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SECURITIES EXCHANGE COMMISSION
Washington D.C 20549
(Mark One)
FORM 10-Q
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended April 30, 2004
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.)
329 Main Street, Suite 801
Evansville, Indiana 47708
(Zip Code)
Registrant's telephone number,
including area code (812) 867-1433
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes__X__ No ____ -
On April 30, 2004, there were 37,298,103 shares of the Registrant's common
stock issued and outstanding.
IMPERIAL PETROLEUM, INC.
Index to Form 10-Q for the Quarterly Period
Ended April 30, 2004
PART I - FINANCIAL INFORMATION
Item 1.
Financial Statements.
Page
Consolidated Balance Sheets as of July 31, 2003 and April 30, 2004 4-5
Consolidated Statements of Operations for the three months ended 6
April 30,2004 and 2003.
Consolidated Statements of Cash Flows for the nine months ended 7
April 30, 2004 and 2003
Notes to Consolidated Financial Statements
8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations. 12
PART II - OTHER INFORMATION
The information called for by Item 1. Legal Proceedings, Item 2. 18
Changes in Securities, Item 3. Default Upon Senior Securities,
Item 4. Submission of Matters to a Vote of Security Holders, Item
5. Other Information and Item 6. Exhibits and Reports on Form 8-
K have been omitted as either inapplicable or because the answer
thereto is negative, except as discussed.
SIGNATURES 19
Cautionary Statement Regarding Forward Looking Statements
In the interest of providing the Company's stockholders and potential investors
with certain information regarding the Company's future plans and operations,
certain statements set forth in this Form 10-Q relate to management's future
plans and objectives. Such statements are "forward-looking statements" within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Act of 1934, as amended. Although any forward
looking statements contained in this Form 10-Q or otherwise expressed on behalf
of the Company are, to the knowledge and in the judgement of the officers and
directors of the Company, expected to prove to come true and to come to pass,
management is not able to predict the future with absolute certainty. Forward
looking statements involve known and unknown risks and uncertainties which may
cause the Company's actual performance and financial results in future periods
to differ materially from any projection, estimate or forecasted result. These
risks and uncertainties include, among other things, volatility of commodity
prices, changes in interest rates and capital market conditions, competition,
risks inherent in the Company's operations, the inexact nature of interpretation
of seismic and other geological, geophysical, petro-physical and geo-chemical
data, the imprecise nature of estimating reserves and such other risks and
uncertainties as described from time to time in the Company's periodic reports
and filings with the Securities and Exchange Commission. Accordingly
stockholders and potential investors are cautioned that certain events or
circumstances could cause actual results to differ materially from those
projected, estimated or predicted.
Part I
Financial Information
IMPERIAL PETROLEUM, INC.
CONSOLIDATED BALANCE SHEET
UNAUDITED
(April 30, 2004)
30-April-04 31-Jul-03
ASSETS
Current Assets
Cash $ 159,533 $ 0
Accounts Receivable 29,597 0
Other current assets 4,597 84,392
Total 193,727 84,392
Property, Plant and Equipment
Oil and gas property 11,926,308 1,389,067
Accumulated DD&A (148,675) 0
Oil & Gas properties, Net 11,777,633 1,389,067
Other Property, Plant & Equipment 296,841 41,760
Acquisition in Progress 0 980,211
Net property, plant and equipment 12,074,474 2,411,038
Other Assets
Capitalized Fees 1,193,833 0
Other non-current assets 0 40,304
Total other assets 1,193,833 40,304
TOTAL ASSETS $13,595,574 $2,535,734
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities
Accounts payable $479,892 $179,974
Accrued expenses 540,218 501,389
Notes payable-related party 590,432 741,517
Note payable 643,138 691,400
Total current liabilities 2,253,680 2,114,280
Non-current Liabilities
Minority Interests 0 353,520
Long Term Debt 12,122,036 0
Total non-current liabilities 12,122,036 353,520
Stockholder's Equity
Common stock 224,389 185,689
Additional paid-in capital 7,834,283 6,972,581
Treasury stock -707,304 -707,304
Retained earnings -8,131,510 -6,383,032
Total stockholder's equity -780,142 67,934
Total Liabilities and Stockholder's Equity $13,595,574 $2,535,734
IMPERIAL PETROLEUM,INC.
