SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES AND EXCHANGE ACT OF 1934
For the fiscal year ended:
December 31, 1999
Commission File Number
1-10077
EMPIRE ENERGY CORPORATION
--------------------------------------------
(Name of small business issuer in its charter)
Utah 87-0401761
- ------------------------------- --------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification number)
11011 King Street, Suite 260 66210
Overland Park, KS (Zip Code)
(Address of Principal Executive offices)
Issuer's telephone number: (913) 469-5615
Securities registered under Section 12(b) of the Act: None
Securities registered under Section 12(g) of the Act: None:
Check whether the issuer (1) has 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 there is no disclosure of delinquent filers pursuant 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 ]
State issuer's revenues for the most recent fiscal year. $69,401.
The aggregate market value of the voting common stock held by non-affiliates of
the Registrant as of March 17, 2000 was $21,562,085. The Company's common stock
is traded on the OTC Electronic Bulletin Board.
There were 11,911,417 shares of common stock $.001 par value outstanding as of
March 17, 2000.
Documents incorporated by reference: None
Transitional Small Business Format (check one); Yes ; No X
<PAGE>
Item 1. Description of Business
Introduction
Empire Energy Corporation (the "Company") was incorporated in November of
1983 in the state of Utah under the name Medivest, Inc. The Company engaged in
various business enterprises and eventually filed for protection under the
bankruptcy laws. The Company emerged from bankruptcy and had its corporate
charter reinstated in 1995 but remained inactive until 1999. On May 17, 1999,
the shareholders of the Company approved a change of name from Medivest Inc. to
Empire Energy Corporation and the Company commenced commercial activity.
The Company is engaged in oil and natural gas exploration, development and
production operations. The Company's operations primarily involved oil and gas
exploration, development and production in the Cumberland Plateau Region of
north-central Tennessee (Overton County). The Company is also interested in
expanding its operations into an international setting (primarily Central
America and Africa) but has not yet obtained any exploration or similar rights
in any Central American or African country.
The Company's corporate strategy is to expand its domestic reserve base
through acquisitions and additional exploration and developmental drilling under
its existing oil and gas exploration program and to reinvest a substantial
portion of the cash flow generated from its domestic operations to acquire or
participate in international prospects that have the potential for larger
petroleum reserves and greater revenues.
The Company's executive offices are located at 11011 King Street, Suite
260B, Overland Park, Kansas 66210 and its telephone number is (913) 469-5615.
The Company has two full time employees.
Exploration and Development Activities
The Company owns a non-operating working interest in an oil field
exploration and production program in Overton County, Tennessee, located in the
north-central portion of the state. The program currently consists of two (2)
oil wells and one (1) gas well. A new field discovery well was spud on September
9, 1999 and was brought onto production on October 5, 1999. In November 1999, an
offset well was drilled which encountered commercial quantities of gas but the
well has been shut-in awaiting a market in which to sell the gas. The second
producing oil well in the program was spud in fiscal year 2000 (January 25,
2000) and brought onto production on March 5, 2000.
In the third quarter of 1999, the Company signed an agreement to
participate in a Joint Venture Exploration Agreement with Pryor Oil Company of
Parkville, Missouri. Pryor Oil had been engaged in the evaluation of large areas
of central Tennessee, where Overton County is located, to eastern Tennessee,
where significant reserves of natural gas had been reported to have been
discovered by others. Pryor planned to establish operations and explore for oil
and gas in the north-central portion of the state and engaged the Company in a
Participation Agreement to conduct the exploration program.
<PAGE>
The exploration program was developed under the concept of using
technology-based criteria to search for and locate oil and gas producing
reservoirs. Target reservoirs were all present in geologic formations that are
no deeper than 2,000 feet below ground surface. Of the two producing wells in
the program, oil production is from depths of 835 feet and 790 feet below ground
surface. In addition, oil quality can be characterized as light, sweet crude
with a gravity of 41 degrees, low sulfur content and low solids.
The Company has a 60% working interest in the program, which is being
operated by Pryor Oil, an unrelated entity whose Tennessee operations are based
in Livingston, Tennessee. During the fiscal year ended December 31, 1999,
domestic oil sales for the Company included production during the fourth quarter
only. Total production from the field during this period (fourth quarter, fiscal
year 1999) was 6,577 barrels of oil of which Empire has a 60% working interest.
Total field production through February 2000 was approximately 11,500 barrels.
Sales from the program are to Somerset Refinery, Inc., Somerset, Kentucky and
represented 100% of the Company's consolidated oil revenues.
The initial exploration activity have resulted in an improved exploration
database and the firms are actively engaged in a leasing and exploration program
to expand activities and prospects in the region. Planned activities include the
drilling of additional wells during the year ending December 31, 2000.
Forward Looking Statements
Certain statements contained in this Annual Report on Form 10-KSB,
including statements of the Company's current expectations, intentions, plans
and beliefs, and statements containing the words "believes," "anticipates,"
"estimates," "expects," or "may," are forward-looking statements, as defined in
Section 21D of the Securities Exchange Act of 1934. Such forward-looking
statements involve known and unknown risk, uncertainties and other factors which
may cause the actual results, performance, timing or achievements of the Company
to be materially different from any results, performance, timing or achievements
expressed or implied by such forward-looking statements. Such factors include,
among others, the following:
Price Volatility -- The revenues generated by the Company are highly
dependent upon the prices of crude oil and natural gas. Fluctuations in the
petroleum markets make it difficult to estimate future prices of crude oil and
natural gas. Fluctuations in energy prices are caused by a number of factors,
including regional, domestic and international demand, energy legislation,
federal or state taxes (if any) on sales of crude oil and natural gas,
production guidelines established by the Organization of Petroleum Exporting
Countries ("OPEC"), and the relative abundance of supplies of alternative fuel
such as coal. Additionally, changing international economic and political
conditions may have a substantial impact upon crude oil and natural gas. All of
these factors are beyond the control of the Company.
<PAGE>
Business Risks - The Company must continually acquire or explore for and
develop new oil and gas reserves. Without successful drilling or acquisition
ventures, the Company's oil and gas assets, properties and the revenues derived
therefrom will decline over time. To the extent Empire engages in drilling
activities, such activities carry the risk that no commercially viable oil or
gas production will be obtained. The cost of drilling, completing and operating
wells is often uncertain. Moreover, drilling may be curtailed, delayed or
canceled as a result of many factors, including shortage of available working
capital, title problems, weather conditions, environmental concerns, shortages
of or delays in delivery of equipment, as well as the financial instability of
well operators, other working interest owners and drilling and well servicing
companies. The availability of a ready market for the Company's oil and gas
depends on numerous factors beyond its control, including the demand for and
supply of oil and gas, the proximity of the Company's crude oil and natural gas
reserves to pipelines, the capacity of such pipelines, fluctuations in seasonal
demand, the effects of inclement weather, and government regulation. New oil and
gas wells may be shut-in for lack of a market until a gas pipeline or gathering
system with available capacity is extended into the area.
Operating Hazards and Uninsured Risks -- The operations of the Company are
subject to the inherent risks normally associated with exploration for and
production of oil and gas, including blowouts, cratering, pollution,
environmental liabilities and fires, each of which could result in damage to or
destruction of oil and gas wells or production facilities or damage to persons
and property. As is common in the oil and gas industry, the Company is not fully
insured against all of these risks, either because insurance is not available,
because the Company has elected to self-insure due to high premium costs or for
other such reasons relating to a lack of appropriate insurance coverage. The
occurrence of a significant event that is not fully insured against could have a
material adverse effect on Empire's financial condition.
