| ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 | **UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

Washington, D.C. 20549

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| ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 | ** **                                                                                                           | **FORM 10-K**

** **                                                                                            | ** ** | ** ** |
| (Mark One)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 | ** **                                                                                                           | ** **                                                                                                           | ** ** | ** ** |
| x 		**ANNUAL****REPORT PURSUANT TO SECTION 13 OR 15(d) OF  THE SECURITIES EXCHANGE ACT OF 1934**

		                                         		For thefiscal year ended: December 31, 2010

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

**Commission File Number 333-141993**

** **                                                            | ** ** | ** ** |
| ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 | ** **                                                                                                           | **PETROCORP INC.**

(Exact Name of Registrant as Specified in Its Charter)                                           | ** ** | ** ** |
| **  Delaware**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        | ** **                                                                                                           | **20-5134664**                                                                                                       |
| (State or other jurisdiction of		

incorporation or organization)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          | (I.R.S. Employer  Identification No.)                                                                                |
| ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |  

**1065 Dobbs Ferry Road**

**White Plains, New York  10607**

(Address of principal  executive offices) | ** **                                                                                                           |
| ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 | ** **                                                                                                           |  

**  (914) 674-4373**

   		(Issuer's telephone  number, including area code)

** ** | ** ** | ** ** |
|  

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

 

Securitiesregistered pursuant to Section 12(g) of the Act:  Common Stock, par value $.0001

		 

Indicate by check markif the registrant is a well-known seasoned issuer, as defined in Rule 405 ofthe Securities Act.   Yes o   No x

 

Indicate by check markif the registrant is not required to file reports pursuant to Section 13 or15(d) of the Act.   Yes o   No x

 

Indicate by check mark whether the registrant(1) has filed all reports required to be filed by Section 13 or 15(d) of theSecurities Exchange Act of 1934 during the preceding 12 months (or for suchshorter period that the registrant was required to file such reports), and (2)has been subject to such filing requirements for the past 90 days.   Yesx   Noo

 

Indicate by check mark if disclosure of delinquent filerspursuant to Item 405 of Regulation S-K (s 229.405) is not contained herein, andwill not be contained, to the best of registrant’s knowledge, in definitiveproxy or information statements incorporated by reference in Part III of thisForm 10-K or any amendment to this Form 10-K.   o

 

Indicate by check mark whether theregistrant is a large accelerated filer, an accelerated filer, anon-accelerated filer or a smaller reporting company filer.  See thedefinitions of “large accelerated filer,” “accelerated filer” and “smallerreporting company” in Rule 12b-2 of the Exchange Act.

 

   Large accelerated filer o Accelerated filer o Non-accelerated Filer o Smaller reporting company x

 

Indicateby check mark whether the registrant is a shell company (as defined in Rule12b-2 of the Act).

  Yes o No x

  |
| The aggregate market value of the voting and non-voting common equity		held by non-affiliates of the registrant as of March 31, 2011:		 $12,200,000.		The number of shares of the registrant's common stock outstanding as of		March 31, 2011: 22,680,000.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
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** **

1

----

 
INDEX TO FORM 10-K ANNUAL REPORT

 

 

 

 

Page

 

**PART I**

 

 

Item 1.

Business

 

3

Item 1A.

Risk Factors

 

7

Item 1B.

Unresolved Staff Comments

 

12

Item 2.

Properties

 

13

Item 3.

Legal Proceedings

 

14

Item 4.

Reserved and Removed

 

14

 

**PART II**

 

 

Item 5.

Market for Registrant's Common Equity, Related	Stockholder 

 

 

 

Matters and Issurer Purchases of Equity  Securities

 

14

Item 6.

Selected Financial Data

 

15

Item 7.

Management’s Discussion and Analysis of  Financial Condition and

 

 

 

Results of Operations

 

15

Item 7A.

Quantitative and Qualitative  Disclosures about Market Risk

 

17

Item 8.

Financial Statements and Supplementary  Data

 

17

Item 9.

Changes in and Disagreements with  Accountants on Accounting and 

 

 

 

Financial Disclosure

 

17

Item 9A(T)

Controls and Procedures

 

17

Item 9B

Other Information

 

20

 

**PART III**

 

 

Item 10.

Directors, Executive Officers and  Corporate Governance

 

21

Item 11.

Executive Compensation

 

22

Item 12.

Security Ownership of Certain  Beneficial Owners and Management

 

 

 

and Related Stockholder Matters

 

23

Item 13.

Certain Relationships and Related  Transactions, and Director Independence

 

25

Item 14.

Principal Accountant Fees and Services

 

25

 

**PART IV**

 

 

Item 15.

Exhibits and Financial Statement  Schedules

 

26

 

Signatures

 

27

 

Financial Statements

 

F-1

 

2

 

**FORWARD-LOOKING STATEMENTS**

Thisreport contains forward-looking statements within the meaning of Section 27A ofthe Securities Act of 1933, as amended (the “Securities Act”), and Section 21Eof the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Allstatements other than statements of historical facts are forward-lookingstatements. You can find many of these statements by looking for words such as“believes,” “expects,” “anticipates,” “estimates,” “intends,” or similarexpressions used in this report.

 

These forward-lookingstatements are subject to numerous assumptions, risks and uncertainties.Factors which may cause our actual results, performance or achievements to bematerially different from any future results, performance or achievementsexpressed or implied by us in those statements include, among others, thefollowing:

 

 

•

the quality of our  properties with regard to, among other things, the existence of reserves in  economic quantities;

 

•

uncertainties about  the estimates of reserves; 

 

•

our ability to  increase our production and oil and natural gas income through exploration  and development;

 

•

the number of well  locations to be drilled and the time frame within which they will be drilled;

 

•

the timing and extent  of changes in commodity prices for natural gas and crude oil;

 

•

domestic demand for  oil and natural gas; 

 

•

drilling and operating  risks; 

 

•

the availability of  equipment, such as drilling rigs and transportation pipelines; 

 

•

changes in our  drilling plans and related budgets; 

 

•

the adequacy of our  capital resources and liquidity including, but not limited to, access to  additional borrowing capacity; and

 

•

other factors  discussed under Item 1A Risk Factors with the heading “Risks Related To Our  Business”. 

 

Because such statementsare subject to risks and uncertainties, actual results may differ materiallyfrom those expressed or implied by the forward-looking statements. You arecautioned not to place undue reliance on such statements, which speak only asof the date of this report.

 

**PART I**

 

References to “us”, “we”and “our” in this report refer to Petrocorp Inc. together with our subsidiaries.

 

**ITEM 1. BUSINESS.**

*** ***

***Background***

*** ***

We were incorporated as GD Conference Center,Inc. under the laws of Delaware on June 16, 2006.  Prior to September 2007, theCompany’s business model provided telephonic conferencing services tobusinesses, organizations and individuals in North America.

 

On September 20, 2007, the Company enteredthe oil and gas exploration and production business with the acquisition ofthree separate farm-out agreements from James Fitzsimons.  Mr. Fitzsimons alsopurchased 17,800,000 shares of the Company’s common stock from certainshareholders for $454,000.  Mr. Fitzsimons was elected a director of theCompany.

 

3

 

On October 19, 2007, the Companyamended its certificate of incorporation changing its name to “Petrocorp Inc.”and effected a five for one forward stock split which increased theauthorized common stock to 100,000,000 shares at $.0001 par value.  OnAugust 13, 2008, the Company’s board of directors approved a stock dividend onits outstanding common stock.  The ratio for the stock dividend was four sharesto each share owned (4:1).

 

During 2009 the Company changedits emphasis from an international oil and gas company primarily to a US focusedcompany because of world economic conditions and lack of debt/capital financing. The Company disposed of its foreign oil and gas leases/permits in two separatetransactions.  The Company completed an extensive review of its Alaska andOklahoma oil and gas leases, operations and recorded a $900,865 impairmentcharge in 2010 as compared to $639,813 in 2009.

** **

***Our Current Business***

 

We are a US exploration stage Companyengaged in the acquisition, exploration and production, if warranted,development of prospective oil and gas properties.  We plan to conductexploration work on each of our current and future properties in order toascertain whether any of them possess commercially exploitable quantities ofoil and gas reserves.  The Company currently has lease holdings on the NorthSlope of Alaska and oil and gas production in Oklahoma.  

      

**            Alaska**

 

On October 25, 2007, Union Energy(Alaska) LLC (“UEA”), our subsidiary, was the winning bidder for tracts 254,258 and 259 in the North Slope Areawide 2007 Competitive Oil and Gas LeaseSale.  The leases, covering 14,680 net acres, were issued on August 1, 2008,with a term of seven years and subject to a 12.5% royalty interest in favor of the Stateof Alaska.  These tracts are contiguous and theCompany believes, based upon current available geological data and maps fromthe public domain, to contain the Kavik gas field, discovered in 1969, whichhas been evaluated in detail by the U.S. Department of the Interior, U.SGeological Survey ("USGS").

 

On February 27, 2008, UEA was thewinning bidder for tracts 922, 923, 927, 988, 989, 990, 991, 992 and 925 in theState of Alaska North Slope Foothills Areawide 2008 Competitive Oil and GasLease Sale. The leases, covering 9,600 net acres, were issued on September 1,2008, with a term of 10 years and subject to a 12.5% royalty interest in favor of theState of Alaska.  These tracts are contiguous and theCompany believes, based upon current available geological data and maps from thepublic domain, to contain the East Kurupa gas field, discovered by Texaco in1976.  The USGS has been studying the potential for unconventionalover-pressured, continuous gas deposits in the Colville basin that contains theKurupa anticline and is now interpreting the East Kurupa well to haveencountered a thick section of over-pressured gas in Brookian strata.

 

Furthermore, any gas recovered fromour Alaska leases will not be salable unless or until a proposed North Slopegas pipeline is completed.

 

**            Oklahoma**

 

On August 12, 2008, the Company acquired fromits President, James Fitzsimons, a 50% working interest (41.25% net revenueinterest) in the Snake Creek prospect, a 3,200 gross (3,022 net) acre gas developmentproject located in northern Okmulgee County.  The Company reimbursed Mr.Fitzsimons for his historic costs (acreage and drilling) by issuing a secured,non-interest bearing note, payable on demand for $210,917 and assumedresponsibility for all further costs.

 

4

 

On November 30, 2008, the Company acquired fromMr. Fitzsimons, a 100% working interest (81.25% net revenue interest) in theSpanish Peak prospect, a 2,041 gross (900 net) acre gas development projectlocated in Okmulgee County, Oklahoma.  The Company reimbursed Mr. Fitzsimonsfor his historic costs (acreage) by issuing a secured, non-interest bearingnote, payable on demand for $173,141 and assumed responsibility for all furthercosts.

 

On March 31, 2009, the Company purchased 171 oiland gas lease interests totaling 3,827 gross (2,666 net) acres in Okfuskee and Okmulgee Counties, Oklahoma from CH4 Energy, Inc., a company controlled by SoladinoInvestments SA at a cost of $583,823.  The Company reimbursed Soladino for itshistoric costs (acreage) by issuing a secured, non-interest bearing note,payable on demand for $583,823 and assumed responsibility for all furthercosts.

 

The Oklahoma leases are in areaswhich the Company believes are promising for oil and gas production althoughthe Company does not make any representations as to future profitableproduction, if any.

* *

***Competition***

 

We operate in a highly competitive industry,competing with major oil and gas companies, independent producers andinstitutional and individual investors, which are actively seeking oil and gasproperties throughout the world together with the equipment, labor andmaterials required to operate properties. Most of our competitors havefinancial resources, staffs and facilities substantially greater than ours. Theprincipal area of competition is encountered in the financial ability toacquire good acreage positions and drill wells to explore for oil and gas,then, if warranted, drill production wells and install production equipment.Competition for the acquisition of oil and gas acreage is intense. Therefore,we may not be successful in acquiring and developing profitable properties inthe face of this competition. No assurance can be given that sufficient oil andgas acreage will be available for acquisition and development.

** **

***Government Regulation***

 

Oil and gas exploration and developmentcompanies are subject to various federal, state and local governmentalregulations, which may be changed from time to time in response to economic orpolitical conditions and can have a significant impact upon overall operations.Matters subject to regulation include permits for drilling operations, drillingbonds, reports concerning operations, the spacing of wells, unitization andpooling of properties, taxation, abandonment and restoration and environmentalprotection. These laws and regulations are under constant review for amendmentor expansion. Changes in these regulations could require us to expendsignificant resources to comply with new laws or regulations or changes to currentrequirements and could have a material adverse effect on us.

 

***Oil and Gas Regulation***

 

The governmental laws and regulations whichcould have a material impact on our Company are as follows:

** **

***           *Drilling and Production**

 

These types of regulation include permitrequirements for the drilling of wells, drilling bonds and reports concerningoperations. Most states regulate one or more of the following: (i) the locationof wells; (ii) the method of drilling and casing wells; (iii) the rates ofproduction or "allowables"; (iv) the surface use and restoration ofproperties upon which wells are drilled; (v) the plugging and abandoning ofwells; and (vi) notice to surface owners and other third parties.

 

5

 

State laws may regulate the size and shape ofdrilling and spacing units or proration units governing the pooling of oil andnatural gas properties. Some states, including Oklahoma, allow forced poolingor integration of tracts to facilitate exploration while other states rely onvoluntary pooling of lands and leases. In some instances, forced pooling orunitization may be implemented by third parties and may reduce our interest inthe unitized properties. In addition, state conservation laws establish maximumrates of production from oil and natural gas wells, generally prohibit theventing or flaring of natural gas and impose requirements regarding theratability of production. These laws and regulations may limit the amount ofnatural gas and oil we can produce from our wells or limit the number of wellsor the locations at which we can drill. Moreover, each state generally imposesa production or severance tax with respect to the production and sale of oil,natural gas and natural gas liquids within its jurisdiction.

 

**Environmental Regulation**

 

Our activities will be subject to existingfederal, state and local laws and regulations governing environmental qualityand pollution control. Our operations will be subject to stringentenvironmental regulation by state and federal authorities including theEnvironmental Protection Agency ("EPA"). Such regulation can increasethe cost of such activities. In most instances, the regulatory requirementsrelate to water and air pollution control measures.

 

**Waste Disposal**

 

The Resource Conservation and Recovery Act("RCRA"), and comparable state statutes, affect oil and gasexploration and production activities by imposing regulations on thegeneration, transportation, treatment, storage, disposal and cleanup of"hazardous wastes" and on the disposal of non-hazardous wastes. Underthe auspices of the EPA, the individual states administer some or all of theprovisions of RCRA, sometimes in conjunction with their own, more stringentrequirements. Drilling fluids, produced waters, and most of the other wastesassociated with the exploration, development, and production of crude oil,natural gas, or geothermal energy constitute "solid wastes", whichare regulated under the less stringent non-hazardous waste provisions, butthere is no guarantee that the EPA or the individual states will not adopt morestringent requirements for the handling of non-hazardous wastes or categorizesome non-hazardous wastes as hazardous for future regulation.

 

*           ***Air Emissions**

 

Our operations are subject to local, state andfederal regulations for the control of emissions of air pollution. Majorsources of air pollutants are subject to more stringent, federally imposedpermitting requirements. Administrative enforcement actions for failure tocomply strictly with air pollution regulations or permits are generally resolvedby payment of monetary fines and correction of any identified deficiencies. Alternatively, regulatory agencies could require us to forego construction,modification or operation of certain air emission sources.