CONSOLIDATED STATEMENT OF OPERATIONS
UNAUDITED
Three Months Ending Nine Months Ending
04/30/04 04/30/03 04/30/04 04/30/03
Operating Income:Oil and gas revenue $685,350 4,839 809,944 9,653
Management and fee income 0 30,000 60,000 60,000
Total operating income 685,350 34,839 869,942 69,653
Operating Expenses:
Oil and gas lease operations 218,541 5,493 264,174 8,965
Dry Hole costs 0 0 0 0
Mining operating expense 0 0 0 1,923
General and administrative expense 95,309 40,418 587,559 138,789
Depreciation and depletion 118,597 0 158,594 0
Total operating expense 432,447 45,911 1,010,327 149,677
Income/Loss from operations 252,903 -11,072 -140,385 -80,024
Other Income/expense
Interest -371,015 -6,538 -557,631 -9,882
Loss on write-down of mining equipment 0 0 0 0
Gain/ loss on sale of assets 0 0 -17,635 0
Other 0 0 0 0
Total other income/expense -371,015 -6,538 -575,266 -9,882
Net Loss Before Income Taxes -118,112 -4,534 -690,016 -89,906
& Extraordinary Items
Extraordinary Items -822,506 0 -822,506 0
Provision for Income Taxes
Current 0 0 0 0
Deferred 0 0 0 0
Total benefit from income taxes 0 0 0 0
Net Income/Loss -940,618 -4,534 -1,512,522 -89,906
Income/Loss per share (0.025) (0.000) (0.041) (0.003)
Weighted average shares outstanding 37,298,103 25,924,885 37,298,103 25,924,855
IMPERIAL PETROLEUM, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
UNAUDITED
Nine Months Ending
04/30/04 04/30/03
Net cash provided by (used in) operations $ -912,456 $-182,832
Net cash provided by (used in) investing activities:
Capital additions and property acquisitions -13,500,505
Disposition 0 0
Other -66,238 -1,449,022
Total -13,566,743 -1,467,022
Net cash provide by (used in) financing activities:
Long Term Debt 12,190,584 0
Minority Interests -353,520 0
Issuance of common stock 38,700 108,105
Deferred Revenue 0 0
Increase in Notes Payable -68,458 -6,800
Beginning balance equity 0 0
Paid-in Capital 861,702 1,539,522
Total 12,668,918 1,640,827
Increase in cash and equivalents -1,810,281 -2,011
Cash and cash equivalents at beg of period 709,654 2,869
Cash and cash equivalents at end of period 159,534 858
Supplemental disclosures of Cash Flow Information
Interest 557,631 8,187
Cash paid during the period for:
Income taxes 0 0
For the purposes of cash flows, the Company considers all highly liquid debt
instruments Purchased with a maturity of three months or less to be cash
equivalents.
PART I - FINANCIAL INFORMATION
IMPERIAL PETROLEUM, INC.
Notes to Consolidated Financial Statements
Unaudited
April 30, 2004
(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"), and Phoenix Metals, Inc., a Texas corporation ("Phoenix")., Warrior
Resources, Inc.,. Premier and IB Energy, Inc. were sold effective July 31, 1996.
LRI and Phoenix were acquired effective April 30, 1997. Eighty- percent control
of SilaQuartz was acquired effective November 23, 1998 as an investment and sold
in 2000. 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 acquired a total
interest of 36% and management control of Warrior Resources, Inc. ("Warrior") an
Oklahoma corporation, effective February 13, 2002. The investment in Warrior was
accounted under the equity method until January 16, 2004 at which time the
Company acquired the assets and certain liabilities of Warrior. The Company
retained its stock ownership in Warrior.
The Company
Imperial Petroleum, Inc., a Nevada corporation ("the Company"), is a diversified
energy and mining company with its primary focus on oil and gas production and
acquisitions and is headquartered in Evansville, Indiana. The Company, as a
result of the recent acquisition of certain oil and gas assets from Warrior
Resources, Inc. and from Hillside Oil & Gas LLC, ("Hillside") now operates
approximately 146 oil and gas wells in New Mexico, Texas, Louisiana, and
Mississippi and has an interest in some 230 royalty properties in eleven states.
