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SECURITIES EXCHANGE COMMISSION
Washington D.C 20549
(Mark One)
FORM 10-Q
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended April 30, 2003
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 of (IRS Employer
incorporation or organization) identification No.)
11600 German Pines Dr.
Evansville, Indiana 47725
(Zip Code)
Registrant's telephone number,
including area code (812) 867-1433
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 ____
On April 30, 2003, there were 25,924,885 shares of the Registrant's common stock
issued and outstanding.
IMPERIAL PETROLEUM, INC.
Index to Form 10-Q for the Quarterly Period
Ended April 30, 2003
PART I - FINANCIAL INFORMATION
Item 1.
Financial Statements.
Page
Consolidated Balance Sheets as of July 31, 2002 and April 30, 2003 4-5
Consolidated Statements of Operations for the three months ended 6
April 30,2003 and 2002.
Consolidated Statements of Cash Flows for the nine months ended 7
April 30, 2003 and 2002
Notes to Consolidated Financial Statements
8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations. 12
PART II - OTHER INFORMATION
The information called for by Item 1. Legal Proceedings, Item 2. 18
Changes in Securities, Item 3. Default Upon Senior Securities,
Item 4. Submission of Matters to a Vote of Security Holders, Item
5. Other Information and Item 6. Exhibits and Reports on Form 8-
K have been omitted as either inapplicable or because the answer
thereto is negative, except as discussed.
SIGNATURES 19
Cautionary Statement Regarding Forward Looking Statements
In the interest of providing the Company's stockholders and potential investors
with certain information regarding the Company's future plans and operations,
certain statements set forth in this Form 10-Q relate to management's future
plans and objectives. Such statements are "forward-looking statements" within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Act of 1934, as amended. Although any forward
looking statements contained in this Form 10-Q or otherwise expressed on behalf
of the Company are, to the knowledge and in the judgement of the officers and
directors of the Company, expected to prove to come true and to come to pass,
management is not able to predict the future with absolute certainty. Forward
looking statements involve known and unknown risks and uncertainties which may
cause the Company's actual performance and financial results in future periods
to differ materially from any projection, estimate or forecasted result. These
risks and uncertainties include, among other things, volatility of commodity
prices, changes in interest rates and capital market conditions, competition,
risks inherent in the Company's operations, the inexact nature of interpretation
of seismic and other geological, geophysical, petro-physical and geo-chemical
data, the imprecise nature of estimating reserves and such other risks and
uncertainties as described from time to time in the Company's periodic reports
and filings with the Securities and Exchange Commission. Accordingly
stockholders and potential investors are cautioned that certain events or
circumstances could cause actual results to differ materially from those
projected, estimated or predicted.
Part I
Financial Information
IMPERIAL PETROLEUM, INC.
CONSOLIDATED BALANCE SHEET
UNAUDITED
(April 30, 2003)
30-April-03 31-Jul-02
ASSETS
Current Assets
Cash $ 858 $ 2,869
Accounts Receivable 165,903 45,755
Notes Receivable 155,432 0
Other current assets 0 0
Total 322,193 48,624
Property, Plant and Equipment
Oil and gas property 204,533 0
Other depreciable equipment 1,107 1,107
Mining claims, options and development costs 41,760 41,760
Acquisition in Progress 4,000 4,000
Less Accumulated Depreciation (1,107) (1,107)
Net property, plant and equipment 250,293 45,760
Other Assets
Investment in subsidiary 208,298 208,298
Notes receivable-related party 1,634,414 192,408
Other non-current assets 0 0
Total other assets 1,842,712 400,706
TOTAL ASSETS $ 2,415,198 $ 495,090
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities
Accounts payable $92,263 $92,263
Accounts payable-other 0 0
Accrued expenses 1,251,775 1,083,008
Unearned revenue 0 0
Notes payable-Bank 0 0
Notes payable-related party 742,017 765,817
Note payable 93,700 80,000
Total current liabilities 2,186,055 2,021,088
Non-current Liabilities
Unearned revenue 304,359 304,359
Notes payable, less current portion 0 0
Total non-current liabilities 304,359 304,359
Stockholder's Equity
Common stock 344,289 236,184
Additional paid-in capital 7,973,639 6,247,583
Treasury stock -2,243,304 -2,243,304
Retained earnings -6,149,839 -6,070,820
Other Comprehensive Income 0 0
Total stockholder's equity -75,215 -1,830,357
Total Liabilities and Stockholder's Equity $ 2,415,198 $ 485,090
IMPERIAL PETROLEUM,INC.
