UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB/A
(AMENDMENT NO. 1 TO FORM 10-KSB)
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2003
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from__________________to___________________
Commission file number 001-16653
EMPIRE PETROLEUM CORPORATION
(Name of small business issuer in its charter)
Delaware 73-1238709
(State or other jurisdiction of
incorporation or organization) (I.R.S. Employer Identification No.)
8801 S. Yale, Suite 120, Tulsa, OK 74137-3575
(Address of principal executive offices) (Zip Code)
Issuer's Telephone Number: (918) 488-8068
Securities registered under Section 12(b) of the Exchange Act:
None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, $0.001 par value
(Title of class)
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.
Yes [X] No [ ]
Check if disclosure of delinquent filers in response to Item 405 of Regulation
S-B is not contained in this form, and no disclosure will be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB [ X ]
The issuer's gross revenues for the most recent fiscal year were $ 163,627.
The aggregate market value of the voting and non-voting common equity held by
non-affiliates, based upon the average bid and asked prices of the Common Stock
on February 27, 2004 was $5,486,600.
The number of shares outstanding of the issuer's Common Stock, as of March 15,
2004 was 37,830,190.
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
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EMPIRE PETROLEUM CORPORATION
FORM 10-KSB/A
TABLE OF CONTENTS
ITEM NUMBER AND CAPTION PAGE NUMBER
PART II
Item 6. Management's Discussion and Analysis or Plan of
Operation 4-11
Item 7. Financial Statements F-1 through F-14
Item 8A. Controls and Procedures 11-12
PART III
Item 13. Exhibits and Reports on Form 8-K 12-13
Signatures 13
Explanatory Note
This Form 10-KSB/A is being filed by Empire Petroleum Corporation (the
"Company"), as Amendment No. 1 (this "Amendment" or "Form 10-KSB/A"),
to the Company's Annual Report on Form 10-KSB for the fiscal year ended
December 31, 2003 (the "Prior Form 10-KSB"), for the purpose of
amending Items 6, 7 and 8A of Part II and Item 13 of Part III of the
Prior Form 10-KSB.
As previously reported in the Company's Current Report on Form 8-K
filed on November 21, 2005, the Board of Directors of the Company
concluded on November 16, 2005 that its previously issued annual and
quarterly financial statements for fiscal years 2003 and 2004 and
quarterly financial statements for the first two quarters of 2005
should not be relied upon because of errors in those financial
statements and that the Company would restate its previously issued
annual financial statements for fiscal year 2003, annual and quarterly
financial statements for fiscal year 2004 and quarterly financial
statements for the first two quarters of 2005 to make the necessary
accounting adjustments. The restatement pertains to the Company's
accounting for exit activities in connection with its office space in
Canada, which was leased by the former management of the Company,
abandoned upon the resignation of such management and subleased by a
third party for a period of time thereafter.
This Amendment is being filed in connection with the restatement
described above. Although this Amendment amends and restates each of
Items 6, 7 and 8A of Part II and Item 13 of Part III of the Prior Form
10-KSB in its entirety, the information contained herein has not been
updated to reflect events or developments that may have occurred
subsequent to December 31, 2003, except to the limited extent as
specifically described in Items 6 and 8A of Part II below.
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PART II
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
RESTATEMENT
On November 11, 2005 the Company filed a Form 8-K with the SEC
disclosing that it would restate its previously issued financial
statements for the year ended December 31, 2003, annual and quarterly
financial statements for 2004, and quarterly financial statements for the
first two quarters of 2005 after determining that it had erroneously accounted
for its exit activities in connection with its former office space in Canada.
In the third quarter of 2003, the Company recorded an expense for its
obligation under the lease for the period up to the balance sheet date.
It continued to record an expense of $13,200 per quarter through March
31, 2005 related to the lease (see Note 9 to the financial statements).
After further review, the Company's management determined that it
should have accrued an obligation for the lease equal to total amounts
owed from the "cease use date" (the date in January 2003 on which the
Company's subtenant moved out of the office space) through the end of
the lease term. Additionally, since the lease obligation was in
Canadian dollars, the Company should have recorded a currency exchange
gain or loss on its obligation in each quarter. Based on this analysis,
the Company and its Board of Directors concluded that its previously
issued financial statements for the year ended December 31, 2003,
annual and quarterly financial statements for 2004 and quarterly
financial statements for the first two quarters of 2005 required adjustments
of the amounts previously reported for accounts payable and accrued
liabilities, and general and administrative expenses. The effect of the
restatement was to increase the previously reported net loss by $118,817 for
the year ended December 31, 2003. The restatement had no effect on the net
loss per share for the year ended December 31, 2003.
Cautionary Note Regarding Forward-Looking Statements
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 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 exploration and development,
* unforeseen engineering, mechanical or technological difficulties in drilling
wells,
* uncertainty of exploration results,
* operating hazards,
* competition from other natural resource companies,
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* the fluctuations of prices for oil and gas,
* the effects of governmental and environmental regulation, and
* general economic conditions and other risks described in the Company's
filings with the Securities and Exchange Commission.
Information on these and other risk factors are discussed under "Factors That
May Affect Future Results" below. Accordingly, the actual results of operations
in the future may vary widely from the forward-looking statements included
herein, and all forward-looking statements in this Form 10-KSB are expressly
qualified in their entirety by the cautionary statements in this paragraph.
Readers are cautioned not to place undue reliance on these forward-looking
statements, which reflect management's analysis, judgment, belief and
expectations only as of the date hereof. The Company undertakes no obligation
to publicly revise these forward-looking statements to reflect events or
circumstances that arise after the date hereof.
Factors That May Affect Future Results
The Company does not have any significant on-going income producing oil and gas
properties and has limited financial resources.
As of December 31, 2003, the Company did not have any significant on-going
income producing oil and gas producing properties. For the past three fiscal
years, the Company has financed its operations primarily from advances made to
the Company by Albert E. Whitehead, the Company's Chief Executive Officer. Mr.
Whitehead has no obligation to advance the Company any additional money, and
there is no assurance that he will do so. The Company will not be able to
continue operations unless it is able to obtain funding from outside sources.
The report of the Company's independent auditor regarding the Company's
financial statements has been modified because of a going concern uncertainty.
