**UNITEDSTATES**

**SECURITIESAND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

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**FORM 10-Q**

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**(Mark One)**

| **x** | **QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)  OF THE SECURITIES EXCHANGE ACT OF 1934** |
|-------|----------------------------------------------------------------------------------------------|

 

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

**OR**

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

 

**For the transition period from             to             **

**Commission file number 001-16749**

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**GeoPetroResources Company**

(Exact name of registrant asspecified in its charter)

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

 

**(415)398-8186**

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant:(1) has filed all reports required to be filed by Section 13 or 15(d)of the Securities Exchange Act of 1934 during the preceding 12 months (or forsuch shorter period that the registrant was required to file such reports), and(2) has been subject to such filing requirements for the past 90days.    Yes  x    No  o.

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

Large accelerated filer  o                 Acceleratedfiler  o                    Non-acceleratedfiler  x

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

There were 31,583,007 shares of no par value commonstock outstanding on August 14, 2007.

 

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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. Use of Proceeds                                                                             |   |   |
| Item 3. Defaults Upon Senior Securities                                                             |   |   |
| Item 4. Submission of Matters to a Vote of  Security Holders                                        |   |   |
| Item 5.  Other Information                                                                          |   |   |
| Item 6.  Exhibits                                                                                   |   |   |
| SIGNATURES                                                                                               |   |   |

 

2

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**PART I.FINANCIAL INFORMATION**

**ITEM 1.  FinancialStatements.**

**GEOPETRO RESOURCES COMPANY**

**INDEXTO FINANCIAL STATEMENTS**
|                                                                                                                        | ** ** | **PAGE** |
|------------------------------------------------------------------------------------------------------------------------|------------|----------|
|                                                                                                                   |       |     |
| Consolidated Balance  Sheets as of June 30, 2007 (unaudited) and December 31, 2006                                |       | 4        |
|                                                                                                                   |       |     |
| Consolidated  Statements of Operations for the three and six months ended June 30, 2007 and  June 30, 2006 (unaudited) |       | 6        |
|                                                                                                                   |       |     |
| Consolidated  Statements of Cash Flows for six months ended June 30, 2007 and June 30, 2006  (unaudited)               |       | 7        |
|                                                                                                                   |       |     |
| Notes to  Consolidated Financial Statements                                                                            |       | 9        |

 

3

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***GEOPETRO RESOURCES COMPANY***

**CONSOLIDATEDBALANCE SHEETS**
| ** **                                                         | ** ** | **June 30,** | ** ** | **December 31,** | ** ** |
|--------------------------------------------------------------------|------------|-------------------|------------|-----------------------|------------|
| ** **                                                         | ** ** | **2007**          | ** ** | **2006**              | ** ** |
| ** **                                                         | ** ** | **(Unaudited)**   | ** ** | ** **            | ** ** |
| **ASSETS**                                                         |       |              |       |                  |       |
| ** **                                                         | ** ** | ** **        | ** ** | ** **            | ** ** |
| **Current Assets:**                                                | ** ** | ** **        | ** ** | ** **            | ** ** |
| Cash and cash  equivalents                                         |       | $                 | 2,702,934  |                  | $          | 734,561 |   |
| Accounts  receivable — oil and gas sales                      |       | 702,527           |       | 394,337               |       |
| Accounts  receivable — other                                  |       | 70,400            |       | 115,770               |       |
| Related party  notes receivable                                    |       | —            |       | 1,000,000             |       |
| Prepaid expenses                                                   |       | 149,642           |       | 121,413               |       |
| Total current  assets                                              |       | 3,625,503         |       | 2,366,081             |       |
|                                                               |       |              |       |                  |       |
| **Oil  and Gas Properties,******at cost  (full cost method):       | ** ** | ** **        | ** ** | ** **            | ** ** |
| Unevaluated  properties                                            |       | 4,905,942         |       | 4,503,481             |       |
| Evaluated  properties                                              |       | 44,762,076        |       | 43,701,510            |       |
| Less—accumulated  depletion and impairments                   |       | (12,776,804       | )          | (11,557,257           | )          |
| Net oil and gas  properties                                        |       | 36,891,214        |       | 36,647,734            |       |
|                                                               |       |              |       |                  |       |
| **Furniture, Fixtures and Equipment,**at cost, net of depreciation |       | 37,105            |       | 41,547                |       |
|                                                               |       |              |       |                  |       |
| **Other Assets**                                                   |       | 6,869             |       | 6,116                 |       |
|                                                               |       |              |       |                  |       |
| **Total Assets**                                                   |       | $                 | 40,560,691 |                  | $          | 39,061,478 |   |
|                                                               |       |              |       |                  |       |
| **LIABILITIES  AND SHAREHOLDERS’ EQUITY**                     | ** ** | ** **        | ** ** | ** **            | ** ** |
|                                                               |       |              |       |                  |       |
| **Current Liabilities:**                                           | ** ** | ** **        | ** ** | ** **            | ** ** |
| Trade payables                                                     |       | $                 | 562,143    |                  | $          | 654,427 |   |
| Short term notes  payable                                          |       | 1,827,581         |       | 982,301               |       |
| Interest payable                                                   |       | 61,940            |       | 73,205                |       |
| Dividends  payable                                                 |       | —            |       | 133,438               |       |
| Production taxes  payable                                          |       | 221,590           |       | 662,905               |       |
| Other taxes  payable                                               |       | 6,207             |       | 9,206                 |       |
| Royalty owners  payable                                            |       | 1,204,001         |       | 951,271               |       |
| Net profits interest  payable                                      |       | 332,556           |       | 137,589               |       |
| Total current  liabilities                                         |       | 4,216,018         |       | 3,604,342             |       |
|                                                               |       |              |       |                  |       |
| **Asset Retirement Obligations**                                   |       | 51,226            |       | 48,842                |       |

 

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

4

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| ** **                                                                                                                                                                                                                                   | ** ** | **June 30,** | ** ** | **December 31,** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------|------------|-----------------------|------------|
| ** **                                                                                                                                                                                                                                   | ** ** | **2007**          | ** ** | **2006**              | ** ** |
| ** **                                                                                                                                                                                                                                   | ** ** | **(Unaudited)**   | ** ** | ** **            | ** ** |
| **Commitments  and Contingencies (Note 9)**                                                                                                                                                                                                  |       | —            |       | —                |       |
|                                                                                                                                                                                                                                         |       |              |       |                  |       |
| **Shareholders’  Equity:**                                                                                                                                                                                                              | ** ** | ** **        | ** ** | ** **            | ** ** |
| Series AA  preferred stock, no par value; 5,000,000 shares authorized, 0 shares after  conversion on March 28, 2007 and 1,890,710 shares issued and outstanding at  December 31, 2006. Liquidation value was $6,750,923 at December 31, 2006 |       | —            |       | 5,924,068             |       |
| Common stock, no  par value; 100,000,000 shares authorized 29,580,408 and 27,423,758 shares  issued and outstanding at June 30, 2007 and December 31, 2006, respectively                                                                     |       | 46,656,977        |       | 40,112,265            |       |
| Additional  paid-in capital                                                                                                                                                                                                                  |       | 1,126,726         |       | 918,381               |       |
| Treasury stock,  at cost; 1,257,043 shares held at June 30, 2007 and December 31, 2006,  respectively                                                                                                                                        |       | (1,152,435        | )          | (1,152,435            | )          |
| Accumulated  deficit                                                                                                                                                                                                                         |       | (10,337,821       | )          | (10,393,985           | )          |
| Total  shareholders’ equity                                                                                                                                                                                                             |       | 36,293,447        |       | 35,408,294            |       |
|                                                                                                                                                                                                                                         |       |              |       |                  |       |
| **Total Liabilities and  Shareholders’ Equity**                                                                                                                                                                                         |       | $                 | 40,560,691 |                  | $          | 39,061,478 |   |
|                                                                                                                                                                                                                                              |            |                   |            |                       |            |  |  |

 

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

5

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***GEOPETRORESOURCES COMPANY***