 

**Clean Water Act**

 

The Clean Water Act ("CWA") imposesrestrictions and strict controls regarding the discharge of wastes, includingproduced waters and other oil and natural gas wastes, into waters of the United States, a term broadly defined. Permits must be obtained to discharge pollutantsinto federal waters. The CWA provides for civil, criminal and administrativepenalties for unauthorized discharges of oil, hazardous substances and otherpollutants. It imposes substantial potential liability for the costs of removalor remediation associated with discharges of oil or hazardous substances. Statelaws governing discharges to water also provide varying civil, criminal andadministrative penalties and impose liabilities in the case of a discharge ofpetroleum or it derivatives, or other hazardous substances, into state waters.In addition, the EPA has promulgated regulations that may require us to obtainpermits to discharge storm water runoff. In the event of an unauthorizeddischarge of wastes, we may be liable for penalties and costs.

 

6

 

***Employees***

 

We have no employees as of the date of thisreport and anticipate that our operations will be conducted primarily throughthird party consultants and contractors rather than by employees.  We do notanticipate hiring a large number of employees.

*** ***

**Item 1A.  Risk Factors.**

 

You should carefullyconsider the risks described below, which constitute the material risks facingus.  If any of the following risks actually occur, our business could beharmed. You should also refer to the other information about us contained inthis Form 10-K, including our financial statements and related notes.

 

***Risks Related to Our Business***

** **

**Our exploratory drilling operations may not besuccessful, our business may fail and investors may lose their entireinvestment in our Company.**

 

There can be no assurance that our futuredrilling activities will be successful. We may not recover all or any portionof our capital investment in the wells. Unsuccessful drilling activities wouldhave a material adverse effect upon our results of operations and financialcondition and would likely result in the ultimate failure of our businessoperations. The cost of drilling, completing, and operating wells is oftenuncertain, and a number of factors can delay or prevent drilling operations including:(i) unexpected drilling conditions; (ii) pressure or irregularities information; (iii) equipment failures or accidents; (iv) adverse weatherconditions; and (iv) shortages or delays in availability of drilling rigs anddelivery of equipment. If our exploratory drilling operations are notsuccessful, our business may fail and investors may lose their entireinvestment in our Company.

 

**Oil and gas exploration and development involvesmany operating risks. If we were to experience any of these problems, it couldhave a material, adverse effect on our operations and possibly cause us to goout of business and investors to lose their entire investment in our Company.**

 

Our exploration activities will be subject tomany risks, including the risk that we may not discover commercially productivereservoirs. Exploration for oil and natural gas can be unprofitable, not onlyfrom failing to discover reserves, but from productive wells that do notproduce sufficient revenues to return a profit. In addition, our explorationactivities may be curtailed, delayed or cancelled as a result of other factors,including:

 

•   fires;

•   explosions;

•   blow-outs and surface cratering;

•   uncontrollable flowsof underground natural gas, oil, or formation water;

•   natural disasters;

•   facility and equipmentfailures;

•   title problems;

•   shortages or delays inthe delivery of equipment and services;

•   abnormal pressureformations; and,

•   environmentalhazards such as natural gas leaks, oil spills, pipeline ruptures and discharges    of toxic gases.

7

 

If any of these events occur, we could incursubstantial losses as a result of:

 

•   injury or loss oflife;

•   severe damage to anddestruction of property, natural resources or equipment;

•   pollution and otherenvironmental damage;

•   clean-up responsibilities;

•   regulatoryinvestigation and penalties;

•   suspension of ouroperations; or,

•   repairs necessary toresume operations.

 

We may be affected by any of these events morethan larger companies, since we have limited working capital. We have notobtained any liability insurance for our operations at this time. If we were toexperience any of these problems, it could have a material, adverse effect onour operations and could cause us to go out of business and investors to losetheir entire investment in our Company.

** **

**The operations and the potential profitabilityof oil and gas exploration and development companies often depends upon factorsbeyond our control. If our operations and potential profitability arenegatively impacted because of these factors, our business could suffer andinvestors could lose all or part of their investment in our Company.**

 

The potential profitability of oil and gasproperties is dependent upon many factors beyond our control. For instance,world prices and markets for oil and gas are unpredictable, highly volatile andpotentially subject to governmental price fixing, pegging and controls, or anycombination of these and other factors, responding to changes in domestic,international, political, social, and economic environments. Additionally, dueto worldwide economic uncertainty, the availability and cost of funds and otherexpenses have become increasingly difficult, if not impossible, to project.These and other changes and events may materially affect our financialperformance.

 

Adverse weather conditions can also hinderdrilling operations. A productive well may become uneconomic in the event wateror other deleterious substances are encountered which impair or prevent theproduction of oil and/or gas from the well. In addition, production from anywell may be unmarketable if it is impregnated with water or other deleterioussubstances. The marketability of oil and gas, which may be acquired ordiscovered will be affected by numerous factors beyond our control. Thesefactors include, but are not limited to, the proximity and capacity of oil andgas pipelines and processing equipment, market fluctuations of prices, taxes,royalties, land tenure, allowable production and environmental protection.These factors cannot be accurately predicted. If our operations and potentialprofitability are negatively impacted because of these factors, our businesscould suffer and investors could lose all or part of their investment in our Company.

 

**The oil and gas industry is highly competitiveand there is no assurance that we will be successful in acquiring further oiland gas exploration prospects and hiring qualified personnel. If we do notcompete successfully in these areas, our operations will likely suffer and our Companywill likely be unsuccessful.**

 

The oil and gas industry is intenselycompetitive, and we compete with other companies that have greater resources.Many of these companies not only explore for and produce oil and natural gas,but also carry on refining operations and market petroleum and other productson a regional, national or worldwide basis. These companies may be able to paymore for productive oil and natural gas properties and exploratory prospects ordefine, evaluate, bid for and purchase a greater number of properties andprospects than our financial or human resources permit. In addition, thesecompanies may have a greater ability to continue exploration activities duringperiods of low oil and natural gas market prices. Our larger competitors may beable to absorb the burden of present and future laws and regulations moreeasily than we can, which would adversely affect our competitive position. Ourability to acquire additional properties and to discover reserves in the futurewill be dependent upon our ability to evaluate and select suitable propertiesand to consummate transactions in a highly competitive environment.  Thesecompanies also may be better able to attract the qualified personnel requiredto run a successful oil and gas exploration company.

 

8

 

**Oil and gas operations are subject tocomprehensive regulation which may cause substantial delays or require capitaloutlays in excess of those anticipated causing an adverse effect on us.**

 

Oil and gas operations are subject to federal,state, and local laws relating to the protection of the environment, includinglaws regulating removal of natural resources from the ground and the dischargeof materials into the environment.  Oil and gas operations are also subject tofederal, state, and local laws and regulations which seek to maintain healthand safety standards by regulating the design and use of drilling methods andequipment.  Various permits from government bodies are required for drillingoperations to be conducted; no assurance can be given that such permits will bereceived. Environmental standards imposed by federal, state, or localauthorities may be changed and any such changes may have material adverseeffects on our activities. Moreover, compliance with such laws may causesubstantial delays or require capital outlays in excess of those anticipated,thus causing an adverse effect on us. Additionally, we may be subject toliability for pollution or other environmental damages which we may elect notto insure against due to prohibitive premium costs and other reasons. To datewe have not been required to spend material amounts on compliance withenvironmental regulations.  However, we may be required to do so in future andthis may affect our ability to expand or maintain our operations.

 

**Oil and gas exploration and developmentactivities are subject to certain environmental regulations which may preventor delay the commencement or continuance of our operations.**

 

Our oil and gas exploration and developmentactivities will be subject to certain federal, state and local laws andregulations relating to environmental quality and pollution control. Such lawsand regulations increase the costs of these activities and may prevent or delaythe commencement or continuance of a given operation. Compliance with theselaws and regulations has not had a material effect on our operations orfinancial condition to date. Specifically, we are subject to legislationregarding emissions into the environment, water discharges and storage anddisposition of hazardous wastes. In addition, legislation has been enactedwhich requires well and facility sites to be abandoned and reclaimed to thesatisfaction of state authorities. However, such laws and regulations arefrequently changed and we are unable to predict the ultimate cost ofcompliance.

*** ***

***Risks Related to Our Company***

** **

**If we do not continue to obtain additionalfinancing, our business will fail.**

 

Our current operating funds are less thannecessary to commence and complete intended test wells on the Oklahoma and Alaskaproperties covered by our oil and gas leases. Therefore, we will need to obtainadditional financing in order to complete our business plan.  We currently havelimited operations and we have minimal oil and gas sales.

 

At December 31, 2010, we have cash of $29,404representing the remaining proceeds of our financing transactions and loansfrom our president.  In order to commence and complete intended test wells onthe Oklahoma properties we anticipate that we will need to spend a minimum of $100,000. Exploration (and if successful, development) of the Alaska prospects isunlikely to commerce until the next decade and it is impossible to forecastthese costs at this time.  Nevertheless, we will require substantial additionalfinancing to cover such costs.  Furthermore, we will require additionalfinancing to sustain our business operations if we are not successful inearning revenues once drilling is complete.

 

9

 

We do not currently have any arrangements forfinancing and may not be able to find such financing. Our ability to obtainadditional financing will be subject to a number of factors, including themarket price for oil and gas, the success of our initial test wells and generalmarket conditions. These factors will make the timing, amount, terms or conditionsof financing uncertain and additional financing may be unavailable to us.  Ifwe do not obtain additional financing, our business will fail.

 

**We are a new entrant into the oil and gasindustry without a profitable or long operating history. We do not have any significantincome producing oil and gas properties and we have limited financialresources. We have not yet commenced our exploration activities nor have wegenerated any significant revenue since our incorporation. There is no means bywhich investors can evaluate our potential for success and there is noassurance that we will ever operate profitably.**

 

We have a limited operating history and must beconsidered in the exploration stage. Our Company's operations will be subjectto all the risks inherent in the establishment of an exploration stageenterprise and the uncertainties arising from the absence of a significantoperating history. Potential investors should be aware of the difficultiesnormally encountered by oil and gas exploration and development companies andthe high rate of failure of such enterprises, especially those with a limitedoperating history such as ours. The likelihood of success must be considered inlight of the problems, expenses, difficulties, complications and delaysencountered in connection with the oil and gas exploration that we plan toundertake. These potential problems include, but are not limited to,unanticipated problems relating to exploration, and additional costs andexpenses that may exceed current estimates. The expenditures to be made by usin our oil and gas exploration may not result in the discovery of oil and gasreserves. If the results of our exploration do not reveal commercially viableoil or gas reserves, we may decide to abandon our leasehold interests andacquire new oil and gas interests for exploration or cease operations. Theacquisition of additional oil and gas interests will be dependent upon uspossessing capital resources in order to purchase such interests. If no fundingis available, we may be forced to abandon our operations. No assurance can begiven that we will ever operate on a profitable basis.

 

Potential investors should be aware of thedifficulties normally encountered by new resource companies and the high rateof failure of such enterprises. There is a high risk that our business willfail.

 

**Because our directors have other businessinterests, they may not be able or willing to devote a sufficient amount oftime to our business operations, causing our business to suffer and possiblyfail**.

 

Our directors intend to spend a minority oftheir business time providing their services to us. While they presentlypossess adequate time to attend to our interests, it is possible that thedemands on our directors from their other obligations could increase, or thedemands of our business operations could increase, with the result that theywould no longer be able to devote sufficient time to the management of ourbusiness. If this happens, our Company will not likely perform to its potentialand may fail.

 

**Prospects that we decide to drill may not yieldnatural gas or oil in commercially viable quantities. If this happens, ourbusiness will likely fail and investors would likely lose their entireinvestment in our Company.**

 

None of our properties covered by the oil andgas leases/permits have yet been fully evaluated by the Company. We will notknow for certain, prior to drilling and testing, whether natural gas or oilwill be present in those properties or, if present, whether natural gas or oilwill be present in sufficient quantities to recover drilling or completioncosts or to be economically viable. The cost of drilling, completing andoperating any well is uncertain and any wells we drill may not be productive.If we never find commercially viable resources of oil and gas, our businesswill fail and investors will likely lose their entire investment in our Company.

 

10

 

**Our Alaska prospects are in areas believed tocontain gas, but presently lacking gas transportation facilities**.

 

While our Alaska prospects are in areas that arepromising for gas discovery, there are no existing pipeline facilitiesavailable to transport any gas they may produce to market.  Unless suchfacilities are built and available to us, our gas would be “stranded gas” withlittle or no market value.  The Company believes that a pipeline facility willbe built within the terms of our leases, however, whether a pipeline is built,the timing of the construction of the pipeline and whether and on what termsthe pipeline is made available to transport our gas are all matters beyond ourcontrol which could have significant impacts on our future results.

 

**James Fitzsimons, our president, owns SoladinoInvestments SA, a Swiss corporation, that owns approximately 78.5% of our commonstock and this interest could conflict with other investors, which could causeother investors to lose all or part of their investment.**

 

James Fitzsimons, our president and a director, ownsSoladino Investments SA, a Swiss corporation that owns 17,800,000 shares of ourcommon stock, or 78.5% of the Company’s issued and outstanding shares. Due to thisstock ownership, James Fitzsimons is able to substantially influence allmatters requiring shareholder approval, including the election of directors andapproval of significant corporate transactions.  Such concentration ofownership may also have the effect of delaying or preventing a change incontrol, which may be to the benefit of our management but not in the interestof the shareholders.  This stock ownership and potential effective control onall matters relating to the business and operations of our Company couldeliminate the possibility of shareholders changing the management in the eventthat the shareholders did not agree with the conduct of the officers anddirectors. Additionally, the shareholders would potentially not be able toobtain the necessary shareholder vote to effect any change in the course ofbusiness of our Company.  This lack of shareholder control could prevent theshareholders from removing from the board of directors any directors who arenot managing the Company with sufficient skill to make it profitable, whichcould prevent us from becoming profitable and cause investors to lose all orpart of their investment in our Company.

*** ***

***Risks Related to Our Securities***

** **

**If a liquid market for our common stock does notdevelop, shareholders may be unable to sell their shares.**

 

There is currently no liquid market for ourcommon stock and no certainty that a liquid market will develop. While ourcommon stock is quoted for trading on the OTC Bulletin Board, there has onlybeen sporadic trading of our common stock. If a liquid market is not developedfor our shares, it will be difficult for shareholders to sell their stock.

 

**A purchaser of our stock is purchasing pennystock which limits his or her ability to sell the stock.**

 

Our shares of common stock are considered pennystock under the Exchange Act. The shares will remain penny stock for theforeseeable future. The classification of penny stock makes it more difficultfor a broker-dealer to sell the stock into a secondary market, thus limitinginvestment liquidity. Any broker-dealer engaged by the purchaser for thepurpose of selling his or her shares in our Company will be subject to rules15g-1 through 15g-10 of the Exchange Act. Rather than creating a need to complywith those rules, some broker-dealers will refuse to attempt to sell pennystocks such as ours.

 

11

 

**We do not intend to pay dividends and there willbe less ways in which you can make a gain on any investment in our Company.**

 

We have never paid any cash dividends andcurrently do not intend to pay any dividends for the foreseeable future. To theextent that we require additional funding currently not provided for in ourfinancing plan, our funding sources may likely prohibit the payment of adividend.

