UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
[X] Quarterly Report Pursuant to Section 13 OR 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended June 30, 2010
[ ] Transition Report Pursuant to 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
(Exact name of registrant as specified in its charter)
DELAWARE 73-1238709
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
8801 S. Yale, Suite 120, Tulsa, Oklahoma 74137-3575
(Address of principal executive offices)
(918) 488-8068
(Registrant's telephone number, including area code)
Not Applicable
__________________________________________________________________________
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
[X] Yes [ ] No
Indicate by check mark whether the registrant has submitted electronically and
posted on its corporate Web site, if any, every Interactive Date File required
to be submitted and posted pursuant to Rule 405 of Regulation S-T (Sec. 232.405
of this chapter)during the preceding 12 months (or for such shorter period that
the registrant was required to submit and post such files).
[ ] Yes [ ] No
Indicate by check mark whether the registrant is a large accelerated filer,
an accelerated filer, a non-accelerated filer, or a smaller reporting company.
See the definitions of "large accelerated filer," "accelerated filer" and
"smaller reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer [ ] Accelerated filer [ ]
Non-accelerated filer [ ] Smaller reporting company [X]
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined
in Rule 12b-2 of the Exchange Act). [ ] Yes [X] No
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDING DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a
Plan confirmed by a court.
[ ] Yes [ ] No
APPLICABLE ONLY TO CORPORATE ISSUERS:
The number of shares of the registrant's common stock, $0.001 par value,
outstanding as of August 13, 2010 was 83,069,235
EMPIRE PETROLEUM CORPORATION
INDEX TO FORM 10-Q
Part I. FINANCIAL INFORMATION Page
Item 1. Financial Statements
Balance Sheets at June 30, 2010 (Unaudited) and
December 31, 2009 1
Statements of Operations - Three months and six months ended
June 30, 2010 and 2009 (Unaudited) 2
Statements of Cash Flows - Six months ended
June 30, 2010 and 2009 (Unaudited) 3
Notes to Financial Statements 4-9
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 9-11
Item 4. Controls and Procedures 11
Part II. OTHER INFORMATION
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 11-12
Item 6. Exhibits 12
Signatures 12
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
EMPIRE PETROLEUM CORPORATION
BALANCE SHEETS
June 30, December 31,
2010 2009
(Unaudited)
ASSETS ____________ ____________
Current assets:
Cash $ 916,410 $ 1,171,565
Accounts receivable
(net of allowance of $3,750
at June 30, 2010 and
December 31, 2009) 45,915 45,915
___________ ____________
Total current assets 962,325 1,217,480
Property & equipment, net of accumulated
depreciation and depletion 1,468,604 920,215
___________ ____________
Total assets $ 2,430,929 $ 2,137,695
___________ ____________
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Account payable and accrued
liabilities $ 19,786 $ 10,583
___________ ___________
Total current liabilities 19,786 10,583
Long-term liabilities:
Asset retirement obligation 34,200 34,200
___________ ____________
Total liabilities 53,986 44,783
___________ ____________
Stockholders' equity:
Common stock - $.001 par value,
authorized 100,000,000 shares,
issued and outstanding 80,569,233
and 74,553,361 shares,
respectively 80,569 74,553
Additional paid in capital 13,644,942 13,149,578
Accumulated deficit (11,348,568) (11,131,219)
___________ ___________
Total stockholders' equity 2,376,943 2,092,912
___________ ___________
Total liabilities and stockholders'
equity $ 2,430,929 $ 2,137,695
___________ ___________
See accompanying notes to unaudited financial statements.
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EMPIRE PETROLEUM CORPORATION
STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended Six Months Ended
June 30, June 30,
____________________________ ________________________
2010 2009 2010 2009
_____________ _____________ ____________ __________
Revenue:
Petroleum sales $ 0 $ 5,292 $ 0 $ 9,794
_____________ _____________ ____________ __________
0 5,292 0 9,794
_____________ _____________ ____________ __________
Costs and expenses:
Production & operating 71,896 25,001 81,826 41,387
General & administrative 71,369 65,175 138,430 118,597
____________ _____________ ____________ __________
143,265 90,176 220,256 159,984
____________ _____________ ____________ __________
Operating loss (143,265) (84,884) (220,256) (150,190)
____________ _____________ ____________ __________
Other income and (expense):
Gain on sale of Cheyenne
River Prospect 0 102,708 0 102,708
Interest income 1,266 0 2,907 0
Interest expense 0 0 0 0
____________ _____________ ____________ __________
Total other income and
(expense) 1,266 102,708 2,907 102,708
____________ _____________ ____________ __________
Net income (loss) $ (141,999) $ (17,824) $ (217,349) $ (47,482)
____________ _____________ ____________ __________
Net income (loss) per common
share, basic and
diluted $ (.00) $ (.00) $ (.00) $ (.00)
____________ _____________ ____________ __________
Weighted average number of
common shares outstanding,
basic and diluted 78,776,024 57,193,128 77,931,359 57,193,128
____________ _____________ ____________ ___________
See accompanying notes to unaudited financial statements.
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EMPIRE PETROLEUM CORPORATION
STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six Months Ended
June 30, June 30,
2010 2009
_________ __________
Cash flows from operating activities:
Net loss $ (217,349) $ (47,482)
Adjustments to reconcile net loss
to net cash used in operating activities:
Value of services contributed by employee 25,000 25,000
Stock option plan expense 16,380 0
Gain on sale of cheyenne river prospect 0 (102,708)
Change in operating assets and liabilities:
Accounts receivable 0 3,040
Prepaid expenses 0 6,050
Accounts payable and accrued liabilities 9,203 (18,838)
________ ________
Net cash used in
operating activities (166,766) (134,938)
________ ________
Cash flows from investing activities:
Acquisition of lease acres (35,000) 0
Well equipment & drilling costs (513,389) 0
Sale of cheyenne river interests 0 166,524
________ ________
Net cash provided by (used in)investing
activities (548,389) 166,524
________ ________
Cash flows from financing activities:
Proceeds from private equity placement 460,000 0
________ ________
Net increase (decrease) in cash (255,155) 31,586
Cash - Beginning of period 1,171,565 124,121
________ ________
Cash - End of period $ 916,410 $ 155,707
________ ________
See accompanying notes to unaudited financial statements.
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EMPIRE PETROLEUM CORPORATION
NOTES TO FINANCIAL STATEMENTS
June 30, 2010
(UNAUDITED)
1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES:
The accompanying unaudited financial statements of Empire Petroleum
Corporation ("Empire" or the "Company") have been prepared in accordance
with United States generally accepted accounting principles for interim
financial information and the instructions to Form 10-Q. Accordingly,
they do not include all of the information and footnotes required by
United States generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments
considered necessary for a fair presentation of the Company's financial
position, the results of operations, and the cash flows for the interim
period are included. All adjustments are of a normal, recurring nature.
Operating results for the interim period are not necessarily indicative of
the results that may be expected for the year ending December 31, 2010.
The information contained in this Form 10-Q should be read in
conjunction with the audited financial statements and related notes for
the year ended December 31, 2009 which are contained in the Company's
Annual Report on Form 10-K filed with the Securities and Exchange
Commission (the "SEC") on March 30, 2010.
The Company has incurred significant losses in recent years. The
continuation of the Company as a going concern is dependent upon the
ability of the Company to attain future profitable operations. These
financial statements have been prepared on the basis of United States
generally accepted accounting principles applicable to a company with
continuing operations, which assume that the Company will continue in
operation for the foreseeable future and will be able to realize its assets
and discharge its obligations in the normal course of operations. Management
believes the going concern assumption to be appropriate for these financial
statements. If the going concern assumption were not appropriate for these
financial statements, then adjustments might be necessary to adjust the
carrying value of assets and liabilities and reported expenses.
The Company continues to explore and develop its oil and gas interests.
