Item 1. Business 1. Item 2.
Item 2. Properties 1. Item 3.
Item 3. Legal Proceedings 17. Item 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. ------------- ------- ---- ---- -------------------
For the year ended July 31, 1996, there were no matters submitted to a vote of the Company's stockholders.
PART II
ITEM 5.
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK; AND RELATED STOCKHOLDER MATTERS.
The Company's common stock is traded in the over-the-counter market. Since 1984 trading has been so limited and sporadic that it is not possible to obtain a continuing quarterly history of high and low bid quotations. Stock information is received from registered securities dealers and reflects inter~dealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions. The Company has been advised that shares are not presently trading and have not traded significantly during the past three years. The last available quotation was a high asked quotation of $0.20 per share as of June 1996, however only a limited number of shares have traded during the year.
No dividends have ever been paid by the Company on its common stock and it is not anticipated that dividends will be paid in the foreseeable future.
At July 31, 1996, there are approximately 557 holders of record of the Company's common stock.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS
The factors which most significantly affect the Company's results of operations are (i) the sale prices of crude oil and natural gas, (ii) the level of oil and gas sales, (iii) the level of lease operating expenses, (iv) the level of and interest rates on borrowings and the ability of FSI to market its financial product to generate non-refundable fees to the Company. Since the Company has limited control over the success of FSI's program, the Company will need to
rely on the initiation operations on its mining ventures to generatecash flow and future profits. As the Company successfully completes its strategy of becoming a mining company, the same factors listed above will apply to the sale of minerals and metals mined by the Company. Total sales volumes and the level of borrowings are significantly impacted by the degree of success the Company experiences in its efforts to acquire oil and gas properties and its ability to maintain or increase production from existing oil and gas properties through its development and production enhancement activities. As the Company initiates production on its mining properties, results of operations will be affected by: (i) commodity prices for copper and gold. (ii) the quantity and quality of the ores recovered and processed and (iii) the level of operating expenses associated with the mining operations.
Relatively modest changes in either oil or gas prices significantly impact the Company's results of operations and cash flow and could significantly impact the Company's borrowing capacity. Prices received by the Company for sales of oil and natural gas have fluctuated significantly from period to period. The Company's ability to maintain current borrowing capacity and to obtain additional capital on attractive terms is substantially dependent on oil and gas prices. Domestic spot oil prices have ranged from a low of approximately $ 10 per barrel in July 1986 to a high of approximately $40.00 per barrel in October 1982 to a current price of about $19.50 per barrel. The fluctuations in oil prices during these periods reflect market uncertainty regarding OPEC's ability to control the production of its member countries, as well as concerns related to the global supply and demand for crude oil. Since the end of the Gulf War in early 1991, crude oil prices have experienced continued volatility, primarily as a result of OPEC's inability to maintain disciplined production quotas by member countries and the uncertainty associated with Iraq's return to the crude oil export market. These factors continue to overhang the market and will create significant price volatility for the foreseeable future.
Natural gas prices received by the Company fluctuate generally with changes in the spot market price for gas. Spot market gas prices have generally declined in recent years because of lower worldwide energy prices as well as excess deliverability of natural gas in the United Stases. However, natural gas prices have rebounded recently and appear to be poised for further strengthening. Domestic spot natural gas prices have ranged from a low of approximately $0.90 per Mcf in January 1992 to a high of approximately $2.70 per Mcf in April 1996 to a current level of about $2.00 per Mcf. Environmental concerns coupled with recent increases in the use of natural gas to produce electricity have combined to improve prices. Under FERC Order 636, U.S. pipelines have been made more accessible to both buyers and sellers of natural gas and. as a result, natural gas will be able to more effectively compete for market share with other end-use energy forms. All of this suggests a continued improvement in the demand for natural gas over the long term.
Prices for gold have remained relatively stable during the past several years and generally reflect the relatively low inflation rates predominate in the economies of the industrialized nations. Current spot prices for gold are $359.00 per ounce and are expected to continue to remain at or near those levels with only modest adjustments for inflation.
Copper prices have fluctuated dramatically since the Company's acquisition of its copper property with prices ranging from a low of about $0.65 per pound in August 1993 to a high of $1.20 per pound in 1995 to current levels of about $1.00 per pound. Wide variations in copper prices have resulted from the increased demand for electrical wire and copper related products as a result of the continued high growth rate of the economies of the industrialized nations and as a result of periodic reductions in the availability of scrap copper for recycling. Continued fluctuations in the spot price for copper are expected to result from variations in the availability of scrap copper and the continued strong demand from emerging nations.
Within the oil and gas business, it appears that the substantial restructuring of the major and large independent companies is slowing. The merger frenzy of the 1980's has waned and despite the continued exodus by U.S. companies to international ventures, it appears that the next few years will be a "settling in" time for most companies. Nevertheless, there remains a large inventory of properties available for acquisition within the United States. However, it is anticipated that as crude oil prices stabilize and strengthen, fewer companies will be inclined to sell their properties in the future.
The Company's principal source of cash flow is the production and sale of its crude oil and natural gas reserves, which are depleting assess. Cash flow from oil and gas sales depends upon the quantity of production and the price
obtained for such production. An increase in prices permits the Company to finance its operations to a greater extent with internally generated funds. A decline in of oil and gas prices reduces the cash flow generated by the Company's operations, which in turn reduces the funds available for servicing debt, acquiring additional oil and gas properties and for developing its mining operations.
In addition to the foregoing, the results of the Company's operations vary due to seasonal fluctuations in the sales prices and volumes of natural gas In recent years. Natural gas prices have been generally higher in the fall and winter. Due to these seasonal fluctuations. results of operations for individual quarterly periods may not be indicative of results which may be realized on an annual basis.
YEAR ENDED JULY 31, 1996 COMPARED TO YEAR ENDED JULY 31, 1995. Total revenues - ------------------------------------------------------------- for the Company for the year ended July 31, 1996 were $105,630 compared to $114,667 for the year ended July 31, 1995. The decrease in revenues reflect lower produced volumes of oil and natural gas and is offset somewhat by slightly higher product prices received. In addition to revenues from operations, the Company generated net revenue of $268,532 during the year from its participation in the financial program offered by FSI. Since the ability of FSI to continue its 1996 levels of placements of its financial product cannot be assured, the Company expects its revenues will decrease during fiscal 1997 and reflect revenue levels commensurate with its current oil and gas operations. The Company sold its oil and gas operations in October, 1996 and as a result will have only minimal revenues until its mining operations begin. Since the Company is, subject to available capital, planning the start-up of operations on its Duke Mine during fiscal 1997 operating revenues may increase if operations are achieved on a significant level.
Operating expenses for the year ended July 31,1996 were $386,619 compared to $389,940 for the year ended July 31, 1995. The level of expenses is expected to remain about the same for fiscal 1997 unless significant mining activity is achieved. General and administrative expenses increased to $312,453 for the year ended July 31, 1996 compared to $234,012 for the prior year end and reflect the present acquisition activity in the mining business and the costs associated therewith. General and administrative expenses are expected to increase dramatically as mining operations are initiated and the Company hires employees to manage its operations.
The Company incurred an after tax loss of $276,424 ($0.01 per share) for the year ended July 31, 1996 compared to a loss of $702,895 ($0.03 per share) for the year ending July 31, 1995 The improvement in the after tax loss reflects the increase in non-refundable fees received by the Company in conjunction with its participation with FSI and the reduction in write-offs incurred in prior years. Until the Company initiates significant mining operations on a continuous basis, it is anticipated that the Company's operations will continue to be unprofitable.
YEAR ENDED JULY 31, 1995 COMPARED TO YEAR ENDED JULY 31, 1994. Total revenues - ---------- -------------------------------------------------- from the Company's operations and activities were $114,667 for the year ending July 31,1995 compared to $296,641 for the prior year end. The decrease in revenue of $181,9?4 (61%) reflects the sale of the oil and gas assets of I.B. Energy, Inc. and a reduction of oil and gas prices during 1995. The present level of revenues are indicative of the Company's current oil and gas operations in its Premier Operating Company subsidiary.
Operating expenses declined slightly to $389,940 for the year ended July 31, 1995 compared to $524,525 for the prior year ending July 31, 1994, as a result of she sale of the I.B. Energy, Inc. oil and gas assets and the suspension of certain mining activities. General and administrative expenses remained constant in fiscal 1995 compared to fiscal 1994 as a result of the start-up of certain mining operations within Ridgepointe which were subsequently suspended due to a lack of working capital. The mining company accounted for $105,322 of general and administrative expenses.
The Company incurred an aftertax net loss of $702,895 ($0.03 per share) for the year ending July' 31, 1995 compared to a loss of $265,869 ($0.01 per share) for the year ending July 31, 1994. Until the Company initiates its mining operations on a continuous basis, the Company expects its present level of operations to continue to be unprofitable.
YEAR ENDED JULY 31, 1994 COMPARED TO YEAR ENDED JULY 31, 1993. Total revenues - ------------------------------------------------------------- from the Company's oil and gas operations for the year ended July 31, 1994 were $296,641 as compared to $433,283 for the year ended July 31, 1993. The decrease in revenues is primarily due to the sale of substantially all of the oil and gas assets of I.B.
Energy, Inc. to generate capital for mining operations.
Total operating expenses decreased from $558,267 for the year ended July 31, 1993 to $524,525 for the year ended July 31, 1994. The decrease is primarily due to the sale of the I.B. Energy subsidiary and is offset by higher general and administrative costs associated with the Company's acquisition of mining claims which increased by $98,389 from period to period, by increased interest expenses of $38,947 and by actual mining expenses of $49,000 associated with the company's properties.
The Company incurred an after-tax net loss for the year ended July 31, 1994 of $265,869 ($0.01 per share) compared to an after-tax net loss of $18,268 ($0.00 per share) for the year ended July 31. 1993.
CAPITAL RESOURCES AND LIQUIDITY.
The Company's capital requirements relate primarily to its mining activities and the development of its oil and gas properties. Prior to the change in control, the Company funded its very limited activities from cash flow. The Company, through its subsidiaries, has established credit facilities with a bank to facilitate the funding of its operations. However, today, because of certain defaults which exist in relation to the Company's primary credit facility, additional borrowings are not available to the Company. As a result of the sale of its Premier Operating subsidiary in October, 1996, the Company retired its principal bank debt and no longer has access to financing from that source.
Presently the Company is active in several mining activities which will require significant capital expenditures. The Company has a wide degree of discretion in the level of capital expenditures it must devote to each project on an annual basis and the timing of the development of each project. The Company has primarily been engaged, in its recent past, in the acquisition and testing of mineral properties to be inventoried for future development. Because of the relative magnitude of the capital expenditures that my ultimately be required for any single mining venture as operations are achieved, management has pursued a strategy of acquiring properties with significant mineral potential in an effort to create a mineral property base sufficient to allow the Company to access capital from external sources, either through debt or equity placements. In order to develop its properties in a continuos manner in the future, management believes the Company will need to raise capital from outside sources during fiscal 1997. In the event that additional capital is not obtained, it may become necessary to alter development plans or otherwise abandon certain ventures.
In order to meet the immediate capital requirements of the mining activities described above, the Company has obtained loans secured by its oil and gas assets in the principal amount of $139,817 at July 31, 1996. As discussed previously, the Company subsequently sold all of its oil and gas properties which resulted the retirement of this debt and in additional working capital available to funding the mining activities. Although the timing of expenditures for the Company's mining activities are distributed over several months, the Company anticipates its current working capital will be insufficient to meet its capital expenditures. Furthermore, since the fees generated from the Company's participation in the program with FSI are unpredictable in both timing and magnitude and because there can be no assurance that FSI will continue to be able to market its product, the Company believes it will be required to access outside capital either through debt or equity placements or through joint venture operations with other mining companies. There can be no assurance that the Company will be successful in its efforts to locate outside capital and as a result the level of the Company's planned mining activities may need to be curtailed, deferred or abandoned entirely.
The level of the Company's capital expenditures will vary in the future depending on energy and commodity market conditions and upon the level of and mining activity achieved by the Company. The Company anticipates that its cash flow will be insufficient to fund its operations at their current levels and that additional funds will be required.
The Company's basic credit facility consists of a revolving credit facility under which the Company has available to it a revolving line of credit in the principal amount of $216,000 As a result of certain defaults by the Company in its credit facility with the bank, the bank has advised the Company that it can no longer utilize the revolving features of the facility. In addition the bank has notified the company that it is in default of its credit facility and is subject to foreclosure.