The Company reported losses of $676,909 and $5,692,735 for the years ending
December 31, 2003 and 2002, respectively. The Company also has an accumulated
deficit of $8,429,066 as of December 31, 2003. The Company can provide no
assurance that it will be profitable in the future and, if the Company does not
become profitable, it may have to suspend its operations. As a result of the
foregoing, the audit report of the Company's independent auditors relating to
the Company's financial statements has been modified because of a going concern
uncertainty.
If the Company is able to raise the funds necessary to continue its operations,
its future performance will be affected by the successful drilling results of
its inventory of unproved locations in Wyoming and Nevada. The failure of
drilling activities to achieve anticipated quantities of economically
attractive reserves and production would have a material adverse effect on
the Company's liquidity, operations and financial results.
The Company could be adversely affected by fluctuations in oil and gas prices.
Even if the Company's drilling activities achieve commercial quantities of
economically attractive reserves and production revenue, the Company will
remain subject to prevailing prices for oil, natural gas and natural gas
liquids, which are dependent upon numerous factors such as weather, economic,
political and regulatory developments and competition from other sources of
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energy. The volatile nature of the energy markets makes it particularly
difficult to estimate future prices of oil, natural gas and natural gas
liquids. Prices of oil, natural gas and natural gas liquids are subject to
wide fluctuations in response to relatively minor changes in circumstances,
and there can be no assurance that future prolonged decreases in such prices
will not occur. All of these factors are beyond the control of the Company.
Any significant decline in oil and gas prices could have a material adverse
effect on the Company's liquidity, operations and financial condition.
The Company could be adversely affected by increased costs of service providers
utilized by the Company.
In accordance with customary industry practice, the Company relies on
independent third party service providers to provide most of the services
necessary to drill new wells, including drilling rigs and related equipment
and services, horizontal drilling equipment and services, trucking services,
tubulars, fracing and completion services and production equipment. The
industry has experienced significant price increases for these services during
the last year and this trend is expected to continue into the future. These
cost increases could in the future significantly increase the Company's
development costs and decrease the return possible from drilling and
development activities, and possibly render the development of certain proved
undeveloped reserves uneconomical.
The Company is subject to numerous drilling and operating risks.
Oil and gas drilling activities are subject to numerous risks, many of which
are beyond the Company's control. The Company's operations may be curtailed,
delayed or canceled as a result of title problems, weather conditions,
compliance with governmental requirements, mechanical difficulties and
shortages or delays in the delivery of equipment. In addition, the Company's
properties may be susceptible to hydrocarbon drainage from production by
other operators on adjacent properties. Industry operating risks include the
risk of fire, explosions, blow-outs, pipe failure, abnormally pressured
formations and environmental hazards such as oil spills, gas leaks, ruptures
or discharges of toxic gases, the occurrence of any of which could result in
substantial losses to the Company due to injury or loss of life, severe damage
to or destruction of property, natural resources and equipment, pollution or
other environmental damage, clean-up responsibilities, regulatory
investigation and penalties and suspension of operations. The Company
anticipates that it will utilize horizontal drilling techniques. The
horizontal drilling activities involve greater risk of mechanical problems
than conventional vertical drilling operations.
The Company's insurance policies may not adequately protect the Company against
certain unforeseen risks.
In accordance with customary industry practice, the Company maintains
insurance against some, but not all, of the risks described herein. There can
be no assurance that any insurance will be adequate to cover the Company's
losses or liabilities. The Company cannot predict the continued availability
of insurance, or its availability at premium levels that justify its purchase.
The Company's activities are subject to extensive governmental regulation.
Oil and gas operations are subject to various federal, state and local
governmental regulations that may be changed from time to time in response to
economic or political conditions. From time to time, regulatory agencies have
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imposed price controls and limitations on production in order to conserve
supplies of oil and gas. In addition, the production, handling, storage,
transportation and disposal of oil and gas, by-products thereof and other
substances and materials produced or used in connection with oil and gas
operations are subject to regulation under federal, state and local laws and
regulations primarily relating to protection of human health and the
environment. To date, expenditures related to complying with these laws and for
remediation of existing environmental contamination have not been significant
in relation to the results of operations of the Company. There can be no
assurance that the trend of more expansive and stricter environmental
legislation and regulations will not continue.
The Company is subject to various environmental risks, and governmental
regulation relating to environmental matters.
The Company is subject to a variety of federal, state and local governmental
laws and regulations related to the storage, use, discharge and disposal of
toxic, volatile or otherwise hazardous materials. These regulations subject the
Company to increased operating costs and potential liability associated with
the use and disposal of hazardous materials. Although these laws and
regulations have not had a material adverse effect on the Company's financial
condition or results of operations, there can be no assurance that the Company
will not be required to make material expenditures in the future. Moreover, the
Company anticipates that such laws and regulations will become increasingly
stringent in the future, which could lead to material costs for environmental
compliance and remediation by the Company. Any failure by the Company to obtain
required permits for, control the use of, or adequately restrict the discharge
of hazardous substances under present or future regulations could subject the
Company to substantial liability or could cause its operations to be suspended.
Such liability or suspension of operations could have a material adverse effect
on the Company's business, financial condition and results of operations.
The Company is subject to intense competition.
The Company operates in a highly competitive environment and competes with
major and independent oil and gas companies for the acquisition of desirable
oil and gas properties, as well as for the equipment and labor required to
develop and operate such properties. Many of these competitors have financial
and other resources substantially greater than those of the Company.
The Company currently depends on the Company's Chief Executive Officer.
The Company is dependent on the experience, abilities and continued services of
its current Chief Executive Officer and President, Albert E. Whitehead. Mr.
Whitehead has played a significant role in the development and management of
the Company. The loss or reduction of services of Mr. Whitehead could have a
material adverse effect on the Company.
The Company's stock trades in a limited public market, is subject to price
volatility, and there can be no assurance that an active trading market will be
sustained.
There has been a limited public trading market for the Company's Common Stock,
and there can be no assurance that an active trading market will be sustained.
There can be no assurance that the Common Stock will trade at or above any
particular price in the public market, if at all. The trading price of the
Common Stock could be subject to significant fluctuations in response to
variations in quarterly operating results or even mild expressions of interest
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on a given day. Accordingly, the Common Stock should be expected to experience
substantial price changes in short periods of time. Even if the Company is
performing according to its plan and there is no legitimate company-specific
financial basis for this volatility, it must still be expected that substantial
percentage price swings will occur in the Company's Common Stock for the
foreseeable future.