The ultimate recoverability of the Company's investment in its oil and gas
interests is dependent upon the existence and discovery of economically
recoverable oil and gas reserves, confirmation of the Company's interest in
the oil and gas interests, the ability of the Company to obtain necessary
financing to further develop the interests, and the ability of the Company
to attain future profitable production.
In June 2005, the Company completed a private placement of 5,000,000 shares
of its common stock along with warrants to purchase 1,250,000 shares of
its common stock for an aggregate purchase price of $500,000. Subject
to certain restrictions, the warrants may be exercised until November 15,
2010 (extended from the previous date of August 15, 2010) 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 were used for general corporate purposes and to pay
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the Company's share of the costs associated with its then 10% interest in
the Gabbs Valley Oil Prospect in Nevada. By subsequent agreement with Cortez
Exploration, LLC (formerly O. F. Duffield) dated May 8, 2006, Empire acquired
an additional 30% interest by agreeing to pay $675,000 in land and related
costs to Cortez and 45% of the drilling and completion costs on a test well to
be known as the Empire Cobble Cuesta 1-12-12-34E, Nye County, Nevada. When
combined with the original 10% working interest in the well and lease block
which was expanded to 75,201 gross acres by the acquisition of an additional
30,917 acres from the U. S. Department of the Interior on June 14, 2006, the
Company's working interest increased to 40%, after paying 55% of the drilling
and completion costs of the Empire Cobble Cuesta 1-12-12N-34E test well. To
fund this increased interest, the Company initiated a private placement of
common stock along with warrants to purchase common stock in June 2006. In
connection with this private placement, the Company issued 7,250,000 shares
of common stock and warrants to purchase 1,812,500 shares of its common stock
at an exercise price of $0.50 per share for an aggregate purchase price of
$1,450,000. In April 2007, the Company raised $1,000,000 through 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 which have an exercise price of
$0.50 per share which expires November 15, 2010. On August 2, 2007, the
Company acquired an additional 17% interest, which increased its interest in
the Gabbs Valley Prospect and leases to 57% (See Note 2). The Company
acquired an additional 9,943.91 acres of leases at a September 2008 lease
sale and 7,680 acres at a September 2009 lease sale bringing the total
acreage in which it has a 57% interest to 92,825 acres. The Company was
encouraged by the data it acquired in connection with the drilling, logging
and testing of the well. Such data, additional studies of such data, the
assistance of geological and engineering consultants and an Advanced
Geochemical Imaging Survey conducted in December 2008 led the Company
to determine that further drilling is warranted.
As of June 30, 2010, the Company had $916,410 of cash on hand. In order to
sustain the Company's operations on a long-term basis, the Company continues
to look for merger opportunities and consider public or private financings.
The Company anticipates that it has the funds necessary to continue its
operations through the next twelve months.
Compensation of Officers and Employees
The Company's only executive officer serves without pay or other compensation.
The fair value of these services is estimated by management and is recognized
as a capital contribution. For the six months ended June 30,2010, the
Company recorded $25,000 as a capital contribution by its executive officer.
Fair Value Measurements
The Financial Accounting Standards Board ("FASB") fair value measurement
standards defines fair value, establishes a consistent framework for
measuring fair value and establishes a fair value hierarchy based on the
observability of inputs used to measure fair value. The Company's primary
marketable asset is cash, and it owns no marketable securities.
2. PROPERTY AND EQUIPMENT:
GABBS VALLEY PROSPECT
The Company owns a 57% working interest in oil and gas leases in Nye and
Mineral Counties, Nevada (the "Gabbs Valley Prospect"). Initially,
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the Company's working interest was 10% and the Gabbs Valley Prospect
consisted of 44,604 acres, but now consists of 92,825 acres.
As of December 31, 2005, there had 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.
The Company also elected to increase its interest in the prospect by
taking a farm-in from Cortez Exploration LLC (formerly O. F. Duffield).
Empire agreed to pay Cortez $675,000 in lease costs plus 45% of the costs
associated with the drilling of a test well to earn an additional 30%
working interest which made its total working interest 40%. The lease block
of 44,604 acres was increased to 75,521 acres by the acquisition of an
additional 30,917 acres from the Department of the Interior (Bureau of
Land Management) in June 2006. The block was reduced to 75,201 acres due
to the expiration of one 320-acre lease during 2007. In 2008 and 2009, the
Company acquired leases on 17,624 additional acres through federal lease
sales, bringing its total to 92,825 acres.
After reaching 5,195 feet in connection with drilling this first test well,
the Company and its partners elected to suspend operations on the well,
release the drilling rig, and associated equipment and personnel to evaluate
the drilling and logging data. After the study was completed, Empire and its
partners decided to conduct a thorough testing program on the well. The
Company re-entered the well on April 17, 2007 and conducted a series of drill
stem tests and recovered only drilling mud. It was then determined after
considerable study that the formation is likely very sensitive to mud and
water used in drilling which may have caused clays in the formation to swell
preventing any oil that might be present to flow into the wellbore. During
2007, the Company increased its interest in the prospect leases to 57% when
one of the joint participants elected to surrender its 30% share of the
prospect. The Company and its joint owners assumed liabilities of
approximately $68,000 to acquire this interest.
Other than a 5,000 barrel-per-day refinery located approximately 200
miles from the Gabbs Valley Prospect, there are no pipelines or service
networks located near the prospect. A small refinery located about 115 miles
from the prospect has now shut down.
In 2008, the Company and its partners engaged W. L. Gore and Associates to
carryout an Amplified Geochemical Imaging Survey which covered approximately
sixteen square miles. The survey was concentrated along the apex of the large
Cobble Cuesta structure which included the areas around the Empire Cobble
Cuesta 1-12 exploratory test and the other test well drilled in the immediate
area. Both of these tests encountered oil shows and the geochemical survey
indicated potential hydrocarbons beyond the two well bores. A new
Federal drilling unit has been formed and approved by the Bureau of Land
Management. This unit is known as the Paradise Drilling Unit and contains
40,073 acres out of our total lease block now containing 92,825 acres. The
Company is projecting the commencement of drilling operations of a new test
well on the 2-12 location in July 2010.
SOUTH OKIE PROSPECT
On August 4, 2009, the Company purchased, for $25,000 and payment of lease
rentals of $4,680, a nine-month option to purchase 2,630 net acres of oil and
gas leases known as the South Okie Prospect in Natrona County, Wyoming.
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The option allowed the Company to purchase the leasehold interests for $35,000
which has been exercised in 2010. The Tensleep Sand at depths from 3,300 feet
to 4,500 feet is the primary target. The Tensleep is an excellent oil
reservoir with the potential of 700 barrels of oil per acre foot recovery.
The Company has completed its geological and seismic studies and subsequent
to the completion of these studies it has carried out a thorough engineering
study. This later study focused on the most promising locations and potential
reserves. The Company has elected to concentrate on drilling its Nevada
prospect before deciding on a course of action on this prospect.
3. EQUITY
On June 14, 2010 the Company extended all of its outstanding warrants to
November 15, 2010. Fair values of the extended warrants were estimated at
the date of extension using the Black-Scholes Option Valuation Model with
the following weighted average assumptions: risk free interest rate of
..15%, volatility factor of the expected market price of the Company's
common stock of 154%, no dividend yield, and a weighted average expected
life of the warrants of 5 months. As a result of the extension, the
outstanding warrants were revalued at $131,125, which had no income statement
effect.
On March 17, 2010, John C. Kinard, a member of the Company's Board of
Directors, was issued options to purchase 70,000 shares of the Company's
common stock under the 2006 Stock Option Plan at a strike price of $0.25 per
share. The options immediately vested and expire after ten years. The
Company recorded an expense of $16,380 for the options. Fair values
were estimated at the date of grant of the options, using the Black-Scholes
Option Valuation Model with the following weighted average assumptions:
risk free interest rate of 3.65%, volatility factor of the expected market
price of the Company's common stock of 162%, no dividend yield, and a weighted
average expected life of the options of 5 years. For the purpose of
determining the expected life of the options, the Company utilizes the
Simplified Method as defined in Staff Accounting Bulletin No. 107 issued by
the SEC.
