Table of Contents

 

 

 

**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

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**FORM 10-Q**

 

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**(MarkOne)**

 

x         **QUARTERLYREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACTOF 1934**

 

**For the quarterly period ended June 30,2009**

 

**OR**

 

o            **TRANSITIONREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACTOF 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) |
|                                                       |       |                                  |
| **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)

 

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

 

Indicate by check markwhether the registrant is a shell company (as defined in Rule 12b-2 of theExchange Act). Yes o  No x.

 

There were 34,284,646 shares of no par value commonstock outstanding on August 10, 2009.

 

 

 

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**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.  Unregistered Sales of Securities and 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                                                                                                |   |

 

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**PART I. FINANCIAL INFORMATION**

 

**Item 1.   Financial Statements.**

 

**GEOPETRO RESOURCES COMPANY**

**UNAUDITED CONSOLIDATED BALANCE SHEETS**

 
| ** **                                                                                                                                                                                             | ** ** | **June 30,** | ** ** | **December 31,** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------|------------|-----------------------|------------|
| ** **                                                                                                                                                                                             | ** ** | **2009**          | ** ** | **2008**              | ** ** |
| **ASSETS**                                                                                                                                                                                             |       |              |       |                  |       |
| **Current assets:**                                                                                                                                                                                    |       |              |       |                  |       |
| Cash  and cash equivalents                                                                                                                                                                             |       | $                 | 330,953    |                  | $          | 770,779 |   |
| Trade  accounts receivable—natural gas sales                                                                                                                                                      |       | 507,928           |       | 4,266                 |       |
| Accounts  receivable—other                                                                                                                                                                        |       | 20,000            |       | 35,107                |       |
| Prepaid  expenses                                                                                                                                                                                      |       | 102,302           |       | 212,938               |       |
| Total  current assets                                                                                                                                                                                  |       | 961,183           |       | 1,023,090             |       |
|                                                                                                                                                                                                   |       |              |       |                  |       |
| **Oil and gas properties, at cost (full cost method):**                                                                                                                                                |       |              |       |                  |       |
| Unproved  properties                                                                                                                                                                                   |       | 10,847,395        |       | 10,500,498            |       |
| Proved  properties                                                                                                                                                                                     |       | 48,557,930        |       | 48,346,939            |       |
| Gas  processing plant, at cost                                                                                                                                                                         |       | 11,301,886        |       | 10,707,982            |       |
| Less—accumulated  depletion, depreciation, and impairment                                                                                                                                         |       | (17,239,183       | )          | (16,522,304           | )          |
| Net  oil and gas properties                                                                                                                                                                            |       | 53,468,028        |       | 53,033,115            |       |
|                                                                                                                                                                                                   |       |              |       |                  |       |
| **Furniture, fixtures and equipment, at cost, net of  depreciation**                                                                                                                                   |       | 2,752             |       | 12,364                |       |
| **Other assets—deposits and other noncurrent assets**                                                                                                                                             |       | 16,127            |       | 7,436                 |       |
| **Total Assets**                                                                                                                                                                                       |       | $                 | 54,448,090 |                  | $          | 54,076,005 |   |
|                                                                                                                                                                                                   |       |              |       |                  |       |
| **LIABILITIES  AND SHAREHOLDERS’ EQUITY**                                                                                                                                                         |       |              |       |                  |       |
|                                                                                                                                                                                                   |       |              |       |                  |       |
| **Current Liabilities:**                                                                                                                                                                               |       |              |       |                  |       |
| Trade  payables                                                                                                                                                                                        |       | $                 | 2,331,187  |                  | $          | 1,137,432 |   |
| Current  portion of long term notes payable                                                                                                                                                            |       | 900,000           |       | 600,000               |       |
| Due  to related party                                                                                                                                                                                  |       | 100,000           |       | —                |       |
| Interest  payable                                                                                                                                                                                      |       | 136,069           |       | 1,479                 |       |
| Dividends  payable                                                                                                                                                                                     |       | 24,712            |       | —                |       |
| Production  taxes payable                                                                                                                                                                              |       | 218,836           |       | 311,168               |       |
| Other  taxes payable                                                                                                                                                                                   |       | 7,019             |       | 20,833                |       |
| Royalty  owners payable                                                                                                                                                                                |       | 1,093,960         |       | 1,103,830             |       |
| Total  current liabilities                                                                                                                                                                             |       | 4,811,783         |       | 3,174,742             |       |
|                                                                                                                                                                                                   |       |              |       |                  |       |
| **Long Term Notes Payable**                                                                                                                                                                            |       | 7,086,179         |       | 7,019,449             |       |
| **Asset Retirement Obligations**                                                                                                                                                                       |       | 61,983            |       | 59,099                |       |
| **Total Liabilities**                                                                                                                                                                                  |       | 11,959,945        |       | 10,253,290            |       |
|                                                                                                                                                                                                   |       |              |       |                  |       |
| **Commitments and Contingencies (Notes 2 and 8)**                                                                                                                                                      |       | —            |       | —                |       |
|                                                                                                                                                                                                   |       |              |       |                  |       |
| **Shareholders’ Equity:**                                                                                                                                                                         |       |              |       |                  |       |
| Series B  preferred stock, no par value; 6,800,000 shares authorized 2,466,670 shares  issued and outstanding at June 30, 2009. Liquidation preference of  $1,874,712 at June 30, 2009. |       | 1,850,000         |       | —                |       |
| Common  stock, no par value; 100,000,000 shares authorized; 34,284,646 shares issued  and outstanding at June 30, 2009 and December 31, 2008,  respectively                             |       | 53,397,733        |       | 53,397,733            |       |
| Additional  paid-in capital                                                                                                                                                                            |       | 2,832,324         |       | 2,610,596             |       |
| Accumulated  deficit                                                                                                                                                                                   |       | (15,591,912       | )          | (12,185,614           | )          |
| Total  shareholders’ equity                                                                                                                                                                       |       | 42,488,145        |       | 43,822,715            |       |
|                                                                                                                                                                                                   |       |              |       |                  |       |
| **Total Liabilities and Shareholders’ Equity**                                                                                                                                                    |       | $                 | 54,448,090 |                  | $          | 54,076,005 |   |

 

***See accompanyingnotes to these unaudited consolidated financial statements.***

 

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**GEOPETRO RESOURCES COMPANY**

 

**UNAUDITED CONSOLIDATED STATEMENTS OFOPERATIONS**

 
| ** **                                             | ** ** | **Three Months Ended June 30,** | ** ** | **Six months Ended June 30,** | ** ** |
|--------------------------------------------------------|------------|-----------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                                             | ** ** | **2009**                                            | ** ** | **2008**                                          | ** ** | **2009** | ** ** | **2008** | ** ** |
| ** **                                             | ** ** | ** **                                          | ** ** | ** **                                        | ** ** | ** ** | ** ** | ** ** | ** ** |
| Revenues:                                              | ** ** | ** **                                          | ** ** | ** **                                        | ** ** | ** ** | ** ** | ** ** | ** ** |
| Natural  gas plant sales                               |       | $                                                   | 1,070,202  |                                              | $          | — |   | $ | 1,946,270 |   | $ | — |   |
| Oil  and gas sales                                     |       | —                                              |       | 2,650,992                                         |       | — |   | 4,793,590 |   |
| Total  revenues                                        |       | 1,070,202                                           |       | 2,650,992                                         |       | 1,946,270 |   | 4,793,590 |   |
|                                                   |       |                                                |       |                                              |       |   |   |   |   |
| Costs  and expenses:                                   |       |                                                |       |                                              |       |   |   |   |   |
| Plant  operating expense                               |       | 1,308,367                                           |       | —                                            |       | 2,353,139 |   | — |   |
| Lease  operating expense                               |       | 83,535                                              |       | 646,559                                           |       | 384,414 |   | 990,382 |   |
| General  and administrative                            |       | 616,655                                             |       | 604,090                                           |       | 1,465,593 |   | 1,319,513 |   |
| Net  profits interest                                  |       | —                                              |       | 260,868                                           |       | — |   | 488,929 |   |
| Impairment  expense                                    |       | —                                              |       | 63,766                                            |       | — |   | 63,766 |   |
| Depreciation  and depletion expense                    |       | 416,405                                             |       | 448,305                                           |       | 726,491 |   | 982,735 |   |
| Total  costs and expenses                              |       | 2,424,962                                           |       | 2,023,588                                         |       | 4,929,637 |   | 3,845,325 |   |
|                                                   |       |                                                |       |                                              |       |   |   |   |   |
| Income  (loss) from operations                         |       | (1,354,760                                          | )          | 627,404                                           |       | (2,983,367 | ) | 948,265 |   |
|                                                   |       |                                                |       |                                              |       |   |   |   |   |
| Other  Income and (Expense):                           |       |                                                |       |                                              |       |   |   |   |   |
|                                                   |       |                                                |       |                                              |       |   |   |   |   |
| Interest  expense                                      |       | (167,907                                            | )          | —                                            |       | (400,346 | ) | — |   |
| Interest  income                                       |       | 330                                                 |       | 17,803                                            |       | 3,973 |   | 47,868 |   |
| Total  other income (expense)                          |       | (167,577                                            | )          | 17,803                                            |       | (396,373 | ) | 47,868 |   |
|                                                   |       |                                                |       |                                              |       |   |   |   |   |
| Net  Income (Loss) Before Taxes                        |       | (1,522,337                                          | )          | 645,207                                           |       | (3,379,740 | ) | 996,133 |   |
|                                                   |       |                                                |       |                                              |       |   |   |   |   |
| Income  tax expense                                    |       | (1,845                                              | )          | (8,495                                            | )          | (1,845 | ) | (15,295 | ) |
|                                                   |       |                                                |       |                                              |       |   |   |   |   |
| Net  Income (Loss)After Taxes                          |       | (1,524,182                                          | )          | 636,712                                           |       | (3,381,585 | ) | 980,838 |   |
|                                                   |       |                                                |       |                                              |       |   |   |   |   |
| Dividend                                               |       | (24,712                                             | )          | —                                            |       | (24,712 | ) | — |   |
|                                                   |       |                                                |       |                                              |       |   |   |   |   |
| Net  Income (Loss) Available to Common Shareholders    |       | $                                                   | (1,548,894 | )                                                 | $          | 636,712 |   | $ | (3,406,297 | ) | $ | 980,838 |   |
|                                                   |       |                                                |       |                                              |       |   |   |   |   |
| Earnings  (Loss) per Share:                            |       |                                                |       |                                              |       |   |   |   |   |
| Basic                                                  |       | $                                                   | (0.05      | )                                                 | $          | 0.02 |   | $ | (0.10 | ) | $ | 0.03 |   |
| Diluted                                                |       | $                                                   | (0.05      | )                                                 | $          | 0.02 |   | $ | (0.10 | ) | $ | 0.03 |   |
|                                                   |       |                                                |       |                                              |       |   |   |   |   |
| Weighted  Average Number of Common Shares Outstanding: |       |                                                |       |                                              |       |   |   |   |   |
| Basic                                                  |       | 34,284,646                                          |       | 32,503,168                                        |       | 34,284,646 |   | 32,227,069 |   |
| Diluted                                                |       | 34,284,646                                          |       | 33,139,460                                        |       | 34,284,646 |   | 33,174,998 |   |

