UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
(Mark One)
[X] Quarterly Report Pursuant to Section 13 OR 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended September 30, 2002
[ ] Transition Report Under Section 13 or 15(d) of the Exchange Act
For the transition period from _______________to________________
Commission file number 0-20193
EMPIRE PETROLEUM CORPORATION
(Exact name of small business issuer as specified in its Charter)
DELAWARE 73-1238709
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
15 E. 5th Street, Suite 4000, Tulsa, Oklahoma 74103-4346
(Address of principal executive offices) (Zip Code)
(Issuer's telephone number) (918) 587-8093
(Former name, former address and former fiscal year, if changed since last
report)
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:
Common Stock, $.001 Par Value - 24,459,906 shares outstanding as of
September 30, 2002.
Transitional Small Business Disclosure Format: [ ] Yes [X] No
EMPIRE PETROLEUM CORPORATION
INDEX TO FORM 10-QSB
Part I. FINANCIAL INFORMATION Page(s)
Item 1. Financial Statements
Balance Sheet at September 30, 2002 (Unaudited) 2-3
Statements of Operations for the three months
and nine months ended September 30, 2002 and 2001
(Unaudited) 3-4
Statements of Cash Flows for the nine months ended
September 30, 2002 and 2001 (Unaudited) 4-5
Notes to Financial Statements 5-7
Item 2. Plan of Operations 7-9
Part II. OTHER INFORMATION
Item 2. Changes in Securities 10
Item 6. Exhibits and Reports on Form 8-K 10
Signatures 10-11
Item 1. FINANCIAL STATEMENTS
EMPIRE PETROLEUM CORPORATION
BALANCE SHEET
September 30,
2002
ASSETS (Unaudited)
Current assets:
Cash and cash equivalents $ 1,775
Accounts receivable 240
Prepaid expenses 960
___________
Total current assets 2,975
Investment in prospects
Property & equipment net of accumulated
depreciation and depletion 7,111,679
___________
Total Assets 7,114,654
___________
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued
liabilities $ 395,354
Debenture payable 50,000
Note Payable - Related Party 170,000
___________
Total current liabilities 615,354
Deferred taxes 1,250,000
___________
Total liabilities 1,865,354
___________
Stockholders' equity:
Common stock at par value 24,460
Additional paid in capital 7,633,072
Accumulated deficit (2,408,232)
___________
Total stockholders' equity 5,249,300
___________
Total Liabilities and Equity $ 7,114,654
___________
See accompanying notes to financial statements.
EMPIRE PETROLEUM CORPORATION
STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
2002 2001 2002 2001
Revenue:
Oil and gas sales $ 0 $ 0 $ 0 $ 12,410
Less royalty expense 0 0 0 (2,482)
____________ __________ _________ ________
0 0 0 9,928
____________ __________ _________ ________
Costs and expenses:
Production & operating 5,178 7,446 146,682 17,600
General & administrative 36,425 77,952 158,948 150,067
Depreciation expense 1,045 0 3,143 1,050
____________ __________ _________ ________
42,648 85,398 308,773 168,717
____________ __________ _________ ________
Operating loss 42,648 85,398 308,773 158,789
____________ __________ _________ ________
Other income and expense:
Interest income 0 0 0 (6,918)
Miscellaneous income ( 34) 0 (1,819) 0
Interest expense 33,730 5,918 41,847 7,473
____________ __________ _________ ________
Total other income and expense 33,696 5,918 40,028 555
____________ __________ _________ ________
Net loss $ (76,344) $ (91,316) (348,801) (159,344)
____________ __________ _________ ________
Net loss per common share $ 0 0 0 0
____________ __________ _________ ________
Weighted average number of
common shares outstanding 24,459,906 23,495,259 24,459,906 23,495,259
____________ __________ __________ __________
See accompanying notes to financial statements
EMPIRE PETROLEUM CORPORATION
STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine Months Ended
September 30, September 30,
2002 2001
Cash flows from operating activities:
Net loss $(348,801) $(159,344)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation 3,143 1,050
Cash flow from operations:
(Increase) decrease in assets:
Accounts receivable 127,470 (121,645)
Prepaid expenses 4,363 786
Increase (decrease) in liabilities:
Accounts payable and accrued expenses (93,795) 178,504
________ ________
Net cash used in operating activities (307,620) (100,649)
________ ________
Cash flows from investing activities:
Additions to property, plant and equipment 0 (723,176)
Decrease to property, plant and equipment 70,224 0
Cash payments for investments in prospects 0 0
