UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
(Mark One)
[X] Quarterly Report Under Section 13 OR 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended March 31, 2006
[ ] Transition Report Under Section 13 or 15(d) of the Exchange Act
For the transition period from _______________to________________
Commission file number 001-16653
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.)
8801 S. Yale, Suite 120, Tulsa, Oklahoma 74137-3575
(Address of principal executive offices)
(918) 488-8068
(Issuer's telephone number)
(Former name, former address and former fiscal year, if changed since last
report)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
[X] Yes [ ] No
Indicate by check mark whether the registrant is a shell company (as defined
in Rule 12b-2 of the Exchange Act).
[ ] Yes [X] No
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 - 42,830,190 shares outstanding as of
March 31, 2006.
Transitional Small Business Disclosure Format: [ ] Yes [X] No
EMPIRE PETROLEUM CORPORATION
INDEX TO FORM 10-QSB
Part I. FINANCIAL INFORMATION Page
Item 1. Financial Statements
Balance Sheet at March 31, 2006 (Unaudited) 1
Statements of Operations for the three months
ended March 31, 2006 and 2005 (Unaudited) 2
Statements of Cash Flows for the three months ended
March 31, 2006 and 2005 (Unaudited) 3
Notes to Financial Statements 4-7
Item 2. Management's Discussion and Analysis 7-8
Item 3. Controls and Procedures 9
Part II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 9
Signatures 9
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
EMPIRE PETROLEUM CORPORATION
BALANCE SHEET
March 31
2006
ASSETS (Unaudited)
___________
Current assets:
Cash $ 233,043
Accounts receivable (net of allowance of $3,750) 64,974
___________
Total current assets 298,017
Property & equipment, net of accumulated
depreciation and depletion 338,602
___________
Total Assets $ 636,619
___________
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued
liabilities $ 146,859
Accounts payable to related party 274,682
Note payable 100,946
___________
Total current liabilities 522,487
___________
Total liabilities 522,487
___________
Stockholders' equity:
Common stock at par value 42,830
Warrants to purchase common stock 67,875
Additional paid in capital 8,907,760
Accumulated deficit (8,904,333)
___________
Total stockholders' equity 114,132
___________
Total liabilities and stockholders' equity $ 636,619
___________
See accompanying notes to financial statements.
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EMPIRE PETROLEUM CORPORATION
STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended
March 31,
____________________________
2006 2005
_____________ _____________
Revenue:
Petroleum sales $ 1,646 $ 1,180
_____________ _____________
1,646 1,180
_____________ _____________
Costs and expenses:
Production & operating 59,416 23,888
General & administrative 65,892 43,504
____________ _____________
125,308 67,392
____________ _____________
Operating loss (123,662) (66,212)
____________ _____________
Other (income) and expense:
Miscellaneous 0 (2,269)
Interest expense 1,725 1,725
____________ _____________
Total other (income) expense 1,725 (544)
____________ _____________
Net loss $ (125,387) $ (65,668)
____________ _____________
Net loss
per common share $ .00 $ .00
____________ _____________
Weighted average number of
common shares
outstanding 42,830,190 37,830,190
____________ _____________
See accompanying notes to financial statements.
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EMPIRE PETROLEUM CORPORATION
STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months Ended
March 31, March 31,
2006 2005
_________ _________
Cash flows from operating activities:
Net loss $(125,387) $ (65,668)
Adjustments to reconcile net income (loss)
to net cash used in operating activities:
Value of services contributed by employees 12,500 12,500
(Increase) decrease in assets:
Accounts receivable (26,122) 7,042
Increase (decrease) in liabilities:
Accounts payable and accrued expenses 2,760 8,663
________ ________
Net cash used in operating activities (136,249) (37,463)
________ ________
Cash flows from financing activities:
Advances from related party 0 35,009
________ ________
Net cash provided by financing activities 0 35,009
________ ________
Net decrease in cash (136,249) (2,454)
Cash - Beginning 369,292 3,406
________ ________
Cash -Ending $233,043 $ 952
________ ________
See accompanying notes to financial statements.