 

***See accompanyingnotes to these unaudited consolidated financial statements.***

 

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**GEOPETRO RESOURCES COMPANY**

 

**UNAUDITED CONSOLIDATED STATEMENTS OFCASH FLOWS**

 
| ** **                                                                                           | ** ** | **For the Six Months Ended** | ** ** |
|------------------------------------------------------------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                                                                           | ** ** | **June 30,  2009**                          | ** ** | **June 30,  2008** | ** ** |
| **Cash Flows From Operating Activities:**                                                            |       |                                             |       |   |   |
|                                                                                                 |       |                                             |       |   |   |
| Net  income (loss)                                                                                   |       | $                                                | (3,381,585 | ) | $ | 980,838 |   |
| Adjustments  to reconcile net income (loss) to net cash provided by (used in) operating  activities: |       |                                             |       |   |   |
| Depreciation  and depletion                                                                          |       | 726,491                                          |       | 982,735 |   |
| Share-based  compensation expense                                                                    |       | 201,468                                          |       | 60,711 |   |
| Non-cash  interest expense                                                                           |       | 21,990                                           |       | — |   |
| Impairment  expense                                                                                  |       | —                                           |       | 63,766 |   |
| Accretion  of discount on asset retirement obligations                                               |       | 2,307                                            |       | 2,098 |   |
| Changes  in operating assets and liabilities:                                                        |       |                                             |       |   |   |
| Accounts  receivable - natural gas sales                                                             |       | (503,662                                         | )          | 87,581 |   |
| Other  assets                                                                                        |       | 117,052                                          |       | 173,625 |   |
| Current  liabilities                                                                                 |       | 671,924                                          |       | 604,801 |   |
| Net  cash provided by (used in) operating activities                                                 |       | (2,144,015                                       | )          | 2,956,155 |   |
|                                                                                                 |       |                                             |       |   |   |
| **Cash Flows from Investing Activities:**                                                            |       |                                             |       |   |   |
|                                                                                                 |       |                                             |       |   |   |
| Additions  to oil and gas properties                                                                 |       | (557,311                                         | )          | (3,106,227 | ) |
| Additions  to gas treatment plant                                                                    |       | (53,500                                          | )          | — |   |
| Acquisition  of furniture, fixtures & equipment                                             |       | —                                           |       | (1,701 | ) |
| Net  cash used in investing activities                                                               |       | (610,811                                         | )          | (3,107,928 | ) |
|                                                                                                 |       |                                             |       |   |   |
| **Cash Flows from Financing Activities:**                                                            |       |                                             |       |   |   |
|                                                                                                 |       |                                             |       |   |   |
| Proceeds  from sale of common shares, option and warrant exercises, net                              |       | —                                           |       | 375,000 |   |
| Proceeds  from sale of preferred stock Series B                                                 |       | 1,850,000                                        |       | — |   |
| Proceeds  from promissory notes                                                                      |       | 765,000                                          |       | — |   |
| Repayments  of notes payable                                                                         |       | (300,000                                         | )          | — |   |
| Net  cash provided by financing activities                                                           |       | 2,315,000                                        |       | 375,000 |   |
|                                                                                                 |       |                                             |       |   |   |
| **Net Increase (Decrease) in Cash and Cash Equivalents:**                                            |       | (439,826                                         | )          | 223,227 |   |
|                                                                                                 |       |                                             |       |   |   |
| **Cash and Cash Equivalents:**                                                                       |       |                                             |       |   |   |
| Beginning  of period                                                                                 |       | 770,779                                          |       | 4,294,565 |   |
| End  of period                                                                                       |       | $                                                | 330,953    |   | $ | 4,517,792 |   |
|                                                                                                 |       |                                             |       |   |   |
| **Supplemental Disclosure of Cash Flow Information:**                                                |       |                                             |       |   |   |
| Cash  paid for interest                                                                              |       | $                                                | 379,355    |   | $ | — |   |
|                                                                                                 |       |                                             |       |   |   |
| Cash  paid for income taxes                                                                          |       | $                                                | 1,845      |   | $ | 15,295 |   |

 

***See accompanyingnotes to these unaudited consolidated financial statements.***

 

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**GEOPETRO RESOURCES COMPANY**

 

**NOTES TO UNAUDITED CONSOLIDATEDFINANCIAL STATEMENTS**

 

**1.****    ****BASIS OF PRESENTATION AND USE OF ESTIMATES:**

 

The interim consolidated financial statements ofGeoPetro Resources Company (“we,” “us,” “our,” “GeoPetro” or the “Company”) areunaudited and contain all adjustments (consisting primarily of normal recurringaccruals) necessary for a fair statement of the results for the interim periodspresented. Results for interim periods are not necessarily indicative ofresults to be expected for a full year or for previously reported periods duein part, but not limited to, the volatility in crude oil and natural gascommodity prices, interest rates, estimates of reserves, drilling risks,geological risks, transportation restrictions, the timing of acquisitions,product demand, market competition, interruption in production and our abilityto obtain additional capital. You should read these consolidated interimfinancial statements in conjunction with the audited consolidated financialstatements and notes thereto included in GeoPetro’s Annual Report on Form 10-Kfor the year ended December 31, 2008.

 

The accompanying financial statements have been preparedin accordance with accounting principles generally accepted in the UnitedStates of America (“GAAP”) and include the accounts of GeoPetro and itswholly-owned subsidiaries. Intercompany accounts and transactions areeliminated. In preparing the accompanying financial statements, management hasmade certain estimates and assumptions that affect reported amounts in thefinancial statements. Actual results may differ from those estimates.Significant assumptions are required in the valuation of proved oil and naturalgas reserves, which may affect the amount at which oil and natural gasproperties are recorded. The computation of share-based compensation expenserequires assumptions such as volatility, expected life and the risk-freeinterest rate. It is at least reasonably possible these estimates could berevised in the near term, and these revisions could be material.

 

*Changein Accounting Method and Basis of Presentation - Revenue Recognition*—Prior to December 31, 2008, revenuewas recognized upon delivery of oil and gas production and was shown net ofapplicable royalty payments, as well as processing, gathering, transportation andmarketing fees. The Company recognized revenue from the Madisonville Field netof applicable fees to gather, treat, transport and market the Company’s naturalgas production. The applicable fees were paid to unrelated third parties. On December 31, 2008, the Company completed the acquisition of the Plantfrom MGP. As of January 1, 2009, revenue is being recognized without thenetting of applicable royalty payments, as well as processing, gathering,transportation and marketing fees since we have acquired the Plant. For allperiods presented, revenue from the Madisonville Field is recognized when theprice for gas delivered became fixed and determinable.

 

*Impairmentof Oil and Gas Properties*—Under full cost accounting, a ceiling test isperformed to ensure that unamortized capitalized costs in each cost center(country) do not exceed their fair value.  Impairment is recognized whenthe carrying value is greater than the discounted future cash flows.  Inthe event of impairment, the amount by which the carrying value exceeds theestimated fair value of the long-lived asset is charged to earnings. Thepresent value of estimated future net revenues is computed by applying currentoil and gas prices to estimated future production of proved oil and gasreserves as of period-end, less estimated future expenditures to be incurred indeveloping and producing the proved reserves assuming the continuation ofexisting economic conditions.  We recognized no impairment of evaluatedproperties at June 30, 2009.

 

**2.****    ****LIQUIDITY:**

 

As of June 30, 2009, we have a working capitaldeficit of $3,850,600, and for the six months ended, our cash used in operatingactivities amounted to $2,144,015.  We estimate our minimum investmentneeds during the remainder of 2009 amount to $4,500,000 related to our naturalgas processing plant and our natural gas properties within the Madisonvillefield.  Our results of natural gas operations amounted to a deficit of$791,283 for the six months ended June 30, 2009.  Further, we havedebt service and dividend requirements that will require cash payments. We hold working interests in undeveloped leases, seismic options, lease optionsand foreign concessions and we have participated in seismic surveys and thedrilling of test wells on undeveloped properties.  We plan furtherleasehold acquisitions and seismic operations for the remainder of 2009 andfuture periods.  Exploratory and developmental drilling is scheduledduring 2009 and future periods on our undeveloped properties.  During the sixmonths ended June 30, 2009, we raised $850,000 in convertible notes thatwere converted into our Series B Preferred Stock on April 30, 2009,raised another $1,000,000 in our Series B

 

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Preferred Stock, and issued $765,000 in promissorynotes. We potentially plan to sell idle equipment from our natural gasprocessing plant.  In addition to these items, we need to raise additionalequity or enter into new borrowing arrangements to finance our operatingdeficit and our continued participation in planned activities. If additionalfinancing is not available, we will be compelled to reduce the scope of ourbusiness activities.  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.****    ****RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS:**

 

In December 2007, the FASB issued SFAS No. 141(revised 2007), *Business Combinations*(“SFASNo. 141R”). SFAS No. 141R, which among other things, establishesprinciples and requirements for how the acquirer in a business combination (i) recognizesand measures in its financial statements the identifiable assets acquired, theliabilities assumed, and any noncontrolling interest in the acquired business, (ii) recognizesand measures the goodwill acquired in the business combination or a gain from abargain purchase, and (iii) determines what information to disclose toenable users of the financial statements to evaluate the nature and financialeffects of the business combination. SFAS No. 141R is effective for fiscalyears beginning on or after December 15, 2008, with early adoptionprohibited. This standard will change our accounting treatment for businesscombinations on a prospective basis.

