What changed in this filing

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Item 1. Financial Statements

2022-05-16 compared with 2021-11-15 · 423 added, 670 removed, 201 unchanged (84% of the section changed)

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CONSOLIDATED BALANCE SHEETS

September 30,

Current Assets:

Gain on Oil and Natural Gas Derivatives, Current

Oil Inventory

Gain on Derivative Instruments

- Oil in Tanks

Total Current Assets

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( 17,525,918 )

Oil and natural gas properties, successful efforts, net

Property and Equipment, Net

Gain on Oil and Natural Gas Derivatives, Noncurrent

Fund (Note 5)

AND STOCKHOLDERS' EQUITY (DEFICIT)

Gain on Derivative Instruments - Long Term

and Other Deposits

AND STOCKHOLDERS' EQUITY

Current Liabilities:

Loss on Oil and Natural Gas Derivatives

Portion of Lease Liability

Portion of Long-term Notes Payable, Net of Discount

Portion of Long-Term Notes Payable

Total Current Liabilities

Notes Payable

Notes Payable to Related Party, Net of Discount

Conversion Option

Lease Liability

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Total Liabilities

Commitments and Contingencies

Stockholders' Equity (Deficit):

Stockholders' Equity:

A Preferred Stock - $ .001 Par Value, 10,000,000 Shares Authorized, 6 and

0 Shares Issued and Outstanding, Respectively

Stock - $ .001 Par Value 190,000,000 Shares Authorized, 19,889,398

and 19,840,648 Shares Issued and Outstanding, Respectively

Stock Subscribed

Paid-in Capital

1 unchanged sentence

( 59,233,343 )

Stockholders' Equity (Deficit)

( 18,441,038 )

Liabilities and Stockholders' Equity (Deficit)

Stockholders' Equity

Liabilities and Stockholders' Equity

See accompanying notes to unaudited condensed

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CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

Three Months Ended

Nine Months Ended

September 30,

Natural Gas Sales

Three Months Ended March 31,

Natural Gas Liquids Sales

Other Revenue

Net Realized and Unrealized Gain (Loss) on Derivatives

Net Realized and Unrealized Loss on Derivatives

Total Revenue

2 unchanged sentences

Depletion, Depreciation & Amortization

Impairment of Oil and Natural Gas Properties

Accretion of Asset Retirement Obligation

2 unchanged sentences

Operating Income (Loss)

( 1,641,485 )

( 3,914,327 )

Other Income and (Expense):

Convertible Debt Modification Inducement Expense (Note 9)

( 2,276,813 )

Unrealized Gain on Embedded Conversion Option (Note 9)

Gain on Sale of Assets

Interest Expense

( 4,467,679 )

( 7,373,113 )

$ ( 3,726,225 )

$ ( 1,641,372 )

$ ( 9,995,367 )

Net Income (Loss)

$ ( 997,180 )

Net Loss per Common Share, Basic & Diluted

Net Income (Loss) per Common Share:

Weighted Average Number of Common Shares Outstanding,

Basic & Diluted

See accompanying notes to unaudited condensed consolidated

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STOCKHOLDERS' EQUITY (DEFICIT)

For the nine months ended September 30, 2021 and

For the Three Months Ended March 31, 2022 and 2021

Preferred Stock

Balances, December 31, 2021

$ ( 59,233,343 )

$ ( 18,441,038 )

Issuance of Preferred Stock

Warrants Exercised

Issuance of Common Stock and Warrants

Issuance of Stock Compensation

Balances, March 31, 2022

( 55,609,916 )

( 12,953,516 )

( 5,271,962 )

Stock Compensation Expense

Warrants Exercised

Warrants Issued with Unsecured Convertible Notes

Unsecured Convertible Note Conversion

Right to Buy Issued with Unsecured Convertible Notes

Shares and Warrants Issued for Secured Convertible Note

Balances, June 30, 2021

( 46,887,523 )

( 6,203,932 )

( 3,726,225 )

Stock Options Exercised

Warrants Exercised

Shares and Warrants Issued with Amended Secured Convertible Notes

Unsecured Convertible Note Conversion

Shares Issued for Convertible Note Interest

Balances, September 30, 2021

( 50,613,748 )

See accompanying notes to unaudited condensed consolidated

financial statements

Preferred Stock

Balances, December 31, 2020

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( 18,441,038 )

Conversion of Convertible Notes

Warrants Exercised

Issuance of Common Stock and Warrants

Balances, March 31, 2021

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( 12,953,516 )

( 2,973,185 )

Stock Compensation Expense

Balances, June 30, 2020

$ ( 25,168,118 )

$ ( 5,815,075 )

( 1,641,372 )

Shares and Warrants Issued

Balances, September 30, 2020

$ ( 26,809,490 )

$ ( 6,931,447 )

See accompanying

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OF CASH FLOWS

Nine Months Ended September 30,

For the Three Months Ended March 31,

Cash Flows From Operating Activities:

$ ( 9,995,367 )

$ ( 3,026,542 )

Adjustments to Reconcile Net Loss to Net Cash

Provided by (used in) Operating Activities:

Gain on Sales of Assets

Net Income (Loss)

$ ( 997,180 )

Stock Compensation Expense

Stock Issued for Interest Expense Payment

Right to Buy Issuance Costs

Unrealized Gain on Embedded Conversion Option

Amortization of Discount on Convertible Notes

Convertible Debt Modification Inducement Expense

Amortization of Loan Issue Costs

Changes in Right of Use Assets, net

Adjustments to Reconcile Net Income (Loss) to Net Cash Provided By (Used In)

Operating Activities:

Stock Compensation and Issuances

Amortization of Right of Use Assets

Depreciation, Depletion and Amortization

Impairment of Oil and Natural Gas Properties

Accretion of Asset Retirement Obligation

Cash paid to Ovintiv

Loss relating to Ovintiv Purchase Deposit

Forgiveness of Paycheck Protection Program Loan

Amortization of Loan Issue Costs

Change in Operating Assets and Liabilities:

Accounts Receivable

( 5,566,084 )

Unrealized Gain on Oil and Natural Gas Derivative Instruments

Unrealized Loss on Derivatives

Inventory, Oil in Tanks

Prepaids, Current

Accounts Payable

( 1,654,437 )

Accrued Expenses

Net Cash Provided By (Used In) Operating Activities

( 1,970,126 )

Cash Flows from Investing Activities:

Acquisition of Oil and Natural Gas Properties

Earnest Deposit for Acquisition of Oil and Natural Gas Properties

( 1,780,000 )

Additions to Oil and Natural Gas Properties

Purchase of Other Fixed Assets

Cash Paid for Right of Use Assets

Sinking Fund Deposit

( 4,330,000 )

Proceeds From Sale of Oil and Natural Gas Properties

Net Cash Provided by (Used in) Investing Activities

Net Cash Used In Investing Activities

( 1,961,973 )

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Principal Payments of Debt

( 5,546,738 )

Proceeds from Warrant Exercise

Proceeds from Stock and Warrant Issuance

Net Cash Provided by Financing Activities

Net Cash Provided By (Used In) Financing Activities

Net Change in Cash

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Cash - End of Period

Supplemental Cash Flow Information:

Cash Paid for Interest

Non-cash Investing and Financing Activities:

Equipment purchased utilizing note payable

Note Payable Activity - PIE Agreement (see Note 5)

See accompanying notes to unaudited condensed consolidated

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TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

OF PRESENTATION

accompanying unaudited condensed consolidated financial statements of Empire Petroleum Corporation ("Empire" or the "Company")

have been prepared in accordance with United States generally accepted accounting principles (“GAAP”) for interim financial

information and the instructions to Form 10-Q.