**CONSOLIDATEDSTATEMENTS OF OPERATIONS**
| ** **                                                 | ** ** | **Three Months Ended June 30,** | ** ** | **Six months Ended June 30,** | ** ** |
|------------------------------------------------------------|------------|-----------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                                                 | ** ** | **2007**                                            | ** ** | **2006**                                          | ** ** | **2007** | ** ** | **2006** | ** ** |
| ** **                                                 | ** ** | **(Unaudited**                                      | ** ** | **(Unaudited)**                                   | ** ** | **(Unaudited)** | ** ** | **(Unaudited)** | ** ** |
| **Revenues**                                               | ** ** | ** **                                          | ** ** | ** **                                        | ** ** | ** ** | ** ** | ** ** | ** ** |
| Oil and gas  sales                                         |       | $                                                   | 2,388,850  |                                              | $          | 1,969,064 |   | $ | 4,212,192 |   | $ | 3,467,517 |   |
|                                                       |       |                                                |       |                                              |       |   |   |   |   |
| **Costs and expenses:**                                    | ** ** | ** **                                          | ** ** | ** **                                        | ** ** | ** ** | ** ** | ** ** | ** ** |
| Lease operating  expense                                   |       | 418,830                                             |       | 451,706                                           |       | 846,107 |   | 717,929 |   |
| General and  administrative                                |       | 767,563                                             |       | 738,756                                           |       | 1,526,919 |   | 1,287,620 |   |
| Net profits  interest                                      |       | 244,384                                             |       | 201,868                                           |       | 428,588 |   | 360,471 |   |
| Depreciation and  depletion expense                        |       | 652,928                                             |       | 700,965                                           |       | 1,229,870 |   | 1,106,162 |   |
| Total costs and  expenses                                  |       | 2,083,705                                           |       | 2,093,295                                         |       | 4,031,484 |   | 3,472,182 |   |
|                                                       |       |                                                |       |                                              |       |   |   |   |   |
| **Income (loss) from operations**                          |       | 305,145                                             |       | (124,231                                          | )          | 180,708 |   | (4,665 | ) |
|                                                       |       |                                                |       |                                              |       |   |   |   |   |
| **Other Income and (Expense):**                            | ** ** | ** **                                          | ** ** | ** **                                        | ** ** | ** ** | ** ** | ** ** | ** ** |
|                                                       |       |                                                |       |                                              |       |   |   |   |   |
| Interest expense                                           |       | (92,263                                             | )          | (77,481                                           | )          | (178,445 | ) | (126,030 | ) |
| Interest income                                            |       | 28,196                                              |       | 91,460                                            |       | 56,201 |   | 91,894 |   |
| Total other  expense                                       |       | (64,067                                             | )          | 13,979                                            |       | (122,244 | ) | (34,136 | ) |
|                                                       |       |                                                |       |                                              |       |   |   |   |   |
| **Net Income (Loss) Before Taxes**                         |       | 241,078                                             |       | (110,252                                          | )          | 58,464 |   | (38,801 | ) |
|                                                       |       |                                                |       |                                              |       |   |   |   |   |
| Income tax  expense                                        |       | (2,300                                              | )          | (7,300                                            | )          | (2,300 | ) | (21,291 | ) |
|                                                       |       |                                                |       |                                              |       |   |   |   |   |
| **Net Income (Loss) After Taxes**                          |       | 238,778                                             |       | (117,552                                          | )          | 56,164 |   | (60,092 | ) |
|                                                       |       |                                                |       |                                              |       |   |   |   |   |
| Preferred stock  dividend                                  |       | —                                              |       | (131,988                                          | )          | — |   | (262,525 | ) |
|                                                       |       |                                                |       |                                              |       |   |   |   |   |
| **Net Loss Available to Common  Shareholders**             |       | $                                                   | 238,778    |                                              | $          | (249,540 | ) | $ | 56,164 |   | $ | (322,617 | ) |
|                                                       |       |                                                |       |                                              |       |   |   |   |   |
| **Earnings (Loss) per Share:**                             | ** ** | ** **                                          | ** ** | ** **                                        | ** ** | ** ** | ** ** | ** ** | ** ** |
| Basic                                                      |       | $                                                   | 0.01       |                                              | $          | (0.01 | ) | $ | 0.00 |   | $ | (0.01 | ) |
| Diluted                                                    |       | $                                                   | 0.01       |                                              | $          | (0.01 | ) | $ | 0.00 |   | $ | (0.01 | ) |
|                                                       |       |                                                |       |                                              |       |   |   |   |   |
| **Weighted Average Number of  Common Shares Outstanding:** | ** ** | ** **                                          | ** ** | ** **                                        | ** ** | ** ** | ** ** | ** ** | ** ** |
| Basic                                                      |       | 29,483,676                                          |       | 27,348,758                                        |       | 28,510,691 |   | 24,609,367 |   |
| Diluted                                                    |       | 32,068,422                                          |       | 27,348,758                                        |       | 30,897,006 |   | 24,609,367 |   |

 

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

6

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***GEOPETRO RESOURCES COMPANY***

**CONSOLIDATEDSTATEMENTS OF CASH FLOWS**
| ** **                                                                                           | ** ** | **Six months ended June 30,** | ** ** |
|------------------------------------------------------------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                                                                                           | ** ** | **2007**                                          | ** ** | **2006** | ** ** |
| ** **                                                                                           | ** ** | **(Unaudited)**                                   | ** ** |
| **Cash Flows From Operating  Activities:**                                                           | ** ** | ** **                                        | ** ** | ** ** | ** ** |
| ** **                                                                                           | ** ** | ** **                                        | ** ** | ** ** | ** ** |
| Net income  (loss)                                                                                   |       | 56,164                                            |       | (60,092 | ) |
| Adjustments to  reconcile net income (loss) to net cash provided by (used in) operating  activities: |       |                                              |       |   |   |
| Depreciation and  depletion                                                                          |       | 1,229,870                                         |       | 1,106,162 |   |
| Stock  compensation expense                                                                          |       | 69,870                                            |       | 140,624 |   |
| Non-cash  interest expense                                                                           |       | 108,223                                           |       | 88,496 |   |
| Asset retirement  obligations                                                                        |       | 1,430                                             |       | 1,300 |   |
| Changes in  operating assets and liabilities:                                                        |       |                                              |       |   |   |
| (Increase)  decrease in accounts receivable                                                          |       | (308,189                                          | )          | 108,735 |   |
| (Increase)  decrease in other receivables                                                            |       | 45,370                                            |       | (15,901 | ) |
| (Increase)  decrease in prepaid expenses                                                             |       | (28,229                                           | )          | (188,293 | ) |
| (Increase)  decrease in deposits and other noncurrent assets                                         |       | (750                                              | )          | 466 |   |
| Increase  (decrease) in trade payables                                                               |       | (92,289                                           | )          | 2,103,477 |   |
| Increase  (decrease) in settlement payable                                                           |       | —                                            |       | 1,100,000 |   |
| Increase  (decrease) in interest payable                                                             |       | (11,266                                           | )          | 37,534 |   |
| Increase  (decrease) in dividends payable                                                            |       | (133,438                                          | )          | (1,451 | ) |
| Increase  (decrease) in production taxes payable                                                     |       | (441,315                                          | )          | (73,068 | ) |
| Increase  (decrease) in other taxes payable                                                          |       | (2,999                                            | )          | (16,730 | ) |
| Increase in  royalty owners payable                                                                  |       | 252,730                                           |       | 107,366 |   |
| Increase  (decrease) in net profit interest payable                                                  |       | 194,968                                           |       | (55,912 | ) |
| Increase in  asset retirement obligations                                                            |       | 953                                               |       | — |   |
| Net cash  provided by operating activities                                                           |       | 941,103                                           |       | 4,382,713 |   |
|                                                                                                 |       |                                              |       |   |   |
| **Cash Flows from Investing  Activities:**                                                           | ** ** | ** **                                        | ** ** | ** ** | ** ** |
| ** **                                                                                           | ** ** | ** **                                        | ** ** | ** ** | ** ** |
| Oil and gas  property expenditures                                                                   |       | (1,430,493                                        | )          | (14,425,098 | ) |
| Acquisition of  furniture, fixtures & equipment                                                  |       | (5,881                                            | )          | (1,580 | ) |
| (Increase)  decrease in notes receivable                                                             |       | 1,000,000                                         |       | (1,000,000 | ) |
| Net cash used in  investing activities                                                               |       | (436,374                                          | )          | (15,426,678 | ) |

 

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

7

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| ** **                                                              | ** ** | **Six months ended June 30,** | ** ** |
|-------------------------------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                                                              | ** ** | **2007**                                          | ** ** | **2006** | ** ** |
| ** **                                                              | ** ** | **(Unaudited)**                                   | ** ** |
| **Cash  Flows from Financing Activities:**                              | ** ** | ** **                                        | ** ** | ** ** | ** ** |
| ** **                                                              | ** ** | ** **                                        | ** ** | ** ** | ** ** |
| (Increase) in restricted cash                                           |       | —                                            |       | (2,000,075 | ) |
| Proceeds from sale of common shares, option and  warrant exercises, net |       | 620,644                                           |       | 16,531,667 |   |
| Payments of preferred dividends                                         |       | —                                            |       | (262,525 | ) |
| Proceeds from promissory notes, net                                     |       | 1,000,000                                         |       | 1,900,000 |   |
| Payments of loan fee                                                    |       | (57,000                                           | )          | (30,000 | ) |
| Repayments of promissory notes                                          |       | (100,000                                          | )          | — |   |
| Deferred offering costs                                                 |       | —                                            |       | (1,213,789 | ) |
|                                                                    |       |                                              |       |   |   |
| Net cash provided by (used in) financing activities                     |       | 1,463,644                                         |       | 14,925,278 |   |
| ** **                                                              | ** ** | ** **                                        | ** ** | ** ** | ** ** |
| **Net  Increase in Cash and Cash Equivalents:**                         |       | 1,968,373                                         |       | 3,881,313 |   |
| ** **                                                              | ** ** | ** **                                        | ** ** | ** ** | ** ** |
| **Cash  and Cash Equivalents:**                                         | ** ** | ** **                                        | ** ** | ** ** | ** ** |
| Beginning of period                                                     |       | 734,561                                           |       | 914,826 |   |
| End of period                                                           |       | $                                                 | 2,702,934  |   | $ | 4,796,139 |   |
| ** **                                                              | ** ** | ** **                                        | ** ** | ** ** | ** ** |
| **Supplemental  Disclosure of Cash Flow Information:**                  | ** ** | ** **                                        | ** ** | ** ** | ** ** |
| Cash paid for interest                                                  |       | $                                                 | 70,222     |   | $ | — |   |
|                                                                    |       |                                              |       |   |   |
| Cash paid for  income taxes                                             |       | $                                                 | 1,500      |   | $ | — |   |

 

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

8

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***GEOPETRORESOURCES COMPANY***

**NOTES TOCONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited – Prepared by Management)**

**1.             ORGANIZATIONAND NATURE OF OPERATIONS**:

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

*GeoPetro* — GeoPetro Resources Company (“GeoPetro”, “Company” “,”we”or “us”) was originally incorporated asGeoPetro Company under the laws of the State of Wyoming in 1994 to participatein the oil and gas acquisition, exploration, development and productionbusiness in the United States and internationally. GeoPetro Company wassubsequently merged into GeoPetro Resources Subsidiary Company, a California corporation,on June 28, 1996. GeoPetro’s name was then changed to GeoPetro ResourcesCompany. GeoPetro’s corporate offices are in San Francisco, California. Theaccompanying consolidated financial statements include the accounts of GeoPetroand its wholly-owned subsidiaries. All significant intercompany accounts andtransactions have been eliminated in consolidation.