 

In December 2007, the FASB issued SFAS No. 160,*Noncontrolling Interests in ConsolidatedFinancial Statements, an Amendment of ARB No. 51* (“SFAS No. 160”).SFAS No. 160 establishes accounting and reporting standards fornoncontrolling interests in a subsidiary and for the deconsolidation of asubsidiary. Minority interests are recharacterized as noncontrolling interestsand classified as a component of equity. It also establishes a single method ofaccounting for changes in a parent’s ownership interest in a subsidiary andrequires expanded disclosures. This statement is effective for fiscal years beginningon or after December 15, 2008, with early adoption prohibited. Theadoption of SFASB No. 160 on January 1, 2009 did not have a materialimpact on our financial position or results of operations.

 

In March 2008, theFASB issued SFAS No. 161, *Disclosuresabout Derivative Instruments and Hedging Activities*, an amendment ofFASB Statement No. 133.  SFAS 161 amends and expands thedisclosure requirements of FASB Statement No. 133 with the intent toprovide users of financial statement with an enhanced understanding of (i) howand why an entity uses derivative instruments, (ii) how derivativeinstruments and the related hedged items are accounted for under FASB StatementNo. 133 and its related interpretations, and (iii) how derivativeinstruments and related hedged items affect and entity’s financial position,financial performance and cash flows.  The adoption of SFAS No. 161on January 1, 2009 did not have a material impact on our reportedfinancial position or results of operations.

 

In June 2008, theFASB ratified the consensus reached on Emerging Issues Task Force (“EITF”)Issue No. 07-05, Determining Whether an Instrument (or Embedded Feature)Is Indexed to an Entity’s Own Stock (“EITF No. 07-05”). EITF No. 07-05clarifies the determination of whether an instrument (or an embedded feature)is indexed to an entity’s own stock, which would qualify as a scope exceptionunder SFAS No. 133, Accounting for Derivative Instruments and HedgingActivities. EITF No. 07-05 is effective for financial statements issuedfor fiscal years beginning after December 15, 2008. Early adoption for anexisting instrument is not permitted. The adoption of EITF No. 07-05 on January 1,2009 did not have a material effect on our consolidated financial statements.

 

In December 2008,the SEC issued the final rule on the Modernization of Oil and GasReporting.  This SEC ruling revises its oil and gas reserves reportingrequirements effective for fiscal years ending on or after December 31,2009, with early adoption prohibited.  These revisions by the SEC areintended to provide investors with a more meaningful and comprehensiveunderstanding of oil and gas reserves.  These changes include:

 

·      Modifying prices used to estimate reserves for SECdisclosure purposes to a 12-month average price instead of a single-day,period-end price.

 

·      Requiring certain additional disclosures around provedundeveloped reserves, internal controls used to ensure objectivity of theestimation process, and qualifications of those preparing and/or auditing thereserves.

 

·      Expanding the definition of oil and gas reserves andproviding clarification of certain concepts and technologies used in thereserve estimation process.

 

·      Allowing optional disclosure of probable and possiblereserves and permitting optional disclosure of price sensitivity analysis.

 

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Historically, the reserves calculated based on the SEC’sreporting requirements were also used to calculate depletion on our producingproperties, as required by SFAS 69, “Disclosures about Oil and Gas ProducingActivities” (SFAS 69). However, the change in the SEC reporting requirementshas not yet been adopted by the FASB. The SEC has announced its intent todiscuss potential amendments to SFAS 69 with the FASB so that the reservesdisclosed remain consistent with the reserves used to calculate depletion onour producing properties. Any such change would impact our future financialresults. The SEC has indicated that it may delay the effective date of therevised reporting requirements if the FASB does not make conforming amendmentsby December 31, 2009.

 

On June 30, 2009, weadopted Statement of Financial Accounting Standards No. 165, *Subsequent Events* (SFAS 165). SFAS 165establishes general standards of accounting for and disclosure of events thatoccur after the balance sheet date but before financial statements are issuedor are available to be issued. Specifically, SFAS 165 sets forth the periodafter the balance sheet date during which management of a reporting entityshould evaluate events or transactions that may occur for potential recognitionor disclosure in the financial statements, the circumstances under which anentity should recognize events or transactions occurring after the balancesheet date in its financial statements, and the disclosures that an entityshould make about events or transactions that occurred after the balance sheetdate. The adoption of SFAS 165 had no impact on the our results, cash flow orfinancial position as  management already followed a similar approachprior to the adoption of this standard.

 

**4.****    ****EARNINGS (LOSS) PER COMMON SHARE:**

 

Basic net loss per common share is computed by dividingthe net loss attributable to common shareholders by the weighted average numberof shares of common stock outstanding during the period.

 

Diluted net loss per common share is computed in thesame manner, but also considers the effect of common stock shares underlyingthe following:

 
| ** **                                  | ** ** | **For  the six months ended** | ** ** |
|---------------------------------------------|------------|-------------------------------|------------|
| ** **                                  | ** ** | **June 30,  2009**       | ** ** | **June 30,  2008** | ** ** |
| Stock  options (Note 8)                     |       | 2,720,000                     |       | 2,740,000 |   |
| Warrants  (Note 9)                          |       | 1,316,357                     |       | 2,381,355 |   |
| Convertible  Preferred Stock, Series B |       | 2,466,670                     |       | — |   |

 

All of the common shares underlying the stock options,warrants and convertible preferred stock, Series B above were excludedfrom diluted weighted average shares outstanding for the six months ended June 30,2009 because their effects were antidilutive. On June 30, 2008, thediluted weighted average shares outstanding included 58,703 common shares ofwarrants and 889,226 common shares of options.

 

**5.****    ****GAS PROCESSING PLANT**

 

On December 31, 2008, the Company completed theacquisition of a natural gas treatment plant (the “Plant”) from MadisonvilleGas Processing, LP (“MGP”), in exchange for shares of GeoPetro’s common stock,assumption of debt and a cash payment (“the Acquisition”). The Plant is locatedin Madison County, Texas and the new owner of the Plant is GeoPetro’s wholly-ownedindirect subsidiary, Madisonville Midstream LLC (“MM”).

 

Our results of operations for the six months ended June 30,2009 include the operating results of the Plant, but our results of operationsfor the six months ended June 30, 2008 do not include the operatingresults of the natural gas treatment plant because such acquisition closed on December 31,2008. The following condensed pro forma information gives effect to theacquisition as if it had occurred on January 1, 2008. The pro forma informationhas been included in the notes as required by generally accepted accountingprinciples and is provided for comparison purposes only. The pro formafinancial information is not necessarily indicative of the financial resultsthat would have occurred had the acquisition been effective on the datesindicated and should not be viewed as indicative of operations in the future.

 

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| ** **                             | ** ** | **Six  Months Ended  June 30, 2008** | ** ** |
|----------------------------------------|------------|-------------------------------------------|------------|
| Operating  revenues                    |       | $                                         | 10,752,180 |   |
| Total  operating expenses              |       | $                                         | 9,359,018  |   |
| Earnings  applicable to common stock   |       | $                                         | 1,005,389  |   |
| Net  earnings per share — basic   |       | $                                         | 0.03       |   |
| Net  earnings per share — diluted |       | $                                         | 0.03       |   |

 

**6.****    ****DEBT*:***

 

Debt at June 30, 2009 and December 31, 2008consisted of the following:

 
| ** **                                               | ** ** | **June 30,  2009** | ** ** | **December 31,  2008** | ** ** |
|----------------------------------------------------------|------------|-------------------------|------------|-----------------------------|------------|
|                                                     |       |                    |       |                        |       |
| Promissory  notes dated December 23, 2008 (a)       |       | $                       | 1,050,000  |                        | $          | 1,050,000 |   |
| Promissory  notes dated May 2009(b)                 |       | 365,000                 |       | —                      |       |
| Promissory  notes dated June 2009(c)                |       | 300,000                 |       | —                      |       |
| Promissory  notes dated June 2009(d)                |       | 100,000                 |       | —                      |       |
| Bank  of Oklahoma loan (e)                               |       | 6,397,847               |       | 6,697,847                   |       |
|                                                     |       | 8,212,847               |       | 7,747,847                   |       |
| Less  current portion of long term debt                  |       | (1,000,000              | )          | (600,000                    | )          |
| Less  discount on promissory notes relating to loan fees |       | (126,668                | )          | (128,398                    | )          |
|                                                     |       | $                       | 7,086,179  |                        | $          | 7,019,449 |   |

 

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(a)   The Company issued four promissory notes totaling$1,050,000 during December 2008 with maturity dates in December 2011.The notes may be repaid at any time without penalty. The notes bear an annualrate of eight percent (8%), with such interest payable quarterly in arrears.The principal amount and accrued and unpaid interest are due and payable on December 23,2011. In connection with the notes, the Company paid loan origination feestotaling $6,000 and granted three-year exercisable warrants to purchase 105,000Common Shares and reissued 15,000 warrants at $1.00 per share. We also issued150,000 warrants as a finder’s fee. The fair value of the warrants on the datesof issuance, $122,764 and the $6,000 of loan origination fees, was recorded asa debt discount and is being amortized over the life of the promissory note. Asof June 30, 2009, the unamortized debt discount was $106,937.

 

(b)   During the six months ended June 30, 2009 theCompany borrowed $365,000 pursuant to two separate three-year loans. The noteshave maturity dates in May 2012.  The notes may be repaid at any timewithout penalty.  The notes bear an annual rate of eight percent (8%),with such interest payable quarterly in arrears.  The principal amount andaccrued and unpaid interest are due and payable on May 2012.  Inconnection with the notes, the Company granted three-year exercisable warrantsto purchase 36,500 Common Shares warrants at $1.00 per share. The fair value ofthe warrants on the dates of issuance, $12,724, was recorded as a debt discountand is being amortized over the life of the promissory note. As of June 30,2009, the unamortized debt discount was $12,194.