Accordingly, they do not include all of the information and footnotes required by GAAP

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, 2021.

March 31, 2022

1 - Organization and Basis of Presentation

Petroleum Corporation (“Empire” or the “Company”, collectively with its subsidiaries) is an independent energy

company operator engaged in optimizing developed production by employing field management methods to maximize reserve recovery while

minimizing costs.

Empire has four wholly-owned subsidiaries in its areas of operations:

North Dakota LLC (“Empire North Dakota”)

New Mexico, LLC (“Empire New Mexico”)

Texas (“Empire Texas”), consisting of the following entities:

Oil & Gas Operating, LP (owned 1% by Empire Texas GP LLC and 99% by Empire Texas LLC)

Texas Operating LLC

Louisiana LLC (“Empire Louisiana”)

was incorporated in the State of Utah in August 1983 and subsequently in the State of Delaware in 1985.

The consolidated financial statements

of Empire Petroleum Corporation and subsidiaries include the accounts of the Company and its wholly-owned subsidiaries.

accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with United States

generally accepted accounting principles (“GAAP”) for interim financial information and the instructions to Form 10-Q.

they do not include all of the information and footnotes required by GAAP 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, 2022.

intercompany accounts and transactions, including revenues and expenses, have been eliminated in consolidation.

information contained in this Form 10-Q should be read in conjunction with the audited financial statements and related notes for the

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(the "SEC") on March 31, 2022.

of September 30, 2021, the Company had thirty-three employees.

No independent Board members received compensation from the Company in

the first nine months of 2020;

in 2021 independent Board members were compensated $ 116,000

through September 30, 2021.

Independent directors

that remain seated at December 31, 2021 will receive 120,000 shares each of common stock, prorated for the portion of the year served.

Beginning in calendar year 2022, Mssrs.

Morrisett and Pritchard will each receive annual awards of 100,000 shares of common stock pursuant

to their employment agreements .

OF SIGNIFICANT ACCOUNTING POLICIES

of consolidation.

The condensed 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"),

Empire New Mexico, LLC (“Empire New Mexico”) d/b/a Green Tree New Mexico (“Green Tree”), Empire ND Acquisitions,

LLC (“Empire ND Acquisitions”), Empire Texas, LLC (“Empire Texas”), and Pardus Oil & Gas Operating, LP (“Pardus”).

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.

Other significant estimates include, but are not limited to, asset retirement obligations,

fair value of assets purchased in business combinations, embedded derivatives (conversion features), commodity derivatives, and taxes.

financial statements.

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

Company’s independent registered public accounting firm.

In preparing the accompanying condensed consolidated financial statements, management

has made certain estimates and assumptions that affect reported amounts in the condensed 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

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

Accordingly, these condensed notes

to the condensed 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, 2020.

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

The Company accounts for conversion options embedded in a host instrument in accordance

with ASC 815, Derivatives and Hedging (“ASC 815”).

ASC 815 requires a reporting entity to bifurcate conversion options embedded

in convertible debt and to account for them as a free-standing derivative when the embedded feature is not clearly and closely related

to the host instrument and meets the definition of a derivative and does not qualify for the scope exception from derivative accounting.

The Company reviews the terms of convertible debt issued to determine whether there are embedded features, including embedded conversion

options, which are required to be bifurcated and accounted for separately as a derivative.

In circumstances where the host instrument

contains more than one embedded derivative, including the conversion option, which is required to be bifurcated, the derivative instruments

are accounted for as a single, compound derivative instrument.

The separated derivative is initially recorded at fair value and subsequently revalued at each reporting date with changes in the fair

value reported as other income or expense.

When the convertible debt instrument contains embedded derivatives that are bifurcated and

accounted for separately as a derivative liability, the total proceeds received are first allocated to the fair value of derivative liability.

The remaining proceeds, if any, are then allocated to the debt, resulting in an initial discount on the debt.

The debt discount is subsequently

amortized under the interest method through periodic charges to interest expense.

conversion options embedded in a host instrument which are required to be bifurcated and qualify for the scope exception from derivative

accounting are accounted for under other models as required by ASC 470-20, Debt with Conversion and Other Options.

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

on the Company’s condensed 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

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 September 30, 2021, the Company had receivables related to contracts with customers of approximately $ 3,900,000 and joint interest

billings of approximately $ 2,400,000 .

2 – Summary of Significant Accounting Policies

Accounting Policies

have been no material changes to significant accounting policies and estimates from the information provided in the Form 10-K for the

year ended December 31, 2021.

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.

of 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

(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 acquisitions, 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.

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 for impairments and asset retirement obligations require significant judgment and

estimates made by management and represent Level 3 inputs.

conversion feature – The conversion features of the Secured Convertible Note have been accounted for as a separated derivative

and recorded at fair value using a binomial pricing model.

The inputs used to value the derivative conversion feature 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.

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.

three-level fair value hierarchy for disclosure of fair value measurements defined by ASC Topic 820 is as follows:

1 – Unadjusted, quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets

or liabilities.

An active market is defined as a market where transactions for the financial instrument occur with sufficient frequency

and volume to provide pricing information on an ongoing basis.

2 – Inputs, other than quoted prices within Level 1, that are either directly or indirectly observable for the asset or liability

through correlation with market data at the measurement date and for the duration of the instrument’s anticipated life.

3 – Prices or valuations that require unobservable inputs that are both significant to the fair value measurement and unobservable.

Valuation under Level 3 generally involves a significant degree of judgment from management.

financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the

fair value measurement.

Where available, fair value is based on observable market prices or parameters or derived from such prices or

Where observable prices or inputs are not available, valuation models are applied.

These valuation techniques involve some

level of management estimation and judgment, the degree of which is dependent on the price transparency for the instruments or market

and the instrument’s complexity.

The Company reflects transfers between the three levels at the beginning of the reporting period

in which the availability of observable inputs no longer justifies classification in the original level.

There were no transfers between

fair value hierarchy levels for the quarter ended March 31, 2022.

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.

– Derivative financial instruments are carried at fair value and measured on a recurring basis.

The Company’s commodity

price hedges are valued based on discounted future cash flow models that are primarily based on published forward commodity price curves;

thus, these inputs are designated as Level 2 within the valuation hierarchy.

fair values of derivative instruments in asset positions include measures of counterparty nonperformance risk, and the fair values of

derivative instruments in liability positions include measures of the Company’s nonperformance risk.

These measurements were not

material to the Consolidated Financial Statements.

Value on a Nonrecurring Basis

Company applies the provisions of fair value measurement on a non-recurring basis to its non-financial assets and liabilities, including

oil and gas properties and asset retirement obligations.

These assets and liabilities are not measured at fair value on an ongoing basis

but are subject to fair value adjustments if events or changes in certain circumstances indicate that adjustments may be necessary.

triggering events that require assessment of such items were observed during the three months ended March 31, 2022.

Party Transactions

Transactions between related parties are considered to be related party transactions even though they may

not be given accounting recognition.

FASB ASC 850, Related Party Disclosures (“FASB ASC 850”) requires that

transactions with related parties that would have influence in decision making shall be disclosed so that users of the financial statements

can evaluate their significance.

between related parties are considered to be related party transactions even though they may not be given accounting recognition.

