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SECURITIES EXCHANGE COMMISSION
Washington D.C 20549
(Mark One)
FORM 10-K
ANNUAL REPORT
PURSUANT TO SECTION 13 OR 15(d)
OF THE
X SECURITIES EXCHANGE ACT OF
1934
For the fiscal year ended July 31, 2000
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 identification No.)
incorporation or organization)
100 NW Second Street
Suite 312
Evansville, Indiana 47708
Registrants telephone number,
including area code (812) 424-7948
Securities registered pursuant to Section 12(b) of
the Act: None.
Securities registered pursuant to Section 13(g) of
the Act:
Common Stock. $0.006 par value per share
(Title of class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes__X__ No ____
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of the Regulation K is not contained herein, and will not be contained to
the best of the Registrants knowledge in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.________
On July 3l, 2000, there were 12,504,165 shares of the Registrant's common
stock issued and outstanding.
The aggregate market value of the Registrant's voting stock held by
non-affiliates is $588,809. See Item5. Market for Registrant's Common Stock and
Related Stockholder Matters.
Documents Incorporated by Reference
NONE
1
IMPERIAL PETROLEUM, INC.
FORM 10-K
FISCAL YEAR ENDED JULY 3 l, 2000
TABLE OF CONTENTS
PART I
Page
Item 1. Business 1.
Item 2. Properties 1.
Item 3. Legal Proceedings 13.
Item 4. Submission of Matters to a Vote of Security Holders 13.
PART II
Item 5. Market for Registrant's Common Stock and
Related Stockholder Matters 14.
Item 6. Selected Financial Data 14.
Item 7. Management's Discussion and Analysis of Financial Condition 14.
And Results of Operations
Item 8. Financial Statements and Supplementary Data F-1 to F-7.
Item 9. Changes In and Disagreements with Accountants on Accounting
And Financial Disclosure 18.
PART III
Item 10. Directors and Executive Officers of the Registrant 19.
Item 11. Executive Compensation 20.
Item 12. Security Ownership of Certain Beneficial
Owners and Management 21.
.
Item 13. Certain Relationships and Related Transactions 21.
PART IV
Item 14. Exhibits, Financial Statement Schedules,
and Reports On Form 8-K 25.
Signature 26.
2
PART I
Item 1. Business and Item 2. Properties
Definitions
As used in this Form 10-K
"Mcf" means thousand cubic feet, "MMcf" means million cubic feet and "Bcf"'
means billion cubic feet "Mcfe" means thousand cubic feet equivalent, "Mmcfe"
means million cubic feet equivalent and "Bcfe" means billion cubic feet
equivalent. "Bbl" means barrel, "MBbls" means thousand barrels and "MMBbls"
means million barrels. "BOE" means equivalent barrels of oil and "MBOE" means
thousands equivalent barrels of oil. Unless otherwise indicated herein. natural
gas volumes are stated at the legal pressure base of the state or area in which
the reserves are located and at 60 degrees Fahrenheit. Natural gas equivalents
are determined using the ratio of six Mcf of natural gas to one Bbl of crude oil
The term "gross" refers to the total leasehold acres or wells in which the
Company has a working interest. The term "net" refers to gross leasehold acres
or wells multiplied by the percentage working interest owned by the Company.
"Net production" means production that is owned by the Company less royalties
and production due others.
"Proved reserves" are estimated quantities of crude oil, natural gas and
natural gas liquids, which geological and engineering data demonstrate with
reasonable certainty to be recoverable in future years from known reservoirs
under existing economic and operating conditions "Proved developed reserves" are
those reserves which are expected to be recovered through existing wells with
existing equipment and operating methods. "Proved undeveloped reserves" are
those reserves which are expected to be recovered from new wells on undrilled
acreage or from existing wells where a relatively major expenditure is required
for recompletion.
The term "oil" includes crude oil, condensate and natural gas liquids.
"Base Metals" refers to a family of metallic elements, including copper,
lead and zinc.
"Grade" refers to the metal or mineral content of rock, ore or drill or
other samples. With respect to precious metals, grade is generally expressed as
troy ounces per ton of rock.
"Mineable" refers to that portion of a mineral deposit from which it is
economically feasible to extract ore.
"Net Smelter Royalty" is a royalty based on the actual sale price received
for the subject metal less the cost of smelting and/or refining the material at
an offsite refinery or smelter along with off-site transportation costs.
"Patented Mining Claim" is a mining claim, usually comprising about 20
acres, to which the US Government has conveyed title to the owner.
"Unpatented Mining Claim" is a mining claim which has been staked or marked
out in accordance with federal and state mining laws to acquire the exclusive
rights to explore for and exploit the minerals which may occur on such lands.
The title to the property has not been conveyed to the holder of an unpatented
mining claim.
3
Unless the context requires otherwise, all references herein to the Company
include Imperial Petroleum, Inc., and its consolidated subsidiaries. Ridgepointe
Mining Company, a Delaware corporation ("Ridgepointe"), I.B. Energy, Inc., an
Oklahoma corporation ("I.B. Energy"), Premier Operating Company, a Texas
corporation ("Premier"), LaTex Resources International, a Delaware corporation
("LRI"), Phoenix Metals, Inc., a Texas corporation ('"Phoenix") , and Oil City
Petroleum, Inc. ("Oil City"), an Oklahoma corporation. Premier was sold
effective July 31, 1996. LRI and Phoenix were acquired effective April 30, 1997.
Eighty- percent control of SilaQuartz was acquired effective November 23, 1998
as an investment. The Company acquired 90% control of Oil City effective August
31, 1998 as an investment.
The Company
Imperial Petroleum, Inc., a Nevada corporation ("the Company"), is a
diversified energy, and mineral mining company headquartered in Evansville,
Indiana. The Company has historically been engaged in the production and
exploration of crude oil and natural gas in Oklahoma and Texas and has
diversified its business activities to include mineral mining, with a particular
emphasis on gold mining. The Company intends to utilize its oil and natural gas
assets to support and enhance its mining activities. The Company expects to
focus its future growth in both energy and mining ventures.
At July 31,2000, the Company had completed the acquisition of 90% control
of Oil City Petroleum, Inc. a Tulsa, Oklahoma based energy producer and Oil City
had subsequently sold its primary oil and gas assets to Comanche Energy, Inc.
("Comanche"). As a result, the Company became a significant shareholder in
Comanche. The Company does not presently operate any oil and natural gas
properties directly.
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
4
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.
The Company entered into negotiations during fiscal 1999 with Asia Pacific
Capital Corporation, a merchant banking firm located in Sydney, Australia, to
provide project financing for its mining and energy projects in connection with
an equity infusion. If completed under the present structure, Asia Pacific would
acquire 20 million shares of the Company's restricted common stock in exchange
for $12 million and a commitment to project finance up to $47 million of the
Company's mining and energy projects. Asia Pacific has encountered difficulties
in securing its funds to complete the proposed transaction, however, the Company
continues to work with Asia Pacific in furtherance of the original proposed
structure. No assurances can be given that Asia Pacific will complete its
funding and if completed will elect to finalize its plans to purchase shares of
stock from the Company.
5
Subsequent Events
Subsequent to year end and as a result of capital constraints, the Company
decided not to renew its mineral leases on any of its mineral claims except the
Duke Gold Mine in Utah. Management believes that the Company should focus all of
its resources and efforts into operations of the Duke Gold Mine and into the
development of its oil and natural gas business.
On October 19, 2000 the Company entered into an agreement to sell 5,231,901
shares of the common stock of Comanche Energy, Inc. to Ravello Capital, LLC for
$523,190 in cash. Ravello was to pay a total $74,800 in cash to a judgement
creditor of the Company and the balance was to be paid to Imperial. Under the
transaction, Ravello paid a total of $74,800 to the judgement creditor to
satisfy its claims and received delivery of the share certificates inot escrow
against delivery of the balance of the funds as agreed. Ravello did not complete
the payment to the Company as agreed. The Company filed suit in Federal Court in
Tulsa County to terminate the balance of the transaction and retrieve its
certificates. (See "Litigation").
On October 12, 2000 the Company entered into a no-cost option to purchase
42,300 acres of leases in southeastern Indiana from Deka Exploration, Inc. The
leases are located in the New Albany Shale Gas Play near Seymore, Indiana. Under
the terms of the Agreement, The Company, at its election, can participate in the
completion of the initial two wells that have been drilled on the acreage and
the drilling of a total of five additional wells prior to making its election to
purchase the acreage. During the option phase, the Company would pay 100% of the
costs of the completion and drilling operations. Upon its election to continue
with the project, the Company would own an 85% working interest in the acreage
and would be required to pay acreage costs of $10.00 per acre. The project is
scheduled to commence April 2001.
Business Strategy
The Company's business strategy has changed since the acquisition of
Ridgepointe in August 1993. In the past the Company has used its oil and gas
assets to provide the working capital necessary to expand and develop its
mineral mining activities. The Company's emphasis on mining ventures reflects
its belief that quality opportunities still exist in many areas of mineral
mining for small mining companies. The Company anticipates using partnership or
joint venture arrangements to avoid the large capital expenditures that can
accompany certain mining ventures. By seeking out small high quality claims and
operations in areas either by-passed or not yet occupied by major mining
concerns, the Company expects to position itself to take advantage of future
upswings in the demand for certain minerals such as gold, copper and platinum.
The Company intends to seek out opportunities in other commodities, particularly
in the energy business, that the Company believes may have the opportunity for a
cyclical improvement in demand and price.
Mining
The availability of a market for the Company's mineral and metal production
will be influenced by the proximity of the Company's operations to refiners and
smelting plants. In general the Company will sell its mined product to local
refineries and smelters. The price received for such products will be dependent
upon the Company's ability to provide primary separation to ensure fineness or
quality. The price of gold has been relatively stable in recent years reflecting
a period of relatively low inflation. Copper prices have generally been more
volatile, in part due to increased demand of developing economies for electrical
wire and other copper related products.
6
Changes in the price of gold and copper will significantly affect the
Company's future cash flows and the value of its mineral properties. The Company
is unable to predict whether prices for these commodities will increase,
decrease or remain constant in future periods.
Reserves
Mining
The following table sets forth estimates as of July 31, 2000 of the mineral
reserves net to the Company's interest in each of the Company's claim groups as
prepared by independent engineers and geologists and by the Company. These
estimates are based upon extensive sampling and testing on the Company's
properties and are based on assumptions the Company believes are reasonable
regarding production costs, metallurgical recoveries and mineral prices. There
are numerous uncertainties inherent in the preparation of estimates of reserves,
including many factors beyond the Company's control. The accuracy of any such
estimates is a function of the quality of available data and of engineering and
geological interpretation and judgement. It can be expected as the Company
conducts additional evaluation, drilling and testing with respect to its
properties that these estimates will be adjusted and that plans for mining could
be revised.
