investors in connection with the transaction. The price per share for the Shares was approximately $0.45.  The investors also received two year warrants to purchase up to an aggregate of 4,292,990 shares of common stock at an exercise price per share of $0.45.  The warrants do not permit cashless exercise and are closed to exercise for 6 months.

 
29

 

ITEM 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Not applicable

ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

The financial statements and supplementary data required to be included in this Item 8 are set forth at page F-1 of this Annual Report.

ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

On June 20, 2011, the Audit Committee of our Board of Directors terminated our auditing relationship with Jonathan P. Reuben CPA, Accountancy Corporation and approved the engagement of BDO USA, LLP as our new principal independent accountant to audit our consolidated financial statements for the year ended March 31, 2011. Prior to engaging BDO USA, LLP, we had not consulted them regarding the application of accounting principles to a specified transaction, completed or proposed, or the type of audit opinion that might be rendered on our financial statements.  Further details of this engagement of a new principal independent accountant to audit our financial statements may be found in our Form 8-K filed on June 27, 2011, which is incorporated here by reference.

ITEM 9A. 
CONTROLS AND PROCEDURES

Disclosure Controls and Procedures
 
  Our chief executive officer and chief financial officer evaluated the effectiveness of our disclosure controls and procedures as of March 31, 2011. The term "disclosure controls and procedures," as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Securities Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Securities Exchange Act is accumulated and communicated to the company's management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
 
Based on the evaluation of our disclosure controls and procedures as of March 31, 2011, and due to the material weaknesses in our internal control over financial reporting described in our accompanying Management's Report on Internal Control over Financial Reporting, our chief executive officer and chief financial officer concluded that, as of such date, our disclosure controls and procedures were not effective.

Management's Report on Internal Control Over Financial Reporting
 
Our management is responsible for establishing and maintaining adequate internal control over financial reporting for our company. Internal control over financial reporting is defined in Rule 13a-15(f) and 15d-15(f) promulgated under the Exchange Act, as a process designed by, or under the supervision of, a company's principal executive and principal financial officers and effected by the Company's board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:
 
 
(1)
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;

 
(2)
provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made in accordance with authorizations of management and directors of the company; and

 
30

 

 
 
(3)
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company's assets that could have a material effect on the financial statements.
 
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
 
Our chief executive officer and chief financial officer assessed the effectiveness of our internal control over financial reporting as of March 31, 2011. In connection with this assessment, we identified the following material weaknesses in internal control over financial reporting as of March 31, 2011. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control—An Integrated Framework (September 1992). Because of the material weaknesses described below, management concluded that, as of March 31, 2011, our internal control over financial reporting was not effective.

Complex Equity and Debt Transactions
We had difficulties in applying complex accounting standards and did not have sufficient staffing and technical expertise in order to recognize and record complex equity and debt transactions. Adequate controls over these processes were absent as of March 31, 2011. During the audit of the March 31, 2011 financial statements it was noted that there were certain debt and equity transactions that were improperly recorded and were required to be restated and/or adjusted based on the audit findings. The absence of controls in this area resulted in the restatement of the March 31, 2010 Form 10-K and adjustments to fiscal year ended March 31, 2011 balances related to stock based compensation to consultants, classification of outstanding warrants, convertible debt and convertible equity which were not originally recorded in accordance with ASC Topic 718, Stock Compensation, ASC Topic 815, Derivatives and Hedging and ASC Topic 480, Distinguishing Liabilities and Equity.

Taxes
We did not have adequately designed controls to provide reasonable assurance that the accounting for income taxes and related disclosures were prepared in accordance with ASC Topic 740, Incomes Taxes. Specifically, we did not have sufficient staffing and technical expertise in the tax area to adequately prepare and review analysis and disclosures with respect to the complete and accurate recording of deferred tax assets and liabilities.

Oil and Gas Accounting
We did not maintain a sufficient complement of personnel with an appropriate level of accounting knowledge, experience, and training in the application of ASC Topic 932, Extractive Activities – Oil and Gas. We had to rely on external resources to oversee the preparation and completion of the valuation for the proven and unproven properties and to complete the final adjustments related to changes in the proven properties, unproven properties, production expense, general and administrative expense, impairment expense and depletion expense and the related disclosures.

Entity Level Controls
We did not have adequately designed controls to provide reasonable assurance that executed agreements between us and third parties are being properly retained. Specifically, we could not locate certain executed common stock, warrant or consulting agreements. Additionally, certain executed board of directors’ minutes could not be provided.

Towards the end of the fiscal year and subsequent to March 31, 2011 we have begun to address these weaknesses.  We hired one of our former directors to take on the role of Chief Financial Officer on March 18, 2011 and entered into an agreement with Point Capital Partners, LLC (Point Capital), pursuant to which it will take control of all accounting functions and administrative operations, including but not limited to daily, monthly and quarterly cash management, bill paying, receivables management, as well as the accounting and financial reporting of such items for us. Point Capital is in the process of performing a comprehensive review of the accounting procedures and policies and will update the processes and controls as necessary.

Changes in Internal Control Over Financial Reporting
During the quarter ended March 31, 2011, no changes were identified with respect to our internal control over financial reporting that materially affected, or were reasonably likely to materially affect, our internal control over financial reporting.

The annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to rules of the Securities and Exchange Commission that require the Company to provide only management’s report in this annual report.
 
 
31

 

ITEM 9B. 
OTHER INFORMATION

Regulation S Offering

The Company entered into purchase agreements dated as of June 24, 2011, June 28, 2011 and July 4, 2011 with accredited non-U.S. investors for the sale of an aggregate of 4,292,990 shares of the Company’s common stock, for aggregate proceeds equal to approximately $1,921,810.  An additional 373,430 shares were issued to ABG Sundal Collier Norge ASA, as a fee for acting as an advisor to the investors in connection with the transaction. The price per share for the Shares was approximately $0.45.  The investors also received two year warrants to purchase up to an aggregate of 4,292,990 shares of common stock at an exercise price per share of $0.45.  The warrants do not permit cashless exercise and are closed to exercise for 6 months. The Shares and warrants were issued in reliance upon an exemption from registration afforded under Regulation S of the Securities Act of 1933, as amended, for transactions involving an offering and sale exclusively to non-U.S. persons.  
 
32

 

PART III
 
ITEM 10. 
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Below is information about our directors, executive officers and significant employees. There are no family relationships among our executive officers and directors. The Company held no annual meeting during the fiscal year ending March 31, 2011 and no director failed to attend 75% of the Company’s Board meetings during that time.

Directors and Executive Officers

The following table and text sets forth the names and ages of all our directors and executive officers and our key management personnel as of August 31, 2011.  All of our directors serve until the next annual meeting of stockholders and until their successors are elected and qualified, or until their earlier death, retirement, resignation or removal. Executive officers serve at the discretion of the Board of Directors (the “Board”), and are elected or appointed to serve until the next Board meeting following the annual meeting of stockholders. Also provided is a brief description of the business experience of each director and executive officer and the key management personnel during the past five years, the experience, qualifications, attributes and skills that led to the conclusion that each director should serve as a director on our Board, and an indication of directorships held by each director in other companies subject to the reporting requirements under the Federal securities laws.