ASC 850, Related Party Disclosures (“FASB ASC 850”) requires that transactions with related parties that

would have influence in decision making shall be disclosed so that users of the financial statements can evaluate their significance.

Related party transactions typically occur within the context of the following relationships:

of the entity;

entities for which investments in their equity securities is typically accounted for under the equity method by the investing

trusts for the benefit of employees;

affiliates of the entity;

which investments in their equity securities is typically accounted for under the equity method by the investing entity;

trusts for the

benefit of employees;

principal owners of the entity and members of their immediate families;

management of the

entity and members of their immediate families;

and other parties that can significantly influence the management or operating policies

of the transacting parties and can significantly influence the other to an extent that one or more of the transacting parties might be

prevented from fully pursuing its own separate interests.

In the event crude oil or natural gas prices decline significantly, 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

in impairment of proved properties;

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

early March 2020 there was a global outbreak of COVID-19 which has continued and 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.

Company has a concentration of purchasers;

however, should any of these relationships be extinguished, management believes that the Company

could easily replace those purchasers with others in the areas in which the Company operates.

INVESTMENT IN RELATED PARTY

with the acquisition and financing of the XTO properties (See Notes 5 and 9), the Company made an investment in Energy Evolution

Fund LP, an affiliate of Energy Evolution Ltd, a related party, in the amount of $ 1,250,000 .

The Energy Evolution Fund LP is a hedge fund focused on global petroleum and sustainable energy and is the lender under the

Company’s Senior Secured Convertible Note Agreement, as well as the lender of a portion of the Unsecured Convertible Notes

issued by the Company (See Note 9).

The investment was mutually terminated on August

The proceeds from the termination were applied to the outstanding balance

of the Senior Secured Convertible Note Payable.

AND EQUIPMENT

January 27, 2020, the Company purchased lease interests in approximately 4,936 acres in Montana for $ 500,000 .

February 2020, the Company in two transactions sold all of its interest in leases of approximately 337 acres in Montana for $ 1,160,400 .

The Company recognized a gain on the transactions of $ 1,143,760 .

April 6, 2020 the Company purchased oil and natural gas properties in Texas.

management of the entity and members of

their immediate families;

and other parties that can significantly influence the management or operating policies of the transacting

parties and can significantly influence the other to an extent that one or more of the transacting parties might be prevented from fully

pursuing its own separate interests.

Issued Accounting Pronouncements

periodically issues new accounting standards in a continuing effort to improve standards of financial accounting and reporting.

has reviewed the recently issued pronouncements and concluded that the following new accounting standards are applicable:

August 2020, the FASB issued ASU 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts

in Entity’s Own Equity (Subtopic 815-40):

Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity.

The amendments in this ASU affect entities that issue convertible instruments and/or contracts in an entity’s own equity.

The amendments

in this ASU primarily affect convertible instruments issued with beneficial conversion features or cash conversion features because the

accounting models for those specific features are removed.

However, all entities that issue convertible instruments are affected by the

amendments to the disclosure requirements of this ASU.

For contracts in an entity’s own equity, the contracts primarily affected

are freestanding instruments and embedded features that are accounted for as derivatives under the current guidance because of failure

to meet the settlement conditions of the derivatives scope exception related to certain requirements of the settlement assessment.

affected is the assessment of whether an embedded conversion feature in a convertible instrument qualifies for the derivatives scope

Additionally, the amendments in this ASU affect the diluted EPS calculation for instruments that may be settled in cash or

shares and for convertible instruments.

The amendments in this ASU are effective for public business entities, excluding entities eligible

to be smaller reporting companies, for fiscal years beginning after December 15, 2021, including interim periods within those fiscal

For all other entities, the amendments are effective for fiscal years beginning after December 15, 2023, including interim periods

within those fiscal years.

The Board specified that an entity should adopt the guidance as of the beginning of its annual fiscal year.

The Board decided to allow entities to adopt the guidance through either a modified retrospective method of transition or a fully retrospective

method of transition.

The Company is analyzing the effect that adoption will have but does not expect a material impact as a result of

adopting these standards.

Company follows the successful efforts method of accounting for its oil and natural gas properties.

Under this method, costs to acquire

oil and natural gas properties and costs incurred to drill and equip development and exploratory wells are capitalized.

Exploration costs

are charged to operations as incurred.

Upon sale or retirement of oil and natural gas properties, the costs and related accumulated depreciation,

depletion and amortization are eliminated from the accounts and the resulting gain or loss is recognized.

incurred to maintain wells and related equipment and lease and well operating costs are charged to expense as incurred.

is calculated on a units-of-production basis at the field level based on total proved developed reserves.

Properties and Impairments

oil and natural gas properties are reviewed for impairment at least annually, or as indicators of impairment arise.

There were no indicators

of impairment in the current quarter or for the same quarter in the previous period.

May 2021 the Company purchased oil and natural gas properties in New Mexico (see Note 4).

strip prices experienced significant volatility in 2020, 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

for the nine months ended September 30, 2020.

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

the nine months ended September 30, 2021.

aggregate capitalized costs of oil and natural gas properties as of September 30, 2021, are as follows:

aggregate capitalized costs of oil and natural gas properties as of March 31, 2022 are as follows:

Proved producing wells

Proved undeveloped

Lease, well and gathering equipment

Lease and well equipment

Asset retirement obligation

Unproved leasehold costs

Gross capitalized costs

accumulated depreciation, depletion and impairment

Accumulated Depreciation, Depletion, Amortization

and Impairment

( 17,926,748 )

property and equipment consists of operating lease assets (See Note 10), vehicles, office furniture and equipment.

Net capitalized costs

property and equipment consists of operating lease assets, vehicles, office furniture, and equipment with lives ranging from three to

Other property and equipment, at cost

accumulated depreciation

Oher property and equipment, net

ACQUISITION OF XTO OIL AND NATURAL GAS PROPERTIES

Other property and equipment, net

4 – Acquisition of XTO Properties

March 12, 2021 the Company, through its wholly owned subsidiary Empire New Mexico, entered into a purchase and sale agreement with XTO

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The purchase price was $ 17,800,000 subject to customary adjustments.

The Company wired a deposit of $ 1,780,000 to the

Seller on March 12, 2021.

The transaction closed on May 14, 2021 with an effective date of January 1, 2021.

The XTO acquisition has been assessed under the screen test for business

combinations under FASB ASC 805, Business Combinations (“ASC 805”).

The XTO acquisition met the screen test and has been accounted

for as an asset acquisition using the acquisition method of accounting.

Under the accounting for asset acquisitions, the acquisition

is recorded using a cost accumulation and allocation model under which the cost of the acquisition is allocated on a relative fair value

basis to the assets acquired and liabilities assumed.

Acquisition-related transaction costs are capitalized as a component of the cost

of the assets acquired.

The transaction closed on May 14, 2021 with an effective

date of January 1, 2021.

XTO acquisition has been assessed under the screen test for business combinations under FASB ASC 805, Business Combinations (“ASC

The XTO acquisition met the screen test and has been accounted for as an asset acquisition using the acquisition method

of accounting.

Under the accounting for asset acquisitions, the acquisition is recorded using a cost accumulation and allocation model

under which the cost of the acquisition is allocated on a relative fair value basis to the assets acquired and liabilities assumed.

Acquisition-related

transaction costs are capitalized as a component of the cost of the assets acquired.

a condition of the sale, the Company purchased a $ 5,000,000 performance bond for the benefit of the seller for proper plugging, abandonment

3 unchanged sentences

which is due on demand with an interest rate established by the Bank, currently at 4 %.

