SECURITIES EXCHANGE COMMISSION
Washington D.C 20549
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, 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 (IRS Employer
of incorporation or organization) identification No.)
11600 German Pines 47725
Evansville, IN (Zip Code)
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. __X___.
On July 3l, 2003, there were 30,948,103 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 $2,028,698. 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 3l, 2003
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.
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 Business Plan 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 Business Plan 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.
This Business Plan or its dissemination to prospective investors does not
constitute an offer to sell to, or a solicitation of an offer to buy from, nor
shall any of the securities be offered or sold to, any person in any state or
other jurisdiction in which such offer, purchase or sale is unlawful or
unauthorized under the laws of such jurisdiction. The information contained
herein has been prepared to assist interested parties in making their own
evaluation of the Company and does not contain all of the information that a
prospective investor may desire. The Company encourages any prospective investor
to obtain copies of its reports as filed with the Securities & Exchange
Commission through its EDGAR database. The Company does not make any
representation or warranty as to the accuracy or completeness of the information
in this Business Plan and shall have no liability for any representations
(express or implied) contained herein, or for any omissions from this Business
Plan, or any other written or oral communication transmitted to the recipient in
the course of the recipient's evaluation of the Company.
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 Powder
River Basin Gas Corp ("Powder River"), a Colorado corporation. Premier and IB
Energy, Inc. were sold effective July 31, 1996. LRI and Phoenix were acquired
effective April 30, 1997. The operations of LRI ceased in 1997 with the
expiration of its remaining foreign activities. Phoenix has conducted limited
activities since 1997 as Imperial Environmental Company, although it has not
officially changed its name. Eighty- percent control of SilaQuartz was acquired
effective November 23, 1998 as an investment. The Company acquired 90% control
of Oil City Petroleum, Inc. ("Oil City"), an Oklahoma corporation effective
August 31, 1998 as an investment and sold its interest effective November 28,
2000. The Company owns approximately 36% of the commons stock of Warrior
Resources, Inc., ("Warrior") an Oklahoma corporation, and carries its ownership
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 had diversified its business
activities to include mineral mining, with a particular emphasis on gold mining.
The Company intends to re-focus its efforts in the oil and natural gas business
and to seek to sell or develop through partnerships or joint ventures, its
mining assets
At July 31,2003, 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,. 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 producing natural gas wells and 4 producing oil
wells with daily net production to Warrior's interest of 1,010 MMCFPD and 10
BOPD. Reserve estimates to Warrior's interest by third party engineers of net
proven oil and natural gas reserves as of July 31, 2003 are approximately 341.5
MBbls and 23,551 MMcf.
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 was to
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 was to
contribute its existing contracts and future marketing efforts to the SPV for a
45% interest in the SPV. The project was to be managed by a third party, subject
to certain limitations imposed by both companies. The parties signed a
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. As a result of the continued inability of Rx
Power to provide a suitable unit for demonstration, the Company does not expect
the venture to proceed.
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 obligation
by Warrior is presently carried on the books of the Company 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 by approximately $1.4 million. As a result of the refinancing of its
principal debt with the bank, Warrior began a work program on its wells, with
the direction of the Company, to increase cash flow. On July 15, 2003, the
Company and Warrior signed an Agreement wherein the Company would acquire the
assets and certain liabilities of Warrior and its subsidiaries in exchange for
payment or assumption of the Warrior senior bank debt in the approximate amount
of $3.65 million; (2) extinguishments of the note payable from Warrior to the
Company in the amount of $1.7 million; (3) assumption of certain trade vendor
liabilities in the approximate amount of $0.58 million and the issuance to
Warrior of 2 million shares of the Company's common stock. Closing of the
transaction was subject to, among other things, approval of Warrior's
shareholders, which was received on August 29,2003. The Company expects to close
the Warrior asset acquisition in December 2003.
In November 2002 the Company acquired certain direct interests in the Bovina
filed of Mississippi from working interest owners. The Bovina field is operated
by Double Eagle Petroleum Corp and affiliate of the Company. Under the terms of
the various agreements the Company paid a total of $26,364, assumed
approximately $11,600 in accounts payable and issued a total of 479,242 shares
of its restricted common stock.
In April 2003, the Company agreed to acquire certain oil and natural gas
interests owned by Renovared Resources, Inc. ("Renovared") located in Kentucky
for $30,000. The properties comprise interests in approximately 44 wells and a
pipeline and gathering system located in the New Albany Shale Gas play. Closing
is expect in December 2003.
In May 2003, the Company acquired approximately 54% control of the stock of
Powder River Basin Gas Corp in an Exchange Agreement with the former management
and control shareholders of Powder River. (See Form 8-K dated May 2003). The
Company issued a total of 2.65 million shares of its restricted common stock and
a note payable in the amount of $200,000 in the transaction. As a result of the
Exchange Transaction, Powder River became a subsidiary of the Company. Powder
River owns some 7,000 net acres of leases in the Powder River Basin coalbed
methane gas play in Wyoming. The Company is presently seeking a partner to
develop Powder River's acreage.
On July 7, 2003 the Company agreed to acquire the assets of Hillside Oil & Gas
LLC. Under the terms of the agreement and amendments thereto, the Company will
acquire the oil and gas properties of Hillside for (1) the payment of its senior
debt of approximately $4.6 million; (2) the assumption of an equipment note
payable of $0.3 million; (3) the payment of certain obligations of Hillside at
closing of $168,000; (4) the assumption of approximately $348,000 in accounts
payable of Hillside and (5) issuance of a note payable to Hillside in the amount
of $324,000 and secured by 1 million shares of the Company's common stock.
Hillside operates some 200 wells in Texas, New Mexico and Louisiana and has
estimated net proven reserves based upon third party estimates of approximately
954.6 MBbbls and 2,544 MMcf.
Subsequent Events
In October 2003 the Company sold 2,000,000 shares of restricted common stock for
$200,000 and a common stock purchase warrant in the amount of 2,000,000 shares
exercisable at $0.12 per share. Demand rights were granted in connection with
the issuance. The term of the warrant is one year. The proceeds of the sale were
used to fund the ongoing expense of the acquisition effort of the Company and
for working capital purposes.
In October 2003 the Company retired the note payable of $200,000 which had
resulted from the acquisition of Powder River Basin Gas Corp with the issuance
of 2,000,000 shares of restricted common stock and a common stock purchase
warrant in the amount of 2,000,000 shares at an exercise price of $0.14 per
share. Demand rights were granted with the issuance. The term of the warrant is
one year.
In October 2003 the Company entered into a letter of understanding and a
subsequent stock sale agreement to sell 23,885,000 shares of the common stock of
Powder River Basin Gas Corp of the 25,385,000 shares it presently owns. Under
the terms of the agreement, if completed, the Company would receive $175,000 in
cash (less broker's fees of 10%); a secured note in the amount of $47,884.47;
and a 12.5% carried working interest in the development of the leases owned by
Powder River. The purchaser is required to purchase the convertible notes of
Powder River in the approximate amount of $315,000 and to commit a minimum of
$750,000 to the development of the leases owned by Powder River. Closing is
scheduled for December 2003.
The Company has received an offer to purchase substantially all of its mining
claims, however no agreements have been completed and there is no guarantee that
negotiations between the Company and the potential purchaser will be successful
and result in a closing.
Business Strategy
The Company's business strategy changed with the acquisition of Ridgepointe in
August 1993 and the change of management to its current management. The Company
had used its limited oil and gas assets to provide the working capital necessary
to expand and develop its mineral mining activities. The Company's initial
emphasis on mining ventures reflected its belief that quality opportunities
still existed in many areas of mineral mining for small mining companies. As a
result, the Company acquired and tested a significant mineral property
sufficient in size to provide a unique development opportunity for the Company's
future growth, when fully operational. With the acquisition of control of
Warrior Resources, Inc., management has renewed its focus on oil and natural gas
opportunities and in particular the acquisition of small public energy companies
that are having difficulty achieving liquidity for their investors in today's
markets. The Company believes that significant opportunities are available
through strategic mergers and acquisitions in the energy industry in the small
capitalization sector. The Company intends to seek out opportunities in other
commodities that the Company believes may have the opportunity for a cyclical
improvement in demand and price.
Reserves
Oil and Natural Gas
The following table is a summary, as of July 31, 2003, of the proved reserves of
oil and natural gas net to the Company's interest in the Bovina field based upon
estimates prepared by the Company. These estimates are based on assumptions the
Company believes are reasonable regarding production costs, future production
rates and declines. These estimates are based upon constant prices and costs as
of July 31, 2003. 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 judgment. 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 could
be revised. No estimates have been filed with or included in reports to any
Federal Authority or agency other than the Securities and Exchange Commission
("SEC"). The Company has no reserves outside the United States.