Environmental Regulation
The Company's operating activities are subject to various federal, state,
and local laws and regulations covering the discharge of material into the
environment or otherwise relating to protection of the environment. In
particular, the Company's oil and gas exploration, development, production, its
activities in connection with storage and transportation of liquid hydrocarbons
and its use of facilities for treating, processing, recovering, or otherwise
handling hydrocarbons and wastes therefrom are subject to stringent
environmental regulation by governmental authorities. Such environmental laws
and regulations may increase the costs of planning, designing, drilling,
installing, operating and abandoning the Company's oil and gas wells and other
facilities.
<PAGE>
Competition
The oil and gas industry is highly competitive in all its phases.
Competition is particularly intense with respect to the acquisition of desirable
producing properties and the sale of crude oil and natural gas production. The
Company's competitors in oil and gas exploration, development and production
include major oil companies and numerous independent oil and gas companies, and
individual producers and operators. Many of its competitors possess and employ
financial and personnel resources substantially greater than those that are
available to the Company and may, therefore, be able to pay greater amounts for
desirable leases and to define, evaluate, bid for and purchase a greater number
of producing prospects than the financial or personnel resources of the Company
will permit.
Regulation
The production of oil and gas is subject to extensive federal and state
laws, rules, orders and regulations governing a wide variety of matters,
including the drilling and spacing of wells, allowable rates of production,
prevention of waste and pollution and protection of the environment. In addition
to the direct costs borne in complying with such regulations, operations and
revenues may be impacted to the extent that certain regulations increase the
costs of oil and gas production to below economic levels. Although the
particular regulations applicable in each state in which operations are
conducted vary, such regulations are generally designed to ensure that oil and
gas operations are carried out in a safe and efficient manner and to ensure that
similarly-situated operators are provided with reasonable opportunities to
produce their respective fair shares of available crude oil and natural gas
reserves. However, since these regulations generally apply to all oil and gas
producers, management of the Company believes that these regulations should not
put it at a material disadvantage to other oil and gas producers.
Item 2. Description of Property
The Company's executive offices are located at 11011 King Street, Suite 260
B, Overland Park, KS 66210. The Company subleases approximately 1,400 sq. feet
of office space at the address from Owen and Associates, an affiliate of the
Company. The rental payment is $2,250 per month and continues through December
31, 2000. The Company paid $20,250 of rent in the year ended December 31, 1999.
The Company believes that the terms of the lease are fair, reasonable, and are
competitive with prevailing rental rates in the geographic area where the
Company is located.
The Company does not own any real estate.
The Company does not own or invest in, nor does the Company intend in the
future, to own or invest in real estate or interests in real estate, real estate
mortgages or securities of or interests in persons primarily engaged in real
estate activities.
<PAGE>
Item 3. Legal Proceedings.
The Company is not a party to any material pending or threatened legal
proceedings nor is any of its property subject to any such legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted to a vote of security holders during the fourth
quarter of the Company's fiscal year ended December 31, 1999, either through the
solicitation of proxies or otherwise.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
The Company's common stock has been traded on the NASDAQ Electronic
Bulletin Board since it began trading in May, 1999, under the symbol EECID. The
following table sets forth the high and low bid prices for the Company's common
stock, by quarter since the time it commenced trading. The table has also been
adjusted to reflect a 2.5 for 1 split of the common stock that took place on
October 1, 1999.
Quarter Ended High Bid Low Bid
------------- -------- -------
March 31, 1999 N/A N/A
June 30, 1999 $1.63 $1.13
September 30, 1999 $2.20 $ .15
December 31, 1999 $6.25 $3.75
The above prices are believed to be representative interdealer quotations,
without retail markup, markdown or other fees or commissions, and may not
represent actual transactions.
At March 17, 2000, the bid price of the Company's common stock was $5.00.
On such date the Company had 514 recorded stockholders.
The Company has not paid any dividends on its common stock and the Board of
Directors presently intends to continue a policy of retaining earnings, if any,
for use in the Company's operations and to finance expansion of its business.
The declaration and payment of dividends in the future, of which there can be no
assurance, will be determined by the Board of Directors in light of conditions
then existing, including earnings, financial condition, capital requirements and
other factors. There are no restrictions that currently materially limit the
Company's ability to pay dividends or which the Company reasonably believes are
likely to limit materially the future payment of dividends on common stock.
<PAGE>
Item 6. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
General
The Company had not engaged in any material operations or had any revenues
from operations during the previous year and through the first quarter of 1999.
The Company's plan of operation for the most recent nine months and for the next
12 months is to continue to explore opportunities both domestically and
internationally that may benefit the Company and its stockholders. Management
anticipates that to exploit any such opportunities, the Company will issue
shares of its common stock as the primary consideration for the participation in
such opportunities.
During July 1999 the Company entered into an agreement to participate in
the development of oil and gas prospects in Overton County, Tennessee. An
initial well was completed and began production October 4, 1999. Three
additional wells were drilled, of which two did not find commercial quantities
of oil or gas. The third located commercial quantities of gas, however, the gas
will not be produced until an adequate transportation facility is constructed. A
fifth well was completed subsequent to December 31, 1999, and began oil
production in March 2000. The Company, along with its co-participant in the
exploration and development program continues to evaluate the exploration
technology process for hydrocarbon location as well as various well completion
techniques. Once criteria are met, and based on studies of seismic and
geological information, the Company anticipates drilling up to eighteen wells on
the currently leased properties during the next year as funding is obtained for
this purpose.
During the next 12 months, the Company's cash requirements will be used in
this drilling activity and payment of expenses associated with searching for,
investigating and pursuing other potential opportunities. Such funds may be
provided by sales of equity or debt financing or a combination thereof. Because
the Company has not identified such opportunities with any specificity, it
cannot predict the total amount of such cash needs. As of the date of this
report, the Company has no capital commitments other than to complete the wells
referred to above, which commitments are expected to be nominal.
Results of Operations
Other than restoring and maintaining its good corporate standing in the
State of Utah, compromising and settling its debts and seeking the acquisition
of assets, properties or businesses that may benefit the Company and its
stockholders, the Company had no material business operations during the
previous calendar year and through March 31, 1999. During the nine months ended
December 31, 1999, the Company raised $500,000 from the private placement of
convertible subordinated debentures and has been searching for and evaluating
both domestic and international opportunities.
<PAGE>
During the three months ended December 31, 1999, the Company generated
$69,401 in revenue from the sale of oil from its first producing oil well in
Tennessee and incurred $1,100 in lease operating expense related to this well.
Prior to October 1999 the Company generated no revenue but incurred operating
expenses from the search for opportunities and the initial drilling of oil wells
in Tennessee. During the year ended December 31, 1999, the Company generated a
net loss of $587,882, including $71,960 in depletion and impairment expense from
wells drilled, $559,588 in Company operating expenses and expenses of pursuing
proposed projects. These expenses were offset by gross profit of $68,301
received from oil production during the last three months of the year. During
the year ended December 31, 1998, the Company had no significant business
operations and generated a net loss ($8,634).
Liquidity and Capital Resources
On December 31, 1999, the Company had $35,756 in cash and $28,300 in
accounts receivable, with $419,035 in total liabilities. The liabilities include
$342,500 in convertible subordinated debentures that mature May 1, 2000, plus
accrued interest. These debentures can be converted to the Company's common
stock at the option of the holder. At December 31, 1999, $157,500 of the
original $500,000 issued had been converted to common stock and an additional
$192,500 has been converted through the date of this report. Net cash used in
operating activities for the year ended December 31, 1999 was $377,351 compared
to $10,000 for the year ended December 31, 1998. Net cash used in investing
activities rose to $151,893 for the year ended December 31, 1999 from $.00 for
the year ended December 31, 1998.
The Company invested $143,919 in oil and gas properties during the six
months ending December 31, 1999. Due to the limited number of wells drilled and
limited production history, the present value of reserves cannot be reliably
estimated. Therefore, the carrying value of these properties has been reduced to
reflect the actual realized value of the properties through the date of this
report.
