Empire Petroleum Corporation — Form 10-Q Summary
Business Context and Reporting Period
This unaudited Form 10-Q covers the quarter and six months ended June 30, 2015. Empire’s primary business is the exploration and development of oil and gas interests. The company had no employees, no oil and gas properties or equipment, and no petroleum production during the period. The filing was signed August 14, 2015; 8,710,609 common shares were outstanding as of that date.
Financial Position and Results
| Metric | Three Months Ended June 30 | Six Months Ended June 30 |
|---|---|---|
| Petroleum sales | $0 in 2015 and 2014 | $0 in 2015 and 2014 |
| Operating loss | $(35,706) in 2015; $(33,234) in 2014 | $(97,436) in 2015; $(99,485) in 2014 |
| Net loss | $(35,697) in 2015; $(34,169) in 2014 | $(97,422) in 2015; $(101,336) in 2014 |
| Basic and diluted loss per share | $(0.00) in both periods | $(0.01) in both periods |
| Cash flow from operations | $(72,650) for the six months ended June 30, 2015; $(75,731) in 2014 | |
| Cash balance | $62,432 at June 30, 2015, versus $82 at December 31, 2014 |
Six-month general and administrative expense was $97,436, compared with $94,562 in 2014. Production and operating expense declined to zero from $4,923. There was no interest expense in 2015, compared with $1,851 in 2014. The filing does not present a meaningful operating margin because revenue was zero. Total assets were $243,907, including $181,475 of lease options and $62,432 of cash. The company reported no current liabilities and no debt balance at June 30, 2015.
Material Changes Versus the Prior Comparable Period
- Quarterly net loss increased by $1,528, primarily because higher general and administrative costs exceeded the benefit from lower operating and interest expenses.
- Six-month net loss improved by $3,914, reflecting the elimination of production and operating expenses and interest expense, partly offset by higher general and administrative costs.
- General and administrative expense increased by $2,748 for the quarter and $2,874 year to date, primarily due to legal costs associated with two lease option agreements.
- Cash increased by $62,350 during the first six months, primarily from $135,000 of stock-sale proceeds, less $72,650 used in operations.
- Shares outstanding increased from 7,630,609 at December 31, 2014 to 8,710,609 at June 30, 2015. The company also issued warrants to purchase up to 540,000 shares.
- The company recorded $25,000 of contributed officer services as a capital contribution for the six months ended June 30, 2015.
Outlook, Risks, Contingencies, and Unusual Items
- In April 2015, Empire obtained a two-year option covering approximately 150,000 gross leasable acres in South Dakota. It granted options for 1,000,000 common shares at $0.25 per share; the recorded value of the lease option was $150,200.
- A second two-year option, covering approximately 10,000 gross leasable acres in South Dakota and North Dakota, was obtained in April 2015. Empire granted options for 250,000 shares at $0.25 per share; the recorded value of the lease option was $31,275.
- Management plans geological and geophysical studies, prospect evaluation, and pursuit of joint-venture partners. Potential non-operated working-interest acquisitions may be financed with equity or debt.
- Management stated that existing cash was expected to finance operations for approximately six months and that additional equity financing, merger opportunities, and other funding sources were being considered.
- The filing contains a going-concern warning. Continued operations depend on future profitable operations and/or additional debt or equity financing.
- Recoverability of the lease and oil and gas interests depends on identifying economically recoverable reserves, obtaining financing, developing the interests, and achieving profitable production.
- Key risks include inability to obtain financing, failure to achieve profitability, competition, market and technology changes, and environmental legislation. No legal proceedings, defaults, or other material contingencies were reported in Part II.
Investor Verification Checklist
- Verify the company’s ability to raise additional capital and sustain operations after the stated approximately six-month cash runway.
- Assess whether the South Dakota and North Dakota lease options produce economically viable prospects and whether the options are exercised before expiration.
- Review potential dilution from the 1,250,000 lease-related options, the 540,000 private-placement warrants, and other outstanding options and warrants.
- Confirm the absence of current debt and monitor whether future development is financed through debt, equity, or joint ventures.
- Reconcile the $181,475 lease-option asset and the related stock-option valuations, which were based on high assumed volatility.
- Review the company’s latest Form 10-K and subsequent filings for updated going-concern disclosures, financing activity, lease developments, and exploration results.