The Company is required to make interest payments monthly with interest accruing at a varying rate based on the sum of the bank's prime lending rate (10.25 % at July 31, 1996). The revolving line of credit is secured by substantially all of Premier's oil and gas properties Principal payments of $4,500 plus accrued monthly interest began on June 1, 1994 with a final payment of all unpaid principal and interest due at October 31, 1995. The Company has been unable to extend the due date of its loan with its lender, although the lender has notified the Company of its willingness to provide the Company with additional time to payoff the loan balance. As a result of the Company's default under its loan agreement and because there is presently no agreement in place regarding any specific period of time over which the bank will forego further actions, the lender may liquidate the Company's oil and gas properties in satisfaction of the debt. Subsequent to year end the Company sold its oil and gas properties and its Premier Operating subsidiary and paid off the debt. At July 31, 1996 the outstanding balance under the Company's credit facilities with its Bank totaled $139,817.
The Company's existing debt agreements with the bank contain covenants which limit the amount of additional indebtedness the Company may incur, restrict certain acquisitions and sales of oil and gas properties, and prohibit dividends. The Company has obtained certain unsecured loans, in compliance with its bank covenants, from its Chairman, Jeffrey T. Wilson which total $177,639 as of July 31, 1996. These funds are being used to initiate the Company's mining activities. Management believes that the Company will not have sufficient borrowing capacity to fund its anticipated needs and will need to access outside capital.
At July 31, 1996, the Company had current assets of $25,864 and current liabilities of $2,389,091 which resulted in negative working capital of $2,363,227. The negative working capital position is comprised of senior bank debt, notes payable to shareholders and related parties and acquisition notes. As discussed earlier, if the Company is unsuccessful in obtaining outside capital or extensions to its acquisition note with UFO Limited Partnership regarding the UFO Mine, certain mining activities of the Company may be curtailed, postponed or abandoned. The Company believes that its cash flow from operations of its oil and gas properties will be insufficient to meet its credit repayment obligations and fund the ongoing operating needs of the Company. As a result the Company plans to seek additional capital from outside sources through the placement of additional debt or equity during fiscal 1997 Because the availability of debt and equity financing are subject to a number of variables, there can be no assurance that the Company will be successful in attracting adequate financing and as a result may be required to curtail, postpone or abandon certain of its planned capital expenditures. If the Company is unable to attract adequate financing, management believes the Company may be compelled to sell certain of its assets to meet its obligations.
SEASONALITY
The results of operations of the Company are somewhat seasonal due to seasonal fluctuations in the price for crude oil and natural gas. Recently, crude oil and natural gas prices have increased to their highest level in several years. Due to these seasonal fluctuations results of operations for individual quarterly periods may not be indicative of results which may be realized on an annual basis.
INFLATION AND PRICES
The Company's revenues and the value of its oil and gas and mining properties have been and will be affected by changes in oil and gas and precious metals prices. The Company's ability to maintain current borrowing capacity and to obtain additional capital on attractive terms is also substantially dependent on oil and gas and precious metals prices. Prices for these commodities are subject to significant fluctuations that are beyond the Company's ability to control or predict.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
AUDITED FINANCIAL STATEMENTS OF IMPERIAL PETROLEUM, INC.
Independent Auditor's Report................................................ Consolidated Balance Sheets as of July 31, 1996 and 1995.................... Consolidated Statements of Operations for the years ended July 31, 1996, 1995 and 1994.................................................F-3 Consolidated Statements of Stockholder's Equity for the years Ended July 31, 1996, 1995 and 1994.......................................... Consolidated Statements of Cash flows for the years ended July 31, 1996, 1995 and 1994.................................................F-5 Notes to Consolidated Financial Statements.................................
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT.
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information regarding the directors, executive officers and key employees of the Company.
Jeffrey T. Wilson has been Director, Chairman of the Board, President and Chief Executive Officer of the Company since August 1993. Mr. Wilson is a Director, Chairman and President of LaTex Resources, Inc., an affiliate of the Company, and was the founder of its principal operating subsidiary, LaTex Petroleum Corporation. Prior to his efforts with LaTex, Mr. Wilson was Director and Executive Vice President of Vintage Petroleum, Inc. and was employed by Vintage in various engineering and acquisition assignments from 1983 to 1991. From August 1980 to May 1983 Mr. Wilson was employed by Netherland, Sewell & Associates Inc., a petroleum consulting firm. Mr. Wilson began his career in the oil and gas business in June 1975 with Exxon Company USA in various assignments in the Louisiana and South Texas areas. Mr. Wilson holds a Bachelor of Science Degree in Mechanical Engineering from Rose-Hulman Institute of Technology.
Malcolm W. Henley has been a Director and Vice President of the Company since May 1996. Mr. Henley is a Director and Vice President of LaTex Resources, Inc., an affiliate of the Company and was founder of Enpro, Inc. a crude oil and natural gas marketing subsidiary of LaTex. Mr. Henley's prior experience includes Manager of Operations for Champlin Pipeline Company from 1976 to 1979 and Continental Oil Company from 1975-1976. Mr. Henley has a Bachelor of Arts Degree in Business Administration from Oklahoma State University and an Associate Degree in Petroleum Land Technology from Tulsa Junior College.
Stacey D. Smethers has been a Director of the Company and Director since July 1995. Mrs. Smethers is Executive Assistant to the President of Enpro, Inc. and Marketing Representative for LaTex Resources, Inc., an affiliate of the Company. Mrs. Smethers has seven years of varied experience in the oil and gas industry including assignments in marketing, administration and petroleum land management.
SECTION 16(a) REPORTING DEFICIENCIES
Section 16(a) of the Securities and Exchange Act of 1934 ("Exchange Act") requires the Company's directors and officers and persons who own more than 10% of a registered class of the Company's equity securities, to file initiak reports of ownership on Form 3 and reports of changes in ownership on Forms 4 and 5 with the Securities and Exchange Commission (the "SEC") and the National Association of Securities Dealers ("NASD"). Such persons are required by SEC regulation to furnish the company with copies of all Section 16(a) forms they file.
Based upon a review of From 3, 4 and 5 filings made by the Company's officers and directors during the past fiscal year ended July 31, 1996 under Section 16(a) of the Exchange Act, the Company believes that all requisite filings have been made timely.
ITEM 11. EXECUTIVE COMPENSATION.
The table below sets forth, in summary form, (1) compensation paid to Jeffrey T. Wilson, the Company's Chairman of the Board, President and Chief Executive Officer and (2) other compensation paid to officers and directors of the Company. During the tree fiscal years ended July 31, 1996, 1995 and 1994 (I) no restricted stock awards were granted, (ii) no stock appreciation or stock options were granted, (iii) no options, stock appreciation rights or restricted stock awards were exercised, and (iv) except as provided below, no awards under any long term incentive plan were made to any officer or director of the Company.
The Company began accruing salary due to Jeffrey T. Wilson in January 1994. To date no actual salary payments have been made to Mr. Wilson.
None of the executive officers listed received perquisites or other personal benefits that exceeded the lesser of $50,000 or 10% of the salary and bonus for such officers. (1) The exercise price of the warrants is $0.03 per share with a term of three years from July 10, 1996.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
As of July 31, 1996, the Company has 31,426,841 issued and outstanding shares of common stock. The following table sets forth, as of July 31, 1996, the number and percentage of shares of common stock of the Company owned beneficially by (I) each director of the Company, (ii) each executive officer of the Company, (iii) all directors and officers as a group, and (iv) each person known to the Company to own of record or beneficially own more than 5% of the Company's common stock. Except as otherwise listed, the stockholders listed in the table have sole voting and investment power with respect to the shares listed. As of July 31, 1996, the Company had approximately 500 holders of common stock of record.
(1) The mailing address of Mr. Wilson is 100 NW Second Street, Suite 312, Evansville, Indiana 47708. Includes 770,128 shares owned by LaTex Resources, Inc. by virtue of Mr. Wilson's 21.4% ownership of LaTex.
(2) The mailing address of Mr. Henley and Mrs. Smethers is 4200 East Skelly Drive, Suite 1000, Tulsa, Oklahoma 74135. Includes 93,567 shares owned by LaTex Resources, Inc. in Mr. Henley's total by virtue of his 2.6% ownership of LaTex.
(3) The mailing address of LaTex Resources, Inc. is 4200 East Skelly Drive, Suite 1000, Tulsa, Oklahoma 74135.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
As of July 31, 1996, the Company has notes payable to Latex Resources, Inc. totaling $747,870 which are secured by certain mining claims.
Jeffrey T. Wilson, Chairman, President and Chief Executive Officer of the Company has made unsecured loans to the Company which total $177,639 as of July 31, 1996. In addition, Mr. Wilson has personally guaranteed the indebtedness of Premier Operating Company with its principal lender.
The Company has made unsecured loans to Wexford Technology, Inc., an affiliate of the Company, of $138,489 as of July 31, 1996.
The officers and directors of the Company are also officers and directors of LaTex Resources, Inc. which is also engaged in the oil and gas business. As a result there may exist conflicts of interest between the operations of the companies.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K. ---------------------------------------------------------------
(a) Financial Statements (See Item 8. Financial Statements and Supplementary Data):
Financial Statements of Imperial Petroleum, Inc.
Reports of Independent Public Accountants; Consolidated Balance Sheets as of July 31, 1996 and 1995; Consolidated Statements of Operations for the years ended July 31, 1996, 1995, and 1994; Consolidated Statements of Stockholder Equity for the years ended July31, 1996, 1995, and 1994; Consolidated Statements of Cash Flows for the years ended July 31, 1996, 1995, and 1994; Notes to Consolidated Financial Statements.
Supplemental Financial Information Schedule II - Amounts Receivable from Related Parties. Other Schedules are omitted as they are not required.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed with the Securities and Exchange Commission during the fiscal year ended July 31, 1996.
(c) Exhibits.
2.1 Reorganization Agreement and Plan incorporated herein by reference to Exhibit E to the Registrant's General Form for Registration of Securities on Form 10 filed with the Securities and Exchange Commission on August31, 1981 (the "Form 10").
2.2 Article of Merger incorporated herein by reference to Exhibit F of the Form 10.
2.3 Agreement to Exchange Stock and Plan of Reorganization dated August 27, 1993 by and between Imperial Petroleum, Inc., Glauber Management Company, Glauber Valve Co., Inc., Jeffrey T. Wilson, James G. Borem, and those persons listed on exhibit A thereto, and exhibits and schedules attached thereto, incorporated herein by reference to Exhibit 2.1 to the Registrant's Current Report on Form 8-K filed with the Securities and Exchange Commission on September 17, 1993.
2.4 First Amendment to Agreement to Exchange Stock and Plan of Reorganization dated August 27, 1993 by and between Imperial Petroleum, Inc., Glauber Management Company, Glauber Valve Co., Inc., Jeffrey T. Wilson, James G. Borem, and those persons listed on Exhibit A thereto, and exhibits and schedules attached thereto, incorporated herein by reference to Exhibit 2.1 to the Registrant's Current Report on Form 8-K filed with the Securities and Exchange Commission on September 17, 1993.
2.5 Stock Exchange Agreement dated October 4, 1993 by and between Imperial Petroleum, Inc., Frederic D. Sewell, and the remaining parties identified in Schedules "A-1" and "A-2" thereto, and exhibits and schedules attached thereto, incorporated herein by reference to Exhibit 2.1 to the Registrant's Current Report on Form 8-K filed with the Securities and Exchange Commission on October 29, 1993.
3.1 Certificate of Incorporation of the Registrant incorporated herein by reference to Exhibit -~ of the Form 10.
3.2 Bylaws of the Registrant incorporated herein by reference to Exhibit B of the Form 10.
4 Instruments defining the rights of security holders, including indentures. Not applicable.
9 Voting Trust Agreement. Not applicable.
10.1 Letter Agreement between I.B. Energy, Inc. and Bank of Oklahoma, N.A. dated July 9, 1992.
10.2 Promissory Note in the principal sum of $395,000 by and between lB. Energy, Inc. and Sank of Oklahoma, N.A. dated July 9, 1992.
10.3 Mortgage, Deed of Trust, Security Agreement, Financing Statement and Assignment between I.B. Energy, Inc. and Bank of Oklahoma, N.A. dated July 9, 1992.
10.4 Guaranty Agreement by and between James G. Borem, Patricia Borem and Bank of Oklahoma, N.A. dated July 9, 1992.
10.5 Guaranty Agreement by and between Jeffrey T. Wilson, Annalee C. Wilson and Bank of Oklahoma, N.A. dated July 9, 1992.
10.6 Letter Agreement between I.B. Energy, Inc. and Bank of Oklahoma, N.A. dated July 9,1992.
10.7 Security Agreement and Assignment [Louisiana] between IB. Energy, Inc. and Bank of Oklahoma, NA. dated July 9, 1992.
10.8 Act of Pledge and Security Agreement between I.B. Energy, Inc. and Bank of Oklahoma, NA. dated July 9, 1992.
10.9 Letter Agreement between I.B. Energy, Inc., Bank of Oklahoma, N.A., Jeffrey T. Wilson, Annalee C. Wilson, James G. Borem and Patricia Borem dated May 7, 1993.