CONSOLIDATED STATEMENT OF OPERATIONS
UNAUDITED
Three Months Ending Nine Months Ending
04/30/03 04/30/02* 04/30/03 04/30/02*
Operating Income:Oil and gas revenue $ 4,839 0 9,653 0
Management and fee income 30,000 0 60,000 0
Total operating income 34,839 0 69,653 0
Operating Expenses:
Oil and gas lease operations 5,493 0 8,965 0
Dry Hole costs 0 0 0 0
Mining operating expense 0 0 1,923 0
General and administrative expense 40,418 41,847 138,789 157,560
Depreciation and depletion 0 0 0 0
Total operating expense 45,911 41,847 149,677 157,560
Income/Loss from operations -11,072 -41,847 -80,024 -157,560
Other Income/expense
Interest 6,538 -22,312 -9,882 -62,241
Loss on write-down of mining equipment 0 0 0 0
Gain/ loss on sale of assets 0 0 0 0
Other 0 0 0 0
Total other income/expense 6,538 -22,312 -9,882 -62,241
Net Loss Before Income Taxes -4,534 -64,159 -89,906 -219,801
Provision for Income Taxes
Current 0 0 0 0
Deferred 0 0 0 0
Total benefit from income taxes 0 0 0 0
Net Income/Loss -4,534 -64,159 -89,906 -219,801
Income/Loss per share (0.000) (0.003) (0.003) (0.011)
Weighted average shares outstanding 25,924,885 19,363,646 25,924,855 19,363,646
*Restated to reflect the un-consolidation of Warrior Resources, Inc. as a result
of the termination of the merger agreement.
IMPERIAL PETROLEUM, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
UNAUDITED
Nine Months Ending
04/30/03 04/30/02
Net cash provided by (used in) operations $-182,832 $-26,463
Net cash provided by (used in) investing activities:
Capital additions and property acquisitions -18,000 0
Disposition 0 0
Other -1,449,022 -9,594
Total -1,467,022 -9,594
Net cash provide by (used in) financing activities:
Repurchase of common stock 0 0
Issuance of common stock 108,105 119,961
Deferred Revenue 0 0
Increase in Notes Payable -6,800 0
Beginning balance equity 0 0
Paid-in Capital 1,539,522 -83,719
Total 1,640,827 36,242
Increase in cash and equivalents -2,011 -66
Cash and cash equivalents at beginning of period 2,869 1,074
Cash and cash equivalents at end of period 858 1,008
Supplemental disclosures of Cash Flow Information
Interest 93,377 82,593
Cash paid during the period for:
Income taxes 0 0
For the purposes of cash flows, the Company considers all highly liquid debt
instruments Purchased with a maturity of three months or less to be cash
equivalents.
PART I - FINANCIAL INFORMATION
IMPERIAL PETROLEUM, INC.
Notes to Consolidated Financial Statements
Unaudited
April 30, 2003
(1) General
The accompanying interim condensed consolidated financial statements have been
prepared in accordance with the instructions for Form 10-Q. In the opinion of
management, all adjustments (consisting of normal recurring adjustments)
considered necessary for a fair statement of the results for the interim periods
presented have been included. Operating results for the periods presented are
not necessarily indicative of the results which may be expected for the year
ending July 31, 2003. These condensed interim consolidated financial statements
should be read in conjunction with the consolidated financial statements and
notes thereto included in the Company's Form 10-K for the year ended July 31,
2002.
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") , Oil City
Petroleum, Inc. ("Oil City"), an Oklahoma corporation, Warrior Resources, Inc.,
("Warrior") 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 acquired a total interest of 36% and management control of Warrior
Resources, Inc. effective February 13, 2002. The investment in Warrior is
accounted under the equity method.