Name of Individual
 
Age
 
Position with company and subsidiaries
 
Director of Officer Since
Andrew Taylor-Kimmins
 
52
 
Chief Executive Officer and Chairman
 
2009
Theodore D. Williams
 
39
 
Chief Financial Officer and Director
 
2007
Robert J. Bensh
 
44
 
Director
 
2011
Robert E. Tarrant
 
53
 
Director
 
2011
John S. Black
 
38
 
Director
 
2011
Ruben Alba
 
37
 
Chief Operating Officer , resigned effective August 15, 2011
 
2010

Andrew Taylor-Kimmins, President and Director (Chairman), Age: 52

On July 21, 2009, Mr. Taylor-Kimmins became our President and a director and the Chairman of our Board of Directors. Mr. Taylor-Kimmins is affiliated with Blackwood Ventures, LLC, our majority shareholder.

Mr. Taylor-Kimmins, age 52, is a United Kingdom citizen. In addition to serving as a manger of Blackwood Ventures, LLC, Mr. Taylor-Kimmins is currently working for Compagnie de Resources Naturelles et d’Invesstiment SA (a predecessor company to Blackwood Capital Limited that is 100% owned by Mr. Taylor-Kimmins) through which he has assisted in the corporate strategy, capital raising and investor relations for a number of US resource businesses including Glen Rose Petroleum Corporation, Lothian Oil Inc,  and Blackwood Resources LLC. Previously he was (through Blackwood Capital) an investor in and consultant to Zletovo Zinc Ltd, a Lead, Zinc and Silver mining operation in the Republic of Macedonia. He managed the acquisition of the assets from Xeminex Inc. in a management buy-out and drove the strategy, development and implementation of the re-start of both Zletovo and Toranica mines and their subsequent sale to a major international resource group, Binani Industries.

Previously Mr. Taylor-Kimmins also served as Chief Executive Officer of Xeminex, Inc. dealing with resource projects world-wide including the acquisition of metal and mining assets, the implementation and exploitation of metal and mineral extraction technologies and the maximization of the value of precious and nonferrous metals prior to and post extraction.

 Theodore D. Williams, Chief Financial Officer since March 18, 2011 and Director since October 2007, Age 39

Mr. Williams was appointed Chief Financial Officer of the Company on March 18, 2011, contemporaneously with the engagement of his company, Point Capital Partners, LLC to provide bookkeeping, accounting and financial reporting services for the Company.  Mr. Williams was appointed to our board of directors and as a member of the audit committee on October 8, 2007. In August 2003 Mr. Williams co-founded, and since September 2003 Mr. Williams has been the managing partner of, Point Capital Partners, LLC. Point Capital Partners, LLC, located in Chatham, New Jersey, is a private merchant bank focused on principal investments in the energy, real estate and healthcare/humanities industries. From February 2003 to August 2003, Mr. Williams was vice president of healthcare investment banking at Morgan Joseph & Co. Inc. From May 2000 to November 2002, Mr. Williams was a senior associate of healthcare investment banking with Thomas Weisel Partners LLC. Mr. Williams graduated from the United States Military Academy in West Point, New York and served in the United States Army from April 1994 through February 1997.

 
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Robert J. Bensh, Director since April 5, 2011, Age 44

Mr. Bensh is Chairman, President and Chief Executive Officer of Condor Exploration, a private oil and gas company operating in Colombia since July of 2007.  In addition to Condor Exploration, Mr. Bensh was the Executive Chairman of Northcote Energy Ltd. and its predecessor from February 2008 to January 2011.  Prior to that he served as Chairman, President and Chief Executive Officer of Cardinal Resources and its predecessor, Carpatsky Petroleum Inc.  He joined Carpatsky in 2001 as Executive Vice President and Chief Operating Officer. From May 1998 to December 2000, Mr. Bensh was Vice President Capital Markets, then Senior Vice President, Chief Financial Officer and Corporate Secretary of Bellwether Exploration Company. From 1996 to 1998 he worked at Torch Energy Advisors in various roles in finance, capital markets and acquisitions. From April 1995 to August 1996, Mr. Bensh was Director of Investor Relations and Strategic Planning for Box Energy Corp.  He worked as a financial analyst for Johnson & Company in 1995 and from 1989 to 1995, he worked for the Department of Defense and the United States Department of Justice.

Robert E. Tarrant, Director since March 17, 2011, Age 53

Mr. Tarrant, who is 53, has over 27 years of experience in the oil industry including: field instrumentation and control systems engineering covering power utilities, refineries, cogeneration, substations, upstream and downstream operations.  He is an expert in tribology, rheology, lubrication systems, combustion engineering, cement chemistry and down hole physics, global supply chain, Total Quality, Six Sigma and SGS audit and verification of quality for all liquids and gases including: crude oil, fuel oil, jet fuel, diesel, natural gas and lubricants.  Throughout his career, Mr. Tarrant has served as a technology partner to several global oil field services companies in varied geologies in the U.S. and internationally.  While in the P&L position with GE Automation Services, Mr. Tarrant managed regional sales, engineering, field service and construction for branch operations covering nuclear and fossil fuel power generation, cogeneration plants, clean water and wastewater facilities, chemicals and pharmaceuticals manufacturing, oil refining and blending, load-side and grid-side power management, and environmental protection,  From 1986 to 1999, Mr. Tarrant built a technical, sales, and service team from the ground up to establish the global market presence for Nametre that formed the strategic basis for reverse merger and IPO with 3 process analyzer companies which traded successfully for 7 years until 2003 when the assets were resold. Post-merger, he was director of sales and marketing while managing 3 global locations covering 35 countries.  Since 2001, Mr. Tarrant has worked in corporate development and finance projects with Global 150, middle market and start-up companies.  He earned his BS Chemistry from the University of Delaware and was awarded an MBA from Monmouth College with honors.

John Scott Black, Director since May 17, 2011, Age 38

Mr. Black is an attorney and practices with the firm of Reynolds, Frizzell, Black, Doyle, Allen Oldham L.L.P. as a partner. Prior to joining the firm in 2009, Mr. Black was with the law firm of Gibbs & Bruns LLP from 1999 to 2009, where he was a partner since 2005. In 1998, Mr. Black was a legal intern to Justice James A. Baker of the Supreme Court of Texas.

Paul K. Hickey, Director since October 2007, resigned April 8, 2011
 
Mr. Hickey was appointed to our board of directors on October 8, 2007, and Chairman of the Audit Committee on March 3, 2008.  He also was the Chairman of our Compensation Committee. Since March 1971, Mr. Hickey has been the President of P.K. Hickey & Co., Inc., a privately held investment banking firm based in New York City. From 1982 to 1987, Mr. Hickey was the President of Hickey, Kober, Inc. (Members of the NASD), a sister company of Hickey.  In addition to the Company, Mr. Hickey currently serves as a director of two private companies. Mr. Hickey served as an officer in the U.S. Army, attended the University of North Carolina and has a BA as a Distinguished Military Graduate from the College of William and Mary. Mr. Hickey has been a securities industry executive and investment banker throughout his professional career, advising public and private corporations, including service to more than 30 public and private companies as a director. Mr. Hickey’s leadership capabilities and experience, as well as his extensive business, securities industry and financial experience make him well-qualified to serve as a member of our Board of Directors and as its Audit Committee Chairman.

Martin Chopp, Director since April 2010, resigned March 4, 2011
  
Martin Chopp serves as President, Chief Financial Officer and Secretary of Sons Capital, LLC. He has been President of SDC Capital LLC. since 2003. Mr. Chopp served as the Chief Executive Officer, President and Director of Datatrend Services, Inc. (formerly Babystar, Inc.) until February 1995. Mr. Chopp was the President of Sun Capital Company from 1995 to February 2007. He serves as Director of Sons Capital, LLC. Mr. Chopp is licensed by the States of New York and Minnesota to sell life insurance and by the State of New Jersey to sell both life and health insurance. Pursuant to the Securities Purchase Agreement with Iroquois Capital Opportunity Fund (“Iroquois”) has the right, under certain circumstances to appoint a director of the Company. Mr. Chopp has been appointed by Iroquois to serve as a director.

