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Item 1. Financial Statements

2020-08-14 compared with 2020-05-15 · 589 added, 457 removed, 73 unchanged (93% of the section changed)

2 unchanged sentences

BALANCE SHEETS

June 30, 2020

December 31, 2019

Current Assets:

Accounts Receivable

Unrealized gain

on derivative instruments

Unrealized Gain on Derivative Instruments

Total Current Assets

Oil and natural gas properties, successful

Property and equipment:

Oil and Natural Gas Properties, Successful Efforts

Accumulated Depreciation, Depletion and Impairment

Other property

and equipment, net of $2,615 and $1,830 accumulated

depreciation, respectively

Total property

and equipment, net

Unrealized gain on derivative instruments

AND STOCKHOLDERS' DEFICIT

Other Property and Equipment, net of $3,399 and $1,830 Accumulated Depreciation, respectively

Total Property and Equipment, net

Utility and other deposits

Acquisition deposit, net of allowance of $725,000 and $-0-, respectively (see Note 4)

LIABILITIES AND STOCKHOLDERS' DEFICIT

Current Liabilities:

1 unchanged sentence

Accrued Expenses

Unrealized loss

on derivatives

portion of long-term notes payable

Unrealized Loss on Derivative Instruments

Current Portion of Long-term Notes Payable

Total Current Liabilities

Long term portion

of unrealized loss on derivatives

Long-term notes

retirement obligations

Long Term Portion of Unrealized Loss on Derivative Instruments

Long-Term Notes Payable

Contingent Payments (see Note 5)

Asset Retirement Obligations

Total Liabilities

Stockholders' Deficit:

Common stock -

$.001 par value 150,000,000 shares

21,392,277 and 20,367,277 shares

outstanding, respectively

Additional paid-in

Common Stock - $.001 Par Value 150,000,000 Shares Authorized,

21,392,277 and 20,367,277 Shares Issued and Outstanding, Respectively

Additional Paid-in Capital

Accumulated Deficit

(25,168,118 )

(23,782,948 )

Total stockholders'

Total liabilities

and stockholders' deficit

Total Stockholders' Deficit

Total Liabilities and Stockholders' Deficit

accompanying notes to unaudited consolidated financial statements

1 unchanged sentence

STATEMENTS OF OPERATIONS

Months Ended March 31,

and gas sales

realized and unrealized gain (loss) on derivatives

Three Months Ended

Six Months Ended

Oil and Gas Sales

Net realized and unrealized Gain (Loss) on Derivatives

Total Revenue

Costs and Expenses:

Taxes –

Depreciation,

depletion and amortization

Impairment of

oil and natural gas properties

Accretion of asset

retirement obligation

and administrative

Operating income (loss)

Taxes - Production

Depletion, Depreciation & Amortization

Impairment of Oil and Natural Gas Properties

Accretion of Asset Retirement Obligation

General and Administrative

Total Cost and Expenses

Operating Loss

Other Income and (Expense):

on sale of assets

Net loss per common share,

Weighted average number of common

outstanding basic and diluted

Gain on Sale of Assets

Interest Expense

$ (2,973,185 )

$ (2,006,060 )

$ (1,385,170 )

$ (2,593,562 )

Net Loss per Common Share, Basic & Diluted

Weighted Average Number of Common Shares Outstanding,

Basic & Diluted

accompanying notes to unaudited consolidated financial statements

1 unchanged sentence

STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT

the three months ended March 31, 2020 and 2019

the six months ended June 30, 2020 and 2019

Balances, December 31, 2019

1 unchanged sentence

$ (4,938,655 )

Shares, options,

warrants and conversion features issued

Shares, Options, Warrants

and Conversion Features Issued

Balances, March 31, 2020

$ (22,194,933 )

$ (3,248,140 )

Shares, Options, Warrants

and Conversion Features Issued

Balances, June 30, 2020

$ (25,168,118 )

$ (5,815,075 )

Balances, December 31, 2018

$ (17,128,346 )

Shares, options,

warrants and conversion features issued

Shares, Options, Warrants

and Conversion Features Issued

Balances, March 31, 2019

$ (17,715,848 )

Shares, Options, Warrants

and Conversion Features Issued

Balances, June 30, 2019

$ (19,721,908 )

accompanying notes to unaudited consolidated financial statements

1 unchanged sentence

STATEMENTS OF CASH FLOWS

months Ended March 31,

Cash flows from

operating activities:

Adjustments to

reconcile net income (loss) to net

cash provided by

(used in) operating activities:

Gain on sales of

Amortization of

warrant value and conversion

feature on convertible

Amortization of

loan issue costs

Depreciation, depletion

and amortization

Impairment of oil

and natural gas properties

Accretion of asset

retirement obligation

Change in operating

assets and liabilities:

Six Months Ended June 30,

Cash Flows From Operating Activities:

$ (1,385,170 )

$ (2,593,562 )

Adjustments to Reconcile Net Loss to Net Cash

Provided by (used in) Operating Activities:

Gain on Sales of Assets

Value of warrants and options granted

Amortization of Warrant Value and Conversion Feature on

Convertible Notes

Amortization of Loan Issue Costs

Depreciation, Depletion and Amortization

Impairment of Oil and Natural Gas Properties

Accretion of Asset Retirement Obligation

Allowance for loss relating to purchase deposit

Change in Operating Assets and Liabilities:

Accounts Receivable

Unrealized (gain)

loss on derivative instruments

Unrealized Gain on Derivative Instruments

Utility and other deposits

Accounts Payable

Net cash provided

by (used in) operating activities

Cash flows from

investing activities:

Acquisition of oil

and natural gas properties

Proceeds from sale

of oil and natural gas properties

for purchase of oil and natural gas properties

Net cash used in

investing activities

Cash flows from

financing activities:

Proceeds from debt

Principal payments

from stock and warrant issuance

Net cash provided

by financing activities

Accrued Expenses

Net Cash Provided by (used in) Operating Activities

Cash Flows from Investing Activities:

Acquisition of Oil and Natural Gas Properties

Purchase of other fixed assets

Proceeds From Sale of Oil and Natural Gas Properties

Deposit for Purchase of Oil and Natural Gas Properties

Net Cash Used in Investing Activities

Cash Flows from Financing Activities:

Proceeds from Debt Issued

Principal Payments of Debt

Proceeds from Stock and Warrant Issuance

Net Cash Provided by Financing Activities

Net Change in Cash

- Beginning of period

- End of period

Supplemental cash

flow information:

paid for interest

Non-cash investing

and financing activities:

additions to asset retirement obligations

stock issued in exchange for outstanding notes payable

Cash - Beginning of Period

Cash - End of Period

Supplemental Cash Flow Information:

Cash Paid for Interest

Non-cash Investing and Financing Activities:

Non-cash Additions to Asset Retirement Obligations

Common Stock Issued in Exchange for Outstanding Notes Payable

Purchases of oil and natural gas properties in accounts payable

Purchases of oil and natural gas properties and deposits in accounts and notes payable, royalty suspense, and contingent payable to seller

accompanying notes to unaudited consolidated financial statements

PETROLEUM CORPORATION

TO CONSOLIDATED FINANCIAL STATEMENTS

EMPIRE PETROLEUM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2020

OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

accompanying unaudited consolidated 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, 2020.