On October 1, 1999, a stock split of 2.5 shares for one share of common
stock became effective. Following the split, weighted average basic shares were
10,882,785 and earnings (loss) per share is ($0.05) for the year ended December
31, 1999. Restated earnings (loss) per share for the year ended December 31,
1998 will be based on 848,721 adjusted shares and will remain significantly
unchanged at ($0.01).
Year 2000 Concerns
The Company addressed the concerns of potential year 2000 computing
problems and incurred no significant problems or costs as a result of this
issue. The Company expects no additional problems from this issue in the future.
<PAGE>
Item 7. Financial Statements.
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
On February 8, 2000 the Company dismissed Robison, Hill & Co., an
accounting firm located in Salt Lake City, Utah and hired Sartain Fischbein &
Company, an accounting firm located in Tulsa, Oklahoma. None of the accountants
reports of Robison, Hill & Co. for either of the last two years contained any
adverse opinion or disclaimer of opinion, or were modified as to uncertainty,
audit scope, or accounting principles. The decision to change accountants
reflected management's desire to retain an accounting firm as auditors that was
closer geographically to the Kansas City metropolitan area where the Company is
located. The Board of Directors of the Company also believed it would be in its
best interest to retain Sartain Fischbein & Company and therefore approved the
change of accountants. During the two most recent fiscal years and the
subsequent interim period through the date of termination on February 8, 2000
there were no disagreements with Robison, Hill & Co. whether or not resolved, on
any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure, which, if not resolved to the
satisfaction of Robison, Hill & Co., would have caused Robison, Hill & Co. to
make reference to the subject matter of the disagreement in connection with any
of its reports.
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act.
The executive officers and directors of the Company and their ages are as
follows:
Name Age Position
---- --- --------
Norman L. Peterson 60 President, Treasurer,
Chairman of the Board
Bryan S. Ferguson 37 Executive Vice President
John Garrison 48 Director
John R. Dixon 67 Director
Elliott M. Kaplan 49 Director
John L. Hersma 53 Director
<PAGE>
Norman L. Peterson has been President, Treasurer and Chairman of the Board
of Directors of the Company since it began active operations in April of 1999.
From 1974 to 1979, he was a senior officer, director and stockholder of the
holding company that owned Platte Valley Bank and Trust Company as well as a
director and shareholder of the bank. From 1988 to 1996, he was chairman and
chief executive officer of Advanced Financial, Inc. a publicly held mortgage
lending financial institution located in Shawnee, Kansas. Since 1984, he has
also been president of Peterson and Sons Holding Company, a privately held
investment and financial consulting company.
Bryan Ferguson is executive vice president of the Company. He is a
Registered Professional Geologist who received a Bachelor of Science Degree in
Geology from Emporia State University in 1984. He has over 15 years of
experience in prospect evaluation, prospect generation, assessment and
management in the oil field and engineering consulting industry. He began his
professional career as a well-site geologist based in western Colorado in the
middle 80's and for a period of approximately 10 years served as a project
manager in environmental engineering for IT Corporation, an engineering and
consulting company. He left IT Corporation in 1999 to join the management of the
Company. His work experience includes electric log interpretation, cuttings
interpretation, geological and geophysical data interpretation, ranking and
high-grading of prospects for formulation of exploration strategy, basin
analysis, risk assessment, ultimate potential and economic analyses, seismic
interpretation, basin modeling, stratigraphic trap modeling, evaluation of
structural relief prospects, near-surface static and velocity problems, surface
topographic interpretation, market analyses, research, economic evaluation, AFE
preparation and, industry forecast modeling.
John C. Garrison has been a director of the Company since April 1999. Mr.
Garrison is a certified public accountant with over twenty-five years of
experience in accounting, auditing and financial management. He served as
corporate secretary, director and chief accounting officer of Infinity, Inc., a
publicly traded oilfield service and oil and gas exploration and development
company from April 1995 to August 1999. He is also a director of two other
public traded energy companies. He is licensed to practice public accountancy in
Kansas and Missouri and has been involved in an active practice since 1976. Mr.
Garrison received a degree in business administration and accounting from Kansas
State University.
John R. Dixon has been a director of the Company since April 1999. He
received a degree from the University of Kentucky in 1958 in electrical
engineering and did graduate work there in physics. He has worked in the public
utility industry and as a consultant to private industry regarding rate
analysis, service-contract negotiations and related functions. A registered
professional engineer, licensed by boards of twenty-eight states, Mr. Dixon has
over thirty years experience in engineering design and management. He founded
<PAGE>
two successful consulting firms and served as director on several publicly
traded companies. His experience includes public utilities energy distribution
system design, microwave radio relay communications system operations, aerospace
systems, missile and facility simulation, airborne/fixed-base communications and
navigation systems, and aviation related process and infrastructure design and
support consulting. He has extensive international experience including the
countries of Libya, Saudi Arabia, Philippines, Belize, Japan, Lebanon and
Mexico. Mr. Dixon served as President of Synergy, Inc. from 1978 to 1982 and
from 1982 to 1988 he served as CEO of HSD, Inc. Since 1988, Mr. Dixon has acted
as a private consultant to three private clients of HSD, Inc. and as a
consultant to the public corporation to whom HSD was sold.
Elliot M. Kaplan has been a director of the Company since 1999. He is a
practicing attorney and an officer and director of Daniels & Kaplan, P.C.,
Attorneys at Law. With offices in Kansas City, Missouri and Detroit, Michigan,
Daniels & Kaplan concentrates in commercial, insolvency, fair trade practices
and employment litigation. Mr. Kaplan received his Bachelor of Arts Degree from
Antioch University in 1978 and received both Juris Doctor and Master of Business
Administration degrees from Whittier College in 1982. Mr. Kaplan is a member of
the American Bar Association, the Missouri Bar, and the District of Columbia
Bar.
John L. Hersma has been a director of our Company since 1999. A former
Chief Operating Officer with a $500 million healthcare equipment manufacturer,
Mr. Hersma has served in various sales, marketing and management capacities in
the health care industry, retiring in July of 1996 to pursue personal business
interests and investment strategies. Mr. Hersma graduated in 1968 with a degree
in Business Administration and Marketing from Northern Illinois University.
The directors of the Company are elected each year at the annual meeting of
shareholders for a term of one year. Each director serves until the expiration
of his term and thereafter until his successor is duly elected and qualified.
Executive officers of the Company are appointed by the Board of Directors on an
annual basis.
The Company's executive officers and directors are required to file reports
of ownership and changes in ownership of the Company's securities with the
Securities and Exchange Commission as required under provisions of the
Securities Exchange Act of 1934. Based solely on the information provided to the
Company by individual directors and executive officers, the Company believes
that during the last fiscal year all directors and executive officers have
complied with applicable filing requirements.
<PAGE>
Item 10. Executive Compensation
Summary Compensation Table
The following table shows all cash compensation paid or to be paid by the
Company during the fiscal years indicated to the chief executive officer and the
highest paid executive officers of the Company as of the end of the Company's
last fiscal year whose salary and bonus for such period in all capacities in
which the executive officer served exceeded $100,000. Except for Mr. Norman
Peterson, no executive officer received or held any stock options, stock
appreciation rights, stock grants or any other similar rights to receive
additional compensation of any kind as of December 31, 1999.