10.10 Promissory Note in the principal sum of $350,000 by and between I.B. Energy, Inc., and Bank of Oklahoma, N.A. dated May 7, 1993.
10.11 Guaranty Agreement by and between Ridgepointe Mining Company and Bank of Oklahoma N.A. dated May 7, 1993.
10.12 Guaranty Agreement by and between Jeffrey T. Wilson. Annalee C. Wilson, and Bank of Oklahoma, NA. dated May 7, 1993.
10.13 Guaranty Agreement by and between James G. Borem, Patricia Borem, and Bank of Oklahoma, NA. dated May 7, 1993.
10.14 Promissory Note in the principal sum of $216,000 by and between Premier Operating Company and Bank of Oklahoma, N.A. dated October 18, 1993.
10.15 Mortgage, Deed of Trust, Security Agreement. Financing Statement and Assignment (Midland County, Texas) by and between Premier Operating Company and Bank of Oklahoma, NA. dated October 18, 1993.
10.16 Financing Statement by and between Premier Operating Company and Bank of Oklahoma. N.A. dated October 18, 1993.
10.17 Letter Agreement by and between Premier Operating Company and Bank of Oklahoma, N.A. dated October 18, 1993.
10.18 Negative Pledge Agreement by and between Premier Operating Company and Bank of Oklahoma, N.A. dated October 18, 1993.
10.19 Guaranty Agreement by and between Ridgepointe Mining Company and Bank of Oklahoma, N.A. dated October 18, 1993.
10.20 Guaranty Agreement by and between the Registrant and Bank of Oklahoma, N.A. dated October 18, 1993.
10.21 Guaranty Agreement by and between Jeffrey T. Wilson, Annalee C. Wilson, and Bank of Oklahoma, N.A. dated October 18, 1993.
11 Statement re: computation of per share earnings. Not applicable.
12 Statement re: computation of ratios. Not applicable.
13 Annual Report to security holders, Form 10-Q, or quarterly report to security holders. Not applicable.
16 Letter re change in certifying accountant. Not applicable.
18 Letter re: change in accounting principles. Not applicable.
21 Subsidiaries of the Registrant.
22 Published report regarding matters submitted to vote of security holders. Not applicable.
23 Consents of experts and counsel. Not applicable.
24 Power of Attorney. Not applicable.
27 Financial Data Schedule. Not applicable.
28 Information from reports furnished to state insurance regulatory authorities. Not applicable;
99 Additional Exhibits; Not applicable.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Imperial Petroleum, Inc. Date: August 25, 1997 /S/ Jeffrey T. Wilson ---------------------- Jeffrey T. Wilson, President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated:
Signature Title Date - ------------- ------------ ----
/s/ Jeffrey T. Wilson President and Chief Executive August 25, 1997 - ---------------------- Officer (Principal Executive Jeffery T. Wilson Officer) and Director
[LETTERHEAD OF BRISCOE & BURKE APPEARS HERE]
INDEPENDENT AUDITOR'S REPORT ----------------------------
Board of Directors Imperial Petroleum, Inc. Evansville, Indiana
We have audited the accompanying consolidated balance sheets of Imperial Petroleum, Inc. (A Development Stage Company) as of July 31, 1996 and 1995 and the consolidated statements of operations, stockholders' equity, and cash flows for the years ended July 31, 1996, 1995 and 1994 and for the period from August 1, 1992 (inception) to July 31, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Imperial Petroleum, Inc. (A Development Stage Company) as of July 31, 1996 and 1995 and the results of its operations and its cash flows for the years ended July 31, 1996, 1995 and 1994 and for the period from August 1, 1992 (inception) to July 31, 1996, in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has suffered recurring losses, substantial working capital deficiencies, and has not completed the necessary reserve studies to determine the metal content of the reserves and the related future production costs which affect the recoverability of capitalized costs. Additionally, as described in Note 6 to the financial statements, the Company is in default on a portion of its notes payable relating to a mining claim option. These factors raise substantial doubt about its ability to continue as a going concern. Further, there can be no assurance, assuming the Company successfully raises additional funds, that it will be able to economically recover the value of its mining claims or achieve profitability. Management's plans in regard to these matters are also described in Note 1 to the financial statements. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ BRISCOE & BURKE
BRISCOE & BURKE Certified Public Accountants
January 15, 1997 Tulsa, Oklahoma
IMPERIAL PETROLEUM, INC. (A Development Stage Company) Consolidated Balance Sheets July 31, 1996 and 1995
The accompanying notes are an integral part of these financial statements.
IMPERIAL PETROLEUM, INC. (A Development Stage Company) Consolidated Statements of Operations For the Years Ended July 31, 1996, 1995 and 1994
The accompanying notes are an integral part of these financial statements.
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Consolidated Statements of Stockholders' Equity
For the Years Ended July 31, 1996, 1995, and 1994
The accompanying notes are an integral part of these financial statements.
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Consolidated Statements of Cash Flows
For the Years Ended July 31, 1996, 1995 and 1994
The accompanying notes are an integral part of these financial statements.
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Consolidated Statements of Cash Flows
For the Years Ended July 31, 1996, 1995 and 1994
Disclosure of accounting policy: For purposes of the statement of cash flows, the Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents.
The accompanying notes are an integral part of these financial statements.
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
1. ORGANIZATION AND BUSINESS COMBINATION
ORGANIZATION ------------
Imperial Petroleum, Inc. (the "Company") is engaged in oil and gas production through its wholly owned subsidiary, Premier Operating Company. The Company's oil and gas operations are conducted in Oklahoma, Texas, and Louisiana (See Note 16).
The Company is also engaged, through its wholly owned subsidiary, Ridgepointe Mining Company, in testing, defining and developing mineral reserves on mining claims it owns or operates in Utah, Montana, Arizona, and New Mexico.
FINANCIAL CONDITION -------------------
The Company's financial statements for the year ended July 31, 1996 have been prepared on a going concern basis which contemplates the realization of assets and the settlement of liabilities in the normal course of business. The Company incurred a net loss of $276,424 for the year ended July 31, 1996 and as of July 31, 1996 has an accumulated deficit of $1,204,587 and a deficit working capital of $2,363,227.
The Company's management plans to raise capital to fund continuing operations by utilization of one or a combination of the following:
1. The continuation of its efforts in the issuance of Gold Dore Certificates (See Note 15).
2. The private placement of equity securities through negotiations with potential market makers in the Company's securities.
3. The joint venture of the Company's Utah property with another mining company to provide the capital resources to develop all of the Company's properties.
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
1. ORGANIZATION AND BUSINESS COMBINATION (CONTINUED)
ACQUISITION OF IMPERIAL PETROLEUM, INC. ---------------------------------------
Pursuant to an Agreement to Exchange Stock and Plan of Reorganization dated August 27, 1993 (the "Stock Exchange Agreement"), between Imperial Petroleum, Inc. ("Imperial"), Glauber Management Company, ("Glauber Management"), Glauber Valve Co., Inc., ("Glauber Valve"), and the Ridgepointe Stockholders, the Ridgepointe Stockholders agreed to exchange (the "Ridgepointe Exchange Transaction") a total of 12,560,730 shares of the common stock of Ridgepointe Mining Company, representing 100% of the issued and outstanding common stock of Ridgepointe, for a total of 12,560,730 shares of newly issued shares of Imperial's common stock representing 59.59% of Imperial's resulting issued and outstanding common stock. The one-for-one ratio of the number of shares of Imperial's common stock exchanged for each share of Ridgepointe common stock was determined through arms length negotiations between Imperial and the majority stockholders of Ridgepointe. As a result, Ridgepointe became a wholly owned subsidiary of Imperial.
As a condition to the Ridgepointe Exchange Transaction, Imperial received and cancelled 7,232,500 shares of its Common Stock from Glauber Management and received 100,000 shares of the common stock of Tech-Electro Technologies, Inc. from an affiliate of Glauber Management and Glauber Valve. In addition, Glauber Management or Glauber Valve, or their affiliates, transferred to Imperial 75,000 shares of common stock of Chelsea Street Holding Company, Inc.
ACQUISITION OF PREMIER OPERATING COMPANY ----------------------------------------
Pursuant to a Stock Exchange Agreement dated October 4, 1993 (the "Stock Exchange Agreement") between Imperial Petroleum, Inc. and the Premier Stockholders, the Premier Stockholders agreed to exchange (the "Premier Exchange Transaction") an aggregate of 749,000 shares of the common stock of Premier Operating Company ("Premier"), consisting of 252,000 shares of Class A voting common stock and 497,000 shares of non-voting Class B common stock, representing 100% of the issued and outstanding common stock of Premier, for a total of 749,000 shares of newly issued shares of the Company's common stock representing 3.62% of the Company's resulting issued and outstanding common stock. The one-for-one ratio of the number of shares of the Company's common stock exchanged for each share of Premier common stock was determined through arms length negotiations between the Company and a major shareholder of Premier, on behalf of the Premier Stockholders. The business combination was accounted for using the purchase method of accounting. As a result, Premier became a wholly owned subsidiary of the Company.
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
1. ORGANIZATION AND BUSINESS COMBINATION (CONTINUED)
DEVELOPMENT STAGE COMPANY -------------------------
A summary of the financial information of Ridgepointe Mining Company (A Development Stage Company), excluding its wholly owned subsidiary I. B. Energy, Inc., is as follows:
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
1. ORGANIZATION AND BUSINESS COMBINATION (CONTINUED)
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
1. ORGANIZATION AND BUSINESS COMBINATION (CONTINUED)
Cumulative From Inception -------------- Cash flows from operating activities: Historical net loss $ (677,603) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and depletion - (Increase) in other assets (2,445) Increase in current liabilities 1,435,895 -----------
Net cash used for operating activities 755,847 -----------
Cash flows from investing activities: Mining options, properties and equipment purchased - net (1,864,414) -----------
Net cash used for investing activities (1,864,414) -----------
Cash flows from financing activities: Increase in notes payable 1,000,000 Increase in notes payable - related parties 108,592 -----------
Net cash provided by financing activities 1,108,592 -----------
Net increase in cash and cash equivalents 25
Cash and cash equivalents at inception - -----------
Cash and cash equivalents at July 31, 1996 $ 25 ===========
Supplemental disclosures of cash flow information: Cash paid during the period for Interest $ - Income taxes -
Disclosure of accounting policy: For purposes of the statement of cash flows, the Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents.
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION ---------------------------
The July 31, 1996, 1995 and 1994 financial statements include the accounts of the Company and its wholly owned subsidiaries, Ridgepointe Mining Company, Premier Operating Company, and I. B. Energy, Inc. All significant intercompany accounts have been eliminated.
ACCOUNTING ESTIMATES --------------------
The presentation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
FINANCIAL INSTRUMENTS ---------------------
The fair value of current assets and current liabilities are assumed to be equal to their reported carrying amounts due to the short maturities of these financial instruments.
The carrying value of all other financial instruments approximates fair value.
MARKETABLE SECURITIES ---------------------
The Company determines the appropriate classification of debt and equity securities at the time of purchase and re-evaluates such designation as of each balance sheet date. Securities are classified as held-to-maturity when the Company has the intent and ability to hold the securities to maturity. Held-to-maturity securities are stated at cost and investment income is included in earnings. The Company classifies certain highly liquid securities as trading securities. Trading securities are stated at fair value and unrealized holding gains and losses are included in income. Securities that are not classified as held-to-maturity or trading are classified as available-for-sale. Available-for-sale securities are carried at fair value, with the unrealized holding gains and losses, net of tax, reported as a separate component of stockholders' equity.
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CONCENTRATIONS OF CREDIT RISK -----------------------------
Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash investments and accounts receivable. The Company places its cash investments with high quality financial institutions and limits the amount of exposure to any one institution. In the case of default of any one financial institution, no cash investments exist that are not covered by the FDIC. The Company's revenues are derived principally from uncollateralized sales to customers in the oil and gas industry. The concentration of credit risk in a single industry affects the Company's overall exposure to credit risk because customers may be similarly affected by changes in economic and other conditions. The Company has not experienced significant credit losses on such receivables. The Company performs periodic evaluations of its customers' financial condition and generally does not require collateral.
DEVELOPMENT STAGE SUBSIDIARY ----------------------------
Ridgepointe Mining Company, a wholly owned subsidiary, is in the process of defining mineral reserves and raising capital for operations. As such, Ridgepointe Mining Company is considered a development stage enterprise.
REVENUE RECOGNITION -------------------
The Company recognizes oil and gas revenue in the month of sale. Mining revenues will be recognized in the month of sale. Uncollected revenue is accrued based on known facts and trends of the relevant oil and gas properties on a monthly basis.