Based on its analysis of the mineral deposits detailed in the table below,
it is the Company's present determination that these properties can be mined on
an economic basis by the Company and that these estimates constitute reserves as
that term is typically used in the mining industry. Although permitting required
to initiate mining operations in the United States has become extremely complex
and cannot be considered a certainty, the company believes that, in the normal
course of property development, it should be able to obtain the necessary
permits to commence or expand mining operations on these properties.
The estimates provided in the table below utilize in place grades and do
not reflect losses that will be incurred in the recovery process. The mineral
grades utilized in the preparation of reserves for each property are generally
based upon results of sampling and testing programs conducted on each property
and analyzed by qualified assayers or engineers.
As of July 31.2000
Net Mineable Reserves
Claim Group Location Acres Gold Grade(oz/ton) Gold(oz) Silver(oz) Copper(lbs)
UFO Mine (l) Arizona 400 0 0 0 600,000
Duke Mine Utah 2,240 0.10 4,883,7500 0
Total 2,640 4,883,750 0 600,000
(1) Copper reserves are based upon 400 million pounds at an average grade
of 3% and adjusted for the Company's interest in the Joint Venture.
7
Principal Exploration and Development Projects: Mining ventures:
United States
UFO Mine - Until the formation of the Joint Venture, subsequent to year end
1998, the Company operated the UFO Mine and Rumico Millsite located in Yavapai
County, Arizona comprising some 400 acres of unpatented mining claims. The
principal resource discovered to date is copper. Strip mining operations were
initiated under a small miner's exemption July 1992 to verity the quality of the
ore body and evaluate the economics of the mine. A limited core-drilling program
was completed in March 1993 and a pilot operation was conducted using the
millsite facilities to determine actual recoveries of copper As a result the
Company has estimated the property's copper reserves at 12,000, 000 lbs. based
upon an average grade of 3%. Working capital limitations had limited the
Company's development of the mining property, in favor of other projects. And as
a result, the Company entered into a Mining Joint Venture in November 1997,
subsequent to year end. The property, was subject to an acquisition note with
the former owners requiring the payment of $1,000,000. The note had been
extended several times by the holder and the mining claims served as collateral
for the note The Company negotiated a Mining Joint Venture with Mr. Zane Pasma
in November 1997 that retired the note payable and secured the return of
1,000,000 shares of the Company's common stock (pre-split) for the assignment of
the Company's interest in the Lone Star claims and a contribution of the
Company's interest in the Congress Mill Site facility. The Company retained a 5%
carried interest in the Mining Joint Venture through the initial $6.0 million
spent by the Joint Venture to develop the property. Mr. Pasma manages the Mining
Joint Venture and began initial operations in 1998. The results of initial
recovery tests for platinum group metals was disappointing and the Joint Venture
Manager suspended operations to seek an industry partner or other financing for
the development of the copper and gold reserves known to exist on the claims.
The Company does not expect any activity during the current fiscal year.
Duke Mine - The primary focus of the Company during the past three years
has been the testing and the implementation of operations on the Duke Mine
located in San Juan County, Utah. The property comprises some 2,240 acres of
unpatented mining claims in the Dry Valley Gold Claim area. Access to the
property is excellent via blacktop roads adjacent to the claims. The property is
located some 20 miles south of Moab, Utah. The primary mineralization at the
Duke Mine occurs as microscopic g6ld located in very fine grain placer material.
Sieve analysis of the sand indicates that about 71 % of the material are larger
than 200 mesh. Recovery tests have been conducted on a grid sampling pattern
throughout the claim area utilizing the Cosmos Concentrator and indicate an
average recovery of 0.10 ounces/ton of free gold. Because of the nature of the
placer material and in particular its size, mining and process recovery
operations will be significantly simplified, thereby reducing costs. The company
has, subsequent to its initial reserve report, conducted additional recovery
tests utilizing other equipment in addition to the Cosmos Concentrator with
similar results. Water is readily available, however, drilling is required.
The Company began production at the Duke Mine during the first quarter of
fiscal 1998 on a pilot operation. A portable Cosmos Concentrator was purchased
and was moved on site. Initial operations were conducted at rates of 20 tons per
day and numerous tests were conducted. The Company spent approximately $185,000
to begin operations at this level and is operating under a small miner's permit
exemption. Pilot plant results were encouraging despite mechanical start-up
problems. Upon completion of its pilot tests, the Company suspended any further
operations until construction of a full-scale modular facility can be completed.
8
The facility is planned during the fourth quarter of the current fiscal year,
subject to capital availability, permitting and construction schedules, at a
cost of $5.0 million and with a capacity of 10,000 tons per day. The present
claims owned by the Company contain approximately 48,837,500 tons of placer
material. The Company anticipates obtaining additional claims in the vicinity of
the Duke Mine to further enhance its mineral resource in this area. Presently
there are 5 other companies active in the development of claims in the vicinity
of the Duke Mine with operations being established by one of the groups some 6
miles east of the Company's pilot plant location. The Company believes that it
will be successful in completing the financing during the current fiscal year to
provide the necessary funds for construction of the plant.
Principal Areas of Activity: Oil & Natural Gas
The Company has acquired an option on 42,300 acres of natural gas leases
located in the southeastern part of the Illinois Basin in the New Albany Shale
Gas Play. Specifically, the leases are located in southeastern Indiana and have
remaining primary terms of approximately four years. Deka Exploration Inc. of
Oklahoma City, OK originally assembled the acreage block and drilled two wells
that are presently cased through the New Albany section and are awaiting
completion and fracturing. The Company will own 85% of the acreage and will
become the operator. The Company has its corporate office in Evansville,
Indiana, some 45 miles from the leases.
The New Albany Shale has long been known to contain commercial amounts of
natural gas and has been produced in this area as far back as the late 1800's.
It has been the subject of a number of Department of Energy and other federally
funded studies as well as private efforts conducted by a consortium of operators
interested in the New Albany and Antrim Shale plays. Recently, with the increase
in natural gas prices and the increased demand for natural gas, the New Albany
Shale began to attract new attention. As shown on the attached Exhibit I, a
number of small operators are actively developing the New Albany in this portion
of the play. The primary benefits to the Imperial/Deka acreage position in this
area of the New Albany are the shallow depths encountered (less than 1,000
feet), good zone thickness (100-150 ft.) and excellent access to natural gas
pipelines (Exhibit II). Recent horizontal drilling efforts in the Corydon,
Indiana area some 20 miles southeast of the Imperial/Deka acreage have been
extremely encouraging with producing rates reported in excess of 1,000 mcf per
day.
Initially, the Company plans to complete, fracture stimulate and test the
existing two wells and drill and complete 5 new wells at a total cost of
approximately $1 million. Upon successful completion of this early phase of
drilling and production, the Company expects to begin a continuous drilling
program to develop as many as 250 wells on the acreage. Offset information and
engineering and geologic studies indicate that an average New Albany Shale Gas
well will produce at a rate of 100-200 mcf per day after de-watering of the
formation and will recover approximately 0.5 Bcf of natural gas. The Company
expects to recover approximately 90 Bcf of natural gas net to its 85% working
interest over the life of the wells and generate a present value discounted at
10% of $109.6 million after deducting development costs of $20.8 million. The
project expects to generate an overall rate of return in excess of 50% and a
return on capital of 5 to 1.
9
Competition
The acquisition of mining claims prospective for precious metals or other
minerals or oil and natural gas leases is subject to intense competition from a
large number of companies and individuals. The ability of Company to acquire
additional leases or additional mining claims could be curtailed severely as a
result of this competition.
The principal methods of competition in the industry for the acquisition of
mineral leases is the payment of bonus payments at the time of acquisition of
leases, delay rentals, advance royalties, the use of differential royalty rates,
the amount of annual rental payments and stipulations requiring exploration and
production commitments by the lessee. Companies with far greater financial
resources, existing staff and labor forces, equipment for exploration and
mining, and vast experience will be in a better position than the Company to
compete for such leases.
Government Contracts
No portion of the Company's business is subject to re-negotiation of
profits or termination of contracts or subcontracts at the election of the
Government.
Regulation
Federal, state and local authorities extensively regulate the oil and
natural gas and mining industry. Legislation affecting these industries is under
constant review for amendment or expansion. Numerous departments and agencies,
both federal and state, have issued rules and regulations binding on the oil and
natural gas and mining industry and their individual members some of which carry
substantial penalties for the failure to comply. The regulatory burden on these
industries increases their cost of doing business and consequently, affects
their profitability. Inasmuch as such laws and regulations are frequently
amended or reinterpreted, the Company is unable to predict the future cost or
impact of complying with such regulations.
The Company's operations are subject to extensive federal, state and local
laws and regulations relating to the generation, storage, handling, emission,
transportation and discharge of materials into the environment. Permits are
required for various of the Company operations, and these permits are subject to
revocation, modification and renewal by issuing authorities. Governmental
authorities have the power to enforce compliance with their regulations and
violations are subject to fines, injunctions or both. It is possible that
increasingly strict requirements will be imposed by environmental laws and
enforcement policies thereunder. The Company is also subject to laws and
regulations concerning occupational safety and health. It is not anticipated
that the Company will be required in the near future to expend amounts that are
material in the aggregate to the Company's overall operations by reason of
environmental or occupational safety and health laws and regulations but
inasmuch as such laws and regulations are frequently changed, the Company is
unable to predict the ultimate cost of compliance.
10
Title to Properties
Mining. The Company does not have title opinions on its mining claims or
leases and, therefore, has not identified potential adverse claimants nor has it
quantified the risk that any adverse claims may successfully contest all or a
portion of its title to the claims. Furthermore, the validity of all unpatented
mining claims is dependent upon inherent uncertainties such as the sufficiency
of the discovery of minerals, proper posting and marking of boundaries, and
possible conflicts with other claims not determinable from descriptions of
record. In the absence of a discovery of valuable minerals, a mining claim is
open to location by others unless the claimant is in actual possession of and
diligently working the claim (pedis possessio) No assurance can be given with
respect to unpatented mining claims in the exploratory stage that a discovery of
a valuable mineral deposit will be made.
To maintain ownership of the possessory title created by an unpatented
mining claim against subsequent locators, the locator or his successor in
interest must pay an annual fee of $200 per claim.
Oil & Natural Gas. The Company at present owns an option to acquire an 85%
interest in 42,300 acres of leases. No title opinions exist on the leases, since
it is customary within the industry to conduct title opinions at the time of
drilling. Prior to exercising its option, however, the Company will review the
validity and recording of the leases at the county courthouses in which the
properties are located.
Operational Hazards and Insurance
The operations of the Company are subject to all risks inherent in the
exploration for and operation of oil and natural gas properties, wells and
facilities and mines and mining equipment, including such natural hazards as
blowouts, cratering and fires, which could result in damage or injury to, or
destruction of, drilling rigs and equipment, mines, producing facilities or
other property or could result in personal injury, loss of life or pollution of
the environment. Any such event could result in substantial expense to the
Company which could have a material adverse effect upon the financial condition
of the Company to the extent it is not fully insured against such risk. The
Company carries insurance against certain of these risks but, in accordance with
standard industry practices, the Company is not fully insured for all risks
either because such insurance is unavailable or because the Company elects not
to obtain insurance coverage because of cost Although such operational risks and
hazards may to some extent be minimized. no combination of experience, knowledge
and scientific evaluation can eliminate the risk of investment or assure a
profit to any company engaged in mining operations.