Certain restricted shares of the Company will be eligible for sale in the
future which could affect the prevailing market price of the Company's Common
Stock.
Certain of the outstanding shares of the Company's Common Stock are "restricted
securities" under Rule 144 of the Securities Act, and (except for shares
purchased by "affiliates" of the Company's as such term is defined in Rule 144)
would be eligible for sale as the applicable holding periods expire. In the
future, these shares may be sold only pursuant to a registration statement
under the Securities Act or an applicable exemption, including pursuant to Rule
144. Under Rule 144, a person who has owned common stock for at least one year
may, under certain circumstances, sell within any three-month period a number of
shares of common stock that does not exceed the greater of 1% of the then
outstanding shares of common stock or the average weekly trading volume during
the four calendar weeks prior to such sale. A person who is not deemed to have
been an affiliate of the Company at any time during the three months preceding
a sale, and who has beneficially owned the restricted securities for the last
two years is entitled to sell all such shares without regard to the volume
limitations, current public information requirements, manner of sale provisions
and notice requirements. Sale or the expectation of sales of a substantial
number of shares of Common Stock in the public market by selling stockholders
could adversely affect the prevailing market price of the Common Stock,
possibly having a depressive effect on any trading market for the Common Stock,
and may impair the Company's ability to raise capital at that time through
additional sale of its equity securities.
The Company does not expect to declare or pay any dividends in the foreseeable
future.
The Company has not declared or paid any dividends on its Common Stock. The
Company currently intends to retain future earnings to fund the development and
growth of its businesses, to repay indebtedness and for general corporate
purposes, and therefore, does not anticipate paying any cash dividends on its
Common Stock in the foreseeable future.
The Company's Common Stock may be subject to secondary trading restrictions
related to penny stocks.
Certain transactions involving the purchase or sale of Common Stock of the
Company may be affected by a SEC rule for "penny stocks" that imposes
additional sales practice burdens and requirements upon broker-dealers that
purchase or sell such securities. For transactions covered by this penny
stock rule, broker-dealers must make certain disclosures to purchasers prior
to purchase or sale. Consequently, the penny stock rule may impede the ability
of broker-dealers to purchase or sell the Company's securities for their
customers and the ability of persons now owning or subsequently acquiring the
Company's securities to resell such securities.
The Company's principal shareholders own a significant amount of Common Stock.
Albert E. Whitehead and his wife beneficially own approximately 38% of the
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Company's Common Stock. As a result, by coordinating with other shareholders,
such as the former management of the Company, Mr. and Mrs. Whitehead may be
able to control the outcome of shareholder votes, including votes concerning
the election of directors, the adoption or amendment of provisions in the
Company's certificate of incorporation or bylaws and the approval of merger
and other significant corporate transactions. This concentrated ownership makes
it unlikely that any other holder or group of holders of Common Stock will be
able to affect the way the Company is managed or the direction of its business.
These factors may also precipitate, delay or prevent a change in the management
or voting control of the Company.
Plan of Operation
The Company has no significant on-going income producing oil and gas properties
at December 31, 2003. An oil and gas test well (Timber Draw #1-AH) was drilled
in January 2001 on the Cheyenne River Project. The Timber Draw #1-AH well
encountered flows of oil and natural gas during the drilling period and was
subsequently completed as an oil well. The well was shut-in on June 22, 2001 to
conserve natural gas, which was flared during the test period. For more
information about this test well and the BLM's determination that it does not
consider the well economic, see "Oil and Gas Development Prospects: under Item
1, Description of Business.
Beginning in April of 2003, the Company initiated testing of the #1-AH well for
up to ten days per month for a three month period by authority of the BLM,
which testing was subsequently extended by the BLM. During the test periods
indicated below, the #1-AH well produced the following number of barrels during
the following months in 2003:
Days in Number
Month Test Period Of Barrels
April 7 1,335
June 10 1,421
July 10 1,321
August 10 1,029
October 10 954
November 10 693
All of the Company's limited revenues in 2003 were attributable to the above
described production from its #1-AH well. The Company plans to continue testing
the #1-AH well through March 2004. The test results will then be evaluated to
determine what future production practice might be utilized.
As of December 31, 2003, the Company had $21,622 of cash on hand. The Company
expects that its cash on hand and advances the Company anticipates it will
receive from its Chairman will be sufficient to fund its operations for the
next 3 months; however, there is no assurance that such advances will be made.
The Company's material commitments consist of a lease payment on the Cheyenne
River Prospect in April 2003, of which the Company's portion will be
approximately $29,077, which will be paid by the third party pursuant to the
2003 Farmout Agreement. The Company's share of the rentals on the Nevada leases
will be $8,921. In addition, the Company leases office space in Tulsa, Oklahoma
from an unrelated party. The lease calls for monthly lease payments of $1,009
through the end of the term of the lease in December 2004. The Company's former
management(Messrs. McGrain and Jacobsen) entered into a lease agreement for
office space in Canada. This office was closed after Messrs. McGrain and
Jacobsen resigned as officers of the Company. This lease agreement calls for
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monthly lease and tax payments of approximately $$6,834 (Canadian) through
April, 2006. No lease payment was made subsequent to December of 2002 and in
January of 2003, the Company was notified that the lease had been terminated
without prejudice to the landlord's right to hold the Company liable for future
damages related to lost rent.
Management plans to continue to support the Company financially during the next
several months. It will also determine the best method to explore its Gabbs
Valley Prospect, look for merger opportunities and consider public or private
financings.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Because estimates and assumptions require significant judgment, future actual
results could differ from those estimates and could have a significant impact
on the Company's results of operations, financial position and cash flows. The
Company re-evaluates its estimates and assumptions at least on a quarterly
basis. The following policies may involve a higher degree of estimation and
assumption:
Off-Balance Sheet Arrangements
None
Critical Accounting Policies
Successful Efforts Accounting - Under the successful efforts method of
accounting, the Company capitalizes all costs related to property acquisitions
and successful exploratory wells, all development costs and the costs of
support equipment and facilities. Certain costs of exploratory wells are
capitalized pending determination that proved reserves have been found. Such
determination is dependent upon the results of planned additional wells and
the cost of required capital expenditures to produce the reserves found. All
costs related to unsuccessful exploratory wells are expensed when such wells
are determined to be non-productive; other exploration costs, including
geological and geophysical costs, are expensed as incurred. The application
of the successful efforts method of accounting requires management's judgment
to determine the proper designation of wells as either developmental or
exploratory, which will ultimately determine the proper accounting treatment
of the costs incurred. The results from a drilling operation can take
considerable time to analyze, and the determination that commercial reserves
have been discovered requires both judgment and application of industry
experience. Wells may be completed that are assumed to be productive and
actually deliver oil and gas in quantities insufficient to be economic, which
may result in the abandonment of the wells at a later date. The evaluation of
oil and gas leasehold acquisition costs requires management's judgment to
estimate the fair value of exploratory costs related to drilling activity in
a given area.
