Item 1. Business 1.
Item 2.
Item 2. Properties 1.
Item 3.
Item 3. Legal Proceedings 13.
Item 4.
Item 4. Submission of Matters to a Vote of Security Holders. ------------- ------- ---- ---- -------------------
None.
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. Trading in the Company's shares resumed in September 1997 and at year-end July 31, 1999 the Company's stock was quoted at approximately $0.31 per share in sporadic trading. The approximate present bid price for the Company's common stock is $0. 125 per share and the approximate asked price is $0.43 per share.
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, 1999, there are approximately 597 holders of record of the Company's common stock.
Item 6.
Item 6. Selected Financial Data
1999 1998 1997 1996 1995 1994
Operating Revenue 115,244 60,000 15,955 105,630 114,667 296,641
Income (loss)from (1,006,421) (496,604) (6,726) (388,089) (461,186) (306,397) continuing operations
Net Income (loss) (1,006,421) (496,604) (6,726) (276,424) (702,195) (307,397)
Net Income (loss) per share (0.10) (0.08) (0.0) (.0.01) (0.03) (0.01)
Total Assets 1,947,939 1,948,979 722, 530 3,552,369 4,887,842 3,907,113
Stockholder's Equity 166,463 572,644 91,666 1,163,278 1,462,035 1,119,930
Cash Dividends Paid per Common Share 0 0 0 0 0 0
Number of Outstanding Shares(weighted) 9,627,006-6,138,819-13,357,111-24,927,938-24,026,841-21,180,958
Item 7.
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 generate cash 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. 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.
Prices for gold had remained relatively stable during the past several years and had generally reflected the relatively low inflation rates predominate in the economies of the industrialized nations. Recently, gold prices began a significant downward price adjustment, which may reflect a shift from the traditional dependence upon gold as a financial hedge against inflation. Current spot prices for gold are $290.00 per ounce and are expected to continue to remain at or near those levels. The Company does not expect to realize any substantial increase in the price of gold in the future.
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 $0.80 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. Concerns regarding the economies of the Pacific Rim nations, and in particular Japan, have recently dampened demand for copper and will likely impact its price until such time as stability is achieved in those economies.
With the initiation of production from the Duke Gold Mine in Utah, the Company's principal source of cash flow will be the production and sale of gold. Cash flow from gold 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 gold prices reduces the cash flow generated by the Company's operations, which in turn reduces the funds available for servicing debt, acquiring additional mining properties and for developing and expanding its mining operations.
Year ended July 31, 1999 compared to year ended July 31, 1998. Total revenues for the Company for the year ended July 31, 1999 were $115,244 compared to $60,000 for the year ended July 31, 1998 and reflects management fees as a result of the Company's subleases on its office space and the revenues associated with the Company's environmental subsidiary. The Company expects its revenues to remain marginal until it begins continuous operations on the Duke Mine planned for summer 2000 or until it completes an oil and natural gas acquisition.
Operating expenses for the year ended July 31, 1999 were $119,649 compared to $69,152 for the same period a year earlier and reflect the startup of operations in the environmental business during the current year in contrast to the operation of the company's pilot plant on the Duke Gold Mine during the first and second fiscal quarters of 1998. The company does not expect to incur substantial operating expenses until one of its mining operations is in continuous operation. General and administrative expenses increased from $561,266 for the year ended July 31, 1998 to $839,393 for the year ended July 31, 1999 and reflects the expenses associated with the environmental business, the Duke Gold Mine pilot plant operation and funding of engineering and other overhead costs associated with the SilaQuartz silica mining project. The Company expects the level of its general and administrative expenses to remain high until advance studies and other planning is completed and the mines are in continuous operation.
The Company incurred a non-recurring charge against earnings of $1,329,474 during the year ended July 31, 1999 as a result of the write-down of its mining assets. As a result of the inactivity of the Company in the development of its mining properties during 1999, the Company's mining efforts no longer qualify as development stage activities under the accounting rules.
The Company incurred an after tax net loss of $1,0006,421 ($0.10 per share) for the year ended July 31, 1999 compared to an after tax net loss of $496,604 ($0.08 per share) for the prior year. The increase in the loss is a result of the write-down of the Company's mining claims of $1,329,474 and an increase in general and administrative expenses of $278,127 from the prior year. These increases were offset by the gain on the sale of the assets of Oil City during the year of $1,289,923. The Company does not expect to generate a profit until its mining operations are in continuous production.
Year ended July 31, 1998 compared to year ended July 31, 1997. Total revenues for the Company for the year ended July 31, 1998 were $60,000 compared to $15,955 for the year ended July 31, 1997 and reflects management fees as a result of the Company's subleases on its office space. The Company expects its revenues to remain marginal until it begins continuous operations either on the Duke Mine planned for summer 2000 or the SilaQuartz Idaho mine expected to begin in summer of 2001.
Operating expenses for the year ended July 31, 1998 were $69,152 compared to $31,899 for the same period a year earlier and reflect the operation of the company's pilot plant on the Duke Gold Mine during the first and second fiscal quarters of 1998. The company does not expect to incur substantial operating expenses until one of its mining operations is in continuous operation. General and administrative expenses increased dramatically from $93,433 for the year ended July 31, 1997 to $561,266 for the year ended July 31, 1998 and reflects the expenses associated with the Duke Gold Mine pilot plant operation and funding of engineering and other overhead costs associated with the SilaQuartz silica mining project. The Company expects the level of its general and administrative expenses to remain high until advance studies and other planning is completed and the mines are in continuous operation.
The Company incurred an after tax net loss of $496,604 ($0.08 per share) for the year ended July 31, 1998 compared to an after tax net loss of $6,726 ($0.00 per share) for the prior year. The increase in the loss is a result of the high level of general and administrative expenses for 1998 and the fact that the loss in 1997 was offset by the extinguishment of $775,211 in debt as a result of the purchase of assets from Latex Resources, Inc. The Company generated $188,996 in fees from its program with Merrion/FSI during fiscal 1998 compared to $91,251 for the year earlier. The Company does not expect to generate a profit until its mining operations are in continuous operations.
Year ended July 31, 1997 compared to year ended July 31, 1996. Total revenues for the Company for the year ended July 31, 1997 were $15,955 compared to $105,630 for the year ended July 31, 1996. The decrease in revenues reflect the sale of Premier Operating Company during the first quarter of 1997. The Company expects to begin reporting revenues from its operation of the Duke Gold Mine during the summer of 2000.
Operating expenses for the year ended July 31,1997 were $132,189 compared to $386,619 for the year ended July 31, 1996. The level of expenses is expected to remain about the same for fiscal 1998 until significant mining activity is achieved. General and administrative expenses decreased to $93,433 for the year ended July 31,1997 compared to $312,453 for the prior year end and reflect the reduced activity of the Company 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 $6,726 ($0.00 per share) for the year ended July 31, 1997 compared to a loss of $276,424 ($0.01 per share) for the year ending July 31, 1996. The improvement in the after tax loss reflects the gain on the extinguishment of the debt ($775,211) owed by the company to Latex Resources, Inc. in connection with the Company's purchase of certain assets and liabilities from LaTex. The Company received $91,521 during the year in non-refundable fees in conjunction with its participation with FSI compared to $268,532 the prior year. Until the Company initiates significant mining operations on a continuous basis, it is anticipated that the Company's operations will continue to be unprofitable.
Capital Resources and Liquidity.
The Company's capital requirements relate primarily to its mining activities and the expansion of those activities. Prior to the change in control, the Company funded its very limited activities from cash flow. The Company, through its subsidiaries, had established credit facilities with a bank to facilitate the funding of its operations. 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 may 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 continuous manner in the future, management believes the Company will need to raise capital from outside sources during fiscal 2000. While the Company has signed an agreement with Asset Capital LLC that would provide adequate funding for its various activities, the Company has not yet begun receiving its funds related to that agreement and in fact Asset Capital is delinquent in its performance of the Agreement. The Company continues to monitor the progress of Asset Capital in fulfilling its contract obligations and while Asset Capital's management remains optimistic it will be able to fund its agreement with the Company, there can be no assurance that the Asset Capital transaction will complete.
The Company has entered into negotiations with Asia Pacific Capital Corporation, a merchant banking firm headquartered in Sydney, Australia, to provide an equity infusion of $12 million in connection with project financing of up to $47 million. Asia Pacific has provided a firm loan commitment to the Company of $50 million to finance an oil and natural gas acquisition that the Company is attempting to negotiate. The principals of Asia Pacific have indicated funding of the equity infusion should occur in April 2000. No agreements have been signed between the Company and Asia Pacific yet. If the transaction completes, Asia Pacific would become the Company's principal shareholder. There can be no assurance that Asia Pacific will complete the equity purchase and, absent the equity purchase, would remain interested in providing the financing under the terms of its financing commitment.
As a result of the acquisition of control of Oil City and the subsequent sale of Oil City's assets to Comanche, the Company owns 5,481,901 shares of the restricted common stock of Comanche. At current market prices those shares are valued at approximately $1.2 million. The Company expects to use the Comanche shares as collateral in seeking a working capital loan to initiate operations at the Duke Gold Mine or in the pursuit of oil and gas acquisitions. The shares owned by the Company in Comanche are restricted from sale under Rule 144 of the Securities Act, and as such there can be no assurance that a bank will accept the shares as collateral or that sufficient borrowing capacity can be obtained to allow operations to begin.
The Company intends to continue to pursue each of the above transactions in an effort to finance its operations, however, in the event that the funds from Asset Capital or Asia Pacific are not received or are not received timely or in the event that additional capital is not obtained from other sources, it may become necessary to alter development plans or otherwise abandon certain ventures.