At April 30,2004, the Company owns and operates approximately 146 oil and gas
wells that are currently producing 193 Bopd and 1,328 Mcfpd. The Company is
actively engaged in returning several of the wells acquired from Hillside back
to production that are presently not producing due to minor repair work and
expects to return to production levels of 280 Bopd and 1.6 MMcfpd. The Company
is also actively engaged in a workover program to complete some of its behind
pipe zones in inactive wells to production. Engineering estimates (conducted by
third party engineering firms) of the Company's net proven oil and natural gas
reserves as of April 30, 2004 (Third party estimates as of January 1, 2004 and
rolled forward by the Company to April 30, 2004 and adjusted for prices) are
approximately 29,447 MMCF of gas and 1,299 MBBL of oil. Estimates of future cash
flows to the Company's net interest and discounted at 10% are approximately
$57,734 M$.
The Company is the operator of the Duke Gold Mine in Utah, although no
significant operations occurred during the prior fiscal year.
As a result of its recent financing, the Company is continuing to seek
acquisitions of oil and gas properties with development opportunities. The
Company closed the acquisition of a 16% working interest in the Coquille Bay
field of south Louisiana in late May 2004 and has announced pending acquisitions
of oil and gas interests from Arkana Operating and from Caltex Energy Company.
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.
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 had the right to receive
$200,000 or an equivalent value in shares of Warrior valued at $0.02 per share.
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) extinguishment 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 closed the Warrior asset acquisition in January 2004. (See Form 8-K
filed January 29,2004).
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
has been delayed to allow the Company to qualify as an operator in the State of
Kentucky.
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 consolidated 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. 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 sale, the Company
received $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. The Powder River sale was closed December 17, 2003. (See Form 8-K filed
December 29, 2003 and amended Form 8-K filed February 23, 2004 with financial
information).
On July 7, 2003 the Company agreed to acquire the assets of Hillside Oil & Gas
LLC. The transaction was closed on January 16, 2004. Under the terms of the
agreement and amendments thereto, the Company acquired 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 operated some 113 wells
in Texas, New Mexico and Louisiana and as a result of the transaction,
operations have been assumed by the Company. (See Form 8-K filed January 29,
2004).
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.
On January 16, 2004 the Company completed the above-mentioned acquisitions of
the assets of Hillside and Warrior for a total consideration of approximately
$12.6 million including broker and financing fees. As a result of the closing,
the Company incurred long term debt in the amount of approximately $11.0
million, including approximately $0.25 million in working capital and $0.6
million in capital available for workovers. The total debt facility is an $18.0
million revolving loan and is based upon a periodic evaluation of the Company's
reserves by the lender. (See Form 8-K dated January 29, 2004.) (Refer to Capital
Resources and Liquidity below for more details about the terms of the debt
financing.)
Subsequent Events:
Subsequent to the end of the quarter, the Company completed the acquisition of a
16% non-operated working interest in the Coquille Bay Field of south Louisiana
from Royal-T oil Company for $800,000 which was funded out of additional
borrowings from the Company's revolving line of credit. The Company estimates
the acquisition will add approximately 160,000 barrels of oil and 1.2 Bcf of gas
reserves and will generate a discounted present worth of $5.1 million net to the
Company's interest. The properties are located in Placquemines Parish,
Louisiana. Production is anticipated to begin in July 2004.
The Company announced it has signed a definitive agreement to acquire a 50%
working interest position in certain wells and leases owned by Arkana Operating
Company located in the prolific Arkoma Basin of Oklahoma and Arkansas for
$917,000. The Company estimates the current proved reserves discounted at 10% to
be approximately $1.7 million for the 5 operated and 14 non-operated wells
presently drilled and producing on the acreage. The acreage position consists of
approximately 17,500 acres of leases assembled by Arkana with expiration dates
in 2007 and 2008 and were developed based upon 2-D seismic and well control
data. Upon closing, anticipated in June 2004, the Company will operate the
project.
The Company announced a definitive purchase and sale agreement to acquire 31
wells and associated leases in Guadalupe county, Texas for the development of
proved behind pipe reserves of approximately 300,000 bbls. The company has
agreed to issue a total of 1.375 million shares of its restricted common stock
in connection with the acquisition. Closing is expected in June 2004.
(2) ACCOUNTING POLICIES
The accompanying unaudited financial statements have been prepared in accordance
with the instructions to Form 10-Q and do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of only normal recurring items) considered necessary for a fair presentation
have been included. These statements should be read in conjunction with the
Ridgepointe Mining Company financial statements and notes thereto as of July 31,
1995 which are included in the Company's Form 8-K disclosure statement for the
reverse acquisition by Ridgepointe of Imperial and included herein by this
reference.
