Empire Petroleum Corporation: Q2 2013 Form 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, 2013, with comparative periods ended June 30, 2012. The company had 91,564,485 common shares outstanding as of July 22, 2013.
Key Financial Metrics
| Metric | Three Months Ended June 30, 2013 | Six Months Ended June 30, 2013 |
|---|---|---|
| Petroleum sales | $0 | $0 |
| Production and operating expense | $2,090 | $7,187 |
| General and administrative expense | $50,662 | $107,401 |
| Operating loss | $(52,752) | $(114,588) |
| Interest expense | $0 | $0 |
| Net loss | $(52,752) | $(114,588) |
| Basic and diluted loss per share | $(0.00) | $(0.00) |
The filing presents no revenue or operating margin because the company generated no petroleum sales. No depreciation expense was recorded because the depreciable assets were fully depreciated. The effective tax rate was 0%, with tax benefits offset by a valuation reserve.
- Cash and cash equivalents declined to $3,139 at June 30, 2013, from $20,766 at December 31, 2012.
- Total assets were $228,862, compared with $324,397 at December 31, 2012.
- Current liabilities were $4,188, compared with $10,135 at year-end 2012.
- The balance sheet showed no reported debt at June 30, 2013; prior shareholder-related notes had been converted into equity.
- Stockholders’ equity was $224,674 at June 30, 2013, compared with $314,262 at December 31, 2012.
- Net cash used in operating activities was $17,627 for the six months ended June 30, 2013, versus $117,463 in the comparable 2012 period.
- The 2013 cash flow included a $25,000 capital contribution representing the value of services provided without compensation by the executive officer.
Material Changes Versus the Prior Comparable Period
- Second-quarter net loss improved by $8,385, from $(61,137) to $(52,752), primarily because general and administrative expense and interest expense decreased, partially offset by higher production and operating expense.
- Six-month net loss improved by $27,006, from $(141,594) to $(114,588).
- Six-month production and operating expense decreased by $5,058, while general and administrative expense decreased by $18,612.
- Interest expense decreased by $3,336 to zero because shareholder notes had been converted into common stock.
- Operating cash use improved substantially from $117,463 to $17,627, although the company continued to consume cash.
- Cash declined by $17,627 during the first six months of 2013. The comparable 2012 period included $133,603 of financing proceeds from a shareholder advance and related-party note payable; no such financing proceeds were reported in 2013.
Guidance, Outlook, Risks, and Unusual Items
- Management stated that the $3,139 cash balance was expected to finance operations for approximately one month and that additional financing would be required for long-term operations.
- The company is seeking merger opportunities, public or private financing, and industry partners to fund exploration and development.
- At Gabbs Valley, prior test wells produced oil shows and a small non-commercial discovery, but commercial production had not been established as of June 30, 2013. Further testing was being considered, and discussions regarding a new test well had not resulted in an agreement.
- The company planned further exploration of Gabbs Valley and the South Okie Prospect, subject to financing and/or an industry partner. No assurance was provided that these activities would occur or produce commercially recoverable reserves.
- The company disclosed substantial doubt-related going-concern conditions: it has incurred significant historical losses, has no revenue, limited cash, and depends on future profitability or additional debt or equity financing.
- Recoverability of the oil and gas interests depends on economically recoverable reserves, confirmation of the company’s interests, financing, successful development, and profitable production.
- Shareholders approved authorization for the board to implement a one-for-twelve reverse stock split before December 31, 2013.
- Management reported effective disclosure controls and no material change in internal control over financial reporting during the period.
Most Important Facts for Investors to Verify
- Whether the company obtained financing, merger partners, or industry partners after June 30, 2013.
- Whether the authorized reverse stock split was implemented and its effect on shares outstanding and market liquidity.
- Whether Gabbs Valley or South Okie achieved additional drilling, testing, reserves, or commercial production.
- The company’s ability to continue as a going concern given only $3,139 of cash and approximately one month of stated operating liquidity.
- The ownership, valuation, and recoverability of the reported $223,465 of property and equipment.
- Potential dilution from the 1,045,000 outstanding options, which were anti-dilutive at June 30, 2013.