 
34

 

Ruben Alba, Chief Operating Officer, Age 37, resigned effective August 15, 2011

Prior to joining the Company effective March 15, 2010, Mr. Alba was employed by Halliburton Energy Services and Superior Well Services for 13 years. Mr. Alba received his Chemical Engineering Degree from New Mexico State University in 1996 and he holds three patents in unique completion technologies.

Kenneth E. Martin, Chief Financial Officer, resigned March 18, 2011
Mr. Martin joined the Company as its Chief Financial Officer effective April 1, 2010. For the past 24 years he has been President of Kelstar International Inc, a financial and business consulting company.  Prior to that time, he held senior financial and general management positions with MAF BioNutritionals LLC., and Material Research Corporation, a division of SONY and AMF Inc. He received his Bachelor of Science Degree from New York University.  Mr. Martin will be responsible for all financial, systems and procedures and administrative functions of the Company.

No family relationships exist among our executive officers and directors. With the exception of Mr. Taylor-Kimmins and Mr. Williams, all of the members of our board of directors are independent, as that term is defined in section (a)15 of Rule 4200 of the Nasdaq Marketplace Rules.

None of our directors or executive officers has, during the past ten years.

had any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer, either at the time of the bankruptcy or within two years prior to that time,

been convicted in a criminal proceeding and none of our directors or executive officers is subject to a  pending criminal proceeding,

been subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities, futures, commodities or banking activities, or

been found by a court of competent jurisdiction (in a civil action), the Securities and Exchange Commission or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated.
 
Security Holder Communications to the Board of Directors
 
The Company does not currently have an established procedure for direct communications from security holders to the Board of Directors because, given the Company’s financial state, it must economize on its general and administrative costs. However, the Company will direct such communications sent to: Mr. Theodore Williams, Chief Financial Officer, Glen Rose Petroleum Corporation, Suite 515, 22762 Westheimer Parkway, Katy, Texas 77450 to its Board members. The Company intends to convey communications from securities holders relating to corporate governance, company operations and company finances to its Board Members.
 
Board Meetings and Annual Meeting Attendance

During the fiscal year ended March 31, 2011, the Board of Directors held 1 meeting in person and 1 meetings telephonically.  Each meeting was attended by all of the members of the Board.    In addition, the Board conducted several discussions telephonically which resulted in 14 written consents.

All of our directors attend at least 75% of the meetings or Board phone calls.  The Board does not have a policy regarding director attendance at annual meetings.

Section 16(a) Beneficial Ownership Reporting Compliance
 
Section 16(a) of the Securities Exchange Act of 1934 requires our executive officers, directors, and persons who own more than ten percent of a registered class of our equity securities to file reports of ownership with the Securities and Exchange Commission.
 
During the fiscal year ending March 31, 2011, the directors and CRNI did not file Form 5 annual reports. Further, no Form 4s were filed by any of the officers or directors in connection with any of the issuances of securities described in Item 5 of Part II of this annual report or in connection with director compensation paid in shares of common stock. Also, no amended Schedule 13D was filed by Mr. Taylor-Kimmins or his affiliated entities, including CRNI. Mr. Alba, who became an officer in March 2010, did not file a Form 3 in connection with his becoming an officer. The directors and CRNI will endeavor to complete or have completed these filings by August 15, 2011, other than the issuances to officers and directors no longer with the Company. Other than the issuances described in Item 5 of Part II, there were no other issuances of common shares to or sales of common shares to or by directors or shareholders who meet or exceed the 10 percent ownership threshold, except that no assurances can be given as to sales by officers and directors no longer with the Company.

 
35

 
 
Compensation of the Members of the Board of Directors
 
Directors, other than Andrew Taylor-Kimmins, are paid a fee for services of 20,000 shares of common stock per month paid at the end of each quarterly period. Our directors are reimbursed for their reasonable expenses for attending an in person meeting of the Board.  Directors do not receive additional compensation for service on Board committees.  Mr. Taylor-Kimmins serves as Chairman pursuant to an agreement between the Company and Compagnie de Ressources Naturelles et d’Investissment SA (“CRNI”), pursuant to which CRNI is paid $15,000 per month, and receives 20,000 shares of common stock each month, for the services of Mr. Taylor-Kimmins.
 
We maintain directors and officers liability insurance.
 
Limitation on Liability and Indemnification of Directors and Officers
 
Our certificate of incorporation provides that no director or officer shall have any liability to the company if that person acted in good faith and with the same degree of care and skill as a prudent person in similar circumstances.
 
Our certificate of incorporation and bylaws provide that we will indemnify our directors and officers and may indemnify our employees or agents to the fullest extent permitted by law against liabilities and expenses incurred in connection with litigation in which they may be involved because of their offices or positions with us.  However, nothing in our certificate of incorporation or bylaws protects or indemnifies a director, officer, employee or agent against any liability to which that person would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of that person’s office or position.  To the extent that a director has been successful in defending any proceeding brought against him, the Delaware General Corporation Law provides that the director shall be indemnified against reasonable expenses incurred by him in connection with the proceeding.
 
Code of Ethics
 
We have adopted a code of ethics that applies to all of our employees, including our principal executive officer and principal financial officer. We will provide to any person, upon request and without charge, a copy of our Code of Ethics. Requests should be in writing and addressed to: Mr. Theodore Williams, Chief Financial Officer, Glen Rose Petroleum Corporation, Suite 515, 22762 Westheimer Parkway, Katy, Texas 77450.
 
ITEM 11. EXECUTIVE COMPENSATION

Officer and Director Compensation

The Company determined to award its officers and directors through a mixture of salary and performance-related compensation. The performance-related compensation entails performance metrics. First, the value of our officers’ and directors options and warrants will fluctuate in tandem with our stock price. If our stock price increases, the options and warrants possessed by and awarded to our officers and directors will grow more valuable. Conversely, these options and warrants will become less valuable should the stock price decrease.

Chairman and Chief Executive Officer

For Mr. Taylor-Kimmins’ services, since his appointment effective July 21, 2009, we agreed to pay Blackwood Capital Limited, under their consulting agreement, the sum of $15,000 per month.

In June 2010, we entered into an agreement with Compagnie de Ressources Naturelles et d’Investissment SA. (“CRNI” a company wholly owned by Mr. Taylor-Kimmins) for Mr. Taylor-Kimmins’ services (thereby, canceling the prior agreement with Blackwood Capital Limited, above). Pursuant to this agreement we will pay CRNI $15,000 per month for the services of Mr. Taylor-Kimmins.  In addition to the compensation to be paid to CRNI for Mr. Taylor-Kimmins, we have agreed to issue to CRNI a signing bonus of 100,000 warrants priced at $0.75, 20,000 common shares per month and warrants to purchase up to 900,000 shares of our common stock, with exercise prices between $0.75 and $1.50, upon the achievement of certain stated production milestones.

 
36

 

Chief Financial Officer

On April 1, 2010, the Company entered into an employment agreement with Kenneth Martin to serve as the Company’s Chief Financial Officer.  Mr. Martin received a base salary of $75,000 annually and received a signing bonus of 53,500 shares of common stock of the Company and could receive 160,500 additional shares of stock and 310,000 warrants to purchase shares of common stock as incentives if milestones are reached during the course of his employment.  Additional benefits include paid vacation. The term of the agreement was 12 months. Mr. Martin resigned as of March 18, 2011 at which time Mr. Theodore Williams was appointed as the Chief Financial Officer.  Mr. Williams does not receive any compensation for serving as the Chief Financial Officer, although he continues to receive compensation as a member of our Board of Directors. He is the managing partner of Point Capital Partners. LLC, which is engaged to provided bookkeeping, accounting and financial reporting services for us, which receives compensation for its services to us.
 