 

(c)   In June 2009 the Company borrowed $300,000pursuant to two separate one-year loans. The two notes have maturity dates in May 2010. The notes may be repaid at any time without penalty.  The notes bearan annual rate of eight percent (8%), with such interest payable quarterly inarrears.  The principal amount and accrued and unpaid interest are due andpayable on May 2010.  In connection with the notes, the Companygranted three-year exercisable warrants to purchase 30,000 Common Shareswarrants at $1.00 per share. The fair value of the warrants on the dates ofissuance, $7,537, was recorded as a debt discount and is being amortized overthe life of the promissory note. As of June 30, 2009, the unamortized debtdiscount was $7,537.

 

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(d)   In June 2009 the Company borrowed $100,000 from arelated party. The note is payable on demand. The note bears an annual rate of eight percent (8%), with such interestpayable at maturity.

 

(e)   Effective December 31, 2008, the Company assumed$7,697,847 of Madisonville Gas Processing LP’s (“MGP”) bank debt related to theCompany’s acquisition of the Madisonville Gas Treatment Plant (the “Plant”) viaa (i) $1 million cash payment applied directly towards debt principalreduction, and (ii) a refinancing by GeoPetro of the $6,697,847 remainingbalance in the form of a 3 year Amended and Restated Term Loan Agreement withthe lender, Bank Oklahoma (“BOK”).  The terms of the three year loanprovide 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 June 30, 2009, the interest rate was 6.54% (LIBOR +5.5%).  Additional principal will be payable upon GeoPetro meeting certainnet operating cash flow thresholds during the three year term of theloan.  The loan is secured by a first lien on the Madisonville MidstreamPlant and all of the Company’s proved natural gas reserves located at theMadisonville Project.  In addition, GeoPetro has agreed to pay, at thetime the loan is repaid in full, a loan origination fee of $60,000 for anyannual period during which the loan principal remains outstanding.  There isno prepayment penalty.  The Amended and Restated Term Loan Agreementcontains customary affirmative and negative covenants including restrictions onincurring additional debt and requiring that the Company maintain a minimumtangible net worth of at least $35,000,000.

 

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

 

The Company files income tax returns in the U.S.federal jurisdiction and various states.  There are currently no federalor state income tax examinations underway.  Furthermore, the Company is nolonger subject to U.S. federal income tax examinations by the Internal RevenueService for tax years before 2005 and for state and local tax authorities fortax years before 2004.  The Company does, however, have net operatinglosses generated in tax years 1997 and after, which remain open forexamination.

 

The Company adopted the provisions of FASBInterpretation No. 48, Accounting for Uncertainty in Income Taxes, on January 1,2007. As December 31, 2008 the Company had no unrecognized tax benefits.There have been no changes during the year with respect to unrecognized taxbenefits.  The Company does not foresee the total amounts of unrecognizedtax benefits significantly increasing within the next 12 months. Furthermore, no corresponding interest and penalties have been accrued as theCompany is in a net operating loss position.

 

The Company provides for income taxes in accordancewith Statement of Financial Accounting Standards No. 109, Accounting forIncome Taxes (“SFAS 109”). SFAS 109 requires the recognition of deferred tax assetsand liabilities for the expected future tax consequences of temporarydifferences between the financial statement carrying amounts and the tax basisof the assets and liabilities. Where it is more likely than not that a taxbenefit will not be realized, a valuation allowance is recorded to reduce thedeferred tax asset to its realizable value.

 

A valuation allowance has been provided against theCompany’s net deferred tax assets as the Company believes that it is morelikely than not that the net deferred tax assets will not be realized.

 

The effective tax rate for the six month period ended June 30,2009 was 0%, and for the year ended December 31, 2008 is (7.9) percent,and differs from statutory rates primarily due to changes in the valuationallowance.

 

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

 

There were no material changes to common stock optionsfrom those disclosed in the audited annual consolidated financial statementsfor the year ended December 31, 2008 except the following.

 

On June 26, 2009, the Company granted a total of60,000 options to four non-management directors. The weighted average fairvalue of options granted as calculated under the Black-Scholes pricing modelwas $0.33 per share with the following weighted-average assumptions: risk-free,weighted-average interest rate of 2.53 percent based on the U.S. Treasury yieldcurve in effect at the time of grant, expected dividend yield of 0 percent,expected life of 5 years from the date of grant, and expected volatility of 113percent.

 

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On April 27, 2009. the Company reduced the optionprice previously granted to an officer from $2.10 per share to $1.00 per sharebased on the new employment agreement. The fair value of the repricing optionswas insignificant.

 

The options outstanding as of June 30, 2009 havethe following contractual lives:

 
| **Number of  Options  Outstanding** | ** ** | **Number of  Options  Exercisable** | ** ** | **Exercise  Prices** | ** ** | **Weighted Average  Remaining  Contractual Life** | ** ** |
|------------------------------------------|------------|------------------------------------------|------------|----------------------|------------|-------------------------------------------------------------|------------|
| 210,000                                  |       | 150,000                                  |       | 1.00                 |       | 4.76                                                        |       |
| 1,600,000                                |       | 1,600,000                                |       | 2.10                 |       | 3.93                                                        |       |
| 150,000                                  |       | 90,000                                   |       | 3.85                 |       | 1.79                                                        |       |
| 10,000                                   |       | 8,000                                    |       | 4.25                 |       | 0.51                                                        |       |
| 740,000                                  |       | 148,000                                  |       | 4.28                 |       | 4.00                                                        |       |
| 10,000                                   |       | 8,000                                    |       | 6.25                 |       | 0.94                                                        |       |
| 2,720,000                                |       | 2,004,000                                |       |                 |       |                                                        |       |

 

The total intrinsic value of options outstanding wasapproximately $0 and $3,366,500 at June 30, 2009 and 2008 respectively.The intrinsic value for exercisable options was $0 and $3,309,100 at June 30,2009 and 2008, respectively.

 

As of June 30, 2009, there are 2,004,000 optionswhich are exercisable. The remaining 716,000 options will become exercisableover the next four years. The stock compensation expense related to theunvested awards is $1,401,056.

 

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

 

On April 10, 2009, the Company extended theexpiration date on a warrant to purchase 114,000 shares of common stock(exercisable at $3.50 per share) to December 15, 2011.  The fairvalue of the warrant extension was insignificant.

 

On March 31, 2009, the Company extended theexpiration date on a warrant to purchase 100,000 shares of common stock(exercisable at $5.25 per share) to March 31, 2014.  The fair valueof the warrant extension was insignificant.

 

On February 23, 2009, the Company issued 50,000shares of the common stock warrants to a non-related party expiring February 22,2012 with a strike price of $1.00 per share. Warrants granted shall vestaccording the following schedule: 25% immediately; 25% at the three monthanniversary of the signing of the agreement; 25% at the six month anniversaryof the signing of the agreement; and 25% at the nine month anniversary of thesigning of the agreement. The grant-date fair value of the warrants amounted to$8,106, using the Black-Scholes valuation method, which is recognized ingeneral and administrative expense on our consolidated statement of operationsratably over the requisite service period as defined by the vesting scheduleabove.

 

**10.**  **COMMITMENTS ANDCONTINGENCIES*:***

 

There are no material changes to commitments and contingenciesfrom those disclosed in the audited annual consolidated financial statementsfor the year ended December 31, 2008.

 

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**Item 2. Management’s Discussion and Analysis ofFinancial 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.*

 

*Factorsthat could cause or contribute to such differences include, but are not limitedto, market prices for natural gas and oil, economic and competitive conditions,regulatory changes, estimates of proved reserves, potential failure to achieveproduction from development drilling projects, capital expenditures and otheruncertainties, as well as those factors discussed below and elsewhere in thisreport, particularly in “Risk Factors” and “Cautionary Notes Regarding ForwardLooking Statements”, all of which are difficult to predict and which expresslyqualify all subsequent oral and written forward-looking statements attributableto us or persons acting on our behalf. In light of these risks, uncertaintiesand assumptions, the forward looking events discussed may not occur. We do nothave any intention or obligation to update forward-looking statements includedin this report after the date of this report, except as required by law.*

 

**Overview**

 

We arean 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 currentlyencompass approximately 379,547 gross (161,171 net) acres, consisting ofmineral leases, production sharing contracts and exploration permits that giveus the right to explore for, develop and produce oil and natural gas. Most ofthese properties are in the exploration, appraisal or development drillingphase and have not begun to produce revenue from the sale of oil and naturalgas. Excluding minor interest and dividend income, our only significant cashinflows until 2003 were the recovery of capital invested in projects throughsale or other divestiture of 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 2009. We expect the majorityof our capital expenditures in 2009 will be for the Madisonville Project.

 

**Resultsof Operations**

 

Thefinancial information with respect to the six months ended June 30, 2009and 2008 that is 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.

 
| ** **                                                | ** ** | **Six  Months Ended**   | ** ** |
|-----------------------------------------------------------|------------|-------------------------|------------|
| ** **                                                | ** ** | **June 30,  2009** | ** ** | **June 30,  2008** | ** ** |
| ** **                                                | ** ** | **(unaudited)**         | ** ** | **(unaudited)** | ** ** |
| **Consolidated Statement of Operations:**                 |       |                    |       |   |   |
| **Revenues**                                              |       | $                       | 1,946,270  |   | $ | 4,793,590 |   |
| **Plant operating expense**                               |       | 2,353,139               |       | — |   |
| **Lease operating expense**                               |       | 384,414                 |       | 990,382 |   |
| **General and administrative**                            |       | 1,465,593               |       | 1,319,513 |   |
| **Net profits expense**                                   |       | —                  |       | 488,929 |   |
| **Impairment expense**                                    |       | —                  |       | 63,766 |   |
| **Depreciation and depletion expense**                    |       | 726,491                 |       | 982,735 |   |
| **Earnings (loss) from operations**                       |       | (2,983,367              | )          | 948,265 |   |
| **Net income (loss)**                                     |       | (3,381,585              | )          | 980,838 |   |
| **Net income (loss) attributable to common shareholders** |       | (3,406,297              | )          | 980,838 |   |
|                                                           |            |                         |            |  |  |  |  |

 

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**Revenueand Operating Trends in 2009**

 

Wedeveloped an onsite plan to treat and remove impurities from the MadisonvilleProject natural gas in order to meet pipeline-quality specifications. TheMadisonville Project is located in East Texas. In 2003, the construction andinstallation of a natural gas treatment plant with a designed capacity of 18million 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 MGP to install and make operationaladditional treating facilities capable of treating 50 MMcf/d, which combinedwith the capacity of the current in-service treating facilities will representa total designed treating capacity of 68 MMcf/d for the Madisonville treatmentplant.   In early November 2007, MGP began testing theadditional treatment facilities by accepting 20 MMcf/d at theinlet.   Subsequently in December 2007, MGP temporarilysuspended the operations of the additional treatment facilities in order tomake modifications to more effectively deal with the presence of diamondoids inthe gas stream produced from the Rodessa Formation.