Impairment of unproved oil and gas properties. Unproved leasehold costs and
exploratory drilling in progress are capitalized and are reviewed periodically
for impairment. Costs related to impaired prospects or unsuccessful exploratory
drilling are charged to expense. Management's assessment of the results of
exploration activities, commodity price outlooks, planned future sales or
expiration of all or a portion of such leaseholds impact the amount and timing
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of impairment provisions. An impairment expense could result if oil and gas
prices decline in the future as it may not be economic to develop some of these
unproved properties.
Estimates of future dismantlement, restoration, and abandonment costs. Through
December 31, 2002, the Company had accounted for future abandonment costs of
wells and related facilities through its depreciation calculation in accordance
with the provisions of Statement of Financial Accounting Standards ("SFAS") No.
19, "Financial Accounting and Reporting by Oil and Gas Producing Companies" and
industry practice. The accounting for future development and abandonment costs
changed on January 1, 2003, with the adoption of SFAS No. 143 "Accounting for
Asset Retirement Obligations". See "Recent Accounting Pronouncements" in
footnote 2 of the financial statements included elsewhere in this Form 10-KSB
for a further discussion of this new standard. Under both methods of
accounting, the accrual is based on estimates of these costs for each of the
Company's properties based upon the type of production structure, reservoir
characteristics, depth of the reservoir, market demand for equipment, currently
available procedures and consultations with construction and engineering
consultants. Because these costs typically extend many years into the future,
estimating these future costs is difficult and requires management to make
estimates and judgments that are subject to future revisions based upon
numerous factors, including changing technology and the political and
regulatory environment and, beginning in 2003, estimates as to the proper
discount rate to use and timing of abandonment.
On December 31, 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation-Transition and Disclosure" ("SFAS No. 148"). SFAS No. 148 amends
SFAS No. 123, "Accounting for Stock-Based Compensation" ("SFAS No. 123"), to
provide alternative methods of transition to SFAS No. 123's fair value method
of accounting for stock-based employee compensation. SFAS No. 148 also amends
the disclosure provisions of SFAS No. 123 and APB Opinion No. 28, "Interim
Financial Reporting", to require disclosure in the summary of significant
accounting policies of the effects of an entity's accounting policy with
respect to stock-based employee compensation on reported net income and
earnings per share in annual and interim financial statements. While SFAS No.
148 does not amend SFAS No. 123 to require companies to account for employee
stock options using the fair value method, the disclosure provisions of the
standard are applicable to all companies with stock-based employee compensation,
regardless of whether they account for that compensation using the fair value
method or the intrinsic value method. The Company adopted the disclosure
provisions of SFAS No. 148 in its financial statements included elsewhere in
this Form 10-KSB.
ITEM 7. FINANCIAL STATEMENTS
The financial statements of the Company are set forth on pages F-1 through F-13
at the end of this Form 10-KSB.
ITEM 8A. CONTROLS AND PROCEDURES
As of December 31, 2003, 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 the
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) concluded that the Company's disclosure controls and
procedures were effective at such time. However, prior to the date of
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the filing of this Form 10-KSB/A and as a result of the Company's
decision to restate its financial statements as described under the
"Explanatory Note" in this Form 10-KSB/A above, the Company completed a
second 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 as of December 31, 2003. In connection with
this second evaluation and based upon the Company's decision to restate
its financial statements for the fiscal year ended December 31, 2003,
the Company's Chief Executive Officer (and principal financial officer)
concluded that the Company's disclosure controls and procedures were
not effective as of December 31, 2003.
During the quarter ended December 31, 2003, the Company engaged a third
party financial consultant to oversee the Company's financial reporting
to ensure compliance with applicable disclosure requirements. During
the quarter ended December 31, 2003, 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, other than as
described in the preceding sentence.
PART III
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit Description
No.
3.1 Articles of Incorporation of the Company, as amended
(incorporated herein by reference to Exhibit 3.1 of the Company's Form
10-QSB for the period ended September 30, 1995, which was filed
November 6, 1995)
3.2 Bylaws of the Company
(incorporated herein by reference to Exhibit 3.2 of the Company's Form
10-QSB for the period ended March 31, 1998, which was filed May 15 1998)
10.1 1995 Stock Option Plan (incorporated herein by reference to Appendix A
of the Company's Form DEFS 14A dated June 13, 1995, which was filed
June 14, 1995)
10.2 Form of Stock Option Agreement (incorporated herein by reference to
Exhibit 10(g) of the Company's Form 10-KSB for the year ended December
31, 1995, which was filed March 29, 1996)
10.3 Americomm Cheyenne River Development Prospect Agreement dated March 4,
1998 by and among the Company, Fred S. Jensen, Richard A. Bate, A. R.
Briggs and Thomas L. Thompson (incorporated herein by reference to
Exhibit 10(j) of the Company's Form 10-QSB for the period ended June 30,
1998, which was filed August 12, 1998)
10.4 Farmout Agreement dated November 15, 2000 by and among the Company and
the other parties named therein (incorporated hereby reference to Exhibit
10(e) of the Company's Form 10-KSB for the year ended December 31, 2000,
which was filed March 29, 2001)
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10.5 Share Exchange Agreement by and among Americomm Resources Corporation,
Empire Petroleum Corporation and each of the shareholders of Empire
Petroleum Corporation (incorporated herein by reference to Exhibit 2.1
of the Company's Form 8-K dated May 29, 2001, which was filed June 5,
2001)
10.6 Promissory Note dated March 15, 2002 issued to the Albert E. Whitehead
Living Trust (incorporated herein by reference to Exhibit 10.1 of the
Company's Form 10-QSB for the period ended March 31, 2002, which was
Filed May 15, 2002)
10.7 Letter Agreement dated May 8, 2003 between the Company and O. F.
Duffield (incorporated herein by reference to Exhibit 10.6 of the
Company's Form 10-KSB for the year ended December 31, 2003, which
was filed March 30, 2004)
31 Certification of Chief Executive Officer (and principal financial
officer) pursuant to Rules 13a - 14 (a) and 15(d) - 14(a) promulgated
under the Securities Exchange Act of 1934, as amended, and Item 601(1)
(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)
(b) Reports on Form 8-K
None.