Employees
The Company employs one person in its Evansville, Indiana office whose
functions are associated with management, operations and accounting. The Company
uses independent contractors to supervise its mining business.
11
Item 3. Legal Proceedings.
The Company filed suit in Federal District Court in Tulsa County, Oklahoma
against Ravello Capital LLC on November 20, 2000. The suit alleges breach of
contract and seeks to have the contract declared partially performed in the
amount of $74,800 and seeks relief in the amount of $488,390 for the unpaid
consideration and punitive damages and attorneys fees.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
PART II
Item 5. Market For Registrant's Common Stock; and Related Stockholder Matters.
The Company's common stock is traded in the over-the-counter market. From
1984 to 1997 trading had been so limited and sporadic that it was not possible
to obtain a continuing quarterly history of high and low bid quotations. Stock
information is received from registered securities dealers and reflects
inter-dealer prices, without retail mark-up, mark-down or commission and may not
necessarily represent actual transactions. The Company was advised that trading
in its shares resumed in September 1997 and the Company's stock was quoted at
approximately $0.25 per share in sporadic trading. The approximate present bid
price for the Company's common stock is $0. 03 per share and the approximate
asked price is $0.11 per share.
No dividends have ever been paid by the Company on its common stock and it
is not anticipated that dividends will be paid in the foreseeable future.
At July 31, 2000, there are approximately 604 holders of record of the
Company's common stock.
Item 6. Selected Financial Data
2000 1999 1998 1997 1996 1995
Operating Revenue 0 53,744 60,000 15,955 105,630 114,667
Income(loss)from
continuing
operations (638,602) (1,006,421) (496,604) (6,726) (388,089) (461,186)
Net Income(loss) (638,602) (1,006,421) (496,604) (6,726) (276,424) (702,195)
Net Income(loss)
per share (0.05) (0.10) (0.08) (0.0) (.0.01) (0.03)
Total Assets 1,426,813 1,947,939 1,948,979 722,530 3,552,369 4,887,842
Stockholder's
Equity (673,594) 166,463 572,644 91,666 1,163,278 1,462,035
Cash Dividends Paid
per Common Share 0 0 0 0 0 0
Number of
Outstanding Shares
(weighted) 12,560,958:9,627,006:6,138,819:13,357,111:24,927,938:24,026,841
12
Item 7. Management's Discussion and Analysis of the Financial Condition and
Results of Operations.
Results of Operations
The factors which most significantly affect the Company's results of
operations are (i) the sale prices of crude oil and natural gas, (ii) the level
of oil and gas sales., (iii) the level of lease operating expenses and (iv) the
level of and interest rates on borrowings. The Company will need to rely on the
initiation operations on its mining ventures and its oil and natural gas
operations to generate cash flow and future profits. The same factors listed
above will apply to the sale of minerals and metals mined by the Company as well
as oil and natural gas produced by the Company. As the Company initiates
production on its mining properties, results of operations will be affected by:
(i) commodity prices for copper and gold. (ii) the quantity and quality of the
ores recovered and processed and (iii) the level of operating expenses
associated with the mining operations.
Prices for gold had remained relatively stable during the past several
years and had generally reflected the relatively low inflation rates predominate
in the economies of the industrialized nations. Recently, gold prices began a
significant downward price adjustment, which may reflect a shift from the
traditional dependence upon gold as a financial hedge against inflation. Current
spot prices for gold are $290.00 per ounce and are expected to continue to
remain at or near those levels. The Company does not expect to realize any
substantial increase in the price of gold in the future.
Copper prices have fluctuated dramatically since the Company's acquisition
of its copper property with prices ranging from a low of about $0.65 per pound
in August 1993 to a high of $1.20 per pound in 1995 to current levels of about
$0.80 per pound. Wide variations in copper prices have resulted from the
increased demand for electrical wire and copper related products as a result of
the continued high growth rate of the economies of the industrialized nations
and as a result of periodic reductions in the availability of scrap copper for
recycling. Continued fluctuations in the spot price for copper are expected to
result from variations in the availability of scrap copper and the continued
strong demand from emerging nations. Concerns regarding the economies of the
Pacific Rim nations, and in particular Japan, have recently dampened demand for
copper and will likely impact its price until such time as stability is achieved
in those economies.
With the initiation of production from the Duke Gold Mine in Utah, the
Company's principal source of cash flow will be the production and sale of gold.
Cash flow from gold sales depends upon the quantity of production and the price
obtained for such production. An increase in prices permits the Company to
finance its operations to a greater extent with internally generated funds. A
decline in gold prices reduces the cash flow generated by the Company's
operations, which in turn reduces the funds available for servicing debt,
acquiring additional mining properties and for developing and expanding its
mining operations.
Development of its oil and natural gas leases will subject the Company's
revenues to the fluctuations inherent in the energy business for the last
several years. Crude oil and natural gas prices have reached record highs during
the last several months and expectations are that prices for these commodities
will remain above prior levels in the future. Current crude oil prices as posted
on the New York Mercantile Exchange (NYMEX) are in the $23.00 to $25.00 per
barrel range while natural gas prices have reached highs of $9.00 per MMBTU
during the winter months of 2000. The Company expects energy prices to continue
to be volatile in the future.
13
Year ended July 31, 2000 compared to year ended July 31, 1999. Total
revenues for the Company for the year ended July 31, 1999 were $53,544 compared
to no revenues during the year ended July 31, 2000. The Company expects its
revenues to remain marginal until it begins continuous operations on the Duke
Mine planned for summer 2001 or until it begins operations on its New Albany
Shale Project in April 2001.
Operating expenses for the year ended July 31, 2000 were $7,407 compared to
$119,649 for the same period a year earlier and reflect the startup of
operations in the environmental business during the prior year in contrast to
the lack of any appreciable operations during the current fiscal year. The
Company does not expect to incur substantial operating expenses until its mining
or oil and natural gas operations are in continuous operation. General and
administrative expenses decreased from $570,012 for the year ended July 31, 2000
to $839,393 for the year ended July 31, 1999 and reflects the reduced expenses
associated with the environmental business, the Duke Gold Mine pilot plant
operation and funding of engineering and other overhead costs associated with
the SilaQuartz silica mining project from the prior year The Company expects the
level of its general and administrative expenses to remain high until advance
studies and other planning is completed and the mine and oil and natural gas
project is in continuous operation.
The Company incurred an after tax net loss of $638,602 ($0.05 per share)
for the year ended July 31, 2000 compared to an after tax net loss of $1,006,421
($0.10 per share) for the prior year. The decrease in the loss is a result of
the write-down of the Company's mining claims of $1,329,474 and an decrease in
general and administrative expenses of $269,381 from the prior year. The Company
does not expect to generate a profit until its mining or oil and natural gas
operations are in continuous production.
Year ended July 31, 1999 compared to year ended July 31, 1998. Total
revenues for the Company for the year ended July 31, 1999 were $53,744 compared
to $60,000 for the year ended July 31, 1998 and reflects management fees as a
result of the Company's subleases on its office space and the revenues
associated with the Company's environmental subsidiary. The Company expects its
revenues to remain marginal until it begins continuous operations on the Duke
Mine planned for summer 2000 or until it completes an oil and natural gas
acquisition.
Operating expenses for the year ended July 31, 1999 were $119,649 compared
to $69,152 for the same period a year earlier and reflect the startup of
operations in the environmental business during the current year in contrast to
the operation of the company's pilot plant on the Duke Gold Mine during the
first and second fiscal quarters of 1998. The company does not expect to incur
substantial operating expenses until one of its mining operations is in
continuous operation. General and administrative expenses increased from
$561,266 for the year ended July 31, 1998 to $839,393 for the year ended July
31, 1999 and reflects the expenses associated with the environmental business,
the Duke Gold Mine pilot plant operation and funding of engineering and other
overhead costs associated with the SilaQuartz silica mining project. The Company
expects the level of its general and administrative expenses to remain high
until advance studies and other planning is completed and the mines are in
continuous operation.
The Company incurred a non-recurring charge against earnings of $1,329,474
during the year ended July 31, 1999 as a result of the write-down of its mining
assets. As a result of the inactivity of the Company in the development of its
mining properties during 1999, the Company's mining efforts no longer qualify as
development stage activities under the accounting rules.
14
The Company incurred an after tax net loss of $1,0006,421 ($0.10 per share)
for the year ended July 31, 1999 compared to an after tax net loss of $496,604
($0.08 per share) for the prior year. The increase in the loss is a result of
the write-down of the Company's mining claims of $1,329,474 and an increase in
general and administrative expenses of $278,127 from the prior year. These
increases were offset by the gain on the sale of the assets of Oil City during
the year of $1,289,923. The Company does not expect to generate a profit until
its mining operations are in continuous production.
Year ended July 31, 1998 compared to year ended July 31, 1997. Total
revenues for the Company for the year ended July 31, 1998 were $60,000 compared
to $15,955 for the year ended July 31, 1997 and reflects management fees as a
result of the Company's subleases on its office space. The Company expects its
revenues to remain marginal until it begins continuous operations either on the
Duke Mine planned for summer 2000 or the SilaQuartz Idaho mine expected to begin
in summer of 2001.
Operating expenses for the year ended July 31, 1998 were $69,152 compared
to $31,899 for the same period a year earlier and reflect the operation of the
company's pilot plant on the Duke Gold Mine during the first and second fiscal
quarters of 1998. The company does not expect to incur substantial operating
expenses until one of its mining operations is in continuous operation. General
and administrative expenses increased dramatically from $93,433 for the year
ended July 31, 1997 to $561,266 for the year ended July 31, 1998 and reflects
the expenses associated with the Duke Gold Mine pilot plant operation and
funding of engineering and other overhead costs associated with the SilaQuartz
silica mining project. The Company expects the level of its general and
administrative expenses to remain high until advance studies and other planning
is completed and the mines are in continuous operation.
The Company incurred an after tax net loss of $496,604 ($0.08 per share)
for the year ended July 31, 1998 compared to an after tax net loss of $6,726
($0.00 per share) for the prior year. The increase in the loss is a result of
the high level of general and administrative expenses for 1998 and the fact that
the loss in 1997 was offset by the extinguishment of $775,211 in debt as a
result of the purchase of assets from Latex Resources, Inc. The Company
generated $188,996 in fees from its program with Merrion/FSI during fiscal 1998
compared to $91,251 for the year earlier. The Company does not expect to
generate a profit until its mining operations are in continuous operations.
Capital Resources and Liquidity.
