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, 2001
[] 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 | 95-4833049 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
610, 715 – 5th AVENUE, S.W., Calgary, Alberta, Canada | T2P 2X6 | |
(Address of principal executive offices) | (Zip Code) | |
(Issuer's telephone number) | (403) 262-1118 |
Americomm Resources Corporation
(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 – 23,495,259 shares outstanding as of September 30, 2001.
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 September 30, 2001 (Unaudited) | 3 |
Statements of Operations for the three months ended September 30, 2001 and 2000, and the nine months ended September 30, 2001 and 2000 (Unaudited) | 4 |
Statements of Cash Flows for the nine months ended September 30, 2001 and 2000 (Unaudited) | 5 |
Notes to Financial Statements | 6 |
Part II. OTHER INFORMATION | |
Item 2. Changes in Securities Item 5. Other information | 9 10 |
Item 6. Exhibits and Reports on Form 8-K | 10 |
Signatures | 10 |
Item 1. FINANCIAL STATEMENTS
EMPIRE PETROLEUM CORPORATION
BALANCE SHEET
ASSETS | September 30, 2001 | December 31, 2000 | |
Current assets: | (Unaudited) | ||
Cash and cash equivalents | $ 32,218 | $ 13,000 | |
Accounts receivable Prepaid expenses | 157,249 2,783 | 35,604 3,569 | |
Total current assets | 192,250 | 52,173 | |
Investment in prospects | - | 881,407 | |
Property & equipment net of accumulated depreciation and depletion | 7,036,854 | 9,358 | |
$ 7,229,104 | $ 942,938 | ||
LIABILITIES AND STOCKHOLDERS' EQUITY | |||
Current liabilities: | |||
Accounts payable and accrued liabilities Notes payable (Note 3) | $ 273,534 116,000 | $ 95,030 - | |
Notes payable to affiliate (Note 3) | 66,000 | 282,754 | |
Total current liabilities | 455,534 | 377,784 | |
Long-term note payable (Note 3) | 30,000 | - | |
Deferred taxes | 1,250,000 | - | |
Total liabilities | 1,735,534 | 377,784 | |
Stockholders' equity: | |||
Common stock at par value | 23,495 | 14,880 | |
Additional paid in capital Accumulated deficit | 7,444,673 (1,974,598) | 2,365,528 (1,815,254) | |
Total stockholders' equity | 5,493,570 | 565,154 | |
$ 7,229,104 | $ 942,938 | ||
See accompanying notes to financial statements.
EMPIRE PETROLEUM CORPORATION
STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||
2001 | 2000 | 2001 | 2000 | ||||
Revenue: Revenues, net | $ - | $ - | $ 12,410 | $ - | |||
Less royalty expense | - | - | (2,482) | - | |||
- | - | 9,928 | - | ||||
Costs and expenses: | |||||||
Operating expenses | 7,446 | - | 17,600 | - | |||
General and administrative | 77,952 | 26,295 | 150,067 | 108,369 | |||
Depletion and amortization | - | - | 1,050 | 2,043 | |||
85,398 | 26,295 | 168,717 | 110,412 | ||||
Operating loss | 85,398 | 26,295 | 158,789 | 110,412 | |||
Other income and expense: | |||||||
Interest income | - | (1,029) | (6,918) | (2,841) | |||
Interest expense | 5,918 | - | 7,473 | - | |||
Total other income and expense | 5,918 | (1,029) | 555 | (2,841) | |||
Net loss | $ (91,316) | $ (25,266) | $ (159,344) | $(107,571) | |||
Net loss per common share | $ 0.00 | $ 0.00 | $ 0.01 | $ 0.01 | |||
Weighted average number of common shares outstanding | 21,284,401 | 14,879,589 | 19,362,947 | 14,879,589 |
See accompanying notes to financial statements
EMPIRE PETROLEUM CORPORATION
STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine Months Ended | ||||
September 30, 2001 | September 30, 2000 | |||
Cash flows from operating activities: | ||||
Net loss | $ (159,344) | $ (107,571) | ||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||
Depletion and amortization | 1,050 | 2,043 | ||
(Increase) decrease in assets: Accounts receivable | (121,645) | - | ||
Prepaid expenses | 786 | 3,244 | ||
Increase in liabilities: | ||||
Accounts payable and accrued expenses | 178,504 | 3,189 | ||
Net cash used in operating activities | (100,649) | (99,095) | ||
Cash flows from investing activities: | ||||
Additions to property, plant and equipment | (723,176) | - | ||
Cash payments for investments in prospects | - | (141,028) | ||
Net cash used in investing activities | (723,176) | (141,028) | ||
Cash flows from financing activities: | ||||
Issuance of common stock | 913,797 | 200,000 | ||
(Repayment) proceeds of note payable – affiliate | (70,754) | 110,000 | ||
Net cash provided by financing activities | 843,043 | 310,000 | ||
Net increase in cash | 19,218 | 69,877 | ||
Cash and cash equivalents – Beginning | 13,000 | 23,153 | ||
Cash and cash equivalents – Ending | $ 32,218 | $ 93,030 | ||
See accompanying notes to financial statements
EMPIRE PETROLEUM CORPORATION
NOTES TO CONSOLDIATED 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 periods are included. Operating results for the interim periods are not necessarily indicative of the results that may be expected for the year ending December 31, 2001.
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, 2000 which are contained in the Company’s Annual Report on Form 10-KSB filed with the Securities and Exchange Commission (the "SEC") on March 29, 2001, Form 10KSB/A Number 1 filed on May 7, 2001.
