EMPIRE PETROLEUM CORP quarterly report, Q2 FY2016

Empire Petroleum Corporation — Form 10-Q Summary

Business Context and Reporting Period

This quarterly report covers the three and six months ended June 30, 2016. Empire is an exploration and development company focused on oil and gas interests. It had no employees, no oil and gas properties or equipment, and no petroleum production or sales during the periods presented. The filing was signed August 15, 2016.

Key Financial Metrics

Metric	Three Months Ended June 30, 2016	Six Months Ended June 30, 2016
Petroleum sales	$0	$0
General and administrative expense	$86,204	$143,042
Operating loss	$(86,204)	$(143,042)
Net loss	$(86,204)	$(143,042)
Net loss per share, basic and diluted	$(0.01)	$(0.02)

• Cash was $3,823 at June 30, 2016, compared with $18,105 at December 31, 2015.
• Total assets were $185,298, including $181,475 of lease options.
• Current liabilities were $46,275, consisting of accounts payable and accrued liabilities. No debt was reported.
• Stockholders’ equity was $139,023, compared with $191,405 at year-end 2015.
• Six-month net cash used in operating activities was $14,282, compared with $72,650 in the prior-year period. There was no financing cash inflow in 2016, versus $135,000 in 2015.
• Operating and profit margins are not meaningful because the Company reported no revenue.
• Officers contributed services valued at $25,000 during the first six months of 2016, recorded as a capital contribution.

Material Changes Versus Prior Comparable Period

• Second-quarter general and administrative expense increased $50,498, or approximately 141%, to $86,204 from $35,706. Six-month expense increased $45,606, or approximately 47%, to $143,042 from $97,436.
• The increase was primarily attributable to $65,660 of expense for 1,150,000 stock options issued on June 1, 2016 for capital formation, deal origination, due diligence, and administrative services.
• Second-quarter net loss increased to $86,204 from $35,697; six-month net loss increased to $143,042 from $97,422.
• Cash declined by $14,282 during the first six months of 2016, compared with a $62,350 increase in the prior-year period.
• The Company issued no equity for cash during the 2016 period. The prior-year period included $135,000 of proceeds from a private placement.
• Accounts payable and accrued liabilities increased to $46,275 from $8,175 at December 31, 2015.

Guidance, Outlook, Risks, and Unusual Items

• Management stated that substantial additional financing is needed to sustain operations and is considering equity financing, debt financing, mergers, and other strategic transactions.
• The Company is seeking partners to explore and develop oil and gas interests and intends to pursue joint venture partners if favorable drilling prospects are identified.
• Two lease option agreements cover approximately 150,000 gross leasable acres in South Dakota and approximately 10,000 gross leasable acres in South Dakota and North Dakota. The filing states that these options could be written off upon expiration if sufficient funding is not obtained.
• The Company has incurred significant losses and disclosed substantial uncertainty regarding its ability to continue as a going concern. Continued operations depend on future profitable operations and/or additional debt or equity financing.
• The Company reported a $0 effective tax rate because valuation reserves offset potential tax benefits from its net operating losses.
• At June 30, 2016, options and warrants for 2,946,250 shares were excluded from diluted earnings per share because they were anti-dilutive. The 1,150,000 options issued in June 2016 vested immediately and expire after two years.
• Key risks include insufficient financing, failure to achieve profitable production, competition, market and technology changes, and environmental legislation. No legal proceedings were reported.
• Management concluded that disclosure controls and procedures were effective as of June 30, 2016.

Investor Verification Points

• Verify the Company’s ability to raise capital given only $3,823 of cash and ongoing operating losses.
• Assess whether the lease options remain exercisable, their expiration status, and the likelihood of securing financing or joint venture partners.
• Review the composition and payment timing of the $46,275 in accounts payable and accrued liabilities.
• Evaluate potential dilution from outstanding options and warrants, including the 1,150,000 options issued in June 2016.
• Confirm that the Company has no producing assets, oil and gas property interests, or petroleum revenue as of the reporting date.