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**UNITED STATES**

**SECURITIES 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 13OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**

 

**For the quarterly period ended March 31, 2010**

 

**OR**

 

**o****         TRANSITION REPORT PURSUANT TO SECTION 13OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**

 

**For the transition periodfrom                to                **

 

**Commission file number 001-16749**

 

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**GeoPetro Resources Company**

(Exact name of registrant as specified in its charter)

 

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| **California**           | ** ** | **94-3214487**                       |
|--------------------------|------------|--------------------------------------|
| (State of incorporation) |       | (IRS Employer Identification Number) |

 
| **150 California Street Suite 600  San Francisco, CA** | ** ** | **94111**  |
|-------------------------------------------------------------|------------|------------|
| (Address of principal executive offices)                    |       | (Zip Code) |

 

**(415) 398-8186**

(Registrant’s telephone number, including area code)

 

Indicateby check mark whether the registrant: (1) has filed all reports requiredto be filed by Section 13 or 15(d) of the Securities Exchange Act of1934 during the preceding 12 months (or for such shorter period that theregistrant was required to file such reports), and (2) has been subject tosuch filing requirements for the past 90 days.  Yes x  No o.

 

Indicateby check mark whether the registrant has submitted electronically and posted onits corporate Web site, if any, every Interactive Data File required to besubmitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 ofthis chapter) during the preceding 12 months (or for such shorter period thatthe registrant was required to submit and post suchfiles).  Yes o  No o

 

Indicateby check mark whether the registrant is a large accelerated filer, anaccelerated filer, a non-accelerated filer, or a smaller reporting company. Seedefinitions of “large accelerated filer,” “accelerated filer,” and “smallerreporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

| Large accelerated filer o                |   | Accelerated filer o         |
|-----------------------------------------------|--------|----------------------------------|
|                                          |   |                             |
| Non-accelerated filer o                  |   | Smaller reporting company x |
| (Do not check if a smaller reporting company) |   |                             |

 

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

 

Therewere 34,284,646 shares of no par value common stock outstanding on April 30,2010.

 

 

 

 

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Tableof Contents

 

**TABLE OF CONTENTS**

 
| ** **                                                                                               | **PAGE**   |
|----------------------------------------------------------------------------------------------------------|------------|
| ** **                                                                                               | ** ** |
| **PART I.  FINANCIAL INFORMATION**                                                                  |       |
| Item 1. Financial Statements                                                                        | 3          |
| Item 2. Management’s Discussion and Analysis of  Financial Condition and Results of Operations | 11         |
| Item 3. Quantitative and Qualitative Disclosures  about Market Risk                                 | 16         |
| Item 4.  Controls and Procedures                                                                    | 16         |
| **PART II.  OTHER INFORMATION**                                                                     |       |
| Item 1.  Legal Proceedings                                                                          | 17         |
| Item 1A. Risk Factors                                                                               | 17         |
| Item 2. Unregistered Sales of Securities and Use of  Proceeds                                            | 17         |
| Item 3. Defaults Upon Senior Securities                                                             | 17         |
| Item 4. Submission of Matters to a Vote of  Security Holders                                        | 17         |
| Item 5.  Other Information                                                                          | 17         |
| Item 6. Exhibits                                                                                    | 18         |
| **SIGNATURES**                                                                                           | 19         |

 

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**PART I.FINANCIAL INFORMATION**

 

**Item 1.   Financial Statements.**

 

**GEOPETRO RESOURCES COMPANY**

 

**UNAUDITED CONSOLIDATED BALANCE SHEETS**

 
| ** **                                                                                                                                                                                                                                                                                  | ** ** | **March 31,****2010** | ** ** | **December 31,****2009** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------------------------|------------|-------------------------------|------------|
| **ASSETS**                                                                                                                                                                                                                                                                                  |       |                       |       |                          |       |
| **Current Assets**                                                                                                                                                                                                                                                                          |       |                       |       |                          |       |
| Cash and cash equivalents                                                                                                                                                                                                                                                                   |       | $                          | 1,194,129  |                          | $          | 2,429,891 |   |
| Trade accounts receivable—natural gas sales                                                                                                                                                                                                                                            |       | 288,109                    |       | 473,944                       |       |
| Accounts receivable—other                                                                                                                                                                                                                                                              |       | 1,139,877                  |       | 8,658                         |       |
| Prepaid expenses                                                                                                                                                                                                                                                                            |       | 159,444                    |       | 132,238                       |       |
| Total Current Assets                                                                                                                                                                                                                                                                        |       | 2,781,559                  |       | 3,044,731                     |       |
|                                                                                                                                                                                                                                                                                        |       |                       |       |                          |       |
| **Oil and Gas Properties, at cost  (full cost method)**                                                                                                                                                                                                                                     |       |                       |       |                          |       |
| Unproved properties                                                                                                                                                                                                                                                                         |       | 7,421,318                  |       | 8,411,773                     |       |
| Proved properties                                                                                                                                                                                                                                                                           |       | 51,206,654                 |       | 51,194,852                    |       |
| Gas processing plant, at cost                                                                                                                                                                                                                                                               |       | 10,285,573                 |       | 10,285,573                    |       |
| Less—accumulated depletion, depreciation, and  impairment                                                                                                                                                                                                                              |       | (39,158,915                | )          | (38,950,914                   | )          |
| Net Oil and Gas Properties                                                                                                                                                                                                                                                                  |       | 29,754,630                 |       | 30,941,284                    |       |
|                                                                                                                                                                                                                                                                                        |       |                       |       |                          |       |
| **Furniture, fixtures and  equipment, at cost, net of depreciation**                                                                                                                                                                                                                        |       | 14,122                     |       | 2,071                         |       |
| **Other assets**                                                                                                                                                                                                                                                                            |       | 51,069                     |       | 16,127                        |       |
| **Total Assets**                                                                                                                                                                                                                                                                            |       | $                          | 32,601,380 |                          | $          | 34,004,213 |   |
|                                                                                                                                                                                                                                                                                        |       |                       |       |                          |       |
| **LIABILITIES  AND SHAREHOLDERS’ EQUITY**                                                                                                                                                                                                                                              |       |                       |       |                          |       |
|                                                                                                                                                                                                                                                                                        |       |                       |       |                          |       |
| **Current Liabilities**                                                                                                                                                                                                                                                                     |       |                       |       |                          |       |
| Trade payables                                                                                                                                                                                                                                                                              |       | $                          | 1,023,238  |                          | $          | 950,097 |   |
| Current portion of long term notes payable                                                                                                                                                                                                                                                  |       | 1,573,027                  |       | 1,549,829                     |       |
| Interest payable                                                                                                                                                                                                                                                                            |       | 174,079                    |       | 136,233                       |       |
| Dividends payable                                                                                                                                                                                                                                                                           |       | 111,299                    |       | 110,462                       |       |
| Production taxes payable                                                                                                                                                                                                                                                                    |       | 79,904                     |       | 309,904                       |       |
| Other taxes payable                                                                                                                                                                                                                                                                         |       | 5,815                      |       | 11,147                        |       |
| Royalty owners payable                                                                                                                                                                                                                                                                      |       | 1,185,198                  |       | 1,151,284                     |       |
| Total Current Liabilities                                                                                                                                                                                                                                                                   |       | 4,152,560                  |       | 4,218,956                     |       |
|                                                                                                                                                                                                                                                                                        |       |                       |       |                          |       |
| **Long Term Notes Payable**                                                                                                                                                                                                                                                                 |       | 5,842,520                  |       | 5,986,645                     |       |
| **Asset Retirement Obligations**                                                                                                                                                                                                                                                            |       | 66,576                     |       | 65,009                        |       |
| **Total Liabilities**                                                                                                                                                                                                                                                                       |       | 10,061,656                 |       | 10,270,610                    |       |
|                                                                                                                                                                                                                                                                                        |       |                       |       |                          |       |
| **Shareholders’ Equity**                                                                                                                                                                                                                                                               |       |                       |       |                          |       |
| Series B preferred stock, no par value;  7,523,000 shares authorized 7,523,000 shares issued and outstanding at  March 31, 2010 and December 31, 2009, respectively. Liquidation  preference of $5,642,250 at March 31, 2010 and December 31, 2009,  respectively. |       | 5,448,602                  |       | 5,448,602                     |       |
| Common stock, no par value; 100,000,000 shares  authorized; 34,284,646 shares issued and outstanding at March 31,  2010 and December 31, 2009, respectively                                                                                                                  |       | 53,397,733                 |       | 53,397,733                    |       |
| Additional paid-in capital                                                                                                                                                                                                                                                                  |       | 3,162,476                  |       | 3,060,187                     |       |
| Accumulated (deficit)                                                                                                                                                                                                                                                                       |       | (39,469,087                | )          | (38,172,919                   | )          |
| Total shareholders’ equity                                                                                                                                                                                                                                                             |       | 22,539,724                 |       | 23,733,603                    |       |
|                                                                                                                                                                                                                                                                                        |       |                       |       |                          |       |
| **Total Liabilities and  Shareholders’ Equity**                                                                                                                                                                                                                                        |       | $                          | 32,601,380 |                          | $          | 34,004,213 |   |