 

**Our board of directorsis authorized to issue shares of preferred stock, which may have rights andpreferences detrimental to the rights of the holders of our common shares**.

 

We are authorized to issue up to 1,000,000shares of preferred stock, $.0001 par value.  To date we have not issued anyshares of preferred stock and have no plans to do so.  Our preferred stock maybear such rights and preferences, including dividend and liquidationpreferences, as the board of directors may fix and determine from time totime.  Any such preferences may operate to the detriment of the rights of theholders of our common shares.

** **

**Our Articles of Incorporation provide forindemnification of officers and directors at our expense and limit theirliability which may result in a major cost to us and hurt the interests of ourshareholders because corporate resources may be expended for the benefit ofofficers and/or directors.**

 

Our Articles of Incorporation and applicable Delaware law provide for the indemnification of our directors, officers, employees, andagents, under certain circumstances, against attorney's fees and other expensesincurred by them in any litigation to which they become a party arising fromtheir association with or activities on our behalf.  We will also bear theexpenses of such litigation or any of our directors, officers, employees, oragents, upon such person's promise to repay us, therefore, if it is ultimatelydetermined that any such person should not have been entitled toindemnification this indemnification policy could result in substantialexpenditures by us, which we will be unable to recoup.

 

We have been advised that, in the opinion of theSEC, indemnification for liabilities arising under federal securities laws isagainst public policy as expressed in the Securities Act of 1933 and is,therefore, unenforceable.  In the event that a claim for indemnificationagainst these types of liabilities, other than the payment by us of expensesincurred or paid by a director, officer or controlling person in the successfuldefense of any action, suit or proceeding, is asserted by a director, officeror controlling person in connection with the securities registered in our SB-2,we will (unless in the opinion of our counsel, the matter has been settled bycontrolling precedent) submit to a court of appropriate jurisdiction, thequestion whether indemnification by us is against public policy as expressed inthe Securities Act and will be governed by the final adjudication of suchissue. The legal process relating to this matter if it were to occur is likelyto be very costly and may result in us receiving negative publicity, either ofwhich factors is are likely to materially reduce the market and price for ourshares, if such a market ever develops.

 

**ITEM 1B.  UNRESOLVED STAFF COMMENTS.**

** **

None

 

12

 

**ITEM2.  PROPERTIES.**

*** ***

***Leasehold Acreage***

 

The Company ownsinterests in oil and gas acreage in the locations set forth below as ofDecember 31, 2010 and 2009.  These ownership interests generally take the formof working interests in oil and gas leases that have varying terms.

 

	 

	December 31, 2010

	 

	December 31, 2009

	 

	Gross

	 

	Net

	 

 	Gross

	 

 	Net

	 

	 

	 

	 

	 

	 

	 

	 

	Alaska

	 

	24,280

	 

	 

	24,280

	 

	 

	24,280

	 

	 

	24,280

	Oklahoma

	 

	4,209

	 

	 

	2,968

	 

	 

	7,204

	 

	 

	4,929

	Total

	 

	31,484

	 

	 

	29,209

	 

	 

	31,484

	 

	 

	29,209

 

***Leasehold Acreage Costs***

* *

The Company hascapitalized leasehold acreage costs, net of impairment charges and accumulateddepletion, depreciation and amortization, in undeveloped oil and natural gasacreage in the locations set forth below:

 

 

 

December 31, 

 

 

2010

 

2009

 

 

 

 

 

 

 

Alaska (1)

 

$

194,800

 

$

442,086

Oklahoma (2)

 

 

76,450

 

 

760,029

     Total

 

$

271,250

 

$

1,202,115

 

(1)    The2010 Alaska oil and gas leasehold costs are net of a $247,286 impairmentcharge.

 

(2)    The2010 Oklahoma oil and gas leasehold costs are net of a $653,579 impairmentcharge and accumulated depletion, depreciation and amortization of $30,000. The 2009 oil and gas leasehold costs are net of $885,445 in acquisitions, a$639,813 impairment charge and accumulated depletion, depreciation andamortization of $26,200.

 

***Oil and Gas DrillingActivity***

 

We own working interestsin five gross producing oil wells and seven gross producing gas wells atDecember 31, 2010.  Of the five gross producing oil wells two were dualcompletions (oil and gas).  At December 31, 2010, we had no wells in progress. The Company currently does not have sufficient production records to computethe quantities of proved oil and gas reserves as required by SEC RegulationS-X, Rule 4-10(a).

** **

***Corporate Offices***

 

Our officeis located at 1065 Dobbs Ferry Road, White Plains, NY 10607 and our telephonenumber is (914) 674-4373.  Should we require a regular permanent office we will attemptto locate one in the vicinity of our leases and we believe that suitableproperties are available at reasonable costs.

 

13

 

**ITEM 3.  LEGALPROCEEDINGS.**

 

We currently have no legal proceedings pending nor have anylegal proceeding been threatened against us or any of our officers, directorsor control persons of which we are aware.

 

**ITEM 4.   REMOVED AND RESERVED.**

** **
PARTIIITEM 5.  MARKET for REGISTRANT’S COMMON EQUITY and ISSURERPURCHASES of EQUITY SECURITIES.
*** ***

***Stock Split/Dividends***

 

None

 

***Market Information***

 

Our common stock trades on the Over the CounterBulletin Board under the symbol “PTCP”.  The following table sets forth for theperiods indicated the high and low prices per share of our common stock asquoted by the OTCBB, respectively:

 

 

 

Price Range of

 

 

Common Stock

 

 

High

 

Low

 

**Year Ended December 31, 2010**

 

 

 

 

 

 

Fourth Quarter **  **

 

$

2.00

 

$

2.00

Third Quarter  

 

$

2.00

 

$

2.00

Second Quarter  

 

$

2.00

 

$

2.00

First Quarter  

 

$

2.50

 

$

2.00

** **

 

 

 

 

 

 

**Year Ended December 31, 2009**

 

 

 

 

 

 

Fourth Quarter **  **

 

$

2.50

 

$

2.50

Third Quarter  

 

$

2.50

 

$

2.25

Second Quarter  

 

$

2.25

 

$

2.25

First Quarter  

 

$

2.25

 

$

2.10

 

***Reports to Shareholders***

 

We plan tofurnish our shareholders with an annual report for each fiscal year endingDecember 31 containing financial statements audited by our independentcertified public accountants.  Additionally, we may, in our sole discretion,issue unaudited quarterly or other interim reports to our shareholders when wedeem appropriate.  We intend to maintain compliance with the periodic reportingrequirements of the Securities Exchange Act of 1934.

 

***Holders***

 

As of March 31, 2011, we had five shareholders of record and 22,680,000common shares issued and outstanding.  The number of holders does not include theshareholders for whom shares are held in a "nominee" or"street" name.

 

14

 

***Dividend Policy***

 

We have not declared or paid any dividends on our commonstock to date.  We anticipate that any future earnings will be retained asworking capital and used for business purposes.  Accordingly, it is unlikelythat we will declare or pay any such dividends in the foreseeable future.

 

***SecuritiesAuthorized for Issuance under Equity Compensation Plans***

 

None

 

***Recent Salesof Unregistered Securities***

 

None

 
ITEM 6.  SELECTED FINANCIAL DATA.
 

Not applicable

 
ITEM 7. MANAGEMENT’S DISCUSSION and ANALYSIS of FINANCIAL CONDITIONS and RESULTS OFOPERATION.
***Overview***

We caution you that reliance on any forward-looking statementinvolves risks and uncertainties, and that although we believe the assumptionson which our forward-looking statements are based are reasonable, any of thoseassumptions could prove to be inaccurate, and as a result, the forward-lookingstatements based on those assumptions could be incorrect.  In light of theseand other uncertainties, you should not conclude that we will necessarilyachieve any plans and objectives or projected financial results referred to inany of the forward-looking statements.  We do not undertake to release theresults of any revisions of these forward-looking statements to reflect futureevents or circumstances.  Some of the factors that may cause actual results,developments and business decisions to differ materially from thosecontemplated by such forward-looking statements include the following:

•  

our ability to raise additional  capital and secure additional financing; 

•  

anticipated trends in our  financial condition and results of operations; 

•  

our ability to hire and retain key  employees; 

•  

Risks related to diverting  management’s attention from ongoing business operations.
*** ******Background***  
During 2009 the Companychanged its emphasis from an international oil and gas company primarily to aUS focused company because of world economic conditions and lack ofdebt/capital financing.  The Company disposed of its foreign oil and gasleases/permits in two separate transactions.  The Company completed anextensive review of its Alaska and Oklahoma oil and gas leases, operations andrecorded a $900,865 impairment charge in 2010 as compared to $639,813 in 2009.

    

***Plan of Operation***

 

Our plan of operation for 2011 is to continuedrilling test wells on our Oklahoma oil and gas leases.  We anticipate the costof these programs will be approximately $100,000, however, this figure could bereduced by third-party working interest participation, arising particularly asa result of spacing and pooling applications and hearings.

 

15

 

During 2011 we also anticipate spending $100,000on administrative expenses, including fees payable in connection with our compliancereporting obligations as a public company, such as legal, accounting and auditfees.

 

Total expenditures in 2011 therefore could be atleast $200,000.  We have limited cash to cover some of these expenses and willrequire additional funding.  We anticipate this additional funding will beprovided in the form of equity financing from the sale of our common stock orloans from our majority stockholder. We cannot provide investors with anyassurance that additional funds will be raised.  Currently, we do not have anyarrangements in place for future equity financings.

 

We are in the process of determining ourpersonnel needs. We intend to hire consultants over the course of the nexttwelve months.  To attract qualified personnel, we intend to offer percentagesof the Company’s working interest in its oil and gas properties.

 

***Results of Operations***

 

For theyear ended December 31, 2010, we had revenues of $109,298, oil and gasexploration costs of $179,478 and incurred a net loss of $1,273,048, ascompared to revenues of $70,961, oil and gas exploration costs of $210,641 anda net loss of $1,237,259 in 2009. Salaries in 2010 were $120,000 same as in 2009.  Professionalfees - CFO and Secretary in 2010 were $102,000 as compared to $98,506 in 2009.  Professionalfees - audit and reviews in 2010 were $23,500 as compared to $20,000 in 2009.  Professional fees- foreign were $0 in 2010 as compared to $120,174 in 2009. Generaland administrative expenses for 2010 were $8,028 as compared to $26,918 in 2009.

 

During 2009 the Company disposedof its foreign oil and gas leases/permits in two separate transactions.  TheCompany completed an extensive review of its Alaska and Oklahoma oil and gasleases, operations and recorded a $900,865 impairment charge in 2010 ascompared to $639,813 in 2009.

 

In addition, we incurredinterest expense of $58,507 in 2010 as compared to $72,895 in 2009.

** **

***Liquidity and Capital Resources***

 

On June 4, 2010, the Company exchanged $294,000of Tamm Oil and Gas Corp. shares (980,000 shares) with a cost basis of $245,000with Soladino Investments SA (“Soladino”) for cancellation of $294,000 ofnotes.  These shares were valued at $.30 per share and the quoted offer pricewas $.25 per share.  The Company recorded the $49,000 gain as a capitalcontribution. 

 

Soladino, a Swisscorporation owned by our president, loaned the Company $143,975 in 2010($64,010 in July, $29,965 in August and $50,000 in December).  At December 31, 2010,the Company has $949,950 in notes (four) payable to Soladino Investments SA. The notes aresecured by the Company’s oil and gas leases, are non interest bearing andpayable upon demand.

 

Our Company's principal cash requirements arefor exploration expenses which we anticipate will rise as we proceed todetermine the feasibility of developing our current or future propertyinterests.  At December 31, 2010, we had cash of $29,404 and negative workingcapital of $934,965.  Our net cash provided by financing activities from June19, 2006 (inception) to December 31, 2010 was $2,416,992.

 

16

** **

We anticipate that additional funding will beprovided in the form of equity financing from the sale of our common stock orloans from our majority stockholder.  We cannot provide investors with anyassurance that additional funds will be raised.  Currently, we do not have anyarrangements in place for future equity financings.

** **

***Seasonality and Inflation***

 

We do not believe that our business will beseasonal to any material extent except that exploratory operations,particularly in Alaska, may be hampered by severe winter weather conditions. Since energy costs are a key component of inflation, we do not believe that ourresults will be materially impacted by inflation in the current fiscal year.

 

*Critical Accounting Policies*

 

Financial Reporting Release No. 60 of the SEC encouragesall companies to include a discussion of critical accounting policies ormethods used in the preparation of the financial statements.  There are no materialrevenue generating activities that give rise to significant assumptions or estimates.Our most critical accounting policies relate to the accounting and disclosureof related party transactions. Our financial statements filed as part of thisannual report include a summary of the significant accounting policies andmethods used in the preparation of our financial statements.

 

***Off-Balance Sheet Arrangements***

 

We do not have any off-balance sheet arrangements that haveor are reasonably likely to have a current or future effect on our financialcondition, changes in financial condition, revenues or expenses, results ofoperations, liquidity, capital expenditures or capital resources that ismaterial to investors.

** **

**ITEM 7A.  QUANTITATIVE andQUALITATIVE DISCLOSURES about MARKET RISK.**

 

Not applicable

 
ITEM 8.  FINANCIAL STATEMENTS and SUPPLEMENTARY DATA.
 

Our financial statements for the years ended December 31,2010 and 2009, and the reports thereon of Li & Company, respectively areincluded in this annual report.

 
ITEM 9.  CHANGES in and DISAGREEMENTS with ACCOUNTANTS onACCOUNTING and FINANCIAL DISCLOSURE.
 

None

 
**ITEM 9A(T).  CONTROLS and PROCEDURES.**
** **

***Disclosure Controls andProcedures***

 

Regulations under the SecuritiesExchange Act of 1934 (the “Exchange Act”) require public companies to maintain“disclosure controls and procedures,” which are defined as controls and otherprocedures that are designed to ensure that information required to bedisclosed by the issuer in the reports that it files or submits under theExchange Act is recorded, processed, summarized and reported, within the timeperiods specified in the Securities and Exchange Commission's rules andforms.  Disclosure controls and procedures include, withoutlimitation, controls and procedures designed to ensure that informationrequired to be disclosed by an issuer in the reports that it files or submitsunder the Exchange Act is accumulated and communicated to the issuer'smanagement, including its principal executive and principal financial officers,or persons performing similar functions, as appropriate to allow timely decisionsregarding required disclosure.

 

17

 

We conducted an evaluation, with theparticipation of our Chief Executive Officer and Chief Financial Officer, ofthe effectiveness of our disclosure controls and procedures as of December 31,2010.  Based on that evaluation, our Chief Executive Officer andChief Financial Officer have concluded that as of December 31, 2010, ourdisclosure controls and procedures were not effective at the reasonableassurance level due to the material weaknesses described below.

 

In light of the material weaknessesdescribed below, we performed additional analysis and other post-closingprocedures to ensure our financial statements were prepared in accordance withgenerally accepted accounting principles.  Accordingly, we believethat the financial statements included in this report fairly present, in allmaterial respects, our financial condition, results of operations and cashflows for the periods presented.