The Promissory Note, and associated letter of credit, is collateralized with a bank certificate of deposit in a

corresponding amount.

In addition, the Company is required to deposit $100,000 per month, up to $ 1,250,000 , into a sinking fund to be

held by the surety.

The Promissory Note, and associated letter of

credit, is collateralized with a bank certificate of deposit in a corresponding amount.

In addition, the Company is required to deposit

$ 100,000 per month, up to $ 1,250,000 , into a sinking fund to be held by the surety.

Subsequent amendments increased the monthly payment

amounts to $ 160,000 in response to additional bonding requested by the State of New Mexico.

following table sets forth the Company’s preliminary purchase price allocation:

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

Preliminary Fair Value of Assets Acquired

Inventory of oil in tanks

Asset retirement obligation

Oil and natural gas properties

Inventory of oil in tanks

Asset retirement obligations

Total preliminary assets acquired

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Purchase Price

The value of oil and gas properties was

based on an allocation of the purchase price which included assignment of values to the other identifiable assets acquired and liabilities

The value of inventory, vehicles, and royalty suspense was based on their relative fair values as described above.

value of oil and gas properties was based on an allocation of the purchase price which included assignment of values to the other identifiable

assets acquired and liabilities assumed.

The value of inventory, vehicles, and royalty suspense was based on their relative fair values

as described above.

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

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

Company has approximately $400,000 recorded as a final settlement receivable from the seller as of March 31, 2022.

On April 25, 2022,

the Company entered into an amendment to the Purchase and Sale Agreement which defined certain assets and liabilities which were included

in and excluded from the acquisition.

The Company anticipates final settlement to occur in 2022 and anticipates fully collecting the outstanding

receivable at that time.

5 – Joint Development Agreement

6 unchanged sentences

Proceeds of the loan will be used for recompletion or workover of the Workover Wells.

As of September 30, 2021 approximately $ 464,000

has been advanced from the loan and is included in Long Term Notes Payable on the Condensed Consolidated Balance Sheet.

As part of the

JDA, Empire Texas will assign to PIE a combined 85% working and revenue interest in the Workover Wells;

an assignment was completed in

October 2020 for the initial three Workover Wells.

Of the assigned interest, 70% working and revenue interest will be used to repay the

obligations under the term loan agreement.

Once the term loan is repaid, PIE will reassign a 35% working and revenue interest to Empire

Texas in each of the Workover Wells and retain a 50% working and revenue interest (See Note 8).

Activity resulting from the JDA is being

treated as a conveyance.

addition, PIE and Empire entered into a Securities Purchase Agreement (“Securities Agreement”) whereby PIE purchased 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

Refer to Note 8 for the amount advanced on the

loan as of period-end.

As part of the JDA, Empire Texas will assign to PIE a combined 85% working and revenue interest in the Workover

Of the assigned interest, 70% working and revenue interest will be used to repay the obligations under the term loan agreement.

Once the term loan is repaid, PIE will reassign a 35% working and revenue interest to Empire Texas in each of the Workover Wells and

retain a 50% working and revenue interest.

To the extent the cash flows from the revenue interest

are insufficient to repay the obligations under the term loan, the Company remains required to repay the obligation and the activity

resulting from the JDA is being treated as a carried interest with a corresponding term loan.

addition, PIE and Empire entered into a Securities Purchase Agreement (“Securities Agreement”) whereby PIE purchased

for $525,000 (a) 875,000 shares of Empire common stock, (b) warrants to purchase 656,250 shares of Empire common stock at an exercise

price of $0.80 per share, (c) warrants to purchase 450,000 shares of Empire common stock at an exercise price of $1.00 per share, (d)

2 unchanged sentences

in the Securities Agreement .

On March 11, 2021 the Company amended the Securities Agreement to remove the vesting provisions for the

warrants and PIE exercised all of its warrants for an aggregate exercise price of $ 3,349,052 (See Note 11).

On March 11, 2021 the Company amended the Securities Agreement to remove the vesting provisions for

the warrants and PIE exercised all of its warrants for an aggregate exercise price of $ 3,349,052 .

6 - Asset Retirement Obligations

Company’s asset retirement obligations represent the estimated present value of the estimated cash flows the Company will incur

to plug, abandon and remediate its producing properties at the end of their productive lives, in accordance with applicable state laws.

Market risk premiums associated with asset retirement obligations are estimated to represent a component of the Company’s credit-adjusted

risk-free rate that is utilized in the calculations of asset retirement obligations.

Company’s asset retirement obligation activity is as follows for the quarter ended March 31, 2022:

Asset retirement obligations, beginning of period

Accretion expense

Asset retirement obligation, end of period

7 – Commodity Derivative 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 does not enter into derivative financial instruments for speculative or

trading purposes.

The Company’s derivative financial instruments consist of put options.

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 does

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

The Company’s derivative financial instruments

consist of put options.

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 condensed consolidated statements of operations as they occur.

Unrealized gains and losses

related to the contracts are recognized and recorded as an asset or liability on the Company’s condensed consolidated balance

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

for the three and nine months ended September 30, 2021 and 2020:

Three months ended September 30,

Nine months ended September 30,

Gain (loss) on derivatives:

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

Unrealized gains and losses related

to the contracts are recognized and recorded as an asset or liability on the Company’s consolidated balance sheets.

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

for the three months ended March 31, 2022 and 2021:

Three Months Ended March 31,

Loss on derivatives:

Oil derivatives

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$ ( 357,915 )

Natural gas derivatives

$ ( 103,166 )

following represents the Company’s net cash receipts from (payments on) derivatives for the three and nine months ended September

30, 2021 and 2020:

Three months ended September 30,

Nine months ended September 30,

Net cash received (payments made) on derivatives

following represents the Company’s net cash payments on derivatives for the three months ended March 31, 2022 and 2021:

Three Months Ended March 31,

Oil derivatives

$ ( 127,944 )

$ ( 541,709 )

Natural gas derivatives

$ ( 322,190 )

$ ( 686,163 )

following table sets forth the Company’s outstanding derivative contracts at September 30, 2021.

following table sets forth the Company’s outstanding derivative contracts at March 31, 2022:

WTI Index Put Options:

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Floor Price (Bbl)

WTI Index Put Options:

Quarterly volume (MBbl)

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Floor Price (Bbl)

following table represents the Company’s outstanding debt.

September 30,

Quarterly volume (MBbl)

Floor Price (Bbl)

following table represents the Company’s outstanding debt as of March 31, 2022:

Senior Revolver Loan Agreement

2020 SBA Paycheck Protection Program Loan

2021 SBA Paycheck Protection Program Loan

Unsecured Promissory Note – Pardus

PIE Joint Development Agreement Loan, Related Party

Various Vehicle and Equipment Loans

Secured Convertible Note, Related Party (See Note 9)

Unamortized Debt Issue Costs

Unamortized Discount

( 3,202,063 )

Total Debt, Net of Debt Issue Costs and Unamortized Discount

Term Loan – PIE, a related party

Equipment and vehicle notes, 0% to 6.99% interest rates, due in 2025 to 2027 with monthly

payments ranging from $400 to $1,400 per month

Note Payable to Insurance Provider, bears 3.63% interest, matures November 2022, monthly payments of

principal and interest of $50,083

Less Current Maturities

Total Long-Term Debt

July 7, 2021 the Company entered into the Fourth Amendment to its Senior Revolver Loan Agreement (“the Amended

Agreement”) with CrossFirst Bank (“CrossFirst”).