________ ________
Net cash used in investing activities 70,224 (723,176)
________ ________
Cash flows from financing activities:
Issuance of common stock 965 913,797
Proceeds of note payable - related party 170,000 0
Repayment of note payable -related party 191,964 (70,754)
Repayment of Debenture payable (162,000) 0
________ ________
Net cash provided by financing activities 200,929 843,043
________ ________
Net increase (decrease)in cash (36,467) 19,218
Cash and cash equivalents - Beginning 38,242 13,000
________ ________
Cash and cash equivalents - Ending $ 1,775 $ 32,218
________ ________
See accompanying notes to financial statements
EMPIRE PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION:
The accompanying unaudited financial statements of Empire Petroleum
Corporation (Empire, or the Company) have been prepared in accordance
with generally accepted accounting principles for interim financial
information and the instructions to Form 10-QSB. Accordingly, they
do not include all of the information and footnotes required by
generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments (consisting
of only normal recurring accruals) considered necessary for a fair
presentation of the Company's financial position, the results of
operations, and the cash flows for the interim period are included.
Operating results for the interim period are not necessarily indicative
of the results that may be expected for the year ending December 31, 2002.
On July 20, 2001, the Board of Directors approved the merger of Americomm
Resources Corporation with its wholly owned subsidiary Empire Petroleum
Corporation and the simultaneous change in the name of the corporation
to Empire Petroleum Corporation. Both the merger and name change were
effective August 15, 2001.
The information contained in this Form 10-QSB should be read in
conjunction with audited financial statements and related notes for
the year ended December 31, 2001 which are contained in the Company's
Annual Report on Form 10-KSB filed with the Securities and Exchange
Commission (the SEC) on April 10, 2002.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Oil and gas properties - The Company uses the successful efforts method
of accounting for its oil and gas activities. Costs incurred are deferred
until exploration and completion results are evaluated. At such time,
costs of activities with economically recoverable reserves are capitalized
as proven properties, and costs of unsuccessful or uneconomical development
work are expensed.
Cash and cash equivalents - The Company defines cash and cash equivalents
to be cash on hand, cash in checking accounts, certificates of deposit,
cash in money market accounts and certain investments with maturities of
three months or less from the date of purchase.
3. NOTES PAYABLE
On June 4, 2001, the Company received proceeds from three notes payable
in the total amount of $182,000, including (1) a $50,000 note payable to
Lacy E. Whitehead, the wife of the Company's Chairman of the Board and
Chief Executive Officer, (2) a $66,000 note payable to Wells Gray
Resort and Resources Ltd., which is owned by Thomas J. Jacobsen, who
was the Company's Chief Executive Officer at the time the Company entered
into such note, and (3) a $66,000 note payable to Quinn Management Ltd.
These notes are unsecured and bear interest at 12% per year, with interest
payable monthly. They became due and payable by the Company on June 4, 2002,
including a 3% premium on the principal amounts due. As of June 30, 2002,
the $66,000 note payable to Wells Gray Resort and Resources Ltd. plus
accrued interest and premium was converted into 382,896 shares of the
Company's Common Stock at $0.20 per share. As of September 30, 2002, the
note payable to Lacy Whitehead was in default, and the $66,000 note payable
to Quinn Management Ltd. plus accrued interest and premium was converted
into 356,482 shares of the Company's Common Stock at $0.20 per share.
On August 23, 2001, the Company received proceeds of a long-term note
Payable to 825804 Alberta Ltd. in the amount of $30,000. The note is
unsecured and bears interest at 1% per month and is convertible, at
the note holder's option, into a .5% working interest in the Timber Draw
project. On June 27, 2002, this note plus accrued interest was converted
into 163,853 of the Company's Common Stock at $0.20 per share.
During the three months ended June 30, 2002 two accounts payable in a
total amount of $12,283.07 were converted into 61,416 of the Company's
Common Stock at $0.20 per share.