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. As a result, if there is a loss from continuing operations,
Diluted EPS is computed in the same manner as Basic EPS. At June 30, 2010,
the Company had 1,045,000 and 5,284,725 options and warrants outstanding,
respectively, that were not included in the calculation of earnings per share
for the periods then ended. Such financial instruments may become dilutive
and would then need to be included in future calculations of Diluted EPS. At
June 30, 2010, the outstanding options and warrants were considered
anti-dilutive since the strike prices were below the market price and since
the Company has incurred losses year to date.
In January, 2010, the Company received stock subscriptions of $285,000 as a
part of its private placement offering, which concluded on January 26, 2010.
The subscribers received 4,071,428 shares of stock valued at $.07 per share.
Subsequent to this private placement, the Company determined that it needed to
enter into the farm-in agreement (See Note 4) and raise additional funds in
order to successfully drill a new test well on the Gabbs Valley Prospect.
As of June 30, 2010 the Company had issued 1,944,444 shares of its common
stock and warrants to purchase 972,225 shares of common stock (with an exercise
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price of $0.50 per share and which expire in June, 2011), with an aggregate
purchase price of $175,000 as a part of its most recent private placement
offering. Proceeds of the private placement were allocated $43,750 to common
stock warrants and $131,250 to common stock and paid in capital. The value of
the warrants was estimated using the Black-Scholes Valuation Model with the
following weighted average assumptions: risk free interest rate of .30%, no
dividend yield, volatility factor of the expected market price of the Company's
common stock of 155%, and a weighted average expected life of the warrants of
one year. The funds will be used for general corporate purposes and to pay for
costs associated with the exploratory well the Company is drilling in the
Gabb's Valley Prospect in Nevada.
On July 13, 2010, the Company completed its private placement offering by
issuing 2,500,002 additional shares of common stock, and 1,250,001 additional
warrants to purchase shares of common stock at a price of $.50, which expire
in June and July, 2011, as applicable. Proceeds from the two private
placements described above will be utilized for the Company's share of costs
to drill a new well on the Gabbs Valley Prospect (See Note 2). Any remaining
funds will be used for general working capital
purposes.
4. SUBSEQUENT EVENTS
Subsequent to June 30, 2010 the Company entered into a farm-in agreement with
its joint lease holders holding a 41% working interest in the 40,073 acre
Paradise Unit. On July 19, 2010, the Company commenced drilling a test well
in the Paradise Unit on the Gabbs Valley Prospect in Nevada.
In July, 2010, the Company issued 2,500,002 shares of its common stock and
1,250,001 warrants as a part of its private placement offering (See Note 3).
Proceeds of the private placement were allocated $77,500 to common stock
warrants and $322,500 to common stock and paid in capital. The value of the
warrants was estimated using the Black-Scholes Valuation Model with the
following weighted average assumptions: risk free interest rate of .30%, no
dividend yield, volatility factor of the expected market price of the
Company's common stock of 157%, and a weighted average expected life of the
warrants of one year. The funds will be used for general corporate purposes
and to pay for costs associated with the exploratory well the Company is
drilling in the Gabb's Valley Prospect in Nevada.
5. RECENTLY ISSUED ACCOUNTING STANDARDS
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 2010, the FASB issued Accounting Standards Update No. 2010-06,
"Fair Value Measurements and Disclosures (Topic 820) - Improving Disclosures
about Fair Value Measurements." This Update requires new disclosures regarding
the amount of transfers in or out of Levels 1 and 2 along with the reason for
such transfers and also requires a greater level of disaggregation when
disclosing valuation techniques and inputs used in estimating Level 2 and
Level 3 fair value measurements. This Update also includes conforming
amendments to the guidance on employers' disclosures about postretirement
benefit plan assets. The disclosures are required for reporting beginning
in the first quarter 2010. Also, beginning with the first quarter 2011, the
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standard requires additional categorization of items included in the
rollforward of activity for Level 3 inputs on a gross basis. Adoption of this
standard will not have a material effect on the financial statements.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
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 the
funds necessary to finance its operations. Sales revenue in 2009 was
attributable to the production of oil from the Company's Timber Draw #1-AH
and the Hooligan Draw #1-AH wells located in the Eastern Powder River Basin
in the State of Wyoming, otherwise known as the Cheyenne River Prospect,
which was sold in 2009. For all periods presented, the Company's effective
tax rate is 0%. The Company has generated net operating losses since
inception, which would normally reflect a tax benefit in the statement
of operations and a deferred asset on the balance sheet. However, because
of the current uncertainty as to the Company's ability to achieve
profitability, a valuation reserve has been established that offsets the
amount of any tax benefit available for each period presented in the
statements of operations.
THREE MONTH PERIOD ENDED JUNE 30, 2010, COMPARED TO THREE MONTH PERIOD
ENDED JUNE 30, 2009.
For the three months ended June 30, 2010, sales revenue decreased $5,292
to $0 compared to $5,292 for the same period during 2009. The decrease in
sales revenue was the result of the Timber Draw #1-AH and the Hooligan Draw
#1-AH wells being sold in 2009.
Production and operating expenses increased $46,895 to $71,896 for the three
months ended June 30, 2010, from $25,001 for the same period in 2009.
The increase was primarily due to Empire's higher share of Gabbs Valley lease
rentals due to its increased percentage.
General and administrative expenses increased by $6,194 to $71,369 for the
three months ended June 30, 2010, from $65,175 for the same period in
2009. The increase was primarily due to costs associated with the increase
in accounting and legal fees.
SIX MONTH PERIOD ENDED JUNE 30, 2010, COMPARED TO SIX MONTH PERIOD
ENDED JUNE 30, 2009.
For the six months ended June 30, 2010, sales revenue decreased $9,794 to $0
compared to $9,794 for the same period during 2009. As of June 30, 2009 the
Timber Draw #1-AH and the Hooligan Draw #1-AH wells had been sold.
Production and operating expenses increased $40,439 to $81,826 for the
six months ended June 30, 2010, from $41,387 for the same period in
2009. The increase was primarily due to Empire's higher share of Gabbs
Valley lease rentals due to its increased percentage.
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General and administrative expenses increased by $19,833 to $138,430 for the
six months ended June 30, 2010, from $118,597 for the same period in
2009. The increase was primarily due to costs associated with the issuance
of stock options in 2010.
RECENTLY ISSUED ACCOUNTING STANDARDS
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 2010, the FASB issued Accounting Standards Update No. 2010-06,
"Fair Value Measurements and Disclosures (Topic 820) - Improving Disclosures
about Fair Value Measurements." This Update requires new disclosures regarding
the amount of transfers in or out of Levels 1 and 2 along with the reason for
such transfers and also requires a greater level of disaggregation when
disclosing valuation techniques and inputs used in estimating Level 2 and
Level 3 fair value measurements. This Update also includes conforming
amendments to the guidance on employers' disclosures about postretirement
benefit plan assets. The disclosures are required for reporting beginning
in the first quarter 2010. Also, beginning with the first quarter 2011, the
standard requires additional categorization of items included in the
rollforward of activity for Level 3 inputs on a gross basis. Adoption of this
standard will not have a material effect on the financial statements.
LIQUIDITY AND CAPITAL RESOURCES
GENERAL
As of June 30, 2010, the Company had $916,410 of cash on hand. The
Company believes that its cash on hand will allow it to finance its
operations for the next twelve months. In order to sustain the Company's
operations on a long-term basis, the Company intends to continue to look for
merger opportunities and consider public or private financings. The Company
plans to undertake further exploration of the Gabbs Valley Prospect in 2010.