(3) NOTES PAYABLE
The Company enters into private notes primarily from its major shareholders from
time-to-time in the course of funding its mining and other activities. As of
April 30, 2004, the Company had a total of 6 notes payable to individuals and
private companies totaling $1.682 million, in principal and accrued interest
thereon, of which $1.25 was with its Chairman and President. A total of $0.71
million in notes resulted from the purchase of Hillside and of that amount $0.44
million are secured by shares of the Company's common stock. The Company made
payments during the most recent quarter to non-affiliate note holders totaling
$147,463 to reduce the accrued principal and interest balance. The Company's
President and Chairman has, subsequent to the end of the quarter, agreed to
exercise certain warrants he holds in the amount of 1,000,000 shares at $0.25/sh
and 200,000 shares at $0.18 per share and reduce the amount of the note payable
and accrued interest thereon by $286,000.
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 (iv) the level of and
interest rates on borrowings and (v) the timing of acquisitions. As a result of
the acquisition of the Warrior and hillside assets and the successful
implementation of a workover program, the Company now has positive cash flow
from its operations. The same factors listed above will apply to the sale of
minerals and metals mined by the Company as well as oil and natural gas produced
by the Company. As the Company initiates production on its mining properties,
results of operations will be affected by: (i) commodity prices for gold. (ii)
the quantity and quality of the gold ore recovered and processed and (iii) the
level of operating expenses associated with the mining operations.
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 $40.00 per barrel range
as a result of concerns over supplies while natural gas prices have reached
highs of $7.00 per MMBTU during the winter months and are currently averaging
$6.00 per MMBTU. The Company expects energy prices to continue to be volatile in
the future, particularly in light of continued terrorist activities in the
Middle East and elsewhere and the continued strong demand for petroleum products
as the economies of the world maintain strong growth patterns. The Company has
entered into hedging contracts with respect to a portion of its oil and gas
production to minimize any significant downward energy price adjustments. The
Company is also continuing to review additional hedging opportunities for its
production in view of the substantially increased prices available today.
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 $395.00 per ounce and have increased recently as a
result of instability in the financial markets due to the events of 9/11/01.
Gold prices are expected to continue to remain at or near those levels. The
Company does not expect to realize any substantial revenues from the sale of
gold in the near future.
Three Months Comparison
Quarter ended April 30, 2004 compared to Quarter ended April 30, 2003. Revenues
for the three months ending April 30, 2004 were $685,350 compared to revenues of
$34,839 for the comparable quarter ended April 30, 2003. Revenues reflect the
oil and gas sales from the Hillside and Warrior properties acquired in January
2004. Current monthly revenues are approximately $267,000 and are expected to
continue to rise as a result of increased production and increased prices for
products. The recently closed Coquille Bay acquisition is expected to begin
generating revenue in July 2004.
Oil and gas production and mining operating expenses were $218,541 for the
quarter ended April 30, 2004 compared to $5,493 for the quarter ended April 30,
2003 and represent lease operating expenses from oil and gas interests owned by
the Company and minimal expenses incurred on the Duke mine. No significant
operations were conducted during the quarter on the Duke gold mine. Operating
expenses are expected to increase when operations and production on the Coquille
Bay acquisition begin in July 2004.
General and administrative costs were $95,309 for the three months ending April
30, 2004 compared to $40,418 for the same period a year earlier and primarily
reflects the increased level activity of the Company as a result of its recent
acquisitions. G&A should continue to increase as the Company adds additional
staff and begins continuous mining operations. Net Interest expense for the
quarter were $371,015 in 2004 compared to $6,538 for the same period in 2003 and
reflects the higher borrowings by the Company as a result of its acquisition
facility. Interest expenses will continue to increase as the Company continues
to acquire assets with debt financing.
The Company had an after-tax net loss of $940,618 ($0.025 per share) for the
quarter ended April 30, 2004 compared to a net loss of $4,534 ($0.000 per share)
for the comparable quarter a year earlier. The loss includes workovers that were
expensed in the quarter totaling $822,506. Cash flow from operations was
$371,500 for the quarter ending April 30,2004. The Company expects its net loss
to increase until it completes the remedial work program on its properties,
anticipated through July 2004.
Nine Months Comparison
Nine Months ended April 30, 2004 compared to Nine Months ended April 30, 2003.