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
Empire Petroleum Corporation
(Registrant)
Date: February 8, 2006 By: /s/Albert E. Whitehead
Albert E. Whitehead
Chief Executive Officer
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the Registrant and in the capacities and on the
dates indicated.
Signature Title Date
/s/Albert E. Whitehead Chairman, Chief Executive Officer February 8, 2006
Albert E. Whitehead
/s/John C. Kinard Director February 8, 2006
John C. Kinard
-13-
EMPIRE PETROLEUM CORPORATION
FINANCIAL STATEMENTS
CONTENTS
Page No.
Balance Sheet at December 31, 2003 F-2
Statements of Operations for the years ended
December 31, 2003 and December 31, 2002 F-3
Statements of Changes in Stockholders' Equity
for the years ended December 31, 2003 and
December 31, 2002 F-4
Statements of Cash Flows for the years ended
December 31, 2003 and December 31, 2002 F-5
Notes to Financial Statements F-6 through F-14
-14-
EMPIRE PETROLEUM CORPORATION
FINANCIAL STATEMENTS
DECEMBER 31, 2003
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of Empire Petroleum Corporation
We have audited the accompanying balance sheet of Empire Petroleum Corporation
as of December 31, 2003, and the related statements of operations, cash flows
and stockholders' equity for the years ended December 31, 2003 and 2002. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance auditing standards generally accepted in
the United States of America. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Empire Petroleum Corporation
as of December 31, 2003, and the results of its operations and its cash flows
for the years ended December 31, 2003 and 2002 in conformity with accounting
principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has been incurring significant losses and has
a significant working capital deficiency at December 31, 2003. 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 and the ability of the Company to obtain necessary financing to
develop the interests. This condition raises substantial doubt about its
ability to continue as a going concern. Management's plan concerning this
matter is also described in Note 1. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
As described in Note 9 to the financial statements, the 2003 financial
statements have been restated for an error in the application of accounting
principles.
/s/ TULLIUS TAYLOR SARTAIN & SARTAIN LLP
Tulsa, Oklahoma
March 5, 2004, except for Note 9,
as to which the date is
February 1, 2006
F-1
EMPIRE PETROLEUM CORPORATION
BALANCE SHEET
ASSETS December 31,
2003
Restated
Current assets:
Cash $ 21,622
Accounts receivable 21,062
Prepaid expenses 2,651
___________
Total current assets 45,335
___________
Property & equipment, net of accumulated
depreciation and depletion 527,109
___________
$ 572,444
===========
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current liabilities:
Accounts payable and accrued liabilities $ 379,944
Accounts payable to related party 130,180
Note payable 85,421
___________
Total current liabilities 595,545
___________
Total liabilities 595,545
___________
Stockholders' deficiency:
Common stock, par value $.001, 50,000,000
shares authorized, 37,830,190 shares
issued and outstanding 37,830
Additional paid in capital 8,368,135
Accumulated deficit (8,429,066)
___________
Total stockholders' deficiency (23,101)
___________
$ 572,444
===========
See accompanying notes to financial statements.
F-2
EMPIRE PETROLEUM CORPORATION
STATEMENTS OF OPERATIONS
Years ended December 31, 2003 and 2002
2003 2002
Restated
___________ ___________
Revenue:
Petroleum sales $ 163,627 $ 0
___________ ___________
163,627 0
___________ ___________
Costs and expenses:
Operating expenses 161,263 157,427
General and administrative 357,583 223,738
Depreciation expense 1,028 4,150
Leasehold impairment 266,778 6,496,614
___________ ___________
786,652 6,881,929
___________ ___________
Operating loss (623,025) (6,881,929)
___________ ___________
Other (income) and expense:
Gain on sale of assets (2,201) 0
Interest expense 27,047 62,676
Miscellaneous 29,038 (1,870)
___________ ___________
Total other (income) and expense 53,884 60,806
___________ ___________
Net loss before income taxes (676,909) (6,942,735)
Deferred tax benefit 0 (1,250,000)
___________ ___________
Net loss $ (676,909) $(5,692,735)
___________ ___________
Net loss per common share $ (.02) $ (0.24)
___________ ___________
Weighted average number of
common shares outstanding -
Basic and diluted 34,462,942 23,896,824
___________ ___________
See accompanying notes to financial statements
F-3
EMPIRE PETROLEUM CORPORATION
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Years ended December 31, 2003 and 2002
Additional
Paid in Accumulated
Shares Amount Capital deficit Total
__________ _______ __________ ___________ ___________
Balances January
1, 2001 23,495,391 $23,495 $7,441,099 $(2,059,422) $5,405,172
Net loss - - - (5,692,735) (5,692,735)
Issuance of Common
Stock 964,515 965 191,965 - 192,930
__________ _______ __________ ___________ ___________
Balances December
31, 2002 24,459,906 24,460 7,633,064 (7,752,157) (94,633)
Net loss - - - (676,909) (676,909)
Value of services
Contributed by
Employee - - 50,000 - 50,000
Issuance of Common
stock 13,370,284 13,370 685,071 - 698,441
__________ _______ __________ ___________ ___________
Balances December
31, 2003 37,830,190 $37,830 $8,368,135 $(8,429,066) $ (23,101)
__________ _______ __________ ___________ ___________
See accompanying notes to financial statements
F-4
EMPIRE PETROLEUM CORPORATION
STATEMENTS OF CASH FLOWS
Years ended December 31, 2003 and 2002
2003 2002
___________ ___________
Cash flows from operating activities:
Net loss $ (676,909) $(5,692,735)
Adjustments to reconcile net loss to
net cash provided by (used in)
operating activities:
Common stock issued for services 0 3,982
Depreciation 1,028 4,150
Leasehold impairment 266,778 6,496,614
Deferred tax benefit 0 (1,250,000)
Gain on sale of assets (2,201) 0
Value of services contributed by
Employee 50,000 0
Change in operating assets and
liabilities:
Accounts receivable (18,530) 125,177
Prepaid expenses 1,269 1,403
Accounts payable and accrued
liabilities 387,422 108,621
___________ ___________
Net cash provided by (used in)
operating activities 8,857 (202,788)
___________ ___________
Cash flows from investing activities:
Proceeds from sale of property, plant
and equipment 7,311 0
___________ ___________
Net cash provided by investing