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
2. SUMMARY OF ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY, EQUIPMENT, DEPRECIATION AND DEPLETION -----------------------------------------------
The Company uses the successful efforts method to account for costs in the acquisition and exploration of oil and natural gas reserves. Costs to acquire mineral interests in proved reserves, and to drill and equip development wells are capitalized. Geological and geophysical costs and costs to drill exploratory wells which do not find proved reserves are expensed. Undeveloped oil and gas properties which are individually significant are periodically assessed for impairment of value and a loss is recognized at the time of impairment by providing an impairment allowance. The remaining unproved oil and gas properties are aggregated and an overall impairment allowance is provided based on Company experience. Depletion and depreciation are calculated on the units of production method based upon current estimates of oil and gas reserves provided by management.
Non oil and gas property and equipment are stated at cost. Depreciation is computed by the straight-line method over the estimated useful lives of non oil and gas assets. Expenditures which significantly increase values or extend useful lives are capitalized. Expenditures for maintenance and repairs are charged to expenses as incurred. Upon sale or retirement of property and equipment, the cost and related accumulated depreciation and depletion are eliminated from the respective accounts and the resulting gain or loss is included in current earnings.
Mining exploration costs are expensed as incurred. Development costs are capitalized. Depletion of capitalized mining costs will be calculated on the units of production method based upon current production and reserve estimates when placed in service.
INCOME TAXES ------------
Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
2. SUMMARY OF ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
GAS BALANCING -------------
The Company follows the sales method of accounting for gas imbalances. A liability is recorded only if the Company's excess takes of natural gas volumes exceed its estimated remaining recoverable reserves. No receivables are recorded for those wells when the Company has taken less than its ownership share of gas production.
LOSS PER COMMON SHARE ---------------------
Loss per common share is computed based upon the weighted average common shares outstanding. Outstanding warrants are excluded from the weighted average shares outstanding since their effect on the earnings per share calculation is antidilutive.
FASB ACCOUNTING STANDARDS -------------------------
The Financial Accounting Standards Board has issued Statement of Financial Accounting Standards No. 119 (SFAS 119), Disclosure about Derivative Financial Instruments and Fair Value of Financial Instruments. This Statement generally requires disclosures about amounts, nature, and terms of derivative financial instruments. The Company has adopted SFAS 119 for the fiscal year ended July 31, 1996.
The Financial Accounting Standards Board has issued Statement of Financial Accounting Standards No. 121 (SFAS 121), Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of. This Statement requires that long-lived assets and certain identifiable intangibles to be held and used by an entity be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If the sum of the undiscounted future cash flows is less than the carrying amount of the asset, an impairment loss is recognized. This Statement is effective for financial statements for fiscal years beginning after December 15, 1995. The Company intends to adopt SFAS 121 for the fiscal year ending July 31, 1997. The Company expects the adoption of SFAS 121 will not have a material effect on its financial statements.
RECLASSIFICATION ----------------
Certain amounts in the 1995 and 1994 consolidated financial statements have been reclassified to conform with the 1996 presentation.
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
3. ACCOUNTS RECEIVABLE - RELATED PARTIES
Accounts receivable - related parties was comprised of the following:
4. MINING PROPERTIES UNDER DEVELOPMENT
MINING CLAIM OPTIONS --------------------
The Company entered into an agreement with a third party on November 6, 1992, giving the Company the option to purchase certain mining claims known as the "UFO Mining Claims" from UFO Mining Limited Partnership ("UFO"), on or before July 31, 1993. The purchase price was $2,000,000 in cash or an equal value in restricted common stock of a publicly traded company controlled by the Purchaser or its Assignees. Prior to July 15, 1993, UFO was to provide to the Purchaser, in writing, its intention to accept all cash or all stock or a combination of cash and stock as payment of the purchase price.
On September 21, 1993 the parties agreed by letter to modify, amend and extend the existing letter agreement to cause to be issued 1,000,000 shares of Imperial Petroleum, Inc. restricted common stock to UFO in exchange for an extension of the agreement until March 31, 1994 and a reduction in the total consideration to be paid UFO to $1,000,000 cash at March 31, 1994. (See Note 6)
During the fiscal year ending July 31, 1994, the Company advanced $111,500 pursuant to the purchase of the Lance and Trega mines in northern Mexico.
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
4. MINING PROPERTIES UNDER DEVELOPMENT (CONTINUED)
During August of 1995, the Company signed an agreement to rescind its acquisition of the Gold Nugget Mining Claims. As a result, mining claims were reduced $1,270,376, notes payable to Darr Equipment Company and Kenneth R. Shepherd totaling $1,150,063 were reduced to $0 (See Note 6), and Treasury stock was increased $120,313. A provision for loss of $163,860 was charged to expense for the year ended July 31, 1995 for payments on equipment returned.
MINING EQUIPMENT ----------------
During the fiscal years ending July 31, 1996 and 1995, the Company acquired mining claims and equipment through a combination of the issuance of stock, assumption of liabilities and assumption of a note payable.
MINE DEVELOPMENT ----------------
The costs incurred for mine evaluation and development are capitalized. Upon the commencement of production, the capitalized costs will be amortized utilizing the units of production method. The Company has incurred $349,105 and $349,105 in development costs through July 31, 1996 and 1995, respectively.
The Company's mining fixed assets consist of the following:
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
4. MINING PROPERTIES UNDER DEVELOPMENT (CONTINUED)
The Company has not completed the necessary reserve studies to determine the metal content of the reserves and the related future production costs which affect the recoverability of the capitalized costs. Additionally, as described in Note 6, the Company is in default on a portion of its notes payable relating to a mining claim option. The amount of impairment, if any, cannot be estimated. Accordingly, the financial statements do not include any adjustments that might result from the outcome of this uncertainty.
5. INCOME TAXES
Provisions for income taxes are as follows:
IMPERIAL PETROLEUM, INC.
Notes to Consolidated Financial Statements
July 31, 1996, 1995, and 1994
5. INCOME TAXES (CONTINUED)
Income taxes differed from the amounts computed by applying the U.S. federal tax rate of 34% as a result of the following:
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities are presented below:
IMPERIAL PETROLEUM, INC.
Notes to Consolidated Financial Statements
July 31, 1996, 1995, and 1994
5. INCOME TAXES (CONTINUED)
A valuation allowance is required when it is more likely than not that all or a portion of the deferred tax assets will not be realized. The ultimate realization of the deferred tax assets is dependent upon future profitability. Accordingly, a valuation allowance has been established to reduce the deferred tax assets to a level which, more likely than not, will be realized.
The Company has net operating loss (NOL) carryforward to offset its earnings of approximately $1,400,000. If not previously utilized, the net operating losses will expire in varying amounts from 2009 to 2011.
6. NOTES PAYABLE
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
6. NOTES PAYABLE (CONTINUED)
The Company was in default on its note due to Bank of Oklahoma, N. A. at July 31, 1996. The note is secured by the fixed assets of the Company's wholly owned subsidiary, Premier Operating Company (See Note 16).
The Company is also in default on its promissory note to U.F.O. Mining, Ltd. Partnership. The Company is in the process of negotiating an extension or modification of the terms of the agreement. Because the Company can return the mining claims with no obligation, the Company has not accrued any interest on the note. However, if the Company returns the claims to the seller, the following assets would be significantly impaired:
7. NOTES PAYABLE - RELATED PARTY
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
8. RELATED PARTY TRANSACTIONS
During 1994, Jeffrey T. Wilson, the Chairman and a stockholder of the Company, advanced monies to the Company in the amount of $641,936.
During 1994, LaTex Resources, Inc. and LaTex Petroleum Corporation, both affiliates, paid for general and administrative expenses of the Company, totaling $17,908 and $12,360, respectively.
During 1995, the Company issued notes to LaTex Resources, Inc. (a shareholder) in exchange for $580,150.
The Company conducts various oil and gas transactions with an affiliate, LaTex Petroleum Corporation, in the ordinary course of business.
The Company, from time to time, has entered into loans with certain officers, directors, stockholders and related companies (See Notes 3 and 7).
9. LITIGATION, COMMITMENTS AND CONTINGENCIES
CONTINGENCIES - The Company is a named defendant in lawsuits, is a party ------------- in governmental proceedings, and is subject to claims of third parties from time to time arising in the ordinary course of business. While the outcome of lawsuits or other proceedings and claims against the Company cannot be predicted with certainty, management does not expect these matters to have a material adverse effect on the financial position of the Company.
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
10. BUSINESS SEGMENTS
The Company's operations involve oil and gas production and mining operations. The following table sets forth information with respect to the industry segments of the Company.
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
11. SUPPLEMENTARY FINANCIAL INFORMATION FOR OIL AND GAS PRODUCING ACTIVITIES
RESULTS OF OPERATIONS FROM OIL AND GAS PRODUCING ACTIVITIES -----------------------------------------------------------
The following sets forth certain information with respect to the Company's results of operations from oil and gas producing activities for the years ended July 31, 1996, 1995 and 1994. All of the Company's oil and gas producing activities are located within the United States.
ESTIMATED QUANTITIES OF PROVED OIL AND GAS RESERVES (UNAUDITED) ---------------------------------------------------------------
The Company chose not to have estimates of proved oil and gas reserves prepared by independent petroleum engineers. The reserve estimates provided were prepared by management. The Company's reserves are located onshore in the United States.
The Company emphasizes that reserve estimates are inherently imprecise. Accordingly, the estimates are expected to change as more current information becomes available.
Proved reserves are estimated quantities of crude oil, natural gas, and natural gas liquids which geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions. Proved developed reserves are those which are expected to be recovered through existing wells with existing equipment and operating methods. The following is an analysis of the Company's proved oil and gas reserves.
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
11. SUPPLEMENTARY FINANCIAL INFORMATION FOR OIL AND GAS PRODUCING ACTIVITIES (CONTINUED)
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
11. SUPPLEMENTARY FINANCIAL INFORMATION FOR OIL AND GAS PRODUCING ACTIVITIES (CONTINUED)
Standardized Measure of Discounted Future Net Cash Flows Relating to Proved --------------------------------------------------------------------------- Oil and Gas Reserves (Unaudited) --------------------------------
The "Standardized Measure of Discounted Future Net Cash Flows Relating to Proved Oil and Gas Reserves" (Standardized Measure) is a disclosure requirement under SFAS No. 69. The Standardized Measure does not purport to present the fair market value of proved oil and gas reserves. This would require consideration of expected future economic and operating conditions, which are not taken into account in calculating the Standardized Measure.
Under the Standardized Measure, future cash inflows were estimated by applying year-end prices, adjusted for fixed and determinable escalations, to the estimated future production of year-end proved reserves. Future cash inflows were reduced by the estimated future production and development costs based on year-end costs to determine pre-tax cash inflows. Future income taxes were computed by applying the statutory tax rate to the excess of pre-tax cash inflows over the Company's tax basis in the associated proved oil and gas properties. Tax credits and permanent differences were also considered in the future income tax calculation. Future net cash inflows after income taxes were discounted using a 10% annual discount rate to arrive at the Standardized Measure.
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
11. SUPPLEMENTARY FINANCIAL INFORMATION FOR OIL AND GAS PRODUCING ACTIVITIES (CONTINUED)
CHANGES IN STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS ------------------------------------------------------------------- RELATING TO PROVED OIL AND GAS RESERVES (UNAUDITED) ---------------------------------------------------
The following is an analysis of the changes in the Standardized Measure for the periods presented:
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
12. INVESTMENTS
13. WARRANTS
On July 10, 1996, the Company issued warrants to employees of an affiliate for services provided to the Company. The warrants give the holder the right to purchase 2,500,000 shares of the Company's common stock for $.03 per share. The warrants expire on July 10, 1999.
14. WRITE-DOWN OF MINING EQUIPMENT
During the year ended July 31, 1996, the Company ceased its limited core drilling and testing of its Arizona mining claims. The Company has indefinitely ceased its Arizona milling operations. Additionally, the Company wrote off $121,953 of book value in equipment that could not be located.
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
15. GOLD CERTIFICATE INCOME
During the year, the Company entered into an agreement with Financial Surety International LTD whereby the Company would issue Gold Dore Certificates to third parties in exchange for a leasing fee of 1.25% of the certificate face value. The third party lessee uses the certificates as collateral in order to obtain venture capital financing. These Gold Dore Certificates specify the delivery of a specified amount of gold at a future date, usually 5 years, for sale to the holder at the market price on that date. Performance is insured by contract with Merrion Reinsurance Corporation LTD. Upon expiration of the lease period, the certificates are returned to the Company and are cancelled.
The Company pays a 10% finders fee to a consultant in connection with each certificate issued. During the year the Company had $291,342 of Gold Certificate Income, less finders fees of $22,810 for net Gold Certificate Income of $ 268,532.