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EMPIRE PETROLEUM CORPORATION
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2006
(UNAUDITED)
1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES:
The accompanying unaudited financial statements of Empire Petroleum
Corporation (Empire, or the Company) have been prepared in accordance
with United States 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
United States generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments
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. See Note 4 for a description of non-recurring
adjustments. Operating results for the interim period are not necessarily
indicative of the results that may be expected for the year ending
December 31, 2006.
The information contained in this Form 10-QSB should be read in
conjunction with the audited financial statements and related notes for
the year ended December 31, 2005 which are contained in the Company's
Annual Report on Form 10-KSB filed with the Securities and Exchange
Commission (the SEC) on March 31, 2006.
The Company has been incurring significant losses in recent years.
The continuation of the Company as a going concern is dependent upon the
ability of the Company to attain future profitable operations. These
financial statements have been prepared on the basis of United States
generally accepted accounting principles applicable to a company with
continuing operations, which assume that the Company will continue in
operation for the foreseeable future and will be able to realize its assets
and discharge its obligations in the normal course of operations. Management
believes the going concern assumption to be appropriate for these financial
statements. If the going concern assumption were not appropriate for these
financial statements, then adjustments might be necessary to adjust the
carrying value of assets and liabilities and reported expenses.
The Company continues to explore and develop its oil and gas interests.
The ultimate recoverability of the Company's investment in its oil and gas
interests is dependent upon the existence and discovery of economically
recoverable oil and gas reserves, confirmation of the Company's interest in
the oil and gas interests, the ability of the Company to obtain necessary
financing to further develop the interests, and upon the ability to attain
future profitable production.
In 2003, the Company engaged a partner to explore its Cheyenne
River Prospect, and signed an agreement to acquire a 10% interest in a block
of acreage in the Gabbs Valley Prospect of western Nevada. In June 2005,
the Company completed a private placement of 5,000,000 shares of its common
stock along with warrants to purchase 1,250,000 shares of its Common Stock for
an aggregate purchase price of $500,000. Subject to certain restrictions, the
warrants may be exercised until November 2006 at an exercise price of
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$0.25 per share. Proceeds of the private placement were allocated $67,875 to
common stock warrants and $432,125 to common stock and paid-in capital. These
funds will be used for general corporate purposes and to pay the Company's
share of the costs associated with its 10% interest in the Gabbs Valley Oil
Prospect in Nevada. The Company believes that its available cash as of March
31, 2006 will be sufficient to finance its operations through the next eight
months. In order to sustain the Company's operations on a long term basis,
the Company intends to continue to look for merger opportunities and consider
public or private financings. The Company anticipates that its Chief
Financial Officer will advance the Company the funds necessary to continue
its operations through the next twelve months, if necessary. However, there
is no assurance that he will do so.
Compensation of Officers and Employees
The Company's only executive officer serves without pay or other compensation.
The fair value of these services is estimated by management and is recognized
as a capital contribution. For the three months ended March 31, 2006, the
Company recorded $12,500 as a capital contribution by its executive officer.
2. NOTES PAYABLE:
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 was $108,334 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 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.
At March 31, 2006, the Company has accrued a liability of $100,946
in connection with this note.
3. PROPERTY AND EQUIPMENT:
The Company owns a 26.785% working interest in approximately 33,485 acres of
oil and gas leases located in Niobrara County, Wyoming (the "Cheyenne River
Prospect") and an overriding royalty interest of between 1.5% and 2% in 42,237
acres of oil and gas leases located in or near the Cheyenne River Prospect.
In 2002, the Company's management determined that an impairment allowance
Of $6,496,614 was necessary to properly value the Company's oil and gas
properties bringing the net book value of the oil and gas properties to
$594,915. The basis for the impairment was the determination by the United
States Bureau of Land Management ("BLM") that it does not consider the
Timber Draw #1-AH well economic. In other words, under the BLM's criteria
for economic determination, the well will not pay out the cost incurred to
drill and complete the well. However, by authority of the BLM, for the
period from April to November 2003, the well was tested for production
using production periods of ten days per month. 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. Futhermore, a bottom hole
pressure survey conducted in April 2002 indicated a limited reservoir for
the well. The basis of the impairment described above was calculated using
an estimated $10 per acre market price for the leases multiplied by the
Company's working interest. During 2003, the Company recorded impairment
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charges of $266,778 based on working interest percentages granted to a third
party for performance of certain activities and management's assessment of
certain undeveloped lease values. During 2004, pursuant to a Farmout
Agreement, a third party conducted a seismic survey and drilled a test well
in the Cheyenne River Prospect. As a result of the reduction in the Company's
working interest, a further impairment charge of $188,507 was recorded in
2005.