OUTLOOK
As stated elsewhere in this Form 10-Q, on May 1, 2007, after further
testing of the Company's only well in the Gabbs Valley Prospect, the
Company decided to partially plug and abandon the well since no hydrocarbons
were recovered. However, the Company was encouraged by the data it acquired
in connection with the drilling, logging and testing of the well. Such data,
additional studies of such data, the assistance of geological and
engineering consultants and an Advanced Geochemical Imaging Survey conducted
in December 2008 led the Company to determine that further drilling is
warranted. It is possible that excessive mud exposure in the hole for over
five months seriously impeded the process of recovering hydrocarbons. It was
determined that a new test well should be drilled using a different
method of drilling. The Company has secured the necessary funds to pay its
57% interest in a new test well which will be located in close proximity to
the Cobble Cuesta 1-12.
MATERIAL RISKS
The Company has incurred significant losses from operations and there is no
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assurance that it will achieve profitability or obtain the funds necessary to
finance continued operations. For other material risks, see the Company's
Form 10-K for the period ended December 31, 2009, which was filed on March
30, 2010.
FORWARD-LOOKING INFORMATION
This Quarterly Report on Form 10-Q, including this section, includes certain
statements that may be deemed "forward-looking statements" within the meaning
of federal securities laws. All statements, other than statements of
historical facts, that address activities, events or developments that the
Company expects, believes or anticipates will or may occur in the future,
including future sources of financing and other possible business
developments, are forward-looking statements. Such statements are subject
to a number of assumptions, risks and uncertainties and could be affected by
a number of different factors, including the Company's failure to secure short
and long-term financing necessary to sustain and grow its operations, increased
competition, changes in the markets in which the Company participates and the
technology utilized by the Company and new legislation regarding environmental
matters. These risks and other risks that could affect the Company's business
are more fully described in reports it files with the SEC, including its Form
10-K for the fiscal year ended December 31, 2009. Actual results may vary
materially from the forward-looking statements.
The Company undertakes no duty to update any of the forward-looking statements
in this Form 10-Q.
Item 4. CONTROLS AND PROCEDURES
As of the end of the period covered by this report, the Company carried out an
evaluation under the supervision of the Company's Chief Executive Officer (and
principal financial officer) of the effectiveness of the design and operation
of the Company's disclosure controls and procedures pursuant to Securities
Exchange Act Rules 13a-15(e) and 15d-15(e). Based on this evaluation, the
Company's Chief Executive Officer (and principal financial officer) has
concluded that the disclosure controls and procedures as of the end of the
period covered by this report are effective. During the period covered by this
report, there was no change in the Company's internal controls over financial
reporting that has materially affected or that is reasonably likely to
materially affect the Company's internal control over financial reporting.
PART II. OTHER INFORMATION
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
During the three months ended June 30, 2010, the Company received subscriptions
for 1,944,444 shares of its common stock, par value $0.001 per share,
through a private placement. During such period, it also issued warrants to
purchase 972,225 shares of its common stock in connection with the private
placement (with an exercise price of $0.50 per share and which expire in June,
2011). The aggregate offering price for such shares and warrants was $175,000.
The private placement concluded on July 13, 2010. In total (including events
subsequent to June 30,2010), the Company received subscriptions for 4,444,446
shares of its common stock, par value $0.001 per share, and warrants to
purchase 2,222,226 shares of its common stock (with an exercise price of $0.50
per share and which expire in June and July, 2011, as applicable), with an
aggregate offering price of $400,000. The material terms and conditions
applicable to the purchase and sale of the securities in the private placement
are set forth in the form of the securities purchase agreement and the
-11-
common warrant certificate, which are included as exhibits hereto. The funds
raised in the private placement will be used for the purposes discussed in
Notes 3 and 4 to the financial statements.
The offers and sales related to the shares described above were not registered
under the Securities Act of 1933, as amended, in reliance upon the exemption
from the registration requirements of that act provided by Section 4 (2)
thereof and Regulation D promulgated by the SEC thereunder. Each of the
investors in the private placement is a sophisticated accredited investor with
the experience and expertise to evaluate the merits and risks of an investment
in the Company's stock and the financial means to bear the risks of such an
investment. In addition, each investor was provided access to all of the
material information regarding the Company that such investor would have
received if the offer and sale of the securities had been registered.
Item 6. Exhibits
a) Exhibits
10.1 Form of securities purchase agreement entered into between
Empire Petroleum Corporation and certain accredited investors
in connection with the 2010 private placement (submitted
herewith).
10.2 Form of common share warrant certificate issued by Empire
Petroleum Corporation in favor of certain accredited
investors in connection with the 2010 private placement
(submitted herewith).
31 Certification of Chief Executive Officer (and principal
financial officer) pursuant to Rules 13a-14(a) and 15d-14(a)
promulgated under the Securities Exchange Act of 1934, as
amended, and Item 601(b)(31) of Regulation S-K, as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
(submitted herewith).
32 Certification of Chief Executive Officer (and principal
financial officer) pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002 (submitted herewith).
EMPIRE PETROLEUM CORPORATION
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
EMPIRE PETROLEUM CORPORATION
Date: August 13, 2010 By: /s/ Albert E. Whitehead
___________________
Albert E. Whitehead
Chairman, Chief Executive
Officer and Principal
Financial Officer
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EXHIBIT INDEX
NO. DESCRIPTION
10.1 Form of securities purchase agreement entered into between
Empire Petroleum Corporation and certain accredited investors
in connection with the 2010 private placement (submitted
herewith).
10.2 Form of common share warrant certificate issued by Empire
Petroleum Corporation in favor of certain accredited
investors in connection with the 2010 private placement
(submitted herewith).
31 Certification of Chief Executive Officer (and principal
financial officer) pursuant to Rules 13a-14(a) and 15d-14(a)
promulgated under the Securities Exchange Act of 1934, as
amended, and Item 601(b)(31) of Regulation S-K, as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
(submitted herewith).
32 Certification of Chief Executive Officer (and principal
financial officer) pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002 (submitted herewith).
EXHIBIT 10.1
SECURITIES PURCHASE AGREEMENT
EMPIRE PETROLEUM CORPORATION
8801 S. Yale, Suite 120
Tulsa, Oklahoma 74137-3575
____________, 2010
TO: [Name and address of Investor]
The undersigned, Empire Petroleum Corporation, a Delaware corporation
(the "Company"), hereby agrees with you as follows, effective as of the date
above written:
1. Authorization and Sale of the Securities.
1.1 Authorization. The Company represents that it has authorized
the issuance to you pursuant to the terms and conditions hereof of:
(a) ___________ shares of its common stock, par value $0.001 per share
(the "Common Stock"); and
(b) a warrant (the "Warrant") to purchase ______________shares of the
Company's Common Stock ("Warrant Shares") in accordance with the
terms set forth in the form of the Common Share Warrant Certificate
attached hereto as Exhibit A.
The shares of Common Stock and Warrant to be purchased pursuant to the terms
of this Agreement are collectively referred to herein as the "Securities."
1.2 Sale. Subject to the terms and conditions hereof, on the Purchase
Date (as defined Section 2 below), the Company shall issue and sell to you and
you shall purchase from the Company, the Securities for an aggregate purchase
price of $_______________ (the "Purchase Price").
2. Payment of Purchase Price; Delivery.
Upon the execution of this Agreement, you shall deliver to the Company
wire funds or a check payable to the Company in the amount of the Purchase
Price. Upon receipt of the Purchase Price from you (the "Purchase Date"), the
Company shall promptly issue and deliver to you the Securities.
3. Representations and Warranties of the Company.
The Company hereby represents and warrants to you as follows:
3.1 Organization and Standing; Articles and Bylaws. The Company is a
corporation duly organized and existing under, and by virtue of, the laws of
the State of Delaware and is in good standing under such laws. The Company is
qualified, licensed or domesticated as a foreign corporation in all
jurisdictions where the nature of its business conducted or the character of
its properties owned or leased makes such qualification, licensing or
domestication necessary at this time except in those jurisdictions where the
failure to be so qualified or licensed and in good standing does not and will
not have a materially adverse effect on the Company, the conduct of its
business or the ownership or operation of its properties. The Company's
Certificate of Incorporation, as amended, and Bylaws, which have been filed as
attachments to the Company reports it files with Securities and Exchange
Commission (the "SEC"), are true, correct and complete, and contain all
amendments through the date of this Agreement.