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 April 30,2003, the Company does not operate any active oil and natural gas
properties directly, although it owns 36% control of and manages the operations
of Warrior Resources Inc. (formerly Comanche Energy Inc.) which does operate in
the oil and natural gas business. Warrior Resources, Inc. through its
wholly-owned subsidiary, Double Eagle Petroleum Corporation , owns crude oil and
natural gas properties located in the states of Texas and Mississippi. Warrior
presently owns an interest in approximately 63 natural gas wells and 4 oil wells
with daily net production to Warrior's interest of 2,200 MMCFPD and 80 BOPD.
Warrior estimates its net proven oil and natural gas reserves as of July 31,
2002 to be approximately 43,600 MMCF of gas and 274 MBBL of oil.
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 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, 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 signed a
binding definitive agreement in February 2002 for the consummation of the
transaction. The electricity generator units being 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. Rx Power is still completing the testing
and development of its initial commercial unit. As a result no activity occurred
in the SPV during this fiscal year.
The Company entered into and closed the acquisition of 29,484,572 shares of the
common stock of Warrior Resources, Inc. (formerly Comanche Energy, Inc.),
representing approximately 30.8% of the issued and outstanding shares of Warrior
on February 13, 2002 in connection with an Exchange Agreement (See "Exchange
Agreement" included herein) between the Company and the management of Warrior,
Messers. Luther Henderson and John Bailey. In connection with the Exchange
Agreement, the Company issued 2,266,457 shares of its restricted common stock to
Mr. Henderson, representing 12.9 % of the issued and outstanding shares of
Registrant in exchange for 22,664,572 shares of the common stock of Warrior and
682,000 shares of its restricted common stock to Mr. John Bailey, representing
3.9 % of the issued and outstanding shares of the Company in exchange for
6,820,000 shares of the common stock of Warrior. Mr. Bailey and Mr. Henderson
resigned as officers and directors of Warrior and Mr. Jeffrey Wilson, president
of the Company, was appointed president and sole director of Warrior.
Simultaneously with the closing of the Exchange Agreement with Messrs. Henderson
and Bailey and the change of control of Warrior, the Company entered into an
Agreement and Plan of Merger (See "Agreement and Plan of Merger" included
herein), subject to certain conditions, to offer to acquire the remaining issued
and outstanding capital stock of Warrior through a subsequent offering to be
registered with the Securities & Exchange Commission. The terms of the proposed
exchange of shares with the remaining shareholders of Warrior was on the basis
of one share of Imperial common stock in exchange for ten shares of Warrior
common stock. Completion of the Agreement and Plan of Merger was subject to a
number of conditions, including the completion of audited financials for
Warrior, approval of the Warrior stockholders, the filing and effectiveness of a
registration statement by Registrant for the shares to be offered, the
satisfactory completion of due diligence and other customary closing conditions.
Due to breaches of the agreements by the former management of Warrior, the
Company terminated the proposed merger in August 2002. As a result of the
termination of the merger agreement, the Company has the right to receive
$200,000 or an equivalent value in shares of Warrior valued at $0.02 per share.
The Company has not exercised its right to receive the shares of Warrior and
presently carries the obligation by Warrior as a note receivable.
The Company assisted Warrior in completing a refinancing of its principal bank
debt and in retiring certain of its trade, notes and accounts payable in
November 2002 and as a result, the note payable to the Company from Warrior has
increased to approximately $1.6 million, including the merger termination fee
discussed above. As a result of the refinancing of its principal debt with the
bank, Warrior has begun a work program on its wells, with the direction of the
Company, to increase cash flow. Recently, Warrior announced the completion of
its Phase I workover program in which it increased its revenue and cash flow
significantly. The Company has been in negotiations with a third party to sell
control of Warrior for an equity infusion sufficient to allow retirement of the
principal bank debt, trade and accounts payables, including the note with the
Company. There is no assurance that the potential sale will complete.
In February 2003, in connection with a potential infusion of drilling funds for
development of certain undeveloped locations on the Warrior Resources, Inc.
properties, the Company entered into Fee Agreements with SetCom, USA Inc. and
James W. Hill, of Xavier Financial LLC in which each party was to receive
compensation in the form of cash for providing up to $4.0 million in drilling
funds on terms acceptable to the Company. The agreement with Xavier was
terminated in April 2003 after the Company received notice from Xavier that it
could not complete the funding. Setcom continues to explore other alternative
sources of financing for the drilling program.
