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, 2005
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
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 $57,588.
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 March 21, 2006 was $5,045,550.
The number of shares outstanding of the issuer's Common Stock, as of March 21,
2006 was 42,830,190.
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 4-6
Item 2. Description of Property 6-7
Item 3. Legal Proceedings 7-8
Item 4. Submission of Matters to a Vote of Security Holders 8
PART II
Item 5. Market for Common Equity and Related Stockholder
Matters 8
Item 6. Management's Discussion and Analysis 9-17
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 18
Item 8B. Other Information 18
PART III
Item 9. Directors, Executive Officers, Promoters and Control
Persons; Compliance with Section 16(a) of the Exchange
Act 18-19
Item 10. Executive Compensation 19
Item 11. Security Ownership of Certain Beneficial Owners
and Management and Related Stockholder Matters 20-21
Item 12. Certain Relationships and Related Transactions 21
Item 13. Exhibits 21-22
Item 14. Principal Accountant Fees and Services 22-23
Signatures 24
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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.
Cheyenne River Prospect
The Company owns a 26.785% working interest in approximately 33,485 acres of
oil and gas leases located in Niobrara County, Wyoming (the "Cheyenne River
Prospect") and an overriding royalty interest of between 1.5% and 2%
in 42,237 acres of oil and gas leases located in or near the Cheyenne
River Prospect.
The drilling of the Company's first well in the Cheyenne River
Prospect, the Timber Draw #1-AH, was completed in January 2001 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 encountered flows of oil and gas during the horizontal
drilling. The Company conducted a series of production tests on this
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. However, the well
was shut-in on June 22, 2001 to conserve the natural gas, which was
flared during the test period, and a bottom hole pressure survey of the
well conducted in April 2002 indicated a limited reservoir. As of
December 31, 2005, the Company owned a 17.5% working interest in the
Timber Draw #1-AH and the well had produced 21,875 barrels of oil.
Pursuant to a farmout agreement, a third party conducted a seismic
survey in the Cheyenne River Prospect and the drilling of the Company's
second well, the Hooligan Draw Unit #1-AH, was completed in December
2004 at no cost to the Company. Shortly thereafter, the well was
tested every fifth day for approximately a three-hour period during
which it produced 50 to 60 barrels of oil during each test period and
during the balance of 2005 it was produced at different intervals and
had accumulative production of 3,370 barrels at year end. As of December
31, 2005, the Company owned a 26.785% working interest in the Hooligan Draw
Unit #1-AH.
The Cheyenne River Prospect is located near a mature producing area
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with an established pipeline and service network.
The Company is currently in the process of analyzing studies completed in
March 2006 to determine the viability of the Cheyenne River Prospect.
In addition, as of such time, the Company was exploring the possibility of
selling its interests in the Cheyenne River Prospect.
Gabbs Valley Prospect
The Company owns a 10% working interest in approximately 44,604 acres
of oil and gas leases in Nye and Mineral Counties, Nevada (the "Gabbs
Valley Prospect").
As of December 31, 2005, there have been no wells drilled on the Gabbs
Valley Prospect. However, in November 2005, the Company received the
results of a 19-mile 2-D swath seismograph survey conducted on the
prospect and, based on the results of the survey, the Company and its
partners determined that a test well should be drilled on the prospect.
A 28,783 acre unit on the Gabbs Valley Prospect, the Cobble Cuesta
Unit, was approved by the Bureau of Land Management on March 1, 2005
and a test well is being planned for the second or third quarter of
2006. As of December 31, 2005, the demand for drilling rigs was very
high. As such, it could be difficult for the Company to secure a
drilling rig, and the actual timing of the commencement of this test
well could be delayed.
Other than a 5,000 barrel-per-day refinery located approximately 115
miles from the Gabbs Valley Prospect, there are no pipelines or service
networks located near the prospect.
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 and Gabbs
Valley Prospects. 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. Although the prices of oil and gas remain volatile, the oil and
gas industry has recently experienced historically high prices for oil and
gas. The Company does not anticipate that the prices of oil and gas
will decline substantially in the near future.
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.
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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.
A substantial portion of the leases, which constitute the Cheyenne River
and Gabbs Valley Prospects are granted by the federal government and
administered by the Bureau of Land Management ("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 archaeology and 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 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.
Employees
As of December 31, 2005, the Company had 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, 2005.
ITEM 2. DESCRIPTION OF PROPERTY
Cheyenne River Prospect
As of December 31, 2005, the Cheyenne River Prospect consisted of
approximately 33,485 gross acres of federal and fee leases located in
Niobrara County, Wyoming, of which the Company owns a 26.785% working
interest. 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 near 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
fractured reservoir with the potential for significant oil and gas production,
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which would be most effectively exploited utilizing horizontal drilling
technology. The Company is currently in the process of analyzing studies
completed in March 2006 to determine the viability of the Cheyenne River
Prospect. In addition, as of such time, the Company was exploring the
possibility of selling its interests in the Cheyenne River Prospect. The
Company's Timber Draw #1-AH well was drilled on the Prospect using horizontal
drilling technology. The Company has retained a 17.5% working interest in
such well. For more information on the Timber Draw #1-AH well, see "Cheyenne
River Prospect" 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 two years
remaining. In connection with drilling the Timber Draw #1-AH well, the
Company formed the Timber Draw Unit. Since the Company did not commence
Drilling another well within the unit by August 12, 2002, the BLM informed
the Company the Timber Draw Unit had been terminated.