As of July 31, 2003
Oil Natural Gas Future Net Present Value
Category (MBO) (MMCF) Revenue (M$) Discounted @ 10% (M$)
- --------------------------------------------------------------------------------
Producing - 30 113.5 86.9
Non-Producing 13.1 126 1,041.0 425.0
Undeveloped - 324 982.8 451.7
Total Proved 13.1 480 2,137.3 963.6
Acreage - The following table shows the developed and undeveloped leasehold
acreage held by the Company as of July 31, 2003:
Developed Acreage Undeveloped Acreage
(1) Gross (2) Net (1) Gross (2) Net
--------- ------- --------- --- ---
Mississippi 960 88.3 0 0
Total 960 88.3 0 0
Productive Wells - The following table summarizes the productive oil and gas
wells in which the Company had an interest at July 31, 2003:
Oil Wells Gas Wells Total
(1)Gross (2)Net (1)Gross (2)Net (1)Gross (2)Net
Mississippi 1 0.15 2 0.12 3 0.27
Total 1 0.15 2 0.12 3 0.27
(1) A "gross acre' or a "gross well" is an acre or well in which a working
interest is owned by the Company and the number of gross acres or gross wells is
the total number of acres or wells in which a working interest is owned by the
Company.
(2) A "net acre" or a "net well" exists when the sum of the Company's fractional
ownership interests in gross acres or gross wells equals one. The number of net
acres or net wells is the sum of the fractional interests owned in gross acres
or gross wells, and does not include any royalty, overriding royalty or
reversionary interests.
Production, Price and Cost Data - The following table summarizes certain
information relating to the production, price and cost data for the Company for
the fiscal years ended, July 31, 2003, 2003, 2001.
Year Ended July 31
2003 2002 2001
Oil:
Production (Bbls) 74 0 0
Revenue $ 1,901 0 0
Average barrels per day 0 0 0
Average sales price per barrel $ 25.69 0 0
Natural Gas:
Production (Mcf) 2,158 0 0
Revenue $ 10,766 0 0
Average Mcf per day 6 0 0
Average sales price per Mcf $ 4.99 0 0
Production costs(1) $ 38,367 0 0
Equivalent (Bbls) (2) 433 0 0
Production costs per equivalent bbl $ 88.61 0 0
equivalent bbl
Total oil and gas revenues $ 12,667 0 0
(1) Includes workover expenses
(2) Gas production is converted to barrel equivalents at the rate of six Mcf per
barrel representing the estimated relative energy content of natural gas to oil.
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, 2003 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 judgment. 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, 2003 Net Mineable Reserves
Claim Group Location Acres Gold Grade Gold Copper
UFO Mine (l) Arizona 400 0 0 600,000
Duke Mine Utah 1,920 0.10 4,883,750 0
----- ----- --------- --------- -
Total 1,920 0.10 4,883,750 600,000
Gold Grade (oz/ton) ;Gold(oz); Copper(lbs)
(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 fiscal 2000 has been the
financing 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 gold
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. The facility should be capable of processing about 100 tons of
placer material per day, however initial operations have been conducted at rates
of 20 tons per day. 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 have been 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. Subject to
capital availability, permitting and construction schedules, the Company plans
to construct a full scale facility at a cost of $8.0 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. Presently there are 5 other
companies active in the development of claims in the vicinity of the Duke Mine.
At the present, the company is negotiating with a potential partner to provide
the capital to begin full scale development. Recently the company has entered
into discussions with a mining company to provide the capital and manage the
development of the mine. No assurances can be given that an agreement can be
reached at this time.
Competition
There are many companies and individuals engaged in the oil and gas business.
Some are very large and well established with substantial capabilities and long
earnings records. The Company is at a competitive disadvantage with some other
firms and individuals in acquiring and disposing of oil and gas properties,
since they have greater financial resources and larger technical staffs than the
Company. In addition, in recent years a number of new small companies have been
formed which have objectives similar to those of the Company and which present
substantial competition to the Company.
A number of factors, beyond the Company's control and the effect of which cannot
be accurately predicted, affect the production and marketing of oil and gas and
the profitability of the Company. These factors include crude oil imports,
actions by foreign oil producing nations, the availability of adequate pipeline
and other transportation facilities, the marketing of competitive fuels and
other matters affecting the availability of ready market, such as fluctuating
supply and demand.
The Company currently sells a substantial portion of its oil production to EOTT
and its gas production to Texas Energy Marketing. The Company has no written
contracts with any purchasers. The Company does not believe that the loss of
either of these purchasers would significantly impair its operation.
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 hereunder. 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
Oil & Natural Gas. The Company at present owns 36% of the common stock and
provides management for Warrior Resources. In general, limited or only old title
opinions exist on the leases, however, title surveys have been conducted in the
normal course of the Company's financing efforts. The Company has reviewed the
validity and recording of the leases at the county courthouses in which the
properties are located and believes that it holds valid title to its 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.
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.
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 oil, gas and mining business.
Item 3. Legal Proceedings.
Imperial Petroleum, Inc. versus Ravello Capital LLC: 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 judgment award against Ravello in the
amount of $488,390 and subsequently collected and credited the judgment 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 judgment against Ravello.
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. At July 31, 2003, the
approximate bid price for the Company's common stock was $0. 085 per share and
the approximate asked price was $0.10 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.
There are approximately 626 holders of record of the Company's common stock.
Item 6. Selected Financial Data
2003 2002 2001 2000 1999
Operating Revenue 94,000 0 0 0 53,744
Income (loss)from
continuing opns (1,331,597) (855,719) (1,282,523) (952,854) (1,006,421)
Net Income (loss) (312,212) (820,242) (1,373,443) (1,013,299) (1,006,421)
Net Income (loss) (0.01) (0.05) (0.10) (0.08) (0.10)
Per share
Total Assets 2,535,734 495,090 644,323 1,426,813 1,947,939
Stockholder's Equity 67,934 (1,830,357) (1,677,054) (673,594) 166,463
Cash Dividends Paid 0 0 0 0 0
per Common Share
Number of Outstanding
Shares (weighted) 24,777,057 16,598,593 13,144,969 12,560,958 9,627,006
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 $400.00 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.
Upon 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 $28.00 to $33.00 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 $4.00-$5.00 range and are
currently at or near $7.00 per MMBTU. The Company expects energy prices to
continue to be volatile in the future.
Year ended July 31, 2003 compared to year ended July 31, 2002. Total revenues
for the Company for the year ended July 31, 2003 were $94,000 compared to $0 for
the year ended July 31, 2002 and reflects management fees as a result of the
Company's acquisition and management of the business of Warrior Resources, Inc.
The Company expects its revenues to remain marginal until it closes the purchase
of the presently pending acquisitions or begins continuous operations on the
Duke Mine.
Operating expenses for the year ended July 31, 2003 were $38,367 compared to $0
for the same period a year earlier and reflect the acquisition of a direct
interest in the Bovina field. The Company does not expect to incur substantial
operating expenses until it completes its oil and gas acquisitions or one of its
mining operations is in continuous operation. General and administrative
expenses increased dramatically from $466,875 for the year ended July 31, 2002
to $900,560 for the year ended July 31, 2003 and reflects the consolidation of
the Powder River Basin Gas Corp subsidiary and the increased level of activity
due to the Company's acquisition efforts. The Company expects the level of its
general and administrative expenses to remain high as it completes the oil and
gas acquisitions planned and begins operation on the Duke Gold Mine.
The Company incurred an after tax net loss of $312,212 ($0.01 per share) for the
year ended July 31, 2003 compared to an after tax net loss of $820,242 ($0.05
per share) for the prior year. The decrease in the loss is a result of the
extraordinary items extinguished by the Company with Merrion Reinsurance company
in regards to its silica contract and due to the exchange of warrants for the
retirement of accrued salaries due the Company's President. The Company does not
expect to generate a profit until it either completes its acquisitions of oil
and gas properties or until its mining operations are in continuous operations.
Year ended July 31, 2002 compared to year ended July 31, 2001. The Company
generated no revenues during the year ended July 31, 2002 or the year ended July
2001. The Company expects its revenues to remain marginal until it begins
continuous operations on the Duke Mine planned for 2003.
Operating expenses for the year ended July 31, 2002 and for the year ended July
31, 2001 were both $0 the lack of any significant 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 increased to $466,875 for the
year ended July 31, 2002 from $285,281 for the year ended July 31, 2001 and
reflects the expenses associated with the purchase of control of Warrior, the
development of the Rx Power business, the environmental business 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 during the
period of high acquisition activity and until the Duke mine is in continuous
operation.