Chief Operating Officer

Effective March 15, 2010, Ruben Alba became the Chief Operating Officer of the Company. He resigned effective August 15, 2011. Mr. Alba received an annual salary of $150,000. Additionally, his employment agreement provided for the Company to issue Mr. Alba warrants to purchase up to 750,000 shares of the Company’s common stock, with the initial 375,000 warrants having an exercise price of $0.75 and the remaining 375,000 warrants having an exercise price of $1.50. Warrants for 50,000 shares vested immediately and the balance were subject to certain production milestones.  Additional benefits included housing, a vehicle, paid vacation and a 401K plan. The original term of the agreement was 12 months, subject to renewals.   This contract terminated upon the effective date of his resignation.

Chief Geologist and Development Manager

Effective May 15, 2010, Sam Smith became the Chief Geologist and Development Manager of the Company.  Mr. Smith receives an annual salary of $90,000.  Additionally, his employment agreement provides for the Company to issue to Mr. Smith warrants to purchase up to 750,000 shares of the Company’s common stock, with the initial 375,000 warrants having an exercise price of $.75 and the remaining 375,000 warrants having an exercise price of $1.50. Warrants for 50,000 shares vested immediately and the balance are subject to certain production milestones.  Additional benefits include a vehicle, paid vacation and a 401K plan. The term of the agreement is 24 months.

Officer Compensation Table

                                       
Non-
             
                                 
Nonequity
   
qualified
             
                                 
incentive
   
deferred
             
   
Year
                           
plan
   
compen-
   
All other
       
   
ended
               
Stock
   
Option
   
compen-
   
sation
   
compen-
       
Name and
 
March
   
Salary
   
Bonus
   
awards
   
awards
   
sation
   
earnings
   
sation
   
Total
 
principal position
   31    
($)
   
($)
   
($)
   
($)
   
($)
   
($)
   
($)
   
($)
 
(a)
 
(b)
   
(c)
   
(d)
   
(e)
   
(f)
   
(g)
   
(h)
   
(i)
   
(j)
 
Joseph F. "Chip" Langston,
    2011     $ 0     $ 0     $ 0     $ 0      0      0      0     $ 0  
President
    2010     $ 54,439     $ 0     $ 15,652     $ 6,806       0       0       0     $ 78,897  
                                                                         
Andrew Taylor- Kimmins,
    2011     $ 180,000     $ 0     $ 79,200     $ 0       0       0       0     $ 259,200  
President and Chief Executive Officer
    2010     $ 150,000     $ 30,000     $ 409,563     $ 78,245       0       0       0     $ 667,808  
                                                                         
Ruben Alba
    2011     $ 156,250     $ 0     $ 0     0       0       0       0     $ 156,250  
Chief Operating Officer
    2010     $ 0     $ 0     $ 0     $ 9,496       0       0       0     $ 9,496  
                                                                         
Kenneth Martin
    2011     $ 81,250     $ 0     $ 0     $ 0       0       0       0     $ 81,250  
Chief Financial Officer
    2010     $ 0     $ 0     $ 0     $ 0       0       0       0     $ 0  
                                                                         
Theodore Williams
    2011     $ 4,516     $ 0     $ 115,216     $ 0       0       0       0     $ 119,732  
Chief Financial Officer
    2010     $ 0     $ 0     $ 63,539     $ 0       0       0       0     $ 63,539  

Joseph Langston received his compensation pursuant to a consulting agreement. Mr. Langston resigned effective June 29, 2009. During the fiscal year ended March 31, 2010, Mr. Langston was rewarded $15,652 in stock rewards and $6,806 in options awards.  These awards were withdrawn under the settlement agreement between Langston and the Company (see Langston Family Partnership and Buccaneer Energy Corporation v. Glen Rose Petroleum Corporation, above, and Glen Rose Petroleum Corporation v. Joseph Langston, above).

 
37

 

Mr. Taylor-Kimmins became the President and Chief Executive Officer effective as of July 21, 2009. Mr. Taylor-Kimmins is compensated for his services through Compagnie de Ressources Naturelles et D’Investissment SA pursuant to the Company’s consulting agreement with Compagnie de Ressources Naturelles et D’Investissment SA.  Stock awards for Mr. Taylor-Kimmins services are issued to Compagnie de Ressources Naturelles et D’Investissment SA.

Mr. Martin resigned as the Chief Financial Officer effective March 15, 2011.

Mr. Williams became the Chief Financial Officer on March 18, 2011. In addition to Mr. Williams’s services, Point Capital Partners, LLC, for which Mr. Williams is the managing partner, received $4,516 in management fees and $36,016 in stock awards for its accounting functions and back office services.

Mr. Ruben Alba became the Chief Operating Officer effective as of March 15, 2010, and resigned effective August 15,2011.

Director Compensation
 
Prior to July 1, 2008 the directors of the Company received compensation of $5,000 per month, payable in full vested three year common stock purchase options. The values of the stock options were determined as of the monthly closing average bid price for each month of service. These directors’ options were valued as of June 30, 2008 at $1.35 per share.

On June 30, 2008 the Board of Directors amended the compensation for Directors. They approved that each director could choose, calendar quarterly, their form of compensation. Each director has the option of $5,000 of common stock per month or 5,000 stock purchase options, with each price as of the closing average bid price for the previous ended quarter.

Commencing April 1, 2010, the Board of Directors changed the director compensation for the next 12 months to be 20,000 shares of common stock per month delivered quarterly in advance.

Commencing June 30, 2011, the Board of Directors changed the director compensation to be 20,000 shares of common stock per month, earned in arrears at the end of each month served, and issued quarterly.

Director Compensation Table for 2011

                           
Nonqualified
             
   
Fees earned
               
Non-equity
   
deferred
             
   
or paid
   
Stock
   
Option
   
incentive plan
   
compensation
   
All other
       
   
in cash
   
awards
   
awards
   
compensation
   
earnings
   
compensation
   
Total
 
Name
 
($)
   
($)
   
($)
   
($)
   
($)
   
($)
   
($)
 
(a)
 
(b)
   
(c)
   
(d)
   
(e)
   
(f)
   
(g)
   
(h)
 
Theodore Williams
    0       79,200       0       0       0       0     $ 79,200  
Martin Chopp
    0       76,206       0       0       0       0     $ 76,206  
Paul Hickey
    0       79,200       0       0       0       0     $ 79,200  
Robert E. Tarrant
    0       2,806       0       0       0       0     $ 2,806  
Andrew Taylor-Kimmins
    180,000       79,200       0       0       0       0     $ 259,200  

Martin Chopp resigned as a member of the Board of Directors of the Company, effective March 15, 2011.

On March 17, 2011, the Company appointed Robert E. Tarrant as a member of the Board of Directors of the Company.

Robert Bensh and John Black were appointed as members of the Board of Directors on April 5, 2011 and May 17, 2011.  As their appointments were subsequently to March 31, 2011, they did not receive compensation for the current fiscal year.
 
 
38

 

The following table describes equity awards held by our executive officers and directors as of the end of our last completed fiscal year, March 31, 2011.
 