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, 2019 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, 2020.

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 and/or additional debt or equity financing until profitable

operations are achieved.

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.

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 accompanying unaudited consolidated 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.

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, 2020.

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, 2019 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, 2020.

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 and/or additional debt or equity financing until profitable operations are achieved.

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.

Company’s impairment assessment of proved and unproved mineral properties is based on several factors including oil and

gas spot market prices and estimated futures prices that existed at March 31, 2020.

2020, crude oil prices in both the spot market and futures market experienced significant declines.

For the three months

ended March 31, 2020 the Company recorded an impairment expense of $800,452 as a result of the decline in oil prices (See Note

Further, the effect of lower crude oil prices on the Company’s future financial position or results of operations is

not currently determinable due to broader economic and industry uncertainties, including the impact to the operators and other

working interest owners of the properties in which the Company owns mineral interests.

event crude oil or natural gas prices remain low, there is the risk that, among other things:

Company’s revenues, cash flows and profitability may decline substantially, which

could also indirectly impact expected production by reducing the amount of funds available

to acquire future mineral interests;

relating to the Company’s proved properties may become uneconomic to produce resulting

gas spot market prices and estimated futures prices that existed at June 30, 2020.

In 2020, crude oil prices in both the spot

market and futures market experienced significant volatility.

For the six months ended June 30, 2020 the Company recorded an impairment

expense of $800,452 as a result of the decline in oil prices (See Note 3).

Further, the effect of lower crude oil prices on the

Company’s future financial position or results of operations is not currently determinable due to broader economic and industry

uncertainties, including the impact to the operators and other working interest owners of the properties in which the Company

owns mineral interests.

In the event crude oil or natural gas prices remain low, there is

the risk that, among other things:

· the Company’s revenues, cash flows and profitability may decline substantially, which

could also indirectly impact expected production by reducing the amount of funds available to acquire future mineral interests;

· reserves relating to the Company’s proved properties may become uneconomic to produce resulting

in impairment of proved properties;

and other working interest owners are unable to execute their drilling and exploration

· operators and other working interest owners are unable to execute their drilling and exploration

programs resulting in lower production or inability to prove reserves on unproved properties

occurrence of certain of these events may have a material adverse effect on the Company's business, results of operations and

financial condition.

early March 2020, there was a global outbreak of COVID-19 that has resulted in changes in global supply and demand of certain

mineral and energy products.

These changes, including the magnitude and length of the economic downturn and any potential resulting

direct and indirect negative impact to the Company cannot be determined, but they could have a prospective material impact to

the Company’s acquisition and project development activities, and cash flows and liquidity.

continuation of the Company is dependent upon the ability of the Company to raise capital and attain future profitable operations.

The ultimate recoverability of the Company's investment in oil and natural gas interests is dependent upon the existence and discovery

of economically recoverable oil and natural gas reserves, 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.

of March 31, 2020, the Company had $590,183 of cash and working capital deficit of $7,158,698, which includes the net balance

of the Senior Revolver Loan Agreement of $8,3338,908 which matures March 27, 2021.

The Company has proved reserves of approximately

3,600 Mbbls of oil and 400 MMcf of natural gas (as of December 31, 2019), all of which have been acquired within the last two

The Company plans to continue to look for oil and natural gas investments and will use a combination of debt and equity

financing to fund the acquisitions.

The Company expects to also incur costs related to evaluating and acquiring oil and natural

gas acquisitions for the foreseeable future.

It is expected that management will attempt to raise additional capital for future

investment and working capital opportunities.

of Officers and Employees

of March 31, 2020, the Company had three employees.

No independent Board members received compensation from the Company in the

first three months of 2020 or 2019.

For the three months ended March 31, 2020, the Company paid Mr.

The occurrence of certain of these events may have a

material adverse effect on the Company's business, results of operations and financial condition.

In early March 2020, there was a global outbreak

of COVID-19 that continued into the second quarter and has resulted in changes in global supply and demand of certain mineral and

energy products.

These changes, including the magnitude and length of the economic downturn and any potential resulting direct

and indirect negative impact to the Company cannot be determined, but they could have a prospective material impact to the Company’s

acquisition and project development activities, and cash flows and liquidity.

Reclassification of prior

year presentation.

Certain prior year amounts have been reclassified for consistency with the current year presentation.

These reclassifications had no effect on the reported results of operations.

An adjustment has been made to the Consolidated Balance

Sheet for the year ended December 31, 2019 to reclassify certain utility and other deposits in the amount of $118,177 which had

previously been included in prepaids.

The continuation of the Company is dependent

upon the ability of the Company to raise capital and attain future profitable operations.

The ultimate recoverability of the Company's

investment in oil and natural gas interests is dependent upon the existence and discovery of economically recoverable oil and natural

gas reserves, 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.

As of June 30, 2020, the Company had $285,813

of cash and working capital deficit of $9,412,190, which includes the net balance of the Senior Revolver Loan Agreement of $8,397,253

which matures March 27, 2021.

The Company has proved reserves which have been acquired within the last two years.

The Company plans

to continue to look for oil and natural gas investments and will use a combination of debt and equity financing to fund the acquisitions.

The Company expects to also incur costs related to evaluating and acquiring oil and natural gas acquisitions for the foreseeable

It is expected that management will attempt to raise additional capital for future investment and working capital opportunities.

Compensation of Officers and Employees

As of June 30, 2020, the Company had three

No independent Board members received compensation from the Company in the first six months of 2020 or 2019.

six months ended June 30, 2020, the Company paid Mr.

Morrisett and Mr.

$63,500 each for services rendered.

For the three months ended March 31, 2019, the Company paid Mr.

Pritchard $116,000 each for services rendered.

months ended June 30, 2019, the Company paid Mr.

Morrisett $127,450 and Mr.

$80,533 each for services rendered excluding the value of options.

In addition, as of March 31, 2020 Mr.

Pritchard has outstanding

advances of $26,017.

Pritchard $131,450 for services rendered excluding

the value of options.