16. SUBSEQUENT EVENTS
SALE OF SUBSIDIARY ------------------
Subsequent to year end, the Company consummated the sale of its wholly owned subsidiary, Premier Operating Company. The sales price of $175,000 enabled the Company to satisfy its debt to Bank of Oklahoma. As a result of the sale, the Company will recognize an approximate pre-tax gain of $40,000 in 1997. Premier's operations included all of the Company's oil and gas producing activities.
REVERSE STOCK SPLIT -------------------
At its November 21, 1996 annual meeting the Company approved a 1 for 6 reverse stock split.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS
The factors which most significantly affect the Company's results of operations are (i) the sale prices of crude oil and natural gas, (ii) the level of oil and gas sales, (iii) the level of lease operating expenses, (iv) the level of and interest rates on borrowings and the ability of FSI to market its financial product to generate non-refundable fees to the Company. Since the Company has limited control over the success of FSI's program, the Company will need to
rely on the initiation operations on its mining ventures to generatecash flow and future profits. As the Company successfully completes its strategy of becoming a mining company, the same factors listed above will apply to the sale of minerals and metals mined by the Company. Total sales volumes and the level of borrowings are significantly impacted by the degree of success the Company experiences in its efforts to acquire oil and gas properties and its ability to maintain or increase production from existing oil and gas properties through its development and production enhancement activities. As the Company initiates production on its mining properties, results of operations will be affected by: (i) commodity prices for copper and gold. (ii) the quantity and quality of the ores recovered and processed and (iii) the level of operating expenses associated with the mining operations.
Relatively modest changes in either oil or gas prices significantly impact the Company's results of operations and cash flow and could significantly impact the Company's borrowing capacity. Prices received by the Company for sales of oil and natural gas have fluctuated significantly from period to period. The Company's ability to maintain current borrowing capacity and to obtain additional capital on attractive terms is substantially dependent on oil and gas prices. Domestic spot oil prices have ranged from a low of approximately $ 10 per barrel in July 1986 to a high of approximately $40.00 per barrel in October 1982 to a current price of about $19.50 per barrel. The fluctuations in oil prices during these periods reflect market uncertainty regarding OPEC's ability to control the production of its member countries, as well as concerns related to the global supply and demand for crude oil. Since the end of the Gulf War in early 1991, crude oil prices have experienced continued volatility, primarily as a result of OPEC's inability to maintain disciplined production quotas by member countries and the uncertainty associated with Iraq's return to the crude oil export market. These factors continue to overhang the market and will create significant price volatility for the foreseeable future.
Natural gas prices received by the Company fluctuate generally with changes in the spot market price for gas. Spot market gas prices have generally declined in recent years because of lower worldwide energy prices as well as excess deliverability of natural gas in the United Stases. However, natural gas prices have rebounded recently and appear to be poised for further strengthening. Domestic spot natural gas prices have ranged from a low of approximately $0.90 per Mcf in January 1992 to a high of approximately $2.70 per Mcf in April 1996 to a current level of about $2.00 per Mcf. Environmental concerns coupled with recent increases in the use of natural gas to produce electricity have combined to improve prices. Under FERC Order 636, U.S. pipelines have been made more accessible to both buyers and sellers of natural gas and. as a result, natural gas will be able to more effectively compete for market share with other end-use energy forms. All of this suggests a continued improvement in the demand for natural gas over the long term.
Prices for gold have remained relatively stable during the past several years and generally reflect the relatively low inflation rates predominate in the economies of the industrialized nations. Current spot prices for gold are $359.00 per ounce and are expected to continue to remain at or near those levels with only modest adjustments for inflation.
Copper prices have fluctuated dramatically since the Company's acquisition of its copper property with prices ranging from a low of about $0.65 per pound in August 1993 to a high of $1.20 per pound in 1995 to current levels of about $1.00 per pound. Wide variations in copper prices have resulted from the increased demand for electrical wire and copper related products as a result of the continued high growth rate of the economies of the industrialized nations and as a result of periodic reductions in the availability of scrap copper for recycling. Continued fluctuations in the spot price for copper are expected to result from variations in the availability of scrap copper and the continued strong demand from emerging nations.
Within the oil and gas business, it appears that the substantial restructuring of the major and large independent companies is slowing. The merger frenzy of the 1980's has waned and despite the continued exodus by U.S. companies to international ventures, it appears that the next few years will be a "settling in" time for most companies. Nevertheless, there remains a large inventory of properties available for acquisition within the United States. However, it is anticipated that as crude oil prices stabilize and strengthen, fewer companies will be inclined to sell their properties in the future.
The Company's principal source of cash flow is the production and sale of its crude oil and natural gas reserves, which are depleting assess. Cash flow from oil and gas sales depends upon the quantity of production and the price
obtained for such production. An increase in prices permits the Company to finance its operations to a greater extent with internally generated funds. A decline in of oil and gas prices reduces the cash flow generated by the Company's operations, which in turn reduces the funds available for servicing debt, acquiring additional oil and gas properties and for developing its mining operations.
In addition to the foregoing, the results of the Company's operations vary due to seasonal fluctuations in the sales prices and volumes of natural gas In recent years. Natural gas prices have been generally higher in the fall and winter. Due to these seasonal fluctuations. results of operations for individual quarterly periods may not be indicative of results which may be realized on an annual basis.
YEAR ENDED JULY 31, 1996 COMPARED TO YEAR ENDED JULY 31, 1995. Total revenues - ------------------------------------------------------------- for the Company for the year ended July 31, 1996 were $105,630 compared to $114,667 for the year ended July 31, 1995. The decrease in revenues reflect lower produced volumes of oil and natural gas and is offset somewhat by slightly higher product prices received. In addition to revenues from operations, the Company generated net revenue of $268,532 during the year from its participation in the financial program offered by FSI. Since the ability of FSI to continue its 1996 levels of placements of its financial product cannot be assured, the Company expects its revenues will decrease during fiscal 1997 and reflect revenue levels commensurate with its current oil and gas operations. The Company sold its oil and gas operations in October, 1996 and as a result will have only minimal revenues until its mining operations begin. Since the Company is, subject to available capital, planning the start-up of operations on its Duke Mine during fiscal 1997 operating revenues may increase if operations are achieved on a significant level.
Operating expenses for the year ended July 31,1996 were $386,619 compared to $389,940 for the year ended July 31, 1995. The level of expenses is expected to remain about the same for fiscal 1997 unless significant mining activity is achieved. General and administrative expenses increased to $312,453 for the year ended July 31, 1996 compared to $234,012 for the prior year end and reflect the present acquisition activity in the mining business and the costs associated therewith. General and administrative expenses are expected to increase dramatically as mining operations are initiated and the Company hires employees to manage its operations.
The Company incurred an after tax loss of $276,424 ($0.01 per share) for the year ended July 31, 1996 compared to a loss of $702,895 ($0.03 per share) for the year ending July 31, 1995 The improvement in the after tax loss reflects the increase in non-refundable fees received by the Company in conjunction with its participation with FSI and the reduction in write-offs incurred in prior years. Until the Company initiates significant mining operations on a continuous basis, it is anticipated that the Company's operations will continue to be unprofitable.
YEAR ENDED JULY 31, 1995 COMPARED TO YEAR ENDED JULY 31, 1994. Total revenues - ---------- -------------------------------------------------- from the Company's operations and activities were $114,667 for the year ending July 31,1995 compared to $296,641 for the prior year end. The decrease in revenue of $181,9?4 (61%) reflects the sale of the oil and gas assets of I.B. Energy, Inc. and a reduction of oil and gas prices during 1995. The present level of revenues are indicative of the Company's current oil and gas operations in its Premier Operating Company subsidiary.
Operating expenses declined slightly to $389,940 for the year ended July 31, 1995 compared to $524,525 for the prior year ending July 31, 1994, as a result of she sale of the I.B. Energy, Inc. oil and gas assets and the suspension of certain mining activities. General and administrative expenses remained constant in fiscal 1995 compared to fiscal 1994 as a result of the start-up of certain mining operations within Ridgepointe which were subsequently suspended due to a lack of working capital. The mining company accounted for $105,322 of general and administrative expenses.
The Company incurred an aftertax net loss of $702,895 ($0.03 per share) for the year ending July' 31, 1995 compared to a loss of $265,869 ($0.01 per share) for the year ending July 31, 1994. Until the Company initiates its mining operations on a continuous basis, the Company expects its present level of operations to continue to be unprofitable.
YEAR ENDED JULY 31, 1994 COMPARED TO YEAR ENDED JULY 31, 1993. Total revenues - ------------------------------------------------------------- from the Company's oil and gas operations for the year ended July 31, 1994 were $296,641 as compared to $433,283 for the year ended July 31, 1993. The decrease in revenues is primarily due to the sale of substantially all of the oil and gas assets of I.B.
Energy, Inc. to generate capital for mining operations.
Total operating expenses decreased from $558,267 for the year ended July 31, 1993 to $524,525 for the year ended July 31, 1994. The decrease is primarily due to the sale of the I.B. Energy subsidiary and is offset by higher general and administrative costs associated with the Company's acquisition of mining claims which increased by $98,389 from period to period, by increased interest expenses of $38,947 and by actual mining expenses of $49,000 associated with the company's properties.
The Company incurred an after-tax net loss for the year ended July 31, 1994 of $265,869 ($0.01 per share) compared to an after-tax net loss of $18,268 ($0.00 per share) for the year ended July 31. 1993.
CAPITAL RESOURCES AND LIQUIDITY.
The Company's capital requirements relate primarily to its mining activities and the development of its oil and gas properties. Prior to the change in control, the Company funded its very limited activities from cash flow. The Company, through its subsidiaries, has established credit facilities with a bank to facilitate the funding of its operations. However, today, because of certain defaults which exist in relation to the Company's primary credit facility, additional borrowings are not available to the Company. As a result of the sale of its Premier Operating subsidiary in October, 1996, the Company retired its principal bank debt and no longer has access to financing from that source.
Presently the Company is active in several mining activities which will require significant capital expenditures. The Company has a wide degree of discretion in the level of capital expenditures it must devote to each project on an annual basis and the timing of the development of each project. The Company has primarily been engaged, in its recent past, in the acquisition and testing of mineral properties to be inventoried for future development. Because of the relative magnitude of the capital expenditures that my ultimately be required for any single mining venture as operations are achieved, management has pursued a strategy of acquiring properties with significant mineral potential in an effort to create a mineral property base sufficient to allow the Company to access capital from external sources, either through debt or equity placements. In order to develop its properties in a continuos manner in the future, management believes the Company will need to raise capital from outside sources during fiscal 1997. In the event that additional capital is not obtained, it may become necessary to alter development plans or otherwise abandon certain ventures.
In order to meet the immediate capital requirements of the mining activities described above, the Company has obtained loans secured by its oil and gas assets in the principal amount of $139,817 at July 31, 1996. As discussed previously, the Company subsequently sold all of its oil and gas properties which resulted the retirement of this debt and in additional working capital available to funding the mining activities. Although the timing of expenditures for the Company's mining activities are distributed over several months, the Company anticipates its current working capital will be insufficient to meet its capital expenditures. Furthermore, since the fees generated from the Company's participation in the program with FSI are unpredictable in both timing and magnitude and because there can be no assurance that FSI will continue to be able to market its product, the Company believes it will be required to access outside capital either through debt or equity placements or through joint venture operations with other mining companies. There can be no assurance that the Company will be successful in its efforts to locate outside capital and as a result the level of the Company's planned mining activities may need to be curtailed, deferred or abandoned entirely.
The level of the Company's capital expenditures will vary in the future depending on energy and commodity market conditions and upon the level of and mining activity achieved by the Company. The Company anticipates that its cash flow will be insufficient to fund its operations at their current levels and that additional funds will be required.
The Company's basic credit facility consists of a revolving credit facility under which the Company has available to it a revolving line of credit in the principal amount of $216,000 As a result of certain defaults by the Company in its credit facility with the bank, the bank has advised the Company that it can no longer utilize the revolving features of the facility. In addition the bank has notified the company that it is in default of its credit facility and is subject to foreclosure.
The Company is required to make interest payments monthly with interest accruing at a varying rate based on the sum of the bank's prime lending rate (10.25 % at July 31, 1996). The revolving line of credit is secured by substantially all of Premier's oil and gas properties Principal payments of $4,500 plus accrued monthly interest began on June 1, 1994 with a final payment of all unpaid principal and interest due at October 31, 1995. The Company has been unable to extend the due date of its loan with its lender, although the lender has notified the Company of its willingness to provide the Company with additional time to payoff the loan balance. As a result of the Company's default under its loan agreement and because there is presently no agreement in place regarding any specific period of time over which the bank will forego further actions, the lender may liquidate the Company's oil and gas properties in satisfaction of the debt. Subsequent to year end the Company sold its oil and gas properties and its Premier Operating subsidiary and paid off the debt. At July 31, 1996 the outstanding balance under the Company's credit facilities with its Bank totaled $139,817.