A new unit known as the Hooligan Draw Unit was formed in 2004 consisting of
leases covering 2,560 acres. The Hooligan Draw Unit #1-AH well was drilled
in this unit. Subsequent to the drilling of this well, it was determined the
unit was no longer needed and the unit was allowed to terminate. Unless
a new unit is formed a well will need to be drilled on each federal and
fee lease in order to extend such lease for the life of its producing
capability.
Pursuant to a farmout agreement, a third party carried out a seismic
program in 2003 and, based on the results of such survey, the third party
drilled a test well, the Hooligan Draw Unit #1-AH, in 2004. For more
information on this test well, see "Cheyenne River Prospect" under Item 1,
Description of Business.
Gabbs Valley Prospect
As of December 31, 2005, the Gabbs Valley Prospect
consisted of approximately 44,604 acres of federal leases located in Nye and
Mineral Counties, Nevada, of which the Company owns a 10% working interest.
As of December 31, 2005, no wells had been drilled on the Gabbs Valley
Prospect, but there are plans to drill a test well. For more information
regarding the Gabbs Valley Prospect, see "Gabbs Valley Prospect" under
Item 1, Description of Business.
COMPANY UNDEVELOPED ACREAGE (LEASES)
AS OF DECEMBER 31, 2005
Undeveloped Acreage Productive Acreage Completed Oil Wells
Gross Net Gross Net
Prospect Acres Acres Acres Acres 2003 2004 2005
________ ________ _______ ________ _________ _____________________
Cheyenne
River 33,085.19 8,861.81 400 84.9 -0- 2 -0-
Gabbs
Valley 44,604 4,460 - - -0- -0- -0-
ITEM 3. LEGAL PROCEEDINGS
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As of December 31, 2005, neither the Company nor its properties were
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 year ended December 31, 2005.
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 high and low bid information for the
Company's common stock during the time periods indicated, as reported
by NASDAQ.
Year ending December 31, 2004:
Quarter High Low
03/31/04 .30 .16
06/30/04 .40 .17
09/30/04 .42 .08
12/31/04 .13 .06
Year ending December 31, 2005:
Quarter High Low
03/31/05 .12 .07
06/30/05 .155 .055
09/30/05 .19 .09
12/31/05 .18 .10
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, 2005, there were approximately 171 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, 2005, 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
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.
For the past three fiscal years, the Company has financed its operations
primarily from sales of equity securities and advances made to the Company by
Albert E. Whitehead, the Company's Chief Executive Officer. There is no
assurance that the Company will be able to continue to finance its operations
through the sale of equity securities or loans or advances by third parties.
In addition, Mr. Whitehead has no obligation to advance the Company any
additional money, and there is no assurance that he will do so.
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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 $158,191 and $191,689 for the years
ended December 31, 2005 and 2004, respectively. The Company also has an
accumulated deficit of $8,789,448 as of December 31, 2005. 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
dependent on the successful drilling results of its inventory of
unproved locations in Wyoming and Nevada. The failure of drilling activities
to achieve sufficient 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
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
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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 in the
Cheyenne River Prospect 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 operations of the Company. There
can be no assurance that the trend of more expansive and stricter
environmental legislation and regulations will not continue.
The Company is subject to various environmental risks, and governmental
regulation relating to environmental matters.
The Company is subject to a variety of federal, state and local governmental
laws and regulations related to the storage, use, discharge and disposal of
toxic, volatile or otherwise hazardous materials. These regulations subject
the Company to increased operating costs and potential liability associated
with the use and disposal of hazardous materials. Although these laws and
regulations have not had a material adverse effect on the Company's financial
condition or results of operations, there can be no assurance that the
Company will not be required to make material expenditures in the future.
Moreover, the Company anticipates that such laws and regulations will become
increasingly stringent in the future, which could lead to material costs for
environmental compliance and remediation by the Company. Any failure by the
Company to obtain required permits for, control the use of, or adequately
restrict the discharge of hazardous substances under present or future
regulations could subject the Company to substantial liability or could cause
its operations to be suspended. Such liability or suspension of operations
could have a material adverse effect on the Company's business, financial
condition and results of operations.
The Company is subject to intense competition.
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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 sales of its equity securities.
The Company does not expect to declare or pay any dividends in the foreseeable
future.
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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 33% 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.