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END

   
Option awards
 
Stock awards
 
Name
(a)
 
Number of
securities
underlying
unexercised
options
(#)
exercisable
(b)
   
Number of 
securities 
underlying 
unexercised 
options 
(#) 
unexercised
-able 
(c)
   
Equity 
incentive 
plan 
awards: 
Number of 
securities 
underlying 
unexercised 
unearned 
options 
(#) 
(d)
   
Option 
exercise 
price 
($) 
(e)
 
Option 
expiration 
date 
(f)
 
Number
of 
shares or 
units of 
stock that 
have not 
vested 
(#) 
(g)
   
Market 
value
of shares 
of units 
of stock 
that have 
not
vested 
($) 
(h)
   
Equity 
incentive 
plan 
awards: 
Number
of 
unearned 
shares, 
units 
or other 
rights that 
have not
vested 
(#) 
(i)
   
Equity 
incentive 
plan 
awards: 
Market or 
payout 
value 
of
unearned 
shares, 
units or
other
rights 
that have 
not vested 
($) 
(j)
 
Theodore Williams
    45,000                       $ 1.11  
3/30/2012
                               
Andrew Taylor-Kimmins
                                                                 
Robert J. Bensh
                                                                 
Robert E. Tarrant
                                                                 
Ruben Alba
                                                                 

Potential Payments upon Termination

None of the employment agreements for our officers contains any severance payment obligations.

Compensation Committee Interlocks and Insider Participation

The Company has not had a formally designated Compensation Committee.  All matters of compensation are handled and approved by the independent directors. None of the independent directors of the Company has been an officer or employee of the Company during years ending March 31, 2010 and 2011.  In addition, during the most recent fiscal year, no Company executive officer served on the Compensation Committee (or equivalent), or the Board, of another entity whose executive officer(s) served on our Board.
 
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

Management
 
The following table sets forth the number of shares of common stock beneficially owned as of August 31, 2011 by (i) those persons or groups known to us to beneficially own more than 5% of our common stock; (ii) each director; (iii) each executive officer; and (iv) all directors and executive officers as a group. The information is determined in accordance with Rule 13d-3 promulgated under the Exchange Act based upon information furnished by persons listed or contained in filings made by them with the SEC or by information provided by such persons directly to us. Except as indicated below, each of the stockholders listed below possesses sole voting and investment power with respect to their shares

 
39

 

 
   
Amount and Nature of
       
Name and Address of Beneficial Owner
 
Beneficial Ownership
   
Percent of Class (1)
 
Blackwood Ventures LLC
400 Rella Boulevard
Montabello, NY 10901
    3,845,310 (2)     11.89  
Walter Reissman
c/o Blackwood Ventures LLC
    3,845,310 (2)     11.89  
Compagnie de Ressources Naturelles et
d’Investissments S.A.
14 Rue du Rhone
Geneva – 1204
Switzerland
    4,755,992 (3)     13.93  
CRNI Holdings I, LLC
c/o Compagnie de Ressources Naturelles et
d’Investissments S.A., its managing member
    1,776,122 (4)     5.54  
CRNI Holdings II, LLC
c/o Compagnie de Ressources Naturelles et
d’Investissments S.A., its managing member
    1,003,620 (5)     3.18  
Andrew Taylor-Kimmins, CEO and Chairman
    7,692,111 (6)     22.16  
Theodore Williams, Director and CFO
    875,636 (7)     2.78  
Robert Tarrant, Director
    69,677       *  
Robert Bensh, Director
    57,333       *  
John S. Black
    29,667       *  
All officers and directors as a group (6 persons)
    8,724,424       25.13  
 
*Less than 1%.

 
(1)
Based on 31,533,867 shares of common stock issued and outstanding as of August 31, 2011. Includes securities exercisable or convertible into shares of common stock within 60 days of August 31, 2011 for each stockholder. Options and warrants for the purchase of common stock that are currently exercisable or exercisable within 60 days of August 31, 2011 are deemed to be beneficially owned by the person holding such securities for the purpose of computing the percentage of ownership of such person, but are not treated as outstanding for the purpose of computing the percentage ownership of any other person

 
(2)
Blackwood Ventures LLC owns 3,759,997 shares of our common stock as of July 15, 2011. Additionally, this number includes the warrant included in the units for an additional 48,750 shares of common stock and a warrant to purchase 36,563 shares of common stock at an exercise price of $1.40 per share in exchange for debt totaling $39,000. Voting and investment control over the shares held by Blackwood Ventures LLC is exercised by Mr. Andrew Taylor-Kimmins, Dr. David Kahn and Mr. Walter Reissman, collectively.

 
(3)
Includes warrants to purchase 2,600,000 shares of common stock owned directly.  Includes 1,003,620 shares of common stock owned by CRNI Holdings II, LLC as to which it has a 58% ownership interest and is the Managing Member. This number does not include 3,759,997 shares of common stock or warrants owned by Blackwood Ventures LLC or the 1,276,122 shares of common stockowned by CRNI Holdings I, LLC, as to which it owns less than a 50% ownership interest.

 
(4)
Includes warrants to purchase 500,000 common shares.

 
(5)
Common shares owned directly.

 
(6)
Includes the common stock and warrants beneficially owned by Compagnie de Ressources Naturelles et d’Investissments S.A., as to which Mr. Taylor-Kimmins is the sole owner, and the common stock and warrants beneficially owned by CRNI Holdings II, LLC as to which Compangnie de Ressources Naturelles et d’Investissments S.A. has voting and dispositive power. This number includes 3,759,997 shares of common stock owned by Blackwood Ventures LLC over which voting and dispositive power is shared, and the 1,276,122 shares of common stock and warrants owned by CRNI Holdings I, LLC to purchase 500,000 shares of common stock, over which he has voting and dispositive power.

 
(7)
Includes 147,662 shares of common stock held by Point Capital Partners LLC over which Mr. Williams has dispositive power as managing partner.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

On January 20, 2010 Blackwood Ventures LLC Subscribed for an additional 666,667 shares of Common Stock at $0.15 per share under the private placement approved by the Board of Directors in December 2009.  This is a related-party transaction.

On January 29, 2010 Blackwood Ventures LLC Subscribed for a further 166,667 shares of Common Stock at $0.15 per share under the private placement approved by the Board of Directors in December 2009. This is a related-party transaction.

 
40

 

On February 5, 2010 Blackwood Ventures, LLC served notice on the Company to convert the January 2009 Debenture for $250,000 plus interest into shares of Common Stock, as per Clause 3, Conversion of the Debenture, which amounts to 1,433,742 shares of Common Stock.  This is part of a related-party transaction.
 
On January 15, 2008, the Company entered into a Consulting Agreement with Blackwood Capital Limited (“BCL”), which is a managing member of our controlling shareholder. BCL began providing services to us beginning on September 1, 2007. The services provided to us by BCL include assisting us with preparing business plans and projections, analyzing our financial data, advising us on our capital structure and on alternative structures for raising capital, reviewing our managerial needs and advising us with respect to retaining the services of managerial candidates, advising us on public relations. On June 25, 2010, the Company entered into an agreement with Compagnie de Ressources Naturelles et d’Investissment SA. (a company wholly-owned by Mr. Taylor-Kimmins) for Mr. Taylor-Kimmins’ services (thereby, canceling the agreement with BCL above). Pursuant to this agreement the Company pays Mr. Taylor-Kimmins $15,000 per month. In addition to the compensation to be paid to Mr. Taylor-Kimmins, the Company will issue to Compagnie de Ressources Naturelles et d’Investissment SA. a signing bonus of 100,000 warrants priced at $0.75, 20,000 common shares per month and warrants to purchase up to 900,000 shares of our common stock, with exercise prices between $0.75 and $1.50,  upon the achievement of certain stated production milestones. This is a related party transaction.
 