The Company incurred an after tax net loss of $820,242 ($0.05 per share) for the
year ended July 31, 2001 compared to an after tax net loss of $1,373,443 ($0.10
per share) for the prior year. The net loss is comprised of impairment losses as
a result of the Warrior acquisition of $388,844 and $997,242 as of July 31, 2002
and July 31, 2001 respectively. The balance of the net loss is a result of
general and administrative costs incurred. The Company does not expect to
generate a profit until its mining operations are in continuous production or
until it develops significant oil and gas operations.
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.
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.
Because 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 .Recent increases in
gold prices has sparked renewed interest in the gold mining business and the
Company is presently negotiating with another mining company to develop the Duke
Mine with limited capital exposure to the Company. There is no assurance that a
suitable agreement can be reached. In 2000, management determined that the
Company should position itself in high-profile natural gas projects in an effort
to attract capital and as a result of increasing demand for natural. 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 settled
its remaining outstanding lawsuits.. Warrior has begun a work program on its
properties to increase cash flow, which was successful in stabilizing the
Warrior. 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. 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. Under the terms of Warrior's
refinancing which expires on December 31, 2003, the Bank has the right to
foreclose on the oil and gas assets if not paid in full at that time. Warrior
entered into an agreement with the Company, with the approval of a majority of
its shareholders, to sell all of its assets and liabilities to the Company in
exchange for the payoff of the bank debt, retirement of the notes payable to the
Company and 2 million shares of the Company's common stock. Closing is expected
on or before December 31, 2003.
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 retained
Jefferies & Company to assist in the financing of certain acquisitions in the
oil and gas sector, including the acquisition of the Warrior properties. Through
that effort the Company has received an indicative term sheet from
Hybridge/Zwirn Capital Management LLC to provide reserve-based financing up to
$18.0 million for the acquisitions discussed above and to develop the Company's
reserve base. The Company has been providing the due diligence materials
required by the lender to proceed to a closing.
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 judgment creditor, its
private, non-affiliate noteholders and to raise capital for its New Albany Shale
Project. As discussed previously, Ravello paid the judgment 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 judgment in the amount of $448,390 against Ravello and
subsequently received the reissued shares of common stock in Comanche (now
Warrior) and credited the judgment in the amount of $85,638.02. The balance of
the judgment remains unsatisfied.
The Company intends to continue to pursue each of the above transactions 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 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 .As discussed above the Company is presently providing due
diligence materials to a potential new lender for the Company's activities.
The Company has obtained certain unsecured loans from its Chairman and
President, Jeffrey T. Wilson, and entities controlled by Mr. Wilson which total
in principal $741,517 as of July 31, 2003. These funds have been used to
initiate the Company's oil and gas and 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 July 31, 2003, the Company had current assets of $84,392 and current
liabilities of $2,114,280, which resulted in negative working capital of
$2,029,888. The negative working capital position is comprised of accounts
payable of $179,974, notes payable to shareholders and related parties totaling
$741,517, accrued salaries and expenses totaling $501,389 and third party notes
payable of $691,400. 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.
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, 2003 and
2002.......................................................................F-2
Consolidated Statements of Operations for the years
ended July 31, 2003, 2002 and
2001.......................................................................F-3
Consolidated Statements of Stockholder's Equity for the
years Ended July 31, 2003, 2002 and
2001.......................................................................F-4
Consolidated Statements of Cash flows for the years
ended July 31, 2003, 2002 and
2001.......................................................................F-5
Notes to Consolidated Financial Statements.................................F-7
through....................................................................F-22
Item 9. Changes in and Disagreements with Accountants on Accounting And
Financial Disclosure.
Not applicable.
PART III
Item 10. Directors and Executive Officers of Registrant.
Directors and Executive Officers
The following table sets forth certain information regarding the directors,
executive officers and key employees of the Company. (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 50 Director, Chairman of the Board,
President and Chief Executive Officer
Annalee C. Wilson 46 Director
Aaron M. Wilson 24 Director
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 a Vice president of HN Corporation and is the Manager of the Successories
franchise store located at Castleton Square Mall owned by HN Corporation. Mr.
Wilson received a dual degree in Business Economics and Political Science from
the University of Kentucky in 2002.
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, 2002 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, 2003, 2002 and 2001 (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 although during
2003, Mr. Wilson agreed to accept 1.0 million warrants exercisable at $0.25 per
share in exchange for the retirement of $808,508 in accrued salaries.
SUMMARY COMPENSATION TABLE
Long Term Awards
Annual Compensation Warrants
------------------- --------
Name and Principal
Position Year Salary Bonus # shares
Jeffrey T. Wilson 2003 $ 125,000 ----- --------
2002 $ 125,000 ----- 200,000
2001 $ 125,000 ----- --------
Annalee C. Wilson 2002 ------- ----- --------
2001 ------- ----- --------
2000 ------- ----- --------
Aaron M. Wilson 2002 ------- ----- --------
2001 ------- ----- --------
2000 ------- ----- --------
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 2003, 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, 2003, the Company has 30,948,103 issued and outstanding shares of
common stock. The following table sets forth, as of July 31, 2003, 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 31,2003, the Company had approximately 636 holders of common stock of
record.
Number of Shares
Name of Beneficial Owner Beneficially Owned Percent
of Class
Jeffrey T. Wilson (1) 5,591,766 18.1%
Annalee C. Wilson(2) 1,437,711 4.6%
Aaron M. Wilson (3) 119,834 0.3%
All officers and directors as a
Group (3 people) at 7/31/2002 7,149,311 23.1%
HN Corporation(4) 1,271,555 4.1%
James M. Clements(5) 1,600,000 5.1%
Estate of Luther Henderson(6) 2,266,457 11.7%
Taghmen Ventures Ltd 2,650,000 8.5%
Total officers, directors and
5% shareholders 13,665,768 44.2%
(1) The mailing address of Mr. Wilson is 11600 German Pines, Evansville, IN
47725. Includes 589,584 shares held jointly with Mrs. Wilson; includes 423,428
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 589,584 shares held jointly with Mr. Wilson; includes 848,127
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 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 Vice
President of HN Corporation.
(5) Mr. Clements' mailing address is 5972 Arboles St, San Diego, CA 92120
(6) The Executor of Mr. Henderson's Estate is Mr. Ajit Jhangiani. The address is
5608 Malvey, Suite 104, Fort Worth, TX 76107.
(7) The address of Taghmen Ventures Ltd. is EFG House, St Julian's Avenue, St
Peter Port Guernsey
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 $631,044 in
principal as of July 31, 2003.
HN Corporation, a private retail company owned by Mr. Wilson and his wife, has
made unsecured loans to the Company which total $110,473 in principal as of July
31, 2003. 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 Vice President of HN Corporation.
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, 2003 and 2002; Consolidated Statements of Operations for the years
ended July 31, 2003, 2002, and 2001; Consolidated Statements of Stockholder
Equity for the years ended July 31, 2003, 2002, and 2001; Consolidated
Statements of Cash Flows for the years ended July 31, 2003, 2002, and 2001;
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.
Report on Form 8-K filed February 13, 2002 with the Securities and Exchange
Commission.
(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: December 17, 2003 /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 December 17, 2003
CERTIFICATION
I, Jeffrey T. Wilson (President) certify that:
1. I have reviewed this annual report on Form l0-K of Imperial Petroleum, Inc.;
2. Based on my knowledge, this annual 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 annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual 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 annual 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 annual 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 annual
report (the "Evaluation Date"); and
c) presented in this annual 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 annual 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: 12/17/03 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 annual report of Imperial Petroleum, Inc. (the "Company")
on Form l0-K for the year ended July 31, 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 annual report fully complies with the requirements of Section 13(a) of
the Securities Act of 1934; and
2. The information contained in the annual report fairly presents, in all
material respects, the financial condition and results of operations of the
Company.
Date: 12/17/03 By: /s/ Jeffrey T. Wilson, President & CEO
Consolidated Financial Statements
IMPERIAL PETROLEUM, INC. and SUBSIDIARIES
July 31, 2003 and 2002
IMPERIAL PETROLEUM, INC.
and
SUBSIDIARIES
CONSOLIDATED
FINANCIAL STATEMENTS
AS OF JULY 31, 2003 and 2002
and
FOR THE YEARS ENDED
July 31, 2003 and 2002
INDEPENDENT AUDITOR'S REPORT
and
SUPPLEMENTAL INFORMATION
(UNAUDITED)
IMPERIAL PETROLEUM, INC.
July 31, 2003 and 2002
T A B L E O F C O N T E N T S
Page
Independent Auditor's Report
Consolidated Financial Statements:
Consolidated Balance Sheets 2
Consolidated Statements of Operations 3
Consolidated Statements of Stockholders' Equity 4
Consolidated Statements of Cash Flows 5-6
Notes to Consolidated Financial Statements 7-30
Supplemental Information (Unaudited) 31-33
INDEPENDENT AUDITOR'S REPORT
Board of Directors
Imperial Petroleum, Inc.