RESULTS OF OPERATIONS
GENERAL TO ALL PERIODS
The Company's primary business is the exploration and development of oil and
gas interests. The Company has incurred significant losses from operations,
and there is no assurance that it will achieve profitability or obtain funds
necessary to finance its operations. Sales revenues for all periods presented
are attributable to the production of oil from the Company's Timber Draw #1-AH
and Hooligan Draw #1-AH wells located in the Eastern Powder River Basin in the
State of Wyoming, otherwise known as the Cheyenne River Prospect.
For all periods presented, the Company's effective tax rate is 0%. The Company
has generated net operating losses since inception, which would normally
reflect a tax benefit in the statement of operations and a deferred asset on
the balance sheet. However, because of the current uncertainty as to the
Company's ability to achieve profitability, a valuation reserve has been
established that offsets the amount of any tax benefit available for each
period presented in the statements of operations.
RESTATEMENT
On November 11, 2005, the Company filed a Form 8-K with the SEC disclosing
that it would restate its previously issued financial statements for the year
ended December 31, 2003, annual and quarterly financial statements for 2004,
and quarterly financial statements for the first two quarters of 2005 after
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determining that it had erroneously accounted for its exit activities in
connection with its former office space in Canada.
In the third quarter of 2003, the Company recorded an expense for its
obligation under the lease for the period up to the balance sheet date. It
continued to record an expense of $13,200 per quarter through March 31, 2005
related to the lease.
After further review, the Company's management determined that it should have
accrued an obligation for the lease equal to total amounts owed from the "cease
use date" (the date in January 2003 on which the Company's subtenant moved out
of the office space) through the end of the lease term. Additionally, since the
lease obligation was in Canadian dollars, the Company should have recorded a
currency exchange gain or loss on its obligation in each quarter. Based on this
analysis, the Company and its Board of Directors concluded that its previously
issued financial statements for the year ended December 31, 2003, annual and
quarterly financial statements for 2004 and quarterly financial statements for
the first two quarters of 2005 required adjustments of the amounts previously
reported for accounts payable and accrued liabilities, and general and
administrative expenses. The effect of the restatement was to decrease the
previously reported net loss by $37,055 for the year ended December 31, 2004
and to increase the previously reported net loss by $118,817 for the year
ended December 31, 2003. The restatement did not affect the net loss per
share at December 31, 2005 or 2004.
All of the financial statements and financial information contained in the
Form 10-KSB reflect the effect of the restatement.
TWELVE MONTH PERIOD ENDED DECEMBER 31, 2005, COMPARED TO TWELVE MONTH PERIOD
ENDED DECEMBER 31, 2004
For the twelve months ended December 31, 2005, sales revenue increased
$5,066 to $57,588, compared to $52,522 for the same period during 2004.
The increase in sales revenue was the result of increased production and an
increase in the average realized per barrel oil price. For the twelve months
ended December 31, 2005, sales volume increased 790 barrels to 3,744 barrels,
compared to 2,954 barrels for the same period in 2004. The average realized
per barrel oil price increased 27.4% from $28.29 for the twelve months ended
December 31, 2004 to $36.04 for the twelve months ended December 31, 2005.
Production and operating expenses increased $20,400 to $82,870 for the twelve
months ended December 31, 2005, from $62,470 for the same period in 2004.
This increase was primarily attributable to the seismic program carried out
on the Company's Gabbs Valley Prospect.
General and administrative expenses increased by $5,232 to $164,494 for the
twelve months ended December 31, 2005, from $159,262 for the same period in
2004.
There was no depreciation expense attributable to the twelve months ended
December 31, 2005 or December 31, 2004, because the depreciable assets were
fully depreciated.
For the twelve months ended December 31, 2005, interest expense was $6,900
which is similar to the same period in 2004. Interest expense was accrued at
the same rate compared to the same period in 2004.
Miscellaneous income increased $20,010 to $4,431 in 2005 from a
miscellaneous loss of $15,579 in 2004, which change was attributable to
foreign exchange gains on the Company's recorded Canadian lease obligation.
-14-
For the reasons discussed above, net loss decreased $33,498 from $(191,689)
for the twelve months ended December 31, 2004, to $(158,191) for the twelve
months ended December 31, 2005.
LIQUIDITY AND CAPITAL RESOURCES
GENERAL
As of December 31, 2005, the Company had $369,292 of cash on hand. The
Company's cash on hand should be sufficient to fund its operations
during the next 12 months. The Company expects to incur costs of
approximately $10,000 per month relating to general administrative,
office and other expenses. In addition, the Company's other material
commitments in the next twelve months will include the Company's
portion of expenses relating to the drilling of the Cobble Cuesta 1-12
in Nevada, which the Company estimates will be $150,000 and obligations
that could arise as further described under "Note Payable" and
"Advances from Related Party" below. In order to sustain the
Company's operations on a long term basis, the Company intends to
continue to look for merger opportunities and consider public or
private financings. To the extent that it is necessary, the Company
expects that management will support the Company financially for
several months to allow the Company to consummate a merger opportunity,
or public or private financing.