As part of the financing transaction with Iroquois Opportunity Fund, LLC, the Company has entered into a consulting agreement with Iromad, LLC which required the Company to pay $25,000 per month with a 3 year term. On March 18, 2011, the monthly compensation was reduced to $17,500 for the remainder of the term of the agreement. The Company paid a six month advance ($150,000) immediately.  The agreement calls for Iromad, LLC’s personnel to be available to consult with the officers of the Company at reasonable times on technical and operational matters.  The $17,500 per month provides for 100 hours of work.  If Iromad, LLC exceeds 100 hours of work in a month, it will bill the Company its regular hourly rates.

Buccaneer Energy Corporation, formed in April 2004 by Mr. Langston (the former President of the Company), as its founding director and president, and believed to be the owner of Bowie in November 2008, owes $32,371 to the Company as of March 31, 2010, as a result of advances by the Company in 2009 evidenced by an unsecured promissory note that is due on demand after December 31, 2009.  The balance of the note as of March 31, 2010 was $32,371. This note was the subject of litigation between the Company and Mr. Langston, which was settled on August 2, 2011.
 
We had an audit committee and a compensation committee composed of Messrs. Hickey, as Chairman, together with Mr. Williams and Mr. Chopp until their resignations. Thereafter, there being only Mr. Bensh and Mr. Tarrant as independent directors as that term is defined in Rule 5605(a)(2) of the Nasdaq Marketplace Rules, and as a result of the resignation of Mr. Hickey, who was the  audit committee financial expert, the entire Board of Directors had acted as the audit committee until it was formally recomprised with Mr. Tarrant, Mr. Bensh and Mr. Black and the independent directors who are members of the audit committee and Mr. Tarrant being the audit committee financial expert within the meaning of Item 407 of Regulation S-K. The audit committee is in the process of considering a charter for adoption.

We have not had a nominating committee. Because of the frequency of director resignations, the independent directors have determined that it is best to allow all directors the opportunity to participate in the nomination process. The Board does not have a policy with regard to the consideration of any director candidates recommended by security holders, except that such recommendations are given fair and fulsome consideration by the entire board.

Each nominee must possess fundamental qualities of intelligence, honesty, good judgment, and high standards of ethics, integrity, fairness and responsibility. The Board also will consider the following criteria among others deemed appropriate at the time of consideration, including the specific needs of the Board at the time:

 
·
experience in corporate management such as serving as an officer or former officer of a publically held company, and a general understanding of marketing, finance and other elements relevant to the success of a publically-traded company in the then current business environment;
 
·
the director’s past attendance at meetings and participation in and contributions to the activities of the Board (if applicable);
 
·
experience in our industry and with relevant social policy concerns;
 
·
understanding of our business on a technical level;
 
·
educational and professional background and/or academic experience in an area of our operations;
 
·
experience as a board member of another publically held company;
 
·
practical and mature business judgment, including ability to make independent analytical inquiries;
 
·
“independence” as defined by NASDQ listing standards;
 
·
financial literacy;
 
·
standing in the community; and
 
·
ability to foster a diversity of backgrounds and views and to complement the Board’s existing strenghs.

 
41

 

ITEM 14.
 
PRINCIPAL ACCOUNTANT FEES AND SERVICES

The following sets forth fees billed to us by BDO USA, LLP for its audit services related to the fiscal years ended March 31, 2011.

BDO USA, LLP was engaged on June 28, 2011 and has only performed audit services for the year ended March 31, 2011 for fees totaling $175,000. No other services have been performed by them since being engaged.
 
Pursuant to the rules and regulations of the SEC, before our independent registered accounting firm is engaged to render audit or non-audit services, the engagement must be approved by the Audit Committee.
 
All fees paid by us to our independent registered public accounting firm were approved by the Audit Committee in advance of the services being performed by such auditors.

ITEM 15. EXHIBITS

Exhibits

3.1 Certificate of Incorporation filed in Delaware on May 22, 2008, incorporated by reference to Exhibit 3.1 to Registrant’s Form 10-K for period ending March 31, 2008 filed July 14, 2008.

3.3 Bylaws of Corporation, incorporated by reference to Exhibit 3.1 to Registrant’s Form 10-K for period ending March 31, 2008 filed July 14, 2008.

3.3(a) Amendment to By-Laws, incorporated by reference to Exhibit 3.3(a) to Registrant’s Form 10-K/A for period ending March 31, 2010 filed July22, 2010.

3.3(b) Certificate of Designation of Preferences, Rights and Limitations of Series D Convertible Preferred Stock, incorporated by reference to Exhibit 4.1 to Registrant’s Form 8-K filed on January 25, 2011.

3.3(c) Amended and Restated Certificate of Preferences, Rights and Limitations of Series D Convertible Preferred Stock, incorporated by reference to Exhibit 4.1 to Registrant’s Form 8-K filed on January 25, 2011.
  
4.1  Secured Convertible Note (Iroquois) (see Exhibit 10.11).

4.2  Form of Common Stock Purchase Warrant issued to Iroquois Capital Opportunity Fund, LLC and other investors on March 3, 2010 (see Exhibit 10.13).

4.3 Form of Common Stock Purchase Warrant issued to DK True Energy Development Ltd., incorporated by reference to Exhibit 4.3 to Registrant’s Form 10-K/A for period ending March 31, 2010 filed July 22, 2010.

4.4 Form of Common Stock Purchase Warrant issued to RTP Secure Energy Corp., incorporated by reference to Exhibit 4.4 to Registrant’s Form 10-K/A for period ending March 31, 2010 filed July 22, 2010.

4.4(a) Registration Rights Agreement for Warrant issued to RTP, incorporated by reference to Exhibit 4.4(a) to Registrant’s Form 10-K/A for period ending March 31, 2010 filed July 22, 2010.

4.5 Form of Common Stock Purchase Warrants issued to Joseph Tovey, incorporated by reference to Exhibit 4.5 to Registrant’s Form 10-K/A for period ending March 31, 2010 filed July 22, 2010.

 
42

 

4.5(a) Registration Rights Agreement for Warrant issued to Tovey, incorporated by reference to Exhibit 4.5(a) to Registrant’s Form 10-K/A for period ending March 31, 2010 filed July 22, 2010.

4.6 Registration Rights Agreement, with the purchasers of Series D Convertible Preferred Stock, incorporated by reference to Exhibit 10.2 to Registrant’s Form 8-K filed on January 25, 2011.

4.7 Form of Warrant issued to purchasers of Series D Convertible Preferred Stock, incorporated by reference to Exhibit 4.2 to Registrant’s Form 8-K filed on January 25, 2011.

4.8 Form of Warrant issued to purchasers of common stock, incorporated by reference to Exhibit 10.2 to Registrant’s Form 8-K filed on July 12, 2011.

10.1 1995 Stock Option Plan, incorporated by reference to Exhibit 10.3 of the Registrant’s Form SB-2 Registration Statement filed May 4, 2004.

10.2 1998 Stock Option Plan, incorporated by reference to Exhibit 99.01 the Registrant’s Form S-8 registration statement filed on September 30, 1998 as document number 333-64711.

10.3 2000 Stock Option Plan, incorporated by reference to Exhibit 4.01 of Registrant’s Form S-8 Registration Statement filed on December 6, 2000.

10.4 2008 Stock Option Plan, incorporated by reference to Exhibit 10-1 to Registrant’s Form S-8 Registration Statement filed May 30, 2008.