On March 31, 2004, a third party paid approximately $52,128 of the Company's
lease rentals on 32,643 acres in the Cheyenne River Prospect in exchange for an
option to drill a test well in order to earn an interest in the farmout block,
which option was subject to the third party first completing a seismic survey
covering 16 square miles in the Cheyenne River Prospect. This survey was
completed in September of 2003. The processing and interpreting of the data
from such survey was completed September 30, 2003, and earned the third party
a 25% interest in the Timber Draw #1-AH well and prospect acreage. This third
party commenced a test well in the NW/4NE/4 Section 15, Twp 39N, Rge 66W,
Niobrara County, Wyoming, known as the Empire Hooligan Draw Unit #1-AH, on
August 6, 2004. The well was drilled horizontally to a measured drilling depth
of 9,332 feet. As a result of this earning well being drilled the Company's
working interest in the Hooligan Draw #1-AH well and prospect acreage was
reduced to 26.785% and to 17.5% of the Timber Draw #1-AH well. The Company,
and the operator of the wells are considering options to increase production
for the Cheyenne River Prospect wells. Additionally, the Company has also
begun exploring opportunities to sell its interest in the Cheyenne River
Prospect.
On May 8, 2003, the Company entered into an agreement with O.F. Duffield
(Duffield Agreement) to acquire a ten percent (10%) interest in a
block of acreage in the Gabbs Valley Prospect by agreeing to issue
2,000,000 shares of the Company's Common Stock to Mr. Duffield for such 10%
interest. The shares were issued in July 2003. This block of acreage in
the Gabbs Valley Prospect consists of federal leases covering approximately
45,000 acres in Nye and Mineral Counties, Nevada in which Mr. Duffield has
a 100% working interest. Pursuant to the Duffield Agreement, the Company
is also entitled to acquire up to a 10% interest in a block of 26,080 acres
also located in the Gabbs Valley Prospect should Duffield acquire an
interest in this block. The shares were valued at $.10 per share based on
the closing price of the Company's common stock on the date of issuance.
During September 2005, surveyors laid out a 19.5 mile seismic program on the
Gabbs Valley Prospect, and a seismic survey was commenced in early October.
Field work was carried out and final interpretation of the data was completed
in November 2005. Based on the results, the Company is prepared to join in
the drilling of a test well in the second or third quarter of 2006.
PetroWorld Nevada Corp. (PWC) is a participant in the Gabbs Valley
Prospect with a seismic option to earn a 50% interest from Cortez
Exploration, Inc. The Company's Chief Executive Officer is a member of
the Board of Directors of both PWC and its parent company PetroWorld
Corporation and owns approximately nine (9%) percent of the parent
Company which is traded on the AIM Exchange in London and the Toronto
Venture Exchange in Toronto. Accounts receivable from PWC totals
$28,304 at March 31, 2006.
4. CONTINGENCIES
The Company's former management (Messrs. McGrain and Jacobsen) entered
into a lease agreement for office space in Canada. This office was closed
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after Messrs. McGrain and Jacobsen resigned as officers of the Company.
This lease agreement called for monthly lease and tax payments of
approximately $6,834 (Canadian) through April of 2006. A subtenant
continued to pay the rentals under the lease until December 2002 and
moved out of the office space in January 2003. The Company accrued
obligations under the lease from April 2002 through the first quarter
of 2005. During the second quarter of 2005, the Company determined that
the statute of limitations had expired with respect to its obligation under
the lease. Accordingly, the Company reversed expenses of $222,561 (U.S.)
including foreign exchange losses accrued in connection with the lease.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
GENERAL TO ALL PERIODS
The Company's primary business is the exploration and development of oil and
gas interests. The Company has incurred significant losses from operations,
and there is no assurance that it will achieve profitability or obtain funds
necessary to finance its operations. Sales revenue for all periods presented
is attributable to the production of oil from the Company's Timber Draw #1-AH
and the Hooligan Draw #1-AH wells located in the Eastern Powder River Basin
in the State of Wyoming, otherwise known as the Cheyenne River Prospect.