3.2 Corporate Power. The Company has the requisite corporate power to
own and operate its properties and assets, and to carry on its business as
presently conducted and as proposed to be conducted. The Company has now, and
will have at the Purchase Date, all requisite legal and corporate power to
enter into this Agreement, to sell the Securities hereunder, and to carry out
and perform its obligations under the terms of this Agreement.
3.3 Capitalization. The authorized capital stock of the Company
consists of 100,000,000 shares of common stock, par value $0.001 per share.
There are issued and outstanding approximately 78,624,789 shares of common
stock. The issued and outstanding shares of common stock are fully paid and
nonassessable. Except as disclosed in the Disclosure Materials (as defined in
Section 4.1 below), there are no outstanding options, warrants or other
rights, including preemptive rights, entitling the holder thereof to purchase
or acquire shares of common stock of the Company.
3.4 Authorization.
(a) All corporate action on the part of the Company, its officers,
directors and shareholders necessary for the sale and issuance of the
Securities pursuant hereto and the performance of the Company's obligations
hereunder has been taken or will be taken prior to the Purchase Date. This
Agreement is a legal, valid and binding obligation of the Company, enforceable
against the Company in accordance with its terms, except as limited by
bankruptcy, insolvency, reorganization, moratorium or similar laws of general
application affecting enforcement of creditors' rights, and except as limited
by application of legal principles affecting the availability of equitable
remedies.
(b) The Securities, when issued in compliance with the provisions
of this Agreement, will be validly issued, fully paid and nonassessable, and
will be free of any liens or encumbrances; provided, however, that such
Securities and the Warrant Shares will be subject to restrictions on transfer
under state and/or Federal securities laws, and as may be required by future
changes in such laws.
(c) No shareholder of the Company has any right of first refusal or
any preemptive rights in connection with the issuance of the Securities or of
any other capital stock of the Company.
3.5 Compliance with Instruments. The Company is not in violation of
any terms of its Certificate of Incorporation, as amended, or Bylaws, or, to
the knowledge of the Company, any judgment, decree or order applicable to it.
The execution, delivery and performance by the Company of this Agreement, and
the issuance and sale of the Securities pursuant hereto, will not result in
any such violation or be in conflict with or constitute a default under any
such term, or cause the acceleration of maturity of any loan or material
obligation to which the Company is a party or by which it is bound or with
respect to which it is an obligor or guarantor, or result in the creation or
imposition of any material lien, claim, charge, restriction, equity or
encumbrance of any kind whatsoever upon, or, to the knowledge of the Company,
give to any other person any interest or right (including any right of
termination or cancellation) in or with respect to any of the material
properties, assets, business or agreements of the Company.
3.6 Litigation, etc. There are no actions, proceedings or, to the
knowledge of the Company, investigations pending which might result in any
material adverse change in the business, prospects, conditions, affairs or
operations of the Company or in any of its properties or assets, or in any
impairment of the right or ability of the Company to carry on its business as
proposed to be conducted, or in any material liability on the part of the
Company, or which question the validity of this Agreement or any action taken or
to be taken in connection herewith.
3.7 Governmental Consent, etc. Except as may be required in connection
with any filings required under the Federal securities laws and/or the
securities laws of any state due to the offer and sale of the Securities
pursuant to this Agreement, no consent, approval or authorization of, or
designation, declaration or filing with, any governmental unit is required on
the part of the Company in connection with the valid execution and delivery of
this Agreement, or the offer, sale or issuance of the Securities or the
consummation of any other transaction contemplated hereby.
3.8 Securities Registration and Filings. The outstanding shares of the
Company's Common Stock are registered pursuant to Section 12(g) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). The Company
has filed all reports required by Section 13 or 15(d) of the Exchange Act
during the last two fiscal years. All of such reports were, at the time they
were filed, complete and accurate in all material respects and did not include
an untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements made therein, in the light of the
circumstances under which they were made, not misleading.
4. Representations and Warranties of Purchaser and Restrictions on Transfer
Imposed by the Securities Act.
4.1 Representations and Warranties by Purchaser. You represent and
warrant to the Company as follows:
(a) You have reviewed the following copies of the Company's (all of
which are collectively referred to as the "Disclosure Materials"):
(i) Annual Report on Form 10-K for year ended December 31,
2009 located at http://www.sec.gov/Archives/edgar/data/887396/
000088739610000008/r10k-2009.txt;
(ii) Quarterly Report on Form 10-Q for the quarter ended
March 31, 2010 located at http://www.sec.gov/Archives/edgar/data/887396/
000088739610000010/r10q-03312010.txt; and
(iii) Supplement to Disclosure Materials dated ___________,
2010, which was provided to you via a separate letter.
You have also reviewed the Company's Certificate of Incorporation, as amended,
and Bylaws.
(b) You are experienced in evaluating and investing in companies
such as the Company. Further, you understand that the Securities purchased
hereby are of a highly speculative nature and could result in the loss of your
entire investment.
(c) You have been furnished by the Company with all information
requested concerning the proposed operations, affairs and current financial
condition of the Company. Such information and access have been available to
the extent you consider necessary and advisable in making an intelligent
investment decision. In addition, you have received and reviewed copies of
the Disclosure Materials and have had the opportunity to discuss the Company's
business, management and financial affairs with its Chief Executive Officer.
You understand that such discussions, as well as the Disclosure Materials and
any other written information issued by the Company, were intended to describe
certain aspects of the Company's business and prospects which it believes to
be material but were not necessarily a thorough or exhaustive description.
(d) The Securities to be acquired by you will be acquired, solely
for your account, for investment purposes only and not with a view to the
resale or distribution thereof, are not being purchased for subdivision or
fractionalization thereof, and you have no contract, undertaking, agreement or
arrangement with any person to sell or transfer such Securities to any person
and do not intend to enter into such contract or arrangement.
(e) You understand that the Securities have not been registered
under the Securities Act of 1933, as amended (the "Securities Act"), nor are
they registered or qualified under the blue sky or securities laws of any
state, by reason of their issuance in a transaction exempt from the
registration and prospectus delivery requirements of the Securities Act
pursuant to Sections 3(b) or 4(2) of the Securities Act and available
exemptions from the registration requirements of any applicable state
securities laws. You further understand that the Securities must be held by
you indefinitely and you must therefore bear the economic risk of such
investment indefinitely, unless a subsequent disposition thereof is registered
under the Securities Act or is exempt from registration.
(f) You have the full right, power and authority to enter into and
perform this Agreement, and this Agreement constitutes a legal, valid and
binding obligation upon you, except as may be limited by bankruptcy,
insolvency, reorganization, moratorium or similar laws of general application
affecting enforcement of creditors' rights, and except as limited by
application of legal principles affecting the availability of equitable
remedies.
(g) You are able to bear the full economic risk of your investment
in the Securities, including the risk of a total loss of your investment in
connection therewith. You are an accredited investor as that term is defined
in Rule 501(a) of Regulation D promulgated by the SEC.
(h) You were not offered the Securities by means of general
solicitations, publicly disseminated advertisements or sales literature.
4.2 Legends. The instrument representing the Securities and the Warrant
Shares shall be endorsed with the legend set forth below:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER ANY STATE SECURITIES ACT.
THE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE SOLD,
TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS (I) THEY HAVE BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND ANY APPLICABLE STATE
SECURITIES ACT, OR (II) THE COMPANY SHALL HAVE BEEN FURNISHED AN OPINION OF
COUNSEL, SATISFACTORY TO COUNSEL FOR THE COMPANY, THAT REGISTRATION IS NOT
REQUIRED UNDER ANY OF SUCH ACTS.