The Company's capital requirements relate primarily to its mining
activities and the expansion of those activities and the development of its oil
and natural gas business. Prior to the change in control, the Company funded its
very limited activities from cash flow. The Company, through its subsidiaries,
had established credit facilities with a bank to facilitate the funding of its
operations. As a result of the sale of its Premier Operating subsidiary in
October, 1996, the Company retired its principal bank debt and no longer has
access to financing from that source.
15
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. As a result, the Company is active in only one mine that
will require significant capital expenditures. In addition, Management
determined that the Company should position itself in a high-profile natural gas
project in an effort to attract capital, and as a result, the Company was able
to negotiate a no-cost option on 42,300 acres of leases in the New Albany Shale
Gas Play at a time prior to the most recent run-up in natural gas prices. 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. In the case of the New Albany Shale Project, the Company will be
required to be in a position to commit to the development of Phase I of the
project by April 2001 or the project will be forfeited. The Company has
primarily been engaged, in its recent past, in the acquisition and testing of
mineral properties to be inventoried for future development. Because of the
relative magnitude of the capital expenditures that may ultimately be required
for any single mining venture as operations are achieved, Management has pursued
a strategy of acquiring properties with significant mineral potential in an
effort to create a mineral property base sufficient to allow the Company to
access capital from external sources, either through debt or equity placements.
In order to develop its properties in a continuous manner in the future,
Management believes the Company will need to raise capital from outside sources
during fiscal 2001.
The Company entered into negotiations in 2000 with Asia Pacific Capital
Corporation, a merchant banking firm headquartered in Sydney, Australia, to
provide an equity infusion of $12 million for the purchase of 20 million shares
of the Company's restricted common stock and would provide project financing of
up to $47 million. The principals of Asia Pacific have indicated funding of the
equity infusion should occur in February 2001. No agreements have been signed
between the Company and Asia Pacific yet. If the transaction completes, Asia
Pacific would become the Company's principal shareholder. There can be no
assurance that Asia Pacific will complete the equity purchase.
As a result of the acquisition of control of Oil City and the subsequent
sale of Oil City's assets to Comanche, the Company owned 5,481,901 shares of the
restricted common stock of Comanche. The Company entered into a transaction with
Ravello Capital LLC in order to raise cash to pay off a judgement creditor, its
private, non-affiliate noteholders and to raise capital for its New Albany Shale
Project. As discussed previously, Ravello paid the judgement creditor, however,
has failed to complete the balance of the transaction and the Company has filed
suit against Ravello for breach of contract, among other things. As a result,
Management does not believe the block sale of the Comanche shares to Ravello
will complete and the Company is considering seeking a new buyer.
The Company intends to continue to pursue each of the above transactions in
an effort to finance its operations, however, in the event that the funds from
Asia Pacific are not received or are not received timely or in the event that
additional capital is not obtained from other sources, it may become necessary
to alter development plans or otherwise abandon certain ventures.
Although the timing of expenditures for the Company's mining and oil and
natural gas activities are distributed over several months, the Company
anticipates its current working capital will be insufficient to meet its capital
expenditures. The Company believes it will be required to access outside capital
either through debt or equity placements or through joint venture operations
with other mining or oil and natural gas companies. There can be no assurance
that the Company will be successful in its efforts to locate outside capital or
that the funds to be provided by Asia Pacific will be received timely, if at
all, and as a result the level of the Company's planned mining and oil and
natural gas activities may need to be curtailed, deferred or abandoned entirely.
16
The level of the Company's capital expenditures will vary in the future
depending on commodity market conditions and upon the level of and mining
activity achieved by the Company. The Company anticipates that its cash flow
will be insufficient to fund its operations at their current levels and that
additional funds will be required.
The Company sold its oil and gas properties in October 1996 and its Premier
Operating subsidiary and paid off its then existing credit facility with Bank of
Oklahoma. As a result the Company presently has no credit facility available to
fund its mining or oil and natural gas activities and will be required to rely
on private debt placements or equity sales to fund any remaining capital
expenditures. The Company has obtained certain unsecured loans from its Chairman
and President, Jeffrey T. Wilson, which total in principal and accrued interest
$744,547 as of July 31, 2000. These funds have been used to initiate the
Company's mining activities. Management believes that the Company will not have
sufficient borrowing capacity to fund its anticipated needs and will need to
access outside capital.
At July 31, 2000, the Company had current assets of $180 and current
liabilities of $1,796,048, which resulted in negative working capital of
$1,795,868. The negative working capital position is comprised primarily of
notes payable to shareholders and related parties totaling $744,547, accrued
salaries and expenses totaling $755,460 and third party notes payable of
$119,500. 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 2001. The previously discussed
transaction with Asia Pacific, if successful, will provide the Company with
sufficient funds to pursue its mining and oil and natural gas ventures on the
timely basis as discussed herein. Because the availability of debt and equity
financing are subject to a number of variables, there can be no assurance that
the Company will be successful in attracting adequate financing and as a result
may be required to curtail, postpone or abandon certain of its planned capital
expenditures. If the Company is unable to attract adequate financing, management
believes the Company may be compelled to sell or abandon certain of its assets
to meet its obligations.
Seasonality
The results of operations of the Company are somewhat seasonal due to
seasonal fluctuations in the ability to conduct mining operations in certain
areas, resulting in lower production volumes and due to fluctuations in energy
prices due to seasonal variations. To date these variations have been minimal.
Due to these seasonal fluctuations, results of operations for individual
quarterly periods may not be indicative of results, which may be realized on an
annual basis. As operations commence and production is realized on its mining
and oil and natural gas properties, these influences will become more
significant.
Inflation and Prices
The Company's revenues and the value of its mining and oil and natural gas
properties have been and will be affected by changes in copper and gold prices.
And the prices for crude oil and natural gas. The Company's ability to obtain
additional capital on attractive terms is also substantially dependent on the
price of these commodities. Prices for these commodities are subject to
significant fluctuations that are beyond the Company's ability to control or
predict.
17
Item 8. Financial Statements and Supplementary Data.
Audited Financial Statements of Imperial Petroleum, Inc.
Independent Auditor's Report F-1
Consolidated Balance Sheets as of July 31, 2000 and 1999 F-2
Consolidated Statements of Operations for the years ended
July 31, 2000, 1999 and 1998 F-3
Consolidated Statements of Stockholder's Equity for the years
Ended July 31, 2000, 1999 and 1998 F-4
Consolidated Statements of Cash flows for the years ended
July 31, 2000, 1999 and 1998 F-5
Notes to Consolidated Financial Statements F-7
Item9. Changes in and Disagreements with Accountants on Accounting
And Financial Disclosure.
Not applicable.
PART III
Item 10. Directors and Executive Officers of Registrant.
Directors and Executive Officers
The following table sets forth certain information regarding the directors,
executive officers and key employees of the Company.
Name Age Position
Jeffrey T. Wilson 47 Director, Chairman of the Board,
President and Chief Executive Officer
Malcolm W. Henley 49 Director
Stacey D. Smethers 32 Director, Secretary
Jeffrey T. Wilson has been Director, Chairman of the Board, President and
Chief Executive Officer of the Company since August 1993. Mr. Wilson was a
Director, Chairman and President of LaTex Resources, Inc., an affiliate of the
Company, and was the founder of its principal operating subsidiary, LaTex
Petroleum Corporation. Prior to his efforts with LaTex, Mr. Wilson was Director
and Executive Vice President of Vintage Petroleum, Inc. and was employed by
Vintage in various engineering and acquisition assignments from 1983 to 1991.
From August 1980 to May 1983 Mr. Wilson was employed by Netherland, Sewell &
Associates Inc., a petroleum consulting firm. Mr. Wilson began his career in the
oil and gas business in June 1975 with Exxon Company USA in various assignments
in the Louisiana and South Texas areas. Mr. Wilson holds a Bachelor of Science
Degree in Mechanical Engineering from Rose-Hulman Institute of Technology.
18
Malcolm W. Henley has been a Director of the Company since May 1996. Mr.
Henley was a Director and Vice President of LaTex Resources, Inc., an affiliate
of the Company and was founder of Enpro, Inc. a crude oil and natural gas
marketing subsidiary of LaTex. Mr. Henley's prior experience includes Manager of
Operations for Champlin Pipeline Company from 1976 to 1979 and Continental Oil
Company from 1975-1976. Mr. Henley has a Bachelor of Arts Degree in Business
Administration from Oklahoma State University and an Associate Degree in
Petroleum Land Technology from Tulsa Junior College.
Stacey D. Smethers has been a Director of the Company since July 1995. Mrs.
Smethers was Executive Assistant to the President of Enpro, Inc. and Marketing
Representative for LaTex Resources, Inc., an affiliate of the Company. Mrs.
Smethers has seven years of varied experience in the oil and gas industry
including assignments in marketing, administration and petroleum land
management.
Section 16(a) Reporting Deficiencies
Section 16(a) of the Securities and Exchange Act of 1934 ("Exchange Act")
requires the Company's directors and officers and persons who own more than 10%
of a registered class of the Company's equity securities, to file initial
reports of ownership on Form 3 and reports of changes in ownership on Forms 4
and 5 with the Securities and Exchange Commission (the 'SEC') and the National
Association of Securities Dealers ('NASD'). Such persons are required by SEC
regulation to furnish the company with copies of all Section 16(a) forms they
file.
Based upon a review of From 3, 4 and 5 filings made by the Company's
officers and directors during the past fiscal year ended July 31, 2000 under
Section 16(a) of the Exchange Act, the Company believes that all requisite
filings have been made timely.
Item 11. Executive Compensation.
The table below sets forth, in summary form, (1) compensation paid to
Jeffrey T. Wilson, the Company's Chairman of the Board, President and Chief
Executive Officer and (2) other compensation paid to officers and directors of
the Company. Except as provided in the table below, during the three fiscal
years ended July 31, 2000, 1999 and 1998 (I) no restricted stock awards were
granted, (ii) no stock appreciation or stock options were granted, (iii) no
options, stock appreciation rights or restricted stock awards were exercised,
and (iv) except as provided below, no awards under any long term incentive plan
were made to any officer or director of the Company.
The Company began accruing salary due to Jeffrey T. Wilson in January 1994.
To date no actual salary payments have been made to Mr. Wilson.
19
SUMMARY COMPENSATION TABLE
Long Term Awards
Annual Compensation Warrants
Name and Principal
Position Year Salary Bonus # shares
Jeffrey T. Wilson 2000 $ 125,000 -- ----
1999 $ 125,000 -- ----
1998 $ 125,000 -- ----
Malcolm W. Henley 2000 --- -- ----
1999 --- -- ----
1998 --- -- ----
Stacey D. Smethers 2000 --- -- ----
1999 --- -- ----
1998 --- -- ----
None of the executive officers listed received perquisites or other
personal benefits that exceeded the lesser of $50,000 or 10% of the salary and
bonus for such officers.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
As of July 31, 2000, the Company has 12,504,165 issued and outstanding
shares of common stock, not including 20,000,000 shares of stock issued but not
delivered pending the closing of the Asia Pacific transaction that are subject
to cancellation if closing does not occur.. The following table sets forth, as
of July 31, 2000, the number and percentage of shares of common stock of the
Company owned beneficially by (I) each director of the Company, (ii) each
executive officer of the Company, (iii) all directors and officers as a group,
and (iv) each person known to the Company to own of record or beneficially own
more than 5% of the Company's common stock. Except as otherwise listed, the
stockholders listed in the table have sole voting and investment power with
respect to the shares listed. As of July 31,2000, the Company had approximately
604 holders of common stock of record.
