Empire Petroleum Corporation — Form 10-Q Summary
Reporting period: Quarter and nine months ended September 30, 2015. The company is an oil and gas exploration and development company and reported as a smaller reporting company. The financial statements are unaudited.
Business Context and Financial Position
- The company had no oil and gas properties or equipment at September 30, 2015 and generated no petroleum sales during the quarter or nine-month period.
- Cash was $35,967, compared with $82 at December 31, 2014.
- Total assets were $217,442, including $181,475 of lease options obtained through stock-option issuances.
- Current liabilities were $1,250, consisting of accounts payable and accrued liabilities. The filing reports no outstanding debt at September 30, 2015.
- Stockholders’ equity was $216,192, compared with a deficit of $146 at December 31, 2014. Shares outstanding increased to 8,710,609 from 7,630,609.
Results of Operations and Cash Flow
| Metric | Three Months Ended September 30 | Nine Months Ended September 30 |
|---|---|---|
| Petroleum sales | $0 in 2015 and 2014 | $0 in 2015 and 2014 |
| Operating loss | $(40,220) in 2015; $(77,268) in 2014 | $(137,656) in 2015; $(176,753) in 2014 |
| Net loss | $(40,215) in 2015; $(78,568) in 2014 | $(137,637) in 2015; $(179,904) in 2014 |
| Net loss per share | $(0.00) in 2015; $(0.01) in 2014 | $(0.02) in 2015 and 2014 |
| Cash used in operating activities | Not provided for the quarter | $(99,115) in 2015; $(109,430) in 2014 |
- Nine-month general and administrative expense increased to $137,656 from $127,998, primarily due to legal and due diligence costs related to the new lease-option agreements.
- Lease abandonment and production expenses fell to zero from $31,750 and $17,005, respectively, in the comparable nine-month period.
- Interest expense was zero in 2015, compared with $3,151 for the first nine months of 2014, because no former-CEO note payable remained outstanding.
- Cash provided by financing activities was $135,000 from a private stock placement. Ending cash increased by $35,885 from the beginning of the year.
- Officers contributed services valued at $37,500 during the first nine months; no employees were reported, and the CEO and president received no compensation.
Material Changes, Outlook, and Risks
- The company completed a private placement of 1,080,000 common shares and warrants to purchase 540,000 shares for aggregate proceeds of $135,000. The warrants are exercisable at $0.25 per share through February 28, 2017.
- In April 2015, the company obtained two-year options covering approximately 150,000 gross leasable acres in South Dakota and approximately 10,000 gross leasable acres in South Dakota and North Dakota. Consideration consisted of options to purchase an aggregate of 1,250,000 common shares at $0.25 per share, with potential for additional options under the agreements.
- Management planned geological and geophysical studies, prospect evaluation, and pursuit of joint-venture partners and non-operated working interests. Future acquisitions and development are expected to require equity and/or debt financing.
- Management stated that available cash was expected to fund operations for approximately six months and that additional equity financing was being considered.
- The filing includes a going-concern uncertainty: continued operations depend on future profitable operations and/or additional debt or equity financing. Management was also pursuing merger opportunities and partners.
- The company has generated operating losses since inception and maintains a valuation allowance against potential deferred tax benefits. No effective tax benefit was recognized.
- Key risks include inability to obtain financing, failure to achieve profitable production, competition, changing market conditions, environmental legislation, and uncertainty regarding the recoverability of oil and gas interests.
Facts Investors Should Verify
- Whether the company secured financing beyond the reported $135,000 placement and whether its cash runway was extended.
- Whether either lease option was exercised, additional acreage was secured, or geological and geophysical studies produced viable drilling prospects.
- The potential dilution from 1,796,250 outstanding options and warrants, plus the 1,250,000 lease-related options and any additional options issuable under the agreements.
- Whether the company commenced revenue-generating production or acquired oil and gas interests after September 30, 2015.
- The company’s ability to continue as a going concern given zero revenue, recurring losses, operating cash outflows, and dependence on external financing.