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/Merrion are unpredictable in both timing and magnitude and because there can be no assurance that FSI/Merrion 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. While the Company has sold, subject to certain conditions, unprocessed silica ore in an effort to provide working capital funds to complete the various engineering and marketing studies required prior to the construction
of a processing plant, Merrion is currently delinquent in its payments. The Company believes it will need to access outside capital in order to construct the facilities necessary to begin profitable operations. There can be no assurance that the Company will be successful in its efforts to locate outside capital or that the funds to be provided by Asset Capital or Asia Pacific will be received timely, if at all, 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 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 sold its oil and gas properties in October 1996 and its Premier Operating subsidiary and paid off its then existing credit facility with Bank of Oklahoma. As a result the Company presently has no credit facility available to fund its mining activities and will be required to rely on private debt placements or equity sales to fund any remaining capital expenditures. The Company has obtained certain unsecured loans from its Chairman and President, Jeffrey T. Wilson, which total in principal and accrued interest $807,012 as of July 31, 1999. These funds have been 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, 1999, the Company had current assets of $65,379 and current liabilities of $1,484,035, which resulted in negative working capital of $1,418,656. The negative working capital position is comprised primarily of notes payable to shareholders and related parties totaling $884,497, accrued salaries and expenses totaling $558,487. As discussed earlier, if the Company is unsuccessful in obtaining outside capital certain mining activities of the Company may be curtailed, postponed or abandoned. The Company believes that its cash flow from operations will continue to be insufficient to meet its ongoing capital requirements and short-term operating needs. As a result the Company plans to seek additional capital from outside sources through the placement of additional debt or equity during fiscal 2000. The previously discussed transactions with Asset Capital and Asia Pacific, if successful, will provide the Company with sufficient funds to pursue its mining and other ventures on the timely basis as discussed herein. 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 ability to conduct mining operations in certain areas, resulting in lower production volumes. 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 mining properties have been and will be affected by changes in copper and gold prices. The Company's ability to maintain current borrowing capacity and to obtain additional capital on attractive terms is also substantially dependent on copper and gold 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.................................................F-1
Consolidated Balance Sheets as of July 31, 1999 and 1998...................
Consolidated Statements of Operations for the years ended July 31, 1999, 1998 and 1997.................................................F-3
Consolidated Statements of Stockholder's Equity for the years Ended July 31, 1999, 1998 and 1997..........................................
Consolidated Statements of Cash flows for the years ended July 31, 1999, 1998 and 1997...............................................
Notes to Consolidated Financial Statements...................................F-7
Item9. 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.
Name Age Position
Jeffrey T. Wilson 46 Director, Chairman of the Board, President and Chief Executive Officer
Malcolm W. Henley 48 Director
Stacey D. Smethers 31 Director, Secretary
Jeffrey T. Wilson has been Director, Chairman of the Board, President and Chief Executive Officer of the Company since August 1993. Mr. Wilson was 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 of the Company since May 1996. Mr. Henley was 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 was 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 initial 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, 1999 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. Except as provided in the table below, during the three fiscal years ended July 31, 1999, 1998 and 1997 (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.
SUMMARY COMPENSATION TABLE
Annual Compensation Long Term Awards Warrants
Name Year Salary Bonus # shares
Jeffrey T. Wilson 1999 $ 125,000 1998 $ 100,000 1997 $ 100,000 250,000(1)
Malcolm W. Henley 1999 1997 250,000(1) - --
Stacey D. Smethers 1999 1997 50,000(1)
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 $0.25 per share with a term of three years from October 9, 1997.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
As of July 31, 1999, the Company has 11,528,230 issued and outstanding shares of common stock. The following table sets forth, as of July 31, 1999, 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 31,1999, the Company had approximately 597 holders of common stock of record.
Number of Shares Name of Beneficial Owner Beneficially Owned Percent of Class
Jeffrey T. Wilson (1) 2,012,501 17.5%
Malcolm W. Henley (2) 33,334 0.3%
Stacey D. Smethers (3) 1,667 0.0%
James G. Borem(4) 349,118 3.0%
W. J. Weaver, Jr.(5) 200,000 1.7%
A. D. Phillips(5) 200,000 1.7%
Fred J. Griffin(5) 200,000 1.7%
All officers and directors as a Group (7 people) 2,996,620 26.0%
Edmund J. Kwiecien, Jr. (6) 750,000 6.5%
Silver Petroleum, Inc. (7) 584,563 5.1%
Total officers, directors and 5% shareholders 4,331,183 37.6%
(1) The mailing address of Mr. Wilson is 100 NW Second Street, Suite 312, Evansville, Indiana 47708. Does not include 150,000 shares owned by HN Corporation, owned by Mr. Wilson's wife or 50,000 shares held in Trust by Old National Bank for Mr. Wilson's children.
(2) The mailing address of Mr. Henley is 4200 East Skelly Drive, Suite 1000, Tulsa, Oklahoma 74135.
(3) The mailing address of Stacey D. Smethers is 4813 Rustic Road, Sand Springs, Oklahoma 74063.
(4) Mr. Borem is President of Oil City Petroleum, Inc., a 90% owned subsidiary of the Company. Mr. Borem's mailing address is PO Box 35286, Tulsa, OK 74153-0286.
(5) Mssrs. Weaver, Phillips and Griffin are officers of Imperial Environmental Company, a 100% wholly-owned subsidiary of the Company. The mailing address for each is PO Box 20191, Evansville, IN 47708.
(6) The mailing address of Mr. Kwiecien is 13601 Royalton Road, Strongsville, Ohio 44136. Mr. Kwiecien resigned as a Director of the Company.
(7) The mailing address of Silver Petroleum, Inc. is PO Box 476, Bluffton, IN 47614.
Item 13. Certain Relationships and Related Transactions.
Jeffrey T. Wilson, Chairman, President and Chief Executive Officer of the Company has made unsecured loans to the Company which total $807,012 in principal and accrued interest as of July 31, 1999.
HN Corporation, a private retail company owned by Mr. Wilson and his wife, has made unsecured loans to the Company which total $112,858 in principal and accrued interest as of July 31, 1999.
The Company has made unsecured loans to Wexford Technology, Inc., an affiliate of the Company, of $515,385 as of July 31, 1999.
The Company has made loans to SilaQuartz Mining Company, an 80% owned subsidiary, as of July 31, 1999 that total $83,220.
Imperial leases office space and office services, including telephones, copiers, and office supplies at its headquarters office to Wexford and RealAmerica at the rate of $2,500 per month to each Company and to HN Corporation at the rate of $500 per month. As of July 31, 1999, Wexford owed Imperial $30,000 in accrued office expenses and RealAmerica owed Imperial a total of $22,500 in unpaid office space rent.
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, 1999 and 1998; Consolidated Statements of Operations for the years ended July 31,1999, 1998, and 1997;
Consolidated Statements of Stockholder Equity for the years ended July 31, 1999, 1998, and 1997;
Consolidated Statements of Cash Flows for the years ended July 31, 1999, 1998, and 1997;
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, 1999.
(c) Exhibits. (Previously filed).
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.
10.22 Agreement to Acquire SilaQuartz Mining Company dated November 3, 1997 Including Subsequent Amendments.
10.23 Compromise and Settlement Agreement by and Between Ridgepointe Mining Company and UFO Limited Partnership dated November 28, 1997.
10.24 Joint Venture Agreement for the Recovery of Precious Metals by and between Zane Pasma and Ridgepointe Mining Company dated December 1, 1997.
10.25 Hypothecation Agreement by and between Imperial Petroleum, Inc. and Asset Capital LLC dated September 8, 1998 and Gold Dore Certificate Rental Agreement of the same date.
10.26 Joint Venture Agreement for the Recovery of Diamonds by and between Imperial Petroleum, Inc. and Continental Resources Party Ltd. and Natural Resources Group, Inc. dated October 22, 1998.
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. Included by reference.
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: January ____, 2000 /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 January __, 2000 - ---------------------- Officer (Principal Executive Jeffrey T. Wilson Officer) and Director
Consolidated Financial Statements
IMPERIAL PETROLEUM, INC. and SUBSIDIARIES
July 31, 1999, 1998 and 1997
IMPERIAL PETROLEUM, INC.
and
SUBSIDIARIES
CONSOLIDATED
FINANCIAL STATEMENTS
AS OF JULY 31, 1999 and 1998
and
FOR THE YEARS ENDED
JULY 31, 1999, 1998 and 1997
and
INDEPENDENT AUDITOR?S REPORT
IMPERIAL PETROLEUM, INC.
July 31, 1999, 1998, and 1997
T A B L E O F C O N T E N T S -----------------------------
Page
Independent Auditor?s Report
Consolidated Financial Statements:
Consolidated Balance Sheets 2
Consolidated Statements of Operations 3
Consolidated Statements of Stockholders' Equity 4
Consolidated Statements of Cash Flows 5-6
Notes to Consolidated Financial Statements 7-33
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, 1999 and 1998 and the consolidated statements of operations, stockholders' equity, and cash flows for the years ended July 31, 1999, 1998 and 1997. 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, 1999 and 1998 and the results of its operations and its cash flows for the years ended July 31, 1999, 1998 and 1997, 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 and substantial working capital deficiencies. 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.