The maximum amount that can be advanced under the Agreement is

$20,000,000 and the existing commitment amount is $ 7,980,000 which

is reduced by $ 300,000 per

calendar quarter beginning September

30, 2021 and includes interest at Wall

Street Journal Prime

plus 150 basis points ( 4.75 %

as of September 30, 2021).

July 7, 2021 the Company entered into the Fourth Amendment to its Senior Revolver Loan Agreement (“the Amended Agreement”)

with CrossFirst Bank (“CrossFirst”).

The maximum amount that can be advanced under the Agreement is $20,000,000 and the existing

commitment amount is $ 7,680,000 which is reduced by $ 300,000 per calendar quarter beginning September 30, 2021 and includes interest

at Wall Street Journal Prime plus 150 basis points ( 5.0 % as of March 31, 2022).

The Amended Agreement matures on March 27, 2024 .

Collateral for the loan is a lien

on all of the assets of Empire Louisiana and Empire North Dakota, wholly owned subsidiaries of the Company, 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.

Amended Agreement requires the Company maintain commodity derivatives at certain thresholds based on projected production and,

beginning March 31, 2021, to maintain certain covenants including an EBITDAX

to interest expense of at least 3:1 and funded debt to EBITDAX of 6:1 on a trailing twelve-month basis and reducing quarterly to 4:1

as of March 31, 2022 and thereafter.

September 30, 2021, the Company has an outstanding loan balance of $ 7,369,500 under

the Amended Agreement.

The current maturities of the Amended Agreement is $1,200,000.

The Company was in compliance with the loan

covenants at September 30, 2021.

April 1, 2020, in conjunction with the purchase of assets from Pardus Oil & Gas, LLC, the Company entered into an unsecured

promissory note agreement with the seller in the amount of $ 378,000 .

The note was payable in one installment on April 1, 2021 and bore

interest at the one-year LIBOR rate.

The note was paid on April 1, 2021 .

May 5, 2020, the Company received an SBA Payroll Protection Plan (“PPP”) loan for $ 160,700 .

The loan was scheduled to mature

on May 5, 2022 and had an interest rate of 1 %.

In June, 2021 the Company was informed that the SBA had forgiven the entire loan balance.

for the loan is a lien on all of the assets of Empire Louisiana and Empire North Dakota, wholly owned subsidiaries of the Company, 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 Amended Agreement requires the Company maintain commodity derivatives

at certain thresholds based on projected production and, beginning March 31, 2021, 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 amount of current maturities

related to the Amended Agreement is $1,200,000.

The Company was in compliance with the loan covenants at March 31, 2022.

August 2020, concurrent with the Joint Development Agreement with Petroleum and Independent Exploration, LLC (“PIE”), a related

3 unchanged sentences

of certain designated wells.

In addition, the Company assigned a 70% working and revenue interest to PIE in the designated wells which

will be applied to repayment of the loan.

As of September 30, 2021, $463,569 has been advanced from the PIE loan (See Note 6).

April 30, 2021 the Company received a Second Draw SBA Payroll Protection Plan (“PPP”) loan for $ 106,850 .

The loan was scheduled

to mature on April 30, 2026 and has an interest rate of 1 %.

In October 2021 the Company was informed that the SBA had forgiven the entire

loan balance (See Note 15).

CONVERTIBLE NOTES PAYABLE

May 14, 2021, the Company’s wholly owned subsidiary, Empire New Mexico entered into a Senior Secured Convertible Note Agreement

(the “Secured Note”) in the amount of $ 16,250,000 with Energy Evolution Master Fund, Ltd., a related party (“Energy

Evolution”) (See Note 12).

The Secured Note is collateralized by all assets of Empire New Mexico, matures on December 31, 2021

and bears an interest rate of 3.8 %.

The Secured Note provides that up to 40% of the balance, together with accrued interest, can be converted

into the Company’s common stock at the lesser of $1.25 per share or the offering price if the Company has a subsequent capital

raise or an aggregate of 5,200,000 shares of common stock (without giving effect to any interest that may be converted) .

The conversion

terms of the Secured Note were subject to further adjustments as defined in that agreement.

The embedded conversion option has been bifurcated

and accounted for separately as a derivative financial instrument.

The separated derivative was initially recorded at fair value at the

inception date and revalued as of September 30, 2021 resulting in a fair value of $ 5,530,677 and $ 5,437,746 , respectively.

30, 2021, the existing bifurcated derivative liability was removed in connection with the Amended Secured Note as further discussed.

The change in fair value for the three and nine months ended September 31, 2021 of $ 689,215 and $ 92,931 is recorded as Unrealized Gain on the Embedded Conversion Option in the Statements of

partial consideration for the issuance of the Secured Note, Energy Evolution received a closing fee of 1,500,000

shares of the Company’s common stock and warrants to purchase three

million shares of common stock for $ 1.00

per share which expire on May

The Company determined these were equity-classified financing instruments and the proceeds are allocated on a

relative fair value basis between the debt, warrants, and common shares at issuance.

At issuance, the discount associated with the

Secured Note was $ 10,125,177 ;

consisting of $ 5,530,677

relating to the embedded derivative liability, $ 1,500

and $ 2,773,500

in common stock and paid in capital, respectively, relating to the issuance of shares of the Company’s common stock, and

in paid in capital relating to the issuance of warrants to purchase common stock.

The fair value of the warrants was determined

using a Black-Scholes model.

The warrants were exercised in 2021 and the Company received cash proceeds of $ 3,000,000 .

The discount associated with the Secured Note related to the embedded conversion liability and the issuance of the equity-classified

financing instruments is amortized under the interest method and resulted in interest expense of $ 3,832,440

and $6,125,306 for the three and nine months ended September 30, 2021.

Prior to amending the Secured Note in September 2021, the

Company made principal payments totaling $4,050,000, inclusive of the application of the $1,250,000 proceeds from the termination

of the investment in the Energy Evolution Fund LP (See Note 3).

September 29, 2021 the parties entered into a Loan Modification Agreement (the “Amended Secured Note”) pursuant to which

Energy Evolution exchanged $ 6,500,000 in principal under the Secured Note in exchange for 5,305,208 shares of common stock, warrants

to purchase 2,000,000 shares of the Company’s common stock at $ 1.25 per share and amended certain terms of the remaining $ 5,700,000

of principal under the Secured Note.

As amended, the remaining principal balance matures and becomes due on June 30, 2023 and upon maturity

of the Amended Secured Note, Energy Evolution has the sole discretion to require cash settlement or to redeem the principal balance,

together with accrued interest, in exchange for the Company’s common stock at $2 per share.

Prior to maturity, interest accrues

quarterly at 3.8% and Energy Evolution has the option to receive interest in common stock at $1.25 per share in lieu of cash.

to the Amended Secured Note, the Company’s obligations with respect to a registration statement under the Secured Note were

extended, the Company executed and delivered a Pledge and Security Agreement granting Energy Evolution a first priority perfected

security interest in the Company’s membership interest in Empire New Mexico, d/b/a Green Tree New Mexico, the Company and

Green Tree New Mexico agreed to use commercial reasonable best efforts to separate Green Tree New Mexico from the Company as an

independent business on or before December 31, 2022 in a spin-off to stockholders of the Company.

In accordance with ASC 470-20, the

Company accounted for this exchange as an induced conversion based on the short period time of the offer was open and the

substantive conversion feature offer.

The Company accounted for the conversion of the debt instruments as an inducement by expensing

the fair value of the instruments that were issued in excess of the original terms of the Secured Notes.