*Operations* —Although GeoPetro is not a development stage enterprise, the company has alimited operating history upon which an evaluation of its business prospectscan be based. The risks, expense, and difficulties encountered by early stagecompanies must be considered when evaluating GeoPetro’s business prospects.GeoPetro had net income of $56,164 and incurred a net loss of $322,617 for thesix months ended June 30, 2007 and 2006, and had an accumulated deficit at June30, 2007 of $10,337,821. GeoPetro expects to make significant capitalexpenditures in the foreseeable future. Management believes that GeoPetro willbe successful in obtaining adequate sources of cash to fund its anticipatedcapital expenditures through the end of 2007 and to follow through with plansfor continued investments in oil and gas properties. GeoPetro’s success, inpart, depends on its ability to generate additional financing, farm-out certainof its projects and manage its relations with the companies that provideexploration and development services. GeoPetro’s success also depends on itsability to effectively manage growth and develop proven reserves. Additionally,GeoPetro’s operations are subject to all of the environmental and operationalrisks normally associated with the oil and gas industry. GeoPetro maintainsinsurance that is customary in the industry.

Since its inception, GeoPetro has participated as a working interestowner in the acquisition of undeveloped leases, seismic options, lease optionsand foreign concessions and has participated in seismic surveys and thedrilling of test wells on its undeveloped properties. Further leaseholdacquisitions and seismic operations are planned for 2007 and future periods. Inaddition, drilling is scheduled during 2007 and future periods on GeoPetro’sundeveloped properties. It is anticipated that these exploration activitiestogether with others that may be entered into may impose financial requirementswhich may exceed the existing working capital of GeoPetro. Management may raiseadditional equity and/or debt capital, and has farmed-out certain of itsprojects to finance its continued participation in planned activities. In theopinion of GeoPetro management, GeoPetro can continue as a going concern evenif additional financing is unavailable. However, if additional financing is notavailable, GeoPetro may be compelled to reduce the scope of its businessactivities. If GeoPetro is unable to fund planned expenditures, it may benecessary to:

1.                                       forfeit its interest in wells that are proposed tobe drilled;

2.                                       farm-out its interest in proposed wells;

3.                                       sell a portion of its interest in prospects anduse the sale proceeds to fund its participation for a lesser interest; and

4.                                       reduce general and administrative expenses.

9

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In order for GeoPetro to maintain its interest in the Indonesiancontract area, certain work and expenditure commitments must be met or anextension must be granted by the applicable governing authority. In the eventthat GeoPetro does not meet the commitments and no extensions are granted formeeting the commitments, GeoPetro will forfeit its interest in the contract orpermit areas requiring an impairment write-down equal to the capitalized costsrecorded for the area forfeited. This could have a material adverse impact onGeoPetro’s results of operations in future periods.

In July 2005, GeoPetro entered into agreements with unaffiliatedcompanies that have purchased and are operating a dedicated gas treatment plantand related pipelines to process and transport GeoPetro’s gas from theMadisonville Project in Madison County, Texas. These agreements are discussedin detail in Note 10 to the financial statements included in ourForm 10-K for the year ended December 31, 2006. In connection with the Madisonville Project, GeoPetro re-completed anexisting well (the Magness well) for production from the Rodessa formationinterval at approximately 11,800 feet of depth and completed an injection wellfor disposal of waste gasses from the production well. GeoPetro initiated gassales from the Madisonville Project in May 2003. A second well (the Fannin#1 well) was drilled, tested and completed during 2004. Two additional developmentwells (the Wilson #1 and the Mitchell #1 well) were drilled during 2006.  The Fannin #1 and the Mitchell#1 well arepresently producing on a restricted rate awaiting a planned expansion of thegas treatment plant.  Another well isplanned for drilling during late 2007 or 2008 in the Madisonville Project.

Other than the above work and expenditure commitments, the timing ofmost of GeoPetro’s capital expenditures is discretionary. GeoPetro has nomaterial long-term commitments associated with its capital expenditure plans oroperating agreements. Consequently, GeoPetro has a significant degree offlexibility to adjust the level of such expenditures as circumstances warrant.The level of capital expenditures will vary in future periods depending on thesuccess of exploratory drilling activities, gas and oil price conditions andother related economic factors.

**2.****                            SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**:

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

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

*Oil and Gas Properties* — GeoPetro follows the full cost method ofaccounting for oil and gas producing activities and, accordingly, capitalizesall costs incurred in the acquisition, exploration, and development of provedoil and gas properties, including the costs of abandoned properties, dry holes,geophysical costs, and annual lease rentals. All general corporate costs areexpensed as incurred. In general, sales or other dispositions of oil and gasproperties are accounted for as adjustments to capitalized costs, with no gainor loss recorded. Amortization of evaluated oil and gas properties is computedon the units of production method based on all proved reserves on a country bycountry basis. Unevaluated oil and gas properties are assessed for impairmenteither individually or on an aggregate basis. The net capitalized costs ofevaluated oil and gas properties (full cost ceiling limitation) are not toexceed their related estimated future net revenues discounted at 10%, and thelower of cost or estimated fair value of unproved properties, net of taxconsiderations.

*Joint Ventures* — Some exploration and production activitiesare conducted jointly with others and, accordingly, the accounts reflect onlyGeoPetro’s proportionate interest in such activities.

*Revenue Recognition* — Revenue isrecognized upon delivery of oil and gas production and is shown net ofapplicable royalty payments, processing and transportation fees. In addition, the Company recognizes revenuefrom the Madisonville Field net of applicable fees to gather, treat andtransport the Company’s natural gas production. The applicable fees are paid tounrelated third parties. Revenue from the Madisonville Field is recognized whenthe price for gas delivered becomes fixed and determinable. The price for gasdelivered to the purchaser, Madisonville Gas Processing LP (“MGP”), becomesfixed and determinable after the gas has been gathered, treated, andtransported to a common carrier pipeline where it is then resold by MGP to thecommon carrier pipeline on a spot market basis. The proceeds from the sale ofthe gas are deposited directly into an escrow account under the joint signaturecontrol of the Company and MGP. The fees to gather, treat and transport the gasare distributed to MGP in accordance with agreements between them and theCompany. The remaining net proceeds are distributed to the Company.

*Asset Retirement Obligation* — In accordance with Statement of FinancialAccounting Standards No. 143, *Accountingfor Asset Retirement Obligations* (“SFAS 143”), the fair valueof an asset retirement cost, and corresponding liability,

10

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should be recorded as part of the cost of the related long-lived assetand subsequently allocated to expense using a systematic and rational method.GeoPetro recorded an asset retirement obligation to reflect GeoPetro’s legalobligations related to future plugging and abandonment of its oil and gaswells. GeoPetro estimated the expected cash flow associated with the obligationand discounted the amount using a credit-adjusted, risk-free interestrate. At least annually, GeoPetro reassesses the obligation to determinewhether a change in the estimated obligation is necessary. GeoPetro evaluateswhether there are indicators that suggest the estimated cash flows underlyingthe obligation have materially changed. Should those indicators suggest the estimated obligationhas materially changed, GeoPetro will accordingly update its assessment.

|                                                    | ** ** | **June 30,** | ** ** | **December 31,** | ** ** |
|----------------------------------------------------|------------|-------------------|------------|-----------------------|------------|
| ** **                                         | ** ** | **2007**          | ** ** | **2006**              | ** ** |
| Asset retirement  obligations, beginning of period |       | $                 | 48,842     |                  | $          | 26,641 |   |
| Liabilities  incurred                              |       | 954               |       | 19,537                |       |
| Accretion  expense                                 |       | 1,430             |       | 2,664                 |       |
|                                               |       |              |       |                  |       |
| Asset retirement  obligations, end of period       |       | $                 | 51,226     |                  | $          | 48,842 |   |

 

*Furniture, Fixtures and Equipment —*Furniture,fixtures and equipment are stated at cost. Depreciation is provided onfurniture, fixtures and equipment using the straight-line method over anestimated service life of three to seven years.

*Income Taxes* — GeoPetro accounts for income taxes usingthe asset and liability method wherein deferred tax assets and liabilities arerecognized for the future tax consequences attributable to differences betweenfinancial statement carrying amounts of existing assets and liabilities andtheir respective tax bases. Deferred tax assets and liabilities are measuredusing enacted tax rates expected to apply to taxable income in the years inwhich the temporary differences are expected to be recovered or settled.Because management has determined that realization of deferred tax assets isnot likely, the net deferred tax assets are fully reserved.