<TABLE>
<CAPTION>
Long Term Compensation
----------------------
Annual Compensation Awards Payouts
------------------- ------ -------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Other Restricted
Name and Annual Stock LTIP All Other
Principal Compen- Award(s) Options/Payouts Compen-
Position Year Salary($) Bonus($) sation($) $ SARs(#) ($) sation($)
- -------- ---- --------- -------- -------- -------- ------- ----- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Norman Peterson 1999 $ 0 0 0 $17.00 62,500 0 0
Chief 1998 0 0 0 0 0 0 0
Executive 1997 0 0 0 0 0 0 0
Officer
</TABLE>
Options/SAR Exercises and Holdings
----------------------------------
The following table sets forth information with respect to the named
executives, concerning the exercise of options and/or limited SARs during the
last fiscal year and unexercised options and limited SARs held as of the end of
the fiscal year December 31, 1999.
<PAGE>
Aggregated Options/SAR Exercises in Last Fiscal Year and FY-End Options/SAR
Values:
<TABLE>
<CAPTION>
(a) (b) (c) (d) (e)
Number of Securities Value of
Shares Underlying Unexercise Unexercised-in-the-Money
Acquired Value Options/SARs at FY Options/SARs at FY
End (#) End ($) End ($)
Name On Exercise(#) Realized($) Exercisable/Unexercisable Exercisable/Unexercisable
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Norman L. Peterson 0 0 0 12,500/50,000 $55,000 $220,000
</TABLE>
There are no employment agreements between the Company and any of its
executive officers.
Item 11. Security Ownership of Certain Beneficial Owners and Management.
The following table sets forth information concerning the beneficial
ownership of the Company's common stock as of March 20, 2000 for (a) each person
known to the Company to be a five percent beneficial owner of the common stock;
(b) each director; (c) each executive officer designated in the section
captioned "MANAGEMENT-Executive Compensation;" and (d) all directors and
executive officers as a group. Except as otherwise noted, each person named
below had sole voting and investment power with respect to such securities.
<TABLE>
<CAPTION>
Amount and Nature Percent
of of
Name and Address Title Beneficial Ownership (1) Class
- ---------------- ----- ------------------------ -----
<S> <C> <C> <C>
Norman L. Peterson President 6,290,000(2) 53.85
4001 W. 104th Terrace Treasurer and Direct and Indirect
Overland Park, KS 66210 Chairman
Bryan Ferguson Executive Vice-President 70,000(3) *
8119 Legler Road Direct
Lenexa, KS 66219
John C. Garrison Director 90,000(4) *
7211 High Drive Direct
Prairie Village, KS 66208
Eliot M. Kaplan Director 40,000(5) *
1102 Grand Blvd, 15th Floor Direct
Kansas City, MO 64106
<PAGE>
Amount and Nature Percent
of of
Name and Address Title Beneficial Ownership (1) Class
- ---------------- ----- ------------------------ -----
John R. Dixon Director 77,500(5) *
9919 High Drive
Leawood, KS 66206
John L. Hersma Director 202,500(5) 1.73
13113 Cedar
Direct
Leawood, KS 66209
David C. and Laura E Owen 1,462,500(6) 11.92
11011 King Street, Suite 260-B Direct and Indirect
Overland Park, KS 66210
Peterson and Sons Holding Company 5,862,500(7) 50.24
4001 W 104th Terrace Direct
Overland Park, KS 66207
All officers and directors
as a group 8,302,500 66.72
</TABLE>
* less than one percent
(1) Calculated pursuant to Rule 13d-3(d) of the Securities Exchange Act of
1934. Unless otherwise stated below, each such person has sole voting and
investment power with respect to all such shares. Under Rule 13d-3(d),
shares not outstanding that are subject to options, warrants, rights or
conversion privileges exercisable within 60 days are deemed outstanding for
the purpose of calculating the number and percentage owned by such person,
but are not deemed outstanding for the purpose of calculating the
percentage owned by each other person listed.
(2) Includes 5,862,500 shares held by Peterson and Sons Holding Company. Mr.
Peterson has no ownership interest in Peterson and Sons Holding Company but
serves as President and may be deemed to have voting control of such
shares. Also includes 412,500 shares held in the name of Ivalynn Peterson,
Mr. Peterson's wife, and options to acquire 12,500 shares which may be
exercised within the next 60 days.
(3) Includes options to purchase 50,000 shares which may be exercised within
the next 60 days.
(4) Includes options to purchase 37,500 shares which may be exercised within
the next 60 days.
(5) Includes options to purchase 12,500 shares of common stock which may be
exercised within the next 60 days.
(6) Includes 500,000 shares in the name of Unicard.com, Inc., a company
controlled by Laura E. Owen. Also includes 147,500 shares in the name of
Owen & Associates Inc., a corporation owned by David C. Owen. Also includes
150,000 shares in the name Dave and Laura Owen Living trust and 65,000 in
the name of three limited partnerships controlled by Dave and Laura Owen
and established for the benefit of their children or grandchildren. Also
includes options held by Owen Enterprises LLC, a company controlled by
David C. Owen to purchase 600,000 shares of common stock which may be
exercised within the next 60 days.
(7) Established by Norman L. Peterson for his adult sons, Mark Peterson and
Steve Peterson, Norman L. Peterson has no ownership interest in Peterson
and Sons Holding Company and disclaims any beneficial interest in the
shares owned thereby. However, Mr. Peterson is the president of Peterson
and Sons Holding Company and may, pursuant to such office, be deemed to
have voting control of such shares.
<PAGE>
There are no arrangements or understandings among members of both the
former and new control groups and their associates with respect to election of
directors or other matters.
Item 12. Certain Relationships and Related Transactions.
On March 15, 1999, Peterson and Sons acquired 7,250,000 shares of the
Company's common stock ("restricted securities") from Jeannie Hullinger, who was
then President and a director of the Company.
On March 24, 1999, Owen Enterprises, LLC was granted options to purchase
600,000 shares of common stock at a price of $0.60 per share. This option is
exercisable immediately and will expire March 24, 2001.
On March 24, 1999, directors of the Company, Norman Peterson, John Dixon,
John Garrison, John Hersma and Eliot Kaplan, were each granted options to
purchase 62,500 shares of common stock at a price of $0.60 per share. Options
for 12,500 shares each are vested immediately and a like amount are vested on
March 24 of each succeeding year if the grantee is still a director of the
company. These options will expire on March 23, 2004. John Dixon exercised
options for 12,500 shares during the year.
On May 11, 1999, Bryan S. Ferguson was granted options to purchase 150,000
shares of common stock at a price of $1.00 per share. Options for 50,000 shares
are vested immediately and a like amount will vest each July 1 if the grantee is
still a director of the company. The option will expire on June 30, 2002.
On August 10, 1999, John Dixon was granted options to purchase 25,000
shares of common stock at a price of $1.00 per share. These options are vested
immediately and will expire on August 9, 2002.
On August 10, 1999, Karen Taylor was granted options to purchase 50,000
shares of common stock at a price of $1.00 per share. Options for 25,000 shares
are vested immediately and options for 12,500 are vested on August 10 each year.
These options will expire on August 9, 2002.
On August 10, 1999, John Garrison was granted options to purchase 75,000
shares of common stock at a price of $1.00 per share. Options for 25,000 shares
are vested immediately and a like amount is vested on August 10 each year. These
options will expire on August 9, 2002.
The Company entered into a sublease agreement for office space with Owen &
Associates, Inc. on April 1, 1999. The sublease requires monthly rent of $2,250
plus common area charges through December 31, 2000. The Company paid $20,250 of
rent under this agreement during 1999.
The Company has an agreement with Owen & Associates IBG, LLC to provide
consulting and management services and to provide use of various equipment and
secretarial services for $12,500 per month through December 31, 2000. Owen &
Associates IBG, LLC is 50 percent controlled by Owen Enterprises, LLC, which, in
turn, is controlled by David C. Owen and 50 percent controlled by Peterson and
Sons Holding Company.
The Company had an agreement with International Health Alliance, Inc., a
company controlled by Laura E. Owen, to investigate certain business
opportunities for $3,000 per month. The agreement expired December 31, 1999.