activities 7,311 0
___________ ___________
Cash flows from financing activities:
Proceeds of note payable-related party 0 170,000
____________ ___________
Net cash provided by financing
activities 0 170,000
____________ ___________
Net increase (decrease) in cash 16,168 (32,788)
Cash - Beginning 5,454 38,242
____________ ___________
Cash - Ending $ 21,622 $ 5,454
____________ ___________
Supplemental cash flow information:
Cash paid for interest 0 $ 14,644
____________ ___________
Non-cash investing and financing
activities:
Common Stock issued for debt &
other payables $ 498,441 $ 188,949
Common Stock issued for leasehold
Interest $ 200,000 $ 0
____________ ___________
See accompanying notes to financial statements
F-5
EMPIRE PETROLEUM CORPORATION
NOTES TO CONSOLDIATED FINANCIAL STATEMENTS
DECEMBER 31, 2003 and 2002
General:
On July 20, 2001, Americomm Resources Corporation merged with its wholly- owned
subsidiary, Empire Petroleum Corporation, and simultaneously changed the name
of the corporation to Empire Petroleum Corporation (the "Company"). Both the
merger and name change were effective as of August 15, 2001. Americomm
Resources Corporation was originally incorporated in the State of Utah on the
22nd day of August 1983, as Chambers Energy Corporation. On the 7th day of
March 1985, the state of incorporation was changed to Delaware by means of a
merger with Americomm Corporation, a Delaware corporation formed for the
purpose of effecting the said change. In July 1995, the Company changed its
name to Americomm Resources Corporation. The Company is involved in oil and
gas exploration.
1. Continuing operations:
The continuation of the Company 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 the carrying value of assets and liabilities, reported expenses and the
balance sheet classifications used.
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. The Company has been incurring significant
losses in recent years and has a significant working capital deficiency as of
December 31, 2003. The Company recognized an impairment charge of $266,778 in
2003 and $6,496,614 in 2002 on its oil and gas property . See Note 9, Property
and Equipment.
Management plans to continue to support the Company financially during the next
several months. The Company anticipates that a new exploratory well in which
the Company will have an interest will be drilled by a third party in the
Cheyenne River Prospect during the second quarter of 2004. The Company also
intends to determine the best approach to explore its Gabbs Valley Prospect in
Nevada, look for merger opportunities and consider public or private financings.
2. Significant accounting policies:
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the amounts reported in the financial statements and accompanying
notes. Actual results could differ from those estimates.
F-6
(a) Capital assets:
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 activities are expensed.
(b) Per share amounts:
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per
share" requires presentation of basic earnings per share ("Basic EPS") and
diluted earnings per share ("Diluted EPS"). The computation of basic earnings
per share is computed by dividing earnings available to common stockholders by
the weighted average number of outstanding common shares during the period.
Diluted EPS gives effect to all dilutive potential common shares outstanding
during the period. The computation of diluted EPS does not assume conversion,
exercise or contingent exercise of securities that would have an anti-dilutive
effect on losses.
(c) Income taxes:
The Company accounts for income taxes in accordance with the asset and
liability method of accounting for income taxes set forth in SFAS No. 109,
"Accounting for Income Taxes." Under the asset and liability method of SFAS
109, deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carry forwards. Deferred tax assets
and liabilities are measured using enacted tax rates expected to apply to the
taxable income in the years in which those temporary differences are expected
to be recovered or settled. Under SFAS 109, the effect on deferred tax assets
and liabilities of a change in tax rates is recognized in income in the period
that includes the enactment date.
(d) Financial instruments:
The carrying value of current assets and current liabilities approximate their
fair value due to the relatively short period to maturity of the instruments.
(e) Stock option plan:
The Company has a stock option plan that is described in note 5 and uses the
intrinsic value method of accounting for stock-based compensation in accordance
with Accounting Principles Board Opinion ("APB") No. 25. When stock options are
granted, no compensation expense is recorded. Consideration received on the
exercise of the stock options is credited to additional paid in capital.
The Company has adopted the disclosure requirements of SFAS No. 123,
"Accounting for Stock-Based Compensation", as amended by SFAS No. 148
"Accounting for Stock Based Compensation - Transition and Disclosure, an
Amendment of FASB Statement No. 123."
The Company applies APB Opinion No. 25 and related interpretations in
accounting for its Incentive Plan described in footnote 5. Accordingly, no
stock based employee compensation is reflected in net earnings as all options
granted had an exercise price equal to the market value of the underlying
F-7
common stock on the date of grant. The following table illustrates the effect
on net earnings and earnings per share if the Company had applied the fair
value recognition provisions of SFAS No. 123 to stock based employee
compensation.
2003 2002
Restated Restated
_________ ___________
Net Earnings - as reported $(676,909) $(5,692,735)
Deduct: Total stock-based
compensation expense
determined under fair value
based methods for all awards,
net of related tax effects (16,000) -
Net Earnings - pro forma $(692,909) (5,692,735)
Earnings per share - as
reported $ (0.02) $ (0.24)
Earnings per share - pro
forma $ (0.02) $ (0.24)
The fair value of options was $.08 for options granted in 2003. No options were
granted in 2002. The fair value of options granted under the Incentive Plan was
estimated on the date of grant using the Black-Scholes option-pricing model.
The following assumptions were used for options granted in 2003: no dividend
yield, expected volatility of 209.0%, risk free interest rate of 4.25% and
expected life of ten years.