 

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 anticipate completing installationof the system modifications required in the plant in 2009 or in 2010.  Inthe meantime, the existing, in service portion of the plant continues tooperate with an effective capacity of approximately 15 MMcf/d of inlet gas.

 

Whilethere can be no assurance we will be successful, our goal is to make thenecessary upgrades to the acquired gas treatment plant and increase theproduction rates from our wells which may result in higher net production andincreased revenue during the later quarterly periods in 2009 as compared to thesix months ended June 30, 2009. To accomplish the plant upgrades, we willneed to raise capital in 2009. Due to the tight credit markets and persistingweakness in the stock market, funds may not be available, or may not beavailable on favorable terms.

 

Duringthe six months ended June 30, 2009, 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.   Inorder to address this shortfall, we are implementing immediate measures toincrease production volumes and reduce operating expenses. We utilized idleequipment and implemented operating efficiencies in the Plant to reduce thePlant inlet pressure in June 2009. This measure increases the combinedproduction from the Magness #1 and Fannin #1 wells from current levels. Inaddition, subject to capital availability, we subsequently plan to workover theMitchell #1 well and to frac and connect via gathering line the Wilson #1 well.Once the above production enhancements are completed, the Company expects thecombined Rodessa formation production to increase from current rates.  TheCompany hopes to realize both intermediate and long term cost and operatingefficiencies by consolidating the upstream and midstream portions ofMadisonville under common ownership. Prior to the consolidation, MGP andGeoPetro employed a combined total of 30 persons, whereas subsequent to theconsolidation, GeoPetro and MM now employ a combined total of 21 persons,representing a net reduction of 9 persons (30% of the combinedpre-consolidation workforce). Despite the challenges of the currentenvironment, we accomplished the necessary goal of vertically integrating ourposition in the Madisonville field.  We continue to explore other longerterm cost saving and efficiency measures in the Plant.

 

**IndustryOverview for the six months ended June 30, 2009**

 

The sixmonths ended June 30, 2009 saw weaker natural gas prices. The Houston ShipChannel price, the index price prevailing in the locale of our MadisonvilleProject in Madison County, Texas, as quoted in Gas Daily as of June 30,2009, was $3.88 per Mcf versus $5.25 per Mcf as of December 31,2008.  Natural gas prices have been very volatile during 2008 and early2009 due to supply concerns earlier in 2008, and more recently due to recessionconcerns arising from the current global financial crisis and a resultantdecline in demand for natural gas.

 

**CompanyOverview for the six months ended June 30, 2009**

 

Ournet loss after taxes for the six months ended June 30, 2009 was $3,381,585.From our inception, through mid-2003, we only received nominal revenues fromour oil and natural gas activities, while incurring substantial acquisition andexploration costs and overhead expenses which have resulted in an accumulateddeficit through June 30, 2009 of 

 

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$15,591,912. Commencingin May 2003, we placed our Madisonville Project into production. All ofour oil and natural gas sales for six months ended June 30, 2009 werederived from our Madisonville Project, from three producing wells, the Magness#1 well (the “Magness Well”), the Fannin #1 well (the “Fannin Well”), and theMitchell #1 well (the “Mitchell Well”).

 

**Comparisonof Results of Operations for the three months ended June 30, 2009 and 2008**

 

Duringthe three months ended June 30, 2009, we had gross natural gas revenuesfrom the treatment plant of $1,039,739 and revenues from treating third partygas in the Plant of $30,463. Our gross production from our wells was 357,276Mcf (production net of royalties of 257,931 Mcf) of natural gas at an averageprice of $2.91 per Mcf. During the three months ended June 30, 2008, wehad net oil and natural gas revenues of $2,650,992. Our net production for thethree months ended June 30, 2008 was 374,534 Mcf at an average price of $7.08per Mcf. Revenues decreased in the three months ended June 30, 2009 ascompared to the prior year period due to lower natural gas prices and 31% lowernet production volumes. Net natural gas prices were approximately 59% lower forthe three months ended June 30, 2009 versus the same period in 2008. The average natural gas price of $7.08 per Mcf for the 2008 period was net oftreating, gathering, marketing and transportation fees in accordance with ourcontracts with MGP and Gateway ADAC Pipeline, LLC.  The contracts thatwere in place with MGP were terminated as of December 31, 2008.

 

Priorto December 31, 2008, revenue was recognized upon delivery of oil and gasproduction and was shown net of applicable royalty payments, as well asprocessing, gathering, transportation and marketing fees. As indicated in thepreceding paragraph, the Company recognized revenue from the Madisonville Fieldnet of applicable fees to treat, gather, transport and market the Company’snatural gas production. The applicable fees were paid to unrelated thirdparties.  On December 31, 2008, the Company completed the acquisitionof the Plant from MGP. Commencing January 1, 2009, revenue is beingrecognized without the netting of applicable royalty payments, as well as processing,gathering, transportation and marketing fees since we have acquired the Plant.For all periods presented, revenue from the Madisonville Field is recognizedwhen the price for gas delivered became fixed and determinable.

 

Ourresults of operations for the three months ended June 30, 2009 include theoperating results of the Plant, but our results of operations for the threemonths ended June 30, 2008 do not include the operating results of thenatural gas treatment plant because such acquisition closed on December 31,2008. The following condensed pro forma information gives effect to theacquisition as if it had occurred on January 1, 2008. The pro formainformation has been included in the notes to the financial statements includedelsewhere in this document as required by generally accepted accountingprinciples and is provided for comparison purposes only. The pro formafinancial information is not necessarily indicative of the financial resultsthat would have occurred had the acquisition been effective on the datesindicated and should not be viewed as indicative of operations in the future.

 
| ** **                             | ** ** | **Three  Months********Ended  June 30, 2008** | ** ** |
|----------------------------------------|------------|----------------------------------------------------|------------|
| Operating  revenues                    |       | $                                                  | 5,503,252  |   |
| Total  operating expenses              |       | $                                                  | 4,861,479  |   |
| Earnings  applicable to common stock   |       | $                                                  | 473,174    |   |
| Net  earnings per share — basic   |       | $                                                  | 0.01       |   |
| Net  earnings per share — diluted |       | $                                                  | 0.01       |   |

 

Duringthe three months ended June 30, 2009, we incurred plant operating expensesof $1,308,367. Our average plant operating cost for the 2009 period was $3.57per Mcf on gross throughput of 366,371 Mcf. We purchased the gas treatmentplant effective on December 31, 2008, thus there was no plant operatingexpense for the comparable 2008 period.

 

Duringthe three months ended June 30, 2009, we incurred lease operating expenseof $83,535. Our net average lifting cost for the 2009 period was $0.32 per Mcf.During the three months ended June 30, 2008, we incurred lease operatingexpense of $646,559. Our net average lifting cost for the 2008 period was $1.73per Mcf. The average lifting cost per Mcf in 2009 was lower due to cost cuttingefforts and a reduction of ad valorem property taxes applicable to the wells.

 

Duringthe three months ended June 30, 2009, we incurred no net profits interestexpense associated with the Magness, the Fannin, and the Mitchell wells ascompared to $260,868 during the three months ended June 30, 2008. Thedecrease resulted from lower gas prices and production volumes in the threemonths ended June 30, 2009 versus 2008. The net profit interest is 12.5%of the net operating profit from our Magness, Fannin, and Mitchell wells.

 

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Generaland administrative (“G&A”) expenses for the three months ended June 30,2009 were $616,655 compared to $604,090 for the three months ended June 30,2008. This represents a $12,565 or 2% increased over the prior year period. Thehigher G&A expense incurred in 2009 was due primarily to the amortizationof stock compensation expense associated with the newly issued options in June 2008.

 

Forthe three months ended June 30, 2009, no impairment expense was incurredversus $63,766 for the same period of 2008.  The 2008 impairmentwrite-downs were due to remaining cost of certain dry holes drilled on ourCanadian oil and gas properties, which resulted in ceiling test write downs.

 

Depreciation,depletion and amortization expense (“DD&A”) for the three months ended June 30,2009 was $416,405 as compared to $448,305 in the same period of 2008, whichamounts primarily represent amortization of the oil and gas properties for thethree months ended June 30, 2009 and 2008, respectively. The 7% decreasewas due to lower net production in the three months ended June 30, 2009.

 

Lossfrom operations totaled $1,354,760 for the three months ended June 30,2009 as compared to income from operations of $627,404 for the three monthsended June 30, 2008. The increase in the loss from operations was dueprimarily to lower gas prices, lower production volume, and higher expenses.

 

Otherincome for the three months ended June 30, 2009 and 2008 consisted ofinterest income in the amount of $330 and $17,803, respectively. Interestincome decreased due primarily to lower average cash and cash equivalentbalances because of the acquisition of the gas treatment plant on December 31,2008.

 

Duringthe three months ended June 30, 2009 and 2008, we incurred interestexpense of $167,907 and $0, respectively. We borrowed funds in late December 2008and the first two quarters of 2009 related to the plant acquisition and workingcapital requirements. There were no borrowings outstanding in the three monthsended June 30, 2008.

 

Netloss before taxes for the three months ended June 30, 2009 was $1,522,337as compared to net income before taxes of $645,207 for the three months ended June 30,2008. The net loss incurred during the three months ended June 30, 2009was primarily due to weaker gas prices, lower production volumes and expensesassociated with the gas treatment plant.