In April 2003 the Company announced an agreement to acquire certain oil and
natural gas interests located in Kentucky from Renovared Resources, Inc. The
Company is continuing its negotiations with the landowners to obtain new leases
and ratifications of existing leases as a condition of the closing of the
purchase agreement with Renovared. The Company presently expects the acquisition
to close before the end of the Company's current fiscal year.
Subsequent Events:
Subsequent to the end of the quarter, the Company completed the acquisition of
control of Powder River Basin Gas Corp. from Greg Smith, Taghmen Ventures LTD.
and E-Stone Ventures Ltd. The Company issued 2.65 million shares of its common
stock and a note payable in the amount of $200,000 in exchange for approximately
54% (fully diluted) of the issued and outstanding capital stock of Powder River.
Powder River owns approximately 7,000 net acres of leases in the coal-bed
methane natural gas play in the Powder River Basin of Wyoming. The Company is
presently seeking a joint venture partner to assist in the development of the
leases. (Reference is made herein to the Form 8-K filed by the Company in May
2003.)
(2) ACCOUNTING POLICIES
The accompanying unaudited financial statements have been prepared in accordance
with the instructions to Form 10-Q and do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of only normal recurring items) considered necessary for a fair presentation
have been included. These statements should be read in conjunction with the
Ridgepointe Mining Company financial statements and notes thereto as of July 31,
1995 which are included in the Company's Form 8-K disclosure statement for the
reverse acquisition by Ridgepointe of Imperial and included herein by this
reference.
(3) NOTES PAYABLE
The Company enters into private notes primarily from its major shareholders from
time-to-time in the course of funding its mining and other activities. As of
April 30, 2003, the Company had a total of 6 notes payable to individuals and
private companies totaling $1.51 million, in principal and accrued interest
thereon, of which $1.37 million was with its Chairman and President.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
GENERAL
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 of
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 gold. (ii) the quantity and quality of the gold ore 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 $327.00 per ounce and have increased recently as a
result of instability in the financial markets as a result of the events of
9/11/01. Gold prices 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.
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 $30.00 per barrel range
as a result of concerns over supplies while natural gas prices have reached
highs of $9.00 per MMBTU during the winter months and are currently averaging
$6.00 per MMBTU. The Company expects energy prices to continue to be volatile in
the future, although it is expected that prices will decline during the
remainder of the fiscal year, and particularly after the situation in Iraq is
resolved and the severe winter weather abates in the US.
As a result of the Company's agreement with Rx Power to provide on-site
electricity generation units utilizing natural gas as the primary fuel source,
the Company expects that as it develops the business of the subsidiary, it will
be prudent to evaluate options to hedge natural gas prices from time-to-time in
order to protect its margins from potential sharp increases in natural gas
prices. It may likewise become advisable to consider hedging alternatives for
electricity, considering that the units remain connected to the existing
electricity grid and utilize purchased electricity during periods when the Rx
Power units are being serviced or otherwise being repaired. At the present time
the Company does not have any hedging programs in place and will need to review
the advisability of such programs as the development proceeds. As a result of
these factors, this segment of the Company's business will be subject to
fluctuations in energy (natural gas) and electricity rates. To date Rx Power has
conducted no significant operations.
Three Months Comparison
Quarter ended April 30, 2003 compared to Quarter ended April 30, 2002. Revenues
for the three months ending April 30, 2003 were $34,839 compared to no revenues
for the comparable quarter ended April 30, 2002. The revenue in the current
period reflects payments from oil and gas properties acquired by the Company and
management income as a result of the acquisition of control of Warrior. The
Company expects its revenues to continue to increase as a result of its
acquisition of oil and natural gas interests. Future additional revenues will
result from the start-up of mining operations, new oil and gas acquisitions or
income derived from the Rx Power.
Production and mining operating expenses were $5,493 for the quarter ended April
30, 2003 compared to $0 for the quarter ended April 30, 2002 and represent lease
operating expenses from oil and gas interests owned by the Company and minimal
expenses incurred on the Duke mine. No significant operations were conducted
during the quarter on the Duke gold mine. The Company expects its operating
expenses for mining operations to increase significantly upon installation of
its permanent plant at the Duke Mine.