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 corporation received proceeds from two notes payable in the amount of $116,000 and further signed a debenture note payable from an affiliated person for a further $66,000. These notes are unsecured and bear interest at 12% per year, with interest payable monthly. They are due and payable by the corporation on June 4, 2002 including a 3% premium on the principal amounts due. In no event shall interest to be paid exceed an amount equal to simple interest on the unpaid principal balances of the notes at the maximum rate permitted by applicable law.
On August 23, 2001 the corporation received proceeds of a long-term note payable 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.
4. INCOME TAXES
As of September 30, 2001 the Company has tax net operating loss carry forwards totalling approximately $1,754,000. If not used, these carry forwards will expire in the years 2001 to 2020.
5. EMPIRE PETROLEUM CORPORATION ACQUISITION
On May 29, 2001 the Company acquired Empire Petroleum Corporation, a private company that owns 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 now 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 |
Management changes concurrent with the Empire acquisition included the appointment of John P. McGrain as Chairman and Chief Executive Officer, and Thomas J. Jacobsen as President and Chief Operating Officer of the combined company. Mr. McGrain, has 30 years experience as an investor with a focus on oil and gas companies and is currently the Chairman of Westlinks Resources (Nasdaq: WLKS). Mr. Jacobsen, also a Director of Westlinks, has more than 40 years experience in the oil and gas industry within Canada, the United States and internationally.
The Board of Directors is now comprised of John P. McGrain, Thomas J. Jacobsen, Albert E. Whitehead, Thomas R. Bradley and John C. Kinnard. George H. Plewes has resigned as a director. Al Whitehead and Tom Bradley, in addition to their board duties, will continue to manage the company's land inventory of over 100,000 acres of leases.
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 Registrant 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 Registrant'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 Registrant'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 Registrant's filings with the Securities and Exchange Commission. Accordingly, the actual results of the Registrant'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 September 30, 2001. 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.
As of September 30, 2001, Empire had $32,218 of cash on hand. Empire expects that its cash on hand will be sufficient to fund its operations for the next 3 months. Empire’s material commitments consist of annual lease payments on the Cheyenne River Prospect of approximately $142,882, of which $102,942 were paid in March 2001, with $40,424 of this amount paid by the Registrant and the balance of $62,518 paid by the parties to the Farmout Agreement in the Cheyenne River Prospect. The Registrant's additional commitments consist of office lease payments of $3,568 per month and the salary of one secretary. In January 2001, the Registrant sublet a portion of its office space at $1,000 per month. Mr. McGrain serves as an executive officer of the Registrant without compensation.
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.
It was previously reported that the Company anticipated drilling additional wells in the fourth quarter, however, due to poor financial market conditions it was not possible to raise the funds necessary to conduct the forth quarter drilling program. The Company now has elected to make an effort to sell and/or sell-farmout a 25% working interest in the Timber Draw #1-AH discovery well and the 100,000 acres under lease in the Cheyenne River Prospect. Upon concluding a sale or sale-farmout, steps will be taken to conduct a sixteen square mile seismic survey surrounding the discovery well and building a ten mile pipeline to a gas purchaser in order to place the well on production.
The Bureau of Land Management (BLM) has advised the Company it will require additional test data before it can determine the economic status of the well pursuant to the terms of the Timber Draw Unit. A continuous test of the well will be carried out after its connection to a purchaser’s pipeline and the Company anticipates the BLM will require about six months of production history before it renders its ruling on whether the Company has a paying or non-paying well based on its criteria which is essentially based on whether or not the production from the well will payout the cost of such well. Based on results of the production testing, 3D seismic interpretation and financing, the Company now plans additional drilling in the 2nd Quarter of 2002.
Empire 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
Recent Sales of Unregistered Securities
On June 29, 2001, The Company issued 7,492,351 shares of Common Stock in conjunction with the acquisition of Empire Petroleum Corporation.
During March 2001, as described elsewhere herein, the Registrant issued 748,319 shares of common stock to the Albert E. Whitehead Living Trust upon conversion by such trust of a convertible promissory note due March 15, 2001. The convertible promissory note had an outstanding balance of principal and accrued interest of $327,015.63 and was convertible at the rate of $0.4370 per share of common stock, which represents the market price of the common stock on the date this convertible promissory note was issued.
During January 2001 in connection with the Farmout Agreement relating to its Cheyenne River Prospect, the Registrant sold to Empire Petroleum Corporation 375,000 shares of Common Stock for $0.40 per share for a total purchase price of $150,000.
All of such shares were issued in reliance on the exemption from registration afforded by Section 4(2) of the Securities Act of 1933, as amended. Among the facts supporting the Registrant's reliance on such exemption are that the shares were issued to a small number of sophisticated purchasers and that the purchasers acquired the shares for their own accounts and without intention of distributing or reselling the shares except in compliance with applicable securities laws. The shares bear appropriate restrictive legends.
Item 5. Other information
On July 20, 2001 the Board of Directors approved the merger of the Company with its wholly owned subsidiary Empire Petroleum Corporation and the simultaneous change in the name of the Company to Empire Petroleum Corporation. Both the merger and name change are effective August 15, 2001.
Item 6. Exhibits and Reports on Form 8-K
Exhibits - none
Reports on Form 8-K.
A form 8-K was filed June 30, 2001 regarding the acquisition of Empire Petroleum Corporation. An amended form 8-K regarding the acquisition of Empire Petroleum Corporation was filed July 23, 2001.
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: December 6, 2001 By: /s/ Thomas J. Jacobsen
Thomas J. Jacobsen
President & Chief Operating Officer