 

Incometax expense for the three months ended June 30, 2009 was $1,845 comparedto $8,495 in the same period of 2008. The income tax expense in 2009 was due tothe payment of the Texas Franchise tax and the 2008 income tax was due to alternativeminimum tax incurred in the second quarter of 2008.

 

**Comparisonof Results of Operations for the six months ended June 30, 2009 and 2008**

 

Duringthe six months ended June 30, 2009, we had gross natural gas revenues fromthe treatment plant of $1,878,153 and revenues from treating third party gas inthe Plant of $68,117. Our gross production from our wells was 610,866 Mcf(production net of royalties of 441,277 Mcf) of natural gas at an average priceof $3.07 per Mcf. During the six months ended June 30, 2008, we had netoil and natural gas revenues of $4,793,590. Our net production for the sixmonths ended June 30, 2008 was 825,184 Mcf at an average price of $5.81per Mcf. Revenues decreased in the six months ended June 30, 2009 ascompared to the prior year period due to lower natural gas prices and 47% lowernet production volumes. Net natural gas prices were approximately 47% lower forthe six months ended June 30, 2009 versus the same period in 2008. The average natural gas price of $5.81 per Mcf for the 2008 period was net oftreating, gathering, marketing and transportation fees in accordance with ourcontracts with MGP and Gateway ADAC Pipeline, LLC.  The contracts thatwere in place with MGP were terminated as of December 31, 2008.

 

Priorto December 31, 2008, revenue was recognized upon delivery of oil and gasproduction and was shown net of applicable royalty payments, as well asprocessing, gathering, transportation and marketing fees. As indicated in thepreceding paragraph, the Company recognized revenue from the Madisonville Fieldnet of applicable fees to treat, gather, transport and market the Company’snatural gas production. The applicable fees were paid to unrelated thirdparties.  On December 31, 2008, the Company completed the acquisitionof the Plant from MGP. Commencing January 1, 2009, revenue is being recognizedwithout the netting of applicable royalty payments, as well as processing,gathering, transportation and marketing fees since we have acquired the Plant.For all periods presented, revenue from the Madisonville Field is recognizedwhen the price for gas delivered became fixed and determinable.

 

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Ourresults of operations for the six months ended June 30, 2009 include theoperating results of the Plant, but our results of operations for the sixmonths ended June 30, 2008 do not include the operating results of thenatural gas treatment plant because such acquisition closed on December 31,2008. The following condensed pro forma information gives effect to theacquisition as if it had occurred on January 1, 2008. The pro formainformation has been included in the notes to the financial statements includedelsewhere in this document as required by generally accepted accountingprinciples and is provided for comparison purposes only. The pro formafinancial information is not necessarily indicative of the financial resultsthat would have occurred had the acquisition been effective on the datesindicated and should not be viewed as indicative of operations in the future.

 
| ** **                             | ** ** | **Six  Months Ended  June 30, 2008** | ** ** |
|----------------------------------------|------------|-------------------------------------------|------------|
| Operating  revenues                    |       | $                                         | 10,752,180 |   |
| Total  operating expenses              |       | $                                         | 9,359,018  |   |
| Earnings  applicable to common stock   |       | $                                         | 1,005,389  |   |
| Net  earnings per share — basic   |       | $                                         | 0.03       |   |
| Net  earnings per share — diluted |       | $                                         | 0.03       |   |

 

Duringthe six months ended June 30, 2009, we incurred plant operating expensesof $2,353,139. Our average plant operating cost for the 2009 period was $3.71per Mcf on gross throughput of 634,192 Mcf. We purchased the gas treatmentplant effective on December 31, 2008, thus there was no plant operatingexpense for the comparable 2008 period.

 

Duringthe six months ended June 30, 2009, we incurred lease operating expense of$384,414. Our net average lifting cost for the 2009 period was $0.87 per Mcf.During the six months ended June 30, 2008, we incurred lease operatingexpense of $990,382. Our net average lifting cost for the 2008 period was $1.20per Mcf. The average lifting cost per Mcf in 2009 was lower due to cost cuttingefforts and a reduction of ad valorem taxes applicable to the wells.

 

Duringthe six months ended June 30, 2009, we incurred no net profits interestexpense associated with the Magness, the Fannin, and the Mitchell wells ascompared to $488,929 during the six months ended June 30, 2008. Thedecrease resulted from lower gas prices and production volumes in the sixmonths ended June 30, 2009 versus 2008. The net profit interest is 12.5%of the net operating profit from our Magness, Fannin, and Mitchell wells.

 

Generaland administrative (“G&A”) expenses for the six months ended June 30,2009 were $1,465,593 compared to $1,319,513 for the six months ended June 30,2008. This represents a $146,080 or 11% increase over the prior year period.The higher G&A expense incurred in 2009 was due primarily to theamortization of stock compensation expense associated with the newly issuedoptions in June 2008.

 

Forthe six months ended June 30, 2009, no impairment expense was incurredversus $63,766 for the same period of 2008.  The 2008 impairmentwrite-downs were due to remaining cost of certain dry holes drilled on ourCanadian oil and gas properties, which resulted in ceiling test write downs.

 

Depreciation,depletion and amortization expense (“DD&A”) for the six months ended June 30,2009 was $726,491 as compared to $982,735 in the same period of 2008, whichamounts primarily represent amortization of the oil and gas properties for thesix months ended June 30, 2009 and 2008, respectively. The 26% decreasewas due to lower net production in the six months ended June 30, 2009.

 

Lossfrom operations totaled $2,983,367 for the six months ended June 30, 2009as compared to income from operations of $948,265 for the six months ended June 30,2008. The increase in the loss from operations was due primarily to lower gasprices, lower production volume, and higher expenses.

 

Otherincome for the six months ended June 30, 2009 and 2008 consisted ofinterest income in the amount of $3,973 and $47,868, respectively. Interestincome decreased due primarily to lower average cash and cash equivalentbalances because of the acquisition of the gas treatment plant in December 31,2008.

 

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Duringthe six months ended June 30, 2009 and 2008, we incurred interest expenseof $400,346 and $0, respectively. We borrowed funds in late December 2008and the six months ended June 30, 2009 related to the plant acquisitionand working capital requirements. There were no borrowings outstanding in the sameperiod of 2008.

 

Netloss before taxes for the six months ended June 30, 2009 was $3,379,740 ascompared to net income before taxes of $996,133 for the six months ended June 30,2008. The net loss incurred during the six months ended June 30, 2009 wasprimarily due to weaker gas prices, lower production volumes and expensesassociated with the gas treatment plant.

 

Incometax expense for the six months ended June 30, 2009 was $1,845 compared to$15,295 in the same period of 2008. The income tax expense in 2009 relates to theTexas Franchise tax and the 2008 income tax expense was due to alternativeminimum tax incurred in the same period of 2008.

 

**RecentDevelopments**

 

During the six months ended June 30, 2009 weborrowed $850,000 pursuant to five separate three year loans which wereconvertible into a newly designated class of preferred stock of GeoPetro, Series BConvertible Preferred Stock (the “Series B Preferred Stock”) and $765,000pursuant to four separate three year loans.  The $850,000 in loansconverted into Series B Preferred Stock on April 30, 2009, along withan additional $1,000,000 which was advanced during April for a totalsubscription in the private placement to date of 2,466,670 shares for apurchase price of $0.75 per share and an aggregate investment of $1,850,000.The holders of Series B Stock are entitled to receive an annual dividendat the rate of $0.06 per share and are entitled to such number of votes pershare as equals the number of common shares into which each share of Series BStock is convertible. Each share of Series B Stock is convertible, at theoption of the holder, into fully paid and non-assessable common shares on aone-for-one basis, subject to certain adjustments. The Series B Stock willautomatically convert into common shares on a one-for-one share basis effectivethe first trading day after the reported high selling price for the Company’scommon shares on any international, national or regional securities exchange orinter-dealer quotation system including but not limited to, NASDAQ, the PinkSheets or the Over-the-Counter Bulletin Board, is at least $1.50 per share forany ten consecutive trading days. If an automatic conversion occurs within oneyear after the Series B Stock was purchased from the Company, a holderwill receive, on the one-year anniversary date of his, her or its purchase, acash dividend equivalent to a full year of dividends less any dividends paidbefore such conversion.

 

In accordance with theprovisions of an agreement with Adelphi Energy Limited (“Adelphi”) and ourwholly owned subsidiary, GeoPetro Resources (South Bengara-II) Pte. Ltd., werelinquished our interest in the recently awarded South Bengara-II productionsharing contract, onshore Indonesia.  OnMay 18, 2009, we received repayment of a loan we had previously made to Adelphiin the amount of $95,000 in connection with the acquisition of the productionsharing contract.

 

**Liquidityand Capital Resources**

 

We hada working capital deficit of $3,850,600 at June 30, 2009 versus $2,151,652at December 31, 2008. Our working capital decreased during six monthsended June 30, 2009 due primarily to weaker gas prices and lowerproduction.

 

Wehave historically financed our business activities through June 30, 2009principally through issuances of common shares, promissory notes and commonshare purchase warrants in private placements and an initial public offering.These financings are summarized as follows:

 
| ** **                                                      | ** ** | **Six  Months Ended**  | ** ** |
|-----------------------------------------------------------------|------------|-----------------------------|------------|
| ** **                                                      | ** ** | **June 30, 2009** | ** ** | **June 30, 2008** | ** ** |
| Proceeds  from sale of common shares and warrant exercises, net |       | $                           | —     |   | $ | 375,000 |   |
| Proceeds  from sale of Preferred Series B                  |       | 1,850,000                   |       | — |   |
| Proceeds  from promissory notes                                 |       | 765,000                     |       | — |   |
| Repayment  of notes payable                                     |       | (300,000                    | )          | — |   |
|                                                            |       |                        |       |   |   |
| Net  cash provided by financing activities                      |       | $                           | 2,315,000  |   | $ | 375,000 |   |

 

Thenet proceeds of our equity financings have been primarily used in the workingcapital requirement and invested in oil and natural gas properties totaling $557,311and $3,106,752 for the six months ended June 30, 2009 and 2008,respectively.