Evansville, Indiana
We have audited the accompanying consolidated balance sheets of Imperial
Petroleum, Inc. (A Development Stage Company) as of July 31, 2003 and 2002 and
the consolidated statements of operations, stockholders' equity, and cash flows
for the years ended July 31, 2003 and 2002. 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 auditing standards generally accepted
in the United States of America. 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, 2003 and 2002 and the results of its
operations and its cash flows for the years ended July 31, 2003 and 2002, in
conformity with accounting principles generally accepted in the United States of
America.
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.
The accompanying supplementary information on pages 31-33 is not a required part
of the basis financial statements but is supplementary information required by
accounting principles generally accepted in the United States of America. We
have applied certain limited procedures, which consisted principally of
inquiries of management regarding the methods of measurement and presentation of
the supplementary information. However, we did not audit the information and
express no opinion on it.
BRISCOE, BURKE & GRIGSBY LLP
Certified Public Accountants
December 20, 2003
Tulsa, Oklahoma
(A Development Stage Company)
Consolidated Balance Sheets
July 31, 2003 and 2002
ASSETS
LIABILITIES and STOCKHOLDERS' EQUITY 2003 2002
Current assets: Current liabilities:
Cash $ - $ 2,869 Accountspayable 179,974 92,263
Accrued interest receivable - 45,755 Accrued expenses (Note 17) 501,389 1,083,008
Prepaids 84,392 - Notes payable (Note 6) 691,400 80,000
Notes payable - related parties
Total current assets 84,392 48,624 (Note 7) 741,517 765,817
Total current liabilities 2,114,280 2,021,088
Property, plant and equipment Noncurrent liabilities:
(Notes 1, 2, and 4): Unearned revenue - noncurrent
Mining claims, options and development (Note 16) - 304,359
costs less impairment 41,760 41,760 Deferred income taxes (Note 5) - -
Oil and gas properties (full cost
method) 1,389,067 Total noncurrent liabilities - 304,359
Equipment - 1,107
Acquisition in progress 980,211 4,000 Minority interest (Note 1) 353,520 -
(Note 13)
2,411,038 46,867 Stockholders' equity
Common stock of $.006 par value,
Less: accumulated depr - 1,107 authorized 50,000,000 shares;
30,948,103 issued in 2003 and
Net property, plant 2,411,038 45,760 39,363,946 shares in 2002 185,689 236,184
and equipment Paid-in capital 6,972,581 6,247,583
Deficit accumulated before the
development stage (89,525) (89,525)
Deficit accumulated during the
development stage (6,293,507) (5,981,295)
Treasury stock, at cost
(1,368,957 shares in 2003 and
Other assets: 21,368,957 shares in 2002) (707,304) (2,243,304)
(2,243,304)
Notes receivable - related parties
(Note 3) - 192,408 Total stockholders' equity (deficit) 67,934 (1,830,357)
Investments - Warrior Resources
(Notes 2 and 11) 40,304 208,298 Commitments and contingencies
(Note 9) - -
Total other assets 40,304 400,706 TOTAL LIABILITIES and
STOCKHOLDERS'
TOTAL ASSETS $ 2,535,734 $ 495,090 EQUITY(DEFICIT) $ 2,535,734 $ 495,090
============ ============
The accompanying notes are an integral part of these consolidated financial
statements.
-2-
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Consolidated Statements of Operations
For the Years Ended July 31, 2003 and 2002
Cumulative
2003 2002 from Inception
Operating Income:
Oil and gas and mining $ - $ - $ 924,687
Management fee and other 94,000 - 310,733
Total operating income 94,000 - 1,235,420
Operating expenses:
Cost of goods sold - - 110,529
Lease operating expense - - 765,092
Research and development - - 7,407
Impairment loss (Note 11) 168,367 388,844 4,178,363
General and administrative expenses 942,927 466,875 4,676,111
Merger expenses 231,027 - 231,027
Depreciation, depletion
and amortization (Note 2) - - 265,310
-------- --------- -------------
Total operating expenses 1,342,321 855,719 10,233,839
--------- --------- -------------
Loss from operations (1,248,321) (855,719) (8,998,419)
Other income and (expense):
Interest expense (80,292) (78,788) (956,168)
Interest income - 25,433 101,220
Other income 7,016 88,832 693,714
Gain (loss) on sale of assets
(Note 15) - - 878,048
Net loss before income taxes (1,321,597) (820,242) (8,281,605)
----------- --------- ------------
Provision for income taxes: (Note 5)
Current - - -
Deferred - - 203,502
----------- --------- ------------
Total benefit from income taxes - - -
----------- --------- ------------
Net loss before extraordinary item (1,321,597) (820,242) (8,078,103)
Extraordinary item (Note 15) 1,009,385 - 1,784,596
----------- --------- -----------
Net loss $ (312,212) $ (820,242) $ (6,293,507)
============ =========== =============
Loss per share (Note 2) $ (.01) $ (.05)
Weighted average shares outstanding 24,777,057 16,598,593
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, 2003 and 2002
Common Stock
------------------------------ Additional Total
Par Paid-In Retained Treasury Stockholders
Shares Value Capital Deficit Stock Equity(Deficit)
Balances restated, at July 31, 2001 13,925,276 83,552 4,069,776 (5,250,578) (579,804) (1,677,054)
Investments in Warrior Resources 2,948,457 17,691 359,712 - - 377,403
Stock issued for payment of fees 1,436,722 8,620 233,933 - - 242,553
Stock issued to pay off interest
and debt (Note 6) 1,053,491 6,321 97,175 - - 103,496
Stock held pending financing 20,000,000 120,000 1,416,000 - (1,536,000) -
Default on subscribed stock - - 70,987 (127,500) (56,513) -
Net loss for the period - - - (820,242) - (820,242)
------------ ---------- ----------- ----------- ----------- -----------
Balances at July 31, 2002 39,363,946 236,184 6,247,583 (6,070,820) (2,243,304) (1,830,357)
------------ ---------- ----------- ----------- ----------- -----------
Stock issued in acquisitions 6,567,130 39,401 1,297,280 - - 1,336,681
Stock issued for payment of fees 3,172,000 19,032 575,458 - - 594,490
Stock issued to pay off interest
and debt (Note 6) 1,845,027 11,072 268,260 - - 279,332
Stock returned from failed financing (20,000,000) (120,000) (1,416,000) - 1,536,000 -
Net loss for the period - - - (312,212) (312,212)
------------ --------- ----------- ----------- ---------- ----------
Balances at July 31, 2003 30,948,103 $ 185,689 $ 6,972,581 $ (6,383,032) $ (707,304) $ 67,934
=========== ======= ========= ========= ======== ======
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, 2003 and 2002
Cumulative
2003 2002 from Inception
---- ---- --------------
Cash flows from operating activities:
Net loss (312,212) $ (820,242) $ (6,293,507)
Adjustments to reconcile net loss
to net cash provided by operating
activities:
Depreciation, depletion and
amortization - - 265,310
Expenses paid with common stock 764,696 242,554 2,928,248
Loss (Gain) on sale and disposal
of assets - - (878,048)
Gains on extinguishment of debt (1,009,385) - (1,784,596)
Write-offs and impairments 172,367 329,417 4,178,363
(Increase) Decrease in accounts
receivable - other
(Increase) Decrease in accrued
interest receivable - (25,435) -
(Increase) Decrease in notes
receivable - related party 28,194 - -
(Increase) Decrease in notes
receivable -other - 10,353 -
(Increase) Decrease in other assets
Increase (Decrease) in accounts
payable 30,000 (9,542) -
Increase (Decrease) in a
accrued expenses 189,791 195,190 978,369
Increase (Decrease) in
unearned revenue - - -
Net cash used for operating activities (136,549) (77,705) (605,816)
--------- -------- ---------
Cash flows from investing activities:
(Purchases) Sales of assets (42,020) - 605,861
--------- -------- --------
Net cash used for investing activities $(42,020) $ - $ 605,861
========= ======== ===========
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, 2003 and 2002
Cumulative
2003 2002 from Inception
---- ---- --------------
Cash flows from financing activities:
Increase (Decrease) in notes payable $ 200,000 $ - $ -
Increase (Decrease) in notes payable -
related parties (24,300) 79,500 -
Net cash provided by financing
activities 175,700 79,500 -
Net increase (decrease) in cash
and cash equivalents (2,869) 1,795 -
Cash and cash equivalents at beginning
of year 2,869 1,074 -
--------- -------- ------------
Cash and cash equivalents at
end of year $ - $ 2,869 $ -
========= ======== ============
Supplemental disclosures of cash flow information:
Cash paid during the period for
Interest $ - $ - $ -
Income taxes - - -
Supplemental schedule of non cash
investing and financing activities:
Stock issued for fixed assets $1,287,790 - See Footnote 1
Stock issued for services
and interest 764,696 242,554
Stock issued for investment - 377,403
Impairments and write-offs 172,367 329,417
Stock issued to extinguish debt 1,009.385 103,496
--------- ---------
Total $3,234,238 $1,052,870
========== ==========
Disclosure of accounting policy:
For purposes of the statement of cash flows, the Company considers all
highly liquid debt instruments purchased with a maturity of three months or
less to be cash equivalents.
