UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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
TABLE OF CONTENTS
ITEM NUMBER AND CAPTION PAGE NUMBER
PART I
Item 1. Description of Business 4-7
Item 2. Description of Property 7-8
Item 3. Legal Proceedings 9
Item 4. Submission of Matters to a Vote of Security Holders 9
PART II
Item 5. Market for Common Equity and Related Stockholder
Matters 9
Item 6. Management's Discussion and Analysis or Plan of
Operation 10-17
Item 7. Financial Statements F-1 through F-12
Item 8. Changes In and Disagreements with Accountants on
Accounting and Financial Disclosure 17
Item 8A. Controls and Procedures 17
PART III
Item 9. Directors, Executive Officers, Promoters and Control
Persons; Compliance with Section 16(a) of the Exchange
Act 17-19
Item 10. Executive Compensation 19
Item 11. Security Ownership of Certain Beneficial Owners
and Management and Related Stockholder Matters 19-21
Item 12. Certain Relationships and Related Transactions 21
Item 13. Exhibits and Reports on Form 8-K 21-22
Item 14. Principal Accountant Fees and Services 22-23
Signatures 23
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
Background
Empire Petroleum Corporation, a Delaware corporation (the "Company"),
was incorporated in the state of Utah in August 1983 under the name
Chambers Energy Corporation and domesticated in Delaware in March
1985 under the name Americomm Corporation. The Company's name was
changed to Americomm Resources Corporation in July 1995. On May 29,
2001, Americomm Resources Corporation acquired Empire Petroleum
Corporation, which became a wholly owned subsidiary of Americomm
Resources Corporation. On August 15, 2001, Americomm Resources
Corporation and Empire Petroleum Corporation merged and the Company's
name was changed to Empire Petroleum Corporation. Since August 15, 2001,
the Company has not had any subsidiaries. The Company operates from
leased office space at 8801 S. Yale, Suite 120, Tulsa, OK 74137-3575,
and its telephone number is (918) 488-8068.
During the past three fiscal years, the Company has focused on developing
the Cheyenne River and Gabbs Valley Prospects as further described below.
Oil and Gas Development Prospects
Pursuant to that certain Americomm Cheyenne River Prospect Agreement dated
March 4, 1998, as amended (the "Prospect Agreement"), the Company paid
$234,500 in March 1998 to cover the initial expenses of acquiring leases
in an oil and gas Prospect in the Eastern Powder River Basin in the State of
Wyoming (the "Cheyenne River Prospect"). Also in accordance with
the Prospect Agreement, the Company issued an aggregate of 566,000 shares of
Common Stock and agreed to grant overriding royalty interests to five
individuals as consideration for services performed and to be performed in
connection with the acquisition and exploration of the Cheyenne River
Prospect.
Prior to the Company acquiring Empire Petroleum Corporation, the Company
entered into that certain Farmout Agreement dated November 15, 2000 by and
between the Company, Empire Petroleum Corporation and certain other parties
(the "2000 Farmout Agreement"). Pursuant to the 2000 Farmout Agreement,
drilling of the Timber Draw #1-AH well commenced during December 2000 within
the 25,000 acre Timber Draw Federal Drilling Unit included in the Cheyenne
River Prospect. The following parties participated with Empire Petroleum
Corporation in the drilling of the Timber Draw #1-AH test well at the following
participation levels: Maxy Resources, LLC (25%), Enterra Energy Corp.
(formerly Big Horn Resources Ltd.) (15%) and 74305 Alberta Ltd. (10%).
The drilling of the Timber Draw #1-AH well was completed at a total
measured depth of 10,578 feet, of which the last 2,030 feet were drilled
horizontally through the Newcastle "B" formation. The Timber Draw
#1-AH well encountered flows of oil and gas during the horizontal drilling.
Thereafter, the Company conducted a series of production methods on its Timber
Draw #1-AH well during the period from February 13, 2001, to June 22, 2001.