 

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Ourcash balance at June 30, 2009 was $330,953 compared to a cash balance of$770,779 at December 31, 2008. The change in our cash balance issummarized as follows:

 
| Cash  balance at December 31, 2008       |   | $          | 770,779 |   |
|-----------------------------------------------|--------|------------|---------|--------|
| Sources  of cash:                             |   |       |    |
| Cash  provided by financing activities        |   | 2,315,000  |    |
| Total  sources of cash including cash on hand |   | 3,085,779  |    |
|                                          |   |       |    |
| Uses  of cash:                                |   |       |    |
| Cash  used in operating activities            |   | (2,144,015 | )       |
| Cash  used in investing activities:           |   |       |    |
| Oil  and natural gas property expenditures    |   | (557,311   | )       |
| Gas  treatment plant                          |   | (53,500    | )       |
| Total  uses of cash                           |   | (2,754,826 | )       |
|                                          |   |       |    |
| Cash  balance at June 30, 2009           |   | $          | 330,953 |   |

 

Duringthe six months ended June 30, 2009, we raised $850,000 from the issuanceof convertible loans and $765,000 from the issuance of promissory notes to accreditedinvestors all of which were subordinated to the Bank of Oklahoma loan andunsecured.  The $850,000 promissory notes converted to Series B PreferredStock effective April 30, 2009.  Weraised an additional $1,000,000 from the issuance of Series B PreferredStock in April 2009.

 

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 2009” for adescription of our expected capital expenditures for 2009. If we are unable togenerate revenues necessary to finance our operations over the long-term, wemay have to seek additional capital through the sale of our equity orborrowing. As noted in “Recent Developments,” we periodically borrow fundspursuant to short and long term promissory notes to finance our activities.

 

As of June 30,2009, we have a working capital deficit of $3,850,600, and for the six monthsended June 30, 2009, our cash used in operating activities amounted to $2,144,015. Further, we estimate our minimum investment needs during the remainder of 2009amount to be $4,500,000 related to our natural gas processing plant and ournatural gas properties within the Madisonville field.  Due to the currentnatural gas commodity price environment, our results of natural gas operationsamounted to a loss of $3,406,297 for the six months ended June 30,2009.  Further, we have debt service and dividend requirements that willrequire cash payments.  We hold working interests in undeveloped leases,seismic options, lease options and foreign concessions and we have participatedin seismic surveys and the drilling of test wells on undevelopedproperties.  We plan further leasehold acquisitions and seismic operationsfor the remainder of 2009 and future periods.  Exploratory anddevelopmental drilling is scheduled during 2009 and future periods on ourundeveloped properties.  Subsequent to June 30, 2009, we areattempting to raise additional capital through a bridge loan financing andthrough issuance of additional shares of our Series B Preferred Stock, andwe potentially plan to sell idle equipment from our natural gas processingplant.  In addition to these items, we 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 2009”, we are forecasting capital expenditures of$7.5 million during 2009. We will need to obtain adequate sources of cash tofund our anticipated capital expenditures through the end of 2009 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 2008economic 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.

 

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**ContractualObligations**

 

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, 2008.  There wereno material changes to our contractual obligations since December 31, 2008except the borrowings described in “Recent Developments”.

 

**OffBalance Sheet Arrangements**

 

Fromtime to time, we enter into off-balance sheet arrangements and transactionsthat can give rise to off-balance sheet obligations. As of June 30, 2009,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.

 

**FinancialInstruments**

 

Wecurrently have no natural gas price financial instruments or hedges in place.Similarly, we have no financial derivatives. 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 or financial derivatives in 2009.

 

**Outlookfor 2009**

 

Dependingon capital availability, we are forecasting capital spending of up toapproximately $7.5 million during the year 2009, allocated as follows:

 

1                          Madisonville Project, Madison County,Texas — Approximately $6.2 million may be expended in the Madisonville Fieldarea as follows: $3 million for capital maintenance and repair on new gastreatment plant; $2 million toward the fracture stimulation and hook up costsof the Wilson Well; $500,000 for the Mitchell well workover; $400,000 forlowering the line pressure; and $300,000 for lease acquisitions.

 

2.                       Cook Inlet, Alaska — Approximately $1.0million to be utilized for land delay rentals, geologic and geophysical costs,wellsite preparation, permitting, and logistics.

 

3.                       California and Indonesia — Approximately$0.3 million to be utilized for land, geologic and geophysical 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 expenditure listed above. See “Liquidity andCapital Resources.”

 

Weexpect commodity prices to be volatile, reflecting the current supply anddemand fundamentals for North American natural gas and world crude oil.Political events around the world, which are difficult to predict, willcontinue to influence both oil and gas prices. Higher prices for oil and gasoften lead to higher levels of drilling activity which in turn lead to highercosts to explore, develop and acquire oil and gas reserves due to greatercompetition for resources and supplies. These higher costs could affect thereturns on our capital expenditures. Higher crude prices could also help keepnatural gas prices high by keeping alternative fuels, such as heating oil andresidual fuel, expensive.

 

**Impactof Inflation & Changing Prices**

 

We arehighly dependent upon natural gas pricing. A material decrease in current andprojected 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.

 

GeoPetroanticipates significantly lower average natural gas prices in 2009 compared to2008. This will likely have a material negative impact on our cash flow andrevenues.

 

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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 $7.5 million in 2008 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.  We have not recentlyupdated our cost estimates for drilling these wells but expect that currentcosts are lower than those prevailing in 2008.

 

**CriticalAccounting 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, 2008 for the descriptionof critical accounting policies and estimates.

 

**Risksand 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, 2008 for a description of the principal risksfaced by us.

 

**Item 3. Quantitative and Qualitative Disclosures AboutMarket Risk**

 

We areexposed to market risks arising from fluctuating prices of crude oil, naturalgas and interest rates as discussed below.

 

*Commodity Risk.*  Our major commodity price risk exposure isto the prices received for our natural gas production. Realized commodityprices received for our production are the spot prices applicable to naturalgas in the East Texas region. Prices received for natural gas are volatile andunpredictable and are beyond our control.

 

*Currency Translation Risk.  *Because our revenues and expenses areprimarily in U.S. dollars, we have little exposure to currency translationrisk, and, therefore, we have no plans in the foreseeable future to implementhedges or financial instruments to manage international currency changes.

 

*Hedging.* We did not enter into any hedging transactions duringthe six months ended June 30, 2009 and 2008.

 

**Item 4. Controls and Procedures**

 

**Evaluationof Disclosure Controls and Procedures**

 

Basedon their evaluation as of six months ended June 30, 2009, our ChiefExecutive Officer and Chief Financial Officer have concluded that ourdisclosure controls and procedures (as defined in Rules 13a-15(e) and15d-15(e) under the Exchange Act) are effective to ensure that informationrequired to be disclosed in reports that we file or submit under the ExchangeAct are recorded, processed, summarized and reported within the time periodsspecified in the SEC’s rules and forms and in providing reasonableassurance that information required to be disclosed by the Company in suchreports is accumulated and communicated to the Company’s management, includingits Chief Executive Officer and Chief Financial Officer, as appropriate toallow timely decisions regarding required disclosures.

 

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

 

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**PART II. OTHER INFORMATION**

 

**Item 1.  Legal Proceedings.**

 

Fromtime to time, we are party to litigation or other legal and administrative proceedingsthat we consider to be a part of the ordinary course of our business.Currently, we are not involved in any legal proceedings nor are we party to anypending or threatened claims that could, individually or in the aggregate,reasonably be expected to have a material adverse effect on our financialcondition, cash flow or results of operations.

 

**Item 1A.  Risk Factors.**

 

As ofthe 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, 2008, referred to as our 2008 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 2008 Annual Report. These risks anduncertainties are not the only ones facing us and there may be additionalmatters that we are unaware of or that we currently consider immaterial.

 

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

 

**UnregisteredSales of Securities**

 

Duringthe quarter ended June 30, 2009, we  entered into a preferred stockpurchase agreement for the private placement of 2,466,672 shares of newlydesignated Series B Convertible Preferred Stock, for a purchase price of$0.75 per share and an aggregate investment of $1,850,000.  We  issued the Series B Convertible PreferredStock in reliance on the exemption from registration provided for under Section 4(2) ofthe Securities Act, and Rule 506 of Regulation D thereunder. We relied onthe exemption from registration provided for under Section 4(2) ofthe Securities Act based in part on the representations made by the investors,including the representations with respect to the investors’ status as accreditedinvestors, as such term is defined in Rule 501(a) of the SecuritiesAct, and the their investment intent with respect to the shares purchased.

 

**Use ofProceeds**

 

On ourregistration statement on Form S-1 (Reg. No. 333-135485) weregistered up to 16,499,991 shares of our common stock, no par value per share,including 4,301,355 shares of common stock issuable upon exercise of warrantsand options, for resale by selling shareholders. The registration statement wasdeclared effective by the Securities and Exchange Commission in February 2007.The offering commenced on in February 2007 and has not terminated. On ourregistration statement on Form S-1 (Reg. No. 333-146557) weregistered up to 2,002,599 shares of outstanding common stock and the resale ofup to 780,857 shares of common stock issuable upon exercise of warrants, forresale by selling shareholders. The registration statement was declaredeffective by the Securities and Exchange Commission in October 2007. Theoffering commenced in October 2007 and has not terminated. We will notreceive any proceeds from the sale of our common stock by the sellingshareholders under the registration statements; however if all warrants andoptions to acquire our common stock being registered thereunder are exercised,we will realize cash proceeds of approximately $16 million, which we expect touse for general working capital purposes and the drilling of wells in ourTexas, Alaska, California and Indonesian prospects.

 

Ifless than the $16 million proceeds are realized from the exercise of suchwarrants and options, the proceeds will be spent in the following order ofpriority:

 

1.      Madisonville Project,Madison County, Texas. Up to approximately $10 million will be expended in theMadisonville Field area towards the drilling and completion of one deepexploratory well location to an estimated depth of 18,000 feet.

 

2.       Alaska Cook Inlet Project, up toapproximately $2.0 million will be expended for the drilling of pilot programwells.