*Concentrations of Credit Risk* — Credit risk represents the accounting lossthat would be recognized at the reporting date if counterparties failedcompletely to perform as contracted. Concentrations of credit risk (whether onor off balance sheet) that arise from financial instruments exist for groups ofcustomers or counterparties when they have similar economic characteristicsthat would cause their ability to meet contractual obligations to be similarlyaffected by changes in economic or other conditions described below. The creditrisk amounts for cash and accounts receivable do not take into account thevalue of any collateral or security.

GeoPetro maintains several cash accounts with three financialinstitutions. Accounts at each institution are insured by the Federal DepositInsurance Corporation up to $100,000. As of June 30, 2007, the uninsuredbank balance was $3,057,166. GeoPetro has not experienced any losses in suchaccounts and believes it is not exposed to any significant credit risk.

For the six months ended June 30, 2007 and year ended December 31, 2006,the Company had sales to customers exceeding 10% of total sales as follows:

|            | ** ** | **June 30,  2007** | ** ** | **December 31,  2006** | ** ** |
|------------|------------|-------------------------|------------|-----------------------------|------------|
|       |       |                    |       |                        |       |
| Customer A |       | 82                      | %          | 79                          | %          |
| Customer B |       | 18                      | %          | 21                          | %          |

 

At June 30, 2007, the Company had accounts receivable balances fromCustomer A of  $702,527, or 91%, and  $394,337 or 77% at December 31, 2006 of totalaccounts receivable respectively.

*Allowance for Doubtful Accounts* — Trade accounts receivable are recorded atnet realizable value. If the financial condition of GeoPetro’s customers wereto deteriorate, resulting in an impairment of their ability to make payments,additional allowances may be required. Delinquent trade accounts receivable arecharged against the allowance for doubtful accounts once uncollectibility hasbeen determined. The allowance is determined through an analysis of thepast-due status of accounts receivable and assessments of risk that are basedon historical trends and an evaluation of the impact of current and projectedeconomic conditions. There was no activity in the allowance for doubtfulaccounts as of June 30, 2007 and December 31, 2006.

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*Fair Value of Financial Instruments* — The estimated fair values for financialinstruments are determined at discrete points in time based on relevant marketinformation. These estimates involve uncertainties and cannot be determinedwith precision. For certain of GeoPetro’s financial instruments, includingcash, accounts receivable, accounts payable and current portion of notespayable, the carrying amounts approximate fair value due to their maturities.

*Stock-Based Compensation* — Effective January 1, 2006, theCompany adopted the fair value recognition provisions of Statement of FinancialAccounting Standard 123(R) “*Share-BasedPayment”* (“SFAS 123(R)”) using the modified prospective transitionmethod. In addition, the Securities and Exchange Commission issued StaffAccounting Bulletin No. 107 “*Share-BasedPayment*” (“SAB 107”) in March 2005, which provides supplemental SFAS123(R) application guidance based on the views of the SEC. Under the modifiedprospective transition method, compensation cost recognized in the six monthsended June 30, 2007 includes: (a) compensation cost for all share-basedpayments granted prior to, but not yet vested as of January 1, 2006, based onthe grant date fair value estimated in accordance with the original provisionsof SFAS No. 123, and (b) compensation cost for all share-basedpayments granted beginning January 1, 2006, based on the grant date fair valueestimated in accordance with the provisions of SFAS 123(R). In accordance withthe modified prospective transition method, results for prior periods have notbeen restated.

The adoption ofSFAS 123(R) resulted in stock compensation expense for the six months endedJune 30, 2007 $69,870 to income from continuing operations and income beforeincome taxes, of which the entire amount was recorded to general andadministrative expenses. The Company did not recognize a tax benefit from thestock compensation expense because the Company considers it is more likely thannot that the related deferred tax assets, which have been reduced by a fullvaluation allowance, will not be realized.

The fair value of each option grant was estimated on the date of grantusing the Black-Scholes option pricing model with the following weighted-averageassumptions used for grants in 2003 and 2005: risk-free, weighted-averageinterest rates ranging from 2.52 to 3.75 percent, expected dividend yieldof 0 percent, expected life of 5 years from the date of grant, andexpected volatility of 10 and 25 percent. After the initial publicoffering on March 30, 2006, an expected volatility factor of 58% was used forthe newly issued common stock options and the extension of common stock optionsand warrants. A newly issued stock option is an option that was granted on orafter March 30, 2006 or a previously granted stock option that is modified onor after March 30, 2006. The fair value of all newly issued stock optionsgrants in 2006 is estimated using the Black-Scholes option pricing model withthe following weighted average assumptions used for grants and modifications ofprior grants made on or after March 30, 2006 for the six months ended June 30,2007: risk-free, weighted average interest rate of 4.9 percent based on theU.S. Treasury yield curve in effect at the time of grant, expected dividendyield of 0 percent, expected life of 5 years from the date of grant (theremaining term of the option in the case of option extensions), and expectedvolatility of 58%. GeoPetro selected 10 publicly traded “small cap” companieswhose primary business is oil and gas exploration and production.  Small cap, for purposes of this analysis, isdefined as companies with a market capitalization under $1 billion.  From this peer group of similar companies,GeoPetro randomly selected 10 companies and derived expected volatility factorsfor the most recent completed fiscal years for each entity as reported in theirrecently filed 10K or 10KSB Annual Reports with the Securities and ExchangeCommission.  Where the expectedvolatilities were expressed as a range, a simple average of the range is usedas an expected volatility for that entity.

A description of the common stock options outstanding as of June 30,2007 are included in Note 6.

*Income (Loss) Per Common Share —*Basic earnings per share excludes dilution and is calculated by dividingnet income or loss by the weighted average number of common shares outstandingfor the period. Diluted earnings per share reflects the potential dilution thatcould occur if securities or other contracts to issue common stock wereexercised or converted into common stock or resulted in the issuance of commonstock that then shared from the earnings of the entity. Potential common sharesfor the three and six month periods ended June 30, 2006 were excluded from theearnings per share computation because the Company incurred net losses and wereanti-dilutive.

12

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|                                                     | ** ** | **Three Months Ended June 30,** | ** ** | **Six Months Ended June 30,** | ** ** |
|-----------------------------------------------------|------------|-----------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                                          | ** ** | **2007**                                            | ** ** | **2006**                                          | ** ** | **2007** | ** ** | **2006** | ** ** |
|                                                |       |                                                |       |                                              |       |   |   |   |   |
| Net Income  (Loss) and Adjustments:                 |       |                                                |       |                                              |       |   |   |   |   |
| Net Income  (Loss) Available to Common Shareholders |       | $                                                   | 238,778    |                                              | $          | (249,540 | ) | $ | 56,164 |   | $ | (322,617 | ) |
|                                                |       |                                                |       |                                              |       |   |   |   |   |
| Adjustments                                         |       | —                                              |       | Anti-dilutive                                     |       | — |   | Anti-dilutive |   |
| Net Earnings  (Loss) for Diluted Calculation        |       | $                                                   | 238,778    |                                              | $          | (249,540 | ) | $ | 56,164 |   | $ | (322,617 | ) |
|                                                |       |                                                |       |                                              |       |   |   |   |   |
| Shares:                                             |       |                                                |       |                                              |       |   |   |   |   |
|                                                |       |                                                |       |                                              |       |   |   |   |   |
| Weighted Average  Shares Outstanding                |       | 29,483,676                                          |       | 27,348,758                                        |       | 28,510,691 |   | 24,609,367 |   |
| Outstanding  Options                                |       | 2,237,546                                           |       | Anti-dilutive                                     |       | 2,123.329 |   | Anti-dilutive |   |
| Outstanding  Warrants                               |       | 347,200                                             |       | Anti-dilutive                                     |       | 262.986 |   | Anti-dilutive |   |
| Average Number  of Shares for Diluted Calculation   |       | 32,068,422                                          |       | 27,348,758                                        |       | 30,897,006 |   | 24,609,367 |   |
| Diluted EPS                                         |       | $                                                   | 0.01       |                                              | $          | (0.01 | ) | $ | 0.00 |   | $ | (0.01 | ) |

 

*Cash Equivalents —*Cash and cash equivalents include cash on hand, amounts held in banksand highly liquid investments purchased with an original maturity of threemonths or less.

*NewAccounting Pronouncements**---*** In July 2006, the Financial Accounting Standards Board(“FASB”) issued Interpretation No. 48, *Accountingfor Uncertainty in Income Taxes*(FIN 48). It became effective forthe Company on January 1, 2007. FIN 48 clarifies the accounting for incometaxes by prescribing a minimum recognition threshold that a tax position isrequired to meet before being recognized in the financial statements. FIN 48also provides guidance on measurement, classification, interim accounting anddisclosure. We adopted FIN 48 effective January 1, 2007 (See Note 8).

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

In February 2007, the FASB issued SFASNo. 159, *The Fair Value Option for FinancialAssets and Financial Liabilities*, which permits entities to chooseto measure many financial instruments and certain other items at fair value.The objective is to improve financial reporting by providing entities with theopportunity to mitigate volatility in reported earnings caused by measuringrelated assets and liabilities differently without having to apply complexhedge accounting provisions. SFAS No. 159 applies to all entities and iseffective for fiscal years beginning after November 15, 2007. Adoption ofSFAS No. 159 is not required for these financial statements, and we arecurrently determining the impact, if any, that SFAS No. 159 will have onour future financial statements.