In addition, as of June 30, 2020 Mr.

Pritchard has outstanding advances of $26,017.

OF SIGNIFICANT ACCOUNTING POLICIES

of consolidation.

The consolidated financial statements of the Company include the accounts of the Company and its wholly

owned subsidiaries, Empire Louisiana, LLC ("Empire Louisiana"), Empire North Dakota, LLC ("Empire North Dakota"),

and Empire Texas, LLC (“Empire Texas”).

Principles of consolidation.

The consolidated financial statements of the Company include the accounts of the Company and its wholly owned subsidiaries, Empire

Louisiana, LLC ("Empire Louisiana"), Empire North Dakota, LLC ("Empire North Dakota"), and Empire Texas, LLC

(“Empire Texas”).

All material intercompany balances and transactions have been eliminated.

of estimates in the preparation of financial statements.

Preparation of financial statements in conformity with generally

accepted accounting principles in the United States of America ("U.S.

GAAP") requires management to make estimates and

assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at

the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods.

Actual results

could differ from these estimates.

Depletion of oil and natural gas properties is determined using estimates of proved oil and

natural gas reserves.

There are numerous uncertainties inherent in the estimation of quantities of proved reserves and in the

projection of future rates of production and the timing of development expenditures.

Similarly, evaluations for impairment of

proved and unproved oil and natural gas properties are subject to numerous uncertainties including, among others, estimates of

future recoverable reserves, commodity price outlooks and prevailing market rates of other sources of income and costs.

significant estimates include, but are not limited to, asset retirement obligations, fair value of assets purchased in acquisitions,

financial statements.

The accompanying consolidated financial statements of the Company have not been audited by the Company's

independent registered public accounting firm.

In preparing the accompanying consolidated financial statements, management has

made certain estimates and assumptions that affect reported amounts in the consolidated financial statements and disclosures of

contingencies.

Actual results may differ from those estimates.

The results for interim periods are not necessarily indicative

of annual results.

disclosures have been condensed in or omitted from these consolidated financial statements.

Accordingly, these condensed notes

to the consolidated financial statements should be read in conjunction with the audited consolidated financial statements and

notes included in the Company's Annual Report on Form 10-K for the year ended December 31, 2019.

Inventory consists of oil in tanks which has not been delivered and is valued at the contract price to the buyer and pipe

which has not yet been put into production.

The Company recognizes revenues from the sales of oil and natural gas to its customers and presents them

disaggregated on the Company's consolidated statements of operations.

The Company enters into contracts with customers to sell

its oil and natural gas production.

Revenue on these contracts is recognized in accordance with the five-step revenue recognition

model prescribed in ASC 606.

Specifically, revenue is recognized when the Company's performance obligations under these contracts

are satisfied, which generally occurs with the transfer of control of the oil and natural gas to the purchaser.

Control is generally

considered transferred when the following criteria are met:

(i) transfer of physical custody, (ii) transfer of title, (iii)

transfer of risk of loss and (iv) relinquishment of any repurchase rights or other similar rights.

Given the nature of the products

sold, revenue is recognized at a point in time based on the amount of consideration the Company expects to receive in accordance

with the price specified in the contract.

Consideration under the oil and natural gas marketing contracts is typically received

from the purchaser one to two months after production.

At March 31, 2020, the Company had receivables related to contracts with

customers of approximately $240,000.

value measurements.

The Financial Accounting Standards Board ("FASB") fair value measurement standards define

fair value, establish a consistent framework for measuring fair value and establish a fair value hierarchy based on the observability

of inputs used to measure fair value.

debt - The carrying value of the convertible debt approximate fair value as of December 31, 2019.

As of March 31, 2020 all

of the convertible debt had been converted to shares of the Company’s common stock.

Management's estimates are based on

the assessment of qualitative factors that are considered Level 3 measurements in the fair value hierarchy as required by FASB

and natural gas properties - The fair value of proved and unproved oil and natural gas properties was measured using valuation

techniques that convert the future cash flows to a single discounted amount.

Significant inputs to the valuation of proved and

unproved oil and natural gas properties include estimates of:

Use of estimates in the preparation

of financial statements.

Preparation of financial statements in conformity with generally accepted accounting principles

in the United States of America ("U.S.

GAAP") requires management to make estimates and assumptions that affect the reported

amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements

and the reported amounts of revenues and expenses during the reporting periods.

Actual results could differ from these estimates.

Depletion of oil and natural gas properties is determined using estimates of proved oil and natural gas reserves.

There are numerous

uncertainties inherent in the estimation of quantities of proved reserves and in the projection of future rates of production and

the timing of development expenditures.

Similarly, evaluations for impairment of proved and unproved oil and natural gas properties

are subject to numerous uncertainties including, among others, estimates of future recoverable reserves, commodity price outlooks

and prevailing market rates of other sources of income and costs.

Other significant estimates include, but are not limited to,

asset retirement obligations, fair value of assets purchased in acquisitions, and taxes.

Interim financial statements.

The accompanying consolidated financial statements of the Company have not been audited by the Company's independent registered

public accounting firm.

In preparing the accompanying consolidated financial statements, management has made certain estimates

and assumptions that affect reported amounts in the consolidated financial statements and disclosures of contingencies.

results may differ from those estimates.

The results for interim periods are not necessarily indicative of annual results.

Certain disclosures have been condensed

in or omitted from these consolidated financial statements.

Accordingly, these condensed notes to the consolidated financial statements

should be read in conjunction with the audited consolidated financial statements and notes included in the Company's Annual Report

on Form 10-K for the year ended December 31, 2019.

consists of oil in tanks which has not been delivered and is valued at the contract price to the buyer and pipe which has not yet

been put into production.

Revenue recognition.

The Company recognizes revenues from the sales of oil and natural gas to its customers and presents them aggregated on the Company's

consolidated statements of operations.

The Company enters into contracts with customers to sell its oil and natural gas production.

Revenue on these contracts is recognized in accordance with the five-step revenue recognition model prescribed in ASC 606.

Specifically,

revenue is recognized when the Company's performance obligations under these contracts are satisfied, which generally occurs with

the transfer of control of the oil and natural gas to the purchaser.

Control is generally considered transferred when the following

criteria are met:

(i) transfer of physical custody, (ii) transfer of title, (iii) transfer of risk of loss and (iv) relinquishment

of any repurchase rights or other similar rights.

Given the nature of the products sold, revenue is recognized at a point in time

based on the amount of consideration the Company expects to receive in accordance with the price specified in the contract.

Consideration

under the oil and natural gas marketing contracts is typically received from the purchaser one to two months after production.

