**UNITEDSTATESSECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

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**FORM 10-Q**

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**(Mark One)**

x       **QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIESEXCHANGE ACT OF 1934**

**For the quarterly period ended September 30, 2007**

**OR**

**o****         TRANSITION REPORT PURSUANT TO SECTION 13 OR15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**

**For the transition period from         to         **

**Commission file number 001-16749**

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**GeoPetroResources Company**

(Exact name of registrant asspecified in its charter)

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| **California**                                            | **94-3214487**                       |
|-----------------------------------------------------------|--------------------------------------|
| (State of incorporation)                                  | (IRS Employer Identification Number) |
|                                                      |                                 |
| **One Maritime Plaza, Suite 700  San Francisco, CA** | **94111**                            |
| (Address of principal executive offices)                  | (Zip Code)                           |

 

**(415)398-8186**

(Registrant’s telephone number, including area code)

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 forsuch shorter period that the registrant was required to file such reports), and(2) has been subject to such filing requirements for the past 90days.    Yes  x    No  o.

Indicate by check mark whether the registrant is alarge accelerated filer, an accelerated filer, or a non-accelerated filer. Seedefinition of “accelerated filer and large accelerated filer” in Rule 12b-2 ofthe Exchange Act. (Check one):

| Large  accelerated filer o |   | Accelerated  filer o |   | Non-accelerated  filer x |
|---------------------------------|--------|---------------------------|--------|-------------------------------|

 

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

There were 31,651,007 shares of no par value commonstock outstanding on November 14, 2007.

** **

##### **Tableof Contents**

**TABLE OF CONTENTS**
| PART  I. FINANCIAL INFORMATION                                                                           |   |
|----------------------------------------------------------------------------------------------------------|--------|
| Item 1.  Financial Statements                                                                       |   |
| Item 2. Management’s Discussion and Analysis of  Financial Condition and Results of Operations |   |
| Item 3. Quantitative and Qualitative Disclosures  about Market Risk                                 |   |
| Item 4. Controls and Procedures                                                                     |   |
| PART  II. OTHER INFORMATION                                                                              |   |
| Item 1.  Legal Proceedings                                                                          |   |
| Item 1A.  Risk Factors                                                                              |   |
| Item 2. Use of Proceeds                                                                             |   |
| Item 3. Defaults Upon Senior Securities                                                             |   |
| Item 4. Submission of Matters to a Vote of  Security Holders                                        |   |
| Item 5.  Other Information                                                                          |   |
| Item 6.  Exhibits                                                                                   |   |
| SIGNATURES                                                                                               |   |

 

2

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**PART I.FINANCIAL INFORMATION**

**ITEM 1.                  FinancialStatements.**

**GEOPETRORESOURCES COMPANYINDEX TO FINANCIAL STATEMENTS**
| ** **                                                                                                                       | ** ** | ** ** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------|------------|------------|------------|
| Consolidated Balance Sheets as of September 30, 2007  (unaudited) and December 31, 2006                                     |       |       |       |
|                                                                                                                             |       |       |       |
| Consolidated Statements of Operations for the three  and nine months ended September 30, 2007 and September 30, 2006 (unaudited) |       |       |       |
|                                                                                                                             |       |       |       |
| Consolidated Statements of Cash Flows for nine months  ended September 30, 2007 and September 30, 2006 (unaudited)               |       |       |       |
|                                                                                                                             |       |       |       |
| Notes to Consolidated Financial Statements                                                                                       |       |       |       |

 

3

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***GEOPETRO RESOURCES COMPANY***

**CONSOLIDATED BALANCE SHEETS**
| ** **                                                           | ** ** | **September 30,  2007** | ** ** | **December 31,  2006** | ** ** |
|----------------------------------------------------------------------|------------|-------------------------|------------|-----------------------------|------------|
| ** **                                                           | ** ** | **(Unaudited)**         | ** ** | ** **                  | ** ** |
| **ASSETS**                                                           | ** ** | ** **              | ** ** | ** **                  | ** ** |
|                                                                 |       |                    |       |                        |       |
| **Current Assets:**                                                  | ** ** | ** **              | ** ** | ** **                  | ** ** |
| Cash and cash equivalents                                            |       | $                       | 8,487,644  |                        | $          | 734,561 |   |
| Accounts receivable — oil and gas sales                         |       | 815,078                 |       | 394,337                     |       |
| Accounts receivable — other                                     |       | 70,400                  |       | 115,770                     |       |
| Related party notes receivable                                       |       | —                  |       | 1,000,000                   |       |
| Prepaid expenses                                                     |       | 184,814                 |       | 121,413                     |       |
| Total current assets                                                 |       | 9,557,936               |       | 2,366,081                   |       |
|                                                                 |       |                    |       |                        |       |
| **Oil and Gas Properties,** at cost  (full cost method):             | ** ** | ** **              | ** ** | ** **                  | ** ** |
| Unevaluated properties                                               |       | 5,060,316               |       | 4,503,481                   |       |
| Evaluated properties                                                 |       | 45,822,411              |       | 43,701,510                  |       |
| Less—accumulated depletion and impairments                      |       | (13,777,047             | )          | (11,557,257                 | )          |
| Net oil and gas properties                                           |       | 37,105,680              |       | 36,647,734                  |       |
|                                                                 |       |                    |       |                        |       |
| **Furniture, Fixtures and Equipment,** at cost, net  of depreciation |       | 32,038                  |       | 41,547                      |       |
|                                                                 |       |                    |       |                        |       |
| **Other Assets**                                                     |       | 6,869                   |       | 6,116                       |       |
|                                                                 |       |                    |       |                        |       |
| **Total Assets**                                                     |       | $                       | 46,702,523 |                        | $          | 39,061,478 |   |
|                                                                 |       |                    |       |                        |       |
| **LIABILITIES AND SHAREHOLDERS’  EQUITY**                       | ** ** | ** **              | ** ** | ** **                  | ** ** |
|                                                                 |       |                    |       |                        |       |
| **Current Liabilities:**                                             | ** ** | ** **              | ** ** | ** **                  | ** ** |
| Trade payables                                                       |       | $                       | 318,542    |                        | $          | 654,427 |   |
| Short term notes payable                                             |       | 1,881,895               |       | 982,301                     |       |
| Interest payable                                                     |       | 100,252                 |       | 73,205                      |       |
| Dividends payable                                                    |       | —                  |       | 133,438                     |       |
| Production taxes payable                                             |       | 335,263                 |       | 662,905                     |       |
| Other taxes payable                                                  |       | 9,540                   |       | 9,206                       |       |
| Royalty owners payable                                               |       | 1,030,995               |       | 951,271                     |       |
| Net profits interest payable                                         |       | 185,919                 |       | 137,589                     |       |
| Total current liabilities                                            |       | 3,862,406               |       | 3,604,342                   |       |
|                                                                 |       |                    |       |                        |       |
| **Asset Retirement Obligations**                                     |       | 52,461                  |       | 48,842                      |       |

 

***See accompanying notes to theseconsolidated financial statements.***

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| ** **                                                                                                                                                                                                                                   | ** ** | **September 30,  2007** | ** ** | **December 31,  2006** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------|------------|-----------------------------|------------|
| ** **                                                                                                                                                                                                                                   | ** ** | **(Unaudited)**         | ** ** | ** **                  | ** ** |
| **Commitments and Contingencies (Note 9)**                                                                                                                                                                                                   |       | —                  |       | —                      |       |
|                                                                                                                                                                                                                                         |       |                    |       |                        |       |
| **Shareholders’ Equity:**                                                                                                                                                                                                               | ** ** | ** **              | ** ** | ** **                  | ** ** |
| Series AA preferred stock, no par value; 5,000,000 shares authorized,  0 shares after conversion on March 28, 2007 and 1,890,710 shares issued and  outstanding at December 31, 2006. Liquidation value was $6,750,923 at  December 31, 2006 |       | —                  |       | 5,924,068                   |       |
| Common stock, no par value; 100,000,000 shares authorized 31,583,007  and 27,423,758 shares issued and outstanding at September 30, 2007 and  December 31, 2006, respectively                                                                |       | 52,821,111              |       | 40,112,265                  |       |
| Additional paid-in capital                                                                                                                                                                                                                   |       | 2,202,492               |       | 918,381                     |       |
| Treasury stock, at cost; 1,257,043 shares held at September 30, 2007  and December 31, 2006, respectively                                                                                                                                    |       | (1,152,435              | )          | (1,152,435                  | )          |
| Accumulated deficit                                                                                                                                                                                                                          |       | (11,083,512             | )          | (10,393,985                 | )          |
| Total shareholders’ equity                                                                                                                                                                                                              |       | 42,787,656              |       | 35,408,294                  |       |
|                                                                                                                                                                                                                                         |       |                    |       |                        |       |
| **Total Liabilities and Shareholders’ Equity**                                                                                                                                                                                          |       | $                       | 46,702,523 |                        | $          | 39,061,478 |   |
|                                                                                                                                                                                                                                              |            |                         |            |                             |            |  |  |

 

***See accompanying notes to theseconsolidated financial statements.***

5

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***GEOPETRO RESOURCES COMPANY***

**CONSOLIDATED STATEMENTS OF OPERATIONS**
| ** **                                                 | ** ** | **Three Months Ended  September 30,** | ** ** | **Nine Months Ended  September 30,** | ** ** |
|------------------------------------------------------------|------------|---------------------------------------|------------|--------------------------------------|------------|
| ** **                                                 | ** ** | **2007**                              | ** ** | **2006**                             | ** ** | **2007** | ** ** | **2006** | ** ** |
| ** **                                                 | ** ** | **(Unaudited**                        | ** ** | **(Unaudited)**                      | ** ** | **(Unaudited)** | ** ** | **(Unaudited)** | ** ** |
| **Revenues**                                               | ** ** | ** **                            | ** ** | ** **                           | ** ** | ** ** | ** ** | ** ** | ** ** |
| Oil and gas sales                                          |       | $                                     | 1,231,370  |                                 | $          | 1,705,140 |   | $ | 5,443,562 |   | $ | 5,172,657 |   |
|                                                       |       |                                  |       |                                 |       |   |   |   |   |
| **Costs and expenses:**                                    | ** ** | ** **                            | ** ** | ** **                           | ** ** | ** ** | ** ** | ** ** | ** ** |
| Lease operating expense                                    |       | 315,982                               |       | 572,664                              |       | 1,162,089 |   | 1,290,593 |   |
| General and administrative                                 |       | 482,388                               |       | 508,085                              |       | 2,009,307 |   | 1,795,705 |   |
| Net profits interest                                       |       | 118,916                               |       | 179,907                              |       | 547,504 |   | 540,378 |   |
| Impairment expense                                         |       | 495,874                               |       | —                               |       | 495,874 |   | — |   |
| Depreciation and depletion expense                         |       | 509,436                               |       | 712,459                              |       | 1,739,306 |   | 1,818,621 |   |
| Total costs and expenses                                   |       | 1,922,596                             |       | 1,973,115                            |       | 5,954,080 |   | 5,445,297 |   |
|                                                       |       |                                  |       |                                 |       |   |   |   |   |
| **Loss from operations**                                   |       | (691,226                              | )          | (267,975                             | )          | (510,518 | ) | (272,640 | ) |
|                                                       |       |                                  |       |                                 |       |   |   |   |   |
| **Other Income (Expense):**                                | ** ** | ** **                            | ** ** | ** **                           | ** ** | ** ** | ** ** | ** ** | ** ** |
|                                                       |       |                                  |       |                                 |       |   |   |   |   |
| Interest expense                                           |       | (92,626                               | )          | (87,748                              | )          | (271,071 | ) | (213,778 | ) |
| Interest income                                            |       | 38,161                                |       | 90,831                               |       | 94,362 |   | 182,725 |   |
| Total other income (expense)                               |       | (54,465                               | )          | 3,083                                |       | (176,709 | ) | (31,053 | ) |
|                                                       |       |                                  |       |                                 |       |   |   |   |   |
| **Net Loss Before Taxes**                                  |       | (745,691                              | )          | (264,892                             | )          | (687,227 | ) | (303,693 | ) |
|                                                       |       |                                  |       |                                 |       |   |   |   |   |
| Income tax expense                                         |       | —                                |       | (90,895                              | )          | (2,300 | ) | (112,186 | ) |
|                                                       |       |                                  |       |                                 |       |   |   |   |   |
| **Net Loss**                                               |       | (745,691                              | )          | (355,787                             | )          | (689,527 | ) | (415,879 | ) |
|                                                       |       |                                  |       |                                 |       |   |   |   |   |
| Preferred stock dividend                                   |       | —                                |       | (133,437                             | )          | — |   | (395,962 | ) |
|                                                       |       |                                  |       |                                 |       |   |   |   |   |
| **Net Loss Available to Common Shareholders**              |       | $                                     | (745,691   | )                                    | $          | (489,224 | ) | $ | (689,527 | ) | $ | (811,841 | ) |
|                                                       |       |                                  |       |                                 |       |   |   |   |   |
| **Loss per Share:**                                        | ** ** | ** **                            | ** ** | ** **                           | ** ** | ** ** | ** ** | ** ** | ** ** |
| Basic                                                      |       | $                                     | (0.02      | )                                    | $          | (0.02 | ) | $ | (0.02 | ) | $ | (0.03 | ) |
| Diluted                                                    |       | $                                     | (0.02      | )                                    | $          | (0.02 | ) | $ | (0.02 | ) | $ | (0.03 | ) |
|                                                       |       |                                  |       |                                 |       |   |   |   |   |
| **Weighted Average Number of Common Shares  Outstanding:** | ** ** | ** **                            | ** ** | ** **                           | ** ** | ** ** | ** ** | ** ** | ** ** |
| Basic                                                      |       | 30,603,475                            |       | 27,348,758                           |       | 29,215,952 |   | 25,532,531 |   |
| Diluted                                                    |       | 30,603,475                            |       | 27,348,758                           |       | 29,215,952 |   | 25,532,531 |   |