The Company reduced the

outstanding debt by $9,141,327, representing the face amount of the Secured Notes converted of $6,500,000, net of unamortized

discount costs of $2,796,419, and the embedded conversion liability of $5,437,746.

The Company recorded induced conversion expense

of $2,276,813 representing the difference in fair value of the instruments exchanged, including the fair value of the warrants to

purchase 2,000,000 shares of common stock at $1.25 per share.

The embedded conversion option of the principal balance outstanding

after the conversion and amendment, has been bifurcated and accounted for separately as a derivative financial instrument.

separated derivative was initially recorded at fair value of $2,017,287, with the amount recorded as a discount against the

surviving Amended Secured Note balance and the derivative liability will be revalued on a quarterly basis.

On September 30, 2021,

95,208 shares of common stock were issued as payment for the outstanding accrued interest on the Secured Note.

May 2021 the Empire New Mexico entered into $ 3,243,000

of Unsecured Convertible Notes (the “Unsecured Notes”) with a group of accredited investors, including the

Company’s related party Energy Evolution, constituting $1,500,000 of the total Unsecured Convertible Notes.

The Unsecured

Notes had a maturity of May

9, 2022 with a single payment and interest at 5 %.

Unsecured Note holders had the ability to convert their notes to common stock of the Company at the lesser of $1.25 per share or the

price per share offered by the Company if the Company has a future capital raise for an aggregate 2,594,400 shares of common stock

(without giving effect to any interest that may be converted).

At September 30, 2021 $ 2,918,000

of the Unsecured Notes have been converted into

2,334,400 shares of common stock of the Company and 22,378 shares of common stock have been issued as payment for accrued

interest on the Unsecured Note.

The remaining Unsecured Notes in the amount of $325,000 were repaid in

September 2021.

Company determined the embedded conversion features of the Unsecured Notes were equity-classified financing instruments.

value of the conversion feature was determined using a beneficial conversion model based on a 60-day weighted average stock price

and the maximum number of shares to be received if converted.

As issuance, the amount recorded to additional paid in capital was

The discount associated with these transactions is amortized under the interest method and resulted in interest expense of $254,876

and $ 544,824 for the three

and nine months ended September 30, 2021, respectively.

an inducement for investors to enter into the Unsecured Convertible Notes, the Company’s Chief Executive Officer and President

collectively offered to each investor the right to purchase a number of shares of common stock equal to 40 % of such investor’s

principal balance under its Unsecured Convertible Note at $ 0.75 per share (the “right to buy”).

Energy Evolution exercised

its right to buy 600,000 shares of the Company’s common stock.

In conjunction with the conversion of the Unsecured Notes, each

of the Company’s Chief Executive Officer and President partially exercised a warrant and options to purchase 643,600 shares at

an exercise price of $ 0.25 and $0.33 respectively.

The Company determined that offering the “right to buy” shares resulted

in an expense of $ 989,155 of the Company based on the fair value of contributions made by the Company’s Chief Executive Officer

and President on its behalf.

The fair value of the “right to buy” shares was determined using a Black-Scholes model.

expense is including in General and Administrative in the Condensed Consolidated Statement of Operations.

At September 30, 2021, there was a subscription

receivable balance for stock purchased on September 29, 2021 by the Company’s Chief Executive Officer for which payment was not

received until October 2021.

Refer to Note 5 for additional information regarding this arrangement.

a lessee, the Company leases its corporate office headquarters in Tulsa, Oklahoma and three field offices.

11 unchanged sentences

charges for property taxes, insurance, and variable payments related to non-lease components, including common area maintenance.

of use lease expense was $ 135,061 for the nine months ended September 30, 2021.

Cash paid for right of use lease was $ 123,973 for the

balance sheet information related to the right of use leases as of September 30, 2021:

lease asset (included in Other Property and Equipment)

of use lease expense was approximately $60,000 for the three months ended March 31, 2022.

balance sheet information related to the right of use leases is as follows as of March 31, 2022:

Operating lease asset (included in Other Property and Equipment)

Current portion of lease liability

2 unchanged sentences

weighted average remaining term for the Company’s right of use leases is 3.7 years.

of lease liabilities as of September 30, 2021:

of lease liabilities are as follows as of March 31, 2022:

Total lease payments

1 unchanged sentence

Total lease obligation

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 September 30,

2021 and 2020, the Company had 9,012,800 and 5,004,167 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 September 30, 2021 and 2020, the outstanding options and convertible notes were considered anti-dilutive

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

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 ten million.

10 – Common and Preferred Stock

a result of the Company’s Amended and Restated Certificate of Incorporation (“Charter”) that was effective in

March 2022, the total number of shares of all classes of stock that the Company has the authority to issue is 200,000,000,

consisting of 190,000,000

shares of common stock, par value $ 0.001

per share and 10,000,000

shares of preferred stock, par value $ 0.001

stock may be issued from time to time in one or more series at the direction of the board of directors and the directors also have

the ability to fix dividend rates and rights, liquidation preferences, voting rights, conversion rights, rights and terms of

redemption and other rights, preferences, privileges and restrictions as determined by the board of directors, subject to certain

limitations set forth in the Charter.

A Voting Preferred Stock

March 8, 2022, the Company formalized the issuance of preferred stock as was required under the terms of the Company's May 2021 financing

agreements with Energy Evolution (Master Fund), Ltd.

(the "Fund") and issued six shares of Series A Voting Preferred Stock.

The Series A Voting Preferred Stock was issued in connection with the strategic investment in the

Company by Energy Evolution (Master Fund), Ltd.

(the “Fund”).

For so long as the Series A Voting Preferred Stock is outstanding,

the Company’s board of directors will consist of six directors.

Three of the directors are designated as the Series A Directors

and the three other directors (each, a “common director”) are elected by the holders of common stock and/or any preferred

stock (other than the Series A Voting Preferred Stock) granted the right to vote on the common directors.

Any Series A Director may be

removed with or without cause but only by the affirmative vote of the holders of a majority of the Series A Voting Preferred Stock voting

separately and as a single class.

The holders of the Series A Voting Preferred Stock have the exclusive right, voting separately and

as a single class, to vote on the election, removal and/or replacement of the Series A Directors.

Holders of common stock or other preferred

stock have no right to vote on the Series A Directors.

The approval of the holders of the Series A Voting Preferred Stock, voting separately

and as a single class, is required to authorize any resolution or other action to issue or modify the number, voting rights or any other

rights, privileges, benefits or characteristics of the Series A Voting Preferred Stock, including without limitation, any action to modify

the number, structure and/or composition of the Company’s current board of directors.

Series A Voting Preferred Stock is held by Phil Mulacek, co-chairman of the board of directors and one of the principals of the Fund,

as the Fund’s designee (the “Initial Holder”).

The Series A Voting Preferred Stock may be transferred only to certain

controlled affiliates of the Initial Holder (“Permitted Transferees”), and the voting rights of the Series A Voting Preferred

Stock are contingent upon the Initial Holder and Permitted Transferees (collectively, the “Series A Holders”) holding together

at least 3,000,000 shares of the Company’s outstanding common stock.

Series A Voting Preferred Stock is not entitled to receive any dividends or distributions of cash or other property except in the event

of any liquidation, dissolution or winding up of the Company’s affairs.

