Empire Petroleum Corporation: Q2 2014 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, 2014, with comparisons to the corresponding 2013 periods. The company remains focused on the Gabbs Valley Prospect in Nevada and the South Okie Prospect in Wyoming.
Financial Results and Key Metrics
| Metric | Three Months Ended June 30, 2014 | Three Months Ended June 30, 2013 | Six Months Ended June 30, 2014 | Six Months Ended June 30, 2013 |
|---|---|---|---|---|
| Petroleum sales | $0 | $0 | $0 | $0 |
| Production and operating expense | $276 | $2,090 | $4,923 | $7,187 |
| General and administrative expense | $32,958 | $50,662 | $94,562 | $107,401 |
| Operating loss | $(33,234) | $(52,752) | $(99,485) | $(114,588) |
| Interest expense | $935 | $0 | $1,851 | $0 |
| Net loss | $(34,169) | $(52,752) | $(101,336) | $(114,588) |
| Basic and diluted loss per share | $(0.00) | $(0.01) | $(0.01) | $(0.02) |
- The filing reports no petroleum revenue in either 2014 or 2013; therefore, operating and profit margins are not meaningful.
- Cash and cash equivalents were $795 at June 30, 2014, versus $2,926 at December 31, 2013.
- Current liabilities were $117,524, including $115,180 of related-party notes payable, compared with $92,152 at year-end 2013.
- Total assets were $227,627 and stockholders’ equity was $110,103 at June 30, 2014.
- Cash used in operating activities was $75,731 for the six months ended June 30, 2014, compared with $17,627 in the prior-year period.
- Financing provided $73,600, consisting of $50,000 from the call option agreement and $23,600 of additional related-party notes payable.
- The company recorded $25,000 of contributed employee services as a capital contribution. Its only executive officer serves without compensation.
Material Changes Versus the Prior Comparable Period
- Second-quarter net loss improved by $18,583, or approximately 35%, primarily because general and administrative expense declined by $17,704 and production expense declined by $1,814.
- Six-month net loss improved by $13,252, or approximately 12%, as general and administrative expense declined by $12,839 and production expense declined by $2,264.
- Interest expense increased by $935 in the quarter and $1,851 year to date because of interest on notes payable to the company’s chief executive officer.
- Operating cash usage increased substantially year over year, while ending cash declined by $2,131 during the first six months of 2014.
- Related-party notes payable increased by $23,600 during 2014, bringing the principal balance to $115,180, plus $1,851 of accrued interest.
Guidance, Outlook, Risks, and Unusual Items
- Management states that the company has incurred significant losses and requires future profitable operations and/or additional debt or equity financing to continue as a going concern.
- Management believes cash on hand and additional loans from the Whitehead Trust will fund operations for approximately the next six months, but long-term funding remains uncertain.
- Sierra Nevada Oil LLC held an option, extended to September 1, 2014, to purchase 4,000,000 shares for an aggregate price of $1,000,000, reduced by the $50,000 option payment. Exercise could result in a change in board control and would require proceeds from the stock sale to be used to repay related-party debt.
- Commercial production had not been established at the Gabbs Valley Prospect as of June 30, 2014. Further testing was reportedly ongoing, but Empire had not received the results.
- The recoverability of the company’s oil and gas interests depends on economically recoverable reserves, confirmation of its interests, financing, and future profitable production.
- The company is also considering merger opportunities, control sales, and public or private financings.
- No legal proceedings, defaults upon senior securities, or unregistered sales of equity securities were reported. Management concluded that disclosure controls and procedures were effective.
Most Important Facts for Investors to Verify
- Whether Sierra Nevada Oil LLC exercised or allowed its call option to expire after the September 1, 2014 extension.
- The terms, maturity, security, and repayment prospects of the $115,180 of related-party notes payable and accrued interest.
- Whether additional financing or related-party loans were obtained after June 30, 2014.
- Whether testing at the Gabbs Valley Prospect produced commercial oil or gas production.
- The company’s ability to fund operations beyond the approximately six-month period identified by management.
- The filing’s reported going-concern uncertainty and the absence of operating revenue.