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**3.****                              SHORT TERM NOTES PAYABLE**:

Short term notes payable at six months ended June 30, 2007 andDecember 31, 2006 consisted of the following:

|                                                                                                                                                                                                                          | ** ** | **June 30, 2007** | ** ** | **December 31, 2006** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------|------------|---------------------------------|------------|
|                                                                                                                                                                                                                     |       |                        |       |                            |       |
| Promissory note  dated January 31, 2006, payable to Pinehill Capital; collateralized with an  undivided 5% of the net cash flow in GeoPetro’s Madisonville Project; payable  on or before October 31, 2007 (a) |       | $                           | 1,000,000  |                            | $          | 1,000,000 |   |
|                                                                                                                                                                                                                     |       |                        |       |                            |       |
| Promissory note  dated February 1, 2007 payable on or before October 31, 2007 (b)                                                                                                                                   |       | 500,000                     |       | —                          |       |
|                                                                                                                                                                                                                     |       |                        |       |                            |       |
| Promissory note  dated February 6, 2007 payable on or before October 31, 2007 (c)                                                                                                                              |       | 300,000                     |       | —                          |       |
|                                                                                                                                                                                                                     |       |                        |       |                            |       |
| Promissory note  dated February 1, 2007 payable on or before October 31, 2007 (d)                                                                                                                              |       | 100,000                     |       | —                          |       |
|                                                                                                                                                                                                                     |       | 1,900,000                   |       | 1,000,000                       |       |
|                                                                                                                                                                                                                     |       |                        |       |                            |       |
| Less discount on promissory notes                                                                                                                                                                                        |       | (72,419                     | )          | (17,699                         | )          |
|                                                                                                                                                                                                                     |       |                        |       |                            |       |
|                                                                                                                                                                                                                     |       | $                           | 1,827,581  |                            | $          | 982,301 |   |

 

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(a)      The Company issued a $1,000,000 short term promissory note on January31, 2006 with a maturity date of January 31, 2007.  The note may be repaid at any time withoutpenalty.  In the event the note is notrepaid by the maturity date, the Company has agreed to dedicate 5% of the netcash flow from the Madisonville Project in Texas toward the repayment of thenote and any accrued interest thereon. In connection with the note, the Company paid a loan origination fee of$30,000 and granted a three-year warrant exercisable to purchase 150,000 CommonShares at $3.50 per share. The fair value of the warrants on the date ofissuance, $182,390, as well as the $30,000 loan origination fee, was recordedas a debt discount and is being amortized over the life of the promissory note.On February 1, 2007, the maturity date was extended to October 31, 2007.The Company has paid $80,000 accrued interest thru January 31, 2007. In connection with the extension, the Company paida loan extension fee of $30,000 and granted a three-year warrant exercisable topurchase 50,000 Common Shares at $3.50 per share. The fair value of thewarrants on the date of issuance, $57,242, together with the $30,000 loanextension fee, were recorded as a debt discount and are being amortized overthe life of the promissory note.  As ofJune 30, 2007, the unamortized debt discount was $38,774.

(b)     The Company issued a $500,000 short term promissory note payable onFebruary 1, 2007 with a maturity date of October 31, 2007.  The note may be repaid at any time withoutpenalty.  The principal plus accruedinterest on the note are due on the maturity date. In connection with the note,the Company paid a loan origination fee of $15,000 and granted a three-yearexercisable warrant to purchase 25,000 Common Shares at $3.50 per share. Thefair value of the warrants on the date of issuance, $27,072, as well as the$15,000 loan origination fee, was recorded as a debt discount and is beingamortized over the life of the promissory note. As of June 30, 2007, theunamortized debt discount was $18,699.

(c)      The Company issued a $300,000 short term promissory note payable onFebruary 6, 2007 with a maturity date of October 31, 2007.  The note may be repaid at any time withoutpenalty. The principal plus accrued interest on the note are due on thematurity date. In connection with the note, the Company paid a loan originationfee of $9,000 and granted a three-year exercisable warrant to purchase 15,000Common Shares at $3.50 per share. The fair value of the warrants on the date ofissuance, $16,214, as well as the $9,000 loan origination fee, was recorded asa debt discount and is being amortized over the life of the promissory note. Asof June 30, 2007, the unamortized debt discount was $11,206.

(d)     The Company issued a $100,000 short term promissory note payable onFebruary 1, 2007 with a maturity date of October 31, 2007.  The note may be repaid at any time withoutpenalty. The principal plus accrued interest on the note are due on thematurity date. In connection with the note, the Company paid a loan originationfee of $3,000 and granted a three-year exercisable warrant to purchase 5,000Common Shares at $3.50 per share. The fair value of the warrants on the date ofissuance, $5,414, as well as the $3,000 loan origination fee, was recorded as adebt discount and is being amortized over the life of the promissory note. Asof June 30, 2007, the unamortized debt discount was $3,740.

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**4.****                              RELATED PARTY TRANSACTIONS**:

There were no material changes in related partytransactions from those disclosed in the audited annual consolidated financialstatements for the year ended December 31, 2006, except:

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

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

On June 7, 2006, the Company loaned $1,000,000 to G.Carter Sedanoui, a 5% shareholder, evidenced by a short term promissory notepayable to the Company with an original maturity date of March 31, 2007. OnMarch 30, 2007, the Company extended the maturity date of the note to June 30,2007. The note plus the accrued interest was paid in full on June 29, 2007.

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

GeoPetro’s articles of incorporation allow for the issuance of100,000,000 shares of common stock, 1,000,000 shares of Series A preferredstock (“Series A Stock”), 5,000,000 shares of Series AA preferred stock (“SeriesAA Stock”), and an additional 44,000,000 shares of preferred stock which may beissued from time to time in one or more series.

During the six  months ended June 30, 2007, the followingissuances of common stock were made:

|                                       | ** ** | **Preferred Stock** | ** ** | ** **            | ** ** | ** ** | ** ** |
|---------------------------------------|------------|--------------------------|------------|-----------------------|------------|------------|------------|
| ** **                            | ** ** | **Series AA**       | ** ** | **Common Stock** | ** ** |
| ** **                            | ** ** | **Shares**               | ** ** | **Amount**            | ** ** | **Shares** | ** ** | **Amount** | ** ** |
| Balances,  December 31, 2006          |       | 1,890,710                |       | $                     | 5,924,068  |       | 27,423,758 |   | $ | 40,112,265 |   |
|                                  |       |                     |       |                  |       |       |       |   |   |
| Issuance of  common stock for cash    |       | —                   |       | —                |       | 265,940    |       | 620,644 |   |
|                                  |       |                     |       |                  |       |       |       |   |   |
| Series AA  preferred stock conversion |       | (1,890,710               | )          | (5,924,068            | )          | 1,890,710  |       | 5,924,068 |   |
|                                  |       |                     |       |                  |       |       |       |   |   |
| Balances, June 30, 2007               |       | —                   |       | $                     | —     |       | 29,580,408 |   | $ | 46,656,977 |   |

 

*Conversion ofSeries A Stock —*OnMarch 28, 2007, all 1,890,710 of the Company’s outstanding shares ofSeries AA Stock automatically converted into 1,890,710 shares of ourcommon stock, no par value per share. Under the Company’s Amended and Restated Articles of Incorporation, andas more fully described in Note 7 included in our Form 10K for the year endedDecember 31, 2006, the Series AA stock automatically converted into commonshares on a one-for-one share basis effective the first trading day after thereported high selling price for our common shares was at least $5.25 per sharefor any consecutive ten trading days, which condition was met on March 27,2007.  Dividends accrued on the Series AAStock at a rate of $0.28 per annum, per share, while the Series AA Stock wasoutstanding.  In 2006, dividends paid onthe Series AA Stock totaled $529,400. Pursuant to the terms of the Series AAStock, no dividends were payable for the first quarter of 2007.

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**6.****                              COMMON STOCK OPTIONS**:

Therewere no material changes to common stock options from those disclosed in the auditedannual consolidated financial statements for the year ended December 31,2006.  The options outstanding as of June 30, 2007 have the followingcontractual lives:

| Number of  Options  Outstanding | ** ** | **Number of  Options  Exercisable** | ** ** | **Exercise  Prices** | ** ** | **Weighted Average  Remaining  Contractual Life** | ** ** |
|--------------------------------------|------------|------------------------------------------|------------|----------------------|------------|-------------------------------------------------------------|------------|
|                                 |       |                                     |       |                 |       |                                                        |       |
| 750,000                              |       | 750,000                                  |       | 0.50                 |       | 0.84                                                        |       |
| 1,290,000                            |       | 1,290,000                                |       | 2.00                 |       | 0.50                                                        |       |
| 1,750,000                            |       | 1,380,000                                |       | 2.10                 |       | 5.93                                                        |       |
| 150,000                              |       | 30,000                                   |       | 3.85                 |       | 3.80                                                        |       |
| 10,000                               |       | 4,000                                    |       | 4.25                 |       | 2.51                                                        |       |
| 10,000                               |       | 4,000                                    |       | 6.25                 |       | 2.95                                                        |       |
| 3,960,000                            |       | 3,458,000                                |       |                 |       |                                                        |       |

 

As of June 30, 2007, there are 3,458,000 options which areexercisable. The remaining 502,000 options will become exercisable ratably overthe next four years.

**7.****                            COMMON STOCK WARRANTS**:

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

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

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

In addition,during the six months ended June 30, 2007, the Company issued common stockwarrants in connection with promissory notes payable.  These warrant issuances are discussed in Note3.