In such event, before any amount is paid to the holders

of the Company’s common stock but after any amount is paid to the holders of the Company’s senior securities, the holders

of the Series A Voting Preferred Stock will be entitled to receive an amount per share equal to $1.00.

as discussed above or as otherwise set forth in the certificate of designation of the Series A Voting Preferred Stock, the holders of

the Series A Voting Preferred Stock have no voting rights.

Series A Voting Preferred Stock is not redeemable at the Company’s election or the election of any holder, except the Company may

elect to redeem the Series A Voting Preferred Stock for $1.00 per share following satisfaction of its notice and cure requirements in

the event that:

or all shares of Series A Voting Preferred Stock are held by anyone other than the Initial Holder or a Permitted Transferee;

Series A Holders together hold less than 3,000,000 shares of the Company’s outstanding common stock.

Series A Voting Preferred Stock is not convertible into common stock or any other security.

holders of shares of common stock are entitled to one vote per share for all matters on which common stockholders are authorized to vote

Examples of matters that common stockholders are entitled to vote on include, but are not limited to, election of three of the six

directors and other common voting situations afforded to common stockholders.

August 27, 2021 the Company’s Board of Directors approved a one for four reverse stock split such that every holder of the Company’s

common stock shall receive one share of common stock for every four shares owned.

The reverse stock split was made effective on March

7, 2022, simultaneous with the Company’s listing of its common stock on the NYSE American.

All share amounts have retrospectively

been stated at post-reverse split amounts and pricing.

February and March 2021, the Company issued to a group of accredited investors 2,248,464 shares of its common stock and warrants to purchase

2,248,464 shares of its common stock for $ 2.00 per share which expire on December 31, 2022.

Proceeds from the sale were $ 3,147,850 .

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 180 %, risk free interest rate of .14% and an expected useful life of 21 months.

fair value of the warrants of $ 2,350,407 was allocated to Additional Paid-in Capital.

During the quarter ended March 31, 2022, 48,750

shares of common stock were issued as a result of warrant exercises.

As of March 31, 2022, warrants for 749,464 shares of common stock

have been exercised.

12 – Stock-Based Compensation

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 2,500,000 .

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 vested in three installments with 1,250,000 vesting

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

Morrisett each, options to purchase 625,000

shares of common stock of the Company at an exercise price of $ 1.32

option vested in three installments with 312,500

vesting immediately and 156,250

vesting each in April 2020 and April 2021.

All of the options expire in April

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.

The fair value

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

In 2021 and 2020, the

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

to Paid in Capital.

All of the options were vested as of September 30, 2021.

August 27, 2021, the Board of Directors of the Company adopted the Empire Petroleum Corporation 2021 Incentive Plan (the “Incentive

The total number of shares of common stock that may be issued pursuant to the Incentive Plan is three million.

As of September

30, 2021 no grants have been made.

August 7, 2020 concurrently with the Joint Development Agreement with Petroleum & Independent Exploration, LLC and related

entities (“PIE”), the companies entered into a Securities Purchase Agreement (“Securities Agreement”)

purchased 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 pursuant to various vesting provisions as detailed in the Securities Agreement.

The value allocated to the

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

yield, expected annual volatility of 147 %,

The value allocated to the vested options 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 5.375

The fair value of the warrants of $ 450,848

was allocated to paid in capital (See Note 6).

On March 11, 2021 the Company amended the Securities Agreement to remove the vesting

provisions for the warrants and PIE exercised the warrants for an aggregate exercise price of $ 3,349,052

(See Note 6).

February and March 2021, the Company issued to a group of accredited investors 8,993,858 shares of its common stock and warrants to purchase

8,993,858 shares of its common stock for $ .50 per share which expires on December 31, 2022 .

Proceeds from the sale were $ 3,147,850 .

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 180 %, risk free interest rate of .14% and an expected useful life of 21 months.

fair value of the warrants of $ 2,350,407 was allocated to Paid in Capital.

For the nine months ended September 30, 2021, warrants for

2,518,743 shares of common stock have been exercised.

connection with the purchase of XTO assets (See Note 5) the Company issued a Senior Secured Convertible Note due December

31, 2021 , in the aggregate principal amount $ 16,250,000

(the “Secured Convertible Note”) to Energy Evolution Fund Ltd, a related party (See Note 9).

As partial consideration

for the issuance of the Secured Convertible Note, Empire

issued to Energy Evolution Ltd (i) 1,500,000 shares of common stock along with (ii) a warrant certificate to purchase up to three

million shares of common stock at an exercise price of $1.00 per Warrant Share until May 14, 2022.

Under the warrant certificate,

the exercise price is subject to customary downward adjustments.

The value allocated to the common stock, conversion

feature, and warrants was $ 10,125,177 .

In September, 2021 the Company and the Energy Evolution Master Fund, Ltd.

entered into a Loan Modification Agreement (the

“Amended Secured Notes”) (See Note 9).

Under the Amended Secured Notes, among other terms the Company issued a warrant

certificate to purchase up to two million shares of common stock at an exercise price of $1.25 per Warrant Share until December 31,

The exercise price is subject to customary downward adjustments.

Additionally,

in conjunction with the purchase of XTO assets (See Note 5), the Company entered into $ 3,243,000

of Unsecured Convertible Notes (the “Unsecured Notes”) with a group of accredited investors.

The Unsecured Notes had a

maturity date of May

9, 2022 with a single payment and interest at 5 %

(See Note 7).

The Unsecured Note holders had the ability to convert their notes to common stock of the Company at the lesser of

per share or the price per share offered by the Company if the Company has a future capital raise.

At September 30, 2021 $ 2,918,000

of the Unsecured Notes have been converted into 2,334,400

shares of common stock of the Company.

The remaining Unsecured Notes in the amount of $325,000 were repaid in September 2021 and no

amounts remain outstanding or convertible.

The fair value of the warrants of $ 544,824

was allocated to Paid in Capital.

August 27, 2021 the Company’s Board of Directors recommended a one for four reverse stock split such that every holder of the

Company’s common stock shall receive one share of Common Stock for every four shares owned.

In addition, the Board recommended

the Company to issue ten million shares of no-par value Preferred Stock.

The majority of the stockholders, and the majority of the

minority stockholders approved the recommendations.

As of September 30, 2021 the Company has not made the reverse stock split effective, nor has it

issued any Preferred Stock.

As a result of the adoption of a 2021 plan, the board of directors and management have determined that there would be no

further issuances from the Stock Option Plan.

As of March 31, 2022, there were 1,178,200

unexercised options under the Stock Option Plan.

On August 27, 2021, the Board of Directors of

the Company adopted the Empire Petroleum Corporation 2021 Stock and Incentive Compensation Plan (the “Incentive Plan”).

The total number of shares of common stock that may be issued pursuant to the Incentive Plan is 750,000 .

Four grants were made in 2021 that amounted to 187,500

Two of the grants were for a cumulative amount of 62,500

options and vested immediately upon grant in November 2021.

Valuation was calculated using the Black-Scholes option valuation model

with the following assumptions:

no dividend yield, expected annual volatility of 229 %,

risk free interest rate of .

and expected useful life of 3

third grant was for 62,500 options and the valuation used the following inputs:

no dividend yield, expected annual volatility of

277%, risk free interest rate of .99%, and expected useful life of 4 years.

fourth grant was for 250,000 options and inputs used to value the grant included no dividend yield, expected annual volatility of

335%, risk free interest rate of 1.16%, and expected useful life of 5 years.

On February 28, 2022, management issued a

combination of stock options and restricted stock units under the Incentive Plan.

stock options were granted to employees and members of management with three

year vesting terms and expirations of August

2025 and 2026 .