 

A material weakness is a controldeficiency (within the meaning of the Public Company Accounting Oversight Board(PCAOB) Auditing Standard No. 2) or combination of control deficiencies thatresult in more than a remote likelihood that a material misstatement of theannual or interim financial statements will not be prevented or detected.  Managementhas identified the following two material weaknesses which have causedmanagement to conclude that, as of December 31, 2010, our disclosure controlsand procedures were not effective at the reasonable assurance level:

 

1.   Wedo not have written documentation of our internal control policies andprocedures.  Written documentation of key internal controls overfinancial reporting is a requirement of Section 404 of the Sarbanes-Oxley Actwhich is applicable to us for the year ending December 31, 2010.  Managementevaluated the impact of our failure to have written documentation of ourinternal controls and procedures on our assessment of our disclosure controlsand procedures and has concluded that the control deficiency that resultedrepresented a material weakness.

 

            2.     Wedo not have sufficient segregation of duties within accounting functions, whichis a basic internal control.  Due to our size and nature, segregationof all conflicting duties may not always be possible and may not beeconomically feasible.  However, to the extent possible, theinitiation of transactions, the custody of assets and the recording oftransactions should be performed by separate individuals.  Managementevaluated the impact of our failure to have segregation of duties on ourassessment of our disclosure controls and procedures and has concluded that thecontrol deficiency that resulted represented a material weakness.

 

To address these materialweaknesses, management performed additional analyses and other procedures toensure that the financial statements included herein fairly present, in allmaterial respects, our financial position, results of operations and cash flowsfor the periods presented.

 

***Management's Report on Internal Control Over Financial Reporting***

 

Our management is responsible forestablishing and maintaining adequate internal control over financialreporting.  Internal control over financial reporting is defined inRule 13a-15(f) or 15d-15(f) promulgated under the Exchange Act as a processdesigned by, or under the supervision of, the issuer’s principal executive andprincipal financial officers and effected by the issuer’s board of directors,management and other personnel, to provide reasonable assurance regarding the reliabilityof financial reporting and the preparation of financial statements for externalpurposes in accordance with accounting principles generally accepted in theUnited States of America and includes those policies and procedures that:

 

18

 

 

•

Pertain to the maintenance of  records that in reasonable detail accurately and fairly reflect the  transactions and dispositions of the assets of the issuer;

 

 

 

 

•

Provide reasonable assurance that  transactions are recorded as necessary to permit preparation of financial  statements in accordance with accounting principles generally accepted in the  United States of America and that receipts and expenditures of the Company  are being made only in accordance with authorizations of management and  directors of the issuer; and

 

 

•

Provide reasonable assurance  regarding prevention or timely detection of unauthorized acquisition, use or  disposition of the issuer’s assets that could have a material effect on the  financial statements.

 

 

 

 

Because of its inherent limitations,internal control over financial reporting may not prevent or detectmisstatements.  Projections of any evaluation of effectiveness tofuture periods are subject to the risk that controls may become inadequatebecause of changes in conditions, or that the degree of compliance with thepolicies or procedures may deteriorate.  All internal controlsystems, no matter how well designed, have inherentlimitations.  Therefore, even those systems determined to beeffective can provide only reasonable assurance with respect to financialstatement preparation and presentation.  Because of the inherentlimitations of internal control, there is a risk that material misstatementsmay not be prevented or detected on a timely basis by internal control overfinancial reporting.  However, these inherent limitations are knownfeatures of the financial reporting process.  Therefore, it ispossible to design into the process safeguards to reduce, though not eliminate,this risk.

 

As of the end of our most recentfiscal year, management assessed the effectiveness of our internal control overfinancial reporting based on the criteria for effective internal control overfinancial reporting established in Internal Control—Integrated Framework issuedby the Committee of Sponsoring Organizations of the Treadway Commission("COSO") and SEC guidance on conducting suchassessments.  Based on that evaluation, they concluded that, asof December 31, 2010, such internal control over financial reporting was noteffective.  This was due to deficiencies that existed in the designor operation of our internal control over financial reporting that adverselyaffected our internal controls and that may be considered to be materialweaknesses.

 

The matters involving internalcontrol over financial reporting that our management considered to be materialweaknesses under the standards of the Public Company Accounting Oversight Boardwere: (1) lack of a functioning audit committee due to a lack of a majority ofindependent members and a lack of a majority of outside directors on our boardof directors, resulting in ineffective oversight in the establishment andmonitoring of required internal controls and procedures; and (2) inadequatesegregation of duties consistent with control objectives of having segregationof the initiation of transactions, the recording of transactions and thecustody of assets.  The aforementioned material weaknesses wereidentified by our Chief Financial Officer in connection with the review of ourfinancial statements as of December 31, 2010.

 

Management believes that thematerial weaknesses set forth in items (1) and (2) above did not have an effecton our financial results.  However, management believes that the lack of afunctioning audit committee and the lack of a majority of outside directors onour board of directors results in ineffective oversight in the establishmentand monitoring of required internal controls and procedures, which could resultin a material misstatement in our financial statements in future periods.

 

19

 

This annual report does not includean attestation report of the Company's registered public accounting firmregarding internal control over financial reporting.  Management'sreport was not subject to attestation by the Company's registered publicaccounting firm pursuant to temporary rules of the SEC that permit the Companyto provide only the management's report in this annual report.

 

***Management's Remediation Initiatives***

 

In an effort to remediate theidentified material weaknesses and other deficiencies and enhance our internalcontrols, we have initiated, or plan to initiate, the following series ofmeasures:

 

We will increase our personnelresources and technical accounting expertise within the accounting functionwhen funds are available to us. First, we will create a position to segregateduties consistent with control objectives of having separate individualsperform (i) the initiation of transactions, (ii) the recording of transactionsand (iii) the custody of assets. Second, we will create a senior positionto focus on financial reporting and standardizing and documenting ouraccounting procedures with the goal of increasing the effectiveness of theinternal controls in preventing and detecting misstatements of accountinginformation. Third, we plan to appoint one or more outside directors to ourboard of directors who shall be appointed to an audit committee resulting in afully functioning audit committee who will undertake the oversight in theestablishment and monitoring of required internal controls and procedures suchas reviewing and approving estimates and assumptions made by management whenfunds are available to us. We anticipate the costs of implementing theseremediation initiatives will be approximately $37,500 to $75,000 a year inincreased salaries, legal and accounting expenses.

 

Management believes that theappointment of one or more outside directors, who shall be appointed to a fullyfunctioning audit committee, will remedy the lack of a functioning auditcommittee and a lack of a majority of outside directors on our Board.

 

We anticipate that these initiativeswill be at least partially, if not fully, implemented by December 31, 2011.

** **

***Changes in Internal Controlover Financial Reporting***

 

There have been no changes in ourinternal control over financial reporting (as such term is defined in Rules13a-15(f) and 15d-15 (f) under the Exchange Act) during the fourth quarter of2010 that have materially affected, or are reasonably likely to materiallyaffect, our internal control over financial reporting.

*** ***
**ITEM 9B.  OTHER INFORMATION.**
** **

None

 

20

 

**PART 1II**
 ITEM 10.  DIRECTORS, EXECUTIVE OFFICERS and CORPORATEGOVERNANCE.
 

Our directors and officers as of March31, 2011 are:

 

**Name**

**  Age**

**Position(s) with the   Company**

James Fitzsimons

        50

Director, CEO and President **(1)**

Stephen M. Siedow

        60

Director and CFO **(1)**

Frank J. Hariton

        62

Secretary
 **(1) **Mr. Siedow was appointed CFO on March 16, 2009 effective March 1, 2009.
 

***James Fitzsimons***has been a director ofour Company since September 20, 2007.  Mr. Fitzsimons is an elected member ofthe Schweizerische Vereinigung von Petroleum-Geologen und Ingeneuren (SwissAssociation of Petroleum Geologists and Engineers) and during the past fiveyears has been employed by Reta Holding SA of Paradiso, Switzerland, alsoserving on the board of directors of Kapital Finanz und Treuhand Gesellshaft(Capital Finance and Trust Company) a licensed and regulated asset and fundmanagement company and a full member of SECA (Swiss Private Equity &Corporate Finance Association).  Mr. Fitzsimons has been active in the mineralextraction industry for over 15 years, and has been involved in the Oklahoma oil and gas industry for over five years.  Mr. Fitzsimons received a Bachelor ofLaws degree from University College London.  His industry knowledge comes fromdirect experience of the oil and gas business both in Europe and the United States.

 

***Stephen M. Siedow*** has been a director ofour Company since December 2007.  Mr. Siedow is a member of the AmericanInstitute of Certified Public Accountants and the Colorado Society of CertifiedPublic Accountants.  From 1974 to 1982 he was with the audit department ofErnst & Young, Certified Public Accountants in Denver, Colorado and in1982, he formed Stephen M. Siedow, PC a professional accounting firm providingauditing, management consulting and tax services to corporations, partnershipsand individuals.  Mr. Siedow specializes in public and SEC accounting and hasexperience in industries including construction, mining, oil and gas, andmergers/acquisitions.

 

***Frank J. Hariton*** has been secretary ofour Company since September 2007 and is an attorney in private practice in New York State.  Mr. Hariton received his BA (1971) and JD (1974 from Case Western Reserve   University.

*** ***

***Family Relationships***

 

There are no family relationshipsamong our officers or directors.

 

***Involvement in Certain LegalProceedings***

 

None of our directors, directornominees or executive officers has been involved in any transactions with us orany of our directors, executive officers, affiliates or associates that arerequired to be disclosed pursuant to the rules and regulations of the SEC otherthan as set forth in “Item 13. Certain Relationships and Related Transactions,and Director Independence” below.  None of the directors, director designees orexecutive officers to our knowledge has been convicted in a criminalproceeding, excluding traffic violations or similar misdemeanors, or has been aparty to any judicial or administrative proceeding during the past five yearsthat resulted in a judgment, decree or final order enjoining the person fromfuture violations of, or prohibiting activities subject to, federal or statesecurities laws, or a finding of any violation of federal or state securitieslaws, except for matters that were dismissed without sanction or settlement.

 

21

 

***Termof Office***

 

The term of office ofthe current directors shall continue until new directors are elected orappointed.

*** ***

***Committees of the Boardand Financial Expert***

 

We do not have aseparately-designated audit or compensation committee of the Board or any otherBoard-designated committee. Audit and compensation committee functions areperformed by our Board of Directors. We will form such committees in the futureas the need for such committees may arise. In addition, at this time we havedetermined that we do not have an “audit committee financial expert” as definedby the SEC on our Board.

*** ***

***Codeof Ethics***

 

Due to itssmall size, the Company has not adopted a code of ethics.  The Company will adopt a code of ethics for our senior officers,including our principal executive officer, principal financial officer,principal accounting officer or controller and any person who may performsimilar functions.  As required by SEC rules, we will report the nature of anychange or waiver of our code of ethics.

 
ITEM 11. EXECUTIVE COMPENSATION.***Compensation of Executive Officers*** 
Thefollowing table sets forth information concerning the compensation of our namedexecutive officers for the fiscal years ended December 31, 2010 and 2009;provided, however, any payments to these officers were paid as consultants, notemployees, of the Company, as the Company has not yet hired full or part-timeemployees. We may, once we are operational, implement employee benefits thatwill be generally available to all employees and subsidiary employees,including medical, dental and life insurance benefits and a 401(k) retirementsavings plan.  Except as listed below, there were no bonuses, other annualcompensation, restricted stock awards or stock options/SARs or any othercompensation paid to the named executive.

 

**Name and   Principal Position**

 

 

**Year**

 

**    Salary**

**       ($)**

 

**   Bonus**

**     ($)**

 

**Stock**

**Award**

**($)**

 

**Option   Awards**

**($)**

 

**Non-Equity**

**Incentive   Plan**

**Compensation**

**($)**

 

**Change in**

**Pension**

**Value and**

**Nonqualified**

**Deferred**

**Compensation**

**Earnings**

**($)**

 

**All Other**

**Compensation**

**($)**

 

**Total**

**($)**

 

 

 

 

 

 

 

 

 

 

 

 

James  Fitzsimons,

CEO,  President, CFO and Director **(1)**

 

2010

$120,000

 

 

 

 

 

 

$120,000

 

2009

$120,000

 

 

 

 

 

 

$120,000

 

 

 

 

 

 

 

 

 

 

Stephen M.  Siedow,

CFO and Director  **(2)**

 

2010

2009

$-0-

$-0-

 

 

 

 

 

 

$-0-

$-0-

 

 

 

 

 

 

 

 

 

 

 

Frank J.  Hariton,

Secretary **(3)**

 

2010

$-0-

 

 

 

 

 

 

$-0-

 

2009

$-0-

 

 

 

 

 

 

$-0-

 

 

 

 

 

 

 

 

 

 

 

**(1**)

 

James Fitzsimons has  been******the  Company’s CEO and President since December 17, 2007.  Mr. Fitzsimons was CFO  of our Company from December 17, 2007 through March 16, 2009.  Mr. Fitzsimons  was elected a director of our Company on September 20, 2007.

 

 

 

**(2**)

 

Stephen M. Siedow has been a director  since December 2007.  Mr. Siedow was appointed CFO on March 16, 2009 effective March  1, 2009.  The  Company paid Mr. Siedow $72,000 for accounting services in 2010 and $68,300  in 2009.

 

 

 

**(3**)

 

Frank J. Hariton has been the  Company’s secretary since September 2007.  Mr. Hariton was paid $30,000 for  legal services in 2010 and 2009.

** **

22

 

***Compensation of Directors***

 

The Company has no standard arrangements in place orcurrently contemplated to compensate the Company’s directors for their serviceas directors or as members of any committee of directors.

*** ***

***Employment Agreements***

 

We do not have employment agreementswith any of our executive officers or directors.  We have verbal understandingswith our executive officers regarding monthly retainers and reimbursement foractual out-of-pocket expenses.

 

***Termination ofEmployment***

 

There are nocompensatory plans or arrangements, including payments to be received from theCompany, with respect to any person named in the Summary Compensation Table setforth above that would in any way result in payments to any such person becauseof his or her resignation, retirement or other termination of such person’semployment with us.

*** ***

***Employee Benefit Plans***

 

None

 

***Indemnification of Directors and Executive Officers and Limitationof Liability***

 

Pursuant tothe General Corporation Law of Delaware our Certificate of Incorporationprovides that no director will have any personal liability to us or to any ofour shareholders for monetary damages for breach of fiduciary duty as adirector; provided, however, that this exclusion does not eliminate or limitthe liability of a director (i) for any breach of the director's duty ofloyalty to us or our shareholders, (ii) for acts or omissions not in good faithor which involve intentional misconduct or a knowing violation of law, (iii)under §174 of the General Corporation Law of Delaware, or (iv) for anytransaction from which the director derived an improper personal benefit.

 
ITEM 12.   SECURITY OWNERSHIP ofCERTAIN BENEFICIAL OWNERS and MANAGEMENT and RELATED STOCKHOLDER MATTERS.
***SecurityOwnership of Certain Beneficial Owners***

*** ***

The following table setsforth, as of March 31, 2011, the stock ownership of (i) each of our namedexecutive officers and directors, (ii)all executive officers and directors as agroup, and (iii) each person known by us to be a beneficial owner of 5% or moreof our common stock.  No person listed below has any option, warrant or otherright to acquire additional securities from us, except as may be otherwisenoted.  We believe that all persons named in the table have sole voting andinvestment power with respect to all shares of common stock beneficially ownedby them except as stated therein.