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
calculated that the natural gas would yield natural gas liquids of
approximately 70 barrels per day based on estimated gas production of 500,000
cubic feet per day. The well was shut-in on June 22, 2001 to conserve the
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natural gas, which was flared during the test period. A bottom hole pressure
survey of the Timber Draw #1-AH well conducted in April 2002 indicated a limited
reservoir for this well.
The Bureau of Land Management ("BLM") has advised the Company that it
does not consider the Timber Draw Unit #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. The Company
planned on initiating additional drilling during the second half of 2002;
however, due to poor financial market conditions, the Company was unable
to raise the funds necessary to complete such drilling. 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.
As of December 31, 2003, the Company owns a thirty three and one-third
(33.33%) percent working interest in the Timber Draw #1-AH well. The
Company's working interest in the #1-AH well, was reduced from 50% by virtue
of the terms of a Farmout Agreement with a third party that is subject
to final documentation (the "2003 Farmout Agreement"), pursuant to which the
third party completed a 16 square mile seismic program and earned a
25% interest in the #1-AH well effective October 1, 2003. The third party
also has the right to drill a new test well on the farmout lands for
which it will earn an additional interest in the #1-AH. Upon the completion
of this new test well, the Company's interest in the #1-AH well will be
reduced to 17.5% and its working interest in the balance of the 36,410 gross
acres of leases currently held by the Company will be reduced to 26.8%.
The Company will have no cost obligation associated with the new test well to
be drilled by the third party. In order to drill the test well, a new Federal
Unit is being formed. The Company anticipates that the new test well will be
drilled in the second quarter of 2004. Also as of December 31, 2003, the
Company retains an overriding royalty on 42,237 acres.
On May 8, 2003, the Company entered into an agreement with O.F. Duffield
(the "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 had
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 such block. The shares issued to Mr. Duffield were valued at
$.10 per share based on the closing price of the Company's Common Stock on
the date of issuance.
Risks Inherent in Oil and Gas Exploration
Exploration for oil and gas is highly speculative and involves a great
degree of risk. The Company may be required to perform expensive
geological and/or seismic surveys with respect to its properties. Even
if the results of such surveys are favorable, only subsequent drilling at
substantial costs can determine whether commercial development of the
properties is feasible. Oil and gas drilling is frequently marked by
unprofitable efforts, not only from unproductive prospects, but also
from productive prospects that do not produce sufficient amounts to return
a profit on the investment. To further test its Cheyenne River Prospect, the
Company has entered into an agreement with a third party pursuant to which
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the third party completed a 16 square mile 3-D seismic program immediately
surrounding the Timber Draw #1-AH test well, and the results of the seismic
survey were positive. The third party is planning to drill a new test well
in the second quarter of 2004, utilizing horizontal drilling, a technology
which can drill underbalanced wells horizontally thousands of feet into
fractured reservoirs. The Company believes horizontal drilling, while more
costly than conventional drilling methods, could yield substantial and economic
reserves. However, there can be no assurance that the Company will be able to
discover, develop or produce sufficient reserves to recover the expenses
incurred in connection with the exploration of its Cheyenne River Prospect
and achieve profitability.
The Company's operations are subject to the substantial operating hazards
and risks inherent to exploring for and developing oil and gas, such
as encountering unusual or unexpected formations, interruptions due to adverse
weather conditions, unforeseen technical difficulties and equipment breakdowns.
Oil and gas properties are also subject to risks inherent to drilling for and
producing oil and gas, including blowouts, cratering and fires. These risks
could result in damage to or loss of life and property. Prior to commencing
drilling of the Timber Draw #1-AH test well, the Company obtained insurance
coverage that is customary for companies engaged in similar operations.
However, the Company may not be fully insured against all possible risks.
For a discussion of additional risks applicable to the Company, see Item 6,
Management's Discussion and Analysis or Plan of Operation.
Competition
The oil and gas business is extremely competitive. The Company must compete
with many long-established companies with greater financial resources and
technical capabilities. The Company is not a significant participant in the
oil and gas industry.