The Company paid, in the aggregate, $139,500 for services to the above
related entities during the year ended December 31, 1999.
<PAGE>
Item 13. Exhibits and Reports on Form 8-K.
(a) Exhibits
3.01 Articles of Incorporation (1)
3.02 Bylaws (1)
10.01-10.18 Material Contracts (3)
16.0 Letter on change in certifying accountant (2)
27.01 Financial Data Schedule
(1) These documents and related exhibit have been previously
filed with the Securities and Exchange Commission and are
incorporated herein by reference.
(2) Incorporated by reference to the Company's Form 8-K Current
Report reporting a change of certifying auditors filed
February 9, 2000.
(b) No reports on Form 8-K were filed during the quarter ended
December 31, 1999.
<PAGE>
EMPIRE ENERGY CORPORATION
(A DEVELOPMENT STAGE COMPANY)
TABLE OF CONTENTS
Independent Auditors' Report F-2
Independent Auditors' Report F-3
Balance Sheet F-4
Statements of Operations F-5
Statement of Stockholders' Deficit F-6
Statements of Cash Flows F-7
Notes to Financial Statements F-8 to F-17
Supplemental Information (Unaudited) F-18
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
Empire Energy Corporation (formerly Medivest, Inc.)
(A Development Stage Company)
We have audited the accompanying balance sheet of Empire Energy Corporation
(formerly Medivest, Inc.) (A Development Stage Company) as of December 31, 1999,
and the related statements of operations, stockholders deficit, and cash flows
for the year then ended and the amounts for the year ended December 31, 1999
included in the cumulative period from March 21, 1995 (inception) to December
31, 1999 appearing on Pages F-4 to F-17. 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 audit.
We conducted our audit in accordance with generally accepted auditing standards.
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 audit provides 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 Energy Corporation, (A
Development Stage Company) as of December 31, 1999 and the results of its
operations, and its cash flows for the year then ended and the period from March
21, 1995 (inception) to December 31, 1999 in conformity with generally accepted
accounting principles.
Tulsa, Oklahoma /S/Sartain Fischbein & Co.
March 17, 2000 Certified Public Accountants
F-2
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
Empire Energy Corporation (formerly Medivest, Inc.)
(A Development Stage Company)
We have audited the statements of operations, changes in stockholders' deficit
and cash flows for the year ended December 31, 1998 and for the period from
March 21, 1995 (inception) to December 31, 1998 of Empire Energy Corporation
(formerly Medivest, Inc.) (a development stage company). 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 audit.
We conducted our audit in accordance with generally accepted auditing standards.
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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the results of its operations and its cash flows for the
year ended December 31, 1998 and for the period from March 21, 1995 (inception)
to December 31, 1998 in conformity with generally accepted accounting
principles.
Salt Lake City, Utah /s/ Robinson, Hill & Co.
February 3, 1999
F-3
<PAGE>
EMPIRE ENERGY CORPORATION
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
December 31, 1999
- --------------------------------------------------------------------------------
ASSETS
Cash $ 35,756
Account receivable - trade, no allowance deemed necessary 28,300
-----------
Total Current Assets 64,056
-----------
Oil and gas properties, using full cost accounting:
Properties being amortized 143,919
Less accumulated depreciation, depletion,
amortization and impairment (71,960)
-----------
71,959
-----------
Other Assets:
Furniture and equipment, net of
accumulated depreciation of $385 7,589
Other 1,000
-----------
8,589
-----------
Total Assets $ 144,604
===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Liabilities:
Accounts payable and accrued liabilities $ 24,035
Notes payable - related parties 52,500
Convertible debentures 342,500
-----------
Total Current Liabilities 419,035
-----------
Stockholders' Deficit
Common stock, authorized 50,000,000 shares
of $.001 par value, issued and
outstanding 11,108,917 11,109
Additional paid in capital 1,978,308
Previous accumulated deficit (1,867,999)
Accumulated deficit during development stage (395,849)
-----------
Total Stockholders' Deficit (274,431)
-----------
Total Liabilities and Stockholders' Deficit $ 144,604
===========
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
EMPIRE ENERGY CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------------------------------------------
For The Years Ended December 31, 1999 and 1998 and the Period from March 21,
1995 (inception) to December 31, 1999
- --------------------------------------------------------------------------------------------------------------------
December 31, Cumulative
1999 1998 Since Inception
------------ ------------ ---------------
<S> <C> <C> <C>
Oil and gas sales $ 69,401 $ -- $ 69,401
Expenses:
Lease operating 1,100 -- 1,100
Depreciation, depletion, amortization and
impairment 72,345 -- 72,345
Interest 24,250 -- 24,250
General and administrative 559,588 8,534 622,783
------------ ------------ ------------
Loss before taxes and extraordinary item (587,882) (8,534) (651,077)
Provision for income taxes -- (100) (300)
------------ ------------ ------------
Loss before extraordinary item (587,882) (8,634) (651,377)
Extraordinary item - gain on restructuring of
debt, net of taxes -- -- 255,528
------------ ------------ ------------
Net Loss $ (587,882) $ (8,634) $ (395,849)
============ ============ ============
Basic loss per common share:
Loss before extraordinary item $ (.05) $ (.01) $ (.26)
Extraordinary item -- -- .10
------------ ------------ ------------
Net loss per share (.05) (.01) (.16)
============ ============ ============
Weighted average shares outstanding 10,882,785 760,435 2,502,421
============ ============ ============
- -------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
EMPIRE ENERGY CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF STOCKHOLDERS' DEFICIT
- ------------------------------------------------------------------------------------------------------------------------------------
For The Period From March 21, 1995 (Inception) Through December 31, 1999
- ------------------------------------------------------------------------------------------------------------------------------------
Deficit
Accumulated
Common Stock Additonal Previous During
---------------------- Paid-in Accumulated Development
Shares Amount Capital Deficit Stage
------ ------ ------- ------- -----
Balance at March 21, 1995 (Inception) 91,178 $ 91 $ 1,608,671 $ (1,867,999) $ --
Issuance of stock in satisfaction of debt at
$.99 per share 870 -- 867 -- --
Issuance of stock for services at $.072 per share
97,225 97 6,903 -- --
Shares returned and canceled (7,675) (8) 8 -- --
Net income for period -- -- -- -- 200,667
------------ ------------ ------------ ------------ ------------
Balance at December 31, 1997 181,598 180 1,616,449 (1,867,999) 200,667
Issuance of stock for cash at $.004 to $.012 per
share 10,500,000 10,500 39,500 -- --
Issuance of stock for services at $0.054 per
share 250,000 250 13,282 -- --
Net loss for the year -- -- -- -- (8,634)
------------ ------------ ------------ ------------ ------------
Balance at December 31, 1998 10,931,598 10,930 1,669,231 (1,867,999) 192,033
Issuance of stock for services at $.0066 to
$1.00 per share 22,500 23 10,060 -- --
Exercise of stock options 12,500 13 7,487 -- --
Shares returned and cancelled (15,181) (15) 15 -- --
Conversion of debt to common stock 157,500 158 162,814 -- --
Stock based compensation for non-employee stock
options granted -- -- 128,701 -- --
Net loss for the year -- -- -- -- (587,882)
------------ ------------ ------------ ------------ ------------
11,108,917 $ 11,109 $ 1,978,308 $ (1,867,999) $ (395,849)
============ ============ ============ ============ ============
- ------------------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
EMPIRE ENERGY CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
- -----------------------------------------------------------------------------------------------------------------------------
For The Years Ended December 31, 1999 and 1998 And The Period From March 21, 1995 (Inception) to December 31, 1999
- -----------------------------------------------------------------------------------------------------------------------------
December 31,
------------------------------ Cumulative
1999 1998 Since Inception
---------- ---------- ---------------
Cash Flows From Operating:
Net loss $(587,882) $ (8,634) $(395,849)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Common stock issued for services 10,083 13,532 49,069
Stock based compensation for non-employee
stock options granted 128,701 -- 128,701
Depreciation, depletion, amortization and
impairment 72,345 -- 72,345
Changes in Assets and Liabilities:
Increase in accounts receivable (28,300) -- (28,300)
Increase in other assets (1,000) -- (1,000)
Increase (decrease) in accounts payable 28,702 (14,898) (247,317)
--------- --------- ---------