On March 15, 2002, the Company borrowed $170,000 from Albert E. Whitehead
Living Trust, of which the Company's Chairman of the Board and Chief
Executive Officer is Trustee, pursuant to a convertible promissory note
due March 15, 2003 earning interest at the rate of 10% per annum, and
convertible into shares of the Company's Common Stock at a price of
$0.2100 per share, which represented the market price of the Company's
Common Stock on such date.
In April 2002, the Company entered into an "Agreed Order of Payment"
with Baker Hughes, Inc., to satisfy an outstanding indebtedness for
service in the drilling of the Timber Draw #1-AH well. The amount
of this payment is for the principal amount of $98,984.79, accrued
interest at the rate of 18% per annum from January 17, 2001 to
January 29, 2002, interest accruing from and after January 29,
2002, at the rate of 7.48% per annum until paid, costs in the
amount of $96.00, and attorney's fees in the amount of $2,750.00.
In connection with the Agreed Order of Payment, the Company
paid an initial installment of $40,000.00 to Baker Hughes on
April 15, 2002, has paid monthly installments of approximately
$10,000.00 through August 31, 2002, and made the last payment on
the principal outstanding on September 30, 2002. Subsequent to the
quarter ended September 30, 2002, the Company made a payment to Baker
Hughes totaling approximately $22,000 in final settlement of the interest
due.
In December 2001, the Company executed a note with Weatherford
U.S., L.P. to satisfy an outstanding indebtedness for service in
the drilling of the Timber Draw #1-AH well. The principal amount
of this note is $108,334.22 with interest payments at 10% per annum
commencing on May 27, 2001, until all interest and principal amounts
are paid in full. Timely payments were made in accordance with
the terms of this note through March 2002. In April 2002, the "payee"
of this note agreed to a revised payment schedule extending final payment
of $66,997.00 from April 10, 2002, until June 10, 2002. In connection
with this payment schedule, an initial payment of $10,000 was made in
April 2002, however, since that time, no further payments have been made.
4. INCOME TAXES
As of March 31, 2002, the Company has tax net operating loss carry forwards
totaling approximately $1,754,000. If not used, these carry forwards will
expire in the years 2002 to 2021.
5. EMPIRE PETROLEUM CORPORATION ACQUISITION
On May 29, 2001, the Company acquired Empire Petroleum Corporation, a private
company that owned a 25% interest in the Cheyenne River Prospect, increasing
the Company's working interest in the Cheyenne River Wyoming Prospect to 75%.
The acquisition of Empire was accomplished by the issue of 7,492,351 Common
shares or 30.6% of the total 24,476,925 shares then outstanding on a fully
diluted basis. The Company's shares issued were valued at $0.55 each for
this transaction. The acquisition was accounted for as follows:
USD$
Value of shares issued 4,120,793
Current assets 347,762
Investments 206,250
Current Liabilities (607,182)
Deferred Taxes (1,250,000)
Petroleum and natural gas properties 5,423,963
__________
4,120,793
On July 20, 2001, the Board of Directors approved the merger of the
Company with its now wholly owned subsidiary Empire Petroleum
Corporation and the simultaneous change in the name to Empire
Petroleum Corporation. Both the merger and name change were
effective August 15, 2001.
Item 2. PLAN OF OPERATION
All statements, other than statements of historical fact contained in
this report are forward-looking statements. Forward-looking statements
generally are accompanied by words such as anticipate, believe,
estimate, expect, may, might, potential, project or similar statements.
Although the Company believes that the expectations reflected in such
forward-looking statements are reasonable, no assurance can be given that
such expectations will prove correct. Factors that could cause the
Company's results to differ materially from the results discussed in
such forward-looking statements include the need for additional capital,
the costs expected to be incurred in the exploration and development of
the Company's properties, unforeseen engineering, mechanical or
technological difficulties in drilling wells, uncertainty of exploration
results, operating hazards, competition from other natural resource
companies, the fluctuations of prices for oil and gas, the effects of
governmental and environmental regulation, general economic conditions
and other risks described in the Company's filings with the Securities
and Exchange Commission. Accordingly, the actual results of the Company's
operations in the future may vary widely from the forward-looking
statements included herein, and all forward-looking statements in
this report are expressly qualified in their entirety by the cautionary
statements in this paragraph.
Empire has no income producing oil and gas properties at June 30, 2002.