 

23

 

**Name and Address**

*** ***

**Amount & Nature**

*** ***

 

**of Beneficial**

*** ***

**of Beneficial**

*** ***

**Percent**

**Owner (1)**

*** ***

**Ownership (2) *   ***

*** ***

**of Class****

 

 

 

 

 

**James Fitzsimons  (3)**

** **

**17,800,000**

** **

**78.5%**

Selnaustrasse 3

 

 

 

 

8001 Zurich

 

 

 

 

Switzerland 

 

 

 

 

** **

** **

 

 

 

**Stephen M. Siedow**

** **

**-0-**

** **

**    -0-%**

13047 W. Iliff Drive

 

 

 

 

Lakewood, CO  80228 

 

 

 

 

 

 

 

 

 

**Frank J. Hariton**

** **

**-0-**

** **

**    -0-%**

1065 Dobbs Ferry Road 

 

 

 

 

White Plains, NY  10607 

 

 

 

 

 

 

 

 

 

**Soladino Investments SA  (3)**

** **

**17,800,000**

** **

**78.5%**

Via Quadrellas 4

 

 

 

 

CH-7500 St.

 

 

 

 

Moritz, Switzerland 

 

 

 

 

 

 

 

 

 

**All officers and directors**

** **

**17,800,000**

** **

**78.5%**

**as a group (3 persons)**

 

 

 

 

 

**(1**)

 

Beneficial ownership  is determined in accordance with the Rule 13d-3(a) of the Securities Exchange  Act of 1934, as amended, and generally includes voting or investment power  with respect to securities.  Except as subject to community property laws,  where applicable, the person named above has sole voting and investment power  with respect to all shares of our common stock shown as beneficially owned by  him.

 

 

 

**(2**)

 

The beneficial  ownership percent in the table is calculated with respect to the number of  outstanding shares 22,680,000 of the Company’s common stock as of March	31,  2011, and each stockholder’s ownership is calculated as the number of shares  of common stock owned plus the number of shares of common stock into which  any preferred stock, warrants, options or other convertible securities owned  by that stockholder can be converted within 60 days.

 

 

 

**(3**)

 

Soladino Investments  SA is a Swiss corporation owned by James Fittzsimons**.**

 

The term “namedexecutive officer” refers to our principal executive officer, our two mosthighly compensated executive officers other than the principal executiveofficer who were serving as executive officers at the end of 2010, and twoadditional individuals for whom disclosure would have been provided but for thefact that the individuals were not serving as executive officers of the Companyat the end of 2010.

** **

24

 

***Change in Control***

 

We know of nocontractual arrangements which may at a subsequent date result in a change ofcontrol in the Company.

 
ITEM 13.  CERTAIN RELATIONSHIPS and RELATED TRANSACTIONS,and DIRECTOR INDEPENDENCE.
** **

***CertainRelationships and Transactions with Related Persons***

 

On June 4, 2010, the Company exchanged $294,000of Tamm Oil and Gas Corp. shares (980,000 shares) with a cost basis of $245,000with Soladino Investments SA (“Soladino”), a Swiss corporation owned by Mr. Fitzsimons, for cancellation of $294,000of notes.  These shares were valued at $.30 per share and the quoted offerprice was $.25 per share.  The Company recorded the $49,000 gain as a capitalcontribution. 

 

Soladino loaned the Company $143,975 in 2010($64,010 in July, $29,965 in August and $50,000 in December).  At December 31,2010, the Company has $949,950 in secured, non-interest bearing notes (four),payable on demand with its majority stockholder Soladino.

 

During the year ended December 31, 2010, theCompany imputed interest expense related to these notes of $58,507.  Interestwas imputed at an implied rate of 6% per annum and the amounts were recorded ascapital contributions by the Company.

 

The Company was provided management services byits president, Mr. Fitzsimons during 2010 at no cost.  The Company recorded the$120,000 estimated annual value of these services as compensation expense andas a capital contribution.

 

The Company was provided accounting services byMr. Siedow, our chief financial officer.  Mr. Siedow was paid $72,000 in 2010for these services.

** **

The Company was provided legal andadministrative services and office space by Mr. Hariton, our corporatesecretary.  Mr. Hariton was paid $30,000 in 2010 for these services.

** **

***Director******Independence***

 

Our current directorsare James Fitzsimons and Stephen M. Siedow.  We are not currently subject tocorporate governance standards defining the independence of our directors.  Wehave not yet adopted an independence standard or policy, although we intend todo so in the near future. Accordingly, the Company’s Board currently determinesthe independence of each Director and nominee for election as a Director.  TheBoard has determined that none of the Company’s directors currently qualifiesas an independent director.  We do not list the “independent” definition we useon our Internet website.
 ITEM 14.  PRINCIPAL ACCOUNTANT FEES and SERVICES.
 

***Audit Fees***

 

The aggregate fees billed by the Company’s auditors forprofessional services rendered in connection with the audit of the Company’sannual financial statements and reviews of the financial statements included inthe Company’s Form 10-Q or services that are normally provided by theaccountant in connection with statutory and regulatory filings or engagementsfor fiscal years 2010 and 2009 were $23,500 and $17,500, respectively.

 

25

 

***Audit Related Fees***

 

None

 

***Tax Fees***

 

None

 

***All Other Fees***

 

None

*** ***

***Pre-ApprovalPolicies and Procedures***

 

The board ofdirectors has not adopted any pre-approval policies and approves allengagements with the Company’s auditors prior to performance of services bythem.

 
PART 1V
 
ITEM 15.  EXHIBITS and FINANCIAL STATEMENT SCHEDULES
 

The following exhibits are filed with this report, exceptthose indicated as having previously been filed with the Securities andExchange Commission and are incorporated by reference to another report,registration statement or form.  As to any shareholder of record requesting acopy of this report, we will furnish any exhibit indicated in the list below asfiled with this report upon payment to us of our expenses in furnishing theinformation.

 

**Exhibit Number**

**Exhibit Description**

3.1

Certificate of Incorporation (Incorporated  by reference to like numbered exhibit to the Company’s Registration Statement  on Form SB-2 File Number 333-141993).

3.2

Bylaws (Incorporated by reference to  like numbered exhibit to the Company’s Registration Statement on Form SB-2  File Number 333-141993).

3.3

Certificate of Amendment to Certificate  of Incorporation (Incorporated by reference to Exhibit 3.1 to the Company’s Current  Report on Form 8-K filed November 5, 2007).

4.1

Specimen  Stock Certificate (Incorporated by reference to like numbered exhibit to the  Company’s Annual Report on Form 10-KSB for the year ended December 31, 2007  filed on April 11, 2008).

10.1

Consulting  Agreement, dated March 12, 2008, between the Company and Keith G. Summar  (Incorporated  by reference to the Company’s Annual Report on Form 10-KSB for the year ended  December 31, 2007 filed April 11, 2008).

21

Description of Subsidiaries.  **

31.1

Certification  of Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of  the Securities Exchange Act, as amended.  **

31.2

Certification  of Principal Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a)  of the Securities Exchange Act, as amended.  **

32.1

Certificate (Pursuant to 18 U.S.C.  Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of  2002) of Chief Executive Officer.  **

32.2

Certificate (Pursuant to 18 U.S.C.  Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of  2002) of Principal Financial Officer.  **

** Filed herewith.

 

 26

 

**SIGNATURES**

** **

Pursuantto the requirements of Section 13 or 15(d) of the Securities Exchange Act of1934, the registrant has duly caused this report to be signed on its behalf bythe undersigned, thereunto duly authorized.

Date: April 15, 2011

 

**  PETROCORPINC.**

 

** **                                                                             By  /s/ James Fitzsimons    ** **

                                                                                     JamesFitzsimons

                                                                                      CEO and President

 

Pursuant to the requirements of the Securities Exchange Actof 1934, this report has been signed below by the following persons on behalfof the registrant and in the capacities and on the dates indicated.

Signature

Title

Date

 

 

 

    /s/ James Fitzsimons

        James Fitzsimons

     Director, CEO and President

 

April 15,  2011

 

 

 

    /s/ Stephen M. Siedow

        Stephen M. Siedow

     Director and CFO

April 15,  2011

 

 

 

27

 

**PETROCORP INC.**

**(An Exploration StageCompany)**

**December 31, 2010 and2009**

** **

**Index to Consolidated FinancialStatements**

                                                                                                                                                 

 

 

  Page

 

 

 

Report of Independent  Registered Public Accounting Firm

 

F-1

 

 

 

Consolidated Balance  Sheets at December 31, 2010 and 2009

 

F-2

 

 

 

Consolidated  Statements of Operations for the years ended December 31, 2010 and

 

 

   2009 and for the  period June 19, 2006 (inception) through December 31, 2010

 

F-3

 

 

 

Consolidated Statement  of Stockholders’ Equity (Deficit) for the period June 19, 2006

 

 

   (inception) through  December 31, 2010

 

F-4

 

 

 

Consolidated  Statements of Cash Flows for the years ended December 31, 2010 and

 

 

   2009 and for the  period June 19, 2006 (inception) through December 31, 2010

 

F-5

 

 

 

Notes to the  Consolidated Financial Statements

 

F-6

 

 

 

 

 

**Report of Independent RegisteredPublic Accounting Firm**

 

To the Board ofDirectors and Stockholders of

Petrocorp Inc.

White Plains, New York

 

We have audited theaccompanying consolidated balance sheets of Petrocorp Inc. and subsidiaries (anexploration stage company) (collectively, “Petrocorp” or the “Company”) as of December 31, 2010 and2009 andthe related statements of operations, stockholders’ equity (deficit) and cashflows for the years then ended, and for the period June 19, 2006 (inception) through December31, 2010.  Theseconsolidated financial statements are the responsibility of the Company’smanagement.  Our responsibility is to express an opinion on these financialstatements based on our audits.

 

We conducted our auditsin accordance with the standards of the Public Company Accounting OversightBoard (United States).  Those standards require that we plan and perform theaudits to obtain reasonable assurance about whether the financial statementsare free of material misstatement.  The Company is not required to have, norwere we engaged to perform, an audit of its internal control over financialreporting. Our audit included consideration of internal control over financialreporting as a basis for designing audit procedures that are appropriate in thecircumstances, but not for the purpose of expressing an opinion on theeffectiveness of the Company's internal control over financial reporting.  Accordingly,we express no such opinion.  An audit includes examining, on a test basis,evidence supporting the amounts and disclosures in the financial statements.  Anaudit also includes assessing the accounting principles used and significantestimates made by management, as well as evaluating the overall financialstatement presentation.  We believe that our audits provide a reasonable basisfor our opinion.

 

In our opinion, theconsolidated financial statements referred to above present fairly, in allmaterial respects, the financial position of the Company at December 31, 2010 and 2009 and the results of itsoperations and its cash flows for the years then ended, and for the period June 19, 2006(inception) through December 31, 2010, in conformity with accounting principlesgenerally accepted in the United States of America.

 

The accompanyingconsolidated financial statements have been prepared assuming that the Company will continue as agoing concern.  As discussed in Note 3 to the consolidated financialstatements, the Company had a deficit accumulated during the exploration stageat December 31, 2010, a net loss and net cash used in operating activities forthe year then ended.  Thesefactors raisesubstantial doubt about the Company’s ability to continue as a going concern.  Management’splans in regards to these matters are also described in Note 3.  The consolidated financialstatements do not include any adjustments that might result from the outcome of thisuncertainty.

 

*/s/Li& Company, PC*

Li& Company, PC

 

Skillman, New Jersey

April 15, 201

 

                                 F-1

 

**PETROCORP INC.**

**(An Exploration Stage Company)**

**Consolidated Balance Sheets**

 

 

 

 

 

 

 

 

**ASSETS**

 

 

 

 

 

 

 

 

 

 

 

December 31,

  

 

 

2010

 

2009

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash

 

 

$

       29,404 

 

$

       38,510 

Revenue  receivables

 

 

   

        2,958 

 

 

       24,474 

Marketable  securities

 

 

   

 -

 

 

     250,000 

Total  current assets

 

 

 

       32,362 

 

 

     312,984 

 

 

 

 

 

 

 

 

Oil and gas properties  (successful efforts method):

 

 

 

 

 

 

Unproved  acreage

 

 

   

     327,500 

 

 

  1,228,365 

 Less  depletion, depreciation and amortization 

 

 

     (56,250)

 

 

     (26,250)

 

 

 

 

     271,250 

 

 

  1,202,115 

 

 

 

 

 

 

 

 

Total assets

 

 

$

     303,612 

 

$

  1,515,099 

** **

 

 

 

 

 

 

 

** **

 

 

 

 

 

 

 

**LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)**

** **

 

 

 

 

 

 

 

** **

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Accrued  expenses

 

 

$

       17,377 

 

$

       33,298 

Notes  payable to majority stockholder

 

 

   

     949,950 

 

 

  1,099,975 

Total  current liabilities

 

 

 

     967,327 

 

   

  1,133,273 

 

 

 

 

 

 

 

 

Stockholders’ equity  (deficit):

 

 

 

 

 

 

 

  Preferred  stock; $.0001 par value; 1,000,000 shares

 

 

 

 

 

 

authorized;  none issued or outstanding

 

 

 

                - 

 

 

                - 

  Common  stock; $.0001 par value; 100,000,000 shares

 

 

 

 

 

 

  authorized;  22,680,000 shares issued and outstanding

 

 

        2,268 

 

 

        2,268 

Additional  paid-in capital

 

 

 

  2,279,259 

 

 

  2,051,752 

  Deficit  accumulated during the exploration stage

 

   

 (2,945,242)

 

   

 (1,672,194)

 

 

 

 

   (663,715)

 

   

     381,826 

** **

 

 

 

 

 

 

 

Total liabilities and  stockholders’ equity (deficit)

 

 

$

     303,612 

 

$

  1,515,099 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

* See accompanying notes to the consolidated  financial statements.*

 F-2 

 

 

**PETROCORP INC.**

**(An Exploration Stage Company)**

**Consolidated Statements of Operations**

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 19, 2006

 

 

 

 

 (inception) to

 

 

  Year Ended December 31,

 

  December 31,

 

 

2010

 

2009

 

2010

 

 

 

 

 

 

 

 

 

 

Revenues  earned during the exploration stage

 

 $ 

     109,298 

 

 $ 

       70,961 

 

 $ 

     204,410 

 

 

 

 

 

 

 

 

 

 

Cost  of revenues during the exploration stage:

 

 

 

 

 

 

 

 

 

Oil  and gas operating costs

 

 

       74,579 

 

 

       86,398 

 

 

     178,076 

Exploration  costs

 

 

       67,031 

 

 

       96,634 

 

 

     169,374 

Depletion,  depreciation and amortization

 

 

       30,000 

 

 

       22,500 

 

 

       56,250 

Production  taxes

 

 

        7,868 

 

 

        5,109 

 

 

       14,716 

 

 

 

     179,478 

 

 

     210,641 

 

 

     418,416 

 

 

 

 

 

 

 

 

 

 

Gross profit (loss)

 

 

     (70,180)

 

 

   (139,680)

 

 

   (214,006)

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

Salary  - president and majority stockholder

 

 

     120,000 

 

 

     120,000 

 

 

     360,000 

Professional  fees - CFO and secretary

 

 

     102,000 

 

 

       98,506 

 

 

     304,706 

Professional  fees - audit and reviews

 

 

       23,500 

 

 

       20,000 

 

 

       65,500 

Professional  fees - foreign

 

 

 - 

 

 

     120,174 

 