In addition, each instrument representing the Securities and the Warrant
Shares shall be endorsed with any other legend required by any state
securities laws. The Company need not register a transfer of legended
Securities and the Warrant Shares, and may also instruct its transfer agent
not to register the transfer of the Securities and the Warrant Shares, unless
one of the conditions specified in each of the foregoing legends is satisfied.
5. Indemnification by Purchaser.
You acknowledge and understand that the Company has agreed to offer and
sell the Securities to you based upon the representations and warranties made
by you in this Agreement, and you hereby agree to indemnify the Company and to
hold the Company and its incorporators, officers, directors and professional
advisors harmless against all liability, costs or expenses (including
attorneys' fees) arising by reason of or in connection with any
misrepresentation or any breach of such representations and warranties by you,
or arising as a result of the sale or distribution of any Securities by you in
violation of the Securities Act or other applicable law.
6. Miscellaneous.
6.1 Successors and Assigns. All the provisions of this Agreement by or
for the benefit of the parties shall bind and inure to the benefit of
respective successors and permitted assigns of each party.
6.2 Notices. All notices and other communications required or permitted
hereunder shall be in writing and shall be mailed by first class mail, postage
prepaid, addressed (a) if to you, at your address set forth on the first page
hereof, or at such other address as you shall have furnished to the Company in
writing, or (b) if to the Company, at its address set forth on the first page
hereof, or at such other address as the Company shall have furnished to you in
writing in accordance with this Section 6.2.
6.3 Waivers; Amendments. Any provision of this Agreement may be amended
or modified with (but only with) the written consent of the Company and you.
Any amendment, modification or waiver effected in compliance with this Section
6.3 shall be binding upon the Company and you. No failure or delay of the
Company or you in exercising any power or right hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise of any such right or
power, or any abandonment or discontinuance of steps to enforce such a right
or power, preclude any other or further exercise thereon or the exercise of
any other right or power. The rights and remedies of the Company and you
hereunder are cumulative and not exclusive of any rights or remedies which
each would otherwise have.
6.4 Separability. In case any one or more of the provisions contained
in this Agreement shall be invalid, illegal or unenforceable in any respect,
the validity, legality and enforceability of the remaining provisions
contained herein shall not in any way be affected or impaired thereby. The
parties shall endeavor in good faith negotiations to replace the invalid,
illegal or unenforceable provisions with valid provisions, the economic effect
of which comes as close as possible to that of the invalid, illegal or
unenforceable provisions.
6.5 Governing Law. This Agreement shall be construed and enforced in
accordance with the laws of the State of Oklahoma without regard to principles
of conflicts of law, except as otherwise required by mandatory provisions of
law.
6.6 Section Headings. The section headings used herein are for
convenience of reference only and shall not be construed in any way to affect
the interpretation of any provisions of this Agreement.
6.7 Entire Agreement. This Agreement and the other documents delivered
pursuant hereto constitute the full and entire understanding and agreement
between the parties hereto with regard to the subjects hereof and thereof.
6.8 Finder's Fees. You represent and warrant to the Company that no
finder or broker has been retained by you in connection with the transactions
contemplated by this Agreement and you hereby agree to indemnify and to hold
the Company and its respective officers, directors and controlling persons,
harmless of and from any liability for any commission or compensation in the
nature of a finder's fee to any broker or other person or firm (and the costs
and expenses of defending against such liability or asserted liability) for
which you, or any of your employees or representatives, are responsible. The
Company hereby agrees to indemnify and to hold you, and your respective
officers, directors and controlling persons, harmless of and from any
liability for any commission or compensation in the nature of a finder's fee
to any broker or other person or firm (and the costs and expenses of defending
against such liability or asserted liability) for which it, or any of its
employees or representatives, are responsible.
6.9 Other Documents. The parties to this Agreement shall in good faith
execute such other and further instruments, assignments or documents as may be
necessary or advisable to carry out the transactions contemplated by this
Agreement.
6.10 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument, and which shall become effective when there
exist copies signed by the Company and by you.
[Signatures on Next Page]
IN WITNESS WHEREOF, the undersigned have caused this Agreement to be
executed by their duly authorized representatives effective as of the date set
forth on the first page hereof.
EMPIRE PETROLEUM CORPORATION
By:_______________________________________
Albert E. Whitehead, Chief Executive Officer
Accepted and agreed to this ______ day of _____________, 2010.
BUYER ____________________________________
By:_______________________________________
Name:_____________________________________
Title:____________________________________
EXHIBIT 10.2
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER ANY STATE SECURITIES ACT.
THE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE SOLD,
TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS (I) THEY HAVE BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND ANY APPLICABLE STATE
SECURITIES ACT, OR (II) THE COMPANY SHALL HAVE BEEN FURNISHED AN OPINION OF
COUNSEL, SATISFACTORY TO COUNSEL FOR THE COMPANY, THAT REGISTRATION IS NOT
REQUIRED UNDER ANY OF SUCH ACTS.
No. _____ ________, 2010
EMPIRE PETROLEUM CORPORATION
COMMON SHARE WARRANT CERTIFICATE
Warrant to Purchase_________Common Shares
Expiring ________, 2011
THIS CERTIFIES THAT _______________________(the "Warrant Holder"), in
consideration for entering into that certain Securities Purchase Agreement
dated as of ________, 2010 ("Purchase Agreement"), by and between the Warrant
Holder and Empire Petroleum Corporation, a Delaware corporation (the
"Company"), at any time following the date hereof, on any Business Day on or
prior to 5:00 p.m., Pacific Time, on the Expiration Date (as defined in
Section 1 below), is entitled to subscribe for and purchase from the Company,
up to ________ Common Shares (as defined in Section 1 below) at a price per
Common Share equal to the Exercise Price (as defined in Section 1 below);
provided, however, that the number of Common Shares issuable upon any exercise
of this Warrant (as defined in Section 1 below) shall be adjusted and
readjusted from time to time in accordance with Section 4 below.
1. Certain Definitions.
The following terms, as used herein, have the following meanings:
"Affiliate" means, with respect to any Person, any other Person that
directly or indirectly controls, is controlled by, or is under common control
with such Person.
"Business Day" means any day except a Saturday, Sunday or other day on
which commercial banks in New York City are authorized by law to close.
"Commission" means the Securities and Exchange Commission.
"Common Share(s)" means the Company's currently authorized class of
Common Stock, par value $0.001.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, or
any successor Federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time. Reference to a
particular section of the Exchange Act shall include a reference to the
comparable section, if any, of any such successor Federal statute.
"Exercise Price" means $0.50 with respect to up to ___________Warrant
Shares.
"Early Expiration Date" has the meaning specified in Section 2.3 hereof.
"Expiration Date" means the earlier to occur of (i) ________, 2011, or
(ii) an Early Expiration Date.
"Person" means an individual, a corporation, a partnership, a limited
liability company, an association, a trust or any other entity or organization,
including a government or political subdivision or an agency or
instrumentality thereof.
"Securities Act" means the Securities Act of 1933, as amended, or any
successor Federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time. Reference to a
particular section of the Securities Act shall include a reference to the
comparable section, if any, of any such successor Federal statute.
"Warrant" means the rights granted to the Warrant Holder pursuant to
this Warrant Certificate.
"Warrant Certificate" means this Common Share Warrant Certificate.
"Warrant Share(s)" means the _______________Common Shares issued or
issuable upon exercise of this Warrant, as adjusted from time to time pursuant
to Section 4.
2. Vesting, Exercise and Early Expiration.
2.1 Vesting. The Warrant and the Warrant Shares shall immediately vest
upon the execution of this Warrant Certificate.
2.2 Exercise of Warrant.
(a) The Warrant Holder may exercise this Warrant by delivering to the
Company a duly executed notice (a "Notice of Exercise") in the form of Annex A
attached hereto, at the election of the Warrant Holder, in which the Warrant
Holder shall receive from the Company the number of Warrant Shares as to which
this Warrant is being exercised and shall pay to the Company the Exercise
Price for each such Warrant Share by check payable to the order of the Company
in an amount equal to the product of: (a) the Exercise Price times (b) the
number of Warrant Shares as to which the Warrant is being exercised.