To date, the Company's operations have been primarily financed through
sales of its Common Stock and loans from related parties.
However, an oil and gas test well was drilled in January 2001 on the
Cheyenne River Prospect. The test well encountered flows of oil and
natural gas during the drilling period and was subsequently completed
as an oil well as described below.
Pursuant to the Farmout Agreement, drilling of the Timber Draw #1-AH
test well commenced during December 2000 within the 25,000 acre
Timber Draw Federal Drilling Unit included in the Cheyenne River
Development Project. Drilling of the Timber Draw 1-AH test well
was completed at a total measured depth of 10,578 feet of which
the last 2,030 feet was drilled horizontally through the Newcastle
"B" formation (the "Muddy"). During horizontal drilling, flows of
oil and gas were encountered. During the period from February 13,
to June 22, 2001, the Company conducted a series of production
methods on its Timber Draw Unit #1-AH oil and gas discovery. During
the test period, the well flowed 8,139 barrels of 44 degree light
gravity sweet crude and 29,072,000 cubic feet of natural gas with
a BTU content of 1,493 and rich in natural gas liquids. Consulting
engineers have calculated natural gas liquids of approximately 70
barrels per day based on estimated gas production of 500,000 cubic
feet per day. Due to the lack of a nearby pipeline connection, the
well was shut-in on June 22, 2001 to conserve the natural gas, which
was flared during the test period. A bottom hole pressure survey
conducted in April 2002 indicated a limited reservoir for this well.
Once the well is placed on production for a prolonged period of
time, a more definitive calculation of reserves can be made.
As of September 30, 2002, Empire had $1,775 of cash on hand. Empire
expects that its cash on hand will not be sufficient to fund its
operations for the next 3 months. Empire's material commitments
consist of, among other things, annual lease payments on the Cheyenne
River Development Project of approximately $117,369, of which $96,414
were paid in March 2002, with $70,000 of this amount paid by the
Company and the balance of $26,414 paid by the parties to the Farmout
Agreement in the Cheyenne River Development Project. In addition,
although the Company has closed its Calgary, Alberta Canada office, it
still has a lease obligation for office space there under an operating
lease agreement with an unrelated party that will expire in 2006. This
lease calls for monthly lease and tax payments of approximately $4,400
(U.S.). The Company has negotiated a commitment from a Calgary company
to assume the obligations of this lease after the June 2002 payment by
Empire, however, no contract had been signed as of September 30, 2002.
The Company has also engaged a commercial real estate company to work on
sub-leasing this space. In Tulsa, Oklahoma, the Company leases office
space under an operating lease agreement with an unrelated party which
will expire in 2003. The lease calls for monthly lease payments of
$3,893 for the years 2002 and 2003. The Company currently sublets
part of its office space on a month-to-month basis for approximately
$1,000 per month. In addition, the Company current obligations
include: (1) a $50,000 note payable to Lacy E. Whitehead, the wife
of the Company's Chairman of the Board and Chief Executive Officer,
under which the Company is currently in default, (2) final interest
payment to Baker Hughes of approximately $22,000.00, and (3)
approximately $56,997.00 payable to Weatherford U.S., L.P. plus
accrued interest. Mr. Whitehead and Mr. Bradley serve as executive
officers of the Company without compensation.
As of September 30, 2002, the Albert E. Whitehead Living Trust
of which the Company's Chairman of the Board and Chief Executive Officer,
Mr. Whitehead, is the trustee, had advanced the Company $192,670.08
with which to pay its operating expenses and certain notes and accounts
payable. The Company believes it is the intention of the Whitehead Trust
to continue funding the Company's basic expenses through December 31,
2002, or until such time as the Company secures other sources of financing
or sells an interest in its Wyoming project. However, there can be no
assurance the Whitehead Trust will continue to fund such expenses.
Through the period ended September 30, 2002, the Company has been actively
engaged in seeking viable sources of financing to support continued
operations and to continue its drilling plan. The Company anticipated
drilling additional wells prior to the quarter ended June 30, 2002.
However, due to poor financial market conditions, it has been unable to
raise the funds necessary to conduct its drilling program. The Company
now has elected to make an effort to finance or sell up to a net 50%
working interest in the 82,522 acres under lease in the Cheyenne River
Development Project together with 50% of its interest in the Timber
Draw #1-AH discovery well. Upon concluding a financing or sale, steps
will be taken to conduct a sixteen square mile seismic survey surrounding
the discovery well and determine from this study the feasibility of
drilling additional well(s).