General and administrative costs remained about the same with costs of $40,418
for the three months ending April 30, 2003 compared to $41,847 for the same
period a year earlier and primarily reflects the level of normal G&A expenses.
G&A should continue to increase as the Company begins continuous mining
operations, begins installing Rx Power units and initiates a corporate public
relations campaign. Net Interest expense for the quarter decreased from $22,312
in 2002 to a positive $6,538 for the same period in 2003 and reflects the higher
borrowings by the Company from private debt sources that was offset by accrued
interest due from notes owed the Company by Warrior.
The Company had an after-tax net loss of $4,534 ($0.0001 per share) for the
quarter ended April 30, 2003 compared to a net loss of $64,159 ($0.003 per
share) for the comparable quarter a year earlier. The decrease in net loss in
income is attributable primarily to reduced overall interest costs and greater
revenue generated from management fees and oil and gas income. The Company does
not expect to generate significant income until its mining operations or the Rx
Power project are in production.
Nine Months Comparison
Nine Months ended April 30, 2003 compared to Nine Months ended April 30, 2002.
Revenues for the nine months ending April 30, 2003 were $69,653 compared to no
revenue for the comparable period ended April 30, 2002 and reflects revenue in
the current period from management fees in connection with Warrior and from oil
and gas revenues. Significant future revenues will result from the start-up of
mining operations, from new oil and gas acquisitions or from the installation of
units under the Rx Power agreement.
Production and mining operating expenses were $10,888 for the nine months ended
April 30, 2003 compared to $0 for the period ended April 30, 2002. No
significant operations were conducted during the period on the Duke mine. The
Company expects its operating expenses for mining operations to increase
significantly upon installation of its permanent plant at the Duke Mine and the
installation of units in connection with the Rx Power project.
General and administrative costs remained about the same with costs of $138,789
for the nine months ending April 30, 2003 compared to $157,560 for the same
period a year earlier and primarily reflects the level of normal G&A expenses.
G&A should continue to increase as the Company begins continuous mining
operations, begins installation of electricity generators and initiates a
corporate public relations campaign. Interest expense for the period decreased
from $62,242 in 2002 to $9,882 for the same period in 2003 due to increased
interest from notes receivable from Warrior.
The Company had an after-tax net loss of $89,906 ($0.003 per share) for the nine
months ended April 30, 2003 compared to a net loss of $219,801 ($0.011 per
share) for the comparable period a year earlier. The decrease in net loss in
income is attributable primarily to increased revenue generated from the
management fees from Warrior and oil and gas income. The Company does not expect
to generate significant income until its mining operations are in production or
until the Rx Power installations are in operation.
CAPITAL RESOURCES AND LIOUIDITY
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. Management determined
that the Company should position itself in high-profile natural gas projects in
an effort to attract capital and due to increasing natural gas prices. The
Company completed the acquisition of control of Warrior Resources, Inc. on
February 13, 2002. Warrior had experienced a considerable degree of decline in
its operations and financial condition as a result of management and director
disagreements that had led to lawsuits and disrupted the continuity of
management of Warrior. The Company acquired approximately a 36% overall stock
position in Warrior and assumed management control. In assuming management
control and consolidating Warrior's operations, the Company eliminated
approximately $65,000 per month in Warrior's overhead and was able to complete a
refinancing of Warrior's principal bank debt. In addition, the Company assisted
Warrior in eliminating approximately $1.7 million in third party trade and note
payables and other obligations. Warrior has begun a work program on its
properties to increase cash flow which will allow it to re-pay its new bank
facility, eliminate over time its remaining trade accounts payable and repay the
Company. Due to the termination of the merger agreement with Warrior, the
Company is entitled to receive compensation in the amount of $200,000 or an
equivalent value of Warrior common stock issued at $0.02 per share. The Company
has not exercised its right to accept stock for the merger termination fee at
this time and presently reflects the obligation as a note receiveable from
Warrior. As a result of the refinancing of Warrior's debt, the Company has begun
to invoice Warrior for use of its facilities and office space and for management
time spent on Warrior at the rate of $10,000 per month.