20
Number of Shares
Name of Beneficial Owner Beneficially Owned Percent of Class
Jeffrey T. Wilson (1) 3,236,114 25.9%
Malcolm W. Henley (2) 583,333 4.7%
Stacey D. Smethers (3) 83,333 0.7%
All officers and directors
as a Group (3 people) 3,902,780 31.2%
HN Corporation(4) 1,252,858 10.0%
Gene Moser(5) 1,128,521 9.0%
Total officers, directors
and 5% shareholders ,866,957 46.9%
(1) The mailing address of Mr. Wilson is 100 NW Second Street, Suite 312,
Evansville, Indiana 47708. Includes 417,202 shares owned by HN Corporation
in which Mr. Wilson owns 33.3%. Does not include 50,000 shares held in
Trust by Old National Bank for Mr. Wilson's children.
(2) The mailing address of Mr. Henley is 8111 E. 93rd Street, Suite 2205,
Tulsa, OK 74133.
(3) The mailing address of Stacey D. Smethers is 4813 Rustic Road, Sand
Springs, Oklahoma 74063.
(4) The mailing address of HN Corporation is 800 N. Green River Rd.,
Evansville, IN 47715.
(5) Mr. Moser's mailing address is PO Box 476, Bluffton, IN 47614.
Item 13. Certain Relationships and Related Transactions.
Jeffrey T. Wilson, Chairman, President and Chief Executive Officer of the
Company has made unsecured loans to the Company which total $744,547 in
principal and accrued interest as of July 31, 2000.
HN Corporation, a private retail company owned by Mr. Wilson and his wife,
has made unsecured loans to the Company which total $29,500 in principal and
accrued interest as of July 31, 2000.
The Company leases office space and office services, including telephones,
copiers, and office supplies at its headquarters office to HN Corporation at
the rate of $1,000 per month.
21
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a) Financial Statements (See Item 8. Financial Statements
and Supplementary Data):
Financial Statements of Imperial Petroleum, Inc.
Reports of Independent Public Accountants;
Consolidated Balance Sheets as of July 31, 2000 and 1999;
Consolidated Statements of Operations for the years ended July 31, 2000,
1999, and 1998;
Consolidated Statements of Stockholder Equity for the years ended
July 31, 2000, 1999, and 1998;
Consolidated Statements of Cash Flows for the years ended
July 31, 2000, 1999, and 1998;
Notes to Consolidated Financial Statements.
Supplemental Financial Information
Schedule II - Amounts Receivable from Related Parties. Other Schedules
are omitted as they are not required.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed with the Securities and Exchange
Commission during the fiscal year ended July 31, 2000.
(c) Exhibits. None.
3.1 Certificate of Incorporation of the Registrant incorporated herein by
reference to Exhibit -~ of the Form 10.
3.2 Bylaws of the Registrant incorporated herein by reference to Exhibit B
of the Form 10.
4. Instruments defining the rights of security holders, including
indentures. Not applicable.
9. Voting Trust Agreement. Not applicable.
11 Statement re: computation of per share earnings. Not applicable.
12 Statement re: computation of ratios. Not applicable.
22
13 Annual Report to security holders, Form 10-Q, or quarterly report to
security holders. Not applicable.
16 Letter re change in certifying accountant. Not applicable.
18 Letter re: change in accounting principles. Not applicable.
21 Subsidiaries of the Registrant.
22 Published report regarding matters submitted to vote of security holders.
Included by reference.
23 Consents of experts and counsel. Not applicable.
24 Power of Attorney. Not applicable.
27 Financial Data Schedule. Not applicable.
28 Information from reports furnished to state insurance regulatory
authorities. Not applicable;
99 Additional Exhibits; Not applicable.
23
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Imperial Petroleum, Inc.
Date: February ____, 2001 /s/ Jeffrey T. Wilson
Jeffrey T. Wilson, President
and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1934, this report has
been signed below by the following persons on behalf of the Registrant and in
the capacities and on the dates indicated:
Signature Title Date
/s/ Jeffrey T. Wilson President and Chief Executive Februuary ___,2001
Jeffrey T. Wilson Officer (Principal Executive
Officer) and Director
24
Consolidated Financial Statements
IMPERIAL PETROLEUM, INC. and SUBSIDIARIES
July 31, 2000, 1999 and 1998
IMPERIAL PETROLEUM, INC.
and
SUBSIDIARIES
CONSOLIDATED
FINANCIAL STATEMENTS
AS OF JULY 31, 2000 and 1999
and
FOR THE YEARS ENDED
JULY 31, 2000, 1999 and 1998
and
INDEPENDENT AUDITOR'S REPORT
IMPERIAL PETROLEUM, INC.
July 31, 2000, 1999, and 1998
T A B L E O F C O N T E N T S
-------------------------------
Page
----
Independent Auditor's Report
Consolidated Financial Statements:
Consolidated Balance Sheets 2
Consolidated Statements of Operations 3
Consolidated Statements of Stockholders' Equity 4
Consolidated Statements of Cash Flows 5-6
Notes to Consolidated Financial Statements 7-28
INDEPENDENT AUDITOR'S REPORT
Board of Directors
Imperial Petroleum, Inc.
Evansville, Indiana
We have audited the accompanying consolidated balance sheets of Imperial
Petroleum, Inc. (A Development Stage Company) as of July 31, 2000 and 1999 and
the consolidated statements of operations, stockholders' equity, and cash flows
for the years ended July 31, 2000, 1999 and 1998. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Imperial Petroleum, Inc. (A
Development Stage Company) as of July 31, 2000 and 1999 and the results of its
operations and its cash flows for the years ended July 31, 2000, 1999 and 1998,
in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has suffered recurring losses and substantial
working capital deficiencies. These factors raise substantial doubt about its
ability to continue as a going concern. Further, there can be no assurance,
assuming the Company successfully raises additional funds, that it will be able
to economically recover the value of its mining claims or achieve profitability.
Management's plans in regard to these matters are also described in Note 1 to
the financial statements.
BRISCOE, BURKE & GRIGSBY LLP
Certified Public Accountants
January 15, 2001
Tulsa, Oklahoma
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Consolidated Balance Sheets
July 31, 2000 and 1999
ASSETS 2000 1999
---------- ----------
Current assets:
Cash $ 180 $ 1,415
Accounts receivable - other -- 3,000
Inventories (Note 2) -- 60,964
Other current assets -- --
---------- ----------
Total current assets 180 65,379
---------- ----------
Property, plant and equipment
(Notes 1, 2, and 4):
Mining claims, options and
development costs less impairment 41,760 41,760
Equipment 5,166 5,166
Acquisition in progress (Note 14) 4,000 --
---------- ----------
50,926 46,926
---------- ----------
Less: accumulated depreciation 1,107 369
Net property, plant and equipment 49,819 46,557
---------- ----------
Other assets:
Notes receivable - related parties
(Note 3) 138,713 --
Notes receivable - other (Note 3) 21,119 --
Intangibles - net (Note 2) -- 81,794
Investments - securities
(Notes 2 and 11) 1,216,982 1,754,209
---------- ----------
Total other assets 1,376,814 1,836,003
---------- ----------
TOTAL ASSETS $1,426,813 $1,947,939
========== ==========
LIABILITIES and STOCKHOLDERS' EQUITY 2000 1999
---------- ----------
Current liabilities:
Accounts payable $ 176,541 $ 41,051
Accrued expenses (Note 18) 755,460 558,487
Notes payable (Note 6) 119,500 187,500
Notes payable - related parties
(Note 7) 744,547 696,997
----------- -----------
Total current liabilities 1,796,048 1,484,035
----------- -----------
Noncurrent liabilities:
Unearned revenue - noncurrent
(Note 17) 304,359 297,441
Deferred income taxes (Note 5) -- --
----------- -----------
Total noncurrent liabilities 304,359 297,441
----------- -----------
Stockholders' equity:
Common stock of $0.006 par value
Authorized 50,000,000 shares;
12,504,165 issued in 2000 and
11,528,230 shares in 1999 75,025 69,170
Paid-in capital 3,791,520 4,350,476
Accumulated deficit (3,352,940) (2,714,338)
Accumulated other comprehensive income (607,395) (70,168)
Treasury stock, at cost
(652,290 shares in 2000 and
1,652,290 shares in 1999) (579,804) (1,468,677)
----------- -----------
Total stockholders' equity (deficit) (673,594) 166,463
----------- -----------
Commitments and contingencies
(Note 9) -- --
----------- -----------
TOTAL LIABILITIES and
STOCKHOLDERS'
EQUITY (DEFICIT) $ 1,426,813 $ 1,947,939
=========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
-2-
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Consolidated Statements of Operations
For the Years Ended July 31, 2000, 1999 and 1998
2000 1999 1998
------------ ----------- -----------
Operating income:
Management fees $ -- $ -- $ 60,000
Environmental service revenues -- 53,744 --
------------ ----------- -----------
Total operating income -- 53,744 60,000
Operating expenses:
Cost of goods sold -- 110,529 --
Mining lease operating expense -- 9,120 69,152
Research and development 7,407 -- --
Impairment loss (Note 4) -- 1,329,474 --
General and administrative expenses 570,012 839,393 561,266
Depreciation, depletion and amortization (Note 2) 738 9,775 --
------------ ----------- -----------
Total operating expenses 578,157 2,298,291 630,418
------------ ----------- -----------
Loss from operations (578,157) (2,244,547) (570,418)
Other income and (expense):
Interest expense (101,758) (113,297) (76,915)
Interest income 11,213 -- 38,921
Other income 30,100 61,500 --
Gold certificate income - net (Note 13) -- -- 188,996
Loss on write-down of securities -- -- (77,188)
Gain (loss) on sale of assets (Note 16) -- 1,289,923 --
------------ ----------- -----------
Net loss before income taxes (638,602) (1,006,421) (496,604)
------------ ----------- -----------
Provision for income taxes: (Note 5)
Current -- -- --
Deferred -- -- --
------------ ----------- -----------
Total benefit from income taxes -- -- --
------------ ----------- -----------
Net loss $ (638,602) $(1,006,421) $ (496,604)
============ =========== ===========
Loss per share (Note 2)
$ (.05) $ (.10) $ (.08)
============ =========== ===========
Weighted average shares outstanding 12,560,958 9,627,006 6,138,819
============ =========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
-3-
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Consolidated Statements of Stockholders' Equity
For the Years Ended July 31, 2000, 1999, and 1998
Accumulated
Common Stock Additional Other Total
Par Paid-In Retained Comprehensive Treasury Stockholders'