 

     150,342 

General  and administrative expenses

 

 

        8,028 

 

 

       26,918 

 

 

     135,847 

Impairment  charges

 

 

     900,865 

 

    

     639,813 

 

    

  1,557,607 

 

 

    

  1,154,393 

 

    

  1,025,411 

 

    

  2,574,002 

 

 

 

 

 

 

 

 

 

 

Loss  from operations

 

 

 (1,224,573)

 

 

 (1,165,091)

 

 

 (2,788,008)

 

 

 

 

 

 

 

 

 

 

Other  (income) expenses:

 

 

 

 

 

 

 

 

 

Gain  from sale of marketable securities

 

 

     (10,030)

 

 

- 

 

 

     (10,030)

Interest  income

 

 

             (2)

 

 

         (727)

 

 

       (2,447)

Interest  expense

 

 

  - 

 

 

- 

 

 

           359 

Interest  expense - related parties

 

   

       58,507 

 

    

       72,895 

 

    

     167,752 

 

 

    

       48,475 

 

    

       72,168 

 

    

     155,634 

 

 

 

 

 

 

 

 

 

 

Loss  before income taxes

 

 

 (1,273,048)

 

 

 (1,237,259)

 

 

 (2,943,642)

 

 

 

 

 

 

 

 

 

 

Provision  for income taxes

 

 

               - 

 

 

               - 

 

 

 1,600 

 

 

 

 

 

 

 

 

 

 

Net  loss

 

 $ 

 (1,273,048)

 

 $ 

 (1,237,259)

 

 $ 

 (2,945,242)

 

 

 

 

 

 

 

 

 

 

Net  loss per common share -

 

 

 

 

 

 

 

 

 

basic  and diluted

 

$

(0.06)

 

$

(0.06)

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted common shares  outstanding -

 

 

 

 

 

 

 

 

 

basic  and diluted

 

  

22,680,000 

 

  

22,680,000 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

* See accompanying notes to the consolidated  financial statements.*

 F-3 

 

 

**PETROCORP INC.**

 
**(An Exploration Stage Company)**

 
**Consolidated Statement of Stockholders' Equity  (Deficit)**

 
**For the Period from June 19, 2006 (inception)  through December 31, 2010**

 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Deficit 

 

 Total 

 
 

 

 

 

 

 

 

 Additional 

 

 Accumulated 

 

 Stockholders' 

 
 

 

 Common Stock 

 

 Paid-in 

 

 during the 

 

 Equity 

 
 

 

 Shares 

 

 

 Amount 

 

 Capital 

 

 Exploration Stage 

 

 (Deficit) 

 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
 Balance, June 19, 2006  (inception) 

 

                     - 

 

 $ 

                     - 

 

 $ 

                     - 

 

 $ 

                         - 

 

 $ 

                          - 

 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
     Common stock issued  for cash 

 

     20,000,000 

 

 

              2,000 

 

 

            (1,900)

 

 

 

 

 

                      100 

 
     Common stock issued  for cash 

 

          600,000 

 

 

                   60 

 

 

            29,940 

 

 

 

 

 

                 30,000 

 
     Net loss 

 

 

 

 

 

 

 

 

 

 

(27,397)

 

 

               (27,397)

 
 Balance, December 31, 2006  

 

     20,600,000 

 

 

              2,060 

 

 

            28,040 

 

 

             (27,397)

 

 

                   2,703 

 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
     Common stock issued  for cash 

 

          480,000 

 

 

                   48 

 

 

            23,952 

 

 

 

 

 

                 24,000 

 
     Capital contribution  

 

 

 

 

 

 

 

              3,000 

 

 

 

 

 

                   3,000 

 
     Common stock issued  for cash  

 

          800,000 

 

 

                   80 

 

 

          499,920 

 

 

 

 

 

               500,000 

 
     Interest contribution   

 

 

 

 

 

 

 

              6,076 

 

 

 

 

 

                   6,076 

 
     Net loss 

 

 

 

 

 

 

 

 

 

 

             (61,124)

 

 

               (61,124)

 
 Balance, December 31, 2007  

 

     21,880,000 

 

 

              2,188 

 

 

          560,988 

 

 

             (88,521)

 

 

               474,655 

 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
     Common stock issued  for cash  

 

          800,000 

 

 

                   80 

 

 

          999,920 

 

 

 

 

 

            1,000,000 

 
     Salary contribution  

 

 

 

 

 

 

 

          120,000 

 

 

 

 

 

               120,000 

 
     Interest contribution   

 

 

 

 

 

 

 

            30,274 

 

 

 

 

 

                 30,274 

 
     Net loss 

 

 

 

 

 

 

 

 

 

 

           (346,414)

 

 

             (346,414)

 
 Balance, December 31, 2008  

 

     22,680,000 

 

 

              2,268 

 

 

       1,711,182 

 

 

           (434,935)

 

 

            1,278,515 

 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
     Sales price over cost  of oil and gas 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
         properties sold to  majority stockholder 

 

 

 

 

 

 

 

          147,675 

 

 

 

 

 

               147,675 

 
     Salary contribution  

 

 

 

 

 

 

 

          120,000 

 

 

 

 

 

               120,000 

 
     Interest contribution   

 

 

 

 

 

 

 

            72,895 

 

 

 

 

 

                 72,895 

 
     Net loss 

 

 

 

 

 

 

 

 

 

 

        (1,237,259)

 

 

          (1,237,259)

 
 Balance, December 31, 2009  

 

     22,680,000 

 

 

              2,268 

 

 

       2,051,752 

 

 

        (1,672,194)

 

 

               381,826 

 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
     Gain on the exchange  of TAMO common

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
        stock for  cancellation of notes

 

 

 

 

 

 

 

            49,000 

 

 

 

 

 

                 49,000 

 
     Salary contribution  

 

 

 

 

 

 

 

          120,000 

 

 

 

 

 

               120,000 

 
     Interest contribution   

 

 

 

 

 

 

 

            58,507 

 

 

 

 

 

                 58,507 

 
     Net loss 

 

 

 

 

 

 

 

 

 

 

        (1,273,048)

 

 

          (1,273,048)

 
  Balance, December 31,  2010

 

22,680,000

 

$

2,268

 

$

2,279,259

 

$

(2,945,242)

 

 $

(663,715)

 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
* See accompanying notes to the consolidated  financial statements.*

 
 F-4 

 
 

** **

**PETROCORP INC.**

**(An Exploration Stage Company)**

**Consolidated Statements of Cash Flows**

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 19, 2006

 

 

           Year Ended	December

 

 (inception) through

 

 

2010

 

2009

 

December 31, 2010

 

 

 

 

 

 

 

 

 

 

Cash flows from operating  activities:

 

 

 

 

 

 

 

 

 

   Net loss

 

 $ 

       (1,273,048)

 

 $ 

       (1,237,259)

 

 $ 

       (2,945,242)

   Adjustments to reconcile  net loss to net cash

 

 

 

 

 

 

 

 

 

   used in operating  activities:

 

 

 

 

 

 

 

 

 

      Depletion,  depreciation and amortization

 

 

             30,000 

 

 

             22,500 

 

 

             57,321 

      Impairment charge

 

 

           900,865 

 

 

           639,813 

 

 

        1,557,607 

      Salary contribution

 

 

           120,000 

 

 

           120,000 

 

 

           360,000 

      Interest contribution

 

 

             58,507 

 

 

             72,895 

 

 

           167,752 

    Changes in operating  assets and liabilities:

 

 

 

 

 

 

 

 

 

      Revenue receivables

 

 

             21,516 

 

 

               9,488 

 

 

              (2,958)

      Accrued expenses

 

 

            (15,921)

 

 

            (38,019)

 

     

             17,377 

         Net cash used in  operating activities

 

   

          (158,081)

 

    

          (410,582)

 

 

          (788,143)

 

 

 

 

 

 

 

 

 

 

Cash flows from investing  activities:

 

 

 

 

 

 

 

 

 

   Proceeds from sale of  marketable securities

 

 

               5,000 

 

 

                       - 

 

 

               5,000 

   Acquisition of oil and  gas properties

 

         

                       - 

 

 

          (569,411)

 

 

       (1,682,996)

   Proceeds from sale of  oil and gas properties

 

 

                       - 

 

 

             96,551 

 

 

             96,551 

   Purchase of equipment

 

   

                       - 

 

 

                       - 

 

     

            (18,000)

         Net cash provided  by (used in) investing activities

 

 

               5,000 

 

 

          (472,860)

 

 

       (1,599,445)

 

 

 

 

 

 

 

 

 

 

Cash flows from financing  activities:

 

 

 

 

 

 

 

 

 

   Proceeds from notes  payable to majority stockholder

 

    

           143,975 

 

    

           365,917 

 

    

           949,892 

   Repayment of notes  payable to majority stockholder

 

    

                       - 

 

    

                       - 

 

    

            (90,000)

   Proceeds from sale of  common stock

 

    

                       - 

 

     

                       - 

 

    

        1,557,100 

         Net cash provided  by financing activities

 

 

           143,975 

 

 

           365,917 

 

    

        2,416,992 

 

 

 

 

 

 

 

 

 

 

Net change in cash

 

 

              (9,106)

 

 

          (517,525)

 

 

             29,404 

Cash at beginning of period

 

    

             38,510 

 

    

           556,035 

 

     

 - 

Cash at end of period

 

 $ 

             29,404 

 

 $ 

             38,510 

 

 $ 

             29,404 

 

 

 

 

 

 

 

 

 

 

Supplemental disclosure of  cash flow information:

 

 

 

 

 

 

 

 

 

   Cash paid for interest

 

 $ 

 - 

 

 $ 

                  359 

 

 $ 

                  359 

   Cash paid for income  taxes

 

 $ 

 - 

 

 $ 

 - 

 

 $ 

 - 

 

 

 

 

 

 

 

 

 

 

Supplemental disclosure of  noncash investing and

 

 

 

 

 

 

 

 

 

   financing activities:

 

 

 

 

 

 

 

 

 

    Forgiveness of debt by  a stockholder

 

 $ 

                       - 

 

 $ 

                       - 

 

 $ 

               3,000 

    Salary contribution

 

 $ 

           120,000 

 

 $ 

           120,000 

 

 $ 

           360,000 

    Interest contribution

 

 $ 

             58,507 

 

 $ 

             72,895 

 

 $ 

           167,752 

   Exchange of $294,000 of  marketable securities, $245,000

 

 

 

 

 

 

 

 

 

      cost basis to  Soladino Investments SA, an entity owned

 

 

 

 

 

 

 

 

 

      by the president for  cancellation of $294,000 of notes

 

 $ 

           294,000 

 

 $ 

                       - 

 

 $ 

           294,000 

   Acquisition of  undeveloped oil and gas properties

 

 

 

 

 

 

 

 

 

      from majority  stockholder for notes

 

 $ 

 - 

 

 $ 

           583,823 

 

 $ 

           967,881 

   Sale of $448,876 of oil  and gas properties to

 

 

 

 

 

 

 

 

 

       Soladino Investments  SA for cancellation of

 

 

 

 

 

 

 

 

 

      $500,000 of notes and  cash payment of $96,551

 

 $ 

 - 

 

 $ 

          (500,000)

 

 $ 

          (500,000)

 

 

 

 

 

 

 

 

 

 

* *

 

*See accompanying notes to the consolidated  financial statements.*

 F-5 

 

** **

**PETROCORP INC.**

**(An Exploration StageCompany)**

**December 31, 2010 and2009**

**Notes to theConsolidated Financial Statements**

**  **

**Note 1 - Organization and Operations**

 

Petrocorp Inc., anexploration stage company, was incorporated on June 19, 2006 under the laws of the State of Delaware.  On September20, 2007, the Company entered the oil and gas exploration and productionbusiness with the acquisition of three separate farm-out agreements from JamesFitzsimons.  Mr. Fitzsimons also purchased 17,800,000 shares of the Company’scommon stock from certain shareholders for $454,000.  Mr. Fitzsimons waselected a director of the Company.

 

On December 1, 2008, Mr.Fitzsimons transferred his 78.5% stock ownership in Petrocorp Inc. and threeoutstanding promissory notes (totaling $734,058) to Soladino Investments SA(“Soladino”), a Swiss corporation owned by Mr. Fitzsimons.

 

**Note 2 - Summary of Significant AccountingPolicies**

 

*Basis ofpresentation*

 

The Company’sconsolidated financial statements have been prepared in accordance withaccounting principles generally accepted in the United States of America (“USGAAP”).

* *

The consolidatedfinancial statements include the accounts of Petrocorp Inc. and itswholly-owned subsidiaries: Petrocorp (Oklahoma) Inc., Union Energy (Alaska) LLC(collectively, “Petrocorp” or the “Company”). Mac Oil SpA is included throughNovember 30, 2009.  All intercompany accounts and transactions have beeneliminated.

 

*Exploration stage company*

 

The Companyis an exploration stage company as defined by section 915-10-20 of the FASB Accounting StandardsCodification.  Although the Company has recognizedsome nominal amount of revenue since inception, the Company is devotingsubstantially all of its efforts on establishing the business and its plannedprincipal operations have not yet commenced.  All losses since inception havebeen considered part of the Company’s exploration stage activities.

 

*Reclassifications*

 

Certainamounts in the prior period consolidated financial statements have beenreclassified to conform with the current period presentation.   Thesereclassifications had no effect on reported losses.

 

*Use of estimates*

 

The preparation offinancial statements in conformity with generally accepted accountingprinciples requires management to make estimates and assumptions that affectthe reported amounts of assets and liabilities and disclosure of contingentassets and liabilities at the date of the financial statements and the reportedamounts of revenues and expenses during the reporting period.  Actual resultscould differ from those estimates.

 

F-6

 

**PETROCORP INC.**

**(An Exploration StageCompany)**

**December 31, 2010 and2009**

**Notes to theConsolidated Financial Statements**

 

*Cash equivalents*

 

The Company considersall highly liquid investments with a maturity of three months or less whenpurchased to be cash equivalents.

 

*Marketable securities*

 

The Company accounts formarketable securities, available for sale, in accordance with sub-topic 320-10of the FASB Accounting Standards Codification (“Sub-topic 320-10”). Pursuant toSection 320-10-35, investmentsin debt securities that are classified as available for sale and equitysecurities that have readily determinable fair values that are classified asavailable for sale shall be measured subsequently at fair value in theconsolidated balance sheets at each balance sheet date. Unrealized holding gains and losses foravailable-for-sale securities (including those classified as current assets)shall be excluded from earnings and reported in other comprehensive incomeuntil realized except an available-for-sale security that is designated asbeing hedged in a fair value hedge, from which all or a portion of theunrealized holding gain and loss of shall be recognized in earnings during theperiod of the hedge, pursuant to paragraphs 815-25-35-1 through 35-4.

 

*Oil and gas properties*

* *

The Company’s oil andgas exploration and production activities are accounted for using thesuccessful efforts method. Under this method, all property acquisition costsand costs of exploratory and development wells are capitalized when incurred,pending determination of whether the well has found proved reserves.  If anexploratory well does not find proved reserves, the costs of drilling the wellare charged to expense and included within cash flows from investing activitiesin the Consolidated Statements of Cash Flows pursuant to Topic 932 “*Financial Accounting and Reporting byOil and Gas Producing Companies”* of theFASB Accounting Standards Codification (“Topic 932”).  The costs of developmentwells are capitalized whether productive or nonproductive.  Oil and gas leaseacquisition costs are also capitalized.  Interest cost is capitalized as acomponent of property cost for significant exploration and development projectsthat require greater than six months to be readied for their intended use.