BRISCOE, BURKE & GRIGSBY LLP Certified Public Accountants
March 29, 2000 Tulsa, Oklahoma
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Consolidated Balance Sheets
July 31, 1999 and 1998
ASSETS 1999 1998 ------------ ---------- Current assets:
Cash $ 1,415 $ 12,125 Accounts receivable - other 3,000 72,500 Inventories (Note 2) 60,964 -- Other current assets -- 92,920 -------- --------
Total current assets 65,379 177,545 -------- --------
Property, plant and equipment
(Notes 1, 2, and 4): Mining claims, options and development costs less impairment 41,760 1,032,934 Equipment 5,166 37,500 Acquisition in progress (Note 19) -- 300,000 --------- ---------
46,926 1,370,434
Less: accumulated depreciation 369 --
Net property, plant and equipment 46,557 1,370,434 --------- ---------
Other assets:
Accounts receivable - related party (Note 3) - 401,000 Intangibles - net (Note 12) 81,794 -- Investments - securities (Notes 2, 13 and 24) 1,754,209 -- ---------- ----------
Total other assets 1,836,003 401,000 ---------- ----------
TOTAL ASSETS $1,947,939 $1,948,979 ========== ==========
LIABILITIES and STOCKHOLDERS' EQUITY 1999 1998 Current liabilities: Accounts payable $ 41,051 $ 21,434 Accounts payable - other -- 71,325 Accrued expenses (Note 23) 558,487 428,579 Unearned revenue (Note 22) -- 50,000 Notes payable (Note 6) 187,500 125,000 Notes payable - related parties (Note 7) 696,997 679,997 Total current liabilities 1,484,035 1,376,335
Noncurrent liabilities: Unearned revenue - noncurrent (Note 12) 297,441 -- Deferred income taxes (Note 5) -- --
Total noncurrent liabilities 297,441 --
Stockholders? equity: Common stock of $0.006 par value Authorized 50,000,000 shares; 11,528,230 issued in 1999 and 6,469,801 shares in 1998 69,170 38,819 Paid-in capital 4,350,476 3,458,419 Accumulated deficit (2,714,338) (1,707,917) Accumulated other comprehensive income (70,168) -- Treasury stock, at cost (1,652,290 shares in 1999 and 152,290 shares in 1998) (1,468,677) (1,216,677)
Total stockholders equity 166,463 572,644
Commitments and contingencies
(Note 9) -- --
TOTAL LIABILITIES and STOCKHOLDERS' EQUITY $ 1,947,939 $ 1,948,979
The accompanying notes are an integral part of these consolidated financial statements.
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Consolidated Statements of Operations
For the Years Ended July 31, 1999, 1998 and 1997
1999 1998 1997 ------------ ------------ -------- Operating income:
Oil and gas revenue $ - $ - $ 15,955 Management fees - 60,000 - Environmental service revenues 53,744 - - Rents 61,500 - - ------------ ------------ ------------
Total operating income 115,244 60,000 15,955 ------------ ------------ ------------
Operating expenses:
Cost of goods sold 110,529 - - Oil and gas lease operating expense - - 7,389 Mining lease operating expense 9,120 69,152 24,510 Impairment loss (Note 4) 1,329,474 - - General and administrative expenses 839,393 561,266 93,433 Depreciation, depletion and amortization (Note 2) 9,775 - 6,857 ------------ ------------ ------------
Total operating expenses 2,298,291 630,418 132,189 ------------ ------------ ------------
Loss from operations (2,183,047) (570,418) (116,234) Other income and (expense):
Interest expense (113,297) (76,915) (19,478) Interest income - 38,921 - Gold certificate income - net (Note 16) - 188,996 91,521 Loss on write-down of mining equipment (Note 15) - - (797,786) Loss on write-down of securities - (77,188) - Gain on extinguishment of debt - - 775,211 Gain (loss) on sale of assets (Note 21) 1,289,923 - 60,040 ------------ ------------ ------------
Net loss before income taxes (1,006,421) (496,604) (6,726) ------------ ------------ ------------
Provision for income taxes: (Note 5)
Current 80,763 - - Deferred (80,763) - - ------------ ------------ ------------
Total benefit from income taxes - - - ------------ ------------ ------------
Net loss $ (1,006,421) $ (496,604) $ (6,726) ============ ============ ============
Loss per share (Note 2) $ (.10) $ (.08) $ - ============ ============ ============
Weighted average shares outstanding 9,627,006 6,138,819 13,357,111 ============ ============ ============
The accompanying notes are an integral part of these consolidated financial statements.
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Consolidated Statements of Stockholders' Equity
For the Years Ended July 31, 1999, 1998, and 1997
The accompanying notes are an integral part of these consolidated financial statements.
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Consolidated Statements of Cash Flows
For the Years Ended July 31, 1999, 1998 and 1997
The accompanying notes are an integral part of these consolidated financial statements.
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Consolidated Statements of Cash Flows
For the Years Ended July 31, 1999, 1998 and 1997
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 consolidated financial statements.
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
1. ORGANIZATION AND BUSINESS COMBINATION
Organization
The Company is attempting to obtain capital, through its wholly owned subsidiary, Ridgepointe Mining Company, to continue testing, defining and developing mineral reserves on mining claims it owns or operates in Utah, Montana, Arizona, and New Mexico.
The Company is engaged, through its wholly owned subsidiary Imperial Environmental Company, in developing and marketing water filtration systems to municipalities.
The Company is currently negotiating to acquire certain oil and gas properties in order to return to the Company?s core competency.
Financial Condition
The Company?s financial statements for the year ended July 31, 1999 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 $1,006,421 for the year ended July 31, 1999 and as of July 31, 1999 has an accumulated deficit of $2,714,338 and a deficit working capital of $1,418,656.
The Company?s management plans to raise capital to fund continuing operations by utilization of one or a combination of the following:
1. The private placement of equity securities and/or debenture financing through negotiations with capital investors.
2. The joint venture of the Company?s Utah property with another mining company to provide the capital resources to develop the property.
3. The use of the Company?s investment securities as collateral to obtain a loan to complete oil and gas acquistions.
4. The borrowing of equity securities from a financial partner to use as collateral to obtain funding for the Company?s silica mine in Idaho.
5. The capital infusion of approximately $250,000 to continue efforts in the environmental business.
Management believes that the recoverability of assets and liabilities approximate their carrying amounts.
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 canceled 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)
Acquisition of LaTex Resources International, Inc.
See Note 17.
Acquisition of Phoenix Metals, Inc.
See Note 17.
Acquisition of Oil City Petroleum, Inc.
See Note 21.
Development Stage Companies
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:
1999 1998 ------------ --------
Current assets $ -- $ -- Net claims and equipment 41,760 620,434 Other assets -- -- ----------- -----------
Total assets $ 41,760 $ 620,434 =========== ===========
1999 1998 ----------- -----------
Current liabilities $ 583,952 $ 630,632 Long-term liabilities -- -- Common stock 125,107 125,107 Paid-in capital 1,343,886 1,343,886 Deficit accumulated before development stage (121,953) (121,953) Deficit accumulated during development stage (1,889,232) (1,357,238) ----------- -----------
Total liabilities and stockholders' deficit $ 41,760 $ 620,434 =========== ===========
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
1. ORGANIZATION AND BUSINESS COMBINATION (continued)
Cumulative
1999 1998 From Inception ------------ ------------ --------------
Operating revenues $ - $ - $ - Miscellaneous income - - 96,579 ------------ ------------ --------------
Total income - - 96,579
Lease operating expenses - 67,652 162,922 Impairment loss 578,674 - 578,674 General and administrative (60,292) 62,361 347,066 ------------ ------------ --------------
Total expenses 518,382 130,013 1,088,662
Net operating loss (518,382) (130,013) (992,083)
Interest expense (13,612) (14,243) (280,826) Gain (Loss) on sale/ write-down of assets - 191,598 (786,093) ------------ ------------ ------------- Net income (loss) before
income taxes (531,994) 47,342 (2,059,002)
Income tax benefit - - (169,770) ------------ ------------ --------------
Net loss $ (531,994) $ 47,342 $ (1,889,232) ============ ============ ==============
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 $(1,889,232) Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and depletion -- Non-cash impairment (578,674) Decrease in current liabilities 500,432 -----------
Net cash used for operating activities (1,967,474) -----------
Cash flows from investing activities:
Mining options, properties and equipment purchased - net 620,434 -----------
Net cash used for investing activities 620,434 -----------
Cash flows from financing activities:
Stock issued for funding 1,347,040 -----------
Net cash provided by financing activities 1,347,040 -----------
Net increase in cash and cash equivalents --
Cash and cash equivalents at inception -- -----------
Cash and cash equivalents at July 31, 1999 $ -- ===========
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
1. ORGANIZATION AND BUSINESS COMBINATION (continued)
A summary of the financial information of Imperial Environmental Company (formerly Phoenix Metals, Inc.) (A Development Stage Company) is as follows:
1999 1998 ------------ --------
Current assets $ -- $ -- Inventories 60,964 -- Fixed assets - net 4,797 -- Other assets 81,794 -- --------- ------------
Total assets $ 147,555 $ -- ========= ============
1999 1998 --------- ------------
Current liabilities $ 221,200 $ -- Long-term liabilities -- -- Common stock -- -- Paid-in capital -- -- Deficit accumulated during development stage (73,645) -- --------- ------------
Total liabilities and
stockholders' deficit $ 147,555 $ -- ========= ============
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
1. ORGANIZATION AND BUSINESS COMBINATION (continued)
Cumulative
1999 1998 From Inception ------------ ------------ --------------
Operating revenues $ 53,744 $ - $ 53,744 Miscellaneous income - - - ------------ ------------ --------------
Total income 53,744 - 53,744
Operating expenses 110,529 - 110,529 General and administrative 7,085 - 7,085 Depreciation and amortization 9,775 - 9,775 ------------ ------------ --------------
Total expenses 127,389 - 127,389
Net operating loss (73,645) - (73,645)
Interest expense - - - ------------ ------------ ------------- Net income (loss) before
income taxes (73,645) - (73,645)
Income tax benefit - - - ------------ ------------ --------------
Net loss $ (73,645) $ - $ (73,645) ============ ============ ==============
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 $ (73,645) Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 9,775 Increase in other assets (91,200) Increase in current liabilities 221,200 ---------
Net cash used for operating activities 66,130 ---------
Cash flows from investing activities:
Increase in inventories (60,964) Equipment purchased - net (5,166) ---------
Net cash used for investing activities (66,130) ---------
Cash flows from financing activities:
Debt -- ---------
Net cash provided by financing activities -- ---------
Net increase in cash and cash equivalents --
Cash and cash equivalents at inception -- ---------
Cash and cash equivalents at July 31, 1999 $ -- =========
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, 1999, 1998 and 1997 financial statements include the accounts of the Company and its wholly owned subsidiaries, Ridgepointe Mining Company, Premier Operating Company, I. B. Energy, Inc., LaTex Resources International, Inc., and Imperial Environmental Company (formerly Phoenix Metals, 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 equity as other comprehensive income.