The Company's existing debt agreements with the bank contain covenants which limit the amount of additional indebtedness the Company may incur, restrict certain acquisitions and sales of oil and gas properties, and prohibit dividends. The Company has obtained certain unsecured loans, in compliance with its bank covenants, from its Chairman, Jeffrey T. Wilson which total $177,639 as of July 31, 1996. These funds are being used to initiate the Company's mining activities. Management believes that the Company will not have sufficient borrowing capacity to fund its anticipated needs and will need to access outside capital.
At July 31, 1996, the Company had current assets of $25,864 and current liabilities of $2,389,091 which resulted in negative working capital of $2,363,227. The negative working capital position is comprised of senior bank debt, notes payable to shareholders and related parties and acquisition notes. As discussed earlier, if the Company is unsuccessful in obtaining outside capital or extensions to its acquisition note with UFO Limited Partnership regarding the UFO Mine, certain mining activities of the Company may be curtailed, postponed or abandoned. The Company believes that its cash flow from operations of its oil and gas properties will be insufficient to meet its credit repayment obligations and fund the ongoing operating needs of the Company. As a result the Company plans to seek additional capital from outside sources through the placement of additional debt or equity during fiscal 1997 Because the availability of debt and equity financing are subject to a number of variables, there can be no assurance that the Company will be successful in attracting adequate financing and as a result may be required to curtail, postpone or abandon certain of its planned capital expenditures. If the Company is unable to attract adequate financing, management believes the Company may be compelled to sell certain of its assets to meet its obligations.
SEASONALITY
The results of operations of the Company are somewhat seasonal due to seasonal fluctuations in the price for crude oil and natural gas. Recently, crude oil and natural gas prices have increased to their highest level in several years. Due to these seasonal fluctuations results of operations for individual quarterly periods may not be indicative of results which may be realized on an annual basis.
INFLATION AND PRICES
The Company's revenues and the value of its oil and gas and mining properties have been and will be affected by changes in oil and gas and precious metals prices. The Company's ability to maintain current borrowing capacity and to obtain additional capital on attractive terms is also substantially dependent on oil and gas and precious metals prices. Prices for these commodities are subject to significant fluctuations that are beyond the Company's ability to control or predict.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
AUDITED FINANCIAL STATEMENTS OF IMPERIAL PETROLEUM, INC.
Independent Auditor's Report................................................ Consolidated Balance Sheets as of July 31, 1996 and 1995.................... Consolidated Statements of Operations for the years ended July 31, 1996, 1995 and 1994.................................................F-3 Consolidated Statements of Stockholder's Equity for the years Ended July 31, 1996, 1995 and 1994.......................................... Consolidated Statements of Cash flows for the years ended July 31, 1996, 1995 and 1994.................................................F-5 Notes to Consolidated Financial Statements.................................
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
Not applicable.
PART III
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT.
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information regarding the directors, executive officers and key employees of the Company.
Jeffrey T. Wilson has been Director, Chairman of the Board, President and Chief Executive Officer of the Company since August 1993. Mr. Wilson is a Director, Chairman and President of LaTex Resources, Inc., an affiliate of the Company, and was the founder of its principal operating subsidiary, LaTex Petroleum Corporation. Prior to his efforts with LaTex, Mr. Wilson was Director and Executive Vice President of Vintage Petroleum, Inc. and was employed by Vintage in various engineering and acquisition assignments from 1983 to 1991. From August 1980 to May 1983 Mr. Wilson was employed by Netherland, Sewell & Associates Inc., a petroleum consulting firm. Mr. Wilson began his career in the oil and gas business in June 1975 with Exxon Company USA in various assignments in the Louisiana and South Texas areas. Mr. Wilson holds a Bachelor of Science Degree in Mechanical Engineering from Rose-Hulman Institute of Technology.
Malcolm W. Henley has been a Director and Vice President of the Company since May 1996. Mr. Henley is a Director and Vice President of LaTex Resources, Inc., an affiliate of the Company and was founder of Enpro, Inc. a crude oil and natural gas marketing subsidiary of LaTex. Mr. Henley's prior experience includes Manager of Operations for Champlin Pipeline Company from 1976 to 1979 and Continental Oil Company from 1975-1976. Mr. Henley has a Bachelor of Arts Degree in Business Administration from Oklahoma State University and an Associate Degree in Petroleum Land Technology from Tulsa Junior College.
Stacey D. Smethers has been a Director of the Company and Director since July 1995. Mrs. Smethers is Executive Assistant to the President of Enpro, Inc. and Marketing Representative for LaTex Resources, Inc., an affiliate of the Company. Mrs. Smethers has seven years of varied experience in the oil and gas industry including assignments in marketing, administration and petroleum land management.
SECTION 16(a) REPORTING DEFICIENCIES
Section 16(a) of the Securities and Exchange Act of 1934 ("Exchange Act") requires the Company's directors and officers and persons who own more than 10% of a registered class of the Company's equity securities, to file initiak reports of ownership on Form 3 and reports of changes in ownership on Forms 4 and 5 with the Securities and Exchange Commission (the "SEC") and the National Association of Securities Dealers ("NASD"). Such persons are required by SEC regulation to furnish the company with copies of all Section 16(a) forms they file.
Based upon a review of From 3, 4 and 5 filings made by the Company's officers and directors during the past fiscal year ended July 31, 1996 under Section 16(a) of the Exchange Act, the Company believes that all requisite filings have been made timely.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION.
The table below sets forth, in summary form, (1) compensation paid to Jeffrey T. Wilson, the Company's Chairman of the Board, President and Chief Executive Officer and (2) other compensation paid to officers and directors of the Company. During the tree fiscal years ended July 31, 1996, 1995 and 1994 (I) no restricted stock awards were granted, (ii) no stock appreciation or stock options were granted, (iii) no options, stock appreciation rights or restricted stock awards were exercised, and (iv) except as provided below, no awards under any long term incentive plan were made to any officer or director of the Company.
The Company began accruing salary due to Jeffrey T. Wilson in January 1994. To date no actual salary payments have been made to Mr. Wilson.
None of the executive officers listed received perquisites or other personal benefits that exceeded the lesser of $50,000 or 10% of the salary and bonus for such officers. (1) The exercise price of the warrants is $0.03 per share with a term of three years from July 10, 1996.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
As of July 31, 1996, the Company has 31,426,841 issued and outstanding shares of common stock. The following table sets forth, as of July 31, 1996, the number and percentage of shares of common stock of the Company owned beneficially by (I) each director of the Company, (ii) each executive officer of the Company, (iii) all directors and officers as a group, and (iv) each person known to the Company to own of record or beneficially own more than 5% of the Company's common stock. Except as otherwise listed, the stockholders listed in the table have sole voting and investment power with respect to the shares listed. As of July 31, 1996, the Company had approximately 500 holders of common stock of record.
(1) The mailing address of Mr. Wilson is 100 NW Second Street, Suite 312, Evansville, Indiana 47708. Includes 770,128 shares owned by LaTex Resources, Inc. by virtue of Mr. Wilson's 21.4% ownership of LaTex.
(2) The mailing address of Mr. Henley and Mrs. Smethers is 4200 East Skelly Drive, Suite 1000, Tulsa, Oklahoma 74135. Includes 93,567 shares owned by LaTex Resources, Inc. in Mr. Henley's total by virtue of his 2.6% ownership of LaTex.
(3) The mailing address of LaTex Resources, Inc. is 4200 East Skelly Drive, Suite 1000, Tulsa, Oklahoma 74135.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
As of July 31, 1996, the Company has notes payable to Latex Resources, Inc. totaling $747,870 which are secured by certain mining claims.
Jeffrey T. Wilson, Chairman, President and Chief Executive Officer of the Company has made unsecured loans to the Company which total $177,639 as of July 31, 1996. In addition, Mr. Wilson has personally guaranteed the indebtedness of Premier Operating Company with its principal lender.
The Company has made unsecured loans to Wexford Technology, Inc., an affiliate of the Company, of $138,489 as of July 31, 1996.
The officers and directors of the Company are also officers and directors of LaTex Resources, Inc. which is also engaged in the oil and gas business. As a result there may exist conflicts of interest between the operations of the companies.
PART IV
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K. ---------------------------------------------------------------
(a) Financial Statements (See Item 8. Financial Statements and Supplementary Data):
Financial Statements of Imperial Petroleum, Inc.
Reports of Independent Public Accountants; Consolidated Balance Sheets as of July 31, 1996 and 1995; Consolidated Statements of Operations for the years ended July 31, 1996, 1995, and 1994; Consolidated Statements of Stockholder Equity for the years ended July31, 1996, 1995, and 1994; Consolidated Statements of Cash Flows for the years ended July 31, 1996, 1995, and 1994; Notes to Consolidated Financial Statements.
Supplemental Financial Information Schedule II - Amounts Receivable from Related Parties. Other Schedules are omitted as they are not required.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed with the Securities and Exchange Commission during the fiscal year ended July 31, 1996.
(c) Exhibits.
2.1 Reorganization Agreement and Plan incorporated herein by reference to Exhibit E to the Registrant's General Form for Registration of Securities on Form 10 filed with the Securities and Exchange Commission on August31, 1981 (the "Form 10").
2.2 Article of Merger incorporated herein by reference to Exhibit F of the Form 10.
2.3 Agreement to Exchange Stock and Plan of Reorganization dated August 27, 1993 by and between Imperial Petroleum, Inc., Glauber Management Company, Glauber Valve Co., Inc., Jeffrey T. Wilson, James G. Borem, and those persons listed on exhibit A thereto, and exhibits and schedules attached thereto, incorporated herein by reference to Exhibit 2.1 to the Registrant's Current Report on Form 8-K filed with the Securities and Exchange Commission on September 17, 1993.
2.4 First Amendment to Agreement to Exchange Stock and Plan of Reorganization dated August 27, 1993 by and between Imperial Petroleum, Inc., Glauber Management Company, Glauber Valve Co., Inc., Jeffrey T. Wilson, James G. Borem, and those persons listed on Exhibit A thereto, and exhibits and schedules attached thereto, incorporated herein by reference to Exhibit 2.1 to the Registrant's Current Report on Form 8-K filed with the Securities and Exchange Commission on September 17, 1993.
2.5 Stock Exchange Agreement dated October 4, 1993 by and between Imperial Petroleum, Inc., Frederic D. Sewell, and the remaining parties identified in Schedules "A-1" and "A-2" thereto, and exhibits and schedules attached thereto, incorporated herein by reference to Exhibit 2.1 to the Registrant's Current Report on Form 8-K filed with the Securities and Exchange Commission on October 29, 1993.
3.1 Certificate of Incorporation of the Registrant incorporated herein by reference to Exhibit -~ of the Form 10.
3.2 Bylaws of the Registrant incorporated herein by reference to Exhibit B of the Form 10.
4 Instruments defining the rights of security holders, including indentures. Not applicable.
9 Voting Trust Agreement. Not applicable.
10.1 Letter Agreement between I.B. Energy, Inc. and Bank of Oklahoma, N.A. dated July 9, 1992.
10.2 Promissory Note in the principal sum of $395,000 by and between lB. Energy, Inc. and Sank of Oklahoma, N.A. dated July 9, 1992.
10.3 Mortgage, Deed of Trust, Security Agreement, Financing Statement and Assignment between I.B. Energy, Inc. and Bank of Oklahoma, N.A. dated July 9, 1992.
10.4 Guaranty Agreement by and between James G. Borem, Patricia Borem and Bank of Oklahoma, N.A. dated July 9, 1992.
10.5 Guaranty Agreement by and between Jeffrey T. Wilson, Annalee C. Wilson and Bank of Oklahoma, N.A. dated July 9, 1992.
10.6 Letter Agreement between I.B. Energy, Inc. and Bank of Oklahoma, N.A. dated July 9,1992.
10.7 Security Agreement and Assignment [Louisiana] between IB. Energy, Inc. and Bank of Oklahoma, NA. dated July 9, 1992.
10.8 Act of Pledge and Security Agreement between I.B. Energy, Inc. and Bank of Oklahoma, NA. dated July 9, 1992.
10.9 Letter Agreement between I.B. Energy, Inc., Bank of Oklahoma, N.A., Jeffrey T. Wilson, Annalee C. Wilson, James G. Borem and Patricia Borem dated May 7, 1993.
10.10 Promissory Note in the principal sum of $350,000 by and between I.B. Energy, Inc., and Bank of Oklahoma, N.A. dated May 7, 1993.
10.11 Guaranty Agreement by and between Ridgepointe Mining Company and Bank of Oklahoma N.A. dated May 7, 1993.
10.12 Guaranty Agreement by and between Jeffrey T. Wilson. Annalee C. Wilson, and Bank of Oklahoma, NA. dated May 7, 1993.