 

***See accompanying notes to theseunaudited consolidated financial statements.***

 

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**GEOPETRO RESOURCES COMPANY**

 

**UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS**

 
| ** **                                                                  | ** ** | **Three Months Ended March 31,** | ** ** |
|-----------------------------------------------------------------------------|------------|------------------------------------------------------|------------|
| ** **                                                                  | ** ** | **2010**                                             | ** ** | **2009** | ** ** |
|                                                                        |       |                                                 |       |   |   |
| **Revenues**                                                                |       |                                                 |       |   |   |
| Natural gas sales                                                           |       | $                                                    | 1,195,573  |   | $ | 876,068 |   |
|                                                                        |       |                                                 |       |   |   |
| **Costs and expenses**                                                      |       |                                                 |       |   |   |
| Plant operating                                                             |       | 1,140,114                                            |       | 1,044,772 |   |
| Lease operating                                                             |       | 124,305                                              |       | 300,879 |   |
| General and administrative                                                  |       | 734,180                                              |       | 848,938 |   |
| Depreciation and depletion                                                  |       | 208,693                                              |       | 310,086 |   |
| Total costs and expenses                                                    |       | 2,207,292                                            |       | 2,504,675 |   |
|                                                                        |       |                                                 |       |   |   |
| **Loss from operations**                                                    |       | (1,011,719                                           | )          | (1,628,607 | ) |
|                                                                        |       |                                                 |       |   |   |
| **Other Income and (Expenses)**                                             |       |                                                 |       |   |   |
|                                                                        |       |                                                 |       |   |   |
| Interest expense                                                            |       | (174,019                                             | )          | (232,439 | ) |
| Interest income                                                             |       | 869                                                  |       | 3,643 |   |
| Total other expense                                                         |       | (173,150                                             | )          | (228,796 | ) |
|                                                                        |       |                                                 |       |   |   |
| **Net Loss**                                                                |       | (1,184,869                                           | )          | (1,857,403 | ) |
|                                                                        |       |                                                 |       |   |   |
| Preferred stock dividend                                                    |       | (111,299                                             | )          | — |   |
|                                                                        |       |                                                 |       |   |   |
| **Net Loss Applicable to Common  Shareholders**                             |       | $                                                    | (1,296,168 | ) | $ | (1,857,403 | ) |
|                                                                        |       |                                                 |       |   |   |
| **Net loss per common share basic  and diluted**                            |       | $                                                    | (0.04      | ) | $ | (0.05 | ) |
|                                                                        |       |                                                 |       |   |   |
| **Weighted average number of  common shares outstanding basic and diluted** |       | 34,284,646                                           |       | 34,284,646 |   |

 

***See accompanying notes to theseunaudited consolidated financial statements.***

 

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**GEOPETRO RESOURCES COMPANY**

 

**UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS**

 
| ** **                                                                     | ** ** | **For the Three Months Ended** | ** ** |
|--------------------------------------------------------------------------------|------------|----------------------------------------------------|------------|
| ** **                                                                     | ** ** | **March 31,  2010**                           | ** ** | **March 31,  2009** | ** ** |
| **Cash Flows From Operating  Activities**                                      |       |                                               |       |   |   |
|                                                                           |       |                                               |       |   |   |
| Net loss                                                                       |       | $                                                  | (1,184,869 | ) | $ | (1,857,403 | ) |
| *Adjustments to reconcile net  loss to net cash used in operating activities:* |       |                                               |       |   |   |
| Depreciation and depletion                                                     |       | 208,693                                            |       | 310,086 |   |
| Share-based compensation expense                                               |       | 102,289                                            |       | 104,798 |   |
| Non-cash interest expense                                                      |       | 29,073                                             |       | 10,730 |   |
| Accretion of discount on asset retirement  obligations                         |       | 1,254                                              |       | 1,140 |   |
| *Changes in operating assets and  liabilities*:                                |       |                                               |       |   |   |
| Accounts receivable - natural gas sales                                        |       | 185,835                                            |       | (232,208 | ) |
| Other assets                                                                   |       | (63,910                                            | )          | 50,229 |   |
| Current liabilities                                                            |       | (185,527                                           | )          | 928,185 |   |
| Net cash used in operating activities                                          |       | (907,162                                           | )          | (684,443 | ) |
|                                                                           |       |                                               |       |   |   |
| **Cash Flows From Investing Activities**                                       |       |                                               |       |   |   |
|                                                                           |       |                                               |       |   |   |
| Additions to oil and gas properties                                            |       | (55,395                                            | )          | (482,021 | ) |
| Additions to gas treatment plant                                               |       | —                                             |       | (33,700 | ) |
| Acquisition of furniture, fixtures &  equipment                       |       | (12,743                                            | )          | — |   |
| Net cash used in investing activities                                          |       | (68,138                                            | )          | (515,721 | ) |
|                                                                           |       |                                               |       |   |   |
| **Cash Flows From Financing  Activities**                                      |       |                                               |       |   |   |
|                                                                           |       |                                               |       |   |   |
| Proceeds from promissory notes                                                 |       | —                                             |       | 850,000 |   |
| Repayments of notes payable                                                    |       | (150,000                                           | )          | (150,000 | ) |
| Payments of preferred stock dividend                                           |       | (110,462                                           | )          | — |   |
| Net cash (used in) provided by financing  activities                           |       | (260,462                                           | )          | 700,000 |   |
|                                                                           |       |                                               |       |   |   |
| **Net Decrease in Cash and Cash  Equivalents**                                 |       | (1,235,762                                         | )          | (500,164 | ) |
|                                                                           |       |                                               |       |   |   |
| **Cash and Cash Equivalents**                                                  |       |                                               |       |   |   |
| Beginning of period                                                            |       | 2,429,891                                          |       | 770,779 |   |
| End of period                                                                  |       | $                                                  | 1,194,129  |   | $ | 270,615 |   |
|                                                                           |       |                                               |       |   |   |
| **Supplemental Disclosure of Cash  Flow Information**                          |       |                                               |       |   |   |
| Cash paid for interest                                                         |       | $                                                  | 86,554     |   | $ | 130,923 |   |