The Bureau of Land Management ("BLM") has advised the Company that it
does not consider the Timber Draw Unit #1-AH economic. In other
words, that under the BLM's criteria for economic determination, the
well will not pay out the cost incurred to drill and complete the well.
The BLM also advised the Company that since it did not commence another
test well prior to August 12, 2002, the Timber Draw Unit had been
terminated. The Company intends to proceed with a 3-D seismic program
if and when the Company is able to raise the funds necessary for such
seismic program. Subject to favorable results of the 3-D seismic program
and the Company's ability to raise additional funding, the Company
anticipates additional drilling might occur in 2003. It is likely
the Company would make application for a new federal drilling unit
before drilling a new well. The Company does not plan to connect the
#1-AH well to a pipeline until such time as additional well or wells
economically justify a pipeline connection.
Empire now owns a fifty (50%) percent working interest in the Timber
Draw #1-AH discovery well, which is convertible to a seventy-five
(75%) percent working interest after its partners recover their
drilling and completion costs. Empire reserves an overriding royalty
interest of seven (7%) percent proportionally reduced until our
partners cost recovery. It was determined that approximately 18,000
acres of property located in the western portion of the Cheyenne River
Development Project were surplus to the Company's needs. These acres were
released through non-payment of lease rentals in April of 2002. Following
the release of the surplus property, the lease block for the Cheyenne River
Development Project constitutes approximately 82,522 acres.
As a result of the Farmout Agreement, Empire now has a seventy-five (75%)
percent interest in approximately 60,000 acres of the Cheyenne River
Development Project. The Farmout Agreement also provides that the
partners can obtain a 25% interest in the remaining 22,522 acres,
providing that they participate proportionally in the drilling of a test
well on the property. The Company currently owns a 100% interest in
22,522 acres.
Empire employs one secretary in its Tulsa office and does not at this
time expect any significant change in the number of its employees
during the next twelve months. If Empire is successful in raising
additional capital, it will employ part-time or temporary persons
and consultants in situations where special expertise is required.
PART II. OTHER INFORMATION
Item 2. Changes in Securities
During the three-month period ended September 30, 2002, the Company
issued the following number of shares of its Common Stock without
registering such Common Stock under the Securities Act of 1933 to the
each of the following party as consideration for the cancellation
of the debt set forth opposite of such party's name:
Name Number of Date Consideration
Shares
Quinn Management Ltd. 356,482 9-00-02 Payment in full of an
unsecured note payable,
including interest, in
the amount of $71,296.38
The Company relied on the exemption set forth in Section 4(2) of the
Securities Act of 1933, as amended, in connection with the issuances
of the securities described above. The party involved in the issuances
of these securities is a sophisticated entity, and there were no
underwriting or other commissions paid to any party upon the issuance
of such securities.
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
99.1 Certification Pursuant to 18 U.S.C. Section 1350
as adopted pursuant to Section 906 of the Sarbanes-
Oxley Act of 2002
EMPIRE PETROLEUM CORPORATION
SIGNATURES
In accordance with the requirements of the Securities Exchange Act
of 1934, the Registrant caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
EMPIRE PETROLEUM CORPORATION
Date: November 12, 2002 By: /s/ Albert E. Whitehead
Albert E. Whitehead
Chairman/CEO
EXHIBIT INDEX
NO. DESCRIPTION
99.1 Certification Pursuant to 18 U.S.C. Section 1350
as adopted pursuant to Section 906 of the Sarbanes-
Oxley Act of 2002
EXHIBIT 99.1
Exhibit 99.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Empire Petroleum Corporation
(the "Company") on Form 10-QSB for the period ending September 30, 2002 as
filed with the Securities and Exchange Commission on the date hereof (the
"Report"), I, Albert E. Whitehead, Chief Executive Officer and principal
financial officer of the Company, certify, pursuant to 18 U.S.C. # 1350,
as adopted pursuant to # 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material
respects, the financial condition and result of operations of the Company.
/s/ Albert E. Whitehead
Albert E. Whitehead
Chief Executive Officer and
principal financial officer
November 12, 2002
2