The accompanying notes are an integral part of these consolidated financial
statements.
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
1. ORGANIZATION AND BUSINESS COMBINATION
Organization
The Company is attempting to obtain capital, through its wholly owned
subsidiary, Ridgepointe Mining Company, to continue testing, defining and
developing mineral reserves on mining claims it owns or operates in the
southwestern and western United States.
The Company is engaged, through its wholly owned subsidiary Imperial
Environmental Company, in developing and marketing water filtration systems
to municipalities.
The Company is involved in acquisitions with several entities to acquire
oil and gas properties through its parent company Imperial Petroleum, Inc.
During 2003, the Company acquired a 55% interest in Powder River Basin Gas
Corp. The Powder River Basin Gas Corp. was incorporated under the laws of
Colorado on August 27, 1999 as Celebrity Sports Network, Inc. The principal
activities since inception have been organizational matters and obtaining
financing. The Company was formed in an effort to broaden the scope of
public appearances available to current and former professional athletes.
The Company, however, changed their operations in 2001 through a reverse
acquisition with Powder River Basin Gas Corp., an oil and gas company.
Powder River Basin Gas Corp. (PRBG) was incorporated in the state of
Colorado on June 13, 2001. The Company is engaged in the business of
assembling and managing a portfolio of undeveloped acreage in the Powder
River basin coal bed methane (CBM) play in Sheridan County, Wyoming. This
acreage is located in a proven geological setting and near operators such
as Western Gas Resources, Barrett Resources, Phillips Petroleum, J.M. Huber
and others. The Company has leasehold interests in 8,096.83 net acres. Two
wells have been drilled on one lease and eleven additional wells have been
spudded.
Pursuant to a reverse acquisition and reorganization agreement, PRBG was
acquired by Celebrity Sports on September 5, 2001. At the time of the
acquisition, the Company changed its name to Powder River Basin Gas Corp.
The Company issued 9,000,000 shares of common stock for all the issued and
outstanding stock of PRBG; thus, making PRBG a wholly-owned subsidiary of
the Company.
The Company issued 9,000,000 shares of common stock for the receipt of
9,000,000 shares of PRBG, therefore, an adjustment to the shares
outstanding was necessary to reflect the other shareholders of the Company
at the time of acquisition. No goodwill was recorded in the acquisition,
and the purchase method of accounting was used in recording the business
combination. -7-
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
1. ORGANIZATION AND BUSINESS COMBINATION (continued)
Financial Condition
The Company's financial statements for the year ended July 31, 2003 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 $312,212 and $820,242 for the
years ended July 31, 2003 and 2002, respectively, and as of July 31, 2003
has an accumulated deficit of $6,383,032.
Management Plans to Continue As A Going Concern
The Company believes that it will require outside capital to continue as a
going concern. In that regard, the Company retained Jeffries & Company, an
investment banking firm with expertise in oil and natural gas transactions,
to assist the Company in securing financing for its acquisition of the
assets and liabilities of Warrior Resources, Inc.; Hillside Oil & Gas LLC
and certain assets of Renovared Energy Resources, Inc. As a result, the
Company has received an indicative term sheet from Hybridge/Zwirn Capital
Management LLC to provide a reserve-based lending facility to the Company
of up to $18.0 million to complete these acquisitions and to provide
development capital for the assets acquired. The Company is continuing to
provide Hybridge with its requested due diligence in an effort to close the
transaction.
The Company controls the operations of Warrior Resources, Inc. and acquired
control of Powder River Basin Gas Corp in May 2003. As a result of each of
these acquisitions, the Company receives management fees in an amount of
$15,000 per month which, if continued to be available, will adequately pay
for the Company's current overhead expense. The Company expects to complete
a transaction involving the change of control of Powder River in which the
Company will receive an interest in the Powder River Basin properties
located in Wyoming.
Management continues to pursue other acquisitions and merger opportunities.
-8-
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 Powder River Basin Gas Corporation
Pursuant to a Stock Exchange Agreement dated May 5, 2003 (the "Stock
Exchange Agreement") between Imperial Petroleum, Inc. and the Powder River
Basin Gas Corporation ("Powder River"), the Powder River stockholders
agreed to exchange (the "Powder River Exchange Transaction") an aggregate
of 25,385,000 shares of the common stock of Powder River, representing 55%
of the issued and outstanding common stock of Powder River, for a total of
2,400,000 restricted and 250,000 un-restricted free trading shares of the
Company's common stock representing approximately 10% of the Company's
resulting issued and outstanding common stock. The business combination was
accounted for using the purchase method of accounting. As a result, Powder
River has become a consolidated subsidiary of the Company. The results of
Powder River's operations have been included in the consolidated financial
statements since that date.
-9-
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
1. ORGANIZATION AND BUSINESS COMBINATION (continued)
Powder River Basin Gas Corp is an oil and gas exploration company that is
engaged in the evaluation and development of coal bed methane reserves as
well as shallow oil reserves within the Powder River Basin in the State of
Wyoming. The Company hoped to develop these properties but subsequently
changed its objective with respect to these holdings. Subsequent to
year-end the Company reached an agreement to sell most of its interest in
Powder River.
The purchase was valued at $540,000 based on the average trading value of
Imperial Petroleum's issuance of 2,650,000 shares of common stock at
acquisition which resulted in its 55% stake in Powder River Basin Gas Corp.
The following table summarizes the estimated fair values of the assets
acquired and liabilities assumed at the date of acquisition.
At May 16, 2003
Current assets $ 2,555
Property, plant and equipment 1,284,251
-------------
Total assets acquired 1,286,806
Current liabilities 499,518
Long-term debt -
-------------------
Total liabilities assumed 499,518
Net assets acquired $ 787,288
=============
-10-
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
1. ORGANIZATION AND BUSINESS COMBINATION (continued)
Proforma Information
The following financial information is presented as if the companies had
been combined for the periods presented:
12 Months
July 31, 2003
Revenues $ 109,000
Operating expenses:
Impairments 536,490
General and administrative 1,681,206
Merger expenses 231,027
------------
Total operating expenses 2,448,723
Other income (expense):
Interest expense (105,424)
Other income 7,016
------------
Total other income (expense) (98,408)
Provision for income taxes -
------------
Extraordinary gains on extinguishment 1,009,385
------------
Net loss $ (1,428,746)
============
-11-
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
1. ORGANIZATION AND BUSINESS COMBINATION (continued)
Development Stage Companies
The Company became a development stage company when in 1993 it acquired
Ridgepointe Mining Company and focused its efforts toward mining,
eventually divesting its oil and gas properties. Currently the company is
pursuing its re-entry into the oil and gas industry and thus remains a
development stage company until it completes its acquisitions and major
activities commence.
A summary of stock changes in the stockholders' equity from inception to
July 31, 2001 (see statement of stockholder's equity for subsequent
activity) is as follows:
Common Stock
Shares Amount
Balances at July 31, 1993 12,560,730 $ 1,531,438
Reverse acquisition of
Imperial Petroleum, Inc. 8,117.111 259,198
Acquisition of Premier Operating Company 749,000 276,420
Stock issued for mining properties 1,000,000 88,743
------------ ------------
Balances at July 31, 1994 22,426,841 2,155,799
------------ ------------
Stock issued for services 100,000 17,188
Stock issued for mining properties
and equipment 1,500,000 257,812
Balances at July 31, 1995 24,026,841 2,430,799
------------ ------------
Stock issued for services 500,000 15,000
Stock issued for mining properties
and equipment 1,900,000 57,000
Stock issued for investment 5,000,000 42,188
------------ -------------
Balances at July 31, 1996 31,426,841 $ 2,544,987
------------ -------------
-12-
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
1. ORGANIZATION AND BUSINESS COMBINATION (continued)
Common Stock
Shares Amount
Balances at July 31, 1996 31,426,841 $ 2,544,987
Reverse split (26,188,677) -
Stock issued for mining properties
and equipment 45,000 15,270
------------ ------------
Balances at July 31, 1997 5,283,164 2,560,257
------------ ------------
Stock issued for services 173,575 88,090
Stock issued for mining properties
and equipment 860,000 787,500
Stock issued to pay off debt 153,062 101,992
----------- ------------
Balances at July 31, 1998 6,469,801 3,537,839
------------ ------------
Treasury stock issued in contemplation 1,500,000 -
Stock issued for services 1,036,163 169,154
Stock issued for equity securities 1,972,266 394,454
Stock issued to pay off debt 550,000 106,800
------------ ------------
Balances at July 31, 1999 11,528,230 $ 4,208,247
------------ ------------
-13-
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
1. ORGANIZATION AND BUSINESS COMBINATION (continued)
Common Stock
Shares Amount
Balances at July 31, 1999 11,528,230 $ 4,208,247
Stock cancelled (650,000) -
Stock subscribed 716,666 127,500
Stock issued to pay off interest and debt 909,269 90,926
------------ ------------
Balances at July 31, 2000 12,504,165 4,426,673
------------ ------------
Stock issued for payment of fees 500,000 40,000
Stock issued to pay off interest and debt 921,111 74,284
------------ ------------
Balances at July 31, 2001 13,925,276 $ 4,540,957
============ ============
-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, 2003 and 2002 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.)and its proportionate share of the assets, liabilities,
revenues and expenses of Powder River Basin Gas Corporation, for which the
company is the majority owner. All significant intercompany accounts and
transactions have been eliminated in consolidation.