Markets; Price Volatility
The market price of oil and gas is volatile, subject to speculative movement
and depends upon numerous factors beyond the control of the Company, including
expectations regarding inflation, global and regional demand, political and
economic conditions and production costs. Future profitability, if any, will
depend substantially upon the prevailing prices for oil and gas. If the market
price for oil and gas is significantly depressed in the future, it could have a
material adverse effect on the Company's ability to raise additional capital
necessary to finance operations and to explore the Cheyenne River Prospect.
Lower oil and gas prices may also reduce the amount of oil and gas, if any,
that can be produced economically from the Company's properties.
Regulation
The oil and gas industry is subject to extensive federal, state and local
laws and regulations governing the production, transportation and sale of
hydrocarbons as well as the taxation of income resulting therefrom.
Legislation affecting the oil and gas industry is constantly changing.
Numerous federal and state departments and agencies have issued rules and
regulations applicable to the oil and gas industry. In general, these
rules and regulations regulate, among other things, the extent to which
acreage may be acquired or relinquished; spacing of wells; measures required
for preventing waste of oil and gas resources; and, in some cases, rates of
production. The heavy and increasing regulatory burdens on the oil and gas
industry increase the costs of doing business and, consequently, affect
profitability.
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A substantial portion of the leases, which constitute the Cheyenne River
Prospect are granted by the federal government and administered by the BLM
and the Minerals Management Service ("MMS") of the U.S. Department of the
Interior, both of which are federal agencies. Such leases are issued through
competitive bidding, contain relatively standardized terms and require
compliance with detailed BLM and MMS regulations and orders (which are subject
to change by the BLM and the MMS). Leases are also accompanied by stipulations
imposing restrictions on surface use and operations. Operations to be
conducted by the Company on federal oil and gas leases must comply with
numerous regulatory restrictions, including various nondiscrimination statutes.
Federal leases also generally require a complete environmental impact
assessment prior to the authorization of an exploration or development plan.
The Company's oil and gas properties and operations are also subject to numerous
federal, state and local laws and regulations relating to environmental
protection. These laws govern, among other things, the amounts and types of
substances and materials that may be released into the environment, the issuance
of permits in connection with exploration, drilling and production activities,
the release of emissions into the atmosphere, the discharge and disposition of
generated waste materials, the reclamation and abandonment of wells and facility
sites and the remediation of contaminated sites. These laws and regulations may
impose substantial liabilities for the Company's failure to comply with them or
for any contamination resulting from the Company's operations.
Although the Company is not aware of any circumstances which would cause it to
be in violation of any regulation, if the Company engages in the exploration of
oil and gas, substantial costs are expected to be required to comply with
applicable regulations and costs and delays associated with such compliance
could materially affect the economics of a given project, cause material
changes or delays in the intended activities or inhibit the development of an
oil or gas property. The effect of any future regulation on the Company's
operations cannot be determined at this time, although any increase in the cost
of the Company 's operations as a result of future regulations could have a
material adverse impact on the Company.
Employees
As of December 31, 2003, the Company has one employee, a full time secretary.
Mr. Albert E. Whitehead, Chairman and Chief Executive Officer, devotes a
considerable amount of time to the affairs of the Company and receives no
compensation. For financial statement purposes, Mr. Whitehead's services have
been recorded as contributed capital and expense in the amount of $50,000 for
the year ended December 31, 2003.
ITEM 2. DESCRIPTION OF PROPERTY
Cheyenne River Prospect - Powder River Basin, Wyoming
As of December 31, 2003, the Cheyenne River Prospect consists of approximately
36,410 gross acres of federal, state and fee leases, all of which are located in
Niobrara County, Wyoming. The land in the Cheyenne River Prospect consists
of gently rolling ranch land with a substantial network of ranch roads, which
permit easy access to most areas of the Prospect. The Prospect is located in
a mature producing area with an established pipeline and service network.
Numerous wells were drilled within the Prospect area in the 1950's through the
1970's, with initial potential flowing rates in the range of 200 to 1,500
barrels of oil per day. Management believes that these wells may identify a
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fractured reservoir with the potential for significant oil and gas production,
which would be most effectively exploited utilizing horizontal drilling
technology.