 

Other exploration costs,including certain geological and geophysical expenses and delay rentals for oiland gas leases, are charged to expense as incurred.  The sale of a partialinterest in a proved property is accounted for as a cost recovery and no gainor loss is recognized as long as this treatment does not significantly affectthe unit-of-production amortization rate.  A gain or loss is recognized for allother sales of proved properties and is classified in other operatingrevenues.  Maintenance and repairs are charged to expense, and renewals andbetterments are capitalized to the appropriate property and equipment accounts.

 

Unevaluated propertiesare assessed periodically on a property-by-property basis and any impairment invalue is charged to expense.  If the unevaluated properties are subsequentlydetermined to be productive, the related costs are transferred to proved oiland gas properties.  Proceeds from sales of partial interests in unprovedleases are accounted for as a recovery of cost without recognizing any gainuntil all costs are recovered.

 

Theprovision for depreciation, depletion and amortization (“DD&A”) of oil andgas properties is calculated on a field-by-field basis using theunit-of-production method.  Oil is converted to natural gas equivalents, Mcf,at the rate of one barrel to six Mcf.  Taken into consideration in thecalculation of DD&A are estimated future dismantlement, restoration andabandonment costs, which are net of estimated salvage values.  At December 31,2010, the Company has no declared oil and gas reserves.

 

F-7

 

**PETROCORP INC.**

**(An Exploration StageCompany)**

**December 31, 2010 and2009**

**Notes to theConsolidated Financial Statements**

 

*Fair value of financial instruments*

* *

The Company followsparagraph 825-10-50-10 of the FASB Accounting Standards Codification fordisclosures about fair value of its financial instruments and has adoptedparagraph 820-10-35-37 of the FASB Accounting Standards Codification(“Paragraph 820-10-35-37”) to measure the fair value of its financialinstruments. Paragraph 820-10-35-37 establishes a framework for measuring fairvalue in accounting principles generally accepted in the United States of America (U.S. GAAP), and expands disclosures about fair value measurements. Toincrease consistency and comparability in fair value measurements and relateddisclosures, Paragraph 820-10-35-37 establishes a fair value hierarchy whichprioritizes the inputs to valuation techniques used to measure fair value intothree (3) broad levels.  The fair value hierarchy gives the highest priority toquoted prices (unadjusted) in active markets for identical assets orliabilities and the lowest priority to unobservable inputs.  The three (3)levels of fair value hierarchy defined by Paragraph 820-10-35-37 are describedbelow:

 

Level 1     Quoted market prices available in active marketsfor identical assets or liabilities as of the reporting date.

 

Level 2     Pricing inputs other than quoted prices inactive markets included in Level 1, which are either directly or indirectlyobservable as of the reporting date.

 

Level 3     Pricing inputs that are generally observableinputs and not corroborated by market data.

 

The carryingamounts of the Company’s financial assets and liabilities, such as cash, revenuereceivables, and accrued expenses approximate their fair values because of theshort maturity of these instruments.  The Company’s marketable securities approximate the fair value of such instrumentsbased upon management’s best estimate of interest rates that would be availableto the Company for similar financial arrangement at December 31, 2009.

 

The Company does nothave any assets or liabilities measured at fair value on a recurring or anon-recurring basis, consequently, the Company did not have any fair valueadjustments for assets and liabilities measured at fair value at December 31,2010 or 2009; no gains or losses are reported in the statement of operationsthat are attributable to the change in unrealized gains or losses relating tothose assets and liabilities still held at the reporting date for the interimperiod ended December 31, 2010 and 2009.

 

F-8

 

**PETROCORP INC.**

**(An Exploration StageCompany)**

**December 31, 2010 and2009**

**Notes to theConsolidated Financial Statements**

 

*Revenue recognition*

 

The Company applies paragraph 605-10-S99-1 of the FASBAccounting Standards Codification for revenue recognition.  The Companyrecognizes revenue when it is realized or realizable and earned.  The Companyconsiders revenue realized or realizable and earned when all of the followingcriteria are met: (i) persuasive evidence of an arrangement exists, (ii) theproduct has been shipped or the services have been rendered to thecustomer, (iii) the sales price is fixed or determinable, and (iv)collectability is reasonably assured.  The Company derives revenue primarily fromthe sale of produced natural gas and crude oil.  The Company reports revenue asthe gross amount received before taking into account production taxes andtransportation costs, which are reported as separate expenses.  Revenue isrecorded in the month the Company’s production is delivered to the purchaser,but payment is generally received between thirty (30) and ninety (90) daysafter the date of production.  No revenue is recognized unless it is determinedthat title to the product has transferred to the purchaser.  At the end of eachmonth, the Company estimates the amount of production delivered to thepurchaser and the price the Company will receive.

 

*Income taxes*

 

The Company accounts for income taxes under Section740-10-30 of the FASB Accounting Standards Codification, which requiresrecognition of deferred tax assets and liabilities for the expected future taxconsequences of events that have been included in the financial statements ortax returns.  Under this method, deferred tax assets and liabilities are basedon the differences between the financial statement and tax bases of assets andliabilities using enacted tax rates in effect for the year in which thedifferences are expected to reverse.  Deferred tax assets are reduced by a valuationallowance to the extent management concludes it is more likelythan not that the assets will not be realized.  Deferred tax assets andliabilities are measured using enacted tax rates expected to apply to taxableincome in the years in which those temporary differences are expected to berecovered or settled.  The effect on deferred tax assets and liabilities of achange in tax rates is recognized in the Consolidated Statements of Income andComprehensive Income in the period that includes the enactment date.

 

The Companyadopted section740-10-25 of the FASB Accounting Standards Codification (“Section 740-10-25”). Section 740-10-25 addressesthe determination of whether tax benefits claimed or expected to be claimed ona tax return should be recorded in the financial statements.  Under Section740-10-25, the Company may recognize the tax benefitfrom an uncertain tax position only if it is more likely than not that the taxposition will be sustained on examination by the taxing authorities, based onthe technical merits of the position.  The tax benefits recognized in thefinancial statements from such a position should be measured based on thelargest benefit that has a greater than fifty (50) percent likelihood of beingrealized upon ultimate settlement.  Section 740-10-25 also provides guidance on de-recognition, classification,interest and penalties on income taxes, accounting in interim periods andrequires increased disclosures.  The Company had no material adjustments to itsliabilities for unrecognized income tax benefits according to the provisions ofSection 740-10-25.

 

*Net loss per common share*

 

Section 260-10-45 of the FASB Accounting Standards Codification requires dual presentation of basic anddiluted earnings or loss per share (“EPS”) for all entities with complexcapital structures and requires a reconciliation of the numerator anddenominator of the basic EPS computation to the numerator and denominator ofthe diluted EPS computation.  Basic EPS excludes dilution; diluted EPS reflectsthe potential dilution that could occur if securities or other contracts toissue common stock were exercised or converted into common stock or resulted inthe issuance of common stock that then shared in the earnings of the entity.

 

Basic net income (loss)per common share is computed by dividing net income (loss) applicable to commonshareholders by the weighted average number of common shares outstanding duringthe period.  Diluted net income (loss) per common share reflects the potentialdilution that could occur if dilutive securities and other contracts to issuecommon stock were exercised or converted into common stock or resulted in theissuance of common stock that then shared in the earnings of the Company,unless the effect is anti-dilutive.  The Company had no potentially dilutivesecurities for the years ended December 31, 2010 or 2009.

 

F-9

 

**PETROCORP INC.**

**(An Exploration StageCompany)**

**December 31, 2010 and2009**

**Notes to theConsolidated Financial Statements**

 

*Commitmentand contingencies*

 

The Companyfollows subtopic 450-20 of the FASB Accounting Standards Codification to reportaccounting for contingencies.  Liabilities for losscontingencies arising from claims, assessments, litigation, fines and penaltiesand other sources are recorded when it is probable that a liability has beenincurred and the amount of the assessment can be reasonably estimated.

 

*Cash flowsreporting*

 

The Company adoptedparagraph 230-10-45-24 of the FASB Accounting Standards Codification for cashflows reporting, classifies cash receipts and payments according to whetherthey stem from operating, investing, or financing activities and providesdefinitions of each category, and uses the indirector reconciliation method (“Indirect method”) as defined by paragraph230-10-45-25 of the FASB Accounting Standards Codification to report net cash flow from operating activities byadjusting net income to reconcile it to net cash flow from operating activitiesby removing the effects of (a) all deferrals of past operating cash receiptsand payments and all accruals of expected future operating cash receipts andpayments and (b) all items that are included in net income that do not affectoperating cash receipts and payments.  The Company reports the reportingcurrency equivalent of foreign currency cash flows, using the current exchangerate at the time of the cash flows and the effect of exchange rate changes oncash held in foreign currencies is reported as a separate item in thereconciliation of beginning and ending balances of cash and cash equivalentsand separately provides information about investing and financing activitiesnot resulting in cash receipts or payments in the period pursuant to paragraph830-230-45-1 of the FASB Accounting Standards Codification.

 

*Subsequentevents*

 

The Company follows theguidance in Section 855-10-50 of the FASB Accounting Standards Codification forthe disclosure of subsequent events.The Company will evaluate subsequent events through the date when the financialstatements are issued.  Pursuant to ASU 2010-09 of the FASB AccountingStandards Codification, the Company as an SEC filer considers its financial statementsissued when they are widely distributed to users, such as through filing themon EDGAR.

 

*Recently issuedaccounting pronouncements*

 

In January 2010, the FASB issued the FASB AccountingStandards Update No. 2010-06 *“Fair Value Measurements and Disclosures (Topic820) Improving Disclosures about Fair Value Measurements”*, which provides amendments to Subtopic 820-10 that requires newdisclosures as follows: 

1.      Transfers in and out of Levels 1 and 2. A reporting entity shoulddisclose separately the amounts of significant transfers in and out of Level 1and Level 2 fair value measurements and describe the reasons for the transfers.

 

2.     Activity in Level 3 fair value measurements. In the reconciliationfor fair value measurements using significant unobservable inputs (Level 3), areporting entity should present separately information about purchases, sales,issuances, and settlements (that is, on a gross basis rather than as one netnumber). 

 

F-10

 

**PETROCORP INC.**

**(An Exploration StageCompany)**

**December 31, 2010 and2009**

**Notes to theConsolidated Financial Statements**

 

This Update provides amendments to Subtopic820-10 that clarify existing disclosures as follows: 

1.      Level of disaggregation. A reporting entity should provide fairvalue measurement disclosures for each class of assets and liabilities. A classis often a subset of assets or liabilities within a line item in the statementof financial position. A reporting entity needs to use judgment in determiningthe appropriate classes of assets and liabilities.

 

2.      Disclosures about inputs and valuation techniques. A reportingentity should provide disclosures about the valuation techniques and inputsused to measure fair value for both recurring and nonrecurring fair valuemeasurements. Those disclosures are required for fair value measurements thatfall in either Level 2 or Level 3.

 

This Update alsoincludes conforming amendments to the guidance on employers' disclosures aboutpostretirement benefit plan assets (Subtopic 715-20). The conforming amendmentsto Subtopic 715-20 change the terminology from *major categories*ofassets to *classes*of assets and provide a cross reference to theguidance in Subtopic 820-10 on how to determine appropriate classes to presentfair value disclosures. The new disclosures and clarifications of existingdisclosures are effective for interim and annual reporting periods beginningafter December 15, 2009, except for the disclosures about purchases, sales,issuances, and settlements in the roll forward of activity in Level 3 fairvalue measurements. Those disclosures are effective for fiscal years beginningafter December 15, 2010, and for interim periods within those fiscal years.

 

In April2010, the FASB issued ASU No. 2010-13, “*Compensation—Stock Compensation(Topic 718):**Effect of Denominating the Exercise Price of a Share-BasedPayment Award in the Currency of the Market in Which the Underlying EquitySecurity Trades” (“ASU 2010-13”).*This update provides amendments to Topic718 to clarify that an employee share-based payment award with an exerciseprice denominated in the currency of a market in which a substantial portion ofthe entity’s equity securities trades should not be considered to contain acondition that is not a market, performance, or service condition. Therefore,an entity would not classify such an award as a liability if it otherwisequalifies as equity. The amendments in ASU 2010-13 are effective for fiscalyears, and interim periods within those fiscal years, beginning on or afterDecember 15, 2010.  

 

In August 2010, the FASB issued ASU 2010-21,*“Accounting forTechnical Amendments to Various SEC Rules and Schedules:**Amendments toSEC Paragraphs Pursuant to Release No. 33-9026: Technical Amendments to Rules,Forms, Schedules and Codification of Financial Reporting Policies”* (“ASU2010-21”)*,*was issued to conform the SEC’s reporting requirements to theterminology and provisions in *ASC 805, Business Combinations*, and in *ASC810-10, Consolidation*. ASU No. 2010-21was issued to reflect SEC Release No. 33-9026, “Technical Amendments to Rules,Forms, Schedules and Codification of Financial Reporting Policies,” which waseffective April 23, 2009. The ASU also proposes additions or modifications tothe XBRL taxonomy as a result of the amendments in the update.

 

In August 2010, the FASB issued ASU 2010-22,*“Accounting forVarious Topics: Technical Corrections to SEC Paragraphs”* (“ASU 2010-22”)*,*which amends various SEC paragraphs based on external comments received and theissuance of SEC Staff Accounting Bulletin (SAB) No. 112, which amends orrescinds portions of certain SAB topics.  The topics affected includereporting of inventories in condensed financial statements for Form 10-Q, debtissue costs in conjunction with a business combination, salesof  stock by subsidiary, gain recognition on sales of business,business combinations prior to an initial public offering, loss contingent andliability assumed in business combination, divestitures, and oil and gasexchange offers. 

 

F-11

 

**PETROCORP INC.**

**(An Exploration StageCompany)**

**December 31, 2010 and2009**

**Notes to theConsolidated Financial Statements**

 

 

In December 2010, theFASB issued the FASB Accounting Standards Update No. 2010-28 *“Intangibles—Goodwilland Other (Topic 350):**When to Perform Step 2 of the Goodwill ImpairmentTest for Reporting Units with Zero or Negative Carrying Amounts”**(“ASU2010-28”).*Under ASU 2010-28, if the carrying amount of a reporting unit iszero or negative, an entity must assess whether it is more likely than not thatgoodwill impairment exists. To make that determination, an entity shouldconsider whether there are adverse qualitative factors that could impact theamount of goodwill, including those listed in ASC 350-20-35-30. As a result ofthe new guidance, an entity can no longer assert that a reporting unit is notrequired to perform the second step of the goodwill impairment test because thecarrying amount of the reporting unit is zero or negative, despite theexistence of qualitative factors that indicate goodwill is more likely than notimpaired. ASU 2010-28 is effective for public entities for fiscal years, andfor interim periods within those years, beginning after December 15, 2010, withearly adoption prohibited. 