**8.****                              INCOME TAXES**:

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

TheCompany files income tax returns in the U.S. federal jurisdiction and variousstates.  There is currently a federalincome tax audit for the 2004 tax year in progress.   There are currently no other federal orstate income tax examinations underway for these jurisdictions.  Furthermore, the Company is no longer subjectto U.S. federal income tax examinations by the Internal Revenue service for taxyears before 2003 and for state and local tax authorities for years before2002.  The Company does, however, havenet operating losses generated in tax years 1995 and after, which remain openfor examination.

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

16

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Avaluation allowance has been provided against the Company’s net deferred taxassets as the Company believes that it is more likely than not that the netdeferred tax assets will not be realized. As a result of this valuation allowance, the effective tax rate for thesix months ended June 30, 2007 and for the year ended December 31, 2006 is zeropercent.

**9.****                              COMMITMENTS AND CONTINGENCIES**:

There were no material changes to commitmentsand contingencies from those disclosed in the audited annual   consolidated financial statements for theyear ended December 31, 2006 except as disclosed in Note 8 herein, and asfollows:

*SalaryIncreases —*On December 18, 2006, the independent membersof the board of directors, acting on the recommendations of Stuart J. Doshi,the President and CEO, voted to increase the salaries of Messrs. Creel andSteinhauser, officers of the Company, to $163,200 annually effective January 1,2007.

*Saleof Australian Interests, EP 381 & EP 408***-**On June 20, 2007,the Company agreed to sell and transfer all of its remaining property interestsin Australia to an unrelated party for cash consideration and a Petroleum SalesRoyalty Payment equal to 25% of the future annual earnings before interest,taxes, depreciation and amortization from the property interests.  Theagreement is subject to satisfaction of certain terms and conditions.  Specifically, the agreement provides that theCompany will be paid consideration for the sale and transfer of its propertyinterests as follows:

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

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

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

*Goodwin Prospect, CentralAlberta, Canada* — On June 21, 2007, the Company entered intoa participation agreement wherein it acquired a 50% non-operated workinginterest in the Goodwin Prospect, which is located in the Central AlbertaBasin, Canada.  A total of 12,000 acrescan be earned by the Company by the drilling of wells.  On July 2, 2007, the Company advanced US$477,050 to be applied toward the drilling and completion of the first well inthe prospect, the Nexstar Goodwin 16-19-58-12 Well.

**10.      **SUBSEQUENT EVENTS:

*Common Stock Offering* – On August13, 2007, the Company entered into agreements to sell, pursuant to a privateplacement, 2,002,599 units of the Company at a subscription price of $3.85 perUnit for total gross proceeds of $7,710,006. Each unit consists of one share ofcommon stock of the Company and three-tenths common share purchase warrant ofthe Company.  Each one whole warrantshall entitle the holder to acquire one share of common stock at a price of$4.50 per share for a period of five years from the closing date.  The units have been purchased by a group ofprivate investors, subject to customary closing conditions on August 13, 2007.The Company will file a registration statement covering the common shares.  The gross proceeds of the sale of commonshares will be used to fund the Company's exploration and development programand for general working capital purposes.

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

*The following discussion and analysis should beread in conjunction with accompanying financial statements and related notesincluded elsewhere in this report. It contains forward looking statements thatreflect our future plans, estimates, beliefs and expected performance. Theforward looking statements are dependent upon events, risks and uncertaintiesthat may be outside our control. Our actual results could differ materiallyfrom those discussed in these forward looking statements. Factors that couldcause or contribute to such differences include, but are not limited to, marketprices for natural gas and oil, economic and competitive conditions, regulatorychanges, estimates of proved reserves, potential failure to achieve productionfrom 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**

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

Since 2003,substantially all of our revenue has been generated from natural gas salesderived from the Magness #1, the Fannin#1, and the Mitchell#1 wells in theMadisonville Field in East Texas under spot gas purchase contracts at marketprices. Natural gas sales from the Madisonville Field are expected to accountfor substantially all of our revenues for 2007. We expect the majority of ourcapital expenditures in 2007 to be the costs of drilling and completing wellsin the Madisonville Field.

**Results of Operations**

The financial information with respect to the three andsix months ended June 30, 2007 and 2006 that is discussed below is unaudited.In the opinion of management, such information contains all adjustments,consisting only of normal recurring accruals, necessary for a fair presentationof the results for such periods. The results of operations for interim periodsare not necessarily indicative of the results of operations for the full fiscalyear.
|                                                                            | ** ** | **Three months ended June 30,** | ** ** | **Six months ended June 30,** | ** ** |
|----------------------------------------------------------------------------|------------|-----------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                                                                 | ** ** | **2007**                                            | ** ** | **2006**                                          | ** ** | **2007** | ** ** | **2006** | ** ** |
| ** **                                                                 | ** ** | **(Unaudited)**                                     | ** ** | **(Unaudited)**                                   | ** ** |
|                                                                       |       |                                                |       |                                              |       |   |   |   |   |
| **Statement  of Operations**                                               | ** ** | ** **                                          | ** ** | ** **                                        | ** ** | ** ** | ** ** | ** ** | ** ** |
| Revenues, net of royalties                                                 |       | 2,388,850                                           |       | 1,969,064                                         |       | 4,212,192 |   | 3,467,517 |   |
|                                                                       |       |                                                |       |                                              |       |   |   |   |   |
| Income (loss) from operations                                              |       | 305,145                                             |       | (124,231                                          | )          | 180,708 |   | (4,665 | ) |
|                                                                       |       |                                                |       |                                              |       |   |   |   |   |
| Net income (loss) available to holders of Common  Shares                   |       | 238,778                                             |       | (249,540                                          | )          | 56,164 |   | (322,617 | ) |
|                                                                       |       |                                                |       |                                              |       |   |   |   |   |
| Net income (loss) from continuing operations per  diluted share            |       | $                                                   | 0.01       |                                              | $          | (0.00 | ) | $ | 0.01 |   | $ | (0.00 | ) |
|                                                                       |       |                                                |       |                                              |       |   |   |   |   |
| Net income  (loss) available to holders of Common Shares per diluted share |       | $                                                   | 0.01       |                                              | $          | (0.01 | ) | $ | 0.00 |   | $ | (0.01 | ) |

 

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**Revenueand Operating Trends in 2007**

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

In 2005 we secured acommitment from MGP to install and make operational additional treatingfacilities capable of treating 50 MMcf/d, which combined with the capacity ofthe current in-service treating facilities will represent a total designedtreating capacity of 68 MMcf/d for the Madisonville treatment plant.    Representatives of MGP have indicated thatthey expect the full expansion of the treatment plant to 68 MMcf/d capacity canbe in place and operational by the third quarter of 2007.

Upon completion of theplant expansion, we expect to produce our Fannin Well and Mitchell Well at ahigher rate as the well rate has previously been restricted due to capacitylimitations in the gas treatment plant. The Mitchell Well was placed in production in June 2007.  In addition, later in 2007 we expect tofracture stimulate the Wilson Well, and provided such stimulation issuccessful, we will place the Wilson Well on production.

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

While there can be noassurance, the higher production rates from our wells combined with the loweraverage treating fees per Mcf, may result in higher net production andincreased revenue during later periods in 2007 as compared to the second quarterof 2007 and prior periods.

**IndustryOverview for the six months ended June 30, 2007**

The six months ended June 30,2007 saw strengthening natural gas prices. The Houston Ship Channel price, theindex price prevailing in the locale of our Madisonville Project in MadisonCounty, Texas, as quoted in Gas Daily as of June 29, 2007, was $6.66versus  $5.40 as of December 29,2006.  Natural gas prices improved duringthe quarter due to higher demand induced by cold temperatures experienced inmany parts of the United States, among other factors.

**Company Overviewfor the six months ended June 30, 2007**

Our net income after taxes for six months ended June30, 2007 was $56,164.  From our inception, through mid-2003, we onlyreceived nominal revenues from our oil and natural gas activities, whileincurring substantial acquisition and exploration costs and overhead expenseswhich have resulted in an accumulated deficit through June 30, 2007 of $10,337,821. Commencing in May 2003, weplaced our Madisonville Project into production. Substantially all of our oiland natural gas sales for the six months ended June 30, 2007 were derived from our Madisonville Project, fromthree producing wells, the UMC Ruby Magness #1 well (the “Magness Well”), theAngela Farris Fannin #1 well (the “Fannin Well”) and the Mitchell #1 well (the “MitchellWell”).

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**Comparison ofResults of Operations for three months ended June 30, 2007 and 2006**

Oil and gas revenue for thesecond quarter of 2007 increased 21% to $2,388,850 from $1,969,064 for thesecond quarter of 2006 in spite of a 5% decrease in gas production (netproduction of 583,486 Mcf in second quarter of 2007 compared to 616,106 Mcf inthe same period of 2006).

 The lease operating expense for the second quarter ended June 30, 2007was $418,830 compared to the same period of 2006 of $451,706. The averagelifting cost per Mcf for the three months ended June 30, 2007 was $0.72 versus$0.73 for the three months ended June 30, 2006. The lease operating expensecomparisons between these two quarters were consistent.

The total net profits interest expense for the second quarter ended June30, 2007 was $244,384 versus $201,868 in the same quarter of 2006.  The 21%increase resulted from higher gas prices in the three months ended June 30,2007 versus 2006. The net profits interest is 12.5% of the net operatingprofits from our Magness, Fannin, andMitchell wells.

For the second quarter ended June30, 2007, consolidated general and administrative (“G&A”) expense was$767,563 as compared to $738,756 for the same quarter in 2006. The G&A costcomparisons between these two quarters were consistent.