At June 30, 2020, the Company had receivables related to contracts with customers of approximately $590,000.

Fair value measurements.

Financial Accounting Standards Board ("FASB") fair value measurement standards define fair value, establish a consistent

framework for measuring fair value and establish a fair value hierarchy based on the observability of inputs used to measure fair

Convertible debt - The carrying

value of the convertible debt approximate fair value as of December 31, 2019.

As of June 30, 2020 all of the convertible debt had

been converted to shares of the Company’s common stock.

Management's estimates are based on the assessment of qualitative

factors that are considered Level 3 measurements in the fair value hierarchy as required by FASB ASC 820.

Oil and natural gas properties

- The fair value of proved and unproved oil and natural gas properties was measured using valuation techniques that convert

the future cash flows to a single discounted amount.

Significant inputs to the valuation of proved and unproved oil and natural

gas properties include estimates of:

(i) recoverable reserves;

(ii) production rates;

(iii) future operating

and development costs;

(iii) future operating and development costs;

(iv) future commodity prices;

and (v) a market-based weighted average costs of capital.

The Company utilized

a combination of the New York Mercantile Exchange ("NYMEX") strip pricing and consensus pricing to value the reserves,

then applied various discount rates depending on the classification of reserves and other risk characteristics.

For significant

purchases, management utilized the assistance of a third-party valuation expert to estimate the value of the oil and natural gas

properties acquired.

fair value of asset retirement obligations is included in proved oil and natural gas properties with a corresponding liability

in the table above.

The fair value was determined based on a discounted cash flow model, which included assumptions of the estimated

current abandonment costs, discount rate, inflation rate and timing associated with the incurrence of these costs.

inputs used to value oil and natural gas properties and asset retirement obligations require significant judgment and estimates

made by management and represent Level 3 inputs.

instruments and other- The fair values determined for accounts receivable, accrued expenses and other current liabilities

were equivalent to the carrying value due to their short-term nature.

The Company utilized a combination of the

New York Mercantile Exchange ("NYMEX") strip pricing and consensus pricing to value the reserves, then applied various

discount rates depending on the classification of reserves and other risk characteristics.

For significant purchases, management

utilized the assistance of a third-party valuation expert to estimate the value of the oil and natural gas properties acquired.

The fair value of asset retirement

obligations is included in proved oil and natural gas properties with a corresponding liability in the table above.

The fair value

was determined based on a discounted cash flow model, which included assumptions of the estimated current abandonment costs, discount

rate, inflation rate and timing associated with the incurrence of these costs.

The inputs used to value oil and

natural gas properties for impairments and asset retirement obligations require significant judgment and estimates made by management

and represent Level 3 inputs.

Financial instruments and other-

The fair values determined for accounts receivable, accrued expenses and other current liabilities were equivalent to the carrying

value due to their short-term nature.

AND EQUIPMENT

March 2019, the Company, through its subsidiary, Empire North Dakota, LLC, purchased oil and natural gas properties in Montana

and North Dakota (See Note 5).

January 27, 2020 the Company, through its wholly owned subsidiary, Empire North Dakota, LLC, entered into a Bill of Sale and Assignment

to purchase lease interests in approximately 4,936 acres in Montana for $500,000.

February 10, 2020 the Company, through its wholly owned subsidiary, Empire North Dakota, LLC, sold overriding royalty interests

for leases it owned in Montana for $325,000 to a consultant of the Company.

As of March 31, 2020 $200,000 of the sale had been

received with the balance pending completion of title work.

February 17, 2020 the Company, through its wholly owned subsidiary, Empire North Dakota, LLC, sold all of its interest in leases

of approximately 337 acres in Montana for $1,010,400.

the three months ended March 31, 2020, NYMEX strip prices declined significantly as compared to December 31, 2019, resulting

in a significant decrease in value of the Company’s economically recoverable proved oil and natural gas reserves.

the carrying amount of the Company’s proved oil and natural gas properties exceeded the expected undiscounted future net

cash flows for certain leases, resulting in impairment charges against earnings of $800,452.

These impairment charges are included

in impairments of long-lived assets on the consolidated statement of operations for the three months ended March 31, 2020.

The Company did not recognize an impairment of proved oil and natural gas properties during the three months ended March 31, 2019.

aggregate capitalized costs of oil and natural gas properties as of March 31, 2020, are as follows:

In March 2019, the Company, through its subsidiary,

Empire North Dakota, LLC, purchased oil and natural gas properties in Montana and North Dakota (See Note 7).

On January 27, 2020, the Company, through its

wholly owned subsidiary, Empire North Dakota, LLC, entered into a Bill of Sale and Assignment to purchase lease interests in approximately

4,936 acres in Montana for $500,000.

On February 10, 2020, the Company, through

its wholly owned subsidiary, Empire North Dakota, LLC, sold overriding royalty interests for leases it owned in Montana for $325,000

to a consultant of the Company.

As of June 30, 2020 $200,000 of the sales price had been received with the balance pending completion

of title work.

On February 17, 2020 the Company, through its

wholly owned subsidiary, Empire North Dakota, LLC, sold all of its interest in leases of approximately 337 acres in Montana for

On April 6, 2020 the Company, through its wholly

owned subsidiary, Empire Texas, LLC, purchased oil and natural gas properties in Texas (see Note 5).

During the six months ended June 30, 2020,

NYMEX strip prices experienced significant volatility, resulting in a significant decrease in value of the Company’s economically

recoverable proved oil and natural gas reserves.

As such, the carrying amount of the Company’s proved oil and natural gas

properties exceeded the expected undiscounted future net cash flows for certain leases, resulting in impairment charges against

earnings of $800,452.

These impairment charges are included in impairments of long-lived assets on the consolidated statement of

operations for the six months ended June 30, 2020.

The Company did not recognize an impairment of proved oil and natural gas properties

during the six months ended June 30, 2019.

The aggregate capitalized costs

of oil and natural gas properties as of June 30, 2020, are as follows:

Proved producing wells

Proved undeveloped

Lease and well equipment

Lease, well and gathering equipment

Asset retirement obligation

Unproved leasehold

Unproved leasehold costs

Gross capitalized costs

depreciation, depletion and impairment

property and equipment consists of office furniture and equipment.

Oher property and equipment,

Oher property

and equipment, net

ACQUISITION OF OVINTIV OIL AND NATURAL GAS PROPERTIES

March 3, 2020 the Company, through its wholly owned subsidiary, Empire North Dakota, LLC, entered into a Purchase and Sale Agreement

(“the Agreement”) with Ovintiv USA, Inc.

and several related companies to purchase certain oil and natural gas properties

in Montana and North Dakota comprising 26,600 net acres with 94 active wells.

