Business Context and Reporting Period
Company: Empire Petroleum Corporation
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: March 31, 2017
Business Overview: The Company is engaged in the exploration and development of oil and gas interests. As of the reporting date, the Company had no employees and did not own any interest in oil and gas properties or equipment. Operations are currently focused on securing financing and negotiating the acquisition of assets, specifically through a pending transaction with Masterson West II.
Key Financial Metrics
| Metric | Q1 2017 | Q1 2016 |
|---|---|---|
| Revenue | $0 | $0 |
| Net Loss | $(104,370) | $(56,838) |
| Net Loss Per Share (Basic & Diluted) | $(0.01) | $(0.01) |
| Cash and Cash Equivalents (End of Period) | $66,923 | $8,790 |
| Net Cash Used in Operating Activities | $(64,320) | $(9,315) |
| Net Cash Provided by Financing Activities | $62,500 | $0 |
| Total Assets | $408,923 | $382,743 (Dec 31, 2016) |
| Total Liabilities | $177,962 | $81,362 (Dec 31, 2016) |
| Convertible Notes (Net) | $102,886 | $58,844 (Dec 31, 2016) |
Material Changes vs. Prior Period
- Operating Loss: Increased from $(56,838) in Q1 2016 to $(86,084) in Q1 2017. This was driven by a $29,246 increase in general and administrative expenses, primarily due to legal fees associated with the Masterson West transaction and over-the-counter stock listing fees.
- Interest Expense: Increased from $0 in Q1 2016 to $18,286 in Q1 2017. This resulted from the issuance of convertible notes in late 2016 and early 2017.
- Debt Levels: Convertible notes outstanding increased significantly. The Company issued $62,500 in new convertible notes in January 2017, bringing the total face value to $195,000 (net of debt issuance costs of $92,114).
- Liquidity: Cash balances increased from $68,743 at year-end 2016 to $66,923 at March 31, 2017, despite operating cash outflows, due to financing proceeds.
Outlook, Risks, and Contingencies
- Masterson West II Transaction: The Company entered into an agreement to acquire oil and gas properties in exchange for cash ($9M-$18M) and stock. The final closing was scheduled for April 1, 2017, but did not occur due to the unexpected death of the majority owner of Masterson West on February 18, 2017. The agreement remains in effect, and discussions are ongoing regarding amendment, replacement, or termination.
- Going Concern: The Company has incurred significant losses and has no current revenue. Management states that the continuation of the Company as a going concern is dependent on attaining future profitable operations and/or obtaining additional debt or equity financing.
- Capital Needs: The Company is actively pursuing the acquisition of other oil and gas properties and considers various options, including raising additional equity, to fund operations and acquisitions.
- Risks: Key risks include the failure to secure necessary financing, the uncertainty of the Masterson West transaction, and the lack of current revenue-generating assets.
Investor Verification Checklist
- Transaction Status: Verify the current status of the Masterson West II Contribution Agreement and whether it has been amended, terminated, or is proceeding to closing.
- Financing Runway: Assess the sufficiency of the $66,923 cash balance to sustain operations given the lack of revenue and ongoing administrative costs.
- Debt Obligations: Review the terms of the $195,000 in convertible notes, including the 6% interest rate, December 31, 2018 maturity, and conversion price of $0.15 per share.
- Asset Acquisition: Confirm if the Company has secured alternative financing or identified new acquisition targets to replace the delayed Masterson West deal.