(b) As soon as practicable, but not later than five (5) Business Days
after the Company shall have received such Notice of Exercise and payment, the
Company shall execute and deliver or cause to be executed and delivered, in
accordance with such Notice of Exercise, a certificate or certificates
representing the number of Common Shares specified in such Notice of Exercise,
issued in the name of the Warrant Holder. This Warrant shall be deemed to have
been exercised and such share certificate or certificates shall be deemed to
have been issued, and such Warrant Holder shall be deemed for all purposes to
have become a holder of record of Common Shares, as of the date that such
Notice of Exercise and payment shall have been received by the Company.
(c) The Warrant Holder shall surrender this Warrant Certificate to the
Company when it delivers the Notice of Exercise, and in the event of a partial
exercise of the Warrant, the Company shall execute and deliver to the Warrant
Holder, at the time the Company delivers the share certificate or certificates
issued pursuant to such Notice of Exercise, a new Warrant Certificate for the
unexercised portion of this Warrant Certificate, but in all other respects
identical to this Warrant Certificate.
(d) The Company shall pay all expenses, taxes and other charges payable
in connection with the preparation, issuance and delivery of certificates for
the Warrant Shares and a new Warrant Certificate, if any, except that if the
certificates for the Warrant Shares or the new Warrant Certificate, if any,
are to be registered in a name or names other than the name of the Warrant
Holder, funds sufficient to pay all transfer taxes payable as a result of such
transfer shall be paid by the Warrant Holder at the time of its delivery of
the Notice of Exercise or promptly upon receipt of a written request by the
Company for payment.
(e) No fractional Common Shares will be issued in connection with any
exercise of the Warrant, and any fractional Common Share (resulting from any
adjustment pursuant to Section 4 or otherwise) in the aggregate number of Common
Shares being purchased upon any exercise of the Warrant shall be eliminated.
2.3 Early Expiration.
(a) In the event that the closing bid price of the Company's Common
Shares, as reported by the Nasdaq Stock Market, Inc., exceeds the Exercise
Price for any Warrant Shares to which the Warrant Holder is entitled to
receive upon exercising any portion of this Warrant for any period of 30
consecutive trading days, the Warrant shall expire with respect to such
Warrant Shares on the 180th day thereafter (each, an "Early Expiration Date");
provided, however, that the Company must give prior written notice to the
Warrant Holder not less than 30 days prior to any Early Expiration Date for
such Early Expiration Date to be applicable to the Warrant Holder; and,
provided further, that the Warrant Holder shall remain entitled to exercise
this Warrant with respect to such Warrant Shares at any time up to and
including the Business Day immediately preceding the applicable Early
Expiration Date.
(b) In the event that the Warrant Holder fails to exercise any portion
of the Warrant subject to expiration in accordance with Section 2.3(a) above
prior to any Early Expiration Date, all rights of the Warrant Holder under
this Warrant Certificate with respect to such Warrant Shares shall cease and
this Warrant shall no longer be deemed to be outstanding with respect to such
Warrant Shares.
3. Validity of Warrant and Issuance of Common Shares.
The Company represents and warrants that this Warrant has been duly
authorized and is validly issued. The Company further represents and warrants
that on the date hereof it has duly authorized and reserved, and the Company
hereby agrees that it will at all times until the Expiration Date have duly
authorized and reserved, such number of Common Shares as will be sufficient to
permit the exercise in full of the Warrant, and that all such Common Shares
are and will be duly authorized and, when issued upon exercise of the Warrant,
will be validly issued, fully paid and nonassessable, and free and clear of
all security interests, claims, liens, equities and other encumbrances.
4. Adjustment Provisions.
The number of Warrant Shares that may be purchased upon any exercise of
the Warrant, shall be subject to change or adjustment as follows:
4.1 Common Share Reorganization. If the Company shall subdivide its
outstanding Common Shares into a greater number of shares, by way of share
split, share dividend or otherwise, or consolidate its outstanding Common
Shares into a smaller number of shares (any such event being herein called a
"Common Share Reorganization"), then (a) the definition of Exercise Price
shall be adjusted, effective immediately after the effective date of such
Common Share Reorganization, so that each amount contained in the definition
of the Exercise Price is equal to such amount multiplied by a fraction, the
numerator of which shall be the number of Common Shares outstanding on such
effective date before giving effect to such Common Share Reorganization and
the denominator of which shall be the number of Common Shares outstanding
after giving effect to such Common Shares Reorganization, and (b) the number
of Common Shares subject to purchase upon exercise of this Warrant shall be
adjusted, effective at such time, to a number determined by multiplying the
number of Common Shares subject to purchase immediately before such Common
Share Reorganization by a fraction, the numerator of which shall be the number
of shares outstanding after giving effect to such Common Share Reorganization
and the denominator of which shall be the number of Common Shares outstanding
immediately before giving effect to such Common Share Reorganization.
4.2 Capital Reorganization. If there shall be any consolidation or
merger to which the Company is a party, other than a consolidation or a merger
of which the Company is the continuing corporation and that does not result in
any reclassification of, or change (other than a Common Share Reorganization)
in, outstanding Common Shares, or any sale or conveyance of the property of
the Company as an entirety or substantially as an entirety, or any
recapitalization of the Company (any such event being called a "Capital
Reorganization"), then, effective upon the effective date of such Capital
Reorganization, the Warrant Holder shall no longer have the right to purchase
Common Shares, but shall have instead the right to purchase, upon exercise of
this Warrant, the kind and amount of Common Shares and other securities and
property (including cash) which the Warrant Holder would have owned or have
been entitled to receive pursuant to such Capital Reorganization, if the
Warrant had been exercised immediately prior to the effective date of such
Capital Reorganization.
4.3 Adjustment Rules.
(a) Any adjustments pursuant to this Section 4 shall be made
successively whenever any event referred to herein shall occur, except that,
notwithstanding any other provision of this Section 4, no adjustment shall be
made to the number of Warrant Shares to be delivered to the Warrant Holder (or
to the Exercise Price) if such adjustment represents less than one-percent
(1%) of the number of Warrant Shares previously required to be so delivered,
but any lesser adjustment shall be carried forward and shall be made at the
time and together with the next subsequent adjustment which together with any
adjustments so carried forward shall amount to one-percent (1%) or more of the
number of Warrant Shares to be so delivered.
(b) If the Company shall take a record of the holders of its Common
Shares for any purpose referred to in this Section 4, then (i) such record
date shall be deemed to be the date of the issuance, sale, distribution or
grant in question and (ii) if the Company shall legally abandon such action
prior to effecting such action, no adjustment shall be made pursuant to this
Section 4 in respect of such action.
(c) As a condition precedent to the taking of any action which would
require an adjustment pursuant to this Section 4, the Company shall take any
action which may be necessary, including obtaining regulatory approvals or
exemptions, in order that the Company may thereafter validly and legally issue
as fully paid and nonassessable all Common Shares which the Warrant Holder is
entitled to receive upon exercise of this Warrant.
5. Transfer of Warrant.
5.1 No Transfer Without the Consent of the Company. This Warrant is
personal to the Warrant Holder and this Warrant Certificate and the rights of
the Warrant Holder hereunder may not be sold, assigned, transferred or
conveyed, in whole or in part, except with the prior written consent of the
Company.