(f) Obligations associated with the retirement of assets
The Company has adopted the provisions of SFAS No. 143, "Accounting for Asset
Retirement Obligations" ("SFAS No. 143"). SFAS No. 143 amended SFAS No. 19,
"Financial Accounting and Reporting by Oil and Gas Producing Companies," and,
among other matters, addresses financial accounting and reporting for legal
obligations associated with the retirement of tangible long-lived assets and
the associated asset retirement costs. SFAS No. 143 requires that the fair
value of a liability for an asset retirement obligation be recognized in the
period in which it is incurred, with the associated asset retirement cost
capitalized as part of the related asset and allocated to expense over the
asset's useful life.
This is a change from the approach taken under SFAS No. 19, whereby an amount
for an asset retirement obligation was recognized using a cost-accumulation
measurement approach. Under that approach, the obligation was reported as a
contra-asset recognized as part of depletion and depreciation over the life of
the asset without discounting. Management has determined that adopting SFAS No.
143 has had no significant effect on the Company's financial statements since
abandonment costs for which it is responsible are not material.
(g) Recent Accounting Pronouncements
In June 2002, the Financial Accounting Standards Board ("FASB") issued SFAS No.
146, "Accounting for Costs Associated with Exit or Disposal Activities." This
statement requires that a liability for a cost associated with an exit or
disposal activity be recognized when the liability is incurred.
F-8
Under previous guidance, a liability for an exit cost was recognized at the
date of the commitment to an exit plan. The provisions of this statement will
be applied prospectively, as applicable, and are effective for exit or disposal
activities that are initiated after December 31, 2002. The adoption of SFAS No.
146 did not have a material effect on the Company's financial position or
results of operations.
In November 2002, the FASB issued FASB Interpretation No. 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others" ("FIN 45"). This interpretation
elaborates on the disclosures to be made by a guarantor in its interim and
annual financial statements about its obligations under specified guarantees
that it has issued. It also clarifies that a guarantor is required to
recognize, at the inception of a guarantee, a liability for the fair value of
the obligation undertaken in issuing the guarantee. The disclosure
requirements in this interpretation were effective for financial statements
of interim or annual periods ending after December 15, 2002. Additionally,
the recognition of a guarantor's obligation should be applied on a
prospective basis to guarantees issued after December 31, 2002. The adoption
of FIN 45 did not have a material effect on the Company's financial position
or results of operations.
In January 2003, the FASB issued FIN 46, "Consolidation of Variable Interest
Entities", that provides guidance in determining when variable interest
entities should be consolidated in the financial statements of the primary
beneficiary. For the Company, the consolidation provisions of FIN 46, as
revised, are effective in fiscal years beginning after December 15, 2004.
The adoption of FIN 46 is not expected to have a material effect on the
Company's financial position or results of operations.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial
Instruments With Characteristics of Both Liabilities and Equity." SFAS No. 150
changes the classification in the statement of financial position of certain
common financial instruments from either equity or mezzanine presentation to
liabilities and requires an issuer of those financial statements to recognize
changes in fair value or redemption amount, as applicable, in earnings. SFAS
No. 150 is effective for financial instruments entered into or modified after
May 31, 2003, and with one exception, is effective at the beginning of the
first interim period beginning after June 15, 2003. The effect of adopting
SFAS No. 150 is recognized as a cumulative effect of an accounting change as
of the beginning of the period of adoption. Restatement of prior periods is
not permitted. SFAS No. 150 did not have any impact on the Company's
financial position or results of operations.
3. Conversion of notes and accounts payable:
In May, 2002, the Company converted two notes payable totaling $176,666 to
903,231 shares of the Company's common stock at a price of $.20 per share. The
notes had been issued in 2001 and bore interest at 12% annually.
During 2002, the Company issued 61,284 shares of the Company's common stock as
payment for accounts payable of $12,283.
In March, 2003, the Company converted a note payable to the Albert E. Whitehead
Living Trust of which the Company's Chief Executive Officer is Trustee, in the
amount of $170,000 plus interest due to 874,071 shares of the Company's stock
at a price of $.21 per share.
F-9
During 2003, the Albert E. Whitehead Living Trust accepted 7,966,244 shares of
the Company's common stock as payment for advances the trust had made to the
Company at the conversion rate of $.03 per share under terms of an offer made
to all creditors. The Lacy E. Whitehead Living Trust, of which the wife of the
Company's Chief Executive Officer is Trustee, and another creditor of the
Company also converted $59,045 and $16,854 in debt, respectively, to 1,968,172
and 561,797, respectively, shares of common stock as a part of the offer.
4. Stock options:
Under a stock option plan adopted in 1995, the Company may grant options for up
to 1,600,000 shares of common stock. The Board of Directors has sole discretion
for the granting of the options. Stock options granted under the plan expire
ten years from the date of grant plus 30 days. The exercise price of the
options is the fair market value on the date of grant.
A summary of the Company's Incentive Plan as of December 31, 2003 and changes
during the year is presented below:
Weighted Average
Shares Exercise Price
_________ _________________
Outstanding at Beginning of Year 2003 981,666 .89
Granted 200,000 .10
__________
Outstanding at End of Year 2003 1,181,666 .75
========== =======
There were no options granted during the year ended December 31, 2002.
The following table summarizes information about stock options outstanding at
December 31, 2003:
Options Outstanding Options Exercisable
_________________________________________________________________
Weighted
Average Weighted Weighted
Range of Number Remaining Average Number Average
Exercise Outstanding Contractual Exercise Exercisable Exercise
Prices at 12/31/03 Life Price at 12/31/03 Price
____________________________________________________________________________
$0.10-$1.375 1,181,666 5.30 Years $0.75 1,181,666 $0.75
During the year ended December 31, 2003, the Company granted an option to an
employee of the Company to purchase 50,000 shares of the Company's common stock
and an option to Mr. Kinard, a member of the Board of Directors, to purchase
150,000 shares of the Company's common stock, both of which have an exercise
price of $0.10 per share.
5. Income taxes:
The provision for income taxes differs from the amount obtained by applying the
Federal income tax rate of 34% to income before income taxes. The difference
relates to the following items:
F-10
Statutory tax rate 34%
___________
Expected recovery $(190,000)
Benefit of losses not recognized 190,000
___________
Tax provision (benefit) as reported $ -
___________
The components of deferred income taxes at December 31, 2003 are as follows:
Deferred tax assets:
Loss carry-forwards $ 937,000
Valuation allowance (458,000)
___________
479,000
Deferred tax liabilities:
Property and equipment 479,000
___________
Net deferred taxes $ -
___________
At December 31, 2003, the Company had net operating loss carryforwards of
Approximately $2,750,000 which expire beginning in 2010.