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 and accounts receivable. The Company places its cash 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 exists that is not covered by the FDIC. The Company?s revenues were, until 1997, 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 trade receivables. The Company performs periodic evaluations of its customers? financial condition and generally does not require collateral.
Development Stage Subsidiaries
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.
Imperial Environmental Company, a wholly owned subsidiary, is in the process of raising capital to continue developing its water filtration technology. As such, Imperial Environmental 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.
During the year ended July 31, 1999 the Company recognized revenues of $53,744 from its development stage subsidiary Imperial Environmental Company. It also recognized rental revenues from sublease of its office space of $61,500.
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
2. SUMMARY OF ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (continued)
Inventories
Inventories are valued at the lower of cost or market. The average cost method is used for determining the cost or remaining inventories.
Inventories at July 31 were:
1999 1998 ------------ --------
Materials and supplies $ 4,526 $ -- Work-in-process 56,438 -- ------- ------------
Total $60,964 $ -- ======= ============
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.
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
2. SUMMARY OF ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (continued)
Intangibles
The Company has capitalized the costs related to the organization of its development stage subsidiary Imperial Environmental Company. Amortization is computed by the straight-line method over 5 years.
The Company plans to implement SOP 98-5, as required, in its next fiscal year. SOP 98-5 requires that the intangible asset be charged against income rather than carried as an asset and amortized.
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 change in tax rates is recognized in income in the period that includes the enactment date.
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. 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 adopted SFAS 121 for the fiscal year ending July 31, 1997. During the fiscal year ending July 31, 1999, the Company concluded that an impairment loss was required based on current circumstances (See Note 4).
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
2. SUMMARY OF ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (continued)
Reclassification
Certain amounts in the 1998 consolidated financial statements have been reclassified to conform with the 1999 presentation.
3. ACCOUNTS RECEIVABLE - RELATED PARTIES
Accounts receivable - related parties was comprised of the following:
1999 1998 ------------ --------
Shareholder $ - $ 1,000 Wexford Technology, Inc. 695,678 676,415 Allowance for bad debts (695,678) (276,415) ------------ ------------
Total $ - $ 401,000 ============ ============
4. MINING PROPERTIES UNDER DEVELOPMENT
The Company?s mining fixed assets consist of the following:
July 31, July 31, 1999 1998 ------------ --------
Mining claims $ 1,000,300 $ 1,000,300 Mining equipment 37,500 37,500 Mine development costs 32,634 32,634 Acquisition in progress 300,000 300,000 Impairment reserve (1,328,674) - ------------ ------------
Total $ 41,760 $ 1,370,434 ============ ============
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
4. MINING PROPERTIES UNDER DEVELOPMENT (continued)
The Company has not completed or updated 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. In addition, the Company?s going concern problem, lack of capital and other factors led management to recognize an impairment reserve of $1,328,674 to reduce the carrying value to management?s estimate of the amount recoverable upon ultimate disposition. The Company intends to continue to hold and use the impaired assets.
5. INCOME TAXES
Provisions for income taxes are as follows:
1999 1998 1997 ------------ ------------ -------- (in thousands) Current:
Federal $ - $ - $ - State - - - ------------ ------------ ------------
$ - $ - $ - ============ ============ ============
Deferred:
Federal $ - $ - $ - State - - - ------------ ------------ ------------
$ - $ - $ - ============ ============ ============
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
5. INCOME TAXES (continued)
Income taxes differed from the amounts computed by applying the U.S. federal tax rate as a result of the following: 1999 1998 1997 -------- -------- ------ (in thousands) Computed ?expected? tax expense (benefit) $ 81 $ (169) $ (1) State income taxes net of federal benefit -- -- -- Increase(Decrease) in valuation allowance for deferred tax assets (81) 169 1 Other -- -- -- - ---- ----
Actual income tax expense $-- $-- $-- = ==== ====
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities are presented below:
1999 1998 ------------ -------- (in thousands) Deferred tax liabilities:
Property, plant and equipment $ 122 $ 300 Other -- -- ----- -----
Total deferred tax liabilities 122 300 ----- -----
Deferred tax assets:
Unrealized loss on securities 18 -- Net operating losses 390 649 Other 1 1 ----- -----
Total deferred tax assets 409 650 ----- -----
Valuation allowance (287) (350) ----- -----
Net deferred tax assets 122 300 ----- -----
Net deferred tax asset (liability) $-- $-- ===== =====
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
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) carryforwards to offset its earnings of approximately $1,560,000. If not previously utilized, the net operating losses will expire in varying amounts from 2010 to 2013.
6. NOTES PAYABLE
1999 1998 ------------ -------- H. N. Corporation, promissory note, dated January 20, 1998, principal due on demand plus interest at 9% $107,500 $ 25,000 Gary S. Williky, promissory note, dated November 24, 1997, principal due on demand plus interest at 9% 40,000 50,000 Thomas J. Patrick, promissory note, dated December 18, 1997, principal due on demand plus interest at 9% 40,000 50,000 -------- --------
Total 187,500 125,000
Less: current portion 187,500 125,000 -------- --------
Long-term notes payable $ -- $ -- ======== ========
During the year, the Company issued its restricted common stock to extend due dates and partially satisfy accrued interest. However, the notes payable are currently in default. The Company is currently negotiating with the parties to extend or renew notes payable.
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
7. NOTES PAYABLE - RELATED PARTY
1999 1998 ------------ --------
Officer - 10% demand note $ 64,295 $ 64,295 Officer - 7.5% demand note 186,353 186,353 Officer - 9.0% demand note 446,349 429,349 ------------ ------------
$ 696,997 $ 679,997 ============ ============
8. RELATED PARTY TRANSACTIONS
The Company has entered into the above loans with its chief executive officer, Jeffrey T. Wilson. The Company, from time to time, has also entered into loans with its directors, stockholders and related companies (See Notes 3 and 7).
These transactions were consummated on terms equivalent to those that prevail in arm?s length transactions.
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.
Revenues: (in thousands)
1999 1998 1997
------------ ------------ ------------ Oil and gas production and
lease operations $ - $ - $ 16 Mining - - - Environmental 54 - - Other 61 - - ------------ ------------ ------------
Total revenues $ 115 $ - $ 16 ============ ============ ============
Identifiable assets:
Oil and gas production $ - $ - $ - Mining 41 1,370 583 Environmental 5 - - Other 1,902 579 140 ------------ ------------ ------------
$ 1,948 $ 1,949 $ 723 ============ ============ ============
Depreciation and depletion:
Oil and gas production $ - $ - $ 7 Mining - - - Environmental 10 - - ------------ ------------ ------------
$ 10 $ - $ 7 ============ ============ ============
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, 1999, 1998 and 1997. All of the Company's oil and gas producing activities are located within the United States. During 1997 the Company disposed of its oil and gas assets (See Note 1).
1999 1998 1997 ---------- ---------- ------- (In thousands)
Revenues $ - $ - $ 16 Production costs - - 7 Gross production taxes - - 1 Depreciation, depletion and amortization - - 7 ---------- ---------- ----------
Results of operations before income taxes - - 1
Income tax expense - - - ---------- ---------- ---------- Results of operations (excluding corporate
overhead and interest costs) $ - $ - $ 1 ========== ========== ==========
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)
Oil (MBbls) Gas (MMcf)
Developed reserves at July 31, 1996 9.5 192.8
Revisions of previous estimates - - Extensions, discoveries and other additions - - Production (.3) (6.7) Purchases of reserves-in-place Sales of reserves-in-place (9.2) (186.1) ----------- ----------
Developed reserves at July 31, 1997 - -
Revisions of previous estimates - - Extensions, discoveries and other additions - - Production - - Purchases of reserves-in-place - - Sales of reserves-in-place - - ----------- ----------
Developed reserves at July 31, 1998 - -
Revisions of previous estimates - - Extensions, discoveries and other additions - - Production - - Purchases of reserves-in-place - - Sales of reserves-in-place - - ----------- ----------
Developed reserves at July 31, 1999 - - =========== ==========
Proved developed reserves at:
July 31, 1997 - - July 31, 1998 - - July 31, 1999 - -
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.
