EP

Business Context and Reporting Period

Company: Empire Petroleum Corporation
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: March 31, 2012
Business Overview: The Company is engaged in the exploration and development of oil and gas interests, specifically the Gabbs Valley Prospect in Nevada and the South Okie Prospect in Wyoming. The Company has incurred significant losses since inception and currently has no revenue from petroleum sales. Its continuation as a going concern is dependent on obtaining additional financing or merger opportunities.

Key Financial Metrics

Debt and Liquidity: As of March 31, 2012, the Company held $6,073 in cash. Current liabilities include a $100,000 note payable to a related party and a $33,603 advance from a shareholder. Management estimates cash on hand is sufficient to finance operations for approximately one month.

Material Changes vs. Prior Period

• Net Loss Increase: Net loss increased by $10,761 (from $(69,696) to $(80,457)) compared to the same period in 2011.
• Operating Expenses: Production and operating expenses increased by $23,440 due to lease rentals paid for Gabbs Valley leases in 2012, whereas 2011 included refunds of prior drilling costs. General and administrative expenses decreased by $13,436, primarily due to the absence of stock option expenses recorded in 2011.
• Liquidity Position: Cash decreased significantly from $41,861 in Q1 2011 to $6,073 in Q1 2012. However, net cash used in operating activities improved (decreased) from $(126,828) to $(32,508), aided by a $33,603 shareholder advance.
• Liabilities: Current liabilities increased by $71,198, driven by a new $33,603 shareholder advance and an increase in accounts payable and accrued liabilities.

Outlook, Risks, and Unusual Items

Outlook and Operations:

• Gabbs Valley Prospect: The Company suspended operations on the Paradise Unit 2-12 well after encountering drilling problems and recovering small amounts of oil. The lease and wells were assigned to other leasehold owners via a farmout. The Company is seeking an industry partner to drill a new test well on remaining acreage.
• South Okie Prospect: Plans to drill a test well in 2012 are contingent on securing additional financing or an industry partner.
• Financing: The Company intends to pursue merger opportunities and public or private financings to sustain long-term operations.

Risks and Contingencies:

• Going Concern: The Company has incurred significant losses and requires additional debt or equity financing to continue operations. There is no assurance of achieving profitability.
• Related Party Transactions: A significant portion of recent financing ($133,603 total in convertible notes) comes from The Albert E. Whitehead Living Trust, controlled by the CEO. These notes bear 4% interest and are convertible into common stock.

Unusual Items:

• The Company recorded a $12,500 capital contribution for services provided by its executive officer, who serves without cash pay.
• There was no depreciation expense as depreciable assets were fully depreciated.

Investor Verification Checklist

• Cash Runway: Verify the Company's ability to secure financing immediately, as cash on hand ($6,073) covers only approximately one month of operations.
• Related Party Debt: Review the terms of the convertible notes held by the CEO's trust, specifically the conversion prices ($0.05 and $0.10) and potential dilution to existing shareholders.
• Asset Status: Confirm the status of the Gabbs Valley and South Okie prospects, noting that recent drilling attempts have been suspended or farmed out to third parties.
• Revenue Generation: Note that the Company has generated $0 revenue from petroleum sales for the periods presented; profitability is entirely dependent on future exploration success and financing.