PRIVATE EQUITY PLACEMENT
In June 2005, the Company completed a private placement of 5,000,000 shares of
its common stock along with warrants to purchase 1,250,000 shares of its
Common Stock for an aggregate purchase price of $500,000. Subject to certain
restrictions, the warrants may be exercised for a period of one year at an
exercise price of $0.25 per share. Proceeds of the private placement were
allocated $67,875 to common stock warrants and $432,125 to common stock and
paid-in capital. These funds will be used for general corporate purposes and
to pay the Company's share of the costs associated with its 10% interest in
the Gabbs Valley Oil Prospect in Nevada.
NOTE PAYABLE
In December 2001, the Company executed a note with Weatherford U.S.,
L.P. to satisfy outstanding indebtedness for services rendered in
connection with the drilling of the Timber Draw #1-AH well. The
principal amount of this note was $108,334 with interest payments at
10% per annum commencing on May 27, 2001, until all interest and
principal amounts were paid in full. Timely payments were made in
accordance with the terms of this note through March 2002. In April
2002, the payee of this note agreed to a revised payment schedule
extending final payment of $66,997 from April 10, 2002, until June 10,
2002. In connection with this payment schedule, an initial payment of
$10,000 was made in April 2002. However, since that time, no further
payments have been made. As of December 31, 2005, the Company has
accrued a liability of $99,221 in connection with this note.
ADVANCES FROM RELATED PARTY
The Company has had difficulty in obtaining financing from traditional
financing sources. Prior to the completion of the private placement in June
2005 as further described above, the Company financed its operations
primarily through advances made to the Company by the Albert E. Whitehead
-15-
Living Trust, of which the Company's Chairman of the Board and Chief
Executive Officer, Mr. Whitehead, is the trustee. During the fiscal years
ended December 31, 2005 and December 31, 2004, Mr. Whitehead advanced the
Company an additional $60,190 and $84,312, respectively, to finance the
operating expenses of the Company. As of December 31, 2005, the
Company owed Mr. Whitehead $274,682 in connection with advances made to
the Company.
Off-Balance Sheet Arrangements
None
Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles in the United States 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:
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 and 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 - Capitalized drilling costs
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 -
-16-
through December 31, 2002, the Company 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 dismantlement and
abandonment costs changed on January 1, 2003, with the adoption of SFAS No.
143 "Accounting for Asset Retirement Obligations." Under both methods of
accounting, the accrual for future dismantlement and abandonment costs 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.
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. A valuation
allowance is established if it is more likely than not that some portion of
a deferred tax asset will not be realized.
Stock options - The Company 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 applies APB
Opinion No. 25 and related interpretations in accounting for its Incentive
Plan described in footnote 4. 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 Company follows 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 fair value of options granted under the Incentive
Plan are estimated on the date of grant using the Black-Scholes option-
pricing model.
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.
-17-
ITEM 8A. CONTROLS AND PROCEDURES
As of the end of the period covered by this report, the Company carried
out an evaluation under the supervision of the Company's Chief
Executive Officer (and principal financial officer) of the
effectiveness of the design and operation of the Company's disclosure
controls and procedures pursuant to Securities Exchange Act Rules 13a -
15(e) and 15d - 15(e). Based on this evaluation, the Company's Chief
Executive Officer (and principal financial officer) has concluded that
the disclosure controls and procedures as of the end of the period
covered by this report are effective. During the period covered by
this report, there was no change in the Company's internal controls
over financial reporting that has materially affected or that is
reasonably likely to materially affect the Company's internal control
over financial reporting.
ITEM 8B. OTHER INFORMATION
None.
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:
Name Age Position
Albert E. Whitehead 75 Director; Chairman & C.E.O
John C. Kinard 71 Director
_____________________________
(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 has been a member of the Company's Board of Directors since
1991 and 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 on
April 16, 2002 upon the resignation of Mr. McGrain. Mr. Whitehead is also
currently serving as the Non-Executive Chairman of PetroWorld Corp., a company
that is traded on the London Stock Exchange's Alternative Investment Market
and the TSE Venture Exchange in Canada. 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
-18-
1995, Mr. Kinard served as President of Glen Petroleum, Inc., a private oil
and gas exploration company. From 1990 through 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:
As of December 31, 2005, 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, 2005, the entire Board of Directors (Messrs. Whitehead and Kinard)
essentially serve as the Company's audit committee.
CODE OF ETHICS:
The Company has adopted a Code of Ethics that applies to all of the
Company's directors and employees, including the Company's principal
executive officer, principal financial officer and principal accounting
officer or persons performing similar functions. The Company
undertakes to provide any person without charge, upon request, a copy
of the Code of Ethics. Requests may be directed to Empire Petroleum
Corporation, 8801 S. Yale, Suite 120, Tulsa, Oklahoma 74137, or by
calling (918) 488-8068.
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
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, 2005, 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, 2005 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, 2005, the Company did not grant
any options to any of its members of its Board of Directors.