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 2003. The Company has received
several offers for equity lines and debt financings and is presently negotiating
to complete a financing package during the current calendar year. As a result of
the termination of the Xavier Financial transaction, the Company has suspended
its proposed drilling operations until a new financial partner is obtained.
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
subsequently received the reissued shares of common stock in Comanche (now
Warrior) and credited the judgement in the amount of $85,638.02. The balance of
the judgement remains unsatisfied.
The Company intends to continue to pursue a wide variety of financing
alternatives in an effort to finance its operations, however, in the event that
additional capital is not obtained from other sources, it may become necessary
to alter development plans, sell certain properties 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 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
$1.41 as of April 30, 2003. These funds have been used to initiate the Company's
mining activities and fund its overhead requirements. Management believes that
the Company will not have sufficient borrowing capacity to fund its anticipated
needs and will need to access outside capital.
At April 30, 2003, the Company had current assets of $322,193 and current
liabilities of $2,186,055, which resulted in negative working capital of
$1863,862. The negative working capital position is comprised of notes
receivable from Warrior of $155,432 accounts payable of $92,263 notes payable to
shareholders and related parties totaling $742,017, accrued salaries and
expenses totaling $1,251,775 and third party notes payable of $93,700. 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 2003. The previously discussed transactions
regarding equity infusions, 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.
PART II
OTHER INFORMATION
Item 1. Legal Proceedings.
The Company filed suit in Federal District Court in Tulsa County, Oklahoma
against Ravello Capital LLC on November 20, 2000. The suit alleged breach of
contract and sought to have the contract declared partially performed in the
amount of $74,800 and sought relief in the amount of $488,390 for the unpaid
consideration and punitive damages and attorneys fees. The Company received a
judgement award against Ravello in the amount of $488,390 and subsequently
collected and credited the judgement in the amount of $85,638.02 as a result of
the re-issuance of certain of its shares in Warrior, held by Ravello in escrow
and not released. The Company is pursuing the balance of the judgement against
Ravello.
Item 2. Changes in Securities. Not applicable.
---------------------
Item 3. Defaults Upon Senior Securities. Not applicable.
-------------------------------
Item 4. Submission of Matters to a Vote of Security Holders. Not
---------------------------------------------------
Applicable.
Item 5. Other Information. Not applicable.
-----------------
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits. Not applicable.
--------
(b) Current Report on Form 8-K In May 3003,
the Company filed a Report on Form 8-K
In connection with the acquisition of control of
Powder River Basin Gas Corp which is included
Herein by reference.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned there unto duly authorized.
Imperial Petroleum, Inc.
By: /s/ Jeffrey T. Wilson
Jeffrey T. Wilson,
President and Chief
Executive Officer
Dated: June 10, 2003
CERTIFICATION
I, Jeffrey T. Wilson (President) certify that:
1. I have reviewed this quarterly report on Form l0-Q of Imperial Petroleum,
Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. I am responsible for establishing and maintaining disclosure controls and
procedures (as defined in the Securities Act of 1934 Rules 13a-l4 and 15d-l4)
for the registrant and have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to me by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report are my conclusions about the effectiveness
of the disclosure controls and procedures based on my evaluation as of the
Evaluation Date;
5. I have disclosed, based on my most recent evaluation, to the registrant's
auditors and the audit committee of registrant's board of directors (or persons
performing the equivalent functions):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. I have indicated in this quarterly report whether there were significant
changes in internal controls or in other factors that could significantly affect
internal controls subsequent to the date of my most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: 6/10/03 By: /s/ Jeffrey T. Wilson, President & CEO
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES - OXLEY ACT OF 2002
In connection with the quarterly report of Imperial Petroleum, Inc. (the
"Company") on Form l0-Q for the quarter ended April 30, 2003, Jeffrey T. Wilson
hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the SARBANES - OXLEY Act of 2002, that to the best of his
knowledge:
1. The quarterly report fully complies with the requirements of Section 13(a) of
the Securities Act of 1934; and
2. The information contained in the quarterly report fairly presents, in all
material respects, the financial condition and results of operations of the
Company.
Date: 6/10/03 By: /s/ Jeffrey T. Wilson, President & CEO