1999 1998 1997 ------------ ------------ -------- (In thousands)
Future cash inflows $ - $ - $ - Future costs - future production and development costs - - - ------------ ------------ ------------
Future net cash inflows before income tax expense - - -
Future income tax expense - - - ------------ ------------ ------------
Future net cash flows - - -
10% annual discount for estimated timing of cash flows - - - ------------ ------------ ------------
Standardized Measure of discounted
future net cash flows $ - $ - $ - ============ ============ ============
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: 1999 1998 1997 ------------ ------------ -------- (In thousands) Standardized Measure - beginning of year - $ - $ 102 Increases (Decreases) Sales, net of production costs - - - Net change in sales prices, net of production costs - - - Discoveries and extensions, net of related future development production costs - - - Changes in estimated future development costs - - - Development costs incurred - - - Revisions of previous quantity estimates - - - Accretion of discount - - - Net change in income taxes - - - Purchases of reserves-in-place - - - Sales of reserves-in-place - - (102) Timing of production of reserves and other - - - ------------ ------------ ------------
Standardized Measure - end of year - $ - $ - ============ ============ ============
12. INTANGIBLE ASSETS
Intangible assets consist of the organizational costs of $ 81,794(net of amortization) incurred in the formation of Imperial Environmental Company.
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
13. INVESTMENTS
Unrealized Unrealized Carrying
Cost Gains Losses Value
Investment in equity securities:
July 31, 1999:
Available for sale
(marked to market) $ 1,824,377 $ - $ (70,168) $ 1,754,209
July 31, 1998:
Available for sale
(marked to market) $ - $ - $ - $ -
14. WARRANTS
On April 21, 1999, the Company issued warrants for services provided to the Company. The warrants give the holder the right to purchase 600,000 shares of the Company?s restricted common stock for $.50 per share. The warrants expire on April 21, 2002.
15. WRITE-DOWN OF MINING PROPERTIES
During the year ended July 31, 1997, the Company wrote-down, by $784,341, its book value of equipment and development costs in its Arizona operations related to its participation in a joint venture as discussed in Note 19.
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
16. GOLD CERTIFICATE INCOME
The Company has entered into agreements 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 canceled.
The Company pays a 10% finders fee to a consultant in connection with each certificate issued. During the year ended July 31, 1998, the Company had $209,996 of Gold Certificate Income, less finders fees of $21,000 for net Gold Certificate Income of $188,996.
17. ACQUISITION AND EXTINGUISHMENT OF DEBT
Agreement with LaTex Resources, Inc.
During 1997, the Company reached an agreement with LaTex Resources, Inc. whereby the Company gave 100,000 shares of LaTex common stock (or 85,500 equivalent Alliance Resources Plc post-merger shares), loaned to the Company by CEO Jeffrey T. Wilson, in exchange for 5,000,000 shares of Wexford Technology, Inc. common stock (representing a 32.3% interest), 3,798,730 shares of the Company?s common stock, 5,000 shares of LaTex Resources International, Inc. common stock (100%), 30,000 shares of Phoenix Metals, Inc. common stock (100%) and extinguishment of the debt of the aforementioned companies as well as that of the Company.
This extinguishment resulted in a gain of $786,162, the receipt of Treasury stock valued at $140,553 and the recording of an investment in Wexford Technology, Inc. of $77,188. No value was recorded for the receipt of LaTex Resources International, Inc. or Phoenix Metals, Inc.
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
18. STOCK SPLIT
On November 21, 1996 the Company effected a one for six reverse split of its common stock, resulting in 5,238,164 shares being outstanding on that date with a par value of $ .006.
19. SETTLEMENT AGREEMENT ON UFO CLAIMS
During 1997, the Company reached a settlement agreement with UFO Mining Limited Partnership whereby the Company would assign its interest in the UFO mining claims to a third party, receive a release from the $1,000,000 note and receive 166,667 (post-split) shares of the Company?s common stock given in the original transaction. In conjunction with this agreement, the Company entered into a joint venture with the third party whereby the Company assigned its interest in the UFO claims, infrastructure and onsite equipment to the joint venture in exchange for a 5% carried interest. Under the joint venture agreement, the Company would be responsible for contributing up to 167,000 shares of its restricted common stock if the joint venture were to contribute $6,000,000 in capital. In exchange, the third party assumed the responsibility for liability to the UFO Mining Limited Partnership. Also, the Company has chosen to write-down the value of the assets to be contributed to the joint venture by $784,341 to more accurately reflect the market value of those assets and hence the value of the Company?s interest in the joint venture. The Company has reflected the assets to be contributed to the joint venture as $300,000 in acquisitions in progress.
As a result of the settlement agreement, the Company reduced mining claims by $2,045,565, reduced notes payable by $1,000,000, reduced accrued interest payable by $89,753 and recorded Treasury stock of $955,812.
20. LEASE OBLIGATIONS
The Company has a noncancelable operating lease agreement for office space. Total rental expense was $22,117, $20,927 and $0 in 1999, 1998 and 1997 respectively. The Company currently operates under month-to-month terms.
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
21. GAIN ON SALE OF ASSETS
During the year ended July 31, 1999 the Company acquired a 90% interest in Oil City Petroeum in exchange for 1,972,266 shares of its restricted common stock. All of Oil City?s assets were then sold to Comanche Energy, resulting in the Company receiving 5,481,901 restricted shares of Comanche Energy common stock (Note 13). This transaction resulted in a gain of $1,289,923.
The acquisition of Oil City would have qualified as a pooling of interests acquisition. However, because of the divesture of this subsidiary prior to year end, no pooling of assets, liabilities, stockholder?s equity or results of operations is included in these financial statements.
22. UNEARNED REVENUE
The Company has received advances for future delivery of silica ore. Total advances as of July 31, 1999 and 1998 were $297,441 and $50,000, respectively. The Company?s commitments under these agreements mature as follows for the years ended July 31:
2000 $ - 2001 $ - 2002 $ 59,488 2003 $ 107,079 2004 $ 107,079 Thereafter $ 23,795
23. ACCRUED EXPENSES
The Company has accrued expenses as of July 31 as follows:
1999 1998 ------------ --------
Accrued officer salary - CEO $ 440,008 $ 315,008 Accrued interest on notes 116,379 111,471 Accrued rent 2,100 2,100 ------------ ------------
$ 558,487 $ 428,579 ============ ============
During the year ended July 31, 1999 the Company issued 550,000 shares of its restricted common stock to pay accrued interest and extend maturities of notes payable.
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
24. SUBSEQUENT MATTER
Subsequent to year end, the Company?s investment in 5,481,901 shares of Comanche Energy common stock has decreased in value by approximately $1,088,000 (net of marketability discounts).
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.
Name Age Position
Jeffrey T. Wilson 46 Director, Chairman of the Board, President and Chief Executive Officer
Malcolm W. Henley 48 Director
Stacey D. Smethers 31 Director, Secretary
Jeffrey T. Wilson has been Director, Chairman of the Board, President and Chief Executive Officer of the Company since August 1993. Mr. Wilson was 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 of the Company since May 1996. Mr. Henley was 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 was 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 initial 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, 1999 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. Except as provided in the table below, during the three fiscal years ended July 31, 1999, 1998 and 1997 (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.
SUMMARY COMPENSATION TABLE
Annual Compensation Long Term Awards Warrants
Name Year Salary Bonus # shares
Jeffrey T. Wilson 1999 $ 125,000 1998 $ 100,000 1997 $ 100,000 250,000(1)
Malcolm W. Henley 1999 1997 250,000(1) - --
Stacey D. Smethers 1999 1997 50,000(1)
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 $0.25 per share with a term of three years from October 9, 1997.
Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
As of July 31, 1999, the Company has 11,528,230 issued and outstanding shares of common stock. The following table sets forth, as of July 31, 1999, 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 31,1999, the Company had approximately 597 holders of common stock of record.
Number of Shares Name of Beneficial Owner Beneficially Owned Percent of Class
Jeffrey T. Wilson (1) 2,012,501 17.5%
Malcolm W. Henley (2) 33,334 0.3%
Stacey D. Smethers (3) 1,667 0.0%
James G. Borem(4) 349,118 3.0%
W. J. Weaver, Jr.(5) 200,000 1.7%
A. D. Phillips(5) 200,000 1.7%
Fred J. Griffin(5) 200,000 1.7%
All officers and directors as a Group (7 people) 2,996,620 26.0%
Edmund J. Kwiecien, Jr. (6) 750,000 6.5%
Silver Petroleum, Inc. (7) 584,563 5.1%
Total officers, directors and 5% shareholders 4,331,183 37.6%
(1) The mailing address of Mr. Wilson is 100 NW Second Street, Suite 312, Evansville, Indiana 47708. Does not include 150,000 shares owned by HN Corporation, owned by Mr. Wilson's wife or 50,000 shares held in Trust by Old National Bank for Mr. Wilson's children.
(2) The mailing address of Mr. Henley is 4200 East Skelly Drive, Suite 1000, Tulsa, Oklahoma 74135.
(3) The mailing address of Stacey D. Smethers is 4813 Rustic Road, Sand Springs, Oklahoma 74063.
(4) Mr. Borem is President of Oil City Petroleum, Inc., a 90% owned subsidiary of the Company. Mr. Borem's mailing address is PO Box 35286, Tulsa, OK 74153-0286.
(5) Mssrs. Weaver, Phillips and Griffin are officers of Imperial Environmental Company, a 100% wholly-owned subsidiary of the Company. The mailing address for each is PO Box 20191, Evansville, IN 47708.
(6) The mailing address of Mr. Kwiecien is 13601 Royalton Road, Strongsville, Ohio 44136. Mr. Kwiecien resigned as a Director of the Company.
(7) The mailing address of Silver Petroleum, Inc. is PO Box 476, Bluffton, IN 47614.
Item 13.
Item 13. Certain Relationships and Related Transactions.
Jeffrey T. Wilson, Chairman, President and Chief Executive Officer of the Company has made unsecured loans to the Company which total $807,012 in principal and accrued interest as of July 31, 1999.
HN Corporation, a private retail company owned by Mr. Wilson and his wife, has made unsecured loans to the Company which total $112,858 in principal and accrued interest as of July 31, 1999.