Use of 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.
Bad Debts
Bad debts on receivables are charged to expense in the year the receivable
is determined uncollectible, therefore, no allowance for doubtful accounts
is included in the financial statements. Amounts determined as
uncollectible are not significant to the overall presentation of the
financial statements. During 2003 and 2002 the Company charged off $120,364
and $27,167, respectively.
Financial Instruments
The Company values its financial instruments as required by FASB Statement
No. 107, Disclosures about Fair Values of Financial Instruments. The fair
value of current assets and current liabilities approximate their reported
carrying amounts as of July 31, 2003.
-15-
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Investments
The equity method of accounting is used for all investments in associated
companies in which the Company's interest is 20% or more. Under the equity
method, the Company recognizes its share in the net earnings or losses of
these associated companies as they occur rather than as dividends are
received. Dividends received are accounted for as a reduction of the
investment rather than as dividend income.
The investments are reviewed for impairment whenever events or changes in
circumstances indicate the carrying amount of the investment may not be
recoverable.
Management Fees
The Company receives a $10,000 per month management fee from Warrior
Resources, Inc. Warrior Resources, Inc. is under common control and the
Company is involved in an as yet to close acquisition of Warrior's oil &
gas properties as of July 31, 2003. During 2003, the Company has earned
$94,000 in management fees.
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 is dependent on the continued financial
support of its Chief Executive Officer through loans to the Company and
salary deferral.
-16-
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Revenue Recognition
The Company's consolidated financial statements are prepared using the
accrual method of accounting.
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.
Oil and Gas Properties
The Company follows the full cost method of accounting for oil and gas
properties. Accordingly, all costs associated with acquisition,
exploration, and development of oil and gas reserves, including directly
related overhead costs, are capitalized.
All capitalized costs of oil and gas properties, including the estimated
future costs to develop proved reserves, are amortized on the
unit-of-production method using estimates of proved reserves. Investments
in unproved properties and major development projects are not amortized
until proved reserves associated with the projects can be determined or
until impairment occurs. If the results of an assessment indicate that the
properties are impaired, the amount of the impairment is added to the
capitalized costs to be amortized.
In addition, the capitalized costs are subject to a "ceiling test," which
basically limits such costs to the aggregate of the "estimated present
value," discounted at a 10-percent interest rate of future net revenues
from proved reserves, based on current economic and operating conditions,
plus the lower of cost or fair market value of unproved properties.
-17-
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
2. SUMMARY OF ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (continued)
Oil and Gas Properties (continued)
Sales of proved and unproved properties are accounted for as adjustments of
capitalized costs with no gain or loss recognized, unless such adjustments
would significantly alter the relationship between capitalized costs and
proved reserves of oil and gas, in which case the gain or loss is
recognized in income.
Long-Lived Assets
Long-lived assets to be held and used or disposed of other than by sale are
reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount may not be recoverable. When required,
impairment losses on assets to be held and used or disposed of other than
by sale are recognized based on the fair value of the asset. Long-lived
assets to be disposed of by sale are reported at the lower of its carrying
amount of fair value less cost to sell.
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.
Reclassification
Certain amounts in the 2002 consolidated financial statements have been
reclassified to conform to the 2003 presentation.
-18-
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
2. SUMMARY OF ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (continued)
Newly Issued Pronouncements
In July 2001, the Financial Accounting Standards Board issued two
statements - Statement 141, Business Combinations, and Statement 142,
Goodwill and Other Intangible Assets.
Statement 141: Eliminates the pooling method for accounting for business
combinations.
Requires that intangible assets that meet certain criteria
be reported separately from goodwill.
Requires negative goodwill arising from a business
combination to be recorded as an extraordinary gain.
Statement 142: Eliminates the amortization of goodwill and other intangibles
that are determined to have an indefinite life.
Requires, at a minimum, annual impairment tests for goodwill
and other intangible assets that are determined to have an
indefinite life.
Upon adoption of these Statements, the Company is required to:
Re-evaluate goodwill and other intangible assets that arose
from business combinations entered into before July 1, 2001.
If the recorded other intangibles assets do not meet the
criteria for recognition, they should be reclassified to
goodwill. Similarly, if there are other intangible assets
that meet the criteria for recognition but were not
separately recorded from goodwill, they should be
reclassified from goodwill.
Reassess the useful lives of intangible assets and adjust
the remaining amortization periods accordingly.
Write-off any remaining negative goodwill.
The Company completed its assessment of the effects of these new
pronouncements on its financial statements and believes the effects to be
immaterial. The standards were implemented by the Company in its July 31,
2003 consolidated financial statements.
-19-
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
3. NOTES RECEIVABLE - RELATED PARTIES
Notes receivable from related parties was comprised of the following:
2003 2002
------------ ------------
Warrior Resources (formerly Comanche
Energy) - 9% demand note $ - $ 110,795
AQ Technologies - 9% demand note - 81,613
------------ ------------
Total $ - $ 192,408
=========== ============
The Company owns 33% of Warrior Resources and has control with Jeffrey
Wilson as its CEO. During 2003 the monies advanced to Warrior have been
combined into its acquisition in progress of Warrior's oil and gas
properties. The Company's CEO has guaranteed the note receivable from AQ
Technologies (See Note 9) and during 2003 the Company wrote-off the funds
advanced under this guarantee.
4. PROPERTY, PLANT and EQUIPMENT
The Company's mining fixed assets consist of the following:
2003 2002
------------ ------------
Oil and gas properties $ 1,389,067 $ -
Mining claims 74,800 74,800
Equipment - 1,107
Mine development costs 32,634 32,634
Acquisitions in progress 980,211 4,000
Impairment reserve (65,674) (65,674)
------------ ------------
Total $ 2,411,038 $ 46,867
============ ============
The Company has not completed or updated the necessary reserve studies of
its mining claims 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.
-20-
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
4. PROPERTY, PLANT and EQUIPMENT (continued)
The Company accounts for its oil and gas properties under the full cost
method. The companies capitalized costs for oil and gas properties result
from its 2003 acquisitions of Powder River Basin Gas Corp. and an interest
in the Bovina field in Warren County, Mississippi. Due to the stage of
development of the Powder River Basin Gas Corp. properties the Company does
not have current reserve studies. Subsequent to year-end the Company has
entered into an agreement to sell its controlling interest in Powder River
Valley Basin to another party.
The Company has $1,284,251 and $104,816 in acquisition costs related to the
Powder River Basin Gas Corp. and Bovina field acquisitions respectively at
July 31, 2003. See the supplemental information for information relating to
oil and gas producing activities.
5. INCOME TAXES
Provisions for income taxes are as follows:
2003 2002
------------ ------------
(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:
2003 2002
------------ ------------
(in thousands)
Computed "expected" tax expense
(benefit) $ (106) $ (279)
State income taxes net of federal
benefit - -
Increase(Decrease) in valuation
allowance for deferred tax assets 106 279
Other - -
------------ ------------
Actual income tax expense $ - $ -
============ ============
-21-
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:
2003 2002
------------ ------------
(in thousands)
Deferred tax liabilities:
Property, plant and equipment $ - $ -
Other - -
------------ ------------
Total deferred tax liabilities - -
------------ ------------
Deferred tax assets:
Property, plant and equipment - -
Unrealized loss on securities 707 649
Net operating losses 1,463 1,415
Other - -
------------ ------------
Total deferred tax assets 2,170 2,064
------------ ------------
Valuation allowance (2,170) (2,064)
------------ ------------
Net deferred tax assets - -
------------ ------------
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 $3,144,000. If not previously utilized, the net
operating losses will expire in varying amounts from 2014 to 2023.
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 are outside of the
scope of our examination.