 

***See accompanying notes to theseconsolidated financial statements.***

6

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***GEOPETRO RESOURCES COMPANY***

**CONSOLIDATED STATEMENTS OF CASH FLOWS**
| ** **                                                                       | ** ** | **Nine months ended September 30,** | ** ** |
|----------------------------------------------------------------------------------|------------|-------------------------------------|------------|
| ** **                                                                       | ** ** | **2007**                            | ** ** | **2006** | ** ** |
| ** **                                                                       | ** ** | **(Unaudited)**                     | ** ** |
| **Cash Flows From Operating Activities:**                                        | ** ** | ** **                          | ** ** | ** ** | ** ** |
| ** **                                                                       | ** ** | ** **                          | ** ** | ** ** | ** ** |
| Net loss                                                                         |       | (689,527                            | )          | (415,879 | ) |
| Adjustments to reconcile net loss to net cash provided by operating  activities: |       |                                |       |   |   |
| Depreciation and depletion                                                       |       | 1,739,306                           |       | 1,818,621 |   |
| Stock compensation expense                                                       |       | 104,805                             |       | 170,980 |   |
| Non-cash interest expense                                                        |       | 162,537                             |       | 141,593 |   |
| Impairment expense                                                               |       | 495,874                             |       | — |   |
| Asset retirement obligations                                                     |       | 2,419                               |       | 1,974 |   |
| Changes in operating assets and liabilities:                                     |       |                                |       |   |   |
| (Increase) decrease in accounts receivable                                       |       | (420,741                            | )          | 315,232 |   |
| (Increase) decrease in other receivables                                         |       | 45,370                              |       | (99,531 | ) |
| Increase in prepaid expenses                                                     |       | (63,401                             | )          | (103,896 | ) |
| (Increase) decrease in deposits and other noncurrent assets                      |       | (750                                | )          | 466 |   |
| Decrease in trade payables                                                       |       | (335,890                            | )          | (31,642 | ) |
| Increase in interest payable                                                     |       | 27,047                              |       | 71,310 |   |
| Decrease in dividends payable                                                    |       | (133,438                            | )          | — |   |
| Increase (decrease) in production taxes payable                                  |       | (327,642                            | )          | 199,724 |   |
| Increase (decrease) in other taxes payable                                       |       | 334                                 |       | (427 | ) |
| Increase in royalty owners payable                                               |       | 79,724                              |       | 347,347 |   |
| Increase (decrease) in net profit interest payable                               |       | 48,331                              |       | (62,913 | ) |
| Increase in asset retirement obligations                                         |       | 1,200                               |       | — |   |
| Net cash provided by operating activities                                        |       | 735,558                             |       | 2,352,959 |   |
|                                                                             |       |                                |       |   |   |
| **Cash Flows from Investing Activities:**                                        | ** ** | ** **                          | ** ** | ** ** | ** ** |
| ** **                                                                       | ** ** | ** **                          | ** ** | ** ** | ** ** |
| Oil and gas property expenditures                                                |       | (2,645,202                          | )          | (16,003,073 | ) |
| Acquisition of furniture, fixtures & equipment                               |       | (5,881                              | )          | (3,682 | ) |
| (Increase) decrease in notes receivable                                          |       | 1,000,000                           |       | (1,000,000 | ) |
| Net cash used in investing activities                                            |       | (1,651,083                          | )          | (17,006,755 | ) |

 

***Seeaccompanying notes to these consolidated financial statements.***

7

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| ** **                                                              | ** ** | **Nine  months ended September 30,** | ** ** |
|-------------------------------------------------------------------------|------------|--------------------------------------|------------|
| ** **                                                              | ** ** | **2007**                             | ** ** | **2006** | ** ** |
| ** **                                                              | ** ** | **(Unaudited)**                      | ** ** |
| **Cash Flows from Financing Activities:**                               | ** ** | ** **                           | ** ** | ** ** | ** ** |
| ** **                                                              | ** ** | ** **                           | ** ** | ** ** | ** ** |
| Proceeds from sale of common shares, option and warrant exercises,  net |       | 7,825,608                            |       | 16,541,494 |   |
| Payments of preferred dividends                                         |       | —                               |       | (395,962 | ) |
| Proceeds from promissory notes, net                                     |       | 1,000,000                            |       | 1,900,000 |   |
| Payments of loan fee                                                    |       | (57,000                              | )          | (30,000 | ) |
| Repayments of promissory notes                                          |       | (100,000                             | )          | — |   |
| Deferred offering costs                                                 |       | —                               |       | (1,213,789 | ) |
| Net cash provided by financing activities                               |       | 8,668,608                            |       | 16,801,743 |   |
|                                                                    |       |                                 |       |   |   |
| **Net Increase in Cash and Cash Equivalents:**                          |       | 7,753,083                            |       | 2,147,947 |   |
|                                                                    |       |                                 |       |   |   |
| **Cash and Cash Equivalents:**                                          | ** ** | ** **                           | ** ** | ** ** | ** ** |
| Beginning of period                                                     |       | 734,561                              |       | 914,826 |   |
| End of period                                                           |       | $                                    | 8,487,644  |   | $ | 3,062,773 |   |
|                                                                    |       |                                 |       |   |   |
| **Supplemental Disclosure of Cash Flow  Information:**                  | ** ** | ** **                           | ** ** | ** ** | ** ** |
| Cash paid for interest                                                  |       | $                                    | 108,535    |   | $ | — |   |
|                                                                    |       |                                 |       |   |   |
| Cash paid for income taxes                                              |       | $                                    | 1,500      |   | $ | 112,186 |   |

 

***Seeaccompanying notes to these consolidated financial statements.***

8

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***GEOPETRO RESOURCES COMPANY***

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited — Prepared by Management)**

**1.****                             ****ORGANIZATIONAND NATURE OF OPERATIONS**:

These financialstatements are included herein pursuant to the rules and regulations of theSecurities and Exchange Commission (“SEC”). Certain information and footnotedisclosure normally included in financial statements prepared in accordancewith generally accepted accounting principles have been condensed or omittedpursuant to such rules and regulations. The Company believes the disclosuresmade are adequate to make the information not misleading and recommend thatthese condensed financial statements be read in conjunction with the financialstatements and notes included in our Form 10-K for the year endedDecember 31, 2006. In the opinion of management, the financial statementsherein contain all adjustments, consisting only of normal recurring accruals,necessary for a fair presentation of the results for such periods. The resultsof operations for interim periods are not necessarily indicative of the resultsof operations for the full fiscal year.

*GeoPetro* — GeoPetro ResourcesCompany (“GeoPetro”, “Company”, “we” or “us”) wasoriginally incorporated as GeoPetro Company under the laws of the State ofWyoming in 1994 to participate in the oil and gas acquisition, exploration,development and production business in the United States andinternationally. GeoPetro Company was subsequently merged into GeoPetroResources Subsidiary Company, a California corporation, on June 28, 1996.GeoPetro’s name was then changed to GeoPetro Resources Company. GeoPetro’scorporate offices are in San Francisco, California. The accompanyingconsolidated financial statements include the accounts of GeoPetro and itswholly-owned subsidiaries. All significant intercompany accounts andtransactions have been eliminated in consolidation.

*Operations* — Although GeoPetro is not adevelopment stage enterprise, the company has a limited operating history uponwhich an evaluation of its business prospects can be based. The risks, expense,and difficulties encountered by early stage companies must be considered whenevaluating GeoPetro’s business prospects. GeoPetro had net loss of $689,527 and$811,841 for the nine months ended September 30, 2007 and 2006, and had anaccumulated deficit at September 30, 2007 of $11,083,512. GeoPetro expects tomake significant capital expenditures in the foreseeable future. Managementbelieves that GeoPetro will be successful in obtaining adequate sources of cashto fund its anticipated capital expenditures through the end of 2007 and tofollow through with plans for continued investments in oil and gas properties.GeoPetro’s success, in part, depends on its ability to generate additionalfinancing, farm-out certain of its projects and manage its relations with thecompanies that provide exploration and development services. GeoPetro’s successalso depends on its ability to effectively manage growth and develop provenreserves. Additionally, GeoPetro’s operations are subject to all of theenvironmental and operational risks normally associated with the oil and gasindustry. GeoPetro maintains insurance that is customary in the industry.

Sinceits inception, GeoPetro has participated as a working interest owner in theacquisition of undeveloped leases, seismic options, lease options and foreignconcessions and has participated in seismic surveys and the drilling of testwells on its undeveloped properties. Further leasehold acquisitions and seismicoperations are planned for 2007 and future periods. In addition, drilling isscheduled during 2007 and future periods on GeoPetro’s undeveloped properties.It is anticipated that these exploration activities together with others thatmay be entered into may impose financial requirements which may exceed theexisting working capital of GeoPetro. Management may raise additional equityand/or debt capital, and has farmed-out certain of its projects to finance itscontinued participation in planned activities. In the opinion of GeoPetromanagement, GeoPetro can continue as a going concern even if additionalfinancing is unavailable. However, if additional financing is not available,GeoPetro may be compelled to reduce the scope of its business activities. IfGeoPetro is unable to fund planned expenditures, it may be necessary to:

1.                                       forfeit its interestin wells that are proposed to be drilled;

2.                                       farm-out itsinterest in proposed wells;

3.                                       sell a portion ofits interest in prospects and use the sale proceeds to fund its participationfor a lesser interest; and

4.                                       reduce general andadministrative expenses.

9

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Inorder for GeoPetro to maintain its interest in the Indonesian contract area,certain work and expenditure commitments must be met or an extension must begranted by the applicable governing authority. In the event that GeoPetro doesnot meet the commitments and no extensions are granted for meeting thecommitments, GeoPetro will forfeit its interest in the contract or permit areasrequiring an impairment write-down equal to the capitalized costs recorded forthe area forfeited. This could have a material adverse impact on GeoPetro’sresults of operations in future periods.

InJuly 2005, GeoPetro entered into agreements with unaffiliated companies thathave purchased and are operating a dedicated gas treatment plant and relatedpipelines to process and transport GeoPetro’s gas from the Madisonville Projectin Madison County, Texas. These agreements are discussed in detail in Note 10 to the financial statements included inour Form 10-K for the year ended December 31, 2006. In connection with the Madisonville Project, GeoPetro re-completed anexisting well (the Magness #1 well) for production from the Rodessa formationinterval at approximately 11,800 feet of depth and completed an injection wellfor disposal of waste gasses from the production well. GeoPetro initiated gassales from the Madisonville Project in May 2003. A second well (the Fannin#1 well) was drilled, tested and completed during 2004. Two additionaldevelopment wells (the Wilson #1 and the Mitchell #1 well) were drilled during2006.  The Fannin #1 and the Magness #1well are presently producing on a restricted rate awaiting a planned expansionof the gas treatment plant.  Another wellis planned for drilling during 2008 in the Madisonville Project.

Otherthan the above work and expenditure commitments, the timing of most of GeoPetro’scapital expenditures is discretionary. GeoPetro has no material long-termcommitments associated with its capital expenditure plans or operatingagreements. Consequently, GeoPetro has a significant degree of flexibility toadjust the level of such expenditures as circumstances warrant. The level ofcapital expenditures will vary in future periods depending on the success ofexploratory drilling activities, gas and oil price conditions and other relatedeconomic factors.

**2.****                             ****SUMMARYOF SIGNIFICANT ACCOUNTING POLICIES**:

*U.S. GAAP** —*The Company’sfinancial statements have been prepared in accordance with accountingprinciples generally accepted within the United States of America (“U.S. GAAP”).

*Use of Estimates and Significant Estimates** —*Certain amounts in GeoPetro’s financial statements are based uponsignificant estimates, including oil and gas reserve quantities which form thebasis for the calculation of depreciation, depletion, amortization andimpairment of oil and gas properties. Actual results could materially differfrom those estimates.

*Oil and Gas Properties* — GeoPetro follows the fullcost method of accounting for oil and gas producing activities and,accordingly, capitalizes all costs incurred in the acquisition, exploration,and development of proved oil and gas properties, including the costs ofabandoned properties, dry holes, geophysical costs, and annual lease rentals.All general corporate costs are expensed as incurred. In general, sales orother dispositions of oil and gas properties are accounted for as adjustmentsto capitalized costs, with no gain or loss recorded. Amortization of evaluatedoil and gas properties is computed on the units of production method based onall proved reserves on a country by country basis. Unevaluated oil and gasproperties are assessed for impairment either individually or on an aggregate basis.The net capitalized costs of evaluated oil and gas properties (full costceiling limitation) are not to exceed their related estimated future netrevenues discounted at 10%, and the lower of cost or estimated fair value ofunproved properties, net of tax considerations.

*Asset Impairment*— Under full cost accounting, aceiling test is performed to ensure that unamortized capitalized costs in eachcost center (country) do not exceed their fair value.  Impairment is recognized when the carryingvalue is greater than the undiscounted future cash flows.  In the event of impairment, the amount bywhich the carrying value exceeds the estimated fair value of the long-livedasset is charged to earnings. The present value of estimated future netrevenues is computed by applying current oil and gas prices to estimated futureproduction of proved oil and gas reserves as of period-end, less estimatedfuture expenditures to be incurred in developing and producing the provedreserves assuming the continuation of existing economic conditions. As of threemonths and nine months ended September 30, 2007, the  impairment test was met for the UnitedStates.

Forthe unproved properties, the Company evaluates the possibility of potentialimpairment on a quarterly basis. During the three months ended September 30,2007, approximately $495,874 of unproved property costs related to Goodwinproject were reclassified to proved property and an impairment was recorded inthe Canadian pool due to a dry hole drilled.

*Joint Ventures* — Some exploration andproduction activities are conducted jointly with others and, accordingly, theaccounts reflect only GeoPetro’s proportionate interest in such activities.

10

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*Revenue Recognition* — Revenue is recognized upon delivery of oiland gas production and is shown net of applicable royalty payments, processingand transportation fees. In addition, the Company recognizes revenuefrom the Madisonville Field net of applicable fees to gather, treat and transportthe Company’s natural gas production. The applicable fees are paid to unrelatedthird parties. Revenue from the Madisonville Field is recognized when the pricefor gas delivered becomes fixed and determinable. The price for gas deliveredto the purchaser, Madisonville Gas Processing LP (“MGP”), becomes fixed anddeterminable after the gas has been gathered, treated, and transported to acommon carrier pipeline where it is then resold by MGP to the common carrierpipeline on a spot market basis. The proceeds from the sale of the gas aredeposited directly into an escrow account under the joint signature control ofthe Company and MGP. The fees to gather, treat and transport the gas aredistributed to MGP in accordance with agreements between them and the Company.The remaining net proceeds are distributed to the Company.

*Asset Retirement Obligation* — Inaccordance with Statement of Financial Accounting Standards No. 143, *Accounting for Asset Retirement Obligations*(“SFAS 143”), the fair value of an asset retirement cost, andcorresponding liability, should be recorded as part of the cost of the relatedlong-lived asset and subsequently allocated to expense using a systematic andrational method. GeoPetro recorded an asset retirement obligation to reflect GeoPetro’slegal obligations related to future plugging and abandonment of its oil and gaswells. GeoPetro estimated the expected cash flow associated with the obligationand discounted the amount using a credit-adjusted, risk-free interestrate. At least annually, GeoPetro reassesses the obligation to determinewhether a change in the estimated obligation is necessary. GeoPetro evaluateswhether there are indicators that suggest the estimated cash flows underlyingthe obligation have materially changed. Should those indicators suggest theestimated obligation has materially changed, GeoPetro will accordinglyupdate its assessment.

| ** **                                        | ** ** | **September 30,  2007** | ** ** | **December 31,  2006** | ** ** |
|---------------------------------------------------|------------|-------------------------|------------|------------------------|------------|
| Asset retirement obligations, beginning of period |       | $                       | 48,842     |                   | $          | 26,641 |   |
| Liabilities incurred                              |       | 1,200                   |       | 19,537                 |       |
| Accretion expense                                 |       | 2,419                   |       | 2,664                  |       |
|                                              |       |                    |       |                   |       |
| Asset retirement obligations, end of period       |       | $                       | 52,461     |                   | $          | 48,842 |   |

 

*Furniture, Fixtures and Equipment **—*Furniture, fixturesand equipment are stated at cost. Depreciation is provided on furniture,fixtures and equipment using the straight-line method over an estimated servicelife of three to seven years.

*Income Taxes* — GeoPetro accounts forincome taxes using the asset and liability method wherein deferred tax assetsand liabilities are recognized for the future tax consequences attributable todifferences between financial statement carrying amounts of existing assets andliabilities and their respective tax bases. Deferred tax assets and liabilitiesare measured using enacted tax rates expected to apply to taxable income in theyears in which the temporary differences are expected to be recovered orsettled. Because management has determined that realization of deferred taxassets is not likely, the net deferred tax assets are fully reserved.

*Concentrations of Credit Risk* — Credit riskrepresents the accounting loss that would be recognized at the reporting dateif counterparties failed completely to perform as contracted. Concentrations ofcredit risk (whether on or off balance sheet) that arise from financialinstruments exist for groups of customers or counterparties when they havesimilar economic characteristics that would cause their ability to meetcontractual obligations to be similarly affected by changes in economic or otherconditions described below. The credit risk amounts for cash and accountsreceivable do not take into account the value of any collateral or security.

GeoPetromaintains several cash accounts with three financial institutions. Accounts ateach institution are insured by the Federal Deposit Insurance Corporation up to$100,000. As of September 30, 2007, the uninsured bank balance was$9,015,477. GeoPetro has not experienced any losses in such accounts andbelieves it is not exposed to any significant credit risk.

Forthe nine months ended September 30, 2007 and year ended December 31, 2006, theCompany had sales to customers exceeding 10% of total sales as follows:

| ** ** | ** ** | **September 30,  2007** | ** ** | **December 31,  2006** | ** ** |
|------------|------------|-------------------------|------------|------------------------|------------|
| Customer A |       | 86                      | %          | 79                     | %          |
| Customer B |       | 14                      | %          | 21                     | %          |

 

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AtSeptember 30, 2007, the Company had accounts receivable balances from CustomerA of  $815,078 or 92%, and $394,337 or77% at December 31, 2006 of total accounts receivable respectively.

*Allowance for Doubtful Accounts* — Tradeaccounts receivable are recorded at net realizable value. If the financialcondition of GeoPetro’s customers were to deteriorate, resulting in animpairment of their ability to make payments, additional allowances may berequired. Delinquent trade accounts receivable are charged against theallowance for doubtful accounts once uncollectibility has been determined. Theallowance is determined through an analysis of the past-due status of accountsreceivable and assessments of risk that are based on historical trends and anevaluation of the impact of current and projected economic conditions. Therewas no activity in the allowance for doubtful accounts as of September 30, 2007and December 31, 2006.

*Fair Value of Financial Instruments* — The estimatedfair values for financial instruments are determined at discrete points in timebased on relevant market information. These estimates involve uncertainties andcannot be determined with precision. For certain of GeoPetro’s financialinstruments, including cash, accounts receivable, accounts payable and currentportion of notes payable, the carrying amounts approximate fair value due totheir maturities.

*Stock-Based Compensation* — Effective January 1, 2006, the Companyadopted the fair value recognition provisions of Statement of FinancialAccounting Standard 123(R) “*Share-BasedPayment”* (“SFAS 123(R)”) using the modified prospective transitionmethod. In addition, the Securities and Exchange Commission issued StaffAccounting Bulletin No. 107 “*Share-BasedPayment*” (“SAB 107”) in March, 2005, which provides supplementalSFAS 123(R) application guidance based on the views of the SEC. Under themodified prospective transition method, compensation cost recognized in thenine months ended September 30, 2007 includes: (a) compensation cost forall share-based payments granted prior to, but not yet vested as of January 1,2006, based on the grant date fair value estimated in accordance with theoriginal provisions of SFAS No. 123, and (b) compensation cost forall share-based payments granted beginning January 1, 2006, based on the grantdate fair value estimated in accordance with the provisions of SFAS 123(R). Inaccordance with the modified prospective transition method, results for priorperiods have not been restated.

The adoption of SFAS123(R) resulted in stock compensation expense for the nine months endedSeptember 30, 2007 $104,805 to income from continuing operations and incomebefore income taxes, of which the entire amount was recorded to general andadministrative expenses. The Company did not recognize a tax benefit from thestock compensation expense because the Company considers it is more likely thannot that the related deferred tax assets, which have been reduced by a fullvaluation allowance, will not be realized.

Thefair value of each option grant was estimated on the date of grant using theBlack-Scholes option pricing model with the following weighted-averageassumptions used for grants in 2003 and 2005: risk-free, weighted-averageinterest rates ranging from 2.52 to 3.75 percent, expected dividend yieldof 0 percent, expected life of 5 years from the date of grant, andexpected volatility of 10 and 25 percent. After the initial publicoffering on March 30, 2006, an expected volatility factor of 58% was used forthe newly issued common stock options and the extension of common stock optionsand warrants during 2006. A newly issued stock option is an option that wasgranted on or after March 30, 2006 or a previously granted stock option that ismodified on or after March 30, 2006. The fair value of all newly issued stockoptions grants in 2006 is estimated using the Black-Scholes option pricingmodel with the following weighted average assumptions used for grants andmodifications of prior grants made on or after March 30, 2006 for the ninemonths ended September 30, 2007: risk-free, weighted average interest rate of4.9 percent based on the U.S. Treasury yield curve in effect at the time ofgrant, expected dividend yield of 0 percent, expected life of 5 years from thedate of grant (the remaining term of the option in the case of optionextensions), and expected volatility of 58%. GeoPetro selected 10 publiclytraded “small cap” companies whose primary business is oil and gas explorationand production.  Small cap, for purposesof this analysis, is defined as companies with a market capitalization under $1billion.  From this peer group of similarcompanies, GeoPetro randomly selected 10 companies and derived expectedvolatility factors for the most recent completed fiscal years for each entityas reported in their recently filed 10K or 10KSB Annual Reports with theSecurities and Exchange Commission. Where the expected volatilities were expressed as a range, a simpleaverage of the range is used as an expected volatility for that entity.

Adescription of the common stock options outstanding as of September 30, 2007 isincluded in Note 6.

*Income (Loss) Per Common Share** —*Basic earnings per share excludes dilution and is calculated by dividingnet income or loss by the weighted average number of common shares outstandingfor the period. Diluted earnings per share reflects the potential dilution thatcould occur if securities or other contracts to issue common stock wereexercised or converted 

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intocommon stock or resulted in the issuance of common stock that then shared fromthe earnings of the entity. Potential common shares for the three and ninemonth periods ended September 30, 2007 and September 30, 2006 were excludedfrom the earnings per share computation because the Company incurred net lossesand were anti-dilutive. 

| ** **                                        | ** ** | **Three  Months Ended  September 30,** | ** ** | **Nine  Months Ended  September 30,** | ** ** |
|---------------------------------------------------|------------|----------------------------------------|------------|---------------------------------------|------------|
| ** **                                        | ** ** | **2007**                               | ** ** | **2006**                              | ** ** | **2007** | ** ** | **2006** | ** ** |
| Net Loss and  Adjustments:                        |       |                                   |       |                                  |       |   |   |   |   |
| Net Loss  Available to Common Shareholders        |       | $                                      | (745,691   | )                                     | $          | (489,224 | ) | $ | (689,527 | ) | $ | (811,841 | ) |
| Adjustments                                       |       | Anti-dilutive                          |       | Anti-dilutive                         |       | Anti-dilutive |   | Anti-dilutive |   |
| Net Loss for  Diluted Calculation                 |       | $                                      | (745,691   | )                                     | $          | (489,224 | ) | $ | (689,527 | ) | $ | (811,841 | ) |
|                                              |       |                                   |       |                                  |       |   |   |   |   |
| Shares:                                           |       |                                   |       |                                  |       |   |   |   |   |
|                                              |       |                                   |       |                                  |       |   |   |   |   |
| Weighted Average  Shares Outstanding              |       | 30,603,475                             |       | 27,348,758                            |       | 29,215,952 |   | 25,532,531 |   |
| Outstanding  Options                              |       | Anti-dilutive                          |       | Anti-dilutive                         |       | Anti-dilutive |   | Anti-dilutive |   |
| Outstanding  Warrants                             |       | Anti-dilutive                          |       | Anti-dilutive                         |       | Anti-dilutive |   | Anti-dilutive |   |
| Average Number of  Shares for Diluted Calculation |       | 30,603,475                             |       | 27,348,758                            |       | 29,215,952 |   | 25,532,531 |   |
| Diluted EPS                                       |       | $                                      | (0.02      | )                                     | $          | (0.02 | ) | $ | (0.02 | ) | $ | (0.03 | ) |

 

*Cash Equivalents** —*Cash and cashequivalents include cash on hand, amounts held in banks and highly liquidinvestments purchased with an original maturity of three months or less.

*NewAccounting Pronouncements****—*** In July 2006, the FinancialAccounting Standards Board (“FASB”) issued Interpretation No. 48, *Accounting for Uncertainty in Income Taxes*(FIN48). It became effective for the Company on January 1, 2007. FIN 48clarifies the accounting for income taxes by prescribing a minimum recognitionthreshold that a tax position is required to meet before being recognized inthe financial statements. FIN 48 also provides guidance on measurement,classification, interim accounting and disclosure. We adopted FIN 48 effectiveJanuary 1, 2007 (See Note 8).

In September 2006, FASB issued SFAS No. 157, *Fair Value Measurements*. SFAS No. 157defines fair value, establishes a framework for measuring fair value, andexpands disclosure requirements regarding fair value measurement. Whereapplicable, this statement simplifies and codifies fair value related guidancepreviously issued within GAAP. Although this statement does not require any newfair value measurements, its application may, for some entities, change currentpractice. SFAS No. 157 will be effective for the Company beginning January 1,2008. The adoption of SFAS No. 157 is not expected to have a materialimpact on our financial statements.

In February 2007, the FASB issued SFAS No. 159, *The Fair Value Option for Financial Assets andFinancial Liabilities*, which permits entities to choose to measuremany financial instruments and certain other items at fair value. The objectiveis to improve financial reporting by providing entities with the opportunity tomitigate volatility in reported earnings caused by measuring related assets andliabilities differently without having to apply complex hedge accountingprovisions. SFAS No. 159 applies to all entities and is effective forfiscal years beginning after November 15, 2007. Adoption of SFASNo. 159 is not required for these financial statements, and we arecurrently determining the impact, if any, that SFAS No. 159 will have onour future financial statements.

**3.****                             ****SHORTTERM DEBT**:

Shortterm non-convertible debt at nine months ended September 30, 2007 and December 31, 2006 consisted of the following:

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| ** **                                                                                                                                                                                                              | ** ** | **September  30,  2007** | ** ** | **December  31,  2006** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------|------------|-------------------------|------------|
| ** **                                                                                                                                                                                                              | ** ** | **(unaudited)**          | ** ** | ** **              | ** ** |
| Promissory note dated January 31, 2006, payable to Pinehill Capital;  collateralized with an undivided 5% of the net cash flow in GeoPetro’s  Madisonville Project; payable on or before October 31, 2007 (a) |       | $                        | 1,000,000  |                    | $          | 1,000,000 |   |
|                                                                                                                                                                                                                    |       |                     |       |                    |       |
| Promissory note dated February 1, 2007 payable on or before October  31, 2007 (b)                                                                                                                                       |       | 500,000                  |       | —                  |       |
|                                                                                                                                                                                                                    |       |                     |       |                    |       |
| Promissory note dated February 6, 2007 payable on or before  October 31, 2007 (c)                                                                                                                                  |       | 300,000                  |       | —                  |       |
|                                                                                                                                                                                                                    |       |                     |       |                    |       |
| Promissory note dated February 1, 2007 payable on or before  October 31, 2007 (d)                                                                                                                                  |       | 100,000                  |       | —                  |       |
|                                                                                                                                                                                                                    |       | 1,900,000                |       | 1,000,000               |       |
| Less discount on promissory notes                                                                                                                                                                                       |       | (18,105                  | )          | (17,699                 | )          |
|                                                                                                                                                                                                                    |       |                     |       |                    |       |
|                                                                                                                                                                                                                    |       | $                        | 1,881,895  |                    | $          | 982,301 |   |

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(a)      The Company issued a $1,000,000short term promissory note on January 31, 2006 with a maturity date of January31, 2007.  The note may be repaid at anytime without penalty.  In the event thenote is not repaid by the maturity date, the Company has agreed to dedicate 5%of the net cash flow from the Madisonville Project in Texas toward therepayment of the note and any accrued interest thereon.  In connection with the note, the Company paida loan origination fee of $30,000 and granted a three-year warrant exercisableto purchase 150,000 Common Shares at $3.50 per share. The fair value of thewarrants on the date of issuance, $182,390, as well as the $30,000 loanorigination fee, was recorded as a debt discount and is being amortized overthe life of the promissory note. On February 1, 2007, the maturity date was extended to October31, 2007. The Company has paid $80,000 accrued interest thru January 31, 2007. In connection with the extension, the Company paida loan extension fee of $30,000 and granted a three-year warrant exercisable topurchase 50,000 Common Shares at $3.50 per share. The fair value of thewarrants on the date of issuance, $57,242, together with the $30,000 loanextension fee, were recorded as a debt discount and are being amortized overthe life of the promissory note.  As ofSeptember 30, 2007, the unamortized debt discount was $9,693.

(b)     The Company issued a $500,000short term promissory note payable on February 1, 2007 with a maturity date ofOctober 31, 2007.  The note may be repaidat any time without penalty.  Theprincipal plus accrued interest on the note are due on the maturity date. Inconnection with the note, the Company paid a loan origination fee of $15,000and granted a three-year exercisable warrant to purchase 25,000 Common Sharesat $3.50 per share. The fair value of the warrants on the date of issuance,$27,072, as well as the $15,000 loan origination fee, was recorded as a debtdiscount and is being amortized over the life of the promissory note. As ofSeptember 30, 2007, the unamortized debt discount was $4,674.

(c)      The Company issued a $300,000short term promissory note payable on February 6, 2007 with a maturity date ofOctober 31, 2007.  The note may be repaidat any time without penalty. The principal plus accrued interest on the noteare due on the maturity date. In connection with the note, the Company paid aloan origination fee of $9,000 and granted a three-year exercisable warrant topurchase 15,000 Common Shares at $3.50 per share. The fair value of thewarrants on the date of issuance, $16,214, as well as the $9,000 loanorigination fee, was recorded as a debt discount and is being amortized overthe life of the promissory note. As of September 30, 2007, the unamortized debtdiscount was $2,802.

(d)     The Company issued a $100,000short term promissory note payable on February 1, 2007 with a maturity date ofOctober 31, 2007.  The note may be repaidat any time without penalty. The principal plus accrued interest on the noteare due on the maturity date. In connection with the note, the Company paid aloan origination fee of $3,000 and granted a three-year exercisable warrant topurchase 5,000 Common Shares at $3.50 per share. The fair value of the warrantson the date of issuance, $5,414, as well as the $3,000 loan origination fee,was recorded as a debt 

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discount and is being amortized over the life of the promissory note. Asof September 30, 2007, the unamortized debt discount was $936.

**4.****                             ****RELATEDPARTY TRANSACTIONS**:

**                                       **There were nomaterial changes in related party transactions from those disclosed in theaudited annual consolidated financial statements for the year ended December31, 2006, except:

                                        OnApril 25, 2007, May 9, 2007, and June 13, 2007, an officer and director,exercised warrants to purchase 80,000, 70,000 and 33,333 shares of common stockat an exercise price of $2.00, $2.00 and $4.00 per share, respectively. Thewarrants were granted on June 18, 2000 and had expiration dates of between June18 and June 30, 2007.

On February 12, 2007, Stuart J. Doshi, President and CEO, loaned$100,000 to the Company.  The note boreinterest at 8% annually and was payable on demand.  The note plus accrued interest was repaid onMarch 28, 2007.

On June 7, 2006, the Company loaned $1,000,000 to G. Carter Sedanoui, a5% shareholder, evidenced by a short term promissory note payable to theCompany with an original maturity date of March 31, 2007. On March 30, 2007,the Company extended the maturity date of the note to June 30, 2007. The noteplus the accrued interest were paid in full on June 29, 2007.

**5.****                             ****SHAREHOLDERS’EQUITY**:

GeoPetro’sarticles of incorporation allow for the issuance of 100,000,000 shares ofcommon stock, 1,000,000 shares of Series A preferred stock (“Series AStock”), 5,000,000 shares of Series AA preferred stock (“Series AA Stock”), andan additional 44,000,000 shares of preferred stock which may be issued fromtime to time in one or more series.

During the nine months ended September 30, 2007, the following issuances of common stockwere made:

| ** **                                           | ** ** | **Preferred Stock  Series A** | ** ** | **Preferred Stock  Series AA** | ** ** | **Common Stock** | ** ** |
|------------------------------------------------------|------------|-------------------------------|------------|--------------------------------|------------|------------------|------------|
| ** **                                           | ** ** | **Shares**                    | ** ** | **Amount**                     | ** ** | **Shares**       | ** ** | **Amount** | ** ** | **Shares** | ** ** | **Amount** | ** ** |
| Balances, December 31, 2006                          |       | —                        |       | $                              | —     |             | 1,890,710  |   | $ | 5,924,068 |   | 27,423,758 |   | $ | 40,112,265 |   |
|                                                 |       |                          |       |                           |       |             |       |   |   |   |   |   |   |
| Issuance of common stock for cash                    |       | —                        |       | —                         |       | —           |       | — |   | 2,268,539 |   | 7,825,608 |   |
|                                                 |       |                          |       |                           |       |             |       |   |   |   |   |   |   |
| Series AA preferred stock conversion                 |       |                          |       |                           |       | (1,890,710       | )          | (5,924,068 | ) | 1,890,710 |   | 5,924,068 |   |
|                                                 |       |                          |       |                           |       |             |       |   |   |   |   |   |   |
| Fair value of warrants issued with private placement |       | —                        |       | —                         |       | —           |       | — |   | — |   | (1,040,830 | ) |
|                                                 |       |                          |       |                           |       |             |       |   |   |   |   |   |   |
| Balances, September 30, 2007                         |       | —                        |       | $                              | —     |             | —     |   | $ | — |   | 31,583,007 |   | $ | 52,821,111 |   |

 

*Conversion ofSeries AA Preferred Stock**—*On March 28, 2007, all 1,890,710 ofthe Company’s outstanding shares of Series AA Preferred Stockautomatically converted into 1,890,710 shares of our common stock, no par valueper share.  Under the Company’s Amendedand Restated Articles of Incorporation, and as more fully described in Note 7included in our Form 10K for the year ended December 31, 2006, theSeries AA Preferred Stock automatically converted into common shares on aone-for-one share basis effective the first trading day after the reported highselling price for our common shares was at least $5.25 per share for anyconsecutive ten trading days, which condition was met on March 27,2007.  Dividends accrued on the Series AAPreferred Stock at a rate of $0.28 per annum, per share, while the Series AAProffered Stock was outstanding.  In2006, dividends paid on the Series AA Preferred Stock totaled $529,400.Pursuant to the terms of the Series AA Preferred Stock, no dividends werepayable for the first quarter of 2007.

*Common Stock Offering**—*On August 13, 2007, the Company sold,pursuant to a private placement, 2,002,599 units of the Company at asubscription price of $3.85 per Unit for total gross proceeds of $7,710,006.Each unit consisted of one share of common stock of the Company andthree-tenths common share purchase warrant of the Company.  Each one whole warrant entitles the holder toacquire one share of common stock at a price of $4.50 per share for a period offive years from the closing date.  Theunits were purchased by a group of private investors. The Company filed a 

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registrationstatement covering the common shares on October 9, 2007 which was declaredeffective by the Securities and Exchange Commission on October 26, 2007.  The gross proceeds of the sale of commonshares will be used to fund the Company’s exploration and development programand for general working capital purposes.

**6.****                             ****COMMONSTOCK OPTIONS**:

                                        There were no material changes to common stock options from thosedisclosed in the audited annual consolidated financial statements for the yearended December 31, 2006.  The optionsoutstanding as of September 30, 2007 have the following contractual lives:

| **Number of  Options  Outstanding** | ** ** | **Number of  Options  Exercisable** | ** ** | **Exercise  Prices** | ** ** | **Weighted Average  Remaining  Contractual Life** | ** ** |
|------------------------------------------|------------|------------------------------------------|------------|----------------------|------------|-------------------------------------------------------------|------------|
| 750,000                                  |       | 750,000                                  |       | 0.50                 |       | 0.58                                                        |       |
| 1,290,000                                |       | 1,290,000                                |       | 2.00                 |       | 0.25                                                        |       |
| 1,750,000                                |       | 1,380,000                                |       | 2.10                 |       | 5.68                                                        |       |
| 150,000                                  |       | 30,000                                   |       | 3.85                 |       | 3.55                                                        |       |
| 10,000                                   |       | 4,000                                    |       | 4.25                 |       | 2.26                                                        |       |
| 10,000                                   |       | 4,000                                    |       | 6.25                 |       | 2.70                                                        |       |
| 3,960,000                                |       | 3,458,000                                |       |                 |       |                                                        |       |

 

Asof September 30, 2007, there are 3,458,000 options which are exercisable.The remaining 502,000 options will become exercisable over the next four years.

**7.****                             ****COMMONSTOCK WARRANTS**:

On February 12, 2007, the Company issued a two-year exercisable commonstock warrant to purchase 20,000 Common Shares at $3.50 per share to anunaffiliated third party for geophysical services. The purchase right under thewarrant has an expiration date of February 12, 2009 unless terminated earlierin accordance with the stock warrant purchase agreement.

On February 28,2007, the Company issued a two-yearexercisable common stock warranttopurchase 5,000 Common Shares at $4.51 per share to the same party as above for geophysical services. The purchaseright under the warrant has an expiration date of February 28, 2009 unlessterminated earlier in accordance with the stock warrant purchase agreement.

The fair value ofthe warrants totaled $32,533 and was capitalized in oil and gas properties aspart of the U.S. cost pool.

In addition,during the nine months ended September 30, 2007, the Company issued commonstock warrants in connection with promissory notes payable.  These warrant issuances are discussed in Note3.

On August 13,2007, the Company issued common stock warrants in connection with a privateplacement. These warrant issuances are discussed in Note 5.

**8.****                             ****INCOMETAXES**:

The Companyadopted the provisions of FASB Interpretation No. 48, Accounting forUncertainty in Income Taxes, on January 1, 2007. As a result of the adoption ofFIN 48, the Company has unrecognized tax benefits of $86,000 as of the date ofadoption. No corresponding interest and penalties have been accrued as theCompany is in a net operating loss position.

The Company filesincome tax returns in the U.S. federal jurisdiction and various states.  A federal income tax audit for the 2004 taxyear was completed on October 15, 2007. There were no material adjustments tothe Company’s 

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2004 tax return asa result.    There are currently no otherfederal or state income tax examinations underway for these jurisdictions.  Furthermore, the Company is no longer subjectto U.S. federal income tax examinations by the Internal Revenue service for taxyears before 2003 and for state and local tax authorities for years before2002.  The Company does, however, havenet operating losses generated in tax years 1995 and thereafter, which remainopen for examination.

The Companyprovides for income taxes in accordance with Statement of Financial AccountingStandards No. 109, Accounting for Income Taxes (“SFAS 109”).  SFAS 109 requires the recognition of deferredtax assets and liabilities for the expected future tax consequences oftemporary differences between the financial statement carrying amounts and thetax basis of the assets and liabilities. Where it is more likely than not that a tax benefit will not berealized, a valuation allowance is recorded to reduce the deferred tax asset toits realizable value.

A valuationallowance has been provided against the Company’s net deferred tax assets asthe Company believes that it is more likely than not that the net deferred taxassets will not be realized.  As a resultof this valuation allowance, the effective tax rate for the nine months endedSeptember 30, 2007 and for the year ended December 31, 2006 is zero percent.

**9.****                             ****COMMITMENTSAND CONTINGENCIES**:

There were no material changes to commitments andcontingencies from those disclosed in the audited annual   consolidated financial statements for theyear ended December 31, 2006 except as disclosed in Note 9 herein, and asfollows:

*Salary Increases**—*On December 18, 2006, the independentmembers of the board of directors, acting on the recommendations of Stuart J.Doshi, the President and CEO, voted to increase the salaries of Messrs. Creeland Steinhauser, officers of the Company, to $163,200 annually effectiveJanuary 1, 2007.

*Sale ofAustralian Interests, EP 381 & EP 408***-**On June 20, 2007, the Company agreed tosell and transfer all of its remaining property interests in Australia to anunrelated party for cash consideration and a Petroleum Sales Royalty Paymentequal to 25% of the future annual earnings before interest, taxes, depreciationand amortization  from the propertyinterests.  The agreement is subject tosatisfaction of certain terms and conditions. Specifically, the agreement provides that the Company will be paidconsideration for the sale and transfer of its property interests as follows:

1.                            Initialcash consideration of $175,000 subject to certain closing conditions;

2.                            asecond cash payment of $175,000 upon a successful flow test of petroleum from awell located on the property interests. A successful flow test is defined for purposes of this agreement to be atest of at least 7 million standard cubic feet of natural gas for a continuousand uninterrupted 24 hour period (or an equivalent oil/condensate rate based ona conversion ratio of 6000 cubic feet of gas to a barrel of oil or condensate);and,

3.                            aPetroleum Sales Royalty Payment equal to 25% of the future annual earningsbefore interest, taxes, depreciation and amortization from the propertyinterests up to a total amount of $2,200,000.

                                                *Goodwin Prospect, CentralAlberta, Canada* — On June 21, 2007, the Company entered into aparticipation agreement wherein it acquired a 50% non-operated working interestin the Goodwin Prospect, which is located in the Central Alberta Basin,Canada.  A total of 12,000 acres can beearned by the Company by the drilling of wells. During July and August  2007, theNexstar Goodwin 16-1958-12 Well was drilled. The Company has production tested this well and determined that it isnon-commercial. The Company has plugged and abandoned this well. As a result,the Company recorded an impairment charge in amount of $495,874 in the threemonths ended September 30, 2007.

**10.****                              ****SUBSEQUENT EVENTS:**

*Promissory Notes Paid in Full**:**                       *The Company paid off all the short term non-convertible promissorynotes discussed in Note 3 plus accrued interest on October 31, 2007.

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*StockOption Exercises:*              OnNovember 1, 2007, an officer and director exercised options to purchase 50,000 sharesof common stock at an exercise price of $2.00 per share. The options weregranted on December 29, 2000 and had an expiration date of December  29, 2007.

*Swan Hills Prospect, CentralAlberta, Canada*— On October 17, 2007, the Company acquired a 33 1/3% non-operated workinginterest in 4,480 gross (1,493 net) acres in the Swan Hills Prospect, CentralAlberta, Canada. The Company paid $273,581 to purchase the leases in thisprospect.

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**ITEM 2.                  Management’sDiscussion and Analysis of Financial Condition and Results of Operations**

*Thefollowing discussion and analysis should be read in conjunction withaccompanying financial statements and related notes included elsewhere in thisreport. It contains forward looking statements that reflect our future plans,estimates, beliefs and expected performance. The forward looking statements aredependent upon events, risks and uncertainties that may be outside our control.Our actual results could differ materially from those discussed in theseforward looking statements. Factors that could cause or contribute to suchdifferences include, but are not limited to, market prices for natural gas andoil, economic and competitive conditions, regulatory changes, estimates ofproved reserves, potential failure to achieve production from developmentdrilling projects, capital expenditures and other uncertainties, as well asthose factors discussed below and elsewhere in this report, particularly in “RiskFactors” and “Cautionary Notes Regarding Forward Looking Statements”, all ofwhich are difficult to predict and which expressly qualify all subsequent oraland written forward-looking statements attributable to us or persons acting onour behalf. In light of these risks, uncertainties and assumptions, the forwardlooking events discussed may not occur. We do not have any intention orobligation to update forward-looking statements included in this report afterthe date of this report, except as required by law.*

**Overview**

GeoPetro ResourcesCompany (the “Company”, “we” or “us”) is a California incorporated oil and gascompany in the business of exploring and developing oil and natural gasreserves on a worldwide basis. Since inception, we have conducted leasehold acquisition,exploration and drilling activities on our North American, Australian andIndonesian prospects. These projects currently encompass approximately1.03 million gross (236,170 net) acres, consisting of mineral leases,production sharing contract and exploration permits that give us the right toexplore for, develop and produce oil and natural gas. Some of these propertiesare in the exploration, appraisal or development drilling phase and have notbegun to produce revenue from the sale of oil and natural gas. Excluding minorinterest and dividend income, our only significant cash inflows until 2003 werethe recovery of capital invested in projects through sale or other divestitureof interests in oil and gas prospects to industry partners.

Since 2003, substantiallyall of our revenue has been generated from natural gas sales derived from theMagness #1, the Fannin#1, and the Mitchell#1 wells in the Madisonville Field inEast Texas under spot gas purchase contracts at market prices. Natural gas salesfrom the Madisonville Field are expected to account for substantially all ofour revenues for 2007. We expect the majority of our capital expenditures in2007 to be the costs of related to completing wells in the Madisonville Fieldand the costs of drilling exploratory wells in Canada.

**Results of Operations**

The financial information with respect to the threemonths and nine months ended September 30, 2007 and 2006 that is discussedbelow is unaudited. In the opinion of management, such information contains alladjustments, consisting only of normal recurring accruals, necessary for a fairpresentation of the results for such periods. The results of operations forinterim periods are not necessarily indicative of the results of operations forthe full fiscal year.
| ** **                                                       | ** ** | **Three months ended September 30,** | ** ** | **Nine months ended September 30,** | ** ** |
|------------------------------------------------------------------|------------|--------------------------------------|------------|-------------------------------------|------------|
| ** **                                                       | ** ** | **2007**                             | ** ** | **2006**                            | ** ** | **2007** | ** ** | **2006** | ** ** |
| ** **                                                       | ** ** | **(Unaudited)**                      | ** ** | **(Unaudited)**                     | ** ** |
| **Statement of Operations**                                      | ** ** | ** **                           | ** ** | ** **                          | ** ** | ** ** | ** ** | ** ** | ** ** |
| Revenues, net of royalties                                       |       | 1,231,370                            |       | 1,705,140                           |       | 5,443,562 |   | 5,172,657 |   |
|                                                             |       |                                 |       |                                |       |   |   |   |   |
| Loss from operations                                             |       | (691,226                             | )          | (267,975                            | )          | (510,518 | ) | (272,640 | ) |
| Net loss available to holders of Common Shares                   |       | (745,691                             | )          | (489,224                            | )          | (689,527 | ) | (811,841 | ) |
| Net loss from continuing operations per diluted share            |       | $                                    | (0.02      | )                                   | $          | (0.01 | ) | $ | (0.02 | ) | $ | (0.01 | ) |
| Net loss available to holders of Common Shares per diluted share |       | $                                    | (0.02      | )                                   | $          | (0.02 | ) | $ | (0.02 | ) | $ | (0.03 | ) |

 

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**Revenueand Operating Trends in 2007**

As discussed in the “Properties — Texas — MadisonvilleProject” section in our Annual Report on Form 10-K for the year endedDecember 31, 2006, in order to produce the gas reserves from the RodessaFormation, we developed an onsite plan to treat and remove impurities from theMadisonville Project natural gas in order to meet pipeline-qualityspecifications. In 2003, the construction and installation of a natural gastreatment plant with a designed capacity of 18 million cubic feet of gas perday (“MMcf/d”) and associated pipeline and gathering facilities werecompleted.  The treatment plant andassociated pipeline and gathering facilities are owned by an unaffiliated thirdparty.

In 2005 we secured a commitment from Madisonville GasProcessing LP (“MGP”) to install and make operational additional treatingfacilities capable of treating 50 MMcf/d, which combined with the capacity ofthe current in-service treating facilities will represent a total designedtreating capacity of 68 MMcf/d for the Madisonville treatment plant.    In early October 2007, MGP completed theadditional treating facilities and the additional treating capacity at suchfacilities is currently being phased in.

Upon completion of the phase-in, we expect to produceour wells at higher rates as the well rates has previously been restricted dueto capacity limitations in the gas treatment plant.  In addition, early in 2008 we expect tofracture stimulate the Wilson Well, and provided such stimulation issuccessful, we will place the Wilson Well on production.

In addition, our contract with MGP provides that forthe first 18,000 Mcf/d of gas measured and delivered to the inlet flange of thegas treatment plant, MGP will receive a treating fee of $1.50 per thousandcubic feet (“Mcf”) (this fee is presently $1.55 per Mcf adjusted forinflation).  For any gas volumes inexcess of 18,000 Mcf/d of gas delivered to the inlet flange of the gastreatment plant, the treating fee received by MGP is reduced from $1.50 to$1.10 per Mcf ($1.14 per Mcf adjusted for inflation).  We record our revenues net of these treatingfees.  Thus, if we are able to increaseour inlet production volumes over 18 MMcf/d on a sustained basis, we expect toexperience a disproportionately higher increase in revenue due to lower averagetreating fees per Mcf.

While there can be no assurance, the higher productionrates from our wells combined with the lower average treating fees per Mcf, mayresult in higher net production and increased revenue during later periods in2007 as compared to the third quarter of 2007 and prior periods.

**Industry Overview for the nine monthsended September 30, 2007**

The nine months ended September30, 2007 saw strengthening natural gas prices. The Houston Ship Channel price,the index price prevailing in the locale of our Madisonville Project in MadisonCounty, Texas, as quoted in Gas Daily as of September 28, 2007, was $6.42versus $5.40 as of December 29, 2006. Natural gas prices improved during the nine months due to higher demandinduced by cold temperatures experienced in many parts of the United States,among other factors.

**Company Overview for the nine monthsended September 30, 2007**

Our net loss for nine months ended September 30, 2007was $689,527.  From our inception, through mid-2003, we only received nominal revenuesfrom our oil and natural gas activities, while incurring substantialacquisition and exploration costs and overhead expenses which have resulted inan accumulated deficit through September 30, 2007 of $11,083,512. Commencing in May 2003, weplaced our Madisonville Project into production. Substantially all of our oiland natural gas sales for the nine months ended September 30, 2007 were derived from our Madisonville Project, fromthree producing wells, the UMC Ruby Magness #1 well (the “Magness Well”), theAngela Farris Fannin #1 well (the “Fannin Well”) and the Mitchell #1 well (the “MitchellWell”).

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**Comparison of Results of Operations forthree months ended September 30, 2007 and 2006**

**               **Oil and gas revenue for the third quarter of 2007decreased 28% to $1,231,370 from $1,705,140 for the third quarter of 2006 dueprimarily to a 25% decrease in gas production. The lower gas production in thethree months ended September 30, 2007 compared to the same period of 2006 wasdue to available capacity constraints in the Madisonville gas treatmentplant.   Our net gas production was448,214 Mcf at an average price of $2.75 per Mcf versus net gas production of599,055 Mcf at an average sales price of $2.85 during the three months endedSeptember 30, 2006.

 The lease operating expense for the third quarter ended September 30,2007 was $315,982 compared to $572,664 in the same period of 2006. The averagelifting cost per Mcf for the three months ended September 30, 2007 was $0.70versus $0.96 for the three months ended September 30, 2006. The decrease inlease operating expense was due to the Magness workover done in the thirdquarter of 2006.

                The total net profits interestexpense for the third quarter ended September 30, 2007 was $118,916 versus$179,907 in the same quarter of 2006.  The 34% decrease resulted from lower gasproduction volume in the three months ended September 30, 2007 versus 2006. Thenet profits interest is 12.5% of the net operating profits from our Magness, Fannin, and Mitchell wells.

For the third quarter endedSeptember 30, 2007, consolidated general and administrative (“G&A”) expensewas $482,388 as compared to $508,085 for the same quarter in 2006. The G&Acost comparisons between these third quarters were relatively consistent.

On the quarterly basis, the 2007third quarter depreciation, depletion and amortization expense (“DD&A”) was$509,436 as compared to $712,459 for the 2006 third quarter.  The decrease in DD&A was due primarily toa 25% decrease in gas production of 150,841 Mcf in the third quarter of 2007verses 2006 (net production of 448,214 Mcf in the third quarter of 2007compared to 599,055 Mcf in the same period of 2006).

The 2007 third quarter impairmentexpense was $495,874 versus $0 for the 2006 third quarter. The 2007 impairmentexpense was due to a dry hole drilled in the Goodwin project in Canada. Underthe full cost accounting, the impairment is evaluated based on each cost centeron a country by country basis.

For the third quarter endedSeptember 30, 2007, the loss from operations was $691,226 versus $267,975 forthe same period in 2006. The increase in the loss from operations was due primarily to lower gasproduction volume and the impairment of the Goodwin well in Canada.

The interest income for the thirdquarter ended 2007 was $38,161 as compared to $90,831 in the same quarter of2006.  The reason for the decreasedinterest income was lower average cash and cash equivalent balances during the2007 period as compared to 2006 period.

Interest expense was $92,626 inthe third quarter ended September 30, 2007 versus $87,748 in the same quarterof 2006. The interest expense comparisons in the respective quarters wereconsistent.

                Duringthe third quarter ended September 30, 2007, the net loss before tax was$745,691 as compared to $264,892 in the same quarterof 2006. The net loss before tax increased during the three months endedSeptember 30, 2007 due primarily to lower gas sales and the impairment expensefrom the Goodwin well in Canada.

During the third quarter ended September 30, 2007, theincome tax expense was $0 as compared to $90,895 in the same quarter of2006.  The2006 income tax payment was estimated based on the 2005 final taxreturn.

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**Comparison of Results of Operations fornine months ended September 30, 2007 and 2006**

**               **During the nine months endedSeptember 30, 2007, we had oil and natural gas revenues of $5,443,562. Our net production was 1,556,551 Mcf of natural gas at an averageprice of $3.50 per Mcf.  During the ninemonths ended September 30, 2006, we had oil and natural gas revenues of$5,172,657.  Our net production for thenine months ended September 30, 2006 was 1,683,739 Mcf at an average price of$3.07 per Mcf.  Revenue increased in thenine months ended September 30, 2007 compared to the prior year period due tohigher gas prices in spite of an 8% decrease in production volumes.  Average prices were approximately 14% higherfor the nine months ended September 30, 2007 versus the same period in 2006.

**                We incurred lease operatingexpense of $1,162,089 during the nine months ended September 30, 2007. Ouraverage lifting cost for the 2007 period was $0.75 per Mcf.  During the nine months ended September 30,2006, we incurred lease operating expense of $1,290,593. Our average liftingcost for the 2006 period was $0.77 per Mcf. The average lifting cost for thenine months ended September 30, 2007 was relatively consistent with the sameperiod of 2006.**

                During the nine months endedSeptember 30, 2007, we incurred net profits interest expense of $547,504associated with the Magness, the Fannin, and the Mitchell wells as compared to$540,378 during the nine months ended September 30, 2006. The net profitsinterest expense comparisons between these third quarters were consistent. The net profits interest is 12.5% of thenet operating profits from our Magness,Fannin, and Mitchell wells.

**                General and administrativeexpenses for the nine months ended September 30, 2007 were $2,009,307 comparedto $1,795,705 for the nine months ended September 30, 2006. This represents a$213,602 increase over the prior year period due primarily to U.S. and Canadapublic company filling fees, costs associated with our SEC registrationstatement, and ongoing public company filing requirements.**

The 2007 nine months endedSeptember 30, the impairment expense was $495,874 versus $0 for the same periodof 2006. The 2007 impairment expense was due to a dry hole drilled in theGoodwin project in Canada. Under the full cost accounting, the impairment isevaluated based on each cost center on a country by country basis.

                Depreciation,depletion and amortization expense (“DD&A”) for the nine months endedSeptember 30, 2007 was $1,739,306 as compared to $1,818,621 in the same periodof 2006, which amounts primarily represent amortization of the U.S. fullcost pool for the nine months ended September 30, 2007 and 2006, respectively.The decrease was due to lower net production in the nine month period of 2007as compared to the same period of 2006.

                Loss from operations totaled $510,518 for the ninemonths ended September 30, 2007 as compared to $272,640 for the nine monthsended September 30, 2006. The increase in the loss from operations was dueprimarily to higher G&A cost and theimpairment expense in the nine months ended September 30, 2007 versus 2006.

Other income for the nine monthsended September 30, 2007 and 2006 consisted of interest income in the amount of$94,362 and $182,725, respectively. The reason for the decreased interestincome was lower average cash and cash equivalent balances during the 2007period as compared to the 2006 period.

                During the nine months ended September 30, 2007 and2006, we incurred interest expense of $271,071 and $213,778, respectively. Thehigher interest expense in the current period was due to short-term borrowingswhich were incurred in 2007 to complete the Mitchell well as well as a workoverperformed on the Magness well.

                Net loss before taxes for the nine months endedSeptember 30, 2007 was $687,227 as compared to $303,693 for the nine monthsended September 30, 2006. The increase in net loss before taxes during the ninemonths ended September 30, 2007 was primarily due to higher G&A cost and the impairment expense in the nine months endedSeptember 30, 2007 versus 2006.

Income tax expense for the nine months ended September30, 2007 was $2,300 compared to $112,186 in the same period of 2006. The 2006 income tax payment was estimatedbased on the 2005 final tax return.

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**Recent Developments**

          In February 2007, weborrowed $900,000 pursuant to three promissory notes bearing interest at 8% perannum.  The notes mature on October 31,2007.  In connection with these notes, wepaid loan origination fees totaling $27,000 and issued three year warrantsexercisable to purchase 45,000 shares of our common stock at $3.50 per sharewhich expire in February 2009. The promissory notes plus accrued interest werepaid in full on October 31, 2007.

          In February2007, we received an extension of the maturity date of our promissorynote for $1,000,000 payable to Pine Hill Capital, LLC to October 31, 2007.  Inconnection with the extension, we paid a loan extension fee of $30,000 andgranted a three-year warrant to purchase 50,000 shares of our common stock at$3.50 per share.  We repaid the note plusaccrued interest on October 31, 2007.

In February 2007, Stuart J. Doshi, Presidentand CEO, loaned $100,000 to us pursuant to a promissory note bearing interestat 8% per annum, payable upon demand. We repaid the note plus accrued intereston March 28, 2007.

On June 7, 2006,we loaned $1,000,000 to G. Carter Sednaoui, a 5% shareholder, evidenced by afull-recourse short-term promissory note payable to us with an originalmaturity date of March 31, 2007.  OnMarch 30, 2007, we extended the maturity date of the note to June 30, 2007. OnJune 29, 2007, we received the full payment of the note plus accrued interest.

On March 28, 2007, all 1,890,710 of our outstanding sharesof our Series AA Preferred Stock automatically converted into 1,890,710 sharesof our common stock. Under our Amended and Restated Articles of Incorporation,the Series AA Preferred Stock automatically converted into common shares on aone-for-one share basis effective the first trading day after the reported highselling price for our common shares is at least $5.25 per share for anyconsecutive ten trading days, which condition was met on March 27, 2007. As aresult of the conversion of our Series AA Preferred Stock to common stock onMarch 28, 2007, dividends on the Series AA Preferred Stock ceased accruing onDecember 31, 2006. In 2006, dividends paid on the Series AA Preferred Stocktotaled $529,400.

On April 25, 2007, May 9,2007, and June 13, 2007, an officer and director, exercised warrants topurchase 80,000, 70,000 and 33,333 shares of common stock at an exercise priceof $2.00, $2.00 and $4.00 per share, respectively. The warrants were granted onJune 18, 2000 and had expiration dates of between June 18 and June 30, 2007.

On May 11 and May 14,2007, we issued 12,357 and 25,000 shares of common stock at an exercise priceof $3.50 per share in connection with warrant exercises.

On June 20, 2007, weagreed to sell and transfer all of our remaining property interests inAustralia to an unrelated party for cash consideration and a Petroleum SalesRoyalty Payment equal to 25% of the future annual earnings before interest,taxes, depreciation and amortization from the property interests.  The agreement is subject to satisfaction ofcertain terms and conditions. Specifically, the agreement provides that we will be paid considerationfor the sale and transfer of our property interests as follows:

1.               Initialcash consideration of $175,000 subject to certain closing conditions;

2.               a  second cash payment of $175,000 upon asuccessful flow test of petroleum from a well located on the propertyinterests.  A successful flow test isdefined for purposes of this agreement to be a test of at least 7 millionstandard cubic feet of natural gas for a continuous and uninterrupted 24 hourperiod (or an equivalent oil/condensate rate based on a conversion ratio of6000 cubic feet of gas to a barrel of oil or condensate); and,

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3.               aPetroleum Sales Royalty Payment equal to 25% of the future annual earningsbefore interest, taxes, depreciation and amortization from the propertyinterests up to a total amount of $2,200,000.

On June 21, 2007, weentered into a participation agreement wherein it acquired a 50% non-operatedworking interest in the Goodwin Prospect, which is located in the CentralAlberta Basin, Canada.  A total of 12,000acres can be earned by us by the drilling of wells.  We have production tested the first well onthe acreage and determined that it is non-commercial. We have plugged thiswell.  We plan to spud three additionalwells on this acreage by year end.

On October 17, 2007, weacquired a 33 1/3% non-operated working interest in the Swan Hills Prospect,Central Alberta, Canada. We paid $273,581 to purchase 4,480 gross (1,493 net)acres in this prospect.

On August 13, 2007, wesold, pursuant to a private placement, 2,002,599 units of the Company at asubscription price of $3.85 per Unit for total proceeds of $7,710,006. Eachunit consisted of one share of common stock of the Company and three-tenthscommon share purchase warrant of the Company. Each one whole warrant entitles the holder to acquire one share ofcommon stock at a price of $4.50 per share for a period of five years from theclosing date.  The units were purchasedby a group of private investors.  Wefiled a registration statement with SEC covering the common shares on October9, 2007 which was declared effective by the Securities and Exchange Commissionon October 26, 2007.  The proceeds of thesale of common shares will be used to fund the Company’s exploration anddevelopment program and for general working capital purposes.

On November 1, 2007, an officer and director,exercised options to purchase 50,000 shares of common stock at an exerciseprice of $2.00 per share. The options were granted on December 29, 2000 and hadexpiration date of December 29, 2007.

**Liquidity and Capital Resources**

We had a working capital surplusof $5,695,530 versus working capital deficit of $1,238,261 at September 30,2007 and December 31, 2006, respectively. Our working capital increasedduring nine months ended September 30, 2007 due primarily to a privateplacement of equity for gross proceeds of $7,710,006 on August 13, 2007.

We have historically financed ourbusiness activities through September 30, 2007 principally through issuances ofcommon shares, promissory notes and commonstock purchase warrants in private placements. These financings aresummarized as follows:
| ** **                                                     | ** ** | **Nine Months Ended**            | ** ** |
|----------------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                                     | ** ** | **September 30, 2007** | ** ** | **September 30, 2006** | ** ** |
| Proceeds from sale of common shares and warrant exercises, net |       | 7,825,608                        |       | 16,541,494 |   |
| Payment on preferred dividends                                 |       | —                           |       | (395,962 | ) |
| Repayments of promissory notes                                 |       | (100,000                         | )          | — |   |
| Proceeds from promissory notes                                 |       | 1,000,000                        |       | 1,900,000 |   |
| Payment of loan fee                                            |       | (57,000                          | )          | (30,000 | ) |
| Deferred offering costs                                        |       | —                           |       | (1,213,789 | ) |
|                                                           |       |                             |       |   |   |
| Net cash provided by financing activities                      |       | $                                | 8,668,608  |   | $ | 16,801,743 |   |
|                                                                |            |                                  |            |  |  |  |  |

 

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The net proceeds of ourfinancings have been primarily invested in oil and natural gas propertiestotaling $2,645,202, and $16,003,073 for the nine months endedSeptember 30, 2007 and 2006, respectively.

Our cash balance at September 30,2007 was $8,487,644 compared to a cash balance of $734,561 at December 31,2006. The change in our cash balance is summarized as follows:
| Cash balance at December 31, 2006            |   | $          | 734,561   |   |
|----------------------------------------------|--------|------------|-----------|--------|
| Sources of cash:                             |   |       |      |
| Cash provided by operating activities        |   | 735,558    |      |
| Cash provided by financing activities        |   | 8,668,608  |      |
| Cash provided by payment of notes receivable |   | 1,000,000  |      |
|                                         |   |       |      |
| Total sources of cash including cash on hand |   | 11,138,727 |      |
|                                         |   |       |      |
| Uses of cash:                                |   |       |      |
| Cash used in investing activities:           |   |       |      |
| Oil and natural gas property expenditures    |   | (2,645,202 | )         |
| Furniture, fixtures and equipment            |   | (5,881     | )         |
| Total uses of cash                           |   | (2,651,083 | )         |
|                                         |   |       |      |
| Cash balance at September 30, 2007           |   | $          | 8,487,644 |   |

 

Our current cash and cashequivalents and anticipated cash flow from operations should be sufficient tomeet our working capital, capital expenditures and growth strategy requirementsfor the foreseeable future in 2007.  See “Outlookfor 2007” for a description of our expected capital expenditures for 2007. Ifwe are unable to generate revenues necessary to finance our operations over thelong-term, we may have to seek additional capital through the sale of ourequity or borrowing. As noted in “Recent Developments,” we periodically borrowfunds pursuant to short term promissory notes to finance our activities.

**Contractual Obligations**

                We have assumed various contractual obligations andcommitments in the normal course of our operations and financing activities. Wehave described these obligations and commitments in our “Management’sDiscussion and Analysis of Financial Condition and Results of Operations”section in our Annual Report on Form 10-K for the year ended December 31,2006. There were no material changes to our contractual obligations sinceDecember 31, 2006.

**Income Taxes**

                As of December 31, 2006, we had net operatingloss (NOL) carryforwards of approximately $22,932,000 for federal income taxpurposes beginning to expire in 2010 and $10,926,000 for state income taxpurposes which began to expire in 2006.

                A significant change in our ownership may limit ourability to use these NOL carryforwards. Statement of Financial AccountingStandards No. 109, Accounting for Income Taxes, requires that the taxbenefit of such net operating loss be recorded as an asset. At December 31,2006, we had net deferred tax assets of approximately $3.7 million relatedto the NOL and other temporary differences. We have recorded a full valuationallowance of $3.7 million at December 31, 2006, due to uncertaintiessurrounding the realizability of the deferred tax asset.

                Effective January1, 2007, we adopted the provisions of FASB interpretation No. 48, Accountingfor Uncertainty in Income Taxes, the detail of which is included in Note 8.

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**Off Balance Sheet Arrangements**

As of September 30, 2007, we hadno off balance sheet arrangements.

**Financial Instruments**

We have not committed any forwardsales of our natural gas and do not employ any other financial instruments.

**Outlook for 2007**

Depending on capitalavailability, we are forecasting capital spending of up to approximately$5.0 million during the remainder of 2007, allocated as follows:

1.                                       MadisonvilleProject, Madison County, Texas. Approximately $3.0 million will beexpended in the Madisonville Field area as follows: $2,000,000 toward thefracture stimulation and hook up costs of the Wilson Well, and $1,000,000 to beutilized for land acquisition, engineering and permitting.

2.                                       Central Alberta ReefProject. Up to approximately $2.0 million will be expended to drillexploratory wells.

We may, in our discretion, decideto allocate resources towards other projects in addition to or in lieu of,those listed above should other opportunities arise and as circumstanceswarrant.

We expect commodity prices to bevolatile, reflecting the current tight supply and demand fundamentals for NorthAmerican natural gas and world crude oil. Political events around the world,which are difficult to predict, will continue to influence both oil and gasprices. Higher prices for oil and gas often lead to higher levels of drillingactivity which in turn lead to higher costs to explore, develop and acquire oiland gas reserves due to greater competition for resources and supplies. Thesehigher costs could affect the returns on our capital expenditures. Higher crudeprices could also help keep natural gas prices high by keeping alternativefuels, such as heating oil and residual fuel, expensive.

**Impact of Inflation & ChangingPrices**

We arehighly dependent upon natural gas pricing. A material decrease in current and projected natural gas prices couldimpair our ability to raise additional capital on acceptable terms.  Likewise, a material decrease in current andprojected natural gas prices could also impact our revenues and cashflows.  This could impact our ability tofund future activities.

Changingprices have had a significant impact on costs of drilling and completing wells,particularly in the Madisonville Field area where we are currently the mostactive.  The impact is due to highercosts associated with tubular goods, well equipment, and day rates for drillingcontracts, among other factors.  Thesehigher costs have impacted and will continue to impact our income fromoperations in the form of higher depletion expense.

**Critical Accounting Estimates**

Our consolidated financialstatements have been prepared by management in accordance with U.S. GAAP. We refer you to the corresponding section in Part II, Item 7 andthe notes to the consolidated financial statements of our Annual Report on Form10-K for the year ended December 31, 2006 for a description of criticalaccounting policies and estimates.

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**Risks andUncertainties**

Thereare a number of risks that face participants in the U.S., Canadian andinternational oil and natural gas industry, including a number of risks thatface us in particular.  Accordingly,there are risks involved in an ownership of our securities.  See “Risk Factors” in our Annual Report onForm 10-K for the year ended December 31, 2006 for a description of theprincipal risks faced by us.

**Item 3. *Quantitative and Qualitative Disclosures About MarketRisk***

We are exposed to market risks arising fromfluctuating prices of crude oil, natural gas and interest rates as discussedbelow.

*CommodityRisk.*   Ourmajor commodity price risk exposure is to the prices received for our naturalgas production. Realized commodity prices received for our production are thespot prices applicable to natural gas in the East Texas region. Prices receivedfor natural gas are volatile and unpredictable and are beyond our control. Forthe nine months ended September 30, 2007, a 10% change in the prices receivedfor natural gas production would have had an approximate $700,000 impact on ourrevenues.

*CurrencyTranslation Risk.**  *Because our revenuesand expenses are primarily in U.S. dollars, we have little exposure tocurrency translation risk, and, therefore, we have no plans in the foreseeablefuture to implement hedges or financial instruments to manage international currencychanges.

*Hedging.* We didnot enter into any hedging transactions during the nine months ended September30, 2007 and the year ended December 31 2006.

**Item 4.**      **Controls and Procedures.**

***Evaluation of Disclosure Controls andProcedures***

Based on an evaluation carried out under thesupervision and with the participation of our management, including our ChiefExecutive Officer and Chief Financial Officer, as of the end of the periodcovered by this report, our Chief Executive Officer and Chief Financial Officerbelieve that our disclosure controls and procedures, as defined in SecuritiesExchange Act Rules 13a-15(e) and 15d-15(e), were, as of the end of the periodcovered by this report effective.

***Changes in Internal Control Over FinancialReporting***

There has been no change in our internal control overfinancial reporting during the nine months ended September 30, 2007 that hasmaterially affected, or is reasonably likely to materially affect, our internalcontrol over financial reporting.

**PART II.OTHER INFORMATION**

**Item 1.**      **Legal Proceedings.**

From time to time, we are party to litigation or otherlegal and administrative proceedings that we consider to be a part of theordinary course of our business. Currently, we are not involved in any legalproceedings nor are we party to any pending or threatened claims that could,individually or in the aggregate, reasonably be expected to have a materialadverse effect on our financial condition, cash flow or results of operations.

**Item 1A.**   **Risk Factors.**

As of the date of this filing, there have been nomaterial changes from the risk factors previously disclosed in our “RiskFactors” in our Annual Report on Form 10-K for the year ended December 31,2006, referred to as our 2006 Annual Report. An investment in our securities involvesvarious risks. When considering an investment in our company, you shouldconsider carefully all of the risk factors described in our 2006 Annual Report.These risks and uncertainties are not the only ones facing us and there may beadditional matters that we are unaware of or that we currently considerimmaterial. All of these could adversely affect our business, financialcondition, results of operations and cash flows and, thus, the value of aninvestment in our company.

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**Item 2.**      **UnregisteredSales of Securities****and****Use of Proceeds**

**UnregisteredSales of Securities**

On August 13, 2007, we completed a sale in a private placement transactionto certain institutional and individual accredited investors, of 2,002,599shares of our common stock, no par value per share and five-year warrants topurchase up to an aggregate of 600,779 shares of our common stock at anexercise price of $4.50 per share (“Investor Warrants”) for an aggregatepurchase price of $7,710,006.  We paid acash fee in the amount of $385,500 and granted a three-year warrant to purchaseup to 60,078 shares of our common stock at an exercise price of $3.85 per shareto the placement agent in connection with the transaction. The private placement was exempt fromthe registration requirements of the Securities Act pursuant toSection 4(2) of the Securities Act and Rule 506 of Regulation D. Theinvestors in the private placement were either accredited investors, as definedin Rule 501(a), or ones we reasonably believed to be. The purchase agreementsigned by the investors contained customary and appropriate representations andwarranties regarding the investor’s status as an accredited investor, and thatthe investor was acquiring the securities for its own account and not with aview to resale or distribution. It also contained questions further attestingto the investor’s status as an accredited investor. In addition, we did notaccomplish the offer or sale of the securities sold in the private placementthrough any manner of general solicitation or general advertising. Moreover, itwas disclosed to each investor prior to sale that, except as otherwise may beprovided in any registration rights granted to him or her, the securitiespurchased would not be registered under the Securities Act and could thereforenot be resold unless first registered under the Securities Act or an exemptionfrom registration was available. We placed a legend on each certificaterepresenting the securities sold stating that the securities have not beenregistered under the Securities Act and further setting forth customary andappropriate restrictions on the transferability of the securities. Finally, wemade available to each investor, prior to purchase, the opportunity to askquestions and receive answers concerning the terms and conditions of theprivate placement.

**Use of Proceeds**

Our registration statementon Form S-1 (Reg. No. 333-135485) registered up to 16,499,991 shares of ourcommon stock, no par value per share, including 5,825,498 shares of commonstock issuable upon exercise of warrants and options, for resale by sellingshareholders. The registration statement was declared effective by theSecurities and Exchange Commission on February 8, 2007. The offering commencedon February 8, 2007 and has not terminated. We will not receive any proceedsfrom the sale of our common stock by the selling shareholders under theregistration statement; however if all warrants and options to acquire ourcommon stock being registered thereunder are exercised, we will realize cashproceeds of approximately $13,206,117, which we expect to use for generalworking capital purposes and the drilling of wells in our Texas, Alaska,California, Canadian and Indonesian prospects.

If less than the $13,206,117proceeds are realized from the exercise of such warrants and options, theproceeds will be spent in the following order of priority:

1.    Alaska Cook Inlet Project, up to approximately $3.0 million willbe expended for geological and geophysical costs and/or drilling of a well.

2.    Madisonville Project, Madison County, Texas. Up to approximately$10 million will be expended in the Madisonville Field area towards thedrilling and completion of one deep exploratory well location to an estimateddepth of 18,000 feet.

3.    General working capital.

We do not know if, or howmany, of the warrants or options will be exercised. This is our best estimateof our use of proceeds generated from the possible exercise of warrants oroptions based on the current state of our business operations, our currentplans and current economic and industry conditions. Any changes in theprojected use of proceeds will be made at the sole discretion of our board ofdirectors.

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**Item 3.**      **Defaults Upon Senior Securities.**

Not applicable.

**Item 4.**      **Submission of Matters to a Vote of the SecurityHolders.**

Not applicable.

**Item 5.**      **Other Information.**

Not applicable.

**Item 6.**                    **Exhibits.**
| **Exhibit  Number** | ** ** | **Description**                                                                                                                                                                                                                                                          |
|---------------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   3.1**   |       | Amended and Restated Articles of Incorporation of  GeoPetro Resources Company                                                                                                                                                                                            |
|   3.2***  |       | Amended and Restated Bylaws of the GeoPetro  Resources Company                                                                                                                                                                                                           |
|   4.1**   |       | Form of Warrant issued by GeoPetro Resources  Company to various investors on various dates.                                                                                                                                                                        |
|   4.2**   |       | Specimen Common  Stock Certificate                                                                                                                                                                                                                                       |
|   4.3     |       | Form of common stock purchase warrant issued to  various investors dated August 13, 2007 (filed as exhibit 4.1 to the  Company’s Report on Form 8-K as filed with the Securities and Exchange  Commission on August 16, 2007, and incorporated herein by reference) |
| 10.1**              |       | Joint Venture Agreement Bengara II, Dated  January 1, 2000                                                                                                                                                                                                          |
| 10.2**              |       | Production Sharing Contract Bengara II, Dated  December 4, 1997                                                                                                                                                                                                     |
| 10.3**              |       | Joint Venture Agreement—Whicher Range, Dated  October 28, 1996                                                                                                                                                                                                 |
| 10.4**              |       | Exploration Permit #408, Dated July 2, 1997                                                                                                                                                                                                                         |
| 10.5**              |       | Madisonville Field Development Agreement Dated  August 1, 2005                                                                                                                                                                                                      |
| 10.6**              |       | Alaska Cook Inlet Option dated April 20, 2005                                                                                                                                                                                                                       |
| 10.7**†        |       | The 2001 Stock Incentive Plan                                                                                                                                                                                                                                            |
| 10.8**†        |       | The 2004 Stock Option and Appreciation Rights Plan                                                                                                                                                                                                                       |
| 10.9**†        |       | Stuart Doshi Employment Agreement, Dated  July 28, 1997 (effective July 1, 1997) and amendments dated January 11,  2001, July 1, 2003, April 20, 2004, May 9, 2005, July 28, 2005 and January  30, 2006                                                             |
| 10.10**†       |       | David Creel Employment Agreement, Dated April 28,  1998 and amendments dated  June 15, 2000, May 12, 2003 and  January 1, 2005                                                                                                                            |
| 10.11**†       |       | J. Chris Steinhauser Employment Agreement, Dated  June 19, 2000 and amendments datedDecember 12, 2002 and January 1,  2005                                                                                                                                |
| 10.12**             |       | Office Lease Agreement, Dated effective  March 1, 2004                                                                                                                                                                                                              |
| 10.13**             |       | Promissory Note to Pinehill Capital Inc., Dated  January 31, 2006                                                                                                                                                                                                   |
| 10.14**             |       | Form of Subscription Agreement for GeoPetro  Resources Company stock executed by various investors on various dates.                                                                                                                                                |
| 10.15**             |       | Promissory Note between GeoPetro Resources Company  and G. Carter Sednaoui, Dated June 7, 2006                                                                                                                                                                      |
| 10.16**             |       | Flow-Through Share Agreement between GeoPetro  Resources Company and GeoPetro Canada Ltd., Dated March 30, 2006                                                                                                                                                     |
| 10.17**             |       | Form of Flow-Through Share Agreement between  GeoPetro Resources Company and various investors, Dated March 30, 2006                                                                                                                                           |
| 10.18**             |       | Promissory Notes between GeoPetro Resources Company  and Stuart J. Doshi, various dates                                                                                                                                                                                  |
| 10.19**             |       | Shares Sale & Purchase Agreement Dated September  29, 2006                                                                                                                                                                                                           |
| 10.20****           |       | Form of Unit Subscription Agreement Dated August 13,  2007                                                                                                                                                                                                               |
| 10.22****           |       | Promissory Note to Stuart Doshi dated February 12,  2007                                                                                                                                                                                                                 |
| 21.1***             |       | List of Subsidiaries of GeoPetro                                                                                                                                                                                                                                         |
| 31.1*               |       | Rule 13a-14(a)/15d-14(a) Certification of Chief  Executive Officer.                                                                                                                                                                                                      |
| 31.2*               |       | Rule 13a-14(a)/15d-14(a) Certification of Chief  Financial Officer.                                                                                                                                                                                                      |
| 32.1*               |       | Certification of Chief Executive Officer and Chief  Financial Officer of GeoPetro Resources Company pursuant to 18 U.S.C. § 1350.                                                                                                                                   |

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*                Filed herewith

**                                       Filedas the identically numbered exhibit to the Registration Statement onForm S-1, as amended (No. 333-135485), as filed with the Securitiesand Exchange Commission on June 30, 2006, and incorporated herein by reference.

***                              Filedas the identically numbered exhibit to the Annual Report on Form 10K, as filedwith the Securities and Exchange Commission on April 2, 2007, and incorporatedherein by reference.

****                         Filed asthe identically numbered exhibit to the Registration Statement onForm S-1, as amended (No. 333-146557), as filed with the Securities andExchange Commission on October 9, 2007, and incorporated herein by reference.

†                              Indicatesa management contract or compensatory plan or arrangement.

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**SIGNATURES**

Pursuant to the requirements of the SecuritiesExchange Act of 1934, the registrant has duly caused this report to be signedon its behalf by the undersigned, thereunto duly authorized.
| **Signature**             | ** ** | **Title**                                                           | ** ** | **Date**          |
|---------------------------|------------|---------------------------------------------------------------------|------------|-------------------|
| ** **                | ** ** | ** **                                                          | ** ** | ** **        |
| /s/ Stuart J. Doshi       |       | Chairman of the Board, President                                    |       | November 14, 2007 |
| Stuart J. Doshi           |       | and Chief Executive Officer                                         |       |              |
|                      |       |                                                                |       |              |
| /s/ David V. Creel        |       | Vice President of Exploration and                                   |       | November 14, 2007 |
| David V. Creel            |       | Director                                                            |       |              |
|                      |       |                                                                |       |              |
| /s/ J. Chris  Steinhauser |       | Vice President of Finance and                                       |       | November 14, 2007 |
| J. Chris Steinhauser      |       | Chief Financial Officer, Principal  Accounting Officer and Director |       |              |

 

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