The purchase price is $8,500,000, subject to adjustments

with an effective date of January 1, 2020 and a closing date of April 30, 2020.

of March 31, 2020, the Company has made an $850,000 deposit relating to the purchase which is recorded as a deposit on its balance

Due to the COVID pandemic, and governmental state of emergency orders related thereto, the Company has been unable to meet

with and obtain financing to complete the purchase from its lenders.

The Company is currently in communication with the Seller

to either cancel the transaction and return the deposit or provide additional time to complete the transaction.

accumulated depreciation, depletion and impairment

Other property and equipment consists of office

furniture and equipment.

Oher property and equipment, at cost

accumulated depreciation

Oher property and equipment, net

OF OVINTIV OIL AND NATURAL GAS PROPERTIES

On March 3, 2020 the Company, through its wholly

owned subsidiary, Empire North Dakota, LLC, entered into a Purchase and Sale Agreement (“the Agreement”) with Ovintiv

and several related companies to purchase certain oil and natural gas properties in Montana and North Dakota comprising

26,600 net acres with 94 active wells.

The purchase price is $8,500,000, subject to adjustments with an effective date of January

1, 2020 and a closing date of April 30, 2020.

The Company has made an $850,000 deposit relating

to the purchase which is recorded as a deposit on its balance sheet.

Due to the COVID pandemic, and governmental state of emergency

orders related thereto, the Company was unable to meet with and obtain financing to complete the purchase from its lenders.

of June 30, 2020 the Agreement has been terminated.

The Company is currently in communication with the Seller for return of the

The Company may not be successful in obtaining return of the entire deposit and has recorded an allowance of $725,000

based on its assessment of the negotiations.

OF PARDUS OIL AND NATURAL GAS PROPERTIES

On April 6, 2020 the Company, through its wholly

owned subsidiary, Empire Texas, LLC, entered into a Purchase and Sale Agreement (“the Agreement”) with Pardus Oil &

Gas, LLC and Pardus Oil & Gas Operating GP, LLC (collectively “the Seller”) to purchase certain oil and natural

gas properties in Texas comprising 139 gross wells and approximately 30,000 net acres, 77.3 miles of gathering lines and pipelines

and related facilities and equipment, and all general and limited partner interest in Pardus Oil & Gas Operating, LP.

price included the assumption of certain obligations and a contingent payment not to exceed $2,000,000 reduced by certain revenue

suspense amounts.

The contingent payment is based on monthly oil production in excess of a specified level from the purchased properties

and an average monthly realized oil price of $40 or more per barrel of oil through December 31, 2022.

The transaction closed on

April 7, 2020.

The following table sets forth the

Company's purchase price allocation:

Fair Value of Assets Acquired

Oil and natural gas properties

Inventory of oil in tanks

Equipment and gathering lines

Asset retirement obligation asset

Total Assets Acquired

Fair Value of Liabilities Assumed

Accounts payable, net

Note payable –

Royalty suspense

Asset retirement obligations

Total liabilities assumed

Total consideration

The fair values of assets acquired

and liabilities assumed were based on the following key inputs:

Oil and natural gas properties

The fair value of proved oil and natural

gas properties was measured using valuation techniques that convert the future cash flows to a single discounted amount.

inputs to the valuation of proved oil and natural gas properties include estimates of:

(i) recoverable reserves;

(ii) production

(iii) future operating and development costs;

(iv) future commodity prices;

and (v) a market-based weighted average

costs of capital.

The Company utilized a combination of the New York Mercantile Exchange ("NYMEX") strip pricing and

consensus pricing to value the reserves, then applied various discount rates depending on the classification of reserves and other

risk characteristics.

Management utilized the assistance of a third-party valuation expert to estimate the value of the oil and

natural gas properties acquired.

The fair value of asset retirement

obligations totaled $9,508,484 and is included with a corresponding liability in the table above.

The fair value was determined

based on a discounted cash flow model, which included assumptions of the estimated current abandonment costs, discount rate, inflation

rate and timing associated with the incurrence of these costs.

The total consideration consists of

a contingent payment to the seller which is due based on monthly production of oil and natural gas through December 31, 2022 and

a monthly average price of $40 or higher per barrel.

The inputs used to value oil and natural

gas properties and asset retirement obligations require significant judgment and estimates made by management and represent Level

Financial instruments and other

The fair values determined for accounts

payable - trade were equivalent to the carrying value due to their short-term nature.

Accounts payable - trade includes $20,456 of

liabilities primarily related to well activity prior to close.

OF WARHORSE OIL AND NATURAL GAS PROPERTIES

June 10, 2019, the Company received a process verbal and related sheriff's deed dated as of May 29, 2019 (the "Sheriff's

Deed") pertaining to two wells in St.

Landry Parish purchased from Business First Bancshares, Inc.

d/b/a Business First Bank

("Business First").

to the Sheriff's Deed, the Company acquired certain oil and natural gas properties located in St.

Landry Parish, Louisiana, including

operated working interest in two producing wells.

The Company purchased Business First's position as the superior lienholder and

seizing creditor of such oil and natural gas properties, which were owned by Warhorse Oil & Gas, LLC, for $450,000 plus $16,993

sheriff fees.

The payment was paid from loan proceeds under the loan agreement with CrossFirst Bank (see Note 8).

Company treated the acquisition as an asset purchase.

An amount equal to $73,968 was allocated to lease and well equipment and

$378,110 was allocated to producing properties.

An asset retirement obligation of $19,732 was recorded in conjunction with the

ACQUISITION OF ENERGYQUEST II ASSETS

March 28, 2019, the Company purchased oil producing properties from EnergyQuest II, LLC ("EnergyQuest") for a purchase

price of $5,600,000.

The effective date of the transaction was January 1, 2019.

After certain adjustments related to the effective

date, the total proceeds paid to EnergyQuest were $5,646,126.

Such proceeds were paid from borrowing on notes payable and

sales of unregistered securities of the Company.

following table sets forth the Company's purchase price allocation:

Fair Value of

Assets Acquired

Value of Liabilities Assumed

Accounts payable

retirement obligations

liabilities assumed

consideration paid

fair values of assets acquired and liabilities assumed were based on the following key inputs:

and natural gas properties

fair value of proved oil and natural gas properties was measured using valuation techniques that convert the future cash flows

to a single discounted amount.

Significant inputs to the valuation of proved oil and natural gas properties include estimates

On June 10, 2019, the Company received a process verbal and

related sheriff's deed dated as of May 29, 2019 (the "Sheriff's Deed") pertaining to two wells in St.

Landry Parish purchased

from Business First Bancshares, Inc.

d/b/a Business First Bank ("Business First").