-19-
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, 2005, the Company had one equity incentive plan under which
equity securities were authorized for issuance to the Company's directors,
officers, employees and other persons who performed substantial services for
or on behalf of the Company. This plan was titled "1995 Stock Option Plan"
and was approved by the Company's stockholders. Except to the extent
necessary to govern outstanding options, this plan terminated on May
15, 2005. It is the intention of the Company to present a new
stock option plan for approval by the Company's
stockholders at the 2006 Annual Meeting of the Company's stockholders.
The following table provides certain information relating to the 1995 Stock
Option Plan as of December 31, 2005:
(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 575,000 $0.65 0
compensation plans
approved by
security holders
Equity N/A
Compensation plans
not approved by
security holders
_________ _________
TOTAL 575,000 0
_________ _________
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 21, 2006 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
42,830,190 shares of Common Stock outstanding as of March 21, 2006.
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.
-20-
Amount and
nature of
beneficial Percent of
Name and address of beneficial owner ownership class (1)
Albert E. Whitehead, 14,168,025 (2) 33.08%
Chairman of the Board and
Chief Executive Officer
3214 E. 73rd Street
Tulsa, OK 74136-5927
John C. Kinard, 631,331 (3) 1.47%
Director
240 Cook Street
Denver, CO 80206-0590
All current directors and executive officers
as a group (2 persons) 14,799,356 (4) 34.55%
(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; and
(ii) 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) 161,331 shares directly owned by Mr. Kinard;
(ii) 320,000 shares Mr. Kinard has the right to acquire pursuant to options
granted to him under the 1995 Stock Option Plan; and (iii) 150,000 shares
directly owned by Mr. Kinard's wife, of which Mr. Kinard disclaims any
interest.
(4) This number includes 320,000 shares issuable upon the exercise of
options granted under the 1995 Stock Option Plan.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During the fiscal years ended December 31, 2005 and December 31, 2004,
Mr. Whitehead advanced the Company an additional $60,190 and $84,312,
respectively, to finance the operating expenses of the Company. As of
December 31, 2005, the Company owed Mr. Whitehead $274,682 in
connection with advances made to the Company.
ITEM 13. EXHIBITS
Exhibit Description
No.
3.1 Articles of Incorporation of the Company, as amended
(incorporated herein by reference to Exhibit 3.1 of the Company's Form
10-QSB for the period ended September 30, 1995, which was filed
November 6, 1995)
-21-
3.2 Bylaws of the Company
(incorporated herein by reference to Exhibit 3.2 of the Company's Form
10-QSB for the period ended March 31, 1998, which was filed May 15
1998)
10.1 1995 Stock Option Plan
(incorporated herein by reference to Appendix A of the Company's
Form DEFS 14A dated June 13, 1995, which was filed June 14, 1995)
10.2 Form of Stock Option Agreement
(incorporated herein by reference to Exhibit 10(g) of the Company's
Form 10-KSB for the year ended December 31, 1995, which was filed
March 29, 1996)
10.3 Americomm Cheyenne River Development Prospect Agreement dated March
4, 1998 by and among the Company, Fred S. Jensen, Richard A. Bate,
A. R. Briggs and Thomas L. Thompson (incorporated herein by reference
to Exhibit 10(j) of the Company's Form 10-QSB for the period ended
June 30, 1998, which was filed August 12, 1998)
10.4 Farmout Agreement dated November 15, 2000 by and among the Company and
the other parties named therein (incorporated hereby reference to
Exhibit 10(e) of the Company's Form 10-KSB for the year ended
December 31, 2000, which was filed March 29, 2001)
10.5 Letter Agreement dated May 8, 2003 between the Company and O. F.
Duffield (incorporated herein by reference to Exhibit 10.6 of the
Company's Form 10-KSB for the year ended December 31, 2003, which was
filed March 30, 2004)
10.6 Farmout Agreement dated May 7, 2004 by and among the Company and
certain other parties named therein (incorporated herein by reference
to Exhibit 10 of the Company's Form 10-QSB for the period ended
June 30, 2004, which was filed on August 2, 2004).
10.7 Assignment and Novation dated September 1, 2004 relating to the
Farmout Agreement dated May 7, 2004. (incorporated herein by
Reference in the Company's Form 10-KSB for the year ended
December 31, 2004, which was filed March 31, 2005)
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)
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
registered public accounting firm, for professional Services rendered for the
fiscal years ended December 31, 2005 and December 31, 2004:
-22-
Fee Category Fiscal 2005 Fees Fiscal 2004 Fees
Audit Fees (1) $ 22,625 $16,750
Audit-Related Fees (2) -0- -0-
Tax Fees -0- -0-
All Other Fees (3) -0- -0-
Total Fees $ 22,625 $16,750
(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 registered
public accounting firm in connection with statutory and regulatory filings or
engagements for the fiscal years ended December 31, 2005 and December 31,
2004, 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
registered public accounting firm and approves in advance any
services to be performed by the independent registered public
accounting firm, 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
registered public accounting firm. All of the fees shown above were
pre-approved by the entire Board of Directors.