Shares Value Capital Deficit Income Stock Equity
---------- ---------- ----------- ----------- ---------- ----------- -----------
Balances at July 31, 1997 5,283,164 $ 31,699 $ 2,487,957 $(1,211,313) $ -- $(1,216,677) $ 91,666
Stock issued for services 173,575 1,040 87,050 -- -- -- 88,090
Stock issued for mining properties
and equipment 860,000 5,160 782,340 -- -- -- 787,500
Stock issued to pay off debt 153,062 920 101,072 -- -- -- 101,992
Net loss for the period -- -- -- (496,604) -- -- (496,604)
---------- ---------- ----------- ----------- ---------- ----------- -----------
Balances at July 31, 1998 6,469,801 38,819 3,458,419 (1,707,917) -- (1,216,677) 572,644
Treasury stock issued in contemplation 1,500,000 9,000 243,000 -- -- (252,000) --
Stock issued for services 1,036,163 6,217 162,937 -- -- -- 169,154
Stock issued for equity
securities (Note 16) 1,972,266 11,834 382,620 -- -- -- 394,454
Stock issued to pay off debt (Note 6) 550,000 3,300 103,500 -- -- -- 106,800
Unrealized loss on equity
securities (Note 11) -- -- -- -- (70,168) -- (70,168)
Net loss for the period -- -- -- (1,006,421) -- -- (1,006,421)
---------- ---------- ----------- ----------- ---------- ----------- -----------
Balances at July 31, 1999 11,528,230 69,170 4,350,476 (2,714,338) (70,168) (1,468,677) 166,463
---------- ---------- ----------- ----------- ---------- ----------- -----------
Treasury stock issued -- -- (771,527) -- -- 888,873 117,346
Stock cancelled (650,000) (3,900) 3,900 -- -- -- --
Stock subscribed 716,666 4,300 123,200 -- -- -- 127,500
Stock issued to pay off interest
and debt (Note 6) 909,269 5,455 85,471 -- -- -- 90,926
Unrealized loss on equity
securities (Note 11) -- -- -- -- (537,227) -- (537,227)
Net loss for the period -- -- -- (638,602) -- -- (638,602)
---------- ---------- ----------- ----------- ---------- ----------- -----------
Balances at July 31, 2000 12,504,165 $ 75,025 $ 3,791,520 $(3,352,940) $ (607,395) $ (579,804) $ (673,594)
========== ========== =========== =========== ========== =========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
-4-
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Consolidated Statements of Cash Flows
For the Years Ended July 31, 2000, 1999 and 1998
2000 1999 1998
----------- ----------- -----------
Cash flows from operating activities:
Historical net loss $ (638,602) $(1,006,421) $ (496,604)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation, depletion and amortization 738 9,775 --
Expenses paid with common stock -- 188,455 115,164
Impairments -- 1,329,474 --
Gain on sale -- (1,429,922) --
Write-offs 142,758 495,095 --
Realized loss on marketable securities -- -- 77,188
(Increase) Decrease in accounts receivable - other 3,000 (3,000) (72,500)
(Increase) Decrease in notes receivable - related party (11,213) -- (353,695)
(Increase) Decrease in notes receivable - other (21,120) -- --
(Increase) Decrease in inventories -- (60,964) --
(Increase) Decrease in other current assets -- -- (78,920)
(Increase) Decrease in other assets -- (91,200) --
Increase (Decrease) in accounts payable 135,490 19,617 (39,321)
Increase (Decrease) in accounts payable - other -- -- 61,025
Increase (Decrease) in accrued expenses 297,746 216,607 198,225
Increase (Decrease) in unearned revenue 6,918 247,441 50,000
----------- ----------- -----------
Net cash used for operating activities (84,285) (85,043) (539,438)
----------- ----------- -----------
Cash flows from investing activities:
Acquisition in progress (4,000) -- --
Purchases of equipment -- (5,167) --
----------- ----------- -----------
Net cash used for investing activities
$ (4,000) $ (5,167) $ --
----------- ----------- -----------
The accompanying notes are an integral part of these consolidated financial
statements.
-5-
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Consolidated Statements of Cash Flows
For the Years Ended July 31, 2000, 1999 and 1998
2000 1999 1998
----------- ----------- -----------
Cash flows from financing activities:
Increase (Decrease) in notes payable $ 39,500 $ 62,500 $ 125,000
Increase (Decrease) in notes payable - related parties 47,550 17,000 425,460
----------- ----------- -----------
Net cash provided by financing activities 87,050 79,500 550,460
----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents (1,235) (10,710) 11,022
Cash and cash equivalents at beginning of year 1,415 12,125 1,103
----------- ----------- -----------
Cash and cash equivalents at end of year $ 180 $ 1,415 $ 12,125
=========== =========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the period for
Interest $ -- $ -- $ --
Income taxes -- -- --
Supplemental schedule of noncash investing and financing activities:
Stock issued for mining equipment and mining claim options $ -- $ -- $ 787,500
Stock issued for services -- 188,455 115,164
Stock issued for investment -- 1,429,922 --
Stock subscribed 127,500 -- --
Stock cancelled 3,900 -- --
Rescind agreement on notes payable -- -- 74,918
Unrealized loss on equity securities (537,227) (70,167) --
Write-down of mining claims -- 1,329,474 --
Write-offs of inventory and intangibles 142,758 495,095 --
Stock issued to extinguish debt 208,273 -- --
----------- ----------- -----------
Total $ (54,796) $ 3,372,779 $ 977,582
=========== =========== ===========
Disclosure of accounting policy:
For purposes of the statement of cash flows, the Company considers all
highly liquid debt instruments purchased with a maturity of three months or
less to be cash equivalents.
The accompanying notes are an integral part of these consolidated financial
statements.
-6-
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
1. ORGANIZATION AND BUSINESS COMBINATION
Organization
The Company is attempting to obtain capital, through its wholly owned
subsidiary, Ridgepointe Mining Company, to continue testing, defining and
developing mineral reserves on mining claims it owns or operates in Utah.
The Company is engaged, through its wholly owned subsidiary Imperial
Environmental Company, in developing and marketing water filtration systems
to municipalities.
Financial Condition
The Company's financial statements for the year ended July 31, 2000 have
been prepared on a going concern basis which contemplates the realization
of assets and the settlement of liabilities in the normal course of
business. The Company incurred a net loss of $638,602 for the year ended
July 31, 2000 and as of July 31, 2000 has an accumulated deficit of
$3,352,940 and a deficit working capital of $1,795,868.
Management Plans to Continue As A Going Concern
The Company believes that it will require outside capital to continue as a
going concern. As a result, management entered into the Ravello Capital
transaction in an attempt to satisfy the Byrne judgement and to access
capital for its New Albany Shale gas project with Deka Exploration.
Management believes that it can attract capital to the project from
pipeline companies by offering the natural gas to be produced at a
discount. With the failure of the Ravello transaction to close, the Company
intends to liquidate the Comanche shares in the market over time to provide
sufficient funds to operate and to fund the New Albany Shale Project. In
addition, Management continues to work with Asia Pacific Capital Corp. and
others in an attempt to complete an equity transaction.
-7-
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
1. ORGANIZATION AND BUSINESS COMBINATION (continued)
Acquisition of Imperial Petroleum, Inc.
Pursuant to an Agreement to Exchange Stock and Plan of Reorganization dated
August 27, 1993 (the "Stock Exchange Agreement"), between Imperial
Petroleum, Inc. ("Imperial"), Glauber Management Company, ("Glauber
Management"), Glauber Valve Co., Inc., ("Glauber Valve"), and the
Ridgepointe Stockholders, the Ridgepointe Stockholders agreed to exchange
(the "Ridgepointe Exchange Transaction") a total of 12,560,730 shares of
the common stock of Ridgepointe Mining Company, representing 100% of the
issued and outstanding common stock of Ridgepointe, for a total of
12,560,730 shares of newly issued shares of Imperial's common stock
representing 59.59% of Imperial's resulting issued and outstanding common
stock. The one-for-one ratio of the number of shares of Imperial's common
stock exchanged for each share of Ridgepointe common stock was determined
through arms length negotiations between Imperial and the majority
stockholders of Ridgepointe. As a result, Ridgepointe became a wholly owned
subsidiary of Imperial.
As a condition to the Ridgepointe Exchange Transaction, Imperial received
and canceled 7,232,500 shares of its Common Stock from Glauber Management
and received 100,000 shares of the common stock of Tech-Electro
Technologies, Inc. from an affiliate of Glauber Management and Glauber
Valve. In addition, Glauber Management or Glauber Valve, or their
affiliates, transferred to Imperial 75,000 shares of common stock of
Chelsea Street Holding Company, Inc.
Acquisition of Premier Operating Company
Pursuant to a Stock Exchange Agreement dated October 4, 1993 (the "Stock
Exchange Agreement") between Imperial Petroleum, Inc. and the Premier
Stockholders, the Premier Stockholders agreed to exchange (the "Premier
Exchange Transaction") an aggregate of 749,000 shares of the common stock
of Premier Operating Company ("Premier"), consisting of 252,000 shares of
Class A voting common stock and 497,000 shares of non-voting Class B common
stock, representing 100% of the issued and outstanding common stock of
Premier, for a total of 749,000 shares of newly issued shares of the
Company's common stock representing 3.62% of the Company's resulting issued
and outstanding common stock. The one-for-one ratio of the number of shares
of the Company's common stock exchanged for each share of Premier common
stock was determined through arms length negotiations between the Company
and a major shareholder of Premier, on behalf of the Premier Stockholders.
The business combination was accounted for using the purchase method of
accounting. As a result, Premier became a wholly owned subsidiary of the
Company.
-8-
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
1. ORGANIZATION AND BUSINESS COMBINATION (continued)
Acquisition of Oil City Petroleum, Inc.
See Note 16.
Development Stage Companies
A summary of the financial information of Ridgepointe Mining Company (A
Development Stage Company), excluding its wholly owned subsidiary I. B.