 

***See accompanying notes to theseunaudited consolidated financial statements.***

 

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**GEOPETRORESOURCES COMPANY**

 

**UNAUDITEDSTATEMENT OF SHAREHOLDERS’ EQUITY**

 
| ** **                                  | ** ** | **Preferred Stock  Series B** | ** ** | **Common Stock** | ** ** | **Additional Paid-in** | ** ** | **Accumulated** | ** ** | **Total  Shareholders’** | ** ** |
|---------------------------------------------|------------|-----------------------------------------|------------|-----------------------|------------|-----------------------------|------------|-----------------|------------|-------------------------------|------------|
| ** **                                  | ** ** | **Shares**                              | ** ** | **Amount**            | ** ** | **Shares**                  | ** ** | **Amount**      | ** ** | **Capital**                   | ** ** | **Deficit** | ** ** | **Equity** | ** ** |
| Balances,  January 1, 2010             |       | 7,523,000                               |       | $                     | 5,448,602  |                        | 34,284,646 |            | $          | 53,397,733                    |       | $ | 3,060,187 |   | $ | (38,172,919 | ) | $ | 23,733,603 |   |
|                                        |       |                                    |       |                  |       |                        |       |            |       |                          |       |   |   |   |   |
| Share  based compensation expense           |       | —                                  |       | —                |       | —                      |       | —          |       | 102,289                       |       | — |   | 102,289 |   |
| Net  loss                                   |       | —                                  |       | —                |       | —                      |       | —          |       | —                        |       | (1,184,869 | ) | (1,184,869 | ) |
| Dividends  on Series B Preferred Stock |       |                                    |       |                  |       |                        |       |            |       |                          |       | (111,299 | ) | (111,299 | ) |
|                                        |       |                                    |       |                  |       |                        |       |            |       |                          |       |   |   |   |   |
| Balances,  March 31, 2010              |       | 7,523,000                               |       | $                     | 5,448,602  |                        | 34,284,646 |            | $          | 53,397,733                    |       | $ | 3,162,476 |   | $ | (39,469,087 | ) | $ | 22,539,724 |   |

 

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**GEOPETRO RESOURCES COMPANY**

 

**NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**

 

**1.     BASIS OFPRESENTATION AND USE OF ESTIMATES**

 

Theinterim consolidated financial statements of GeoPetro Resources Company (“we,”“us,” “our,” “GeoPetro” or the “Company”) are unaudited and contain alladjustments (consisting primarily of normal recurring accruals) necessary for afair statement of the results for the interim periods presented. Results forinterim periods are not necessarily indicative of results to be expected for afull year or for previously reported periods due in part, but not limited to,the volatility in crude oil and natural gas commodity prices, interest rates,estimates of reserves, drilling risks, geological risks, transportationrestrictions, the timing of acquisitions, product demand, market competition,interruption in production and our ability to obtain additional capital. Youshould read these consolidated interim financial statements in conjunction withthe audited consolidated financial statements and notes thereto included inGeoPetro’s Annual Report on Form 10-K for the year ended December 31,2009.

 

Theaccompanying financial statements have been prepared in accordance withaccounting principles generally accepted in the United States of America(“GAAP”) and include the accounts of GeoPetro and its wholly-ownedsubsidiaries. Intercompany accounts and transactions are eliminated. Inpreparing the accompanying financial statements, management has made certainestimates and assumptions that affect reported amounts in the financialstatements. Actual results may differ from those estimates. Significantassumptions are required in the valuation of proved oil and natural gasreserves, which may affect the amount at which oil and natural gas propertiesare recorded. The computation of share-based compensation expense requiresassumptions such as volatility, expected life and the risk-free interest rate.It is at least reasonably possible these estimates could be revised in the nearterm, and these revisions could be material.

 

**2.    LIQUIDITY**

 

Asof March 31, 2010, we have a working capital deficit of $1,371,001, andfor the three months ended March 31, 2010, our cash used in operatingactivities amounted to $907,162.  We estimate our minimum investment needsduring 2010 amount to $3,528,000 related to our natural gas processing plantand our natural gas properties within the Madisonville field and our Californiaproperties.   Our results of natural gas operations amounted to a deficitof $1,011,719 for the three months ended March 31, 2010.  Further, wehave debt service and dividend requirements that will require cashpayments.  We hold working interests in undeveloped leases, seismicoptions, lease options and foreign concessions and we have participated inseismic surveys and the drilling of test wells on undeveloped properties. We plan further leasehold acquisitions and seismic operations for the remainderof 2010 and future periods.  Exploratory and developmental drilling isscheduled during 2010 and future periods on our undeveloped properties.  We will need to raise additional equity orenter into new borrowing arrangements to finance our operating deficit and ourcontinued participation in planned activities. If additional financing is notavailable, we will be compelled to reduce the scope of our businessactivities.  During the three months ended March 31, 2010 we sold our100% working interest in approximately 123,000 acres onshore in the Cook Inletregion of Alaska (Note 5). If we are unable to fund our operating cash flowneeds and planned capital investments, it will be necessary to farm-out ourinterest in proposed wells, sell a portion of our interest in prospects, sell aportion of our interest in our producing oil and gas properties, reduce generaland administrative expenses, or a combination of all of these factors.

