SECURITIES EXCHANGE COMMISSION
Washington D.C 20549
(Mark One)
FORM 10-Q
XX ANNUAL REPORT
PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended October 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 of (IRS Employer
incorporation or organization) identification No.)
11600 German Pines Dr.
Evansville, Indiana 47725
(Zip Code)
Registrant's telephone number,
including area code (812) 867-1433
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes__X__ No ____
On October 31, 2003, there were 34,948,103 shares of the Registrant's common
stock issued and outstanding.
IMPERIAL PETROLEUM, INC.
Index to Form 10-Q for the Quarterly Period
Ended October 31, 2003
PART I - FINANCIAL INFORMATION
Item 1.
Financial Statements.
Page
Consolidated Balance Sheets as of July 31, 2003 and October 31, 2002 4-5
Consolidated Statements of Operations for the three months and
the nine months ended October 31,2003 and 2002. 6
Consolidated Statements of Cash Flows for the three months ended 7
October 31, 2003 and 2002
Notes to Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations. 13
PART II - OTHER INFORMATION
The information called for by Item 1. Legal Proceedings, Item 2. 20
Changes in Securities, Item 3. Default Upon Senior Securities,
Item 4. Submission of Matters to a Vote of Security Holders, Item
5. Other Information and Item 6. Exhibits and Reports on Form 8-
K have been omitted as either inapplicable or because the answer
thereto is negative, except as discussed.
SIGNATURES 23
Cautionary Statement Regarding Forward Looking Statements
In the interest of providing the Company's stockholders and potential investors
with certain information regarding the Company's future plans and operations,
certain statements set forth in this Form 10-Q relate to management's future
plans and objectives. Such statements are "forward-looking statements" within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Act of 1934, as amended. Although any forward
looking statements contained in this Form 10-Q or otherwise expressed on behalf
of the Company are, to the knowledge and in the judgement of the officers and
directors of the Company, expected to prove to come true and to come to pass,
management is not able to predict the future with absolute certainty. Forward
looking statements involve known and unknown risks and uncertainties which may
cause the Company's actual performance and financial results in future periods
to differ materially from any projection, estimate or forecasted result. These
risks and uncertainties include, among other things, volatility of commodity
prices, changes in interest rates and capital market conditions, competition,
risks inherent in the Company's operations, the inexact nature of interpretation
of seismic and other geological, geophysical, petro-physical and geo-chemical
data, the imprecise nature of estimating reserves and such other risks and
uncertainties as described from time to time in the Company's periodic reports
and filings with the Securities and Exchange Commission. Accordingly
stockholders and potential investors are cautioned that certain events or
circumstances could cause actual results to differ materially from those
projected, estimated or predicted.
Part I
Financial Information
IMPERIAL PETROLEUM, INC.
CONSOLIDATED BALANCE SHEET
UNAUDITED
(October 31, 2003)
31-Oct-03 31-Jul-03
ASSETS
Current Assets
Cash $ -12,112 $ 0
Accounts Receivable 0 0
Notes Receivable 4,597 0
Prepaids 84,392 84,392
Total 76,877 84,392
Property, Plant and Equipment
Oil and gas property(full cost) 1,389,067 1,389,067
Other depreciable equipment 0 0
Mining claims, options and development costs 41,760 41,760
Acquisition in Progress 1,000,309 980,211
Less Accumulated Depreciation 0 0
Net property, plant and equipment 2,431,136 2,411,038
Other Assets
Investment in subsidiary 40,304 40,304
Notes receivable 10,586 0
Other non-current assets 0 0
Total other assets 50,890 40,304
TOTAL ASSETS $ 2,558,903 $2,535,734
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities
Accounts payable $179,974 $179,974
Accounts payable-other 0 0
Accrued expenses 564,978 501,389
Unearned revenue 0 0
Notes payable 493,400 691,400
Notes payable-related party 740,617 741,517
Total current liabilities 1,978,969 2,114,280
Non-current Liabilities
Notes payable, less current portion 0 0
Total non-current liabilities 0 0
Minority Interest 353,520 353,520
Stockholder's Equity
Common stock 198,289 185,689
Additional paid-in capital 7,169,677 6,972,581
Treasury stock -707,304 -707,304
Retained earnings -6,430,401 -6,383,132
Other Comprehensive Income 0 0
Total stockholder's equity 230,664 67,934
Total Liabilities and Stockholder's Equity $2,558,903 $2,535,734
========== ==========
IMPERIAL PETROLEUM,INC.