 

In December 2010, theFASB issued the FASB Accounting Standards Update No. 2010-29 *“BusinessCombinations (Topic 805):**Disclosure of Supplementary Pro FormaInformation for Business Combinations”**(“ASU 2010-29”).* ASU 2010-29specifies that if a public entity presents comparative financial statements,the entity should disclose revenue and earnings of the combined entity asthough the business combination(s) that occurred during the current year hadoccurred as of the beginning of the comparable prior annual reporting periodonly. The amendments in this Update also expand the supplemental pro formadisclosures under Topic 805 to include a description of the nature and amountof material, nonrecurring pro forma adjustments directly attributable to thebusiness combination included in the reported pro forma revenue and earnings.The amended guidance is effective prospectively for business combinations forwhich the acquisition date is on or after the beginning of the first annualreporting period beginning on or after December 15, 2010. Early adoption ispermitted.

 

Management does notbelieve that any other recently issued, but not yet effective accountingpronouncements, if adopted, would have a material effect on the accompanyingconsolidated financial statements.

 

**Note 3 - Going Concern**

 

The consolidatedfinancial statements have been prepared on a going concern basis, which assumesthe Company will be able to realize its assets and discharge its liabilities inthe normal course of business.  As reflected in the accompanying consolidated financialstatements,,the Company had a deficit accumulated during the exploration stage of $2,945,242at December 31, 2010, a net loss of $1,273,048and net cash used in operating activities of $158,081 for the year then ended. These conditions raise substantial doubt about the Company’s ability tocontinue as a going concern.

 

While the Company isattempting to generate measurable revenues, the Company’s cash position may notbe sufficient to support its daily operations.  Management intends to raiseadditional capital through sales of its securities or loans from its majority stockholder. The ability of the Company to continue as a going concern is dependent upon its ability tofurther implement its business plan, generate sufficient revenues and raiseadditional capital.

 

The financial statementsdo not include any adjustments that might be necessary if the Company is unableto continue as a going concern.

 

F-12

 

**PETROCORP INC.**

**(An Exploration StageCompany)**

**December 31, 2010 and2009**

**Notes to theConsolidated Financial Statements**

 

 

**Note 4 - MarketableSecurities**

 

Marketablesecurities available-for-sale, consisted of 1,000,000 common shares of Tamm Oil and GasCorp. (“TAMO”), a publicly traded company listed on the Over the CounterBulletin Board (“OTCBB”), and are stated at market value based on the mostrecently traded price of these marketable securities at December 31, 2009taking into consideration their lack of liquidity.  On June 12, 2009, theCompany exchanged its membership interest in Union Energy (Alberta) LLC, aColorado limited liability company, that owned eight contiguous sections (5,120acres) of oil sands leases in the Peace River Oil Sands Area of northernAlberta, Canada for the 1,000,000 common shares, restricted for six (6) monthsfrom the date of signing, pursuant to the Agreement and Plan of Reorganization executedby and between TAMO and the Company.  The Company acquired these oil sandsleases in May 2008 for $250,000.  Pursuant to Section 320-10-25 of the FASBAccounting Standards Codification unrealized gains and losses, if any, determinedby the difference between the historical cost of $250,000 and the market valueat each balance sheet date, are recorded as a component of accumulated othercomprehensive income in stockholders’ equity (deficit) and realized gains andlosses are determined by the difference between the historical cost of $250,000and the gross proceeds received when these marketable securities are sold.

 

TAMO’s shares traded between$0.56 per share and $1.05 per share with an average daily volume of 274,000shares for the period June 12, 2009 through December 31, 2009, with the closingprice at $0.645 per share and a volume of 86,000 shares on December 31, 2009. The market value of the Company’s 1,000,000 TAMO’s shares at December 31, 2009would have been $645,000 based on TAMO’s December 31, 2009 closing price.  TheCompany determined that the fair value of these marketable securities atDecember 31, 2009, was $250,000, its historical cost when taking intoconsideration the lack of average trading volume.

 

In February 2010, theCompany sold 20,000 shares of TAMO for $15,030 or $.75 per share, resulted in again of $10,030 from the sale of those marketable securities.  On June 4, 2010,the Company exchanged the remaining 980,000 shares of TAMO shares with a costbasis of $245,000 with Soladino Investments SA for cancellation of $294,000 ofnotes.  The quoted offer price was $.25 per share and the Company exchanged thoseshares at $.30 per share with Soladino Investments SA, an entity owned andcontrolled by the majority stockholder of the Company and recorded the resultinggain of $49,000 as a capital contribution. 

** **

F-13

 

**PETROCORP INC.**

**(An Exploration StageCompany)**

**December 31, 2010 and2009**

**Notes to theConsolidated Financial Statements**

 

**Note5 - Oil and Gas Properties**

* *

*Leasehold Acreage*

 

The Company owns interests in oil and gasacreage in the locations set forth below as of December 31, 2010 and 2009. These ownership interests generally take the form of working interests in oiland gas leases that have varying terms.

 

	 

	December 31, 2010

	 

	December 31, 2009

	 

	Gross

	 

	Net

	 

 	Gross

	 

 	Net

	 

	 

	 

	 

	 

	 

	 

	 

	Alaska

	 

	24,280

	 

	 

	24,280

	 

	 

	24,280

	 

	 

	24,280

	Oklahoma

	 

	4,209

	 

	 

	2,968

	 

	 

	7,204

	 

	 

	4,929

	Total

	 

	31,484

	 

	 

	29,209

	 

	 

	31,484

	 

	 

	29,209

 

*Leasehold Acreage Costs*

* *

The Company has capitalized leasehold acreagecosts (geological, acquisition, drilling and work over costs), net of impairmentcharges and accumulated depletion, depreciation and amortization, in unproven oiland natural gas acreage in the locations set forth below:

 

 

 

December 31, 

 

 

2010

 

2009

 

 

 

 

 

 

 

Alaska (1)

 

$

194,800

 

$

442,086

Oklahoma (2)

 

 

76,450

 

 

760,029

     Total

 

$

271,250

 

$

1,202,115

 

(1)     The 2010Alaska oil and gas leasehold costs are net of a $247,286 impairment charge.

 

(2)     The 2010Oklahoma oil and gas leasehold costs are net of a $653,579 impairment chargeand accumulated depletion, depreciation and amortization of $30,000.  The 2009 oiland gas leasehold costs are net of $885,445 in acquisitions, a $639,813 impairmentcharge and accumulated depletion, depreciation and amortization of $26,250.

** **

*2010 Detailed Leasehold Acreage Costs*

 

The following tablesummarizes the Company’s oil and gas property activities for the year endedDecember 31, 2010:

 

 

 

 

 

 

2010 Activities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Properties

 

 

 

 

 

 

 

 

Balance at

 

Leasehold

 

Well

 

Exchanged

 

Impairment

 

 

 

Balance at

 

 

12/31/2009

 

Costs

 

Costs

 

or Sold

 

Charge

 

Depletion

 

12/31/2010

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

     Alaska 

 

$

442,086 

 

$

 

 

$

 

 

$

 

 

$

 (247,286)

 

$

 

 

$

194,800 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

     Oklahoma (by prospect) 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

        Snake Creek 

 

 

112,933 

 

 

 

 

 

 

 

 

 

 

 

(52,949)

 

 

 

 

 

59,984 

        Spanish Peak 

 

 

89,524 

 

 

 

 

 

 

 

 

 

 

 

(45,998)

 

 

 

 

 

43,525 

        Coal Creek 

 

 

583,823

 

 

 

 

 

 

 

 

 

 

 

 (554,632)

 

 

 

 

 

29,191 

        Accumulated depletion 

 

 

(26,250)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(30,000)

 

 

(56,250)

            Oklahoma, net 

 

 

760,029 

 

 

- 

 

 

- 

 

 

- 

 

 

(653,579)

 

 

(30,000)

 

 

76,450 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Total  oil and gas properties 

 

$

1,202,115 

 

$

- 

 

$

- 

 

$

-

 

$

(900,865)

 

$

(30,000)

 

$

271,250 

 

 

*Oil and Gas DrillingActivity*

 

The Company owns working interests in five (5)gross producing oil wells and seven (7) gross producing gas wells at December31, 2010.  Of the five (5) gross producing oil wells two (2) were dualcompletions (oil and gas).  At December 31, 2010, the Company had no wells inprogress and there are no declared reserves. 

 

F-14

 

**PETROCORP INC.**

**(An Exploration StageCompany)**

**December 31, 2010 and2009**

**Notes to theConsolidated Financial Statements**

 

**Note 6 - Notes Payable toMajority Stockholder**

 

On December 1, 2008, Mr.Fitzsimons transferred his 78.5% stock ownership in Petrocorp Inc. and threeoutstanding promissory notes (totaling $734,058) to Soladino Investments SA(“Soladino”), a Swiss corporation owned by Mr. Fitzsimons.  The Soladino noteis secured,non-interest bearing and payable on demand.

 

On March 31, 2009, theCompany purchased 171oil and gas leases totaling 3,827 gross (2,666 net) acresin Okfuskee and Okmulgee Counties, Oklahoma from CH4 Energy, Inc., a companycontrolled by Soladino at a cost of $583,823.  The Company reimbursed Soladinofor its historic costs (acreage) by issuing a secured, non-interest bearingnote, payable on demand for $583,823 and assumed responsibility for all furthercosts.

 

On November 30, 2009,Soladino cancelled $500,000 of the Company’s notes in Soladino’s acquisition ofMac Oil SpA and its foreign oil and gas leases in Quebec, Canada.

 

On June 4, 2010, theCompany exchanged the remaining 980,000 shares of Tamm Oil and Gas Corp. shareswith a cost basis of $245,000 with Soladino Investments SA for cancellation of$294,000 of notes.

 

Soladino loaned theCompany $282,094 in 2009 ($182,094 in August and $100,000 in October) and $143,975in 2010 ($64,010 in July, $29,965 in August and $50,000 in December).  The notesare secured, non-interest bearing and payable on demand.  At December 31, 2010,the Company has $949,950 in secured, non-interest bearing notes (four), payableon demand with Soladino.

 

During the years ended December31, 2010 and 2009, the Company imputed interest expense related to these notes of$58,507 and $72,895, respectively.  Interest was imputed at an implied rate of6% per annum and the amounts were recorded as capital contributions by theCompany.

** **

**Note 7 - Stockholders’ Equity(Deficit)**

 

On September30, 2006, the Company issued 20,000,000 shares of common stock to its founders at par value ($.0001 pershare).  During the period July 1 through December 31, 2006, the Company sold 600,000 sharesof its common stock in a private placement at $0.05 per share(an aggregate of $30,000) to 16 individuals.  During the periodfrom January 1 through September 30, 2007, the Company sold 480,000 shares ofits common stock at $0.05 per share (an aggregate of $24,000) to 24 individuals.

 

On December 27, 2007,the Company sold 800,000 shares of its common stock to one investor at $.625per share (an aggregate of $500,000).  On March 18, 2008, the Company sold 800,000shares of its common stock to one investor at $1.25 per share (an aggregate of$1,000,000).  These shares were sold in transactions exempt from registrationunder Regulation S of the Securities Act of 1933, as amended (the “SecuritiesAct”).  These shares are not registered under the Securities Act or any statesecurities laws and, unless so registered, may not be offered or sold exceptpursuant to an applicable exemption from the registration requirements of theSecurities Act and applicable state securities laws.  The purchasers of these sharesrepresented that they were acquiring the shares for their own account, forinvestment, and that the purchasers were not US Persons within the meaning ofRegulation S.  The Company has no obligation to register the resale of these sharesunder the Securities Act.

** **

F-15

 

**PETROCORP INC.**

**(An Exploration StageCompany)**

**December 31, 2010 and2009**

**Notes to theConsolidated Financial Statements**

 

**Note 8 - Income Taxes**

 

*Deferred tax assets*

 

At December 31, 2010,the Company had net operating loss (“NOL”) carry–forwards for federal income tax purposesof $1,387,635exclusive of $1,557,607 impairment charge that may be offset against future taxableincome through 2030.  No tax benefit has been reported with respect to these net operating losscarry-forwards in the accompanying financial statements because the Companybelieves that the realization of theCompany’s net deferred tax assets of approximately $471,800 was not considered more likelythan not and accordingly, the potential tax benefits of the net loss carry-forwards are fully offset by a valuation allowanceof $471,800.

 

Deferredtax assets consist primarily of the tax effect of NOL carry-forwards.  TheCompany has provided a full valuation allowance on the deferred tax assetsbecause of the uncertainty regarding its realizability.  Thevaluation allowance increased approximately $115,100 and $260,900 for the yearsended December 31, 2010 and 2009, respectively.

 

The componentsof net deferred tax assets - noncurrent at December 31, 2010 and 2009 are:

 

 

 

2010

 

2009

 

 

 

 

 

 

 

Expected income  tax benefit from NOL carry-forwards

 

$

471,800

 

$

356,700

Less valuation  allowance

 

 

(471,800)

 

 

(356,700)

Deferred tax  assets, net of valuation allowance

 

$

-

 

$

-

 

 

*Income taxesin the consolidated statements of operations*

 

A reconciliation of thefederal statutory income tax rate and the effective income tax rate as apercentage of income before income taxes follows:

 

 

 

For the  Year Ended

 

 

December  31,

 

 

2010

 

2009

 

 

 

 

 

Federal  statutory income tax rate

 

34.0%

 

34.0%

Change in  valuation allowance on NOL carry-forwards

 

(34.0)

 

(34.0)

Effective  income tax rate

 

0%

 

0%

** **

**Note 9 - Related Party Transactions**

** **

On March 31, 2009, theCompany purchased 171 oil and gas lease leases totaling 3,827 gross (2,666 net)acres in Okfuskee and Okmulgee Counties, Oklahoma from CH4 Energy, Inc., acompany controlled by Soladino Investments SA (“Soladino”) at a cost of$583,823.  The Company reimbursed Soladino for its historic costs (acreage) byissuing a secured, non-interest bearing note, payable on demand for $583,823and assumed responsibility for all further costs.

 

On November 30, 2009,the Company sold $448,876 of its oil and gas properties to Soladino for$596,551.  The purchase price was paid by (i) cancellation of $500,000 of itsnotes to Soladino and (ii) a cash payment of $96,551.  The oil and gasproperties were in Quebec, Canada and its wholly owned subsidiary Mac Oil SpA. The Company recorded the $147,675 gain as a capital contribution.   

 

On June 4, 2010, theCompany exchanged $294,000 of Tamm Oil and Gas Corp. shares (980,000 shares)with a cost basis of $245,000 with Soladino for cancellation of $294,000 ofnotes.  The quoted offer price was $.25 per share and the Company valued theseshares at $.30 per share.  The Company recorded the $49,000 gain as a capitalcontribution. 

 

Soladino loaned theCompany $282,094 in 2009 ($182,094 in August and $100,000 in October) and$143,975 in 2010 ($64,010 in July, $29,965 in August and $50,000 in December).  Thenotes are secured, non-interest bearing and payable on demand.

 

The Company was providedmanagement services by its president, Mr. Fitzsimons during 2010 and 2009 at nocost.  The Company recorded the $120,000 estimated annual value of theseservices as compensation expense and as a capital contribution.

** **

F-16

 

**PETROCORP INC.**

**(An Exploration StageCompany)**

**December 31, 2010 and2009**

**Notes to theConsolidated Financial Statements**

 

**Note 10 - Subsequent Events**

 

The Company hasevaluated all events that occurred after the balance sheet date, December 31,2010, through the date when the financial statements were issued to determineif they must be reported.  Management of the Company has determined that thereare no reportable subsequent events to be disclosed.

 

F-17