Pursuant to the Sheriff's Deed, the Company acquired certain

oil and natural gas properties located in St.

Landry Parish, Louisiana, including operated working interest in two producing wells.

The Company purchased Business First's position as the superior lienholder and seizing creditor of such oil and natural gas properties,

which were owned by Warhorse Oil & Gas, LLC, for $450,000 plus $16,993 sheriff fees.

The payment was paid from loan proceeds

under the loan agreement with CrossFirst Bank (see Note 9).

The Company treated the acquisition

as an asset purchase.

An amount equal to $73,968 was allocated to lease and well equipment and $378,110 was allocated to producing

An asset retirement obligation of $19,732 was recorded in conjunction with the purchase.

OF ENERGYQUEST II ASSETS

On March 28, 2019, the Company purchased oil

producing properties from EnergyQuest II, LLC ("EnergyQuest") for a purchase price of $5,600,000.

The effective date

of the transaction was January 1, 2019.

After certain adjustments related to the effective date, the total proceeds paid to EnergyQuest

were $5,646,126.

Such proceeds were paid from borrowing on notes payable and sales of unregistered securities of the Company.

The following table sets forth the

Company's purchase price allocation:

Fair Value of Assets Acquired

Accounts receivable

Inventory of oil in tanks

Oil properties

Total Assets Acquired

Fair Value of Liabilities Assumed

Accounts payable –

Asset retirement obligations

Total liabilities assumed

Total consideration paid

The fair values of assets acquired

and liabilities assumed were based on the following key inputs:

Oil and natural gas properties

The fair value of proved oil and natural

gas properties was measured using valuation techniques that convert the future cash flows to a single discounted amount.

inputs to the valuation of proved oil and natural gas properties include estimates of:

(i) recoverable reserves;

(ii) production rates;

(ii) production

(iii) future operating and development costs;

(iv) future commodity

and (v) a market-based weighted average costs of capital.

The Company utilized a combination of the New York Mercantile

Exchange ("NYMEX") strip pricing and consensus pricing to value the reserves, then applied various discount rates depending

on the classification of reserves and other risk characteristics.

Management utilized the assistance of a third-party valuation

expert to estimate the value of the oil and natural gas properties acquired.

fair value of asset retirement obligations totaled $5,117,939 and is included in proved oil and natural gas properties with a

corresponding liability in the table above.

The fair value was determined based on a discounted cash flow model, which included

assumptions of the estimated current abandonment costs, discount rate, inflation rate and timing associated with the incurrence

of these costs.

inputs used to value oil and natural gas properties and asset retirement obligations require significant judgment and estimates

made by management and represent Level 3 inputs.

instruments and other

fair values determined for accounts receivable and accounts payable - trade were equivalent to the carrying value due to their

short-term nature.

payable - trade includes $1,861,433 of liabilities primarily related to well activity prior to close.

DERIVATIVE FINANCIAL INSTRUMENTS

Company uses derivative financial instruments to manage its exposure to commodity price fluctuations.

Commodity derivative instruments

are used to reduce the effect of volatility of price changes on the oil and natural gas the Company produces and sells.

The Company’s

derivative financial instruments consist of oil and natural gas swaps.

Company does not enter into derivative financial instruments for speculative or trading purposes.

Company does not designate its derivative instruments to qualify for hedge accounting.

Accordingly, the Company reflects changes

in the fair value of its derivative instruments in its consolidated statements of operations as they occur.

Unrealized gains and

losses related to the swap contracts are recognized and recorded as an asset or liability on the Company’s balance sheet.

following table summarizes the net realized and unrealized amounts reported in earnings related to the commodity derivative instruments

for the three months ended March 31, 2020 and 2019:

months ended March 31,

Gain (loss) on

(iv) future commodity prices;

and (v) a market-based weighted average

costs of capital.

The Company utilized a combination of the New York Mercantile Exchange ("NYMEX") strip pricing and

consensus pricing to value the reserves, then applied various discount rates depending on the classification of reserves and other

risk characteristics.

Management utilized the assistance of a third-party valuation expert to estimate the value of the oil and

natural gas properties acquired.

The fair value of asset retirement

obligations totaled $5,117,939 and is included in proved oil and natural gas properties with a corresponding liability in the table

The fair value was determined based on a discounted cash flow model, which included assumptions of the estimated current

abandonment costs, discount rate, inflation rate and timing associated with the incurrence of these costs.

The inputs used to value oil and natural

gas properties and asset retirement obligations require significant judgment and estimates made by management and represent Level

Financial instruments and other

The fair values determined for accounts

receivable and accounts payable - trade were equivalent to the carrying value due to their short-term nature.

Accounts payable - trade includes $1,861,433

of liabilities primarily related to well activity prior to close.

FINANCIAL INSTRUMENTS

The Company uses derivative financial instruments

to manage its exposure to commodity price fluctuations.

Commodity derivative instruments are used to reduce the effect of volatility

of price changes on the oil and natural gas the Company produces and sells.

The Company’s derivative financial instruments

consist of oil and natural gas swaps.

The Company does not enter into derivative

financial instruments for speculative or trading purposes.

The Company does not designate its derivative

instruments to qualify for hedge accounting.

Accordingly, the Company reflects changes in the fair value of its derivative instruments

in its consolidated statements of operations as they occur.

Unrealized gains and losses related to the swap contracts are recognized

and recorded as an asset or liability on the Company’s balance sheet.

The following table summarizes the net realized

and unrealized amounts reported in earnings related to the commodity derivative instruments for the three and six months ended

June 30, 2020 and 2019:

Three months ended June 30,

Six months ended June 30,

Gain (loss) on derivatives:

Oil derivatives

following represents the Company’s net cash receipts from derivatives for the three months ended March 31, 2020 and 2019:

months ended March 31,

Net cash received

from payments on derivatives

Natural gas derivatives

The following represents the Company’s

net cash receipts from derivatives for the three and six months ended June 30, 2020 and 2019:

Three months ended June 30,

Nine months ended June 30,

Net cash received from payments on derivatives

Oil derivatives

following table sets forth the Company’s outstanding derivative contracts at March 31, 2020.

The Company has no outstanding

Natural gas derivatives

All of the Company’s derivatives are expected to settle by June 21, 2021:

The following table sets forth the Company’s

outstanding derivative contracts at June 30, 2020.

The Company has no outstanding natural gas derivatives.

All of the Company’s

derivatives are expected to settle by October 2021:

Volume (MBbl)

2 unchanged sentences

Price per Bbl

NOTES PAYABLE

February 2019, the Company entered into five unsecured promissory note agreements with accredited investors totaling $90,000.