Energy, Inc., is as follows:
2000 1999 1998
----------- ----------- -----------
Current assets $ -- $ -- $ --
Net claims and equipment 41,760 41,760 620,434
Other assets -- -- --
----------- ----------- -----------
Total assets $ 41,760 $ 41,760 $ 620,434
=========== =========== ===========
2000 1999 1998
----------- ----------- -----------
Current liabilities $ 646,694 $ 583,952 $ 630,632
Long-term liabilities -- -- --
Common stock 125,107 125,107 125,107
Paid-in capital 1,343,886 1,343,886 1,343,886
Deficit accumulated
before development stage (121,953) (121,953) (121,953)
Deficit accumulated during
development stage (1,951,974) (1,889,232) (1,357,238)
----------- ----------- -----------
Total liabilities and
stockholders' deficit $ 41,760 $ 41,760 $ 620,434
=========== =========== ===========
-9-
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
1. ORGANIZATION AND BUSINESS COMBINATION (continued)
Cumulative
2000 1999 1998 From Inception
----------- ----------- ----------- --------------
Operating
revenues $ -- $ -- $ -- $ --
Miscellaneous
income -- -- -- 96,579
----------- ----------- ----------- -----------
Total income -- -- -- 96,579
Lease operating
expenses -- -- 67,652 162,922
Impairment loss -- 578,674 -- 578,674
General and
administrative 56,263 (60,292) 62,361 403,329
----------- ----------- ----------- -----------
Total expenses 56,263 518,382 130,013 1,144,925
Net operating loss 56,263 (518,382) (130,013) (1,048,346)
Interest expense (6,479) (13,612) (14,243) (287,305)
Gain (Loss) on
sale/write-down
of assets -- -- 191,598 (786,093)
----------- ----------- ----------- -----------
Net income (loss)
before income
taxes (62,742) (531,994) 47,342 (2,121,744)
Income tax
benefit -- -- -- --
----------- ----------- ----------- -----------
Net loss $ (62,742) $ (531,994) $ 47,342 $(2,121,744)
=========== =========== =========== ===========
-10-
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
1. ORGANIZATION AND BUSINESS COMBINATION (continued)
Cumulative
From Inception
--------------
Cash flows from operating activities:
Historical net loss $(2,121,744)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and depletion --
Non-cash impairment (578,674)
Increase in current liabilities 732,944
-----------
Net cash used for operating activities (1,967,474)
-----------
Cash flows from investing activities:
Mining options, properties and equipment purchased - net 620,434
-----------
Net cash used for investing activities 620,434
-----------
Cash flows from financing activities:
Stock issued for funding 1,347,040
-----------
Net cash provided by financing activities 1,347,040
-----------
Net increase in cash and cash equivalents --
Cash and cash equivalents at inception --
-----------
Cash and cash equivalents at July 31, 2000 $ --
===========
Supplemental disclosures of cash flow information:
Cash paid during the period for
Interest $ --
Income taxes --
Disclosure of accounting policy:
For purposes of the statement of cash flows, the Company considers all
highly liquid debt instruments purchased with a maturity of three months or
less to be cash equivalents.
-11-
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
1. ORGANIZATION AND BUSINESS COMBINATION (continued)
A summary of the financial information of Imperial Environmental Company
(formerly Phoenix Metals, Inc.) (A Development Stage Company) is as
follows:
2000 1999 1998
--------- --------- ----------
Current assets $ -- $ -- $ --
Inventories -- 60,964 --
Fixed assets - net 4,060 4,797 --
Other assets -- 81,794 --
--------- --------- ----------
Total assets $ 4,060 $ 147,555 $ --
========= ========= ==========
2000 1999 1998
--------- --------- ----------
Current liabilities $ 228,607 $ 221,200 $ --
Long-term liabilities -- -- --
Common stock -- -- --
Paid-in capital -- -- --
Deficit accumulated during
development stage (224,547) (73,645) --
--------- --------- ----------
Total liabilities and
stockholders' deficit $ 4,060 $ 147,555 $ --
========= ========= ==========
-12-
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
1. ORGANIZATION AND BUSINESS COMBINATION (continued)
Cumulative
2000 1999 1998 From Inception
--------- --------- --------- --------------
Operating
revenues $ -- $ 53,744 $ -- $ 53,744
Miscellaneous
income -- -- -- --
--------- --------- --------- ---------
Total income -- 53,744 -- 53,744
Operating
expenses -- 110,529 -- 110,529
Research and
development 7,407 -- -- 7,407
General and
administrative 142,757 7,085 -- 149,842
Depreciation and
amortization 738 9,775 -- 10,513
--------- --------- --------- ---------
Total expenses 150,902 127,389 -- 278,291
Net operating loss (150,902) (73,645) -- (224,547)
Interest expense -- -- -- --
--------- --------- --------- ---------
Net income (loss)
before income
taxes (159,902) (73,645) -- (224,547)
Income tax
benefit -- -- -- --
--------- --------- --------- ---------
Net loss $(150,902) $ (73,645) $ -- $(224,547)
========= ========= ========= =========
-13-
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
1. ORGANIZATION AND BUSINESS COMBINATION (continued)
Cumulative
From Inception
--------------
Cash flows from operating activities:
Historical net loss $(224,547)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 10,513
Increase in other assets --
Increase in current liabilities 228,607
---------
Net cash used for operating activities 14,573
---------
Cash flows from investing activities:
Equipment purchased - net (14,573)
---------
Net cash used for investing activities (14,573)
---------
Cash flows from financing activities:
Debt --
---------
Net cash provided by financing activities --
---------
Net increase in cash and cash equivalents --
Cash and cash equivalents at inception --
---------
Cash and cash equivalents at July 31, 2000 $ --
=========
Supplemental disclosures of cash flow information:
Cash paid during the period for
Interest $ --
Income taxes --
Disclosure of accounting policy:
For purposes of the statement of cash flows, the Company considers all
highly liquid debt instruments purchased with a maturity of three
months or less to be cash equivalents
-14-
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The July 31, 2000, 1999 and 1998 financial statements include the accounts
of the Company and its wholly owned subsidiaries, Ridgepointe Mining
Company, Premier Operating Company, I. B. Energy, Inc., LaTex Resources
International, Inc., and Imperial Environmental Company(formerly Phoenix
Metals, Inc.). All significant intercompany accounts have been eliminated.
Accounting Estimates
The presentation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Financial Instruments
The fair value of current assets and current liabilities are assumed to be
equal to their reported carrying amounts due to the short maturities of
these financial instruments.
The carrying value of all other financial instruments approximates fair
value.
Marketable Securities
The Company determines the appropriate classification of debt and equity
securities at the time of purchase and re-evaluates such designation as of
each balance sheet date. Securities are classified as held-to-maturity when
the Company has the intent and ability to hold the securities to maturity.
Held-to-maturity securities are stated at cost and investment income is
included in earnings. The Company classifies certain highly liquid
securities as trading securities. Trading securities are stated at fair
value and unrealized holding gains and losses are included in income.
Securities that are not classified as held-to-maturity or trading are
classified as available-for-sale. Available-for-sale securities are carried
at fair value, with the unrealized holding gains and losses, net of tax,
reported as a separate component of equity as other comprehensive income.
-15-
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of cash and accounts
receivable. The Company places its cash with high quality financial
institutions and limits the amount of exposure to any one institution. In
the case of default of any one financial institution, no cash exists that
is not covered by the FDIC. The Company currently operates in the mining
and environmental technologies industries. The concentration of credit risk
in a single industry affects the Company's overall exposure to credit risk
because customers may be similarly affected by changes in economic and
other conditions. The Company has not experienced significant credit losses
on trade receivables. The Company performs periodic evaluations of its
customers' financial condition and generally does not require collateral.
Development Stage Subsidiaries
Ridgepointe Mining Company, a wholly owned subsidiary, is in the process of
defining mineral reserves and raising capital for operations. As such,
Ridgepointe Mining Company is considered a development stage enterprise.
Imperial Environmental Company, a wholly owned subsidiary, is in the
process of raising capital to continue developing its water filtration
technology. As such, Imperial Environmental Company is considered a
development stage enterprise.
Revenue Recognition
Mining and environmental technology revenues will be recognized in the
month of sale.
During the year ended July 31, 1999 the Company recognized revenues of
$53,744 from its development stage subsidiary Imperial Environmental
Company. It also recognized rental revenues from sublease of its office
space of $12,000.
-16-
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
2. SUMMARY OF ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (continued)
Inventories
Inventories are valued at the lower of cost or market. The average cost
method is used for determining the cost or remaining inventories.
Inventories at July 31 were:
2000 1999
------- -------
Materials and supplies $ -- $ 4,526
Work-in-process -- 56,438
------- -------
Total $ -- $60,964
======= =======
Property, Equipment, Depreciation and Depletion
Property and equipment are stated at cost. Depreciation is computed by the
straight-line method over the estimated useful lives of assets.
Expenditures which significantly increase values or extend useful lives are
capitalized. Expenditures for maintenance and repairs are charged to
expenses as incurred. Upon sale or retirement of property and equipment,
the cost and related accumulated depreciation and depletion are eliminated
from the respective accounts and the resulting gain or loss is included in
current earnings.
Mining exploration costs are expensed as incurred. Development costs are
capitalized. Depletion of capitalized mining costs will be calculated on
the units of production method based upon current production and reserve
estimates when placed in service.
Intangibles
The Company has capitalized the costs related to the organization of its
development stage subsidiary Imperial Environmental Company. Amortization
is computed by the straight-line method over 5 years.
The Company has implemented SOP 98-5, as required, for fiscal year July 31,
2000. SOP 98-5 requires that the intangible asset be charged against income
rather than carried as an asset and amortized.
-17-
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
2. SUMMARY OF ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (continued)
Income Taxes
Deferred tax assets and liabilities are recognized for the estimated future
tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates in effect for the year in which those temporary
differences are expected to be recovered or settled. The effect on deferred
tax assets and liabilities of change in tax rates is recognized in income
in the period that includes the enactment date.
Loss Per Common Share
Loss per common share is computed based upon the weighted average common
shares outstanding. Outstanding warrants are excluded from the weighted
average shares outstanding since their effect on the earnings per share
calculation is antidilutive.
FASB Accounting Standards
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 121 (SFAS 121), Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of. This
Statement requires that long-lived assets and certain identifiable
intangibles to be held and used by an entity be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. If the sum of the undiscounted
future cash flows is less than the carrying amount of the asset, an
impairment loss is recognized. During the fiscal year ending July 31, 1999,
the Company concluded that an impairment loss was required based on current
circumstances (See Note 4).
Reclassification
Certain amounts in the 1999 consolidated financial statements have been
reclassified to conform with the 2000 presentation.
-18-
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
3. NOTES RECEIVABLE
Notes receivable was comprised of the following:
2000 1999
--------- ---------
Common stock subscribed - shareholders $ 138,713 $ --
Wexford Technology, Inc. -- 695,678
Allowance for bad debts -- (695,678)
--------- ---------
Total $ 138,713 $ --
========= =========
Notes receivable to third parties includes $21,199 advanced in 2000 to a
party on which the Company's CEO was a note guarantor. No repayment terms
have been agreed to. Thus, no interest has been accrued.
