Empire Petroleum Corporation — Q1 2016 Form 10-Q
Business Context and Reporting Period
Quarterly report for the three months ended March 31, 2016, filed May 16, 2016. Empire is an exploration and development company focused on oil and gas interests. The company had no employees and did not own oil and gas properties or equipment at quarter-end.
Key Financial Metrics
| Metric | Q1 2016 | Q1 2015 |
|---|---|---|
| Petroleum sales | $0 | $0 |
| General and administrative expense | $56,838 | $61,730 |
| Operating loss | $(56,838) | $(61,730) |
| Net loss | $(56,838) | $(61,725) |
| Basic and diluted loss per share | $(0.01) | $(0.01) |
| Operating cash flow | $(9,315) | $(7,644) |
| Ending cash | $8,790 | $127,438 |
- Total assets were $190,265, including $181,475 of lease options.
- Current liabilities were $43,198, consisting of accounts payable and accrued liabilities. No debt is reported on the balance sheet.
- Stockholders’ equity was $147,067, compared with $191,405 at December 31, 2015.
- There was no revenue or operating profit, so a meaningful revenue or operating margin is not applicable.
Material Changes Versus the Prior Comparable Period
- General and administrative expense decreased $4,892, or approximately 8%, primarily because Q1 2015 included legal and due diligence costs related to a private placement.
- Net loss improved by $4,887, from $61,725 to $56,838.
- Operating cash use increased by $1,671 despite the lower net loss, while Q1 2015 included $135,000 of stock-sale financing proceeds; no financing proceeds were received in Q1 2016.
- Cash declined $9,315 during Q1 2016, from $18,105 at December 31, 2015 to $8,790 at March 31, 2016.
- Accounts payable and accrued liabilities increased by $35,023 during the quarter, from $8,175 to $43,198.
- Weighted-average shares outstanding increased to 8,710,609 from 8,322,294. Outstanding options and warrants were anti-dilutive and excluded from diluted EPS.
Guidance, Outlook, Risks, and Unusual Items
- Management stated that continued operations depend on future profitable operations and/or additional debt or equity financing. The filing identifies substantial liquidity and going-concern risk.
- The company is considering additional equity financing, merger opportunities, and other strategic alternatives to fund operations and evaluate leases.
- Empire holds options covering approximately 150,000 gross leasable acres in South Dakota and approximately 10,000 gross leasable acres in South Dakota and North Dakota. The options were generally exercisable for two years from 2015 and carried a $0.25 per-share exercise price.
- Management planned geological and geophysical studies, prospect evaluation, potential joint ventures, and acquisition of non-operated working interests. No production or development funding commitment is quantified in the filing.
- Officers provided services valued at $12,500 during the quarter, recorded as a capital contribution; no cash compensation was paid to officers.
- The company had net operating losses and a valuation allowance against related deferred tax benefits. The effective tax rate was 0%.
- Forward-looking plans are subject to financing availability, competition, market conditions, environmental regulation, and the ability to identify economically recoverable reserves and secure development partners.
- No legal proceedings, defaults, unregistered securities sales, or other reportable events were disclosed for the quarter.
Important Facts for Investors to Verify
- Whether the company obtained financing after March 31, 2016 and can fund operations beyond the reported cash balance of $8,790.
- The status, expiration, exercise, and economic value of the South Dakota and North Dakota lease options.
- The composition and payment terms of the $43,198 of accounts payable and accrued liabilities.
- Potential dilution from 1,796,250 options and warrants outstanding as of March 31, 2016, plus any additional options issuable under the lease agreements.
- Whether the company has progressed from lease evaluation to production, joint ventures, or revenue generation; the filing reports no petroleum sales and no oil and gas properties at quarter-end.