The notes were due May 1, 2019, and accrued interest at 8%.

In February 2019, the Company entered into

five unsecured promissory note agreements with accredited investors totaling $90,000.

The notes were due May 1, 2019, and accrued

interest at 8%.

One of the notes, in the amount of $15,000 was issued to Michael R.

Morrisett, the Company's President.

These notes and the related interest were paid in May 2019.

September 20, 2018 the Company entered into a Senior Revolver Loan Agreement (“the Agreement”) with CrossFirst Bank

(“CrossFirst”).

The Agreement was amended March 27, 2019 (the “Amended Agreement”).

The Amended Agreement

commitment amount is $9,000,000 which is reduced by $150,000 per calendar quarter ($8,400,000 at March 31, 2020) and the maximum

amount that can be advanced under the Agreement is $20,000,000 and includes interest at Wall Street Journal Prime plus 150 basis

points (4.75% as of March 31, 2020).

The Agreement matures on March 27, 2021.

Collateral for the loan is a lien on all of the

assets of the Company’s wholly owned subsidiaries, Empire Louisiana and Empire North Dakota, and a first priority mortgage

lien, pledge of and security interest in not less than 80% of Empire Louisiana’s and Empire North Dakota’s producing

oil, gas and other leasehold and mineral interests.

The Agreement requires Empire Louisiana, beginning December 31, 2018 to maintain

certain covenants including an EBITDAX to interest expense of at least 3:1 and funded debt to EBITDAX of 4:1 on a trailing twelve

The Company is not in compliance with the funded debt to EBITDAX covenant of the Agreement at March 31, 2020.

of March 31, 2020, the Company has an outstanding loan balance of $8,397,253 under the Agreement.

January, 2020 three of the Senior Unsecured Promissory Note investors exercised the conversion feature and converted their $102,500

notes for 1,025,000 shares of the Company's common stock.

All of the Senior Unsecured Promissory Notes have been converted to

common stock of the Company as of March 31, 2020.

Earnings per Share ("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

As a result, if there is a loss from continuing operations, Diluted EPS is computed in the same manner as Basic EPS.

At March 31, 2020 and 2019, the Company had 5,004,167 and 4,167 respectively, options outstanding 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 March 31, 2020 and 2019, the outstanding options were considered anti-dilutive

since the strike prices were above the market price and since the Company has incurred losses year to date.

March 2019, 1,446,668 outstanding $0.15 warrants were converted to shares of common stock of the Company.

Proceeds received from

the conversion was $217,000 including $50,000 of notes payable conversion by Mr.

and the related interest were paid in May 2019.

On September 20, 2018 the Company entered into

a Senior Revolver Loan Agreement (“the Agreement”) with CrossFirst Bank (“CrossFirst”).

The Agreement was

amended March 27, 2019 (the “Amended Agreement”).

The Amended Agreement commitment amount is $9,000,000 which is reduced

by $150,000 per calendar quarter ($8,400,000 at June 30, 2020) and the maximum amount that can be advanced under the Agreement

is $20,000,000 and includes interest at Wall Street Journal Prime plus 150 basis points (4.75% as of June 30, 2020).

The Agreement

matures on March 27, 2021.

Collateral for the loan is a lien on all of the assets of the Company’s wholly owned subsidiaries,

Empire Louisiana and Empire North Dakota, and a first priority mortgage lien, pledge of and security interest in not less than

80% of Empire Louisiana’s and Empire North Dakota’s producing oil, gas and other leasehold and mineral interests.

Agreement requires Empire Louisiana, beginning December 31, 2018 to maintain certain covenants including an EBITDAX to interest

expense of at least 3:1 and funded debt to EBITDAX of 4:1 on a trailing twelve month basis.

The Company is not in compliance with

the funded debt to EBITDAX covenant of the Agreement at June 30, 2020.

As of June 30, 2020, the Company has an outstanding loan

balance of $8,397,253 under the Agreement.

In January 2020 three of the Senior Unsecured

Promissory Note investors exercised the conversion feature and converted their $102,500 notes for 1,025,000 shares of the Company's

common stock.

All of the Senior Unsecured Promissory Notes have been converted to common stock of the Company as of March 31, 2020.

On April 1, 2020, in conjunction with the purchase

of assets from Pardus Oil & Gas, LLC (see Note 5), the Company entered into a unsecured promissory note agreement with the

seller in the amount of $378,000.

The note is payable in one installment on April 1, 2021 and bears interest at the one-year LIBOR

rate (1% as of June 30, 2020).

On May 5, 2020, the Company, through its wholly

owned subsidiary, Pardus Oil & Gas Operating, LP, received an SBA Payroll Protection Plan (“PPP”) loan for $160,700.

The loan matures on May 5, 2022 and has an interest rate of 1%.

There are no payments due until November 5, 2020 at which time

the payment amount will be determined based on the portion of the loan which has not been forgiven under criteria established by

the SBA, using an eighteen-month amortization.

The Company expects that the majority of the loan amount will be forgiven based

on currently published guidelines of the United States Small Business Administration.

Diluted Earnings per Share ("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 March 31, 2020 and 2019, the

Company had 5,004,167 and 4,167 respectively, options outstanding 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, 2020 and 2019, the outstanding options were considered anti-dilutive since the strike prices were above

the market price and since the Company has incurred losses year to date.

In March 2019, 1,446,668 outstanding $0.15

warrants were converted to shares of common stock of the Company.

Proceeds received from the conversion was $217,000 including

$50,000 of notes payable conversion by Mr.

Kamin, a board member.

May 2019, the Company issued warrants to purchase 300,000 shares of its common stock for $0.17 per share which expire on December

31, 2021 to a former employee for business assistance provided.

The value allocated to the warrants was the fair value determined

using the Black-Scholes option valuation with the following assumptions:

no dividend yield, expected annual volatility of

217%, risk free interest rate of 1.92% and an expected useful life of 31 months.

The fair value of the warrants of $58,380 was

recorded as compensation expense and allocated to Paid in Capital.

April 3, 2019, the Board of Directors of the Company adopted the Empire Petroleum Corporation 2019 Stock Option Plan (the "Stock

Option Plan").

The total number of shares of common stock that may be issued pursuant to stock options under the Stock Option

Plan is 10,000,000.

Further, on April 3, 2019 the Company granted Mr.

During May 2019, the Company issued warrants

to purchase 300,000 shares of its common stock for $0.17 per share which expire on December 31, 2021 to a former employee for business

assistance provided.

The value allocated to the warrants was the fair value determined using the Black-Scholes option valuation

with the following assumptions:

no dividend yield, expected annual volatility of 217%, risk free interest rate of 1.92% and

an expected useful life of 31 months.