-23-
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 31, 2006 By: /s/Albert E. Whitehead
Albert E. Whitehead
Chief Executive Officer
(principal executive officer,
principal financial officer
and principal accounting
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 31, 2006
Albert E. Whitehead
/s/John C. Kinard Director March 31, 2006
John C. Kinard
-24-
EMPIRE PETROLEUM CORPORATION
FINANCIAL STATEMENTS
CONTENTS
Page No.
Balance Sheet at December 31, 2005 F-2
Statements of Operations for the years ended
December 31, 2005 and December 31, 2004 F-3
Statements of Changes in Stockholders' Equity
for the years ended December 31, 2005 and
December 31, 2004 F-4
Statements of Cash Flows for the years ended
December 31, 2005 and December 31, 2004 F-5
Notes to Financial Statements F-6 through F-12
EMPIRE PETROLEUM CORPORATION
FINANCIAL STATEMENTS
DECEMBER 31, 2005
REPORT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
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, 2005, and the related statements of operations, cash flows
and stockholders' equity for the years ended December 31, 2005 and 2004. 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 with the standards of the Public Company
Accounting Oversight Board (United States). 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, 2005, and the results of its operations and its cash flows
for the years ended December 31, 2005 and 2004 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, 2005. 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 17, 2006
F-1
EMPIRE PETROLEUM CORPORATION
BALANCE SHEET
ASSETS December 31,
2005
___________
Current assets:
Cash $ 369,292
Accounts receivable (net of allowance
of $3,750) 38,852
___________
Total current assets 408,144
___________
Property & equipment, net of accumulated
depreciation and depletion 338,602
___________
$ 746,746
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 145,824
Accounts payable to related party 274,682
Note payable 99,221
___________
Total current liabilities 519,727
___________
Total liabilities 519,727
___________
Stockholders' equity
Common stock, par value $.001, 50,000,000
shares authorized, 42,830,190 shares
issued and outstanding 42,830
Additional paid in capital 8,895,260
Warrants to purchase common stock 67,875
Accumulated deficit (8,778,946)
___________
Total stockholders' equity 227,019
___________
$ 746,746
===========
See accompanying notes to financial statements.
F-2
EMPIRE PETROLEUM CORPORATION
STATEMENTS OF OPERATIONS
Years ended December 31, 2005 and 2004
2005 2004
___________ ___________
Revenue:
Petroleum sales $ 57,588 $ 52,522
___________ ___________
57,588 52,522
___________ ___________
Costs and expenses:
Operating expenses 82,870 62,470
General and administrative 164,494 159,262
Depreciation expense 0 0
Reversal of accrued lease obligation (222,561) 0
Leasehold impairment 188,507 0
___________ ___________
213,310 221,732
___________ ___________
Operating loss (155,722) (169,210)
___________ ___________
Other (income) and expense:
Interest expense 6,900 6,900
Miscellaneous (4,431) 15,579
___________ __________
Total other (income) and expense 2,469 22,479
___________ __________
Net loss before income taxes (158,191) (191,689)
Deferred tax benefit 0 0
___________ __________
Net loss $ (158,191) (191,689)
___________ __________
Net loss per common share $ (.00) $ (.01)
___________ __________
Weighted average number of
common shares outstanding -
Basic and diluted 40,701,069 37,830,190
___________ __________
See accompanying notes to financial statements
F-3
EMPIRE PETROLEUM CORPORATION
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Years ended December 31, 2005 and 2004
Warrants
to
Purchase Additional
Common Paid in Accumulated
Shares Amount Stock Capital deficit Total
__________ _______ ________ __________ ___________ ___________
Balances January 1, 2004
37,830,190 $37,830 - $8,368,135 $(8,429,066) $( 23,101)
Net loss
- - - - ( 191,689) ( 191,689)
Value of services
Contributed by
Employee
- - - 50,000 - 50,000
__________ _______ _________ __________ ___________ ___________
Balances December 31, 2004
37,830,190 $37,830 - $8,418,135 $(8,620,755) $ (164,790)
Net loss
- - - - ( 158,191) (158,191)
Value of services
contributed by
Employee
- - - 50,000 - 50,000
Issuance of Common Stock
5,000,000 5,000 67,875 427,125 - 500,000
__________ _______ _________ __________ ___________ ___________
Balances December 31, 2005
42,830,190 $42,830 67,875 $8,895,260 $(8,778,946) $ 227,019
__________ _______ _________ __________ ___________ ___________
See accompanying notes to financial statements
F-4
EMPIRE PETROLEUM CORPORATION
STATEMENTS OF CASH FLOWS
Years ended December 31, 2005 and 2004
2005 2004
___________ ___________
Cash flows from operating activities:
Net loss $ (158,191) $ (191,689)
Adjustments to reconcile net loss to
net cash used in operating activities:
Reversal of accrued lease obligation (222,561) 0
Leasehold impairment 188,507 0
Value of services contributed by
Employee 50,000 50,000
Change in operating assets and
liabilities:
Accounts receivable (29,643) 11,853
Prepaid expenses 0 2,651
Accounts payable and accrued
liabilities (22,416) 24,657
___________ ___________
Net cash used in operating activities (194,304) (102,528)
___________ ___________
Cash flows from financing activities:
Advances from related party 60,190 84,312
Proceeds from private equity placement 500,000 0
____________ ___________
Net cash provided by financing
activities 560,190 84,312
____________ ___________
Net increase (decrease) in cash 365,886 (18,216)
Cash - Beginning 3,406 21,622
____________ ___________
Cash - Ending $ 369,292 $ 3,406
____________ ___________
Supplemental cash flow information:
Cash paid for interest $ 0 $ 0
____________ ___________
See accompanying notes to financial statements
F-5
EMPIRE PETROLEUM CORPORATION
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2005 and 2004
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. On August 15, 2001,
Americomm Resources and the company merged, and the Company's name was
Changed to Empire Petroleum Corporation. The Company is involved in oil and
gas exploration.