5.2 Permitted Transfers. Upon transfer of the Warrant permitted under
Section 5.1 above, the Warrant Holder must deliver to the Company a duly
executed Warrant Assignment in the form of Annex B, attached hereto, with
funds sufficient to pay any transfer tax imposed in connection with such
assignment. Upon surrender of this Warrant to the Company, the Company shall
execute and deliver a new Warrant in the form of this Warrant, with
appropriate changes to reflect such assignment, in the name or names of the
assignee or assignees specified in the fully executed Warrant Assignment or
other instrument of assignment and, if the Warrant Holder's entire interest is
not being transferred or assigned, in the name of the Warrant Holder, and this
Warrant shall promptly be canceled. In connection with any transfer or
exchange of this Warrant permitted hereunder, the transferring Warrant Holder
shall pay all costs and expenses relating thereto, including, without
limitation, all transfer taxes, if any, and all reasonable expenses incurred
by the Company (including legal fees and expenses). Any new Warrant issued
shall be dated the date hereof. The terms "Warrant" and "Warrant Holder" as
used herein include all Warrants into which this Warrant (or any successor
Warrant) may be exchanged or issued in connection with the permitted transfer
or assignment of this Warrant, any successor Warrant and the holders of those
Warrants, respectively.
6. Lost Mutilated or Missing Warrant Certificates.
Upon receipt by the Company of evidence satisfactory to it of the loss,
theft, destruction or mutilation of this Warrant Certificate and, in the case
of loss, theft or destruction, upon receipt of indemnification satisfactory to
the Company, or, in the case of mutilation, upon surrender and cancellation of
the mutilated Warrant Certificate, the Company shall execute and deliver a new
Warrant Certificate of like tenor and representing the right to purchase the
same aggregate number of Warrant Shares. The recipient of any such Warrant
Certificate shall reimburse the Company for all reasonable expenses incidental
to the replacement of such lost, mutilated or missing Warrant Certificate.
7. Miscellaneous.
7.1 Successors and Assigns. All the provisions of this Warrant
Certificate by or for the benefit of the Company or the Warrant Holder shall
bind and inure to the benefit of their respective successors and permitted
assigns.
7.2 Notices. All notices, requests, demands and other communications
hereunder shall be given in accordance with the terms of the Purchase
Agreement.
7.3 Waivers; Amendments. Any provision of this Warrant Certificate may
be amended or modified with (but only with) the written consent of the Company
and the Warrant Holder. Any amendment, modification or waiver effected in
compliance with this Section 7.3 shall be binding upon the Company and the
Warrant Holder. No failure or delay of the Company or the Warrant Holder in
exercising any power or right hereunder shall operate as a waiver thereof, nor
shall any single or partial exercise of any such right or power, or any
abandonment or discontinuance of steps to enforce such a right or power,
preclude any other or further exercise thereon or the exercise of any other
right or power. The rights and remedies of the Company and the Warrant Holder
hereunder are cumulative and not exclusive of any rights or remedies which each
would otherwise have.
7.4 No Rights as a Shareholder. The Warrant shall not entitle the
Warrant Holder, prior to the exercise of the Warrant, to any rights as a
holder of shares of the Company.
7.5 Separability. In case any one or more of the provisions contained
in this Warrant shall be invalid, illegal or unenforceable in any respect, the
validity, legality and enforceability of the remaining provisions contained
herein shall not in any way be affected or impaired thereby. The parties
shall endeavor in good faith negotiations to replace the invalid, illegal or
unenforceable provisions with valid provisions, the economic effect of which
comes as close as possible to that of the invalid, illegal or unenforceable
provisions.
7.6 Governing Law. This Warrant shall be construed and enforced in
accordance with the laws of the State of Oklahoma without regard to principles
of conflicts of law, except as otherwise required by mandatory provisions of
law.
7.7 Section Headings. The section headings used herein are for
convenience of reference only and shall not be construed in any way to affect
the interpretation of any Provisions of the Warrant.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to
be duly executed and attested by its Chief Executive Officer, all as of the
day and year first above written.
EMPIRE PETROLEUM CORPORATION
By:___________________________________________
Albert E. Whitehead, Chief Executive Officer
ANNEX A
Form of Notice of Exercise
Date: __________
To: Empire Petroleum Corporation
Reference is made to the Common Share Purchase Warrant dated ____________
issued to the undersigned by Empire Petroleum Corporation. Terms defined
therein are used herein as therein defined.
The undersigned, pursuant to the provisions set forth in the Warrant
Certificate, hereby irrevocably elects and agrees to purchase the number of
Common Shares at the Exercise Price(s) set forth below, and makes payment
herewith by check payable to the order of the Company in an amount equal to
$________.
Number of Warrant Shares Applicable Exercise Price
________________________ _________________________
________________________ _________________________
________________________ _________________________
If said number of shares is less than all of the shares purchasable hereunder,
the undersigned hereby requests that a new Warrant Certificate representing
the remaining balance of the Warrant Shares be issued to me.
The undersigned hereby represents that it is exercising the Warrant for its
own account for investment purposes and not with the view to any sale or
distribution and that the Warrant Holder will not offer, sell or otherwise
dispose of the Warrant or any underlying Warrant Shares in violation of
applicable securities laws.
By:__________________________________________
Name:________________________________________
Title:_______________________________________
ANNEX B
Form of Warrant Assignment
Reference is made to the Common Share Purchase Warrant dated __________,
issued to the undersigned by Empire Petroleum Corporation. Terms defined
therein are used herein as therein defined.
FOR VALUE RECEIVED __________________ (the "Assignor") hereby sells,
assigns and transfers all of the rights of the Assignor as set forth in the
Warrant Certificate with respect to the number of Warrant Shares covered
thereby as set forth below, to the Assignee(s) as set forth below:
Name(s) of Number of Applicable Exercise Price of
Assignee(s) Address(es) Warrant Shares Warrant Share
__________ __________ __________________ ___________________
__________ __________ __________________ ___________________
All notices to be given by the Company to the Assignor as Warrant Holder
shall be sent to the Assignee(s) at the above listed address(es), and, if the
number of Warrant Shares being hereby assigned is less than all of the Warrant
Shares covered by the Warrant Certificate held by the Assignor, then also to
the Assignor.
In accordance with Section 5 of the Warrant Certificate, the Assignor
requests that the Company execute and deliver a new Warrant Certificate or
Warrant Certificates in the name or names of the Assignee or Assignees, as is
appropriate, or, if the number of Warrant Shares being hereby assigned is less
than all of the Warrant Shares covered by the Warrant held by the Assignor,
new Warrant Certificates in the name or names of the Assignee or the
Assignees, as is appropriate, and in the name of the Assignor.
The undersigned represents that the Assignee has represented to the
Assignor that the Assignee or each Assignee, as is appropriate, is acquiring the
Warrant for its own account or the account of an Affiliate for investment
purposes and not with the view to sell or distribute, and that the Assignee or
each Assignee, as is appropriate, will not offer, sell or otherwise dispose of
the Warrant or the Warrant Shares except under circumstances as will not
result in a violation of applicable securities laws.
Dated:__________
By:__________________________________________
Name:________________________________________
Title:_______________________________________
EXHIBIT 31
CERTIFICATION
I, Albert E. Whitehead, certify that:
1. I have reviewed this quarterly report on Form 10-Q 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
registrant as of, and for, the periods presented in this report;
4. The registrant'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)) and internal control
over financial reporting (as defined in Exchange Act Rules 13a-15(f) and
15d-15(f)) for the registrant 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
registrant, 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) Designed such internal control over financial reporting, or caused
such internal control over financial reporting to be designed under
our supervision, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted
accounting principles;
(c) Evaluated the effectiveness of the registrant'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
(d) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's
most recent fiscal quarter (the registrant's fourth fiscal quarter in
the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrant's internal
control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed,
based on our most recent evaluation of internal control over financial
reporting, to the registrant's auditors and the audit committee of
the registrant'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 registrant'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
registrant's internal control over financial reporting.
August 13, 2010 /s/ Albert E. Whitehead
Albert E. Whitehead,
Chief Executive Officer and
Principal Financial Officer
EXHIBIT 32
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the quarterly report of Empire Petroleum Corporation
(the "Company") on Form 10-Q for the period ending June 30, 2010 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.
August 13, 2010 /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.