CONSOLIDATED STATEMENT OF OPERATIONS
UNAUDITED
Three Months Ending
10/31/03 10/31/02
Operating Income:
Oil and gas revenue $2,143 $0
Management and fee income 44,000 0
Total operating income 46,143 0
Operating Expenses:
Oil and gas lease operations 2,824 0
Dry Hole costs 0 0
Mining operating expense 0 1,923
General and administrative expense 90,529 40,102
Depreciation and depletion 0 0
Total operating expense 93,353 42,025
Income/Loss from operations -47,210 -42,025
Other Income/expense
Interest -32,339 -24,427
Loss on write-down of mining equipment 0 0
Gain/ loss on sale of assets 0 0
Other 0 0
Total other income/expense -32,339 -24,427
Net Loss Before Income Taxes -79,549 -66,452
Provision for Income Taxes
Current 0 0
Deferred 0 0
Total benefit from income taxes 0 0
Net Income/Loss $(79,549) (66,452)
Income/Loss per share ($0.002) ($0.003)
Weighted average shares outstanding 30,948,103 22,140,255
========== ==========
IMPERIAL PETROLEUM, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
UNAUDITED
Three Months Ending
10/31/03 10/31/02
Net cash provided by (used in) operations -$187,177 -$215,656
Net cash provided by (used in) investing activities:
Capital additions and property acquisitions 0 0
Disposition 0 0
Other -57,684 -6,263
Total -57,684 -6,263
Net cash provide by (used in) financing activities:
Repurchase of common stock 0 0
Issuance of common stock 12,600 16,658
Deferred Revenue 0 0
Increase in Notes Payable -4,250 -4,800
Beginning balance equity 0 0
Paid-in Capital 197,400 204,292
Total 205,750 216,150
Increase in cash and equivalents -39,112 1,247
Cash and cash equivalents at beginning of period 0 -2,869
Cash and cash equivalents at end of period -12,112 4,116
Supplemental disclosures of Cash Flow Information
Interest 32,339 24,427
Cash paid during the period for:
Income taxes 0 0
For the purposes of cash flows, the Company considers all highly liquid debt
instruments Purchased with a maturity of three months or less to be cash
equivalents.
PART I - FINANCIAL INFORMATION
IMPERIAL PETROLEUM, INC.
Notes to Consolidated Financial Statements
Unaudited
October 31, 2003
(1) General
The accompanying interim condensed consolidated financial statements have been
prepared in accordance with the instructions for Form 10-Q. In the opinion of
management, all adjustments (consisting of normal recurring adjustments)
considered necessary for a fair statement of the results for the interim periods
presented have been included. Operating results for the periods presented are
not necessarily indicative of the results which may be expected for the year
ending July 31, 2004. These condensed interim consolidated financial statements
should be read in conjunction with the consolidated financial statements and
notes thereto included in the Company's Form 10-K for the year ended July 31,
2003.
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 October 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.
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.
(2) ACCOUNTING POLICIES
The accompanying unaudited financial statements have been prepared in accordance
with the instructions to Form 10-Q and do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of only normal recurring items) considered necessary for a fair presentation
have been included. These statements should be read in conjunction with the
Ridgepointe Mining Company financial statements and notes thereto as of July 31,
1995 which are included in the Company's Form 8-K disclosure statement for the
reverse acquisition by Ridgepointe of Imperial and included herein by this
reference. In connection with the acquisition of control of Warrior Resources,
Inc. the Company filed a Form 8-K on March 1, 2002 which is herein incorporated
by reference.
(3) NOTES PAYABLE
The Company enters into private notes primarily from its major shareholders from
time-to-time in the course of funding its mining and other activities. As of
October 31, 2003, the Company had a total of 6 notes payable to individuals and
private companies totaling $1.49 million in principal and accrued interest, of
which $ 1.34 million was with its Chairman and President.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
GENERAL
RESULTS OF OPERATIONS
The factors which most significantly affect the Company's results of operations
are (i) the sale prices of crude oil and natural gas, (ii) the level of oil and
gas sales., (iii) the level of lease operating expenses and (iv) the level of
and interest rates on borrowings. The Company will need to rely on the
initiation 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.
Three Months Comparison
Quarter ended October 31, 2003 compared to Quarter ended October 31, 2002.
Revenues from oil and gas production were $2,143 for the quarter ended October
31, 2003 compared to $0 revenues for the prior period. Revenues from management
fees were $44,000 for the current period compared to no revenues for the prior
period. Future revenues will be dependent upon the acquisition of additional oil
and gas properties and start-up of the Duke Gold Mine.