On the quarterly basis, the 2007second quarter depreciation, depletion and amortization expense (DD&A) was$652,928 as compared to $700,965 for the 2006 second quarter.  The decrease in DD&A was due to the lowergas production of 32,620 Mcf in second quarter of 2007 (net production of583,486 Mcf in second quarter of 2007 compared to 616,106 Mcf in the sameperiod of 2006).

For the second quarter ended June30, 2007, the income from operations was $305,145 versus a loss of $124,231 forthe same period in 2006. The increase in the income from operations wasdue primarily to higher oil and gas sales.

The interest income for thesecond quarter ended June 30, 2007 was $28,196 as compared to $91,460 in thesame quarter of 2006.  The reason for thedecreased interest income was lower average cash and cash equivalent balancesduring the 2007 period as compared to 2006 period.

Interest expense was $92,263 inthe second quarter ended June 30, 2007 versus $77,481 in the same quarter of2006. The primary reason for the 19% increase was due to short term borrowingswhich were incurred in 2007 to complete the Mitchell well.

During the second quarter endedJune 30, 2007, the net income before tax was $241,078 as compared to a net lossof $110,252 in the same quarter of2006. The net income during three months ended June 30, 2007 wasprimarily due to higher oil and gas sales.

During the second quarter ended June 30, 2007, theincome tax expense was $2,300 as compared to $7,300 in the same quarter of2006.  Theincome tax expense comparison betweenthese two quarters was consistent.

**Comparison ofResults of Operations for six months ended June 30, 2007 and 2006**

**During the six months ended June 30, 2007, we had oil andnatural gas revenues of $4,212,192. Our net**production was 1,108,338 Mcf ofnatural gas at an average price of $3.80 per Mcf.  During the six months ended June 30, 2006, wehad oil and natural gas revenues of $3,467,517. Our net production for the six months ended June 30, 2006 was 1,084,684Mcf at an average price of $3.20 per Mcf. Revenues increased in the six months ended June 30, 2007 as compared tothe prior year period due to higher gas

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**pricesand 2% higher production volumes.  Priceswere approximately 19% higher for the six months ended June 30, 2007 versus thesame period in 2006.**

**During the six months ended June 30, 2007, we incurredlease operating expense of $846,107. Our average lifting cost for the 2007period was $0.76 per Mcf.  During the sixmonths ended June 30, 2006, we incurred lease operating expense of $717,929.Our average lifting cost for the 2006 period was $0.66 per Mcf. The higheraverage lifting cost for the six months ended June 30, 2007 was due to aworkover performed on the Magness well and higher production taxes attributableto the Fannin and Mitchell wells.**

During the six months ended June 30, 2007, we incurrednet profits interest expense of $428,588 associated with the Magness, theFannin, and the Mitchell wells as compared to $360,471 during the six monthsended June 30, 2006. The 19% increase resulted from higher gas prices as wellas slightly higher production volumes in the six months ended June 30, 2007versus 2006.

**General and administrative expenses for the six monthsended June 30, 2007 were $1,526,919 compared to $1,287,620 for the six monthsended June 30, 2006. This represents a $239,299 increase over the prior yearperiod due primarily to U.S. and Canada public company filling fees, and costsassociated with our SEC registration statement, listing on the American StockExchange and ongoing filing requirements.**

Depreciation, depletion and amortization expense (“DD&A”)for the six months ended June 30, 2007 was $1,229,870 as compared to $1,106,162in the same period of 2006, which amounts primarily represent amortization ofthe U.S. full cost pool for the six months ended June 30, 2007 and 2006,respectively. The increase was due to higher net production in the six monthsperiod of 2007 and an increase in the amount of capitalized cost in the U.S.full cost pool.

Earningfrom operations totaled $180,708 for the six months ended June 30, 2007 ascompared to loss from operations of $4,665 for the six months ended June 30, 2006.The increase in the income from operations was due primarily to higher gas prices as well as slightly higherproduction volumes in the six months ended June 30, 2007 versus 2006.

Other income for the six monthsended June 30, 2007 and 2006 consisted of interest income in the amount of$56,201 and $91,894, respectively. The reason for the decreased interest incomewas lower average cash and cash equivalent balances during the 2007 period ascompared to 2006 period.

Duringthe six months ended June 30, 2007 and 2006, we incurred interest expense of$178,445 and $126,030, respectively. The higher interest expense in the currentperiod was due to short-term borrowings which were incurred in 2007 to completethe Mitchell well as well as a workover performed on the Magness well.

Netincome before taxes for the six months ended June 30, 2007 was $58,464  as compared to net loss before taxes of$38,801 for the six months ended June 30, 2006. The increase in net incomeduring the six months ended June 30, 2007 was primarily due to higher gas prices as well as slightly higherproduction volumes in the six months ended June 30, 2007 versus 2006.

Income tax expense for the six months ended June 30,2007 was $2,300 compared to $21,291 in the same period of 2006. The decrease inincome tax expense was due to estimated 2005 tax return paid in 2006.

**Recent Developments**

In February 2007, we borrowed $900,000 pursuant to three promissorynotes bearing interest at 8% per annum. The notes mature on October 31, 2007. In connection with these notes, we paid loan origination fees totaling$27,000 and issued three year warrants exercisable to purchase 45,000 shares ofour common stock at $3.50 per share which expire in February 2009.

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In February 2007, we received an extension of the maturity date of ourpromissory note for $1,000,000 payable to Pine Hill Capital, LLC to October 31,2007.  Inconnection with the extension, we paid a loan extension fee of $30,000 andgranted a three-year warrant to purchase 50,000 shares of our common stock at$3.50 per share.  If we do not repay thenote by October 31, 2007, we are required to dedicate 5% of our net cash flowfrom the Madisonville Project located in Madison County, Texas, toward theunpaid principal and all accrued and unpaid interest on the note, until allsuch amounts are paid in full.  Net cashflow means our gross revenues, less royalties, production taxes and net profitsinterest expense.

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

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

OnMarch 28, 2007, all 1,890,710 of our outstanding shares of our Series AA Stockautomatically converted into 1,890,710 shares of our common stock. Under ourAmended and Restated Articles of Incorporation, the Series AA stockautomatically converts into common shares on a one-for-one share basiseffective the first trading day after the reported high selling price for ourcommon shares is at least $5.25 per share for any consecutive ten trading days,which condition was met on March 27, 2007. As a result of the conversion of ourSeries AA stock to common stock on March 28, 2007, dividends on the Series AAStock ceased accruing on December 31, 2006. In 2006, dividends paid on theSeries AA Stock totaled $529,400.

On April 25, 2007, May 9, 2007, and June 13, 2007,an officer and director, exercised warrants to purchase 80,000, 70,000 and33,333 shares of common stock at an exercise price of $2.00, $2.00 and $4.00per share, respectively. The warrants were granted on June 18, 2000 and hadexpiration dates of between June 18 and June 30, 2007.

On May 11 and May 14, 2007, we issued 12,357 and25,000 shares of common stock at an exercise price of $3.50 per share inconnection with warrant exercises.

OnJune 20, 2007, we agreed to sell and transfer all of our remaining propertyinterests in Australia  to an unrelatedparty for cash consideration and a Petroleum Sales Royalty Payment equal to 25%of the future annual earnings before interest, taxes, depreciation andamortization from the property interests. The agreement is subject to satisfaction of certain terms andconditions.  Specifically, the agreementprovides that we will be paid consideration for the sale and transfer of ourproperty interests as follows:

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

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

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

OnJune 21, 2007, the Company entered into a participation agreement wherein itacquired a 50% non-operated working interest in the Goodwin Prospect, which islocated in the Central Alberta Basin, Canada. A total of 12,000 acres can be earned by the Company by the drilling ofwells.  On July 2, 2007, the companyadvanced US $477,050 to be

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applied toward thedrilling and completion of the first well in the prospect, the Nexstar Goodwin16-19-58-12 Well.

**Liquidity and Capital Resources**

Wehad a working capital deficit of $590,515 versus $1,238,261 at June 30, 2007and December 31, 2006, respectively. Our working capital increased duringsix months ended June 30, 2007 due primarily to higher oil and gas income forthe six months ended June 30, 2007 in spite of increase costs associated withour SEC registration, our listing on the American Exchange and the Mitchellwell’s hookup costs.

Wehave historically financed our business activities through June 30, 2007principally through issuances of common shares, promissory notes and common stock purchase warrants inprivate placements. These financings are summarized as follows:

|                                                                 | ** ** | **Six Months Ended** | ** ** |
|-----------------------------------------------------------------|------------|--------------------------------|------------|
| ** **                                                      | ** ** | **June 30, 2007**    | ** ** | **June 30, 2006** | ** ** |
|                                                            |       |                           |       |   |   |
| Increase in  restricted cash                                    |       | $                              | —     |   | $ | (2,000,075 | ) |
| Proceeds from  sale of common shares and warrant exercises, net |       | 620,644                        |       | 16,531,667 |   |
| Payment on  preferred dividends                                 |       | —                         |       | (262,525 | ) |
| Repayments of  promissory notes                                 |       | (100,000                       | )          | — |   |
| Proceeds from  promissory notes                                 |       | 1,000,000                      |       | 1,900,000 |   |
| Payment of loan  fee                                            |       | (57,000                        | )          | (30,000 | ) |
| Deferred  offering costs                                        |       | —                         |       | (1,213,789 | ) |
|                                                            |       |                           |       |   |   |
| Net cash provided  by financing activities                      |       | $                              | 1,463,644  |   | $ | 14,925,278 |   |

 

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The net proceeds of ourfinancings have been primarily invested in oil and natural gas propertiestotaling $1,430,493, and $14,425,098 for the six months ended June 30,2007 and 2006, respectively.