-22-
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
6. NOTES PAYABLE
2003 2002
------------ ------------
Gary S. Williky, promissory note,
dated November 24, 1997, principal
due on demand plus interest
at 9.0% $ 40,000 $ 40,000
Thomas J. Patrick, promissory note,
dated December 18, 1997, principal
due on demand plus interest
at 9.0% 40,000 40,000
Note payable to individuals, currently
due, including interest at 8% 200,000 -
Note payable to a company, due in total
January 2002, including interest at 10% 86,400 -
Note payable to an individual, due in total
January 2003, including interest at 12% 25,000 -
Note payable to an individual, due in total
in May 2003 40,000 -
Convertible debenture to a company, due
in total by conversion of stock, including
interest at 6% 260,000 -
------------ ------------
Total 691,400 80,000
Less: current portion 691,400 80,000
------------ ------------
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.
-23-
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
7. NOTES PAYABLE - RELATED PARTY
2003 2002
------------ ------------
H. N. Corporation - 9.0% demand note $ 110,473 $ 124,723
Officer - 10.0% demand note 111,845 111,845
Officer - 7.5% demand note 72,850 82,900
Officer - 9.0% demand note 446,349 446,349
------------ ------------
$ 741,517 $ 765,817
============ ============
During the year, the Company issued 1,236,309 shares of its common stock to
extend due dates of related party notes.
8. RELATED PARTY TRANSACTIONS
The Company has entered into transactions with its chief executive officer,
Jeffrey T. Wilson and a Company owned and controlled by Mr. Wilson, H.N.
Corporation. For 2003 and 2002 the Company has accrued an annual salary of
$109,500 and $118,500, respectively, 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).
During 2003, the Company issued stock valued at $683,745 and advanced
$14,000 in payments of obligations of Warrior Resources, Inc., an
affiliate, pursuant to an acquisition of its oil and gas properties.
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.
-24-
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
9. LITIGATION, COMMITMENTS AND CONTINGENCIES (continued)
Commitments (See Note 16)
The Company's Chief Executive Officer is a guarantor of a note payable of
AQ Technologies. The approximate amount of this guarantee at July 31, 2003
is $65,000. The Company has been servicing the note due to AQ Technoligies'
inability to do so. Monthly payments, including principal and interest,
under this note are $2,521. During 2003 it was determined that the amounts
previously paid under the guarantee would not be collectible and a $120,364
charge off resulted (See Note 3).
The Company's subsidiary, Powder River Basin Gas Corp., has entered into
various oil and gas leases from several land owners. Associated with the
agreements, the Company is committed to various royalty agreements ranging
from 15% to 25% of gross revenue production. Some of the leases also
provide for a minimum royalty. As of July 31, 2003, no royalties were due.
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.
2003 2002
------------ ------------
Revenues: (in thousands)
Oil and gas $ - $ -
Mining - -
Environmental - -
Other 94 -
------------ ------------
Total revenues $ 94 $ -
============ ============
-25-
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
10. BUSINESS SEGMENTS (continued)
2003 2002
------------ ------------
Identifiable assets: (in thousands)
Oil and gas $ 2,701 $ -
Mining 42 42
Environmental - 1
Other 130 452
------------ ------------
$ 2,873 $ 495
============ ============
Depreciation and depletion:
Oil and gas $ - $ -
Mining - -
Environmental - -
------------ ------------
$ - $ -
============ ============
11. INVESTMENTS IN WARRIOR RESOURCES, INC.
During 1999 the Company acquired a stake in Warrior Resources, Inc. which
was recorded as an investment under the cost method. Through an exchange
transaction in 2002 the Company now has a 32% interest (33,586,473 shares
with an undiscounted trading value of $69,805), exceeded the 20% ownership
threshold and has the ability to significantly influence the investee,
requiring a change to the equity method of accounting.
A change to the equity method of accounting from the cost method of
accounting for an investment requires a retroactive adjustment by the
investor to its investment, results of operations, and retained earnings in
a manner consistent with the step-by-step acquisition of a subsidiary.
-26-
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
11. INVESTMENTS IN WARRIOR RESOURCES, INC. (continued)
Warrior Resources common stock is traded publicly on over-the-counter
markets. Recurring losses and management representations of the investee
provide evidence of impairment of this equity investment. Therefore, the
impairment allowance required for equity investments under APB Opinion 18
yields a result which reduces the carrying amount of the equity investment
to the lower market value as per quoted market prices (currently $.002)
discounted for large block and lack of marketability discounts as
applicable. Thus the carrying value is unchanged from that when carried
using the cost method of accounting for the investment but the results of
operations are restated to reflect the change in the carrying value of the
investment. The investment presentation has been changed to reflect the
change from the cost method to the equity method. An impairment loss of
$168,367 and $388,844 were recognized in 2003 and 2002, respectively. The
carrying amount of the investment is as follows:
July 31, July 31,
2003 2002
------------ ------------
Equity in investee net assets $ 2,118,951 $ 2,118,579
Impairment allowance 2,078,647 1,910,280
------------ ------------
Net carrying amount $ 40,304 $ 208,299
============ ============
Condensed selected financial data of Warrior Resources (unaudited) is
as follows:
July 31, July 31,
2003 2002
------------ ------------
Assets $ 28,982,195 $ 34,404,629
Liabilities 5,150,616 5,258,950
------------ ------------
Net assets $ 23,831,579 $ 29,145,679
============ ============
Net income (loss) $ (5,314,100) $ (5,048,842)
============ ============
-27-
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
12. WARRANTS
The Company has the following warrants outstanding:
200,000 @ $.25, expiring 11/03/04
1,000,000 @ $.25, expiring 6/26/08
During 2003, the Company issued 1,000,000 warrants to its CEO, Jeffrey T.
Wilson, in settlement of accrued but unpaid compensation through July, 31,
2002 in the amount of $808,508. This transaction resulted in a gain on
extinguishment of debt of $808,508.
13. ACQUISITIONS IN PROGRESS
The Company is currently involved in the acquisition of oil and gas
properties from Warrior Resources, Inc., Hillside Oil and Gas LLC, and
Renovared Energy Resources, Inc. The Company has properly executed
agreements to acquire oil and gas properties in the United States. Costs
incurred pursuant to those acquisitions are $790,211, $160,000 and $30,000
respectively.
The Company is currently in the process in working with its lender to
consolidate, finance and close these acquisitions pursuant to the
agreements in place.
14. LEASE OBLIGATIONS
During 2002 the Company had a noncancelable operating lease agreement for
office space. Total rental expense was $0 and $7,953 in 2003 and 2002,
respectively. Currently, the Company offices in Mr. Wilson's home.
-28-
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
15. GAIN ON EXTINGUISHMENT OF DEBT
During 2003, the Company issued 608,718 shares of its common stock as
settlement of the Company's default on delivery of its silica ore
contracts. This transaction resulted in an extraordinary gain of $200,877.
During 2003, the Company issued 1,000,000 warrants, exercisable at $.25, in
exchange for $808,508 in accrued officer salary. This transaction resulted
in an extraordinary gain of $808,508.
16. UNEARNED REVENUE
During 2003, the Company reached a settlement agreement to exchange 608,718
shares of its common stock in settlement of this obligation (See Note 15).
17. ACCRUED EXPENSES
The Company has accrued expenses as of July 31 as follows:
2003 2002
------------ ------------
Accrued officer salary - CEO $ 109,500 $ 808,508
Accrued interest on notes 391,889 274,500
------------ ------------
$ 501,389 $ 1,083,008
============ ============
During the years ended July 31, 2003 and 2002 the Company issued 1,236,309
and 1,053,491 shares, respectively, of its restricted common stock to pay
accrued interest, pay for services, and extend maturities of notes payable.
-29-
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
18. SUBSEQUENT EVENTS
On October 20, 2003 the Company entered into a letter of understanding to
sell 23,885,000 of its 25,385,000 shares of Powder River Basin Gas
Corporation for $175,000. If completed, the sale would result in a loss of
$365,000 and leave the Company with 3% ownership of the common stock of
Powder River Basin Gas Corporation.
In October of 2003, the company raised $200,000 in cash through the sale of
2,000,000 shares of its restricted common stock and the issuance of a one
year warrant for 2,000,000 shares exercisable at $.12 per share.
The Company also extinguished its $200,000 note payable related to its
acquisition of Powder River Basin through the issuance of 2,000,000 shares
of common stock and a one year warrant for 2,000,000 shares exercisable at
$.14 per share.
The Company has also entered into a letter of intent to sell its mining
claims. The impact on final terms and resulting gain or loss are uncertain
at this time.