No significant operations were conducted during the quarter ended October 31,
2003. Operating expense from oil and gas interests owned by the Company were
$2,824 compared to no operating expenses for the prior period. The Company
expects its operating expenses for mining operations to increase significantly
upon installation of its permanent plant at the Duke Mine. In addition, with the
completion of the acquisitions of additional oil and gas properties, the Company
expects to begin to incur direct operating expenses.
General and administrative costs increased during the current quarter ended
October 31, 2003 with costs of $90,522 compared to $40,102 for the same period a
year earlier and reflect costs associated with the acquisition effort of the
Company. Overall Company G&A should continue to increase as the Company begins
continuous mining operations and completes its oil and gas acquisitions.
Interest expense for the quarter increased from $ 24,427 in 2001 to $ 32,339 for
the same period in 2003 and reflects the higher borrowings by the Company from
its Chairman.
The Company had an after-tax net loss of $79,549 ($0.002 per share) for the
quarter ended October 31, 2003 compared to a net loss of $66,452 ($0.003 per
share) for the comparable quarter a year earlier. The increase in net loss in
income is attributable primarily to increased general and administrative
expenses. The Company expects to continue to incur losses during its development
stage. The Company does not expect to generate significant income until its oil
and gas acquisitions are complete or its mining operations are in production.
CAPITAL RESOURCES AND LIOUIDITY
The Company's capital requirements relate primarily to its mining activities and
the expansion of those activities and the development of its oil and natural gas
business. Prior to the change in control, the Company funded its very limited
activities from cash flow. The Company, through its subsidiaries, had
established credit facilities with a bank to facilitate the funding of its
operations. As a result of the sale of its Premier Operating subsidiary in
October, 1996, the Company retired its principal bank debt and no longer has
access to financing from that source.
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 and accrued interest of approximately $1.34 million as of October
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 October 31, 2003, the Company had current assets of $76,877 and current
liabilities of $1,978,970, which resulted in negative working capital of
$1,920,093. The negative working capital position is comprised of accounts
payable of $179,974, notes payable to shareholders and related parties totaling
$740,617, accrued salaries and expenses totaling $564,979 and third party notes
payable of $493,400. 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 gold prices and the
prices for crude oil and natural gas. The Company's ability to obtain additional
capital on attractive terms is also substantially dependent on the price of
these commodities. Prices for these commodities are subject to significant
fluctuations that are beyond the Company's ability to control or predict.
PART II
OTHER INFORMATION
Item 1. Legal Proceedings.
The Company filed suit in Federal District Court in Tulsa County, Oklahoma
against Ravello Capital LLC on November 20, 2000. The suit alleged breach of
contract and sought to have the contract declared partially performed in the
amount of $74,800 and sought relief in the amount of $488,390 for the unpaid
consideration and punitive damages and attorneys fees. The Company received a
judgement award against Ravello in the amount of $488,390 and subsequently
collected and credited the judgement in the amount of $85,638.02 as a result of
the re-issuance of certain of its shares in Warrior, held by Ravello in escrow
and not released. The Company is pursuing the balance of the judgement against
Ravello.
Item 2. Changes in Securities. Not applicable.
Item 3. Defaults Upon Senior Securities. Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders. Not Applicable.
Item 5. Other Information. Not applicable.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits. Not applicable.
(b) Current Report on Form 8-K. Not applicable.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned there unto duly authorized.
Imperial Petroleum, Inc.
By: /s/ Jeffrey T. Wilson
Jeffrey T. Wilson,
President and Chief Executive Officer
Dated: December 17, 2003
CERTIFICATION
I, Jeffrey T. Wilson (President) certify that:
1. I have reviewed this quarterly report on Form l0-Q of Imperial Petroleum,
Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. I am responsible for establishing and maintaining disclosure controls and
procedures (as defined in the Securities Act of 1934 Rules 13a-l4 and 15d-l4)
for the registrant and have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to me by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report are my conclusions about the effectiveness
of the disclosure controls and procedures based on my evaluation as of the
Evaluation Date;
5. I have disclosed, based on my most recent evaluation, to the registrant's
auditors and the audit committee of registrant's board of directors (or persons
performing the equivalent functions):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. I have indicated in this quarterly report whether there were significant
changes in internal controls or in other factors that could significantly affect
internal controls subsequent to the date of my most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: 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 quarterly report of Imperial Petroleum, Inc. (the
"Company") on Form l0-Q for the quarter ended October 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 quarterly report fully complies with the requirements of Section 13(a) of
the Securities Act of 1934; and
2. The information contained in the quarterly report fairly presents, in all
material respects, the financial condition and results of operations of the
Company.
Date: 12/17/03 By: /s/ Jeffrey T. Wilson, President & CEO