Revenues for the nine months ending April 30, 2004 were $869,942 compared to
revenues of $69,653 for the comparable period ended April 30, 2003 and reflects
revenue from oil and gas production and sales due to the previously discussed
acquisitions.
Production and mining operating expenses were $264,174 for the nine months ended
April 30, 2004 compared to $10,888 for the period ended April 30, 2003.
Operating costs, including production taxes are expected to increase as
production levels increase due to workovers and acquisitions. No significant
operations were conducted during the period on the Duke mine. The Company
expects its operating expenses for mining operations to increase significantly
upon installation of its permanent plant at the Duke Mine.
General and administrative costs were $587,559 for the nine months ending April
30, 2004 compared to $138,789 for the same period a year earlier. The increased
G&A expenses are the result of expenses incurred for legal, land and accounting
efforts in the closing of the acquisitions in January 2004. G&A levels are
projected at about $250,000 per quarter in subsequent periods with operations at
the current levels. Interest expense for the period increased from $9,882 in
2003 to $557,631 for the same period in 2004 due to increased interest as a
result of the revolving financing agreement entered into by the Company in
January 2004.
The Company had an after-tax net loss of $1,512,522 ($0.041 per share) for the
nine months ended April 30, 2004 compared to a net loss of $89,906 ($0.003 per
share) for the comparable period a year earlier. The increase in net loss in
income is attributable to extraordinary costs associated with the acquisitions
of the Hillside and Warrior assets (approximately $566,072), workovers that have
been expensed in the amount of $822,506 and non-cash charges to earnings for
depreciation, depletion and amortization of $158,594.
CAPITAL RESOURCES AND LIOUIDITY
Because of the closing of the Hillside and Warrior asset acquisitions, the
Company's capital requirements relate primarily to the remedial efforts to
return the Hillside wells to production and to workover operations on various
Warrior wells to increase production. The Company has a great deal of
flexibility in the timing and amount of these expenditures. Capital expenditures
for the most recent quarter totaled $968,300 which was funded from borrowings
under the Company's credit facility and out of cash flow generated by the
properties.
As a result of the inability of the Company to raise capital, Management decided
to terminate all of the Company's mining lease commitments except the Duke Gold
Mine in Utah during fiscal 2000. As a result, the Company is active in only one
mine that will require significant capital expenditures. Presently the Company
is seeking a capital partner to assist in the development of the mine. 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 mining properties in
a continuous manner in the future, Management believes the Company will need to
raise capital from outside sources during fiscal 2004 or will need to sell down
its interest or otherwise joint venture its mining operations. Management has
decided to seek a partner for the Duke Mine and focus its management resources
and limited capital on the oil and natural gas properties acquired from Hillside
and Warrior and to focus on additional acquisitions in the oil and gas sector.
As a result of the Hillside and Warrior acquisitions, the Company completed an
$18 million revolving financing of which approximately $11 million was required
at closing, including approximately $0.25 million in working capital and $0.6
million in development capital for workovers. The availability under the
revolving loan is subject to semi-annual evaluations of the Company's oil and
gas reserve base as determined by the Lender and is reduced monthly based upon
re-determinations by the Company after taking into effect price changes and net
production. As of the closing date of January 16, 2004, the Company had
available borrowing capacity of approximately $12 million based upon the current
oil and gas properties acquired from Warrior and Hillside. Under monthly
calculations of the Borrowing Base, adjusted for production and prices, the
calculated Borrowing Base as of April 30, 2004 was approximately $14.0 million.
The Revolving Loan has a term of 3 years (January 15, 2007) and an interest rate
of Prime Rate plus 8% (Interest Rate for April 2004 was 12%). The Revolving Loan
is subject to the normal and customary financial covenants and is secured by a
first mortgage and lien right to all of the Company's operations and assets. In
connection with the Revolving Loan, the Company also completed a subordinated
financing of approximately $650,000 with a Bank. The terms of the Subordinated
Financing are a term of 4 years from the closing date (January 15, 2004) and an
interest rate of 4% per annum paid in kind and accrued to the loan balance due
at maturity. The Company can retire the Subordinated debt only after payment of
the Revolving Loan with a discount of 10% of the principal amount if paid on or
before 6/30/04 and a discount of 5% of the principal amount if paid on or before
December 31, 2004.