 

3.      General workingcapital.

 

We donot know if, or how many, of the warrants or options will be exercised. This isour best estimate of our use of proceeds generated from the possible exerciseof warrants or options based on the current state of our business operations, ourcurrent plans 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 theSecurity Holders.**

 

On June 26, 2009,the Company held its annual stockholders meeting. The Board proposed, and theshareholders approved, (i) the election of each of the Company’s Directorsfor an additional term of one year to expire at the Company’s next AnnualMeeting and (ii) ratification of the appointment of Hein &Associates LLP as the Company’s independent registered public accounting firmfor the fiscal year ending December 31, 2009. The number or votes cast forand against, or withheld, as to each Director and for the Ratification of Hein &Associates, LLP were as follows:

 
| ** **       | ** ** | **Stuart J.** | ** ** | **David V.** | ** ** | **J. Chris** | ** ** | **Thomas D.** | ** ** | **David G.** | ** ** | **Nick**   | ** ** | **Jeffrey**  | ** ** |
|------------------|------------|--------------------|------------|-------------------|------------|-------------------|------------|--------------------|------------|-------------------|------------|------------|------------|--------------|------------|
| ** **       | ** ** | **Doshi**          | ** ** | **Creel**         | ** ** | **Steinhauser**   | ** ** | **Cunningham**     | ** ** | **Anderson**      | ** ** | **DeMare** | ** ** | **Friedman** | ** ** |
|             |       |               |       |              |       |              |       |               |       |              |       |       |       |         |       |
| Shares  in Favor |       | 21,986,308         |       | 20,608,728        |       | 22,132,577        |       | 21,541,886         |       | 21,541,886        |       | 21,440,951 |       | 19,676,549   |       |
| Shares  Withheld |       | 6,585,863          |       | 7,963,443         |       | 6,439,594         |       | 7,030,285          |       | 7,030,285         |       | 7,131,220  |       | 8,895,622    |       |

 
| Ratification of the  appointment of Hein & Associates LLP: |   | For:  26,710,128    |   |
|---------------------------------------------------------------------|--------|---------------------|--------|
|                                                                |   | Against:  1,692,507 |   |
|                                                                |   | Abstain:  169,532   |   |

 

**Item 5.  Other Information.**

 

Not applicable

 

**Item 6.  Exhibits**

 

**EXHIBIT INDEX**

 
| **Exhibit  Number** | ** ** | **Description**                                                                                                                                                                                                                                                                                                                                                                                                          |
|---------------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 3.1 (2)             |       | Amended and Restated  Articles of Incorporation of GeoPetro Resources Company                                                                                                                                                                                                                                                                                                                                            |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                     |
| 3.2 (8)             |       | Second Amended and  Restated Bylaws of the GeoPetro Resources Company                                                                                                                                                                                                                                                                                                                                                    |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                     |
| 4.1 (2)             |       | Form of Warrant  issued by GeoPetro Resources Company to various investors on various dates.                                                                                                                                                                                                                                                                                                                        |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                     |
| 4.2 (3)             |       | 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)                                                                                                                            |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                     |
| 4.4                 |       | Registration Rights  Agreement between GeoPetro Resources Company and various investors dated  August 13, 2007 (filed as Exhibit B to the Form of Unit  Subscription Agreement dated August 13, 2007 filed as Exhibit 10.20  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) |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                     |
| 4.5 (6)             |       | Placement Agent Warrant  dated August 13, 2007                                                                                                                                                                                                                                                                                                                                                                      |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                     |
| 5.1 (6)             |       | Opinion of Greene  Radovsky Maloney Share & Hennigh LLP                                                                                                                                                                                                                                                                                                                                                         |

 

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| 10.1 (2)        |   | Joint Venture Agreement  Bengara II, Dated January 1, 2000                                                                                                                                                                                 |
|-----------------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|            |   |                                                                                                                                                                                                                                            |
| 10.2 (2)        |   | Production Sharing  Contract Bengara II, Dated December 4, 1997                                                                                                                                                                            |
|            |   |                                                                                                                                                                                                                                            |
| 10.4 (2)        |   | Exploration Permit#408,  Dated July 2, 1997                                                                                                                                                                                                |
|            |   |                                                                                                                                                                                                                                            |
| 10.5 (2)        |   | Madisonville Field  Development Agreement Dated August 1, 2005                                                                                                                                                                             |
|            |   |                                                                                                                                                                                                                                            |
| 10.6 (2)        |   | Alaska Cook Inlet  Option dated April 20, 2005                                                                                                                                                                                             |
|            |   |                                                                                                                                                                                                                                            |
| 10.7 (2)†  |   | The 2001 Stock  Incentive Plan                                                                                                                                                                                                                  |
|            |   |                                                                                                                                                                                                                                            |
| 10.8 (2)†  |   | The 2004 Stock Option  and Appreciation Rights Plan                                                                                                                                                                                             |
|            |   |                                                                                                                                                                                                                                            |
| 10.9 (2)†  |   | 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 (2)† |   | David Creel Employment  Agreement, Dated April 28, 1998 and amendments dated September 15,  2000, May 12, 2003 and January 1, 2005                                                                                          |
|            |   |                                                                                                                                                                                                                                            |
| 10.11 (2)† |   | J. Chris Steinhauser  Employment Agreement, Dated September 19, 2000 and amendments dated  December 12, 2002 and January 1, 2005                                                                                                 |
|            |   |                                                                                                                                                                                                                                            |
| 10.12 (2)       |   | Office Lease Agreement,  Dated effective March 1, 2004                                                                                                                                                                                     |
|            |   |                                                                                                                                                                                                                                            |
| 10.13 (4)       |   | Form of  Subscription Agreement for GeoPetro Resources Company stock executed by  various investors on various dates.                                                                                                                      |
|            |   |                                                                                                                                                                                                                                            |
| 10.19 (5)       |   | Shares Sale &  Purchase Agreement Dated September 29, 2006                                                                                                                                                                        |
|            |   |                                                                                                                                                                                                                                            |
| 10.20 (6)       |   | Form of Unit  Subscription Agreement Dated August 13, 2007                                                                                                                                                                            |
|            |   |                                                                                                                                                                                                                                            |
| 10.22 (6)       |   | Promissory Note to  Stuart Doshi dated February 12, 2007                                                                                                                                                                                   |
|            |   |                                                                                                                                                                                                                                            |
| 10.23 (7)† |   | Third Amendment to J.  Chris Steinhauser Employment Agreement dated December 18, 2007                                                                                                                                                      |
|            |   |                                                                                                                                                                                                                                            |
| 10.24 (9)† |   | Employment Agreement  with J. Chris Steinhauser dated April 27, 2009                                                                                                                                                                       |
|            |   |                                                                                                                                                                                                                                            |
| 10.25 (9)† |   | Sixth Amendment to  David Creel Employment Agreement dated April 28, 2009                                                                                                                                                                  |
|            |   |                                                                                                                                                                                                                                            |
| 10.26 (1)       |   | Related Party  Promissory Note Dated June 18, 2009                                                                                                                                                                                         |
|            |   |                                                                                                                                                                                                                                            |
| 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 Chief Financial Officer.                                                                                                                                                                   |
|            |   |                                                                                                                                                                                                                                            |
| 32.1 (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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| (1)    |   | Filed herewith.                                                                                                                                                                                                                            |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                       |
| (2)    |   | Filed as the  identically numbered exhibit to the Registration Statement on Form S-1,  (No. 333-135485), as filed with the Securities and Exchange Commission  on September 30, 2006, and incorporated herein by reference. |
|   |   |                                                                                                                                                                                                                                       |
| (3)    |   | Filed as the  identically numbered exhibit to the Registration Statement on Form S-1,  (No. 333-135485), as filed with the Securities and Exchange Commission  on January 31, 2007, and incorporated herein by reference.   |
|   |   |                                                                                                                                                                                                                                       |
| (4)    |   | Filed as  Exhibit 10.14 to the Registration Statement on Form S-1  (No. 333-135485) as filed with the Securities and Exchange Commission on  September 30, 2006, and incorporated herein by reference.                 |
|   |   |                                                                                                                                                                                                                                       |
| (5)    |   | Filed as the  identically numbered exhibit to the Registration Statement on Form S-1  (No. 333-135485), as filed with the Securities and Exchange Commission  on January 9, 2007, and incorporated herein by reference.     |
|   |   |                                                                                                                                                                                                                                       |
| (6)    |   | Filed as the  identically numbered exhibit to the Registration Statement on Form S-1  (No. 333-146557), as filed with the Securities and Exchange Commission  on October 9, 2007, and incorporated herein by reference.     |
|   |   |                                                                                                                                                                                                                                       |
| (7)    |   | Filed as  Exhibit 10.1 to the Company’s Report on Form 8-K, as filed with the  Securities and Exchange Commission on December 21, 2007 and incorporated  herein by reference.                                          |
|   |   |                                                                                                                                                                                                                                       |
| (8)    |   | Filed as the  identically numbered exhibit to the Registration Statement on Form S-1  (No. 333-135485), as filed with the Securities and Exchange Commission  on April 25, 2008, and incorporated herein by reference.      |
|   |   |                                                                                                                                                                                                                                       |
| (9)    |   | Filed as the  identically numbered exhibit to the Form 10-Q, as filed with the  Securities and Exchange Commission on May 11, 2009, and incorporated  herein by reference.                                                       |
|   |   |                                                                                                                                                                                                                                       |
| † |   | Indicates a management  or compensatory plan or arrangement                                                                                                                                                                                |

 

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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 August 10, 2009.

 
|   | **GEOPETRO  RESOURCES COMPANY** |
|--------|---------------------------------|
|   |                            |   |
|   | By:                             | /s/ Stuart J. Doshi |
|   |                            | Stuart J. Doshi |
|   |                            | Chairman of the Board  of Directors, President and Chief Executive Officer |
|   |                            |   |
|   | By:                             | /s/ J. Chris  Steinhauser |
|   |                            | J. Chris Steinhauser |
|   |                            | Vice President of  Finance and |
|   |                            | Chief Financial  Officer, Principal |
|   |                            | Accounting Officer and  Director |

 

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