Net Cash Used by Operating Activities (377,351) (10,000) (422,351)
--------- --------- ---------
Cash Flows From Investing Activities: --
Purchase of oil and gas properties (143,919) -- (143,919)
Purchase of furniture and equipment (7,974) -- (7,974)
--------- --------- ---------
Net Cash Used in Investing Activities (151,893) -- (151,893)
--------- --------- ---------
Cash Flows From Financing Activities:
Proceeds from note payable -- -- 35,000
Payment of note payable -- (35,000) (35,000)
Proceeds from notes payable - related parties 52,500 -- 52,500
Proceeds from convertible debt 500,000 -- 500,000
Proceeds from issuance of common stock 7,500 50,000 57,500
--------- --------- ---------
Net Cash Provided by Financing Activities 560,000 15,000 (610,000)
--------- --------- ---------
Net Increase in Cash 30,756 5,000 35,756
Cash, beginning of year 5,000 -- --
--------- --------- ---------
Cash, end of year $ 35,756 $ 5,000 $ 35,756
========= ========= =========
Supplemental Disclosure of Cash Flow Information
Income taxes paid $ -- $ 100 $ 300
Interest paid -- -- --
Supplemental Disclosure Of Non-Cash Investing
And Financing Activities
Settlement of debt with common stock $ -- $ -- $ --
Conversion of convertible debt to common stock
including accrued interest of $5,472 162,972 -- 162,972
- --------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
F-7
</TABLE>
<PAGE>
EMPIRE ENERGY CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
- --------------------------------------------------------------------------------
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Basis of Presentation: Empire Energy Corporation (formerly
Medivest, Inc) (the "Company") was incorporated in the State of Utah on November
10, 1983 and was involuntarily dissolved on May 1, 1991, for failure to file its
annual report. On March 21, 1995 (inception) the Corporate charter was
reinstated and the Company has been in the development stage since that time.
Nature of Business: The Company's plan of operations is to explore opportunities
both domestically and internationally that benefit the Company and its
stockholders including the development and exploration of oil and gas prospects.
Furniture and Equipment: Expenditures for furniture and equipment are recorded
at cost. Improvements which extend the economic life of such assets are
capitalized. Expenditures for maintenance and repairs are charged to expense.
Depreciation is provided over the estimated useful lives of assets, which range
from 5 to 7 years, using straight-line or accelerated methods for financial
accounting purposes.
Oil and Gas Properties: The Company follows the full cost method of accounting
for oil and gas properties. Accordingly, all costs associated with acquisition,
exploration, and development of oil and gas reserves, including directly related
overhead costs, are capitalized.
All capitalized costs of oil and gas properties, including the estimated future
costs to develop proved reserves, are amortized on the unit-of-production method
using estimates of proved reserves. Investments in unproved properties and major
development projects are not amortized until proved reserves associated with the
projects can be determined or until impairment occurs. If the results of an
assessment indicate that the properties are impaired, the amount of the
impairment is added to the capitalized costs to be amortized. During 1999,
$93,142 of dry hole costs and $50,777 of unproved properties were impaired and
added to the costs to be amortized.
- --------------------------------------------------------------------------------
F-8
<PAGE>
EMPIRE ENERGY CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
- --------------------------------------------------------------------------------
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Oil and Gas Properties (Continued): In addition, the capitalized costs are
subject to a "ceiling test," which basically limits such costs to the aggregate
of the "estimated present value," discounted at a 10-percent interest rate of
future net revenues from proved reserves, based on current economic and
operating conditions, plus the lower of costs or fair market value of unproved
properties. In 1999, the Company recorded an impairment expense of $71,960
related to adjusting unproved properties subject to amortization to the lower of
cost or market.
Sales of proved and unproved properties are accounted for as adjustments of
capitalized costs with no gain or loss recognized, unless such adjustments would
significantly alter the relationship between capitalized costs and proved
reserves of oil and gas, in which case the gain or loss is recognized in income.
Abandonments of properties are accounted for as adjustments of capitalized costs
with no loss recognized.
Long-lived Assets: Long lived assets to be held and used are reviewed for
impairment whenever events or changes in circumstances indicate that the related
carrying amount may not be recoverable. When required, impairment losses on
assets to be held and used are recognized based on the fair value of the asset
and long-lived assets to be disposed of are reported at the lower of carrying
amount or fair value less cost to sell.
Income Taxes: Provisions for income taxes are based on taxes payable or
refundable for the current year and deferred taxes on temporary differences
between the amount of taxable income and pretax financial income and between the
tax bases of assets and liabilities and their reported amounts in the financial
statements. Deferred tax assets and liabilities are included in the financial
statements at currently enacted income tax rates applicable to the period in
which the deferred tax assets and liabilities are expected to be realized or
settled as prescribed in FASB Statement No. 109, Accounting for Income Taxes. As
changes in tax laws or rates are enacted, deferred tax assets and liabilities
are adjusted through the provision for income taxes.
- -------------------------------------------------------------------------------
F-9
<PAGE>
EMPIRE ENERGY CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
- --------------------------------------------------------------------------------
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Basic Loss Per Share: Basic earnings per share of common stock was computed by
dividing loss applicable to common stockholders, by the weighted average number
of common shares outstanding for the year. Diluted loss per share is not
presented because all potential common shares are anti-dilutive.
Use of Estimates The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Fair Value of Financial Instruments: The carrying amount of financial
instruments including cash, accounts receivable, accounts payable and accrued
expenses approximated fair value as of December 31, 1999 because of the
relatively short maturity of these instruments.
It is not practical to estimate the fair value of related party notes due to the
inability to estimate fair value without incurring excessive costs.
The carrying amounts of convertible debentures approximates fair value as of
December 31, 1999 because interest rates on these instruments approximate market
interest rates.
2. DEVELOPMENT STAGE COMPANY
The Company's operations since its charter was reinstated March 21, 1995 have
primarily involved oil and gas exploration, development and production in
north-central Tennessee. The Company is also interested in expanding its
operations into an international setting (primarily Central America and Africa)
but has not yet obtained any exploration or similar rights in any Central
American or African country.
The Company's corporate strategy is to expand its domestic reserve base through
acquisitions and additional exploration and developmental drilling under its
existing oil and gas exploration program and to reinvest a substantial portion
of the cash flow generated from its domestic operations to acquire or
participate in international prospects that have the potential for larger
petroleum reserves and greater revenues.
- --------------------------------------------------------------------------------
F-10
<PAGE>
EMPIRE ENERGY CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
- --------------------------------------------------------------------------------
2. DEVELOPMENT STAGE COMPANY (CONTINUED)
In addition, the Company has raised and is in the process of raising debt and
equity capital (see Notes 3 and 6). There can be no assurances the Company will
be successful in development and implementation of its business plan or raising
additional capital.
3. NOTES PAYABLE AND CONVERTIBLE DEBENTURES
Notes payable and convertible debentures consist of the following at December
31, 1999:
Notes payable - related parties, interest
at 10%, due on demand. The notes are
without collateral. $ 52,500
========
Convertible debentures, intere at 10%,
due in one year from issuance. The notes are
convertible on a $1.00 for one share basis
into shares of common stock. $342,500
========
During 1999, $157,500 of the original $500,000 converted into 157,500 shares of
common stock (see Note 6). Subsequent to December 31, 1999, an additional
$192,500 converted to 192,500 shares of common stock.