The timing of expenditures for the Company's mining and oil and natural gas
activities are generally distributed over several months, and as such, the
Company anticipates its current working capital will be sufficient to meet its
capital expenditures. The Company has no immediate plans to spend any capital on
the Duke Mine during the present fiscal year. The Company believes it will be
required to access outside capital either through debt or equity placements or
through joint venture operations with other mining companies to develop the Duke
Mine. 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
mining activities may need to be curtailed, deferred or abandoned entirely.
The level of the Company's capital expenditures will vary in the future
depending on commodity market conditions and upon the level of oil and gas
activity achieved by the Company and the success of its remedial and workover
operations. The Company anticipates that its cash flow will be sufficient to
fund its operations at their current levels and that no additional funds or
borrowings will be required. Because the timing of acquisitions of additional
oil and gas properties is uncertain, additional borrowings will be required to
fund new acquisitions and the timing of those borrowings is uncertain.
The Company has obtained certain unsecured loans from its Chairman and
President, Jeffrey T. Wilson, which total in principal approximately $590,433 as
of April 30, 2004. 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 need to borrow additional funds from these
sources in the future and the existing credit facilities will be sufficient to
fund the Company's ongoing needs.
At April 30, 2004, the Company had current assets of $193,727 and current
liabilities of $2,253,680, which resulted in negative working capital of
$2,059,953. The negative working capital position is comprised of trade accounts
payable including accounts of Hillside and Warrior assumed by the Company as a
result of the acquisition of $479,892, of accrued expenses payable of $540,218
primarily to the Company's President for interest and accrued salaries, notes
payable to the Company's President of $590,432, and third party notes payable of
$643,138. As of April 30, 2004 the Company had cash of $159,533.
Oil and Gas Hedging
As a requirement of the financing commitment, the Company purchased certain
hedging contracts at closing of the Hillside and Warrior acquisitions designed
to place a "floor" price on at least 25% of the Company's anticipated monthly
production at a level acceptable to the lender. The Company purchased one "put"
option crude oil contract per month through August 2004 at a strike price of
$25.00 Bbl and one "put" option natural gas contract through August 2004 at a
strike price of $4.00 per MMBtu.
SEASONALITY
The results of operations of the Company are seasonal due to seasonal
fluctuations in the market prices for crude oil and natural gas. Due to these
seasonal fluctuations, results of operations for individual quarterly periods
may not be indicative of results, which may be realized on an annual basis.
INFLATION AND PRICES
The Company's revenues and the value of its oil and natural gas and mining
properties have been and will be affected by changes in the prices for crude
oil, natural gas and gold prices. 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 Form 8-K filed December 29, 2003
regarding the Sale Control of Powder River basin Gas Corporation.
Amended Form 8-K filed February 23, 2004 with Financial
information as required. Form 8-K filed January 29, 2004
regarding the completion of the acquisition of the assets of
Warrior Resources, Inc. and Hillside Oil & Gas LLC and the
completion of financing in connection with these acquisitions.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned there unto duly authorized.
Imperial Petroleum, Inc.
By: /s/ Jeffrey T. Wilson
---------------------
Jeffrey T. Wilson,
President and Chief
Executive Officer
Dated: June 1, 2004
CERTIFICATION
I, Jeffrey T. Wilson (President) certify that:
1. I have reviewed this quarterly report on Form l0-Q of Imperial Petroleum,
Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. I am responsible for establishing and maintaining disclosure controls and
procedures (as defined in the Securities Act of 1934 Rules 13a-l4 and 15d-l4)
for the registrant and have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to me by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report are my conclusions about the effectiveness
of the disclosure controls and procedures based on my evaluation as of the
Evaluation Date;
5. I have disclosed, based on my most recent evaluation, to the registrant's
auditors and the audit committee of registrant's board of directors (or persons
performing the equivalent functions):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. I have indicated in this quarterly report whether there were significant
changes in internal controls or in other factors that could significantly affect
internal controls subsequent to the date of my most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: 6/1/04 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 January 31, 2004, Jeffrey T.
Wilson hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the SARBANES - OXLEY Act of 2002, that to the best of his
knowledge:
1. The quarterly report fully complies with the requirements of Section 13(a) of
the Securities Act of 1934; and
2. The information contained in the quarterly report fairly presents, in all
material respects, the financial condition and results of operations of the
Company.
Date: 6/1/04 By: /s/ Jeffrey T. Wilson, President & CEO