Utilization of the Company's loss carryforwards is dependent on realizing
Taxable income. Deferred tax assets for these carryforwards have been
reduced by a valuation allowance.
6. Related party transactions:
On March 15, 2002, the Albert E. Whitehead Living Trust, of which the Company's
Chief Executive Officer is Trustee, loaned the Company $170,000 in the form of
a convertible note. The note accrued interest at the rate of 10% per year, had
a one year term, and was convertible into shares of the Company's Common Stock
at the rate of $.21 per share. In February 2003, the note was converted into
common stock of the Company. During 2002, the Albert E. Whitehead Living Trust
also paid $245,181 of operating expenses on behalf of the Company. The advance
was repaid in the form of Common Stock in 2003 at the rate of $.03 per share
in an offer made to all creditors of the Company, including the Lacy E.
Whitehead Living Trust as further described in Note 4.
During 2003, the Company's Chief Executive Officer advanced an additional
$128,957 for operating expenses which the Company has recorded in accounts
payable in the accompanying balance sheet. See Note 4.
7. Operating lease:
The Company leases office space under operating lease agreements with unrelated
parties, which will expire in 2004 and 2006.
The future minimum lease payments under the operating leases are as follows:
2004 $52,800
2005 52,800
2006 17,600
________
$123,200
F-11
Rent expense for the years ended December 31, 2003 and 2002, respectively, was
$111,492 and $41,913.
Since December 2002, the Company has not paid the monthly lease and tax
payments of approximately $6,834 (Canadian) on the Canadian office lease. The
Company has been notified that the lease has been terminated without prejudice
to the landlord's right to hold the Company liable for future damages related
to lost rent. For the year ended December 31, 2003, the Company recorded an
expense and related liability in the amount of $178,907 which represents its
remaining obligation on the Canadian office lease. Additionally, the Company
has recorded a foreign currency exchange loss of $32,310 for differences in
the exchange rate related to its remaining obligation under the lease.
8. Property and equipment:
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.
Furthermore, 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 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.
In 2003, the Company acquired a 10% interest in the Gabbs Valley Prospect of
Western Nevada by issuing 2,000,000 shares of Company stock. The Company has
recorded its investment at $200,000. The Company's other property and
equipment, totaling $20,086 at December 31, 2002, consists entirely of office
furniture, fixtures and equipment, which are fully depreciated.
9. Restatement:
On November 11, 2005, the Company filed a Form 8-K with the SEC disclosing
that it would restate its previously issued financial statements for the year
ended December 31, 2003, annual and quarterly financial statements for 2004,
and quarterly financial statements for the first two quarters of 2005 after
determining that it had erroneously accounted for its exit activities in
connection with its former office space in Canada.
In the third quarter of 2003, the Company recorded an expense for its
obligation under the lease for the period up to the balance sheet date. It
continued to record an expense of $13,200 per quarter through March 31, 2005
related to the lease (see Note 7). After further review, the Company's
management determined that it should have accrued an obligation for the lease
equal to total amounts owed from the "cease use date" (the date in January 2003
on which the Company's subtenant moved out of the office space) through the end
of the lease term. Additionally, since the lease obligation was in Canadian
dollars, the Company should have recorded a currency exchange gain or loss on
F-12
its obligation in each quarter. Based on this analysis, the Company and its
Board of Directors concluded that its previously issued financial statements
for the year ended December 31, 2003, annual and quarterly financial
statements for 2004 and quarterly financial statements for the first two
quarters of 2005 required adjustments of the amounts previously reported for
accounts payable and accrued liabilities, and general and administrative
expenses. The following table summarizes the adjustments required to
previously reported amounts included in these financial statements.
Year Ended December 31,
2003
Previously
Reported As Restated
Petroleum sales 163,627 163,627
__________ ___________
Cost & Expenses:
Production & Operation 161,263 161,263
General & Administrative 271,076 357,583
Depreciation 1,028 1,028
Leasehold Impairment 266,778 266,778
__________ ___________
700,145 786,652
__________ ___________
Operating income (loss) (536,518) (623,025)
__________ ___________
Other (income) expense:
Gain on Sale of Assets (2,201) (2,201)
Miscellaneous (3,272) 29,038
Interest Expense 27,047 27,047
__________ ___________
21,574 53,884
__________ ___________
Net loss (558,092) (676,909)
__________ ___________
Net loss per share (.02) (.02)
__________ ___________
December 31, 2003
Previously
Reported As Restated
ASSETS
Current Assets:
Cash 21,622 21,622
Accounts Receivable 21,062 21,062
Prepaid Expenses 2,651 2,651
__________ ___________
Total Current Assets 45,335 45,335
__________ ___________
Property, Plant & Equipment (net) 527,109 527,109
__________ ___________
Total Assets 572,444 572,444
LIABILITIES & STOCKHOLDERS EQUITY
F-13
Current Liabilities:
Accounts payable & accrued
Expenses 261,127 379,944
Accounts payable - related party 130,180 130,180
Note payable 85,421 85,421
__________ __________
Total current liabilities 476,728 595,545
__________ __________
Total liabilities 476,728 595,545
__________ __________
Stockholders' equity:
Common stock 37,830 37,830
Additional paid in capital 8,368,135 8,368,135
Accumulated deficit (8,310,249) (8,429,066)
__________ __________
Total stockholder's equity 95,716 (23,101)
__________ __________
Total liabilities and
stockholders' equity 572,444 572,444
__________ __________
F-14
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 annual report on Form 10-KSB 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 disclosure 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 fourth fiscal quarter that has materially affected, or is reasonably
likely to materially affect, the small business issuer's internal control over
financial reporting; and
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.
February 8, 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 annual report of Empire Petroleum Corporation (the
"Company") on Form 10-KSB for the period ending December 31, 2003, 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.
February 8, 2006 /s/ Albert E. Whitehead
Albert E. Whitehead, Chief Executive Officer
and principal financial officer
A signed original of this written statement required by Section 906 has been
provided to the Company and will be retained by the Company and furnished to
the Securities and Exchange Commission or its staff upon request.
The foregoing certification is being furnished to the Securities and Exchange
Commission as an exhibit to the Report and shall not be considered filed as
part of the Report.