10.5 Amended Agreement with Joseph F. Langston, incorporated by reference to Exhibit 10.5 to Registrant’s Form 10-K filed July 13, 2009.

10.7 Debenture issued to Blackwood Ventures, LLC dated January 28, 2009, incorporated by reference to Exhibit 10.6 to Registrant’s Form 10-Q filed November 20, 2009.

10.8 Consulting Agreement with DK True Energy Development Ltd. and RTP Secure Energy Corp. dated November 27, 2007, incorporated by reference to Exhibit 10-1 to Registrant’s Form 8-K filed December 3, 2007.

10.8(a) Termination of Consulting Agreement with DK True Energy Development Ltd. and Mutual Release, incorporated by reference to Exhibit 10.8a to the Registrant’s Form 10-K, filed on July 14, 2010.

10.9 Consulting Agreement with Blackwood Capital, Ltd. dated January 15, 2008, incorporated by reference to Exhibit 10-2 to Registrant’s Form 8-K filed January 22, 2008.

10.9(a) Amendment to Consulting Agreement with Blackwood Capital, Ltd., incorporated by reference to Exhibit 10.5 to Registrant’s Form 10-Q filed November 20, 2009.

10.9(b) 8.5% Senior Secured Convertible Debenture and Warrant Purchase Agreement, incorporated by reference to Exhibit 10.6 to Registrant’s Form 10-Q filed November 20, 2009.

10.10 Subscription Agreement (Iroquois), incorporated by reference to Exhibit 10.10 to the Registrant’s Form 10-K, filed on July 14, 2010.

10.11 Form of Secured Convertible Promissory Note (Iroquois), incorporated by reference to Exhibit 10.11 to the Registrant’s Form 10-K, filed on July 14, 2010.

10.12 Security Agreement (Iroquois), incorporated by reference to Exhibit 10.12 to the Registrant’s Form 10-K, filed on July 14, 2010.

10.12(a) Waiver of default, incorporated by reference to Exhibit 10.3 to Registrant’s Form 8-K, filed on January 25, 2011.

10.13 Form of Warrant (Iroquois), incorporated by reference to Exhibit 10.13 to the Registrant’s Form 10-K, filed on July 14, 2010.

10.14 Working Interest Purchase and Sale Agreement (Iroquois), incorporated by reference to Exhibit 10.14 to Registrant’s Form 10-K/A for period ending March 31, 2010 filed July 22, 2010.

 
43

 

10.15 Consulting Agreement with Blackwood Ventures, LLC dated January 28, 2009, incorporated by reference to Exhibit 10.5 to Registrant’s Form 10-Q filed November 20, 2009.

10.16 Consulting Agreement with Iromad, LLC (Iroquois), incorporated by reference to Exhibit 10.16 to the Registrant’s Form 10-K, filed on July 14, 2010.
 
10.17 Form of Option Holder Novation Agreement, incorporated by reference to Exhibit 10.17 to the Registrant’s Form 10-K, filed on July 14, 2010.

10.18 Termination and Settlement Agreement with Joseph Tovey, incorporated by reference to Exhibit 10.18 to the Registrant’s Form 10-K, filed on July 14, 2010.

10.19 Employment Agreement with Ruben Alba, incorporated by reference to Exhibit 10.19 to Registrant’s Form 10-K/A for period ending March 31, 2010 filed July 22, 2010.

10.20 Employment Agreement with Kenneth E. Martin, incorporated by reference to Exhibit 10.20 to the Registrant’s Form 10-K, filed on July 14, 2010.

10.21(a)  Agreement for short-term financing with Dr. Howard Berg, incorporated by reference to Exhibit 10.21(a) to Registrant’s Form 10-K/A for period ending March 31, 2010 filed July 22, 2010.

10.21(b) Senior Secured Note in the principal amount of $250,000, incorporated by reference to Exhibit 10.21(b) to Registrant’s Form 10-K/A for period ending March 31, 2010 filed July 22, 2010.

10.21(c) Security Agreement, incorporated by reference to Exhibit 10.21(c) to Registrant’s Form 10-K/A for period ending March 31, 2010 filed July 22, 2010.

10.21(d) Warrants issued to Dr. Howard Berg, incorporated by reference to Exhibit 10.21(d) to Registrant’s Form 10-K/A for period ending March 31, 2010 filed July 22, 2010.

10.21(e) Registration Rights Agreement for Warrants issued to Dr. Howard Berg, incorporated by reference to Exhibit 10.21(e) to Registrant’s Form 10-K/A for period ending March 31, 2010 filed July 22, 2010.

10.22  Second Addendum to Amended and Restated Promissory Note made by World Link Partners, LLC in favor of Registrant, incorporated by reference to Exhibit 10.22 to the Registrant’s Form 10-K, filed on July 14, 2010.

10.22(a) Third Addendum to Amended and Restated Promissory Note, dated September 24, 2010, incorporated by reference to Exhibit 10.22(a) to Registrant’s Form 10-Q filed February 22, 2011.

10.23 Management Consulting Services Agreement with Weisshorn Management Services, Inc., incorporated by reference to Exhibit 10.23 to the Registrant’s Form 10-K, filed on July 14, 2010.

10.24 Employment Agreement with Sam Smith, incorporated by reference to Exhibit 10.24 to the Registrant’s Form 10-K, filed on July 14, 2010.

10.25 Consulting Agreement with Compagnie de Ressources Naturelles et d’Investissment SA, incorporated by reference to Exhibit 10.25 to the Registrant’s Form 10-K, filed on July 14, 2010.
 
10.26(a) Adamson-Glen Rose Lease, June 2010, incorporated by reference to Exhibit 10.26(a) to Registrant’s Form 10-K/A for period ending March 31, 2010 filed July 22, 2010.

 
44

 

10.26(b) Adamson-Memorandum of Lease to UHC Petroleum, incorporated by reference to Exhibit 10.26(b) to Registrant’s Form 10-K/A for period ending March 31, 2010 filed July 22, 2010.

10.26(c) Adamson Option, July 2010, incorporated by reference to Exhibit 10.26(c) to Registrant’s Form 10-K/A for period ending March 31, 2010 filed July 22, 2010.

10.27 Application Form for the purchase of the Company’s Series D Convertible Preferred Stock, incorporated by reference to Exhibit 10.1 to Registrant’s Form 8-K filed on January 25, 2011.

10.28 Engagement Letter, dated January 15, 2011, between the Company and Barry J. Pierce, CPA, incorporated by reference to Exhibit 10.28 to Registrant’s Form 10-Q filed February 22, 2011.

10.29 Consulting Agreement, dated October 25, 2010, between the Company and James Casperson, incorporated by reference to Exhibit 10.29 to Registrant’s Form 10-Q filed February 22, 2011.

10.30 Agreement with Point Capital Partners, LLC for bookkeeping, accounting and financial reporting services, dated March 28, 2011, incorporated by reference to Exhibit 10.1 to Registrant’s current report on Form 8-K filed April 11, 2011.

10.31 Application Form for the purchase of the Company’s common stock, incorporated by reference to Exhibit 10.1 to Registrant’s Form 8-K filed on July 12, 2011.

14 Code of Ethics, incorporated by reference to Exhibit 14 to Registrant’s Form 10-KSB for the year ending March 30, 2004 filed June 29, 2004.

21 Subsidiaries of the Company, incorporated by reference to Exhibit 21 to Registrant’s Form 10-K for period ending March 31, 2008 filed July 14, 2008.