4. PROPERTY, PLANT and EQUIPMENT
The Company's mining fixed assets consist of the following:
July 31, July 31,
2000 1999
--------- -----------
Mining claims $ 74,800 $ 1,000,300
Equipment 5,166 37,500
Mine development costs 32,634 32,634
Acquisition in progress 4,000 300,000
Impairment reserve (65,674) (1,328,674)
--------- -----------
Total $ 50,926 $ 41,760
========= ===========
The Company has not completed or updated the necessary reserve studies
to determine the metal content of the reserves and the related future
production costs which affect the recoverability of the capitalized
costs. In addition, the Company's going concern problem, lack of
capital and other factors led management to recognize an impairment
reserve to reduce the carrying value to management's estimate of the
amount recoverable upon ultimate disposition. The Company intends to
continue to hold and use the impaired assets.
-19-
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
5. INCOME TAXES
Provisions for income taxes are as follows:
2000 1999 1998
------------ ------------ ------------
(in thousands)
Current:
Federal $ - $ - $ -
State - - -
------------ ------------ ------------
$ - $ - $ -
============ ============ ============
Deferred:
Federal $ - $ - $ -
State - - -
------------ ------------ ------------
$ - $ - $ -
============ ============ ============
Income taxes differed from the amounts computed by applying the U.S.
federal tax rate as a result of the following:
2000 1999 1998
------- ------- -------
(in thousands)
Computed "expected" tax expense
(benefit) $ (160) $ 81 $ (169)
State income taxes net of federal
benefit -- -- --
Increase(Decrease) in valuation
allowance for deferred tax assets 294 (81) 169
Other (134) -- --
------- ------- -------
Actual income tax expense $ -- $ -- $ --
======= ======= =======
-20-
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
5. INCOME TAXES (continued)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities are presented below:
2000 1999
-------- --------
(in thousands)
Deferred tax liabilities:
Property, plant and equipment $ 122 $ 122
Other -- --
-------- --------
Total deferred tax liabilities 122 122
-------- --------
Deferred tax assets:
Unrealized loss on securities 152 18
Net operating losses 550 390
Other 1 1
-------- --------
Total deferred tax assets 703 409
-------- --------
Valuation allowance (581) (287)
-------- --------
Net deferred tax assets 122 122
-------- --------
Net deferred tax asset (liability) $ -- $ --
======== ========
A valuation allowance is required when it is more likely than not that all
or a portion of the deferred tax assets will not be realized. The ultimate
realization of the deferred tax assets is dependent upon future
profitability. Accordingly, a valuation allowance has been established to
reduce the deferred tax assets to a level which, more likely than not, will
be realized.
The Company has net operating loss (NOL) carryforwards to offset its
earnings of approximately $2,199,000. If not previously utilized, the net
operating losses will expire in varying amounts from 2011 to 2014.
Due to recurring losses and a lack of funding the Company has not been
filing its tax returns. Provisions for current and deferred taxes are
estimated using known facts. Any differences from actual cannot be
determined.
-21-
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
6. NOTES PAYABLE
2000 1999
-------- --------
H. N. Corporation, promissory note,
dated January 20, 1998, principal
due on demand plus interest
at 9% $ 39,500 $107,500
Gary S. Williky, promissory note,
dated November 24, 1997, principal
due on demand plus interest
at 9% 40,000 40,000
Thomas J. Patrick, promissory note,
dated December 18, 1997, principal
due on demand plus interest
at 9% 40,000 40,000
-------- --------
Total 119,500 187,500
Less: current portion 119,500 187,500
-------- --------
Long-term notes payable $ -- $ --
======== ========
During the year, the Company issued its restricted common stock to extend
due dates and partially satisfy principal and accrued interest. However,
the notes payable are currently in default. The Company is currently
negotiating with the parties to extend or renew notes payable.
7. NOTES PAYABLE - RELATED PARTY
2000 1999
-------- --------
Officer - 10.0% demand note $111,845 $ 64,295
Officer - 7.5% demand note 186,353 186,353
Officer - 9.0% demand note 446,349 446,349
-------- --------
$744,547 $696,997
======== ========
-22-
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
8. RELATED PARTY TRANSACTIONS
The Company has entered into transactions with its chief executive officer,
Jeffrey T. Wilson. The Company has been accruing an annual salary of
$125,000 for Mr. Wilson. The Company, from time to time, has also entered
into loans with its directors, stockholders and related companies (See
Notes 3 and 7).
These transactions were consummated on terms equivalent to those that
prevail in arm's length transactions.
9. LITIGATION, COMMITMENTS AND CONTINGENCIES
Contingencies
The Company is a named defendant in lawsuits, is a party in governmental
proceedings, and is subject to claims of third parties from time to time
arising in the ordinary course of business. While the outcome of lawsuits
or other proceedings and claims against the Company cannot be predicted
with certainty, management does not expect these matters to have a material
adverse effect on the financial position of the Company.
Commitments
See Notes 13 and 17.
10. BUSINESS SEGMENTS
The Company's operations involve mining and environmental operations. The
following table sets forth information with respect to the industry
segments of the Company.
2000 1999 1998
-------- -------- --------
Revenues: (in thousands)
Mining $ -- $ -- $ --
Environmental -- 54 --
Other -- 61 --
-------- -------- --------
Total revenues $ -- $ 115 $ --
======== ======== ========
-23-
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
10. BUSINESS SEGMENTS
2000 1999 1998
------ ------ ------
(in thousands)
Identifiable assets:
Mining $ 46 $ 41 $1,370
Environmental 4 5 --
Other 1,377 1,902 579
------ ------ ------
$1,427 $1,948 $1,949
====== ====== ======
Depreciation and depletion:
Mining $ -- $ -- $ --
Environmental 1 10 --
------ ------ ------
$ 1 $ 10 $ --
====== ====== ======
11. INVESTMENTS
Unrealized Unrealized Carrying
Cost Gains Losses Value
---------- -------- ---------- ----------
Investment in equity
securities:
July 31, 2000:
Available for sale
(marked to market) $1,824,377 $ -- $ (607,395) $1,216,982
July 31, 1999:
Available for sale
(marked to market) $1,824,377 $ -- $ (70,168) $1,754,209
Investments consist of 5,481,901 shares of Comanche Energy (CMCY), valued
less 20% marketability and 20% large block discounts.
-24-
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
12. WARRANTS
During the year 716,666 warrants were exercised at $.19 per share in
exchange for notes receivable of $138,713. Currently, the Company has
250,000 warrants, exercisable at $.25, outstanding. These warrants expire
November 3, 2002.
13. GOLD CERTIFICATE INCOME
The Company has entered into agreements with Financial Surety International
LTD whereby the Company would issue Gold Dore Certificates to third parties
in exchange for a leasing fee of 1.25% of the certificate face value. The
third party lessee uses the certificates as collateral in order to obtain
venture capital financing. These Gold Dore Certificates specify the
delivery of a specified amount of gold at a future date, usually 5 years,
for sale to the holder at the market price on that date. Performance is
insured by contract with Merrion Reinsurance Corporation LTD. Upon
expiration of the lease period, the certificates are returned to the
Company and are canceled.
The Company pays a 10% finders fee to a consultant in connection with each
certificate issued. During the year ended July 31, 1998, the Company had
$209,996 of Gold Certificate Income, less finders fees of $21,000 for net
Gold Certificate Income of $188,996.
14. ACQUISITION IN PROGRESS
The Company is currently negotiating to acquire mining claims in New
Mexico.
15. LEASE OBLIGATIONS
The Company has a noncancelable operating lease agreement for office space.
Total rental expense was $24,128, $22,117 and $20,927 in 2000, 1999 and
1998, respectively. The Company currently operates under month-to-month
terms and subleases part of its office space.
-25-
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
16. GAIN ON SALE OF ASSETS
During the year ended July 31, 1999 the Company acquired a 90% interest in
Oil City Petroleum in exchange for 1,972,266 shares of its restricted
common stock. All of Oil City's assets were then sold to Comanche Energy,
resulting in the Company receiving 5,481,901 restricted shares of Comanche
Energy common stock (Note 11). This transaction resulted in a gain of
$1,289,923.
The acquisition of Oil City would have qualified as a pooling of interests
acquisition. However, because of the divesture of this subsidiary prior to
year end, no pooling of assets, liabilities, stockholder's equity or
results of operations is included in these financial statements.
17. UNEARNED REVENUE
The Company has received advances for future delivery of silica ore. Total
advances as of July 31, 2000 and 1999 were $6,918 and $297,441,
respectively. The Company's commitments under these agreements mature as
follows for the years ended July 31:
2001 $ --
2002 $ 59,488
2003 $ 107,079
2004 $ 107,079
2005 $ 30,713
Thereafter $ --
The Company has allowed its silica ore mining claims to lapse, resulting in
the default of these agreements.
-26-
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
18. ACCRUED EXPENSES
The Company has accrued expenses as of July 31 as follows:
2000 1999
-------- --------
Accrued officer salary - CEO $565,008 $440,008
Accrued interest on notes 117,364 116,379
Accrued damage award (Note 19) 70,988 --
Accrued rent 2,100 2,100
-------- --------
$755,460 $558,487
======== ========
During the year ended July 31, 2000 the Company issued 70,988 shares of its
restricted common stock to pay accrued interest and extend maturities of
notes payable.
19. SUBSEQUENT EVENTS
Subsequent to year end, the Company's investment in 5,481,901 shares of
Comanche Energy common stock has decreased in value.
On September 7, 2000, John P. Byrne received a Judgement Award in Tulsa
County against the Company in the amount of $63,602 plus attorneys' fees in
the amount of $5,850 and interest of $1,535. Byrne's claim stemmed from a
note payable of Wexford Technology, Inc., an affiliate of the Company, that
Byrne successfully claimed against Imperial. This amount was accrued for at
July 31, 2000 (See Note 18).
On October 19, 2000 the Company entered into an agreement to sell 5,231,901
shares of the common stock of Comanche Energy, Inc. to Ravello Capital, LLC
for $523,190 in cash. Ravello was to pay a total $74,800 in cash to Byrne
in satisfaction of its jugement and the balance was to be paid to Imperial.
Under the terms of the Agreement, Imperial obtained and delivered the
release of Byrne in connection with the payments of its judgement by
Ravello and delivered the stock certificates to be purchased by Ravello
against payment that was to be made by Ravello to Imperial within three
business days. Ravello did not pay Imperial. Imperial placed a "stop
transfer" hold on the balance of the shares not paid for by Ravello and has
filed suit against Ravello in Federal Court to terminate the balance of the
transaction and retrieve its certificates. Under the terms of the
transaction, Ravello paid a total of $74,800 to Byrne and the Company
believes that Ravello is only entitled to receive 748,000 shares of the
Comanche stock.
-27-
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
19. SUBSEQUENT EVENTS (continued)
On October 12, 2000 the Company acquired a no-cost option to purchase
42,300 acres of lease in southeastern Indiana from Deka Exploration, Inc.
Under the terms of the Agreement, the Company, at its election, can
participate in the completion of the initial two wells and drill a total of
five additional wells prior to making its election to purchase the acreage.
The Company would own a total working interest of 85% upon its election to
continue with the project and would be required to pay acreage costs of $10
per acre. The program is scheduled to begin in April 2001.
-28-