For all periods presented, the Company's effective tax rate is 0%. The
Company has generated net operating losses since inception, which would
normally reflect a tax benefit in the statement of operations and a deferred
asset on the balance sheet. However, because of the current uncertainty as
to the Company's ability to achieve profitability, a valuation reserve has
been established that offsets the amount of any tax benefit available
for each period presented in the statements of operations.
THREE MONTH PERIOD ENDED MARCH 31, 2006, COMPARED TO THREE MONTH PERIOD
ENDED MARCH 31, 2005.
For the three months ended March 31, 2006, sales revenue increased
$466 to $1,646, compared to $1,180 for the same period during 2005.
Revenue was consistant with the prior year.
Production and operating expenses increased $35,528 to $59,416 for the three
months ended March 31, 2006, from $23,888 for the same period in 2005.
The increase was primarily attributable to the site preparation being
conducted on the Company's Gabbs Valley Prospect.
General and administrative expenses increased by $22,388 to $65,892 for
the three months ended March 31, 2006, from $43,504 for the same period in
2005. The increase is attributable to an increase in professional fees
partially offset by a decrease in rent expense.
There was no depreciation or depletion expense attributable to the three
months ended March 31, 2006 and 2005, because the depreciable assets were
fully depreciated.
For the three months ended March 31, 2006, interest expense remained at
$1,725 which is the same as for the three months ended March 31, 2005.
The Company accrued interest on the Weatherford note in both periods.
For the reasons discussed above, net loss increased $59,719 from $(65,668)
for the three months ended March 31, 2005, to $(125,387) for the three
months ended March 31, 2006.
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LIQUIDITY AND CAPITAL RESOURCES
GENERAL
As of March 31, 2006, the Company had $233,043 of cash on hand. In June
2005, the Company completed a private placement of 5,000,000 shares along
with warrants to purchase 1,250,000 shares of its Common Stock for an
aggregate purchase price of $500,000. For more information regarding this
private placement, see the Company's current report on Form 8-K, which was
filed with the SEC on June 9, 2005. The cash from this funding enabled
the Company to pay its share of a seismic survey on its Gabbs Valley Prospect,
Nevada, which was approximately $35,000 and will enable the Company to fund
its share of a well to be drilled on the Nevada Prospect which is estimated to
be $150,000. After such payment, the Company believes it will have sufficient
funds to pay its normal operational costs of approximately $10,000 per month
for the next 12 months. In order to sustain the Company's operations on a long
term basis, the Company intends to continue to look for merger opportunities
and consider public or private financings. The Company anticipates that its
Chief Financial Officer will advance the Company the funds necessary to
continue its operations through the next twelve months, if necessary.
However, there is no assurance that he will do so.
ADVANCES FROM RELATED PARTY
Through March 31, 2005, the Company financed its operations primarily through
advances made to the Company by the Albert E. Whitehead Living Trust, of which
the Company's Chairman of the Board and Chief Executive Officer, Mr. Whitehead,
is the trustee. At March 31, 2006 the Company is indebted to the Albert E.
Whitehead Living Trust in the amount of $274,682.
MATERIAL RISKS
The Company has incurred significant losses from operations and there is no
assurance that it will achieve profitability or obtain funds necessary to
finance continued operations. For other material risks, see the Company's
form 10-KSB for the period ended December 31, 2005, which was filed March 31,
2006.
FORWARD-LOOKING INFORMATION
This quarterly report on Form 10-QSB, including this section, includes certain
statements that may be deemed "forward-looking statements" within the meaning
of federal securities laws. All statements, other than statements of historical
facts, that address activities, events or developments that the Company
expects, believes or anticipates will or may occur in the future,
including future sources of financing and other possible business
developments, are forward-looking statements. Such statements are subject
to a number of assumptions, risks and uncertainties and could be affected by
a number of different factors, including the Company's failure to secure short
and long term financing necessary to sustain and grow its operations, increased
competition, changes in the markets in which the Company participates and the
technology utilized by the Company and new legislation regarding environmental
matters. These risks and other risks that could affect the Company's business
are more fully described in reports it files with the Securities and Exchange
Commission, including its Form 10-KSB for the fiscal year ended December 31,
2005. Actual results may vary materially from the forward-looking statements.
The Company undertakes no duty to update any of the forward-looking statements
in this Form 10-QSB.
