Empire Petroleum Corporation 10-Q Summary
Business Context and Reporting Period
Empire Petroleum Corporation is an oil and gas exploration and development company. This unaudited Form 10-Q covers the three and six months ended June 30, 2012, compared with the corresponding 2011 periods. The company had 85,564,235 common shares outstanding as of July 24, 2012.
Financial Performance and Position
| Metric | Three Months Ended June 30, 2012 | Three Months Ended June 30, 2011 | Six Months Ended June 30, 2012 | Six Months Ended June 30, 2011 |
|---|---|---|---|---|
| Petroleum sales | $0 | $0 | $0 | $0 |
| Production and operating expense | $84 | $0 | $12,245 | $(11,279) |
| General and administrative expense | $58,717 | $56,777 | $126,013 | $137,510 |
| Operating loss | $(58,801) | $(56,777) | $(138,258) | $(126,231) |
| Interest expense | $2,336 | $1,000 | $3,336 | $1,250 |
| Net loss | $(61,137) | $(57,775) | $(141,594) | $(127,471) |
- The company generated no petroleum revenue in either comparative period.
- Basic and diluted loss per share was reported as $(0.00) for all periods presented.
- Six-month net cash used in operating activities was $117,463, compared with $153,268 in 2011.
- Financing activities provided $133,603 during the first six months of 2012, compared with $100,000 in 2011.
- Cash increased by $16,140 during the first six months of 2012, from $4,978 to $21,118.
- At June 30, 2012, total assets were $346,316, including $255,215 of property and equipment and $21,118 of cash.
- Current liabilities were $247,467, including a $233,603 related-party note payable. Stockholders’ equity was $98,849.
- Margins are not meaningful because the company had no revenue and incurred operating losses.
Material Changes Versus the Prior Comparable Period
- Second-quarter net loss increased by $3,362, to $61,137, primarily because of higher general and administrative costs, lease rentals, and interest expense.
- Six-month net loss increased by $14,123, to $141,594. Production and operating expense increased because 2011 included refunds of certain drilling costs, while general and administrative expense declined by $11,497, primarily because of stock-option expense recorded in 2011.
- Interest expense increased by $2,086 for the six-month period as the related-party note balance increased.
- Cash improved year over year because financing proceeds exceeded operating cash usage; however, the company remained dependent on related-party financing.
- The company recorded $25,000 of contributed executive services as a capital contribution during the first six months of 2012. Its only executive officer served without cash compensation.
Guidance, Outlook, Risks, and Unusual Items
- Management stated that the $21,118 cash balance was expected to fund operations for approximately one month. Long-term operations depend on profitable operations and/or additional debt or equity financing.
- The company is seeking merger opportunities, public or private financing, and industry partners to fund exploration and development.
- Management planned additional exploration of the Gabbs Valley and South Okie prospects, subject to financing or industry participation. The timing of future drilling was not predictable.
- At Gabbs Valley, prior test wells encountered oil shows but did not establish commercial production. Operations were suspended, and lease and well interests were assigned to other leasehold owners, who assumed related liabilities and continued testing.
- The company’s going-concern status depends on obtaining financing and achieving profitable operations. Management disclosed significant historical losses and no assurance of future profitability.
- Recoverability of oil and gas interests depends on economically recoverable reserves, confirmation of ownership interests, financing, and successful future production.
- The April 2012 convertible note issued to the CEO’s related trust had $133,603 of principal, bears interest at 4%, is due April 17, 2013, and is convertible into common stock at $0.05 per share. The earlier $100,000 note was extended to August 1, 2012 and was convertible at $0.10 per share.
- Management concluded that disclosure controls and procedures were effective and reported no material change in internal control over financial reporting.
Most Important Facts to Verify
- Whether the company obtained financing or strategic partners after June 30, 2012, given its stated one-month cash runway.
- The status, maturity, accrued interest, and potential conversion of the related-party notes.
- Whether Gabbs Valley or South Okie exploration produced commercially recoverable reserves or required additional capital.
- The recoverability and carrying value of the $255,215 property and equipment and $65,637 of other assets.
- Whether the company generated revenue or remained dependent on financing and contributed services.
- Subsequent events and developments disclosed in later SEC filings, including any equity issuance, debt conversion, dilution, or going-concern developments.