10.13 Guaranty Agreement by and between James G. Borem, Patricia Borem, and Bank of Oklahoma, NA. dated May 7, 1993.
10.14 Promissory Note in the principal sum of $216,000 by and between Premier Operating Company and Bank of Oklahoma, N.A. dated October 18, 1993.
10.15 Mortgage, Deed of Trust, Security Agreement. Financing Statement and Assignment (Midland County, Texas) by and between Premier Operating Company and Bank of Oklahoma, NA. dated October 18, 1993.
10.16 Financing Statement by and between Premier Operating Company and Bank of Oklahoma. N.A. dated October 18, 1993.
10.17 Letter Agreement by and between Premier Operating Company and Bank of Oklahoma, N.A. dated October 18, 1993.
10.18 Negative Pledge Agreement by and between Premier Operating Company and Bank of Oklahoma, N.A. dated October 18, 1993.
10.19 Guaranty Agreement by and between Ridgepointe Mining Company and Bank of Oklahoma, N.A. dated October 18, 1993.
10.20 Guaranty Agreement by and between the Registrant and Bank of Oklahoma, N.A. dated October 18, 1993.
10.21 Guaranty Agreement by and between Jeffrey T. Wilson, Annalee C. Wilson, and Bank of Oklahoma, N.A. dated October 18, 1993.
11 Statement re: computation of per share earnings. Not applicable.
12 Statement re: computation of ratios. Not applicable.
13 Annual Report to security holders, Form 10-Q, or quarterly report to security holders. Not applicable.
16 Letter re change in certifying accountant. Not applicable.
18 Letter re: change in accounting principles. Not applicable.
21 Subsidiaries of the Registrant.
22 Published report regarding matters submitted to vote of security holders. Not applicable.
23 Consents of experts and counsel. Not applicable.
24 Power of Attorney. Not applicable.
27 Financial Data Schedule. Not applicable.
28 Information from reports furnished to state insurance regulatory authorities. Not applicable;
99 Additional Exhibits; Not applicable.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Imperial Petroleum, Inc. Date: August 25, 1997 /S/ Jeffrey T. Wilson ---------------------- Jeffrey T. Wilson, President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated:
Signature Title Date - ------------- ------------ ----
/s/ Jeffrey T. Wilson President and Chief Executive August 25, 1997 - ---------------------- Officer (Principal Executive Jeffery T. Wilson Officer) and Director
[LETTERHEAD OF BRISCOE & BURKE APPEARS HERE]
INDEPENDENT AUDITOR'S REPORT ----------------------------
Board of Directors Imperial Petroleum, Inc. Evansville, Indiana
We have audited the accompanying consolidated balance sheets of Imperial Petroleum, Inc. (A Development Stage Company) as of July 31, 1996 and 1995 and the consolidated statements of operations, stockholders' equity, and cash flows for the years ended July 31, 1996, 1995 and 1994 and for the period from August 1, 1992 (inception) to July 31, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Imperial Petroleum, Inc. (A Development Stage Company) as of July 31, 1996 and 1995 and the results of its operations and its cash flows for the years ended July 31, 1996, 1995 and 1994 and for the period from August 1, 1992 (inception) to July 31, 1996, in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has suffered recurring losses, substantial working capital deficiencies, and has not completed the necessary reserve studies to determine the metal content of the reserves and the related future production costs which affect the recoverability of capitalized costs. Additionally, as described in Note 6 to the financial statements, the Company is in default on a portion of its notes payable relating to a mining claim option. These factors raise substantial doubt about its ability to continue as a going concern. Further, there can be no assurance, assuming the Company successfully raises additional funds, that it will be able to economically recover the value of its mining claims or achieve profitability. Management's plans in regard to these matters are also described in Note 1 to the financial statements. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ BRISCOE & BURKE
BRISCOE & BURKE Certified Public Accountants
January 15, 1997 Tulsa, Oklahoma
IMPERIAL PETROLEUM, INC. (A Development Stage Company) Consolidated Balance Sheets July 31, 1996 and 1995
The accompanying notes are an integral part of these financial statements.
IMPERIAL PETROLEUM, INC. (A Development Stage Company) Consolidated Statements of Operations For the Years Ended July 31, 1996, 1995 and 1994
The accompanying notes are an integral part of these financial statements.
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Consolidated Statements of Stockholders' Equity
For the Years Ended July 31, 1996, 1995, and 1994
The accompanying notes are an integral part of these financial statements.
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Consolidated Statements of Cash Flows
For the Years Ended July 31, 1996, 1995 and 1994
The accompanying notes are an integral part of these financial statements.
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Consolidated Statements of Cash Flows
For the Years Ended July 31, 1996, 1995 and 1994
Disclosure of accounting policy: For purposes of the statement of cash flows, the Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents.
The accompanying notes are an integral part of these financial statements.
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
1. ORGANIZATION AND BUSINESS COMBINATION
ORGANIZATION ------------
Imperial Petroleum, Inc. (the "Company") is engaged in oil and gas production through its wholly owned subsidiary, Premier Operating Company. The Company's oil and gas operations are conducted in Oklahoma, Texas, and Louisiana (See Note 16).
The Company is also engaged, through its wholly owned subsidiary, Ridgepointe Mining Company, in testing, defining and developing mineral reserves on mining claims it owns or operates in Utah, Montana, Arizona, and New Mexico.
FINANCIAL CONDITION -------------------
The Company's financial statements for the year ended July 31, 1996 have been prepared on a going concern basis which contemplates the realization of assets and the settlement of liabilities in the normal course of business. The Company incurred a net loss of $276,424 for the year ended July 31, 1996 and as of July 31, 1996 has an accumulated deficit of $1,204,587 and a deficit working capital of $2,363,227.
The Company's management plans to raise capital to fund continuing operations by utilization of one or a combination of the following:
1. The continuation of its efforts in the issuance of Gold Dore Certificates (See Note 15).
2. The private placement of equity securities through negotiations with potential market makers in the Company's securities.
3. The joint venture of the Company's Utah property with another mining company to provide the capital resources to develop all of the Company's properties.
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
1. ORGANIZATION AND BUSINESS COMBINATION (CONTINUED)
ACQUISITION OF IMPERIAL PETROLEUM, INC. ---------------------------------------
Pursuant to an Agreement to Exchange Stock and Plan of Reorganization dated August 27, 1993 (the "Stock Exchange Agreement"), between Imperial Petroleum, Inc. ("Imperial"), Glauber Management Company, ("Glauber Management"), Glauber Valve Co., Inc., ("Glauber Valve"), and the Ridgepointe Stockholders, the Ridgepointe Stockholders agreed to exchange (the "Ridgepointe Exchange Transaction") a total of 12,560,730 shares of the common stock of Ridgepointe Mining Company, representing 100% of the issued and outstanding common stock of Ridgepointe, for a total of 12,560,730 shares of newly issued shares of Imperial's common stock representing 59.59% of Imperial's resulting issued and outstanding common stock. The one-for-one ratio of the number of shares of Imperial's common stock exchanged for each share of Ridgepointe common stock was determined through arms length negotiations between Imperial and the majority stockholders of Ridgepointe. As a result, Ridgepointe became a wholly owned subsidiary of Imperial.
As a condition to the Ridgepointe Exchange Transaction, Imperial received and cancelled 7,232,500 shares of its Common Stock from Glauber Management and received 100,000 shares of the common stock of Tech-Electro Technologies, Inc. from an affiliate of Glauber Management and Glauber Valve. In addition, Glauber Management or Glauber Valve, or their affiliates, transferred to Imperial 75,000 shares of common stock of Chelsea Street Holding Company, Inc.
ACQUISITION OF PREMIER OPERATING COMPANY ----------------------------------------
Pursuant to a Stock Exchange Agreement dated October 4, 1993 (the "Stock Exchange Agreement") between Imperial Petroleum, Inc. and the Premier Stockholders, the Premier Stockholders agreed to exchange (the "Premier Exchange Transaction") an aggregate of 749,000 shares of the common stock of Premier Operating Company ("Premier"), consisting of 252,000 shares of Class A voting common stock and 497,000 shares of non-voting Class B common stock, representing 100% of the issued and outstanding common stock of Premier, for a total of 749,000 shares of newly issued shares of the Company's common stock representing 3.62% of the Company's resulting issued and outstanding common stock. The one-for-one ratio of the number of shares of the Company's common stock exchanged for each share of Premier common stock was determined through arms length negotiations between the Company and a major shareholder of Premier, on behalf of the Premier Stockholders. The business combination was accounted for using the purchase method of accounting. As a result, Premier became a wholly owned subsidiary of the Company.
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
1. ORGANIZATION AND BUSINESS COMBINATION (CONTINUED)
DEVELOPMENT STAGE COMPANY -------------------------
A summary of the financial information of Ridgepointe Mining Company (A Development Stage Company), excluding its wholly owned subsidiary I. B. Energy, Inc., is as follows:
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
1. ORGANIZATION AND BUSINESS COMBINATION (CONTINUED)
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
1. ORGANIZATION AND BUSINESS COMBINATION (CONTINUED)
Cumulative From Inception -------------- Cash flows from operating activities: Historical net loss $ (677,603) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and depletion - (Increase) in other assets (2,445) Increase in current liabilities 1,435,895 -----------
Net cash used for operating activities 755,847 -----------
Cash flows from investing activities: Mining options, properties and equipment purchased - net (1,864,414) -----------
Net cash used for investing activities (1,864,414) -----------
Cash flows from financing activities: Increase in notes payable 1,000,000 Increase in notes payable - related parties 108,592 -----------
Net cash provided by financing activities 1,108,592 -----------
Net increase in cash and cash equivalents 25
Cash and cash equivalents at inception - -----------
Cash and cash equivalents at July 31, 1996 $ 25 ===========
Supplemental disclosures of cash flow information: Cash paid during the period for Interest $ - Income taxes -
Disclosure of accounting policy: For purposes of the statement of cash flows, the Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents.
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION ---------------------------
The July 31, 1996, 1995 and 1994 financial statements include the accounts of the Company and its wholly owned subsidiaries, Ridgepointe Mining Company, Premier Operating Company, and I. B. Energy, Inc. All significant intercompany accounts have been eliminated.
ACCOUNTING ESTIMATES --------------------
The presentation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
FINANCIAL INSTRUMENTS ---------------------
The fair value of current assets and current liabilities are assumed to be equal to their reported carrying amounts due to the short maturities of these financial instruments.
The carrying value of all other financial instruments approximates fair value.
MARKETABLE SECURITIES ---------------------
The Company determines the appropriate classification of debt and equity securities at the time of purchase and re-evaluates such designation as of each balance sheet date. Securities are classified as held-to-maturity when the Company has the intent and ability to hold the securities to maturity. Held-to-maturity securities are stated at cost and investment income is included in earnings. The Company classifies certain highly liquid securities as trading securities. Trading securities are stated at fair value and unrealized holding gains and losses are included in income. Securities that are not classified as held-to-maturity or trading are classified as available-for-sale. Available-for-sale securities are carried at fair value, with the unrealized holding gains and losses, net of tax, reported as a separate component of stockholders' equity.
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CONCENTRATIONS OF CREDIT RISK -----------------------------
Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash investments and accounts receivable. The Company places its cash investments with high quality financial institutions and limits the amount of exposure to any one institution. In the case of default of any one financial institution, no cash investments exist that are not covered by the FDIC. The Company's revenues are derived principally from uncollateralized sales to customers in the oil and gas industry. The concentration of credit risk in a single industry affects the Company's overall exposure to credit risk because customers may be similarly affected by changes in economic and other conditions. The Company has not experienced significant credit losses on such receivables. The Company performs periodic evaluations of its customers' financial condition and generally does not require collateral.
DEVELOPMENT STAGE SUBSIDIARY ----------------------------
Ridgepointe Mining Company, a wholly owned subsidiary, is in the process of defining mineral reserves and raising capital for operations. As such, Ridgepointe Mining Company is considered a development stage enterprise.
REVENUE RECOGNITION -------------------
The Company recognizes oil and gas revenue in the month of sale. Mining revenues will be recognized in the month of sale. Uncollected revenue is accrued based on known facts and trends of the relevant oil and gas properties on a monthly basis.
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
2. SUMMARY OF ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY, EQUIPMENT, DEPRECIATION AND DEPLETION -----------------------------------------------
The Company uses the successful efforts method to account for costs in the acquisition and exploration of oil and natural gas reserves. Costs to acquire mineral interests in proved reserves, and to drill and equip development wells are capitalized. Geological and geophysical costs and costs to drill exploratory wells which do not find proved reserves are expensed. Undeveloped oil and gas properties which are individually significant are periodically assessed for impairment of value and a loss is recognized at the time of impairment by providing an impairment allowance. The remaining unproved oil and gas properties are aggregated and an overall impairment allowance is provided based on Company experience. Depletion and depreciation are calculated on the units of production method based upon current estimates of oil and gas reserves provided by management.