 

**3.     RECENTLYISSUED ACCOUNTING PRONOUNCEMENTS**

 

InJanuary 2010, the Financial Accounting Standards Board issued amendmentsto Fair Value Measurements and Disclosures under ASC Topic 820. Effective forour 2010 financial statements, this guidance provides for disclosures ofsignificant transfers in and out of Levels 1 and 2. In addition, theguidance clarifies existing disclosure requirements regarding inputs andvaluation techniques as well as the appropriate level of disaggregation forfair value measurements and disclosures. Effective for our 2011 financialstatements, this guidance provides for disclosures of activity on a gross basiswithin Level 3 reconciliation.

 

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**4.     LOSS PERCOMMON SHARE**

 

Basicnet loss per common share is computed by dividing the net loss attributable tocommon shareholders by the weighted average number of shares of common stockoutstanding during the period.

 

Dilutednet loss per common share is computed in the same manner, but also considersthe effect of common stock shares underlying the following:

 
| ** **                                 | ** ** | **For the three months ended** | ** ** |
|--------------------------------------------|------------|--------------------------------|------------|
| ** **                                 | ** ** | **March 31,  2010**       | ** ** | **March 31,  2009** | ** ** |
| Stock options                              |       | 2,710,000                      |       | 2,735,000 |   |
| Warrants                                   |       | 1,519,047                      |       | 1,237,357 |   |
| Convertible Preferred Stock, Series B |       | 7,523,000                      |       | — |   |

 

Allof the common shares underlying the stock options, warrants and convertiblepreferred stock, Series B above were excluded from diluted weightedaverage shares outstanding for the three months ended March 31, 2010 and March 31,2009 because their effects were antidilutive.

 

**5.****     OIL AND GAS PROPERTIES**

 

OnFebruary 26, 2010, we sold our 100% working interest in approximately123,000 acres onshore in the Cook Inlet region of Alaska  (“the Alaskan leases”). The leaseholdposition consisted of two separate target areas, the Point MacKenzie Prospectand the Trading Bay Prospect, which have been selected for oil and gasexploration. The Point MacKenzie Prospect is located twelve miles northwest ofAnchorage. The Trading Bay Prospect is located fifty miles west of Anchorageacross the Cook Inlet.

 

Inexchange for our 100% working interest in our Alaskan leases we received thefollowing consideration:

 

Acash payment of $1.0 million to be held in an escrow account and released to usupon approval of the assignment of the Alaskan leases to the purchaser. Thisamount has been record as in “other” accounts receivable on our March 31,2010 unaudited consolidated balance sheet.

 

A$4.0 million payment from the first 75% of 8/8ths of the proceeds from any oiland gas production from the Alaskan leases.

 

Subsequentto our receipt of the $4.0 million payment, we will thereafter receive anoverriding royalty interest of 10% of 8/8ths in and to the Alaskan leasesissued by the State of Alaska and the Alaska Mental Health Trust (whichcomprise over 99% of the Alaskan leases), and an overriding royalty interest of7% of 8/8ths in and to the Alaskan leases issued by Cook Inlet Region, Inc.,comprised of conventional oil and gas production and coal bed methaneproduction.

 

Thepurchaser has agreed to pay all of the costs of maintaining the Alaskan leasesat least through the end of the primary terms thereof.

 

Followingthe approval of the assignments of the Alaskan leases the purchaser will diligentlycommence and prosecute the drilling of the Frontier Spirit #1 exploration wellto evaluate a conventional oil and gas prospect identified and developed by us.

 

Amounts recorded pursuant to this transaction had been previously classified asunevaluated costs on our December 31, 2009 balance sheet.

 

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**6.     DEBT**

 

As of March 31, 2010 and December 31, 2009debt consisted of the following:

 
| ** **                               | ** ** | **March 31,  2010** | ** ** | **December 31,  2009** | ** ** |
|------------------------------------------|------------|--------------------------|------------|-----------------------------|------------|
| ***Long Term Portion***                  |       |                     |       |                        |       |
| Promissory notes                         |       | $                        | 1,715,000  |                        | $          | 1,715,000 |   |
| Bank of Oklahoma loan                    |       | 4,222,847                |       | 4,372,847                   |       |
| Less discount on promissory notes        |       | (95,327                  | )          | (101,202                    | )          |
| ***Net long term notes payable***        |       | 5,842,520                |       | 5,986,645                   |       |
| *** ***                             |       |                     |       |                        |       |
| ***Current Portion***                    |       |                     |       |                        |       |
| Promissory notes                         |       | 1,000,000                |       | 1,000,000                   |       |
| Bank of Oklahoma loan                    |       | 600,000                  |       | 600,000                     |       |
| Less discount on promissory notes        |       | (26,973                  | )          | (50,171                     | )          |
| ***Net current portion notes  payable*** |       | 1,573,027                |       | 1,549,829                   |       |
| **Total**                                |       | $                        | 7,415,547  |                        | $          | 7,536,474 |   |

 

OnMarch 25, 2010 the Bank of Oklahoma, “BOK” waived compliance of a minimumtangible net worth requirement related to our $6,697,847 three year Term LoanAgreement.  The terms of the three yearloan provide for minimum quarterly principal payments of $150,000 and interestpayable quarterly in arrears at prime plus 4% or LIBOR plus 5.5% at the optionof the Company. At March 31, 2010, the interest rate was approximately5.749% (LIBOR + 5.5%). The Term Loan Agreement contains customary affirmativeand negative covenants including restrictions on incurring additional debt andminimum tangible net worth requirements. On March 25, 2010, BOK waived compliance of the minimum tangiblenet worth covenant and lowered the minimum requirement from $35 million to $18million.

 

**7.**     **INCOME TAXES**

 

Theeffective income tax rates for the three month periods ended March 31,2010  were negligible,  primarily due to adjustments to the valuationallowance on deferred tax assets.

 

**8.**     **COMMON STOCK OPTIONS**

 

Therewere no material changes to common stock options from those disclosed in theaudited annual consolidated financial statements for the year ended December 31,2009.

 

**9.**     **COMMON STOCK WARRANTS**

 

Therewere no material changes to common stock warrants from those disclosed in theaudited annual consolidated financial statements for the year ended December 31,2009.

 

**10.**  **COMMITMENTS AND CONTINGENCIES**

 

***Office Lease -*** On February 15, 2010,we entered into a new lease for our principal executive office.  The termsof the lease provide for an eighty-four (84) month term. Minimum annual rentalsdue under this agreement are as follows:

 
| 2010       |   | 95,223  |      |
|------------|--------|---------|-----------|
| 2011       |   | 145,635 |      |
| 2012       |   | 149,836 |      |
| 2013       |   | 154,037 |      |
| 2014       |   | 158,238 |      |
| Thereafter |   | 385,092 |      |
| Total      |   | $       | 1,088,061 |   |
|            |        |         |           |  |

 

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Thelease provides that rent for the first five months of the lease term totaling$59,514 shall be abated provided we are not in default during the term of thelease.