In our 2004 Annual Report on Form 10-K/A, we restated our previously reported
Financial statements for the year ended December 31, 2004, (the "Prior
Restatement"). All of the financial statements and financial information
Contained in this Form 10-KSB related to 2004 reflect the effect of the Prior
Restatement adjustments. Certain reclassifications have been made to the prior
Year financial statements to conform with the current year presentation.
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, 2005.
Management plans to continue to support the Company financially if necessary
during the next several months. The Company is planning to drill a test well
on its Gabbs Valley Prospect in 2006. In addition, the Company is evaluating
the viability of the Cheyenne River Prospect. The Company also intends to
look for merger opportunities and consider public or private financings.
2. Significant accounting policies:
F-6
The preparation of financial statements in conformity with United States
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.
(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.
Capitalized drilling costs 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.
(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. A valuation allowance is established if it is more
likely than not that some portion of a deferred tax asset will not be
realized.
(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 4 and uses the
intrinsic value method of accounting for stock-based compensation in
accordance with Accounting Principles Board Opinion ("APB") No. 25. When stock
F-7
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 4. 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.
No options were granted in 2004 or 2005.
(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
The Financial Accounting Standards Board ("FASB") periodically issues new
accounting standards in a continuing effort to improve standards of financial
accounting and reporting. The Company has reviewed the recently issued
pronouncements and concluded that the following new accounting standards are
applicable.
In January 2003, the FASB issued FIN 46R, "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 46R, as
revised, are effective in fiscal years beginning after December 15, 2004. The
adoption of FIN 46R did not have a material effect on the Company's financial
position or results of operations as the Company has no variable interests.
In December 2004, the FASB issued Statement of Financial Accounting Standards
("SFAS") No. 153 "Exchanges of Nonmonetary Assets - An Amendment of APB
Opinion No. 29." SFAS No. 153 amends APB Opinion No. 29 to eliminate the
exception for nonmonetary exchanges of similar productive assets and replaces
it with a general exception for exchanges of nonmonetary assets that do not
F-8
have commercial substance. SFAS No. 153 is to be applied prospectively for
nonmonetary exchanges occurring in fiscal periods beginning after June 15,
2005. The adoption of SFAS No. 153 did not have a material impact on the
Company's financial position or results of operations.
In May 2005, the FASB issued SFAS No. 154, "Accounting Changes And
Error Corrections" which replaces APB Opinion No. 20, "Accounting
Changes" and SFAS No. 3, "Reporting Accounting Changes In Interim
Financial Statements." This statement changes the requirements for the
accounting for and reporting of a change in accounting principle. This
statement applies to all voluntary changes in accounting principles.
It also applies to changes required by an accounting pronouncement in
the unusual instance that the pronouncement does not include specific
transition provisions. This statement requires voluntary changes in
accounting principles be recognized retrospectively to prior periods'
financial statements, rather than recognition in the net income of the
current period. Retrospective application requires restatements of
prior period financial statements as if that accounting principle had
always been used. This statement carries forward without change the
guidance contained in Opinion 20 for reporting the correction of an
error in previously issued financial statements and a change in
accounting estimate. The provisions of SFAS No. 154 are effective for
accounting changes and corrections of errors made in fiscal years
beginning after December 15, 2005.
Share based payments
In December 2004, the FASB issued SFAS No. 123 (revised 2004), "Share-Based
Payment" (SFAS 123R) that addresses the accounting for share-based payment
transactions in which an enterprise receives employee services in exchange for
either equity instruments of the enterprise or liabilities that are based on
the fair value of the enterprise's equity instruments or that may be settled
by the issuance of such equity instruments. The statement eliminates the
ability to account for share-based compensation transactions using the
intrinsic value method as prescribed by APB Opinion No. 25, "Accounting for
Stock Issued to Employees," and generally requires that such transactions be
accounted for using a fair-value-based method and recognized as expenses in
our statement of operations. Under the adoption options, prior periods may be
restated either as of the beginning of the year of adoption or for all periods
presented ("the retroactive method"). The prospective method requires that
compensation expense be recorded for all unvested stock options and restricted
stock at the beginning of the first quarter of adoption of FAS 123R, while the
retroactive methods would record compensation expense for all unvested stock
options and restricted stock beginning with the first period restated. The
effective date of the new standard for our financial statements is the quarter
ended March 31, 2006. As the Company has no non-vested stock options,
adoption of SFAS 123R is not expected to have a material effect on the
Company's financial position or results of operations.