Non oil and gas property and equipment are stated at cost. Depreciation is computed by the straight-line method over the estimated useful lives of non oil and gas assets. Expenditures which significantly increase values or extend useful lives are capitalized. Expenditures for maintenance and repairs are charged to expenses as incurred. Upon sale or retirement of property and equipment, the cost and related accumulated depreciation and depletion are eliminated from the respective accounts and the resulting gain or loss is included in current earnings.
Mining exploration costs are expensed as incurred. Development costs are capitalized. Depletion of capitalized mining costs will be calculated on the units of production method based upon current production and reserve estimates when placed in service.
INCOME TAXES ------------
Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
2. SUMMARY OF ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
GAS BALANCING -------------
The Company follows the sales method of accounting for gas imbalances. A liability is recorded only if the Company's excess takes of natural gas volumes exceed its estimated remaining recoverable reserves. No receivables are recorded for those wells when the Company has taken less than its ownership share of gas production.
LOSS PER COMMON SHARE ---------------------
Loss per common share is computed based upon the weighted average common shares outstanding. Outstanding warrants are excluded from the weighted average shares outstanding since their effect on the earnings per share calculation is antidilutive.
FASB ACCOUNTING STANDARDS -------------------------
The Financial Accounting Standards Board has issued Statement of Financial Accounting Standards No. 119 (SFAS 119), Disclosure about Derivative Financial Instruments and Fair Value of Financial Instruments. This Statement generally requires disclosures about amounts, nature, and terms of derivative financial instruments. The Company has adopted SFAS 119 for the fiscal year ended July 31, 1996.
The Financial Accounting Standards Board has issued Statement of Financial Accounting Standards No. 121 (SFAS 121), Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of. This Statement requires that long-lived assets and certain identifiable intangibles to be held and used by an entity be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If the sum of the undiscounted future cash flows is less than the carrying amount of the asset, an impairment loss is recognized. This Statement is effective for financial statements for fiscal years beginning after December 15, 1995. The Company intends to adopt SFAS 121 for the fiscal year ending July 31, 1997. The Company expects the adoption of SFAS 121 will not have a material effect on its financial statements.
RECLASSIFICATION ----------------
Certain amounts in the 1995 and 1994 consolidated financial statements have been reclassified to conform with the 1996 presentation.
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
3. ACCOUNTS RECEIVABLE - RELATED PARTIES
Accounts receivable - related parties was comprised of the following:
4. MINING PROPERTIES UNDER DEVELOPMENT
MINING CLAIM OPTIONS --------------------
The Company entered into an agreement with a third party on November 6, 1992, giving the Company the option to purchase certain mining claims known as the "UFO Mining Claims" from UFO Mining Limited Partnership ("UFO"), on or before July 31, 1993. The purchase price was $2,000,000 in cash or an equal value in restricted common stock of a publicly traded company controlled by the Purchaser or its Assignees. Prior to July 15, 1993, UFO was to provide to the Purchaser, in writing, its intention to accept all cash or all stock or a combination of cash and stock as payment of the purchase price.
On September 21, 1993 the parties agreed by letter to modify, amend and extend the existing letter agreement to cause to be issued 1,000,000 shares of Imperial Petroleum, Inc. restricted common stock to UFO in exchange for an extension of the agreement until March 31, 1994 and a reduction in the total consideration to be paid UFO to $1,000,000 cash at March 31, 1994. (See Note 6)
During the fiscal year ending July 31, 1994, the Company advanced $111,500 pursuant to the purchase of the Lance and Trega mines in northern Mexico.
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
4. MINING PROPERTIES UNDER DEVELOPMENT (CONTINUED)
During August of 1995, the Company signed an agreement to rescind its acquisition of the Gold Nugget Mining Claims. As a result, mining claims were reduced $1,270,376, notes payable to Darr Equipment Company and Kenneth R. Shepherd totaling $1,150,063 were reduced to $0 (See Note 6), and Treasury stock was increased $120,313. A provision for loss of $163,860 was charged to expense for the year ended July 31, 1995 for payments on equipment returned.
MINING EQUIPMENT ----------------
During the fiscal years ending July 31, 1996 and 1995, the Company acquired mining claims and equipment through a combination of the issuance of stock, assumption of liabilities and assumption of a note payable.
MINE DEVELOPMENT ----------------
The costs incurred for mine evaluation and development are capitalized. Upon the commencement of production, the capitalized costs will be amortized utilizing the units of production method. The Company has incurred $349,105 and $349,105 in development costs through July 31, 1996 and 1995, respectively.
The Company's mining fixed assets consist of the following:
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
4. MINING PROPERTIES UNDER DEVELOPMENT (CONTINUED)
The Company has not completed the necessary reserve studies to determine the metal content of the reserves and the related future production costs which affect the recoverability of the capitalized costs. Additionally, as described in Note 6, the Company is in default on a portion of its notes payable relating to a mining claim option. The amount of impairment, if any, cannot be estimated. Accordingly, the financial statements do not include any adjustments that might result from the outcome of this uncertainty.
5. INCOME TAXES
Provisions for income taxes are as follows:
IMPERIAL PETROLEUM, INC.
Notes to Consolidated Financial Statements
July 31, 1996, 1995, and 1994
5. INCOME TAXES (CONTINUED)
Income taxes differed from the amounts computed by applying the U.S. federal tax rate of 34% as a result of the following:
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities are presented below:
IMPERIAL PETROLEUM, INC.
Notes to Consolidated Financial Statements
July 31, 1996, 1995, and 1994
5. INCOME TAXES (CONTINUED)
A valuation allowance is required when it is more likely than not that all or a portion of the deferred tax assets will not be realized. The ultimate realization of the deferred tax assets is dependent upon future profitability. Accordingly, a valuation allowance has been established to reduce the deferred tax assets to a level which, more likely than not, will be realized.
The Company has net operating loss (NOL) carryforward to offset its earnings of approximately $1,400,000. If not previously utilized, the net operating losses will expire in varying amounts from 2009 to 2011.
6. NOTES PAYABLE
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
6. NOTES PAYABLE (CONTINUED)
The Company was in default on its note due to Bank of Oklahoma, N. A. at July 31, 1996. The note is secured by the fixed assets of the Company's wholly owned subsidiary, Premier Operating Company (See Note 16).
The Company is also in default on its promissory note to U.F.O. Mining, Ltd. Partnership. The Company is in the process of negotiating an extension or modification of the terms of the agreement. Because the Company can return the mining claims with no obligation, the Company has not accrued any interest on the note. However, if the Company returns the claims to the seller, the following assets would be significantly impaired:
7. NOTES PAYABLE - RELATED PARTY
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
8. RELATED PARTY TRANSACTIONS
During 1994, Jeffrey T. Wilson, the Chairman and a stockholder of the Company, advanced monies to the Company in the amount of $641,936.
During 1994, LaTex Resources, Inc. and LaTex Petroleum Corporation, both affiliates, paid for general and administrative expenses of the Company, totaling $17,908 and $12,360, respectively.
During 1995, the Company issued notes to LaTex Resources, Inc. (a shareholder) in exchange for $580,150.
The Company conducts various oil and gas transactions with an affiliate, LaTex Petroleum Corporation, in the ordinary course of business.
The Company, from time to time, has entered into loans with certain officers, directors, stockholders and related companies (See Notes 3 and 7).
9. LITIGATION, COMMITMENTS AND CONTINGENCIES
CONTINGENCIES - The Company is a named defendant in lawsuits, is a party ------------- in governmental proceedings, and is subject to claims of third parties from time to time arising in the ordinary course of business. While the outcome of lawsuits or other proceedings and claims against the Company cannot be predicted with certainty, management does not expect these matters to have a material adverse effect on the financial position of the Company.
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
10. BUSINESS SEGMENTS
The Company's operations involve oil and gas production and mining operations. The following table sets forth information with respect to the industry segments of the Company.
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
11. SUPPLEMENTARY FINANCIAL INFORMATION FOR OIL AND GAS PRODUCING ACTIVITIES
RESULTS OF OPERATIONS FROM OIL AND GAS PRODUCING ACTIVITIES -----------------------------------------------------------
The following sets forth certain information with respect to the Company's results of operations from oil and gas producing activities for the years ended July 31, 1996, 1995 and 1994. All of the Company's oil and gas producing activities are located within the United States.
ESTIMATED QUANTITIES OF PROVED OIL AND GAS RESERVES (UNAUDITED) ---------------------------------------------------------------
The Company chose not to have estimates of proved oil and gas reserves prepared by independent petroleum engineers. The reserve estimates provided were prepared by management. The Company's reserves are located onshore in the United States.
The Company emphasizes that reserve estimates are inherently imprecise. Accordingly, the estimates are expected to change as more current information becomes available.
Proved reserves are estimated quantities of crude oil, natural gas, and natural gas liquids which geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions. Proved developed reserves are those which are expected to be recovered through existing wells with existing equipment and operating methods. The following is an analysis of the Company's proved oil and gas reserves.
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
11. SUPPLEMENTARY FINANCIAL INFORMATION FOR OIL AND GAS PRODUCING ACTIVITIES (CONTINUED)
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
11. SUPPLEMENTARY FINANCIAL INFORMATION FOR OIL AND GAS PRODUCING ACTIVITIES (CONTINUED)
Standardized Measure of Discounted Future Net Cash Flows Relating to Proved --------------------------------------------------------------------------- Oil and Gas Reserves (Unaudited) --------------------------------
The "Standardized Measure of Discounted Future Net Cash Flows Relating to Proved Oil and Gas Reserves" (Standardized Measure) is a disclosure requirement under SFAS No. 69. The Standardized Measure does not purport to present the fair market value of proved oil and gas reserves. This would require consideration of expected future economic and operating conditions, which are not taken into account in calculating the Standardized Measure.
Under the Standardized Measure, future cash inflows were estimated by applying year-end prices, adjusted for fixed and determinable escalations, to the estimated future production of year-end proved reserves. Future cash inflows were reduced by the estimated future production and development costs based on year-end costs to determine pre-tax cash inflows. Future income taxes were computed by applying the statutory tax rate to the excess of pre-tax cash inflows over the Company's tax basis in the associated proved oil and gas properties. Tax credits and permanent differences were also considered in the future income tax calculation. Future net cash inflows after income taxes were discounted using a 10% annual discount rate to arrive at the Standardized Measure.
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
11. SUPPLEMENTARY FINANCIAL INFORMATION FOR OIL AND GAS PRODUCING ACTIVITIES (CONTINUED)
CHANGES IN STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS ------------------------------------------------------------------- RELATING TO PROVED OIL AND GAS RESERVES (UNAUDITED) ---------------------------------------------------
The following is an analysis of the changes in the Standardized Measure for the periods presented:
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
12. INVESTMENTS
13. WARRANTS
On July 10, 1996, the Company issued warrants to employees of an affiliate for services provided to the Company. The warrants give the holder the right to purchase 2,500,000 shares of the Company's common stock for $.03 per share. The warrants expire on July 10, 1999.
14. WRITE-DOWN OF MINING EQUIPMENT
During the year ended July 31, 1996, the Company ceased its limited core drilling and testing of its Arizona mining claims. The Company has indefinitely ceased its Arizona milling operations. Additionally, the Company wrote off $121,953 of book value in equipment that could not be located.
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
15. GOLD CERTIFICATE INCOME
During the year, the Company entered into an agreement with Financial Surety International LTD whereby the Company would issue Gold Dore Certificates to third parties in exchange for a leasing fee of 1.25% of the certificate face value. The third party lessee uses the certificates as collateral in order to obtain venture capital financing. These Gold Dore Certificates specify the delivery of a specified amount of gold at a future date, usually 5 years, for sale to the holder at the market price on that date. Performance is insured by contract with Merrion Reinsurance Corporation LTD. Upon expiration of the lease period, the certificates are returned to the Company and are cancelled.
The Company pays a 10% finders fee to a consultant in connection with each certificate issued. During the year the Company had $291,342 of Gold Certificate Income, less finders fees of $22,810 for net Gold Certificate Income of $ 268,532.
16. SUBSEQUENT EVENTS
SALE OF SUBSIDIARY ------------------
Subsequent to year end, the Company consummated the sale of its wholly owned subsidiary, Premier Operating Company. The sales price of $175,000 enabled the Company to satisfy its debt to Bank of Oklahoma. As a result of the sale, the Company will recognize an approximate pre-tax gain of $40,000 in 1997. Premier's operations included all of the Company's oil and gas producing activities.
REVERSE STOCK SPLIT -------------------
At its November 21, 1996 annual meeting the Company approved a 1 for 6 reverse stock split.