24.1 Power of Attorney (included on signature page to this Form 10-K).

31.1   Certification of Principal Executive Officer*

31.2 Certification of Principal Accounting and Financial Officer*

32.1 Certification of Principal Executive Officer pursuant to Section 906 of the Sarbanes Oxley Act*

32.2 Certification of Principal Accounting and Financial Officer pursuant to Section 906 of the Sarbanes Oxley Act*

*Filed herewith.

 
45

 
 
SIGNATURES
 
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
Date: October 17, 2011
GLEN ROSE PETROLEUM CORPORATION
     
 
By:
Andrew Taylor-Kimmins
   
Andrew Taylor-Kimmins, President, CEO and Director

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated below on this 17 day of October, 2011.
 
Each person whose signature appears below hereby authorizes Andrew Taylor-Kimmins and Theodore Williams, or either of them, as attorney-in-fact to sign on his behalf, individually, and in each capacity stated below, and to file all amendments and/or supplements to this Annual Report on Form 10-K.
 
/s/ Andrew Taylor-Kimmins
 
October 17, 2011
Andrew Taylor-Kimmins, President, CEO and Director
   
     
/s/ Theodore Williams
 
October 17, 2011
Theodore Williams, Chief Financial Officer and Director
   
     
/s/  Robert Bensh
 
October 17, 2011
Robert Bensh, Director
   
     
/s/ Robert E. Tarrant
 
October 17, 2011
Robert E. Tarrant, Director
   
     
/s/John Scott Black
 
October 17, 2011
John Scott Black, Director
   

 
46

 
 
INDEX TO FINANCIAL STATEMENTS
 
   
PAGE
     
Report of Independent Registered Public Accounting Firms
 
F-2
     
Consolidated Balance Sheets at March 31, 2011 and 2010
 
F-4
     
Consolidated Statements of Operations for the Years Ended March 31, 2011 and 2010
 
F-6
     
Consolidated Statements of Changes in Shareholders’ Deficit for the Years Ended March 31, 2011 and 2010
 
F-7
     
Consolidated Statements of Cash Flows for the Years Ended March 31, 2011 and 2010
 
F-8
     
Notes to Consolidated Financial Statements
 
F-10

 
F-1

 

Report of Independent Registered Public Accounting Firm

Board of Directors
Glen Rose Petroleum Corporation
Katy, Texas

We have audited the accompanying consolidated balance sheet of Glen Rose Petroleum Corporation as of March 31, 2011 and the related consolidated statement of operations, shareholders’ deficit, and cash flows for the year then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.  The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.  Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.  We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Glen Rose Petroleum Corporation at March 31, 2011, and the results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has suffered recurring losses from operations and has an accumulated deficit of $67,984,551 that raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

/s/ BDO USA, LLP
 
BDO USA, LLP
 
New York, New York
 
October 13, 2011
 

 
F-2

 
 
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders
Glen Rose Petroleum Corporation
Dallas, Texas

We have audited, before the effects of the adjustment of the correction of the error described in Note 1, the accompanying consolidated balance sheets of Glen Rose Petroleum Corporation and subsidiaries (the “Company”) as of March 31, 2010, and the related consolidated statements of operations, changes in shareholders’ equity and cash flows for the year then ended. The March 31, 2010 financial statements before the effects of the error correction adjustments have been withdrawn and are not presented herein. The March 31, 2010 consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company as of March 31, 2010, and the consolidated results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.

We were not engaged to examine management’s assertion about the effectiveness of the Company’s internal control over financial reporting as of March 31, 2010 included in the accompanying Form 10-K,  and, accordingly, we do not express an opinion thereon.

The accompanying financial statement has been prepared assuming that the Company will continue as a going concern. As shown in the financial statements, the Company has incurred significant losses and has an accumulated deficit of $50,119,090 as of March 31, 2010. As discussed in Note 2, these conditions raise substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

s/s Jonathon P. Reuben CPA

Jonathon P. Reuben CPA,
An Accountancy Corporation
July 12, 2010, except as to the first paragraph above
and Note 1, which are  as of September 3, 2011
 
 
F-3

 
 
GLEN ROSE PETROLEUM CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET

ASSETS

   
MARCH 31,
 
   
2011
   
2010
 
          (restated)  
CURRENT ASSETS:
       
 
 
Cash
  $ 483,578     $ 455,233  
Cash held in escrow  
    367,554       2,750,000  
Accounts receivable
    113,006       -  
Notes receivable   
    37,899       197,808  
Inventory
    22,494       54,947  
Prepaid expenses  
    2,852       121,667  
                 
Total current assets  
    1,027,383       3,579,655  
   
               
OIL AND GAS PROPERTIES, accounted for using the full cost method, net
               
Unproven  
    1,212,267       1,050,000  
Proven
    5,657,975       4,096,039  
   
    6,870,242       5,146,039  
                 
PROPERTY AND EQUIPMENT, at cost: 
               
Field equipment  
    201,187       123,666  
Computer equipment  
    19,759       15,833  
Vehicles  
    79,202       41,281  
   
    300,148       180,780  
   
               
Less: accumulated depreciation  
    (61,040 )     (36,981 )
   
    239,108       143,799  
   
               
OTHER ASSETS:
               
Deferred financing fees and other  
    109,858       247,978  
      109,858       247,978  
   
               
Total assets
  $ 8,246,591     $ 9,117,471  

See accompanying notes to these consolidated financial statements
 
 
F-4

 
 
GLEN ROSE PETROLEUM CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
 
LIABILITIES AND SHAREHOLDERS’ DEFICIT

   
MARCH 31,
 
   
2011
   
2010
 
          (restated)  
CURRENT LIABILITIES: 
        
 
 
Accounts payable
  $ 685,905     $ 752,133  
Accrued interest   
    -       53,675  
Notes payable, current portion
    144,570       68,193  
Convertible notes payable, net of unamortized discount
    1,190,092       -  
Total current liabilities
    2,020,567       874,001  
   
               
LONG-TERM LIABILITIES:
               
Asset retirement obligation  
    75,609       71,686  
Convertible notes payable, net of unamortized discount
    -       38,548  
Warrant Liability - Convertible Note (Iroquois)  
    4,534,069       6,406,365  
Derivatives Liability - Convertible Note (Iroquois)
    12,809,065       3,314,096  
Warrant Liability - ABG  
    5,860,509       -  
Notes payable, less current portion
    2,683,649       2,489,780  
Warrant  liability - Other  
    670,395       3,992,172  
                 
Total liabilities  
    28,653,863       17,186,648  
                 
SHAREHOLDERS’ DEFICIT:
               
Preferred stock, $.0001 par value; 5,000,000 shares authorized, none issued or outstanding
    -       -  
Common stock, $.001 par value; 150,000,000 and 20,000,000 shares authorized; 25,869,613 issued and outstanding at March 31, 2011 and 16,659,941 issued and outstanding at March 31, 2010  
    25,869       16,660  
Common stock subscription receivable
    -       (88,912 )
Additional paid-in capital  
    47,551,410       42,122,165  
Accumulated deficit
    (67,984,551 )     (50,119,090 )
   
               
Total shareholders’ deficit
    (20,407,272 )     (8,069,177 )
   
               
Total liabilities and shareholders’ deficit
  $ 8,246,591     $ 9,117,471  

See accompanying notes to these consolidated financial statements
 
 
F-5

 
 
GLEN ROSE PETROLEUM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS

   
FOR THE YEARS ENDED
 
   
MARCH 31,
 
   
2011
   
2010
 
         
(restated)
 
OPERATING REVENUES:
           
Oil and gas sales
  $ 1,103,227     $ 124,815