Our cash balance at June 30, 2007was $2,702,934 compared to a cash balance of $734,561 at December 31,2006. The change in our cash balance is summarized as follows:
| Cash balance at December 31,  2006           |   | $          | 734,561   |   |
|----------------------------------------------|--------|------------|-----------|--------|
| Sources of cash:                             |   |       |      |
| Cash provided by operating activities        |   | 941,103    |      |
| Cash provided by financing activities        |   | 1,463,644  |      |
| Cash provided by payment of notes receivable |   | 1,000,000  |      |
|                                         |   |       |      |
| Total sources of cash including cash on hand |   | 4,139,308  |      |
|                                         |   |       |      |
| Uses of cash:                                |   |       |      |
| Cash used in investing activities:           |   |       |      |
| Oil and natural gas property expenditures    |   | (1,430,493 | )         |
| Furniture, fixtures and equipment            |   | (5,881     | )         |
| Total uses of cash                           |   | (1,436,374 | )         |
|                                         |   |       |      |
| Cash balance at June  30, 2007               |   | $          | 2,702,934 |   |

 

Our current cash and cashequivalents and anticipated cash flow from operations may not be sufficient tomeet our working capital, capital expenditures and growth strategy requirementsfor the foreseeable future.  See “Outlookfor 2007” for a description of our expected capital expenditures for 2007. Ifwe are unable to generate revenues necessary to finance our operations over thelong-term, we may have to seek additional capital through the sale of ourequity or borrowing. As noted in “Recent Developments,” we periodically borrowfunds pursuant to short term promissory notes to finance our activities.

**Contractual Obligations**

Wehave assumed various contractual obligations and commitments in the normalcourse of our operations and financing activities. We have described theseobligations and commitments in our “Management’s Discussion and Analysis ofFinancial Condition and Results of Operations” section in our Annual Report onForm 10-K for the year ended December 31, 2006. There were no materialchanges to our contractual obligations since December 31, 2006.

**Income Taxes**

Asof December 31, 2006, we had net operating loss (NOL) carryforwards ofapproximately $22,932,000 for federal income tax purposes beginning to expirein 2010 and $10,926,000 for state income tax purposes which began to expire in2006.

Asignificant change in our ownership may limit our ability to use these NOLcarryforwards. Statement of Financial Accounting Standards No. 109,Accounting for Income Taxes, requires that the tax benefit of such netoperating loss be recorded as an asset. At December 31, 2006, we had netdeferred tax assets of approximately $3.7 million related to the NOL andother temporary differences. We have recorded a full valuation allowance of$3.7 million at December 31, 2006, due to uncertainties surroundingthe realizability of the deferred tax asset.

Effective January 1, 2007, we adopted the provisions ofFASB interpretation No. 48, Accounting for Uncertainty in Income Taxes, thedetail of which is included in Note 8.

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**Off BalanceSheet Arrangements**

Asof June 30, 2007, we had no off balance sheet arrangements.

**FinancialInstruments**

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

**Outlook for 2007**

Depending on capitalavailability, we are forecasting capital spending of up to approximately$15.0 million during the remainder of 2007, allocated as follows:

1.                                       Madisonville Project, Madison County, Texas.Approximately $13.0 million will be expended in the Madisonville Fieldarea as follows: $10,000,000 to drill a deep well location, $2,000,000 towardthe fracture stimulation and hook up costs of the Wilson Well, and $1,000,000to be utilized for land acquisition, engineering and permitting.

2.                                       Central Alberta Reef Project. Up to approximately$2.0 million will be expended to drill exploratory wells and acquire 3-D seismic data.

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

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

**Impact of Inflation &Changing Prices**

We are highly dependent upon natural gaspricing.  A material decrease in currentand projected natural gas prices could impair our ability to raise additionalcapital on acceptable terms.  Likewise, amaterial decrease in current and projected natural gas prices could also impactour revenues and cash flows.  This couldimpact our ability to fund future activities.

Changing prices have had a significant impact oncosts of drilling and completing wells, particularly in the Madisonville Fieldarea where we are currently the most active. The impact is due to higher costs associated with tubular goods, wellequipment, and day rates for drilling contracts, among other factors.  These higher costs have impacted and willcontinue to impact our income from operations in the form of higher depletionexpense.

**Critical Accounting Estimates**

Our consolidated financialstatements have been prepared by management in accordance with U.S. GAAP.  We refer you to the corresponding section inPart II, Item 7 and the notes to the consolidated financial statements ofour Annual Report on Form 10-K for the year ended December 31, 2006 for adescription of critical accounting policies and estimates.

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**Risks andUncertainties**

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

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

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

*Commodity Risk.*   Our major commodity price risk exposureis to 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. For the six months ended June 30,2007, a 10% change in the prices received for natural gas production would havehad an approximate $400,000 impact on our revenues.

*Currency TranslationRisk.**  *Because our revenues and expensesare primarily in U.S. dollars, we have little exposure to currencytranslation risk, and, therefore, we have no plans in the foreseeable future toimplement hedges or financial instruments to manage international currencychanges.

*Hedging.*We did not enter into any hedging transactions during the six months ended June30, 2007 and the year ended December 31 2006.

**Item 4.    Controlsand Procedures.**

***Evaluation of Disclosure Controls andProcedures***

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

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

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

**PART II. OTHERINFORMATION**

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

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

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

As of the date of this filing, there have been nomaterial changes from the risk factors previously disclosed in our “RiskFactors” in our Annual Report on Form 10-K for the year ended December 31,2006, referred to as our 2006 Annual Report. An investment in our securitiesinvolves various risks. When considering an investment in our company, youshould consider carefully all of the risk factors described in our 2006 AnnualReport. These risks and uncertainties are not the only ones facing us and theremay be

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additional matters that we are unaware of or that wecurrently consider immaterial. All of these could adversely affect ourbusiness, financial condition, results of operations and cash flows and, thus,the value of an investment in our company.

**Item 2.**    **Use ofProceeds.**

Ourregistration statement on Form S-1 (Reg. No. 333-135485) registered up to16,499,991 shares of our common stock, no par value per share, including5,825,498 shares of common stock issuable upon exercise of warrants andoptions, for resale by selling shareholders. The registration statement wasdeclared effective by the Securities and Exchange Commission on February 8,2007. The offering commenced on February 8, 2007 and has not terminated. Wewill not receive any proceeds from the sale of our common stock by the sellingshareholders under the registration statement; however if all warrants andoptions to acquire our common stock being registered thereunder are exercised,we will realize cash proceeds of approximately $13,931,169, which we expect touse for general working capital purposes and the drilling of wells in ourTexas, Alaska, California, Canadian and Indonesian prospects.

Ifless than the $13,931,169 proceeds are realized from the exercise of suchwarrants and options, the proceeds will be spent in the following order ofpriority:

1.    Alaska Cook Inlet Project, up toapproximately $3.0 million will be expended for the drilling of pilot programwells.

2.    Madisonville Project, Madison County, Texas.Up to approximately $10 million will be expended in the Madisonville Field areatowards the drilling and completion of one deep exploratory well location to anestimated depth of 18,000 feet.

3.    General working capital.

Wedo not know if, or how many, of the warrants or options will be exercised. Thisis our best estimate of our use of proceeds generated from the possibleexercise of warrants or options based on the current state of our businessoperations, our current plans and current economic and industry conditions. Anychanges in the projected use of proceeds will be made at the sole discretion ofour board of directors.

**Item 3.**    **DefaultsUpon Senior Securities.**

Not applicable.

**Item 4.**    **Submissionof Matters to a Vote of the Security Holders.**

Not applicable.

**Item 5.**    **OtherInformation.**

Not applicable.

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

 

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*                    Filedherewith

**             Filed as theidentically numbered exhibit to the Registration Statement on Form S-1, asamended (No. 333-135485), as filed with the Securities and ExchangeCommission on June 30, 2006, and incorporated herein by reference.

*** Filed as theidentically numbered exhibit to the Annual Report on Form 10K, as filed withthe Securities and Exchange Commission on April 2, 2007, and incorporatedherein by reference.

†                     Indicates amanagement contract or compensatory plan or arrangement.

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**SIGNATURES**

Pursuant to the requirements of the SecuritiesExchange Act of 1934, the registrant has duly caused this report to be signedon its behalf by the undersigned, thereunto duly authorized.

| Signature                 | ** ** | **Title**                                                           | ** ** | **Date**        |
|---------------------------|------------|---------------------------------------------------------------------|------------|-----------------|
|                      |       |                                                                |       |            |
| /s/ Stuart J.  Doshi      |       | Chairman of the  Board, President                                   |       | August 14, 2007 |
| Stuart J. Doshi           |       | and Chief  Executive Officer                                        |       |            |
|                      |       |                                                                |       |            |
| /s/ David V.  Creel       |       | Vice President  of Exploration and                                  |       | August 14, 2007 |
| David V. Creel            |       | Director                                                            |       |            |
|                      |       |                                                                |       |            |
| /s/ J. Chris  Steinhauser |       | Vice President  of Finance and                                      |       | August 14, 2007 |
| J. Chris  Steinhauser     |       | Chief Financial  Officer, Principal Accounting Officer and Director |       |            |

 

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