 

***Employment Agreements*** — On March 31,2010 Chief Financial Officer, J. Chris Steinhauser with whom we had enteredinto an employment contract dated April 27, 2009, resigned from hispositions as the Chief Financial Officer, Vice President of Finance andSecretary of the Company.

 

**11.  SUBSEQUENT EVENTS**

 

Wehave evaluated all activity of the Company and concluded that no subsequentevents have occurred that would require recognition in the consolidatedfinancial statements or disclosure in the notes to the consolidated financialstatements, except as disclosed below:

 

OnApril 26, 2010 we extended our Vice President of Exploration, David V.Creel’s employment agreement through December 31, 2010; all otherprovisions per the terms of the original employment agreement remain unchanged.

 

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**Item 2. Management’s Discussion and Analysis ofFinancial Condition and Results of Operations**

 

*The following discussion and analysis should be read inconjunction with accompanying financial statements and related notes includedelsewhere in this report. It contains forward looking statements that reflectour future plans, estimates, beliefs and expected performance. The forwardlooking statements are dependent upon events, risks and uncertainties that maybe outside our control. Our actual results could differ materially from thosediscussed in these forward looking statements.*

 

*Factors that could cause or contribute to such differencesinclude, but are not limited to, market prices for natural gas and oil,economic and competitive conditions, regulatory changes, estimates of provedreserves, potential failure to achieve production from development drillingprojects, capital expenditures and other uncertainties, as well as thosefactors discussed below and elsewhere in this report, particularly in “RiskFactors”, all of which are difficult to predict and which expressly qualify allsubsequent oral and written forward-looking statements attributable to us orpersons acting on our behalf. In light of these risks, uncertainties andassumptions, the forward looking events discussed may not occur. We do not haveany intention or obligation to update forward-looking statements included inthis report after the date of this report, except as required by law.*

 

**Overview**

 

Weare an oil and gas company in the business of exploring and developing oil andnatural gas reserves on a worldwide basis. Since inception, we have conductedleasehold acquisition, exploration and drilling activities on our NorthAmerican, Australian and Indonesian prospects. These projects currently encompassapproximately 254,456 gross (40,540 net) acres, consisting of mineral leases,production sharing contracts and exploration permits that give us the right toexplore for, develop and produce oil and natural gas. Most 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.

 

Since2003, substantially all of our revenue has been generated from natural gassales derived from the Magness #1, the Fannin #1, and the Mitchell #1 wells inthe Madisonville Field in East Texas under spot gas purchase contracts atmarket prices. Natural gas sales from the Madisonville Field are expected toaccount for substantially all of our revenues for the remainder of 2010. Weexpect the majority of our capital expenditures for the remainder of 2010 andin 2011 will be for the Madisonville Project and gas processing plant.

 

**Results of Operations**

 

Thefinancial information with respect to the three months ended March 31,2010 and 2009 as discussed below is unaudited. In the opinion of management,such information contains all adjustments consisting only of normal recurringaccruals, necessary for a fair presentation of the results for suchperiods.  The results of operations for interim periods are notnecessarily indicative of the results of operations for the full fiscal years.

 
| ** **                                          | ** ** | **Three Months Ended**   | ** ** |
|-----------------------------------------------------|------------|--------------------------|------------|
| ** **                                          | ** ** | **March 31,  2010** | ** ** | **March 31,  2009** | ** ** |
| ** **                                          | ** ** | **(unaudited)**          | ** ** | **(unaudited)** | ** ** |
| **Consolidated Statement of  Operations:**          |       |                     |       |   |   |
| **Revenues**                                        |       | $                        | 1,195,573  |   | $ | 876,068 |   |
| **Plant operating**                                 |       | 1,140,114                |       | 1,044,772 |   |
| **Lease operating**                                 |       | 124,305                  |       | 300,879 |   |
| **General and administrative**                      |       | 734,180                  |       | 848,938 |   |
| **Depreciation and depletion**                      |       | 208,693                  |       | 310,086 |   |
| **(Loss) from operations**                          |       | (1,011,719               | )          | (1,628,607 | ) |
| **Net (loss)**                                      |       | (1,184,869               | )          | (1,857,403 | ) |
| **Net (loss) attributable to common  shareholders** |       | $                        | (1,296,168 | ) | $ | (1,857,403 | ) |

 

**Revenue and Operating Trends in 2010**

 

Wehave developed an onsite plan to treat and remove impurities from theMadisonville Project natural gas in order to meet pipeline-quality specifications.The Madisonville Project is located in East Texas. In 2003, the constructionand installation of a natural gas treatment plant with a designed capacity of18 million cubic feet of gas per day (“MMcf/d”) and associated pipeline andgathering facilities were completed. The treatment plant and associatedgathering facilities were owned by an unaffiliated third party.

 

In2005 we secured a commitment from the Madisonville Gas Plant (“MGP”) to installand make operational additional treating facilities capable of treating 50MMcf/d, which combined with the capacity of the current in-service treatingfacilities will represent a total designed treating capacity of 68 MMcf/d forthe Madisonville treatment plant.   In early November 2007, MGPbegan testing the additional treatment facilities by accepting 20 MMcf/d at theinlet.   Subsequently in December 2007, MGP suspended theoperations of the additional treatment facilities in order to makemodifications to more effectively deal with the presence of diamondoids in thegas stream produced from the Rodessa Formation.

 

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During2008, MGP analyzed various options for removing the diamondoids; however, theydid not complete the necessary plant system modifications.  On December 31,2008, we purchased the gas treatment plant (the “Plant”) and related gatheringpipeline from MGP in exchange for assumption of secured debt, payment ofcertain outstanding payables of MGP and shares of GeoPetro’s commonstock.  The effective date of the acquisition was December 31, 2008and the new owner of the Plant is GeoPetro’s wholly-owned, indirect subsidiary,Madisonville Midstream LLC (“MM”).  We expect to complete installation ofthe system modifications required in the new plant in 2010.  In themeantime, the existing, in service portion of the plant continues to operatewith a design capacity of approximately 18 MMcf/d of inlet gas.

 

Whilethere can be no assurance,  our goal isto make the necessary upgrades to the plant and increase the production ratesfrom our wells which may result in higher net production and increased revenueduring the remainder of 2010 as compared to 2009 and prior periods. Toaccomplish the plant upgrades, we will need to raise capital in 2010. Due tothe unsettled state of the capital markets, funds may not be available, or maynot be available on favorable terms.

 

Duringthe three months ended March 31, 2010, we did not generate sufficientrevenues to cover the plant operating expenses and lease operating expenses inour Madisonville Project.  This was due to low production volumes, highshrinkage rates in the gas plant and low natural gas prices. Subject to capitalavailability, we plan to workover the Mitchell #1 well and to frac and connectvia gathering line the Wilson #1 well. Once the above production enhancementsare completed, the Company expects the combined Rodessa formation production toincrease from current rates.  The Company hopes to realize bothintermediate and long term cost and operating efficiencies by consolidating theupstream and midstream portions of Madisonville under common ownership. Despitethe challenges of the current environment, we accomplished the necessary goalof vertically integrating our position in the Madisonville field.  Wecontinue to explore other longer term cost saving and efficiency measures inthe plant.