The Company has made unsecured loans to Wexford Technology, Inc., an affiliate of the Company, of $515,385 as of July 31, 1999.
The Company has made loans to SilaQuartz Mining Company, an 80% owned subsidiary, as of July 31, 1999 that total $83,220.
Imperial leases office space and office services, including telephones, copiers, and office supplies at its headquarters office to Wexford and RealAmerica at the rate of $2,500 per month to each Company and to HN Corporation at the rate of $500 per month. As of July 31, 1999, Wexford owed Imperial $30,000 in accrued office expenses and RealAmerica owed Imperial a total of $22,500 in unpaid office space rent.
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, 1999 and 1998; Consolidated Statements of Operations for the years ended July 31,1999, 1998, and 1997;
Consolidated Statements of Stockholder Equity for the years ended July 31, 1999, 1998, and 1997;
Consolidated Statements of Cash Flows for the years ended July 31, 1999, 1998, and 1997;
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, 1999.
(c) Exhibits. (Previously filed).
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.
10.22 Agreement to Acquire SilaQuartz Mining Company dated November 3, 1997 Including Subsequent Amendments.
10.23 Compromise and Settlement Agreement by and Between Ridgepointe Mining Company and UFO Limited Partnership dated November 28, 1997.
10.24 Joint Venture Agreement for the Recovery of Precious Metals by and between Zane Pasma and Ridgepointe Mining Company dated December 1, 1997.
10.25 Hypothecation Agreement by and between Imperial Petroleum, Inc. and Asset Capital LLC dated September 8, 1998 and Gold Dore Certificate Rental Agreement of the same date.
10.26 Joint Venture Agreement for the Recovery of Diamonds by and between Imperial Petroleum, Inc. and Continental Resources Party Ltd. and Natural Resources Group, Inc. dated October 22, 1998.
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. Included by reference.
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: January ____, 2000 /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 January __, 2000 - ---------------------- Officer (Principal Executive Jeffrey T. Wilson Officer) and Director
Consolidated Financial Statements
IMPERIAL PETROLEUM, INC. and SUBSIDIARIES
July 31, 1999, 1998 and 1997
IMPERIAL PETROLEUM, INC.
and
SUBSIDIARIES
CONSOLIDATED
FINANCIAL STATEMENTS
AS OF JULY 31, 1999 and 1998
and
FOR THE YEARS ENDED
JULY 31, 1999, 1998 and 1997
and
INDEPENDENT AUDITOR?S REPORT
IMPERIAL PETROLEUM, INC.
July 31, 1999, 1998, and 1997
T A B L E O F C O N T E N T S -----------------------------
Page
Independent Auditor?s Report
Consolidated Financial Statements:
Consolidated Balance Sheets 2
Consolidated Statements of Operations 3
Consolidated Statements of Stockholders' Equity 4
Consolidated Statements of Cash Flows 5-6
Notes to Consolidated Financial Statements 7-33
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, 1999 and 1998 and the consolidated statements of operations, stockholders' equity, and cash flows for the years ended July 31, 1999, 1998 and 1997. 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, 1999 and 1998 and the results of its operations and its cash flows for the years ended July 31, 1999, 1998 and 1997, 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 and substantial working capital deficiencies. 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.
BRISCOE, BURKE & GRIGSBY LLP Certified Public Accountants
March 29, 2000 Tulsa, Oklahoma
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Consolidated Balance Sheets
July 31, 1999 and 1998
ASSETS 1999 1998 ------------ ---------- Current assets:
Cash $ 1,415 $ 12,125 Accounts receivable - other 3,000 72,500 Inventories (Note 2) 60,964 -- Other current assets -- 92,920 -------- --------
Total current assets 65,379 177,545 -------- --------
Property, plant and equipment
(Notes 1, 2, and 4): Mining claims, options and development costs less impairment 41,760 1,032,934 Equipment 5,166 37,500 Acquisition in progress (Note 19) -- 300,000 --------- ---------
46,926 1,370,434
Less: accumulated depreciation 369 --
Net property, plant and equipment 46,557 1,370,434 --------- ---------
Other assets:
Accounts receivable - related party (Note 3) - 401,000 Intangibles - net (Note 12) 81,794 -- Investments - securities (Notes 2, 13 and 24) 1,754,209 -- ---------- ----------
Total other assets 1,836,003 401,000 ---------- ----------
TOTAL ASSETS $1,947,939 $1,948,979 ========== ==========
LIABILITIES and STOCKHOLDERS' EQUITY 1999 1998 Current liabilities: Accounts payable $ 41,051 $ 21,434 Accounts payable - other -- 71,325 Accrued expenses (Note 23) 558,487 428,579 Unearned revenue (Note 22) -- 50,000 Notes payable (Note 6) 187,500 125,000 Notes payable - related parties (Note 7) 696,997 679,997 Total current liabilities 1,484,035 1,376,335
Noncurrent liabilities: Unearned revenue - noncurrent (Note 12) 297,441 -- Deferred income taxes (Note 5) -- --
Total noncurrent liabilities 297,441 --
Stockholders? equity: Common stock of $0.006 par value Authorized 50,000,000 shares; 11,528,230 issued in 1999 and 6,469,801 shares in 1998 69,170 38,819 Paid-in capital 4,350,476 3,458,419 Accumulated deficit (2,714,338) (1,707,917) Accumulated other comprehensive income (70,168) -- Treasury stock, at cost (1,652,290 shares in 1999 and 152,290 shares in 1998) (1,468,677) (1,216,677)
Total stockholders equity 166,463 572,644
Commitments and contingencies
(Note 9) -- --
TOTAL LIABILITIES and STOCKHOLDERS' EQUITY $ 1,947,939 $ 1,948,979
The accompanying notes are an integral part of these consolidated financial statements.
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Consolidated Statements of Operations
For the Years Ended July 31, 1999, 1998 and 1997
1999 1998 1997 ------------ ------------ -------- Operating income:
Oil and gas revenue $ - $ - $ 15,955 Management fees - 60,000 - Environmental service revenues 53,744 - - Rents 61,500 - - ------------ ------------ ------------
Total operating income 115,244 60,000 15,955 ------------ ------------ ------------
Operating expenses:
Cost of goods sold 110,529 - - Oil and gas lease operating expense - - 7,389 Mining lease operating expense 9,120 69,152 24,510 Impairment loss (Note 4) 1,329,474 - - General and administrative expenses 839,393 561,266 93,433 Depreciation, depletion and amortization (Note 2) 9,775 - 6,857 ------------ ------------ ------------
Total operating expenses 2,298,291 630,418 132,189 ------------ ------------ ------------
Loss from operations (2,183,047) (570,418) (116,234) Other income and (expense):
Interest expense (113,297) (76,915) (19,478) Interest income - 38,921 - Gold certificate income - net (Note 16) - 188,996 91,521 Loss on write-down of mining equipment (Note 15) - - (797,786) Loss on write-down of securities - (77,188) - Gain on extinguishment of debt - - 775,211 Gain (loss) on sale of assets (Note 21) 1,289,923 - 60,040 ------------ ------------ ------------
Net loss before income taxes (1,006,421) (496,604) (6,726) ------------ ------------ ------------
Provision for income taxes: (Note 5)
Current 80,763 - - Deferred (80,763) - - ------------ ------------ ------------
Total benefit from income taxes - - - ------------ ------------ ------------
Net loss $ (1,006,421) $ (496,604) $ (6,726) ============ ============ ============
Loss per share (Note 2) $ (.10) $ (.08) $ - ============ ============ ============
Weighted average shares outstanding 9,627,006 6,138,819 13,357,111 ============ ============ ============
The accompanying notes are an integral part of these consolidated financial statements.
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Consolidated Statements of Stockholders' Equity
For the Years Ended July 31, 1999, 1998, and 1997
The accompanying notes are an integral part of these consolidated financial statements.
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Consolidated Statements of Cash Flows
For the Years Ended July 31, 1999, 1998 and 1997
The accompanying notes are an integral part of these consolidated financial statements.
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Consolidated Statements of Cash Flows
For the Years Ended July 31, 1999, 1998 and 1997
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 consolidated financial statements.
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
1. ORGANIZATION AND BUSINESS COMBINATION
Organization
The Company is attempting to obtain capital, through its wholly owned subsidiary, Ridgepointe Mining Company, to continue testing, defining and developing mineral reserves on mining claims it owns or operates in Utah, Montana, Arizona, and New Mexico.
The Company is engaged, through its wholly owned subsidiary Imperial Environmental Company, in developing and marketing water filtration systems to municipalities.
The Company is currently negotiating to acquire certain oil and gas properties in order to return to the Company?s core competency.
Financial Condition
The Company?s financial statements for the year ended July 31, 1999 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 $1,006,421 for the year ended July 31, 1999 and as of July 31, 1999 has an accumulated deficit of $2,714,338 and a deficit working capital of $1,418,656.
The Company?s management plans to raise capital to fund continuing operations by utilization of one or a combination of the following:
1. The private placement of equity securities and/or debenture financing through negotiations with capital investors.
2. The joint venture of the Company?s Utah property with another mining company to provide the capital resources to develop the property.
3. The use of the Company?s investment securities as collateral to obtain a loan to complete oil and gas acquistions.
4. The borrowing of equity securities from a financial partner to use as collateral to obtain funding for the Company?s silica mine in Idaho.
5. The capital infusion of approximately $250,000 to continue efforts in the environmental business.
Management believes that the recoverability of assets and liabilities approximate their carrying amounts.
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 canceled 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)
Acquisition of LaTex Resources International, Inc.
See Note 17.
Acquisition of Phoenix Metals, Inc.
See Note 17.
Acquisition of Oil City Petroleum, Inc.
See Note 21.
Development Stage Companies
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:
1999 1998 ------------ --------
Current assets $ -- $ -- Net claims and equipment 41,760 620,434 Other assets -- -- ----------- -----------
Total assets $ 41,760 $ 620,434 =========== ===========
1999 1998 ----------- -----------
Current liabilities $ 583,952 $ 630,632 Long-term liabilities -- -- Common stock 125,107 125,107 Paid-in capital 1,343,886 1,343,886 Deficit accumulated before development stage (121,953) (121,953) Deficit accumulated during development stage (1,889,232) (1,357,238) ----------- -----------
Total liabilities and stockholders' deficit $ 41,760 $ 620,434 =========== ===========
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
1. ORGANIZATION AND BUSINESS COMBINATION (continued)
Cumulative
1999 1998 From Inception ------------ ------------ --------------
Operating revenues $ - $ - $ - Miscellaneous income - - 96,579 ------------ ------------ --------------
Total income - - 96,579
Lease operating expenses - 67,652 162,922 Impairment loss 578,674 - 578,674 General and administrative (60,292) 62,361 347,066 ------------ ------------ --------------
Total expenses 518,382 130,013 1,088,662
Net operating loss (518,382) (130,013) (992,083)
Interest expense (13,612) (14,243) (280,826) Gain (Loss) on sale/ write-down of assets - 191,598 (786,093) ------------ ------------ ------------- Net income (loss) before
income taxes (531,994) 47,342 (2,059,002)
Income tax benefit - - (169,770) ------------ ------------ --------------
Net loss $ (531,994) $ 47,342 $ (1,889,232) ============ ============ ==============
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 $(1,889,232) Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and depletion -- Non-cash impairment (578,674) Decrease in current liabilities 500,432 -----------
Net cash used for operating activities (1,967,474) -----------
Cash flows from investing activities:
Mining options, properties and equipment purchased - net 620,434 -----------
Net cash used for investing activities 620,434 -----------
Cash flows from financing activities:
Stock issued for funding 1,347,040 -----------
Net cash provided by financing activities 1,347,040 -----------
Net increase in cash and cash equivalents --
Cash and cash equivalents at inception -- -----------
Cash and cash equivalents at July 31, 1999 $ -- ===========
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
1. ORGANIZATION AND BUSINESS COMBINATION (continued)
A summary of the financial information of Imperial Environmental Company (formerly Phoenix Metals, Inc.) (A Development Stage Company) is as follows:
1999 1998 ------------ --------
Current assets $ -- $ -- Inventories 60,964 -- Fixed assets - net 4,797 -- Other assets 81,794 -- --------- ------------
Total assets $ 147,555 $ -- ========= ============
1999 1998 --------- ------------
Current liabilities $ 221,200 $ -- Long-term liabilities -- -- Common stock -- -- Paid-in capital -- -- Deficit accumulated during development stage (73,645) -- --------- ------------
Total liabilities and
stockholders' deficit $ 147,555 $ -- ========= ============
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
1. ORGANIZATION AND BUSINESS COMBINATION (continued)
Cumulative
1999 1998 From Inception ------------ ------------ --------------
Operating revenues $ 53,744 $ - $ 53,744 Miscellaneous income - - - ------------ ------------ --------------
Total income 53,744 - 53,744
Operating expenses 110,529 - 110,529 General and administrative 7,085 - 7,085 Depreciation and amortization 9,775 - 9,775 ------------ ------------ --------------
Total expenses 127,389 - 127,389
Net operating loss (73,645) - (73,645)
Interest expense - - - ------------ ------------ ------------- Net income (loss) before
income taxes (73,645) - (73,645)
Income tax benefit - - - ------------ ------------ --------------
Net loss $ (73,645) $ - $ (73,645) ============ ============ ==============
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 $ (73,645) Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 9,775 Increase in other assets (91,200) Increase in current liabilities 221,200 ---------
Net cash used for operating activities 66,130 ---------
Cash flows from investing activities:
Increase in inventories (60,964) Equipment purchased - net (5,166) ---------
Net cash used for investing activities (66,130) ---------
Cash flows from financing activities:
Debt -- ---------
Net cash provided by financing activities -- ---------
Net increase in cash and cash equivalents --
Cash and cash equivalents at inception -- ---------
Cash and cash equivalents at July 31, 1999 $ -- =========
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, 1999, 1998 and 1997 financial statements include the accounts of the Company and its wholly owned subsidiaries, Ridgepointe Mining Company, Premier Operating Company, I. B. Energy, Inc., LaTex Resources International, Inc., and Imperial Environmental Company (formerly Phoenix Metals, 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 equity as other comprehensive income.
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 and accounts receivable. The Company places its cash 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 exists that is not covered by the FDIC. The Company?s revenues were, until 1997, 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 trade receivables. The Company performs periodic evaluations of its customers? financial condition and generally does not require collateral.
Development Stage Subsidiaries
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.
Imperial Environmental Company, a wholly owned subsidiary, is in the process of raising capital to continue developing its water filtration technology. As such, Imperial Environmental 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.
During the year ended July 31, 1999 the Company recognized revenues of $53,744 from its development stage subsidiary Imperial Environmental Company. It also recognized rental revenues from sublease of its office space of $61,500.
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
2. SUMMARY OF ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (continued)
Inventories
Inventories are valued at the lower of cost or market. The average cost method is used for determining the cost or remaining inventories.
Inventories at July 31 were:
1999 1998 ------------ --------
Materials and supplies $ 4,526 $ -- Work-in-process 56,438 -- ------- ------------
Total $60,964 $ -- ======= ============
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.
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
2. SUMMARY OF ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (continued)
Intangibles
The Company has capitalized the costs related to the organization of its development stage subsidiary Imperial Environmental Company. Amortization is computed by the straight-line method over 5 years.
The Company plans to implement SOP 98-5, as required, in its next fiscal year. SOP 98-5 requires that the intangible asset be charged against income rather than carried as an asset and amortized.
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 change in tax rates is recognized in income in the period that includes the enactment date.
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. 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 adopted SFAS 121 for the fiscal year ending July 31, 1997. During the fiscal year ending July 31, 1999, the Company concluded that an impairment loss was required based on current circumstances (See Note 4).
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
2. SUMMARY OF ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (continued)
Reclassification
Certain amounts in the 1998 consolidated financial statements have been reclassified to conform with the 1999 presentation.
3. ACCOUNTS RECEIVABLE - RELATED PARTIES
Accounts receivable - related parties was comprised of the following:
1999 1998 ------------ --------
Shareholder $ - $ 1,000 Wexford Technology, Inc. 695,678 676,415 Allowance for bad debts (695,678) (276,415) ------------ ------------
Total $ - $ 401,000 ============ ============
4. MINING PROPERTIES UNDER DEVELOPMENT
The Company?s mining fixed assets consist of the following:
July 31, July 31, 1999 1998 ------------ --------
Mining claims $ 1,000,300 $ 1,000,300 Mining equipment 37,500 37,500 Mine development costs 32,634 32,634 Acquisition in progress 300,000 300,000 Impairment reserve (1,328,674) - ------------ ------------
Total $ 41,760 $ 1,370,434 ============ ============
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
4. MINING PROPERTIES UNDER DEVELOPMENT (continued)
The Company has not completed or updated 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. In addition, the Company?s going concern problem, lack of capital and other factors led management to recognize an impairment reserve of $1,328,674 to reduce the carrying value to management?s estimate of the amount recoverable upon ultimate disposition. The Company intends to continue to hold and use the impaired assets.
5. INCOME TAXES
Provisions for income taxes are as follows:
1999 1998 1997 ------------ ------------ -------- (in thousands) Current:
Federal $ - $ - $ - State - - - ------------ ------------ ------------
$ - $ - $ - ============ ============ ============
Deferred:
Federal $ - $ - $ - State - - - ------------ ------------ ------------
$ - $ - $ - ============ ============ ============
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
5. INCOME TAXES (continued)
Income taxes differed from the amounts computed by applying the U.S. federal tax rate as a result of the following: 1999 1998 1997 -------- -------- ------ (in thousands) Computed ?expected? tax expense (benefit) $ 81 $ (169) $ (1) State income taxes net of federal benefit -- -- -- Increase(Decrease) in valuation allowance for deferred tax assets (81) 169 1 Other -- -- -- - ---- ----
Actual income tax expense $-- $-- $-- = ==== ====
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities are presented below:
1999 1998 ------------ -------- (in thousands) Deferred tax liabilities:
Property, plant and equipment $ 122 $ 300 Other -- -- ----- -----
Total deferred tax liabilities 122 300 ----- -----
Deferred tax assets:
Unrealized loss on securities 18 -- Net operating losses 390 649 Other 1 1 ----- -----
Total deferred tax assets 409 650 ----- -----
Valuation allowance (287) (350) ----- -----
Net deferred tax assets 122 300 ----- -----
Net deferred tax asset (liability) $-- $-- ===== =====
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
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) carryforwards to offset its earnings of approximately $1,560,000. If not previously utilized, the net operating losses will expire in varying amounts from 2010 to 2013.
6. NOTES PAYABLE
1999 1998 ------------ -------- H. N. Corporation, promissory note, dated January 20, 1998, principal due on demand plus interest at 9% $107,500 $ 25,000 Gary S. Williky, promissory note, dated November 24, 1997, principal due on demand plus interest at 9% 40,000 50,000 Thomas J. Patrick, promissory note, dated December 18, 1997, principal due on demand plus interest at 9% 40,000 50,000 -------- --------
Total 187,500 125,000
Less: current portion 187,500 125,000 -------- --------
Long-term notes payable $ -- $ -- ======== ========
During the year, the Company issued its restricted common stock to extend due dates and partially satisfy accrued interest. However, the notes payable are currently in default. The Company is currently negotiating with the parties to extend or renew notes payable.
