Empire Petroleum Corporation — Form 10-Q Summary
Business Context and Reporting Period
Empire Petroleum Corporation is an exploration and development company focused on oil and gas interests. This unaudited Form 10-Q covers the three months ended March 31, 2015, with comparative information for the three months ended March 31, 2014. As of March 31, 2015, the Company owned no oil and gas properties or equipment and had no employees.
Key Financial Metrics
| Metric | Q1 2015 | Q1 2014 |
|---|---|---|
| Petroleum sales | $0 | $0 |
| General and administrative expense | $61,730 | $61,604 |
| Production and operating expense | $0 | $4,647 |
| Operating loss | $(61,730) | $(66,251) |
| Net loss | $(61,725) | $(67,167) |
| Basic and diluted loss per share | $(0.01) | $(0.01) |
| Net cash used in operating activities | $(7,644) | $(47,087) |
| Net cash provided by financing activities | $135,000 | $63,500 |
| Cash at period end | $127,438 | $19,339 |
Because revenue was zero, revenue-based margins were not meaningful. The Company had $127,438 of cash and $41,809 of current liabilities at March 31, 2015. Current liabilities consisted primarily of $41,609 of accounts payable and accrued liabilities and $200 payable to an officer. The filing does not report outstanding debt at March 31, 2015; interest expense was zero. Total assets were $127,438, and stockholders’ equity was $85,629, compared with a deficit of $146 at December 31, 2014.
Material Changes Versus the Prior Comparable Period
- Net loss improved by $5,442, from $(67,167) to $(61,725), primarily because production and operating expenses declined by $4,647 and interest expense declined by $916.
- General and administrative expense increased by $126 to $61,730.
- Operating cash use decreased by $39,443, from $47,087 to $7,644, mainly reflecting an increase in accounts payable and accrued liabilities.
- Financing cash inflow increased to $135,000 from $63,500. The 2015 proceeds came from a private placement of 1,080,000 common shares and warrants to purchase up to 540,000 shares.
- Cash increased from $82 at December 31, 2014 to $127,438 at March 31, 2015. Shares outstanding increased to 8,710,609 from 7,630,609 at year-end.
- The Company disposed of its interests in the Gabbs Valley Prospect and South Okie Prospect before the current period and held no oil and gas properties or equipment at March 31, 2015.
Guidance, Outlook, Risks and Unusual Items
Management stated that cash on hand was expected to finance operations for the next twelve months, but acknowledged that long-term operations depend on additional financing, merger opportunities, future profitability, or other transactions. The Company continues to seek partners and financing to explore and develop oil and gas interests.
Subsequent to quarter-end, the Company entered into two-year options to acquire oil and gas leases 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 1,000,000 and 250,000 common shares, respectively, at $0.25 per share, with potential for additional options under the agreements. The Company plans geological and geophysical studies and expects to seek joint venture partners for development.
The Company reported significant historical losses and expressly disclosed substantial dependence on future profitable operations and/or additional debt or equity financing. Its investments in oil and gas interests are dependent on discovering economically recoverable reserves, obtaining financing, and achieving profitable production. Other stated risks include failure to obtain financing, competition, market and technology changes, and environmental legislation.
Officers provided services without compensation; the Company recorded $12,500 as a contributed capital amount for the quarter. Options and warrants were excluded from diluted loss per share because they were anti-dilutive. No legal proceedings, defaults, or market-risk disclosures were reported as applicable. Management concluded that disclosure controls and procedures were effective as of March 31, 2015.
Investor Verification Checklist
- Verify the Company’s ability to obtain financing or strategic partners, given recurring losses, zero revenue, and the stated going-concern dependence on future funding.
- Assess whether the reported $127,438 cash balance is sufficient for operations and planned geological and geophysical work.
- Review the terms, potential dilution, and valuation of the 1,080,000 shares and 540,000 warrants issued in the private placement.
- Review the subsequent lease option agreements, including the share-option consideration and any additional option obligations.
- Confirm that the Company has no producing properties or equipment and therefore no current petroleum revenue or production base.
- Consider potential dilution from 546,250 outstanding post-split options and warrants at March 31, 2015, as well as the subsequent lease-related options.