3. Capital Stock:
In 2005, the Company raised $500,000 of net proceeds by selling 5,000,000
shares of newly issued common stock along with warrants to purchase 1,250,000
shares of common stock which, subject to certain restrictions, may be
exercised for a period of one year at an exercise price of $0.25. Proceeds
of the placement were allocated $67,875 to common stock warrants and $432,125
to common stock and paid in capital. The value assigned to the warrants was
determined using the Black-Scholes option valuation method with the following
assumptions: no dividend yield, expected volatility of 154%, risk free
interest rate of 3.28% and expected life of one year.
F-9
4. Stock options:
Under a stock option plan adopted in 1995, the Company had the discretion
to grant options for up to 1,600,000 shares of common stock until May 15, 2005
at which time the plan terminated except to the extent necessary to govern
outstanding 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, 2005 and changes
during the year is presented below:
Weighted Average
Shares Exercise Price
_________ _________________
Outstanding at Beginning of Year 2005 575,000 .65
Granted 0
Cancelled or Exercised 0
__________
Outstanding at End of Year 2005 575,000 .65
========== =======
During 2004, options to purchase 606,666 shares of Common Stock were
relinquished. In 2005, no options were issued or relinquished.
There were no options granted during the year ended December 31, 2005.
The following table summarizes information about stock options outstanding at
December 31, 2005:
Options Outstanding Options Exercisable
_________________________________________________________________
Weighted
Average Weighted Weighted
Range of Number Remaining Average Number Average
Exercise Outstanding Contractual Exercise Exercisable Exercise
Prices at 12/31/05 Life Price at 12/31/05 Price
____________________________________________________________________________
$0.10-$1.375 575,000 4.66 Years $0.65 575,000 $0.65
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:
Statutory tax rate 34%
___________
Expected tax benefit $ (53,000)
Benefit of losses not recognized 53,000
___________
F-10
Tax provision (benefit) as reported $ -
___________
The components of deferred income taxes at December 31, 2005 are as follows:
Deferred tax assets:
Loss carry-forwards $ 1,025,000
Valuation allowance (500,000)
___________
525,000
Deferred tax liabilities:
Property and equipment 525,000
___________
Net deferred taxes $ -
___________
At December 31, 2005, the Company had net operating loss carryforwards of
approximately $3,014,000 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:
During 2005 and 2004, the Company's Chief Executive Officer advanced an
additional $60,190 and $84,312, respectively, for operating expenses which the
Company has recorded in accounts payable to related party in the accompanying
balance sheet.
7. Operating lease:
The Company leases office space under a month to month operating lease
agreements with an unrelated party which expires December 2007. Monthly
lease payments are $994 per month.
Rent expense for the years ended December 31, 2005 and 2004, respectively,
was $11,930 and $65,156.
8. Contingencies:
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 called for monthly lease and tax payments of
approximately $6,834 (Canadian) through April of 2006. The Company
accrued its obligation under the lease through the first quarter of 2005.
During the second quarter of 2005, the Company determined that the statute
of limitations had expired with respect to its obligation under the lease.
Accordingly, the Company reversed expenses of $222,561 previously recorded
for the lease.
The Company has negotiated a renewal of its corporate office lease in
Tulsa, Oklahoma.
9. Property and equipment:
In 2002, the Company's management determined that an impairment allowance of
F-11
$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. During 2004, pursuant to the Farmout Agreement, a third party
conducted a seismic survey and drilled a test well in the Cheyenne River
Prospect. As a result of the reduction in the Company's working interest,
a further impairment charge of $188,507 was recorded in 2005. The Company
has completed its evaluation of the test well as of December 31, 2005.
During the year the well produced 2,340 bbls of oil.
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 $2,561 at December 31, 2005, consists entirely of office
furniture, fixtures and equipment, which are fully depreciated.
F-12
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 31, 2006 /s/ Albert E. Whitehead
Albert E. Whitehead, Chief Executive Officer
(and principal financial officer)
EXHIBIT 32
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the annual report of Empire Petroleum Corporation (the
"Company") on Form 10-KSB for the period ending December 31, 2005, 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 31, 2006 /s/ Albert E. Whitehead
Albert E. Whitehead, Chief Executive Officer
(and principal financial officer)
A signed original of this written statement required by Section 906 has been
provided to the Company and will be retained by the Company and furnished to
the Securities and Exchange Commission or its staff upon request.
The foregoing certification is being furnished to the Securities and Exchange
Commission as an exhibit to the Report and shall not be considered filed as
part of the Report.