The fair value of the warrants of $58,380 was recorded as compensation expense and allocated

to Paid in Capital.

On April 3, 2019, the Board of Directors of

the Company adopted the Empire Petroleum Corporation 2019 Stock Option Plan (the "Stock Option Plan").

The total number

of shares of common stock that may be issued pursuant to stock options under the Stock Option Plan is 10,000,000.

Further, on April

3, 2019 the Company granted Mr.

Pritchard and Mr.

Morrissett each, options to purchase 2,500,000

shares of common stock of the Company at an exercise price of $0.33 per share.

The options vest in three installments with 1,250,000

vesting immediately and 625,000 vesting each in April 2020 and April, 2021.

Morrissett each, options to purchase 2,500,000 shares of common stock of the

Company at an exercise price of $0.33 per share.

The options vest in three installments with 1,250,000 vesting immediately and

625,000 vesting each in April 2020 and April 2021.

All of the options expire in April, 2029.

allocated to the vested options was the fair value determined using the Black-Scholes option valuation with the following

no dividend yield, expected annual volatility of 213%, risk free interest rate of 2.32% and an expected useful

life of 5.375 years.

The fair value of the vested options of $812,500 was recorded as compensation expense and allocated to Paid

The fair of the remaining unvested options is $812,500 as of March 31, 2020.

April 3, 2019 the Board of Directors of the Company amended certain warrant certificates which had been issued to Mr.

Kamin covering

3,000,000 warrants to purchase common stock of the Company.

The original warrants expired on December 31, 2021 and had exercise

prices of $0.15 and $0.25 for 500,000 and 2,500,000 shares, respectively.

The value allocated to the vested

options was the fair value determined using the Black-Scholes option valuation with the following assumptions:

yield, expected annual volatility of 213%, risk free interest rate of 2.32% and an expected useful life of 5.375 years.

value of the vested options of $812,500 was recorded as compensation expense and allocated to Paid in Capital in 2019.

the fair value of the options which vested in April 2020 of $406,250 was recorded as compensation expense and allocated to Paid

The fair of the remaining unvested options is $406,250 as of June 30, 2020.

On April 3, 2019 the Board of Directors of

the Company amended certain warrant certificates which had been issued to Mr.

Kamin covering 3,000,000 warrants to purchase common

stock of the Company.

The original warrants expired on December 31, 2021 and had exercise prices of $0.15 and $0.25 for 500,000

and 2,500,000 shares, respectively.

The warrants were extended to expire on April 2, 2029.

The value allocated to the warrants was the fair value determined using the Black-Scholes option valuation with the following

no dividend yield, expected annual volatility of 213%, risk free interest rate of 2.32% and an expected useful

life of 5 years.

The fair value of the warrants of $620,750 was recorded as compensation expense and allocated to Paid in Capital.

SUBSEQUENT EVENTS

April 6, 2020 the Company, through its wholly owned subsidiary, Empire Texas, LLC, entered into a Purchase and Sale Agreement

(“the Agreement”) with Pardus Oil & Gas, LLC and Pardus Oil & Gas Operating GP, LLC (collectively “the

Seller”) to purchase certain oil and natural gas properties in Texas comprising 139 gross wells and approximately 30,000

net acres, 77.3 miles of gathering lines and pipelines and related facilities and equipment, and all general and limited partner

interest in Pardus Oil & Gas Operating, LP.

The purchase price included the assumption of certain obligations and a contingent

payment not to exceed $2,000,000 reduced by certain revenue suspense amounts.

The primary liability assumed is the asset retirement

obligation for the properties, which the Company is in the process of evaluating.

The contingent payment is based on oil production

in excess of a specified level from the purchased properties and an average realized oil price of $40 or more per barrel of oil

through December 31, 2022.

The transaction closed on April 7, 2020.

May 5, 2020, the Company, through its wholly owned subsidiary, Pardus Oil & Gas Operating, LP, received a SBA Payroll Protection

Plan (“PPP”) loan for $160,700.

The loan matures on May 5, 2022 and has an interest rate of 1%.

There are no payments

due until November 5, 2020 at which time the payment amount will be determined based on the portion of the loan which has not

been forgiven under criteria established by the SBA, using an eighteen-month amortization.

The value allocated to the warrants

was the fair value determined using the Black-Scholes option valuation with the following assumptions:

no dividend yield,

expected annual volatility of 213%, risk free interest rate of 2.32% and an expected useful life of 5 years.

The fair value of

the warrants of $620,750 was recorded as compensation expense and allocated to Paid in Capital.

On August 6, 2020 the Company, through its

wholly owned subsidiary, Empire Texas, LLC, entered into a joint development agreement (the “Agreement”) with Petroleum

& Independent Exploration, LLC and related entities (“PIE”) dated August 1, 2020.

Under the terms of the Agreement,

PIE will perform recompletion and workover on specified wells owned by Empire.

To fund the work, PIE entered into a term loan agreement

with Empire dated August 1, 2020, whereby PIE will loan up to $2,000,000, at an interest rate of 6% per annum, maturing August

7, 2024 unless terminated earlier by PIE.

On August 7, 2020, $150,000 was advanced to Empire from the loan.

As part of the Agreement,

Empire will assign to PIE a combined 85% working and revenue interest in the affected wells.

Of the assigned interest, 70% will

be used to repay the obligations under the term loan agreement.

Once the term loan is repaid, PIE will assign a 35% working and

revenue interest to Empire and retain a 50% working and revenue interest.

In addition, PIE and Empire entered into a Securities

Purchase Agreement (“Securities Agreement”) whereby PIE has agreed to purchase for $525,000 (a) 3,500,000 shares of

Empire common stock, (b) warrants to purchase 2,625,000 shares of Empire common stock at an exercise price of $0.20 per share,

(c) warrants to purchase 1,800,000 shares of Empire common stock at an exercise price of $0.25 per share, (d) warrants to purchase

8,136,518 shares of Empire common stock at an exercise price of $0.10 per share, and (e) warrants to purchase up to 11,066,667

shares of Empire common stock at an exercise price of $0.141 per share.

PIE is obligated to exercise the $0.20 warrants within

45 days of when 3 month trailing average production from the Empire Texas properties have increased by 20% over the trailing 3

month trailing average production as of July 2020.

PIE can only exercise the $0.25 warrants once all existing non-PIE outstanding

warrants to purchase Empire common stock have been exercised or lapsed.

For the $0.141 warrants, PIE may initially acquire 7,533,333

shares of Empire common stock, however the amount may be increased if any existing non-PIE warrants are exercised prior to December

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements