SECURITIES EXCHANGE COMMISSION
Washington D.C 20549
(Mark One)
FORM 10-K
XX ANNUAL REPORT PURSUANT TO
SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE
ACT OF
1934
For the fiscal year
ended July 31, 2001
-------------
TRANSITION REPORT PURSUANT
TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition
period from_____ to______
Commission file number 0-9923
IMPERIAL PETROLEUM, INC.
(Exact name of registrant as specified in its charter)
Nevada 95-3386019
(State or other jurisdiction (IRS Employer
of incorporation or organization) identification No.)
100 NW Second Street 47708
Suite 312 (Zip Code)
Evansville, Indiana
Registrant's telephone number,
including area code (812) 867-1433
Securities registered pursuant to Section 12(b) of the Act: None.
Securities registered pursuant to Section 13(g) of the Act:
Common Stock. $0.006 par value per share
------ ----------------- ----- ---------
(Title of class)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes__X__ No ____
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of the Regulation K is not contained herein, and will not be contained to the
best of the Registrant's knowledge in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. _____.
On July 3l, 2001, there were 13,925,276 shares of the Registrant's common stock
issued and outstanding.
The aggregate market value of the Registrant's voting stock held by
non-affiliates is $638,458. See Item5. Market for Registrant's Common Stock and
Related Stockholder Matters.
Documents Incorporated by Reference
NONE
IMPERIAL PETROLEUM, INC.
FORM 10-K
FISCAL YEAR ENDED JULY 3 l, 2001
TABLE OF CONTENTS
PART I
Page
Item 1. Business 1.
Item 2. Properties 1.
Item 3. Legal Proceedings 13.
Item 4. Submission of Matters to a Vote of Security Holders 13.
PART II
Item 5. Market for Registrant's Common Stock and Related
Stockholder Matters 14.
Item 6. Selected Financial Data 14.
Item 7. Management's Discussion and Analysis of Financial Condition
And Results of Operations 14.
Item 8. Financial Statements and Supplementary Data Auditor's Report
(F-1 thru F-22)
Item 9. Changes In and Disagreements with Accountants on Accounting
and Financial Disclosure 18.
PART III
Item 10. Directors and Executive Officers of the Registrant 19.
Item 11. Executive Compensation 20.
Item 12. Security Ownership of Certain Beneficial Owners and Management 21.
.
Item 13. Certain Relationships and Related Transactions 21.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports
On Form 8-K 25.
Signature 26.
PART I
Item 1. Business and Item 2. Properties
Definitions
As used in this Form 10-K
"Mcf" means thousand cubic feet, "MMcf' means million cubic feet and "Bcf"'
means billion cubic feet "Mcfe" means thousand cubic feet equivalent, "Mmcfe"
means million cubic feet equivalent and "Bcfe" means billion cubic feet
equivalent. "Bbl" means barrel, "MBbls" means thousand barrels and "MMBbls"
means million barrels. "BOE" means equivalent barrels of oil and "MBOE" means
thousands equivalent barrels of oil. Unless otherwise indicated herein. natural
gas volumes are stated at the legal pressure base of the state or area in which
the reserves are located and at 60 degrees Fahrenheit. Natural gas equivalents
are determined using the ratio of six Mcf of natural gas to one Bbl of crude oil
The term "gross" refers to the total leasehold acres or wells in which the
Company has a working interest. The term "net" refers to gross leasehold acres
or wells multiplied by the percentage working interest owned by the Company.
"Net production" means production that is owned by the Company less royalties
and production due others.
"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 reserves
which are expected to be recovered through existing wells with existing
equipment and operating methods. "Proved undeveloped reserves" are those
reserves which are expected to be recovered from new wells on undrilled acreage
or from existing wells where a relatively major expenditure is required for
recompletion.
The term "oil" includes crude oil, condensate and natural gas liquids.
"Base Metals" refers to a family of metallic elements, including copper, lead
and zinc.
"Grade" refers to the metal or mineral content of rock, ore or drill or other
samples. With respect to precious metals, grade is generally expressed as troy
ounces per ton of rock.
"Mineable" refers to that portion of a mineral deposit from which it is
economically feasible to extract ore.
"Net Smelter Royalty" is a royalty based on the actual sale price received for
the subject metal less the cost of smelting and/or refining the material at an
offsite refinery or smelter along with off-site transportation costs.
"Patented Mining Claim" is a mining claim, usually comprising about 20 acres, to
which the US Government has conveyed title to the owner.
"Unpatented Mining Claim" is a mining claim which has been staked or marked out
in accordance with federal and state mining laws to acquire the exclusive rights
to explore for and exploit the minerals which may occur on such lands. The title
to the property has not been conveyed to the holder of an unpatented mining
claim.
Unless the context requires otherwise, all references herein to the Company
include Imperial Petroleum, Inc., and its consolidated subsidiaries. Ridgepointe
Mining Company, a Delaware corporation ("Ridgepointe"), I.B. Energy, Inc., an
Oklahoma corporation ("I.B. Energy"), Premier Operating Company, a Texas
corporation ("Premier"), LaTex Resources International, a Delaware corporation
("LRI"), Phoenix Metals, Inc., a Texas corporation ("Phoenix") , and Oil City
Petroleum, Inc. ("Oil City"), an Oklahoma corporation. Premier and IB Energy,
Inc. were sold effective July 31, 1996. LRI and Phoenix were acquired effective
April 30, 1997. Eighty- percent control of SilaQuartz was acquired effective
November 23, 1998 as an investment. The Company acquired 90% control of Oil City
effective August 31, 1998 as an investment and sold its interest effective
November 28, 2000.
The Company
Imperial Petroleum, Inc., a Nevada corporation ("the Company"), is a diversified
energy, and mineral mining company headquartered in Evansville, Indiana. The
Company has historically been engaged in the production and exploration of crude
oil and natural gas in Oklahoma and Texas and has diversified its business
activities to include mineral mining, with a particular emphasis on gold mining.
The Company intends to utilize its oil and natural gas assets to support and
enhance its mining activities. The Company expects to focus its future growth in
both energy and mining ventures. In addition to its activities in the energy and
mining businesses, the Company has obtained certain rights to allow it to market
certain environmental products.
At July 31,2001, the Company does not operate any active oil and natural gas
properties directly, although it remains a significant shareholder of Warrior
Resources Inc. (formerly Comanche Energy Inc.) which does operate in the oil and
natural gas business. The Company is the operator of the Duke Gold Mine in Utah,
although no significant operations occurred during the prior fiscal year.
Historical Background
The Company was incorporated on January 16, 1981 and is the surviving member of
a merger between itself, Imperial Petroleum, Inc., a Utah corporation
incorporated on June 4, 1979 (" Imperial-Utah"), and Calico Exploration Corp., a
Utah corporation incorporated on September 27, 1979 ("Calico"). The Company was
reorganized under a Reorganization Agreement and Plan and Article of Merger
dated August 31, 1981 resulting in the Company being domiciled in Nevada.
On August 11, 1982, Petro Minerals Technology, Inc. ("Petro"), a 94% -owned
subsidiary of Commercial Technology Inc. ("Comtec") acquired 58% of the
Company's common stock. Petro assigned to the Company its interests in two
producing oil and gas properties in consideration for 5,000,000 shares of
previously authorized but unissued shares of common stock of the Company and for
a $500,000 line of credit to develop these properties. Petro has since undergone
a corporate reorganization and is now known as Petro Imperial Corporation. On
August 1,1988 in an assumption of assets and liabilities agreement, 58% of the
Company's common stock was acquired from Petro by Glauber Management Co., a 100%
owned subsidiary of Glauber Valve Co., Inc.
Change of Control. Pursuant to an Agreement to Exchange Stock and Plan of
Reorganization dated August 27, 1993 (the "Stock Exchange Agreement"), as
amended by that certain First Amendment to Agreement to Exchange Stock and Plan
of Reorganization dated as of August 27, 1993, (the "First Amendment"), between
Imperial Petroleum, Inc. (the "Company"), Glauber Management Company, a Texas
corporation, ("Glauber Management"), Glauber Valve Co Inc., a Nebraska
corporation, ("Glauber Valve"), Jeffrey T. Wilson ("Wilson"), James G. Borem
("Borem") and those persons listed on Exhibit A attached to the Stock Exchange
Agreement and First Amendment (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, a
Delaware corporation ("Ridgepointe"), representing 100% of the issued and
outstanding common stock of Ridgepointe, for a total of 12,560,730 newly issued
shares of the Company's common stock, representing 59.59% of the Company's
resulting issued and outstanding common stock. Under the terms of the Stock
Exchange Agreement, (i) Wilson exchanged 5,200,000 shares of Ridgepointe common
stock for 5,200,000 shares of the Company's common stock representing 24.67% of
the Company's issued and outstanding common stock, (ii) Borem exchanged
1,500,000 shares of Ridgepointe common stock for 1,500,000 shares of the
Company's common stock representing 7.12% of the Company's issued and
outstanding common stock, and (iii) the remaining Ridgepointe Stockholders in
the aggregate exchanged 5,860,730 shares of Ridgepointe common stock for
5,860,730 of the Company's issued and outstanding common stock, representing, in
the aggregate, 27.81% of the Company's 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 Ridgepointe common stock was determined through arms
length negotiations between the Company, Wilson and Borem.
The Ridgepointe Exchange Transaction was closed on August 27, 1993. As a result,
Ridgepointe is now a wholly, owned subsidiary of the Company. At the time of
acquisition, Ridgepointe was engaged in the development of a copper ore mining
operation in Yavapai County, Arizona and, through its wholly owned subsidiary,
I.B. Energy, Inc., an Oklahoma corporation ("I.B Energy"), in the exploration
for and production of oil and gas in the Mid-continent and Gulf Coast regions of
the United States.
In connection with the closing of the Ridgepointe Exchange Transaction, each
member of the Board of Directors of the Company resigned and Wilson, Borem and
Dewitt C. Shreve ("Shreve") were elected Directors of the Company. In addition,
each officer of the Company resigned and the Company's new Board of Directors
elected Wilson as Chairman of the Board, President and Chief Executive Officer,
Borem as Vice President and Cynthia A. Helms as Secretary of the Company. Ms.
Helms subsequently resigned and Kathryn H. Shepherd was elected Secretary. Mr.
Borem, Mr. Shreve and Ms. Shepherd subsequently resigned and Mr. Malcolm W.
Henley and Mrs. Stacey D. Smethers were elected to the Board. The Board of
Directors further authorized the move of the Company's principal executive
offices from Dallas, Texas to its current offices in Evansville, Indiana.
As a condition to closing the Ridgepointe Exchange Transaction, the Company
received and canceled 7,232,500 shares of the Company's common stock from the
Company's former partner, Glauber Management, and 100,000 shares of the common
stock of Tech-Electro Technologies, Inc from an affiliate of Glauber Management
and Glauber Valve. In addition, pursuant to the terms of the First Amendment,
Glauber Management or Glauber Valve, or their affiliates, were to transfer to
the Company 75,000 shares of common stock of Wexford Technology, Inc. (formerly
Chelsea Street Financial Holding Corp.) no later than October 31, 1993, such
transfer subsequently occurred.
On October 19, 2000 the Company entered into an agreement to sell 5,231,901
shares of the common stock of Comanche Energy, Inc. to Ravello Capital, LLC for
$523,190 in cash. Ravello was to pay a total $74,800 in cash to a judgement
creditor of the Company and the balance was to be paid to Imperial. Under the
transaction, Ravello paid a total of $74,800 to the judgement creditor to
satisfy its claims and received delivery of the share certificates inot escrow
against delivery of the balance of the funds as agreed. Ravello did not complete
the payment to the Company as agreed. The Company filed suit in Federal Court in
Tulsa County to terminate the balance of the transaction and to seek a
declaratory judgement against Ravello. The Company received a judgement award in
the amount of $448,390. The Company is vigorously pursuing the collection of
that judgememt. (See " Litigation").
On October 12, 2000 the Company entered into a no-cost option to purchase 42,300
acres of leases in southeastern Indiana from Deka Exploration, Inc. The leases
are located in the New Albany Shale Gas Play near Seymore, Indiana. Under the
terms of the Agreement, The Company, at its election, can participate in the
completion of the initial two wells that have been drilled on the acreage and
the drilling of a total of five additional wells prior to making its election to
purchase the acreage. During the option phase, the Company would pay 100% of the
costs of the completion and drilling operations. Upon its election to continue
with the project, the Company would own an 85% working interest in the acreage
and would be required to pay acreage costs of $10.00 per acre. As a result in
the recent softness in the price of natural gas, the Company has been unable to
secure financing and Deka has notified the Company that its option has expired.
Deka continues to be willing to renew the transaction with the Company, subject
to prior sale of the property.
The Company entered into negotiations during fiscal 1999 with Asia Pacific
Capital Corporation, a merchant banking firm located in Sydney, Australia, to
provide project financing for its mining and energy projects in connection with
an equity infusion. If completed under the present structure, Asia Pacific would
acquire 20 million shares of the Company's restricted common stock in exchange
for $12 million and a commitment to project finance up to $47 million of the
Company's mining and energy projects. Asia Pacific has encountered difficulties
in securing its funds to complete the proposed transaction, however, the Company
continues to work with Asia Pacific in furtherance of the original proposed
structure. No assurances can be given that Asia Pacific will complete its
funding and if completed will elect to finalize its plans to purchase shares of
stock from the Company.
Subsequent Events:
On August 15, 2001, Mr. Malcolm W. Henley and Mrs. Stacey D. Smethers resigned
their positions as directors of the Company to pursue other interests. Their
vacancies have been filled with Mrs. Annalee C. Wilson and Mr. Aaron M. Wilson,
both family members of the Company's President and Chairman, until new directors
are elected at the next shareholder's meeting.
On October 31, 2001, Warrior Resources Inc. (formerly Comanche Energy Inc. and
the Company entered into a Compromise and Settlement Agreement to retire the
Note Payable by Warrior to Imperial in the original principal amount of
$165,000. The Agreement provides for the assignment of certain oil and natural
gas properties by Warrior to Imperial with an estimated present value discounted
at 10% of $322,800 as determined by independent engineering. Closing is
scheduled on or before December 31, 2001, subject to the release of the
properties by Warrior's principal lender and the release of Imperial under a
Subordination Agreement signed in connection with the Original Note. The Bank's
consent has already been obtained.
On October 31, 2001, Imperial and Rx Power, a California corporation signed a
non-binding letter of intent wherein the two companies would form a Special
Purpose Vehicle ("SPV") for the purpose of obtaining financing for the
installation of Rx Power's proprietary electric generator units. Imperial will
contribute stock, cash or financing up to the amount of $2,000,000 in five
phases for a 45% interest in the cash flow from the SPV and Rx Power will
contribute its existing contracts and future marketing efforts to the SPV for a
45% interest in the SPV. The project will be managed by a third party, subject
to certain limitations imposed by both companies. The parties are currently
negotiating a binding definitive agreement for the consummation of the
transaction, expected to be completed prior to December 31, 2001. The
electricity generator units developed by Rx Power offer cost savings to
customers up to 25% from their present electricity source based upon the use of
proprietary electronic components and technological advances in the generation
of electricity using natural gas. The primary target market for these units,
initially, is California.
Business Strategy
The Company's business strategy has changed since the acquisition of Ridgepointe
in August 1993. In the past the Company has used its oil and gas assets to
provide the working capital necessary to expand and develop its mineral mining
activities. The Company's emphasis on mining ventures reflects its belief that
quality opportunities still exist in many areas of mineral mining for small
mining companies. The Company anticipates using partnership or joint venture
arrangements to avoid the large capital expenditures that can accompany certain
mining ventures. By seeking out small high quality claims and operations in
areas either by-passed or not yet occupied by major mining concerns, the Company
expects to position itself to take advantage of future upswings in the demand
for certain minerals such as gold, copper and platinum. The Company intends to
seek out opportunities in other commodities, particularly in the energy
business, that the Company believes may have the opportunity for a cyclical
improvement in demand and price.
Mining
The availability of a market for the Company's mineral and metal production will
be influenced by the proximity of the Company's operations to refiners and
smelting plants. In general the Company will sell its mined product to local
refineries and smelters. The price received for such products will be dependent
upon the Company's ability to provide primary separation to ensure fineness or
quality. The price of gold has been relatively stable in recent years reflecting
a period of relatively low inflation. Copper prices have generally been more
volatile, in part due to increased demand of developing economies for electrical
wire and other copper related products.
Changes in the price of gold and copper will significantly affect the Company's
future cash flows and the value of its mineral properties. The Company is unable
to predict whether prices for these commodities will increase, decrease or
remain constant in future periods.
Reserves
Mining
The following table sets forth estimates as of July 31, 2001 of the mineral
reserves net to the Company's interest in each of the Company's claim groups as
prepared by independent engineers and geologists and by the Company. These
estimates are based upon extensive sampling and testing on the Company's
properties and are based on assumptions the Company believes are reasonable
regarding production costs, metallurgical recoveries and mineral prices. There
are numerous uncertainties inherent in the preparation of estimates of reserves,
including many factors beyond the Company's control. The accuracy of any such
estimates is a function of the quality of available data and of engineering and
geological interpretation and judgement. It can be expected as the Company
conducts additional evaluation, drilling and testing with respect to its
properties that these estimates will be adjusted and that plans for mining could
be revised.
Based on its analysis of the mineral deposits detailed in the table below, it is
the Company's present determination that these properties can be mined on an
economic basis by the Company and that these estimates constitute reserves as
that term is typically used in the mining industry. Although permitting required
to initiate mining operations in the United States has become extremely complex
and cannot be considered a certainty, the company believes that, in the normal
course of property development, it should be able to obtain the necessary
permits to commence or expand mining operations on these properties.
The estimates provided in the table below utilize in place grades and do not
reflect losses that will be incurred in the recovery process. The mineral grades
utilized in the preparation of reserves for each property are generally based
upon results of sampling and testing programs conducted on each property and
analyzed by qualified assayers or engineers.
As of July 31.2001
Net Mineable Reserves
Claim Group Location Acres Gold Grade (oz/ton) Gold(oz) Silver(oz) Copper(lbs)
- ----------- -------- ----- ------------------- -------- ---------- -----------
UFO Mine (l)Arizona 400 0 0 0 600,000
Duke Mine Utah 2,240 0.10 4,883,750 0 0
----- ---- --------- - -
Total 2,640 0.10 4,883,750 0 600,000
(1) Copper reserves are based upon 400 million pounds at an average grade of 3%
and adjusted for the Company's interest in the Joint Venture.
Principal Exploration and Development Projects: Mining ventures:
United States
UFO Mine - Until the formation of the Joint Venture, subsequent to year end
1998, the Company operated the UFO Mine and Rumico Millsite located in Yavapai
County, Arizona comprising some 400 acres of unpatented mining claims. The
principal resource discovered to date is copper. Strip mining operations were
initiated under a small miner's exemption July 1992 to verity the quality of the
ore body and evaluate the economics of the mine. A limited core-drilling program
was completed in March 1993 and a pilot operation was conducted using the
millsite facilities to determine actual recoveries of copper As a result the
Company has estimated the property's copper reserves at 12,000, 000 lbs. based
upon an average grade of 3%. Working capital limitations had limited the
Company's development of the mining property, in favor of other projects. And as
a result, the Company entered into a Mining Joint Venture in November 1997,
subsequent to year end. The property, was subject to an acquisition note with
the former owners requiring the payment of $1,000,000. The note had been
extended several times by the holder and the mining claims served as collateral
for the note The Company negotiated a Mining Joint Venture with Mr. Zane Pasma
in November 1997 that retired the note payable and secured the return of
1,000,000 shares of the Company's common stock (pre-split) for the assignment of
the Company's interest in the Lone Star claims and a contribution of the
Company's interest in the Congress Mill Site facility. The Company retained a 5%
carried interest in the Mining Joint Venture through the initial $6.0 million
spent by the Joint Venture to develop the property. Mr. Pasma manages the Mining
Joint Venture and began initial operations in 1998. The results of initial
recovery tests for platinum group metals was disappointing and the Joint Venture
Manager suspended operations to seek an industry partner or other financing for
the development of the copper and gold reserves known to exist on the claims.
The Company does not expect any activity during the current fiscal year.
Duke Mine - The primary focus of the Company during the past three years has
been the testing and the implementation of operations on the Duke Mine located
in San Juan County, Utah. The property comprises some 2,240 acres of unpatented
mining claims in the Dry Valley Gold Claim area. Access to the property is
excellent via blacktop roads adjacent to the claims. The property is located
some 20 miles south of Moab, Utah. The primary mineralization at the Duke Mine
occurs as microscopic g6ld located in very fine grain placer material. Sieve
analysis of the sand indicates that about 71 % of the material are larger than
200 mesh. Recovery tests have been conducted on a grid sampling pattern
throughout the claim area utilizing the Cosmos Concentrator and indicate an
average recovery of 0.10 ounces/ton of free gold. Because of the nature of the
placer material and in particular its size, mining and process recovery
operations will be significantly simplified, thereby reducing costs. The company
has, subsequent to its initial reserve report, conducted additional recovery
tests utilizing other equipment in addition to the Cosmos Concentrator with
similar results. Water is readily available, however, drilling is required.
The Company began production at the Duke Mine during the first quarter of fiscal
1998 on a pilot operation. A portable Cosmos Concentrator was purchased and was
moved on site. Initial operations were conducted at rates of 20 tons per day and
numerous tests were conducted. The Company spent approximately $185,000 to begin
operations at this level and is operating under a small miner's permit
exemption. Pilot plant results were encouraging despite mechanical start-up
problems. Upon completion of its pilot tests, the Company suspended any further
operations until construction of a full-scale modular facility can be completed.
The facility is planned during the fourth quarter of the current fiscal year,
subject to capital availability, permitting and construction schedules, at a
cost of $5.0 million and with a capacity of 10,000 tons per day. The present
claims owned by the Company contain approximately 48,837,500 tons of placer
material. The Company anticipates obtaining additional claims in the vicinity of
the Duke Mine to further enhance its mineral resource in this area. Presently
there are 5 other companies active in the development of claims in the vicinity
of the Duke Mine with operations being established by one of the groups some 6
miles east of the Company's pilot plant location. The Company believes that it
will be successful in completing the financing during the current fiscal year to
provide the necessary funds for construction of the plant.
Competition
The acquisition of mining claims prospective for precious metals or other
minerals or oil and natural gas leases is subject to intense competition from a
large number of companies and individuals. The ability of Company to acquire
additional leases or additional mining claims could be curtailed severely as a
result of this competition.
The principal methods of competition in the industry for the acquisition of
mineral leases is the payment of bonus payments at the time of acquisition of
leases, delay rentals, advance royalties, the use of differential royalty rates,
the amount of annual rental payments and stipulations requiring exploration and
production commitments by the lessee. Companies with far greater financial
resources, existing staff and labor forces, equipment for exploration and
mining, and vast experience will be in a better position than the Company to
compete for such leases.
Government Contracts
No portion of the Company's business is subject to re-negotiation of profits or
termination of contracts or subcontracts at the election of the Government.
Regulation
Federal, state and local authorities extensively regulate the oil and natural
gas and mining industry. Legislation affecting these industries is under
constant review for amendment or expansion. Numerous departments and agencies,
both federal and state, have issued rules and regulations binding on the oil and
natural gas and mining industry and their individual members some of which carry
substantial penalties for the failure to comply. The regulatory burden on these
industries increases their cost of doing business and consequently, affects
their profitability. Inasmuch as such laws and regulations are frequently
amended or reinterpreted, the Company is unable to predict the future cost or
impact of complying with such regulations.
The Company's operations are subject to extensive federal, state and local laws
and regulations relating to the generation, storage, handling, emission,
transportation and discharge of materials into the environment. Permits are
required for various of the Company operations, and these permits are subject to
revocation, modification and renewal by issuing authorities. Governmental
authorities have the power to enforce compliance with their regulations and
violations are subject to fines, injunctions or both. It is possible that
increasingly strict requirements will be imposed by environmental laws and
enforcement policies thereunder. The Company is also subject to laws and
regulations concerning occupational safety and health. It is not anticipated
that the Company will be required in the near future to expend amounts that are
material in the aggregate to the Company's overall operations by reason of
environmental or occupational safety and health laws and regulations but
inasmuch as such laws and regulations are frequently changed, the Company is
unable to predict the ultimate cost of compliance.
Title to Properties
Mining. The Company does not have title opinions on its mining claims or leases
and, therefore, has not identified potential adverse claimants nor has it
quantified the risk that any adverse claims may successfully contest all or a
portion of its title to the claims. Furthermore, the validity of all unpatented
mining claims is dependent upon inherent uncertainties such as the sufficiency
of the discovery of minerals, proper posting and marking of boundaries, and
possible conflicts with other claims not determinable from descriptions of
record. In the absence of a discovery of valuable minerals, a mining claim is
open to location by others unless the claimant is in actual possession of and
diligently working the claim (pedis possessio) No assurance can be given with
respect to unpatented mining claims in the exploratory stage that a discovery of
a valuable mineral deposit will be made.
To maintain ownership of the possessory title created by an unpatented mining
claim against subsequent locators, the locator or his successor in interest must
pay an annual fee of $200 per claim.
Oil & Natural Gas. The Company at present does not own any oil and natural gas
leases.
Operational Hazards and Insurance
The operations of the Company are subject to all risks inherent in the
exploration for and operation of oil and natural gas properties, wells and
facilities and mines and mining equipment, including such natural hazards as
blowouts, cratering and fires, which could result in damage or injury to, or
destruction of, drilling rigs and equipment, mines, producing facilities or
other property or could result in personal injury, loss of life or pollution of
the environment. Any such event could result in substantial expense to the
Company which could have a material adverse effect upon the financial condition
of the Company to the extent it is not fully insured against such risk. The
Company carries insurance against certain of these risks but, in accordance with
standard industry practices, the Company is not fully insured for all risks
either because such insurance is unavailable or because the Company elects not
to obtain insurance coverage because of cost Although such operational risks and
hazards may to some extent be minimized. no combination of experience, knowledge
and scientific evaluation can eliminate the risk of investment or assure a
profit to any company engaged in mining operations.
Employees
The Company employs one person in its Evansville, Indiana office whose functions
are associated with management, operations and accounting. The Company uses
independent contractors to supervise its mining business.
Item 3. Legal Proceedings.
The Company filed suit in Federal District Court in Tulsa County, Oklahoma
against Ravello Capital LLC on November 20, 2000. The suit alleges breach of
contract and seeks to have the contract declared partially performed in the
amount of $74,800 and seeks relief in the amount of $488,390 for the unpaid
consideration and punitive damages and attorneys fees. In connection with the
pursuit of collection of its judgement against Ravello, the Company is seeking
to have the Comanche certificates returned.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
PART II
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. From 1984
to 1997 trading had been so limited and sporadic that it was not possible to
obtain a continuing quarterly history of high and low bid quotations. Stock
information is received from registered securities dealers and reflects
inter-dealer prices, without retail mark-up, mark-down or commission and may not
necessarily represent actual transactions. The Company was advised that trading
in its shares resumed in September 1997 and the Company's stock was quoted at
approximately $0.25 per share in sporadic trading. The approximate present bid
price for the Company's common stock is $0. .08 per share and the approximate
asked price is $0.12 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, 2001, there are approximately 605 holders of record of the Company's
common stock.
Item 6. Selected Financial Data
2001 2000 1999 1998 1997 1996
Operating Revenue 0 0 53,744 60,000 15,955 105,630
Income (loss)
from continuing operations (376,201) (638,602) (1,006,421) (496,604) (6,726) (388,089)
Net Income (loss) (376,201) (638,602) (1,006,421) (496,604) (6,726) (276,424)
Net Income (loss) per share (0.03) (0.05) (0.10) (0.08) (0.0) (.0.01)
Total Assets 644,323 1,426,813 1,947,939 1,948,979 722, 530 3,552,369
Stockholder's Equity (1,677,054) (673,594) 166,463 572,644 91,666 1,163,278
Cash Dividends Paid
per Common Share
Number of Outstanding
Shares (weighted) 13,9144,969 12,560,958 9,627,006 6,138,819 13,357,111 24,927,938
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 and (iv) the level of
and interest rates on borrowings. The Company will need to rely on the
initiation operations on its mining ventures and its oil and natural gas
operations to generate cash flow and future profits. The same factors listed
above will apply to the sale of minerals and metals mined by the Company as well
as oil and natural gas produced 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 $275.00 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.
Development of its oil and natural gas leases will subject the Company's
revenues to the fluctuations inherent in the energy business for the last
several years. Crude oil and natural gas prices have reached record highs during
the last several months and expectations are that prices for these commodities
will remain above prior levels in the future. Current crude oil prices as posted
on the New York Mercantile Exchange (NYMEX) are in the $21.00 to $25.00 per
barrel range while natural gas prices reached highs of $9.00 per MMBTU during
the winter months of 2000, but have settled into the $2.50-$3.50 range. The
Company expects energy prices to continue to be volatile in the future.
Year ended July 31, 2001 compared to year ended July 31, 2000. The Company
generated no revenues during the year ended July 31, 2001 or the year ended July
2000. The Company expects its revenues to remain marginal until it begins
continuous operations on the Duke Mine planned for 2002.
Operating expenses for the year ended July 31, 2001 were $0 compared to $7,407
for the same period a year earlier and reflect the startup of operations in the
environmental business during the prior year in contrast to the lack of any
operations during the most recent fiscal year. The Company does not expect to
incur substantial operating expenses until its mining or oil and natural gas
operations are in continuous operation. General and administrative expenses
decreased to $285,281 for the year ended July 31, 2001 from $570,012 for the
year ended July 31, 2001 and reflects the reduced expenses associated with the
environmental business, the Duke Gold Mine pilot plant operation and funding of
engineering and other overhead costs from the prior year. The Company expects
the level of its general and administrative expenses to remain high until
advance studies and other planning is completed and the mine is in continuous
operation.
The Company incurred an after tax net loss of $376,201 ($0.03 per share) for the
year ended July 31, 2001 compared to an after tax net loss of $638,602 ($0.05
per share) for the prior year. The decrease in the loss is a result of the
decrease in general and administrative expenses from the prior year. The Company
does not expect to generate a profit until its mining operations are in
continuous production.
Year ended July 31, 2000 compared to year ended July 31, 1999. Total revenues
for the Company for the year ended July 31, 2000 were $0 compared to $53,744 for
the year ended July 31, 1999 and reflects management fees as a result of the
Company's subleases on its office space and revenues from the Company's
environmental business. The Company expects its revenues to remain marginal
until it begins continuous operations on the Duke Mine.
Operating expenses for the year ended July 31, 2000 were $7,407 compared to
$119,649 for the same period a year earlier and reflect the operation of the
company's environmental business in 1999. The Company does not expect to incur
substantial operating expenses until one of its mining operations is in
continuous operation. General and administrative expenses decreased dramatically
from $839,393 for the year ended July 31, 1999 to $570,012 for the year ended
July 31, 2000 and reflects the reduced level of the Company's operations during
2000. The Company expects the level of its general and administrative expenses
to remain high until advance studies and other planning is completed and the
Duke mine in continuous operation.
The Company incurred an after tax net loss of $638,602 ($0.05 per share) for the
year ended July 31, 2000 compared to an after tax net loss of $1,006,421 ($0.10
per share) for the prior year. The decrease in the loss is a result of the lower
level of general and administrative expenses for 2000 and the fact that the loss
in 1997 was increased by impairment losses attributable to the Company's mining
properties and equipment during 1999 of $1,329,474. The Company does not expect
to generate a profit until its mining operations are in continuous 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 $53,744 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.
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.
Capital Resources and Liquidity.
The Company's capital requirements relate primarily to its mining activities and
the expansion of those activities and the development of its oil and natural gas
business. 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.
As a result of the inability of the Company to raise capital, Management decided
to terminate all of the Company's mining lease commitments except the Duke Gold
Mine in Utah during fiscal 2000. As a result, the Company is active in only one
mine that will require significant capital expenditures. In addition, Management
determined that the Company should position itself in a high-profile natural gas
project in an effort to attract capital, and as a result, the Company was able
to negotiate a no-cost option on 42,300 acres of leases in the New Albany Shale
Gas Play at a time prior to the most recent run-up in natural gas prices.
However, due to the inability of the Company to secure financing for the project
and due to the return of modest natural gas prices, the Company has been
notified that its option has expired. The Company has a wide degree of
discretion in the level of capital expenditures it must devote to the mining
project on an annual basis and the timing of its development. 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 2001.
The Company entered into negotiations in fiscal 2000 with Asia Pacific Capital
Corporation, a merchant banking firm headquartered in Sydney, Australia, to
provide an equity infusion of $12 million for the purchase of 20 million shares
of the Company's restricted common stock and would provide project financing of
up to $47 million. 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.
As a result of the acquisition of control of Oil City and the subsequent sale of
Oil City's assets to Comanche, the Company owned 5,481,901 shares of the
restricted common stock of Comanche. The Company entered into a transaction with
Ravello Capital LLC in order to raise cash to pay off a judgement creditor, its
private, non-affiliate noteholders and to raise capital for its New Albany Shale
Project. As discussed previously, Ravello paid the judgement creditor, however,
it failed to complete the balance of the transaction and the Company filed suit
against Ravello for breach of contract, among other things. The Company was
awarded a monetary judgement in the amount of $448,390 against Ravello and is
vigorously pursuing the collection of its judgement.
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 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 and oil and natural
gas activities are distributed over several months, the Company anticipates its
current working capital will be insufficient to meet its capital expenditures.
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 or oil and natural gas companies. 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 Asia Pacific will be received timely, if at all, and as
a result the level of the Company's planned mining and oil and natural gas
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 or oil and natural gas 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
$687,787 as of July 31, 2001. 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, 2001, the Company had current assets of $20,591 and current
liabilities of $2,017,018, which resulted in negative working capital of
$1,996,427. The negative working capital position is comprised of accounts
payable of $188,399, notes payable to shareholders and related parties totaling
$687,787, accrued salaries and expenses totaling $958,806 and third party notes
payable of $182,026. As discussed earlier, if the Company is unsuccessful in
obtaining outside capital certain mining or oil and natural gas 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 2002. The previously
discussed transaction with Asia Pacific, if successful, will provide the Company
with sufficient funds to pursue its mining and oil and natural gas 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 or abandon 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 and due to fluctuations in energy prices
due to seasonal variations. To date these variations have been minimal. 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. As operations commence and production is realized on its mining and oil
and natural gas properties, these influences will become more significant.
Inflation and Prices
The Company's revenues and the value of its mining and oil and natural gas
properties have been and will be affected by changes in copper and gold prices.
And the prices for crude oil and natural gas. The Company's ability to obtain
additional capital on attractive terms is also substantially dependent on the
price of these commodities. Prices for these commodities are subject to
significant fluctuations that are beyond the Company's ability to control or
predict.
Item 8. Financial Statements and Supplementary Data.
Audited Financial Statements of Imperial Petroleum, Inc.
Independent Auditor's Report.................................................F-1
Consolidated Balance Sheets as of July 31, 2001 and 2000.....................F-2
Consolidated Statements of Operations for the years
ended July 31, 2001, 2000 and 1999.........................................F-3
Consolidated Statements of Stockholder's Equity for the
years Ended July 31,2001, 2000 and 1999......................................F-4
Consolidated Statements of Cash flows for the years
ended July 31, 2001, 2000 and 1999...........................................F-5
Notes to Consolidated Financial Statements......................F-7 through F-22
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. (Mr. Malcolm W. Henley and
Mrs. Stacey D. Smethers, former directors of the Company resigned their director
positions effective August 15, 2001 to pursue other interests. As a result,
Annalee C. Wilson and Aaron M. Wilson were appointed as directors of the Company
until independent directors are elected at the next shareholder's meeting.)
Name Age Position
---- --- --------
Jeffrey T. Wilson 48 Director, Chairman of the Board,
President and Chief Executive Officer
Annalee C. Wilson 44 Director
Aaron M. Wilson 22 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.
Annalee C. Wilson has been a Director of the Company since August 2001. Mrs.
Wilson is the President of HN Corporation, an affiliate of the Company engaged
in the operation of retail franchise outlets in malls selling motivation and
inspiration material developed by Successories, Inc. and others and in the
operation of a Christian restaurant and gift shop. Mrs. Wilson has an Associate
Degree in Nursing from the University of Evansville.
Aaron M. Wilson has been a Director of the Company since August 2001. Mr. Wilson
is the Manager of the Successories franchise store owned by HN Corporation in
Lexington, Kentucky and is a full time student attending the University of
Kentucky. Mr. Wilson is pursuing a dual degree in Business Economics and
Political Science.
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, 2001 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, 2001, 2000 and 1999 (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
Long Term Awards
Annual Compensation Warrants
------------------- --------
Name and Principal
Position Year Salary Bonus # shares
Jeffrey T. Wilson 2001 $ 125,000 ----- --------
2000 $ 125,000 ----- --------
1999 $ 125,000 ----- --------
Malcolm W. Henley 2001 ------- ----- --------
2000 ------- ----- --------
1999 ------- ----- --------
Stacey D. Smethers 2001 ------- ----- --------
2000 ------- ----- --------
1999 ------- ----- --------
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. Annalee C. Wilson Aaron M. Wilson were not directors of the
Company during fiscal 2001, and neither received any compensation from the
Company during that period.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
As of July 31, 2001, the Company has 13,925,276 issued and outstanding shares of
common stock, The following table sets forth, as of July 31, 2001, 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 31,2001, the Company had approximately 605 holders of common stock of
record.
Number of Shares
Name of Beneficial Owner Beneficially Owned Percent of Class
Jeffrey T. Wilson (1) 2,282,248 16.4%
Annalee C. Wilson(2) 2,710,634 19.5%
Aaron M. Wilson (3) 119,834 0.9%
Malcolm W. Henley (4) 583,333 4.2%
Stacey D. Smethers (5) 135,000 0.9%
All officers and directors as a
Group (3 people) at 7/31/2001 5,283,764 37.9%
All officers and directors as a
Group (3 people) presently 5,112,716 36.7%
HN Corporation(6) 1,282,594 9.2%
Gene Moser(7) 1,128,521 8.1%
Total officers, directors and
5% shareholders 6,241,237 44.8%
(1) The mailing address of Mr. Wilson is 100 NW Second Street, Suite 312,
Evansville, Indiana 47708. Includes1,855,144 shares held jointly with Mrs.
Wilson; inlcudes 427,104 shares owned by HN Corporation in which Mr. Wilson owns
33.3%. Does not include 50,000 shares held in Trust by Old National Bank for Mr.
Wilson's children.
(2) The mailing address of Mrs. Wilson is 800 N. Green River Road, Evansville,
IN 47715. Includes 1,855,144 shares held jointly with Mr. Wilson; includes
855,490 shares owned by HN Corporation in which Mrs. Wilson owns 66.7%. Does not
include 50,000 shares held in Trust by Old national Bank for Mrs. Wilson's
children.
(3) The mailing address for Mr. Wilson is 11600 German Pines Drive, Evansville,
IN 47725. Includes 16,500 shares held in Trust by Old National Bank.
(4) The mailing address of Mr. Henley is 8111 E. 93rd Street, Suite 2205, Tulsa,
OK 74133. Includes 350,000 shares held by the Company as collateral against that
certain Note Payable due on or before August 6, 2002 in the principal amount of
$129,850.
(5) The mailing address of Stacey D. Smethers is 4813 Rustic Road, Sand Springs,
Oklahoma 74063. Includes 82,500 shares held by the Company as collateral against
that certain Note Payable due on or before September 15, 2002 in the principal
amount of $29,150.
(6) The mailing address of HN Corporation is 800 N. Green River Rd., Evansville,
IN 47715. Mrs. Annalee Wilson is the President of HN Corporation, Jeffrey T.
Wilson is the Vice President of HN Corporation and Aaron M. Wilson is a director
of HN Corporation.
(7) Mr. Moser's mailing address 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 $687,787 in
principal as of July 31, 2001.
HN Corporation, a private retail company owned by Mr. Wilson and his wife, has
made unsecured loans to the Company which total $102,026 in principal as of July
31, 2001. Annalee Wilson serves as the President of HN Corporation and owns
66.7% of its common stock, Jeffrey T. Wilson serves as the Vice President and
Secretary of HN Corporation and owns 33.3% of its stock and Aaron M. Wilson
serves as a director of HN Corporation.
The Company leases office space and office services, including telephones,
copiers, and office supplies at its headquarters office to HN Corporation at the
rate of $1,000 per month.
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, 2000 and 1999;
Consolidated Statements of Operations for the years ended
July 31, 2000, 1999, and 1998;
Consolidated Statements of Stockholder Equity for the
years ended July 31, 2000, 1999, and 1998;
Consolidated Statements of Cash Flows for the years
ended July 31, 2000, 1999, and 1998;
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, 2001.
(c) Exhibits. None.
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.
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: November ____, 2001 /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
- ---------------------- Officer (Principal Executive
Jeffrey T. Wilson Officer) and Director November __, 2001
Consolidated Financial Statements
IMPERIAL PETROLEUM, INC. and SUBSIDIARIES
July 31, 2001, 2000 and 1999
IMPERIAL PETROLEUM, INC.
and
SUBSIDIARIES
CONSOLIDATED
FINANCIAL STATEMENTS
AS OF JULY 31, 2001 and 2000
and
FOR THE YEARS ENDED
JULY 31, 2001, 2000 and 1999
and
INDEPENDENT AUDITOR'S REPORT
IMPERIAL PETROLEUM, INC.
July 31, 2001, 2000, and 1999
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&2A
Consolidated Statements of Operations 3
Consolidated Statements of Stockholders' Equity 4
Consolidated Statements of Cash Flows 5-6
Notes to Consolidated Financial Statements 7-27
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, 2001 and 2000 and
the consolidated statements of operations, stockholders' equity, and cash flows
for the years ended July 31, 2001, 2000 and 1999. 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, 2001 and 2000 and the results of its
operations and its cash flows for the years ended July 31, 2001, 2000 and 1999,
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
October 29, 2001
Tulsa, Oklahoma
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Consolidated Balance Sheets
July 31, 2001 and 2000
ASSETS 2001 2000
------------ ---------
Current assets:
Cash $ 1,074 $ 180
Accounts receivable - other - -
Inventories (Note 2) - -
Other current assets 19,517 -
------- ----
Total current assets 20,591 180
Property, plant and equipment
(Notes 1, 2, and 4):
Mining claims, options and
development costs less impairment 41,760 41,760
Equipment 1,107 5,166
Acquisition in progress (Note 14) 4,000 4,000
------ ---------
46,867 50,926
Less: accumulated depreciation 1,107 1,107
Net property, plant and equipment 45,760 49,819
Other assets:
Notes receivable - related parties
(Note 3) 127,500 138,713
Notes receivable - other
(Note 3) 230,732 21,119
Intangibles - net (Note 2) - -
Investments - securities
(Notes 2 and 11) 219,740 1,216,982
-------- ---------
Total other assets
577,972 1,376,814
----------- ----------
TOTAL ASSETS $ 644,323 $ 1,426,813
======= =========
2
LIABILITIES and STOCKHOLDERS' EQUITY 2001 2000
--------- ------
Current liabilities:
Accounts payable $ 188,399 $ 176,541
Accrued expenses (Note 18) 958,806 755,460
Notes payable (Note 6) 182,026 119,500
Notes payable - related parties
(Note 7) 687,787 744,547
------- -------
Total current liabilities 2,017,018 1,796,048
Noncurrent liabilities:
Unearned revenue - noncurrent
(Not 17) 304,359 304,359
Deferred income taxes (Note 5) - -
------------- ----------
Total noncurrent liabilities 304,359 304,359
Stockholders' equity:
Common stock of $0.006 par value,
authorized 50,000,000 shares;
13,925,276 issued in 2001 and
12,504,165 shares in 2000 83,552 75,025
Paid-in capital 4,069,776 3,791,520
Accumulated deficit (3,729,141) (3,352,940)
Accumulated other comprehensive
income (1,521,437) (607,395)
Treasury stock, at cost
(652,290 shares in 2001 and
652,290 shares in 2000) (579,804) (579,804)
----------- -----------
Total stockholders' equity (deficit) (1,677,054) (673,594)
Commitments and contingencies
(Note 9) - -
-------------- -------------
TOTAL LIABILITIES and
STOCKHOLDERS'
EQUITY (DEFICIT) $ 644,323 $ 1,426,813
======= ============
The accompanying notes are an integral part of these consolidated financial
statements
2A
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Consolidated Statements of Operations
For the Years Ended July 31, 2001, 2000 and 1999
2001 2000 1999
------------ ------------ ------------
Operating income:
Management fees $ - $ - $ -
Environmental service revenues - - 53,744
------------ ------------ ------------
Total operating income - - 53,744
------------ ------------ ------------
Operating expenses:
Cost of goods sold - - 110,529
Mining lease operating expense 9,120
Research and development - 7,407 -
Impairment loss (Note 4) - - 1,329,474
General and administrative expenses 285,281 570,012 839,393
Depreciation, depletion and
amortization (Note 2) - 738 9,775
------------ ------------
Total operating expenses 285,281 578,157 2,298,291
- ------- --------- ------------
Loss from operations (285,281) (578,157) (2,244,547)
Other income and (expense):
Interest expense (74,548) (101,758) (113,297)
Interest income 25,172 11,213 -
Other income 12,000 30,100 61,500
Gold certificate income - net (Note 13) - - -
Loss on write-down of securities
Gain (loss) on sale of assets
(Note 16) (53,544) - 1,289,923
- ------- ------------ ------------
Net loss before income taxes (376,201) (638,602) (1,006,421)
-------- --------- -----------
Provision for income taxes: (Note 5)
Current
Deferred
------------ ------------
Total benefit from income taxes
------------ ------------
Net loss $ (376,201) $ (638,602) $ (1,006,421)
============ =========== ============
Loss per share (Note 2) $ (.03) $ (.05) $ (.10)
============ ============ ============
Weighted average shares
outstanding 13,144,969 12,560,958 9,627,006
The accompanying notes are an integral part of these consolidated financial
statements.
3
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Consolidated Statements of Stockholders' Equity
For the Years Ended July 31, 2001, 2000, and 1999
Accumulate
Common Stock Additional Other Total
Par Paid-In Retained Comprehensive Treasury Stockholders'
Shares Value Capital Deficit Income Stock Equity
--------- -------- ----------- ------------ ------------- ------------ -----------
Balances at July 31,1998 6,469,801 $ 38,819 $ 3,458,419 $(1,707,917) $ - $(1,216,677) $ 572,644
Treasury stock issued
in contemplation 1,500,000 9,000 243,000 (252,000) -
Stock issued for services 1,036,163 6,217 162,937 169,154
Stock issued for equity
securities (Note 16) 1,972,266 11,834 382,620 394,454
Stock issued to pay
off debt (Note 6) 550,000 3,300 103,500 106,800
Unrealized loss on equity
securities (Note 11) (70,168) - (70,168)
Net loss for the period (1,006,421) (1,006,421)
---------- ------ --------- ----------- -------- ----------- -----------
Balances at July 31,1999 11,528,230 69,170 4,350,476 (2,714,338) (70,168) (1,468,677) 166,463
Treasury stock issued (771,527) 888,873 117,346
Stock cancelled (650,000) (3,900) 3,900
Stock subscribed 716,666 4,300 123,200 127,500
Stock issued to pay off
interest and debt (Note 6) 909,269 5,455 85,471 90,926
Unrealized loss on equity
securities (Note 11) (537,227) (537,227)
Net loss for the period (638,602) - (638,602)
---------- ------ --------- ----------- --------- --------- ---------
Balances at July 31,2000 12,504,165 75,025 3,791,520 (3,352,940) (607,395) (579,804) (673,594)
------------
Investments in Warrior Resources 172,499 - 172,499
Stock issued for payment of fees 500,000 3,000 37,000 -- 40,000
Stock issued to pay off interest
and debt (Note 6) 921,111 5,527 68,757 - - 74,284
Unrealized loss on equity
securities (Note 11)- - - (914,042) - (914,042)
Net loss for the period - - (376,201) - - (376,201)
---------- -------- ----------- ------------ ------------ -------- ------------
Balances at July 31,2001 13,925,276 $ 83,552 $ 4,069,776 $(3,729,141) $(1,521,437) $ (579,804) $(1,677,054)
The accompanying notes are an integral part of these consolidated financial
statements.
4
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Consolidated Statements of Cash Flows
For the Years Ended July 31, 2001, 2000 and 1999
2001 2000 1999
---- ---- ----
Cash flows from operating activities:
Historical net loss $(376,201) $(638,602) $(1,006,421)
Adjustments to reconcile net loss
to net cash provided by
operating activities:
Depreciation, depletion and amortization 738 9,775
Expenses paid with common stock 40,000 188,455
Impairments 1,329,474
Loss(Gain) on sale and disposal
of assets 4,060 (1,429,922)
Write-offs 142,758 495,095
Realized loss on marketable securities 49,484
(Increase) Decrease in accounts
receivable - other 3,000 (3,000)
(Increase) Decrease in notes
receivable - related party 11,213 (11,213)
(Increase) Decrease in notes
receivable - other (37,115) (21,120)
(Increase) Decrease in inventories (60,964)
(Increase) Decrease in other
current assets (19,517)
(Increase) Decrease in other assets (91,200)
Increase (Decrease) in accounts payable 11,858 135,490 19,617
Increase (Decrease) in accounts
payable other
Increase (Decrease) in accrued expenses 203,346 297,746 216,607
Increase (Decrease) in unearned revenue 6,918 247,441
------- ------- ---------
Net cash used for operating activities (112,872) (84,285) (85,043)
Cash flows from investing activities:
Acquisition in progress (4,000)
Purchases of equipment
Sale of securities 33,716 (5,167)
------- ------- --------
Net cash used for investing activities 33,716 (4,000) (5,167)
The accompanying notes are an integral part of these consolidated financial
statements.
5
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Consolidated Statements of Cash Flows
For the Years Ended July 31, 2001, 2000 and 1999
2001 2000 1999
Cash flows from financing activities:
Increase (Decrease) in notes payable 62,526 39,500 62,500
Increase (Decrease) in notes payable
related parties 17,524 47,550 17,000
------ ------ ------
Net cash provided by financing activities 80,050 87,050 79,500
Net increase (decrease) in cash and
cash equivalents 894 (1,235) (10,710)
Cash and cash equivalents at beginning of year 180 1,415 12,125
----- ----- ------
Cash and cash equivalents at end of year 1,074 180 1,415
=== ===
Supplemental disclosures of cash flow information:
Cash paid during the period for
Interest
Income taxes
Supplemental schedule of noncash investing and financing activities:
Stock issued for mining equipment and
mining claim options
Stock issued for services 40,000 188,455
Stock issued for investment 1,429,922
Stock subscribed 127,500
Stock cancelled 3,900
Notes receivable (172,498)
Unrealized loss on equity securities (914,042) (537,227) (70,167)
Write-down of mining claims 1,329,474
Write-offs of inventory and intangibles (4,060) 142,758 495,095
Stock issued to extinguish debt 74,284 208,273
--------- -------- ----------
Total (976,316) (54,796) 3,372,779
========= ======== ==========
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.
-6-
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.
The Company is engaged, through its wholly owned subsidiary Imperial
Environmental Company, in developing and marketing water filtration systems
to municipalities.
Financial Condition
The Company's financial statements for the year ended July 31, 2001 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 $376,201 and $638,602 for the
years ended July 31, 2001 and 2000, respectively, and as of July 31, 2001
has an accumulated deficit of $3,729,141 and a deficit working capital of
$1,795,868.
Management Plans to Continue As A Going Concern
The Company believes that it will require outside capital to continue as a
going concern. We have been advised by Asia Pacific Capital that it has
finally received a Letter of Credit and a suitable leverage against the
Letter of Credit that should enable it to complete its transaction with the
Company within the next few weeks. There is no way for the Company to
independently verify Asia Pacific's ability to complete the equity infusion
at this time. Management is in negotiations with Warrior Resources
(formerly Comanche Energy) in regard to the re-issuance of the Comanche
Energy shares held and not returned by Ravello Capital in connection with
our judgment against Ravello and in regard to the payment of the note
receivable from Warrior Resources. Management believes that both
initiatives will be successful, based upon the new management of Warrior
Resource's expressed interest in resolving old issues related to their
company. Upon the return of the Comanche Energy shares, the Company intends
to liquidate shares in the market over time to provide funds to pay its
ongoing obligations.
Management is currently discussing the potential acquisition of other
businesses for stock, in the event that the Asia Pacific transaction does
not timely close.
-7-
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.
8
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
1. ORGANIZATION AND BUSINESS COMBINATION (continued)
Acquisition of Oil City Petroleum, Inc.
See Note 16.
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:
2001 2000 1999
Current assets $ - $ - $ -
Net claims and equipment 41,760 41,760 41,760
Other assets - - -
Total assets 41,760 41,760 41,760
====== ====== ======
2001 2000 1999
Current liabilities $ 654,973 $ 646,694 $ 583,952
Long-term liabilities - - -
Common stock 125,107 125,107 125,107
Paid-in capital 1,343,886 1,343,886 1,343,886
Deficit accumulated
before development stage (121,953) (121,953) (121,953)
Deficit accumulated during
development stage (1,960,253) (1,951,974) (1,889,232)
----------- ----------- -----------
Total liabilities and
stockholders' deficit $ 41,760 $ 41,760 $ 41,760
9
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
1. ORGANIZATION AND BUSINESS COMBINATION (continued)
Cumulative
2001 2000 1999 From Inception
---- ---- ---- --------------
Operating
revenues
Miscellaneous
income 96,579
Total income 96,579
Lease operating
expenses 162,922
Impairment loss 578,674 578,674
General and
administrative 2,124 56,263 (60,292) 405,453
----- ------ -------- --------
Total expenses 2,124 56,263 518,382 1,147,049
Net operating loss (2,124) (56,263) (518,382) (1,050,470)
Interest expense (6,155) (6,479) (13,612) (293,460)
Gain (Loss) on
sale/write-down
of assets (786,093)
------- -------- -------- -----------
Net income (loss)
before income
taxes (8,279) (62,742) (531,994) (2,130,023)
Income tax
benefit
------- -------- --------- -----------
Net loss (8,279) (62,742) (531,994) (2,130,023)
-10-
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 $ (2,130,023)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and depletion -
Non-cash impairment (578,674)
Increase in current liabilities 741,223
---------
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, 2001 $
====
Supplemental disclosures of cash flow information:
Cash paid during the period for
Interest $ -
Incometaxes
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.
-11-
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:
2001 2000 1999
---- ---- ----
Current assets
Inventories 60,964
Fixed assets 4,060 4,797
Other assets 81,794
---- ------ -------
Total assets 4,060 147,555
Current liabilities 228,607 228,607 221,200
Long-term liabilities
Common stock
Paid-in capital
Deficit accumulated during
development stage (228,607) (224,547) (73,645)
--------- --------- --------
Total liabilities and
stockholders' deficit - 4,060 147,555
-12-
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
1. ORGANIZATION AND BUSINESS COMBINATION (continued)
Cumulative
2001 2000 1999 From Inception
---- ---- ---- --------------
Operating
revenues 53,744 53,744
Miscellaneous
income
---- ---- ------ ------
Total income 53,744 53,744
Operating
expenses 110,529 110,529
Research and
development 7,407 7,407
General and
administrative 142,757 7,085 149,842
Depreciation and
amortization 738 9,775 10,513
Total expenses 150,902 127,389 278,291
---- --------- -------- ---------
Net operating loss (150,902) (73,645) (224,547)
Gain(Loss) on
sale of assets (4,060) (4,060)
Interest expense
Net income (loss)
before income taxes (4,060) (150,902) (73,645) (228,607)
Income tax
benefit
------- --------- -------- ---------
Net loss (4,060) (150,902) (73,645) (228,607)
13
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 (228,607)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation and amortization 10,513
Increase in other assets
Increase in current liabilities 228,607
(Gain)Loss on sale of assets 4,060
---------
Net cash used for operating activities 14,573
Cash flows from investing activities:
Equipment purchased - net (14,573)
--------
Net cash used for investing activities (14,573)
-------------
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, 2001 -
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.
14
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The July 31, 2001, 2000 and 1999 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.
15
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 currently operates in the mining
and environmental technologies industries. 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
Mining and environmental technology revenues will be recognized in the
month of sale.
16
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:
2001 2000
Materials and supplies $ - $ -
Work-in-progress - -
-------- ---------
Total $ - $ -
Property, Equipment, Depreciation and Depletion
Property and equipment are stated at cost. Depreciation is computed by the
straight-line method over the estimated useful lives of 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.
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 has
implemented SOP 98-5, as required, for fiscal year July 31, 2001. SOP 98-5
requires that the intangible asset be charged against income rather than
carried as an asset and amortized.
17
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
2. SUMMARY OF ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (continued)
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.
Reclassification
Certain amounts in the 2000 consolidated financial statements have been
reclassified to conform with the 2001 presentation. These reclassifications
had no impact on net loss.
18
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
3. NOTES RECEIVABLE
Notes receivable was comprised of the following:
2001 2000
Common stock subscribed - shareholders 127,500 138,713
Warrior Resources (formerly
Comanche Energy) 179,367
AQ Technologies 51,365 21,119
------- -------
Total 358,232 159,832
Notes receivable from third parties includes $51,365 in lieu of debt
payments made on behalf of AQ Technologies. The Company's CEO is a note
guarantor. No repayment terms have been agreed to. Thus, no interest has
been accrued.
4. PROPERTY, PLANT and EQUIPMENT
The Company's mining fixed assets consist of the following:
July 31, July 31,
2001 2000
Mining claims $ 74,800 $ 74,800
Equipment 1,107 5,166
Mine development costs 32,634 32,634
Acquisition in progress 4,000 4,000
Impairment reserve (65,674) (65,674)
-------- --------
Total $ 46,867 $ 50,926
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 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.
19
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
5. INCOME TAXES
Provisions for income taxes are as follows:
2001 2000 1999
(in thousands)
Current:
Federal - - -
State - - -
Deferred:
Federal - - -
State - - -
Income taxes differed from the amounts computed by applying the U.S.
federal tax rate as a result of the following:
2001 2000 1999
-------- -------- --------
(in thousands)
Computed "expected" tax expense
(benefit) $ 94 $ (160) $ 81
State income taxes net of federal
benefit - - -
Increase(Decrease) in valuation
allowance for deferred tax assets (94) 294 (81)
Other - (134) -
-------- -------- --------
Actual income tax expense - - -
======== ======== ========
-20-
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
5. INCOME TAXES (continued)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities are presented below:
2001 2000
(in thousands)
Deferred tax liabilities:
Property, plant and equipment $ - $ 122
Other - -
------ -------
Total deferred tax liabilities - 122
------------
Deferred tax assets:
Unrealized loss on securities 380 152
Net operating losses 644 550
Other 1 1
----- -----
Total deferred tax assets 1,025 703
------------
Valuation allowance (1,025) (581)
------------
Net deferred tax assets - 122
------ -----
Net deferred tax asset (liability) $ - $ -
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 $2,575,000. If not previously utilized, the net
operating losses will expire in varying amounts from 2012 to 2021.
Due to recurring losses and a lack of funding the Company has not been
filing its tax returns. Provisions for current and deferred taxes are
estimated using known facts. Any differences from actual cannot be
determined.
-21-
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
6. NOTES PAYABLE
2001 2000
---- ----
H. N. Corporation, promissory note,
dated January 20, 1998, principal
due on demand plus interest
at 9% $ 102,026 $ 39,500
Gary S. Williky, promissory note,
dated November 24, 1997, principal
due on demand plus interest
at 9% 40,000 40,000
Thomas J. Patrick, promissory note,
dated December 18, 1997, principal
due on demand plus interest
at 9% 40,000 40,000
------- -------
Total 182,026 119,500
Less: current portion 182,026 119,500
-------- --------
Long-term notes payable $ - $ -
During the year, the Company issued its restricted common stock to extend
due dates and partially satisfy principal and accrued interest. However,
the notes payable are currently in default. The Company is currently
negotiating with the parties to extend or renew notes payable.
7. NOTES PAYABLE - RELATED PARTY
2001 2000
------------ ------------
Officer - 10.0% demand note $ 111,845 $ 111,845
Officer - 7.5% demand note 129,593 186,353
Officer - 9.0% demand note 446,349 446,349
------- -------
$ 687,787 $ 744,547
-22-
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
8. RELATED PARTY TRANSACTIONS
The Company has entered into transactions with its chief executive officer,
Jeffrey T. Wilson. The Company has been accruing an annual salary of
$125,000 for Mr. 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.
Commitments
See Notes 13 and 17.
10. BUSINESS SEGMENTS
The Company's operations involve mining and environmental operations. The
following table sets forth information with respect to the industry
segments of the Company.
2001 2000 1999
Revenues: (in thousands)
Mining
Environmental 54
Other 61
---- ---- ----
Total revenues - - 115
-23-
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
10. BUSINESS SEGMENTS
2001 2000 1999
---- ---- ----
Identifiable assets: (in thousands)
Mining 42 46 41
Environmental 1 4 5
Other 601 1,377 1,902
---- ----- -----
$ 644 $ 1,427 $ 1,948
Depreciation and depletion:
Mining - - -
Environmental - 1 10
---- ----- -----
- 1 10
11. INVESTMENTS
Unrealized Unrealized Carrying
Cost Gains Losses Value
---- ----- ---------- --------
Investment in equity securities:
July 31, 2001:
Available for sale
(marked to market) 1,741,177 - (1,521,437) 219,740
July 31, 2000:
Available for sale
(marked to market) 1,824,377 - (607,395) 1,216,982
Investments consist of 5,231,901 shares of Warrior Resources, Inc.
(formerly Comanche Energy (CMCY), valued less 20% marketability and 20%
large block discounts.
-24-
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
12. WARRANTS
Currently, the Company has 250,000 warrants, exercisable at $.25,
outstanding. These warrants expire November 3, 2002.
13. 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.
14. ACQUISITION IN PROGRESS
The Company is currently negotiating to acquire mining claims in New
Mexico.
15. LEASE OBLIGATIONS
The Company has a noncancelable operating lease agreement for office space.
Total rental expense was $24,128, $24,128, and $22,117 in 2001, 2000 and
1999, respectively. The Company currently operates under month-to-month
terms and subleases part of its office space.
25
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
16. GAIN ON SALE OF ASSETS
During the year ended July 31, 2001, the Company sold 250,000 shares of its
Warrior Resources, Inc. (formerly Comanche Energy) common stock. This
transaction resulted in a loss of $49,484. The Company's subsidiary,
Imperial Environmental, also wrote off equipment which resulted in a loss
of $4,060.
17. UNEARNED REVENUE
The Company has received advances for future delivery of silica ore. Total
advances as of July 31, 2001 and 2000 were $0 and $6,918, respectively. The
Company's commitments under these agreements mature as follows for the
years ended July 31:
2002 $ 59,488
2003 107,079
2004 107,079
2005 30,713
Thereafter -
------------
$ 304,359
The Company has allowed its silica ore mining claims to lapse, resulting in
the default of these agreements.
18. ACCRUED EXPENSES
The Company has accrued expenses as of July 31 as follows:
2001 2000
------------ ------------
Accrued officer salary - CEO $ 690,008 $ 565,008
Accrued interest on notes 195,710 117,364
Accrued damage award (Note 19) 70,988 70,988
Accrued rent 2,100 2,100
--------- ---------
$ 958,806 $ 755,460
During the year ended July 31, 2001 the Company issued 1,421,111 shares of
its restricted common stock to pay accrued interest, pay for services, and
extend maturities of notes payable.
-26-
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
19. SUBSEQUENT EVENTS
On September 7, 2000, John P. Byrne received a Judgment Award in Tulsa
County against the Company in the amount of $63,602 plus attorneys' fees in
the amount of $5,850 and interest of $1,535. Byrne's claim stemmed from a
note payable of Wexford Technology, Inc., an affiliate of the Company, that
Byrne successfully claimed against Imperial. This amount was accrued for at
July 31, 2000 (See Note 18). This judgment was settled as described below.
On October 19, 2000 the Company entered into an agreement to sell 5,231,901
shares of the common stock of Comanche Energy, Inc. to Ravello Capital, LLC
for $523,190 in cash. Ravello was to pay a total $74,800 in cash to Byrne
in satisfaction of its judgment and the balance was to be paid to Imperial.
Under the terms of the Agreement, Imperial obtained and delivered the
release of Byrne in connection with the payments of its judgment by Ravello
and delivered the stock certificates to be purchased by Ravello against
payment that was to be made by Ravello to Imperial within three business
days. Ravello did not pay Imperial. Imperial placed a "stop transfer" hold
on the balance of the shares not paid for by Ravello and has filed suit
against Ravello in Federal Court to terminate the balance of the
transaction and retrieve its certificates. Under the terms of the
transaction, Ravello paid a total of $74,800 to Byrne and the Company
believes that Ravello is only entitled to receive 748,000 shares of the
Comanche stock.
The Company was granted a court judgment against Ravello Capital to
retrieve the remaining stock certificates. The Company expects it will
recover the shares less the number of shares to repay Ravello Capital for
its expense in paying the John Byrne settlement. The Company expects to
surrender the shares at $.10 per share to settle the judgment.
27
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We have audited the year-end financial statements for Imperial Petroleum, Inc.
ended July 31, 2001. We consent to the use of the aforementioned audit report in
this registration statement.
BRISCOE, BURKE & GRIGSBY LLP
October 29, 2001