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
7. NOTES PAYABLE - RELATED PARTY
1999 1998 ------------ --------
Officer - 10% demand note $ 64,295 $ 64,295 Officer - 7.5% demand note 186,353 186,353 Officer - 9.0% demand note 446,349 429,349 ------------ ------------
$ 696,997 $ 679,997 ============ ============
8. RELATED PARTY TRANSACTIONS
The Company has entered into the above loans with its chief executive officer, Jeffrey T. Wilson. The Company, from time to time, has also entered into loans with its directors, stockholders and related companies (See Notes 3 and 7).
These transactions were consummated on terms equivalent to those that prevail in arm?s length transactions.
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.
Revenues: (in thousands)
1999 1998 1997
------------ ------------ ------------ Oil and gas production and
lease operations $ - $ - $ 16 Mining - - - Environmental 54 - - Other 61 - - ------------ ------------ ------------
Total revenues $ 115 $ - $ 16 ============ ============ ============
Identifiable assets:
Oil and gas production $ - $ - $ - Mining 41 1,370 583 Environmental 5 - - Other 1,902 579 140 ------------ ------------ ------------
$ 1,948 $ 1,949 $ 723 ============ ============ ============
Depreciation and depletion:
Oil and gas production $ - $ - $ 7 Mining - - - Environmental 10 - - ------------ ------------ ------------
$ 10 $ - $ 7 ============ ============ ============
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, 1999, 1998 and 1997. All of the Company's oil and gas producing activities are located within the United States. During 1997 the Company disposed of its oil and gas assets (See Note 1).
1999 1998 1997 ---------- ---------- ------- (In thousands)
Revenues $ - $ - $ 16 Production costs - - 7 Gross production taxes - - 1 Depreciation, depletion and amortization - - 7 ---------- ---------- ----------
Results of operations before income taxes - - 1
Income tax expense - - - ---------- ---------- ---------- Results of operations (excluding corporate
overhead and interest costs) $ - $ - $ 1 ========== ========== ==========
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)
Oil (MBbls) Gas (MMcf)
Developed reserves at July 31, 1996 9.5 192.8
Revisions of previous estimates - - Extensions, discoveries and other additions - - Production (.3) (6.7) Purchases of reserves-in-place Sales of reserves-in-place (9.2) (186.1) ----------- ----------
Developed reserves at July 31, 1997 - -
Revisions of previous estimates - - Extensions, discoveries and other additions - - Production - - Purchases of reserves-in-place - - Sales of reserves-in-place - - ----------- ----------
Developed reserves at July 31, 1998 - -
Revisions of previous estimates - - Extensions, discoveries and other additions - - Production - - Purchases of reserves-in-place - - Sales of reserves-in-place - - ----------- ----------
Developed reserves at July 31, 1999 - - =========== ==========
Proved developed reserves at:
July 31, 1997 - - July 31, 1998 - - July 31, 1999 - -
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.
1999 1998 1997 ------------ ------------ -------- (In thousands)
Future cash inflows $ - $ - $ - Future costs - future production and development costs - - - ------------ ------------ ------------
Future net cash inflows before income tax expense - - -
Future income tax expense - - - ------------ ------------ ------------
Future net cash flows - - -
10% annual discount for estimated timing of cash flows - - - ------------ ------------ ------------
Standardized Measure of discounted
future net cash flows $ - $ - $ - ============ ============ ============
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: 1999 1998 1997 ------------ ------------ -------- (In thousands) Standardized Measure - beginning of year - $ - $ 102 Increases (Decreases) Sales, net of production costs - - - Net change in sales prices, net of production costs - - - Discoveries and extensions, net of related future development production costs - - - Changes in estimated future development costs - - - Development costs incurred - - - Revisions of previous quantity estimates - - - Accretion of discount - - - Net change in income taxes - - - Purchases of reserves-in-place - - - Sales of reserves-in-place - - (102) Timing of production of reserves and other - - - ------------ ------------ ------------
Standardized Measure - end of year - $ - $ - ============ ============ ============
12. INTANGIBLE ASSETS
Intangible assets consist of the organizational costs of $ 81,794(net of amortization) incurred in the formation of Imperial Environmental Company.
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
13. INVESTMENTS
Unrealized Unrealized Carrying
Cost Gains Losses Value
Investment in equity securities:
July 31, 1999:
Available for sale
(marked to market) $ 1,824,377 $ - $ (70,168) $ 1,754,209
July 31, 1998:
Available for sale
(marked to market) $ - $ - $ - $ -
14. WARRANTS
On April 21, 1999, the Company issued warrants for services provided to the Company. The warrants give the holder the right to purchase 600,000 shares of the Company?s restricted common stock for $.50 per share. The warrants expire on April 21, 2002.
15. WRITE-DOWN OF MINING PROPERTIES
During the year ended July 31, 1997, the Company wrote-down, by $784,341, its book value of equipment and development costs in its Arizona operations related to its participation in a joint venture as discussed in Note 19.
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
16. GOLD CERTIFICATE INCOME
The Company has entered into agreements 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 canceled.
The Company pays a 10% finders fee to a consultant in connection with each certificate issued. During the year ended July 31, 1998, the Company had $209,996 of Gold Certificate Income, less finders fees of $21,000 for net Gold Certificate Income of $188,996.
17. ACQUISITION AND EXTINGUISHMENT OF DEBT
Agreement with LaTex Resources, Inc.
During 1997, the Company reached an agreement with LaTex Resources, Inc. whereby the Company gave 100,000 shares of LaTex common stock (or 85,500 equivalent Alliance Resources Plc post-merger shares), loaned to the Company by CEO Jeffrey T. Wilson, in exchange for 5,000,000 shares of Wexford Technology, Inc. common stock (representing a 32.3% interest), 3,798,730 shares of the Company?s common stock, 5,000 shares of LaTex Resources International, Inc. common stock (100%), 30,000 shares of Phoenix Metals, Inc. common stock (100%) and extinguishment of the debt of the aforementioned companies as well as that of the Company.
This extinguishment resulted in a gain of $786,162, the receipt of Treasury stock valued at $140,553 and the recording of an investment in Wexford Technology, Inc. of $77,188. No value was recorded for the receipt of LaTex Resources International, Inc. or Phoenix Metals, Inc.
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
18. STOCK SPLIT
On November 21, 1996 the Company effected a one for six reverse split of its common stock, resulting in 5,238,164 shares being outstanding on that date with a par value of $ .006.
19. SETTLEMENT AGREEMENT ON UFO CLAIMS
During 1997, the Company reached a settlement agreement with UFO Mining Limited Partnership whereby the Company would assign its interest in the UFO mining claims to a third party, receive a release from the $1,000,000 note and receive 166,667 (post-split) shares of the Company?s common stock given in the original transaction. In conjunction with this agreement, the Company entered into a joint venture with the third party whereby the Company assigned its interest in the UFO claims, infrastructure and onsite equipment to the joint venture in exchange for a 5% carried interest. Under the joint venture agreement, the Company would be responsible for contributing up to 167,000 shares of its restricted common stock if the joint venture were to contribute $6,000,000 in capital. In exchange, the third party assumed the responsibility for liability to the UFO Mining Limited Partnership. Also, the Company has chosen to write-down the value of the assets to be contributed to the joint venture by $784,341 to more accurately reflect the market value of those assets and hence the value of the Company?s interest in the joint venture. The Company has reflected the assets to be contributed to the joint venture as $300,000 in acquisitions in progress.
As a result of the settlement agreement, the Company reduced mining claims by $2,045,565, reduced notes payable by $1,000,000, reduced accrued interest payable by $89,753 and recorded Treasury stock of $955,812.
20. LEASE OBLIGATIONS
The Company has a noncancelable operating lease agreement for office space. Total rental expense was $22,117, $20,927 and $0 in 1999, 1998 and 1997 respectively. The Company currently operates under month-to-month terms.
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
21. GAIN ON SALE OF ASSETS
During the year ended July 31, 1999 the Company acquired a 90% interest in Oil City Petroeum in exchange for 1,972,266 shares of its restricted common stock. All of Oil City?s assets were then sold to Comanche Energy, resulting in the Company receiving 5,481,901 restricted shares of Comanche Energy common stock (Note 13). This transaction resulted in a gain of $1,289,923.
The acquisition of Oil City would have qualified as a pooling of interests acquisition. However, because of the divesture of this subsidiary prior to year end, no pooling of assets, liabilities, stockholder?s equity or results of operations is included in these financial statements.
22. UNEARNED REVENUE
The Company has received advances for future delivery of silica ore. Total advances as of July 31, 1999 and 1998 were $297,441 and $50,000, respectively. The Company?s commitments under these agreements mature as follows for the years ended July 31:
2000 $ - 2001 $ - 2002 $ 59,488 2003 $ 107,079 2004 $ 107,079 Thereafter $ 23,795
23. ACCRUED EXPENSES
The Company has accrued expenses as of July 31 as follows:
1999 1998 ------------ --------
Accrued officer salary - CEO $ 440,008 $ 315,008 Accrued interest on notes 116,379 111,471 Accrued rent 2,100 2,100 ------------ ------------
$ 558,487 $ 428,579 ============ ============
During the year ended July 31, 1999 the Company issued 550,000 shares of its restricted common stock to pay accrued interest and extend maturities of notes payable.
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
24. SUBSEQUENT MATTER
Subsequent to year end, the Company?s investment in 5,481,901 shares of Comanche Energy common stock has decreased in value by approximately $1,088,000 (net of marketability discounts).