The Board of Directors has approved the sale of an additional $750,000 of
convertible debentures, which will carry interest at 10% and convert to common
stock on a $1.00 for one share of common stock. Common stock issued upon
conversion has automatic piggy-back registration rights. No debentures have been
sold to date.
4. INCOME TAXES
The Company uses the asset and liability method of accounting for income taxes.
Under the asset and liability method, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between
the financial statements carrying amounts of existing assets and liabilities and
their respective tax basis. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled. The
effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enacted date.
- --------------------------------------------------------------------------------
F-11
<PAGE>
EMPIRE ENERGY CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
- --------------------------------------------------------------------------------
4. INCOME TAXES (CONTINUED)
Components of the net deferred tax asset at December 31, 1999 are as follows:
Deferred Tax Asset:
Net operating loss carryforward $ 297,000
Less valuation allowance (297,000)
--------
Net Deferred Tax Asset $ -
=========
The provision for income taxes is as follows:
Year Ended December 31, Cumulative
1999 1998 Since Inception
------ ------ ---------------
Current $ - $100 $300
Deferred - - -
--------- ---- ----
$ - $100 $300
========= ==== ====
At December 31, 1999, the Company had a net operating loss carryforward
available for Federal income tax purposes of approximately $1,978,000. Because
of tax rules relating to changes in corporate ownership, the utilization by the
Company of these benefit carryforwards in reducing its tax liability may be
restricted. The amounts of operating loss carryforwards expire in varying
amounts through 2014. Due to the uncertainty of realization and the annual
restriction discussed above, a deferred tax asset valuation allowance has been
provided. The valuation allowance increased $105,000 during 1999 related to the
1999 increase in the net operating losses.
The following is a reconciliation of the U.S. statutory tax rate to the
Company's effective rate for the years ended December 31, 1999 and 1998 and the
period from March 21, 1995 (inception) to December 31, 1999:
Year Ended December 31, Cumulative
1999 1998 Since Inception
-------- -------- ---------------
Statutory rate 15.0% 15.0% 15.0%
Net operating losses (15.0%) (14.0%) (15.0%)
-------- -------- --------
Company's effective rate -% 1.0% -%
======== ======== ========
- --------------------------------------------------------------------------------
F-12
<PAGE>
EMPIRE ENERGY CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
- --------------------------------------------------------------------------------
5. AGREEMENTS
Office Lease: The Company entered into a sublease agreement with an entity
related through common ownership for office space on April 1,1999. The sublease
requires monthly rent of $2,250 plus common area charges through December 31,
2000. The Company paid $20,250 of rent under the agreement during 1999.
From March 21, 1995 (inception) to March 31, 1999 all activities of the Company
were conducted by corporate officers from either their homes or business
offices. Currently, there are no outstanding debts owed by the Company for the
use of these facilities and there are no commitments for future use of the
facilities.
Consulting Agreements: The Company has an agreement with an entity related
through common ownership to provide consulting and management services and to
provide use of various equipment and secretarial services for $12,500 per month
through December 31, 2000.
The Company has an agreement with an entity related through common ownership to
investigate certain business opportunities for $3,000 per month. The agreement
was completed effective December 31, 1999.
The Company paid $139,500 for services to the above related entities during the
year ended December 31, 1999.
Participation and Operating Agreements: The Company entered into a Participation
and Operating Agreement with an unrelated third party (the "Operator") to
participate in oil and gas exploration in Tennessee. The agreement provides the
Company a 60% working interest in the property in exchange for paying a similar
share of costs on wells as offered. The Company expended approximately $144,000
during 1999 for costs associated with the exploration and drilling of wells.
These costs are included in oil and gas properties in the accompanying balance
sheet.
- --------------------------------------------------------------------------------
F-13
<PAGE>
EMPIRE ENERGY CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
- --------------------------------------------------------------------------------
5. AGREEMENTS (CONTINUED)
In addition, the Company entered into a joint venture agreement with an
unrelated third party to negotiate concessionary drilling rights to produce oil
and gas in Central America. Should the venture be successful in achieving the
concessions, the Company has the right to acquire a 50.5% working interest in
exchange for paying up to $1,000,000 of costs. During 1999, the Company expensed
approximately $27,000 of costs associated with pursuing the concessions in
Central America. Should the Company be successful in obtaining the concession
and generating revenue, 250,000 of the existing non-qualified stock options to
consultants will vest. No concessions have been obtained to date.
6. STOCKHOLDERS DEFICIT
Stock Split: Effective October 1, 1999, the Board of Directors authorized a 2.5
for 1 stock split of the Company's $.001 par value common stock. All references
in the accompanying financial statements to the number of common shares and
per-share amounts have been restated to reflect the stock split.
Stock For Services: During 1997, the Company issued 97,225 shares of common
stock for services performed at a value of $.072 per share. Additionally, the
Company entered into a Consultant Compensation Agreement with legal counsel. The
Company agreed to issue shares of common stock for services performed by legal
counsel. The total number of shares that could be issued under the agreement
could not exceed 10 percent of the outstanding common stock of the Company on
the date of issuance. During 1998, the Company issued 250,000 shares at $.054
per share. The agreement required the shares to be registered which was
completed in October 1999.
During March 1999, the Company issued 2,500 shares of common stock to each of
the five Board members for services performed. The shares were valued at $.0066
per share. In November 1999, the Company issued 10,000 shares of common stock to
an individual for consulting services. There shares were valued at $1.00 per
share.
Conversion of Debt: From October to December 31, 1999, holders of $157,500 of
convertible debentures, converted their debentures plus $5,471 of accrued
interest into 157,500 shares of common stock.
- --------------------------------------------------------------------------------
F-14
<PAGE>
EMPIRE ENERGY CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
- --------------------------------------------------------------------------------
6. STOCKHOLDERS DEFICIT (CONTINUED)
Change in Ownership: In March 1999, the current majority stockholder acquired
7,250,000 shares (68.6%) of the Company's outstanding common stock from the
former majority stockholder for $19,000 cash or $.0026 per share.
Stock Option Plan: During 1999, the Company adopted a Stock Option Plan (the
"Plan") that provides for qualified and non-qualified plans. The Plan covers an
aggregate 2,500,000 shares of common stock. The incentive plan is administered
by a committee appointed by the Board of Directors (Committee), and requires
that options be granted at an exercise price of 100% of the fair value of the
common stock of the Company on the date of the grant. Options granted to
stockholders who possess more than 10% of the outstanding common stock have a
required exercise price of 110% of the fair value of the common stock on the
date of the grant. The options are immediately exercisable after the date of
grant or upon vesting and expire up to ten years from date of grant or up to
five years from the date of grant for options to stockholders who possess more
than 10% of the outstanding common stock. The Company granted 200,000 qualified
options to employees during 1999 of which 75,000 are vested.
The Non-qualified Plan is also administered by the Committee and is covered by
the same 2,500,000 share pool as the Incentive Plan. The Non-qualified Plan
provides that options may be granted at exercise prices and terms as determined
by the Committee. The Company granted 1,048,500 non-qualified options to
non-employee (of which 798,500 are vested) and 412,500 (of which 112,500 are
vested) to employees. The Company recorded compensation expense of $128,701
related to the vested non-qualified options granted to non-employees.