-30-
SUPPLEMENTAL INFORMATION
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Supplemental Information
(Unaudited)
Year Ended July 31, 2003
Capitalized Costs Relating to Oil and Gas
Producing Activities at July 31, 2003: Full Cost
-------------
Unproved oil and gas properties $ -
Proved oil and gas properties 104,816
Support equipment and facilities -
------------
104,816
Less accumulated depreciation, depletion,
amortization, and impairment -
------------
Net Capitalized Costs $ 104,816
============
Costs Incurred in Oil and Gas Producing
Activities for Year Ended July 31, 2003:
Property acquisition costs
Proved $ 104,816
Unproved -
Exploration costs -
Development costs -
Amortization rate per equivalent barrel of production -
------------
$ 104,816
Results of Operations for Oil and Gas Producing
Activities for the Year Ended July 31, 2003
Oil and gas sales $ -
Production costs -
Depreciation, depletion and amortization -
------------
-
Income tax expense -
------------
Results of operations for oil and gas
activities (excluding corporate overhead
and financing costs) $ -
============
Acquisition costs of $1,284,251 are excluded from amortization at July 31, 2003.
-32-
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Supplemental Information
(Unaudited)
Year Ended July 31, 2003
The following estimates of proved and proved developed reserve quantities and
related standardized measure of discounted net cash flow are estimates only, and
do not purport to reflect realizable values or fair market values of the
Company's reserves. The Company emphasizes that reserve estimates are inherently
imprecise and that estimates of new discoveries are more imprecise than those of
producing oil and gas properties. Accordingly, these estimates are expected to
change as future information becomes available. All of the Company's reserves
are located in the United States.
Proved reserves are estimated reserves of cured oil (including condensate and
natural gas liquids) and natural gas that 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 expected to be recovered through existing wells,
equipment and operating methods.
The standardized measure of discounted future net cash flows is computed by
applying year-end prices of oil and gas (with consideration of price changes
only to the extent provided by contractual arrangements) to the estimated future
production of proved oil and gas reserves, less estimated future expenditures
(based on year-end costs) to be incurred in developing and producing the proved
reserves, less estimated future income tax expense (based on the year-end
statutory tax rates, with consideration of future tax rates already legislated)
to be incurred on pretax net cash flows less tax basis of the properties and
available credits, and assuming continuation of existing economic conditions.
The estimated future net cash flows are then discounted using a rate of 10
percent a year to reflect the estimated timing of the future cash flows.
-33-
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We have audited the year-end financial statements for Imperial Petroleum, Inc.
ended July 31, 2003. We consent to the use of the aforementioned audit report in
this registration statement.
BRISCOE, BURKE & GRIGSBY LLP
December 13, 2003
To Audit Committee of the Board of Directors of
Imperial Petroleum, Inc. and Subsidiaries
We have audited the financial statements of Imperial Petroleum, Inc. and
Subsidiaries ("the Company") for the year ended July 31, 2003, and have issued
our report thereon dated December 13, 2003. Professional standards require that
we provide you with the following information related to our audit.
Our Responsibility under Generally Accepted Auditing Standards
As stated in our engagement letter dated July 9, 2003, our responsibility, as
described by professional standards, is to plan and perform our audit to obtain
reasonable, but not absolute, assurance about whether the financial statements
are free of material misstatement. Because of the concept of reasonable
assurance and because we did not perform a detailed examination of all
transactions, there is a risk that material errors, fraud, or illegal acts, may
exist and not be detected by us.
As part of our audit, we considered the internal control of the Company. Such
considerations were solely for the purpose of determining our audit procedures
and not to provide any assurance concerning such internal control.
Other Information in Documents Containing Audited Financial Statements
Our responsibility for other information in documents containing the Company's
financial statements and report, such as an annual report, does not extend
beyond the financial information identified in the report. We do not have an
obligation to perform any procedures to corroborate other information contained
in these documents.
Significant Accounting Policies
Management has the responsibility for selection and use of appropriate
accounting policies. In accordance with the terms of our engagement letter, we
will advise management about the appropriateness of accounting policies and
their application. The significant accounting policies used by the Company are
described in Note 1 to the financial statements.
We noted no transactions entered into by the Company during the year that were
both significant and unusual, and of which, under professional standards, we are
required to inform you, or transactions for which there is a lack of
authoritative guidance or consensus.
To Audit Committee of the Board of Directors of
Imperial Petroleum, Inc. and Subsidiaries
Page 2
Accounting Estimates
Accounting estimates are an integral part of the financial statements prepared
by management and are based on management's knowledge and experience about past
and current events and assumptions about future events. Certain accounting
estimates are particularly sensitive because of their significance to the
financial statements and because of the possibility that future events affecting
them may differ significantly from those expected.
Estimates are also involved in the assignment of useful lives to premises,
equipment and intangible assets. Similarly, the accumulation of fair value
information for financial instruments requires significant assumptions and
considerable judgment. The results of these techniques are highly sensitive to
the assumption used, such as those concerning appropriate discount rates and
estimates of future cash flows. Accordingly, both the estimates recorded in the
financial statements and those disclosed in the notes to the financial
statements are not necessarily indicative of the amounts the Company could
realize in a current settlement of the underlying financial instruments. The
significant methods and assumptions used by the Company in estimating the fair
value of financial instruments are disclosed in Note 1 to the financial
statements.
We evaluated the key factors and significant assumptions used to develop these
estimates in determining that they are reasonable in relation to the financial
statements taken as a whole.
Significant Audit Adjustments
For purposes of this letter, professional standards define a significant audit
adjustment as a proposed correction of the financial statements that, in our
judgment, may not have been detected except through our auditing procedures.
These adjustments may include those proposed by us but not recorded by the
Company that could potentially cause future financial statements to be
materially misstated, even though we have concluded that such adjustments are
not material to the current financial statements. We proposed no audit
adjustments that could, in our judgment, either individually or in the
aggregate, have a significant effect on the Company's financial reporting
process.
Disagreements with Management
For purposes of this letter, professional standards define a disagreement with
management as a matter, whether or not resolved to our satisfaction, concerning
a financial accounting, reporting, or auditing matter that could be significant
to the financial statements or the auditor's report. We are pleased to report
that no such disagreements arose during the course of our audit.
Consultations with Other Independent Accountants
In some cases, management may decide to consult with other accountants about
auditing and accounting matters, similar to obtaining a "second opinion" on
certain situations. If a consultation involves application of an accounting
principle to the Company's financial statements or a determination of the type
of auditor's opinion that may be expressed on those statements, our professional
standards require the consulting accountant to communicate with us to determine
that the consultant has all the relevant facts. To the best of our knowledge,
there were no such consultations with other accountants during the past year.
To Audit Committee of the Board of Directors of
Imperial Petroleum, Inc. and Subsidiaries
Page 3
Issues Discussed Prior to Retention of Independent Auditors
We generally discuss a variety of matters, including the application of
accounting principles and auditing standards, with management each year prior to
retention as the Company's auditors. However, these discussions occurred in the
normal course of our professional relationship and our responses were not a
condition to our retention.
Difficulties Encountered in Performing the Audit
We encountered no significant difficulties in dealing with management in
performing our audit.
This information is intended solely for the use of the Board of Directors and
management of Imperial Petroleum, Inc. and Subsidiaries and should not be used
for any other purpose.
BRISCOE, BURKE & GRIGSBY LLP
Tulsa, Oklahoma
December 13, 2003
December 13, 2003
To the Audit Committee of
Imperial Petroleum, Inc. and Subsidiaries
We have audited the consolidated financial statements of Imperial Petroleum,
Inc. and Subsidiaries (the Company) for the year ended July 31, 2003. The
purpose of this letter is to satisfy our obligation under a new professional
standard established by the Independence Standards Board (ISB). ISB Standard No.
1, Independence Discussions with Audit Committees, establishes new communication
requirements for any auditor intending to be considered an independent
accountant with respect to a specific entity within the meaning of the
Securities Acts (Acts) administered by the Securities and Exchange Commission.
The standard applies to audits of the financial statements of all publicly held
companies and all privately held companies considering an offering of securities
to the public. The required communications follow:
We are, in our professional judgment, independent with respect to the
Company within the meaning of the Acts and other professional standards.
There are no relationships between Briscoe, Burke & Grigsby LLP and the
Company and its related entities, that, in our professional judgment, may
be reasonably thought to bear on independence.
We discussed our independence with Jeff Wilson before issuance of our
engagement letter dated July 9, 2003.
BRISCOE, BURKE & GRIGSBY LLP
Tulsa, Oklahoma
CONSENT OF INDEPENDENT AUDITOR
We consent to the incorporation by reference in the registration statement of
Imperial Petroleum, Inc. (the "Company") on Form S-8, of our report dated
December 13, 2003, on our audit of the consolidated financial statements of the
Company as of July 31, 2003, and for each of the years ended July 31, 2003 and
2002, which report is included in the Company's Annual Report on Form 10-K.
BRISCOE, BURKE & GRIGSBY LLP
Certified Public Accountants
2003