Pursuant to the 2000 Farmout Agreement, a test well was drilled on the
Prospect using horizontal drilling technology. The Company has retained a
33.33% interest in such well. For more information on this test well and the
2000 Farmout Agreement see "Oil and Gas Development Prospects" under Item 1,
Description of Business.
The Company's leases in the Cheyenne River Prospect are predominately
federal leases with 10 year terms, most of which have four years
remaining. Since the Company did not commence drilling another well by
August 12, 2002, the BLM informed the Company the Timber Draw Unit was
terminated. Unless a new unit is formed, a well will need to be drilled on
each federal, state or fee lease in order to extend such lease for the life
of its producing capability.
Pursuant to the 2003 Farmout Agreement, a third party carried out a seismic
program in 2003 and, based on the results of such survey, the third party is
planning to drill a test well during the second quarter of 2004. For more
information on this 2003 Farmout Agreement, see "Oil and Gas Development
Prospects" under Item 1, Description of Business. The Company has applied for
a new drilling unit based upon a favorable seismic survey and the commitment
by a third party to drill a new test well. The Company's state and fee leases
had initial terms of five years. As of December 31, 2003, the Company had
retained two state leases which expire in July 2005. The Company's fee leases
were renewed for two (2) year terms and expire in April 2005.
Gabbs Valley Prospect - Nye and Mineral Counties, Nevada
As of December 31, 2003, the Gabbs Valley Prospect consists of approximately
45,000 acres of federal leases, which are located in Nye and Mineral Counties,
Nevada. Pursuant to the Duffield Agreement, the Company has acquired a ten
percent (10%) interest in 45,000 acres in the Gabbs Valley Prospect. As of
December 31, 2003, no wells had been drilled on the Gabbs Valley Prospect.
For more information regarding the Duffield Agreement, see "Oil and
Gas Development Prospects" under Item 1, Description of Business.
COMPANY UNDEVELOPED ACREAGE (LEASES)
AS OF DECEMBER 31, 2003
Undeveloped Acreage Productive Acreage Drilling Activity
Gross Net Gross Net Completed Oil Well
Prospect Acres Acres Acres Acres 2001 2002 2003
________ ________ _______ ________ _________ __________________
Cheyenne
River 36,410 17,856 - - * -0- -0-
Gabbs
Valley 45,000 4,500 - - -0- -0- -0-
* As of December 31, 2003, the Company's Timber Draw #1-AH well is
under evaluation to asses its production and economic potential.
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ITEM 3. LEGAL PROCEEDINGS
As of December 31, 2003, neither the Company nor its property was subject
to any legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during
the quarter ended December 31, 2003.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market Information:
The Company's Common Stock is traded on the National Association of Securities
Dealers Automatic Quotation (NASDAQ) over-the-counter bulletin board system
under the symbol "EMPR."
The following table sets forth the range of high and low prices at which the
Company's common stock traded during the time periods indicated, as reported
by NASDAQ.
Year ending December 31, 2002:
Quarter High Low
03/31/02 .22 .15
06/30/02 .21 .15
09/30/02 .16 .06
12/31/02 .13 .015
Year ending December 31,2003:
Quarter High Low
03/31/03 .12 .007
06/30/03 .30 .06
09/30/03 .20 .08
12/31/03 .25 .14
Quotations reflect inter-dealer prices, without retail mark-up, markdown or
commission and may not represent actual transactions.
Number of Holders of Common Stock
At December 31, 2003, there were approximately 181 stockholders of record of
the Company's Common Stock.
Dividends
The Company has never paid cash dividends on its Common Stock. The Company
intends to retain future earnings for use in its business and, therefore,
does not anticipate paying cash dividends on its Common Stock in the
foreseeable future.
Recent Sales of Unregistered Securities
During the quarter ended December 31, 2003, the Company did not sell any
securities of the Company that were not registered under the Securities
Act.
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ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
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,
* 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.
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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 $558,092 and $5,692,735 for the years ending
December 31, 2003 and 2002, respectively. The Company also has an accumulated
deficit of $8,310,249 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
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
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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
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.
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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
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.
-13-
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
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:
-14-
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 monthly lease and tax payments of
approximately $4,400 (U.S.) 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
-15-
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
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
-16-
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 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None, other than those previously reported in the Company's Form 10-KSB
for the period ended December 31, 2002, which was filed with the Securities
and Exchange Commission on April 16, 2003.
ITEM 8A. CONTROLS AND PROCEDURES
The Company Carried out an evaluation under the supervision of the Company's
Chief Executive 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 Company's disclosure controls and procedures as of the
end of the period covered by this report on Form 10-KSB are effective to
ensure that information required to be disclosed by the Company on reports
that it files or submits under the Exchange Act are recorded, processed,
summarized and reported within the time periods specified in the Securities
and Exchange Commission rules and forms. The design of any system of controls
is based in part upon certain assumptions about the likelihood of future
events and there can be no assurance than any design will succeed in adhering
its stated goals under all potential future conditions.
During the period covered by this report on Form 10-KSB, the Company engaged
a third party financial consultant to oversee the Company's financial
reporting to ensure compliance with applicable disclosure requirements.
Other than as described in the preceding sentence, there have been no
other changes in the Company's internal control over financial reporting that
have materially affected or are reasonably likely to materially affect the
Company's internal control over financial reporting during the period covered
by this report on Form 10-KSB.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
The following lists the directors and executive officers of the Company:
-17-
Held Position
Name Age Position Since
Albert E. Whitehead 73 Director; Chairman & C.E.O April 2002
John C. Kinard 70 Director June 1998
_______________________________________
(1) Directors hold office until their successors are elected by the
shareholders of the Company and qualified. Executive Officers serve at
the pleasure of the Board of Directors.
Albert E. Whitehead.
Mr. Whitehead served as Chairman of the Board and Chief Executive Officer
from March 1998 to May 2001, when John P. McGrain assumed such role. Mr.
Whitehead again assumed the role of Chairman and Chief Executive Officer
April 16, 2002 upon the resignation of Mr. McGrain. Mr. Whitehead served
as the Chairman and Chief Executive Officer of Seven Seas Petroleum Inc.,
a publicly held company, engaged in international oil and gas exploration
from February 1995 to May 1997. From April 1987 through January 1995, Mr.
Whitehead served as Chairman and Chief Executive Officer of Garnet Resources
Corporation, a publicly held oil and gas exploration and development company.
John C. Kinard.
Mr. Kinard has served as a Director of the Company since June 1998 and is
currently a Partner in Silver Run Investments, LLC, an oil and gas investment
firm. Mr. Kinard served as President of the Remuda Corporation, a private oil
and gas exploration company, from 1967 until 2002. From 1990 through December
1995, Mr. Kinard served as President of Glen Petroleum, Inc., a private oil
and gas exploration company. From 1990-2002, Mr. Kinard also served as the
Chairman of Envirosolutions UK Ltd., a private industrial wastewater treatment
company.
IDENTIFICATION OF THE AUDIT COMMITTEE; AUDIT COMMITTEE FINANCIAL EXPERT:
Due to the Company's size, it has had difficulty recruiting additional
individuals to serve on its Board of Directors, including persons qualified
to serve as an audit committee financial expert on an audit committee. As of
December 31, 2003, the Company had not established any committees (including
an audit committee) because the Board of Directors consists of only two
individuals. As such, the Company does not have an audit committee or an
audit committee financial expert serving on such committee. As of December
31, 2003, the entire Board of Directors (Messrs. Whitehead and Kinard)
essentially serve as the Company's audit committee.
CODE OF ETHICS:
As of December 31, 2003, the Company has not adopted a Code of Ethics
applicable to the Company's officers. Through December 31, 2003, the
Company's primary focus has been on achieving profitability. The Company
intends to adopt a Code of Ethics in the current fiscal year.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE:
Section 16(a) of the Security Exchange Act of 1934 requires the Company's
directors, executive officers, and persons who beneficially own more than 10
percent of a registered class of the Company's equity securities, to file with
the Securities and Exchange Commission (the "SEC") initial reports of ownership
-18-
and reports of changes in ownership of Common Stock and other equity securities
of the Company. Officers, directors and greater than ten percent stockholders
are required by SEC regulation to furnish the Company with copies of all
Section 16(a) forms they file.
Based solely on review of the copies of such reports furnished to the Company
and any written representations that in other reports were required during
the year ended December 31, 2003, to the Company's knowledge, all Section 16(a)
filing requirements applicable to its officers, directors and greater than 10%
beneficial owners during the year ended December 31, 2003 were complied with on
a timely basis.
ITEM 10. EXECUTIVE COMPENSATION
EXECUTIVE COMPENSATION AND OTHER MATTERS
During the last three completed fiscal years, no executive officer received a
salary or any other benefits as a part of executive compensation.
Compensation of Directors
The Company does not have any formal procedure for compensating the members
of its Board of Directors. From time to time in the past, the Company has
granted options to the members of its Board of Directors under its 1995
Stock Option Plan as compensation for serving on the Board of Directors.
During the fiscal year ended December 31, 2003, the Company granted Mr. Kinard
an option to purchase 150,000 shares of the Company's Common Stock at an
exercise price of $0.10 per share as compensation for his service as a member
of the Company's Board of Directors. This option expires on June 9, 2013.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AND RELATED STOCKHOLDER MATTERS
Securities Authorized for Issuance under Equity Compensation Plans
As of December 31, 2003, the Company had one equity incentive plan under which
equity securities have been authorized for issuance to the Company's directors,
officers, employees and other persons who perform substantial services for or
on behalf of the Company. This plan is titled "1995 Stock Option Plan" and has
been approved by the Company's stockholders.
The following table provides certain information relating to the 1995 Stock
Option Plan as of December 31, 2003:
(a) (b) (c)
Number of securities
remaining available
for future
Number of Securities issuance under
to be issued upon Weighted-average equity compensation
exercise of exercise price of plans, excluding
outstanding options, outstanding options, securities reflected
Plan Category warrants and rights warrants and rights in column(a)
Equity 1,181,666 $0.75 418,334
compensation plans
approved by
security holders
-19-
Equity ------- N/A ---------
Compensation plans
not approved by
security holders
TOTAL 1,181,666 418,334
_______ _______
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information regarding the beneficial ownership
of our Common Stock as of March 15, 2004 for:
* each person who is known to own beneficially more than 5% of our
outstanding Common Stock;
* each of our executive officers and directors; and
* all executive officers and directors as a group.
The percentage of beneficial ownership for the following table is based on
37,830,190 shares of Common Stock outstanding as of March 15, 2004.
Unless otherwise indicated below, to the Company's knowledge, all persons and
entities listed below have sole voting and investment power over their shares
of Common Stock.
Amount and
nature of
beneficial Percent of
Name and address of beneficial owner ownership class (1)
Albert E. Whitehead, 14,338,025 (2) 37.73%
Chairman of the Board and
Chief Executive Officer
2236 E. 55th Place
Tulsa, OK 74105-6124
John C. Kinard, 631,331 (3) 1.64%
Director
240 Cook Street
Denver, CO 80206-0590
All current directors and executive officers
as a group (2 persons) 14,969,356 (4) 39.56%
(1) The percentage ownership for each person is calculated in
accordance with the rules of the SEC, which provide that any shares a
person is deemed to beneficially own by virtue of having a right to acquire
shares upon the conversion of options or other rights are considered
outstanding solely for purposes of calculating such person's percentage
ownership.
(2) This number includes: (i) 11,332,742 shares directly owned by the
Albert E. Whitehead Living Trust, of which Mr. Whitehead is the trustee; (ii)
170,000 shares that Mr. Whitehead has the right to acquire pursuant to options
-20-
granted to him under the 1995 Stock Option Plan; and (iii) 2,835,283 shares
directly owned by the Lacy E. Whitehead Living Trust, of which Ms. Whitehead,
Mr. Whitehead's wife, is trustee. Mr. Whitehead disclaims any interest in
the shares owned by the Lacy E. Whitehead Living Trust.
(3) This number includes: (i) 320,000 shares Mr. Kinard has the right
to acquire pursuant to options granted to him under the 1995 Stock Option
Plan; and (ii) 150,000 shares directly owned by Mr. Kinard's wife, of which
Mr. Kinard disclaims any interest.
(4) This number includes 490,000 shares issuable upon the exercise of
options granted under the 1995 Stock Option Plan.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On March 15, 2002, the Albert E. Whitehead Living Trust loaned the Company
$170,000 pursuant to a convertible note issued by the Company. The note
accrued interest at the rate of 10% per year, had a one year term and was
convertible into shares. On March 17, 2003, the Company issued 874,071 shares
of Common Stock to the Albert E. Whitehead Living Trust in connection with the
conversion of such note by the trust. Also on March 17, 2003, the Company
issued the following number of shares to the following related parties in
consideration of the cancellation of the debt owed by the Company to such
parties as set forth below:
Amount of Debt
Name Number of Shares Owed by the Company
The Albert E. Whitehead
Living Trust 7,966,244 $238,987.30
The Lacy E. Whitehead
Living Trust 1,968,172 59,045.15
The market value of the Common Stock as of March 17, 2003 ($0.03) was used in
connection with the conversion of debt described in the table above. In
addition, from the period from February 14, 2003 to December 31, 2003, the
Albert E. Whitehead Living Trust advanced the Company an additional
$128,957.
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, (SEC File No. 0-20193)
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)
-21-
10.1 1995 Stock Option Plan
(incorporated herein by reference to Appendix A of the Company's
Form DEFS 14A dated June 13, 1995, (SEC File No. 0-20193)
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, (SEC File No. 0-20193)
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)
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
10.7 Letter Agreement dated May 8, 2003 between the Company and O. F.
Duffield (submitted herewith)
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.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The following is a summary of the fees billed or to be billed to the Company
by Tullius Taylor Sartain & Sartian, LLP, the Company's independent auditors,
for professional sServices rendered for the fiscal years ended December 31,
2003 and December 31, 2002:
-22-
Fee Category Fiscal 2003 Fees Fiscal 2002 Fees
Audit Fees (1) $16,000 $7,500
Audit-Related Fees (2) -0- -0-
Tax Fees -0- -0-
All Other Fees (3) -0- -0-
Total Fees $16,000 $7,500
(1) Audit Fees consist of aggregate fees billed for professional services
rendered for the audit of the Company's annual financial statements and
review of the interim financial statements included in quarterly reports or
services that are normally provided by the independent auditors in connection
with statutory and regulatory filings or engagements for the fiscal years ended
December 31, 2003 and December 31, 2002, respectively.
(2) Audit-Related fees consist of aggregate fees billed for assurance and
related services that are reasonably related to the performance of the audit
or review of our financial statements and are not reported under "Audit Fees."
(3) All Other Fees consist of aggregate fees billed for products and services
provided by Tullius Taylor Sartain & Sartain, LLP, other than those disclosed
above.
The entire Board of Directors of the Company is responsible for the appointment,
compensation and oversight of the work of the independent auditors and approves
in advance any services to be performed by the independent auditors, whether
audit-related or not. The entire Board of Directors reviews each proposed
engagement to determine whether the provision of services is compatible with
maintaining the independence of the independent auditors. All of the fees
shown above were pre-approved by the entire Board of Directors.
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: March 30, 2004 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 March 30, 2004
Albert E. Whitehead
/s/John C. Kinard Director March 30, 2004
John C. Kinard
-23-
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-12
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.
/s/ TULLIUS TAYLOR SARTAIN & SARTAIN LLP
Tulsa, Oklahoma
March 5, 2004
F-1
EMPIRE PETROLEUM CORPORATION
BALANCE SHEET
ASSETS December 31,
2003
___________
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 $ 261,127
Accounts payable to related party 130,180
Note payable 85,421
___________
Total current liabilities 476,728
___________
Total liabilities 476,728
___________
Stockholders' equity:
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 (8,310,249)
___________
Total stockholders' equity 95,716
___________
$ 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
___________ ___________
Revenue:
Petroleum sales $ 163,627 $ 0
___________ ___________
163,627 0
___________ ___________
Costs and expenses:
Operating expenses 161,263 157,427
General and administrative 271,076 223,738
Depreciation expense 1,028 4,150
Leasehold impairment 266,778 6,496,614
___________ ___________
700,145 6,496,614
___________ ___________
Operating loss (536,518) (6,881,929)
___________ ___________
Other income and (expense):
Gain on sale of assets 2,201 0
Interest expense (27,047) (62,676)
Miscellaneous income 3,272 1,870
___________ __________
Total other income and expense (21,574) (60,806)
___________ __________
Net loss before income taxes (558,092) (6,942,735)
Deferred tax benefit 0 (1,250,000)
___________ __________
Net loss $ (558,092) $(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 - - - (558,092) (558,092)
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 $(8,310,249) $ 95,716
__________ _______ __________ ___________ ___________
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 $ (558,092) $(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 268,605 108,621
___________ ___________
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
common stock on the date of grant. The following table illustrates the effect
F-7
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
_________ ___________
Net Earnings - as reported $(558,092) $(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 $(574,092) (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:
F-11
2004 $52,800
2005 52,800
2006 17,600
________
$123,200
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 $4,400 (U.S.) 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.
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.
F-12
EXHIBIT 10.7
May 8, 2003
Mr. O. F. Duffield
16786 Kincheloe Rd.
Siloam Springs, AR 72761
RE: Acquisition Agreement,
Gabbs Valley Prospect,
Nye & Mineral Counties, Nevada
Dear Buddy:
This letter will serve as a memorandum of our verbal agreement whereby O. F.
Duffield ("Duffield") agrees to sell Empire Petroleum a ten (10%) percent
interest in leases owned outright by Duffield and lease ownership being
contested in an adjoining block of leases more clearly defined as follows:
Block I This block of federal leases consists of approximately 45,000
acres located primarily in Twps 12 & 13N, Rge 35E, Nye County,
Nevada in which Duffield has a 100% working interest (80% NRI).
Block II This block of federal leases consists of 26,080 acres located in
Twps 12 & 13N, Rge 35E, Nye County, Nevada and the leases are
recorded in Frontera Resources Ltd. which is controlled by James
R. Isern. Duffield claims an interest in the Frontera leases
and is pursuing legal means to resolve this issue.
Empire is prepared to issue Duffield 2,000,000 shares of its Common Stock for a
ten (10%) percent interest in Block I, subject to royalties and overrides
totaling twenty (20%) percent. Empire would also be entitled to a ten (10%)
percent interest in the Block II Frontera leases should Duffield prevail and be
awarded all or a portion of these leases. For clarification, should Duffield
be awarded or settle for less than 100% of the Block II leases, Empire's
interest shall be proportionately reduced based on the percentage received by
Duffield. The Empire shares issued to Duffield would be restricted until such
time as a registration of same was made. Empire would grant Duffield "Piggy
Back" rights that would allow him to register his shares should Empire do a
registration.
Empire, from the date this transaction is completed, would bear ten (10%)
percent of all costs associated with lease maintenance (rentals), travel
expenses associated with the Gabbs Valley Prospect, legal expenses incurred in
the Frontera/Isern dispute and other prospect related matters.
Empire's President, A. E. Whitehead would agree to assist Duffield regarding
all issues related to legal, geological, geophysical, marketing and other
strategies for getting this prospect explored.
Duffield agrees to hold Empire's ten (10%) percent leasehold in trust until
such time Empire requests an assignment of its interest. Empire and
Duffield also agree to enter into an operating agreement and other agreements
deemed necessary to exploring and producing hydrocarbons from the Gabbs
Valley Prospect.
If this letter correctly sets out your understanding of our agreement please
sign and return one copy of this letter to Empire.
Yours very truly,
/s/A. E. Whitehead
AEW/gs
Agreed to this 16th day of
May, 2003
/s/ O. F. Duffield
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.
March 30, 2004 /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.
March 30, 2004 /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.