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Item 3. CONTROLS AND PROCEDURES
As of the end of the period covered by this report, the Company carried
out an evaluation under the supervision of the Company's Chief
Executive Officer (and principal financial officer) of the
effectiveness of the design and operation of the Company's disclosure
controls and procedures pursuant to Securities Exchange Act Rules 13a-
15(e) and 15d-15(e). Based on this evaluation, the Company's Chief
Executive Officer (and principal financial officer) has concluded that
the disclosure controls and procedures as of the end of the period
covered by this report are effective. During the period covered by
this report, there was no change in the Company's internal controls
over financial reporting that has materially affected or that is
reasonably likely to materially affect the Company's internal control
over financial reporting.
PART II. OTHER INFORMATION
Item 6. Exhibits
a) Exhibits
31 Certification of Chief Executive Officer (and principal
financial officer) pursuant to Rules 13a-14(a) and 15d-14(a)
promulgated under the Securities Exchange Act of 1934, as
amended, and Item 601(b)(31) of Regulation S-B, as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
(submitted herewith).
32 Certification of Chief Executive Officer (and principal
financial officer) pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002 (submitted herewith).
EMPIRE PETROLEUM CORPORATION
SIGNATURES
In accordance with the requirements of the Exchange Act, the small
business issuer caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
EMPIRE PETROLEUM CORPORATION
Date: May 12, 2006 By: /s/ Albert E. Whitehead
___________________
Albert E. Whitehead
Chairman/CEO
EXHIBIT INDEX
NO. DESCRIPTION
31 Certification of Chief Executive Officer (and principal
financial officer) pursuant to Rules 13a-14(a) and 15d-14(a)
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promulgated under the Securities Exchange Act of 1934, as
amended, and Item 601(b)(31) of Regulation S-B, as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
(submitted herewith).
32 Certification of Chief Executive Officer (and principal
financial officer) pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002 (submitted herewith).
EXHIBIT 31
CERTIFICATION
I, Albert E. Whitehead, Chief Executive Officer (and principal financial
Officer) of Empire Petroleum Corporation, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Empire
Petroleum Corporation;
2. Based on my knowledge, this report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under
which such statements were made, not misleading with respect to the period
covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the small business issuer as of, and for, the periods
presented in this report;
4. The small business issuer's other certifying officer(s) and
I are responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e))
for the small business issuer and have;
(a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
small business issuer, including its consolidated subsidiaries, is
made known to us by others within those entities, particularly
during the period in which this report is being prepared;
(b) Evaluated the effectiveness of the small business
issuer's disclosure controls and procedures and presented in this
report our conclusions about the effectiveness of the controls
and procedures, as of the end of the period covered by this report
based on such evaluation; and
(c) Disclosed in this report any change in the small business
issuer's internal control over financial reporting that
occurred during the small business issuer's most recent
fiscal quarter that has materially affected, or is reasonably likely
to materially affect, the small business issuer's
internal control over financial reporting; and
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5. The small business issuer's other certifying officer(s) and I have
disclosed, based on our most recent evaluation of internal control over
financial reporting, to the small business issuer's auditors
and the audit committee of small business issuer's board of
directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design
or operation of internal control over financial reporting which are
reasonably likely to adversely affect the small business
issuer's ability to record, process, summarize and report financial
information; and
(b) Any fraud, whether or not material, that involves management
or other employees who have a significant role in the
small business issuer's internal control over financial
reporting.
May 12, 2006 /s/ Albert E. Whitehead
Albert E. Whitehead,
Chief Executive Officer and
Principal Financial Officer
EXHIBIT 32
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 March 31, 2006 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.
Section 1350, as adopted pursuant to Section 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 results of operations of the
Company.
May 12, 2006 /s/ Albert E. Whitehead
Albert E. Whitehead
Chief Executive Officer and
Principal Financial Officer
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