Stock option values were calculated using a Black-Scholes option valuation with the following

no dividend yield, expected annual volatility of 56 %

as calculated by utilizing the stock price from the date of the XTO acquisition through grant date, risk free interest rate of 1.62 %

for the 2025 and 2026 options, respectively, and expected useful lives of 2.75

years for the 2025 and 2026 options, respectively.

Total fair value of the stock option grants was approximately $ 1.2

The value of these options are being recognized to expense in a straight-line method from date of grant through expiration

Incentive Plan allows for the grant of restricted stock units (“RSUs”).

Any RSU grants

fall under the total grants available to be made under the Incentive Plan of 750,000 shares of common stock.

RSU represents the contingent right to receive one share of common stock.

The holders of outstanding RSUs do not receive dividends

or have voting rights prior to vesting and settlement.

The Company determines the fair value of granted RSUs based on the market price

of the common stock on the date of the grant.

Compensation expense for granted RSUs is recognized on a straight-line basis over the vesting

and is net of forfeitures, as incurred.

Stock-based compensation is included in General and Administrative expense in the Condensed Consolidated

Statements of Operations and is recorded with a corresponding increase in Additional Paid-in Capital within the Condensed Consolidated

Balance Sheets.

were granted on February 28, 2022 with 12- and 13-month service periods .

Total value assigned to the RSUs based on grant date approximated

For the three months ended March 31, 2022, approximately $ 45,000 of compensation expense related to RSUs was recognized, leaving

approximately $ 540,000 of unrecognized compensation expense which will be recognized on a straight-line basis depending on the service

period of each grant.

13 – Related Party Transactions

1 unchanged sentence

(“Energy Evolution”) is a related party of the Company as it beneficially owns approximately

23 % of the Company’s outstanding shares of common stock as of September 30, 2021.

27 % of the Company’s outstanding shares of common stock as of March 31, 2022.

Additionally, a board member of Energy Evolution

was appointed to the Company’s board in October 2021.

This board member separately beneficially owns approximately 18 % of the Company’s

outstanding shares of common stock as of September 30, 2021.

The board member also is a majority owner of Petroleum & Independent

Exploration, LLC and related entities (“PIE”).

In October 2021 another Energy Evolution member was appointed to the Company’s

board of directors.

March 2021, the majority owner of PIE, through the exercise of warrants, became a significant shareholder of the Company’s

outstanding shares of stock (See Note 9).

The Company has a joint development agreement with PIE to perform recompletion or workover

on specified mutually agreed upon wells (See Note 6).

As of September 30, 2021, the Company has incurred obligations of $ 463,569

as a part of the joint development agreement (See Note 8).

Company is a borrower from Energy Evolution under the secured and unsecured notes that were amended in the third quarter of 2021.

These notes and the associated amendment resulted in the issuance of warrants and common stock to Energy Evolution (See Note

SUPPLEMENTAL CASH FLOW INFORMATION

Supplemental Cash Flow Information for the nine months ended September 30, 2021 and 2020:

Cash Paid for Interest

Non-cash Investing and Financing Activities:

Non-cash Additions to Asset Retirement Obligations

Unsecured Convertible Note conversion

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

Note payable issued - PIE Agreement (See Note 8)

Equipment purchased utilizing notes payable

Forgiveness of PPP loan

Shares and warrants issued for Secured Convertible Note

was appointed to the Company’s board in October 2021 as the board co-chairman.

This board member separately beneficially owns approximately

17 % of the Company’s outstanding shares of common stock as of March 31, 2022 and held all of the outstanding shares of preferred

stock at March 31, 2022.

The board member also is a majority owner of Petroleum & Independent Exploration, LLC and related entities

In October 2021 another Energy Evolution member was appointed to the Company’s board of directors and has

an ownership percentage of approximately 3%.

Company has a joint development agreement with PIE to perform recompletion or workover on specified mutually agreed upon wells (See Note

This joint development agreement has a note payable whose balance increases as work is performed until payout terms have been reached

per the agreement (See Note 8).

14 – Commitments and Contingencies

2 unchanged sentences

While many of these matters involve inherent uncertainty, as of the date hereof, the

Company does not currently believe that any such legal proceedings will have a material adverse effect on the Company’s business, financial

position, results of operations or liquidity.

Company does not currently believe that any such legal proceedings will have a material adverse effect on the Company’s business,

financial position, results of operations or liquidity.

Company is subject to extensive federal, state, and local environmental laws and regulations.

3 unchanged sentences

Management believes no materially significant liabilities

of this nature existed as of September 30, 2021.

March 22, 2021 the Company, through its wholly owned subsidiary, Empire ND Acquisitions, LLC, entered into a purchase and sale agreement

with 31 Group, LLC to acquire among other things, certain oil and gas properties in North Dakota.

The purchase price was $ 900,000 , payable

one year from the closing date, and is reduced by certain expenses which the Company might incur relating to the properties or assessment

of certain wells as uneconomic for up to one year from the

Prior to filing the assignment and the transfer of operatorship of the wells, Empire received notice of a temporary restraining

order issued by the District Court in Rockwall County, Texas enjoining 31 Group from transferring any assets to Empire.

The Company and

31 Group, LLC negotiated a termination agreement that was signed July 22, 2021 which returned both parties to their pre-Agreement position.

of this nature existed as of the balance sheet date.

Company has undergone a sales tax audit related to its Texas entity and received the initial assessment notice in April 2022.

exposure of this sales tax assessment is approximately $1.3 million though the Company is confident that the final assessment will be

less than the maximum as previously stated.

The Company has accrued $ 650,000 for this contingency for the quarter ended March 31, 2022.

15 – Subsequent Events

October 2021 the Company was informed that the SBA had forgiven the entire loan balance of its $ 106,850 SBA Paycheck Protection Program

(“PPP”) loan (See Note 8).

October 29, 2021, the Company, through its newly formed wholly owned subsidiary Empire Northwest Shelf LLC entered into a Purchase and

Sale Agreement dated October 22, 2021 with Rover Operating LLC and Rover Petroleum Properties, LLC (collectively, “Rover”)

to purchase certain oil and gas leasehold and other property interests in the state of New Mexico for a n initial

purchase price of $ 1.1

The Company paid

in escrow fees on October 29, 2021.

Closing is scheduled for December

October 8, 2021, the Board of Directors of the Company appointed Angela Baker as Chief Accounting Officer of the Company.

As a condition

of employment, Ms.

Baker was issued 60,000 shares of common stock of the Company under the Company’s 2021 Stock and Incentive Compensation

Plan which will vest over a period of three years in one-third increments on each anniversary of October 18, 2021.

On October 28, 2021, the Company filed a Form

S-3 Registration Statement with the SEC utilizing a “shelf” registration process, which registration statement was declared

effective by the SEC on November 5, 2021.

This registration statement provides the Company the ability to offer and sell from time

to time up to $350.0 million of various equity securities of the Company, subject to market conditions and the Company’s capital

This registration statement also registered the offer and resale from time to time by certain selling stockholders of the

Company of up to 21,360,165 shares of common stock of the Company.

February 2022, the Company entered into a Purchase and Sale Agreement with a third party to purchase certain oil and gas properties located

in North Dakota for a preliminary purchase price of $ 1.5 million .

The acquisition closed in April 2022 for approximately $ 1.4 million .

In April 2022, Anthony Kamin, co-chairman of the

board, resigned his position.

Vice Admiral Andrew Lewis joined the board upon Mr.

Kamin’s departure.

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