 

**Industry Overview for the three months ended March 31,2010**

 

Naturalgas prices have been very volatile during 2010 and 2009 due to supply concernsearlier in 2009, and more recently due to recession concerns arising from thecurrent global financial crisis and a resultant decline in demand for naturalgas.

 

**Company Overview for the three months ended March 31,2010**

 

Ournet loss for the three months ended March 31, 2010 was $1,296,168. Fromour inception, through mid-2003, we only received nominal revenues from our oiland natural gas activities, while incurring substantial acquisition andexploration costs and overhead expenses which have resulted in an accumulateddeficit through March 31, 2010 of $39,469,087.  All of our natural gas sales for three monthsended March 31, 2010 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“Mitchell Well”).

 

**Comparison of Results of Operations for the three monthsended March 31, 2010 and 2009**

 

Duringthe three months ended March 31, 2010, we had gross natural gas revenuesfrom the treatment plant of $1,195,573. During this period, our grossproduction from our wells was 242,348 Mcf and our average natural gas pricerealized was $4.93 per Mcf. During the three months ended March 31, 2009,we had net oil and natural gas revenues of $876,068. Our gross production forthe three months ended March 31, 2009 was 253,590 Mcf and our averagenatural gas price realized was $3.45 per Mcf. Revenues increased in the threemonths ended March 31, 2010 as compared to the prior year period due tohigher natural gas prices offset by 4% lower production volumes. Natural gasprices were approximately 43% higher for the three months ended March 31,2010 versus the same period in 2009.

 

Duringthe three months ended March 31, 2010, we incurred plant operatingexpenses of $1,140,114. Our average plant operating cost for the 2010 periodwas $4.70 per Mcf. During the three months ended March 31, 2009, the plantoperating expense was $1,044,772. The average plant operating cost for the 2009period was $4.12 per Mcf.  The higheraverage plant operating cost per Mcf in 2010 was mainly attributable to higherelectricity use at the plant.

 

Duringthe three months ended March 31, 2010, we incurred lease operating expenseof $124,305. Our net average lifting cost for the 2010 period was $0.51 perMcf. During the three months ended March 31, 2009, we incurred leaseoperating expense of $300,879. Our net average lifting cost for the 2009 periodwas $1.19 per Mcf. The average lifting cost per Mcf in 2010 was lower due tocost cutting efforts and a reduction of ad valorem property taxes applicable tothe wells.

 

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Generaland administrative (“G&A”) expenses for the three months ended March 31,2010 were $734,180 compared to $848,938 for the three months ended March 31,2009. This represents a ($114,758) or (14%) decrease over the prior period. Thelower G&A expense incurred in 2010 was due primarily to the reduced costsassociated with 2009 annual report.

 

Depreciation,depletion and amortization expense (“DD&A”) for the three months ended March 31,2010 was $208,693 as compared to $310,086 in the corresponding 2009 period.These amounts primarily represent amortization of the oil and gas properties.The (33%) decrease was attributable primarily to lower depletion expenseresulting from the lower value of oil and gas properties and as a result ofceiling test write-offs in the US cost pool recorded  during the fiscal year ended 2009.

 

Lossesfrom operations totaled $1,011,719 for the three months ended March 31,2010 as compared to $1,628,607 for the three months ended March 31, 2009.The decrease in the losses from operations was due primarily to higher gasprices and lower operating and administrative expenses.

 

Otherincome for the three months ended March 31, 2010 and 2009 consisted ofinterest income in the amount of $869 and $3,643, respectively. Interest incomedecreased due primarily to lower average cash and cash equivalent balancesduring the respective periods.

 

Duringthe three months ended March 31, 2010 and 2009, we incurred interestexpense of $174,019 and $232,439, respectively. The higher interest expense in the 2009 period was primarilyattributable to one-time loan fee payment.

 

**Recent Developments**

 

OnFebruary 15, 2010, we entered into a new lease for our principal executiveoffice.  The terms of the lease provide for an eighty-four (84) monthterm. Minimum annual rentals due under this agreement are as follows:

 
| 2010       |   | 95,223  |      |
|------------|--------|---------|-----------|
| 2011       |   | 145,635 |      |
| 2012       |   | 149,836 |      |
| 2013       |   | 154,037 |      |
| 2014       |   | 158,238 |      |
| Thereafter |   | 385,092 |      |
| Total      |   | $       | 1,088,061 |   |
|            |        |         |           |  |

 

Thelease provides that rent for the first five months of the lease term totaling$59,514 shall be abated provided we are not in default during the term of thelease.

 

OnFebruary 26, 2010, we sold our 100% working interest in approximately123,000 acres onshore in the Cook Inlet region of Alaska (the “Alaskanleases”). The leasehold position consisted of two separate target areas, thePoint MacKenzie Prospect and the Trading Bay Prospect, which have been selectedfor oil and gas exploration. The Point MacKenzie Prospect is located twelvemiles northwest of Anchorage. The Trading Bay Prospect is located fifty mileswest of Anchorage across the Cook Inlet.

 

Inexchange for our 100% working interest in our Alaskan leases we received the followingconsideration:

 

Acash payment of $1.0 million to be held in an escrow account and released to usupon approval of the assignment of the Alaskan leases to the purchaser. Thisamount has been record as in “other” accounts receivable on our March 31, 2010 unaudited consolidated balancesheet.

 

A$4.0 million payment from the first 75% of 8/8ths of the proceeds from any oiland gas production from the Alaskan leases.

 

Subsequentto our receipt of the $4.0 million payment, we will thereafter receive anoverriding royalty interest of 10% of 8/8ths in and to the Alaskan leasesissued by the State of Alaska and the Alaska Mental Health Trust (whichcomprise over 99% of the Alaskan leases), and an overriding royalty interest of7% of 8/8ths in and to the Alaskan leases issued by Cook Inlet Region, Inc.,comprised of conventional oil and gas production and coal bed methaneproduction.

 

Thepurchaser has agreed to pay all of the costs of maintaining the Alaskan leasesat least through the end of the primary terms thereof.

 

Amounts recorded pursuant to this transaction hadbeen previously classified as unevaluated costs on our December 31, 2009balance sheet.

 

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OnMarch 31, 2010, J. Chris Steinhauser resigned from his positions as theChief Financial Officer, Vice President of Finance and Secretary of the Companyto pursue other interests, effective as of March 31, 2010. The resignationnotification submitted by Mr. Steinhauser did not reference anydisagreement with the Company on any matter relating to the Company’soperations, policies and practices. Mr. Steinhauser will continue to serveon the Company’s Board of Directors.

 

OnApril 26, 2010 we extended our Vice President of Exploration, David V.Creel’s employment agreement through December 31, 2010, all otherprovisions per the terms of the original employment agreement remain unchanged.

 

**Liquidity and Capital Resources**

 

Wehad a working capital deficit of $1,371,001 at March 31, 2010 versus$1,174,225 at December 31, 2009. Our working capital deficit increasedduring three months ended March 31, 2010 due primarily to the issuance ofdividends on our preferred shares, as well as the repayment of debt.

 

Wehave historically financed our business activities through March 31, 2010principally through issuances of common shares, preferred shares, promissorynotes and common share purchase warrants issued in private placements and aninitial public offering. These financings are summarized as follows:

 
| ** **                                           | ** ** | **Three Months Ended**  | ** ** |
|------------------------------------------------------|------------|------------------------------|------------|
| ** **                                           | ** ** | **March 31, 2010** | ** ** | **March 31, 2009** | ** ** |
| Proceeds from the issuance of promissory notes       |       | $                            | —     |   | $ | 850,000 |   |
| Repayment of notes payable                           |       | (150,000                     | )          | (150,000 | ) |
| Payment of preferred stock dividend                  |       | (110,462                     | )          | — |   |
|                                                 |       |                         |       |   |   |
| Net cash provided by (used in) financing  activities |       | $                            | (260,462   | ) | $ | 700,000 |   |

 

Thenet proceeds of our equity financings have been primarily used in to satisfyworking capital requirement and invested in oil and natural gas properties andthe gas treatment plant totaling $55,395 and $515,721 for the three monthsended March 31, 2010 and 2009, respectively.

 

Ourcash balance at March 31, 2010 was $1,194,129 compared to a cash balanceof $2,429,891 at December 31, 2009. The change in our cash balance issummarized as follows:

 
| Cash balance at December 31, 2009 |   | $          | 2,429,891 |   |
|----------------------------------------|--------|------------|-----------|--------|
| Uses of cash:                          |   |       |      |
| Cash used in operating activities      |   | (907,162   | )         |
| Cash used in investing activities      |   | (68,138    | )         |
| Cash used in financing activities      |   | (260,462   | )         |
| Total uses of cash                     |   | (1,235,762 | )         |
|                                   |   |       |      |
| Cash balance at March 31, 2010    |   | $          | 1,194,129 |   |

 

Ourcurrent cash and cash equivalents and anticipated cash flow from operations maynot be sufficient to meet our working capital, capital expenditures and growthstrategy requirements for the foreseeable future. See “Outlook for 2010” for adescription of our expected capital expenditures for 2010. If we are unable togenerate revenues necessary to finance our operations over the long-term, we mayhave to seek additional capital through the sale of our equity or borrowing. Weperiodically borrow funds pursuant to short and long term promissory notes tofinance our activities.

 

Asof March 31, 2010, we have a working capital deficit of $1,371,001, andfor the three months ended March 31, 2010, our cash used in operatingactivities amounted to $907,162.  Further, we estimate our minimuminvestment needs during the remainder of 2010 to be $3,528,000 related to ournatural gas processing plant and our natural gas properties within theMadisonville field and our California properties.  Due to the currentnatural gas commodity price environment, our results of natural gas operationsamounted to a loss of $1,011,719 for the three months ended March 31, 2010. Further, we have debt service and dividend requirements that will require cashpayments.  We hold working interests in undeveloped leases, seismicoptions, lease options and foreign concessions and we have participated inseismic surveys and the drilling of test wells on undeveloped properties. We plan further leasehold acquisitions and 

 

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seismicoperations for the year of 2010 and future periods.  Exploratory anddevelopmental drilling is scheduled during 2010 and future periods on ourundeveloped properties.   We are attempting to raise additional cashthrough the sale or farmout of certain of our unproved properties.   We also need to raise additional equity orenter into new borrowing arrangements to finance our operating deficit and ourcontinued participation in planned activities. If additional financing is notavailable, we will be compelled to reduce the scope of our businessactivities.  If we are unable to fund our operating cash flow needs andplanned capital investments, it will be necessary to farm-out our interest inproposed wells, sell a portion of our interest in prospects, sell a portion ofour interest in our producing oil and gas properties, sell all or a portion ofour gas plant, reduce general and administrative expenses, or a combination ofall of these factors.

 

Asdiscussed in the “Outlook for 2010”, we are forecasting capital expenditures of$3.5 million during 2010. We will need to obtain adequate sources of cash tofund our anticipated capital expenditures through the end of 2010 and to followthrough with plans for continued investments in oil and gas properties. Oursuccess, in part, depends on our ability to generate additional financing andfarmout certain of our projects.  Additionally, as a result of the 2009economic downturn, the Company may have difficulty raising sufficient funds tomeet our projected funding requirements. The tight credit markets and downturnin the stock market may impair our ability to generate additional financing.

 

Wewill continue to analyze the potential effects of the global economic downturnon our business and prospects and our ability to generate additional financing.

 

**Contractual Obligations**

 

Wehave assumed various contractual obligations and commitments in the normalcourse of our operations and financing activities.  We have describedthese obligations and commitments in our “Management’s Discussion and Analysisof Financial Condition and Results of Operations” section in our Annual Reporton Form 10-K for the year ended December 31, 2009.  There wereno material changes to our contractual obligations since December 31, 2009except items described in “Recent Developments”.

 

**Off Balance Sheet Arrangements**

 

Fromtime to time, we enter into off-balance sheet arrangements and transactionsthat can give rise to off-balance sheet obligations. As of March 31, 2010,our off-balance sheet arrangements and transactions include operating leaseagreements. We do not believe that these arrangements are reasonably likely tomaterially affect our liquidity or availability of, or requirements for,capital resources.

 

**Financial Instruments**

 

Wecurrently have no natural gas price financial instruments or hedges inplace.  Our natural gas marketingcontracts use “spot” market prices. Given the uncertainty of the timing andvolumes of our natural gas production this year, we do not currently plan toenter into any long term fixed-price natural gas contracts, swap or hedgepositions, other gas financial instruments in 2010.

 

**Outlook for 2010 Capital**

 

Dependingon capital availability, we are forecasting capital spending of up toapproximately $3,528,000 during the year 2010, allocated as follows:

 

1.               Madisonville Project,Madison County, Texas — Approximately $3,028,000 may be expended in theMadisonville Field area as follows: $1,433,000 million for capital maintenanceand repair on new gas treatment plant; $945,000 toward the fracture stimulationand hook up costs of the Wilson Well; and $650,000 for the Mitchell wellworkover.

 

2.               California— Approximately$500,000 to be utilized for land and permitting costs.

 

Wemay, in our discretion, decide to allocate resources towards other projects inaddition to or in lieu of, those listed above should other opportunities ariseand as circumstances warrant. We currently do not have sufficient workingcapital to fund all of the capital expenditures listed above. We may, in our discretion,fund the foregoing planned expenditures from operating cash flows, asset sales,potential debt and equity issuances and/or a combination of all four. TheMadisonville Project forecasted capital expenditures will play an importantpart in the Company achieving our 2010 cash flow projections.  See “Liquidity and Capital Resources.”

 

Weexpect commodity prices to be volatile, reflecting the current supply anddemand fundamentals for North American natural gas and world crude oil.Political and economic events around the world, which are difficult to predict,will continue to influence both oil and gas prices. Significant price changesfor oil and gas often lead to changes in the levels of drilling activity whichin turn lead to changes in costs to explore, develop and acquire oil and gasreserves. Significant change in costs could affect the returns on our capitalexpenditures. Higher crude prices could also help keep natural gas prices highby keeping alternative fuels, such as heating oil and residual fuel, expensive.

 

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**Impact of Inflation & Changing Prices**

 

Weare highly dependent upon natural gas pricing. A material decrease in currentand projected natural gas prices could impair our ability to raise additionalcapital on acceptable terms. Likewise, a material decrease in current andprojected natural gas prices could also impact our revenues and cash flows.This could impact our ability to fund 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 estimated cost of drilling and completing a Rodessa formation wellat approximately 12,300 feet of depth has increased from $3.0 million in 2001to $4.2 million in 2010 due to higher costs associated with tubular goods, wellequipment, and day rates for drilling contracts, 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**

 

Ourconsolidated financial statements have been prepared by management inaccordance with U.S. GAAP. We refer you to the corresponding section in Part II,Item 7 and the notes to the consolidated financial statements of our AnnualReport on Form 10-K for the year ended December 31, 2009 for thedescription of critical accounting policies and estimates.

 

**Risks and Uncertainties**

 

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 ofour securities. See “Risk Factors” in our Annual Report on Form 10-K forthe year ended December 31, 2009 for a description of the principal risksfaced by us.

 

**Item 3. Quantitative and Qualitative DisclosuresAbout Market Risk**

 

Weare exposed to market risks arising from fluctuating prices of crude oil,natural gas and interest rates as discussed below.

 

*Commodity Risk.*  Our majorcommodity price risk exposure is to the prices received for our natural gasproduction. Realized commodity prices received for our production are the spotprices applicable to natural gas in the East Texas region. Prices received fornatural gas are volatile and unpredictable and are beyond our control.

 

*Currency Translation Risk.  *Because ourrevenues and expenses are primarily in U.S. dollars, we have littleexposure to currency translation risk, and, therefore, we have no plans in theforeseeable future to implement hedges or financial instruments to manageinternational currency changes.

 

*Interest Rate Risk*. Interest rates on futuredebt offerings could be higher than current levels, causing our financing coststo increase accordingly. We do not currently utilize hedging contracts toprotect against interest rate risk.

 

**Item 4. Controls and Procedures**

 

**Evaluation of Disclosure Controls and Procedures**

 

Ourmanagement, with the participation of our President, Chief Executive Officerand Chairman and our interim Chief Financial Officer, has evaluated theeffectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and15d-15(e) under the Exchange Act) as of March 31, 2010.  Basedon this evaluation, we have concluded that, as of March 31, 2010, ourdisclosure controls and procedures were effective, in that they ensure thatinformation required to be disclosed by us in the reports that we file or submitunder the Exchange Act is (1) recorded, processed, summarized and reportedwithin the time periods specified in the SEC’s rules and forms, and (2) accumulatedand communicated to our management, including our President and Chief ExecutiveOfficer and interim Chief Financial Officer, as appropriate to allow timelydecisions regarding required disclosure.

 

Duringthe most recent fiscal quarter, there have been no changes in our internalcontrol over financial reporting that have materially affected, or are reasonablylikely to materially affect, our internal control over financial reporting.

 

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**PART II.OTHER INFORMATION**

 

**Item 1.  Legal Proceedings.**

 

Fromtime to time, we are party to litigation or other legal and administrativeproceedings that we consider to be a part of the ordinary course of ourbusiness. Currently, on September 11, 2009, our subsidiary, Redwood EnergyProduction, L.P. filed an Original Petition for Declaratory Judgment againstDevon Energy Production Company (“Devon”) regarding certain overriding royaltyinterests and related revenue amounts claimed by Devon.  The Company previously accrued all amountsowed pursuant to these overriding royalty interests as royalty ownerspayable.  In the opinion of managementbased on consultation with legal counsel, these proceedings are not expected tohave a material adverse effect on our financial condition or results ofoperations.

 

**Item 1A.  Risk Factors.**

 

Asof the date of this filing, there have been no material changes from the riskfactors previously disclosed in our “Risk Factors” in our Annual Report on Form 10-Kfor the year ended December 31, 2009, referred to as our 2009 AnnualReport. An investment in our securities involves various risks. Whenconsidering an investment in our company, you should consider carefully all ofthe risk factors described in our 2009 Annual Report. These risks and uncertaintiesare not the only ones facing us and there may be additional matters that we areunaware of or that we currently consider immaterial.

 

**Item 2.**  **Unregistered Sales of Securities and Use of Proceeds.**

 

None

 

**Item 3.  Defaults Upon Senior Securities**

 

Notapplicable.

 

**Item 4.  Submission of Matters to a Vote ofthe Security Holders.**

 

Notapplicable.

 

**Item 5.  Other Information.**

 

Notapplicable

 

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**Item 6.  Exhibits**

 

EXHIBIT INDEX

 
| **Exhibit  Number** | ** ** | ** **                                                                                                                                      |
|---------------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------|
| ** **          | ** ** | ** **                                                                                                                                      |
| 31.1 (1)            |       | Rule 13a-14(a)/15d-14(a) Certification  of Chief Executive Officer.                                                                   |
|                |       |                                                                                                                                            |
| 31.2 (1)            |       | Rule 13a-14(a)/15d-14(a) Certification  of Interim Chief Financial Officer.                                                           |
|                |       |                                                                                                                                            |
| 32.1 (1)            |       | Certification  of Chief Executive Officer and Interim Chief Financial Officer of GeoPetro  Resources Company pursuant to 18 U.S.C. § 1350. |

 

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**SIGNATURES**

 

Pursuantto the requirements of Section 13 or 15(d) of the Securities ExchangeAct of 1934, the registrant has duly caused this report to be signed on itsbehalf by the undersigned, thereunto duly authorized, on May 13, 2010.

 
| ** ** | **GEOPETRO RESOURCES COMPANY** |
|------------|--------------------------------|
|       |                           |   |
|       | By:                            | /s/  Stuart J. Doshi |
|       |                           | Stuart  J. Doshi |
|       |                           | Chairman  of the Board of Directors, President and Chief Executive Officer |
|       |                           |   |
|       | By:                            | /s/  Paul D. Maniscalco |
|       |                           | Paul  D. Maniscalco |
|       |                           | Interim  Chief Financial Officer, Principal Accounting Officer |

 

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