The following is a summary of the options granted under the Plan:
Exercise Price Weight Average
Options Per Share Exercise Price
------- --------- --------------
Balance, December 31, 1998 - $ - $ -
Granted 1,661,000 60 - $1.00 .78
Exercised (12,500) (.60 (.60)
--------- ------------- -----
1,648,500 $.60 - $1.00 $ .78
========= ============ =====
- --------------------------------------------------------------------------------
F-15
<PAGE>
EMPIRE ENERGY CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
- --------------------------------------------------------------------------------
6. STOCKHOLDERS DEFICIT (CONTINUED)
<TABLE>
<CAPTION>
Weighted
Average Weighted Weighted
Range of Number Remaining Average Number Average
Exercise Outstanding at Contractual Exercise Exercisable at Exercise
Prices December 31, 1999 Life Price December 31, 1999 Price
--------- ----------------- ------------ --------- ----------------- --------
<S> <C> <C> <C> <C> <C> <C>
$0.60 600,000 2 Years $0.60 600,000 $0.60
1.00 736,000 3 Years 1.00 323,500 1.00
0.60 312,500 5 Years 0.60 50,000 0.60
-------- -------
1,648,500 973,500
========= =======
</TABLE>
The range of exercise prices for the options outstanding at December 31, 1999 is
$.60 - $1.00 with a weighted average contractual life of 3 years. The Company
estimates that based on the vesting criteria of continued employment and
services, approximately 100% of such options will eventually vest.
The Company applies Accounting Principles Board Opinion No. 25 "Accounting for
Stock Issued to Employees," and related interpretations in accounting for its
plan. Accordingly, no compensation cost has been recognized for options granted
to employees. Had compensation costs for these options been determined based
upon the fair value at the grant date for awards under the plan consistent with
the methodology prescribed under Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation," the Company's net loss and loss
per share would have been $(634,362) and $(0.06) for the year ended December 31,
1999 and $(442,329) and $(.18) for the period from March 21, 1995 (inception) to
December 31, 1999. As no options were granted during the year ended December 31,
1998, there is no effect on net income or earnings per share.
For options granted during the year ended December 31, 1999, the estimated fair
value of the options granted utilizing the Black-Scholes pricing model under the
Company's plan was based on a weighted average risk-free interest rate of 8.50%,
expected option life of 2 to 5 years, expected volatility of 35.32% and no
expected dividend yield.
Private Placement: The Board of Directors has approved the sale of 4,000,000
shares of the Company's common stock to accredited investors for $3.00 per
share. To date, no shares have been sold.
- --------------------------------------------------------------------------------
F-16
<PAGE>
MPIRE ENERGY CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
- --------------------------------------------------------------------------------
7. EXTRAORDINARY GAIN
On June 15, 1993, the Company emerged from bankruptcy and its charter was
reinstated on March 21, 1995.
During the period from March 21, 1995 to December 31, 1997, the Company settled
certain liabilities carried over from the bankruptcy in the amount of
approximately $436,000 for approximately $180,500 resulting in an extraordinary
gain of approximately $255,500.
8. SUBSEQUENT EVENT
On February 8, 2000, the Company acquired all the outstanding common stock of
Omega International, Inc. ( "Omega" ) for 560,000 shares of the Company's common
stock.
The Company and Omega were related through common ownership prior to the
acquisition and therefore, the transaction will be accounted for in a manner
similar to a pooling of interests and all assets and liabilities will be
recorded at cost.
Pro forma Statement of Operations: The unaudited pro forma results of operations
had the Company acquired Omega as of January 1, 1999 are as follows for the year
ended December 31, 1999 and the period from March 21, 1995 (inception) to
December 31, 1999.
Year Ended Cumulative
December Since
31, 1999 Inception
-------- ---------
Revenues $ 69,401 $ 69,401
--------- ---------
Loss before extraordinary gain $(786,710) $(856,120)
Extraordinary gain -- 255,528
--------- ---------
Net loss $(786,710) $(600,592)
========= =========
Basic loss per common share:
Loss before extraordinary item $ (.07) $ (.33)
Extraordinary item -- .10
--------- ---------
Net loss per share $ (.07) $ (.23)
========= =========
- --------------------------------------------------------------------------------
F-17
<PAGE>
EMPIRE ENERGE CORPORATION
(A DEVELOPMENT STAGE COMPANY)
SUPPLEMENTAL INFORMATION (UNAUDITED)
The accompanying tables set forth information concerning the Company's oil and
gas producing activities at December 31, 1999 and for the year then ended, as
required by Financial Accounting Standards (FAS) 69, Disclosure about Oil and
Gas Producing Activities. The Company had no oil and gas operations prior to
April 1999.
Capitalized Costs Relating to Oil and Gas Producing
Activities at December 31, 1999
- ---------------------------------------------------
Unproved oil and gas properties $ 143,919
Proved oil and gas properties --
Support equipment and facilities --
---------
143,919
Less accumulated depreciation, depletion,
amortization, and impairment 71,960
---------
Net capitalized costs $ 71,959
=========
Costs Incurred in Oil and Gas Producing Activities For
The Year Ended December 31, 1999
- ------------------------------------------------------
Property acquisition costs:
Proved $ --
Unproved --
Exploration costs --
Development costs 143,919
Amortization rate per equivalent barrel of production --
Results of Operations For Oil and Gas Producing Activities
For The Year Ended December 31, 1999
- ----------------------------------------------------------
Oil and gas sales $ 69,401
Gain on sale of oil and gas properties --
Gain on sale of oil and gas leases --
Production costs (1,100)
Exploration expenses --
Depreciation, depletion, and amortization (71,960)
---------
(3,659)
Income tax expense --
Results of operations for oil and gas producing activities
(excluding corporate overhead and financing costs) $ (3,659)
=========
Proved reserves are estimated reserves of crude oil (including condensate and
natural gas liquids) and natural gas that geological and engineering data
demonstrate with reasonable certainty to be recovered in future years from known
reservoirs under existing economic and operating conditions. Proved developed
reserves are those expected to be recovered through existing wells, equipment,
and operating methods. The Company has no proved reserves at December 31, 1999.
- --------------------------------------------------------------------------------
F-18
<PAGE>
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 Energy Corporation
By: /s/ Norman L. Peterson
-------------------------------------
Norman L. Peterson
President and Principal
Executive Officer
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and on
the dates indicated.
Signatures Title Date
- ---------- ----- ----
/s/Norman L. Peterson President, Director March 29, 2000
--------------------- Principal Executive Officer
Norman L. Peterson Principal Financial Officer
/s/ John C. Garrison Director March 29, 2000
- ---------------------
John C. Garrison
/s/ John R. Dixon Director March 29, 2000
- --------------------
John R. Dixon
/s/ Eliot M. Kaplan Director March 29, 2000
- --------------------
Eliot M. Kaplan
/s/ John L. Hersma Director
- -------------------
John L. Hersma
<PAGE>
EXHIBIT METHOD OF FILING
27. FINANCIAL DATA SCHEDULE Filed herewith electronically
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated balance sheets and consolidated statements of operations found on
pages 3 and 4 of the Company's Form 10-KSB for the year to date, and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 35,756
<SECURITIES> 0
<RECEIVABLES> 28,300
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 64,056
<PP&E> 151,893
<DEPRECIATION> 72,345
<TOTAL-ASSETS> 144,604
<CURRENT-LIABILITIES> 419,035
<BONDS> 0
0
0
<COMMON> 11,109
<OTHER-SE> (285,540)
<TOTAL-LIABILITY-AND-EQUITY> 144,604
<SALES> 69,401
<TOTAL-REVENUES> 69,401
<CGS> 73,060
<TOTAL-COSTS> 73,060
<OTHER-EXPENSES> 559,973
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 24,250
<INCOME-PRETAX> (587,882)
<INCOME-TAX> 0
<INCOME-CONTINUING> (587,882)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (587,882)
<EPS-BASIC> (0.05)
<EPS-DILUTED> (0.05)
</TABLE>
